As filed with the Securities and Exchange Commission on June 29, 2011
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-14926
KT Corporation
(Exact name of Registrant as specified in its charter)
KT Corporation | The Republic of Korea | |
(Translation of Registrants name into English) | (Jurisdiction of incorporation or organization) |
206 Jungja-dong
Bundang-ku, Sungnam, Gyunggi-do
463-711 Korea
(Address of principal executive offices)
Thomas Bum Joon Kim
206 Jungja-dong
Bundang-ku, Sungnam, Gyunggi-do
463-711 Korea
Telephone: +82-31-727-0150; E-mail: thomaskim@kt.com
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
Name of each exchange on which registered | |
American Depositary Shares, each representing | New York Stock Exchange, Inc. | |
one-half of one share of common stock | ||
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
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
As of December 31, 2010, there were 243,215,844 shares of common stock, par value (Won)5,000 per share, outstanding
(not including 17,895,964 shares of common stock held by the company as treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP ¨ IFRS ¨ Other x
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 x
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
* | Not for trading, but only in connection with the registration of the American Depositary Shares. |
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ITEM 1. |
1 | |||||||
Item 1.A. |
1 | |||||||
Item 1.B. |
1 | |||||||
Item 1.C. |
1 | |||||||
ITEM 2. |
1 | |||||||
Item 2.A. |
1 | |||||||
Item 2.B. |
1 | |||||||
ITEM 3. |
2 | |||||||
Item 3.A. |
2 | |||||||
Item 3.B. |
4 | |||||||
Item 3.C. |
5 | |||||||
Item 3.D. |
5 | |||||||
ITEM 4. |
16 | |||||||
Item 4.A. |
16 | |||||||
Item 4.B. |
17 | |||||||
Item 4.C. |
41 | |||||||
Item 4.D. |
41 | |||||||
ITEM 4A. |
44 | |||||||
ITEM 5. |
44 | |||||||
Item 5.A. |
44 | |||||||
Item 5.B. |
63 | |||||||
Item 5.C. |
70 | |||||||
Item 5.D. |
71 | |||||||
Item 5.E. |
71 | |||||||
Item 5.F. |
71 | |||||||
Item 5.G. |
71 | |||||||
ITEM 6. |
71 | |||||||
Item 6.A. |
71 | |||||||
Item 6.B. |
78 | |||||||
Item 6.C. |
78 | |||||||
Item 6.D. |
80 | |||||||
Item 6.E. |
82 |
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TABLE OF CONTENTS
(continued)
Page | ||||||||
ITEM 7. |
82 | |||||||
Item 7.A. |
82 | |||||||
Item 7.B. |
82 | |||||||
Item 7.C. | Interests of Experts and Counsel | 83 | ||||||
ITEM 8. |
83 | |||||||
Item 8.A. |
83 | |||||||
Item 8.B. |
84 | |||||||
ITEM 9. |
84 | |||||||
Item 9.A. |
84 | |||||||
Item 9.B. |
85 | |||||||
Item 9.C. |
85 | |||||||
Item 9.D. |
89 | |||||||
Item 9.E. |
90 | |||||||
Item 9.F. |
90 | |||||||
ITEM 10. |
90 | |||||||
Item 10.A. |
90 | |||||||
Item 10.B. |
90 | |||||||
Item 10.C. |
96 | |||||||
Item 10.D. |
97 | |||||||
Item 10.E. |
101 | |||||||
Item 10.F. |
106 | |||||||
Item 10.G. |
106 | |||||||
Item 10.H. |
106 | |||||||
Item 10.I. |
106 | |||||||
ITEM 11. |
106 | |||||||
ITEM 12. |
108 | |||||||
Item 12.A. |
108 | |||||||
Item 12.B. |
108 | |||||||
Item 12.C. |
108 | |||||||
Item 12.D. |
109 | |||||||
110 | ||||||||
ITEM 13. |
110 |
ii
TABLE OF CONTENTS
(continued)
Page | ||||||||
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 110 | ||||||
ITEM 15. |
110 | |||||||
ITEM 16. |
111 | |||||||
ITEM 16A. |
111 | |||||||
ITEM 16B. |
112 | |||||||
ITEM 16C. |
112 | |||||||
ITEM 16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 112 | ||||||
ITEM 16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 113 | ||||||
ITEM 16F. |
113 | |||||||
ITEM 16G. |
113 | |||||||
115 | ||||||||
ITEM 17. |
115 | |||||||
ITEM 18. |
115 | |||||||
ITEM 19. |
115 |
iii
PRESENTATION
All references to Korea or the Republic contained in this annual report mean the Republic of Korea. All references to the Government are to the government of the Republic of Korea. All references to we, us or the Company are to KT Corporation and, as the context may require, its subsidiaries.
All references to Won or (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. Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, (Won)1,257.5 to US$1.00, (Won)1,167.6 to US$1.00 and (Won)1,138.9 to US$1.00 at December 31, 2008, 2009 and 2010, respectively. Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2010 have been translated into United States dollars at the rate of (Won)1,138.9 to US$1.00, the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. and in effect on December 31, 2010.
Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
All market share data contained in this annual report, unless otherwise specified, are based on the number of subscribers announced by the Korea Communications Commission or the Korea Telecommunications Operators Association.
Item 1. Identity of Directors, Senior Managers and Advisers
Item 1.A. Directors and Senior Management
Not applicable.
Not applicable.
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 2.B. Method and Expected Timetable
Not applicable.
1
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, 2009 and 2010 and for each of the years in the three-year period ended December 31, 2010, and the reports of the independent registered public accounting firms on these statements included herein. The selected consolidated financial data for the five years ended December 31, 2010 are derived from our audited consolidated financial statements.
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in Korea (Korean GAAP), which differ in certain significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). See Note 38 to the Consolidated Financial Statements for a description of the nature and the effect of such differences.
Income Statement Data
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | |||||||||||||||||||
(In billions of Won and millions of Dollars, except per share data) | ||||||||||||||||||||||||
Korean GAAP (1): |
||||||||||||||||||||||||
Operating revenues |
(Won) | 17,825 | (Won) | 18,614 | (Won) | 19,587 | (Won) | 19,644 | (Won) | 21,331 | US$ | 18,730 | ||||||||||||
Operating expenses |
15,442 | 16,859 | 18,144 | 18,673 | 19,156 | 16,820 | ||||||||||||||||||
Operating income |
2,383 | 1,755 | 1,443 | 971 | 2,175 | 1,910 | ||||||||||||||||||
Non-operating income |
565 | 486 | 1,050 | 808 | 523 | 459 | ||||||||||||||||||
Non-operating expenses |
962 | 783 | 1,783 | 1,059 | 1,136 | 998 | ||||||||||||||||||
Income tax expense on continuing operations |
476 | 357 | 168 | 108 | 372 | 326 | ||||||||||||||||||
Income from continuing operations |
1,510 | 1,106 | 542 | 612 | 1,190 | 1,045 | ||||||||||||||||||
Income (loss) from discontinued operations |
| 65 | (29 | ) | (2 | ) | 3 | 2 | ||||||||||||||||
Net Income |
1,510 | 1,171 | 513 | 610 | 1,193 | 1,047 | ||||||||||||||||||
Controlling interest net income |
1,292 | 1,056 | 450 | 495 | 1,168 | 1,026 | ||||||||||||||||||
Minority interest net income |
218 | 115 | 63 | 115 | 25 | 22 | ||||||||||||||||||
Basic income per share from continuing operations |
6,153 | 4,783 | 2,319 | 2,225 | 4,797 | 4.21 | ||||||||||||||||||
Basic net income per share (2) |
6,155 | 5,112 | 2,217 | 2,254 | 4,803 | 4.22 | ||||||||||||||||||
Diluted income per share from continuing operations |
6,146 | 4,783 | 2,319 | 2,199 | 4,797 | 4.21 | ||||||||||||||||||
Diluted net income per share (3) |
6,148 | 5,112 | 2,217 | 2,227 | 4,802 | 4.22 | ||||||||||||||||||
Dividends per share (4) |
2,000 | 2,000 | 1,120 | 2,000 | 2,410 | 2.12 | ||||||||||||||||||
U.S. GAAP (5): |
||||||||||||||||||||||||
Operating revenues |
(Won) | 14,088 | (Won) | 17,953 | (Won) | 18,599 | (Won) | 18,891 | (Won) | 20,088 | US$ | 17,638 | ||||||||||||
Operating income |
1,868 | 1,499 | 1,197 | 992 | 1,899 | 1,667 | ||||||||||||||||||
Income taxes |
357 | 270 | 178 | 118 | 374 | 328 | ||||||||||||||||||
Income from continuing operations |
1,423 | 1,087 | 577 | 841 | 1,196 | 1,050 | ||||||||||||||||||
Income (loss) from discontinuing operations |
| 73 | (4 | ) | (1 | ) | | | ||||||||||||||||
Net Income (6) |
1,423 | 1,160 | 573 | 840 | 1,196 | 1,050 | ||||||||||||||||||
Attributable to KT stockholders |
1,329 | 1,069 | 518 | 742 | 1,186 | 1,041 | ||||||||||||||||||
Attributable to noncontrolling interests |
94 | 91 | 55 | 98 | 10 | 9 | ||||||||||||||||||
Basic income per share from continuing operations |
6,331 | 4,821 | 2,571 | 3,382 | 4,876 | 4.28 | ||||||||||||||||||
Basic income per share (2) |
6,333 | 5,172 | 2,554 | 3,380 | 4,876 | 4.28 | ||||||||||||||||||
Diluted income per share from continuing operations |
6,325 | 4,821 | 2,571 | 3,332 | 4,876 | 4.28 | ||||||||||||||||||
Diluted income per share (3) |
6,327 | 5,172 | 2,554 | 3,330 | 4,876 | 4.28 |
2
Balance Sheet Data
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | |||||||||||||||||||
(In billions of Won and millions of Dollars) | ||||||||||||||||||||||||
Korean GAAP (1): |
||||||||||||||||||||||||
Working capital (7) |
(Won) | 558 | (Won) | 564 | (Won) | 1,833 | (Won) | 1,031 | (Won) | 643 | US$ | 565 | ||||||||||||
Net property and equipment |
15,167 | 15,288 | 15,189 | 14,775 | 15,228 | 13,371 | ||||||||||||||||||
Total assets |
24,243 | 24,127 | 26,139 | 26,620 | 27,713 | 24,334 | ||||||||||||||||||
Long term debt, excluding current portion |
6,097 | 5,973 | 7,947 | 7,536 | 7,219 | 6,338 | ||||||||||||||||||
Refundable deposits for telephone installation |
907 | 841 | 782 | 696 | 615 | 541 | ||||||||||||||||||
Total equity |
10,697 | 11,138 | 11,088 | 10,667 | 11,496 | 10,094 | ||||||||||||||||||
U.S. GAAP (5): |
||||||||||||||||||||||||
Working capital (7) |
(Won) | 333 | (Won) | 332 | (Won) | 1,640 | (Won) | 845 | (Won) | 584 | US$ | 513 | ||||||||||||
Net property and equipment |
14,729 | 14,671 | 14,460 | 14,041 | 13,682 | 12,013 | ||||||||||||||||||
Total assets |
24,098 | 24,023 | 25,974 | 26,526 | 26,603 | 23,359 | ||||||||||||||||||
Total equity |
10,221 | 10,589 | 10,609 | 10,456 | 11,100 | 9,746 | ||||||||||||||||||
Stockholders equity |
8,038 | 8,438 | 8,490 | 10,287 | 10,929 | 9,596 | ||||||||||||||||||
Noncontrolling interests |
2,183 | 2,151 | 2,119 | 169 | 171 | 150 |
Other Financial Data
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | 2010 | |||||||||||||||||||
(In billions of Won and millions of Dollars) | ||||||||||||||||||||||||
Korean GAAP: |
||||||||||||||||||||||||
Net cash provided by operating activities |
(Won) | 5,714 | (Won) | 4,265 | (Won) | 2,920 | (Won) | 3,399 | (Won) | 3,245 | US$ | 2,849 | ||||||||||||
Net cash used in investing activities |
(3,061 | ) | (3,449 | ) | (3,532 | ) | (2,872 | ) | (3,436 | ) | (3,017 | ) | ||||||||||||
Net cash provided by (used in) financing activities |
(2,367 | ) | (1,368 | ) | 1,051 | (930 | ) | (129 | ) | (113 | ) | |||||||||||||
U.S. GAAP (5): |
||||||||||||||||||||||||
Net cash provided by operating activities |
(Won) | 4,667 | (Won) | 4,260 | (Won) | 2,889 | (Won) | 3,338 | (Won) | 3,022 | US$ | 2,653 | ||||||||||||
Net cash used in investing activities |
(2,432 | ) | (3,410 | ) | (3,502 | ) | (2,818 | ) | (3,277 | ) | (2,877 | ) | ||||||||||||
Net cash provided by (used in) financing activities |
(1,671 | ) | (1,271 | ) | 1,147 | (901 | ) | (117 | ) | (103 | ) |
Operating Data
As of December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Lines installed (thousands) (8) |
26,838 | 26,671 | 26,008 | 25,907 | 25,524 | |||||||||||||||
Lines in service (thousands) (8) |
20,331 | 19,980 | 18,883 | 17,069 | 16,620 | |||||||||||||||
Lines in service per 100 inhabitants (8) |
42.0 | 41.2 | 38.8 | 35.0 | 34.0 | |||||||||||||||
Mobile subscribers (thousands) |
12,914 | 13,721 | 14,365 | 15,016 | 16,041 | |||||||||||||||
Broadband Internet subscribers (thousands) |
6,353 | 6,516 | 6,712 | 6,953 | 7,424 |
(1) | Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (SKAS) No. 1 through No. 25. Among these statements, SKAS No. 1 through No. 10 and SKAS No. 12 through No. 20 are required to be applied in the prior periods. Although SKAS No. 11 and SKAS No. 21 through No. 25 are required to be applied starting in 2007, the balances of 2006 have been reclassified in accordance with Statements of Korea Accounting Standards No. 16 and No. 21 for comparison purposes. |
(2) | Basic earnings per share under Korean GAAP and U.S. GAAP is calculated by dividing net earnings by the weighted average number of shares outstanding during the period. The weighted average number of shares of common stock outstanding during the period was 209,895 thousand for 2006, 206,599 thousand for 2007, 202,891 thousand for 2008, 219,513 thousand for 2009 and 243,207 thousand for 2010. |
(3) | Diluted earnings per share are calculated based on the effect of dilutive securities that were outstanding during the period. The denominator of the diluted earnings per share computation is adjusted to include the number of additional common shares that would have been outstanding if the dilutive securities had been converted into common stock. In addition, the numerator is adjusted to include the after-tax amount of interest recognized associated with convertible notes. The weighted average number of common and common equivalent shares outstanding was 210,150 thousand for 2006, 206,599 thousand for 2007, 202,891 thousand for 2008, 224,168 thousand for 2009 and 243,225 thousand for 2010. |
3
(4) | The calculation of dividends per share represents the weighted average dividends paid per share. |
(5) | See Note 38 to the Consolidated Financial Statements for reconciliation to U.S. GAAP. |
(6) | In December 2007, the Financial Accounting Standard Board issued and amended an accounting standard that requires that the noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity in consolidated financial statements. With the adoption of the amended standard, net income attributable to noncontrolling interests is included in net income. We retrospectively adopted the presentation and disclosure requirements of the standard for all of the financial statements and information included herein on January 1, 2009. |
(7) | Working capital means current assets minus current liabilities. |
(8) | Including public telephones. |
Exchange Rate Information
The following table sets out information concerning the market average exchange rate for the periods and dates indicated.
Period |
At End of Period |
Average Rate (1) |
High | Low | ||||||||||||
(Won per US$1.00) | ||||||||||||||||
2006 |
929.6 | 956.1 | 1,013.0 | 918.0 | ||||||||||||
2007 |
938.2 | 929.2 | 950.0 | 902.2 | ||||||||||||
2008 |
1,257.5 | 1,102.6 | 1,509.0 | 934.5 | ||||||||||||
2009 |
1,167.6 | 1,276.4 | 1,573.6 | 1,152.8 | ||||||||||||
2010 |
1,138.9 | 1,156.3 | 1,261.5 | 1,104.0 | ||||||||||||
December |
1,138.9 | 1,147.6 | 1,164.9 | 1,133.6 | ||||||||||||
2011 (through June 28) |
1,086.7 | 1,102.2 | 1,138.9 | 1,066.8 | ||||||||||||
January |
1,114.3 | 1,120.1 | 1,138.9 | 1,112.2 | ||||||||||||
February |
1,127.9 | 1,118.1 | 1,127.9 | 1,104.4 | ||||||||||||
March |
1,107.2 | 1,122.5 | 1,137.6 | 1,107.2 | ||||||||||||
April |
1,072.3 | 1,086.8 | 1,100.1 | 1,072.3 | ||||||||||||
May |
1,080.6 | 1,083.5 | 1,096.3 | 1,066.8 | ||||||||||||
June (through June 28) |
1,086.7 | 1,081.4 | 1,088.9 | 1,075.0 |
Source: Seoul Money Brokerage Services, Ltd.
(1) | The average rate for each full year is calculated as the average of the market average exchange rates on the last business day of each month during the relevant year. The average rate for a full month is calculated as the average of the market average exchange rates on each business day during the relevant month (or portion thereof). |
Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, (Won)1,257.5 to US$1.00, (Won)1,167.6 to US$1.00 and (Won)1,138.9 to US$1.00 at December 31, 2008, 2009 and 2010, respectively.
Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2010 have been translated into United States dollars at the rate of (Won)1,138.9 to US$1.00, the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. and in effect on December 31, 2010.
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
4
Item 3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
You should carefully consider the following factors.
Risks Relating to Our Business
Competition in the Korean telecommunications industry is intense.
Competition in the telecommunications sector in Korea is intense. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom Co., Ltd. (or SK Telecom) acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband Co., Ltd. (or SK Broadband). The acquisition enables SK Telecom to provide fixed-line telecommunications, broadband Internet access and Internet television (or IP-TV) services together with its mobile telecommunications services. On January 1, 2010, LG Dacom Corporation (or LG Dacom) and LG Powercom Co., Ltd. (or LG Powercom) merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enables LG U+ to provide a similar range of services as SK Telecom and us. Our inability to adapt to such changes in the competitive landscape could have a material adverse effect on our business, financial condition and results of operations.
Mobile Service. We provide mobile services based on Code Division Multiple Access (or CDMA) technology and Wideband Code Division Multiple Access (or W-CDMA) technology. Competitors in the mobile telecommunications service industry are SK Telecom and LG U+. We had a market share of 31.6% as of December 31, 2010, making us the second largest mobile telecommunications service provider. SK Telecom had a market share of 50.6% as of December 31, 2010.
Mobile subscribers are allowed to switch their service provider while retaining the same mobile phone number. Mobile service providers also grant subsidies to subscribers who purchase new handsets and agree to a minimum subscription period. Mobile number portability and handset subsidies have intensified competition among the mobile service providers and increased their marketing expenses. If the mobile service providers adopt a strategy of expanding market share through price competition, it could lead to a decrease in our net profit margins.
In recent years, SK Telecom and we also launched third-generation mobile telecommunications services, which we believe have further intensified competition between the two companies and resulted in an increase in marketing expenses. We expanded our coverage area of High Speed Downlink Packet Access (or HSDPA)-based IMT-2000 services nationwide in March 2007. IMT-2000 is a third-generation, high-capacity wireless communications technology, which allows operators to provide to their customers significantly more bandwidth capacity. Although we expect that SK Telecom will face similar challenges to those that we expect to face in implementing this third-generation technology, we cannot assure you that we will continue to be able to successfully compete in third-generation mobile telecommunications services.
Fixed-line Telephone Services. Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. Since then, various competitors have entered the local, domestic long-distance and international long-distance telephone service markets in Korea, which have eroded our market shares. LG U+ and SK Broadband currently provide local, domestic long-distance and international long-distance telephone services. In addition, Onse Telecom Corporation and SK Telink, Inc. currently provide domestic long-distance and
5
international long-distance telephone services. Starting in 1998, specific service providers, such as Internet phone service providers, voice resellers and call-back service providers, also began offering international long-distance service in Korea. While we offer our own Internet phone service, the entry of these and other potential competitors into the local, domestic long-distance and international long-distance telephone service markets has had and may continue to have a material adverse effect on our revenues and profitability from these businesses. As of December 31, 2010, we had a market share in local telephone service of 86.3% and a market share in domestic long distance service of 82.2%. Further increase in competition may decrease our market shares in such businesses.
Internet Services. The Korean broadband Internet access service market has experienced significant growth in the past decade. SK Broadband (formerly Hanarotelecom) entered the broadband market in 1999 offering both Hybrid Fiber Coaxial (or HFC) and Asymmetric Digital Subscriber Line (or ADSL) services. We also began offering broadband Internet access service in 1999, followed by Dreamline, Onse and LG U+. In recent years, numerous cable television operators have also begun to offer HFC-based services at rates lower than ours. We had a market share of 43.1% as of December 31, 2010. As a result of having to compete with a number of competitors and the maturing of the Internet access service market, we currently encounter, and we expect to encounter, pressure to increase marketing expenses in the future.
The market for other Internet-related services in Korea, including IP-TV and Internet phone services, is also very competitive. We anticipate that competition will continue to intensify as the usage and popularity of the Internet grows and as new domestic and international competitors enter the Internet industry in Korea. The substantial growth of the Internet industry in Korea has attracted many competitors and as a result may lead to increasing price competition to provide Internet-related services. Increased competition in the Internet industry could have a material adverse effect on the number of subscribers of our Internet-related service and on our results of operations.
We may fail to realize the anticipated benefits of the merger of KTF into KT Corporation.
On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. The success of the merger of KTF with KT Corporation will depend, in part, on our ability to realize the anticipated synergies, growth opportunities and, to a lesser extent, cost savings from combining these two companies. The realization of these anticipated benefits may be impeded, delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include:
| difficulties in integrating the operations of KTF with those of KT Corporation, including information systems, personnel, policies and procedures, and in reorganizing or reducing overlapping personnel, operations, marketing networks and administrative functions; |
| unforeseen contingent risks or latent liabilities relating to the merger that may become apparent in the future; |
| difficulties in managing a larger business; and |
| loss of key management personnel or customers. |
Accordingly, we cannot assure you that we will realize the anticipated benefits of the merger or that the merger will not adversely affect our combined business, financial condition and results of operations.
The integration of the operations of KTF into KT Corporation may require significant amounts of time, financial resources and management attention. KT Corporations management intends to implement a business plan to effectively combine the operations of KTF with the operations of
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KT Corporation. If this business plan is not effective in integrating these operations, however, we may not realize the anticipated benefits of the merger. The integration process could also result in the disruption of our ongoing business and information technology systems, or inconsistencies in standards, controls, procedures and policies and a reduction in employee morale, each of which may adversely affect our ability to maintain relationships with customers and to retain key personnel.
In addition, as conditions to the approval of the merger of KTF into KT Corporation, the Korea Communications Commission is requiring us to (i) allow competing service providers to have greater access to our cable tunnels and telephone poles, (ii) improve Public Switched Telephone Network (or PSTN) number portability and voice over Internet protocol (or VoIP) number portability, and (iii) allow competing service providers to access our wireless Internet network. Such conditions may intensify competition in the telecommunications industry, which could have a material adverse effect on the number of our subscribers and results of operations.
Failure to renew existing bandwidth spectrum, acquire adequate additional bandwidth spectrum or use our bandwidth efficiently may adversely affect our mobile telecommunications business and results of operations.
One of the principal limitations on a wireless networks subscriber capacity is the amount of bandwidth spectrum allocated to the service provider. Our current right to use 40 MHz of bandwidth in the 1.8 GHz spectrum is scheduled to expire at the end of June 2011. We have applied to the Korea Communications Commission to allocate back to us 20 MHz of bandwidth in the 1.8 GHz spectrum, for which we expect to pay a usage fee if reallocated to us. In addition, the Korea Communications Commission allocated 20 MHz of bandwidth in the 900 MHz spectrum to us, which will become effective on July 1, 2011. We expect to pay a portion of the actual sales generated from using the bandwidth in the 900 MHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales as determined by the Korea Communications Commission at the time of allocation. In June 2011, the Korea Communications Commission announced its plan to auction in August 2011 the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum that we are scheduled to relinquish at the end of June 2011, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. According to the plan, a maximum of 20 MHz of bandwidth may be sold to a single service provider, and SK Telecom and we are prohibited from bidding for the 20 MHz bandwidth in the 2.1 GHz spectrum. If we are allocated the bandwidths in the 800 MHz or the 1.8 GHz spectrums, we expect to pay usage fees for such bandwidths. The growth of our mobile telecommunications business and the increase in usage of wireless data transmission services have been significant factors in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. The current trend of increasing data transmission use and the increasing sophistication of multimedia contents are likely to put additional strain on the bandwidth capacity of mobile service providers. In the event we are unable to maintain sufficient bandwidth capacity by renewing existing bandwidth spectrum, receiving additional bandwidth allocation, or cost-effectively implementing technologies that enhance bandwidth usage efficiency, our subscribers may perceive a general decrease in quality of mobile telecommunications services. No assurance can be given that bandwidth constraints will not adversely affect the growth of our mobile telecommunications business.
Termination of our second generation Personal Communications Service (or 2G PCS) services may pose risks to us.
We have been providing our 2G PCS services based on CDMA wireless network standards through our 40 MHz bandwidth in the 1.8 GHz spectrum, which allocation is expected to terminate at the end of June 2011. As part of our decision to apply for reallocation, we have applied to the Korea Communications Commission to terminate our existing 2G PCS services, which we expect to be able
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to terminate in the second half of 2011. Accordingly, our existing 2G PCS subscribers must either convert to our W-CDMA services or switch to other telecommunications companies. As of December 31, 2010, there were 1,393 thousand subscribers of our 2G PCS services. We are offering benefits such as substantial discounts on W-CDMA-compatible handsets and monthly subscription fees starting in March 2011 to encourage our existing subscribers to switch to our W-CDMA services. However, there can be no assurance that we will not incur reputational damage from terminating our 2G PCS services, such termination will not lead to a material decrease in the number of our mobile subscribers, or complaints and other potential actions of our 2G PCS subscribers will not adversely affect our business, financial condition and results of operations.
Introduction of new services poses challenges and risks to us.
The telecommunications industry is characterized by continual advances and improvements in telecommunications technology, and we have been continually researching and implementing technology upgrades and additional telecommunication services to maintain our competitiveness. For example, in March 2005, we acquired a license to provide wireless broadband Internet access (or WiBro) service for (Won)126 billion, and commercially launched our service in June 2006. We completed the upgrade of our 4G WiBro network and expanded our WiBro service coverage to 82 cities nationwide and major highways as of March 2011, which we believe will allow us to provide WiBro services at speeds that are approximately three times faster than our previous 3G network at a lower cost, and had approximately 377 thousand subscribers as of December 31, 2010. In addition, we are currently upgrading our broadband network to enable FTTH connection, which enhances downstream speed and connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content. No assurance can be given that our new services will gain broad market acceptance such that we will be able to derive revenues from such services to justify the license fee, capital expenditures and other investments required to provide such services.
Disputes with our labor union may disrupt our business operations.
In the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base. Although we have not experienced any significant labor disputes or unrests in recent years, there can be no assurance that we will not experience labor disputes or unrests in the future, including expanded protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operations.
We also negotiate collective bargaining agreements every two years with our labor union and annually negotiate a wage agreement. Our current collective bargaining agreement expires on May 23, 2013. Although we have been able to reach collective bargaining agreements and wage agreements with our labor union in recent years, there can be no assurance that we will not experience labor disputes and unrests resulting from disagreements with the labor union in the future.
The Korean telecommunications and Internet protocol broadcasting industries are subject to extensive Government regulations, and changes in Government policy relating to these industries could have a material adverse effect on our operations and financial condition.
The Government, primarily through the Korea Communications Commission, has authority to regulate the telecommunications industry. The Korea Communications Commissions policy is to
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promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors.
Under current Government regulations, if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates service providers the rates and the general terms of which must be approved by the Korea Communications Commission. In recent years, the Korea Communications Commission has so designated us for local telephone service and SK Telecom for mobile service, and the Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us and SK Telecom for such services. In June 2011, SK Telecom announced tariff reduction measures, including a reduction of the monthly fee by (Won)1,000 for every subscriber, an exemption of usage charges for short text message service, or SMS, up to 50 messages per month and the introduction of flexible service plans for smartphone users. The Korea Communications Commission currently does not regulate our domestic long-distance, international long-distance, broadband internet access and mobile service rates, but the inability to freely set our local telephone service rates may hurt profits from such business and impede our ability to compete effectively against our competitors. See Item 4. Information on the CompanyItem 4.B. Business OverviewRegulationRates. The form of our standard agreement for providing local network service and each agreement for interconnection with other service providers are also subject to approval by the Korea Communications Commission.
The Government also sets the policies regarding the use of radio frequencies and allocates the spectrum of radio frequencies used for wireless telecommunications. On April 29, 2010, the Korea Communications Commission announced its decision to allocate 20 MHz of bandwidth in the 900 MHz spectrum to us, 20 MHz of bandwidth in the 800 MHz spectrum to LG U+ (consisting of 15 MHz of bandwidth that is scheduled to be relinquished by SK Telecom by the end of June 2011 following expiration of its license period and 5 MHz of currently unused bandwidth) and 20 MHz of bandwidth in the 2.1 GHz spectrum to SK Telecom, which SK Telecom began using in June 2010. New allocations of bandwidth to us and LG U+ will become effective on July 1, 2011. We expect to pay a portion of the actual sales generated from using the bandwidth in the 900 MHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales as determined by the Korea Communications Commission at the time of allocation. In June 2011, the Korea Communications Commission announced its plan to auction in August 2011 the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum that we are scheduled to relinquish at the end of June 2011, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. According to the plan, a maximum of 20 MHz of bandwidth may be sold to a single service provider, and SK Telecom and we are prohibited from bidding for the 20 MHz bandwidth in the 2.1 GHz spectrum. If we are allocated the bandwidths in the 800 MHz or the 1.8 GHz spectrums, we expect to pay usage fees for such bandwidths. The new allocations of bandwidth could increase competition among wireless service providers, which may have an adverse effect on our business.
We also plan to put more focus on the Internet protocol (or IP) media market, and we began offering IP-TV service on November 17, 2008. IP-TV is a service which combines video-on-demand services with real-time high definition broadcasting via broadband networks. The Korea Communications Commission has the authority to regulate the IP media market, including IP-TV services. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission, and anyone intending to engage in the broadcasting of certain contents must obtain additional approval of the Korea Communications Commission. In addition, KT Skylife Co. (formerly Korea Digital Satellite
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Broadcasting Co., Ltd.), which became our consolidated subsidiary starting in 2011, offers satellite TV services, which may also be packaged with our IP-TV services. KT Skylife is also subject to the regulation of the Korea Communications Commission pursuant to the Korea Broadcasting Act.
Government policies and regulations relating to the above as well as other regulations involving the Korean telecommunications and IP broadcasting industries (including as a result of the implementation of free trade agreements between Korea and other countries, including the United States and the European Union) may change, which could have a material adverse effect on our operations and financial condition. See Item 4. Information on the CompanyItem 4.B. Business OverviewRegulation.
We are subject to various regulations under the Monopoly Regulation and Fair Trade Act.
The Monopoly Regulation and Fair Trade Act provides for various regulations and restrictions on large business groups enforced by the Korea Fair Trade Commission. The Korea Fair Trade Commission initially designated us as a large business group under the Monopoly Regulation and Fair Trade Act on April 1, 2002. Our business relationships and transactions with our subsidiaries, affiliates and other companies within the KT Group are subject to ongoing scrutiny by the Fair Trade Commission as to, among other things, whether such relationships and transactions constitute undue financial support among companies of the same business group. We are also subject to the fair trade regulations limiting cross-guarantee of debt and cross-shareholdings among member companies of the same group. Any future determination by the Korea Fair Trade Commission that we have engaged in transactions that violate the fair trade laws and regulations may result in fines or other punitive measures and may have a material adverse effect on our reputation and our business.
Concerns that radio frequency emissions may be linked to various health concerns could adversely affect our business and we could be subject to litigation relating to these health concerns.
In the past, allegations that serious health risks may result from the use of wireless telecommunications devices or other transmission equipment have adversely affected share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on Cancer (IARC) announced that it has classified radiofrequency electromagnetic fields associated with wireless phone use as possibly carcinogenic to humans, based on an increased risk for glioma, a malignant type of brain cancer. The IARC is part of the World Health Organization that conducts research on the causes of human cancer and the mechanisms of carcinogenesis, and aims to develop scientific strategies for cancer control. We cannot assure you that such health concerns will not adversely affect our business. Several class action and personal injury lawsuits have been filed in the United States against several wireless phone manufacturers and carriers, asserting product liability, breach of warranty and other claims relating to radio transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could be subject to liability or incur significant costs defending lawsuits brought by our subscribers or other parties who claim to have been harmed by or as a result of our services. In addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on us by reducing our number of subscribers or our usage per subscriber.
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
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amount of Won required by us to make interest and principal payments on our foreign-currency-denominated debt, the costs of telecommunications equipment that we purchase from overseas sources, net settlement payments to foreign carriers and administrations and certain payments related to our derivative instruments entered into for foreign exchange risk hedging purposes. Of the (Won)7,248 billion total principal amount of long-term debt (excluding current portion) outstanding as of December 31, 2010, (Won)2,188 billion was denominated in foreign currencies with an average weighted interest rate of 4.70%. The interest rates of such long-term debt denominated in foreign currencies ranged from 0.77% (for US$100 million notes with a floating interest rate of three month London Interbank Offered Rate plus 0.47%) to 16.50% (for Uzbekistani Som 2,259,000 (approximately US$1.4 million) fixed rate notes issued by East Telecom, our subsidiary located in Uzbekistan). See Item 3. Key InformationItem 3.A. Select Financial DataExchange Rate Information, Item 5. Operating and Financial Review and ProspectsItem 5.B. Liquidity and Capital Resources and Item 11. Quantitative and Qualitative Disclosures About Market RiskInterest Rate Risk.
Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of the shares of our common stock on the KRX KOSPI Market and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the Dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Won on shares of common stock represented by the ADSs.
Risks Relating to Korea
Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.
Substantially all of our operations, customers and assets are located in Korea. Accordingly, the performance and successful fulfillment of our operational strategies are necessarily dependent on the overall Korean economy and the resulting impact on the demand for telecommunications services. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control.
The Korean economy is closely tied to, and is affected by developments in, the global economy. Recent difficulties affecting the U.S. and global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the U.S. and global economy have increased the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. Due to recent liquidity and credit concerns and volatility in the global financial markets, the value of the Won relative to the Dollar has also fluctuated significantly in recent years. Furthermore, as a result of adverse global and Korean economic conditions, there has been continuing volatility in the stock prices of Korean companies. While the rate of deterioration of the global economy slowed in the second half of 2009, with some signs of stabilization and improvement in 2010, the overall prospects for the Korean and global economy in 2011 and beyond remain uncertain. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.
Developments that could have an adverse impact on Koreas economy in the future include:
| difficulties in the housing and financial sectors in the United States and elsewhere and increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets; |
| declines in consumer confidence and a slowdown in consumer spending; |
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| adverse changes or volatility in foreign currency reserve levels, commodity prices, exchange rates (including fluctuation of the Dollar or Japanese Yen exchange rates or revaluation of the Chinese renminbi), interest rates, inflation rates or stock markets; |
| continuing adverse conditions 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; |
| increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers; |
| the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China); |
| the economic impact of any pending or future free trade agreements; |
| social and labor unrest; |
| substantial decreases in the market prices of Korean real estate; |
| a decrease in tax revenues and a substantial increase in the Korean governments expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased government budget deficit; |
| financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector; |
| loss of investor confidence arising from corporate accounting irregularities and corporate governance issues at certain Korean conglomerates; |
| geo-political uncertainty and risk of further attacks by terrorist groups around the world; |
| the occurrence of severe health epidemics in Korea and other parts of the world; |
| deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy; |
| political uncertainty or increasing strife among or within political parties in Korea; |
| hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the supply of oil or increase in the price of oil; |
| the occurrence of severe earthquakes, tsunamis and other natural disasters in Korea and other parts of the world, particularly in trading partners (such as the March 2011 earthquake in Japan, which also resulted in the release of radioactive materials from a nuclear plant that had been damaged by the earthquake); and |
| an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States. |
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Escalations in tensions with North Korea could have an adverse effect on us.
Relations between Korea and North Korea have been tense throughout Koreas modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Koreas nuclear weapons and long-range missile programs and increased uncertainty regarding North Koreas actions and possible responses from the international community. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since the renouncement, Korea, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North Koreas nuclear weapons program.
In addition to conducting test flights of long-range missiles, North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections worldwide. In May 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution in June 2009 that condemned North Korea for the nuclear test and decided to expand and tighten sanctions against North Korea. In March 2010, a Korean warship was destroyed by an underwater explosion, killing many of the crewmen on board. The government formally accused North Korea of causing the sinking in May 2010, and North Korea has denied responsibility for the sinking and has threatened retaliation for any attempt to punish it for the act. On November 23, 2010, North Korean forces fired more than one hundred artillery shells targeting Yeonpyeong Island located near the maritime border between Korea and North Korea on the west coast of the Korean peninsula, killing two Korean soldiers and two civilians as well as causing substantial property damage. Korea responded by firing approximately 80 artillery shells and putting the military on its highest alert level. The Government condemned North Korea for the act and vowed stern retaliation should there be further provocation.
In addition, there recently has been increased uncertainty with respect to the future of North Koreas political leadership and concern regarding its implications for political stability in the region. On September 28, 2010, Kim Jong-il, the North Korean ruler who reportedly suffered a stroke in August 2008, named Kim Jong-un, his third son who is reported to be in his twenties, as the vice chairperson of the Central Military Commission and the general of the North Korean army. Although Kim Jong-il has designated his son to be his successor, the implementation of the succession plan remains uncertain. North Koreas economy also faces severe challenges. In November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. Such developments may further aggravate social and political tensions within North Korea.
Reunification of the two Koreas could occur in the future. Reunification may entail a significant economic commitment by Korea. In President Lee Myung Baks national address on August 15, 2010, he suggested the possible adoption of a reunification tax in order to prepare for long-term economic burden associated with reunification. Such discussions on reunification are very preliminary, and it has not been decided whether or when such tax would be implemented. If a reunification tax is implemented, it may lead to a decrease in domestic consumption, which in turn may have a material adverse effect on the Korean economy. In addition, there can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in tension, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our business, financial condition and results of operations.
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Risks Relating to the Securities
If an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs.
Korean law currently limits foreign ownership of the ADSs and our shares. In addition, under our deposit agreement, the depositary bank cannot accept deposits of shares and deliver ADSs representing those shares unless (1) we have consented to such deposit or (2) Korean counsel has advised the depositary bank that the consent required under (1) is no longer required under Korean laws and regulations. Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. The depositary bank has informed us that, at a time it considers to be appropriate, the depositary bank plans to start accepting deposits of shares without our consent and to deliver ADSs representing those shares up to the amount allowed under current Korean laws and regulations. Until such time, however, the depositary bank will continue to obtain our consent for such deposits of shares and delivery of ADSs, which we may not provide. Consequently, if an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. See Item 10. Additional InformationItem 10.D. Exchange Controls.
A foreign investor may not be able to exercise voting rights with respect to common shares exceeding the number of common shares held by our largest domestic shareholder.
Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. Under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, such foreign shareholder may not be able to exercise voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.
Holders of ADSs will not be able to exercise dissenters 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 dissenters rights unless he has withdrawn the underlying common stock and become our direct shareholder. See Item 10. Additional InformationItem 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.
Korean GAAP differs in significant respects from accounting standards applicable in certain other countries, including U.S. GAAP and the International Financial Reporting Standards.
Our financial statements included in this annual report are prepared in accordance with Korean GAAP and reconciled to U.S. GAAP. Korean GAAP differs in significant respects from accounting standards applicable in certain other countries, including U.S. GAAP. See Item 5. Operating and Financial Review and ProspectsItem 5.B. Liquidity and Capital ResourcesU.S. GAAP Reconciliation and Recent Accounting Pronouncements in U.S. GAAP and Note 38 to Consolidated Financial Statements.
In March 2007, the Financial Services Commission and the Korea Accounting Institute announced a road map for the adoption of the Korean equivalent of International Financial Reporting Standards (Korean IFRS), pursuant to which all listed companies in Korea, including us, will be required to prepare their annual financial statements beginning in 2011 that differ in certain respects from International Financial Reporting Standards (IFRS) applied in other countries.
In preparation of such adoption, we began preparing our internal financial statements under both Korean GAAP and Korean IFRS starting in January 2010. Beginning in 2011, we have discontinued reporting under Korean GAAP with reconciliation to U.S. GAAP and instead have commenced reporting under Korean IFRS and we also plan to release annual financial statements prepared pursuant to IFRS as issued by the International Accounting Standards Board, or IASB. Although our accounting department is currently analyzing the effects of adopting IFRS on our annual financial statements, it is not possible to estimate with any degree of certainty the exact impact on our annual financial statements from such adoption because the IFRS accounting policies to be adopted by us for such financial statements have not been finalized. Accordingly, there can be no assurance that the adoption of IFRS will not adversely affect our reporting results of operations or financial condition.
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Forward-looking statements may prove to be inaccurate.
This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as anticipate, believe, estimate, expect, intend, project, should, and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.
Item 4. Information on the Company
Item 4.A. History and Development of the Company
In 1981, the Government established us under the Korea Telecom Act to operate the telecommunications services business that it previously directly operated. Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act, the Government exercised substantial control over our business and affairs. Effective October 1, 1997, the Korea Telecom Act was repealed and the Government-Invested Enterprises Management Basic Act became inapplicable to us. As a result, we became a corporation under the Commercial Code, and our corporate organization and shareholders rights were governed by the Privatization Law and the Commercial Code. Among other things, we began to exercise greater autonomy in setting our annual budget and making investments in the telecommunications industry, and our shareholders began electing our directors, who used to be appointed by the Government under the Korea Telecom Act.
Prior to 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, and the Privatization Law ceased to apply to us in August 2002. We amended our legal name from Korea Telecom Corp. to KT Corporation in March 2002.
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 1990s. As a result, including ourselves, there are currently three local telephone service providers, five domestic long-distance carriers and numerous international long-distance carriers (including voice resellers) in Korea. In addition, the Government awarded licenses to several service providers to promote competition in other telecommunications business areas such as mobile telephone services and data network services. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. See Item 4.B. Business OverviewCompetition.
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Our legal and commercial name is KT Corporation. Our principal executive offices are located at 206 Jungja-dong, Bundang-ku, Sungnam, Gyunggi-do, Korea, and our telephone number is (8231) 727-0114.
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:
| mobile telecommunications services; |
| telephone services, including local, domestic long-distance and international long-distance fixed-line and VoIP telephone services and interconnection services to other telecommunications companies; |
| broadband Internet access service and other Internet-related services, including IP-TV services; and |
| various other services, including leased line service and other data communication service, satellite service and information technology and network services such as cloud computing services. |
Leveraging on our dominant position in the fixed-line telephone services market and our established customer base in Korea, we have successfully pursued new growth opportunities during the past decade and obtained strong market positions in each of our principal lines of business. In particular:
| in the mobile services market in Korea, we achieved a market share of 31.6% with approximately 16.0 million subscribers as of December 31, 2010; |
| in the fixed-line telephone services market in Korea, we continue to be the dominant provider with approximately 25.5 million installed lines, of which 16.6 million lines were in service as of December 31, 2010. As of such date, our market share of the local market was 86.3% and our market share of the domestic long-distance market was 82.2%; |
| we are Koreas largest broadband Internet access provider with 7.4 million subscribers as of December 31, 2010, representing a market share of 43.1%; and |
| we are also the leading provider of data communication services in Korea. |
For the year ended December 31, 2010, under Korean GAAP, our operating revenues were (Won)21,331 billion, our net income was (Won)1,193 billion and our basic net income per share was (Won)4,803. As of December 31, 2010, our total shareholders equity was (Won)11,496 billion.
Business Strategy
We believe the telecommunications market in Korea will continue to expand due to Koreas growing economy, consumers willingness to adopt new technologies, relatively high income and a relatively large middle class. In order to enhance the management efficiencies of our mobile and fixed-line telecommunications operations as well as more effectively respond to the convergence trends in the telecommunications industry, KTF merged into KT Corporation on June 1, 2009, with
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KT Corporation surviving the merger. We also restructured our organization into three sub-groups, the Home Customer Group, the Personal Customer Group and the Enterprise Customer Group, so that we may more effectively address differing needs of our customer segments. Consistent with our strategic objectives, we aim to pursue growth through the following four core areas:
| Home Customer Group. We aim to offer a one-stop-shop that satisfies various information technology and telecommunications needs of a household. In 2010, we launched a new brand olleh to promote our bundled products, which include broadband Internet access service, IP-TV service, Internet phone service and fixed-line telephone service. We aim to differentiate ourselves from our competitors by providing broadband Internet access service using high-speed fiber-to-the-home (or FTTH) connection and offering Internet phone service with value-added features such as video communication, short message service and phone banking. We also began offering real-time broadcasting service on our IP-TV service starting in November 2008. |
| Personal Customer Group. Our Personal Customer Group focuses on expanding our wireless data communication business to meet the rising demand for broadband Internet access using advanced wireless data communications devices such as smart phones. We are working closely with handset manufacturers to expand our offerings of smart phones and handsets designed to promote convergence of fixed-line and mobile telecommunications services, as well as promote development of various applications for such devices. In line with this strategy, we began offering Apples iPhone for the first time in Korea on November 28, 2009 and have expanded our offerings of smart phones from other mobile handset manufacturers. We believe that our WiBro network, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices, as well as our extensive wireless LAN networks installed nationwide, enable our subscribers to maximize effective usage of their smart phones. We plan to take advantage of our industry-leading network infrastructure to attract more customers as this market further develops. In addition, we aim to further enhance our position in the mobile telecommunications market by leveraging on our strong brand, nationwide marketing network, competitive data usage rates, call centers dedicated to smart phone users, creative marketing strategies that address our potential customers needs and ability to bundle various mobile and fixed-line services. We also plan to further expand our contents and applications for smart phone users and mobile data users by cooperating with application developers in Korea and abroad, in order to further solidify our position as a leader in the convergence market. |
| Enterprise Customer Group. We aim to provide our corporate customers, small- and medium-sized enterprises and government agencies with one-stop solution services including designing data communications and information technology infrastructure to overseeing their day-to-day operations with the objective of achieving operational efficiencies and cost savings. We provide solutions specifically tailored for individual clients, as well as Internet-based computing services, whereby shared resources, software and information are delivered from our data centers and servers. For example, we designed an urban transit infrastructure maintenance system for the Seoul Metropolitan Rapid Transit Corporation, in which workers are able to utilize their smart phones to report back their maintenance results to the headquarters remotely from the maintenance site. Leveraging our extensive customer base, we plan to further expand the range of innovative solutions for our enterprise customers. |
| Convergence. We believe that convergence of fixed-line and mobile communications technologies provides a competitive advantage to us because we have the technological |
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know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform more readily available to others so that they may create additional contents and convenience solutions such as electronic commerce and digital transaction applications that can be utilized anywhere using various media and communications devices. |
The Telecommunications Industry in Korea
The Korean telecommunications industry is one of the most developed in Asia. According to the Korea Communications Commission, the number of mobile subscribers in Korea was 50.8 million and the number of broadband Internet access subscribers in Korea was 17.2 million as of December 31, 2010. As of December 31, 2010, the mobile penetration rate, which is calculated by dividing the number of mobile subscribers (including multiple counting of those who subscribe to more than one mobile service) by the population of Korea, was 103.9%, and the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscribers (including multiple counting of those who subscribe to more than one broadband Internet access service) by the number of households in Korea, was 100.4%.
Mobile Telecommunications Service Market
The Korean cellular market was formally established in 1984 when SK Telecom, formerly Korea Mobile Telecom, became the first mobile telephone operator in Korea. SK Telecom remained the only cellular operator in Korea until Shinsegi Telecom began service in 1994. In order to encourage further market growth and competition, the Ministry of Information and Communication awarded three PCS licenses in June 1996. KTF was awarded a license alongside LG U+ and Hansol M.com, and 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 Telecoms purchase of a controlling stake in Shinsegi, we acquired a 47.9% interest in Hansol M.com in 2000 and renamed the company KT M.com. KT M.com merged into KTF in May 2001 and Shinsegi merged into SK Telecom in January 2002. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. KT Corporation, SK Telecom and LG U+ have invested in networks compatible with Evolution-Data Optimized (or EV-DO) handsets that allow subscribers to enjoy 2.5 generation high speed wireless data services. KT Corporation and SK Telecom also offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia communications services that use significantly greater bandwidth capacity.
The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated:
As of December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Total Korean Population (1) |
48,378 | 48,457 | 48,607 | 48,747 | 48,875 | |||||||||||||||
Mobile Subscribers (2) |
40,197 | 43,498 | 45,607 | 47,944 | 50,767 | |||||||||||||||
Mobile Subscriber Growth Rate |
4.8 | % | 8.2 | % | 4.9 | % | 5.1 | % | 5.9 | % | ||||||||||
Mobile Penetration (3) |
83.1 | % | 89.8 | % | 93.8 | % | 98.4 | % | 103.9 | % |
(1) | In thousands, based on population trend estimates by the National Statistical Office of Korea. |
(2) | In thousands, based on information announced by the Korea Communications Commission. |
(3) | Penetration is determined by dividing mobile subscribers by total Korean population. |
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Broadband Internet Access Market
With the advancement of broadband technology, the Korean broadband Internet access market has experienced significant growth. The principal technologies used in providing high speed Internet access services are xDSL, HFC and fiber optic LAN. xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. xDSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. Fiber optic LAN is a technology that combines fiber optic cables and Unshielded Twisted Pair (or UTP) cables. Fiber optic cables are connected to residential and commercial buildings with UTP cable-based LAN capabilities. While xDSL and HFC are more widely used technologies because of their relative reliability, ease of provisioning and cost effectiveness, fiber optic LAN usage in Korea has been steadily increasing in recent years.
Since the subscribers of two-way cable networks share a limited bandwidth, the downstream speed tends to slow down as the number of subscribers increases, thereby decreasing the quality of HFC-based service. While xDSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent broadband access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in 2002. Some of the service providers have upgraded their broadband network to provide fiber optic LAN-based service to their subscribers, which further enhances data transmission speed up to 100 Mbps as well as improves connection quality, and enables such service providers to offer video-on-demand services with real-time high definition broadcasting.
In recent years, broadband Internet access service providers and mobile telecommunications service providers have focused their attention to provide wireless Internet connection capabilities. They have introduced wireless LAN service with speeds of up to 155 Mbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops, PDAs and smart phones in hot-spot zones and at home. Some service providers have also developed wireless Internet networks to provide WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 3 Mbps.
Our Services
Mobile Service
We provide mobile services based on CDMA technology and W-CDMA technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a consolidated subsidiary. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. KTF obtained one of the three licenses to provide nationwide PCS service in June 1996 and began offering PCS service in October 1997. PCS service is a digital wireless telephone and data transmission system based on CDMA wireless network standards that uses portable handsets with long battery life to communicate via low-power antennae. KTF also began offering HSDPA-based IMT-2000 services, which are third-generation, high-capacity wireless Internet and video multimedia communications services based on W-CDMA wireless network standards that allow an operator to provide to its subscribers significantly more bandwidth capacity.
We have been providing our 2G PCS services based on CDMA wireless network standards through our 40 MHz bandwidth in the 1.8 GHz spectrum, which allocation is scheduled to terminate at the end of June 2011. As part of our decision to apply for reallocation, we have applied to the Korea
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Communications Commission to terminate our existing 2G PCS services, which we expect to be able to terminate in the second half of 2011. Accordingly, our existing 2G PCS subscribers must either convert to our W-CDMA services or switch to other telecommunications companies. As of December 31, 2010, there were 1,393 thousand subscribers of our 2G PCS services. We are offering benefits such as substantial discounts on W-CDMA-compatible handsets and monthly subscription fees to encourage our existing subscribers to switch to our W-CDMA services.
Revenues related to mobile service accounted for 33.2% of our operating revenues in 2010. In addition, our goods sold, which are primarily from mobile handset sales, accounted for 20.6% of our operating revenues in 2010. The following table shows selected information concerning the usage of our network during the periods indicated and the number of our subscribers as of the end of such periods:
As of or for the Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Outgoing Minutes (in millions) (1) |
28,960 | 30,714 | 34,570 | |||||||||
Average Monthly Outgoing Minutes per Subscriber (1) (2) |
168 | 173 | 184 | |||||||||
Average Monthly Revenue per Subscriber (1) (3) |
(Won) | 39,487 | (Won) | 36,241 | (Won) | 36,801 | ||||||
Number of Subscribers (in thousands) |
14,365 | 15,016 | 16,041 |
(1) | Prior to the merger of KTF into KT Corporation on June 1, 2009, we maintained an air-time reselling arrangement with KTF where we billed directly to our resale subscribers for their usage of KTFs mobile networks and collected all fees and charges relating to such usage. Such amounts related to resale subscribers are not included in our calculation of outgoing minutes and average monthly outgoing minutes and revenue per subscriber in 2008. In 2009 and 2010, we have included such amounts related to resale subscribers in these calculations. |
(2) | The average monthly outgoing minutes per subscriber is computed by dividing the total minutes of usage for the period by the weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The weighted average number of subscribers is the sum of the total number of subscribers at the end of each month divided by the number of months in the period. |
(3) | The average monthly revenue per subscriber is computed by dividing initial activation fees, total monthly fees, usage charges, interconnection fees and value-added service fees for the period by the weighted average number of subscribers and dividing the quotient by the number of months in the period. |
We compete with SK Telecom, a mobile service provider that has a longer operating history than us, and LG U+ that began its service at around the same time as KTF. As of December 31, 2010, we had approximately 16.0 million subscribers, which was second largest among the three mobile service providers. As of December 31, 2010, we had a market share of 31.6% of the mobile service market.
We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2010, there were approximately 2,200 shops managed by our independent exclusive dealers. In addition to assisting new subscribers to activate mobile service and purchase handsets, authorized dealers are connected to our database and are able to assist customers with account information. Although most of these dealers sell exclusively our products and services, sub-dealers hired by exclusive dealers may sell products and services offered by other mobile telecommunications service providers. Authorized dealers are entitled to a commission for each new subscriber registered, as well as ongoing commissions for the first five years based primarily on the subscribers monthly fee, usage charges and length of subscription. The handsets sold by us to the dealers cannot be returned to us unless they are defective. If a handset is defective, it may be exchanged for a new one within 14 days from the date of purchase.
In response to the diversification of our customers demands and their increasing sophistication, we have also selectively engaged in opportunities to expand our internal sales channels in recent years. In 2007, we established a wholly-owned subsidiary, KT M&S Co., Ltd., that operates
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approximately 140 customer plazas that engage in mobile service sales activities as well as provide a one-stop shop for a wide range of other services and products that we offer. We also operate a website to promote and advertise our products and services to the general public and in particular to younger customers who are more familiar with the Internet.
We conduct the screening process for new subscribers with great caution. A potential subscriber must meet all minimum credit criteria before receiving mobile service. The procedure includes checking the history of non-payment and credit information from banks and credit agencies such as the National Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the mobile service by using a pre-paid card.
Telephone Services
Fixed-line Telephone Services. We utilize our extensive nationwide telephone network to provide fixed-line telephone services, which consist of local, domestic long-distance, international long-distance services and land-to-mobile interconnection services. These fixed-line telephone services accounted for 20.1% of our operating revenues in 2010. 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, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Total Korean population (thousands) (1) |
48,378 | 48,457 | 48,607 | 48,747 | 48,875 | |||||||||||||||
Lines installed (thousands) (2) |
26,838 | 26,671 | 26,008 | 25,907 | 25,524 | |||||||||||||||
Lines in service (thousands) (2) |
20,331 | 19,980 | 18,883 | 17,069 | 16,620 | |||||||||||||||
Lines in service per 100 inhabitants (3) |
42.0 | 41.2 | 38.8 | 35.0 | 34.0 | |||||||||||||||
Fiber optic cable (kilometers) |
212,715 | 267,421 | 312,232 | 405,528 | 448,328 | |||||||||||||||
Number of public telephones installed (thousands) |
218 | 185 | 161 | 144 | 123 | |||||||||||||||
Domestic long-distance call minutes (millions) (4) (5) |
14,769 | 13,375 | 11,591 | 9,526 | 7,318 | |||||||||||||||
Local call pulses (millions) (4) |
16,182 | 14,676 | 12,449 | 8,406 | 7,973 |
(1) | Based on population trend estimates by the National Statistical Office of Korea. |
(2) | Including lines used for public telephones but excluding lines dedicated to centralized extension system services for corporate subscribers. |
(3) | Determined based on lines in service and total Korean population. |
(4) | Excluding calls placed from public telephones. |
(5) | Estimated by KT Corporation. |
Our domestic long-distance cable network is entirely made up of fiber optic cable and can carry both voice and data transmissions. Compared to conventional materials such as coaxial cable, fiber optic cable provides significantly greater transmission capacity with less signal fading, thus requiring less frequent amplification. In recent years, we have also increased the proportion of our lines that are connected to exchanges capable of handling digital signal technology. A principal limitation of the older analog technology is that applications other than voice communications, such as the transmission of text and computer data, require either separate networks or conversion equipment. Digital systems permit a range of voice, text and data applications to be transmitted simultaneously on the same network. We completed connection of all installed lines to digital exchanges in June 2003.
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The following table shows the number of minutes of international long-distance calls recorded by us and specific service providers utilizing our international long-distance network in each specified category for each year in the five-year period ended December 31, 2010:
Year Ended December 31, | ||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
(In millions of billed minutes) | ||||||||||||||||||||
Incoming international long-distance calls |
519.4 | 627.4 | 603.7 | 442.2 | 523.5 | |||||||||||||||
Outgoing international long-distance calls |
400.9 | 431.4 | 398.1 | 325.9 | 325.1 | |||||||||||||||
Total |
920.3 | 1,058.8 | 1,001.8 | 768.1 | 848.7 | |||||||||||||||
China (18.5%), United States (17.0%) and Japan (16.8%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2010. In recent years, the volume of our incoming calls exceeded the volume of our outgoing calls. The agreed settlement rate is applied to the call minutes to determine the applicable net settlement payment.
Interconnection. Under the Telecommunications Business Act, we are required to permit other service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include SK Broadband and LG U+ (offering local, domestic long-distance and international long-distance services), Onse and SK Telink (offering international and domestic long-distance services), and SK Telecom and LG U+ (transmitting calls to and from their mobile networks). We expect that interconnection revenues and payments will remain important for our results of operations. In recent years, revenues from a landline user for a call initiated by a landline user to a mobile service subscriber (land-to-mobile interconnection) have become a significant portion of our results of operations, accounting for 4.5% of our operating revenues in 2010. We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as an expense the amount of interconnection charge paid to the mobile service provider.
Internet phone services. The volume of calls made through Internet phone services has significantly increased since Internet phone service was first introduced in Korea in 1998. We provide Internet phone services that enable VoIP phone devices with broadband connection to make domestic and international calls. In order to differentiate our Internet phone services from our competitors services, we provide value-added services such as video communication, short message service, phone banking and a variety of traffic and local news information. As of December 31, 2010, we had approximately 2.7 million subscribers.
Internet Services
Broadband Internet Access Service. Leveraging on our nationwide network of 448,328 kilometers of fiber optic cable network, we have achieved a leading market position in the broadband Internet access market in Korea. We believe we have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we can utilize our existing networks nationwide to provide broadband Internet access service. Our broadband Internet access service accounted for 9.1% of our operating revenues in 2010. Our principal Internet access services include:
| ADSL, VDSL, Ethernet and FTTH services under the olleh Internet brand name; |
| wireless LAN service under the ollehWiFi brand name, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops, PDAs and smart phones in hot-spot zones and olleh Internet service in fixed-line environments. OllehWiFi enables subscribers to access the Internet at up to 155 Mbps. We sponsored approximately 42,000 hot-spot zones nationwide for wireless connection as of December 31, 2010; and |
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| WiBro Internet access service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 3 Mbps per user. |
We had 7.4 million fixed-line olleh Internet subscribers and approximately 266 thousand ollehWiFi service subscribers as of December 31, 2010. We commercially launched our WiBro service in June 2006, and we had approximately 377 thousand subscribers as of December 31, 2010. We also bundle our WiBro service with olleh Internet and ollehWiFi services at a discount in order to attract additional subscribers.
Our olleh Internet service utilizes ADSL technology, which is a technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. ADSL transforms the existing public telephone network from one limited to voice, text and low-resolution graphics to a system capable of bringing multimedia to subscriber premises without new cabling. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading information from the Internet. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. We are currently upgrading our broadband network to enable FTTH connection, which further enhances downstream speed up to 100 Mbps and connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content.
The high-speed downstream rates can reach up to 8 Mbps for ADSL and 100 Mbps for VDSL and FTTH. Downstream rates depend on a number of factors. For a constant wire gauge, the data rate decreases as the length of the copper wire increases. Generally, if the separation between the telephone office and the subscriber is greater than four kilometers, line attenuation is so severe that broadband speeds can no longer be achieved. Approximately 95% of the households subscribing to our basic local telephone service are located within a four kilometer radius of our telephone offices, making our olleh Internet service available to most of the Korean population. Fiber-optic cable used by FTTH, on the other hand, uses laser light to carry signals that travel long distances inside fiber optic cable without degradation.
Other Internet-related Services. Our other Internet-related services focus primarily on providing infrastructure and solutions for business enterprises, as well as IP-TV and network portal services. Our other Internet-related services accounted for 2.9% of our operating revenues in 2010.
We operate seven Internet data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storages and leased lines. Internet data centers are facilities used to house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data. Our Internet data centers are designed to meet international standards, and are equipped with temperature control systems, regulated and reliable power supplies, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the Internet. Internet data centers allow corporations or Internet service providers to outsource their application and server hardware management.
Our Internet data centers offer network outsourcing services, server operation services and system support services. Our network outsourcing services include co-location, which is the installation of our customers network equipment at our Internet data centers. Co-location is designed to increase
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customers Internet connection speed and reduce connection time and costs by directly connecting the customers server to the Internet backbone switch at our Internet data centers. Our server operation services include optimal server management service and technical support service we provide with respect to the leased servers that are linked directly to our Internet backbone switch. We also lease servers and network equipment for a fixed monthly fee. Our system support services include providing system resources for a wide range of Internet computing services, such as application transfer, network storage, video streaming and application download, as well as sending short text messages and messages containing multimedia objects, such as images, audio and video.
We also offer a service called Bizmeka to develop and commercialize business-to-business solutions targeting small- and medium-sized business enterprises in Korea. Bizmeka is an applied application service provider which provides industry-specific business solutions, including customer database management and electronic data interchange.
We also offer high definition video-on-demand and real-time broadcasting IP-TV services under the brand name olleh TV. Our IP-TV service offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee. Through a digital set-top box that we rent to our customers, our customers are able to browse the catalog of digital media contents and view selected media streams on their television. A set-top box provides two-way communications on an IP network and decodes video streaming data. We expanded our IP-TV service to include real-time broadcasting on November 17, 2008. We had 2.4 million olleh TV subscribers as of March 31, 2011.
Data Communication Service
Our data communication service involves offering exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. As of December 31, 2008, 2009 and 2010, we leased 374,570 lines, 366,191 lines and 303,009 lines to domestic and international businesses. The data communication service accounted for 6.1% of our operating revenues in 2010.
We provide dedicated and secure broadband Internet connection service to institutional customers under the Kornet brand name. We provide high-speed connection up to 4.2 Tbps, as well as rent to our customers and install necessary routers to ensure reliable Internet connection and enhanced security. We provide discount rates to qualified customers, including small- and medium-sized enterprises, businesses engaging in Internet access services and government agencies.
We currently operate three satellites, Koreasat 3, Koreasat 5 and Koreasat 6. We launched Koreasat 3 in September 1999. The design life of Koreasat 3 is twelve years, and it will be used to back up the broadcasting services of Koreasat 6 until the end of its fuel life.
We launched Koreasat 5 in August 2006, which replaced Koreasat 2. Koreasat 5, a combined civil and governmental communications satellite, is the first Korean satellite to provide commercial satellite services to neighboring countries, and the service coverage area includes Korea, Japan, Taiwan, the Philippines, the eastern part of China and the far-eastern part of Russia. The design life of Koreasat 5 is fifteen years.
We launched Koreasat 6 (also known as olleh 1) in December 2010 to replace Koreasat 3. The design life of Koreasat 6 is fifteen years. Koreasat 6 began its commercial operation in February 2011 and carries transponders that are used for direct-to-home satellite broadcasting, video distributions and data communications services. Most of the direct-to-home satellite broadcasting transponders are utilized by KT Skylife Co. We also lease satellite capacity from other satellite operators to offer commercial satellite services to both domestic and international customers.
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Miscellaneous Services
We also engage in various business activities that extend beyond telephone services and data communications services, including information technology and network services, real estate development and car rental business. Our miscellaneous services accounted for 8.0% of our operating revenues for 2010.
We offer a broad array of integrated information technology and network services to our business customers. Our range of services include consulting, designing, building and maintaining systems and communication networks that satisfy the individual needs of our customers in the public and private sectors.
We own land and real estate in various locations nationwide. Technological developments have enhanced the coverage area of individual telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings. In recent years, we have engaged in the planning and development of commercial and office buildings and condominiums on our unused sites, as well as in the leasing of buildings we own. We established KT Estate Inc. in August 2010 to oversee the planning, development and operation of our real estate assets.
We also operate KT Rental, a subsidiary that provides rental cars and equipment. In March 2010, MBK Partners, a private equity firm, and we jointly acquired Kumho Rent-A-Car Co., Ltd. from Korea Express Inc. for (Won)245 billion, with each taking a 50% stake. Kumho Rent-A-Car was subsequently merged with the car rental business unit of KT Rental on June 1, 2010. KT Rental operated approximately 58,800 vehicles as of December 31, 2010 and has a market share of 22.8% of the domestic car rental market in 2010.
Revenues and Rates
The table below shows the percentage of our revenues derived from each category of services for each of the years from 2008 through 2010:
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Mobile services |
32.8 | % | 33.8 | % | 33.2 | % | ||||||
Fixed-line telephone services: |
||||||||||||
Local service |
14.1 | 13.6 | 12.0 | |||||||||
Non-refundable service initiation fees |
0.1 | 0.1 | 0.1 | |||||||||
Domestic long-distance service |
3.0 | 2.4 | 1.8 | |||||||||
International long-distance service |
2.3 | 2.0 | 1.7 | |||||||||
Land-to-mobile interconnection |
7.1 | 5.8 | 4.5 | |||||||||
Sub-total |
26.6 | 23.9 | 20.1 | |||||||||
Internet services: |
||||||||||||
Broadband Internet access service |
10.4 | 9.9 | 9.1 | |||||||||
Other Internet-related services (1) |
2.2 | 2.6 | 2.9 | |||||||||
Sub-total |
12.6 | 12.5 | 12.0 | |||||||||
Goods sold (2) |
15.7 | 17.3 | 20.6 | |||||||||
Data communications service (3) |
6.8 | 6.7 | 6.1 | |||||||||
Miscellaneous services (4) |
5.5 | 5.8 | 8.0 | |||||||||
Operating revenues |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
(1) | Includes revenues from services provided by our Internet data centers, Bizmeka and olleh TV. |
(2) | Includes mobile handset sales. |
(3) | Includes revenues from Kornet Internet connection service and satellite services. |
(4) | Includes revenues from information technology and network services, real estate development and car rental business. |
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Mobile Services
We derive revenues from mobile services principally from:
| initial subscription fees; |
| monthly fees; |
| usage charges for outgoing calls; |
| usage charges for wireless data transmission; |
| contents download fees; and |
| value-added monthly service fees. |
We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. In September 2009, we reduced our initial subscription fee for new subscribers by 20% from (Won)30,000 to (Won)24,000. For our HSDPA-based service, we also charge monthly fees, voice calling usage charges and video calling usage charges. Under our standard rate plan for HSDPA-based service, we charge a monthly fee of (Won)12,000, voice calling usage charges of (Won)1.8 per second and video calling usage charges of (Won)3 per second. The following table summarizes charges for our representative HSDPA-based service plans:
Free Voice Call Airtime Minutes |
Free Video Call Airtime Minutes |
Monthly Fee | ||||||||||
Standard Plan |
0 | 0 | (Won) | 12,000 | ||||||||
SHOW KING Sponsor GoldFree 150 (1) |
150 | 15 | 28,500 | |||||||||
SHOW KING Sponsor GoldFree 250 (1) |
250 | 0 | 35,000 | |||||||||
SHOW KING Sponsor GoldComplete Freedom 150 (1) (2) |
150 | 15 | 37,000 | |||||||||
SHOW KING Sponsor GoldFree 350 (1) |
350 | 0 | 45,000 | |||||||||
SHOW KING Sponsor GoldFree 450 (1) |
450 | 0 | 55,000 | |||||||||
SHOW KING Sponsor GoldFree 650 (1) |
650 | 0 | 67,000 | |||||||||
SHOW KING Sponsor GoldFree 850 (1) |
850 | 0 | 75,000 | |||||||||
SHOW KING Sponsor GoldFree 2000 (1) |
2,000 | (3) | 0 | 97,000 |
(1) | Requires mandatory subscription period of 24 months. |
(2) | Includes free unlimited data usage service. |
(3) | Unlimited voice call airtime minutes for calls made to our subscribers. |
A subscriber may also subscribe to an individually designed calling rate plan by mixing free voice calling airtime minutes and free text messages at a set monthly fee.
For our PCS service, we charge monthly fees and usage charges. Under our standard rate plan for PCS service, we charge a monthly fee of (Won)12,500 and usage charges of (Won)1.8 per second, and the subscriber is provided with five free minutes. The following table summarizes charges for our representative PCS service plans:
Free Airtime Minutes |
Free Text Messages |
Monthly Fee | ||||||||||
Standard |
5 | 0 | (Won) | 12,500 | ||||||||
New Double Designated Numbers (1) |
0 | 50 | 15,500 | |||||||||
Roll Over (Free 200 Minutes) (2) |
200 | 0 | 31,500 | |||||||||
Roll Over (Free 550 Minutes) (2) |
550 | 0 | 61,000 | |||||||||
Roll Over (Free 800 Minutes) (2) |
800 | 0 | 71,000 |
(1) | Discounts of 40% when a subscriber makes calls to up to six pre-designated numbers. |
(2) | Unused free airtime may be transferred to the following month. |
27
We also provide plans specially designed for elderly and pre-teen subscribers as well as special discounts to our subscribers with physical disabilities.
In September 2009, we also introduced new rate plans specifically for smart phone users. The following table summarizes charges for our representative smart phone service plans:
Free Airtime Minutes |
Free
Data Transmission (1) |
Monthly Fee | ||||||||||
SHOW Smart Sponsor Free 150 (2) |
150 | 0 megabytes | (Won) | 28,500 | ||||||||
SHOW Smart Sponsor Free 250 (2) |
250 | 0 | 35,000 | |||||||||
SHOW Smart Sponsor Free 350 (2) |
350 | 0 | 45,000 | |||||||||
SHOW Smart Sponsor Free 450 (2) |
450 | 0 | 55,000 | |||||||||
SHOW Smart Sponsor Free 650 (2) |
650 | 0 | 67,000 | |||||||||
SHOW Smart Sponsor Free 850 (2) |
850 | 0 | 75,000 | |||||||||
SHOW KING Sponsor iSlim (3) |
150 | 100 | 35,000 | |||||||||
SHOW KING Sponsor iLite (3) |
200 | 500 | 45,000 | |||||||||
SHOW KING Sponsor iTalk (3) |
250 | 100 | 45,000 | |||||||||
SHOW KING Sponsor iValue (3) |
300 | Unlimited | 55,000 | |||||||||
SHOW KING Sponsor iMedium (3) |
400 | Unlimited | 65,000 | |||||||||
SHOW KING Sponsor iSpecial (3) |
600 | Unlimited | 79,000 | |||||||||
SHOW KING Sponsor iPremium (3) |
800 | Unlimited | 95,000 |
(1) | We do not charge for any data transmission in wireless LAN zones. We charge W0.025 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota. |
(2) | Available only to smart phone users who do not use Apple iPhones. We provide discounts of up to 36.7% for mandatory subscription periods ranging from one to three years. |
(3) | We provide discounts of up to 38.2% for mandatory subscription periods ranging from one to three years. |
We have entered into arrangements with various partners including a leading discount store, a leading online shopping mall, a cosmetics company, oil refinery companies, an operator of cinema complexes, a leading motor company and Korea Railroad Corporation, and we offer subscribers of our mobile service monthly discount coupons, membership points or movie tickets from such partners as promotional gifts.
In December 2010, we also introduced data-only plans targeting tablet PC users, smart-phone users and other special phone users, offering subscription plans for data transmission amounts ranging from 100MB to 4GB at monthly fees ranging from (Won)5,000 to (Won)35,000.
Fixed-line Telephone Services
Local Telephone Service. Our revenues from local telephone service consist primarily of:
| Service initiation fees for new lines; |
| Monthly basic charges; and |
| Monthly usage charges based on the number of call pulses. |
All calls are currently measured by call pulses. Each pulse is determined by the duration of the call and the time of the day at which the call is made. For instance, during regular service hours, a call pulse is triggered at the beginning of each local telephone call and every three minutes thereafter.
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The rates we charge for local calls are currently subject to approval by the Korea Communications Commission after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. The following table summarizes our local usage rates as of each date on which rates were revised:
Dec 1, 1996 | Sept 1, 1997 | April 15, 2001 | May 1, 2002 | |||||||||||||
Local Usage Charges (per pulse) (1) |
||||||||||||||||
Regular service |
(Won) | 41.6 | (Won) | 45 | (Won) | 39 | (Won) | 39 | ||||||||
Public telephone |
40 | 50 | 50 | 70 |
(1) | Since January 1, 1990, usage charges for local service in those metropolitan areas subject to measured service have been based on the number of pulses, which are a function of the duration and number of calls, and per pulse rates. Before January 1, 1993, in areas not subject to measured service, a pulse was triggered once for each local telephone call, regardless of the length of the call. Commencing January 1, 1993, measured service applies to all lines in service. A pulse is triggered at the beginning of each local call and every three minutes thereafter from 8:00 a.m. to 9:00 p.m. on weekdays and every 258 seconds thereafter on holidays and from 9:00 p.m. to 8:00 a.m. on weekdays. |
We also charge a monthly basic charge ranging from (Won)3,000 to (Won)5,200, depending on location, and a non-refundable service initiation fee of (Won)60,000 to new subscribers. The non-refundable service initiation fee is waived for the new subscribers who subscribe to our local service through our online application process. Until April 2001, we charged refundable service initiation deposits, which were refunded upon termination of service. As of December 31, 2010, we had (Won)616 billion of refundable service initiation deposits outstanding and 2,738 thousand subscribers who are enrolled under the mandatory deposit plan and are eligible to switch to the no deposit plan and receive their service initiation deposit back (less the non-refundable service initial fees).
Domestic Long-distance Telephone Service. Our revenues from domestic long-distance service consist of charges for calls placed, charged for the duration, time of day and day of the week a call is placed, and the distance covered by the call. We are able to set our own rates for domestic long-distance service without approval from the Korea Communications Commission.
The following table summarizes our domestic long-distance rates as of each date on which rates were revised. These charges do not reflect discounts applicable to calls made during off-peak hours or holidays.
Date of Rate Change (1) | ||||||||||||||||||||
Dec. 1, 1996 | Sept. 1, 1997 | Dec. 1, 2000 | April 15, 2001 | Nov. 1, 2001 | ||||||||||||||||
Domestic Long-Distance Charges (per three minutes) (1) (2) |
||||||||||||||||||||
Up to 30 km |
(Won) | 41.6 | (Won) | 45 | (Won) | 45 | (Won) | 39 | (Won) | 39 | ||||||||||
Up to 100 km |
182 | 172 | 192 | 192 | 261 | |||||||||||||||
100 km or longer |
277 | 245 | 252 | 252 | 261 |
(1) | Domestic long-distance calls of up to 30 kilometers are billed on the same basis as local calls. Before April 15, 2001, for domestic long-distance calls in excess of 30 kilometers, a pulse was triggered at the beginning of each call and every 47 seconds for calls up to 100 kilometers or every 33 seconds for calls in excess of 100 kilometers. Commencing April 15, 2001, a pulse was triggered at the beginning of each call and every 30 seconds thereafter. Commencing November 1, 2001, a pulse is triggered at the beginning of each call and every 10 seconds thereafter. |
(2) | Rates for domestic long-distance calls in excess of 30 kilometers are currently discounted (by an adjustment in the period between pulses) by 10% on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by 30% from midnight to 6:00 a.m. every day. |
29
In recent years, we have begun to offer optional flat rate plans, discount plans and bundled product plans in order to mitigate the impact from lower usage of local and domestic long-distance calls and stabilize our revenues from fixed-line telephone services. For a discussion of our bundled products, see Bundled Products. Some of our flat rate and discount plans that we currently offer include the following:
| starting in June 2008, a subscriber who elects to pay a monthly flat rate of (Won)12,500 is able to make free local and domestic long-distance calls after 9 p.m. on weekdays or at any time on weekends. Each month, the subscriber also receives a free movie ticket and free 60 minutes of land-to-mobile calls. The subscriber is also eligible to receive a discount of up to 20%, subject to the length of the mandatory subscription period; |
| starting in October 2009, a subscriber who elects to subscribe to our fixed-line phone service for a three year mandatory subscription period is able to make local and domestic long-distance calls at a flat rate of (Won)39 per three minutes; and |
| starting in October 2009, a subscriber who elects to subscribe to our broadband Internet access service or HSDPA-based mobile service for a three year mandatory subscription period is able to make local, domestic long-distance and land-to-mobile calls of up to (Won)150,000 with a flat rate payment of (Won)50,000 or such calls up to (Won)50,000 with a flat rate payment of (Won)10,000. Standard rates apply to calls that exceed the capped amounts. |
International Long-distance Service. Our revenues from international long-distance service consist of:
| amounts we bill to customers for outgoing calls made to foreign countries (including customers who make calls to Korea from foreign countries under our home country direct-dial service); |
| amounts we bill to foreign telecommunications carriers and administrations for connection to the Korean telephone network in respect of incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service); and |
| other revenues, including revenues from international calls placed from public telephones. |
We bill outgoing calls made by customers in Korea (and calls made to Korea from foreign countries under our home country direct-dial service) in accordance with our international long-distance rate schedule for the country called. These rates vary depending on the time of day at which a call is placed. We bill outgoing international calls on the basis of one-second increments. We are able to set our own rates for international long-distance service without approval from the Korea Communications Commission.
For incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service), we receive settlement payments from the relevant foreign carrier or administration at the applicable settlement rate specified under the agreement with the foreign entity. We have entered into numerous bilateral agreements with foreign carriers and administrations. We negotiate the settlement rates under these agreements with each foreign carrier, subject to Korea Communications Commission approval. It is the practice among international carriers for the carrier in the country in which the call is billed to collect payments due in respect of the use of overseas networks. Although we record the gross amounts due to and from us in our financial statements, we make settlements with most carriers quarterly on a net basis.
30
Interconnection. We provide other telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network.
Land-to-mobile Interconnection. For a call initiated by a landline user to a mobile service subscriber, we collect from the landline user the land-to-mobile usage charge and remit to the mobile service provider a land-to-mobile interconnection charge. The Korea Communications Commission periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The Korea Communications Commission determines the land to mobile interconnection charge by calculating the long run incremental cost of mobile service providers, taking into consideration technology development and future expected costs.
The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators for landline to mobile calls.
Effective Starting | ||||||||||||
January 1, 2008 | January 1, 2009 | January 1, 2010 | ||||||||||
SK Telecom |
(Won) | 33.4 | (Won) | 32.9 | (Won) | 31.4 | ||||||
LG U+ |
39.1 | 38.5 | 33.6 |
The following table shows the usage charge per minute collected from a landline user for a call initiated by a landline user to a mobile service subscriber.
Effective Starting September 1, 2004 | ||||
Weekday |
(Won) | 87.0 | ||
Weekend |
82.0 | |||
Evening (1) |
77.2 |
(1) | Evening rates are applicable from 12:00 a.m. to 6:00 a.m. everyday. |
We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as expense the amount of interconnection charge paid to the mobile service provider.
Land-to-land and Mobile-to-land Interconnection. For a call initiated by a landline subscriber of our competitor to our fixed-line user, the landline service provider collects from its subscriber its normal rate and remits to us a land-to-land interconnection charge. In addition, for a call initiated by a mobile service subscriber to our landline user, the mobile service provider collects from its subscriber its normal rate and remits to us a mobile-to-land interconnection charge.
The following table shows such interconnection charge per minute collected for a call depending on the type of call, as determined by the Korea Communications Commission.
Effective Starting | ||||||||||||
January 1, 2008 | January 1, 2009 | January 1, 2010 | ||||||||||
Local access (1) |
(Won) | 18.3 | (Won) | 18.1 | (Won) | 17.1 | ||||||
Single toll access (2) |
19.5 | 19.3 | 19.1 | |||||||||
Double toll access (3) |
20.6 | 20.4 | 22.5 |
Source: The Korea Communications Commission.
(1) | Interconnection between local switching center and local access line. |
(2) | Interconnection involving access to single long-distance switching center. |
(3) | Interconnection involving access to two long-distance switching centers. |
31
Internet Services
Broadband Internet Access Service. We offer broadband Internet access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a one time installation fee per site of (Won)30,000 and modem rental fee of up to (Won)8,000 on a monthly basis. The rates we charge for broadband Internet access service are subject to approval by the Korea Communications Commission.
The following table summarizes our charges for our representative broadband Internet service plans:
Maximum Speed | Monthly Fee | |||||||
olleh Internet Special (1) |
100 Mbps | (Won) | 28,800 | |||||
olleh Internet Lite (1) |
50 | 25,500 | ||||||
WiBro 1G (2) (6) |
3 | 10,000 | ||||||
WiBro 30G (3) (6) |
3 | 19,800 | ||||||
WiBro 50G (4) (6) |
3 | 27,000 | ||||||
WiBro Unlimited (5) (6) |
3 | 40,000 |
(1) | We waive the installation fee of (Won)30,000 for mandatory subscription periods of one to four years. |
(2) | We charge a monthly fee of (Won)10,000 for up to 1,000 megabytes of data transmission and (Won)25 per megabyte for any additional data transmission in excess of 1,000 megabytes per month. |
(3) | We charge a monthly fee of (Won)19,800 for up to 30,000 megabytes of data transmission and (Won)10 per megabyte for any additional data transmission in excess of 30,000 megabytes per month. |
(4) | We charge a monthly fee of (Won)27,000 for up to 50,000 megabytes of data transmission and (Won)10 per megabyte for any additional data transmission in excess of 50,000 megabytes per month. |
(5) | We may limit the service for certain usages, such as CCTV or other large size file transfers, if the monthly data transmission exceeds 100,000 megabytes. |
(6) | Promotional rates available until June 30, 2011. |
olleh TV Services. We charge our subscribers an installation fee per site of (Won)24,000, a set-top box rental fee ranging from (Won)2,000 to (Won)7,000 on a monthly basis and a monthly subscription fee. The rates we charge for olleh TV services are subject to approval by the Korea Communications Commission.
The following table summarizes charges for our representative olleh TV service plans:
Real-time Broadcasting Channels |
Monthly Fee (1) | |||||||
olleh TV Video-on-Demand |
0 | (Won) | 10,000 | |||||
olleh TV Choice (2) |
75-77 | 10,000-16,000 | ||||||
olleh TV Education (3) |
48 | 10,000-14,000 | ||||||
olleh TV Thrift (4) |
99 | 12,000 | ||||||
olleh TV Standard (4) |
125 | 16,000 | ||||||
olleh TV Deluxe (4) |
130 | 23,000 | ||||||
olleh TV SkyLife Economy (5) |
99 | 20,000 | ||||||
olleh TV SkyLife Standard (5) |
133 | 25,000 | ||||||
olleh TV SkyLife Premium (5) |
171 | 30,000 |
(1) | We provide discounts of 5% to 20% for mandatory subscription periods ranging from one to three years. For olleh TV SkyLife subscribers, we provide discounts of 20% for mandatory subscription period of three years. |
(2) | Assuming selection of one package. Subscribers must choose at least one channel package, each of which charges a monthly fee of (Won)2,000. The packages include entertainment, media, leisure, education and multi-room. |
32
(3) | Assuming selection of one package. Subscribers must choose at least one channel package, each of which charges a monthly fee of (Won)2,000. The packages include elementary school, middle/high school and English education. |
(4) | We charge additional monthly fees for value-added services such as short messaging service, video conferencing and high-definition channels from KT Skylife Co., our subsidiary satellite broadcasting operator. |
(5) | For subscription to olleh TV SkyLife service, installation fee is waived for a mandatory subscription period of three years. |
Data Communication Service
We charge customers of domestic leased-lines on a monthly fixed-cost basis based on the distance of the leased line, the capacity of the line measured in bits per second (bps), the type of line provided and whether the service site is local or long-distance. In addition, we charge customers a one-time installation fee per line ranging from (Won)56,000 to (Won)1,940,000 depending on the capacity of the line.
Bundled Products
We utilize our extensive customer relationships and market knowledge to expand our revenue base by cross-selling our telecommunications products and services. In order to attract additional subscribers to our new services, we bundle our services, such as our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service and mobile services, at a discount.
The following table summarizes our various basic bundled packages that we currently offer. The packages require subscribers to agree to a subscription period of three years.
Monthly Rates | Mobile usage Charge Discounts |
|||||||||||||
Flat Rate (1) |
Mobile Monthly Fee | Between Family Members (2) |
Calls
to Designated Numbers (3) |
|||||||||||
Internet / Fixed-Line Phone / Mobile |
(Won) | 27,000 | Discounts of between 10% to 50%, subject to the number of subscribers who participate (up to 5 mobile numbers) |
50% | 20% | |||||||||
Internet / IP-TV / Mobile (4) |
31,000 | 50 | % | 20 | % | |||||||||
Internet / Fixed-Line Phone / IP-TV / Mobile (4) |
32,000 | 50% | 50% |
(1) | Assuming selection of olleh Internet Lite service. If olleh Internet Special is selected, additional monthly charge of (Won)3,000. |
(2) | Applies to both voice call and video call airtime minutes. |
(3) | Applies to voice call airtime minutes only. Limited to one designated mobile number and one designated fixed-line number. |
(4) | Assuming selection of olleh TV SkyLife Economy Plan. If olleh TV Video-on-Demand is selected, deduction of (Won)2,000 from the monthly flat rate. If olleh TV SkyLife Standard Plan is selected, additional monthly charge of (Won)3,000. |
We have also entered into partnerships with a leading online shopping mall, an operator of cinema complexes, a satellite broadcasting service operator, a life insurance company, a car insurance company and a security company, and our subscribers may elect to receive monthly gift certificates, music downloads, online game money, movie tickets or other benefits from such partnership companies with value of up to (Won)50,000 per month in lieu of monthly rate discounts.
We believe that subscribers who sign up for bundled products are less likely to cancel our services than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue recognition policy for each service.
33
Competition
Competition in the telecommunications sector in Korea is intense. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband. The acquisition enables SK Telecom to provide fixed-line telecommunications, broadband Internet access and IP-TV services together with its mobile telecommunications services. On January 1, 2010, LG Dacom and LG Powercom merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enables LG U+ provide a similar range of services as SK Telecom and us.
Under the Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers in Korea are currently classified into network service providers, value-added service providers and specific service providers. See Regulation.
Network Service Providers
All network service providers in Korea are permitted to set the rates for international or domestic long-distance services on their own without Korea Communications Commission approval. Many of our competitors have set their rates lower than ours. Currently, we can compete freely with other providers on the basis of rates in all services except for rates we charge for local calls and broadband Internet access service, which require advance approval from the Korea Communications Commission. In all service areas, we compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our broad customer base and our ability to provide various telecommunication services.
We and SK Telecom have been designated as market-dominating business entities in the respective markets under the Telecommunications Business Act. Under this Act, a market-dominating business entity may not engage in any act of abuse, such as unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers. The Korea Communications Commission has also issued guidelines on fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the Korea Communications Commission may take necessary corrective measures against it after a hearing at which the service provider may defend its action.
Mobile Service. Competition in the mobile telecommunications industry in Korea is intense among SK Telecom, LG U+ and us. Such competition has intensified in recent years due to the implementation of mobile number portability, which enabled mobile subscribers to switch their service provider while retaining the same mobile phone number, as well as payments of handset subsidies to purchasers of new handsets who agree to minimum subscription periods.
The following table shows the market share in the mobile telecommunications market as of the dates indicated:
Market Share (%) | ||||||||||||
KT Corporation |
SK Telecom | LG U+ | ||||||||||
December 31, 2008 |
31.5 | 50.5 | 18.0 | |||||||||
December 31, 2009 |
31.3 | 50.6 | 18.1 | |||||||||
December 31, 2010 |
31.6 | 50.6 | 17.8 |
Source: | Korea Communications Commission. |
34
We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. Our competitors also offer similar plans at competitive rates.
Local Telephone Service. We compete with SK Broadband and LG U+ in the local telephone service business. SK Broadband began providing local telephone service in 1999, followed by LG U+ in 2004. In addition, the services provided by mobile service providers have had a material adverse effect on KT Corporation in terms of our revenues from fixed-line telephone services. We expect this trend to continue.
The following table shows the market share in the local telephone service market as of the dates indicated:
Market Share (%) | ||||||||||||
KT Corporation |
SK Broadband | LG U+ | ||||||||||
December 31, 2008 |
89.8 | 8.7 | 1.5 | |||||||||
December 31, 2009 |
89.9 | 8.4 | 1.7 | |||||||||
December 31, 2010 |
86.3 | 11.7 | 2.0 |
Source: | Korea Communications Commission. |
Although the local usage charge of our competitors and us is the same at (Won)39 per pulse (generally three minutes) and the basic monthly charge of our competitors and us is the same at (Won)5,200 depending on location, our competitors non-refundable telephone service initiation charges are lower than ours. Our customers pay a non-refundable telephone service initiation charge of (Won)60,000 while customers of our competitors pay a non-refundable telephone service initiation charge of (Won)30,000
Domestic Long-distance Telephone Service. We compete with SK Broadband, LG U+, Onse and SK Telink in the domestic long-distance market. LG U+ began offering domestic long-distance service in 1996, followed by Onse in 1999 and SK Broadband and SK Telink in 2004. The following table shows the market shares in the domestic long-distance market as of the dates indicated:
Market Share (%) | ||||||||||||||||||||
KT Corporation |
SK Broadband | LG U+ | Onse | SK Telink | ||||||||||||||||
December 31, 2008 |
85.2 | 3.7 | 7.8 | 1.7 | 1.6 | |||||||||||||||
December 31, 2009 |
86.3 | 6.8 | 3.4 | 1.6 | 1.9 | |||||||||||||||
December 31, 2010 |
82.2 | 11.1 | 3.1 | 1.2 | 2.4 |
Source: Korea Telecommunications Operators Association.
Our competitors and we charge (Won)39 per three minutes for domestic long-distance calls up to 30 kilometers. For domestic long-distance calls greater than 30 kilometers, our competitors typically charge between 3% to 5% less than us. The following table is a comparison of our standard long-distance usage charges per 10 seconds with the standard rates of our competitors as of December 31, 2010:
KT Corporation |
SK Broadband | LG U+ | Onse | SK Telink | ||||||||||||||||
30 kilometers or longer |
(Won) | 14.5 | (Won) | 13.9 | (Won) | 14.1 | (Won) | 13.8 | (Won) | 13.8 |
Source: | Korea Communications Commission. |
35
International Long-Distance Telephone Service. Four companies, SK Broadband, LG U+, Onse and SK Telink, directly compete with us in the international long-distance market. LG U+ began offering international long-distance service in 1991, followed by Onse in 1997 and SK Broadband in 2004. SK Telink, which only provides Internet phone service, entered the international long-distance market in 2003 and offers its services at rates lower than those of network-based international long-distance telephone services. The entry of Internet phone service providers and other telecommunications service providers, such as voice resellers, that can offer telecommunications services at rates lower than ours has increased competition in the international long-distance market and adversely affected our revenues and profitability from international long-distance services. See Specific Service Providers.
Our competitors generally charge less than us for international long-distance calls. The following table is a comparison of our standard long-distance usage charges per one minute with the standard rates of our competitors as of December 31, 2010:
KT Corporation |
SK Broadband |
LG U+ | Onse | SK Telink | ||||||||||||||||
United States |
(Won) | 282 | (Won) | 276 | (Won) | 288 | (Won) | 276 | (Won) | 156 | ||||||||||
Japan |
696 | 672 | 678 | 672 | 384 | |||||||||||||||
China |
990 | 984 | 996 | 984 | 780 | |||||||||||||||
Australia |
1,086 | 1,044 | 1,086 | 1,044 | 528 | |||||||||||||||
Great Britain |
1,008 | 966 | 996 | 966 | 498 | |||||||||||||||
Germany |
948 | 912 | 942 | 912 | 402 |
Source: | KT Corporation. |
Broadband Internet Access Service. The Korean broadband Internet access market has experienced significant growth in the past decade. SK Broadband entered the broadband market in 1999 offering both HFC and ADSL services, and we entered the market with our ADSL services in 1999, followed by Dreamline, Onse and LG U+. In addition, the entry of cable television providers that offer HFC-based broadband Internet access services at rates lower than ours has increased competition in the broadband Internet access market. We expect industry consolidation among our competitors in the near future, and smaller competitors in the broadband market today may become larger competitors.
The following table shows the market share in the broadband Internet access market as of the dates indicated:
Market Share (%) | ||||||||||||||||
KT Corporation |
SK Broadband |
LG U+ | Others | |||||||||||||
December 31, 2008 |
43.4 | 22.9 | 14.1 | 19.6 | ||||||||||||
December 31, 2009 |
42.5 | 23.5 | 15.4 | 18.6 | ||||||||||||
December 31, 2010 |
43.1 | 23.1 | 16.1 | 17.7 |
Source: | Korea Communications Commission. |
Our competitors generally charge less than us for broadband Internet access service. The following table is a comparison of fees for our olleh Internet Lite service with three year mandatory subscription period with fees of our competitors for comparable services as of December 31, 2010:
KT Corporation |
SK Broadband |
LG U+ | Cable Providers (1) | |||||||||||||
Monthly subscription fee |
(Won) | 25,500 | (Won) | 25,200 | (Won) | 25,000 | (Won) | 20,000 | ||||||||
Monthly modem rental fee |
3,000 | 3,000 | None | 1,000 | ||||||||||||
Additional installation fee upon moving |
10,000 | 10,000 | 20,000 | 20,000 |
Source: | KT Corporation. |
(1) | These are typical fees charged by cable providers. |
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Data Communication Service. We had a monopoly in domestic data communication service until 1994, when LG U+ was authorized to provide the leased-line service. The data communications service market has become more competitive with limited growth during the past decade, and we primarily compete with SK Broadband and LG U+.
Value-Added Service Providers
Value-added service providers may commence operations following filing of a report to the Korea Communications Commission. The scope of business of a value-added service provider includes specific value-added telecommunications activities (other than services reserved for network service providers), such as data communications utilizing telecommunications facilities leased from network service providers.
Specific Service Providers
Specific service providers, such as Internet phone service providers and voice resellers, started operations in Korea in 1998. We began providing Internet phone service for international long-distance calls in May 1998. Our Internet phone service also competes with international long-distance services provided by voice resellers who have also seen sharp increases in demand for their services.
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 are broadly defined by law as telecommunications service providers that provide network services using the telecommunications network facilities or services of network service providers. |
Under the Telecommunications Basic Law and the Telecommunications Business Law, the Korea Communications Commission has comprehensive regulatory authority over the telecommunications industry and all network service providers. The Korea Communications Commission is established under the direct jurisdiction of the President and is comprised of five standing commissioners. Commissioners of the Korea Communications Commission are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the National Assembly. The Korea Communications Commissions policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. A network service provider must be licensed by the Korea Communications Commission. Our license as a network service provider permits us to engage in a wide range of telecommunications services.
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Under the Use and Protection of Credit Information Act, telecommunications service providers are also required to disclose personal credit information of their customers only for the purpose of validating and maintaining telecommunications service agreements. Korean telecommunications service providers may use their customers credit information only to the extent allowed by the Use and Protection of Credit Information Act, which has gained greater importance in recent years due to the occurrence of personal information leakage incidents.
The Korea Communications Commission also has the authority to regulate the IP media market, including IP-TV services. We began offering IP-TV services with real-time high definition broadcasting on November 17, 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission. The ownership of the shares of an IP media broadcasting company by a newspaper, a news agency or a foreigner is limited, and broadcasting of certain contents must obtain additional approval of the Korea Communications Commission.
Rates
Under current regulations implementing the Telecommunications Business Act, a network service provider may set its rates at its discretion, although it must report to the Korea Communications Commission the rates and the general terms and conditions for each type of network service provided by it. There is, however, one exception to this general rule: if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates the service providers and the types of services for which the rates and the general terms must be approved by the Korea Communications Commission. In 2010, the Korea Communications Commission designated us for local telephone service and SK Telecom for cellular service. The Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, is required to approve the rates proposed by a network service provider if (1) the proposed rates are appropriate, fair and reasonable and (2) the calculation method for the rates are appropriate and transparent.
Other Activities
A network service provider, such as us, must obtain the permission of the Korea Communications Commission in order to:
| engage in certain businesses specified in the Presidential Decree under the Telecommunications Business Act, such as the telecommunications equipment manufacturing business and the telecommunications network construction business; |
| change the conditions for its licenses; |
| transfer, terminate, suspend or spin off all or a part of the business for which it is licensed; |
| acquire all or a part of the business of another network service provider; or |
| enter into a merger with another network service provider. |
A telephone service provider may provide some network services using the equipment it currently has by submitting a report to the Korea Communications Commission. The Korea Communications Commission can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the Korea Communications Commission under the Telecommunications Business Law.
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The responsibilities of the Korea Communications Commission also include:
| formulating the basic plan for the telecommunications industry; and |
| preparing periodic reports to the National Assembly of Korea regarding developments in the telecommunications industry. |
In May 2010, the Korea Communications Commission issued a guideline that limits the marketing expenditure amounts of telecommunication service providers in Korea to 22% of their revenues, with the restrictions applicable to fixed-line and mobile segments to be calculated separately. However, up to (Won)100 billion of the marketing expenditures may be applied to either segment at the discretion of the service provider. The calculation of marketing expenditure amounts under the guideline excludes advertising expenses and the calculation of revenue amounts excludes revenues from handset sales. To encourage compliance with the non-binding guideline, the Korea Communications Commission plans to release the marketing expenditure amounts of each service provider on a quarterly basis. The Korea Communications Commission may periodically adjust the guideline to accommodate changes in market conditions.
The responsibilities of the Ministry of Knowledge Economy include:
| drafting and implementing plans for developing telecommunications technology; |
| fostering and providing guidance to institutions and entities that conduct research relating to telecommunications; and |
| recommending to network service providers that they invest in research and development or that they contribute to telecommunications research institutes in Korea. |
In addition, since January 2000, all network service providers (other than regional paging service providers) are obligated to contribute toward the supply of universal telecommunications services in Korea. Telecommunications service providers designated as universal service providers by the Korea Communications Commission are required to provide universal telecommunications services such as local services, local public telephone services, discount services for persons with disabilities and for certain low-income persons, telecommunications services for remote islands and wireless communication services for ships. We have been designated as a universal service provider. The costs and losses recognized by universal service providers in connection with providing these universal telecommunications services will be shared on an annual basis by all network service providers (other than regional paging service providers), including us, on a pro rata basis based on their respective net annual revenue calculated pursuant to a formula set by the Korea Communications Commission.
Due to the amendment of the Telecommunications Business Law, effective April 9, 2001, a network service provider must permit other network service providers to co-use wirelines connecting the switching equipment to end-users, upon the request of such other network service providers. In addition, a network service provider may permit other network service providers to co-use its wireless communication systems upon the request of any of such other network service providers. The compensation method for the co-use must be determined by the Korea Communications Commission and be settled, by fair and proper methods.
In addition, starting April 2002, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper
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lines that represent our excess capacity to other companies upon their request at rates that are determined by the Korea Communications Commission based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services. Revenues from local loop unbundling are recognized as revenues from miscellaneous services.
Foreign Investment
The Telecommunications Business Act restricts the ownership and control of network service providers by foreign shareholders. Foreigners, foreign governments and foreign invested companies may not own more than 49.0% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder if such shareholder holds 5.0% or more of our shares. For purposes of the Telecommunications Business Act, the term foreign invested company means a company in which foreigners and foreign governments hold 15.0% or more shares with voting rights in the aggregate and a foreigner or a foreign government is the largest shareholder, provided, however, that such company will not be counted as a foreign shareholder for the purposes of the above-referenced 49.0% limit if it holds less than 1.0% of our total issued and outstanding shares with voting rights. As of December 31, 2010, 48.52% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in excess of such limitation, and the Korea Communications Commission may require corrective measures be taken to comply with the ownership restrictions. There is no restriction on foreign ownership for specific service providers and value-added service providers.
Individual Shareholding Limit
Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. In addition, under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, the Telecommunications Business Act restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.
Customers and Customer Billing
We typically charge residential subscribers and business subscribers similar rates for services provided. On a case-by-case basis, we also provide discount rates for some of our high-volume business subscribers. We bill all of our customers on a monthly basis. Our customers may make payment at either payment points such as local post offices, banks or our service offices, through a direct-debit service that automatically deducts the monthly payment from a subscribers designated bank account, or through a direct-charge service that automatically charges the monthly payment to a subscribers designated credit card account. Approximately 70% of our subscribers as of December 31, 2010 pay through the direct-debit service. Accounts of subscribers who fail to pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of
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time determined by the type of subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are written off.
Insurance
We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and Internet data centers, we do not carry insurance covering losses to outside plants or to equipment because we believe the cost of such insurance is excessive and the risk of material loss or damage is insignificant. We do not have any provisions or reserves against such loss or damage. We do not carry any business interruption insurance.
We provide co-location and a variety of value-added services including server-hosting services to a number of corporations whose business largely depends on critical data operated on our servers or on their servers located at our data centers. Any disruptions, interruptions, physical or electronic data loss, delays or slow down in communication connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services.
Item 4.C. Organizational Structure
These matters are discussed under Item 4.B. where relevant.
Item 4.D. Property, Plants and Equipment
Our principal fixed asset is our integrated telecommunications networks. In addition, we own buildings and real estate throughout Korea.
Our fixed-line equipment vendors and mobile equipment suppliers include well-known international and local suppliers such as Samsung Electronics, LG Electronics, Cisco Systems and Apple Inc.
Mobile Networks
Our mobile network architecture includes the following components:
| cell sites, which are physical locations equipped with base transceiver stations consisting of transmitters, receivers and other equipment used to communicate through radio channels with subscribers mobile telephone handsets within the range of a cell; |
| base station controllers, which connect to and control, the base transceiver stations; |
| mobile switching centers, which in turn control the base station controllers and the routing of telephone calls; and |
| transmission lines, which connect the mobile switching centers, base station controllers, base transceiver stations and the public switched telephone network. |
The following table lists selected information regarding our mobile networks as of December 31, 2010:
CDMA | W-CDMA | |||||||
Mobile switching centers |
35 | 24 | ||||||
Base station controllers |
300 | 419 | ||||||
Base transceiver stations |
7,614 | 7,391 | ||||||
Indoor and outdoor repeaters |
53,826 | 257,946 |
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We have 40 MHz of bandwidth in the 1.8 GHz spectrum to provide PCS services based on CDMA wireless network standards and another 40 MHz of bandwidth in the 2.0 GHz spectrum to provide IMT-2000 services based on W-CDMA wireless network standards. Our current right to use 40 MHz of bandwidth in the 1.8 GHz spectrum is scheduled to expire at the end of June 2011. We have applied to the Korea Communications Commission to allocate back to us 20 MHz of bandwidth in the 1.8 GHz spectrum, for which we expect to pay a usage fee if reallocated to us. In addition, the Korea Communications Commission allocated 20 MHz of bandwidth in the 900 MHz spectrum to us, which will become effective on July 1, 2011. We expect to pay a portion of the actual sales generated from using the bandwidth in the 900 MHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales as determined by the Korea Communications Commission at the time of allocation. In June 2011, the Korea Communications Commission announced its plan to auction in August 2011 the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum that we are scheduled to relinquish at the end of June 2011, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. According to the plan, a maximum of 20 MHz of bandwidth may be sold to a single service provider, and SK Telecom and we are prohibited from bidding for the 20 MHz bandwidth in the 2.1 GHz spectrum. If we are allocated the bandwidths in the 800 MHz or the 1.8 GHz spectrums, we expect to pay usage fees for such bandwidths. We have also installed an intelligent network on our mobile network infrastructure to provide a wide range of advanced call features and value-added services.
Exchanges
Exchanges include local exchanges and toll exchanges that connect local exchanges to long-distance transmission facilities. We had 24.0 million lines connected to local exchanges and 16.0 million lines connected to toll exchanges as of December 31, 2010.
All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges in June 2003 in order to provide higher speed and larger volume services. Starting in 2006, we also began conversion of our exchanges to be compatible to Internet protocol platform in preparation for building our next generation broadband convergence network by 2021. As of December 31, 2010, approximately 85% of our lines connected to toll exchanges are compatible to Internet protocol platform.
Internet Backbone
Our Internet backbone network, called KORNET, has the capacity to handle an aggregate traffic of our broadband Internet access subscribers, Internet data centers and Internet exchange system at any given moment of up to 4.6 Tbps as of December 31, 2010. We have set up contingent plans to prepare against various incidents that could affect reliable Internet access service. Starting in 2005, we have also begun deploying our Internet protocol premium network that enables us to more reliably support olleh TV, WiBro, Internet Phone, upgraded VoIP services and other Internet protocol services. As of December 31, 2010, our Internet protocol premium network had 2,224,986 lines installed to provide voice over Internet protocol services and a total capacity to handle up to 595 Gbps of IP-TV, voice and WiBro service traffic.
Access Lines
As of December 31, 2010, we had 14.5 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability using xDSL and FTTH technology. As of December 31, 2010, we had approximately 12.7 million broadband lines with speeds of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers.
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Transmission Network
Our domestic fiber optic cable network consisted of 484,701 kilometers of fiber optic cables as of December 31, 2010 of which 86,815 kilometers of fiber optic cables are used to connect our backbone network and 397,886 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes dense wavelength division multiplexing technology for connecting major cities as well as optical add-drop multiplexer technology for connecting neighboring cities. Dense wavelength division multiplexing technology improves bandwidth efficiency by enabling transmission of data from multiple signals across one fiber strand in a cable by carrying each signal on a separate wavelength. We enhanced our backbone network connecting six major cities in Korea by implementing an optical cross-connector (OXC) architecture in 2008 and are in the process of building our next generation broadband convergence network through installation of network equipment utilizing optical reconfigurable add-drop multiplexer technology and multi-service provisioning platform.
Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consists of 55 relay sites.
International Network
Our international network infrastructure consists of both submarine cables and satellite transmission systems, including two submarine cable-landing stations in Busan and Keoje and two satellite teleports in Kumsan and Boeun. Data services such as international private lease circuits, Internet protocol and very small aperture terminals are provided through submarine cables and satellite transmission. In order to guarantee high quality services to our end customers, our submarine cables and satellite transmission systems are linked to various points-of-presence in the United States, Asia and Europe. In addition, our international telecommunications networks are directly linked to approximately 315 telecommunications service providers in various international destinations and are routed through our three international switching centers in Seoul, Daejeon and Busan.
Our international Internet backbone with capacity of 250 Gbps is connected to approximately 180 Internet service providers through our two Internet gateways in Heawha and Guro. In addition, we operate a video backbone with capacity of one Gbps to transmit video signals from Korea to the rest of the world.
Satellites
In order to provide broadcasting, video distribution and broadband data services in select areas, we operate two satellites, Koreasat 3, 5 and 6, launched in 1999, 2006 and 2011, respectively. See Item 4.B. Business OverviewOur ServicesSatellite Services.
International Submarine Cable Networks
International traffic is handled by telecommunications satellites and submarine cables. Because of the high cost of laying a submarine cable, the usual practice is for multiple carriers to jointly commission a new cable and share the costs and the capacity. We own interests in several international fiber optic submarine cable networks, including:
| a 1.4% interest in the 29,000-kilometer FLAG Europe-Asia network connecting Korea, Southeast Asia, the Middle East and Europe, activated since April 1997; |
| a 1.8% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries, activated since December 1999; |
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| a 6.7% interest in the 30,444-kilometer China-U.S. Cable Network linking Korea, China, Japan, Taiwan and the United States, activated since January 2000; |
| a 5.1% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong, Philippines, Singapore and Malaysia, activated since December 2001; |
| a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated since March 2002.; and |
| a 13.1% interest in the 16,500-kilometer Trans Pacific Express Cable Network linking Korea, China, Taiwan and the United States, activated since September 2008. |
We have also invested in 8 other international fiber optic submarine cables around the world.
Item 4A. Unresolved Staff Comments
We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934.
Item 5. Operating and Financial Review and Prospects
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 total equity as of December 31, 2009 and 2010 and the results of our operations for each of the years in the three-year period ended December 31, 2010, in Note 38 to the Consolidated Financial Statements.
Overview
We are an integrated provider of telecommunications services. Our principal services include mobile service, fixed-line telephone services, Internet services including broadband Internet access service and data communication service. The principal factors affecting our revenues from these services have been our rates for, and the usage volume of, these services, as well as the number of subscribers. For information on rates we charge for our services, see Item 4. Information on the CompanyItem 4.B. Business OverviewRevenues and Rates. We determined our operating segments after the merger with KTF on June 1, 2009 as (i) the Personal Customer Group, which engages in mobile and wireless data communications services, (ii) the Home Customer Group and Enterprise Customer Group, which engage in fixed-line telephone services, Internet services including broadband Internet access service and data communication service, and (iii) others, which include information technology and network services, real estate development and car rental businesses.
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 Koreas 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 InformationItem 3.D. Risk FactorsKorea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea
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deteriorate. A number of other developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:
| merger of KTF into KT Corporation on June 1, 2009; |
| employee reductions and changes in severance and retirement benefits; |
| IMT-2000 service license payments; |
| changes in the rate structure for our services; |
| researching and implementing technology upgrades and additional telecommunication services; and |
| transition to International Financial Reporting Standards starting in 2011. |
As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.
Merger of KTF into KT Corporation
On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. The merger was consummated pursuant to a comprehensive stock transfer under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned.
The success of the merger of KTF with KT Corporation will depend, in part, on our ability to realize the anticipated synergies, growth opportunities and, to a lesser extent, cost savings from combining these two companies. The realization of these anticipated benefits may be impeded, delayed or reduced as a result of numerous factors, some of which are outside our control. Some of our challenges include difficulties in integrating the operations of KTF with those of KT Corporation, including information systems, personnel, policies and procedures, and in reorganizing or reducing overlapping personnel, operations, marketing networks and administrative functions.
Employee Reductions and Changes in Severance and Retirement Benefits
We sponsor a voluntary early retirement plan where we provide additional financial incentives for our employees who have been employed by us for more than 20 years to retire early, as part of our efforts to improve operational efficiencies. In 2008, 1,141 employees retired under our voluntary early retirement plan. In 2009, in addition to our usual voluntary early retirement plan, we held a special voluntary early retirement program in December 2009 where we received applications for voluntary early retirement from employees who had been employed by us for more than 15 years and provided them with additional financial incentives to retire early. The special voluntary early retirement program resulted in the early retirement of 5,992 employees out of 25,340 eligible employees. In aggregate, 6,515 employees retired in 2009 under the voluntary early retirement plan and the special voluntary early retirement program. In 2010, 123 employees retired under our voluntary early retirement plan. We recorded severance indemnities relating to such voluntary early retirement plan and special voluntary early retirement program of (Won)97 billion in 2008, (Won)878 billion in 2009 and (Won)13 billion in 2010.
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IMT-2000 Service License Payments
We acquired the right to purchase one of three licenses to provide IMT-2000 services on December 15, 2000, as a member of a consortium of companies including KT Corporation and KTF. In March 2001, KT ICOM, a company created by the consortium, paid half of the (Won)1.3 trillion license fee payable to the Korea Communications Commission. KTF, which subsequently merged with KT ICOM, paid (Won)110 billion in 2008, (Won)130 billion in 2009 and (Won)150 billion in 2010, and we are obligated to pay the remaining (Won)170 billion in 2011. This payable accrues interest at the applicable three-year Government bond interest rate minus 0.75%. The accrued interest is paid on an annual basis to the Korea Communications Commission. We began offering our HSDPA-based IMT-2000 services nationwide in March 2007.
Changes in the Rate Structure for Our Services
Periodically, we change our rate structure for our services. In order to mitigate the impact from lower usage charges of local and domestic long-distance calls, we have increased our basic monthly charges and began offering optional flat rate plans for our fixed-line subscribers. Such adjustments in the rate structure have increased the portion of fixed income and stabilized 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. We also provide bundled packages of our various services at a discount in order to attract additional subscribers to our new services. We currently bundle our broadband Internet access service with WiBro, IP-TV, fixed-line telephone service, internet phone services and mobile services at a discount. For a discussion of adjustments in our rate structure, see Item 4. Information on the CompanyItem 4.B. Business OverviewRevenues and Rates.
Researching and Implementing Technology Upgrades and Additional Telecommunication Services
The telecommunications industry is characterized by continual advances and improvements in telecommunications technology, and we have been continually researching and implementing technology upgrades and additional telecommunication services to maintain our competitiveness. For example, in March 2005, we acquired a license to provide WiBro service for (Won)126 billion, and commercially launched the service in June 2006. We completed the upgrade of our 4G WiBro network and expanded our WiBro service coverage to 82 cities nationwide and major highways as of March 2011, which we believe will allow us to provide WiBro services at speeds that are approximately three times faster than our previous 3G network at a lower cost, and had approximately 377 thousand subscribers as of December 31, 2010. In addition, we are currently upgrading our broadband network to enable FTTH connection, which enhances downstream speed and connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content. We will continue to make capital expenditures, incur research and development expenses and implement technology upgrades and additional telecommunications services in order to effectively implement continual advances and improvements in telecommunications technology.
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Transition to International Financial Reporting Standards Starting in 2011
In March 2007, the Financial Services Commission and the Korea Accounting Institute announced a road map for the adoption of Korean IFRS, pursuant to which all listed companies in Korea, including us, will be required to prepare their annual financial statements beginning in 2011 that differ in certain respects from IFRS applied in other countries.
In preparation of such adoption, we began preparing our internal financial statements under both Korean GAAP and Korean IFRS starting in January 2010. Beginning in 2011, we have discontinued reporting under Korean GAAP with reconciliation to U.S. GAAP and instead have commenced reporting under Korean IFRS and we also plan to release annual financial statements prepared pursuant to IFRS as issued by the IASB. Although our accounting department is currently analyzing the effects of adopting IFRS on our annual financial statements, it is not possible to estimate with any degree of certainty the exact impact on our annual financial statements from such adoption because the IFRS accounting policies to be adopted by us for such financial statements have not been finalized. Accordingly, there can be no assurance that the adoption of IFRS will not adversely affect our reporting results of operations or financial condition.
Critical Accounting Policies
The preparation of financial statements in conformity with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the years reported. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates under different assumptions and conditions.
The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, our management has identified critical accounting estimates. These estimates have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.
These critical accounting estimates include:
| allowances for doubtful accounts; |
| useful lives of property and equipment; |
| impairment of long-lived assets, including goodwill; |
| impairment of investment securities; |
| income taxes; and |
| valuation of derivatives. |
Allowances for Doubtful Accounts
Allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing notes and accounts receivable. We determine the allowance for doubtful notes and
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accounts receivable based on an analysis of portfolio quality and historical write-off experience. Account balances are charged off against the allowance when all means of collection have been exhausted and the potential for recovery is considered remote. Our past experience shows that the possibility of collection is remote after three years of collection effort.
Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2010 are summarized as follows:
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(In millions of Won) | ||||||||||||
Balance at beginning of year |
(Won) | 487,729 | (Won) | 488,739 | (Won) | 477,124 | ||||||
Provision |
148,972 | 104,977 | 171,195 | |||||||||
Write-offs |
(147,962 | ) | (116,592 | ) | (133,095 | ) | ||||||
Balance at end of year |
(Won) | 488,739 | (Won) | 477,124 | (Won) | 515,224 | ||||||
If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording additional expense or benefit. Our study shows that a 5.0% decrease or increase in the historical write-off experience would increase or decrease the provision for doubtful accounts by approximately (Won)13 billion as of December 31, 2010.
Useful Lives of Property and Equipment
Property and equipment are depreciated based on the useful lives disclosed in Note 3 to the Consolidated Financial Statements. Generally, the useful lives are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. In certain cases and as permitted under Korean GAAP, those useful lives used for accounting purposes are different from the estimated economic lives of the related asset. In addition, the estimated lives of certain other assets, including underground access to cable tunnels, and concrete and steel telephone poles are based on rates established by a ruling by the Korean National Tax Service (which is also applicable under Korean GAAP). If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. A decrease of remaining estimated useful life by one year of our property and equipment would result in an increase of depreciation expense of approximately (Won)248 billion in 2010.
Impairment of Long-Lived Assets
Long-lived assets generally consist of property and equipment and intangible assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, we evaluate our long-lived assets for impairment each year as part of our annual forecasting process. An impairment loss would be considered when estimated undiscounted future net cash flow expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Our intangible assets include the IMT-2000 frequency usage right, which has a contractual life of 13 years and is amortized from the date commercial service is initiated through the end of its contractual life, which is November 2016. We started to amortize this frequency usage right in December 2003, and we review the IMT-2000 frequency usage right for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow
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forecasts developed as part of our planning process. The results of our review using the testing method described above did not indicate any need to impair the IMT-2000 frequency usage right in 2010. The use of different assumptions within our cash flow model could result in different amounts for the IMT-2000 frequency usage right.
Impairment of Goodwill
Goodwill represents the excess of purchase price paid over the fair value assigned to the net assets of acquired businesses. The determination of the fair values of goodwill is based on managements judgment on the expected cash flows of goodwill, taking market demand, competition and other economic factors into consideration.
The determination of impairments of goodwill involves the use of estimates that include, but are not limited to, the cause, timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the telecommunications industry, a decline in our expected future cash flows, changes in the future availability of financing, technological obsolescence, discontinuance of services, current replacement costs and prices paid in comparable transactions. The determination of impairment of goodwill requires a significant amount of managements judgment.
We evaluate the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount may exceed estimated fair value. Goodwill impairment testing is a two-step process. The first step involves determining the fair value of the reporting unit and comparing that to the book value. If the fair value exceeds the book value, then no further testing is required. If the fair value is less than the book value, then a second step is performed. In the second step, the fair values of all of the assets and liabilities of the reporting unit, including those that may not be currently recorded, are determined. The difference between the sum of all of those fair values and the overall reporting units fair value is a new implied goodwill amount that is compared to the recorded goodwill. If implied goodwill is less than the recorded goodwill, then impairment to the recorded goodwill is recorded.
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 investees identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill or other intangibles is recorded against the equity income (losses) of affiliates.
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.
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
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reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each years 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. Managements assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so.
Valuation of Derivatives
We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. Gains and losses that result from the change in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounts, the effective portion of the gain or loss on the derivative instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income (loss).
Significant management judgment is involved in determining the fair value of derivative instruments. The estimates and assumptions used by our management to determine fair value can be impacted by many factors, such as the credit quality of each derivative counterparty, interest rate, market volatility or the overall condition of the economy and its impact on the capital markets. Any changes in these assumptions could significantly affect the valuation and timing of recognition of valuation losses classified as other than temporary.
Operating Revenues and Operating Expenses
Operating Revenues
Our operating revenues primarily consist of:
| fees related to our mobile services, including initial subscription fees, monthly fees, usage charges for outgoing calls, usage charges for wireless data transmission, contents download fees and value-added monthly service fees; |
| fees from our fixed-line telephone services, including: |
Ø | local service revenues, primarily consisting of (i) basic monthly charges and monthly usage charges (or fixed monthly charges for discount plans), (ii) revenues from value-added services, including local telephone directory assistance, call waiting and caller identification services, (iii) interconnection fees we charge to fixed-line and mobile service providers for their use of our local network in providing their services and (iv) revenues from local calls placed from public telephones; |
Ø | non-refundable installation fees; |
Ø | domestic long-distance service revenues, primarily consisting of (i) monthly usage charges (or fixed monthly charges for discount plans), (ii) interconnection fees we |
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charge to fixed-line and mobile service providers and voice resellers for their use of our domestic long-distance network in providing their services and (iii) revenues from domestic long-distance calls placed from public telephones; |
Ø | international long-distance service revenues, primarily consisting of (i) amounts we bill to our customers for outgoing calls made to foreign countries, (ii) amounts we bill to foreign telecommunications carriers for connection to the domestic telephone network in respect of incoming calls at the applicable settlement rate, (iii) amounts we charge to fixed-line and mobile service providers and voice resellers as interconnection fees for using our international network in providing their services and (iv) other revenues, including revenues from international calls placed from public telephones and international leased lines; and |
Ø | land-to-mobile interconnection revenues; |
| Internet service revenues which consist of: |
Ø | broadband Internet access service revenues, primarily consisting of installation fees and basic monthly charges; and |
Ø | other Internet-related service revenues related to our infrastructure and solution services for business enterprises, IP-TV and network portal services. |
| revenues from goods sold that are generated primarily through sale of mobile handsets and specially designed phones for fixed-line and mobile convergence services; |
| data communications service revenues, primarily consisting of installation fees and basic monthly charges for our leased line services and Kornet Internet connection service and revenues from our satellite services; and |
| miscellaneous revenues that are primarily derived from information technology and network services, real estate development and car rental businesses. |
Operating Expenses
Our operating expenses primarily include:
| cost of goods sold, primarily consisting of our sale of mobile handsets and specially designed phones for fixed-line mobile convergence services; |
| depreciation and amortization expenses incurred primarily in connection with our telecommunications network facilities; |
| salaries and related costs, including severance indemnities that are a lump-sum amount paid to employees upon departure who have been employed by us for more than one year, share-based payments and employee welfare expenses; |
| sales commissions, primarily consisting of commissions to independent dealers related to procurement of mobile subscribers and mobile handset sales; |
| commissions, primarily consisting of payments for third-party outsourcing services, including commissions to the call center staff; |
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| interconnection charges, which are interconnection payments to mobile service providers for calls from landline users and our mobile subscribers to our competitors mobile service subscribers; and |
| promotion expenses that consist primarily of handset subsidies that we offer to purchasers of new handsets who agree to minimum subscription periods. |
Operating Results2009 Compared to 2010
The following table presents selected income statement data and changes therein for 2009 and 2010.
For the Year Ended December 31, |
Changes | |||||||||||||||
2009 vs. 2010 | ||||||||||||||||
2009 | 2010 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Operating revenues |
(Won) | 19,644 | (Won) | 21,331 | (Won) | 1,687 | 8.6 | % | ||||||||
Operating expenses |
18,673 | 19,156 | 483 | 2.6 | ||||||||||||
Operating income |
971 | 2,175 | 1,204 | 124.1 | ||||||||||||
Non-operating expense, net |
251 | 613 | 362 | 144.2 | ||||||||||||
Income from continuing operations before income tax expense |
719 | 1,562 | 843 | 117.2 | ||||||||||||
Income tax expense on continuing operations |
108 | 372 | 264 | 244.4 | ||||||||||||
Income (loss) from discontinued operations |
(2 | ) | 3 | 5 | N.A. | |||||||||||
Net income |
(Won) | 610 | (Won) | 1,193 | (Won) | 583 | 95.6 | % | ||||||||
N.A. | means not available. |
Operating Revenues
The following table presents a breakdown of our operating revenues and changes therein for 2009 and 2010.
For the Year Ended December 31, |
Changes | |||||||||||||||
2009 vs. 2010 | ||||||||||||||||
2009 | 2010 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Mobile services |
(Won) | 6,646 | (Won) | 7,083 | (Won) | 437 | 6.6 | % | ||||||||
Fixed-line telephone services: |
||||||||||||||||
Local service revenues |
2,674 | 2,563 | (111 | ) | (4.2 | ) | ||||||||||
Non-refundable service installation fees |
17 | 15 | (2 | ) | (11.8 | ) | ||||||||||
Domestic long-distance revenues |
475 | 381 | (94 | ) | (19.8 | ) | ||||||||||
International long-distance revenues |
384 | 362 | (22 | ) | (5.7 | ) | ||||||||||
Land-to-mobile interconnection revenues |
1,147 | 949 | (198 | ) | (17.3 | ) | ||||||||||
Sub-total |
4,697 | 4,270 | (427 | ) | (9.1 | ) | ||||||||||
Internet services: |
||||||||||||||||
Broadband internet access service |
1,942 | 1,941 | (1 | ) | (0.1 | ) | ||||||||||
Other Internet-related services |
507 | 626 | 119 | 23.5 | ||||||||||||
Sub-total |
2,449 | 2,567 | 118 | 4.8 | ||||||||||||
Goods sold |
3,397 | 4,395 | 998 | 29.4 | ||||||||||||
Data communication services |
1,314 | 1,309 | (5 | ) | (0.4 | ) | ||||||||||
Other |
1,141 | 1,707 | 566 | 49.6 | ||||||||||||
Total operating revenues |
(Won) | 19,644 | (Won) | 21,331 | (Won) | 1,687 | 8.6 | % | ||||||||
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Total operating revenues increased by 8.6%, or (Won)1,687 billion, from (Won)19,644 billion in 2009 to (Won)21,331 billion in 2010 primarily due to increases in our mobile handset sales, other operating revenues and mobile service revenues, the impact of which was partially offset by decreases in our fixed-line telephone service revenues.
Mobile Services
Our mobile service revenues increased by 6.6%, or (Won)437 billion, from (Won)6,646 billion in 2009 to (Won)7,083 billion in 2010 primarily due to a 6.8% increase in the number of mobile subscribers from 15.0 million as of December 31, 2009 to 16.0 million as of December 31, 2010.
Fixed-line Telephone Services
Our fixed-line telephone service revenues decreased by 9.1%, or (Won)427 billion, from (Won)4,697 billion in 2009 to (Won)4,270 billion in 2010 primarily due to decreases in land-to-mobile interconnection revenues, local service revenues and domestic long-distance revenues. Specifically:
| Land-to-mobile interconnection revenues decreased by 17.3%, or (Won)198 billion, from (Won)1,147 billion in 2009 to (Won)949 billion in 2010 primarily due to an increase in the volume of calls between mobile subscribers, which in turn led to a reduction in the volume of calls between landline users to mobile subscribers. |
| Local service revenues decreased by 4.2%, or (Won)111 billion, from (Won)2,674 billion in 2009 to (Won)2,563 billion in 2010. The number of local call pulses decreased by 5.2% from 2009 to 2010 primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. However, the effect of such decreases was partially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from VoIP services. |
| Domestic long-distance revenues decreased by 19.8%, or (Won)94 billion, from (Won)475 billion in 2009 to (Won)381 billion in 2010 primarily due to a decrease in the number of domestic long-distance call minutes by 23.2% from 2009 to 2010 primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. The effect of such decreases was partially offset by participation by some of our subscribers in optional flat rate plans. |
Internet Services
Our Internet service revenues increased by 4.8%, or (Won)118 billion, from (Won)2,449 billion in 2009 to (Won)2,567 billion in 2010 primarily due to an increase in the number of IP-TV subscribers from 1.2 million as of December 31, 2009 to 2.1 million as of December 31, 2010. The revenues from broadband Internet access service remained stable at (Won)1,942 billion in 2009 and (Won)1,941 billion in 2010.
Goods Sold
Revenues from goods sold increased by 29.4%, or (Won)998 billion, from (Won)3,397 billion in 2009 to (Won)4,395 billion in 2010 primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets and smart phones sold, including Apple iPhones that we launched in November 2009.
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Data Communications
Data communications service revenues decreased by 0.4%, or (Won)5 billion, from (Won)1,314 billion in 2009 to (Won)1,309 billion in 2010 primarily due to service fee discounts offered to government agencies and a decrease in revenues related to Kornet broadband Internet connection service to institutional customers resulting from the expiration of certain leased-line contracts.
Others
Other operating revenues increased by 49.6%, or (Won)566 billion, from (Won)1,141 billion in 2009 to (Won)1,707 billion in 2010 primarily due to an increase in sales of our real estate properties.
Operating Expenses
The following table presents a breakdown of our operating expenses and changes therein for 2009 and 2010.
For the Year Ended December 31, |
Changes | |||||||||||||||
2009 vs. 2010 | ||||||||||||||||
2009 | 2010 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Salaries and wages |
(Won) | 2,193 | (Won) | 2,163 | (Won) | (30 | ) | (1.4 | ) | |||||||
Provision for severance benefits |
1,128 | 243 | (885 | ) | (78.5 | ) | ||||||||||
Employee welfare |
587 | 374 | (213 | ) | (36.2 | ) | ||||||||||
Depreciation |
2,874 | 2,820 | (54 | ) | (1.9 | ) | ||||||||||
Commissions |
1,262 | 1,450 | 188 | 14.9 | ||||||||||||
Interconnection charges |
1,227 | 1,245 | 18 | 1.5 | ||||||||||||
Cost of services |
582 | 804 | 222 | 38.2 | ||||||||||||
Cost of goods sold |
3,119 | 4,087 | 968 | 31.1 | ||||||||||||
Promotion expenses |
1,122 | 1,228 | 106 | 9.4 | ||||||||||||
Sales commissions |
1,805 | 1,621 | (184 | ) | (10.1 | ) | ||||||||||
Others (1) |
2,774 | 3,121 | 347 | 12.4 | ||||||||||||
Total operating expenses |
(Won) | 18,673 | (Won) | 19,156 | (Won) | 483 | 2.6 | % | ||||||||
(1) | Including transfer to other accounts. |
Total operating expenses increased by 2.6%, or (Won)483 billion, from (Won)18,673 billion in 2009 to (Won) 19,156 billion in 2010 primarily due to increases in cost of goods sold, cost of services, commissions and promotion expenses, the impact of which was partially offset by decreases in provision for severance benefits related to special voluntary early retirement programs, employee welfare and sales commissions. Specifically:
| Cost of goods sold increased by 31.1%, or (Won)968 billion, from (Won)3,119 billion in 2009 to (Won) 4,087 billion in 2010 primarily due to an increase in the number of high-end HSDPA-compatible handsets and smart phones sold, including the Apple iPhone that we launched in November 2009, as well as various other smart phones that we launched in 2010. |
| Cost of services, which primarily relate to purchases of content for IP-TV services, increased by 38.2%, or (Won)222 billion, from (Won)582 billion in 2009 to (Won)804 billion in 2010 primarily due to an increase in sales of pay-per-view programming to IP-TV subscribers. |
| Our commissions, which primarily relate to payments for third-party outsourcing services, including commissions to the call center staff, increased by 14.9%, or (Won)188 billion, from (Won) 1,262 billion in 2009 to (Won)1,450 billion in 2010 primarily due to outsourcing of our activation and installation activities to third-parties. |
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| Our promotion expenses, which consist primarily of handset subsidies, increased by 9.4%, or (Won)106 billion, from (Won)1,122 billion in 2009 to (Won)1,228 billion in 2010 primarily due to an increase in the sales volume of HSDPA-compatible handsets and smart phones. |
These factors were partially offset by the following:
| Our provision for severance benefits decreased by 78.5%, or (Won)885 billion, from (Won)1,128 billion in 2009 to (Won)243 billion in 2010 primarily due to a decrease in provision for severance benefits relating to a special voluntary early retirement program. In December 2009, we held a special voluntary early retirement program in which 5,992 employees participated and received additional financial incentives to retire early, whereas we did not have any such special voluntary early retirement program in 2010. |
| Employee welfare, which primarily relates to expenditures for employees such as education and healthcare subsidies, decreased by 36.2%, or (Won)213 billion, from (Won)587 billion in 2009 to (Won)374 billion in 2010 primarily due to a change in our compensation policy which reduced certain seasonal bonuses classified as employee welfare, and instead increased benefits classified as salaries. |
| Sales commissions, which primarily relate to procurement of mobile subscribers and mobile handset sales by our independent dealers, decreased by 10.1%, or (Won)184 billion, from (Won)1,805 billion in 2009 to (Won)1,621 billion in 2010 primarily due to a decrease in the rate of sales commissions we paid to our independent dealers. |
Operating Income
Due to the factors described above, our operating income increased by 124.1%, or (Won)1,204 billion, from (Won)971 billion in 2009 to (Won)2,175 billion in 2010. Our operating margin, which is operating income as a percentage of operating revenues, increased from 4.9% in 2009 to 10.2% in 2010.
Non-Operating Income (Expenses)
The following table presents a breakdown of our non-operating income and expenses on a net basis and changes therein for 2009 and 2010.
For the Year Ended December 31, |
Changes | |||||||||||||||
2009 vs. 2010 | ||||||||||||||||
2009 | 2010 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest income |
(Won) | 197 | (Won) | 143 | (Won) | (54 | ) | (27.5 | )% | |||||||
Interest expense |
(505 | ) | (529 | ) | (24 | ) | 4.7 | |||||||||
Net foreign currency transaction loss |
(4 | ) | (3 | ) | 1 | (27.9 | ) | |||||||||
Net foreign currency translation gain |
223 | 34 | (189 | ) | (84.8 | ) | ||||||||||
Net gain (loss) on valuation of equity method investments |
(14 | ) | 27 | 41 | N.A. | |||||||||||
Net loss on disposal of property and equipment |
(119 | ) | (165 | ) | (46 | ) | 38.7 | |||||||||
Net gain (loss) on settlement of derivatives |
1 | (1 | ) | (2 | ) | N.A. | ||||||||||
Net loss on valuation of derivatives |
(174 | ) | (8 | ) | 166 | (95.5 | ) | |||||||||
Other bad debts expense |
(47 | ) | (9 | ) | 38 | (80.2 | ) | |||||||||
Donations |
(39 | ) | (81 | ) | (42 | ) | 106.2 | |||||||||
Net other non-operating revenues (losses) |
230 | (21 | ) | (251 | ) | N.A. | ||||||||||
Net non-operating expenses |
(Won) | (251 | ) | (Won) | (613 | ) | (Won) | (362 | ) | 144.2 | % | |||||
N.A. | means not available. |
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Our net non-operating expenses increased by 144.2%, or (Won)362 billion, from (Won)251 billion in 2009 to (Won)613 billion in 2010 primarily due to our recognition of net other non-operating revenues in 2009 compared to net other non-operating losses in 2010, a decrease in net foreign currency translation gain, a decrease in interest income, an increase in net loss on disposal of property and equipment and an increase in donations, the impact of which was partially offset by a decrease in net loss on valuation of derivatives. Specifically:
| We recorded net other non-operating revenues of (Won)230 billion in 2009 compared to net other non-operating losses of (Won)21 billion in 2010 primarily due to refunds of (Won)90 billion to our subscribers of fixed-line telephone services with optional flat rate plans who requested termination of such plans in 2010. |
| Our net foreign currency translation gain decreased by 84.8%, or (Won)189 billion, from (Won)223 billion in 2009 to (Won)34 billion in 2010 as the Market Average Exchange Rate of the Won against the U.S. dollar appreciated from (Won)1,257.5 to US$1.00 as of December 31, 2008 to (Won) 1,167.6 to US$1.00 as of December 31, 2009 but the level of appreciation decreased during 2010 to (Won)1,138.9 to US$1.00 as of December 31, 2010. The impact of such decrease in net foreign currency translation gain was largely offset by a decrease in net loss on valuation of derivatives discussed below. |
| Our interest income decreased by 27.5%, or (Won)54 billion, from (Won)197 billion in 2009 to (Won)143 billion in 2010 primarily due to a decrease in our average balance of interest-earning assets from 2009 to 2010, including our holdings of cash and cash equivalents, as well as a general decrease in interest rates in Korea during such periods. |
| Our net loss on disposal of property and equipment increased by 38.7%, or (Won)46 billion, from (Won)119 billion in 2009 to (Won)165 billion in 2010 primarily due to an increase in equipment disposal, in particular machinery. |
| Our donations increased by 106.2%, or (Won)42 billion, from (Won)39 billion in 2009 to (Won)81 billion in 2010 primarily due to an increase in our donations to employee welfare funds. |
These factors were partially offset by our net loss on valuation of derivatives, which decreased by 95.5%, or (Won)166 billion, from (Won)174 billion in 2009 to (Won)8 billion in 2010 primarily due to a decrease in losses from our combined interest rate currency swap contracts as the exchange rate of the Won against the U.S. dollar fluctuated as discussed above.
Income Tax Expense on Continuing Operations
Our income tax expense on continuing operations increased by 244.4%, or (Won)264 billion, from (Won) 108 billion in 2009 to (Won)372 billion in 2010 primarily due to an increase in income before income tax expense as well as a decrease in tax credit carryforwards and deductions. See Note 26 to the Consolidated Financial Statements. Our effective tax rate increased from 15.0% in 2009 to 23.8% in 2010, primarily due to a decrease in tax credit carryforwards and deductions in 2010. We had net deferred income tax assets of (Won)545 billion as of December 31, 2010.
Net Income
Due to the factors described above, our net income increased by 95.6%, or (Won)583 billion, from (Won) 610 billion in 2009 to (Won)1,193 billion in 2010. Our net income margin, which is net income as a percentage of operating revenues, increased from 3.1% in 2009 to 5.6% in 2010.
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Segment ResultsPersonal Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 11.5%, or (Won)1,074 billion, from (Won)9,314 billion in 2009 to (Won)10,388 billion in 2010, primarily due to an increase in the number of mobile subscribers as well as an increase in HSDPA-compatible handsets and smart phones sold.
Our operating income, prior to adjusting for inter-segment transactions, increased by 42.1%, or (Won) 438 billion, from (Won)1,040 billion in 2009 to (Won)1,478 billion in 2010, as the 11.5% increase in the segments operating revenues outpaced a 7.7% increase in operating expenses, primarily due to the reasons discussed above. Operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-company sales, increased from 11.2% in 2009 to 14.2% in 2010.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 8.4%, or (Won)85 billion, from (Won)1,014 billion in 2009 to (Won)929 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 1.2%, or (Won)56 billion, from (Won)4,757 billion in 2009 to (Won)4,701 billion in 2010.
Segment ResultsHome Customer Group and Enterprise Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 2.6%, or (Won)263 billion, from (Won)10,109 billion in 2009 to (Won)9,846 billion in 2010, primarily due to a decrease in fixed-line telephone service revenues, the impact of which was partially offset by an increase in revenues from Internet-related services.
We recorded operating loss, prior to adjusting for inter-segment transactions, of (Won)44 billion in 2009 compared to operating income of (Won)575 billion in 2010, as the 8.7% decrease in the segments operating expenses outpaced a 2.6% decrease in operating revenues, primarily due to the reasons discussed above. Operating margins were (0.4)% in 2009 and 5.8% in 2010.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 3.4%, or (Won)69 billion, from (Won)2,055 billion in 2009 to (Won)1,986 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 2.5%, or (Won)268 billion, from (Won)10,653 billion in 2009 to (Won)10,385 billion in 2010.
Segment ResultsOthers
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 38.1%, or (Won)922 billion, from (Won)2,424 billion in 2009 to (Won)3,346 billion in 2010, primarily due to an increase in sales of our real estate properties.
We recorded operating loss, prior to adjusting for inter-segment transactions, of (Won)5 billion in 2009 compared to operating income of (Won)149 billion in 2010, as the 38.1% increase in the segments operating revenues outpaced a 31.6% increase in operating expenses. Operating margins were (0.2)% in 2009 and 4.5% in 2010.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 28.4%, or (Won)57 billion, from (Won)200 billion in 2009 to (Won)257 billion in 2010. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, increased by 113.8%, or (Won)705 billion, from (Won)619 billion in 2009 to (Won)1,324 billion in 2010.
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Operating Results2008 Compared to 2009
The following table presents selected income statement data and changes therein for 2008 and 2009.
For the Year Ended December 31, |
Changes | |||||||||||||||
2008 vs. 2009 | ||||||||||||||||
2008 | 2009 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Operating revenues |
(Won) | 19,587 | (Won) | 19,644 | (Won) | 57 | 0.3 | % | ||||||||
Operating expenses |
18,144 | 18,673 | 529 | 2.9 | ||||||||||||
Operating income |
1,443 | 971 | (472 | ) | (32.7 | ) | ||||||||||
Net non-operating income (expense) |
(733 | ) | (251 | ) | 482 | (65.8 | ) | |||||||||
Income from continuing operations before income tax expense |
710 | 719 | 9 | 1.3 | ||||||||||||
Income tax expense on continuing operations |
168 | 108 | (60 | ) | (35.7 | ) | ||||||||||
Income (loss) from discontinued operations |
(29 | ) | (2 | ) | 27 | 93.1 | ||||||||||
Net income |
(Won) | 513 | (Won) | 610 | (Won) | 97 | 18.9 | % | ||||||||
Operating Revenues
The following table presents a breakdown of our operating revenues and changes therein for 2008 and 2009.
For the Year Ended December 31, |
Changes | |||||||||||||||
2008 vs. 2009 | ||||||||||||||||
2008 | 2009 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Mobile services |
(Won) | 6,424 | (Won) | 6,646 | (Won) | 222 | 3.5 | % | ||||||||
Fixed-line telephone services: |
||||||||||||||||
Local service revenues |
2,752 | 2,674 | (78 | ) | (2.8 | ) | ||||||||||
Non-refundable service installation fee |
28 | 17 | (11 | ) | (39.3 | ) | ||||||||||
Domestic long-distance revenues |
587 | 475 | (112 | ) | (19.1 | ) | ||||||||||
International long-distance revenues |
442 | 384 | (58 | ) | (13.1 | ) | ||||||||||
Land-to-mobile interconnection revenues |
1,391 | 1,147 | (244 | ) | (17.5 | ) | ||||||||||
Sub-total |
5,200 | 4,697 | (503 | ) | (9.7 | ) | ||||||||||
Internet services: |
||||||||||||||||
Broadband internet access service |
2,041 | 1,942 | (99 | ) | (4.9 | ) | ||||||||||
Other Internet-related services |
440 | 507 | 67 | 15.2 | ||||||||||||
Sub-total |
2,481 | 2,449 | (32 | ) | (1.3 | ) | ||||||||||
Goods sold |
3,066 | 3,397 | 331 | 10.8 | ||||||||||||
Data communication services |
1,336 | 1,314 | (22 | ) | (1.6 | ) | ||||||||||
Other |
1,080 | 1,141 | 61 | 5.6 | ||||||||||||
Total operating revenues |
(Won) | 19,587 | (Won) | 19,644 | (Won) | 57 | 0.3 | % | ||||||||
Total operating revenues increased by 0.3%, or (Won)57 billion, from (Won)19,587 billion in 2008 to (Won)19,644 billion in 2009 primarily due to increases in our mobile handset sales, mobile service revenues and other operating revenues, the impact of which was partially offset by decreases in our fixed-line telephone service revenues, Internet service revenues and data communication service revenues.
Mobile Services
Mobile service revenues increased by 3.5%, or (Won)222 billion, from (Won)6,424 billion in 2008 to (Won)6,646 billion in 2009 primarily due to a 4.5% increase in the number of mobile subscribers from 14.4 million as of December 31, 2008 to 15.0 million as of December 31, 2009.
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Fixed-line Telephone Services
Our fixed-line telephone service revenues decreased by 9.7%, or (Won)503 billion, from (Won)5,200 billion in 2008 to (Won)4,697 billion in 2009 primarily due to decreases in land-to-mobile interconnection revenues, domestic long-distance revenues and local service revenues. Specifically:
| Land-to-mobile interconnection revenues decreased by 17.5%, or (Won)244 billion, from (Won)1,391 billion in 2008 to (Won)1,147 billion in 2009 primarily due to an increase in the volume of calls between mobile subscribers, which in turn reduced the volume of calls between landline users to mobile subscribers. |
| Domestic long-distance revenues decreased by 19.1%, or (Won)112 billion, from (Won)587 billion in 2008 to (Won)475 billion in 2009 primarily due to a decrease in the number of domestic long-distance call minutes in 2009 compared to 2008 primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. The effect of such decreases was partially offset by participation by some of our subscribers in optional flat rate plans. |
| Local service revenues decreased by 2.8%, or (Won)78 billion, from (Won)2,752 billion in 2008 to (Won)2,674 billion in 2009. The number of local call pulses in 2009 compared to 2008 decreased by 32.5% primarily due to the substitution effect from increase in usage of mobile telephone services and the Internet phone services. However, the effect of such decreases was substantially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from value-added services. |
Internet Services
Our Internet service revenues decreased by 1.3%, or (Won)32 billion, from (Won)2,481 billion in 2008 to (Won)2,449 billion in 2009 primarily due to a decrease in broadband Internet access service revenues, the impact of which was partially offset by an increase in other Internet-related service revenues. Specifically:
| Broadband Internet access service revenues decreased by 4.9%, or (Won)99 billion, from (Won)2,041 billion in 2008 to (Won)1,942 billion in 2009, primarily due to discounts offered to long-term subscribers and bundled products in 2009. The effect of such decreases was offset in part by an increase in the number of fixed-line olleh Internet subscribers from 6.7 million subscribers as of December 31, 2008 to 7.0 million subscribers as of December 31, 2009. |
| Other Internet-related service revenues increased by 15.2%, or (Won)67 billion, from (Won)440 billion in 2008 to (Won)507 billion in 2009 primarily due to increases in revenues from our IP-TV services. |
Goods Sold
Revenues from goods sold increased by 10.8%, or (Won)331 billion, from (Won)3,066 billion in 2008 to (Won)3,397 billion in 2009 primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets and smart phones sold, including the Apple iPhone that we launched in November 2009.
Data Communications
Data communications service revenues decreased by 1.6%, or (Won)22 billion, from (Won)1,336 billion in 2008 to (Won)1,314 billion in 2009 primarily due to service fee discounts offered to government agencies and a decrease in revenues related to Kornet broadband Internet connection service to institutional customers resulting from the expiration of certain leased-line contracts.
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Others
Other operating revenues increased by 5.6%, or (Won)61 billion, from (Won)1,080 billion in 2008 to (Won)1,141 billion in 2009 primarily due to an increase in revenues from real estate development activities.
Operating Expenses
The following table presents a breakdown of our operating expenses and changes therein for 2008 and 2009.
For the Year Ended December 31, |
Changes | |||||||||||||||
2008 vs. 2009 | ||||||||||||||||
2008 | 2009 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Salaries and wages |
(Won) | 2,268 | (Won) | 2,193 | (Won) | (75 | ) | (3.3 | )% | |||||||
Severance indemnities |
361 | 1,128 | 767 | 212.5 | ||||||||||||
Depreciation |
3,214 | 2,874 | (340 | ) | (10.6 | ) | ||||||||||
Commissions |
1,354 | 1,262 | (92 | ) | (6.8 | ) | ||||||||||
Interconnection charges |
1,234 | 1,227 | (7 | ) | (0.6 | ) | ||||||||||
Cost of goods sold |
2,365 | 3,119 | 754 | 31.9 | ||||||||||||
Promotion expenses |
1,080 | 1,122 | 42 | 3.9 | ||||||||||||
Sales commissions |
2,130 | 1,805 | (325 | ) | (15.3 | ) | ||||||||||
Others (1) |
4,138 | 3,943 | (195 | ) | (4.7 | ) | ||||||||||
Total operating expenses |
(Won) | 18,144 | (Won) | 18,673 | (Won) | 529 | 2.9 | % | ||||||||
(1) | Including transfer to other accounts. |
Total operating expenses increased by 2.9%, or (Won)529 billion, from (Won)18,144 billion in 2008 to (Won)18,673 billion in 2009 primarily due to increases in severance indemnities related to special voluntary early retirement programs and cost of goods sold, the impact of which was partially offset by decreases in depreciation, sales commissions and commissions. Specifically:
| Our severance indemnities increased significantly by 212.5%, or (Won)767 billion, from (Won)361 billion in 2008 to (Won)1,128 billion in 2009 primarily due to an increase in severance indemnities relating to a special voluntary early retirement program. In December 2009, we held a special voluntary early retirement program where we received applications for voluntary early retirement from employees who had been employed by us for more than 15 years and provided them with additional financial incentives to retire early. |
| Cost of goods sold increased by 31.9%, or (Won)754 billion, from (Won)2,365 billion in 2008 to (Won)3,119 billion in 2009 primarily due to an increase in the sales of Internet phone handsets as well as an increase in the number of high-end HSDPA-compatible handsets and smart phones sold, including the Apple iPhone that we launched in November 2009. |
These factors were partially offset by the following:
| Depreciation decreased by 10.6%, or (Won)340 billion, from (Won)3,214 billion in 2008 to (Won)2,874 billion in 2009 reflecting a general decrease in our capital expenditures through 2009. |
| Sales commissions, which primarily relate to procurement of mobile subscribers and mobile handset sales by our independent dealers, decreased by 15.3%, or (Won)325 billion, from (Won)2,130 billion in 2008 to (Won)1,805 billion in 2009 primarily due to a decrease in the number of new mobile subscribers. |
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Operating Income
Due to the factors described above, our operating income decreased by 32.7%, or (Won)472 billion, from (Won)1,443 billion in 2008 to (Won)971 billion in 2009. Our operating margin, which is operating income as a percentage of operating revenues, decreased from 7.4% in 2008 to 4.9% in 2009.
Non-Operating Income (Expenses)
The following table presents a breakdown of our non-operating income and expenses on a net basis and changes therein for 2008 and 2009.
Changes | ||||||||||||||||
For the Year Ended December 31, |
2008 vs. 2009 | |||||||||||||||
2008 | 2009 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest income |
(Won) | 151 | (Won) | 197 | (Won) | 46 | 30.5 | % | ||||||||
Interest expense |
(480 | ) | (505 | ) | (25 | ) | 5.2 | |||||||||
Net foreign currency transaction gain (loss) |
3 | (4 | ) | (7 | ) | N.A. | ||||||||||
Net foreign currency translation gain (loss) |
(762 | ) | 223 | 985 | N.A. | |||||||||||
Net gain on disposal of equity method investment securities |
| 62 | 62 | N.M. | ||||||||||||
Net loss on disposal of property and equipment |
(90 | ) | (119 | ) | (29 | ) | 32.6 | |||||||||
Reversal of impairment loss on property and equipment |
6 | 103 | 97 | 1,616.7 | ||||||||||||
Net gain on settlement of derivatives |
8 | 1 | (7 | ) | (87.5 | ) | ||||||||||
Net gain (loss) on valuation of derivatives |
640 | (174 | ) | (814 | ) | N.A. | ||||||||||
Net other gains (losses) |
(208 | ) | (35 | ) | 173 | (83.2 | ) | |||||||||
Net non-operating income (expenses) |
(Won) | (733 | ) | (Won) | (251 | ) | (Won) | 482 | (65.8 | )% | ||||||
N.A. | means not applicable. |
N.M. | means not meaningful. |
Our net non-operating expenses decreased by 65.8%, or (Won)482 billion, from (Won)733 billion in 2008 to (Won)251 billion in 2009 primarily due to net foreign currency translation loss in 2008 compared to net foreign currency translation gain in 2009, an increase in reversal of impairment loss on property and equipment and net loss on disposal of equity method investment securities in 2008 compared to net gain on disposal of equity method investment securities in 2009, the impact of which was partially offset by net gain on valuation of derivatives in 2008 compared to net loss on valuation of derivatives in 2009. Specifically:
| We recorded net foreign currency translation loss of (Won)762 billion in 2008 compared to net foreign currency translation gain of (Won)223 billion in 2009 as the Market Average Exchange Rate of the Won against the U.S. dollar depreciated from (Won) 938.2 to US$1.00 as of December 31, 2007 to (Won)1,257.5 to US$1.00 as of December 31, 2008 but appreciated to (Won)1,167.6 to US$1.00 as of December 31, 2009. The impact of such foreign currency translation gain/loss was largely offset by loss/gain from valuation of derivatives discussed below. |
| Our reversal of impairment loss on property and equipment increased sixteen-fold, or (Won)97 billion, from (Won)6 billion in 2008 to (Won)103 billion in 2009 primarily due to an increase in compensation that we received from third parties for relocation of our property and equipment that resulted in impairment loss. |
| We did not record any net gain on disposal of equity method investment securities in 2008 compared to net gain on disposal of equity method investment securities of (Won)62 billion in |
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2009. We recorded such gain in 2009 primarily due to the sale of our interest in U-Mobile. We sold all of our interest in U-Mobile with a book value of (Won)65 billion for US$100 million to a third party in September 2009. |
These factors were partially offset by the following:
| We recorded net gain on valuation of derivatives of (Won)640 billion in 2008 compared to net loss on valuation of derivatives of (Won)174 billion in 2009 primarily due to gains and losses from our combined interest rate currency swap contracts as the exchange rate of the Won against the U.S. dollar fluctuated as discussed above. |
Income Taxes Expense on Continuing Operations
Our income tax expense on continuing operations decreased by 35.7%, or (Won)60 billion, from (Won)168 billion in 2008 to (Won)108 billion in 2009 primarily due to decreases from changes in deferred income tax assets unrecognized related to equity method investment securities as well as tax rate changes, the impact of which was partially offset by a decrease in tax credits. See Note 26 to the Consolidated Financial Statements. Our effective tax rate decreased from 23.7% in 2008 to 15.1% in 2009, primarily due to higher tax credit carryforwards in 2009 compared to 2008. We had net deferred income tax assets of (Won)551 billion as of December 31, 2009.
Net Income
Due to the factors described above, our net income increased by 18.9%, or (Won)97 billion, from (Won)513 billion in 2008 to (Won)610 billion in 2009. Our net income margin, which is net income as a percentage of operating revenues, increased from 2.6% in 2008 to 3.1% in 2009.
Segment ResultsPersonal Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 11.6%, or (Won)968 billion, from (Won)8,346 billion in 2008 to (Won)9,314 billion in 2009, primarily due to an increase in the number of mobile subscribers as well as an increase in HSDPA-compatible handsets and smart phones sold.
Our operating income, prior to adjusting for inter-segment transactions, increased by 129.1%, or (Won)586 billion, from (Won)454 billion in 2008 to (Won)1,040 billion in 2009, as the 11.6% increase in the segments operating revenues outpaced a 4.8% increase in operating expenses, primarily due to the reasons discussed above. Operating margin increased from 5.4% in 2008 to 11.2% in 2009.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 9.3%, or (Won)104 billion, from (Won)1,118 billion in 2008 to (Won)1,014 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 3.7%, or (Won)181 billion, from (Won)4,938 billion in 2008 to (Won)4,757 billion in 2009.
Segment ResultsHome Customer Group and Enterprise Customer Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 14.2%, or (Won)1,676 billion, from (Won)11,785 billion in 2008 to (Won)10,109 billion in 2009, primarily due to a decrease in fixed-line telephone service revenues, the impact of which was partially offset by an increase in revenues from Internet-related services.
We recorded operating income, prior to adjusting for inter-segment transactions, of (Won)1,113 billion in 2008 compared to operating loss of (Won)44 billion in 2009, as the 14.2% decrease in the segments operating revenues outpaced a 4.9% decrease in operating expenses, primarily due to the reasons discussed above. Operating margins were 9.4% in 2008 and (0.4)% in 2009.
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Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 6.8%, or (Won)150 billion, from (Won)2,205 billion in 2008 to (Won)2,055 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 1.6%, or (Won)173 billion, from (Won)10,826 billion in 2008 to (Won)10,653 billion in 2009.
Segment ResultsOthers
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 3.0%, or (Won)70 billion, from (Won)2,354 billion in 2008 to (Won)2,424 billion in 2009, primarily due to an increase in revenues from our media intellectual property rights.
We recorded operating income, prior to adjusting for inter-segment transactions, of (Won)29 billion in 2008 compared to operating loss of (Won)5 billion in 2009, as the 4.4% increase in the segments operating expenses outpaced a 3.0% increase in operating revenues, primarily due to the reasons discussed above. Operating margins were 1.2% in 2008 and (0.2)% in 2009.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 26.6%, or (Won)42 billion, from (Won)158 billion in 2008 to (Won)200 billion in 2009. Property and equipment and intangible assets, prior to adjusting for inter-segment transactions, decreased by 6.2%, or (Won)41 billion, from (Won)660 billion in 2008 to (Won)619 billion in 2009.
Item 5.B. Liquidity and Capital Resources
The following table sets forth the summary of our cash flows determined in accordance with Korean GAAP for the periods indicated.
For the Years Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(In billions of Won) | ||||||||||||
Net cash provided by operating activities |
(Won) | 2,920 | (Won) | 3,399 | (Won) | 3,245 | ||||||
Net cash used in investing activities |
(3,532 | ) | (2,872 | ) | (3,436 | ) | ||||||
Net cash provided by (used in) financing activities |
1,051 | (930 | ) | (129 | ) | |||||||
Cash and cash equivalents at beginning of period |
1,385 | 1,891 | 1,538 | |||||||||
Cash and cash equivalents at end of period |
1,891 | 1,538 | 1,193 | |||||||||
Net increase (decrease) in cash and cash equivalents |
506 | (353 | ) | (345 | ) |
Capital Requirements
Historically, our capital requirements consisted principally of purchases of property and equipment and other assets and repayments of borrowings. In our investing activities, we used cash of (Won)3,362 billion in 2008, (Won)2,774 billion in 2009 and (Won)3,239 billion in 2010 for the acquisition of property and equipment, primarily construction-in-progress. In our financing activities, we used cash of (Won)2,147 billion in 2008, (Won)1,446 billion in 2009 and (Won)1,895 billion in 2010 for repayment of current portion of bonds and long-term borrowings.
In recent years, we have also required capital for acquisitions of treasury shares for retirement and payments of retirement and severance benefits related to our early retirement programs. For the acquisition of treasury shares for retirement, we spent (Won)74 billion in 2008, (Won)528 billion in 2009 and (Won)0.3 billion in 2010. Subsequent to such repurchases, we retired most of the treasury shares that we repurchased. We also recorded payments of severance benefits of (Won)221 billion in 2008, (Won)1,345 billion in 2009 and (Won)1,249 billion in 2010. In 2009 and 2010, our payments were particularly high due to a special voluntary early retirement program held in December 2009 in which we received applications for voluntary early retirement from employees who had been employed by us for more
63
than 15 years and provided them with additional financial incentives to retire early. The special voluntary early retirement program resulted in the early retirement of 5,992 employees out of 25,340 eligible employees.
From time to time, we may also require capital for investments involving acquisitions, including shares of our affiliates, and strategic relationships. On June 1, 2009, KTF merged into KT Corporation pursuant to a comprehensive stock transfer under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. We delivered 45,629,480 treasury shares and 700,108 shares of our newly issued common shares to KTF shareholders in connection with the merger.
Our cash dividends amounted to (Won)409 billion in 2008, (Won)229 billion in 2009 and (Won)494 billion in 2010.
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 purchase of additional treasury shares and shares of our affiliates as well as investments involving acquisitions and strategic relationships. We compete in the telecommunications sector in Korea, which is rapidly evolving. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. We may need to incur additional capital expenditures to keep up with unexpected developments in rapidly evolving telecommunications technology. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources that are sufficient for our unanticipated needs.
Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, including repair and maintenance. We have also provided guarantees to our affiliates. See 18 to the Consolidated Financial Statements for a disclosure of the guarantees provided.
The following table sets forth selected information regarding our contractual obligations to make future payments as of December 31, 2010:
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) |
(Won) | 9,686 | (Won) | 2,437 | (Won) | 3,825 | (Won) | 2,432 | (Won) | 1,082 | ||||||||||
Capital lease obligations |
22 | 6 | 16 | | | |||||||||||||||
Operating lease obligations |
8 | 5 | 3 | | | |||||||||||||||
Severance payment obligations |
469 | 3 | 9 | 62 | 395 | |||||||||||||||
Long-term accounts payableothers |
170 | 170 | | | | |||||||||||||||
Total |
(Won) | 10,355 | (Won) | 2,621 | (Won) | 3,853 | (Won) | 2,494 | (Won) | 1,477 | ||||||||||
Estimate of interest payment based on contractual interest rates effective as of December 31, 2010 |
(Won) | 1,406 | (Won) | 449 | (Won) | 573 | (Won) | 206 | (Won) | 179 | ||||||||||
(1) | Contractual obligations represent contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and accruals for customer call bonus points, which do not have definitive payment schedules. |
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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. From time to time, we have also disposed of our treasury shares to meet our capital requirements.
Our major sources of cash have been net cash provided by operating activities, including net income, expenses not involving cash payments such as depreciation and amortization, and proceeds from issuance of bonds and long-term borrowings. We expect that these sources will continue to be our principal sources of cash in the future. Net income was (Won)513 billion in 2008, (Won)610 billion in 2009 and (Won)1,193 billion in 2010 due to the reasons discussed in Item 5.A. Operating Results. Depreciation and amortization was (Won)3,703 billion in 2008, (Won)3,361 billion in 2009 and (Won)3,285 billion in 2010 primarily reflecting our capital investment activities during the recent years. Aggregate cash proceeds from issuance of bonds and long-term borrowings were (Won)3,780 billion in 2008, (Won)1,499 billion in 2009 and (Won)2,035 billion in 2010. We also met the capital required for the June 2009 merger with KTF through delivery of 45,629,480 treasury shares and 700,108 shares of our newly issued common shares to KTF shareholders in consideration of the merger. As of December 31, 2010, we held 17,895,964 treasury shares.
We believe that we have sufficient working capital available to us for our current requirements and that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings denominated in Won and various foreign currencies. For example, we updated our Medium Term Note program in June 2005 from US$1 billion to US$2 billion, of which US$700 million remained unused as of December 31, 2010. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Governments 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 was (Won)11,088 billion as of December 31, 2008, (Won)10,667 billion as of December 31, 2009 and (Won)11,496 billion as of December 31, 2010.
Liquidity
We had a working capital (current assets minus current liabilities) surplus of (Won)1,833 billion as of December 31, 2008, (Won)1,031 billion as of December 31, 2009 and (Won)643 billion as of December 31, 2010. The following table sets forth the summary of our significant current assets for the periods indicated.
As of December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(In billions of Won) | ||||||||||||
Cash and cash equivalents, net |
(Won) | 1,891 | (Won) | 1,538 | (Won) | 1,193 | ||||||
Short-term investment assets |
417 | 444 | 166 | |||||||||
Trade accounts receivable, net |
3,015 | 3,622 | 3,843 | |||||||||
Inventories, net |
425 | 699 | 656 |
Our cash, cash equivalents and short-term investment assets maturing within one year totaled (Won)2,308 billion as of December 31, 2008, (Won)1,982 billion as of December 31, 2009 and (Won)1,359 billion
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as of December 31, 2010. Under Korean GAAP, bank deposits and all highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term investment assets primarily consist of time and trust deposits with maturities between four to twelve months and short-term loans and current portion of securities such as beneficiary certificates and available-for-sale securities.
The following table sets forth the summary of our significant current liabilities for the periods indicated:
As of December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(In billions of Won) | ||||||||||||
Trade accounts payable |
(Won) | 834 | (Won) | 1,485 | (Won) | 1,531 | ||||||
Short-term borrowings |
274 | 368 | 469 | |||||||||
Current portion of bonds and long-term borrowings, net |
1,440 | 1,690 | 2,435 | |||||||||
Other accounts payable |
1,476 | 2,439 | 1,620 | |||||||||
Accrued expenses |
528 | 483 | 554 |
As of December 31, 2010, we entered into various commitments with financial institutions totaling (Won)2,722 billion and US$101 million. See Note 18 to the Consolidated Financial Statements. As of December 31, 2010, (Won)563 billion and US$19 million were outstanding under these facilities. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements.
Capital Expenditures
We used cash of (Won)3,362 billion in 2008, (Won)2,774 billion in 2009 and (Won)3,239 billion in 2010 for the acquisition of property and equipment, primarily construction-in-progress.
Our current capital expenditure plan, on a non-consolidated basis, calls for the expenditure of approximately (Won)3,200 billion in 2011, which may be adjusted depending on market conditions and our results of operations. The principal components of our capital investment plans are:
| approximately (Won)476 billion in general expansion and modernization of our network infrastructure; |
| approximately (Won)1,026 billion in capital investments for IMT-2000 (W-CDMA) service; |
| approximately (Won)100 billion in capital investments for WiBro service; |
| approximately (Won)186 billion in capital investments for IP-TV service; and |
| approximately (Won)127 billion in capital investments for development of services over Internet protocol. |
Inflation
We do not consider that inflation in Korea has had a material impact on our results of operations in recent years. Inflation in Korea was 4.7% in 2008, 2.8% in 2009 and 2.9% in 2010. See Item 3. Key InformationItem 3.D. Risk FactorsKorea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.
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Recent Accounting Pronouncements in Korean GAAP
We did not adopt any significant Korean accounting standards issued or revised in 2010.
U.S. GAAP Reconciliation
In 2008, we recorded net income of (Won)573 billion under U.S. GAAP compared to net income of (Won)513 billion under Korean GAAP, primarily because of difference in the treatment of reversal of goodwill amortization and depreciation. In 2009, we recorded net income of (Won)840 billion under U.S. GAAP compared to net income of (Won)610 billion under Korean GAAP, primarily because of difference in the treatment of service installation fees, reversal of goodwill amortization and depreciation. In 2010, we recorded net income of (Won)1,196 billion under U.S. GAAP compared to net income of (Won)1,193 billion under Korean GAAP. Total equity under U.S. GAAP is lower than under Korean GAAP by (Won)478 billion as of December 31, 2008, (Won)211 billion as of December 31, 2009 and (Won)396 billion as of December 31, 2010.
For further discussion of the principal differences between Korean GAAP and U.S. GAAP as they relate to us, see Note 38 to the Consolidated Financial Statements.
Recent Accounting Pronouncements in U.S. GAAP
In September 2006, the Financial Accounting Standards Board (FASB) issued enhanced guidance for using fair value to measure assets and liabilities by establishing a common definition of fair value, providing a framework for measuring fair value under GAAP, and expanding the disclosure requirements about fair value measurements. In February 2008, the FASB deferred the adoption of such guidance for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. We adopted the fair value guidance for nonfinancial assets and nonfinancial liabilities on January 1, 2009 with no material impact to our consolidated financial statements. In April 2009, the FASB issued additional guidance on fair value, which provided: (a) additional application guidance for estimating fair value when the volume and activity for the asset or liability have greatly decreased and (b) indicators for identifying transactions that are not considered orderly. The additional guidance was effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted the provisions in 2009 with no material impact to our consolidated financial statements.
In December 2007, the FASB issued an amended accounting guidance on business combinations. The guidance revises the method of accounting for a number of aspects of business combinations including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price) and post-acquisition exit activities of acquired businesses. We adopted the guidance in 2009 with no material impact to our consolidated financial statements.
In December 2007, the FASB issued new accounting guidance on noncontrolling interests in consolidated financial statements. The new accounting guidance requires that a noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. We retrospectively adopted the presentation and disclosure requirements of the new guidance. The adoption of the new guidance did not have a material effect on our consolidated financial statements.
In March 2008, the FASB issued enhanced guidance for disclosures about derivative instruments and hedging activities by expanding the disclosure requirements regarding: (1) how and
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why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for; and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. In addition, this guidance requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entitys risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. We adopted the new guidance in 2009 with no material impact to our consolidated financial statements.
In April 2008, the FASB amended the factors that we should consider when developing renewal or extension assumptions used in the determination of useful lives of intangible assets. These assumptions should be consistent with the expected cash flow method used to measure the fair value of intangible assets. The amended guidance was applicable prospectively to intangible assets acquired after January 1, 2009 with no material impact to our consolidated financial statements.
In November 2008, the FASB ratified guidance approved by the Emerging Issues Task Force addressing how the business combination and noncontrolling interest guidance issued by the FASB might impact the accounting for equity method investments. The guidance was effective prospectively for new investments acquired in fiscal years beginning on or after December 15, 2008. We adopted the guidance in 2009 with no material impact on our consolidated financial statements.
In July 2009, the FASB issued the FASB Accounting Standard Codification (Codification or ASC), which became the single source of authoritative U.S. GAAP. Following the Codification, the FASB will not issue any new standard in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASU), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. We adopted the Codification, as required, for annual periods ending after September 15, 2009. As a result, references to accounting literature contained in our financial disclosures have been updated to reflect the new ASC structure.
In June 2009, the FASB amended the consolidation rules related to Variable Interest Entities (VIEs). The new rules expand the primary beneficiary analysis to incorporate a qualitative review of which entity controls and directs the activities of the VIE. The amendments also modify the rules regarding the frequency of ongoing reassessments of whether a company is the primary beneficiary. Under the revised guidance, we are required to perform ongoing reassessments as opposed to only when certain triggering events occur, as was previously required. We adopted the new guidance in 2010 with no material impact on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements (ASU No. 2009-13). The update addresses how revenues should be allocated among all products and services included in sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence at the highest level, third-party evidence of selling price at the intermediate level, and the best estimate of the selling price at the lowest level. It replaces fair value with selling price in revenue allocation guidance, eliminates the residual method as an acceptable allocation method and requires the use of the relative selling price method as the basis for allocation. It also significantly expands the disclosure requirements for such arrangements, including, potentially, certain qualitative disclosures. ASU No. 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU No. 2009-13, applied retrospectively, to the beginning of the year of adoption. We adopted ASU No. 2009-13 in 2010 with no material impact on our consolidated financial statements.
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In October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That Include Software Elements (ASU No. 2009-14). The update clarifies the guidance for allocating and measuring revenue, including how to identify software that is out of the scope. The update also amends accounting and reporting guidance for revenue arrangements involving both tangible products and software that is more than incidental to the tangible product as a whole. Such types of software and hardware will be outside of the scope of software revenue guidance, and the hardware components will also be outside of the scope of software revenue guidance and may result in more revenue recognized at the time of the hardware sale. Additional disclosures will discuss allocation of revenue to products and services in sales arrangements and the significant judgments applied in the revenue allocation method, including impacts on the timing and amount of revenue recognition. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ASU No. 2009-14 has the same effective date, including early adoption provisions, as ASU No. 2009-13. We must adopt ASU No. 2009-14 and ASU No. 2009-13 at the same time. We adopted ASU No. 2009-14 in 2010 with no material impact on our consolidated financial statements.
In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (ASU No. 2009-16). This update removes the concept of a qualifying special-purpose entity (QSPE) and creates more stringent conditions for reporting a transfer of a portion of financial asset as sale. To determine if a transfer is to be accounted for as sale, the transferor must assess whether it and all of the entities included in its consolidated financial statements have surrendered control of the assets. This update became effective on January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The elimination of the QSPE concept required an entity to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, Consolidation, and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU No. 2009-16, particularly the QSPE removal, was assessed as part of the analysis required from ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.
In December 2009, the FASB issued ASU No. 2009-17. This update addressed the primary beneficiary assessment criteria for determining whether an entity is required to consolidate a VIE. This update requires an entity to determine whether it is the primary beneficiary by performing a qualitative assessment, rather than using the quantitative-based model required under the previous accounting guidance. The qualitative assessment consists of determining whether the entity has both the power to direct the activities that most significantly impact the VIEs economic performance and has the right to receive benefits or obligation to absorb losses that could potentially be significant to the VIE. This update became effective on January 1, 2010. We adopted ASU No. 2009-16 and No. 2009-17 in 2010 with no material impact on our consolidated financial statements.
In January 2010, the FASB amended the disclosure guidance related to fair value measurements. The amended disclosure guidance requires new fair value measurement disclosures and clarifies existing fair value measurement disclosure requirements. The amended disclosure guidance related to disclosures about purchases, sales, issuances and settlements of Level 3 instruments became effective for fiscal years beginning after December 15, 2010. The remaining amended disclosure guidance will be effective for annual reporting periods beginning after December 15, 2009. We adopted this guidance in 2010 with no material impact on our financial statements.
In January 2010, the FASB issued authoritative guidance for improving disclosures about fair value measurements, which requires new and amended disclosure requirements for classes of assets and liabilities, inputs and valuation techniques and transfers between levels of fair value measurements and accounting for distributions to shareholders with components of stock and cash,
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which clarifies the accounting for distributions to shareholders that offer them the ability to elect to receive their entire distribution in cash or shares of equivalent value. This guidance became effective in January 2010. We adopted this guidance in 2010 with no material impact on our consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09 to amend ASC 855, Subsequent Events to address certain implementation issues. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, the FASB has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The amendment is effective for interim or annual periods ending after June 15, 2010. We adopted this guidance in 2010 with no material impact on our consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20 to provide financial statement users with greater transparency about an entitys allowance for credit losses and the credit quality of its financing receivables. This amendment is intended to provide additional information to assist financial statement users in assessing an entitys credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. We adopted ASU 2010-20 in 2010 and disclosed the additional information related to credit risk in our consolidated financial statements.
Item 5.C. Research and Development, Patents and Licenses, Etc.
In order to maintain our leadership in the converging telecommunications business environment and develop additional platforms, services and applications, we operate:
| a technology strategy center; |
| a technology development center; |
| a central R&D laboratory; |
| a network R&D laboratory; and |
| an economics and management research laboratory. |
As of December 31, 2010, these research centers employed a total of 512 researchers and employees. As of April 30, 2011, our researchers and employees at our research centers had 82 doctoral degrees and 249 masters degrees. As of December 31, 2010, KT Corporation had 5,945 registered patents domestically and 456 registered patents internationally.
Under the Information and Communications Industry Promotion Act, network service providers and specific service providers are obligated to contribute 0.75% and 0.5% of their total annual revenues, respectively, to the Institute of Information Technology Advancement, which uses the fund to promote research and development in information technology. We make contributions as a network service provider and specific service provider to the Korean government (Information and Telecommunication Improvement Fund), the Korea Electronic Telecommunication Research Institute and other research and development institutes. Including such contributions, total expenditures on research and development were (Won)283 billion in 2008, (Won)263 billion in 2009 and (Won)295 billion in 2010.
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In recent years, we have focused our research and development efforts in the following areas:
| open IP-TV service platform; |
| smart home solutions; |
| location-based services and social network services; |
| cloud service platform; |
| network technologies for backbone and access network; and |
| future network structure and solutions. |
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.
See Item 3. Key InformationItem 3.D. Risk FactorsForward-looking statements may prove to be inaccurate.
Item 6. Directors, Senior Management and Employees
Item 6.A. Directors and Senior Management
Directors
Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of:
| up to three non-independent directors, including the Chief Executive Officer; and |
| up to eight outside directors. |
All of our directors are elected at the general shareholders meeting. If the total assets of a company listed on the KRX KOSPI Market as of the end of the preceding year exceeds (Won)2,000 billion, which is the case with us, the Commercial Code of Korea requires such company to have more than three outside directors with more than half of its total directors being outside directors. The term of office for all directors is up to three years, but the term is extended to the close of the annual shareholders meeting convened with respect to the last fiscal year of the term. If the term of office for the director ends before the close of the annual general meeting of shareholders convened with respect to the last fiscal year within such term of office and a new director is appointed, the term of office for such new director will be the remaining term of office of his or her predecessor.
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Under the Commercial Code of Korea, we must establish a committee to nominate candidates for outside directors within the board of directors, and outside directors must make up not less than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one non-independent director and all of our outside directors. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders meeting.
Upon the request of any director, a meeting of the board of directors will be assembled. The chairperson 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 chairperson is one year.
Our current directors are as follows:
Name |
Position |
Director Since |
Date of Birth | Expiration of Term of Office |
||||||||||
Non-Independent Directors (1) |
||||||||||||||
Suk-Chae Lee |
Chief Executive Officer | January 2009 | September 11, 1945 | 2012 | ||||||||||
Sang-Hoon Lee |
President | March 2009 | January 24, 1955 | 2012 | ||||||||||
Hyun-Myung Pyo |
President | March 2009 | October 21, 1958 | 2012 | ||||||||||
Outside Directors (1) |
||||||||||||||
E. Han Kim |
Chairperson of the Board of Directors, Chair Professor, University of Michigan |
March 2009 | May 27, 1946 | 2012 | ||||||||||
Choon-Ho Lee |
Chairperson of the Board of Directors of Korea Educational Broadcasting System |
March 2009 | July 22, 1945 | 2012 | ||||||||||
Jeung-Soo Huh |
Professor, Kyungpook National University |
March 2009 | June 10, 1960 | 2012 | ||||||||||
Jong-Hwan Song |
Professor, Myongji University |
March 2010 | September 5, 1944 | 2013 | ||||||||||
Hae-Bang Chung |
Professor, School of Law, Konkuk University |
March 2010 | September 1, 1950 | 2013 | ||||||||||
Chan-Jin Lee |
Chief Executive Officer, DreamWiz Inc. |
March 2010 | October 25, 1965 | 2013 | ||||||||||
Hyun Nak Lee |
Consultant, Kyonggi Ilbo |
March 2011 | November 4, 1941 | 2014 | ||||||||||
Byong Won Bahk |
Visiting Professor, School of Business, Seoul National University |
March 2011 | September 24, 1952 | 2014 |
(1) | All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
Suk-Chae Lee is a non-independent director and has served as our chief executive officer since January 2009. Prior to joining us, he served as a senior advisor of Bae, Kim & Lee LLC, chief economic advisor to the President of Korea, Minister of Information and Telecommunications and Vice Minister of Finance and Economy. Mr. Lee holds a bachelors degree in economics from Seoul National University, an M.A. degree in political economy from Boston University and a Ph.D. degree in economics from Boston University.
Sang-Hoon Lee is a non-independent director and has served as the president of the Enterprise Customer Group since March 2009. He has previously served as senior executive vice president of the Business Development Group and executive vice president of the Business Marketing Unit. Mr. Lee holds a bachelors degree in engineering from Seoul National University and both his masters degree and Ph.D degree in electric engineering from University of Pennsylvania.
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Hyun-Myung Pyo is a non-independent director and has served as the president of the Personal Customer Group since December 2009. He has previously served as senior executive vice president of the Corporate Center and senior vice president of the WiBro Business Unit and head of the Marketing Group of KTF. Mr. Pyo holds a bachelors degree in electronic engineering from Korea University and both his graduate and Ph.D degrees in electronic engineering from Korea University.
E. Han Kim has served as our outside director since March 2009. He is currently a chair professor of business administration at University of Michigan and has served as outside director of POSCO and Hana Bank. Mr. Kim holds a bachelors degree from Rochester University, a masters degree in business administration from Cornell University and a Ph.D. degree in finance from State University of New York-Buffalo.
Choon-Ho Lee has served as our outside director since March 2009. She is currently the chairperson of the board of directors of Korea Educational Broadcasting System. Ms. Lee has served as a director of the board of Seoul Foundation for Arts and Culture. She holds a bachelors degree in politics and foreign affairs from Ewha Womans University and has received both her graduate and Ph.D. degrees in education from Inha University.
Jeung-Soo Huh has served as our outside director since March 2009. He is currently a professor of material science and metallurgical engineering at Kyungpook National University and was formerly a visiting professor at Manchester University. Mr. Huh holds a bachelors degree in physical metallurgy from Seoul National University, a graduate degree in material engineering from Seoul National University and a Ph.D. degree in material engineering from Massachusetts Institute of Technology.
Jong-Hwan Song was elected as our outside director in March 2010. He is currently a professor of North Korean studies at Myongji University. Mr. Song holds a bachelors degree and a graduate degree in international relations from Seoul National University and a Ph.D. degree in political science from Hanyang University.
Hae-Bang Chung was elected as our outside director in March 2010. He is currently a professor at Konkuk University School of Law. Mr. Chung holds a bachelors degree and a graduate degree in law from Seoul National University and a graduate degree in economics from Vanderbilt University.
Chan-Jin Lee was elected as our outside director in March 2010. He is currently the chief executive officer of DreamWiz Inc. and was formerly the chief executive officer of Hancom Inc. Mr. Lee holds a bachelors degree in mechanical engineering from Seoul National University.
Hyun-Nak Lee has served as our outside director since March 2011. He is currently a consultant at Kyonggi Ilbo and was formerly a chief executive officer of Kyonggi Ilbo and an executive director and chief editor of Donga Ilbo. Mr. Lee holds a masters degree in economics from Seoul National University.
Byong-Won Bahk has served as our outside director since March 2011. He is currently a visiting professor at Seoul National University School of Business. He was formerly a vice minister of the Ministry of Finance and Economy, a chief executive officer and chairperson of board of directors at Woori Finance Holdings Co., Ltd. and a chairperson of board of directors at Woori Bank. Mr. Bahk holds a masters degree in economics from Washington University.
For the purposes of the Korean Commercial Code, our Chief Executive Officer is deemed to be the representative director who is authorized to perform all judicial and extra-judicial acts relating to
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our business. Our shareholders elect the Chief Executive Officer in accordance with the provisions of the Commercial Code and our articles of incorporation. A candidate for Chief Executive Officer is nominated by a committee formed for that purpose. The Chief Executive Officer Candidate Nominating Committee consists of:
| all of our outside directors; and |
| one non-independent director who is not a candidate. |
Under our articles of incorporation, the Chief Executive Officer Candidate Nominating Committee must submit a draft management contract between the company and the candidate covering the management objectives of the company to the shareholders meeting at the time of nomination of the candidate to the meeting. When the draft management contract has been approved at the shareholders meeting, the company enters into such management contract with the Chief Executive Officer. In such case, the chairperson of the Chief Executive Officer Candidate Nominating Committee, on behalf of the company, signs the management contract.
The board of directors may conduct performance review discussions to determine if the new Chief Executive Officer 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 Chief Executive Officer has failed to achieve the management goals, it may propose to dismiss the Chief Executive Officer at a shareholders meeting.
Senior Management
Our executive officers consist of President, Senior Executive Vice President, Executive Vice Presidents and Senior Vice Presidents. The executive officers other than the non-independent directors are appointed by the Chief Executive Officer and may serve up to three years.
The current executive officers are as follows:
Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company |
Date of Birth | ||||
Ho-Ick Suk |
Vice Chairperson, Corporate Relations Group | June 2009 | 2 | November 27, 1952 | ||||
Seong-Bok Jeong |
President, Legal & Ethics Office | January 2009 | 2 | December 7, 1954 | ||||
Yu-Yeol Seo |
President, Home Customer Group | January 2010 | 33 | September 9, 1956 | ||||
Doo-Whan Choi |
President, Corporate Technology Group | December 2006 | 4 | January 10, 1954 | ||||
Sam-Soo Pyo |
President, Senior Advisor | December 2010 | 2 | December 12, 1953 | ||||
Il-Young Kim |
Senior Executive Vice President, Corporate Center | January 2010 | 2 | September 8, 1956 | ||||
Sung-Man Kim |
Senior Executive Vice President, Network Group | January 2009 | 28 | October 3, 1956 | ||||
Jung-Hee Song |
Senior Executive Vice President, System Integration Group | January 2011 | 0 | February 18, 1958 | ||||
Han-Suk Kim |
Senior Executive Vice President, Global Business Unit | January 2010 | 21 | January 12, 1956 | ||||
Hong-Jin Kim |
Senior Executive Vice President, STO Support Unit | September 2010 | 1 | April 25, 1953 | ||||
In-Sung Jeon |
Senior Executive Vice President, Group Shared Service Group | January 2010 | 31 | October 9, 1958 | ||||
Gyoo-Taek Nam |
Executive Vice President, Corporate Center Synergy Management Office | October 2010 | 25 | February 6, 1961 | ||||
Sang-Jik Lee |
Executive Vice President, Legal Affairs Center | June 2009 | 2 | September 6, 1965 |
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Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company |
Date of Birth | ||||
Kyu-Shik Shin |
Executive Vice President, Public Customer Business Unit | January 2011 | 0 | June 7, 1957 | ||||
Sang-Hong Lee |
Executive Vice President, Technology Strategy Office | January 2010 | 27 | August 13, 1955 | ||||
Kyung-Soo Lee |
Executive Vice President, Fixed and Mobile Network Strategy Business Unit | December 2010 | 19 | February 5, 1960 | ||||
Tae-Il Park |
Executive Vice President, Network Technical Support Unit | January 2010 | 33 | February 24, 1956 | ||||
Hyun-Mi Yang |
Executive Vice President, Combined Customer Strategy Unit | December 2010 | 2 | December 4, 1963 | ||||
Young-Hee Song |
Executive Vice President, Contents and Media Business Unit | December 2010 | 2 | February 10, 1961 | ||||
Young-Hee Lee |
Executive Vice President, Group Consulting Support Office | December 2010 | 30 | August 7, 1957 | ||||
Eun-Hye Kim |
Executive Vice President, GMC Strategy Office | December 2010 | 0 | January 6, 1971 | ||||
Yeon-Hak Kim |
Executive Vice President, Value Management Office | June 2009 | 24 | May 17, 1962 | ||||
Hong-Seok Seo |
Executive Vice President, External Support Office | January 2011 | 0 | November 20, 1960 | ||||
Yong-Taek Cho |
Executive Vice President, Corporate Relations Support Office | July 2009 | 2 | September 7, 1954 | ||||
Gil-Joo Lee |
Executive Vice President, Public Relations Office | November 2006 | 35 | September 20, 1955 | ||||
Sang-Hyo Kim |
Executive Vice President, Human Resource Office | May 2010 | 1 | April 1, 1956 | ||||
Tae-Yol Yoo |
Executive Vice President, Economics & Management Research Laboratory | January 2009 | 27 | April 4, 1960 | ||||
Jeong-Tae Park |
Executive Vice President, Purchasing Strategy Office | January 2009 | 27 | December 10, 1959 | ||||
Jung Hwa |
Senior Vice President, Corporate Center Group Strategy Department | December 2010 | 22 | August 10, 1964 | ||||
Se-Hyun Oh |
Senior Vice President, Corporate Center New Business Strategy Department | January 2011 | 0 | July 2, 1963 | ||||
Dong-Hyun Han |
Senior Vice President, Corporate Center Strategic Investment Department | January 2009 | 3 | June 26, 1967 | ||||
Tae-Ki Min |
Senior Vice President, Synergy Management Office Marketing Alignment Department | December 2010 | 23 | August 7, 1962 | ||||
Sun-Cheol Gweon |
Senior Vice President, Synergy Management Office Investment Management Department | December 2010 | 20 | March 1, 1962 | ||||
Eun-Soo Park |
Senior Vice President, Ethical Management Department | January 2010 | 21 | January 10, 1962 | ||||
Hyun-Mo Gu |
Senior Vice President, Personal Customer Strategy Unit | December 2010 | 24 | January 13, 1964 | ||||
Kuk-Hyun Kang |
Senior Vice President, Personal Marketing Strategy Department | January 2010 | 22 | September 8, 1963 | ||||
Hyung-Wook Kim |
Senior Vice President, Mobile Handset Planning Department | January 2011 | 14 | April 24, 1963 | ||||
Seok-Gyoon Na |
Senior Vice President, Personal Customer Business Unit | June 2009 | 26 | October 26, 1958 | ||||
Hyun-Suk Lee |
Senior Vice President, Marketing Planning Department | January 2011 | 19 | March 10, 1962 | ||||
Myung-Bum Pyun |
Senior Vice President, Seoul Mobile Marketing Center | June 2009 | 14 | June 19, 1960 | ||||
Chang-Young Yoon |
Senior Vice President, Strategic Distribution Marketing Center | December 2010 | 25 | February 24, 1957 | ||||
Won-Sik Han |
Senior Vice President, Mobile Data Business Unit | January 2010 | 26 | October 26, 1960 | ||||
Seong-Mook Oh |
Senior Vice President, Mobile Network Unit | December 2010 | 25 | August 20, 1960 |
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Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company |
Date of Birth | ||||
Tae-Il Kwon |
Senior Vice President, Metropolitan Mobile Network O&M Center | December 2010 | 26 | June 19, 1960 | ||||
Tae-Hyo Ahn |
Senior Vice President, Personal Fast Incubation Unit | December 2010 | 26 | January 24, 1962 | ||||
Bong-Goon Kwak |
Senior Vice President, Mobile Incubation Department | January 2010 | 26 | March 2, 1960 | ||||
Hun-Mun Lim |
Senior Vice President, Home Customer Strategy Unit | December 2010 | 24 | November 15, 1960 | ||||
Hye-Jung Park |
Senior Vice President, Home Integrative Marketing Communication Unit | December 2010 | 4 | May 23, 1963 | ||||
Yong-Hwa Park |
Senior Vice President, Home Channel Business Unit | January 2010 | 28 | March 2, 1958 | ||||
Moon-Chul Jung |
Senior Vice President, Site Reformation Center | January 2010 | 25 | August 5, 1957 | ||||
Young-Lyoul Lee |
Senior Vice President, Olleh TV Unit | December 2010 | 4 | September 17, 1962 | ||||
Yoon-Mo Jun |
Senior Vice President, Southern Seoul Marketing Center | December 2010 | 14 | September 6, 1960 | ||||
Jin-Hoon Kim |
Senior Vice President, Northern Seoul Marketing Center | December 2010 | 24 | May 5, 1960 | ||||
Jun-Soo Jung |
Senior Vice President, Southern Gyeonggi Marketing Center | December 2010 | 19 | November 2, 1962 | ||||
Jong-Hack Kang |
Senior Vice President, Busan Marketing Center | June 2009 | 25 | April 5, 1959 | ||||
Jung-Won Park |
Senior Vice President, Gyeongnam Marketing Center | January 2010 | 25 | July 26, 1959 | ||||
Doo-Soo Jung |
Senior Vice President, Incheon Marketing Center | January 2010 | 33 | August 22, 1959 | ||||
Ouk-Young Yoo |
Senior Vice President, Daegu Marketing Center | December 2010 | 35 | December 20, 1956 | ||||
Ki-Hun Yoo |
Senior Vice President, Northern Gyeonggi Marketing Center | January 2010 | 28 | January 1, 1957 | ||||
Moon-Hwan Lee |
Senior Vice President, Corporate Customer Strategy Department | January 2009 | 22 | October 1, 1963 | ||||
Yoon-Sik Jung |
Senior Vice President, Enterprise Customer Business Unit 1 | December 2010 | 2 | September 30, 1964 | ||||
Kyung-Seok Park |
Senior Vice President, Enterprise Customer Business Unit 2 | December 2010 | 25 | February 10, 1958 | ||||
Young-Sik Park |
Senior Vice President, Small & Medium Business Unit | December 2010 | 33 | April 9, 1957 | ||||
Dong-Hoon Han |
Senior Vice President, Service Delivery Business Unit | December 2010 | 30 | April 9, 1959 | ||||
Ki-Soong Jang |
Senior Vice President, Corporate Fast Incubation Unit | December 2010 | 26 | October 17, 1958 | ||||
Jong-Jin Chae |
Senior Vice President, Corporate Product Business Unit | December 2010 | 26 | June 25, 1961 | ||||
Ju-Ouk Uhm |
Senior Vice President, Northern Seoul Corporate Business Center | January 2010 | 26 | March 17, 1960 | ||||
Seung-Dong Gye |
Senior Vice President, Southern Seoul Corporate Business Center | December 2010 | 34 | June 6, 1958 | ||||
Hyung-Chul Park |
Senior Vice President, Southern Gyeonggi Corporate Business Center | December 2010 | 25 | February 2, 1962 | ||||
Jin-Sik Park |
Senior Vice President, Daejeon Corporate Business Center | December 2010 | 25 | August 5, 1959 | ||||
Sung-Hwan Gong |
Senior Vice President, Jeonnam Corporate Business Center | December 2010 | 25 | December 21, 1960 | ||||
Pan-Sik Shin |
Senior Vice President, Jeonbuk Corporate Business Center | July 2009 | 24 | February 25, 1959 | ||||
Gang-Geun Lee |
Senior Vice President, Gangwon Corporate Business Center | January 2010 | 22 | June 22, 1961 |
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Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company |
Date of Birth | ||||
Dong-Myun Lee |
Senior Vice President, Technology Strategy Center | December 2010 | 20 | October 15, 1962 | ||||
Yoon-Young Park |
Senior Vice President, Technology Development Center | January 2010 | 19 | April 18, 1962 | ||||
Han-Wook Jung |
Senior Vice President, Central R&D Laboratory | January 2010 | 25 | January 22, 1961 | ||||
Sung-Chun Lee |
Senior Vice President, Fixed and Mobile Network R&D Center | December 2010 | 26 | May 28, 1960 | ||||
Hong-Bum Jun |
Senior Vice President, Smart Green Development Department | January 2010 | 20 | October 3, 1962 | ||||
Cha-Hyun Yoon |
Senior Vice President, Network Establishment Business Unit | December 2010 | 26 | December 2, 1961 | ||||
Yung-Sig Yoon |
Senior Vice President, Network O&M Business Unit | December 2010 | 27 | November 20, 1956 | ||||
Chan-Kyung Park |
Senior Vice President, Gangbuk Network O&M Center | January 2010 | 5 | January 1, 1959 | ||||
Dae-San Lee |
Senior Vice President, Gangnam Network O&M Center | December 2010 | 24 | January 10, 1961 | ||||
Tae-Geun Kim |
Senior Vice President, Central Network O&M Center | December 2010 | 28 | March 16, 1059 | ||||
Jong-Ok Lee |
Senior Vice President, Honam Network O&M Center | December 2010 | 28 | June 3, 1960 | ||||
Jong-Seog Koh |
Senior Vice President, Daegu Network O&M Center | December 2010 | 22 | August 7, 1959 | ||||
Young-Hyun Kim |
Senior Vice President, Busan Network O&M Center | January 2010 | 33 | December 19, 1958 | ||||
Sang-Cheon Shim |
Senior Vice President, Customer Service Business Unit | December 2010 | 25 | May 19, 1960 | ||||
Jung-Sik Suh |
Senior Vice President, Cloud Computing Service Business Unit | April 2010 | 4 | August 18, 1969 | ||||
Dong-Shik Yoon |
Senior Vice President, Cloud Computing Service Infrastructure Department | April 2010 | 23 | June 9, 1963 | ||||
Kyung-Kon Koh |
Senior Vice President, Internet Service Business Unit | December 2010 | 2 | April 28, 1963 | ||||
Hyun-Kyu Lee |
Senior Vice President, Combined Platform & Software Business Unit | January 2011 | 0 | May 13, 1962 | ||||
Jae Lee |
Senior Vice President, BIT Business Center | December 2010 | 1 | March 2, 1970 | ||||
Hyung-Joon Kim |
Senior Vice President, Global Planning Department | December 2010 | 17 | November 2, 1963 | ||||
Sang-Wook Kim |
Senior Vice President, Global GTM2 Department | December 2010 | 1 | February 14, 1965 | ||||
Young-Mo Kwon |
Senior Vice President, Satellite Business Department | December 2010 | 22 | April 1, 1958 | ||||
Joon-Shik Park |
Senior Vice President, STO Support Department | November 2011 | 1 | February 16, 1967 | ||||
Gwang-Suk Shin |
Senior Vice President, Value Management Department 1 | December 2010 | 22 | January 5, 1960 | ||||
Sung-Jin Lee |
Senior Vice President, Financial Accounting Department | January 2009 | 15 | December 2, 1958 | ||||
Hwa-Joon Cho |
Senior Vice President, Finance Department | January 2010 | 17 | February 24, 1957 | ||||
Bum-Joon Kim |
Senior Vice President, Investor Relations Department | September 2005 | 6 | March 25, 1965 | ||||
Jae-Geun Choi |
Senior Vice President, Business Public Relations Department | January 2010 | 2 | November 30, 1961 | ||||
Hee-Soo Kim |
Senior Vice President, Economics & Management Research Laboratory | March 2011 | 0 | October 15, 1962 | ||||
Sa-Il Kwon |
Senior Vice President, Business Support Office | March 2010 | 34 | January 30, 1957 | ||||
Seong-Hoon Shim |
Senior Vice President, Secretarial Office | January 2010 | 23 | February 25, 1964 |
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Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company |
Date of Birth | ||||
Geun-Mook Cho |
Senior Vice President, Educational Dispatch | December 2010 | 28 | November 7, 1958 | ||||
Dae-Soo Park |
Senior Vice President, Educational Dispatch | December 2010 | 22 | October 28, 1963 | ||||
Choong-Seop Lee |
Senior Vice President, Educational Dispatch | December 2010 | 11 | June 3, 1958 | ||||
Sun-Jong Heo |
Senior Vice President, R&D | November 2010 | 5 | March 23, 1959 |
(1) | All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
Compensation of Directors and Executive Officers
In 2010, the total amount of salaries, bonuses (including long-term performance-based incentives for directors) and allowances paid and accrued to all directors and executive officers of KT Corporation for services in all capacities was approximately (Won)42 billion. The aggregate amount accrued by us to provide retirement benefits to such persons was (Won)6 billion in 2010. Starting in 2009, we no longer pay long-term performance-based incentives to our outside directors.
The chairperson of the Chief Executive Officer Candidate Nominating Committee enters into an employment agreement on our behalf with our Chief Executive Officer. The employment agreement sets certain management targets to be achieved by the Chief Executive Officer, including a target for the amount of EBITDA to be achieved in each year. EBITDA is defined as earnings before interest, tax, depreciation and amortization. Failure to achieve certain thresholds below the targets will allow the board of directors to take actions with respect to the Chief Executive Officers employment, including proposing to the shareholders meeting an early termination of his employment. In addition, the head of each of our functional departments, the president of each of our subsidiaries and the heads of each regional head office have entered into employment agreements with the Chief Executive Officer that provide for similar management targets to be achieved by each of our departments, subsidiaries and regional head offices.
As of December 31, 2010, none of our non-independent or outside directors maintained directors service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment.
Corporate Governance Committee
The Corporate Governance Committee is comprised of four outside directors and one standing director, Choon-Ho Lee, E. Han Kim, Jeung-Soo Huh, Hae-Bang Chung and Hyun-Myung Pyo. The chairperson is Choon-Ho Lee. The committee is responsible for the review of matters with respect to our Corporate Governance Guidelines and our performance under such guidelines to monitor effectiveness of our corporate governance.
Outside Director Candidate Nominating Committee
The Outside Director Candidate Nominating Committee consists of one non-independent director and all of our outside directors, other than for election of an outside director resulting from the
78
expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. The committees duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside directors on our board of directors. The committee members terms expire immediately after the adjournment of the shareholders meeting where the outside directors are elected.
Evaluation and Compensation Committee
The Evaluation and Compensation Committee is currently comprised of four outside directors, Jeung-Soo Huh, Choon-Ho Lee, Jong-Hwan Song and Chan-Jin Lee. The chairperson is Jeung-Soo Huh. The committees duties include prior review of the Chief Executive Officers management goals, terms and conditions proposed for inclusion in the employment contract of the Chief Executive Officer, including, but not limited to, determining whether the Chief Executive Officer has achieved the management goals, and the determination of compensation of the Chief Executive Officer and the non-independent directors. The committee members are elected by the board after the closing of the annual meeting, and the term of the committee members is for one year.
Executive Committee
The Executive Committee is currently comprised of all of the non-independent directors. The chairperson is Suk-Chae Lee. The committees duties include the establishment and management of branch offices, the acquisition and disposal of real estate having market value between (Won)15 billion to (Won)30 billion, making investments and providing guarantees up to (Won)30 billion, the disposal and sale of stocks of our subsidiaries, which stocks have a market value of between (Won)15 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.
Related-Party Transactions Committee
The Related-Party Transactions Committee is currently comprised of four outside directors, Jong-Hwan Song, Chan-Jin Lee, Hyun-Nak Lee and Byong Won Bahk. The chairperson is Jong-Hwan Song. This committee reviews transactions between KT Corporation and its subsidiaries and ensures compliance with applicable antitrust laws. The committee members are elected by the board after the annual meeting, and the term of the committee members is for one year.
Audit Committee
Under the Commercial Code of Korea, we are required to establish an audit committee comprised of three or more outside directors comprised of at least two-thirds of the audit committee members. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of E. Han Kim, Hae-Bang Chung, Hyun-Nak Lee and Byong Won Bahk. The chairperson is Hae-Bang Chung. Members of the committee are elected by our shareholders at the shareholders meeting. Our internal and external auditors report directly to the committee.
| The duties of the committee include: |
| appointing independent auditors; |
| approving the appointment and recommending the dismissal of the internal auditor; |
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| evaluating performance of independent auditors; |
| approving services to be provided by the independent auditors; |
| reviewing annual financial statements; |
| reviewing audit results and reports; |
| reviewing and evaluating our system of internal controls and policies; and |
| examining improprieties or suspected improprieties. |
In addition, in connection with the shareholders meeting, the committee examines the agenda for, and financial statement and other reports to be submitted by the board of directors, at each shareholders meeting.
On a non-consolidated basis, we had 31,155 employees as of December 31, 2010, compared to 30,841 employees as of December 31, 2009 and 35,063 employees as of December 31, 2008. Prior to the merger with KT Corporation, KTF had 2,560 employees as of December 31, 2008.
The Voluntary Early Retirement Plans
We sponsor a voluntary early retirement plan where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2008, 1,141 employees retired under KT Corporations voluntary early retirement plan.
In 2009, we had a voluntary early retirement plan where we received applications from employees who had been employed by us for more than 20 years. In addition, we held a special voluntary early retirement program in the fourth quarter of 2009 where we received applications for voluntary early retirement from employees who had been employed by us for more than 15 years and provided them with additional financial incentives to retire early. In aggregate, 6,515 employees retired in 2009 under the voluntary early retirement plan and the special voluntary early retirement program.
In 2010, 123 employees retired under KT Corporations voluntary early retirement plan. We did not have a special voluntary early retirement program in 2010.
Labor Relations
We consider our current relations with our work force to be good. However, in the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base.
As of December 31, 2010, about 78.6% of all employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the Union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on May 23, 2013. 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.
The Union also negotiates with us an annual agreement on wages on behalf of its members. Under the Act of the Promotion of Workers Participation and Cooperation, our Employee-Employer
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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.
Recent amendments to the Trade Union and Labor Relations Adjustment Act (Labor Act), which will become effective on July 1, 2011, allow multiple labor unions to be formed within one company. Therefore, additional labor unions may be formed by our employees. The amended Labor Act also requires such multiple unions to consolidate themselves into a single channel when negotiating with the company on behalf of their members and to enter into a single collective bargaining agreement with the company.
Employee Stock Ownership and Benefits
We have an employee stock ownership association, which may purchase on behalf of its members up to 20.0% of any of our shares offered publicly in Korea. The employee stock ownership association owned 1.56% of our issued shares as of December 31, 2010.
In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5% of an employees standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well as non-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees are paid the pension amount due from their pension accounts. Prior to January 2011, our executive and non-executive employees were subject to a lump-sum severance payment system, under which they were entitled to receive a lump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in January 2011, in accordance with the Korean Employee Retirement Income Security Act, we replaced such lump-sum severance payment system with our current pension insurance system in the form of a defined benefit plan, with a total unfunded portion of approximately (Won)350 billion as of December 31, 2010. Our employees have the option of choosing either the defined benefit plan or the defined contribution plan. Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, cultural and athletic facilities, physical education grants, meal allowances, medical examinations and training and resort centers. See Item 5. Operating and Financial Review and ProspectsItem. 5.A. Operating ResultsSalaries and Related Costs.
Employee Training
The objective of our training program is to develop information and technology specialists who are able to create value for our customers. In order to develop skills of our employees, we require 60 hours of training per year from most of our employees, using individually-tailored curriculums based on individual assessments. We also operate Cyber Academy to provide online classes to our employees, as well as offer various foreign language classes to our employees. In addition, we provide tuition and living expense reimbursements to our high potential individuals who pursue graduate programs in Korea and abroad, as well as provide financial assistance to those who pursue work-related professional licenses or participate in after-work study programs.
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Common Stock
The persons who are currently our directors held, as a group, 35,033 common shares as of March 31, 2011, the most recent date for which this information is available. The table below shows the ownership of our common shares by directors:
Shareholders |
Number of Common Shares Owned |
|||
Suk-Chae Lee |
21,204 | |||
Sang-Hoon Lee |
10,316 | |||
Hyun-Myung Pyo |
3,513 | |||
E. Han Kim |
| |||
Choon-Ho Lee |
| |||
Jeung-Soo Huh |
| |||
Jong-Hwan Song |
| |||
Hae-Bang Chung |
| |||
Chan-Jin Lee |
| |||
Hyun Nak Lee |
| |||
Byong Won Bahk |
|
Stock Options
We have not granted any stock options to our current directors and executive officers.
Item 7. Major Shareholders and Related Party Transactions
The following table sets forth certain information relating to the shareholders of our common stock as of December 31, 2010:
Shareholders |
Number of Shares |
Percent of Total Shares Issued |
||||||
National Pension Corporation |
21,557,950 | 8.26 | % | |||||
NTTDoCoMo, Inc. |
14,257,813 | 5.46 | % | |||||
Employee stock ownership association |
4,069,147 | 1.56 | % | |||||
Directors as a group |
28,073 | 0.01 | % | |||||
Public |
203,302,861 | 77.86 | % | |||||
KT Corporation (held in the form of treasury stock) (1) |
17,895,964 | 6.85 | % | |||||
Total issued shares |
261,111,808 | 100.00 | % | |||||
(1) | Includes shares of treasury stock owned by our treasury stock fund. |
Item 7.B. Related Party Transactions
We have issued guarantees of (Won)10 billion as of December 31, 2008, (Won)10 billion as of December 31, 2009 and (Won)38 billion as of December 31, 2010 in favor of our consolidated subsidiaries. We have also engaged in various transactions with our subsidiaries and affiliated companies. See Notes 18 and 32 to the Consolidated Financial Statements.
In November 2010, we also entered into a contract with Dreamwiz Corp., whose chief executive officer is Mr. Chan Jin Lee who serves as our outside director, to obtain social network-related support services for our website www.olleh.com. The term of the service contract is for a period of five years from November 2010 to November 2015 for an estimated aggregate service fee of (Won)370 million.
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Item 7.C. Interests of Experts and Counsel
Not applicable.
Item 8.A. Consolidated Statements and Other Financial Information
See Item 18Financial Statements and pages F-1 through F-96.
Legal Proceedings
In November 2009, 56 of our former customers began a claim against us for an aggregate (Won)130 million in damages, alleging that we improperly subscribed them to our optional flat rate plans for fixed-line services without properly obtaining their consent or giving notification. The Seoul Central District Court ruled in favor of us on all claims in May 2011, and the plaintiffs filed an appeal in June 2011.
In connection with this complaint, the Korea Communications Commission investigated our past practices regarding our subscription of customers to optional flat rate plans, and issued an administrative decision in April 2011 which imposed several corrective orders including amendments to our standard terms of use and issuance of an administrative fine of approximately (Won)10 billion. We paid such fines to the Korea Communications Commission and implemented its corrective orders.
We are a defendant in various other 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 have a material adverse effect on our business, financial condition and results of operations.
Dividends
The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding common stock to shareholders of record on June 30 of the years indicated.
Year |
Annual Dividend per Common Stock |
Interim Dividend per Common Stock |
Average Total Dividend per Common Stock |
|||||||||
(In Won) | (In Won) | (In Won) | ||||||||||
2006 |
2,000 | | 2,000 | |||||||||
2007 |
2,000 | | 2,000 | |||||||||
2008 |
1,120 | | 1,120 | |||||||||
2009 |
2,000 | | 2,000 | |||||||||
2010 |
2,410 | | 2,410 |
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 InformationItem 10.B.
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Memorandum and Articles of AssociationDividends and Item 12. Description of Securities Other than Equity SecuritiesDescription of American Depositary SharesDividends and Distributions.
The Commercial Code provides that shares of a company of the same class must receive equal treatment. However, major shareholders may consent to receive dividend distributions at a lesser rate than minor shareholders. Previously, the Government consented to receiving a smaller dividend compared to other shareholders. The Government no longer holds any interest in us.
Any cash dividends relating to the shares held in the form of ADSs will be paid to the depositary bank in Won. The deposit agreement provides that, except in certain circumstances, cash dividends received by the depositary bank will be converted by the depositary bank into Dollars and distributed to the holders of the ADRs, less withholding tax, other governmental charges and the depositary banks fees and expenses. See Item 12. Description of Securities Other than Equity SecuritiesDescription of the American Depositary SharesDividends and Distributions.
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9.A. Offer and Listing Details
Market Price Information
Common Stock
Our shares were listed on the KRX KOSPI Market on December 23, 1998. The price of the shares on the KRX KOSPI Market as of the close of trading on June 28, 2011 was (Won)39,300 per share. The table below shows the high and low closing prices and the average daily volume of trading activity on the KRX KOSPI Market for the shares.
Price | Average Daily Trading Volume |
|||||||||||
High | Low | |||||||||||
(In Won) | (Number of shares) | |||||||||||
2006 |
49,350 | 37,600 | 539,707 | |||||||||
2007 |
56,100 | 40,150 | 917,274 | |||||||||
2008 |
52,200 | 29,500 | 1,019,430 | |||||||||
2009 |
42,000 | 33,100 | 1,371,110 | |||||||||
First quarter |
42,000 | 35,800 | 1,275,616 | |||||||||
Second quarter |
39,000 | 33,100 | 1,710,969 | |||||||||
Third quarter |
41,050 | 36,650 | 1,474,130 | |||||||||
Fourth quarter |
40,600 | 39,100 | 1,015,789 | |||||||||
2010 |
50,600 | 39,150 | 1,343,486 | |||||||||
First quarter |
50,600 | 39,150 | 1,838,430 | |||||||||
Second quarter |
49,350 | 44,650 | 1,353,466 | |||||||||
Third quarter |
45,700 | 41,100 | 1,148,613 | |||||||||
Fourth quarter |
49,200 | 43,500 | 1,033,436 | |||||||||
2011 (through June 28) |
45,500 | 36,350 | 989,721 | |||||||||
First quarter |
45,500 | 37,850 | 1,131,917 | |||||||||
January |
45,500 | 41,800 | 1,450,595 | |||||||||
February |
42,050 | 39,100 | 1,082,810 | |||||||||
March |
39,900 | 37,850 | 865,669 | |||||||||
Second quarter (through June 28) |
40,500 | 36,350 | 847,525 | |||||||||
April |
40,500 | 37,500 | 883,324 | |||||||||
May |
39,850 | 37,450 | 943,658 | |||||||||
June (through June 28) |
39,300 | 36,350 | 706,764 |
Source: | KRX KOSPI Market. |
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ADSs
The outstanding ADSs, each of which represents one-half of one share of our common stock, have been traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999.
The price of the ADSs on the New York Stock Exchange as of the close of trading on June 28, 2011 was $18.86 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2006.
Price | Average Daily Trading Volume |
|||||||||||
High | Low | |||||||||||
(In US$) | (Number of ADSs) | |||||||||||
2006 |
26.66 | 20.11 | 562,859 | |||||||||
2007 |
29.22 | 21.51 | 592,205 | |||||||||
2008 |
27.10 | 10.10 | 819,733 | |||||||||
2009 |
17.64 | 11.42 | 639,566 | |||||||||
First quarter |
15.74 | 11.42 | 973,548 | |||||||||
Second quarter |
15.09 | 13.14 | 704,511 | |||||||||
Third quarter |
17.38 | 14.18 | 390,295 | |||||||||
Fourth quarter |
17.64 | 16.05 | 489,908 | |||||||||
2010 |
22.62 | 17.12 | 784,905 | |||||||||
First quarter |
21.43 | 17.12 | 718,461 | |||||||||
Second quarter |
22.62 | 18.61 | 744,727 | |||||||||
Third quarter |
20.46 | 17.79 | 868,906 | |||||||||
Fourth quarter |
22.07 | 20.29 | 803,784 | |||||||||
2010 (through June 28) |
20.86 | 17.75 | 1,291,515 | |||||||||
First quarter |
20.72 | 18.34 | 1,380,642 | |||||||||
January |
20.72 | 19.66 | 1,554,945 | |||||||||
February |
20.30 | 19.59 | 1,555,063 | |||||||||
March |
19.77 | 18.34 | 1,084,987 | |||||||||
Second quarter (through June 28) |
20.86 | 17.75 | 1,200,926 | |||||||||
April |
20.32 | 19.31 | 837,350 | |||||||||
May |
20.86 | 18.22 | 1,539,710 | |||||||||
June (through June 28) |
18.86 | 17.75 | 1,210,370 |
Source: | New York Stock Exchange. |
Item 9.B. Plan of Distribution
Not applicable.
The KRX KOSPI Market
On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the KOSDAQ) and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (ii) the Small Business
85
Corporation, (iii) the Korea Securities Finance Corporation and (iv) the Korea Securities Dealers Association. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean securities companies and some Korean branches of foreign securities companies.
The KRX KOSPI Market has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The KRX KOSPI Market also restricts share price movements. All listed companies are required to file accounting reports annually and quarterly and to release immediately all information that may affect trading in a security.
The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.
The KRX KOSPI Market publishes the Korea Composite Stock Price Index every two seconds, which is an index of all equity securities listed on the KRX KOSPI Market. The Korea Composite Stock Price Index is calculated using the aggregate value method, in which 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.
Year |
Opening | High | Low | Closing | Period Average | |||||||||||||||||||
Dividend Yield (1) (2) (Percent) |
Price Earnings Ratio (2) (3) |
|||||||||||||||||||||||
1985 |
139.53 | 163.37 | 131.40 | 163.37 | 5.3 | 5.2 | ||||||||||||||||||
1986 |
161.40 | 279.67 | 153.85 | 272.61 | 4.3 | 7.6 | ||||||||||||||||||
1987 |
264.82 | 525.11 | 264.82 | 525.11 | 2.6 | 10.9 | ||||||||||||||||||
1988 |
532.04 | 922.56 | 527.89 | 907.20 | 2.4 | 11.2 | ||||||||||||||||||
1989 |
919.61 | 1,007.77 | 844.75 | 909.72 | 2.0 | 13.9 | ||||||||||||||||||
1990 |
908.59 | 928.82 | 566.27 | 696.11 | 2.2 | 12.8 | ||||||||||||||||||
1991 |
679.75 | 763.10 | 586.51 | 610.92 | 2.6 | 11.2 | ||||||||||||||||||
1992 |
624.23 | 691.48 | 459.07 | 678.44 | 2.2 | 10.9 | ||||||||||||||||||
1993 |
697.41 | 874.10 | 605.93 | 866.18 | 1.6 | 12.7 | ||||||||||||||||||
1994 |
879.32 | 1,138.75 | 855.37 | 1,027.37 | 1.2 | 16.2 | ||||||||||||||||||
1995 |
1,027.45 | 1,016.77 | 847.09 | 882.94 | 1.2 | 16.4 | ||||||||||||||||||
1996 |
882.29 | 986.84 | 651.22 | 651.22 | 1.3 | 17.8 | ||||||||||||||||||
1997 |
647.67 | 792.29 | 350.68 | 376.31 | 1.5 | 17.0 | ||||||||||||||||||
1998 |
374.41 | 579.86 | 280.00 | 562.46 | 1.9 | 10.8 | ||||||||||||||||||
1999 |
565.10 | 1,028.07 | 498.42 | 1,028.07 | 1.1 | 13.5 | ||||||||||||||||||
2000 |
1,028.33 | 1,059.04 | 500.60 | 504.62 | 2.1 | 12.9 | ||||||||||||||||||
2001 |
503.31 | 704.50 | 468.76 | 693.70 | 1.7 | 16.4 | ||||||||||||||||||
2002 |
698.00 | 937.61 | 584.04 | 627.55 | 1.6 | 15.2 | ||||||||||||||||||
2003 |
633.03 | 822.16 | 515.24 | 810.71 | 2.0 | 11.8 | ||||||||||||||||||
2004 |
821.26 | 936.06 | 719.59 | 895.92 | 2.0 | 13.8 | ||||||||||||||||||
2005 |
896.00 | 1,379.37 | 870.84 | 1,379.37 | 1.8 | 10.6 | ||||||||||||||||||
2006 |
1,383.32 | 1,464.70 | 1,203.86 | 1,434.46 | 1.6 | 11.1 | ||||||||||||||||||
2007 |
1,438.89 | 2,064.85 | 1,355.79 | 1,897.13 | 1.4 | 15.8 | ||||||||||||||||||
2008 |
1,891.45 | 1,888.88 | 938.75 | 1,124.47 | 2.6 | 8.9 | ||||||||||||||||||
2009 |
1,132.87 | 1,718.88 | 1,018.81 | 1,682.77 | 1.6 | 22.9 | ||||||||||||||||||
2010 |
1,696.14 | 2,051.00 | 1,552.79 | 2,051.00 | 1.1 | 17.8 | ||||||||||||||||||
2011 (through June 28) |
2,070.08 | 2,228.96 | 1,923.92 | 2,062.91 | 1.2 | 16.1 |
Source: | The KRX KOSPI Market |
(1) | Dividend yields are based on daily figures. Dividend yields after January 3, 1984 include cash dividends only. |
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(2) | Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors. |
(3) | The price earnings ratio is based on figures for companies that record a profit in the preceding year. |
Shares are quoted ex-dividend on the first trading day of the relevant companys accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in the Korea Composite Stock Price Index between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.
With certain exceptions, principally to take account of a share being quoted ex-dividend and ex-rights, permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the KRX KOSPI Market to 15% of the previous days closing price of the shares, rounded down as set out below:
Previous Days Closing Price |
Rounded Down To | |||
Less than (Won)5,000 |
(Won) | 5 | ||
(Won)5,000 to less than (Won)10,000 |
(Won) | 10 | ||
(Won)10,000 to less than (Won)50,000 |
(Won) | 50 | ||
(Won)50,000 to less than (Won)100,000 |
(Won) | 100 | ||
(Won)100,000 to less than (Won)500,000 |
(Won) | 500 | ||
(Won)500,000 or more |
(Won) | 1,000 |
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.
Due to a deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the KRX KOSPI Market by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares at the rate of 0.15% if such transfer is made through the KRX KOSPI Market. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See Item 10. Additional InformationItem 10.A. TaxationKorean Taxation.
The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:
Market Capitalization on the Last Day of Each Period |
Average Daily Trading Volume, Value | |||||||||||||||||||||||
Year |
Number of Listed Companies |
(Billions of Won) |
(Millions of Dollars) (1) |
Thousands of Shares |
(Millions of Won) |
(Thousands of Dollars) (1) |
||||||||||||||||||
1985 |
342 | 6,570 | 7,381 | 18,925 | 12,315 | 13,834 | ||||||||||||||||||
1986 |
355 | 11,994 | 13,924 | 31,755 | 32,870 | 38,159 | ||||||||||||||||||
1987 |
389 | 26,172 | 33,033 | 20,353 | 70,185 | 88,583 | ||||||||||||||||||
1988 |
502 | 64,544 | 94,348 | 10,367 | 198,364 | 289,963 | ||||||||||||||||||
1989 |
626 | 95,477 | 140,490 | 11,757 | 280,967 | 414,430 | ||||||||||||||||||
1990 |
669 | 79,020 | 110,301 | 10,866 | 183,692 | 256,411 | ||||||||||||||||||
1991 |
686 | 73,118 | 96,107 | 14,022 | 214,263 | 281,629 | ||||||||||||||||||
1992 |
688 | 84,712 | 107,448 | 24,028 | 308,246 | 390,977 | ||||||||||||||||||
1993 |
693 | 112,665 | 139,420 | 35,130 | 574,048 | 710,367 |
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Market Capitalization on the Last Day of Each Period |
Average Daily Trading Volume, Value | |||||||||||||||||||||||
Year |
Number of Listed Companies |
(Billions of Won) |
(Millions of Dollars) (1) |
Thousands of Shares |
(Millions of Won) |
(Thousands of Dollars) (1) |
||||||||||||||||||
1994 |
699 | 151,217 | 191,730 | 36,862 | 776,257 | 984,223 | ||||||||||||||||||
1995 |
721 | 141,151 | 182,201 | 26,130 | 487,762 | 629,613 | ||||||||||||||||||
1996 |
760 | 117,370 | 139,031 | 26,571 | 486,834 | 575,680 | ||||||||||||||||||
1997 |
776 | 70,989 | 50,162 | 41,525 | 555,759 | 392,707 | ||||||||||||||||||
1998 |
748 | 137,799 | 114,091 | 97,716 | 660,429 | 546,803 | ||||||||||||||||||
1999 |
725 | 349,504 | 305,137 | 278,551 | 3,481,620 | 3,039,655 | ||||||||||||||||||
2000 |
704 | 188,042 | 149,275 | 306,163 | 2,602,211 | 2,065,739 | ||||||||||||||||||
2001 |
689 | 253,843 | 191,421 | 473,241 | 1,997,420 | 1,506,237 | ||||||||||||||||||
2002 |
683 | 258,681 | 215,496 | 857,245 | 3,041,598 | 2,533,815 | ||||||||||||||||||
2003 |
684 | 355,363 | 296,679 | 542,010 | 2,216,636 | 1,850,589 | ||||||||||||||||||
2004 |
683 | 412,588 | 395,275 | 372,895 | 2,232,109 | 2,138,445 | ||||||||||||||||||
2005 |
702 | 655,075 | 646,668 | 467,629 | 3,157,662 | 3,117,139 | ||||||||||||||||||
2006 |
731 | 704,588 | 757,948 | 279,096 | 3,435,180 | 3,695,332 | ||||||||||||||||||
2007 |
746 | 951,887 | 1,014,589 | 363,732 | 5,539,588 | 5,904,485 | ||||||||||||||||||
2008 |
765 | 576,888 | 458,757 | 355,205 | 5,189,644 | 4,126,953 | ||||||||||||||||||
2009 |
770 | 887,316 | 759,949 | 483,902 | 5,783,552 | 4,953,367 | ||||||||||||||||||
2010 |
777 | 1,141,885 | 1,002,621 | 380,859 | 5,619,768 | 4,934,382 | ||||||||||||||||||
2011 (through June 28) |
782 | 1,158,897 | 1,066,437 | 325,590 | 7,344,163 | 6,758,225 |
Source: | The KRX KOSPI Market |
(1) | Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by Seoul Money Brokerage Services Limited, as the case may be, at the end of the periods indicated. |
The Korean securities markets are principally regulated by the Financial Services Commission of Korea and the Financial Investment Services and Capital Markets Act. The Securities and Exchange Act which regulated the securities markets in the past was replaced with the Financial Investment Services and Capital Markets Act on February 4, 2009. The new law, as did the Securities and Exchange Act, imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.
Further Opening of the Korean Securities Market
A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the KRX KOSPI Market. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.
Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the KRX KOSPI Market or registered on the KRX KOSDAQ Market, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.
As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The Financial Services Commission sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial
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paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.
Currently, foreigners are permitted to invest in securities including shares of all Korean companies which are not listed on the KRX KOSPI Market nor registered on the KRX KOSDAQ Market and in bonds which are not listed.
Protection of Customers 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 agents creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company.
When a customer places a sell order with a securities company which is not a member of the KRX KOSPI Market and this securities company places a sell order with another securities company which is a member of the KRX KOSPI Market, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company.
Under the Financial Investment Services and Capital Markets Act, the KRX KOSPI Market is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the KRX KOSPI Market breaches its obligation in connection with a buy order, the KRX KOSPI Market is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.
When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member companys 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 companys bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, securities companies are required to deposit the cash received from its customers to the extent the amount not covered by the insurance with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act
Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.
Item 9.D. Selling Shareholders
Not applicable.
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Not applicable.
Item 9.F. Expenses of the Issuer
Not applicable.
Item 10. Additional Information
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, 2010, 261,111,808 Common Shares were issued, of which 17,895,964 shares were held by the treasury stock fund or us as treasury shares. We have never issued any Non-Voting Shares. All of the issued Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.
Item 10.B. Memorandum and Articles of Association
This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the Financial Investment Services and Capital Markets Act, the Commercial Code and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act and the Commercial Code. We have filed a copy of our articles of incorporation as an exhibit 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
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exceed one-half of the annual dividend. We may pay interim dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.
Under the Commercial Code, we may pay our dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period. In addition, we may not pay any dividend 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. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.
Distribution of Free Shares
In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.
Preemptive Rights and Issuance of Additional Shares
We may issue authorized but unissued shares at times and, unless otherwise provided in the Commercial Code, on terms our board of directors may determine. Subject to the limitation described in Limitation on Shareholdings below, all our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders approval, the terms of these preemptive rights for different classes of shares. We must give notice to all persons who are entitled to exercise preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur.
Under the Commercial Code, it is required that the new Shares, convertible bonds or bonds with warrants be issued to persons other than the existing shareholders solely for the purpose of achieving managerial objectives. Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:
| publicly offered pursuant to the Financial Investment Services and Capital Markets Act; |
| issued to members of our employee stock ownership association; |
| represented by depositary receipts; |
| issued upon exercise of stock options granted to our officers and employees; |
| issued through an offering to public investors, the amount of which is no more than 10% of the issued Shares; |
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| 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 the situations described above.
Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the Shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not then exceed 20.0% of the total number of Shares then issued (including in such total both: (i) all issued and outstanding Shares at the time the preemptive rights are exercised; and (ii) all Shares to be newly issued in the applicable share issuance transaction in connection with which such preemptive rights are exercised). As of December 31, 2010, 1.56% of the issued Shares were held by members of our employee stock ownership association.
Limitation on Shareholdings
The Telecommunications Business Act permits maximum aggregate foreign shareholding in us to be 49.0% of our total issued and outstanding Shares with voting rights (including equivalent securities with voting rights, e.g., depositary certificates and certain other equity interests). For the purposes of the foregoing, a shareholder is a foreign shareholder if such shareholder is: (1) a foreign person; (2) a foreign government; or (3) a company whose largest shareholder is a foreign person (including any specially related persons as determined under the Financial Investment Services and Capital Markets Act) or a foreign government, in circumstances where (i) such foreign person or foreign government holds, in aggregate, 15.0% or more of such companys total voting shares, and (ii) such company holds at least 1.0% of our total issued and outstanding Shares with voting rights. For the avoidance of doubt, all of conditions (i) to (ii) in the foregoing item (3) must exist for such a company to be counted as a foreign shareholder for the purposes of calculating whether the 49.0% foreign shareholding threshold is reached under the Telecommunications Business Act. In addition, the Telecommunications Business Act prohibits a foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction, any two or more foreign persons or foreign governments who enter into an agreement to act in concert in the exercise of their voting rights will be counted together and prohibited from becoming our largest shareholder in the event that they collectively hold 5.0% or more of our Shares. The Foreign Investment Promotion Act also prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction under the Foreign Investment Promotion Act, a foreign shareholder is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Act, provided, however, that no exception is made under the Foreign Investment Promotion Act regulations for companies that own less than 1.0% of our Shares (see item (3)(ii) above in this paragraph). A foreigner who has acquired the Shares in excess of such ceiling described above may not exercise its voting rights for shares in excess of such limitation, and the Korea Communications Commission may require corrective measures to comply with the ownership restrictions.
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General Meeting of Shareholders
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
| as necessary; |
| at the request of shareholders of an aggregate of 3.0% or more of our issued Common Shares; |
| at the request of shareholders holding an aggregate of 1.5% or more of our issued Shares for at least six months; or |
| at the request of our audit committee. |
Holders of Non-Voting Shares may request a general meeting of shareholders only after the Non-Voting Shares become entitled to vote or are enfranchised, as described under Voting Rights below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding Common Shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use Seoul Shinmun, Maeil Business Newspaper and The Korea Economic Daily published in Seoul for this purpose. Shareholders not on the shareholders register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of Non-Voting Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings.
Our general meetings of shareholders are held at our head office, in Sungnam, or if necessary, may be held anywhere near our head office or in Seoul.
Voting Rights
Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10.0% owned by us either directly or indirectly, may not be exercised. The Commercial Code permits cumulative voting, under which voting method each shareholder has multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders meeting. Under the Commercial Code of Korea, any shareholder holding shares equivalent to not less than 1/100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting.
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Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then outstanding:
| amending our articles of incorporation; |
| removing a director; |
| reduction of our capital stock; |
| effecting any dissolution, merger or consolidation of us; |
| transferring the whole or any significant part of our business; |
| effecting our acquisition of all of the business of any other company or our acquisition of a part of the business of any other company which will significantly affect our business; or |
| issuing any new Shares at a price lower than their par value. |
In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation of us, or in some other cases that affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the Non-Voting Shares present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total outstanding Non-Voting Shares. In addition, if we are unable to pay dividends on Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until those dividends are paid. The holders of enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders.
Shareholders may exercise their voting rights by proxy. The proxy must present a document evidencing an appropriate power of attorney prior to the start of the general meeting of shareholders. Additionally, shareholders may exercise their voting rights in absentia by submission of signed write-in voting forms. To make it possible for our shareholders to proceed with voting on a write-in basis, we are required to attach the appropriate write-in voting form and related informational material to the notices distributed to shareholders for convening the relevant general meeting of shareholders. Any of our shareholders who desires to vote on such write-in basis must submit their completed and signed write-in voting forms to us no later than one day prior to the date that the relevant general meeting of shareholders is convened.
Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs. See Item 12. Description of Securities Other than Equity SecuritiesDescription of American Depositary SharesVoting Rights.
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Rights of Dissenting Shareholders
In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant board resolution and (3) the weighted average of the daily Share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant board resolution. However, if we or any of the dissenting shareholders do not accept the purchase price calculated using the above method, the rejecting party may request the court to determine the purchase price. Holders of ADSs will not be able to exercise dissenters rights unless they have withdrawn the underlying common stock and become our direct shareholders.
Register of Shareholders and Record Dates
Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates.
The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from the day after the record date to January 31 of the following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed.
Annual Reports
At least one week before the annual general meeting of shareholders, we must make our annual report and audited non-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.
Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.
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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 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 InformationItem 10.D. Exchange Controls.
Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Youngdungpo-ku, Seoul, Korea.
Acquisition of Shares by Us
We may not acquire our own Shares except in limited circumstances, such as a reduction in capital. In addition, pursuant to the Financial Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) a tender offer, or (iii) receiving Shares returned to us upon the cancellation or termination of a trust agreement with a trustee who acquired the Shares by either of the methods indicated above. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year, subject to certain procedural requirements, provided that, in case of acquisition of our own Shares by us for the purpose of cancellation, the aggregate purchase price may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year minus certain reserves.
In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our Shares.
As of December 31, 2010, there were 17,895,964 treasury shares including shares held by our treasury stock fund.
Liquidation Rights
In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares have no preference in liquidation.
The Merger Agreement between KT Corporation and KTF
On January 20, 2009, KTF and KT Corporation entered into a merger agreement, pursuant to which KTF merged into KT Corporation on June 1, 2009. KTF common stockholder received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock that they owned. KT Corporation waived issuance of any merger consideration in respect of all of the outstanding shares of KTF common stock held by KT Corporation immediately prior to the merger.
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Pursuant to the merger agreement, all of the assets, liabilities, rights and obligations (including contractual rights and obligations) of KTF were comprehensively succeeded by KT Corporation. The employees of KTF became employees of KT Corporation as a result of the merger, and the obligations to pay severance payments to those employees were succeeded by KT Corporation.
Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at (Won)38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and (Won)29,284 for each share of KTF common stock properly submitted to KTF for appraisal.
KT Corporation delivered 700,108 shares of its newly issued common stock (par value (Won)5,000) and 45,629,480 shares of its treasury shares (par value (Won)5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger. See Item 5. Operating and Financial Review and ProspectsItem 5.A. Operating ResultOverviewMerger of KTF into KT Corporation.
General
The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the Foreign Exchange Transaction Laws) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies.
Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.
Government Review of Issuance of ADSs
In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.
Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of
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ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.
Reporting Requirements for Holders of Substantial Interests
Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the Equity Securities) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5.0% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5.0% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total issued Equity Securities is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change. The required information to be included in the 5.0% report may be different if the acquisition of such shareholding interest is for the purpose of exercising influence over the management, as opposed to an acquisition for investment purposes. Any person reporting the holding of 5.0% or more of the total issued Equity Securities and any person reporting the change in the ownership interest which equals or exceeds 1.0% of the total issued Equity Securities pursuant to the requirements described above must also deliver a copy of such reports to us.
Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the unreported ownership of Equity Securities exceeding 5.0%. Furthermore, the Financial Services Commission may issue an order to dispose of non-reported Equity Securities.
Restrictions Applicable to ADSs
No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration certificate from the Financial Supervisory Service as described below. In general, the acquisition of the shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository.
Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.
Restrictions Applicable to Shares
As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission regulations adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may
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trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:
| odd-lot trading of shares; |
| acquisition of shares (Converted Shares) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company; |
| acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders rights, including preemptive rights or rights to participate in free distributions and receive dividends; |
| over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded; |
| shares acquired by direct investment as defined in the Foreign Investment Promotion Law; |
| disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders; |
| disposal of shares in connection with a tender offer; |
| acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts; |
| acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; and |
| arms length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person. |
For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, an investment broker licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a licensed investment trader in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from a securities company with respect to shares which are subject to a foreign ownership limit.
The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Financial Investment Services and Capital Markets Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign
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public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment registration certificates in its name in certain circumstances as described in the relevant regulations.
Upon a foreign investors purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration certificate system is designed to control and oversee foreign investment through a computer system. However, a foreign investors acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository; and further provided that a foreign investor must ensure that any acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the Financial Supervisory Service by the investment trader, the investment broker, the Korea Securities Depository or the financial securities company engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, investment traders, investment brokers, the Korea Securities Depository, financial securities companies and internationally recognized custodians that satisfies all relevant requirements under the Financial Investment Services and Capital Markets Act and will act as a standing proxy to exercise shareholders rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.
Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks including domestic branches of foreign banks, investment traders, investment brokers, collective investment business entities and internationally recognized custodians satisfying the relevant requirements under the Financial Investment Services and Capital Markets Act are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.
Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate and a ceiling on the acquisition of shares by a single foreign investor pursuant to the articles of incorporation of such corporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Act, which is, in general, subject to the report to, and acceptance, by the Ministry of Knowledge Economy. The acquisition of
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shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company. A foreigner who has acquired shares of our common stock in excess of this ceiling may not exercise his voting rights with respect to the shares of our common stock exceeding the limit.
Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at an investment broker or an investment trader. Funds in the foreign currency account may be remitted abroad without any governmental approval.
Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investors investment broker or investment trader or his Won Account. Funds in the investors Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.
Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors stock investments in Korea. Through these accounts, these investment brokers and investment traders may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.
The following summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.
Korean Taxation
The following summary of Korean tax considerations applies to you as long as you are not:
| a resident of Korea; |
| a corporation organized under Korean law; or |
| engaged in a trade or business in Korea through a permanent establishment or a fixed base. |
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Shares or ADSs
Dividends on Shares of Common Stock or ADSs
Unless an applicable tax treaty provides otherwise, we will deduct Korean withholding tax from dividends paid to you either in cash or shares at a rate of 22.0% (including local income tax). 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% (including local income tax) generally will apply. You will not be entitled to claim treaty benefits if you are not the beneficial owner of a dividend.
In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. In the case of ADSs, evidence of tax residence may be submitted to us through the depositary. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have tax withheld at a lower rate.
If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be a deemed dividend subject to Korean tax.
Capital Gains
Capital gain from a sale of shares of common stock will generally be exempt from Korean taxation if you have owned, together with certain related parties, less than 25.0% of our total issued shares during the year of sale and the five calendar years before the year of sale, and the sale is made through the KRX KOSPI Market, and you have no permanent establishment in Korea. Capital gain earned by a non-Korean holder from a sale of ADSs outside of Korea are exempt from Korean taxation by virtue of the Special Tax Treatment Control Law of Korea (the STTCL), provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL.
If you are subject to tax on capital gain from a sale of ADSs, or shares of common stock that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the shares of common stock, although there are no specific Korean tax provisions or rulings on this issue. In the absence of the application of a tax treaty that exempts tax on capital gain, the amount of Korean tax imposed on such capital gains will be the lesser of 11.0% (including local income tax) of the gross realization proceeds or, subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 22.0% (including local income tax) of the net capital gain.
If you sell your shares of common stock or ADSs, the purchaser or, in the case of a sale of shares of common stock on the KRX KOSPI Market or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% (including local income tax) of the gross realization proceeds and to make payment thereof to the Korean tax authorities, unless you establish your entitlement to an exemption of taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and the transaction costs for the shares of common stock or ADSs. In order to obtain the benefit of an exemption of tax pursuant to a tax treaty, you must submit to the purchaser or the securities company (or through the depositary), as the case may be, prior to the first payment, an exemption application, together with a certificate of your tax residence issued by a competent authority of your residence country. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate.
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Most tax treaties that Korea has entered into provide exemptions for capital gains tax for capital gains from sale and purchase of shares of common stock. However, Koreas tax treaties with Japan, Austria, Spain and a few other countries do not provide an exemption from such capital gains tax. For example, Article 13 of Koreas tax treaty with Japan provides that if a taxpayer holding 25% or more (including those shares held by any related party of the taxpayer) of total issued shares of a company in a taxable year sells 5% or more (including those sold by any related party of the taxpayer) of total issued shares of the same company in the same taxable year, the country where the company is a resident may impose tax on such taxpayer.
Inheritance Tax and Gift Tax
Korean inheritance tax is imposed upon (a) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (b) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. Taxes are currently imposed at the rate of 10% to 50% if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.
Under Korean Inheritance and Gift Tax Law, shares issued by a Korean corporation are deemed located in Korea irrespective of where they are physically located or by whom they are owned. It remains unclear whether, for Korean inheritance and gift tax purposes, a non-resident holder of ADSs will be treated as the owner of the shares underlying the ADSs. If such non-resident is treated as the owner of the shares, the heir or donee of such non-resident (or in certain circumstances, the non-resident as the donor) will be subject to Korean inheritance or gift tax at the same rate as described above.
Securities Transaction Tax
If you transfer shares of common stock on the KRX KOSPI Market, you will be subject to the securities transaction tax at a rate of 0.15% and an agriculture and fishery special tax at a rate of 0.15%, calculated based on the sales price of the shares. If you transfer shares of common stock and your transfer is not made on the KRX KOSPI Market you will generally be subject to the securities transaction tax at a rate of 0.5% and will generally not be subject to the agriculture and fishery special tax.
With respect to transfers of ADSs, a tax ruling recently issued in 2004 by the Korean tax authority appears to hold that depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax. In May 2007, the Seoul Administrative Court held that depositary receipts do not constitute share certificates subject to the securities transaction tax. In 2008, the case was upheld by the Seoul High Court and was further upheld by the Supreme Court. However, as the Supreme Court dismissed the tax authorities appeal without ruling on the substantive law issue, it is not clear if the Supreme Courts decision for this case will serve as the Supreme Courts precedent on this issue. Even if depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax under the Securities Transaction Tax Law, sale price of ADSs from a transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other qualified foreign exchanges are exempt from the securities transaction tax.
United States Federal Income Taxation
This summary describes the material U.S. federal income tax consequences to you, if you are a U.S. holder (as defined below), of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:
| a dealer in securities or currencies; |
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| a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings; |
| a bank; |
| an insurance company; |
| a tax-exempt organization; |
| a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks; |
| a person that holds shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes; |
| a person whose functional currency for tax purposes is not the U.S. dollar; or |
| a person that owns or is deemed to own 10% or more of any class of our stock. |
This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.
Please consult your own tax advisers concerning the U.S. federal, state, local and other national tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances.
For purposes of this summary, you are a U.S. holder if you are a beneficial owner of shares of common stock or ADSs and are:
| a citizen or resident of the United States; |
| a U.S. domestic corporation; or |
| subject to U.S. federal income tax on a net income basis with respect to income from the shares of common stock or ADSs. |
Shares of Common Stock and ADSs
In general, if you hold ADSs, you will be treated as the holder of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS.
Dividends
The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositarys) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by U.S. holders that are converted into U.S. dollars on a date subsequent to receipt.
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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, 2013 with respect to the ADSs and common stock will be subject to taxation at a maximum rate of 15% if the dividends are qualified dividends. Dividends paid on the ADSs and common stock will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The income tax treaty between Korea and the United States (the Treaty) has been approved for the purposes of the qualified dividend rules, and we believe we are eligible for benefits under the Treaty. Based on our audited financial statements and relevant market and shareholder data, we do not anticipate being classified as a PFIC. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in light of your own particular circumstances.
Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
Sales and Other Dispositions
For U.S. federal income tax purposes, gain or loss that you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year.
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 generally may claim a credit, up to any applicable reduced rates provided under the Treaty, against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into certain kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may generally elect to deduct such Korean taxes in computing your taxable income provided that you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant tax year. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. tax unless you can use the credit against United States tax due on other foreign-source income.
Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holders particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.
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U.S. Information Reporting and Backup Withholding Rules
Payments in respect of the shares of common stock or ADSs that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.
Item 10.F. Dividends and Paying Agents
See Item 8. Financial InformationConsolidated Statements and Other Financial InformationDividends for information concerning our dividend policies and our payment of dividends. See Item 10. Additional InformationItem 10.B. Memorandum and Articles of AssociationDividends for a discussion of the process by which dividends are paid on our common shares. See Item 12. Description of Securities Other than Equity SecuritiesDescription of American Depositary SharesDividends and Distributions for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A.
Item 10.G. Statements by Experts
Not applicable.
Item 10.H. Documents on Display
We are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commissions 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 Commissions web site at http://www.sec.gov.
Item 10.I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to foreign exchange rate and interest rate risks primarily associated with underlying liabilities, and to equity price risk as a result of our investment in equity-linked securities. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures. These contracts are entered into with major financial institutions, thereby minimizing the risk of credit loss. The activities of our finance division are subject to policies approved by our foreign exchange and interest rate risk management committee. These policies address the use of derivative financial instruments, including the approval of counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments only for hedging purposes.
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For details of the assets and liabilities recorded relating to our derivative contracts outstanding as of December 31, 2009 and 2010, see Note 13 to the Consolidated Financial Statements. We recognized a valuation gain of (Won)18 billion and a valuation loss of (Won)191 billion in 2009 and a valuation gain of (Won)40 billion and a valuation loss of (Won)48 billion in 2010.
Exchange Rate Risk
Substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, mostly in Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers.
In 2009 and 2010 we entered into various currency-related derivative contracts with various financial institutions, including the following:
Transaction Type |
Financial Institution |
Description | ||
Interest rate swap contracts |
Merrill Lynch and others | Exchange fixed interest rate payments for variable interest rate payments for a specified period | ||
Currency swap contracts |
Merrill Lynch and others | Exchange foreign currency cash flow for local currency cash flow for a specified period | ||
Combined interest rate currency swap contracts |
Merrill Lynch and others | Exchange foreign currency-denominated variable interest rate payments for local currency-denominated fixed interest rate payments | ||
Currency forward contracts |
Kookmin Bank and others | Exchange a specified currency at an agreed exchange rate at a specified date |
Interest Rate Risk
We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. We use, to a limited extent, interest rate swap contracts and combined interest rate and currency swap contracts to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. We entered into several interest rate swap contracts with Merrill Lynch and others in which we exchange fixed interest rate payments with variable interest rate payments for a specified period, as well as entered into the combined interest rate and currency swap contracts described above.
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The following table summarizes the principal 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, 2010 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.
Maturities | ||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | December 31, 2010 | ||||||||||||||||||||||||||
Total | Fair Value |
|||||||||||||||||||||||||||||||
(In Won millions except rates) | ||||||||||||||||||||||||||||||||
Local currency: |
||||||||||||||||||||||||||||||||
Fixed rate |
1,644,615 | 1,500,373 | 1,550,160 | 890,653 | 510,532 | 535,429 | 6,631,762 | 6,583,632 | ||||||||||||||||||||||||
Average weighted rate (1) |
5.99 | % | 5.24 | % | 5.53 | % | 5.23 | % | 5.32 | % | 5.51 | % | 5.52 | % | | |||||||||||||||||
Variable rate |
101,656 | 60,457 | 6,848 | 4,508 | 1,540 | | 175,009 | 170,498 | ||||||||||||||||||||||||
Average weighted rate (1) |
4.80 | % | 4.38 | % | 4.29 | % | 4.29 | % | 0.00 | % | | 4.61 | % | | ||||||||||||||||||
Sub-total |
1,746,271 | 1,560,830 | 1,557,008 | 895,161 | 512,072 | 535,429 | 6,806,771 | 6,754,130 | ||||||||||||||||||||||||
Foreign currency: |
||||||||||||||||||||||||||||||||
Fixed rate |
| 227,780 | | 683,340 | 455,560 | 341,670 | 1,708,350 | 1,723,872 | ||||||||||||||||||||||||
Average weighted rate (1) |
| 5.13 | % | | 5.88 | % | 5.48 | % | 6.09 | % | 5.55 | % | | |||||||||||||||||||
Variable rate |
690,863 | 134,150 | 345,313 | | | | 1,170,326 | 1,102,093 | ||||||||||||||||||||||||
Average weighted rate (1) |
1.68 | % | 1.63 | % | 1.63 | % | | | | 1.66 | % | | ||||||||||||||||||||
Subtotal |
690,863 | 361,930 | 345,313 | 683,340 | 455,560 | 341,670 | 2,878,676 | 2,825,965 | ||||||||||||||||||||||||
Total |
2,437,134 | 1,922,760 | 1,902,321 | 1,578,501 | 967,632 | 877,099 | 9,685,447 | 9,580,095 | ||||||||||||||||||||||||
(1) | Weighted average rates of the portfolio at the period end. |
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Item 12.B. Warrants and Rights
Not applicable.
Not applicable.
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Item 12.D. American Depositary Shares
Fees and Charges
Under the terms of the deposit agreement, holders of our ADSs are required to pay the following service fees to the depositary:
Services |
Fees | |
Issuance of ADSs upon deposit of shares |
Up to $0.05 per ADS issued | |
Delivery of deposited shares against surrender of ADSs |
Up to $0.05 per ADS surrendered | |
Distribution delivery of ADSs pursuant to sale or exercise of rights |
Up to $0.02 per ADS held | |
Distributions of dividends |
None | |
Distribution of securities other than ADSs |
Up to $0.02 per ADS held | |
Other corporate action involving distributions to shareholders |
Up to $0.02 per ADS held |
Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:
| fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares); |
| expenses incurred for converting foreign currency into U.S. dollars; |
| expenses for cable, telex and fax transmissions and for delivery of securities; |
| taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit); and |
| fees and expenses incurred in connection with the delivery or servicing of shares on deposit. |
Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients ADSs in DTC accounts in turn charge their clients accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse to provide the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.
109
The fees and charges that holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary. Holders of our ADSs will receive prior notice of such changes.
Fees and Payments from the Depositary to Us
In 2010, we received the following payments from the depositary:
Reimbursement of NYSE listing fees: |
$ | 142,645.00 | ||
Reimbursement of SEC filing fees: |
$ | 9,865.00 | ||
Reimbursement of settlement infrastructure fees (including maintenance fees): |
$ | 161,258.73 | ||
Reimbursement of proxy process expenses (printing, postage and distribution): |
$ | 66,045.72 | ||
Reimbursement of legal fees: |
$ | 369,631.00 | ||
Contributions toward our investor relations efforts (including non-deal roadshows, investor conferences and investor relations agency fees): |
$ | 441,720.07 |
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
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2010. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and
110
effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on criteria in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2010.
Samil PricewaterhouseCoopers, an independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2010, as stated in their report which is included herein, has issued an attestation report on the effectiveness of our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is furnished in Item 18 of this Form 20-F.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the year covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
At our annual shareholders meetings in March 2011, our shareholders elected Hyun-Nak Lee and Byong-Won Bahk as members of the Audit Committee. Our Audit Committee is comprised of E. Han Kim, Hae-Bang Chung, Hyun-Nak Lee and Byong Won Bahk. The board of directors has determined that E. Han Kim is the audit committee financial expert.
111
We have adopted a code of ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, as well as to our directors, other officers and employees. Our code of ethics is available on our web site at www.kt.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site.
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our independent auditors during the fiscal year ended December 31, 2009 and 2010:
Year Ended December 31, |
||||||||
2009 | 2010 | |||||||
(In millions) | ||||||||
Audit fees |
(Won) | 3,952 | (Won) | 3,503 | ||||
Audit-related fees |
62 | 70 | ||||||
Tax fees |
66 | 96 | ||||||
Other fees |
854 | 95 | ||||||
Total fees |
(Won) | 4,934 | (Won) | 3,764 | ||||
Audit fees in the above table are the aggregate fees billed by our auditors in connection with the audit of our annual financial statements and the review of our interim financial statements.
Audit Committee Pre-Approval Policies and Procedures
Our audit committee has established pre-approval policies and procedures to pre-approve all audit services to be provided by Samil PricewaterhouseCoopers, our independent registered public accounting firm. Our audit committees policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by our audit committee. Non-audit services that are prohibited to be provided to us by our independent auditors under the rules of the SEC and applicable law may not be pre-approved. In addition, prior to the granting of any pre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm and does not include delegation of the audit committees responsibilities to the management under the Securities Exchange Act of 1934, as amended.
Our audit committee did not pre-approve any non-audit services under the de minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the SEC.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
112
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2010:
Period |
Total Number of Shares Purchased |
Average Price Paid per Share (In Won) |
Total Number of Shares Purchased as Part of Publicly Announced Plans |
Maximum Number of Shares that May Yet be Purchased Under the Plans |
||||||||||||
January 1 to January 31 |
0 | 0 | 0 | 0 | ||||||||||||
February 1 to February 29 |
0 | 0 | 0 | 0 | ||||||||||||
March 1 to March 31 |
0 | 0 | 0 | 0 | ||||||||||||
April 1 to April 30 |
0 | 0 | 0 | 0 | ||||||||||||
May 1 to May 31 |
0 | 0 | 0 | 0 | ||||||||||||
June 1 to June 30 |
0 | 0 | 0 | 0 | ||||||||||||
July 1 to July 31 |
0 | 0 | 0 | 0 | ||||||||||||
August 1 to August 31 |
0 | 0 | 0 | 0 | ||||||||||||
September 1 to September 30 |
0 | 0 | 0 | 0 | ||||||||||||
October 1 to October 31 |
0 | 0 | 0 | 0 | ||||||||||||
November 1 to November 30 |
0 | 0 | 0 | 0 | ||||||||||||
December 1 to December 31 |
0 | 0 | 0 | 0 | ||||||||||||
Total |
0 | 0 | 0 | 0 | ||||||||||||
Neither we nor any affiliated purchaser, as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.
Item 16F. Change in Registrants Certifying Accountant
Not Applicable
Item 16G. Corporate Governance
The following is a summary of the significant differences between the New York Stock Exchanges corporate governance standards and those that we follow under Korean law.
NYSE Corporate Governance Standards |
KT Corporations Corporate Governance Practice | |
Director Independence |
||
Independent directors must comprise a majority of the board. |
The Commercial Code of Korea requires that our board of directors must comprise no less than a majority of outside directors. Our outside directors must meet the criteria for outside directorship set forth under the Commercial Code of Korea.
The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchanges standards), and 8 out of 11 directors are outside directors. | |
Nomination/Corporate Governance Committee |
||
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. | We have not established a separate nomination/corporate governance committee. However, we maintain an Outside Director Candidate Nominating Committee composed of all of our outside directors and one non-independent director. We also maintain a Corporate Governance Committee comprised of four outside directors and one non-independent director. The committee is responsible for the review of matters with respect to our Corporate Governance Guidelines and our performance under such guidelines to monitor effectiveness of our corporate governance. |
113
NYSE Corporate Governance Standards |
KT Corporations Corporate Governance Practice | |
Compensation Committee |
||
Listed companies must have a compensation committee composed entirely of independent directors. | We maintain an Evaluation and Compensation Committee composed of four outside directors. | |
Executive Session |
||
Listed companies must hold meetings solely attended by non-management directors to more effectively check and balance management directors. | Our outside directors hold meetings solely attended by outside directors in accordance with the charter of our board of directors. | |
Audit Committee |
||
Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act. | We maintain an Audit Committee comprised of four outside directors who meet the applicable independence criteria set forth under Rule 10A-3 under the Exchange Act. | |
Shareholder Approval of Equity Compensation Plan |
||
Listed companies must allow their shareholders to exercise their voting rights with respect to any material revision to the companys equity compensation plan. | We currently have two equity compensation plans: one providing for the grant of stock options to officers and non-independent directors; and an employee stock ownership association program.
All material matters related to the granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders approval. Matters related to the employee stock ownership association program are not subject to shareholders approval under Korean law. | |
Corporate Governance Guidelines |
||
Listed companies must adopt and disclose corporate governance guidelines. | We have adopted Corporate Governance Guidelines in March 2007 setting forth our practices with respect to corporate governance matters. Our Corporate Governance Guidelines are in compliance with Korean law but do not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Guidelines in Korean is available on our website at www.kt.com. | |
Code of Business Conduct and Ethics |
||
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for executive officers. | We have adopted a Code of Ethics for all directors, officers and employees. A copy of our Code of Ethics in Korean is available on our website at www.kt.com |
114
Not applicable.
AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION
1 | Articles of Incorporation of KT Corporation (English translation) | |
2.1* | Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(i) of the Registrants Registration Statement (Registration No. 333-13578) on Form F-6) | |
2.2* | Form of Amendment No. 1 Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(ii) of the Registrants Registration Statement (Registration No. 333-13578) on Form F-6) | |
2.3* | Letter from Citibank, N.A., as depositary, to the Registrant relating to the pre-release of the American depositary receipts (incorporated herein by reference to the Registrants Registration Statement (Registration No. 333-10330) on Form F-6) | |
2.4* | Letter from Citibank, N.A., as depositary, to the Registrant relating to the establishment of a direct registration system for ADSs and the issuance of uncertified ADSs as part of the direct registration system. (incorporated herein by reference to Exhibit 2.4 of the Registrants Annual Report on Form 20-F filed on June 30, 2008) | |
4.1* | The Merger Agreement dated January 20, 2009, entered into by and between KT Corporation and KT Freetel Co., Ltd. (incorporated herein by reference to Annex I of the Registrants Registration Statement (Registration No. 333-156817) on Form F-4) | |
8.1 | List of subsidiaries of KT Corporation |
115
12.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
13.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
15.1 | The Framework Act on Telecommunications (English translation) | |
15.2 | Enforcement Decree of the Framework Act on Telecommunications (English translation) | |
15.3 | The Telecommunications Business Act (English translation) | |
15.4 | Enforcement Decree of the Telecommunications Business Act (English translation) |
* Filed previously.
116
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
KT Corporation
In our opinion, the accompanying consolidated statement of financial position and the related consolidated statements of income, changes in shareholders equity and of cash flows present fairly, in all material respects, the financial position of KT Corporation and its subsidiaries at December 31, 2010 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Managements Annual Report on Internal Control over Financial Reporting in Item 15 of Form 20-F. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
Samil PricewaterhouseCoopers
LS Yongsan Tower, 191, Hangangno 2-ga, Yongsan-gu, Seoul 140-702, Korea (Yongsan P.O Box 266, 140-600) www.samil.com
Samil PricewaterhouseCoopers is the Korean network firm of PricewaterhouseCoopers International Limited (PwCIL). PricewaterhouseCoopers and PwC refer to the network of member firms of PwCIL. Each member firm is a separate legal entity and does not act as an agent of PwCIL or any other member firm.
F-1
being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Samil PricewaterhouseCoopers
Seoul Korea
June 28, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
KT Corporation
Sungnam, Korea
We have audited the accompanying consolidated Statements of Financial Position of KT Corporation and subsidiaries (the Company) as of December 31, 2009, and the related consolidated statements of income, cash flows and change in shareholders equity for the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 2009 and 2008 consolidated financial statements present fairly, in all material respects, the financial position of KT Corporation and subsidiaries at December 31, 2009, and the results of their operations and their cash flows for the years ended December 31, 2009 and 2008, in conformity with accounting principles generally accepted in the Republic of Korea.
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.
As discussed in Note 27 to the consolidated financial statements, the accompanying 2009 and 2008 financial statements have been retrospectively adjusted for discontinued operations.
/s/ Deloitte Anjin LLC
Seoul, Korea
June 16, 2010
(June 28, 2011 as to the effects of discontinued operations discussed in Note 27)
F-3
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position
December 31, 2010 and 2009
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||
2010 | 2009 | 2010 | ||||||||||
Assets |
||||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents, net (Notes 4, 19 and 31) |
(Won) | 1,193,348 | (Won) | 1,538,122 | $ | 1,047,808 | ||||||
Short-term investment assets (Notes 4, 7 and 19) |
166,200 | 443,934 | 145,930 | |||||||||
Trade accounts receivable, net (Notes 19 and 32) |
3,843,287 | 3,621,844 | 3,374,561 | |||||||||
Short-term loans receivable, net (Notes 6, 19 and 32) |
755,016 | 484,926 | 662,934 | |||||||||
Current finance lease receivables, net (Notes 11, 17 and 32) |
240,414 | 203,406 | 211,093 | |||||||||
Other receivables, net (Note 19) |
408,392 | 281,609 | 358,585 | |||||||||
Accrued revenues |
18,393 | 22,506 | 16,150 | |||||||||
Advance payments |
125,025 | 91,737 | 109,777 | |||||||||
Prepaid expenses |
145,317 | 119,065 | 127,594 | |||||||||
Income taxes receivable |
5,796 | 27,037 | 5,089 | |||||||||
Current derivative instruments assets (Note 13) |
151,243 | 288 | 132,797 | |||||||||
Current deferred income tax assets (Note 26) |
363,492 | 437,525 | 319,161 | |||||||||
Inventories, net (Notes 5 and 11) |
655,831 | 699,402 | 575,846 | |||||||||
Other current assets (Note 19) |
877 | 448 | 769 | |||||||||
Total current assets |
8,072,631 | 7,971,849 | 7,088,094 | |||||||||
Long-term financial instruments (Note 4) |
3,054 | 3,037 | 2,682 | |||||||||
Available-for-sale securities (Note 7) |
199,515 | 117,290 | 175,182 | |||||||||
Equity-method investments (Note 8) |
429,148 | 287,989 | 376,809 | |||||||||
Held-to-maturity securities (Note 7) |
66 | 65 | 58 | |||||||||
Long-term loans receivable to employees, net |
71,982 | 62,758 | 63,203 | |||||||||
Other investment assets |
79,426 | 90,231 | 69,739 | |||||||||
Property and equipment, net (Notes 9, 11, 12, 17 and 33) |
15,227,858 | 14,774,560 | 13,370,672 | |||||||||
Intangible assets, net (Notes 10, 33 and 36) |
1,232,866 | 1,279,500 | 1,082,506 | |||||||||
Long-term trade accounts and notes receivable, net (Note 32) |
800,365 | 402,259 | 702,753 | |||||||||
Long-term loans receivable, net (Note 6) |
415,087 | 414,981 | 364,463 | |||||||||
Non-current finance lease receivables, net (Notes 11, 17, and 32) |
453,848 | 311,795 | 398,497 | |||||||||
Leasehold rights and deposits |
321,179 | 353,992 | 282,008 | |||||||||
Long-term other receivables, net |
40 | 11,596 | 35 | |||||||||
Non-current derivative instruments assets (Note 13) |
97,166 | 295,058 | 85,316 | |||||||||
Non-current deferred income tax assets (Note 26) |
185,724 | 113,266 | 163,073 | |||||||||
Exclusive memberships |
101,574 | 103,522 | 89,186 | |||||||||
Other non-current assets |
21,930 | 26,569 | 19,255 | |||||||||
Total non-current assets |
19,640,828 | 18,648,468 | 17,245,437 | |||||||||
Total assets |
(Won) | 27,713,459 | (Won) | 26,620,317 | $ | 24,333,531 | ||||||
F-4
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position (Continued)
December 31, 2010 and 2009
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||
2010 | 2009 | 2010 | ||||||||||
Liabilities and Shareholders Equity |
||||||||||||
Current liabilities |
||||||||||||
Current portion of bond and long-term borrowings, net (Notes 14 and 19) |
(Won) | 2,434,985 | (Won) | 1,689,546 | $ | 2,138,015 | ||||||
Trade accounts payable (Notes 19 and 32) |
1,530,981 | 1,484,943 | 1,344,263 | |||||||||
Short-term borrowings |
468,710 | 367,505 | 411,546 | |||||||||
Other accounts payable (Notes 17, 19 and 32) |
1,620,470 | 2,438,674 | 1,422,838 | |||||||||
Advances received |
153,599 | 152,654 | 134,866 | |||||||||
Withholdings (Note 19) |
176,299 | 98,099 | 154,798 | |||||||||
Accrued expenses (Notes 18 and 19) |
553,583 | 483,366 | 486,068 | |||||||||
Income taxes payable |
287,843 | 12,942 | 252,738 | |||||||||
Unearned revenue |
14,665 | 9,251 | 12,876 | |||||||||
Deposits received (Notes 19 and 32) |
95,196 | 158,799 | 83,586 | |||||||||
Current portion of accrued provisions (Note 16) |
89,181 | 39,841 | 78,305 | |||||||||
Current derivative instruments liabilities (Note 13) |
228 | 5,124 | 200 | |||||||||
Current deferred income tax liabilities (Note 26) |
1,817 | 1 | 1,595 | |||||||||
Other current liabilities |
2,073 | 478 | 1,820 | |||||||||
Total current liabilities |
7,429,630 | 6,941,223 | 6,523,514 | |||||||||
Bonds payable, net (Notes 14 and 19) |
6,745,673 | 7,337,399 | 5,922,972 | |||||||||
Long-term borrowings, net (Notes 14 and 19) |
473,014 | 198,273 | 415,325 | |||||||||
Provisions for severance benefits, net (Note 15) |
360,028 | 337,524 | 316,119 | |||||||||
Non-current accrued provisions (Note 16) |
114,453 | 103,576 | 100,494 | |||||||||
Refundable deposits for telephone installation |
615,809 | 696,396 | 540,705 | |||||||||
Long-term deposits received |
255,807 | 101,924 | 224,609 | |||||||||
Non-current derivative instruments liabilities (Note 13) |
20,243 | 6,155 | 17,774 | |||||||||
Long-term other accounts payable, net (Notes 17 and 32) |
171,596 | 164,696 | 150,668 | |||||||||
Long-term trade accounts payable, net (Note 32) |
25,521 | 14,603 | 22,408 | |||||||||
Non-current deferred income tax liabilities (Note 26) |
2,657 | 1,065 | 2,333 | |||||||||
Other non-current liabilities |
3,356 | 50,044 | 2,948 | |||||||||
Total non-current liabilities |
8,788,157 | 9,011,655 | 7,716,355 | |||||||||
Total liabilities |
(Won) | 16,217,787 | (Won) | 15,952,878 | $ | 14,239,869 | ||||||
Commitments and Contingencies (Note 18)
F-5
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position (Continued)
December 31, 2010 and 2009
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||
2010 | 2009 | 2010 | ||||||||||
Capital stock |
||||||||||||
Common stock (Notes 20 and 36) |
(Won) | 1,564,499 | (Won) | 1,564,499 | $ | 1,373,693 | ||||||
Total capital stock |
1,564,499 | 1,564,499 | 1,373,693 | |||||||||
Capital surplus |
||||||||||||
Paid-in capital in excess of par value |
1,440,258 | 1,440,258 | 1,264,604 | |||||||||
Other capital surplus |
9,519 | 8,311 | 8,358 | |||||||||
Total capital surplus |
1,449,777 | 1,448,569 | 1,272,962 | |||||||||
Capital adjustments |
||||||||||||
Treasury stock (Note 21) |
(955,083 | ) | (956,159 | ) | (838,601 | ) | ||||||
Loss on disposal of treasury stock |
(295 | ) | (890,650 | ) | (259 | ) | ||||||
Stock options (Note 22) |
875 | 1,500 | 768 | |||||||||
Other capital adjustments (Notes 22 and 36) |
(308,031 | ) | (320,419 | ) | (270,464 | ) | ||||||
Total capital adjustment |
(1,262,534 | ) | (2,165,728 | ) | (1,108,556 | ) | ||||||
Accumulated other comprehensive income and expense (Note 28) |
||||||||||||
Gain on translation of foreign operations |
12,989 | 5,571 | 11,405 | |||||||||
Loss on translation of foreign operations |
(39,199 | ) | (18,763 | ) | (34,418 | ) | ||||||
Unrealized gain on valuation of available-for-sale securities |
7,927 | 5,310 | 6,960 | |||||||||
Unrealized loss on valuation of available-for-sale securities |
(801 | ) | (83 | ) | (703 | ) | ||||||
Accumulated comprehensive income of equity-method investees (Note 8) |
785 | 438 | 689 | |||||||||
Accumulated comprehensive expense of equity-method investees (Note 8) |
(5,916 | ) | (13,736 | ) | (5,194 | ) | ||||||
Gain on valuation of derivatives for cash flow hedge (Note 13) |
4,699 | 11,468 | 4,126 | |||||||||
Loss on valuation of derivatives for cash flow hedge (Note 13) |
(63,131 | ) | (34,747 | ) | (55,432 | ) | ||||||
Total accumulated other comprehensive income and expense |
(82,647 | ) | (44,542 | ) | (72,567 | ) | ||||||
Retained earnings (Note 23) |
||||||||||||
Legal reserve |
780,499 | 780,499 | 685,310 | |||||||||
Voluntary reserves |
4,651,362 | 4,758,013 | 4,084,083 | |||||||||
Unappropriated retained earnings |
3,932,870 | 4,035,257 | 3,453,218 | |||||||||
Total retained earnings. |
9,364,731 | 9,573,769 | 8,222,611 | |||||||||
Minority interest in consolidated subsidiaries |
461,846 | 290,872 | 405,519 | |||||||||
Total shareholders equity |
11,495,672 | 10,667,439 | 10,093,662 | |||||||||
Total liabilities and shareholders equity |
(Won) | 27,713,459 | (Won) | 26,620,317 | $ | 24,333,531 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
KT Corporation and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2010, 2009 and 2008
(in millions of Korean won, except per share amounts) |
(in thousands of U.S dollars) |
|||||||||||||||
2010 | 2009 | 2008 | 2010 | |||||||||||||
Operating revenues (Notes 24, 32 and 33) |
(Won) | 21,331,313 | (Won) | 19,643,812 | (Won) | 19,587,242 | $ | 18,729,751 | ||||||||
Operating expenses (Notes 25 and 32) |
19,156,231 | 18,673,265 | 18,144,427 | 16,819,941 | ||||||||||||
Operating income (Note 33) |
2,175,082 | 970,547 | 1,442,815 | 1,909,810 | ||||||||||||
Non-operating income |
||||||||||||||||
Interest income |
143,165 | 197,367 | 151,291 | 125,705 | ||||||||||||
Foreign currency transaction gain |
23,051 | 42,125 | 66,508 | 20,240 | ||||||||||||
Foreign currency translation gain (Note 19) |
65,793 | 240,925 | 40,409 | 57,769 | ||||||||||||
Gain on valuation of equity-method investments (Note 8) |
37,597 | 19,672 | 16,061 | 33,012 | ||||||||||||
Gain on disposal of property and equipment |
13,653 | 5,531 | 4,368 | 11,988 | ||||||||||||
Reversal of accrued provisions |
17,215 | 4,988 | 4,069 | 15,115 | ||||||||||||
Gain on settlement of derivatives |
744 | 2,249 | 17,182 | 653 | ||||||||||||
Gain on valuation of derivatives (Note 13) |
39,920 | 17,643 | 650,679 | 35,051 | ||||||||||||
Other non-operating revenues |
181,679 | 276,991 | 99,786 | 159,521 | ||||||||||||
522,817 | 807,491 | 1,050,353 | 459,054 | |||||||||||||
Non-operating expenses |
||||||||||||||||
Interest expense |
529,364 | 505,496 | 480,315 | 464,803 | ||||||||||||
Other bad debts expense |
9,261 | 46,872 | 22,144 | 8,132 | ||||||||||||
Foreign currency transaction loss |
25,968 | 46,171 | 63,054 | 22,801 | ||||||||||||
Foreign currency translation loss (Note 19) |
31,871 | 17,893 | 802,298 | 27,984 | ||||||||||||
Loss on valuation of equity-method investments (Note 8) |
11,067 | 33,300 | 27,026 | 9,717 | ||||||||||||
Donations |
81,096 | 39,320 | 79,544 | 71,206 | ||||||||||||
Loss on disposal of property and equipment |
178,963 | 124,689 | 94,290 | 157,137 | ||||||||||||
Loss on impairment of property and equipment |
9,297 | 1,236 | 20,676 | 8,163 | ||||||||||||
Loss on disposal of intangible assets |
19,620 | 4,247 | 1,653 | 17,227 | ||||||||||||
Loss on settlement of derivatives |
2,156 | 1,031 | 9,666 | 1,893 | ||||||||||||
Loss on valuation of derivatives (Note 13) |
47,721 | 191,268 | 10,936 | 41,901 | ||||||||||||
Other non-operating expenses |
189,742 | 47,240 | 171,390 | 166,601 | ||||||||||||
1,136,126 | 1,058,763 | 1,782,992 | 997,565 | |||||||||||||
Income from continuing operations before income taxes |
1,561,773 | 719,275 | 710,176 | 1,371,299 | ||||||||||||
Income tax expense on continuing operations (Note 26) |
371,843 | 107,763 | 167,859 | 326,493 | ||||||||||||
Income from continuing operations |
1,189,930 | 611,512 | 542,317 | 1,044,806 | ||||||||||||
Income (loss) from discontinued operations (Note 27) |
2,612 | (1,817 | ) | (29,027 | ) | 2,293 | ||||||||||
Net income |
(Won) | 1,192,542 | (Won) | 609,695 | (Won) | 513,290 | $ | 1,047,099 | ||||||||
Controlling interest net income |
(Won) | 1,168,005 | (Won) | 494,846 | (Won) | 449,810 | $ | 1,025,555 | ||||||||
Minority interest net income |
(Won) | 24,537 | (Won) | 114,849 | (Won) | 63,480 | $ | 21,544 | ||||||||
Earnings per share attributable to controlling interest (Note 29) |
||||||||||||||||
Basic income per share from continuing operations (in won) |
(Won) | 4,797 | (Won) | 2,225 | (Won) | 2,319 | $ | 4.212 | ||||||||
Basic net income per share (in won) |
(Won) | 4,803 | (Won) | 2,254 | (Won) | 2,217 | $ | 4.217 | ||||||||
Diluted income per share from continuing operations (in won) |
(Won) | 4,797 | (Won) | 2,199 | (Won) | 2,319 | $ | 4.212 | ||||||||
Diluted net income per share (in won) |
(Won) | 4,802 | (Won) | 2,227 | (Won) | 2,217 | $ | 4.216 |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
Years Ended December 31, 2010, 2009 and 2008
Capital stock |
Capital surplus |
Capital adjustments |
Accumulated other comprehensive income and expense |
Retained earnings |
Minority interests |
Total | ||||||||||||||||||||||
(in millions of Korean won) | ||||||||||||||||||||||||||||
Balances as of January 1, 2008 (as reported) |
(Won) | 1,560,998 | (Won) | 1,272,634 | (Won) | (3,815,786 | ) | (Won) | 142 | (Won) | 9,843,775 | (Won) | 2,276,003 | (Won) | 11,137,766 | |||||||||||||
Cumulative effect of changes in accounting policies |
| 168,143 | (168,143 | ) | | 1,711 | 2,141 | 3,852 | ||||||||||||||||||||
As restated |
1,560,998 | 1,440,777 | (3,983,929 | ) | 142 | 9,845,486 | 2,278,144 | 11,141,618 | ||||||||||||||||||||
Dividends |
| | | | (407,374 | ) | (1,896 | ) | (409,270 | ) | ||||||||||||||||||
Retained earnings after appropriation |
| | | | 9,438,112 | 2,276,248 | 10,732,348 | |||||||||||||||||||||
Net income for the year |
| | | | 449,810 | 63,480 | 513,290 | |||||||||||||||||||||
Acquisition of treasury stock |
| | (73,807 | ) | | | | (73,807 | ) | |||||||||||||||||||
Disposal of treasury stock |
| | 807 | | | | 807 | |||||||||||||||||||||
Retirement of treasury stock |
| | 73,807 | | (73,807 | ) | | | ||||||||||||||||||||
Loss on disposal of treasury stock |
| (144 | ) | | | | | (144 | ) | |||||||||||||||||||
Other share-based payments |
| | 398 | | | | 398 | |||||||||||||||||||||
Other capital adjustments |
| | 986 | | | 221 | 1,207 | |||||||||||||||||||||
Acquisition of subsidiaries stock and changes in consolidated entities |
| | (944 | ) | | | 14,754 | 13,810 | ||||||||||||||||||||
Changes in the interest in the subsidiaries |
| | (12,054 | ) | | | (98,730 | ) | (110,784 | ) | ||||||||||||||||||
Gain on translation of foreign operations |
| | | 8,612 | | 4,947 | 13,559 | |||||||||||||||||||||
Loss on translation of foreign operations |
| | | 8,308 | | 3,471 | 11,779 | |||||||||||||||||||||
Unrealized gain on valuation of available-for-sale securities |
| | | (5,831 | ) | | (3,108 | ) | (8,939 | ) | ||||||||||||||||||
Unrealized loss on valuation of available-for-sale securities |
| | | (4,345 | ) | | (3,200 | ) | (7,545 | ) | ||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive income |
| | | 7,603 | | 2,351 | 9,954 | |||||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive expense |
| | | 988 | | (27 | ) | 961 | ||||||||||||||||||||
Gain on valuation of derivatives for cash flow hedge |
| | | 9,112 | | 262 | 9,374 | |||||||||||||||||||||
Loss on valuation of derivatives for cash flow hedge |
| | | (13,710 | ) | | (4,660 | ) | (18,370 | ) | ||||||||||||||||||
Balances as of December 31, 2008 |
(Won) | 1,560,998 | (Won) | 1,440,633 | (Won) | (3,994,736 | ) | (Won) | 10,879 | (Won) | 9,814,115 | (Won) | 2,256,009 | (Won) | 11,087,898 | |||||||||||||
F-8
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity (Continued)
Years Ended December 31, 2010, 2009 and 2008
Capital stock |
Capital surplus |
Capital adjustments |
Accumulated other comprehensive income and expense |
Retained earnings |
Minority interests |
Total | ||||||||||||||||||||||
(in millions of Korean won) | ||||||||||||||||||||||||||||
Balances as of January 1, 2009 |
(Won) | 1,560,998 | (Won) | 1,440,633 | (Won) | (3,994,736 | ) | (Won) | 10,879 | (Won) | 9,814,115 | (Won) | 2,256,009 | (Won) | 11,087,898 | |||||||||||||
Dividends |
| | | | (226,280 | ) | (3,080 | ) | (229,360 | ) | ||||||||||||||||||
Retained earnings after appropriation |
| | | | 9,587,835 | 2,252,929 | 10,858,538 | |||||||||||||||||||||
Issuance of common stock |
3,501 | | | | | | 3,501 | |||||||||||||||||||||
Net income for the year |
| | | | 494,846 | 114,849 | 609,695 | |||||||||||||||||||||
Consideration for exchange rights |
| 18,442 | | | | | 18,442 | |||||||||||||||||||||
Exercise of exchange rights of exchangeable bonds |
| (18,442 | ) | 451,157 | | | | 432,715 | ||||||||||||||||||||
Acquisition of treasury stock |
| | (528,144 | ) | | | | (528,144 | ) | |||||||||||||||||||
Disposal of treasury stock |
| | 2,436,797 | | | | 2,436,797 | |||||||||||||||||||||
Retirement of treasury stock |
| | 508,912 | | (508,912 | ) | | | ||||||||||||||||||||
Loss on disposal of treasury stock |
| (375 | ) | (890,650 | ) | | | | (891,025 | ) | ||||||||||||||||||
Stock options |
| 8,311 | (7,380 | ) | | | | 931 | ||||||||||||||||||||
Other share-based payments |
| | 700 | | | | 700 | |||||||||||||||||||||
Other capital adjustments |
| | 1,059 | | | (811 | ) | 248 | ||||||||||||||||||||
Other capital adjustments by merger |
| | (89,375 | ) | | | (1,553,491 | ) | (1,642,866 | ) | ||||||||||||||||||
Acquisition of subsidiaries stock and changes in consolidated entities |
| | (24,105 | ) | | | (268,373 | ) | (292,478 | ) | ||||||||||||||||||
Changes in the interest in the subsidiaries |
| | (29,963 | ) | | | (243,849 | ) | (273,812 | ) | ||||||||||||||||||
Gain on translation of foreign operations |
| | | (4,891 | ) | | (3,751 | ) | (8,642 | ) | ||||||||||||||||||
Loss on translation of foreign operations |
| | | (14,497 | ) | | (4,159 | ) | (18,656 | ) | ||||||||||||||||||
Unrealized gain on valuation of available-for-sale securities |
| | | 497 | | (610 | ) | (113 | ) | |||||||||||||||||||
Unrealized loss on valuation of available-for-sale securities |
| | | 4,262 | | 3,425 | 7,687 | |||||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive income |
| | | (9,931 | ) | | (273 | ) | (10,204 | ) | ||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive expense |
| | | (10,155 | ) | | 17 | (10,138 | ) | |||||||||||||||||||
Gain on valuation of derivatives for cash flow hedge |
| | | 331 | | 155 | 486 | |||||||||||||||||||||
Loss on valuation of derivatives for cash flow hedge |
| | | (21,037 | ) | | (5,186 | ) | (26,223 | ) | ||||||||||||||||||
Balances as of December 31, 2009 |
(Won) | 1,564,499 | (Won) | 1,448,569 | (Won) | (2,165,728 | ) | (Won) | (44,542 | ) | (Won) | 9,573,769 | (Won) | 290,872 | (Won) | 10,667,439 | ||||||||||||
F-9
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity (Continued)
Years Ended December 31, 2010, 2009 and 2008
Capital stock |
Capital surplus |
Capital adjustments |
Accumulated other comprehensive income and expense |
Retained earnings |
Minority interests |
Total | ||||||||||||||||||||||
(in millions of Korean won) | ||||||||||||||||||||||||||||
Balances as of January 1, 2010 |
(Won) | 1,564,499 | (Won) | 1,448,569 | (Won) | (2,165,728 | ) | (Won) | (44,542 | ) | (Won) | 9,573,769 | (Won) | 290,872 | (Won) | 10,667,439 | ||||||||||||
Dividends |
| | | | (486,393 | ) | (7,708 | ) | (494,101 | ) | ||||||||||||||||||
Retained earnings after appropriations |
| | | | 9,087,376 | 283,164 | 10,173,338 | |||||||||||||||||||||
Net income for the year |
| | | | 1,168,005 | 24,537 | 1,192,542 | |||||||||||||||||||||
Appropriations of loss on disposal of treasury stock |
| | 890,650 | | (890,650 | ) | | | ||||||||||||||||||||
Acquisition of treasury stock |
| | (349 | ) | | | | (349 | ) | |||||||||||||||||||
Disposal of treasury stock |
| | (295 | ) | | | | (295 | ) | |||||||||||||||||||
Stock options |
| 140 | (183 | ) | | | | (43 | ) | |||||||||||||||||||
Other share-based payments |
| 1,068 | 5,658 | | | | 6,726 | |||||||||||||||||||||
Acquisition of subsidiaries stock and changes in consolidated entities |
| | 5,879 | | | 158,750 | 164,629 | |||||||||||||||||||||
Changes in the interest in the subsidiaries |
| | 809 | | | (345 | ) | 464 | ||||||||||||||||||||
Other capital adjustments |
| | 1,025 | | | (872 | ) | 153 | ||||||||||||||||||||
Gain on translation of foreign operations |
| | | 7,418 | | (533 | ) | 6,885 | ||||||||||||||||||||
Loss on translation of foreign operations |
| | | (20,436 | ) | | (2,762 | ) | (23,198 | ) | ||||||||||||||||||
Unrealized gain on valuation of available-for-sale securities |
| | | 2,617 | | 199 | 2,816 | |||||||||||||||||||||
Unrealized loss on valuation of available-for-sale securities |
| | | (718 | ) | | (30 | ) | (748 | ) | ||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive income |
| | | 347 | | (262 | ) | 85 | ||||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive expense |
| | | 7,820 | | | 7,820 | |||||||||||||||||||||
Gain on valuation of derivatives for cash flow hedge |
| | | (6,769 | ) | | | (6,769 | ) | |||||||||||||||||||
Loss on valuation of derivatives for cash flow hedge |
| | | (28,384 | ) | | | (28,384 | ) | |||||||||||||||||||
Balances as of December 31, 2010 |
(Won) | 1,564,499 | (Won) | 1,449,777 | (Won) | (1,262,534 | ) | (Won) | (82,647 | ) | (Won) | 9,364,731 | (Won) | 461,846 | (Won) | 11,495,672 | ||||||||||||
F-10
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity (Continued)
Years Ended December 31, 2010, 2009 and 2008
Capital stock |
Capital surplus |
Capital adjustments |
Accumulated other comprehensive income and expense |
Retained earnings |
Minority interests |
Total | ||||||||||||||||||||||
(in thousands of U.S dollars) | ||||||||||||||||||||||||||||
Balances as of January 1, 2010 |
$ | 1,373,693 | $ | 1,271,902 | $ | (1,901,596 | ) | $ | (39,110 | ) | $ | 8,406,154 | $ | 255,397 | $ | 9,366,440 | ||||||||||||
Dividends |
| | | | (427,073 | ) | (6,768 | ) | (433,841 | ) | ||||||||||||||||||
Retained earnings after appropriations |
| | | | 7,979,081 | 248,629 | 8,932,599 | |||||||||||||||||||||
Net income for the year |
| | | | 1,025,555 | 21,544 | 1,047,099 | |||||||||||||||||||||
Appropriations of loss on disposal of treasury stock |
| | 782,027 | | (782,027 | ) | | | ||||||||||||||||||||
Acquisition of treasury stock |
| | (306 | ) | | | | (306 | ) | |||||||||||||||||||
Disposal of treasury stock |
| | (259 | ) | | | | (259 | ) | |||||||||||||||||||
Stock options |
| 123 | (161 | ) | | | | (38 | ) | |||||||||||||||||||
Other share-based payments |
| 938 | 4,968 | | | | 5,906 | |||||||||||||||||||||
Acquisition of subsidiaries stock and changes in consolidated entities |
| | 5,162 | | | 139,389 | 144,551 | |||||||||||||||||||||
Changes in the interest in the subsidiaries |
| | 710 | | | (303 | ) | 407 | ||||||||||||||||||||
Other capital adjustments |
| | 900 | | | (766 | ) | 134 | ||||||||||||||||||||
Gain on translation of foreign operations |
| | | 6,513 | | (468 | ) | 6,045 | ||||||||||||||||||||
Loss on translation of foreign operations |
| | | (17,944 | ) | | (2,425 | ) | (20,369 | ) | ||||||||||||||||||
Unrealized gain on valuation of available-for-sale securities |
| | | 2,298 | | 175 | 2,473 | |||||||||||||||||||||
Unrealized loss on valuation of available-for-sale securities |
| | | (630 | ) | | (26 | ) | (656 | ) | ||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive income |
| | | 305 | | (230 | ) | 75 | ||||||||||||||||||||
Changes in equity-method investees with accumulated comprehensive expense |
| | | 6,866 | | | 6,866 | |||||||||||||||||||||
Gain on valuation of derivatives for cash flow hedge |
| | | (5,943 | ) | | | (5,943 | ) | |||||||||||||||||||
Loss on valuation of derivatives for cash flow hedge |
| | | (24,922 | ) | | | (24,922 | ) | |||||||||||||||||||
Balances as of December 31, 2010 |
$ | 1,373,693 | $ | 1,272,963 | $ | (1,108,555 | ) | $ | (72,567 | ) | $ | 8,222,609 | $ | 405,519 | $ | 10,093,662 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-11
KT Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2010, 2009 and 2008
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||||||
2010 | 2009 | 2008 | 2010 | |||||||||||||
Cash flows from operating activities |
||||||||||||||||
Net income |
(Won) | 1,192,542 | (Won) | 609,695 | (Won) | 513,290 | $ | 1,047,100 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||||||||||
Share-based payments |
6,969 | 1,049 | 1,922 | 6,119 | ||||||||||||
Provision for severance benefits |
248,053 | 1,128,370 | 362,342 | 217,801 | ||||||||||||
Depreciation |
2,895,499 | 2,935,448 | 3,264,291 | 2,542,365 | ||||||||||||
Amortization of intangible assets |
389,960 | 426,018 | 438,544 | 342,401 | ||||||||||||
Provision for doubtful accounts |
164,799 | 104,977 | 150,583 | 144,700 | ||||||||||||
Interest expense |
34,722 | 25,994 | 45,581 | 30,487 | ||||||||||||
Interest income |
(46,891 | ) | (22,126 | ) | (20,964 | ) | (41,172 | ) | ||||||||
Other bad debts expense |
9,261 | 46,872 | 22,355 | 8,132 | ||||||||||||
Loss (Gain) on foreign currency translation, net |
(33,346 | ) | (224,104 | ) | 760,867 | (29,279 | ) | |||||||||
Loss (Gain) on valuation of equity-method investments, net |
(27,037 | ) | 13,628 | 10,965 | (23,740 | ) | ||||||||||
Gain on disposal of equity-method investments, net |
(1,318 | ) | (62,076 | ) | 136 | (1,157 | ) | |||||||||
Loss on impairment of available-for-sale securities |
2,792 | 10,102 | 3,826 | 2,451 | ||||||||||||
Gain on disposal of available-for-sale securities |
(257 | ) | (9,496 | ) | (3,996 | ) | (226 | ) | ||||||||
Loss on disposal of property and equipment, net |
165,310 | 119,158 | 88,917 | 145,149 | ||||||||||||
Loss on impairment of property and equipment |
9,297 | 1,236 | 20,676 | 8,163 | ||||||||||||
Loss on disposal of intangible assets |
19,620 | 4,247 | 1,653 | 17,227 | ||||||||||||
Loss on impairment of intangible assets |
3,443 | 7,742 | 17,435 | 3,023 | ||||||||||||
Loss on valuation of derivatives, net |
7,801 | 173,625 | (639,744 | ) | 6,850 | |||||||||||
Others |
132,529 | (8,635 | ) | 21,893 | 116,366 | |||||||||||
3,981,206 | 4,672,029 | 4,547,282 | 3,495,660 | |||||||||||||
F-12
KT Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2010, 2009 and 2008
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||||||
2010 | 2009 | 2008 | 2010 | |||||||||||||
Changes in operating assets and liabilities |
||||||||||||||||
Decrease (increase) in trade accounts and notes receivable |
(Won) | 69,456 | (Won) | (465,422 | ) | (Won) | (367,263 | ) | $ | 60,985 | ||||||
Short-term loans granted |
(278,531 | ) | (180,572 | ) | (71,188 | ) | (244,561 | ) | ||||||||
Decrease in current finance lease receivables |
13,955 | 5,834 | 78,103 | 12,253 | ||||||||||||
Decrease(increase) in other accounts receivable |
(90,253 | ) | (120,762 | ) | 20,460 | (79,246 | ) | |||||||||
Decrease(increase) in accrued revenue |
5,722 | (1,201 | ) | (7,676 | ) | 5,024 | ||||||||||
Increase in advance payments |
(51,579 | ) | (27,294 | ) | (6,919 | ) | (45,288 | ) | ||||||||
Increase in prepaid expenses |
(4,677 | ) | (19,928 | ) | (44,282 | ) | (4,107 | ) | ||||||||
Decrease(increase) in income taxes receivable |
25,984 | (25,538 | ) | (107 | ) | 22,815 | ||||||||||
Decrease(increase) in guarantee deposits |
(532 | ) | 1,049 | 8,026 | (467 | ) | ||||||||||
Decrease(increase) in derivative instruments assets |
19,148 | (30,838 | ) | 554 | 16,813 | |||||||||||
Decrease(increase) in other current assets |
(354 | ) | 275 | (173 | ) | (311 | ) | |||||||||
Decrease(increase) in inventories |
36,850 | (274,851 | ) | (131,305 | ) | 32,356 | ||||||||||
Dividend received |
11,306 | 1,332 | 1,047 | 9,927 | ||||||||||||
Increase in long-term trade accounts and notes receivable |
(781,407 | ) | (387,630 | ) | (253,257 | ) | (686,107 | ) | ||||||||
Long-term loans granted |
| (147,602 | ) | (113,229 | ) | 0 | ||||||||||
Increase in non-current finance lease receivables |
(169,991 | ) | (16,555 | ) | (299,257 | ) | (149,259 | ) | ||||||||
Decrease(increase) in leasehold rights and deposits |
37,133 | (2,484 | ) | (3,804 | ) | 32,604 | ||||||||||
Decrease(increase) in deferred income tax assets and liabilities |
11,691 | (68,054 | ) | (126,811 | ) | 10,265 | ||||||||||
Decrease(increase) in long-term other accounts receivable |
9,748 | (890 | ) | (8,146 | ) | 8,559 | ||||||||||
Decrease(increase) in other non-current assets |
44,099 | (8,827 | ) | (19,536 | ) | 38,721 | ||||||||||
Increase in trade accounts payable |
21,213 | 645,925 | (262,733 | ) | 18,626 | |||||||||||
Increase(decrease) in other accounts payable |
(286,700 | ) | 869,594 | (160,717 | ) | (251,734 | ) | |||||||||
Increase(decrease) in advances received |
(11,572 | ) | 52,277 | 31,905 | (10,161 | ) | ||||||||||
Increase(decrease) in withholdings |
76,042 | (129,398 | ) | 26,901 | 66,768 | |||||||||||
Increase(decrease) in accrued expenses |
75,844 | (42,864 | ) | 44,402 | 66,594 | |||||||||||
Increase(decrease) in income taxes payable |
275,554 | (107,361 | ) | (152,286 | ) | 241,947 | ||||||||||
Increase in unearned revenue |
5,220 | 81 | 1,363 | 4,583 | ||||||||||||
Increase(decrease) in other current liabilities |
716 | 376 | (6,782 | ) | 629 | |||||||||||
Increase in deposits received |
18,932 | 39,232 | 77,868 | 16,623 | ||||||||||||
Increase(decrease) in derivative instruments liabilities |
(11,490 | ) | 35,423 | (388 | ) | (10,089 | ) | |||||||||
Payment of severance benefits |
(1,249,246 | ) | (1,345,331 | ) | (220,800 | ) | (1,096,888 | ) | ||||||||
Decrease(increase) in deposits for severance benefits |
278,332 | 48,917 | (148,848 | ) | 244,387 | |||||||||||
Increase(decrease) in contribution to National Pension Fund |
(193 | ) | 135 | 122 | (169 | ) | ||||||||||
Increase(decrease) in accrued provisions |
(49,051 | ) | (11,257 | ) | 18,500 | (43,069 | ) | |||||||||
Decrease in refundable deposits for telephone installation |
(80,585 | ) | (85,129 | ) | (59,437 | ) | (70,757 | ) | ||||||||
Increase in long-term accounts payable |
2,902 | 17,494 | 30,794 | 2,548 | ||||||||||||
Increase(decrease) in long-term other payables |
105,594 | (99,864 | ) | (24,833 | ) | 92,716 | ||||||||||
Increase(decrease) in other non-current liabilities |
(8,496 | ) | (1,151 | ) | 8,949 | (7,460 | ) | |||||||||
(1,929,216 | ) | (1,882,859 | ) | (2,140,783 | ) | (1,693,930 | ) | |||||||||
Net cash provided by operating activities |
3,244,532 | 3,398,865 | 2,919,789 | 2,848,830 | ||||||||||||
F-13
KT Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2010, 2009 and 2008
(in millions of Korean won) | (in thousands of U.S dollars) |
|||||||||||||||
2010 | 2009 | 2008 | 2010 | |||||||||||||
Cash flows from investing activities |
||||||||||||||||
Decrease in short-term investment assets |
668,313 | 657,223 | 544,946 | 586,806 | ||||||||||||
Disposal of available-for-sale securities |
12,338 | 12,609 | 614,822 | 10,833 | ||||||||||||
Disposal in equity-method investments |
25,021 | 111,901 | 1,580 | 21,969 | ||||||||||||
Decrease in long-term financial instruments |
10,481 | 13 | 2,819 | 9,203 | ||||||||||||
Collection of held-to-maturity securities |
16 | 14,093 | 65 | 14 | ||||||||||||
Collection of long-term loans |
3 | 89,603 | 10,001 | 3 | ||||||||||||
Disposal of property and equipment |
27,159 | 69,947 | 56,365 | 23,847 | ||||||||||||
Increase in customers contribution to construction costs |
5,522 | 16,440 | 74,228 | 4,849 | ||||||||||||
Disposal of intangible assets |
4,253 | 1,326 | 17,013 | 3,734 | ||||||||||||
Disposal of other investment assets |
1,378 | 189 | 5,630 | 1,210 | ||||||||||||
Increase in short-term investment assets |
(320,100 | ) | (685,809 | ) | (343,115 | ) | (281,061 | ) | ||||||||
Acquisition of available-for-sale securities |
(88,981 | ) | (52,962 | ) | (714,831 | ) | (78,129 | ) | ||||||||
Acquisition of held-to-maturity securities |
| (5 | ) | (13,988 | ) | | ||||||||||
Acquisition of equity-method investments |
(135,539 | ) | (38,191 | ) | (123,371 | ) | (119,009 | ) | ||||||||
Increase in long-term financial instruments |
(9 | ) | (3,006 | ) | (11 | ) | (8 | ) | ||||||||
Long-term loans granted |
(50,234 | ) | (71,810 | ) | (50,421 | ) | (44,107 | ) | ||||||||
Acquisition of property and equipment |
(3,239,396 | ) | (2,774,426 | ) | (3,362,469 | ) | (2,844,320 | ) | ||||||||
Acquisition of intangible assets |
(352,033 | ) | (215,115 | ) | (189,772 | ) | (309,099 | ) | ||||||||
Acquisition of other investment assets |
(4,182 | ) | (3,782 | ) | (6,245 | ) | (3,672 | ) | ||||||||
Acquisition of subsidiaries assets and liabilities |
| | 55,655 | | ||||||||||||
Net cash used in investing activities |
(3,435,990 | ) | (2,871,762 | ) | (3,532,409 | ) | (3,016,937 | ) | ||||||||
Cash flows from financing activities |
||||||||||||||||
Increase in short-term borrowings, net |
211,012 | 99,395 | 42,538 | 185,277 | ||||||||||||
Issuance of bonds |
1,606,224 | 1,421,091 | 2,405,577 | 1,410,329 | ||||||||||||
Increase in long-term borrowings |
429,082 | 77,539 | 1,374,480 | 376,751 | ||||||||||||
Inflows from capital transactions of consolidated entities |
61,281 | 4,124 | 7,951 | 53,807 | ||||||||||||
Decrease in capital lease liabilities |
(37,648 | ) | (48,723 | ) | (29,764 | ) | (33,056 | ) | ||||||||
Payment of current portion of bond and long-term borrowings |
(1,894,942 | ) | (1,445,857 | ) | (2,147,487 | ) | (1,663,835 | ) | ||||||||
Payment of dividends |
(502,185 | ) | (229,360 | ) | (409,270 | ) | (440,939 | ) | ||||||||
Acquisition of treasury stock |
(300 | ) | (528,143 | ) | (73,807 | ) | (263 | ) | ||||||||
Outflows from capital transactions of consolidated entities |
(1,504 | ) | (280,512 | ) | (118,868 | ) | (1,321 | ) | ||||||||
Net cash used in financing activities |
(128,980 | ) | (930,446 | ) | 1,051,350 | (113,250 | ) | |||||||||
Effect of changes in consolidated entities |
(21,879 | ) | 59,714 | 48,482 | (19,211 | ) | ||||||||||
Effect of exchange rate on cash |
(2,457 | ) | (9,167 | ) | 18,721 | (2,157 | ) | |||||||||
Net increase(decrease) in cash and cash equivalents |
(344,774 | ) | (352,796 | ) | 505,933 | (302,725 | ) | |||||||||
Cash and cash equivalents (Note 31) |
||||||||||||||||
Beginning of the year |
1,538,122 | 1,890,918 | 1,384,985 | 1,350,533 | ||||||||||||
End of the year |
(Won) | 1,193,348 | (Won) | 1,538,122 | (Won) | 1,890,918 | $ | 1,047,808 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-14
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2010, 2009 and 2008
1. General information
KT Corporation (the Controlling Company) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in the development of advanced communications services under the Act of Telecommunications of Korea.
On October 1, 1997, upon the announcement of the Government-Investment Enterprises Management Basic Act and the Privatization Law, the Controlling Company became a government-funded institution under the Commercial Code of Korea.
On December 23, 1998, the Controlling Companys shares were listed on the Korea Exchange.
On May 29, 1999, the Controlling Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), representing new shares and government-owned shares, at the New York Stock Exchange and the London Stock Exchange. On July 2, 2001, the ADS representing 55,502,161 government-shares were issued.
In 2002, the Controlling Company acquired 60,294,575 government-owned shares in accordance with the Korean governments privatization plan. As of December 31, 2010, the Korean government did not own any share in the Controlling Company.
On June 1, 2009, the Controlling Company, as the surviving entity, merged with KT Freetel Co., Ltd. to have competitive advantages in the global trends of convergence between fixed and mobile communication.
The Controlling Companys shares as of December 31, 2010 are owned as follows:
Number of shares | Percentage of ownership(%) |
|||||||
National Pension Service |
21,557,950 | 8.26 | % | |||||
NTTDoCoMo, Inc. |
14,257,813 | 5.46 | % | |||||
Employee Stock Ownership Association |
4,069,147 | 1.56 | % | |||||
Others |
203,330,934 | 77.87 | % | |||||
243,215,844 | 93.15 | % | ||||||
Treasury stock |
17,895,964 | 6.85 | % | |||||
261,111,808 | 100.00 | % | ||||||
2. Consolidated Subsidiaries
The consolidated subsidiaries as of December 31, 2010, are as follows:
Subsidiary |
Type of Business |
Total issued shares |
Shares owned by | Percentage of ownership (%) |
Financial year end |
|||||||||||||||||||||
Parent | Subsidiaries | Total | ||||||||||||||||||||||||
Domestic subsidiaries |
||||||||||||||||||||||||||
KT Powertel Co., Ltd. (KTP) |
Trunk radio system business | 17,329,432 | 7,771,418 | | 7,771,418 | 44.85 | 12.31 |
F-15
Subsidiary |
Type of Business |
Total issued shares |
Shares owned by | Percentage of ownership (%) |
Financial year end |
|||||||||||||||||||||
Parent | Subsidiaries | Total | ||||||||||||||||||||||||
KT Networks Corporation (KTN) |
Group telephone management |
2,000,000 | 2,000,000 | | 2,000,000 | 100.00 | 12.31 | |||||||||||||||||||
KT Linkus Co., Ltd. (KTL) |
Public telephone maintenance |
3,135,554 | 2,941,668 | | 2,941,668 | 93.82 | 12.31 | |||||||||||||||||||
KT Submarine Co., Ltd. (KTSC) |
Submarine cable construction and maintenance |
4,380,000 | 1,617,000 | | 1,617,000 | 36.92 | 12.31 | |||||||||||||||||||
KT Capital Co., Ltd. (KT Capital) |
Financing service |
27,394,245 | 20,200,000 | 7,194,245 | 27,394,245 | 100.00 | 12.31 | |||||||||||||||||||
KT Telecop Co., Ltd. (KT Telecop) |
Security service |
6,491,353 | 5,765,911 | 84,544 | 5,850,455 | 90.13 | 12.31 | |||||||||||||||||||
KT Internal Venture Fund No.2 |
Investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 94.34 | 2.28 | |||||||||||||||
Sofnics, Inc. (Sofnics) |
Software development and sales |
225,000 | 120,000 | 15,000 | 135,000 | 60.00 | 12.31 | |||||||||||||||||||
KT Edui Co., Ltd. (formerly, JungBoPremiumEdu Co., Ltd.) (KT Edui) |
Online education business |
768,000 | 540,000 | | 540,000 | 70.31 | 12.31 | |||||||||||||||||||
KT New Business Fund No. 1 |
Investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 100.00 | 12.31 | |||||||||||||||
KT DataSystems Co., Ltd. (KTDS) |
System integration and maintenance |
2,518,044 | 2,400,000 | | 2,400,000 | 95.31 | 12.31 | |||||||||||||||||||
Gyeonggi-KT Green Growth Fund |
Venture investment of Green Growth Business |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 56.45 | 12.31 | |||||||||||||||
KTC Media Contents Fund 1 |
New technology investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 81.82 | 4.30 | |||||||||||||||
KTC Media Contents Fund 2 |
New technology investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 85.71 | 12.31 | |||||||||||||||
KT Innotz Inc. (KT Innotz) |
Software development of mobile clouding computer and solution |
1,000,000 | 600,000 | | 600,000 | 60.00 | 12.31 | |||||||||||||||||||
Vanguard Private Equity Fund (*1) |
Corporate restructuring |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 28.10 | 12.31 | |||||||||||||||
KT-LIG ACE Private Equity Fund (*1) |
Investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 9.01 | 12.31 | |||||||||||||||
KTR Co., Ltd. (KTR) (*3) |
Rental service |
4,974,608 | | 4,974,608 | 4,974,608 | 58.00 | 12.31 | |||||||||||||||||||
KT Rental Co., Ltd. (KT Rental) (*4) |
Rental service |
11,410,700 | 6,618,046 | | 6,618,046 | 58.00 | 12.31 | |||||||||||||||||||
KT Estate Inc. (KT Estate) |
Residential Building Development and Supply |
1,600,000 | 1,600,000 | | 1,600,000 | 100.00 | 12.31 | |||||||||||||||||||
KT Strategic Investment Fund No.1 |
Investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 100.00 | 12.31 | |||||||||||||||
KT Hitel Co., Ltd. (KTH) |
Data communication |
34,500,000 | 22,750,000 | | 22,750,000 | 65.94 | 12.31 | |||||||||||||||||||
KT Commerce Inc. (KTC) |
B2C, B2B service |
1,400,000 | 266,000 | 1,134,000 | 1,400,000 | 100.00 | 12.31 | |||||||||||||||||||
KT Tech, Inc. (KT Tech) |
PCS handset development |
5,489,382 | 5,146,962 | | 5,146,962 | 93.76 | 12.31 | |||||||||||||||||||
KT M Hows Co., Ltd. (KTF M Hows) |
Mobile marketing |
1,000,000 | 510,000 | | 510,000 | 51.00 | 12.31 |
F-16
Subsidiary |
Type of Business |
Total issued shares |
Shares owned by | Percentage of ownership (%) |
Financial year end |
|||||||||||||||||||||
Parent | Subsidiaries | Total | ||||||||||||||||||||||||
KT M&S Co., Ltd. (KT M&S) |
PCS distribution | 30,000,000 | 30,000,000 | | 30,000,000 | 100.00 | 12.31 | |||||||||||||||||||
KT Music Corporation (KT Music) |
Online music production and distribution |
29,766,863 | 14,494,258 | | 14,494,258 | 48.69 | 12.31 | |||||||||||||||||||
Sidus FNH Corporation (Sidus FNH) |
Movie production | (*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 51.00 | 12.31 | |||||||||||||||
Sidus FNH Benex Cinema Investment Fund |
Movie investment fund |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 43.33 | 12.31 | |||||||||||||||
Nasmedia, Inc. (Nasmedia) |
Online advertisement |
3,535,029 | 1,767,516 | | 1,767,516 | 50.00 | 12.31 | |||||||||||||||||||
Overseas subsidiaries |
||||||||||||||||||||||||||
Korea Telecom Japan Co., Ltd. (KTJ, Japan) |
Foreign telecommunication business |
12,856 | 12,856 | | 12,856 | 100.00 | 12.31 | |||||||||||||||||||
Korea Telecom China Co., Ltd. (KTCC, China) |
Foreign telecommunication business |
1,244,600,000 | 1,244,600,000 | | 1,244,600,000 | 100.00 | 12.31 | |||||||||||||||||||
Super iMax (Uzbekistan) |
Wireless high speed internet business |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 100.00 | 12.31 | |||||||||||||||
East Telecom (Uzbekistan) |
Fixed line telecommunication business |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 85.00 | 12.31 | |||||||||||||||
New Telephone Company, Inc. (NTC, Rusia) |
Foreign telecommunication business |
6,639,492 | 5,309,189 | | 5,309,189 | 79.96 | 12.31 | |||||||||||||||||||
Helios-TV (Rusia) |
Cable TV business |
(*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 100.00 | 12.31 | |||||||||||||||
Novaya Svyaz |
Internet business | (*2 | ) | (*2 | ) | (*2 | ) | (*2 | ) | 100.00 | 12.31 | |||||||||||||||
KTSC Investment Management B.V. (KTSC, Netherlands) |
Management of investment in Super iMax and East Telecom |
137,690 | 82,614 | | 82,614 | 60.00 | 12.31 | |||||||||||||||||||
Korea Telecom America, Inc. (KTAI, America) |
Foreign telecommunication business |
6,000 | 6,000 | | 6,000 | 100.00 | 12.31 | |||||||||||||||||||
PT. KT Indonesia (KTI, Indonesia) |
Foreign telecommunication business |
200,000 | 198,000 | | 198,000 | 99.00 | 12.31 |
1 | Even though the Controlling Company has less than 30% ownership in this subsidiary, this subsidiary was consolidated as the Controlling Company has significant control as a general partner in accordance with the Indirect Investment Asset Management Business Act. |
2 | There are no issued shares since these are not corporations. |
3 | KTR Co., Ltd. was spun off from KT Rental Co., Ltd. on June 1, 2010. |
4 | KT Rental Co., Ltd. merged with the Rent-A-Car division that was spun off from Kumho Rent-A-Car Global Co., Ltd. on June 1, 2010. |
The consolidated subsidiaries are determined in accordance with the Enforcement Decree of the Act on External Audit of Stock Companies and SKFAS No. 25, Consolidated Financial Statements.
F-17
Newly consolidated subsidiaries as of December 31, 2010, and subsidiaries consolidated as of December 31, 2009 but excluded as of December 31, 2010, are as follows:
Consolidated subsidiaries |
Remarks | |
KT-LIG ACE Private Equity Fund |
New investment made in 2010 | |
KTR Co., Ltd. |
Newly incorporated through spin-off | |
KT Estate Inc. |
New investment made in 2010 | |
KT Strategic Investment Fund No.1 |
New investment made in 2010 | |
Novaya Svyaz |
Total assets exceeded (Won)10,000 million | |
Excluded subsidiary |
Remarks | |
Doremi Media Co., Ltd |
Disposed of in 2010 |
A summary of financial data of the major consolidated subsidiaries as of and for the year ended December 31, 2010 is as follows:
(in millions of Korean won) |
Total assets | Total liabilities | Net assets | Sales | Net income (loss) | |||||||||||||||
KT Powertel Co., Ltd. |
(Won) | 165,838 | (Won) | 68,805 | (Won) | 97,033 | (Won) | 127,491 | (Won) | 13,592 | ||||||||||
KT Networks Corporation |
171,875 | 120,503 | 51,372 | 342,449 | 2,321 | |||||||||||||||
KT Telecop Co., Ltd |
130,410 | 96,214 | 34,196 | 216,651 | 4,874 | |||||||||||||||
KT Hitel Co., Ltd. |
223,225 | 37,744 | 185,481 | 149,845 | (2,739 | ) | ||||||||||||||
KT Tech, Inc. |
129,052 | 109,470 | 19,582 | 341,514 | 1,725 | |||||||||||||||
KTR Co., Ltd. |
304,047 | 269,345 | 34,702 | 28,869 | 1,231 | |||||||||||||||
KT Rental Co., Ltd. |
933,557 | 673,211 | 260,346 | 378,775 | 13,797 | |||||||||||||||
KT Capital Co., Ltd. |
2,037,839 | 1,837,892 | 199,947 | 176,389 | 27,763 | |||||||||||||||
KTDS |
147,950 | 118,184 | 29,766 | 355,542 | 8,144 | |||||||||||||||
KT M&S Co., Ltd. |
265,446 | 239,158 | 26,288 | 615,972 | (19,959 | ) | ||||||||||||||
New Telephone Company, Inc. |
220,209 | 18,610 | 201,599 | 129,263 | 33,001 | |||||||||||||||
Others |
691,247 | 249,396 | 441,851 | 485,318 | 3,342 | |||||||||||||||
Total |
(Won) | 5,420,695 | (Won) | 3,838,532 | (Won) | 1,582,163 | (Won) | 3,348,078 | (Won) | 87,092 | ||||||||||
A summary of financial data of the major consolidated subsidiaries as of and for the year ended December 31, 2010, is presented prior to the elimination of intercompany transactions. The financial data of New Telephone Company, Inc. are based on the consolidated financial statements and the financial data of all others are based on non-consolidated financial statements.
3. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Controlling Company and its subsidiaries (collectively referred to as the Company) in the preparation of its financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of Presentation
The Company maintains its accounting records in Korean won and prepares statutory financial statements in 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 consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.
F-18
Principles of Consolidation
The fiscal year end of the consolidated subsidiaries is the same as that of the Controlling Company, except for KT Internal Venture Fund No.2 and KTC Media Contents Fund 1. If the fiscal year end of a consolidated subsidiary is different from that of the Controlling Company, the consolidated financial statements are prepared based on the subsidiarys reliable financial statements as of the fiscal year end of the Controlling Company. Differences in accounting policy between the Company and its consolidated subsidiaries are adjusted during consolidation.
The investment accounts of the Controlling Company and corresponding capital accounts of the subsidiaries are eliminated as of the fiscal year end of the subsidiaries closest to date when the Controlling Company acquires control in the subsidiaries. All significant intercompany transactions and balances with consolidated subsidiaries have been eliminated during consolidation.
When the Company has control over a subsidiary, the Company records differences between the initial investment accounts and corresponding capital accounts of subsidiaries as goodwill or negative goodwill. The goodwill is amortized using the straight-line method over the estimated useful lives, which range from four to ten years. The negative goodwill relating to the expected expense or loss in the future is reversed as a gain when the related expense or loss is actually incurred, whereas the negative goodwill not relating to the certain future expense is amortized over the weighted average useful lives of depreciable non-monetary assets of an acquiree and the amounts of this negative goodwill in excess of the fair value of the total non-monetary assets of an acquiree are recorded as a gain as of the acquisition date. In addition, the differences between the additional investment in the subsidiaries and net assets of the subsidiaries attributable to subsequently acquired controlling interest and differences between the acquisition cost of the investments in the subsidiaries and changes in net assets of the subsidiaries due to certain equity transactions of the subsidiaries including capital increase with consideration are reflected in the capital surplus or capital adjustment.
When the Company gains significant influence over the equity-method investees, the excess of the acquisition cost of an investment in an investee over the Companys share of the fair value of the identifiable net assets acquired is amortized using the straight-line method over its estimated useful life, not exceeding 20 years. When acquisition cost of investments in an investee is less than the Companys interest on the fair value of the identifiable net assets acquired, the investment differences relating to the expected expense or loss in the future is reversed as a gain when the related expense or loss is actually incurred. The investment differences not relating to the certain future expense up to fair value of depreciable non-monetary assets of an investee is amortized over the weighted average useful lives of depreciable non-monetary assets of an investee and the remaining amounts of investment difference in excess of the fair value of the total non-monetary assets of an investee are recorded as a gain as of the acquisition date.
Unrealized gains or losses included in inventories and other assets as a result of intercompany transactions are eliminated based on the average gross profit ratio of the corresponding company. Unrealized gains or losses, arising from sales by the Controlling Company to the consolidated subsidiaries, are fully eliminated and charged to the equity of the Controlling Company. Unrealized gains or losses, arising from sales by the consolidated subsidiaries to the Controlling Company, or sales between consolidated subsidiaries, are fully eliminated, and charged to the equity of the Controlling Company and the minority interests, based on the percentage of ownership. Unrealized gains or losses, arising from the transactions between the Company and equity method investees are eliminated in proportion to the Companys ownership and reflected in equity-method investments.
F-19
Minority interest
The Company records the equity of the consolidated subsidiaries, which is not included in the equity of the Controlling Company, as minority interest in consolidated subsidiaries. In addition, even if the minority interest has a deficit balance, the total comprehensive income is attributed to the owners of the parent and to the minority interests.
Reclassifications of Prior Year Financial Statements
Certain reclassifications have been made in 2008 and 2009 consolidated financial statements to conform to 2010 consolidated financial statement presentation. Such reclassifications did not have an effect on the shareholders equity and net income of the Company as of and for the years ended December 31, 2008 and 2009.
Revenue Recognition
Revenue is the gross inflow of economic benefits arising in the ordinary course of the Companys activities and is measured as the fair value of the consideration received or receivable for the sale of goods and services in the said ordinary course of the Companys activities. Revenue is shown as net of value-added tax, sales discounts and sales returns. The Company recognizes revenue when the amount of revenue can be reliably measured, and it is probable that future economic benefits will flow into the Company. Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue according to revenue recognition policy for the service.
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of goods are transferred to the buyer. Revenue from the rendering of services is recognized under the percentage-of-completion method, under which revenue is generally recognized based on the costs incurred to date as a percentage of the total estimated costs to be incurred.
The Company recognizes revenues from construction contracts using the percentage-of-completion method to determine the amounts to be recognized as revenues in a given period. The stage of completion is measured using the percentage of the total contract costs incurred up to the date of statement of financial position over the total estimated costs for each contract. When the outcome of a construction contract cannot be estimated reliably, the contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable, and contract costs incurred for the period is recognized as an expense.
Interest income is recognized using the effective interest method. Dividend income is recognized when the rights to receive such dividends and amounts thereof are determined.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks, and financial instruments with maturity of three months or less at the time of purchase. These financial instruments are readily convertible into cash without significant transaction costs and bear low risks from changes in value due to interest rate fluctuations.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts and notes receivable. Allowances are calculated based on the estimates made through a reasonable and objective method.
F-20
Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2010 are summarized as follows:
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In millions of Won) | ||||||||||||
Balance at beginning of year |
(Won) | 477,124 | (Won) | 488,739 | (Won) | 487,729 | ||||||
Provision |
171,195 | 104,977 | 148,972 | |||||||||
Write-offs |
(133,095 | ) | (116,592 | ) | (147,962 | ) | ||||||
Balance at end of year |
(Won) | 515,224 | (Won) | 477,124 | (Won) | 488,739 | ||||||
Inventories
The quantities of inventories are determined using the perpetual method and periodic inventory count, while the costs of inventories are determined using the moving-weighted average method. Goods-in-transit and land use the specific identification method. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Replacement cost is used for the estimate of the net realizable value of raw materials. Market prices of merchandise and supplies are net realizable value and replacement cost, respectively. If, however, the circumstances which caused the valuation loss cease to exist, the valuation loss is reversed up to the original carrying amount before valuation. The said reversal is deducted from cost of sales.
Investments in Securities
Costs of debt securities and equity securities are determined using the specific identification method and the moving-weighted average method, respectively. Investments in equity securities or debt securities are classified into trading securities, available-for-sale securities and held-to-maturity securities, depending on the acquisition and holding purpose. Investments in equity securities of companies, over which the Company exercises a significant control or influence, are recorded using the equity method of accounting. Trading securities are classified as current assets while available-for-sale securities and held-to-maturity securities are classified as long-term investments, excluding those securities that mature or are certain to be disposed of within one year, which are then classified as current assets.
Held-to-maturity securities are measured at amortized cost while available-for-sale and trading securities are measured at fair value. However, non-marketable securities, classified as available-for-sale securities, are carried at cost when the fair values are not readily determinable.
Gains and losses related to trading securities are recognized in the income statement, while unrealized gains and losses of available-for-sale securities are recognized under other comprehensive income and expense. Realized gains and losses on available-for-sale securities are recognized in the income statement.
Equity-Method Investments
Company reflects any changes in the equity of its equity-method investments after the initial purchase date. Under the equity method, the Company records changes in its proportionate ownership in the book value of the investee in current operations, as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. All other changes in equity should be accounted for under other comprehensive income and expense.
F-21
Property, Plant and Equipment
Property, plant and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. It also includes the present value of the estimated cost of dismantling and removing the asset, and restoring the site after the termination of the assets useful life, provided it meets the criteria for recognition of provisions.
Property, plant and equipment are stated net of accumulated depreciation calculated by straight-line and declining-balance methods based on following estimated useful lives:
Estimated Useful Lives | ||
Building |
5 - 60 years | |
Structures |
5 - 40 years | |
Equipment |
||
Machinery |
3 - 15 years | |
Other |
6 - 15 years | |
Underground access to cable tunnels and concrete and steel telephone poles |
20 -40 years | |
Vehicles |
3 - 10 years | |
Others |
||
Tools |
3 - 8 years | |
Office equipment |
2 - 20 years |
Expenditures incurred after the acquisition or completion of assets are capitalized if they enhance the value of the related assets over their recently appraised value or extend the useful life of the related assets. Routine maintenance and repairs are charged to expense as incurred.
Intangible Assets
Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated by straight-line method based on following estimated useful lives:
Estimated Useful Lives | ||
Goodwill |
4 - 10 years | |
Industrial property rights |
5 - 10 years | |
Development Costs |
3 - 8 years | |
Software |
4 - 8 years | |
Frequency usage rights |
5.75 years or 13 years from the date of service commencement | |
Other intangible assets |
||
Right to use the base stations |
30, 50 years | |
Copyrights |
50 years | |
Others |
10 - 20 years |
Development costs which are individually identifiable and directly related to a new technology or to new products which carry probable future benefits are capitalized as intangible assets. Amortization of development cost begins at the commencement of the commercial production of the related products or use of the related technology.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Controlling Companys share in the net identifiable assets of the acquired subsidiary or associate at the date of acquisition.
Capitalization of Interest Expense
The Company capitalizes the interest it incurs on borrowings used to finance the cost of manufacturing, acquisition, and construction of inventory and property, plant, and equipment that require more than one year to complete from the initial date of manufacture, acquisition, and construction.
F-22
Government Grants
The Company recognizes government grants, which are to be repaid, as liabilities. The government grants and donations, which are intended to be used for the acquisition of certain assets, are deducted from the cost of the acquired assets. The government grants or donations, received to compensate for specific expenses, are offset against the related expenses. Other government grants or donations, for which the use or purpose is not specified, are recorded as gains from assets received, and are recognized in current operations. Prior to the acquisition of the assets specified, the grant or donation is recorded as deduction from the assets granted. When the related assets are acquired, the amounts are recognized as a deduction from the account under which the assets acquired are recorded and offset against the depreciation expense over the period of the assets useful live. After the disposal of the assets specified by the grant or donation, the remaining amounts are deducted or added to the assets disposal gain and loss.
Impairment of Assets
When the book value of an asset is significantly greater than its recoverable value due to obsolescence, physical damage or an abrupt decline in the market value of the asset, the said decline in value is deducted from the book value to agree with recoverable amount and is recognized as an asset impairment loss for the period. When the recoverable value subsequently exceeds the book value, the impairment amount is recognized as gain for the period to the extent that the revised book value does not exceed the book value that would have been recorded without the impairment. Reversal of impairment of goodwill is not allowed.
Derivatives
All derivative instruments are accounted for at their fair value according to the rights and obligations associated with the derivative contracts. The resulting changes in fair value of derivative instruments are recognized either under the income statement or shareholders equity, depending on whether the derivative instruments qualify as a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument purchased with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The resulting changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized under the shareholders equity under accumulated other comprehensive income and expense.
Income Tax and Deferred Income Tax
Income tax expense includes the current income tax under the relevant income tax law and the changes in deferred tax assets or liabilities. Deferred tax assets and liabilities represent temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred tax assets are recognized for temporary differences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. Deferred tax effects applicable to items in the shareholders equity are directly reflected in the shareholders equity.
Discounts on Debentures
Discounts on debentures are amortized over the term of the debentures using the effective interest rate method. Amortization of the discount is recorded as part of interest expense.
F-23
Accrued Severance Benefits
Employees and directors with at least 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. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the date of statement of financial position.
The domestic subsidiaries have partially funded their accrued severance benefits through severance insurance deposits with an insurance company. Deposits made by the subsidiaries are recorded as deductions from accrued severance benefits. The excess portion of deposits over accrued severance benefits is recorded as other investments.
In addition, the domestic subsidiaries deposit a certain portion of severance benefits to National Pension Service according to National Pension Law. The deposit amount is recorded as a deduction from accrued severance benefits.
Overseas subsidiaries accrue employees retirement benefits according to the local regulations in which they operate.
Provisions and Contingent Liabilities
When it is probable that an outflow of economic benefits will occur due to a present obligation resulting from a past event, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. However, when such outflow is dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements.
Finance Leases
i) The Company as Lessee
The Company accounts for lease transactions as either operating lease or finance lease, depending on the terms of the lease agreement. A finance lease is a lease that transfers substantially all the risks and rewards incidental to the ownership of an asset. The lower of the present value of minimum lease payments and the fair value of the lease asset is recognized as the value of the finance lease asset and liability. Annual minimum lease payments, excluding residual value, are allocated to interest expense, or for the redemption of capital lease liability using the effective interest method.
ii) The Company as Lessor
The Company accounts for lease transactions as finance lease for leases that transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The Company recognizes the amount equivalent to the net investment in the lease asset as finance lease receivable. The Company recognizes interest income over lease term using systematic and reasonable method. Interest income is calculated for net finance lease receivable based on effective interest rate. The lease receipt is recorded separately as collection of finance lease receivable and interest income.
Operating Leases
i) The Company as Lessee
An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. The annual minimum lease payments, less guaranteed residual value, are charged to expense on a regular basis over the lease term.
F-24
ii) The Company as Lessor
The Company accounts for operating leases as leases that do not transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The lease assets are recognized as tangible or intangible assets depending on the nature of the lease assets. The annual minimum lease receipts, less guaranteed residual value, are recognized as revenue over the lease term.
Valuation of Assets and Liabilities at Present Value
Receivables and payables resulting from long-term installment payment transactions, long-term cash loans or other similar borrowings, are valued at their present values, discounted at an appropriate discount rate when the difference between the nominal value and present value is material. The present value discounts are amortized or recovered using the effective interest rate method and are recognized as interest income or expense over the term of the contract.
Translation of Assets and Liabilities Denominated in Foreign Currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the rates of exchange in effect at the date of statement of financial position, and the resulting translation gains and losses are recognized in current operations.
Currency Translation for Foreign Operations
Assets and liabilities of a foreign subsidiary or company subject to the equity method of accounting for investments are translated into Korean won at the rates of exchange in effect at the date of statement of financial position, while equity accounts are translated at historical rates, except for the change in retained earnings during the year (current period income or loss) which is the result of the income statement translation process, and income statement accounts at the average rate over the period. Net translation adjustments are allocated to the controlling interest and minority interest and the portions allocated to the controlling interest are accounted for as gain(loss) on translation of foreign operation included in the other comprehensive income. Net translation adjustment of equity-method investees are accounted for as comprehensive income(expensive) of equity-method investees in the other comprehensive income.
Share-based Payments
In the case of equity-settled share-based payment, the fair value of the goods or employee services received in exchange for the grant of the options is recognized as an expense and a capital adjustment. If the fair value of goods or employee services cannot be estimated reliably, the fair value is estimated based on the fair value of the equity granted.
For cash-settled share-based payment, the fair value of the obligation the Company will assume is determined by the fair value of the goods or employee services received in exchange for the grant of the options. Until the liability is settled, the Company is required to measure the fair value at date of statement of financial position and at settlement date. The change in fair value is recognized as an expense.
Share-based payment transactions with an option for the parties to choose between cash and equity settlement are accounted for based on the substance of the transaction.
F-25
Joint Venture
A joint venture is a contractual agreement to establish joint control over business, assets or entities. In case of jointly controlled entities that involve the establishment of a corporation, partnership or other entity in which each participant has an interest, the Company applies the equity method of accounting. As of December 31, 2010, the Company holds 50% of ownership on Kumho Rent-A-Car Global Co., Ltd., and applies the equity method of accounting.
Accounting Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on managements best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.
U.S. Dollar Convenience Translation
The December 31, 2010 consolidated financial statements are expressed in Korean Won and have been translated into U.S. dollars at the rate of W1,138.9 to US$1, the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. and in effect on December 31, 2010, solely for the convenience of the reader. These translations 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.
Changes in Accounting Policies
Through December 31, 2008, Korea Accounting Institute and Financial Supervisory Service have issued and revised various Korea accounting standards and the following is a summary of major changes, which are newly adopted by the Company.
Accounting Standards |
Key Requirements | |
SKAS No. 25 Consolidated Financial Statements | If negative consolidated capital surplus is incurred, it is first charged to related consolidated capital surplus, and remaining amount is recorded as a consolidated capital adjustment. | |
Opinion on Application of Accounting Standards 06-2 Accounting for Recognition of Deferred Tax Related to Investments on a Subsidiary | Temporary differences related to investments in subsidiary, equity method investee or joint venture are not classified by origin but are treated as a lump-sum difference in considering whether to recognize deferred tax assets or liabilities. However, temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, shall be separately treated in the same way as they are recognized in the consolidated financial statements. |
As a result of the adoption of the accounting standards, the Companys net assets at the beginning of 2008 increased by (Won)3,852 million.
F-26
Reconciliation of the differences in accounting policies
For the year ended December 31, 2010, the following adjustments were made on the subsidiaries financial statements to reconcile the differences in accounting policies between the Controlling Company and subsidiaries:
(in millions of Korean won) |
Net assets before adjustment |
Amount of adjustment |
Net assets after adjustment |
Remarks | ||||||||||||
KT Linkus Co., Ltd. |
(Won) | 8,444 | (Won) | (375 | ) | (Won) | 8,069 | 1 | ||||||||
KT Hitel Co., Ltd. |
185,481 | (4,824 | ) | 180,657 | ||||||||||||
KT New Business Fund No. 1 |
22,432 | (165 | ) | 22,267 | ||||||||||||
Total |
(Won) | 216,357 | (Won) | (5,364 | ) | (Won) | 210,993 | |||||||||
1 | Adjustments are made to unify the amortization period of investment difference arising from one subsidiarys investments in another subsidiary. |
4. Restricted Deposits
Restricted deposits as of December 31, 2010 and 2009, are as follows:
(in millions of Korean won) |
2010 | 2009 | Description | |||||||
Cash and cash equivalents |
(Won) | 9,495 | (Won) | 10,241 | Restricted for research and development | |||||
Short-term investment assets |
14,211 | 12,817 | Restricted for investing in Media Contents, Pledge | |||||||
Long-term investment assets |
3,054 | 3,035 | Checking account deposits | |||||||
Total |
(Won) | 26,760 | (Won) | 26,093 | ||||||
5. Inventories
Inventories as of December 31, 2010 and 2009, are as follows:
2010 | 2009 | |||||||||||||||||||||||
(in millions of Korean won) |
Acquisition cost |
Valuation allowance |
Book Value |
Acquisition cost |
Valuation allowance |
Book Value |
||||||||||||||||||
Merchandise |
(Won) | 598,486 | (Won) | (39,715 | ) | (Won) | 558,771 | (Won) | 625,253 | (Won) | (45,157 | ) | (Won) | 580,096 | ||||||||||
Supplies |
38,361 | (1,540 | ) | 36,821 | 43,996 | (4,716 | ) | 39,280 | ||||||||||||||||
Others |
60,239 | | 60,239 | 80,026 | | 80,026 | ||||||||||||||||||
Total |
(Won) | 697,086 | (Won) | (41,255 | ) | (Won) | 655,831 | (Won) | 749,275 | (Won) | (49,873 | ) | (Won) | 699,402 | ||||||||||
6. Loans Receivable
Loans granted by KT Capital and KTR as of December 31, 2010 and 2009, are summarized as follows:
Current
2010 | 2009 | |||||||||||||||||||||||
(in millions of Korean won) |
Original amount |
Allowance for doubtful accounts |
Carrying value |
Original amount |
Allowance for doubtful accounts |
Carrying Value |
||||||||||||||||||
Factoring |
(Won) | 35,737 | (Won) | (179 | ) | (Won) | 35,558 | (Won) | 15,077 | (Won) | (76 | ) | (Won) | 15,001 | ||||||||||
Loans |
680,684 | (8,961 | ) | 671,723 | 448,398 | (9,168 | ) | 439,230 | ||||||||||||||||
Deferred loan origination fee |
(1,434 | ) | | (1,434 | ) | (753 | ) | | (753 | ) | ||||||||||||||
Accounts receivable-loans |
13,383 | (1,604 | ) | 11,779 | 2,154 | (94 | ) | 2,060 | ||||||||||||||||
Loans for installment credit |
37,401 | (586 | ) | 36,815 | 28,412 | (2,334 | ) | 26,078 | ||||||||||||||||
Deferred incidental expense |
11 | | 11 | 5 | | 5 | ||||||||||||||||||
Accounts receivable-loans for installment credit |
546 | | 546 | 950 | (14 | ) | 936 | |||||||||||||||||
Financial investment for new technology |
18 | | 18 | 200 | (94 | ) | 106 | |||||||||||||||||
Financial loans for new technology |
| | | 2,500 | (237 | ) | 2,263 | |||||||||||||||||
Total |
(Won) | 766,346 | (Won) | (11,330 | ) | (Won) | 755,016 | (Won) | 496,943 | (Won) | (12,017 | ) | (Won) | 484,926 | ||||||||||
F-27
Non-Current
2010 | 2009 | |||||||||||||||||||||||
(in millions of Korean won) |
Original amount |
Allowance for doubtful accounts |
Carrying value |
Original amount |
Allowance for doubtful accounts |
Carrying value |
||||||||||||||||||
Factoring receivables |
(Won) | | (Won) | | (Won) | | (Won) | 2,945 | (Won) | (15 | ) | (Won) | 2,930 | |||||||||||
Loans |
352,816 | (4,419 | ) | 348,397 | 378,768 | (7,242 | ) | 371,526 | ||||||||||||||||
Deferred loan origination fee |
(2,139 | ) | | (2,139 | ) | (3,593 | ) | | (3,593 | ) | ||||||||||||||
Loans for installment credit |
56,852 | (931 | ) | 55,921 | 43,833 | (2,994 | ) | 40,839 | ||||||||||||||||
Deferred incidental expense |
(89 | ) | | (89 | ) | 179 | | 179 | ||||||||||||||||
New technology financial investment assets |
3,966 | (20 | ) | 3,946 | 1,356 | (911 | ) | 445 | ||||||||||||||||
New technology financial loans |
9,315 | (264 | ) | 9,051 | 2,932 | (277 | ) | 2,655 | ||||||||||||||||
Total |
(Won) | 420,721 | (Won) | (5,634 | ) | (Won) | 415,087 | (Won) | 426,420 | (Won) | (11,439 | ) | (Won) | 414,981 | ||||||||||
7. Securities
Trading securities as of December 31, 2010 and 2009, are as follows:
(in millions of Korean won) |
2010 | 2009 | ||||||
Beneficiary certificates |
(Won) | 6,003 | (Won) | 21,470 |
The above trading securities are in short-term investment assets in the consolidated statements of financial position and carried at fair value determined based on the trading price as of year-end published by the financial institutes.
Available-for-sale securities as of December 31, 2010 and 2009, are as follows:
Current
(in millions of Korean won) |
2010 | 2009 | ||||||
Beneficiary certificates |
(Won) | | (Won) | 6,508 | ||||
Debt securities |
45 | 3 | ||||||
Total |
(Won) | 45 | (Won) | 6,511 | ||||
The above current available-for-sale securities are included in the short-term investment assets in the consolidated statements of financial position and carried at fair value determined based on the trading price as of fiscal year-end published by the financial institutes.
Non-current
(in millions of Korean won) |
2010 | 2009 | ||||||
Marketable equity securities 1 |
||||||||
Solitech Co., Ltd. |
(Won) | 2,684 | (Won) | 2,348 | ||||
Digital Ocean Co., Ltd. (formerly GaeaSoft Corp.) |
214 | 487 | ||||||
Krtnet Corp. |
2,536 | 2,626 | ||||||
PT. Mobile-8 Telecom Tbk |
2,561 | 2,504 | ||||||
Show Mirae Asset PEF 1 |
3,274 | 2,168 | ||||||
KOREA CABLE T.V CHUNG-BUK SYSTEM CO., LTD. |
1,250 | 221 | ||||||
Daewoo Securities Green Korea Special Purpose Acquisition Company |
2,818 | | ||||||
Tongyang Value Ocean Special Purpose Acquisition Company |
606 | | ||||||
Others |
4,178 | 1,503 | ||||||
Sub-total |
20,121 | 11,857 | ||||||
F-28
(in millions of Korean won) |
2010 | 2009 | ||||||
Non-marketable equity securities 1 |
||||||||
Korea Information Certificate Authority, Inc. |
1,000 | 2,000 | ||||||
Vacom Wireless, Inc. |
641 | 641 | ||||||
Neighbor Systems Co., Ltd. |
525 | 525 | ||||||
Entaz Co., Ltd. |
1,000 | 1,000 | ||||||
Smart Channel Co., Ltd.(formerly Mediapuff Plus) 2 |
500 | 500 | ||||||
SBS KT SPC |
25,000 | 15,000 | ||||||
IBK-Auctus Green Growth PEF |
7,000 | 100 | ||||||
MBC KT SPC |
11,000 | 11,000 | ||||||
Korea Software Financial Cooperative |
1,220 | 1,220 | ||||||
Daesung Private Equity Fund |
3,000 | 3,000 | ||||||
Translink Capital Partners I, L.P. 3 |
2,430 | 5,222 | ||||||
Translink Management II Fund 4 |
1,731 | | ||||||
Pacren Walden Ventures Parallel VI-KT, L.P. 4 |
5,858 | 3,652 | ||||||
Sovik Contents Investment Fund |
1,500 | 1,500 | ||||||
Korea Telecommunications Operators Association |
689 | 689 | ||||||
GE Premier 1st CR-REIT |
3,000 | | ||||||
Wooridle Film Investment Fund No. 1 5 |
563 | | ||||||
Luxpia Co., Ltd. |
1,000 | 1,000 | ||||||
Leaders PEF |
16,003 | 18,644 | ||||||
Minigate Co., Ltd |
2,400 | | ||||||
Mirae Asset PEF |
5,090 | | ||||||
BC Card Co., Ltd |
8,712 | | ||||||
SEMI Materials, Co., Ltd |
2,990 | | ||||||
SEJONG Metal Co,. Ltd. (redeemable convertible preferred stock) |
1,100 | | ||||||
Smith & Mobile Inc. |
1,500 | | ||||||
Alti semiconductor Co., Ltd |
3,000 | | ||||||
Alphaasset Sinabro Private Stock Investment Trusts 7th |
2,725 | | ||||||
Enswers Inc. |
2,001 | 2,001 | ||||||
On Game Network Inc. |
5,368 | 5,527 | ||||||
Woongjin passone |
3,121 | | ||||||
Wiz communications Co., Ltd |
1,852 | 1,987 | ||||||
QCP Investment Purpose Company III Inc. |
2,000 | 2,000 | ||||||
Petra PEF 2nd |
5,000 | | ||||||
Petra PEF 1st |
3,905 | 4,000 | ||||||
Hyundai-Asan Private Stock Investment Trusts |
2,819 | | ||||||
CJ Venture Investment 12th Global Contents Investment Fund |
1,969 | 2,003 | ||||||
Enterprise DB Corp. |
3,013 | | ||||||
KDBCJKL PEF 2nd |
4,200 | | ||||||
KoFC-IMM Pioneer Champ 2010-17th Investment Fund |
2,010 | | ||||||
Nexenta Systems, Inc. |
2,260 | | ||||||
SoftBank Commerce Korea |
959 | 959 | ||||||
Shinhan Venture Capital Co., Ltd. |
900 | 900 | ||||||
Others |
17,438 | 15,002 | ||||||
Sub-total |
169,992 | 100,072 | ||||||
Debt securities |
||||||||
Government and public bonds |
20 | 64 | ||||||
Tongyang Value Ocean Special Purpose Acquisition Company Convertible bonds |
200 | 200 | ||||||
KIC Co., Ltd. Convertible bonds |
813 | | ||||||
Foosung Co., Ltd. Convertible bonds |
| 2,420 | ||||||
KB2B. Bonds with warrant |
2,443 | 1,677 | ||||||
Saehacoms Co., Ltd. Bonds with warrant |
783 | | ||||||
Probe corp. Convertible bonds |
1,000 | 1,000 | ||||||
Sejong Metal Co,. Ltd. Bonds with warrant |
981 | | ||||||
Others |
3,162 | | ||||||
Sub-total |
9,402 | 5,361 | ||||||
Total |
(Won) | 199,515 | (Won) | 117,290 | ||||
1 | The fair value of marketable equity securities is determined using quoted market prices as of year end. Non-marketable equity securities are recognized at acquisition cost if the fair value of the securities cannot be reliably measured due to lack |
F-29
of basis and experience. But if the reasonably estimated recoverable amounts of non-marketable securities are less than the carrying amounts and the amount of deficiency is material then, the securities are recognized at the recoverable amounts by deducting the deficiency from the carrying amounts directly. |
2 | The securities are pledged as collateral for borrowings of investee. |
3 | During the year ended December 31, 2010, the Company recognized (Won)2,792 million of loss on impairment of investment securities as non-operating expense. |
4 | This is an investment fund which the Company participates as a limited partner. As the Company has no significant influence or control over this investee, the Company classifies this investment as an available-for-sale security. |
5 | The Company has no significant influence due to withdrawal from the fund. Accordingly, the Company reclassifies this investment as an available-for-sale security. |
Held-to-maturity securities as of December 31, 2010 and 2009, are as follows:
(in millions of Korean won) |
2010 | 2009 | ||||||
Current (*) |
(Won) | | (Won) | 17 | ||||
Non-Current |
66 | 65 | ||||||
Total |
(Won) | 66 | (Won) | 82 | ||||
The current held-to-maturity securities are included in short-term investment assets in the consolidated statements of financial position.
Maturities of debt securities as of December 31, 2010, are as follows:
(in millions of Korean won) |
Available-for-sale | Held-to-maturity | ||||||
Within 1 year |
(Won) | 45 | (Won) | | ||||
Over 1 year and within 5 years |
9,402 | 66 | ||||||
Total |
(Won) | 9,447 | (Won) | 66 | ||||
For the years ended December 31, 2010 and 2009, changes in valuation gain or loss on short-term available-for-sale securities are as follows:
2010
(in millions of Korean won) |
||||||||||||
2010.1.1 |
Valuation Amount | Included in Earnings | 2010.12.31 | |||||||||
(Won) 7,800 |
(Won) | 2,201 | (Won) | 1,392 | (Won) | 11,393 | ||||||
Deferred income tax |
|
(2,342 | ) | |||||||||
Total |
|
(Won) | 9,051 | |||||||||
2009
(in millions of Korean won) |
||||||||||||
2009.1.1 |
Valuation Amount | Included in Earnings | 2009.12.31 | |||||||||
(Won) (2,810) |
(Won) | 5,015 | (Won) | 5,595 | (Won) | 7,800 | ||||||
Deferred income tax |
|
(2,009 | ) | |||||||||
Total |
|
(Won) | 5,791 | |||||||||
The amounts are not adjusted for the minority interests in consolidated subsidiaries.
F-30
Equity-method Investments
Equity-method investments as of December 31, 2010 and 2009, are as follows:
(In millions of Korean won) |
2010 | 2009 | ||||||||||||||||||||||||||
Investee |
Percentage of Ownership |
Acquisition Cost |
Net asset value |
Carrying value |
Acquisition Cost |
Net asset value |
Carrying value |
|||||||||||||||||||||
Kumho Rent-A-Car Global Co., |
50.00 | % | (Won) | 2,032 | (Won) | 589 | (Won) | 943 | (Won) | | (Won) | | (Won) | | ||||||||||||||
Korea Telecom Directory Co., Ltd. |
34.00 | % | 6,800 | (2,559 | ) | | 6,800 | (2,283 | ) | | ||||||||||||||||||
KBSi Co., Ltd. |
32.38 | % | 4,760 | 6,874 | 6,874 | 4,760 | 5,259 | 5,259 | ||||||||||||||||||||
CU Industrial Development Co., |
19.00 | % | 506 | 9,198 | 9,198 | 506 | 12,769 | 12,769 | ||||||||||||||||||||
KTCS Corporation 7, 8 |
17.05 | % | 3,800 | 19,613 | 19,613 | 3,800 | 16,449 | 16,449 | ||||||||||||||||||||
KTIS Corporation 7, 8 |
17.80 | % | 2,850 | 19,432 | 19,432 | 2,850 | 16,413 | 16,413 | ||||||||||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. 11 |
32.28 | % | 195,976 | 29,247 | 29,247 | 195,976 | 12,945 | 12,945 | ||||||||||||||||||||
MOS Facilities Co., Ltd. 8 |
15.93 | % | 5,000 | 101 | 101 | 5,000 | 114 | 114 | ||||||||||||||||||||
Kiwoom Investment Co., Ltd. |
20.17 | % | 9,000 | 7,858 | 7,858 | 9,000 | 7,175 | 7,175 | ||||||||||||||||||||
Korea Information & Technology Fund 10 |
33.33 | % | 100,000 | 122,042 | 122,042 | 100,000 | 115,636 | 115,636 | ||||||||||||||||||||
Exdell Corporation 8 |
19.00 | % | 190 | 273 | 273 | 190 | 239 | 239 | ||||||||||||||||||||
Information Technology Solution Bukbu Corporation 8 |
18.00 | % | 180 | 368 | 368 | 180 | 376 | 376 | ||||||||||||||||||||
Information Technology Solution Nambu Corporation 8 |
18.00 | % | 180 | 360 | 360 | 180 | 381 | 381 | ||||||||||||||||||||
Information Technology Solution Seobu Corporation 8 |
18.00 | % | 180 | 434 | 434 | 180 | 451 | 451 | ||||||||||||||||||||
Information Technology Solution Busan Corporation 8 |
18.00 | % | 180 | 322 | 322 | 180 | 339 | 339 | ||||||||||||||||||||
Information Technology Solution Jungbu Corporation 8 |
18.00 | % | 180 | 470 | 470 | 180 | 458 | 458 | ||||||||||||||||||||
Information Technology Solution Honam Corporation 8 |
18.00 | % | 180 | 434 | 434 | 180 | 414 | 414 | ||||||||||||||||||||
Information Technology Solution Deagu Corporation 8 |
18.00 | % | 180 | 245 | 245 | 180 | 269 | 269 | ||||||||||||||||||||
Everyshow |
20.69 | % | 1,500 | 688 | 688 | 1,500 | 1,045 | 1,045 | ||||||||||||||||||||
KT-Global New Media Fund |
50.00 | % | 14,000 | 12,663 | 12,663 | 14,000 | 12,932 | 12,932 | ||||||||||||||||||||
Company K Movie Asset Fund No. 1 |
60.00 | % | 9,000 | 9,362 | 9,362 | 9,000 | 8,806 | 8,806 | ||||||||||||||||||||
Boston Global Film & Contents Fund L.P. |
31.84 | % | 10,000 | 10,146 | 10,146 | 10,000 | 10,085 | 10,085 | ||||||||||||||||||||
OIC Co., Ltd. (formerly OIC Language Visual Limited) |
20.00 | % | 200 | 41 | 41 | 200 | 183 | 183 | ||||||||||||||||||||
Mongolian Telecommunications |
40.00 | % | 3,450 | 12,312 | 12,312 | 3,450 | 11,135 | 11,135 | ||||||||||||||||||||
Metropol Property LLC |
34.00 | % | 1,739 | 628 | 1,373 | 1,739 | 640 | 1,684 | ||||||||||||||||||||
WiBro Infra Co., Ltd. 2 |
26.22 | % | 65,000 | 65,502 | 65,502 | | | | ||||||||||||||||||||
Harex Info Tech Inc. 8 |
14.77 | % | 3,375 | 433 | 433 | 3,375 | 62 | 62 | ||||||||||||||||||||
Boston Film Fund |
38.96 | % | 7,461 | 1,383 | 1,383 | 8,000 | 4,249 | 4,249 | ||||||||||||||||||||
KTF-CJ Music Contents Investment Fund |
50.00 | % | 5,000 | 4,952 | 4,952 | 5,000 | 4,955 | 4,955 | ||||||||||||||||||||
Shinhan-KT Mobilecard Co., Ltd. |
50.00 | % | 1,000 | (1 | ) | | 1,000 | 248 | 248 | |||||||||||||||||||
KT-DoCoMo Mobile Investment Fund |
45.00 | % | 4,500 | 4,858 | 4,858 | 4,500 | 4,473 | 4,473 | ||||||||||||||||||||
MetroM Co., Ltd. 8 |
19.88 | % | 80 | 179 | 179 | 80 | 147 | 147 | ||||||||||||||||||||
KDNET Co., Ltd. 8 |
19.88 | % | 80 | 142 | 142 | 80 | 147 | 147 | ||||||||||||||||||||
GOODTECH Co., Ltd. 8 |
19.88 | % | 80 | 180 | 180 | 80 | 153 | 153 | ||||||||||||||||||||
Touchtel Co., Ltd. 8 |
19.90 | % | 100 | 183 | 183 | 100 | 180 | 180 | ||||||||||||||||||||
KNS Co.,Ltd (formerly Excelnet Co., Ltd.) |
20.62 | % | 249 | 259 | 259 | 100 | 120 | 120 |
F-31
(In millions of Korean won) |
2010 | 2009 | ||||||||||||||||||||||||||
Investee |
Percentage of Ownership |
Acquisition Cost |
Net asset value |
Carrying value |
Acquisition Cost |
Net asset value |
Carrying value |
|||||||||||||||||||||
KMTEC Co., Ltd. 8 |
19.90 | % | 100 | 185 | 185 | 100 | 183 | 183 | ||||||||||||||||||||
MTT Co., Ltd. 8 |
19.90 | % | 100 | 221 | 221 | 100 | 206 | 206 | ||||||||||||||||||||
Goodmorning F Co., Ltd. 8 |
19.00 | % | 254 | 891 | 891 | 254 | 1,696 | 1,696 | ||||||||||||||||||||
BKLCD Co., Ltd. |
29.15 | % | 20,000 | 18,111 | 18,111 | 20,000 | 19,542 | 19,542 | ||||||||||||||||||||
TPS |
100.00 | % | 164 | 1,100 | 1,100 | 164 | 1,283 | 1,283 | ||||||||||||||||||||
ETN |
100.00 | % | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||||
Oscar ent. Co., Ltd. |
49.00 | % | 650 | 423 | 423 | 650 | 398 | 398 | ||||||||||||||||||||
KT-IMM Investment Fund 2 |
45.45 | % | 5,000 | 5,076 | 5,076 | | | | ||||||||||||||||||||
Ansan U-City BTL 1, 8 |
15.00 | % | 98 | 68 | 68 | | | | ||||||||||||||||||||
Miraeasset Good Company Investment Fund No.3 2 |
33.33 | % | 3,040 | 3,008 | 3,008 | | | | ||||||||||||||||||||
2010 KIF IMM IT Investement Fund 2 |
21.88 | % | 700 | 659 | 659 | | | | ||||||||||||||||||||
Anyang KDC project 2 |
21.05 | % | 2,600 | 2,600 | 2,600 | | | | ||||||||||||||||||||
QCP New technology investment fund 20th 2 |
37.74 | % | 2,000 | 96 | 96 | | | | ||||||||||||||||||||
Nau IB 7th fund 2 |
30.77 | % | 2,000 | 302 | 302 | | | | ||||||||||||||||||||
Saehacoms Co., Ltd. 1 |
20.00 | % | 500 | 393 | 393 | | | | ||||||||||||||||||||
Crzyfish, Inc. 1 |
25.05 | % | 500 | 455 | 455 | | | | ||||||||||||||||||||
Haitai Confectionery & Foods Co., Ltd 1, 10 |
30.37 | % | 53,741 | 35,713 | 52,689 | | | | ||||||||||||||||||||
Wooridle Film Investment Fund 3 |
| | | | 1,600 | 1,478 | 1,478 | |||||||||||||||||||||
eNtoB Corp. 4 |
| | | | 6,050 | 8,314 | 8,730 | |||||||||||||||||||||
WMC Co., Ltd. 5 |
| | | | 80 | 98 | 98 | |||||||||||||||||||||
Sky Life Contents Fund 4 |
| | | | 4,500 | 3,751 | 3,751 | |||||||||||||||||||||
Netcom 4 |
| | | | 90 | | | |||||||||||||||||||||
PARANGOYANGI 6 |
| | | | 2,900 | (542 | ) | | ||||||||||||||||||||
Music City Media Co., Ltd. 6 |
| | | | 1,040 | (688 | ) | | ||||||||||||||||||||
D&G Star Co., Ltd. 4 |
| | | | 260 | 27 | 27 | |||||||||||||||||||||
Paramount Music Co., Ltd. 4 |
| | | | 1,000 | 305 | 305 | |||||||||||||||||||||
Total |
(Won) | 550,436 | (Won) | 408,513 | (Won) | 429,148 | (Won) | 431,135 | (Won) | 283,016 | (Won) | 287,989 | ||||||||||||||||
1 | The Company newly acquired the shares of the investees in 2010. |
2 | These companies are newly established in 2010. |
3 | The investments in the investees were reclassified as an available-for-sale in 2010. |
4 | The Company sold all of its equity shares of these companies in 2010. |
5 | WMC Co., Ltd. merged with KNS Co., Ltd. in 2010. |
6 | These companies go bankrupt were liquidated in 2010. |
7 | The shares of the investees are listed on the Korea Exchange in 2010. |
8 | As of December 31, 2010, the Companys ownership of the investees is less than 20%. Since the Company can exercise significant influence or control over the investees, the investments are classified as equity method investment. |
9 | This investment is the joint venture. As a result, the Company accounts for this investment using the equity method. |
10 | Although the Companys respective ownership in these companies is more than 30%, the Company is not the largest stockholder of these companies. As a result, the Company accounts for these investments as equity-method investments. |
11 | As the Company is not the largest shareholder of these companies in the consideration of the potential voting rights, the Company accounts for these investments as equity-method investments. |
F-32
The details of changes in differences between the initial purchase price and the Companys initial proportionate ownership in net book value of the investees ended December 31, 2010 and 2009, are as follows:
2010 | ||||||||||||||||
(in millions of Korean won) |
2010.1.1 | Addition | Amortization | 2010.12.31 | ||||||||||||
Kumho Rent-A-Car |
(Won) | | (Won) | 1,415 | (Won) | (1,062 | ) | (Won) | 353 | |||||||
Metropol Property LLC |
1,044 | | (298 | ) | 746 | |||||||||||
eNtoB Corp. |
416 | (345 | ) | (71 | ) | | ||||||||||
Haitai Confectionery & Foods Co., Ltd. |
| 20,842 | (3,908 | ) | 16,934 | |||||||||||
Total |
(Won) | 1,460 | (Won) | 21,912 | (Won) | (5,339 | ) | (Won) | 18,033 | |||||||
2009 | ||||||||||||||||
(in millions of Korean won) |
2009.1.1 | Addition | Amortization | 2009.12.31 | ||||||||||||
eNtoB Corp. |
(Won) | 553 | (Won) | | (Won) | (137 | ) | (Won) | 416 | |||||||
Korea Digital Satellite Broadcasting Co., Ltd. |
10,928 | | (10,928 | ) | | |||||||||||
Harex Info Tech Inc. |
383 | | (383 | ) | | |||||||||||
U-Mobile |
49,561 | (43,731 | ) | (5,830 | ) | | ||||||||||
Metropol Property LLC |
1,342 | | (298 | ) | 1,044 | |||||||||||
OliveNine Entertainment Co., Ltd. |
644 | (644 | ) | | | |||||||||||
The Contents Entertainment |
947 | (947 | ) | | | |||||||||||
Doremi Music Publishing Co., Ltd. |
(15 | ) | 15 | | | |||||||||||
Total |
(Won) | 64,343 | (Won) | (45,307 | ) | (Won) | (17,576 | ) | (Won) | 1,460 | ||||||
There are no unrealized gains and losses arising from intercompany transactions to be eliminated as of December 31, 2010.
F-33
The changes in the book values of equity-method investments for the years ended December 31, 2010 and 2009 are as follows:
(In millions of Korean won) |
2010 | |||||||||||||||||||
Investee |
2010.1.1 | Acquisition (Disposal) |
Valuation gain(loss) |
Other increase (Decrease) |
2010.12.31 | |||||||||||||||
Kumho Rent-A-Car Global |
(Won) | | (Won) | | (Won) | (1,719 | ) | (Won) | 2,662 | (Won) | 943 | |||||||||
KBSi Co., Ltd. |
5,259 | | 1,615 | | 6,874 | |||||||||||||||
CU Industrial Development Co., Ltd. |
12,769 | | (3,571 | ) | | 9,198 | ||||||||||||||
KTCS Corporation |
16,449 | | 3,127 | 37 | 19,613 | |||||||||||||||
KTIS Corporation |
16,413 | | 3,569 | (550 | ) | 19,432 | ||||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. 1 |
12,945 | | 16,142 | 160 | 29,247 | |||||||||||||||
MOS Facilities Co., Ltd. |
114 | | (253 | ) | 240 | 101 | ||||||||||||||
Kiwoom Investment Co., Ltd. |
7,175 | | 462 | 221 | 7,858 | |||||||||||||||
Korea Information & Technology Fund |
115,636 | | 6,915 | (509 | ) | 122,042 | ||||||||||||||
Exdell Corporation |
239 | | 34 | | 273 | |||||||||||||||
Information Technology Solution Bukbu Corporation |
376 | | (8 | ) | | 368 | ||||||||||||||
Information Technology Solution Nambu Corporation |
381 | | (21 | ) | | 360 | ||||||||||||||
Information Technology Solution Seobu Corporation |
451 | | (17 | ) | | 434 | ||||||||||||||
Information Technology Solution Busan Corporation |
339 | | (17 | ) | | 322 | ||||||||||||||
Information Technology Solution Jungbu Corporation |
458 | | 12 | | 470 | |||||||||||||||
Information Technology Solution Honam Corporation |
414 | | 20 | | 434 | |||||||||||||||
Information Technology Solution Deagu Corporation |
269 | | (24 | ) | | 245 | ||||||||||||||
Everyshow |
1,045 | | (378 | ) | 21 | 688 | ||||||||||||||
KT-Global New Media Fund |
12,932 | | (269 | ) | | 12,663 | ||||||||||||||
Company K Movie Asset Fund No. 1 |
8,806 | | 556 | | 9,362 | |||||||||||||||
Boston Global Film & Contents Fund L.P. 1 |
10,085 | | 61 | | 10,146 | |||||||||||||||
OIC Co., Ltd. (formerly OIC Language Visual Limited) |
183 | | (142 | ) | | 41 | ||||||||||||||
Mongolian Telecommunications |
11,135 | | (28 | ) | 1,205 | 12,312 | ||||||||||||||
Metropol Property LLC |
1,684 | | (45 | ) | (266 | ) | 1,373 | |||||||||||||
WiBro Infra Co., Ltd. |
| 65,000 | 505 | (3 | ) | 65,502 | ||||||||||||||
Harex Info Tech Inc. |
62 | | 28 | 343 | 433 | |||||||||||||||
Boston Film Fund |
4,249 | (538 | ) | (2,338 | ) | 10 | 1,383 | |||||||||||||
KTF-CJ Music Contents Investment Fund |
4,955 | | (3 | ) | | 4,952 | ||||||||||||||
Shinhan-KT Mobilecard Co., Ltd. |
248 | | (248 | ) | | | ||||||||||||||
KT-DoCoMo Mobile Investment Fund |
4,473 | | 385 | | 4,858 | |||||||||||||||
MetroM Co., Ltd. |
147 | | 32 | | 179 | |||||||||||||||
KDNET Co., Ltd. |
147 | | (5 | ) | | 142 | ||||||||||||||
GOODTECH Co., Ltd. |
153 | | 27 | | 180 | |||||||||||||||
Touchtel Co., Ltd. |
180 | | 3 | | 183 | |||||||||||||||
KNS Co.,Ltd (formerly Excelnet Co., Ltd.) |
120 | | (17 | ) | 156 | 259 | ||||||||||||||
KMTEC Co., Ltd. |
183 | | 2 | | 185 | |||||||||||||||
MTT Co., Ltd. |
206 | | 15 | | 221 | |||||||||||||||
Goodmorning F Co., Ltd. |
1,696 | (884 | ) | 77 | 2 | 891 | ||||||||||||||
BKLCD Co., Ltd. |
19,542 | | (310 | ) | (1,121 | ) | 18,111 | |||||||||||||
TPS |
1,283 | | 3,512 | (3,695 | ) | 1,100 | ||||||||||||||
ETN |
1 | | | | 1 | |||||||||||||||
Oscar ent. Co., Ltd. |
398 | | 25 | | 423 | |||||||||||||||
KT-IMM Investment Fund |
| 5,000 | 76 | | 5,076 | |||||||||||||||
Ansan U-City BTL 1 |
| 98 | (30 | ) | | 68 | ||||||||||||||
Miraeasset Good Company Investment Fund No.3 1 |
| 3,040 | (32 | ) | | 3,008 | ||||||||||||||
2010 KIF IMM IT Investement Fund 1 |
| 700 | (41 | ) | | 659 | ||||||||||||||
Anyang KDC project |
| 2,600 | | | 2,600 | |||||||||||||||
QCP New technology investment fund 20th |
| 2,000 | | (1,904 | ) | 96 | ||||||||||||||
Nau IB 7th fund 1 |
| 2,000 | 53 | (1,751 | ) | 302 | ||||||||||||||
Saehacoms Co., Ltd. |
| 500 | (107 | ) | | 393 | ||||||||||||||
Crzyfish, Inc. |
| 500 | (45 | ) | | 455 | ||||||||||||||
Haitai Confectionery & Foods Co., Ltd |
| 53,741 | (1,052 | ) | | 52,689 | ||||||||||||||
Wooridle Film Investment Fund |
1,478 | | (447 | ) | (1,031 | ) | | |||||||||||||
eNtoB Corp. 1 |
8,730 | (7,937 | ) | 400 | (1,193 | ) | | |||||||||||||
WMC Co., Ltd. |
98 | | 19 | (117 | ) | | ||||||||||||||
Sky Life Contents Fund |
3,751 | (3,812 | ) | 61 | | | ||||||||||||||
D&G Star Co., Ltd. |
27 | (10 | ) | (2 | ) | (15 | ) | | ||||||||||||
Paramount Music Co., Ltd. |
305 | | | (305 | ) | | ||||||||||||||
Total |
(Won) | 287,989 | (Won) | 121,998 | (Won) | 26,564 | (Won) | (7,403 | ) | (Won) | 429,148 | |||||||||
F-34
(In millions of Korean won) |
2009 | |||||||||||||||||||
Investee |
2009.1.1 | Acquisition (Disposal) |
Valuation gain(loss) |
Other Increase (Decrease) |
2009.12.31 | |||||||||||||||
Korea Telecom Directory Co., Ltd. |
(Won) | 8,358 | (Won) | | (Won) | (8,358 | ) | (Won) | | (Won) | | |||||||||
KBSi Co., Ltd. |
4,679 | | 580 | | 5,259 | |||||||||||||||
CU Industrial Development Co., Ltd. |
8,369 | | 4,350 | 50 | 12,769 | |||||||||||||||
KTCS Corporation |
13,666 | 1,050 | 1,771 | (38 | ) | 16,449 | ||||||||||||||
KTIS Corporation |
12,812 | | 2,233 | 1,368 | 16,413 | |||||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. |
32,928 | | (4,018 | ) | (15,965 | ) | 12,945 | |||||||||||||
MOS Facilities Co., Ltd. |
41 | | (275 | ) | 348 | 114 | ||||||||||||||
Kiwoom Investment Co., Ltd. |
6,953 | | 54 | 168 | 7,175 | |||||||||||||||
Korea Information & Technology Fund |
110,909 | | 3,984 | 743 | 115,636 | |||||||||||||||
Exdell Corporation |
218 | | 21 | | 239 | |||||||||||||||
Information Technology Solution Bukbu Corporation |
225 | (13 | ) | 164 | | 376 | ||||||||||||||
Information Technology Solution Nambu Corporation |
221 | (13 | ) | 173 | | 381 | ||||||||||||||
Information Technology Solution Seobu Corporation |
222 | (13 | ) | 242 | | 451 | ||||||||||||||
Information Technology Solution Busan Corporation |
246 | (13 | ) | 106 | | 339 | ||||||||||||||
Information Technology Solution Jungbu Corporation |
295 | (15 | ) | 178 | | 458 | ||||||||||||||
Information Technology Solution Honam Corporation |
248 | (13 | ) | 179 | | 414 | ||||||||||||||
Information Technology Solution Deagu Corporation |
218 | (12 | ) | 63 | | 269 | ||||||||||||||
Everyshow |
1,226 | | (181 | ) | | 1,045 | ||||||||||||||
KT-Global New Media Fund |
5,817 | 8,000 | (885 | ) | | 12,932 | ||||||||||||||
Company K Movie Asset Fund No. 1 |
8,803 | | 3 | | 8,806 | |||||||||||||||
Boston Global Film & Contents Fund L.P. 1 |
| 10,001 | 84 | | 10,085 | |||||||||||||||
OIC Co., Ltd. (formerly OIC Language Visual Limited) |
| 200 | (17 | ) | | 183 | ||||||||||||||
Mongolian Telecommunications |
13,289 | | 910 | (3,064 | ) | 11,135 | ||||||||||||||
Metropol Property LLC |
1,776 | | | (92 | ) | 1,684 | ||||||||||||||
Harex Info Tech Inc. |
631 | | (569 | ) | | 62 | ||||||||||||||
Boston Film Fund |
4,281 | | (32 | ) | | 4,249 | ||||||||||||||
KTF-CJ Music Contents Investment Fund |
5,038 | | (83 | ) | | 4,955 | ||||||||||||||
Shinhan-KT Mobilecard Co., Ltd. |
708 | | (460 | ) | | 248 | ||||||||||||||
KT-DoCoMo Mobile Investment Fund |
4,439 | | 34 | | 4,473 | |||||||||||||||
MetroM Co., Ltd. |
| | 76 | 71 | 147 | |||||||||||||||
KDNET Co., Ltd. |
| | 75 | 72 | 147 | |||||||||||||||
GOODTECH Co., Ltd. |
| | 81 | 72 | 153 | |||||||||||||||
Touchtel Co., Ltd. |
| | 91 | 89 | 180 | |||||||||||||||
KNS Co.,Ltd (formerly Excelnet Co., Ltd.) |
| | 30 | 90 | 120 | |||||||||||||||
KMTEC Co., Ltd. |
| | 93 | 90 | 183 | |||||||||||||||
MTT Co., Ltd. |
| | 117 | 89 | 206 | |||||||||||||||
Goodmorning F Co., Ltd. |
1,460 | | 235 | 1 | 1,696 | |||||||||||||||
BKLCD Co., Ltd. |
| 20,000 | (458 | ) | | 19,542 | ||||||||||||||
TPS |
205 | | 2,429 | (1,351 | ) | 1,283 | ||||||||||||||
ETN |
1 | | | | 1 | |||||||||||||||
Oscar ent. Co., Ltd. |
384 | | 14 | | 398 | |||||||||||||||
Wooridle Film Investment Fund 1 |
1,529 | | (51 | ) | | 1,478 | ||||||||||||||
eNtoB Corp. |
8,740 | | 281 | (291 | ) | 8,730 | ||||||||||||||
WMC Co., Ltd. |
| | 27 | 71 | 98 | |||||||||||||||
Sky Life Contents Fund |
3,737 | | 14 | | 3,751 | |||||||||||||||
Netcom |
80 | | (1 | ) | (79 | ) | | |||||||||||||
D&G Star Co., Ltd. |
190 | | (163 | ) | | 27 | ||||||||||||||
Paramount Music Co., Ltd. |
313 | | (8 | ) | | 305 | ||||||||||||||
KTC Media Contents Investment Fund No.1 |
4,510 | | | (4,510 | ) | | ||||||||||||||
OLIVE9 |
| (3 | ) | | 3 | | ||||||||||||||
U Mobile |
82,663 | (65,424 | ) | (17,794 | ) | 555 | | |||||||||||||
KSCALL |
327 | (449 | ) | 281 | (159 | ) | | |||||||||||||
KOSNC |
341 | (541 | ) | 200 | | | ||||||||||||||
KCALL |
332 | (515 | ) | 183 | | | ||||||||||||||
TMWORLD |
320 | (474 | ) | 154 | | | ||||||||||||||
UMSNC |
293 | (465 | ) | 172 | | | ||||||||||||||
The Contents Entertainment |
950 | (950 | ) | | | | ||||||||||||||
Olive Nine Creative Co., Ltd. |
150 | (150 | ) | | | | ||||||||||||||
Onestone Communication Co., Ltd. |
206 | (206 | ) | | | | ||||||||||||||
Total |
(Won) | 353,347 | (Won) | (30,018 | ) | (Won) | (13,671 | ) | (Won) | (21,669 | ) | (Won) | 287,989 | |||||||
F-35
1 | In accordance with SKAS No. 24 Preparation and Presentation of Financial Statements II (Financial Industry), gain on valuation of equity-method investments amounting to (Won)136 million (2009: (Won)10 million) and loss on valuation of equity-method investments amounting to (Won)102 million (2009: (Won)16 million) recorded by KT Capital are classified as operating revenue and operating expense, respectively. |
Market value information of publicly listed investees as of December 31, 2010 and 2009, is as follows:
2010 | ||||||||||||||||
(In millions of Korean won) |
Number of Shares Owned |
Market Price per share |
Market Value | Recorded Book Value |
||||||||||||
KTCS Corporation |
8,132,130 | (Won) | 2,210.0 | (Won) | 17,972 | (Won) | 19,613 | |||||||||
KTIS Corporation |
6,196,190 | 3,510.0 | 21,749 | 19,432 | ||||||||||||
Mongolian Telecommunications |
10,348,111 | 3,413.1 | 35,319 | 12,312 |
2009 | ||||||||||||||||
(In millions of Korean won) |
Number of Shares Owned |
Market Price per share |
Market Value | Recorded Book Value |
||||||||||||
Mongolian Telecommunications |
10,348,111 | (Won) | 1,877.8 | (Won) | 19,432 | (Won) | 11,135 |
Financial information of investees as of December 31, 2010 and 2009, are as follows:
(In millions of Korean won) |
2010 | |||||||||||||||
Investee |
Assets | Liabilities | Sales | Net income(loss) | ||||||||||||
Kumho Rent-A-Car Global |
(Won) | 6,045 | (Won) | 4,868 | (Won) | 222,039 | (Won) | 1,333 | ||||||||
Korea Telecom Directory Co., Ltd. |
20,692 | 28,896 | 21,648 | 283 | ||||||||||||
KBSi Co., Ltd. |
31,246 | 10,017 | 57,947 | 4,987 | ||||||||||||
CU Industrial Development Co., Ltd. |
121,632 | 73,412 | 27,981 | (18,986 | ) | |||||||||||
KTCS Corporation |
168,243 | 53,237 | 353,950 | 16,270 | ||||||||||||
KTIS Corporation |
157,782 | 48,641 | 349,114 | 18,041 | ||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. |
533,246 | 385,935 | 431,356 | 42,956 | ||||||||||||
MOS Facilities Co., Ltd. |
6,097 | 5,463 | 22,252 | (1,545 | ) | |||||||||||
Kiwoom Investment Co., Ltd. |
39,173 | 215 | 5,135 | 2,296 | ||||||||||||
Korea Information & Technology Fund |
366,281 | | 27,930 | 20,747 | ||||||||||||
Exdell Corporation |
2,957 | 1,519 | 10,990 | 257 | ||||||||||||
Information Technology Solution Bukbu Corporation |
5,591 | 3,547 | 29,091 | 366 | ||||||||||||
Information Technology Solution Nambu Corporation |
4,763 | 2,763 | 31,918 | 246 | ||||||||||||
Information Technology Solution Seobu Corporation |
5,488 | 3,079 | 35,026 | 341 | ||||||||||||
Information Technology Solution Busan Corporation |
7,210 | 5,420 | 25,295 | 318 | ||||||||||||
Information Technology Solution Jungbu Corporation |
5,753 | 3,144 | 36,006 | 654 | ||||||||||||
Information Technology Solution Honam Corporation |
5,158 | 2,747 | 27,779 | 458 | ||||||||||||
Information Technology Solution Deagu Corporation |
2,892 | 1,528 | 18,086 | 225 | ||||||||||||
Everyshow |
4,199 | 874 | 7,454 | (1,789 | ) | |||||||||||
KT-Global New Media Fund |
25,357 | 32 | | (539 | ) | |||||||||||
Company K Movie Asset Fund No. 1 |
15,604 | | 1,708 | 927 | ||||||||||||
Boston Global Film & Contents Fund L.P. |
32,053 | 196 | 993 | 192 | ||||||||||||
OIC Co., Ltd. (formerly OIC Language Visual Limited) |
243 | 37 | | (709 | ) | |||||||||||
Mongolian Telecommunications |
41,075 | 10,294 | 19,636 | 1,363 | ||||||||||||
Metropol Property LLC |
2,120 | 274 | 1,093 | 418 | ||||||||||||
WiBro Infra Co., Ltd. |
358,261 | 108,423 | 374 | 1,916 | ||||||||||||
Harex Info Tech Inc. |
3,593 | 660 | 3,075 | 354 | ||||||||||||
Boston Film Fund |
3,549 | | 612 | 148 | ||||||||||||
KTF-CJ Music Contents Investment Fund |
9,903 | | 627 | (6 | ) | |||||||||||
Shinhan-KT Mobilecard Co., Ltd. |
54 | 55 | 102 | (498 | ) | |||||||||||
KT-DoCoMo Mobile Investment Fund |
10,945 | 150 | 945 | 854 | ||||||||||||
MetroM Co., Ltd. |
2,186 | 1,284 | 14,810 | 192 | ||||||||||||
KDNET Co., Ltd. |
1,390 | 672 | 11,348 | 78 |
F-36
(In millions of Korean won) |
2010 | |||||||||||||||
Investee |
Assets | Liabilities | Sales | Net income(loss) | ||||||||||||
GOODTECH Co., Ltd. |
1,319 | 410 | 11,920 | 170 | ||||||||||||
Touchtel Co., Ltd. |
2,348 | 1,426 | 12,429 | 53 | ||||||||||||
KNS Co.,Ltd (formerly Excelnet Co., Ltd.) |
2,483 | 1,225 | 17,972 | 136 | ||||||||||||
KMTEC Co., Ltd. |
1,861 | 931 | 14,448 | 51 | ||||||||||||
MTT Co., Ltd. |
2,064 | 955 | 12,791 | 114 | ||||||||||||
Goodmorning F Co., Ltd. |
6,038 | 1,351 | 11,701 | 202 | ||||||||||||
Others |
939,868 | 670,705 | 749,304 | 11,092 | ||||||||||||
(In millions of Korean won) |
2009 | |||||||||||||||
Investee |
Assets | Liabilities | Sales | Net income(loss) | ||||||||||||
Korea Telecom Directory Co., Ltd. |
(Won) | 25,809 | (Won) | 32,525 | (Won) | 7,206 | (Won) | (31,297 | ) | |||||||
KBSi Co., Ltd. |
21,242 | 5,000 | 33,133 | 1,791 | ||||||||||||
CU Industrial Development Co., Ltd. |
122,646 | 55,439 | 55,918 | 22,898 | ||||||||||||
KTCS Corporation |
129,011 | 47,029 | 245,156 | 12,196 | ||||||||||||
KTIS Corporation |
129,494 | 48,715 | 119,679 | 13,200 | ||||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. |
448,079 | 344,151 | 397,457 | 20,280 | ||||||||||||
MOS Facilities Co., Ltd. |
11,529 | 10,850 | 22,258 | (1,547 | ) | |||||||||||
Kiwoom Investment Co., Ltd. |
35,672 | 100 | 4,750 | 263 | ||||||||||||
Korea Information & Technology Fund |
346,909 | | 30,391 | 11,956 | ||||||||||||
Exdell Corporation |
2,111 | 851 | 10,781 | 115 | ||||||||||||
Information Technology Solution Bukbu Corporation |
5,036 | 2,946 | 22,452 | 906 | ||||||||||||
Information Technology Solution Nambu Corporation |
4,343 | 2,227 | 25,790 | 954 | ||||||||||||
Information Technology Solution Seobu Corporation |
4,961 | 2,457 | 25,866 | 1,334 | ||||||||||||
Information Technology Solution Busan Corporation |
3,508 | 1,623 | 50,624 | 589 | ||||||||||||
Information Technology Solution Jungbu Corporation |
5,072 | 2,525 | 34,375 | 991 | ||||||||||||
Information Technology Solution Honam Corporation |
4,655 | 2,355 | 19,172 | 995 | ||||||||||||
Information Technology Solution Deagu Corporation |
2,622 | 1,124 | 15,489 | 350 | ||||||||||||
Everyshow |
8,280 | 3,367 | 4,849 | (851 | ) | |||||||||||
KT-Global New Media Fund |
26,139 | 275 | | (1,771 | ) | |||||||||||
Company K Movie Asset Fund No. 1 |
14,677 | | 1,498 | 6 | ||||||||||||
Boston Global Film & Contents Fund L.P. |
31,861 | 199 | | 262 | ||||||||||||
OIC Co., Ltd. (formerly OIC Language Visual Limited) |
920 | 6 | | (86 | ) | |||||||||||
Mongolian Telecommunications |
33,715 | 5,877 | 24,361 | 2,275 | ||||||||||||
Metropol Property LLC |
2,422 | 538 | 1,515 | 877 | ||||||||||||
Harex Info Tech Inc. |
1,114 | 823 | 1,782 | (868 | ) | |||||||||||
Boston Film Fund |
11,116 | 227 | 119 | (111 | ) | |||||||||||
KTF-CJ Music Contents Investment Fund |
9,960 | 50 | 653 | (84 | ) | |||||||||||
Shinhan-KT Mobilecard Co., Ltd. |
596 | 100 | 80 | (919 | ) | |||||||||||
KT-DoCoMo Mobile Investment Fund |
10,048 | 108 | 65 | 77 | ||||||||||||
MetroM Co., Ltd. |
1,486 | 748 | 13,998 | 210 | ||||||||||||
KDNET Co., Ltd. |
1,460 | 723 | 11,061 | 129 | ||||||||||||
GOODTECH Co., Ltd. |
1,753 | 985 | 11,600 | 214 | ||||||||||||
Touchtel Co., Ltd. |
1,767 | 862 | 11,996 | 80 | ||||||||||||
KNS Co.,Ltd (formerly Excelnet Co., Ltd.) |
1,180 | 577 | 11,631 | 201 | ||||||||||||
KMTEC Co., Ltd. |
1,442 | 523 | 13,459 | 108 | ||||||||||||
MTT Co., Ltd. |
1,839 | 805 | 12,300 | 196 | ||||||||||||
Goodmorning F Co., Ltd. |
11,841 | 2,917 | 46,545 | 1,235 | ||||||||||||
Wooridle Film Investment Fund |
7,393 | | 28 | (200 | ) | |||||||||||
eNtoB Corp. |
72,238 | 44,716 | 567,871 | 1,213 | ||||||||||||
WMC Co., Ltd. |
1,181 | 690 | 10,541 | 227 | ||||||||||||
Sky Life Contents Fund |
16,800 | 129 | 1,390 | 62 | ||||||||||||
Others |
159,019 | 110,140 | 323,679 | 4,815 |
F-37
The adjustments made on the financial statements of investees during the application of the equity method of accounting to reconcile their accounting policies with those of the Company as of December 31, 2010 and 2009, and for the years then ended are as follows:
(In millions of Korean won) |
Net Asset before Adjustments |
Adjustments | Net Asset after Adjustments |
Notes | ||||||||||
Korea Digital Satellite Broadcasting Co., Ltd. |
(Won) | 47,552 | (Won) | (18,305 | ) | (Won) | 29,247 | Adjustment of equity due to redeemable preferred stock | ||||||
MOS Facilities Co., Ltd. |
122,094 | (52 | ) | 122,042 | Adjustment of dividends payable | |||||||||
QCP New technology investment fund 20 |
926 | (830 | ) | 96 | Impairment of investments | |||||||||
Total |
(Won) | 170,572 | (Won) | (19,187 | ) | (Won) | 151,385 | |||||||
The changes in the share of losses not recognized, as the Company discontinued recognizing its share of further losses exceeding its interest in the equity-method investees, as of December 31, 2010 and 2009 are as follows:
(In millions of Korean won) |
2010 | 2009 | ||||||||||||||||||||||
2010.1.1 | Increase (Decrease) |
2010.12.31 | 2009.1.1 | Increase (Decrease) |
2009.12.31 | |||||||||||||||||||
Korea Telecom Directory Co., Ltd. |
(Won) | (2,283 | ) | (Won) | (506 | ) | (Won) | (2,789 | ) | (Won) | | (Won) | (2,283 | ) | (Won) | (2,283 | ) | |||||||
Shinhan-KT Mobilecard Co., Ltd. |
| (1 | ) | (1 | ) | | | | ||||||||||||||||
Music City Media Co., Ltd. |
(688 | ) | 688 | | (688 | ) | | (688 | ) | |||||||||||||||
PARANGOYANGI |
(542 | ) | 542 | | (303 | ) | (239 | ) | (542 | ) | ||||||||||||||
Total |
(Won) | (3,513 | ) | (Won) | 723 | (Won) | (2,790 | ) | (Won) | (991 | ) | (Won) | (2,522 | ) | (Won) | (3,513 | ) | |||||||
F-38
8. Property and Equipment
The changes in property, plant and equipment for the years ended December 31, 2010 and 2009 are as follows:
2010 | ||||||||||||||||||||||||||||||||||||
(In millions of Korean won) |
Land | Buildings | Structures | Machinery and equipment |
Vehicles | Rental asset |
Others 1 | Construction- in-progress |
Total | |||||||||||||||||||||||||||
Balance at 2010.1.1 |
(Won) | 1,466,791 | (Won) | 3,306,258 | (Won) | 147,920 | (Won) | 8,766,736 | (Won) | 31,069 | (Won) | 104,442 | (Won) | 360,526 | (Won) | 590,818 | (Won) | 14,774,560 | ||||||||||||||||||
Acquisition |
10,156 | 1,468 | 835 | 50,525 | 1,205 | 801,091 | 89,850 | 2,587,210 | 3,542,340 | |||||||||||||||||||||||||||
Disposal |
(531 | ) | (8,600 | ) | (9,816 | ) | (146,807 | ) | (66 | ) | (1,545 | ) | (25,008 | ) | (96 | ) | (192,469 | ) | ||||||||||||||||||
Depreciation |
| (158,461 | ) | (14,519 | ) | (2,370,126 | ) | (7,378 | ) | (140,157 | ) | (204,858 | ) | | (2,895,499 | ) | ||||||||||||||||||||
Impairment |
| | | (519 | ) | | | (8,778 | ) | | (9,297 | ) | ||||||||||||||||||||||||
Others 1 |
(12,592 | ) | 94,966 | 6,165 | 2,188,230 | 107 | (60,998 | ) | 198,217 | (2,405,872 | ) | 8,223 | ||||||||||||||||||||||||
Balance at 2010.12.31 |
(Won) | 1,463,824 | (Won) | 3,235,631 | (Won) | 130,585 | (Won) | 8,488,039 | (Won) | 24,937 | (Won) | 702,833 | (Won) | 409,949 | (Won) | 772,060 | (Won) | 15,227,858 | ||||||||||||||||||
Acquisition cost |
(Won) | 1,463,956 | (Won) | 5,039,486 | (Won) | 322,783 | (Won) | 39,985,058 | (Won) | 81,190 | (Won) | 915,620 | (Won) | 1,809,979 | (Won) | 814,770 | (Won) | 50,432,842 | ||||||||||||||||||
Accumulated depreciation |
| (1,801,296 | ) | (191,102 | ) | (31,402,282 | ) | (56,253 | ) | (212,787 | ) | (1,385,156 | ) | | (35,048,876 | ) | ||||||||||||||||||||
Accumulated impairment loss |
| | | (1,748 | ) | | | (12,634 | ) | | (14,382 | ) | ||||||||||||||||||||||||
Government grants |
(132 | ) | (2,559 | ) | (1,096 | ) | (92,989 | ) | | | (2,240 | ) | (42,710 | ) | (141,726 | ) | ||||||||||||||||||||
2009 | ||||||||||||||||||||||||||||||||||||
(In millions of Korean won) |
Land | Buildings | Structures | Machinery and equipment |
Vehicles | Rental asset |
Others 1 | Construction- in-progress |
Total | |||||||||||||||||||||||||||
Balance at 2009.1.1 |
(Won) | 1,289,230 | (Won) | 3,415,917 | (Won) | 229,676 | (Won) | 9,374,073 | (Won) | 34,606 | (Won) | 90,288 | (Won) | 459,414 | (Won) | 295,427 | (Won) | 15,188,631 | ||||||||||||||||||
Acquisition |
48 | 841 | 2 | 34,937 | 727 | 112,910 | 32,081 | 2,592,880 | 2,774,426 | |||||||||||||||||||||||||||
Disposal |
(12,021 | ) | (12,556 | ) | (1,780 | ) | (102,848 | ) | (143 | ) | (38,322 | ) | (21,087 | ) | (348 | ) | (189,105 | ) | ||||||||||||||||||
Depreciation |
| (150,103 | ) | (16,512 | ) | (2,511,196 | ) | (8,936 | ) | (40,195 | ) | (208,506 | ) | | (2,935,448 | ) | ||||||||||||||||||||
Impairment |
| | | (229 | ) | | | (134 | ) | (873 | ) | (1,236 | ) | |||||||||||||||||||||||
Others |
189,534 | 52,159 | (63,466 | ) | 1,971,999 | 4,815 | (20,239 | ) | 98,758 | (2,296,268 | ) | (62,708 | ) | |||||||||||||||||||||||
Balance at 2009.12.31 |
(Won) | 1,466,791 | (Won) | 3,306,258 | (Won) | 147,920 | (Won) | 8,766,736 | (Won) | 31,069 | (Won) | 104,442 | (Won) | 360,526 | (Won) | 590,818 | (Won) | 14,774,560 | ||||||||||||||||||
Acquisition cost |
(Won) | 1,466,923 | (Won) | 4,977,592 | (Won) | 338,854 | (Won) | 40,256,240 | (Won) | 86,461 | (Won) | 209,252 | (Won) | 1,832,087 | (Won) | 651,441 | (Won) | 49,818,850 | ||||||||||||||||||
Accumulated depreciation |
| (1,668,667 | ) | (189,607 | ) | (31,376,363 | ) | (55,392 | ) | (104,810 | ) | (1,465,470 | ) | | (34,860,309 | ) | ||||||||||||||||||||
Accumulated impairment loss |
| | | (1,761 | ) | | | (3,855 | ) | | (5,616 | ) | ||||||||||||||||||||||||
Government grants |
(132 | ) | (2,667 | ) | (1,327 | ) | (111,380 | ) | | | (2,236 | ) | (60,623 | ) | (178,365 | ) |
1 | Others mainly consist of the transfers from construction-in-progress to machinery, increase in contribution for construction, increase due to changes in consolidated entities and reclassifications. |
As of December 31, 2010, with respect to rental and leasehold contracts, certain land and buildings are pledged for mortgages and leasehold rights, and the maximum pledged amount is (Won)70,704 million (2009: (Won)73,392 million).
F-39
As of December 31, 2010, the value of land based on the posted price issued by the Korean tax authority amounted to (Won)5,412,098 million (2009: (Won)5,549,125 million)
9. Intangible Assets
The changes in intangible assets for the years ended December 31, 2010 and 2009, are as follows:
2010 | ||||||||||||||||||||||||||||
(In millions of Korean won) |
Goodwill | Industrial rights |
Development costs |
Software | Frequency usage rights |
Other intangible assets |
Total | |||||||||||||||||||||
Balance at 2010.1.1 |
(Won) | 85,315 | (Won) | 10,471 | (Won) | 227,594 | (Won) | 165,570 | (Won) | 696,488 | (Won) | 94,062 | (Won) | 1,279,500 | ||||||||||||||
Acquisition |
28,974 | 523 | 243,024 | 62,739 | 78 | 23,114 | 358,452 | |||||||||||||||||||||
Disposal |
| | (13,520 | ) | (4,983 | ) | | (2,567 | ) | (21,070 | ) | |||||||||||||||||
Amortization |
(74,677 | ) | (1,836 | ) | (111,650 | ) | (51,958 | ) | (115,650 | ) | (34,189 | ) | (389,960 | ) | ||||||||||||||
Impairment |
| | | (1,811 | ) | | (1,632 | ) | (3,443 | ) | ||||||||||||||||||
Others |
| (54 | ) | 758 | 839 | | 7,844 | 9,387 | ||||||||||||||||||||
Balance at 2010.12.31 |
(Won) | 39,612 | (Won) | 9,104 | (Won) | 346,206 | (Won) | 170,396 | (Won) | 580,916 | (Won) | 86,632 | (Won) | 1,232,866 | ||||||||||||||
2009 | ||||||||||||||||||||||||||||
(In millions of Korean won) |
Goodwill | Industrial rights |
Development costs |
Software | Frequency usage rights |
Other intangible assets |
Total | |||||||||||||||||||||
Balance at 2009.1.1 |
(Won) | 228,394 | (Won) | 10,203 | (Won) | 193,793 | (Won) | 106,147 | (Won) | 812,137 | (Won) | 123,564 | (Won) | 1,474,238 | ||||||||||||||
Acquisition |
| 1,785 | 140,208 | 60,401 | | 12,721 | 215,115 | |||||||||||||||||||||
Amortization |
(137,487 | ) | (1,865 | ) | (102,366 | ) | (45,594 | ) | (115,649 | ) | (23,057 | ) | (426,018 | ) | ||||||||||||||
Impairment |
(1,840 | ) | | (714 | ) | (1,261 | ) | | (3,927 | ) | (7,742 | ) | ||||||||||||||||
Others |
(3,752 | ) | 348 | (3,327 | ) | 45,877 | | (15,239 | ) | 23,907 | ||||||||||||||||||
Balance at 2009.12.31 |
(Won) | 85,315 | (Won) | 10,471 | (Won) | 227,594 | (Won) | 165,570 | (Won) | 696,488 | (Won) | 94,062 | (Won) | 1,279,500 | ||||||||||||||
The research and development expense for the years ended December 31, 2010 and 2009, are as follows:
(In millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Research expense |
(Won) | 268,681 | (Won) | 239,507 | (Won) | 235,508 | ||||||
Development expense |
26,388 | 23,706 | 47,639 | |||||||||
Total |
(Won) | 295,069 | (Won) | 263,213 | (Won) | 283,147 | ||||||
As a significant expenditure, which is expected to have future economic benefits but is not capitalized in the year incurred because they are not under the Companys control, training expense amounted to (Won)31,832 million (2009: (Won)23,575 million).
F-40
10. Insurance
As of December 31, 2010, the summary of assets covered under the insurance programs with various insurance companies are as follows:
Coverage | ||||||||||
(In millions of Korean won) |
Insurance type |
2010 | 2009 | |||||||
Inventories |
Theft and fire | (Won) | 145,100 | (Won) | 167,129 | |||||
Buildings |
Fire and other | 1,326,221 | 1,347,580 | |||||||
Machinery |
Property package and other | 551,937 | 195,454 | |||||||
Vessel (vehicles) |
Vessel and other | 69,814 | 63,225 | |||||||
Others 1 |
Fire and other | 452,492 | 481,139 | |||||||
Total |
(Won) | 2,545,564 | (Won) | 2,254,527 | ||||||
1 | Includes insurance for structures, finance lease receivables, other fixed assets and officers liability. |
11. Government Grants and Customers Contribution.
The changes in government grants and customers contribution to construction costs which are incurred in acquisition of assets for the years ended December 31, 2010 and 2009, are as follows:
2010 | ||||||||||||||||||||
(In millions of Korean won) |
2010.1.1 | Increase | Decrease | Transfer | 2010.12.31 | |||||||||||||||
Land |
(Won) | 132 | (Won) | | (Won) | | (Won) | | (Won) | 132 | ||||||||||
Buildings |
2,667 | | (108 | ) | | 2,559 | ||||||||||||||
Structures |
1,327 | | (231 | ) | | 1,096 | ||||||||||||||
Equipment |
111,380 | 218 | (39,718 | ) | 21,109 | 92,989 | ||||||||||||||
Others |
2,236 | 28 | (1,324 | ) | 1,300 | 2,240 | ||||||||||||||
Construction- in-progress |
60,623 | 4,496 | | (22,409 | ) | 42,710 | ||||||||||||||
Total |
(Won) | 178,365 | (Won) | 4,742 | (Won) | (41,381 | ) | (Won) | | (Won) | 141,726 | |||||||||
2009 | ||||||||||||||||||||
(In millions of Korean won) |
2009.1.1 | Increase | Decrease | Transfer | 2009.12.31 | |||||||||||||||
Land |
(Won) | 132 | (Won) | | (Won) | | (Won) | | (Won) | 132 | ||||||||||
Buildings |
2,188 | | (233 | ) | 712 | 2,667 | ||||||||||||||
Structures |
1,507 | | (185 | ) | 5 | 1,327 | ||||||||||||||
Equipment |
119,311 | | (50,238 | ) | 42,307 | 111,380 | ||||||||||||||
Others |
1,786 | | (1,311 | ) | 1,761 | 2,236 | ||||||||||||||
Construction- in-progress |
107,675 | 16,440 | (18,707 | ) | (44,785 | ) | 60,623 | |||||||||||||
Total |
(Won) | 232,599 | (Won) | 16,440 | (Won) | (70,674 | ) | (Won) | | (Won) | 178,365 | |||||||||
13. Derivatives
During the years ended December 31, 2010, 2009 and 2008, the Company entered into various derivatives contracts with financial institutions as below.
Type of transaction |
Financial institution |
Description | ||
Interest rate swaps |
Merrill Lynch and others |
Exchange fixed interest rate for variable interest rate for a specified period | ||
Currency swaps |
Merrill Lynch and others |
Exchange foreign currency cash flow for local currency cash flow local currency cash flow for a specified period | ||
Combined interest rate currency swap |
Merrill Lynch and others |
Exchange foreign currency variable interest rate swaps for local currency fixed interest rate | ||
Currency forward |
Kookmin Bank and others |
Exchange a specified currency at the agreed exchange rate at a specified date |
F-41
Details of the above derivative contracts as of December 31, 2010 are as follows:
Currency swap contracts
Contract | Settlement | Contract amounts in millions | Contract interest rate per annum |
|||||||||||||||||||||
Counterparty |
Year | Year | Pay | Receive | Pay (%) | Receive%) | ||||||||||||||||||
Merrill Lynch |
2005 | 2034 | KRW | 2,003 | US$ | 20 | 6.24 | 6.50 | ||||||||||||||||
CITI |
2007 | 2012 | KRW | 46,800 | JPY | 50 | 4.79 | 5.13 | ||||||||||||||||
Merrill Lynch |
2007 | 2012 | KRW | 46,800 | US$ | 50 | 4.79 | 5.13 | ||||||||||||||||
Goldman Sachs |
2007 | 2012 | KRW | 46,800 | US$ | 50 | 4.79 | 5.13 | ||||||||||||||||
JPMorgan |
2008 | 2012 | KRW | 62,972 | JPY | 50 | 5.34 | 5.13 | ||||||||||||||||
JPMorgan |
2004 | 2014 | KRW | 115,620 | US$ | 100 | 5.50 | 5.88 | ||||||||||||||||
JPMorgan |
2004 | 2014 | KRW | 231,240 | US$ | 200 | 5.50 | 5.875 x n/N | ||||||||||||||||
Merrill Lynch |
2004 | 2014 | KRW | 116,400 | US$ | 100 | 4.99 | 5.875 x n/N | ||||||||||||||||
Merrill Lynch |
2004 | 2014 | KRW | 53,325 | US$ | 50 | 4.65 | 5.875 x n/N | ||||||||||||||||
Deutsche Bank |
2004 | 2014 | KRW | 53,325 | US$ | 50 | 4.65 | 5.875 x n/N | ||||||||||||||||
Merrill Lynch |
2005 | 2014 | KRW | 50,170 | US$ | 50 | 4.97 | 5.875 x n/N | ||||||||||||||||
Credit Suisse |
2005 | 2014 | KRW | 50,175 | US$ | 50 | 4.97 | 5.875 x n/N | ||||||||||||||||
Merrill Lynch |
2005 | 2015 | KRW | 51,800 | US$ | 50 | 4.57 | 4.875 x n/N | ||||||||||||||||
UBS AG |
2005 | 2015 | KRW | 51,850 | US$ | 50 | 4.57 | 4.875 x n/N | ||||||||||||||||
BTMU |
2008 | 2011 | KRW | 106,740 | JPY | 12,500 | 4.61 | 3M JPY Libor+0.60 | ||||||||||||||||
CA |
2008 | 2011 | KRW | 50,750 | US$ | 50 | 3.72 | 3M USD Libor+1.50 | ||||||||||||||||
HSBC |
2008 | 2012 | KRW | 81,200 | US$ | 80 | 4.08 | 3M USD Libor+1.60 | ||||||||||||||||
BNP |
2008 | 2012 | KRW | 30,450 | US$ | 30 | 4.08 | 3M USD Libor+1.60 | ||||||||||||||||
DBS |
2008 | 2013 | KRW | 217,940 | US$ | 200 | 5.57 | 3M USD Libor+1.50 | ||||||||||||||||
DBS |
2010 | 2013 | KRW | 112,200 | US$ | 100 | 4.07 | 3M USD Libor+0.47 | ||||||||||||||||
CA |
2008 | 2011 | KRW | 66,150 | US$ | 70 | 4.88 | 3M USD Libor+1.50 | ||||||||||||||||
ANZ |
2008 | 2011 | KRW | 33,075 | US$ | 35 | 4.76 | 3M USD Libor+1.50 | ||||||||||||||||
ABN |
2008 | 2011 | KRW | 28,335 | US$ | 30 | 4.97 | 3M USD Libor+1.50 | ||||||||||||||||
Hanabank |
2008 | 2011 | KRW | 18,912 | US$ | 20 | 4.52 | 3M USD Libor+1.50 | ||||||||||||||||
Nonghyop |
2008 | 2011 | KRW | 18,900 | US$ | 20 | 4.52 | 3M USD Libor+1.50 | ||||||||||||||||
BTMU |
2008 | 2011 | KRW | 39,124 | US$ | 4,000 | 5.03 | 3M JPY Libor+1.60 | ||||||||||||||||
Mizuho |
2008 | 2011 | KRW | 28,643 | US$ | 3,000 | 5.10 | 3M JPY Libor+1.60 | ||||||||||||||||
DBS |
2008 | 2011 | KRW | 51,400 | US$ | 50 | 5.84 | 3M USD Libor+1.60 | ||||||||||||||||
Wooriinvest |
2008 | 2011 | KRW | 15,420 | US$ | 15 | 5.82 | 3M USD Libor+1.60 | ||||||||||||||||
BNP |
2008 | 2011 | KRW | 31,500 | US$ | 30 | 5.88 | 3M USD Libor+1.60 | ||||||||||||||||
Wooribank |
2008 | 2011 | KRW | 31,500 | US$ | 30 | 5.77 | 3M USD Libor+2.00 | ||||||||||||||||
Korea Export Insurance Corporation |
2010 | 2011 | USD | 4 | KRW | 4,411 | | | ||||||||||||||||
Kookmin Bank |
2008 | 2012 | USD | 13 | KRW | 14,593 | | |
Interest rate swap contracts
Counterparty |
Contract period |
Notional amount in millions |
Pay (%) | Receive (%) | ||||||
Merrill Lynch |
2007-2015 | USD 100 | KRW CD+4.44% | KRW 8.36% | ||||||
Merrill Lynch |
2008-2011 | KRW 180,000 | KRW 4.875% x m/N + KRW 4.875% x n/N |
USD 4.875% x n/N | ||||||
Kookmin Bank |
2008-2011 | KRW 20,000 | CD+1.45% | 6.55% | ||||||
Kookmin Bank |
2008-2011 | KRW 10,000 | CD+1.35% | 6.71% | ||||||
Daegu Bank |
2008-2011 | USD 3 | 8.43% | USD Libor(3M)+4.00 |
F-42
The assets and liabilities relating to outstanding contracts as of December 31, 2010 and 2009 are as follows:
2010 | ||||||||||||||||||||
(In millions of Korean won and thousands of foreign currencies) |
Contract amount |
Assets (Current) |
Assets (Non-current) |
Liabilities (Current) |
Liabilities (Non-current) |
|||||||||||||||
Interest rate swap |
KRW | 210,000 | (Won) | 1,213 | (Won) | | (Won) | 214 | (Won) | | ||||||||||
USD | 100,000 | |||||||||||||||||||
Currency swap |
USD | 223,771 | 479 | 34,193 | | 6,560 | ||||||||||||||
Combined interest rate |
USD JPY |
1,460,000 19,500,000 |
|
149,415 | 62,973 | | 13,277 | |||||||||||||
Currency forward |
USD | 16,976 | 136 | | 14 | 406 | ||||||||||||||
Total |
(Won) | 151,243 | (Won) | 97,166 | (Won) | 228 | (Won) | 20,243 | ||||||||||||
2009 | ||||||||||||||||||||
(In millions of Korean won and thousands of foreign currencies) |
Contract amount |
Assets (Current) |
Assets (Non-current) |
Liabilities (Current) |
Liabilities (Non-current) |
|||||||||||||||
Interest rate swap |
KRW | 256,000 | (Won) | | (Won) | 23 | (Won) | 5,118 | (Won) | 656 | ||||||||||
USD | 100,000 | |||||||||||||||||||
Currency swap |
USD | 220,000 | | 47,547 | | 3,782 | ||||||||||||||
Combined interest rate |
USD JPY |
1,410,000 19,500,000 |
|
| 247,488 | | | |||||||||||||
Currency forward |
USD | 30,208 | 288 | | 6 | 1,717 | ||||||||||||||
Total |
(Won) | 288 | (Won) | 295,058 | (Won) | 5,124 | (Won) | 6,155 | ||||||||||||
F-43
Details of the currency swap and combined interest rate currency swap contracts to which hedge accounting is applied as of December 31, 2010 and 2009, are as follows:
Assets (Current) |
Assets (Non-current) |
Liabilities (Non-current) |
||||||||||||||||||||||||||||||||||
(In millions of Korean won and thousands of foreign currencies) |
Contract date |
Maturity date |
Contract amount |
2010.12.31 | 2009.12.31 | 2010.12.31 | 2009.12.31 | 2010.12.31 | 2009.12.31 | |||||||||||||||||||||||||||
Cash flow hedge |
||||||||||||||||||||||||||||||||||||
Currency swap 1 |
2007.4.4 | 2012.4.11 | USD | 150,000 | (Won) | | (Won) | | (Won) | 34,193 | (Won) | 42,839 | (Won) | | (Won) | | ||||||||||||||||||||
2008.10.6 | 2012.4.11 | USD | 50,000 | | | | | 5,930 | 3,782 | |||||||||||||||||||||||||||
2009.6.20 | 2034.9.7 | USD | 20,000 | | | | 4,708 | 630 | | |||||||||||||||||||||||||||
Combined |
2008.1.4 | 2011.1.11 | JPY | 12,500,000 | 67,510 | | | 48,908 | | | ||||||||||||||||||||||||||
interest rate |
2008.3.20 | 2011.3.31 | USD | 50,000 | 6,220 | | | 7,751 | | | ||||||||||||||||||||||||||
currency swap 1 |
2008.3.20 | 2012.3.31 | USD | 110,000 | | | 12,366 | 18,233 | | | ||||||||||||||||||||||||||
2008.9.2 | 2013.9.11 | USD | 200,000 | | | | 5,988 | 9,527 | | |||||||||||||||||||||||||||
2010.4.9 | 2013.4.9 | USD | 100,000 | | | | | 3,750 | | |||||||||||||||||||||||||||
2009.6.20 | 2014.6.24 | USD | 600,000 | | | 38,443 | 66,812 | | | |||||||||||||||||||||||||||
2009.6.20 | 2015.7.15 | USD | 100,000 | | | 12,164 | 20,172 | | | |||||||||||||||||||||||||||
2008.2.25 | 2011.2.25 | USD | 175,000 | 33,735 | | | 37,236 | | | |||||||||||||||||||||||||||
2008.4.28 | 2011.4.28 | JPY | 7,000,000 | 29,998 | | | 20,098 | | | |||||||||||||||||||||||||||
2008.6.20 | 2011.6.20 | USD | 95,000 | 9,269 | | | 10,522 | | | |||||||||||||||||||||||||||
2008.3.12 | 2 | 2010.12.13 | USD | | | | | 8,785 | | | ||||||||||||||||||||||||||
2008.7.2 | 2011.4.4 | USD | 30,000 | 2,683 | | | 2,983 | | | |||||||||||||||||||||||||||
Sub-total |
149,415 | | 97,166 | 295,035 | 19,837 | 3,782 | ||||||||||||||||||||||||||||||
Fair value hedge |
||||||||||||||||||||||||||||||||||||
Interest rate swap 3 |
2009.9.1 | 2011.12.1 | KRW | 180,000 | 1,213 | | | 23 | | | ||||||||||||||||||||||||||
Total |
(Won) | 150,628 | (Won) | | (Won) | 97,166 | (Won) | 295,058 | (Won) | 19,837 | (Won) | 3,782 | ||||||||||||||||||||||||
1 | In applying the cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 7, 2034. Approximately (Won)6,374 million of net derivative loss included in accumulated other comprehensive income at December 31, 2010, is expected to be recognized in current operations within 12 months from that date. |
2 | The remaining principal of the derivative is repaid at maturity during the year ended December 31, 2010. |
3 | Above interest rate swap contract is to hedge the risk of variability in future fair value from the bond and, accordingly, the loss on valuation of the swap contract amounting to (Won)1,190 million is included in operations for the year ended December 31, 2010. |
F-44
The valuation gains and losses on the derivatives contracts for years ended December 31, 2010, 2009 and 2008, are as follows:
2010 | ||||||||||||||||||||
(In millions of Korean won) |
For trading | For hedging | ||||||||||||||||||
Type of Transaction |
Valuation gain 1 |
Valuation loss |
Valuation gain |
Valuation loss |
Accumulated other comprehensive loss 2 |
|||||||||||||||
Interest rate swap |
(Won) | 4,999 | (Won) | | (Won) | 1,190 | (Won) | | (Won) | | ||||||||||
Currency swap |
| | | 6,322 | (11,942 | ) | ||||||||||||||
Combined interest rate currency swap |
| | 33,595 | 41,385 | (38,476 | ) | ||||||||||||||
Currency forward |
1,447 | 14 | | | | |||||||||||||||
Total |
(Won) | 6,446 | (Won) | 14 | (Won) | 34,785 | (Won) | 47,707 | (Won) | (50,418 | ) | |||||||||
2009 | ||||||||||||||||||||
(In millions of Korean won) |
For trading | For hedging | ||||||||||||||||||
Type of Transaction |
Valuation gain 1 |
Valuation loss |
Valuation gain |
Valuation loss |
Accumulated other comprehensive income 2 |
|||||||||||||||
Interest rate swap |
(Won) | 6,883 | (Won) | | (Won) | 23 | (Won) | | (Won) | | ||||||||||
Currency swap |
| 9,574 | 250 | 17,005 | (3,809 | ) | ||||||||||||||
Combined interest rate currency swap |
6,178 | 75,401 | 4,605 | 89,282 | (23,095 | ) | ||||||||||||||
Currency forward |
3,317 | 6 | | | | |||||||||||||||
Put option |
223 | | | | | |||||||||||||||
Total |
(Won) | 16,601 | (Won) | 84,981 | (Won) | 4,878 | (Won) | 106,287 | (Won) | (26,904 | ) | |||||||||
2008 | ||||||||||||||||||||
(In millions of Korean won) |
For trading | For hedging | ||||||||||||||||||
Type of Transaction |
Valuation gain |
Valuation loss |
Valuation gain |
Valuation loss |
Accumulated other comprehensive income 2 |
|||||||||||||||
Interest rate swap |
(Won) | | (Won) | 10,798 | (Won) | | (Won) | | (Won) | | ||||||||||
Currency swap |
17,626 | | 54,905 | 97 | 11,708 | |||||||||||||||
Combined interest rate currency swap |
297,925 | | 267,655 | | (22,146 | ) | ||||||||||||||
Currency forward |
| 6,088 | | | | |||||||||||||||
Put option |
12,569 | | | | | |||||||||||||||
Total |
(Won) | 328,120 | (Won) | 16,886 | (Won) | 322,560 | (Won) | 97 | (Won) | (10,438 | ) | |||||||||
1 | In accordance with SKAS No. 24, Preparation and Presentation of Financial Statements II (Financial Industry), the gain on valuation of currency forwards amounting to (Won)1,311 million for the year ended December 31, 2010, and the gain on valuation of currency forwards amounting to (Won)3,029 million and the gain on valuation of interest rate swap amounting to (Won)807 million for the year ended December 31, 2009, recorded by KT Capital are classified as operating income. |
2 | The amounts directly reflected in equity before adjustments of deferred income tax. |
F-45
14. Bonds payable and long-term borrowings
Bonds Payable
(In millions of Korean won and |
2010.12.31 | 2009.12.31 | ||||||||||||||||||||
Type |
Maturity | Annual |
Foreign Currency |
Korean Won |
Foreign Currency |
Korean Won |
||||||||||||||||
MTNP notes 1 |
2014.6.24 | 5.88% | USD 600,000 | (Won) | 683,340 | USD 600,000 | (Won) | 700,560 | ||||||||||||||
MTNP notes 1 |
2034.9.7 | 6.50% | USD 100,000 | 113,890 | USD 100,000 | 116,760 | ||||||||||||||||
MTNP notes 1 |
2015.7.15 | 4.88% | USD 400,000 | 455,560 | USD 400,000 | 467,040 | ||||||||||||||||
MTNP notes 1 |
2016.5.3 | 5.88% | USD 200,000 | 227,780 | USD 200,000 | 233,520 | ||||||||||||||||
Euro bonds |
2012.4.11 | 5.13% | USD 200,000 | 227,780 | USD 200,000 | 233,520 | ||||||||||||||||
FR notes 2 |
2013.9.11 | Libor(3M) +1.5% |
USD 200,000 | 227,780 | USD 200,000 | 233,520 | ||||||||||||||||
FR notes 2 |
2013.4.9 | Libor(3M) +0.47% |
USD 100,000 | 113,890 | | | ||||||||||||||||
The 132nd Public bond |
2011.2.9 | 7.68% | | 70,000 | | 70,000 | ||||||||||||||||
The 159th Public bond |
2013.10.27 | 5.39% | | 300,000 | | 300,000 | ||||||||||||||||
The 160th Public bond |
2010.11.24 | 5.45% | | | | 200,000 | ||||||||||||||||
The 161st Public bond |
2010.12.23 | 5.61% | | | | 230,000 | ||||||||||||||||
The 162nd Public bond |
2011.2.27 | 5.52% | | 320,000 | | 320,000 | ||||||||||||||||
The 163rd Public bond |
2014.3.30 | 5.51% | | 170,000 | | 170,000 | ||||||||||||||||
The 164th Public bond |
2011.6.21 | 5.22% | | 260,000 | | 260,000 | ||||||||||||||||
The 165-1st Public bond |
2011.8.26 | 4.22% | | 130,000 | | 130,000 | ||||||||||||||||
The 165-2nd Public bond |
2014.8.26 | 4.44% | | 140,000 | | 140,000 | ||||||||||||||||
The 166-1st Public bond |
2010.3.21 | 4.37% | | | | 220,000 | ||||||||||||||||
The 166-2nd Public bond |
2012.3.21 | 4.57% | | 100,000 | | 100,000 | ||||||||||||||||
The 167-1st Public bond |
2012.4.20 | 4.59% | | 100,000 | | 100,000 | ||||||||||||||||
The 167-2nd Public bond |
2015.4.20 | 4.84% | | 100,000 | | 100,000 | ||||||||||||||||
The 168-1st Public bond |
2012.6.21 | 4.43% | | 240,000 | | 240,000 | ||||||||||||||||
The 168-2nd Public bond |
2015.6.21 | 4.66% | | 90,000 | | 90,000 | ||||||||||||||||
The 169th Public bond |
2012.4.3 | 5.01% | | 140,000 | | 140,000 | ||||||||||||||||
The 170th Public bond 2 |
2011.1.11 | Tibor(3M) +0.6% |
JPY12,500,000 | 174,635 | JPY12,500,000 | 157,853 | ||||||||||||||||
The 171st Public bond |
2013.2.28 | 5.41% | | 100,000 | | 100,000 | ||||||||||||||||
The 172-1st Public bond 2 |
2011.3.31 | Libor(3M) +1.5% |
USD 50,000 | 56,945 | USD 50,000 | 58,380 | ||||||||||||||||
The 172-2nd Public bond 2 |
2012.3.31 | Libor(3M) +1.6% |
USD 110,000 | 125,279 | USD 110,000 | 128,436 | ||||||||||||||||
The 173-1st Public bond |
2013.8.6 | 6.49% | | 100,000 | | 100,000 | ||||||||||||||||
The 173-2nd Public bond |
2018.8.6 | 6.62% | | 100,000 | | 100,000 | ||||||||||||||||
The 174-1st Public bond |
2010.12.19 | 5.34% | | | | 100,000 | ||||||||||||||||
The 174-2nd Public bond |
2011.12.19 | 5.56% | | 130,000 | | 130,000 | ||||||||||||||||
The 175-1st Public bond |
2012.2.27 | 4.80% | | 40,000 | | 40,000 | ||||||||||||||||
The 175-2nd Public bond |
2014.2.27 | 5.47% | | 360,000 | | 360,000 | ||||||||||||||||
The 176-1st Public bond |
2012.5.28 | 4.37% | | 100,000 | | 100,000 | ||||||||||||||||
The 176-2nd Public bond |
2014.5.28 | 5.06% | | 170,000 | | 170,000 | ||||||||||||||||
The 176-3rd Public bond |
2016.5.28 | 5.24% | | 260,000 | | 260,000 | ||||||||||||||||
The 177-1st Public bond |
2013.2.9 | 4.86% | | 240,000 | | | ||||||||||||||||
The 177-2nd Public bond |
2015.2.9 | 5.26% | | 190,000 | | | ||||||||||||||||
The 177-3rd Public bond |
2017.2.9 | 5.38% | | 170,000 | | | ||||||||||||||||
The 47-2nd Public bond |
2011.7.12 | 5.32% | | 70,000 | | 70,000 | ||||||||||||||||
The 48th Public bond |
2010.2.15 | 5.31% | | | | 200,000 | ||||||||||||||||
The 49th Public bond 2 |
2011.2.25 | Libor(3M) +1.5% |
USD 175,000 | 199,308 | USD 175,000 | 204,330 | ||||||||||||||||
The 50th Public bond 2 |
2011.4.28 | Tibor(3M) +1.6% |
JPY 7,000,000 | 97,796 | JPY 7,000,000 | 88,397 | ||||||||||||||||
The 51-1st Public bond 2 |
2011.6.20 | Libor(3M) +1.6% |
USD 95,000 | 108,196 | USD 95,000 | 110,922 |
F-46
(In millions of Korean won and thousands of |
2010.12.31 | 2009.12.31 | ||||||||||||||||||||
Type |
Maturity | Annual |
Foreign Currency |
Korean Won |
Foreign Currency |
Korean Won |
||||||||||||||||
The 51-2nd Public bond |
2013.6.20 | 6.41% | | 70,000 | | 70,000 | ||||||||||||||||
The 52-1st Private bond |
2011.8.4 | 6.20% | | 100,000 | | 100,000 | ||||||||||||||||
The 52-2nd Public bond |
2013.8.4 | 6.64% | | 100,000 | | 100,000 | ||||||||||||||||
The 53-1st Public bond |
2010.12.1 | 8.23% | | | | 20,000 | ||||||||||||||||
The 53-2nd Public bond |
2011.12.1 | 8.36% | | 181,212 | | 180,023 | ||||||||||||||||
Public bond |
2010. 4.17 | 5.29% | | | | 10,000 | ||||||||||||||||
Public bond |
2011.7.24 | 6.82% | | 5,000 | | 5,000 | ||||||||||||||||
Public bond |
2013.4.19 | 5.15% | | 10,000 | | | ||||||||||||||||
Public bond(19-2nd) |
2010.5.10 | 4.69% | | | | 10,000 | ||||||||||||||||
The 10th Public bond |
2010.6.18 | 5.70% | | | | 40,000 | ||||||||||||||||
The 11th Private bond |
2010.12.6 | 6.85% | | | | 20,000 | ||||||||||||||||
The 12th Public bond |
2011.5.23 | 6.39% | | 20,000 | | 20,000 | ||||||||||||||||
The 13-2nd Public bond |
2010.4.2 | 8.30% | | | | 10,000 | ||||||||||||||||
The 14th Public bond |
2012.1.8 | 8.90% | | 30,000 | | 30,000 | ||||||||||||||||
The 15th Public bond |
2011.10.26 | 5.70% | | 30,000 | | 30,000 | ||||||||||||||||
The 16th Public bond |
2012.11.27 | 5.85% | | 30,000 | | 30,000 | ||||||||||||||||
The 17-1st Public bond |
2012.3.11 | 5.20% | | 10,000 | | | ||||||||||||||||
The 18-1st Public bond |
2012.4.9 | 4.50% | | 10,000 | | | ||||||||||||||||
The 18-2nd Public bond |
2013.4.9 | 5.04% | | 70,000 | | | ||||||||||||||||
The 17-2nd Public bond |
2013.3.11 | 5.62% | | 30,000 | | | ||||||||||||||||
The 1-2nd Public bond |
2011.2.6 | 8.74% | | 20,000 | | | ||||||||||||||||
The 3rd Public bond |
2012.6.22 | 6.89% | | 100,000 | | | ||||||||||||||||
The 1th Private bond |
2010.3.16 | 5.80% | | | | 30,000 | ||||||||||||||||
The 2nd Private bond |
2010.4.16 | 5.94% | | | | 20,000 | ||||||||||||||||
The 4th Public bond |
2010.5.30 | 5.70% | | | | 40,000 | ||||||||||||||||
The 5th Private bond |
2010.6.29 | 5.67% | | | | 20,000 | ||||||||||||||||
The 6-2nd Public bond |
2010.8.3 | 5.72% | | | | 30,000 | ||||||||||||||||
The 7-2nd Public bond |
2010.8.31 | 6.05% | | | | 20,000 | ||||||||||||||||
The 8th Private bond |
2010.9.28 | 6.26% | | | | 30,000 | ||||||||||||||||
The 9-2nd Public bond |
2010.10.18 | 6.44% | | | | 20,000 | ||||||||||||||||
The 11th Public bond |
2010.12.27 | CD(91D) +1.39% |
| | | 20,000 | ||||||||||||||||
The 13-1st Public bond |
2010.2.21 | 6.33% | | | | 30,000 | ||||||||||||||||
The 13-2nd Public bond |
2011.2.21 | 6.48% | | 30,000 | | 30,000 | ||||||||||||||||
The 14-1st Public bond |
2010.3.28 | 6.37% | | | | 10,000 | ||||||||||||||||
The 14-2nd Public bond |
2011.3.28 | 6.47% | | 10,000 | | 10,000 | ||||||||||||||||
The 15th Private bond |
2010.4.21 | MOR(3M) +1.28% |
| | | 20,000 | ||||||||||||||||
The 16-1st Public bond |
2010.1.30 | 6.33% | | | | 60,000 | ||||||||||||||||
The 16-2nd Public bond |
2011.4.30 | 6.46% | | 10,000 | | 10,000 | ||||||||||||||||
The 17-3rd Public bond |
2013.5.30 | 7.14% | | 50,000 | | 50,000 | ||||||||||||||||
The 18-2nd Public bond |
2010.6.23 | 7.12% | | | | 40,000 | ||||||||||||||||
The 18-3rd Public bond |
2011.6.23 | 7.22% | | 20,000 | | 20,000 | ||||||||||||||||
The 18-4th Public bond |
2013.6.23 | 7.55% | | 10,000 | | 10,000 | ||||||||||||||||
The 19-2nd Public bond |
2010.3.11 | 7.80% | | | | 10,000 | ||||||||||||||||
The 19-3rd Public bond |
2010.9.11 | 7.93% | | | | 20,000 | ||||||||||||||||
The 19-4th Public bond |
2010.9.11 | CD(91D) +1.95% |
| | | 10,000 | ||||||||||||||||
The 22-1st Public bond |
2010.7.23 | 8.70% | | | | 10,000 | ||||||||||||||||
The 22-2nd Public bond |
2011.1.23 | 8.75% | | 35,000 | | 35,000 | ||||||||||||||||
The 22-3rd Public bond |
2012.1.23 | 8.95% | | 25,000 | | 25,000 | ||||||||||||||||
The 23rd Public bond |
2011.5.29 | 5.35% | | 20,000 | | 20,000 | ||||||||||||||||
The 24th Public bond |
2012.6.29 | 6.28% | | 30,000 | | 30,000 | ||||||||||||||||
The 25-1st Public bond |
2011.7.30 | 6.20% | | 20,000 | | 20,000 | ||||||||||||||||
The 25-2nd Public bond |
2012.7.30 | 5.75% | | 25,000 | | 25,000 | ||||||||||||||||
The 26th Public bond |
2012.8.27 | 6.33% | | 50,000 | | 50,000 |
F-47
(In millions of Korean won and thousands of |
2010.12.31 | 2009.12.31 | ||||||||||||||||||||
Type |
Maturity | Annual |
Foreign Currency |
Korean Won |
Foreign Currency |
Korean Won |
||||||||||||||||
The 27th Private bond |
2012.9.4 | 6.33% | | 10,000 | | 10,000 | ||||||||||||||||
The 28-1st Public bond |
2011.11.12 | 5.70% | | 20,000 | | 20,000 | ||||||||||||||||
The 28-2nd Public bond |
2012.11.12 | 6.08% | | 30,000 | | 30,000 | ||||||||||||||||
The 29-1st Public bond |
2011.11.30 | 5.60% | | 10,000 | | 10,000 | ||||||||||||||||
The 29-2nd Public bond |
2012.11.30 | 6.00% | | 40,000 | | 40,000 | ||||||||||||||||
The 30-1st Public bond |
2011.6.23 | 5.30% | | 10,000 | | 10,000 | ||||||||||||||||
The 30-2nd Public bond |
2011.12.23 | 5.60% | | 10,000 | | 10,000 | ||||||||||||||||
The 30-3rd Public bond |
2012.12.23 | 5.95% | | 10,000 | | 10,000 | ||||||||||||||||
The 31st Public bond |
2012.12.31 | 5.98% | | 10,000 | | 10,000 | ||||||||||||||||
The 32-1st Public bond |
2012.1.22 | 5.65% | | 10,000 | | | ||||||||||||||||
The 32-2nd Public bond |
2013.1.22 | 5.95% | | 50,000 | | | ||||||||||||||||
The 32-3rd Public bond |
2015.1.22 | 6.70% | | 30,000 | | | ||||||||||||||||
The 33rd Public bond |
2015.2.11 | 6.45% | | 50,000 | | | ||||||||||||||||
The 34-1st Public bond |
2012.2.26 | 5.30% | | 30,000 | | | ||||||||||||||||
The 34-2nd Public bond |
2013.2.26 | 5.60% | | 10,000 | | | ||||||||||||||||
The 35-1st Public bond |
2012.3.22 | 4.65% | | 20,000 | | | ||||||||||||||||
The 35-2nd Public bond |
2013.3.22 | 5.05% | | 30,000 | | | ||||||||||||||||
The 36-1st Public bond 2 |
2012.4.30 | CD(91D) +1.09% |
| 20,000 | | | ||||||||||||||||
The 36-2nd Public bond |
2013.4.30 | 4.75% | | 30,000 | | | ||||||||||||||||
The 36-3rd Public bond |
2015.4.30 | 5.65% | | 20,000 | | | ||||||||||||||||
The 37-1st Public bond |
2011.12.30 | 4.85% | | 10,000 | | | ||||||||||||||||
The 37-2nd Public bond |
2012.6.30 | 5.13% | | 10,000 | | | ||||||||||||||||
The 37-3rd Public bond |
2013.6.30 | 5.45% | | 20,000 | | | ||||||||||||||||
The 37-4th Public bond |
2014.6.30 | 5.85% | | 10,000 | | | ||||||||||||||||
The 38-1st Public bond |
2012.1.19 | 4.80% | | 30,000 | | | ||||||||||||||||
The 38-2nd Public bond |
2012.7.19 | 5.08% | | 30,000 | | | ||||||||||||||||
The 38-3rd Public bond |
2014.7.19 | 5.85% | | 10,000 | | | ||||||||||||||||
The 39th Public bond |
2013.7.30 | 5.35% | | 30,000 | | | ||||||||||||||||
The 40-1st Public bond |
2012.5.10 | 4.69% | | 40,000 | | | ||||||||||||||||
The 40-2nd Public bond |
2013.8.10 | 5.33% | | 20,000 | | | ||||||||||||||||
The 40-3rd Public bond |
2015.8.10 | 5.95% | | 20,000 | | | ||||||||||||||||
The 41-1st Public bond |
2012.9.17 | 4.22% | | 30,000 | | | ||||||||||||||||
The 41-2nd Public bond |
2013.9.17 | 4.63% | | 20,000 | | | ||||||||||||||||
The 41-3rd Public bond |
2014.9.17 | 5.10% | | 10,000 | | | ||||||||||||||||
The 42-1st Public bond |
2013.11.22 | 4.62% | | 30,000 | | | ||||||||||||||||
The 42-2nd Public bond |
2014.11.23 | 5.10% | | 20,000 | | | ||||||||||||||||
The 42-3rd Public bond |
2015.11.24 | 5.44% | | 10,000 | | | ||||||||||||||||
The 1st Private bond |
2010.3.24 | BD+3.95% | | | | 40,000 | ||||||||||||||||
Total |
8,953,391 | 8,913,261 | ||||||||||||||||||||
Less: Current portion |
(2,178,092 | ) | (1,540,000 | ) | ||||||||||||||||||
Less: Discount on bonds |
(29,626 | ) | (35,862 | ) | ||||||||||||||||||
Net |
(Won) | 6,745,673 | (Won) | 7,337,399 | ||||||||||||||||||
1 | As of December 31, 2010, the Controlling Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (MTNP) registered in the Singapore Stock Exchange, which allows issuance of notes of up to USD 2,000 million, with the unused balance under the program amounting to USD 700 million. |
2 | The Libor (3M), Tibor (3M) and CD(91D) are approximately 0.30%, 0.34% and 2.80%, respectively, as of December 31, 2010. |
F-48
Long-term Borrowings
(In millions of Korean won and thousands of |
2010.12.31 | 2009.12.31 | ||||||||||||||||||
Type |
Annual Interest Rates |
Foreign Currency |
Korean Won |
Foreign Currency |
Korean Won |
|||||||||||||||
Informatization Promotion Fund 1 |
3.52%~4.29% | (Won) | | (Won) | 31,371 | (Won) | (Won) | 31,518 | ||||||||||||
Inter-Korean Cooperation Fund 1 |
2.00% | | 6,415 | | 6,415 | |||||||||||||||
Facility and working capital loans |
4.00%~8.43% | | 357,609 | | 67,411 | |||||||||||||||
General purpose loans |
4.06%~5.80% | | 185,163 | | 65,815 | |||||||||||||||
Commercial papers |
2.9%~6.60% | | 85,000 | | 50,000 | |||||||||||||||
Facility loans in foreign currency |
|
LIBOR(3M) +2.0% |
|
USD | 30,000 | 34,167 | USD | 70,000 | 81,732 | |||||||||||
Other long-term borrowings in foreign currency |
LIBOR+1.70% | USD | 16,000 | 18,222 | USD 22,400 | 26,154 | ||||||||||||||
|
USD LIBOR(3M) +0.99% |
|
USD 11,000 | 12,528 | USD 15,000 | 17,514 | ||||||||||||||
LIBOR+3.5% | | | RUB 29,380 | 1,131 | ||||||||||||||||
16.50% | UZS 2,259 | 1,581 | UZS | 2,047 | 1,577 | |||||||||||||||
Total |
732,056 | 349,267 | ||||||||||||||||||
Less: Current portion |
(259,042 | ) | (150,340 | ) | ||||||||||||||||
Present value discounts |
| (654 | ) | |||||||||||||||||
Net |
(Won) | 473,014 | (Won) | 198,273 | ||||||||||||||||
1 | The above Informatization Promotion Funds are repayable in installments over three years after a two-year grace period, while Inter-Korean Cooperation Fund is repayable in installments over 13 years after a seven-year grace period. |
Repayment Schedule
Repayment schedule of the Companys bonds and long-term borrowings as of December 31, 2010, is as follows:
(In millions of Korean won) |
Bonds | Borrowings | ||||||||||||||||||||||||||
Year ending December 31 |
In local currency |
In foreign currency |
Sub- total | Borrowings in local currency |
Borrowings in foreign currency |
Sub- total |
Total | |||||||||||||||||||||
2011 |
(Won) | 1,541,213 | (Won) | 636,879 | (Won) | 2,178,092 | (Won) | 205,058 | (Won) | 53,984 | (Won) | 259,042 | (Won) | 2,437,134 | ||||||||||||||
2012 |
1,350,000 | 353,059 | 1,703,059 | 210,830 | 8,871 | 219,701 | 1,922,760 | |||||||||||||||||||||
2013 |
1,320,000 | 341,670 | 1,661,670 | 237,008 | 3,643 | 240,651 | 1,902,321 | |||||||||||||||||||||
2014 |
890,000 | 683,340 | 1,573,340 | 5,161 | | 5,161 | 1,578,501 | |||||||||||||||||||||
Thereafter |
1,040,000 | 797,230 | 1,837,230 | 7,501 | | 7,501 | 1,844,731 | |||||||||||||||||||||
Total |
(Won) | 6,141,213 | (Won) | 2,812,178 | (Won) | 8,953,391 | (Won) | 665,558 | (Won) | 66,498 | (Won) | 732,056 | (Won) | 9,685,447 | ||||||||||||||
F-49
15. Accrued Severance Benefits
Changes in accrued severance benefits for the year ended December 31, 2010 and 2009, are as follows:
(In millions of Korean won) |
2010 | |||
Balance at 2010.1.1 |
(Won) | 1,488,086 | ||
Decrease |
(490,055 | ) | ||
Provision for severance benefits |
233,111 | |||
Others |
(137 | ) | ||
Balance at 2010.12.31 |
1,231,005 | |||
Less : Severance insurance deposits |
(870,928 | ) | ||
Less : Cumulative deposits to the National Pension Fund |
(49 | ) | ||
Total |
(Won) | 360,028 | ||
(In millions of Korean won) |
2009 | |||
Balance at 2009.1.1 |
(Won) | 1,663,690 | ||
Decrease |
(409,295 | ) | ||
Provision for severance benefits |
233,691 | |||
Balance at 2009.12.31 |
1,488,086 | |||
Less : Severance insurance deposits |
(1,150,544 | ) | ||
Less : Cumulative deposits to the National Pension Fund |
(18 | ) | ||
Total |
(Won) | 337,524 | ||
The estimated value of severance benefits for all employees, as of December 31, 2010, amounts to (Won)1,231,005 million which are fully recognized as accrued severance benefits. In addition, as of December 31, 2010, accrued severance benefits are funded at approximately 70.75% through a severance insurance plan and defined benefit severance pension plan with Samsung Life Insurance.
16. Provisions
Changes in provisions for the years ended December 31, 2010 and 2009, are as follows:
2010 | ||||||||||||||||||||||||||||
2010.1.1 | Increase | Transfer | Decrease | Others | 2010.12.31 | |||||||||||||||||||||||
(In millions of Korean won) |
Usage | Reversal | ||||||||||||||||||||||||||
Current portion |
||||||||||||||||||||||||||||
Litigation 1 |
(Won) | 17,010 | (Won) | 9,630 | (Won) | | (Won) | (2,116 | ) | (Won) | (964 | ) | (Won) | | (Won) | 23,560 | ||||||||||||
KT members points 2 |
546 | | | | (546 | ) | | | ||||||||||||||||||||
KT points 3 |
3,591 | | | (1,639 | ) | | | 1,952 | ||||||||||||||||||||
Call bonus points 4 |
7,271 | | 12,990 | (11,942 | ) | | | 8,319 | ||||||||||||||||||||
Olleh club points 5 |
| | 27,013 | (7,912 | ) | | | 19,101 | ||||||||||||||||||||
Sales warranty reserve |
6,245 | 5,684 | | (6,261 | ) | | | 5,668 | ||||||||||||||||||||
Others 7 |
5,178 | 44,637 | (474 | ) | (12,763 | ) | (7,006 | ) | 1,009 | 30,581 | ||||||||||||||||||
Sub-total |
39,841 | 59,951 | 39,529 | (42,633 | ) | (8,516 | ) | 1,009 | 89,181 | |||||||||||||||||||
Non-current portion |
||||||||||||||||||||||||||||
KT points 3 |
2,457 | | | | (1,016 | ) | | 1,441 | ||||||||||||||||||||
Call bonus points 4 |
6,438 | 14,711 | (12,990 | ) | | | | 8,159 | ||||||||||||||||||||
Olleh club points 5 |
| 29,063 | (27,013 | ) | | | | 2,050 | ||||||||||||||||||||
Asset retirement obligation 6 |
93,211 | 22,759 | 474 | (6,936 | ) | (8,353 | ) | | 101,155 | |||||||||||||||||||
Others 7 |
1,470 | 656 | | (47 | ) | (431 | ) | | 1,648 | |||||||||||||||||||
Sub-total |
103,576 | 67,189 | (39,529 | ) | (6,983 | ) | (9,800 | ) | | 114,453 | ||||||||||||||||||
Total |
(Won) | 143,417 | (Won) | 127,140 | (Won) | | (Won) | (49,616 | ) | (Won) | (18,316 | ) | (Won) | 1,009 | (Won) | 203,634 | ||||||||||||
F-50
2009 | ||||||||||||||||||||||||||||
(In millions of Korean won) |
2009.1.1 | Increase | Transfer | Decrease | Others | 2010.12.31 | ||||||||||||||||||||||
Usage | Reversal | |||||||||||||||||||||||||||
Current portion |
||||||||||||||||||||||||||||
Litigation 1 |
(Won) | 19,572 | (Won) | 2,204 | (Won) | | (Won) | (4,766 | ) | (Won) | | (Won) | | (Won) | 17,010 | |||||||||||||
KT members points 2 |
681 | | | (110 | ) | (25 | ) | | 546 | |||||||||||||||||||
KT points 3 |
4,774 | | 4,642 | (5,825 | ) | | | 3,591 | ||||||||||||||||||||
Call bonus points 4 |
5,504 | | 4,999 | (3,232 | ) | | | 7,271 | ||||||||||||||||||||
Sales warranty reserve |
5,299 | 9,285 | | (8,339 | ) | | | 6,245 | ||||||||||||||||||||
Others 7 |
2,985 | 5,033 | | (2,745 | ) | (719 | ) | 624 | 5,178 | |||||||||||||||||||
Sub-total |
38,815 | 16,522 | 9,641 | (25,017 | ) | (744 | ) | 624 | 39,841 | |||||||||||||||||||
Non-current portion |
||||||||||||||||||||||||||||
KT points 3 |
7,099 | | (4,642 | ) | | | | 2,457 | ||||||||||||||||||||
Call bonus points 4 |
5,109 | 7,935 | (4,999 | ) | (1,607 | ) | | | 6,438 | |||||||||||||||||||
Asset retirement obligation 6 |
71,533 | 13,997 | | (6,188 | ) | (3,935 | ) | 17,804 | 93,211 | |||||||||||||||||||
Others 7 |
1,405 | 374 | | | (309 | ) | | 1,470 | ||||||||||||||||||||
Sub-total |
85,146 | 22,306 | (9,641 | ) | (7,795 | ) | (4,244 | ) | 17,804 | 103,576 | ||||||||||||||||||
Total |
(Won) | 123,961 | (Won) | 38,828 | (Won) | | (Won) | (32,812 | ) | (Won) | (4,988 | ) | (Won) | 18,428 | (Won) | 143,417 | ||||||||||||
1 | The amount recognized as litigation provision represents the estimate of payments required to settle the obligation. |
2 | The Company recorded provisions for the KT members points with which VIP customers of the fixed-line or mobile telephone service are entitled to receive certain goods and other benefits for up to (Won)25,000 per person. |
3 | The amount recognized as call bonus points represents the estimate of payments for call bonus points which are provided to fixed-line customers based on the usage of the services. Once certain criteria are met, customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each reporting date and adjusted to reflect the current best estimates based on changes in circumstances, or an acquisition of new information or additional experience on the usage rate, expiration of points and others. |
4 | The Company recorded provision for the Lets 010 (KT-PCS) call bonus points with which its PCS subscribers are entitled to receive certain goods and other benefits from the Company. |
5 | The Company recognized estimated expenses for the integrated mileage program of wireless membership, wired and wireless mileage, Show point service and Shocking package, which commenced in June 2010. |
6 | When the Company is responsible for restoration of leased facility after termination of the lease contract, the present value of expected future expenditure for the restoration is recorded as a liability. |
7 | Points are granted to customers, employees and the customers of business partners. The Company accounts for this points as welfare expense and others based on nature of provision. |
17. Lease
The Company as Lessee
Property and equipment acquired through lease arrangements with GE Capital and others as of December 31, 2010 are as follows:
Finance Lease
Details of finance lease assets as of December 31, 2010 are as follows:
(In millions of Korean won) |
2010 | |||
Acquisition costs |
(Won) | 22,332 | ||
Accumulated depreciation |
(11,342 | ) | ||
Net balance |
(Won) | 10,990 | ||
The related depreciation amounted to (Won)2,029 million for the year ended December 31, 2010.
F-51
Details of future minimum lease payments as of December 31, 2010 under capital lease contracts are summarized below:
(In millions of Korean won) |
Minimum lease payments |
Present values |
||||||
Within one year |
(Won) | 6,387 | (Won) | 5,282 | ||||
From one year to five years |
16,372 | 14,527 | ||||||
Total |
(Won) | 22,759 | (Won) | 19,809 | ||||
Operating Lease
Details of future minimum lease payments as of December 31, 2010 under operating lease contracts are summarized below:
(In millions of Korean won) |
2010 | |||
Within one year |
(Won) | 4,924 | ||
From one year to five years |
2,670 | |||
Total |
(Won) | 7,594 | ||
Operating lease expenses incurred for the year ended December 31, 2010 amounted to (Won)28,278 million.
The Company as Lessor
Finance Lease
Details of finance lease investments as of December 31, 2010 are as follow:
(In millions of Korean won) |
Minimum lease payments |
Unguaranteed residual value |
Gross investment in the lease |
Unaccrued interest |
Net investment in the lease |
|||||||||||||||
Within one year |
(Won) | 299,364 | (Won) | 11,903 | (Won) | 311,267 | (Won) | 68,111 | (Won) | 243,156 | ||||||||||
From one year to five years |
539,092 | 21,135 | 560,227 | 120,216 | 440,011 | |||||||||||||||
Thereafter |
20,644 | | 20,644 | 1,552 | 19,092 | |||||||||||||||
Balance at 2010.12.31 |
(Won) | 859,100 | (Won) | 33,038 | (Won) | 892,138 | (Won) | 189,879 | (Won) | 702,259 | ||||||||||
Bad debts allowances provided for doubtful minimum lease receivables as of December 31, 2010 are as follow:
(In millions of Korean won) |
2010 | |||
Within one year |
(Won) | 2,742 | ||
From one year to five years |
5,025 | |||
Thereafter |
230 | |||
Total |
(Won) | 7,997 | ||
Operating Lease
Annual future lease receipts from operating lease agreements as of December 31, 2010 are as follows:
(In millions of Korean won) |
Undiscounted amounts |
Present values |
||||||
Within one year |
(Won) | 13,676 | (Won) | 11,879 | ||||
From one year to five years |
31,888 | 28,937 | ||||||
Total |
(Won) | 45,564 | (Won) | 40,816 | ||||
F-52
18. Commitments and Contingencies
As of December 31, 2010, major commitments with local financial institutions are as follows:
(In millions of Korean won and thousands of foreign currencies) |
Financial Institution |
Limit | ||||
Bank overdraft |
Kookmin Bank and others | (Won) | 1,435,000 | |||
Commercial papers |
Korea Exchange Bank | 100,000 | ||||
Loan on information and communications fund |
Kookmin Bank and others | 40,567 | ||||
Collateralized loan on accounts receivabletrade |
Kookmin Bank and others | 418,000 | ||||
Collection for foreign currency denominated checks |
Korea Exchange Bank | USD | 1,000 | |||
Plus commercial papers |
IBK Bank | (Won) | 150,000 | |||
Letters of credit |
Shinhan Bank and others | 348,000 | ||||
USD | 13,000 | |||||
Others |
Shinhan Bank and others | (Won) | 230,000 | |||
USD | 87,005 | |||||
As of December 31, 2010, guarantees received from financial institutions are as follows:
(In millions of Korean won and thousands of foreign |
Financial Institution |
Limit | Used Amount | |||||||
Performance guarantee for construction |
Seoul Guarantee Insurance | (Won) | 76,313 | (Won) | | |||||
Performance guarantee |
Export-Import Bank of Korea | USD | 4,518 | USD | 4,518 | |||||
SAR | 735 | SAR | 735 | |||||||
DZD | 25,863 | DZD | 25,863 | |||||||
Seoul Guarantee Insurance | (Won) | 15,578 | (Won) | 15,578 | ||||||
Korea Software Financial Cooperative and others 1 | 150,000 | 76,220 | ||||||||
56,628 | ||||||||||
Bid guarantee |
Seoul Guarantee Insurance | 30,248 | 30,248 | |||||||
Bonds payable in foreign currency guarantee |
Kookmin Bank | USD | 85,652 | USD | 5,652 | |||||
Korea Exchange Bank | USD | 5,000 | USD | 2,191 | ||||||
Shinhan Bank | USD | 27,512 | USD 21,502 | |||||||
HSBC | USD | 80,000 | USD | | ||||||
Advances received guarantee |
Export-Import Bank of Korea | USD | 2,925 | USD | 2,925 | |||||
DZD | 77,589 | DZD | 77,589 | |||||||
General guarantee |
Shinhan Bank | (Won) | 26,398 | (Won) | 26,398 | |||||
Korea Exchange Bank | 3,600 | | ||||||||
Guarantee for import letter of credit |
Korea Exchange Bank | USD | 5,000 | USD | | |||||
Others |
Industrial Bank of Korea | USD | 400 | USD | 400 |
1 | The maturities of guarantee contracts have lapsed. However, due to the two-year statute of limitations the Company still receives guarantees amounting to (Won)159,903 million from Korea Software Financial Cooperative as of December 31, 2010. |
As of December 31, 2010, guarantees provided by the Company for third parties are as follows:
(In millions of Korean won) | Creditor |
Limit | ||||
Eun-haeng 1-area urban environment Improving project union |
Kookmin Bank | (Won) | 2,600 | |||
General guarantee |
KEPCO Corp. and others | 193 | ||||
Defective guarantee |
Samsung C&T Corporation and others | 19 | ||||
Performance guarantee |
National Federations of Fisheries Cooperative and others | 41 | ||||
Permission guarantee and others |
Seobu Regional Forest Management Office and others | 59 | ||||
Other Project Financing |
NH Investment & Securities Co. Ltd and others | 35,169 | ||||
Employee Stock Ownership |
Hana Bank | 154 |
As of December 31, 2010, 127 lawsuits have been filed against the Company as a defendant, with an aggregate amount of (Won)220,300 million. As of December 31, 2010, litigation provision in
F-53
relation to the potential loss amounted to (Won)23,560 million and is recorded as liabilities. The final outcome of these cases cannot yet be determined as of the report date.
As of December 31, 2010, the Companys investment in Smart Channel Co., Ltd. (formerly Mediapuff Plus) is pledged as collateral for the investees borrowings.
As of December 31, 2010, KT Capital has an agreement with construction developers to provide a loan covering up to (Won)38,000 million when the construction developers cannot redeem the project financing loan for construction at a maturity date due to the unsold apartments. Under the agreement, KT Capital has rights over the unsold apartments as collateral.
As of December 31, 2010, KT Rental media, one of the subsidiaries, provided two blank promissory notes to several financial institutions as collaterals for the performance guarantee.
In accordance with the debt covenant between KT Rental and the creditor group consisting of Korea Development Bank and National Federation of Fisheries Cooperatives, KT Rental should maintain its ratio of net borrowings to EBITA(Earnings Before Interest, Tax and Amortization) less than four as of each fiscal year end and report the calculation details of this ratio to an agent bank within 90 days from each fiscal year end. In case, KT Rental can not fulfill this condition, the creditors group is entitled to demand early repayment.
As of December 31, 2010, KT Music recorded accrued expenses of (Won)1,124 million as it is probable that Fair Trade Committee will impose the penalty due to price fixing among the on-line music service providers.
As of December 31, 2010, Telecop Service Co., Ltd. and KT Linkus Co., Ltd. have the joint responsibility to pay for the liabilities that KT Linkus Co., Ltd. incurred before its spin-off. Also, KTR Co., Ltd. and KT Rental Co., Ltd. have the joint responsibility to pay for the liabilities that KT Rental Co., Ltd. incurred before its spin-off.
19. Assets and Liabilities denominated in Foreign Currencies
Major assets and liabilities denominated in foreign currencies as of December 31, 2010 and 2009, are summarized as follows:
2010.12.31 | 2009.12.31 | |||||||||||||||||||||||
(In millions of Korean won and thousands of foreign currencies) |
Foreign Currencies |
Korean Won |
Foreign Currencies |
Korean Won |
||||||||||||||||||||
Cash and cash equivalents |
USD | 7,997 | (Won) | 9,108 | USD | 24,013 | (Won) | 28,038 | ||||||||||||||||
JPY | 6,271 | 93 | JPY | 702 | 9 | |||||||||||||||||||
EUR | | | EUR | 65 | 110 | |||||||||||||||||||
GBP | | | GBP | 10 | 19 | |||||||||||||||||||
Short-term investment assets |
USD | 15,327 | 17,456 | USD | 15,327 | 17,896 | ||||||||||||||||||
Accounts receivable |
USD | 132,658 | 151,084 | USD | 150,281 | 175,468 | ||||||||||||||||||
JPY | 36,900 | 516 | JPY | 78,500 | 991 | |||||||||||||||||||
SDR | 5,721 | 10,098 | SDR | 15,225 | 27,767 | |||||||||||||||||||
EUR | 237 | 359 | EUR | 211 | 353 | |||||||||||||||||||
AUD | | | AUD | 13 | 14 | |||||||||||||||||||
Loans receivable |
USD | 23,538 | 26,808 | USD | 35,769 | 41,764 | ||||||||||||||||||
Accounts receivable |
USD | 390 | 444 | USD | 438 | 512 | ||||||||||||||||||
Guarantee deposits paid |
USD | | | USD | 557 | 650 | ||||||||||||||||||
Accounts payable |
USD | 103,757 | 118,168 | USD | 119,636 | 139,687 | ||||||||||||||||||
JPY | 240 | 3 | JPY | 9,885 | 125 |
F-54
2010.12.31 | 2009.12.31 | |||||||||||||||||||||||
(In millions of Korean won and thousands of foreign currencies) |
Foreign Currencies |
Korean Won |
Foreign Currencies |
Korean Won |
||||||||||||||||||||
SDR | 4,256 | 7,512 | SDR | 8,566 | 16,841 | |||||||||||||||||||
EUR | 153 | 232 | EUR | 103 | 172 | |||||||||||||||||||
Other accounts payable |
USD | 2,483 | 2,827 | USD | 125 | 146 | ||||||||||||||||||
JPY | 238 | 3 | JPY | 1,653 | 21 | |||||||||||||||||||
GBP | 44 | 77 | GBP | 51 | 96 | |||||||||||||||||||
EUR | 113 | 170 | EUR | | | |||||||||||||||||||
KWD | | | KWD | 288 | 483 | |||||||||||||||||||
Bonds (par value) |
USD | 2,230,000 | 2,539,747 | USD | 2,130,000 | 2,486,988 | ||||||||||||||||||
JPY | 19,500,000 | 272,431 | JPY | 19,500,000 | 246,250 | |||||||||||||||||||
Long-term borrowings |
USD | 61,713 | 70,355 | USD | 114,683 | 133,904 | ||||||||||||||||||
JPY | 17,314 | 242 | JPY | 38,645 | 488 | |||||||||||||||||||
EUR | 116 | 175 | EUR | | | |||||||||||||||||||
Withholdings |
USD | | | USD | 728 | 850 | ||||||||||||||||||
Accrued expenses |
USD | 330 | 376 | USD | 350 | 409 | ||||||||||||||||||
EUR | 39 | 59 | EUR | 15 | 25 | |||||||||||||||||||
Deposits received |
USD | 644 | 733 | USD | 14 | 16 | ||||||||||||||||||
Others |
USD | 1,018 | 1,159 | USD | | |
As of December 31, 2010, the Company recognized (Won)65,793 million (2009: (Won)240,925 million) and (Won)31,871 million (2009: (Won)17,893 million) of foreign currency translation gain and loss as non-operating income and expense, respectively.
20. Common Stock
As of December 31, 2010, the Controlling Companys number of authorized shares is one billion, and the details of common stock are as follows:
2010.12.31 | 2009.12.31 | |||||||||||||||||||||||
Number of outstanding shares |
Par value per share (Korean won) |
Common stock (In millions of Korean won) |
Number of outstanding shares |
Par value per share (Korean won) |
Common stock (In millions of Korean won) |
|||||||||||||||||||
Common stock 1 |
261,111,808 | (Won) | 5,000 | (Won) | 1,564,499 | 261,111,808 | (Won) | 5,000 | (Won) | 1,564,499 |
1 | The Controlling Company retired 51,787,959 treasury shares against retained earnings. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by (Won)5,000 par value per share of common stock. |
21. Treasury Stock
The details in treasury stock owned by the Controlling Company as of December 31, 2010 and 2009, are as follows:
2010.12.31 | 2009.12.31 | |||||||
Number of shares |
17,895,964 | 17,915,340 | ||||||
Amounts (In millions of Korean won) |
(Won) | 955,083 | (Won) | 956,159 |
Treasury stock is expected to be used for stock compensation for the Companys directors and employees and other purposes.
22. Share-Based Payments
The Companys share-based compensation programs include the employee stock options and stock grants. The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors, including grants of employee stock options and employee stock grants.
F-55
The fair value of awards granted that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.
Stock Options
The Company has granted stock options to its executive officers and directors as of December 31, 2010 in accordance with the stock option plan approved by its board of directors, details of which are as follows:
KT Co. | KT Hitel | |||||||||||||||
4th grant | KTF-4th 1 | 1st grant | 2nd grant | |||||||||||||
Grant date |
2005.2.4 | 2005.3.4 | 2010.8.27 | 2010.10.14 | ||||||||||||
Grantee |
Former executives |
Former executives and former outside directors |
Former executives |
Former executives |
||||||||||||
Number of basic allocated shares upon grant |
50,800 | 92,637 | 165,923 | 140,741 | ||||||||||||
Number of additional shares related to business performance upon grant |
20,000 | | | | ||||||||||||
Number of shares expected to be exercised upon grant |
60,792 | 92,637 | 165,923 | 140,741 | ||||||||||||
Number of settled or forfeited shares |
(10,800 | ) | (13,437 | ) | | | ||||||||||
Number of expired shares as of December 31, 2010 |
| | | | ||||||||||||
Number of settled or forfeited additional shares related to business performance |
(19,847 | ) | | | | |||||||||||
Number of allocated shares as of December 31, 2010 |
40,000 | 79,200 | 165,923 | 140,741 | ||||||||||||
Number of additional shares related to business performance as of December 31, 2010 |
3,153 | | | | ||||||||||||
Total number of shares as of December 31, 2010 |
43,153 | 79,200 | 165,923 | 140,741 | ||||||||||||
Number of shares expected to be exercised |
43,153 | 79,200 | 165,923 | 140,741 | ||||||||||||
Fair value per share (in Korean won) |
(Won) | 12,322 | (Won) | 4,328 | (Won) | 3,435 | (Won) | 3,332 | ||||||||
Total compensation cost (in millions of Korean won) |
(Won) | 531 | (Won) | 343 | (Won) | 570 | (Won) | 469 | ||||||||
Exercise price per share |
(Won) | 54,600 | (Won) | 42,684 | (Won) | 6,750 | (Won) | 8,060 | ||||||||
Exercise period |
|
2007.02.05~ 2012.02.04 |
|
|
2007.03.05~ 2012.03.04 |
|
|
2012.08.27~ 2015.08.26 |
|
|
2012.10.14~ 2015.10.13 |
| ||||
Valuation method |
|
Black-scholes model |
|
|
Black-scholes model |
|
|
Black-scholes model |
|
|
Black-scholes model |
|
1 | The stock options granted to the directors, officers or employees of KTF prior to the merger were converted into KT stock options on June 1, 2009, granting the rights to purchase the stock of KT based on the merger ratio. |
Upon exercise, the Company can elect one of the following settlement methods: issuance of new shares, issuance of treasury stock or cash settlement, subject to certain circumstances.
The stock option of KT Hitel is a cash settlement option.
The Company adopted the fair value method to measure compensation costs based on the various valuation assumptions and methods, which are as follows:
KT Co. | KT Hitel | |||||||||||||||
4th grant | KTF-4th 1 | 1st grant | 2nd grant | |||||||||||||
Risk free interest rate |
4.43 | % | 2.78 | % | 3.38 | % | 3.38 | % | ||||||||
Expected duration(year) |
4.5 ~ 5.5 | 1.5 | 3.5 | 3.5 | ||||||||||||
Expected volatility |
33.41% ~ 42.13 | % | 35.03 | % | 59.04 | % | 59.04 | % | ||||||||
Expected dividend yield ratio |
5.86 | % | 3.54 | % | 0.00 | % | 0.00 | % |
F-56
1 | The compensation costs for the stock options granted to the directors, officers or employees of KTF were recalculated considering risk-free rate, expected duration and other on the date of the merger. |
Of the total compensation costs calculated using the fair value method, the compensation costs recognized for the year ended December 31, 2010 are as follows:
KT Co. | KT Hitel | |||||||||||||||||||
(In millions of Korean won) |
4th grant | KTF-4th | 1st grant | 2nd grant | Total | |||||||||||||||
Total compensation costs before adjustment |
(Won) | 749 | (Won) | 343 | (Won) | 689 | (Won) | 525 | (Won) | 2,306 | ||||||||||
Total compensation costs cancelled |
(218 | ) | | | | (218 | ) | |||||||||||||
Total compensation costs after adjustment |
531 | 343 | 689 | 525 | 2,088 | |||||||||||||||
Compensation costs recognized in prior periods |
531 | 343 | | | 874 | |||||||||||||||
Compensation costs recognized in the current period |
| | 119 | 56 | 175 | |||||||||||||||
Compensation costs to be recognized after the current period |
| | 570 | 469 | 1,039 |
Other share-based compensation
The Company provided stock grants subject to both the service period and business performance goals.
The fair value of each stock grant awarded was estimated on the date of grant for performance based grants assuming that performance goals will be achieved. The expected term for grants is generally one year. The stock grants are settled with the new shares issued or treasury stock owned by the Company upon vesting. The fair value is based on the market price of the Companys stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting
The details of stocks grants as of December 31, 2010 are as follows:
4th grant | ||
Grant date |
2010.4.29 | |
Grantee |
CEOs, inside directors, outside directors, executives | |
Estimated number of shares granted |
142,436 shares | |
Estimated number of shares to be exercisable |
142,436 shares | |
Vesting conditions (both conditions required) |
Service condition: 1 year Non-market performance condition: achievement of performance | |
Fair value per option (in Korean won) |
(Won)47,700 | |
Total compensation costs (in Korean won) |
(Won)6,794 million | |
Estimated exercise date (exercise date) |
During 2011 | |
Valuation method |
Fair value method |
Above compensation costs were calculated based on the fair value method and were charged to current operations as follows:
(In millions of Korean won) |
4th grant | |||
Total compensation costs |
(Won) | 6,794 | ||
Compensation costs recognized in prior periods |
| |||
Compensation costs recognized in the current period |
6,794 | |||
Compensation costs to be recognized after the current period |
|
F-57
23. Retained Earnings
The Commercial Code of the Republic of Korea requires the Controlling Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock with the approval of the Controlling Companys Board of Directors or used to reduce accumulated deficit, if any, with the ratification of the Controlling Companys majority shareholders.
The Controlling Company appropriates a certain portion of retained earnings, pursuant to a shareholder resolution, as voluntary reserves. These reserves may be reversed and transferred to unappropriated retained earnings through a resolution of shareholders, and may be distributed as dividends after the reversal.
24. Operating Revenues
Operating revenues for the years ended December 31, 2010, 2009 and 2008 are as follows:
(In millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Internet |
(Won) | 2,567,001 | (Won) | 2,448,607 | (Won) | 2,481,171 | ||||||
Data communication |
1,309,010 | 1,313,936 | 1,335,769 | |||||||||
Fixed-line telephone |
4,269,782 | 4,696,980 | 5,199,534 | |||||||||
PCS |
7,083,345 | 6,646,389 | 6,424,414 | |||||||||
Goods sold 1 |
4,395,230 | 3,396,886 | 3,065,858 | |||||||||
Other operating revenues 2 |
1,706,945 | 1,141,014 | 1,080,496 | |||||||||
Operating revenues |
(Won) | 21,331,313 | (Won) | 19,643,812 | (Won) | 19,587,242 | ||||||
1 | Goods sold represent revenue from the sale of handsets and others. |
2 | Revenues from the system integration and real estate are included. |
Details of construction contracts, related to the other operating revenue, as of December 31, 2010, 2009 and 2008 are as follows:
2010 | ||||||||||||||||||||
(In millions of Korean won and us dollars in thousands) |
Beginning contract balance |
Increase | Change in contracts |
Recognized as revenue |
Ending contract balance |
|||||||||||||||
Bugae-dong, Incheon |
(Won) | 4,335 | (Won) | | (Won) | | (Won) | (4,335 | ) | (Won) | | |||||||||
Sungsu-dong, Seoul (Factory building) |
18,714 | | | (18,714 | ) | | ||||||||||||||
Garak-dong, Seoul (Office building) |
40,733 | | | (28,905 | ) | 11,828 | ||||||||||||||
Yeongdeungpo-gu, Seoul (Factory building) |
| 146,733 | | (6,417 | ) | 140,316 | ||||||||||||||
Incheon rural IT facility construction |
2,295 | | | (1,423 | ) | 872 | ||||||||||||||
Pyeongtaek Cheongbuk area land development electrical facility construction |
1,130 | | 500 | (1,630 | ) | | ||||||||||||||
Dang-dong, Gunpo (2)C-1BL apartment IT facility construction Section 4 |
2,734 | | | (355 | ) | 2,379 | ||||||||||||||
DC link construction between Jindo and Jeju |
|
USD 82,367 11,436 |
|
|
|
|
|
|
|
|
(USD 25,990 (3,609 |
) ) |
|
USD 56,377 7,827 |
| |||||
Submarine cable construction between Wando and Chungsando, Jeonnam |
| 10,255 | | (1,865 | ) | 8,390 | ||||||||||||||
Test solar concentrator |
| 1,182 | | (1,182 | ) | | ||||||||||||||
Buoy installation |
| 871 | | (871 | ) | | ||||||||||||||
Ocean Bottom Seismometer |
| 1,016 | | (1,016 | ) | | ||||||||||||||
Others |
439 | | | | 439 | |||||||||||||||
APCN2 submarine cable repair work |
| USD 1,713 | | (USD 1,713 | ) | | ||||||||||||||
Total (Korean won) |
(Won) | 81,816 | (Won) | 160,057 | (Won) | 500 | (Won) | (70,322 | ) | (Won) | 172,051 | |||||||||
Total (USD) |
USD 82,367 | USD 1,713 | | (USD 27,703 | ) | USD 56,377 | ||||||||||||||
F-58
2009 | ||||||||||||||||||||
(In millions of Korean won and us dollars in thousands) |
Beginning contract balance |
Increase | Change in contracts |
Recognized as revenue |
Ending contract balance |
|||||||||||||||
Bugae-dong, Incheon |
(Won) | 78,872 | (Won) | | (Won) | | (Won) | (74,537 | ) | (Won) | 4,335 | |||||||||
Sungsu-dong, Seoul (Hyundai apartment) |
13,528 | | | (13,528 | ) | | ||||||||||||||
Sungsu-dong, Seoul (Factory building) |
64,477 | | | (45,763 | ) | 18,714 | ||||||||||||||
Garak-dong, Seoul (Office building) |
| 48,873 | | (8,140 | ) | 40,733 | ||||||||||||||
Deep ocean water intake and drainage facilities construction |
| | 716 | (716 | ) | | ||||||||||||||
Incheon rural IT facility construction |
2,998 | | 224 | (927 | ) | 2,295 | ||||||||||||||
Pyeongtaek Cheongbuk area land development electrical facility construction |
| 4,113 | 2,728 | (5,711 | ) | 1,130 | ||||||||||||||
Marine research technical service for DC link construction between Jindo and Jeju |
| 2,013 | (31 | ) | (1,982 | ) | | |||||||||||||
DC link construction between Jindo and Jeju |
| USD 82,367 | | | USD 82,367 | |||||||||||||||
| 11,436 | | | 11,436 | ||||||||||||||||
Dang-dong, Gunpo (2)C-1BL apartment IT facility construction Section4 |
| 2,790 | | (56 | ) | 2,734 | ||||||||||||||
Others |
439 | 421 | (20 | ) | (401 | ) | 439 | |||||||||||||
TPE submarine cable construction |
USD 3,044 | | | (USD 3,044 | ) | | ||||||||||||||
AAG submarine cable repair work |
USD 1,228 | | USD 790 | (USD 2,018 | ) | | ||||||||||||||
RJK cable system dismantlement |
| USD 1,927 | (USD 241 | ) | (USD 1,686 | ) | | |||||||||||||
APCN2 submarine cable repair work |
| USD 1,953 | | (USD 1,953 | ) | | ||||||||||||||
TPE 3M PLIB construction |
| USD 3,595 | (USD 154 | ) | (USD 3,441 | ) | | |||||||||||||
Total (Korean won) |
(Won) | 160,314 | (Won) | 69,646 | (Won) | 3,617 | (Won) | (151,761 | ) | (Won) | 81,816 | |||||||||
Total (USD) |
USD 4,272 | USD 89,842 | USD 395 | (USD12,142 | ) | USD 82,367 | ||||||||||||||
2008 | ||||||||||||||||||||
(In millions of Korean won and us dollars in thousands) |
Beginning contract balance |
Increase | Change in contracts |
Recognized as revenue |
Ending contract balance |
|||||||||||||||
Jeongja-dong, Suwon |
279 | | | (279 | ) | | ||||||||||||||
Bugae-dong, Incheon |
157,092 | | | (78,220 | ) | 78,872 | ||||||||||||||
Sungsu-dong, Seoul (Hyundai apartment) |
63,836 | | | (50,308 | ) | 13,528 | ||||||||||||||
Sungsu-dong, Seoul (Factory building) |
| 64,689 | | (212 | ) | 64,477 | ||||||||||||||
NAIMS system construction work/ Cable raising and laying |
714 | | 80 | (794 | ) | | ||||||||||||||
Deep ocean water intake and drainage facilities construction |
| 13,850 | | (13,850 | ) | | ||||||||||||||
Incheon rural IT facility construction |
| 3,631 | | (633 | ) | 2,998 | ||||||||||||||
Electrical facility construction Section 1 in Highway between busan- and Ulsan |
| 2,446 | 830 | (3,276 | ) | | ||||||||||||||
Maintenance of HVDC submarine cable, construction of protecting facilities for remained section |
| 852 | 81 | (933 | ) | | ||||||||||||||
Others |
| 1,735 | 13 | (1,309 | ) | 439 | ||||||||||||||
TPE submarine cable construction |
USD 11,022 | | USD 14,096 | USD (22,074 | ) | USD 3,044 | ||||||||||||||
KOC submarine cable construction |
USD 1,151 | | | USD (1,151 | ) | | ||||||||||||||
AAG submarine cable construction |
| USD 8,900 | USD 722 | USD (9,622 | ) | | ||||||||||||||
AAG submarine cable repair work |
| USD 2,761 | | USD (1,533 | ) | USD 1,228 | ||||||||||||||
JAKABARE cable system PLGR work |
| USD 1,215 | | USD (1,215 | ) | | ||||||||||||||
Total(Korean won) |
(Won) | 221,921 | (Won) | 87,203 | (Won) | 1,004 | (Won) | (149,814 | ) | (Won) | 160,314 | |||||||||
Total(USD) |
USD 12,173 | USD 12,876 | USD 14,818 | (USD 35,595 | ) | USD 4,272 | ||||||||||||||
F-59
During the years ended December 31, 2010, 2009 and 2008, the changes in remaining contract balance of major system integration business included in other operating revenue are as follows:
2010 | ||||||||||||||||
(In millions of Korean won) |
Beginning contract balance |
Increase | Recognized as revenue |
Ending contract balance |
||||||||||||
Lease type private investment of advanced U-City broadband information network CCTV Construction, Ansan |
(Won) | 2,043 | (Won) | | (Won) | (2,043 | ) | (Won) | | |||||||
Construction of information highway, Busan |
11,393 | | (346 | ) | 11,047 | |||||||||||
Construction and support for infrastructure and service operation of digital textbook research school |
68 | | (68 | ) | | |||||||||||
Second phase construction of national defense transportation information system |
5,587 | | (2,568 | ) | 3,019 | |||||||||||
System integration of SMRT Mall IT and advertising facility construction in Seoul Metropolitan Rapid Transit Corporation |
| 69,759 | (61,409 | ) | 8,350 | |||||||||||
Management and operation of SMRT Mall business |
| 82,000 | (4,762 | ) | 77,238 | |||||||||||
Total |
(Won) | 19,091 | (Won) | 151,759 | (Won) | (71,196 | ) | (Won) | 99,654 | |||||||
2009 | ||||||||||||||||
(In millions of Korean won) |
Beginning contract balance |
Increase | Recognized as revenue |
Ending contract balance |
||||||||||||
Lease type private investment of advanced U-City broadband information network CCTV Construction, Ansan |
(Won) | | (Won) | 13,116 | (Won) | (11,073 | ) | (Won) | 2,043 | |||||||
Construction of information highway, Busan |
12,612 | | (1,219 | ) | 11,393 | |||||||||||
Construction and support for infrastructure and service operation of digital textbook research school |
| 9,727 | (9,659 | ) | 68 | |||||||||||
Second phase construction of national defense transportation information system |
| 7,973 | (2,386 | ) | 5,587 | |||||||||||
Total |
(Won) | 12,612 | (Won) | 30,816 | (Won) | (24,337 | ) | (Won) | 19,091 | |||||||
2008 | ||||||||||||||||
(In millions of Korean won) |
Beginning contract balance |
Increase | Recognized as revenue |
Ending contract balance |
||||||||||||
Construction of information highway, Busan |
22,781 | | (10,169 | ) | 12,612 | |||||||||||
Construction of U-City, Hwaseong Dongtan |
423 | | (423 | ) | | |||||||||||
Extension of combined Wireless communications, The National Emergency Management Agencys |
115 | | (115 | ) | | |||||||||||
Second phase in the Establishment of system, National Health Services IP customer services |
7,808 | | (7,808 | ) | | |||||||||||
Construction of Frequency resource analysis system |
1,603 | | (1,603 | ) | | |||||||||||
Second phase in the construction of U-City, Hwaseong Dongtan |
| 9,883 | (9,883 | ) | | |||||||||||
Adoption of Navys main computer system-08 |
| 8,951 | (8,951 | ) | | |||||||||||
Total |
(Won) | 32,730 | (Won) | 18,834 | (Won) | (38,952 | ) | (Won) | 12,612 | |||||||
F-60
25. Operating Expenses
Operating expenses for the years ended December 31, 2010, 2009 and 2008 are as follows:
(In millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Salaries and wages |
(Won) | 2,162,812 | (Won) | 2,192,935 | (Won) | 2,267,967 | ||||||
Provision for severance benefits |
242,770 | 1,128,352 | 360,968 | |||||||||
Employee welfare |
374,300 | 587,011 | 565,738 | |||||||||
Utilities |
254,085 | 250,664 | 248,777 | |||||||||
Taxes and dues |
240,050 | 207,234 | 269,168 | |||||||||
Rent |
278,049 | 257,405 | 249,101 | |||||||||
Depreciation |
2,819,639 | 2,873,831 | 3,213,917 | |||||||||
Amortization |
360,044 | 402,792 | 410,458 | |||||||||
Repairs and maintenance |
551,389 | 500,203 | 580,333 | |||||||||
Commissions |
1,450,286 | 1,261,852 | 1,353,903 | |||||||||
Advertising |
195,759 | 182,032 | 221,754 | |||||||||
Research |
268,802 | 239,508 | 235,508 | |||||||||
Interconnection charges |
1,245,451 | 1,227,088 | 1,234,473 | |||||||||
Cost of services |
804,108 | 581,762 | 525,948 | |||||||||
International call settlement |
284,849 | 263,749 | 263,464 | |||||||||
Cost of goods sold |
4,086,813 | 3,118,512 | 2,364,669 | |||||||||
Promotion |
1,227,632 | 1,121,880 | 1,080,089 | |||||||||
Sales commission |
1,621,430 | 1,804,583 | 2,129,675 | |||||||||
Provision for doubtful accounts |
171,195 | 103,852 | 147,190 | |||||||||
Other |
569,764 | 406,289 | 461,524 | |||||||||
Total |
19,209,227 | 18,711,534 | 18,184,624 | |||||||||
Less : Transfer to other accounts |
(52,996 | ) | (38,269 | ) | (40,197 | ) | ||||||
Net |
(Won) | 19,156,231 | (Won) | 18,673,265 | (Won) | 18,144,427 | ||||||
26. Income Tax Expense
Income tax expense for the years ended December 31, 2010, 2009 and 2008, consists of:
The components of income tax expense
(In millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Current income tax expense |
(Won) | 354,525 | (Won) | 144,272 | (Won) | 294,620 | ||||||
Changes in deferred income tax assets and liabilities related to temporary differences |
(75,344 | ) | (28,985 | ) | (74,116 | ) | ||||||
Changes in deferred income tax assets and liabilities related to tax credits |
80,328 | (38,020 | ) | (59,547 | ) | |||||||
Changes in deferred income tax assets and liabilities directly reflected in shareholders equity |
8,925 | 1,044 | 3,000 | |||||||||
Income tax expense directly added to shareholders equity |
94 | 31,539 | 50 | |||||||||
Others |
3,315 | (2,087 | ) | 3,852 | ||||||||
Income tax expense |
(Won) | 371,843 | (Won) | 107,763 | (Won) | 167,859 | ||||||
Deferred tax assets and liabilities directly reflected in shareholders equity
(In millions of Korean won) |
2010 | 2009 | ||||||||||
Gain on valuation of available-for-sale securities |
(Won) | (2,519 | ) | (Won) | (2,023 | ) | ||||||
Loss on valuation of available-for-sale securities |
177 | 14 | ||||||||||
Increase in equity of associates |
(438 | ) | (252 | ) | ||||||||
Decrease in equity of associates |
7,606 | 1,386 | ||||||||||
Gain and loss on valuation of derivatives |
10,458 | 530 | ||||||||||
Other capital adjustments |
(5,443 | ) | 1,261 | |||||||||
Total |
(Won) | 9,841 | (Won) | 916 | ||||||||
F-61
A reconciliation of the income tax expense and the income before income tax expense
(In millions of Korean won) |
2010 | 2009 | 2008 | |||||||||||||||||||||
Income before income tax expense |
(Won) | 1,561,773 | (Won) | 719,275 | (Won) | 710,176 | ||||||||||||||||||
Expected tax expense at statutory tax rate |
(Won) | 395,533 | (Won) | 174,064 | (Won) | 195,285 | ||||||||||||||||||
Differences |
||||||||||||||||||||||||
Non-taxable benefit |
(4,750 | ) | (4,473 | ) | | |||||||||||||||||||
Non-deductible expense |
29,874 | 27,147 | 25,412 | |||||||||||||||||||||
Impact of not recording deferred taxes on certain temporary differences |
(5,631 | ) | 4,507 | 83,892 | ||||||||||||||||||||
Changes in tax adjustment, additional income tax and tax refund for prior periods |
8,678 | 12,758 | (4,377 | ) | ||||||||||||||||||||
Tax credit carryforwards and deductions |
(54,658 | ) | (110,969 | ) | (203,070 | ) | ||||||||||||||||||
Changes in tax rates |
7,023 | 3,194 | 72,839 | |||||||||||||||||||||
Others, net |
(4,226 | ) | (23,690 | ) | 1,535 | (66,301 | ) | (2,122 | ) | (27,426 | ) | |||||||||||||
Income tax expense |
(Won) | 371,843 | (Won) | 107,763 | (Won) | 167,859 | ||||||||||||||||||
Effective tax rate |
23.8 | % | 14.98 | % | 23.64 | % | ||||||||||||||||||
Deferred tax assets and liabilities from the tax effects of temporary differences, including available tax credit carryforwards
2010 | ||||||||||||||||||||
Temporary Differences | Deferred Income Tax Assets (Liabilities) |
|||||||||||||||||||
(In millions of Korean won) |
Beginning Balance |
Increase (Decrease) |
Ending Balance |
Beginning Balance |
Ending Balance |
|||||||||||||||
Deferred tax arising from temporary differences |
||||||||||||||||||||
Deferred tax arising from temporary differences |
||||||||||||||||||||
Allowance for doubtful accounts |
(Won) | 511,003 | (Won) | 31,972 | (Won) | 542,975 | (Won) | 122,873 | (Won) | 126,675 | ||||||||||
Derivatives |
(132,351 | ) | (3,564 | ) | (135,915 | ) | (27,959 | ) | (30,583 | ) | ||||||||||
Inventory valuation reserve |
| 4,656 | 4,656 | | 1,125 | |||||||||||||||
Available-for-sale securities |
41,606 | (4,338 | ) | 37,268 | 9,154 | 8,495 | ||||||||||||||
Equity method investments |
58,035 | 44,169 | 102,204 | 12,773 | 22,513 | |||||||||||||||
Depreciation |
101,206 | 61,589 | 162,795 | 22,265 | 35,471 | |||||||||||||||
Contribution for construction |
178,624 | (35,782 | ) | 142,842 | 39,297 | 31,202 | ||||||||||||||
Inventories |
6,633 | (5,431 | ) | 1,202 | 1,174 | 291 | ||||||||||||||
Accrued expenses |
140,169 | 222,531 | 362,700 | 33,918 | 87,997 | |||||||||||||||
Provisions |
58,338 | 92,485 | 150,823 | 13,919 | 34,176 | |||||||||||||||
Provision for severance indemnities |
1,157,978 | (302,469 | ) | 855,509 | 254,760 | 188,409 | ||||||||||||||
Refundable deposits for telephone installation |
43,677 | (1,484 | ) | 42,193 | 9,609 | 9,283 | ||||||||||||||
Accrued revenues |
(7,657 | ) | 4,288 | (3,369 | ) | (1,855 | ) | (818 | ) | |||||||||||
Deposits for severance benefits |
(1,136,144 | ) | 290,344 | (845,800 | ) | (250,007 | ) | (186,019 | ) | |||||||||||
Reserve for technology and human resource development |
| (3,900 | ) | (3,900 | ) | | (858 | ) | ||||||||||||
Others |
935,826 | (44,719 | ) | 891,107 | 217,541 | 212,448 | ||||||||||||||
Tax loss carryforwards |
281,201 | (15,054 | ) | 266,147 | 61,882 | 60,999 | ||||||||||||||
Total |
2,238,144 | 335,293 | 2,573,437 | 519,344 | 600,806 | |||||||||||||||
Not recognized as deferred income tax assets |
(623,401 | ) | (26,636 | ) | (650,037 | ) | (138,740 | ) | (144,858 | ) | ||||||||||
Recognized as deferred income tax assets |
(Won) | 1,614,743 | (Won) | 308,657 | (Won) | 1,923,400 | 380,604 | 455,948 | ||||||||||||
Deferred tax assets arising from the carryforwards |
||||||||||||||||||||
Total tax credit carryforwards |
(Won) | 195,983 | (Won) | (89,372 | ) | (Won) | 106,611 | 195,983 | 88,794 | |||||||||||
Not recognized as deferred income tax assets |
(26,861 | ) | 18,910 | (7,951 | ) | (26,861 | ) | | ||||||||||||
Recognized as deferred income tax assets |
(Won) | 169,122 | (Won) | (70,462 | ) | (Won) | 98,660 | 169,122 | 88,794 | |||||||||||
Net deferred income tax assets |
(Won) | 549,725 | (Won) | 544,742 | ||||||||||||||||
Current deferred income tax assets |
(Won) | 437,525 | (Won) | 363,492 | ||||||||||||||||
Non-current deferred income tax assets |
113,266 | 185,724 | ||||||||||||||||||
Current deferred income tax liabilities |
(1 | ) | (1,817 | ) | ||||||||||||||||
Non-current deferred income tax liabilities |
(1,065 | ) | (2,657 | ) |
F-62
2009 | ||||||||||||||||||||
Temporary Differences | Deferred Income Tax Assets (Liabilities) |
|||||||||||||||||||
(in millions of Korean won) |
Beginning Balance |
Increase (Decrease) |
Ending Balance |
Beginning Balance |
Ending Balance |
|||||||||||||||
Deferred tax arising from temporary differences |
||||||||||||||||||||
Allowance for doubtful accounts |
(Won) | 497,672 | (Won) | 13,331 | (Won) | 511,003 | (Won) | 119,855 | (Won) | 122,873 | ||||||||||
Derivatives |
(479,015 | ) | 346,664 | (132,351 | ) | (108,503 | ) | (27,959 | ) | |||||||||||
Available-for-sale securities |
39,337 | 2,269 | 41,606 | 8,840 | 9,154 | |||||||||||||||
Equity method investment securities |
1,455,549 | (1,397,514 | ) | 58,035 | 320,220 | 12,773 | ||||||||||||||
Depreciation |
(23,595 | ) | 124,801 | 101,206 | (5,191 | ) | 22,265 | |||||||||||||
Contribution for construction |
233,106 | (54,482 | ) | 178,624 | 51,283 | 39,297 | ||||||||||||||
Inventories |
20,392 | (13,759 | ) | 6,633 | 4,543 | 1,174 | ||||||||||||||
Accrued expenses |
222,590 | (82,421 | ) | 140,169 | 53,825 | 33,918 | ||||||||||||||
Provisions |
182,556 | (124,218 | ) | 58,338 | 43,422 | 13,919 | ||||||||||||||
Provision for severance indemnities |
1,152,303 | 5,675 | 1,157,978 | 253,508 | 254,760 | |||||||||||||||
Refundable deposits for telephone installation |
50,932 | (7,255 | ) | 43,677 | 11,205 | 9,609 | ||||||||||||||
Accrued revenues |
(11,652 | ) | 3,995 | (7,657 | ) | (2,798 | ) | (1,855 | ) | |||||||||||
Deposits for severance benefits |
(1,111,846 | ) | (24,298 | ) | (1,136,144 | ) | (244,640 | ) | (250,007 | ) | ||||||||||
Reserve for technology and human resource development |
(106,667 | ) | 106,667 | | (25,813 | ) | | |||||||||||||
Others |
1,140,412 | (204,586 | ) | 935,826 | 256,236 | 217,541 | ||||||||||||||
Tax loss carryforwards |
223,560 | 57,641 | 281,201 | 49,183 | 61,882 | |||||||||||||||
Total |
3,485,634 | (Won) | (1,247,490 | ) | 2,238,144 | 785,175 | 519,344 | |||||||||||||
Not recognized as deferred income tax assets |
(1,962,652 | ) | (623,401 | ) | (433,556 | ) | (138,740 | ) | ||||||||||||
Recognized as deferred income tax assets |
(Won) | 1,522,982 | (Won) | 1,614,743 | (Won) | 351,619 | (Won) | 380,604 | ||||||||||||
Deferred tax assets arising from the carryforwards |
||||||||||||||||||||
Total tax credit carryforwards |
(Won) | 153,193 | (Won) | 42,790 | (Won) | 195,983 | 153,193 | 195,983 | ||||||||||||
Not recognized as deferred income tax assets |
(22,091 | ) | (26,861 | ) | (22,091 | ) | (26,861 | ) | ||||||||||||
Recognized as deferred income tax assets |
(Won) | 131,102 | (Won) | 169,122 | 131,102 | 169,122 | ||||||||||||||
Net deferred income tax assets |
(Won) | 482,721 | (Won) | 549,725 | ||||||||||||||||
Current deferred income tax assets |
(Won) | 249,941 | (Won) | 437,525 | ||||||||||||||||
Non-current deferred income tax assets |
235,514 | 113,266 | ||||||||||||||||||
Current deferred income tax liabilities |
| (1 | ) | |||||||||||||||||
Non-current deferred income tax liabilities |
(2,734 | ) | (1,065 | ) |
The possibility of realization on deferred tax asset depends on many factors, such as the Companys ability, overall economic environment, and industry prospects, within the realization period of temporary differences. The Company assesses such factors periodically, and recognizes the deferred tax assets as of December 31, 2010, as all deductable temporary differences are considered realizable. However, the Company did not recognize the income tax assets resulting from the net operating loss carryforwards and equity-method investments to the extent the Company does not expect the related temporary differences to be reversed within the foreseeable future.
F-63
27. Income From Discontinued Operations
Doremi Media Co., Ltd is excluded from the consolidation as of December 31, 2010. The net income (loss) of Doremi Media and other subsidiaries for the years ended December 31, 2010, 2009 and 2008 are reclassified into income (loss) from discontinued operations, as follows:
2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
(in millions of Korean won) |
Doremi Media |
Doremi Media |
Olive Nine |
KT FDS | Total | Doremi Media |
Olive Nine |
KT FDS | Total | |||||||||||||||||||||||||||
Book Value |
||||||||||||||||||||||||||||||||||||
Assets of discontinued operations |
(Won) | | (Won) | 8,026 | (Won) | | (Won) | | (Won) | 8,026 | (Won) | 10,375 | (Won) | 43,666 | (Won) | 9,292 | (Won) | 63,333 | ||||||||||||||||||
Liabilities of discontinued operations |
| 8,409 | | | 8,409 | 8,676 | 29,453 | 9,132 | 47,261 | |||||||||||||||||||||||||||
Income (loss) from discontinued operations |
||||||||||||||||||||||||||||||||||||
Operating and non-operating loss |
(Won) | (574 | ) | (Won) | (4,212 | ) | (Won) | (7,432 | ) | (Won) | (3,911 | ) | (Won) | (15,555 | ) | (Won) | (2,980 | ) | (Won) | (22,600 | ) | (Won) | (3,447 | ) | (Won) | (29,027 | ) | |||||||||
Gain on disposal of discontinued operations |
3,186 | | 4,035 | 4,246 | 8,281 | | | | | |||||||||||||||||||||||||||
Tax effect |
| | 4,305 | 1,152 | 5,457 | | | | | |||||||||||||||||||||||||||
Income (loss) from discontinued operations |
(Won) | 2,612 | (Won) | (4,212 | ) | (Won) | 908 | (Won) | 1,487 | (Won) | (1,817 | ) | (Won) | (2,980 | ) | (Won) | (22,600 | ) | (Won) | (3,447 | ) | (Won) | (29,027 | ) | ||||||||||||
The consolidated statements of income for the years ended December 31, 2009 and 2008 have been retrospectively adjusted for discontinued operations.
28. Comprehensive Income
Comprehensive income for the years ended December 31, 2010, 2009 and 2008 consists of:
(in millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Net income |
(Won) | 1,192,542 | (Won) | 609,695 | (Won) | 513,290 | ||||||
Other comprehensive income |
||||||||||||
Cumulative effect of changes in accounting policies |
| | 3,852 | |||||||||
Gain on valuation of available-for-sale securities |
2,816 | (113 | ) | (8,939 | ) | |||||||
Loss on valuation of available-for-sale securities |
(748 | ) | 7,687 | (7,545 | ) | |||||||
Changes in equity-method investees with accumulated comprehensive income |
85 | (10,204 | ) | 9,954 | ||||||||
Changes in equity-method investees with accumulated comprehensive expense |
7,820 | (10,138 | ) | 961 | ||||||||
Gain on valuation of financial derivatives |
(6,769 | ) | 486 | 9,374 | ||||||||
Loss on valuation of financial derivatives |
(28,384 | ) | (26,223 | ) | (18,370 | ) | ||||||
Gain on translation of foreign operations |
6,885 | (8,642 | ) | 13,559 | ||||||||
Loss on translation of foreign operations |
(23,198 | ) | (18,656 | ) | 11,779 | |||||||
Comprehensive income |
(Won) | 1,151,049 | (Won) | 543,892 | (Won) | 527,915 | ||||||
Attributable to : Equity holders of the parent |
(Won) | 1,129,900 | (Won) | 439,425 | (Won) | 462,258 | ||||||
Minority interests |
21,149 | 104,467 | 65,657 |
29. Earnings Per Share
Basic and diluted earnings per share for the years ended December 31, 2010, 2009 and 2008 are as follows:
Basic earnings per share from continuing operations
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Income from continuing operations attributable to common shares |
(Won) | 1,166,733 | (Won) | 488,517 | (Won) | 470,540 | ||||||
Weighted-average number of common shares outstanding |
243,207,149 | 219,512,696 | 202,891,015 | |||||||||
Basic earnings per share from continuing operations |
(Won) | 4,797 | (Won) | 2,225 | (Won) | 2,319 |
F-64
Basic earnings per share from discontinued operations
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Income (loss) from discontinued operations attributable to common shares |
(Won) | 1,272 | (Won) | 6,329 | (Won) | (20,730 | ) | |||||
Weighted-average number of common shares outstanding |
243,207,149 | 219,512,696 | 202,891,015 | |||||||||
Basic earnings per share from discontinued operations |
(Won) | 5 | (Won) | 29 | (Won) | (102 | ) |
Basic earnings per share
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Net income attributable to common stock |
(Won) | 1,168,005 | (Won) | 494,846 | (Won) | 449,810 | ||||||
Weighted-average number of common stock outstanding |
243,207,149 | 219,512,696 | 202,891,015 | |||||||||
Basic earnings per share |
(Won) | 4,803 | (Won) | 2,254 | (Won) | 2,217 |
Weighted-average number of common shares outstanding is adjusted to reflect weighted-average number of treasury stock for the years ended December 31, 2010, 2009 and 2008.
Diluted earnings per share from continuing operations
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Income from continuing operations attributable to common stock |
(Won) | 1,166,733 | (Won) | 488,517 | (Won) | 470,540 | ||||||
Exchangeable bond interest |
| 4,395 | | |||||||||
Adjusted income from continuing operations |
1,166,733 | 492,912 | 470,540 | |||||||||
Dilutive potential common shares outstanding |
18,081 | 4,655,062 | | |||||||||
Weighted-average number of common shares outstanding and dilutive common shares |
243,225,230 | 224,167,758 | 202,891,015 | |||||||||
Diluted earnings per share from continuing operations |
(Won) | 4,797 | (Won) | 2,199 | (Won) | 2,319 |
Diluted earnings per share from discontinued operations
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Net income from discontinued operations attributable to common stock |
(Won) | 1,272 | (Won) | 6,329 | (Won) | (20,730 | ) | |||||
Adjusted income (loss) from discontinued operations |
(Won) | 1,272 | (Won) | 6,329 | (Won) | (20,730 | ) | |||||
Dilutive potential common shares outstanding |
18,081 | 4,655,062 | | |||||||||
Weighted-average number of common shares outstanding and dilutive common shares |
243,225,230 | 224,167,758 | 202,891,015 | |||||||||
Diluted earnings per share from discontinued operations |
(Won) | 5 | (Won) | 28 | (Won) | (102 | ) |
Diluted earnings per share
(in millions of Korean won, except for per share amounts) |
2010 | 2009 | 2008 | |||||||||
Net income attributable to common stock |
(Won) | 1,168,005 | (Won) | 494,846 | (Won) | 449,810 | ||||||
Exchangeable bond interest |
| 4,395 | | |||||||||
Adjusted net income attributable to common stock |
1,168,005 | 499,241 | 449,810 | |||||||||
Dilutive potential common shares outstanding |
18,081 | 4,655,062 | | |||||||||
Weighted-average number of common shares outstanding and dilutive common shares |
243,225,230 | 224,167,758 | 202,891,015 | |||||||||
Diluted earnings per share |
(Won) | 4,802 | (Won) | 2,227 | (Won) | 2,217 |
Diluted net income per share is calculated by dividing adjusted net income by the weighted average number of common shares outstanding and dilutive common shares. Stock options and other share-based payments, which have no dilutive effect for each reporting period, are excluded from the calculation of diluted earnings per share.
F-65
Potential common shares as of December 31, 2010, 2009 and 2008 are as follows:
Par Value |
Issue |
Maturity Date |
Exercisable Period |
Common shares to be issued | ||||||||||||||||||
2010.12.31 | 2009.12.31 | 2008.12.31 | ||||||||||||||||||||
Stock options |
1 | Dec. 26, 2002 | Dec. 26, 2009 | From 2 years after grant date until maturity date | | | 371,632 | |||||||||||||||
Stock options |
1 | Sept. 16, 2003 | Sept. 16, 2010 | From 2 years after grant date until maturity date | | 3,000 | 3,000 | |||||||||||||||
Stock options |
2 | Feb. 4, 2005 | Feb. 4, 2012 | Increase in the number of exercisable shares by 1/3 every year after two years from grant date | 43,153 | 43,153 | 43,153 | |||||||||||||||
Stock options |
3 | March 25, 2002 | March 25, 2010 | From 3 years after grant date until maturity date | | 20,570 | | |||||||||||||||
Stock options |
4 | Sept. 8, 2003 | Sept. 8, 2010 | From 2 years after grant date until maturity date | | 219,909 | | |||||||||||||||
Stock options |
5 | March 4, 2005 | March 4, 2012 | From 2 years after grant date until maturity date | 79,200 | 79,200 | | |||||||||||||||
Other share-based payment |
6 | June 20, 2007 | Exercised in first half of 2010 | On maturity date, subject to the resolution of board of directors |
| 11,790 | | |||||||||||||||
Other share-based payment |
6 | March 27, 2008 | Exercised in first half of 2010 | On maturity date, subject to the resolution of board of directors |
| 13,345 | 29,481 | |||||||||||||||
Other share-based payment |
6 | May 7, 2009 | Exercised in first half of 2010 | On maturity date, subject to the resolution of board of directors |
| 29,055 | | |||||||||||||||
Other share-based payment |
6 | April 29, 2010 | Expected to be exercised in 2011 | On maturity date, subject to the resolution of board of directors |
142,436 | | | |||||||||||||||
Total |
264,789 | 420,022 | 447,266 | |||||||||||||||||||
1 | Exercise price of (Won)57,000 per common share. |
2 | Exercise price of (Won)54,600 per common share. |
3 | Exercise price of (Won)62,814 per common share. |
4 | Exercise price of (Won)41,711 per common share. |
5 | Exercise price of (Won)42,684 per common share. |
6 | Shares to be given subject to performance. |
30. Dividends
The details of dividends for common stocks included in the Controlling Companys non-consolidated statements of appropriations of retained earnings for the years ended December 31, 2010, 2009 and 2008 are as follows:
2010 | 2009 | 2008 | ||||||||||
Number of shares eligible for dividends |
243,215,844 | 243,196,468 | 202,035,296 | |||||||||
Dividend rate |
48.2 | % | 40.0 | % | 22.4 | % | ||||||
Dividend amount (in millions of Korean won) |
(Won) | 586,150 | (Won) | 486,393 | (Won) | 226,280 | ||||||
Payout ratio (Dividend / Net income) |
50.20 | % | 98.29 | % | 50.31 | % | ||||||
Dividend yield ratio (Dividend Per Share / Stock price at year end) |
5.21 | % | 5.12 | % | 2.99 | % |
F-66
31. Supplemental Cash Flows Information
The cash and cash equivalents stated on statements of cash flows are the same amount of cash and cash equivalents less government grants on statements of financial position.
Significant transactions not affecting cash flows for the years ended December 31, 2010, 2009 and 2008 are as follows:
(in millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Reclassification of the current portion of bonds payable |
(Won) | 1,925,773 | (Won) | 1,539,203 | (Won) | 1,311,944 | ||||||
Reclassification of construction-in-progress to property and equipment |
2,379,598 | 2,246,210 | 3,080,337 | |||||||||
Acquisition of equity-method investments through issuance of exchangeable bond |
| 319,160 | | |||||||||
Reissuance of treasury stock in exchange of exchangeable bonds |
| 451,157 | |
32. Related Party Transactions
The list of subsidiaries of the Company as of December 31, 2010 is as follows:
Type of control |
Subsidiaries | |
Ultimate Controlling Company |
KT Co. | |
Direct control |
KT Hitel, KT Submarine Co., KT Networks Corporation, KT Powertel, KT Linkus Co., KT Telecop Co., Ltd., KT Rental, KT Capital, Sidus FNH Co., Ltd., KTDS, Nasmedia, Inc., KT Edui Co., Ltd. (formerly JungBoPremiumEdu Co., Ltd.), Sofnics Inc., KT Tech, KT M Hows, KT M&S, KT Msusic, KT Innotz Inc., KT Estate Inc., KT Internal Venture Fund No.2, Sidus FNH Benex Cinema Investment Fund (formerly Sidus FNH Benex Cinema Investment Fund), KT New Business Fund No.1, KT Capital Media Contents Fund No.2, Gyeonggi-KT Green Growth Fund, KT Strategic Investment Fund No.1, Korea Telecom America, Inc., New Telephone Company Inc., Korea Telecom Japan Co., Ltd., Korea Telecom China Co., Ltd., KTSC Investment Management B.V., PT. KT Indonesia | |
Indirect control through KT Hitel |
KT Commerce Inc. | |
Indirect control through KT Capital |
Vanguard Private Equity Fund, KTC Media Contents Fund 1, KT-LIG ACE Private Equity Fund Co., Ltd. | |
Indirect control through KT Rental |
KTR | |
Indirect control through KTSC |
East Telecom and Super iMax | |
Indirect control through NTSC |
Helios TV and Novaya Svyaz |
F-67
The Controlling Companys significant transactions and balances with subsidiaries as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
(in millions of Korean won) |
Operating Revenue |
Operating Expense |
Receivables | Payables | ||||||||||||
KT Powertel Co., Ltd. |
(Won) | 15,287 | (Won) | 3,773 | (Won) | 957 | (Won) | 1,259 | ||||||||
KT Networks Corporation |
64,347 | 119,356 | 8,133 | 53,280 | ||||||||||||
KT Telecop Co., Ltd. |
12,336 | 48,727 | 426 | 18,439 | ||||||||||||
KT Hitel Co., Ltd. |
10,197 | 67,777 | 753 | 38,147 | ||||||||||||
KT Tech, Inc. |
1,296 | 312,244 | 159 | 92,300 | ||||||||||||
KTR Co., Ltd. |
4,802 | 11,982 | 2 | 66,795 | ||||||||||||
KT Rental Co., Ltd. |
9,783 | 36,615 | 61 | 7,409 | ||||||||||||
KT Capital Co., Ltd. |
80 | 4,992 | 7 | 47,379 | ||||||||||||
KTDS |
10,137 | 335,534 | 4,532 | 97,465 | ||||||||||||
KT M&S Co., Ltd. |
656,631 | 137,673 | 16,029 | 54,380 | ||||||||||||
Others |
34,623 | 252,119 | 5,234 | 36,087 | ||||||||||||
2010 Total |
(Won) | 819,519 | (Won) | 1,330,792 | (Won) | 36,293 | (Won) | 512,940 | ||||||||
2009 Total |
(Won) | 594,026 | (Won) | 1,217,351 | (Won) | 63,120 | (Won) | 453,338 | ||||||||
2008 Total |
(Won) | 528,311 | (Won) | 1,263,863 | (Won) | 68,654 | (Won) | 435,501 | ||||||||
Significant balances and transactions among the subsidiaries as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
(in millions of Korean won) |
Receivables and Payables |
Operating Revenue and Expense |
||||||
2010 Total |
(Won) | 120,745 | (Won) | 75,085 | ||||
2009 Total |
(Won) | 121,528 | (Won) | 502,106 | ||||
2008 Total |
(Won) | 157,327 | (Won) | 1,115,712 | ||||
The Controlling Companys significant transactions and balances with equity-method investees as of December 31, 2010, 2009 and 2008 and for the years then ended are as follows:
(in millions of Korean won) |
2010 | 2009 | 2008 | |||||||||
Operating Revenue |
(Won) | 164,778 | (Won) | 122,036 | (Won) | 118,269 | ||||||
Operating Expense |
905,504 | 668,979 | 585,555 | |||||||||
Receivables |
15,530 | 11,140 | 9,031 | |||||||||
Payables |
142,015 | 89,290 | 100,824 |
Details of the Controlling Companys ownership in the related parties, acquisition cost, fair value (or net asset) and book values are in Note 2 and Note 8.
Key management compensation for the years ended December 31, 2010, 2009 and 2008 consists of:
(in millions of Korean won) |
2010 | 2009 | 2008 | Description | ||||||||||
Benefits |
(Won) | 33,744 | (Won) | 17,068 | (Won) | 20,203 | Salaries, bonuses, other allowances, retirement benefits, medical benefits and others | |||||||
Compensation expenses |
6,794 | 1,052 | 1,420 | Compensation expenses associated with stock options, stock grants | ||||||||||
Total |
(Won) | 40,538 | (Won) | 18,120 | (Won) | 21,623 | ||||||||
F-68
Key management consists of vice presidents and higher positions, who have the authority and responsibility for planning, operation and control and are in charge of a business unit or division, and non-permanent directors.
33. Segment Information
The Companys operating segments are as follows:
Details |
Business service | |
Personal Customer Group (Personal) |
Personal customers using PCS and WiBro | |
Home Customer Group (Home) Enterprise Customer Group (Enterprise) |
Telephone, internet, data and others | |
Others |
Global, real estate, and others |
Details of each segment for the years ended December 31, 2010, 2009 and 2008, are as follows:
2010 | ||||||||||||||||||||||||
Personal | Home/ Enterprise |
Others | Total | Elimination | Consolidated amount |
|||||||||||||||||||
Operating revenues |
(Won) | 10,387,800 | (Won) | 9,845,716 | (Won) | 3,346,111 | (Won) | 23,579,627 | (Won) | (2,248,314 | ) | (Won) | 21,331,313 | |||||||||||
Operating income |
1,477,844 | 575,453 | 149,391 | 2,202,688 | (27,606 | ) | 2,175,082 | |||||||||||||||||
Depreciation and Amortization |
928,600 | 1,985,755 | 256,632 | 3,170,987 | 7,414 | 3,178,401 | ||||||||||||||||||
Property and equipment and Intangible assets |
4,700,790 | 10,385,029 | 1,324,175 | 16,409,994 | 50,730 | 16,460,724 | ||||||||||||||||||
2009 | ||||||||||||||||||||||||
Personal | Home/ Enterprise |
Others | Total | Elimination | Consolidated amount |
|||||||||||||||||||
Operating revenues |
(Won) | 9,313,751 | (Won) | 10,108,769 | (Won) | 2,423,569 | (Won) | 21,846,089 | (Won) | (2,202,277 | ) | (Won) | 19,643,812 | |||||||||||
Operating income |
1,040,025 | (44,044 | ) | (4,742 | ) | 991,239 | (20,692 | ) | 970,547 | |||||||||||||||
Depreciation and Amortization |
1,013,685 | 2,054,897 | 199,853 | 3,268,435 | 7,374 | 3,275,809 | ||||||||||||||||||
Property and equipment and Intangible assets |
4,757,330 | 10,653,089 | 619,465 | 16,029,884 | 24,176 | 16,054,060 | ||||||||||||||||||
2008 | ||||||||||||||||||||||||
Personal | Home/ Enterprise |
Others | Total | Elimination | Consolidated amount |
|||||||||||||||||||
Operating revenues |
(Won) | 8,346,220 | (Won) | 11,784,835 | (Won) | 2,353,821 | (Won) | 22,484,876 | (Won) | (2,897,634 | ) | (Won) | 19,587,242 | |||||||||||
Operating income |
454,381 | 1,113,389 | 28,944 | 1,596,714 | (153,899 | ) | 1,442,815 | |||||||||||||||||
Depreciation and Amortization |
1,117,879 | 2,205,496 | 158,399 | 3,481,774 | 142,601 | 3,624,375 | ||||||||||||||||||
Property and equipment and Intangible assets |
4,937,833 | 10,825,720 | 660,152 | 16,423,705 | 239,164 | 16,662,869 |
F-69
Information by Industry for the years ended December 31, 2010 and 2009 is as follows:
Assets and liabilities by industry as of December 31, 2010 and 2009
2010 | 2009 | |||||||||||||||||||||||
Non-financial | Financial | Consolidated amount |
Non-financial | Financial | Consolidated amount |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Quick assets |
(Won) | 6,433,581 | (Won) | 983,219 | (Won) | 7,416,800 | (Won) | 6,587,387 | (Won) | 685,060 | (Won) | 7,272,447 | ||||||||||||
Inventories |
655,831 | | 655,831 | 699,402 | | 699,402 | ||||||||||||||||||
Sub-total |
7,089,412 | 983,219 | 8,072,631 | 7,286,789 | 685,060 | 7,971,849 | ||||||||||||||||||
Non-current assets |
||||||||||||||||||||||||
Investments |
696,623 | 86,568 | 783,191 | 512,953 | 48,417 | 561,370 | ||||||||||||||||||
Property and equipment |
15,185,606 | 42,252 | 15,227,858 | 14,750,631 | 23,929 | 14,774,560 | ||||||||||||||||||
Intangible assets |
1,232,395 | 471 | 1,232,866 | 1,279,236 | 264 | 1,279,500 | ||||||||||||||||||
Other |
1,597,541 | 799,372 | 2,396,913 | 1,352,597 | 680,441 | 2,033,038 | ||||||||||||||||||
Sub-total |
18,712,165 | 928,663 | 19,640,828 | 17,895,417 | 753,051 | 18,648,468 | ||||||||||||||||||
Total assets |
(Won) | 25,801,577 | (Won) | 1,911,882 | (Won) | 27,713,459 | (Won) | 25,182,206 | (Won) | 1,438,111 | (Won) | 26,620,317 | ||||||||||||
Liabilities |
||||||||||||||||||||||||
Current liabilities |
(Won) | 7,053,092 | (Won) | 376,538 | (Won) | 7,429,630 | (Won) | 6,145,841 | (Won) | 795,382 | (Won) | 6,941,223 | ||||||||||||
Non-current liabilities |
7,326,898 | 1,461,259 | 8,788,157 | 8,423,158 | 588,497 | 9,011,655 | ||||||||||||||||||
Total liabilities |
(Won) | 14,379,990 | (Won) | 1,837,797 | (Won) | 16,217,787 | (Won) | 14,568,999 | (Won) | 1,383,879 | (Won) | 15,952,878 | ||||||||||||
Results of operations by industry for the years ended December 31, 2010, 2009 and 2008
2010 | ||||||||||||
Non-financial | Financial | Consolidated amount |
||||||||||
Operating revenues |
(Won) | 21,165,515 | (Won) | 165,798 | (Won) | 21,331,313 | ||||||
Operating expenses |
19,016,819 | 139,412 | 19,156,231 | |||||||||
Operating income |
2,148,696 | 26,386 | 2,175,082 | |||||||||
Non-operating revenues |
522,722 | 95 | 522,817 | |||||||||
Non-operating expenses |
1,136,118 | 8 | 1,136,126 | |||||||||
Income from continuing operations before income tax |
1,535,300 | 26,473 | 1,561,773 | |||||||||
Income tax on continuing operations |
363,157 | 8,686 | 371,843 | |||||||||
Income from continuing operations |
1,172,143 | 17,787 | 1,189,930 | |||||||||
Income (loss) from discontinued operations |
2,612 | | 2,612 | |||||||||
Net income |
(Won) | 1,174,755 | (Won) | 17,787 | (Won) | 1,192,542 | ||||||
2009 | ||||||||||||
Non-financial | Financial | Consolidated amount |
||||||||||
Operating revenues |
(Won) | 19,508,859 | (Won) | 134,953 | (Won) | 19,643,812 | ||||||
Operating expenses |
18,555,188 | 118,077 | 18,673,265 | |||||||||
Operating income |
953,671 | 16,876 | 970,547 | |||||||||
Non-operating revenues |
806,521 | 970 | 807,491 | |||||||||
Non-operating expenses |
1,058,757 | 6 | 1,058,763 | |||||||||
Income from continuing operations before income tax |
701,435 | 17,840 | 719,275 | |||||||||
Income tax on continuing operations |
101,863 | 5,900 | 107,763 | |||||||||
Income from continuing operations |
599,572 | 11,940 | 611,512 | |||||||||
Income (loss) from discontinued operations |
(1,817 | ) | | (1,817 | ) | |||||||
Net income |
(Won) | 597,755 | (Won) | 11,940 | (Won) | 609,695 | ||||||
F-70
2008 | ||||||||||||
Non-financial | Financial | Consolidated amount |
||||||||||
Operating revenues |
(Won) | 19,478,880 | (Won) | 108,362 | (Won) | 19,587,242 | ||||||
Operating expenses |
18,039,553 | 104,874 | 18,144,427 | |||||||||
Operating income |
1,439,327 | 3,488 | 1,442,815 | |||||||||
Non-operating revenues |
1,050,331 | 22 | 1,050,353 | |||||||||
Non-operating expenses |
1,782,921 | 71 | 1,782,992 | |||||||||
Income from continuing operations before income tax |
706,737 | 3,439 | 710,176 | |||||||||
Income tax on continuing operations |
166,419 | 1,440 | 167,859 | |||||||||
Income from continuing operations |
540,318 | 1,999 | 542,317 | |||||||||
Income (loss) from discontinued operations |
(29,027 | ) | | (29,027 | ) | |||||||
Net income |
(Won) | 511,291 | (Won) | 1,999 | (Won) | 513,290 | ||||||
34. Employee Welfare
Cost on the various employee welfare programs of the Company for the years ended December 31, 2010, 2009 and 2008 totaled (Won)374,300 million, (Won)587,011 million and (Won)565,738 million, respectively.
35. Subsequent Events
Subsequent to December 31, 2010, the Controlling Company has issued the unsecured public bonds as follows:
(in thousands) |
Issue Date |
Par Value | Interest Rate |
Maturity Date |
Repayment Method | |||||||||||
USD denominated unsecured public bond (178-1st) with floating rate |
2011.1.11 | USD | 100,000 | Libor(3M) + 1.00% | 2013.1.18 | Lump sum repayment at maturity | ||||||||||
USD denominated unsecured public bond (178-2nd) with floating rate |
2011.1.11 | USD | 100,000 | Libor(3M) + 1.05% | 2014.1.17 | Lump sum repayment at maturity | ||||||||||
JPY denominated foreign public bond |
2011.1.20 | JPY | 35,000,000 | 1.58% | 2013.1.25 | Lump sum repayment at maturity | ||||||||||
Unsecured public bond (179t) |
2011.3.29 | (Won) | 260,000 | 4.47% | 2018.3.29 | Lump sum repayment at maturity | ||||||||||
Unsecured public bond (180-1st) |
2011.4.26 | (Won) | 210,000 | 4.35% | 2016.4.26 | Lump sum repayment at maturity | ||||||||||
Unsecured public bond (180-2nd) |
2011.4.26 | (Won) | 380,000 | 4.71% | 2021.4.26 | Lump sum repayment at maturity |
On January 27, 2011 the Controlling Company acquired from Dutch Savings Holdings B.V 5,600,000 of redeemable convertible preferred stock with voting rights and the bonds convertible into 5,600,000 of common stock of Korea Digital Satellite Broadcasting CO., Ltd. for (Won)246,000 million. The accrued interest of (Won)7,969 million are also included in the amount of the convertible bond. Accordingly, the Controlling Companys ownership in Korea Digital Satellite Broadcasting Co., Ltd. has increased from 32.12% to 46.41%. If the potential voting rights are also considered, the ownership increases to 53.05%.
As approved by the Board of Directors on May 4, 2011, the Company has decided to sell New Telephone Company, Inc. 5,309,189 shares (79.96%) to VIMPEL-COMMUNICATIONS. The selling price is $ 346,628 thousand.
As approved by the Board of Directors on February 3, 2011, KT Capital decided to acquire 1,489,400 of the common stocks of BC Card owned by Shinhan Bank, representing 33.85% of total outstanding shares, for (Won)231,602 million.
F-71
KT Rental and KTR merged on March 1, 2011, as approved by the Board of Directors on January 7, 2011.
36. Merger with KTF
On January 20, 2009, the Controlling Company entered into a merger agreement with KTF, which was subsequently approved by the shareholders on March 27, 2009. On June 1, 2009, the Controlling Company, as the surviving company, merged with KTF.
The Controlling Company issued 0.7192335 share of KT common stock with a par value per share of (Won)5,000 for one share of KTF. However, the Controlling Company did not issue any new common stock for the shares of KTF common stock held by the Controlling Company or for the treasury shares of KTF as of the date of the merger.
Details of merged companies:
CEO |
Business |
Relationship | ||||
KT Corporation (KT) |
Lee Suk Chae | Telephone service, new media business, telecommunication products sales and other | Parent | |||
KT Freetel Co., Ltd. (KTF) |
Kwon Haing Min | Mobile telecommunication service and other | Subsidiary |
Accounting treatment
As this was a merger between parent and subsidiary, the Controlling Company accounted for the merger using the carrying amounts in its consolidated financial statements and accordingly, the excess of merger consideration given over the carrying amount of net assets acquired was recognized as capital adjustment after offsetting capital surplus, if any, from the similar type of transaction.
Decrease in Minority interest (a): |
(Won) | (1,553,491) | ||
Changes in equity : |
||||
Increase in common stock |
3,501 | |||
Decrease in treasury stock |
2,436,659 | |||
Decrease in gain on disposal of treasury stock |
(375 | ) | ||
Decrease in accumulated other comprehensive income |
(6,932 | ) | ||
Decrease in capital adjustments |
(879,362 | ) | ||
Sub-total (b) : |
1,553,491 | |||
Changes in total equity (a+b): |
(Won) | | ||
Goodwill
Changes in goodwill for the year ended December 31, 2010 and 2009 are as follows:
January 1, 2009 |
(Won) | 195,170 | ||
Amortization |
(130,113 | ) | ||
December 31, 2009 |
65,057 | |||
Amortization |
(65,057 | ) | ||
December 31, 2010 |
(Won) | | ||
The above goodwill includes the goodwill arising from the acquisition of KTF shares by KT in stages and the goodwill recorded in the book of KTF prior to the merger of KT and KTF. Goodwill is amortized on a straight-line basis over ten years and, as of June 30, 2010, the goodwill had been fully amortized.
F-72
Financial statements of the merged companies
Statements of financial position
KT | KTF | |||||||||||||||
(in millions of Korean won) |
2009.6.1 | 2008.12.31 | 2009.6.1 | 2008.12.31 | ||||||||||||
Current assets |
(Won) | 4,926,684 | (Won) | 3,778,105 | (Won) | 2,716,833 | (Won) | 2,199,857 | ||||||||
Investment assets |
3,846,019 | 3,517,906 | 270,019 | 396,903 | ||||||||||||
Property and equipment |
9,932,337 | 10,428,674 | 3,919,107 | 4,165,339 | ||||||||||||
Intangible assets |
344,330 | 397,046 | 783,254 | 780,242 | ||||||||||||
Other non-current assets |
503,787 | 563,191 | 559,353 | 513,781 | ||||||||||||
Total assets |
(Won) | 19,553,157 | (Won) | 18,684,922 | (Won) | 8,248,566 | (Won) | 8,056,122 | ||||||||
Current liabilities |
(Won) | 2,871,186 | (Won) | 2,585,875 | (Won) | 2,657,350 | (Won) | 2,031,871 | ||||||||
Non-current liabilities |
8,274,862 | 7,267,158 | 1,282,719 | 1,658,402 | ||||||||||||
Total liabilities |
11,146,048 | 9,853,033 | 3,940,069 | 3,690,273 | ||||||||||||
Total equity |
8,407,109 | 8,831,889 | 4,308,497 | 4,365,849 | ||||||||||||
Total liabilities and equity |
(Won) | 19,553,157 | (Won) | 18,684,922 | (Won) | 8,248,566 | (Won) | 8,056,122 | ||||||||
Statements of income
KT | KTF | |||||||||||||||
(in millions of Korean won) |
For the period from Jan. 1, 2009 to June 1, 2009 |
For the year ended Dec. 31, 2008 |
For the period from Jan. 1, 2009 to June 1, 2009 |
For the
year ended Dec. 31, 2008 |
||||||||||||
Operating revenues |
(Won) | 4,662,137 | (Won) | 11,784,835 | (Won) | 3,516,358 | (Won) | 8,346,220 | ||||||||
Operating expenses |
4,078,756 | 10,671,446 | 3,131,947 | 7,891,839 | ||||||||||||
Non-operating revenues |
329,587 | 855,289 | 43,656 | 201,470 | ||||||||||||
Non-operating expenses |
372,047 | 1,408,633 | 152,858 | 469,496 | ||||||||||||
Income tax expense |
105,765 | 110,235 | 45,833 | 21,776 | ||||||||||||
Net income |
(Won) | 435,156 | (Won) | 449,810 | (Won) | 229,376 | (Won) | 164,579 | ||||||||
37. Adoption of K-IFRS
The Controlling Company plans to prepare its financial statements in accordance with K-IFRS starting from the year ending December 31, 2011. Since the Roadmap to K-IFRS Adoption has been announced in March 2007, the Controlling Company organized a task force team, conducted training, and analyzed the impact of the adoption of K-IFRS. The Controlling Company has analyzed the key differences and potential impact on financial statements.
F-73
Significant differences between the accounting policies chosen by the Controlling Company under K-IFRS and under current generally accepted accounting principles in the Republic of Korean (K-GAAP) are as follows:
K-IFRS | K-GAAP | |||||
First time adoption of K-IFRS | Business combination | Not applying IFRS 3 retrospectively to a past business combination | Not available | |||
Fair value or revaluation as deemed cost | Recognition of fair value in its opening IFRS statement of financial position as deemed cost for an item of property and equipment | Not available | ||||
Borrowing costs | Capitalization of borrowing costs for qualifying assets acquired after the date of transition (January 1, 2010) | Not available | ||||
Decommissioning liabilities included in the cost of property, plant and equipment | Regarding changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates, the Company had not applied the requirements under IFRS for changes in such liabilities that occurred before the date of transition to IFRS(January 1, 2010). | Not available | ||||
Transfers of Assets from Customers | A first-time adopter may apply the transitional provisions set out in paragraph 22 of K-IFRS 2118 Transfers of Assets from Customers, which provides accounting guidance for the items including cash and property received from the customers that must be used to provide those customers with the related service. In that paragraph, reference to the effective date shall be interpreted as 1 July 2009 or the date of transition to K-IFRS, whichever is later. In addition, a first-time adopter may designate any date before the date of transition to IFRS and apply K-IFRS 2118 to all transfers of assets from customers received on or after that date. | Not available | ||||
Initiation fee revenue |
The amount of Initiation fee is deferred and recognized as a part of service revenue over the period during which the service is performed. | The total amount of initiation fee is recognized as revenue when the fee is paid | ||||
Real estate revenue |
According to revenue recognition arising from the sale of goods, real estate revenue is recognized at the time of the transfer of the legal title. | Considered as a construction contract, the real estate revenue is recognized on a percentage of completion basis. | ||||
Customer Loyalty Programmes |
The sales transaction in which they are granted is allocated to the separately identifiable component. The revenue is deferred and recognized as earned. | The amount of future obligation is recognized as an expense and liability provision at the time of the sale transaction. | ||||
Change in scope of consolidated financial statements | Regardless of size of each subsidiary, consolidated financial statements shall include all entities controlled by the parent. | According to the Act on External Audit of Stock Companies, Section 1 paragraph 3 item 2, consolidated financial statement shall include all subsidiaries except for the entities of which the total assets as of prior year end were less than (Won)10 billion | ||||
Capitalization of borrowing costs | An entity shall capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, acquired after the date of transition, as part of the cost of that asset. | All borrowing costs are recognized as expense. |
F-74
K-IFRS | K-GAAP | |||
Transfer of financial assets |
Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. | Transfers of financial assets must satisfy the control criteria for the transferred financial assets to be derecognized. | ||
Employee benefits |
For the employees who elect the defined benefit plan, the defined benefit obligations are measured using actuarial method. For the others, the accrued expenses are recognized using actuarial method. | Accrued employee benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the date of statement of financial position. The other employee benefits are recognized when obligations to pay the benefits are determined. | ||
Goodwill |
Goodwill is not amortized, but impairment test is performed annually at the year-end of reporting period, and a bargain purchase is recognized in profit or loss on the acquisition date. | Goodwill recognized at the business combination is amortized using the straight-line method. Negative goodwill(a bargain purchase) is reversed as income when actual loss occurs, or during the period of weighted average useful life of amortizable assets on the straight-line method basis. | ||
Deferred tax |
Deferred tax assets or liabilities on investments in subsidiaries and associates are recognized by reflecting the tax consequences of each temporary difference. An entity shall classify all deferred tax assets and liabilities as non-current. |
Deferred tax assets or liabilities on investments in subsidiaries and associates are recognized by the net amount of temporary differences from each investment. An entity classifies deferred tax assets and liabilities as current or non-current according to the period in which the temporary differences are reversed. |
F-75
38. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the Republic of Korea (Korean GAAP), which differs in certain significant respects from generally accepted accounting principles in the United States of America (U.S. GAAP). Application of U.S. GAAP would have affected the consolidated financial position of the company and subsidiaries as of December 31, 2010 and 2009 and the related consolidated net income for the three years ended December 31, 2010, 2009 and 2008 to the extent described below.
A description of the significant differences between Korean GAAP and U.S. GAAP as they relate to the Company are discussed in detail below.
(a) Reconciliation of Net Income from Korean GAAP to U.S. GAAP
(in millions of Korean won) |
Note reference |
2010 | 2009 | 2008 | ||||||||||
Net income in accordance with Korean GAAP |
(Won) | 1,192,542 | (Won) | 609,695 | (Won) | 513,290 | ||||||||
Adjustments: |
||||||||||||||
Goodwill impairment |
38 (e) | | (1,132 | ) | (13,948 | ) | ||||||||
Equity in income of affiliates: |
||||||||||||||
Reversal of amortization of goodwill |
38 (e) | 93,391 | 140,169 | 166,422 | ||||||||||
Impairment loss relating to affiliates |
38 (e) | | | (9,466 | ) | |||||||||
Additional acquisitions of affiliates |
38 (g) | 3,094 | (23,282 | ) | 6,351 | |||||||||
Intangible assets |
38 (h) | (14,764 | ) | (14,819 | ) | (14,329 | ) | |||||||
Property and equipment |
38 (i) | (52,811 | ) | (44,999 | ) | (114,744 | ) | |||||||
Interest capitalization (including related depreciation), net |
38 (j) | (1,750 | ) | (7,238 | ) | (2,128 | ) | |||||||
Service installation fees |
38 (k) | 18,783 | 232,505 | 5,865 | ||||||||||
Deferred income taxmethodology difference |
38 (l) | (10,496 | ) | (6,357 | ) | 4,275 | ||||||||
Deferred income tax effects of U.S. GAAP adjustments |
38 (l) | 13,008 | (34,698 | ) | (15,228 | ) | ||||||||
Capitalized foreign exchange transactions, net |
38 (m) | (299 | ) | 6,473 | 880 | |||||||||
Loan Impairment |
38 (f) | (22,450 | ) | | | |||||||||
Miscellaneous accounts |
38 (l) | (7,773 | ) | (16,707 | ) | 35,230 | ||||||||
Noncontrolling interest income |
38 (c) and others | (14,335 | ) | 1,015 | 10,953 | |||||||||
3,598 | (Won) | 230,930 | (Won) | 60,133 | ||||||||||
Net income as adjusted in accordance with U.S. GAAP |
(Won) | 1,196,140 | (Won) | 840,625 | (Won) | 573,423 | ||||||||
Net income attributable to stockholders |
(Won) | 1,185,918 | (Won) | 741,921 | (Won) | 518,245 | ||||||||
Net income attributable to noncontrolling interest |
(Won) | 10,222 | (Won) | 98,704 | (Won) | 55,178 | ||||||||
F-76
(b) Reconciliation of Total Equity from Korean GAAP to U.S. GAAP
(in millions of Korean won) |
Note reference |
2010 | 2009 | |||||||
Total equity in accordance with Korean GAAP |
(Won) | 11,495,672 | (Won) | 10,667,439 | ||||||
Adjustments: |
||||||||||
Goodwill impairment |
38 (e) | (28,027 | ) | (28,027 | ) | |||||
Equity in earnings of affiliates: |
||||||||||
Reversal of goodwill amortization |
38 (e) | 1,235,977 | 1,152,896 | |||||||
Impairment loss relating to affiliates |
38 (e) | (1,471,474 | ) | (1,471,474 | ) | |||||
Additional acquisitions of affiliates |
38 (g) | 767,105 | 764,011 | |||||||
Different useful life of intangibles |
38 (h) | 111,631 | 111,631 | |||||||
Intangible assets |
38 (h) | 9,098 | 23,862 | |||||||
Accumulated depreciation |
38 (i) | (722,575 | ) | (669,764 | ) | |||||
Interest capitalization, net |
38 (j) | 56,706 | 58,456 | |||||||
Service installation fees |
38 (k) | (224,465 | ) | (243,248 | ) | |||||
Deferred taxmethodology difference |
38 (l) | 16,011 | 26,507 | |||||||
Deferred tax effects of U.S. GAAP adjustments |
38 (l) | 169,751 | 179,986 | |||||||
Capitalized foreign exchange transactions, net |
38 (m) | 3,158 | 3,457 | |||||||
Loan Impairment |
38 (f) | (22,450 | ) | | ||||||
Miscellaneous accounts |
38 (l) | 8,277 | 16,105 | |||||||
Noncontrolling interest |
38 (c) and others | (304,242 | ) | (135,393 | ) | |||||
(395,519 | ) | (210,995 | ) | |||||||
Total equity as adjusted in accordance with U.S. GAAP |
(Won) | 11,100,153 | (Won) | 10,456,444 | ||||||
Stockholders equity |
(Won) | 10,929,157 | (Won) | 10,287,594 | ||||||
Noncontrolling interest |
(Won) | 170,996 | (Won) | 168,850 | ||||||
(c) Companies Included in Consolidation
Under Korean GAAP, all majority-owned subsidiaries and entities of which the Company or a controlled subsidiary owns more than 30% of total outstanding voting stock and is the largest stockholder are consolidated. However, U.S. GAAP generally requires that majority-owned subsidiaries be consolidated and that an entity in which the Company has significant influence, generally including those in which it owns 20-50% of total outstanding voting stock, should not be consolidated; rather that entity should be accounted for under the equity method of accounting.
The following table shows the Companys percentage of ownership and carrying value of each of its affiliates that are excluded from consolidation under U.S. GAAP and instead are accounted for under the equity method (in millions of Korean won):
Percentage of ownership (%) | Carrying value | |||||||||||||||||||||||
Entity |
2010 | 2009 | 2008 | 2010 | 2009 | 2008 | ||||||||||||||||||
Listed : |
||||||||||||||||||||||||
KTSM |
36.9 | 36.9 | 36.9 | (Won) | 25,497 | (Won) | 14,775 | (Won) | 11,072 | |||||||||||||||
KT Music (formerly, KTF Music Corporation) |
48.7 | 35.3 | 35.3 | (Won) | 16,008 | (Won) | 21,899 | (Won) | 18,705 | |||||||||||||||
Unlisted : |
||||||||||||||||||||||||
Olivenine |
| | 19.5 | (Won) | | (Won) | | (Won) | 2,769 | |||||||||||||||
KTP |
44.9 | 44.9 | 44.9 | (Won) | 43,515 | (Won) | 37,430 | (Won) | 31,633 | |||||||||||||||
SFNH BF-(1) |
43.3 | 43.3 | 43.3 | (Won) | 6,645 | (Won) | 6,660 | (Won) | 10,505 | |||||||||||||||
KTR Co., Ltd. |
58.0 | | | (Won) | 19,627 | (Won) | | (Won) | | |||||||||||||||
KT Rental |
58.0 | | | (Won) | 165,724 | (Won) | | (Won) | | |||||||||||||||
KT-LIG ACE Private Equity Fund |
9.0 | | | (Won) | 4,882 | (Won) | | (Won) | | |||||||||||||||
Vanguard Private Equity Fund |
28.1 | 16.1 | | (Won) | 5,155 | (Won) | 5,650 | (Won) | | |||||||||||||||
Doremi Media (*1) |
| 64.2 | 64.2 | (Won) | | (Won) | | (Won) | |
(*1) | Disposed during 2010. Prior to disposal, it was consolidated by KT Music |
F-77
The quoted market values (based on closing KOSDAQ prices) of KTSM and KT Music shares held by the Company are (Won)33,229 million and (Won)39,279 million as of December 31, 2010, respectively.
Presented below is the summarized combined financial information of those entities that are consolidated under Korean GAAP but not for U.S. GAAP, prepared in accordance with Korean GAAP as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010:
(in millions of Korean won) |
2010 | 2009 | ||||||
Current assets |
(Won) | 439,409 | (Won) | 175,096 | ||||
Non-current assets |
1,183,498 | 160,738 | ||||||
Total assets |
1,622,907 | 335,834 | ||||||
Current liabilities |
403,857 | 87,964 | ||||||
Non-current liabilities |
648,157 | 41,404 | ||||||
Total liabilities |
1,052,014 | 129,368 | ||||||
Net assets |
(Won) | 570,893 | (Won) | 206,466 | ||||
2010 | 2009 | 2008 | ||||||||||
Operating revenues |
(Won) | 646,069 | (Won) | 232,746 | (Won) | 272,407 | ||||||
Operating income |
(Won) | 63,402 | (Won) | 224,110 | (Won) | 268,978 | ||||||
Net income |
(Won) | 32,149 | (Won) | 7,203 | (Won) | (15,551 | ) | |||||
2010 | 2009 | 2008 | ||||||||||
Net cash provided by operating activities |
(Won) | 168,399 | (Won) | 62,018 | (Won) | 30,172 | ||||||
Net cash used in investing activities |
(209,374 | ) | (31,534 | ) | (53,271 | ) | ||||||
Net cash provided by (used in) financing activities |
47,909 | (21,502 | ) | (2,546 | ) | |||||||
Effect of changes in consolidated entities |
(2,418 | ) | 20,580 | | ||||||||
Net increase (decrease) in cash and cash equivalents |
4,516 | 29,562 | (25,645 | ) | ||||||||
Cash and cash equivalents at beginning of the year |
71,448 | 19,046 | 47,185 | |||||||||
Cash and cash equivalents at end of the year |
(Won) | 75,964 | (Won) | 48,608 | (Won) | 21,540 | ||||||
Condensed consolidated balance sheets as of December 31, 2010 and 2009 and condensed consolidated statements of cash flows of the Company under U.S GAAP for the three years in the period ended December 31, 2010 are presented in Note 38(u).
(d) Debt and Equity Securities
Under Korean GAAP, non-marketable securities classified as available-for-sale securities are carried at cost or fair value if applicable with unrealized holding gains and losses reported as a capital adjustment, net of tax. For U.S. GAAP purposes, investment in non-marketable equity securities are accounted for under the cost method or the equity method of accounting in accordance with ASC Topic 323 Investments Equity Method and Joint Ventures and ASC Topic 325 Investments Other.
Under Korean GAAP, available-for-sale securities, whose likelihood of being disposed within one year from the balance sheet date is probable, are classified as current. Under U.S. GAAP, when the disposition of available-for-sale securities within one year is reasonably expected, available-for-sale securities are classified as current.
For U.S. GAAP purposes, the Company accounts for marketable equity and debt investments under the provisions of ASC Topic 320 Debt and Equity Securities. This guidance 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. |
F-78
| 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. |
Information under U.S. GAAP with respect to investments under ASC Topic 320 at December 31, 2010 and 2009 are as follows:
2010 | ||||||||||||||||
(in millions of Korean won) |
Cost or amortized cost |
Gross unrealized holding gains |
Gross unrealized holding losses |
Fair value |
||||||||||||
Equity securities (available-for-sale) |
(Won) | 24,352 | (Won) | 12,202 | (Won) | (879 | ) | (Won) | 35,672 | |||||||
Debt securities (available-for-sale) |
9,313 | 69 | | 9,382 | ||||||||||||
(Won) | 33,665 | (Won) | 12,271 | (Won) | (879 | ) | (Won) | 45,057 | ||||||||
2009 | ||||||||||||||||
Cost or amortized cost |
Gross unrealized holding gains |
Gross unrealized holding losses |
Fair value |
|||||||||||||
Equity securities (available-for-sale) |
(Won) | 18,726 | (Won) | 7,484 | (Won) | (104 | ) | (Won) | 26,106 | |||||||
Debt securities (available-for-sale) |
4,877 | 420 | | 5,297 | ||||||||||||
(Won) | 23,603 | (Won) | 7,904 | (Won) | (104 | ) | (Won) | 31,403 | ||||||||
The proceeds from sales of available-for-sale securities were (Won)6,148 million in 2010, (Won)6,833 million in 2009 and 614,405 million in 2008. The realized gains on those sales were (Won)274 million in 2010, (Won)1,716 million in 2009 and (Won)5,587 million in 2008. The average-cost method is used to calculate gains or losses from the sale of available-for-sale securities.
Under Korean GAAP, when the subsequent recoveries of impaired available-for-sale securities and held-to-maturity securities result in an increase of their carrying amount, the recovery gains are reported in current operations up to the previously recognized impairment loss as reversal of loss on impairment of investment securities.
Under U.S. GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity securities is not allowed. The subsequent increase in fair value of available-for-sale securities is reported in other comprehensive income.
(e) Goodwill Impairment including Investor-level Goodwill
Under Korean GAAP, goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired, is amortized on a straight-line basis over its estimated economic useful life not exceeding 20 years. When it is no longer probable that goodwill will be recovered from expected future economic 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 Companys share of their net assets at the acquisition date is amortized by the straight-line method over its estimated useful life.
F-79
Under U.S. GAAP, goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. In accordance with ASC Topic 350, Intangibles-Goodwill and Other, goodwill is tested for impairment on an annual basis by comparing the fair value of the Companys reporting units to their carrying amounts. The investor-level goodwill is tested for impairment in accordance with ASC Topic 323. The investor-level goodwill, which is recorded only at the investors financial statements, represents the excess of the acquisition cost of equity method investees over the fair value of investors share of net identifiable assets acquired.
The changes in the carrying amount of goodwill which is recorded in the Personal Customer Group for the years ended December 31, 2009 and 2010 are as follows (in millions of Korean won):
Balance as of January 1, 2009 |
(Won) | 538,132 | ||
Goodwill acquired during the year |
| |||
Balance as of December 31, 2009 |
538,132 | |||
Goodwill acquired during the year |
| |||
Balance as of December 31, 2010 |
(Won) | 538,132 |
(f) Loan Impairment
KT Capital Inc., a subsidiary of KT Corporation, estimates the allowances for the doubtful loan receivables based on the forward looking criteria (FLC), which is the regulatory guideline for assessing the collectability of the receivables applicable to the financial institutes in Korea, as permitted under Korean GAAP.
However, under U.S. GAAP, the impairment on the loans receivable is recorded when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement.
(g) Additional Equity Investments in and Transactions of Subsidiaries
Under Korean GAAP, subsequent to acquiring a controlling financial interest in a subsidiary, additional equity investments by the Company in a subsidiaries stock and other equity transactions of subsidiaries are accounted for assuming such transactions occur as of the date of audited or reviewed financial statements of the acquired subsidiary closest to the date of acquisition. In addition, the difference between the Companys cost of the acquired additional interest and the corresponding share of stockholders equity of the acquired subsidiary is presented as an adjustment to capital surplus.
Under U.S. GAAP, such equity investments in and transactions of affiliates and subsidiaries are recorded and accounted for as of the date the transaction occurs. As a result, the Company has a different basis in its equity investments in the subsidiaries under Korean GAAP as compared to U.S. GAAP. Therefore, any gains or losses recorded by the Company (which are recorded as capital transactions in stockholders equity) when an equity investee sells shares of its stock will be different under U.S. GAAP as compared to Korean GAAP. In addition, prior to the fiscal year beginning on or after December 15, 2008, 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.
(h) Intangible Assets
Under Korean GAAP, the frequency usage right related to the second generation (2G) paid by the initial stockholders to obtain the operating licenses prior to the establishment of KTM.Com Co., Ltd. (KTM), which was merged into KTF in 2001, was not recognized as an intangible asset in applying purchase accounting of KTM by KT in 2000.
F-80
Under U.S. GAAP, the 2G frequency usage right was considered as indefinite lived intangible asset and thus in the process of purchase accounting of KTM, KT recognized the frequency usage right at fair value. However, on December 31, 2005, the Korea Communication Act (Act) was revised effective July 1, 2006. Under the revised Act, the frequency usage right of 2G will expire by June 2011. Thus, the Company amortizes the frequency usage right of 2G over the remaining useful life under U.S. GAAP beginning from the year ended December 31, 2006.
In addition, the frequency usage right related to the third generation (3G) acquired in 2000 has been accounted for in the same manner under Korean GAAP and U.S. GAAP.
Identifiable intangible assets determined in accordance with U.S. GAAP as of December 31, 2010 and 2009 are presented below.
2010 | ||||||||||||
(In millions of Korean won) |
Gross carrying amount |
Accumulated amortization |
Net amount | |||||||||
Amortizable intangible assets: |
||||||||||||
Internal-use software |
(Won) | 1,316,036 | (Won) | 807,422 | (Won) | 508,614 | ||||||
Frequency usage rights |
1,464,821 | 858,668 | 606,153 | |||||||||
Buildings and facility utilization rights |
164,277 | 93,836 | 70,441 | |||||||||
Other |
317,506 | 291,823 | 25,683 | |||||||||
Total |
(Won) | 3,262,640 | (Won) | 2,051,749 | (Won) | 1,210,891 | ||||||
2009 | ||||||||||||
(In millions of Korean won) |
Gross carrying amount |
Accumulated amortization |
Net amount | |||||||||
Amortizable intangible assets: |
||||||||||||
Internal-use software |
(Won) | 1,070,786 | (Won) | 686,739 | (Won) | 384,047 | ||||||
Frequency usage rights |
1,465,990 | 726,088 | 739,902 | |||||||||
Buildings and facility utilization rights |
130,179 | 85,702 | 44,477 | |||||||||
Other |
316,586 | 251,834 | 64,752 | |||||||||
Total |
(Won) | 2,983,541 | (Won) | 1,750,363 | (Won) | 1,233,178 | ||||||
Amortization expense: |
||||
For the year ended December 31, 2010 |
(Won) | 304,811million | ||
For the year ended December 31, 2009 |
314,102 million | |||
For the year ended December 31, 2008 |
306,000 million |
Estimated amortization expense (in millions of Korean won):
Year ending December 31, |
||||
2011 |
(Won) | 288,798 | ||
2012 |
235,224 | |||
2013 |
190,792 | |||
2014 |
144,876 | |||
2015 |
129,133 | |||
Thereafter |
222,067 |
The weighted-average amortization period of total amortized intangible assets, internal-use software, frequency usage rights and utilization rights are 9 years, 6 years, 11 years and 20 years, respectively. The Company has no identifiable intangible assets that are not subject to amortization.
(i) Depreciation
In 1995, KT adopted a method of depreciation, as allowed under Korean GAAP, whereby property and equipment placed in service at any time during the first half of the year received a full year of depreciation expense, and property and equipment placed in service at any time during the
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second half of the year received one-half year of depreciation. Also, as permitted under Korean GAAP, depreciation of these assets was based on lives which are shorter than their economic useful lives. In 1996, KT adopted the policy, also acceptable under Korean GAAP, whereby property and equipment is depreciated from the actual date it is placed in service, while continuing to use useful lives which are shorter than the economic useful lives of such assets. In 1998, under Korean GAAP, as required under a ruling by the National Tax Service (which is also applicable under Korean GAAP), the Company changed the estimated useful lives of certain assets, including underground access to cable tunnels and concrete and steel telephone poles acquired after 1995, from 6 years to periods ranging from 20 years to 40 years, and changed the depreciation method from the declining-balance method to the straight-line method.
In 1999, under Korean GAAP, the Company changed its depreciation method for buildings and structures acquired before December 31, 1994, from the declining-balance method to the straight-line method in order to be consistent with the method applied to buildings and structures acquired after January 1, 1995.
Under U.S. GAAP, property and equipment is generally depreciated over its estimated useful life in a systematic and rational manner. In addition, the depreciation method in the year of acquisition based on the Companys in-service dates for its capital additions in 1995 described above, does not comply with U.S. GAAP in that significant depreciation expense is recognized prior to the actual use of the asset. The change in estimated useful lives in 1998, and the changes in 1998 and 1999 from the declining-balance method to the straight-line method would also not be appropriate under U.S. GAAP. Accordingly, adjustments have been reflected for U.S. GAAP purposes for the effect of each of these items.
Under U.S. GAAP, property and equipment is 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 and equipment are summarized as follows:
Estimated Useful Lives | ||||
Buildings and structures |
5-60 years | |||
Underground access to cable tunnels, and concrete and steel telephone poles |
10-40 years | |||
Machinery and equipment |
3-15 years | |||
Vehicles |
3-10 years | |||
Tools, furniture and fixtures: |
||||
Steel safe boxes |
20 years | |||
Tools, computer equipment, furniture and fixtures |
2-8 years |
(j) Interest Capitalization
Under Korean GAAP, prior to January 1, 2003, interest was capitalized on borrowings related to the construction of all property and equipment and IMT-2000 frequency usage right, incurred prior to completing the acquisition, as part of the cost of such assets. Effective January 1, 2003, Korean GAAP was revised to allow a company to charge such interest expense to current operations. For Korean GAAP purpose, the Company adopted in 2003 the accounting policy not to capitalize such financing costs prospectively.
Under U.S. GAAP, interest costs related to certain assets that are routinely manufactured or otherwise produced in large quantities on a regular basis are not in the scope of interest capitalization. In addition, interest is capitalized in the amount that would have theoretically been avoided had expenditures not been made for assets which require a period of time to get them ready for their intended use.
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Under U.S. GAAP, details of interest capitalization for the years ended December 31, 2010, 2009 and 2008 are as follows (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
Total interest costs incurred |
(Won) | 519,021 | (Won) | 512,309 | (Won) | 471,816 | ||||||
Interest capitalized |
16,886 | 8,330 | 15,376 | |||||||||
Amounts charged to expense |
(Won) | 502,135 | (Won) | 503,979 | (Won) | 456,440 |
(k) Revenue Recognition
Under Korean GAAP, non-refundable service installation fees for telephone and initial subscription fees for PCS and leased-line services are recognized as revenue when installation and initiation services are rendered.
Under U.S. GAAP, service installation fees and initial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. In 2009, due to a change in the market condition the Company changed the estimate of the expected terms of customer relationships of telephone, PCS, and leased-line service from 15 years to 11 years, from 4 years to 2 years and from 3 years to 6 years, respectively. The change in the estimated expected terms of customer relationships is accounted for as a change in accounting estimate on a prospective basis effective January 1, 2009 under the accounting standard related to change in accounting estimates. As a result, net income for the year ended December 31, 2009 increased by (Won)153 billion.
Under Korean GAAP, handset subsidy paid by the Company is accounted for as expenses. However, under U.S. GAAP, the handset subsidy is treated as reduction of revenue in accordance with ASC Topic 605, Revenue Recognition.
Under Korean GAAP, the sales of the certain real estate are accounted for as the revenue and the costs of the related real estate are recorded as the cost of sales under certain circumstances permitted under Korean GAAP. However, under U.S. GAAP, gains and losses from the sale of the property used for operation are required to be recorded as a component of operating income in net of the proceeds from the sale and the related costs.
(l) Income Taxes
Under Korean GAAP, recognition of deferred income tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is interpreted to mean within 5 years. The Company does not believe it is probable to realize such benefit within 5 years.
Under U.S. GAAP, deferred income tax assets are recognized for an excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). However, deferred income tax assets related to consolidated subsidiaries are recognized only if it is apparent that the temporary difference will reverse in the foreseeable future.
Under Korean GAAP, in accordance with SKAS No. 16, effective from January 1, 2005, the Company did not recognize deferred income tax liabilities related to equity in gains of affiliates when it is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Under U.S. GAAP, deferred income tax liabilities are fully recognized for an excess of the amount for financial reporting over the tax basis of an investment in domestic subsidiaries and corporate joint ventures, unless the investment in the subsidiary can be recovered tax-free under local
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tax laws and management expects that it will ultimately use that means. However, deferred income tax liabilities are not recognized in an investment in a more than 50 percent-owned foreign subsidiary or foreign corporate joint venture that is essentially permanent in duration.
Under U.S. GAAP, on January 1, 2007, the Company adopted accounting guidance which clarifies the accounting guidance for uncertainties in income taxes. The guidance requires that the tax effect(s) of a position be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of the accounting guidance, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained.
(m) Foreign Currency Transactions
Under Korean GAAP, prior to January 1, 2003, all unrealized foreign currency translation gains and losses on monetary assets and liabilities, except for amounts included in the cost of property and equipment, were included in the results of operations. Effective January 1, 2003 the Company adopted SKAS No. 7, Capitalization of Financing Costs. As allowed by the standard, the Company elected to include all unrealized foreign currency translation gains and losses (including property and equipment) in the results of operations.
Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to as translation gains and losses under Korean GAAP) are included in the results of operations for the current period and therefore, the amounts included in property and equipment and related depreciation expense under Korean GAAP are reversed.
Under Korean GAAP, the convertible notes denominated in a foreign currency are regarded as non-monetary liabilities since they have equity-like characteristics, and the Company does not recognize the associated foreign currency translation gain and loss.
Under U.S. GAAP, the convertible notes denominated in a foreign currency are translated at the rate of exchange on the balance sheet date, and the resulting foreign currency transaction gain and loss is included in the results of operations.
(n) Noncontrolling Interest
Under Korean GAAP, minority interest in consolidated subsidiaries, which is noncontrolling interest under US GAAP, is presented as a separate component of equity in the consolidated balance sheet.
Under U.S. GAAP, as described in Note 38 (r) in 2009 the Company retrospectively adopted the presentation and disclosure provisions of new accounting guidance on a noncontrolling interest in its consolidated financial statements, which required noncontrolling interest to be presented as a separate component of equity in the consolidated financial statements as well as modified the presentation of net income and other comprehensive income to be attributed to controlling and noncontrolling interest. Consequently, there is no GAAP difference any longer in terms of presentation of noncontrolling interest in the consolidated financial statements except for terminology.
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(o) Other
Korean GAAP requires gains and losses from the sale of property and equipment, impairment write-downs and other bad debt expenses to be included as part of non-operating income (expense). Under U.S. GAAP, gains and losses from the sale of property and equipment, impairment write-downs and other bad debt expenses are required to be recorded as a component of operating income.
Under Korean GAAP, purchase of treasury stock is regarded as temporary and does not impact the ownership percentages of stockholders unless there is an explicit purpose of retirement of the repurchased shares in accordance with resolution of board of directors or stockholders meeting. Under U.S. GAAP, purchase of treasury stock results in a change of an entitys ownership structure and ownership percentages of stockholders.
(p) Comprehensive Income
Prior to January 1, 2007, Korean GAAP did not require the presentation of comprehensive income, however, effective January 1, 2007, the Company adopted SKAS No. 21, Preparation and Presentation of Financial Statements 1, which requires separate disclosure of the details of comprehensive income. Consequently, there is no GAAP difference any longer in terms of disclosure of comprehensive income and its components.
Under U.S. GAAP, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in total equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of operations.
Comprehensive income for the years ended December 31, 2010, 2009 and 2008 is summarized as follows (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
Attributable to stockholders : |
||||||||||||
Net income as attributable to stockholders adjusted in accordance with U.S. GAAP |
(Won) | 1,185,918 | (Won) | 741,921 | (Won) | 518,245 | ||||||
Other comprehensive income, net of tax : |
||||||||||||
Foreign currency translation adjustments |
(13,018 | ) | (19,389 | ) | 16,921 | |||||||
Unrealized gains on investments : |
||||||||||||
Unrealized holding gains (losses), net of tax of (Won)(3,739) million, (Won)384 million and (Won) (1,907) million in 2010, 2009 and 2008, respectively |
(13,257 | ) | 1,362 | (6,762 | ) | |||||||
Reclassification adjustment for losses realized in net earnings due to disposal, net of tax of (Won)88 million, (Won)378 million and (Won)687 million in 2010, 2009 and 2008, respectively |
274 | 1,388 | 2,436 | |||||||||
losses on valuation of derivatives for cash flow hedge, net of tax of (Won)(9,915) million, (Won)(5,840) million and (Won)(1,297) million in 2010, 2009 and 2008, respectively |
(35,153 | ) | (20,705 | ) | (4,598 | ) | ||||||
Comprehensive income as adjusted in accordance with U.S. GAAP |
1,124,764 | 704,577 | 526,242 | |||||||||
2010 | 2009 | 2008 | ||||||||||
Attributable to noncontrolling interest : |
||||||||||||
Net income as adjusted in accordance with U.S. GAAP |
10,222 | 98,704 | 55,178 | |||||||||
Other comprehensive income, net of tax : |
||||||||||||
Foreign currency translation adjustments |
(3,295 | ) | (7,910 | ) | 8,418 | |||||||
Others |
146 | (2,938 | ) | (8,183 | ) | |||||||
Comprehensive income as adjusted in accordance with U.S. GAAP |
7,073 | 87,856 | 55,413 | |||||||||
Total Comprehensive Income |
(Won) | 1,131,837 | (Won) | 792,433 | (Won) | 581,655 | ||||||
F-85
(q) Statements of Cash Flows
Statements of cash flows under Korean GAAP include the cash flows of KTSM, KTP, SFNH BF-(1), KT Music (formerly, KTF Music Corporation), KTR Co., Ltd, KT Rental, KT-LIG ACE Private Equity Fund, Vanguard Private Equity Fund and Doremi Media, which are accounted for under the equity method under U.S. GAAP.
Under Korean GAAP, cash flows from contributions that are restricted for the purposes of constructing assets are included in investing activities. For U.S. GAAP purposes, those cash flows are included in financing activities. In addition, under Korean GAAP cash flows from initial consolidation or deconsolidation of a subsidiary is presented as a separate line whereas for U.S. GAAP purposes, it is categorized as investing activities net of cash paid or received.
(r) Significant Recent Accounting Pronouncements
(i) | In June 2009, the FASB amended the consolidation rules related to Variable Interest Entities (VIEs). The new rules expand the primary beneficiary analysis to incorporate a qualitative review of which entity controls and directs the activities of the VIE. The amendments also modify the rules regarding the frequency of ongoing reassessments of whether a company is the primary beneficiary. Under the revised guidance, companies are required to perform ongoing reassessments as opposed to only when certain triggering events occur, as was previously required. This guidance is effective in 2010 and there is no material impact on the consolidated financial statements. |
(ii) | In October 2009, the FASB issued ASU 2009-13 Multiple-Deliverable Revenue Arrangements. The update addresses how revenues should be allocated among all products and services included in sales arrangements. It establishes a selling price hierarchy for determining the selling price of each product or service, with vendor-specific objective evidence (VSOE) at the highest level, third-party evidence of selling price at the intermediate level, and a best estimate of the selling price at the lowest level. It replaces fair value with selling price in revenue allocation guidance, eliminates the residual method as an acceptable allocation method, and requires the use of the relative selling price method as the basis for allocation. It also significantly expands the disclosure requirements for such arrangements, including, potentially, certain qualitative disclosures. ASU 2009-13 will be effective prospectively for sales entered into or materially modified in fiscal years beginning on or after June 15, 2010. The FASB permits early adoption of ASU 2009-13, applied retrospectively, to the beginning of the year of adoption. The Company has not early adopted the accounting standard in 2010. |
(iii) | In October 2009, the FASB issued ASU 2009-14 Certain Revenue Arrangements That Include Software Elements. The update clarifies the guidance for allocating and measuring revenue, including how to identify software that is out of the scope. The update also amends accounting and reporting guidance for revenue arrangements involving both tangible products and software that is more than incidental to the tangible product as a whole. That type of software and hardware will be outside of the scope of software revenue guidance, and the hardware components will also be outside of the scope of software revenue guidance and may result in more revenue recognized at the time of the hardware sale. Additional disclosures will discuss allocation of revenue to products and services in sales arrangements and the significant judgments applied in the revenue allocation method, including impacts on the timing and amount of revenue recognition. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. ASU 2009-14 has the same effective date, including early adoption provisions, as ASU 2009-13. The Company has not early adopted the accounting standard in 2010. |
F-86
(iv) | In December 2009, the FASB issued ASU 2009-16 Transfers and Servicing. This update removes the concept of a qualifying special-purpose entity (QSPE) and creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale. To determine if a transfer is to be accounted for as a sale, the transferor must assess whether it and all of the entities included in its consolidated financial statements have surrendered control of the assets. This standard is effective from January 1, 2010, with adoption applied prospectively for transfers that occur on and after the effective date. The elimination of the QSPE concept requires to retrospectively assess all current off-balance sheet QSPE structures for consolidation under ASC Topic 810, Consolidation, and record a cumulative-effect adjustment to retained earnings for any consolidation change. Retrospective application of ASU 2009-16, specially the QSPE removal, is being assessed as part of the analysis required from ASU 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. Refer to the section below for further information related to ASU 2009-17. |
(v) | In January 2010, the FASB amended the disclosure guidance related to fair value measurements. The amended disclosure guidance requires new fair value measurement disclosures and clarifies existing fair value measurement disclosure requirements. The amended disclosure guidance related to disclosures about purchases, sales, issuances and settlements of Level 3 instruments will be effective for fiscal years beginning after December 15, 2010. The remaining amended disclosure guidance will be effective for annual reporting periods beginning after December 15, 2009. The Company adopted the guidance in 2010 with no material impact on the consolidated financial statements. |
(vi) | In January 2010, the FASB issued authoritative guidance for improving disclosures about fair value measurements, which requires new and amended disclosure requirements for classes of assets and liabilities, inputs and valuation techniques and transfers between levels of fair value measurements and accounting for distributions to shareholders with components of stock and cash, which clarifies the accounting for distributions to shareholders that offer them the ability to elect to receive their entire distribution in cash or shares of equivalent value. The Company adopted the guidance in 2010 with no material impact on the consolidated financial statements. |
(vii) | The FASB issued ASU 2010-09 on February 24, 2010 to amend ASC 855, Subsequent Events to address certain implementation issues. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, it has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company adopted the standard in 2010 with no material impact on the consolidated financial statements. |
(viii) | The FASB issued ASU 2010-20 on July 21, 2010 to provide financial statement users with greater transparency about an entitys allowance for credit losses and the credit quality of its financing receivables. This amendment is intended to provide additional information to assist financial statement users in assessing and entitys credit risk exposures and evaluating the adequacy of its allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company adopted the standard in 2010 and accordingly, disclosed the additional information related to credit risk. |
F-87
(s) Income per Share
The following table sets forth the computation of basic and diluted income per share attributable to stockholders for the years ended December 31, 2010, 2009 and 2008:
2010 | 2009 | 2008 | ||||||||||||||||||||||
Diluted | Basic | Diluted | Basic | Diluted | Basic | |||||||||||||||||||
CONSOLIDATED (in millions of Korean won) |
||||||||||||||||||||||||
Net income from continuing operations |
(Won) | 1,185,918 | (Won) | 1,185,918 | (Won) | 746,849 | (Won) | 742,454 | (Won) | 521,692 | (Won) | 521,692 | ||||||||||||
Net income (loss) from discontinued operations |
| | (533 | ) | (533 | ) | (3,447 | ) | (3,447 | ) | ||||||||||||||
Net income |
(Won) | 1,185,918 | (Won) | 1,185,918 | (Won) | 746,316 | (Won) | 741,921 | (Won) | 518,245 | (Won) | 518,245 | ||||||||||||
AVERAGE EQUIVALENT SHARES |
||||||||||||||||||||||||
Shares of common stock outstanding |
243,207,149 | 243,207,149 | 219,512,696 | 219,512,696 | 202,891,015 | 202,891,015 | ||||||||||||||||||
Dilutive effect of exchangeable bond |
| | 4,655,062 | | | | ||||||||||||||||||
Dilutive effect of stock option and grant |
18,081 | | | | | | ||||||||||||||||||
Total average equivalent shares |
243,225,230 | 243,207,149 | 224,167,758 | 219,512,696 | 202,891,015 | 202,891,015 | ||||||||||||||||||
PER SHARE AMOUNTS (in Korean won) |
||||||||||||||||||||||||
Net income from continuing operations |
(Won) | 4,876 | (Won) | 4,876 | (Won) | 3,332 | (Won) | 3,382 | (Won) | 2,571 | (Won) | 2,571 | ||||||||||||
Net income (loss) from discontinued operations |
| | (2 | ) | (2 | ) | (17 | ) | (17 | ) | ||||||||||||||
Net income per share |
(Won) | 4,876 | (Won) | 4,876 | (Won) | 3,330 | (Won) | 3,380 | (Won) | 2,554 | (Won) | 2,554 | ||||||||||||
Basic income per share is computed on the basis of the weighted-average number of common stock outstanding. Diluted income per share is computed on the basis of the weighted-average number of common stock outstanding plus the effect of outstanding exchangeable bonds, stock option and other stock compensation using the if-exchanged method and the treasury stock method if dilutive. The denominator of the diluted income per share computation is adjusted to include the number of additional common stock that would have been outstanding had the dilutive potential common stock been issued at the beginning of the period or since issued. In addition, the numerator is adjusted to include the after-tax amount of interest and foreign currency translation gain (loss) recognized associated with the exchangeable bonds. 43,153 shares, 365,832 shares and 417,785 shares of stock options outstanding as of December 31, 2010, 2009 and 2008, respectively, were not considered when calculating dilutive income per share because the exercise price of the stock options was greater than the average market price of the shares and, therefore the effect would have been antidilutive.
F-88
(t) Condensed Consolidated U.S. GAAP Financial Information
Condensed consolidated balance sheets in accordance with U.S. GAAP as of December 31, 2010 and 2009 are presented as follows (in millions of Korean won):
2010 | 2009 | |||||||
Current assets |
||||||||
Accounts receivabletrade |
(Won) | 3,744,375 | (Won) | 3,596,936 | ||||
Other current assets |
3,996,880 | 4,232,602 | ||||||
Total current assets |
7,741,255 | 7,829,538 | ||||||
Investments |
870,456 | 463,701 | ||||||
Property and equipment, net |
13,681,924 | 14,040,901 | ||||||
Goodwill |
560,808 | 560,834 | ||||||
Other assets |
3,748,335 | 3,630,526 | ||||||
Total assets |
(Won) | 26,602,778 | (Won) | 26,525,500 | ||||
Current liabilities |
||||||||
Accounts payabletrade |
(Won) | 1,492,008 | (Won) | 1,478,667 | ||||
Other current liabilities |
5,664,760 | 5,505,811 | ||||||
Total current liabilities |
7,156,768 | 6,984,478 | ||||||
Long-term debt, excluding current portion |
6,719,071 | 7,515,257 | ||||||
Other long-term liabilities |
1,626,786 | 1,569,321 | ||||||
Total liabilities |
15,502,625 | 16,069,056 | ||||||
Stockholders equity |
10,929,157 | 10,287,594 | ||||||
Noncontrolling interest |
170,996 | 168,850 | ||||||
Total equity |
11,100,153 | 10,456,444 | ||||||
Total liabilities and equity |
(Won) | 26,602,778 | (Won) | 26,525,500 | ||||
F-89
Condensed consolidated statements of cash flows in accordance with U.S. GAAP for the years ended December 31, 2010, 2009 and 2008 are set out below (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
(Won) | 1,196,140 | (Won) | 840,625 | (Won) | 573,423 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
3,112,991 | 3,287,343 | 3,663,037 | |||||||||
Provision for doubtful accounts |
191,009 | 91,863 | 139,441 | |||||||||
Loss on disposal of property and equipment |
79,845 | 118,925 | 89,734 | |||||||||
Equity in loss of associates |
(91,239 | ) | (81,078 | ) | (164,336 | ) | ||||||
Deferred income tax benefit |
17,922 | (20,522 | ) | (115,337 | ) | |||||||
Gain on disposition of available-for-sale securities, net |
(356 | ) | (1,716 | ) | (5,587 | ) | ||||||
Impairment losses of equity method affiliates |
| | 22,058 | |||||||||
Foreign currency translation loss (gain), net |
(32,793 | ) | (245,748 | ) | 753,592 | |||||||
Loss (Gain) on settlement and valuation of derivatives, net |
7,576 | 172,717 | (649,360 | ) | ||||||||
Changes in assets and liabilities related to operating activities: |
||||||||||||
Notes and accounts receivable |
(101,763 | ) | (620,909 | ) | (161,287 | ) | ||||||
Inventories |
(6,900 | ) | (287,367 | ) | (142,512 | ) | ||||||
Advance payments |
(59,995 | ) | (20,687 | ) | (2,795 | ) | ||||||
Notes and long-term accounts receivable |
(773,393 | ) | (533,925 | ) | (654,248 | ) | ||||||
Accounts payable |
36,639 | 1,612,516 | (423,619 | ) | ||||||||
Advance receipts |
(24,370 | ) | 52,707 | 19,783 | ||||||||
Income taxes payable |
298,990 | (169,092 | ) | (153,173 | ) | |||||||
Prepaid expenses |
(4,704 | ) | (19,915 | ) | (44,291 | ) | ||||||
Withholdings |
64,825 | (129,912 | ) | 26,404 | ||||||||
Accrued expenses |
77,837 | (39,298 | ) | 24,904 | ||||||||
Refundable deposits for telephone installation |
(80,581 | ) | (85,129 | ) | (59,437 | ) | ||||||
Payment of severance indemnities |
(1,002,871 | ) | (214,965 | ) | 140,352 | |||||||
Deposits for severance indemnities |
281,576 | 49,861 | (148,822 | ) | ||||||||
Other, net |
(164,804 | ) | (418,286 | ) | 160,633 | |||||||
Net Cash Provided by Operating Activities |
3,021,581 | 3,338,008 | 2,888,557 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Acquisition of property and equipment |
(3,019,378 | ) | (2,759,777 | ) | (3,322,381 | ) | ||||||
Disposal of property and equipment |
27,109 | 69,777 | 53,606 | |||||||||
Decrease (increase) in short-term financial instruments, net |
252,216 | (39,287 | ) | 209,474 | ||||||||
Disposal of available-for-sale securities |
6,148 | 6,833 | 614,405 | |||||||||
Proceeds from the sale of equity method investments |
56,260 | 1,322 | 1,047 | |||||||||
Collection of held-to-maturity securities |
| 14,093 | 5 | |||||||||
Acquisition of available-for-sale securities |
(88,980 | ) | (79,847 | ) | (692,289 | ) | ||||||
Acquisition of equity method investment securities |
(86,798 | ) | (18,191 | ) | (123,171 | ) | ||||||
Acquisition of held-to-maturity securities |
| (5 | ) | (13,988 | ) | |||||||
Acquisition of assets and liabilities of consolidated subsidiaries |
(39,689 | ) | 37,580 | (5,619 | ) | |||||||
Acquisition of intangible assets |
(348,736 | ) | (209,644 | ) | (181,937 | ) | ||||||
Other, net |
(35,001 | ) | 159,391 | (41,422 | ) | |||||||
Net Cash Used in Investing Activities |
(3,276,849 | ) | (2,817,755 | ) | (3,502,270 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Payment of dividends |
(493,156 | ) | (228,332 | ) | (408,242 | ) | ||||||
Increase in short-term borrowings |
257,263 | 101,395 | 55,440 | |||||||||
Repayment of long-term borrowings and current portion of long-term debt |
(1,534,873 | ) | (1,431,343 | ) | (2,121,831 | ) | ||||||
Increase in long-term borrowings |
1,610,833 | 1,498,630 | 3,735,500 | |||||||||
Acquisition of treasury stock |
(54 | ) | (528,143 | ) | (73,807 | ) | ||||||
Outflows from capital transactions of consolidated entities |
9,576 | (276,388 | ) | (110,917 | ) | |||||||
Other, net |
33,550 | (37,542 | ) | 70,702 | ||||||||
Net Cash Provided by (Used in) Financing Activities |
(116,861 | ) | (901,723 | ) | 1,146,845 | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(372,130 | ) | (381,470 | ) | 533,132 | |||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR |
1,489,514 | 1,870,984 | 1,337,852 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF THE YEAR |
(Won) | 1,117,384 | (Won) | 1,489,514 | (Won) | 1,870,984 | ||||||
Supplemental schedule: |
||||||||||||
Cash paid for interest (net of amounts capitalized) |
(Won) | 462,560 | (Won) | 498,299 | (Won) | 406,485 | ||||||
Cash paid for income taxes |
(Won) | 134,649 | (Won) | 274,302 | (Won) | 453,532 |
F-90
39. ADDITIONAL U.S. GAAP DISCLOSURES
(a) Income Tax Expense
The components of income tax expense for the years ended December 31, 2010, 2009 and 2008 are as follows (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
Current income tax expense |
(Won) | 331,010 | (Won) | 138,194 | (Won) | 293,512 | ||||||
Deferred income tax benefit |
43,020 | (20,522 | ) | (115,337 | ) | |||||||
Income tax expense |
(Won) | 374,030 | (Won) | 117,672 | (Won) | 178,175 | ||||||
Substantially all income before income taxes and related income tax expense (benefit) are attributable to domestic operations. The provision for income taxes using statutory tax rates differs from the actual provision for the years ended December 31, 2010, 2009 and 2008 for the following reasons (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
Provision for income taxes at statutory tax rates |
(Won) | 379,955 | (Won) | 232,025 | (Won) | 207,625 | ||||||
Tax credits |
(54,578 | ) | (110,825 | ) | (197,492 | ) | ||||||
Additional income tax payment (refund) related to prior year |
8,208 | 12,692 | (4,716 | ) | ||||||||
Non-temporary difference |
12,553 | 15,985 | 24,863 | |||||||||
Changes in deferred income tax unrecognized |
17,642 | (35,338 | ) | (65 | ) | |||||||
Tax rate changes |
6,922 | 3,421 | 142,437 | |||||||||
Others |
3,328 | (288 | ) | 5,523 | ||||||||
Actual provision for income taxes |
(Won) | 374,030 | (Won) | 117,672 | (Won) | 178,175 | ||||||
The effective tax rates after adjustments of certain differences between amounts reported for financial accounting and income tax purpose, were approximately 23.8%,12.3% and 23.6% for the years ended December 31, 2010, 2009 and 2008, respectively.
The tax effects of temporary differences that resulted in significant portions of the deferred income tax assets and liabilities at December 31, 2010 and 2009, computed under U.S. GAAP, and a description of financial statement items that created these differences are as follows (in millions of Korean won):
2010 | 2009 | |||||||
Deferred income tax assets: |
||||||||
Allowance for doubtful accounts |
(Won) | 132,099 | (Won) | 122,873 | ||||
Refundable deposits for telephone installation |
9,283 | 9,609 | ||||||
Investment securities |
8,495 | 9,154 | ||||||
Inventories |
1,416 | 1,174 | ||||||
Property and equipment |
181,393 | 156,079 | ||||||
Unearned revenue |
50,989 | 55,121 | ||||||
Equity method investment securities |
2,923 | 23,737 | ||||||
Tax credit carryforwards |
88,794 | 169,122 | ||||||
Tax loss carryforwards |
60,999 | 61,882 | ||||||
Accrued expenses |
87,997 | 33,918 | ||||||
Other |
238,774 | 266,453 | ||||||
Total deferred income tax assets |
863,162 | 909,122 | ||||||
Valuation allowance |
(144,858 | ) | (88,229 | ) | ||||
Deferred income tax assets |
718,304 | 820,893 | ||||||
Deferred income tax liabilities: |
||||||||
Equity method investment securities |
| (47,623 | ) | |||||
Accrued interest income |
(818 | ) | (1,855 | ) | ||||
Deferred income tax liabilities |
(818 | ) | (49,478 | ) | ||||
Net deferred income tax assets |
(Won) | 717,486 | (Won) | 771,415 | ||||
F-91
In 2010 and 2009, valuation allowances were recognized by certain subsidiaries as realization of deferred income tax asset was not assessed as more likely than not mainly due to lack of expected future taxable income.
In 2010, the Company was eligible for tax credits of (Won)257,331 million. However, due to the minimum tax provisions, the Company utilized only (Won)150,720 million. The remaining tax credit will expire in 2015. During 2010, the Company concluded that the remaining tax credits was more likely than not of realization in the future based on future taxable income estimates. As a result, the Company recorded an income tax benefit of (Won)88,794 million of the tax credit. The tax loss carryforwards of (Won)266,147 million as of December 31, 2010 will expire through 2020. During 2010, certain subsidiaries including KT Tech did not recognize deferred income tax assets amounting to (Won)57,620 million which resulted from the tax effects of tax loss carryforwards of (Won)261,909 million in excess of taxable differences and future taxable income. The valuation allowances reflect the uncertainty surrounding the Companys ability to generate sufficient future taxable income in certain tax jurisdictions to utilize its net operating losses and the Companys ability to generate sufficient capital gains to utilize all capital losses.
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax carryforwards are utilizable. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible or utilized, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance recorded at December 31, 2010 and 2009. The amount of the deferred income tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.
The amount of unrecognized tax benefits that would favorably affect the effective income tax rate was (Won)5,761 million and ((Won)25,872) million for the years ended December 31, 2010 and 2009, respectively. The liability for uncertain tax positions is classified as a non-current liability in accordance with the guidance.
A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows (in millions of Korean won):
2010 | 2009 | 2008 | ||||||||||
Balance at January 1, |
(Won) | (1,618 | ) | (Won) | 4,252 | (Won) | 6,450 | |||||
Additions to tax positions recorded during the current year |
6,281 | (5,293 | ) | 573 | ||||||||
Additions to tax positions recorded during prior years |
605 | 347 | 268 | |||||||||
Reductions to tax positions recorded during prior years |
(602 | ) | (360 | ) | (226 | ) | ||||||
Reductions for settlement |
| (564 | ) | (2,813 | ) | |||||||
Balance at December 31, |
(Won) | 4,666 | (Won) | (1,618 | ) | (Won) | 4,252 | |||||
The Companys practice is to classify interest on uncertain tax positions in non-operating expense whereas penalties are classified in income tax expense. The Company recognized (Won)605 million and (Won)347 million in penalties for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, the Company had (Won)1,514 million and (Won)909 million accrued for the payment of penalties.
F-92
The Company has open tax years ranging from 2006 to 2010, by which its taxes remain subject to examination. However, the Company does not anticipate that the total amount of unrecognized tax benefits will significantly change in the next 12 months.
(b) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). GAAP establishes a valuation hierarchy for prioritizing the inputs and the hierarchy places greater emphasis on the use of observable market inputs and less emphasis on unobservable inputs. When determining fair value, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy are as follows: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Following is a description of the valuation methodologies the Company used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
(i) Recurring Fair Value
Securities
The Company classifies its securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market.
Derivatives
The Company generally classifies derivatives within Level 2 of the valuation hierarchy. The derivative financial instruments consist of cross currency interest rate swap and forward. The cross currency interest swaps and forward are valued using valuation models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors and current and forward market prices for foreign currency.
F-93
The following fair value hierarchy table presents information regarding the assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, respectively (in millions of Korean won):
2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
ASSETS |
||||||||||||||||
Securities |
||||||||||||||||
Beneficiary certificates |
(Won) | 67,826 | (Won) | | (Won) | | (Won) | 67,826 | ||||||||
Trading securities |
2,000 | | | 2,000 | ||||||||||||
Available-for-sale securities |
20,121 | | | 20,121 | ||||||||||||
Held-to-maturity securities |
| 7 | | 7 | ||||||||||||
Derivative instruments assets : |
||||||||||||||||
Interest rate swap |
| 1,213 | | 1,213 | ||||||||||||
Currency swap |
| 34,193 | | 34,193 | ||||||||||||
Combined interest rate currency swap |
| 212,388 | | 212,388 | ||||||||||||
Currency forwards |
| 136 | | 136 | ||||||||||||
Total |
(Won) | 89,947 | (Won) | 247,937 | (Won) | | (Won) | 337,884 | ||||||||
LIABILITIES |
||||||||||||||||
Derivative instruments liabilities : |
||||||||||||||||
Interest rate swap |
| 214 | | 214 | ||||||||||||
Currency swap |
| 6,560 | | 6,560 | ||||||||||||
Combined interest rate currency swap |
| 13,277 | | 13,277 | ||||||||||||
Currency forwards |
| 420 | | 420 | ||||||||||||
Total |
(Won) | | (Won) | 20,471 | (Won) | | (Won) | 20,471 | ||||||||
2009 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
ASSETS |
||||||||||||||||
Securities |
||||||||||||||||
Beneficiary certificates |
(Won) | 84,199 | (Won) | | (Won) | | (Won) | 84,199 | ||||||||
Trading securities |
15,470 | | | 15,470 | ||||||||||||
Available-for-sale securities |
31,403 | | | 31,403 | ||||||||||||
Held-to-maturity securities |
| 82 | | 82 | ||||||||||||
Derivative instruments assets : |
||||||||||||||||
Interest rate swap |
| 23 | | 23 | ||||||||||||
Currency swap |
| 47,547 | | 47,547 | ||||||||||||
Combined interest rate currency swap |
| 417,731 | | 417,731 | ||||||||||||
Currency forwards |
| 288 | | 288 | ||||||||||||
Total |
(Won) | 131,072 | (Won) | 465,671 | (Won) | | (Won) | 596,743 | ||||||||
LIABILITIES |
||||||||||||||||
Derivative instruments liabilities : |
||||||||||||||||
Interest rate swap |
| 5,775 | | 5,775 | ||||||||||||
Currency swap |
| 3,781 | | 3,781 | ||||||||||||
Currency forwards |
| 1,723 | | 1,723 | ||||||||||||
Total |
(Won) | | (Won) | 11,279 | (Won) | | (Won) | 11,279 | ||||||||
(ii) Non-recurring Fair Value
In 2009, the Company adopted the provisions of the authoritative guidance on fair value measurements for nonfinancial assets and nonfinancial liabilities that the Company does not recognize or disclose at fair value on a recurring basis (at least annually). These include reporting units measured at fair value in a goodwill impairment test, other nonfinancial assets or liabilities measured at fair value for impairment testing, and nonfinancial assets acquired and liabilities assumed in a business combination. In connection with the adoption of this guidance the Company analyzed and evaluated
F-94
them to determine whether nonfinancial assets and liabilities had any evidences of impairment. As a result of the evaluation, the Company noted that it currently does not have significant non-financial assets or non-financial liabilities that are required to be measured at fair value on a non-recurring basis.
(c) Fair Value of Financial Instruments
The following method and assumptions were used to estimate the fair value of each significant class of financial instrument for which it was practicable to estimate such value:
(i) Cash and cash equivalents, short-term financial instruments, accounts receivable, accounts payable and short-term borrowings
The carrying amount approximates fair value due to the short-term maturity of these instruments and credit risk.
(ii) Loans to employees
The carrying amount of short-term loans approximates fair value due to the short term maturities of these loans. The fair value of long-term loans is estimated based on discounted cash flows using current rates offered for loans of the similar remaining maturities.
(iii) Long-term debt
The fair value of the long-term debt, including current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.
The estimated fair values of the Companys significant financial instruments at December 31, 2010 and 2009 are summarized as follows (in millions of Korean won):
2010 | 2009 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
Cash and cash equivalents |
(Won) | 1,124,810 | (Won) | 1,124,810 | (Won) | 1,489,674 | (Won) | 1,489,674 | ||||||||
Short-term financial instruments |
67,826 | 67,826 | 84,199 | 84,199 | ||||||||||||
Notes and accounts receivable |
4,282,543 | 4,282,543 | 4,082,386 | 4,082,386 | ||||||||||||
Loans to employees |
5,093 | 4,727 | 53,020 | 52,801 | ||||||||||||
Accounts payable |
1,492,019 | 1,492,019 | 1,479,812 | 1,479,812 | ||||||||||||
Short-term borrowings |
436,160 | 436,160 | 358,205 | 358,205 | ||||||||||||
Long-term debt, including current portion |
8,924,843 | 8,827,137 | 9,219,764 | 9,154,905 |
(d) Accrued Severance Indemnities
The Company expects to pay the following future benefits to its employees upon their normal retirement age (in millions of Korean won):
Year ending December 31, |
||||
2011 |
(Won) | 3,224 | ||
2012 |
2,937 | |||
2013 |
5,952 | |||
2014 |
16,317 | |||
2015 |
45,783 | |||
2016-2020 |
395,467 |
F-95
(e) Loan Receivables
Loan receivables by type as of December 31, 2010, are as follows:
2010 | ||||||||||||||
(in millions of Korean won) |
Original Amount |
Allowance for doubtful accounts |
Carrying Value |
|||||||||||
Loans receivable |
Factoring receivables | (Won) | 35,737 | (Won) | (647 | ) | (Won) | 35,090 | ||||||
Loans | 1,021,702 | (27,934 | ) | 993,768 | ||||||||||
Accounts receivable-loans | 13,307 | (2,402 | ) | 10,905 | ||||||||||
Loan for installment credit |
Loans for installment credit | 54,364 | (2,573 | ) | 51,791 | |||||||||
Accounts receivable-loans for installment credit |
528 | (82 | ) | 446 | ||||||||||
Loan for new technology |
New technology financial investment assets |
3,984 | (1,124 | ) | 2,860 | |||||||||
New technology financial loans | 10,786 | (181 | ) | 10,605 | ||||||||||
Total | (Won) | 1,140,408 | (Won) | (34,943 | ) | (Won) | 1,105,465 | |||||||
The Company provides the allowance for the doubtful accounts for overdue receivables based on the aging analysis, historical bad debt experience and other relevant factors.
The aging analysis of loans receivables as of December 31, 2010, is as follows:
(in millions of Korean won) |
2010 | |||
Current |
(Won) | 1,066,046 | ||
Past due but not impaired |
||||
Less than 31 days past due |
9,954 | |||
31 ~ 60 days past due |
18,050 | |||
61 ~ 90 days past due |
3,069 | |||
91 ~ 180 days past due |
| |||
over 180 days |
| |||
31,073 | ||||
Impaired loan |
||||
Impaired loans on individual basis |
10,392 | |||
Allowance for doubtful accounts |
(3,784 | ) | ||
Impaired loans as a group |
32,897 | |||
Allowance for doubtful accounts |
(31,159 | ) | ||
8,346 | ||||
Total |
(Won) | 1,105,465 | ||
The maximum exposure to credit risk of each class of receivables is equal to the book value of each class of receivable as of December 31, 2010.
Credit risk is managed at the company level to minimize the financial loss. Credit risk arises in the ordinary course of transactions and investing activities, where clients or other party fails to discharge an obligation. The Company considers the counterpartys credit on a periodic basis based on the counterpartys financial conditions, default history and other important factors. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as outstanding receivables. To minimize such risk, the Company transacts only with financial institutions which have strong credit rating.
F-96
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
KT CORPORATION |
(Registrant) |
/s/ Suk-Chae Lee |
Name: Suk-Chae Lee |
Title: Chief Executive Officer |
Date: June 29, 2011
Exhibit 1
THE ARTICLES OF INCORPORATION
OF
KT Corporation
Adopted on October 1, 1997
Amended on December 8, 1997
September 18, 1998
March 19, 1999
March 24, 2000
March 21, 2001
March 22, 2002
August 20, 2002
March 14, 2003
March 12, 2004
March 11, 2005
August 19, 2005
March 10, 2006
March 16, 2007
January 14, 2009
March 27, 2009
March 12, 2010
March 11, 2011
1
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 and contents; |
4. | Sale and distribution of information communication equipment; |
5. | Testing and inspection of information communication equipment, device or facilities; |
6. | Advertisement business; |
7. | Retail business via telephone, mail order or online; |
8. | IT facility construction business and electrical construction business; |
9. | Real estate and housing business; |
10. | Electronic banking and finance business; |
11. | Education and learning service business; |
12. | Security service business (Machinery system surveillance service, Facilities security service, etc); |
13. | Research and technical development, education, training and promotion, overseas businesses, and export and import, manufacture and distribution related to activities mentioned in Subparagraphs 1 through 12; and |
14. | Frequency-based telecommunications services and other telecommunications services |
15. | Value-added telecommunications business |
16. | Manufacture, provision (screening) and distribution of contents such as musical records, music videos, movies, videos and games |
2
17. | Issuance and management of pre-paid electronic payment instruments, and businesses related to electronic finance such as payment gateway services |
18. | Sales and leasing of equipment and facilities related to the activities mentioned in Subparagraphs 14 through 17 |
19. | Any overseas business or export and import business related to activities mentioned in Subparagraphs 14 through 18 |
20. | Tourism |
21. | [deleted] |
22. | New and renewable energy and energy generation business |
23. | Health Informatics |
24. | Manufacture of Military Telecommunications Equipment |
25. | Any and all other activities or businesses incidental to or necessary for attainment of the foregoing. |
Article 3. (Location of Offices) The head office of KT (the head office) shall be located in Seoul or Kyunggi Province. KT may establish requisite sub-offices at site(s) pursuant to resolution of the Board of Directors.
Article 4. (Method of Public Notice) Public notices by KT shall be given in The Seoul Shinmun circulated in Seoul, Republic of Korea. Provided, however, that if the public notices cannot be published in The Seoul Shinmun due to unavoidable circumstances, such public notices may be given in any daily newspaper published in Seoul, Republic of Korea.
3
CHAPTER II. SHARES OF STOCK
Article 5. (Amount of Authorized Capital) The total number of shares authorized to be issued by KT shall be one billion shares.
Article 6. (Par Value and Types of Shares and Share Certificates)
(1) Par value per share issued by KT shall be 5,000 Korean Won. The type of shares shall be common shares and preferred shares, both of which shall be in registered form.
(2) Share certificates shall be in eight (8) denominations of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1000) and ten thousand (10,000) shares.
Article 7. (Shares to be Issued at the Time of Incorporation) The total number of shares to be issued by KT at the time of incorporation shall be 395,675,369 shares.
Article 8. (Number and Description of Preferred Shares)
(1) The total number of Preferred Shares to be issued by KT shall be up to one-fourth (1/4) of the total number of shares issued and outstanding, which shall be without voting rights.
(2) Dividends on Preferred Shares shall be an amount not less than nine (9) percent p.a. of the par value as determined by the Board of Directors at the time of issuance.
(3) If the dividends on the Common Shares exceed those on Preferred Shares, the excess dividend amount shall also be paid to the holders of Preferred Shares commensurate to the rate applicable to Common Shares.
(4) If dividends on Preferred Shares are not paid for any fiscal year, the holders of such Preferred Shares shall be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in the next fiscal year.
Article 9. (Preemptive Rights)
4
(1) When KT issues new shares, the shareholders of KT shall be entitled to subscribe for such new shares in proportion to their existing shareholdings.
(2) Notwithstanding Paragraph (1) above, new shares may be issued to persons other than the shareholders of KT, in the following cases:
1. | When the new shares are issued by public offering or subscribed by underwriters pursuant to Article 4 and Article 119 of the Financial Investment Services and Capital Markets Act (FSCMA); |
2. | When the members of the Employee Stock Ownership Association of KT have preemptive rights to subscribe for such new shares pursuant to Article 165-7 of the FSCMA; |
3. | When the new shares are represented by depositary receipt pursuant to Article 165-16 of the FSCMA |
4. | When the new shares are issued by the exercise of stock options set forth in Article 10 of these Articles of Incorporation; |
5. | When the new shares are issued in order to accomplish specific business purposes such as strategic alliance, inducement of foreign funds, other capital raising requirements, introduction of new technology, and improvement of financial structure. |
6. | When the new shares are issued by a resolution of the Board of Directors through a general public offering pursuant to Article 165-6 of the FSCMA. However, in such case, the total number of the shares to be issued shall not exceed ten percent (10%) of the total number of KT issued and outstanding; or |
7. | When there exists an immediate need for the company to raise funds, new shares can be issued to domestic and foreign financial institutions (enacted on March 21, 2001). |
(3) The method of disposition of shares in respect of which preemptive rights have not been exercised or where fractions of shares occur shall be determined by a resolution of the Board of Directors.
(4) Notwithstanding Paragraph (1) above, shareholders who acquire shares in violation of any laws and regulations or these Articles of Incorporation shall not be entitled to subscribe for new shares in respect of such shares.
5
Article 10. (Stock Options)
(1) KT may grant stock options to its officers and employees who have contributed, or are capable of contributing, to the establishment, management or technical innovation of KT, except for officers or employees in any of the following cases, by a Special Resolution of the General Meeting of Shareholders pursuant to Article 340-2 and Article 542-3 of the Commercial Code of Korea, to the extent not exceeding fifteen percent (15%) of the total number of issued shares, provided that KT may grant stock options by a resolution of the Board of Directors adopted by affirmative votes of two-thirds (2/3) of the directors in offices, to the extent not exceeding one percent (1%) of the total number of issued shares. In such case, the provision of the latter part of the Proviso of Paragraph 1 of Article 38 shall apply mutatis mutandis:
1. | The largest shareholder of KT and the Related Person thereto (refers to the Related Person as prescribed in Paragraph 2-5, Article 542-8 of the Commercial Code of Korea. The same shall apply in this Article); |
2. | Major Shareholders (refers to the Major Shareholders as prescribed in Paragraph (2-6) of Article 542-8 of the Commercial Code of Korea. The same shall apply hereinafter) and the Related Person thereto; or |
3. | Any person who shall become a Major Shareholder of KT by exercising his/her stock options. |
(2) The proviso of Paragraph (1) shall not apply to the directors of KT, and the grant of stock options pursuant to the proviso of Paragraph (1) shall be approved by the General Meeting of Shareholders which is held after such grant of stock options.
(3) The shares to be issued to the officers or employees by the exercise of their stock options (in case where KT pays in cash or shares the difference between the exercise price of stock options and the market price, refers to the shares which are the basis for such calculation) shall be Common Shares in registered form.
6
(4) The number of officers and employees of KT who are granted with stock options shall not exceed ninety nine percent (99%) of the total number of officers and employees in office. Stock options granted to one single officer or employee shall not exceed ten percent (10%) of total number of shares issued and outstanding.
(5) The exercise price per share of the stock options shall not be less than the price as set forth in the Commercial Code of Korea.
(6) Unless otherwise provided for by the relevant laws, the exercise period of stock options shall be determined by separate agreements, to the extent that such exercise periods shall not exceed seven (7) years from the date two (2) years have elapsed after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted.
(7) KT may cancel the grant of stock options by a resolution of the Board of Directors in any of the following cases:
1. | When the relevant officer or employee of KT voluntarily retires from his/her office within two (2) years after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted; |
2. | When the relevant officer or employee of KT is dismissed for substantial damages incurred to KT due to his/her willful misconduct or gross negligence; or |
3. | When any event for the cancellation set forth in the agreement for granting such stock options occurs. |
Article 11. (Base Date Regarding Dividends of the New Shares) (1)In case KT issues new shares through right issues, bonus issues and stock dividends, with respect to the distribution of dividends on the new shares, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year during which the new shares are issued.
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Article 12. (Transfer Agent)
(1) KT may appoint a transfer agent to make entries in the register of shareholders.
(2) The transfer agent, and the place and scope of business of the transfer agent shall be determined by a resolution of the Board of Directors, and a public notice shall be given thereof.
Article 13. (Report of Names, Addresses and Seals of Shareholders)
(1) Shareholders and registered pledges shall report their names, addresses, and seals to the transfer agent referred to in Article 12. Any changes thereto shall also be reported.
(2) Shareholders and registered pledgees who reside in foreign countries shall appoint and report the place where, and an agent to whom, notices will be given in Korea. Any changes there to shall also be reported.
Article 14. (Closing of the Register of Shareholders and the Record Date)
(1) KT shall suspend the entries of any changes into the register of shareholders regarding any rights on Shares from January 1 to January 31 of each year.
(2) KT shall let the shareholders who are entered into the register of shareholders on December 31 of each year exercise their rights thereof at the Ordinary General Meeting of Shareholders.
(3) KT may, for convening an Extraordinary General Meeting of Shareholders or when necessary, by a resolution of the Board of Directors, set the record date or close the register of shareholders for a certain period not exceeding three (3) months by giving at least two (2) weeks prior public notice.
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CHAPTER III. DEBENTURES
Article 15. (Issuance of Convertible Bonds)
(1) KT may issue convertible bonds to persons other than shareholders to the extent that the aggregate face value of the convertible bonds so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of convertible bonds to persons other than shareholders may be made in cases provided for by any of the Subparagraphs of Paragraph (2) of Article 9.
(2) The Board of Directors may determine that the convertible bonds referred to in Paragraph (1) may be issued on the condition that conversion rights will be attached to only a portion of the convertible bonds.
(3) The type of shares to be issued upon conversion of convertible bonds shall be common shares. The conversion price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.
(4) The period during which conversion rights may be exercised shall commence on the date set forth in the FSCMA after the date of issuance of the relevant convertible bonds and end on the date immediately preceding the redemption date thereof. However, the Board of Directors may adjust the conversion period in accordance with relevant laws within the above period by its resolution.
(5) For the purposes of any distribution of dividends on the shares issued upon conversion or any payment of interest on the convertible bonds, the convertible bonds shall be deemed to have been converted into shares at the end of the fiscal year immediately preceding the fiscal year in which the relevant conversion rights are exercised.
Article 16. (Issuance of Bonds with Warrants)
(1) KT may issue bonds with warrants to persons other than shareholders to the extent that the aggregate face value of the bonds with warrants so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of bonds with warrants to persons other than shareholders may be made in only in cases provided for by Subparagraphs of Pargraph(2) of Article 9.
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(2) The amount of new shares which can be subscribed by the holders of the bonds with warrants shall be determined by the Board of Directors, provided that the maximum amount of such new shares shall not exceed the aggregate face value of the bonds with warrants.
(3) The type of shares to be issued upon exercise of warrants shall be common shares. The issue price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.
(4) The period during which warrants may be exercised shall commence on the date set forth in the FSCMA after the date of issuance of the relevant bonds with warrants and end on the date immediately preceding the redemption date thereof. Provided that, the Board of Directors may adjust the conversion period in accordance with the relevant laws within the above period by its resolution.
(5) For the purposes of any distribution of dividends on the shares issued upon exercise of warrants, shares shall be deemed to have been issued at the end of the fiscal year immediately preceding the fiscal year in which the subscription monies therefor are fully paid.
Article 17. (Applicable Provisions regarding Issuance of Bonds) The provisions of Articles 12 and 13 shall apply mutatis mutandis to the issuance of bonds.
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CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS
Article 18. (Convening of General Meeting)
(1) Ordinary General Meeting of Shareholders shall be convened within three (3) months after the end of each fiscal year, and Extraordinary General Meeting of Shareholders may be convened at any time, by the President (hwejang) pursuant to a resolution of the Board of Directors except as otherwise provided by the relevant laws and regulations. Provided, however, that Article (29), Paragraph (2) shall apply mutatis mutandis in the event the President (hwejang) fails to perform his duties.
(2) Notice of the General Meeting of Shareholders specifying the time, place and purpose thereof shall be sent to each shareholder two (2) weeks prior to the date set for the General Meeting of Shareholders. However, such notice to the shareholders who hold less than one-hundredth (1/100) of the total number of shares with voting rights may be given in the form of a public notice of the meeting appearing twice or more in The Seoul Shinmun, The Maeil Business Newspaper and The Korean Economic Daily instead.
(3) General Meeting of Shareholders shall be held at the location of the head office, Seoul or its neighboring place.
Article 19. (Chairman) The President (hwejang) shall preside at the General Meeting of Shareholders; provided, however, that Paragraph (2) of Article 29 shall apply mutatis mutandis in the event that the President (hwejang) fails to perform his duties.
Article 20. (Chairmans Right to Maintain Order)
(1) The Chairman shall suspend or cancel the proposal of any person who intentionally disrupts, by speech or behavior, the proceedings of the General Meeting of Shareholders or shall order such person to leave the General Meeting of Shareholders.
(2) If the Chairman deems it necessary for the smooth proceeding of the General Meeting of Shareholders, the Chairman may restrict the time and frequency of a shareholders proposal.
Article 21. (Voting by Proxy)
(1) A shareholder may exercise its voting rights by proxy.
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(2) The proxy described in Paragraph (1) must file with KT a power of attorney before the opening of the General Meeting.
Article 22. (Method of Adoption of Resolutions) Resolutions of the General Meetings of Shareholders, except as otherwise provided by the relevant laws and regulations, shall be adopted if the approval of a majority vote of the shareholders present at such meeting is obtained and such majority also represents at least one-fourth (1/4) of the total number of shares issued and outstanding.
Article 22-2 (Exercise of Voting Rights by Writing)
(1) The Shareholders may exercise their voting rights by writing without attending the General Meetings of Shareholders in person.
(2) In case of Paragraph (1) above, KT shall send the notice of convening the General Meeting of Shareholders, together with written documents and reference materials necessary for the Shareholders to exercise their voting rights.
(3) The Shareholders desiring to exercise their voting rights by writing shall enter necessary matters in the written documents under paragraph (2) and submit them to KT by the date immediately preceding the date set for the Meeting.
Article 23. (Minutes of the General Meeting)
With respect to the proceedings of the General Meeting of Shareholders, the details of the proceedings and its resolutions shall be recorded in the minutes which shall bear the names and seals or signatures of the Chairman and the Directors present, and shall be preserved at the head office and branches.
CHAPTER V. DIRECTORS
Article 24. (Number of Directors) KT shall have not more than eleven (11) directors.
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The number of inside directors, including the hwejang as Representative Director (the President (hwejang)), shall not exceed three (3), and the number of outside directors shall not exceed eight (8).
Article 25. (Election of Representative Director and Directors)
(1) The President (hwejang) shall be elected by a resolution of the General Meeting of Shareholders among those who are recommended by the CEO Recommendation Committee pursuant to Article (32) of these Articles of Incorporation, and the inside director recommended by the President (hwejang) may be elected the Representative Director by a resolution of the Board of Directors.
(2) The dismissal of the President (hwejang) requires a resolution by the General Meeting of Shareholders adopted by the affirmative vote of two-thirds (2/3) of the voting rights of the shareholders in attendance at the Meeting; provided, however, that such votes shall represent at least one-third (1/3) of the total number of issued shares of KT. Dismissal of the Representative Director other than the President (hwejang) shall be in accordance with the resolution under Article 38 of these Articles of Incorporation.
(3) Inside directors other than the President (hwejang) shall be elected at the General Meeting of Shareholders among the executive officers under the provision of Article 35 of these Articles of Incorporation who are recommended by the President (hwejang) with the consent of the Board of Directors. the President (hwejang) may propose to the General Meeting of Shareholders with the consent of the Board of Directors the dismissal of any inside director even during his/her term of office, when any of the following event occurs. In this case, the inside directors other than the President (hwejang) shall not participate in the resolution of the Board of Directors:
1. | Inability to perform his/her duties for a period not less than one (1) year due to his/her physical and/or mental disorders; or |
2. | Remarkably poor results of his/her business management due to deficient management abilities. |
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(4) Notwithstanding Paragraph 3 above, if the CEO Recommendation Committee has recommended a candidate for the President (hwejang), the candidate for the President (hwejang) shall recommend candidates for the inside directors with the consent of the Board of Directors. Provided, however, that the candidate for the President (hwejang) is not elected as the President (hwejang) at the General Meeting of Shareholders, his recommendation of the candidacy for the inside 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 any elected director of KT falling under any of the following categories, such director shall be dismissed:
1. | Person who retired from his/her office within the last three (3) years due to his/her own faults or business responsibilities; |
2. | Person who is sentenced to imprisonment or more severe punishment, and three (3) years have not elapsed after the expiration of the execution of such imprisonment or determination not to execute such imprisonment; |
3. | Person who is currently under the suspension of pronouncement or who is sentenced to probation, and two (2) years have not elapsed after the expiration of the probation period; |
(6) Any person who falls under any of the following disqualification criteria shall not become an outside director of KT, and any elected outside director shall be dismissed if he or she falls under any of the following disqualification criteria:
1. | The same person and his or her related party as defined in the Monopoly Regulation and Fair Trade Act (MRFTA) who controls a company in competition with KTs major business areas (however, with respect to the definition of competitor of KT used herein, if the company engages in the same business as KT and belongs to the same enterprise group of KT, such company is not deemed to be in competition with KT. This shall have the same meaning hereafter); |
2. | Any person who presently serves or has served at any time during the past two (2) years, as an officer or an employee for the company in competition with KTs major business areas and for other companies which belong to the same enterprise group under the MRFTA of such company; |
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3. | Any person who presently works or has worked at any time during the past two (2) years, as an officer or an employee for the largest or second largest shareholding company in competition with KTs major business areas and for other companies which belong to the same enterprise group under the MRFTA of such company; or |
4. | Any person who falls under the disqualification criteria under the Commercial Code of Korea and other relevant laws and regulations |
Article 26. (Staggered Term of Office of Outside Director) One-third of the total number of the outside directors shall be elected every year.
Article 27. (Term of Office of Directors)
(1) The term of office of directors shall be not more than three (3) years; where the term of office expires before the closing date of the Ordinary General Meeting of Shareholders in the last fiscal year of such term, the term of office shall be extended to the closing date of such General Meeting.
(2) An outside director may be re-elected only once.
Article 28. (By-election of Directors)
(1) In case of any vacancy in the office of a director, a director shall be elected to fill such vacancy at the General Meeting of Shareholders, provided that election thereof may not be made unless such vacancy results in lack of the requisite number of the directors or a difficulty in the administration of business.
(2) The term of office of an outside director elected to fill a vacancy shall be the remainder of the term of office of his/her predecessor.
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Article 29. (Duties of the President (hwejang) and Directors)
(1) The Representative Directors (including the President (hwejang)) shall respectively represent KT, the President (hwejang)shall execute businesses resolved by the Board of Directors and supervise all businesses of KT. Duties of the Representative Director elected through recommendation of the President (hwejang) shall be determined by the Board of Directors.
(2) Inside directors shall assist the President (hwejang) and shall perform their duties. In the event the President (hwejang) fails to perform his duties, an inside director shall perform his/her duties in accordance with the order as provided in the Office Regulation. However, in the event both the President (hwejang) and inside directors fail to perform their duties, a director shall perform his/her duties in accordance with the order as provided in the Office Regulation.
(3) If a director becomes aware of any event which may cause a material damage to KT, such director should immediately report to the Auditors Committee thereof.
Article 30. (Duties of Directors)
(1) Directors shall perform their duties faithfully for the good of KT in accordance with the applicable laws and regulations and the provisions of these Articles of Incorporation.
(2) The directors shall not disclose any business secret of KT that they obtained in the course of performance of their duties, during and after their terms of offices.
Article 31. (Remuneration and Severance Allowance for Directors)
(1) The Remuneration for the directors shall be determined by a resolution of the General Meeting of Shareholders, and such remuneration may be paid either in cash or in combination of cash and stock.
(2) The criteria for remuneration for the President (hwejang) and the inside directors, and the method of payment thereof shall be determined by a resolution of the Board of Directors, which shall be reported to the General Meeting of Shareholders.
(3) The President (hwejang) and the inside 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 KTs regulations for payment of officers severance allowance adopted at the General Meeting of Shareholders.
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(5) The Outside directors may be reimbursed for expenses necessary for the performance of their duties.
Article 32. (CEO Recommendation Committee)
(1) KT may organize a CEO Recommendation Committee in order to recommend a President (hwejang) candidate. The CEO Recommendation Committee shall consist of all of the outside directors and one (1) inside director (provided, however, that any person who is elected as a member of the CEO Recommendation Committee shall not be a candidate for the President (hwejang), and the CEO means the President (hwejang)).
(2) The CEO Recommendation Committee shall be organized by not later than two (2) months prior to the date of expiration of the term of office of the President (hwejang) (or within two (2) weeks from the date of retirement of the President (hwejang)) when such retirement is due to reasons other than the expiration of the term of office thereof), and shall be dissolved after the execution of management agreement between the President (hwejang) so elected and the chairman of the CEO Recommendation Committee.
(3) The chairman of the CEO Recommendation Committee shall be elected by the Board of Directors from among its members who hold the position of outside directors of KT. In this case, the President (hwejang) and the inside directors shall not participate in the resolution of the Board of Directors.
(4) A resolution of the CEO Recommendation Committee shall be adopted by the affirmative votes of a majority of the members in office other than the chairman thereof. In this case, the chairman shall not have any voting rights.
(5) The CEO Recommendation Committee shall examine all the President (hwejang) candidates in compliance with the criteria for the examination of a candidate for the President (hwejang) prescribed by the Board of Directors, in consideration of the following requirements:
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1. | Experiences and scholastic achievements under which his/her knowledge with respect to the field of business management and economics can be evaluated in objective point of view; |
2. | Past business results and the management period of being in office under which his/her business experience can be evaluated in objective point of view; |
3. | Any requirements to evaluate qualification and ability as a chief executive officer; and |
4. | Any requirements to evaluate professional knowledge and experience with respect to the telecommunications and related fields. |
Article 33. (Election of President (hwejang))
(1) President (hwejang) shall be elected from among CEO-qualified candidates who have a knowledge of management and economics or who have much managerial work experience.
(2) The CEO Recommendation Committee may conduct a search for such candidates or hire a third party agency to perform searches.
(3) The CEO Recommendation Committee shall examine the candidates for the President (hwejang) who are searched pursuant to the provision of Paragraph 2 above, in accordance with the candidates evaluation criteria determined by the Board of Directors.
(4) The CEO Recommendation Committee shall, in selecting the candidates for the President (hwejang), consult with such candidates regarding the terms of employment contract including the management goal established by the Board of Directors. In such case, if deemed necessary, the CEO Recommendation Committee may change the terms of employment contract.
(5) The CEO Recommendation Committee shall recommend a candidate for the President (hwejang) to the General Shareholders Meeting, based on the evaluation under Paragraph 3 and the consultation under Paragraph 4 above, concurrently submitting a draft employment contract.
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(6) The President (hwejang) and inside directors shall not attend the Board of Directors Meeting for the resolution of the agenda prescribed in Paragraphs 3 through 4.
Article 34. (Execution of Employment Contract with the Candidate for President (hwejang))
(1) When the draft employment contract submitted pursuant to Paragraph 5 of Article 33 above is approved at the General Shareholders Meeting, KT shall enter into such management contract with the candidate for President (hwejang). In such case, the Chairman of the CEO Recommendation Committee shall, in the capacity of the representative of KT, sign the management contract.
(2) The Board of Directors may conduct a performance review to determine if the new President (hwejang) has performed his/her duties under the management contract as provided in Paragraph 1 or hire a professional evaluation agency for such purpose.
(3) When the Board of Directors determines, based on the result of performance review under the provision of Paragraph 2 above, that the new President (hwejang) has failed to achieve the management goal, it may propose to dismiss the President (hwejang) at the General Shareholders Meeting.
(4) The management goal shall include revenue increase, profitability improvement, investment plan and other related business objectives and shall be determined, on a yearly basis, at the Board of Directors Meeting in order to achieve the mid to long-term plans approved by the Board of Directors. Such management goal may be established on a numerical basis, if possible.
(5) The performance review prescribed in Paragraph 2 above, shall be conducted by the Board of Directors at the closing of each fiscal year or may be delegated by the Board of Directors to a professional evaluation agency; provided, however, that if the Board of Directors deems necessary, it may conduct the performance review during any fiscal year.
(6) The Board of Directors shall report the result of the performance review prescribed in Paragraph 2 above to the General Meeting of Shareholders.
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(7) The President (hwejang) and the inside directors may not attend the Board of Directors Meeting for the resolution of the agenda prescribed in Paragraphs 2 through 4.
Article 35. (Executive Officers)
(1) For the efficient operation, KT shall have executive officers including inside directors.
(2) The executive officers shall consist of positions determined by the Board of Directors.
(3) The number and remuneration of the executive officers who do not hold the position of inside 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 KTs regulations for payment of officers severance allowance adopted at a General Meeting of Shareholders.
(4) Executive officers who do not hold the position of inside directors of KT shall be elected by the President (hwejang) of KT, whose term of office shall not exceed three (3) years.
(5) All matters concerning the respective duties of executive officers shall be determined by the President (hwejang).
Article 36. (Advisor, etc.) The President (hwejang) may employ an Advisor or appoint an Advisory Council in order to receive advice and suggestions regarding important matters concerning the operation of KTs businesses.
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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 Meeting shall be convened by each director. However, this shall not apply in the event that a director to convene the Board of Directors Meeting is determined by a resolution of the Board of Directors Meeting.
(3) The rest of directors may request the director designated under Paragraph 2 above to convene the Board of Directors Meeting. However, if the designated director refuses to convene the Board of Directors Meeting without any justifiable reason therefor, other directors may convene the Board of Directors Meeting.
(4) In convening a meeting of Board of Directors, the notice thereof shall be given at least three (3) days prior to the date set for such meeting to each director; provided, however, that the above procedure may be omitted with the consent of all of the directors.
(5) Matters necessary for the operation of the Board of Directors shall be set forth in the Regulations of the Board of Directors.
(6) For the efficient management of the Board of Directors, a self evaluation regarding the activities of the Board of Directors may be conducted, and detailed matters therefor, including the evaluation method, etc. shall be determined by a resolution of the Board of Directors.
Article 38. (Resolution and Delegation)
(1) A resolution at a meeting of Board of Directors shall be adopted by the presence of a majority of all directors in offices and by the affirmative votes of a majority of the directors present. However, the resolution on the sale of equity in any subsidiary of KT accompanying transfer of management rights, which is for more than 10 billion (10,000,000,000) Korean Won of the subsidiarys equity, shall be adopted by affirmative votes of two-thirds (2/3) of the directors in office, and the resolution on the dismissal of the President shall be adopted by the affirmative votes of two-thirds (2/3) of the outside directors in offices.
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(2) The Board of Directors may delegate part of its authorities to the President (hwejang).
Article 39. (Chairman)
(1) The chairman of the Board of Directors shall be elected from among the outside directors by a resolution of the Board of Directors.
(2) The term of office of the chairman shall be one (1) year.
Article 40. (Minutes of the Board of Directors) The proceeding and the result of meeting of the Board of Directors shall be recorded in the minutes, which shall bear the names, seals or signatures of the Chairman and the directors present at the meeting, and shall be kept at the head office.
Article 41. (Committees within the Board of Directors)
(1) The Board of Directors may have expert committees under its control by its resolution, in order to deliberate or decide with respect to the specific matters submitted to the Board of Directors.
1. | CEO Recommendation Committee; |
2. | CG (Corporate Governance) Committee (the CG Committee); |
3. | Outside Director Candidates Recommendation Committee; |
4. | Audit Committee; and |
5. | Other Committees which the Board of Directors deems necessary. |
(2) Any necessary matters, including those regarding the composition, authority or operation, of a committee under the Board of Directors described in Paragraph 1 above shall be determined by a resolution of the Board of Directors.
Article 41-2. (CG Committee)
(1) | The CG Committee shall be composed of four (4) outside directors and one (1) inside director. |
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(2) | The CG Committee shall deliberate and decide overall matters relating to the corporate governance of the Company. |
(3) | Specific issues, such as the operation of the CG Committee, 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 one (1) inside director and all of the outside directors; provided that in case of election of an outside director due to the expiration of the term of office of an outside director, the relevant outside director the expiration of whose term has caused the need for such election may not be a member of the Committee.
(2) The Outside Director Candidates Recommendation Committee shall recommend outside director candidates to the General Shareholders Meeting.
(3) Any other detailed matters regarding organization and operation of the Outside Director Candidates Recommendation Committee shall be determined by a resolution of the Board of Directors.
Article 43. (Audit Committee)
(1) The Audit Committee shall consist of not less than three (3) outside directors.
(2) The Audit Committee shall perform an audit of KTs 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.
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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 (hwejang) of KT shall prepare the following documents and supplementary documents thereto and the business report for each fiscal year, and submit such documents, after approved by the Board of Directors, to the Audit Committee, six (6) weeks prior to the date of the Ordinary General Meeting of Shareholders:
1. | A balance sheet; |
2. | A statement of profit and loss; and |
3. | A statement of appropriation of retained earnings or a statement of disposition of deficit. |
(2) The Audit Committee shall submit an auditors report to the President (hwejang) at least one (1) week before the General Shareholders Meeting.
(3) The President (hwejang) shall keep each document listed in Paragraph (1) together with the business report and the auditors report at the head office for a period of five (5) years, commencing from one week prior to the date of the Ordinary General Meeting of Shareholders. Certified copies of these documents shall be kept in each respective branch office for a period of three (3) years.
(4) The President (hwejang) shall submit each document listed in Paragraph (1) to the Ordinary General Meeting of Shareholders and request approval therefor. With respect to the business report, he/she shall report the contents thereof to the Ordinary General Meeting of Shareholders.
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(5) When the approval of the General Meeting of Shareholders is obtained for the documents listed in Paragraph (1), the President (hwejang) shall, without delay, give a public notice of the balance sheet and the audit opinion thereon of an independent auditor.
Article 47. (Disposition of Profits) The unappropriated retained earnings for each fiscal year of KT shall be disposed of as following order:
1. | Legal Reserves; |
2. | Other statutory reserves; |
3. | Amortization by way of the appropriation of the retained earnings; |
4. | Dividends; and |
5. | Voluntary reserve. |
Article 48 (Retirement of Shares) Pursuant to Article (165-3) of the FSCMA, KT may, by a resolution of the Board of Directors, retire the shares within the scope of profits attributable to the shareholders.
Article 49. (Payment of Dividends)
(1) Dividends may be paid either in cash or in shares.
(2) In case of stock dividends, if KT has issued several types of shares, different types of shares may be allotted by a resolution of the General Meeting of Shareholders.
(3) Pursuant to a resolution of the Board of Directors, KT may pay interim dividends in cash once during a fiscal year with June 30 as a base date (referred to as the fixed interim dividend date).
(4) The dividends referred to in Paragraphs (1) and (3) shall be paid to the shareholders or registered pledgees who are registered in the registry of shareholders as of the end of each fiscal year or as of the fixed interim dividend date.
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(5) The rights to dividends shall be extinguished if it is not exercised within five (5) years from the date when the relevant dividend was declared, and such unclaimed dividends shall belong to KT.
CHAPTER VIII. SUPPLEMENTARY PROVISIONS
Article 50. (Guarantee of Personnel Status)
(1) Any employee of KT shall not receive a dismissal, suspension, reduction in compensation, reprimand and other disadvantageous orders, without any justifiable reasons therefor.
(2) The retirement age of the employee of KT shall be prescribed in accordance with Paragraph 2 of Article (6)of Addenda of the Laws Repealing the Korea Telecom Act.
Article 51. (Publication of Management Information) KT shall make public any and all matters deemed to be necessary for the promotion of transparency in management.
ADDENDUM
Article 1. (Enforcement Date) These Articles of Incorporation shall be effective from October 1, 1997.
Article 2. (Term of Office of the First President and Standing Directors) Notwithstanding Paragraph (1), Article (29) hereof, the term of office of the first President and the standing directors to be elected at the General Meeting of Shareholders convened after the execution of these Articles of Incorporation shall be extended until the end of the Ordinary General Meeting of Shareholders convened after the expiration of the said term of office.
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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.
27
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.
28
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)
Article1. (Enforcement Date) These Articles of Incorporation shall become effective from the date on which a resolution on the foregoing amendments is adopted at the General Meeting of Shareholders. Provided, however, that the amended provision of Article 41-3 shall become effective from the date following the day on which the first General Meeting of Shareholders is convened after enforcement of these amended Articles of Incorporation.
Article 2. (Interim Measures regarding Auditor) (1) The amended provisions regarding auditor of Articles 27, 28, 29, 30, 32, 33, 37 and 40 shall remain invalid, concurrently upon establishment of the Audit Committee.
29
(2) The term, auditor referred in Paragraph 3 of Article 31 and Article 44, shall be interpreted to be Audit Committee, respectively, concurrently upon establishment of the Audit Committee.
Article3. (Interim Measures on Increase in Number of Outside Directors) Notwithstanding the amended provision of Article 26, a candidate for outside director recommended by the Shareholders Committee established in accordance with the previous AOI, shall be deemed to have been recommended by the Outside Director Recommendation Committee, and the term of office of such additionally appointed outside director in the above shall be until the date on which the Ordinary General Meeting of Shareholders is held in the year of 2005.
ADDENDUM (March 14, 2003)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 12, 2004)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
30
ADDENDUM (March 11, 2005)
These Articles of Incorporation shall become effective as of the date when the General Meeting of Shareholders resolved adoption hereof.
Addendum (August 19, 2005)
These Articles of Incorporation shall take effect upon approval by the General Meeting of Shareholders.
Addendum (March 10, 2006)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
Addendum (March 16, 2007)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 27, 2009)
Article 1. (Enforcement Date) These Articles of Incorporation shall become effective upon resolution of the General Meeting of Shareholders approving the amendment hereof.
31
Article 2. (Interim Measure) The person who is President (sajang) as of the amendment date of these Articles of Incorporation will become the President (hwejang), and in applying Article 32(1)-2 ex-Presidents (sajang) prior to the amendment date will be interpreted as ex-Presidents (hwejang).
ADDENDUM (March 12, 2010)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 11, 2011)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
32
Exhibit 8.1
List of Subsidiaries of KT Corporation
(As of December 31, 2010)
Name |
Jurisdiction of Incorporation | |
KT Powertel Co., Ltd. |
Korea | |
KT Networks Corporation |
Korea | |
KT Linkus Co., Ltd. |
Korea | |
KT Submarine Co., Ltd. |
Korea | |
KT Capital Co., Ltd. |
Korea | |
KT Telecop Co., Ltd. |
Korea | |
KT Internal Venture Fund No.2 |
Korea | |
Sofnics, Inc. |
Korea | |
KT Edui Co., Ltd. (formerly JungBoPremiumEdu Co., Ltd.) |
Korea | |
KT New Business Fund No. 1 |
Korea | |
KT DataSystems Co., Ltd. |
Korea | |
Gyeonggi-KT Green Growth Fund |
Korea | |
KTC Media Contents Fund 1 |
Korea | |
KTC Media Contents Fund 2 |
Korea | |
KT Innotz Inc. |
Korea | |
Vanguard Private Equity Fund |
Korea | |
KT-LIG ACE Private Equity Fund |
Korea | |
KTR Co., Ltd. |
Korea | |
KT Rental Co., Ltd. |
Korea | |
KT Estate Inc. |
Korea | |
KT Strategic Investment Fund No.1 |
Korea | |
KT Hitel Co., Ltd. |
Korea | |
KT Commerce Inc. |
Korea | |
KT Tech, Inc. |
Korea | |
KT M Hows Co., Ltd. |
Korea | |
KT M&S Co., Ltd. |
Korea | |
KT Music Corporation |
Korea | |
Sidus FNH Corporation |
Korea | |
Sidus FNH Benex Cinema Investment Fund |
Korea | |
Nasmedia, Inc. |
Korea | |
Korea Telecom Japan Co., Ltd. |
Japan | |
Korea Telecom China Co., Ltd. |
China | |
Super iMax |
Uzbekistan | |
East Telecom |
Uzbekistan | |
New Telephone Company, Inc. |
Russia | |
Helios-TV |
Russia | |
Novaya Svyaz |
Russia | |
KTSC Investment Management B.V. |
Netherlands | |
Korea Telecom America, Inc. |
America | |
PT. KT Indonesia |
Indonesia |
Exhibit 12.1
CERTIFICATION
I, Suk-Chae Lee, certify that:
1. | I have reviewed this annual report on Form 20-F of KT Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the companys 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 companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys 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 companys 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 companys internal control over financial reporting. |
Date: June 29, 2011
/s/ SUK-CHAE LEE |
Suk-Chae Lee |
Chief Executive Officer |
Exhibit 12.2
CERTIFICATION
I, Yeon-Hak Kim, certify that:
1. | I have reviewed this annual report on Form 20-F of KT Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
4. | The companys other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the companys 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 companys internal control over financial reporting; and |
5. | The companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys 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 companys 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 companys internal control over financial reporting. |
Date: June 29, 2011
/s/ YEON-HAK KIM |
Yeon-Hak Kim |
Executive Vice President and Chief Financial Officer |
Exhibit 13.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of KT Corporation, a corporation organized under the laws of the Republic of Korea (the Company), does hereby certify, to such officers knowledge, that:
The annual report on Form 20-F for the year ended December 31, 2010 (the Form 20-F) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.
/s/ SUK-CHAE LEE |
Suk-Chae Lee |
Chief Executive Officer |
Date: June 29, 2011
/s/ YEON-HAK KIM |
Yeon-Hak Kim |
Executive Vice President and |
Chief Financial Officer |
Date: June 29, 2011
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to KT Corporation and will be retained by KT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 15.1
THE FRAMEWORK ACT ON TELECOMMUNICATIONS
Amended by Act No. 10393 of July. 23, 2010, effective January 24, 2011
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 partys communication through the telecommunications facilities and equipment or to provide the telecommunications facilities and equipment for the third partys telecommunications; and
8. The term telecommunications business means a business that provides telecommunications services.
Article 3 (Supervision of Telecommunications)
The matters concerning telecommunications shall be governed by the Korea Communications Commission, except the ones stipulated specifically by this Act or other Acts. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
Article 4 (Government Policies)
The Korea Communications Commission shall devise basic and comprehensive government policies concerning telecommunications to attain the purpose of this Act. <Amended by Act No. 5219, Dec. 30, 1996 ;Amended by Act No. 8867, Feb. 29, 2008>
2
Article 5 (Establishment of Basic Telecommunications Plans)
(1) The Korea Communications Commission shall establish and publicly notify basic telecommunications plans (hereinafter referred to as the basic plan) for smooth development of telecommunications and the promotion of the information society. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb.29, 2008>
(2) The following matters shall be included in the basic plan of paragraph (1):
1. Matters concerning utilization efficiency of telecommunications;
2. Matters concerning maintenance of telecommunications order;
3. Matters concerning telecommunications business;
4. Matters concerning telecommunications facilities and equipment;
5. Matters concerning promotion of telecommunications technology (including technology about telecommunications construction; hereinafter the same shall apply); and
6. Other basic matters concerning telecommunications.
(3) The Korea Communications Commission shall consult in advance with the heads of administrative agencies concerned, when establishing the basic plan for the matters of paragraph (2) 4 and 5 of this Article. <Amended by Act No. 5219, Dec. 30, 1996;Amended by Act No. 8867, Feb. 29, 2008>
Article 6 Deleted <by Act No. 9701, May. 21, 2009>
Article 7 (Classification of Telecommunications Business Operator)
The telecommunications business operator shall be classified as the key communications business operator, the special communications business operator and the value-added communications business operator pursuant to the Telecommunications Business Act. <Amended by Act No. 5385, Aug. 28, 1997>
3
[This Article Wholly Amended by Act No. 4905, Jan. 5, 1995]
CHAPTER II Deleted<by Act No. 9708, May. 22, 2009>
Article 8, 9, 10, 11, 12 and 13 Deleted<by Act No. 9708, May. 22, 2009>
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 Deleted. <by Act No. 10166, March. 22, 2010>
SECTION 1 Deleted. <by Act No. 10166, March. 22, 2010>
Article 16 Deleted. <by Act No. 10166, March. 22, 2010>
Article 17 Deleted. <by Act No. 10166, March. 22, 2010>
Article 18 Deleted. <by Act No. 10166, March. 22, 2010>
Article 19 Deleted. <by Act No. 5219, Dec. 30, 1996>
SECTION 2 Deleted. <by Act No. 10166, March. 22, 2010>
Article 20 Deleted. <by Act No. 10166, March. 22, 2010>
4
Article 21 Deleted. <by Act No. 10166, March. 22, 2010>
Article 22 Deleted. <by Act No. 10166, March. 22, 2010>
Article 23 Deleted. <by Act No. 10166, March. 22, 2010>
Article 24 Deleted. <by Act No. 10166, March. 22, 2010>
SECTION 3 Deleted. <by Act No. 10165, March. 22, 2010>
Article 25 Deleted. <by Act No. 10165, March. 22, 2010>
Article 26 Deleted. <by Act No. 10165, March. 22, 2010>
Article 27 Deleted. <by Act No. 10165, March. 22, 2010>
Article 28 Deleted. <by Act No. 10165, March. 22, 2010>
Article 29 Deleted. <by Act No. 10165, March. 22, 2010>
Article 30 Deleted. <by Act No. 10165, March. 22, 2010>
5
SECTION 4 Deleted. <by Act No. 10166, March. 22, 2010>
Article 30-2 Deleted. <by Act No. 10166, March. 22, 2010>
Article 30-3 Deleted. <by Act No. 10166, March. 22, 2010>
Article 30-4 Deleted. <by Act No. 6823, Dec. 26, 2002>
Article 31 Deleted. <by Act No. 10166, March. 22, 2010>
Article 32 Deleted. <by Act No. 10166, March. 22, 2010>
CHAPTER IV MANAGEMENT OF TELECOMMUNICATIONS EQUIPMENTS
Article 33 Deleted. <by Act No. 10393, July. 23, 2010>
Article 33-2 Deleted. <by Act No. 10393, July. 23, 2010>
Article 33-3 Deleted. <by Act No. 10393, July. 23, 2010>
Article 34 Deleted. <by Act No. 6231, Jan. 28, 2000>
Article 34-2 Deleted. <by Act No. 10393, July. 23, 2010>
Article 35 Deleted. <by Act No. 10393, July. 23, 2010>
Article 36 Deleted. <by Act No. 10393, July. 23, 2010>
6
CHAPTER V. Deleted. <by Act No. 10166, March. 22, 2010>
Article 37 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 38 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 39 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 40 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 40-2 Deleted. <by Act No. 10166, March. 22, 2010>
Article 40-3 Deleted. <by Act No. 10166, March. 22, 2010>
Article 41 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 42 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 43 Deleted. <by Act No. 10166, March. 22, 2010>
7
Article 44 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 44-2 Deleted <by Act No. 9481, Mar. 13, 2009>
CHAPTER V-2 Deleted. <by Act No. 10165, March. 22, 2010>
Article 44-3 Deleted. <by Act No. 10165, March. 22, 2010>
Article 44-4 Deleted. <by Act No. 10165, March. 22, 2010>
Article 44-5 Deleted <by Act No. 9481 of Mar. 13, 2009>
Article 44-6 Deleted <by Act No. 9481 of Mar. 13, 2009>
Article 44-7 Deleted. <by Act No. 10165, March. 22, 2010>
Article 44-8 Deleted. <by Act No. 10165, March. 22, 2010>
CHAPTER VI SUPPLEMENTARY PROVISIONS
Article 45 Deleted. <by Act No. 10165, March. 22, 2010>
Article 45-2 Deleted. <by Act No. 10393, July. 23, 2010>
8
Article 46 (Delegation and Entrustment of Authority)
(1) Part of the authority of the Minister of Knowledge Economy and the Korea Communications Commission under this Act may be delegated or commissioned to the head of the related agencies or of the Korea Post under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
(2) Deleted. <by Act No. 10165, March. 22, 2010>
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 himself or the third party or inflicting damages on the third party shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won. <Amended by Act No. 5219, Dec. 30, 1996>
(3) In case where the false communication under paragraph (2) is of a telegraphic remittance, it shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>
(4) When a person engaged in the telecommunications business commits the act under paragraph (1) or (3), he shall be punished by imprisonment for not more than ten years or by a fine not exceeding 100 million won, and in case of committing the act under paragraph (2), he shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>
9
Article 48 Deleted. <by Act No. 10393, July. 23, 2010>
Article 48-2 Deleted. <by Act No. 6360, Jan. 16, 2001>
Article 49 Deleted. <by Act No. 10393, July. 23, 2010>
Article 50 Deleted. <by Act No. 6231, Jan. 28, 2000>
Article 51 Deleted. <by Act No. 10393, July. 23, 2010>
Article 52 Deleted. <by Act No. 10393, July. 23, 2010>
Article 53 Deleted. <by Act No. 10393, July. 23, 2010>
Addendum <Act No.10393, July. 23, 2010> (Radio Waves Act)
Article 1 (Enforcement Date)
This Act shall be effective 6 months after the date of its announcement.
Article 2, 3, 4 and 5 Deleted
10
Article 6 (Amendments to Other Laws)
(1) The FRAMEWORK ACT ON TELECOMMUNICATIONS shall be partially amended as follow:
Article 33, 33-2, 34-2, 35, 36, 45-2, 48, 49, 51, 52 and 53 Deleted.
(2) Deleted.
Article 7 and 8 Deleted.
11
Exhibit 15.2
ENFORCEMENT DECREE OF THE FRAMEWORK ACT ON TELECOMMUNICATIONS
Amended by Enforcement Decree No. 22605 of Dec. 31, 2010, effective Jan. 24, 2011
CHAPTER I GENERAL PROVISIONS
Article 1 (Purpose)
The purpose of this Enforcement Decree is to provide matters delegated under the Framework Act on Telecommunications (the Act) and matters necessary for its enforcement.
CHAPTER II Deleted <by Enforcement Decree No. 21692 of Aug. 18, 2009>
Article 2, 3, 4, 5, 6, 7, 8, 9 and 10 Deleted <by Enforcement Decree No. 21692 of Aug. 18, 2009>
CHAPTER III TELECOMMUNICATIONS FACILITIES AND EQUIPMENT
Article 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30 and 31 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 32 Deleted <by Enforcement Decree No. 22605 of Dec. 31, 2010>
CHAPTER IV Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 33, 34, 35, 36, 37, 38, 39, 40, 41 and 42 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
1
CHAPTER V Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 43, 44, 45, 46, 47, 48, 49, 50 and 51 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>.
CHAPTER VI SUPPLEMENTARY PROVISIONS
Article 52 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 53 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 54 Deleted <by Enforcement Decree No. 22605 of Dec. 31, 2010>
Article 54-2 Deleted <by Enforcement Decree No. 22550 of Dec. 27, 2010>
Article 55 Deleted <by Enforcement Decree No. 22605 of Dec. 31, 2010>
ADDENDA <Enforcement Decree No. 22605, Dec. 31, 2010> (Enforcement Decree of The Radio Waves Act)
Article 1 (Enforcement Date)
This Act shall take effect on January 24, 2011.
2
Article 2, 3, 4,5, 6, 7, 8, 9, 10, 11 and 12 Deleted
Article 13 (Amendments to Other Laws)
(1), (2) and (3) Deleted
(4) The Enforcement Decree of FRAMEWORK ACT ON TELECOMMUNICATIONS shall be partially amended as follow:
Article 32, 54 and 55 Deleted
(5), (6), (7), (8) and (9) Deleted
3
Exhibit 15.3
TELECOMMUNICATIONS BUSINESS ACT
As amended by Act No. 10166 of March. 22, 2010, effective Sep. 23, 2010
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)
For the purpose of this Act,
1. the term telecommunication means sending and receiving of sign, wording, sound or image through wired, wireless, optic or other electronic means.
2. the term telecommunication facilities means equipments, devices, lines and other facilities necessary for telecommunication.
3. the term telecommunication line facilities means telecommunication line portion of the telecommunication facilities which is necessary for sending, receiving and routing telecommunication and include exchange equipments and other annexed facilities.
4. the term commercial telecommunication facilities means telecommunication facilities for providing telecommunication business.
5. the term proprietary telecommunication facilities means telecommunication facilities other than commercial telecommunication facilities that a person installs for his own telecommunication use.
1
6. the term telecommunication service means connecting of customers communication through the use of telecommunication facilities or providing telecommunication facilities for customers communication.
7. the term telecommunication business means the business of providing telecommunication service.
8. 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;
9. 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
10. the term universal service means the basic telecommunications service which any user may receive at reasonable fees anytime and anywhere
11. the term key communication service means the telecommunication service such as telephone and internet services which transmit or receive voice, data, image, etc. without changing their content and the telecommunication service where telecommunication line facilities is lent for transmission and receipt of voice, data, image, etc., provided, however that individual telecommunication services determined and announced by the Korea Communications Commission (individual telecommunication service under Article 6) are excluded.
12. the term added telecommunication service means telecommunication services other than key communication services.
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.
2
Article 4 (Universal Service)
(1) All telecommunications business operators shall have the obligation to provide universal service or to replenish the losses incurred by such provisions.
(2) The Communications Commission may, notwithstanding the provisions of paragraph (1), exempt the telecommunications business operator determined by the Enforcement Decree as a telecommunications business operator for whom an imposition of obligation under paragraph (1) is deemed inadequate in view of the peculiarity of telecommunications service, or the telecommunications business operator whose turnover of telecommunications service is less than the amount as determined by the Enforcement Decree within the limit of 1/100 of total turnover of the telecommunications services, from the relevant obligations.
(3) The details of universal service shall be determined by the Enforcement Decree 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 informatization.
(4) In order to provide effective, stable universal service, the Korea Communications Commission may, in consideration of size and quality of universal service, level of price and the technical capability of a telecommunications business operator, designate a telecommunications business operator through the method and procedure prescribed by the Enforcement Decree.
(5) Under the method and procedure prescribed by the Enforcement Decree, the Korea Communications Commission may have a telecommunications business operator bear compensation for losses incurred in the course of providing universal service based on the total sales.
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CHAPTER II TELECOMMUNICATIONS BUSINESS
SECTION 1 General Provisions
Article 5 (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.
(2) The key communications business shall be the business to install telecommunication line facilities, and thereby provide telecommunications services such as telegraph and telephone service (hereinafter referred to as the key communications services), whose types and contents are determined by the Enforcement Decree, in consideration of impacts on the public interest and national industries and the necessity for stable provision of services.
(3) The specific communications business shall correspond to one of the following subparagraphs:
1. Business which provides a key communications service by making use of telecommunication line facilities, etc. of a person who has obtained a license for key communications business under Article 6 (hereinafter referred to as a key communications business operator); and
2. Business which installs the telecommunications facilities in the premises as determined by the Enforcement Decree, and provides a telecommunications service therein by making use of the said facilities.
(4) The value-added communications business shall be the business providing value-added communication services.
SECTION 2 Key Communications Business
Article 6 (License etc. of Key Communications Business Operator)
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(1) A person who intends to run a key communications business shall obtain a license from the Korea Communications Commission.
(2) The Korea Communications Commission shall, in granting a license under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs:
1. financial capability necessary for implementing the key communication service plan;
2. technical capability necessary for implementing the key communication service plan,
3. plans for a user protection;
4. other matters relevant to capacity for providing stable key communication services as determined under the Enforcement Decree of the Act.
(3) The Communications Commission shall set forth the detailed examination criteria by examining item under paragraph (2), period for license and outline of application for license, and make a public announcement thereof
(4) The Korea Communications Commission may, in case where it grants a license for key communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication, in this case such conditions shall be published on its official publication and official webpage.
(5) A person subject to a license under paragraph (1) shall be limited to a juristic person.
(6) Procedures for a license under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.
Article 7 (Reasons for Disqualification for License)
Persons falling under each of the following subparagraphs shall not be entitled to obtain the license for a key communications business as referred to in Article 6:
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1. The State or local governments;
2. Foreign governments or foreign corporations; and
3. Corporations whose stocks are owned by foreign governments or foreigners in excess of the restrictions on stock possessions as referred to in Article 8 (1).
Article 8 (Restrictions on Stock Possessions of Foreign Governments or Foreigners)
(1) The stocks of a key communications business operator (excluding non-voting stocks under Article 370 of the Commercial Act, and including the stock equivalents with voting rights, such as stock depositary receipts, etc. and investment equities; hereinafter the same shall apply) shall not be owned in excess of 49/100 of the gross number of issued stocks, when adding up all of those owned by the foreign governments or foreigners.
(2) A corporation whose largest stockholder is a foreign government or a foreigner (including, throughout this Act, a specially-related person under Article 9(1)1 of the Capital Markets and Financial Investment Business Act) and not less than 15/100 of the gross number of its issued stocks is owned by said foreign government or foreigner (hereinafter referred to as the fictitious corporation of foreigners) shall be regarded as a foreigner.
(3) A corporation that owns less than 1/100 of the gross number of stocks issued by a key communications business operator shall not be regarded as a foreigner, even if it is equipped with the requirements as referred to in paragraph (2).
Article 9 (Grounds for Disqualifying Officers)
(1) Any person falling under each of the following subparagraphs shall be disqualified to serve as an officer of any key communications business operator:
1. A minor, an incompetent or a quasi-incompetent;
2. A person who has yet to be reinstated after having been declared bankrupt;
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3. A person who has been sentenced to imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection (excluding matters not directly related to telecommunication business, hereinafter this Act, etc.), and for whom three years have yet to pass from the date on which the execution of the sentence is terminated (including a case where the execution of the sentence is deemed to be terminated) or the execution of the sentence is exempted;
4. A person who is in a stay period after having been sentenced to a stay of the execution of the imprisonment without prison labor or a heavier punishment on charges of violating this Act, etc.;
5. A person who has been sentenced to a fine on charges of violating this Act, etc. and for whom one years have yet to pass from the date of such sentence; and
6. A person who has been subject to a disposition taken to revoke all or part of his permission in accordance with Article 20 (1), a disposition taken to revoke his registration in accordance with Article 27 (1) or an order given in accordance with paragraph (2) of the same Article to discontinue his business and for whom three years have yet to pass from the date of such disposition or order. In the case of a corporation, the person refers to the person who commits the act of causing the disposition to revoke permission, the disposition to revoke registration or the order to discontinue business, and its representative.
(2) In the event that any officer is found to fall under each subparagraph of paragraph (1) or is found to fall under each subparagraph of paragraph (1) at the time that he is selected and appointed as an officer, he shall rightly resign from the office.
(3) Any act in which any officer has been involved prior to his resignation under paragraph (2) shall not lose its legal efficacy.
Article 10 (Examination of Public Interest Nature of Stock Acquisition, etc. by Key Communications Business Operator)
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(1) The Public Interest Nature Examination Committee (hereinafter referred to as the Committee) shall be established in the Korea Communications Commission in order to make an examination regarding whether or not what falls under each of the following subparagraphs impedes the public interests as prescribed by the Enforcement Decree (hereinafter referred to as the examination of public interest nature), such as the national safety guarantee and maintenance of public peace and order, etc:
1. Where the principal comes to own not less than 15/100 of the gross number of stocks issued by a key communications business operator, when adding up those owned by the specially-related person as referred to in Article 9 paragraph (1) subparagraph 1 of the Capital Market Integration Act(hereinafter referred to as the specially-related person);
2. Where the largest stockholder of a key communications business operator is altered;
3. Where a key communications business operator or any stockholder of a key communications business operator concludes a contract for important management matters as prescribed by the Enforcement Decree, such as the appointment and dismissal of executives and the transfer or takeover, etc. of business of the relevant key communications business operator, with a foreign government or a foreigner; and
4. Other cases as prescribed by the Enforcement Decree, where there exists a change in the stockholders who have de facto management rights of a key communications business operator.
(2) Where a key communications business operator or any stockholder of a key communications business operator comes to fall under each of subparagraphs of paragraph (1), he shall file a report thereon with the Korea Communications Commission within thirty days from the time when such a fact took place.
(3) Where a key communications business operator or any stockholder of a key communications business operator is to come to fall under each of subparagraphs of paragraph (1), he may, prior to the said situation, request the Korea Communications Commission to make an examination as referred to in paragraph (1).
(4) Where the Korea Communications Commission has received a report as referred to in paragraph (2) or a request for examination as referred to in paragraph (3), it shall refer it to the Committee.
(5) Where the Korea Communications Commission judges that there exists a danger of impeding the public interests by the cases falling under each of subparagraphs of paragraph (1) in view of the result of examination as referred to in paragraph (1), it may order the alteration of contract detail and suspension of its implementation, the suspension of exercise of voting rights, or the sale of relevant stocks.
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(6) The report as referred to in paragraph (2) or (3), or the scope of key communications business operators to be examined of public interest nature, the procedures for reports and examinations of public interest nature and other necessary matters shall be stipulated by the Enforcement Decree.
Article 11 (Composition and Operation, etc. of Public Interest Nature Examination Committee)
(1) The Committee shall consist of not less than five but not more than ten members including one Chairman.
(2) The Chairman shall be the Vice Chairman of the Korea Communications Commission, and the members shall be the persons commissioned by the Chairman from among the public officials ranking Grade III or higher grade of related central administrative agencies or public officials who belong to senior executive service as specified by the Enforcement Decree of the Act, and falling under each of the following subparagraphs:
1. Persons having profound knowledge and experiences in the information and communications;
2. Persons recommended by the Government-contributed research institutes relating to the national safety guarantee and maintenance of public peace and order;
3. Persons recommended by the nonprofit non-governmental organizations as referred to in Article 2 of the Assistance for Nonprofit Non-Governmental Organizations Act; and
4. Other persons deemed necessary by the Chairman.
(3) The Committee may conduct necessary investigations for the examination of public interest nature, or request the interested parties or the reference witnesses to provide the data. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.
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(4) Where the Committee deems it necessary, it may have the interested parties or the reference witnesses attend the Committee, and hear their opinions. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.
(5) Matters necessary for the organization or operation, etc. of the Committee shall be prescribed by the Enforcement Decree.
Article 12 (Restrictions, etc. on Stockholders of Excessive Possession)
(1) Where a foreign government or a foreigner has acquired the stocks in contravention of the provisions of Article 8 (1), no voting rights shall be exercised for the stocks under the said excessive possession.
(2) The Korea Communications Commission may order the stockholder who has acquired stocks in contravention of the provisions of Article 86 (1), a key communications business operator wherein exists the said stockholder, or the stock-holder of the fictitious corporation of foreigners, to make corrections in the relevant matters, with specifying the period within the limit of six months
(3) Persons subjected to the order for corrections as referred to in paragraph (2) shall make corrections in the relevant matters within the specified period.
(4) With regard to the stockholder in contravention of the provisions of Article 8 (1), a key communications business operator may refuse any renewals for the excessive portion in the register of stockholders or of members.
Article 13 (Charge for Compelling Execution)
(1) Against the persons who were subjected to the orders as referred to in Articles 10 (5) or 12 (2) or 18 (8)(hereinafter referred to as the corrective orders) and has failed to comply with them within the specified period, the Communications Commission may levy the charge for compelling the execution. In such case, the charge for compelling the execution leviable per day shall be not more than 3/1,000 of purchase prices of relevant possessed stocks, but in the case not related with the stock possession, it shall be the amount not exceeding 100 million won.
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(2) The period subject to a levy of the charge for compelling the execution as referred to in paragraph (1) shall be from the day next to the date of expiration of the period set in the corrective orders to the date of implementing the corrective orders. In such case, a levy of the charge for compelling the execution shall be made within 30 days from the day next to the expiration date of the period set in the corrective orders, except for the case where there exists a special reason.
(3) Provisions of Article 53 (5) shall apply mutatis mutandis to the collection of the charge for compelling the execution.
(4) Matters necessary for the levy, payment, refund, etc. of the charge for compelling the execution shall be prescribed by the Enforcement Decree.
Article 14 (Issuance of Stocks)
A key communications business operator shall, in a case of an issuance of stocks, issue the registered ones
Article 15 (Obligation of Commencing Business)
(1) A key communications business operator shall install telecommunications facilities and commence business within the period as fixed by the Korea Communications Commission.
(2) The Korea Communications Commission may, in case where the said business operator is unable to commence business within the period under paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator.
Article 16 (Modification of License)
(1) Where a key communications business operator intends to modify the important matters prescribed by the Enforcement Decree from among the matters licensed under Article 6, he shall obtain a modified license from the Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
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(2) The provisions of Articles 6 (4) and Article 15 shall be applicable mutatis mutandis to a modified license for change under paragraph (1).
Article 17 (Concurrent Operation of Business)
(1) A key communications business operator shall, in case where he intends to run any of the businesses set forth in the following subparagraphs, obtain approval from the Korea Communications Commission: Provided that, this provision shall not apply to any key communications business operator with less than 30,000,000,000 Korean Won in turnover of services.
1. | manufacturing of telecommunications [tools] |
2. | information and communications work pursuant to paragraph 3 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation work for electronic telecommunications network) |
3. | services pursuant to subparagraph 6 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation of electronic telecommunications network). |
(2) The Korea Communications Commission shall grant approval under paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under paragraph (1), and that it is required for the development of telecommunications.
Article 18 (Takeover of Business and Merger of Juristic Persons etc.)
(1) A person who belongs to any one of the categories set forth in the following paragraphs shall obtain an authorization from the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree: Provided, notwithstanding subparagraph 3 below, that in case that person sells telecommunications circuit installations except the ones prescribed by the Enforcement Decree, he shall report it to the Korea Communications Commission under the conditions as determined by the Enforcement Decree
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1. a person who takes or intends to take over the whole or part of a business of a key communications business operator
2. a person who intends to merge with a juristic person which is a key communications business operator
3. a key communications business operator intending to sell the telecommunications circuit installations necessary for provision of key communications service
4. a person who, along with a certain related person intends to become the [largest shareholder of a key communications business operator or own 15% of more of the issued shares of the key communications business operator.
5. a person seeking to acquire control over a key communication business operator by acquiring shares or entering into an agreement, as specified by the Enforcement Decree of the Act
6. a key communication business operator seeking to establish a company to provide part of the key communication services provided under authorization through such company.
(2) The Korea Communications Commission shall, in case where it intends to grant authorization or approval under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs:
1. Appropriateness of financial and technical capability and business operational capability;
2. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.;
3. Impact on the competition of key communications business; and
4. Impact on the protection of users and the public interests.
5. Impact on public interests, such as the use of telecommunications facilities and communication networks, efficiency of research and development and international competitive power of the communications industry, etc.
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(3) Matters necessary for the detailed examination standards by examination items and the examination procedures, etc. under paragraph (2) shall be fixed and publicly announced by the Korea Communications Commission
(4) A person falling under any of the following shall succeed to the telecommunication licensee status of the key communication business operator:
1. A person who has taken over the business of a key communications business operator by obtaining an authorization under paragraph (1)
2. a juristic person surviving a merger or that established by a merger, or that established by obtaining an authorization under paragraph (2)
3. a company incorporated to provide part of key communication services with the approval under paragraph (1)6
(5) The Korea Communications Commission may, in case where it grants authorization or authorization under paragraph (1), attach conditions under Article 6(4).
(6) The Korea Communications Commission shall, in case where it intends to grant an authorization under paragraph (1), go through a consultation with the Fair Trade Commission. <Amended by Act No. 6230, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008; Act No. 9481, March 13, 2009>
(7) In regard to the criteria for rejection of authorization in paragraph (1), Article 7 shall be applicable mutatis mutandis.
(8) In the event any person/entity subject to Article 1(4) or (5) fails to acquire the permit pursuant thereto, the Korea Communications Commission may order suspension of its voting right or sale of the applicable shares, and if the conditions attached under paragraph (5) are not carried out, may order such performance within a specific time frame. <Newly inserted, Jan.3, 2007; Act No. 8867, Feb. 29, 2008>
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(9) A person seeking authorization under paragraph (1) shall not do each of the following:
1. unify communications networks,
2. appoint officers,
3. execute other activities such as transferring, consolidating, entering into contract concerning disposing of facilities or
4. take follow-up measures regarding establishment of a company prior to obtaining such authorization or approval.
Article 19 (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, as specified by the Enforcement Decree of the Act notify the users at least 60 days prior to the date of termination and obtain approval of such suspension or discontinuation from the Korea Communications Commission.
(2) In the event separate measures of protection is deemed to be necessary for the protection of users upon suspension or discontinuance of the relevant key communications business, the Korea Communications Commission may order such measures (including assistance for membership change, bearing expenses, termination of membership) to be taken. (3) The Korea Communications Commission shall, in case where an application for approval or authorization under paragraph (1) is made, and where deemed that suspension, discontinuance of relevant business or a dissolution of a juristic person is likely to hamper the public interests, not grant the relevant approval or authorization.
Article 15 (Cancellation of License, etc.)
(1) The Korea Communications Commission may, in case where a key communications business operator falls under any one of the following subparagraphs, cancel the relevant license or give an order to suspend the whole or part of business with fixing a period of no more than one year, provided that the license shall be cancelled entirely or partially if paragraph 1 is applicable:
1. Where he has obtained a license by deceit and other illegal means;
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2. Where he has failed to implement the conditions under Articles 6 (4) and 18 (5);
3. Where he has failed to observe the orders under Article 12 (2);
4. Where he has failed to commence business within the period under Article 15 (1) (in case of obtaining an extension of the period under Article 15 (2), the extended period);
5. Where he has failed to comply with the standardized use contract, that is authorized or reported under Article 28 (1) and (2); and
6. Where he fails to comply with an order for correction under Article 52 (1) or Article 92 (1) without any justifiable reasons.
(2) Criteria and procedures for the dispositions under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.
SECTION 3 Specific Communications Business and Value-Added Communications Business
Article 21 (Registration of Specific Communications Business Operator)
(1) A person who intends to operate a specific communications service shall register the following matters with the Korea Communications Commission (including registration through information network) under the conditions as determined by the Enforcement Decree:
1. Financial and technical capability;
2. Plans for a user protection; and
3. Business plans, etc. and other matters as determined by the Enforcement Decree.
(2) The Korea Communications Commission may, upon receipt of the registration of a specific communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication.
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(3) A person subject to the registration of specific communications business under paragraph (1) shall be limited to a juristic person.
(4) A person who registered his specific communications business under paragraph (1) (hereinafter referred to as a specific communications business operator) shall commence operation within 1 year from the registration date.
(5) Procedures and requirements for the registration under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.
Article 22 (Report, etc. of Value-Added Communications Business Operator)
(1) A person who intends to run a value-added communications business shall report to the Korea Communications Commission (including reports via information network), according to the requirements and procedures as prescribed by the Enforcement Decree: Provided, That this shall not apply to a case where the size of the operating telecommunications facilities is a small value-added communication business matching the criteria prescribed by the Enforcement Decree.
(2) When a key communications business operator seeks to operate value-added communication services, such value-added communication services are deemed to have been registered.
(3) A person who reported value-added communications business under the first part of paragraph (1) shall commence operation within 1 year from the reporting date.
Article 23 (Modification of Registered or Reported Matters)
Specific communications business operator a person who has made a report of a value-added communications business operator under the earlier part of Article 22(1) shall, when he intends to modify the matters as determined by the Enforcement Decree from among the relevant registered or reported matters, make in advance a modified registration or modified report (including modified registration or modified report through information network) to the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree.
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Article 24 (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 reported value-added communications services pursuant to the first part of Article 22(1) or is deemed to have made such reporting under the latter part of the same Article or paragraph (2) of the same Article, hereinafter refer to the same)), each of the following persons shall make the report thereon (including reports through information network) to the Korea Communications Commission, according to the requirements and procedures as prescribed by the Enforcement Decree:
1. a person who has taken over the relevant business,
2. the juristic person surviving the merger, the juristic person founded by the merger, or
3. the successor to the business in question
Article 25 (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 specific communications business or a value-added communications business operator, or a succession of a value-added communications business, under Article 24, each of the following persons shall succeed to the status of a former specific communications business operator or a value-added communications business operator.
1. a person who has taken over the business,
2. a juristic person surviving a merger, or a juristic person founded by a merger or
3. a successor <
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Article 26 (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, in a manner determined in the Enforcement Decree of the Act, notify the relevant contents to the users of relevant services, and report thereon to the Korea Communications Commission (including reports through information network) not later than thirty days prior to the slated date of the relevant suspension or closedown In this case, the business shall not be maintained for more than 1 year.
(2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Korea Communications Commission(including reports through information network).
Article 27 (Cancellation of Registration and Order for Closedown of Business)
(1) The Korea Communications Commission may, when a specific communications business operator falls under any of the following subparagraphs, cancel his registration wholly or partially, or suspend his business wholly or partially by specifying the period of not more than one year: Provided, That when he falls under the subparagraph 1, the Korea Communications Commission shall cancel his registration: <Newly Inserted by Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, , Jan. 16, 2001, Act No. 7916, Mar. 24, 2006; Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
1. Where he makes a registration by deceit and other illegal means;
2. Where he fails to implement the conditions under Article 21 (2);
3. Where he fails to commence business within one year from the date on which a registration was made under Article 21 (4), or in violation of the latter part of Article 26(1) continually suspends business operation for not less than one year;
4. Where he fails to comply with an order under Article 52 (1) or an order for correction Article 92 (1) without any justifiable reasons;
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(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 the whole or part of business or for a suspension of the whole or part of business by specifying a period of not more than one year: Provided, That where he falls under any one of the following subparagraphs, the said Minister shall issue an order to him for a closedown of whole or part of business:
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 22(1), or in violation of the latter part of Article 26(1) suspend the business operation for not less than one year;
3. Where he fails to comply with a order under Article 52 (1) or a correction order under Article 92 (1) without any justifiable reasons; and
(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.
CHAPTER III TELECOMMUNICATIONS SERVICE
Article 28 (Report, etc. of Standardized Use Contract)
(1) A key communications business operator shall set forth the fees and other terms for use by service with respect to the telecommunications service which he intends to provide (hereinafter referred to as the standardized use contract), and report thereon (including a modified report) to the Korea Communications Commission.
(2) Notwithstanding paragraph (1), in a case of a key communications service whose size of business and market share correspond to the standards as determined by the Enforcement Decree, it shall obtain an authorization of the Korea Communications Commission (including a modified authorization), provided that, any decrease in the service-specific charges included the approved standard terms and conditions of usage shall be reported to the Korea Communications Commission.
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(3) In regard to the main body of paragraph (2), the Korea Communications Commission shall authorize the standardized use contract, if it falls under the criteria of every following subparagraph:
1. Fees for telecommunications service shall be reasonably calculated considering but not limited to costs of supply, profits, classification of costs/ profits by labor, cost savings achieved by methods of provision of labor, and effects on fair competitive environments;
2. Matters concerning the responsibility of key communications business operators and relevant users, cost-sharing methods concerning the installation work of telecommunications facilities and other works shall not be unreasonably disadvantageous to users.
3. Forms of use of telecommunication line facilities by other telecommunications business operators or users shall not be unduly restricted;
4. Undue discriminatory treatments shall not be made to specific persons; and
5. Matters on securing the important communications under Article 85 shall take into consideration matters such as achieving efficient performance of States function.
(4) A person intending to acquire the approval under paragraph (!) and (2) or file a report with respect to the telecommunications services shall submit the supporting data for calculation of fee (including subscription fee, basic fee, usage fee, value-added service fee, and actual expense). In case of business change, a table comparing the old (before change) and new (after change) supporting data should be submitted to the Korea Communications Commission for comparison.
(5) Details necessary and not otherwise specified in paragraphs (1) through (4) in regard to the scope of and procedures of reporting and authorization shall be specified under the Enforcement Decree of the Act.
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Article 29 (Reduction or Exemption of Fees)
A key communications business operator may reduce or exempt the fees for telecommunications service under the conditions prescribed by the Enforcement Decree, such as national security guarantee, disaster relief, social welfare and public interest.
Article 30 (Restriction on Use by Others)
No person shall intermediate others communications or provide for others communications by making use of telecommunications services provided by a telecommunications business operator: Provided, That the same shall not apply to the case falling under any of the following subparagraphs:
1. Where it is needed to ensure the prevention and rescue from disaster, traffic and communication, and the supply of electricity, and to maintain order in a national emergency situation;
2. Where telecommunications services are incidentally rendered to clients while running a business other than the telecommunications business;
3. Where it is allowed to use on a trial basis for the purpose of developing and marketing telecommunications facilities, such as terminal devices, etc. which enable to use the telecommunications services;
4. Where any user permits any third party to use to the extent that the latter does not use repeatedly; and
5. Where it is necessary for the public interests or where the business run by any telecommunications business operator is not impeded, which is prescribed by the Enforcement Decree.
Article 31 (Use of Transmission or Line Equipment, etc.)
(1) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide the transmission or line equipment or the cable broadcasting equipment possessed under the methods prescribed by the Enforcement Decree to the key communications business operators.
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(2) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act shall, when he intends to provide value-added communications services by making use of the transmission or line equipments or cable broadcasting equipments, make a report thereon to the Korea Communications Commission pursuant to Article 22.
(3) The provisions of Articles 33-5 through 35 and 37 shall be applicable mutatis mutandis to the transmission or line equipment or cable broadcasting facilities under paragraph (1).
(4) The provisions of Article 28 (2) through (7) of the Framework Act on Telecommunications shall be applicable mutatis mutandis to the offer of services under paragraph (2).
Article 32 (Protection of Users)
(1) 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.
(2) 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.
(3) A telecommunications business operator providing key communications services shall subscribe a guarantee insurance with the person designated by the Korea Communications Commission as beneficiary in an amount determined in accordance with the criteria specified under the Enforcement Decree of the Act and not exceeding the aggregate prepaid phone service charges to be received prior to providing prepaid phone services to be able to compensate losses to users arising from not being able to provide services after receiving service charges in advance, provided that the foregoing requirement may be waived in the case specified under the Enforcement Decree of the Act where such telecommunications business operators financial capacity and services charges are taken in consideration
(4) The person designated as beneficiary under paragraph (3) shall distribute insurance proceeds received under the guarantee insurance under paragraph (#) to users who have not received services after paying services charges in advance.
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(5) Details necessary in regard to the subscription, renewal and distribution of insurance proceeds under paragraph (3) and (4) shall be specified in the Enforcement Decree of the Act.
Article 33 (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.
CHAPTER IV PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS BUSINESS
Article 34 (Promotion of Competition)
(1) The Korea Communications Commission shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services. <Amended by Act No. 8867, Feb. 29, 2008>
(2) The Korea Communications Commission shall conduct annual evaluation of competition system with respect to key communications business in order to construct an efficient competition system and to promote fair competition in the telecommunication services industry pursuant to paragraph 1 above. <Amended by Act No. 8867, Feb. 29, 2008>
(3) The specific evaluation standards, procedure and method for evaluating competition system under paragraph 2 above shall be prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
[This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
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Article 35 (Provision of Facilities, etc.)
(1) A key communications business operator or an institution constructing, operating and managing road, railroad, subway, water supply/sewage, electric poles, cables, telecommunications line facilities (facility management institution) may, upon receipt of a request for the provision of conduit line, common duct, electric poles, cables, operation sites and other facilities (including telecommunication facilities, hereinafter the same) or facilities (facilities, etc. from other key communications business operator, provide the facilities, etc. 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), provided that the foregoing is not applicable in case there is a usage plan, etc. of the facility management institution:
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. Each of the following facility management institutions owning conduit line, common duct, electric pole, cable and other facilities, etc.
A. the Korea Expressway Corporation organized under the Korea Highway Corporation Act
B. the Korea Water Resources Corporation organized under the Korea Water Resources Corporation Act
C. the Korea Electric Power Corporation organized under the Korea Electric Power Corporation Act
D. the Korea Rail Network Authority organized under the Korea Rail Network Authority Act
3.
E. local public enterprises under Local Public Enterprise Act
F. municipalities under Local Autonomy Act
G. the Regional Construction Management Administration under the Road Act
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3. A key communications business operator whose business scale and market shares, etc. of key communications services are equivalent to the criteria as determined by the Enforcement Decree.
(3) The Korean Communications Commission shall set forth and publicly notify the scope of facilities, etc., 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 facilities, etc. to be provided under paragraph (2) shall be determined in view of the demand for facilities, etc. by the key communications business operators falling under each subparagraph of the same paragraph.
(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) For efficient use and management of facilities, etc., the Korea Communications Commission may request data on facilities, etc., from telecommunications business operators and facility management institutions in a manner specified under the Enforcement Decree of the Act. In this case, the pertinent telecommunications business operator or facility management institution shall honor such demand unless there are reasonable grounds for not doing so.
(6) For provision of facilities, etc. under paragraphs (1) and (2), the Korea Communications Commission may appoint an expert institution.
(7) Details necessary for appointment and operation guidelines for expert institutions under paragraph (6) shall be determined and announced by the Korea Communications Commission.
Article 36 (Joint Utilization of Subscribers Lines)
(1) A key communications business operator shall, in case where other telecommunications business operators as determined and publicly noticed by the Korea Communications Commission have made a request for a joint utilization with respect to the lines installed in the section from the exchange facilities directly connected with the users to the users (hereafter in this Article, referred to as the subscribers lines), allow it.
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(2) The Korea Communications Commission shall set forth and publicly notify the scope of joint utilization of the subscribers lines under paragraph (1), its conditions, procedures and methods, and the standards for calculation of prices.
Article 37 (Joint Utilization of Radio Communications Facilities)
(1) A key communications business operator may, upon receipt of a request for the joint utilization of radio communications facilities (hereinafter referred to as the joint utilization) from other key communications business operators, allow it by concluding an agreement. In this case, the prices for the joint utilization among the key communications business operators as set forth and publicly notified by Korea Communications Commission shall be computed and settled accounts by a fair and reasonable means.
(2) The key communications business operators as determined and publicly notified by the Korea Communications Commission shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Korea Communications Commission, allow it by concluding an agreement, notwithstanding the provisions of paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users.
(3) The Korea Communications Commission shall set forth and publicly notify the standard for computing the prices for joint utilization under the latter part of paragraph (1) and its procedures and payment methods, etc., and the scope of joint utilization under paragraph (2), its conditions, procedures and methods, and the computation of prices, etc.
Article 38 (Wholesale Provision of Telecommunication Services)
(1) Upon request from other telecommunication business operator, a key communications business operator may enter into an agreement to allow such telecommunication business operator to resell the telecommunication services it provides to users (resale) by providing such services to such other telecommunication business operator or permitting part or all of the telecommunication facilities necessary for such provision of telecommunication services (wholesale provision).
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(2) To encourage competition in the telecommunication industry, the Korea Communications Commission may, upon request from a telecommunication business operator, designate and announce telecommunication s services (designated wholesale services) of a key communications business provider which would need to enter into an agreement for wholesale provision (designated wholesale provider). In this case, designated wholesale services of the designated wholesale provider shall be selected from telecommunication services of key communications business providers satisfying the criteria specified in the Enforcement Decree of the Act which would take into consideration business size and market share.
(3) After evaluating the competition status of the communications market each year, if the Korea Communications Commission determines that the competition in the telecommunications industry has increased to the degree where the sufficient wholesale of telecommunications services have been provided or the set criteria are not met, it may withdraw its designation of designated wholesale services of the designated wholesale provider.
(4) The Korea Communications Commission shall determine and announce the terms and conditions of the wholesale provision when the designated wholesale provider enters into an agreement about the designated wholesale services. In this case, the consideration shall be calculated on the basis of subtracting avoidable costs (costs that the key communications business operator can avoid when not providing services directly to users) from retail prices of the designated wholesale services.
(5) Upon request for wholesale provision from other telecommunications business operator, a key communications business operator shall enter into an agreement within 90 days unless there are special reasons and shall report such agreement to the Korea Communications Commission in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement. The same applies in the case of a change or abolition of the agreement.
(6) An agreement under paragraph (5) shall satisfy the criteria announced by the Korea Communications Commission under paragraph (4).
[Paragraph (2) through (4) shall be effective until March 22, 2013 under the Article 2 of the Addenda to the Act No. 10166 (2010.3.22)]
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Article 39 (Interconnection)
(1) A telecommunications business operator may allow the interconnection by concluding an agreement, upon a request from other telecommunications business operators for an interconnection of telecommunications facilities.
(2) The Korea Communications Commission shall set forth and publicly notify the scope of interconnections of telecommunications facilities, the conditions, procedures and methods, and the 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 communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
Article 40 (Prices of Interconnection)
(1) Prices for using the interconnection shall be calculated by a fair and proper means and deducted from each others accounts. The detailed standards for such calculation, their procedures and methods shall be governed by the standards of Article 39 (2).
(2) A key communications business operator may deduct the prices for interconnection from each others accounts under the conditions as prescribed by the standards under Article 39 (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.
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Article 41 (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 Korean Communications Commission shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under paragraph (1).
(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 communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
Article 42 (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 users 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.
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(2) The Korean Communications Commission shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under paragraph (1).
(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 communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
(4) A key communications business operator under paragraph (3) shall set forth the technical standards required for a use by other telecommunications business operators or users by means of a connection of a monitor and other telecommunications equipment on the relevant telecommunications facilities, the standards for use and provision, and other standards required for a creation of fair competitive environments, and make a public notice thereof by obtaining approval from the Korea Communications Commission.
Article 43 (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 facilities, etc., wholesale provision, an interconnection or joint use, etc. 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 technological information or personal data of users obtained under Article 42(1) and (3) within the context of purposes thereof, and may not use it unjustly, or provide it to the third parties.
Article 44 (Report, etc. of Agreement on Interconnection, etc.)
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(1) A key communications business operator and facility management institution shall conclude an agreement under Article 35 (1) and (2), the earlier part of 37 (1), 39 (1), 41 (3) or 42 (1) within ninety days unless there exist any special reasons and report it to the Korea Communications Commission in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement, upon receipt of a request from other telecommunications business operators for a provision, a joint utilization, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information. The same applies in the case of a change or abolition of the agreement.
(2) Notwithstanding the provision of paragraph (1), in case of an agreement in which a key communications business operator under the latter part of Article 37 (1) and (2), Articles 39 (3), 41 (3), and 42 (3) is a party concerned, shall enter into an agreement within 90 days upon receipt of the request, unless there is a special reason, and the key communications business operator receiving the request shall apply for authorization to the Korea Communications Commission in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of the Agreement and reveal the contents of the agreement within 30 days from the authorization date. The same applies in the case of a change or abolition of the agreement
(3) The agreement under paragraphs (1) and (2) shall meet the standards which are publicly notified by the Korea Communications Commission under Articles 35 (3), 37 (3), 39 (2), 41 (2) or 42 (2).
(4) The Korea Communications Commission may, if any application for authorization referred to in paragraph (2) needs supplemented, order such application for authorization supplemented for a fixed period.
(5) The agreement under Articles 41 (1) and 42 (1) may be concluded by an inclusion in the agreement under Article 39 (1).
Article 45 (Ruling of the Korea Communications Commission)
(1) A telecommunications business operator or user may request to the Korea Communications Commission for an arbitration if they fail to agree on are not able to agree on any of the following:
1. indemnification under Article 33
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2. execution of an agreement within a 90-day period regarding provision of facilities, etc. interconnection, joint use or provision of information, etc.
3. performance or indemnification under an agreement regarding provision of facilities, etc. interconnection, joint use or provision of information, etc
4. other disputes concerning telecommunications business or matters specified as subject to the Korea Communications Commissions ruling under other bodies of law
(2) Upon receipt of the request under paragraph (1), the Korea Communications commission shall notify the parties of that fact and set a timeline for providing them with a chance to make their cases, provided that the foregoing is not applicable if a relevant party does not submit to the procedures without any justifiable reason.
(3) The Korea Communications Commission shall make a ruling within 90 days from the request for arbitration provided that such period may be extended by one additional 90-days upon the resolution of the Korea Communications Commission if it is not possible to make a ruling within the original 90-day period for any unavoidable reason.
(4) If any part to the arbitration files a suit during the arbitration proceeding, the Korea Communications Commission the Korea Communications Commission shall suspend the arbitration proceeding and notify the other party of that fact. The same applies if it is found out that a lawsuit was filed prior to the receipt of request for arbitration.
(5) When it has made a ruling for the request made under paragraph (1), the Korea Communications Commission shall provide such written ruling to the parties without delay.
(6) Within 60 days from the date on which the originals of written ruling of the Korea Communications Commission were sent to the parties, if no lawsuit regarding the dispute between the parties to the arbitration has been filed or such lawsuit has been withdrawn or the parties clearly indicate their acceptance of the ruling to the Korea Communications Commission, an agreement equivalent to the contents of the ruling shall be deemed to have been made.
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Article 46 (Solicitation for Outside Arbitration)
If the Korea Communications Commission, upon receiving request for arbitration under Article 45(1), deems that it is inappropriate to conduct arbitration or is necessary for other reasons, it may form a separate commission for each dispute and solicit for outside arbitration.
Article 47 (Demand for Attendance, Hearing, etc.)
When necessary for proceeding with the arbitration case, the Korea Communications Commission may on its own motion or upon request from a party take any of the following actions:
1. demand for attendance of a party or witness and hold a hearing
2. demand for appraisal to an appraiser
3. demand for submission of documents or objects relevant for the dispute and provisional seizure of the documents or objects so submitted.
Article 48 (Management Plan for Telecommunications Number)
(1) The Korea Communications Commission shall formulate and enforce the management plan for telecommunications number, in order to make an efficient provision of telecommunications service, and the promotion of users convenience and of the environments of fair competition among telecommunications business operators.
(2) The Korea Communications Commission shall, when he has formulated the plans under paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan.
(3) A telecommunications business operator shall observe the matters publicly noticed under paragraph (2).
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Article 49 (Accounting Adjustment)
(1) A key communications business operator shall adjust the accounting, prepare a business report for the preceding year by the end of within 3 months after the end of each fiscal year, and submit it to the Korea Communications Commission, under the conditions as determined by the Enforcement Decree, and keep the related books and authoritative documents.
(2) The Korea Communications Commission shall, when it intends to determine the matters of accounting adjustments under paragraph (1), go in advance through a consultation with the Minister of Strategy and Finance.
(3) The Korea Communications Commission may verify contents of any business report submitted by any key communications business operator in accordance with paragraph (1).
(4) The Korea Communications Commission may, if it is necessary to conduct the verification referred to in paragraph (3), order the relevant key communications business operator to submit related material or launch inspection necessary to ascertain the facts.
(5) The Korea Communications Commission shall, when it intends to launch inspection in accordance with paragraph (4), notify the relevant key communications business operator of the plans of such inspection including inspection period, reasons, and contents of the inspection within seven (7) days prior to the scheduled date of inspection.
(6) A person verifying the contents pursuant to paragraph (4) shall present the proof of the authorization therefor and give documents indicating his name, stay period and purpose of entrance to related party at the time of his first entrance.
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Article 50 (Prohibited Act)
(1) A telecommunications business operator shall not commit any of the following acts (hereinafter referred to as prohibited act) which undermines or is feared to undermine fair competition or users interests, or have other telecommunications business operators or the third parties commit such act:
1. Act of imposing unfair or unreasonable condition or restriction in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.;
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2. Act of unfairly refusing a conclusion of agreement, or act of non-performance of the concluded agreement without any justifiable reasons in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.;
3. Act of unfairly diverting the information of other telecommunications business operators to his own business activities, which have been known to him in the course of a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc., or a provision of information, etc.;
4. Act of computing the fees, etc. for a use of telecommunications services, or the prices for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, by unfairly itemizing the expenses or revenues;
5. Act of rendering the telecommunications services in a manner different from the standardized use contract (the standardized use contract refers to only those of which was reported or approved as pursuant to the Article 28 (1) and (2)) or act of rendering the telecommunications services in a manner which significantly undermines the profits of users;
6. Act of setting and maintaining the compensation for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, unreasonably high compared to its supply costs
7. Act of refusing or restricting fair allocation of income in a transaction where telecommunications services using the radio waves assigned under the Act on Radio Waves are to be used to provide digital contents
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(2) When any person acting on behalf of any telecommunications business operator under a contract therewith in executing contracts between such telecommunications business operator and its users (including making any amendment to such contracts) commits any act falling under paragraph (1)5, his act shall be deemed the act committed by such telecommunications business operator and only the provisions of Articles 52 and 53 shall apply to such act: Provided, That the same shall not apply to a case where the relevant telecommunications business operator has paid reasonable attention to the prevention of such act.
(3) Necessary matters concerning categories of and standards for the prohibited act referred to in paragraph (1) shall be prescribed by the Enforcement Decree.
Article 51 (Investigation of Fact)
(1) In the event the Korea Communications Commission believes that activities in violation of Article 50(1) have been committed, it may order the relevant public official belonging to the Korea Communications Commission to conduct investigation thereof.
(2) The Korea Communications Commission may order public officials belonging to the Korea Communications Commission to enter into the offices or workplaces of the telecommunications business operators or the workplaces of the persons entrusted with handling of the business of telecommunications business operators (limited, throughout this Article, to telecommunications business operators entrusted with work related to Article 50) and inspect books, documents and other data and objects.
(3) In the event any investigation is to be conducted pursuant to paragraph (1), the Korea Communications Commission shall notify the relevant telecommunications business operator at least seven (7) days prior to the expected date of investigation with information on the duration, purpose and content of the investigation. Provided, this provision may not apply in the event of emergency or if there is risk that the evidence will be destroyed.
(4) A person who investigates by visiting the offices or workplaces of the telecommunications business operators, or the workplaces of the persons handling, under an entrustment, the business of telecommunications business operators, under paragraph (2) shall carry a certificate indicating the authority, and present it to the persons concerned. He also should be accompanied by the person of the corresponding offices or workplaces.
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(5) A public official who investigates pursuant to paragraph (2) may order telecommunications business operators or persons entrusted with handling of the business of telecommunications business operators to submit any necessary information or object. In the event there is a possibility of abandonment, concealment, or replacement of the information or object so submitted, the public official may temporarily take them into custody.
(6) The Korea Communications Commission shall immediately return the information or object under its custody if it falls under any one of the following:
1. It is deemed, after an examination of the information or object under the custody, that it has no relevance to the current investigation.
2. The purpose of investigation is fully accomplished so that keeping the information or object under its custody is no longer necessary.
Article 52 (Measures on Prohibited Acts)
(1) The Korea Communications Commission may order any telecommunication business operator to take the measures falling under each of the following subparagraphs when it is recognized that any act in violation of paragraph 1 of Article 50 has been committed:
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;
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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;
9. Improvement of business conduct procedures regarding telecommunications service;
10 Prohibition of soliciting new users (for a period not exceeding 3 months and limited to cases where the same violation has occurred for 3 times or more despite sanctions under paragraph 1 through 9 or where such sanctions are deemed insufficient to prevent harm to users); and
11. Such other matters prescribed by the Enforcement Decree as may be necessary for the measures referred to in subparagraphs 1 through 10.
(2) The telecommunications business operators shall execute any order issued by the Korea Communications Commission under paragraph (1) within the period specified by the Enforcement Decree: Provided, That the Korea Communications Commission may extend the relevant period only once, if it is deemed that the telecommunications business operators are unable to carry out the order within the specified period due to natural disasters and other unavoidable causes.
(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, demand for attendance of an interest party or witness, hearing or appraiser by an appraiser.: Provided, That this shall not apply when the parties concerned fail to respond without any justifiable reasons. >
(4) In the event five (5) years have passed from the date on which any acts committed in violation of paragraph 1 of Article 50 have been terminated, the Korea Communications Commission shall not order any measures pursuant to paragraph 1 or impose a penalty surcharge pursuant to Article 53. Provided, this provision under this paragraph 4 of Article 37-1 shall not apply if any measure or imposition of penalty surcharge is cancelled by court order and a new measure is to be taken pursuant to that court order.
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Article 53 (Imposition, etc. of Penalty Surcharge on Prohibited Acts)
(1) The Korea Communications Commission may, in case where there exists any act in violation of paragraph 1 of Article 50, impose a penalty surcharge not exceeding 3/100 of the turnover as prescribed by the Enforcement Decree on the relevant telecommunications business operator. If the telecommunications business operator refuses to submit the data used for calculation of the amount of turnover or submits erroneous data, an estimate of the amount can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status): Provided, That where there is no turnover or it is difficult to calculate the turnover as prescribed by the Enforcement Decree, it may impose the penalty surcharge not exceeding one billion won.
(2) The Korea Communications Commission may impose on a key communications business operator that submits a business report under Article 49 a find up to 3% of its revenue as determined in a manner specified under the Enforcement Decree of the Act if it commits any of the following:
1. failure to submit a business report under Article 49 or to abide by an order to submit relevant information
2. omission of a material item or inclusion of a false statement in a business report under Article 49
3. failure to adjust the accounting or keep the related books and authoritative documents in violation of Article 49(1)
(3) The Korea Communications Commission shall, in the event of imposing a penalty surcharge under paragraph (1) or (2), take each of the following into consideration.
1. details of violation and the extent thereof
2. duration and frequency of violation
3. amount of profit obtained in connection with the violation
4. the amount of turnover obtained as a result of the prohibited activities of the telecommunications business operator.
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(4) A penalty surcharge under paragraph (1) or (2) shall be calculated taking paragraph (3) into consideration, provided specific calculation standard and procedure shall be set forth by the Enforcement Decree. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002, Mar. 29, 2007; Amended by Act No. 8198, Jan. 3, 2007; Act No. 8324, March 29, 2007 >
(5) The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) fails to do so by the payment deadline, collect an additional due equivalent to 6/100 per year, with respect to the penalty surcharge in arrears, from the day following the expiry of such payment deadline.
(6) The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) 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 (5) within the fixed period, collect them according to the example of a disposition taken to collect the national taxes in arrears.
(7) In the event the penalty surcharge imposed under paragraph (1) or (2) is to be returned pursuant to the court order, an additional due equivalent to 6/100 per year with respect to the penalty surcharge in arrears (accrued from the day of payment to the day of payment) shall be paid.
Article 54 (Relations with Other Acts)
In case where a measure is taken under Article 52 or a penalty surcharge is imposed under Article 53 against the acts in violation of paragraph (1) of Article 53, 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.
Article 55 (Compensation for Damages)
In case where a correction measure has been taken under Article 52 (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.
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Article 56 (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 Korea Communications Commission shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users.
(3) The Korea Communications Commission may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under paragraph (2).
Article 57 (Prior Selection Systems)
(1) The Korea Communications Commission shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the prior selection systems). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Enforcement Decree from among the same telecommunications service provided by the plural number of telecommunications business operators.
(2) The telecommunications business operator shall not force the users to select in advance a specified telecommunications business operator, or commit the acts to recommend or induce by unlawful means.
(3) The Korea Communications Commission may, for the purpose of performing the prior selection systems efficiently and neutrally, designate the specialized institutes performing the registration or alteration affairs of the prior selection (hereinafter referred to as the prior selection registration center).
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(4) The Korea Communications Commission shall determine and publicly notify the matters necessary for performing the prior selection systems and for the designation of the prior selection registration center and the method of dealing with its affairs, etc.
Article 58 (Mobility of Telecommunication Numbers)
(1) The Korea Communications Commission may, in order that the users are able to maintain their previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the plans for mobility of numbers).
(2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs:
1. Kinds of services subject to the mobility of telecommunications numbers;
2. Time for introduction by service subject to the mobility of telecommunications numbers; and
3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator.
(3) The Korea Communications Commission may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures.
(4) The Korea Communication Commission may designate an institution specializing in the work of registration and alteration of the mobility of numbers (hereinafter referred to as the mobility of numbers management institution) to efficiently and neutrally implement the mobility of numbers of the telecommunications.
(5) The Korea Communication Commission shall prescribe and publish necessary matters concerning the implementation of the mobility of numbers of the telecommunications, the designation of any mobility of numbers management institution and its work, etc.
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Article 49 (Restrictions, etc. on Mutual Possession of Stocks)
(1) Where a key communications business operator falling under Article 39 (3) 1 or 2 (including the specially-related persons) possesses in excess of 5/100 of the gross number of voting stocks issued by the mutually different key communications business operators, shall not be allowed to exercise any voting rights with regard to the stocks in excess of the relevant ceiling.
(2) Provisions of paragraph (1) shall not apply to the relation of possessions between a key communications business operator falling under Article 39 (3) 1 or 2 and the key communications business operator established by the said key communications business operator by becoming the largest stockholder.
Article 60 (Provision of Number Guidance Service)
(1) The telecommunications business operator shall provide an information service of guiding the general public to the telecommunications numbers of the users by means of voice, booklets or Internet, etc. (hereinafter referred to as the number guidance service) by obtaining a consent of the users: Provided, That the same shall not apply to the minor business determined and publicly announced by the Korea Communications Commission by taking account of the numbers of the users and the turnovers, etc.
(2) If necessary for the protection of private personal information, the Korea Communications Commission may limit the provision of the number guidance service. < Newly inserted. Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>
(3) Matters necessary for a provision of the number guidance service may be stipulated by the Enforcement Decree.
CHAPTER V TELECOMUNICATIONS FACILITIES
Section 1. Commercial Telecommunication Facilities
Article 61 (Maintenance and Repair of Telecommunications Facilities)
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For stable provision of its telecommunications services, a telecommunications business operator shall maintain and repair the telecommunications facilities it provides up to technical specifications specified under the Enforcement Decree of the Act for stable supply of telecommunications.
Article 62 (Report and Authorization of Telecommunications Facilities Installation)
(1) When a key communications business operator seeks to install or modify a significant telecommunications facilities, it shall report it to the Korea Communications Commission in a manner specified under the Enforcement Decree of the Act, provided that for the telecommunications facilities installed for the first time for new telecommunication technology, an authorization from the Korea Communications Commission shall be obtained in a manner specified in the Enforcement Decree of the Act. (2) The scope of significant telecommunications facilities under paragraph (1) shall be determined and announced by the Korea Communications Commission.
Article 63 (Joint Installation of Telecommunications Facilities)
(1) A key communications business operator may agree with another key communications business operator to jointly install and use telecommunications facilities.
(2) When key communications business operators negotiate with each other under paragraph (1), the Korea Communications Commission may conduct a research on necessary information and provide it to them in a manner specified under the Enforcement Decree of the Act.
(3) For efficient research under paragraph (2), the Korea Communications Commission may engage an expert institution in the telecommunications area to conduct such research in a manner specified under the Enforcement Decree of the Act.
(4) The Korea Communications Commission may recommend joint installation of telecommunications facilities under paragraph (1) to key communications business operators in a manner specified under the Enforcement Decree in any of the following cases:
1. where no agreement is reached under paragraph (1) and request is made by one of the key communications business operators
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2. where it is deemed necessary for the public good
(5) If a key communications business operator fails to reach an agreement on the use of land or buildings owned by the government, public agencies under the Act on the Management of Public Agencies (public agencies in this Article) or another key communications business operator when such use is necessary for joint installation of telecommunications facilities, it may request for help from the Korea Communications Commission on use of such land or building.
(6) Upon receiving the request for help under paragraph (5), the Korea Communications Commission may make a demand to the head of the government entities, municipalities, public agencies or the other key communications business operator for reaching an agreement with the use of relevant land or building with the key communications business operator making the request for help, in this case. the head of the government entities, municipalities, public agencies or the other key communications business operator shall make such agreement unless there is a justifiable reason.
Section 2. PROPRIETARY TELECOMMUNICATIONS FACILITIES
Article 64 (Installation of Proprietary Telecommunications Facilities)
(1) A person seeking to install proprietary telecommunications facilities shall make a report to the Korea Communications Commission in a manner specified under the Enforcement Decree of the Act.. The same applies when an important aspect of reporting items as specified under the Enforcement Decree is sought to be modified.
(2) Notwithstanding paragraph (1), in case of wireless proprietary telecommunications facilities and military telecommunications facilities and others where other bodies of law are applicable, such bodies of law shall be applicable.
(3) A person who has made a report on installation or modification of proprietary telecommunications facilities under paragraph (1) shall receive confirmation from the Korea Communications Commission in a manner specified under the Enforcement Decree of the Act when such installation or modification construction is complete and before commencement of its use.
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(4) Notwithstanding paragraph (1), certain proprietary telecommunications facilities specified under the Enforcement Decree of the Act may be installed without filing a report.
Article 65 (Restriction on Non-Proprietary Use)
(1) A person who has installed proprietary telecommunications facilities may not use such facilities to interconnect others communication or operate it outside its installation purposes, provided that the foregoing is not applicable in cases where other bodies of law have special provisions of any of the following is applicable:
1.use by a person in law enforcement of disaster rescue industries for law enforcement or emergency rescue operation
2. use by a specially related person of the installer of proprietary telecommunications facilities as announced by the Korea Communications Commission
(2) A person who has installed proprietary telecommunications facilities may provide telecommunications facilities such as conduit line to a key communications business operator In a manner specified under the Enforcement Decree of the Act.
(3) Articles 35, 44 (excluding paragraph (5) and 45 through 47 shall be applicable in case of provision of facilities under paragraph (2).
Article 66 (Securing Communication Lines in Case of Emergency)
(1) When a war, accident or natural disaster or other national emergency has happened or is likely to happen, the Korea Communications Commission may order a person who has installed proprietary telecommunications facilities to engage in telecommunications services or other important communications services or connect the telecommunications facilities to other telecommunications facilities. In this case, Articles 28 through 55 shall be applicable.
(2) When the Korea Communications Commission deems necessary for the purposes of paragraph (1), may order a key communications business operator to handle such task.
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(3) The costs of performing the task or interconnecting facilities under paragraph (1) shall be borne by the government, provided that when proprietary telecommunications facilities are used for telecommunications services, the key communications business operator receiving such service shall bear its costs.
Article 67 (Order on the Person Installing Proprietary Telecommunications Facilities, Etc.)
(1)When a person who has installed proprietary telecommunications facilities fails to abide by the Act or order under this Act, the Korea Communications Commission may order a corrective measure to be carried out within a specific time frame.
(2) If a person who has installed proprietary telecommunications facilities falls under any of the following, the Korea Communications Commission may order a cessation of use for a period not exceeding one year:
1. failure to carry out the corrective order under paragraph (1)
2. use of proprietary telecommunications facilities without receiving confirmation in violation of Article 64(3)
3. interconnection of others communication or use of proprietary telecommunications facilities outside its installation purposes in violation of Article 65(1)
(3) When the Korea Communications Commission deems that proprietary telecommunications facilities are interfering with others telecommunications or likely to harm others telecommunications facilities, it may order the person who installed such facilities to stop using, modify, repair or take other corrective measures.
Section 3. INTEGRATED MANAGEMENT OF TELECOMMUNICATIONS FACILITIES , ETC.
Article 68 (Installation of Common Duct or Conduit Line, etc.)
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(1) A person installing or arranging any of the following (facility installer) shall solicit and reflect an opinion from a key communications business operator about installing a common duct or conduit line for telecommunications facilities, provided that the forgoing obligation does not apply when there is a special reason for not being able to honor the key communications business operators opinion.
1. road under Article 2(1)1 of the Road Act
2. railroad under Article 2(1) of the Railroad Enterprise Act
3. urban railroad under Article 3(1) of the Urban Railroad Act
4. industrial complex under Article 2(5) of the Industrial Sites and Development Act
5. free trade zone under Article 2(1) of the Act on Designation and Management of Free Trade Zone
6. airport area under Article 2(9) of the Aviation Act
7. port area under the Harbor Act
8. other facilities or land as specified under the Enforcement Decree of the Act
(2) An opinion set forth by key communications business operator about installation of common duct or conduit line under paragraph (1) shall satisfy the installation requirements for common duct specified under the Enforcement Decree of the Act.
(3) Articles 35, 44 (excluding paragraph (5) and 45 through 47 shall be applicable in case of provision of facilities under paragraph (2).shall be applicable to provision of common duct or conduit line installed under paragraph (1).
(4) When a facility installer is unable to reflect the opinion of key communications business operator under paragraph (1), it shall notify the key communications business operator of the reason for such inability within 30 days from the receipt of such opinion.
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(5) When a facility installer does not reflect the opinion of key communications business under paragraph (1), the key communications business operator may ask for reconciliation from the Korea Communications Commission.
(6) When attempting reconciliation upon receipt of the reconciliation request under paragraph (5), the Korea Communications Commission shall consult with the head of relevant administrative organization in advance.
(7) Details necessary for reconciliation under paragraphs (5) and (6) shall be specified under the Enforcement Decree of the Act.
Article 69 (Installation of Telecommunication: Line Facilities for Internal Routing, etc.)
(1) A building under Article 2(1)2 of the Building Act shall install telecommunication line facilities for internal routing and set aside a certain area for connection with telecommunication grid facilities.
(2) Details on the scope of building, standards for installing telecommunication line facilities and the setting aside of a certain area for connection with telecommunication grid facilities shall be specified under the Enforcement Decree of the Act.
Article 70 (Integrated Management of Telecommunications Facilities, Etc.)
(1) For efficient management and operation of telecommunications facilities, the Korea Communications Commission may allow a key communications business operator designated in accordance with the criteria and procedures specified under the Enforcement Decree of the Act (integrated telecommunications operator) to manage telecommunications facilities installed under this Act or other bodies of law and the relevant land, building or fixtures (telecommunications facilities, etc. on an integrated basis.
(2) When the Korea Communications Commission seeks to allow for integrated management of telecommunications facilities, etc. under paragraph (1), it shall establish a telecommunications facilities integrated management plan ( integrated management plan), consult with the head of relevant administrative agencies, have it approved by the President after passing the cabinet review.
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(3) An integrated management plan shall have the following:
1. subject, method and procedures of integration
2. management of telecommunications facilities, etc. for the post-integration period
3. other matters specified under the Enforcement Decree of the Act
(4) When it the Korea Communications Commission seeks to establish an integrated management plan, it shall consult with the installers of the telecommunications facilities to be integrated in advance.
Article 71 (Purchase of Telecommunications Facilities, Etc.)
(1) An integrated telecommunications operator may, when necessary for integrated management of telecommunications facilities, etc., request purchase of the relevant telecommunications, etc. In this case, the owners of the telecommunications facilities may not refuse such request without any justifiable reason.
(2) When purchase request is made by an integrated telecommunications operator under paragraph (1), telecommunications facilities, etc. directly or publicly owned by the government may be sold to the integrated telecommunications operator notwithstanding Article 27 of the State Properties Act or Article 19 of the Public Property and Commodity Management Act integrated telecommunications operator. In this case, details necessary for the calculation of sales price, sales procedures, payment of sales price, etc. shall be specified under the Enforcement Decree of the Act.
(3) Articles 67(1), 70, 71, 74, 75, 75-2, 76, 77 and 78(5) through (7) of the Act on the Acquisition of Land, etc. for Public works and the Compensation Therefor shall be applicable for the calculation of sales price, sales procedures, payment of sales price, etc. of the telecommunications facilities, other than those directly or publicly owned by the government. purchased by an integrated telecommunications operator.
Section 4. Installation and Preservation of Telecommunications Facilities
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Article 72 (Use of Land, etc.)
(1) A key communications business operator may, when necessary for the installation of line tracks, aerial lines and the appurtenant facilities to be available for telecommunications service (hereinafter referred to as the line tracks, etc.), make use of others land, or buildings and structures appurtenant thereto, and surface and bottom of the water (hereinafter referred to as the land, etc.). In this case, a key communications business operator shall make a consultation with owners or possessors of the relevant land, etc. in advance.
(2) Where a consultation under paragraph (1) is not or cannot be made, a key communications business operator may use the land, etc. owned by others, pursuant to the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor.
Article 73 (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) No one may, without any justifiable reason, interfere with the temporary use of telecommunications facilities, and land, etc., for the purposes of the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities under paragraph (1).
(3) A key communications business operator shall, when intending to temporarily use the private, national or public property under paragraph (1), notify the possessors, in advance, of the purposes and period of such use: Provided, That in case where it is difficult to make a prior notification, a prompt notification shall be made during or after its use, and in case where such notification may not be made due to an obscurity of address and whereabouts of possessors, a public notice thereof shall be made.
(4) The temporary period of use of the land, etc. under paragraph (1) shall not exceed six months.
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(5) A person who temporarily uses the private, national or public telecommunication facilities or the land, etc. under paragraph (1) shall carry the certificate indicating the authority, and present it to the persons related.
Article 74 (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) No one may, without any justifiable reason, interfere with the temporary entry of telecommunications facilities, and land, etc., for the purposes of the measurement, examination, etc., for the installation and preservation of telecommunications facilities under paragraph (1).
(3) Article 73(3) and (5) shall be applicable in regard to providing notice and showing an identification when a person doing measurement or examination under paragraph (1) enters private or public land, etc.
Article 75 (Request for Elimination of Obstacles, etc.)
(1) A key communications business operator may request the owners or possessors of gas pipes, water pipes, drain pipes, electric lamp lines, electricity lines or private telecommunications facilities, which impede or are likely to impede the installation of line tracks, etc. or telecommunications facilities themselves (hereinafter referred to as the obstacles, etc.), for the removal, remodeling, repair and other measures with respect to the relevant obstacles, etc.
(2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves.
(3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Korea Communications Commission. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants.
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(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 the key communications business operator, when they are in need of a new construction, enlargement, improvement, removal or alteration of the relevant obstacles, etc.
Article 76 (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 72 and 73 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 77 (Compensation for Damages)
A key communications business operator shall, in case of incurring damages on others in case of Article 73 (1), 74 (1) or 75, make a proper compensation to the suffered person.
Article 78 (Procedures for Compensation for Damages on Land, etc.)
(1) When a key communications business operator compensates under Article 76 or 77 for any of the following reasons, it shall consult with the person has incurred losses.
1. temporary use of land under Article 73(1)
2. entry in land, etc. under Article 74(1)
3. moving, modifying repairing obstacles or plans under Article 75
4. inability to restore to the original state under Article 76
(2) When a consultation under paragraph (1) is not or cannot be made, an application for adjudications shall be filed with the competent Land Expropriation Commission under the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor.
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(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).
Article 79 (Protection of Telecommunications Facilities)
(1) No person shall destruct the telecommunications facilities, and obstruct the flow of telecommunications by impeding the function of telecommunications facilities by means of having other objects contact them or by any other devices.
(2) No person shall stain the telecommunications facilities or damage the measurement marks of the telecommunications facilities by means of throwing objects to the telecommunications facilities or fastening an animal, vessel or a log raft thereto.
(3) A key communications business operator may, if necessary for the protection of submarine communications cable and their peripheral equipment (the Submarine Cable), file an application to the Korea Communications Commission for the designation of alert areas for the Submarine Cable.
(4) Upon receiving an application pursuant to paragraph (3), the Korea Communications Commission may consider the necessity of such designation and may designate and publicly notify the alert areas for the Submarine Cable through consultation with the relevant state administrative agency.
(5) Designation applications, methods and procedures of such designation and its public notification, and methods of alert area indication shall be determined by the Enforcement Decree .
Article 80 (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.
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(2) A key communications business operator shall, upon receipt of a request under paragraph (1), take necessary measures, except for the cases where such measures are difficult to be taken for a business performance or technologies.
(3) Expenses necessary for taking the measures under paragraph (2) shall be borne by the person who provided the cause for the move or taking other measures necessary for removing the obstacles after the installation of the subject telecommunication facilities: Provided, That in the event the person who bears the expenses is the owner or possessor of the land and falls under any one of the following subparagraphs, the key communication business operator may reduce or exempt the persons expenses, considering the indemnification amount paid at the time of installation of the telecommunication facilities and the amount of time it took to build the telecommunication facilities:
1. where the key communication business operator establishes and implements a plan to move the telecommunication facilities or remove other obstacles;
2. where the moving the telecommunication facilities or removal of other obstacles is beneficial to other telecommunication facilities;
3. where the state or a local autonomous entity demands such moving of telecommunication facilities or removal of other obstacles; or
4. where the telecommunication facilities within private land are being removed because they greatly obstruct the use of such land.
Article 81 (Cooperation of Other Organizations, etc.)
A key communications business operator may ask the related public agencies for a cooperation, in case where the operation of vehicles, vessels, airplanes and other carriers for the installation and preservation of his telecommunications facilities is necessary. In this case, the public agency in receipt of a request for cooperation shall comply with it, unless there exist any justifiable reasons.
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Article 82 (Inspection Report, Etc.)
(1) When necessary for establishing telecommunication policies and other cases specified under the Enforcement Decree of the Act, the Korea Communications Commission may inspect the facility status, accounting books and documents of installers of telecommunications facilities or demand them to make a report on the facilities. (2) When there is an installer telecommunications facilities in violation of this Act, the Korea Communications Commission may order the removal of the relevant facilities or other necessary actions.
CHAPTER VI SUPPLEMENTARY PROVISIONS
Article 83 (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 comply with a request for the perusal or the provision of the data falling under each of the following subparagraphs (hereinafter referred to as the supply of communication data) from a court, a prosecutor, the head of an investigation agency (including the head of any military investigation agency, the commissioner of the National Tax Service and the commissioners of regional Tax Offices); hereinafter the same shall apply) and the head of an intelligence and investigation agency, who intends to collect information or intelligence for the purpose of the prevention of any threat to a trial, an investigation (including an investigation of any transgression taken place during commission of any crime falling under Article 10(1), (3) or (4) of the Punishment of Tax Evaders Act), the execution of a sentence or the guarantee of the national security:
1. Names of users;
2. Resident registration numbers of users;
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3. Addresses of users;
4. Phone numbers of users;
5. IDs of users (referring to the identification codes of users that are used to identify the rightful users of computer systems or communications networks); and
6. Dates on which users subscribe or terminate their subscriptions.
(4) The request for supply of communication data under paragraph (3) shall be made in writing (hereinafter referred to as a written request for data supply), which states a reason for such request, relation with the relevant user and the scope of necessary data: Provided, That where an urgent reason exists that makes a request in writing impossible, such request may be made without resorting to writing, and when such reason disappears, a written request for data supply shall be promptly filed with the telecommunications business operator.
(5) A telecommunications business operator shall, where he has supplied the communication data pursuant to the procedures of paragraphs (3) and (4), keep the ledgers as prescribed by the Enforcement Decree, which contain necessary matters such as the facts of supplies of communication data, and the related data such as the written requests for data supply, etc.
(6) A telecommunications business operator shall report, to the Korea Communications Commission, twice a year the current status, etc. of supplying the communication data, by the methods prescribed by the Enforcement Decree, and the Korea Communications Commission may check whether the content of a report made by a telecommunications business operator is authentic and the management status of related data according to paragraph (5).
(7) A telecommunications business operator shall, by the methods prescribed by the Enforcement Decree, notify the contents entered in the ledgers according to paragraph (5) to the head of a central administrative agency whereto a person requesting supply of communications data according to paragraph (3) belongs: Provided, That in the event that a person who asks for providing the communications data is a court, the relevant telecommunications business operator shall notify the Minister of the Court Administration thereof.
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(8) A telecommunications business operator shall establish and operate a setup in full charge of the affairs related to the users communication secrets; and the matters concerning the function and composition, etc. of the relevant setup shall be prescribed by the Enforcement Decree.
(9) Matters necessary for the scope of persons holding the decisive power on information request shall be prescribed by the Enforcement Decree.
Article 84 (Notice of Transmitters Telephone Number)
(1) The telecommunications business operator may, upon request from the recipient, notify him of the transmitters telephone number, etc.: Provided, That this shall not apply to the case where the transmitter expresses his content to refuse the transmission of his telephone number.
<Amended. Mar. 29, 2007>
(2) Notwithstanding the proviso of paragraph (1), the telecommunications business operator may, in any of the following cases notify the recipient of the transmitters telephone number
1. in case where the recipient requests according to the requisites and procedures set by the Enforcement Decree in order to protect the recipients from the violent language, intimidations, harassments, etc.
2. Of the special telephone number services, those necessary for national security, crime prevention, disaster response, etc. as specified under the Enforcement Decree of the Act.
(3) No person shall alter the callers telephone number or display an erroneous telephone number for profit or for the purpose of inflicting harm on others violent language, intimidations, harassments, etc.
(4) No person shall provide services that enable another to alter the callers telephone number or display an erroneous telephone number for profit. Provided, this provision under paragraph (4) shall not apply in the event any justifiable grounds for exception exist (e.g., for public interest or recipients convenience).
Article 85 (Restriction and Suspension of Business)
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The Korea Communications Commission may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Enforcement Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications.
Article 86 (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 international telecommunications business as prescribed by the Enforcement Decree, obtain approval from the Korea Communications Commission fulfilling the requisites prescribed by the Enforcement Decree. The same shall apply to the case where he intends to alter or abolish such agreement or contract.
(3) A telecommunications business operator providing key communications services shall, where he concludes 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, report such to the Korea Communications Commission, provided that the foregoing is not applicable in case the size of telecommunications facilities, paid-in capital, number assignment ,etc. satisfy the standards specified under the Enforcement Decree of the Act.
(4) Notwithstanding paragraph (3), when an agreement is to be entered into for the adjustments of fees for international telecommunications through the joint use of telecommunications facilities, approval from the Korea Communications Commission shall be necessary.
(5) Details on the report under paragraph (3) or authorization under paragraph (4) shall be determined and publicly announced by the Korea Communications Commission.
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Article 87 (Transboundary Provision of Key Communications Services)
(1) A person, who intends to provide key communications service from abroad into the homeland without establishing a domestic business place (hereinafter referred to as the transboundary provision of key communications services), shall conclude a contract on transboundary provision of key communications services with a domestic key communications business operator or a specific communications business operator who provides the same key communications service.
(2) The provisions of Articles 28, 32, 33, 45 through 47, 50 through 55, 83 through 85, 88 and 92 and Article 44-7 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. 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).
(3) Where a person, who intends to provide a transboundary key communications service under paragraph (1), or a key communications business operator or a specific communications business operator, who has concluded a contract with him, violates the relevant provisions which applies mutatis mutandis under paragraph (2), the Korea Communications Commission may cancel approval under Article 86 (2), or issue an order to suspend a transboundary provision of the whole or part of key communications services as determined in the relevant contract, with fixing a period of not more than one year.
(4) Criteria and procedures for dispositions under paragraph (3) and other necessary matters shall be determined by the Enforcement Decree.
Article 88 (Report, etc. on Statistics)
(1) A telecommunications business operator shall report the statistics on a provision of telecommunications service as prescribed by the Enforcement Decree, such as a current status of facilities by telecommunications service, subscription record, current status of users, and the data related to telephone traffic required for the imposition and collection of fees, to the Korea Communications Commission under the conditions as determined by the Enforcement Decree, and keep the related data available.
(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 8, pursuant to the provisions of the Enforcement Decree.
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(3) The Korea Communications Commission may, in order to verify the facts under paragraph (2), or to examine the genuineness of the data submitted, request the administrative agencies and other related agencies to examine the data submitted or to submit the related data. In this case, the agencies in receipt of such request shall accede thereto unless there exist any justifiable reasons.
Article 89 (Hearing)
The Korea Communications Commission shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing:
1. Cancellation, in whole or part, of license for a key communications business operator under Article 20 (1);
2. Cancellation, in whole or part, of registration of a specific communications business under Article 27 (1);
3. Closedown, in whole or part, of a value-added communications business under Article 27 (2); and
3. Cancellation of approval under Article 87 (3).
Article 90 (Imposition, etc. of Penalty Surcharge)
(1) The Korea Communications Commission may impose a penalty surcharge equivalent to the amount of not more than 3/100 of the sales amount that is calculated under the conditions as prescribed by the Enforcement Decree in lieu of the relevant business suspension, in case where he has to order a business suspension to a telecommunications business operator who falls under subparagraphs of Article 20 (1) or subparagraphs of Article 27 (1) and (2), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. If the telecommunications business operator refuses to submit the data used for calculation of turnover or submits erroneous data, an estimate of the turnover can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status): Provided, That in the event that the sales amount is nonexistent or difficult to calculate the sales amount, as prescribed by the Enforcement Decree, the Minister of Information and Communication may impose a penalty surcharge not exceeding 1 billion won.
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(2) When the Korea Communications Commission orders cessation of use in regard to proprietary telecommunications facilities under Article 67(2), it may replace such order with a fine not exceeding 1 billion won if such order causes significant inconvenience to users of telecommunication services provided with the use of the relevant proprietary telecommunications facilities or other public harm is expected.
(3) Specific standards for the imposition of penalty surcharge under paragraph (1) and (2) shall be determined by the Enforcement Decree.
(4) Article 52(5) through (7) shall apply in regard to penalty surcharge, demand for payment and return surcharge.
Article 91 (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 53 and Article 90 exceeds the amount as prescribed by the Enforcement Decree, and where deemed that a person liable for a payment of penalty surcharge finds it difficult to pay it in a lump sum due to the reasons falling under any one of the following subparagraphs, the Korea Communications Commission may either extend the time limit of payment, or have him pay it in installments. In this case, the Korea Communications Commission may, if deemed necessary, have him put up a security therefor :
1. Where he suffers a severe loss of property due to natural disasters or fire;
2. Where his business faces a serious crisis due to an aggravation of his business environments; and
3. Where it is expected that he will be in great financial difficulty if he pays the penalty surcharge in a lump sum.
(2) Matters necessary for an extension of the deadline for payment of a penalty surcharge, the payment in installments and the laying of a security shall be prescribed by the Enforcement Decree.
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Article 92 (Correction Orders, etc.)
(1) The Korea Communications Commission shall issue correction orders in case where a telecommunications business operator falls under any of the following subparagraphs:
1. Where it violates Articles 3, 4, 6, 9 through 11, 14 through 24, 26 through 28, 30 through 44, 47 through 49, 51, 56 through 62, 64 through 67, 69, 73 through 75, 79 or 82 through 88 or any order thereunder;
2. Where the procedures for business performances of telecommunications business operator are deemed to inflict significant harms on the users interests; and
3. Where he fails to take swift measures necessary for removing obstructions such as repairs, etc. when impediments have occurred to the supply of telecommunications services.
(2) The Korea Communications Commission may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications:
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 States functions; and
4. Other matters as prescribed by the Enforcement Decree.
(3) The Korea Communications Commission may order the persons falling under any of the following subparagraphs to take measures, such as the suspension of acts to provide telecommunications service or the removal of telecommunications facilities, etc.:
1. Persons who operate a key communications business without obtaining a permit under Article 6 (1);
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2. Persons who operate a specific communications business without making a registration under Article 21 (1); and
3. Persons who operate a value-added communications business without making a report under Article 22 (1).
Article 68 (Delegation and Entrustment of Authority)
The authority of the Korea Communications Commission under this Act may be delegated and entrusted in part to the head of the affiliated agencies under the conditions as prescribed by the Enforcement Decree.
CHAPTER VII PENAL PROVISIONS
Article 94 (Penal Provisions)
A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than five years or by a fine not exceeding 200 million won:
1. A person who runs a key communications business without obtaining a license under Article 6 (1);
2. A person who has operated key communications services in violation of partial cancellation of license under Article 20(1);
3. 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 79 (1);
4. A person who divulges others secrets with respect to communications which have been known to him while in office, in violation of Article 83 (2); and
5. A person who supplies communication data, and person who receives such supply, in violation of Article 83 (3).
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Article 95 (Penal Provisions)
A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 150 million won:
1. A person who refuses a provision of telecommunications service without any justifiable reasons, in violation of Article 3 (1);
2. A person who violates a disposition taken to suspend his business under Article 20 (1);
3. A person who operates a specific communications business without making a registration under Article 21 (1);
4. A person who has operated specific communications services in violation of partial cancellation of license under Article 27(1);
5. A person who fails to implement an order under Article 52 (2);
6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 73 (2); and
7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 83 (1).
Article 96 (Penal Provisions)
A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than two years or by a fine not exceeding 100 million won:
1. A person who fails to obtain a modified license under Article 16;
2. A person who fails to obtain approval under Articles 17 (1) and 42 (4);
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3. A person who fails to obtain an authorization under the text of Article 18 (1) other than sub-paragraphs or approval according to Article 19 (1);
4. A person who violates Article 18 (9) by unifying communication networks, appointing officers, executing any other activities such as transferring, consolidating, enforcing a facilities sales contract or taking follow-up measures relating to establishment of a company before receiving a license ;
5. A person who violates user protection measures ordered under Article 19(2);
6. A person who runs the value-added communications business without making a report under Article 22(1);
7. A person who violates a disposition taken to suspend his business under Article 27(1);
8. A person who fails to execute the order given to discontinue his business under Article 27 (2);
9. A person who fails to subscribe for a guarantee insurance in violation of Article 32(3);
10. A person who discloses, uses or provides the information, in violation of the text of Article 43 (1) or paragraph (2) of the same Article;
11. A person who fails to implement the partial restriction or cessation measure ordered pursuant to Article 85; and
12. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 86 (2) or (4).
Article 97 (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 50 million won:
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1. A person who fails to execute the order given under Articles 10(5), 18 (8) or 12 (2) (including a case where the provisions are applied mutatis mutandis under Article 4 (4) of the Addenda of the Telecommunications Business Act amended by Act No. 5385) or Article 13(9);
2. A person who fails to make a report under provisos of Article 18 (1) other than sub-paragraphs;
3. A person who fails to make a modified registration or a modified report under Article 23;
4. A person who fails to make a report under Article 24;
5. A person who violates a disposition taken to suspend his business under Article 27 (2);
6. A person who provides telecommunications service without making a report or modification report under Article 28(1) and the proviso of (2) or receiving an authorization or modification approval under paragraph (2) of the same Article; and
7. A person who intermediates other persons communication or furnishes for use by other person, by making use of telecommunications services rendered by the telecommunications business operator, in contravention of the provisions of the text of Article 30 other than subparagraphs.
Article 98 (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 10 million won:
1. A person who installs or modifies significant telecommunications facilities without making a report under the main text of Article 62(1) or has installed telecommunications facilities without obtaining approval under the proviso of the same Article
2. A person who installs proprietary telecommunications facilities without making a report or modification report under Article 64(1)
3. A person who interconnects others communication through proprietary telecommunication facilities or uses it outside its purpose in violation of Article 65(1)
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4. A person who violates an order under Article 66(1) to handle telecommunication services or other communication services or connect the pertinent facilities to other telecommunications facilities
5. A person violates a usage cessation order under Article 67(2) or an order under paragraph (3) of the same article
6. A person violates an order for removal of telecommunications facilities or other corrective measures under Article 82(2)
Article 99 (Penal Provisions)
A person who commits any of the prohibited acts under Article 50(1) (excluding providing telecommunications services not in accordance with the standard usage terms and conditions under Article 50(1)5) shall be punished by a fine not exceeding 300 million won.
Article 100 (Penal Provisions)
A person falling under any one of the following subparagraphs shall be punished by a fine not exceeding 50 million won:
1. A person who deceives another for profit or alters his telephone number or displays a fraudulent telephone number for the purpose of inflicting harm through violent language, intimidations, harassment, etc. in contravention of Article 84 (3); and
2. A person who provides services that enable another to alter the callers telephone number or display an erroneous telephone number for profit in violation of Article 84 (4).
Article 101 (Penal Provisions)
A person who stains the telecommunications facilities or damages the measurement marks of the telecommunications facilities, in violation of Article 79 (2) shall be punished by a fine not exceeding one million won.
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Article 102 (Attempted Criminal)
An attempted criminal under subparagraphs 3 and 4 of Article 94 and subparagraph 7 of Article 95 shall be punished.
Article 103 (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 94 through 100 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 except in cases where such juristic person or individual has not been lax in exercising due care and supervision in regard to the relevant business to prevent such violation. <This Article Wholly Amended by Act No. 9702, May. 21, 2009>
Article 104 (Fine for Negligence)
(1) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 30 million won:
1. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 73 (2), without justifiable reasons;
2. A person who refuses or impedes an entry to the land, etc. under Article 74 (2), without justifiable reasons;
3. A person who refuses the moving, alteration, repair and other measures on the obstacles, etc. under Article 75 (1), or the request for removal of the plants under Article 75 (2), without justifiable reasons;
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(2) A person who fails to apply for approval in regard to execution of an agreement in violation of Article 44(2) shall be punished by a fine not exceeding 20 million won.
(3) A person falling under any of the following shall be punished by a fine not exceeding 15 million won:
1. A person who fails to report in regard to execution of an agreement in violation of Article 44(1)
2. A person who fails to make a report under the main text of Article 86(3)
(4) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won:
1. A person who fails to make a report as referred to in Article 10 (2) or to comply with a request for providing the data or an order to attend as referred to in Article 11 (3) or (4);
2. A person who, in violation of Article 19 (1), fails to notify the user 60 days prior to the expected date of termination;
3. A person who fails to make a report under Article 26;
4. A person who violates the obligation concerning the protection of users under Article 32 (1);
5. A person who fails to carry out request for information under Article 35(5) or submits false information
6. A person who fails to make a public announcement of the technical standards, and the standards for use and provision, or the standards for a creation of fair competitive environments, in violation of Article 42 (4);
7. A person who fails to observe the publicly announced matters under Article 48(2), in violation of Article 48 (3);
8. A person who refuses, avoids or hampers an order for submission, or an investigation, of the data or articles according to Article 51 (2);
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9. A person who refuses, avoids, or intervenes with the order to submit information or object under Article 51 (5), or the temporary custody of the information or object submitted under the same Article;
10. A person who fails to execute orders given to furnish related data under the provisions of Article 56 (3);
11. A person who has used proprietary telecommunications facilities without receiving confirmation under Article 62(1)
12. A person who refuses or interferes with inspection under Article 82(1)
13. A person who fails to report under Article 82(2) or makes a false report
14.A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 54 (5);
15. A person who does not report the contents in the ledgers, including provision of telecommunications data, to the head of central administrative agency in violation Article 83(7)
16. A person who fails to make reports or submit the data under Article 88, or falsely do such acts; and
17. A person who fails to follow correction orders, etc., under Article 92.
(5) The fine for negligence under paragraph (1) through (4) shall be imposed and collected by the Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree.
ADDENDUM <Act No. 10166, Mar. 22, 2011>
Article 1 (Enforcement Date) This Act shall be effective 6 months after the date of its announcement.
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Article 2 (Effective Term) Amended Articles 38(2) through (4) shall be effective for 3 years from the enforcement date of this Act.
Article 3 (Survival) The previous addenda shall be effective even after this Act comes into effect.
Article 4 (Grandfathering Clause for Licensed Key Communications Business Operator) Key communications business operators who are licensed to provide key communications services under the previous regulation at the time this Act comes into effect shall be deemed as key communications business operator licensed under amended Article 6 to carry out key communications services under Article 5(2)
Article 5 (Grandfathering Clause for Guarantee Insurance) A specific communications business operator licensed under the previous regulation that has subscribed for a guarantee insurance for the services to be provided after receiving service charges in advance shall be deemed to have subscribed for a guarantee insurance under amended Article 32(3).
Article 6 (Grandfathering Clause for Penalty, Etc.) When a penalty or fine is to be imposed for violation before the time this Act comes into effect shall be subject to the previous regulation, provided, however, that if this Act is more lenient for the violator, this Act shall be applicable.
Article 7 (Amendments to Other Laws)
(1) The Monopoly Regulation and Fair Trade Act shall be partially amended as follows
Article 12(2)1(1) shall be deleted.
(2) The Broadcasting Act shall be partially amended as follows.
Article 21 of the Telecommunications Business Act in Article 9(5) shall be Article 22 of the Telecommunications Business Act.
In Article 79(3), under the Framework Act on Telecommunications shall be under the Telecommunications Business Act
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(3) The Act on the Protection, Use, etc. of Location Information shall be partially amended as follows.
In Article 2(1), under Article 2(2) and (3) of the Framework Act on Telecommunications shall be under Article 2(2) and (3) of the Telecommunications Business Act.
(4) The Internet Multimedia Broadcast Services Act shall be partially amended as follows.
In Article 2(2), the Framework Act on Telecommunications shall be Telecommunications Business Act.
In the main text of Article 6(2), Article 34(3)1 shall be Article 39(3)1 and in Article 18(1), Article 21 shall be Article 22.
(5) The Framework Act on Telecommunications shall be partially amended as follows.
Section 3 Part 1 (Articles 16 through 18), Part 2 (Articles 20 through 24), Part 4 (Articles 30-2, 30-3, 31 and 32) and Part 5 (Articles 40-2, 40-3 and 43) shall be deleted.
Article 49(1) through (5) shall be deleted.
Article 53(1)1 shall be deleted.
(6) The Act on Radio Wave shall be partially amended as follows.
In Article 10(1)1, Article 4(2) shall be Article 5(2), in Article 13(2), Article 5-2 shall be Article 7 and in Article 15(2)1(2), Article 15 shall be Article 20,
In the first part of Article 19(2), A person seeking to set up a wireless station designed for receiving telecommunications services under Article 2(7) of the Framework Act on Telecommunications, as specified under the Enforcement Decree of such Act in regard to the telecommunications services shall be A person seeking to set up a wireless station designed for receiving telecommunications services under Article 2(6) of the Telecommunications Business Act, as specified under the Enforcement Decree of such Act in regard to the telecommunications services.
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In the main text of Article 79(2), Articles 33-3, 39 through 41, 44, 45, 47, 51, 70(6) and 73(2) and (3) of the Telecommunications Business Act shall be Articles 45, 72 through 74, 76 through 78, 80, 95(6) and 104(1)1 and 2 of the Telecommunications Business Act.
(7) The Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. shall be partially amended as follows.
In Article 2(1)1, the Framework Act on Telecommunications shall be the Telecommunications Business Act, in paragraph (2) of the same Article, Article 2(7) of the Telecommunications Business Act shall be Article 2(6) of the Telecommunications Business Act and in paragraph (3) of the same paragraph, Article 2(1)1 of the Telecommunications Business Act shall be Article 2(8) of the Telecommunications Business Act.
In Article 46-3(1)1, Article 2(1)1 of the Telecommunications Business Act shall be Article 2(8) of the Telecommunications Business Act.
In Article 53(3), Article 21 shall be Article 22, in the earlier text of paragraph (4) of the same Article, Articles 22 and 25 through 27 shall be Articles 23 through 26 and in the later text of the same, in this case, a person who has registered for specific communications business under Article 19 and shall be in this case.
(8) The E-Government Act shall be partially amended as follows:
In Article 51(2), under Article 7 of the Framework Act on Telecommunications shall be Article 6 of the Telecommunications Business Act.
(9) The Act on Promotion of Telecommunications Industry shall be partially amended as follows:
In Article 43(1)1, under Article 5 of the Telecommunications Business Act shall be under Article 6 of the Telecommunications Business Act and in paragraph 2 of the same, Article 19 of the Telecommunications Business Act shall be Article 21 of the Telecommunications Business Act.
Article 8 (Grandfathering Clause for Amendment of Other Law) If there is any penalty or fine to be imposed for a violation under the previous Framework Act on Telecommunications (the version before being amended by Article 7(5) of the Addendum) before this Act comes into effect, such imposition shall be made in accordance with the previous Framework Act on Telecommunications.
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Article 9 (Relationship with Other Laws) References to the previous Framework Act on Telecommunications and the previous Telecommunications Business Act at the time this Act comes into effect shall be deemed to be references to this Act or relevant provisions if there are relevant provisions in this Act.
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Exhibit 15.4
ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BUSINESS ACT
As amended by Enforcement Decree No. 22616 of Jan. 4, 2011, effective Jan. 4, 2011
Chapter 1. General Provisions
Article 1 (Purpose)
The purpose of this Decree is to provide for matters delegated under the Telecommunications Business Act and matters necessary for its enforcement.
Article 2 (Contents of Universal Service)
(1) Pursuant to Article 4(3) of the Telecommunications Business Act (the Act), the contents of universal services shall be as follows. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. Wire telephone services;
2. Telephone services for emergency communications; and
3. Telephone services of which fees are reduced or exempted for the disabled and the low income class.
(2) The detailed contents of universal services under paragraph (1) shall be as follows. <Amended by Enforcement Decree No. 21060 Oct. 1, 2008; No. 22616 Oct. 1, 2010>
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1. Wire telephone services are telephone services within an area publicly notified by the Korea Communications Commission based on methods and conditions of use (the Calling Area), falling under any one of the following:
(a) | a local telephone service which is a telephone service (excluding, throughout this Enforcement Decree, the island communication service referred to in (c) below) enabling communication through subscription telephones; |
(b) | a local public telephone service which is a telephone service enabling communication through public telephones; or |
(c) | an island communication service which is a telephone service enabling radio communication between shore and an island or between islands. |
2. Telephone services for emergency communications are telephone services necessary for maintaining social order and securing human life, falling under any of the following:
(a) | a special telephone number service, among the key communications services, publicly notified by the Korea Communications Commission; or |
(b) | a wireless telephone service for vessels which is a telephone service, among the key communications services, enabling communication between shore and a vessel or between vessels. |
3. Telephone services of which fees are reduced or exempted for the disabled and the low income class are telephone services offered to the disabled and the low income class for the purpose of improving social welfare, falling under any of the following:
(a) | a local telephone service and a telephone service between the Calling Areas (the Long Distance Telephone Service); |
(b) | a directory assistant service which is a service incidental to a local telephone service and the Long Distance Telephone Service; |
(c) | a mobile telephone service, a personal communication service, IMT-2000 service or a wireless call service among the key communications services; or |
(d) | an Internet subscriber connection service. |
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(3) Any of the following shall be entitled to the telephone services of which fees are reduced or exempted pursuant to subparagraph 3 of paragraph (2); provided, however, that the telephone services for which fees are reduced or exempt pursuant to subparagraph 8 below shall be limited to the mobile telephone service, the personal communication service and the IMT-2000 service < Amended by Enforcement Decree No. 21060, Oct. 1, 2008; No. 22075, Mar. 15, 2010; No. 22616 Oct. 1, 2010>:
1. the disabled or welfare institutions or groups for the disabled under the Welfare of Disabled Persons Act;
2. special schools under the Elementary and Secondary Education Act;
3. child welfare institutions under the Child Welfare Act;
4. among the recipients of assistance under the National Basic Livelihood Security Act (the Recipients of Assistance), persons falling under any of the following (or households composed of such persons in the event of a local telephone service, the Long Distance Telephone Service or an Internet subscriber connection service):
(a) | the Recipients of Assistance who are either under 18 or 65 or older; except that for the mobile telephone service and the IMT-2000 service, the Recipients of Assistance including those who are 18 or older and below 65. |
(b) | persons with severe disabilities under Article 2.2 of the Employment Promotion and Vocational Rehabilitation of Disabled Persons Act; |
(c) | persons in need of a treatment or recuperation due to a disease, an injury or an aftereffect of a disease or an injury as so determined by the head of relevant local municipalities through the use of labor aptitude evaluation under Article 7(1) 2 of the Enforcement Decree of the National Basic Livelihood Security Act; or |
(d) | persons deemed unable to work by the Minister for Health and Welfare under Article 7 (1) 5 of the Enforcement Decree of the National Basic Livelihood Security Act. |
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5. the Korean Association of Wounded Soldiers and Police Officials or the Association Commemorating the April 19 Democratic Revolution under the Act on Establishment of Organizations for Persons, etc. of Distinguished Services to the State;
6. soldiers or policemen wounded in action, soldiers or policemen wounded on duty, wounded activists of the April 19 Revolution, public officials wounded on duty, wounded special contributor to national and social development or wounded anticommunist captive under the Act on Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State; or
7. wounded activists of the May 18 Democratization Movement among the persons of distinguished services to the May 18 democratization movement under the Act on Honorable Treatment of Persons of Distinguished Services to the May 18 Democratization Movement.
8. members of a family having at least one of its members fitting any of the descriptions below qualifying as a member of the next needy class under Article 2(11) of the National Basic Livelihood Security Act; and the number of family members eligible for fee reduction or exemption for such family shall be determined by the Korea Communications Commission:
(a) | a person taking part in the project required for self-support pursuant to Article 9(5) of the National Basic Livelihood Security Act; |
(b) | a person having a rare and serious disease as described item (d) of section 3 in Table 2 and is eligible for reduction in his or her share of fees; |
(c) | a person receiving medical allowances pursuant to Article 2 of the Medical Allowance Act; |
(d) | a person receiving necessary expenses for infant care pursuant to Article 34(1) of the Infant Care Act; |
(e) | a person receiving necessary expenses for early childhood education pursuant to Article 26(1) of the Early Childhood Education Act; |
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(f) | a person receiving disability allowances pursuant to Article 49 of the Welfare of the Disabled Persons Act and a person receiving allowances for raising and protecting disabled children pursuant to Article 50(1) of the same Act; and |
(g) | a person requiring protection under Article 5 of the Single-Parent Family Assistance Act, including a person who has ratio of recognized income to minimum living expense of 130 or below to 100. |
Article 3 (Designation of Telecommunications Business Operator who Provides Universal Services)
(1) If the Korea Communications Commission intends to designate a telecommunications business operator who provides universal services (the Business Operator Providing Universal Services) under Article 4 (4) of the Act, it can do so after taking into consideration such operators opinion. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) A telecommunications business operator who is designated as a Business Operator Providing Universal Services under paragraph (1) shall submit to the Korea Communications Commission, every year by no later than the last day of the year preceding the provision of the relevant services, a written plan for provision of universal services which includes the method of, and the expenditures for, providing the relevant services.
Article 4 (Compensation for Losses Incurred through Provision of Universal Services)
(1) The Korea Communications Commission may have the telecommunications business operators who are not Business Operators Providing Universal Services bear part of the expenses for compensating whole or part of the losses incurred through a provision of universal services by Business Operators Providing Universal Services (the Compensation For Losses Incurred Through Universal Services) in proportion to their respective sales.
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(2) A Business Operator Providing Universal Services who intends to receive the Compensation For Losses Incurred Through Universal Services shall submit a report on the actual results of a provision of universal services, including expenditures for, and incomes and losses from, the provision thereof, to the Korea Communications Commission within three months after the expiration of the relevant fiscal year.
(3) The Korea Communications Commission may, if deemed necessary for the verification of the report on the actual results of a provision of universal services submitted pursuant to paragraph (2), consult a professional institution to examine it.
Article 5 (Universal Services Entitled To Compensation For Losses Incurred Through Universal Services)
(1) The scope of universal services entitled to the Compensation For Losses Incurred Through Universal Services shall be any of the following:
1. among local telephone services pursuant to Article 2(2)1(a) hereof, a local telephone service offered in areas where, as a result of provision of such service, the expenditures (meaning, here as well as in subparagraph 2 and Article 6(1) hereof, the expenses calculated in accordance with the method publicly notified by the Korea Communications Commission considering such factors as the population density, number of lines and efficiency of managing communication lines) exceed the incomes (including, here as well as in subparagraph 2 and Article 6(1) hereof, any indirect advantages such as improved brand value and user preference as a result of provision of universal services);
2. among local public telephone services pursuant to Article 2(2)1(b) hereof, a local public telephone service offered in areas where, as a result of provision of such service, the expenditures exceed the incomes;
3. an island communication service pursuant to Article 2(2)1(c) hereof; or
4. a wireless telephone service for vessels pursuant to Article 2(2)2(b) hereof.
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(2) In Article 4 (2) 1 of the Act, the telecommunications business operators prescribed under the Enforcement Decree of the Act means value-added communications business operators or regional wireless call operators. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) In Article 4 (2) 2 of the Act, the amount prescribed under the Enforcement Decree of the Act means 30 billion won. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
Article 6 (Methods for Computing the Compensation For Losses Incurred Through Universal Services)
(1) Losses incurred through provision of the universal services prescribed under each of the paragraphs in Article 5(1) hereof shall be the amount of expenses of providing the relevant service less the relevant income.
(2) The provisional Compensation For Losses Incurred Through Universal Services shall be computed by multiplying the amount obtained under paragraph (1) and the rate of compensation for losses determined and publicly notified by the Korea Communications Commission; provided that, with respect to a wireless telephone service for vessels under Article 5(1)4 hereof, the target amount for efficient management determined and publicly notified by the Korea Communications Commission shall be the provisional Compensation For Losses Incurred Through Universal Services.
(3) The Compensation For Losses Incurred Through Universal Services shall be the amount of the provisional Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (2) subtracted by each of the amounts described below:
1. the amount paid by telecommunications business operators providing any of the universal services prescribed under each of the subparagraphs of Article 5(1) hereof based on their sales from telecommunications services other than the relevant universal service provided (excluding value-added communications services); and
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2. the amount computed by the Korea Communications Commission considering the payment capacity of telecommunications business operators paying for the Compensation For Losses Incurred Through Universal Services (the Business Operators Paying For Losses).
(4) The Business Operators Paying For Losses shall pay for the Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (3) in proportion to their respective sales relating to telecommunications services (excluding value-added communications services).
(5) The Korea Communications Commission shall determine and announce all other necessary details with respect to the rates by which telephone services fees are reduced or exempted for the disabled and the low income class and the methods for computing the Compensation For Losses Incurred Through Universal Services.
Chapter 2. Telecommunications Business
Article 7
< Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 8 (Scope of Premises)
The premises determined under the Enforcement Decree of the Act in Article 5(3)2 of the Act means any of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. a building;
2. a site (limited to that owned by one person or owned through common ownership) and any building located on such site;
3. two or more buildings possessed by one person and the site on which such buildings are located, limited to those buildings the distance between which is not more than 500 meters; or
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4. any buildings or sites adjacent to the buildings or sites prescribed under paragraphs 1-3 and publicly notified by the Korea Communications Commission.
Article 9 (Permit Application, etc.)
(1) A person who wishes to obtain a permit under Article 6(1) of the Act may make an application in the name of the representative of a corporation or the representative, such as a shareholder, etc., of a corporation to be established. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The premises determined under the Enforcement Decree of the Act in Article 6(2)4 of the Act means the following <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. matters concerning the suitability of investment plan in advancing telecommunication facilities;
2. matters concerning the stability and expertise of supply plan for key communication services; and
3. matters similar to paragraph 1 or 2 as determined and announced by the Korea Communications Commission.
Article 10 (Documents to be Attached to Permit Application)
(1) A person who wishes to obtain a permit for a key communications business under Article 6(1) of the Act shall submit to the Korea Communications Commission a key communications business permit application with each of the following documentation attached thereto:
1. articles of incorporation of the corporation (including, throughout this Article 10, the corporation to be incorporated);
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2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation; and
3. a business proposal.
(2) The Korea Communications Commission receiving a permit application pursuant to paragraph (1) shall verify the commercial registry extracts by using the public administrative information made available under Article 36(1) of the E-Government Act <Amended by Enforcement Decree No. 22151 of May. 4, 2010; No. 22616 Oct. 1, 2010>
Article 11
<Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 12 (Issuance of License)
(1) When permitting a key communications business under Article 6(1) of the Act or
under Article 16(1) of the Act, the Korea Communications Commission shall issue a key communications business operators license upon making recordation of each of the following in a license registry of key
communications business operators: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. number and date of license;
2. title or trade name of the business and name of the representative;
3. the areas where the telecommunications service is offered;
4. location of the principal office;
5. capital or asset valuation amount;
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6. details of major business facilities and equipment and the locations where such facilities and equipment are installed;
7. details concerning technical personnel; and
8. any conditions upon which the license is issued.
(2) A key communications business operator whose license, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the license to the Korea Communications Commission by writing the reason for such loss or damage in its application thereto.
Article 13 (Criteria for Examination of Public Interest Aspect)
(1) The term public interests as prescribed under the Enforcement Decree of the Act in parts other than each subparagraph of Article 10 (1) of the Act means the maintenance of national security, public peace and social order. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The term important management matters, including the key communication providers appointment of officer, transfer or business, etc., prescribed under the Enforcement Decree of the Act in Article 10(1)3 of the Act means the matters falling under each of the following subparagraphs:
1. appointment and dismissal of the representative director of a key communications business operator, or appointment and dismissal of one third or more of the officers;
2. transfer and takeover of a key communications business; and
3. entrance by a key communications business operator into a new key communications business.
(3) The term case prescribed under the Enforcement Decree of the Act in Article 10(1)4 of the Act means any of the following. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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1. the case where a de facto change is made in the management right of a key communications business operator by an agreement of shareholders who are not the largest shareholder of such key communications business operator to jointly exercise voting rights; or
2. the control of the holding company (as that term is defined under Article 2(1)2 of the Monopoly Regulation and Fair Trade Act) of the key communication provider has actually changed hands.
Article 14 (Scope of Key Communications Business Operators subject to Examination of Public Interest Aspect)
The scope of key communications business operators who must file a report or who may
request a screening pursuant to Article 10 of the Act shall be any of the following: <Amended by Enforcement Decree No. 22605 Oct. 1, 2010>
2011. 1. 24]]
1. a key communications business operator managing or supervising a significant communication under Article 64(1) hereof;
2. a key communications business operator who owns an artificial satellite with a space station under Article 29 Subparagraph 30 of the Enforcement Decree of the Radio Waves Act; or
3. a key communications business operator determined and publicly notified by the Korea Communications Commission under Article 39(3) hereof.
Article 15 (Procedures for Examination of Public Interest Aspect)
(1) A person who wishes to file a report or request a screening pursuant to Article 10(2) or 10(3) of the Act shall submit to the Korea Communications Commission documentation indicating each of the following:
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1. name and address of the person filing a report or requesting a screening (in the case of a corporation, the name and address of (i) such corporation and (ii) the representative of such corporation);
2. purpose of, and reason for, the report or screening request; and
3. details of any of the facts falling under each of the subparagraphs of Article 10(1) of the Act.
(2) The Korea Communications Commission may, where it deems necessary, request for the documentation already submitted to it to be supplemented within a period reasonably fixed.
(3) Except under special circumstances, with respect to any matter the Korea Communications Commission referred to the public interest aspect examination committee, the public interest aspect examination committee shall notify the Korea Communications Commission of the result of its screening within 3 months of the date of such referral. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(4) The Korea Communications Commission shall notify the person filing a report or requesting a screening of the result of examination of public interest aspect under paragraph (3).
Article 16 (Composition etc. of Public Interest Aspect Examination Committee)
(1) The term related central administrative agencies prescribed under the Enforcement Decree of the Act in parts other than each subparagraph of Article 11(2) of the Act means the agencies falling under each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. the Ministry of Strategy and Finance;
2. the Ministry of Foreign Affairs and Trade;
3. the Ministry of Justice;
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4. the Ministry of National Defense;
5. the Ministry of Public Administration and Security; and
6. the Ministry of Knowledge Economy.
(2) The term of office of the members shall be two years and consecutive appointment may be permitted; provided that, the term of office of the members who are public officials shall be the period of service in their positions as public officials.
Article 17 (Operation etc. of Public Interest Aspect Examination Committee)
(1) The chairman of the Public Interest Aspect Examination Committee shall represent the Public Interest Aspect Examination Committee and exercise an overall control of its affairs.
(2) If the chairman is inevitably unable to perform his duties, a member previously appointed by the chairman shall act on her or his behalf.
(3) The chairman shall convene and preside over a meeting of the Public Interest Aspect Examination Committee.
(4) Deliberation of a meeting of the Public Interest Aspect Examination Committee shall start by the attendance of a majority of all incumbent members, and its resolution shall require the consent of a majority of those present.
(5) The Public Interest Aspect Examination Committee shall have one secretary general in order to deal with its affairs, but the secretary general shall be appointed by the chairman among the public officials belonging to the Korea Communications Commission.
(6) Any matters necessary for the operation of the Public Interest Aspect Examination Committee shall be determined by the chairman through a resolution of the Public Interest Aspect Examination Committee.
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Article 18 (Imposition and Payment etc. of Charges for Compelling Execution)
(1) When determining the amount of charges for compelling execution pursuant to Article 13 of the Act, the Korea Communications Commission shall take into account such factors as the reasons for failure to comply with corrective orders and the scale of benefits to be gained by such failure. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The date of compliance with corrective orders pursuant to Article 13(2) of the Act shall be determined by the classifications falling under each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. delivery date of shares in the case of disposal of shares;
2. date of executing a contract in the case of amending details of a contract;
3. date of suspending the relevant acts in the case of suspending the acts impeding public benefits; and
4. date of satisfying relevant conditions in the case of conditional performance.
(3) Where the Korea Communications Commission wishes to impose charges for compelling execution pursuant to Article 13 of the Act, it shall furnish a notification thereof in writing, indicating such matters as the amount of charges for compelling execution per day, reasons for imposition, payment term and receiving agency, methods of raising objections, and agencies to where such objections must be directed. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(4) Any person who has been notified under paragraph (3) shall pay the charges for compelling execution within 30 days of the date of receiving such notice; provided that, in the event such person is unable to pay the charges for compelling execution within said period due to a natural disaster or other unavoidable circumstances, such person shall pay the charges for compelling execution within 30 days of the day on which said causes have disappeared.
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(5) In collecting charges for compelling execution and in the event a corrective order has not been complied with after 90 days elapsed from the date of expiration of the period set by the corrective order, the Korea Communications Commission may collect charges for compelling execution based on the dates on which each 90 day period elapses from said expiration date.
(6) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution.
Article 19 (Permit to Change)
(1) A person who wishes to obtain a permit to change to a key communications business pursuant to Articles 16 (1) of the Act shall submit to the Korea Communications Commission an application for a permit to change to a key communications business with supporting documents confirming proposed changes attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
2. <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The Korea Communications Commission shall issue public notice with respect to details about application guidelines, submission procedures, submission method, etc. for a permit to change to a key communications business under Article 16(1) of the Act.
(3) <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>.
(4) The material aspects prescribed under the Enforcement Decree of the Act in Article 16(1) of the Act means each of the following; <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. matters concerning changes to key communication business pursuant to Article 6(1) of the Act (including the case where services cancelled under Article 20(1) of the Act are to be resumed); and
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2. matters concerning the permission criteria under Article 6(4) of the Act.
Article 20 (Approval Application for Transfer, Merger, etc.)
(1) A person who wishes to obtain approval of the transfer of the whole or part of a key communications business pursuant to Article 18(1)1 of the Act shall submit to the Korea Communications Commission an approval application for the transfer of a key communications business with each of the following documentation attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. a copy of the transfer agreement;
2. articles of incorporation of the transferor and the transferee, and documentation supporting the transfer;
3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the transferee;
4. present status of the transferor and the transferee; and
5. post-transfer business proposal.
(2) A person who wishes to obtain approval of the merger with a corporation that is a key communications business pursuant to Article 18(1)2 of the Act shall submit to the Korea Communications Commission an approval application for the merger with a key communications business with each of the following documentation attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. a copy of the merger agreement;
2. articles of incorporation of the parties to the merger agreement, and documentation supporting the merger;
3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation that shall continue to exist after the merger or be incorporated through the merger;
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4. present status of the parties to the merger agreement; and
5. post-merger business proposal.
(3) A key communications business operator who wishes to obtain approval of the sale of telecommunications line facilities and equipment pursuant to Article 18(1)3 of the Act shall submit to the Korea Communications Commission an approval application for the sale of line facilities and equipment with each of the following documentation attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. a copy of the sale and purchase agreement concerning telecommunications line facilities and equipment, and other documentation supporting such agreement;
2. articles of incorporation of the seller and the purchaser, and documentation supporting the sale and purchase;
3. shareholder register, or documentation related to ownership by shareholders, etc., of the purchaser;
4. present status of the seller and the purchaser; and
5. post-sale business proposal.
(4) A person who wishes to own 15% or more of the total outstanding shares of a key communications business operator or become the largest shareholder of a key communications business operator pursuant to Article 18(1)4 of the Act shall submit to the Korea Communications Commission an approval application for the ownership of shares, or for becoming the largest shareholder, of a key communications business with each of the following documentation attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. documentation supporting the share purchase, such as a copy of the share purchase agreement;
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2. articles of incorporation of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
3. present status of the shareholders of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
4. present status of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
5. purpose of, reasons for and an analysis of the effect of acquisition of the shares;
6. proposal for dual appointment of officers (only when considering dual appointment of an officer of the counterparty); and
7. post-share acquisition business proposal (only when seeking to become the largest shareholder).
(5) A person who wishes to obtain approval for purchase of shares or execution of an agreement under Article 18(1)5 shall attach the following to an approval application submit them to the Korea Communications Commission. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
1. documents confirming the acquisition of managerial control such as copies of share purchase agreement or other agreement, etc.
2. articles of incorporation of the purchaser or the party to the agreement and the counterparty;
3. shareholders registers of the purchaser or the party to the agreement and the counterparty
4. descriptions of businesses of the purchaser or the party to the agreement and the counterparty
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5. purposes of and impact analysis of the share purchase or execution of the agreement;
6. a plan for overlapping officers and directors (applicable when such officers or directors also act as officers or directors the counterparty); and
7. a business plan for the period following the-share acquisition or execution of the agreement.
(6) The premises determined under the Enforcement Decree of the Act in Article 18(1)5 of the Act means any of the following. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
1. where one person alone or together with his specially related persons seek to acquire shares issued by the largest shareholder of a key communications business operator and effectively exercises the voting rights of such largest shareholder;
2. where persons (including specially related persons) with the common aim of controlling a key communications business operator seek to acquire more shares than the voting rights held by the largest shareholder of such key communications business operator;
3. where the control of a key communications business operator is sought by way of business lease, delegation of managerial control or other agreements with the key communications business operator or its largest shareholder; and
4. where a shareholder of a key communications business operator seeks enter into an agreement with other shareholders, except the largest shareholder to exercise jointly more voting rights than the largest shareholder.
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(7) A key communications business operator that seeks to receive an approval to establish a corporation to provide part of the key communications services it has provided with the approval under Article 18(1)6 shall attach the following documents to an incorporation approval application and submit them to the Korea Communications Commission. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
1. articles of incorporation of the corporation to be incorporated
2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation to be incorporated;
3. business status of the services to be provided (applicable only to the key communications business that already provides the services to be provided by the corporation to be incorporated; and
4. a business plan of the corporation to be incorporated.
(8) The approval application and attachments under paragraphs (1) through (5) and (7) may be submitted electronically. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
(9) The Korea Communications Commission receiving an approval application for transfer, merger, sale, share acquisition or changing the largest shareholder pursuant to paragraphs (1)-(7) shall verify the commercial registry extracts of the party seeking to transfer, merge, sell, become the largest shareholder, acquire shares, execute an agreement or incorporate a corporation by using the public administrative information made available under Article 21(1) of the E-Government Act. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(10) The Korea Communications Commission shall issue a key communications business operators license upon approving the approval application for transfer, merger or incorporation pursuant to paragraph (1) , (2) or (7). <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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Article 21 (Criteria for Major Telecommunications Line Facilities and Equipment)
The major telecommunications line facilities and equipment prescribed under the Enforcement Decree of the Act in provisos other than each subparagraph of Article 18(1) of the Act means facilities and equipment for exchange, transmission and wire pursuant to Article 3(1)8-10 of the Regulations on Telecommunications Facilities and Equipment of which the sum of the sales prices is not less than 5 billion won. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010; No. 22616 Jan. 4, 2011>
Article 22 (Report on Sale of Telecommunications Line Facilities and Equipment)
A person who wishes to file a report on sale of telecommunications line facilities and equipment pursuant to provisos other than each subparagraph of Article 18(1) of the Act shall submit to the Korea Communications Commission a report on sale of telecommunications line facilities and equipment (including electronic application) with each of the following documentation (including electronic application) attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. documentation supporting the sale, such as a copy of the sales agreement concerning telecommunications line facilities and equipment;
2. types, details and prices of the facilities and equipment being sold; and
3. plans for service provision and user protection subsequent to the sale.
Article 23
<Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 24 (Application for a Permit to Suspend Business, etc.)
A person who wishes to obtain authorization to suspend or discontinue business pursuant to Article 19(1) of the Act shall submit to the Korea Communications Commission each of the following documentation at least 60 days prior to the expected suspension or discontinuation date. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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1. details of the business to be suspended or discontinued, and drawings of such businesss territories;
2. documentation indicating details of major telecommunications facilities and equipment relating to the business to be suspended or discontinued;
3. written permission (only where the whole business is discontinued); and
4. statement of reasons for such suspension or discontinuation.
5. notice about the proposed suspension or discontinuation; and
6. documentation stating a plan for customer protection in connection with the proposed suspension or disconsolation.
[Title of this Article amended on 2010.10.1]
Article 25 (Criteria, Procedures, etc. for Revocation of Permits)
(1) The criteria for revocation of permits, cancellation of registration and suspension or discontinuation of business pursuant to Articles 20(2) and 27(3) of the Act are as provided in Table 1 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>:
(3) Upon revocation of permits, cancellation of registration or suspension or discontinuation of business under paragraph (1), the Korea Communications Commission shall issue public notification thereof without delay, and notify the relevant telecommunications business operator in writing.
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Article 26 (Application for Registration)
(1) A person who wishes to register as a specific communications business operator pursuant to Article 21(1) of the Act shall submit to the Korea Communications Commission an application (including an electronic application) to register as a specific communications business operator with each of the following documentation (including electronic documentation) attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. a business proposal relating to a specific communications business;
2. articles of incorporation of the corporation (including, throughout this Article, the corporation to be established);
3. details, installment locations and a network map of major business facilities and equipment;
4. terms of use containing provisions relating to user protection (including a provision for the aggregated issue amount of prepaid calling cards), and details of, and a management proposal for, an office for user protection; and
5. <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The Korea Communications Commission receiving who receives a registration application pursuant to paragraph (1) shall verify the commercial registry extracts and national technical qualification certificates of the technical personnel by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the relevant documentation copies thereof to its license application. ..<Amended by Enforcement Decree No. 22151 of May. 4, 2010; No. 22616 Oct. 1, 2010>
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Article 27 (Issuance of Certificates of Registration)
(1) Upon receipt of a registration application under Article 26(1) hereof, the Korea Communications Commission shall verify whether such registration application meets the registration requirements under Article 28 hereof, make recordation of each of the following in a registration registry of specific communications business operators and issue to the applicant a certificate of registration as a specific communications business operator within 30 days of the date of application: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. number and date of registration;
2. title or trade name of the business and name of the representative;
3. location of the principal office;
4. capital;
5. types of services provided;
6. details of major business facilities and equipment and the locations where such facilities and equipment are installed;
7. details concerning technical personnel;
8. any conditions upon which the registration is authorized; and
9. <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>.
(2) The Korea Communications Commission may, where it deems necessary, request for a registration application already submitted to it under Article 26 hereof to be supplemented or revised by no later than 7 days thereafter; provided that, such period may be extended upon request of the applicant and may not count towards the processing time referred to in paragraph (1).
(3) A specific communications business operator whose certificate of registration, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of registration to the Korea Communications Commission.
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Article 28 (Registration Requirements for Specific Communications Business)
The registration requirements for a specific communications business pursuant to Article 21(5) of the Act are as provided in Table 2 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 29 (Reporting Procedures, etc. of Value-Added Communications Business)
(1) A person who wishes to file a report of a value-added communications business under the former part of Article 22(1) of the Act shall submit to the Korea Communications Commission a value-added communications business report (including an electronic report) and each of the following documentation (including an electronic report):
1. a network map diagram (including an electronic diagram, but applicable only where new types of value-added communications services are reported and the Korea Communications Commission deems such diagram to be necessary and requests for it); and
2. a report about the privacy protection system (applicable only when personal data are handled).
(2) The Korea Communications Commission receiving a report pursuant to paragraph (1) shall verify the commercial registry extracts by using the public administrative information available pursuant to Article 36(1) of the E-Government Act. . <Amended by Enforcement Decree No. 22151 of May. 4, 2010, Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
(3) When there is an error in a value-added communications business report or the documentation attached to such report is insufficient, the Korea Communications Commission may request for such report to be supplemented by no later than 10 days thereafter; provided that, such period may be extended upon request by the person filing the report. <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
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(4) Upon receipt of a value-added communications business report under paragraph (1), the Korea Communications Commission shall issue a report certificate to the person filing such report.
(5) A value-added communications business operator whose report certificate, issued pursuant to paragraph (4), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of report to the Korea Communications Commission.
Article 30 (Exemption from Value-added Communications Business Operator Report)
(1) The small-scale value-added communications business meeting the criteria prescribed under the Enforcement Decree of the Act in the latter part of Article 22 of the Act means value-added communications business operators who provide value-added communications services using the Internet and where the capital is 100 million won or less who satisfy each of the following criteria. < Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
(2) In the event a value-added communications business operator who is exempted from filing a report pursuant to paragraph (1) comes to have more than 100 million won as its capital, such value-added communications business operator shall file a report, within 1 month of the date on which it ceased to satisfy such criteria, in accordance with the former part of Article 22 (1) of the Act. <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
Article 31 (Amendment of Registration or Report)
(1) As prescribed under the Enforcement Decree of the Act in Article 23 of the Act means each of the following:
1. title or trade name, and address;
2. representative;
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3. types of services provided;
4. capital (for specific communications business operators only);
5. expert personnel (for specific communications business operators only); and
6. changes to specific communications business or added-value communications business under Article 21(1) and the main body of Article (includes cases where businesses which have been subject to partial cancellation of the registration or partial suspension under main bodies of Article 27(1) and (2) are sought to be resumed).
(2) In order to amend any of the information set forth in paragraph (1), an application to register amendment to the specific communications business, or a report of amendment to the value-added communications business (including an electronic application or report), and documentation (including electronic documentation) supporting the relevant amendment shall be submitted to the Korea Communications Commission.
(3) Upon receipt and registration, or receipt and processing, of an application to register amendment or a report of amendment, the Korea Communications Commission shall issue either a registration certificate on which the relevant amendment is recorded or a report certificate.
(4) The Korea Communications Commission receiving an application to register amendment or a report of amendment pursuant to paragraph (2) shall verify the commercial registry extracts or business registration certificate by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant or person filing the report does not consent to such verification method, such applicant or person shall be required to attach the corporate registry or business registration certificate to its report. <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
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Article 32 (Report on Transfer of Business)
(1) A person who wishes to file a report on transfer of a specific communications business or a value-added communications business pursuant to Article 24 of the Act shall within 30 days from the date on which a business transfer agreement is executed submit to the Korea Communications Commission a business transfer application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
1. a copy of the business transfer agreement;
2. documentation prescribed under each of the subparagraphs of Article 26(1) hereof or Article 29(1) hereof; and
3. a registration certificate or a report certificate.
(2) A person who wishes to file a report on merger of a corporation that is either a specific communications business operator or a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which a merger agreement is executed submit to the Korea Communications Commission a merger application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
1. a copy of the merger agreement;
2. documentation prescribed under each of the subparagraphs of Article 26(1) or 29(1) hereof; and
3. a registration certificate or a report certificate.
(3) A person who wishes to file a report on inheritance of a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which the cause for the inheritance has occurred submit to the Korea Communications Commission an inheritance report (including an electronic application) with documentation (including electronic documentation) demonstrating that she or he is the heir attached thereto. <Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
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(4) The Korea Communications Commission receiving a report under paragraphs (1)-(3) shall verify, through the information sharing channel under Article 36(1) of the Electronic Government Act, the commercial registry extracts of the transferor or party to a merger agreement (meaning the existing or newly established corporation), national technical qualification certificates of the technical personnel or a certificate of the heirs family register; provided that, in the event the person filing the report does not consent to such verification method, such person shall be required to attach the relevant documentation (copies of national technical qualification certificates or a certificate of the heirs family register) to its report. .<Amended by Enforcement Decree No. 22151 of May. 4, 2010, Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
(5) Upon receipt of a report to register on transfer or merger of a specific communications business or a value-added communications business under paragraph (1) or (2), the Korea Communications Commission shall issue either a specific communications business registration certificate or a value-added communications business report certificate.
Article 33 (Report on Suspension or Discontinuation of Business)
A person who wishes to file a report on either (i) suspension or discontinuation of a specific communications business or a value-added communications business or (ii) dissolution of a corporation that is a specific communications business operator or a value-added communications business operator shall at least 15 days prior to the expected suspension or discontinuation date submit to the Korea Communications Commission a report on suspension, discontinuation or dissolution of a specific communications business or a value-added communications business (including an electronic application) with documentation (including electronic documentation) demonstrating that users have been notified of such suspension or discontinuation attached thereto; provided that, in the event the information contained in any of such documentation can be verified through the public administrative information available pursuant to Article 36(1) of the E-Government Act, such verification may substitute for the relevant documentation. <Amended by Enforcement Decree No. 22151 of May. 4, 2010, Amended by Enforcement Decree No. 22616 of Oct. 1, 2010>
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Chapter 3. Telecommunications Operation
Article 34 (Approval of Terms of Use)
(1) The services for which key communications business operators must obtain approval of terms of use pursuant to the text of Article 28(2) of the Act shall be any of the following <Amended by Enforcement Decree No. 21060, Oct. 1, 2008; No. 22616 Oct. 1, 2010 >:
1. among the services provided by the key communications business operator with the highest market share with respect to the aggregate national sales based on sales from each service in the preceding year, the service from which sales in the preceding year reach or exceed the amount determined and publicly notified by the Korea Communications Commission with respect to each service; or
2. if a key communications business operator providing the service prescribed under subparagraph 1 completes business consolidation with another key communications business operator pursuant to Article 12(1)1 or 12(1)4 of the Monopoly Regulation and Fair Trade Act, the service prescribed under subparagraph 1 provided by such other key communications business operator.
(2) By 31. December each year, the Korea Communications Commission shall designate and issue public notification of the key communications business operators and services prescribed under paragraph (1); provided that, the Korea Communications Commission shall designate and issue public notification of the key communications business operators and services falling under subparagraph 2 of paragraph (1) immediately after the date of report on business consolidation thereunder. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) Notwithstanding the provisions under paragraph (1), a key communications business operator who wishes to amend minor aspects of terms of use as prescribed by the Korea Communications Commission may file a report with the Korea Communications Commission.
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Article 35 (Application for Approval of Terms of Use)
A person who wishes to file a report (including a report on amendment) or obtain an approval (including an approval of amendment) on terms of use with respect to telecommunications services pursuant to Article 28(1) or (2) of the Act shall submit to the Korea Communications Commission terms of use containing each of the following with documentation demonstrating the bases for price computation pursuant to Article 28 (4) of the Act attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. types and details of telecommunications services;
2. areas in which telecommunications services are provided;
3. prices of telecommunications services, including fees and actual expenses;
4. details concerning the responsibilities of telecommunications business operators and users of telecommunications services; and
5. any other information necessary the provision or use of the relevant telecommunications services.
Article 36 (Services Entitled to Reduction or Exemption of Fees)
Telecommunications services entitled to the reduction or exemption of fees pursuant to Article 29 of the Act shall be as follows. .<Amended by Enforcement Decree No. 22003 of Jan. 27, 2010; No. 22616 Oct. 1, 2010 >
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;
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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 under the Act on the Promotion of Newspapers, etc., 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 services.
Article 37 (Provision of Transmission or Line Facilities and Equipment, etc.)
Pursuant to Article 31(1) of the Act, a CATV broadcasting business operator, signal transmission network business operator or CATV relay broadcasting business operator under the Broadcasting Act may provide transmission or line facilities and equipment or the CATV broadcasting facilities and equipment (the Transmission or Line Facilities and Equipment, etc.) to key communications business operators in a manner falling under one of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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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.; or
3. manners corresponding to subparagraphs 1 and 2, which are determined by a consultation between a CATV broadcasting business operator, a signal transmission network business operator, or a CATV relay broadcasting business operator.
Article 37-2 (Prepaid phone services and subscription of guarantee insurance)
(1) A key communications services operator that seeks to provide telecommunications services on a prepaid basis (prepaid phone services) pursuant to the main body of Article 32(3) shall submit each of the following items to the Korea Communications Commission, provided that a specific communications business operator shall submit it to the head of the Central Radio Management Office.
1. a copy of guarantee insurance;
2. data about the aggregate service charges for the prepaid phone services for the pertinent year (prepaid phone service charges);
3. guide for the use of the prepaid phone services;
4. other materials specified and announced by the Korea Communications Commission for prepaid phone services business standards and customer protection, etc.
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(2) A telecommunications business operator seeking to provide the prepaid phone services under paragraph (1) shall abide by each of the following:
1. the prepaid phone services shall be provided within the coverage period of the guarantee insurance;
2. if additional prepaid phone services are to be provided within the coverage period of the guarantee insurance, such additional prepaid phone services shall be provided within the actually used portion of the prepaid phone service charges;
3. if the prepaid phone service charges are to be changed, the guarantee insurance shall be renewed at least 30 days prior to such change. In this case, a copy of the renewed guarantee insurance policy shall be provided to the Korea Communications Commission or the head of the Central Radio Management Office within 7 days of such renewal;
4. if the services are to be provided after the expiration of the guarantee insurance, the guarantee insurance shall be renewed at least 30 days prior t the expiration date. In this case, financial statements and other materials specified by the Korea Communications Commission shall be provided to the Korea Communications Commission or the head of the Central Radio Management Office within seven; and
5. measures to make paragraph (1)3 and 4 easily comprehensible to users shall be taken.
(3) The amount calculated according to standards specified under the Enforcement Decree of the Act in the main body of Article 32(3) is an amount not less than 50% of the prepaid phone service charges and determined in accordance with the standards announced by the Korea Communications Commission, taking into consideration the prepaid phone service providers pain-in capital and the prepaid phone service charges.
(4) The case specified under the Enforcement Decree of the Act in the proviso of Article 32(3) means each of the following case:
1. average annual revenue from telecommunication services provided by a telecommunications business operator for the recent 3-year period is 30 billion won or more;
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2. aggregate prepaid phone service charges is less than 10% of the annual revenue from telecommunication services provided by a telecommunications business in the past year; and
3. provision of prepaid phone services in the past 3-year period without suspension or discontinuation.
(5) When the beneficiary receives insurance proceeds, such shall be distributed to users within 60 days from the date of receipt under Article 32(4) of the Act, provided that if the distributions payable amount exceeds the insurance proceeds, the insurance proceeds will be distributed in proportion to loss amounts.
(6) business standards and methods concerning the guarantee insurance and insurance proceeds not other wise specified in paragraph (2 )and (5) shall be determined and announced by the Korea Communications Commission.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Chapter 4. Promoting Competition In Telecommunications Business
Article 38 (Criteria and Procedures for, and Methods of, Evaluating Competition Status)
(1) When making determination concerning unit markets for the purpose of evaluating competition status pursuant to Article 34(2) of the Act, all of the following factors shall be considered: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. demand substitutability and supply substitutability of the services;
2. geographical scope of the services provided;
3. transaction stages of the services provided such as retail (meaning transactions between telecommunications business operators and ultimate users of the services provided by such telecommunications business operators) and wholesale (meaning transactions through which telecommunications facilities and equipment, etc., installed to provide wholesale services, are offered to other telecommunications business operators); and
36
4. special characteristics of users such as differences in purchasing power and negotiating edge or uniqueness of demand.
(2) Evaluation of competition status with respect to the unit markets determined under paragraph (1) shall be implemented by comprehensively considering each of the following factors:
1. market structure such as market share and entrance barrier;
2. response capacity of users such as accessibility of information related to service use and ease of switching service providers;
3. activities of telecommunications business operators such as those relating to price and quality competition and technology innovation; and
4. market performances such as the level of price and quality and the size of excess profits made by telecommunications business operators.
(3) Where it deems necessary for evaluating competition status, the Korea Communications Commission may invite opinions from relevant professionals and related parties.
Article 39 (Criteria applicable to Key Communications Business Operators, etc.)
(1) The key communications business operators satisfying the criteria prescribed under the Enforcement Decree of the Act in Articles 35(2)3, 39(3)2, 41(3)2 and 42(3)2 of the Act means, where sales of certain key communications business operators in each service from the preceding year exceed the amount determined and publicly notified by the Korea Communications Commission with respect to each service, those business operators whose market share in relation to the national aggregate sales from the relevant service is 50% or higher. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
37
(2) A facility management institution under Article 35(2)3 is a facility management institution whose the aggregate size of facilities, etc. under Article 35(1) (facilities, etc.) owned last year or revenue from providing facilities, etc. exceeds certain thresholds announced by the Korea Communications Commission. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
(3) By 31. December, each year, the Korea Communications Commission shall designate and issue public notification of the key communications business operators prescribed under Articles 35(2)1 and 3, 39(3), 41(3) and 42(3) of the Act and facilities management institution prescribed under Article 35(2)3 of the Act. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 39-2 (Submission of Data on Facilities, etc. and Procedures, etc.)
(1) Each telecommunications business operator and facilities management institution shall provide each of the following to the Korea Communications Commission by March 31 of each year.
1. status of facilities, etc., as announced by the Korea Communications Commission, about the facilities, etc. owned by the telecommunications business operator and facilities management institution; and
2. status of facilities, etc. provided to a telecommunications business operator by a key communications business operator or a facilities management institution.
(2) The Korea Communications Commission may provide financial support within its budget to expert institutions for their operation under Article 35(6).
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
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Article 39-3 (Standards for Providing Obligatory Wholesale Services)
(1) The telecommunications services of a key communications business operator specified under Article 38(2) of the Act means services of the key communications business operator with the highest market share of the aggregate domestic revenue on the basis of revenue per service last year that exceed thresholds specified for individual services announced by the Korea Communications Commission.
(2) The Korea Communications Commission shall designate and announce key communications business operators under paragraph (1) by December 31 of each year. [This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 40 (Report on Accord, etc. concerning Interconnections, etc.)
(1) A person who wishes, under Article 38(5) or 44(1) or (2) of the Act, to file a report on, or obtain an approval of wholesale provision, provision, common use or interconnection of facilities, etc. and equipment or the execution or termination of, or an amendment to, an accord on provision of information shall submit to the Korea Communications Commission each of the following documentation to the Korea Communications Commission, provided that in case of termination, only paragraphs 1 and 6 need to be submitted and in case of nominal matters such as no change in service charges, etc. announced by the Korea Communications commission, only paragraph 5 needs to be submitted.: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. copy of the accord;
2. documentation demonstrating the amounts due from, or payable to, the parties to the accord, the computation methods with respect to such amounts and how the accord shall be implemented;
3. documentation demonstrating wholesale provision, provision, common use or interconnection of, or conditions upon which information shall be provided on, facilities, etc. and equipment, and any other costs related to the accord;
4. drawings indicating wholesale provision, provision, facilities, etc. provision, common use or interconnection of, or a summary of the information (including outlay of connection grid and connection points) to be provided on, facilities, etc. and equipment; and
5. documentation comparing the new accord against the old (applicable only to filing of a report of amendment or applying for an approval of amendment).
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6. documentation confirming discontinuation (including electronic documentation)
(2) Upon receipt of documentation under paragraph (1), the Korea Communications Commission shall examine whether such documentation comply with the criteria for provision, common use, wholesale provision or interconnection of, or provision of information on, facilities, etc. and equipment pursuant to Article 35(3), 37(3), 38(4), 39(2), 41(2) or 42(2) of the Act. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) A key communications business operator that has received approval for execution, amendment or termination of an agreement under Article 44(2) of the Act shall publish details of such on its website. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
(4) Pursuant to Article 65(3) of the Framework Act on Telecommunications, upon receipt of documentation under paragraph (1), the Korea Communications Commission shall examine whether such documentation complies with the criteria for provision, common use or interconnection of, or provision of information on, telecommunications facilities and equipment pursuant to Article 35(3) of the Act, and whether the private telecommunications facilities and equipment provided were installed by an individual to be used for her or his own telecommunications. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 40-2 (Request for Arbitration)
A person wishing to make a request for arbitration under Article 45(1) of the Act shall attach each of the following documentation to its arbitration application and submit them to the Korea Communications Commission, provided that the item under paragraph 3 shall be submitted only in the case of the request under Article 45(1)3.
1. documents about overview of the arbitration request;
40
2. documents about negotiation between the parties; and
3. each of the documentation under Article 40(1).
After reviewing the application documents under paragraph (1), the Korea Communications Commission may demand the applicant to submit additional information within a certain period of time for any of the following reasons:
1. in the case where any required document is missing
2. in the case where any entry in the application and attachments is vague.
If the applicant fails to provide additional information within the time period specified under paragraph (2), the Korea Communications Commission shall return the application along with a reason for such return.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 40-3 (Arbitration Decision)
An arbitration decision by the Korea Communications Commission shall be made in writing.
The arbitration decision under paragraph (1) shall state the ruling, reason and date of decision, be signed by the Commissioner of the Korea Communications Commission and commission members who attended the arbitration deliberation and be sent to the parties to the dispute.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
41
Article 41 (Reporting Offenses)
(1) Any person recognizing any of the offenses prescribed under Article 50(1) of the Act may report to the Korea Communications Commission of such act and request any measures prescribed under each of the subparagraphs of Article 52(1) of the Act to be taken. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) A person who wishes to make a report under paragraph (1) shall submit to the Korea Communications Commission documentation indicating each of the following:
1. name (if a corporation, the name of the corporation and its representative) and address of the person making the report;
2. trade name, or name (if a corporation, the name of its representative), and address of the person being reported;
3. details of the offense; and
4. measures necessary for addressing the offense.
(3) The Korea Communications Commission may, where it deems necessary, request that the documentation submitted to it under paragraph (2) be supplemented within a period reasonably fixed.
(4) The details of handling procedures and methods concerning application, supplementation, prohibition and violation under paragraphs (1) through (3) shall be demined and announced by the Korea Communications Commission.
<Newly Inserted by Act No. 22616 Oct. 1, 2010>
Article 42 (Types of and Criteria for Offenses)
(1) The types of, and criteria for, the offenses pursuant to Article 50(3) of the Act shall be as provided in Table 3 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The Korea Communications Commission may, where it deems necessary for the purpose of applying to specific telecommunications fields or specific offenses, determine and issue public notification of the details concerning the types of, and criteria for, the offenses under paragraph (1).
42
Article 43
<Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 44 (Measures Taken, etc. on Offenses)
The term other matters prescribed under the Enforcement Decree of the Act in Article 52(1)11 of the Act refers to each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. submission of a plan for implementing the provisions under Article 52(1)1-10 of the Act; and
2. report on the results of the implementation of the provisions under Article 52(1)1-10 of the Act.
Article 44-2 (Announcement of Corrective Order)
The details of contents and method of announcement about corrective order made under Article 52(1)8 shall be determined by the Korea Communications Commission.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 45 (Implementation Period of Corrective Orders)
The period by the end of which telecommunications business operators shall implement the corrective order issued by the Korea Communications Commission pursuant to Article 52(2) of the Act shall be as provided in Table 4 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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Article 46 (Offenses Subject to Imposition of Penalties and Amount of Such Penalties, etc.)
(1) The classifications of offenses subject to imposition of penalties, the upper limit of such penalties and the criteria for imposition of such penalties pursuant to Article 53(1) of the Act shall be as provided in Table 5 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The types of violation subject to fine under Article 53(2) of the Act, maximum fine amount and fine calculation method are set forth in Table 5-2.. <Newly Inserted by Act No. 22616 Oct. 1, 2010>
Article 47 (Computation Methods of Penalties)
(1) The term sales as prescribed under the Enforcement Decree of the Act in the text of Article 53(1) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator and the sales as prescribed under the Enforcement Decree of the Act in Article 53(2) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator; provided that, if, as of the first day of the applicable fiscal year, less than 3 years have elapsed since the commencement of the relevant business as of the first day of the relevant fiscal year, such term shall mean the sales of the period from the commencement of the relevant business until the last day of the preceding fiscal year, converted into annual average sales, or if the relevant business has been commenced in the applicable fiscal year, such term shall mean sales of the period from the commencement date of the relevant business until the date of commission of the offense, converted into annual sales. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The term the time prescribed under the Enforcement Decree of the Act in the proviso of Article 53(1) of the Act means any of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. where there has been no sales result due to such reasons as non-commencement or suspension of business; or
44
2. where it is difficult to make an objective computation of sales.
Article 48 (Imposition and Payment of Penalties)
(1) The Korea Communications Commission shall, where it intends to impose penalties pursuant to Article 53 of the Act and subsequent to its investigation and verification of the relevant offense, notify, in writing, the person subject to such penalties of the fact of offense, the amount thereof and the method of, and the period for, raising objection thereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) A person who receives a notification under paragraph (1) shall pay the relevant penalties to a financial institution designated by the Korea Communications Commission within 20 days from the date of receiving such a notification; provided that, if the person is unable to pay the penalties within such period due to a natural disaster or other unavoidable circumstances, the person shall pay the penalties within 7 days from the date on which said reason ceases to exist.
(3) A financial institution in receipt of a payment of penalties under paragraph (2) shall deliver a receipt thereof to the person who paid the penalties.
Article 49 (Demand for Penalties)
(1) A demand for penalties pursuant to Article 53(6) of the Act shall be made in writing within 7 days from the date on which the payment deadline expires. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) Where a demand note is issued under paragraph (1), a deadline for payment of any penalties in arrear shall be within 10 days from the date on which such demand note is issued.
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Article 50 (Services Subject To Prior Selection)
The telecommunications services prescribed under the Enforcement Decree of the Act in the latter part of Article 57(1) of the Act means the Long Distance Telephone Service. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
<The title of this Article amended on 2010.10.1>
Article 51 (Provision of Directory Assistant Service)
(1) Telecommunications business operators providing a directory assistant service pursuant to Article 60(1) of the Act may furnish any of the following information: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. name or trade name of the user;
2. telephone number of the user; or
3. address of the user up to Eup/Myeon/Dong.
(2) Telecommunications business operators shall obtain users consent to a directory assistant service through a method that can be used to verify as to whether such consent has been indeed given by the user, such as the users handwritten or electronic signature, and to prove at a later date that such consent has been given.
(3) Users may withdraw their consent given under paragraph (2) at any time, and telecommunications business operators shall, without any delay, take the necessary measures so that a directory assistance service shall not be provided with respect to such users who withdrew their consent; provided that, where the pertinent directory assistance service is provided through a written material, a user shall have to withdraw her consent at least 30 days prior to the print date of such written material for the withdrawal to take effect.
Chapter 5. Telecommunications Facilities and Equipment
<Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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Article 51-2 (Report and Approval of Telecommunication Facilities Installation)
(1) A key communications business operator seeking to install or change material telecommunication facilities under the main body of Article 62(1) of the Act shall submit an installation or change application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Korea Communications Commission.
1. details of installation or change of telecommunication facilities (diagram of connection grid included); and
2. security plan for telecommunication facilities.
(2) A key communications business operator seeking to receive approval for telecommunication facilities installed under the proviso of Article 62(1) of the Act shall submit an installation approval application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Korea Communications Commission.
1. business plan
2. security plan for telecommunication facilities
3. domestic and international specifications and technological profile of the pertinent telecommunications facilities;
4. research status of the pertinent telecommunications facilities; and 5. agreement (if installed or used jointly with other domestic or international business operator).
(3) After receiving an application under paragraph (2), the Korea Communications Commission shall notify the applicant of its decision within 15 days of the submission date after reviewing the technological aspect of the telecommunication facilities to be installed, etc.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
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Article 51-3 (Investigation of Join Installation of Telecommunication Facilities)
The Korea Communications Commission may investigate the following items required for a joint installation agreement between key communications business operators under Article 63(2) of the Act:
1. Each of the following items of the key communications business operators installation plan
A. type and specifications of the telecommunication facilities to be installed;
B. installation area and installation interval
C. installation period;
D. technological prerequisites ,etc.
2. telecommunication area and interval available for joint installation;
3. plan for efficient joint installation of telecommunication facilities; and
4. economic impacts from the join installation of telecommunication facilities,
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-4 (Appointment of Expert Reviewing Institution
(1) When the Korea Communications Commission desires to delegate the investigation of the data required for a joint installation agreement between key communications business operators to an expert institution in the telecommunication industry, it shall appoint an expert institution that is deemed to have expertise, fairness and objectivity and make it carry out the investigation.
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(2) When the Korea Communications Commission appoints an expert institution for data investigation under paragraph (1), it will notify the relevant key communications business operators.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-5 (Recommendation of Joint Installation of Telecommunication Facilities)
(1) In the event the Korea communications Commission recommends joint installation of telecommunication facilities to key communications business operator under Article 63(3) of the Act, such recommendation shall include specific telecommunication facilities to be installed, installation area, installation interval, installation period.
(2) A key communications business operator requesting a joint installation of telecommunication under Article 64(4)1 shall submit each of the following documentation to the Korea Communications Commission:
1. plan for the joint installation of telecommunication facilities;
2. economic impact of the joint installation of telecommunication facilities
3. matters not yet agreed with the key communications business operator participating in the joint installation of telecommunication facilities and proposed solutions
(3) A key communications business operator that has received a recommendation for joint installation of telecommunication facilities shall notify the Korea Communications Commission on whether it is accepting the recommendation and, if it is being rejected, reason for such rejection within 21 days from the receipt of such recommendation. [This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
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Article 51-6 (Report of proprietary telecommunication facilities)
(1) A person desiring to install proprietary telecommunication facilities under Article 64 of the Act shall submit to the Korea Communications Commission at least 21 days prior to the start of such installation a proprietary telecommunication installation application (including electronic application) including all of the following with blueprints of the installation attached.
1. applicant
2. type of business
3. purpose of installation
4. electronic communication method
5. installation site
6. overview of telecommunication facilities
7. (expected) operation date of facilities
(2) The material items specified in the Enforcement Decree of the Act in the bottom text of the Article 64(1) of the Act means items under paragraphs (1)2 to (6).
(3) If a person who reported the installation of proprietary telecommunication facilities seeks to amend items in paragraph (2) shall submit to the Korea Communications Commission an modification application (including electronic application) with blue prints (including a comparison of pre- and post-modification) of installation proprietary telecommunication facilities at least 21 days prior to the effective date of such modification (in case of modification to any of paragraph (1)4 through (6), the start date of construction regarding such modification).
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(4) Upon receiving an installation or installation modification application under paragraph (1) or (3), the Korea Communications Commission review the following:
1. whether it satisfies technological standards under Article 28(2) of the Base Act on Broadcasting Communication Advancement
2. whether the purpose and reason for installing telecommunication facilities is for the use of proprietary telecommunication
(5) The Korea Communications Commission shall issue an installation/modification certificate if it concludes, after conducting a review, that all criteria under paragraph (4) are satisfied.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-7 (Confirmation of Installation)
(1) A person who filed an installation or modification application in regard to proprietary telecommunication facilities under Article 64(3) shall receive confirmation from the Korea Communications Commission within seven days from the completion of installation or modification construction.
(2) A person desiring to receive confirmation of proprietary telecommunication facilities under paragraph (1) shall submit to the Korea Communications Commission a proprietary telecommunication facilities confirmation application (including electronic application) with each of the following documentation (including electronic documentation) as attachment.
1. documentation showing that the construction was completed in satisfaction of the technological standards under Article 28(1) of the Base Act on Broadcasting Communication Advancement
2. documentation showing that the construction was completed in accordance with blue prints under Article 28(3) of the Base Act on Broadcasting Communication Advancement
3. copy of construction firms license
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(3) After reviewing the application documents under paragraph (2), the Korea Communications Commission may demand the applicant to submit additional information within a certain period of time for any of the following reasons:
1. in the case where any required document is missing
2. in the case where any entry in the application and attachments is vague.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
After reviewing the application documents under paragraph (1), the Korea Communications Commission may demand the applicant to submit additional information within a certain period of time for any of the following reasons:
Article 51-8 (Exemption from Proprietary Telecommunication Facilities Installation Application)
Under Article 64(4) of the Act, proprietary telecommunication facilities may be installed without filing an application in any of the following cases:.
1. proprietary telecommunication facilities consisting of main equipment and terminals within one building and its lot;
2. proprietary telecommunication facilities consisting of main equipment and terminals within two or more buildings and their lots owned by 1 person and whose shortest distance between them is shorter than 100 meters (excluding those buildings or lots separated by road or water stream); and
3. proprietary telecommunication facilities installed for police action and is used for less than 1 month.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
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Article 51-9 (Supply of Proprietary Telecommunication Facilities)
(1) A person who installed proprietary telecommunication facilities may provide excess capacity provided by the proprietary telecommunication facilities installed in the interval requested by a key communications business operator under Article 65(2) of the Act over his need to the key communications business operator.
(2) If the proprietary telecommunication facilities are provided to a key communications business operator under paragraph (1), the compensation for such supply shall not exceed the sum of the installation costs, maintenance expenses and investment return and shall be determined in accordance with the criteria announced by the Korea Communications Commission.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-10 (Standards for Cessation Order)
The standards for cessation order under Article 67(2) of the Act are set forth in Table 5-3. [This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-11 (Facilities subject to Public Space Needs)
The facilities and areas specified under the Enforcement Decree of the Act under Article 68(1)8 of the Act means each of the following:
1. passenger car terminal under the Passenger Transport Service Act
2. logistics terminal and logistics complex under the Act on the Development and Management of Logistics Facilities
3. small and medium enterprise joint complex under the Small and Medium Enterprises Promotion Act
4. tourist site or complex under the Tourism Promotion Act
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5. sewage path under the Sewerage Act
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-12 (Adjustment for Public Space Needs)
(1) When the Korea Communications Commission drafts a corrective plan upon the request under Article 68(5) of the Act, it shall solicit opinions from the head of relevant administrative bodies and the parties involved.
(2) When the Korea Communication Commission has drafted a corrective plan under paragraph (1), it shall notify the parties of such plan and recommend their adoption of the plan within a period it specifies which shall not be shorter than 30 days.
(3) When the parties adopt the corrective plan under paragraph (2), the Korea Communications Commission shall draft a corrective agreement including the following items and have it executed by the parties.
1. case number
2. names and addresses of the parties, their representatives or agents
3. reason for corrective adjustment
4. provisions amended
5. date of the agreement
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
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Article 51-13 (Integrated Management of Telecommunication Facilities)
The case necessary for efficient management and operation of telecommunication facilities under Article 70(!) of the Act shall mean the case where efficiently managing and operating telecommunication facilities eliminates redundant investment in such telecommunication facilities.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-14 (Designation of Integrated Telecommunication Operator)
When the Korea Communications Commission is to designate a key telecommunication business operator who may integrate and manage telecommunication facilities under Article 70(1) of the Act, it shall make such designation out of key telecommunication business operators providing telecommunication services in the region where such telecommunication facilities are located or its nearby regions after evaluating the following:
1. human resources and organization of key communications business operator
2. facilities and equipments owned by key communications business operator
3. technological capacity of key communications business operator
4. capital structure of technological capacity of key telecommunication business operator
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-15 (Items to be Covered in Integrated Management Plan)
The items specified under the Enforcement Decree of the Act in Article 70(3)3 of the Act mean the following:
1. pricing of integrated telecommunication facilities
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2. managerial personnel of integrated telecommunication facilities
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 51-16 (Purchase of Telecommunication Facilities) .
(1) The sales price of telecommunication facilities under Article 71(2) of the Act shall be determined on the basis of a fair appraisal value provided by an appraiser under the Public Notice of Values and Appraisal of Real Estate Act, provided that such price may be determined by agreement between the parties if appraisal by an appraisal is not possible.
(2) The sales procedures of telecommunication facilities and payment mechanism under Article 71(2) of the Act shall be determined by the parties. [This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Article 52 (Designation of Alert Areas for Submarine Cable)
(1) A key communications business operator who wishes to apply for designation of alert areas for submarine cable under Article 79(3) of the Act shall submit to the Korea Communications Commission documentation demonstrating each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. need to designate alert areas; and
2. legs and width of the alert areas indicated by using coordinates of latitude and longitude.
(2) The Korea Communications Commission may, where necessary for designation of alert areas for submarine cable, request additional information further to the documentation prescribed under paragraph (1) from any key communications business operator who applies for such designation.
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(3) Upon receipt of the documentation submitted to it under paragraphs (1) and (2), the Korea Communications Commission shall send such documentation to the heads of the relevant state administrative organs prescribed under Article 79(4) of the Act for consultation. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(4) Except under ordinary circumstances, the Korea Communications Commission shall, within 60 days of the date of application for designation of an alert area for submarine cable, notify the key communications business operator making such application, and if such designation is approved, issue, without any delay, public notification of the newly designated alert area.
(5) Once the Korea Communications Commission designates and issues public notification of a new alert area under paragraph (4), the key communications business operator who applied for such designation shall disclose the location of the new alert area on its website, etc., and may place buoys, etc. in the new alert area for marking purposes.
Article 52-2 (Inspection and Report of Telecommunication Facilities)
The cases necessary for the implementation of telecommunication policies specified under the Enforcement Decree of the Act in Article 82(1) of the Act shall mean each of the following
1. in case where necessary for the implementation of telecommunication policies
2. in case where necessary for verifying the suitability of installation and management of telecommunication facilities
3. in case where necessary for securing communication channels in case of national emergency and disasters
When an inspection is made pursuant to Article 82(1) of the Act, an inspection plan specifying inspection period, purpose and items shall be sent to the person who installed the telecommunication facilities being inspected at least 7 days prior to such inspection, provided that, the foregoing requirement is waived if necessary for emergency or for the purpose of preventing destruction of evidence which would thwart the purpose of inspection.
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¨ A public servant carrying out the inspection under paragraph (2) shall carry evidence of his authority and show it to relevant parties and provide at the time of entrance a document stating the time and purpose of the entrance to relevant parties. [This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
Chapter 6. Supplementary Provisions
Article 53 (Protection of Communication Secrets)
(1) Telecommunications business operators shall preserve the ledger of communications data supplied, prescribed under Article 83(5) of the Act, for a period of 1 year. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) Reports on, and notification of, the status of communications data supplied pursuant to Articles 83(6) and 83(7) of the Act respectively, must be provided within 30 days after the expiration of each half-year. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) An office dedicated to protection of communication secrets pursuant to Article 83(8) of the Act (the Dedicated Office) shall undertake to perform each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. oversee tasks related to communication secrets of users;
2. regulate illegal or undue infringement of communication secrets of users by employees of telecommunications business operators or third parties;
3. report on the present status of communications information supplied under Article 83(6) of the Act;
4. furnish notification of the recordation in the ledger of communications data supplied under Article 83(7) of the Act;
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5. address complaints or opinions from users with respect to communication secrets;
6. train the employees in charge of tasks connected with communication secrets; and
7. any other matters necessary for protection of communication secrets of users.
(4) The Dedicated Office shall be based at the headquarters of each telecommunications business operator with the officers thereof in charge.
(5) An authorized signatory for documentation under Article 83(9) of the Act shall be either (i) a judge, a prosecutor or an investigatory entity (including, throughout this Enforcement Decree, a military investigatory body, the National Tax Service and regional tax services) (ii) a public official of Grade 4 or higher who belongs to an intelligence agency (including a public official of Grade 5 who is the head of an investigatory body or intelligence agency) or (iii) a public official who belongs to senior executive service; provided that, (x) with respect to the police or marine police, such authorized signatory shall be a public officer whose position is senior superintendent or higher (including a superintendent who is the head of a district policy agency) and (y) with respect to a military investigatory body, it shall be a military prosecutor or a person whose rank is lieutenant colonel or higher (including a major with respect to a military investigatory body at which a major is the commanding officer). <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(6) The documentation prescribed under Article 83(9) of the Act shall clearly indicate the authorized signatorys name and rank; provided that, with respect to intelligence agencies prescribed under Article 2(6) of the Regulation on Planning and Coordination of Information Security, only the title of the authorized signatory shall be indicated, and with respect to courts, the title and name of the authorized signatory shall be indicated. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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Article 54 (Caller Identification, etc.)
(1) Telecommunications business operators may not impose charges on users who choose, pursuant to the proviso of Article 84(1) of the Act, not to allow their telephone numbers to be identified when making telephone calls. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) A person who wishes to be informed of the telephone number of the caller pursuant to Article 84(2)1 of the Act shall make a written request therefor to the pertinent telecommunications business operator with any of the following documentation demonstrating in detail that the person has been subjected to abusive language, threats or harassment over the telephone attached thereto: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. written records of the date, time and contents of threats, etc. over the telephone;
2. voice records of threats, etc. over the telephone;
3. documentation supporting that a crime report has been filed with the police in connection with threats, etc. over the telephone;
4. documentation supporting that advice has been sought from a clinic with respect to the damages incurred from threats, etc. over the telephone;
5. any other documentation equivalent or similar to those set forth in subparagraphs 1-4.
(3) As prescribed under the Enforcement Decree of the Act in Article 84(2)2 of the Act means where each of the following telephone services is used: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. to report international terror-related crime (111);
2. to report crime (112);
3. to report spies (113);
4. to report cyber terror and seek advice in relation thereto (118);
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5. to report fire or seek emergency rescue (119);
6. to report marine accidents or crime (122);
7. to report smuggling (125); or
8. to report drug offenders (127).
Article 55 (Restriction on and Suspension of Service)
(1) Where the Korea Communications Commission issues, under Article 85 of the Act, an order to restrict or suspend the whole or part of the telecommunications business of telecommunications business operators, it may allow communications for undertaking the matter falling under each of the following in the order of their priority, in proportion to the scope and severity of the relevant restriction or suspension: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. top priority
(a) | national security; |
(b) | military affairs and public security; |
(c) | transmission of the civil defense alarm; and |
(d) | electronic wave control; |
2. second priority
(a) | disaster relief; |
(b) | telecommunications, navigation safety, weather, fire fighting, electricity, gas, water service, transportation and the press; |
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(c) | affairs of the State and local government, except for those mentioned in items (a) and (b); and |
(d) | affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea; |
3. third priority
(a) | affairs of the enterprises subject to resources control and the firms of defense industry; and |
(b) | affairs of government-invested institutions, and medical institutions; and |
4. forth priority: matters other than those listed in subparagraphs 1 through 3.
(2) The restriction or suspension on the telecommunication services under paragraph (1) shall be the least of those required for securing the important communications.
(3) A telecommunications business operator shall, in case where he restricts or suspends the whole or part of telecommunications services under paragraph (1), report the content thereof without delay to the Korea Communications Commission.
Article 56 (Approval, etc. for International Telecommunications Services) <Amended by Enforcement Decree No. 21060, Oct. 1, 2008>
(1) The term international telecommunications business as prescribed under the Enforcement Decree of the Act in the earlier part of Article 86(2) of the Act means the services falling under any of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. installation and lease of a satellite for providing international telecommunications services; or
2. transboundary provision of key communications services under Article 87 of the Act.
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(2) A person who intends to obtain approval under Article 86(2) of the Act shall submit the following documents to the Korea Communications Commission: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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).
(3) The criteria specified by the Enforcement Decree of the Act in the proviso of Article 86(3) means telecommunication business operators whose capital is less than 300 million won and who do not have an international calling identification number issued by the Korea Communication Commission..
<Newly Inserted by Act No. 22616 Oct. 1, 2010>
Article 57 (Revocation of Approval for Agreement to Provide Transboundary Key Communications Services)
(1) The criteria for revocation of approval for agreements to provide transboundary key communications services and for suspension of provision of transboundary key communications services pursuant to Article 87(4) of the Act shall be as follows. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. first violation shall result in suspension of 6 months or less, or suspension of invitation of new users; and
2. second violation shall result in revocation of approval.
(2) Upon revoking approval or ordering suspension, the Korea Communications Commission shall issue public notification and notify the relevant telecommunications business operator in writing thereof.
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Article 58 (Report on Statistics)
(1) The types of statistics telecommunications business operators must report to the Korea Communications Commission pursuant to Article 88(1) of the Act are as follows. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. present status of telecommunications facilities, including those for exchange, transmission, wire and power per service;
2. use records of telecommunications, including sales and times of use per service, period, distance stage, time zone, country (including the use records per foreign telecommunications business operator) and Calling Area and between Calling Areas;
3. present status of telecommunications users, including the number of subscribers per service, city and province and Calling Area;
4. information related to call volume, including (i) call volume between Calling Areas and per service, period, distance stage, time zone, city and province, country (including the call volume per foreign telecommunications business operator) and Calling Area and (ii) information on provision of facilities and equipment and on interconnection;
5. information related to accounting, including a sales report prepared for each service and business provided; and
6. aggregated issue amount of prepaid calling cards and use records of the Calling Areas (applicable only to specific communications business operators).
(2) The Korea Communications Commission shall determine the format, submission method and reporting deadline of the relevant statistics under paragraph (1) and any other matters related thereto.
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Article 59 (Submission of Documentation)
(1) Pursuant to Article 88(2) of the Act, key communications business operators and their shareholders shall submit to the Korea Communications Commission each of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. present status of the corporations outstanding shares (including, throughout this Article, equities);
2. present shareholding (including, throughout this Article, equity investment ratios) status of shareholders owning the corporations outstanding shares (including, throughout this Article, equity investors) and their related parties;
3. purpose of shareholding and reasons for the change (applicable only to shareholders of key communications business operators);
4. date of acquiring the shares and details of capital used for such acquisition (applicable only to shareholders of key communications business operators);
5. form of shareholding (applicable only to shareholders of key communications business operators); and
6. documentation supporting any of the information set forth in subparagraphs 1-5.
(2) Business operators obliged to submit documentation under paragraph (1) shall submit such documentation to the Korea Communications Commission by the following date <Amended July 29, 2008>:
1. if the business operator is a key communications business operator whose share certificates are listed on a stock exchange under Article 9(15)3 of the Financial Investment Services and Capital Markets Act, within 30 days from the date its shareholder registry is closed; or
2. if the key communications business operator does not fall under subparagraph 1, by January 30 of each year.
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Article 60 (Methods for Computing Penalties)
(1) The term sales calculated under the conditions prescribed under the Enforcement Decree of the Act in the main sentence of Article 90(1) of the Act means the annual average sales for 3 fiscal years immediately preceding of the telecommunications services by the relevant telecommunications business operator; provided that, where 3 years have not elapsed since the start of business as of the first day of the relevant fiscal year, it shall mean sales from the period from the start of the relevant business until the end of the immediately preceding fiscal year, converted into annual average sales; and where a business was started in the relevant fiscal year, it shall mean sales from the period from the date of starting the business until the date of an offense, converted into annual sales. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(2) The term where it is prescribed under the Enforcement Decree of the Act in the proviso of Article 90 (1) of the Act means the case falling under any of the following: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. where there exists no business record due to a failure of starting a business or a suspension of business, etc.;
2. where a telecommunications business operator has refused to submit the data for computing sales or has submitted false data; or
3. other cases where it is difficult to compute the amount of objective sales.
Article 61 (Offenses Subject to Imposition of Penalties and Amount of Penalties, etc.)
(1) Classifications of offenses subject to the imposition of a penalty and the amount of a penalty under Article 90(1) of the Act shall be as provided in Table 6 attached hereto. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
66
(2) The types of violation subject to fine under Article 90(2) of the Act and fine amounts are set forth in Table 7. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) In determining the amount of penalties under paragraph (1) or (2), the Korea Communications Commission may increase or decrease such amount by up to 50% after taking the following items into consideration, provided that even in case of increase, the total penalty amount cannot exceed the maximum penalty amount specified under Article 90(1) or (2) of the Act.
<Newly Inserted by Act No. 22616 Oct. 1, 2010>
1. the peculiarities of providing telecommunications services
2. the severity and frequency of each offense.
3. willfulness of violation
4. reason and contents of violation
5. prior penalties received for violation of law
(4) The provisions under Articles 48 and 49 hereof shall apply mutatis mutandis to the imposition, payment and demand of penalties under Article 90 of the Act. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 62 (Extension of Payment Due Date, and Installment Payment, of Penalties)
(1) A person who intends to extend the payment due date of a penalty or pay it in installments under Article 91 of the Act shall make an application to the Korea Communications Commission along with the document certifying grounds of the extension of payment due date or the payment in installments not later than 10 days prior to the relevant due date of payment. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
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(2) The term amount as prescribed under the Enforcement Decree of the Act in Article 91(1) of the Act means either the amount equal to the sales under Article 47 multiplied by 1%, or 300 million won. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(3) The extension of the payment due date of a penalty under Article 91 of the Act shall not exceed 1 year from the day immediately following said payment due date. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(4) When making installment payments under Article 91 of the Act, the intervals between the respective installment payment due dates shall not exceed 4 months, and the frequency of installments shall not exceed three times. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
(5) The Korea Communications Commission may, if a person liable for a payment of a penalty for whom the payment due date has been extended or installment payments have been permitted under Article 91 of the Act comes to fall under any of the following, revoke such extension of payment due date, or the decision to allow such installment payments, and collect it in a lump sum: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. where the person fails to pay a penalty for which the payment in installments has been decided, within the payment due date thereof;
2. where the person fails to implement an order necessary for a change of security or other security integrity, which is given by the Korea Communications Commission; or
3. where it is deemed that the whole or remainder of a penalty is uncollectible, such as the compulsory execution, commencement of auction, adjudication of bankruptcy, dissolution of a juristic person or dispositions on national or local taxes in arrears, etc.
68
Article 63 (Classification and Appraisal, etc. of Securities)
The provisions of Articles 29 through 34 of the Framework Act on National Taxes, and of Articles 13 through 17 of its Enforcement Decree shall apply mutatis mutandis to the provision of security under Article 91 of the Act. <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
Article 64 (Important Communications)
(1) The term important communications in Article 92(2)3 of the Act means: <Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
1. business telecommunications related to the national security, military affairs, public peace and order, civil defense alarm transmission and radio wave control; or
2. other communications publicly notified by the Korea Communications Commission in order to efficiently perform the State affairs.
(2) The government may grant a subsidy for the expenses required for the construction and management of the important communications in order to secure the important communications under paragraph (1).
Article 65 (Delegation of Authority)
The Korea Communications Commission shall delegate the authority falling under any of the following to the Director General of the Central Radio Management Office pursuant to Article 93 of the Act <Amended July 3, 2008; No. 21060, Oct. 1, 2008; No. 22616 Oct. 1, 2010>:
1. registration and imposition of registration criteria of specific communications business under Article 21 of the Act;
2. acceptance of a report on the value-added communications business under the text of Article 22(1) of the Act;
69
3. acceptance of a modified registration for the specific communications business, and of a modified report for value-added communications business, under Article 23 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 24 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 26 of the Act;
6. order to cancel registration of or suspend a specific communications business under Article 27(1) of the Act;
7. order to closedown or suspend a value added communications business under Article 27(2) of the Act;
8. acceptance of installation and modification applications concerning proprietary telecommunication facilities under Article 64(1) of the Act
9. confirmation of installation and amendment constructions concerning proprietary telecommunication facilities under Article 64(3)
10. order to handle telecommunications business or connect with other telecommunication facilities given to the persons who installed proprietary telecommunication facilities under Article 66(1) of the Act
11. order to correct given to the persons who installed proprietary telecommunication facilities under Article 67(1) of the Act
12. order to cease usage of, modify/repair or take other measures in regard to proprietary telecommunication facilities under Article 67(2) and (3)
13. permission for a felling or transplanting of the plants under the former part of Article 75 (3) of the Act;
70
14. inspection of and demand for reports from persons who have installed telecommunication facilities under Article 82(1) of the Act
15. telecommunication facilities removal or other corrective order under Article 82(2) of the Act
16. acceptance of applications by specific communication business operators for agreements on settlement of charges for international telecommunication services under Article 86(3) of the Act
17. hearing on the order to cancel registration of a specific communications business or to closedown a value-added communications business under Article 89(2) and (3) of the Act;
18. imposition and collection of surcharge under Article 90 of the Act and permission for extension of time limit for payment of and payment in installment of such surcharge under Article 91 of the Act, except against a key communications business operator;
19. correction order under Article 92(1) of the Act, except against a key communications business operator;
20. order to suspend the provision of telecommunications service or to remove telecommunications facilities under Article 92(3) of the Act, except against a key communications business operator;
21. imposition and collection of surcharge under Article 104 of the Act, except against a key communications business operator.
Chapter 7. PENAL PROVISIONS <Newly Inserted by Act No. 22616 Oct. 1, 2010>
Article 66 (Imposition Criteria for Fine)
The imposition criteria for fine imposed under Article 104(1) through (4) of the Act are set forth in Table 8.
[This Article Newly Inserted by Act No. 22616 Oct. 1, 2010]
71
ADDENDA <Enforcement Decree No. 22616, Jan. 4, 2011>
Article 1 (Enforcement Date) This Decree shall take effect on the date of announcement.
Article 2 and Article 6 Omitted.
Article 8 (Amendments to Other Laws)
The Enforcement Decree of the Telecommunication Business Act shall be amended as follows. In Article 21, Article 3(8) to (10) of the Regulation on Technological Standard for Telecommunication Facilities shall be replaced with Article 3(1)8 to 10 of the Regulation on Technological Standard for Broadcasting Telecommunication Facilities.
72
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