20-F

As filed with the Securities and Exchange Commission on June 25, 2004

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 20-F

ANNUAL REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission file number 1-14926

KT Corporation

(Exact name of Registrant as specified in its charter)

The Republic of Korea

(Jurisdiction of incorporation or organization)

206 Jungja-dong

Bundang-ku, Sungnam

Gyunggi-do

463-711 Korea

(Address of principal executive offices)

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 Won 5,000 per share	New York Stock Exchange, Inc.*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

$150,000,000 7 ¹/2% Notes due 2006

$200,000,000 7 ⁵/8% Notes due 2007

$1,210,050,000 0.25% Convertible Notes due 2007

$500,000,000 4.30% Bonds due 2005

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

210,758,426 shares of Common Stock, par value Won 5,000 per share

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.    x  Yes    ¨  No

Indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    x  Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ¨  Yes    ¨  No

* 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 ADVISORS		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 3.	KEY INFORMATION		1
	Item 3.A.	Selected Financial Data	1
	Item 3.B.	Capitalization and Indebtedness	5
	Item 3.C.	Reasons for Offer and Use of Proceeds	5
	Item 3.D.	Risk Factors	5
ITEM 4.	INFORMATION ON THE COMPANY		13
	Item 4.A.	History and Development of the Company	13
	Item 4.B.	Business Overview	14
	Item 4.C.	Organizational Structure	43
	Item 4.D.	Property, Plants and Equipment	43
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		45
	Item 5.A.	Operating Results	53
	Item 5.B.	Liquidity and Capital Resources	61
	Item 5.C.	Research and Development, Patents, Licenses, Etc.	67
	Item 5.D.	Trend Information	67
	Item 5.E.	Off-balance Sheet Arrangements	67
	Item 5.F.	Tabular Disclosure of Contractual Obligations	67
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		68
	Item 6.A.	Directors and Senior Management	68
	Item 6.B.	Compensation	70
	Item 6.C.	Board Practices	71
	Item 6.D.	Employees	73
	Item 6.E.	Share Ownership	75
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		76
	Item 7.A.	Major Shareholders	76
	Item 7.B.	Related Party Transactions	76
	Item 7.C.	Interests of Experts and Counsel	76
ITEM 8.	FINANCIAL INFORMATION		76
	Item 8.A.	Consolidated Statements and Other Financial Information	76
	Item 8.B.	Significant Changes	79

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TABLE OF CONTENTS

			Page
ITEM 9.	THE OFFER AND LISTING		79
	Item 9.A.	Offer and Listing Details	79
	Item 9.B.	Plan of Distribution	79
	Item 9.C.	Markets	80
	Item 9.D.	Selling Shareholders	85
	Item 9.E.	Dilution	86
	Item 9.F.	Expenses of the Issuer	86
ITEM 10.	ADDITIONAL INFORMATION		86
	Item 10.A.	Share Capital	86
	Item 10.B.	Memorandum and Articles of Association	86
	Item 10.C.	Material Contracts	91
	Item 10.D.	Exchange Controls	91
	Item 10.E.	Taxation	95
	Item 10.F.	Dividends and Paying Agents	104
	Item 10.G.	Statements by Experts	104
	Item 10.H.	Documents on Display	104
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		104
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		107
PART II			116
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		116
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		116
ITEM 15.	CONTROLS AND PROCEDURES		116
ITEM 16.A.	AUDIT COMMITTEE FINANCIAL EXPERT		116
ITEM 16.B.	CODE OF ETHICS		116
ITEM 16.C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		117
ITEM 16.D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		117
ITEM 16.E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		117
PART III			118
ITEM 17.	FINANCIAL STATEMENTS		118
ITEM 18.	FINANCIAL STATEMENTS		118
ITEM 19.	EXHIBITS		119

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GLOSSARY

All references to “Korea” or the “Republic” contained in this annual report mean the Republic of Korea. All references to the “Government” mean the government of the Republic of Korea. All references to “we”, “us” or the “Company” mean KT Corporation and, as the context may require, its subsidiaries.

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All references to “Won” or “(Won)” 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.

Unless otherwise indicated, translations of Won amounts into Dollars in this annual report were made at the noon buying rate in The City of New York for cable transfers in Won per US$1.00 as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translations of Won into Dollars were made at the noon buying rate in effect on December 31, 2003, which was Won 1,192.0 to US$1.00.

PART I

Item 1. Identity of Directors, Senior Managers and Advisors

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

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, 2002 and 2003 and for each of the years in the three-year period ended December 31, 2003 and the report of independent registered public accounting firm on these statements included herein. The selected consolidated financial data for the five years ended December 31, 2003 are derived from our audited consolidated financial statements.

Our Consolidated Financial Statements are prepared in accordance with Korean GAAP, which differ in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). See Note 34 to the Consolidated Financial Statements for a description of the nature and the effects of such differences.

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Income Statement Data

	Year Ended December 31,
	1999		2000		2001		2002		2003		2003
	(in billions of Won and millions of Dollars, except per share data)
Korean GAAP(1):
Operating revenues	(Won)	11,786	(Won)	13,538	(Won)	15,978	(Won)	16,437	(Won)	16,068	US$	13,480
Operating expenses		11,029		12,487		14,002		14,056		14,245		11,951
Operating income		757		1,051		1,976		2,382		1,822		1,529
Donations and contribution payments(2)		182		145		157		145		182		154
Gain on disposition of available-for-sale securities(3)		124		941		628		1,177		772		648
Income taxes(4)		46		551		421		741		524		439
Net earnings		383		986		1,113		1,947		822		689
Basic earnings per share(5)		1,268		3,165		3,576		7,504		3,802		3.19
Diluted earnings per share(6)		1,268		3,165		3,576		6,601		3,313		2.78
Dividends per share(7)		294		511		720		860		2,000		1.68
U.S. GAAP(8):
Operating revenues	(Won)	9,890	(Won)	10,512	(Won)	11,588	(Won)	11,508	(Won)	11,776	US$	9,879
Operating income		434		613		1,146		1,197		377		316
Net earnings		475		701		1,006		1,556		395		331
Basic earnings per share(5)		1,573		2,251		3,233		5,998		1,831		1.54
Basic earnings per share before cumulative effect of accounting change(5)		1,573		2,966		3,233		5,998		1,831		1.54
Diluted earnings per share(6)		1,573		2,251		3,233		4,972		1,655		1.39
Diluted earnings per share before cumulative effect of accounting change(6)		1,573		2,966		3,233		4,972		1,655		1.39

Balance Sheet Data

	Year Ended December 31,
	1999			2000			2001			2002		2003			2003
	(in billions of Won and millions of Dollars)
Korean GAAP(1):
Working capital(9)	(Won)	(927	)	(Won)	(3,252	)	(Won)	(331	)	(Won)	499	(Won)	(1,184	)	US$	(993	)
Net property, plants and equipment		14,218			17,435			17,139			16,853		16,374			13,737
Total assets		26,347			28,393			30,012			29,050		25,557			21,440
Long-term debt(10)		2,964			5,319			6,513			9,877		9,050			7,592
Refundable deposits for telephone installation(11)		3,228			3,040			2,349			1,534		1,227			1,030
Total stockholders’ equity		14,382			12,370			13,759			9,833		8,397			7,044
U.S. GAAP(8):
Net property, plants and equipment		12,743			13,600			12,804			11,995		11,515		US$	9,661
Total assets		22,828			23,066			22,856			21,737		19,532			16,386
Total stockholders’ equity		12,158			10,637			11,189			7,270		5,890			4,942

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Operating Data

	As of December 31,
	1999	2000	2001	2002	2003
	(Unaudited)
Lines installed (thousands)(12)	24,464	24,383	24,854	25,062	25,202
Lines in service (thousands)(12)	21,192	21,525	21,898	22,327	21,841
Lines in service per 100 inhabitants(13)	43.8	44.1	44.9	46.8	45.6
Lines in service per employee(12)(14)	446	473	497	511	580
PCS subscribers (thousands)(15)	4,268	8,416	9,591	10,333	10,442
Broadband Internet subscribers (thousands)	14	1,729	3,858	4,922	5,589

Other Financial Data

	Year Ended December 31,
	1999			2000			2001			2002			2003			2003
	(in billions of Won and millions of Dollars)
Korean GAAP(1):
Net cash provided by operating activities	(Won)	2,927		(Won)	2,651		(Won)	3,629		(Won)	4,827		(Won)	3,190		US$	2,677
Net cash used in investing activities		(3,355	)		(5,486	)		(3,916	)		(4,065	)		(1,481	)		(1,242	)
Net cash provided by (used in) financing activities		580			2,842			755			(844	)		(2,065	)		(1,733	)
U.S. GAAP(8):
Net cash provided by operating activities	(Won)	2,246		(Won)	2,196		(Won)	2,317		(Won)	2,973		(Won)	2,174		US$	1,824
Net cash used in investing activities		(3,349	)		(4,651	)		(2,443	)		(2,639	)		(1,654	)		(1,388	)
Net cash provided by (used in) financing activities		1,256			2,450			299			(254	)		(691	)		(579	)

Other data in accordance with U.S. GAAP-transitional disclosures of SFAS No. 142⁽¹⁶⁾

	Years Ended December 31,
	2001		2002		2003		2003
	(in billions of Won, except per share data)
Net earnings	(Won)	1,006	(Won)	1,556	(Won)	395	US$	331
Add back: goodwill amortization		3		—		—		—
Add back: goodwill amortization related to equity investee		114		—		—		—
Adjusted net earnings	(Won)	1,123	(Won)	1,556	(Won)	395	US$	331
Basic earnings per share	(Won)	3,233	(Won)	5,998	(Won)	1,831	US$	1.54
Add back: goodwill amortization		11		—		—		—
Add back: goodwill amortization related to equity investee		365		—		—		—
Adjusted basic earnings per share	(Won)	3,609	(Won)	5,998	(Won)	1,831	US$	1.54
Basic earnings per share before cumulative effect of accounting change	(Won)	3,233	(Won)	4,972	(Won)	1,655	US$	1.39
Add back: goodwill amortization		11		—		—		—
Add back: goodwill amortization related to equity investee		365		—		—		—
Adjusted basic earnings per share before cumulative effect of accounting change	(Won)	3,609	(Won)	4,972	(Won)	1,655	US$	1.39

(1) During 1999 and 2000, we changed, among others, our method of depreciation for certain property, plants and equipment, accounting for certain foreign currency translation gains and losses, accounting for

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interconnection charges, accounting for prior period adjustments, accounting for deferred charges, accounting for income taxes, accounting for losses on the sale of PCS handsets and accounting for consolidation. Effective January 1, 2003, we adopted Statements of Korea Accounting Standards (“SKAS”) No. 2 through No. 9. In accordance with these standards, the cumulative effects on prior years were adjusted to the beginning balance of retained earnings. In addition, certain accounts of the prior year consolidated financial statements were reclassified to conform to the current year’s presentation. See Note 2(a) to the Consolidated Financial 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. See Note 30 to the Consolidated Financial Statements.

(3) Includes a gain of Won 921 billion in 2000 as a result of our disposition of 2,943,627 shares of SK Telecom to the major shareholders of Hansol M.com in connection with our acquisition of a 47.9% interest in Hansol M.com, a gain of Won 616 billion in 2001 as a result of our disposition of 2,674,580 shares of SK Telecom, a gain of Won 1,154 billion in 2002 as a result of our disposition of 5,457,635 shares of SK Telecom and a gain of Won 776 billion in 2003 as a result of our disposition of 3,809,288 shares of SK Telecom. See Note 8(b) to the Consolidated Financial Statements.

(4) Includes deferred tax expense of Won 233 billion in 2000 related to the write-off of deferred income tax assets of KT M.com due to KT M.com’s conclusion in December 2000 that it was not likely that KT M.com would be able to realize the tax benefit of KT M.com’s loss carryforward. Includes impairment of deferred tax asset of Won 134 billion due to our conclusion in 2003 that we would not be able to realize the tax benefit of our equity in losses of affiliates. See Note 25 to the Consolidated Financial Statements.

(5) 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 outstanding during the period was 311,276 thousand for 2001, 259,450 thousand for 2002 and 216,106 thousand for 2003.

(6) 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 shares outstanding was 311,276 thousand for 2001, 300,097 thousand for 2002 and 263,556 thousand for 2003. (Under U.S. GAAP, 311,276 thousand for 2001, 300,097 thousand for 2002 and 241,291 thousand for 2003.)

(7) Dividends paid on a per share basis for shares owned by the Government differ from dividends paid on a per share basis to all the other shareholders. The Government completed the disposition of its ownership interest in us in May 2002. The calculation of dividends per share represents the weighted average dividends paid per share.

(8) See Note 34 to the Consolidated Financial Statements for reconciliation to U.S. GAAP.

(9) “Working capital” means current assets minus current liabilities.

(10) Excluding current portion.

(11) See “Item 5. Operating and Financial Review and Prospects—Item 5.A. Operating Results—Changes in the Telephone Installation Charge System”, “Item 5. Operating and Financial Review and Prospects—Item 5.B. Liquidity and Capital Resources—Capital Resources” and Note 15 to the Consolidated Financial Statements for a discussion of changes in the telephone installation charge system.

(12) Including public telephones.

(13) Excluding public telephones.

(14) Excluding employees of our subsidiaries.

(15) Includes subscribers of KT Freetel and resale subscribers of KT Corporation and as of December 31, 2000, subscribers of KT M.com. In June and October 2000, we acquired a 47.9% interest in KT M.com. KT M.com merged into KT Freetel on May 1, 2001. We currently hold a 48.1% effective interest in KT Freetel. As of December 31, 2001, KT Freetel had approximately 8.4 million subscribers and KT Corporation had approximately 1.1 million resale subscribers. As of December 31, 2002, KT Freetel had approximately 8.9 million subscribers and KT Corporation had approximately 1.4 million resale subscribers. As of

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December 31, 2003, KT Freetel had approximately 8.9 million subscribers and KT Corporation had approximately 1.6 million resale subscribers.

(16) Effective January 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No.142 requires that goodwill and indefinite-lived intangible assets no longer be amortized, but instead be tested for impairment at least annually. This table presents net income and earnings per share amounts on an adjusted basis to exclude the amortization of goodwill, and reconciles such adjusted amounts to net income and earnings per share presented in our condensed U.S. GAAP financial statements.

Exchange Rate Information

The following table sets out information concerning the noon buying rate for the periods and dates indicated.

Period	At End of Period	Average Rate(1)	High	Low
	(per US$1.00)
1999	1,136.0	1,188.2	1,243.0	1,125.0
2000	1,267.0	1,140.0	1,267.0	1,105.5
2001	1,313.5	1,293.4	1,369.0	1,234.0
2002	1,186.3	1,242.0	1,332.0	1,160.6
2003	1,192.0	1,183.0	1,262.0	1,146.0
November	1,202.1	1,186.4	1,203.0	1,171.0
December	1,192.0	1,192.3	1,200.0	1,183.0
2004 (through June 24)	1,156.0	1,165.7	1,195.1	1,141.4
January	1,174.0	1,183.3	1,195.1	1,172.0
February	1,179.0	1,167.5	1,180.0	1,152.2
March	1,146.7	1,166.3	1,181.0	1,146.7
April	1,173.6	1,152.9	1,173.6	1,141.4
May	1,165.0	1,177.9	1,191.0	1,165.0
June (through June 24)	1,156.0	1,160.4	1,164.8	1,155.0

Source: Federal Reserve Bank of New York.

(1) The average rate for each full year is calculated as the average of the noon buying 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 noon buying rates on each business day during the relevant month (or portion thereof).

We have translated the Won amounts into Dollars in this annual report solely for your convenience. 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 Offer and Use of Proceeds

Not applicable.

Item 3.D. Risk Factors

You should carefully consider the following factors.

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. We expect the number and the identity of service providers in the

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market to continue to change. Future business combinations and alliances in the telecommunications industry may create significant new competitors. In addition, advances in technology as well as changes in the regulatory environment are also 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. DACOM Corporation became the second provider of international long-distance service in December 1991 and of domestic long-distance service in January 1996. Onse Telecom Corp. also began offering international long-distance service in October 1997 and domestic long-distance service in December 1999. In April 1999, Hanaro Telecom, Inc. became the second provider of local telephone service in Korea and obtained licenses in January 2003 to offer international long-distance service and domestic long-distance service and will expect to offer these services in July 2004. In addition, SK Telink obtained a license in June 2003 to offer international long-distance service and began offering this service in November 2003. 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. Demand for international long-distance services offered by specific service providers has grown rapidly since the launch of their services.

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 cannot give assurance that we will be able to maintain our share of these businesses at or above current levels. Many of our competitors offer lower rates than we do for similar services. For example, although Hanaro’s and our local usage charges are the same at Won 39 per pulse (generally three minutes), Hanaro’s customers pay a non-refundable telephone installation charge of up to Won 30,000, while our customers pay Won 60,000, and Hanaro’s customers pay a basic monthly charge of up to Won 4,500, while our customers pay up to Won 5,200, depending on location. In addition, the Ministry of Information and Communication announced in October 2002 that it would allow local fixed-line telephone service subscribers to choose a competing local telephone service provider while retaining the same phone number. Local number portability has been implemented in certain regions starting in June 30, 2003 and will be implemented in Pusan in July 2004 and in Seoul in August 2004. As of April 30, 2004, 42,678 of our subscribers switched to Hanaro, which represents 0.2% of our total subscribers, and 209 of Hanaro’s subscribers switched to us. Local number portability may allow Hanaro to compete more effectively for our existing customers and may have a material adverse effect on our number of subscribers and on our results of operations.

Mobile Telecommunications Services

KT Freetel, our consolidated subsidiary in which we currently own a 48.1% effective interest, provides PCS service, a type of mobile telecommunications service based on Code Division Multiple Access (“CDMA”) technology utilizing the 1,800 MHz frequency, in Korea. Competitors in the mobile telecommunications service industry are cellular service provider SK Telecom and PCS service provider LG Telecom. KT Freetel (including 2.1 million resale subscribers of KT Corporation) had a market share of 32.4% as of April 30, 2004 based on the total number of mobile service subscribers in Korea, making KT Freetel the second largest mobile telecommunications service provider. SK Telecom had a market share of 52.0% as of April 30, 2004.

In January 2003, the Ministry of Information and Communication announced its plan to implement mobile number portability, which would allow mobile telephone service subscribers to switch their mobile service provider while retaining the same mobile phone number. Subscribers who switch service providers may return to the original service provider without paying any penalty within 14 days of the switch. Mobile number portability has been allowed to subscribers of SK Telecom starting in January 2004 and will be allowed to subscribers of KT Freetel and LG Telecom starting July 2004 and January 2005, respectively. Following the implementation of

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mobile number portability, 553,275 of SK Telecom’s subscribers switched to KT Freetel from January 1, 2004 to April 30, 2004. We expect some of KT Freetel’s current subscribers to switch to SK Telecom and LG Telecom when KT Freetel’s subscribers are able to transfer their existing mobile numbers starting July 1, 2004. The Ministry of Information and Communication also announced that starting in January 2004, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number would be given the uniform mobile code of “010” as the first three digits of their mobile numbers without regard to the mobile service provider. The Ministry of Information and Communication is planning to implement the uniform mobile code to all mobile numbers by 2007. Mobile number portability and uniform mobile code may allow SK Telecom and LG Telecom to compete more effectively for KT Freetel’s existing and future customers and may have a material adverse effect on the number of subscribers of KT Freetel and on our results of operations.

On June 15, 2004, the Ministry of Information and Communication announced a temporary restriction on mobile service providers from obtaining new subscribers and us from obtaining new resale subscribers as penalties for providing illegal handset subsidies. The restriction will apply to LG Telecom from June 21, 2004 to July 20, 2004, KT Freetel from July 21, 2004 to August 19, 2004, KT Corporation from July 21, 2004 to August 9, 2004 and SK Telecom from August 20, 2004 to September 28, 2004. The temporary ban may have a material adverse effect on our results of operations.

On March 6, 2003, KT ICOM, a company created by a consortium of companies including KT Corporation and KT Freetel to offer W-CDMA-based IMT-2000 services, merged into KT Freetel in a stock-for-stock transaction. IMT-2000 is a third-generation, high-capacity wireless communications technology, which when implemented, is expected to allow operators to provide to their customers significantly more bandwidth capacity. Although we expect that our competitors will face similar challenges that we expect to face in implementing third-generation technology, we cannot assure you that KT Freetel will be able to successfully compete with other third generation service providers. KT Freetel’s inability to compete effectively with third-generation service providers could have a material adverse effect on its financial condition and results of operations. See “—Implementation of IMT-2000 technology poses significant challenges and risks to us”.

Broadband and Internet-Related Services

The Korean broadband Internet access service market has experienced significant growth over the last four years since Korea Thrunet first introduced its Hybrid Fiber Coaxial (or HFC) based service in July 1998. Hanaro Telecom entered the broadband market in April 1999 offering both HFC and Asymmetric Digital Subscriber Line (or ADSL) services. We began offering broadband Internet access service in June 1999. Dreamline and DACOM followed and introduced their services in late 1999 and early 2000, and numerous cable television operators have also begun HFC-based services. 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. We had a market share of 50.6% as of April 30, 2004 based on the number of subscribers in Korea. Our inability to compete effectively with our competitors could have a material adverse effect on our business.

The market for Internet-related services in Korea is 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 drawn many competitors and as a result may lead to increasing price competition to provide Internet-related services. Recently, cable television providers began offering HFC-based broadband Internet access services at rates lower than ours. Increased competition in the Internet industry could have a material adverse effect on the number of subscribers of our broadband Internet access service and on our results of operations.

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WTO Agreement

Under the multilateral agreement on basic telecommunications services among the members of the World Trade Organization effective November 1997 (the “WTO Agreement”), the Government of Korea has agreed to gradually reduce the restrictions on foreign and individual shareholdings in KT Corporation and other network service providers in Korea. The relevant Korean law was amended to give effect to the provisions of the WTO Agreement. See “Item 4. Information on the Company—Item 4.B. Business Overview—Regulation—Foreign Investment”. While the WTO Agreement enables us to seek foreign investors and strategic partners and to more easily take advantage of opportunities for investments in overseas telecommunications projects, it may also benefit our competitors and further intensify competition in the domestic market.

Implementation of the IMT-2000 technology poses challenges and risks to us.

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 KT Freetel. In March 2001, KT ICOM, a company created by the consortium to offer IMT-2000 services, paid half of the Won 1.3 trillion license fee payable to the Ministry of Information and Communication. KT ICOM subsequently merged into KT Freetel on March 6, 2003 in a stock-for-stock transaction. KT Freetel will pay the remaining Won 650 billion over a period of five years starting in 2007 as follows: Won 90 billion in 2007, Won 110 billion in 2008, Won 130 billion in 2009, Won 150 billion in 2010 and Won 170 billion in 2011. The Ministry of Information and Communication also charges interest rates of three-year Government bonds minus 0.75% on these amounts until they are paid, which are currently accruing.

As a condition to the merger, KT Freetel was required to offer its IMT-2000 services with limited coverage by the end of 2003. Accordingly, KT Freetel began test service of its IMT-2000 services in metropolitan Seoul and parts of Gyunggi Province in December 2003. Although KT Freetel is planning to offer IMT-2000 services in 45 cities by December 2005, KT Freetel and its competitors may delay the nationwide roll-out of third-generation services if there are unfavorable market conditions and weak service demand. Several telecommunications service providers in Europe have already announced delays in the roll-out of their third-generation services as a result of technological difficulties and unfavorable market conditions. In the event consumer demand for IMT-2000 services does not meet our expectations, we may attempt to renegotiate the terms of the license with the Government. However, there can be no assurance that the Government will agree to adjust the license fee already paid by KT ICOM as well as future license fee payments to be made by KT Freetel.

IMT-2000 presents risks and challenges to our business, any or all of which if realized or not addressed may have a material adverse effect on our financial condition and results of operations. Specifically, IMT-2000 is a new and developing technology. New content, solutions and network must be developed for IMT-2000. We expect KT Freetel to leverage its existing PCS network and 2.5-generation technology to minimize its capital expenditures and other costs related to developing IMT-2000 services. However, we believe KT Freetel will still require significant amounts of research and development and capital expenditures to build out its IMT-2000 network. No assurance can be given that the content, solutions and network will be developed in a timely and efficient manner by us or third parties, or if developed will gain market acceptance such that KT Freetel will be able to derive revenues from IMT-2000 services to justify the Won 1.3 trillion license fee, capital expenditures and other investments required for such service.

Disputes with our labor union may disrupt our business operations.

Our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base have met with opposition from our labor union. In May 2001, certain members of our labor union held protests in our headquarters opposing our strategy of restructuring unprofitable businesses, including 114 phone directory services, and the layoffs resulting from such strategy. In 2002 and 2003, we did not have any significant labor disputes and unrests. However, there can be no assurance that we will not experience in the future labor disputes and unrests, including expanded protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.

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We also negotiate wage agreements with our labor union on an annual basis. Our latest round of negotiation was in August 2003. Although we have been able to reach wage agreements with our labor union in recent years, there can be no assurance that we will not experience in the future labor disputes and unrests resulting from disagreement in our annual wage negotiation with the labor union.

The Korean telecommunications industry has been subject to the Government’s regulation and change in Government policy relating to the industry could have a material adverse effect on our operations and financial condition.

The Government, primarily through the Ministry of Information and Communication, has authority to regulate the telecommunications industry. The Ministry of Information and Communication’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. The Ministry of Information and Communication, in consultation with the Ministry of Finance and Economy, approves local service rates charged by us and mobile service rates charged by SK Telecom. 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 Ministry of Information and Communication, it must obtain prior approval from the Ministry of Information and Communication for the rates and the general terms for that service. Each year the Ministry of Information and Communication designates service providers the rates and the general terms of which must be approved by the Ministry of Information and Communication. In the past five years, the Ministry of Information and Communication has so designated us for local telephone service and SK Telecom for mobile service. The inability to freely set our local telephone service rates may hurt the profit from that business 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 Ministry of Information and Communication. The Ministry of Information and Communication currently does not regulate our domestic long-distance, international long-distance, broadband Internet access and mobile service rates.

Starting April 2002, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This policy, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This policy requires us to lease to other companies from time to time the portion of our fixed lines that represent our excess capacity at rates that will be determined by the Ministry of Information and Communication based on our cost, and taking into consideration an appropriate rate of return, to enable our competitors to provide fixed-line voice and broadband services. Local loop unbundling may have a material adverse effect on our number of subscribers and on our results of operations.

In October 2002, the Ministry of Information and Communication announced that it would allow local fixed-line telephone service subscribers to choose a competing local telephone service provider while retaining the same phone number, followed by another plan in January 2003 to implement mobile number portability, which would allow mobile telephone service subscribers to switch their mobile service provider while retaining the same mobile phone number. The Ministry of Information and Communication also announced that starting in January 2004, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number would be given the uniform mobile code of “010” as the first three digits of their mobile numbers without regard to the mobile service provider. The Ministry of Information and Communication is planning to implement the uniform mobile code to all mobile numbers by 2007. See “—Increased competition in Korea has had and may continue to have an adverse effect on our results of operations and financial condition”.

Government policies and regulations relating to the above as well as other regulations involving the telecommunications industry (including regulation imposed on us as a dominant service provider) 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” and “Item 4. Information on the Company—Item 4.B. Business Overview—Relationship with the Government”.

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We are subject to various regulations under the Monopoly Regulation and Fair Trade Act.

Monopoly Regulation and Fair Trade Act provides for various regulations and restrictions on large business groups enforced by the Fair Trade Commission. Previously, we were not regulated as a large business group under the Monopoly Regulation and Fair Trade Act due to the Government’s ownership (including Government invested enterprises and The Korea Development Bank) of greater than 30% of our issued shares. The 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 limiting, among other things, the gross amount of investments, cross guarantees of debt and cross shareholdings by members of a business group.

If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected.

We are incorporated in Korea, and substantially all of our operations and assets are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea.

From 1997 to 1999, Korea experienced a significant financial and economic downturn, from which it is widely believed the country has recovered to a large extent. Although the Korean economy began to recover since 1999, the pace of the recovery has since slowed and has been volatile. The economic indicators in 2001, 2002 and 2003 have shown mixed signs of recovery and uncertainty, and future recovery or growth of the economy is subject to many factors beyond our control. Events related to terrorist attacks in the United States on September 11, 2001, recent developments in the Middle East, including the war in Iraq, higher oil prices, the general weakness of the global economy and the outbreak of severe acute respiratory syndrome, or SARS, 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. Any future deterioration of the Korean and global economy could adversely affect our financial condition and results of operations.

Other developments that could hurt Korea’s economy in the future include:

• financial problems relating to chaebols (Korean conglomerates), or their suppliers, and their potential adverse impact on the Korean economy;

• failure or lack of progress in restructuring of chaebols, the financial industry and other large troubled companies;

• loss of investor confidence arising from corporate accounting irregularities and corporate governance issues at certain chaebols;

• a slowdown in consumer spending and the overall economy;

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including an increase in oil prices), exchange rates (including depreciation of the U.S. dollar or Japanese yen), interest rates and stock markets;

• deterioration of economic or market conditions in other emerging 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 that could result in a loss of confidence in the Korean economy;

• social and labor unrest;

• a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for unemployment compensation and other social programs that, together, would lead to an increased government budget deficit;

• geo-political uncertainty and risk of further attacks by terrorist groups around the world;

• deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in foreign policy;

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• a widespread recurrence of SARS;

• 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 resulting from those hostilities; and

• an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea and/or the United States.

Increased tensions with North Korea could have an adverse effect on us or the price of our securities.

Relations between Korea and North Korea have been tense over most of Korea’s history. The level of tension between the two Koreas has fluctuated and may increase or change abruptly as a result of current and future events, including ongoing contacts at the highest levels of the governments of Korea and North Korea and increasing hostility between North Korea and the United States. 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, and has reportedly resumed activity at its Yongbyon power plant. In January 2003, North Korea announced its intention to withdraw from the Nuclear Non-Proliferation Treaty, demanding that the United States sign a non-aggression pact as a condition to North Korea dismantling its nuclear program. In August 2003, representatives of Korea, the United States, North Korea, China, Japan and Russia held multilateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program. While the talks concluded without resolution, participants in the August meeting indicated that further negotiations may take place in the future and, in February 2004, six party talks resumed in Beijing, China. Any further increase in tensions, resulting for example from a break-down in contacts or an outbreak in military hostilities, could hurt our business, results of operations and financial condition and could lead to a decline in the market value 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 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. In addition, we may be required to pay cash in Dollars the aggregate market value of our common shares deliverable upon conversion of convertible notes issued in January 2002 if conversion by a foreigner results in the violation of the 49% foreign ownership limitation under the Telecommunications Business Law and such conversion becomes effectively prohibited. Of the Won 11,244 billion total long-term debt (including current portion) outstanding as of December 31, 2003, Won 3,089 billion was denominated in foreign currencies with interest rates ranging from 0.25% to 7.63%. See “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 affect the Dollar equivalent of the Won price of the shares of our common stock on the Korea Stock Exchange. These fluctuations also will affect the amounts a holder of ADSs will receive from the depositary bank in respect of:

• dividends, which will be paid in Won to the depositary bank and converted by the depositary bank into Dollars;

• the Dollar value of the proceeds which a holder will receive upon sale in Korea of the shares; and

• the secondary market price of the ADSs.

See “Item 3. Key Information—Item 3.A. Selected Financial Data—Exchange Rate Information”.

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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 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”.

Limitations on foreign ownership may have an adverse effect on the conversion of our convertible notes.

The Telecommunications Business Law limits the aggregate foreign ownership of our shares with voting rights to 49% of our total issued shares with voting rights. Such 49% foreign ownership limitation under the Telecommunications Business Law may have an adverse effect on the conversion of our convertible notes issued in January 2002. See “Item 10. Additional Information—Item 10.B. Memorandum and Articles of Association—Limitation on Shareholding”. If conversion by a foreigner results in the violation of the 49% foreign ownership limitation under the Telecommunications Business Law, such conversion may be effectively prohibited. In such an event, we will be required under the terms of the convertible notes to pay cash in U.S. Dollars the aggregate market value of our common shares deliverable upon conversion of convertible notes to the relevant holder to satisfy the conversion right. As of December 31, 2003, 45.5% of our common shares were owned by foreign investors.

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 Foreign Investment Promotion Act, a foreign shareholder who holds 5% or more of our total shares is prohibited from becoming our largest shareholder. In addition, under the Telecommunications Business Law, the Ministry of Information and Communication may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In the event that the number of common shares held by a foreign shareholder exceeds the number of common shares held by our largest domestic shareholder, the Telecommunications Business Law restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The Ministry of Information and Communication 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.

You may not be able to find trading markets for your Bonds.

The bonds are securities with no established trading market. We cannot provide any assurance as to the liquidity of, or the trading markets for, these bonds.

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. The Korea Telecom Act was repealed and we became a corporation with limited liability under the Commercial Code in 1997. 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. 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 four international long- distance carriers, three domestic long-distance carriers and two local telephone service providers in Korea. In addition, the Government has also 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. See “Item 4.B. Business Overview—Competition”.

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:

• fixed-line telephone services, including local, domestic long-distance and international long-distance telephone services;

• interconnection services to other telecommunications companies;

• business and data communications services, including broadband Internet access service, leased-line services and other Internet-related services;

• mobile telecommunications services through KT Freetel, our 48.1%-owned consolidated subsidiary, and PCS resale services; and

• other telecommunications services, including system and network integration services and satellite communications 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 addition, through KT Freetel, we operate a nationwide PCS network.

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. These growth businesses include business and data communications (including broadband Internet access service) and mobile telecommunications services. As a result, revenues from these businesses have grown rapidly in recent years and now account for a majority of our total revenues, having risen from 41.5% of our total revenues in 2001 to 47.4% in 2003.

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 24.0 million installed lines, of which 21.5 million lines were in service as of April 30, 2004. In the year 2003, our market share of the local market was 95.6% based on the number of local fixed-line subscribers in Korea, our market share of the domestic long-distance market was 84.3% based on revenues estimated by us and our market share of the international long-distance market was 64.4% based on revenues estimated by us;

• We are one of the world’s largest broadband Internet access providers and Korea’s largest broadband Internet access provider in terms of subscribers, with 5.8 million subscribers as of April 30, 2004, representing a market share of 50.6%. We achieved market leadership within a year of launching this service in June 1999;

• We are Korea’s second largest mobile telecommunications service provider. KT Freetel, our consolidated subsidiary, had approximately 11.5 million subscribers as of April 30, 2004, representing a market share of 32.4% of the total mobile service market in Korea based on the number of mobile subscribers; and

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• We are also the leading provider of business and data communications services in Korea, with a market share in domestic leased-line services in 2003 of approximately 72.3% based on revenues estimated by us.

For the year ended December 31, 2003, under Korean GAAP our consolidated operating revenues were Won 16,068 billion (US$13,480 million), our consolidated net earnings were Won 822 billion (US$689 million) and our basic earnings per share was Won 3,802 (US$3.19). As of December 31, 2003, our total stockholders’ equity was Won 8,397 billion (US$7,044 million).

The Telecommunications Industry in Korea

The Korean telecommunications industry is one of the most developed in Asia in terms of the growth of the mobile, Internet and data services markets. As of December 31, 2003, the fixed-line penetration rate, which is calculated by dividing the number of lines in service by the population of Korea, was 47.7%, and the mobile penetration rate, which is calculated by dividing the number of mobile subscribers by the population of Korea, was 70.1%. According to the Ministry of Information and Communication from the end of 1997 to the end of 2003, the number of mobile subscribers increased from approximately 6.8 million to approximately 33.6 million, and the number of Internet subscribers increased from approximately 3.1 million at the end of 1998 to approximately 28.6 million at the end of June 2003. The Ministry of Information and Communication estimates that from the end of 1999 to December 31, 2003, broadband Internet access subscribers increased from approximately 290,000 to approximately 11.2 million.

The Ministry of Information and Communication has the primary responsibility for regulating the telecommunications industry in Korea. See “Item 4.B. Business Overview—Regulation”.

Internet Access Market

Korea is one of the largest and fastest growing Internet markets in the Asia/Pacific region. According to the Ministry of Information and Communication, the number of Internet users in Korea has grown from 3.1 million as of December 31, 1998 to 28.6 million at the end of June 2003.

Recognizing the potential of the Internet, the Government has taken major steps to accelerate Internet awareness among Korean consumers and businesses. In March 1999, the Government announced the blueprint for managing the country’s transformation into an information society, which reaffirms the Government’s commitment to focus its resources on the following tasks:

• building and upgrading telecommunications networks;

• wiring government, businesses and individuals to the Internet; and

• facilitating growth of the software and Internet protocol industries.

New technologies have been developed in recent years that enable high speed Internet access at speeds of up to 100 Mbps. These technologies include satellite, terrestrial wireless and fiber optic-based solutions. However, the principal technologies used in the provision of high speed Internet access are ADSL with speed of up to 8 Mbps and HFC with speed of up to 10 Mbps. ADSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. These two technologies are more widely used than the other available technologies because of their relative reliability, ease of provisioning and cost effectiveness. In case of Korea, we believe that ADSL enjoys an advantage over HFC because two-way cable networks are much less widespread than the local telephone network. While ADSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent access platform in Korea. In July 2002, VDSL technology with speeds of up to 20 Mbps became commercialized and the broadband Internet service providers introduced wireless LAN service with speed of up to 11 Mbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops or PDAs in

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hot-spot zones and at home. Starting December 2003, we began installing infrastructure that enables us to offer VDSL service with speeds of up to 50 Mbps, although we have not yet commercialized such service. With advancement of broadband technology, the Korean broadband Internet access market has experienced significant growth over the past five years. The Ministry of Information and Communication estimates that total broadband Internet subscribers in Korea reached 11.2 million as of December 31, 2003.

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 throughout the 1980s and the early 1990s. Competition was later introduced to the market when 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. Our mobile subsidiary, KT Freetel, 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 KT Freetel on May 1, 2001 and Shinsegi merged into SK Telecom in January 2002. According to the Ministry of Information and Communication, the total number of mobile subscribers increased from 3.2 million at the end of 1996 to 33.6 million as of December 31, 2003. Mobile penetration has also increased from 7.0% to 70.1% during the same period. With such significant penetration, Korea is among one of the most penetrated mobile markets in the region at the end of 2003.

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 EV-DO handsets which allow subscribers to enjoy 2.5 generation high speed wireless data services which KT Freetel began offering in May 2001.

On December 15, 2000, the Ministry of Information and Communication awarded two W-CDMA licenses to provide IMT-2000 service. One license was awarded to SK IMT Co., Ltd., an SK Telecom-led consortium, and the other to KT ICOM, a consortium of companies including KT Corporation and KT Freetel. On August 26, 2001, the Ministry of Information and Communication awarded one additional IMT-2000 license based on CDMA-2000 technology to a LG Telecom-led consortium. KT ICOM merged into KT Freetel on March 6, 2003 and SK IMT Co., Ltd. merged into SK Telecom on May 1, 2003. KT Freetel began offering its test service of IMT-2000 services in metropolitan Seoul and parts of Gyunggi Province in December 2003.

Competitive Strengths

We are the only fully integrated telecommunications service provider in Korea

We are the largest and only fully integrated telecommunications service provider in Korea. We are a leader in broadband Internet access and data communications services, mobile services and Korea’s dominant provider of local, domestic long-distance and international long-distance telephone services. In addition, 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. We also operate a nationwide PCS network through KT Freetel and a satellite broadcasting network through Korea Digital Satellite Broadcasting Company.

As a result, we possess the requisite capabilities to offer convergence services that interconnect the different services in our current portfolio of products and service offerings. For example, in February 2002, we launched

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our wireless LAN service under the brand name “NESPOT”, 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. We extended this service further in February 2003 through the launch of “NESPOT Swing” which allows users with PDA phones to connect to the Internet even outside the NESPOT hotspots through KT Freetel’s PDA-only wireless data service. We also launched “Home N” service in May 2004 and plan to offer the “DU:” service in the second half of 2004, both of which are services that converge the different products and services that we currently offer. For additional information of Home N and DU:, see “—Business Strategy—Focus on high-growth, high-margin businesses”.

We have a large customer base, dominant market position and strong brand recognition

We have a large customer base. As of April 30, 2004, we had approximately 21.5 million fixed-line telephone service subscribers and 5.8 million broadband service subscribers, and KT Freetel had 11.5 million mobile subscribers (including 2.1 million resale subscribers of KT Corporation). We also have a dominant market position in each of our fixed-line telecommunications service markets, as shown in the following table:

Service	Year competition introduced	KT Corporation market share
Local(1)	1999	95.6	%
Domestic long distance(2)	1996	84.3	%
International long distance(2)	1991	64.4	%

(1) in terms of subscribers as of December 31, 2003 announced by the Ministry of Information and Communication.

(2) in terms of revenues in 2003 estimated by KT Corporation.

We also believe that KT Corporation and KT Freetel enjoy wide brand recognition for telecommunications services in Korea with a reputation for quality and reliability.

We are one of the world’s largest broadband Internet access providers

By leveraging our nationwide advanced digital and fiber-optic network, we have become the largest provider of broadband services in Korea. As part of our strategy to focus on higher growth businesses and in order to meet increased demand, we have invested approximately Won 1.9 trillion over the past three years in broadband equipment and network. We achieved market leadership in June 2000 and we have 5.8 million subscribers and a broadband market share in Korea of 50.6% in terms of subscribers as of April 30, 2004.

We have achieved critical mass in the mobile telecommunications service market

We believe we are well-positioned to take advantage of the attractive growth potential in the mobile service market, which we expect will grow with the increasing demand for mobile data communications services and the implementation of nationwide IMT-2000 services. SK Telecom, as the dominant service provider with the largest market share, is subject to approval from the Ministry of Information and Communication for the rates and the general terms of its service. KT Freetel is not subject to such restrictions. KT Freetel had a total of approximately 11.5 million subscribers (including 2.1 million resale subscribers of KT Corporation) as of April 30, 2004, representing 32.4% of the mobile service market.

We have a proven track record of improving our efficiency and profitability

We have successfully executed our plans to improve our efficiency and profitability in recent years. We have closed unprofitable businesses and divested numerous non-core investments over the past several years to enhance overall profitability. In addition, we have streamlined our workforce to increase efficiency. Under our voluntary early retirement programs, we reduced our workforce by 1,389 employees in 2001 and 166 employees in 2002. In September 2003, we offered another round of voluntary early retirement program to our employees,

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which resulted in a reduction of 5,497 employees for the period ended December 31, 2003. We had a total of 38,167 employees as of December 31, 2003 compared to 45,114 employees as of December 31, 2001. We have also been successful in containing increases in employee costs through agreements on wages and retirement programs with the union.

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. Also, Korea has one of the highest fixed-line, mobile and broadband Internet penetration rates in Asia. Use of the Internet has also risen dramatically, commensurate with Korea’s economic growth and development.

We believe that telecommunications services will evolve at an accelerated pace over the coming years, driven by technological advancement and the general improvement of the Korean economy. We also believe that the convergence of communications technologies will provide a competitive advantage to incumbent telecommunications service providers with existing infrastructure, which are able to design and construct sophisticated and nationwide networks capable of serving as a common platform for a broad range of services and enhance value for our customers.

Our slogan, “The Value Networking Company”, reflects our vision to become a global leading company by maximizing shareholder value, pursuing corporate growth through customized services, maintaining our leading position as an integrated telecommunications service provider in all of the market segments we serve and expanding our leadership position in high-growth markets, such as mobile, broadband Internet and data communications services.

Consistent with our strategic objectives, we have developed the following business strategies.

Focus on high-growth, high-margin businesses

We plan to focus our resources on services that have potential for significant growth and high margins. In line with our strategy to place greater emphasis on businesses that have potential for significant growth and higher margins, we plan to increase the proportion of capital expenditures in these areas. We are devoting a substantial part of our resources toward the construction of infrastructure for Internet access and Internet-related services and mobile telecommunications services, and the portion of our planned capital expenditures devoted to these services is approximately 50% in 2004.

Broadband Internet Access and Business and Data Communications. We plan to use our advanced digital network to provide high quality transmission and value added services with competitive pricing. We have the advantage that approximately 98% of potential subscribers are located within a four kilometer radius of our existing telephone offices to receive ADSL service over existing lines, allowing us to provide connection at a lower cost than our competitors. In addition, we launched in July 2002 our VDSL services, which currently allow broadband Internet access speed of up to 20 Mbps. In addition, starting December 2003, we began installing infrastructure that enables us to offer VDSL service with speeds of up to 50 Mbps, although we have not yet commercialized such service. Through continued emphasis on improving the technology and our broadband Internet access services, we plan to remain as the dominant player in this market segment. We will continue to seek to expand our customer base and promote broadband services for high speed Internet access.

In addition, we launched in February 2002 our wireless LAN service called NESPOT, 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 at home. NESPOT service provides our subscribers wireless access to high speed Internet in hot-spot zones and Megapass service in fixed-line environments. We extended the NESPOT service in February 2003 through the launch of NESPOT Swing, which allows users with PDA phones to connect to the Internet even outside the NESPOT hotspots through KT Freetel’s wireless data service specifically designed for PDAs. As the

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fixed-line broadband Internet access market becomes mature, we believe that our NESPOT and NESPOT Swing service will play an increasingly important role in expanding our customer base for high speed Internet access.

In May 2004, we began offering Home N, a home networking service available to our broadband subscribers for additional installation and monthly fees. The service currently allows subscribers to connect multiple computers in their homes, order videos on demand, monitor homes remotely through security cameras mounted on computers that can be accessed through mobile phones, and receive enhanced traffic, weather and stock market information through a computer or a television set. Additionally, as home appliances compatible with our Home N service develop, we expect our subscribers to be able to remotely control these appliances through their mobile phones. We will continue to develop and introduce value adding services to capture the growth potential that this new technology offers.

Internet-Related Services. Our Internet-related services focus on providing infrastructure and solutions for business enterprises. We expect to continue to build out our Internet data centers to meet the demand resulting from the rapid increase in the use of the Internet and data traffic. We already have twelve Internet data centers, providing a full range of co-location, server hosting and web hosting services. We also anticipate that demand for commercial transactions over the Internet will continue to increase in the future. We launched bizmeka.com to develop and commercialize business-to-business (or B2B) solutions targeting approximately 3.0 million small- and medium-sized business enterprises in Korea. In addition, we launched in June 2003 a smart card business under the “1’ts” brand name, which provides multi-functional services utilizing embedded computer chips that calculate and record information. We expect our smart card to have a variety of functions, including those of credit cards, electronic online wallets and transportation fare passes. We are working with leading banks and credit card companies in Korea to build the necessary infrastructure and increase subscribers to our new service. We plan to continue to expand our Internet-related value added services.

Mobile. We are focusing our resources on the expansion of the type of services offered, as well as growing and consolidating the mobile business. KT Freetel began offering in May 2001 2.5 generation high speed wireless data services which allow voice, data and video transmission to EV-DO handsets. KT Freetel also began test service of its IMT-2000 services in metropolitan Seoul and parts of Gyunggi Province in December 2003, and KT Freetel plans to offer services in 45 cities by December 2005, subject to market conditions and service demand. IMT-2000 is a third generation high capacity wireless Internet and video multimedia communication technology which allows an operator to provide to its subscribers significantly more bandwidth capacity compared to 2.5 generation technology.

In the second half of 2004, we plan to offer DU:, a service which enables specially designed handsets to act as cordless phones within the transmission range of a user’s base transmitter, and to act as mobile phones outside such areas. When used as a cordless phone within the designated area, DU: applies fixed-line telephone services fee. In addition, the handsets can receive data transmissions without being charged for airtime usage within the designated area if the homes or businesses subscribe to one of our fixed-line broadband services. The handsets can also be used as walkie-talkies and to exchange data between DU: phones within short distance. We will continue to develop and introduce additional services to capture the significant growth potential that new technology offers.

Leverage dominant market positions to maximize profitability

We will continue to seek ways to capitalize on our position as the leading telecommunications services provider in Korea with dominant positions in local, domestic long-distance and international long-distance telephone services and leading positions in broadband Internet access and business data communications services, as well as mobile communications services.

The breadth of our network and our ownership of the so called “last one mile” infrastructure, which is comprised of the connection between the local telephone service provider’s switching centers to the end-users’ buildings or homes, provides us with low-cost access to existing and potential customers and creates a platform

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for expanding our services. For example, we have been able to greatly expand our broadband Internet access customer base by utilizing such existing infrastructure. Also, we believe that we can capitalize on our large and well-established customer base, as well as our well-known brand name, to cross-sell our service offerings and expand into other service areas in a cost-efficient manner.

We believe that the above factors will also enable us to achieve lower customer acquisition costs than our competitors, allowing us to more efficiently roll out new services.

Promote synergies within the KT Corporation group

We plan to actively promote synergies within the KT Corporation group to take advantage of economies of scale in various areas and to prepare for increasing demand for mobile data communications and integrated fixed-line and wireless telecommunications services. We also plan to use our extensive customer relationships and market knowledge to expand our revenue bases by bundling and cross-selling our products and services. For example:

• we have already been successful in reselling PCS services through KT Corporation, with approximately 2.1 million resale subscribers as of April 30, 2004;

• we merged KT M.com and KT ICOM into KT Freetel, which we believe will increase scale efficiencies as well as promote cross-selling and technology sharing among these companies;

• our NESPOT Swing service and KT Freetel’s mobile service integrate wireless and fixed-line services by enabling subscribers with PDA phones access to high speed Internet in hot-spot zones, Megapass service in fixed-line environments and dial-up Internet access through KT Freetel’s wireless data service outside the hot-spot zones;

• our DU: service integrates our fixed-line services and KT Freetel’s wireless service by enabling specially designed handsets to act as cordless phones within the transmission range of a user’s base transmitter, and to act as mobile phones outside such areas; and

• we plan to offer enhanced video-on-demand services in the second half of 2004 which will allow subscribers of both our broadband Internet access service and satellite broadcasting service to experience higher-quality video and audio offerings on demand through an integrated set box.

See “Item 4.B. Business Overview—Competitive Strengths—We have achieved critical mass in the mobile telecommunications service market”.

Continue to improve operational efficiencies

We will continue to seek to improve our operational efficiencies in order to enhance customer service, increase profitability and maximize shareholder value. For example, in March 2003, we began implementing six sigma initiatives for us and all of our subsidiaries. The objectives of the initiatives, which are designed to reduce the number of defects in processing lines, are to introduce greater efficiency in manufacturing productivity and cost and employee performance while increasing customer satisfaction. We will continue to seek new opportunities to implement our company-wide process innovation and instill six-sigma programs as part of our corporate culture. In addition, we are investing in information technology and management information systems, thereby improving management efficiency, internal communications, and customer relations functions, and disposing of, discontinuing or merging non-core businesses or subsidiaries.

In May 2003, we also reorganized our operational structure from focusing on localized telephone offices responsible for multi-tasking to having individual offices specialized in one of four areas. Each office will focus on either sales, network operation and maintenance, customer relations or regional support. Accordingly, we currently reorganized our offices into 31 sales offices, 31 network operation and maintenance offices, 38 district offices and 11 regional business groups. We believe that this new operational structure will promote specialization and enhance customer satisfaction.

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Focus on maximizing customer satisfaction and promoting quality innovation

Quality of service is critical in attracting and retaining customers and enhancing our long-term profitability. We have a nationwide network of customer service centers which we believe allows us to provide comprehensive customer service functions. We strive to continually enhance customer satisfaction and loyalty by providing higher quality customer service. For example, we are implementing several programs to maximize customer satisfaction, including the expansion of services offered by our on-line customer center dedicated to respond to the special needs and demands of our customers. In June 2003, we began implementing our first round of six-sigma innovation program and will seek new opportunities to implement our company-wide quality innovation and promote cost-effectiveness and new market growth.

Our Services

Our Telephone Network and 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. 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,
	1999	2000	2001	2002	2003
Lines installed (thousands)(1)	24,464	24,383	24,854	25,104	25,202
Lines in service (thousands)(1)	21,192	21,525	21,898	22,327	21,841
Lines in service per 100 inhabitants(2)	43.8	44.1	44.9	46.8	45.6
Percentage of lines connected to digital exchanges	73.9	79.7	87.5	92.4	100.0
Lines in service per employee(3)	446	473	497	511	580
Fiber optic cable (kilometers)	84,751	111,728	118,815	122,243	128,478
Number of public telephones installed (thousands)	565	539	500	446	374
Domestic long-distance call minutes (millions)(4)	26,019	21,563	19,632	17,133	17,007
Local call pulses (millions)(5)	40,942	34,691	30,968	26,859	23,597

(1) Including lines used for public telephones, which were 564,906 lines, 538,983 lines, 499,566 lines, 446,367 lines and 374,000 lines, respectively, for the years presented.

(2) Source: International Telecommunication Union for 1999 and KT Corporation for 2000 to 2003. Excluding public telephones.

(3) Excluding employees of our subsidiaries and including lines used for public telephones.

(4) Including calls placed from public telephones, which were 1,749 million minutes, 1,055 million minutes, 747 million minutes, 483 million minutes and 291 million minutes, respectively, for the years presented.

(5) Including calls placed from public telephones, which were 2,756 million pulses, 1,551 million pulses, 1,252 million pulses, 680 million pulses and 429 million pulses, respectively, for the years presented.

In recent years, we have 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. All lines installed since 1992 have been connected to digital exchanges and we completed connection of all installed lines to digital exchanges on June 9, 2003.

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.

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International Long-Distance Service. The following table shows the number of minutes of international long-distance calls recorded by us in each specified category for each year in the five-year period ended December 31, 2003:

	Year ended December 31,
	1999	2000	2001	2002	2003
	(in millions of billed minutes)
Incoming international long-distance calls	369.9	460.1	515.8	544.0	528.8
Outgoing international long-distance calls	534.6	552.1	552.9	572.3	524.7
Total	904.5	1,012.2	1,068.7	1,116.3	1,053.5

United States (32%) Japan (20%) and China (14%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2003. The agreed settlement rate is applied to the call minutes to determine the applicable net settlement payment. Overall, we have been a net payer of settlement payments since 1996, and the volume of our outgoing calls exceeded the volume of our incoming calls for the first time in 1997. We receive the largest net settlement payment from U.S. carriers. Because the volume of incoming calls from the United States is larger than that of outgoing calls to the United States, amounts payable by the U.S. carriers to us in respect of calls billed by U.S. carriers have historically exceeded amounts payable by us to U.S. carriers in respect of calls billed by us. On the other hand, because the volume of outgoing calls to China exceeds that of incoming calls from China, we make the largest net settlement payment to international long-distance service providers in China.

To compete with our competitors in the international long-distance services market, we have implemented special discount calling plans and advertising campaigns directed at high-volume corporate users and we are also promoting our international leased-lines business.

We also provide Internet phone service for international long-distance calls. Despite the inconvenience of having to dial many numbers to access the Internet phone service, the volume of international long-distance calls made on Internet phone services, measured in terms of call minutes, has significantly increased since Internet phone service was first introduced in Korea in March 1998. Our Internet phone service also competes with international long-distance services provided by voice resellers.

Interconnection

Under the Telecommunications Business Law, we are required to permit other service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include DACOM and Onse (offering international and domestic long-distance services), SK Telecom (transmitting calls to and from its cellular network) and the two PCS service providers (transmitting calls to and from their PCS networks). We expect that an increasing number of new service providers will commence operations and require interconnection services in the future. Accordingly, 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 12.9% of our operating revenues in 2003. 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.

Business and Data Communications

Our business and data communication services include:

• broadband Internet access service;

• leased-line services; and

• Internet-related services.

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Broadband Internet Access Service. Responding to the increasing demand for data communications and other value-added services by our customers, we are investing extensively in our data communications infrastructure and are focusing on providing advanced services such as broadband Internet access service and wireless LAN service. Leveraging on our nationwide network of more than 24.0 million installed lines and 122,243 kilometers of fiber optic cable network as of April 30, 2004, we have achieved a leading market position in the broadband Internet access market in Korea. We believe we currently have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we, as the dominant local telephone service provider, do not have to install new lines or cables in order to provide broadband Internet access service.

Under the “Megapass” brand name, we offer ADSL and VDSL services with data transmission speed of up to 8 Mbps and 20 Mbps, respectively. In addition, we offer a fiber-optic cable-based service under the “Megapass Ntopia” brand name. For those regions where we are not able to provide Internet access service using fixed lines, we offer satellite-based Internet access service and broadband wireless local loop (or BWLL) service. We had 5.8 million broadband Internet subscribers as of April 30, 2004, of which 5.4 million subscribed to the ADSL or VDSL services (approximately 93%) and 0.4 million subscribed to the Ntopia service (approximately 7%).

ADSL is a modem technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL with enhanced speeds of up to 20 Mbps became commercialized in July 2002. According to the Ministry of Information and Communication, there were 6.4 million ADSL and VDSL subscribers and 3.8 million HFC subscribers in Korea as of December 31, 2003, representing 57.6% and 34.3% of the broadband market, respectively.

An ADSL or VDSL circuit connects a modem on each end of a twisted-pair telephone line. For ADSL, the high-speed downstream rate reaches up to 8.0 Mbps, while for VDSL, the high-speed downstream rate can reach up to 100.0 Mbps. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading information from the Internet. In essence, ADSL and VDSL transform the existing public information network from one limited to voice, text and low-resolution graphics to a powerful system capable of bringing multimedia to subscriber premises without new cabling. The traditional telephone service channel is split off from the digital information channels by filters, thus guaranteeing uninterrupted telephone service even in the event that ADSL or VDSL connection fails.

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 98% of our subscribers for basic local telephone service are located within a four kilometer radius of our telephone offices, making our ADSL or VDSL service available to most of the Korean population.

Our Ntopia service connects fiber-optic cables to apartment complexes and buildings with LAN capabilities. This technology allows data transmission speed up to 2.5 Mbps. Because this service is UTP cable-based, a subscriber is automatically connected to the Internet whenever his or her personal computer is in operation. We began offering our Ntopia service in September 2001.

On February 1, 2002, we launched a wireless LAN service called NESPOT, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops and PDAs. NESPOT service provides our subscribers wireless access to high speed Internet in hot-spot zones and Megapass service in fixed-line environments. We extended the NESPOT service in 2003 through the launch of NESPOT Swing, which allows users with PDA phones to connect to the Internet even outside the NESPOT hotspots through KT Freetel’s wireless data service specifically designed for PDAs. We had approximately 360 thousand subscribers of NESPOT and 11,500 hot-spot zones nationwide for wireless connection as of April 30, 2004. NESPOT allows users to access the Internet at up to 11.0 Mbps in hot-spot zones.

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In May 2004, we began offering Home N, a home networking service available to our broadband subscribers for additional installation and monthly fees. The service currently allows subscribers to connect multiple computers in their homes, order videos on demand, monitor homes remotely through security cameras mounted on computers that can be accessed through mobile phones, and receive enhanced traffic, weather and stock market information through a computer or a television set. Additionally, as home appliances compatible with our Home N service develop, we expect our subscribers to be able to remotely control these appliances through their mobile phones. We will continue to develop and introduce value adding services to capture the growth potential that this new technology offers.

Leased-line Service. Leased-line 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, 2001, 2002 and 2003, we leased 593,567 lines, 598,872 lines and 454,281 lines to domestic businesses. We also had 110 international leased lines on December 31, 2003.

Internet-Related Services. Our Internet-related services focus on providing infrastructure and solutions for business enterprises. We operate Internet data centers and provide website hosting services to numerous companies which need servers, routers and leased lines for Internet access. 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. We currently operate twelve centers located throughout Korea.

Our Internet data centers are professionally designed to international standards, and are equipped with temperature control systems, regulated and reliable power supplies, fire detection and suppression equipment, security monitoring and high-bandwidth connections to the Internet. Internet data centers allow corporations or Internet service providers to outsource their application and server hardware management. Services offered include shared application hosting, dedicated hosting, co-location and managed hosting. Shared application hosting is the storage and delivery of applications over the Internet via a shared server. Dedicated hosting is application hosting on a dedicated server. Co-location is the installation of the customer’s network equipment at the Internet data centers. Managed hosting refers to additional premium hosting services for which customers are charged separately, such as network availability monitoring, remote power supply, bandwidth utilization monitoring and data backup and recovery.

We anticipate that demand for commercial transactions over the Internet will continue to increase in the future. To prepare for the increased demand, we launched a service called bizmeka.com to develop and commercialize business-to-business solutions targeting approximately 3.0 million small- and medium-sized business enterprises in Korea. Bizmeka.com is an applied application service provider which provides industry-specific business solutions, including customer database management and electronic data interchange. We had approximately 49,000 subscribers as of April 30, 2004. We also established the buynjoy.com on-line shopping mall which offers a variety of products and services from participating on-line retailers, as well as purchase aggregation services and auction services. We spun-off buynjoy.com in June 2002. Our hanmir.com portal site features a search engine and website directory, telephone directory, news articles, financial information and other contents. In December 2003, we transferred buynjoy.com on-line shopping mall and hanmir.com portal site to KTH, our 65.9%-owned subsidiary. We also operate Korea’s largest clearinghouse for medical claims using electronic data interchange and on-line medical prescription and hospital application hosting services.

Miscellaneous. We launched in June 2003 a smart card business under the “1’ts” brand name, which provides multi-functional services utilizing embedded computer chips that calculate and record information. We expect our smart card to have a variety of functions, including those of credit cards, electronic online wallets and transportation fare passes. We plan on working with leading banks and credit card companies in Korea to build the necessary infrastructure and increase subscribers to our new service.

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PCS Service

PCS service is a digital wireless telephone system that uses light handsets with long battery life to communicate via low-power antennae. PCS telephones have the capacity to receive and send data as well as voice transmission. KT Freetel, one of our consolidated subsidiaries in which we currently own a 48.1% effective interest, obtained one of the three licenses to provide nationwide PCS service in June 1996. KT Freetel began offering PCS service in all major population centers in Korea in October 1997 and currently covers substantially all of the Korean population. PCS service is currently offered at rates that are lower than rates for cellular services. KT Freetel’s PCS service uses CDMA technology and utilizes 20 MHz of bandwidth in the 1800 MHz frequency. KT Freetel launched its 2.5 generation high speed wireless data services in May 2001 which currently have a population coverage of 85%. Subscribers who have EV-DO-compatible handsets are able to enjoy high speed multimedia services including voice, data and video transmission.

On December 15, 2000, we acquired the right to purchase one of three licenses to provide W-CDMA-based IMT-2000 services, as a member of a consortium of companies including KT Corporation and KT Freetel. IMT-2000 is a third-generation, high-capacity wireless Internet and video multimedia communications technology which allows an operator to provide to its subscribers significant more bandwidth capacity. In June 2002, KT ICOM, a company created by our consortium to offer IMT-2000 services, launched a pilot version of IMT-2000 services in cities in Korea which sponsored FIFA Worldcup games. KT ICOM subsequently merged into KT Freetel on March 6, 2003 in a stock-for-stock transaction. KT Freetel began offering its test service of IMT-2000 services in metropolitan Seoul and parts of Gyunggi Province in December 2003, and KT Freetel plans to offer service in 45 cities by December 2005, subject to market conditions and service demand.

We entered into air-time reselling arrangements with KT Freetel in July 1999, through which we use our extensive marketing network and strong brand name to attract subscribers who can utilize the PCS networks of KT Freetel. We bill directly to our resale subscribers for their usage of KT Freetel’s PCS networks and collect all fees and charges relating to such usage, including initial subscription fees, monthly access fees and usage charges for outgoing calls, wireless data communications and value-added monthly services. We had approximately 2.1 million resale subscribers who utilized KT Freetel’s network as of April 30, 2004.

Mobile telecommunications service has grown rapidly in Korea in recent years. The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated:

	As of December 31,
	1999		2000		2001		2002		2003
Total Korean Population(1)	46,617		47,008		47,343		47,640		47,925
Mobile Subscribers(2)	23,443		26,817		29,046		32,342		33,592
PCS(2)	10,094		12,364		13,867		15,122		15,279
Cellular(2)	13,349		14,453		15,179		17,220		18,313
Mobile Subscriber Growth Rate	67.7	%	14.4	%	8.3	%	11.3	%	3.9	%
Mobile Penetration(3)	50.3	%	57.0	%	61.4	%	67.9	%	70.1	%

(1) In thousands, based on population trend estimates by the National Statistical Office of Korea.

(2) In thousands, based on information compiled by the Ministry of Information and Communication.

(3) Penetration is determined by dividing mobile subscribers by total Korean population, each as of December 31.

KT Freetel competes not only with another PCS service provider, LG Telecom, which began its service at around the same time, but also with SK Telecom, a cellular service provider that has a longer operating history. As of April 30, 2004, KT Freetel had approximately 11.5 million subscribers (including 2.1 million resale subscribers of KT Corporation), which was second largest among the three mobile service providers. As of that date, in terms of number of subscribers, we estimate that KT Freetel had a market share of 32.4% of the mobile service market. In recent months, KT Freetel’s subscribers increased as a result of the implementation of the

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mobile phone number portability of SK Telecom’s subscribers starting January 1, 2004. From January 1, 2004 to April 30, 2004, 553,275 of SK Telecom’s subscribers switched to KT Freetel. We expect some of KT Freetel’s current subscribers to switch to SK Telecom or LG Telecom when KT Freetel’s subscribers are able to transfer their existing mobile numbers starting July 1, 2004.

In 2003, KT Freetel had an average monthly churn rate of 2.0%. The churn rate is calculated by dividing the number of customers who discontinue their subscription by the total number of customers. Monthly churn rate calculations include customers who receive a new phone number after upgrading to a new phone.

The following table shows selected information concerning the usage of KT Freetel’s network during the periods indicated and the number of KT Freetel’s subscribers as of the end of such periods:

	As of or for the Year Ended December 31,
	2001		2002		2003
Outgoing Minutes (in thousands)		13,054,299		16,130,211	19,275,415
Average Monthly Outgoing Minutes Per Subscriber(1)		150		153	154
Average Monthly Revenue per Subscriber(2)	(Won)	38,729	(Won)	38,694	36,947
Number of Subscribers (in thousands)(3)		9,591		10,333	10,442

(1) 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.

(2) The average monthly revenue per subscriber is computed by dividing total monthly access 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.

(3) KT Corporation had approximately 1,555 thousand resale subscribers who utilized KT Freetel’s network as of December 31, 2003.

KT Freetel markets its services through two channels: (1) exclusive dealers and (2) the marketing network of KT Corporation pursuant to air-time reselling arrangements with us. The primary distribution channels of KT Freetel are its 1,464 independent exclusive dealers located throughout Korea. In addition to assisting new subscribers to activate PCS service and purchase handsets, authorized dealers are connected to the database of KT Freetel and are able to assist customers with account information. Although most of these dealers sell exclusively products and services of KT Freetel, 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 of Won 22,000 for each new subscriber registered, as well as ongoing commissions for the first five years based primarily on the subscriber’s monthly access fee, usage charges and length of subscription. Ongoing commissions range from 5.5% to 8.0% of monthly fees paid by the subscriber depending on the subscriber’s monthly usage charges, and from 0.3% to 0.9% of monthly fees depending on the subscriber’s length of subscription. In addition, dealers are entitled to bonuses ranging from 0.1% to 1.0% of monthly fees based on subscriber satisfaction surveys conducted by KT Freetel.

The handsets sold by KT Freetel to the dealers cannot be returned to KT Freetel unless they are defective. If a handset is defective, it may be exchanged for a new one within three days from the date of purchase.

KT Freetel does not require its subscribers to make facility deposits or take out facility insurance policies with the Korea Guarantee Insurance Company, unless a subscriber purchased his or her handset through the installment payment plan. In such a situation, facility insurance is required and the subscriber usually pays a one-time insurance fee ranging from Won 10,000 to Won 20,000. KT Freetel conducts the screening process for new subscribers with great caution. A potential subscriber must meet all internal credit criteria before receiving PCS service. The procedure includes checking the history of non-payment and credit information from banks and

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credit agencies such as the National Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the PCS service by using a pre-paid card.

Other Services

We provide various services that extend beyond basic telephone service and data communications service, including:

• system and network integration services;

• satellite communications services; and

• services provided by KTH.

These services accounted for 4.3% of our operating revenues for 2003.

System and Network Integration Services. We offer a wide range of system and network integration services to our clients. Our range of services includes consulting services that provide solutions to specific system or network issues in designing, building and maintaining communications networks which satisfy the individual needs of our clients. Typically, it takes between six months to one year to complete a project.

From our system and network integration services, we derived revenues of approximately Won 199 billion in 2001, Won 258 billion in 2002 and Won 115 billion in 2003.

Satellite Communications Services. In 1996, we launched Koreasat II, a telecommunications satellite with 15 transponders. Koreasat II became fully operational in July 1996. We use a total of 12 transponders to provide our telecommunications services and three transponders to television broadcasting companies. Koreasat II is due to reach the end of its operational life in 2006.

We launched Koreasat III in September 1999 to replace Koreasat I. Koreasat III carries 33 transponders, of which 27 are used for telecommunications and the remaining 6 for broadcasting purposes. Among the 27 transponders reserved for telecommunications, 12 are used to replace the telecommunications operations of an older satellite that has been phased out, while 12 are used for business and data transmission services. The remaining three transponders are used for ultra-high-speed communications pilot projects for sparsely populated areas. The six broadcast transponders for Koreasat III are used to replace the operations of the older satellite. All broadcast transponders are currently utilized by Korea Digital Satellite Broadcasting Inc., and broadcasting has become the main use of our satellites. The expected useful life of Koreasat III is approximately 15 years.

We are planning to launch Koreasat V in May 2006 to replace Koreasat II. Koreasat V will be a telecommunication satellite with 24 transponders and an expected useful life of approximately 15 years.

From our satellite communications services, we derived revenues of approximately Won 101 billion in 2001, Won 124 billion in 2002 and Won 120 billion in 2003.

KTH. KTH is a consolidated subsidiary in which we own a 65.9% interest, and its services include providing on-line content subscription services under the “Hitel” brand name and developing on-line contents for hanmir.com portal site and our Megapass and NESPOT services. In December 2003, we also transferred hanmir.com portal site to KTH. Hitel subscribers can access a variety of content from various third-party content providers, including news articles and information on business, entertainment, sports and other areas. Hitel subscribers also incur local telephone charges when they access the Hitel service using a dial-up modem. KTH’s communication services include e-mail services, instant messenger services, web storage services and exchanges of electronic files.

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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 2001 through 2003.

	Year Ended December 31,
	2001		2002		2003
Fixed-line telephone services:
Local services	17.2	%	17.6	%	18.8	%
Non-refundable service installation fees	1.5		1.5		0.8
Domestic long-distance service	6.5		6.5		5.8
International long-distance service	3.3		3.2		2.8
Total	28.5		28.8		28.2
Land-to-mobile interconnection	16.9		13.1		12.9
Business and data communications services:
Broadband Internet access service	7.0		9.6		11.7
Leased-line service	7.0		6.4		5.6
Internet-related services(1)	2.5		2.5		3.0
Miscellaneous	1.6		1.3		1.2
Total	18.1		19.8		21.5
PCS service	23.4		25.1		25.9
Sales of goods(2)	7.9		8.3		7.2
Other services(3)	5.2		4.9		4.3
Total operating revenues	100.0	%	100.0	%	100.0	%

(1) Includes revenues from services provided by Kornet, bizmeka.com and hanmir.com.

(2) Includes PCS handset sales.

(3) Includes revenues from system and network integration services, satellite service and KTH.

Fixed-line Telephone Services

Local Telephone Service. Our revenues from local telephone service consist primarily of:

• installation 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.

The rates we charge for local calls are currently subject to approval by the Ministry of Information and Communication after consultation with the Ministry of Finance and Economy. The rates are the same for residential and commercial customers.

Before September 1998, in addition to a non-refundable installation fee of Won 8,000 and a monthly basic charge, a customer was required to pay at the time of a telephone installation a non-interest-bearing refundable deposit. The deposit ranged from Won 122,000 to Won 242,000 depending on the size of the local calling area in which the phone was installed. In September 1998, with the approval of the Ministry of Information and

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Communication, we implemented an alternative telephone installation charge system that allowed our customers to choose between the pre-existing service plan and a second service plan. The charges under each plan were as follows:

Rates from September 1998 to April 14, 2001	Pre-existing Plan	Second Plan
Telephone Installation Deposit (refunded upon termination of service)	Between Won 122,000 to Won 242,000, depending on location	None
Non-refundable Telephone Installation Fee	Won 8,000	Won 100,000
Basic Monthly Charge	Between Won 1,500 to Won 2,500, depending on location	Between Won 2,000 to Won 4,000, depending on location

Through April 14, 2001, approximately 7.1 million existing customers switched to or enrolled under the second plan. To each of these customers, we refunded between Won 30,000 and Won 150,000 of their telephone installation deposits while keeping Won 92,000, reflecting the Won 100,000 non-refundable telephone installation fee under the second plan minus the Won 8,000 non-refundable installation fee paid under the pre-existing plan.

Starting on April 15, 2001, with the approval of the Ministry of Information and Communication, we implemented a new telephone installation charge system. The changes are as follows:

Rates Starting April 15, 2001	Pre-existing Plan	New Plan
Telephone Installation Deposit (refunded upon termination of service)	Between Won 122,000 to Won 242,000, depending on location	None
Non-refundable Telephone Installation Fee	Won 8,000	Won 60,000 (including value added tax)
Basic Monthly Charge	Between Won 2,500 to Won 3,700, depending on location	Between Won 3,000 to Won 5,200, depending on location

All new customers subscribing to our local service on or after April 15, 2001 must choose the new plan. Our existing customers who are enrolled in the pre-existing plan are still allowed to switch to the new plan and receive their installation deposit back (less Won 52,000, reflecting the Won 60,000 non-refundable installation fee paid under the new plan minus the Won 8,000 non-refundable installation fee paid under the pre-existing plan). Our existing customers who switched to or enrolled under the second plan cannot switch to the new plan.

From April 15, 2001 to December 31, 2003, approximately 11.8 million customers either chose to switch to the new plan or subscribed to our local service. The total refund amount (excluding the non-refundable telephone installation fees retained by us) to customers choosing to switch to the new plan in 2003 amounted to Won 166 billion. As of December 31, 2003, there were 5.5 million subscribers who are enrolled under the pre-existing plan and eligible to switch to the new plan and receive their installation deposit back (less Won 52,000 as described above).

Starting May 1, 2002, we increased our charge for local directory assistance service from Won 80 per call to Won 100.

On April 15, 2001, with the approval of the Ministry of Information and Communication, we lowered the usage charges from Won 45 per pulse (generally three minutes) to Won 39 per pulse while increasing the basic monthly charge as described above.

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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. Since January 1998, we have been setting our own rates for domestic long-distance service with no need to obtain Ministry of Information and Communication approval.

The following table summarizes our local usage charges and domestic long-distance rates as of each date on which rates were revised since our establishment in 1981.

	May 1, 1991		Feb. 10, 1993		Aug. 1, 1994		Dec. 1, 1996		Sept. 1, 1997		Dec. 1, 2000		April 15, 2001		Nov. 1, 2001
Local Usage Charges (per pulse)(2)
Regular service	(Won)	25	(Won)	30	(Won)	40	(Won)	41.6	(Won)	45	(Won)	45	(Won)	39	(Won)	39
Public telephone		20		30		40		40		50		50		50		70
Domestic Long-Distance Service (per three minutes)(3)
Up to 30 km		100		100		40		41.6		45		45		39		39
Up to 100 km		400		360		200		183		172		192		192		261
100 km or longer		900		675		313		277		245		252		252		261

(1) These charges do not reflect discounts applicable to calls made during off-peak hours or holidays.

(2) 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. 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 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.

(3) Domestic long-distance calls of up to 30 kilometers are billed on the same basis as local calls described in note (2) above. 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) thereafter. Starting on April 15, 2001, a pulse was triggered at the beginning of each call and every 30 seconds thereafter. Starting on November 1, 2001, a pulse is triggered at the beginning of each call and every 10 seconds thereafter. 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. everyday.

From September 10, 2002 to December 9, 2002, with the approval from the Ministry of Information and Communication, we also offered an optional flat rate plan for our fixed-line telephone service subscribers who had been our customers since August 1, 2001. Under the optional plan, a subscriber who elected to pay the monthly average of local and domestic long-distance usage amounts previously paid by such subscriber from August 1, 2001 to July 31, 2002 plus an extra charge of Won 1,000 to Won 5,000 each month (depending on average usage amount) is able to make unlimited minutes of local and domestic long-distance calls for up to 12 months from the election date. We obtained an approval from the Ministry of Information and Communication to extend the optional flat rate plan for another 12 months for those subscribers who had previously elected to participate. The plan is not renewable at the expiration of the 24-month period unless we obtain another approval from the Ministry of Information and Communication.

The revenues from domestic calls placed from public telephones, which are included in local and domestic long-distance service revenues, as appropriate, were Won 114 billion in 2001, Won 93 billion in 2002 and Won 84 billion in 2003.

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);

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• 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. Since January 1998, we have been setting our own rates for international long-distance service without the need to obtain Ministry of Information and Communication approval.

We bill outgoing calls (and calls made from Korea through a home country direct-dial service) to the relevant foreign carrier or administration at the applicable settlement rate specified under the agreement with the foreign entity. We have entered into over 240 bilateral agreements with foreign carriers and administrations. We negotiate the settlement rates under these agreements with each foreign carrier, subject to Ministry of Information and Communication 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 consolidated financial statements, we make settlements with most carriers quarterly on a net basis.

The net settlement payment rate between U.S. carriers and us was reduced from US$0.355 per minute in 1999 to US$0.255 per minute in 2000 and US$0.190 per minute in 2001, 2002, 2003 and 2004. The reduction in the net settlement payment rates between KT Corporation and U.S. carriers will adversely affect our revenues from international long-distance service unless the reduction in rates can be offset by volume increases.

Effective January 1, 1999, the settlement rate applicable to Japan was reduced from Special Drawing Rights 0.315 per minute to Special Drawing Rights 0.20 per minute. The rate was further reduced to Special Drawing Rights 0.19 per minute effective October 1, 1999. Special Drawing Rights 1.00 was equivalent to US$1.44 on December 31, 2003.

Starting March 10, 2003, we changed the rate structure for our international long-distance telephone service to compete more effectively in the international long-distance market, as well as in the Internet phone service market. We lowered our international long-distance rates applicable to most countries while decreasing the discounted hours during weekdays from 12 hours to 6 hours and on Saturdays from 16 hours to 6 hours and the discount rates applicable during these hours from 30% to 10%. Our normal rates for international long-distance calls to the United States, Japan and China decreased by 60%, 18% and 22%, respectively. DACOM and Onse also made comparable changes to their international long-distance rates.

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. In December 1997, the Ministry of Information and Communication issued an order setting the interconnection charge calculation method applicable to interconnections with SK Telecom as well as all other mobile service providers. Commencing in 1998, 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.

For 2000, our payments to cellular and PCS service providers were calculated by taking the actual costs of carrying a call (“Imputed Costs”) of SK Telecom in 1998 and adjusting for several factors including the call

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volume of mobile service providers. For 2001, our payments to mobile service providers were calculated by reducing the 2000 per-minute amount applicable to cellular service providers by 7.76% and the 2000 per-minute amount applicable to PCS service providers by 10.75%. On December 12, 2002, the Ministry of Information and Communication issued an order revising the land-to-mobile interconnection charge calculation method applicable beginning January 2002. In addition to taking the actual Imputed Costs of SK Telecom in 2000, the Ministry of Information and Communication took into consideration several factors including the call volume of each mobile service provider in determining interconnection charges we pay per minute to SK Telecom, KT Freetel and LG Telecom. Starting in 2004, the Ministry of Information and Communication announced that it will determine 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. We can give no assurance, however, that the method of calculating the payments will be implemented as planned.

The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to cellular and PCS operators for landline to mobile calls in 2001, 2002 and 2003 and which KT Corporation will pay in 2004 under the revised calculation method. The Ministry of Information and Communication is expected to announce the new rates for 2004 in mid-2004.

	2001		2002		2003
SK Telecom	(Won)	63.6	(Won)	45.7	(Won)	41.0
KT Freetel(1)	(Won)	65.7	(Won)	53.5	(Won)	48.0
LG Telecom	(Won)	65.7	(Won)	59.0	(Won)	52.9

(1) Eliminated in consolidation of financial statements.

The following table shows the usage charge per ten seconds collected from a landline user for a call initiated by a landline user to a mobile service subscriber.

	Effective Starting
	April 1, 2000		May 1, 2002		July 1, 2003
Weekday	(Won)	19.00	(Won)	15.63	(Won)	14.83
Weekend	(Won)	19.00	(Won)	14.81	(Won)	14.00
Evening (1)	(Won)	19.00	(Won)	13.99	(Won)	13.20

(1) Evening rates are applicable from 12:00 a.m. to 6:00 a.m. everyday.

The charges above have been agreed among the parties involved and confirmed by the Ministry of Information and Communication. In order to compensate for the lack of corresponding decrease in the base usage charge per ten seconds in 2001 and the first four months of 2002 which remained at Won 19.0, we agreed with the Ministry of Information and Communication to offer to landline users ten minutes of free calls per month from May 2002 to December 2002 for calls initiated by a landline user to a mobile service subscriber. In addition, in order to compensate for the lack of corresponding decrease in the base usage charge per ten seconds in the first half of 2003, we agreed with the Ministry of Information and Communication to offer to landline users six minutes of free calls per month from July 2003 to December 2003 for calls initiated by a landline user to a mobile service subscriber. The amounts for 2004 are expected to be confirmed by the Ministry of Information and Communication in mid-2004 after consultation with other government agencies.

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 Interconnection. We entered into interconnection agreements with DACOM, Onse and Hanaro in February 2001. The DACOM interconnection agreement provides that for a domestic or international long-distance call initiated by a DACOM subscriber, DACOM bills the customer its normal rate for the call and remits

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to us an interconnection charge based on our Imputed Costs. We entered into an interconnection agreement with Onse on the same terms as the DACOM interconnection agreement. We also entered into an interconnection agreement with Hanaro which provides that for a domestic call initiated by a Hanaro subscriber, Hanaro bills the customer its normal rate for the call and remits to us an interconnection charge based on our Imputed Costs.

On March 30, 2002, the Government issued an order to require us to provide domestic long distance interconnection services to our competitors without charging for local access network charge, effective retroactively starting January 2001. Additional exemptions will adversely affect our revenues from domestic long distance interconnection business.

Mobile-to-land Interconnection. Commencing in 1998, for a call initiated by a mobile service subscriber to a landline user, the mobile service provider collects from its subscriber the mobile-to-land usage charge and remits to us a mobile-to-land interconnection charge based on our Imputed Costs. For 2002 and 2003, payments are calculated by taking our actual Imputed Costs in 2000 and adjusting for call volume. Mobile-to-land interconnection charges we received from mobile service providers were Won 16.2 or Won 20.3 per minute in 2002 and Won 14.9 or Won 19.0 per minute in 2003, depending on location of interconnection. The Ministry of Information and Communication is expected to announce the new rates for 2004 in the fourth quarter of 2004. Starting in 2004, the Ministry of Information and Communication plans to determine the mobile-to-land interconnection charge by calculating our long-run incremental cost, taking into consideration technology development and future expected costs.

Business and Data Communications Services

Broadband Internet Access Service. We offer broadband Internet access service that uses existing telephone lines to provide both voice and data transmission. Our broadband Internet access service revenues accounted for 54.6% of our business and data communications revenues in 2003. The substantial increase in our broadband Internet revenues was primarily due to the increase in our broadband Internet access subscribers from approximately 12,000 as of December 31, 1999 to 5.8 million as of April 30, 2004. We charge customers of broadband Internet services on a monthly fixed-cost basis with no additional time charges. In addition, we charge customers a one time installation fee per site of Won 30,000. The following table summarizes our charges for different broadband Internet services:

	Maximum Speed	Monthly Access Fee(1)
Megapass Special II	20.0 Mbps	(Won)	60,000
Megapass Special I	13.0 Mbps		50,000
Megapass Premium	8.0 Mbps		40,000
Megapass Ntopia	2.5 Mbps		36,000
Megapass Lite	2.0 Mbps		30,000

(1) We provide discounts of up to 15.0% for mandatory subscription periods ranging from one to three years.

The following table is a comparison of standard rate plans of our competitors:

	Maximum Speed	Initial Installation Fee		Monthly Access Fee
Hana FOS V Dream II (VDSL)	20.0 Mbps	(Won)	30,000	(Won)	56,000
Hana FOS V Dream I (VDSL)	13.0 Mbps		30,000		47,000
Hana FOS V Pro (ADSL)	8.0 Mbps		30,000		38,000
Hana FOS V Pro (Cable)	8.0 Mbps		30,000		34,000
Thrunet VDSL Special	13.0 Mbps		36,000		47,000
Thrunet VDSL Premium	10.0 Mbps		36,000		38,000
Thrunet Cable Internet Premium	10.0 Mbps		36,000		38,000

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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 service market. They typically charge initial installation fee of Won 30,000 and monthly access fee of Won 17,000 to Won 25,000 per month.

Leased-line Service. We charge customers of domestic leased-lines on a monthly fixed-cost basis based on the distance of the 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 Won 56,000 to Won 1,940,000, depending on the capacity of the line. As part of our effort to maximize revenues through rebalancing our rate structure, effective September 15, 2002, we increased our rates for local leased lines with capacity of up to 1,544 Kbps by 5.0% to 15.0%, depending on speed, and our rates for long-distance leased lines with distances of up to 100 kilometers by 8.0% to 10.0%, depending on distance.

PCS Services and Handset Sales

Our revenues from PCS service and PCS handset sales are generated through our consolidated subsidiary KT Freetel and our PCS resale service. We derive revenues principally from:

• initial subscription fees;

• monthly access fees;

• usage charges for outgoing calls;

• usage charges for wireless data transmission; and

• value-added monthly service fees.

KT Freetel may set these fees and charges, including any promotional rates, without the need to obtain Ministry of Information and Communication approval. Like all Korean mobile service providers, KT Freetel does not charge its customers for incoming calls. Instead, KT Freetel receives interconnection charges from us for calls initiated from our fixed-line network to its PCS network (which are eliminated in consolidation) and charges from other mobile service operators for calls initiated by their subscribers. Rates for PCS services are lower than rates for cellular services.

The following table is a comparison of the standard rate plan of KT Freetel with the standard rate plans of its competitors as of April 30, 2004:

	Type of Service	Initial Subscription Fee		Monthly Access Fee		Usage Charge per 10 Seconds
KT Freetel(1)	PCS	(Won)	27,272	(Won)	14,000	(Won)	18
LG Telecom	PCS		27,272		13,000		18
SK Telecom(1)	Cellular		50,000		14,000		20

(1) KT Freetel and SK Telecom also offer ten minutes of free calls each month in their standard rate plans.

Although KT Freetel provides various rate plans, approximately 25% of its subscribers are currently enrolled in the standard rate plan. KT Freetel’s other rate plans include those that offer a specified number of free airtime minutes per month in return for a higher monthly access fee and those that are geared toward business customers. Our competitors also offer similar plans.

In order to promote its PCS services, KT Freetel acquires PCS handsets in bulk for resale to its subscribers. Sales of PCS handsets by KT Freetel amounted to Won 1,032 billion in 2001, Won 1,112 billion in 2002 and Won 875 billion in 2003. KT Freetel and its competitors offered handsets to subscribers at prices that were substantially below the prices at which they purchased the handsets from manufacturers until June 1, 2000 when the Government banned such subsidies.

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Investments

We invested Won 60.3 billion in March 2001 for an 18.2% interest in Korea Digital Satellite Broadcasting Co., Ltd., a new affiliate created to offer satellite broadcasting services, and invested an additional Won 82.4 billion in December 2003. KT Corporation currently holds a 27.4% interest, KT Freetel (our 48.1%-owned consolidated subsidiary) holds a 2.4% interest and KT Networks Corporation (our wholly-owned consolidated subsidiary) holds an additional 0.1% interest. We formed a consortium with 51 other companies in June 2000 and obtained the license for satellite broadcasting on December 19, 2000. Other members of the consortium include major television broadcasting companies in Korea, conglomerates, newspaper companies and other media companies as well as manufacturers of equipment for satellite broadcasting. Korea Digital Satellite Broadcasting Company started its broadcasting services called SkyLife in March 2002 and had approximately 1.3 million subscribers as of April 30, 2004. Our satellites are used to provide these services.

From time to time, we may also consider investment opportunities involving acquisitions and strategic relationships. We may acquire controlling interests in companies that we believe possess growth opportunities. We may also make selective minority investments in companies with which we want to form strategic alliances.

Competition

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 “Item 4.B. Business Overview—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 Ministry of Information and Communication 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 local rates which require advance Ministry of Information and Communication approval. See “Item 4.B. Business Overview —Regulation”. In all service areas, we also compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our broad customer base and our ability to provide integrated telecommunication services.

We and SK Telecom qualify as market-dominating business entities in the respective markets under the Monopoly Regulation and Fair Trade 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 Ministry of Information and Communication has also issued guidelines on fair competition of the telecommunications companies under the Telecommunications Business Law. If any telecommunications service provider breaches the guidelines, the Ministry of Information and Communication may take necessary corrective measures against it after a hearing at which the service provider may defend its action.

Local. The only company licensed to compete with us in the local telecommunications business is Hanaro, whose major shareholders include American International Group Inc. and Newbridge Capital, LLC, and began providing local telephone service in four major cities in 1999. According to statistics published by the Ministry of Information and Communication, as of December 31, 2003, Hanaro had 4.4% of the market for local service in terms of number of subscribers. Although the local usage charge of both Hanaro and us is the same at Won 39 per pulse (generally three minutes), Hanaro’s non-refundable telephone installation charge and basic monthly charge are lower than ours. Hanaro’s customers pay non-refundable telephone installation charge of up to Won 30,000 and pay basic monthly charge of up to Won 4,500, while our customers pay an installation charge of Won 60,000 and basic monthly charge of up to Won 5,200, depending on location.

The Ministry of Information and Communication implemented local number portability in certain regions starting on June 30, 2003 and plans to implement it in Pusan in July 2004 and in Seoul in August 2004, which allows our existing customers to choose a competing local telephone service provider without changing his or her

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telephone number. This implementation may allow Hanaro to compete more effectively for our existing customers. As of April 30, 2004, 42,678 of our subscribers have switched to Hanaro and 209 subscribers of Hanaro have switched to us.

Domestic Long-Distance. Three companies, DACOM, Onse and Hanaro, are licensed to compete with us in the domestic long-distance market. DACOM began offering domestic long-distance service in January 1996. Currently, DACOM’s rates for domestic long-distance service are approximately 2.8% lower on average than ours. Onse began providing domestic long-distance service in December 1999. Onse’s domestic long-distance rates are up to 4.1% lower than ours depending on the calling area. Onse filed for court receivership in April 2003. Hanaro obtained its domestic long-distance licenses in January 2003, and we expect Hanaro to begin offering this service in July 2004.

The following table shows the market share, in terms of revenue, of us, DACOM and Onse in the domestic long-distance market in terms of revenues estimated by us for the years indicated:

	Market Share (%)
	KT Corporation	DACOM	Onse
2001	85.4	11.0	3.6
2002	85.0	10.6	4.4
2003	84.3	11.5	4.2

International Long-Distance. Four companies, DACOM, Onse, Hanaro and SK Telink, are licensed to compete with us in the international long-distance market. Since its entry into the market for international long-distance service in December 1991, DACOM has obtained a significant share of Korea’s international long-distance business. In 2003, DACOM had 24.0% of the international long-distance market in terms of revenue. Currently, we estimate that DACOM’s rates are at an average discount of 0.6% to ours.

Onse became the third carrier in Korea to provide international long-distance service and commenced service in October 1997. We estimate that Onse’s international rates are currently at an average discount of 4.1% to ours. SK Telink obtained another international-long distance license in June 2003 and began offering this service in November 2003. In addition, Hanaro obtained an international-long distance license in January 2003 and we expect Hanaro to begin offering this service in July 2004.

The following table shows market share, in terms of revenue, of us, DACOM and Onse in the international long-distance market as estimated by us for the years indicated:

	Market Share (%)
	KT Corporation	DACOM	Onse
2001	67.1	21.8	11.1
2002	66.5	22.1	11.4
2003	64.4	24.0	10.6

In addition, the entry of other telecommunications services providers, such as Internet phone service providers and voice resellers, that can offer 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 “Item 4.B. Business Overview—Specific Service Providers”.

Business and Data Communications. The Korean broadband Internet access service market has experienced significant growth over the last four years since Korea Thrunet first introduced its HFC-based service in July 1998. Hanaro Telecom entered the broadband market in April 1999 offering both HFC and ADSL services. We entered the market with our ADSL services in June 1999. Dreamline and DACOM followed and introduced their services in late 1999 and early 2000. 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 service market. We expect competition from these service providers to intensify in the future.

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The following table presents the number of subscribers and the market shares in terms of subscribers as of April 30, 2004 as announced by the Ministry of Information and Communication:

	Subscribers	Market Share
KT Corporation	5,814,343	50.6	%
Hanaro	2,766,253	24.1	%
Korea Thrunet	1,293,441	11.3	%
Others	1,607,422	14.0	%

DACOM had a monopoly on business and data communications services (except for leased-line service) until July 1990, when we were permitted by the Ministry of Information and Communication to compete in this area. We had a monopoly in domestic leased-line service until January 1994, when DACOM was also authorized to provide the same service. We estimate that for the year ended December 31, 2003, we had a market share of 72.3% in domestic leased-line services, Powercomm had a market share of 10.2% and DACOM had a market share of 6.3%.

Mobile Telecommunications. Competition in the mobile telecommunications industry in Korea is intense among cellular service provider SK Telecom and PCS service providers KT Freetel and LG Telecom. As of April 30, 2004, in terms of number of subscribers, we estimate that KT Freetel (including 2.1 million resale subscribers of KT Corporation) had a market share 32.4% of the mobile service market. SK Telecom acquired control of Shinsegi in a series of transactions ending in April 2000, and Shinsegi merged into SK Telecom in January 2002. As of April 30, 2004, SK Telecom had a market share of approximately 52.0% based on the total number of mobile subscribers in Korea.

In January 2003, the Ministry of Information and Communication announced its plan to implement mobile number portability, which would allow mobile telephone service subscribers to switch their mobile service provider while retaining the same mobile phone number. Subscribers who switch service providers must purchase a new handset and may return to the original service provider without paying any penalty within 14 days of the switch. Mobile number portability has been allowed to subscribers of SK Telecom starting in January 2004 and will be allowed to subscribers of KT Freetel and LG Telecom starting July 2004 and January 2005, respectively. Following the implementation of mobile number portability, 553,275 of SK Telecom’s subscribers switched to KT Freetel from January 1, 2004 to April 30, 2004. We expect some of KT Freetel’s current subscribers to switch to SK Telecom and LG Telecom when KT Freetel’s subscribers are able to transfer their existing mobile numbers starting July 1, 2004.

The Ministry of Information and Communication also announced that starting in January 2004, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number would be given the uniform mobile code of “010” as the first three digits of their mobile numbers without regard to the mobile service provider. The Ministry of Information and Communication is planning to implement the uniform mobile code to all mobile numbers by 2007.

The cellular services provided by SK Telecom and the PCS services provided by the PCS service providers have had a material adverse effect on KT Corporation in terms of the number of subscribers to KT Corporation’s fixed-line telephone services and our revenues from fixed-line telecommunications services. We expect this situation to continue. See “Item 5. Operating and Financial Review and Prospects”.

Value-Added Service Providers

Value-added service providers may commence operations following filing of a report to the Ministry of Information and Communication. 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 using telecommunications facilities leased from network service providers.

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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 in network service providers (including us) by foreign shareholders to 49% of issued shares with voting rights. In addition, the Foreign Investment Promotion Act regulations prohibit a foreign shareholder from being our largest shareholder if such shareholder holds 5% or more of our shares. See “Item 4.B. Business Overview—Regulation—Foreign Investment”. While the WTO Agreement enables us to seek foreign investors and strategic partners and to more easily take advantage of 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 Ministry of Information and Communication has comprehensive regulatory authority over the telecommunications industry and all network service providers. The Ministry of Information and Communication’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 Ministry of Information and Communication. Our license as a network service provider permits us to engage in a wide range of telecommunications services.

Rates

Under current regulations implementing the Telecommunications Business Law, a network service provider may set its rates at its discretion, although it must report to the Ministry of Information and Communication 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

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Ministry of Information and Communication, it must obtain prior approval from the Ministry of Information and Communication for the rates and the general terms for that service. Each year the Ministry of Information and Communication designates the service providers and the types of services for which the rates and the general terms must be approved by the Ministry of Information and Communication. In 2003, the Ministry of Information and Communication designated us for local telephone service and SK Telecom for cellular service. The Ministry of Information and Communication, in consultation with the Ministry of Finance and Economy, 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.

In January 2001, the Ministry of Information and Communication announced its intention to adopt a price range system for local service rates, under which local service providers (including us) may set the rates for their service at their own discretion within a range determined by the Ministry of Information and Communication. However, it remains uncertain when such price range system for local service rates will be implemented. Although no system has been implemented yet, we expect that this price range system would allow local service providers to increase their rates each year by a percentage no higher than the percentage increase in the consumer price index minus an amount that would be subject to periodic review. This system would give us greater flexibility in setting our local rates in response to market conditions, but we cannot give any assurance that the system will be adopted as contemplated or at all.

Other Activities

A network service provider, such as us, must obtain the permission of the Ministry of Information and Communication in order to:

• engage in businesses other than certain businesses specified in the Presidential Decree under the Telecommunications Business Law such as telecommunications equipment manufacturing business and 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 Ministry of Information and Communication. The Ministry of Information and Communication can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the Ministry of Information and Communication under the Telecommunications Business Law.

The Ministry of Information and Communication’s responsibilities also include:

• formulating the basic plan for the telecommunications industry;

• preparing periodic reports to the National Assembly of the Republic regarding developments in the telecommunications industry;

• setting technical standards for all service providers; and

• promoting technological development and technological standardization.

The Ministry of Information and Communication may also recommend to network service providers that they invest a percentage of their total annual revenues 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”

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telecommunications services in Korea. Telecommunications service providers designated as “universal service providers” by the Ministry of Information and Communication are required to provide universal telecommunications services such as local services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships. We have been designated as 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 Ministry of Information and Communication.

Due to the amendment of the Telecommunication 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 telecommunication 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 Ministry of Information and Communication 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 Ministry of Information and Communication based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services.

Korea Communications Commission

In accordance with the Telecommunications Basic Law, the Korea Communications Commission was established within the Ministry of Information and Communication to:

• promote fair competition in the telecommunications industry;

• protect the rights of telecommunications services users; and

• settle disputes between telecommunications service providers.

The Korea Communications Commission is composed of up to nine commissioners appointed by the President of the Republic. The Ministry of Information and Communication has established a working bureau in the Korea Communications Commission to support the work of the Korea Communications Commission and intends to make the Korea Communications Commission more independent. We expect that the Korea Communications Commission will become more active in investigating and settling the above mentioned matters.

Foreign Investment

The Telecommunications Business Law 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% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder. For purposes of the Telecommunications Business Law, the term “foreign invested company” means a company in which foreigners and foreign governments hold 15% 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% limit if it holds less than 1% of our total issued and outstanding Shares with voting rights. As of December 31, 2003, 45.5% of our common shares were owned by foreign investors. There is no restriction on foreign ownership for specific service providers and value-added service providers. In the event that a network

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service provider violates the shareholding restrictions, its shareholders cannot exercise voting rights for their shares in excess of such limitation, and the Ministry of Information and Communication may require corrective measures be taken to comply with the ownership restrictions.

Individual Shareholding Limit

In January 1999, the Government amended the Privatization Law and raised the ceiling on individual shareholdings from 7% to 15%. Accordingly, our articles of incorporation had provided for an individual shareholding limit of 15%. However, with the completion of the disposition of the Government’s ownership interest in us in May 2002, the Privatization Law ceased to apply to us after the general shareholders’ meeting held in August 2002 and such ceiling on individual shareholding specified in the articles of incorporation has been eliminated. See “Item 10. Additional Information—Item 10.B. Memorandum and Articles of Incorporation—Limitation on Shareholding”.

Relationship with the Government

Government as Shareholder

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.

Government as Regulator

Under Korean law, the Government, primarily through the Ministry of Information and Communication, has authority to regulate all aspects of our activities. Currently, our telecommunications rates for local telephone service are subject to Ministry of Information and Communication’s approval. See “Item 4.B. Business Overview—Regulation”. The form of our standard agreement for providing local network service and each of our agreements for interconnection with other service providers are also subject to the Ministry of Information and Communication’s approval. In addition, we are required to furnish reports relating to our business and affairs to the Ministry of Information and Communication and from time to time consult with Ministry of Information and Communication officials on these matters. See “Item 4.B. Business Overview—Regulation”.

Government as Customer

The Government purchases services from us on an arm’s-length basis. The rates charged to the Government for our services are the same as those charged to the public.

Contributions to Government

We make contributions to the Ministry of Information and Communication, primarily to its Information and Telecommunication Improvement Fund. Our contributions amounted to Won 97 billion in 2001, Won 69 billion in 2002 and Won 63 billion in 2003. See Note 30 to the Consolidated Financial Statements.

Since 1988, the Government has sold shares of a number of Government-owned companies to promote the efficiency of these companies. Examples include the privatization of POSCO completed in 2000 and the partial privatization of Korea Electric Power Corporation in 1989, 1999 and 2000. In keeping with its privatization plans, the Government has gradually reduced its ownership interest in us since 1993 and completed the disposition of all of its equity interest in us in May 2002.

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The following table shows the dates, the number of shares sold in each series of share sales by the Government:

	Number of Shares Sold
November 9, 1993(1)	5,723,470
April 19, 1994	14,283,020
November 10, 1994(2)	8,752,480
October 14, 1996	152,000
November 12, 1996(3)	3,648,800
November 29, 1996	9,565,440
December 12, 1996(4)	6,920,000
May 28, 1999	20,813,311
February 20, 2001	3,330,640
July 2, 2001	55,502,161
January 4, 2002(5)	36,770,183
May 23 and 24, 2002(6)	70,859,544

(1) Not including 5,758,200 shares and 17,309,330 shares sold to our employee stock ownership association and the National Pension Corporation.

(2) Not including 5,760,000 shares sold to our employee stock ownership association.

(3) Not including 3,324,000 shares sold to our employee stock ownership association.

(4) Not including 1,730,000 shares sold to our employee stock ownership association.

(5) We purchased these shares from the Government as treasury shares, of which 27,404,193 shares have been reserved in connection with our convertible notes offering to foreign investors in January 2002.

(6) Not including 17,714,885 shares sold to our employee stock ownership association. The Government sold 33,618,983 shares to domestic strategic investors, 6,931,690 shares to institutional investors and 6,784,479 shares to individual investors in the May 2002 domestic public offering. In addition, we purchased 23,524,392 shares from the Government as treasury shares in connection with our domestic convertible bond offering in May 2002.

Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act the Government had a 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 (chusik hoesa) 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 within 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. See “Item 6. Directors, Senior Management and Employees”. With the completion of disposition of the Government’s ownership interest in us in May 2002, the Privatization Law ceased to apply to us after the general shareholders’ meeting in August 2002.

Customers and Customer Billing

We charge residential subscribers and business subscribers the same rates for services provided. 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. In Seoul, approximately half of our subscribers pay through the direct-debit service. Subscribers who incur charges in an amount greater than the amount deposited at initial installation receive a notice of payment from us and if such charges are not paid after the notice, we cease to provide outgoing service to such subscribers after a period of time determined by, among other things, their credit history. If charges are still not paid after outgoing service is cut off, we cease all services

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to such subscribers after a period of time determined by the head of our relevant regional office. After service is ceased, we transfer the account to a collection agency and the overdue charges that are not collected by the collection agency are written off.

To support business subscribers and meet their increasing demand for data communications services, we have initiated an on-site service system. Under this system, business subscribers have access to an account manager who has the capability to market new products and services tailored to the needs of the business subscribers and provide systems management consulting and technical assistance.

Insurance

We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our two satellites, 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 provide co-location and a variety of value-added services including web- and server-hosting and application-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 PCS network of KT Freetel. In addition, we own buildings and real estate.

Our fixed-line equipment vendors include well-known international and local suppliers such as Samsung Electronics, Cisco, LG Electronics and Lucent Technologies. Our major mobile equipment suppliers are Samsung Electronics, LG Electronics and Lucent Technologies.

Exchanges and Transmission Equipment

Exchanges include local exchanges and “toll” exchanges that connect local exchanges to long-distance transmission facilities.

All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges on June 9, 2003 in order to provide higher speed and larger volume services. We had 25.2 million lines connected to local exchanges and 2.1 million lines connected to toll exchanges as of December 31, 2003.

Access Lines

As of December 31, 2003, we had 25.2 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 ADSL and VDSL technology. As of December 31, 2003, we had approximately 5.6 million broadband lines that enable us to deliver high-speed Internet access and multimedia content to our customers.

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Domestic Backbone

Our domestic fiber network consisted of 128,478 kilometers of fiber as of December 31, 2003. Our network is based on a synchronous digital hierarchy (SDH) architecture, which allows for instantaneous re-routing and reduced failure in the event of a fiber cut. In addition, SDH offers better reliability and performance for optical fiber transmission at a lower operating cost. In certain parts of our SDH network we have installed dense wavelength division multiplexing (DWDM) equipment. DWDM technology allows the combination of data from multiple signals on an optical fiber by carrying each signal on a separate wavelength, and hence substantially improving bandwidth efficiency.

Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consists of 56 relay sites and 6 satellite earth stations.

International Long-Distance Network

Our international long-distance network infrastructure consists of both submarine cables and satellite transmission systems, which link our national network directly to 109 telecommunications service providers in 77 international destinations.

International calls are routed between Korea and international destinations through our four international switching centers, two of which are located in Seoul, while the other two are located in Daejun and Pusan. Each center had four international gateway switches with a combined simultaneous call capacity of 52,050 as of December 31, 2003.

In order to supplement the capacity of our cable and microwave networks and enhance our domestic long-distance and broadcasting services, we operate two telecommunications satellites, Koreasat II and III, launched in 1996 and 1999, respectively. The two satellites are due to reach the end of their normal operational lives in 2007 and 2015, respectively. We are planning to launch Koreasat V in May 2006 to replace Koreasat II. Koreasat V will be a telecommunication satellite with 24 transponders and an expected useful life of approximately 15 years. See “Item 4.B. Business Overview—Other Telecommunications Services”.

Personal Communication Services (PCS) Networks

Our PCS 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 PCS networks of KT Freetel as of December 31, 2003.

Mobile switching centers	59
Base station controllers	441
Base transceiver stations	9,286
Indoor and outdoor repeaters	169,514
Total capacity (millions)	20.7
Population coverage of 2.0 generation network	98	%
Population coverage of 2.5 generation network	84	%
Population coverage of 3.0 generation (IMT-2000) network	27	%

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Through our consolidated subsidiary KT Freetel, we have 20 MHz of bandwidth in the 1,800 MHz spectrum to provide PCS services based on CDMA wireless network standards. We also have another 20 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 enable us to provide a wide range of advanced call features and value-added services.

We have been upgrading our digital networks to provide 2.5 generation multimedia services. Toward this effort, we have installed 2,557 IS-95C base transceiver stations as of December 31, 2003. Starting in February 2002, we have also installed 2,132 EV-DO base transceiver stations as of December 31, 2003, and we expect to install an additional 607 EV-DO base transceiver stations in 2004. We launched our 2.5 generation services in May 2001 and currently have population coverage of 84%. We launched test service of our 3.0 generation service (IMT-2000) in December 2003 in metropolitan Seoul and parts of Gyunggi Province, and KT Freetel is planning to offer IMT-2000 service in 45 cities by December 2005, subject to market conditions and service demand.

International Submarine Cable Networks

International long-distance 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 20.9% interest in the 1,762-kilometer R-J-K fiber optic submarine cable network connecting Korea, Japan and Russia, completed in January 1995;

• a 38.9% interest in the 549-kilometer C-K-C fiber optic submarine cable network connecting Korea with China, completed in January 1996;

• 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, completed in January 1997;

• a 1.4% interest in the 29,000-kilometer Fiber Optic Link Around the Globe network connecting Korea, Southeast Asia, the Middle East and Europe, completed in April 1997;

• a 2.0% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries, completed in 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, completed in January 2000;

• a 4.0% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong, Philippines, Singapore and Malaysia, to be completed in September 2001; and

• a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, completed in March 2002.

We have also invested in 19 other international fiber optic submarine cables around the world.

Item 5. Operating and Financial Review and Prospects

Overview

We are an integrated provider of telecommunications services. Our principal services include fixed-line telephone services, interconnection services to other telecommunications companies, business and data communications services including broadband Internet access service and leased-line service, and mobile telecommunications services through our consolidated subsidiaries. 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.

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Historically, our revenues were derived principally from fixed-line telephone services which consist of local, domestic long-distance and international long-distance services. In recent years we have been deriving an increasing portion of our operating revenues from business and data communications services (including broadband Internet access and leased-line services), PCS service, land-to-mobile interconnection and other telecommunications services. The principal factors affecting our operating revenues from these services have been our rates for, and the volume of, usage of these services. For information on rates we charge for telephone services, see “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates”.

The following table shows, for each of the years in the three-year period ended December 31, 2003, our operating revenues, expenses and operating income, and each amount as a percentage of total operating revenues.

	Year Ended December 31,
	2001				2002				2003
	(in billions of Won)		(percentage of total operating revenues)		(in billions of Won)		(percentage of total operating revenues)		(in billions of Won)		(percentage of total operating revenues)
Operating revenues:
Fixed-line telephone services:
Local service	(Won)	2,750	17.2	%	(Won)	2,897	17.6	%	(Won)	3,026	18.8	%
Non-refundable service installation fees		233	1.5			251	1.5			125	0.8
Domestic long-distance service		1,046	6.5			1,061	6.5			932	5.8
International long-distance service		535	3.3			534	3.2			451	2.8
Sub-total		4,564	28.5			4,743	28.8			4,534	28.2
Land-to-mobile interconnection		2,698	16.9			2,152	13.1			2,075	12.9
Business and data communications services:
Broadband Internet access service		1,116	7.0			1,572	9.6			1,885	11.7
Leased-line service		1,116	7.0			1,054	6.4			900	5.6
Internet-related services		392	2.5			418	2.5			485	3.0
Miscellaneous		260	1.6			208	1.3			184	1.2
Sub-total		2,884	18.1			3,252	19.8			3,454	21.5
PCS service		3,735	23.4			4,127	25.1			4,164	25.9
Sales of goods		1,256	7.9			1,367	8.3			1,154	7.2
Others:
System and network integration services		199	1.2			258	1.6			115	0.7
Satellite service		101	0.6			124	0.8			120	0.8
Miscellaneous		541	3.4			414	2.5			452	2.8
Sub-total		841	5.2			796	4.9			687	4.3
Total operating revenues		15,978	100.0			16,437	100.0			16,068	100.0
Operating expenses:
Salaries and related costs		2,960	18.5			3,089	18.8			3,710	23.1
Depreciation and amortization		4,010	25.1			3,797	23.1			3,757	23.4
Other operating and maintenance(1)		7,032	44.0			7,170	43.6			6,778	42.2
Total operating expenses		14,002	87.6			14,056	85.5			14,245	88.7
Operating income		1,976	12.4	%		2,381	14.5	%		1,823	11.3	%

(1) For a breakdown of other operating and maintenance expenses, see “Item 5.A.Operating Results—Other Operating and Maintenance Expenses”.

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We have two reportable operating segments—a wireline communications segment and a PCS services segment. Wireline communications include all services provided to fixed-line customers, including local, domestic long-distance and international long-distance telephone service, interconnection service, and business and data communications services, including broadband Internet access service and leased-line service. The revenues for the PCS services segment include sales of PCS handsets. Our operations such as submarine cable construction and group telephone management that are provided by some of our consolidated subsidiaries are included in the “Miscellaneous” segment under Note 2(ag) to the Consolidated Financial Statements. The revenues from the “Miscellaneous” segment are included in “Other” in the above table.

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 the Republic’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—If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected”. A number of other developments have had a material impact on our results of operations, financial condition and capital expenditures. These developments include:

• developing and implementing IMT-2000 services;

• stock swap transactions with SK Telecom;

• employee reductions and changes in severance and retirement benefits;

• a change in the rate structure for land-to-mobile interconnection;

• changes in the rate structure for local, domestic long-distance and international long-distance telephone services;

• changes in the telephone installation charge system that have resulted and will continue to result in our having to make refunds of deposits; and

• a change in the telephone tax system.

As a result of these changes, our financial results in the past may not be indicative of future results or trends in those results.

Developing IMT-2000 Services

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 KT Freetel. In March 2001, KT ICOM, a company created by the consortium to offer IMT-2000 services, paid half of the Won 1.3 trillion license fee payable to the Ministry of Information and Communication. KT ICOM subsequently merged into KT Freetel on March 6, 2003 in a stock-for-stock transaction. KT Freetel will pay the remaining Won 650 billion over a period of five years starting in 2007 as follows: Won 90 billion in 2007, Won 110 billion in 2008, Won 130 billion in 2009, Won 150 billion in 2010 and Won 170 billion in 2011. The Ministry of Information and Communication also charges interest rates of three-year Government bonds minus 0.75% on these amounts until they are paid, which are currently accruing.

IMT-2000 presents risks and challenges to our business, any or all of which if realized or not addressed may have a material adverse effect on our financial condition and results of operations. Specifically, IMT-2000 is a new and developing technology. New content, solutions and network must be developed for IMT-2000. We expect KT Freetel to leverage its existing PCS network and 2.5-generation technology to minimize its capital expenditures and other costs related to developing IMT-2000 services. However, we believe KT Freetel will still require significant amounts of research and development and capital expenditures to build out its IMT-2000 network. KT Freetel began test service of its IMT-2000 services in metropolitan Seoul and parts of Gyunggi Province in December 2003, and KT Freetel is planning to offer IMT-2000 services in 45 cities by December 2005. KT Freetel and its competitors may, however, delay the nationwide roll-out of third-generation services if there are unfavorable market conditions and weak service demand.

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Stock Swap Transactions with SK Telecom

SK Telecom and we agreed to an equity swap on December 20, 2002, under which each company agreed to sell to the other all of the equity ownership in the other. Accordingly, on December 30, 2002 and January 10, 2003, we exchanged an aggregate of 8,266,923 shares of SK Telecom, or a 9.3% interest in SK Telecom, for an aggregate of 29,808,333 of our shares previously owned by SK Telecom plus Won 335 billion in cash. We recognized a gain on the disposition of the shares of SK Telecom in the amount of Won 908 billion in 2002 and Won 775 billion in 2003. As a result of the stock swap transactions with SK Telecom, we no longer own any interest in SK Telecom.

Employee Reductions and Changes in Severance and Retirement Benefits

In 2001, we reduced our workforce by 1,389 employees under a voluntary early retirement program. The aggregate amount of retirement and severance benefits paid in 2001 was approximately Won 87 billion (including Won 13 billion of normal retirement and severance benefits). In 2002, we implemented another voluntary early retirement program under which a total of 166 employees retired. The aggregate amount of retirement and severance benefits paid in 2002 was approximately Won 19 billion (including Won 3 billion of normal retirement and severance benefits). In 2003, we implemented another voluntary retirement program under which a total of 5,497 employees retired. The aggregate amount of retirement and severance benefits paid in 2003 was approximately Won 942 billion (including Won 111 billion of normal retirement and severance benefits). See “Item 6. Directors, Senior Management and Employees—Item 6.D Employees—The Voluntary Early Retirement Programs” and Note 16 to the Consolidated Financial Statements.

We pay a lump-sum retirement and severance benefit to employees who have been employed by us for more than one year when they leave. In 1999 we changed the method of calculating retirement and severance benefits with the consent of our employees’ labor union in order to reduce retirement and severance expenses. Prior to July 1, 1999, employees received more than one month’s salary and wages for each year of service. Starting July 1, 1999, employees receive only one month’s salary and wages for each year of employment. The amount that would have been payable to our employees using the previous method if they had all retired on June 30, 1999 was Won 2,389 billion. We decided to pay the entire amount, together with applicable interest on such amount, to our employees during 2000 and the first half of 2001 as an interim settlement of their retirement and severance benefits. We paid Won 1,741 billion in 2000 and Won 745 billion in 2001 (including accrued interest). Of these amounts, Won 115 billion in 2000 and Won 1 billion in 2001 were paid from funds previously deposited with insurance companies.

A Change in the Rate Structure for Land-to-mobile Interconnection

On December 12, 2002, the Ministry of Information and Communication issued an order revising the interconnection charge calculation method applicable beginning January 2002. On December 12, 2002, the Ministry of Information and Communication issued another order lowering the base usage charge collected from a landline user for a call initiated by a landline user to a mobile service subscriber. As a result, the base usage charge per ten seconds collected from a landline user for a call initiated by a landline user to a mobile service subscriber on a weekday decreased from Won 19.00 as of April 1, 2000 to Won 14.83 as of July 1, 2003. The interconnection charge we pay per minute (exclusive of value-added taxes) to SK Telecom, KT Freetel and LG Telecom decreased from Won 63.6, Won 65.7 and Won 65.7 in 2001 to Won 45.7, Won 53.5 and Won 59.0 in 2002, respectively. These rates further decreased to Won 41.0, Won 48.0 and Won 52.9 in 2003. We expect these changes in the rate structure to have a negative impact on our land-to-mobile interconnection revenues and profits. Revenues from land-to-mobile interconnection accounted for 12.9% of our operating revenues in 2003, compared to 13.1% in 2002. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Interconnection”.

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Changes in the Rate Structure for Local, Domestic Long-distance and International Long-distance Telephone Services

On April 15, 2001, with the approval from the Ministry of Information and Communication, we changed the rate structure for our local telephone service which applies to all our customers. We lowered usage charges from Won 45 per pulse (generally three minutes) to Won 39 per pulse while increasing the basic monthly charge from the previous range of Won 1,500 to Won 4,000 to the new range of Won 2,500 to Won 5,200, depending on location. Such adjustment in the rate structure has 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. Revenues from local telephone service were Won 3,026 billion in 2003, compared to Won 2,750 billion in 2001. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Fixed-line Telephone Services”.

From September 10, 2002 to December 9, 2002, with the approval from the Ministry of Information and Communication, we also offered an optional flat rate plan for our fixed-line telephone service subscribers who had been our customers since August 1, 2001. Under the optional plan, a subscriber who elected to pay the monthly average of local and domestic long-distance usage amounts previously paid by such subscriber from August 1, 2001 to July 31, 2002 plus an extra charge of Won 1,000 to Won 5,000 each month (depending on average usage amount) is able to make unlimited minutes of local and domestic long-distance calls for up to 12 months from the election date. We obtained an approval from the Ministry of Information and Communication to extend the optional flat rate plan for another 12 months for those subscribers who had previously elected to participate. The plan is not renewable at the expiration of the 24-month period unless we obtain another approval from the Ministry of Information and Communication. Such optional flat rate plan has increased the portion of fixed income and stabilized our cash flow. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Domestic Long-distance Telephone Service.”

Starting March 10, 2003, we changed the rate structure for our international long-distance telephone service. We lowered our international long-distance rates applicable to most countries while decreasing the discounted hours during weekdays from 12 hours to 6 hours and on Saturdays from 16 hours to 6 hours and the discount rates applicable during these hours from 30% to 10%. Our normal rates for international long-distance calls to the United States, Japan and China decreased by 60%, 18% and 22%, respectively. We expect such adjustment in the rate structure to have a negative effect on our revenues from international long-distance service. Revenues from international long-distance service accounted for 2.8% of our operating revenues in 2003, compared to 3.2% in 2002. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—International Long-distance Service.

Changes in the Telephone Installation Charge System

In September 1998, with the approval of the Ministry of Information and Communication, we implemented an alternative telephone installation charge system that allowed our new and existing customers to choose between a pre-existing plan and a second plan for telephone service. Under the pre-existing plan, a customer paid a basic monthly charge and was also required to post a non-interest-bearing refundable telephone installation deposit ranging from Won 122,000 to Won 242,000, depending on the size of the local calling area in which the phone was installed, and a non-refundable installation fee of Won 8,000. The deposit was required to be refunded upon termination of service. Under the second plan, customers paid a Won 100,000 non-refundable installation fee instead of the refundable telephone installation deposit and paid a higher basic monthly charge. When customers switched from the pre-existing plan to the second plan, we refunded the telephone installation deposit (less Won 92,000, reflecting the Won 100,000 non-refundable installation fee under the second plan minus the Won 8,000 non-refundable installation fee paid under the pre-existing plan) to these customers.

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Starting on April 15, 2001, we implemented a new telephone installation charge system as part of our adjustment in the rate structure for local telephone services described above. New customers who did not previously subscribe to our local services no longer have the option to choose the pre-existing plan and must pay a Won 60,000 non-refundable installation fee (including value added tax). Our existing customers who are enrolled in the pre-existing plan may switch to the new plan and receive the telephone installation deposit (less Won 52,000, reflecting the Won 60,000 non-refundable installation fee under the new plan minus the Won 8,000 non-refundable installation fee paid under the pre-existing plan). Our existing customers who enrolled under the second plan cannot switch to the new plan. These telephone installation fees are recognized as revenues. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Fixed-line Telephone Services”.

The non-refundable installation fees and higher monthly charges payable by our customers under the revised plans have partially offset the amount of the refunds, but the refunds have increased our reliance on short-term and long-term debt for our working capital and other capital requirements.

A Change in the Telephone Tax System

In December 2000, the Government ruled that Korean fixed-line telecommunications service providers, which include ourselves, are eligible for a refund of the 10% value added tax assessed based on capital and other applicable expenditures incurred on or after September 1, 2001. Prior to that date, the value added tax we paid to Korean tax authorities was non-refundable.

Effective starting September 1, 2001, the National Assembly abolished the telephone excise tax charged to our customers as part of their monthly service charges. However, starting September 1, 2001, we are charging our customers a 10% value added tax.

Taxes we collect from our customers are remitted by us to the Korean tax authorities. We also record revenues in our financial statements net of such taxes. Effective from September 1, 2001, value added tax we collect from our customers can be offset against value added tax refundable to us by the Korean tax authorities. The total amount of value added tax refunded to us by the Korean tax authorities was Won 123 billion in 2002 and Won 60 billion in 2003.

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 effect on our stockholders’ equity as of December 31, 2002 and 2003 and the results of our operations for each of the years in the three-year period ended December 31, 2003, in Note 34 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 policies”. These policies have the potential to have a more significant impact on our financial

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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 policies 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; and

• Income taxes

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 after all means of collection have been exhausted and the potential for recovery is considered remote.

Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2003 are summarized as follows:

	2001			2002			2003
	(in millions of Won)
Balance at beginning of year	(Won)	241,272		(Won)	330,345		(Won)	430,066
Increase due to the changes of consolidated subsidiaries		—			483			65
Provision		162,655			194,288			363,774
Write-offs		(73,582	)		(95,050	)		(147,632	)
Balance at end of year	(Won)	330,345		(Won)	430,066		(Won)	646,273

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% decrease or increase in the historical write-off experience would increase or decrease the provision for doubtful accounts by approximately Won 50 billion.

Useful lives of property, plant and equipment

Property, plant and equipment are depreciated based on the useful lives disclosed in Notes 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 purpose 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 in useful life by one year would result in an increase of depreciation expense of approximately Won 361 billion.

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

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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 15 years and will be amortized commencing on the date commercial service is initiated through the end of its contractual life. We started to amortize this frequency usage right on December 1, 2003. Because IMT-2000 presents risks and challenges to our business, any or all of which, if realized or not properly addressed, may have a material adverse effect on our financial condition and results of operations, 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 and assumptions on terminal value. The use of different assumptions within our cash flow model could result in different amounts for the IMT-2000 frequency usage right. The results of our review using the testing method described above did not indicate any need to impair the IMT-2000 frequency usage right for 2003.

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 goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of goodwill is recorded against the equity income (losses) of affiliates.

Under U.S. GAAP, when events or circumstances indicate that the carrying amount of an 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 cost. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.

We currently own 48.1% of KT Freetel, and owned 46.9% as of December 31, 2003. Under Korean GAAP, an entity is required to be consolidated with the holding entity if the holding entity is the largest shareholder of the entity and owns more than 30% of the entity’s equity. Accordingly, we consolidate KT Freetel under Korean GAAP. However, under U.S. GAAP, KT Freetel is accounted for as an investment under the equity method of accounting.

KT Freetel is a publicly held company which trades on the Korea Stock Exchange. Using the testing method described above, in considering whether our investment in KT Freetel is other-than-temporarily impaired, we compare the closing price of the KT Freetel shares compared to our carrying value.

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For the years ended December 31, 2002 and 2003, we recognized an impairment loss amounting to Won 663 billion and Won 790 billion, respectively, relating to KT Freetel under U.S.GAAP, principally due to our conclusion that the decline of the KT Freetel stock price merited such an impairment.

If the quoted market value of KT Freetel continues to decline, we may be required to record additional impairment losses.

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 ultimate 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.

In 2001, KT M.com merged with and into KT Freetel. As a result of KT M.com’s operating performance in 2001 as well as a change in tax regulations, KT Freetel was able to utilize KT M.com’s loss carryforward in the amount of Won 97 billion in 2001, Won 151 billion in 2002 and Won 136 billion in 2003. However, KT Freetel, having concluded that it is not probable that the tax benefit of the loss carryforward generated by KT M.com could be realized in future years, did not recognize a deferred income tax asset related to KT M.com’s remaining loss carryforwards of Won 290 billion as of December 31, 2003, which will expire through 2005. The utilization of remaining loss carryforwards is dependent on whether or not KT M.com’s operating businesses in KT Freetel would be able to generate a profit in future years.

During 2003, having concluded that it is not probable that we would be able to realize the tax benefit of our equity in losses of affiliates within the near future, mainly from KT Freetel’s goodwill amortization expense, we wrote off the related deferred income tax assets in the amount of Won 134 billion by taking a charge to deferred income tax expense under Korean GAAP. However, under U.S. GAAP, we did not recognize valuation allowance. For an investment in an equity method investee, there is no prescribed time limit with respect to the realization of a deferred tax asset, provided that the tax basis exceeds its book basis under U.S. GAAP.

Item 5.A. Operating Results

Fixed-line 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 Hanaro and mobile service providers whenever Hanaro and mobile service providers use our network in providing their local 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. 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. After the implementation of the new rate structure in 2001, revenues from local service increased from Won 2,750 billion in 2001 to Won 3,026 billion in 2003.

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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.

In 2002, we had local service revenues of Won 2,897 billion, representing an increase of 5.3% compared to 2001 local service revenues of Won 2,750 billion. The increase in local service revenues in 2002 was due principally to a change in the rate structure for our local telephone service and, to a lesser extent, to the implementation of our optional flat rate plan in the last quarter of 2002, which had a positive effect on our financial condition by increasing the portion of fixed income and stabilizing our cash flow, and a 2.0% increase in lines in service as of December 31, 2002 compared to December 31, 2001. See “—Overview—Changes in the Rate Structure for Local, Domestic Long-distance and International Long-distance Telephone Services”. These effects more than offset the effect of a 13.3% decrease in the number of local call pulses in 2002 compared to 2001 which were attributable principally to the continued increase in usage of mobile telephone services and the Internet.

In 2003, we had local service revenues of Won 3,026 billion, representing an increase of 4.5% compared to 2002 local service revenues of Won 2,897 billion. The increase in local service revenues in 2003 was due principally to the implementation of our optional flat rate plan, which more than offset a 12.1% decrease in the number of local call pulses in 2003 compared to 2002 attributable principally to the continued increase in usage of mobile telephone services and the Internet.

Non-refundable Service Installation Fee. Prior to April 15, 2001, we recognized as revenue the non-refundable service installation fee paid by customers who had chosen an alternative plan instead of the pre-existing plan. Starting on April 15, 2001, we implemented a new telephone installation charge system, pursuant to which new customers who did not previously subscribe to our local service no longer have the option to choose the pre-existing plan and must pay a Won 60,000 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—Fixed-line Telephone Services”. We recognized as revenue Won 233 billion in non-refundable service installation fees in 2001, Won 251 billion in 2002 and Won 125 billion in 2003.

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 DACOM, Onse, mobile service providers and voice resellers whenever they use our network in providing their domestic long-distance 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 total operating revenues, decreasing from 6.5% of our total operating revenues in 2001 to 5.8% in 2003.

In 2002, we had domestic long-distance revenues of Won 1,061 billion, representing an increase of 1.4% from 2001 domestic long-distance revenues. The increase in domestic long-distance revenues in 2002 was due principally to the implementation of our optional flat rate plan, which more than offset the effect of a 12.7% decrease in the number of domestic long-distance call minutes in 2002 compared to 2001. The decrease in call minutes was due principally to the substitution effect of increased mobile telephone and Internet usage.

In 2003, we had domestic long-distance revenues of Won 932 billion, representing a decrease of 12.2% from 2002 domestic long-distance revenues. The decrease in domestic long-distance revenues in 2003 was due principally to the implementation of our optional flat rate plan and, to a lesser extent, a 0.7% decrease in the number of domestic long-distance call minutes in 2003 compared to 2002. The decrease in call minutes was due principally to the substitution effect of increased mobile telephone and Internet usage. For more information on the optional flat rate plan, see “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Fixed-line Telephone Services”.

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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;

• amounts we charge to DACOM, Onse, mobile service providers and voice resellers as interconnection fees for using our network in providing their international long-distance 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 service) are billed in accordance with our rate schedule for the country called, 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 approximately 66% of our total international long-distance call minutes in 2003. See “Item 4. Information on the Company—Item 4.B. Business Overview—Our Services—Our Telephone Network and Fixed-line Telephone Services—International Long-Distance Service”.

In 2002, we had international long-distance revenues of Won 534 billion, representing a decrease of 0.2% compared to 2001 international long-distance revenues. Our international long-distance revenues remained fairly constant in 2002 as increased competition offset a 4.7% increase in the number of international long-distance call minutes to and from Korea in 2002 compared to 2001.

In 2003, we had international long-distance revenues of Won 451 billion, representing a decrease of 15.5% compared to 2002 international long-distance revenues. Our international long-distance revenues decreased in 2003 due principally to the implementation of our lower rates in March 2003 and a 5.6% decrease in the number of international long-distance call minutes to and from Korea in 2003 compared to 2002.

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—Interconnection”.

In 2002, we had land-to-mobile interconnection revenues of Won 2,152 billion, representing a decrease of 20.2% from 2001 interconnection revenues, primarily due to a 17.7% decrease in the usage charge which are collected by us as land-to-mobile interconnection fees, Won 19.0 per ten seconds in 2001 to Won 15.6 per ten seconds in 2002, as well as increased volume of calls between mobile subscribers which had the effect of lowering call volume from landline users to mobile subscribers.

In 2003, we had land-to-mobile interconnection revenues of Won 2,075 billion, representing a decrease of 3.6% from 2002 interconnection revenues, primarily due to increased volume of calls between mobile subscribers which had the effect of lowering call volume from landline users to mobile subscribers, as well as lower land-to-mobile interconnection rates in 2003 compared to 2002. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Interconnection”.

Business and Data Communications Revenues

Traditionally, the largest component of our business and data communications revenues has been our revenues from leased lines, which accounted for 38.7% of our business and data communications revenues in

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2001, 32.4% in 2002 and 26.1% in 2003. However, broadband Internet access service is accounting for an increasing portion of our total operating revenues since we began offering the service in 2000 and in 2002 and 2003 accounted for the largest component of our business and data communications revenues. Broadband Internet access service accounted for 38.7% of our business and data communications revenues in 2001, 48.3% in 2002 and 54.6% in 2003. Internet-related services, which include Internet-related value-added services provided by our Internet data centers, Kornet, bizmeka.com and hanmir.com, accounted for 13.6% of our business and data communications revenues in 2001, 12.9% in 2002 and 14.0% in 2003. Miscellaneous services include packet service, participation in construction of national infrastructure network, integrated services digital network (ISDN) service, electronic document transfer service and modem dial-up service under the brand name 014XY.

In 2002, we had business and data communications revenues of Won 3,252 billion, representing an increase of 12.8% from 2001 business and data communications revenues, primarily due to an increase in our broadband Internet access subscribers from approximately 3.9 million as of December 31, 2001 to approximately 4.9 million as of December 31, 2002.

In 2003, we had business and data communications revenues of Won 3,454 billion, representing an increase of 6.2% from 2002 business and data communications revenues, primarily due to continued increase in our broadband Internet access subscribers from approximately 4.9 million as of December 31, 2002 to approximately 5.6 million as of December 31, 2003.

Broadband Internet Access Service Revenues. Broadband Internet access service revenues increased to Won 1,572 billion in 2002 from Won 1,116 billion in 2001 primarily due to an increase in subscribers and the launch of our wireless LAN service in February 2002.

Broadband Internet access service revenues increased to Won 1,885 billion in 2003 from Won 1,572 billion in 2002 primarily due to continued increase in our broadband Internet access subscribers, as well as subscribers of our wireless LAN service.

Leased-line Service Revenues. Leased-line revenues decreased to Won 1,054 billion in 2002 from Won 1,116 billion in 2001, primarily due to a decrease in revenues from Internet service providers utilizing connections other than through leased-lines.

Leased-line revenues decreased to Won 900 billion in 2003 from Won 1,054 billion in 2002, primarily due to continued decrease in revenues from Internet service providers utilizing connections other than through leased-lines.

Internet-related Service Revenues. Internet-related service revenues increased to Won 418 billion in 2002 from Won 392 billion in 2001, primarily due to increased revenues from our Internet data centers, Kornet, bizmeka.com and a general increase in usage of our other Internet-related value added services.

Internet-related service revenues increased to Won 485 billion in 2003 from Won 418 billion in 2002, primarily due to increased revenues from bizmeka.com and our other Internet-related value added services.

Miscellaneous Revenues. The miscellaneous component of our business and data communications revenues decreased to Won 208 billion in 2002 from Won 260 billion in 2001.

The miscellaneous component of our business and data communications revenues decreased to Won 184 billion in 2003 from Won 208 billion in 2002.

PCS Revenues

KT Freetel, a consolidated subsidiary in which we currently own a 48.1% effective interest, provides PCS service.

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In 2002, PCS service revenues increased by 10.5% to Won 4,127 billion, and revenues from sales of goods increased by 8.8% to Won 1,367 billion, primarily due to a 7.7% increase in the number of subscribers, including the resale subscribers of KT Corporation, to approximately 10.3 million subscribers as of December 31, 2002 compared to 9.6 million as of December 31, 2001. The average monthly revenue per subscriber of KT Freetel decreased slightly to Won 38,694 in 2002 from Won 38,729 in 2001.

In 2003, PCS service revenues increased by 0.9% to Won 4,164 billion primarily due to a 1.1% increase in the number of subscribers, including the resale subscribers of KT Corporation, to approximately 10.4 million subscribers as of December 31, 2003 compared to 10.3 million as of December 31, 2002. Revenues from sales of goods decreased 15.6% to Won 1,154 billion in 2003, primarily due to a decrease in the number of handsets purchased by PCS service subscribers. The average monthly revenue per subscriber of KT Freetel decreased to Won 38,538 in 2003 from Won 38,694 in 2002.

Other Revenues

Revenues from other services consist primarily of revenues from system and network integration consulting services, satellite communications services, domestic and international telegram services and KTH.

Other revenues decreased by 5.4% in 2002 to Won 796 billion primarily due to a decrease in revenues from submarine cable construction and maintenance, which more than offset a 29.6% increase in revenues from system and network integration consulting services and a 22.8% increase in revenues from satellite services in 2002 compared to 2001.

Other revenues decreased by 13.7% in 2003 to Won 687 billion primarily due to a 55.4% decrease in revenues from system and network integration services, which more than offset a 9.2% increase in revenues from miscellaneous services.

Salaries and Related Costs

The principal components of salaries and related costs are salaries and wages, provisions for retirement and severance benefits and employee benefits. Employee benefits include meal subsidies, commuting subsidies and contributions to pension plans. The retirement and severance benefit is a lump-sum amount paid to employees who have been employed by us for more than one year when they leave. We changed the method of calculating the lump-sum amount effective July 1, 1999 with the consent of our employees’ labor union in order to reduce retirement and severance expenses, as discussed in “Item 5. Operating and Financial Review and Prospects—Overview—Employee Reductions and Changes in Severance and Retirement Benefits” above.

In 2002, salaries and related costs were Won 3,089 billion, representing a 4.4% increase from 2001, primarily as a result of a 7.6% increase in salaries and wages which more than offset a 19.6% decrease in provision for retirement and severance benefits, including early retirement payments. The increase in salaries and wages occurred despite a 0.1% decrease in the number of employees as of December 31, 2002 compared to December 31, 2001, and reflected higher incentive bonus.

In 2003, salaries and related costs were Won 3,710 billion, representing a 20.1% increase from 2002, primarily as a result of an increase in provision for retirement and severance benefits resulting from our latest round of voluntary early retirement program. In September 2003, we offered a voluntary early retirement plan to 5,497 of our employees and recognized costs of Won 832 billion related to this plan. See Note 16 to the Consolidated Financial Statements.

Wireline Communications. In 2002, salaries and related costs increased by 4.4% to Won 2,757 billion for the reasons described above. The number of employees as of December 31, 2002 decreased by 0.2% compared to December 31, 2001. In 2003, salaries and related costs increased by 22.8% to Won 3,385 billion, primarily as a result of an increase in provision for retirement and severance benefits of the latest round of voluntary early retirement program.

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PCS Service. In 2002, salaries and related costs increased by 42.3% to Won 195 billion primarily as a result of a 37.2% increase in salaries and wages and a 125.0% increase in provision for retirement and severance benefit. The number of employees at KT Freetel increased by 4.3% to 2,505 as of December 31, 2002 compared to 2,403 as of December 31, 2001. In 2003, salaries and related costs decreased by 1.5% to Won 192 billion primarily as a result of a decrease in the number of employees at KT Freetel by 2.3% to 2,446 as of December 31, 2003 compared to 2,505 as of December 31, 2002.

Depreciation and Amortization

In 2002, depreciation and amortization expense decreased by 5.3% to Won 3,797 billion due primarily to a decrease in capital expenditures on property and equipment in 2002 as a result of more efficient utilization of our facilities.

In 2003, depreciation and amortization expense decreased by 1.1% to Won 3,757 billion due primarily to a decrease in capital expenditures on property and equipment in 2003.

Wireline Communications. Depreciation and amortization expense decreased by 10.6% in 2002 to Won 2,714 billion and 7.3% in 2003 to Won 2,515 billion due primarily to a decrease in capital expenditures on property and equipment in recent years as a result of a more efficient utilization of our facilities.

PCS Service. In 2002, depreciation and amortization expense increased by 17.3% to Won 729 billion due primarily to additional capital expenditures at KT Freetel to enhance and expand its mobile network. In 2003, depreciation and amortization expense increased further by 16.5% to Won 849 billion due primarily to increases in capital expenditures at KT Freetel to enhance and expand its mobile network.

Other Operating and Maintenance Expenses

The largest components of other operating and maintenance expenses are commissions and cost of services, cost of PCS handsets, interconnection payments for landline to mobile calls, 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, 2003:

	Year Ended December 31,						Year-Ended December 31,
	2001		2002		2003		2001/2002		2002/2003
	(in billions of Won)
Commissions and cost of services and settlement payments	(Won)	2,263	(Won)	2,344	(Won)	2,117	3.6	%	(9.7	)%
Cost of goods sold		1,206		1,346		1,131	11.6		16.0
Interconnection charge		1,593		1,188		1,077	(25.4	)	(9.3	)
Repairs and maintenance		387		421		451	8.8		7.1
Other expenses		1,583		1,871		2,002	18.2		7.0
Total	(Won)	7,032	(Won)	7,170	(Won)	6,778	2.0	%	(5.5	)%

Commissions, cost of services and settlement payments consist principally of payments to foreign carriers and administrations for provision of international long-distance service pursuant to service agreements, commissions related to PCS handset sales and system and network integration services and production of prepaid phone cards. In 2002, our commissions, cost of services and settlement payments increased by 3.6% to Won 2,344 billion as a 25.4% increase in commissions related to 114 phone directory services to Won 795 billion more than offset a 5.7% decrease in commissions to PCS sales agents to Won 632 billion and a 13.1% decrease in international settlement payments to Won 174 billion. In 2003, our commissions, cost of services and settlement payments decreased by 9.7% to Won 2,117 billion, primarily as a result of a 28.3% decrease in commissions for system integration service and other miscellaneous services to Won 532 billion, as well as a 10.5% decrease in commissions to PCS sales agents to Won 565 billion.

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The cost of goods sold was Won 1,206 billion in 2001, Won 1,346 billion in 2002 and Won 1,131 billion in 2003.

We recognize as an expense the interconnection payments to mobile service providers for calls from landline users to mobile service subscribers. We paid interconnection charges of Won 1,593 billion in 2001, Won 1,188 billion in 2002 and Won 1,077 billion in 2003. Our payments to cellular service providers were calculated in 2002 and 2003 by taking the actual Imputed Costs in 2000 of SK Telecom and taking into consideration several factors including the call volume of each mobile service provider in determining interconnection charges we pay per minute to SK Telecom, KT Freetel and LG Telecom. See “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Interconnection”.

Our repair and maintenance expenses increased by 8.8% in 2002 to Won 421 billion and by 7.0% to Won 451 billion in 2003 primarily due to expansion and maintenance of our broadband network.

Provision for doubtful accounts increased by 19.4% in 2002 to Won 194 billion and by 87.2% in 2003 to Won 364 billion primarily due to an increase in unpaid accounts resulting from an increase in the number of consumers in Korea with credit risks in recent years.

Wireline Communications. The largest components of other operating and maintenance expenses are commissions and settlement payments, interconnection payments for landline to mobile calls and repair and maintenance expenses discussed above.

PCS Service. The largest components of other operating and maintenance expenses are commissions (including commissions related to PCS handset sales), sales promotion costs and advertisement costs.

Operating Income

Operating income in 2002 increased by 20.5% to Won 2,381 billion, as the increase in operating revenues more than offset the increase in expenses described above. Our operating margin also increased to 14.5% in 2002.

Operating income in 2003 decreased by 23.4% to Won 1,823 billion as a result of an increase in expenses described above, as well as a decrease in operating revenues. Our operating margin decreased to 11.3% in 2003. In particular, our operating income in 2003 was negatively affected by an increase in provision for retirement and severance benefits resulting from our latest round of voluntary early retirement program.

Wireline Communications. In 2002, operating income increased by 23.4% to Won 1,831 billion, as the increase in operating revenues more than offset the increase in operating expenses described above. Operating margin also increased from 12.8% in 2001 to 15.6% in 2002. In 2003, operating income decreased by 32.1% to Won 1,243 billion due to an increase in operating expenses as described above, as well as a decrease in operating revenues. Operating margin decreased to 10.7% in 2003.

PCS Service. In 2002, operating income increased by 3.2% to Won 789 billion as the increase in operating revenues more than offset the increase in expenses described above. Operating margin decreased from 15.2% in 2001 to 14.7% in 2002. In 2003, operating income decreased by 1.4% to Won 778 billion as a decrease in operating revenues more than offset a decrease in operating expenses. Operating margin increased to 15.3% in 2003.

Income Taxes

In 2002, our income tax expense was Won 741 billion and our effective tax rate was 24.7%. In 2003, our income tax expense was Won 524 billion and our effective tax rate was 33.1%. The effective tax rate of 24.7% in 2002 differed from the normal tax rate primarily due to investment tax credit of Won 162 billion in 2002. In

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2003, we recognized investment tax credit of Won 175 billion but also recognized impairment of deferred tax asset of Won 134 million in 2003 resulting from our conclusion that it was not probable for us to be able to realize the tax benefit of our equity in losses of affiliates.

We had investment tax credit carryforward of Won 26 billion outstanding as of December 31, 2003 which are available to reduce our future income taxes through 2008.

Wireline Communications. Income tax expense of the wireline communications segment was Won 652 billion in 2002 and Won 459 billion in 2003, primarily due to a decrease in earnings before income taxes from Won 2,616 billion in 2002 to Won 1,290 billion in 2003.

PCS Services. Income tax expense of the PCS services segment increased from Won 80 billion in 2002 to Won 52 billion in 2003, primarily due to a decrease in earnings before income taxes from Won 612 billion in 2002 to Won 459 billion in 2003.

Net Earnings

Our net earnings increased by 74.9% in 2002 to Won 1,947 billion principally as a result of an 87.5% increase in our net gain on disposition of investment securities to Won 1,177 billion, a 20.5% increase in our operating income discussed above and a net foreign currency translation gain of Won 100 billion in 2002 compared to a net foreign currency translation loss of Won 24 billion in 2001. We recognized net gain on disposition of investment securities of Won 1,177 billion in 2002 principally as a result of our disposition of shares of SK Telecom. On April 11, 2002, we disposed 1,000,000 shares of SK Telecom, or a 1.1% interest in SK Telecom, and recorded a gain on disposition of Won 246 billion. On December 30, 2002, we exchanged 4,457,635 shares of SK Telecom, or a 5.0% interest in SK Telecom, for an aggregate of 15,454,659 of our shares previously owned by SK Telecom plus Won 212 billion in cash. We recognized a gain on disposition of investment securities in the amount of Won 908 billion in this stock swap transaction. We recorded net foreign currency translation gain of Won 100 billion in 2002 primarily as a result of the appreciation of the Won against major currencies, primarily against the Dollar.

Our net earnings decreased by 57.8% in 2003 to Won 822 billion principally as a result of a 23.6% decrease in our operating income discussed above, a 34.3% decrease in our net gain on disposition of investment securities to Won 773 billion, a net foreign currency translation loss of Won 27 billion in 2003 compared to a net foreign currency translation gain of Won 100 billion in 2002, and a 74.9% decrease in contributions received for losses on universal telecommunication services to Won 29 billion. Our net gain on disposition of investment securities decreased in 2003 primarily as a result of an unusually large net gain on disposition of shares of SK Telecom in 2002 which was greater than the net gain on our disposition of additional shares of SK Telecom in 2003. On January 10, 2003, we exchanged an additional 3,809,288 shares of SK Telecom, or a 4.5% interest in SK Telecom, for 14,353,674 of our shares previously owned by SK Telecom plus Won 123 billion in cash. We recognized a gain on disposition of investment securities in the amount of Won 775 billion in this stock swap transaction. We recorded net foreign currency translation loss of Won 27 billion in 2003 primarily as a result of the depreciation of the Won against the Dollar. Contributions received for losses on universal telecommunication services decreased in 2003 as losses resulting from local universal telecommunication services were excluded from contributions starting in 2003. We also recognized additional payment of prior year’s tax of Won 54 billion in 2003 resulting from tax audit by Korea National Tax Service, compared to prior year’s income tax refund of Won 6 billion in 2002. In addition, we recognized impairment loss on available-for-sale securities of Won 44 billion in 2003, primarily as a result of impairment of equity-linked securities resulting from a decrease of the market value of SK Telecom shares. See Note 8(b) to the Consolidated Financial Statements.

Wireline Communications. Net earnings increased by 80.6% in 2002 to Won 1,964 billion and decreased by 57.7% in 2003 to Won 830 billion as a result of the reasons described above.

PCS Service. Net earnings increased by 16.8% in 2002 to Won 531 billion and decreased by 22.6% in 2003 to Won 411 billion as a result of the reasons described above.

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Inflation

We do not consider that inflation in the Republic has had a material impact on our results of operations in recent years. Inflation in the Republic was 4.1% in 2001, 2.7% in 2002 and 3.7% in 2003. See “Item 3. Key Information—Item 3.D. Risk Factors—If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected”.

Item 5.B. Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated:

	For the years ended December 31,
	2001		2002			2003
	(In billions of Won)
Net cash provided by operating activities	(Won)	3,629	(Won)	4,827		(Won)	3,190
Net cash used in investing activities		3,916		4,065			1,481
Net cash provided by (used in) financing activities		755		(844	)		(2,065	)
Cash and cash equivalents at beginning of period		702		1,169			1,087
Cash and cash equivalents at end of period		1,169		1,087			761
Net increase (decrease) in cash and cash equivalents		467		(82	)		(326	)

Capital Requirements

Historically, uses of cash consisted principally of purchases of property, plant and equipment and other assets and payments of long-term debt. In recent years, we have also used cash for acquisition of treasury shares and payment of retirement and severance benefits for early retirement plans. From time to time, we may also require capital for investments involving acquisitions and strategic relationships.

Net cash used in investing activities was Won 3,916 billion in 2001, Won 4,065 billion in 2002 and Won 1,481 billion in 2003, including additions to property, plants and equipment of Won 3,918 billion in 2001, Won 3,232 billion in 2002 and Won 3,209 billion in 2003. We recorded net acquisition of short-term financial instruments of Won 352 billion in 2001 and Won 126 billion in 2002 and net sale of short-term financial instruments of Won 759 billion in 2003.

In our financing activities, we used cash of Won 2,205 billion in 2001, Won 2,065 billion in 2002 and Won 1,989 billion in 2003 for principal repayment of outstanding long-term debt. Repayment of long-term debt in 2002 included our repurchase and retirement of US$108 million aggregate principal amount of 0.25% convertible notes due 2007 and Won 74 billion aggregate principal amount of 3.00% convertible notes due 2005. Repayment of long-term debt in 2003 consisted of our repurchase and retirement of US$84 million aggregate principal amount of 0.25% convertible notes issued due 2007.

From time to time, we have also required capital needs for acquisition of treasury shares and payment of retirement and severance benefits for early retirement plans. In 2002, we spent Won 3,234 billion to purchase 60,294,575 of our shares from the Government as treasury shares as a part of our privatization plan and an additional Won 167 billion to purchase 3,122,000 of our shares on the Korea Stock Exchange for retirement. In 2003, we spent Won 412 billion to purchase an additional 8,773,600 of our shares on the Korea Stock Exchange for retirement. In 2003, we also spent Won 1,021 billion as payment of retirement and severance benefits, primarily resulting from our latest round of early retirement program in which 5,497 employees elected to retire. See Note 16 to the Consolidated Financial Statements.

Payments of cash dividends amounted to Won 161 billion in 2001, Won 225 billion in 2002 and Won 213 billion in 2003.

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 funds to pay cash

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in Dollars the aggregate market values of our common shares deliverable upon conversion of 0.25% convertible notes due 2007 to satisfy their conversion right if such conversion may be effectively prohibited due to their violation of the 49% foreign ownership limitation under the Telecommunications Business Law. As of December 31, 2003, 45.5% of our common shares were owned by foreign investors. See “Item 3. Key Information—Item 3.D. Risk Factors—Limitation on foreign ownership may have an adverse effect on the conversion of our convertible notes”. Holders of the 0.25% convertible notes due 2007 have the option to redeem the notes on January 4, 2005 at 100% of their principal amount of approximately $1,126 million, plus any accrued and unpaid interest to the redemption date. If holders elect to exercise their option, we will be required to spend funds to pay such amounts in Dollars. We may also purchase additional treasury shares on the Korea Stock Exchange from the market.

Our total capital expenditures are estimated to be approximately Won 3,100 billion in 2004 (including approximately Won 950 billion in capital expenditures by KT Freetel). See “—Capital Expenditures”. 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 which 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, 2003, we had various contractual obligations and commitments which are more fully disclosed in the notes to our consolidated financial statements.

The following table sets forth selected information regarding our contractual obligations to make future payments as of December 31, 2003.

	Payments due by period
Contractual obligations(1)	Total	Less than 1 year	1-3 years	4-5 years	After 5 years
	(in billions of Won)
Long-term debt obligations (including current portion of long-term debt)	11,244	2,177	4,899	2,968	1,200
Capital lease obligations	4	1	1	2	—
Other long-term liabilities reflected on our balance sheet	704	—	54	200	450
Total	11,952	2,178	4,954	3,170	1,650

(1) Contractual obligations represent on-balance sheet contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and payments for customer call bonus points, which do not have definitive payment schedules.

In addition, we have entered into off-balance sheet operating lease agreements for certain machinery and equipment that will require capital resources. See Note 22(k)(i) to the Consolidated Financial Statements. Future lease payments under these operating leases as of December 31, 2003 are as follows:

Fiscal year ending December 31,	Amount of payments (in millions of Won)
2004	89,549
2005	54,447
2006	53,665
2007	7,099
2008	7,099
Thereafter	31,949
Total	243,808

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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. Until 1997, additional working capital and other requirements had been met primarily by increases in non-interest-bearing refundable deposits for telephone installation, although as a result of a recent decline in these deposits, short-term and long-term debt and equity financings have increasingly become important sources of cash. For a discussion of the reduction of the amount of these deposits, see “Item 5. Operating and Financial Review and Prospects—Overview—Changes in the Telephone Installation Charge System” and “Item 4. Information on the Company—Item 4.B. Business Overview—Revenues and Rates—Fixed-line Telephone Services”.

Our major sources of cash have been net earnings before depreciation and amortization and proceeds of long-term debt and other long-term liabilities, and we expect that these sources will continue to be our principal sources of cash in the future. Net income before depreciation and amortization were Won 5,123 billion in 2001, Won 5,744 billion in 2002 and Won 4,579 billion in 2003, and cash proceeds from long-term debt were Won 3,226 billion in 2001, Won 5,559 billion in 2002 and Won 1,286 billion in 2003. The sources of such proceeds from long-term debt included:

• the issuance of Won-denominated bonds in 2001, 2002 and 2003 in the aggregate principal amount of Won 5,519 billion having maturities of three to ten years bearing interest at annual rates ranging from 5.00% to 11.00%;

• as part of our privatization efforts, the issuance in May 2002 of Won 1,397 billion aggregate principal amount of 3.00% convertible bonds due 2005 which are convertible into shares at an initial exercise price of Won 59,400 per share;

• as part of our privatization efforts, the issuance in January 2002 of US$1,318 million aggregate principal amount of 0.25% convertible bonds due 2007 which are convertible into shares at an initial exercise price of Won 61,922 per share; and

• as part of our privatization efforts, the issuance in January 2002 of US$500 million aggregate principal amount of 4.30% bonds due 2005 with warrants to purchase shares at an initial exercise price of Won 69,416 per share.

In recent years, KT Freetel has also begun utilizing off-balance financing arrangements to supplement the primary sources of financing discussed above. The off-balance sheet arrangements are as follows:

• On December 16, 2002, KT Freetel transferred its handset installment receivables of Won 529 billion, guarantee insurance and other related rights to KTF First Securitization Specialty Co., Ltd. In return, KT Freetel received cash of Won 470 billion and subordinated debt securities in the principal amount of Won 43 billion and recognized a loss on disposition of trade accounts and notes receivable of Won 15 billion. As of December 31, 2003, all trade receivables under this arrangement were collected.

• On November 4, 2003, KT Freetel transferred its handset installment receivables of Won 340 billion, guarantee insurance and other related rights to KTF Second Securitization Specialty Co., Ltd. In return, KT Freetel received cash of Won 312 billion and subordinated debt securities in the principal amount of Won 19 billion and recognized a loss on disposition of trade accounts and notes receivable of Won 8 billion. As of December 31, 2003, Won 218 billion of trade receivables remained uncollected under this arrangement.

• On December 19, 2003, KT Freetel entered into a securitization agreement with Shinhan Bank that enables KT Freetel to sell trade receivables on an on-going basis until February 28, 2007. KT Freetel initially sold its PCS service receivables of Won 253 billion and received cash of Won 200 billion and subordinated interest in the trade receivables of Won 53 billion. As of December 31, 2003, an aggregate of Won 302 billion of trade receivables remained uncollected under this securitization agreement.

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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. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and other 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 shareholders’ equity decreased from (Won)13,759 billion at December 31, 2001 to (Won)8,397 billion at December 31, 2003, primarily as a result of our acquisition of treasury shares.

Liquidity

We had a working capital (current assets minus current liabilities) deficit of Won 331 billion as of December 31, 2001, surplus of Won 499 billion as of December 31, 2002 and deficit of Won 1,184 billion as of December 31, 2003. The following table sets forth the summary of our significant current assets for the periods indicated:

	As of December 31,
	2001		2002		2003
	(In billions of Won)
Cash and cash equivalents	(Won)	1,169	(Won)	1,087	(Won)	761
Short-term financial instruments		695		820		61
Current portion of available-for-sale securities		—		853		287
Notes and accounts receivable—trade, net of allowance for doubtful accounts		2,773		2,983		2,647
Accounts receivable—other		366		513		323
Inventories		122		244		365

Our cash, cash equivalents and short-term financial instruments maturing within one year totaled Won 1,864 billion as of December 31, 2001, Won 1,907 billion as of December 31, 2002 and Won 822 billion as of December 31, 2003. Under Korean GAAP, bank deposits and all highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term financial instruments primarily consist of time and trust deposits with maturities between four to twelve months. Cash, cash equivalents and short-term financial instruments in 2002 remained at a similar level compared to 2001. The decrease in cash, cash equivalents and short-term financial instruments in 2003 resulted primarily from our net sale of short-term financial instruments of Won 759 billion in 2003 to raise capital for payment of retirement and severance benefits of our latest round of voluntary early retirement program and repayment of short-term borrowing and long-term debt.

The following table sets forth the summary of our significant current liabilities for the periods indicated:

	As of December 31,
	2001		2002		2003
	(In billions of Won)
Notes and accounts payable—trade	(Won)	1,061	(Won)	1,167	(Won)	1,023
Short-term borrowings		1,111		1,116		632
Current portion of long-term debt		1,731		1,846		2,173
Accounts payable—other		1,446		1,485		1,233

As of December 31, 2003, we had unused credit lines of approximately Won 441 billion out of total available credit lines of Won 443 billion. These credit lines permit drawings at an interest rate of approximately 5.8%. 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 had issued guarantees in favor of our consolidated companies of Won 70 billion as of December 31, 2003.

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Capital Expenditures

Capital expenditures on property, plants and equipment in 2003 totaled Won 3,209 billion compared to Won 3,232 billion in 2002 and Won 3,918 billion in 2001.

Our current capital expenditure plan (including expenditures on property, plants and equipment and other investments) calls for the expenditure of approximately Won 3,100 billion in 2004 (including approximately Won 950 billion by KT Freetel). The principal components of our capital investment plans are:

• expansion and modernization of our networks, which are expected to account for approximately 27% of all capital expenditures in 2004;

• capital investments for our Internet access (including broadband) and Internet-related services, which are expected to account for approximately 19% of all capital expenditures in 2004;

• capital investments in PCS and IMT-2000 mobile telecommunications services made by KT Freetel, which are expected to account for approximately 31% of all capital expenditures in 2004;

• capital investments in data communications and related services (including investments for leased-line service and other data communications services but excluding broadband), which are expected to account for approximately 7% of all capital expenditures in 2004;

• capital investments in our fixed-line voice services, which are expected to account for approximately 4% of all capital expenditures in 2004; and

• miscellaneous investment expenses which are expected to account for approximately 12% of all capital expenditures in 2004.

We expect that KT Freetel will obtain the necessary capital from financial institutions. There can be no assurance, however, that KT Freetel will be able to secure sufficient funds on satisfactory terms from these or other sources, and KT Freetel’s failure to secure funds for its capital expenditures and ongoing operating costs may have a material adverse effect on its financial condition and results of operations. We are not under any obligation to fund capital expenditures of KT Freetel if these consolidated subsidiaries are unable to obtain necessary capital through operations or from financial institutions.

U.S. GAAP Reconciliation

In 2001, we recorded net earnings of Won 1,006 billion under U.S. GAAP compared to net earnings of Won 1,113 billion under Korean GAAP, primarily because of the application of different depreciation methods and useful lives, the treatment of equity method affiliates and service installation fees. In 2002, we recorded net earnings of Won 1,556 billion under U.S. GAAP compared to net earnings of Won 1,947 billion under Korean GAAP, primarily because of impairment loss relating to equity method, foreign currency translation of convertible notes and deferred tax effects of U.S. GAAP adjustments. In 2003, we recorded net earnings of Won 395 billion under U.S. GAAP compared to net earnings of Won 822 billion under Korean GAAP, primarily because of impairment loss relating to equity method investments.

Stockholders’ equity under U.S. GAAP is lower than under Korean GAAP by Won 2,562 billion and Won 2,506 billion at December 31, 2002 and 2003, respectively, primarily as a result of:

• the difference in the treatment of minority interests;

• the difference in the treatment of impairment loss relating to equity method;

• the difference in the treatment of service installation fees;

• the difference in the treatment of deferred income taxes on available-for-sale securities; and

• the difference in the treatment of interest capitalization,

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which more than offset the effect of:

• other differences in the treatment of equity method affiliates;

• the aggregate effect of deferred income taxes recognized under U.S. GAAP;

• the effects of different depreciation methods and useful lives; and

• the difference in the treatment of foreign currency translation gains and losses.

In addition, under U.S. GAAP, certain subsidiaries, including KT Freetel, would be accounted for under the equity method and would not be consolidated.

For further discussion of the principal differences between Korean GAAP and U.S. GAAP as they relate to us, see Note 34 to the Consolidated Financial Statements.

Significant Changes in U.S. GAAP

In December 2003, the Financial Accounting Standards Board (“FASB”) issued revised FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, which was issued in January 2003. We will be required to apply FIN 46R to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable interest entities created before January 1, 2004, the interpretation will be applied beginning on January 1, 2005. For any variable interest entities that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of variable interest entities initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amount is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the variable interest entities. We currently do not have any variable interest entities that are within the scope of this interpretation.

FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, was issued in May 2003. This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The statement also includes required disclosures for financial instruments within its scope. For us, the statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the statement will be effective for us on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. We currently do not have any financial instruments that are within the scope of this statement.

In April 2003, the FASB issued Statement of Financial Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Investments and Hedging Activities”. This standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This statement is effective prospectively for contracts entered into or modified after December 31, 2003, and for hedging relationships designated after December 31, 2003. SFAS No. 149 will not have an impact upon initial adoption and is not expected to have a material effect on our results of operations, financial position and cash flows.

In May 2003, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (“Issue 00-21”). Issue 00-21 provides guidance on how to recognize revenue for arrangements that have multiple deliverables. The guidance in Issue 00-21 was effective for arrangements entered into in fiscal periods beginning after June 15, 2003. We have adopted the consensus reached in Issue 00-21. Adoption did not have a significant impact on our financial condition or results of operations.

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In March 2004, the EITF reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired. The EITF 03-1 guidance for determining other-than-temporary impairment will be effective beginning in the second half of 2004. We are currently evaluating the impact that EITF 03-1 may have on our consolidated financial statements.

Item 5.C. Research and Development, Patents, Licenses, Etc.

In order to develop applications of new technology for the Korean telecommunications system, we operate:

• a service development laboratory;

• a technology laboratory;

• an operations support system laboratory; and

• a research and development center devoted to wireless technology.

At December 31, 2003, these research centers employed a total of 628 researchers and additional 116 employees, of whom 98 had doctoral degrees and 494 had master’s degrees. Total expenditures on research and development (excluding the contributions referred to below) were Won 378 billion in 2001, Won 274 billion in 2002 and Won 306 billion in 2003.

A substantial part of our research and development budget is for contributions to unaffiliated educational foundations and institutes conducting research. Under the Telecommunications Basic Law, the Ministry of Information and Communication may recommend that network service providers contribute a percentage of their total annual revenues to telecommunications research institutes in Korea. Our contributions amounted to Won 97 billion in 2001, Won 69 billion in 2002 and Won 63 billion in 2003. See Note 30 to the Consolidated Financial Statements. Under contracts with the recipients of these contributions, we are entitled to co-ownership of intellectual property developed through the use of the contributions and any of the intellectual property may be licensed to a third party only with our consent. Intellectual property developed by our affiliated research and development centers and unaffiliated educational foundations and institutes is licensed on a commercial basis to domestic manufacturers. As of December 31, 2003, we had approximately 4,581 registered patents and approximately 3,027 patents pending domestically and had approximately 476 registered patents and approximately 181 patents pending internationally.

The recent products and systems developed by us include:

• enhanced Internet phone service;

• home network construction;

• next generation telecommunication network construction; and

• integration of wireless LAN and third generation services.

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.

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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 four standing directors, including the President; and

• up to eight outside directors.

All of our directors are elected at the annual general meeting of shareholders. If the total assets of a company listed on the Korea Stock Exchange as of the end of the preceding year exceeds Won 2,000 billion, which is the case with us, the Securities and Exchange Act requires such company to have at least three outside directors with at least half of its total directors being outside directors. Our articles of incorporation provide that the board of directors consists of up to four standing directors and up to eight outside directors. The term of office for all directors is three years, but the term is extended to the close of the annual general meeting of shareholders convened with respect to the last fiscal year of the term.

Under the Securities and Exchange Act, we must establish a committee to recommend 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 recommendation committee. According to our articles of incorporation, such committee must consist of one standing director and four outside directors. Our outside director candidates recommendation committee recommends outside director candidates for appointment at the general shareholders’ meeting.

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:

Name	Position	Years as Director	Age	Expiration of Term of Office
Standing Directors*
Yong-Kyung Lee	President and Chief Executive Officer	2	60	2005
Woo-Sik Kim	Executive Vice President	2	50	2006
Sang-Hoon Lee	Executive Vice President	2	49	2006
Hi-Chang Roh	Senior Vice President	1	51	2005
Outside Directors*
Sung-Deuk Park	President of The Electronic Times	3	64	2007
Chu-Hwan Yim	President, Electronics and Telecommunications Research Institute	2	55	2005
Kook-Hyun Moon	Chief Executive Officer of Yuhan-Kimberly Corporation	2	55	2005
Stuart B. Solomon	Chief Executive Officer of Metropolitan Life Insurance (Korea)	2	54	2005
Jong-Sang Kim	Chief Executive Officer of Seil Tax-Accounting Service	2	57	2006
Do-Hwan Kim	Professor, Sejong University	2	45	2006
Jeong-Ro Yoon	Professor, Korea Advanced Institute of Science and Technology	1	49	2007
Kon-Sik Kim	Professor, Seoul National University	1	49	2007

* All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.

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For the purposes of the 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 recommended by a committee formed for that purpose. The president recommendation committee consists of:

• three outside directors who are elected from among our outside directors;

• one person who is designated by the board of directors from among the ex-presidents or the current president (provided, however, that the incumbent president is prohibited from participation if seeking reelection); and

• one non-government person designated by the board of directors, other than the President, standing directors, former and present officers and employees of any telecommunications business operator and any of their related persons as defined in the Monopoly Regulation and Fair Trade Act, as well as our officers and employees.

Under our articles of incorporation, the president recommendation committee must submit a draft management contract between the company and the candidate covering the management objectives of the company, including management goals during the tenure of the president, to the general meeting of shareholders at the time of recommendation 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 candidate for president. In such case, the chairman of the president recommendation committee, as representative 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 Senior Executive Vice Presidents, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. The executive officers other than the standing directors are appointed by the President and may serve up to three years. Our Chief Financial Officer is Jeong-Soo Suh, Vice President of the Financial Management Office.

The current executive officers are as follows:

Name(1)	Title and Responsibilities	Current Position Held Since	Years with the Company	Age
Kyun-Chul Park	Executive Vice President, Human Resource Office	2002	29	57
Moon-Kee Choi	Executive Vice President, Marketing Planning Group	2003	20	53
Jong-Lok Yoon	Executive Vice President, Research & Development Center	2003	24	46
Won-Pyo Hong	Senior Vice President(2)	2004	9	44
Boo-Kweun Park	Executive Vice President, Quality Management Office	2003	33	53
Byoung-Kon Shin	Senior Vice President, Metropolitan North Regional Business Group	2003	17	47
Tae-Poong Kang	Vice President, Planning and Management Team	2003	24	49
Han-Suk Kim	Senior Vice President, Global Business Center	2003	13	48
Soo-Ho Maeng	Vice President, Management Research Laboratory	2003	14	44
Dong-Hoon Kim	Vice President, Chollabuk Regional Business Group	2003	32	53

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Name(1)	Title and Responsibilities	Current Position Held Since	Years with the Company	Age
Jeong-Soo Suh	Senior Vice President, Financial Management Office	2003	21	46
Kyung-Choon Shin	Vice President, Kangwon Regional Business Group	2003	23	49
Yo-Dong Kim	Senior Vice President, Choongnam Regional Business Group	2003	29	48
Gwang-Ju Seo	Senior Vice President, Next Generation Telecommunications Center	2003	23	47
Myung-Sang Yoon	Senior Vice President, IT Group	2003	20	53
Young-Hyun Cho	Senior Vice President, Technology Investigation & Evaluation Center	2003	20	55
Deok-Rae Lim	Vice President, SI/NI Business Center	2003	23	49
Tae-Soek Roh	Senior Vice President, Customer Service Center	2003	24	49
Dong-Hoon Han	Vice President, Internet Telecommunications Team	2003	23	44
Sung-Man Kim	Vice President, Network Management and Support Center	2003	21	47
Oak-Kie Lee	Vice President, Network Installation Center	2004	20	45
Myeng-Gyu Sun	Vice President, Chollanam Regional Business Group	2002	38	55
Duek-Kyum Kim	Vice President, Taegu Regional Business Group	2003	21	46
Young-Whan Kim	Vice President(2)	2004	21	46
Jong-Soo Lee	Vice President, Choongbuk Regional Business Group	2003	23	49
Ki-Yeoul Kim	Senior Vice President, Audit Office	2003	24	47
Hee-Kyun Park	Vice President, Human Resource Office, Personnel Team	2003	19	48
Byung-Woo Lee	Vice President, Public Relations Office, Public Relations Team	2003	17	47
Haing Min Kwon	Vice President, Vision and Corporate Strategy Office	2003	20	45
In-Sung Jun	Vice President, Business Cooperation Center	2003	24	45
Gwi-Tae Oak	Vice President(2)	2003	24	45
Sang-Heon Song	Vice President, Construction Center	2003	24	45
Jeong-Tae Park	Vice President, New Business Planning Office	2003	20	44
Yu-Yeol Seo	Vice President, Solution Business Center	2003	25	47
Sang-Ho Lee	Vice President, Professional Development Center	2003	21	52
Sang-Hong Lee	Vice President, Service Development Laboratory	2003	20	48
Won-Joong Song	Vice President, Labor Cooperation Management Team	2003	28	49
Tae-Il Park	Vice President, Technology Laboratory	2003	26	48
Yoon-Hak Bang	Vice President, Applied Systems Laboratory	2003	20	46
Hun-Chul Shin	Vice President, Metropolitan West Regional Business Group	2003	23	45
Bong-Kee Yang	Vice President, Metropolitan South Regional Business Group	2003	35	56
Man-Doo Kim	Vice President, Pusan Regional Business Group	2003	32	53
Yeong-Geun Ryou	Vice President, Jeju Regional Business Group	2003	21	48

(1) All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.

(2) Currently on sabbatical.

Item 6.B. Compensation

Compensation of Directors and Executive Officers

For the year ended December 31, 2003, the total amount of salaries, bonuses and allowances paid and accrued to all standing directors and executive officers of KT Corporation for services in all capacities was

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approximately Won 7.7 billion. The aggregate amount set aside or accrued by us to provide person and retirement benefits to such persons was Won 0.6 billion in 2003. Outside directors do not receive salaries, fees for attending meetings or retirement and severance benefits, but their actual expenses required for the execution of their duties are reimbursed.

In August 2002, the chairman of the committee for recommending candidates for President entered into an employment agreement on our behalf with our current President. The employment agreement sets certain management targets to be achieved by the President, including a target for the amount of “economic value added” to be achieved in each year. Economic value added is defined as net operating profits after tax minus the cost of capital. 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 general meeting of shareholders 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, 2003, 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 Recommendation Committee

The Outside Director Recommendation Committee is comprised of four outside directors, Stuart B. Solomon, Kook-Hyun Moon, Jong-Sang Kim and Do-Hwan Kim, and one standing director, Woo-Sik Kim. 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 are appointed on an ad hoc basis when recommendations are required in connection with the appointment of new outside directors. The committee members’ terms expire immediately after the adjournment of the ordinary general meeting of shareholders at which the committee’s formal recommendations are made.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is comprised of five outside directors, Sung-Deuk Park, Chu-Hwan Yim, Do-Hwan Kim, Stuart B. Solomon and Kon-Sik Kim. 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’ term is for one year, to terminate immediately after the ordinary general meeting of shareholders.

Business Strategy Committee

The Executive and Management Committee is comprised of three standing directors, Yong-Kyung Lee, Sang-Hoon Lee and Hi-Chang Roh, and three outside directors, Kook-Hyun Moon, Jong-Sang Kim and Jeong-Ro Yoon. The committee’s duties include the oversight of medium and long-term business strategies, the annual management plans and budget proposals. The committee members’ term is for one year, to terminate immediately after the ordinary general meeting of shareholders.

Executive Committee

The Executive Committee is comprised of all of the standing directors. The committee’s duties include the establishment and management of branch offices, the acquisition and disposal of real estate having market value

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between Won 10 billion to Won 30 billion, making investments and providing guarantees up to Won 10 billion, the disposal and sale of stocks of our subsidiaries, which stocks have a market value of between Won 10 billion and Won 30 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 Won 100 million to Won 1 billion and the issuance of certain debt securities.

Insider Trading Committee

The Insider Trading Committee is comprised of four outside directors, Chu-Hwan Yim, Sung-Deuk Park, Kook-Hyun Moon and Stuart B. Solomon. This committee reviews internal transactions and ensures compliance with applicable insider trading rules and regulations. The committee members’ term is for one year, to terminate immediately after the ordinary general meeting of shareholders.

Audit Committee

Under the Securities and Exchange Act of Korea, we are required to establish an audit committee within the board of directors comprised of three or more outside directors. 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 Jong-Sang Kim, Do-Hwan Kim, Jeong-Ro Yoon and Kon-Sik Kim. Members of the committee are elected by our shareholders at the annual shareholder’s 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 controls and policies; and

• examining improprieties or suspected improprieties.

In addition, in connection with the ordinary general meeting of shareholders, the committee examines the agenda for, and financial statement and other reports to be submitted by, the board of directors at each ordinary general meeting of shareholders.

Differences in Corporate Governance Practices

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences.

NYSE Corporate Governance Standards

KT Corporation’s Corporate Governance Practice

Director independence Independent directors must comprise a majority of the board.

The Securities and Exchange Act 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 Securities and Exchange Act of Korea. The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), and 8 out of 12 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 Recommendation Committee composed of four outside directors and one standing director.
Compensation Committee Listed companies must have a compensation committee composed entirely of independent directors.	We maintain an Evaluation and Compensation Committee composed of five 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 operation guidelines 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 its 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 directors; and an Employee Stock Ownership 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 Program are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines Listed companies must adopt and disclose corporate governance guidelines.	We currently do not have a corporate governance guideline setting forth our practices with respect to relevant corporate governance matters.
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 directors or executive officers.	We have adopted a Code of Ethics for all directors, officers and employees. A copy of our Code of Ethics is available on our website at www.kt..co.kr.

Item 6.D. Employees

On a consolidated basis, we had 43,068 employees as of December 31, 2003,compared to 48,624 employees as of December 31, 2002 and 48,668 employees as of December 31, 2001. KT Freetel had 2,446 employees as of December 31, 2003.

Our efficiency, as measured by lines in service per employee (excluding employees of our subsidiaries), has improved from 446 as of December 31, 1999 to 580 as of December 31, 2003. This improvement has been achieved through the construction of new lines, the continuing modernization of our facilities and the voluntary early retirement programs described below.

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The Voluntary Early Retirement Programs

In 2001, we implemented a voluntary early retirement program under which a total of 1,389 employees retired. We have agreed with the KT Trade Union that we will not conduct any spin-offs in the future which result in layoffs of our employees. The aggregate amount of retirement and severance benefits paid in connection with the 2001 program was approximately Won 87 billion (including Won 13 billion of normal retirement and severance benefits).

In 2002, we implemented another voluntary retirement program under which a total of 166 employees retired. The aggregate amount of retirement and severance benefits paid in connection with the 2002 program was approximately Won 19 billion (including Won 3 billion of normal retirement and severance benefits).

In 2003, we implemented another voluntary retirement program under which a total of 5,497 employees retired. The aggregate amount of retirement and severance benefits paid in connection with the 2003 program was approximately Won 943 billion (including Won 111 billion of normal retirement and severance benefits).

Labor Relations

Although we consider our current relations with our work force to be good, our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base have met with opposition from our labor union. In December 2000, certain members of the KT Trade Union carried out work stoppages, demanding changes in Government policies to prevent widespread layoffs and seeking negotiations with management regarding the scope of our restructuring. In May 2001, certain members of our labor union held protests in our headquarters opposing our strategy of restructuring unprofitable businesses, including 114 phone directory services, and the expected layoffs resulting from such strategy.

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 and/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 the event of a strike, the minimum number of employees necessary to operate the telecommunications business must continue to work.

As of December 31, 2003, about 82.6% of all our employees 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 an annual agreement on wages. 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% of any of our shares offered publicly in Korea. The employee stock ownership association owned 5.76% of our issued shares as of December 31, 2003.

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”.

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Employee Training

We operate a central training and learning center in Daejon and three regional training centers in Wonju, Gimhae and Najoo, offering courses in subjects such as management and new technologies. In 2003, our employees participated in such courses at our central and regional training centers, new employees receive training in technology and service, and selected employees receive additional training to enhance their knowledge and leadership skills. We also send selected employees to the Korea Advanced Institute of Science and Technology for training and to universities in Korea and abroad.

Item 6.E. Share Ownership

Common Stock

The persons who are currently our directors held, as a group, 8,826 common shares as of December 31, 2003, the most recent date for which this information is available. This represented less than 0.01% of our outstanding common shares as of December 31, 2003. The table below shows the ownership of our common shares by directors.

Shareholders	Number of common shares owned(1)
Yong-Kyung Lee	6,195
Woo-Sik Kim	500
Sang-Hoon Lee	1,731
Hi-Chang Roh	400

(1) Each represents less than 0.01% of total common shares.

Stock Options

The following table sets forth information regarding the stock options we have granted to our directors and executive officers. With respect to all of the options granted, we may elect either to issue shares of common stock or pay in cash the difference between the exercise and the market price at the date of exercise. All of the stock options listed below relate to our common shares. See Note 28 to the Consolidated Financial Statements.

Directors	Grant Date	Exercise Period		Exercise Price		Number of Granted Options	Number of Exercised Options	Number of Exercisable Options
		From	To
Yong-Kyung Lee	December 26, 2002	12/27/2004	12/26/2009	(Won)	70,000	300,000	0	300,000
Sung-Deuk Park	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Chu-Hwan Yim	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Kook-Hyun Moon	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Stuart B. Solomon	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Do-Hwan Kim	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Jong-Sang Kim	Sept. 19, 2003	9/17/2005	9/16/2010	(Won)	57,000	5,200	0	5,200
Sang-Hoon Lee	December 12, 2003	12/13/2005	12/12/2010	(Won)	65,000	60,000	0	60,000
Woo-Sik Kim	December 12, 2003	12/13/2005	12/12/2010	(Won)	65,000	60,000	0	60,000

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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, 2003.

Shareholders	Number of Shares	Percent of Class
Employee stock ownership association	16,394,226	5.76
National Pension Corporation	9,461,792	3.32
Directors as a group	8,826	0	(3)
Public	184,894,156	64.91
KT Corporation (held in the form of treasury stock)(1)(2)	74,090,974	26.01
Total issued shares	284,849,400	100.00	%

(1) Includes 1,259,710 shares of treasury stock owned by our treasury stock fund.

(2) Includes shares of treasury stock reserved for delivery upon conversion of the convertible bonds issued in January 2002 and May 2002.

(3) Less than 0.01%.

Before 1993, the Government owned all of our shares. Since 1993, the Government has gradually reduced its ownership and currently does not own any of our issued shares.

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

On November 29, 2002 and December 13, 2002, we sold all of our 46.6% interest in KT ICOM to KT Freetel for Won 540 billion in cash and Won 309 billion in 3-month short term notes. We also purchased Won 336 billion of convertible bonds issued by KT Freetel on November 29, 2002. These convertible bonds have a maturity of three years and are convertible into shares of KT Freetel after one year from the issuance date at an exercise price of Won 37,200 per share.

We have issued guarantees of Won 112 billion as of December 31, 2001, Won 81 billion as of December 31, 2002 and Won 70 billion as of December 31, 2003, in favor of our consolidated subsidiaries. We have also engaged in various transactions with our subsidiaries and affiliated companies. See Note 2(a) 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-73.

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Legal Proceedings

Dispute with the Fair Trade Commission

On February 20, 2001, the Fair Trade Commission issued a cease and desist order prohibiting us from engaging in any activity amounting to an unfair intra-group transaction, claiming that certain of our transactions with our affiliates were in violation of the Fair Trade Laws. The Fair Trade Commission alleged that we had unfairly assisted our affiliates by paying them unreasonably high service fees. We paid a fine of approximately Won 30 billion to the Fair Trade Commission but filed an appeal. On July 9, 2001, the Korean Fair Trade Commission rejected our appeal. We subsequently filed an appeal in the Seoul High Court and intend to continue to seek redress in the courts.

Proceedings by the Ministry of Information and Communication

On June 1, 2000, the Government prohibited wireless service providers from providing subsidies to subscribers for purchase of handsets. Subsequently, the Ministry of Information and Communication has imposed fines on entities deemed to be in violation of such prohibition. From time to time, KT Freetel and we have been subject to such fines. Since March 2003, KT Freetel and we have been assessed fines in the aggregate amounts of Won 18.5 billion and Won 7.0 billion, respectively, including the largest fines to date on February 23, 2004 of Won 7.5 billion and Won 4.1 billion, respectively. KT Freetel and we have paid all of the fines assessed on us. SK Telecom and LG Telecom have also been assessed similar fines in the aggregate amounts of Won 32.7 billion and Won 7.0 billion, respectively.

As penalties for providing illegal handset subsidies, the Ministry of Information and Communication has also imposed temporary restrictions on wireless service providers from obtaining new subscribers and us from obtaining new resale subscribers. On June 15, 2004, the Ministry of Information and Communication announced its latest intention to impose such restrictions, which will apply to LG Telecom from June 21, 2004 to July 20, 2004, KT Freetel from July 21, 2004 to August 19, 2004, KT Corporation from July 21, 2004 to August 9, 2004 and SK Telecom from August 20, 2004 to September 28, 2004.

Retirement Benefits Disputes

In March and June of 2003, we implemented our regular voluntary retirement plan, in which 198 employees chose to participate. Under the plan, employees who elected to participate were provided with a paid leave ranging from 3 to 6 months. Later in 2003, we implemented another voluntary retirement plan, in which we provided participating employees with a different retirement and severance package. On February and March of 2004, 155 former employees filed two lawsuits against us, in an aggregate claim amount of Won 7.2 billion, on the basis that they deserve the same retirement package of the September 18, 2003 plan, alleging that the paid leave they received was inferior to the retirement and severance package offered to the participants of the September 18, 2003 plan. The two lawsuits are pending at the Seoul District Court and Seongnam District Court. We anticipate that the remaining 43 former employees who have not filed lawsuits against us may do so in the near future, and, if such suits are filed, we expect the aggregate amount of their claim to be approximately Won 2 billion.

Dispute in the Philippines

In September 2001 and December 2001, two of three subcontractors of Korea Telecom Philippines, Inc. (“KTPI”), our wholly-owned subsidiary in the Philippines, filed lawsuits seeking damages of approximately US$19 million and US$10 million, respectively, from us in connection with a telecommunication project where KTPI acted as the project manager. PT&T, the project coordinator, defaulted on payments to KTPI and, as a consequence, KTPI was unable to make payments to the three subcontractors. Although their contracts were entered into with KTPI, the plaintiffs brought their claims against us on the basis that KTPI is a small, wholly- owned subsidiary with insufficient assets to pay the claimed amounts and we are the actual party owing payment

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obligations to such sub-contractors. With respect to the claim for US$19 million, which was brought by Korea Communications Engineering, the Seoul District Court held in December 2002 that we should pay US$4.17 million and applicable interest accrued on such amount to the claimant. We accrued US$4.17 million and US$1.1 million of applicable interests as expenses in 2003. The Seoul District Court also ordered that the full amount of the judgment be paid although the judgment was not ultimately concluded, and we filed an application for an order suspending such payment obligation pending our appeal of the judgment. Based on our application, the Seoul District Court reduced our payment obligation to Won 1 billion. We paid such amount but filed an appeal to the Seoul High Court which ruled in our favor. Korea Communications Engineering subsequently appealed the Seoul High Court’s judgment to the Supreme Court of Korea, which appeal is currently pending. The claim for US$10 million was brought by Ssangyong Singapore Pte., Ltd. in the Seoul District Court, but the claim for the entire amount was denied on June 20, 2003. However, Ssangyong Singapore Pte., Ltd. filed an appeal with the Seoul High Court on July 25, 2003. We cannot give assurance that the ultimate outcome of these lawsuits or related future claims will be favorable to us.

Interruption and Slowdown of Internet Services

In April 2003, a suit was filed by 1,587 claimants (including People’s Solidarity for Participatory Democracy, at-home users of the Internet and businesses providing access to the Internet to consumers in their premises) against us and seven other defendants, including five Internet service providers. The claimants have claimed damages in the amount of Won 117 million as a result of interruption and slowdown of Internet services. The interruption and slowdown of Internet services in certain areas was caused by a worm virus that infected MS-SQL server and jammed Internet traffic. We plan to defend against this claim on the basis that it is too onerous to require that we and the other defendants be held liable to protect end-users of Internet services from any and all viruses that may inflict the telecommunications network through which such Internet services are provided, especially in the case of viruses that originate from outside Korea, as was the case in this case. Although we plan to vigorously defend against this claim, we are unable to predict the outcome of this lawsuit or any similar future claims. We further understand that the class of claimants and the amounts claimed in this lawsuit may be increased.

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 dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated. As of December 31, 2003, there were 284,849,400 shares of common stock issued. The dividends set out for each of the years below were paid in the immediately following year.

Year Ended December 31,	Dividend Per Common Stock to Government	Dividend Per Common Stock to Public	Average Dividend Per Share	Total Amount of Dividend Declared
	(in Won)	(in Won)	(in Won)	(in billions of Won)
1999	150	500	294	91.14
2000	450	600	511	159.27
2001	720	720	720	224.05
2002	—	860	860	212.89
2003	—	2,000	2,000	421.52

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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 (a “Differential Rate”). Accordingly, it is possible that in any given dividend distribution, the dividend distribution per share may vary depending on whether major shareholders consent to receiving dividends at a Differential Rate. If any shareholder who would otherwise receive the reduced dividend dissents, such shareholder would receive a dividend at the full rate. When a Differential Rate dividend is to be distributed, the resolution declaring the dividend must specify both the full dividend rate for minor shareholders and the reduced rate for the consenting 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

Not applicable.

Item 9. The Offer and Listing

Item 9.A. Offer and Listing Details

Notes

Our 7.50% Notes due 2006 and 7.625% Notes due 2007 are traded in the over-the-counter market. Sales prices for the Notes are not regularly reported on any exchange or other quotation service. Our 0.25% Convertible Notes due 2007 are listed on the Luxembourg Stock Exchange. There is no existing trading market for our 4.30% Bonds due 2005.

Shares and ADSs

The principal trading market for the shares is the Korea Stock Exchange. The ADSs are traded on the New York Stock Exchange under the symbol “KTC”. The ADSs have been admitted to the Official List of the London Stock Exchange. Each ADS represents one-half of one share.

Item 9.B. Plan of Distribution

Not applicable.

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Item 9.C. Markets

The Korea Stock Exchange

The Korea Stock Exchange began its operations in 1956. Currently it is the only stock exchange in Korea. It has a single trading floor located in Seoul. The Korea Stock Exchange is a non-profit making organization privately managed by its members, consisting of all Korean securities companies and some Korean branches of foreign securities companies.

As of December 31, 2003, the aggregate market value of equity securities listed on the Korea Stock Exchange was approximately Won 355 trillion. The average daily trading volume of equity securities for 2003 was approximately 542 million shares with an average transaction value of Won 2,217 billion.

The Korea Stock Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Stock Exchange 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 Korea Stock Exchange publishes the Korea Composite Stock Price Index every thirty seconds, which is an index of all equity securities listed on the Korea Stock Exchange. 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
Year	Opening	High	Low	Closing	Dividend Yield(1) (percent)	Price Earnings Ratio(2)
1979	131.28	131.28	104.38	118.97	17.8	3.8
1980	100.00	119.36	100.00	106.87	20.9	2.6
1981	97.95	165.95	93.14	131.37	13.2	3.1
1982	123.60	134.49	106.00	127.31	10.5	3.4
1983	122.52	134.46	115.59	121.21	6.9	3.8
1984	116.73	142.46	114.37	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

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					Period Average
Year	Opening	High	Low	Closing	Dividend Yield(1) (percent)		Price Earnings Ratio(2)
1994	879.32	1,138.75	855.37	1,027.37	1.2		16.2
1995	1,013.57	1,016.77	847.09	882.94	1.2		16.4
1996	888.85	986.84	651.22	651.22	1.3		17.8
1997	653.79	792.29	350.68	376.31	1.5		17.0
1998	385.49	579.86	280.00	562.46	1.9		10.8
1999	587.57	1,028.07	498.42	1,028.07	1.1		13.5
2000	1,059.04	1,059.04	500.60	504.62	1.6	(3)	18.6	(3)
2001	520.95	704.50	468.76	693.70	2.0	(3)	14.2	(3)
2002	724.95	937.61	584.04	627.55	1.4	(3)	17.8	(3)
2003	802.5	824.26	512.30	810.71	2.2	(3)	10.9	(3)
2004 (through June 23)	753.28	939.52	716.95	738.93	2.1	(3)	12.8	(3)

Source:    The Korea Stock Exchange

(1) Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only.

(2) The price earnings ratio is based on figures for companies that record a profit in the preceding year.

(3) Starting in April 2000, dividend yield and price earnings ratio of KOSPI 200, an index of 200 equity securities listed on the Korea Stock Exchange. Starting in April 2000, excludes classified companies, companies which did not submit annual reports to the Korea Stock Exchange, and companies which received disqualified opinion from external auditors.

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 Korea Stock Exchange to 15% of the previous day’s closing price of the shares, rounded down as set out below:

Previous Day’s Closing Price (Won)	Rounded Down To (Won)
Less than 5,000.	5
5,000 to less than 10,000	10
10,000 to less than 50,000	50
50,000 to less than 100,000	100
100,000 to less than 500,000	500
500,000 or more .	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 recent 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 Korea Stock Exchange 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 Korea Stock Exchange. A special agricultural and fishery

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tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the Korea Stock Exchange. See “Item 10. Additional Information—Item 10.A. Taxation—Korean Taxation”.

The number of companies listed on the Korea Stock Exchange, 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, Value
Year	Number of Listed Companies	(Millions of Won)	(Thousands of Dollars)(1)	Thousands of Shares	(Millions of Won)	(Thousands of Dollars)(1)
1979	355	2,609,414	5,391,351	5,382	4,579	4,641
1980	352	2,526,553	3,828,691	5,654	3,897	5,905
1981	343	2,959,057	4,224,207	10,565	8,708	12,433
1982	334	3,000,494	4,407,711	9,704	6,667	8,904
1983	328	3,489,654	4,386,743	9,325	5,941	7,468
1984	336	5,148,460	6,222,456	14,847	10,642	12,862
1985	342	6,570,404	7,380,818	18,925	12,315	13,834
1986	355	11,994,233	13,924,115	31,755	32,870	38,159
1987	389	26,172,174	33,033,162	20,353	70,185	88,584
1988	502	64,543,685	94,348,318	10,367	198,364	289,963
1989	626	95,476,774	140,489,660	11,757	280,967	414,431
1990	669	79,019,676	110,301,055	10,866	183,692	256,500
1991	686	73,117,833	96,182,364	14,022	214,263	281,850
1992	688	84,711,982	107,502,515	24,028	308,246	391,175
1993	693	112,665,260	139,419,948	35,130	574,048	676,954
1994	699	151,217,231	191,729,721	36,862	776,257	984,223
1995	721	141,151,399	182,201,367	26,130	487,762	629,614
1996	760	117,369,988	139,031,021	26,571	486,834	575,733
1997	776	70,988,897	50,161,742	41,525	555,759	392,707
1998	748	137,798,451	114,090,455	97,716	660,429	471,432
1999	725	349,503,966	305,137,040	278,551	3,481,620	3,039,654
2000	704	188,041,490	150,162,898	306,163	2,602,211	2,078,028
2001	689	255,850,070	194,784,979	473,241	1,997,420	1,520,685
2002	683	258,680,756	216,071,436	857,245	3,041,595	2,540,590
2003	684	355,362,967	298,123,294	385,852	2,026,774	1,700,314
2004 (through June 23)	677	328,623,361	275,690,739	368,500	1,967,997	1,651,004

Source:    The Korea Stock Exchange

(1) Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Supervisory Commission of Korea and the Securities and Exchange Act. The Securities and Exchange Act was amended fundamentally numerous times in recent years to broaden the scope and improve the effectiveness of official supervision of the securities markets. As amended, the law 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 Korea Stock Exchange. Remittance and repatriation of funds in connection with

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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 Korea Stock Exchange or registered on the KOSDAQ, 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 Supervisory 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 Korea Stock Exchange nor registered on the KOSDAQ 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 Korea Stock Exchange and this securities company places a sell order with another securities company which is a member of the Korea Stock Exchange, 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 Securities and Exchange Act, the Korea Stock Exchange 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 Korea Stock Exchange breaches its obligation in connection with a buy order, the Korea Stock Exchange 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 Won 50 million in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other

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insolvency events. Pursuant to the Securities and Exchange Act, as amended, 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.

Market Price Information

Common Stock

Our shares were listed on the Korea Stock Exchange on December 23, 1998. The price of the shares on the Korea Stock Exchange as of the close of trading on June 25, 2004 was Won 40,250 per Share. The table below shows the high and low closing prices and the average daily volume of trading activity on the Korea Stock Exchange for the shares since December 23, 1998.

	Price		Average Daily Trading Volume
	High	Low
	(in Won)		(Number of Shares)
1999	179,000	33,550	977,499
First quarter	45,000	33,550	789,344
Second quarter	79,000	41,800	1,025,689
Third quarter	91,500	72,200	730,069
Fourth quarter	179,000	74,300	1,355,593
2000	169,000	58,000	941,178
First quarter	169,000	94,000	1,366,174
Second quarter	102,500	73,000	1,173,388
Third quarter	96,900	58,000	510,957
Fourth quarter	73,000	59,000	696,727
2001	81,900	40,500	716,042
First quarter	81,900	55,600	738,074
Second quarter	63,000	51,100	729,157
Third quarter	54,600	40,500	606,358
Fourth quarter	56,800	44,800	788,673
2002	65,000	41,350	1,261,121
First quarter	65,000	44,300	1,772,568
Second quarter	63,200	46,650	1,334,419
Third quarter	56,300	41,350	932,334
Fourth quarter	55,000	48,100	1,031,093
2003	53,600	41,900	867,991
First quarter	53,600	41,900	760,406
Second quarter	50,400	44,200	899,265
Third quarter	46,900	42,650	875,808
Fourth quarter	51,400	43,950	936,020
2004 (through June 25)	47,550	35,900	689,432
First quarter	47,550	42,250	776,735
January	47,550	44,100	1,088,609
February	45,000	43,000	763,433
March	44,500	42,250	537,750
Second quarter (through June 25)	42,150	35,900	597,533
April	42,150	40,200	560,306
May	41,700	35,900	735,219
June (through June 25)	40,250	38,100	493,562

Source: Korea Stock Exchange.

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ADSs

The outstanding ADSs, each of which represents one-half of one share of our common stock, are traded on the New York Stock Exchange and the London Stock Exchange.

The price of the ADSs on the New York Stock Exchange as of the close of trading on June 24, 2004 was $18.02 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 May 25, 1999.

	Price		Average Daily Trading Volume
	High	Low
	(in US$)		(Number of ADSs)
1999 (from May 25)	74.75	27.56	575,160
Second quarter (from May 25)	40.00	27.56	1,419,844
Third quarter	44.25	31.75	440,850
Fourth quarter	74.75	31.50	388,502
2000	74.50	26.88	467,352
First quarter	74.50	41.13	582,749
Second quarter	48.88	32.13	493,857
Third quarter	49.88	30.75	353,878
Fourth quarter	37.88	26.88	438,925
December	35.19	26.88	384,170
2001	39.88	16.39	1,085,253
First quarter	39.88	22.50	541,265
Second quarter	27.75	20.35	889,440
Third quarter	21.87	16.39	1,235,822
Fourth quarter	24.94	18.10	1,666,189
2002	24.64	18.12	1,084,210
First quarter	24.49	18.12	1,620,290
Second quarter	24.64	21.45	1,100,248
Third quarter	22.76	19.42	900,939
Fourth quarter	22.60	19.43	749,067
2003	22.58	16.85	878,552
First quarter	22.58	16.85	904,731
Second quarter	20.43	17.53	873,013
Third quarter	20.35	18.15	801,345
Fourth quarter	21.57	18.50	936,258
2004 (through June 24)	20.35	16.57	889,641
First quarter	20.35	18.60	924,189
January	20.35	18.68	907,430
February	19.65	18.60	1,034,316
March	19.51	18.60	847,287
Second quarter (through June 24)	19.21	16.57	853,337
April	19.21	18.42	778,467
May	18.63	16.57	991,810
June (through June 24)	18.27	17.82	786,828

Source: New York Stock Exchange.

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 Won 5,000 per share (“Common Shares”) and shares of non-voting preferred stock, par value Won 5,000 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, 2003, 284,849,400 Common Shares were issued, of which 1,259,170 shares were held by the treasury stock fund and an additional 72,831,804 shares were held by 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 Korean Securities and Exchange Act of 1962 (the “Securities and Exchange 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 Securities and Exchange 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

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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 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 Supervisory Commission regulations applicable to companies listed on the Korea Stock Exchange 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. See Note 26 to the Consolidated Financial Statements.

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 public notice of the 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, the new Shares, convertible bonds or bonds with warrants must 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 Securities and Exchange 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 Won 2,000 billion, to persons other than existing shareholders in situations described above.

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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% of the Shares publicly offered pursuant to the Securities and Exchange 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% of the total number of all issued and uncancelled Shares then issued. As of December 31, 2003, approximately 5.76% of the issued Shares were held by members of our employee stock ownership association.

Limitation on Shareholdings

The Telecommunications Business Law permits maximum aggregate foreign shareholding in us to be 49% of our total issued and outstanding Shares with voting rights. 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 (i) in which foreign persons and/or foreign governments hold, in aggregate, 15% or more of such company’s total voting shares, (ii) such company’s largest shareholder is a foreign person or a foreign government, and (iii) such company holds at least 1% of our total issued and outstanding Shares with voting rights. For the avoidance of doubt, all of conditions (i) to (iii) in the foregoing clause (3) must exist for such a company to be counted as a “foreign shareholder” for the purposes of calculating whether the 49% foreign shareholding threshold is reached under the Telecommunications Business Law. In addition, Foreign Investment Promotion Act regulations prohibit a foreign shareholder from being our largest shareholder if such shareholder owns 5% or more of our Shares with voting rights. For the purposes of this restriction, a “foreign shareholder” is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Law, provided, however, that no exception is made under the Foreign Investment Promotion Act regulations for companies that own less than 1% of our Shares (see clause (3)(iii) 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 Ministry of Information and Communication 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 holders of an aggregate of 3% 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% of the total number of issued and issued 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 The Korea Daily News, 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% 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 Securities and Exchange Act, any shareholder holding shares equivalent to not less than 1/100 of the total number of shares with voting rights issued may ask us to select and appoint 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, the following matters 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;

• 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, capital reductions or in some other cases which 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 issued 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.

Holders of ADRs exercise their voting rights through the depositary bank, 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 depositary bank 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”.

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

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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 Korea Stock Exchange 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 Korea Stock Exchange 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 Korea Stock Exchange for the one week period before the date of the adoption of the relevant board resolution. However, the Financial Supervisory Commission may adjust this price if we or holders of 30% or more of the Shares we are obligated to purchase do not accept 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 Report

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 Securities and Exchange Act, we must file with the Financial Supervisory Commission and the Korea Stock Exchange (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 Supervisory Commission and the Korea Stock Exchange.

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, internationally recognized foreign custodians and the Korea Securities Depository may act as agents and provide

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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, we may acquire Shares through purchases on the Korea Stock Exchange or through a tender offer. We may also acquire interests in our own Shares through agreements with trust companies, securities investment trust companies and securities investment companies. 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 current fiscal year minus certain reserves.

In general, corporate entities in which we own a 50% or more equity interest may not acquire our Shares.

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

None.

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 to the extent specifically allowed by these laws or otherwise permitted by the Ministry of Finance and Economy. The Financial Supervisory Commission has also adopted, pursuant to its authority under the Korean Securities and Exchange Act, regulations that restrict investment by foreigners in Korean securities and regulate 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 Finance and Economy 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 Finance and Economy may take measures to require any person who plans to conduct transactions to obtain permission or to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.

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Government Review of Issuance of ADSs

In order for us to issue shares represented by ADSs in an amount exceeding US$30 million, we are required to file a prior report of the issuance with the Ministry of Finance and Economy. 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% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Supervisory Commission and the Korea Stock Exchange within five business days after reaching the 5% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1% of the total issued Equity Securities is required to be reported to the Financial Supervisory Commission and the Korea Stock Exchange within five business days from the date of the change.

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%. Furthermore, the Financial Supervisory 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 card from the Financial Supervisory Service as described below. 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.

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 Supervisory Commission regulations (together, the “Investment Rules”) adopted in connection with the stock market opening from January 1992 and after that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the Korea Stock Exchange or registered on the KOSDAQ, unless prohibited by specific laws. Foreign investors may trade shares listed on the Korea Stock

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Exchange or registered on the KOSDAQ only through the Korea Stock Exchange or the KOSDAQ, 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; and

• 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.

For over-the-counter transactions of shares between foreigners outside the Korea Stock Exchange or the KOSDAQ for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a securities company licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the Korea Stock Exchange or the KOSDAQ must involve a licensed securities company in Korea as the other 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 Korea Stock Exchange or the KOSDAQ (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. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a securities company. Foreigners eligible to obtain an investment registration card include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree of the Ministry of Finance and Economy. All Korean offices of a foreign corporation as a group are treated as a separate foreigner 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 cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the Korea Stock Exchange or the KOSDAQ, no separate report by the investor is required because the investment registration card 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 Korea Stock Exchange or the KOSDAQ (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 a foreign investor must ensure that any acquisition or sale by it of shares outside the Korea Stock Exchange or the KOSDAQ 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 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, securities companies, including domestic branches of foreign securities companies, investment trust companies, futures trading companies and internationally recognized custodians which 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.

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Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only foreign exchange banks, including domestic branches of foreign banks, securities companies, including domestic branches of foreign securities companies, the Korea Securities Depository, investment trust companies, futures trading companies and internationally recognized custodians 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% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3% of the total number of shares. 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% of the issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance, by the Ministry of Commerce, Industry and Energy. The acquisition of our Shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Law. The Telecommunications Business Law limits the maximum aggregate foreign shareholdings in us to 49% of the total issued shares with voting rights and Foreign Investment Promotion Act regulations prohibit a foreign shareholder from being our largest shareholder if such shareholder owns 5% or more of our Shares. See “Item 4. Information on the Company—Item 4.B. Business Overview—Regulation—Foreign Investment” and “—Limitation on Shareholdings”. A foreigner who has acquired Shares in excess of such restriction described above may not exercise its voting rights with respect to the Shares exceeding such limitations. As of December 31, 2003, 45.5% of our common shares were owned by foreign investors.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares through a securities company in Korea 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 a securities company. 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 securities company or his Won Account. With respect to the withdrawal of local living expenses, up to US$10,000 in Won equivalent per individual may be withdrawn without governmental approval or filing of any report to governmental authorities. However, if an amount in excess of such threshold is withdrawn in any single withdrawal transaction, such withdrawal must be reported to the Korea Tax Office. 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.

The securities companies and investment trust companies were allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these securities companies and investment trust companies 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.

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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 convertible notes, bonds, 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. In this section, all references to “convertible notes” mean our 0.25% Convertible Notes due 2007 and all references to “bonds” mean our 7.50% Notes due 2006, 7.625% Notes due 2007 and 4.30% Bonds due 2005.

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.

Convertible Notes or Bonds

Tax on Interest

In principle, interest paid to a non-resident by a Korean company is subject to withholding of Korean income or corporation tax unless exempted by relevant laws or tax treaties. However, the Special Tax Treatment Control Law of Korea (the “STTCL”) exempts interest on convertible notes or bonds denominated in a foreign currency (excluding payments to a Korean corporation or resident other than to its overseas permanent establishment) from Korean income and corporation tax. The residence tax referred to below is also therefore eliminated. Therefore, under the STTCL, you may be exempt from any Korean withholding tax on convertible notes or bonds.

Tax on Capital Gains

Korean tax laws currently exclude from Korean taxation gains made by a non-resident without a permanent establishment in Korea from the sale of convertible notes or bonds to non-residents (unless the sale is to the non-resident’s permanent establishment in Korea). In addition, capital gains earned by non-residents in Korea from the transfer of convertible notes or bonds taking place outside of Korea are currently exempt from taxation by virtue of the STTCL, provided that the offering of the convertible notes or bonds is deemed to be an overseas issuance under the STTCL.

In the absence of an applicable treaty or any other special tax laws reducing or eliminating capital gains tax, the applicable rate of tax is the lower of 11.0% of the gross realization proceeds or (subject to the production of satisfactory evidence of the acquisition cost and the transaction cost of the relevant Korean securities) 27.5% of the gain made. There is no provision under relevant Korean law for offsetting gains and losses or otherwise aggregating transactions for the purpose of computing the net gain attributable to sales of Korean securities. If you are a resident of the United States for the purposes of the income tax treaty currently in force between Korea and the United States (“US-Korea Tax Treaty”), you are generally entitled to an exemption from Korean taxation in respect of any capital gain realized on a disposition of convertible notes or bonds, regardless of whether the disposition is to a Korean resident or made within Korea. In order to obtain the benefit of a tax exemption available under applicable tax treaties on or after July 1, 2002, you should submit to the purchaser or the securities company, as applicable, the application for the exemption prior to the time of the payment, together with a certificate of your tax residence issued by a competent authority of your resident country. However, this requirement will not apply to the exemption under Korean tax laws.

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There is no liability for tax on capital gains in respect of the delivery of shares of common stock following the conversion of the convertible notes. The Korean tax authority has interpreted that the acquisition cost of such shares which are subsequently sold is to be calculated as the acquisition cost of the relevant convertible notes.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of death the deceased was domiciled in Korea and (2) 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 the tax amount varies according to the value of the relevant property and the identity of the parties involved. Under Korean inheritance and gift tax laws, convertible notes or bonds issued by Korean corporations are deemed located in Korea irrespective of where they are physically located or by whom they are owned.

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 27.5%. 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 “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. In addition, on or after July 1, 2002, in order to obtain the benefit of a tax exemption available under applicable tax treaties, you should submit an exemption application prior to the time of the dividend payment, together with a certificate of your tax residence issued by a competent authority of your resident country. Excess taxes withheld generally are not recoverable even if you subsequently produce 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% 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 Korea Stock Exchange. 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 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 or reduces the rate of tax on capital gain, the amount of Korean tax imposed on such capital gains will be the lesser of 11% of the gross realization proceeds or, subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 27.5% of the net capital gain.

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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 Korea Stock Exchange 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 or lower rate 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 are generally not recoverable even if you subsequently produce evidence that you were entitled to have taxes withheld at a lower rate.

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.

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 Korea Stock Exchange, 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 Korea Stock Exchange 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.

Although a tax ruling has been issued to the effect that a foreign holder of depositary shares will not be subject to securities transaction tax upon (i) deposit of underlying stock and receipt of depositary shares or upon (ii) the surrender of depositary shares and withdrawal of originally deposited underlying stock, an issue still remains as to whether, in the case where the depositary shares were transferred by one holder to another (which transfer is not subject to securities transaction tax it itself), the surrender of depositary shares and withdrawal of underlying stock by the subsequent (as opposed to the initial) holder of depositary shares will be treated as a taxable event for the purpose of the securities transaction tax. The Korean tax authorities issued another ruling indicating that securities transaction tax would be imposed “when depository shares which were issued upon deposit with an overseas depository of stock issued by a Korean company are later converted into the underlying stock,” except in the circumstances mentioned in the previously discussed ruling issued by the Korean tax authorities. This ruling, however, is silent on certain essential points such as the party responsible for the payment of the tax as well as the amount of tax due in such event. As a result, it remains uncertain under Korean tax law whether the surrender of depositary shares and withdrawal of underlying stock by the holders of depositary other than an initial holder will not trigger the securities transaction tax.

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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 convertible notes, bonds, shares of common stock or ADSs. This summary applies to you only if you hold convertible notes, bonds, shares of common stock or ADSs as capital assets for tax purposes and, in the case of the convertible notes, only if you purchased such convertible notes in the applicable initial offering at their issue price. 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 convertible notes, bonds, shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks;

• a person that holds convertible notes, bonds, 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 convertible notes, bonds, shares of common stock or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of a convertible note, bond, warrant, share of common stock or ADS 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 convertible note, bond, warrant, share of common stock or ADS.

Convertible Notes

Stated Interest

Payments of stated interest on the convertible notes will generally be subject to U.S. federal income taxation as ordinary income at the time such payments are accrued or received, in accordance with your method of tax accounting.

Premium

If you purchase a convertible note at a cost greater than the convertible note’s remaining redemption amount (i.e., the total of all future payments to be made on the convertible note other than payments of stated interest), you will be considered to have purchased the convertible note at a premium, and you may elect to amortize the

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premium as an offset to interest income, using a constant yield method, over the remaining term of the convertible note. If you make this election, it generally will apply to all debt instruments that you hold at the time of the election, as well as any debt instruments that you subsequently acquire. In addition, you may not revoke the election without the consent of the Internal Revenue Service. If you elect to amortize the premium, you will be required to reduce your tax basis in the convertible note by the amount of the premium amortized during your holding period. Convertible notes purchased at a premium will not be subject to the original issue discount rules described above. If you do not elect to amortize premium, the amount of premium will be included in your tax basis in the convertible note. Therefore, if you do not elect to amortize premium and you hold the convertible note to maturity, you generally will be required to treat the premium as capital loss when the convertible note matures.

Market Discount

If you purchase a convertible note at a price that is lower than the convertible note’s remaining redemption amount, by 0.25% or more of the remaining redemption amount, multiplied by the number of remaining whole years to maturity, the convertible note will be considered to bear “market discount” in your hands. In this case, any gain that you realize on the disposition of the convertible note generally will be treated as ordinary interest income to the extent of the market discount that accrued on the convertible note during your holding period. In addition, you may be required to defer the deduction of a portion of the interest paid on any indebtedness that you incurred or continued to purchase or carry the convertible note. In general, market discount will be treated as accruing ratably over the term of the convertible note, or, at your election, under a constant yield method.

You may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a sale of the convertible note as ordinary income. If you elect to include market discount on a current basis, the interest deduction deferral rule described above will not apply. If you do make such an election, it will apply to all market discount debt instruments that you acquire on or after the first day of the first taxable year to which the election applies. The election may not be revoked without the consent of the Internal Revenue Service.

Conversion

For U.S. federal income tax purposes, if you elect to convert a convertible note into shares of common stock or ADSs pursuant to the conversion right incorporated in the terms of the convertible note, you generally will realize no gain or loss from the conversion. Your basis in the shares of common stock or ADSs received upon such a conversion generally will be equal to your adjusted basis in the convertible notes so converted, and your holding period for such shares of common stock and ADSs generally will include the period during which you held such convertible notes.

Adjustment of the Conversion Price

The conversion ratio of the convertible notes is subject to adjustment under certain circumstances. Adjustments that have the effect of increasing the proportionate interest of a holder of the convertible notes in our assets or earnings (for example, an adjustment following the distribution of property by us to our shareholders) can give rise to deemed dividend income to those holders; similarly, a failure to adjust the conversion ratio to reflect a stock dividend or other event increasing the proportionate interest of the holders of the outstanding shares of common stock or ADSs can in some circumstances give rise to deemed dividend income to those holders.

Sale, Exchange or other Disposition

Except as described above under “—Conversion,” you will generally recognize gain or loss on a sale, exchange or other disposition of a convertible note (including pursuant to any cash settlement) in an amount equal to the difference between the amount realized on such sale, exchange or other disposition (less any accrued

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stated interest, which will be taxable as ordinary interest income) and your adjusted basis in the convertible note (or, in the case of cash settlement in respect of less than all of the shares of common stock or ADSs into which the convertible notes may be converted, the amount of such basis allocable to the cash settlement amount). Initially, your tax basis in a convertible note generally will equal the cost of the convertible note to you. Your basis will increase by any amounts that you are required to include in income under the rules governing market discount, and will decrease by the amount of any amortized premium and any payments other than stated interest made on the convertible note. Gain or loss that you recognize on a sale, exchange or other disposition of a convertible note generally will be capital gain or loss, and will be long-term capital gain or loss if the convertible note was 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 advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from payments of interest or in respect of a conversion of the convertible notes into shares of common stock or ADSs, or you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law.

As discussed above, your conversion of convertible notes into shares of common stock or ADSs generally will not be a taxable event for U.S. federal income tax purposes (and, thus, no U.S. federal income tax will be imposed on any gains realized by you on such a conversion transaction). Consequently, any Korean withholding tax imposed on a conversion of convertible notes into shares of common stock or ADSs would be treated for U.S. federal income tax purposes as being imposed on “general limitation” income. Such treatment may affect your ability to utilize any available foreign tax credit in respect of such Korean tax.

The calculation of foreign tax credits and, if you elect to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on your particular circumstances. You should consult your own tax advisers regarding the creditability and deductibility of such taxes.

The Bonds

Stated Interest

Payments of stated interest on the bonds will generally be subject to U.S. federal income taxation as ordinary income at the time such payments are accrued or received, in accordance with your method of tax accounting.

Original Issue Discount

If you invest in a bond, you generally will be subject to the special tax accounting rules for “original issue discount” obligations provided by the Internal Revenue Code and certain U.S. Treasury regulations. The difference between the issue price and the stated redemption price at maturity of the bonds will be the “original issue discount.” The aggregate “issue price” of the bonds is the total principal amount thereof less the fair market value of the warrants at the time of the issuance. The “stated redemption price at maturity” will include all payments under the bonds other than payments of stated interest. You should be aware that, as described in greater detail below, if you invest in a bond, you generally will be required to include original issue discount in ordinary gross income for U.S. federal income tax purposes as it accrues, although you may not yet have received the cash attributable to that income.

In general, and regardless of whether you use the cash or the accrual method of tax accounting, if you are the holder of a bond, you will be required to include in ordinary gross income the sum of the “daily portions” of

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original issue discount on that bond for all days during the taxable year that you own the bond. The daily portions of original issue discount on a bond are determined by allocating to each day in any accrual period a ratable portion of the original issue discount allocable to that period. Accrual periods may be any length and may vary in length over the term of a bond, so long as no accrual period is longer than one year and each scheduled payment of principal or interest occurs on the first or last day of an accrual period. The amount of original issue discount on a bond allocable to each accrual period is determined by:

(i) multiplying the “adjusted issue price” (as defined below) of the bond at the beginning of the accrual period by a fraction, the numerator of which is the annual yield to maturity (defined below) of the bond and the denominator of which is the number of accrual periods in a year; and

(ii) subtracting from that product the amount payable as stated interest allocable to that accrual period.

The “adjusted issue price” of a bond at the beginning of any accrual period will generally be the sum of its issue price (including any accrued interest) and the amount of original issue discount allocable to all prior accrual periods, reduced by the amount of all payments other than any stated interest payments on the bond in all prior accrual periods. All payments on a bond (other than stated interest) will generally be viewed first as payments of previously accrued original issue discount (to the extent of the previously accrued discount), with payments considered made from the earliest accrual periods first, and then as a payment of principal. The “annual yield to maturity” of a bond is the discount rate (appropriately adjusted to reflect the length of accrual periods) that causes the present value on the issue date of all payments on the bond to equal the issue price. As a result of this “constant yield” method of including original issue discount income, the amounts you will be required to include in your gross income if you invest in a bond generally will be lower in the early years and higher in the later years than amounts that would be includible on a straight-line basis.

You generally may make an irrevocable election to include in income your entire return on a bond (i.e., the excess of all remaining payments to be received on the bond, including payments of stated interest, over the amount you paid for the bond) under the constant yield method described above. If you purchase bonds at a premium or market discount and if you make this election, you will also be deemed to have made the election (discussed below under the “Premium” and “Market Discount”) to amortize premium or to accrue market discount currently on a constant yield basis in respect of all other premium or market discount bonds that you hold.

If you purchase a bond at a cost less than its remaining redemption amount (i.e., the total of all future payments to be made on the bond other than payments of stated interest), you generally will also be required to include in gross income the daily portions of original issue discount, calculated as described above. However, if you acquire a bond at a price greater than its adjusted issue price, you will be entitled to reduce your periodic inclusions of original issue discount to reflect the premium paid over the adjusted issue price.

Premium

If you purchase a bond at a cost greater than the bond’s remaining redemption amount, you will be considered to have purchased the bond at a premium, and you may elect to amortize the premium as an offset to interest income, using a constant yield method, over the remaining term of the bond. If you make this election, it generally will apply to all debt instruments that you hold at the time of the election, as well as any debt instruments that you subsequently acquire. In addition, you may not revoke the election without the consent of the Internal Revenue Service. If you elect to amortize the premium, you will be required to reduce your tax basis in the bond by the amount of the premium amortized during your holding period. Bonds purchased at a premium will not be subject to the original issue discount rules described above.

If you do not elect to amortize premium, the amount of premium will be included in your tax basis in the bond. Therefore, if you do not elect to amortize premium and you hold the bond to maturity, you generally will be required to treat the premium as capital loss when the bond matures.

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Market Discount

If you purchase a bond at a price that is lower than the bond’s adjusted issue price, by 0.25% or more of the adjusted issue price, multiplied by the number of remaining whole years to maturity, the bond will be considered to bear “market discount” in your hands. In this case, any gain that you realize on the disposition of the bond generally will be treated as ordinary interest income to the extent of the market discount that accrued on the bond during your holding period. In addition, you may be required to defer the deduction of a portion of the interest paid on any indebtedness that you incurred or continued to purchase or carry the bond. In general, market discount will be treated as accruing ratably over the term of the bond, or, at your election, under a constant yield method.

You may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a sale of the bond as ordinary income. If you elect to include market discount on a current basis, the interest deduction deferral rule described above will not apply. If you do make such an election, it will apply to all market discount debt instruments that you acquire on or after the first day of the first taxable year to which the election applies. The election may not be revoked without the consent of the Internal Revenue Service.

Sale, Exchange and Retirement of the Bonds

You will generally recognize gain or loss on a sale, exchange or other disposition of a bond in an amount equal to the difference between the amount realized on such sale, exchange or other disposition (less any accrued stated interest, which will be taxable as ordinary interest income) and your adjusted basis in the bond. Initially, your tax basis in a bond generally will equal the cost of the bond to you. Your basis will increase by any amounts that you are required to include in income under the rules governing original issue discount and market discount, and will decrease by the amount of any amortized premium and any payments other than stated interest made on the bond. (The rules for determining these amounts are discussed above.) Except as discussed above with respect to market discount, gain or loss recognized on a sale, exchange or other disposition of a bond generally will be capital gain or loss, and will be long-term capital gain or loss if the bond was 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 advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from payments of interest, or you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law.

The calculation of foreign tax credits and, if you elect to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on your particular circumstances. You should consult your own tax advisers regarding the creditability and deductibility of such taxes.

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

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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.

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, 2009 with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradeable on an established securities market in the United States 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”), foreign personal holding company (“FPHC”) or foreign investment company (“FIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradeable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with respect to our 2003 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, FPHC or FIC for our 2004 taxable year. Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividends, because the common shares are not themselves listed for trading on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or common stock and intermediaries though whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. 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 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 advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit 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. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax will be treated for U.S. federal income tax purposes as imposed on “general limitation” income. Such treatment may affect your ability to utilize any available foreign tax credit in respect of such taxes.

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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 convertible notes, bonds, 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

The financial statements as of December 31, 2002 and 2003 and for the three years ended December 31, 2003 included in this annual report have been audited by KPMG Samjong Accounting Corp., independent registered public accounting firm, as stated in their report appearing herein and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. KPMG Samjong Accounting Corp. is the Korean member firm of KPMG. KPMG refers to the network of member firms of KPMG International, each of which is a separate and independent legal entity. KPMG Samjong Accounting Corp.’s address is Star Towers, 10^th Floor, Kangnam-ku Yuksam-dong 773, Seoul (135-984), Korea.

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 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

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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 senior management. 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.

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.

We entered into two currency swap contracts for principal and interest denominated in Won in place of principal and interest of long-term debt denominated in dollars in June 2003. Details of currency swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Contract amount (millions)		Fixed amount (billions)		Receiving interest rate	Paying interest rate	Terminal date
J.P. Morgan	$	50	(Won)	59.8	4.3% per year in Dollars	6.17% per year in Won	January 3, 2005
J.P. Morgan	$	150	(Won)	179.8	3-month LIBOR plus 0.80% in Dollars	3-month LIBOR plus 2.64% in Won	June 23, 2006

Under these currency swap contracts, we recognized a valuation loss of (Won)2.4 billion in 2003.

In October 2003, we also entered into five interest currency swap contracts with financial institutions for principal and the variable rate of interest denominated in Won in place of principal and the fixed rate of interest of long-term debt denominated in Dollars. The principal amounts in Won will be adjusted according to the foreign exchange rate of the terminal date within certain ranges. Details of interest currency swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Contract amount (millions)		Amount (billions)		Fixed Receiving interest rate (1 year)	Variable paying interest rate (6 months)	Terminal date
J.P. Morgan	$	50	(Won)	55 to 60	4.3% (US$)	LIBOR plus 4.55% (Won)	January 3, 2005
Citibank	$	25	(Won)	27 to 30	4.3% (US$)	LIBOR plus 4.45% (Won)	January 3, 2005
UBS Bank	$	25	(Won)	27 to 30	4.3% (US$)	LIBOR plus 4.45% (Won)	January 3, 2005
Deutsche bank	$	50	(Won)	55 to 60	4.3% (US$)	LIBOR plus 4.57% (Won)	January 3, 2005
Shinhan bank	$	50	(Won)	55 to 60	4.3% (US$)	LIBOR plus 4.45% (Won)	January 3, 2005

Under these interest currency swap contracts, we recognized a valuation gain of (Won)5.1 billion in 2003.

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, interest rate swaption contracts and interest 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.

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During 2003, we entered into various interest rate swap contracts with financial institutions for variable rates of interest in place of fixed rates of interest. Details of interest rate swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Nominal premium (millions)		Fixed amount (millions of Dollars and billions of Won)		Fixed interest rate (1 year)		Variable interest rate	Terminal date
J.P. Morgan	$	1.6	US$	150	7.500	%	6-month LIBOR plus 4.320%	June 1, 2006
J.P. Morgan	$	0.5	US$	200	7.625	%	6-month LIBOR plus 4.610%	April 15, 2007
J.P. Morgan		—	(Won)	110	5.290	%	3-month LIBOR plus 1.470%	April 30, 2008
J.P. Morgan		—	(Won)	90	5.810	%	3-month LIBOR plus 2.470% plus contingent spread	December 30, 2004
J.P. Morgan		—	(Won)	90	5.980	%	3-month LIBOR plus 2.470% plus contingent spread	December 30, 2004
Citibank		—	(Won)	110	5.290	%	3-month LIBOR plus 1.470%	April 30, 2008
Shinhan Bank		—	(Won)	180	6.350	%	3-month LIBOR plus 2.470% plus contingent spread	September 30, 2007

Under the above interest rate swap contracts, we recognized a net valuation loss of (Won)13.4 billion in 2003. In addition, we settled two contracts before the terminal date and recognized a transaction gain of (Won)8.2 billion in 2003.

In 2002, we also entered into one interest rate swaption contract with Citibank for variable rates of interest in place of fixed rates of interest. Details of interest rate swaption contract outstanding as of December 31, 2003 are as follows:

Bank	Swaption premium (billions)		Fixed interest rate (3 months)		Variable interest rate (3 months)	Exercise date	Type
Citibank	(Won)	1.9	1.975	%	91-day certified deposit rate	April 25, 2005	Selling

Under the above interest swaption contract, we recognized a valuation gain of (Won)2.4 billion in 2003.

In addition, we entered into five interest currency swap contracts with financial institutions for principal and the variable rate of interest denominated in Won in place of principal and the fixed rate of interest of long-term debt denominated in U.S. dollars in October 2003, as discussed above in “—Exchange Rate Risk”.

See note 22 to the Consolidated Financial Statements.

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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, 2003 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.

	Maturities
													December 31, 2003			December 31, 2002
	2004		2005		2006		2007		2008		Thereafter		Total		Fair Value	Total	Fair Value
	(in Won millions except rates)
Local currency:
Fixed rate	2,735,063		2,504,866		782,105		700,333		520,000		1,200,000		8,442,367		8,333,449	9,706,563	9,560,882
Average weighted rate(1)	5.77	%	6.39	%	6.29	%	6.10	%	5.96	%	5.67	%	5.41	%	—	—	—
Variable rate	37,372		214,805		36,023		16,843		5,595		—		310,638		299,222	215,440	221,086
Average weighted rate(1)	4.33	%	3.55	%	3.49	%	3.54	%	—		—		4.07	%	—	—	—
Sub-total	2,772,435		2,719,671		818,128		717,176		525,595		1,200,000		8,753,005		8,632,671	9,922,003	9,781,968
Foreign currency, principally Dollars:
Fixed rate	—		705,080		232,161		1,723,188		—		—		2,660,429		2,525,139	2,614,218	2,438,474
Average weighted rate(1)	—		1.90	%	1.28	%	—		—		—		2.37	%	—	—	—
Variable rate	36,774		241,956		182,066		1,198		—		—		461,994		446,792	384,703	369,032
Average weighted rate(1)	1.83	%	2.04	%	2.92	%	—		—		—		1.87	%	—	—	—
Subtotal	36,774		947,036		414,227		1,724,386		—		—		3,122,423		2,971,931	2,998,921	2,807,506
Total	2,809,209		3,666,707		1,232,355		2,441,562		525,595		1,200,000		11,875,428		11,604,602	12,920,924	12,589,474

Item 12. Description of Securities Other than Equity Securities

Description of American Depositary Shares

Citibank, N.A. is the depositary bank for our outstanding American Depositary Shares and has agreed to continue to act as the depositary bank for this offering of American Depositary Shares. Citibank’s depositary offices are located at 111 Wall Street, New York, New York 10005. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary bank. ADSs are normally represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs”. The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Korea Securities Depository located at 33 Yoido-dong, Youngdeungpo-ku, Seoul 150-010, Korea.

We have appointed Citibank as depositary bank pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please refer to Registration Number 333-13578 when retrieving such copy.

We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that a holder’s rights and obligations as an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety.

Each ADS represents one-half of one share of common stock on deposit with the custodian. An ADS will also represent any other property received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations.

If you become an owner of ADSs, you will become a party to the deposit agreement and therefore will be bound to its terms and to the terms of the ADR that represents your ADSs. The deposit agreement and the ADRs

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specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of common stock will continue to be governed by the laws of Korea which may be different from the laws in the United States.

As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name or through a brokerage or safekeeping account. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Please consult with your broker or bank to determine what those procedures are. This summary description assumes you have opted to own the ADSs directly by means of an ADR registered in your name and, as such, we will refer to you as the “holder”. When we refer to “you”, we assume the reader owns ADSs and will own ADSs at the relevant time.

Dividends and Distributions

As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian bank. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of a specified record date.

Distributions of Cash

Whenever we make a cash distribution for the securities on deposit with the custodian, we will notify the depositary bank. Upon receipt of such notice the depositary bank will arrange for the funds to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to Korean laws and regulations.

The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The amounts distributed to holders will be net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary bank will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit.

The distribution of cash will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement.

Distributions of Shares

Whenever we make a free distribution of common stock for the securities on deposit with the custodian, we will notify the depositary bank and deposit the applicable number of common stock with the custodian. Upon receipt of notice of such deposit, the depositary bank will either distribute to holders new ADSs representing the common stock deposited or modify the ADS to common stock ratio, in which case each ADS you hold will represent rights and interests in the additional common stock so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.

The distribution of new ADSs or the modification of the ADS-to-share ratio upon a distribution of common stock will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary bank may sell all or a portion of the new common stock so distributed.

No such distribution of new ADSs will be made if it would violate a law (such as the U.S. securities laws) or if it is not, in our opinion or that of the depositary bank, operationally practicable. If the depositary bank does not

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distribute new ADSs as described above, it will use its best efforts to sell the common stock received and will distribute the proceeds of the sale as in the case of a distribution of cash.

Distributions of Rights

Whenever we intend to distribute rights to purchase additional common stock, we will give prior notice to the depositary bank and the depositary bank will determine whether it is lawful and reasonably practicable to distribute rights to purchase additional ADSs to holders.

The depositary bank will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement such as opinions to address the lawfulness of the transaction. You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not obligated to establish procedures to facilitate the distribution and exercise by holders of rights to purchase new common stock directly rather than new ADSs.

The depositary bank will not distribute the rights to you if:

• we do not timely request that the rights be distributed to you or we request that the rights not be distributed to you;

• we fail to deliver satisfactory documents to the depositary bank; or

• the depositary bank determines that it is not reasonably practicable to distribute the rights.

The depositary bank will sell the rights that are not exercised or not distributed if such sale is, in our opinion, lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse.

Other Distributions

Whenever we intend to distribute property other than cash, common stock or rights to purchase additional common stock, we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, the depositary bank will determine whether such distribution to holders is lawful and reasonably practicable.

If it is reasonably practicable to distribute such property to you and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable.

The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.

The depositary bank will not distribute the property to you and will sell the property if:

• we do not request that the property be distributed to you or if we ask that the property not be distributed to you;

• we do not deliver satisfactory documents to the depositary bank; or

• the depositary bank determines that all or a portion of the distribution to you is not reasonably practicable.

The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.

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If a distribution consists of a dividend in, or a free distribution of, our non-voting preferred stock, we will enter into a non-voting shares deposit agreement with the depositary bank. If you are an owner of ADSs, you will become a party to the non-voting shares deposit agreement and will receive depositary shares representing the non-voting preferred stock in proportion to your holding of ADSs. However, if the depositary bank determines that such a distribution of our non-voting preferred stock is not feasible, it may adopt, after consultation with us, another method of effecting such a distribution which it deems to be equitable and practicable. If we issue rights with respect to our non-voting preferred stock, the securities issuable upon the exercise of such rights will be depositary shares representing our non-voting preferred stock issued pursuant to a non-voting shares deposit agreement.

We will not be obligated to list depositary shares representing our non-voting preferred stock on any exchange.

Changes Affecting Common Stock

The common stock held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, a split-up, cancellation, consolidation or reclassification of such common stock or a recapitalization, reorganization, merger, consolidation or sale of assets.

If any such change were to occur, your ADSs would, to the extent permitted by law, represent the right to receive the property received or exchanged in respect of the common stock held on deposit. The depositary bank may (with our approval) or will (if we request) deliver new ADSs to you or call for the exchange of your existing ADSs for new ADSs in such circumstances. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash distribution.

Issuance of ADSs upon Deposit of Common Stock

The depositary bank may create ADSs on your behalf if you or your broker deposits common stock with the custodian. The depositary bank will deliver these ADSs to the person you indicate only after you pay any applicable issuance fees and any charges and taxes payable for the transfer of the common stock to the custodian. Your ability to deposit common stock and receive ADSs may be limited by U.S. and Korean legal considerations applicable at the time of deposit. 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 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. 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 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.

The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given and that the common stock has been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.

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When you make a deposit of common stock, you will be responsible for transferring good and valid title to the depositary bank. As such, you will be deemed to represent and warrant that:

• the common stock is duly authorized, validly issued, fully paid, non-assessable and legally obtained;

• all preemptive (and similar) rights, if any, with respect to such common stock has been validly waived or exercised;

• you are duly authorized to deposit the common stock;

• the common stock presented for deposit is free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and is not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit agreement); and

• the common stock presented for deposit has not been stripped of any rights or entitlements.

If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.

Withdrawal of Shares Upon Cancellation of ADSs

As a holder, you will be entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of underlying shares of common stock at the custodian’s offices. In order to withdraw the common stock represented by your ADSs, you will be required to pay to the depositary bank the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the common stock being withdrawn. You assume the risk for delivery of all funds and securities upon withdrawal. Once cancelled, the ADSs will not have any rights under the deposit agreement.

If you hold an ADR registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the common stock represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit.

You will have the right to withdraw the securities represented by your ADSs at any time except for:

• temporary delays that may arise because (1) the transfer books for the common stock or ADSs are closed, or (2) the common stock is immobilized on account of a shareholders’ meeting or a payment of dividends;

• obligations to pay fees, taxes and similar charges; and

• restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.

The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.

An investor who wants to withdraw the shares from the depositary facility created under the deposit agreement must register its identity with the Financial Supervisory Service of Korea before the acquisition of the shares if such registration has not been made unless such investor intends to sell the shares within three months of obtaining them. See “Item 10. Additional Information—Item 10.D. Exchange controls—Restrictions Applicable to ADSs”.

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Voting Rights

As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the common stock represented by your ADSs. The voting rights of holders of common stock are described in this annual report under the heading, “Additional Information—Articles of Incorporation—Voting Rights”.

At our request, the depositary bank will distribute to you any notice of shareholders’ meetings received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the securities represented by ADSs.

If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities represented by the holder’s ADSs in accordance with such voting instructions.

Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We may not be able to notify the depositary bank sufficiently in advance of the scheduled date of a shareholders’ meeting and cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner. Securities for which no voting instructions have been received will not be voted, and the depositary bank and the custodian will not exercise any discretion as to voting under any circumstances.

Fees and Charges

As an ADS holder, you will be required to pay the following service fees to the depositary bank:

Service	Fees
Issuance of ADSs	Up to 5¢ per ADS issued
Cancellation of ADSs	Up to 5¢ per ADS cancelled
Distributions (other than cash or stock dividends); Sale or exercise of rights; or other corporate action involving distributions to shareholders (including any distribution in the form of common stock, non-voting preferred stock or delivery of ADSs upon exercise of rights)	Up to 2¢ per ADS held

The depositary bank has agreed to waive the fees that would have been payable in connection with the issuance of ADSs in offerings of ADSs by us. In addition, the depositary bank has agreed to waive the fees that may be payable by the Government in connection with this offering.

As an ADS holder you will also be responsible for paying the following fees and expenses incurred by the depositary bank and taxes and governmental charges:

• fees for the transfer and registration of common stock charged by the registrar and transfer agent for the common stock in Korea (that is, upon deposit and withdrawal of common stock);

• expenses incurred for converting foreign currency into U.S. dollars;

• expenses for cable, telex and fax transmissions and for delivery of securities;

• fees and expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other regulatory requirements applicable to our shares, ADSs and ADRs; and

• taxes and duties upon the transfer of securities (that is, when common stock is deposited or withdrawn from deposit).

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We have agreed to pay certain other charges and expenses of the depositary bank. Please note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes.

Amendments and Termination

We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement.

You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the common stock represented by your ADSs (except as permitted by law).

We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination.

If any ADSs remain outstanding after termination, the following will occur under the deposit agreement:

• for a period of six months after termination, you will be able to request the cancellation of your ADSs and the withdrawal of the common stock represented by your ADSs and the delivery of all other property held by the depositary bank in respect of the common stock on the same terms as prior to the termination. During such six month period the depositary bank will continue to collect all distributions received on the common stock on deposit (e.g., dividends) but will not distribute any such property to you until you request the cancellation of your ADSs; and

• after the expiration of such six month period, the depositary bank may sell the securities held on deposit. The depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest-bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding.

Books of Depositary

The depositary bank will maintain ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.

The depositary bank will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time, to the extent not prohibited by law.

Limitations on Obligations and Liabilities

The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:

• we and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith;

• the depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement;

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• the depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in common stock, for the validity or worth of the common stock, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice;

• we and the depositary bank will not be obligated to perform any act that is inconsistent with the terms of the deposit agreement;

• we and the depositary bank disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any provision of our articles of incorporation, any provision of any securities on deposit or by reason of any act of God or war or other circumstances beyond our control;

• we and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our articles of incorporation or in any provisions of securities on deposit;

• we and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting common stock for deposit, any holder of ADSs or authorized representatives of such holder, or any other person believed by either of us in good faith to be competent to give such advice or information;

• we and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit which is made available to holders of common stock but is not, under the terms of the deposit agreement, made available to you; and

• we and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties.

Pre-Release Transactions

The depositary bank may, in certain circumstances, issue ADSs before receiving a deposit of common stock and deliver shares of common stock before receipt and cancellation of ADSs. These transactions are commonly referred to as “pre-release transactions”. The deposit agreement limits the aggregate size of pre-release transactions and imposes a number of conditions on such transactions (i.e., the need to receive collateral, the type of collateral required, the representations required from brokers, etc.). The depositary bank may retain the compensation received from the pre-release transactions.

Taxes

You will be responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the taxes that are due.

The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. In certain circumstances, you will be required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.

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Foreign Currency Conversion

The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.

If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion:

• convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical;

• distribute the foreign currency to holders for whom the distribution is lawful and practical; and

• hold the foreign currency (without liability for interest) for the applicable holders.

The Custodian

The depositary bank has agreed with the custodian that the custodian will receive and hold the deposited securities for the account of the depositary bank in accordance with the deposit agreement. If the custodian resigns or is discharged from its duties under the deposit agreement, the depositary bank will promptly appoint a successor custodian that is organized under the laws of Korea. The resigning or discharged custodian will deliver the deposited securities and related records to the custodian designated by the depositary bank. The depositary bank may also appoint an additional custodian for any deposited securities. The depositary bank will immediately give you and us written notice of any such changes. If the depositary bank resigns or is discharged from its duties under the deposit agreement, the custodian will, unless otherwise instructed by the depositary bank, continue to act as custodian and will be subject to the direction of the successor depositary.

Governing Law

The deposit agreement is governed by the laws of the State of New York. We and the depositary bank have agreed that the federal or state courts in The City of New York shall have jurisdiction to hear and determine any suit, action or proceeding and to settle any dispute between us that may arise out of or in connection with the deposit agreement. We also submitted to the jurisdiction of such courts and we have appointed an agent for service of process in The City of New York.

115

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.

Item 15. Controls and Procedures

As of December 31, 2003, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. 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 and as of the date of our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of December 31, 2003 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16.A. Audit Committee Financial Expert

At our annual general meeting of shareholders in March 2004, our shareholders elected the following four members of the Audit Committee: Jong-Sang Kim, Do-Hwan Kim, Jeong-Ro Yoon and Kon-Sik Kim. In addition, they determined and designated that Jong-Sang Kim is an “audit committee financial expert” within the meaning of this Item 16A. The board of directors have approved this newly elected Audit Committee, and reaffirmed the determination by our shareholders that Jong-Sang Kim is an audit committee financial expert and further determined that he is independent within the meaning of applicable SEC rules and the listing standards of the New York Stock Exchange.

Item 16.B. 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.co.kr. 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.

116

Item 16.C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors, KPMG Samjong Accounting Corp., during the fiscal years ended December 31, 2002 and 2003:

	Year ended December 31,
	2002		2003
	in millions
Audit fees	(Won)	1,400	(Won)	1,714
Audit-related fees		377		—
Tax fees		110		77
Other fees		288		172
Total fees		2,175		1,963

Audit fees in the above table are the aggregate fees billed by KPMG Samjong Accounting Corp. in connection with the audit of our annual financial statements and the review of our interim financial statements.

Audit-related fees in the above table are the aggregate fees billed by KPMG Samjong Accounting Corp. for advisory services relating to analyses of multiple accounting issues.

Tax fees in the above table are fees billed by KPMG Samjong Accounting Corp. for the preparation of our income tax return and tax advice.

Other fees in the above table are fees billed by KPMG Samjong Accounting Corp. primarily related to best practice recommendations for our finance resource management system.

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 expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or us.

Item 16.D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.

117

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 of KPMG Samjong Accounting Corp.	F-1
Consolidated Balance Sheets as of December 31, 2002 and 2003	F-2
Consolidated Statements of Earnings and Retained Earnings for the Years Ended December 31, 2001, 2002 and 2003	F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003	F-5
Notes to Consolidated Financial Statements	F-7

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT FREETEL CO., LTD.*

	Page
Report of Independent Public Accountants of Anjin Deloitte LLC for the Years Ended December 31, 2003 and 2002	A-1
Consolidated Balance Sheets as of December 31, 2003 and 2002	A-2
Consolidated Statements of Income for the Years Ended December 31, 2003 and 2002	A-4
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2003 and 2002	A-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and 2002	A-6
Notes to Consolidated Financial Statements for Years Ended December 31, 2003 and 2002	A-9

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT FREETEL CO., LTD.

	Page
Report of Independent Public Accountants of Anjin Deloitte LLC for the Years Ended December 31, 2002 and 2001	B-1
Consolidated Balance Sheets as of December 31, 2002 and 2001	B-3
Consolidated Statements of Income for the Years Ended December 31, 2002 and 2001	B-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002 and 2001	B-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001	B-7
Notes to Consolidated Financial Statements for Years Ended December 31, 2002 and 2001	B-10

AUDITED FINANCIAL STATEMENTS OF KT ICOM CO., LTD.

	Page
Reports of Independent Public Accountants of Samil Accounting Corporation for the period from March 16, 2001 to December 31, 2001 and for the year ended December 31, 2002.**	C-1

* Included pursuant to Rule 3-09 of Regulation S-X under the Securities Act of 1933, as amended.

** Related financial statements are not included herein.

118

Item 19. Exhibits

1		Articles of Incorporation of KT Corporation (English translation)
2.1	*	Form of Common Stock Certificate of KT Corporation, par value Won 5,000 per share (including translation in English) (incorporated herein by reference to Exhibit 4.3 of the Registrant’s Registration Statement (Registration No. 333-7630) on Form F-1).
2.2	*	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).
2.3	*	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).
2.4	*	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).
7.1		Computation of Ratio of earnings to fixed charges
8.1		List of subsidiaries of KT Corporation
12.1		Certifications 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		Consent of KPMG Samjong Accounting Corp. with respect to the financial statements of KT Corporation
15.2		Consent of Anjin Deloitte LLC with respect to the financial statements of KT Freetel Co., Ltd.
15.3		Consent of Samil Accounting Corporation with respect to the financial statements of KT ICOM Co., Limited
15.4		The Telecommunications Basic Law (English translation)
15.5	*	Enforcement Decree of the Telecommunications Basic Law (English translation) (incorporated herein by reference to Exhibit 10.5 of the Registrant’s Annual Report (File No. 1-14926) on Form 20-F for the fiscal year ended December 31, 2002)
15.6		The Telecommunications Business Law (English translation)
15.7		Enforcement Decree of the Telecommunications Business Act (English translation)

* Filed previously as indicated.

119

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KT Corporation:

We have audited the accompanying consolidated balance sheets of KT Corporation and subsidiaries (the “Company”) as of December 31, 2002 and 2003, and the related consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended December 31, 2003, all expressed in Korean Won. These 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 audits. We did not audit the financial statements of (1) KT Freetel Co., Ltd. (“KTF”), a 40.3% and 46.9% owned subsidiary at December 31, 2002 and 2003, respectively, as of and for each of the years in the three-year period ended December 31, 2003, and (2) KTICOM Co., Ltd. (“KTICOM”), a 87.3% owned (all owned by KTF) subsidiary at December 31, 2002, for the period from March 16, 2001 (date of inception) to December 31, 2001 and for the year ended December 31, 2002, which was merged into KTF on March 6, 2003. The financial statements of KTF and KTICOM, which are included in the consolidated financial statements of the Company, reflect total combined assets constituting 30.1% and 29.1% as of December 31, 2002 and 2003, respectively, and total revenues constituting 27.8%, 29.3% and 28.1% for the years ended December 31, 2001, 2002 and 2003, respectively, of the related consolidated totals. Those financial statements were audited by other auditors whose reports have been furnished to us, and our report, insofar as it relates to the amounts included for KTF and KTICOM, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the Auditing Standards as established by the Financial Supervisory Commission of the Republic of Korea, and 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 and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in accordance with the Financial Accounting Standards, as established by the Financial Supervisory Commission of the Republic of Korea.

The accompanying consolidated financial statements as of and for the year ended December 31, 2003 have been translated into United States dollars solely for the convenience of the reader and have been translated on the basis set forth in note 3 to the consolidated financial statements.

As discussed in note 2(a) to the consolidated financial statements, effective on January 1, 2003, the Company adopted Statements of Korea Accounting Standards No. 2 through No. 9. In accordance with these standards, the cumulative effects on prior years were recorded as an adjustment to the beginning balance of retained earnings and minority interest at January 1, 2003. In addition, certain accounts of prior year’s financial statements were reclassified to conform to the current year’s presentation.

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 Note 34 to the consolidated financial statements.

KPMG Samjong Accounting Corp.

Seoul, Korea

February 13, 2004

F-1

KT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2002 and 2003

(In millions of won and U.S. dollars)

	2002			2003		2003 (note 3)
Assets
Current assets:
Cash and cash equivalents (notes 4 and 5)	(Won)	1,086,689		760,868		$	638.3
Short-term financial instruments (note 5)		819,859		60,899			51.1
Current portion of investment securities (note 8):
Trading securities		433,661		52,397			44.0
Available-for-sale securities		853,281		286,757			240.6
Held-to-maturity securities		218		5,712			4.8
Notes and accounts receivable—trade, less allowance for doubtful accounts of (Won)430,066 in 2002 and (Won)646,273 in 2003 (note 2)		2,982,501		2,647,379			2,221.0
Accounts receivable—other		512,512		323,042			271.0
Inventories (note 6)		244,191		364,833			306.0
Other current assets (note 7)		281,423		230,044			192.9
Total current assets		7,214,335		4,731,931			3,969.7
Investment securities:
Available-for-sale securities (note 8)		353,187		260,642			218.7
Held-to-maturity securities (note 8)		5,795		111,409			93.5
Equity securities of affiliates (note 9)		102,504		140,790			118.1
Total investment securities		461,486		512,841			430.3
Property, plant and equipment (note 10):
Land		1,155,824		1,154,955			968.9
Buildings and structures		4,124,827		4,282,494			3,592.7
Machinery and equipment		33,400,282		34,731,446			29,137.1
Vehicles		75,607		82,911			69.6
Tools, furniture and fixtures		1,628,175		2,005,812			1,682.7
Construction in progress		907,093		750,267			629.4
		41,291,808		43,007,885			36,080.4
Less accumulated depreciation		(24,439,217	)	(26,633,942	)		(22,343.9	)
Net property, plant and equipment		16,852,591		16,373,943			13,736.5
Other assets (notes 5, 11 and 25)		4,521,734		3,937,960			3,303.7
	(Won)	29,050,146		25,556,675		$	21,440.2

See accompanying notes to consolidated financial statements.

F-2

KT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets—Continued

December 31, 2002 and 2003

(In millions of won and U.S. dollars, except share data)

	2002			2003		2003 (note 3)
Liabilities and Stockholders’ Equity
Current liabilities:
Notes and accounts payable—trade	(Won)	1,167,195		1,022,805		$	858.1
Short-term borrowings (note 12)		1,116,385		631,689			529.9
Current portion of long-term debt (note 14)		1,846,210		2,172,510			1,822.6
Accounts payable—other		1,485,427		1,233,422			1,034.8
Advance receipts from customers		128,498		103,139			86.5
Accrued expenses		257,565		252,841			212.1
Withholdings		170,684		147,233			123.5
Income taxes payable		449,486		219,348			184.0
Other current liabilities (note 13)		93,774		132,614			111.3
Total current liabilities		6,715,224		5,915,601			4,962.8
Long-term debt, excluding current portion (note 14)		9,877,487		9,049,748			7,592.1
Refundable deposits for telephone installation (note 15)		1,533,566		1,227,355			1,029.7
Retirement and severance benefits, net of cumulative transfers to National Pension Fund and deposit for severance benefit insurance (note 16)		379,606		245,878			206.3
Long-term accounts payable—other (note 2(l))		554,138		572,606			480.4
Other long-term liabilities (note 17)		157,559		148,867			124.7
Total liabilities		19,217,580		17,160,055			14,396.0
Stockholders’ equity (note 18):
Common stock of (Won)5,000 par value:
Authorized—1,000,000,000 shares Issued—309,077,659 shares in 2002 and 284,849,400 shares in 2003		1,560,998		1,560,998			1,309.7
Capital surplus (note 19)		1,447,951		1,308,612			1,097.8
Retained earnings (deficit):
Appropriated (note 20)		6,442,265		8,025,854			6,733.1
Unappropriated (deficit)		1,832,217		(342,554	)		(287.4	)
		8,274,482		7,683,300			6,445.7
Capital adjustments:
Foreign-based operations translation adjustment		(7,946	)	(5,859	)		(4.9	)
Unrealized gains (losses) on available-for-sale securities (note 8)		743,563		(24,799	)		(20.8	)
Unrealized losses on equity securities of affiliates (note 9)		(4,266	)	(2,691	)		(2.3	)
Stock options (note 28)		553		6,745			5.7
Treasury stock (note 21)		(4,112,225	)	(3,962,598	)		(3,324.3	)
Loss on retirement of treasury stock		(6,638	)	(16,391	)		(13.8	)
		(3,386,959	)	(4,005,593	)		(3,360.4	)
Minority interest in consolidated subsidiaries		1,936,094		1,849,303			1,551.4
Total stockholders’ equity		9,832,566		8,396,620			7,044.2
Commitments and contingencies (note 22)
	(Won)	29,050,146		25,556,675		$	21,440.2

See accompanying notes to consolidated financial statements.

F-3

KT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Earnings and Retained Earnings

Years ended December 31, 2001, 2002 and 2003

(In millions of won and U.S. dollars, except earnings per share)

	2001			2002		2003		2003 (note 3)
Operating revenues (note 23)	(Won)	15,977,228		16,437,422		16,067,779		$	13,479.7
Operating expenses (note 24)		14,001,951		14,055,619		14,245,343			11,950.8
Operating income		1,975,277		2,381,803		1,822,436			1,528.9
Other income (expense):
Interest income		132,646		123,118		115,454			96.9
Interest expense		(712,442	)	(650,460	)	(705,540	)		(591.9	)
Equity in losses of affiliates, net (note 9)		(1,696	)	(17,009	)	(30,270	)		(25.4	)
Foreign currency translation gain (loss), net		(24,243	)	99,845		(27,074	)		(22.7	)
Loss on disposition of property, plant and equipment, net		(181,187	)	(116,106	)	(122,966	)		(103.2	)
Gain on disposition of available-for-sale securities, net (note 8)		627,545		1,176,868		772,901			648.4
Impairment loss on available-for-sale securities (note 8)		(19,636	)	(3,339	)	(43,993	)		(36.9	)
Contributions received for losses on universal telecommunications services (note 31)		50,764		113,908		28,539			23.9
Prior year’s income tax refund (additional payment)		(12,513	)	6,354		(53,992	)		(45.3	)
Contribution payments for research and development and donations (notes 22 and 30)		(157,107	)	(145,405	)	(182,983	)		(153.5	)
Other, net		117,459		35,629		8,548			7.2
		(180,410	)	623,403		(241,376	)		(202.5	)
Earnings before income taxes and minority interest		1,794,867		3,005,206		1,581,060			1,326.4
Income taxes (note 25)		421,470		741,354		523,631			439.2
Earnings before minority interest		1,373,397		2,263,852		1,057,429			887.2
Minority interest in earnings of consolidated subsidiaries, net		(260,422	)	(316,918	)	(235,695	)		(197.8	)
Net earnings	(Won)	1,112,975		1,946,934		821,734		$	689.4
Retained earnings at beginning of year		5,765,233		6,718,943		8,274,482			6,941.7
Cumulative effect of accounting change (note 2)		—		—		(1,530	)		(1.3	)
Retirement of treasury stock (notes 18 and 21)		—		(167,341	)	(1,198,499	)		(1,005.5	)
Dividends (notes 2 and 26)		(159,265	)	(224,054	)	(212,887	)		(178.6	)
Retained earnings at end of year	(Won)	6,718,943		8,274,482		7,683,300		$	6,445.7
Basic earnings per share of common stock in Won and U.S. dollars (note 27)	(Won)	3,576		7,504		3,802		$	3.19
Diluted earnings per share of common stock in Won and U.S. dollars (note 27)	(Won)	3,576		6,601		3,313		$	2.78

See accompanying notes to consolidated financial statements.

F-4

KT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2001, 2002 and 2003

(In millions of won and US dollars)

	2001			2002		2003		2003 (note 3)
Cash flows from operating activities:
Net earnings	(Won)	1,112,975		1,946,934		821,734		$	689.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		3,653,706		3,440,145		3,393,175			2,846.6
Amortization		356,066		356,949		364,051			305.4
Provision for doubtful accounts		162,655		194,288		363,774			305.2
Provision for retirement and severance benefits		341,902		275,007		1,067,076			895.2
Equity in losses of affiliates		1,696		17,009		30,270			25.4
Loss on disposition of property, plant and equipment		181,187		116,106		122,966			103.2
Loss (gain) on foreign currency translation, net		46,650		(101,077	)	27,555			23.1
Gain on disposition of available-for-sale securities, net		(627,545	)	(1,176,868	)	(772,901	)		(648.4	)
Impairment loss on available-for-sale securities		19,636		3,339		43,993			36.9
Deferred income tax expense		202,285		149,032		46,294			38.8
Minority interest in earnings of consolidated subsidiaries		260,422		316,918		235,695			197.8
Changes in assets and liabilities:
Increase in notes and accounts receivable—trade		(733,040	)	(725,904	)	(742,487	)		(622.9	)
Increase in accounts receivable—other		—		—		(387,518	)		(325.1	)
Increase in inventories		(178,047	)	(275,813	)	(197,478	)		(165.7	)
Decrease (increase) in other current assets		69,593		(25,753	)	21,572			18.1
Decrease (increase) in long-term account receivable—trade		(63,674	)	(175,358	)	126,900			106.5
Increase (decrease) in notes and accounts payable— trade		(395,556	)	125,313		(143,425	)		(120.3	)
Increase (decrease) in advance receipts from customers		20,970		4,415		(25,359	)		(21.3	)
Increase (decrease) in income taxes payable		166,724		269,886		(240,025	)		(201.3	)
Increase (decrease) in withholdings		1,686		(123,085	)	(23,451	)		(19.7	)
Increase (decrease) in accrued expenses		(145,660	)	8,702		(5,792	)		(4.9	)
Payment of retirement and severance		(144,631	)	(42,942	)	(1,020,940	)		(856.5	)
Increase in severance benefits insurance deposit		(3,640	)	(325,376	)	(180,801	)		(151.7	)
Increase (decrease) in accounts payable—other		(716,867	)	378,531		60,928			51.1
Other, net		39,576		196,462		204,594			171.6
Net cash provided by operating activities	(Won)	3,629,069		4,826,860		3,190,400		$	2,676.5

See accompanying notes to consolidated financial statements.

F-5

KT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows—Continued

Years ended December 31, 2001, 2002 and 2003

(In millions of won and US dollars)

	2001			2002		2003		2003 (note 3)
Cash flows from investing activities:
Purchases of property, plant and equipment	(Won)	(3,918,201	)	(3,232,346	)	(3,209,376	)	$	(2,692.4	)
Proceeds from sale of property, plant and equipment		225,047		52,966		253,137			212.4
Decrease in accounts receivable—other (notes 2 and 8)		106,410		8,918		215,021			180.4
Decrease (increase) in other current assets		(208,885	)	173,110		560,208			470.0
Decrease (increase) in other assets		(491,931	)	(1,004,353	)	141,738			118.8
Decrease (increase) in short-term financial instruments		(351,538	)	(125,921	)	758,916			636.7
Purchase of available-for-sale securities		(8,694	)	(235,393	)	(315,553	)		(264.7	)
Purchase of held-to-maturity securities		(2,306	)	(392	)	(11,412	)		(9.6	)
Purchase of equity securities of affiliates		(68,565	)	(6,180	)	(83,890	)		(70.4	)
Proceeds from sale of available-for-sale securities		702,350		294,694		210,121			176.3
Proceeds from maturity on held-to-maturity securities		100,812		9,994		218			0.2
Net cash used in investing activities		(3,915,501	)	(4,064,903	)	(1,480,872	)		(1,242.3	)
Cash flows from financing activities:
Payment of dividends		(161,159	)	(224,955	)	(213,308	)		(178.9	)
Proceeds from sale of accounts receivable		—		470,000		512,000			429.5
Repayment of short-term borrowings, net		(37,961	)	(15,656	)	(484,696	)		(406.6	)
Repayment of long-term debt		(2,205,094	)	(2,064,527	)	(1,989,381	)		(1,668.9	)
Proceeds from issuance of long-term debt		3,225,579		5,558,966		1,285,653			1,078.6
Proceeds from refundable deposits for telephone installation		83,907		—		—			—
Repayment of refundable deposits for telephone installation		(779,368	)	(750,394	)	(306,211	)		(256.9	)
Increase (decrease) in other long-term liabilities		(16,366	)	12,893		(2,781	)		(2.3	)
Purchase of subsidiaries’ own shares of treasury stock		—		—		(69,747	)		(58.5	)
Increase in minority interest		645,676		22,787		—			—
Acquisition of treasury stock		—		(3,401,186	)	(412,247	)		(345.8	)
Proceeds from sale of treasury stock		—		—		39,312			32.9
Acquisition of additional equity interest in consolidated subsidiaries		—		(449,935	)	(426,052	)		(357.5	)
Other, net		195		(2,244	)	2,247			1.8
Net cash provided by (used in) financing activities		755,409		(844,251	)	(2,065,211	)		(1,732.6	)
Net increase (decrease) in cash and cash equivalents from change of subsidiaries in consolidated financial statements		(1,676	)	(22	)	29,862			25.1
Net increase (decrease) in cash and cash equivalents		467,301		(82,316	)	(325,821	)		(273.3	)
Cash and cash equivalents at beginning of year		701,704		1,169,005		1,086,689			911.6
Cash and cash equivalents at end of year	(Won)	1,169,005		1,086,689		760,868		$	638.3

See accompanying notes to consolidated financial statements.

F-6

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2003

(1) Business

KT Corporation (“KT”) commenced operations on January 1, 1982 through the segregation of specified operations from the 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 telecommunications business and improvement of telecommunications technology under the Korea Telecom Act.

Upon the repeal of the Korea Telecom Act as of October 1, 1997, KT became a government invested institution regulated by the Korean Commercial Code and changed its name from Korea Telecom to Korea Telecom Corp. pursuant to an amendment to its Articles of Incorporation. Shares of KT were listed on the 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 July 2, 2001, additional ADS representing 55,502,161 government-owned shares were issued.

The Korean government has gradually reduced its ownership interest in the Company since 1993 and completed the disposition of its ownership interest in the Company on May 24, 2002. On March 22, 2002, the Company changed its name from Korea Telecom Corp. to KT Corporation.

Under Korean law, the MIC and other government entities have extensive authority to regulate KT. The MIC has responsibility for approving rates for local service and interconnection services provided by KT. Beginning in January 1998, KT is allowed to set its own rates for domestic long-distance service, international long-distance service and other services without approval from the MIC.

In recent years, KT has been subject to increasing competition as a result of the government’s issuance of additional licenses to create competition in the telecommunications market and to foster new telecommunications business areas. Additionally, in June 1997, the MIC awarded a license to a second carrier to provide local telephone service. This new carrier commenced operations in 1999. A third carrier commenced international long-distance service in 1997 and domestic long-distance service in 1999. The entry of these new carriers into the local and long-distance telephone service markets has had, and is expected to continue to have, a negative impact on KT’s telephone service revenues and profitability.

(2) Summary of Significant Accounting Policies and Basis of Presenting Consolidated Financial Statements

(a) Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements have been extracted from KT’s Korean language consolidated financial statements that were prepared using the Financial Accounting Standards, as established by the Financial Supervisory Commission of the Republic of Korea. The consolidated financial statements have been translated from those issued in the Korean language into the English language, and have been modified to allow for the formatting of the consolidated financial statements in a manner which is different from the presentation under Korean financial statements practices. In addition, certain modifications have been made to the disclosures in the accompanying consolidated financial statements to bring the formal presentation into conformity with practices outside of Korea, and certain information included in the Korean language statutory consolidated financial statements, which management believes is not required for a fair presentation of KT’s financial position or results of operations, is not presented in the accompanying consolidated financial statements. Accordingly, the accompanying consolidated financial statements and their utilization are designed for those who are informed about Korean accounting principles, procedures and practices.

F-7

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

In addition, effective January 1, 2003, the Company adopted Statements of Korea Accounting Standards No. 2 through No. 9. In accordance with these standards, a cumulative effect on prior years is recorded as an adjustment to the beginning balance of retained earnings and minority interest at January 1, 2003. Therefore, the Company adjusted organization costs of (Won)1,530 million to retained earnings and (Won)2,198 million of minority interest. In addition, certain amounts in prior year’s financial statements were reclassified to conform to the current year’s presentation. These reclassifications did not result in any change to reported stockholder’s equity except for the adoption of Statement of Korea Accounting Standards (SKAS) No. 6, “Events Occurring After the Balance Sheet Date”. As result of adopting SKAS No. 6, stockholders’ equity as of December 31, 2002 increased by (Won)212,887 million. This amount represents the dividends recorded in 2002 but not yet approved. Under the new standard, for comparative purposes, this amount was retroactively adjusted as of December 31, 2002.

The consolidated financial statements include the accounts of KT and the following controlled subsidiaries (collectively referred to as the “Company”) as of December 31, 2001, 2002 and 2003. Controlled subsidiaries include majority-owned entities by either the Company or a controlled subsidiary and other entities where the Company or its controlled subsidiary owns more than 30% of total outstanding common stock and is the largest shareholder. All significant intercompany balances and transactions have been eliminated in consolidation.

Subsidiary	Year of establishment	Year of obtaining control	Percentage ownership (%)			Primary business
			2001	2002	2003
KT Powertel Co., Ltd. (“KTP”)	1985	1985	45.4	45.4	44.8	Trunk radio system business
KT Solutions Corporation (“KTS”)	1986	1986	100.0	100.0	100.0	Group telephone management
KT Linkus Co., Ltd.	1988	1988	100.0	93.8	93.8	Public telephone maintenance
KT Hitel Co., Ltd. (“KTH”)	1991	1992	65.9	65.9	65.9	Data communication
Korea Telecom America, Inc.	1993	1993	100.0	100.0	100.0	Foreign telecommunication business
Korea Telecom Philippines, Inc.	1994	1994	100.0	100.0	100.0	Foreign telecommunication business
KT Submarine Co., Ltd. (“KTSC”)	1995	1995	52.9	36.9	36.9	Submarine cable construction and maintenance
KT Freetel Co., Ltd. (“KTF”)	1997	1997	40.3	40.3	46.9	PCS business
New Telephone Company Inc. (“NTC”)	1993	1998	68.9	72.5	72.5	Foreign telecommunication business
Korea Telecom Japan Co., Ltd.	1999	1999	100.0	100.0	100.0	Foreign telecommunication business
KT ICOM Co., Ltd. (“KTICOM”)*	2001	2001	62.6	87.3	—	IMT-2000 service
KTF Technologies Inc. (“KTFT”)**	2001	2002	—	57.4	57.4	PCS handset development
KT Commerce Inc. (“KTC”)***	2002	2002	—	100.0	100.0	B2C, B2B service
KT Rental Corp. (“KTR”)****	1999	2003	48.8	48.8	98.8	Rental service
Korea Telecom China Co., Ltd. (“KTCC”)	2003	2003	—	—	100.0	Foreign telecommunication business
KT Infotech Corporation*****	1986	1986	100.0	15.6	15.6	Telecommunication technology and engineering

F-8

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

* The ownership percentage in KTICOM represents the ownership of this entity by KTF.

** The 57.4% ownership percentage in KTFT represents the ownership of this entity by KTF.

*** The 100.0% ownership percentage in KTC represents the ownership of this entity by KT (19.0%) and KTH (81.0%).

**** The 98.8% ownership percentage in KTR represents the ownership of this entity by KTS. KTR changed its name from Centel Telecom Capital Corp. to KT Rental Corporation in October 2003.

***** Due to disposition of shares, KT Infotech Corporation was excluded from consolidation in 2002.

In 2001, the Company acquired an additional 2,166,666 shares of common stock issued by New Telephone Company for (Won)8,487 million, increasing its equity ownership percentage to 68.9%. The Company’s ownership percentage in KTSC was reduced to 52.9% in 2001 as a result of KTSC’s issuance of new shares to investors other than the Company.

In 2002, KT and its subsidiaries, KTH and KTP, sold of their equity interests comprising 47,584,905 shares of common stock in KTICOM to KTF at (Won)18,227 per share. In addition, KTF purchased 24,685,070 shares of common stock of KTICOM from a third party for the same price. As a result, KTF increased its equity ownership percentage in KTICOM to 87.3%.

In 2002, KTF exercised its conversion right of convertible notes issued by KTFT. As a result of the conversion, KTF increased its ownership percentage in KTFT from 0% to 57.4%.

In 2002, the Company acquired an additional 6,856 shares of common stock issued by Korea Telecom Japan Co., Ltd. for (Won)3,461 million resulting in ownership of 100%.

In 2002, the Company acquired an additional 833,334 shares of common stock issued by New Telephone Company for (Won)3,331 million, increasing its equity ownership percentage to 72.5%.

The Company’s ownership percentage in KTSC and KT Linkus Co., Ltd. was reduced to 36.9% and 93.8%, respectively, in 2002 as a result of these companies’ issuance of new shares to investors other than the Company.

The Company invested (Won)7,000 million in KTC in 2002. The 100% ownership percentage in KTC represents the combined ownership of this entity by KT (19.0%) and KTH (81.0%).

The Company disposed of 1,628,927 shares of KT Infotech Corporation, representing 84.4% of the Company’s equity interest, and recognized a disposition loss of (Won)3,725 million in 2002. As a result of the disposition, the Company’s remaining interest in KT Infotech Corporation is accounted for under the equity method (see note 9).

On March 6, 2003, KTICOM was merged into KTF. This transaction was done by KTF issuing an additional 7,082,476 shares of its common stock to the minority shareholders of KTICOM, which has resulted in a decrease in the Company’s equity ownership interest but an increase in the Company’s capital surplus of (Won)26,181 million due to increase of net equity of KTF. In addition, during 2003, the Company acquired an additional 15,532,846 shares of KTF for (Won)399,996 million, increasing its equity ownership interest to 46.9%. The amount paid by KT exceeded the proportionate net assets of KTF by (Won)165,642 million. This difference was recorded as a reduction to capital surplus.

KTP acquired Anam Telecom Ltd. on February 5, 2003 through the issuance of common stock. As a result, the Company’s equity ownership interest decreased to 44.8%.

F-9

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

KTS, a subsidiary of KT, purchased additional 50% of KTR shares and became the largest shareholder of KTR in 2003.

In March 2003, the Company invested (Won)1,245 million in KTCC, which is a wholly-owned subsidiary located in China.

As of December 31, 2003, KT or KTS has issued guarantees of consolidated subsidiaries’ indebtedness and contract performance as follows:

Subsidiary	Millions
KTSC	(Won)	53,517
NTC		8,385
KTR		8,185
	(Won)	70,087

Significant account balances which occurred in the normal course of business with and between consolidated subsidiaries as of December 31, 2002 and 2003 are summarized as follows (these amounts have been eliminated in consolidation):

	Millions
Balance Sheet Items	2002		2003
Notes and accounts receivable—trade	(Won)	230,705	252,327
Notes and accounts payable—trade		207,241	204,793
Long-term accounts receivable—trade		—	35,999
Convertible notes of KTF and KTP		336,789	332,240
Accounts receivable—other		366,151	29,228
Accounts payable—other		344,388	53,839
Key money deposits		65,302	51,455
Accrued expenses		2,678	14,326

Significant transactions which occurred in the normal course of business with and between consolidated subsidiaries for each of the years in the three-year period ended December 31, 2003 are summarized as follows (these amounts have been eliminated in consolidation):

	Millions
Income Statement Items	2001		2002	2003
Operating revenues	(Won)	1,267,768	1,366,192	1,513,082
Operating expenses		1,283,567	1,412,782	1,564,830
Other income		11,398	41,937	64,448

(b) Cash Equivalents

The Company considers short-term financial instruments with maturities of three months or less at the acquisition date to be cash equivalents.

(c) Financial Instruments

Short-term financial instruments are instruments handled by financial institutions which are held for short-term cash management purposes or will mature within one year, including time deposits, installment savings deposits and restricted bank deposits.

F-10

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(d) Allowance for Doubtful Accounts

Notes and trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing notes and accounts receivable. The Company determines 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 after all means of collection have been exhausted and the potential for recovery is considered remote.

Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2003 are summarized as follows:

	Millions
	2001			2002		2003
Balance at beginning of year	(Won)	241,272		330,345		430,066
Increase due to the changes of consolidated subsidiaries		—		483		65
Provision		162,655		194,288		363,774
Write-offs		(73,582	)	(95,050	)	(147,632	)
Balance at end of year	(Won)	330,345		430,066		646,273

(e) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the moving-average cost method, except for materials in transit for which cost is determined by the specific identification method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling cost. When the net realizable value of inventory is less than the acquisition cost, the carrying amount is reduced to the net realizable value.

(f) Investments in Securities

Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards (SKAS) No. 8, “Investments in Securities”. In accordance with this standard, certain debt and equity securities should be classified into one of the three categories of held-to-maturity, available-for-sale, or trading securities at the time of acquisition and such determination should be reassessed at each balance sheet date. Investments in debt securities that the Company has the positive intention and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities.

Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in equity securities and limited partnerships that do not have readily determinable fair values are stated at cost. Declines in value judged to be other-than-temporary on available-for-sale securities are charged to current results of operations. Realized gains and losses are determined using the specific identification method based on the trade date of a transaction. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income.

F-11

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Marketable securities are at the quoted market prices as of the year end. Non-marketable debt securities are recorded at the fair values derived from the discounted cash flows by using an interest rate deemed to approximate the market interest rate. The market interest rate is determined by the issuers’ credit rate announced by the accredited credit rating agencies in Korea. Beneficiary certificates which are securities indicating beneficiary right on certain investment securities held by the investment management companies are recorded at fair value as determined by the investment management companies.

Trading securities shall be classified as current assets, whereas available-for-sale securities and held-to-maturity securities shall be classified as long-term investments. However, available-for-sale securities, whose maturity dates are due within one year from the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is probable, shall be classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within one year from the balance sheet date shall be classified as current assets.

As allowed by this standard, certain amounts in the prior year financial statements were reclassified to conform to the current year presentation.

For investments in companies, whether or not publicly held, that are not controlled, but under the Company’s significant influence, the Company utilizes the equity method of accounting. Significant influence is generally deemed to exist if the Company can exercise influence over the operating and financial policies of an investee. The ability to exercise that influence may be indicated in several ways, such as the Company’s representation on its board of directors, the Company’s participation in its policy making processes, material transactions with the investee, interchange of managerial personnel, or technological dependency. Also, if the Company owns directly or indirectly 20% or more of the voting stock of an investee and the investee is not required to be consolidated, the Company generally presumes that the investee is under significant influence.

(g) Investment Securities under the Equity Method of Accounting

Under the equity method of accounting, the Company’s initial investment is recorded at cost and is subsequently increased to reflect the Company’s share of the investee income and reduced to reflect the Company’s share of the investee losses or dividends received. Any excess in the Company’s acquisition cost over the Company’s share of the investee’s identifiable net assets is generally recorded as goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of goodwill is recorded against the equity income (losses) of affiliates. When events or circumstances indicate that carrying amount may not be recoverable, the Company reviews goodwill for impairment.

Assets and liabilities of foreign-based companies accounted for using the equity method are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of earnings are translated at average rate and capital account at historical rate. The translation gains and losses arising from collective translation of the foreign currency financial statements of foreign-based companies are offset and the balance is accumulated as a capital adjustment.

Under the equity method of accounting, the Company does not record its share of losses of an affiliate or subsidiary not consolidated when such losses would make the Company’s investment in such entity less than zero unless the Company has guaranteed obligations of the investee or is otherwise committed to provide additional financial support.

F-12

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(h) Property, Plant and Equipment

Property, plant and equipment are stated at cost. Improvements that significantly extend the life of an asset or add to its productive capacity are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Property, plant and equipment contributed by the government on January 1, 1982 are stated at net revalued amounts.

Prior to January 1, 2003, the Company capitalized interest costs, discounts and other financial charges, including certain foreign exchange transaction gains and losses, on all borrowings, incurred prior to completion of the acquisitions, as part of the cost of qualifying assets. However, effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 7, “Capitalization of Financing Costs.” In accordance with this standard, the Company elected to no longer capitalize interest costs, discounts and other financial charges, including certain foreign exchange transaction gains and losses on all borrowings. For the years ended December 31, 2001 and 2002, financing costs of (Won)131,092 million and (Won)83,851 million were capitalized, respectively.

Depreciation is computed using the declining-balance method (except for buildings, structures, underground access to cable tunnels, and concrete and steel telephone poles, and the assets of some subsidiaries which are depreciated using the straight-line method) based on the following estimated useful lives of the related units of property:

	Estimated useful lives (years)
Buildings and structures	5-60
Machinery and equipment:
Underground access to cable tunnels, and concrete and steel telephone poles	20-40
Other	3-15
Vehicles	3-10
Tools, furniture and fixtures:
Steel safe boxes	20
Tools, computer equipment, furniture and fixtures	2-8

(i) Contributions Received for Capital Expenditures

Contributions received for capital expenditures are reflected as a reduction of the acquisition cost of the acquired assets and, accordingly, reduce depreciation expense related to the acquired assets over their useful lives. Contributions received, which have yet to be disbursed for capital expenditures, are presented as a deduction of received assets.

(j) Long-Lived Assets

Long-lived assets generally consist of property, plant and equipment and other intangible assets. The Company reviews long-lived assets for the impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, the Company evaluates its long-lived assets for impairment each year as part of its annual forecasting process. An impairment loss would be considered when estimated undiscounted future net cash flows 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.

F-13

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(k) Intangible Assets

(i) Goodwill

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 its estimated economic useful life.

Accounting for the difference between the acquisition cost and the amount of underlying equity of a purchased entity differs depending on whether (1) the acquisition of the controlling interest of an investee is the original acquisition or (2) the purchase represents an additional equity purchase of a controlled entity. When the Company first acquires a controlling financial interest of an entity, the difference between the acquisition cost and the corresponding proportionate share of the entity’s equity as of the most recently audited or reviewed balance sheet date is recorded as goodwill. However, for additional equity purchases of existing consolidated subsidiaries, such difference is recorded as a reduction of stockholders’ equity (capital surplus). Goodwill is amortized over its estimated useful life of 4 to 10 years.

Amortization of goodwill of (Won)301,292 million, (Won)294,652 million and (Won)294,306 million for the years ended December 31, 2001, 2002 and 2003, respectively, and amortization of negative goodwill of (Won)413 million, (Won)413 million and (Won)518 million for the years ended December 31, 2001, 2002 and 2003, respectively, are included in operating expenses and other income, respectively, in the consolidated statements of operations.

An impairment loss would be recognized when the carrying amount of goodwill exceeds estimated discounted future net cash flows expected from the entities that are being consolidated and its eventual disposition are less than its carrying amount.

(ii) Other Intangible Assets

Other intangible assets, consisting of rights to exclusive usage and deferred development costs, are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over periods which range from 3 to 50 years. The Company has monopolistic and exclusive rights to control buildings and facilities utilization and copyrights by contract or related laws. Accordingly, the Company amortizes those intangible assets over the period of 30 or 50 years based on contract or related laws.

(iii) Research and Development Costs

The Company charges research and development costs to expense as incurred. However, the costs which are recoverable from future earnings are deferred and amortized over their estimated useful lives. In addition, the internal software development costs, after technological feasibility has been established, such as those associated with Broadband Integrated Services Digital Network (B-ISDN), Integrated Customer Information System (ICIS) and Enterprise Resource Planning (ERP), are accounted for as intangible assets and amortized by the straight-line method over their estimated economic useful lives from 3 to 6 years.

The Company incurred research and development costs of (Won)378,388 million, (Won)274,410 million and (Won)306,361 million, including deferred amounts of (Won)145,196 million, (Won)28,855 million and (Won)61,736 million for the years ended December 31, 2001, 2002 and 2003, respectively.

(l) Advertising Costs

The Company expenses advertising costs as they are incurred. These expenses include media and other promotional and sponsoring costs.

F-14

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(m) Valuation of Receivables and Payables at Present Value

Receivables and payables arising from long-term installment transactions and other similar transactions are stated at present value and the difference between the nominal value and present value is deducted directly from the nominal value of related receivables or payables and is amortized using the effective interest method over the installment or redemption period. The amount amortized is included in interest expense or interest income.

(n) Convertible Notes and Bonds with Warrants

Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 9, “Convertible Securities” related to convertible bonds, bonds with warrants and convertible preferred stock, which requires the separate recognition of the convertible features and warrant rights. However, as allowed by the transition clause of the Statement, the Company recognizes interest expense on convertible notes and bonds with warrants as determined using the effective interest method, and amortization of a redemption premium is recorded as long-term accrued interest expense.

(o) Retirement and Severance Benefits

Employees who have been with the Company for more than one year are entitled to lump sum payments based on current rates of pay and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying consolidated balance sheets. A portion of the liability is covered by an employees’ severance pay insurance where the employees have a vested interest in the deposit with the insurance company. Therefore, such deposit for severance benefit insurance amounting to (Won)338,576 million and (Won)519,377 million as of December 31, 2002 and 2003, respectively, are reflected in the accompanying consolidated balance sheets as a reduction of the liability for retirement and severance benefits.

Through March 1999, under the National Pension Scheme of Korea, the Company transferred a certain portion of retirement allowances of employees to the National Pension Fund. The amount transferred will reduce the retirement and severance benefit amount to be payable to the employees when they leave the Company and is accordingly reflected in the accompanying consolidated balance sheets as a reduction from retirement and severance benefit liability. The cumulative balances of such transfers to the National Pension Fund were (Won)1,066 million and (Won)729 million as of December 31, 2002 and 2003, respectively. Beginning in April 1999, however, a new regulation applies and such transfers to the National Pension Fund are no longer required.

(p) Customer Call Bonus Program

The Company records an estimated liability for the marketing cost associated with providing gifts under the customer call bonus program when call bonus points are earned. The liability is recorded in other long-term liabilities on the accompanying consolidated balance sheets. The liability is adjusted periodically based on points earned, points redeemed, and changes in estimated costs.

(q) Contingent Liabilities

Contingent losses are generally recognized as a liability when probable and reasonably estimable.

(r) Revenue Recognition

Operating revenues are recognized on a service-rendered basis. Revenues from public telephone cards are recognized when the cardholder places a call. Sales and cost of sales of Personal Communication Service

F-15

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(“PCS”) handsets are recognized when delivered to the customer. The non-refundable service initiation fees for telephone, broadband Internet access, PCS services and leased-line service are recognized as revenue upon receipt.

Prior to April 15, 2001, customers could choose between alternative plans for initiating basic telephone services. Under these alternatives, customers could elect to place a fully refundable deposit (which is reflected as a liability) or pay a reduced non-refundable service initiation fee (which is included in operating revenues). Prior to this change, all customers were required to place fully refundable deposits.

Effective April 15, 2001, the Company revised the telephone installation deposit system. Under the revised system, new customers are required to pay a non-refundable service initiation fee. The non-refundable service initiation fee is included in operating revenues.

Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 4, “Revenue Recognition,” clarifying existing standards regarding revenue recognition. The Company’s current policy for revenue recognition is not significantly different from the requirements of this Statement.

(s) Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the balance sheet date. Unrealized foreign currency translation gains and losses on monetary assets and liabilities are included in current results of operations. As of December 31, 2002 and 2003, monetary assets and liabilities denominated in foreign currencies are translated into Korean won at (Won)1,200.4 to US$1 and (Won)1,197.8 to US$1, respectively, that are permitted by the Financial Accounting Standards. Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated into Korean won at the foreign exchange rate at the date of the transaction.

Prior to January 1, 2003, the Company accounted for foreign exchange translation gains and losses on all borrowings, capitalizing financing costs, as part of the cost of qualifying assets. However, the Company adopted Statement of Korea Accounting Standards No. 7, “Capitalization of Financing Costs,” effective January 1, 2003. In accordance with this standard, all foreign exchange translation gains and losses are included in the results of operations.

(t) Derivatives

Derivative instruments, regardless of whether they are entered into for trading or hedging purposes, are valued at fair value. Derivative contracts not meeting the requirements for hedge accounting treatment are classified as trading contracts with the changes in fair value included in current operations.

Derivative financial instruments used for hedging purposes are accounted for in a manner consistent with the accounting treatment appropriate for the transactions being hedged or associated with such contracts. The instruments are valued at fair value when underlying transactions are valued at fair value, and resulting unrealized valuation gains or losses are recorded in current results of operations. For instruments that are not valued at fair value, unrealized valuation gains or losses are recognized at the time of settlement.

(u) Leases

The Company accounts for and classifies its lease transactions as either an operating or capital lease, depending on the terms of the lease under Korean Lease Accounting Standards If a lease is substantially

F-16

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

noncancellable and meets one or more of the criteria listed below, the present value of future minimum lease payments is reflected as an obligation under capital lease.

• Ownership of the leased property shall be transferred to the lessee at the end of the lease term without additional payment or for a contract price.

• The lease has a bargain purchase option.

• The lease term is equal to 75% or more of the estimated economic useful life of the leased property.

• The present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of the fair value of the leased property.

If the above criteria are not met, the lease is classified as an operating lease and lease payments are expensed under straight-line over the lease term.

(v) Income Taxes

Income tax expense or benefit on earnings includes both current and deferred taxes. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date. Deferred tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, deferred taxes are not recognized for temporary differences related to unrealized gains and losses on available-for-sales securities that are reported in a separate component of stockholders’ equity. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of the expected enactment date.

A deferred tax asset is recognized only to the extent that it is probable that such deferred tax asset is recoverable in a future period. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(w) Stock Options

The stock option program allows the Company’s officers to acquire shares of the Company. The option exercise price is generally fixed at above the market price of underlying shares at the date of the grant. The Company values stock options based upon an option-pricing model (Black-Scholes model) under the fair value method and recognizes this value as an expense over the period in which the options vest.

When the options are exercised, equity is increased by the amount of the proceeds received, and the values of options exercised and credited to the capital adjustment account. When stock options are forfeited because the specified vesting requirements are not satisfied, previously recognized compensation costs and corresponding capital adjustment account are reversed to earnings. When stock options expire unexercised, previously recognized compensation costs and corresponding capital adjustment account are reversed to capital surplus.

(x) Dividends Payable and Appropriation of Retained Earnings

Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 6, “Events Occurring After the Balance Sheet Date”. Under this standard, dividends are not recorded until approved by the shareholders. As a result, the Company adjusted stockholder’s equity as of December 31, 2002 by (Won)212,887 million. The amount represents the dividends payable recorded in 2002. In addition, appropriated retained earnings as of December 31, 2002 decreased by (Won)1,583,589 million while unappropriated retained earnings

F-17

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

increased by the same amount because the amount of appropriations was declared by the Company but not yet approved at the shareholders’ meeting. Under the new standard, for the comparative purposes, this amount was retroactively adjusted as of December 31, 2002.

(y) Earnings Per Share

Basic earnings per common share are calculated by dividing net earnings available to common stock by the weighted-average number of shares of common stock holders outstanding during each period. Diluted earnings per share are calculated by dividing net earnings plus interest expenses, net of tax, of the convertible notes available to common stock holders by the weighted-average number of shares of common stock outstanding adjusted to include the potentially dilutive effect of the convertible notes.

Bonds with warrants and stock options were not considered when calculating diluted earnings per share because the exercise price of the warrants and stock options was greater than the average market price of the common share and, therefore, the effect would have been antidilutive.

(z) Minority Interest in Consolidated Subsidiaries

Minority interest in consolidated subsidiaries is presented as a separate component of stockholders’ equity in the consolidated balance sheets.

(aa) Foreign Currency Translation of Foreign Subsidiaries

Assets and liabilities of the Company’s foreign subsidiaries and operations are translated at current rate of exchange at the balance sheet date while profit and loss items in the statement of earnings are translated at average exchange rate and capital account at historical rate. Gains and losses resulting from such translation of financial statements are recognized as a foreign-based operations translation adjustment in stockholders’ equity.

(ab) Use of Estimates

The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(ac) Application of the Statements of Korea Financial Accounting Standards

The Korean Accounting Standards Board (“KASB”) has published a series of Statements of Korea Accounting Standards (“SKAS”), which will gradually replace the existing financial accounting standards, established by the Korea Financial Supervisory Board. The Company adopted SKAS No. 2 through No. 9 as of January 1, 2003. SKAS No. 10 “Inventories,” No. 12 “Construction-Type Contracts,” and No. 13 “Troubled Debt Restructuring” become effective for the Company on January 1, 2004 according to the effective date set forth by each SKAS. The Company does not expect the adoption of these Standards to have a material impact on the consolidated financial statements.

(ad) Accounting for the Disposition of an Equity Interest in a Consolidated Subsidiary

Gain or loss on the Company’s sale of a subsidiary’s stock is recognized in income if, after the sale of the equity interest, the investment is no longer required to be consolidated. If the entity is still required to be consolidated, the Company records the difference between net proceeds and the carrying amount of the stock as an adjustment to stockholders’ equity.

F-18

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(ae) Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each significant class of financial instruments for which it was practicable to estimate such value:

(i) Cash and cash equivalents, short-term financial instruments, notes and accounts receivable—trade, accounts receivable—other, trading securities, available-for-sale securities, notes and accounts payable—trade, short-term borrowings and accrued expenses. The carrying amount approximates fair value because these instruments are either carried at fair value or because of the short maturity of these instruments.

(ii) Investment Securities

The fair value of equity securities of non-affiliates and debt securities are estimated based on quoted market prices. The fair values of equity-linked securities are estimated based on quotes obtained from dealer. For those investments for which there were no quoted market prices, a reasonable estimate of fair value could not be made without incurring excessive costs. Additional information pertinent to the fair value of unquoted investments is provided below.

(iii) Loans included in other current assets and other assets

The carrying amount of loans included in other current assets approximate fair value due to the short term maturities of these investments. The fair value of long-term loans in other assets is estimated based on discounted cash flows using current rates offered for loans of the same remaining maturities.

(iv) Long-term debt

The fair value of the long-term debt, including the 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.

(v) Interest rate swap, interest rate swaption, currency swap and interest currency swap

The fair values of interest rate swap, interest rate swaption, currency swap and interest currency swap are estimated based on quotes obtained from dealers.

The estimated fair values of the Company’s significant financial instruments at December 31, 2002 and 2003 are summarized as follows:

	2002 (millions)
	Carrying amount		Fair value
Cash and cash equivalents	(Won)	1,086,689	1,086,689
Short-term financial instruments		819,859	819,859
Notes and accounts receivable—trade		2,982,501	2,982,501
Accounts receivable—other		512,512	512,512
Trading securities		433,661	433,661
Available-for-sale securities:
•    Practicable to estimate fair value		1,010,528	1,010,528
•    Not practicable		195,940	N/A
Held-to-maturity securities		6,013	5,997
Loans included in other current assets and other assets		1,033,499	849,888

F-19

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	2002 (millions)
	Carrying amount	Fair value
Notes and accounts payable—trade	1,167,195	1,167,195
Short-term borrowings	1,116,385	1,116,385
Accrued expenses	257,565	257,565
Interest rate swap	7,662	7,662
Interest rate swaption	1,459	1,459
Long-term debt, including current portion	11,723,697	11,473,089
	2003 (millions)
	Carrying amount	Fair value
Cash and cash equivalents	760,868	760,868
Short-term financial instruments	60,899	60,899
Notes and accounts receivable—trade	2,647,379	2,647,379
Accounts receivable—other	323,042	323,042
Trading securities	52,397	52,397
Available-for-sale securities:
•    Practicable to estimate fair value	339,640	339,640
•    Not practicable	207,759	N/A
Held-to-maturity securities	117,121	117,205
Interest rate swap	2,998	2,998
Interest rate swaption	989	989
Interest currency swap	5,083	5,083
Loans included in other current assets and other assets	690,711	578,609
Notes and accounts payable—trade	1,022,805	1,022,805
Short-term borrowings	631,689	631,689
Accrued expenses	252,841	252,841
Interest rate swap	16,077	16,077
Currency swap	3,554	3,554
Long-term debt, including current portion	11,222,258	10,972,913

F-20

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

It was not practicable to estimate the fair value of investments in unlisted companies. Additional unaudited information as to total assets, stockholders’ equity (deficit), revenues and net income (loss) for these investments as of and for the years ended December 31, 2002 and 2003 are summarized as follows:

	Unaudited 2002 (millions)
	Percentage ownership	Carrying amount		Total assets	Stock- holders’ equity (deficit)		Revenues	Net income (loss)
Intelsat Ltd.	0.7	(Won)	6,222	4,760,105	2,581,141		1,241,175	343,015
Inmarsat Venture plc	2.3		15,015	1,664,862	1,117,830		579,459	205,456
Korea Software Financial Cooperative	1.4		1,000	88,188	82,140		5,953	2,819
Korea Multinet Co.	7.1		—	7,650	(4,012	)	1,468	(2,574	)
Polytech Adventure Town, Inc.	6.7		200	2,934	2,907		—	(99	)
Real Telecom Corporation	7.8		5,190	46,196	14,837		22,928	(4,424	)
KT Internal Venture Fund No.1	89.3		3,303	3,785	3,682		24	(134	)
Korea Information Certificate Authority, Inc.	9.4		2,000	21,551	18,133		13,743	(381	)
Mirae Asset Securities Co., Ltd.	9.6		11,960	563,773	191,315		531,763	21,311
Korea Telecom Venture Fund No. 1	90.0		18,000	22,122	21,856		619	350
Kookmin Credit Information, Inc.	13.0		1,202	12,901	6,550		32,249	1,243
Korea Information Technology Fund	33.3		100,000	300,000	300,000		—	—
On Game Network Inc.	19.5		1,060	9,016	5,869		10,953	148
Online Pass Co., Ltd.	19.5		370	1,873	1,571		1,731	(324	)
Danish Russian Japan Korean Telecommunication Group	10.0		307	- - - - - - - - -    Not available    - - - - - - - - -
Other	—		30,111	- - - - - - - - -    Not available    - - - - - - - - -
		(Won)	195,940

F-21

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	Unaudited 2003 (millions)
	Percentage ownership	Carrying amount		Total assets	Stock- holders’ equity (deficit)		Revenues	Net income (loss)
Intelsat Ltd.	0.7	(Won)	6,222	6,046,679	2,794,525		1,135,715	215,894
Inmarsat Venture plc	2.3		15,015	1,653,212	1,110,008		552,025	195,729
Korea Software Financial Cooperative	1.4		1,000	101,779	96,305		6,542	3,260
Korea Multinet Co.	7.1		—	5,476	(6,110	)	131	(2,348	)
Polytech Adventure Town, Inc.	6.7		200	1,425	1,405		18	(148	)
Real Telecom Corporation	7.8		721	38,260	9,265		18,595	(9,563	)
KT Internal Venture Fund No.1	89.3		3,303	12,481	12,410		5,230	5,131
KT Internal Venture Fund No.2	90.0		3,000	3,302	3,301		25	10
Korea Information Certificate Authority, Inc.	9.4		2,000	25,363	18,067		15,062	(26	)
Mirae Asset Securities Co., Ltd	9.6		11,960	880,615	214,304		225,222	31,174
Korea Telecom Venture Fund No. 1	90.0		18,000	24,046	23,737		1,136	697
Kookmin Credit Information, Inc.	13.0		1,202	6,457	3,378		8,481	(5,894	)
Korea Information Technology Fund	33.3		100,000	309,459	309,459		—	9,459
On Game Network Inc.	19.5		1,060	9,146	6,749		11,681	380
Online Pass Co., Ltd.	19.5		370	1,341	1,006		838	(584	)
Danish Russian Japan Korean Telecommunication Group	10.0		307	- - - - - - - - -    Not available    - - - - - - - - -
Other	—		43,399	- - - - - - - - -    Not available    - - - - - - - - -
		(Won)	207,759

(af) Consolidated Statements of Cash Flows

The Company paid (Won)669,690 million, (Won)574,795 million and (Won)681,595 million in interest (net of amounts capitalized) and (Won)67,789 million, (Won)329,816 million and (Won)747,700 million in income taxes for the years ended December 31, 2001, 2002 and 2003, respectively.

(ag) Segment Information

The Company has two reportable operating segments—wireline communications and PCS services (including IMT-2000 services). Wireline communications include all services provided to fixed line customers, including internet services, data communication services, wire and other facilities, leased line services and telephone services. Beginning in 2003, the IMT-2000 services operating segment is included within the PCS services operating segment due to the merger between the two separate legal entities, KTF and KTICOM during 2003. In prior years, IMT-2000 services was reported as a separate operating segment. PCS service is a digital wireless telephone system that uses light handsets with a long battery life to communicate via low-power antennas. PCS telephones have the capacity to receive and send data as well as voice transmission. IMT-2000 service is a third-generation, high-capacity wireless communication system that enables subscribers to utilize a full range of mobile multi-media services including video phone and wireless data transmission. The operations of all other entities which fall below the reporting thresholds are included in the “Miscellaneous” segment below, and include entities providing, among others, submarine cable construction and group telephone management.

F-22

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The Company’s reportable segments are separate legal entities that offer different products and services and/or serve different customers. No single customer accounted for revenues in excess of 10% of total revenues. The entities are managed differently since they utilize different technology and marketing strategies and have different capital requirements. Management primarily evaluates the performance of the segments based on operating income (loss).

The Company accounts for intersegment revenues and costs as if the related transactions were with third parties. The adjustments included in “Reconciling Adjustments,” line item “Other income (expenses), net” include minority interest in earnings of consolidated subsidiaries of (Won)(260,422) million, (Won)(316,918) million and (Won)(235,695) million in 2001, 2002 and 2003, respectively, and elimination of the parent company’s equity in net earnings of KTF and other subsidiaries of (Won)(175,911) million, (Won)(208,756) million and (Won)(160,161) million in 2001, 2002 and 2003, respectively. Reconciling adjustments also include reclassification of amortization of goodwill between the line items “Other income (expenses), net” and “Operating expenses—Depreciation and amortization” in the amount of (Won)301,292 million, (Won)294,652 million and (Won)294,306 million in 2001, 2002 and 2003, respectively. Additionally, reconciling adjustments include intersegment eliminations in all line items.

The following table provides information for each operating segment as of and for year ended December 31, 2001:

	2001 (millions)
	Wireline Communications			PCS Services		Miscellaneous		Reconciling Adjustments		Consolidated
Operating revenues:
External customers	(Won)	11,098,504		4,428,159		450,565		—		15,977,228
Intersegment		448,378		593,986		225,404		(1,267,768	)	—
		11,546,882		5,022,145		675,969		(1,267,768	)	15,977,228
Operating expenses:
Depreciation and amortization		3,037,816		620,244		54,912		296,800		4,009,772
Other		7,025,305		3,637,157		617,123		(1,287,406	)	9,992,179
		10,063,121		4,257,401		672,035		(990,606	)	14,001,951
Operating income (loss)		1,483,761		764,744		3,934		(277,162	)	1,975,277
Interest income		48,717		68,394		15,535		—		132,646
Interest expense		(423,577	)	(276,825	)	(12,040	)	—		(712,442	)
Other income (expenses), net		257,261		34,541		(17,533	)	(135,305	)	138,964
Earnings (loss) before income taxes		1,366,162		590,854		(10,104	)	(412,467	)	1,534,445
Income taxes		278,951		135,976		6,764		(221	)	421,470
Net earnings (loss)	(Won)	1,087,211		454,878		(16,868	)	(412,246	)	1,112,975
Total assets	(Won)	22,851,115		8,981,379		928,948		(2,748,887	)	30,012,555
Capital expenditures	(Won)	2,677,672		1,171,464		76,222		(7,157	)	3,918,201

F-23

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The following table provides information for each operating segment as of and for year ended December 31, 2002:

	2002 (millions)
	Wireline Communications			PCS Service		Miscellaneous		Reconciling Adjustments		Consolidated
Operating revenues:
External customers	(Won)	11,291,130		4,806,875		339,417		—		16,437,422
Intersegment		455,113		552,334		358,745		(1,366,192	)	—
		11,746,243		5,359,209		698,162		(1,366,192	)	16,437,422
Operating expenses:
Depreciation and amortization		2,714,437		728,845		62,713		291,099		3,797,094
Other		7,200,342		3,841,340		626,417		(1,409,574	)	10,258,525
		9,914,779		4,570,185		689,130		(1,118,475	)	14,055,619
Operating income (loss)		1,831,464		789,024		9,032		(247,717	)	2,381,803
Interest income		53,890		57,976		12,280		(1,028	)	123,118
Interest expense		(425,482	)	(216,092	)	(9,914	)	1,028		(650,460	)
Other income (expenses), net		1,155,746		(19,710	)	(22,779	)	(279,430	)	833,827
Earnings (loss) before income taxes		2,615,618		611,198		(11,381	)	(527,147	)	2,688,288
Income taxes		651,801		79,921		11,129		(1,497	)	741,354
Net earnings (loss)	(Won)	1,963,817		531,277		(22,510	)	(525,650	)	1,946,934
Total assets	(Won)	21,761,117		8,909,766		893,828		(2,514,565	)	29,050,146
Capital expenditures	(Won)	2,145,210		1,034,693		56,722		(4,279	)	3,232,346

F-24

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The following table provides information for each operating segment as of and for the year ended December 31, 2003:

	2003 (millions)
	Wireline Communications			PCS Services		Miscellaneous		Reconciling Adjustments		Consolidated
Operating revenues:
External customers	(Won)	11,090,939		4,520,348		456,492		—		16,067,779
Intersegment		483,610		566,999		462,716		(1,513,325	)	—
		11,574,549		5,087,347		919,208		(1,513,325	)	16,067,779
Operating expenses:
Depreciation and amortization		2,514,299		849,500		101,874		291,553		3,757,226
Other		7,817,106		3,459,638		775,515		(1,564,142	)	10,488,117
		10,331,405		4,309,138		877,389		(1,272,589	)	14,245,343
Operating income (loss)		1,243,144		778,209		41,819		(240,736	)	1,822,436
Interest income		78,670		34,842		12,046		(10,104	)	115,454
Interest expense		(432,200	)	(272,992	)	(10,452	)	10,104		(705,540	)
Other income (expenses), net		400,055		(76,937	)	(55,685	)	(154,418	)	113,015
Earnings (loss) before income taxes		1,289,669		463,122		(12,272	)	(395,154	)	1,345,365
Income taxes		459,603		51,657		11,671		700		523,631
Net earnings (loss)	(Won)	830,066		411,465		(23,943	)	(395,854	)	821,734
Total assets	(Won)	19,573,181		7,591,888		1,229,309		(2,837,703	)	25,556,675
Capital expenditures	(Won)	2,083,370		953,377		186,830		(14,201	)	3,209,376

(3) 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 year ended December 31, 2003, have been translated into United States dollars at the rate of (Won)1,192.0 to US$1, 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, 2003. 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.

(4) Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003
Cash on hand	(Won)	79	380
Checking accounts		2,358	3,919
Passbook accounts		36,321	17,859
Cash in transit		610,207	541,918
Time deposits		437,724	196,792
	(Won)	1,086,689	760,868

F-25

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(5) Restricted Deposits

There are certain amounts included in cash and cash equivalents, short-term and long-term financial instruments which are restricted in use for expenditures for certain business purposes as of December 31, 2002 and 2003 as follows:

	Millions
	2002		2003
Short-term financial instruments	(Won)	7,709	3,127
Long-term financial instruments		80	61
Passbook accounts		—	1,038
	(Won)	7,789	4,226

(6) Inventories

Inventories as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003
Construction and repair materials	(Won)	66,915	72,924
PCS handsets		146,818	225,809
Other		30,458	66,100
	(Won)	244,191	364,833

(7) Other Current Assets

Other current assets as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003
Current portion of long-term loans to employees	(Won)	157,340	118,629
Prepaid expenses		38,086	28,412
Prepayments		61,269	49,371
Accrued interest income		16,171	8,359
Refundable deposits		2,334	8,721
Short-term loans		3,553	6,526
Interest rate swap (note 22)		—	2,998
Interest currency swap (note 22)		—	5,083
Interest rate swaption (note 22)		—	989
Other		2,670	956
	(Won)	281,423	230,044

(8) Investments in Securities

Investments in securities as of December 31, 2002 and 2003 are summarized as follows:

(a) Trading securities (fair value)

	Millions
	2002		2003
Mutual funds	(Won)	433,661	52,397

F-26

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(b) Available-for-sale securities

(i) Equity securities

	Percentage of ownership (%)		Millions
	2002	2003	2002			2003
Current assets:
Knowledge Plant, Inc.	12.6	4.4		—	*	7,272
SK Telecom Co., Ltd. (“SK Telecom”)	4.3	—		853,281		—
			(Won)	853,281		7,272
Investment assets:
New Skies Satellites N.V.	1.4	1.4	(Won)	9,246		15,917
Intelsat Ltd.	0.7	0.7		6,222		6,222
Inmarsat Ventures plc	2.3	2.3		15,015		15,015
Danish Russian Japan Korean Telecommunication Group	10.0	10.0		307		307
Real Telecom Corporation	7.8	7.8		5,190		721
Polytech Adventure Town, Inc.	6.7	6.7		200		200

* Investment in Knowledge Plant, Inc. of (Won)1,420 million is included in other equity securities as of December 31, 2002.

	Percentage of ownership (%)		Millions
	2002	2003	2002		2003
Korea Software Financial Cooperative	1.4	1.4	(Won)	1,000	1,000
Korea Information Certificate Authority, Inc.	9.4	9.4		2,000	2,000
K-3-I Co., Ltd.	13.0	13.0		300	300
KT Internal Venture Fund No. 1	89.3	89.3		3,303	3,303
KT Internal Venture Fund No. 2	—	90.0		—	3,000
Mirae Asset Securities Co., Ltd.	9.6	9.6		11,960	11,960
Korea Telecom Venture Fund No. 1	90.0	90.0		18,000	18,000
Sky Life Contents fund	22.5	22.5		4,500	4,500
ICO Global Communication (Holdings) Limited	0.1	0.1		617	617
Korea Information Technology Fund	33.3	33.3		100,000	100,000
DAEGU Football Club	1.0	1.0		300	300
Kookmin Credit Information Inc. (formerly National Information & Credit Evaluation, Inc.)	13.0	13.0		1,202	1,202
On Game Network Inc.	19.5	19.5		1,060	1,060
GaeaSoft Corp.	6.4	6.4		2,184	913
KRTnet Corporation	7.5	7.5		4,493	4,454
Sports Toto	—	8.7		—	13,500
VACOM WIRELESS, INC.	16.8	16.8		1,880	1,880
ESTsoft Corp.	15.0	15.0		1,650	1,650
CEC Mobile	16.7	16.7		4,456	4,456
ONSE TELECOM	0.4	0.8		2,148	4,605
Other	—	—		15,029	12,219
			(Won)	212,262	229,301

F-27

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Investments in equity securities for New Skies Satellites N.V., GaeaSoft Corp., Knowledge Plant, Inc., and KRTnet Corporation are recorded at fair value. All other equity securities that do not have readily determinable fair values are stated at cost.

The Company and SK Telecom agreed to an equity swap on December 20, 2002 under which each company sold all of the other’s equity shares it held in the other. According to the agreement, the Company exchanged 4,457,635 shares of SK Telecom for 15,454,659 shares of treasury stock plus cash of (Won)211,868 million on December 30, 2002. In addition, the Company exchanged 3,809,288 shares of SK Telecom for 14,353,674 shares of treasury stock plus cash of (Won)122,679 million on January 10, 2003 and the Company recognized a gain on disposition of available-for-sale securities in the amount of (Won)775,241 million for the year ended December, 31, 2003.

The Company recognized impairment loss of available-for-sale securities of (Won)8,856 million for the year ended December 31, 2003. This charge was related to other-than-temporary declines in the value of the investee company.

(ii) Debt securities

	Maturity	Millions
		2002		2003
Current assets:
Beneficiary certificates	2004	(Won)	—	216,105
Equity-linked securities	2004		—	63,380
		(Won)	—	279,485
Investment assets:
KTF First Securitization Specialty Co., Ltd.	2004	(Won)	43,430	—
KTF Second Securitization Specialty Co., Ltd. (note 22(i))	2005		—	19,254
Equity-linked securities	2004		97,495	—
Beneficiary certificates	2005		—	12,087
		(Won)	140,925	31,341

On April 11, 2002, the Company purchased equity-linked securities of (Won)132,594 million from Citigroup Global Markets Inc. (“CGMI” and previously called “Saloman Smith Barney Holdings, Inc.”). These equity-linked securities have maturities of 2 and 2.5 years. The value of the equity-linked securities is linked to the weighted-average quoted price of 500,000 shares of SK Telecom stock, whereby the amount payable to the Company from CGMI will be adjusted based on the weighted-average quoted share price of SK Telecom. Generally, if the weighted-average quoted share price of the SK Telecom shares were to fall below (Won)150,930 and (Won)154,155 for the 2 year and 2.5 year notes, respectively, the amount payable to KT from CGMI would be zero and if the weighted-average quoted share price of SK Telecom shares were to exceed (Won)301,860 and (Won)308,310 for the 2 year and 2.5 year notes, respectively, then the amount payable to KT from CGMI would be the full value of 500,000 SK Telecom shares based on the weighted-average quoted share price of SK Telecom. In addition, if the weighted-average quoted share price were to fall between the prescribed ceiling and floor amounts, then the amount payable to KT by CGMI would be two times the weighted average quoted share price of SK Telecom shares less (Won)301,860 and (Won)308,310 for the 2 year and 2.5 year notes, respectively, calculated based on 500,000 SK Telecom shares.

F-28

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The Company’s investments in the equity-linked securities are recorded at fair value and unrealized holding gains and losses are recorded as a separate component of stockholders’ equity. The equity-linked securities were tested for impairment during 2003 due to the significant decrease of the quoted market value of SK Telecom shares. As a result of this impairment test, the Company recognized an impairment loss amounting to (Won)35,137 million on the equity-linked securities for the year ended December 31, 2003. If the quoted market value of SK Telecom shares continues to decline, the Company may be required to record additional impairment losses. As of December 31, 2003, SK Telecom shares were quoted at (Won)199,000 per share, resulting in unrealized loss of (Won)34,078 million.

(iii) Changes in unrealized holding gains (losses)

Changes in unrealized gains (losses) on available-for-sale securities for the year ended December 31, 2003 are summarized as follows:

	Millions
Beginning balance	(Won)	743,563
Realized gains on disposition of securities		(781,407	)
Impairment loss on available-for-sale securities		35,137
Changes in unrealized losses, net		(22,092	)
Net balance at end of year	(Won)	(24,799	)

(c) Held-to-maturity securities

	Millions
	2002		2003
Current assets:
Government and municipal bonds	(Won)	218	5,712
Long-term assets:
Government and municipal bonds		5,795	11,495
Subordinated interest in securitized accounts receivable (note 22(j))		—	99,914
	(Won)	5,795	111,409

KTF retained the above subordinated interest in securitized accounts receivable issued by Shinhan Bank Trust in relation to the sale of trade accounts and notes receivable. KTF believes that the difference between fair value and acquisition cost, which may arise from the uncollectibility of the trade accounts and notes receivable, will not have a material effect on the operations or financial position of the Company.

F-29

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(9) Investments in Equity Securities of Affiliated Companies

Investments in affiliated companies accounted for using the equity method as of December 31, 2002 and 2003, are summarized as follows:

	Percentage Ownership(%)		Millions
			2002			2003
	2002	2003	Net asset		Book value	Net asset	Book value
Listed:*
Hallim Venture Capital Corporation (“HVCC”)	—	25.3		—	—	7,700	3,512
Unlisted:
Mongolian Telecommunications Co.	40.0	40.0	(Won)	5,693	5,693	4,982	4,982
Korea IT Venture Partners Inc.	28.0	28.0		8,529	8,529	9,227	9,227
KT Rental Corp. (note 2(a))**	48.8	—		23,314	23,314	—	—
KBSi Co., Ltd.	32.4	32.4		2,153	2,153	1,386	1,386
Korea Telephone Directory Co., Ltd.	34.0	34.0		8,383	8,383	8,601	8,601
eNtoB Corp.	23.8	23.8		2,596	2,596	3,420	3,420
KT Infotech Corporation	15.6	15.6		4,551	4,105	4,350	3,955
Korea Telecom Realty Development and Management Co., Ltd.	19.0	19.0	(Won)	1,600	1,501	1,964	1,921
Korea Digital Satellite Broadcasting Co. (“KDB”)	18.2	29.9		35,740	36,257	40,411	89,885
Korea Information Data Corp.	19.0	19.0		5,233	5,233	6,864	6,864
Korea Information Service Corp.	19.0	19.0		3,632	3,632	4,552	4,552
KT Instrument & Communication Corp.	19.0	19.0		211	210	309	309
Bank Town Co., Ltd.	19.0	19.0		426	408	444	433
Korea Telecom Hitel Global Co., Ltd.	49.0	49.0		490	490	293	293
Sports TOTO On-Line	—	30.0		—	—	1,450	1,450
			(Won)	102,551	102,504	95,953	140,790

* The quoted market value (based on closing KOSDAQ price) of HVCC as of December 31, 2003 is (Won)4,942 million.

** KT Rental was included in consolidation during 2003.

In December 2003, the Company purchased an additional 11,770,000 shares of KDB for (Won)82,390 million including (Won)49,119 million of goodwill. After making this cash purchase, the Company’s equity ownership interest increased to 29.9%.

The Company has recorded unrealized losses of (Won)4,266 million and (Won)2,691 million relating to the above affiliates as of December 31, 2002 and 2003, respectively, which have been accounted for as capital adjustments. These capital adjustments have been recorded as unrealized losses on equity securities of affiliates within stockholders’ equity.

The Company received dividends of (Won)1,995 million, (Won)469 million and (Won)554 million in the aggregate from affiliates for the years ended December 31, 2001, 2002 and 2003.

F-30

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(10) Insurance

Property, plant and equipment were insured against fire damage up to an amount of (Won)920,939 million and (Won)1,237,621 million as of December 31, 2002 and 2003, respectively. Additionally, the Company maintains insurance policies covering loss and liability arising from automobile accidents.

(11) Other Assets

Other assets as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002			2003
Long-term loans to employees	(Won)	872,606		565,556
Leasehold rights and deposits		278,757		330,747
Goodwill		1,224,102		944,326
Negative goodwill		(2,589	)	(2,071	)
Frequency usage right, net		1,208,854		1,208,429
Other intangible assets, net		246,944		276,714
Long-term accounts receivable—trade		80,978		48,438
Long-term accounts receivable—other		7,797		17,361
Deferred income tax assets (note 25)		447,670		415,396
Other		156,615		133,064
	(Won)	4,521,734		3,937,960

During 2001, KTICOM acquired IMT-2000 frequency usage right and a license to operate the IMT-2000 business from the MIC for (Won)1,300 billion. As described in note 2(a), KTICOM was merged into KTF on March 6, 2003. The net amount of the frequency usage right of (Won)1,208,429 million is included in other assets in the accompanying consolidated balance sheet as of December 31, 2003. The Company paid 50%, or (Won)650 billion, of this amount in 2001 and the net present value of the remaining (Won)650 billion unpaid balance is recorded as long-term accounts payable—other in the accompanying consolidated balance sheet as of December 31, 2003. These rights have a contractual life of 15 years and will be amortized commencing on the date commercial service is initiated through the end of their contractual life. The Company started to amortize frequency usage right starting from December 1, 2003. In addition, the interest expense incurred from long-term accounts payable—other for frequency usage right was capitalized as frequency usage right through December 31, 2002. For the years ended December 31, 2002 and 2003, capitalized interest amounts to (Won)74,631 million and (Won)7,369 million, respectively. As described in note 2(h), effective January 1, 2003, the Company no longer capitalizes financing costs.

The net amount of the frequency usage right as of December 31, 2002 and 2003 is as follows:

	Millions
	2002		2003
Frequency usage right	(Won)	1,208,854	1,216,223
Less: Accumulated amortization		—	(7,794	)
	(Won)	1,208,854	1,208,429

F-31

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Long-term accounts payable—other related to frequency usage right is stated at the net present value of future cash flows, calculated using the effective interest rate(9.93%) at the time of receipt of the frequency use license. The balance as of December 31, 2003 is as follows:

	Millions
Long-term accounts payable—other	(Won)	650,000		650,000
Less: Present value discount		(148,742	)	(131,239	)
	(Won)	501,258		518,761

The maturities of the Company’s long-term accounts payable—other related to frequency usage right outstanding as of December 31, 2003 are as follows:

Year	Millions
2007	(Won)	90,000
2008		110,000
2009		130,000
2010		150,000
2011		170,000
	(Won)	650,000

(12) Short-term Borrowings

Short-term borrowings (all of which mature within one year) as of December 31, 2002 and 2003 are summarized as follows:

	Interest rate per annum (%)	Millions
		2002		2003
Commercial paper	4.17~4.99	(Won)	623,747	478,000
Banks	4.53~6.35		489,037	119,817
Short-term borrowings in foreign currency	Variable (0.60~3.84)		3,601	33,872
		(Won)	1,116,385	631,689

The weighted average interest rates on short-term borrowings were 5.20% and 4.63% at December 31, 2002 and 2003, respectively.

(13) Other Current Liabilities

Other current liabilities as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003
Key money deposits	(Won)	64,542	100,739
Advance receipt		7,505	4,932
Dividends payable		1,316	896
Payables for interest rate swap (note 22)		7,662	16,077
Payables for interest rate swaption (note 22)		1,459	—
Payables for currency swap (note 22)		—	3,554
Other		11,290	6,416
	(Won)	93,774	132,614

F-32

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(14) Long-term Debt

Long-term debt as of December 31, 2002 and 2003 is summarized as follows:

	Interest rate per annum (%)	Maturity date	Millions
			2002		2003
Local currency (Won) debt:
Bonds issued	5.00-11.00	2004~2013	(Won)	7,031,875	6,529,995
Convertible notes of KTF and KTFT	1.00	2004~2005		38,880	38,880
Convertible notes	3.00	2005		1,322,704	1,322,563
Security companies	5.60~6.85	2005~2008		220,000	20,486
Banks	5.66-7.32	2004~2007		101,348	90,680
Information and Telecommunication Improvement Fund	3.42-7.25	2004~2008		93,066	152,584
Other	—	—		1,346	—
				8,809,219	8,155,188
Foreign currency debt:
Convertible notes (USD)	0.25	2007	(Won)	1,593,878	1,483,628
Bonds with warrants (USD)	4.30	2005		600,200	598,900
Yankee bonds (USD)	7.50-7.63	2006~2007		420,140	419,230
Bonds (USD)	Libor+0.80	2006		—	179,670
Bonds (JPY)	2.64~3.13	2004~2006		236,094	158,672
Loans (USD)	Libor+0.45-Libor+1.70	2004~2007		145,008	248,451
				2,995,320	3,088,551
				11,804,539	11,243,739
				2,995,320	3,088,551
				11,804,539	11,243,739
Add: Premium on bonds				11,319	30,997
Less:
Current portion, net of discount				1,846,210	2,172,510
Discount on bonds				92,161	52,478
			(Won)	9,877,487	9,049,748

Convertible notes and bonds with warrants issued by the Company are summarized as follows:

	Issuance date	Issuance amount (millions)		Interest rate per annum	Maturity date
Convertible notes	January 4, 2002	US$	1,318	0.25%	January 4, 2007
Bonds with warrants	January 4, 2002	US$	500	4.30%	January 4, 2005
Convertible notes	May 25, 2002	(Won)	1,397,349	3.00%	May 25, 2005

Holders of convertible notes issued on January 4, 2002 are entitled to convert notes into shares of the Company’s common stock from January 4, 2003 to January 1, 2007. The exchange price is (Won)61,922 per share of common stock, which allowed the bondholders to obtain up to 27,500,099 shares. During 2002 and 2003, due to the early retirement of the convertible notes, the number of shares allowed to the bondholders was reduced to

F-33

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

23,504,885 shares. However, in February 2004, the exchange price was changed to (Won)60,588 per share according to the notes covenants requiring the conversion price adjustment upon dividend amounts would increase more than 20%. As a result of the change of exchange price, the number of shares that convertible notes can be converted increased to 24,022,404 shares. These changes are subject to approval at the March 12, 2004 shareholders’ meeting. Holders of convertible notes have the option to redeem the convertible notes on January 4, 2005 at 100% of their principal amount of US$1,126,350 thousand plus accrued and unpaid interest to the redemption date.

Bonds with warrants were issued in connection with a strategic alliance with Microsoft Corp. Holders of bonds with warrants were entitled to exercise the warrants from January 4, 2003 to December 31, 2003. The warrants expired on December 31, 2003 and no warrants had been exercised.

Holders of convertible notes issued on May 25, 2002 are entitled to convert notes into shares of the Company’s common stock from June 25, 2002 to April 25, 2005. The exchange price is (Won)59,400 per share of common stock, which allowed the bondholders to obtain up to 23,524,392 shares. During 2002 and 2003, due to the early retirement of the convertible notes and 13,149 shares of common stock converted, the number of shares allowed to the bondholders was reduced to 22,265,372 shares. The convertible notes, if not converted, will be redeemed at 104.438% of their principal amount at maturity date. The Company recognizes interest expense on convertible notes using the effective interest method, and amortization of the redemption premium is recorded as long-term accrued interest expense.

On October 14, 2002, the Company purchased and retired convertible notes issued on January 4, 2002 with a face value of US$107,750 thousand and convertible notes issued on May 25, 2002 with a face value of (Won)74,000 million for US$116,743 thousand and (Won)77,839 million, with a loss on retirement of convertible notes of (Won)10,762 million.

On December 18, 2003, the Company purchased and retired convertible notes issued on January 4, 2002 with a face value of US$83,700 thousand for US$85,839 thousand with a gain on retirement of convertible notes of (Won)7,441 million.

Aggregate principal maturities for the Company’s long-term debt as of December 31, 2003 are as follows:

Fiscal year ending December 31,	Millions
2004	(Won)	2,177,521
2005		3,666,708
2006		1,232,354
2007		2,441,561
2008		525,595
Thereafter		1,200,000
	(Won)	11,243,739

(15) Refundable Deposits for Telephone Installation

Through September 15, 1998, KT collected 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. For changes in site classifications of telephones that were installed prior to January 1, 1990, KT is obligated to refund the original deposit received plus the increased deposit due to changes in site classifications.

F-34

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Beginning on September 15, 1998, KT allowed customers to choose between alternative plans for basic telephone service. Under such plan, customers were permitted the option to either place fully refundable deposits or pay a reduced non-refundable service initiation fee. The non-refundable service installation fees were recorded as operating revenues. Refundable deposits continue to be subject to the same provisions as described above. Effective April 15, 2001, all new customers are required to pay a non-refundable service initiation fee.

(16) Retirement and Severance Benefits

Changes in retirement and severance benefits for each of the years in the three-year ended December 31, 2003 are summarized as follows:

	Millions
	2001			2002		2003
Estimated severance benefit liability at beginning of year	(Won)	280,788		474,438		379,606
Provision for the year		341,902		275,007		1,067,076
Increase (decrease) due to change of consolidated subsidiaries		(336	)	(1,853	)	600
Payments		(144,631	)	(42,942	)	(1,020,940	)
Withdrawal from the National Pension Fund, net		355		332		337
Payment of deposit for severance benefit insurance		(3,640	)	(325,376	)	(180,801	)
Net balance at end of year	(Won)	474,438		379,606		245,878

In 2001 and 2003, the Company implemented a voluntary early retirement plan for its employees. Employees electing voluntary early retirement plans in such years received additional amounts of retirement and severance benefits which were expensed in 2001 and 2003, amounting to (Won)74,337 million and (Won)831,535 million, respectively. In 2001 and 2003, the aggregate amounts of normal retirement and severance benefits, previously accrued as retirement and severance benefit liabilities, of the employees electing to retire pursuant to such programs amounted to (Won)13,017 million and (Won)110,932 million, respectively.

(17) Other Long-term Liabilities

Other long-term liabilities as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003
Accrual for customer call bonus points	(Won)	96,397	105,391
Advance receipt		20,382	17,099
Key money deposits from customers		19,881	20,963
Other		20,899	5,414
	(Won)	157,559	148,867

F-35

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(18) Stockholders’ Equity

The composition of holders of common stock as of December 31, 2001, 2002 and 2003 are summarized as follows:

	No. of shares owned			Ownership percentage
	2001	2002	2003	2001		2002		2003
Ministry of Information and Communication	125,165,577	—	—	40.09		—		—
National Pension Corporation	9,666,789	7,859,178	9,461,792	3.10		2.54		3.32
Employee Stock Ownership Associations	823,879	17,678,198	16,394,226	0.26		5.72		5.76
Treasury stock	1,073,060	76,988,771	74,090,974	0.34		24.91		26.01
Others, including private companies	175,470,354	206,551,512	184,902,408	56.21		66.83		64.91
	312,199,659	309,077,659	284,849,400	100.00	%	100.00	%	100.00	%

Changes in common stock for the years ended December 31, 2002 and 2003 are as follows:

	Number of shares issued		Millions
Balance at January 1, 2002	312,199,659		(Won)	1,560,998
Retirement of treasury stock on October 9, 2002	(3,122,000	)		—
Balance at December 31, 2002	309,077,659		(Won)	1,560,998
Retirement of treasury stock on January 6, 2003	(15,454,659	)		—
Retirement of treasury stock on June 20, 2003	(2,937,000	)		—
Retirement of treasury stock on December 9, 2003	(5,836,600	)		—
Balance at December 31, 2003	284,849,400		(Won)	1,560,998

F-36

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

As allowed by the Securities Exchange Law of the Republic of Korea, the Company retired its treasury shares by a charge to retained earnings rather than its common stock.

Changes in stockholders’ equity for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	Common stock		Capital surplus		Retained earnings			Capital adjustments		Minority interest		Total
					Appropriated	Unappropriated
Balance at January 1, 2001	(Won)	1,560,998	1,431,439		4,721,848	1,043,385		2,717,495		1,055,192		12,530,357
Net earnings		—	—		—	1,112,975		—		—		1,112,975
Appropriations of retained earnings		—	—		857,260	(857,260	)	—		—		—
Dividends		—	—		—	(159,265	)	—		—		(159,265	)
Increase in treasury stock, net		—	—		—	—		(19,779	)	—		(19,779	)
Decrease in unrealized gains on available-for-sale securities		—	—		—	—		(486,488	)	—		(486,488	)
Unrealized gain on equity securities of affiliate		—	—		—	—		1,354		—		1,354
Minority interest in earnings of consolidated subsidiaries, net		—	—		—	—		—		260,422		260,422
Issuance of common stock of a consolidated subsidiary		—	33,784		—	—		—		66,110		99,894
Changes in subsidiaries included in consolidation		—	—		—	—		—		673,472		673,472
Effect of merger between KTF and KTM		—	(19,124	)	—	—		—		—		(19,124	)
Other		—	50		—	—		(1,449	)	(9,116	)	(10,515	)
Balance at December 31, 2001	(Won)	1,560,998	1,446,149		5,579,108	1,139,835		2,211,133		2,046,080		13,983,303
Net earnings		—	—		—	1,946,934		—		—		1,946,934
Appropriations of retained earnings		—	—		863,157	(863,157	)	—		—		—
Retirement of treasury stock		—	—		—	(167,341	)	—		—		(167,341	)
Dividends		—	—		—	(224,054	)	—		—		(224,054	)
Increase in treasury stock, net		—	—		—	—		(4,021,094	)	—		(4,021,094	)
Loss on retirement of treasury stock		—	—		—	—		(6,638	)	—		(6,638	)
Increase (decrease) in unrealized gains on available-for-sale securities		—	—		—	—		(1,566,580	)	1,310		(1,565,270	)
Unrealized loss on equity securities of affiliate		—	—		—	—		(2,923	)	(178	)	(3,101	)
Minority interest in earnings of consolidated subsidiaries, net		—	—		—	—		—		316,918		316,918
Issuance of common stock of a consolidated subsidiary		—	2,526		—	—		—		22,169		24,695
Changes in subsidiaries included in consolidation		—	—		—	—		—		238		238
Goodwill of additional equity in consolidated subsidiaries acquired during 2002		—	(217	)	—	—		—		(449,774	)	(449,991	)
Other		—	(507	)	—	—		(857	)	(669	)	(2,033	)
Balance at December 31, 2002	(Won)	1,560,998	1,447,951		6,442,265	1,832,217		(3,386,959	)	1,936,094		9,832,566

F-37

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	Millions
	Common stock		Capital surplus		Retained earnings			Capital adjustments		Minority interest		Total
					Appropriated	Unappropriated
Balance at January 1, 2003	(Won)	1,560,998	1,447,951		6,442,265	1,832,217		(3,386,959	)	1,936,094		9,832,566
Net earnings		—	—		—	821,734		—		—		821,734
Appropriations of retained earnings		—	—		1,583,589	(1,583,589	)	—		—		—
Retirement of treasury stock		—	—		—	(1,198,499	)			—		(1,198,499	)
Dividends (note 26)		—	—		—	(212,887	)	—		—		(212,887	)
Cumulative effect of an accounting Change (note 2(a))		—	—		—	(1,530	)	—		(2,198	)	(3,728	)
Increase (decrease) in unrealized gains on available-for-sale securities		—	—		—	—		(768,362	)	2,541		(765,821	)
Unrealized loss on equity securities of affiliate		—	—		—	—		1,575		1,937		3,512
Decrease of treasury stock, net (note 21)		—	—		—	—		149,627		—		149,627
Loss on retirement of treasury stock		—	—		—	—		(9,753	)	—		(9,753	)
Stock options		—	—		—	—		6,192		774		6,966
Changes in translation adjustments of foreign subsidiaries		—	—		—	—		2,087		160		2,247
Changes in subsidiaries included in consolidation		—	—		—	—		—		27,379		27,379
Acquisition of additional equity in consolidated subsidiaries during 2003		—	(165,642	)	—	—		—		(260,410	)	(426,052	)
Equity change of subsidiary from merger transaction		—	26,181		—	—		—		(92,958	)	(66,777	)
Minority interest in earnings of consolidated subsidiaries, net		—	—		—	—		—		235,695		235,695
Other		—	122		—	—		—		289		411
Balance at December 31, 2003	(Won)	1,560,998	1,308,612		8,025,854	(342,554	)	(4,005,593	)	1,849,303		8,396,620

(19) Capital Surplus

Capital surplus as of December 31, 2001, 2002 and 2003 is summarized as follows:

	Millions
	2001			2002		2003
Paid-in capital in excess of par value	(Won)	1,440,258		1,440,258		1,440,258
Goodwill of additional equity in consolidated subsidiaries		(15,790	)	(16,007	)	(181,649	)
Other, net		21,681		23,700		50,003
	(Won)	1,446,149		1,447,951		1,308,612

The line item, Other, net, mainly consists of the effects of common stock issuance of subsidiaries and merger between subsidiaries.

F-38

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(20) Appropriated Retained Earnings

Retained earnings appropriated to various restricted reserves as of December 31, 2001, 2002 and 2003 are summarized as follows:

	Millions
	2001		2002	2003
Involuntary reserve:
Legal reserve	(Won)	780,499	780,499	780,499
Voluntary reserve:
Reserve for business rationalization		76,931	193,101	443,416
Reserve for technology and human resource development		10,000	6,667	3,334
Reserve for social overhead capital		43,333	23,333	3,333
Reserve for business expansion		4,460,398	5,230,718	6,587,325
Reserve for redemption of telephone bonds		207,947	207,947	207,947
	(Won)	5,579,108	6,442,265	8,025,854

Retained earnings appropriated to legal reserve are restricted in use as cash dividends under the applicable laws and regulations of the Republic of Korea. The Korean Commercial Code requires KT to appropriate to a legal reserve an amount equal to at least 10% of the cash dividend amount at the end of 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 stated capital.

The Company is allowed to appropriate from retained earnings amounts necessary to establish reserves for business expansion and research and development. These reserves may be used for research, development and facilities expansion of the Company.

Under the Special Tax Treatment Control Law, the Company is allowed to make certain deductions from taxable income. The Company is, however, required to transfer from retained earnings the amount of tax benefits obtained and transfer such amount into reserves for social overhead capital and technology and human resource development.

Through 2001, under the Special Tax Treatment Control Law, investment tax credits were allowed for certain investments. The Company was, however, required to transfer from retained earnings the amount of tax benefits obtained into a reserve for business rationalization. Effective December 11, 2002, the Company is no longer required to establish a reserve for business rationalization despite tax benefits received for certain investments, and consequently the existing balance is now regarded as a voluntary reserve.

Due to the adoption of Statement of Korea Accounting Standards No. 6, “Events Occurring After the Balance Sheet Date,” appropriated retained earnings as of December 31, 2002 decreased by (Won)1,583,589 million, the amount of appropriations declared by the Company but not yet approved by the shareholders’ meeting. In March 2003, the shareholders’ meeting approved this appropriation. As a result, under this standard, this amount was recorded during 2003.

(21) Treasury Stock

(a) Trust fund

During 2000, in order to stabilize the price of the Company’s common stock in the market, the Company established a treasury stock fund of (Won)100 billion. This trust fund is managed by a bank, which is used primarily

F-39

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

as a vehicle for trading the common stock shares of the Company. The trust fund (which is recorded at cost) held treasury stock of 1,250,330 shares and 1,259,170 shares as of December 31, 2002 and 2003, respectively.

(b) Issuance to the notes holders

During 2003, certain holders of convertible notes (as described in note 14), which were issued on May 25, 2002, converted their notes into shares of the Company’s common stock. As part of this transaction, 2,356 shares of treasury stock were issued to the note holders.

(c) Purchase and retirement of treasury stock

The Company and SK Telecom agreed to an equity swap on December 20, 2002, under which each company sold all of the other’s equity shares it held in the other. According to the agreement, the Company exchanged 4,457,635 shares of SK Telecom for 15,454,659 shares of the Company’s common stock and cash of (Won)211,868 million on December 30, 2002 and retired this treasury stock for (Won)786,666 million by a charge to retained earnings on January 6, 2003. In addition, on January 10, 2003, the Company exchanged 3,809,288 shares of SK Telecom for 14,353,674 shares of the Company’s common stock amounting (Won)730,704 million and cash of (Won)122,679 million.

During 2003, the Company initiated a stock buyback and retirement program approved by the Board of Directors. The Company reacquired 8,773,600 shares of treasury stock during 2003 and retired these treasury shares amounting to (Won)411,833 million by a charge to retained earnings. As of December 31, 2003, no amounts under the stock buyback and retirement programs are outstanding.

(d) Sale and contribution to Employee Stock Ownership Association

On August 28, 2003, the Company sold 1,803,296 shares of treasury stock to the KT employee stock ownership association (“ESOA”). The difference between carrying value and the fair value of (Won)13,886 million was recorded as a loss on retirement of treasury stock and the difference between the fair value and the sales proceeds of (Won)40,754 million was expensed.

Changes in treasury stock for the year ended December 31, 2003 were as follows:

	Number of shares		Millions
Balance at December 31, 2002	76,988,771		(Won)	4,112,225
Purchase of the Company’s common stock	23,127,274			1,142,537
Issuance to the convertible note holders	(2,356	)		(127	)
Purchase by trust fund, net	8,840			414
Retirement of treasury stock	(24,228,259	)		(1,198,499	)
Sale and contribution to ESOA	(1,803,296	)		(93,952	)
Balance at December 31, 2003	74,090,974		(Won)	3,962,598

(22) Commitments and Contingencies

(a) Legal matters

On February 20, 2001, the Fair Trade Commission issued a cease and desist order prohibiting the Company from engaging in any activity amounting to an unfair intra-group transaction, claiming that certain of the

F-40

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

transactions with the affiliates were in violation of the Fair Trade Laws. The Fair Trade Commission alleged that the Company had unfairly assisted the affiliates by paying them unreasonably high service fees. The Fair Trade Commission imposed a fine of approximately (Won)30 billion, and the Company made a provision of (Won)30 billion for this claim during 2001. On July 9, 2001, the Korean Fair Trade Commission rejected the Company’s appeal. The Company filed a second appeal in the Seoul High Court and intends to continue to seek redress in the courts. The case is still pending as of December 31, 2003.

In October 2000, approximately 4,500 of the former and current employees, who had previously been employed by the MIC and transferred to the Company in 1981, filed a lawsuit against the Company claiming that the Company owes them an additional (Won)27 billion for retirement and severance benefits. The claim was that the Company should have given them full credit for their military service, whereas the Company believed that the Company was in compliance with the laws in effect at that time. In July 2002, the Seoul District Court held in favor of the claimants. However, on July 7, 2003, the Seoul High Court reversed the Seoul District Court’s decision and ruled in favor of the Company. The case was appealed to the Supreme Court of Korea on October 8, 2003 by the plaintiffs and is still pending as of December 31, 2003. Consistent with prior year, the Company has not recorded an accrual for this matter. The Company is also in litigation as a defendant in other cases for damages allegedly resulting from various claims, disputes and legal actions in the normal course of operations. These claims amounted to (Won)84,795 million and (Won)71,188 million as of December 31, 2002 and 2003, respectively. The Company accrued (Won)11,441 million as contingent liabilities related to the claims as of December 31, 2003. Management believes that the ultimate settlement of these matters, and the matters described in the previous paragraphs, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

(b) Interest rate swaption

In 2002, the Company entered into interest rate swaption contract with Citibank for variable rates of interest in place of fixed rates of interest. Details of interest rate swaption contract outstanding as of December 31, 2003 are as follows:

Bank	Swaption premium (millions)		Fixed interest rate (3 months)		Variable interest rate (3 months)	Exercise date	Type
Citibank	(Won)	1,913	1.975	%	91-day CD rate	April, 25 2005	Selling

Under the interest swaption contract, the Company recognized a valuation gain of (Won)454 million and a valuation gain of (Won)2,448 million for the years ended December 31, 2002 and 2003, respectively.

(c) Interest rate swap

During 2002 and 2003, the Company entered into various interest rate swap contracts with financial institutions for variable rates of interest in place of fixed rates of interest.

F-41

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Details of interest rate swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Nominal premium (millions)		Fixed amount (millions)		Fixed interest rate (1 year)		Variable interest rate	Terminal date
J.P. Morgan	$	1.6	US$	150	7.500	%	6-month Libor +4.320%	June 1, 2006
J.P. Morgan	$	0.5	US$	200	7.625	%	6-month Libor +4.610%	April 15, 2007
J.P. Morgan		—	(Won)	110,000	5.290	%	3-month Libor +1.470%	April 30, 2008
							3-month Libor +2.470%
J.P. Morgan		—	(Won)	90,000	5.810	%	+Contingent spread	December 30, 2004
							3-month Libor +2.470%
J.P. Morgan		—	(Won)	90,000	5.980	%	+Contingent spread	December 30, 2004
Citibank		—	(Won)	110,000	5.290	%	3-month Libor +1.470%	April 30, 2008
							3 month Libor +2.470%
Shinhan Bank		—	(Won)	180,000	6.350	%	+Contingent spread	September 30, 2007

Under the interest rate swap contracts, the Company recognized a valuation loss and gain of (Won)(2,253) million and (Won)16,442 million, respectively, for the year ended December 31, 2002, and a valuation loss and gain of (Won)(13,645) million and (Won)222 million, respectively, for the year ended December 31, 2003. In addition, the Company settled two contracts before the terminal date and recognized a transaction gain of (Won)8,170 million in 2003.

(d) Currency swap

The Company entered into two currency swap contracts for principal and interest denominated in Korean won in place of principal and interest of long-term debt denominated in U.S. dollars in June 2003.

Details of currency swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Contract amount (millions)		Fixed amount (millions)		Receiving interest rate	Paying interest rate	Terminal date
J.P. Morgan	$	50	(Won)	59,750	4.3% (US$) per year	6.17% (Won) per year	January 3, 2005
J.P. Morgan	$	150	(Won)	179,760	3-month Libor+ 0.80%(US$)	3-month Libor +2.64%(Won)	June 23, 2006

Under the currency swap contracts, the Company recognized a valuation loss of (Won)2,429 million for the year ended December 31, 2003.

(e) Interest currency swap

The Company entered into five interest currency swap contracts with financial institutions for principal and the variable rate of interest denominated in Korean won in place of principal and the fixed rate of interest of long-term debt denominated in U.S. dollars in October 2003. The principal amounts in Korean won will be adjusted according to the foreign exchange rate of the terminal date within certain ranges.

F-42

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Details of interest currency swap contracts outstanding as of December 31, 2003 are as follows:

Bank	Contract amount (millions)		Amount (millions)	Fixed receiving interest rate (1 year)	Variable paying interest rate (6 months)	Terminal date
J.P. Morgan	$	50	(Won)55,000 ~ 60,000	4.3% (US$)	Libor +4.55%(Won)	January 3, 2005
Citibank	$	25	(Won)27,500 ~ 30,000	4.3% (US$)	Libor +4.45%(Won)	January 3, 2005
UBS Bank	$	25	(Won)27,500 ~ 30,000	4.3% (US$)	Libor +4.45%(Won)	January 3, 2005
Deutsche bank	$	50	(Won)55,000 ~ 60,000	4.3% (US$)	Libor +4.57%(Won)	January 3, 2005
Shinhan bank	$	50	(Won)55,000 ~ 60,000	4.3% (US$)	Libor +4.45%(Won)	January 3, 2005

Under the interest currency swap contracts, the Company recognized a valuation gain of (Won)5,083 million for the year ended December 31, 2003.

(f) The Company established a labor welfare fund as a separate entity and contributed (Won)50,000 million and (Won)100,000 million in 2002 and 2003, respectively. In addition, the Company committed to contribute (Won)100,000 million for 2004.

(g) Loans and borrowings

As of December 31, 2003, the Company has entered into bank overdraft agreements with two banks for borrowings up to (Won)400,000 million and a collection agreement for foreign currency denominated checks up to US$1 million with Korea Exchange Bank. In addition, the Company has received letter of credits up to US$35 million with three banks.

(h) Guarantee provided by a third party

The Company is provided the guarantees covering contract biddings up to US$57,910 thousand and (Won)25,833 million by three banks including Kookmin Bank.

(i) Transfer of KTF accounts receivable

On December 16, 2002, KTF transferred the handset installment receivable of (Won)528,578 million and guarantee insurance and other incident rights to KTF First Securitization Specialty Co., Ltd. As a result of this transfer, the Company received cash of (Won)470,000 million and subordinate debt securities in the principal amount of (Won)43,430 million, and recognized a loss on disposition of trade accounts and notes receivable of (Won)15,148 million. KTF has provided a guarantee for uncollected receivables up to 14.3 percent of total amount transferred. As of December 31, 2003, the program was completed.

On November 4, 2003, KTF transferred handset installment receivables amounting (Won)339,677 million, related guarantee insurance and other incident rights to KTF Second Securitization Specialty Co., Ltd. As a result of this transfer, the Company received cash of (Won)312,000 million and subordinate debt securities in the principal amount of (Won)19,254 million and recognized a loss on disposition of trade accounts and notes receivable of (Won)8,423 million. As of December 31, 2003, the uncollected trade receivables under this program are (Won)218,035 million.

In addition, on December 19, 2003, KTF entered into a securitization agreement with Shinhan Bank to sell PCS service receivables of (Won)253,247 million as of October 31, 2003. The agreement allows the Company to sell trade receivables on an on-going basis until February 28, 2007. As a result of this transaction, the Company received cash of (Won)200,000 million and subordinated interest in the trade receivable of (Won)53,247 million. In addition, the Company incurred transaction cost expense of (Won)1,680 million. As of December 31, 2003, the uncollected trade receivables under this program are (Won)301,802 million.

F-43

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(j) Leases

(i) Operating leases

The Company maintains operating lease agreements for certain machinery and equipment from Macquarie IT KOREA Lease Company and others. Future lease payments under operating leases as of December 31, 2003 are as follows:

Fiscal year ending December 31,	Millions
2004	(Won)	89,549
2005		54,447
2006		53,665
2007		7,099
2008		7,099
Thereafter		31,949
	(Won)	243,808

(ii) Capital leases

The Company has capital lease agreements for certain machinery and equipment, of which acquisition cost amounts to (Won)6,312 million from GE Capital Korea Ltd and others. Depreciation on the machinery and equipment for the year ended December 31, 2003 amounted to (Won)607 million. Annual future minimum payments under the lease agreements as of December 31, 2003 are as follows:

Fiscal year ending December 31,	Millions
2004	(Won)	1,242
2005		693
2006		693
2007		693
2008		693
Less: amount representing interest		(312	)
	(Won)	3,702

(23) Operating Revenues

Operating revenues for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003
Internet services	(Won)	1,507,801	1,989,915	2,369,593
Data communication services		260,238	208,355	183,573
Leased line services		1,116,327	1,054,022	899,520
Telephone services		7,262,217	6,895,301	6,610,982
PCS services		3,734,823	4,127,323	4,164,286
Sales of goods		1,255,776	1,366,548	1,153,505
Satellite services		100,444	123,616	119,639
Real estate rental services		32,628	43,540	50,443
Other		706,974	628,802	516,238
	(Won)	15,977,228	16,437,422	16,067,779

F-44

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Starting from January 1, 2003, revenues from real estate rental services are accounted for as operating revenues. For comparative purposes, revenues from real estate rental services which were accounted for as other income in 2001 and 2002 are reclassified into operating revenues.

(24) Operating Expenses

Operating expenses for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003
Cost of services:
Salaries and wages	(Won)	1,931,941	2,065,564	1,918,479
Provision for retirement and severance benefits, including early retirement payments (note 16)		327,031	257,619	999,607
Employee benefits		548,004	588,615	569,463
Communications		38,724	33,729	34,549
Utilities		157,452	156,853	176,554
Taxes and dues		88,007	86,309	92,497
Rent		150,258	149,746	138,677
Depreciation		3,577,231	3,351,008	3,305,255
Amortization		51,529	59,762	67,155
Repairs and maintenance		376,175	408,953	444,867
Automobile maintenance		20,411	24,006	23,811
Commissions and professional fees		433,690	526,166	552,593
Entertainment		2,465	3,256	2,969
Advertising		63,407	113,616	101,503
Education and training		8,482	11,484	15,102
Research and development		95,688	116,747	99,130
Travel		29,764	33,199	32,326
Supplies		30,229	36,315	36,997
Cost of services (commissions for system integration service, and other miscellaneous service)		758,951	743,055	532,424
Cost of goods sold		1,206,254	1,345,950	1,131,475
Interconnection charges		1,592,733	1,187,882	1,077,082
International line usage		199,968	173,779	184,326
Other		51,761	47,656	70,495
		11,740,155	11,521,269	11,607,336
Less: amounts included in construction in progress		144,665	143,538	119,986
		11,595,490	11,377,731	11,487,350
Selling, general and administrative expenses		2,406,461	2,677,888	2,757,993
	(Won)	14,001,951	14,055,619	14,245,343

In September 2003, the Company offered a voluntary early retirement plan (the “Plan”) to its employees. Under the terms of the Plan, employees participating in the Plan would receive additional amounts of retirement and severance benefits. For the year ended December 31, 2003, the Company recorded costs of (Won)831,535 million related to this Plan covering 5,497 employees (approximately 12% of total employees). The aggregate amounts of normal retirement and severance benefits, previously accrued as retirement and severance benefits liabilities, of the employees electing to retire pursuant to this plan amounted to (Won)110,932 million. Substantially all of these costs were paid during the fourth quarter of 2003.

F-45

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Selling, general and administrative expenses for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003
Salaries and wages	(Won)	107,323	129,186	119,987
Compensation expenses (note 28)		111	1,172	6,966
Provision for retirement and severance benefits, including early retirement payments (note 16)		14,871	17,388	67,469
Employee benefits		31,128	29,351	28,396
Travel		6,797	7,107	5,643
Commissions		17,528	28,978	29,682
Utilities		5,051	4,834	4,805
Taxes and dues		34,299	44,597	47,794
Rent		28,081	66,380	55,653
Depreciation		76,475	89,137	87,920
Amortization		304,537	297,187	296,896
Repairs and maintenance		11,316	12,109	5,683
Automobile maintenance		2,292	2,410	1,871
Commissions and professional fees		200,361	268,755	282,253
Commissions to sales agent		669,815	631,964	565,082
Entertainment		866	1,051	1,576
Advertising		167,064	213,399	182,466
Education and training		38,240	49,824	44,152
Research and development		137,504	128,808	145,495
Supplies		12,671	9,913	10,099
Promotion		340,924	406,833	376,834
Provision for doubtful accounts		162,655	194,288	363,774
Other		36,552	43,217	27,497
	(Won)	2,406,461	2,677,888	2,757,993

(25) Income Taxes

(a) The Company is subject to a number of income taxes based upon taxable income which results in the following normal tax rates (including resident tax):

Taxable earnings	Prior to 2002	2002 ~ 2004	Thereafter
Up to (Won)100 million	17.6%	16.5%	14.3%
Over (Won)100 million	30.8%	29.7%	27.5%

Starting from January 1, 2002, the corporate income tax rate (including resident tax) decreased to 29.7%. In addition, in December 2003, the Korean government reduced the corporate income tax rate (including resident tax) beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate will be reduced from 29.7% to 27.5%. As a result, a change in deferred income taxes of (Won)14,706 million and (Won)33,974 million is charged to income tax expense for the year ended December 31, 2001 and 2003, respectively.

F-46

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The components of income tax expense for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003
Current income tax expense	(Won)	219,185	592,322	477,337
Deferred income tax expense		202,285	149,032	46,294
Income taxes for the year	(Won)	421,470	741,354	523,631

(b) The provision for income taxes calculated using tax rates differs from the actual provision for the years ended December 31, 2001, 2002 and 2003 for the following reasons:

	Millions
	2001			2002		2003
Provision for income taxes at normal tax rate	(Won)	552,819		892,546		469,575
Tax effect of prior years income tax additional payment (refund)		3,854		(1,887	)	16,036
Tax effect of permanent differences, net		69,986		56,955		85,689
Utilization of loss carryforwards		(29,895	)	(44,744	)	(40,273	)
Investment tax credits		(190,000	)	(161,516	)	(174,952	)
Effect of tax rate change		14,706		—		33,974
Impairment of deferred tax asset		—		—		133,582
Income taxes for the year	(Won)	421,470		741,354		523,631

The effective tax rates, after adjustments for certain differences between amounts reported for financial accounting and income tax purposes, were approximately 23.5%, 24.7% and 33.1% for the years ended December 31, 2001, 2002 and 2003, respectively.

(c) The tax effects of temporary differences that result in significant portions of deferred income tax assets and liabilities as of December 31, 2002 and 2003 are presented below:

	Millions
	2002		2003
Deferred income tax assets:
Retirement and severance benefits	(Won)	29,202	9,309
Allowance for doubtful accounts		121,404	161,473
Refundable deposits for telephone installation		26,505	20,022
Investment securities		227,936	272,426
Tax credit carryforwards		61,415	25,816
Other, net		28,091	90,355
Total deferred income tax assets		494,553	579,401
Deferred income tax liabilities:
Accumulated depreciation		42,242	28,166
Accrued interest income		4,641	2,257
Total deferred income tax liabilities		46,883	30,423
Less: Valuation allowance		—	133,582
Net deferred income tax asset	(Won)	447,670	415,396

F-47

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The exclusion and inclusion of subsidiaries from the consolidation in 2002 and 2003 resulted in a decrease in net deferred tax asset of (Won)1,288 million and an increase in net deferred tax asset of (Won)1,709 million, respectively. During 2003, the Korea National Tax Service initiated a tax audit of the Company for the periods from 1998 to 2002. In September 2003, the Company received a final notice from the Korean tax authorities asserting income tax deficiencies. As a result of the tax audit, the Company paid (Won)67,410 million which consisted of (Won)1,639 million of deferred income tax asset and (Won)65,771 million of prior year’s income tax additional expense for the year ended December 31, 2003. At December 31, 2003, the Company has investment tax credit carryforwards of (Won)25,816 million which are available to reduce future income taxes through 2008.

Following the Company’s acquisition of a controlling financial interest in KTM in July 2000, KTM reassessed its business plan, operations strategy, growth prospects and involvement with the Company in KTM’s future business. As part of the revised strategy, KTM’s intent was to seek a merger partner and undertake other operational changes. During December 2000, KTM concluded that it was not likely that it would be able to realize the tax benefit of its loss carryforward and, therefore, wrote off the related deferred tax assets in the amount of (Won)233,496 million as of December 31, 2000 by a charge to deferred income tax expense in 2000.

In 2001, KTM merged with KTF with the combined entity operating under the name of KTF. As a result of KTM’s operating performance in 2001 as well as a change in tax regulations, KTF was able to utilize KTM’s loss carryforward in the amount of (Won)97,062 million in 2001, (Won)150,653 million in 2002 and (Won)135,600 million in 2003. However, KTF concluded that it is not probable that the tax benefit of the loss carryforward generated by KTM can be realized in future years and therefore, did not recognize a deferred income tax asset related to KTM’s remaining loss carryforwards of (Won)290,081 million as of December 31, 2003, which will expire through 2005.

During 2003, the Company concluded that it was not probable that it would be able to realize the tax benefit of its equity in losses of affiliates and, therefore, wrote off the related deferred income tax assets in the amount of (Won)133,582 million by a charge to deferred income tax expense.

(26) Dividends

Dividends are generally proposed based on each year’s earnings and are declared and paid in the subsequent year. Dividends relating to each of the following years’ earnings based upon the par value of common stock are as follows:

	Rate						Millions
	2001		2002		2003		2001		2002	2003
Dividends proposed	14.4	%	17.2	%	40.0	%	(Won)	224,054	212,887	421,517

Proposed dividends of (Won)421,517 million were not recorded in the 2003 financial statements. They will be recorded upon the approval by the shareholders in 2004.

F-48

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(27) Earnings Per Share

Earnings per share of common stock for the years ended December 31, 2001, 2002 and 2003 are calculated as follows:

(a) Basic earnings per share

	Millions (except number of shares and earnings per share)
	2001		2002	2003
Net earnings	(Won)	1,112,975	1,946,934	821,734
Weighted-average number of shares of common stock (in thousands)		311,276	259,450	216,106
Basic earnings per share (in Won)	(Won)	3,576	7,504	3,802

(b) Diluted earnings per share

	Millions (except number of shares and earnings per share)
	2001		2002	2003
Net earnings (in millions of won)	(Won)	1,112,975	1,946,934	821,734
Adjustments:
Interest expense on convertible notes		—	34,070	51,373
Net earnings available for common and common equivalent shares		1,112,975	1,981,004	873,107
Weighted-average number of common and common equivalent shares (in thousands)		311,276	300,097	263,556
Diluted earnings per share (in Won)	(Won)	3,576	6,601	3,313

Diluted earnings per share are calculated based on the effect of dilutive securities that were outstanding during the year. The denominator for 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.

Potentially dilutive securities as of December 31, 2002 and 2003 are as follows:

	Potentially dilutive shares (thousands)
	2002	2003
Convertible notes (note 14)	47,520	46,288
Stock options (note 28)	680	616
Bonds with warrants (note 14)	9,270	—

Stock options and bonds with warrants did not enter into the determination of diluted earnings per share in 2002 and 2003 because of an anti-dilutive effect on the exercise of warrants.

F-49

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(28) Stock Options

The Company granted stock options to its executive officers and directors in accordance with a stock option plan approved by the Board of Directors. The details of the stock options granted are as follows:

	1st Grant	2nd Grant	3rd Grant
Grant date	December 26, 2002	September 16, 2003	December 12, 2003
Exercise price	(Won)70,000 per share	(Won)57,000 per share	(Won)65,000 per share
Number of shares	474,067 shares	36,400 shares	106,141 shares
Exercise period	December 27, 2004 ~ December 26, 2009	September 17, 2005 ~ September 16, 2010	December 13, 2005 ~ December 12, 2010
Valuation method	Fair value based method (Black-Scholes model)	Fair value based method (Black-Scholes model)	Fair value based method (Black-Scholes model)

The first grant of stock options consisted of 680,000 shares of common stock, including 220,000 shares under performance condition at the option price of (Won)70,000 per share. However, the number of stock options decreased to 474,067 shares and the total cost of compensation from (Won)12,590 million to (Won)10,602 million because of the resignation of a number of officers.

The options are fully vested upon completion of two years mandatory service periods starting from the grant dates. The first and third granted option holders can exercise one third of total options annually from 2004 and 2005, respectively. The second granted options holders can exercise total options when the options are vested.

The Company adopted the fair value based method (Black-Scholes model) for the calculation of compensation costs which are amortized to expense over the option vesting periods.

The valuation assumptions of stock options based on the fair value method under the Black-Scholes model are as follows:

	1st Grant	2nd Grant	3rd Grant
Risk free interest rate	5.46%	4.45%	5.09%
Expected option life	4.5 years to 5.5 years	4.5 years	4.5 years to 5.5 years
Expected volatility	49.07% ~  49.90%	34.49%	31.26% ~  33.90%
Expected dividend yield ratio	1.10%	1.57%	1.57%
Fair value per option (in Won)	(Won)22,364	(Won)12,443	(Won)10,926
Total compensation cost (in millions)	(Won)10,602	(Won)453	(Won)1,160

Changes in the total cost of compensation for the year ended December 31, 2003 are summarized as follows:

	Millions
Total cost of compensation	(Won)	12,215
Accumulated cost recognized in prior years		(103	)
Cost recognized for the year		(5,376	)
Cost recognized in future year	(Won)	6,736

F-50

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

In addition, KTF and KTP granted stock options to its officers and adopted the fair value based method for the calculation of compensation expense which is amortized to expense over the option vesting period. KTF and KTP recognized aggregate stock option expense of (Won)1,266 million which was recorded as capital adjustments from 2000.

(29) Non-cash Financing and Investing Activities

Significant non-cash investing activities for the year ended December 31, 2003 are summarized as follows:

	Millions
Change in unrealized gains on available-for-sale securities	(Won)	768,362
Available-for-sale securities transferred to treasury stock		730,704
Construction in progress transferred to property, plant and equipment		2,473,599
Inventory transferred to property, plant and equipment		85,382

(30) Contribution Payments for Research and Development

The Company made contributions of (Won)97,248 million, (Won)69,314 million and (Won)63,407 million to the Korean government (Information and Telecommunication Improvement Fund), the Korea Electronic Telecommunication Research Institute (ETRI), and other institutes for the years ended December 31, 2001, 2002 and 2003, respectively.

(31) Contributions Received for Losses on Universal Telecommunications Services

Starting on January 1, 2000, all telecommunications service providers must contribute towards the supply of universal telecommunications services in Korea. Telecommunications service providers designated as universal service providers by the MIC are required to provide universal telecommunications services, including local services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships. The Company has been designated a universal service provider. The losses incurred by universal service providers in connection with providing these universal telecommunications services are to be apportioned among the service providers based on their respective annual revenues. For the years ended December 31, 2001, 2002 and 2003, amounts reimbursed to the Company were (Won)50,764 million, (Won)113,908 million and (Won)28,539 million, respectively.

(32) Fourth Quarter Information (Unaudited)

Operating revenues, operating income, net earnings and earnings per share are for the three-month periods ended December 31, 2002 and 2003 are as follows:

	Millions (except per share data)
	2002		2003
Operating revenues	(Won)	4,221,748	3,977,336
Operating income		262,245	491,410
Net earnings		664,353	82,516
Basic earnings per share		3,074	382

(33) Economic Environment

In common with other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to

F-51

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

historical business practices including corporate governance. The Company may be either directly or indirectly affected by these economic conditions and the reform program described above. The accompanying consolidated financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Company. Actual results may differ materially from management’s current assessment.

(34) Reconciliation to United States Generally Accepted Accounting Principles

The consolidated financial statements are prepared in accordance with Korean GAAP which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). In addition, there are various classification differences between Korean GAAP and U.S. GAAP on the balance sheets, statements of earnings and retained earnings and cash flows. These reclassifications do not have any impact on the shareholders’ equity, net income or earnings per share amounts reported under U.S. GAAP. The significant differences between Korean GAAP and U.S. GAAP that affect the Company’s financial statements are described below.

(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 included in the consolidation. However, U.S. GAAP generally requires that majority-owned subsidiaries be consolidated and that any entity of which the Company owns twenty to fifty percent of total outstanding voting stock not be consolidated; rather that entity should be accounted for under the equity method. Accordingly, the following entities are excluded from consolidation under U.S. GAAP and instead are accounted for under the equity method:

	Percentage of ownership
	December 31,
Entity	2001	2002	2003
KTF	40.3	40.3	46.9
KTP	45.4	45.4	44.8
KTSC	—	36.9	36.9

In addition, under Korean GAAP, the Company consolidates KTFT (owned 57.4% by KTF) as of December 31, 2002 and 2003, KTICOM of which KTF owned 87.3% as of December 31, 2002 and merged into KTF on March 6, 2003. These entities are also accounted for under the equity method under U.S. GAAP.

Presented below is summarized combined financial information of the above companies in accordance with Korean GAAP as of December 31, 2002 and 2003, and for each of the years in three-year period ended December 31, 2003.

	Millions
	2002		2003
Current assets	(Won)	2,587,526	1,314,125
Other assets		6,587,121	6,628,830
Total assets		9,174,647	7,942,955
Current liabilities		3,035,253	2,464,485
Other liabilities		3,195,128	2,175,495
Total liabilities		6,230,381	4,639,980
Net assets	(Won)	2,944,266	3,302,975

F-52

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	Millions
	2001		2002	2003
Operating revenues	(Won)	5,077,082	5,589,271	5,414,326
Operating income		739,258	791,933	779,982
Net earnings	(Won)	434,194	538,529	423,943

The Company’s proportionate share of U.S. GAAP adjustments of KTF, KTICOM, KTSC, KTFT and KTP are presented in the line item “U.S. GAAP adjustments of equity method affiliates” in the U.S. GAAP reconciliation of net earnings and shareholders’ equity. Condensed consolidated balance sheets as of December 31, 2002 and 2003, and condensed consolidated income statements of the Company under U.S. GAAP for each of the years in three-year period ended December 31, 2003 are presented elsewhere in note 34.

(b) Debt and Equity Securities

Under Korean GAAP, prior to January 1, 2003, investments in equity securities and debt securities which were held for short-term cash management purposes were included in “marketable securities” and reported at fair value with unrealized gains and losses included in earnings. Investments in marketable equity securities and equity linked securities held for long-term investment purposes were reported at fair value with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity. Non-marketable investments in equity securities were reported at cost unless there was a significant decline in value which was not expected to be recovered. Investments in debt securities held for long-term investment purposes were carried at amortized cost for all periods.

However, effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards (“SKAS”) No. 8 “Investment in Securities”. This new Standard is similar to existing U.S. GAAP as below except the accounting for non-marketable equity securities. For Korean GAAP purposes, non-marketable securities should be classified as available-for-sale and carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. For U.S. GAAP purposes, non-marketable securities are classified as cost method investments and carried at cost.

Under SKAS No. 8, certain debt and equity securities should be classified into one of the three categories of held-to-maturity, available-for-sale, or trading securities at the time of acquisition and such determination should be reassessed at each balance sheet date. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity. Securities that are bought and held principally for the purpose of selling them in the near term (thus held for only a short period of time) are classified as trading securities. Trading generally reflects active and frequent buying and selling, and trading securities are generally used to generate profit on short-term differences in price. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities.

Through 2002, the Company classified trading securities as current assets, whereas available-for-sale securities and held-to-maturity securities were recorded as non-current investments. Effective January 1, 2003, however, available-for-sale securities, whose maturity dates are due within one year from the balance sheet date or whose likelihood of being disposed of within one year from the balance sheet date is probable, are classified as current assets. Likewise, held-to-maturity securities whose maturity dates are due within one year from the balance sheet date are classified as current assets.

Effective January 1, 2003, trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized holding gains and losses reported as a capital adjustment. Investments in debt securities that are classified into held-to-maturity are reported at amortized cost at the balance sheet date and such amortization is included in interest income.

F-53

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

For U.S. GAAP purposes, the Company accounts for 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.

Under Korean GAAP, the equity-linked debt securities are treated as available-for-sale securities and are reported at fair value based on the quoted price of SK Telecom shares. Unrealized gains and losses are excluded from earnings and reported in a separate component of stockholders equity.

For U.S. GAAP purposes, the equity-linked debt securities are considered a hybrid instrument with an equity based derivative embedded in a debt instrument. In accordance with SFAS No. 133, the equity-based embedded derivative is separated from the debt instrument and accounted for separately. The embedded derivative is recorded at fair value with gains and losses included in earnings. The debt instrument has been classified as an available-for-sale debt security and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.

Under Korean GAAP, prior to January 1, 2003, the convertible notes were treated as long-term investment securities and are reported at cost. However, effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 9 “Convertible Securities.” As a result, the convertible notes are treated as available-for-sale securities and are reported at fair value. The Company recognizes interest income on convertible notes as determined using the effective interest method and unrealized holding gain and losses of the difference between fair value and book value as the component of the stockholders’ equity. However, since these convertible notes are between KT and KTF (consolidated subsidiary under Korean GAAP), the convertible notes and related interest income/expense are eliminated in consolidation.

For U.S. GAAP purposes, KTF is treated as an equity method investment. As a result, the convertible notes are considered a hybrid instrument with a conversion option embedded in a debt instrument. In accordance with SFAS No. 133, the conversion option is separated from the debt instrument and accounted for separately. The conversion option is recorded at fair value with gains and losses included in earnings. The debt instrument has been classified as an available-for-sale debt security and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.

F-54

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Information under U.S. GAAP with respect to investments under SFAS No. 115 at December 31, 2002 and 2003 is as follows:

	2002 (millions)
	Cost or amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Equity securities (available-for-sale)	(Won)	102,249	763,779	3,501	862,527
Debt securities (available-for-sale)		457,679	—	12,799	444,880
Debt securities (held-to-maturity)		4,199	—	12	4,187
	(Won)	564,127	763,779	16,312	1,311,594
	2003 (millions)
	Cost or amortized cost		Gross unrealized holding gains	Gross unrealized holding losses	Fair value
Equity securities (available-for-sale)	(Won)	14,523	3,170	341	17,212
Debt securities (available-for-sale)		669,838	11,010	12,594	668,254
Debt securities (held-to-maturity)		12,068	—	—	12,068
	(Won)	696,429	14,180	12,935	697,534

In addition, the Company has trading securities of (Won)27,750 million and (Won)16,340 million as of December 31, 2002 and 2003.

The proceeds from sales of available-for-sale securities were (Won)700,620 million in 2001, (Won)306,552 million in 2002 and (Won)166,281 million in 2003. The gross realized gains on those sales were (Won)603,159 million in 2001, (Won)1,128,442 million in 2002 and (Won)763,779 million in 2003. The average cost method is used to calculate gains or losses from the sale of available-for-sale securities.

In addition, prior to 1995, the Company’s investment in SK Telecom was accounted for under the equity method for both Korean GAAP and U.S. GAAP. In 1995, the Company’s investment in SK Telecom decreased to below 20% and the Company concluded that it no longer had significant influence with respect to its investment in SK Telecom. As a result, under both Korean GAAP and U.S. GAAP, the Company discontinued the use of the equity method. However, under Korean GAAP, certain previously recognized equity in earnings were reversed as an adjustment to retained earnings. As a result, the Company’s cost basis for its investment in SK Telecom was higher under U.S. GAAP than under Korean GAAP. This difference was eliminated since the investment in SK Telecom was reported at fair value under both Korean GAAP and U.S. GAAP, with the unrealized gain reported in a separate component of stockholders’ equity until realized.

In 2002 and 2003, as described in note 8, the Company sold all of its shares in SK Telecom. As a result of the higher cost basis under U.S. GAAP, an adjustment has been recorded in the net earnings reconciliation to reduce U.S. GAAP net earnings.

F-55

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

In December 2003, the Emerging Issues Task Force (EITF) 03-1, “The meaning of Other-Than-Temporary Impairment and Its application to Certain Investments” and addresses how to define an “other-than-temporary impairment” as well as its application to investments classified as either “available-for-sale” and “held-to-maturity” under SFAS 115. The EITF requires disclosure of securities in a continuous unrealized loss position to be stratified based on length of time those securities were carried in such a position (less than 12 months or 12 months more). Comparative information for earlier periods is not required. The Company has included the new disclosure requirements of EITF 03-1 in the following paragraph.

The following table shows the investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been a continuous unrealized loss position as of December 31, 2003:

	2003 (millions)
	Less than 12 Months			12 Months or more		Total
	Fair value		Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
Equity-linked notes	(Won)	—	—	116,248	12,594	116,248	12,594
Common stock		—	—	1,295	342	1,295	342
Total temporarily impaired securities	(Won)	—	—	117,543	12,936	117,543	12,936

(c) Business Combinations

Under Korean GAAP, upon acquiring a controlling financial interest in a subsidiary, either the difference between the Company’s cost of an acquired business and the fair value of tangible and identifiable intangible assets acquired or the difference between the cost of an acquired business and the corresponding share of stockholders’ equity (book value) of an acquired business, depending on the availability of fair value information, is presented as goodwill. In addition, acquisitions are accounted for assuming such transactions occur as of the date of the audited or reviewed financial statements of the acquired business which are closest to the date of acquisition.

Under U.S. GAAP, the cost of an acquired business is allocated to the fair value of net tangible and identifiable intangible assets acquired and liabilities assumed, with any excess presented as goodwill and the acquisitions are accounted for as of the date the transaction occurred.

(d) 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. When it is no longer probable that goodwill will be recovered from expected future economic 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 being amortized by the straight-line method over its estimated useful life.

Effective January 1, 2002, KT adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and indefinite-lived intangible assets no longer be amortized, but instead be tested for impairment at least annually. Intangible assets that have finite useful lives will continue to be amortized over their useful lives. In addition, the amortization period for intangible assets with finite lives will no longer be limited to 40 years. In accordance with SFAS No. 142, goodwill is tested for impairment on an annual basis by comparing the fair value of the Company’s reporting units to their carrying amounts.

F-56

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The following tables present the impact of SFAS No. 142 on net income and earnings per share had the standard been in effect on January 1, 2001:

	In millions of Won, except earnings per share
	For the Years Ended December 31,
	2001		2002	2003
Net income	(Won)	1,006,324	1,556,262	395,443
Add back: Goodwill amortization		3,463	—	—
Add back: Goodwill amortization related to equity investee		113,585	—	—
Adjusted net income	(Won)	1,123,372	1,556,262	395,443
Basic earnings per share:
Basic earnings per share	(Won)	3,233	5,998	1,831
Goodwill amortization		11	—	—
Goodwill amortization related to equity investee		365	—	—
Adjusted basic earnings per share	(Won)	3,609	5,998	1,831
Diluted earnings per share:
Diluted earnings per share	(Won)	3,233	4,972	1,655
Goodwill amortization		11	—	—
Goodwill amortization related to equity investee		365	—	—
Adjusted diluted earnings per share	(Won)	3,609	4,972	1,655

Identifiable intangible assets as of December 31, 2002 and 2003, are as follows:

	2002 (Millions)
	Gross Carrying Amount		Accumulated Amortization	Net Amount
Amortized intangible assets:
Internal-use software	(Won)	227,363	78,094	149,269
Buildings and facilities utilization rights		90,997	37,241	53,756
Purchased consumer data		1,448	109	1,339
Other		12,108	4,372	7,736
Total	(Won)	331,916	119,816	212,100
	2003 (Millions)
	Gross Carrying Amount		Accumulated Amortization	Net Amount
Amortized intangible assets:
Internal-use software	(Won)	284,523	107,028	177,495
Buildings and facilities utilization rights		103,443	41,630	61,813
Purchased consumer data		946	128	818
Other		16,231	6,254	9,977
Total	(Won)	405,143	155,040	250,103
Amortization expense:
For the year ended December 31, 2002		(Won)38,851 million
For the year ended December 31, 2003		(Won)47,489 million

F-57

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Estimated amortization expense:

For years ended December 31,	Millions
2004	(Won)	58,548
2005		56,309
2006		51,114
2007		26,046
2008		14,382

The weighted average amortization period of total amortized intangible assets, internal-use software and right of utilization are 9 years, 6 years and 20 years, respectively. The Company has no identifiable intangible assets that are not subject to amortization.

The changes in the carrying amount of goodwill for the years ended December 31, 2002 and 2003 are as follows:

	2002 (Millions)
	PCS Service			Miscellaneous		Total
Balance as of January 1, 2002	(Won)	1,418,989		12,961		(Won)	1,431,950
Goodwill acquired during the period		—		—			—
Impairment loss		(663,345	)	(12,947	)		(676,292	)
Balance as of December 31, 2002	(Won)	755,644		14		(Won)	755,658
Balance as of January 1, 2003	(Won)	755,644		14		(Won)	755,658
Goodwill acquired during the period		—		—			—
Impairment loss		(755,644	)	—			(755,644	)
Balance as of December 31, 2003	(Won)	—		14		(Won)	14

* PCS service segment goodwill is included in equity method investments as of December 31, 2002 and 2003, under U.S. GAAP.

KTF, an equity investee accounted for using the equity method of accounting included in the PCS service segment, was tested for impairment during 2002 and 2003 because of the significant decrease of the quoted market value of its stock. In 2002 and 2003, the Company recognized an impairment loss amounting to (Won)663,345 million and (Won)789,503 million, respectively, relating to KTF.

KTH, a consolidated subsidiary included in the miscellaneous segment, was tested for impairment during 2002. Due to the significant decrease of the quoted market value of KTH the Company recognized an impairment loss amounting to (Won)12,947 million relating to KTH during 2002.

(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 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.

F-58

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

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.

(f) Depreciation

In 1995, KT adopted a method of depreciation, as allowed under Korean GAAP, whereby property, plant and equipment placed in service at any time in the first half of the year received a full year of depreciation expense, and property, plant and equipment placed in service at any time in 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 readopted the policy utilized, also acceptable under Korean GAAP, whereby property, plant 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, plant 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, plant 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.

Under U.S. GAAP, the useful lives of property, plant 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	8 - 10 years
Vehicles	3 - 5 years
Tools, furniture and fixtures:
Steel safe boxes	20 years
Tools, computer equipment, furniture and fixtures	2 - 8 years

F-59

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(g) Special Depreciation

Special depreciation was an acceleration of depreciation on certain assets under Korean GAAP. The U.S. GAAP reconciliation reflects the adjustment of special depreciation to a declining balance method, based on the economic useful life of the asset. During 2002, the assets under special depreciation were fully depreciated under U.S. GAAP. Therefore, the adjustment under U.S. GAAP is no longer required in 2003.

(h) Interest Capitalization

Under Korean GAAP, prior to January 1, 2003, interest was capitalized on borrowings related to the construction of all property, plant 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, the Company adopted Statement of Korea Accounting Standards No. 7 “Capitalization of Financing Costs”. As allowed by this standard, the Company has elected to expense all interest costs as incurred beginning in 2003.

Under U.S. GAAP, 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, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003
Total interest costs incurred	(Won)	560,976	488,970	443,078
Less amounts charged to expense		517,051	461,117	421,609
Interest capitalized	(Won)	43,925	27,853	21,469

(i) Intangible Assets

Under Korean GAAP, pre-operating costs and research costs are expensed as incurred, and development costs and organization costs are deferred and amortized over estimated useful lives provided such costs are recoverable from future earnings. Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 3 “Intangible Assets”, which requires that organization costs are to be expensed as incurred. In addition, the cumulative effects on prior years of this change in accounting method of (Won)1,530 million have been charged to the retained earnings and (Won)2,198 million of minority interest as of January 1, 2003. All of these costs are expensed as incurred under U.S. GAAP except for capitalized internal software costs. Therefore, adoption of SKAS No.3 does not require any U.S. GAAP adjustments.

(j) Bonds with Stock Warrants

Under Korean GAAP, prior to January 1, 2003, all proceeds received for bonds issued with detachable stock warrants, are recorded as a debt obligation and are not allocated between the debt and stockholders’ equity components. Effective January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 9, “Convertible Securities”, which requires that the proceeds from the issuance of bonds with detachable stock warrants should be allocated between the debt obligation and the warrants. In accordance with SKAS No. 9, the new requirements are applicable on a prospective basis to bonds with warrants issued or modified after December 31, 2002.

Under U.S. GAAP and consistent with SKAS No. 9, the proceeds from the issuance of bonds with detachable stock warrants should be allocated between the debt obligation and the warrants. The allocations is based on the relative fair values at the date of issuance and the portion of proceeds allocated to the stock warrants is recorded in stockholders’ equity.

F-60

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(k) Revenue Recognition

Under Korean GAAP, non-refundable service initiation fees for telephone, broadband Internet access, PCS services and leased-line service are recognized as revenue upon receipt.

Under U.S. GAAP, service installation fees related to activation of ongoing service are deferred and recognized to revenue over the expected estimated terms of customer relationships. The Company defers service installation fees over the expected terms of customer relationship. The expected terms of customer relationships for telephone, broadband Internet access, PCS services and leased-line service are 15 years, 3 years, 4 years and 3 years, respectively. Incremental direct costs related to customer acquisition are expensed as incurred.

(l) 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, plant and equipment, are included in results of operations. Effective January 1, 2003 the Company adopted Statement of Korea Accounting Standards 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, plant 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, plant and equipment 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 or 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 or loss is included in the results of operations.

(m) Equity-Linked Securities

Under Korean GAAP, the equity-linked securities owned by the Company are considered as available-for-sale securities and recorded at fair value at the balance sheet date. Fair value is calculated based on the quoted market price of SK Telecom shares. Unrealized holding gains and losses are recorded as a separate component of stockholders’ equity.

Under U.S. GAAP, the equity-linked securities are separated into two components, the host contract and the embedded derivative. The host contract is recorded as an available-for-sale debt security and unrealized holding gains and losses are excluded from earnings and included as a separate component of stockholder’s equity. The fair value of the debt security is based on the third party’s appraisal value. The embedded derivative is recorded at fair value and unrealized gains and losses are recorded in results of operations. The fair value of the derivative is based on commonly accepted valuation methods.

(n) Convertible Notes

Under Korean GAAP, prior to January 1, 2003, the convertible notes entered into between KT and KTF during 2002 were treated as long-term investment securities and were reported at cost. However, effective

F-61

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

January 1, 2003, the Company adopted Statement of Korea Accounting Standards No. 9, “Convertible Securities”, which requires that convertible notes are treated as available-for-sale securities and are reported at fair value. The Company recognizes interest income on convertible notes as determined using the effective interest method and unrealized holding gain and losses of the difference between fair value and book value as a component of stockholders’ equity. However, since these convertible notes are between the parent and the consolidated subsidiary under Korean GAAP, the convertible notes and related interest income/expense are eliminated in consolidation.

For U.S. GAAP purposes, KTF is treated as an equity method investment. As a result, the convertible notes are considered a hybrid instrument with a conversion option embedded in a debt instrument. In accordance with SFAS No. 133, the conversion option is separated from the debt instrument and accounted for separately. The conversion option is recorded at fair value with gains and losses included in earnings. The debt instrument has been classified as an available-for-sale debt security and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.

(o) Income Taxes

Under Korean GAAP, deferred taxes are not recognized for temporary differences related to unrealized gains and losses on investment securities that are reported in a separate component of stockholders’ equity. Any income tax refund (payment) attributable to a prior year is included in other income (expense).

Under U.S. GAAP, deferred taxes are recognized on the temporary difference related to unrealized gains and losses on investment securities that are reported in other comprehensive income. Any income tax refund (payment) attributable to a prior year is included in income tax benefit (expense).

Under Korean GAAP, deferred tax asset provided for equity in losses for affiliates are recognized only to extent that it is probable that such deferred tax asset is recoverable within 5 years.

Under U.S. GAAP, there is no prescribed time limit with respect to the realization of a deferred tax asset provided on the excess tax basis over book basis of an investment in an equity method investee.

(p) Minority Interest in Consolidated Subsidiaries

Under Korean GAAP, minority interests in consolidated subsidiaries are presented for all periods as a component of stockholders’ equity in the consolidated balance sheet.

Under U.S. GAAP, minority interests in consolidated subsidiaries are not included in stockholders’ equity in the consolidated balance sheet.

(q) Other

Korean GAAP requires gains and losses from the sale of assets and impairment write-downs to be included as part of “non-operating income (expenses)”. For U.S. GAAP purposes, gains and losses from the sale of assets and impairment write-downs are required to be recorded as a component of “operating income”.

(r) Comprehensive Income

Under U.S. GAAP, the Company applies the provisions of SFAS No. 130 which requires the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses). Such presentation is

F-62

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

not required under Korean GAAP. Comprehensive income for the years ended and accumulated other comprehensive income balances as of December 31, 2001, 2002 and 2003 are summarized as follows:

	Millions
	As of and for the years ended December 31,
	2001			2002		2003		2003 (note 3)
Net earnings as adjusted in accordance with U.S. GAAP	(Won)	1,006,324		1,556,262		395,443		$	331.7
Other comprehensive income, net of taxes:
Foreign currency translation adjustments		(1,499	)	(1,339	)	2,087			1.8
Unrealized gains (losses) on investments :
Unrealized holding gains (losses) net of tax of, (Won)43,910 million, (Won)(54,057) million and (Won)6,215 million in 2001, 2002 and 2003, respectively		123,594		(127,952	)	10,276			8.6
Less: reclassification adjustment, net of tax of, (Won)189,062 million, (Won)396,319 million and (Won)226,842 million in 2001, 2002 and 2003, respectively		(424,775	)	(938,090	)	(536,936	)		(450.5	)
Comprehensive income (loss) as adjusted in accordance with U.S. GAAP	(Won)	703,644		488,881		(129,130	)	$	(108.4	)
	Millions
	As of and for the years ended December 31,
	2001			2002		2003		2003 (note 3)
Accumulated other comprehensive income (loss) balances:
Foreign currency translation adjustments	(Won)	(6,607	)	(7,946	)	(5,859	)	$	(4.9	)
Unrealized gains on investments		1,593,882		527,840		1,180			1.0
	(Won)	1,587,275		519,894		(4,679	)	$	(3.9	)

(s) Statement of Cash Flows

Statements of cash flows under Korean GAAP include the cash flows of KTF, KTFT, KTICOM, KTSC and KTP, which are accounted for under the equity method under U.S. GAAP.

(t) Recent Changes in U.S. GAAP

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, which was issued in January 2003. The Company will be required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be

F-63

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

used to measure the assets, liabilities and non-controlling interest of the VIE. The Company currently does not have any VIEs that are within the scope of this Statement.

FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For the Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement.

In April 2003, the FASB issued Statement of Financial Standards (SFAS) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133, “ Accounting for Derivative Instruments and Hedging Activities”. This statement is effective prospectively for contracts entered into or modified after December 31, 2003, and for hedging relationships designated after December 31, 2003. SFAS No. 149 will not have an impact upon initial adoption and is not expected to have a material effect on the Company’s results of operations, financial position and cash flows.

In May 2003, the EITF reached a consensus on Issue 00-21, “Revenue Arrangements with Multiple Deliverables.” Issue 00-21 provides guidance on how to recognize revenue for arrangements that have multiple deliverables. The guidance in 00-21 was effective for arrangements entered into in fiscal periods beginning after June 15, 2003. The Company has adopted the consensus reached in Issue 00-21. Adoption did not have a significant impact on the Company’s financial condition or results of operations.

In March 2004, the EITF reached a consensus regarding EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The consensus provides guidance for evaluating whether an investment is other-than-temporarily impaired. The EITF 03-1 guidance for determining other-than-temporary impairment will be effective beginning with the second half of 2004. The Company adopted EITF 03-01 disclosure requirement of certain disclosures for securities accounted for under FASB statement 115, which was reached a consensus on December 13, 2003 meeting. The Company is currently evaluating the impact that EITF 03-1 may have on its consolidated financial statements.

F-64

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(u) U.S. GAAP Reconciliations

The effects of the significant adjustments to net earnings and stockholders’ equity which would be required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows:

	Millions
	Years ended December 31,
	2001			2002		2003		2003 (note 3)
Net earnings in accordance with Korean GAAP	(Won)	1,112,975		1,946,934		821,734		$	689.4
Adjustments:
Intangible assets		13,617		7,424		10,264			8.6
Special depreciation		(188	)	(189	)	—			—
Depreciation		(96,547	)	(85,008	)	(135,905	)		(114.0	)
Equity in earnings of equity method affiliates
Reversal of goodwill amortization		—		130,113		130,113			109.2
Different useful life of intangibles		1,600		7,807		7,807			6.5
Additional acquisitions of equity investees		(55,236	)	(12,506	)	(40,591	)		(34.1	)
Impairment loss relating to equity investee		—		(663,345	)	(789,503	)		(662.3	)
Goodwill impairment		—		(12,947	)	—			—
U.S. GAAP adjustments of equity method affiliates		48,958		24,528		33,171			27.8
Interest capitalization (including related depreciation), net		13,282		24,608		54,089			45.4
Capitalized foreign exchange transactions, net		2,220		5,879		5,859			4.9
Foreign currency translation of convertible notes		—		139,730		(6,426	)		(5.4	)
Service installation fees		(57,216	)	(17,528	)	20,729			17.4
Reversal of gain on disposition of investment		(12,377	)	(25,256	)	(17,628	)		(14.8	)
Equity-linked securities		—		(25,095	)	3,613			3.0
Convertible notes of KTF		—		(14,427	)	(9,810	)		(8.2	)
Bonds with stock warrants		—		(7,435	)	(6,043	)		(5.1	)
Deferred income tax—methodology difference		—		—		133,582			112.1
Deferred income tax effects of U.S. GAAP adjustments		35,236		132,975		180,388			151.3
		(106,651	)	(390,672	)	(426,291	)		(357.7	)
Net earnings as adjusted in accordance with U.S. GAAP	(Won)	1,006,324		1,556,262		395,443		$	331.7
	Millions, except per share data
	Years ended December 31,
	2001			2002		2003		2003 (note 3)
Net earnings as adjusted in accordance with U.S. GAAP	(Won)	1,006,324		1,556,262		395,443		$	331.7
Basic earnings per share in accordance with U.S. GAAP	(Won)	3,233		5,998		1,831		$	1.54
Diluted earnings per share in accordance with U.S. GAAP	(Won)	3,233		4,972		1,655		$	1.39
Dividend per share in accordance with U.S. GAAP	(Won)	511		720		860		$	0.72

F-65

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The following table sets forth the computation of basic and diluted earnings per share:

	Millions, except per share data
	Years ended December 31,
	2001		2002		2003	2003 (note 3)
Net earnings available to common shareholders	(Won)	1,006,324	1,556,262		395,443	$	331.7
Dilutive effect of convertible notes		—	(64,161	)	3,431		2.9
		1,006,324	1,492,101		398,874		334.6
Weighted average outstanding shares of common stock		311	259		216
Dilutive effect of convertible notes		—	41		25
Common stock and common stock equivalents		311	300		241
Basic earnings per share in accordance with U.S. GAAP	(Won)	3,233	5,998		1,831	$	1.54
Diluted earnings per share in accordance with U.S. GAAP	(Won)	3,233	4,972		1,655	$	1.39

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares 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 shares that would have been outstanding had the dilutive potential common stock been issued. In addition, the numerator is adjusted to include the after-tax amount of interest and foreign currency translation gain(loss) recognized associated with convertible notes. Bonds with warrants and stock options were not considered when calculating diluted earnings per share because the exercise price of the warrants and stock options was greater than the average market price of the common share and, therefore, the effect would have been antidilutive.

F-66

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	Millions
	Years ended December 31,
	2002			2003		2003 (note 3)
Stockholders’ equity in accordance with Korean GAAP	(Won)	9,832,566		8,396,620		$	7,044.2
Adjustments:
Intangible assets		(15,965	)	(5,701	)		(4.8	)
Depreciation		119,431		(16,474	)		(13.8	)
Equity in earnings of equity method affiliates:
Reversal of goodwill amortization		130,113		260,226			218.3
Different useful life of intangibles		88,642		96,449			80.9
Additional acquisitions of equity investees		226,777		352,650			295.9
Impairment loss relating to equity investee		(663,345	)	(1,452,848	)		(1,218.8	)
Goodwill impairment		(12,947	)	(12,947	)		(10.9	)
U.S. GAAP adjustments of equity method affiliates		47,061		46,129			38.7
Interest capitalization, net		(109,718	)	(55,629	)		(46.7	)
Capitalized foreign exchange transactions, net		(11,139	)	(5,280	)		(4.4	)
Foreign currency translation of convertible notes		139,730		133,304			111.8
Deferred service installation fees		(542,626	)	(521,897	)		(437.8	)
Convertible notes of KTF		(17,222	)	—			—
Bonds with stock warrants		6,415		372			0.3
Deferred tax effects of U.S. GAAP adjustments		211,565		391,307			328.2
Deferred tax-methodology difference		—		133,582			112.1
Deferred income taxes on investment securities		(222,999	)	(65	)		(0.1	)
Minority interests		(1,936,094	)	(1,849,303	)		(1,551.4	)
		(2,562,321	)	(2,506,125	)		(2,102.5	)
Stockholders’ equity as adjusted in accordance with U.S. GAAP	(Won)	7,270,245		5,890,495		$	4,941.7

F-67

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(v) Condensed Consolidated U.S. GAAP Financial Information

Consolidated balance sheets in accordance with U.S. GAAP as of December 31, 2002 and 2003 are summarized as follows:

	Millions
	2002		2003	2003 (note 3)
Assets
Notes and accounts receivable—trade	(Won)	2,070,140	1,878,179	$	1,575.7
Other current assets		3,127,337	1,845,458		1,548.2
Investments		2,825,826	2,501,212		2,098.3
Property, plant and equipment		11,995,028	11,515,315		9,660.5
Other assets		1,719,068	1,791,955		1,503.3
	(Won)	21,737,399	19,532,119	$	16,386.0
Liabilities
Notes and accounts payable—trade	(Won)	916,964	925,567	$	776.5
Other current liabilities		3,602,173	2,897,098		2,430.5
Long-term debt, excluding current portion		7,426,284	7,669,463		6,434.1
Other long-term liabilities		2,434,226	2,059,782		1,727.9
Total liabilities		14,379,647	13,551,910		11,369.0
Minority interest in consolidated subsidiaries		87,507	89,714		75.3
Stockholders’ equity		7,270,245	5,890,495		4,941.7
	(Won)	21,737,399	19,532,119	$	16,386.0

Condensed consolidated income statements in accordance with U.S. GAAP for the years ended December 31, 2001, 2002 and 2003 are summarized as follows:

	Millions
	Years ended December 31,
	2001			2002	2003	2003 (note 3)
Operating revenues	(Won)	11,588,442		11,507,729	11,776,189	$	9,879.4
Cost of services		9,847,796		8,862,201	9,467,818		7,942.8
Gross profit		1,740,646		2,645,528	2,308,371		1,936.6
Selling, general and administration expenses		491,895		813,124	1,166,197		978.4
Other operating expense, net		102,562		635,669	765,017		641.8
Operating income		1,146,189		1,196,735	377,157		316.4
Other income		124,032		875,947	235,832		197.8
Earnings before income tax and minority interest		1,270,221		2,072,682	612,989		514.2
Income tax		261,677		519,642	217,568		182.5
Earnings before minority interest		1,008,544		1,553,040	395,421		331.7
Minority interest in losses (earnings) of consolidated subsidiaries		(2,220	)	3,222	22		—
Net earnings	(Won)	1,006,324		1,556,262	395,443	$	331.7

F-68

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

Changes in consolidated stockholders’ equity in accordance with U.S. GAAP for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001			2002		2003		2003 (note 3)
Beginning of year	(Won)	10,637,190		11,189,176		7,270,245		$	6,099.2
Net earnings		1,006,324		1,556,262		395,443			331.7
Foreign currency translation adjustments		(1,499	)	(1,339	)	2,087			1.8
Unrealized losses on investments, net of tax		(301,181	)	(1,066,042	)	(526,660	)		(441.8	)
Treasury stock		(19,779	)	(4,188,435	)	(1,048,872	)		(879.9	)
Dividends		(159,265	)	(224,054	)	(212,887	)		(178.6	)
Gains on sales of stock by subsidiaries and equity affiliates		30,332		—		—			—
Other		(2,946	)	4,677		11,139			9.3
End of year	(Won)	11,189,176		7,270,245		5,890,495		$	4,941.7

Condensed consolidated statements of cash flows in accordance with U.S. GAAP for the years ended December 31, 2001, 2002 and 2003, respectively, are set out below:

	Millions
	2001			2002		2003		2003 (note 3)
Cash flows from operating activities:
Net earnings	(Won)	1,006,324		1,556,262		395,443		$	331.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		3,100,982		2,772,281		2,683,464			2,251.2
Provision for doubtful accounts		108,287		170,250		305,652			256.4
Loss on disposition of property, plant and equipment		142,645		84,696		52,326			43.9
Equity in losses (gains) of affiliates including equity method goodwill amortization		151,036		(51,519	)	5,000			4.2
Deferred income tax expense (benefit)		30,286		22,220		(240,922	)		(202.1	)
Gain on disposition of available-for-sale securities		(627,421	)	(1,151,353	)	(752,117	)		(631.0	)
Changes in assets and liabilities:
Increase in retirement and severance benefits		189,993		223,875		43,464			36.5
Increase in trade notes and accounts receivable		(309,808	)	(334,046	)	(287,510	)		(241.2	)
Increase in inventories		(196,392	)	(174,806	)	(151,198	)		(126.8	)
Increase (decrease) in trade notes and accounts payable		(251,400	)	(1,130	)	46,684			39.2
Increase (decrease) in advance receipts from customers		7,649		7,500		(21,897	)		(18.4	)
Increase (decrease) in income taxes payable		166,724		237,475		(229,368	)		(192.4	)
Increase in prepaid expenses		(2,061	)	(2,275	)	(3,612	)		(3.0	)

F-69

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

	Millions
	2001			2002		2003		2003 (note 3)
Increase (decrease) in withholdings		(63,029	)	(109,025	)	2,657			2.2
Decrease in accrued expenses		(143,043	)	(15,056	)	(52,181	)		(43.8	)
Increase (decrease) in accounts payable-other		(514,004	)	341,357		154,646			129.7
Decrease in refundable deposits of telephone installation		(694,414	)	(749,546	)	(307,026	)		(257.6	)
Other, net		214,355		146,241		530,366			444.9
Net cash provided by operating activities		2,316,709		2,973,401		2,173,871			1,823.6
Cash flows from investing activities:
Decrease (increase) in accounts receivables—other		(90,998	)	(27,149	)	527,954			442.9
Additions to property, plant and equipment		(2,723,114	)	(2,187,075	)	(2,219,902	)		(1,862.3	)
Proceeds from sale of property, plant and equipment		104,058		45,605		115,914			97.2
Decrease (increase) in short-term financial instruments		135,963		(71,720	)	198,724			166.7
Proceeds from the sale of available-for-sale securities		700,620		306,552		166,281			139.5
Proceeds from the sale of equity security of affiliates		8,122		553,921		18,401			15.4
Proceeds from maturity on held-to-maturity securities		100,812		9,994		218			0.2
Purchase of available-for-sale securities		(7,083	)	(540,331	)	(312,881	)		(262.5	)
Purchase of equity security of affiliates		(907,093	)	—		(483,886	)		(405.9	)
Purchase of held-to-maturity securities		(2,306	)	(392	)	(11,412	)		(9.6	)
Other, net		238,307		(728,116	)	346,670			290.8
Net cash used in investing activities		(2,442,712	)	(2,638,711	)	(1,653,919	)		(1,387.6	)
Cash flows from financing activities:
Payment of dividends	(Won)	(161,159	)	(224,955	)	(213,308	)	$	(178.9	)
Increase (decrease) in short-term borrowings, net		(322,961	)	81,702		(237,621	)		(199.3	)
Repayments of long-term debt		(1,019,155	)	(1,391,816	)	(1,150,639	)		(965.3	)
Proceeds from long-term debt		1,804,653		4,675,158		1,282,661			1,076.1
Acquisition of treasury stock		—		(3,401,186	)	(412,247	)		(345.8	)
Other, net		(2,542	)	7,219		40,432			33.9
Net cash provided by (used in) financing activities		298,836		(253,878	)	(690,722	)		(579.3	)
Increase (decrease) in cash and cash equivalents		172,833		80,812		(170,770	)		(143.3	)
Cash and cash equivalents at beginning of year		632,464		805,297		886,109			743.4
Cash and cash equivalents at end of year	(Won)	805,297		886,109		715,339		$	600.1
Supplemental schedule of non-cash investing and financing activities*	(Won)	—		786,666		730,704		$	613.0

* As discussed in Note 8, the Company financed (Won)786,666 million and (Won)730,704 million of its purchase of treasury stock in 2002 and 2003, respectively, through the transfer of shares of SK Telecom which the Company previously held as available-for-sale securities.

F-70

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(w) Additional U.S. GAAP Disclosures

The Company is subject to a number of income taxes based upon earnings which result from the application of a statutory corporate income tax rate (including resident tax) of approximately 30.8%, 29.7% and 29.7% for the years ended December 31, 2001, 2002 and 2003, respectively.

Starting from January 1, 2002, the corporate income tax rate (including resident tax) decreased to 29.7%. In addition, in December 2003, the Korean government reduced the corporate income tax rate (including resident tax) beginning in 2005. Specifically, effective from January 1, 2005, the income tax rate will be reduced from 29.7% to 27.5%. As a result, a change in deferred income taxes of (Won)12,795 and (Won)64,820 million is charged to income tax expense for the year ended December 31, 2001 and 2003, respectively.

The components of income tax expense for the years ended December 31, 2001, 2002 and 2003 are as follows:

	Millions
	2001		2002	2003		2003 (note 3)
Current income tax expense	(Won)	231,391	497,422	458,490		$	384.6
Deferred income net expense (benefit)		30,286	22,220	(240,922	)		(202.1	)
Income tax expense	(Won)	261,677	519,642	217,568		$	182.5

Substantially all pretax income and related income tax expense (benefit) is attributable to domestic operations. The provision for income taxes using statutory tax rates differs from the actual provision for the years ended December 31, 2001, 2002 and 2003 for the following reasons:

	Millions
	2001			2002		2003		2003 (note 3)
Provision for income taxes at statutory tax rates	(Won)	391,094		615,587		182,058		$	152.7
Prior years income tax additional payment (refund)		12,206		(6,354	)	61,928			52.0
Nondeductible expense		39,112		60,990		66,748			56.0
Nontaxable income		(3,530	)	(9,251	)	(5,945	)		(5.0	)
Investment tax credits		(190,000	)	(141,330	)	(152,041	)		(127.6	)
Effect of tax rate change		12,795		—		64,820			54.4
Actual provision for income taxes	(Won)	261,677		519,642		217,568		$	182.5

The effective tax rates after adjustments of certain differences between amounts reported for financial accounting and income tax purpose, were approximately 19.8%, 25.3% and 28.2% for the years ended December 31, 2001, 2002 and 2003, respectively.

At December 31, 2003, the Company does not have any remaining investment tax credit carryforwards.

F-71

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

The tax effects of temporary differences that resulted in significant portions of the deferred tax assets and liabilities at December 31, 2002 and 2003, computed under U.S. GAAP, and a description of financial statement items that created these differences are as follows:

	Millions
	Years ended December 31,
	2002			2003		2003 (note 3)
Deferred tax assets
Retirement and severance benefits	(Won)	22,597		3,207		$	2.7
Allowance for doubtful accounts		80,807		122,880			103.1
Refundable deposits for telephone installation		26,505		20,022			16.8
Investment securities		24,400		27,417			23.0
Inventories		324		479			0.4
Intangible assets		4,742		1,568			1.3
Unearned income		161,160		143,522			120.4
Equity securities of affiliates		278,368		488,375			409.7
Tax credit carryforwards		43,215		—			—
Other		—		24,762			20.8
Total deferred tax assets		642,118		832,232			698.2
Deferred tax liabilities
Investment securities		(222,999	)	(65	)		(0.1	)
Property, plant and equipment		(45,210	)	(8,732	)		(7.3	)
Accrued interest income		(789	)	(2,171	)		(1.8	)
Other		(25,360	)	—			—
Total deferred tax liabilities		(294,358	)	(10,968	)		(9.2	)
Net deferred tax assets	(Won)	347,760		821,264		$	689.0

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred 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 tax assets are deductible, management believes that it is more likely than not the Company will realize the benefits of these deductible differences.

Gross and net property, plant and equipment under U.S. GAAP at December 31, 2002 and 2003 are summarized as follows:

	Millions
	Years ended December 31,
	2002		2003	2003 (note 3)
Gross property, plant and equipment	(Won)	33,825,965	34,695,320	$	29,106.8
Accumulated depreciation		21,830,937	23,180,005		19,446.3
Net property, plant and equipment	(Won)	11,995,028	11,515,315	$	9,660.5

F-72

KT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements—(Continued)

(35) Event (Unaudited) Subsequent to the Date of the Report of the Independent Registered Public Accounting Firm

In April 2004, the Company received a preliminary notice as a result of an ongoing audit by the National Tax Service with respect to prior year income taxes, of an additional assessment related to such prior years in the amount of (Won)73,793 million. Although the Company has appealed to the National Tax Tribunal, it has provided for the tax assessment in its fiscal 2004 consolidated financial statements.

F-73

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of

KT Freetel Co., Ltd.:

We have audited the accompanying consolidated balance sheets of KT Freetel Co., Ltd. and its subsidiaries (collectively referred to as the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the 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. We did not audit the financial statements of KT ICOM Co., Ltd. (“KT ICOM”), which statements reflect 23 percent of the total consolidated assets as of December 31, 2002. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for KT ICOM is based solely on the reports of the other auditors.

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, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years then ended in conformity with financial accounting standards in the Republic of Korea.

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As explained in Note 20, revenues and expenses to and from related parties amounted to (Won)609,634 million and (Won)481,956 million, respectively, for the year ended December 31, 2003 and (Won)555,700 million and (Won)1,272,712 million, respectively, for the year ended December 31, 2002. Related receivables and payables amounted to (Won)160,209 million and (Won)356,445 million, respectively, as of December 31, 2003 and (Won)161,008 million and (Won)325,442 million, respectively, as of December 31, 2002.

As explained in Note 24, effective March 6, 2003, KT ICOM, a former affiliate, was merged into the Company. In connection with the merger, KT ICOM transferred to the Company its net assets of (Won)1,818,604 million at book value as shown in the consolidated financial statements of KT Corporation, the parent company. As a result of the merger, the investment securities of KT ICOM accounted for using the equity method of (Won)1,590,360 million were eliminated, and capital stock with a par value of (Won)35,412 million was issued to KT ICOM’s shareholders. The difference between the carrying value of the investment securities and the value of net assets transferred amounting to (Won)228,244 million, less capital stock issued with a par value of (Won)35,412 million and the issuance cost of (Won)177 million, was recorded as paid-in capital in excess of par value.

Accounting practices used by the Company in preparing the accompanying financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with generally accepted accounting principles in the United States of America. The description of the significant differences and the reconciliation of net income and shareholders’ equity to U.S. generally accepted accounting principles are set forth in Note 25.

Anjin Deloitte LLC

Seoul, Korea

March 27, 2004

A-1

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2003 AND 2002

	Korean Won				Translation into U.S. Dollars (Note 2)
	2003		2002		2003		2002
	(In millions)				(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 18)	(Won)	20,424	(Won)	147,555	$	17,134	$	123,788
Short-term financial instruments (Note 3)		—		555,000		—		465,604
Short-term investment securities (Note 7)		7,788		404,397		6,534		339,259
Trade accounts and notes receivable, net of allowance for doubtful accounts of (Won)163,016 million in 2003 and (Won)160,212 million in 2002 (Notes 2, 5, 18 and 20)		831,487		1,024,031		697,556		859,086
Accounts receivable-other, net of allowance for doubtful accounts of (Won)4,714 million in 2003 and (Won)3,405 million in 2002 (Notes 2 and 20)		67,549		62,206		56,669		52,186
Prepaid expenses		13,490		20,003		11,317		16,781
Inventories		192,165		149,728		161,212		125,611
Short-term loans (Note 6)		7,915		5,550		6,640		4,656
Other current assets		18,950		69,681		15,898		58,458
		1,159,768		2,438,151		972,960		2,045,429
NON-CURRENT ASSETS:
Long-term financial instruments (Notes 3 and 4)		52		61		44		51
Long-term investment securities (Note 8)		175,779		103,035		147,466		86,439
Investment securities using the equity method (Note 9)		3,178		6,607		2,666		5,543
Long-term loans (Notes 6 and 18)		51,191		45,768		42,945		38,396
Guarantee deposits, net of allowance for doubtful accounts of (Won)4,989 million in 2003 and 2002		239,111		227,984		200,596		191,262
Deferred income tax assets (Note 17)		97,464		68,508		81,765		57,473
Property and equipment, net (Notes 10 and 12)		4,685,914		4,771,176		3,931,136		4,002,664
Intangibles (Note 11)		1,239,633		1,228,356		1,039,961		1,030,500
Other non-current assets		8,752		6,844		7,341		5,742
		6,501,074		6,458,339		5,453,920		5,418,070
Total Assets	(Won)	7,660,842	(Won)	8,896,490	$	6,426,880	$	7,463,499

(continued)

A-2

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF DECEMBER 31, 2003 AND 2002

	Korean Won						Translation into U.S. Dollars (Note 2)
	2003			2002			2003			2002
	(In millions)						(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 13)	(Won)	293,339		(Won)	559,411		$	246,090		$	469,305
Trade accounts and notes payable (Notes 18 and 20)		209,323			353,467			175,607			296,533
Current portion of long-term debt, net of discount on debentures of (Won)4,997 million in 2003 and (Won)5,181 million in 2002 (Notes 12, 13 and 14)		1,050,812			792,494			881,554			664,844
Accounts payable-other (Notes 18 and 20)		584,177			984,682			490,081			826,076
Accrued expenses		113,445			81,019			95,172			67,969
Withholdings		75,037			92,037			62,951			77,212
Income tax payable		34,342			44,199			28,810			37,080
Other current liabilities		16,495			25,497			13,837			21,389
		2,376,970			2,932,806			1,994,102			2,460,408
LONG-TERM LIABILITIES:
Debentures, net (Note 14)		1,579,953			2,522,850			1,325,464			2,116,485
Long-term debt, net of current portion (Note 13)		—			100,000			—			83,893
Long-term accounts payable-other, net (Note 15)		518,761			501,258			435,202			420,518
Long-term obligation under capital lease, net of current portion (Note 12)		—			536			—			450
Accrued severance indemnities, net (Note 2)		32,740			30,672			27,466			25,732
Other long-term liabilities		9,380			8,062			7,870			6,763
		2,140,834			3,163,378			1,796,002			2,653,841
Total Liabilities		4,517,804			6,096,184			3,790,104			5,114,249
SHAREHOLDERS’ EQUITY:
Common stock (Note 16)		955,702			920,290			801,763			772,055
Paid-in capital in excess of par value		1,327,625			1,129,274			1,113,779			947,378
Retained earnings		945,501			542,644			793,206			455,238
Capital adjustments:
Treasury stock (Note 16)		(97,587	)		(30,999	)		(81,868	)		(26,006	)
Loss on disposal of treasury stock (Note 16)		(1,535	)		—			(1,288	)		—
Loss on valuation of available-for-sale securities (Notes 7 and 8)		7,377			2,191			6,189			1,838
Stock compensation (Note 16)		2,655			1,064			2,227			893
Minority interest		3,300			235,842			2,768			197,854
Total Shareholders’ Equity		3,143,038			2,800,306			2,636,776			2,349,250
Total Liabilities and Shareholders’ Equity	(Won)	7,660,842		(Won)	8,896,490		$	6,426,880		$	7,463,499

See accompanying notes to consolidated financial statements.

A-3

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

	Korean Won						Translation into U.S. Dollars (Note 2)
	2003			2002			2003			2002
	(In millions, except per share amounts)						(In thousands, except per share amounts)
OPERATING REVENUE (Notes 19, 20 and 22)	(Won)	5,123,612		(Won)	5,320,028		$	4,298,332		$	4,490,833
OPERATING EXPENSES (Notes 19 and 20)		4,341,960			4,475,837			3,642,584			3,782,619
OPERATING INCOME		781,652			844,191			655,748			708,214
OTHER INCOME (EXPENSES), NET:
Interest income		24,502			17,950			20,555			15,059
Rental income		11,074			11,526			9,290			9,669
Gain on foreign currency transactions, net		565			1,083			474			909
Gain (loss) on foreign currency translation, net		(28,111	)		2,182			(23,583	)		1,831
Interest expense		(274,885	)		(216,092	)		(230,608	)		(181,285	)
Loss on disposal of trade accounts and notes receivable (Note 5)		(10,222	)		(15,147	)		(8,576	)		(12,707	)
Loss on valuation of inventories		(975	)		(2,155	)		(818	)		(1,808	)
Loss on valuation using the equity method of accounting (Note 9)		(2,257	)		(122	)		(1,893	)		(102	)
Loss on disposal of short-term investment securities, net		(1,746	)		—			(1,465	)		—
Loss on disposal of long-term investment securities, net		(2,773	)		(36	)		(2,326	)		(30	)
Loss on disposal of property and equipment, net		(70,559	)		(45,606	)		(59,194	)		(38,260	)
Impairment loss on investment securities (Note 8)		(2,280	)		(2,774	)		(1,913	)		(2,327	)
Recovery of impairment loss on investment securities (Note 7)		3,579			—			3,003			—
Other, net		28,092			17,443			23,567			14,632
		(325,996	)		(231,748	)		(273,487	)		(194,419	)
ORDINARY INCOME		455,656			612,443			382,261			513,795
EXTRAORDINARY ITEMS		—			—			—			—
INCOME BEFORE INCOME TAX EXPENSE		455,656			612,443			382,261			513,795
INCOME TAX EXPENSE (Note 17)		(50,702	)		(80,280	)		(42,535	)		(67,349	)
MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARIES		1,075			—			902			—
NET INCOME	(Won)	406,029		(Won)	532,163		$	340,628		$	446,446
EARNINGS PER SHARE (Note 2)	(Won)	2,167		(Won)	2,904		$	1.818		$	2.436
DILUTED EARNINGS PER SHARE (Note 2)	(Won)	2,105		(Won)	2,894		$	1.766		$	2.428

See accompanying notes to consolidated financial statements.

A-4

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

	Korean Won (In million)
	Common stock		Capital surplus			Retained earnings (deficit)			Capital adjustments			Minority interests			Total
Balance at December 31, 2001	(Won)	920,290	(Won)	1,132,834		(Won)	10,481		(Won)	(31,609	)	(Won)	—		(Won)	2,031,996
Net income for 2002		—		—			532,163			—			—			532,163
Effect of changes in consolidated subsidiaries		—		(3,265	)		—			2,104			235,842			234,681
Compensation expense incurred in connection with stock options		—		—			—			1,064			—			1,064
Loss on valuation of investment securities using the equity method		—		(295	)		—			—			—			(295	)
Gain on valuation of available-for-sale securities		—		—			—			698			—			698
Purchase of treasury stock		—		—			—			(1	)		—			(1	)
Balance at December 31, 2002		920,290		1,129,274			542,644			(27,744	)		235,842			2,800,306
Net income for 2003		—		—			406,029			—			(1,075	)		404,954
Merger		35,412		192,654			—			—			—			228,066
Effect of changes in consolidated subsidiaries		—		3,561			(16	)		(1,614	)		(231,467	)		(229,536	)
Amortization of organization cost		—		—			(3,156	)		—			—			(3,156	)
Compensation expense incurred in connection with stock options		—		—			—			1,591			—			1,591
Gain on valuation of investment securities using the equity method		—		2,136			—			—			—			2,136
Gain on valuation of available-for-sale securities										5,266			—			5,266
Purchase of treasury stock		—		—			—			(66,589	)					(66,589	)
Balance at December 31, 2003	(Won)	955,702	(Won)	1,327,625		(Won)	945,501		(Won)	(89,090	)	(Won)	3,300		(Won)	3,143,038
Translation into U.S. Dollars (In thousands) (Note 2)	$	801,763	$	1,113,779		$	793,206		$	(74,740	)	$	2,768		$	2,636,776

See accompanying notes to consolidated financial statements.

A-5

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

	Korean Won						Translation into U.S. Dollars (Note 2)
	2003			2002			2003			2002
	(In millions)						(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	(Won)	406,029		(Won)	532,163		$	340,628		$	446,446
Addition of expenses not involving cash outflows:
Loss on disposal of property and equipment, net		70,559			45,606			59,194			38,260
Depreciation		839,430			723,667			704,220			607,103
Amortization of intangibles		19,287			1,832			16,180			1,537
Long-term accrued interest		7,420			—			6,225			—
Amortization of discounts on debentures		11,883			33,452			9,969			28,064
Amortization of discounts on long-term payable-other		14,722			—			12,351			—
Provision for severance indemnities		12,311			15,100			10,328			12,668
Loss on disposal of trade accounts and notes receivable		10,222			15,147			8,576			12,707
Loss on valuation using the equity method of accounting		2,257			122			1,893			102
Loss on disposal of short-term investment securities, net		1,746			—			1,465			—
Loss on disposal of long-term investment securities, net		2,773			36			2,326			30
Loss on valuation of inventories		975			2,155			818			1,808
Loss on foreign currency translation, net		28,111			—			23,583			—
Stock compensation		4,560			1,064			3,826			893
Impairment loss on investment securities		2,280			2,774			1,913			2,327
Bad debt expense		52,488			23,555			44,033			19,761
Other		1,617			2,161			1,356			1,813
		1,082,641			866,671			908,256			727,073
Deduction of revenues not involving cash inflows:
Gain on foreign currency translation, net		—			2,182			—			1,831
Recovery of impairment loss in investment securities		3,579			—			3,003			—
Minority interest in net loss of consolidated subsidiaries		1,075			—			902			—
Other		676			3			567			3
		5,330			2,185			4,472			1,834
Changes in assets and liabilities resulting from operations:
Increase in trade accounts and notes receivable		(433,633	)		(396,750	)		(363,786	)		(332,844	)
Decrease (Increase) in accounts receivable-other		(3,991	)		27,537			(3,348	)		23,102
Decrease (Increase) in prepaid expenses		14,504			(1,908	)		12,168			(1,601	)
Increase in inventories		(32,229	)		(88,072	)		(27,038	)		(73,886	)
Decrease (Increase) in other current assets		34,534			(23,173	)		28,972			(19,440	)
Payment of severance indemnities		(13,873	)		(9,487	)		(11,638	)		(7,959	)
Increase (Decrease) in trade accounts and notes payable		(199,829	)		168,328			(167,642	)		141,215
Increase (Decrease) in accounts payable-other		(151,212	)		334,530			(126,856	)		280,646
Increase in accrued expenses		28,838			29,083			24,193			24,398
Decrease in withholdings		(29,529	)		(10,308	)		(24,773	)		(8,648	)
Increase (Decrease) in income tax payable		(9,101	)		40,804			(7,635	)		34,232
Decrease in other current liabilities		(6,303	)		(19,509	)		(5,288	)		(16,367	)
Decrease in National Pension		337			325			283			273
Increase in deferred income tax assets		(20,919	)		(2,025	)		(17,549	)		(1,699	)
Increase in other long-term liabilities		4,028			4,165			3,379			3,494
		(818,378	)		53,540			(686,558	)		44,916
Net cash provided by operating activities	(Won)	664,962		(Won)	1,450,189		$	557,854		$	1,216,601

(continued)

A-6

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

	Korean Won						Translation into U.S. Dollars (Note 2)
	2003			2002			2003			2002
	(In millions)						(In thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash inflows from investing activities
Proceeds from sale of short-term investment securities	(Won)	417,249		(Won)	—		$	350,041		$	—
Collection of short-term loans		24,432			33,170			20,497			27,827
Proceeds from sale of long-term investment securities		23,145			5,101			19,417			4,279
Withdrawal of guarantee deposits		48,750			25,439			40,898			21,341
Withdrawal of short-term financial instruments		370,000			2,500			310,403			2,097
Proceeds from disposal of property and equipment		137,114			6,553			115,029			5,497
Proceeds from disposal of intangibles		100			4			84			3
Other		93			169			77			144
		1,020,883			72,936			856,446			61,188
Cash outflow from financing activities
Purchase of short-term financial instrument		(35,000	)		—			(29,362	)		—
Purchase of short-term investment securities		(35,684	)		—			(29,936	)		—
Purchase of long-term investment securities		(2,614	)		(1,354,787	)		(2,193	)		(1,136,566	)
Payment of guarantee deposits		(46,131	)		(34,307	)		(38,701	)		(28,781	)
Acquisition of property and equipment		(935,326	)		(1,014,278	)		(784,669	)		(850,904	)
Increase in intangibles		(31,205	)		(3,443	)		(26,179	)		(2,888	)
Payment of long-term loans		(32,152	)		(34,537	)		(26,973	)		(28,974	)
Other		(5	)		(382	)		(5	)		(322	)
		(1,118,117	)		(2,441,734	)		(938,018	)		(2,048,435	)
Net cash used in investing activities		(97,234	)		(2,368,798	)		(81,572	)		(1,987,247	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities
Proceeds from sale of trade accounts and notes receivable		512,000			470,000			429,530			394,295
Proceeds from short-term borrowings		3,876,831			1,295,000			3,252,375			1,086,409
Proceeds from issuance of debentures		—			1,111,208			—			932,221
Proceeds from long-term debt		—			100,000			—			83,893
Increase from merger		314,610			—			263,935			—
		4,703,441			2,976,208			3,945,840			2,496,818
Cash outflows from financing activities
Repayment of short-term borrowings		(4,130,000	)		(1,415,000	)		(3,464,765	)		(1,187,081	)
Repayment of debentures		(177	)		—			(149	)		—
Repayment of current portion of long-term debt		(831,802	)		(672,290	)		(697,820	)		(564,001	)
Repayment of long-term debt		(315,775	)		—			(264,912	)		—
Acquisition of treasury stock		(4,317	)		(1	)		(3,622	)		(1	)
Repayment of other non-current liabilities		(19	)		(10	)		(16	)		(8	)
		(5,282,090	)		(2,087,301	)		(4,431,284	)		(1,751,091	)
Net cash provided by (used in) financing activities		(578,649	)		888,907			(485,444	)		745,727
NET DECREASE IN CASH AND CASH EQUIVALENTS		(10,921	)		(29,702	)		(9,162	)		(24,919	)
INCREASE (DECREASE) FROM CHANGES IN CONSOLIDATED SUBSIDIARIES		(116,210	)		124,895			(97,492	)		104,778
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		147,555			52,362			123,788			43,929
CASH AND CASH EQUIVALENTS, END OF YEAR	(Won)	20,424		(Won)	147,555		$	17,134		$	123,788

(continued)

A-7

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Korean Won				Translation into U.S. Dollars (Note 2)
	2003		2002		2003		2002
	(In millions)				(In thousands)
TRANSACTIONS NOT INVOLVING CASH:
Transfer of trade accounts and notes receivable to long-term investments securities	(Won)	119,168	(Won)	43,430	$	99,973	$	36,435
Transfer of debentures to current portion of long term debt		994,014		571,103		833,904		479,113
Transfer of long-term obligation under capital lease to current portion of long-term debt		550		2,235		461		1,875
Transfer of interest expense to construction in progress		—		34,116		—		28,621
Transfer of long-term debt to current portion of long-term debt		100,000		216,994		83,893		182,042
Transfer of long-term loans to short-term loans		26,752		17,672		22,443		14,826
Transfer of long-term investments securities to trade accounts and notes receivable		22,332		—		18,735		—
Transfer of long-term investments securities to short-term investments securities		1,420		—		1,191		—
Recognition of loss on valuation of investments securities using the equity method as capital adjustments		58,197		296		48,823		248

See accompanying notes to consolidated financial statements.

A-8

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2003 AND 2002

1. GENERAL:

(1) KT Freetel Co., Ltd.

KT Freetel Co., Ltd. (“KT Freetel”) was incorporated on January 3, 1997, under the Commercial Code of the Republic of Korea, and listed on the Korean Securities Dealers Association Automated Quotation System (the KOSDAQ) in December 1999. The Company is currently engaged in providing personal communications service (“PCS”), value added services and sale and lease of personal communication devices.

As of December 31, 2003, the shareholders of KT Freetel are as follows:

	Number of shares	Percentage of ownership (%)
KT Corporation	89,640,088	46.90
Qualcomm Incorporated	4,416,350	2.31
HyoSung Corp.	3,017,276	1.58
SSB Capital Communications	2,175,210	1.14
Microsoft Corp.	2,030,000	1.06
Millcate Mater Fund Ltd.	1,700,000	0.89
Others	88,161,595	46.12
	191,140,519	100.00

In common with other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Company may be either directly or indirectly affected by these economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Company. Actual results may differ materially from management’s current assessment.

(2) Consolidated Subsidiaries

The consolidated financial statements include the accounts of KT Freetel and the controlled subsidiaries listed below (collectively referred to as the “Company”), of which KT Freetel owns a majority of the issued shares. Significant inter-company accounts and transactions have been eliminated in consolidation.

Subsidiaries	Year control was obtained	Ownership percentage (%)		Primary business
		2003	2002
KTF Technologies Co., Ltd. (“KTF Technologies”)	2002	57.40	57.40	Developing and manufacturing of PCS handsets
KT ICOM Co., Ltd. (“KT ICOM”)	2002	—	87.27	IMT 2000 Service

On November 30, 2002, KT Freetel exercised the conversion right of convertible bonds at (Won)5 thousand per share to acquire an additional 400,000 shares of common stock of KTF Technologies.

The acquisition of KTF Technologies was recorded in accordance with the purchase method of accounting, with the (Won)2,589 million excess of the fair value of KTF Technologies’ net assets over the acquisition cost being

A-9

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assigned as negative goodwill. Negative goodwill will be recognized as income on a systematic basis over the remaining weighted average useful life (5 years) of the identifiable acquired depreciable or amortizable assets.

As KT ICOM, a former affiliate, was merged into the Company, effective March 6, 2003, KT ICOM was excluded from the consolidated subsidiaries (Note 24).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements.

The U.S. dollar amounts presented in these financial statements were computed by translating the Korean won into U.S. dollars based on the noon buying rate of (Won)1,192.00 to US$1.00 at December 31, 2003 in the City of New York for cable transfers in won as certified for customs purposes by the Federal Reserve Bank of New York, solely for the convenience of the reader. This convenience translation into U.S. dollars should not be construed as a representation that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate of exchange.

Significant accounting policies followed by the Company in preparing the accompanying financial statements are summarized as follows:

Adoption of Newly Effective Statements of Korea Accounting Standards

The Company prepared its financial statements in accordance with the Statements of Korea Accounting Standards (“SKAS”), which are effective from January 1, 2003. The revised accounting standards include SKAS No.2—“Interim Financial Reporting”, No.3—“Intangible Assets”, No.4—“Revenue Recognition”, No.5—“Tangible Assets”, No.6—“Events Occurring After Balance Sheet Dates”, No.7—“Capitalization of Financing Costs”, No.8—“Investment in Securities” and No.9—“Convertible Securities”. The comparative financial statements were restated applying these accounting standards.

Use of Estimates

The preparation of financial statements in accordance with Korean GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates and assumptions relate to the allowance for doubtful accounts and depreciation. Actual results could differ from those estimates and may affect amounts reported in future periods. Management believes that the estimates are reasonable.

Revenue Recognition

The Company’s revenues are principally derived from sales of PCS handsets and PCS service revenues, which consist of non-refundable initial subscription fees, fixed monthly access fees and usage charges. The

A-10

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company recognizes sales on PCS handsets when they are delivered to the dealers, fixed monthly access fees in the period earned, and usage charges and non-refundable initial subscription fees at the time services are rendered.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is provided based on the estimated loss on uncollectible accounts and historical bad debt experience.

Changes in allowance for doubtful trade accounts and notes receivable and accounts receivable-other for the years ended December 31, 2003 and 2002 are summarized as follows (won in millions):

	2003			2002
Beginning of year	(Won)	163,617		(Won)	176,313
Write-offs		(48,375	)		(36,734	)
		115,242			139,579
Provision		52,488			23,555
Increase from changes in consolidated subsidiaries		—			483
End of year	(Won)	167,730		(Won)	163,617

Inventories

Inventories are stated at the lower of cost or net realized value, cost being determined using the average cost method. If the net realizable value of inventories is lower than cost, inventories are adjusted to net realizable value and the difference between cost and revalued amount is charged to current operations.

Investment Securities Other than those Accounted for Using the Equity Method

(1) Classification of Securities

At acquisition, the Company classifies securities into one of the three categories: trading, held-to-maturity or available-for-sale. Trading securities are those that were acquired principally to generate profits from short-term fluctuations in prices. Held-to-maturity securities are those with fixed and determinable payments and fixed maturity that an enterprise has the positive intent and ability to hold to maturity. Available-for-sale securities are those not classified as either held-to-maturity or trading securities. Trading securities are classified as short-term investment securities, whereas available-for-sale securities and held-to-maturity securities are classified as long-term investment securities, except for those maturity dates or whose likelihood of being disposed of are within one year from balance sheet date, which are classified as short-term investment securities.

(2) Valuation of Securities

Securities are recognized initially at cost, which includes the market value of the consideration given and incidental expenses. If the market price of the consideration given is not available, the market prices of the securities purchased are used as the basis of measurement. If neither the market price of the consideration given nor those of the acquired securities are available, the acquisition cost is measured at the best estimates of its fair value.

After initial recognition, held-to-maturity securities are valued at amortized cost. The difference between their acquisition costs and face values is amortized over the remaining term of the securities by applying the

A-11

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

effective interest method and added to or subtracted from the acquisition costs and interest income of the remaining period. Trading securities are valued at fair value, with unrealized gains or losses included in current operations. Available-for-sale securities are also valued at fair value, with unrealized gains or losses included in capital adjustments, until the securities are sold or if the securities are determined to be impaired and the lump-sum cumulative amount of capital adjustments are reflected in current operations. However, available-for-sale securities that are not traded in an active market and whose fair values cannot be reliably estimated are accounted for at acquisition costs. For those securities that are traded in an active market (marketable securities), fair values refer to the quoted market prices, which are measured as the closing price at the balance sheet date. The fair values of non-marketable securities are measured at the discounted future cash flows by using the discount rate that appropriately reflects the credit rating of the issuing entity assessed by a publicly reliable independent credit rating agency. If application of such measurement method is not feasible, estimates of the fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting similar business in similar industries.

Securities are evaluated at each balance sheet date to determine whether there is any objective evidence of impairment loss. When any such evidence exists, unless there is a clear counter-evidence that recognition of impairment is unnecessary, the Company estimates the recoverable amount of the impaired security and recognizes any impairment loss in current operations. The amount of impairment loss of held-to-maturity security or non-marketable equity security is measured as the difference between the recoverable amount and the carrying amount. The recoverable amount of held-to maturity security is the present value of expected future cash flows discounted at the securities’ original effective interest rate. For available-for-sale debt or equity security, the amount of impairment loss to be recognized in the current period is determined by subtracting the amount of impairment loss of debt or equity security already recognized in prior period from the amount of amortized cost in excess of the recoverable amount for debt security or from the amount of acquisition cost in excess of fair value for equity security.

If the realizable value subsequently recovers, in case of a security stated at fair value, the increase in value in recorded in current operations, up to the amount of the previously recognized impairment loss, while security stated at amortized cost or acquisition cost, the increase in value is recorded in current operations, so that its recovered value does not exceed what its amortized cost would be as of the recovery date if there had been no impairment loss.

(3) Reclassification of Securities

When transfers of securities between categories are needed because of changes in an entity’s intention and ability to hold those securities, such transfer is accounted for as follows: trading securities cannot be reclassified into available-for-sale and held-to-maturity securities, and vice versa, except when certain trading securities lose their marketability. Available-for-sale securities and held-to-maturity securities can be reclassified into each other after fair value recognition. When held-to-maturity security is classified into available-for-sale security, the difference between fair value and book value is recorded as capital adjustments. Whereas, in case available-for-sale security is reclassified into held-to-maturity security, the difference is recorded as capital adjustments and amortized using effective interest rate method for the remaining periods.

Investment Securities Using the Equity Method

Equity securities held for investments in companies in which the Company is able to exercise significant influence over the investees are accounted for using the equity method. The Company’s share in net income or net loss of investees is reflected in current operations. Changes in the retained earnings, capital surplus or other capital accounts of investees are accounted for as an adjustment to retained earnings or to capital adjustments.

A-12

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property and Equipment

Property and equipment are stated at cost. Routine maintenance and repairs are expensed as incurred. Expenditures that result in enhancement of the value or extension of the useful lives of the facilities involved are capitalized as additions to property and equipment.

Depreciation is computed using the straight-line method based on the estimated useful lives of the assets as follows:

	Estimated useful lives
Buildings and structures	15~30 years
Machinery and equipment	8 years
Vehicles	4~8 years
Other	4~8 years

Capitalization of Financing Costs

Interest expense, discount and other financial charges, including certain foreign exchange translation gains and losses on borrowings associated with the manufacture, purchase, or construction of property and equipment, incurred prior to the completion of the acquisition, are capitalized until the year ended December 31, 2002, and are no longer capitalized from January 1, 2003 in compliance with SKAS No. 7. The amount of capitalized interest for the year ended December 31, 2002 was (Won)34,116 million.

Long-Lived Assets

Long-lived assets are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future net cash flows 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 by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Leases

Lease agreements that include a bargain purchase option, result in the transfer of ownership by the end of the lease term, have a term equal to at least 75% of the estimated economic life of the leased property or where the present value of the minimum lease payments at the beginning of the lease term equals or exceeds 90% of the fair value of the leased property are accounted for as capital leases. All other leases are accounted for as operating leases. Assets and liabilities related to capital leases are recorded as property, plant and equipment and long-term debt, respectively, and the related interest is calculated using the effective interest rate method. In respect to operating leases, the future minimum lease payments are expensed ratably over the lease term while contingent rentals are expensed as incurred.

A-13

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intangibles

Intangible assets are stated at cost, net of accumulated amortization computed using the straight-line method over the useful lives of the assets as described below.

	Estimated useful lives
Frequency use rights	13 years
Goodwill	5 years
Intellectual property rights	5~10 years
Facility use rights	10~20 years
Development costs	4~5 years
Other	5 years

Convertible bonds

Interest expense on convertible bonds is recognized using the effective interest rate, which equalizes the issued amount of bonds to the present value of the future cash outflow of bonds. Accordingly, the differences between accrued interest and interest paid are presented as an addition to the normal value of bonds in the long-term accrued interest account.

Discounts on Debentures

Discounts on debentures are amortized over the redemption period of the debentures using the effective interest rate method. Amortization of discounts is recognized as interest expense.

Accrued Severance Indemnities

All employees with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company, based on their length of service and rate of pay at the time of termination. The severance indemnities that would be payable assuming all eligible employees were to resign amount to (Won)33,897 million and (Won)31,604 million as of December 31, 2003 and 2002, respectively.

Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay (as defined) to the National Pension Fund in accordance with the National Pension Law of Korea. The Company paid half of the employees’ 6 percent portion and is paid back at the termination of service by offsetting the receivable against the severance payments. Such receivables, with a balance of (Won)1,157 million and (Won)932 million as of December 31, 2003 and 2002, respectively, are presented as deduction from accrued severance indemnities. Starting April 1999, the Company and its employees each pay 4.5 percent of monthly pay to the National Pension Fund under the revised National Pension Law of Korea.

Changes in accrued severance indemnities for the years ended December 31, 2003 and 2002 are as follows (won in millions):

	2003			2002
Beginning of year	(Won)	31,604		(Won)	25,792
Severance payments		(13,873	)		(9,487	)
		17,731			16,305
Provision		12,311			15,100
Increase due to merger		3,292			18
Increase from changes in consolidated subsidiaries		563			181
End of year	(Won)	33,897		(Won)	31,604

A-14

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting for Foreign Currency Transactions and Translation

The Company maintains its accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on the prevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies are recorded and reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet date and the translation gains or losses are reflected in current operations. The balances have been translated using the rate announced by the Bank of Korea basic rate, which was (Won)1,197.80 and (Won)1,200.40.10 to US$ 1.00 at December 31, 2003 and 2002, respectively.

Income Tax

The provision for income tax consists of the corporate income tax and resident surtax currently payable and changes in deferred income taxes for the period. The Company recognizes deferred taxes arising from temporary differences between amounts reported for financial accounting and income tax purposes. Deferred income taxes will be offset against those incurred in the future, if any. Deferred income taxes are recalculated based on the actual rate, effective at each balance sheet date.

Stock Compensation Expense

The Company records the difference between the present value of the exercise price and the stock price at the grant date as compensation expense with a corresponding credit to the capital adjustment account (using the fair value method). The computed deferred compensation expenses are allocated over the contracted vesting period. When the stock options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustment account and the par value of the new shares issued, is recorded as additional paid-in capital.

Basic and Diluted Ordinary Income Per Share and Earnings Per Share

Ordinary income per share and earnings per share are computed by dividing ordinary income (after deducting the income tax effect) and net income by the weighted average number of common shares outstanding during the period. The number of shares used in computing earnings and ordinary income per share is 187,405 thousand shares and 183,236 thousand shares for the years ended December 31, 2003 and 2002, respectively.

Diluted ordinary income per share and earnings per share are computed by dividing ordinary income (after deducting the income tax effect) and net income by the weighted average number of common shares outstanding, including the additional common share that would have been outstanding if the dilutive potential common shares had been issued during the period. The number of shares used in computing diluted earnings and ordinary income per share is 197,322 thousand shares and 184,108 thousand shares for the years ended December 31, 2003 and 2002, respectively. Diluted ordinary income and earnings are (Won)415,315 million and (Won)532,732 million for the years ended December 31, 2003 and 2002, respectively.

The dilutive potential shares as of December 31, 2003 are as follows:

	Exercise period	Number of common shares to be issued
Convertible bonds	November 29, 2003~November 29, 2005	9,946,236
Stock warrants	Until November 25, 2005	1,851,851
Stock options	March 29, 2004~March 29, 2009	18,000
”	March 25, 2005~March 25, 2010	44,800
”	September 9. 2005~September 8. 2010	629,500

A-15

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comparative Presentation

Certain amounts of prior year’s financial statements are reclassified to conform to the current year’s presentation. This reclassification does not affect the net income and net assets of the prior period.

3. SHORT-TERM AND LONG-TERM FINANCIAL INSTRUMENTS:

(1) Short-term financial instruments as of December 31, 2003 and 2002 are as follows (won in millions):

	2003		2002
Time deposits	(Won)	—	(Won)	535,000
Repurchase agreements		—		20,000
	(Won)	—	(Won)	555,000

(2) Long-term financial instruments as of December 31, 2003 and 2002 are as follows (won in millions):

	2003		2002
Deposits for checking accounts	(Won)	27	(Won)	36
Other		25		25
	(Won)	52	(Won)	61

4. RESTRICTED DEPOSITS:

As of December 31, 2003 and 2002, the deposits under long-term financial instruments amounting to (Won)52 million and (Won)61 million, respectively, are subject to withdrawal restriction as collateral for borrowings and guarantee of checking accounts.

5. DISPOSAL OF TRADE ACCOUNTS AND NOTES RECEIVABLE:

On November 4, 2003, the Company transferred the handset installment receivable of (Won)339,677 million and guarantee insurance and other incident rights to KTF Second Securitization Specialty Co., Ltd. As a result of this disposal, the Company received cash of (Won)312,000 million and subordinate debt securities of (Won)19,254 million, and the Company recognized a loss on disposal of trade accounts and notes receivable of (Won)8,423 million.

In addition, the Company entered in to a contract with Shinhan Bank Trust for the transfer of trade receivables as of October 31, 2003 and future trade receivables, which were expected to be incurred until February 28, 2007. On December 19, 2003, the Company transferred PCS service receivables of (Won)253,247 million and received cash of (Won)200,000 million and beneficiary certificates of (Won)53,247 million. As a result of the above transaction, the Company recognized a loss on disposal of trade and notes receivables of (Won)1,680 million. The Company subsequently transferred trade receivables of (Won)453,567 million won and additionally received (Won)46,667 million of beneficiary certificates.

6. LOANS TO EMPLOYEES:

As of December 31, 2003 and 2002, the Company has provided loans to its employees for housing and purchase of KT Freetel’s stock with the balance of (Won)1,697 million and (Won)2,237 million, respectively, in short-term loans and (Won)5,235 million and (Won)8,698 million, respectively, in long-term loans.

A-16

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7. SHORT-TERM INVESTMENT SECURITIES:

(1) Short-term investment securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003		2002
Trading securities:
Beneficiary certificates	(Won)	516	(Won)	404,397
Available-for-sale securities:
Listed equity securities		7,272		—
	(Won)	7,788	(Won)	404,397

(2) Trading securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003							2002
	Acquisition cost		Fair value		Loss on valuation			Fair value
Beneficiary certificates	(Won)	542	(Won)	516	(Won)	(26	)	(Won)	404

(3) Listed equity securities as of December 31, 2003 is as follows (won in millions):

	Acquisition cost		Fair value		Gain on valuation
Knowledge Power Plant, Inc.	(Won)	2,500	(Won)	7,272	4,772

The gain on valuation of the above listed equity securities is recorded in capital adjustments. As the realizable value has been recovered, the impairment loss of (Won)3,579 million charged to prior operation was reversed and recognized as current earnings within the limit of acquisition cost.

8. LONG-TERM INVESTMENT SECURITIES:

(1) Long-term investment securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003		2002
Available-for-sale securities:
Listed equity securities	(Won)	5,391	(Won)	7,076
Non-listed equity securities		8,500		11,296
Investments in funds		40,633		39,522
Debt securities		21,341		45,141
Held-to maturity securities:
Beneficiary certificates		99,914		—
	(Won)	175,779	(Won)	103,035

(2) Listed equity securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003							2002
	Acquisition cost		Fair value		Gain (loss) on valuation			Fair value
Wide Telecom Co.	(Won)	300	(Won)	24	(Won)	(276	)	(Won)	30
Dreamline Co.		—		—		—			369
Gaeasoft Co., Ltd.		533		913		380			2,184
KRTnet Corp.		1,953		4,454		2,501			4,493
	(Won)	2,786	(Won)	5,391	(Won)	2,605		(Won)	7,076

A-17

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The gain (loss) on valuation of the above listed equity securities is included in capital adjustments.

(3) Non-listed equity securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003							2002
	Ownership (%)	Acquisition cost		Net asset value		Book value		Book value
Mondex Korea Co., Ltd.	6.02		920		—		—	(Won)	101
Internet Metix Inc.	2.00		200		25		23		23
Geotel Co., Ltd.	10.55		263		264		263		225
Mobilians Co., Ltd.	16.55		385		1,036		385		385
Inews24. Co., Ltd.	3.58		350		—		—		—
ENtoB Corp.	3.13		500		343		500		500
The Radio News Co., Ltd.	10.73		624		—		—		—
Korea Information & Communications, Inc.	—		—		—		—		32
Prime Venture Capital Co.	10.00		1,000		411		1,000		1,000
Onse Telecom Corp.	0.38		2,148		334		105		2,148
NAZCA Entertainment Co., Ltd.	11.74		500		51		46		46
Toysoft Co., Ltd	8.78		500		91		80		80
Knowledge Power Plant, Inc.	—		—		—		—		1,421
Ohmylove Co., Ltd.	12.06		1,200		213		1,200		1,200
Vacom Wireless, Inc.	16.77		1,880		955		1,880		1,880
Others	—		3,239		4,040		3,018		2,255
		(Won)	13,709	(Won)	7,763	(Won)	8,500	(Won)	11,296

In 2003, the Company recognized an additional impairment loss of (Won)2,280 million on non-listed equity securities of Onse Telecom Corp. and other companies for which the net equity value had declined compared to the acquisition cost and it is not expected to recover.

(4) Investments in funds as of December 31, 2003 and 2002 are as follows (won in millions):

	2003					2002
	Ownership (%)	Acquisition cost		Net asset value		Ownership (%)	Acquisition cost		Net asset value
CEC Mobile Ltd.	16.67	(Won)	4,456	(Won)	4,456	16.67	(Won)	4,456	(Won)	4,456
PT. KTF Indonesia	99.00		234		234	—		—		—
Korea IT Fund	10.00		30,000		30,000	10.00		30,000		30,000
Korea Telecom Strategy Fund	10.00		2,000		2,000	10.00		2,000		2,000
KT Freetel Internal Venture	95.00		950		950	95.00		950		950
Others	—		2,993		2,993	—		2,116		2,116
		(Won)	40,633	(Won)	40,633		(Won)	39,522	(Won)	39,522

PT. KTF Indonesia is not subject to the equity method in accordance with the interpretation 42-59 of the financial accounting standards in Korea.

A-18

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5) Debt securities as of December 31, 2003 and 2002 are as follows (won in millions):

	2003				2002
	Acquisition cost		Book value		Acquisition cost		Book value
KTF First Securitization Specialty Co., Ltd.	(Won)	—	(Won)	—	(Won)	43,430	(Won)	43,430
KTF Second Securitization Specialty Co., Ltd.		19,254		19,254		—		—
Government bonds		1,587		1,587		1,211		1,211
Convertible bonds		500		500		500		500
	(Won)	21,341	(Won)	21,341	(Won)	45,141	(Won)	45,141

(6) Maturities of debt securities as of December 31, 2003 are as follows (won in millions):

	2-5 years		6-10 years
KTF Second Securitization Specialty Co., Ltd.	(Won)	19,254	(Won)	—
Government bonds		1,565		22
Convertible bonds		500		—
	(Won)	21,319	(Won)	22

(7) Held-to-maturity securities as of December 31, 2003 are as follows (won in millions):

	Acquisition cost		Book value
Beneficiary certificates	(Won)	99,914	(Won)	99,914

The Company acquired the above beneficiary certificates issued by Shinhan Bank Trust in relation to the disposal of trade accounts and notes receivable (Note 5). The Company believes that the difference between fair value and acquisition cost, which may arise from the uncollectibility of the trade accounts and notes receivable, will not have a material effect on the operations or financial positions of the Company.

9. INVESTMENT SECURITIES USING THE EQUITY METHOD:

(1) Investment securities using the equity method as of December 31, 2003 and 2002 are as follows (won in millions):

	Ownership (%)	2003		2002
		Acquisition cost	Book value	Acquisition cost	Book value
Korea Digital Satellite Broadcasting Co., Ltd.	2.38	9,954	3,178	10,033	6,607

(2) Details of valuation using the equity method for the year ended December 31, 2003 are as follows (won in millions):

	Beginning of year	Loss on valuation		Other changes	End of year
Korea Digital Satellite Broadcasting Co., Ltd.	6,607	(5,782	)	2,353	3,178

A-19

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. PROPERTY AND EQUIPMENT:

Changes in property and equipment for the year ended December 31, 2003 are as follows (won in millions):

	Beginning of year		Increase				Decrease				Changes in consolidated subsidiaries			End of year
			Acquisition		Other		Disposal		Other
Land	(Won)	124,401	(Won)	2,388	(Won)	—	(Won)	4,077	(Won)	—	(Won)	—		(Won)	122,712
Buildings and structures		284,979		25,484		479		8,128		—		29			302,843
Machinery and equipment		5,563,211		465,831		351,079		134,058		243		14,543			6,260,364
Vehicles		10,099		295		501		506		—		1,334			11,723
Other		461,027		111,869		20,806		10,072		1,802		113			581,363
Construction in progress		514,108		329,480		—		130,306		370,820		12,206			354,668
	(Won)	6,957,248	(Won)	935,347	(Won)	372,865	(Won)	287,147	(Won)	372,865	(Won)	28,225		(Won)	7,633,673
	Beginning of year		Increase				Decrease				Changes in consolidated subsidiaries			End of year
			Depreciation		Other		Disposal		Other
Less: Accumulated depreciation
Buildings and structures	(Won)	39,232	(Won)	10,079	(Won)	4	(Won)	1,656	(Won)	—	(Won)	—		(Won)	47,659
Machinery and equipment		1,910,743		726,207		10,963		70,701		9,721		(697	)		2,566,794
Vehicles		4,576		1,786		—		304		—		(71	)		5,987
Other		231,521		101,358		—		5,519		162		(706	)		326,492
Accumulated impairment loss		577		—		250		—		—		—			827
		2,186,649		839,430		11,217		78,180		11,096		(1,474	)		2,947,759
	(Won)	4,771,176												(Won)	4,685,914

The market value of the Company’s land based on the official price of land (published by Ministry of Construction and Traffic) is (Won)94,517 million as of December 31, 2003.

Depreciable assets are insured against fire and other casualty losses up to (Won)368,244 million as of December 31, 2003.

A-20

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. INTANGIBLES:

(1) Changes in intangibles for the year ended December 31, 2003 are as follows (won in millions):

	Beginning of year			Increase				Decrease					Changes in consolidated subsidiaries			End of year
				Acquisition		Other		Amortization			Other
Goodwill	(Won)	1,951		(Won)	12,798	(Won)	—	(Won)	1,608		(Won)	—	(Won)	—		(Won)	13,141
Intellectual property rights		1,038			608		—		311			1		—			1,334
Facility use rights		9,832			814		—		1,044			2,070		—			7,532
Frequency use rights		1,208,854			7,369		—		7,794			—		—			1,208,429
Development costs		4,639			12,535		—		4,193			3,254		(4,314	)		5,593
Organization cost		3,645			—		—		—			3,645		—			—
Other		1,655			6,707		—		1,528			640		—			6,194
Negative goodwill		(3,258	)		—		—		(668	)		—		—			(2,590	)
	(Won)	1,228,356		(Won)	40,831	(Won)	—	(Won)	15,810		(Won)	9,610	(Won)	(4,314	)	(Won)	1,239,633

(2) (Won)18,325 million and (Won)19,991 million of ordinary development costs were charged to expense for the years ended December 31, 2003 and 2002, respectively.

(3) On December 15, 2000, KT ICOM acquired the license to provide third generation mobile services utilizing 2Ghz frequency band (“IMT-2000 service”) with W-CDMA technology. KT ICOM paid (Won)650 billion of the total license fee of (Won)1,300 billion on March 20, 2001 and the remaining balance was required to be paid including interest for the period from 2007 to 2011. On December 4, 2001, MIC granted the license to KT ICOM and assigned the related frequency band, giving KT ICOM the right to provide IMT-2000 services using W-CDMA technology for 15 years from that date.

On March 6, 2003, KT ICOM was merged into the Company, and the Company started to provide IMT-2000 service on December 28, 2003.

12. LEASED ASSETS:

(1) The Company maintains operating lease agreements for certain machinery and equipment. The following are the future minimum rental payments under operating leases as of December 31, 2003 (won in millions):

Year	Operating lease payment
2004	(Won)	89,227
2005		47,347
2006		46,567
	(Won)	183,141

(2) The Company also has capital lease agreements for certain machinery and equipment, of which acquisition cost amounts to (Won)3,145 million. Depreciation on the machinery and equipment for the year ended December 31, 2003 amounted to (Won)295 million.

A-21

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Annual future payments on the foreign currency lease agreements as of December 31, 2003 are as follows (Korean won in millions and U.S dollars in thousands):

	Lease obligations						Interest				Lease payment
Year	U.S dollars			Won equivalent			U.S dollars		Won equivalent		U.S dollars		Won equivalent
2004	US$	447		(Won)	535		US$	2	(Won)	3	US$	449	(Won)	538
Less: Current portion		(447	)		(535	)
	US$	—		(Won)	—

13. BORROWINGS:

(1) Short-term borrowings as of December 31, 2003 and 2002 are as follows (won in millions, JPY in millions, U.S dollars in thousands):

	Interest rate per annum (%)	2003			2002
	2003
General loans	4.55	(Won)	60,000		(Won)	100,000
Discounted promissory notes	4.96~5.95		213,000			459,411
Usance	0.60~1.80		10,185			—
		US$	(8,503	)
	0.60~1.80		10,154			—
		JPY	(907	)
		(Won)	293,339		(Won)	559,411

(2) Long-term debt as of December 31, 2003 and 2002 are as follows (won in millions, U.S dollars in thousands):

	Interest rate per annum (%)	2003			2002
	2003
Long-term debt in local currency:
Facility loans	—	(Won)	—		(Won)	533
General loans	5.64		50,000			300,813
			50,000			301,346
Less: Current portion			(50,000	)		(201,346	)
			—			100,000
Long-term debt in foreign currency:
General loans	—		—			14,165
					US$	(11,800	)
Less: Current portion			—			(14,165	)
			—			—
		(Won)	—		(Won)	100,000

A-22

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

14. DEBENTURES:

(1) Debentures as of December 31, 2003 and 2002 are as follows (won in millions):

	Interest rate per annum (%)	2003			2002
	2003
General debentures	2.64-9.00	(Won)	2,213,666		(Won)	2,766,094
Convertible bonds	1.00		375,080			375,080
			2,588,746			3,141,174
Less: Current portion			(1,005,274	)		(580,000	)
Discount on debentures			(11,608	)		(39,157	)
Add: Long-term accrued interest			8,089			833
		(Won)	1,579,953		(Won)	2,522,850

(2) General debentures as of December 31, 2003 and 2002 are as follows (won in millions, JPY in millions):

	Due date	Interest rate per annum (%)	2003			2002
		2003
19th	Nov. 6, 2003	8.00	(Won)	—		(Won)	250,000
20th	Feb. 9, 2006	6.00		300,000			300,000
21st	Mar. 19, 2004	6.00		400,000			400,000
22nd	Apr. 18, 2004	2.70		104,994			94,014
			JPY	(9,390	)	JPY	(9,390	)
23rd	Apr. 20, 2006	3.13		52,492			47,003
			JPY	(4,695	)	JPY	(4,695	)
28th	Apr. 8, 2004	7.00		200,000			200,000
31st	May 9, 2003	9.00		—			50,000
32nd	July 3, 2003	8.00		—			70,000
33rd	July 18, 2003	8.00		—			110,000
34th	Aug. 25, 2003	8.00		—			100,000
37th	May 24, 2005	2.64		106,180			95,077
			JPY	(9,497	)	JPY	(9,497	)
38th	July 16,2004	6.00		300,000			300,000
40th	Feb. 18, 2005	6.00		350,000			350,000
41st	Aug. 26, 2005	5.92		200,000			200,000
42nd	Nov. 14, 2007	5.94		200,000			200,000
			(Won)	2,213,666		(Won)	2,766,094
			JPY	(23,583	)	JPY	(23,583	)

Discounts on debentures are amortized over the period from the issue date to due date, using effective interest rate, and the amortized amounts are charged as interest expense.

A-23

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3) Convertible bonds as of December 31, 2003 are as follows (won in millions):

	Due date	Interest rate per annum (%)		Conversion price	Amount
		Coupon	Guaranteed
2nd	Jun. 30, 2004	1.00	3.00	5,000	280
3rd	Sep. 11, 2005	—	11.00	40,000	4,800
43rd	Nov. 29, 2005	—	9.00	37,200	370,000
					375,080

For the bonds not converted, the Company will redeem them with a premium calculated by applying the compound interest rate method to the difference between the guaranteed interest rate and the coupon interest rate. In relation to these convertible bonds, the Company recorded (Won)8,089 million as long term accrued interest, which is shown as addition to debentures, as of December 31, 2003.

(4) Payment schedules for the Company’s debentures as of December 31, 2003 are as follows (won in millions):

Year	Amount
2004	(Won)	1,005,274
2005		1,030,980
2006		352,492
2007		200,000
	(Won)	2,588,746

15. LONG-TERM ACCOUNTS PAYABLE-OTHER:

Long-term account payable-other is related to frequency use right and required to be paid including applicable interest from 2007 to 2011.

Long-term accounts payable-other as of December 31, 2003 is stated at the net present value of future cash flows, calculated using the effective interest rate (9.93%) at the time of receipt of frequency use license as follows (won in millions):

	Amount
Long-term account payable-other	(Won)	650,000
Discount		(131,239	)
	(Won)	518,761

A-24

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The maturities of the Company’s long-term account payable-other as of December 31, 2003 are as follows (won in millions):

Year	Amount
2007	(Won)	90,000
2008		110,000
2009		130,000
2010		150,000
2011		170,000
	(Won)	650,000

16. SHAREHOLDERS’ EQUITY:

(1) Capital stock

The Company has authorized 400,000,000 shares of (Won)5,000 par value common stock and issued 191,140,519 shares as of December 31, 2003.

(2) Treasury stock

In 2003, the Company contributed 132,864 shares of treasury stock to Employee Stock Ownership Plan (“ESOP”). The fair value of treasury stock of (Won)2,969 million is recorded as salaries and wages, and the difference between the acquisition cost and the fair value amounting to (Won)1,535 million is recorded as capital adjustments. As of December 31, 2003, the Company holds 2,966,741 shares of treasury stock and intends to dispose of the treasury stock in near future.

(3) Stock Option Plan

The Company entered into stock option agreements with the Chief Executive Officer and senior managers. The details of the stock options granted as of December 31, 2003 are as follows (won in millions):

Grant date	Employee	Number of shares	Exercise price/share		Methods	Exercise period
2001. 3.29	Former CEO	18,000	(Won)	41,273	New stock issue	2004.3.29~2009.3.28
2002. 3.25	Senior managers	44,800		45,178	New stock issue	2005.3.25~2010.3.24
2003. 9. 8	CEO, Senior managers, outside directors	629,500		30,000	New stock issue, treasury stock, compensation of difference	2005.9.9~2010.9.8

The Company values stock options granted based on the fair value method (see Note 2). Total compensation expense of (Won)7,428 million was allocated over the vesting period, and the compensation expense charged to operations for the year ended December 31, 2003 is (Won)1,591 million.

(4) Dividends

The Company is scheduled to pay cash dividends of (Won)94,137 million for the 188,274 thousand outstanding shares at (Won)500 dividend per share and the dividend pay out ratio (Dividend / Net income) is 23.1% in 2003.

A-25

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. INCOME TAX AND DEFERRED INCOME TAXES:

(1) The statutory corporate income tax rate (including resident surtax) applicable to the Company is approximately 29.7 percent and 30.8 percent in 2003 and 2002, respectively. Income tax expense for the years ended December 31, 2003 and 2002 is as follows (won in millions):

	2003			2002
Income before income tax	(Won)	455,656		(Won)	612,443
Adjustments:
Permanent differences		16,624			8,163
Temporary differences, net		46,499			(5,949	)
		63,123			2,214
Taxable income before tax loss carryforward		518,779			614,657
Tax loss carryforward		(135,600	)		(150,653	)
Taxable income		383,179			464,004
Tax rate (%)		29.7			29.7
Tax calculated on taxable income		113,804			137,809
Tax credit		(42,485	)		(55,505	)
Income tax currently payable		71,319			82,304
Foreign income tax		35			—
Decrease (Increase) in deferred income taxes:
Temporary differences		(12,978	)		1,767
Utilization of accumulated tax losses carried forward		—			5,518
Utilization of accumulated tax credit carried forward		(7,674	)		(9,309	)
Income tax expense	(Won)	50,702		(Won)	80,280

(2) The changes in deferred income taxes for the years ended December 31, 2003 and 2002 are as follows (won in millions):

	2003			2002
Beginning of year	(Won)	68,508		(Won)	75,657
Increase		37,261			9,309
Decrease		—			(7,285	)
Decrease from changes in consolidated subsidiaries		(8,305	)		(9,173	)
End of year	(Won)	97,464		(Won)	68,508

A-26

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

18. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:

As of December 31, 2003 and 2002, assets and liabilities denominated in foreign currencies, other than the lease obligations under capital lease, long-term debt and debentures in foreign currencies described in Notes 12, 13 and 14, are as follows (foreign currencies other than U.S. dollars are translated into U.S. dollars; Korean won in millions):

	2003				2002
Account	U.S. dollars		Won equivalent		U.S. dollars		Won equivalent
Cash and cash equivalents	$	163	(Won)	195	$	398	(Won)	477
Trade accounts and notes receivable		1,447		1,733		—		—
Long-term loans		1,450		1,737		—		—
Trade accounts and notes payable		6,623		7,933		—		—
Accounts payable—other		3,019		3,616		2,343		2,813

19. OPERATING REVENUE AND EXPENSES:

(1) Operating revenue for the years ended December 31, 2003 and 2002 consist of the following (won in millions):

	2003		2002
PCS service	(Won)	4,246,131	(Won)	4,208,409
Sales of PCS handsets		877,481		1,111,619
	(Won)	5,123,612	(Won)	5,320,028

(2) Operating expenses for the years ended December 31, 2003 and 2002 are summarized below (won in millions).

	2003		2002
Salaries and wages	(Won)	146,271	(Won)	133,695
Provision for severance indemnities		12,257		15,100
Employee welfare		27,041		23,686
Rent		100,925		80,885
Lease		40,839		50,383
Commissions		424,255		353,628
Depreciation		838,747		723,667
Amortization		15,288		1,832
Tax and dues		47,887		41,451
Interconnection charges		464,264		462,117
Leased line charges		355,936		367,800
Ordinary development costs		13,146		19,991
Sales promotion		131,394		173,646
Sales commissions		457,760		553,015
Advertisements		123,842		144,938
Bad debt		52,488		23,555
Water and electricity		43,980		39,521
Communications		29,397		28,125
Repairs and maintenance		59,373		71,597
Cost of PCS handset sales		881,678		1,102,273
Other		75,192		64,932
	(Won)	4,341,960	(Won)	4,475,837

A-27

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

20. RELATED PARTY TRANSACTIONS:

(1) Transactions with related parties for the years ended December 31, 2003 and 2002 are as follows (won in millions):

Revenues:

	Transaction	2003		2002
KT Corporation	Interconnection charges and others	(Won)	599,176	(Won)	549,493
KT Solutions	Interconnection charges and others		9,683		5,671
KT Hitel	”		—		25
Others	”		775		511
		(Won)	609,634	(Won)	555,700

Expenses:

	Transaction	2003		2002
KT Corporation	Leased line charges and others	(Won)	475,648	(Won)	1,270,716
KT Solutions	Interconnection charges and others		2,437		261
KT Hitel	”		280		539
Others	”		3,591		1,196
		(Won)	481,956	(Won)	1,272,712

(2) Receivables and payables with related parties as of December 31, 2003 and 2002 are as follows (won in millions):

	Receivables				Payables
	2003		2002		2003		2002
KT Corporation	(Won)	160,042	(Won)	161,002	(Won)	354,893	(Won)	325,405
KT Solutions		150		—		201		17
KT Hitel		—		—		28		20
Others		17		6		1,323		—
	(Won)	160,209	(Won)	161,008	(Won)	356,445	(Won)	325,442

A-28

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

21. COMMITMENTS:

The Company has entered into an agreement covering the resale of PCS with KT Corporation. As compensation for providing telecommunications network, the Company receives certain amount by multiplying outgoing call generated from KT Corporation’s subscribers by rate per minute.

22. SEGMENT INFORMATION:

The Company’s reportable segments are separate legal entities that offer different products and services. The segments are managed separately based on the difference in products and services. The Company has three reportable operating segments: PCS service, IMT 2000 service and sales of PCS handsets. The accounting policies of the segments are the same as those described in Note 2.

Details of the Company’s business segment operations for the years ended December 31, 2003 and 2002 are as follows (won in millions):

2003	PCS service		IMT 2000 service		Manufacturing of PCS handsets			Total
Operating revenue	(Won)	5,076,526	(Won)	—	(Won)	47,086		(Won)	5,123,612
Operating income (loss)		782,231		—		(579	)		781,652
Ordinary income		459,084		—		(3,428	)		455,656
Depreciation		837,971		—		1,459			839,430
Property and equipment, net(*)		4,272,653		49,714		8,879			4,331,246
2002	PCS service		IMT 2000 service		Manufacturing of PCS handsets			Total
Operating revenue	(Won)	5,320,028	(Won)	—	(Won)	—		(Won)	5,320,028
Operating income		844,191		—		—			844,191
Ordinary income		612,443		—		—			612,443
Depreciation		723,667		—		—			723,667
Property and equipment, net(*)		4,241,471		11,732		3,865			4,257,068

(*) construction in progresses is not included.

23. EVENT OCCURRING AFTER BALANCE SHEET DATES:

On February 19 and March 15, 2004, the Company issued debentures amounting to (Won)360,000 million and (Won)320,000 million, respectively.

24. MERGER:

Effective March 6, 2003, KT ICOM, a former affiliate, was merged into the Company. The overview of the merger is as follows:

(1) Relation of two companies

Prior to the merger, both KT ICOM and the Company were subsidiaries of KT Corporation.

(2) Schedule of merger

The merger was approved at the general meeting of shareholders on January 28, 2003. The effective date of the merger was March 6, 2003.

A-29

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3) Exchange rate of stocks

0.55636 share of the Company was issued in exchange for one share of KTI COM, and KT ICOM had 100,000,000 issued shares of (Won)5,000 par value at the time of the merger. Newly issued shares to KT ICOM shareholders were 7,082,476 common shares.

(4) Result of merger

Assets, liabilities and treasury stock transferred from KT ICOM to the Company at book value as shown on the consolidated financial statements of the parent company were (Won)2,458,989 million, (Won)707,162 million and (Won)66,777 million, respectively.

As a result of the merger, the investment securities of KT ICOM accounted for using the equity method of (Won)1,590,360 million were eliminated. The capital stock with a par value of (Won)35,412 million won was issued to KT ICOM’s shareholders and the value of net assets transferred was (Won)1,818,604 million. The difference between the carrying value of the investment securities and the value of net assets transferred amounting to (Won)228,244 million, less capital stock issued with a par value of (Won)35,412 million and the issuance cost of (Won)177 million, was recorded as paid-in capital in excess of par value.

(5) Summarized financial statements of KT ICOM are as follows (won in millions):

Summarized Balance Sheets

	2003.3.5			2002.12.31
Current assets	(Won)	1,080,950		(Won)	1,114,766
Non-current assets		1,378,039			1,349,660
Total assets	(Won)	2,458,989		(Won)	2,464,426
Current liabilities	(Won)	196,745		(Won)	130,625
Long-term liabilities		510,417			515,619
Total liabilities		707,162			646,244
Capital stock		500,000			500,000
Capital surplus		1,300,000			1,300,000
Accumulated retained earnings		18,604			18,182
Capital adjustments		(66,777	)		—
Total shareholders’ equity		1,751,827			1,818,182
Total liabilities and shareholders equity	(Won)	2,458,989		(Won)	2,464,426

A-30

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Summarized Statements of Income

	2003.1.1-2003.3.5			2002.1.1-2002.12.31
Operating revenue	(Won)	—		(Won)	—
Operating expenses		14,570			61,303
Operating loss		(14,570	)		(61,303	)
Other income		10,571			60,058
Ordinary loss		(3,999	)		(1,245	)
Extraordinary items		—			—
Loss before income tax expense		(3,999	)		(1,245	)
Income tax benefits		(8,038	)		(359	)
Net income (loss)	(Won)	4,039		(Won)	(886	)

25. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES:

Accounting practices used by the Company in preparing the accompanying financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant differences applicable to the Company are described below. Other differences do not have a significant effect on either net income or shareholders’ equity.

(1) Capitalization of foreign currency translation gain (loss)

Under previous Korean GAAP, certain unrealized foreign exchange translation gains and losses were excluded from the results of operations and included in the cost of property and equipment. However, under U.S. GAAP, all unrealized foreign currency translation gains and losses on monetary assets and liabilities are to be included in the current year’s results of operations.

The amounts of foreign exchange translation gains and losses included in property and equipment under Korean GAAP were adjusted to comply with U.S. GAAP.

(2) Interest Capitalization

As explained in Note 2, under Korean GAAP, starting from January 1, 2003, interest expense is no longer capitalized. However, under U.S. GAAP, the Company’s policy is to capitalize interest 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 uses.

(3) Licensing Cost

Under Korean GAAP, the licensing cost paid with funds collected from the initial shareholders to obtain the operating licenses prior to the establishment of the Company were not recorded in the accounts of the Company.

Under U.S. GAAP, licensing costs were accounted for as an intangible asset and capital surplus at the time of establishment of the Company.

A-31

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(4) Deferred Charges

Deferred charges in intangibles consist primarily of development costs and organization costs, which are deferred under Korean GAAP.

Under U.S. GAAP, development costs and organization costs are charged to expenses when incurred and are classified as operating expenses.

(5) Revenue Recognition

Under Korean GAAP, activation fees are recorded as revenue when billed and the related direct incremental acquisition costs are expensed as incurred.

Under U.S. GAAP, such amount should be deferred and recognized over the period of the customer relationship.

(6) Merger with KTM.Com Co., Ltd.

Under Korean GAAP, as KT Freetel and KTM.Com Co., Ltd. were subsidiaries of KT Corporation prior to merger, assets and liabilities were transferred from KTM.Com Co., Ltd. to KT Freetel at book value as shown in the consolidated statements of KT Corporation and the difference between the par value of capital stock issued and the value of net assets transferred was recorded in the capital surplus account.

Under U.S. GAAP, assets and liabilities were transferred from KTM.Com Co., Ltd. to KT Freetel at fair value and the difference between the fair value of capital stock issued and the fair value of net assets transferred was recorded as intangible assets.

The Company classified the intangible assets into two components: subscriber base and goodwill.

(7) Merger with KT ICOM

Under Korean GAAP, as KT Freetel and KT ICOM were subsidiaries of KT Corporation prior to merger, assets and liabilities were transferred from KT ICOM to KT Freetel at book value as shown on the consolidated statements of KT Corporation and the difference between the par value of capital stock issued and the value of net assets transferred was recorded in the capital surplus account.

Under U.S. GAAP, assets and liabilities were transferred from KT ICOM to KT Freetel at fair value. As the fair value of net assets transferred exceed the fair value of capital stock issued, the non-current assets are reduced proportionally.

(8) Goodwill and other intangibles

Under Korean GAAP, the purchase price over the fair value of net assets being acquired was recorded as goodwill and it is amortized over 20 years. An impairment loss is recognized when the carrying amount of goodwill exceeds the fair value.

Under U.S. GAAP, SFAS No. 142—“Goodwill and Intangible Assets”, intangible assets with finite lives continue to be amortized over their useful economic lives. Goodwill and intangible assets with indefinite lives are not amortized, but tested for impairment, at least annually, in accordance with SFAS No.142.

A-32

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with SFAS No. 142, the goodwill and intangibles acquired from KTM.Com and KT ICOM and amortization expense for the years ended December 31, 2003 and 2002 are as follows (won in millions):

		Initial amounts		Amortization expense
				2003		2002
KTM .Com	Goodwill	(Won)	558,505	(Won)	—	(Won)	—
	Subscriber base		605,563		—		126,159
	License cost		83,875		—		—
KT ICOM	Frequency use right		1,209,883		7,753		—

(9) Disposal of trade accounts and notes receivable

Under Korea GAAP, the transactions between KT Freetel and KTF First Securitization Specialty Co., Ltd., between KT Freetel and KTF Second Securitization Specialty Co., Ltd. and between KT Freetel and Shinhan Bank Trust are recorded as a sale of trade accounts and notes receivable. Under U.S. GAAP, the transaction does not qualify for sale accounting and transaction is classified as a borrowing.

(10) Minority Interest in Consolidated Subsidiary

Under Korean GAAP, minority interest in consolidated subsidiary is presented as a component of shareholders’ equity in the consolidated balance sheets. Under U.S. GAAP, minority interest in consolidated subsidiary is not included in shareholders’ equity; rather, it is presented between liability and shareholders’ equity in the consolidated balance sheets.

(11) Comprehensive Income

Under the Korean GAAP, there is no requirement to present comprehensive income. Under U.S. GAAP, effective for fiscal years beginning after December 15, 1997, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in shareholders’ equity during a period except those resulting from investment by, or distribution to, owners, including certain items not included in the current year’s results of operations.

Comprehensive income for the years ended December 31, 2003 and 2002 is summarized as follows:

	Korean Won
	2003		2002
	(In millions)
Net income as adjusted in accordance with U.S. GAAP	(Won)	332,756	(Won)	460,679
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments, net of tax of (Won)1,540 million in 2003 and (Won)745 million in 2002		3,646		1,762
Comprehensive income as adjusted in accordance with U.S. GAAP	(Won)	336,402	(Won)	462,441

A-33

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(12) Effect on Net Earnings and Shareholders’ Equity

The effects of the significant adjustments to net earnings and shareholders’ equity that are required if U.S. GAAP were applied instead of Korean GAAP are summarized as follows (won in millions, except for share amounts):

	2003			2002
Net income under Korean GAAP	(Won)	406,029		(Won)	532,163
Adjustments:
(1) Capitalization of foreign currency translation gain (loss), net		820			1,278
(2) Interest capitalization		75,867			4,398
(4) Deferred charges		(3,210	)		248
(5) Revenue recognition		4,150			4,482
(7) Merger with KT ICOM		240			—
(8) Amortization of goodwill		(162,204	)		(126,159	)
(9) Disposal of trade accounts and notes receivable		(7,357	)		14,068
Deferred tax effect of U.S. GAAP adjustments		18,421			30,201
		(73,273	)		(71,484	)
Adjusted net income under U.S. GAAP	(Won)	332,756		(Won)	460,679
Basic earnings per share	(Won)	1,776		(Won)	2,514
	2003			2002
Shareholders’ equity under Korean GAAP	(Won)	3,143,038		(Won)	2,800,306
Adjustments:
(1) Capitalization of foreign currency translation gain (loss), net		(2,246	)		(3,066	)
(2) Interest capitalization		57,386			(18,480	)
(3) Licensing cost		(31,167	)		(31,167	)
(4) Deferred charges		(3,210	)		—
(5) Revenue recognition		(1,743	)		(5,894	)
(6) Merger with KTM.Com		793,800			956,004
(7) Merge with KT ICOM		(37,249	)		3,265
(9) Disposal of trade accounts and notes receivable		6,711			14,068
(10) Minority interest in consolidated subsidiaries		(3,300	)		(235,842	)
Deferred tax effect of U.S. GAAP adjustments		(161,127	)		(190,681	)
		617,855			488,207
Shareholders’ equity under U.S. GAAP	(Won)	3,760,893		(Won)	3,288,513

A-34

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The condensed balance sheets in accordance with U.S. GAAP as of December 31, 2003 and 2002 are summarized as follows (won in millions):

	2003		2002
Assets:
Current assets	(Won)	1,770,935	(Won)	2,990,290
Property and equipment		4,710,105		4,749,629
Intangible assets		2,127,992		2,291,617
Other assets		358,894		346,869
	(Won)	8,967,926	(Won)	10,378,405
Liabilities:
Current liabilities	(Won)	2,604,848	(Won)	3,384,910
Long-term liabilities		2,600,613		3,469,140
		5,205,461		6,854,050
Minority interest in consolidated subsidiaries		1,572		235,842
Shareholders’ equity		3,760,893		3,288,513
	(Won)	8,967,926	(Won)	10,378,405

A-35

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of

KT Freetel Co., Ltd.:

We have audited the accompanying consolidated balance sheets of KT Freetel Co., Ltd. and its subsidiaries (collectively referred to as the “Company”) as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholder’s equity and cash flows for the 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. We did not audit the financial statements of KT ICOM Co., Ltd. (“KT ICOM”), which statements reflect 23 percent of the total consolidated assets as of December 31, 2002. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for KT ICOM is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of 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, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years then ended in conformity with financial accounting standards in the Republic of Korea.

The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the convenience of the reader, on the basis set forth in Note 2.

As discussed in Note 1, on December 13, 2002, the Company acquired shares of KT ICOM from the following related parties: 700 thousand shares from KT Hitel, 300 thousand shares from KT Powertel and 46,585 thousand shares from KT Corporation all at (Won) 18,227 per share. The Company also acquired 24,685 shares of KT ICOM from a third party for the same price. For the acquisition of KT ICOM’s shares from KT Corporation, the Company paid cash of (Won) 540,000 million and gave a note for (Won) 309,103 million, due in March 2003. The Company paid cash to the third party, KT Hitel and KT Powertel. On November 30, 2002, KT Freetel Co., Ltd. exercised the conversion right of convertible bonds at (Won) 5 thousand per share to acquire an additional 400,000 shares of common stock of KTF Technologies Co., Ltd (“KTF Technologies”). The assets and liabilities and results of operations of KT ICOM and KTF Technologies are included in the consolidated balance sheet as of December 31, 2002. The results of operations of KT ICOM from the acquisition date to December 31, 2002 are excluded from the consolidated statement of income for the year ended December 31, 2002 since they do not have a significant effect on the Company’s consolidated results of operations.

As discussed in Note 22, on January 28, 2003, the Board of Directors approved the merger with KT ICOM. The transaction is deemed to be a “small-scale merger” as defined in the Commercial Code of the Republic of Korea, which states that the total number of new shares to be issued by the acquiring company does not exceed 5 percent of the total issued shares of the acquiring company. In accordance with the Commercial Code of the Republic of Korea, the approval by the general shareholders of the Company may be replaced by the approval of the board of directors of the Company. The exchange ratio of common shares between the Company and KT ICOM is 1 to 0.55636. The merger was completed on March 6, 2003.

B-1

Accounting practices used by the Company in preparing the accompanying financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with generally accepted accounting principles in the United States of America. The description of the significant differences and the reconciliation of net loss and shareholders’ equity to U.S. generally accepted accounting principles are set forth in Note 23.

Anjin Deloitte LLC

Seoul, Korea

March 7, 2003

B-2

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2002 AND 2001

	Korean Won				Translation into U.S. Dollars (Note 2)
	2002		2001		2002		2001
	(In millions)				(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 16)	(Won)	147,555	(Won)	52,362	$	124,383	$	44,139
Short-term financial instruments (Notes 3 and 4)		555,000		2,500		467,841		2,107
Marketable securities (Note 5)		404,397		—		340,889		—
Trade accounts and notes receivable, net of allowance for doubtful accounts of (Won)160,212 million in 2002 and (Won)172,927 million in 2001 (Notes 2, 18 and 20)		1,024,031		1,189,393		863,214		1,002,607
Accounts receivable-other, net of allowance for doubtful accounts of (Won)3,405 million in 2002 and (Won)3,386 million in 2001 (Notes 2 and 18)		62,206		193,560		52,437		163,163
Prepaid expenses		20,003		17,394		16,862		14,662
Inventories		149,728		58,159		126,214		49,026
Short-term loans (Note 6)		5,550		20,774		4,678		17,512
Other current assets		69,681		13,097		58,739		11,040
		2,438,151		1,547,239		2,055,257		1,304,256
NON-CURRENT ASSETS:
Long-term financial instruments (Notes 3 and 4)		61		75		51		63
Investment securities (Note 7)		109,642		309,498		92,424		260,894
Long-term loans (Note 6)		45,768		27,846		38,580		23,473
Guarantee deposits, net of allowance for doubtful accounts of (Won)4,989 million in 2002 and (Won)4,719 in 2001		227,984		212,407		192,181		179,050
Deferred income tax assets (Note 15)		68,508		75,657		57,749		63,776
Property and equipment, net (Notes 8 and 10)		4,771,176		4,307,778		4,021,897		3,631,272
Intangibles (Note 9)		1,228,356		9,373		1,035,451		7,901
Other non-current assets		6,844		6,519		5,769		5,495
		6,458,339		4,949,153		5,444,102		4,171,924
Total Assets	(Won)	8,896,490	(Won)	6,496,392	$	7,499,359	$	5,476,180

(continued)

B-3

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF DECEMBER 31, 2002 AND 2001

	Korean Won						Translation into U.S. Dollars (Note 2)
	2002			2001			2002			2001
	(In millions)						(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings (Note 11)	(Won)	559,411		(Won)	650,000		$	471,559		$	547,922
Trade accounts and notes payable (Note 18)		353,467			225,937			297,958			190,455
Current portion of long-term debt, net of discount on debentures of (Won)5,181 million in 2002 and (Won)29,100 million in 2001 (Notes 10, 11 and 12)		792,494			642,838			668,038			541,885
Accounts payable-other (Notes 1, 16 and 18)		984,682			544,241			830,045			458,772
Accrued expenses		81,019			25,565			68,296			21,550
Withholdings		92,037			114,585			77,583			96,590
Income tax payable		44,199			—			37,258			—
Other current liabilities		25,497			38,964			21,493			32,845
		2,932,806			2,242,130			2,472,230			1,890,019
LONG-TERM LIABILITIES:
Debentures, net (Note 12)		2,522,850			1,977,771			2,126,654			1,667,176
Long-term debt, net of current portion (Note 11)		100,000			216,994			84,296			182,917
Long-term accounts payable-other, net (Note 13)		501,258			—			422,539			—
Long-term obligation under capital lease, net of current portion (Note 10)		536			2,828			452			2,384
Accrued severance indemnities, net of payments to National Pension of (Won)932 million in 2002 and (Won)1,257 million in 2001 (Note 2)		30,672			24,535			25,855			20,682
Other long-term liabilities		8,062			138			6,796			116
		3,163,378			2,222,266			2,666,592			1,873,275
Total Liabilities		6,096,184			4,464,396			5,138,822			3,763,294
SHAREHOLDERS’ EQUITY:
Common stock (Note 14)		920,290			920,290			775,765			775,765
Paid-in capital in excess of par value		1,129,274			1,132,834			951,929			954,930
Retained earnings
(Net income of (Won)532,163 million in 2002 and (Won)433,027 million in 2001)		542,644			10,481			457,426			8,835
Capital adjustments:
Treasury stock (Note 14)		(30,999	)		(30,997	)		(26,131	)		(26,129	)
Loss on valuation of investment securities (Note 7)		2,191			(612	)		1,847			(515	)
Stock compensation (Note 14)		1,064			—			897			—
Minority interest		235,842			—			198,804			—
Total Shareholders’ Equity		2,800,306			2,031,996			2,360,537			1,712,886
Total Liabilities and Shareholders’ Equity	(Won)	8,896,490		(Won)	6,496,392		$	7,499,359		$	5,476,180

See accompanying notes to consolidated financial statements.

B-4

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

	Korean Won						Translation into U.S. Dollars (Note 2)
	2002			2001			2002			2001
	(In millions, except per share amounts)						(In thousands, except per share amounts)
OPERATING REVENUE (Notes 17 and 18)	(Won)	5,353,073		(Won)	4,468,026		$	4,512,411		$	3,766,354
OPERATING EXPENSES (Notes 17 and 18)		4,508,882			3,720,237			3,800,794			3,136,000
OPERATING INCOME		844,191			747,789			711,617			630,354
OTHER INCOME (EXPENSES), NET:
Interest income		17,950			19,157			15,131			16,149
Gain on disposal of marketable securities, net		—			3,824			—			3,223
Rental income		11,526			8,292			9,716			6,990
Gain (loss) on foreign currency transactions, net		1,083			(440	)		913			(370	)
Gain on foreign currency translation, net		2,182			9,652			1,839			8,136
Gain on retirement of debentures		—			8,206			—			6,917
Interest expense		(216,092	)		(231,003	)		(182,156	)		(194,726	)
Loss on disposal of trade accounts and notes receivable (Note 20)		(15,147	)		—			(12,768	)		—
Loss on valuation of inventories		(2,155	)		(7,966	)		(1,817	)		(6,715	)
Loss on valuation using the equity method of accounting		(122	)		—			(103	)		—
Gain (loss) on disposal of investment securities, net		(36	)		145			(30	)		122
Loss on disposal of property and equipment, net		(45,606	)		(24,581	)		(38,444	)		(20,721	)
Impairment loss on investment securities (Note 7)		(2,774	)		(4,203	)		(2,338	)		(3,543	)
Other, net		17,443			32,147			14,703			27,099
		(231,748	)		(186,770	)		(195,354	)		(157,439	)
ORDINARY INCOME		612,443			561,019			516,263			472,915
EXTRAORDINARY ITEMS		—			—			—			—
INCOME BEFORE INCOME TAX EXPENSE		612,443			561,019			516,263			472,915
INCOME TAX EXPENSE (Note 15)		(80,280	)		(127,992	)		(67,672	)		(107,892	)
NET INCOME	(Won)	532,163		(Won)	433,027		$	448,591		$	365,023
EARNINGS PER SHARE (Note 2)	(Won)	2,904		(Won)	2,568		$	2.448		$	2.165
DILUTED EARNINGS PER SHARE (Note 2)	(Won)	2,894		(Won)	2,568		$	2.440		$	2.165

See accompanying notes to consolidated financial statements.

B-5

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

	Korean Won (In million)
	Common stock		Capital surplus			Retained Earnings (Deficit)			Capital adjustments			Minority interests		Total
Balance at December 31, 2000	(Won)	713,314	(Won)	816,771		(Won)	(422,546	)	(Won)	(310	)	(Won)	—	(Won)	1,107,229
Net income for 2001		—		—			433,027			—			—		433,027
Merger with KTM. Com		197,719		225,426			—			—			—		423,145
Loss on valuation of investment securities		—		—			—			(434	)		—		(434	)
Purchase of treasury stock		—		—			—			(30,865	)		—		(30,865	)
Issuance of common stock for exercise of stock warrants		9,257		90,637			—			—			—		99,894
Balance at December 31, 2001		920,290		1,132,834			10,481			(31,609	)		—		2,031,996
Net income for 2002		—		—			532,163			—			—		532,163
Effect of changes in consolidated subsidiaries		—		(3,265	)		—			2,104			235,842		234,681
Compensation expense incurred in connection with stock options		—		—			—			1,064			—		1,064
Gain on valuation of investment securities		—		(295	)		—			698			—		403
Purchase of treasury stock		—		—			—			(1	)		—		(1	)
Balance at December 31, 2002	(Won)	920,290	(Won)	1,129,274		(Won)	542,644		(Won)	(27,744	)	(Won)	235,842	(Won)	2,800,306
Translation into U.S. Dollars (In thousands) (Note 2)	$	775,765	$	951,929		$	457,426		$	(23,387	)	$	198,804	$	2,360,537

See accompanying notes to consolidated financial statements.

B-6

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

	Korean Won						Translation into U.S. Dollars (Note 2)
	2002			2001			2002			2001
	(In millions)						(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	(Won)	532,163		(Won)	433,027		$	448,591		$	365,023
Addition of expenses not involving cash outflows:
Loss on disposal of property and equipment, net		45,606			24,581			38,444			20,721
Depreciation		723,667			533,995			610,020			450,135
Amortization of intangibles		1,832			4,572			1,544			3,854
Amortization of discounts on debentures		33,452			38,471			28,199			32,429
Provision for severance indemnities		15,100			6,780			12,729			5,715
Loss on disposal of trade accounts and notes receivable		15,147			—			12,768			—
Loss on valuation using the equity method of accounting		122			—			103			—
Loss on disposal of investment securities, net		36			—			30			—
Loss on valuation of inventories		2,155			7,966			1,817			6,715
Stock compensation		1,064			—			897			—
Impairment losses on investment securities		2,774			4,203			2,338			3,543
Bad debt expense		23,555			68,169			19,856			57,464
Other		2,161			514			1,821			433
		866,671			689,251			730,566			581,009
Deduction of revenues not involving cash inflows:
Gain on foreign currency translation, net		2,182			9,652			1,839			8,136
Gain on disposal of investment securities, net		—			145			—			122
Gain on retirement of debentures					8,206			—			6,917
Other		3			3,824			3			3,224
		2,185			21,827			1,842			18,399
Changes in assets and liabilities resulting from operations:
Increase in trade accounts and notes receivable		(396,750	)		(470,383	)		(334,444	)		(396,513	)
Decrease in accounts receivable-other		27,537			160,934			23,213			135,660
Decrease (Increase) in prepaid expenses		(1,908	)		26,899			(1,608	)		22,675
Decrease (Increase) in inventories		(88,072	)		24,972			(74,241	)		21,050
Increase in other current assets		(23,173	)		(2,918	)		(19,534	)		(2,460	)
Payment of severance indemnities		(9,487	)		(2,725	)		(7,997	)		(2,297	)
Increase (Decrease) in trade accounts and notes payable		168,328			(98,557	)		141,893			(83,079	)
Increase (Decrease) in accounts payable-other		334,530			(13,985	)		281,994			(11,789	)
Increase (Decrease) in accrued expenses		29,083			(5,054	)		24,516			(4,260	)
Increase (Decrease) in withholdings		(10,308	)		76,478			(8,689	)		64,468
Increase in income tax payable		40,804			—			34,396			—
Increase (Decrease) in other current liabilities		(19,509	)		12,652			(16,446	)		10,665
Decrease in National Pension		325			184			274			155
Decrease (Increase) in deferred income tax assets		(2,025	)		127,992			(1,707	)		107,892
Increase in other long-term liabilities		4,165			—			3,511			—
		53,540			(163,511	)		44,710			(137,833	)
Net cash provided by operating activities	(Won)	1,450,189		(Won)	936,940		$	1,222,446		$	789,800

(continued)

B-7

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

	Korean Won						Translation into U.S. Dollars (Note 2)
	2002			2001			2002			2001
	(In millions)						(In thousands)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash inflows from investing activities
Proceeds from sale of marketable securities	(Won)	—		(Won)	81,235		$	—		$	68,478
Collection of short-term loans		33,170			17,542			27,961			14,787
Proceeds from sale of investment securities		5,101			755			4,300			636
Withdrawal of guarantee deposits		25,439			73,912			21,444			62,305
Withdrawal of short term financial instruments		2,500			50			2,108			42
Proceeds from disposal of property and equipment		6,553			120,955			5,524			101,960
Proceeds from disposal of intangible assets		4			3,546			3			2,989
Other		169			—			142			—
		72,936			297,995			61,482			251,197
Cash outflow from financing activities
Purchase of marketable securities		—			(50,000	)		—			(42,148	)
Purchase of investment securities		(1,354,787	)		(193,566	)		(1,142,027	)		(163,168	)
Payment of guarantee deposits		(34,307	)		(85,485	)		(28,920	)		(72,060	)
Acquisition of property and equipment		(1,014,278	)		(1,083,199	)		(854,993	)		(913,090	)
Increase in intangibles		(3,443	)		(4,409	)		(2,902	)		(3,717	)
Payment of long-term loans		(34,537	)		(9,575	)		(29,113	)		(8,071	)
Other		(382	)		(2,522	)		(322	)		(2,126	)
		(2,441,734	)		(1,428,756	)		(2,058,277	)		(1,204,380	)
Net cash used in investing activities		(2,368,798	)		(1,130,761	)		(1,996,795	)		(953,183	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities
Proceeds from sale of trade accounts and notes receivable		470,000			—			396,190			—
Proceeds from short-term borrowings		1,295,000			930,000			1,091,629			783,950
Proceeds from issuance of debentures		1,111,208			1,208,926			936,701			1,019,073
Proceeds from long-term debt		100,000			200,000			84,296			168,591
Increase from merger		—			10,185			—			8,586
		2,976,208			2,349,111			2,508,816			1,980,200
Cash outflows from financing activities
Repayment of short-term borrowings		(1,415,000	)		(1,015,000	)		(1,192,784	)		(855,601	)
Repayment of debentures		—			(13,167	)		—			(11,099	)
Repayment of current portion of long-term debt		(672,290	)		(946,066	)		(566,712	)		(797,493	)
Repayment of long-term debt		—			(114,105	)		—			(96,186	)
Acquisition of treasury stock		(1	)		(1,967	)		(1	)		(1,658	)
Repayment of other non-current liabilities		(10	)		(8,668	)		(8	)		(7,307	)
		(2,087,301	)		(2,105,841	)		(1,759,505	)		(1,775,134	)
Net cash provided by financing activities		888,907			243,270			749,311			205,066
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(29,702	)		49,449			(25,038	)		41,683
INCREASE FROM CHANGES IN CONSOLIDATED SUBSIDIARIES		124,895			—			105,282			—
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		52,362			2,913			44,139			2,456
CASH AND CASH EQUIVALENTS, END OF YEAR	(Won)	147,555		(Won)	52,362		$	124,383		$	44,139

(continued)

B-8

KT FREETEL CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Korean Won				Translation into U.S. Dollars (Note 2)
	2002		2001		2002		2001
	(In millions)				(In thousands)
TRANSACTIONS NOT INVOLVING CASH:
Transfer of trade accounts and notes receivable to investments securities	(Won)	43,430	(Won)	—	$	36,610	$	—
Transfer of bonds to current portion of long term debt		571,103		360,486		481,415		303,874
Transfer of bonds with stock warrants to common stock		—		99,973		—		84,273
Transfer of long-term prepaid expenses to short-term prepaid expenses		—		5,156		—		4,346
Transfer of long-term obligation under capital lease to current portion of long-term debt		2,235		1,263		1,884		1,065
Transfer of interest expense to construction in progress		34,116		39,611		28,758		33,390
Transfer of long-term debt to current portion of long-term debt		216,994		102,875		182,917		86,719
Transfer of long-term loans to short-term loans		17,672		18,833		14,897		15,875
Loss on valuation of investment securities		403		—		340		—
Transfer of accounts receivable-other to property and equipment		113,332		—		95,534		—

See accompanying notes to consolidated financial statements.

B-9

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2002 AND 2001

1. GENERAL:

(1) KT Freetel Co., Ltd.

KT Freetel Co., Ltd. (“KT Freetel”) was incorporated on January 3, 1997, under the Commercial Code of the Republic of Korea, and listed on the Korean Securities Dealers Association Automated Quotation System (the KOSDAQ) in December 1999. The Company is currently engaged in providing personal communications service (“PCS”), value added services and sale and lease of personal communication devices.

As of December 31, 2002, the shareholders of KT Freetel are as follows:

	Number of shares	Percentage of ownership (%)
KT Corporation	74,107,242	40.26
JPMCB-CAP RE EM GTH FD	4,574,070	2.49
Qualcomm Incorporated	4,416,350	2.40
SSB Capital Communications	4,279,000	2.32
HyoSung Corp.	3,017,276	1.64
Microsoft Corp.	2,030,000	1.10
Others	91,634,105	49.79
	184,058,043	100.00

In response to general unstable economic conditions, the Korean government and the private sector have been implementing structural reforms to historical business practices. Implementation of these reforms is progressing slowly, particularly in the areas of restructuring private enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies to restructure into more efficient and profitable firms. The Company may be either directly or indirectly affected by these general unstable economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially from management’s current assessment.

(2) Consolidated Subsidiaries

The consolidated financial statements include the accounts of KT Freetel and the controlled subsidiaries listed below (collectively referred to as the “Company”), of which KT Freetel owns a majority of the issued shares. Significant inter-company accounts and transactions have been eliminated in consolidation.

	Year control was obtained	Ownership percentage (%)		Primary business
Subsidiaries		2002	2001
KT ICOM Co., Ltd. (“KT ICOM”)	2002	87.27	15.00	IMT 2000 Service
KTF Technologies Co., Ltd. (“KTF Technologies”)	2002	57.40	18.63	Developing and manufacturing of PCS handsets

On December 13, 2002, KT Freetel acquired shares of KT ICOM from the following related parties: 700 thousand shares from KT Hitel, 300 thousand shares from KT Powertel and 46,585 thousand shares from KT Corporation all at (Won)18,227 per share. KT Freetel also acquired 24,685 shares of KT ICOM from a third party for

B-10

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the same price. For the acquisition of KT ICOM’s shares from KT Corporation, KT Freetel paid cash of (Won) 540,000 million and gave a note for (Won)309,103 million, due in March 2003. KT Freetel paid cash to the third party, KT Hitel and KT Powertel. As KT Freetel and KT ICOM were subsidiaries of KT Corporation prior to KT Freetel’s additional acquisition of KT ICOM’s shares, KT Freetel recorded the assets and liabilities of KT ICOM at book value.

On November 30, 2002, KT Freetel exercised the conversion right of convertible bonds at (Won) 5 thousand per share to acquire an additional 400,000 shares of common stock of KTF Technologies.

The acquisition of KTF Technologies was recorded in accordance with the purchase method of accounting, with the (Won) 2,589 million excess of the fair value of KTF Technologies’ net assets over the acquisition cost being assigned to negative goodwill. Negative goodwill will be recognized as income on a systematic basis over the remaining weighted average useful life (5 years) of the identifiable acquired depreciable or amortizable assets.

The assets and liabilities and results of operations of KT ICOM and KTF Technologies are included in the consolidated balance sheet as of December 31, 2002. The results of operations of KT ICOM and KTF Technologies from the acquisition dates to December 31, 2002 are excluded from the consolidated statement of income for the year ended December 31, 2002 since they do not have a significant effect on the Company’s consolidated results of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured, and translated into English (with certain expanded descriptions) from the Korean language financial statements.

The U.S. dollar amounts presented in these financial statements were computed by translating the Korean won into U.S. dollars based on the noon buying rate of (Won)1,186.30 to US$1.00 at December 31, 2002 in the City of New York for cable transfers in won as certified for customs purposes by the Federal Reserve Bank of New York, solely for the convenience of the reader. This convenience translation into U.S. dollars should not be construed as a representation that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate of exchange.

Significant accounting policies followed by the Company in preparing the accompanying financial statements are summarized as follows:

Use of Estimates

The preparation of financial statements in accordance with Korean GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates and assumptions relate to the allowance for doubtful accounts and depreciation. Actual results could differ from those estimates and may affect amounts reported in future periods. Management believes that the estimates are reasonable.

B-11

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

The Company’s revenues are principally derived from sales of PCS handsets and PCS service revenues, which consist of non-refundable initial subscription fees, fixed monthly access fees and usage charges. The Company recognizes sales on PCS handsets when they are delivered to the dealers, fixed monthly access fees in the period earned, and usage charges and non-refundable initial subscription fees at the time services are rendered.

Marketable Securities

Marketable securities are stated at acquisition cost plus incidental expenses. If the fair value of marketable securities differs from the book value determined by the individual moving average method, marketable securities are stated at fair value and the unrealized gain or loss is reflected in current operations.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is provided based on the estimated loss on uncollectible accounts and historical bad debt experience.

Changes in allowance for doubtful trade accounts and notes receivable and accounts receivable-other for the years ended December 31, 2002 and 2001 are summarized as follows (won in millions):

	2002			2001
Beginning of year	(Won)	176,313		(Won)	59,157
Write-offs		(36,734	)		(16,602	)
		139,579			42,555
Provision		23,555			63,450
Increase due to merger		—			70,308
Increase from changes in consolidated subsidiaries		483			—
End of year	(Won)	163,617		(Won)	176,313

Inventories

Inventories are stated at the lower of cost or net realized value, cost being determined using the average cost method. If the net realizable value of inventories is lower than cost, inventories are adjusted to net realizable value and the difference between cost and revalued amount is charged to current operations.

Investment Securities

(1) Equity Securities

Equity securities held for investment (excluding those of affiliates and subsidiaries discussed in the next paragraph) that are not actively quoted (unlisted security) are stated at acquisition cost. Actively quoted (listed) securities, including those traded over-the-counter, are stated at fair value and the valuation gain or loss is recorded as a capital adjustment. If the fair value of a listed equity security or the net equity value of an unlisted equity security held for investment declines compared to acquisition cost and is not expected to recover (an impaired investment security), the value of the equity security is adjusted to fair value or net equity value and the valuation loss is charged to current operations.

B-12

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Equity securities held for investment in companies in which the Company is able to exercise significant influence over the investees are accounted for using the equity method. The Company’s share in net income or net loss of investees is reflected in current operations. Changes in the retained earnings, capital surplus or other capital accounts of investees are accounted for as an adjustment to retained earnings or to capital adjustments.

(2) Debt Securities

Debt securities held for investment are classified as either held-to-maturity investment debt securities or available-for-sale investment debt securities at the time of purchase. Investments in debt securities are classified as available-for-sale investment debt securities as follows:

• All held-to-maturity investment debt securities if some portion was sold during the current period

• Securities obliged to be sold before maturity by legal regulations

• Securities accounted for as investment securities impairment loss

Held-to-maturity investment debt securities are stated at acquisition cost determined by the individual moving average method. When the face value of a held-to-maturity investment debt security differs from its acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the security. Available-for-sale investment debt securities are stated at fair value and the valuation gains or losses are recorded as a capital adjustment. If the fair value of a held-to-maturity or a available-for-sale investment debt security declines compared to the acquisition cost and is not expected to recover (an impaired investment security), the carrying value of the debt security is adjusted to fair value and the valuation loss is charged to current operations.

(3) Gain or Loss on Valuation of Investment Securities

The net unrealized gain or loss is presented as gain or loss on valuation of investment securities in capital adjustments. An unrealized valuation gain or loss of investment securities incurred in subsequent periods is deducted from or added to the previous balance of unrealized valuation gain or loss of investment securities. When investment securities are sold, the unrealized valuation gain or loss of investment securities included in the capital adjustment account is added to or deducted from the gain or loss on disposal. With respect to an impaired investment security, any unrealized valuation gain or loss on the security previously included in the capital adjustment account is reversed.

(4) Recovery of Impaired Investment Securities

For commercial companies, the recovery of previously impaired investment securities is accounted for as follows:

For marketable equity securities and available for sale debt securities, the recovery is recorded in capital adjustment. For unlisted equity securities and held-to-maturity debt securities, the recovery is recorded in current operations up to the amount of previously recognized impairment loss.

(5) Reclassification of Securities

If the Company’s objectives change, a trading security can be reclassified to investment securities, but only as of a balance sheet date. The difference between the fair value of the security as of the balance sheet date and the book value is recognized as gain or loss on valuation of trading securities and credited or charged to current operations. Investment securities cannot be reclassified to trading securities.

B-13

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property and Equipment

Property and equipment are stated at cost. Routine maintenance and repairs are expensed as incurred. Expenditures that result in enhancement of the value or extension of the useful lives of the facilities involved are capitalized as additions to property and equipment. In addition, interest expense and other financing charges for borrowings (that were used for the manufacture, purchase, or construction of property and equipment) incurred prior to completion of the asset are capitalized as part of the cost of such asset. Interest capitalization for the years ended December 31, 2002 and 2001 are as follow (won in millions):

	2002			2001
Total interest incurred	(Won)	250,731		(Won)	272,261
Charged to expense		(216,092	)		(231,003	)
Capitalized gain on foreign currency transactions and translation, net		(523	)		(1,647	)
Interest capitalized	(Won)	34,116		(Won)	39,611

Depreciation is computed using the straight-line method based on the estimated useful lives of the assets as follows:

	Estimated useful lives
Buildings and structures	15~30 years
Machinery and equipment	8 years
Vehicles	4~8 years
Other	2~8 years

Long-Lived Assets

Long-lived assets are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future net cash flows 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 by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Leases

Lease agreements that include a bargain purchase option, result in the transfer of ownership by the end of the lease term, have a term equal to at least 75% of the estimated economic life of the leased property or where the present value of the minimum lease payments at the beginning of the lease term equals or exceeds 90% of the fair value of the leased property are accounted for as capital leases. All other leases are accounted for as operating leases. Assets and liabilities related to capital leases are recorded as property, plant and equipment and long-term debt, respectively, and the related interest is calculated using the effective interest rate method. In respect to operating leases, the future minimum lease payments are expensed ratably over the lease term while contingent rentals are expensed as incurred.

B-14

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intangibles

Intangible assets are stated at cost, net of accumulated amortization computed using the straight-line method over the useful lives of the assets as described below.

	Estimated useful lives
Goodwill	5 years
Intellectual property rights	5~10 years
Facility use rights	10~20 years
Organization costs	5 years
Development costs	4~5 years

Frequency use rights has a contractual life of 15 years. Frequency use rights will be amortized over the useful life commencing from the date of initiating commercial service through expiration of the right of use. The Company has not amortized frequency use rights for the year ended December 31, 2002 since the related commercial services have not been provided during the year.

Convertible bonds

Interest expense on convertible bonds is recognized using the effective interest rate, which equalizes the issued amount of bonds to the present value of the future cash outflow of bonds. Accordingly, the differences between accrued interest and interest paid are presented as an addition to the normal value of bonds in the long-term accrued interest account.

Discounts on Debentures

Discounts on debentures are amortized over the redemption period of the debenture using the effective interest rate method. Amortization of discounts is recognized as interest expense.

Accrued Severance Indemnities

All employees with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment with the Company, based on their length of service and rate of pay at the time of termination. The severance indemnities that would be payable assuming all eligible employees were to resign amount to (Won)31,604 million and (Won)25,792 million as of December 31, 2002 and 2001, respectively.

Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay (as defined) to the National Pension Fund in accordance with the National Pension Law of Korea. The Company paid half of the employees’ 6 percent portion and is paid back at the termination of service by offsetting the receivable against the severance payments. Such receivables, with a balance of (Won)932 million and (Won)1,257 million as of December 31, 2002 and 2001, respectively, are presented as deduction from accrued severance indemnities. Starting April 1999, the Company and its employees each pay 4.5 percent of monthly pay to the National Pension Fund under the revised National Pension Law of Korea.

B-15

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Changes in accrued severance indemnities for the years ended December 31, 2002 and 2001 are as follows (won in millions):

	2002			2001
Beginning of year	(Won)	25,792		(Won)	10,263
Severance payments		(9,487	)		(2,725	)
		16,305			7,538
Provision		15,100			6,780
Increase due to merger and other		18			11,474
Increase from changes in consolidated subsidiaries		181			—
End of year	(Won)	31,604		(Won)	25,792

Accounting for Foreign Currency Transactions and Translation

The Company maintains its accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on the prevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies are recorded and reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet date and the translation gains or losses are reflected in current operations. The balances have been translated using the rate announced by the Bank of Korea Basic Rate, which was (Won)1,200.40 and (Won)1,326.10 to US$ 1.00 at December 31, 2002 and 2001, respectively.

Income Tax

The provision for income tax consists of the corporate income tax and resident surtax currently payable and changes in deferred income taxes for the period. The Company recognizes deferred taxes arising from temporary differences between amounts reported for financial accounting and income tax purposes. Deferred income taxes will be offset against those incurred in the future, if any. Deferred income taxes will be recalculated based on the actual rate, effective at each balance sheet date.

Stock Compensation Expense

The Company records the difference between the present value of the exercise price and the stock price at the grant date as compensation expense with a corresponding credit to the capital adjustment account (using the fair value method). The computed deferred compensation expenses are allocated over the contracted vesting period. When the stock options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustment account and the par value of the new shares issued, is recorded as additional paid-in capital.

Basic and Diluted Ordinary Income Per Share and Earnings Per Share

Ordinary income per share and earnings per share are computed by dividing ordinary income (after deducting the income tax effect) and net income by the weighted average number of common shares outstanding during the period. The number of shares used in computing earnings and ordinary income per share is 186,236 thousand shares and 168,652 thousand shares for the years ended December 31, 2002 and 2001, respectively.

Diluted ordinary income per share and earnings per share are computed by dividing ordinary income (after deducting the income tax effect) and net income by the weighted average number of common shares outstanding, including the additional common share that would have been outstanding if the dilutive potential common shares had been issued during the period. The number of shares used in computing diluted earnings and ordinary income

B-16

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

per share is 184,108 thousand shares and 168,652 thousand shares for the years ended December 31, 2002 and 2001, respectively. Diluted ordinary income and earnings are (Won)532,732 million and (Won)433,027 million for the years ended December 31, 2002 and 2001, respectively.

The dilutive potential shares as of December 31, 2002 are as follows:

	Exercise period	Number of common shares to be issued
Convertible bonds	Nov. 29, 2003~ Nov. 29, 2005	9,946,236
Stock warrants	Until Nov. 25, 2004	1,851,851
Stock options	March 28, 2004~ March 28, 2009	18,000
”	March 25, 2005~ March 25, 2010	44,800

Comparative Presentation

Certain amounts of prior year’s financial statements are reclassified to conform to the current year’s presentation. This reclassification does not affect the net income and net assets of the prior period.

3. SHORT-TERM AND LONG-TERM FINANCIAL INSTRUMENTS:

(1) Short-term financial instruments as of December 31, 2002 and 2001 are as follows (won in millions):

	Interest rate per annum (%) 2002	2002		2001
Time deposits	5.08 ~ 5.45	(Won)	535,000	(Won)	2,500
Repurchase agreements	5.10		20,000		—
		(Won)	555,000	(Won)	2,500

(2) Long-term financial instruments as of December 31, 2002 and 2001 are as follows (won in millions):

	Interest rate per annum (%) 2002	2002		2001
Deposits for checking accounts	—	(Won)	36	(Won)	75
Other	—		25		—
		(Won)	61	(Won)	75

4. RESTRICTED DEPOSITS:

As of December 31, 2002 and 2001, the following deposits are subject to withdrawal restriction as collateral for borrowings and guarantee for checking accounts (won in millions):

	2002		2001
Short-term financial instruments	(Won)	—	(Won)	2,500
Long-term financial instruments		61		75
	(Won)	61	(Won)	2,575

B-17

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. MARKETABLE SECURITIES:

Marketable securities as of December 31, 2002 are as follows (won in millions):

	Acquisition cost		Fair value
Beneficiary Certificates	(Won)	395,000	(Won)	404,397

6. LOANS TO EMPLOYEES:

As of December 31, 2002 and 2001, the Company has provided loans to its employees for housing and purchase of KT Freetel’s stock with the balance of (Won)2,237 million and (Won)2,131 million, respectively, which is recorded in short-term loans and (Won)8,698 million and (Won)12,396 million, respectively, in long-term loans.

7. INVESTMENT SECURITIES:

(1) Investment securities as of December 31, 2002 and 2001 are as follows (won in millions):

	2002		2001
Listed equity securities	(Won)	7,076	(Won)	1,321
Non-listed equity securities		11,296		296,511
Investments in affiliates		6,607		—
Investments in funds		39,522		4,666
Debt securities		45,141		7,000
	(Won)	109,642	(Won)	309,498

(2) Listed equity securities as of December 31, 2002 and 2001 are as follows (won in millions):

	2002							2001 Fair value
	Acquisition cost		Fair value		Gain (Loss) on valuation
Wide Telecom Co.	(Won)	300	(Won)	30	(Won)	(270	)	(Won)	92
Dream line Co.		1,633		369		(1,264	)		1,229
Gaeasoft Co., Ltd.		998		2,184		1,186			—
KRTnet Corp.		1,954		4,493		2,539			—
	(Won)	4,885	(Won)	7,076	(Won)	2,191		(Won)	1,321

The gain (loss) on valuation of the above listed equity securities is included in capital adjustments.

B-18

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3) Non-listed equity securities as of December 31, 2002 and 2001 are as follows (won in millions):

	2002							2001 Book value
	Ownership (%)	Acquisition cost		Net asset value		Book value
KT ICOM	—	(Won)	—	(Won)	—	(Won)	—	(Won)	270,000
Korea Digital Satellite Broadcasting Co., Ltd.	—		—		—		—		10,033
KRTnet Corp.	—		—		—		—		1,954
Gaeasoft Co., Ltd.	—		—		—		—		397
Mondex Korea Co., Ltd.	6.02		920		101		101		920
Internet Metix Inc.	2.00		200		25		23		200
Geotel Co., Ltd.	8.94		225		246		225		225
Mobilians Co., Ltd.	16.55		385		758		385		385
Inews24. Co., Ltd.	3.58		350		—		—		350
EntoB Corp.	3.13		500		373		500		500
The Radio News Co., Ltd.	10.83		624		—		—		—
Korea Information & Communications, Inc.	3.86		500		32		32		500
Prime Venture Capital Co.	10.00		1,000		511		1,000		1,000
Onse Telecom Corp.	0.38		2,148		341		2,148		2,148
NAZCA entertainment Co., Ltd.	11.74		500		51		46		500
Toysoft Co., Ltd	8.78		500		91		80		500
Knowledge Power Plant, Inc.	12.56		5,000		2,161		1,421		1,420
Ohmylove Co., Ltd.	12.06		1,200		275		1,200		1,200
Vacom Wireless, Inc.	16.77		1,880		932		1,880		1,880
Media Valley, Inc.	—		—		—		—		187
Others	—		2,340		2,804		2,255		2,212
		(Won)	18,272	(Won)	8,701	(Won)	11,296	(Won)	296,511

In 2002, the Company recognized an additional impairment loss of (Won)2,774 million on non-listed equity securities of Mondex Korea Co., Ltd. and 7 other companies for which the net equity value had declined compared to the acquisition cost and it is not expected to recover. For the other non-listed equity securities, the Company’s management believes that the decline in value is temporary and is expected to recover, thus, the Company did not recognize an impairment loss.

(4) Investments in affiliates accounted for using the equity method of accounting as of December 31, 2002 are as follows (won in millions):

	Ownership (%)	Acquisition cost		Book value
Korea Digital Satellite Broadcasting Co., Ltd.	3.00	(Won)	10,033	(Won)	6,607

B-19

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5) Investments in funds as of December 31, 2002 and 2001 are as follows (won in millions):

	2002					2001
	Ownership (%)	Acquisition cost		Net asset value		Ownership (%)	Acquisition cost		Net asset value
CEC Mobile Ltd.	16.67	(Won)	4,456	(Won)	4,456	—	(Won)	—	(Won)	—
Korea IT Fund	10.00		30,000		30,000	—		—		—
Korea Telecom Strategy Fund	10.00		2,000		2,000	10.00		2,000		2,000
KT Freetel Internal Venture	95.00		950		950	95.00		950		950
Others	—		2,116		2,116	—		1,716		1,716
		(Won)	39,522	(Won)	39,522		(Won)	4,666	(Won)	4,666

(6) Debt securities as of December 31, 2002 and 2001 are as follows (won in millions):

	2002				2001
	Acquisition cost		Book value		Acquisition cost		Book value
Subordinated bonds	(Won)	—	(Won)	—	(Won)	5,000	(Won)	5,000
KTF First Securitization Specialty Co., Ltd.		43,430		43,430		—		—
Government bonds		1,211		1,211		—		—
Convertible bonds		500		500		2,000		2,000
	(Won)	45,141	(Won)	45,141	(Won)	7,000	(Won)	7,000

8. PROPERTY AND EQUIPMENT:

Property and equipment as of December 31, 2002 and 2001 are as follows (won in millions):

	2002			2001
Land	(Won)	124,401		(Won)	100,615
Buildings and structures		284,979			239,282
Machinery and equipment		5,563,211			4,767,283
Vehicles		10,099			8,556
Other		460,450			372,347
Construction in progress		514,108			319,885
		6,957,248			5,807,968
Less: Accumulated depreciation
Buildings and structures		(39,232	)		(30,848	)
Machinery and equipment		(1,910,743	)		(1,309,439	)
Vehicles		(4,576	)		(3,589	)
Other		(231,521	)		(156,314	)
		(2,186,072	)		(1,500,190	)
	(Won)	4,771,176		(Won)	4,307,778

B-20

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The market value of the Company’s land based on the official price of land (published by Ministry of Construction and Traffic) is (Won)84,856 million as of December 31, 2002.

Depreciable assets are insured against fire and other casualty losses up to (Won)225,899 million as of December 31, 2002.

9. INTANGIBLES:

(1) Intangibles, net of amortization, as of December 31, 2002 and 2001 are as follows (won in millions):

	2002			2001
Goodwill	(Won)	1,951		(Won)	670
Frequency use rights		1,208,854			—
Property rights of industry		1,038			778
Facility use rights		9,832			7,472
Development costs		4,639			248
Organization cost		3,645			—
Other		1,655			205
Negative goodwill		(3,258	)		—
	(Won)	1,228,356		(Won)	9,373

(2) Amortization of intangibles for the years ended December 31, 2002 and 2001 are as follows (won in millions):

	2002		2001
Goodwill	(Won)	342	(Won)	188
Property rights of industry		226		131
Facility use rights		969		866
Organization costs		—		764
Development costs		248		2,591
Other		47		32
	(Won)	1,832	(Won)	4,572

(3) (Won)19,991 million and (Won)10,074 million of ordinary development costs were charged to expense for the years ended December 31, 2002 and 2001, respectively.

(4) Changes in development costs (intangibles) for the years ended December 31, 2002 and 2001 are as follows (won in millions):

	2002			2001
Beginning of year	(Won)	248		(Won)	2,839
Increase from changes in consolidated subsidiaries		4,639			—
Amortization		(248	)		(2,591	)
End of year	(Won)	4,639		(Won)	248

B-21

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5) On December 15, 2000, the right to purchase one of two licenses to provide third generation mobile telecommunication services utilizing 2GHz frequency band (“IMT-2000”) with W-CDMA technology was acquired by a consortium comprised of KT Corporation, KT Freetel, KT Hitel Co., Ltd., KT Powertel Co., Ltd. and others. The consortium formed KT ICOM for the purpose of acquiring the license and providing the related services. The total license cost was (Won)1,300 billion. KT ICOM paid (Won)650 billion to the Ministry of Information and Communication (“MIC”) on March 20, 2001 and the remaining balance was required to be paid including interest for the period from 2002 to 2011. On December 4, 2001, MIC granted the license to KT ICOM and assigned the related frequency band, giving KT ICOM the right to provide IMT-2000 services using W-CDMA technology for 15 years from that date.

10. LEASED ASSETS:

(1) The Company maintains operating lease agreements for certain machinery and equipment. The following are the future minimum rental payments under operating leases as of December 31, 2002 (won in millions):

	Operating lease payment
Year
2003		40,058
2004		36,647
	(Won)	76,705

(2) The Company also has capital lease agreements for certain machinery and equipment, of which acquisition cost amounts to (Won)8,163 million. Depreciation on the machinery and equipment for the year ended December 31, 2002 amounts to (Won)1,348 million.

Annual future payments on the local currency lease agreements as of December 31, 2002 are as follows (won in millions):

Year	Lease obligations			Interest		Lease payment
2003	(Won)	1,486		(Won)	99	(Won)	1,585
Less: Current portion		(1,486	)
	(Won)	—

Annual future payments on the foreign currency lease agreements as of December 31, 2002 are as follows (Korean won in millions and U.S dollars in thousands):

	Lease obligations						Interest				Lease payment
Year	U.S dollars			Won equivalent			U.S dollars		Won equivalent		U.S dollars		Won equivalent
2003	US$	564		(Won)	678		US$	43	(Won)	51	US$	607	(Won)	729
2004		447			536			12		15		459		551
		1,011			1,214		US$	55	(Won)	66	US$	1,066	(Won)	1,280
Less: Current portion		(564	)		(678	)
	US$	447		(Won)	536

B-22

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11. BORROWINGS:

(1) Short-term borrowings as of December 31, 2002 and 2001 are as follows (won in millions):

	Interest rate per annum (%) 2002	2002		2001
General loans	5.55~5.57	(Won)	100,000	(Won)	150,000
Discounted promissory notes	4.80~5.55		459,411		500,000
		(Won)	559,411	(Won)	650,000

(2) Long-term debt as of December 31, 2002 and 2001 are as follows (won in millions):

	Interest rate per annum (%) 2002	2002			2001
Long-term debt in local currency:
Facility loans	6.50	(Won)	533		(Won)	1,679
General loans	5.15-8.85		300,813			203,890
			301,346			205,569
Less: Current portion			(201,346	)		(4,223	)
			100,000			201,346
Long-term debt in foreign currency:
General loans	5.18		14,165			31,296
Less: Current portion			(14,165	)		(15,648	)
			—			15,648
		(Won)	100,000		(Won)	216,994

(3) Payment schedules for the Company’s long-term debt as of December 31, 2002 are as follows:

	Local currency		Foreign currency				Total
Year			U.S. Dollars		Korean won
	(In millions)		(In thousands)		(In millions)		(In millions)
2003	(Won)	201,346	$	11,800	(Won)	14,165	(Won)	215,511
2004		100,000		—		—		100,000
	(Won)	301,346	$	11,800	(Won)	14,165	(Won)	315,511

As of December 31, 2002, the Company has been provided payment guarantees amounting to US$11,800 thousand by KT Corporation, a major shareholder. Also, the Company provided one blank check to Samsung Capital Co., Ltd. and one blank check to KTB Network Co., Ltd. as collateral.

B-23

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12. DEBENTURES:

(1) Debentures as of December 31, 2002 and 2001 are as follows (won in millions):

	Interest rate per annum (%) 2002	2002			2001
General debentures	2.64-9.00	(Won)	2,766,094		(Won)	2,667,000
Convertible bonds	1.00		375,080			—
			3,141,174			2,667,000
Less: Current portion			(580,000	)		(650,000	)
Discount on debentures			(39,157	)		(39,229	)
Add: Long-term accrued interest			833			—
		(Won)	2,522,850		(Won)	1,977,771

(2) General debentures as of December 31, 2002 and 2001 are as follows (won in millions):

	Due date	Interest rate per annum (%) 2002	2002			2001
16th	Jun. 30, 2002	9.26		—			30,000
17th	July 12, 2002	8.00		—			170,000
18th	Sep. 25, 2002	8.85		—			100,000
19th	Nov. 6, 2003	8.00		250,000			250,000
20th	Feb. 9, 2006	6.00		300,000			300,000
21st	Mar. 19, 2004	6.00		400,000			400,000
22nd	Apr. 18, 2004	2.70		94,014			94,375
			JPY	(9,390	)	JPY	(9,390	)
23rd	Apr. 20, 2006	3.13		47,003			47,183
			JPY	(4,695	)	JPY	(4,695	)
25th	Jan. 8, 2002	6.00		—			45,000
26th	Feb. 2, 2002	7.00		—			170,000
27th	Feb. 18, 2002	7.00		—			45,000
28th	Apr. 8, 2004	7.00		200,000			200,000
29th	Jun. 14, 2002	7.00		—			45,000
30th	July 9, 2002	7.00		—			45,000
31st	May 9, 2003	9.00		50,000			50,000
32nd	July 3, 2003	8.00		70,000			70,000
33rd	July 18, 2003	8.00		110,000			110,000
34th	Aug. 25, 2003	8.00		100,000			100,000
37th	May 24, 2005	2.64		95,077			95,442
			JPY	(9,497	)	JPY	(9,497	)
38th	July 16,2004	6.00		300,000			300,000
40th	Feb. 18, 2005	6.00		350,000			—
41st	Aug. 26, 2005	5.92		200,000			—
42nd	Nov. 14, 2007	5.94		200,000			—
			(Won)	2,766,094		(Won)	2,667,000
			JPY	(23,583	)	JPY	(23,583	)

B-24

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Discounts on debentures are amortized over the period from the issue date to due date, using the effective interest rate method, and the amortized amounts are charged as interest expense.

(3) Convertible bonds as of December 31, 2002 are as follows (won in millions):

		Interest rate per annum (%)
	Due date	Coupon	Guaranteed	Conversion Price	Amount
2nd	Jun. 30, 2004	1.00	3.00	5,000	280
3rd	Sep. 11, 2005	—	11.00	40,000	4,800
43rd	Nov. 29, 2005	—	9.00	37,200	370,000
					375,080

For the bonds not converted, the Company will redeem them with a premium calculated by applying the compound interest rate method to the difference between the guaranteed interest rate and the coupon interest rate. In relation to these convertible bonds, the Company recorded (Won)833 million as long term accrued interest, which is shown as addition to debentures, as of December 31, 2002.

(4) Payment schedules for the Company’s debentures as of December 31, 2002 are as follows (won in millions):

Year	Amount
2003	(Won)	580,000
2004		994,294
2005		1,019,877
2006		347,003
2007		200,000
	(Won)	3,141,174

13. LONG-TERM ACCOUNTS PAYABLE-OTHER:

Long-term account payable-other is related to frequency use right and required to be paid including applicable interest from 2007 to 2011.

Long-term accounts payable-other as of December 31, 2002 is stated at the net present value of future cash flows, calculated using the effective interest rate (9.93%) at the time of receipt of frequency use license as follows (won in millions):

	Amount
Long-term account payable-other	(Won)	650,000
Discount		(148,742	)
	(Won)	501,258

B-25

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The maturities of the Company’s long-term account payable-other as of December 31, 2002 are as follows (won in millions):

Year	Amount
2007	(Won)	90,000
2008		110,000
2009		130,000
2010		150,000
2011		170,000
	(Won)	650,000

14. SHAREHOLDERS’ EQUITY:

(1) Capital stock

The Company has authorized 400,000,000 shares of (Won)5,000 par value common stock and issued 184,058,043 shares as of December 31, 2002.

(2) Treasury stock

As of December 31, 2002, the Company holds 822,331 treasury shares consisting of 21,711 collateralized shares received from its sales agencies as payment for receivables and 800,620 shares purchased in connection with the merger. The Company intends to dispose of the treasury stock in near future.

(3) Stock Option Plan

The Company entered into stock option agreements with the former Chief Executive Officer and senior managers. The details of the stock options granted as of December 31, 2002 are as follows (won in millions):

Grant Date	Employee	Number of shares	Exercise price/share		Methods	Exercise period
2001.  3.29	Former CEO	18,000	(Won)	41,273	New stock issue	2004.  3.28~2009.  3.28
2002.  3.25	Senior managers	44,800		45,178	New stock issue	2005.  3.25~2010.  3.25

The Company values stock options granted based on the fair value method (see Note 2). Total compensation expense of (Won)1,881 million was allocated over the vesting period, and the compensation expense charged to operations for the year ended December 31, 2002 is (Won)1,064 million.

B-26

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

15. INCOME TAX AND DEFERRED INCOME TAXES:

(1) The statutory corporate income tax rate (including resident surtax) applicable to the Company is approximately 29.7 percent and 30.8 percent in 2002 and 2001, respectively. Income tax expense for the years ended December 31, 2002 and 2001 is as follows (won in millions):

	2002			2001
Income before income tax	(Won)	612,443		(Won)	561,019
Adjustments:
Permanent differences		8,163			7,715
Temporary differences, net		(5,949	)		37,657
		2,214			45,372
Taxable income before tax loss carryforward		614,657			606,391
Tax loss carryforward		(150,653	)		(527,907	)
Tax loss carryforward from KTM.Com		—			(97,062	)
Taxable income (loss)		464,004			(18,578	)
Tax rate (%)		29.7			30.8
Tax calculated on taxable income		137,809			—
Tax credit		(52,631	)		—
Income tax currently payable		82,304			—
Decrease (Increase) in deferred income taxes:
Temporary differences		1,767			(29,086	)
Utilization of accumulated tax losses carried forward		5,518			157,078
Utilization of accumulated tax credit carried forward		(9,309	)		—
Income tax expense	(Won)	80,280		(Won)	127,992

(2) The changes in deferred income taxes for the years ended December 31, 2002 and 2001 are as follows (won in millions):

	2002			2001
Beginning of year	(Won)	75,657		(Won)	194,289
Increase		9,309			38,446
Decrease		(7,285	)		(157,078	)
Decrease from changes in consolidated subsidiaries		(9,173	)		—
End of year	(Won)	68,508		(Won)	75,657

16. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:

As of December 31, 2002 and 2001, assets and liabilities denominated in foreign currencies, other than the lease obligations under capital lease, long-term debt and debentures in foreign currencies described in Notes 8, 9 and 10, are as follows (foreign currencies other than U.S. dollars are translated into U.S. dollars; Korean won in millions):

	2002				2001
Account	U.S. dollars		Won equivalent		U.S. dollars		Won equivalent
Cash and cash equivalents	$	398	(Won)	477	$	2,806	(Won)	3,721
Accounts payable—other		2,343		2,813		2,035		2,699

B-27

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

17. OPERATING REVENUE AND EXPENSES:

(1) Operating revenue for the years ended December 31, 2002 and 2001 consist of the following (won in millions):

	2002		2001
PCS service	(Won)	4,241,454	(Won)	3,560,562
Sales of PCS handsets		1,111,619		907,464
	(Won)	5,353,073	(Won)	4,468,026

(2) Operating expenses for the years ended December 31, 2002 and 2001 are summarized below (won in millions):

	2002		2001
Salaries and wages	(Won)	133,695	(Won)	86,405
Provision for severance indemnities		15,100		6,780
Employee welfare		23,686		30,075
Rent		80,885		63,160
Lease		50,383		9,103
Commissions		348,729		277,112
Depreciation		723,667		533,995
Amortization		1,832		4,572
Tax and dues		41,451		30,537
Interconnection charges		462,117		463,855
Leased line charges		367,800		304,557
Ordinary development costs		19,991		10,074
Sales promotion		173,646		128,120
Sales commissions		553,015		541,001
Advertisements		144,938		106,044
Bad debt		23,555		68,169
Water and electricity		39,521		33,058
Communications		28,125		22,683
Repairs and maintenance		71,597		56,760
Cost of PCS handset sales		1,102,273		896,284
Other		102,876		47,893
	(Won)	4,508,882	(Won)	3,720,237

18. RELATED PARTY TRANSACTIONS:

(1) Transactions with related parties for the years ended December 31, 2002 and 2001 are as follows (won in millions):

Revenues:

	Transaction	2002		2001
KT Corporation	Interconnection charges, others	(Won)	549,493	(Won)	537,870
KTM.Com	Interconnection charges, others		—		14,322
KT Solutions	Interconnection charges, others		5,671		1,029
KT ICOM	PCS revenues, others		1,816		824
KT Hitel	”		25		205
Others	”		514		3,802
		(Won)	557,519	(Won)	558,052

B-28

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Expenses:

	Transaction	2002		2001
KT Corporation	Leased line charges, others	(Won)	1,270,716	(Won)	334,586
KTM.Com	Interconnection charges, others		—		11,637
KTF Technologies Co., Ltd	PCS revenues, others		138,475		—
KT Hitel	”		539		2,264
Others	”		1,456		6,589
			1,411,186	(Won)	355,076

(2) Receivables and payables with related parties as of December 31, 2002 and 2001 are as follows (won in millions):

	Receivables				Payables
	2002		2001		2002		2001
KT Corporation	(Won)	161,002	(Won)	155,773	(Won)	325,405	(Won)	13,897
KT ICOM		679		91		13,780
KT Solutions		—		—		17		—
KT Hitel		—		—		20		1,032
KTF Technologies Co., Ltd		—		—		61,689		—
Others		6		13		—		1
	(Won)	161,687	(Won)	155,877	(Won)	400,911	(Won)	14,930

19. COMMITMENTS:

The Company has entered into an agreement covering the resale of PCS with KT Corporation. As compensation for providing the telecommunications network, the Company receives some portion of the monthly revenues generated from KT Corporation’s subscribers.

20. DISPOSAL OF TRADE ACCOUNTS AND NOTES RECEIVABLE:

On December 16, 2002, the Company transferred the handset installment receivable of (Won)528,578 million and guarantee insurance and other incident rights to KTF First Securitization Specialty Co., Ltd. As a result of this disposal, the Company received cash of (Won)470,000 million and the subordinate debt investment of (Won) 43,430 million, and the Company recognized a loss on disposal of trade accounts and notes receivable of (Won)15,147 million. The Company has provided a guarantee for uncollected receivables up to 14.3 percent of total amount transferred. As of December 31, 2002, the uncollected securitized trade receivable is (Won)400,200 million.

21. SEGMENT INFORMATION:

The Company’s reportable segments are separate legal entities that offer different products and services. The segments are managed separately based on the difference in products and services. The Company has three reportable operating segments: PCS service, IMT 2000 service and sales of PCS handsets. The accounting policies of the segments are the same as those described in Note 2.

B-29

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Segment information for the years ended December 31, 2002 is as follows (won in millions):

2002	PCS service		IMT 2000 service			Manufacturing of PCS handsets		Total
Revenue	(Won)	5,353,073	(Won)	—		(Won)	137,923	(Won)	5,490,796
Operating income (loss)		844,191		(61,303	)		8,305		791,193
Tangible and intangible assets		4,665,015		1,329,218			5,299		5,999,532
Capital expenditure and advance payments for property and equipment		1,014,278		20,415			3,606		1,038,299
Depreciation and amortization		725,499		3,346			6,159		735,004

22. SUBSEQUENT EVENT:

On January 28, 2003, the Board of Directors approved the merger with KT ICOM. The transaction is deemed to be a “small-scale merger” as defined in the Commercial Code of the Republic of Korea, which states that the total number of new shares to be issued by the acquiring company does not exceed 5 percent of the total issued shares of the acquiring company. In accordance with the Commercial Code of the Republic of Korea, the approval by the general shareholders of KT Freetel may be replaced by the approval of the board of directors of KT Freetel. The exchange ratio of common share between KT Freetel and KT ICOM is 1 to 0.55636 and the merger was completed on March 6, 2003.

23. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES:

Accounting practices used by the Company in preparing the accompanying financial statements conform with generally accepted accounting principles in the Republic of Korea, but do not conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant differences applicable to the Company are described below. Other differences do not have a significant effect on either net income or shareholders’ equity.

(1) Marketable Securities and Investments Securities

Under Korean GAAP, use of the equity method for certain minority-owned (more than 20%) investments is required except for companies with assets of less than (Won)7 billion as of the previous year-end. However, under U.S. GAAP, use of the equity method for investments in 50% or less owned affiliates is generally required.

Under Korean GAAP, marketable securities in listed companies that the Company does not expect to hold for long-term investment purposes are reported at fair value with unrealized gains and losses are charged to the current operations. Investments in listed companies held for long-term investment purposes are reported at fair value, and the unrealized gains and losses reported in a separate component of stockholders’ equity. Investments in unlisted companies are reported at cost unless there is a significant decline in value and the value is not expected to recover. Investments in debt securities are carried at amortized cost.

Under U.S. GAAP, Statement of Financial Accounting Standards No. 115 (SFAS No. 115)—“Accounting for Certain Investments in Debt and Equity Securities” requires that marketable equity securities and all debt securities be classified into three categories and be accounted for as follows:

(i) Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.

B-30

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(ii) Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with the unrealized gains and losses included in current operations.

(iii) 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 the unrealized gains and losses excluded from income and reported as a separate component of shareholders’ equity.

Under U.S. GAAP, the Company classified its marketable securities as trading securities and listed equity securities of investment securities as available-for-sale securities. Non-listed equity securities and debt securities of investment securities that the Company intends to hold to maturity are classified as “held-to maturity”.

(2) Capitalization of foreign currency translation gain (loss)

As explained in Note 2, under Korean GAAP, certain unrealized foreign exchange translation gains and losses were excluded from the results of operations and included in the cost of property and equipment. However, under U.S.GAAP, all unrealized foreign currency translation gains and losses on monetary assets and liabilities are to be included in the current year’s results of operations.

The amounts of foreign exchange translation gains and losses included in property and equipment under Korean GAAP were adjusted to comply with U.S.GAAP.

(3) Interest Capitalization

Under Korean GAAP, interest is capitalized on borrowings related to the construction of all property and equipment, incurred prior to completing the acquisition, as part of the cost of such assets. Under U.S. GAAP, the Company’s policy is to capitalize interest 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 uses.

(4) Licensing Cost

Under Korean GAAP, the licensing cost paid with funds collected from the initial shareholders to obtain the operating licenses prior to the establishment of the Company were not recorded in the accounts of the Company.

Under U.S.GAAP, licensing costs were accounted for as an intangible asset and capital surplus at the time of establishment of the Company.

(5) Deferred Charges

Deferred charges in intangibles consist primarily of development costs and organization costs, which are deferred under Korean GAAP.

Under U.S.GAAP, development costs and organization costs are charged to expenses when incurred and are classified as operating expenses.

(6) Revenue Recognition

Under Korean GAAP, activation fees are recorded as revenue when billed and the related direct incremental acquisition costs are expensed as incurred.

Under U.S.GAAP, such amount should be deferred and recognized over the period of the customer relationship.

B-31

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(7) Merger with KTM.Com Co., Ltd.

Under Korean GAAP, as KT Freetel and KTM.Com Co., Ltd. were subsidiaries of KT Corporation prior to merger, assets and liabilities were transferred from KTM.Com Co., Ltd. to KT Freetel at book value as shown in the consolidated statements of KT Corporation and the difference between the par value of capital stock issued and the value of net assets transferred was recorded in the capital surplus accounts.

Under U.S.GAAP, assets and liabilities were transferred from KTM.Com Co., Ltd. to KT Freetel at fair value and the difference between the fair value of capital stock issued and the fair value of net assets transferred was recorded as intangible assets.

The Company classified the intangible assets into two components: f subscriber base and goodwill.

(8) Consolidation of KT ICOM

Under Korean GAAP, KT Freetel consolidated KT ICOM as of December 31, 2002. U.S. GAAP requires that the accounts of KT ICOM be consolidated as of the acquisition date that is December 13, 2002. However, since the results of operations of KT ICOM are not significant for the period from December 14 to December 31, 2002, they have not been reflected in the accompanying reconciliation of U.S. GAAP to Korean GAAP.

Under Korean GAAP, as KT Freetel and KT ICOM were subsidiaries of KT Corporation prior to consolidation, KT Freetel consolidated the assets and liabilities of KT ICOM at book value as shown in the consolidated statements of KT Corporation and the difference between the purchase price and the value of net assets was recorded in the capital surplus accounts. However, under U.S. GAAP, assets and liabilities of KT ICOM were recorded at fair value and the difference between the purchase price and the fair value of net assets was recorded as goodwill.

(9) Goodwill and other intangibles

Under Korean GAAP, the purchase price over the fair value of net assets being acquired was recorded as goodwill and it should be amortized within 20 years. However, the impairment loss should be recognized when the carrying amount of goodwill exceeds the fair value.

Under U.S. GAAP, SFAS No. 142—“Goodwill and Intangible Assets”, intangible assets with finite lives continue to be amortized over their useful economic lives. Goodwill and intangible assets with indefinite lives are not amortized, but tested for impairment, at least annually, in accordance with SFAS No.142.

In accordance with SFAS No. 142, the goodwill and intangibles acquired from KTM.Com and KT ICOM and amortization expense for the years ended December 31, 2002 and 2001 are as follows (won in millions):

		Initial amounts		Amortization expense
				2002		2001
KTM .Com	Goodwill	(Won)	558,505	(Won)	—	(Won)	37,234
	Subscriber base		605,563		126,159		100,927
	License cost		83,875		—		3,667
KT ICOM	Frequency use right		1,208,854		—		—

The Company evaluated indefinite lives intangibles and goodwill for impairment on goodwill in accordance with the standard’s guidance and determined these assets were not impaired.

B-32

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table reconciles reported net income under U.S. GAAP to adjusted net income, which excludes amortization expense related to goodwill and indefinite lived intangibles, assuming the adoption of SFAS No. 142 had occurred on January 1 of each of the years presented (won in millions):

	2002		2001
Reported net income under U.S. GAAP	(Won)	460,679	(Won)	361,130
Add: Goodwill amortization, net of tax effect		—		32,620
Adjusted net income	(Won)	460,679	(Won)	393,750

(10) Disposal of trade accounts and notes receivable

Under Korea GAAP, the transaction between KT Freetel and KTF First Securitization Specialty Co., Ltd. purport to be a sale of trade accounts and notes receivable. Under U.S.GAAP, the transaction does not purport to be a sale and transaction is classified as a borrowing.

(11) Minority Interest in Consolidated Subsidiaries

Under Korean GAAP, minority interest in consolidated subsidiaries is presented as a component of shareholders’ equity in the consolidated balance sheets. Under U.S.GAAP, minority interest in consolidated subsidiaries is not included in shareholders’ equity; rather, it is presented between liability and shareholders’ equity in the consolidated balance sheets.

(12) Comprehensive Income

Under the Korean GAAP, there is no requirement to present comprehensive income. Under U.S.GAAP, effective for fiscal years beginning after December 15, 1997, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in shareholders’ equity during a period except those resulting from investment by, or distribution to, owners, including certain items not included in the current year’s results of operations.

Comprehensive income for the years ended December 31, 2002 and 2001 is summarized as follows:

	Korean Won
	2002		2001
	(In millions)
Net income as adjusted in accordance with U.S.GAAP	(Won)	460,679	(Won)	361,130
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments, net of tax of (Won)745 million in 2002 and (Won)127 million in 2001		1,762		(307	)
Comprehensive income as adjusted in accordance with U.S.GAAP	(Won)	462,441	(Won)	360,823

B-33

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(13) Effect on Net Earnings and Shareholders’ Equity

The effects of the significant adjustments to net earnings and shareholders’ equity that are required if U.S.GAAP were applied instead of Korean GAAP are summarized as follows (won in millions, except for share amounts):

	2002			2001
Net income under Korean GAAP	(Won)	532,163		(Won)	433,027
Adjustments:
(2) Capitalization of foreign currency translation gain (loss), net		1,278			2,607
(3) Interest capitalization		4,398			4,398
(4) Licensing cost		—			(9,167	)
(5) Deferred charges		248			3,231
(6) Revenue recognition		4,482			36,487
(7) Amortization of goodwill		(126,159	)		(138,161	)
(10) Disposal of trade accounts and notes receivable		14,068			—
Deferred tax effect of U.S.GAAP adjustments		30,201			28,708
		(71,484	)		(71,897	)
Adjusted net income under U.S. GAAP	(Won)	460,679		(Won)	361,130
Basic earnings per share	(Won)	2,502		(Won)	2,141
	2002			2001
Shareholders’ equity under Korean GAAP	(Won)	2,800,306		(Won)	2,031,996
Adjustments:
(2) Capitalization of foreign currency translation gain (loss), net		(3,066	)		(4,344	)
(3) Interest capitalization		(18,480	)		(22,878	)
(4) Licensing cost		(31,167	)		(31,167	)
(5) Deferred charges		—			(248	)
(6) Revenue recognition		(5,894	)		(10,376	)
(7) Merger with KTM.Com		956,004			1,082,163
(8) Consolidation of KT ICOM		3,265			—
(10) Disposal of trade accounts and notes receivable		14,068			—
(11) Minority interest in consolidated subsidiaries		(235,842	)		—
Deferred tax effect of U.S.GAAP adjustments		(190,681	)		(220,882	)
		488,207			792,268
Shareholders’ equity under U.S.GAAP	(Won)	3,288,513		(Won)	2,824,264

B-34

KT FREETEL CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The condensed balance sheets in accordance with U.S. GAAP as of December 31, 2002 and 2001 are summarized as follows (won in millions):

	2002		2001
Assets:
Current assets	(Won)	2,990,290	(Won)	1,601,762
Property and equipment		4,749,629		4,280,556
Intangible assets		2,291,617		1,197,740
Other assets		346,869		556,345
	(Won)	10,378,405	(Won)	7,636,403
Liabilities:
Current liabilities	(Won)	3,384,910	(Won)	2,242,130
Long-term liabilities		3,469,140		2,570,009
		6,854,050		4,812,139
Minority interest in consolidated subsidiaries		235,842		—
Shareholders’ equity		3,288,513		2,824,264
	(Won)	10,378,405	(Won)	7,636,403

B-35

Independent Auditor’s Report

To the Board of Directors and Shareholders of

KT ICOM Co., Limited

We have audited the accompanying balance sheets of KT ICOM Co., Limited. (the “Company”) as of December 31, 2002 and 2001 and the related statements of operations, appropriations of retained earnings and cash flows for the year ended December 31, 2002 and for the period from March 16, 2001 (date of inception) to December 31, 2001, 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.

We conducted our audits in conformity with auditing standards generally accepted in the United States of America. 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, the financial statements referred to above present fairly, in all material respects, the financial position of KT ICOM Co., Limited. as of December 31, 2002 and 2001 and the results of its operations, the changes in its retained earnings and its cash flows for the year ended December 31, 2002 and for the period from March 16, 2001 (date of inception) to December 31, 2001, in conformity with financial accounting standards generally accepted in the Republic of Korea (“Korea”).

As discussed in Note 16 to the accompanying financial statements, the Company has entered into a merger agreement with KT Freetel on December 20, 2002.

Accounting principles generally accepted in the Republic of Korea vary in certain important respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net earnings for the year ended December 31, 2002 and for the period from March 16, 2001 (date of inception) to December 31, 2001 and the determination of shareholders’ equity at December 31, 2002 and 2001 to the extent summarized in Note 18 to the financial statements. A description of the significant differences and a reconciliation of net income and shareholders’ equity to accounting principles generally accepted in the United States of America are set forth in Note 18 to the financial statements.

The amounts expressed in U.S. Dollar are provided solely for the convenience of the reader and have been translated on the basis set forth in Note 3 to the accompanying financial statements.

Samil Accounting Corporation

Seoul, Korea

January 14, 2003

C-1

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/ Yong-Kyung Lee
Name:	Yong-Kyung Lee
Title:	President and Chief Executive Officer

Date: June 25, 2004

Exhibit Index

1		Articles of Incorporation of KT Corporation (English translation)
2.1	*	Form of Common Stock Certificate of KT Corporation, par value Won 5,000 per share (including translation in English) (incorporated herein by reference to Exhibit 4.3 of the Registrant’s Registration Statement (Registration No. 333-7630) on Form F-1).
2.2	*	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).
2.3	*	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).
2.4	*	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).
7.1		Computation of Ratio of earnings to fixed charges
8.1		List of subsidiaries of KT Corporation
12.1		Certifications 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		Consent of KPMG Samjong Accounting Corp. with respect to the financial statements of KT Corporation
15.2		Consent of Anjin Deloitte LLC with respect to the financial statements of KT Freetel Co., Ltd.
15.3		Consent of Samil Accounting Corporation with respect to the financial statements of KT ICOM Co., Limited
15.4		The Telecommunications Basic Law (English translation)
15.5	*	Enforcement Decree of the Telecommunications Basic Law (English translation) (incorporated herein by reference to Exhibit 10.5 of the Registrant’s Annual Report (File No. 1-14926) on Form 20-F for the fiscal year ended December 31, 2002)
15.6		The Telecommunications Business Law (English translation)
15.7		Enforcement Decree of the Telecommunications Business Act (English translation)

* Filed previously as indicated.

EX-1

Exhibit 1

[Translation]

THE ARTICLES OF INCORPORATION

OF

KT Corporation

Adopted on	October 1, 1997
Amended on	December 8, 1997
	September 18, 1998
	March 19, 1999
	March 24, 2000
	March 21, 2001
	March 22, 2002
	August 20, 2002
	March 14, 2003

CHAPTER I. GENERAL PROVISIONS

Article 1. Name. The name of the Corporation shall be “Chusik Hoesa KT”, which shall be written in English as “KT Corporation” (hereafter “KT”).

Article 2. Purpose. The objective of KT is to engage in the following business activities:

1. Information and communications business;

2. New media business;

3. Development and sale of software;

4. Sale and distribution of information communication equipment;

5. Testing and inspection of information communication equipment, device or facilities;

6. Advertisement business;

7. Retail business via telephone, mail order or online;

8. IT facility construction business;

9. Real estate and housing business;

10. Electronic banking and finance business;

11. Research and development, education, training and promotion, overseas businesses and export and import, manufacture and distribution related to activities mentioned in items 1 through 10; and

12. Any and all other activities or businesses incidental to or necessary for the attainment of the foregoing.

Article 3. Location of Offices. The head office of KT (the “head office”) shall be located in Seoul or Kyunggi Province. KT may establish requisite sub-offices at site(s) pursuant to resolution of the Board of Directors.

Article 4. Method of Public Notice. Public notices by KT shall be given in The Korea Daily News circulated in Seoul, Republic of Korea. Provided, however, that if the public notices cannot be published in The Korea Daily News due to unavoidable circumstances, such public notices may be given in any daily newspaper published in Seoul, Republic of Korea.

CHAPTER II. SHARES OF STOCK

Article 5. Amount of Authorized Capital. The total number of shares authorized to be issued by KT shall be one billion shares.

Article 6. Par Value and Types of Shares and Share Certificates.

(1) Par value per share issued by KT shall be 5,000 Won. The type of shares shall be common shares and preferred shares, both of which shall be in registered form.

(2) Share certificates shall be in eight (8) denominations of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1000) and ten thousand (10,000) shares.

Article 7. Shares to be Issued at the Time of Incorporation. The total number of shares to be issued by KT at the time of incorporation shall be 395,675,369 shares.

Article 8. Number and Description of Preferred Shares.

(1) The total number of Preferred Shares to be issued by KT shall be up to one-fourth (1/4) of the total number of shares issued and outstanding, which shall be without voting rights.

(2) Dividends on Preferred Shares shall be an amount not less than nine (9) percent p.a. of the par value as determined by the Board of Directors at the time of issuance.

(3) If the dividends on the Common Shares exceed those on Preferred Shares, the excess dividend amount shall also be paid to the holders of Preferred Shares.

(4) If dividends on Preferred Shares are not paid for any fiscal year, the holders of such Preferred Shares shall be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in respect of the next fiscal year.

Article 9. Preemptive Rights.

(1) When KT issues new shares, the shareholders of KT shall be entitled to subscribe for such new shares in proportion to their existing shareholdings.

(2) Notwithstanding Paragraph (1) above, new shares may be issued to persons other than the shareholders of KT, in the following cases:

1. In case that such new shares are issued by public offering or subscribed by underwriters pursuant to Article (2) and Article (8) of the Securities and Exchange Act (“SEA”);

2. In case that the members of the Employee Stock Ownership Association of KT have preemptive rights to subscribe for such new shares pursuant to Article (191-7) of the SEA;

3. In case that such new shares are represented by depositary receipt pursuant to Article (192) of the SEA;

4. In case that such new shares are issued by the exercise of stock options set forth in Article 10 of these Articles of Incorporation;

5. In case that such new shares are issued in order to satisfy specific purposes such as strategic alliance, inducement of foreign funds, other capital raising requirements, introduction of new technology, improvement of financial structure, etc.

6. In the case that such new shares are issued by a resolution of the Board of Directors through general public offering pursuant to Article (189-3) of the SEA. However, in this case, the total number of the shares to be issued shall not exceed ten percent (10%) of total number of KT issued and outstanding; or

7. In the case there exists an immediate need for the company to raise funds, new shares could be issued to domestic and foreign financial institutions (enacted on March 21, 2001).

(3) The method of disposition of shares in respect of which preemptive rights have not been exercised or where fractions of shares occur shall be determined by resolution of the Board of Directors.

(4) Notwithstanding the Paragraph (1) above, shareholders who acquire shares in violation of any laws and regulations or these Articles of Incorporation shall not entitled to subscribe for new shares in respect of such shares.

Article 10. Stock Options.

(1) KT may grant stock options to its officers and employees who have contributed, or are capable of contributing, to the establishment, management or technical innovation of KT, except for officers or employees in any of the following cases, by a Special Resolution of the General Meeting of Shareholders pursuant to Article (189-4) of the SEA, to the extent not exceeding fifteen percent (15%) of the total number of issued shares, provided that KT may grant stock options by a resolution of the Board of Directors, to the extent not exceeding one percent (1%) of the total number of issued shares. In such case, the provision of the latter part of the Proviso of Article 38(1) shall apply mutatis mutandis:

1. The largest shareholder of KT and the Related Person thereto (refers to the Related Person as prescribed in Paragraph (2), Article (10-3) of the Enforcement Decree of the SEA. The same shall apply in this Article);

2. Major Shareholders (refers to the Major Shareholders as prescribed in Paragraph (1), Article (188) of the SEA. The same shall apply hereinafter) and the Related Person thereto; or

3. Any person who shall become a Major Shareholder of KT by exercising his/her stock options.

(2) The shares to be issued to the officers or employees by the exercise of their stock options (in case where KT pays in cash or shares the difference between the exercise price of stock options and the market price, refers to the shares which are the basis for such calculation) shall be Common Shares in registered form.

(3) The number of officers and employees of KT who are granted with stock options shall not exceed ninety nine percent (99%) of the total number of officers and employees in office. Stock options granted to one single officer or employee shall not exceed ten percent (10%) of total number of shares issued and outstanding.

(4) The exercise price per share of the stock options shall be not less than the price as set forth in the SEA. (amended on March 24, 2000)

(5) Unless otherwise provided for by the relevant laws, the exercise period of stock options shall be determined by separate agreements, to the extent that such exercise periods shall not exceed seven (7) years from the date two (2) years have elapsed after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted.

(6) KT may cancel the grant of stock options by a resolution of the Board of Directors in any of the following cases:

1. When the relevant officer or employee of KT voluntarily retires from his/her office within two (2) years after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted;

2. When the relevant officer or employee of KT is dismissed as substantial damages are incurred to KT due to his/her willful misconduct or gross negligence; or

3. When any event for the cancellation set forth in the agreement for granting such stock options occur.

Article 11. Base Date Regarding Dividends the New Shares. In case KT issues new shares through right issues, bonus issues and stock dividends, with respect to the distribution of dividends on the new shares, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year during which the new shares are issued.

Article 12. Transfer Agent.

(1) KT may appoint a transfer agent to make entries in the register of shareholders.

(2) The transfer agent, the business place and scope of business of the transfer agent shall be determined by a resolution of the Board of Directors, and public notice shall be given thereof.

Article 13. Report of Names, Addresses and Seals of Shareholders.

(1) Shareholders and registered pledgees shall report their names, addresses, and seals to the transfer agent referred to in Article 12. Any changes thereto shall also be reported.

(2) Shareholders and registered pledgees who reside in foreign countries shall appoint and report the place where, and an agent to whom, notices will be given in Korea.

Article 14. Closing of the Register of Shareholders and the Record Date.

(1) KT shall suspend the entries of any changes into the register of shareholders regarding any rights on Shares from January 1 to January 31 of each year.

(2) KT shall let the shareholders who are entered into the register of shareholders on December 31 of each year exercise their rights thereof at the Ordinary General Meeting of Shareholders.

(3) KT may, for convening an Extraordinary General Meeting of Shareholders or when necessary, by resolution of the Board of Directors, set the record date or close the register of shareholders for a certain period not exceeding three (3) months by giving at least two (2) weeks’ prior public notice.

CHAPTER III. DEBENTURES

Article 15. Issuance of Convertible Bonds.

(1) KT may issue convertible bonds to persons other than shareholders to the extent that the aggregate face value of the convertible bonds so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of convertible bonds to persons other than shareholders may be made in cases provided for by any of the Subparagraphs of Article 9(2).

(2) The Board of Directors may determine that the convertible bonds referred to in Paragraph (1) may be issued on the condition that conversion rights will be attached to only a portion of the convertible bonds.

(3) The type of shares to be issued upon conversion of convertible bonds shall be common shares. The conversion price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.

(4) The period during which conversion rights may be exercised shall commence on the date set forth in the Securities Exchange Act after the date of issuance of the relevant convertible bonds and end on the date immediately preceding the redemption date thereof. Provided that, the Board of Directors may adjust the conversion period in accordance with relevant laws within the above period by its resolution.

(5) For the purposes of any distribution of dividends on the shares issued upon conversion or any payment of interest on the convertible bonds, the convertible bonds shall be deemed to have been converted into shares at the end of the fiscal year immediately preceding the fiscal year in which the relevant conversion rights are exercised.

Article 16. Issuance of Bonds with Warrants.

(1) KT may issue bonds with warrants to persons other than shareholders to the extent that the aggregate face value of the bonds with warrants so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of bonds with warrants to persons other than shareholders may be made in any case provided for by any Subparagraphs of Article 9(2).

(2) The amount of new shares which can be subscribed for by the holders of the bonds with warrants shall be determined by the Board of Directors, provided that the maximum amount of such new shares shall not exceed the aggregate face value of the bonds with warrants.

(3) The type of shares to be issued upon exercise of warrants shall be common shares. The issue price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.

(4) The period during which warrants may be exercised shall commence on the date set forth in the Securities Exchange Act after the date of issuance of the relevant bonds with warrants and end on the date immediately preceding the redemption date thereof. Provided that, the Board of Directors may adjust the conversion period in accordance with relevant laws within the above period by its resolution.

(5) For the purposes of any distribution of dividends on the shares issued upon exercise of warrants, shares shall be deemed to have been issued at the end of the fiscal year immediately preceding the fiscal year in which the subscription monies therefor are fully paid.

Article 17. Applicable Provisions regarding Issuance of Bonds. The provisions of Articles 12 and 13 shall apply mutatis mutandis to the issuance of bonds.

CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS

Article 18. Convening of General Meeting.

(1) Ordinary General Meeting of Shareholders shall be convened within three (3) months after the end of each fiscal year, and Extraordinary General Meeting of Shareholders may be convened at any time, by the President pursuant to a resolution of the Board of Directors except as otherwise provided by the relevant laws and regulations. Provided, however, that Article 29, Paragraph (2) shall apply mutatis mutandis in the event the President fails to perform his duties.

(2) Notice of the General Meeting of Shareholders specifying the time, place and purpose thereof shall be given to each shareholder two (2) weeks prior to the date set for the General Meeting of Shareholders. However, the notice of convening General Meeting of Shareholders to the shareholders who hold less than one-hundredth (1/100) of the total number of shares with voting rights shall be placed by giving public notice of the meeting twice or more in The Korea Daily News, The Maeil Business Newspaper and The Korean Economic Daily.

(3) General Meeting of Shareholders shall be held at the location of the head office, Seoul or its neighboring place.

Article 19. Chairman. The President shall preside at General Meeting of Shareholders; provided, however, that Article 29, Paragraph (2) shall apply mutatis mutandis in the event that the President fails to perform his duties.

Article 20. Chairman’s Right to Maintain Order.

(1) The Chairman shall suspend or cancel the proposal of any person who intentionally disrupts, by speech or behavior, the proceedings of a General Meeting of Shareholders or shall order such person to leave the General Meeting of Shareholders.

(2) If the Chairman deems it necessary for the smooth proceeding of the General Meeting of Shareholders, the Chairman may restrict the time and frequency of a shareholder’s proposal.

Article 21. Voting by Proxy.

(1) A shareholder may exercise its voting rights by proxy.

(2) The proxy described in Paragraph (1) must file with KT a power of attorney before the opening of the General Meeting.

Article 22. Method of Adoption of Resolutions. Resolutions of General Meetings of Shareholders, except as otherwise provided by the relevant laws and regulations, shall be adopted if the approval of a majority vote of the shareholders present at such meeting is obtained and such majority also represents at least one-fourth (1/4) of the total number of shares issued and outstanding.

Article 23. Minutes of the General Meeting. With respect to the proceedings of a General Meeting of Shareholders, the details of the proceedings and its resolutions shall be recorded in the minutes which shall bear the name and seal or signature of the Chairman and the Directors present, and shall be preserved at the head office and branches.

CHAPTER V. DIRECTORS

Article 24. Number of Directors. KT shall have not more than fifteen (15) directors. The number of standing directors including the President shall not exceed six (6), and the number of outside directors shall not exceed nine (9).

Article 25. Election of President, Directors.

(1) The President shall be elected at the General Meeting of Shareholders among those who are recommended by the President Recommendation Committee pursuant to Article 34 of these Articles of Incorporation, and shall be deemed as the Representative Director under the Commercial Code.

(2) The dismissal of the President requires a resolution by the General Meeting of Shareholders adopted by the affirmative vote of two-thirds (2/3) of the voting rights of the shareholders in attendance at the Meeting; provided, however, that such votes shall represent at least one-third (1/3) of the total number of issued shares of KT.

(3) Standing directors other than the President shall be classified as Vice President and Executive Managing Director and shall be elected at the General Meeting of Shareholders among those whom the President has recommended with the consent of the Board of Directors. The President may propose to the General Meeting of Shareholders with the consent of the Board of Directors the dismissal of any standing director even during his/her term of office, when any of the following event occurs. In this case, standing directors other than the President shall not participate in the resolution of the Board of Directors:

1. Inability to perform his/her duties for a period not less than one (1) year due to his/her physical and/or mental disorders; or

2. Remarkably poor results of his/her business management due to deficient management abilities.

(4) Notwithstanding Article 3 in the above, if the President Recommendation Committee has recommended a candidate for the President, the candidate for the President shall recommend candidates for standing directors with the consent of the Board of Directors. Provided, however, that the candidate for the President is not elected as the President at the General Meeting of Shareholders, his recommendation of the candidacy for the standing directorship shall become null and void.

(5) Any person who falls under any of the following categories shall not become a director of KT, and upon elected director of KT falling under any of the following categories, such director shall be dismissed:

1. Person who retired from his/her office within the last three (3) years due to his/her own faults or business responsibilities;

2. Person who is sentenced to imprisonment or more severe punishment, and three (3) years have not elapsed after the expiration of the execution of such imprisonment or determination not to receive the execution of imprisonment;

3. Person who is currently under the suspension of pronouncement, or who is sentenced to probation, and two (2) years have not elapsed after the expiration of the probation period;

4. The same person and his/her related party as defined in the Monopoly Regulation and Fair Trade Act (“MRFTA”) who controls a company in competition with KT (however, with respect to the definition of competitor of KT used herein, if the company engages in the same business as KT’s and belongs to the same enterprise group of KT, such company is not deemed to be in competition with KT. This shall have the same meaning hereafter);

5. Any person who presently serves or has served at any time during the past two (2) years, as an officer or employee for the company which is in competition with KT and for other companies which belong to the same enterprise group under the MRFTA of such company;

6. Any person who presently works or has worked at any time during the past two (2) years, as an officer or employees for the largest or second largest shareholding company which is in competition with KT and for other companies which belong to the same enterprise group under the MRFTA of such company; or

The scope of a company which has competitive relationship with another company as prescribed in items 4 through 6 shall include a related party under the Securities and Exchange Act (“SEA”).

(6) An outside director shall be a person who has expert knowledge or certain experience in the field of economy, management, law or related professions and is capable of contributing to the development of KT and the protection of shareholder’s interests.

(7) Any candidate for outside director falling under the disqualification requirements under the Commercial Code of Korea, the Securities Exchange Act of Korea and other relevant laws and regulations shall not become an outside director and any outside director subject to such disqualification requirements shall be dismissed.

Article 26. Staggered Term of Office of Outside Director. One-third of the total number of outside directors shall be elected every year.

Article 27. Term of Office of Directors. The term of office of directors shall be three (3) years; where the term of office expires before the closing date of the Ordinary General Meeting of Shareholders in the last fiscal year of such term, the term of office shall be extended to the closing date of such General Meeting.

Article 28. By-election of Directors.

(1) In case of any vacancy in the office of a director, then a director shall be elected to fill such vacancy at a General Meeting of Shareholders, provided that election thereof may not be made unless such vacancy results in lack of the requisite number of Directors or a difficulty in the administration of business.

(2) The term of office of an outside director elected to fill a vacancy shall be the remainder of the term of office of his/her predecessor.

Article 29. Duties of President and Directors.

(1) The President shall represent KT and take full responsibility for its business operations as CEO of KT.

(2) Standing directors shall assist the President and shall perform their duties. In the event the President fails to perform his duties, a standing director shall perform his/her duties in accordance with the order as provided in the Office Regulation. However, in the event both the President and standing directors fail to perform their duties, a director shall perform his/her duties in accordance with the order as provided in the Office Regulation.

(3) If a director becomes aware of any event which may cause a material damage to KT, such director should immediately report to the Audit Committee thereof.

Article 30. Duties of Directors.

(1) Directors shall perform their duties faithfully for the good of KT in accordance with the applicable laws and regulations and the provisions of these Articles of Incorporation.

(2) The directors shall not disclose any business secret of KT that they obtained in the course of performance of their duties, during and after their terms of offices.

Article 31. Remuneration and Severance Allowance for Directors.

(1) The Remuneration limit for the directors shall be determined by a resolution of the General Meeting of Shareholders, and such remuneration may be paid either in cash or in combination of cash and stock.

(2) The criteria for remuneration for the President and standing directors and the method of payment thereof shall be determined by a resolution of the Board of Directors, which shall be reported to the General Meeting of Shareholders.

(3) The President and standing directors shall not participate in the resolution of the Board of Directors as set forth in Paragraph (2) above.

(4) Severance allowances for directors shall be paid in accordance with KT’s regulations for payment of officers’ severance allowance adopted at a General Meeting of Shareholders.

(5) Outside directors shall be reimbursed for expenses necessary for the performance of their duties.

Article 32. President Recommendation Committee.

(1) KT may organize a President Recommendation Committee in order to recommend a presidential candidate. The President Recommendation Committee shall consist of the following members: However, any person who was elected as a member of President Recommendation Committee shall not be a Candidate for President.

1. Three (3) outside directors who are elected by drawing from among outside directors; One (1) person who is designated by the Board of Directors from among ex-Presidents or the current President of KT; and (provided, however, that the incumbent President who is interested to apply for candidacy for new President shall not participate in any resolution of the Board of Directors.)

2. One (1) non-government person designated as a member of President Recommendation Committee by the Board of Directors with President and Standing directors excluded(in any event excluding former and present officers and employees of any telecommunications business operator who is in competition with KT and any of their Related persons as defined in Monopoly Regulation and Fair Trade Act, and officers and employees of KT, and the public officials).

(2) The President Recommendation Committee shall be organized two (2) months prior to the date of expiration of the term of office of the President (or within two (2) weeks from the date of retirement of the President when such retirement is due to reasons other than the expiration of the term of office thereof), and shall be dissolved after the execution of management agreement between the President so elected and the chairman of the President Recommendation Committee.

(3) The chairman of the President Recommendation Committee shall be elected by the Board of Directors from among its members who hold the position of outside directors of KT. In this case, the President and standing directors shall not participate in the resolution of the Board of Directors.

(4) A resolution of the President Recommendation Committee shall be adopted by the affirmative votes of a majority of the members in offices other than the chairman thereof. In this case, the chairman shall not have any voting rights.

(5) The President Recommendation Committee shall examine all the presidential candidates in compliance with the criteria for the examination of a candidate for the President prescribed by the Board of Directors, in consideration of the following requirements:

1. Experiences and scholastic achievements under which his/her knowledge with respect to the field of business management and economics can be evaluated in objective point of view;

2. Business results for the past and the management period of being in office under which his/her business experiences can be evaluated in objective point of view;

3. Any requirements to evaluate qualification and ability as a chief executive officer; and

4. Any requirements to evaluate professional knowledge and experience with respect to the telecommunications and related fields.

Article 33. Election of President.

(1) President shall be elected from among CEO-qualified candidates who have a knowledge of management and economics or who have much managerial work experience.

(2) KT shall give a public notice of recruiting candidates for its President and may, if necessary, conduct background check of such candidate or hire a third party credit investigation agency to perform searches.

(3) The President Recommendation Committee shall examine the candidates for the President who applied pursuant to the provision of Paragraph 2 above, in accordance with the candidates evaluation criteria determined by the Board of Directors.

(4) The President Recommendation Committee shall, in selecting the candidates for the President, consult with such candidates regarding the terms of employment contract including management goal established by the Board of Directors. In such case, if necessary, the President Recommendation Committee may change the terms of employment contract.

(5) The President Recommendation Committee shall recommend candidate for the President to the General Shareholders’ Meeting, based on the result of the evaluation under Paragraph 3 and the consultation under Paragraph 4 above, concurrently submitting a draft employment contract including a management goal during the tenure of the President. President and standing directors shall not attend the Board of Directors’ Meeting for the resolution of the agenda prescribed in Paragraphs 2 through 4.

Article 34. Execution of Employment Contract with the Candidate for President.

(1) When the draft employment contract submitted pursuant to Paragraph 5, Article 33 above has been approved at the General Shareholders’ Meeting, KT shall enter into such management contract with the candidate for President. In such case, the Chairman of the President Recommendation Committee shall, in the capacity of the representative of KT, sign the management contract.

(2) The Board of Directors may conduct performance review discussion to determine if the new President performed his/her duties under the management contract as provided in Paragraph 1 or hire a professional evaluation agency for such purpose.

(3) When the Board of Directors determines, based on the result of performance review under the provision of Paragraph 2 above, that the new President has failed to achieve the management goal, it may propose to dismiss the President at the General Shareholder’s Meeting.

(4) Management goals shall include revenue increase, improvement in profitability, investment plan, etc. and shall be determined, on a yearly basis, at the Board of Directors’ Meeting within the scope of target achievement during the term of office to be determined at the General Shareholders’ Meeting. Such management goal may be established on a numerical basis, if possible.

(5) The performance review prescribed in Paragraph 2 above, shall be conducted by the Board of Directors at the closing of each fiscal year or may be delegated by the Board of Directors to a professional evaluation agency; provided, however, that if the Board of Directors deems necessary, it may conduct the performance review during any fiscal year. The Board of Directors shall report the result of the performance review prescribed in Paragraph 2 above to the General Meeting of Shareholders.

(6) The President and standing directors may not attend the Board of Directors’ Meeting for resolution of the agenda prescribed in Paragraphs 2 through 4.

Article 35. Executive Officers.

(1) For the efficient operation of KT, the number of executive officers shall not exceed seventy (70) persons, including standing directors.

(2) The executive officers other than standing directors shall be referred to as the executive managing officer, managing officer and assistant managing officer.

(3) The number and remuneration of the executive officers who do not hold the position of standing directors of KT shall be determined by the Board of Directors. The severance allowance for the said executive officers shall be paid in accordance with KT’s regulations for payment of officers’ severance allowance adopted at a General Meeting of Shareholders.

(4) Executive officers who do not hold the position of standing directors of KT shall be elected by the President of KT, whose term of office shall not exceed three (3) years.

(5) All matters concerning the respective duties of executive officers shall be determined by the President.

Article 36. Advisor, etc. The President may employ an Advisor or appoint an Advisory Council in order to receive advice and suggestions regarding important matters concerning the operation of KT’s businesses.

CHAPTER VI. BOARD OF DIRECTORS

Article 37. Organization and Operation.

(1) The Board of Directors shall consist of the directors, and shall resolve important matters related to the execution of business of KT as prescribed in the laws and regulations and these Articles of Incorporation, which were submitted by a director as an agenda.

(2) The Board of Directors shall be convened by each director. However, this shall not apply in the event that a director to convene the Board of Directors’ Meeting is determined by the resolution of the Board of Directors’ Meeting.

(3) The rest of directors may request the Director designated under Paragraph 2 above to convene the Board of Directors’ Meeting. However, if the designated Director refuses to convene the Board of Directors’ Meeting without any justifiable reason therefor, other Directors may convene the Board of Directors’ Meeting.

(4) In convening a meeting of Board of Directors, the notice thereof shall be given at least three (3) days prior to the date set for such meeting to each director; provided, however, that the above procedure may be omitted with the consent of all of the directors.

(5) Matters necessary for the operation of the Board of Directors shall be set forth in the Regulations of the Board of Directors.

(6) For the efficient management of the Board of Directors, a self evaluation regarding the activities of the Board of Directors may be conducted, and detailed matters therefor, including the evaluation method, etc. shall be determined by the resolution of the Board of Directors.

Article 38. Resolution and Delegation.

(1) A resolution at a meeting of Board of Directors shall be adopted by the presence of a majority of all directors in offices and by the affirmative votes of a majority of the directors present. However, the resolution on the sale of equity in any subsidiary of KT accompanying transfer of management shall be adopted by affirmative votes of two-thirds (2/3) of the directors in offices and the resolution on the dismissal of the President shall be adopted by affirmative votes of two-thirds (2/3) of the outside directors in offices.

(2) Board of Directors may delegate part of its authorities to the President.

Article 39. Chairman.

(1) The chairman of the Board of Directors shall be elected from among outside directors by resolution of the Board of Directors

(2) The term of office of the chairman shall be one (1) year

Article 40. Minutes of the Board of Directors. The proceeding and result of meeting of the Board of Directors shall be recorded in the minutes, which shall bear the names, seals or signatures of the Chairman, the directors present at the meeting, and shall be kept at the head office.

Article 41. Committees within the Board of Directors.

(1) The Board of Directors may have the following expert committees under its control by its resolution, in order to deliberate or decide with respect to the specific matters submitted to the Board of Directors:

1. Outside Director Candidates Recommendation Committee;

2. Audit Committee;

3. Other Committees which the Board of Directors may deem necessary.

(2) Any matters necessary for the organization, powers and operation of the committees within the Board of Directors set forth in Paragraph (1) above shall be determined by a resolution of the Board of Directors.

Article 42. Outside Director Candidates Recommendation Committee.

(1) The Outside Director Candidates Recommendation Committee shall consist of 1 standing director and 4 outside directors.

(2) Outside Director Candidates Recommendation Committee shall recommend outside director candidates to the General Shareholders’ Meeting.

(3) Any other detailed matters regarding organization and operation of the Outside Director Candidates Recommendation Committee shall be determined by a resolution of the Board of Directors.

Article 43. Audit Committee.

(1) The Audit Committee shall consist of three (3) outside directors.

(2) The Audit Committee shall perform an audit of KT’s accounting books and records, and of other aspects of its business operations.

(3) Any other detailed matters regarding organization and operation of the Audit Committee shall be determined by a resolution of the Board of Directors.

Article 44. Executive Officers’ Meeting.

(1) KT may convene executive officers’ meeting in order to consider and resolve matters delegated by the Board of Directors.

(2) Matters necessary for the organization and operation of the executive officers’ meeting set forth in paragraph 1 above shall be determined by a resolution of the Board of Directors.

CHAPTER VII. ACCOUNTING

Article 45. Fiscal Year. The fiscal year of KT shall be from January 1 to December 31 of each year.

Article 46. Preparation, Submission and Maintenance of the Financial Statements.

(1) The President of KT shall prepare the following documents and supplementary documents thereto and the business report for each fiscal year, and submit such documents, after approved by the Board of Directors, to the Audit Committee, six (6) weeks prior to the date of the Ordinary General Meeting of Shareholders:

1. a balance sheet;

2. a statement of profit and loss; and

3. a statement of appropriation of retained earnings or a statement of disposition of deficit.

(2) The Audit Committee shall submit an auditor’s report to the President within one (1) week after the receipt of the documents listed in Paragraph (1) above.

(3) The President shall keep the documents mentioned in each item of Paragraph (1) together with the business report and the auditor’s report at the head office for a period of five (5) years, commencing from one week prior to the date of the Ordinary General Meeting of Shareholders. Certified copies of these documents shall be kept in each respective branch office for a period of three (3) years.

(4) The President shall submit the documents listed in each item of Paragraph (1) to the Ordinary General Meeting of Shareholders and request approval therefor. With respect to the business report, he/she shall report the contents thereof to the Ordinary General Meeting of Shareholders.

(5) When the approval of the General Meeting of Shareholders is obtained for the documents listed in each item of Paragraph (1), the President shall, without delay, give public notice of the balance sheet and the audit opinion thereon of an independent auditor.

Article 47. Disposition of Profits. The unappropriated retained earnings for each fiscal year of KT shall be disposed of as following order:

1. Legal Reserves;

2. Other statutory reserves;

3. Amortization by way of the appropriation of the retained earnings;

4. Dividends; and

5. Voluntary reserve.

Article 48. Retirement of Shares. Pursuant to Article 189 of the Securities Exchange Act, KT may, by a resolution of the Board of Directors, retire the shares within the scope of profits attributable to the shareholders.

Article 49. Payment of Dividends.

(1) Dividends may be paid either in cash or in shares.

(2) In case of stock dividends, if KT has issued several types of shares, different types of shares may be allotted by resolution of the General Meeting of Shareholders.

(3) Pursuant to a resolution of the Board of Directors, KT may pay interim dividends in cash once a year as of June 30 (referred to as the fixed interim dividend date) of each fiscal year.

(4) The dividends referred to in Paragraphs (1) and (3) shall be paid to the shareholders or registered pledgees who are registered in the registry of shareholders as of the end of each fiscal year or as of the fixed interim dividend date

(5) The rights to dividends shall be extinguished if it is not exercised within five (5) years from the date when the relevant dividend was declared and such dividends shall belong to KT.

SUPPLEMENTARY PROVISIONS

Article 50. Guarantee of Personnel Status.

(1) Any employee of KT shall not receive a dismissal, suspension, reduction in compensation, reprimand and other disadvantageous orders, without any justifiable reasons therefor.

(2) The retirement age of the employee of KT shall be prescribed in accordance with Article (6), Paragraph (2) of Addenda of the Laws Repealing the Korea Telecom Act.

Article 51. Publication of Management Information. KT shall make public any and all matters deemed to be necessary for the promotion of transparency in management.

ADDENDUM

Article 1. Enforcement Date. These Articles of Incorporation shall be effective from October 1, 1997.

Article 2. Term of Office of the First President and Standing Directors. Notwithstanding Paragraph (1), Article (29) hereof, the term of office of the first President and the standing

directors to be elected at the General Meeting of Shareholders convened after the execution of these Articles of Incorporation shall be extended until the end of the Ordinary General Meeting of Shareholders convened after the expiration of the said term of office.

Article 3. Term of Office of First Non-Standing Director.

(1) Pursuant to Article (3) of the Addenda of the Special Act, candidates for non-standing directors who are recommended by the Temporary Non-standing Directors Recommendation Committee shall be classified into three groups, i.e., first, second and third groups, which shall consist of one, two and three persons, respectively.

(2) Notwithstanding Article (29), Paragraph (1) hereof, the term of office of a non-standing director in the first group shall expire at the close of the first Ordinary General Meeting of Shareholders convened after one (1) year has elapsed. The term of office of non-standing directors in the second and third group shall expire at the close of the first Ordinary General Meetings of Shareholders convened after two (2) and three (3) years have elapsed, respectively.

Article 4. Special Provisions for Term of Office of Standing Directors succeed to the Term of Office of an Executive Officer. In the event that a former executive officer who has been elected prior to the date of enforcement of these Articles of Incorporation is elected as a first standing director of KT after the enforcement of these Articles, his/her term of office may be shortened to the remainder of the term of office of a executive officer prior to the date of enforcement of these Articles of Incorporation.

ADDENDUM (December 8, 1997)

These articles of Incorporation shall be effective from the date of resolution of the general meeting of shareholders thereon.

ADDENDUM (September 18, 1998)

Article 1. Enforcement Date. These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.

Article 2. Interim Measures for the Acquisition of Shares of KT by Foreigners. Those provisions of Paragraph (3), Article (10) hereof shall not be applicable where Foreigners have acquired any shares of KT prior to the date of enforcement of these Articles of Incorporation pursuant to the relevant laws and regulations. In this regard, the number of shares so

acquired shall be included in the maximum aggregate shareholdings ceiling prescribed in Item 1, Paragraph (2), Article (10) above.

ADDENDUM (March 19, 1999)

Article 1. Enforcement Date. These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.

Article 2. Interim Measure. The cumulative voting system provided for in Article (382-2) of the Commercial Code shall not apply until each of the requirements set forth in Paragraph (1), Article (21) of the Special Act has been satisfied.

ADDENDUM (March 24, 2000)

These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.

ADDENDUM (March 21, 2001)

These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.

ADDENDUM (March 22, 2002)

These Articles of Incorporation shall be effective as of the date of resolution of the general meeting of Shareholders.

ADDENDUM (August 20, 2002)

Article 1. Enforcement Date. These Articles of Incorporation shall become effective from the date on which a resolution on the foregoing amendments is adopted at the General Meeting of Shareholders. Provided, however, that the amended provision of Article 41-3 shall become effective from the date following the day on which the first General Meeting of Shareholders is convened after enforcement of these amended Articles of Incorporation.

Article 2. Interim Measures regarding Auditor.

(1) The amended provisions regarding auditor of Articles 27, 28, 29, 30, 32, 33, 37 and 40 shall remain invalid, concurrently upon establishment of the Audit Committee.

(2) The term, “auditor” referred in Paragraph 3 of Article 31 and Article 44, shall be interpreted to be “Audit Committee”, respectively, concurrently upon establishment of the Audit Committee.

Article 3. Interim Measures on Increase in Number of Outside Directors. Notwithstanding the amended provision of Article 26, a candidate for outside director recommended by the Shareholders’ Committee established in accordance with the previous AOI, shall be deemed to have been recommended by the Outside Director Recommendation Committee, and the term of office of such additionally appointed outside director in the above shall be until the date on which the Ordinary General Meeting of Shareholders is held in the year of 2005.

ADDENDUM (March 14, 2003)

These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.

EX-7.1

Exhibit 7.1

Computation of Ratios of Earnings to Fixed Charges

	Year Ended December 31,
Korean GAAP	2001		2002		2003
	(Millions of Won)
Earnings:
Net earnings	1,112,975		1,946,934		821,734
Income tax	421,470		741,354		523,631
Income from equity investees	(5,157	)	(8,524	)	(5,462	)
Dividend from equity method affiliates	1,995		469		554
Fixed charges	836,725		828,079		720,744
Less interest capitalized	(119,147	)	(158,482	)		(a)
Minority interest in earnings (losses) of consolidated subsidiaries	260,422		316,918		235,695
Total earnings	2,509,283		3,666,748		2,296,896
Fixed charges:
Interest expense	712,442		650,460		705,540
Capitalized interest	119,147		158,482			(a)
One-third of rental expenses on operating leases, deemed to be representative of interest expenses	5,136		19,137		15,204
Total fixed charges	836,725		828,079		720,744
Ratios of earnings to fixed charges	3.00:1		4.43:1		3.19:1
U.S. GAAP
Earnings:
Net earnings	1,006,324		1,556,262		395,443
Income tax	261,677		519,642		217,568
Income from equity investees	(8,898	)	(10,713	)	(10,559	)
Dividend from equity method affiliates	1,995		1,278		958
Fixed charges	563,298		488,970		443,078
Less interest capitalized	(43,925	)	(27,853	)	(21,469	)
Minority interest in earnings (losses) of consolidated subsidiaries	2,220		(3,222	)	(22	)
Total earnings	1,782,691		2,524,364		1,024,997
Fixed charges:
Interest expense	517,051		461,117		421,609
Capitalized interest	43,925		27,853		21,469
One-third of rental expenses on operating leases, deemed to be representative of interest expenses	2,322		—		—
Total fixed charges	563,298		488,970		443,078
Ratios of earnings to fixed charges	3.16:1		5.16:1		2.31:1

^(a) According to the revised K-GAAP, effective on January 1, 2003, the company elected to no longer capitalize interest costs on all borrowings, incurred prior to completion of the acquisitions, as part of the cost of qualifying assets.

1

EX-8.1

Exhibit 8.1

List of subsidiaries of KT Corporation

(As of December 31, 2003)

Name	Jurisdiction of Incorporation
KT Powertel Co., Ltd.	Korea
KT Solutions Corporation	Korea
KT Linkus Co., Ltd.	Korea
KT Hitel Co., Ltd.	Korea
Korea Telecom America, Inc.	U.S.A.
Korea Telecom Philippines, Inc.	Philippines
KT Submarine Co., Ltd.	Korea
KT Freetel Co., Ltd.	Korea
New Telephone Company Inc.	Russia
Korea Telecom Japan Co., Ltd.	Japan
KTF Technologies Inc.	Korea
KT Commerce Inc.	Korea
KT Rental Corp.	Korea
KT China Co., Ltd.	China

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Yong-Kyung Lee, certify that:

1. I have reviewed this annual report on Form 20-F of KT Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 25, 2004

/s/ Yong-Kyung Lee

Yong-Kyung Lee

Chief Executive Officer

Exhibit 12.1

CERTIFICATION

I, Jeong-Soo Suh, certify that:

1. I have reviewed this annual report on Form 20-F of KT Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: June 25, 2004

/s/ Jeong-Soo Suh

Jeong-Soo Suh

Chief Financial Officer

EX-13.1

Exhibit 13.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of KT Corporation, a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (the “Form 20-F”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: June 25, 2004	/s/ Yong-Kyung Lee
	Name:	Yong-Kyung Lee
	Title:	Chief Executive Officer
Dated: June 25, 2004	/s/ Jeong-Soo Suh
	Name:	Jeong-Soo Suh
	Title:	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to KT Corporation and will be retained by KT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-15.1

Exhibit 15.1

Consent of Independent Registered Public Accounting Firm

To the Board of Directors

KT Corporation:

We consent to incorporation by reference in the registration statement on Form F-3 (No. 333-100251) of KT Corporation of our report dated February 13, 2004 with respect to the consolidated balance sheets of KT Corporation and subsidiaries as of December 31, 2002 and 2003 and the related consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended December 31, 2003, and which report, which is partially based on the reports of other auditors, appears in the December 31, 2003 annual report on Form 20-F of KT Corporation.

KPMG Samjong Accounting Corp.

Seoul, Korea

June 25, 2004

EX-15.2

Exhibit 15.2

Independent Auditors’ Consent

We consent to the incorporation by reference in the Registration Statement of KT Corporation on Form F-3 (No. 333-100251) of our reports dated March 27, 2004 and March 7, 2003, relating to our audits of the financial statements of KT Freetel Co., Ltd. (which reports express an unqualified opinion and include explanatory paragraphs relating to the merger of KT Freetel Co., Ltd. with KT ICOM Co., Ltd. and KT M.Com Ltd.), appearing in the Annual Report on Form 20-F of KT Corporation for the three years ended December 31, 2003, and to the reference to our firm under the heading “Experts” in the registration statement on Form F-3 of KT Corporation.

Anjin Deloitte LLC

Seoul, Korea

June 25, 2004

EX-15.3

Exhibit 15.3

Consent of Independent Public Accountants

To the Board of Directors of

KT Corporation:

We hereby consent to incorporation by reference in the registration statement on Form F-3 of KT Corporation (File no. 333-100251) of our report of independent accountants dated January 14, 2003, relating to the financial statements of KT ICOM Co., Limited which appears in the annual report for the fiscal year ended December 31, 2002 on Form 20-F of KT Corporation. We also consent to the reference to us under the headings “Experts” in such registration statement.

Samil PricewaterhouseCoopers (formerly Samil Accounting Corporation)

Seoul, Korea

June 25, 2004

EX-15.4

Exhibit 15.4

THE TELECOMMUNICATIONS BASIC LAW

(TRANSLATION)

Wholly amended By	1991· 8·10	Act No. 4393
Amended By	1992·12· 8	Act No. 4528
Amended By	1993· 3· 6	Act No. 4541
Amended By	1995· 1· 5	Act No. 4905
Amended By	1996·12·30	Act No. 5219
Amended By	1997· 8·28	Act No. 5385
Amended By	1997· 8·28	Act No. 5386
Amended By	1997·12·13	Act No. 5453
Amended By	1997·12·13	Act No. 5454
Amended By	1999· 1·29	Act No. 5733
Amended By	2000· 1·28	Act No. 6231
Amended By	2001· 1·16	Act No. 6360
Amended By	2002· 1·14	Act No. 6602
Amended By	2002· 2· 4	Act No. 6656
Amended By	2002.12.26	Act No. 6823
Amended By	2004.3.22	Act No. 7210

CHAPTER I GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to contribute to the enhancement of the public welfare by managing telecommunications efficiently and stimulating the development of telecommunications by providing basic matters on telecommunications.

Article 2 (Definitions)

The definitions of the terms as used in this Act shall be as follows:

1. The term “telecommunications” means transmission or reception of code, words, sound or image through wired, wireless, optic, and other electro-magnetic processes;

2. The term “telecommunications facilities and equipment” means machinery, appliances, lines for telecommunications, and other facilities necessary for telecommunications;

3. The term “telecommunications line facilities and equipment” means the facilities and equipment which constitute communications channels between sending and receiving points for telecommunications among the telecommunications facilities and equipment, and the transmission and line facilities and equipment, with the exchange facilities installed as one body of the transmission and line facilities, and all facilities attached thereto;

4. The term “telecommunications business facilities and equipment” means the telecommunications facilities and equipment to be provided for telecommunications businesses;

5. The term “private telecommunications facilities and equipment” means the telecommunications facilities and equipment other than the telecommunications business facilities and equipment, installed by an individual to be used for his own telecommunications;

6. The term “telecommunications equipments” means apparatus, machinery, parts or line equipments, etc. used by the telecommunications facilities and equipment;

7. The term “telecommunications service” means services that mediate a third party’s communication through the telecommunications facilities and equipment or to provide the telecommunications facilities and equipment for the third party’s telecommunications; and

8. The term “telecommunications business” means a business that provides telecommunications services.

Article 3 (Supervision of Telecommunications)

The matters concerning telecommunications shall be governed by the Minister of Information and Communication, except the ones stipulated specifically by this Act or other Acts. <Amended by Act No. 5219, Dec. 30, 1996>

Article 4 (Government Policies)

The Minister of Information and Communication shall devise basic and comprehensive government policies concerning telecommunications to attain the purpose of this Act. <Amended by Act No. 5219, Dec. 30, 1996>

Article 5 (Establishment of Basic Telecommunications Plans)

(1) The Minister of Information and Communication shall establish and publicly notify basic telecommunications plans (hereinafter referred to as the “basic plan”) for smooth development of telecommunications and the promotion of the information society. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The following matters shall be included in the basic plan of paragraph (1):

1. Matters concerning utilization efficiency of telecommunications;

2. Matters concerning maintenance of telecommunications order;

3. Matters concerning telecommunications business;

4. Matters concerning telecommunications facilities and equipment;

5. Matters concerning promotion of telecommunications technology (including technology about telecommunications construction; hereinafter the same shall apply); and

6. Other basic matters concerning telecommunications.

(3) The Minister of Information and Communication shall consult in advance with the heads of administrative agencies concerned, when establishing the basic plan for the matters of paragraph (2) 4 and 5 of this Article. <Amended by Act No. 5219, Dec. 30, 1996>

Article 6 (Annual Report)

The Government shall present an annual report on the policy and trend about telecommunications developments to the National Assembly prior to the opening of the regular session.

Article 7 (Classification of Telecommunications Business Operator)

The telecommunications business operator shall be classified as the key communications business operator, the special communications business operator and the value-added communications business operator pursuant to the Telecommunications Business Act. <Amended by Act No. 5385, Aug. 28, 1997>

[This Article Wholly Amended by Act No. 4905, Jan. 5, 1995]

CHAPTER II PROMOTION OF TELECOMMUNICATIONS TECHNOLOGY

Article 8 (Establishment and Execution of Enforcement Plan for Technology Development)

(1) The Minister of Information and Communication shall establish and execute enforcement plans for the development of telecommunications technology as stipulated in Article 5 (2) 5. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The following matters shall be included in the enforcement plans of the above paragraph (1):

1. Matters concerning the research and development of telecommunications technology;

2. Matters concerning the training and the supply and demand of telecommunications technicians;

3. Matters concerning the adoption of new telecommunications technologies and modes;

4. Matters concerning the standardization of telecommunications technologies;

5. Matters concerning promotion of telecommunications technology research institutes and organizations;

6. Matters concerning the international cooperation of telecommunications technology; and

7. Other matters concerning the development of telecommunications technology.

Article 9 (Management of Technical Information on Telecommunications)

(1) The Minister of Information and Communication shall devise measures necessary for the systematic and comprehensive management and the popularization of technical information on

telecommunications for the promotion of telecommunications technology. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The Minister of Information and Communication may give advance notices of new technology concerning telecommunications for harmonious telecommunications development. <Amended by Act No. 5219, Dec. 30, 1996>

Article 10 (Promotion of Research Institutes, etc.)

(1) The Minister of Information and Communication shall guide and promote telecommunications research institutes and organizations for the development of telecommunications. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The Government may give financial aid to the institutes and organizations under the above paragraph (1).

(3) Deleted. <by Act No. 6231, Jan. 28, 2000>

(4) The scope of the institutes and organizations under above paragraph (1), the ways for guidance and promotion thereof and other necessary matters shall be prescribed by the Presidential Decree.

Article 11 (Designation of Research Projects, etc.)

(1) The Minister of Information and Communication may select research projects concerning telecommunications technology and designate researchers, when necessary for research and development of telecommunications technology. <Amended by Act No. 5219, Dec. 30, 1996>

(2) Matters necessary for selection of research projects, designation of researchers and support for the research expenses, etc., under paragraph (1) shall be prescribed by the Presidential Decree.

Article 12 (Investment, etc. for Research and Development)

When specially necessary for the promotion of telecommunications technology, the Minister of Information and Communication may advise the key communications business operator to invest more than the amount corresponding to a specific ratio of annual turnover to the business for research and development of high technology concerning telecommunications, or to contribute to the institutes and organizations carrying out the business for research and development of common technology or communication modes concerning telecommunications. <Amended by Act No. 5219, Dec. 30, 1996>

Article 13 (Technical Guidance)

(1) The Minister of Information and Communication shall provide technical guidance for technical standardization, technical training, supply of technical information or cooperation with international organizations, etc., to a manufacturer of telecommunications equipments and materials (hereinafter referred to as the “manufacturer of telecommunications equipments and materials”) or a constructor of information and telecommunications works under the Information and Communications Work Business Act, when necessary for an accurate application of telecommunications modes and standards, etc., of telecommunications equipments and materials from their manufacturing stage and for securing

quality of telecommunications works. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 5386, Aug. 28, 1997>

(2) The subjects, contents and other necessary matters of technical guidance under paragraph (1) above shall be prescribed by the Presidential Decree.

Articles 14 and 15

Deleted. <by Act No. 5219, Dec. 30, 1996>

Article 15-2

Deleted. <by Act No. 5733, Jan. 29, 1999>

CHAPTER III TELECOMMUNICATIONS FACILITIES AND EQUIPMENT

SECTION 1 Telecommunications Facilities and Equipment for Business

Article 16 (Maintenance and Repair of Telecommunications Facilities and Equipment)

The telecommunications business operator shall maintain and repair his telecommunications facilities and equipment so as to have them compatible with technical criteria as determined by the Ordinance of the Ministry of Information and Communication, for a stable supply of his telecommunications services. <Amended by Act No. 5219, Dec. 30, 1996>

Article 17 (Installation Report of Telecommunications Facilities and Equipment, and Approval thereon, etc.)

(1) Any key communications business operator shall, where he intends to install or alter major telecommunications facilities and equipment, file in advance a report thereon with the Minister of Information and Communication under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication: Provided, That with respect to any telecommunications facilities and equipment which are first installed under a new telecommunications technology mode, an approval shall be obtained from the Minister of Information and Communication under the conditions as determined by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000>

(2) The scope of major telecommunications facilities and equipment under paragraph (1) shall be prescribed and publicly announced by the Minister of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

Article 18 (Joint Installation of Telecommunications Facilities and Equipment)

(1) The key communications business operator may jointly construct and use the telecommunications facilities and equipment with other key communications business operators. In this case, the key

communications business operator shall make in advance a consultation with another key communications business operator. <Newly Inserted by Act No. 6602, Jan. 14, 2002>

(2) The Minister of Information and Communication may, in case where a key communications business operator makes a consultation under paragraph (1), investigate and provide the required information, under the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 6602, Jan. 14, 2002>

(3) The Minister of Information and Communication may, in order to effectively perform the investigation of data under paragraph (2), have a specialized institution in the field of telecommunications perform the relevant investigation under the conditions as prescribed by the Presidential Decree. <Newly Inserted by Act No. 6602, Jan. 14, 2002>

(4) The Minister of Information and Communication may, where it falls under any of the following subparagraphs, advise the key communications business operator under paragraph (1) to jointly construct the telecommunications facilities and equipment, under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication: <Newly Inserted by Act No. 6602, Jan. 14, 2002>

1. Where the consultation under paragraph (1) has not been achieved, and where there exists a request from the relevant key communications business operator; and

2. Where deemed necessary for promoting the public interests.

(5) Where it is necessary to use the land or structures, etc. owned by the State, local government, government-invested institution, or other key telecommunications business operator for a joint installation of telecommunications facilities and equipment, and where an agreement is not reached on it, the key communications business operator may ask the Minister of Information and Communication for his cooperation in the use of the relevant land or structures, etc.

(6) The Minister of Information and Communication may, upon receipt of a request for his cooperation under paragraph (5), ask the head of the State agency, local government or government-invested institution or other key communications business operator to comply with a consultation on the use of the relevant land or structures, etc. with the key communications business operator who has asked for a cooperation under paragraph (5). In this case, the State agency, local government, or the head of government-invested institution or other key communications business operator shall comply with a consultation with the key telecommunications business operator unless there exist any justifiable causes. <Amended by Act No. 6602, Jan. 14, 2002> [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]

Article 19

Deleted. <by Act No. 5219, Dec. 30, 1996>

SECTION 2 Private Telecommunications Facilities and Equipment

Article 20 (Installation of Private Telecommunications Facilities and Equipment)

(1) A person who intends to install private telecommunications facilities and equipment shall report thereon to the Minister of Information and Communication under the conditions as prescribed by the

Presidential Decree. The same shall also apply in case where he intends to alter the important matters as determined by the Presidential Decree from among the reported matters. <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996>

(2) Notwithstanding the provisions of paragraph (1), the private telecommunications facilities and equipment with wireless modes, the military telecommunications facilities and equipment, etc., which are specially stipulated by other statutes, shall be governed by such statutes.

(3) A person who has made a report or a modified report on the installation of private telecommunications facilities and equipment under paragraph (1) shall obtain, upon completion of an installation work or a modifying work, a confirmation by the Minister of Information and Communication, prior to their use, under the conditions as stipulated by the Presidential Decree. <Newly Inserted by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996>

(4) Any private telecommunications facilities and equipment prescribed by the Ordinance of the Ministry of Information and Communication may, notwithstanding the provisions of paragraph (1), be installed without filing any report. <Newly Inserted by Act No. 6231, Jan. 28, 2000>

Article 21 (Restriction on Use Beyond Its Purpose)

(1) Any person who has installed the private telecommunications facilities and equipment shall not mediate a third party’s communications with the facilities, nor operate the facilities against the installation purpose: Provided, That this shall not apply to cases of special provisions in other statutes or of uses falling under any of the following subparagraphs, within the limits not against the installation purposes: <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996; Act No. 6602, Jan. 14, 2002>

1. In case of use for maintaining public peace or providing emergency rescue mission by the person engaged in police or accident rescue works;

2. In case of use, prescribed by the Minister of Information and Communication, between the person who installed private telecommunications facilities and equipment and the one specially related with him for the purpose of work; and

3. Deleted. <by Act No. 6602, Jan. 14, 2002>

(2) Any person who has installed his private telecommunications facilities and equipment may provide telecommunications facilities and equipment including line tracks, line equipments, etc., to the key communication business operator, pursuant to the Presidential Decree. <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996>

(3) The provisions of Articles 33-5, 34-6 (excluding paragraph (5)), and 35 of the Telecommunications Business Act shall apply mutatis mutandis to the above paragraph (2) concerning the supply of facilities and equipment. <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996>

(4) Deleted. <by Act No. 6602, Jan. 14, 2002>

Article 22 (Securing of telecommunications in Case of Emergency)

(1) The Minister of Information and Communication may order the person who installed private telecommunications facilities and equipment to provide telecommunications services or other important communication services, or to interconnect the private facilities and equipment in question with other telecommunications facilities and equipment, when war, natural disaster or other national emergency situation corresponding to such happens or is likely to happen. This shall apply mutatis mutandis to the provisions concerning telecommunications services under the Telecommunications Business Act. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The Minister of Information and Communication may make the key telecommunications business operator deal with such services, when deemed necessary of paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996>

(3) The expenses necessary for performing the services or for interconnection of the facilities of paragraph (1) shall be borne by the Government: Provided, That when the private telecommunications facilities and equipment are provided for telecommunications services, then the key communications business operator provided with the facilities, shall bear such expenses.

Article 23 (Orders for Correction, etc.)

(1) The Minister of Information and Communication may, when any person who has installed the private telecommunications facilities and equipment violates this Act or the orders under this Act, order him to make a correction thereof with fixing a specified period. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000>

(2) The Minister of Information and Communication may, when any person who has installed the private telecommunications facilities and equipment falls under any of the following subparagraphs, order him to suspend the relevant uses with fixing a period of not more than one year: <Newly Inserted by Act No. 6231, Jan. 28, 2000>

1. Where he fails to execute an order under paragraph (1);

2. Where he uses the private telecommunications facilities and equipment without obtaining a confirmation in contravention of Article 20 (3); and

3. Where he intermediates other’s communications or operates the private telecommunications facilities and equipment in a manner contrary to the installation purposes, in contravention of Article 21 (1).

(3) The Minister of Information and Communication may, where deemed that any private telecommunications facilities and equipment impede other’s telecommunications or likely undermine other’s telecommunications facilities and equipment, order the person who has installed the relevant facilities and equipment to suspend a use of them or to renovate or repair them, or take other measures. <Amended by Act No. 5219, Dec. 30, 1996>

Article 24 (Imposition of Penalty Surcharge)

(1) The Minister of Information and Communication may, in issuing an order to suspend a use of any private telecommunications facilities and equipment under Article 23 (2), and where a suspension of the relevant use is likely to cause any serious inconveniences to users of telecommunications services which are rendered by using such private telecommunications facilities and equipment, or to

undermine other public interests, impose a penalty surcharge of not exceeding 1 billion won in lieu of such order to suspend the relevant use.

(2) Classifications of the violating acts subject to the imposition of a penalty surcharge under paragraph (1), the amount of penalty surcharge as determined by the relevant levels and other necessary matters shall be prescribed by the Ordinance of the Ministry of Information and Communication.

(3) The Minister of Information and Communication shall, where any person liable for the payment of a penalty surcharge under paragraph (1) fails to pay such penalty surcharge by a payment term, collect it according to the example of a disposition on the national taxes in arrears.

[This Article Newly Inserted by Act No. 6231, Jan. 28, 2000]

SECTION 3 Technical Standards, etc. for Telecommunications Facilities and Equipment

Article 25 (Technical Standards)

(1) A person who installs and operates the telecommunications facilities and equipment shall keep such facilities and equipment compatible with the technical standards as prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

(2) In case of the installation of telecommunications facilities and equipment as determined and publicly announced by the Minister of Information and Communication or of the expansion of installed facilities and equipment, the key communication business operator and the special communications business operator shall test whether the relevant telecommunications facilities and equipment conform with the technical standards under paragraph (1) above, prior to commencing a provision of telecommunications services, and record and manage the results thereof. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000>

(3) The installation and conservation of telecommunications facilities and equipment shall be executed according to the design documents.

(4) Matters necessary for making the design documents under paragraph (3) shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

(5) If it is necessary to verify whether the telecommunications facilities and equipment are installed and operated in conformity with the technical standards, the Minister of Information and Communication may have public officials belonging to him investigate or test the facilities of the person who installs and operates the telecommunications facilities and equipment. <Newly Inserted by Act No. 5219, Dec. 30, 1996>

(6) The public official who conducts the investigation or test under paragraph (5) shall carry a certificate indicating his authority, and present it to the person concerned. <Newly Inserted by Act No. 5219, Dec. 30, 1996>

Article 26 (Management Rules)

(1) The key communications business operator shall set forth the management rules for communications facilities and equipment and manage them, in order to provide a stable telecommunications service. <Amended by Act No. 5219, Dec. 30, 1996>

(2) Matters to be explicitly stipulated in the management rules under paragraph (1) shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

Article 27 (Correction Order for Violations of Technical Standards)

When the installed telecommunications facilities and equipment have come not to conform with the technical standards under Article 25, the Minister of Information and Communication may issue an order to make a correction thereto or take other necessary measures. <Amended by Act No. 5219, Dec. 30, 1996>

Article 28 (Adoption of New Telecommunications Modes, etc.)

(1) The Minister of Information and Communication may adopt the new telecommunications modes, etc., for a smooth development of telecommunications.

(2) The Minister of Information and Communication shall, in case where he has adopted the new telecommunications modes, etc. under paragraph (1), make a pubic announcement thereof. [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]

Article 29 (Promotion of Standardization)

(1) The Minister of Information and Communication may promote the standardization of telecommunications, and recommend it to the telecommunications business operator or the manufacturers of telecommunications equipments, for a sound development of telecommunications and for ensuring the convenience of users: Provided, That in a case of matters for which the Korean Industrial Standards under the Industrial Standardization Act are set, such standards shall govern. <Amended by Act No. 4528, Dec. 8, 1992; Act No. 5219, Dec. 30, 1996>

(2) The Minister of Information and Communication shall, in case where he has adopted the telecommunications standards, make a public announcement thereof. <Amended by Act No. 5219, Dec. 30, 1996>

(3) Matters necessary for the promotion of standardization of telecommunications under paragraph (1) shall be determined by the Ordinance of the Ministry of Information and Communication. <Newly Inserted by Act No. 6602, Jan. 14, 2002>

Article 30 (Telecommunications Technology Association)

(1) The Telecommunications Technology Association (hereinafter referred to as the “Association”) may be established for efficient promotion of the business concerning telecommunications standardization. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The Association shall be established in the form of a juristic person.

(3) The Government may contribute to the Association within the budget limit, when necessary for the establishment and operation of the Association.

(4) The Minister of Information and Communication may order changes of articles of incorporation, project plans, or reelection of officers, when the operation of the Association is deemed in violation of the Acts and subordinate statutes or articles of incorporation. <Amended by Act No. 5219, Dec. 30, 1996>

(5) Except for those stipulated under this Act, the provisions pertaining to an incorporated foundation in the Civil Act shall apply mutatis mutandis to matters on the Association.

SECTION 4 Integrated Operation of Telecommunications Facilities and Equipment, etc.

Article 30-2 (Securing Pipeline Facilities, etc.)

(1) A person who installs or builds up the facilities, etc. falling under any of the following subparagraphs (hereinafter referred to as the “facilities installer”) shall listen to the opinion of key communications business operators on the installation of joint-use tunnels and the pipelines, etc. in which the telecommunications facilities and equipment may be accommodated, and reflect its opinion: Provided, that the same shall not apply to the case where the reflection of the views of key communications business operators are very difficult: <Amended by Act No. 6602, Jan. 14, 2002; Act No. 7210, Mar. 22, 2004>

1. Roads under Article 2 of the Road Act;

2. Railroads under Article 2 (1) of the Railroad Act;

3. Urban railroads under subparagraph 1 of Article 3 of the Urban Railroad Act;

4. Industrial complex under subparagraph 5 of Article 2 of the Industrial Sites and Development Act;

5. Free trade zone under subparagraph 1 of Article 2 of the Act on the Designation and Administration of Free Trade Zone;

6. Airport area under subparagraph 7 of Article 2 of the Aviation Act;

7. Harbor area under subparagraph 4 of Article 2 of the Harbor Act; and

8. Other facilities or housing sites as prescribed by the Presidential Decree.

(2) Any views expressed by the key communications business operators on the installation of joint-use tunnels or pipelines under paragraph (1) shall be in conformity with the standards for the installation of pipelines as prescribed by the Ordinance of the Ministry of Information and Communication.

(3) The provisions of Articles 33-5, 34-6 (excluding paragraph (5) of the same Article) and 35 of the Telecommunications Business Act shall apply mutatis mutandis to the offer of joint-use tunnels or pipelines, etc., installed under paragraph (1).

(4) A facilities installer shall, where he is unable to reflect the views of key communications business operators under paragraph (1), notify the relevant key communications business operators of the relevant reasons within 30 days from the date of receiving their views.

(5) Where any facilities installer fails to reflect the views of key communications business operators under paragraph (1), the relevant telecommunications business operator may ask the Minister of Information and Communication for his adjustments.

(6) The Minister of Information and Communication shall, where he makes such adjustments upon receipt of a request for adjustments under paragraph (5), consult in advance with the heads of the related central administrative agencies.

(7) Matters necessary for the adjustments under paragraphs (5) and (6) shall be prescribed by the Presidential Decree. [This Article Wholly Amended by Act No. 6231, Jan. 28, 2000]

Article 30-3 (Installation of Telecommunications Facilities and Equipment for Extension)

(1) The structures under subparagraph 2 of Article 2 of the Building Act shall be equipped with the telecommunications line facilities, etc. for extension, and secure a specified area for a connection with the telecommunications line facilities and equipment.

(2) Matters on the scope of structures, the criteria for installation of telecommunications line facilities, etc., and the securing, etc., of an area for a connection with telecommunications line facilities and equipment under paragraph (1) shall be determined by the Ordinance of the Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

Article 30-4

<Deleted by Act No. 6823, Dec. 26, 2002>

Article 31 (Integrated Operation of Telecommunications Facilities and Equipment, etc.)

(1) The Minister of Information and Communication may, where it is necessary for an efficient management and operation of telecommunications facilities and equipment, have a key communications business operator selected according to the standards and procedures as prescribed by the Presidential Decree (hereinafter referred to as the “communications business operator under integrated operations”) make an integrated operation of the telecommunications facilities and equipment installed under this Act or other Acts, and the land, buildings and other structures appurtenant thereto (hereinafter referred to as the “telecommunications facilities and equipment, etc.”). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 5454, Dec. 13, 1997; Act No. 6231, Jan. 28, 2000>

(2) The Minister of Information and Communication shall, in case where he intends to put the telecommunications facilities and equipment, etc. under an integrated operation under paragraph (1), formulate an integrated operation plan for telecommunications facilities and equipment (hereinafter referred to as the “integrated operation plan”), consult with the heads of the related administrative agencies, and obtain an approval of the President by going through a deliberation by the State Council. <Amended by Act No. 5219, Dec. 30, 1996>

(3) The integrated operation plan under paragraph (2) shall contain the matters falling under one of the following subparagraphs:

1. Objects, time, methods and procedures for the integration;

2. Matters concerning an operation of telecommunications facilities and equipment, etc. after integration; and

3. Other matters as prescribed by the Presidential Decree.

(4) The Minister of Information and Communication shall, in case where he intends to formulate an integrated operation plan under paragraph (2), consult in advance with the installer of the telecommunications facilities and equipment, etc. to be integrated. <Amended by Act No. 5219, Dec. 30, 1996>

Article 32 (Purchase of Telecommunications Facilities and Equipment, etc.)

(1) The communications business operator under integrated operations may, when necessary for an integrated operation of the telecommunications facilities and equipment, etc. under Article 31 (1), make a request for purchase of the relevant telecommunications facilities and equipment, etc. In this case, the owner of relevant telecommunications facilities and equipment, etc. shall not refuse it without any justifiable reasons. <Amended by Act No. 6231, Jan. 28, 2000>

(2) National or public telecommunications facilities and equipment, etc. for which the communications business operator under integrated operations has made a request for their purchase under paragraph (1) may be sold to the communications business operator under integrated operations, notwithstanding the provisions of Article 20 of the State Properties Act or Article 82 of the Local Finance Act. In this case, matters necessary for the sale such as the calculation method of sale price, procedures for the sale, and payment methods of sale price, etc., shall be prescribed by the Presidential Decree. <Amended by Act No. 6231, Jan. 28, 2000>

(3) The provisions of Articles 67 (1), 70, 71, 74 through 77, and 78 (5) through (7) of the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor shall be applied mutatis mutandis to the calculation method, criteria, etc. for purchase price of the telecommunications facilities and equipment other than the national or public ones which are purchased by the communications business operator under integrated operations under paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 6656, Feb. 4, 2002>

CHAPTER IV MANAGEMENT OF TELECOMMUNICATIONS EQUIPMENTS

Article 33 (Approval for Types)

(1) A person who intends to manufacture, sell or import the telecommunications equipments which are specified by the Minister of Information and Communication after consulting with the heads of the related administrative agencies, shall obtain an approval with respect to such telecommunications equipments from the Minister of Information and Communication: Provided, That this shall not apply to the cases of telecommunications equipments as prescribed by the Ordinance of the Ministry of Information and Communication, such as the telecommunications equipments for the purpose of test, research or export. <Amended by Act No. 5219, Dec. 30, 1996>

(2) Objects, methods and procedures, etc. for the approval of types under paragraph (1) shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

(3) The Minister of Information and Communication shall grant a type approval, when the telecommunications equipments conform with technical criteria for telecommunications equipments as prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

(4) When a person who has obtained a type approval of telecommunications equipments under paragraph (1) intends to sell or display such telecommunications equipments, the sign of type approval shall be marked pursuant to the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996>

(5) A person who has obtained the type approval for the telecommunications equipments under paragraph (1) shall, when he intends to modify the matters for which a type approval has been obtained, file a report thereon with the Minister of Information and Communication under the conditions as determined by the Ordinance of the Ministry of Information and Communication. In this case, if the matters reported on modification are related to the technical criteria under paragraph (3), the said paragraph shall apply mutatis mutandis. <Newly Inserted by Act No. 6602, Jan. 14, 2002>

(6) A person who intends to obtain the type approval under paragraph (1) or a person who files a report on modification under paragraph (5) shall pay the fees as prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 6602, Jan. 14, 2002>

Article 33-2 (Designation, etc. of Performance Testing Institution)

(1) The Minister of Information and Communication may, in granting the type approval under Article 33, have a testing institution designated by the said Minister (hereinafter referred to as the “designated testing institution”) conduct the performance test.

(2) A person who is eligible for a designation as a designated testing institution shall be limited to a juristic person.

(3) The Minister of Information and Communication may inspect any designated testing institution under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication.

(4) The Minister of Information and Communication may, when a designated testing institution falls under any of the following subparagraphs, cancel the relevant designation or order a suspension of the testing service, in whole or in part, for a fixed period of not more than one year: Provided, That where it falls under subparagraph 1, its designation shall be cancelled:

1. When it has obtained a designation by deceit or other illegal means;

2. When it has failed to conduct the testing service without any justifiable reasons;

3. When it has conducted an inaccurate testing service by deliberation or gross negligence;

4. When it has refused, obstructed or evaded the inspection under paragraph (3) without any justifiable reasons, or flunked the inspection; and

5. When it has violated the Acts and subordinate statutes relating to telecommunications.

(5) Any person who intends to be designated as a testing institution under paragraph (1) and a person who undergoes the inspection under paragraph (3) shall pay fees under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication.

(6) Matters necessary concerning the designation, management, testing standards, and supervision, etc. of any designated testing institution shall be determined by the Ordinance of the Ministry of Information and Communication.

[This Article Wholly Amended by Act No. 6231, Jan. 28, 2000]

Article 33-3 (Mutual Recognition of Type Approval between States)

(1) The Government may conclude an agreement with a foreign government on the mutual recognition of type approval of telecommunications equipment.

(2) Where the Government has concluded an agreement under paragraph (1), it may recognize the telecommunications equipment which have obtained an authentication of a foreign government same as or similar to the type approval under Article 33 as have been granted a type approval under Article 33, or make the designation of a foreign testing agency as a designated testing institution under Article 33-2 (1) the content of the relevant agreement.

(3) Where an agreement has been concluded with a foreign government on the mutual recognition of type approval of the telecommunications equipment under paragraph (1), the Minister of Information and Communication shall publicly announce its contents.

[This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

Article 34

Deleted. <by Act No. 6231, Jan. 28, 2000>

Article 34-2 (Termination of Type Approval)

(1) When a person who has obtained the type approval of telecommunications equipment under Article 33 (1) intends to discontinue the manufacture, sale or import of the telecommunications equipment, he may make an application to the Minister of Information and Communication for a termination of the relevant type approval.

(2) Matters necessary for the application for a termination of the type approval under paragraph (1) shall be determined by the Ordinance of the Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

Article 35 (Cancellation, etc. of Type Approval)

(1) In case where a person who has obtained a type approval of the telecommunications equipments under Article 33 (1) falls under any of the following subparagraphs, the Minister of Information and

Communication may cancel the relevant type approval, or suspend the manufacture of relevant products or take other necessary measures: <Amended by Act No. 5219, Dec. 30, 1996>

1. When he has obtained a type approval by deceit and other illegal means;

2. When the telecommunications equipments have come not to conform with the technical criteria under Article 33 (3); and

3. When the sign of type approval under Article 33 (4) is not marked, or a false sign is marked.

(2) Where a person who has obtained a type approval under Article 33 (1) comes to fall under paragraph (1) 1 or 3 and his type approval has thus been cancelled, he shall not file an application for the type approval of telecommunications equipments within the period as fixed by the Ordinance of the Ministry of Information and Communication within the scope of 6 months after from the day when type approval is cancelled. <Amended by Act No. 6231, Jan. 28, 2000>

Article 36 (Follow-up Management)

(1) No person shall sell, or display for the purpose of selling, the telecommunications equipments for which a type approval under Article 33 (1) has not been obtained or other telecommunications equipments which are not marked with a sign of the type approval under Article 33 (4): Provided, That the same shall not apply to the telecommunications equipments for tests or research. <Amended by Act No. 6231, Jan. 28, 2000>

(2) The Minister of Information and Communication may, in case where necessary to confirm whether the matters concerning a type approval of the telecommunications equipments are implemented, have the public officials belonging to him investigate or test the telecommunications equipments in the process of production, import or circulation. <Amended by Act No. 5219, Dec. 30, 1996>

(3) The Minister of Information and Communication may order a person who has manufactured, imported, sold or displayed with intention of sale the telecommunications equipments which have been sold or displayed with intention of sale in violation of paragraph (1), or the telecommunications equipments which have been found as the inferior goods upon the investigation or tests under paragraph (2), to destroy or recall the relevant telecommunications equipments, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5219, Dec. 30, 1996>

(4) The provisions of Article 25 (6) shall apply mutatis mutandis to the cases under paragraph (2). <Amended by Act No. 5219, Dec. 30, 1996>

(5) Matters necessary for the procedures for and methods of the investigation or tests under paragraph (2) shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Newly Inserted by Act No. 5219, Dec. 30, 1996>

CHAPTER V KOREA COMMUNICATIONS COMMISSION

Article 37 (Establishment and Composition of Korea Communications Commission)

(1) In order to create an environment of fair competition in the telecommunications business, to make deliberations and decisions on matters related to the protection of the rights and interests of the users

of telecommunications service, and to rule the disputes among the telecommunications business operators or between the telecommunications business operator and the users, the Korea Communications Commission shall be established under the jurisdiction of the Ministry of Information and Communication. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000><Amended by Act No. 6823, Dec. 26, 2002>

(2) The Korea Communications Commission shall consist of not more than nine members including one chairman, and among the members, one shall be permanent. <Amended by Act No. 5219, Dec. 30, 1996>

(3) The members including the chairman shall be appointed or commissioned by the President, under the conditions as prescribed by the Presidential Decree.

(4) A secretariat shall be established under the jurisdiction of the Korea Communications Commission in order to manage the affairs of the Korea Communications Commission. <Newly Inserted by Act No. 5219, Dec. 30, 1996>

Article 38 (Qualifications, etc. for Members)

(1) The qualifications for members shall be as follows: <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000>

1. A person who holds or has held a post of public officials higher than Grade III;

2. A person who serves or has served as a judge, prosecutor or attorney at law for not less than fifteen years;

3. A person who has majored in law, economics, business administration, electronic engineering, communications engineering, and other courses of study related to telecommunications, and who serves or has served in a position higher than an associate professorship at a university under the Higher Education Act or an approved research institution, or who serves or has served at a position equivalent to it for not less than ten years;

4. A person who has served as the representative of organizations or institutions, or as an officer of a company related to telecommunications for not less than ten years; and

5. A person who serves or has served in a position related to the protection of users of telecommunications service for not less than fifteen years.

(2) The tenure of office for the members who are not government officials shall be three years, but he may be reappointed.

Article 39 (Guarantee of Status of Members)

The members of the Korea Communications Commission shall not be dismissed or withdrawn from his commissioned post against his own will, except for the following cases:

1. Where he is sentenced to imprisonment without prison labor or heavier punishment; and

2. Where he becomes unable to perform the duties due to the mental and physical weakness for a long period.

Article 40 (Functions of Korea Communications Commission)

The Korea Communications Commission shall deliberate and decide on the matters falling under any of the following subparagraphs in accordance with the provisions of this Act and other laws and regulations, and make a ruling under Article 40-2: <Amended by Act No. 6231, Jan. 28, 2000; Act No. 6602, Jan. 14, 2002> <Amended by Act No. 6823, Dec. 26, 2002>

1. Matters relating to the supply of the telecommunications facilities and equipment under Article 33-5 (3) of the Telecommunications Business Act, to a joint utilization of the subscriber’s lines under Article 33-6 (2) of the same Act, to a joint utilization of the radio communications facilities under Article 33-7 (3) of the same Act, to the interconnections of the telecommunications facilities under Article 34 (2) of the same Act, to a joint use, etc. of the telecommunications facilities and equipment under Article 34-3 (2) of the same Act, or to the standards for providing information under Article 34-4 (2) of the same Act;

2. Matters relating to the approval of criteria under Article 34-4 (4) of the Telecommunications Business Act;

3. Matters relating to the supply, joint utilization, interconnection or joint use, etc., of the telecommunications facilities and equipment, or the authorization or report of the agreement on supply of information under Article 34-6 of the Telecommunications Business Act;

4. Matters relating to the formulation and modification of a plan for the administration of telecommunications numbers under Article 36 (1) and (2) of the Telecommunications Business Act;

5. <Deleted by Act No. 6823, Dec. 26, 2002>

6. Matters relating to the measures against prohibited acts under Article 37 (1) of the Telecommunications Business Act;

6-2. Matters relating to the imposition of fines for the acts prohibited under Article 37-2 (1) of the Telecommunications Business Act.

7. Matters concerning the performance of the prior selection systems of telecommunications business operators under Article 38-3 (4) of the Telecommunications Business Act, and those necessary for the designation of the prior selection registration center and the method of its business dispositions, etc.;

8. Matters concerning the plans for mobility of numbers of telecommunications under Article 38-4 (4) of the Telecommunications Business Act;

9. Matters prescribed by other Acts as the matters to be deliberated by the Korea Communications Commission; and

10. Other matters deemed by the Minister of Information and Communication to be in need of a deliberation by the Korea Communications Commission, in order to create an environment of fair competition of the telecommunications business and to protect the interest of the users of the telecommunications service. [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]

Article 40-2 (Ruling by Korea Communications Commission)

(1) The telecommunications business operators or users may make an application to the Korea Communications Commission for a ruling, in case where an agreement between the parties has not been reached, or they are unable to make an agreement on the matters falling under any of the following subparagraphs: <Amended by Act No. 6602, Jan. 14, 2002>

1. Compensation for damages under Article 33-2 of the Telecommunications Business Act, or compensation for actual expenses under Article 46;

2. The supply of telecommunications facilities and equipment under Article 33-5 (1) and (2) of the Telecommunications Business Act, the joint utilization of the radio communications facilities under Article 33-7 (1) and (2) of the same Act, the interconnection under Article 34 (1), the joint use, etc. under Article 34-3 (1), or the conclusion of an agreement on supply, etc. of information under Article 34-4 (1);

3. The supply of telecommunications facilities and equipment under Article 33-5 (1) and (2) of the Telecommunications Business Act, the joint utilization of the radio communications facilities under Article 33-7 (1) and (2) of the same Act, the interconnection under Article 34 (1), the joint use, etc. under Article 34-3 (1), or the implementation of an agreement on supply, etc. of information under Article 34-4 (1) or a compensation for damages; and

4. Other disputes related to the telecommunications business, or other matters prescribed by other Acts as the matters to be ruled by the Korea Communications Commission.

(2) The Korea Communications Commission shall, upon receipt of an application for ruling under paragraph (1), notify the other party of the relevant fact, and provide him with an opportunity to state an opinion with fixing a period: Provided, That this shall not apply in case where the interested parties fail to comply to it without any justifiable reasons.

(3) The Korea Communications Commission shall, in case where it makes a ruling on the application for ruling under paragraph (1), forward the document of such ruling to the parties concerned without delay.

(4) When the Korea Communications Commission makes a ruling, and where a lawsuit has not been initiated or it has been withdrawn concerning the content of the relevant ruling, within sixty days from the date when the authentic copy of the document of ruling is served to the parties concerned, an agreement which is identical with the content of the relevant ruling is deemed to have been reached between the parties concerned.

(5) A person who is dissatisfied with the amount which shall be paid or received by the parties concerned from among the rulings of the Korea Communications Commissiion, may request an increase or decrease of the relevant amount by a lawsuit, within sixty days from the date when he has been served with the written ruling.

(6) In the lawsuit under paragraph (5), the other party shall be the defendant.

[This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

Article 40-3 (Good Offices of Disputes)

The Korea Communications Commission may, in case where deemed inadequate to make a ruling or when necessary, upon receipt of an application for ruling under Article 40-2 (1), set up the subcommission by cases of dispute, and offer its good offices thereon.

[This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

Article 41 (Quorum of Voting)

The deliberation of the Korea Communications Commission shall be decided by a majority of registered members.

Article 42 (Exclusion, Avoidance, Refrainment of Members)

(1) Any member of the Korea Communications Commission shall, where he falls under any of the following subparagraphs, be excluded from the deliberation and resolution of a relevant case:

1. Where he or his spouse or his former spouse is a party to the relevant case, or in a relationship of a co-creditor or a liable person with regard to the relevant case;

2. Where he is or has been in a kinship with a party to the relevant case;

3. Where he or a corporation whereto he belongs serves as a consultant or an advisor on the legal and management affairs, etc. of a party concerned;

4. Where he or a corporation whereto he belongs testifies or appraises; and

5. Where he or a corporation whereto he belongs intervenes or has intervened as an agent for a party concerned.

(2) A party concerned may, when the situation exists that makes it difficult to expect a fair deliberation or resolution, file an application for the avoidance. In this case, the Korea Communications Commission shall decide on it by a resolution.

(3) A member falling under the causes of paragraph (1) or (2) may refrain by himself from the deliberation or resolution of a relevant case.

[This Article Newly Inserted by Act No. 6231, Jan. 28, 2000]

Article 43 (Investigation and Listening to Opinions, etc.)

The Korea Communications Commission may, in case where deemed necessary to deal with a case for ruling, carry out the acts falling under any of the following subparagraphs, upon a request from a party concerned or ex officio:

1. A request for the presence of a party concerned or a relevant witness, and listening to his opinions;

2. A request to an appraiser for an appraisal;

3. A request for the furnishing of any document or articles related to a case of dispute, and the provisional holding of furnished document or articles; and

4. An act of letting civil servants belonging to the Korea Communications Commission enter the business place of a party concerned and other places related to the case of dispute to examine and

peruse the documents or articles, or copy such documents. [This Article Newly Inserted by Act No. 6231, Jan. 28, 2000]

Article 44 (Operation, etc. of Korea Communications Commission)

Matters necessary for the organization, operation, etc. of the Korea Communications Commission other than those stipulated in this Act shall be prescribed by the Presidential Decree.

Article 44-2 (Information and Communications Policy Deliberation Council)

(1) In order to deliberate on the major policies related to the information and communications falling under any of the following subparagraphs, the Information and Communications Policy Deliberation Council shall be established under the jurisdiction of the Ministry of Information and Communication:

1. Basic plans for telecommunications under Article 5;

2. Enforcement plan for technology promotion under Article 8;

3. Permission for the key communications service under Article 5 (1) of the Telecommunications Business Act;

4. Principal policies related to the information and communications industry; and

5. Other matters recognized by the Minister of Information and Communication to require the deliberation by the Information and Communications Policy Deliberation Council.

(2) Matters necessary for the composition and operation of the Information and Communication Policy Deliberation Council under paragraph (1) shall be determined by the Presidential Decree. [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]

CHAPTER V-2 TELECOMMUNICATIONS DISASTERS <Newly Inserted by Act No. 6823, Dec. 26, 2002>

Article 44-3 (Establishment of Basic Plan on Telecommunications Disasters Management)

(1) The Minister of Information and Communication shall establish a basic plan on telecommunications disasters management (hereinafter referred to as the “Basic Plan”) to prevent disasters under the Basic Disaster and Safety Management Act, calamities under the Act on Natural Disaster Countermeasures and any physical and technical defects (the “Telecommunications Disasters”) related to telecommunication services of telecommunication service providers (the “Primary Telecommunication Service Providers”) as set forth in the Ordinance of the Ministry of Information and Communication, and to control and recover from such a Telecommunications Disaster rapidly. The Basic Plan shall be considered to be a plan for telecommunications under the National Security Management Plan in Article 22 of the Basic Disaster and Safety Management Act and Communication Section in Disaster Prevention Enforcement Plan under the Basic Disaster Management Plan in Article 16 of the Act on Natural Disaster Countermeasures. <Amended by Act No. 7210, Mar. 11, 2004>

(2) The Basic Plan shall include the following matters:

1. Designation and management of telecommunications equipments and installation areas with high risks of Telecommunication Disasters or need for constant management to prevent Telecommunications Disasters;

2. The following matters required to prepare for Telecommunications Disasters:

A. Circuitous routes of telecommunications,

B. Organization of an information system to operate multi-telecommunications circuit equipments, and

C. Other supplies for damage recovery

3. Other matters recognized to be required for Telecommunication Disaster management

(3) Before the establishment of the Basic Plan set forth in the previous paragraph, the Minister of Information and Communication shall formulate guidelines on the establishment of the Basic Plan and give Primary Telecommunication Service Providers notice of such guidelines.

(4) Primary Telecommunication Service Providers shall formulate plans on Telecommunications Disasters Management in accordance with the guideline under the previous Paragraph and submit the plans to the Minister of Information and Communication.

(5) The Minister of Information and Communication shall put all the basic management plans of Telecommunications Disasters together submitted by Primary Telecommunication Service Providers under the previous paragraph, and formulate a Basic Plan. Such Basic Plan shall be confirmed after the review of the Telecommunication Disaster Management Committee under Article 44-5.

(6) The Minister of Information and Communication shall give a notice to Primary Telecommunication Service Providers on the matters concerning Primary Telecommunication Service Providers in the basic plan confirmed under the previous Paragraph.

(7) The detailed matters required to establish the Basic Plan shall be set forth by a Presidential decree.

(8) Paragraphs from (3) to (7) shall apply to changing the Basic Plan.

Article 44-4 (Provisions for Telecommunications Disasters)

(1) If any telecommunications disaster occurs or it is clear that such a disaster will occur, the Minister of Information and Communication may allow a telecommunication service provider to integrate the operations of the telecommunications equipments with the operations of the equipments of the other telecommunication service provider or a private telecommunication equipment owner to facilitate restoration of communications in the affected area.

(2) If the operations of the telecommunication equipment is integrated under the previous Paragraph and the operating expenses incurred is reimbursed, Article 22-3 shall apply.

(3) Any matters required to integrate operations of such telecommunication equipments under Paragraph (1) shall be set forth under an Ordinance of the Ministry of Information and Communication.

Article 44-5 (Telecommunication Disaster Management Committee)

(1) The Ministry of Information and Communication shall have the Telecommunication Disaster Management Committee to review matters related to managing telecommunication disasters.

(2) The Telecommunication Disaster Management Committee shall consist of 15 or less members including one Chairman.

(3) The Minister of Information and Communication shall be the Chairman and the Vice Ministers of concerned central governmental agencies as set forth under a Presidential decree, and the persons appointed by the Chairman among the following shall be the members:

1. Representatives of Primary Telecommunication Service Providers,

2. Presidents of organizations of telecommunication service carriers, and

3. Persons of learning and experience on telecommunication disaster management.

(4) To effectively operate the Telecommunication Disaster Management Committee, the Committee shall have an Executive Committee.

(5) Any matters related to the organization and operation of the Telecommunication Disaster Management Committee and the Executive Committee shall be set forth under a Presidential decree.

Article 44-6 (Functions of the Telecommunication Disaster Management Committee)

The Telecommunication Disaster Management Committee shall review the following matters:

1. Fundamental directions of Telecommunication Disaster Management,

2. The Basic Plan, and

3. Other policy-making matters related to Telecommunications Disasters that the Chairman shall submit to the Committee.

Article 44-7 (Report of Telecommunications Disasters)

If any Telecommunication Disaster occurs related to their telecommunication services, the Primary Telecommunication Service Providers shall promptly report the situation, causes, temporary measures and recovery plans to the Minister of Information and Communication.

Article 44-8 (Telecommunication Disaster Prevention and Countermeasures Headquarters)

(1) The Minister of Information and Communication shall establish and operate Telecommunication Disaster Prevention and Countermeasures Headquarters (the “TDPCH”) if such a Telecommunication Disaster brings broad and heavy damages and the government’s comprehensive countermeasures are required.

(2) The Minister of Information and Communication shall be the head of the TDPCH.

(3) The matters required to constitute and operate the Countermeasures Headquarters shall be set forth under a Presidential decree.

(4) Primary Telecommunication Service Providers shall report the progresses of Telecommunications Disaster recovery as set forth under an Ordinance of the Ministry of Information and Communication to the TDPCH.

CHAPTER VI SUPPLEMENTARY PROVISIONS

Article 45 (Report, Inspection, etc.)

(1) The Minister of Information and Communication may have, when the Ordinance of the Ministry of Information and Communication so determines, the installer of the telecommunications facilities and equipment report on the relevant facilities, the government officials belonging to him enter the relevant office, business office, factory or business place and inspect the status of facilities, account books or documents, etc. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000>

(2) The Minister of Information and Communication may, where there exists a person who has installed the telecommunications facilities and equipment in violation of this Act, order him to remove the relevant facilities and take other necessary measures. <Amended by Act No. 5219, Dec. 30, 1996>

(3) The provisions of Article 25 (6) shall apply mutatis mutandis to the cases under paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996>

Article 45-2 (Hearing)

The Minister of Information and Communication shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing: <Amended by Act No. 6231, Jan. 28, 2000>

1. Cancellation of a designation under Article 33-2 (4); and

2. Cancellation of a type approval under Article 35 (1).

[This Article Wholly Amended by Act No. 5453, Dec. 13, 1997]

Article 46 (Delegation and Entrustment of Authority)

(1) Part of the authority of the Minister of Information and Communication under this Act may be delegated to the head of Communications Office or of the Radio Research Laboratory, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5219, Dec. 30, 1996>

(2) The Minister of Information and Communication may commission the tasks under Article 29 to the Association, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5219, Dec. 30, 1996>

CHAPTER VII PENAL PROVISIONS

Article 47 (Penal Provisions)

(1) A person who has publicly made a false communication over the telecommunications facilities and equipment for the purpose of harming the public interest shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>

(2) A person who has publicly made a false communication over the telecommunications facilities and equipment for the purpose of benefiting oneself or the third party or inflicting damages on the third party shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won. <Amended by Act No. 5219, Dec. 30, 1996>

(3) In case where the false communication under paragraph (2) is of a telegraphic remittance, it shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>

(4) When a person engaged in the telecommunications business commits the act under paragraph (1) or (3), he shall be punished by imprisonment for not more than ten years or by a fine not exceeding 100 million won, and in case of committing the act under paragraph (2), he shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>

Article 48 (Penal Provisions)

A person who has produced, sold, or imported the telecommunications equipment without obtaining type approval, in violation of Article 33 (1), shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won. [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]

Article 48-2

Deleted. <by Act No. 6360, Jan. 16, 2001>

Article 49 (Penal Provisions)

A person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding ten million won:

1. A person who has installed or modified the telecommunications facilities and equipment without making a report under the text of Article 17 (1), or who has installed the telecommunications facilities and equipment without obtaining an approval under the proviso of the same Article and same paragraph;

2. A person who has installed the private telecommunications facilities and equipment without making a report or modified report under Article 20 (1);

3. A person who has intermediated other person’s communications by utilizing the private telecommunications facilities and equipment under Article 21 (1), or who has operated them in a manner contrary to the installation purposes;

4. A person who has violated an order to provide telecommunications services or other important communication services, or to interconnect the relevant facilities and equipment with other telecommunications facilities and equipment under Article 22 (1);

5. A person who has violated an order to suspend the use under Article 23 (2), or an order to suspend their use, to renovate, or to repair under paragraph (3) of the same Article;

6. A person who has displayed the telecommunications equipments with intention of sale without obtaining type approval under Article 33 (1);

7. A person who has violated an order to suspend production under Article 35 (1);

8. A person who has violated an order to destroy or recall under Article 36 (3); and

9. A person who has violated an order to remove telecommunications facilities under Article 45 (2). [This Article Wholly Amended by Act No. 6602, Jan. 14, 2002]

Article 50

Deleted. <by Act No. 6231, Jan. 28, 2000>

Article 51 (Joint Penal Provisions)

When the representative of a juristic person, or an agent, employee or any other employed of the juristic person or of an individual commits violations of Articles 48, 48-2 and 49 concerning the business of the relevant juristic person or individual, the relevant juristic person or individual shall be punished by a fine as stipulated under the corresponding Articles, in addition to the punishment of the violator. <Amended by Act No. 6231, Jan. 28, 2000>

Article 52 (Legal Fiction of Government Officials in Application of Penal Provisions)

Members of the Korea Communications Commission who are not public officials, from among the members of the said Committee, a person who carries out a performance test under Article 33-2 (1), and a person who deals with the entrusted business under Articles 46 (2), shall be deemed the public officials in the application of Articles 129 through 132 of the Criminal Act. <Amended by Act No. 5219, Dec. 30, 1996>

Article 53 (Fine for Negligence)

(1) A person falling under any of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: <Amended by Act No. 6231, Jan. 28, 2000; Act No. 6602, Jan. 14, 2002> <Amended by Act No. 6823, Dec. 26, 2002>

1. A person who has used the private telecommunications facilities and equipment without obtaining a confirmation, in contravention of Article 20 (3);

2. A person who has failed to conduct the testing under Article 25 (2) or to record and manage its results;

3. A person who has committed the act of refusing, evading or obstructing the inspection and the testing under Article 25 (5);

4. A person who has managed the telecommunications facilities and equipment without setting forth the management regulations under Article 26 (1);

5. A person who has violated the orders under Article 27;

6. A person who has sold the telecommunications equipments, or displayed them with intention of sale, without making any indication of type approval, in violation of Article 33 (4);

7. A person who has produced or imported the telecommunications equipments which were judged as inferior goods by the investigation or test under Article 36 (2), or who has sold them or displayed them with intention of sale while being aware that they were judged as inferior goods;

8. A person who has refused, obstructed or evaded the inspection and testing under Article 36 (2);

9. A person who has not submitted the management plans of telecommunications disasters under Article 44-3(4);

10. A person who has not reported the telecommunication disaster under Article 44-7 or made a false report thereon;

11. A person who has not reported the progresses of telecommunications disaster recovery, etc. under Article 44-8 (4) or made a false report thereon;

12. A person who has failed to file a report under Article 45 (1), or filed a false report; and

13. A person who has refused, obstructed or evaded the inspection under Article 45 (1).

(2) The fine for negligence under paragraph (1) shall be imposed and collected by the Minister of Information and Communication, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5219, Dec. 30, 1996>

(3) A person who does not accede to a disposition of fine for negligence under paragraph (2) may raise an objection to the Minister of Information and Communication within 30 days from the date of notification of such disposition. <Amended by Act No. 5219, Dec. 30, 1996>

(4) When the person notified of a disposition of fine for negligence under paragraph (2) raises an objection under paragraph (3), the Minister of Information and Communication shall notify without delay the competent court thereof, and the court so notified shall make judgements of a fine for negligence based on the Non-Contentious Case Litigation Procedure Act. <Amended by Act No. 5219, Dec. 30, 1996>

(5) In case where neither an objection to nor the payment of the fine for negligence within the period specified under paragraph (3) is made, it shall be collected pursuant to the example of the disposition on the national taxes in arrears.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force four months after its promulgation.

Article 2 (Transitional Measures on Confirmation of Technical Criteria Suitability)

The person who installed the telecommunications line facilities and equipment and ran the public telecommunications business, at the time of implementation of this Act, shall obtain confirmation from the Minister of Information and Communication as stipulated under Article 25 (2), on the telecommunications facilities and equipment already installed within one year from the effective date of this Act.

Article 3 (Transitional Measures on Management Rules)

The person who installed the telecommunications line facilities and equipment and ran the public telecommunications business, at the time of implementation of this Act, shall make the management rules pursuant to Article 26 and report to the Minister of Information and Communication within one year from the time when this Act enters into force.

Article 4 (Transitional Measures on Type Approval)

The telecommunications equipments that already obtained the type approval under above Article 30 (1), at the time of implementation of this Act, shall be presumed to have obtained the type approval from the Minister of Information and Communication pursuant to Article 33 (1), and the valid period shall be presumed to have been renewed pursuant to Article 34 (1) at the time when this Act enters into force.

Article 5 (Transitional Measures on Association)

(1) The incorporated juristic person, Korea Telecommunications Technology Association established pursuant to Article 32 of the Civil Act (hereinafter referred to as the “juristic person”), at the time when this Act enters into force, may apply for the approval from the Minister of Information and Communication in order that the Association to be established pursuant to Article 30 of this Act may succeed all rights and duties of the foundation, through resolutions of the board of directors thereof.

(2) The juristic person which obtained the approval through application, pursuant to the above paragraph (1), shall be presumed to be dissolved in spite of the provisions concerning dissolution and liquidation of a juristic person in the Civil Act, simultaneously with establishment of the Association under this Act, and the Association to be established pursuant to this Act shall succeed all rights and duties that belonged to the foundation.

Article 6 (Transitional Measures on Approval, etc.)

In case where there exist corresponding provisions in this Act, apart from Articles 2 and 4 of the Addenda, to those approval, license, measures, orders, application, etc., pursuant to the former provisions, at the time when this Act enters into force, then these shall be presumed to have been made pursuant to this Act.

Article 7

Omitted.

ADDENDA <Act No. 4528, Dec. 8, 1992>

Article 1 (Enforcement Date)

This Act shall enter into force six moths after the date of its promulgation.

Articles 2 through 11

Omitted.

ADDENDA <Act No. 4541, Mar. 6, 1993>

Article 1 (Enforcement Date)

This Act shall enter into force on the day of its promulgation. (Proviso Omitted.)

Articles 2 through 5

Omitted.

ADDENDA <Act No. 4905, Jan. 5, 1995>

Article 1 (Enforcement Date)

This Act shall enter into force three moths after the date of its promulgation: Provided, That the preparatory works for enforcement of Article 2 (1) of the Addenda may be initiated even before the enforcement date of this Act.

Article 2 (Transitional Measures, etc. on Electronics and Telecommunications Research Institute)

(1) When the foundational juristic person, the Electronics and Telecommunications Research Institute established under an approval of the Minister of Information and Communication pursuant to Article 32 of the Civil Act at the time when this Act entered into force, obtains an approval from the Minister of Information and Communication on a succession of its status via the resolution of the board of directors, it shall be considered as the Electronics and Telecommunications Research Institute established under the amendment to Article 15-2 (hereinafter referred to as the “Research Institute”).

(2) When the foundational juristic person, the Electronics and Telecommunications Research Institute obtains an approval under paragraph (1), it shall without delay file a registration of incorporation for the research institute. In this case, the foundational juristic person, the Electronics and Telecommunications Research Institute, shall be considered to have been dissolved.

(3) In a case of paragraph (1), all properties, rights and duties of the foundational juristic person, the Electronics and Telecommunications Research Institute, shall be presumed to belong to the Research Institute, and the title of the foundational juristic person, the Electronics and Telecommunications Research Institute on the register and public books, etc. related to its property, rights and duties shall be considered as that of the Research Institute.

(4) The value of property which is considered as that of the Research Institute under paragraph (3), shall be calculated according to a book value, based on the prior date of the registration of incorporation under paragraph (2).

(5) In a case of paragraph (1), the activities done before the enforcement of this Act by the foundational juristic person, the Electronics and Telecommunications Research Institute, shall be presumed to have been done by the Research Institute under this Act, and the activities done before the enforcement of this Act against the foundational juristic person, the Electronics and Telecommunications Research Institute, shall be presumed to have been done against the Research Institute under this Act.

(6) In a case of paragraph (1), the officers and employees of the foundational juristic person, the Electronics and Telecommunications Research Institute at the time when this Act enters into force, shall be presumed to have been elected or appointed to the positions of the Research Institute. In this case, the tenure of office for officers shall be reckoned from the date elected as an officer of the foundational juristic person, the Electronics and Telecommunications Research Institute.

Article 3 (Transitional Measures on Supply Agreements of Telecommunications Facilities and Equipment)

The approval of supply agreements of the telecommunications facilities and equipment, obtained pursuant to former Article 18 at the time when this Act enters into force, shall be presumed as the report done pursuant to the amended provisions of Article 18.

Article 4 (Transitional Measures on Valid Period of Type Approval)

The valid period of the telecommunications facilities and equipment, the type approval of which were obtained pursuant to Article 33, prior to enforcement of this Act, but the valid period thereof has not been expired, shall be regulated pursuant to the amended provisions of Article 34, In this case, the valid period shall be reckoned from the type approval date obtained.

ADDENDA <Act No. 5219, Dec. 30, 1996>

Article 1 (Enforcement Date)

This Act shall enter into force one month after the date of its promulgation.

Article 2 (Transitional Measures on Electronics and Telecommunications Research Institute, etc.)

(1) The Electronics and Telecommunications Research Institute, under the previous provisions at the time when this Act enters into force, shall be deemed the research institute established pursuant to the amended provisions of Article 15-2.

(2) The Korea Telecommunications Technology Association under the previous provisions at the time when this act enters into force shall be deemed the Association established pursuant to the amended provisions of Article 30.

Article 3 (Transitional Measures on Installation of Private Telecommunications Facilities and Equipment)

The person who has obtained the permission of installation or permission of modified installation of the private telecommunications facilities and equipment, pursuant to the previous provisions at the time when this Act enters into force, shall be deemed to have made a report to the relevant authority pursuant to the amended provisions of Article 20 (1).

Article 4

Omitted.

ADDENDA <Act No. 5385, Aug. 28, 1997>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 1998.

Articles 2 through 8

Omitted.

ADDENDA <Act No. 5386, Aug. 28, 1997>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 1998. (Proviso Omitted.)

Articles 2 through 8

Omitted.

ADDENDA <Act No. 5453, Dec. 13, 1997>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 1998. (Proviso Omitted.)

Article 2

Omitted.

ADDENDUM <Act No. 5454, Dec. 13, 1997>

This Act shall enter into force on January 1, 1998. (Proviso Omitted.)

ADDENDA <Act No. 5733, Jan. 29, 1999>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Articles 2 through 11

Omitted.

ADDENDA <Act No. 6231, Jan. 28, 2000>

(1) (Enforcement Date) This Act shall enter into force three months after the date of its promulgation.

(2) (Transitional Measures concerning Penal Provisions) In the application of the penal provisions to any act committed prior to the enforcement of this Act, the previous provisions shall govern.

ADDENDA <Act No. 6360, Jan. 16, 2001>

Article 1 (Enforcement Date)

This Act shall enter into force on July 1, 2001.

Articles 2 through 6

Omitted.

ADDENDA <Act No. 6602, Jan. 14, 2002>

(1) (Enforcement Date) This Act shall enter into force on July 1, 2002.

(2) (Transitional Measures concerning Penal Provisions) In the application of the penal provisions to any act committed prior to the enforcement of this Act, the previous provisions shall govern.

(3) Omitted.

ADDENDA <Act No. 6656, Feb. 4, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2003.

Articles 2 through 12

Omitted.

ADDENDA <Act No. 6823, Dec. 26, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation.

ADDENDA Basic Disaster and Safety Management Act<Act No. 7188, Mar. 11, 2004>

Article 1 (Enforcement Date)

This Act shall enter into force no later than three months after the date of the Presidential Decree.

Articles 2 through 9

Omitted.

Article 10 (Amendment of other Regulations)

(1) Omitted.

(2) Relevant part of Telecommunications Basic Law shall be amended as follows:

(3) through (5) omitted

Article 11

Omitted.

ADDENDA (Act on the Designation and Administration of Free Trade Zone) <Act No. 7210, Mar. 22, 2004>

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation.

Articles 2 through 14

Omitted.

Article 15 (Amendment of other Regulations)

(1) Omitted.

(2) Telecommunications Basic Law shall be amended as follows:

(3) through (4) Omitted.

Article 16

Omitted.

EX-15.6

Exhibit 15.6

THE TELECOMMUNICATIONS BUSINESS LAW

(TRANSLATION)

Wholly amended By	1991· 8·10	Act No. 4394
Amended By	1991·12·14	Act No. 4439
Amended By	1991·12·14	Act No. 4441
Amended By	1995· 1· 5	Act No. 4861
Amended By	1995· 1· 5	Act No. 4903
Amended By	1996·12·30	Act No. 5220
Amended By	1997· 8·28	Act No. 5385
Amended By	1998· 9·17	Act No. 5564
Amended By	1999· 2· 8	Act No. 5835
Amended By	1999· 5·24	Act No. 5986
Amended By	2000· 1·28	Act No. 6230
Amended By	2001· 1· 8	Act No. 6346
Amended By	2001· 1·16	Act No. 6360
Amended By	2002· 1·14	Act No. 6602
Amended By	2002· 2· 4	Act No. 6656
Amended By	2002· 12· 26	Act No. 6822
Amended By	2004· 2· 12	Act No. 7165

CHAPTER I GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to contribute to the promotion of public welfare by encouraging sound development of telecommunications business and ensuring convenience to the users of telecommunications service through proper management of such business.

Article 2 (Definitions)

(1) For the purpose of this Act, <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998>

1. The term “telecommunications business operator” means a person who provides telecommunications service with holding a license or making a registration or report under this Act;

2. The term “user” means a person who has made a contract for the use of any telecommunications service with the telecommunications business operator in order to receive a provision of telecommunications service; and

3. The term “universal service” means the basic telecommunications service which any user may receive at reasonable fees anytime and anywhere.

(2) The terms used in this Act shall be the same as defined in the Framework Act on Telecommunications, except for those defined in paragraph (1) above.

Article 3 (Duty of Providing Services, etc.)

(1) A telecommunications business operator shall not refuse to provide any telecommunications service, without justifiable reasons.

(2) A telecommunications business operator shall guarantee the fairness, speediness and accuracy in performing his business.

(3) A fee for telecommunications service shall be reasonably fixed so as to ensure a smooth development of telecommunications business and to provide the users with convenient and diverse telecommunications services in the fair and inexpensive manner.

Article 3-2 (Universal Service)

(1) All telecommunications business operators shall have the obligation to provide universal service or to replenish the losses incurred by such provisions. <Amended by Act No. 6346, Jan. 8, 2001>

(2) The Minister of Information and Communication may, notwithstanding the provisions of paragraph (1), exempt the telecommunications business operator determined by the Ordinance of the Ministry of Information and Communication as a telecommunications business operator for whom an imposition of obligation under paragraph (1) is deemed inadequate in view of the peculiarity of telecommunications service, or the telecommunications business operator whose turnover of telecommunications service is less than the amount as determined by the Ordinance of the Ministry of Information and Communication within the limit of 1/100 of total turnover of the telecommunications services, from the relevant obligations. <Newly Inserted by Act No. 6346, Jan. 8, 2001>

(3) The details of universal service shall be determined in consideration of the following matters:

1. Level of the development of information and communications technology;

2. Level of the dissemination of telecommunications service;

3. Public interest and safety;

4. Promotion of social welfare; and

5. Acceleration of informationalization.

(4) Matters necessary for the details of universal service, designation of a business operator providing universal service, and compensation for losses incurred in the course of providing universal service and creation of relevant financial resources shall be prescribed by the Presidential Decree.

[This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]

CHAPTER II TELECOMMUNICATIONS BUSINESS

SECTION 1 General Provisions

Article 4 (Classification, etc. of Telecommunications Business)

(1) The telecommunications businesses shall be classified into a key communications business, a specific communications business and a value-added communications business. <Amended by Act No. 5385, Aug. 28, 1997>

(2) The key communications business shall be the business to install telecommunications line facilities, and thereby provide telecommunications services such as telegraph and telephone service (hereinafter referred to as the “key telecommunications services”), whose types and contents are determined by the Ordinance of the Ministry of Information and Communication, in consideration of impacts on the public interest and national industries and the necessity for stable provision of services. <Amended by Act No. 5220, Dec. 30, 1996>

(3) The specific communications business shall correspond to one of the following subparagraphs: <Newly Inserted by Act No. 5385, Aug. 28, 1997>

1. Business which provides a key telecommunications service by making use of telecommunications line facilities, etc. of a person who has obtained a license for key communications business under Article 5 (hereinafter referred to as a “key communications business operator”); and

2. Business which installs the telecommunications facilities in the premises as determined by the Ordinance of the Ministry of Information and Communication, and provides a telecommunications service therein by making use of the said facilities.

(4) The value-added communications business shall be the business which leases telecommunications line facilities from a key communications business operator, and provides a telecommunications business service other than the key telecommunications services under paragraph (2) (hereinafter referred to as the “value-added communications service”). <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997>

[This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]

SECTION 2 Key Communications Business

Article 5 (License, etc. of Key Communications Business Operator)

(1) A person who intends to run a key communications business shall obtain a license from the Minister of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

(2) The Minister of Information and Communication shall, in case where he intends to grant a license under paragraph (1), go through a deliberation by the Information and Communications Policy Deliberation Council under Article 44-2 of the Framework Act on Telecommunications: Provided, That this shall not apply to the license of minor business as prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

(3) The Minister of Information and Communication shall, in granting a license under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs: <Amended by Act No. 5220, Dec. 30, 1996>

1. Propriety of the plans for providing the key telecommunications services;

2. Appropriateness of the size of telecommunications facilities;

3. Financial and technical capability;

4. Actual results of technical developments related to key telecommunications services to be provided;

5. Technical development plans related to key telecommunications services;

6. Support plans for technical developments for promoting telecommunications; and

7. Other necessary matters for the performance of business.

(4) The Minister of Information and Communication shall set forth the detailed examination criteria by examining item under paragraph (3), period for license and outline of application for license, and make a public announcement thereof. <Amended by Act No. 5220, Dec. 30, 1996>

(5) The Minister of Information and Communication may, in case where he grants a license for key communications business under paragraph (1), attach the conditions necessary for provision of services, or research and development, etc. for promotion of telecommunications industry. <Amended by Act No. 5220, Dec. 30, 1996>

(6) A person subject to a license under paragraph (1) shall be limited to a juristic person.

(7) Procedures for a license under paragraph (1) and other necessary matters shall be determined by the Ordinance of Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

[This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]

Article 5-2 (Disqualification for License)

A person falling under any of the following subparagraphs shall not be granted a license for key communications business under Article 5:

1. The State or local government;

2. A foreign government or a foreign juristic person; and

3. A juristic person in which a foreign government or foreigner owns its stocks in excess of a ratio as prescribed by Article 6 (1).

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]

Article 6 (Limitation of Stock Ownership of Foreign Government or Foreigner)

(1) A foreign government or a foreigner, in the aggregate, shall not own stocks of key communications business operator (limited to voting stocks including securities equivalent to voting stocks such as DR and contributory interests, hereinafter the same shall apply) in excess of 49/100 of the total issued stocks.

(2) A juristic person whose majority shareholder is a foreign government or foreigner (including specially related persons as defined in Article 36 subparagraph (3) of the Securities and Exchange Act) and such foreign government or foreigner which owns in excess of 15/100 of the total issued stocks shall be deemed as a foreigner (hereinafter referred to as a “Deemed Foreign Juristic Person”).

(3) A juristic person which owns less than 1/100 of the total issued stocks of a key communications business operator shall not be considered as a foreigner even if it falls under paragraph (2).

[This Article Wholly Amended by Act No. 7165, Feb. 9, 2004]

Article 6-2 (Qualification Requirements for Officers)

(1) A person falling under any of the following subparagraphs shall not become an officer of a key communications business operator: <Amended by Act No. 5385, Aug. 28, 1997; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>

1. A minor or a person who has been declared as incompetent or quasi-incompetent;

2. A person who has been declared bankrupt and not yet reinstated;

3. A person who has been sentenced to an imprisonment or heavier punishment for violations of this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion, etc. of Utilization of Information System, and for whom three years have not passed since the termination of execution of the sentence (including the case of deemed termination of execution) or the confirmation of non-execution of the sentence;

4.A person who has been sentenced to an imprisonment or heavier punishment for violations of this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion, etc. of Utilization of Information System, and who is in the period of suspended sentence;

5.A person who has been sentenced to a fine or heavier punishment for violations of this Act, the Framework Act on Telecommunications or the Act on Promotion, etc. of Utilization of Information System, and for whom three years have not passed since such sentence;

6.A person for whom three years have not passed since a revocation of his license under Article 15 (1), a revocation of his registration under Article 28 (1), or a receipt of an order for business closedown under paragraph (2) of the same Article. In this case, if it is a juristic person, it refers to the person who has committed an act causing a revocation of license or registration, or an order for business closedown, and the representative thereof.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

(2) If an officer falls into any of subparagraphs of paragraph (1) above or if it is found that an officer fell into any of those at the time of appointment, such officer shall resign from his/her office.

(3) Any action made by the officer who resigns pursuant to paragraph (2) above shall not be invalidated due to such resignation.

Article 6-3 (Review of the Public Interest in Connection with the Acquisition of Shares of a Key Telecommunications Business Operator)

(1) The Minister of Information and Communication shall establish a reviewing committee on public interest (hereinafter referred to as the “Committee”) which purpose is to examine whether each of the following items will harm public interest as prescribed by the Presidential Decree, including the national security, public welfare, the maintenance of the public order (“Review of Effect on Public Interest”).

1. If a person together with specially related persons as defined in Article 36 subparagraph (3) of the Securities and Exchange Act (“Specially Related Persons”) acquires in excess of 15/100 of total issued stocks of a telecommunications business operator;

2. If there is a change of the largest shareholder of a key telecommunications business operator;

3. If the key telecommunications business operator or a shareholder of the key telecommunications business operator enters into an agreement with a foreign government or a foreigner in relation to the important matters concerning the management of such key telecommunications business operator as prescribed by Presidential Decree including appointment and dismissal of the officers, business transfer or acquisition, etc.; and

4. In other cases where there is a change of a shareholder who exercises influence over management of a key telecommunications business operator, as prescribed by the Presidential Decree.

(2) In the event a key telecommunications business operator or a shareholder of the key telecommunications business operator has come to fall in any of subparagraphs of paragraph (1) above, he shall report such fact to the Minister of Information and Communication within 7 days of such event.

(3) In the event a key telecommunications business operator or a shareholder of the key telecommunications business operator has come to fall in any of subparagraphs of paragraph (1) above, he may, before the event, request for an examination under paragraph (1) to the Minister of Information and Communication.

(4) In the event the Minister of Information and Communication receives a report under paragraph (2) or request under paragraph (3), the Minister of Information and Communication shall present such to the Committee for examination.

(5) The Minister of Information and Communication may, in case it is determined that any of the events in subparagraphs of paragraph (1) may harm public interest as a result of examination under paragraph (1), give an order to change the terms of the agreement, to cease implementation of the terms of such agreement, to stop exercise of voting rights or to sale the shares.

(6) The extent of key communications business operator who shall be reported and examined pursuant to paragraphs (2) and (3), procedures of report and examination and other necessary matters thereto shall by prescribed by the Ordinance of Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]

Article 6-4 (Composition of Public Interest Review Committee and Management, etc.)

(1) The Committee shall be composed of members no less than five, but no more than 10, including one chairman.

(2) The chairman shall be the Vice Minister of Information and Communication and the members shall be the ones commissioned by the chairman among public officials 3^rd grade or higher of related central administrative agency as prescribed by Presidential Decree and any of the following:

1. One with much experience and knowledge in information and telecommunication.

2. One recommended by a research institute funded by the government related to national security or public welfare, the maintenance of the public order.

3. One recommended by a non-profit non-governmental organization under Article 2 of the Assistance for Non-Profit Non-governmental Organization Act.

4. Others as deemed necessary by the chairman.

(3) Committee may conduct investigations or request for information from parties or persons of reference for examination of public interest. In this instance, a party or person of reference shall comply with such request in the absence of appropriate reasons.

(4) If deemed necessary, the Committee may request a party or person of reference to make appearance to the Committee to get his opinion.

(5) Matters necessary relating to the organisation and management, etc., of the Committee shall be prescribed by the Presidential Decree.

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]

Article 7 (Restrictions, etc. on Stockholders of Excessive Possession)

(1) When a foreign government or a foreigner has acquired shares in violation of Article 6 (1), he shall not exercise the voting rights vested in the excessive portion of shares.

(2) The Minister of Information and Communication may order the stockholder who has acquired stocks in violation of Article 6 (1), key communications business operator which that person is a stockholder of or stockholder of a Deemed Foreign Juristic Person to make corrections in the relevant matters by specifying a period within the limit of six months.

(3) The key communications business operator or stockholder shall, upon receipt of corrections order under paragraph (2), make corrections in the relevant matters within the specified period.

(4) A key communications business operator may refuse the registration in the shareholders registry or employee registry with respect to the excessive portion, for a stockholder in violation of Article 6 (1).

[This Article Wholly Amended by Act No. 7165, Feb. 9, 2004]

Article 7-2 (Compulsory Performance Money)

(1) Minister of Information and Communication may impose compulsory performance money on a person in the event he fails to perform, within the time prescribed, an order under Article 6-3 (5) or Article 7 (2) (“correction order”). In this instance, the amount of compulsory performance money

which can be imposed per day will be up to 3/1000 of purchase price of stocks held, provided that, if correction order is unrelated to possession of stocks, it shall be up to 100,000,000 Won.

(2) The period subject to compulsory performance money under paragraph (1) shall be from the day following the end of the time prescribed by the correction order to the date when correction order has been performed. In this instance, compulsory performance money shall be imposed within thirty days of the end of the time prescribed by the correction order unless there is a special circumstance.

(3) Article 37-2 (4) shall apply mutatis mutandis with respect to the collection of compulsory performance money .

(4) Necessary matters relating to imposition, payment, refund, etc. of compulsory performance money shall be prescribed by the Presidential Decree.

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]

Article 8 (Issuance of Stocks)

A key communications business operator shall, in a case of an issuance of stocks, issue the registered ones. <Amended by Act No. 4903, Jan. 5, 1995>

Article 9 (Obligation of Commencing Business)

(1) A key communications business operator shall install telecommunications facilities and commence business within the period as fixed by the Minister of Information and Communication. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

(2) The Minister of Information and Communication may, in case where the said business operator is unable to commence business within the period under paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

(3) Deleted. <by Act No. 5564, Sep. 17, 1998>

Article 10 (Addition of Service and Modification of License)

(1) A key communications business operator shall, in case where he intends to additionally provide a key communications service other than that already licensed under Article 5, obtain a modified license for such change from the Minister of Information and Communication, under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication: Provided, That where a key communications business operator who provides a telephone service intends to additionally provide a key communications service prescribed by the Ordinance of the Ministry of Information and Communication within the limit of not hampering a key communications service which is provided by making use of existing facilities, he shall make a report thereon to the Minister of Information and Communication.

(2) Where a key communications business operator intends to modify the important matters prescribed by the Ordinance of the Ministry of Information and Communication from among the

matters licensed under Article 5, he shall obtain a modified license from the Minister of Information and Communication, under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication.

(3) The provisions of Articles 5 (5) and Article 9 shall be applicable mutatis mutandis to a modified license for change under paragraph (1). [This Article Wholly Amended by Act No. 5564, Sep. 17, 1998]

Article 11 (Concurrent Operation of Business)

(1) A key communications business operator shall, in case where he intends to run a business other than the telecommunications, obtain approval from the Minister of Information and Communication: Provided, That this shall not apply to the business as prescribed by the Presidential Decree. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

(2) The Minister of Information and Communication shall grant approval under paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under paragraph (1), and that it is required for the development of telecommunications. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

Article 12

Deleted. <by Act No. 5986, May 24, 1999>

Article 13 (Takeover of Business and Merger of Juristic Persons, etc.)

(1) A person who intends to take over the whole or part of a business of a key communications business operator or to merge with a juristic person which is a key communications business operator, or a key communications business operator who intends to sell telecommunications line facilities necessary for provision of licensed key communications services shall obtain an authorization from the Minister of Information and Communication under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 7165, Feb. 9, 2004>

(2) Where a key communications business operator intends to establish a juristic person in order to provide a part of key communications services from among the plural key communications services licensed, he shall obtain approval from the Minister of Information and Communication, under the conditions as prescribed by the Ordinance of the Ministry of Information and Communication.

(3) The Minister of Information and Communication shall, in case where he intends to grant authorization or approval under paragraph (1) or (2), comprehensively examine the matters falling under each of the following subparagraphs: <Newly Inserted by Act No. 6230, Jan. 28, 2000>

1. Appropriateness of financial and technical capability and business operational capability;

2. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.;

3. Impact on the competition of key communications business; and

4. Impact on the protection of users and the public interests.

(4) Matters necessary for the detailed examination standards by examination items and the examination procedures, etc. under paragraphs (3) shall be fixed and publicly announced by the Minister of Information and Communication. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

(5) A person who has taken over the business of a key communications business operator by obtaining an authorization under paragraph (1), or a juristic person surviving a merger or that established by a merger, or that established by obtaining an authorization under paragraph (2), shall succeed to the status which is related to a license of the relevant key communications business.

(6) The Minister of Information and Communication may, in case where he grants authorization or approval under paragraph (1) or (2), attach conditions required for fair competition and protection of users, etc. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

(7) The Minister of Information and Communication shall, in case where he intends to grant an authorization under paragraph (1), go through a deliberation by the Information and Communications Policy Deliberation Council under Article 44-2 of the Framework Act on Telecommunications, and consultation with the Fair Trade Commission. <Amended by Act No. 6230, Jan. 28, 2000>

(8) The provisions of Article 5-2 shall apply mutatis mutandis to an authorization under paragraph (1) and approval under paragraph (2). <Amended by Act No. 7165, Feb. 9, 2004>

[This Article Wholly Amended by Act No. 5564, Sep. 17, 1998]

Article 14 (Suspension, Closedown of Business or Dissolution of Juristic Persons, etc.)

(1) A key communications business operator shall, in case where he intends to suspend or discontinue the whole or part of a key communications business run by him, obtain approval from Minister of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

(2) The resolution for a dissolution of a juristic person which is a key communications business operator or all employee’s consent to such dissolution shall be subject to authorization from the Minister of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

(3) The Minister of Information and Communication shall, in case where an application for approval or authorization under paragraph (1) or (2) is made, and where deemed that suspension, discontinuance of relevant business or a dissolution of a juristic person is likely to hamper the public interests, not grant the relevant approval or authorization. <Amended by Act No. 5220, Dec. 30, 1996>

[This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]

Article 15 (Cancellation of License, etc.)

(1) The Minister of Information and Communication may, in case where a key communications business operator falls under any of the following subparagraphs, cancel the relevant license or give an order to suspend the whole or part of business with fixing a period of no more than one year: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 6230, Jan. 28, 2000>

1. Where he has obtained a license by deceit and other illegal means;

2. Where he has failed to implement the conditions under Articles 5 (5) and 13 (6);

3. Where he has failed to observe the orders under Article 7 (2);

4. Where he has failed to commence business within the period under Article 9 (1) (in case of obtaining an extention of the period under Article 9 (2), the extended period);

5. Where he has failed to comply with the standardized use contract, that is authorized or reported under Article 29 (1); and

6. Where he has violated this Act (excluding the provisions of Articles 36-3 and 36-4), the Framework Act on Telecommunications, the Radio Waves Act, the Act on Promotion, etc. of Utilization of Information System, the Framework Act on Informationalization Promotion or the orders under these Acts.

(2) Criteria and procedures for the dispositions under paragraph (1) and other necessary matters shall be determined by the Ordinance of Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996>

Article 16

Deleted. <by Act No. 5564, Sep. 17, 1998>

SECTION 3 Deleted.

Articles 17 and 18

Deleted. <by Act No. 4903, Jan. 5, 1995>

SECTION 4 Specific Communications Business and Value-Added Communications Business

Article 19 (Registration of Specific Communications Business Operator)

(1) A person who intends to operate a specific communications service shall register the following matters with the Minister of Information and Communication under the conditions as determined by the Ordinance of the Ministry of Information and Communication:

1. Financial and technical capability;

2. Plans for a user protection; and

3. Business plans, etc, and other matters as determined by the Ordinance of the Ministry of Information and Communication.

(2) The Minister of Information and Communication may, upon receipt of the registration of a specific communications business under paragraph (1), attach the conditions necessary for a provision of services or research and development for the promotion of telecommunications industry.

(3) A person subject to the registration of specific communications business under paragraph (1) shall be limited to a juristic person.

(4) Procedures and requirements for the registration under paragraph (1) and other necessary matters shall be determined by the Ordinance of the Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 5385, Aug. 28, 1997]

Article 20

Deleted. <by Act No. 5986, May 24, 1999>

Article 21 (Report, etc. of Value-Added Communications Business Operator)

A person who intends to run a value-added communications business shall report to the Minister of Information and Communication, under the conditions as prescribed by the Presidential Decree: Provided, That this shall not apply to a case where a key communications business operator intends to run a value-added communications business, and a case of minor business as prescribed by the Presidential Decree. <Amended by Act No. 5220, Dec. 30, 1996>

[This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]

Article 22 (Modification of Registered or Reported Matters)

A person who has registered as a specific communications business operator under Article 19 (hereinafter referred to as a “specific communications business operator”) or who has made a report of a value-added communications business operator under Article 21 (hereinafter referred to as a “value-added communications business operator”) shall, when he intends to modify the matters as determined by the Ordinance of the Ministry of Information and Communication from among the relevant registered or reported matters, make in advance a modified registration or modified report to the Minister of Information and Communication, under the conditions as prescribed by the said Ordinance.

[This Article Wholly Amended by Act No. 5385, Aug. 28, 1997]

Article 23

Deleted. <by Act No. 4903, Jan. 5, 1995>

Articles 24 and 24-2

Deleted. <by Act No. 5986, May 24, 1999>

Article 25 (Transfer or Takeover, etc. of Business)

In case where there exists a transfer or takeover of the whole or part of a specific communications business or a value-added communications business, or a merger or succession of a juristic person which is a specific communications business operator or a value-added communications business operator, a person who has taken over the relevant business, the juristic person surviving the merger, the juristic person founded by the merger, or the successor shall make the report thereon to the Minister of Information and Communication, under the conditions as determined by the Ordinance of Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998>

Article 26 (Succession of Business)

In case where there have existed a transfer or takeover of a specific communications business or a value-added communications business, a merger of a juristic person which is a value-added communications business operator, or a succession of a value-added communications business, under Article 25, a person who has taken over the business, a juristic person surviving a merger, a juristic person founded by a merger or a successor shall succeed to the status of a former specific communications business operator or a value-added communications business operator. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5385, Aug. 28, 1997>

Article 27 (Suspension or Closedown, etc. of Business)

(1) A specific communications business operator or a value-added communications business operator shall, in case where he intends to suspend or close down the whole or part of his business, notify the relevant contents to the users of relevant services, and report thereon to the Minister of Information and Communication not later than thirty days prior to the slated date of the relevant suspension or closedown. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997>

(2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Minister of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997>

Article 28 (Cancellation of Registration and Order for Closedown of Business)

(1) The Minister of Information and Communication may, when a specific communications business operator falls under any of the following subparagraphs, cancel his registration, or suspend his business by specifying the period of not more than one year: Provided, That when he falls under subparagraph 1, the Minister of Information and Communication shall cancel his registration: <Newly Inserted by Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, Jan. 16, 2001>

1. Where he makes a registration by deceit and other illegal means;

2. Where he fails to commence business within one year from the date on which a registration was made under Article 19 (1), or continually suspends business operation for not less than one year;

3. Where he fails to implement the conditions under Article 19 (2);

4. Deleted; <by Act No. 5986, May 24, 1999>

5. Where he fails to comply with an order for correction under Article 65 (1) without any justifiable reasons;

6. Where he fails to comply with an order under Article 7 (2) which applies mutatis mutandis under Article 6 (2) of the Addenda; and

7. Where he violates this Act (excluding the provisions of Articles 36-3 and 36-4), the Framework Act on Telecommunications, the Radio Waves Act, the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc., or the Framework Act on Informatization Promotion, or any order issued under such Acts.

(2) The Minister of Information and Communication may, when a value-added communications business operator falls under any of the following subparagraphs, issue an order to him for a closedown of business or for a suspension of business by specifying a period of not more than one year: Provided, That where he falls under subparagraph 1, the said Minister shall issue an order to him for a closedown of business: <Amended by Act No. 4903, Jan 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, Jan. 16, 2001>

1. Where he makes a report by deceit and other illegal means;

2. Where he fails to commence the business within one year from the reporting date under Article 21, or suspend the business operation for not less than one year;

3. Deleted; <by Act No. 5986, May 24, 1999>

4. Where he fails to comply with a correction order under Article 65 (1) without any justifiable reasons; and

5. Where he violates this Act (excluding the provisions of Articles 36-3 and 36-4), the Framework Act on Telecommunications, the Radio Waves Act, the Act on the Promotion, etc. of Utilization of Information Communication Networks, the Framework Act on Informatization Promotion or any order issued under such Acts.

(3) Criteria and procedures for dispositions taken under paragraph (1) or (2) and other necessary matters shall be determined by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997>

CHAPTER III TELECOMMUNICATIONS SERVICE

Article 29 (Report, etc. of Standardized Use Contract)

(1) A key communications business operator shall set forth the fees and other terms for use by service with respect to the telecommunications service which he intends to provide (hereinafter referred to as the “standardized use contract”), and report thereon (including a modified report) to the Minister of Information and Communication: Provided, That in a case of a key communications service whose size of business and market share correspond to the standards as determined by the Ordinance of the Ministry of Information and Communication, it shall obtain an authorization of the Minister of

Information and Communication (including a modified authorization). <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

(2) Deleted. <by Act No. 5385, Aug. 28, 1997>

(3) The Minister of Information and Communication shall authorize the standardized use contract under the proviso of paragraph (1), if it falls under the criteria of any of the following subparagraphs: <Amended by Act No. 5220, Dec. 30, 1996>

1. Fees for telecommunications service shall be proper, fair and reasonable;

2. Computing methods of telecommunications service fees shall be proper and definite;

3. Matters concerning the responsibility of key communications business operators and relevant users, cost-sharing methods concerning the installation work of telecommunications facilities and other works shall be proper and definite;

4. Forms of use of telecommunications line facilities by other telecommunications business operators or users shall not be unduly restricted;

5. Undue discriminatory treatments shall not be made to specific persons; and

6. Matters on securing the important communications under Article 55 shall be adequately considered.

(4) The Minister of Information and Communication may, when there exists any need for a key communications business operator to provide telecommunications service on a trial basis, grant a temporary authorization for a standardized use contract, notwithstanding the provisions of paragraph (1). <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996>

(5) The standardized use contract under paragraph (1) shall be applicable with respect to use of telecommunications line facilities, in case where a specific communications business operator or a value-added communications business operator makes use of telecommunications line facilities of a key communications business operator. <Amended by Act No. 5385, Aug. 28, 1997>

Article 30 (Alteration, etc. of Standardized Use Contract)

(1) The Minister of Information and Communication may, after going through a deliberation by the Korea Communications Commission under Article 37 of the Framework Act on Telecommunications (hereinafter referred to as the “Korea Communications Commission”), order the telecommunications business operator to make alterations in the standardized use contract, with fixing a considerable period, in case where deemed that there exist obstructions to the advancement of the public interests as the standardized use contract by the telecommunications business operator becomes significantly unreasonable due to the fluctuations in the social or economic status. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>

(2) A telecommunications business operator shall, in case where there exists an order for alterations under paragraph (1), make alterations in the relevant standardized use contract within the specified period.

Article 31

Deleted. <by Act No. 5986, May 24, 1999>

Article 32 (Reduction or Exemption of Fees)

A key communications business operator may reduce or exempt the fees for telecommunications service, under the conditions as prescribed by the Presidential Decree.

Article 32-2 (Restriction on Use by Others)

No person shall intermediate other’s communications or provide for other’s communications by making use of telecommunications services provided by a telecommunications business operator: Provided, That this shall not apply to any of the following cases:

1. If necessary to prevent, or rescue from, accident, or to secure transportation, communications and electricity and to maintain the public order under the national emergent circumstances;

2. If the telecommunications services are incidentally provided to the customers of the business other than a telecommunications business;

3. If the telecommunications services are used for the purpose of test of telecommunications equipment, such as telephones, etc., to be developed and sold;

4. If the telecommunications services are not repeatedly used by a third party; or

5. If necessary for public interest or if the use of telecommunications services does not interfere with the business of a telecommunications business operator, as prescribed by the Presidential Decree. [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996; Amended by Act No. 6822, Dec. 26, 2002]

Article 32-3

Deleted. <by Act No. 6602, Jan. 14, 2002>

Article 32-4 (Use of Transmission or Line Equipments, etc.)

(1) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide the transmission or line equipments or the cable broadcasting equipments possessed under the conditions as prescribed by the Presidential Decree to the key communications business operators. <Amended by Act No. 6346, Jan. 8, 2001>

(2) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act shall, when he intends to provide a value-added communications services by making use of the transmission or line equipments or cable broadcasting equipments, make a report thereon to the Minister of Information and Communication pursuant to Article 21. <Amended by Act No. 6346, Jan. 8, 2001>

(3) The provisions of Articles 33-5 through 37 and 38 shall be applicable mutatis mutandis to the transmission or line facilities or cable broadcasting facilities under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6346, Jan. 8, 2001>

(4) The provisions of Article 25 (2) through (6) of the Framework Act on Telecommunications shall be applicable mutatis mutandis to the offer of services under paragraph (2).

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 33 (Protection of Users)

(1) Deleted. <by Act No. 5986, May 24, 1999>

(2) A telecommunications business operator shall take a prompt measure on the reasonable opinions or dissatisfactions raised by the users with respect to the telecommunications service. In this case, if it is difficult to take a prompt measure, he shall notify the users of the reasons thereof and the schedule for measures.

(3) Compensations for the damages incurred by the occurrence of reasons causing the opinions or dissatisfactions under paragraph (2) and by the delay of relevant measures shall be made pursuant to Article 33-2. <Amended by Act No. 5220, Dec. 30, 1996>

Article 33-2 (Compensation for Damages)

A telecommunications business operator shall make compensations when he inflicts any damages on the users in the course of providing telecommunications services: Provided, That if such damages are the results of force majeure, or of intent or negligence of the users, the relevant liability for compensations shall be reduced or exempted.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 33-3 (Request for Ruling and Compensation Procedures for Damages)

(1) In a case of making a compensation for damages under Article 33-2, a consultation shall be made with the recipient of compensations for damages.

(2) If a consultation on the compensations for damages under paragraph (1) has not been made or is unable to be made, the parties concerned may request the Korea Communications Commission for a ruling.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996; Amended by Act No. 6822, Dec. 26, 2002]

CHAPTER IV PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS SERVICES

Article 33-4 (Promotion of Competition)

The Minister of Information and Communication shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 33-5 (Provision of Telecommunications Facilities)

(1) A key communications business operator may, upon receipt of a request for the provision of telecommunications facilities from other key communications business operator, provide the telecommunications facilities by concluding an agreement with him.

(2) A key communications business operator falling under any of the following subparagraphs shall, upon receipt of a request under paragraph (1), provide the telecommunications facilities by concluding an agreement, notwithstanding the provisions of paragraph (1): <Newly Inserted by Act No. 6346, Jan. 8, 2001>

1. A key communications business operator who possesses the equipments which are indispensable for other telecommunications business operators in providing the telecommunications services; and

2. A key communications business operator whose business scale and market shares, etc. of key telecommunications services are equivalent to the criteria as determined by the Ordinance of the Ministry of Information and Communication.

(3) The Minister of Information and Communication shall set forth and publicly notify the scope of telecommunications facilities, the conditions, procedures and methods for the provision of facilities, and the standards for calculation of prices under paragraphs (1) and (2). In this case, the scope of telecommunications facilities to be provided under paragraph (2) shall be determined in view of the demand for telecommunications facilities by the key communications business operators falling under each subparagraph of the same paragraph. <Amended by Act No. 6346, Jan. 8, 2001>

(4) A key communications business operator in receipt of provisions of the telecommunications facilities may install the apparatus enhancing the efficiency of the relevant facilities, within the limit necessary for the provision of the licensed telecommunications services.

(5) The Minister of Information and Communication shall go through a deliberation of the Korea Communications Commission, in case where he intends to set forth the standards under paragraph (3). <Amended by Act No. 6346, Jan. 8, 2001>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 33-6 (Joint Utilization of Subscriber’s Lines)

(1) A key communications business operator shall, in case where other telecommunications business operators as determined and publicly noticed by the Minister of Information and Communication have made a request for a joint utilization with respect to the lines installed in the section from the exchange facilities directly connected with the users to the users (hereafter in this Article, referred to as the “subscriber’s lines”), allow it.

(2) The Minister of Information and Communication shall set forth and publicly notify the scope of joint utilization of the subscriber’s lines under paragraph (1), its conditions, procedures and methods, and the standards for calculation of prices.

(3) The Minister of Information and Communication shall, in case where he intends to set forth the criteria under paragraph (2), go through the deliberation of the Korea Communications Commission.

[This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]

Article 33-7 (Joint Utilization of Radio Communications Facilities)

(1) A key communications business operator may, upon receipt of a request for the joint utilization of radio communications facilities (hereinafter referred to as the “joint utilization”) from other key communications business operators, allow it by concluding an agreement. In this case, the prices for the joint utilization among the key communications business operators as set forth and publicly notified by the Minister of Information and Communication shall be computed and settled accounts by a fair and reasonable means.

(2) The key communications business operators as determined and publicly notified by the Minister of Information and Communication shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Minister of Information and Communication, allow it by concluding an agreement, notwithstanding the provisions of paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users.

(3) The Minister of Information and Communication shall set forth and publicly notify the standard for computing the prices for joint utilization under the latter part of paragraph (1) and its procedures and payment methods, etc., and the scope of joint utilization under paragraph (2), its conditions, procedures and methods, and the computation of prices, etc.

(4) The Minister of Information and Communication shall, in case where he intends to set forth the criteria under paragraph (3), go through in advance the deliberation of the Korea Communications Commission.

[This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]

Article 34 (Interconnection)

(1) A telecommunications business operator may allow the interconnection by concluding an agreement, upon a request from other telecommunications business operators for an interconnection of telecommunications facilities.

(2) The Minister of Information and Communication shall set forth and publicly notify the scope of interconnections of telecommunications facilities, the conditions, procedures and methods, and the standards for calculation of prices under paragraph (1).

(3) Notwithstanding the provisions of paragraphs (1) and (2), the key communication business operators falling under any of the following subparagraphs shall allow the interconnection by concluding an agreement, upon receipt of a request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key telecommunications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Ordinance of the Ministry of Information and Communication.

(4) The Minister of Information and Communication shall go through a deliberation of the Korea Communications Commission, in case where he intends to set forth the standards under paragraph (2).

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 34-2 (Prices of Interconnection)

(1) Prices for using the interconnection shall be calculated by a fair and proper means and deducted from each other’s accounts. The detailed standards for such calculation, their procedures and methods shall be governed by the standards of Article 34 (2).

(2) A key communications business operator may deduct the prices for interconnection from each other’s accounts under the conditions as prescribed by the standards under Article 34 (2), if he suffers any disadvantages due to the causes of no liability on his part, in the method of interconnection, the quality of connected conversations, or the provision of information required for interconnection, etc.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 34-3 (Joint Use, etc. of Telecommunications Facilities)

(1) A key communications business operator may allow an access to or a joint use of the telecommunications equipment or facilities by concluding an agreement, upon receipt of a request from other telecommunications business operators for an access to or a joint use of the telecommunications equipment or facilities such as pipes, cables, poles, or stations of the relevant key communications business operator, for the establishment or operation of facilities required for interconnection of telecommunications facilities.

(2) The Minister of Information and Communication shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under paragraph (1).

(3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall allow an access to or a joint use of the telecommunications equipment or facilities under paragraph (1) by concluding an agreement, upon a receipt of request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key telecommunications business operator whose business size of key telecommunications services and the ratio of market shares are compatible with the standards as determined by the Ordinance of the Ministry of Information and Communication.

(4) The Minister of Information and Communication shall go through a deliberation of the Korea Communications Commission, in case where he intends to set forth the standards under paragraph (2).

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 34-4 (Provision of Information)

(1) A key communications business operator may provide requested information by concluding an agreement, upon a receipt of request from other telecommunications business operators for a provision of information related to technological information or the user’s personal matters which are required for a provision of telecommunications facilities, interconnection, or joint use, etc. and imposition and collection of fees and a guide to the telecommunications number. <Amended by Act No. 5385, Aug. 28, 1997>

(2) The Minister of Information and Communication shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under paragraph (1).

(3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall provide the requested information by concluding an agreement, upon a receipt of request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key communications business operator whose business size of key telecommunications services and the ratio of market shares are compatible with the standards as determined by the Ordinance of the Ministry of Information and Communication.

(4) A key communications business operator under paragraph (3) shall set forth the technical standards required for a use by other telecommunications business operators or users by means of a connection of a monitor and other telecommunications equipment on the relevant telecommunications facilities, the standards for use and provision, and other standards required for a creation of fair competitive environments, and make a public notice thereof by obtaining approval from the Minister of Information and Communication.

(5) The Minister of Information and Communication shall go through a deliberation of the Korea Communications Commission, when determining the standards under paragraph (2), or granting approval under paragraph (4).

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 34-5 (Prohibition of Information Diversion)

(1) A telecommunications business operator shall not divulge any information concerning an individual user which has been obtained due to a provision of his own service, a provision of telecommunications facilities, or an interconnection: Provided, That the same shall not apply, when there exists the consent of the principal or the case under a lawful procedure pursuant to the provisions of the Acts.

(2) A telecommunications business operator shall use the information obtained under Article 34-4 within the context of purposes thereof, and may not use it unjustly, or provide it to the third parties.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 34-6 (Report, etc. of Agreement on Interconnection, etc.)

(1) A key communications business operator shall conclude an agreement under Articles 33-5 (1) and (2), the former part of 33-7 (1), 34 (1), 34-3 (1) or 34-4 (1) and report it to the Korea Communications Commission within ninety days unless there exist any special reasons, upon receipt of a request from other telecommunications business operators for a provision or joint utilization of telecommunications facilities, an interconnection, a joint use or a provision of information. The same applies in the case of a change or abolition of the agreement. <Amended by Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002>

(2) Notwithstanding the provision of paragraph (1), in a case of the agreement in which a key communications business operator under the latter part of Article 33-7 (1) and (2), Articles 34 (3), 34-3 (3) and 34-4 (3) is a party concerned, an authorization of the Korea Communications Commission shall be obtained. <Amended by Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002>

(3) The agreement under paragraphs (1) and (2) shall meet the standards which are publicly notified by the Minister of Information and Communication under Article 33-5 (3), 33-7 (3), 34 (2), 34-3 (2), or 34-4 (2). <Amended by Act No. 6346, Jan. 8, 2001>

(4) The Korea Communications Commission may, upon receipt of a request for an authorization under paragraph (2), order the relevant supplement with fixing a period, if such supplement is required. <Amended by Act No. 6822, Dec. 26, 2002>

(5) The agreement under Articles 34-3 (1) and 34-4 (1) may be concluded by an inclusion in the agreement under Article 34 (1).

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 35 (Application for Ruling, etc.)

(1) A telecommunications business operator may make an application to the Korea Communications Commission for a ruling under Article 40-2 of the Framework Act on Telecommunications, when the agreement between the telecommunications business operators on a provision and joint utilization of telecommunications facilities, an interconnection, or a joint use, etc. or a furnishing of information is not concluded within the period specified by Article 34-6 (1) or is unable to be concluded. <Amended by Act No. 6346, Jan. 8, 2001>

(2) A telecommunications business operator may make an application to the Korea Communications Commission for a ruling with the contents of an implementation of the agreement or a compensation for damages, when the damages occur due to the non-performance of the agreement concerning a provision and joint utilization of telecommunications facilities, an interconnection, a joint use, etc. or a furnishing of information, on the part of other telecommunications business operators. <Amended by Act No. 6346, Jan. 8, 2001>

(3) through (5) Deleted. <by Act No. 5564, Sep. 17, 1998>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 36 (Telecommunications Number, etc.)

(1) The Minister of Information and Communication shall formulate and enforce the management plan for telecommunications number, in order to make an efficient provision of telecommunications service, and the promotion of user’s convenience and of the environments of fair competition among telecommunications business operators.

(2) The Minister of Information and Communication shall, when he has formulated the plans under paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan.

(3) A telecommunications business operator shall observe the matters publicly noticed under paragraph (2).

(4) Where the Minister of Information and Communication intends to formulate or change the management plan for the telecommunications number under paragraph (1), he shall go in advance through a deliberation by the Korea Communications Commission. <Newly Inserted by Act No. 5564, Sep. 17, 1998>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 36-2 (Accounting Adjustment)

(1) A key communications business operator shall adjust the accounting, prepare a business report for the preceding year by the end of March every year, and submit it to the Minister of Information and Communication, under the conditions as determined by the Ordinance of the Korea Communications Commission, and keep the related books and authoritative documents. <Amended by Act No. 6822, Dec. 26, 2002>

(2) The Minister of Information and Communication shall, when he intends to determine the matters of accounting adjustments under paragraph (1), go in advance through a deliberation by the Korea Communications Commission and a consultation with the Minister of Finance and Economy. <Amended by Act No. 5564, Sep. 17, 1998>

(3) The Korea Communications Commission may validate the contents of business report submitted by the key communications business operators under paragraph (1) <Amended by Act No. 6822, Dec. 26, 2002>

(4) The Korea Communications Commission may, in case where deemed necessary for a validation under paragraph (3), order the key communications business operators to submit the related data, or carry out an investigation for a confirmation of facts. <Amended by Act No. 6822, Dec. 26, 2002>

(5) When the Korea Communications Commission completes the validation of the contents of business report under paragraph (3), the Korea Communications Commission shall notify the Minister of Information and Communication of the results of such validation. < Newly Inserted by Act No. 6822, Dec. 26, 2002>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 36-3 (Prohibited Acts)

(1) A telecommunications business operator shall not commit any of the following acts (hereinafter referred to as “prohibited acts”) which hamper, or are likely to hamper, fair competitions and the

users’ interests, or have other telecommunications business operators or the third parties commit these acts: <Amended by Act No. 5986, May 24, 1999; Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002>

1. Acts of unfair discriminations in a provision and joint utilization of telecommunications facilities, an interconnection, a joint application or use, etc. or a provision of information, etc. or acts of unfairly refusing a conclusion of agreement, or acts of non-performance of the concluded agreement without any justifiable reasons;

2. Acts of unfairly diverting the information of other telecommunications business operators to his own business activities, which have been known to him in the course of a provision and joint utilization of telecommunications facilities, an interconnection, a joint application or use, etc. and a provision of information, etc.;

3. Acts of computing the fees for a use of telecommunications services, or the prices for a provision and joint utilization of telecommunications facilities, an interconnection, a joint application or use, etc. or a provision of information, by unfairly itemizing the expenses or revenues; and

4. Acts of providing the telecommunications services in a manner different from the standardized use contract, or acts of providing the telecommunications services in a manner which significantly hampers the profits of users.

5. Acts of supporting or assisting the users for all or portion of purchase price of telephone on condition of signing of service agreement when a telecommunications business operator provides key communications services by using the frequency allotted pursuant to Article 11 or 12 of the Radio Waves Act. Provided that, it shall not apply to the case necessary for the sound development of a telecommunications business and for the users’ and public interest, as set forth by the Presidential Decree. <Newly Inserted by Act No. 6822, Dec. 26, 2002>

(2) If a person representing a telecommunications business operator by contract for the singing of agreement with the users, etc. (including the change of such agreement) commits any acts of subparagraph 4 or 5 of paragraph (1), the telecommunications business operator shall be deemed to do so and the provisions of Articles 37 and 37-2 shall apply to the telecommunications business operator. Provided that, it shall not apply the case where the telecommunications business operator takes reasonable actions to prevent such prohibited acts. <Amended by Act No. 6822, Dec. 26, 2002>

(3) The types and standards of prohibited acts shall be determined by the Presidential Decree. <Amended by Act No. 6822, Dec. 26, 2002>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 36-4 (Investigation, etc. of Facts)

(1) The Korea Communications Commission may, in case where deemed by a report or acknowledgement that there has been an act under Article 36-3, have its public officials conduct an investigation required for it. <Amended by Act No. 6822, Dec. 26, 2002>

(2) The Korea Communications Commission may, where required for the investigation under paragraph (1), order a telecommunications business operator to submit the necessary data or articles, and have its public official visit an office and business place of a telecommunications business operator or a business place of a person who is entrusted with the affairs of a telecommunications business operator, and investigate the books, documents, other data or articles, under the conditions as

prescribed by the Presidential Decree. <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6822, Dec. 26, 2002>

(3) A person who investigates by visiting the offices or workplaces of the telecommunications business operators, or the workplaces of the persons handling, under an entrustment, the business of telecommunications business operators, under paragraph (2) shall carry a certificate indicating the authority, and present it to the persons concerned. <Amended by Act No. 5564, Sep. 17, 1998>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 37 (Measures on Prohibited Acts)

(1) The Korea Communications Commission may order the following measures upon the telecommunications business operators when it is recognized that the act under Article 36-3 has taken place: <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002>

1. Separation of the supply system of telecommunications service;

2. Change of internal accounting regulations, etc. concerning telecommunications service;

3. Disclosure of information concerning telecommunications service;

4. Conclusion, performance or change of contents of the agreement between the telecommunications business operators;

5. Change of the standardized use contract and the articles of incorporation of the telecommunications business operators;

6. Suspension of prohibited acts;

7. Public announcement of a fact of receiving a correction order due to committing the prohibited acts;

8. Measures necessary for restoring the violated matters due to the prohibited acts to their original status, such as the removal of telecommunications facilities which have caused the prohibited acts; and

9. Other matters as prescribed by the Presidential Decree.

(2) The telecommunications business operators shall carry out an order of the Korea Communications Commission under paragraph (1) within the period specified by the Presidential Decree: Provided, That the said Minister may extend the relevant period only once, if it is deemed that the telecommunications business operators are unable to carry out the order within the specified period due to natural disasters and other unavoidable causes. <Amended by Act No. 6822, Dec. 26, 2002>

(3) The Korea Communications Commission shall, before ordering the measures under paragraph (1), notify the parties concerned of the content of relevant measures, and provide them with an opportunity to make a statement within a specified period, and may hear, where deemed necessary, the opinions of the interested parties: Provided, That this shall not apply when the parties concerned fail to respond without any justifiable reasons. <Amended by Act No. 6822, Dec. 26, 2002>

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 37-2 (Imposition, etc. of Penalty Surcharge on Prohibited Acts)

(1) The Korea Communications Commission may, in case where there exists an act under Article 36-3, impose a penalty surcharge equal to not less than 3/100 of the turnover as prescribed by the Presidential Decree on the relevant telecommunications business operators: Provided, That where there is no turnover or it is difficult to calculate the turnover as prescribed by the Presidential Decree, he may impose the penalty surcharge not exceeding one billion won. <Amended by Act No. 6822, Dec. 26, 2002>

(2) The classifications of offenses subject to the imposition of a penalty surcharge under paragraph (1), the upper limit of the penalty surcharge on such offenses, and other necessary matters shall be prescribed by the Presidential Decree.

(3) The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) fails to do so within a payment deadline, collect an additional due equivalent to 6/100 per year, with respect to the penalty surcharge in arrears, from the day following the expiry of such payment deadline. <Newly Inserted by Act No. 6230, Jan. 28, 2000> <Amended by Act No. 6822, Dec. 26, 2002>

(4) The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) fails to do so by the payment deadline, demand him to pay it with fixing a period, and if he fails to pay the penalty surcharge and an additional due under paragraph (3) within the fixed period, collect them according to the example of a disposition taken to collect the national taxes in arrears. <Amended by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>

[This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]

Article 37-3 (Relations with Other Acts)

In case where a measure is taken under Article 37 or a penalty surcharge is imposed under Article 37-2 against the acts of a telecommunications business operator under any subparagraph of Article 36-3 (1), a corrective measure or an imposition of penalty surcharge under the Monopoly Regulation and Fair Trade Act shall not be made under the same grounds against the same acts of the relevant business operator. <Amended by Act No. 6230, Jan. 28, 2000>

[This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]

Article 38 (Compensation for Damages)

In case where a correction measure has been taken under Article 37 (1), a person who is damaged by the prohibited act may claim for compensation against the telecommunications business operator who conducted the prohibited act, and the relevant telecommunications business operator may not shirk liability unless he can prove that there was no malicious intention or negligence.

[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

Article 38-2 (Quality Improvement of Telecommunications Services)

(1) A telecommunications business operator shall endeavor to make a quality improvement of the telecommunications services he provides.

(2) The Minister of Information and Communication shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users.

(3) The Minister of Information and Communication may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under paragraph (2).

[This Article Newly Inserted by Act No. 6230, Jan. 28, 2000]

Article 38-3 (Prior Selection Systems)

(1) The Minister of Information and Communication shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the “prior selection systems”). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Ordinance of the Ministry of Information and Communication from among the same telecommunications service provided by the plural number of telecommunications business operators.

(2) The telecommunications business operator shall not force the users to select in advance a specified telecommunications business operator, or commit the acts to recommend or induce by unlawful means.

(3) The Minister of Information and Communication may, for the purpose of performing the prior selection systems efficiently and neutrally, designate the specialized institutes performing the registration or alteration affairs of the prior selection (hereinafter referred to as the “prior selection registration center”).

(4) The Minister of Information and Communication shall determine and publicly notify the matters necessary for performing the prior selection systems and for the designation of the prior selection registration center and the method of dealing with its affairs, etc., by going through the deliberation of the Korea Communications Commission.

[This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]

Article 38-4 (Mobility of Numbers)

(1) The Minister of Information and Communication may, in order to have the users to be able to maintain the previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the “plans for mobility of numbers”).

(2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs:

1. Kinds of services subject to the mobility of telecommunications numbers;

2. Time for introduction by service subject to the mobility of telecommunications numbers; and

3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator.

(3) The Minister of Information and Communication may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures.

(4) The Minister of Information and Communication shall, in case where he devises or alters the plans for mobility of numbers, go in advance through the deliberation of the Korea Communications Commission.

[This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]

(5) The Minister of Information and Communication may designate a specialized agency to perform the duties of registration, change, etc. of numbers (hereafter referred to as the “numbers mobility administration agency”) in order to efficiently and fairly carry out the mobility of numbers. <Newly Inserted by Act No. 6822, Dec. 26, 2002>

(6) Matters regarding the performance of the mobility of numbers, designation of the numbers mobility administration agency and its handling of duties, etc. shall be determined and publicly notified by the Minister of Information and Communication through the deliberation of the Korea Communications Commission. <Newly Inserted by Act No. 6822, Dec. 26, 2002>

Article 38-5 (Restriction on Cross Shareholding, etc.)

(1) In the event a key telecommunications business operator (including specially related persons) falling under Article 34 (3) subparagraph (1) or (2) owns in excess of 5/100 of the total issued stocks with voting rights of another key telecommunications business operator, he shall not exercise voting rights for the stocks in excessive amount.

(2) Paragraph (1) shall not apply to cross shareholding between a key telecommunications business operator falling under Article 34 (3) subparagraph (1) or (2) and a key telecommunications business operator which is established by the former key telecommunications business operator as the largest shareholder.

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]

Article 38-6 (Provision to Phone Number Directory Service)

(1) Telecommunications business operator shall provide directory service of users’ phone numbers through voice, book, Internet, etc. (“Phone Number Directory Service”) upon obtaining consent from the user. However, this shall not apply in case of minor business, as determined by and publicly given notice of, by the Minister of Information and Communication which will take into consideration the number of users and turnover and etc.

(2) Necessary matters relating to provision of phone number directory service under paragraph (1) can be prescribed by the Ordinance of Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 7165, Feb. 9, 2004] [Enforcement Date: Feb. 10, 2004, Article 38(6)]

CHAPTER V INSTALLATION AND PRESERVATION OF TELECOMUNICATIONS FACILITIES

Article 39 (Use of Land, etc.)

(1) A key communications business operator may, when necessary for the installation of line tracks, aerial lines and the appurtenant facilities to be available for telecommunications service (hereinafter referred to as the “line tracks, etc.”), make use of others’ land, or buildings and structures appurtenant thereto, and surface and bottom of the water (hereinafter referred to as the “land, etc.”). In this case, a key communications business operator shall make a consultation with owners or possessors of the relevant land, etc. in advance.

(2) Where a consultation under paragraph (1) is not or may not be made, a key communications business operator may use the land, etc. owned by others, pursuant to the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor. <Amended by Act No. 6656, Feb. 4, 2002>

(3) Deleted. <by Act No. 5986, May 24, 1999>

Article 40 (Temporary Use of Land, etc.)

(1) A key communications business operator may, when necessary for the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities, temporarily use the private, national or public telecommunications facilities, and the land, etc., within the limit of not substantially impeding a current use.

(2) A key communications business operator shall, when intending to temporarily use the private, national or public property under paragraph (1), notify the possessors, in advance, of the purposes and period of such use: Provided, That in case where it is difficult to make a prior notification, a prompt notification shall be made during or after its use, and in case where such notification may not be made due to an obscurity of address and whereabout of possessors, a public notice thereof shall be made.

(3) The temporary period of use of the land, etc. under paragraph (1) shall not exceed six months.

(4) A person who temporarily uses the private, national or public telecommuication facilities or the land, etc. under paragraph (1) shall carry the certificate indicating the authority, and present it to the persons related.

Article 41 (Entry to Land, etc.)

(1) A key communications business operator may enter others’ land, etc., when necessary for a measurement, examination, etc., for the installation and preservation of his telecommunications facilities: Provided, That in case where the place intended for such entry is a residential building, a consent from residents shall be obtained.

(2) The provisions of Article 40 (2) and (4) shall be applied mutatis mutandis to the entry into the private, national or public land, etc., by those engaged in a measurement or examination, etc. under paragraph (1).

Article 42 (Request for Elimination of Obstacles, etc.)

(1) A key communications business operator may request the owners or possessors of gas pipes, water pipes, drain pipes, electric lamp lines, electricity lines or private telecommunications facilities, which impede or are likely to impede the installation of line tracks, etc. or telecommunications facilities themselves (hereinafter referred to as the “obstacles, etc.”), for the removal, remodeling, repair and other measures with respect to the relevant obstacles, etc.

(2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves.

(3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Minister of Information and Communication. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants. <Amended by Act No. 5220, Dec. 30, 1996>

(4) The owners or possessors of the obstacles, etc., which impede or are likely to impede the telecommunications facilities of a key communications business operator, shall make a consultation in advance with a key communications business operator, when they are in need of a new construction, enlargement, improvement, removal or alteration of the relevant obstacles, etc.

Article 43 (Utilization of Transportation Facilities)

(1) A key communications business operator may, when necessary for establishing a radio-wave station to be provided for the telecommunications service, utilize the private, national or public vessels, airplanes and other transportation facilities, or may make in advance a consultation with the owners or possessors on a special supply or a provision of facilities needed for such establishment, and make use of them.

(2) The provisions of Articles 40 (2) and 44 shall be applied mutatis mutandis to the case of paragraph (1).

Article 44 (Obligation for Restoration to Original State)

A key communications business operator shall restore the relevant land, etc. to its original state, when a use of the land, etc. under Articles 39 and 40 is finished or a need of providing the land, etc. for telecommunications service is gone, and in case where a restoration to the original state becomes impossible, make a proper compensation for damages suffered by the owners or possessors.

Article 45 (Compensation for Damages)

A key communications business operator shall, in case of incurring damages on others in case of Article 40 (1), 41 (1) or 42, make a proper compensation to the suffered person.

Article 46 (Compensation for Actual Expenses)

(1) A key telecommunications business operator shall, in case where a special supply or a provision of facilities necessary for establishing a radio-wave station to be provided for telecommunications service has been provided by the owners or possessors of the vessels, airplanes and other transportation facilities under Article 43 (1), make a compensation for the actual expenses thereof.

(2) The provisions of Article 33 (3) shall apply to the request for ruling and compensation procedures for actual expenses under paragraph (1). <Newly Inserted by Act No. 6822, Dec. 26, 2002>

Article 47 (Procedures for Compensation for Damages on Land, etc.)

(1) A consultation with the suffered party shall be made, in case where a compensation under Article 44 or 45 is made due to a use of or an entry into the land, etc., a removal of the obstacles, etc., or an impossibility of restoration to the original state under Article 40 (1), 41 (1), 42 or 44.

(2) When a consultation under paragraph (1) is not or unable to be made, an application for adjudications shall be filed with the competent Land Expropriation Commission under the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor. <Amended by Act No. 6656, Feb. 4, 2002>

(3) Except for those as otherwise prescribed by this Act, the provisions of the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor shall be applied mutatis mutandis to the criteria, methods and procedures regarding a compensation for damages, etc. to the land, etc. under paragraph (1), and an application for adjudications under paragraph (2). <Amended by Act No. 6656, Feb. 4, 2002>.

Articles 48 and 49

Deleted. <by Act No. 5986, May 24, 1999>

Article 50 (Protection of Telecommunications Facilities)

(1) No person shall destruct the telecommunications facilities, and obstruct the flow of telecommunications by impeding the function of telecommunications facilities by means of having other objects contact them or by any other devices.

(2) No person shall stain the telecommunications facilities or damage the measurement marks of the telecommunications facilities by means of throwing objects to the telecommunications facilities or fastening an animal, vessel or a log raft thereto.

Article 51 (Moving of Facilities, etc.)

(1) The owners or possessors of the land, etc. may, in case where the telecommunications facilities of a key communications business operator have become an obstacle to a use of the land, etc. due to changes in the purpose of use or in the methods of using the land, etc. where such facilities are located, or the land adjacent to it, request a key communications business operator to move the telecommunications facilities, and take other measures necessary for removing the obstacles.

(2) A key communications business operator shall, upon receipt of a request under paragraph (1), take necessary measures, except for the cases where such measures are difficult to be taken for a business performance or technologies.

(3) Expenses necessary for the measures under paragraph (2) shall be borne by the requester: Provided, That they may be reduced or exempted under the conditions as prescribed by the Presidential Decree.

Article 52 (Cooperation of Other Organizations, etc.)

A key communications business operator may ask the related public agencies for a cooperation, in case where the operation of vehicles, vessels, airplanes and other carriers for the installation and preservation of his telecommunications facilities. In this case, the public agency in receipt of a request for cooperation shall comply with it, unless there exist any justifiable reasons.

CHAPTER VI SUPPLEMENTARY PROVISIONS

Article 53 (Prohibition of Unlawful Communication)

(1) A person in use of telecommunications shall not commit any of the following acts: <Amended by Act No. 6822, Dec. 26, 2002>

1. Telecommunications activities of distributing, selling, leasing or displaying lewd symbol, words, sound, pictures or image;

2. Telecommunications activities of distributing fact or fiction in order to defame other person;

3. Telecommunications activities of repeatedly sending symbol, words, sound, pictures or image, which are likely to cause horror or uneasiness;

4. Telecommunications activities of damaging, changing or forging the information and communication system, data, program, etc., or interfering with the operation thereof without justifiable reason;

5. Telecommunications activities of providing the media materials harmful to juveniles for business profit without performing the obligations, such as affirmation of age of the counter party, indication, etc. under the Juvenile Protection Act;

6. Speculative telecommunications activities prohibited by the laws;

7. Telecommunications activities of disclosing the information classified as secret by the laws or other national confidential information;

8. Telecommunications activities prohibited by the National Security Act; or

9. Telecommunications activities for, or of directing or aiding, crime.

(2) The Minister of Information and Communication may order a telecommunications business operator to refuse, suspend or restrict the communication under paragraph (1) through the deliberation of the Korea Communications Commission. Provided that, for the acts of subparagraph 2 or 3 of paragraph (1), such order cannot be given if dissented by the person who suffers damages therefrom,

and for the acts of subparagraphs 7 through 9 of paragraph (1), such order can be given only when requested by the head of a central administrative agency. <Amended by Act No. 6822, Dec. 26, 2002>

(3) The Minister of Information and Communication shall give the opportunity to present their opinion to the telecommunications business operator and the user concerned subject to the order under paragraph (2). Provided that, it shall not apply in any of the following instances: <Amended by Act No. 6822, Dec. 26, 2002>

1. If there is need to take urgent action for the public safety or interest;

2. If it is difficult, or clearly unnecessary, to hear such opinion, as set forth by the Presidential Decree; or

3. If the telecommunications business operator and the user concerned indicate their intent to waive the opportunity of presentment of their opinion.

<Amended by Act No. 5220, Dec. 30, 1996>

Article 53-2 (Information Communication Ethics Committee)

(1) For the purpose of creating the healthy information culture and promoting good use environment of telecommunications, the Information Communication Ethics Committee (hereinafter referred to as the “Committee”) shall be established. <Amended by Act No. 6822, Dec. 26, 2002>

(2) The Committee shall be composed of the members no less than eleven, but no more than fifteen, including the chairman.

(3) The members shall be commissioned by the Minister of Information and Communication from among those engaged in the academic circle, legal circle, users’ organization and business circles related to the information communication. In such case, the Minister of Information and Communication shall commission the members from among those engaged in the legal circle and the users’ organization such that each number of such members from such circle and organization shall be 1/5 or more of the total number of members. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 6822, Dec. 26, 2002>

(4) The Committee shall execute the following tasks: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 6822, Dec. 26, 2002>

1. Presentation of fundamental principles on information communication ethics;

2. Deliberation of information as prescribed by this Act and the Presidential Decree from among those disclosed and circulated to the public through telecommunications line, and a request for correction thereof;

3. Recommendation to devise a countermeasure for making the information sound, which are circulated through telecommunications line;

4. Operation of a center for reporting on the information unlawful or harmful to juveniles;

5. Activities necessary for a promotion of healthy information culture; and

6. Other matters entrusted by the Minister of Information and Communication with respect to the activation of the distribution of sound information.

(5) Matters necessary for organization and operation of the Committee shall be determined by the Presidential Decree.

(6) The State may grant a subsidy for the expenses required for a operation of the Committee within the limit of its budget. [This Article Newly Inserted by Act No. 4903, Jan. 5, 1995]

Article 54 (Protection of Communication Secrecy)

(1) No person shall infringe on or divulge the secrecy of communication dealt with by telecommunications business operator.

(2) A person who is or has been engaged in the telecommunications service shall not divulge others’ secrecy obtained with respect to communication while in office.

(3) A telecommunications business operator may, when a court, prosecutor or the head of an investigating authority (including a military investigating agency; hereinafter the same shall apply) or the head of an intelligence and investigating agency asks him for a perusal or submission of the data (hereinafter referred to as “supply of communication data”) concerning the followings, under the necessity of gathering information for the purpose of conducting court hearing or investigations or of executing a sentence, and of preventing harms to the national security, comply with such requests. <Amended by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>

1. Name of user;

2. Resident registration number of user;

3. Address of user;

4. Telephone number of user;

5. ID (user’s identification code to distinguish the proper user of computer system or communication network); and

6. Date of entry or termination of user.

(4) The request for supply of communication data under paragraph (3) shall be made in writing (hereinafter referred to as a “written request for data supply”), which states a reason for such request, relation with the relevant user and the scope of necessary data: Provided, That where an urgent reason exists that makes a request in writing impossible, such request may be made without resorting to writing, and when such reason disappears, a written request for data supply shall be promptly filed with the telecommunications business operator. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

(5) A telecommunications business operator shall, where he has supplied the communication data pursuant to the procedures of paragraphs (3) and (4), keep the ledgers as prescribed by the Ordinance of the Ministry of Information and Communication, which contain necessary matters such as the facts of supplies of communication data, and the related data such as the written requests for data supply, etc. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

(6) A telecommunications business operator shall report, to the Minister of Information and Communication, twice a year the current status, etc. of supplying the communication data, under the conditions as prescribed by the Presidential Decree, and the Minister of Information and Communication may check whether the content of a report made by a telecommunications business operator is authentic and the management status of related data under paragraph (5). <Amended by Act No. 6230, Jan. 28, 2000>

(7) A telecommunications business operator shall, under the conditions as prescribed by the Ordinance of the Minister of Information and Communication, notify the contents entered in the ledgers under paragraph (5) to the head of a central administrative agency whereto a person requesting supply of communication data under paragraph (3) belongs. Provided that, if a person requesting supply of communication data is a court, a telecommunications business operator shall notify the Director of the Court Administration Office of such contents. <Newly Inserted by Act No. 6230, Jan. 28, 2000> (Amended by Act No. 6822, Dec. 26, 2002>

(8) A telecommunications business operator shall establish and operate a setup in full charge of the affairs related to the users’ communication secrets; and the matters concerning the function and composition, etc. of the relevant setup shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

(9) Matters necessary for the scope of persons holding the decisive power on the written requests filed with the telecommunications business operators under paragraph (4) shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

Article 54-2 (Notice of Transmitter’s Telephone Number)

(1) The telecommunications business operator may, upon request from the recipient, notify him of the transmitter’s telephone number, etc. under the conditions as determined by the Ordinance of the Ministry of Information and Communication: Provided, That this shall not apply to the case where the transmitter expresses his content to refuse the transmission of his telephone number, etc.

(2) The telecommunications business operator may, in case where the recipient requests and where determined by the Ordinance of the Ministry of Information and Communication from among the telephone services with the special numbers, notify the recipient of the transmitter’s telephone number, etc. under the conditions as determined by the Ordinance of the Ministry of Information and Communication in order to protect the recipients from the violent languages, intimidations, jestings, etc., notwithstanding the proviso of paragraph (1).

[This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]

Article 55 (Restriction and Suspension of Business)

The Minister of Information and Communication may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Presidential Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications. <Amended by Act No. 5220, Dec. 30, 1996>

Article 56

Deleted. <by Act No. 5220, Dec. 30, 1996>

Articles 57 and 58

Deleted. <by Act No. 5986, May 24, 1999>

Article 59 (Approval for International Telecommunications Services)

(1) When there exist special provisions in the treaties or agreements on international telecommunications business joined by the Government, those provisions shall govern.

(2) A telecommunications business operator shall, where he intends to conclude an agreement or a contract with a foreign government or a foreigner with respect to the adjustments of fees following the handling of international telecommunications services (excluding the case of a value-added communications business operator) and other international telecommunications business as prescribed by the Presidential Decree, obtain approval from the Minister of Information and Communication under the conditions as prescribed by the Presidential Decree. The same shall apply to the case where he intends to alter or abolish such agreement or contract. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000>

(3) Standards for approving an agreement or a contract with respect to fees on the handling of international telecommunications services shall be determined and publicly announced by the Minister of Information and Communication. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

Article 59-2 (Transboundary Provision of Key Telecommunications Services)

(1) A person, who intends to provide key telecommunications service from abroad into the homeland without establishing a domestic business place (hereinafter referred to as the “transboundary provision of key telecommunications services”), shall conclude a contract on transboundary provision of key telecommunications services with a domestic key communications business operator or a specific communications business operator who provides the same key telecommunications service.

(2) The provisions of Articles 29, 30, 33 through 33-3, 36-3 through 37, 38, 53 through 55, 62 and 65 shall apply mutatis mutandis to the provision of services as determined in a contract by a key communications business operator or a specific communications business operator who has concluded the contract under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999>

(3) Where a person, who intends to provide a transboundary key telecommunications service under paragraph (1), or a key communications business operator or a specific communications business operator, who has concluded a contract with him, violates the relevant provisions which applies mutatis mutandis under paragraph (2), the Minister of Information and Communication may cancel approval under Article 59 (2), or issue an order to suspend a transboundary provision of the whole or part of key telecommunications services as determined in the relevant contract, with fixing a period of less than one year.

(4) Criteria and procedures for dispositions under paragraph (3) and other necessary matters shall be determined by the Ordinance of the Ministry of Information and Communication.

[This Article Newly Inserted by Act No. 5385, Aug. 28, 1997]

Article 60

Deleted. <by Act No. 5220, Dec. 30, 1996>

Article 61

Deleted. <by Act No. 6822, Dec. 26, 2002>

Article 62 (Report, etc. on Statistics)

(1) A telecommunications business operator shall report the statistics on a provision of telecommunications service as prescribed by the Ordinance of the Ministry of Information and Communication, such as a current status of facilities by telecommunications service, subscription record, current status of users, and the data related to telephone traffic required for the imposition and collection of fees, to the Minister of Information and Communication under the conditions as determined by the Ordinance of the Ministry of Information and Communication, and keep the related data available. <Amended by Act No. 5220, Dec. 30, 1996>

(2) A key communications business operator and stockholders thereof, or the specific communications business operator and stockholders thereof shall submit the related data necessary for a verification of the facts of Article 6, pursuant to the provisions of the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5986, May 24, 1999; Act No. 7165, Feb. 9, 2004>

(3) The Minister of Information and Communication may, in order to verify the facts under paragraph (2), or to examine the genuineness of the data submitted, request the administrative agencies and other related agencies to examine the data submitted or to submit the related data. In this case, the agencies in receipt of such request shall accede thereto unless there exist any justifiable reasons. <Amended by Act No. 5220, Dec. 30, 1996>

Article 63 (Hearing)

The Minister of Information and Communication shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing:

1. Cancellation of license for a key communications business operator under Article 15 (1);

2. Cancellation of registration of a specific communications business or closedown of a value-added communications business under Article 28 (1) and (2); and

3. Cancellation of approval under Article 59-2 (3).

[This Article Wholly Amended by Act No. 5385, Aug. 28, 1997]

Article 64 (Imposition, etc. of Penalty Surcharge)

(1) The Minister of Information and Communication may impose a penalty surcharge in the amount equivalent to 3% or less of the revenue to be calculated as set forth by the Presidential Decree in lieu of a relevant business suspension, in case where he has to order a business suspension to a telecommunications business operator who falls under subparagraphs of Article 15 (1) or under any of subparagraphs of Article 28 (1) and (2), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. Provided that, if there is not such revenue or if it is difficult to calculate such revenue, the Minister of Information and Communication may impose a penalty surcharge in the amount equivalent to 1 billion won or less, as set forth by the Presidential Decree. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 6822, Dec. 26, 2002>

(2) Classifications of offenses subject to an imposition of penalty surcharge under paragraph (1), the amount of penalty surcharge according to a level of offenses, and other necessary matters shall be determined by the Presidential Decree.

(3) The provisions of Article 37-2 (3) and (4) shall apply mutatis mutandis to the collection of a penalty surcharge under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6230, Jan. 28, 2000>

(4) Deleted. <by Act No. 5385, Aug. 28, 1997>

Article 64-2 (Extension of Time Limit of Payment of Penalty Surcharge and Payment in Installments)

(1) Where a penalty surcharge to be paid by a telecommunications business operator under Articles 37-2 and 64 exceeds the amount as prescribed by the Presidential Decree, and where deemed that a person liable for a payment of penalty surcharge finds it difficult to pay it in a lump sum due to the reasons falling under any of the following subparagraphs, the Minister of Information and Communication may either extend the time limit of payment, or have him pay it in installments. In this case, the Minister may, if deemed necessary, have him put up a security therefor:

1. Where he suffers a severe loss of property due to natural disasters or fire;

2. Where his business faces a serious crisis due to an aggravation of his business environments; and

3. Where it is expected that he will be in great financial difficulty if he pays the penalty surcharge in a lump sum.

(2) Matters necessary for an extension of the deadline for payment of a penalty surcharge, the payment in installments and the laying of a security shall be prescribed by the Presidential Decree.

[This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]

Article 65 (Correction Orders, etc.)

(1) The Minister of Information and Communication shall issue correction orders in case where a telecommunications business operator falls under any of the following subparagraphs: <Amended by Act No. 4441, Dec. 14, 1991; Act No. 5220, Dec. 30, 1996; Act No. 5835, Feb. 8, 1999; Act No. 6360, Jan. 16, 2001>

1. Where he violates this Act, the Framework Act on Telecommunications, the Radio Waves Act, the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc., the Framework Act on Informationalization Promotion, or the orders issued under these Acts;

2. Where the procedures for business performances of telecommunications business operator are deemed to inflict significant harms on the users’ interests; and

3. Where he fails to take swift measures necessary for removing obstructions such as repairs, etc. when impediments have occurred to the supply of telecommunications services.

(2) The Minister of Information and Communication may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications: <Amended by Act No. 5220, Dec. 30, 1996>

1. Integrated operation and management of telecommunications facilities, etc.;

2. Expansion of communications facilities for the enhancement of social welfare;

3. Construction and management of communications networks for important communications to achieve efficient performance of State’s functions; and

4. Other matters as prescribed by the Presidential Decree.

(3) The Minister of Information and Communication may order the persons falling under any of the following subparagraphs to take measures, such as the suspension of acts to provide telecommunications service or the removal of telecommunications facilities, etc.: <Newly Inserted by Act No. 6346, Jan. 8, 2001>

1. Persons who operate a key communications business without obtaining a permit under Article 5 (1);

2. Persons who operate a specific communications business without making a registration under Article 19 (1); and

3. Persons who operate a value-added communications business without making a report under Article 21 (1).

Articles 66 and 67

Deleted. <by Act No. 5220, Dec. 30, 1996>

Article 68 (Delegation and Entrustment of Authority)

(1) The authority of the Minister of Information and Communication under this Act may be delegated in part to the Commissioner of Communications Office, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5220, Dec. 30, 1996>

(2) The Minister of Information and Communication may entrust a part of affairs related to reports under Article 21 (1) to a telecommunications business operator or to the Korea Information Communication Promotion Association under the Act on Promotion of Information and

Communications Network Utilization and Information Protection, etc.,under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 4439, Dec. 14, 1991; Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5835, Feb. 8, 1999; Act No. 6360, Jan. 16, 2001>

CHAPTER VII PENAL PROVISIONS

Article 69 (Penal Provisions)

Any person falling under any of the following subparagraphs shall be punished by imprisonment for not more than five years or by a fine not exceeding two hundred million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>

1. A person who runs a key communications business without obtaining a license under Article 5 (1);

2. A person who obstructs the flow of telecommunications by impeding a function of telecommunications facilities by means of damaging telecommunications facilities, or having the objects contacted thereon and other methods, in violation of Article 50 (1);

3. A person who divulges other’s secrets with respect to communications which have been known to him while in office, in violation of Article 54 (2); and

4. Aperson who supplies communication data, and person who receives such supply, in violation of Article 54 (3).

Article 70 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding one hundred fifty million won: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 6822, Dec. 26, 2002>

1. A person who refuses a provision of telecommunications service without any justifiable reasons, in violation of Article 3 (1);

2. A person who is ordered the business suspension under Article 15 (1);

3. A person who operates a specific communications business without making a registration under Article 19 (1);

4. A person who commits the prohibited acts falling under any of subparagraphs 1 through 4 of Article 36-3 (1);

5. A person who fails to implement an order under Article 37 (2);

6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 40 (1); and

7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 54 (1).

Article 71 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than two years or by a fine not exceeding one hundred million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999; Act No. 6822, Dec. 26, 2002>

1. A person who fails to obtain a modified license or to make a report thereon under Article 10;

2. A person who fails to obtain approval under Articles 11 (1) and 34-4 (4);

3. A person who fails to obtain an authorization under Article 13 (1) or approval under Article 13 (2) or 14 (1);

4. A person who runs the value-added communications business without making a report under Article 21;

5. A person who is ordered the business suspension under Article 28 (1);

6. A person who is ordered the business closedown under Article 28 (2);

7. A person who discloses, uses or provides the information, in violation of the text of Article 34-5 (1) or paragraph (2) of the same Article;

8. A person who fails to implement orders under Article 53 (2) or 55; and

9. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 59 (2).

Article 72 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding fifty million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002; Act No. 7165, Feb. 9, 2004>

1. A person who violates the orders issued under Article 6-3 (3) or Articles 7 (2) (including the case where Article 4 (4) of the Addenda of Amended Telecommunications Business Act (Law No. 5385) to be applied mutatis mutandis);

2. Deleted; <by Act No. 5986, May 24, 1999>

3. A person who fails to make a modified registration or a modified report under Article 22;

4. A person who fails to make a report under Article 25;

5. A person who violates the order of suspension of business under Article 28 (2);

6. A person who provides telecommunications service without making a report or receiving an authorization under Article 29 (1); and

7. A person who intermediates other person’s communication or furnishes them for use by other person, by making use of telecommunications services rendered by the telecommunications business operator, in contravention of the provisions of the text of Article 32-2.

Article 73 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by a fine not exceeding fifty million won: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 6822, Dec. 26, 2002>

1. A person who commits any of the prohibited acts set forth in Article 36-3 (1) 5;

2. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 40 (1), without justifiable reasons;

3. A person who refuses or impedes an entry to the land, etc. under Article 41 (1), without justifiable reasons;

4. A person who refuses the moving, alteration, repair and other measures on the obstacles, etc. under Article 42 (1), or the request for removal of the plants under Article 42 (2), without justifiable reasons;

5. A person who refuses a use of transport devices or a request for provision of facilities, etc. under Article 43 (1), without justifiable reasons;

6. Deleted; and <by Act No. 5564, Sep. 17, 1998>

7. Deleted. <by Act No. 5986, May 24, 1999>

Article 74

Deleted. <Act No. 6230, Jan. 28, 2000>

Article 75 (Penal Provisions)

A person who stains the telecommunications facilities or damages the measurement marks of the telecommunications facilities, in violation of Article 50 (2) shall be punished by a fine not exceeding one million won. [This Article Wholly Amended by Act No. 5220, Dec. 30, 1996]

Article 76 (Attempted Criminal)

An attempted criminal under subparagraphs 2 and 3 of Article 69 and subparagraph 7 of Article 70 shall be punished. <Amended by Act No. 5385, Aug. 28, 1997; Act No. 6822, Dec. 26, 2002>

Article 77 (Joint Penal Provisions)

When a representative of a juristic person or an agent, an employee or any other employed person of the juristic person or individual commits violation under Articles 69 through 73 in connection with the

business of such juristic person or individual, then a fine under the related Article shall be imposed on the juristic person or individual, in addition to the punishment of the violator.

<Amended by Act No. 6230, Jan. 28, 2000>

Article 78 (Fine for Negligence)

(1) A person who falls under any of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002; Act No. 7165, Feb. 9, 2004>

1. A person who fails to make a report under Article 6-3 (2) or fails to comply with request for submission of information or making appearance under 6-4 (3) or (4);

2. A person who fails to make a report under Article 27;

3. A person who fails to implement an order for modification in the standardized use contract under Article 30;

4. A person who violates the obligation concerning the protection of users under Article 33 (2);

5. A person who fails to make a public announcement of the technical standards, and the standards for use and provision, or the standards for a creation of fair competitive environments, in violation of Article 34-4 (4);

6. A person who fails to observe the publicly announced matters, in violation of Article 36 (3);

7. A person who fails to adjust the accounting, to submit a business report, or to keep the books or evidential data, in violation of Article 36-2 (1);

8. A person who fails to implement an order for the submission of related data under Article 36-2 (4);

9. A person who refuses, avoids or hampers an order for submission, or an investigation, of the data or articles under Article 36-4 (2);

10. A person who fails to execute orders given to furnish related data under the provisions of Article 38-2 (3);

11. A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 54 (5) ;

12. A person who fails to notify the head of central administrative agency, in contravention of the provisions of Article 54 (7);

13. Deleted; <Deleted by Act No. 6822, Dec. 26, 2002>

14. A person who fails to make reports or submit the data under Article 62, or falsely do such acts; and

15. A person who fails to follow correction orders, etc., under Article 65.

(2) The fine for negligence under paragraph (1) shall be imposed and collected by the Minister of Information and Communication, under the conditions as prescribed by the Presidential Decree. <Amended by Act No. 5220, Dec. 30, 1996>

(3) A person who is dissatisfied with the imposition of the fine for negligence under paragraph (2) may make an objection to the Minister of Information and Communication within thirty days from the notification date of such imposition. <Amended by Act No. 5220, Dec. 30, 1996>

(4) When a person subjected to the imposition of the fine for negligence under paragraph (2) makes an objection under paragraph (3), the Minister of Information and Communication shall notify a competent court of the fact without delay, and the court so notified shall bring the case of fine for negligence to trial under the Non-Contentious Case Litigation Procedure Act. <Amended by Act No. 5220, Dec. 30, 1996>

(5) When neither the objection against nor the payment of the fine for negligence is made within the specified period under paragraph (3), it shall be collected in accordance with examples of disposition for the national taxes in arrears.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force four months after the date of its promulgation.

Article 2 (Transitional Measures concerning Public Communications Business Operator, etc.)

(1) At the time when this Act enters into force, the Korea Telecommunications Corporation under the Korea Telecommunication Corporation Act (hereinafter referred to as the “Corporation”) shall be deemed to have been designated as the one capable of running a general communications business under Article 5 (1).

(2) Among the persons designated to be able to run public telecommunications business by the Minister of Information and Communication under Article 7 (2) of the former Framework Act on Telecommunications, at the time when this Act enters into force, the one running a general communications business under Article 4 (3) 1 shall be deemed to have been designated as a general communications business operator under Article 5, and the one running specific communications business under Article 4 (3) 2 shall be deemed to have the license of specific communications business operator under Article 16 (1).

(3) At the time when this Act enters into force, the person providing the information communications services on travel information with the leased telecommunications line facilities from among the persons designated to be able to run public telecommunications business by the Minister of Information and Communication under Article 7 (2) of the former Framework Act on Telecommunications, and the person who has made a registration of a business providing the information communications service to the Minister of Information and Communication under former Article 73-2 (1), shall be deemed to have registered the value-added communications business under Article 21 (1).

(4) The person falling under paragraphs (1) through (3) shall report the matters as prescribed by the Ordinance of the Ministry of Information and Communication, such as classifications, contents etc.,

of telecommunications service provided by him, to the Minister of Information and Communication within one month after enforcement of this Act.

Article 3 (Transitional Measures concerning Entrusted Business)

At the time when this Act enters into force, the business entrusted to others under former Article 5 by a public telecommunications business operator with approval from the Minister of Information and Communication shall be deemed to be entrusted by a general communications business operator or a specific communications business operator with approval from the Minister of Information and Communication, under Article 12 (including the case applied mutatis mutandis under Article 20).

Article 4 (Transitional Measures concerning Authorization of Standard Form of Contract for Users, etc.)

At the time when this Act enters into force, the standard form of contract for users authorized under the former Article 9 (2), shall be considered as the standard form of contract for users authorized by the Minister of Information and Communication under Article 29 (1) until three months after the enforcement of this Act.

Article 5 (Transitional Measures concerning Disposition, etc.)

Where the approval, license, disposition, orders and applications, etc. have been executed under the former provisions at the time when this Act enters into force, except for the cases under Articles 2 and 3 of the Addenda, and where there exist the provisions which correspond thereto in this Act, such shall be deemed to have been executed under this Act.

Article 6 (Special Case on Ownership Limitation of Stocks, etc.)

(1) Notwithstanding the provisions of Article 6 (1) 4, the Corporation may, within the limit of par value of stocks issued by other general communications business operator which have been owned by the Corporation at the time when this Act enters into force, possess the relevant stocks up to two years after the enforcement of this Act. In this case, the Corporation shall submit the plans for disposal of the relevant stocks such as a donation to the State, to the Minister of Information and Communication within six months after enforcement of this Act, and take measures so as to have them in conformity with Article 6 (1) 4 according to the said plans.

(2) Notwithstanding the provisions of Article 6 (1) 6, the facilities manufacturer may possess the stocks issued by other general communications business operator within the limit of par value of stocks which have been owned by him at the time when this Act enters into force: Provided, That additional investments shall not be made until the ownership ratio of stocks with voting rights comes to fall short of the ownership limitation ratio under Article 6 (1) 6.

(3) Notwithstanding the provisions of Article 18 (1) 5, the Corporation may, up to two years after enforcement of this Act, possess in excess of 10/100 of the stocks with voting rights, issued by a specific communications business operator who mainly provides telecommunications service based upon a wireless mode with technical limits: Provided, That when two years have passed after an enforcement of this Act, it shall not possess them in excess of 1/3.

(4) Notwithstanding the provisions of Article 18 (1) 5, the Corporation may possess in excess of 10/100 of the stocks with voting rights issued by a specific communications business operator whose main business areas are harbor districts.

Article 7

Deleted. <by Act No. 4903, Jan. 5, 1995>

Article 8 (Amendment of Other Acts, etc.)

(1) through (8) Omitted.

(9) At the time when this Act enters into force, where other Acts cite former provisions of the Public Telecommunication Service Act, and where there exist provisions corresponding thereto in this Act, it shall be considered to have cited the corresponding provisions in this Act in lieu of the former provisions.

ADDENDA <Act No. 4439, Dec. 14, 1991>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Articles 2 through 4

Omitted.

ADDENDA <Act No. 4441, Dec. 14, 1991>

Article 1 (Enforcement Date)

This Act shall enter into force on July 1, 1992.

Articles 2 and 3

Omitted.

ADDENDA <Act No. 4861, Jan. 5, 1995>

Article 1 (Enforcement Date)

This Act shall enter into force four months after the date of its promulgation.

Articles 2 through 5

Omitted.

ADDENDA <Act No. 4903, Jan. 5, 1995>

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation.

Article 2 (Transitional Measures concerning License for Key Communications Business Operator, etc.)

(1) At the time when this Act enters into force, a general communications business operator and a specific communications business operator under the former provisions shall be deemed to have been licensed for a key communications business operator under the amended provisions of Article 5.

(2) At the time when this Act enters into force, the value-added communications business operator under the former provisions shall be deemed to have made the report of a value-added communications business operator under the amended provisions of Article 21.

Article 3 (Special Case on Ownership Limitation of Stocks, etc.)

(1) At the time when this Act enters into force, the stocks issued by other key communications business operator which have been possessed by the Corporation under the Korea Telecommunication Corporation Act, shall be deemed to have been approved under the amended provision of proviso of subparagraph 4 of Article 6.

(2) The amended provisions of subparagraph 5 of Article 6 shall not be applied mutatis mutandis to the case where the Corporation possesses the stocks of Korea Port Telephone Company.

Article 4 (Transitional Measures concerning Application of Penal Provisions)

In the application of penal provisions to the activities prior to the enforcement of this Act, the former provisions shall govern.

Article 5 (Relations with Other Acts and Subordinate Statutes)

At the time when this Act enters into force, where a general communications business operator or a specific communications business operator is cited by other Acts and subordinate statutes, it shall be deemed to have cited a key communication business operator.

ADDENDA <Act No. 5220, Dec. 30, 1996>

(1) (Enforcement Date) This Act shall enter into force one month after the date of its promulgation.

(2) (Transitional Measures concerning Standard Form of Contract for Users) The standard form of contract for users which has been authorized or reported under the previous provisions at the time when this Act enters into force, shall be deemed to have been authorized or reported under the amended provisions of Article 29.

ADDENDA <Act No. 5385, Aug. 28, 1997>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 1998.

Article 2 (Valid Term)

The amended provisions of subparagraph 6 (c) and (d) of Article 6 shall continue to be valid until December 31, 1998.

Article 3 (Special Cases concerning Application of Disqualifications for License of Key Communications Business)

(1) Notwithstanding the amended provisions of subparagraph 3 of Article 6, a juristic person in which those who fall under subparagraphs 3 (a) through (c) of Article 6 (hereinafter referred to as the “foreigners, etc.”) are major stockholders, shall not obtain a license for a key communications business until December 31, 1998.

(2) Deleted. <by Act No. 5986, May 24, 1999>

Article 4 (Special Cases concerning Acquisition of Stocks)

(1) A foreign government or a foreigner (including two or more foreign governments or foreigners who have agreed to jointly exercise voting rights) shall not become the largest stockholder of the stock company which assumes the property, rights and obligations of the Korea Telecommunications Corporation under Article 3 (1) of the Addenda of the Repeal Act of the Act on the Korea Telecommunications Corporation (Law No. 5387). Provided, however, this shall not apply if less than 5/100 of stocks are owned. <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6346, Jan. 8, 2001; Act No. 7165, Feb. 9, 2004>

(2) Deleted. <by Act No. 6346, Jan. 8, 2001>

(3) Deleted.

(4) The provisions of Article 7 and Article 7-2 shall apply mutatis mutandis to a violation of paragraph (1). <Amended by Act No. 7165, Feb. 9, 2004>

Article 5 (Transitional Measures on Appointment of Part-time Directors)

A nationwide telephone service provider shall appoint a majority of directors as part-time members at a general meeting of stockholders convened for the first time after the entry into force of this Act.

Article 6 (Special Cases on Application of Disqualifications for Specific Communications Business Operators)

(1) No juristic person falling under any of the following subparagraphs shall, notwithstanding the amended provisions of Article 24, become a specific communications business operator who provides a telephone service by connecting to telecommunications networks:

1. Deleted; and <by Act No. 5564, Sep. 17, 1998>

2. Juristic person in which the stocks owned by the foreigners, etc. exceed 49/100 of the total issued stocks until December 31, 2000.

(2) The provisions of Article 7 shall apply mutatis mutandis to a violation of paragraph (1).

Article 7 (Special Cases on Transboundary Provision of Key Telecommunications Services)

A person who intends to provide a telephone service which connects to the telecommunications networks, from among the business falling under Article 4 (3) 1 by a transboundary provision of key telecommunications services, shall establish within the country a juristic person which operates a specific communications business not later than December 31, 2000, and provide the relevant services through the said juristic person.

Article 8

Omitted.

ADDENDUM <Act No. 5564, Sep. 17, 1998>

This Act shall enter into force on January 1, 1999: Provided, That the amended provisions of Article 5-2, subparagraphs 4 and 5 of Article 6, Articles 9 (3), 12, and 16, and the amended provisions of Articles 4 (1) and 6 (1) 1 of the Addenda of the amendments of the Act No. 5385, Telecommunications Business Act, shall enter into force on the date of its promulgation.

ADDENDA <Act No. 5835, Feb. 8, 1999>

Article 1 (Enforcement Date)

This Act shall enter into force on July 1, 1999. (Proviso Omitted.)

Articles 2 through 4

Omitted.

ADDENDA <Act No. 5986, May 24, 1999>

(1) (Enforcement Date) This Act shall enter into force on July 1, 1999.

(2) Omitted.

ADDENDA <Act No. 6230, Jan. 28, 2000>

(1) (Enforcement Date) This Act shall enter into force on April 1, 2000.

(2) (Application Example of Application Exclusion of Monopoly Regulation and Fair Trade Act) The amended provisions of Article 37-3 shall apply starting with any act first performed by the telecommunications business operator in accordance with each subparagraph of Article 36-3 (1) after the enforcement of this Act.

(3) (Transitional Measures concerning Penal Provisions) The application of the penal provisions to any act committed prior to the enforcement of this Act shall be governed by the previous provisions.

ADDENDA <Act No. 6346, Jan. 8, 2001>

(1) (Enforcement Date) This Act shall enter into force three months after the date of its promulgation: Provided, That the amendments to Article 38-4 shall enter into force on the date of its promulgation, and the amendments to Article 54-2 two months after the date of its promulgation.

(2) Omitted.

ADDENDA <Act No. 6360, Jan. 16, 2001>

Article 1 (Enforcement Date)

This Act shall enter into force on July 1, 2001.

Articles 2 through 6

Omitted.

ADDENDA <Act No. 6602, Jan. 14, 2002>

(1) (Enforcement Date) This Act shall enter into force on July 1, 2002.

(2) and (3) Omitted.

ADDENDA <Act No. 6656, Feb. 4, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2003.

Articles 2 through 12

Omitted.

ADDENDA <Act No. 6822, Dec. 26, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation: Provided, That the amendments to Articles 53, paragraph (1), the latter part of paragraph (3) and paragraph (4) of 53-2, and paragraph (3) and proviso of paragraph (7) of Article 54 and subparagraph 8 of Article 71 shall enter into force on the date of its promulgation, and the amendments to Article 36-3 (3) six months after the date of its promulgation.

Article 2 (Valid Term)

The amended provisions of subparagraph 5 of Article 36-3 (1) shall continue to be valid for three years after the enforcement date.

Article 3 (Transitional Measures on Disposition, etc.)

License, acceptance of report, corrective order for prohibited acts, imposition of penalty, etc. made by the Minister of Information and Communication under the prior provisions of Articles 34-6, 37 and 37-2 shall be deemed made by the Korea Communications Commission under the provisions equivalent thereto.

Article 4 (Transitional Measures on Penalty)

Notwithstanding the amendments to Article 64 (1), the penalty for the acts committed prior to the enforcement of this Act shall be subject to the prior provisions.

ADDENDA <Act No. 7165, Feb. 2, 2004>

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation: Provided, that the amendments to Articles 38-6 shall enter into force two years after the date of its promulgation.

Article 2 (Transitional Measures on Review of Public Interest)

The amended provisions of Article 6-3 shall not apply to the activities prior to the enforcement of this Act.

Article 3 (Transitional Measures on Acquisition of Stocks of Stock Company)

The amended provisions of Telecommunication Business Law Addena Article 4 (1) (Law No. 5385) shall not apply to foreign governments or foreigners which were largest stockholder at the time of enforcement of this Act. Provided, at the time of the enforcement of this Act, if a foreign government or foreigner is a largest shareholder under the amended provisions of Telecommunication Business Law Addenda Article 4 (1) (Law No. 5385), that foreign government or foreigner shall not be allowed to acquire any additional stocks.

EX-15.7

Exhibit 15.7

ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BUSINESS ACT

Wholly amended By	1991·12·31	Presidential Decree No. 13558
Amended By	1993· 7·23	Presidential Decree No. 13935
Amended By	1995· 4· 6	Presidential Decree No. 14572
Amended By	1997· 2·22	Presidential Decree No. 15283
Amended By	1997· 3·31	Presidential Decree No. 15328
Amended By	1997·12·31	Presidential Decree No. 15579
Amended By	1999· 3·17	Presidential Decree No. 16186
Amended By	1999· 6·30	Presidential Decree No. 16424
Amended By	2000· 3·13	Presidential Decree No. 16751
Amended By	2000· 4· 1	Presidential Decree No. 16774
Amended By	2001· 6·12	Presidential Decree No. 17237
Amended By	2003· 6·23	Presidential Decree No. 18006
Amended By	2004· 1·13	Presidential Decree No. 18223

Article 1 (Purpose)

The purpose of this Decree is to provide for matters delegated under Telecommunications Business Act (hereinafter referred to as the “Act”) and matters necessary for its enforcement.

Article 2 (Definition)

The terms in this Decree shall be the same as defined in the Act.

Article 2-2 (Contents of Universal Service)

(1) The contents of universal services as prescribed in Article 3-2 (4) of the Act shall be as follows: <Amended by Presidential Decree No. 17237, Jun. 12, 2001>

1. Wire telephone services;

2. Telephone services for emergency communications; and

3. Telephone services whose fees are reduced or exempted for the handicapped and the low income class.

(2) The detailed contents of universal services under paragraph (1) shall be prescribed by the Ordinance of the Ministry of Information and Communication. [This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 2-3 (Designation of Telecommunications Business Operator who Provides Universal Services)

(1) For the purpose of the efficient and stabilized provision of universal services, the Minister of Information and Communication may designate a telecommunications business operator who provides universal services (hereinafter referred to as a “business operator providing universal

services”) in consideration of the scale, quality and level of fees of universal services and the technical capacity of a telecommunications business operator.

(2) If the Minister of Information and Communication intends to designate a business operator providing universal services under paragraph (1), the Information and Communications Policy Deliberation Council as prescribed in Article 44-2 of the Framework Act on Telecommunications shall deliberate thereon.

(3) A telecommunications business operator who is designated as a business operator providing universal services under paragraph (1) shall submit, to the Minister of Information and Communication every year not later than the end of the year preceding the provision of relevant services, a written plan for provision of universal services which includes the method of, and the expenses for, providing the relevant services.

[This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 2-4 (Replenishment of Losses Incurred by Provision of Universal Services)

(1) The Minister of Information and Communication may have the telecommunications business operators, who are not business operators providing universal services, bear the fund for replenishing the whole or part of losses incurred by a provision of universal services by business operators providing universal services (hereinafter referred to as the “money to replenish losses from universal services”), according to their turnovers. In this instance, the Minster of Information and Communication shall have telecommunication business operator who provides key communications business which shall be subject of an authorization with regard to the standardized use contract as provided in second sentence of Article 29 (1) of the Act bear the fund in excess of its sharing ratio within 10% of its sharing ratio which is determined by its turnover depending on his size of business, market share, ability to bear the fund, and etc. <Amended by Presidential Decree No. 18223, Jan. 13, 2004>

(2) A business operator providing universal services, who intends to receive the money to replenish losses from universal services, shall submit a report on the actual results of a provision of universal services, including expenses for and incomes and losses from the provision thereof, to the Minister of Information and Communication within three months after the expiration of the relevant fiscal year.

(3) The Minister of Information and Communication may, if deemed necessary for the verification of the report on actual results of a provision of universal services under paragraph (2), request a specialized institution to examine it.

(4) Matters necessary for computing method, criteria , excessive sharing, modification and etc. for sharing the money to replenish losses from universal services shall be prescribed by the Ordinance of the Ministry of Information and Communication. <Amended by Presidential Decree No. 18223, Jan. 13, 2004>

[This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 2-5 (Application for License, etc.)

(1) A person who intends to obtain a license under Article 5 (1) of the Act may make an application in the name of the representative of a juristic person, or of the name of representative of the stockholders, etc. of a juristic person to be established.

(2) If the Minister of Information and Communication intends to give a public notice under Article 5 (4) of the Act, the subject matters shall be deliberated in advance by the Information and Communications Policy Deliberation Council as stipulated in Article 44-2 of the Framework Act on Telecommunications: Provided, That this shall not apply to the license on the minor business as provided for in proviso of Article 5 (2) of the Act. <Amended by Presidential Decree No. 15283, Feb. 22, 1997>

[This Article Newly Inserted by Presidential Decree No. 14572, Apr. 6, 1995]

Article 3 (Stockholding Ratio of Foreigners, etc.)

The term “ratio of holding stocks prescribed by the Presidential Decree” in the text of subparagraph 3 (c) of Article 6 of the Act shall be 80/100. However, it shall be 15/100 or more when a foreigner or a foreign government is the largest stockholder under Article 54-5 (4)2 of the Securities and Exchange Act.

[This Article Wholly Amended by Presidential Decree No. 18223, Jan. 13, 2004]

Article 4

Deleted. <by Presidential Decree No. 16186, Mar. 17, 1999>

Article 5 (Business Excluded from Approval for Concurrent Operation)

The term “business as prescribed by the Presidential Decree” referred to in the proviso of Article 11 (1) of the Act means the business except for those falling under any of the following subparagraphs:

1. Business to manufacture the telecommunications equipments;

2. Information and communications work business under subparagraph 3 of Article 2 of the Information and Communications Work Business Act (excluding the business to improve or integrate the telecommunications networks); and

3. Service business under subparagraph 6 of Article 2 of the Information and Communications Work Business Act (excluding the business to improve or integrate the telecommunications networks).

[This Article Wholly Amended by Presidential Decree No. 17237, Jun. 12, 2001]

Article 6

Deleted. <by Presidential Decree No. 16186, Mar. 17, 1999>

Article 7

Deleted. <by Presidential Decree No. 16424, Jun. 30, 1999>

Articles 8 through 8-4

Deleted. <by Presidential Decree No. 16186, Mar. 17, 1999>

Article 9 (Report, etc. of Value-Added Communications Business Operator)

(1) A person who intends to make a report of a value-added communications business under the text of Article 21 of the Act shall submit, to the Minister of Information and Communication, a telecommunications business report as determined by the Ordinance of Ministry of Information and Communication.

(2) The term “minor business” in the proviso of Article 21 of the Act refers to the business providing the service which does not intermediate other’s communication by leasing telecommunications line facilities. [This Article Wholly Amended by Presidential Decree No. 14572, Apr. 6, 1995]

Article 10 (Services Subject to Reduction and Exemption of Fees)

Telecommunications services subject to the reduction and exemption of fees under Article 32 of the Act shall be as follows: <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

1. Telecommunications services for the communications concerning the rescue of human lives and properties in danger, and the rescue from disasters or for the communications by the victims of disasters;

2. Telecommunications services for the whole or part of exclusive line communications used by such agencies, in case where the exclusive line communications of agencies which are fully responsible for military, public order and national security, and a part of self-communications network of the State, local governments or government-invested institutions are integrated into the telecommunications net-work of a key communications business;

3. Telecommunications services for the communications required for military operations in wartime;

4. Telecommunications services for the newspapers and news agency service under the Registration, etc. of Periodicals Act, and for communication for news reports by the broadcasting stations under the Broadcasting Act;

5. Telecommunications services for a communication which is required for facilitating the use, and for diffusing the distribution, of information communications;

6. Telecommunications services for a communication by those who are in need of the protection for the improvement of social welfare;

7. Telecommunications services for a communication which is required for the promotion of interchange and cooperation between North and South Korea; and

8. Telecommunications services for a communication which is specially required for the operation of postal and telegraphic services.

Article 10-2

Deleted. <by Presidential Decree No. 18223, Jan. 13, 2004>

Article 10-3 (Provision of Transmission or Line Facilities, etc.)

A CATV broadcasting business operator, a signal transmission network business operator, or a relay CATV broadcasting business operator under the Broadcasting Act may, pursuant to Article 32-4 (1) of the Act, provide the transmission or line facilities or the CATV broadcasting facilities (hereinafter referred to as the “transmission or line facilities, etc.”) to the key communications business operator in a manner falling under one of the following subparagraphs:

1. Sale or lease of transmission or line facilities, etc.;

2. Commissioned performance of the communications or exchange operations, etc. by making use of transmission or line facilities, etc.; and

3. Manners corresponding to subparagraphs 1 and 2, which are determined by a consultation between a CATV broadcasting business operator, a signal transmission network business operator, or a relay CATV broadcasting business operator.

[This Article Wholly Amended by Presidential Decree No. 17237, Jun. 12, 2001]

Article 10-4 (Subsidy for Purchase Price of Telephone, etc.)

(1) Telecommunications business operator may support or subsidize part or whole of the purchase price of telephone for users as provided in the second sentence of Article 36-3 (1) 5 in the following circumstances:

1. When the phones are necessary for provision of key communications services which market size and diffusion rate falls short of standard fixed by Ordinance of the Ministry of Information and Communication and it is recognized that allowing assistance or subsidy for such phones will not hamper fair competitions or users’ interests.

2. When new technology is applied to the phones in order for development or promotion of new information communication technology or active use of new key communications services or when it is recognized that there is need to promote the spread of the phones which are necessary for provision of new key communications services.

(2) Minister of Information and Communication shall prescribe and give public notice of detailed standards on support or assistance for cost under paragraph (1) and the limit thereof. In this instance, the Minister of Information and Communication shall consider, among other factors, progress of telecommunications technology, production and sales of phones and competition in the communications market.

[This Article Newly Inserted by Presidential Decree No. 18223, Jan. 13, 2004]

Article 10-5 (Types and Standards of Prohibited Acts)

(1) Types and standards of prohibited acts prescribed by Article 36-3 (3) of the Act shall be stated in attached Table 1.

(2) In case it is recognized by the Minister of Information and Communication that it is necessary for application to specific field of telecommunications or specific prohibited act, he may prescribe and make public announcement of detailed standards on types and standards of prohibited acts under paragraph (1).

[This Article Newly Inserted by Presidential Decree No. 18309, Mar. 9, 2004]

Article 11 (Investigation of Facts)

A public official who intends to enter and investigate an office and business place of a telecommunications business operator or a business place of a person who is entrusted with the affairs of a telecommunications business operator pursuant to Article 36-4 (2) of the Act, shall have any parties concerned of the relevant office or business place be present at the investigation. <Amended by Presidential Decree No. 16186, Mar. 17, 1999>

[This Article Newly Inserted by Presidential Decree No. 15579, Dec. 31, 1997]

Article 12 (Measures, etc. on Prohibited Acts)

The term “other matters as prescribed by the Presidential Decree” in Article 37 (1) 9 of the Act refers to the followings: <Amended by Presidential Decree No. 15283, Feb. 22, 1997; Presidential Decree No. 17237, Jun. 12, 2001; Presidential Decree No. 18006, Jun. 23, 2003>

1. Suspension of an act which unjustly hinders a participation of a new telecommunications business operator;

2. Suspension of the provision of the services, installation of telecommunications facilities, or other similar acts which are likely to actually restrict the competitions among the telecommunications business operators, or substantially hamper the user’s interests; and

3. Improvement of working procedures which actually restrict competition among the telecommunications business operators.

Article 12-2 (Period to Carry Out Order for Corrective Measures)

The period for a telecommunications business operator to carry out the order to take corrective measures from the Korea Communications Committee under Article 37 (2) of the Act shall be stated in attached Table 1-2. <Amended by Act No. 18309, Mar. 9, 2004>

[This Article Newly Inserted by Presidential Decree No. 18006, Jun. 23, 2003]

Article 13 (Offenses Subject to Imposition of Penalty Surcharge, and Amount of Penalty Surcharge, etc.)

(1) The classifications of offenses subject to the imposition of a penalty surcharge under Article 37-2 (2) of the Act and the upper limit of the penalty surcharge on such offences shall be stated in attached Table 2. <Amended by Presidential Decree No. 18006, Jun. 23, 2003>

(2) In determining the amount of a penalty surcharge under paragraph (1), the Communication Committee shall take the following reasons into consideration: <Amended by Presidential Decree No. 16774, Apr. 1, 2000; Presidential Decree No. 18006, Jun. 23, 2003 >

1. Contents and levels of the offenses;

2. Period and frequency of the offenses;

3. Scale of any profits acquired by the offenses; and

4. Amount of sales of telecommunications services relating to the prohibited act of a business operator who has committed a violation.

[This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 13-2 (Computation Methods of Penalty Surcharge)

(1) The term “turnover as prescribed by the Presidential Decree” in the text of Article 37-2 (1) of the Act means the average annual turnover for three preceding business years of the telecommunications services related to the prohibited acts of the relevant telecommunications business operator: Provided, That if three years have not elapsed since the commencement of business as of the first day of the relevant business year, it shall mean the amount of converting the turnover till the end of preceding business year since the commencement of the said business into the average annual turnover, and if the business is commenced in the said business year, it shall mean the amount of converting the turnover from the commencement of business to the date of offense into the average annual turnover.

(2) The term “where there is no turnover or it is difficult to calculate the turnover as prescribed by the Presidential Decree” in the proviso of Article 37-2 (1) of the Act means any of the following subparagraphs:

1. Where there is no actual business result due to a non-commencement of business or a suspension thereof, etc.;

2. Where a telecommunications business operator refuses a submission of the data for turnover computation, or submits the false data; and

3. Where it is difficult to make an objective computation of turnovers.

[This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 13-3 (Imposition and Payment of Penalty Surcharge)

(1) The Minister of Information and Communication shall, in case where he intends to impose a penalty surcharge under Article 37-2 of the Act, notify a person subject to an imposition of penalty surcharge, after investigating and confirming the relevant offense, of the payment thereof, by clarifying in writing the fact of offense, the amount of imposition, the method of objection and its period.

(2) A person in receipt of a notification under paragraph (1) shall pay it to a postal agency within twenty days from the date of receiving such a notification: Provided, That if he is unable to pay a

penalty surcharge within the relevant period due to a natural disaster or other inevitable reasons, he shall pay it within seven days from the date when the said reasons have disappeared.

(3) A postal agency in receipt of a payment of penalty surcharge under paragraph (2), shall deliver a receipt to a person who has paid it.

[This Article Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999]

Article 13-4 (Demand for Penalty Surcharge Payment)

(1) A demand under Article 37-2 (4) of the Act shall be made in writing within 7 days from the date on which the payment deadline elapsed.

(2) Where a demand note is issued under paragraph (1), a deadline for payment of any penalty surcharge in arrear shall be within 10 days from the date on which such demand note is issued.

[This Article Wholly Amended by Presidential Decree No. 16774, Apr. 1, 2000]

Article 14

Deleted. <by Presidential Decree No. 16424, Jun. 30, 1999>

Article 15 (Reduction and Exemption of Expenses for Moving)

(1) Expenses necessary for a moving of telecommunications facilities or a removal of other obstacles may be reduced or exempted by the key communications business operator under the proviso of Article 51 (3) of the Act in the cases of the following subparagraphs:

1. Where the plan for a moving of relevant telecommunications facilities or a removal of other obstacles has already been fixed;

2. Where a moving of relevant telecommunications facilities or a removal of other obstacles is beneficial to other telecommunications facilities; and

3. Where the telecommunications facilities in the private land inflict a significant impediment to the use of relevant land.

(2) Apart from the cases under paragraph (1), if the State or the local government requests a moving of telecommunications facilities or a removal of other obstacles, the expenses necessary for a moving and other measures for a removal of obstacles may be reduced or exempted in consultation with the relevant requester.

Article 15-2 (Request for Order to Cease Dealing with Unlawful Communication, etc.)

(1) In the event a head of the central administrative agency wishes to make a request to the Minister of Information and Communication under second sentence of Article 52 (2) to give an order to the telecommunications business operator to reject, cease or to restrict handling telecommunication under the subparagraphs 7 to 9 of this paragraph (1), he shall submit documents containing the following

along with documents relating to evidence and relevant documents to the Minister of Information and Communication.

1. Purpose and reason for the request;

2. Pertinent laws and content of violations;

3. List of relevant information and source; and

4. Contact information, such as, name, address, phone number, email address, etc., of the relevant telecommunications business operator and user.

(2) If the Minister of Information and Communication discovers a flaw in the documents and etc, submitted in accordance with paragraph (1) above, he may make a demand for supplementation to the head of the central administrative agency within three days of receiving the documents. In this instance, five days for supplementation must be given.

(3) If after seven days from the due date of supplementation, no supplementary documents are received, the Minister of Information and Communication may return the relevant documents to the central administrative agency.

[This Article Newly Inserted by Presidential Decree No. 18223, Jan. 13, 2004]

Article 16 (Reasons for Exceptions to Presentation of Opinion )

The term “instances as prescribed by the Presidential Decree” under Article 53 (3) (2) of the Act means any of the followings:

(1) When the user of the telecommunications cannot be ascertained (limited to the instance where user presents an opinion);

(2) When it is determined that the content of the order becoming public beforehand as a result of giving a chance to present an opinion will materially harm the public interest;

(3) When it is determined that a opinion hearing is unnecessary because the fact making up the premise of the order becomes objectively proven due to a judgement of the court, and etc.

[This Article Wholly Amended by Presidential Decree No. 18223, Jan. 13, 2004]

Article 16-2 (Organization of Information Communication Ethics Committee, etc.)

(1) The Chairman of the Information Communication Ethics Committee (hereinafter referred to as the “Committee”) under Article 53-2 of the Act shall be elected by mutual vote among the members of the Committee. <Amended by Presidential Decree No. 18006, Jun. 23, 2003>

(2) The Chairman shall represent the Committee, assume overall control of the business of the Committee, convene the Committee, and preside over the Committee.

(3) The term of the members shall be two years and terms may be renewed. [Newly Inserted by Presidential Decree No. 18006, Jun. 23, 2003]

(4) The Committee shall deliberate on the matters of each of the following subparagraphs: <Amended by Presidential Decree No. 15579, Dec. 31, 1997; Presidential Decree No. 18006, Jun. 23, 2003>

1. Basic principles concerning the ethics of information and communication;

1-2. Matters on unlawful telecommunication under Article 53 of the Act.

2. Deliberation on the information under Article 16-3, and request for correction thereof;

3. Matters on the settlement of users’ discontents related to the restriction on the use of information under Article 16-3;

4. Plans for ensuring a soundness of information circulated by using telecommunications lines;

5. Formulation and amendment of the Committee’s regulations;

6. Formulation and amendment of the regulations on information and communication ethics;

7. Business plans, budget and settlement of accounts of the Committee;

8. Matters to be deliberated by the Committee as determined under other regulations; and

9. Other matters referred by the Chairman.

(5) The Committee may establish specialized committees by field in order to efficiently carry out the deliberation on the matters listed in any subparagraphs of paragraph (4). <Amended by Presidential Decree No. 15579, Dec. 31, 1997; Presidential Decree No. 18006, Jun. 23, 2003>

[This Article Newly Inserted by Presidential Decree No. 14572, Apr. 6, 1995]

Article 16-3 (Scope of Information Subject to Deliberation)

(1) The term “Information as prescribed by the Presidential Decree” under Article 53-2 (4) 2 of the Act means information transmitted through telecommunications services provided by a telecommunications business operator other than any of the followings:

1. Information provided by the State, local governments or public organizations; and

2. Information subject to a deliberation pursuant to other Acts and subordinate statutes.

(2) Notwithstanding the provisions of paragraph (1), the Committee may deliberate on the information as deemed necessary to restrain the unlawful communication and telecommunication harmful to juveniles under Article 53 (1) of the Act, from among those provided by the public organizations under paragraph (1) 1 and those falling under subparagraph 2 of the same paragraph. <Newly Inserted by Presidential Decree No. 15579, Dec. 31, 1997; Presidential Decree No. 18006, Jun. 23, 2003>

[This Article Newly Inserted by Presidential Decree No. 14572, Apr. 6, 1995]

Article 16-4 (Request, etc. for Corrections)

(1) The Committee may, as a result of its deliberation on the information pursuant to Article 53-2 (4) 2 of the Act, request any telecommunications business operator to correct the following matters:

1. Warning against the users;

2. Deletion of the relevant information; and

3. Suspension and termination of use by the users.

(2) The Committee must follow the regulations on information and communication ethics under Article 16-2 (4) 6 when making deliberation on the information pursuant to paragraph (1).

(3) A telecommunications business operator in receipt of a request for corrections under paragraph (1) shall notify the results of relevant measures to the Committee.

(4) The Committee may, in case where a telecommunications business operator fails to comply with a request for corrections under paragraph (1), recommend the Minister of Information and Communication to order the refusal, suspension or restriction on handling the communication under the subparagraphs of Article 53 (1) of the Act.

(5) In case where the Minister of Information and Communication orders a telecommunications business operator to refuse, suspend or restrict the handling of the communication upon receiving a recommendation under paragraph (4), deliberation by the Committee under Article 53 (2) of the Act shall not be required.

[This Article Wholly Amended by Presidential Decree No. 18006, Jun. 23, 2003]

Article 16-5 (Request for Objection, etc.)

(1) A telecommunications business operator and relevant user which has received a request for correction under Article 16-4 (1) may make an objection by presenting to the Committee documents containing matters of each of the subparagraph below within thirty days of receiving the request for correction.

1. Name with address, phone number and email address of the person making the objection;

2. Document number of request for correction;

3. Reason for the objection;

4. Affixing of seal or signature of person making the objection; and

5. Other matters necessary for the objection.

(2) The Committee shall deliberate within thirty days of the objection under paragraph (1).

(3) An objection cannot be made to the result of deliberation under paragraph (2).

[This Article Wholly Amended by Presidential Decree No. 18006, Jun. 23, 2003]

Article 16-6 (Secretariat of Information and Communication Ethics Committee)

(1) Under the Committee, a Secretariat shall be established in order to assist the Committee in its affairs.

(2) There shall be one Secretary-General and the necessary personnel in the Secretariat, and the Secretary-General shall handle the relevant affairs under orders of the Chairman. <Amended by Presidential Decree No. 16186, Mar. 17, 1999>

(3) Organization, regular staff and operation of the Secretariat and other necessary matters shall be determined by rule of the Committee. <Amended by Presidential Decree No. 16186, Mar. 17, 1999>

[This Article Newly Inserted by Presidential Decree No. 15579, Dec. 31, 1997]

Article 16-7 (Report of Current Status of Supplying Communication Data)

A report of the current status of supplying communication data under Article 54 (6) of the Act shall be made within 30 days after the end of every half term.

[This Article Newly Inserted by Presidential Decree No. 16774, Apr. 1, 2000]

Article 17 (Restriction on and Suspension of Service)

(1) If the Minister of Information and Communication issues, under Article 55 of the Act, an order to restrict or suspend the whole or part of telecommunications services of the telecommunications business operators, he may allow the communications for performing the business falling under any of the following subparagraphs, in accordance with the scope and level of the relevant restriction or suspension: <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

1. First priority:

(a) National security;

(b) Military affairs and public security;

(c) Transmission of the civil defense alarm; and

(d) Electronic wave control.

2. Second priority:

(a) Disaster relief;

(b) Telecommunications, navigation safety, weather, fire fighting, electricity, gas, water service, transportation and the press;

(c) Affairs of the State and local government, except for those mentioned in items (a) and (b); and

(d) Affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea;

3. Third priority: and

(a) Affairs of the enterprises subject to resources control and the firms of defense industry; and

(b) Affairs of government-invested institutions, and medical institutions;

4. Forth priority:

Other matters than those in subparagraphs 1 through 3.

(2) The restriction or suspension on the telecommunication services under paragraph (1) shall be the least of those required for securing the important communications.

(3) A telecommunications business operator shall, in case where he restricts or suspends the whole or part of telecommunications services under paragraph (1), report the content thereof without delay to the Minister of Information and Communication. <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

Article 18

Deleted. <by Presidential Decree No. 16424, Jun. 30, 1999>

Article 19 (Approval, etc. for International Telecommunications Services)

(1) The term “international telecommunications business as prescribed by the Presidential Decree” in Article 59

(2) of the Act means the services falling under any of the following subparagraphs: <Amended by Presidential Decree No. 15579, Dec. 31, 1997; Presidential Decree No. 16774, Apr. 1, 2000>

1. Installation and lease of a satellite for providing international telecommunications services; and

2. Transboundary provision of key communications services under Article 59-2 of the Act.

(2) A person who intends to obtain approval under Article 59 (2) of the Act shall submit the following documents to the Minister of Information and Communication: <Amended by Presidential Decree No. 16424, Jun. 30, 1999; Presidential Decree No. 16774, Apr. 1, 2000>

1. Duplicate copy of written agreement or contract;

2. Comparative table between new and old agreements or contracts (limited to the cases where an application for modified approval is filed); and

3. Document certifying the fact that the agreements or contracts have been abrogated (limited to the cases where an application for approval of abrogation is filed).

[This Article Wholly Amended by Presidential Decree No. 15283, Feb. 22, 1997]

Article 19-2

Deleted. <by Presidential Decree No. 16424, Jun. 30, 1999>

Article 20 (Method of Penalty Calculation, etc.)

(1) “Revenue to be calculated as set forth by the Presidential Decree” of first sentence of Article 64 (1) of the Act shall mean the average revenue of telecommunications service for three fiscal years immediately prior to the relevant year of the telecommunications business operator. Provided that, if three years has not passed since the commencement of the business as of the first date of current fiscal year, it shall mean the average of annual revenue calculated from the revenue from commencement of business to the end of the fiscal year immediately prior to the relevant year and if business has been commenced in the relevant fiscal year, it shall mean the annual average revenue calculated from the revenue from the date of commencement of business to the date of offence.

(2) “Instance where there is no such revenue or if it is difficult to calculate such revenue as set by the Presidential Decree as” of second sentence of Article 64 (1) of the Act shall mean an instance falling under any of the following:

1. Where there is no business result because business has not been commenced or business has been ceased, etc.;

2. Where telecommunications business operator refuses to submit revenue calculation materials or submits falsified materials; and

3. Other circumstances where objective calculation of revenue is difficult.

[This Article Newly Inserted by Presidential Decree No. 18006, Jun. 23, 2003]

Article 21 (Offences Subject to Imposition of Penalty Surcharge, and Amount of Penalty Surcharge, etc.)

(1) Classifications of offenses subject to the imposition of a penalty surcharge and the amount of a penalty surcharge under Article 64 (2) of the Act shall be stated in attached Table 3. <Amended by Presidential Decree No. 16186, Mar. 17, 1999; Presidential Decree No. 18006, Jun. 23, 2003>

(2) The Minister of Information and Communication in prescribing the amount of penalty surcharge under paragraph (1), shall consider the characteristics of the services provided by the telecommunications business and the level and frequency of offenses, etc. <Amended by Presidential Decree No. 18006, Jun. 23, 2003>

(3) The provisions of Articles 13-3 and 13-4 shall apply mutatis mutandis to the imposition, payment and demand of a penalty surcharge under Article 64 of the Act. <Newly Inserted by Presidential Decree No. 16186, Mar. 17, 1999; Presidential Decree No. 16774, Apr. 1, 2000>

Article 22 (Extension of Time Limit of Payment of Penalty Surcharge, and Payment in Installments Thereof)

(1) A person who intends to extend the time limit of payment of a penalty surcharge or pay it in installments under Article 64-2 of the Act shall make an application to the Minister of Information and Communication along with the document certifying grounds of the extension of time limit of payment or the payment in installments not later than ten days prior to the relevant time limit of payment.

(2) The term “amount as prescribed by the Presidential Decree” in Article 64-2 (1) of the Act means the amount arrived at by multiplying a turnover under Article 13-2 by 1/100, or 300 million won.

(3) The extension of time limit of payment of a penalty surcharge under Article 64-2 of the Act shall not exceed one year as from the day following the said time limit.

(4) In a case of making payment in installments under Article 64-2 of the Act, the intervals between a respective time limit of installment payment shall not exceed four months, and the frequency of installments shall not exceed three times.

(5) The Minister of Information and Communication may, if a person liable for a payment of penalty surcharge for whom the time limit of payment has been extended or the payment in installments has been permitted under Article 64-2 of the Act comes to fall under any of the following subparagraphs, revoke such extension of the time limit of payment or a decision of such payment in installments, and collect it in a lump sum:

1. Where he fails to pay a penalty surcharge for which the payment in installments has been decided, within the time limit of payment thereof;

2. Where he fails to implement an order necessary for a change of security or other security integrity, which is given by the Minister of Information and Communication; or

3. Where deemed that the whole or remainder of a penalty surcharge is uncollectable, such as the compulsory execution, commencement of auction, adjudication of bankruptcy, dissolution of a juristic person or dispositions on national or local taxes in arrears, etc.

[This Article Wholly Amended by Presidential Decree No. 16186, Mar. 17, 1999]

Article 23 (Classification and Appraisal, etc. of Securities)

The provisions of Articles 29 through 34 of the Framework Act on National Taxes, and of Articles 13 through 17 of its Enforcement Decree shall apply mutatis mutandis to the furnishing of security under Article 64-2 of the Act.

[This Article Wholly Amended by Presidential Decree No. 16186, Mar. 17, 1999]

Article 23-2 (Important Communications)

(1) The term “important communications” in Article 65 (2) 3 of the Act means:

1. Business telecommunications related to the national security, military affairs, public peace and order, civil defense alarm transmission and radio wave control;

2. Deleted; and <by Presidential Decree No. 16424, Jun. 30, 1999>

3. Other communications publicly notified by the Minister of Information and Communication in order to efficiently perform the State affairs.

(2) The Government may grant a subsidy for the expenses required for the construction and management of the important communications in order to secure the important communications under paragraph (1).

[This Article Newly Inserted by Presidential Decree No. 15579, Dec. 31, 1997]

Article 24 (Delegation of Authority)

The Minister of Industry and Communication shall delegate the authority falling under any of the following subparagraphs to the Commissioner of the competent Communications Office pursuant to Article 68 (1) of the Act:

1. Registration of specific communications business under Article 19 (1) of the Act;

2. Acceptance of a report on the value-added communications business under the text of Article 21 of the Act;

3. Acceptance of a modified registration for the specific communications business, and of a modified report for value-added communications business, under Article 22 of the Act;

4. Acceptance of a report on the transfer or takeover of a specific communications business or a value-added communications business, and on the merger or succession of a juristic person, under Article 25 of the Act;

5. Acceptance of a report on the suspension or discontinuation of a specific communications business or a value-added communications business, and on the dissolution of a juristic person under Article 27 of the Act;

6. Cancellation of a registration for a specific communications business, and an order for business suspension under Article 28 (1) of the Act;

7. Orders for a closedown and suspension of a value-added communications business under Article 28 (2) of the Act;

8. Permission for a felling or transplanting of the plants under the former part of Article 42 (3) of the Act;

9. Hearings on a disposition of cancelling a registration of a specific communications business, and on a disposition of closing down a value-added communications business, under subparagraph 2 of Article 63 of the Act;

10. Imposition and collection of a penalty surcharge under Article 64 of the Act (excluding the case of a key communications business operator);

11. Correction orders under Article 65 (1) of the Act (excluding the case of a key communications business operator); and

12. Imposition and collection of a fine for negligence under Article 78 of the Act (excluding the case of a key communications business operator). [This Article Wholly Amended by Presidential Decree No. 16774, Apr. 1, 2000]

Article 25 (Fine for Negligence)

(1) The Minister of Information and Communication shall, where he imposes a fine for negligence under Article 78 (2) of the Act, specify in writing the fact of violation, method of objection, objection period, etc., after investigating and confirming the relevant offence, and give notice to pay the said fine to the person subject to a disposition of a fine for negligence. <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

(2) The Minister of Information and Communication shall, where he intends to impose a fine for negligence under paragraph (1), provide the person subject to a disposition of fine for negligence with an opportunity for stating his opinion orally or in writing with fixing a period of not less than 10 days. In this case, he shall deem it as non-existence of opinion, if no oral or written statement of opinion is presented within the specified period. <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

(3) In determining the amount of a fine for negligence, the Minister of Information and Communication shall take into account the motivation of the offence and the consequences thereof. <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

(4) Collection procedures for a fine for negligence shall be determined by the Ordinance of Ministry of Information and Communication. <Amended by Presidential Decree No. 14572, Apr. 6, 1995>

ADDENDA

Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation.

Article 2 (Contents of Restructuring)

The number of key communications business operators, their business areas and scopes of business under Article 7 in Addenda of the Act shall be as follows:

1. Operations of local telephone business from among the general telecommunications business may be given to the Korea Telecommunication Corporation (hereinafter refer to as the “Corporation”) under the Telecommunication Corporation Act, and the international telephone business may be operated by the Corporation and a person deemed to have received a designation for a universal telecommunications service provider under Article 2 (2) of Addenda of the Act, and the long distance telephone business may be operated by one designated telecommunications service provider in addition to the Corporation; and

2. The mobile telephone business among the special communications businesses may be operated by one telecommunications business operator with a nation-wide business area who is additionally permitted, and the special telecommunications business other than the mobile telephone business (excluding the minor business under the proviso of Article 16 (2) of the Act) may be operated by less than two telecommunications business operators who are additionally permitted by telecommunications service provided or by service area. Article 3 Omitted.

ADDENDA <Presidential Decree No. 13935, Jul. 23, 1993>

(1) (Enforcement Date) This Decree shall enter into force on the date of its promulgation.

(2) (Transitional Measures on Registration of Value-Added Communications Business) In case where the Information and Communication Promotion Association receives an application for the registration of the value-added communications business under the previous provisions at the time when this Decree enters into force, it shall send a registration application along with accompanying documents to the chief of the competent Communication Office.

ADDENDUM <Presidential Decree No. 14572, Apr. 6, 1995>

This Decree shall enter into force on April 6, 1995.

ADDENDUM <Presidential Decree No. 15283. Feb. 22, 1997>

This Decree shall enter into force on the date of its promulgation.

ADDENDA <Presidential Decree No. 15328, Mar. 31, 1997>

Article 1 (Enforcement Date)

This Decree shall enter into force on April 1, 1997.

Articles 2 through 5

Omitted

ADDENDUM <Presidential Decree No. 15579, Dec. 31, 1997>

This Decree shall enter into force on January 1, 1998.

ADDENDUM <Presidential Decree No. 16186, Mar. 17, 1999>

This Decree shall enter into force on the date of its promulgation.

ADDENDUM <Presidential Decree No. 16424, Jun. 30, 1999>

This Decree shall enter into force on July 1, 1999.

ADDENDA <Presidential Decree No. 16751, Mar. 13, 2000>

Article 1 (Enforcement Date)

This Decree shall enter into force on March 13, 2000. (Proviso Omitted.)

Articles 2 through 10

Omitted.

ADDENDUM <Presidential Decree No. 16774, Apr. 1, 2000>

This Decree shall enter into force on April 1, 2000.

ADDENDUM <Presidential Decree No. 17237, Jun. 12, 2001>

This Decree shall enter into force on the date of its promulgation.

ADDENDA <Presidential Decree No. 18006, Jun. 23, 2003>

Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation.

Article 2 (Amendments to other Provisions)

Relevant section of the Enforcement Decree of the Telecommunications Foundation Protection Law shall be amended as follows:

“Data Protection Firm” in Article 12 (2) 2 shall be replaced with “Data Protection Consulting Specialized Firm”.

ADDENDA <Presidential Decree No. 18223, Jan. 13, 2004>

Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation.

Article 2 (Valid Term)

The amended provisions of second sentence of Article 2-4 (1) shall continue to be valid for three years after the enforcement date.

ADDENDA <Presidential Decree No. 18309, Mar. 9, 2004>

Article 1 (Enforcement Date)

This Decree shall enter into force on the date of its promulgation.

Article 2 (Exception for Combination Sales)

After three years from the date of promulgation of this Decree, the amended provision of Table 1 IV (6) shall be applied only to telecommunications service of key telecommunications business operator (including telecommunications service supplied by specific communications business or value-added communications service managed by a key communications business operator).

• Table 1: Classifications of offenses subject to the imposition of a penalty surcharge and the upper limit of the penalty surcharge on such offences [Related to Article 13(1)]

• Table 2: Classifications of offenses subject to the imposition of a penalty surcharge and the upper limit of the penalty surcharge on such offences [Related to Article 13(1)]

• Table 3: Classifications of offenses subject to the imposition of a penalty surcharge and the amount of a penalty surcharge [Related to Article 21 (1)]