As filed with the Securities and Exchange Commission on April 28, 2017
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
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2016 |
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) |
KT Gwanghwamun Building East
33, Jong-ro 3-Gil, Jongno-gu
03155 Seoul, Korea
(Address of principal executive offices)
Kwang Suk Shin
KT Gwanghwamun Building East
33, Jong-ro 3-Gil, Jongno-gu
03155 Seoul, Korea
Telephone: +82-31-727-0114; E-mail: ks.shin@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 ordinary share | ||
Ordinary share, par value ₩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, 2016, there were 244,971,643 ordinary shares, par value ₩5,000 per share, outstanding
(not including 16,140,165 ordinary shares held by the registrant 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 ☒ 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 ☒
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 ☒ 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, a non-accelerated filer, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
The term new or revised financial accounting standard refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
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 ☐
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 ☐
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 ☒
* | Not for trading, but only in connection with the registration of the American Depositary Shares. |
i
TABLE OF CONTENTS
(continued)
ii
TABLE OF CONTENTS
(continued)
Page | ||||||||
ITEM 14. |
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 128 | ||||||
ITEM 15. |
CONTROLS AND PROCEDURES | 128 | ||||||
ITEM 16. |
[RESERVED] | 129 | ||||||
Item 16A. | Audit Committee Financial Expert | 129 | ||||||
Item 16B. | Code of Ethics | 129 | ||||||
Item 16C. | Principal Accountant Fees and Services | 130 | ||||||
Item 16D. | Exemptions from the Listing Standards for Audit Committees | 130 | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 131 | ||||||
Item 16F. | Change in Registrants Certifying Accountant | 131 | ||||||
Item 16G. | Corporate Governance | 131 | ||||||
Item 16H. | Mine Safety Disclosure | 132 | ||||||
133 | ||||||||
ITEM 17. |
FINANCIAL STATEMENTS | 133 | ||||||
ITEM 18. |
FINANCIAL STATEMENTS | 133 | ||||||
ITEM 19. |
EXHIBITS | 133 | ||||||
135 |
iii
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 ₩ 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. (the Market Average Exchange Rate) on the balance sheet dates, which were, for U.S. dollars, ₩1,099.2 to US$1.00, ₩1,172.0 to US$1.00 and ₩1,208.5 to US$1.00 on December 31, 2014, 2015 and 2016, 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, 2016 have been translated into United States dollars at the rate of ₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016.
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 (the KCC) 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 (Consolidated Financial Statements) as of December 31, 2015 and 2016 and for each of the years in the three-year period ended December 31, 2016, and the report of the independent registered public accounting firm on these statements included herein. These audited financial statements and the related notes have been prepared under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The selected consolidated financial data for the three years ended December 31, 2016 have been derived from our audited consolidated financial statements.
In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with IFRS as adopted by the Republic of Korea (K-IFRS), which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea (FSCMA). English translations of such financial statements are furnished to the Securities and Exchange Commission under Form 6-K. During the three years ended December 31, 2016, we are required to adopt certain amendments and interpretations to K-IFRS, relating to presentation of operating profit. Additionally, under K-IFRS, revenue from the development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. Furthermore, in connection with the exercise of early redemption rights for certain commercial paper guaranteed by KT ENGCORE Co., Ltd. (formerly known as KT ENS Corporation until April 2015) (KT ENGCORE), our previously consolidated subsidiary until August 2014, we recognized financial losses relating to the resulting estimation of guarantee liabilities in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for the year ended December 31, 2013 (which were issued on April 28, 2014), which were not reflected in our financial statements prepared in accordance with K-IFRS for the year ended December 31, 2013 (which were issued on March 13, 2014) as it was not possible to make a reasonable estimate of the liabilities at the time of issuing the K-IFRS financial statements. We subsequently reflected such losses in our K-IFRS financial statements for the year ended December 31, 2014. As a result, the presentation of operating results in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating results in our consolidated statements of operations prepared in accordance with K-IFRS. See Item 5. Operating and Financial Review and ProspectsItem 5.A. Operating ResultsExplanatory Note Regarding Presentation of Certain Financial Information under K-IFRS for additional information.
The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with Item 5. Operating and Financial Review and Prospects and our Consolidated Financial Statements and related notes included in this annual report.
2
Consolidated statement of operations data
Year Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2016 (1) | |||||||||||||||||||
(In billions of Won and millions of Dollars, except per share data) | ||||||||||||||||||||||||
Continuing Operations: |
||||||||||||||||||||||||
Operating revenue |
₩ | 24,110 | ₩ | 23,146 | ₩ | 22,613 | ₩ | 22,700 | ₩ | 23,121 | US$ | 19,132 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenue |
23,323 | 22,818 | 22,359 | 22,212 | 22,755 | 18,829 | ||||||||||||||||||
Others |
787 | 328 | 253 | 488 | 366 | 303 | ||||||||||||||||||
Operating expenses |
22,433 | 22,911 | 23,392 | 21,623 | 21,781 | 18,023 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating profit |
1,677 | 235 | (779 | ) | 1,077 | 1,340 | 1,109 | |||||||||||||||||
Finance income |
498 | 278 | 253 | 273 | 296 | 245 | ||||||||||||||||||
Finance costs |
(780 | ) | (633 | ) | (792 | ) | (645 | ) | (515 | ) | (426 | ) | ||||||||||||
Income from jointly controlled entities and associates |
18 | 7 | 19 | 6 | 3 | 2 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Profit (loss) from continuing operations before income tax |
1,413 | (114 | ) | (1,299 | ) | 711 | 1,123 | 930 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax expense (benefit) |
278 | 12 | (271 | ) | 227 | 328 | 272 | |||||||||||||||||
Profit (loss) for the year from the continuing operations |
1,135 | (126 | ) | (1,028 | ) | 484 | 795 | 658 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Discontinued operations: |
||||||||||||||||||||||||
Profit (loss) from discontinued operations |
(30 | ) | 38 | 86 | 141 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Profit (loss) for the year |
₩ | 1,105 | ₩ | (88 | ) | ₩ | (941 | ) | ₩ | 625 | ₩ | 795 | US$ | 658 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Profit (loss) for the year attributable to: |
||||||||||||||||||||||||
Equity holders of the parent company |
₩ | 1,046 | ₩ | (190 | ) | ₩ | (1,030 | ) | ₩ | 546 | ₩ | 708 | US$ | 586 | ||||||||||
Profit (loss) from continuing operations |
1,070 | (216 | ) | (1,094 | ) | 404 | 708 | 586 | ||||||||||||||||
Profit (loss) from discontinued operations |
(24 | ) | 26 | 64 | 142 | | | |||||||||||||||||
Non-controlling interest |
₩ | 59 | ₩ | 102 | ₩ | 89 | ₩ | 78 | ₩ | 87 | US$ | 72 | ||||||||||||
Profit from continuing operations |
64 | 90 | 66 | 80 | 87 | 72 | ||||||||||||||||||
Profit (loss) from discontinued operations |
(5 | ) | 12 | 22 | (1 | ) | | | ||||||||||||||||
Earnings per share attributable to the equity holders of the Parent Company during the period (in won): |
||||||||||||||||||||||||
Basic earnings (loss) per share |
₩ | 4,296 | ₩ | (779 | ) | ₩ | (4,215 | ) | ₩ | 2,231 | ₩ | 2,893 | US$ | 2 | ||||||||||
From continuing operations |
4,396 | (885 | ) | (4,477 | ) | 1,650 | 2,893 | 2 | ||||||||||||||||
From discontinued operations |
(100 | ) | 106 | 262 | 581 | | | |||||||||||||||||
Diluted earnings (loss) per share |
₩ | 4,295 | ₩ | (782 | ) | ₩ | (4,215 | ) | ₩ | 2,231 | ₩ | 2,891 | US$ | 2 | ||||||||||
From continuing operations |
4,395 | (888 | ) | (4,477 | ) | 1,650 | 2,891 | 2 | ||||||||||||||||
From discontinued operations |
(100 | ) | 106 | 262 | 581 | | |
3
Consolidated statement of financial position data
As of December 31, | ||||||||||||||||||||||||
Selected Statement of Financial Position Data | 2012 | 2013 | 2014 | 2015 | 2016 | 2016 (1) | ||||||||||||||||||
(In billions of Won and millions of Dollars) | ||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
₩ | 2,058 | ₩ | 2,071 | ₩ | 1,889 | ₩ | 2,559 | ₩ | 2,900 | US$ | 2,400 | ||||||||||||
Trade and other receivables, net |
6,916 | 6,373 | 5,780 | 4,854 | 5,327 | 4,408 | ||||||||||||||||||
Other financial assets |
246 | 480 | 333 | 293 | 721 | 596 | ||||||||||||||||||
Current income tax assets |
1 | 35 | 4 | 4 | 2 | 2 | ||||||||||||||||||
Inventories, net |
935 | 674 | 419 | 617 | 455 | 376 | ||||||||||||||||||
Other current assets |
362 | 340 | 350 | 317 | 311 | 257 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
10,517 | 9,972 | 8,774 | 8,643 | 9,716 | 8,039 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-current assets: |
||||||||||||||||||||||||
Trade and other receivables, net |
2,108 | 1,739 | 1,759 | 704 | 709 | 587 | ||||||||||||||||||
Other financial assets |
672 | 673 | 705 | 658 | 665 | 550 | ||||||||||||||||||
Property and equipment, net |
15,806 | 16,387 | 16,468 | 14,479 | 14,312 | 11,843 | ||||||||||||||||||
Investment property, net |
1,155 | 1,105 | 1,060 | 1,102 | 1,148 | 950 | ||||||||||||||||||
Intangible assets, net |
3,214 | 3,827 | 3,544 | 2,600 | 3,023 | 2,501 | ||||||||||||||||||
Investments in jointly controlled entities and associates |
379 | 364 | 339 | 270 | 284 | 235 | ||||||||||||||||||
Deferred income tax assets |
611 | 707 | 1,079 | 845 | 701 | 580 | ||||||||||||||||||
Other non-current assets |
95 | 76 | 72 | 102 | 106 | 88 | ||||||||||||||||||
Total non-current assets |
24,040 | 24,878 | 25,025 | 20,761 | 20,948 | 17,335 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
₩ | 34,558 | ₩ | 34,850 | ₩ | 33,799 | ₩ | 29,404 | ₩ | 30,664 | US$ | 25,374 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Equity: |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Trade and other payables |
₩ | 7,235 | ₩ | 7,433 | ₩ | 6,428 | ₩ | 6,335 | ₩ | 7,140 | US$ | 5,908 | ||||||||||||
Borrowings |
3,197 | 3,021 | 2,956 | 1,726 | 1,820 | 1,506 | ||||||||||||||||||
Other financial liabilities |
72 | 64 | 24 | 44 | 1 | 1 | ||||||||||||||||||
Current income tax liabilities |
144 | 100 | 46 | 81 | 89 | 73 | ||||||||||||||||||
Provisions |
206 | 115 | 111 | 104 | 96 | 80 | ||||||||||||||||||
Deferred income |
171 | 144 | 144 | 98 | 36 | 29 | ||||||||||||||||||
Other current liabilities |
242 | 348 | 279 | 311 | 342 | 283 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
11,267 | 11,224 | 9,987 | 8,699 | 9,524 | 7,880 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Non-current liabilities: |
||||||||||||||||||||||||
Trade and other payables |
729 | 1,108 | 944 | 669 | 1,188 | 983 | ||||||||||||||||||
Borrowings |
8,239 | 8,463 | 9,860 | 6,909 | 6,301 | 5,214 | ||||||||||||||||||
Other financial liabilities |
70 | 179 | 191 | 104 | 108 | 90 | ||||||||||||||||||
Retirement benefit liabilities |
549 | 586 | 594 | 524 | 378 | 313 | ||||||||||||||||||
Provisions |
150 | 134 | 106 | 91 | 101 | 83 | ||||||||||||||||||
Deferred income |
157 | 148 | 147 | 96 | 85 | 71 | ||||||||||||||||||
Deferred income tax liabilities |
137 | 169 | 144 | 130 | 138 | 114 | ||||||||||||||||||
Other non-current liabilities |
41 | 2 | 39 | 27 | 59 | 49 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total non-current liabilities |
10,073 | 10,789 | 12,025 | 8,550 | 8,358 | 6,916 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
₩ | 21,340 | ₩ | 22,013 | ₩ | 22,012 | ₩ | 17,249 | ₩ | 17,882 | US$ | 14,796 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Equity attributable to owners of the Parent Company |
||||||||||||||||||||||||
Paid-in capital |
||||||||||||||||||||||||
Share capital |
₩ | 1,564 | ₩ | 1,564 | ₩ | 1,564 | ₩ | 1,564 | ₩ | 1,564 | US$ | 1,295 | ||||||||||||
Share premium |
1,440 | 1,440 | 1,440 | 1,440 | 1,440 | 1,192 | ||||||||||||||||||
Retained earnings |
10,646 | 10,019 | 8,568 | 9,050 | 9,644 | 7,981 | ||||||||||||||||||
Accumulated other comprehensive income (expense) |
1 | 25 | 26 | 14 | (1 | ) | (1 | ) | ||||||||||||||||
Other components of equity |
(1,343 | ) | (1,321 | ) | (1,261 | ) | (1,233 | ) | (1,218 | ) | (1,008 | ) | ||||||||||||
12,309 | 11,728 | 10,338 | 10,836 | 11,430 | 9,458 | |||||||||||||||||||
Non-controlling interest |
909 | 1,110 | 1,449 | 1,320 | 1,353 | 1,119 | ||||||||||||||||||
Total equity |
13,218 | 12,837 | 11,788 | 12,156 | 12,783 | 10,577 | ||||||||||||||||||
Total liabilities and equity |
₩ | 34,558 | ₩ | 34,850 | ₩ | 33,799 | ₩ | 29,404 | ₩ | 30,664 | US$ | 25,374 |
4
Consolidated statement of cash flow data
Year Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2016 (1) | |||||||||||||||||||
(In billions of Won and millions of Dollars) | ||||||||||||||||||||||||
Net cash generated from operating activities |
₩ | 5,725 | ₩ | 4,111 | ₩ | 1,916 | ₩ | 4,230 | ₩ | 4,771 | US$ | 3,948 | ||||||||||||
Net cash provided by (used in) investing activities |
(3,851 | ) | (3,783 | ) | (3,171 | ) | (2,402 | ) | (3,485 | ) | (2,884 | ) | ||||||||||||
Net cash provided by (used in) financing activities |
(1,278 | ) | (312 | ) | 1,072 | (1,164 | ) | (943 | ) | (781 | ) |
Operating Data
As of December 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
Lines installed (thousands) (2) |
25,242 | 24,264 | 23,930 | 23,607 | 24,858 | |||||||||||||||
Lines in service (thousands) (2) |
15,121 | 14,032 | 13,713 | 12,440 | 11,871 | |||||||||||||||
Lines in service per 100 inhabitants (2) |
29.7 | 27.4 | 26.7 | 24.6 | 23.0 | |||||||||||||||
Mobile subscribers (thousands) |
16,502 | 16,454 | 17,300 | 18,038 | 18,892 | |||||||||||||||
Broadband Internet subscribers (thousands) |
8,037 | 8,067 | 8,129 | 8,328 | 8,516 |
(1) | For convenience, the Won amounts are expressed in U.S. dollars at the rate of ₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016. This translation should not be construed as a representation that the Won amounts represent, have been or could be converted into U.S. dollars at that rate or any other rate. |
(2) | 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) | ||||||||||||||||
2010 |
1,138.9 | 1,156.3 | 1,261.5 | 1,104.0 | ||||||||||||
2011 |
1,153.3 | 1,108.1 | 1,199.5 | 1,049.5 | ||||||||||||
2012 |
1,071.1 | 1,126.9 | 1,181.8 | 1,071.1 | ||||||||||||
2013 |
1,055.3 | 1,095.0 | 1,159.1 | 1,051.5 | ||||||||||||
2014 |
1,099.2 | 1,053.2 | 1,118.3 | 1,008.9 | ||||||||||||
2015 |
1,172.0 | 1,131.5 | 1,203.1 | 1,068.1 | ||||||||||||
2016 |
1,208.5 | 1,160.5 | 1,240.9 | 1,093.2 | ||||||||||||
November |
1,168.5 | 1,161.6 | 1,183.6 | 1,137.5 | ||||||||||||
December |
1,208.5 | 1,182.3 | 1,208.5 | 1,159.1 | ||||||||||||
2017 (through April 25) |
1,131.7 | 1,149.8 | 1,208.5 | 1,112.5 | ||||||||||||
January |
1,157.8 | 1,185.1 | 1,208.5 | 1,157.8 | ||||||||||||
February |
1,132.1 | 1,144.9 | 1,165.5 | 1,131.0 | ||||||||||||
March |
1,116.1 | 1,134.8 | 1,158.2 | 1,112.5 | ||||||||||||
April (through April 25) |
1,131.7 | 1,133.5 | 1,145.8 | 1,113.8 |
Source: Seoul Money Brokerage Services, Ltd.
(1) | Represents the average of the Market Average Exchange Rates on each business day during the relevant period (or portion thereof). |
Our monetary assets and liabilities denominated in foreign currency are translated into Won at the Market Average Exchange Rate on the balance sheet dates, which were, for U.S. dollars, ₩1,099.2 to US$1.00, ₩1,172.0 to US$1.00 and ₩1,208.5 to US$1.00, at December 31, 2014, 2015 and 2016, 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, 2016 have been translated into United States dollars at the rate of ₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016.
5
We make no representation that the Won or Dollar amounts contained in this annual report could have been or could be converted into Dollar or Won, as the case may be, at any particular rate or at all.
Item 3.B. Capitalization and Indebtedness
Not applicable.
Item 3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
You should carefully consider the following factors.
Risks Relating to Our Company and 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. (SK Telecom) acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband Co., Ltd. (SK Broadband). The acquisition enabled SK Telecom to provide fixed-line telecommunications, broadband Internet access and Internet Protocol Television (IPTV) services together with its mobile telecommunications services. In January 2010, LG Dacom Corporation (LG Dacom) and LG Powercom Co., Ltd. (LG Powercom) merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enabled 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.
In addition to our competition with integrated telecommunications service providers, we face increasing competition from specific service providers, such as Internet phone service providers, Internet text message service providers, voice resellers and call-back service providers. In recent years, the increasing popularity of Internet phone and free text message services, such as Skype and Kakao Talk, has had a negative impact on demand for our telecommunications and text message services while creating additional data transmission usage by our Internet and mobile subscribers. 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 Wideband Code Division Multiple Access (W-CDMA) technology and Long-Term Evolution (LTE) technology. Competitors in the mobile telecommunications service industry are SK Telecom and LG U+. We had a market share of 30.6% as of December 31, 2016, making us the second largest mobile telecommunications service provider in Korea. SK Telecom had a market share of 49.1% as of December 31, 2016. 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. Such mobile number portability and handset subsidies previously intensified competition among the mobile service providers and increased their marketing expenses. In addition, wide variation in subsidy amounts paid to subscribers led to concerns relating to consumer discrimination over time. Consequently, in order to enhance transparency in subsidy amounts paid to
6
subscribers, the Act on Improvement of Mobile Telecommunication Device Distribution System (the Handset Distribution Reform Act), which limits the amount of handset subsidies offered by service providers, was enacted in October 2014. As a result, price competition through handset subsidies has become less prevalent. However, if regulations are amended to allow a greater amount of subsidies and mobile service providers adopt a strategy of expanding market share through price competition, it could lead to a decrease in our net profit margins.
Since 2011, SK Telecom, LG U+ and we have launched fourth-generation (4G) mobile telecommunications services based on LTE technology, which has further intensified competition among the three companies and resulted in an increase in marketing expenses and capital expenditures related to implementing and providing 4G LTE services. Furthermore, as SK Telecom, LG U+ and we continue to compete to improve network quality in order to accommodate increased data usage of subscribers, we may incur significant expenses to acquire additional bandwidth spectrums and various fixed assets. We believe that the continuing intense competition among major telecommunications operators in Korea may have a material adverse impact on our results of operations.
Fixed-line Telephone Services. Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. Since then, various competitors have entered the local, domestic long-distance and international long-distance telephone service markets in Korea, which have eroded our market shares. LG U+ and SK Broadband currently provide local, domestic long-distance and international long-distance telephone services. In addition, Sejong Telecom, Inc. (formerly, Onse Telecom Corporation) and SK Telink, Inc. currently provide domestic long-distance and international long-distance telephone services. We also compete with specific service providers, such as Internet phone service providers, voice resellers and call-back service providers that offer 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 services. As of December 31, 2016, we had a market share in local telephone service of 80.6% and a market share in domestic long-distance service of 78.9%. Further increase in competition may decrease our market shares in such services. As part of our efforts to improve our operational efficiencies, we transferred all operations relating to fixed-line sales activities (including on-site sales, line activation, after service, and customer center operations) to our subsidiaries in 2014.
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 (HFC) and Asymmetric Digital Subscriber Line (ADSL) services. We also began offering broadband Internet access service in 1999, followed by Dreamline, Sejong 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 41.4% as of December 31, 2016. 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 IPTV 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 domestic and international competitors newly enter the Internet industry in Korea or expand product offerings such as gigabit Internet service. 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.
7
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 a service provider. We currently use 40 MHz of bandwidth in the 2.1 GHz spectrum, of which 20 MHz is used for our 4G LTE services and the remaining 20 MHz of bandwidth for our IMT-2000 services based on W-CDMA wireless network standards. We also use 20 MHz of bandwidth in the 900 MHz spectrum and 35 MHz of bandwidth in the 1.8 GHz spectrum for our 4G LTE services. We also use 20 MHz of bandwidth in the 1.8 GHz spectrum, which we acquired in May 2016 for our Wideband LTE-A services. For more information on our licenses to bandwidth spectrum, see Item 4. Information on the CompanyItem 4.D. Property, Plants and EquipmentMobile Networks.
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. Furthermore, we may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand, which may adversely affect our financial condition and results of operations.
Introduction of new services, including our 4G LTE 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 (WiBro) service for ₩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 84 cities nationwide and major highways in March 2011, which we believe allows 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 506,000 subscribers as of December 31, 2016. The number of our WiBro subscribers decreased in 2016 compared to 2015, as more WiBro subscribers chose to access the Internet using our 4G LTE network rather than WiBro following the proliferation of 4G LTE services since 2013. Furthermore, we focused our subscriber retention efforts during 2016 on our mobile subscribers rather than our WiBro subscribers. We are also continually upgrading our broadband network to enable better fiber-to-the-home (FTTH) connection, which enhances data transmission 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 also enables us to deliver digital media content, such as IPTV, with higher stability.
In addition, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to as 4G technology, and commenced providing
8
commercial 4G LTE services in the Seoul metropolitan area in January 2012. We completed the expansion of our 4G LTE service coverage nationwide in October 2012. Several wireless carriers in the United States, Europe and Asia commenced LTE services in recent years and LTE technology is currently widely accepted as the standard 4G technology. LTE technology enables data to be transmitted faster than W-CDMA, generally providing a downloading speed of 75 Mbps per 10 MHz. We introduced the GiGA LTE service in June 2015, linking Wideband LTE-A X4 and wireless LAN service (WiFi) signals and thereby increasing data transmission speed to up to 1.17 Gbps for downloading. In addition, our use of 20 MHz of bandwidth in the 1.8 GHZ spectrum, acquired in May 2016, further enhances the quality of our LTE services through intra-band carrier aggregation technology. We believe that the faster data transmission speed of the LTE network allows us to offer significantly improved wireless data transmission services with faster wireless access to multimedia content. Accordingly, we have made extensive efforts to develop advanced technologies as well as to provide a variety of services with enhanced speed, latency and connectivity. However, 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.
We may not be able to successfully pursue our strategy to acquire businesses and enter into joint ventures that complement or diversify our current business, and we may need to incur additional debt to finance such expansion activities.
One key aspect of our overall business strategy calls for acquisitions of businesses and entering into joint ventures that complement or diversify our current business. In March 2014, the investment business division of KT Capital Co., Ltd., including 3,059,560 common shares of BC Card Co., Ltd. that KT Capital Co., Ltd. held, was spun off and merged into KT Corporation. On August 20, 2015, we and our consolidated subsidiary, KT Hitel Co., Ltd., sold the entire 100% stake of KT Capital Co., Ltd. to JCF III K Holdings LLC for a total of ₩299 billion. In January 2011, we acquired 5,600,000 shares of redeemable convertible preferred stock with voting rights and convertible bonds that were convertible into 5,600,000 shares of common stock of KT Skylife Co., Ltd. (KT Skylife), a provider of satellite TV service which may also be packaged with our IPTV services, from Dutch Savings Holdings B.V. for approximately ₩246 billion. We exercised the conversion rights on the redeemable convertible preferred stock and the convertible bonds in March 2011, and owned a 50.3% interest in KT Skylife as of December 31, 2016. In March 2015, KT Media Hub Co., Ltd. was merged into KT Corporation to increase management efficiency and promote synergy among our existing businesses.
While we plan to continue our search for other suitable acquisition and joint venture opportunities, we cannot provide assurance that we will be able to identify additional attractive opportunities or that we will successfully complete the transactions, without encountering administrative, technical, political, financial or other difficulties, or at all. Even if we were to successfully complete the transactions, success of an acquisition or a joint venture depends largely on our ability to achieve the anticipated synergies, cost savings and growth opportunities from integrating the business of the acquired company or the joint venture with our business. There can be no assurance that we will achieve the anticipated benefits of the transaction, which may adversely affect our business, financial condition and results of operations.
Pursuing acquisitions or joint venture transactions also requires significant capital, and as we pursue further growth opportunities for the future, we may need to raise additional capital through incurring loans or through issuances of bonds or other securities in the international capital markets.
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
9
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 extended 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 November 15, 2017. 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 Ministry of Science, ICT & Future Planning (the MSIP) (ICT standing for Information & Communication Technology) and the KCC, has authority to regulate the telecommunications industry. Until March 2013, regulation of the telecommunications industry had mainly been the responsibility of the KCC. With the establishment of the newly created MSIP on March 23, 2013, however, such regulatory responsibility has mostly been transferred to the MSIP. The MSIPs policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors.
Under current Government regulations, if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the MSIP, it must obtain prior approval from the MSIP for the rates and the general terms for that service. Each year, the MSIP designates service providers whose rates and general terms of service must be approved by the MSIP. In recent years, the MSIP had designated us for local telephone service and SK Telecom for mobile service, and the MSIP, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us and SK Telecom for such services.
The MSIP 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 MSIP. In addition, the MSIP may periodically announce public policy guidelines or suggestions that we take into consideration in setting our tariffs for non-regulated services. As a result of discussions with the MSIP, after a series of reductions, we completely abolished our activation fee relating to our mobile services in March 2015. In December 2015, we decided to lower our early termination fee to 25.1% of the existing fees relating to our broadband Internet access service, Internet phone or IPTV or such products bundled with our fixed-line telephone service. We implemented such policy in July 2016. There can be no assurance that we will not adopt other tariff-reducing measures in the future to comply with the Governments public policy guidelines or suggestions.
The MSIP may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue
10
for the preceding three fiscal years. For example, in December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being approximately ₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. In March 2014, the MSIP imposed a 45-day suspension on each of us, SK Telecom and LG U+ from accepting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. Additionally, the MSIP announced that it plans to bring criminal charges with fines of up to ₩150 million and imprisonment of less than three years against any carrier and responsible personnel that fails to adhere to the suspension or continues to offer illegal subsidies after the suspension is completed. In August 2014, the KCC again imposed a combined fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for providing excessive handset subsidies, and also imposed temporary suspensions on accepting new subscribers for seven days on SK Telecom and LG U+. In December 2014, the KCC further imposed a fine of approximately ₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies and in March 2015, the KCC again imposed a combined fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other telecommunications operators were promoting. On March 12, 2015, the KCC imposed a fine of ₩870 million for violation of restrictions on handset subsidies relating to our compensation program for used handsets. On June 24, 2015, the KCC imposed a fine of ₩52 million for violating privacy related regulations and undermining consumer interests. On July 31, 2015 and January 19, 2016, the KCC imposed a fine of ₩350 million and ₩560 million, respectively, on us for infringing upon consumer interests by advertising false and exaggerated information about bundled products. On March 8, 2016, the KCC imposed a fine of ₩32 million on us for offering excessively reduced rates and waivers to certain customers. On December 6, 2016, the KCC imposed a combined fine of approximately ₩10.7 billion on SK Telecom, LG U+, SK Broadband, t-broad, Dlive, CJ HelloVision and us (our fine being approximately ₩2.3 billion) and ordered to take corrective measures for providing excessive promotional gifts to bundled products customers. For more information about the penalties imposed for violating Government regulations, see Item 8. Financial InformationItem 8.A. Consolidated Statements and Other Financial InformationLegal Proceedings. The revocation of our licenses, suspension of our business or imposition of monetary penalties by the MSIP could have a material adverse effect on our business.
On October 1, 2014, the Handset Distribution Reform Act went into effect. The Handset Distribution Reform Act regulates, among other matters, the sale and subsidies of mobile devices such as smartphones, with one of its purposes being to induce telecommunication operators to compete in lowering the costs of communications and encourage the manufacturers to reduce handset factory prices, while improving service quality. Under the Handset Distribution Reform Act, consumers may not be discriminated in terms of subsidies based on their age, place of residence or monthly subscription plan when using their existing mobile phones, buying a new phone or switching their mobile carriers. Furthermore, everyone, regardless of their status, is entitled to receive either a handset subsidy for the purchase of mobile phone models that were launched within the last 15 months, or a tariff discount (with the current discount rate set at 20%, effective since April 24, 2015). The maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer is determined by Korean telecommunication regulators (such limit to be determined between ₩250,000 and ₩350,000, and may be adjusted every six months, with the current limit set at ₩330,000, effective since April 8, 2015). Telecommunications operators are also required to publicly announce the amount of handset subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or exaggerated advertisements, such as advertisements that mobile phones are free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.
11
The Government also sets the policies regarding the use of radio frequencies and allocates the spectrum of radio frequencies used for wireless telecommunications by an auction process or by a planned allocation. For a discussion of the Governments recent policies and practices on bandwidth spectrum allocation, see Item 3.D. Risk FactorsFailure 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. 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 (IP) media market, and we began offering IPTV services in November 2008. IPTV is a service which combines video-on-demand services with real-time high definition broadcasting via broadband networks. The MSIP and the KCC have the authority to regulate IPTV services. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IPTV services business must first obtain a license from the MSIP. Moreover, anyone intending to provide linear channel programs focused on news or contents that generally combine news, culture entertainment, and any other similar contents with IPTV providers, must obtain approval from the KCC. Furthermore, anyone intending to provide contents relating to the introduction of consumer products and other similar marketing linear channel programs with IPTV providers must obtain additional approval from the MSIP. In addition, KT Skylife (formerly Korea Digital Satellite Broadcasting Co., Ltd.), which became our consolidated subsidiary starting in January 2011, offers satellite TV services, which may also be packaged with our IPTV services. KT Skylife is also subject to regulation by the MSIP and the KCC pursuant to the Korea Broadcasting Act. In March 2015, amendments to the Internet Multimedia Broadcasting Business Act were promulgated. Under such amendments, a single pay TV operator (including its affiliates) may not have more than one-third of the market share of all pay TV subscribers in Korea. The restriction on market share is in effect until June 27, 2018.
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) could impose restrictions on our business operations, which could have a material adverse effect on our operations and financial condition, and may also change in ways that could materially and adversely affect us. See Item 4. Information on the CompanyItem 4.B. Business OverviewRegulation.
The pending legal cases against Mr. Suk-chae Lee, our former chief executive officer, and other former executive officers or directorsand related adverse publicitycould have a material adverse effect on our business, reputation and stock price.
In April 2014, the Seoul Central District prosecutors office charged Mr. Suk-chae Lee, our former chief executive officer who resigned in November 2013, with embezzlement and breach of fiduciary duty. Mr. Il Yung Kim, our former standing director and former president of the KT Corporate Center, was charged as a co-conspirator in the breach of fiduciary duty by Mr. Lee, and Mr. Yu-yeol Seo, our former president of Home Business Group, was charged as a co-conspirator in Mr. Lees embezzlement. On September 24, 2015, the Seoul District Court acquitted Mr. Lee of the charges of embezzlement and breach of fiduciary duty. Mr. Kim and Mr. Seo were also acquitted of the conspiracy charges. The prosecution has appealed the judgments and on May 27, 2016, the Seoul High Court found Mr. Lee and Mr. Seo guilty of embezzlement and sentenced them to 18 months of prison term, to be suspended for 2 years, for having embezzled and created off-the-books funds of ₩1.1 billion between 2009 and 2013, using such funds for personal purposes such as payments at weddings and funerals of Mr. Lees friends and acquaintances and Mr. Seos living and entertainment expenses. However, Mr. Lee and Mr. Kim were acquitted on the charge of breach of fiduciary duty. All of these
12
judgments have been appealed by the prosecution as well as Mr. Lee and Mr. Seo, and are currently pending before the Supreme Court of Korea.
The legal cases against Mr. Lee, Mr. Seo, and Mr. Kim do not involve charges of wrongdoing by us. Nevertheless, an adverse determination in any such case or proceeding may harm our reputation and adversely affect the trading price of our shares. The outcome of any related claims, investigations and proceedings is inherently uncertain and there can be no assurance that any further developments in the legal proceedings against Mr. Lee, Mr. Seo, and Mr. Kim, including adverse publicity, will not adversely affect our business, reputation or stock price.
Our charitable donations, employment of certain individuals and engagement of an advertising agency connected to a scandal involving Ms. Soon-sil Choi, a confidante of former President Geun-hye Park, could have a material adverse effect on our business, reputation and stock price.
In March 2017, the Constitutional Court of Korea found that many Korean corporations, including the Company, made donations to two non-profit foundations, Mir Foundation and K-Sports Foundation, at former President Parks request. Our contributions comprised ₩1.1 billion of the total ₩48.6 billion given to Mir Foundation and ₩700 million of the total ₩28.8 billion given to K-Sports Foundation. The Constitutional Court also found that, at the requests of an aide of former President Park, we hired (and later promoted) two individuals, Mr. Dong-Soo Lee and Ms. Hye-Sung Shin: Mr. Lee as the head of a business unit in charge of our marketing and advertisement campaigns and Ms. Shin to another position in the same business unit. Subsequently, the same aide of former President Park also requested Mr. Lee and our other officers to award advertising contracts to Playground Communications Co., Ltd. (Playground), an advertising agency over which Ms. Soon-sil Choi, a confidante of former President Park, effectively owns 70% equity interest, according to the Constitutional Court. Playground was awarded seven advertising contracts for a total of approximately ₩6.8 billion in 2016, amounting to approximately 3.7% of our annual advertising spending in 2016. In 2016, our payments to Playground amounted to approximately ₩517 million. We have not awarded additional advertising contract to Playground since September 2016, and Mr. Lee and Ms. Shin resigned from the Company in November 2016 and March 2016, respectively.
In April 2017, the Korean prosecution indicted former President Park on charges of bribery and coercion, among others. The coercion charge against former President Park includes, among other matters, charges relating to the: (i) employment and promotions of Mr. Lee and Ms. Shin at KT Corporation, (ii) entry into advertising contracts with Playground and (iii) donations to Mir Foundation and K-Sports Foundation by us and other Korean corporations. We cannot be certain at this time how the above-described matters and the publicity around them will develop. While we have not been charged with wrongdoing in connection with the above-mentioned matters, related allegations, claims, investigations and proceedings remain a possibility, and we cannot provide any assurances as to likely outcomes. There can be no assurance that any further developments relating to the above-mentioned matters, including adverse publicity, will not adversely affect our business, reputation or stock price.
The reported investigation, insolvency proceedings of and any adverse publicity associated with our previous subsidiary, KT ENGCORE, could have a material adverse effect on our business, reputation and stock price.
An employee of KT ENGCORE, our consolidated subsidiary until August 2014, and several companies, some of which are KT ENGCOREs subcontractors, allegedly worked together to forge documents, including a forged proof of accounts receivable, to incur borrowings, of which ₩290 billion remains unpaid, from 16 Korean banks since 2008 in over 460 transactions, which were allegedly secured by the forged accounts receivable and endorsed by KT ENGCORE. KT ENGCOREs management neither had knowledge of nor approved such transactions. On February 11, 2014, police
13
raided the offices of the subcontractors in connection with their investigation of the loans. Upon discovery of the incident, KT ENGCORE immediately suspended the employee in question without pay, pending the results of the investigations for any further disciplinary actions. The employee and several other persons involved in the incident were sentenced to prison terms by the Seoul Central District Court in August 2014 and by the appellate court subsequently.
In March 2014, KT ENGCORE filed for court receivership with the Seoul Central District Court, based on its inability to pay approximately ₩49 billion in commercial paper that became due after early redemption rights were exercised. The commercial paper had been issued in connection with construction of a solar power plant by a contractor of the project and guaranteed by KT ENGCORE. KT ENGCORE faced difficulties in preventing such exercise of redemption rights following the above incident, and we declined to provide additional financial support to KT ENGCORE to repay the redeemed commercial paper. In August 2014, the Seoul Central District Court approved KT ENGCOREs restructuring plan, and determined that KT ENGCORE is only responsible for 15% to 20% of the borrowings which remain unpaid, or approximately ₩46 billion. Pursuant to the plan, KT ENGCORE is expected to repay all of its currently outstanding obligations. The banks had appealed the decision of the Seoul Central District Court, and it was determined that KT ENGCORE is responsible for 30% to 40% of the borrowings which remain unpaid. The court decision was appealed and in February 2017, the Seoul High Court found that KT ENGCORE is responsible for 40% of the borrowings which remain unpaid. The appellate court decision was appealed to the Supreme Court of Korea. While KT ENGCOREs restructuring is unlikely to have a material impact on our results of operations or financial condition on a consolidated basis, as KT ENGCORE has not been our consolidated subsidiary since 2014 due to its filing for court receivership, and our interest in KT ENGCORE was classified as available-for-sale securities, any future legal proceedings against KT ENGCORE and/or us may lead to significant losses. Such losses, as well as any adverse publicity associated with the incident, could have a material adverse effect on our business, reputation and stock price.
The data breach incidents involving us in recent years have resulted in government investigations and civil litigation, and if our efforts to protect personal information of our subscribers are unsuccessful, future issues may result in further government enforcement actions and civil litigation and may significantly impact our results of operation and reputation.
The nature of our business involves the receipt and storage of personal information of our subscribers. The uninterrupted operation of our information systems and confidentiality of the customer information that resides in such systems are critical to our successful operations. As such, we have a program in place to detect and respond to data security incidents. However, even though we may take all steps we believe are necessary to protect personal information, hardware, software or applications we develop or procure from third parties may contain defects in design, manufacturing defects or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to circumvent our security measures to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees, contractors and temporary staff. In addition, because the techniques used to obtain unauthorized access or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures.
For example, in July 2012, the police arrested two third-party individuals in connection with the alleged theft of personal information relating to approximately 8.7 million of our mobile phone subscribers. The individuals in question stole personal information through a series of hackings starting from February 2012 into our New Service and Technology Evolution Program (N-STEP), our mobile customer information system. Since the incident, approximately 29,800 of our mobile phone
14
subscribers filed a total of 16 lawsuits against us in connection with the N-STEP hackings, alleging that we failed to protect their personal information, and are seeking total damages of approximately ₩15 billion. From August 2014 to October 2016, various district courts have awarded damages of ₩100,000 per plaintiff for 14 of the cases involving a total of approximately 29,000 of the subscribers, resulting in damages of approximately ₩3 billion to us, while the remaining trials are currently ongoing at various district courts. We have appealed the district courts decisions. In January 2017, we won one of the appeals and such appellate court decision was appealed to the Supreme Court. The other appeals are currently ongoing at the Seoul High Court.
Furthermore, in March 2014, the police arrested three third-party individuals in connection with their alleged theft of personal information relating to approximately 9.8 million of our subscribers. The individuals in question stole the personal information of our subscribers through a series of hackings into our main homepage starting from February 2014. Since the incident, approximately 15,000 subscribers filed 22 lawsuits against us in connection with the information theft, seeking total damages of approximately ₩7 billion. From November 2016 to February 2017, we won 14 trials, lost two trials and the remaining six trials are currently ongoing at various district courts. The plaintiffs of 10 of the 14 cases have appealed the district courts decisions to the Seoul High Court. We appealed the district courts decisions of the two trials where we lost. In June 2014, we were fined ₩85 million by the KCC and were ordered to take corrective measures in connection with the most recent hacking incident. We filed an administrative appeal in August 2014 in connection with the KCC fine and prevailed. The KCC appealed the administrative decision and the appeal is currently ongoing at the Seoul High Court.
We are unable to predict with any meaningful degree of certainty the outcome of these incidents at this time, including the scope of investigations or the maximum potential exposure. However, if we experience additional significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be subject to additional government enforcement actions, regulatory sanctions and litigation in the future. In addition, our mobile phone subscribers could lose confidence in our ability to protect their information, which could cause them to discontinue using our services altogether. Furthermore, adverse final determinations, decisions or resolutions regarding such matters could encourage other parties to bring related claims and actions against us. Accordingly, the outcome of these incidents may materially and adversely impact our business, reputation, results of operations and financial condition.
We are subject to various laws and regulations in Korea and other jurisdictions, including the Monopoly Regulation and Fair Trade Act of Korea and other laws and regulations governing our business activities and acts of our management and employees.
Our business operations and acts of our management, employees and other relevant parties are subject to various laws and regulations in and outside Korea. These laws are complicated and sometimes conflicting and our efforts to comply with these laws could increase our cost of doing business, restrict our business activities and expose us or our employees to legal sanctions and liabilities.
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 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 debt guarantees for other domestic member companies of the same group and cross-shareholdings among domestic member companies of the same group, as well as requiring disclosure of the status of such cross-shareholdings. Additionally, we are subject to a prohibition, in effect since July 25, 2014, against circular shareholding among any three or more entities within our business
15
group. For example, in 2015, we were fined ₩2 billion by the Korea Fair Trade Commission for using monopolistic status to exclude competitors in the corporate messaging business. In 2016, we were issued consent orders by the Korea Fair Trade Commission for unfairly comparative advertisements on quality and coverage of our LTE service. 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.
Certain of our business activities or acts of our management, employees or other relevant parties, including, without limitation, investigations, claims or legal proceedings involving our former chief executive officer Mr. Lee and incidents relating to the employment of certain executives and execution of certain advertising contracts described above, may raise concerns about compliance with laws of Korea and other relevant jurisdictions, including the United States. These various and sometimes conflicting laws and regulations include the U.S. Foreign Corrupt Practices Act and other laws prohibiting corrupt payments to governmental officials and commercial counterparties. Compliance with complex Korean and foreign laws and regulations that apply to our operations increases our cost of doing business. Failure to comply with these laws and regulations could also result in fines, penalties and criminal sanctions against us, our officers, or our employees, prohibitions on conduct of our business, and damage to our reputation. Criminal or civil investigation by Korean or other authorities may result in a material impact to our business or reputation, which in turn could impact our relationships with certain of our customers and business partners, and which potentially could give rise to additional regulatory inquiries in Korea or elsewhere. Defending us against any allegations or charges of wrongdoing also could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. There can be no assurance that we or our employees and other relevant parties will always be in full compliance with these laws and regulations, or that future legal or regulatory developments applicable to us will not have an adverse impact on our business, reputation or stock price.
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. In addition, to protect pre-school and elementary school children, the Office of Education in Gyeonggi-do, one of Koreas highly populated provinces, implemented an ordinance named Protective Ordinance for Social Groups Vulnerable to Electromagnetic Radiation in April 2016. The ordinance prohibits installation of cellular towers near pre-schools and elementary schools in Gyeonggi-do. In December 2016, the minister of the MSIP filed a petition with the Supreme Court to invalidate the ordinance. Certain legislators of Gyeonggi-do announced a plan to file a criminal complaint against the minister of the MSIP. 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.
16
Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities.
Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect the results of our operations because, among other things, it causes an increase in the amount of Won required by us to make interest and principal payments on our foreign-currency-denominated debt, the costs of telecommunications equipment that we purchase from overseas sources, net settlement payments to foreign carriers and certain payments related to our derivative instruments entered into for foreign exchange risk hedging purposes. Of the ₩8,121 billion total book value of debentures and borrowings outstanding as of December 31, 2016, ₩3,072 billion was denominated in foreign currencies. The interest rates of such debt denominated in foreign currencies ranged from 0.48% (Japanese Yen 15 billion bond issued in 2015) to 6.50% (US$100 million fixed rate notes due 2034 issued under our medium-term note program). Upon identification and evaluation of our currency risk exposures, we, having considered various circumstances, enter into derivative financial instruments to try to manage some of such risks. Although the impact of exchange rate fluctuations has in the past been partially mitigated by such strategies, our results of operations have historically been affected by exchange rate fluctuations and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future. See Item 3.A. Selected 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 RiskExchange Rate Risk.
Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of our ordinary shares on the KRX Korea Composite Stock Price Index (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 American Depositary Receipts (ADRs) of cash dividends, if any, paid in Won on our ordinary shares represented by the ADSs.
We may be exposed to potential claims for unpaid wages and become subject to additional labor costs arising from the Supreme Court of Koreas interpretation of ordinary wages.
Under the Labor Standards Act, an employees ordinary wage is a key legal construct used to calculate many statutory benefits and entitlements in Korea. Increasing or decreasing the amount of compensation included in employees ordinary wages has the effect of increasing or decreasing the amounts of various statutory entitlements that are calculated based on ordinary wage, such as overtime premium pay. Under guidelines previously issued by the Ministry of Employment and Labor, prior to the Supreme Court decision described below, an employees ordinary wage included base salary and certain fixed monthly allowances for work performed overtime during night shifts and holidays. Prior to the Supreme Court of Koreas decision described below, companies in Korea had typically interpreted these guidelines as excluding from the scope of ordinary wages fixed bonuses that are paid other than on a monthly basis, namely on a bi-monthly, quarterly or biannual basis.
On December 18, 2013, the Supreme Court of Korea ruled that regular bonuses (including those that are paid other than on a monthly basis) shall be deemed ordinary wages if these bonuses are paid regularly and uniformly on a fixed basis notwithstanding differential amounts based on seniority. Under this decision, any collective bargaining agreement or labor-management agreement which attempts to exclude such regular bonuses from employees ordinary wages will be deemed void for violation of the mandatory provisions of Korean law. However, the Supreme Court of Korea further ruled that, in certain limited situations, an employees claim of underpayment under the expanded scope of ordinary wages for the past three years may be denied based on the principles of good faith, even though the claim is raised within the statute of limitations period. Following this Supreme Court
17
decision, the Ministry of Employment and Labor issued a Guideline for Labor and Management on Ordinary Wages on January 23, 2014. A bill for amendment to the Labor Standard Act, which includes a definition of ordinary wages as entire money and valuables determined in advance to be provided to the employee by the employer as wages, regardless of its name, in exchange of the prescribed or total work of the employee, is currently pending at the sub-committee level of the National Assembly.
While we currently are not subject to any claims of underpayment from our current or former employees, the Supreme Court decision may result in additional labor costs for us in the form of additional payments required under the expanded scope of ordinary wages, both those incurred during the past three years and those to be incurred in the future. Any such additional payments may have an adverse effect on our financial condition and results of operation.
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 or political 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 Korean economy is subject to many factors beyond our control, including developments in the global economy and domestic political scandals.
The Korean economy is closely integrated with, and is significantly affected by, developments in the global economy and financial markets. Substantial uncertainties remain for the global and Korean economy in the form of anticipated tightening of the U.S. monetary policy, continued fiscal and financial challenges for the European, U.S. and global economies, fluctuations in oil and commodity prices, signs of cooling of the Chinese economy and a rise of military and political tension in the Middle East, the Eastern Europe and former members of the Soviet Union. Accordingly, the overall prospects for the Korean and global economy in 2017 and beyond remain uncertain. Any future deterioration of the global economy may have an adverse impact on the Korean economy, which in turn could adversely affect our business, financial condition and results of operations. As Koreas economy is highly dependent on the health and direction of the global economy, investors reactions to developments in one country can have adverse effects on the securities price of companies in other countries. Factors that determine economic and business cycles of the Korean or global economy are for the most part beyond our control and inherently uncertain. In light of the high level of interdependence of the global economy, any of the foregoing developments could have a material adverse effect on the Korean economy and financial markets, and in turn on the our business and profitability.
In November 2016, the prosecutors office indicted a confidante of former President Geun-hye Park, Ms. Soon-sil Choi, who had allegedly used her ties with the former President to extort donations from Korean conglomerates for two non-profit foundations over which she is purported to have substantial influence, and a number of current and former presidential aides on charges of, among others, abuse of power, coercion and leaking classified documents. On November 30, 2016, a special independent prosecutor was appointed to conduct an investigation of the extent of the former Presidents involvement. On December 9, 2016, the National Assembly voted in favor of impeaching former President Park for a number of alleged constitutional and criminal violations including violation of the Constitution and abuse of power by allowing her confidante to exert influence on state affairs and letting senior presidential aides help her extort from companies.
18
On March 10, 2017, the Constitutional Court of Korea upheld the constitutionality of the impeachment, removing former President Park from office. One of the findings of the Constitutional Court was that the former President, through her aides and Ms. Choi, coerced major Korean corporations, including us, to make donations to Mir Foundation and K-Sports Foundation. According to the Constitutional Court, such corporations contributed a total of ₩48.6 billion to Mir Foundation between November 2015 and December 2015 and a total of ₩28.8 billion to K-Sports Foundation between February 2016 and August 2016. Former President Park, Ms. Choi, and other associated government officials are currently awaiting trials under charges of bribery, abuse of power or extortion, among other offenses.
A special presidential election is scheduled to be held on May 9, 2017. There is no assurance that such political development as well as ongoing trials and investigations of former President Park and other individuals will not have a material adverse effect on the Korean economy and us.
Developments that could have an adverse impact on Koreas economy in the future also include:
| continued volatility or deterioration in Koreas credit and capital markets; |
| difficulties in the financial sectors in Europe, China and elsewhere and increased sovereign default risks in selected countries and the resulting adverse effects on the global financial markets; |
| global market volatility in connection with Brexit, the United Kingdoms vote to leave the European Union in a referendum held in June 2016 and the subsequent decision by the Prime Minister of the United Kingdom to initiate a two-year process to complete the United Kingdoms exit by mid-2019; |
| adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, the Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets; |
| increasing levels of household debt; |
| continuing adverse conditions in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere; |
| further decreases in the market prices of Korean real estate; |
| increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers; |
| declines in consumer confidence and a slowdown in consumer spending; |
| social and labor unrest; |
| increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea; |
| the economic impact of any pending or future free trade agreements; |
19
| geo-political uncertainty and risk of further attacks by terrorist groups around the world; |
| the occurrence of severe health epidemics in Korea or other parts of the world, including the recent Ebola, Middle East Respiratory Syndrome and Zika virus outbreaks; |
| deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy and the recent diplomatic tension between Korea and China with respect to the deployment of the Terminal High Altitude Area Defense (THAAD) system in Korea; |
| political uncertainty or increasing strife among or within political parties in Korea, and political gridlock within the Government or in the legislature, which prevent or disrupt timely and effective policy making; |
| natural disasters that have a significant adverse economic or other impact on Korea or its major trading partners; |
| hostilities or political or social tensions involving countries in the Middle East and North Africa and any material disruption in the supply of oil or significant decrease or increase in the price of oil; and |
| an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States. |
Escalations in tensions with North Korea could have an adverse effect on us.
Relations between Korea and North Korea have been tense throughout Koreas modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, there continues to be uncertainty regarding the long-term stability of North Koreas political leadership since the succession of Kim Jong-un to power following the death of his father in December 2011, which has raised concerns with respect to the political and economic future of the region.
In addition, there have been heightened security concerns in recent years stemming from North Koreas nuclear weapon and long-range missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:
| North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. Subsequently, North Korea continued to engage in provocative behaviors. In January 2016, North Korea announced that it had successfully tested a hydrogen bomb, its fourth nuclear test and allegedly first test using hydrogen, which is more explosive than plutonium. In February 2016, North Korea tested its intercontinental ballistic missile technology and launched a long-range missile, which it claimed to have launched a satellite into orbit. In response, the Government condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions and withdrew Korean personnel from the inter-Korea Kaesong industrial complex (the Complex) and announced its closing. In March 2016, the United Nations Security Council unanimously passed a resolution condemning North Koreas actions and significantly expanding the scope of sanctions applicable to North Korea. In September 2016, North Korea announced that it had successfully tested a nuclear warhead that could be mounted on ballistic |
20
missiles. In response, the Government condemned the test, and in November 2016, the United Nations Security Council unanimously passed a resolution imposing additional sanctions on North Korea. In March 2017, North Korea launched four midrange missiles aimed at the U.S. military bases in Japan, which landed off the east coast of the Korean peninsula. In late March 2017, the United States sanctioned 11 North Korean individuals and one North Korean coal company for their ties to North Koreas nuclear weapons program. In April 2017, North Korea launched two ballistic missiles which landed off the east coast of the Korean peninsula. In response to the missile launches, representatives of the Government, the United States and China expressed their plans to impose stronger sanctions on North Korea. |
| In August 2015, two Korean soldiers were injured in a landmine explosion near the South Korean demilitarized zone. Claiming the landmines were set by North Koreans, the South Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas. High-ranking officials from the Government and North Korea subsequently met for discussions intending to diffuse military tensions and released a joint statement whereby, among other things, North Korea expressed regret over the landmine explosions that wounded the Korean soldiers. |
| In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Koreas Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation. |
North Koreas economy also faces severe challenges, which may further aggravate social and political pressure within North Korea. There can be no assurance that the level of tension affecting the Korean peninsula will not escalate in the future. Any further increase in tensions such as North Koreas belligerent tactics, dissolution of high level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our business, results of operations and financial condition.
In addition, since 2005, we have provided fixed-line telephone services, through various fixed-line telephone equipment that we installed, to certain South Korean companies located at the Complex, which was established pursuant to an agreement made during the summit meeting of the two Koreas in June 2000. The Complex was the largest economic project between the two Koreas and was designed to combine the Republics capital and entrepreneurial expertise with the availability of land and labor of North Korea.
For the year ended December 31, 2015, our revenue from the services provided for the Complex was approximately US$1.0 million. We had no revenue from such services for the year ended December 31, 2016. Our investment in the Complex was approximately US$1.6 million as of December 31, 2015 and we have not made additional investments since the closure of the Complex. However, our services have been suspended since February 11, 2016 following the Governments decision to halt operations of the Complex to impede North Koreas utilization of funds from the Complex to finance its nuclear and missile programs. No assurance can be given that we will not experience any material losses as a result of the suspension of this project or failure of the project as a result of a breakdown or escalation of hostilities in the relationship between the Republic and North Korea.
21
Koreas legislation allowing class action suits related to securities transactions may expose us to additional litigation risk.
The Securities-related Class Action Act of Korea enacted in January 2004 allows class action suits to be brought by shareholders of companies (including us) listed on the KRX KOSPI Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (1) false or inaccurate statements provided in the registration statements, prospectuses, business reports, audit reports, semi-annual or quarterly reports and material fact reports and omission of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. Because of the relatively recent enactment of the act, there is not enough judicial precedent to predict how the courts will apply the law. Litigation can be time-consuming and expensive to resolve, and can divert management time and attention from business operation. We are not aware of any basis upon which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material adverse effect on our business, financial condition and results of operations.
We are generally subject to Korean corporate governance and disclosure standards, which differ in significant respects from those in other countries.
Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the Securities and Exchange Commission and listed on the New York Stock Exchange, we are, and will continue to be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002, as amended. However, foreign private issuers, including us, are exempt from certain corporate governance standards required under the Sarbanes-Oxley Act or the rules of the New York Stock Exchange. For a description of significant differences in corporate governance standards, see Item 16G. Corporate Governance. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries.
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,
22
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 MSIP 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 MSIP 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. See Item 10. Additional InformationItem 10.B. Memorandum and Articles of Association.
Holders of ADSs will not be able to exercise appraisal rights unless they have withdrawn the underlying ordinary shares 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 appraisal rights unless he has withdrawn the underlying ordinary shares and become our direct shareholder. See Item 10. Additional InformationItem 10.B. Memorandum and Articles of Association.
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 ordinary shares 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.
23
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 us and the industries in which we operate. 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 had previously been 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. In June 2009, KTF, a subsidiary providing mobile telephone services, 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. Information on the CompanyItem 4.B. Business OverviewCompetition.
24
Our legal and commercial name is KT Corporation. Our principal executive offices are located at KT Gwanghwamun Building East, 33, Jong-ro 3-gil, Jongno-gu, 03155, Seoul, 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 voice and data telecommunications services based on 3G W-CDMA technology and 4G LTE technology; |
| fixed-line services, which include: |
Ø | telephone services, including local, domestic long-distance and international long-distance fixed-line and Voice over Internet Protocol (VoIP) telephone services (i.e., provision of communication services over the Internet, and not over the fixed-line network) and interconnection services to other telecommunications companies; |
Ø | broadband Internet access service and other Internet-related services, including IPTV services; and |
Ø | data communication services, including leased line service and dedicated broadband Internet connection service to institutional customers; |
| credit card processing and other financial services through BC Card Co., Ltd.; and |
| various other services, including satellite service (through KT Sat Co., Ltd.) and information technology, real estate business (through KT Estate Inc.), satellite TV service (through KT Skylife), media contents business 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 30.6% with approximately 18.9 million subscribers as of December 31, 2016; |
| in the fixed-line telephone services market in Korea, we continue to be the dominant provider with approximately 24.9 million installed lines, of which approximately 11.9 million lines were in service as of December 31, 2016. As of such date, our market share of the local market was 80.6% and our market share of the domestic long-distance market was 78.9%; |
| we are Koreas largest broadband Internet access provider with approximately 8.5 million subscribers (excluding WiBro and ollehWiFi subscribers) as of December 31, 2016, representing a market share of 41.4%; and |
| we are also the leading provider of data communication services in Korea. |
25
For the year ended December 31, 2016, our operating revenues were ₩23,121 billion, our profit for the period was ₩795 billion and our basic profit per share was ₩2,893. As of December 31, 2016, our total assets were ₩30,664 billion, total liabilities were ₩17,882 billion and total equity was ₩12,783 billion.
Business Strategy
We believe the telecommunications market in Korea is nearing saturation, despite certain areas of growth remaining due to Koreas growing economy, consumers willingness to adopt new technologies, relatively high income and a relatively large middle class. To maintain our competitiveness, we believe we need to pursue growth in other areas, while maintaining our strength in existing businesses. 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 in June 2009, with KT Corporation surviving the merger. As part of our efforts to improve our operational efficiencies, we transferred all operations relating to fixed-line sales activities (including on-site sales, line activation, after service, and customer center operations) to our subsidiaries in 2014.
Since 2016, our main strategical focus was on promotion of services that converge information & communication technology with other fields such as energy, security, media, healthcare and transportation, utilizing our fixed-line and wireless infrastructure installed for our olleh GiGA Internet Service and LTE mobile services. In addition, we have focused on artificial intelligence and big data and plan to leverage our platforms like IPTV and network assets to introduce innovative convergence services. For example, we launched GiGA Genie using an artificial-intelligence based IPTV set-top box that allows users to voice-command to watch TV, use the Internet and control other Internet-connected appliances. In addition, the first Internet-only bank in Korea, called K bank, over which we own a minority interest, began operation in April 2017 and seeks to operate as a virtual bank whose operation is based on its mobile application and the Internet, while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to differentiate itself from other conventional banks by utilizing big data and offering competitive products and interest rates. Our strategical focus on convergence services builds on our GiGAtopia corporate vision, which refers to our goal to create a world where humans and all things are connected through ultra-fast GiGA infrastructure and ICT eco-system, enhanced by convergence services, industrial development and innovation. We launched our olleh GiGA Internet service, which provides transmission speed of up to 1 Gbps, in October 2014 (olleh GiGA Internet Service). In June 2015, we also announced the mobile data service known as GiGA LTE, which utilizes multipath transmission control protocol (MPTCP) technology. We continue to expand GiGA coverage, initially focusing on metropolitan areas, and further expand to other regions in Korea. By promoting our convergence services, we aim to contribute in changing the current subsidy-based Korean telecommunication market competition to one based on innovative technology, products and enhanced services.
We believe development of fifth-generation (5G) technology will be a key driver for future innovations, fueled also by the increasing importance of big data. With our leadership in providing highly advanced 4G LTE services, we have made extensive efforts to develop and present various further advanced technologies. At the PyeongChang 2018 Winter Olympics, our goal is to unveil the worlds first 5G services at a pre-commercial level. We are planning to showcase a variety of services with enhanced speed, latency, and connectivity, such as broadcasting from the viewpoint of players with a 360-degree panoramic view or broadcasting from multiple viewpoints. As an official telecommunications services partner of the PyeongChang 2018 Winter Olympics, we will make our utmost efforts to realize the vision of 5G and capture truly memorable moments of the Olympics. In this effort, we announced our plan to commercialize the 5G services by 2019, one year ahead of our initial plan.
26
In 2016, we organized our business into six business groups, the Marketing Group, the Customer Group, the Enterprise Business Group, the Global Business Group, the Future Convergence Business Group and the Platform Business Group, so that we may achieve higher synergies, more effectively address differing needs of our customer segments, as well as strengthen our competitiveness and discover new growth opportunities. We aim to pursue the following strategies for our business groups:
| Marketing Group. Through our Marketing Group, we aim to expand our telecommunication and convergence operations by (i) improving our fixed-line and wireless telecommunication market shares and average revenue per user, (ii) developing business strategies and plans specifically related to telecommunications and convergence, (iii) strengthening our competitiveness over products, customer service and other related services and (iv) developing and executing efficient marketing strategies. We also focus on expanding our wireless data communication business to meet rising demand for broadband Internet access using advanced wireless data communications devices such as smartphones. We are working closely with handset manufacturers to expand our offerings of smartphones and handsets designed to promote convergence of fixed-line and mobile telecommunications services, as well as to promote development of various applications for such devices. |
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 smartphone 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 smartphone 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.
In 2016, we launched Y24 plans which offer discounted fees and tailored data offerings for customers of age 24 or younger. We aim to differentiate ourselves from our competitors by providing broadband Internet access service using high-speed FTTH connection and offering Internet phone service with value-added features such as video communication, short message service and phone banking. We began offering real-time broadcasting service on our IPTV service in November 2008 and we were the first in the IPTV industry to achieve 7 million subscribers in 2016.
We believe that convergence of fixed-line and mobile communications technologies provides a competitive advantage to us because we have the technological know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform 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.
| Customer Group. Through our Customer Group, we aim to improve our marketing and customer service efforts for all of our products and services by (i) planning and executing strategy for each product that we offer and our marketing efforts, (ii) contributing to expanding our market share by strengthening our marketing and customer service efforts, and (iii) maximizing customer satisfaction by providing high quality customer service. |
27
| Enterprise Business Group. Through our Enterprise Business Group, we aim to provide our large corporate, small- and medium-sized enterprise and government agency customers with one-stop solution services, including designing data communications and information technology infrastructure and overseeing their day-to-day operations with the objective of achieving operational efficiencies and cost savings, as well as establishing and executing business plans for our global operations. Furthermore, in conjunction with our Future Convergence Business Group, we seek to expand our operations in the fields of smart energy, unified security systems and oversized data management. |
| Global Business Group. Through our Global Business Group, we are expanding our global operations by designing, developing and optimizing ICT services, cloud computing, data centers, our GiGA solutions and other global network services, in conjunction with overseas network operators and other global telecommunications companies. To this end, we have established or acquired overseas branches or subsidiaries in target countries to design and construct telecommunication networks and develop information & communication technology convergence products, as well as seeking further overseas opportunities working with quality Korean small- and medium-sized enterprises. |
| Future Convergence Business Group. Due to the saturation within the Korean telecommunication market and limitations on growth in the traditional telecommunications services market, through our Future Convergence Business Group, we aim to concentrate our existing business capabilities in achieving new synergies by converging information & communication technology with other fields, such as smart energy, unified security systems, next-generation media, healthcare and intelligent traffic control. In the field of smart energy, through our convergence energy optimization project named KT Micro-Energy Grid System, we seek to contribute in preventing energy crisis and to increase energy efficiency. In the field of unified security systems, we seek to contribute to the establishment of national response systems for natural and other disasters, as well as enhancing personal and corporate security. For example, we plan to launch an artificial-intelligence based security system, called GiGAeyes, which analyzes surveillance video and autonomously detects suspicious activities. In the field of next-generation media, we seek to contribute to the development of next-generation media contents and new media technology, thereby supporting the expansion of Korean media contents to overseas markets. We are also seeking ways to develop personalized treatment systems to provide enhanced healthcare, as well as creating intelligent traffic control systems to reduce traffic. |
| Platform Business Group. Through our Platform Business Group, we strive to transform into a platform-based business focusing on online-to-offline commerce, financial technology (Fintech) and Internet of Things (IoT). As part of our Fintech business initiatives, in 2016, we launched an online payment application, which provides a method of online authentication that uses biometric data such as finger prints or voice instead of complex passwords. With regard to IoT, we will continue to deploy the Industrial IoT business model, which explores opportunities to converge services with other industries. We also plan to strengthen our IoT service relating to household goods. |
The Telecommunications Industry in Korea
The Korean telecommunications industry is one of the most developed in Asia. According to the MSIP, the number of mobile subscribers in Korea was 61.3 million and the number of broadband Internet access subscribers in Korea was 20.5 million as of December 31, 2016. As of December 31, 2016, the mobile penetration rate, which is calculated by dividing the number of mobile subscriber accounts (including multiple counting of those who subscribe to more than one mobile service) by the
28
population of Korea, was 118.6%, and the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscriber accounts (including multiple counting of those who subscribe to more than one broadband Internet access service) by the number of households in Korea, was 108.5%.
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 Government awarded three 2G licenses in June 1996. KTF was awarded a license alongside LG U+ and Hansol M.com, and commercial 2G 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. In June 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. KT Corporation and SK Telecom offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia communications services that use significantly greater bandwidth capacity. In July 2011, SK Telecom and LG U+ began offering 4G communications services based on LTE technology, which enables data transmission at a speed faster than W-CDMA or WiBro networks, and we began our 4G LTE services in January 2012. Additionally, in September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of bandwidths in the 1.8 GHz spectrum to provide transmission speed of up to 150 Mbps (for downloading), twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services in September 2013 and LG U+ commenced providing its wideband LTE services in January 2014. We expanded our wideband LTE services to all of Korea in July 2014. Furthermore, in March 2014, we commercialized Wideband LTE-A services, which interconnects our 20 MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission speed of up to 225 Mbps (for downloading), and began additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in January 2015 to support transmission speed of up to 300 Mbps (for downloading) under the Wideband LTE-A X4 service. In June 2015, we commercialized GiGA LTE services which link Wideband LTE-A X4 and our WiFi network to provide a faster WiFi connection in June 2015. In 2016, we won various awards for our GiGA LTE services and agreed to provide GiGA LTE technology to Turk Telekom Group, a leading telecommunications provider in Turkey. As of December 31, 2016, the number of LTE subscribers in Korea exceeded 46 million. Due to the high mobile penetration rate in Korea, we expect the growth of new subscribers to be limited.
In April 2014, LG U+, SK Telecom and we began offering various unlimited mobile service packages, offering mobile subscribers with unlimited voice calls, text messaging, and LTE data. We believe that the continuing intense competition among major telecommunications operators in Korea and the resulting pressure on our fees may have a material adverse impact on our results of operations.
29
The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated:
As of December 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
Total Korean Population (thousands) (1) |
50,948 | 51,141 | 51,328 | 51,529 | 51,696 | |||||||||||||||
Mobile Subscribers (thousands) (2) |
53,624 | 54,681 | 57,290 | 58,935 | 61,296 | |||||||||||||||
Mobile Subscriber Growth Rate |
2.1 | % | 2.0 | % | 4.8 | % | 2.9 | % | 4.0 | % | ||||||||||
Mobile Penetration (3) |
105.3 | % | 106.9 | % | 111.6 | % | 114.4 | % | 118.6 | % |
(1) | Based on the number of registered residents as published by the Ministry of Government Administration and Home Affairs of Korea. |
(2) | Based on information announced by the KCC and MSIP. |
(3) | Penetration is determined by dividing mobile subscribers by total Korean population. |
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 (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 1 Gbps 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 on providing wireless Internet connection capabilities. They have introduced WiFi with speed of up to 1.3 Gbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops and smartphones in hot-spot zones and at home. In addition, we expect our competitors would focus their attention on upgrading data transmission capacity of their Internet services as we continue our efforts to enhance transmission capacity of our Internet services in 2017. See Our ServicesFixed-line ServicesInternet Services.
Our Services
Mobile Service
We provide mobile services based on W-CDMA technology and LTE technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a
30
consolidated subsidiary. KTF obtained one of the three licenses to provide nationwide 2G service in June 1996 and began offering 2G service in October 1997. In June 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. We currently offer 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. In January 2012, we also began offering 4G LTE services following the termination of our 2G services. We completed the expansion of our 4G LTE service coverage nationwide in October 2012 and commenced providing wideband LTE services in September 2013, and commercialized Wideband LTE-A services in March 2014. We began offering Wideband LTE-A X4 services in January 2015 and also launched GiGA LTE services which links Wideband LTE-A X4 and our WiFi network to provide a faster WiFi connection in June 2015.
Revenues related to mobile service accounted for 31.9% of our operating revenues in 2016. In addition, our goods sold, which are primarily from mobile handset sales, accounted for 12.1% of our operating revenues in 2016. 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, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Average Monthly Revenue per Subscriber (1) |
₩ | 35,043 | ₩ | 35,308 | ₩ | 35,524 | ||||||
Number of Subscribers (in thousands) |
17,300 | 18,038 | 18,892 |
(1) | The average monthly revenue per subscriber is computed by dividing total monthly fees, usage charges, interconnection fees and value-added service fees for the period by the weighted average number of subscribers and dividing the quotient by the number of months in the period. |
We compete with SK Telecom, a mobile service provider that has a longer operating history than us, and LG U+ which began its service at around the same time as KTF. As of December 31, 2016, we had approximately 18.9 million subscribers, or a market share of 30.6%, which was the second largest among the three mobile service providers.
We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2016, there were approximately 2,700 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 their 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. On October 1, 2014, the Handset Distribution Reform Act, which regulates the sale and subsidies of mobile telecommunication devices, went into effect. See RegulationRates.
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 approximately 260 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.
31
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.
Fixed-line Services
We provide a variety of fixed-line communication services, including various telephone services, broadband and other Internet services and data communication 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 8.9% of our operating revenues in 2016. 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. In recent years, the proliferation of mobile phones, as well as the availability of increasingly lower wireless pricing plans, some of which include unlimited voice minutes, has led to significant decreases in our domestic long-distance call minutes and local call pulses.
As of or for the Year Ended December 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
Total Korean population (thousands) (1) |
50,948 | 51,141 | 51,328 | 51,529 | 51,696 | |||||||||||||||
Lines installed (thousands) (2) |
25,242 | 24,264 | 23,930 | 23,607 | 24,858 | |||||||||||||||
Lines in service (thousands) (2) |
15,121 | 14,032 | 13,713 | 12,440 | 11,871 | |||||||||||||||
Lines in service per 100 inhabitants (3) |
29.7 | 27.4 | 26.7 | 24.6 | 23.0 | |||||||||||||||
Fiber optic cable (kilometers) |
584,932 | 636,347 | 673,783 | 695,546 | 732,873 | |||||||||||||||
Number of public telephones installed (thousands) |
101 | 94 | 88 | 83 | 74 | |||||||||||||||
Domestic long-distance call minutes (millions) (4) |
4,857 | 3,803 | 2,743 | 2,113 | 1,507 | |||||||||||||||
Local call pulses (millions) (4) |
6,720 | 5,765 | 4,038 | 3,034 | 2,161 |
(1) | Based on the number of registered residents as published by the Ministry of Government Administration and Home Affairs 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. |
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. All of our lines 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.
32
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, 2016:
Year Ended December 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
(In millions of billed minutes) | ||||||||||||||||||||
Incoming international long-distance calls |
520.3 | 628.4 | 549.4 | 390.5 | 352.3 | |||||||||||||||
Outgoing international long-distance calls |
289.7 | 244.2 | 212.2 | 179.0 | 155.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
810.0 | 872.6 | 761.6 | 569.5 | 507.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Japan (30.9%), China (23.4%) and the United States (9.1%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2016. In recent years, the volume of our incoming calls has 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, and transmitting calls to and from their mobile networks), Sejong and SK Telink (offering international and domestic long-distance services), and SK Telecom. 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, 2016, we had approximately 3.4 million subscribers.
Internet Services
Broadband Internet Access Service. Leveraging on our nationwide network of over 730,000 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 8.8% of our operating revenues in 2016. Our principal Internet access services include:
| ADSL, VDSL, Ethernet and FTTH services under the olleh Internet and olleh GiGA Internet brand names; |
| WiFi under the ollehWiFi brand name, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops and smartphones in hot-spot zones and olleh Internet service in fixed-line environments. OllehWiFi enables subscribers to access the Internet at a speed of up to 1.3 Gbps. We sponsored approximately 107,000 hot-spot zones nationwide for wireless connection as of December 31, 2016; and |
33
| olleh 4G WiBro Internet access service, which enables two-way WiBro Internet access to portable computers, mobile phones and other portable devices at a speed averaging 6 Mbps per user. |
We had approximately 8.5 million broadband Internet subscribers and approximately 1.5 million ollehWiFi service subscribers as of December 31, 2016. We commercially launched our WiBro service in June 2006, and we had approximately 506,000 subscribers as of December 31, 2016. We launched our olleh GiGA Internet Service, which provides transmission speed of up to 1 Gbps, and had approximately 2.4 million subscribers as of December 31, 2016. 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 continually upgrading our broadband network to enable better FTTH connection, which further enhances data transmission speed of up to 1 Gbps 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 IPTV, and other digital media content with higher stability.
The high-speed downstream rates can reach up to 100 Mbps for VDSL and 1 Gbps for FTTH. We plan to offer data transmission speed of up to 1 Gbps, regardless of medium, by the end of 2017. In October 2016, we commercialized GiGA Wire 2.0 Internet service solutions on copper wires to provide data transmission speed of up to 1 Gbps. We plan to launch an Internet service based on UTP with data transmission speed of up to 1 Gbps. Downstream rates depend on a number of factors. For a constant wire gage, 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. 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 IPTV and network portal services. Our other Internet-related services accounted for 7.8% of our operating revenues in 2016.
We operate 10 data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storage and leased lines. 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 data centers are designed to meet international standards, and are equipped with temperature and humidity control systems, regulated and reliable power supplies, mechanical equipment, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the Internet. Data centers allow corporations to outsource their application and server hardware management.
Our 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
34
customers network equipment at our data centers. Co-location is designed to increase customers Internet connection speed and reduce connection time and costs by directly connecting the customers server to the Internet backbone switch at our 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 standard and specialized business solutions, including integrated business administration solutions and intranet collaboration solutions.
We also offer high definition video-on-demand and real-time broadcasting IPTV services under the brand name olleh TV, and began offering ultra-high-definition (UHD) IPTV services, which offer resolutions up to four times those offered under high-definition television services, under the brand name olleh GiGA UHD TV starting in September 2014. Our IPTV service offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee or on a pay-per-view basis. 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 had approximately 7 million olleh TV subscribers as of December 31, 2016. In December 2015, amendments to the Internet Multimedia Broadcasting Business Act were promulgated. Under such amendments, a single broadcasting operator, together with its affiliates, may not have more than one-third of the market share of all paid broadcasting subscribers in Korea. The market share restriction will be in effect until June 27, 2018.
Data Communication Services
Our data communication services involve 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, 2016, we leased over 249,817 lines to domestic and international businesses. The data communication service accounted for 4.4% of our operating revenues in 2016.
We provide dedicated and secure broadband Internet connection service to institutional customers under the Kornet brand name. We provide high-speed connection up to 10.0 Gbps connected to our Internet backbone network with capacity of 9.0 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.
Financial Services
Our financial services accounted for 15.4% of our operating revenues in 2016. To further diversify our business and to create synergies through utilization of our mobile telecommunications network in financial services, we, through our former subsidiary KT Capital Co., Ltd., acquired 1,622,520 additional shares of common stock of BC Card Co., Ltd. from Woori Bank, Busan Bank and Shinhan Card for approximately ₩252 billion in October 2011. As we were deemed to have control over BC Card Co., Ltd., it became our consolidated subsidiary starting in October 2011. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately
35
₩287 billion, and owned a 69.5 % interest in BC Card Co., Ltd. as of December 31, 2016. BC Card Co., Ltd. offers various credit card and related financial services. BC Card Co., Ltd. had consolidated operating revenues of ₩3,568 billion and net income of ₩163 billion for the year ended December 31, 2016 and consolidated assets of ₩ 3,651 billion and liabilities of ₩2,602 billion as of December 31, 2016. In March 2014, the investment business division of KT Capital Co., Ltd., including 3,059,560 common shares of BC Card Co., Ltd. that KT Capital Co., Ltd. held, was spun off and merged into KT Corporation, to further strengthen the synergy between telecommunication and finance operations within the KT group and increase shareholder value. To focus on our core telecommunications business, we and our consolidated subsidiary, KT Hitel Co., Ltd., disposed of the entire 100% stake in KT Capital Co., Ltd. in August 2015 for a total of ₩299 billion.
In November 2015, the Government announced plans to introduce Internet-only banks and granted preliminary approval to two consortiums, K bank consortium and Kakao Bank consortium. The K bank consortium, over which we own a minority interest as one of 20 shareholding companies including Woori Bank, NH Investment & Securities, Co., Ltd., GS Retail Co., Ltd. and Hanwha Life Insurance Co., Ltd., received the final approval from the Government to operate the first Internet-only bank in Korea in December 2016. The Kakao Bank consortium, K banks competitor, received the final approval from the Government in April 2017. K bank began its operation in April 2017 and seeks to operate as a virtual bank whose operation is based on its mobile application and the Internet, while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to differentiate itself from other conventional banks by utilizing big data and offering competitive products and interest rates. Under the current Korean law, as a non-financial institution, we are not allowed to own in excess of 4% voting interest in K bank, and our combined voting and non-voting interest may not exceed 10%. In 2016, the National Assembly did not adopt a pending bill which would have allowed non-financial institutions to own more than 4% interest in Internet banks.
Other Businesses
We also engage in various business activities that extend beyond telephone services and data communication services, including satellite services, information technology and network services, satellite TV services, with the consolidation of KT Skylife starting in January 2011, and media contents business with the establishment of KT Media Hub Co., Ltd. in December 2012. We merged KT Media Hub Co., Ltd. into KT Corporation in March 2015, to enhance shareholder value by increasing management efficiency and promoting synergy among our existing businesses. Our other businesses accounted for 10.6% of our operating revenues for 2016.
We provide transponder leasing, broadcasting, video distribution and data communication services through Koreasat 5, Koreasat 6 and Koreasat 8 (also known as ABS-2). We also lease satellite capacity from other satellite operators to offer satellite services to both domestic and international customers.
In August 2006, we launched Koreasat 5, a combined civil and governmental communications satellite with a design life of 15 years, to replace Koreasat 2 (launched in 1996 with a design life of ten years). In December 2010, we launched Koreasat 6, with a design life of 15 years, to replace Koreasat 3 (originally launched in 1999, with a design life of 12 years). Koreasat 6 began its commercial operation in February 2011 and carries transponders that are mainly used for direct-to-home satellite broadcasting, video distributions and data communication services. Most of the direct-to-home satellite broadcasting transponders are utilized by KT Skylife. In August 2010, we procured from Asia Broadcast Satellite Holdings, Ltd. (ABS), a Hong Kong-based satellite operator, four transponders on ABS-1 satellite and eight additional transponders on ABS-2 satellite in order to
36
provide satellite services with a broader global scope. In the second half of 2014, we exchanged our ownership rights of four transponders on ABS-1 with ownership rights of four transponders on ABS-2 satellite. As a result, we own 12 transponders on ABS-2 satellite (also called Koreasat 8).
Two additional satellites, one to expand satellite services in various regions and the other to replace Koreasat 5, are expected to be launched in 2017.
We entered into an agreement with ABS to sell Koreasat 3 to ABS, as Koreasat 3 was expected to reach the end of its design life. In December 2013, the MSIP declared the sales contract regarding Koreasat 3 null and void on the ground that the said contract was made without prior government approval. Shortly after, ABS filed a request for arbitration against us and KT SAT Co., Ltd. and we, together with KT SAT Co., Ltd., have been involved in the International Chamber of Commerce arbitration against ABS.
In December 2012, we spun off our satellite service business by establishing KT Sat Co., Ltd., in an effort to enhance operational specialization and to foster management efficiency, enabling us to respond more promptly to the changing market environments and increasing competitiveness.
We offer a broad array of integrated information technology and network services to our business customers. Our range of services includes 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, and established KT AMC, an asset management company, in September 2011 as a subsidiary of KT Estate Inc. to create additional synergies with our real estate assets. We made a contribution in-kind of ₩1,254 billion to KT Estate Inc. in December 2012 to further strengthen KT Estate Inc.s competitiveness and to better utilize our assets.
To respond to the trend of convergence in the telecommunications and broadcasting industries, and to seek additional synergies with our existing operations, we acquired 5,600,000 shares of redeemable convertible preferred stock with voting rights and convertible bonds that were convertible into 5,600,000 shares of common stock of KT Skylife from Dutch Savings Holdings B.V. in January 2011 for approximately ₩246 billion. We exercised the conversion rights on the redeemable convertible preferred stock and the convertible bonds in March 2011, and owned a 50.3% interest in KT Skylife as of December 31, 2016. KT Skylife offers satellite TV services, which may also be packaged with our IPTV services as further described below.
37
Revenues and Rates
The table below shows the percentage of our revenues derived from each category of services for each of the years from 2014 to 2016:
Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Mobile services |
31.4 | % | 32.0 | % | 31.9 | % | ||||||
Fixed-line services |
30.3 | 29.8 | 29.9 | |||||||||
Fixed-line telephone services: |
||||||||||||
Monthly basic charges |
3.1 | 2.9 | 2.7 | |||||||||
Monthly usage charges |
5.5 | 4.5 | 3.7 | |||||||||
Others |
3.0 | 2.8 | 2.5 | |||||||||
|
|
|
|
|
|
|||||||
Sub-total |
11.5 | 10.2 | 8.9 | |||||||||
|
|
|
|
|
|
|||||||
Internet services: |
||||||||||||
Broadband Internet access service |
8.6 | 8.3 | 8.8 | |||||||||
Other Internet-related services (1) |
5.1 | 6.5 | 7.8 | |||||||||
|
|
|
|
|
|
|||||||
Sub-total |
13.7 | 14.8 | 16.6 | |||||||||
|
|
|
|
|
|
|||||||
Data communication services (2) |
5.1 | 4.7 | 4.4 | |||||||||
Goods sold (3) |
14.4 | 12.1 | 12.1 | |||||||||
Financial services |
14.5 | 15.3 | 15.4 | |||||||||
Other businesses (4) |
9.4 | 10.8 | 10.6 | |||||||||
|
|
|
|
|
|
|||||||
Operating revenues |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
|
|
|
|
|
(1) | Includes revenues from services provided by our data centers, Bizmeka and olleh TV. |
(2) | Includes revenues from Kornet Internet connection service and satellite services. |
(3) | Includes mobile handset sales. |
(4) | Includes revenues from satellite services, information technology and network services and security services. |
Mobile Services
We derive revenues from mobile services principally from:
| monthly fees; |
| usage charges for outgoing calls; |
| usage charges for wireless data transmission; |
| contents download fees; |
| value-added monthly service fees; and |
| mobile-to-mobile interconnection charges. |
We offer various rate plans, including those that offer a specified amount of free data transmission per month in return for higher monthly fees as well as plans that are geared toward business customers. We completely abolished our activation fee in March 2015.
We introduced rate plans specifically for smartphone users starting in September 2009. We also introduced new rate plans specifically for LTE phone users in connection with the rollout of our 4G LTE services in January 2012. In June 2013, we introduced the Everyone olleh rate plan, which
38
permits users to make unlimited voice calls within our wireless network, and the Fixed-Line and Wireless Unlimited rate plan, which permits users to make unlimited voice calls within both our fixed-line and wireless networks. We began offering LTE unlimited data plans in March 2014, which allows unlimited LTE data usage within certain transmission speeds after the monthly quota at the highest LTE data transmission speed has been exhausted. Starting from November 2014, we began offering our major smartphone plans at discounted rates which were previously offered only to subscribers who signed on for mandatory subscription periods ranging from one to two years, thereby eliminating the need to sign on for any mandatory subscription period to benefit from our discounted plans and removing any early termination penalties. We believe such changes allow our subscribers a wider flexibility in choosing their mobile plans based on their needs. In May 2015, we began offering the LTE data choice plan, through which users choose a 300MB to unlimited monthly quota for data transmission and enjoy unlimited voice calls and messages. With the LTE data choice plan, we also introduced the Push-and-Pull service, which allows users to carry over unused data to the following month or pull up additional data from the following months allotment. In March 2016, we began offering the Y24 plans for customers under the age of 24. Many of the Y24 plans offer free data transmission for three hours a day and additional data service at discounted rates.
The following table summarizes the charges associated with our representative LTE smartphone service plans:
Free Airtime Minutes | ||||||||||||||||
Voice Calls | Video Calls and Voice Calls to Special Numbers |
Free Data Transmission (1) |
Additional Service | Monthly Fee |
||||||||||||
LTE data choice 299 |
Unlimited | 50 | 300MB | mobile TV | ₩ | 29,900 | ||||||||||
LTE data choice 349 |
50 | 1GB | mobile TV | 34,900 | ||||||||||||
LTE data choice 399 |
50 | 2GB | mobile TV | 39,900 | ||||||||||||
LTE data choice 449 |
50 | 3GB | mobile TV | 44,900 | ||||||||||||
LTE data choice 499 |
50 | 6GB | mobile TV | 49,900 | ||||||||||||
LTE data choice 599 |
200 | Unlimited (2) | mobile TV | 59,900 | ||||||||||||
LTE data choice 699 |
200 | mobile TV | 69,900 | |||||||||||||
LTE data choice 999 |
200 | VIP membership Device insurance |
99,900 |
(1) | We do not charge for data transmission in wireless LAN zones. We charge ₩0.01 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota, up to a maximum of ₩150,000. |
(2) | Provides an additional daily quota of 2GB after the free monthly quota has been exhausted, and also provides unlimited use of data with speed of up to 3 Mbps or 5 Mbps after the daily quota of 2GB has been exhausted. |
We also provide plans specially designed for elderly and pre-teen subscribers as well as special discounts to subscribers with physical disabilities. Plans specialized for feature phone users such as a standard rate plan are provided as well. Under the standard rate plan, we charge a monthly fee of ₩11,000, a voice calling usage charge of ₩1.8 per second and a video calling usage charge of ₩3 per second, without any free voice or video call airtime minutes.
We also offer plans for new devices such as tablets and wearable devices. Since 2010, we have been offering a specialized plan for tablets which provides a 1.6GB to unlimited monthly quota of data transmission for a monthly fee of ₩18,000 to ₩99,900. In November 2014, we began offering a specialized plan for wearable devices, which charges a fixed monthly fee of ₩8,000 for a 100MB monthly quota of data transmission and 50 minutes of voice calls. For other new devices, we also provide a data sharing service that allows users to share data provided as part of their smartphone plans with other devices.
Mobile-to-mobile Interconnection. For a call initiated by a mobile subscriber of our competitor to our mobile subscriber, the mobile service provider collects from its subscriber its normal rate and
39
remits to us a mobile-to-mobile interconnection charge. In addition, for a call initiated by our mobile subscriber to a mobile subscriber of our competitor, we collect from our subscriber our normal rate and remit to the mobile service provider a mobile-to-mobile interconnection charge.
The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators, and the charges received per minute (exclusive of value-added taxes) from mobile operators for mobile to mobile calls:
Effective Starting | ||||||||||||
January 1, 2014 | January 1, 2015 | January 1, 2016 | ||||||||||
SK Telecom |
₩ | 22.2 | ₩ | 19.5 | ₩ | 17.1 | ||||||
LG U+ |
22.8 | 20.0 | 17.0 | |||||||||
KT |
22.7 | 19.9 | 17.2 |
We recognize as mobile-to-mobile interconnection revenue the entire amount of the usage charge collected from the mobile user and recognize as expense the amount of interconnection charge paid to the mobile service provider.
Fixed-line Services
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. |
The rates we charge for local calls are currently subject to approval by the MSIP after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. 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. Our current local usage rates, which have been in effect since May 2002, are ₩39 per pulse for regular service and ₩70 per pulse for public telephones. For local calls, 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 ₩3,000 to ₩5,200, depending on location, and a non-refundable service initiation fee of ₩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, 2016, we had ₩368 billion in refundable service initiation deposits outstanding and 1.7 million 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 initiation 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 MSIP.
40
Our current basic domestic long-distance rates, which have been in effect since November 2001, are ₩39 per three minutes for distances of up to 30 kilometers and ₩14.5 per ten seconds (equivalent to ₩261 per three minutes) for distances in excess of 30 kilometers. For domestic long-distance calls for distances of up to 30 kilometers, a pulse is triggered at the beginning of each call and every three minutes thereafter. For domestic long-distance calls for distances in excess of 30 kilometers, a pulse is triggered at the beginning of each call and every 10 seconds thereafter. Rates for domestic long-distance calls for distances up to 30 kilometers are currently discounted by an adjustment in the period between pulses, by approximately 11% (utilizing a pulse rate of 200 seconds) from 6:00 a.m. to midnight on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 43% (utilizing a pulse rate of 258 seconds) from midnight to 6:00 a.m. every day. Rates for domestic long-distance calls for distances in excess of 30 kilometers are currently discounted by approximately 10% (utilizing a rate of ₩13.1 per ten seconds) from 6:00 a.m. to midnight on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 30% (utilizing a rate of ₩10.2 per ten seconds) from midnight to 6:00 a.m. every day.
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:
| a subscriber who elects to pay a monthly flat rate of ₩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; |
| 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 ₩39 per three minutes; |
| 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 ₩150,000 with a flat rate payment of ₩50,000 or such calls up to ₩50,000 with a flat rate payment of ₩10,000. Standard rates apply to calls that exceed the capped amounts; and |
| a subscriber who elects to pay a monthly flat rate ranging from ₩7,500 to ₩15,000, depending on the types of calls the subscriber wishes to make, is able to use 3,000 minutes per month of local, domestic long-distance, land-to-VoIP and land-to-KT mobile calls. |
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 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. |
41
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 MSIP.
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 at the applicable settlement rate specified under the agreement with the foreign carrier. We have entered into numerous bilateral agreements with foreign carriers. We negotiate the settlement rates under these agreements with each foreign carrier, subject to the MSIPs 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 monthly or quarterly on a net basis.
Land-to-mobile Interconnection. We provide other telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network. 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 MSIP periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The MSIP 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, 2014 | January 1, 2015 | January 1, 2016 | ||||||||||
SK Telecom |
₩ | 22.2 | ₩ | 19.5 | ₩ | 17.0 | ||||||
LG U+ |
22.8 | 20.0 | 17.2 |
Since September 2004, the usage charges per minute collected from a landline user for a call initiated by a landline user to a mobile service subscriber are ₩87.0 during weekdays, ₩82.0 during weekends and ₩77.2 during evenings (defined as 12:00 a.m. to 6:00 a.m. every day). 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.
42
The following table shows such interconnection charge per minute collected for a call depending on the type of call, as determined by the MSIP:
Effective Starting | ||||||||||||
January 1, 2014 | January 1, 2015 | January 1, 2016 | ||||||||||
Local access (1) |
₩ | 13.3 | ₩ | 11.9 | ₩ | 10.9 | ||||||
Single toll access (2) |
14.7 | 13.4 | 12.0 | |||||||||
Double toll access (3) |
17.1 | 16.0 | 15.5 |
Source: | The MSIP. |
(1) | Interconnection between local switching center and local access line. |
(2) | Interconnection involving access to single long-distance switching center. |
(3) | Interconnection involving access to two long-distance switching centers. |
Internet Services
Broadband Internet Access Service. We offer broadband Internet access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a one-time installation fee per site of ₩20,000 and modem rental fee of up to ₩8,000 on a monthly basis. Our fixed-line broadband internet service plans range from ₩30,000 to ₩50,000 per month and our wireless broadband Internet service plans range from ₩10,000 to ₩30,000 per month.
olleh TV Services. We charge our subscribers an installation fee per site of ₩24,000, which is waived with a three-year contract, a set-top box rental fee ranging from ₩2,000 to ₩9,000 on a monthly basis and a monthly subscription fee. The rates we charge for olleh TV services are subject to approval by the MSIP. Our olleh TV service plans range from ₩15,000 to ₩50,000 per month.
Data Communication Services
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, the type of the 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 ₩56,000 to ₩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 IPTV, 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 | ||||||
Flat Rate | Mobile Monthly Fee | |||||
Internet / Internet Phone / Mobile |
₩ | 21,000 | Discounts are between ₩3,000 and ₩25,100 per account (excluding ₩5,000 for the Internet discount), depending on type of the Internet services and total amount of bundled mobile fee plans (up to 5 mobile numbers) (2) | |||
Internet / Fixed-Line Phone / Mobile |
24,000 | |||||
Internet / IPTV / Mobile (1) |
30,000 | |||||
Internet / Fixed-Line Phone / IPTV / Mobile (1) |
31,000 |
(1) | Assuming selection of olleh Internet and olleh TV Live 10 package. |
(2) | Bundled rate plans are available for olleh 3G, LTE subscribers and some specific wearable device plan subscribers. |
43
We believe that subscribers who sign up for bundled products are less likely to cancel our services than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue recognition policy for each service.
Competition
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 enabled SK Telecom to provide fixed-line telecommunications, broadband Internet access and IPTV services together with its mobile telecommunications services. In January 2010, LG Dacom and LG Powercom merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enabled LG U+ to provide a similar range of services as SK Telecom and us. Furthermore, telecommunications providers are competing to be the first to introduce innovative services such as those based on 5G technologies.
Under the Framework Act of Telecommunications and the Telecommunications Business Act, 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 the MSIPs 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, which require advance approval from the MSIP. 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 local telephone service and cellular service markets, respectively, 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 KCC has also issued guidelines on fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the KCC 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 and the recent rollout of 4G mobile services based on LTE technology by SK Telecom, LG U+ and us. The price competition through handset subsidies has become less prevalent since the enactment of the Handset Distribution Reform Act in October 2014, which limits the maximum amount of handset subsidies.
44
The following table shows the market shares in the mobile telecommunications market as of the dates indicated:
Market Share (%) | ||||||||||||
KT Corporation |
SK Telecom | LG U+ | ||||||||||
December 31, 2014 |
30.0 | 50.2 | 19.8 | |||||||||
December 31, 2015 |
30.4 | 49.4 | 20.2 | |||||||||
December 31, 2016 |
30.6 | 49.1 | 20.3 |
Source: | The MSIP. |
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 us in terms of our revenues from fixed-line telephone services. We expect this trend to continue.
The following table shows the market shares in the local telephone service market as of the dates indicated:
Market Share (%) | ||||||||||||
KT Corporation |
SK Broadband | LG U+ | ||||||||||
December 31, 2014 |
81.0 | 16.1 | 2.9 | |||||||||
December 31, 2015 |
80.6 | 16.3 | 3.1 | |||||||||
December 31, 2016 |
80.6 | 16.2 | 3.2 |
Source: | The MSIP. |
Although the local usage charge of our competitors and us is the same at ₩39 per pulse (generally three minutes), our competitors non-refundable telephone service initiation charges are lower than ours. Our customers pay a non-refundable telephone service initiation charge of ₩60,000 while customers of our competitors pay a non-refundable telephone service initiation charge of ₩30,000. Also, the basic monthly charge of our competitors is ₩4,500 compared to our basic charge of ₩5,200.
Domestic Long-distance Telephone Service. We compete with SK Broadband, LG U+, Sejong and SK Telink in the domestic long-distance market. LG U+ began offering domestic long-distance service in 1996, followed by Sejong 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+ | Sejong | SK Telink | ||||||||||||||||
December 31, 2014 |
78.9 | 14.9 | 2.7 | 0.9 | 2.7 | |||||||||||||||
December 31, 2015 |
78.9 | 15.0 | 2.7 | 0.9 | 2.6 | |||||||||||||||
December 31, 2016 |
78.9 | 15.0 | 2.7 | 0.8 | 2.6 |
Source: | Korea Telecommunications Operators Association. |
45
Our competitors and we charge ₩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, 2016:
KT Corporation |
SK Broadband |
LG U+ | Sejong | SK Telink | ||||||||||||||||
30 kilometers or longer |
₩ | 14.5 | ₩ | 13.9 | ₩ | 14.1 | ₩ | 13.8 | ₩ | 13.8 |
Source: | The KCC. |
International Long-Distance Telephone Service. Four companies, SK Broadband, LG U+, Sejong 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 Sejong 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 for 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, 2016:
KT Corporation |
SK Broadband |
LG U+ | Sejong | SK Telink | ||||||||||||||||
United States |
₩ | 282 | ₩ | 276 | ₩ | 288 | ₩ | 276 | ₩ | 180 | ||||||||||
Japan |
696 | 672 | 678 | 672 | 612 | |||||||||||||||
China |
990 | 984 | 996 | 984 | 990 | |||||||||||||||
Australia |
1,086 | 1,044 | 1,086 | 1,044 | 810 | |||||||||||||||
Great Britain |
1,008 | 966 | 996 | 966 | 900 | |||||||||||||||
Germany |
948 | 912 | 942 | 912 | 900 |
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, Sejong 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, 2014 |
42.3 | 25.1 | 15.7 | 16.9 | ||||||||||||
December 31, 2015 |
41.6 | 25.1 | 17.4 | 15.9 | ||||||||||||
December 31, 2016 |
41.4 | 25.3 | 17.6 | 15.7 |
Source: | The MSIP. |
46
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, 2016:
KT Corporation |
SK Broadband |
LG U+ | Cable Providers (1) |
|||||||||||||
Monthly subscription fee |
₩ | 25,500 | ₩ | 25,000 | ₩ | 25,000 | ₩ | 20,000 | ||||||||
Monthly modem rental fee |
None | None | 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. |
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 services 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 MSIP. 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.
In November 2015, the Government announced plans to introduce Internet-only banks and granted preliminary approval to two consortiums, K bank consortium and Kakao Bank consortium. The K bank consortium, over which we own a minority interest as one of 20 shareholding companies including Woori Bank, NH Investment & Securities, Co., Ltd., GS Retail Co., Ltd. and Hanwha Life Insurance Co., Ltd., received the final approval from the Government to operate the first Internet-only bank in Korea in December 2016. The Kakao Bank consortium, K banks competitor, received the final approval from the Government in April 2017. K bank began its operation in April 2017 and seeks to operate as a virtual bank whose operation is based on its mobile application and the Internet, while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to differentiate itself from other conventional banks by utilizing big data and offering competitive products and interest rates.
Regulation
With the establishment of the MSIP in March 2013, many of the regulatory responsibilities formerly handled by the KCC have been transferred to the MSIP. Under the Framework Act of Telecommunications and the Telecommunications Business Act, the MSIP now has comprehensive regulatory authority over the telecommunications industry and all network service providers.
The MSIP has assumed primary policy and regulatory responsibility for matters such as: (i) licensing of network service providers (the MSIP authorizes the licensing of IPTV service providers and, with the consent of the KCC, authorizes the licensing of satellite broadcasting companies); (ii) regulation of mergers and acquisitions, as well as license suspension and termination of network
47
service providers; (iii) providing oversight on foreign ownership ratios in network service providers; and (iv) reviewing telecommunication matters as they relate to the public interest and approving ancillary telecommunication business activities. Additionally, the MSIP is responsible for a broad range of other policy and regulatory matters, including the administration and supervision of regulatory reporting by telecommunications companies, examination and analysis of accounting and business management practices in the industry, establishment and administration of policies governing telecommunications service fees, value-added service providers and specific service providers, as well as supervision of reporting requirements of standard telecommunications service/user contracts.
Under the revised supervisory framework, a network service provider must be licensed by the MSIP. Our license as a network service provider permits us to engage in a wide range of telecommunications services.
The KCCs overall policy role is to play a key role in regulatory activities aimed at protecting service users in the broadcast and telecommunications market and it continues to be responsible for investigations and sanctions regarding violations by telecommunications companies, as well as for mediating disputes between service providers and users. The KCC is established under the direct jurisdiction of the President of Korea and is comprised of five standing commissioners. Commissioners of the KCC are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the National Assembly.
Under the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc., telecommunications service providers are also required to protect personal information of their customers. Generally, when a telecommunications service provider intends to collect or use its customers personal information, such telecommunications service provider, with certain exceptions, must notify and receive the customers consent in relation to the purpose of collection, the use of the collected personal information, types of personal information collected and period during which the personal information will be possessed and used. Korean telecommunications providers may not use their customers personal information for any purpose other than the purpose their customers have consented to. In addition, there are various internal processes that the telecommunications providers are mandated to install in order to collect and handle personal information of their customers.
The MSIP also has the authority to regulate the IP media market, including IPTV services. We began offering IPTV services with real-time high definition broadcasting in November 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the MSIP. The ownership of the shares of an IP media broadcasting company by a newspaper, a news agency or a foreigner is limited. In March 2015, amendments to the Internet Multimedia Broadcasting Business Act were promulgated. Under such amendments, a single broadcasting operator together with their affiliates may not have more than one-third of the market share of all paid broadcasting subscribers in Korea. The restriction on market share will be in effect until June 27, 2018.
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 MSIP 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 MSIP, it must obtain prior approval from the MSIP for the rates and the general terms for that service. Each year the MSIP designates the service providers and the types of services
48
for which the rates and the general terms must be approved by the MSIP. In 2013, the MSIP designated us for local telephone service and SK Telecom for mobile service, which currently remains in effect. The MSIP, 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.
On October 1, 2014, the Handset Distribution Reform Act, which seeks to lower the cost of communication for the general public and reduce handset factory prices by establishing fair and transparent order in the distribution of mobile telecommunication devices, went into effect. The Handset Distribution Reform Act regulates, among other matters, the sale and subsidies of mobile devices such as smartphones, with one of its purposes being to induce telecommunication operators to compete in lowering the costs of communications and encourage the manufacturers to reduce handset factory prices, while improving service quality. Under the Handset Distribution Reform Act, consumers may not be discriminated in terms of subsidies based on their age, place of residence or monthly subscription plan when using their existing mobile phones, buying a new phone or switching their mobile carriers. Furthermore, everyone, regardless of their status, is entitled to receive either a handset subsidy for the purchase of mobile phone models that were launched within the last 15 months, or a tariff discount (with the current discount rate set at 20%, effective since April 24, 2015). The maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer is determined by Korean telecommunication regulators (such limit to be determined between ₩250,000 and ₩350,000, and may be adjusted every six months, with the current limit set at ₩330,000, effective since April 8, 2015). Telecommunications operators are also required to publicly announce the amount of handset subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or exaggerated advertisements, such as advertisements that mobile phones are free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.
Other Activities
A network service provider, such as us, must obtain the permission of the MSIP in order to:
| engage in certain businesses specified 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. |
By submitting a report to the MSIP, a network service provider may enter into arrangements for services to be furnished to its customers by a different telecommunications service provider and, in connection therewith, may provide its telecommunications services to, or authorize the use of all or a portion of its telecommunications facilities by, such other telecommunications service provider. The MSIP can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the MSIP under the Telecommunications Business Act.
In May 2010, the KCC issued a guideline that limits the marketing expenditure amounts of telecommunication service providers in Korea to 20% of their revenues, with the restrictions applicable to fixed-line and mobile segments to be calculated separately. However, as of October 2013, up to ₩100 billion of the marketing expenditures may be applied to either segment at the discretion of the
49
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. The MSIP may adjust the guideline to accommodate changes in market conditions.
The responsibilities of the MSIP 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, 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 MSIP 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, except for discount services for persons with disabilities and for certain low-income persons, 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 MSIP. As for the costs and losses recognized by a universal service provider in connection with providing discount services for persons with disabilities and for certain low-income persons, such costs and losses will be borne by such universal service provider.
A network service provider must permit other network service providers, as designated by the MSIP, 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 MSIP and be settled, by fair and proper methods.
In addition, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper lines that represent our excess capacity to other companies upon their request at rates that are determined by the MSIP 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, if any, are recognized as revenues from other businesses.
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
50
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 (1) it holds less than 1.0% of our total issued and outstanding shares with voting rights or (2) if the largest shareholder of such company is a government or foreign entity of a country that is a counterparty to a free trade agreement with Korea, as publicly announced by the MSIP, and the MSIP determines that the fact that such foreign government or entity holds a 15.0% or greater shareholding in such company does not present a risk of harm to the public interest. (However, the calculation of the above-referenced 49% ceiling will apply to: (x) any foreign entities that have entered into any major management-related agreement with a network service provider or the shareholder(s) thereof; and (y) foreign entities that have entered into any agreement pertaining to the settlement of fees relating to the handling of international electronic telecommunications services). As of December 31, 2016, 49.0% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in excess of such limitation, and the MSIP 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 MSIP may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. 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 MSIP 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 83% of our subscribers as of December 31, 2016 pay through the direct-debit service. Accounts of subscribers who fail to pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of time determined by the type of subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are written off.
Insurance
We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and 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
51
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 slowdowns in communication connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services.
Information Technology and Operational Systems
Enhancement of our information technology and operational systems and efficient utilization of such systems are important in effectively promoting our core strategies. We are committed to continually investing in and enhancing our information technology systems, which provide support to many aspects of our businesses. In order to respond more effectively to a changing business environment, a new enterprise resource planning system (the New ERP System) was completed and implemented during the second half of 2012. The New ERP System has contributed to enhancing various aspects of our internal processes and control systems, and we are establishing various plans to effectively utilize the New ERP System and to stabilize our internal control processes in connection with the New ERP System.
Patents and Licensed Technology
The ability to obtain and protect intellectual property rights to the latest telecommunications technology is important for our business. We own or have licenses to various patents and trademarks in Korea and overseas, and have applications for patents pending in Korea and other select countries such as the United States, Europe, China and Japan. A majority of our patents registered in Korea and overseas relate to our wireless and fixed-line telecommunications, media and IoT technologies. In addition, we operate several research and development (R&D) laboratories to develop latest technology and additional platforms, as described in Item 5.C. Research and Development, Patents and Licenses, Etc. We license our intellectual property rights to third parties in return for periodic royal payments. We currently do not license any material technologies or patents from third parties.
Seasonality of the Business
Our main business generally does not experience significant seasonality.
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. As of December 31, 2016, the net book value of our property and equipment was ₩14,312 billion, of which ₩3,434 billion is accounted for the net book value of our land, buildings and structures. As of December 31, 2016, the net book value of investment property, which is accounted for separately from our property and equipment was ₩1,148 billion. Other than described in this annual report, no significant amount of our properties is leased. There are no material encumbrances on our properties including the fixed assets below.
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.
52
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. |
We have a license to use 40 MHz of bandwidth in the 2.1 GHz spectrum, of which 20 MHZ is used to provide IMT-2000 services based on W-CDMA wireless network standards and the remaining 20 MHZ for our 4G LTE services. Such license was renewed in December 2016, and we are required to pay approximately ₩569 billion for use of such bandwidth during the license period of 5 years. In April 2010, the KCC announced its decision to allocate 20 MHz of bandwidth in the 900 MHz spectrum to us, which became effective in July 2011, for which we are required 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 that was determined by the KCC at the time of allocation. In June 2011, our right to use 40 MHz of bandwidth in the 1.8 GHz spectrum expired, and the KCC allocated back to us the right to use 20 MHz of such bandwidth in the 1.8 GHz spectrum upon expiration pursuant to our application, for which we are required to pay a portion of the actual sales generated from using the bandwidth in the 1.8 GHz spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales that was determined by the KCC at the time of allocation. We began using the 20 MHz of bandwidth in the 1.8 GHz spectrum, which became available upon termination of our 2G services, to provide our 4G LTE services starting in January 2012.
In August 2011, the KCC auctioned the right to use the remaining 20 MHz of bandwidth in the 1.8 GHz spectrum that we relinquished, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. We acquired the right to use the 10 MHz of bandwidth in the 800 MHz spectrum, for which we are required to pay a total usage fee of ₩261 billion during the license period of 10 years, SK Telecom acquired the right to use the 20 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use the 20 MHz of bandwidth in the 2.1 GHz spectrum. We have not utilized 10 MHz of bandwidth in the 800 MHz spectrum due to the unavailability of requisite technologies and have recorded impairment for the non-usage.
In August 2013, MSIP further auctioned 50 MHz of bandwidth in the 1.8 GHz spectrum, which had been used by governmental entities such as the military, and 80 MHz of bandwidth in the 2.6 GHz spectrum, which had been used for digital multimedia broadcasting services. We acquired the right to use 15 MHz of bandwidth in the 1.8 GHz spectrum, for which we are required to pay a total usage fee of approximately ₩900 billion during a license period of eight years. SK Telecom acquired the right to use 35 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum. Acquiring the right to use additional bandwidth in the 1.8 GHz spectrum has enabled us to provide wideband LTE services beginning in September 2013, as 15 MHz of the newly acquired bandwidth in the 1.8 GHz spectrum was adjacent to our existing 20 MHz of bandwidth in the 1.8 GHz spectrum.
53
In May 2016, the MSIP auctioned 40 MHz of bandwidth in the 700 MHz spectrum, 20 MHz of bandwidth in the 1.8 GHz spectrum, 20 MHz of bandwidth in the 2.1 GHz spectrum, 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum. We acquired the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum for which we are required to pay a total usage fee of approximately ₩470 billion during a license period of 10 years. SK Telecom acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum and LG U+ acquired the right to use 20 MHz of bandwidth in the 2.1 GHz spectrum. The right to use 40 MHz of bandwidth in the 700 MHz spectrum was not purchased by any company. We currently use 20 MHz of bandwidth in the 1.8 GHz spectrum to provide Wideband LTE-A services.
Exchanges
Exchanges include local exchanges and toll exchanges that connect local exchanges to long-distance transmission facilities. We had 25 million lines connected to local exchanges and 2.2 million lines connected to toll exchanges as of December 31, 2016.
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 IP platform in preparation for building our next generation broadband convergence network by 2021. As of December 31, 2016, 100% of our lines connected to toll exchanges are compatible to IP platform.
Internet Backbone
Our Internet backbone network, called KORNET, has the capacity to handle aggregate traffic of our broadband Internet access subscribers, data centers and Internet exchange system at any given moment of up to 8.9 Tbps as of December 31, 2016. 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 IP premium network that enables us to more reliably support olleh TV, WiBro, Internet Phone, upgraded VoIP services and other IP services. As of December 31, 2016, our IP premium network had 2,941 lines installed to provide 3G and LTE mobile data services, 3,147 lines installed to provide IPTV services and a total capacity to handle up to 2.8 Tbps of IPTV, voice, mobile data, virtual private network (VPN) and WiBro service traffic.
Access Lines
As of December 31, 2016, we had 19.3 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability using xDSL and FTTH technology. As of December 31, 2016, we had approximately 18.9 million broadband lines with speed of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers.
Transmission Network
Our domestic fiber optic cable network consisted of over 730,000 kilometers of fiber optic cables as of December 31, 2016 of which approximately 116,000 kilometers of fiber optic cables are used to connect our backbone network and approximately 616,000 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes 64 Tbp Long-haul Reconfigurable Optical Add Drop Multiplexer (ROADM) technology for connecting cities. ROADM technology improves bandwidth efficiency by enabling data to be transmitted from multiple signals across one fiber
54
strand in a cable and 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) and access network by implementing multi-service provisioning platform (MSPP) architecture in 2008. During 2013, we completed the construction of our next generation broadband convergence network by installing carrier ethernet architecture.
Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consisted of 55 relay sites as of December 31, 2016.
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, IP 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 210 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 879 Gbps is connected to approximately 200 Internet service providers through our two Internet gateways in Hyehwa and Guro. In addition, we operate a video backbone with capacity of 1.5 Gbps to transmit video signals from Korea to the rest of the world.
Satellites
Koreasat 5 (launched in 2006), Koreasat 6 (launched in 2010), and Koreasat 8 (launched in 2014 and of which we own 12 transponders) are all in operation, providing broadcasting, video distribution and broadband data services in selected areas. Two additional satellites (provisionally called Koreasat 5A and Koreasat 7) are expected to be launched in 2017. If launched successfully, Koreasat 5A will replace Koreasat 5. The rights and interests regarding Koreasat 3 are currently subject to an International Chamber of Commerce arbitration. See Item 4.B. Business OverviewOur ServicesOther Businesses and Item 8. Financial InformationItem 8.A. Consolidated Financial Statements and Other Financial InformationLegal Proceedings.
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 1.7% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries, activated since December 1999; |
| a 4.0% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong, Philippines, Singapore and Malaysia, activated since December 2001; |
55
| a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated since March 2002; |
| 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; |
| a 8.5% interest in the 11,000-kilometer Asia Pacific Gateway linking Korea, China, Japan, Thailand, Taiwan, Hong Kong, Vietnam, Singapore and Malaysia, activated since October 2016; and |
| a 16.7% interest in the 14,000-kilometer New Cross Pacific linking Korea, China, Japan, Taiwan and the United States, which is expected to be activated in the fourth quarter of 2017. |
We have also invested in four 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 IFRS as issued by the IASB.
Overview
We are an integrated provider of telecommunications services. Our principal services include mobile service and fixed-line services, including fixed-line telephone services, 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. In addition, we derive revenues from handset sales and non-telecommunications services, including financial services.
In 2016, we determined our operating segments for financial reporting purposes as the following:
| the Customer/Marketing Group, which engages in providing various telecommunication services to individual/home/corporate customers and the convergence business, |
| the Finance Group, which engages in providing various financial services such as credit card services, |
| the Satellite TV Group, which engages in satellite TV services, and |
| the Others Group, which includes security services, satellite service, information technology and network services, global business services that provides global network services to multinational or domestic corporate customers and telecommunications companies and other services provided by our subsidiaries. |
56
Prior to 2016, we had three operating segments: (i) Customer/Marketing Group, (ii) Finance Group and (iii) Others Group. In 2016, our satellite TV services was classified as a new segment, the Satellite TV Group, in accordance with the requirements of IFRS 8 (Operating Segments). The segment results for 2014, 2015 and 2016 are reported in accordance with the current segment classification of four operating segments. See Note 32 to the Consolidated Financial Statements.
We disposed of our interests in two of our subsidiaries, KT Rental Co., Ltd. and KT Capital Co., Ltd., in June 2015 and August 2015, respectively. The profit and loss on the related operations of KT Rental Co., Ltd. and KT Capital Co., Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements.
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 or political conditions in Korea deteriorate. A number of other developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:
| acquisitions and disposals of interests in subsidiaries and joint ventures; |
| employee reductions and changes in severance and retirement benefits; |
| acquisition of new bandwidths and usage fees for such bandwidths; |
| changes in the rate structure for our services; |
| handset subsidies; and |
| researching and implementing technology upgrades and additional telecommunication services such as 5G technologies. |
As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.
Acquisitions and Disposals of Interests in Subsidiaries and Joint Ventures
One key aspect of our overall business strategy calls for acquisitions of businesses and entering into joint ventures that complement or diversify our current business, as well as disposal or termination of such businesses from time to time. The following summarizes our recent acquisitions and disposals:
| in October 2011, we, through our former subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank, Busan Bank and Shinhan Card for approximately ₩252 billion, to further diversify our business and to create synergies through utilization of our mobile telecommunications network in financial services, thereby increasing our ownership interest in BC Card Co., Ltd. to 38.9%, making it our consolidated subsidiary as a result of deemed control starting in October 2011. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately ₩287 billion, and owned a 69.5% interest in BC Card Co., Ltd. as of December 31, 2016. The profit and loss on the related operations of KT Capital Co. Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements. |
57
| in October 2014, we acquired 4,000,000 treasury shares of ktis Corporation, an equity-method investee which provides telephone number directory services, for approximately ₩14 billion (and the book value of the company being ₩36 billion at the time of the consolidation), thereby increasing our ownership percentage to 30.0% of all issued and outstanding capital as of December 31, 2015 and making it our consolidated subsidiary as a result of deemed control starting from October 2014. See Note 1 to the Consolidated Financial Statements. |
| in October 2014, we, through our subsidiary KT Hitel Co., Ltd., acquired 4,800,000 treasury shares of ktcs Corporation, an equity-method investee which provides telephone number directory services, for approximately ₩14 billion (and the book value of the company being ₩37 billion at the time of consolidation), thereby increasing our ownership percentage to 30.9% of all issued and outstanding capital as of December 31, 2015 and making it our consolidated subsidiary as a result of deemed control starting from October 2014. See Note 1 to the Consolidated Financial Statements. |
| starting in July 2012, KT Rental Co., Ltd., our then-58.0% owned subsidiary, became our consolidated subsidiary as a result of the acquisition of KT Rental Co., Ltd.s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the then-second largest shareholder in July 2012, and the restriction on our control over KT Rental Co., Ltd. pursuant to a shareholders agreement being resolved as a result. The sale of KT Rental Co., Ltd. to the Lotte Group for ₩1.01 trillion (with proceeds to KT Corporation being ₩763 billion) was completed in June 2015. The profit and loss on the related operations of KT Rental Co. Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements. |
Our financial condition and results of operations may be affected as a result of such acquisitions, disposals or consolidation. Furthermore, pursuing acquisitions, joint venture and certain investment transactions also requires significant capital, and as we pursue further growth opportunities for the future, we may need to raise additional capital by incurring loans or through the issuances of bonds or other securities in the international capital markets, which may lead to increased levels of debt and debt servicing costs in the future.
Employee Reductions and Changes in Severance and Retirement Benefits
We regularly sponsor voluntary early retirement plans where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2014, 2015 and 2016, 41, 33 and 5 employees, respectively, retired under our voluntary early retirement plan. In April 2014, in addition to our usual voluntary early retirement plan, we held a special voluntary early retirement program where we provided employees who had been employed by us for more than 15 years with additional financial incentives to retire early or employment for two years at certain of our subsidiaries or affiliates. The special voluntary early retirement program resulted in the early retirement of 8,304 employees in 2014. Our payments of severance benefits amounted to ₩1,427 billion in 2014, ₩118 billion in 2015 and ₩122 billion in 2016. In 2014, our severance payments were particularly high due to the special voluntary early retirement program. There was no such special retirement program in 2015 and 2016.
Acquisition of New Bandwidth and Usage Fees for Such Bandwidths
One of the principal limitations on a wireless networks subscriber capacity is the amount of bandwidth spectrum allocated to a service provider. The growth of our mobile telecommunications business and the increase in usage of wireless data transmission services have been significant
58
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 content is likely to put additional strain on the bandwidth capacity of mobile service providers. We have acquired various licenses in recent years to secure additional bandwidth capacity to provide our broad range of services, for which we typically pay a portion of the actual sales generated from using the bandwidth during the license period as a usage fee, as well as a portion of expected sales as determined by the KCC at the time of allocation.
In August 2013, the MSIP further auctioned 50 MHz of bandwidth in the 1.8 GHz spectrum, which had been used by governmental entities such as the military, and 80 MHz of bandwidth in the 2.6 GHz spectrum, which had been used for digital multimedia broadcasting services. We acquired the right to use 15 MHz of bandwidth in the 1.8 GHz spectrum, for which we are required to pay a total usage fee of approximately ₩900 billion during a license period of eight years. SK Telecom acquired the right to use 35 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum. In September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of bandwidth in the 1.8 GHz spectrum to provide transmission speed of up to 150 Mbps, twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services in September 2013 and LG U+ commenced providing its wideband LTE services in January 2014. In March 2014, our wideband LTE services covered five metropolitan cities in Korea, and we expanded our wideband LTE services to all of Korea in July 2014. Furthermore, in March 2014, we commercialized Wideband LTE-A services, which interconnects our 20 MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission speed of up to 225 Mbps, and began additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in January 2015 to support transmission speed of up to 300 Mbps under the Wideband LTE-A X4 service.
In May 2016, the MSIP auctioned 40 MHz of bandwidth in the 700 MHz spectrum, 20 MHz of bandwidth in the 1.8 GHz spectrum, 20 MHz of bandwidth in the 2.1 GHz spectrum, 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum. We acquired the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum for which we are required to pay a total usage fee of approximately ₩470 billion during a license period of 10 years. SK Telecom acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum and LG U+ acquired the right to use 20 MHz of bandwidth in the 2.1 GHz spectrum. The right to use 40 MHz of bandwidth in the 700 MHz spectrum was not purchased by any company. We currently use 20 MHz of bandwidth in the 1.8 GHz spectrum to provide Wideband LTE-A services.
Changes in the Rate Structure for Our Services
Periodically, we adjust our rate structure for our services. For example, we completely abolished our mobile activation fee in March 2015 in line with government policy objectives. 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 offer various 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 IPTV, Internet phone, fixed-line telephone service, WiBro, and mobile services, at a discount.
59
The MSIP, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us for local telephone service. In addition, the MSIP currently does not regulate our domestic long-distance, international long-distance, broadband Internet access and mobile service rates, but it periodically announces public policy guidelines or suggestions on tariffs for non-regulated services, which we have followed in the past. For a discussion of adjustments in our rate structure, see Item 4. Information on the CompanyItem 4.B. Business OverviewRevenues and Rates.
Handset Subsidies
In March 2008, the Government removed a prohibition on the provision of handset subsidies and allowed mobile service providers to subsidize the purchase of new handsets by certain qualifying customers. We began providing such handset subsidies, which increased, and may in the future increase, our marketing expenses. We provide handset subsidies to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. Generally, handset subsidies may be provided to any subscriber that uses our service and purchases handsets either directly from us or through third parties. Since we do not recognize revenues from sales of handsets by third parties, the trends between our handset sales and our provision for handset subsidies are not necessarily correlated. The amount recognized as a provision for handset subsidies is our best estimate of the expenditure required to settle current obligations to relevant subscribers at the end of the reporting period. This subsidy amount is the sum of the present values of the monthly balances for handset subsidies over the relevant service periods, taking into account the customer retention rate for relevant subscribers. In May 2010, the KCC announced a guideline recommending that telecommunication service providers limit their marketing expenses to 22.0% of their annual sales, and the limit was subsequently lowered to 20.0% of their annual sales for the years 2013, 2012 and 2011. Such marketing expenses included initial commissions, monthly commissions and retention commissions paid to our authorized dealers and subscribers, including handset subsidies, but did not include advertising expenses. While the guideline was not binding, we, as well as our competitors, nonetheless tried to adhere to such guideline when feasible. Furthermore, failure to comply with rules, regulations and corrective orders may lead to suspension of our business or imposition of monetary penalties.
For example, in December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being approximately ₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. In March 2014, the MSIP imposed a 45-day suspension on each of us, SK Telecom and LG U+ from accepting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. In August 2014, the KCC imposed a combined fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for providing excessive handset subsidies, and also imposed temporary suspensions on accepting new subscribers for seven days on SK Telecom and LG U+. In December 2014, the KCC imposed a fine of approximately ₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies. In March 2015, the KCC also imposed a combined fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other telecommunications operators were promoting. On March 12, 2015, the KCC imposed a fine of ₩870 million for violation of restrictions on handset subsidies relating to our compensation program for used handsets. Any further suspension of our business or imposition of monetary penalties by the Government could have a material adverse effect on our business.
Furthermore, on October 1, 2014, the Handset Distribution Reform Act, which seeks to lower the cost of communication for the general public and reduce handset factory prices by establishing fair and transparent order in the distribution of mobile telecommunication devices, went into effect. The
60
Handset Distribution Reform Act regulates, among other matters, the sale and subsidies of mobile devices such as smartphones, with one of its purposes being to induce telecommunication operators to compete in lowering the costs of communications and encourage the manufacturers to reduce handset factory prices, while improving service quality. Under the Handset Distribution Reform Act, consumers may not be discriminated in terms of subsidies based on their age, place of residence or monthly subscription plan when using their existing mobile phones, buying a new phone or switching their mobile carriers. Furthermore, everyone, regardless of their status, is entitled to receive either a handset subsidy for the purchase of mobile phone models that were launched within the last 15 months, or a tariff discount (with the current discount rate set at 20%, effective since April 24, 2015). The maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer is determined by Korean telecommunication regulators (such limit to be determined between ₩250,000 and ₩350,000, and may be adjusted every six months, with the current limit set at ₩330,000, effective since April 8, 2015). Telecommunications operators are also required to publicly announce the amount of handset subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or exaggerated advertisements, such as advertisements that mobile phones are free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.
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, we are continually upgrading our broadband network to enable better FTTH connection, which provides speed of up to 1 Gbps and better 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 IPTV, and other digital media content with stronger stability.
In addition, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to as 4G technology, and commenced providing commercial 4G LTE services in the Seoul metropolitan area in January 2012. We completed the expansion of our 4G LTE service coverage nationwide in October 2012. We commenced providing wideband LTE services in September 2013, which we expanded nationwide in July 2014, and commercialized Wideband LTE-A services in March 2014, and began additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in January 2015 to support transmission speed of up to 300 Mbps under the Wideband LTE-A X4 service, as discussed above.
Critical Accounting Policies
We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB. These accounting principles require our management to make certain 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.
61
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, equipment, intangible assets and investment property; |
| impairment of long-lived assets, including goodwill; |
| valuation and impairment of investment securities; |
| income taxes; |
| deferred revenue relating to service installation fees and initial subscription fees; |
| post-employment benefit liabilities; and |
| provisions. |
Allowances for Doubtful Accounts
Allowance for doubtful accounts is our best estimate of the amount of impairment losses incurred on our existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an aging analysis of balances, historical write-off experience, customers or counterpartys credit ratings and changes in payment terms. 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 our trade and other receivables in the three-year period ended December 31, 2016 are summarized as follows:
Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In millions of Won) | ||||||||||||
Balance at beginning of year |
₩ | 771,527 | ₩ | 838,699 | ₩ | 719,583 | ||||||
Provision |
230,791 | 141,555 | 92,711 | |||||||||
Reversal or written-off |
(163,669 | ) | (168,663 | ) | (189,156 | ) | ||||||
Changes in the scope of consolidation |
3,425 | (86,484 | ) | 271 | ||||||||
Others |
(3,375 | ) | (5,524 | ) | (10,922 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
₩ | 838,699 | ₩ | 719,583 | ₩ | 612,487 | ||||||
|
|
|
|
|
|
If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording additional expense or benefit.
Useful Lives of Property, Equipment, Intangible Assets and Investment Property
Property and equipment, intangible assets and investment properties (excluding land, condominium memberships, golf club memberships and broadcasting concession) are depreciated
62
using the straight-line method over their useful lives as disclosed in Note 3.8 to the Consolidated Financial Statements. An assets residual value and useful lives are reviewed and adjusted at the end of each financial reporting period, and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. 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 ₩208 billion in 2016.
Impairment of Long-Lived Assets, including Goodwill
Long-lived assets generally consist of property and equipment and intangible assets, including goodwill. 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 recognized when the assets recoverable amount is less than its carrying amount. The recoverable amount of a long-lived asset is the greater of an assets fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amounts of cash-generating units are based on their value in use calculated by applying the annual discount rate ranging from 4.36% to 12.72% (depending on the segment) to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five years. 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 estimated recovery value. For example, in 2015, we recognized ₩185 billion of impairment loss in connection with the non-usage of 10 MHz of bandwidth in the 800 MHz spectrum. We also recognized ₩33 billion of impairment loss on inventory and tangible and intangible assets in connection with the close of the trunk radio system business of KT Powertel Co., Ltd. in 2015.
Goodwill represents the excess of purchase price paid over the fair value assigned to the identifiable net assets of acquired businesses. The determination of the fair values of goodwill is based on managements judgment on the expected cash flows of the cash-generating units to which the goodwill is allocated, 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. For example, in 2016, we recognized impairment losses of ₩132 billion on goodwill allocated to KT Skylife primarily due to a decrease in the expected recoverable amount resulting from a decrease in KT Skylifes market value in 2016. See Note 12 of the Consolidated Financial Statements.
Valuation and Impairment of Financial Assets
The fair value of financial instruments, including derivative instruments, which are not traded in an active market, is determined by using valuation techniques. Our management uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period.
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 a change in the fair value of derivative
63
instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounting, the effective portion of the gain or loss on the derivative instruments are recorded as gain or loss on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income or loss, as applicable.
For financial assets, including assets carried at amortized cost and those classified as available-for-sale, we make an annual assessment at the end of each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. For financial assets carried at amortized cost and available-for-sale debt assets, such asset is considered impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events (a loss event) that occurred after the initial recognition of the financial asset, which had an impact on the estimated future cash flows of the financial asset that can reliably be estimated. For equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost, in addition to circumstances described below, may be considered as evidence that the asset is impaired.
For assets carried at amortized cost, the amount of impairment is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the assets original effective interest rate, and the carrying amount of the asset is reduced and the amount of loss is recognized in the statement of income. Loss on such asset may also be measured based on observable market price if there is an active market for the asset. For assets classified as available-for-sale, the cumulative loss, measured as the difference between the acquisition cost and the current fair value and recognized as accumulated other comprehensive income, less any impairment loss on such financial asset previously recognized in profit or loss, is removed from equity and recognized in the statement of income.
Significant management judgment is involved in evaluating whether a loss event has occurred. The estimates and assumptions used by management to evaluate whether a loss event has occurred 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, breach of contract such as default or delinquency in payments, disappearance of an active market for the financial asset and other adverse changes in the payment status of borrowers in the portfolio. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.
Income Taxes
We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each years liability by taxing authorities.
We believe that the accounting estimate related to assessing the realizability of deferred tax assets 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.
64
Deferred Revenue relating to Service Installation Fees and Initial Subscription Fees
We charge service installation fees and initial subscription fees related to activation of many of our services, which are deferred and recognized as revenue over the expected terms of customer relationships. Our estimate of expected terms of customer relationship is based on the historical rate, which may differ in the future. If the managements estimation is amended, it may cause significant differences in the timing of revenue recognition and amount recognized.
Post-employment Benefit Liabilities
Our accounting of post-employment benefits, which mainly consist of a defined benefit plan (we began offering a defined contribution plan in December 2012), involves judgments about uncertain events including discount rates, life expectancy and future pay inflation. Any changes in these assumptions will impact the carrying amount of the defined benefit liability. The discount rates used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability, are determined at the end of each reporting period by reference to the yield at the reporting date on high-quality corporate bonds that have maturity dates approximating the terms of our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid. Other key assumptions for defined benefit liability are based in part on current market conditions. For defined contribution plans, we pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis, and we have no further payment obligations once the contributions have been paid.
Provisions
We recognize provisions at the end of the reporting period when we have a present legal or constructive obligation, such as litigation or assets retirement obligations, as a result of past events and an outflow of resources required to settle the obligation is probable and can be reliably estimated. We measure provisions at the present value of the expenditures expected to be required to settle the obligation, which are estimated based on factors such as historical experience. We do not recognize provisions for future operating losses and recognize as interest expense any increase in the provisions due to passage of time. See Notes 2.22, 3.7 and 16 to the Consolidated Financial Statements.
Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS
In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with K-IFRS, which we are required to file with the Financial Services Commission and the Korea Exchange under the FSCMA.
In relation to presentation of operating profit, certain accounts or transactions which are included in operating income or expenses under IFRS as issued by the IASB, are excluded from operating income or expenses under K-IFRS. Additionally, under K-IFRS, revenue from the development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the buyer. Furthermore, in connection with the exercise of early redemption rights for certain commercial paper guaranteed by KT ENGCORE, our previously consolidated subsidiary, we recognized financial losses relating to the resulting estimation of guarantee liabilities in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for the year ended December 31, 2013 (which were issued on April 28, 2014), which were not reflected in our financial statements prepared in accordance with K-IFRS for the year ended December 31, 2013 (which were issued on March 13, 2014) as it was
65
not possible to make a reasonable estimate of the liabilities at the time of issuing the K-IFRS financial statements. We subsequently reflected such losses in our K-IFRS financial statements for the year ended December 31, 2014. As a result, the presentation of operating results in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating results in our consolidated statements of operations prepared in accordance with K-IFRS. The table below sets forth a reconciliation of our operating profit and net income or loss as presented in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for each of the years ended December 31, 2014, 2015 and 2016 to our operating profit and net income or loss in our consolidated statements of operations prepared in accordance with K-IFRS, for each of the corresponding years, taking into account such differences:
For the Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In millions of Won) | ||||||||||||
Operating profit (loss) under IFRS as issued by the IASB |
₩ | (778,840 | ) | ₩ | 1,077,068 | ₩ | 1,339,780 | |||||
Effect of changes in operating income presentation |
391,016 | 207,165 | 96,602 | |||||||||
Revenue recognition of development and sale of real estate |
(18,767 | ) | 8,711 | 3,597 | ||||||||
|
|
|
|
|
|
|||||||
Operating profit (loss) under K-IFRS |
₩ | (406,591 | ) | ₩ | 1,292,944 | ₩ | 1,439,979 | |||||
|
|
|
|
|
|
For the Year Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In millions of Won) | ||||||||||||
Net income (loss) under IFRS as issued by the IASB |
₩ | (941,413 | ) | ₩ | 624,685 | ₩ | 795,117 | |||||
Profit before income tax |
||||||||||||
Revenue recognition of development and sale of real estate |
(18,767 | ) | 8,711 | 3,597 | ||||||||
Guarantee liabilities and loss (KT ENGCORE) |
(10,538 | ) | | | ||||||||
Income tax |
4,542 | (2,108 | ) | (870 | ) | |||||||
|
|
|
|
|
|
|||||||
Net income (loss) under K-IFRS |
₩ | (966,176 | ) | ₩ | 631,288 | ₩ | 797,844 | |||||
|
|
|
|
|
|
Recent Accounting Pronouncements under IFRS
For a summary of new standards, amendments and interpretations issued under IFRS as issued by the IASB but not effective for 2016, and which have not been adopted early by us, see Note 2.2 to the Consolidated Financial Statements.
Operating Revenues and Operating Expenses
Operating Revenues
Our operating revenues primarily consist of:
| fees related to our mobile services, including monthly fees, usage charges for outgoing calls, usage charges for wireless data transmission, contents download fees, mobile-to-mobile interconnection revenues and value-added monthly service fees; |
| fees from our fixed-line services, including: |
Ø | fees from our fixed-line telephone services, which include: |
Ø | monthly basic charges, which are one-time or monthly fixed charges primarily consisting of (i) non-refundable installation fees; and (ii) basic monthly charges from local telephone services (or fixed monthly charges for discount plans); |
66
Ø | monthly usage charges, which are usage fees based on the amount of services used, primarily consisting of (i) monthly usage charges for local telephone and domestic long distance services; (ii) international long-distance service revenues, (primarily (a) amounts we bill to our customers for outgoing calls made to foreign countries, (b) amounts we bill to foreign telecommunications carriers for connection to the domestic telephone network in respect of incoming calls at the applicable settlement rate, and (c) other revenues, including revenues from international leased lines); (iii) land-to-mobile and land-to-land interconnection revenues; (iv) interconnection fees we charge to fixed-line and mobile service providers and voice resellers for their use of our local, domestic long-distance and international networks in providing their services; and |
Ø | other revenues from (i) value-added services, including 1588 intelligent network call services, local telephone directory assistance, call waiting and caller identification services; and (ii) local, domestic long-distance and international calls placed from public telephones. |
Ø | 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, IPTV and network portal services; |
Ø | data communication 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; |
| revenues from goods sold that are generated primarily by sale of mobile handsets and specially designed phones for fixed-line and mobile convergence services, net of any subsidies paid directly to customers, as well as certain sales by our consolidated subsidiaries, such as sale of real estate properties relating to real estate developments by KT Estate Inc.; |
| financial service revenues, primarily consisting of fees from credit card services provided by BC Card Co., Ltd., our consolidated subsidiary; and |
| other revenues that are primarily derived from information technology and network services, satellite services and security services. |
Operating Expenses
Our operating expenses primarily include:
| salaries and wages, including post-employment benefits, termination benefits (including severance benefits for voluntary and special early retirements) and share-based payments; |
| depreciation expenses incurred primarily in connection with our telecommunications network facilities; |
67
| purchase of inventories, primarily consisting of inventories purchased for our sale of mobile handsets and specially designed phones for fixed-line mobile convergence services, and changes of inventories, which reflects increases or decreases of inventories during the applicable period; |
| card service costs, primarily consisting of costs in connection with credit card services provided by BC Card Co., Ltd., including fees paid to member credit card companies in our network for marketing expenses and for costs associated with the present value and default risks of installment card charges which are borne by such member companies; |
| sales commissions, primarily consisting of sales commissions to third-party dealers related to procurement of mobile subscribers and mobile handset sales; |
| commissions, primarily consisting of commission-based payments for certain third-party outsourcing services, including commissions to the outsourced call center staff; |
| service cost, primarily consisting of payments for certain third-party outsourcing services, including payments for software development and design, data analysis and processing, and installment and maintenance of IT and satellite equipment; and |
| interconnection charges, which are interconnection payments to telecommunication service providers for calls from landline users and our mobile subscribers to our competitors subscribers. |
Operating Results2015 Compared to 2016
The following table presents selected income statement data and changes therein for 2015 and 2016:
For the Year Ended December 31, |
Changes | |||||||||||||||
2015 vs. 2016 | ||||||||||||||||
2015 | 2016 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Operating revenues |
₩ | 22,700 | ₩ | 23,121 | ₩ | 421 | 1.9 | % | ||||||||
Revenue |
22,212 | 22,755 | 543 | 2.4 | ||||||||||||
Others |
488 | 366 | (122 | ) | (25.0 | ) | ||||||||||
Operating expenses |
21,623 | 21,781 | 158 | 0.7 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
1,077 | 1,340 | 263 | 24.4 | ||||||||||||
Finance income |
273 | 296 | 23 | 8.4 | ||||||||||||
Finance costs |
(645 | ) | (515 | ) | 130 | (20.2 | ) | |||||||||
Income from joint ventures and associates |
6 | 3 | (3 | ) | (50.0 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Profit (loss) from continuing operations before income tax |
711 | 1,123 | 412 | 57.9 | ||||||||||||
Income tax expense (benefit) |
227 | 328 | 101 | 44.5 | ||||||||||||
Profit (loss) for the period from continuing operations |
484 | 795 | 311 | 64.3 | ||||||||||||
Profit from discontinued operations |
141 | | (141 | ) | N.M. | |||||||||||
|
|
|
|
|
|
|||||||||||
Profit (Loss) for the period |
₩ | 625 | ₩ | 795 | ₩ | 170 | 27.2 | |||||||||
|
|
|
|
|
|
N.M. means not meaningful.
68
Operating Revenues
The following table presents a breakdown of our operating revenues and changes therein for 2015 and 2016:
For the Year Ended December 31, |
Changes | |||||||||||||||
2015 vs. 2016 | ||||||||||||||||
2015 | 2016 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Mobile services |
₩ | 7,260 | ₩ | 7,366 | ₩ | 106 | 1.5 | % | ||||||||
Fixed-line services |
6,755 | 6,917 | 162 | 2.4 | ||||||||||||
Fixed-line telephone services: |
||||||||||||||||
Monthly Basic Charges |
650 | 616 | (34 | ) | (5.2 | ) | ||||||||||
Monthly Usage Charges |
1,022 | 855 | (167 | ) | (16.3 | ) | ||||||||||
Others |
646 | 581 | (65 | ) | (10.1 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Sub-total |
2,318 | 2,053 | (265 | ) | (11.4 | ) | ||||||||||
Internet services: |
||||||||||||||||
Broadband Internet access service |
1,882 | 2,040 | 158 | 8.4 | ||||||||||||
Other Internet-related services |
1,479 | 1,799 | 320 | 21.6 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Sub-total |
3,361 | 3,829 | 478 | 14.2 | ||||||||||||
Data communication services |
1,076 | 1,025 | (51 | ) | (4.7 | ) | ||||||||||
Sale of goods |
2,756 | 2,808 | 52 | 1.9 | ||||||||||||
Financial services |
3,483 | 3,568 | 85 | 2.4 | ||||||||||||
Other |
2,446 | 2,462 | 16 | 0.7 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating revenues |
₩ | 22,700 | ₩ | 23,121 | ₩ | 421 | 1.9 | % | ||||||||
|
|
|
|
|
|
Total operating revenues increased by 1.9%, or ₩421 billion, from ₩22,700 billion in 2015 to ₩23,121 billion in 2016 primarily due to increases in the revenues from our Internet services and mobile services, the impact of which was offset in part by a decrease in the revenues from our fixed-line telephone services.
Mobile Services
Our mobile services revenues increased by 1.5%, or ₩106 billion, from ₩7,260 billion in 2015 to ₩7,366 billion in 2016 primarily due to a 4.7% increase in our mobile subscribers from approximately 18,038,000 as of December 31, 2015 to approximately 18,892,000 as of December 31, 2016. Such increase in our mobile subscribers was slightly enhanced by an increase in our average revenue per user. However, the magnitude of the increase in our average revenue per user in 2016 was smaller, as compared to 2015 because many of our new mobile subscribers in 2016 purchased economical rate plans for their secondary mobile devices. Accordingly, although the increase in our mobile subscribers in 2016 was larger, as compared to 2015, the increase in our mobile services revenues in 2016 was smaller than the increase in our mobile services revenues in 2015 primarily due to a decrease in the magnitude of the increase in our average revenue per user in 2016, as compared to 2015.
Fixed-line Services
Our fixed-line services revenues in the aggregate increased by 2.4%, or ₩162 billion, from ₩6,755 billion in 2015 to ₩6,917 billion in 2016 primarily due to an increase in Internet services revenues, the impact of which was partially offset by decreases in our fixed-line telephone services revenues and data communication services revenues.
69
Fixed-line Telephone Services. Our fixed-line telephone services revenues decreased by 11.4%, or ₩265 billion, from ₩2,318 billion in 2015 to ₩2,053 billion in 2016 due to decreases in monthly usage charges, other fixed-line telephone services revenues and monthly basic charges. Specifically:
| Monthly usage charges decreased by 16.3%, or ₩167 billion, from ₩1,022 billion in 2015 to ₩855 billion in 2016 primarily due to the continuing decrease in the usage of fixed-line services resulting from the continuing increase in the usage of mobile telephone services, Internet phone services and other VoIP services such as Kakao Talk, Line and Skype, which led to a decrease in domestic long-distance call minutes from 2.1 billion in 2015 to 1.5 billion in 2016 and a decrease in local call pulses from 3.0 billion in 2015 to 2.2 billion in 2016. |
| Other fixed-line telephone service revenue decreased by 10.1%, or ₩65 billion, from ₩646 billion in 2015 to ₩581 billion in 2016 primarily due to the continuing erosion of fixed-line services, including public telephones, by mobile telephone services, Internet phone services and other VoIP services, as well as a decrease in the number of lines in service from 2015 to 2016. |
| Monthly basic charges decreased by 5.2%, or ₩34 billion, from ₩650 billion in 2015 to ₩616 billion in 2016 primarily due to a decrease in the number of our telephone lines in service from 12.4 million in 2015 to 11.9 million in 2016. |
Internet Services. Our Internet service revenues increased by 14.2%, or ₩478 billion, from ₩3,361 billion in 2015 to ₩3,829 billion in 2016 primarily due to an increase in the number of IPTV subscribers from approximately 6.6 million as of December 31, 2015 to approximately 7.0 million as of December 31, 2016 and an increase in the number of our olleh GiGA Internet Service subscribers from approximately 1.0 million as of December 31, 2015 to approximately 2.4 million as of December 31, 2016.
Data Communication Services. Our data communication services revenues decreased by 4.7%, or ₩51 billion, from ₩1,076 billion in 2015 to ₩1,025 billion in 2016 primarily due to a decrease in revenues from our leased lines, resulting from increased competition in the data communications market in Korea.
Sale of Goods
Revenues from sale of goods increased by 1.9%, or ₩52 billion, from ₩2,756 billion in 2015 to ₩2,808 billion in 2016 primarily due to an increase in revenues from development and sale of real estate by KT Estate Inc. which was partially offset by a decrease in the sale of mobile handsets in 2016 compared to 2015. The number of mobile handsets sold in 2016 decreased largely due to order cancellation and customer returns of Samsung Galaxy Note 7 handsets, caused by the handsets explosive battery issue.
Financial Services
Financial services revenues increased by 2.4%, or ₩85 billion, from ₩3,483 billion in 2015 to ₩3,568 billion in 2016 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co., Ltd., primarily as a result of increased usage of credit cards.
Others
Other operating revenues increased by 0.7%, or ₩16 billion, from ₩2,446 billion in 2015 to ₩2,462 billion in 2016 primarily due to increases in revenues from our real estate lease business and systems integration business.
70
Operating Expenses
The following table presents a breakdown of our operating expenses and changes therein for 2015 and 2016:
For the Year Ended December 31, |
Changes | |||||||||||||||
2015 vs. 2016 | ||||||||||||||||
2015 | 2016 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Salaries and wages |
₩ | 3,303 | ₩ | 3,478 | ₩ | 175 | 5.3 | % | ||||||||
Depreciation |
2,756 | 2,763 | 7 | 0.3 | ||||||||||||
Commissions |
1,037 | 1,099 | 62 | 6.0 | ||||||||||||
Interconnection charges |
689 | 690 | 1 | 0.1 | ||||||||||||
Purchase of inventories |
3,963 | 3,407 | (556 | ) | (14.0 | ) | ||||||||||
Changes of inventories |
(198 | ) | 162 | 360 | N.M. | |||||||||||
Sales commission |
1,857 | 1,968 | 111 | 6.0 | ||||||||||||
Service cost |
1,164 | 1,322 | 158 | 13.6 | ||||||||||||
Card service costs |
2,960 | 3,050 | 90 | 3.0 | ||||||||||||
Others (1) |
4,092 | 3,842 | (250 | ) | (6.1 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
₩ | 21,623 | ₩ | 21,781 | ₩ | 158 | 0.7 | % | ||||||||
|
|
|
|
|
|
N.M. means not meaningful.
(1) | Including other operating expenses (which include other expenses) amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee, installation fee, taxes and dues, research and development expenses and advertising expenses. |
Total operating expenses increased by 0.7%, or ₩158 billion, from ₩21,623 billion in 2015 to ₩21,781 billion in 2016 primarily due to increases in changes of inventories, salaries and wages and service cost, the impact of which was largely offset by decreases in purchase of inventories and certain other operating expenses described below. Specifically:
| Changes of inventories, which reflects inventory changes during a period by calculating inventories at the beginning of period minus those at the end of period, amounted to ₩(198) billion in 2015 and ₩162 billion in 2016, which means inventories decreased by ₩162 billion in 2016 while they increased by ₩198 billion in 2015. This was primarily due to a decrease in purchase of handsets in 2016 compared to 2015 as described below, which was offset in large part by a decrease in the sale of handsets in 2016 compared to 2015. Cost of sale of goods (which is the sum of changes of inventories and purchase of inventories) in 2016 decreased by 5.2% to ₩3,569 billion from ₩3,765 billion in 2015, primarily reflecting a decrease in the cost of handsets and the decreased handset sales, in each case in 2016 compared to 2015. The decreases in the cost of handsets and handset sales were primarily due to a decrease in sales of new handset models (which generally have higher prices than older models) such as Galaxy Note 7 due to the models mechanical defects as explained below in connection with the decrease in purchase of inventories in 2016 compared to 2015. |
| Salaries and wages increased by 5.3%, or ₩175 billion, from ₩3,303 billion in 2015 to ₩3,478 billion in 2016 primarily due to an increase in salaries and wages based on seniority and promotions. |
| Service cost, increased by 13.6%, or ₩158 billion, from ₩1,164 billion in 2015 to ₩1,322 billion in 2016, primarily due to an increase in service costs relating to our IPTV and mobile services such as purchases of contents to meet increased and diversified |
71
demand from customers and an increase in installation fees as more sophisticated technologies and corresponding higher fees were required for the installation of certain new equipment and facilities. |
These factors were partially offset by the following:
| Purchase of inventories decreased by 14.0%, or ₩556 billion, from ₩3,963 billion in 2015 to ₩3,407 billion in 2016 primarily due to a decrease in the total number of mobile handsets (mostly smartphones) purchased, which was largely attributable to the returns of Samsung Galaxy Note 7 handsets, which had an explosive battery issue, to the manufacturer. We purchased Galaxy Note 7 handsets for sale to customers but when our customers returned the handsets or cancelled orders, we returned those handsets to the manufacturer resulting in the reduction in purchase of inventories. We recognize the purchase of mobile handsets as operating expenses during the period when such handsets are purchased regardless of whether they are actually sold during that period. As a result, the periods when purchase of inventories is recognized and when the revenue from their sales is recognized could be different. |
| Other operating expenses decreased by 6.1%, or ₩250 billion, from ₩4,092 billion in 2015 to ₩3,842 billion in 2016, primarily due to decreases in installation fees of and insurance premiums. Installation fees decreased by 37.2%, or ₩93 billion, from ₩249 billion in 2015 to ₩157 billion in 2016, primarily due to the consolidation of KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. in August 2015. The installation fees that we previously paid to the two subsidiaries before consolidation were no longer recognized as installation fees upon consolidation; instead, installation expenses incurred by the subsidiaries have been classified as other expenses such as salaries and wages. Insurance premiums decreased by 15.6%, or ₩33 billion, from ₩211 billion in 2015 to ₩178 billion in 2016, primarily due to a decrease in insurance premium rates for our handsets. |
Operating Profit
Due to the factors described above, our operating profit increased by 24.4%, or ₩263 billion, from ₩1,077 billion in 2015 to ₩1,340 billion in 2016. Our operating margin, which is operating profit as a percentage of operating revenues, was 4.7% in 2015 and 5.8% in 2016.
Finance Income (Costs)
The following table presents a breakdown of our finance income and costs and changes therein for 2015 and 2016:
For the Year Ended December 31, |
Changes | |||||||||||||||
2015 vs. 2016 | ||||||||||||||||
2015 | 2016 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest income |
₩ | 70 | ₩ | 116 | ₩ | 46 | 65.7 | % | ||||||||
Interest expense |
(386 | ) | (337 | ) | 49 | (12.7 | ) | |||||||||
Net foreign currency transaction gain (loss) |
(24 | ) | (13 | ) | 11 | (45.8 | ) | |||||||||
Net foreign currency translation gain (loss) |
(164 | ) | (110 | ) | 54 | (32.9 | ) | |||||||||
Net gain (loss) on settlement of derivatives |
(6 | ) | 8 | 14 | N.M. | |||||||||||
Net gain on valuation of derivatives |
140 | 109 | (31 | ) | (22.1 | ) | ||||||||||
Net other finance costs (1) |
(2 | ) | 8 | 10 | N.M. | |||||||||||
|
|
|
|
|
|
|||||||||||
Net finance costs |
₩ | (372 | ) | ₩ | (219 | ) | ₩ | 153 | (41.1 | )% | ||||||
|
|
|
|
|
|
N.M. means not meaningful.
72
(1) | Including net other finance income and expenses, loss on disposal of trade receivables and impairment loss on available-for-sale financial assets. |
Our net finance costs decreased by 41.1%, or ₩153 billion, from ₩372 billion in 2015 to ₩219 billion in 2016, primarily due to decreases in net foreign currency translation loss and interest expense and an increase in interest income, the impact of which was partially offset by a decrease in net gain on valuation of derivatives. Specifically:
| Our net foreign currency translation loss decreased by 32.9%, or ₩54 billion, from ₩164 billion in 2015 to ₩110 billion in 2016, primarily due to smaller depreciation of the Won against the U.S. dollar and the Japanese Yen in 2016 compared to 2015. The Market Average Exchange Rate of the Won against the U.S. dollar depreciated from ₩1,099.2 to US$1.00 as of December 31, 2014 to ₩1,172.0 to US$1.00 as of December 31, 2015 and ₩1,208.5 to US$1.00 as of December 30, 2016. In general, we recognize net foreign currency translation loss when the Won depreciates against foreign currencies, especially the U.S. dollar, primarily because of our foreign currency-denominated debt and foreign currency-denominated payables to overseas equipment sellers and foreign carriers. In 2016, the impact of such net foreign currency translation loss was largely offset by the decrease in net gain on valuation of derivatives discussed below. |
| Our interest expense decreased by 12.7%, or ₩49 billion, from ₩386 billion in 2015 to ₩337 billion in 2016 primarily due to a decrease in borrowings and, to a lesser extent, decreased interest rates. |
| Our interest income increased by 65.7%, or ₩46 billion, from ₩70 billion in 2015 to ₩116 billion in 2016 primarily due to an increase in the average balance of interest-bearing financial assets we held, including as a result of an increase in interest rate payment received in connection with reimbursement of certain value added tax in 2016. |
These factors were partially offset by the following:
| Our net gain on valuation of derivatives decreased by 22.1%, or ₩31 billion, from ₩140 billion in 2015 to ₩109 billion in 2016, primarily due to a decrease in gains from our currency swap contracts as a result of smaller depreciation of the Won against the Japanese Yen and the U.S. dollar in 2016 compared to 2015. We entered into derivative instruments for foreign exchange risk hedging purposes and generally recognize net gain on valuation of derivatives when the Won depreciates against foreign currencies as described above in the explanation of foreign currency translation loss. |
Income from Joint Ventures and Associates
Income from joint ventures and associates decreased by 50.0%, or ₩3 billion, from ₩6 billion in 2015 to ₩3 billion in 2016, primarily due to a loss from joint ventures and associates recognized in connection with a sale of certain real estate by our wholly-owned subsidiary KT Estate Inc. to one of our associates and joint ventures, K-Realty Rental Housing REIT 2.
Income Tax Expense
Income tax expense increased by 44.5%, or ₩101 billion, from ₩227 billion in 2015 to ₩328 billion in 2016, primarily due to an increase in profit before income tax, which increased by ₩412 billion, from ₩711 billion in 2015 and ₩1,123 billion in 2016. See Note 28 to the Consolidated Financial Statements.
73
Profit from Discontinued Operations
We did not have any profit from discontinued operations in 2016, whereas our profit from discontinued operations in 2015 was ₩141 billion, primarily due to recognition of net proceeds from the sale of capital stock of KT Rental Co., Ltd and KT Capital Co., Ltd. as profit from discontinued operations in 2015.
Profit (Loss) for the Period
Due to the factors described above, our profit for the period increased by 27.2%, or ₩170 billion, from ₩625 billion of profit in 2015 to ₩795 billion of profit in 2016. Our net profit margin, which is net profit for the period as a percentage of operating revenues was 2.8% in 2015 and 3.5% in 2016.
Segment ResultsCustomer/Marketing Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased slightly by 0.1%, or ₩14 billion, from ₩16,130 billion in 2015 to ₩16,144 billion in 2016 primarily due to increase in revenues from our Internet services and mobile services, primarily due to an increase in subscribers, which was partially offset by a decrease in the fixed-line services revenues, all as described above.
Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 28.6%, or ₩233 billion, from ₩817 billion in 2015 to ₩1,050 billion in 2016, as the segments operating expenses decreased by ₩219 billion while the segments operating revenue increased by ₩14 billion as described above. For this segment, operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-segment transactions, was 5.1% in 2015 and 6.5% in 2016.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 1.0%, or ₩28 billion, from ₩2,898 billion in 2015 to ₩2,870 billion in 2016.
Segment ResultsFinance Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 1.9%, or ₩65 billion, from ₩3,513 billion in 2015 to ₩3,578 billion in 2016 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co., Ltd, as described above.
Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 25.6%, or ₩72 billion, from ₩281 billion in 2015 to ₩209 billion in 2016, as the ₩137 billion increase in operating expenses outpaced the ₩65 billion increase in the segments operating revenues. Operating margin for this segment decreased from 8.0% in 2015 to 5.8% in 2016.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 16.0%, or ₩4 billion, from ₩25 billion in 2015 to ₩29 billion in 2016.
Segment ResultsSatellite TV Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, slightly increased by 0.1%, or ₩0.4 billion, from ₩668.5 billion in 2015 to ₩668.9 billion in 2016, primarily due to an increase in revenues from an increase in the number of TV shopping channels and other fee-generating platforms.
74
Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by 18.1%, or ₩18 billion, from ₩98 billion in 2015 to ₩80 billion in 2016, as the ₩18 billion increase in operating expenses outpaced the ₩0.4 billion increase in the segments operating revenues. Operating margin for this segment decreased from 14.6% in 2015 to 12.0% in 2016.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 3.1%, or ₩3 billion, from ₩96 billion in 2015 to ₩99 billion in 2016.
Segment ResultsOthers
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 3.1%, or ₩192 billion, from ₩6,116 billion in 2015 to ₩6,308 billion in 2016, primarily due to increases in revenues of KT Estate Inc. from the development and sale of real estate.
For this segment, prior to adjusting for inter-segment transactions, we recorded an operating loss of ₩100 billion in 2015, compared to an operating income of ₩40 billion in 2016, as the ₩192 billion increase in operating revenues outpaced the ₩52 billion increase in the segments operating expenses in 2016. For this segment, operating loss margin (operating loss as a percentage of total operating revenues prior to adjusting for inter-segment transactions) was 1.6% in 2015 and the operating margin was 0.6% in 2016.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 7.6%, or ₩24 billion, from ₩315 billion in 2015 to ₩339 billion in 2016.
Operating Results2014 Compared to 2015
The following table presents selected income statement data and changes therein for 2014 and 2015:
For the Year Ended December 31, |
Changes | |||||||||||||||
2014 vs. 2015 | ||||||||||||||||
2014 | 2015 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Operating revenues |
₩ | 22,613 | ₩ | 22,700 | ₩ | 87 | 0.4 | % | ||||||||
Revenue |
22,359 | 22,212 | (147 | ) | (0.7 | ) | ||||||||||
Others |
253 | 488 | 235 | 92.9 | ||||||||||||
Operating expenses |
23,392 | 21,623 | (1,769 | ) | (7.6 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Operating profit (loss) |
(779 | ) | 1,077 | 1,856 | N.M. | |||||||||||
Finance income |
253 | 273 | 20 | 7.9 | ||||||||||||
Finance costs |
(792 | ) | (645 | ) | 147 | (18.6 | ) | |||||||||
Income from joint ventures and associates |
19 | 6 | (13 | ) | (68.4 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Profit (loss) from continuing operations before income tax |
(1,299 | ) | 711 | 2,010 | N.M. | |||||||||||
Income tax expense (benefit) |
(271 | ) | 227 | 498 | N.M. | |||||||||||
Profit (loss) for the period from continuing operations |
(1,028 | ) | 484 | 1,512 | N.M. | |||||||||||
Profit from discontinued operations |
86 | 141 | 55 | 64.0 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Profit (loss) for the period |
₩ | (941 | ) | ₩ | 625 | ₩ | 1,566 | N.M. | ||||||||
|
|
|
|
|
|
N.M. means not meaningful.
75
Operating Revenues
The following table presents a breakdown of our operating revenues and changes therein for 2014 and 2015:
For the Year Ended December 31, |
Changes | |||||||||||||||
2014 vs. 2015 | ||||||||||||||||
2014 | 2015 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Mobile services |
₩ | 7,104 | ₩ | 7,260 | ₩ | 156 | 2.2 | % | ||||||||
Fixed-line services |
6,855 | 6,755 | (100 | ) | (1.5 | ) | ||||||||||
Fixed-line telephone services: |
||||||||||||||||
Monthly Basic Charges |
695 | 650 | (45 | ) | (6.5 | ) | ||||||||||
Monthly Usage Charges |
1,238 | 1,022 | (216 | ) | (17.4 | ) | ||||||||||
Others |
678 | 646 | (32 | ) | (4.7 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Sub-total |
2,611 | 2,318 | (293 | ) | (11.2 | ) | ||||||||||
Internet services: |
||||||||||||||||
Broadband Internet access service |
1,934 | 1,882 | (52 | ) | (2.7 | ) | ||||||||||
Other Internet-related services |
1,161 | 1,479 | 318 | 27.4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Sub-total |
3,095 | 3,361 | 266 | 8.6 | ||||||||||||
Data communication services |
1,149 | 1,076 | (73 | ) | (6.4 | ) | ||||||||||
Sale of goods |
3,252 | 2,756 | (496 | ) | (15.3 | ) | ||||||||||
Financial services |
3,272 | 3,483 | 211 | 6.4 | ||||||||||||
Other |
2,130 | 2,446 | 316 | 14.8 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating revenues |
₩ | 22,613 | ₩ | 22,700 | ₩ | 87 | 0.4 | % | ||||||||
|
|
|
|
|
|
Total operating revenues increased by 0.4%, or ₩87 billion, from ₩22,613 billion in 2014 to ₩22,700 billion in 2015 primarily due to increases in our Internet services revenues, financial services revenues and other service revenues, the impact of which was largely offset by decreases in sale of goods revenues and fixed-line telephone services revenues.
Mobile Services
Our mobile services revenues increased by 2.2%, or ₩156 billion, from ₩7,104 billion in 2014 to ₩7,260 billion in 2015 primarily due to a 4.1% increase in our mobile subscribers from approximately 17,300,000 as of December 31, 2014 to approximately 18,038,000 as of December 31, 2015. Such increase in our mobile subscribers was further enhanced by an increase in our average revenue per user, resulting from the increase of LTE users and increased sale of higher rate plans.
Fixed-line Services
Our fixed-line services revenues decreased by 1.5%, or ₩100 billion, from ₩6,855 billion in 2014 to ₩6,755 billion in 2015 primarily due to decreases in fixed-line telephone services revenues and, to a lesser extent, data communication services revenues, the impact of which was partially offset by an increase in our Internet services revenues.
Fixed-line Telephone Services. Our fixed-line telephone services revenues decreased by 11.2%, or ₩293 billion, from ₩2,611 billion in 2014 to ₩2,318 billion in 2015 primarily due to decreases in monthly usage charges, monthly basic charges and other fixed-line telephone services revenues. Specifically:
| Monthly usage charges decreased by 17.4%, or ₩216 billion, from ₩1,238 billion in 2014 to ₩1,022 billion in 2015 primarily due to the continuing decrease in the usage of fixed-line services resulting from the increased usage of mobile telephone services, Internet phone |
76
services and other VoIP services such as Kakao Talk, Line and Skype, which led to a decrease in domestic long-distance call minutes from 2.7 billion in 2014 to 2.1 billion in 2015 and a decrease in local call pulses from 4.0 billion in 2014 to 3.0 billion in 2015. |
| Monthly basic charges decreased by 6.5%, or ₩45 billion, from ₩695 billion in 2014 to ₩650 billion in 2015 primarily due to a decrease in the number of our telephone lines in service from 13.7 million in 2014 to 12.4 million in 2015. |
| Other fixed-line telephone services revenue decreased by 4.7%, or ₩32 billion, from ₩678 billion in 2014 to ₩646 billion in 2015 primarily due to the continuing erosion of fixed-line services, including public telephones, by mobile telephone services, Internet phone services and other VoIP services, as well as a decrease in the number of lines in service from 2014 to 2015. |
Internet Services. Our Internet services revenues increased by 8.6%, or ₩266 billion, from ₩3,095 billion in 2014 to ₩3,361 billion in 2015 primarily due to an increase in the number of IPTV subscribers from 5.9 million as of December 31, 2014 to 6.6 million as of December 31, 2015 and an increase in the number of our olleh GiGA Internet Service subscribers from approximately 117,000 as of December 31, 2014 to approximately 1.0 million as of December 31, 2015.
Data Communication Services. Our data communication services revenues decreased by 6.4%, or ₩73 billion, from ₩1,149 billion in 2014 to ₩1,076 billion in 2015 primarily due to a decrease in revenues from our leased lines, resulting from increased competition in the data communications market in Korea.
Sale of Goods
Revenues from sale of goods decreased by 15.3%, or ₩496 billion, from ₩3,252 billion in 2014 to ₩2,756 billion in 2015 primarily due to a decrease in the number of handsets sold in 2015 as well as a difference in how we have paid handset subsidies since October 2014. The Handset Distribution Reform Act, which became effective October 2014, requires mobile service providers, including us, to pay handset subsidies directly to subscribers and disclose such subsidy amounts to the public. Prior to the enactment of the Handset Distribution Reform Act, we and other mobile service providers provided sales commissions to third-party vendors who then provided subscribers handset subsidies as well as other marketing and promotional activities at such vendors own discretion. However, since October 2014, we and other mobile service providers have provided handset subsidies provided directly to customers. Handset subsidies provided directly to customers are not recognized as part of handset sales revenue (revenue is recognized net of such subsidy amount), whereas handset subsidies paid through third-party vendors were recognized as revenue and also as operating expense (sales commissions). As a result, revenues from sale of goods decreased in 2015 compared to 2014 as handset subsidies were not recognized as revenue. The revenue decrease in 2015 was also attributable to a decrease in the total number of mobile handsets (primarily smartphones) sold.
Financial Services
Financial services revenues increased by 6.4%, or ₩211 billion, from ₩3,272 billion in 2014 to ₩3,483 billion in 2015 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co., Ltd., primarily as a result of increased usage of credit cards, as well as an increase in disposal of available-for-sale financial assets, primarily related to the sale of capital stock in MasterCard, previously owned by BC Card Co., Ltd.
77
Others
Other operating revenues increased by 14.8%, or ₩316 billion, from ₩2,130 billion in 2014 to ₩2,446 billion in 2015 primarily due to the inclusion of the full-year revenues in 2015 of ktcs Corporation and ktis Corporation, which became our consolidated subsidiaries as of October 2014. Both ktcs Corporation and ktis Corporation derive revenue mainly from operation of customer service centers for our mobile and fixed-line customers.
Operating Expenses
The following table presents a breakdown of our operating expenses and changes therein for 2014 and 2015:
For the Year
Ended December 31, |
Changes | |||||||||||||||
2014 vs. 2015 | ||||||||||||||||
2014 | 2015 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Salaries and wages |
₩ | 3,919 | ₩ | 3,303 | ₩ | (616 | ) | (15.7 | )% | |||||||
Depreciation |
2,761 | 2,756 | (5 | ) | (0.2 | ) | ||||||||||
Commissions |
1,355 | 1,037 | (318 | ) | (23.5 | ) | ||||||||||
Interconnection charges |
797 | 689 | (108 | ) | (13.6 | ) | ||||||||||
Purchase of inventories |
3,509 | 3,963 | 454 | 12.9 | ||||||||||||
Changes of inventories |
255 | (198 | ) | (453 | ) | N.M. | ||||||||||
Sales commission |
2,629 | 1,857 | (772 | ) | (29.4 | ) | ||||||||||
Service cost |
1,281 | 1,164 | (117 | ) | (9.1 | ) | ||||||||||
Card service costs |
2,883 | 2,960 | 77 | 2.7 | ||||||||||||
Others (1) |
4,003 | 4,092 | 89 | 2.2 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
₩ | 23,392 | ₩ | 21,623 | ₩ | (1,769 | ) | (7.6 | )% | |||||||
|
|
|
|
|
|
N.M. means not meaningful.
(1) | Including other operating expenses (which include other expenses), amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee, installation fee, taxes and dues, research and development expenses, provision and advertising expenses. |
Total operating expenses decreased by 7.6%, or ₩1,769 billion, from ₩23,392 billion in 2014 to ₩21,623 billion in 2015 primarily due to decreases in sales commissions, salaries and wages, and changes of inventories, the impact of which was partially offset by increases in purchase of inventories and commissions. Specifically:
| Sales commissions, which primarily relate to commissions paid to third-party vendors for procurement of subscribers and other promotions as well as sales of mobile handsets and mobile and fixed-line service products, decreased by 29.4%, or ₩772 billion, from ₩2,629 billion in 2014 to ₩1,857 billion in 2015, primarily due to a decrease in the number of mobile subscribers that third-party vendors procured and a decrease in the number of mobile handsets sold. |
| Salaries and wages decreased by 15.7%, or ₩616 billion, from ₩3,919 billion in 2014 to ₩3,303 billion in 2015 primarily due to an increase in severance benefits relating to the special voluntary early retirement program in 2014 while there was no such special retirement program in 2015, as well as a decrease in the number of employees resulting from the 2014 special retirement program as described in OverviewEmployee Reductions and Changes in Severance and Retirement Benefits above. Such decrease in salaries and wages was partially offset by an increase in salaries in 2015 resulting from the inclusion of ktis Corporation and ktcs Corporation as consolidated subsidiaries in October 2014. |
78
| Changes of inventories, which reflects inventory changes during a period by calculating inventories at the beginning of period minus those at the end of period, amounted to ₩255 billion in 2014 and ₩(198) billion in 2015, which means inventories increased by ₩198 billion in 2015 while they decreased by ₩255 billion in 2014. This was primarily due to a decrease in the number of handset units sold in 2015 compared to 2014, as well as an increase in purchase of handsets in 2015 compared to 2014 as described below. Cost of sale of goods (which is the sum of changes of inventories and purchase of inventories) amounted to ₩3,764 billion and ₩3,765 billion in 2014 and 2015, respectively, reflecting an increase in cost of sale of goods for certain equipment and other goods sold by our subsidiaries, which was mostly offset by a decrease in cost of sale of goods resulting from the decreased handset sales, in each case in 2015 compared to 2014. |
These factors were partially offset by the following:
| Purchase of inventories increased by 12.9%, or ₩454 billion, from ₩3,509 billion in 2014 to ₩3,963 billion in 2015 primarily due to an increase in the total number of smartphones purchased, which was primarily attributable to handset makers introduction of new products, including iPhone 6S and Galaxy S6 in 2015, and also mobile handsets needed for the business of kt M mobile, which was newly established in April 2015. |
| Commissions, primarily consisting of commission-based payments for certain third-party outsourcing services, including commissions to the outsourced call center staff, decreased by 23.5%, or ₩318 billion, from ₩1,355 billion in 2014 to ₩1,037 billion in 2015, primarily due to elimination of commission amounts, as adjustments on consolidation, paid to ktis Corporation and ktcs Corporation, which provide call center services, as they became consolidated subsidiaries in October 2014. |
Operating Profit
Due to the factors described above, we recorded an operating loss of ₩779 billion in 2014, compared to an operating profit of ₩1,077 billion in 2015. Our operating margin, which is operating profit as a percentage of operating revenues, was (3.4)% in 2014 and 4.7% in 2015.
Finance Income (Costs)
The following table presents a breakdown of our finance income and costs and changes therein for 2014 and 2015:
For the Year
Ended December 31, |
Changes | |||||||||||||||
2014 vs. 2015 | ||||||||||||||||
2014 | 2015 | Amount | % | |||||||||||||
(In billions of Won) | ||||||||||||||||
Interest income |
₩ | 80 | ₩ | 70 | ₩ | (10 | ) | (12.5 | )% | |||||||
Interest expense |
(475 | ) | (386 | ) | 89 | (18.7 | ) | |||||||||
Net foreign currency transaction gain (loss) |
11 | (24 | ) | (35 | ) | N.M. | ||||||||||
Net foreign currency translation gain (loss) |
(91 | ) | (164 | ) | (73 | ) | 80.2 | |||||||||
Net loss on settlement of derivatives |
(33 | ) | (6 | ) | 27 | (81.8 | ) | |||||||||
Net gain (loss) on valuation of derivatives |
68 | 140 | 72 | 105.9 | ||||||||||||
Net other finance costs (1) |
(99 | ) | (2 | ) | 97 | (98.0 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net finance costs |
₩ | (539 | ) | ₩ | (372 | ) | ₩ | 167 | (31.0 | )% | ||||||
|
|
|
|
|
|
N.M. means not meaningful.
(1) | Including net other finance income and expenses, loss on disposal of trade receivables and impairment loss on available-for-sale financial assets. |
79
Our net finance costs decreased by 31.0%, or ₩167 billion, from ₩539 billion in 2014 to ₩372 billion in 2015, primarily due to decreases in interest expense and net other finance costs and an increase in net gain on valuation of derivatives, the impact of which was partially offset by an increase in net foreign currency translation loss. Specifically:
| Our interest expense decreased by 18.7%, or ₩89 billion, from ₩475 billion in 2014 to ₩386 billion in 2015 primarily due to a decrease in borrowings and, to a lesser extent, decreased interest rates. |
| Our net other finance costs decreased by 98.0%, or ₩97 billion, from ₩99 billion in 2014 to ₩2 billion in 2015 primarily due to ₩83 billion reduction in impairment loss on available-for sale financial assets, as a loss was recognized for the equity securities of KT ENGCORE and Ustream Korea Inc. in 2014 while there was no such loss in 2015, and a decrease in the cost of securitization of receivables due to lower interest rates in 2015. |
| Our net gain on valuation of derivatives increased by 105.9%, or ₩72 billion, from ₩68 billion in 2014 to ₩140 billion in 2015, primarily due to an increase in gains from our currency swap contracts as a result of larger depreciation of the Won against the U.S. dollar and the Japanese Yen in 2015 compared to 2014. We entered into derivative instruments for foreign exchange risk hedging purposes and generally recognize net gain on valuation of derivatives when the Won depreciates against foreign currencies as described below in the explanation of reasons for the change in net foreign currency translation loss in 2015 compared to 2014. |
These factors were partially offset by the following:
| Our net foreign currency translation loss increased by 80.2%, or ₩73 billion, from ₩91 billion in 2014 to ₩164 billion in 2015, primarily due to larger depreciation of the Won against the U.S. dollar and the Japanese Yen in 2015 compared to 2014. The Market Average Exchange Rate of the Won against the U.S. dollar depreciated from ₩1,055.3 to US$1.00 as of December 31, 2013 to ₩1,099.2 to US$1.00 as of December 31, 2014 and ₩1,172.0 to US$1.00 as of December 31, 2015. In general, we recognize net foreign currency translation loss when the Won depreciates against foreign currencies, especially the U.S. dollar, primarily because of our foreign currency-denominated debt and foreign currency-denominated payables to overseas equipment sellers and foreign carriers. In 2015, the impact of such net foreign currency translation loss was largely offset by the net gain on valuation of derivatives discussed above. |
Income from Joint Ventures and Associates
Income from joint ventures and associates decreased by 68.4%, or ₩13 billion, from ₩19 billion in 2014 to ₩6 billion in 2015, primarily due to a decrease in net income of KT-SB Venture Investment, which resulted in the corresponding decrease in our share of such net income.
Income Tax Expense
We recognized an income tax expense of ₩227 billion in 2015, compared to an income tax benefit of ₩271 billion in 2014, primarily due to the recognition of profit from continuing operations before income tax of ₩711 billion in 2015, compared to the recognition of loss from continuing operations before income tax of ₩1,299 billion in 2014. See Note 28 to the Consolidated Financial Statements. We had net deferred income tax assets of ₩935 billion as of December 31, 2014 and ₩716 billion as of December 31, 2015.
80
Profit from Discontinued Operations
Our profit from discontinued operations increased by 64.0%, or ₩55 billion, from ₩86 billion in 2014 to ₩141 billion in 2015, primarily due to recognition of net proceeds from the sale of capital stock of KT Rental Co., Ltd and KT Capital Co., Ltd. as profit from discontinued operations in 2015. The revenue and expenses of discontinued operations decreased by 51.0% and 47.8%, or ₩570 billion and ₩490 billion, respectively, as KT Rental Co., Ltd. and KT Capital Co., Ltd. were excluded from discontinued operations subsequent to their sales in May and August 2015, respectively.
Profit (Loss) for the Period
Due to the factors described above, our profit for the period increased by 166.4%, or ₩1,566 billion, from ₩941 billion of loss in 2014 to ₩625 billion of profit in 2015. Our net loss margin, which is loss for the period as a percentage of operating revenues, was 4.2% in 2014. Our net profit margin, which is net profit for the period as a percentage of operating revenues was 2.8% in 2015.
Segment ResultsCustomer/Marketing Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 3.9%, or ₩655 billion, from ₩16,785 billion in 2014 to ₩16,130 billion in 2015 primarily due to a decrease in revenues from sales of mobile handsets as a result of decreases in both the number of handset units sold and the average unit price, as well as the impact of handset subsidies directly provided to subscribers, resulting in a decrease in operating revenues starting from October 2014 as described above.
We recorded operating loss for this segment of ₩427 billion in 2014 and operating income for this segment of ₩817 billion in 2015 (in each case, prior to adjusting for inter-segment transactions), as the segments operating expenses decreased by ₩1,899 billion which was partially off-set by the ₩655 billion decrease in the segments operating revenue, primarily due to the reasons discussed above. For this segment, operating loss margin, which is operating loss as a percentage of total operating revenues prior to adjusting for inter-segment transactions, was 2.5% in 2014 and operating margin, which is operating income as a percentage of total operating revenues prior to adjusting for inter-segment transactions, was 5.1% in 2015.
Depreciation and amortization, prior to adjusting for inter-segment transactions, decreased by 0.5%, or ₩15 billion, from ₩2,913 billion in 2014 to ₩2,898 billion in 2015.
Segment ResultsFinance Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 6.6%, or ₩217 billion, from ₩3,296 billion in 2014 to ₩3,513 billion in 2015 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co., Ltd, as discussed above.
Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 69.3%, or ₩115 billion, from ₩166 billion in 2014 to ₩281 billion in 2015, as the ₩217 billion increase in the segments operating revenues outpaced ₩102 billion increase in operating expenses primarily due to the reasons discussed earlier. Operating margin for this segment increased from 5.0% in 2014 to 8.0% in 2015.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 4.2%, or ₩1 billion, from ₩24 billion in 2014 to ₩25 billion in 2015.
81
Segment ResultsSatellite TV Group
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 2.0%, or ₩13 billion, from ₩656 billion in 2014 to ₩669 billion in 2015, primarily due to an increase in revenues from TV shopping channels.
Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 42.0%, or ₩29 billion, from ₩69 billion in 2014 to ₩98 billion in 2015, as the ₩16 billion decrease in operating expenses outpaced the ₩13 billion increase in the segments operating revenues. Operating margin for this segment increased from 10.5% in 2014 to 14.6% in 2015.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 12.9%, or ₩11 billion, from ₩85 billion in 2014 to ₩96 billion in 2015.
Segment ResultsOthers
Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 25.9%, or ₩1,259 billion, from ₩4,857 billion in 2014 to ₩6,116 billion in 2015, primarily due to the inclusion of the global business services to this segment. The Enterprise Business Segment, of which the global business services were part prior to 2015, was split into two segments: the Customer/Marketing Group and the Others Group. See Overview.
Our operating loss for this segment, prior to adjusting for inter-segment transactions, decreased from ₩558 billion in 2014 to ₩100 billion in 2015, as the ₩1,259 billion increase in operating revenues outpaced the ₩801 billion increase in the segments operating expenses in 2015. For this segment, the operating loss margin (operating loss as a percentage of total operating revenues prior to adjusting for inter-segment transactions) was 11.5% in 2014 and 1.6% in 2015.
Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 5.7%, or ₩17 billion, from ₩298 billion in 2014 to ₩315 billion in 2015.
Item 5.B. Liquidity and Capital Resources
The following table sets forth the summary of our cash flows for the periods indicated:
For the Years Ended December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In billions of Won) | ||||||||||||
Net cash provided by operating activities |
₩ | 1,916 | ₩ | 4,230 | ₩ | 4,771 | ||||||
Net cash used in investing activities |
(3,171 | ) | (2,402 | ) | (3,485 | ) | ||||||
Net cash provided by (used in) financing activities |
1,072 | (1,164 | ) | (943 | ) | |||||||
Cash and cash equivalents at beginning of period |
2,071 | 1,889 | 2,559 | |||||||||
Cash and cash equivalents at end of period |
1,889 | 2,559 | 2,900 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(182 | ) | 670 | 341 |
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 ₩2,853 billion in 2014, ₩3,116 billion in 2015 and ₩2,764 billion in 2016 for the acquisition of property and equipment and investment properties, primarily construction-in-progress. In our financing activities, we used cash of ₩8,757 billion in 2014, ₩6,648 billion in 2015 and ₩1,769 billion in 2016 for repayment of borrowings and debentures.
In recent years, we have also required capital for payments of retirement and severance benefits related to our early retirement programs. We recorded cash outflows from payments of severance benefits of ₩1,427 billion in 2014, ₩118 billion in 2015 and ₩122 billion in 2016. In 2014,
82
our payments were particularly high due to the special voluntary early retirement program held in April 2014 described in OverviewEmployee Reductions and Changes in Severance and Retirement Benefits above.
From time to time, we may also require capital for investments involving acquisitions, including shares of our affiliates, and strategic relationships. For example, in October 2011, we, through our former subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank, Busan Bank and Shinhan Card for approximately ₩252 billion. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately ₩287 billion, and owned 69.5% interest in BC Card Co., Ltd. as of December 31, 2016. Any such additional investments or acquisitions may require significant capital.
Our cash dividends paid to shareholders and non-controlling interests amounted to ₩223 billion in 2014, ₩42 billion in 2015 and ₩184 billion in 2016.
We anticipate that capital expenditures and 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 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 Note 19 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, 2016:
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) |
₩ | 7,988 | ₩ | 1,668 | ₩ | 2,817 | ₩ | 1,507 | ₩ | 1,996 | ||||||||||
Capital lease obligations (including any interests) |
212 | 80 | 99 | 33 | | |||||||||||||||
Operating lease obligations |
389 | 102 | 153 | 117 | 17 | |||||||||||||||
Severance payment obligations (2) |
4,093 | 127 | 324 | 361 | 3,281 | |||||||||||||||
Asset retirement obligations |
114 | 6 | 36 | 13 | 59 | |||||||||||||||
Long-term accounts payableothers |
1,344 | 263 | 440 | 445 | 196 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
₩ | 14,140 | ₩ | 2,246 | ₩ | 3,869 | ₩ | 2,476 | ₩ | 5,549 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Estimate of interest payment based on contractual interest rates effective as of December 31, 2016 |
₩ | 1,244 | ₩ | 230 | ₩ | 339 | ₩ | 210 | ₩ | 465 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Contractual obligations represent contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and accruals for customer call bonus points, which do not have definitive payment schedules. |
(2) | The amount represents undiscounted pension benefit as of December 31, 2016. |
83
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 profits for the period, expenses not involving cash payments such as depreciation and amortization, and proceeds from issuance of bonds and borrowings. We expect that these sources will continue to be our principal sources of cash in the future. We recorded a loss for the period of ₩941 billion in 2014, a profit for the period of ₩625 billion in 2015 and a profit for the period of ₩795 billion in 2016 due to the reasons discussed in Item 5.A. Operating Results. Non-cash expense adjustments in our statement of cash flows from depreciation and amortization of intangible assets was ₩3,855 billion in 2014, ₩3,640 billion in 2015 and ₩3,422 billion in 2016, primarily reflecting our capital investment activities during the recent years, including our purchase of bandwidths for our operations, investments in LTE-related structures and acquisition of real estate. Cash proceeds from borrowings and debentures were ₩10,037 billion in 2014, ₩5,675 billion in 2015 and ₩1,123 billion in 2016. As of December 31, 2016, we held 16,140,165 treasury shares.
Since 2012, we have disposed a portion of our trade receivables relating to handset sales to several special purpose companies, as part of our efforts to improve our cash and asset management. We also entered into asset management agreements with each of these special purpose companies, and will be receiving management fees from such companies. See Note 19 to the Consolidated Financial Statements.
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 successfully issued (i) three series of notes for an aggregate amount of Japanese Yen 30 billion in January 2013, (ii) three series of notes for an aggregate amount of ₩410 billion in April 2013, (iii) US$300 million floating rate notes due 2018 in August 2013, (iv) ₩300 billion of commercial paper due 2019 in February 2014, (v) US$650 million of 1.750% notes due 2017 and US$350 million of 2.625% notes due 2019 in April 2014, (vi) three series of notes for an aggregate amount of ₩450 billion in January 2015, (vii) Japanese Yen 15 billion of 0.48% notes due 2018 in February 2015 and (viii) US$400 million of 2.500% notes due 2026 in July 2016. See Note 15 to the Consolidated Financial Statements. 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 equity was ₩11,788 billion as of December 31, 2014, ₩12,156 billion as of December 31, 2015 and ₩12,783 billion as of December 31, 2016.
84
Liquidity
We had a working capital (current assets minus current liabilities) deficit of ₩1,213 billion as of December 31, 2014 and ₩56 billion as of December 31, 2015 and a working capital surplus of ₩193 billion as of December 31, 2016. The following table sets forth the summary of our significant current assets for the periods indicated:
As of December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In billions of Won) | ||||||||||||
Cash and cash equivalents |
₩ | 1,889 | ₩ | 2,559 | ₩ | 2,900 | ||||||
Trade and other receivables, net |
5,780 | 4,854 | 5,327 | |||||||||
Inventories, net |
419 | 617 | 455 | |||||||||
Other financial assets |
333 | 293 | 721 |
Our cash and cash equivalents totaled ₩1,889 billion as of December 31, 2014, ₩2,559 billion as of December 31, 2015 and ₩2,900 billion as of December 31, 2016. Under IFRS as issued by IASB, bank deposits held at call and all other highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Other current financial assets primarily consist of financial instruments, available-for-sale financial assets and derivatives used for hedge.
The following table sets forth the summary of our significant current liabilities for the periods indicated:
As of December 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(In billions of Won) | ||||||||||||
Trade and other payables |
₩ | 6,428 | ₩ | 6,335 | ₩ | 7,140 | ||||||
Borrowings |
2,956 | 1,726 | 1,820 |
As of December 31, 2016, we entered into various commitments with financial institutions totaling ₩3,418 billion and US$251 million. See Note 19 to the Consolidated Financial Statements. As of December 31, 2016, ₩563 billion and US$205 million was used 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 ₩2,853 billion in 2014, ₩3,116 billion in 2015 and ₩2,764 billion in 2016 for the acquisition of property, plant and equipment and investment property, primarily construction-in-progress.
Our current capital expenditure plan, on a separate basis, calls for the expenditure of approximately ₩2,400 billion in 2017, which may be adjusted depending on market conditions and our results of operations. The principal components of our capital investment plans are:
| approximately ₩1,155 billion in capital investments for our access network; |
| approximately ₩515 billion in capital investments for our backbone network; |
| approximately ₩360 billion in capital investments for our business-to-business services; and |
| approximately ₩370 billion in capital investments for other services including R&D costs. |
85
Inflation
We do not consider that inflation in Korea has had a material impact on our results of operations in recent years. According to data published by the Bank of Korea, annual inflation in Korea was 1.3% in 2014, 0.7% in 2015 and 1.0% in 2016. 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 or political conditions in Korea deteriorate.
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 new business development and incubation center; |
| an infrastructure R&D laboratory; |
| a service R&D laboratory; and |
| a convergence R&D laboratory. |
As of December 31, 2016, KT Corporation had 5,037 registered patents domestically and 1,074 registered patents internationally.
The MSIP has the authority to recommend to network service providers that they provide funds for national research and development of telecommunications technology and related projects. The required annual contribution is 0.5% (0.75% for market dominant service providers like us) of revenues attributable to key communications services (excluding revenues from telecommunications service using an allotted frequency if the consideration for such allotted frequency has been paid) from wireless subscribers for the previous year, and is applicable only to those network service providers who have at least ₩30 billion in total sales for the previous year and have recorded no net loss in the current period. Under the policy, the maximum amount of the annual contribution to be made cannot exceed 70.0% of the net profit for the corresponding period of each company. Including such contributions, total expenditures (which include capitalized expenses) on research and development were ₩479 billion in 2014, ₩225 billion in 2015 and ₩204 billion in 2016.
In recent years, we have focused our research and development efforts in the following areas:
| simplifying complex core networks and reducing costs; |
| integrating in-building management solutions for fixed-line and wireless networks; |
| aggregating heterogeneous wireless access for double network throughput; |
| a broadband Internet solution that is 10 times faster using legacy copper and fiber lines; |
| a telecommunication cloud solution which combines network resource virtualization with cloud computing resource; |
| finding solutions for ultra-definition television set top box and additional solutions for smart IPTV; |
86
| smart home networking solutions for multiple devices, such as smartphones, tablets, computers and IPTV, as well as electric home appliances; |
| environment-friendly energy technologies including a smart-grid platform; |
| core technologies for convergence services such as IoT, big data, security, networked automobiles, healthcare and bio-informatics; and |
| creating a new convergence business model based on ICT and incubating new businesses. |
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 standing 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 exceed ₩2,000 billion as of the end of the preceding year, which is the case with us, the Commercial Code of Korea requires such company to have more than three outside directors, with outside directors being the majority of the board of directors. The term of office for a director is up to three years, but the term is extended to the close of the annual shareholders meeting convened with respect to the last full fiscal year of a directors term of office. If the term of office for a director is not completed and ends before the close of the annual general shareholders meeting and a new director is appointed in his or her place, the term of office for such replacement director will coincide with the uncompleted remaining term of office of his or her predecessor.
87
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 more than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders meeting.
Upon the request of any director (to the extent that the board of directors does not separately authorize only a particular director to make such request), 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 |
||||||||||
Standing Directors (1) |
||||||||||||||
Chang-Gyu Hwang |
Chief Executive Officer |
January 2014 | January 23, 1953 | 2020 | ||||||||||
Heon Moon Lim |
President |
March 2014 | November 15, 1960 | 2018 | ||||||||||
Hyeon Mo Ku |
President, Chief Operating Officer |
March 2016 | January 13, 1964 | 2018 | ||||||||||
Outside Directors (1) |
||||||||||||||
Do Kyun Song |
Senior Advisor, Bae, Kim & Lee LLC |
March 2013 | September 20, 1943 | 2019 | ||||||||||
Sang Kyun Cha |
Professor, Department of Electrical and Computer Engineering, Seoul National University |
March 2012 | February 19, 1958 | 2019 | ||||||||||
Jong-Gu Kim |
Corporate lawyer, New Dimension Law Group |
March 2014 | July 7, 1941 | 2020 | ||||||||||
Suk-Gwon Chang |
Dean, School of Business, Hanyang University |
March 2014 | February 21, 1956 | 2018 | ||||||||||
Dae-Geun Park |
Professor, Department of Economics and Finance, Hanyang University |
March 2014 | March 15, 1958 | 2018 | ||||||||||
Dong-Wook Chung |
Senior Counsel, Law Firm Kim, Choi & Lim |
March 2015 | August 22, 1949 | 2018 | ||||||||||
Gae-Min Lee |
Former Editor-in-Chief, The Korea Economic Daily |
March 2017 | November 1, 1946 | 2020 | ||||||||||
Il Im |
Professor, Business Administration, Yonsei University |
March 2017 | March 20, 1966 | 2020 |
(1) | All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
Chang-Gyu Hwang has served as our standing director since 2014 and has served as our chief executive officer since January 2014. Prior to joining us, he served as a Distinguished Chair Professor at Sungkyunkwan University, president and National Chief Technology Officer of the Office of Strategic Research and Development Planning at the former Ministry of Knowledge and Economy, president and chief technology officer of the Corporate Technology Office at Samsung Electronics Co., Ltd. and as president and chief executive officer of the Semiconductor Business at Samsung
88
Electronics Co., Ltd. Mr. Hwang holds a bachelors degree and a masters degree in electric engineering from Seoul National University and a Ph.D. in electronic and computer engineering from the University of Massachusetts, Amherst.
Heon Moon Lim has served as our standing director since 2014 and has served as our president and chief marketing officer since December 2015. He has previously served as a senior executive vice president of our Customer Business Group and an executive vice president of our Telecom & Convergence Business Group and Home Business Group. Mr. Lim holds a bachelors degree in business administration from Yonsei University and a Ph.D. in business administration from Seoul National University.
Hyeon Mo Ku has served as our standing director since March 2016 and has served as our president and chief operating officer since December 2015. He has previously served as chief secretary to our chief executive officer since 2014. Before that, he served as chief operating officer of the Telecom & Convergence Business department. Mr. Ku holds a bachelors degree in Industrial Engineering from Seoul National University and a Ph. D. in Management Engineering from Korea Advanced Institute of Science and Technology.
Do Kyun Song has served as our outside director since March 2013. He is currently a senior advisor to the law firm of Bae, Kim & Lee LLC. He was formerly a standing member of the KCC and the chief executive officer of Seoul Broadcasting System Co., Ltd. Mr. Song holds a bachelors degree in Spanish literature from Hankuk University of Foreign Studies.
Sang Kyun Cha has served as our outside director since March 2012. He is currently a professor of electrical and computer engineering at Seoul National University. Previously, he founded Transact In Memory, Inc., a next-generation memory database management system development company in the United States which was acquired by SAP AG in 2005, and was subsequently transformed into SAP Labs Korea, Inc. Mr. Cha holds a bachelors degree in electronic engineering from Seoul National University and a Ph.D. in database systems from Stanford University.
Jong-Gu Kim has served as our outside director since March 2014. He is currently a corporate lawyer at the New Dimension Law Group. Previously, he served as the minister of the Ministry of Justice and as the head of the Seoul Supreme Prosecutors Office. Mr. Kim holds both a bachelors degree in law from Seoul National University and a Ph.D. in law from Dongguk University.
Suk-Gwon Chang has served as our outside director since March 2014. He is currently the dean of the School of Business at Hanyang University. Mr. Chang was formerly the dean of Hanyang Cyber University Graduate School and the president of the Korea Association for Telecommunication Policy and Korea Media Management Association. Mr. Chang holds a bachelors degree in industrial engineering from Seoul National University and a Ph.D. in management science from Korea Advanced Institute of Science and Technology.
Dae-Geun Park has served as our outside director since March 2014. He is currently a professor of economics and finance at Hanyang University and the director of Hanyang Economic Research Institute. Mr. Park was formerly a vice president of the Korea Finance and Money Association and a member of the Steering Committee at the Korea Finance Corporation. Mr. Park holds a bachelors degree in economics from Seoul National University and a Ph.D. in economics from Harvard University.
Dong-Wook Chung has served as our outside director since March 2015. He is currently a senior counsel to the law firm of Kim, Choi & Lim. Mr. Chung was formerly a prosecutor at the Seoul High Prosecutors Office and the chief prosecutor at the Bucheon Branch of the Incheon District Prosecutors Office. Mr. Chung holds a bachelors degree and a masters degree in law from Seoul National University.
89
Gae-Min Lee has served as our outside director since March 2017. He was formerly an advisor to the Korea News Editors Association Fund, editor-in-chief of The Korea Economic Daily and chief executive officer of Hankyung.com. Mr. Lee holds a bachelors degree and a Ph.D. in Economics from Kyung Hee University.
Il Im has served as our outside director since March 2017. He is currently a professor of business administration at Yonsei University and Fall Committee Chair of the Korea Society of Management Information System. Mr. Im was formerly a professor of Information Systems Department at New Jersey Institute of Technology. Mr. Im holds a bachelors degree in business administration from Seoul National University and a Ph. D in information systems from the University of Southern California.
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 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 standing 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 KT Corporation and the candidate covering our management objectives to the shareholders meeting at the time of candidate nomination to the meeting. When the draft management contract has been approved at the shareholders meeting, we enter into such management contract with the chief executive officer. In such case, the chairperson of the Chief Executive Officer Candidate Nominating Committee, on our behalf, 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 presidents and senior executive vice presidents. The executive officers other than the standing directors are appointed by the chief executive officer.
90
The current executive officers are as follows:
Name (1) |
Title and Responsibilities |
Current Position Held Since |
Years with the Company (2) |
Date of Birth | ||||||
Seong-Mok Oh |
President, Network Group | December 2012 | 31 | August 20, 1960 | ||||||
Soo-Ho Maeng |
President, Corporate Relationship Group | December 2015 | 21 | October 16, 1959 | ||||||
Cheol-Soo Kim |
Senior Executive Vice President, Chief of Marketing Office, Customer Business Group | December 2015 | 3 | February 7, 1963 | ||||||
Mun-Whan Lee |
Senior Executive Vice President, Enterprise Business Group | December 2015 | 28 | October 1, 1963 | ||||||
Dong-Myun Lee |
Senior Executive Vice President, Institute of Convergence Technology | January 2014 | 25 | October 15, 1962 | ||||||
Kyoung-Lim Yun |
Senior Executive Vice President, Future Convergence Strategy Office | December 2014 | 7 | June 14, 1963 | ||||||
Sang-Bong Nam |
Senior Executive Vice President, Chief Operating Office, Strategy & Planning Group, Legal Office | January 2014 | 4 | October 19, 1963 | ||||||
Dae-San Lee |
Senior Executive Vice President, Chief Operating Office, Corporate Management Group | January 2015 | 30 | January 10, 1961 | ||||||
In-Hoe Kim |
Senior Executive Vice President, CEO Office | December 2015 | 3 | June 25, 1964 | ||||||
Kyu-Taek Nam |
Senior Executive Vice President, Chief Operating Office, Corporate Management Group, Human Resources Office | December 2015 | 31 | February 6, 1961 |
(1) | All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate. |
(2) | Does not include period of employment by KT Corporations affiliates. |
Compensation of Directors
In 2016, the total amount of salaries, bonuses (including long-term performance-based incentives for directors) and allowances paid to all directors of KT Corporation for services in all capacities was approximately ₩4.1 billion, which were paid on a cash basis.
Until February 2010, we had no incentive based compensation program for outside directors. Instead, compensation was paid to outside directors in fixed amounts as an allowance for any expenses they incurred in executing their duties. The board of directors introduced a new compensation program for outside directors in March 2010, which consists of cash and stock grants and requires a one year lock-up period, at a ratio of 3 to 1. The total cash basis remuneration for outside directors for 2016 was recorded at ₩642 million.
The compensation of our directors and executive officers who received total annual compensation exceeding ₩500 million in 2016 was as follows:
Name |
Position |
Total Compensation in 2016 |
Composition of Total | |||
(In millions of Won) | ||||||
Chang-Gyu Hwang |
Chief Executive Officer | ₩2,436 | ₩573 (salary); ₩1,858 (bonus); ₩5 (benefits) | |||
Heon Moon Lim |
President | ₩900 | ₩367 (salary); ₩518 (bonus); ₩15 (benefits) | |||
Hyun Mo Ku |
President | ₩672 | ₩239 (salary); ₩413 (bonus); ₩20 (benefits) |
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
91
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 at 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, 2016, none of our standing or outside directors maintained directors service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment.
Corporate Governance Committee
The Corporate Governance Committee is comprised of four outside directors and one standing director, Suk-Gwon Chang, Do Kyun Song, Jong-Gu Kim, Gae-Min Lee and Hyeon Mo Ku. The chairperson is Suk-Gwon Chang. 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. The committee members are elected by the board after the annual meeting, and the term of the committee members is one year.
Outside Director Candidate Nominating Committee
The Outside Director Candidate Nominating Committee consists of one standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. The committees duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside directors on our board of directors to the shareholders at the general shareholders meeting. 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, Dong-Wook Chung, Do Kyun Song, Suk-Gwon Chang and Il Im. The chairperson is Dong-Wook Chung. The committees duties include prior review of the chief executive officers management goals, terms and conditions proposed for inclusion in the management 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 for the chief executive officer and the standing directors. The committee members are elected by the board after the closing of the annual meeting, and the term of the committee members is one year.
Executive Committee
The Executive Committee is currently comprised of Chung-Gyu Hwang, Heon Moon Lim and Hyeon Mo Ku. The chairperson is Chang-Gyu Hwang. The committees duties include the establishment and management of branch offices, the disposal and sale of stocks of our subsidiaries, which have a market value between ₩15 billion and ₩30 billion, provided that no change of control
92
with respect to such subsidiary occurs as a result of such disposal or sale for stocks with market value of ₩10 billion or more, making investments and providing guarantees between ₩15 billion to ₩30 billion, the acquisition and disposal of real estate having market value between ₩15 billion to ₩30 billion, the authorization of charitable contributions between ₩100 million to ₩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, Dae-Geun Park, Do Kyun Song, Gae-Min Lee and Il Im. The chairperson is Dae-Geun Park. This committees duties include reviews of 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 one year.
Sustainability Management Committee
The Sustainability Management Committee is currently comprised of four outside directors and one standing director, Sang Kyun Cha, Dong-Wook Chung, Suk-Gwon Chang, Il Im and Heon Moon Lim. The chairperson is Sang Kyun Cha. The committees duties include reviews of sustainable management results, establishment of medium- and long-term sustainable management strategies and regular reporting and risk management of sustainable management activities. The committee members are elected by the board after the annual meeting, and the term of the committee members is one year.
Audit Committee
Under the Commercial Code of Korea and our articles of incorporation, we are required to establish an audit committee comprised of three or more outside directors and at least two-thirds of the audit committee members are required to be outside directors. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of Jong-Gu Kim, Sang Kyun Cha, Dae-Geun Park and Dong-Wook Chung. The chairperson is Jong-Gu Kim and the financial expert is Dae-Geun Park. 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; |
| 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. |
93
In addition, regarding the shareholders meeting, the committee may examine the agenda, financial statement and other reports to be submitted by the board of directors at each shareholders meeting.
On a non-consolidated basis, we had 23,575 employees as of December 31, 2016, compared to 23,531 employees as of December 31, 2015 and 23,371 employees as of December 31, 2014.
Voluntary Early Retirement Plans
We regularly sponsor voluntary early retirement plans where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2014, 2015, and 2016, 41, 33 and 5 employees, respectively, retired under this program.
In April 2014, we announced the commencement of a special early retirement program for employees who have been employed by us for more than 15 years. This special early retirement program provided our employees with incentives to retire early as part of our efforts to improve operational efficiencies. Our employees were offered the option of either receiving additional severance payment or employment for two years at certain of our subsidiaries or affiliates as part of the special retirement program. The special voluntary early retirement program resulted in the early retirement of 8,304 employees in 2014. We paid ₩1,215 billion as severance benefits in connection with our early retirement programs during 2014, which was financed through cash on hand and bond issuances.
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, 2016, about 78% of the employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on November 15, 2017. 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 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.
The Trade Union and Labor Relations Adjustment Act (Labor Act) allow multiple labor unions to be formed within one company. Therefore, additional labor unions may be formed by our employees. Pursuant to such amendments, our employees formed a new labor union called KT New Union in July 2011. The 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. As a result of the recent consolidation of labor unions, KT Trade Union was selected as the bargaining representative of the labor unions. Its term as the bargaining representative will last for two years from January 1, 2016, and will expire on December 31, 2017.
94
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 0.53% of our issued shares as of December 31, 2016.
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 April 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 April 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, and also introduced a defined contribution plan in December 2012, with a total combined unfunded portion of approximately ₩1,414 billion as of December 31, 2016. 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 Results.
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 76 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 employees 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.
95
Ordinary Shares
The persons who currently serve as our directors held, as a group, 47,615 ordinary shares as of April 25, 2017, the most recent date for which this information is available. The table below shows the ownership of our ordinary shares by directors:
Shareholders |
Number of Ordinary Shares Owned |
|||
Chang-Gyu Hwang |
22,961 | |||
Heon Moon Lim |
6,718 | |||
Hyun Mo Ku |
7,796 | |||
Do Kyun Song |
1,178 | |||
Dong-Wook Chung |
465 | |||
Sang Kyun Cha |
5,974 | |||
Jong-Gu Kim |
841 | |||
Suk-Gwon Chang |
841 | |||
Dae-Geun Park |
841 | |||
Gae-Min Lee |
| |||
Il Im |
|
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 ordinary shares as of December 31, 2016:
Shareholders |
Number of Shares |
Percent of Total Shares Issued |
||||||
National Pension Corporation |
26,994,170 | 10.34 | % | |||||
NTTDoCoMo, Inc. |
14,257,813 | 5.46 | % | |||||
Silchester International Investors LLP |
12,907,232 | 4.94 | % | |||||
Employee stock ownership association |
1,387,655 | 0.53 | % | |||||
Directors as a group |
47,615 | 0.02 | % | |||||
Public |
189,377,158 | 75.53 | % | |||||
KT Corporation (held in the form of treasury stock) |
16,140,165 | 6.18 | % | |||||
|
|
|
|
|||||
Total issued shares |
261,111,808 | 100.00 | % | |||||
|
|
|
|
Item 7.B. Related Party Transactions
We have engaged in various transactions with our subsidiaries and affiliated companies. See Note 33 to the Consolidated Financial Statements. We have not issued any guarantees in favor of our consolidated subsidiaries.
Item 7.C. Interests of Experts and Counsel
Not applicable.
96
Item 8.A. Consolidated Statements and Other Financial Information
See Item 18. Financial Statements and pages F-1 through F- 98.
Legal Proceedings
In July 2012, the Fair Trade Commission issued to us an administrative fine of approximately ₩5 billion as well as certain corrective orders, after investigating certain pricing and subsidy practices of mobile service carriers and handset manufacturers. Samsung Electronics Co., Ltd., LG Electronics Co., Ltd., Pantech Curitel Co., Ltd., SK Telecom and LG U+ were also issued administrative fines as a result of the investigation. We filed for a stay of execution of the Fair Trade Commissions decision, and in September 2012, the Seoul High Court granted a stay of execution with respect to the corrective order, and denied the stay of execution with respect to the administrative fine. We paid the entire fine in September 2012. In September 2012, we filed a lawsuit with the Seoul High Court against the Fair Trade Commission to appeal the administrative fine and the corrective order, and on February 6, 2014, the Seoul High Court ruled against us on our appeal. In February 2014, we filed another appeal with respect to the administrative fine with the Supreme Court of Korea and filed for a stay of execution with respect to the corrective order in March 2014, which was accepted and became effective in April 2014. The appeal is currently ongoing. The outcome of this case will not result in any fine in addition to the fine we already paid in September 2012.
In December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being approximately ₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. On March 7, 2014, the MSIP imposed a temporary suspension on us for 45 days (from March 13, 2014 to April 26, 2014), SK Telecom for 45 days (from April 5, 2014 to May 19, 2014), and LG U+ for 45 days (from March 13, 2014 to April 4, 2014 and again from April 27, 2014 to May 18, 2014) from accepting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. Additionally, the MSIP announced that it plans to bring criminal charges with fines of up to ₩150 million and imprisonment of less than three years against any carrier and responsible personnel that fails to adhere to the suspension or continues to offer illegal subsidies after the suspension is completed. In August 2014, the KCC imposed a fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for continuing to provide excessive subsidies to new subscribers. In December 2014, the KCC further imposed a fine of approximately ₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies. In March 2015, the KCC also imposed a combined fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other telecommunications operators were promoting. On June 24, 2015, the KCC imposed a fine of ₩52 million for violating privacy related regulations and undermining consumer interests. On July 31, 2015 and January 19, 2016, the KCC imposed a fine of ₩350 million and ₩560 million, respectively, on us for infringing upon consumer interests by advertising false and exaggerated information about bundled products. On March 8, 2016, the KCC imposed a fine of ₩32 million on us for offering excessively reduced rates and waivers to certain customers. On December 6, 2016, the KCC imposed a combined fine of approximately ₩10.7 billion on SK Telecom, LG U+, SK Broadband, t-broad, Dlive, CJ HelloVision and us (our fine being approximately ₩2.3 million) and ordered to take corrective measures for providing excessive promotional gifts to bundled products customers. We have paid all of such fines as of the date hereof.
97
In July 2012, the police arrested two third-party individuals in connection with the alleged theft of personal information relating to approximately 8.7 million of our mobile phone subscribers. The individuals in question stole personal information through a series of hackings starting from February 2012 into our N-STEP. Since the incident, approximately 29,800 of our mobile phone subscribers filed a total of 16 lawsuits against us in connection with the N-STEP hackings, alleging that we failed to protect their personal information, and are seeking total damages of approximately ₩15 billion. From August 2014 to October 2016, various district courts have awarded damages of ₩100,000 per plaintiff for 14 of the cases involving a total of approximately 29,000 of the subscribers, resulting in damages of approximately ₩3 billion to us, while the remaining trials are currently ongoing at various district courts. We have appealed the district courts decisions. In January 2017, we won one of the appeals and such appellate court decision was appealed to the Supreme Court. The other appeals are currently ongoing at the Seoul High Court.
Furthermore, in March 2014, the police arrested three third-party individuals in connection with their alleged theft of personal information relating to approximately 9.8 million of our subscribers. The individuals in question stole the personal information of our subscribers through a series of hackings into our main homepage starting from February 2014. Since the incident, approximately 15,000 subscribers filed 22 lawsuits against us in connection with the information theft, seeking total damages of approximately ₩7 billion. The trials are currently ongoing at various district courts. From November 2016 to February 2017, we won 14 trials, lost two trials and the remaining six trials are currently ongoing at various district courts. The plaintiffs of 10 of the 14 cases have appealed the district courts decisions to the Seoul High Court. We appealed the district courts decisions of the two trials where we lost. In June 2014, we were fined ₩85 million by the KCC and were ordered to take corrective measures in connection with the most recent hacking incident. We filed an administrative appeal in August 2014 in connection with the KCC fine and prevailed. The KCC appealed the administrative decision and the appeal is currently ongoing at the Seoul High Court.
In December 2013, the MSIP declared that the contracts over our sale of Koreasat 3 were null and void, on the grounds that the satellite was sold without obtaining proper government approval. We are currently involved in an International Chamber of Commerce arbitration against ABS over the Koreasat 3 satellite ownership and contract violation claims.
In 2009, we entered into a contract with Enspert, Co., Ltd.(Enspert), a consumer electronics manufacturer, to purchase approximately 200,000 tablet PCs. Due to defects with the tablet PCs, we cancelled our contract and the outstanding order for approximately 170,000 tablet PCs, for which we would have paid approximately ₩51 billion. In June 2014, the Korea Fair Trade Commission imposed a fine of approximately ₩2 billion on us, finding that we cancelled our contract with Enspert without cause. We appealed such decision but the decision was confirmed by the Seoul High Court and the Supreme Court in May 2016 and September 2016, respectively. Due to the absence of relevant lawsuits, it has not been determined whether the contract cancellation was in violation of other applicable laws, including the Fair Transactions in Subcontracting Act. We plan to vigorously defend ourselves in case of lawsuits, but we may incur additional damages and losses which are difficult to predict at this time.
We are a defendant in various other court proceedings involving claims for civil damages arising in the ordinary course of our business. We are a defendant in an ongoing court proceeding filed by the Industrial Bank of Korea on March 18, 2015. In connection with the filing of court receivership by KT ENGCORE, Industrial Bank of Korea claims that we are liable for ₩10 billion of the ₩65.8 billion asset-backed commercial papers of a renewable energy project for which KT ENGCORE was a contractor and guarantor.
As of December 31, 2016, we have established provisions relating to litigations of ₩19 billion. See Note 19 to the Consolidated Financial Statements. While we are unable to predict the ultimate
98
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 ordinary shares to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding ordinary shares to shareholders of record on June 30 of the years indicated:
Year |
Annual Dividend per Ordinary Share |
Interim Dividend per Ordinary Share |
Average Total Dividend per Ordinary Share |
|||||||||
(In Won) | (In Won) | (In Won) | ||||||||||
2012 |
2,000 | | 2,000 | |||||||||
2013 |
800 | | 800 | |||||||||
2014 |
0 | | 0 | |||||||||
2015 |
500 | | 500 | |||||||||
2016 |
800 | | 800 |
If sufficient profits are available, the board of directors may propose annual dividends on the outstanding ordinary shares, 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 ordinary share 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. Memorandum and Articles of AssociationDividends and Item 12. Description of Securities Other than Equity SecuritiesItem 12.D. American Depositary Shares.
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 SecuritiesItem 12.D. American Depositary Shares.
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.
99
Item 9.A. Offer and Listing Details
Market Price Information
Ordinary Shares
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 April 25, 2017 was ₩31,450 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 since January 2012:
Price | Average Daily Trading Volume |
|||||||||||
High | Low | |||||||||||
(In Won) | (Number of shares) | |||||||||||
2012 |
39,750 | 27,700 | 1,067,315 | |||||||||
2013 |
40,850 | 29,950 | 1,149,143 | |||||||||
2014 |
36,800 | 28,300 | 1,051,396 | |||||||||
2015 |
32,250 | 28,250 | 963,825 | |||||||||
First quarter |
31,900 | 28,500 | 1,032,769 | |||||||||
Second quarter |
32,250 | 28,400 | 1,082,244 | |||||||||
Third quarter |
31,000 | 28,400 | 957,396 | |||||||||
Fourth quarter |
30,700 | 28,250 | 788,055 | |||||||||
2016 |
33,250 | 26,350 | 547,426 | |||||||||
First quarter |
29,800 | 26,350 | 619,422 | |||||||||
Second quarter |
32,550 | 29,150 | 654,800 | |||||||||
Third quarter |
32,750 | 29,850 | 454,623 | |||||||||
Fourth quarter |
33,250 | 29,400 | 466,237 | |||||||||
November |
33,250 | 29,800 | 615,186 | |||||||||
December |
30,350 | 29,400 | 411,936 | |||||||||
2017 (through April 25) |
33,250 | 28,900 | 549,994 | |||||||||
First quarter |
33,250 | 28,900 | 567,549 | |||||||||
January |
29,650 | 28,900 | 403,823 | |||||||||
February |
30,650 | 29,200 | 537,745 | |||||||||
March |
33,250 | 30,750 | 743,486 | |||||||||
Second quarter (through April 25) |
32,700 | 31,150 | 485,971 | |||||||||
April (through April 25) |
32,700 | 31,150 | 485,971 |
Source: KRX | KOSPI Market. |
ADSs
The outstanding ADSs, each of which represents one-half of one share of our ordinary share, have been traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999 until September 18, 2015, the date on which the ADSs were delisted from the London Stock Exchange. The ADSs, including those previously listed on the London Stock Exchange, continue to be tradable on the New York Stock Exchange.
100
The price of the ADSs on the New York Stock Exchange as of the close of trading on April 25, 2017 was $16.08 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2012:
Price | Average Daily Trading Volume |
|||||||||||
High | Low | |||||||||||
(In US$) | (Number of ADSs) | |||||||||||
2012 |
18.23 | 11.65 | 1,004,064 | |||||||||
2013 |
18.16 | 14.33 | 528,291 | |||||||||
2014 |
17.46 | 13.24 | 440,020 | |||||||||
2015 |
14.85 | 11.83 | 336,711 | |||||||||
First quarter |
14.17 | 12.87 | 378,464 | |||||||||
Second quarter |
14.85 | 12.49 | 306,958 | |||||||||
Third quarter |
13.10 | 11.83 | 266,449 | |||||||||
Fourth quarter |
14.03 | 11.91 | 396,465 | |||||||||
2016 |
16.73 | 11.03 | 608,543 | |||||||||
First quarter |
13.54 | 11.03 | 505,970 | |||||||||
Second quarter |
14.71 | 13.22 | 591,603 | |||||||||
Third quarter |
16.73 | 14.17 | 674,686 | |||||||||
Fourth quarter |
16.31 | 13.66 | 657,875 | |||||||||
November |
15.99 | 13.87 | 785,746 | |||||||||
December |
14.59 | 13.66 | 655,145 | |||||||||
2017 (through April 25) |
17.11 | 13.84 | 864,768 | |||||||||
First quarter |
17.10 | 13.84 | 840,494 | |||||||||
January |
14.87 | 13.84 | 756,237 | |||||||||
February |
16.00 | 14.84 | 892,169 | |||||||||
March |
17.10 | 15.92 | 871,073 | |||||||||
Second quarter (through April 25) |
17.11 | 16.05 | 958,830 | |||||||||
April (through April 25)) |
17.11 | 16.05 | 958,830 |
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 four different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has three trading floors located in Seoul, one for the KRX KOSPI Market, one for the KRX KOSDAQ Market, one for the KRX KONEX 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 & Medium Business Corporation, (iii) the Korea Securities Finance Corporation and (iv) the Korea Financial Investment 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.
101
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 KRX KOSPI Market publishes the KOSPI every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. The KOSPI 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 KOSPI are set out in the following table together with the associated dividend yields and price earnings ratios:
Period Average | ||||||||||||||||||||||||
Year |
Opening | High | Low | Closing | Dividend Yield (1)(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 | 1.2 | 22.9 | ||||||||||||||||||
2010 |
1,696.14 | 2,051.00 | 1,552.79 | 2,051.00 | 1.1 | 18.0 | ||||||||||||||||||
2011 |
2,078.08 | 2,228.96 | 1,652.71 | 1,825.74 | 1.5 | 10.5 | ||||||||||||||||||
2012 |
1,826.37 | 2,049.28 | 1,769.31 | 1,997.05 | 1.3 | 12.3 | ||||||||||||||||||
2013 |
2,031.10 | 2,059.58 | 1,780.63 | 2,011.34 | 1.1 | 12.8 | ||||||||||||||||||
2014 |
1,967.19 | 2,082.61 | 1,886.85 | 1,915.59 | 1.2 | 13.2 | ||||||||||||||||||
2015 |
1,926.44 | 2,173.41 | 1,829.81 | 1,961.31 | 1.4 | 14.4 | ||||||||||||||||||
2016 |
1,918.76 | 2,068.72 | 1,835.28 | 2,026.46 | 1.6 | 13.5 | ||||||||||||||||||
2017 (through April 25) |
2,026.16 | 2,196.85 | 2,026.16 | 2,196.85 | 1.5 | 14.0 |
Source: The | KRX KOSPI Market |
(1) | Dividend yields are based on daily figures. Dividend yields after January 3, 1985 include cash dividends only. |
(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. |
102
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 KOSPI 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 30% of the previous days closing price of the shares, rounded down as set out below:
Previous Days Closing Price |
Rounded Down To |
|||
Less than ₩5,000 |
₩ | 5 | ||
₩5,000 to less than ₩10,000 |
₩ | 10 | ||
₩10,000 to less than ₩50,000 |
₩ | 50 | ||
₩50,000 to less than ₩100,000 |
₩ | 100 | ||
₩100,000 to less than ₩500,000 |
₩ | 500 | ||
₩500,000 or more |
₩ | 1,000 |
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.
Due to a 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.E. TaxationKorean Taxation.
103
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 | ||||||||||||||||||
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 |
791 | 1,041,999 | 903,493 | 353,760 | 6,863,146 | 5,950,877 | ||||||||||||||||||
2012 |
784 | 1,154,294 | 1,077,672 | 486,480 | 4,823,643 | 4,503,448 | ||||||||||||||||||
2013 |
777 | 1,185,974 | 1,123,826 | 328,325 | 3,993,422 | 3,784,158 | ||||||||||||||||||
2014 |
773 | 1,192,253 | 1,084,655 | 278,082 | 3,983,580 | 3,624,072 | ||||||||||||||||||
2015 |
770 | 1,242,832 | 1,060,437 | 455,256 | 5,351,734 | 4,566,326 | ||||||||||||||||||
2016 |
779 | 1,308,440 | 1,082,698 | 376,772 | 4,523,044 | 3,742,693 | ||||||||||||||||||
2017 (through April 25) |
770 | 1,308,042 | 1,155,820 | 393,676 | 4,513,310 | 3,988,080 |
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.
104
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.
Foreign investors are 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.
Foreign investors are 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. Foreigners are 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.
105
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 ₩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.
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 ordinary shares, par value ₩5,000 per share (Ordinary Shares) and shares of non-voting preferred stock, par value ₩5,000 per share (Non-Voting Shares). Ordinary 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 share capital. As of December 31, 2016, 261,111,808 Ordinary Shares were issued, of which 16,140,165 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 Ordinary 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 share capital, 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.
106
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 Ordinary Shares represented by the ADSs have the same dividend rights as other outstanding Ordinary Shares.
Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Ordinary 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 Ordinary 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 Ordinary 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 Ordinary Shares from the dividends payable in respect of the next fiscal year.
We declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in Shares. However, a dividend of Shares must be distributed at par value. If the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend. We may pay interim dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.
Under the Commercial Code, we may pay our dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and earned surplus reserve (the 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 earned surplus reserve an amount equal to at least 10% of the cash portion of the dividend or unless we have accumulated an earned surplus reserve of not less than one-half of our stated capital. We may not use the Legal Reserve to pay cash dividends but may transfer amounts from the Legal Reserve to share capital or use the 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 the 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
107
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 Articles 4 and 119 of 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 pursuant to Article 165-6 of the Financial Investment Services and Capital Markets Act, the amount of which is no more than 10% of the issued Shares; |
| issued in order to satisfy specific needs such as strategic alliance, inducement of foreign funds or new technology, improvement of financial structure or other capital raising requirement; or |
| issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases. |
In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of ₩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, 2016, 0.53% 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
108
the avoidance of doubt, both of conditions (i) and (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. 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 MSIP may require corrective measures to comply with the ownership restrictions.
General Meeting of Shareholders
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
| as necessary; |
| at the request of shareholders of an aggregate of 3.0% or more of our issued Ordinary 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. |
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 Ordinary 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 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 office in Seoul, or if necessary, may be held elsewhere.
Voting Rights
Holders of our Ordinary Shares are entitled to one vote for each Ordinary Share, except that voting rights of Ordinary 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
109
rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders meeting. Under the Commercial Code of Korea, any shareholder holding shares equivalent to not less than 1/100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting.
Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then outstanding:
| amending our articles of incorporation; |
| removing a director; |
| reduction of our share capital; |
| 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.
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 desire 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 Ordinary Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Ordinary Shares underlying their ADSs. See Item 12. Description of Securities Other than Equity SecuritiesItem 12.D. American Depositary Shares.
110
Appraisal 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 appraisal rights unless they have withdrawn the underlying ordinary shares 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 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 consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.
Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.
Transfer of Shares
Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders rights against us, the transferee must have his name and address
111
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, Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.
Acquisition of Shares by Us
Under the Commercial Code, we may acquire our own Shares by (i) purchasing on the KRX KOSPI Market, or (ii) purchasing from shareholders on a pro rata basis in accordance with the number of shares held by each shareholder. 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. Moreover, we must acquire our own Shares from dissenting shareholders who exercise their appraisal rights.
Under the Financial Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) purchasing from shareholders on a pro rata basis in accordance with the number of shares held by each shareholder, 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.
In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our Shares.
As of December 31, 2016, there were 16,140,165 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.
We have not entered into any material contracts since January 1, 2012, other than in the ordinary course of our business. For information regarding our agreements and transactions with certain related parties, see Item 7. Major Shareholders and Related Party TransactionsItem 7.B. Related Party Transactions and Note 36 to the Consolidated Financial Statements. For a description of certain agreements entered into during the past two years related to our capital commitments and obligations, see Item 5. Operating and Financial Review and ProspectsItem 5.B. Liquidity and Capital Resources.
112
General
The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the Foreign Exchange Transaction Laws) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies.
Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.
Government Review of Issuance of ADSs
In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.
Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.
Reporting Requirements for Holders of Substantial Interests
Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the Equity Securities) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5.0% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within
113
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 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; |
114
| 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 foreign direct investment as defined in the Foreign Investment Promotion Act; |
| 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; |
| acquisition and disposal of shares through alternative trading systems (ATS); |
| 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 a foreign direct investment as defined in the Foreign Investment Promotion Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment registration certificates in its name in certain circumstances as described in the relevant regulations.
Upon a foreign 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
115
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 may 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 satisfy all relevant requirements under the Financial Investment Services and Capital Markets Act.
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 Trade Industry & Energy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company. A foreigner who has acquired our ordinary shares in excess of this ceiling may not exercise his voting rights with respect to our ordinary shares 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.
116
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 ordinary shares or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.
Korean Taxation
The following summary of Korean tax considerations applies to you as long as you are not:
| a resident of Korea; |
| a corporation organized under Korean law; or |
| engaged in a trade or business in Korea through a permanent establishment or a fixed base. |
Shares or ADSs
Dividends on Ordinary Shares 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, an application for entitlement to a reduced tax rate. If you hold ADSs and receive the dividends through a depositary, you are not required to submit the application for entitlement to a reduced tax rate. If you are an overseas investment vehicle (an OIV),
117
which is defined as an organization established in a non-Korean jurisdiction that manages funds collected through investment solicitation by way of acquiring, disposing, or otherwise investing in any such assets and distributes the yield therefrom to investors), you must submit to us a report of the OIV and a schedule of beneficial owners together with their applications for entitlement to a reduced tax rate, which you should collect from each beneficial owner. 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 gains from a sale of ordinary shares 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 gains 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 Korean taxation on capital gains from a sale of ADSs, or ordinary shares that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the ordinary shares, 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 gains, 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 are subject to Korean taxation on capital gains from a sale of ADSs, or ordinary shares that you acquire as a result of a withdrawal, and you sell your ordinary shares or ADSs, the purchaser or, in the case of a sale of ordinary shares 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 from taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and the transaction costs for the ordinary shares or ADSs. In order to obtain the benefit of an exemption from 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. If you are an OIV, you must submit to us a report of the OIV and a schedule of beneficial owners together with their applications for exception, which you should collect from each beneficial owner. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate.
Most tax treaties that Korea has entered into provide exemptions for capital gains tax for capital gains from sale of ordinary shares. 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
118
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 or had resided in Korea for a continuous period of one year or more immediately prior to his death 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 ordinary shares 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 ordinary shares 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 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 Seoul Administrative Courts holding was upheld by the Seoul High Court and was further upheld by the Supreme Court. Subsequent to this series of rulings, however, the Securities Transaction Tax Law was amended to expressly provide that depositary receipts constituted a form of share certificates subject to the securities transaction tax. However, the 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
The following discussion describes the material United States federal income tax consequences of the ownership of our ADSs and ordinary shares as of the date hereof. This discussion deals only with ADSs and ordinary shares that are held as capital assets by a United States Holder (as defined below). In addition, the discussion set forth below is applicable only to United States Holders (i) who are residents of the United States for purposes of the current Treaty, (ii) whose ADSs or ordinary shares are not, for purposes of the Treaty, effectively connected with a permanent establishment in Korea and (iii) who otherwise qualify for the full benefits of the Treaty.
119
As used herein, the term United States Holder means a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes, any of the following:
| an individual citizen or resident of the United States; |
| a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to United States federal income taxation regardless of its source; or |
| a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the Code), and regulations, rulings and judicial decisions thereunder as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. In addition, this discussion is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.
This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
| a dealer in securities or currencies; |
| a financial institution; |
| a regulated investment company; |
| a real estate investment trust; |
| an insurance company; |
| a tax-exempt organization; |
| a person holding our ADSs or ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; |
| a trader in securities that has elected the mark-to-market method of accounting for your securities; |
| a person liable for alternative minimum tax; |
| a person who owns or is deemed to own 10% or more of our voting stock; |
| a partnership or other pass-through entity for United States federal income tax purposes; or |
| a person whose functional currency is not the United States dollar. |
120
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our ADSs or ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ADSs or ordinary shares, you should consult your tax advisors.
This discussion does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you are considering the purchase of our ADSs or ordinary shares, you should consult your own tax advisors concerning the particular United States federal income tax consequences to you of the purchase, ownership and disposition of our ADSs or ordinary shares, as well as the consequences to you arising under other United States federal tax laws and the laws of any other taxing jurisdiction.
ADSs
If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax.
Taxation of Dividends
The gross amount of distributions on the ADSs or ordinary shares (including any amounts withheld to reflect Korean withholding taxes) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the tax basis of the ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend.
Any dividends that you receive (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. With respect to non-corporate United States investors, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the United States Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The United States Treasury Department has determined that the current income tax treaty between the United States and Korea meets these requirements, and we believe we are eligible for the benefits of that treaty. However, non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your own tax advisors regarding the application of these rules to your particular circumstances.
121
Non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company in the taxable year in which such dividends are paid or in the preceding taxable year (see Passive Foreign Investment Company below).
The amount of any dividend paid in Won will equal the United States dollar value of the Won received calculated by reference to the exchange rate in effect on the date the dividend is received by you, in the case of ordinary shares, or by the depositary, in the case of ADSs, regardless of whether the Won are converted into United States dollars. If the Won received as a dividend are converted into United States dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the Won received as a dividend are not converted into United States dollars on the date of receipt, you will have a basis in the Won equal to their United States dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Won will be treated as United States source ordinary income or loss.
Subject to certain conditions and limitations (including a minimum holding period requirement), Korean withholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Passive Foreign Investment Company
We do not believe that we were, for United States federal income tax purposes, a passive foreign investment company (a PFIC) for the most recent taxable year, and we expect to operate in such a manner so as not to become a PFIC. If, however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the ADSs or ordinary shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules.
Taxation of Capital Gains
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of the ADSs or ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary shares and your tax basis in the ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss and will generally be long-term capital gain or loss if you have held the ADSs or ordinary shares for more than one year. Long-term capital gains of non-corporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss.
You should note that any Korean securities transaction tax will not be treated as a creditable foreign tax for United States federal income tax purposes, although you may be entitled to deduct such taxes, subject to applicable limitations under the Code.
122
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale, exchange or other disposition of our ADSs or ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.
Item 10.F. Dividends and Paying Agents
See Item 8. Financial InformationItem 8.A. Consolidated Statements and Other Financial InformationDividends for information concerning our dividend policies and our payment of dividends. See Item 10.B. Memorandum and Articles of AssociationDividends for a discussion of the process by which dividends are paid on our ordinary shares. See Item 12. Description of Securities Other than Equity SecuritiesItem 12.D. American Depositary Shares 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.
I tem 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 securities. Our long-term financial policies are annually reported to our Board of Directors, and our Finance division conducts financial risk management and assessment. Upon identification and evaluation of our risk exposures, we, having considered various circumstances, enter into derivative financial instruments to try to manage some of such risks. 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 largely for hedging purposes.
123
For our trading financial instruments, we recognized a valuation gain of ₩1 billion and a valuation loss of ₩1 billion in 2014, a valuation gain of ₩0 and a valuation loss of ₩2 billion in 2015 and a valuation gain of ₩1 billion and a valuation loss of ₩8 billion in 2016. For our hedging derivative contracts, we recognized a valuation gain of ₩93 billion, a valuation loss of ₩25 billion and accumulated other comprehensive income of ₩22 billion in 2014, a valuation gain of ₩142 billion, a valuation loss of ₩2 billion and accumulated other comprehensive income of ₩148 billion in 2015 and a valuation gain of ₩109 billion, a valuation loss of ₩0.1 billion and accumulated other comprehensive income of ₩85 billion in 2016. For further details regarding the assets, liabilities, gains and losses recorded relating to our derivative contracts outstanding as of December 31, 2014, 2015 and 2016, see Note 7 to the Consolidated Financial Statements.
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 U.S. Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers. We have entered into several currency swap contracts, combined interest currency swap contracts and currency forward contracts to hedge our foreign currency risks.
The following table shows our assets and liabilities denominated in foreign currency as of December 31, 2014, 2015 and 2016:
As of December 31, | ||||||||||||||||||||||||
2014 | 2015 | 2016 | ||||||||||||||||||||||
(in thousands of foreign currencies) |
Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
||||||||||||||||||
U.S. Dollar |
197,221 | 2,532,614 | 183,254 | 2,351,003 | 210,474 | 2,536,090 | ||||||||||||||||||
Special Drawing Right |
573 | 1,027 | 444 | 849 | 311 | 737 | ||||||||||||||||||
Japanese Yen |
34,168 | 30,051,367 | 73,716 | 40,279,411 | 80,555 | 21,802,051 | ||||||||||||||||||
British Pound |
| 257 | 8 | 888 | 1 | 151 | ||||||||||||||||||
Euro |
134 | 177 | 29 | 29 | 40 | 2,571 | ||||||||||||||||||
Algerian Dinar |
929 | | | | 471 | | ||||||||||||||||||
Chinese Yuan |
3,957 | | 15,562 | 107 | 15,262 | 381 | ||||||||||||||||||
Uzbekistani Som |
7,978,633 | | | | 39,531 | | ||||||||||||||||||
Rwandan Franc |
13,593 | | | | 1,203 | | ||||||||||||||||||
Indonesian Rupiah |
| | | | 15,646,011 | 53,142,167 | ||||||||||||||||||
Myanmar Kyat |
| | | | 2,750 | | ||||||||||||||||||
Tanzanian Shilling |
| | | | 29,987 | | ||||||||||||||||||
Botswana Pula |
| | | | 15 | | ||||||||||||||||||
Hong Kong Dollar |
158 | | 9 | | 254 | | ||||||||||||||||||
Bangladeshi Taka |
299 | | 6 | | 69,473 | | ||||||||||||||||||
Colombian Peso |
23,583 | | | | | | ||||||||||||||||||
Polish Zloty |
28,195 | | 207,273 | | 106,025 | | ||||||||||||||||||
Vietnamese Dong |
273,313 | 93,756 | 270,000 | | 515,412 | | ||||||||||||||||||
Swiss Franc |
| 78 | | | | |
As of December 31, 2014, 2015 and 2016, a 10% increase in the exchange rate between the Won and all foreign currencies, with all other variables held constant, would have decreased our income before income tax by ₩45 billion, ₩52 billion and ₩28 billion, respectively, and total equity by ₩38 billion, ₩46 billion and ₩24 billion, respectively, with a 10% decrease in the exchange rate having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than
124
foreign exchange rates are held constant, and as such, does not reflect any correlation between foreign exchange rates and other variables, nor our decision to decrease the risk. See Note 34 to the Consolidated Financial Statements.
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 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 to hedge our interest rate risk.
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, 2016 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency:
|
|
|
|
|
December 31, 2016 | |||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair Value | ||||||||||||||||||||||
(in millions of Won, except rates) | ||||||||||||||||||||||||||||
Local currency: |
||||||||||||||||||||||||||||
Fixed rate |
569,753 | 870,043 | 826,518 | 460,518 | 2,343,015 | 5,069,847 | 5,098,060 | |||||||||||||||||||||
Average weighted rate (1) |
3.67 | % | 3.93 | % | 2.94 | % | 3.17 | % | 3.50 | % | 3.47 | % | | |||||||||||||||
Variable rate |
| | | | | | | |||||||||||||||||||||
Average weighted rate (1) |
| % | | % | | % | | % | | % | | % | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Sub-total |
569,753 | 870,043 | 826,518 | 460,518 | 2,343,015 | 5,069,847 | 5,098,060 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Foreign currency: |
||||||||||||||||||||||||||||
Fixed rate |
1,243,927 | 273,260 | 470,210 | 47,235 | 649,235 | 2,683,867 | 2,704,388 | |||||||||||||||||||||
Average weighted rate (1) |
2.50 | % | 0.99 | % | 2.65 | % | 2.85 | % | 3.27 | % | 2.57 | % | | |||||||||||||||
Variable rate |
7,251 | 369,801 | 7,251 | 3,626 | | 387,929 | 381,747 | |||||||||||||||||||||
Average weighted rate (1) |
1.35 | % | 2.13 | % | 1.35 | % | 1.35 | % | | % | 2.10 | % | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Subtotal |
1,251,178 | 643,061 | 477,461 | 50,861 | 649,235 | 3,071,796 | 3,086,135 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
1,820,931 | 1,513,104 | 1,303,979 | 511,379 | 2,992,250 | 8,141,643 | 8,184,195 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Weighted average rates of the portfolio at the period end. |
As of December 31, 2014, 2015 and 2016, a 100 basis point increase in the market interest rate, with all other variables held constant, would have decreased our profit before income tax by ₩5 billion, ₩4 billion and ₩3 billion, respectively. As of December 31, 2014, a 100 basis point increase in the market interest rate, with all other variables held constant, would have increased our shareholders equity by ₩5 billion. As of December 31, 2015 and 2016, such increase, with all other variables held constant, would have decreased our shareholders equity by ₩245 million and ₩2 billion, respectively.
As of December 31, 2014, a 100 basis point decrease in the market interest rates, with all other variables held constant, would have decreased our profit before income tax by ₩5 billion. As of December 31, 2015 and 2016, such decrease, with all other variables held constant, would have increased our profit before income tax by ₩4 billion and ₩3 billion, respectively. As of December 31, 2014, 2015 and 2016, a 100 basis point decrease in the market interest rates, with all other variables held constant, would have decreased our shareholders equity by ₩11 billion, ₩6 billion and
125
₩5 billion, respectively. The foregoing sensitivity analysis assumes that all variables other than market interest rates are held constant, and as such, does not reflect any correlation between market interest rates and other variables, nor our decision to decrease the risk, but reflects the effects of derivative contracts in place at the time of conducting the analysis.
Equity Price Risk
We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2014, 2015 and 2016, a 10% increase in the equity indices where our marketable equity securities are listed, with all other variables held constant, would have increased our total equity by ₩7 billion, ₩3 billion and ₩0.5 billion, respectively, with a 10% decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our marketable equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
Item 12.B. Warrants and Rights
Not applicable.
Not applicable.
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); |
126
| 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.
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 2016, we received the following payments, after deduction of applicable U.S. taxes, from the depositary:
Reimbursement of NYSE listing fees |
$ | 92,582.00 | ||
Reimbursement of SEC filing fees |
$ | 150,124.76 | ||
Reimbursement of settlement infrastructure fees (including maintenance fees) |
$ | 0 | ||
Reimbursement of proxy process expenses (printing, postage and distribution) |
$ | 20,090.18 | ||
Reimbursement of legal fees (reimbursement received in April 2016 in respect of 2015) |
$ | 3,900.00 | ||
Contributions toward our investor relations efforts (including non-deal roadshows, investor conferences and investor relations agency fees) |
$ | 194,418.05 |
127
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, 2016. 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 December 31, 2016. 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. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act 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 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.
128
Our management has performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2016, utilizing the criteria discussed in the Internal ControlIntegrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded that our internal control over financial reporting was effective as of December 31, 2016.
Samil PricewaterhouseCoopers, an independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2016, 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 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our Audit Committee is comprised of Jong-Gu Kim, Sang Kyun Cha, Dae-Geun Park and Dong-Wook Chung. The board of directors has determined that Dae-Geun Park is the audit committee financial expert. Dae-Geun Park is independent as such term is defined in Section 303A.02 of the NYSE Listed Company Manual, Rule 10A-3 under the Exchange Act and the Korea Stock Exchange listing standards.
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 website.
129
Item 16C. Principal Accountant Fees and Services
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by Samil PricewaterhouseCoopers, our independent registered public accounting firm, during the fiscal year ended December 31, 2015 and 2016. Such fees exclude the fees billed for work associated with our foreign subsidiaries which Samil PricewaterhouseCoopers did not provide services and with our former subsidiaries.
Year Ended December 31, |
||||||||
2015 | 2016 | |||||||
(In millions) | ||||||||
Audit fees (1) |
₩ | 3,025 | ₩ | 3,090 | ||||
Audit-related fees |
| | ||||||
Tax fees (2) |
179 | 78 | ||||||
All other fees (3) |
1 | | ||||||
|
|
|
|
|||||
Total fees |
₩ | 3,204 | ₩ | 3,168 | ||||
|
|
|
|
(1) | Audit fees consist of fees for the annual audit and quarterly review services engagement and the comfort letters. |
(2) | Tax fees consist of fee for tax services which are mainly the preparation or non-recurring tax compliance review of original or amended tax returns. |
(3) | All other fees consist of fees billed for Samil PricewaterhouseCoopers services to provide confirmation of our debt ratios as part of our application for the Governments preliminary approval for Internet-only bank business. |
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 registered public accounting firm 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 registered public accounting firm 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.
130
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table sets forth the repurchases of ordinary shares by us or any affiliated purchasers during the fiscal year ended December 31, 2016:
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 |
| | | | ||||||||||||
February 1 to February 29 |
| | | | ||||||||||||
March 1 to March 31 |
| | | | ||||||||||||
April 1 to April 30 |
| | | | ||||||||||||
May 1 to May 31 |
| | | | ||||||||||||
June 1 to June 30 |
| | | | ||||||||||||
July 1 to July 31 |
| | | | ||||||||||||
August 1 to August 31 |
| | | | ||||||||||||
September 1 to September 30 |
| | | | ||||||||||||
October 1 to October 31 |
| | | | ||||||||||||
November 1 to November 30 |
| | | | ||||||||||||
December 1 to December 31 |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
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. | |
Nominating/Corporate Governance Committee |
||
Listed companies must have a nominating/corporate governance committee composed entirely of independent directors. | We have not established a nominating/corporate governance committee composed entirely of independent directors. However, we maintain an Outside Director Candidate Nominating Committee composed of all of our outside directors and one standing director. We also maintain a Corporate Governance Committee comprised of four outside directors and one standing 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. |
131
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 |
||
Non-management directors must meet in regularly scheduled executive sessions without management. | 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 standing directors; and an employee stock ownership association program.
All material matters related to the granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders approval. Matters related to the employee stock ownership association program are not subject to shareholders approval under Korean law. | |
Corporate Governance Guidelines |
||
Listed companies must adopt and disclose corporate governance guidelines. | We have adopted Corporate Governance Guidelines in March 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 |
Item 16H. Mine Safety Disclosure
Not applicable.
132
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) | |
8.1 | List of subsidiaries of KT Corporation | |
12.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
13.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
15.1 | The Framework Act on Telecommunications (English translation) |
133
15.2* | Enforcement Decree of the Framework Act on Telecommunications (English translation) (incorporated herein by reference to Exhibit 15.2 of the Registrants Annual Report on Form 20-F filed on April 29, 2015) | |
15.3 | The Telecommunications Business Act (English translation) | |
15.4 | Enforcement Decree of the Telecommunications Business Act (English translation) |
* Filed previously.
134
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/ CHANG-GYU HWANG |
Name: Chang-Gyu Hwang |
Title: Chief Executive Officer |
Date: April 28, 2017
135
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of KT Corporation
In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of operations, of comprehensive income(loss), of 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework 2013 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 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 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 audits 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 opinions.
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 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
April 28, 2017
F-2
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position
December 31, 2015 and 2016
(in millions of Korean won) | Notes | 2015 | 2016 | |||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
4, 5 | ₩ | 2,559,464 | ₩ | 2,900,311 | |||||||
Trade and other receivables, net |
4, 6 | 4,853,632 | 5,327,352 | |||||||||
Other financial assets |
4, 7 | 292,943 | 720,555 | |||||||||
Current income tax assets |
3,881 | 2,079 | ||||||||||
Inventories, net |
8 | 616,911 | 454,588 | |||||||||
Other current assets |
9 | 316,904 | 311,135 | |||||||||
|
|
|
|
|||||||||
Total current assets |
8,643,735 | 9,716,020 | ||||||||||
|
|
|
|
|||||||||
Non-current assets |
||||||||||||
Trade and other receivables, net |
4, 6 | 704,147 | 709,011 | |||||||||
Other financial assets |
4, 7 | 658,323 | 664,726 | |||||||||
Property and equipment, net |
10, 20 | 14,478,914 | 14,312,111 | |||||||||
Investment properties, net |
11 | 1,102,070 | 1,148,044 | |||||||||
Intangible assets, net |
12 | 2,599,751 | 3,022,803 | |||||||||
Investments in associates and joint ventures |
13 | 270,029 | 284,075 | |||||||||
Deferred income tax assets |
28 | 845,397 | 701,409 | |||||||||
Other non-current assets |
9 | 102,359 | 106,099 | |||||||||
|
|
|
|
|||||||||
Total non-current assets |
20,760,990 | 20,948,278 | ||||||||||
|
|
|
|
|||||||||
Total assets |
₩ | 29,404,725 | ₩ | 30,664,298 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
KT Corporation and Subsidiaries
Consolidated Statements of Financial Position (continued)
December 31, 2015 and 2016
(in millions of Korean won) | Notes | 2015 | 2016 | |||||||||
Liabilities and Equity |
||||||||||||
Current liabilities |
||||||||||||
Trade and other payables |
4, 14 | ₩ | 6,335,027 | ₩ | 7,139,771 | |||||||
Borrowings |
4, 15 | 1,726,098 | 1,820,001 | |||||||||
Other financial liabilities |
4, 7 | 43,645 | 233 | |||||||||
Current income tax liabilities |
28 | 81,114 | 88,739 | |||||||||
Provisions |
16 | 103,907 | 96,485 | |||||||||
Deferred income |
98,427 | 35,617 | ||||||||||
Other current liabilities |
9 | 311,170 | 342,291 | |||||||||
|
|
|
|
|||||||||
Total current liabilities |
8,699,388 | 9,523,137 | ||||||||||
|
|
|
|
|||||||||
Non-current liabilities |
||||||||||||
Trade and other payables |
4, 14 | 668,973 | 1,188,311 | |||||||||
Borrowings |
4, 15 | 6,908,799 | 6,300,790 | |||||||||
Other financial liabilities |
4, 7 | 103,683 | 108,431 | |||||||||
Net defined benefit liabilities |
17 | 524,083 | 378,404 | |||||||||
Provisions |
16 | 91,365 | 100,694 | |||||||||
Deferred income |
95,916 | 85,372 | ||||||||||
Deferred income tax liabilities |
28 | 129,650 | 137,680 | |||||||||
Other non-current liabilities |
9 | 26,737 | 58,761 | |||||||||
|
|
|
|
|||||||||
Total non-current liabilities |
8,549,206 | 8,358,443 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
17,248,594 | 17,881,580 | ||||||||||
|
|
|
|
|||||||||
Equity attribute to owners of the Parent Company |
||||||||||||
Share capital |
21 | 1,564,499 | 1,564,499 | |||||||||
Share premium |
1,440,258 | 1,440,258 | ||||||||||
Retained earnings |
22 | 9,049,971 | 9,644,483 | |||||||||
Accumulated other comprehensive income |
23 | 13,870 | (1,432 | ) | ||||||||
Other components of equity |
23 | (1,232,863 | ) | (1,217,934 | ) | |||||||
|
|
|
|
|||||||||
10,835,735 | 11,429,874 | |||||||||||
|
|
|
|
|||||||||
Non-controlling interest |
1,320,396 | 1,352,844 | ||||||||||
|
|
|
|
|||||||||
Total equity |
12,156,131 | 12,782,718 | ||||||||||
|
|
|
|
|||||||||
Total liabilities and equity |
₩ | 29,404,725 | ₩ | 30,664,298 | ||||||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
KT Corporation and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 2014, 2015 and 2016
(in millions of Korean won, except per share amounts) | ||||||||||||||
Notes | 2014 | 2015 | 2016 | |||||||||||
Operating revenue |
25 | ₩ | 22,612,713 | ₩ | 22,699,856 | ₩ | 23,120,878 | |||||||
Revenue |
22,359,280 | 22,211,673 | 22,755,006 | |||||||||||
Others |
253,433 | 488,183 | 365,872 | |||||||||||
Operating expenses |
26 | 23,391,553 | 21,622,788 | 21,781,098 | ||||||||||
|
|
|
|
|
|
|||||||||
Operating profit |
(778,840 | ) | 1,077,068 | 1,339,780 | ||||||||||
Finance income |
27 | 253,089 | 272,860 | 296,139 | ||||||||||
Finance costs |
27 | (792,200 | ) | (645,331 | ) | (515,087 | ) | |||||||
Share of net profits of associates and joint ventures |
13 | 18,697 | 6,144 | 2,599 | ||||||||||
|
|
|
|
|
|
|||||||||
Profit (loss) before income tax expense (benefit) |
(1,299,254 | ) | 710,741 | 1,123,431 | ||||||||||
Income tax expense (benefit) |
28 | (271,441 | ) | 227,131 | 328,314 | |||||||||
|
|
|
|
|
|
|||||||||
Profit (loss) from the continuing operations |
(1,027,813 | ) | 483,610 | 795,117 | ||||||||||
Discontinued Operations |
||||||||||||||
Profit from discontinued operations |
39 | 86,400 | 141,075 | | ||||||||||
|
|
|
|
|
|
|||||||||
Profit (loss) for the year |
₩ | (941,413 | ) | ₩ | 624,685 | ₩ | 795,117 | |||||||
|
|
|
|
|
|
|||||||||
Profit (loss) for the year attributable to: |
||||||||||||||
Owners of the Controlling Company |
₩ | (1,030,240 | ) | ₩ | 546,361 | ₩ | 708,362 | |||||||
Profit from continuing operations |
(1,094,177 | ) | 404,045 | 708,362 | ||||||||||
Profit from discontinued operations |
63,937 | 142,316 | | |||||||||||
Non-controlling interest |
₩ | 88,827 | ₩ | 78,324 | ₩ | 86,755 | ||||||||
Profit from continuing operations |
66,364 | 79,565 | 86,755 | |||||||||||
Loss from discontinued operations |
22,463 | (1,241 | ) | | ||||||||||
Earnings (loss) per share attributable to the equity holders of the Controlling Company during the year (in Korean won): |
||||||||||||||
Basic earnings (loss) per share |
29 | ₩ | (4,215 | ) | ₩ | 2,231 | ₩ | 2,893 | ||||||
From continuing operations |
(4,477 | ) | 1,650 | 2,893 | ||||||||||
From discontinued operations |
262 | 581 | | |||||||||||
Diluted earnings (loss) per share |
29 | ₩ | (4,215 | ) | ₩ | 2,231 | ₩ | 2,891 | ||||||
From continuing operations |
(4,477 | ) | 1,650 | 2,891 | ||||||||||
From discontinued operations |
262 | 581 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
KT Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31, 2014, 2015 and 2016
(in millions of Korean won) | ||||||||||||||
Notes | 2014 | 2015 | 2016 | |||||||||||
Profit (loss) for the year |
₩ | (941,413 | ) | ₩ | 624,685 | ₩ | 795,117 | |||||||
Other comprehensive income |
||||||||||||||
Items that will not be reclassfied to profit or loss: |
||||||||||||||
Remeasurements of the net defined benefit liability |
17 | (236,637 | ) | (37,872 | ) | 4,213 | ||||||||
Shares of remeasurement gain (loss) from associates and joint ventures |
(394 | ) | (2,407 | ) | 116 | |||||||||
Items that may be subsequently reclassified to profit or loss: |
||||||||||||||
Changes in value of available-for-sale financial assets |
4, 7 | 39,336 | 47,381 | 10,925 | ||||||||||
Other comprehensive income from available-for sale financial assets reclassified to loss |
(17,173 | ) | (83,397 | ) | (3,840 | ) | ||||||||
Net gains on cashflow hedges |
4, 7 | 16,990 | 111,914 | 64,796 | ||||||||||
Other comprehensive income from cashflow hedges reclassified to loss |
(44,795 | ) | (97,962 | ) | (75,871 | ) | ||||||||
Shares of other comprehensive income from associates and joint ventures |
3,902 | (1,608 | ) | (602 | ) | |||||||||
Currency translation differences |
3,526 | (4,884 | ) | (5,407 | ) | |||||||||
|
|
|
|
|
|
|||||||||
Other comprehensive income for the year, net of tax |
(235,245 | ) | (68,835 | ) | (5,670 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Total comprehensive income for the year |
₩ | (1,176,658 | ) | ₩ | 555,850 | ₩ | 789,447 | |||||||
|
|
|
|
|
|
|||||||||
Total comprehensive income for the year attributable to: |
||||||||||||||
Owners of the Controlling Company |
(1,252,456 | ) | 495,139 | 701,685 | ||||||||||
Non-controlling interest |
75,798 | 60,711 | 87,762 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Equity
Years ended December 31, 2014, 2015 and 2016
Attributable to owners of the Controlling Company | ||||||||||||||||||||||||||||||||||
(in millions of Korean won) | Notes |
Share capital |
Share premium |
Retained earnings |
Accumulated Other Comprehensive income |
Other Components of equity |
Total | Non-controlling interest |
Total equity |
|||||||||||||||||||||||||
Balance at January 1, 2014 |
₩ | 1,564,499 | ₩ | 1,440,258 | ₩ | 10,019,389 | ₩ | 24,538 | ₩ | (1,320,943 | ) | ₩ | 11,727,741 | ₩ | 1,109,675 | ₩ | 12,837,416 | |||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||||||||||||
Profit (loss) for the year |
| | (1,030,240 | ) | | | (1,030,240 | ) | 88,827 | (941,413 | ) | |||||||||||||||||||||||
Changes in value of available-for-sale financial assets |
4, 7 | | | | 20,889 | | 20,889 | 1,274 | 22,163 | |||||||||||||||||||||||||
Remeasurements of the net defined benefit liability |
17 | | | (223,157 | ) | | | (223,157 | ) | (13,480 | ) | (236,637 | ) | |||||||||||||||||||||
Valuation gains (losses) on cashflow hedge |
4, 7 | | | | (27,821 | ) | | (27,821 | ) | 16 | (27,805 | ) | ||||||||||||||||||||||
Shares of other comprehensive income of associates and joint ventures |
| | | 3,726 | | 3,726 | 176 | 3,902 | ||||||||||||||||||||||||||
Shares of loss on remeasurements of associates and joint ventures |
| | (311 | ) | | | (311 | ) | (83 | ) | (394 | ) | ||||||||||||||||||||||
Currency translation differences |
| | | 4,458 | | 4,458 | (932 | ) | 3,526 | |||||||||||||||||||||||||
Transactions with equity holders |
||||||||||||||||||||||||||||||||||
Dividends paid by the Controlling Company |
| | (195,112 | ) | | | (195,112 | ) | | (195,112 | ) | |||||||||||||||||||||||
Dividends paid to non-controlling interest of subsidiaries |
| | | | | | (27,683 | ) | (27,683 | ) | ||||||||||||||||||||||||
Appropriation of retained earnings related to loss on disposal of treasury stock |
| | (2,170 | ) | | 2,170 | | | | |||||||||||||||||||||||||
Changes in consolidation scope |
| | | | | | 198,260 | 198,260 | ||||||||||||||||||||||||||
Changes in ownership interest in subsidiaries |
| | | | 26,601 | 26,601 | (6,372 | ) | 20,229 | |||||||||||||||||||||||||
New shares of subsidiary issued to non-controlling interest |
| | | | | | 99,033 | 99,033 | ||||||||||||||||||||||||||
Others |
| | | | 31,463 | 31,463 | 609 | 32,072 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2014 |
₩ | 1,564,499 | ₩ | 1,440,258 | ₩ | 8,568,399 | ₩ | 25,790 | ₩ | (1,260,709 | ) | ₩ | 10,338,237 | ₩ | 1,449,320 | ₩ | 11,787,557 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Equity (Continued)
Years ended December 31, 2014, 2015 and 2016
Attributable to owners of the Controlling Company | ||||||||||||||||||||||||||||||||||||
(in millions of Korean won) | Notes | Share capital |
Share premium |
Retained earnings |
Accumulated Other Comprehensive income |
Other Components of equity |
Total | Non-controlling interest |
Total equity |
|||||||||||||||||||||||||||
Balance at January 1, 2015 |
₩ | 1,564,499 | ₩ | 1,440,258 | ₩ | 8,568,399 | ₩ | 25,790 | ₩ | (1,260,709 | ) | ₩ | 10,338,237 | ₩ | 1,449,320 | ₩ | 11,787,557 | |||||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||||||||||||||
Profit for the year |
| | 546,361 | | | 546,361 | 78,324 | 624,685 | ||||||||||||||||||||||||||||
Changes in value of available-for-sale financial assets |
4, 7 | | | | (24,310 | ) | | (24,310 | ) | (11,706 | ) | (36,016 | ) | |||||||||||||||||||||||
Remeasurements of the net defined benefit liability |
17 | | | (37,914 | ) | | | (37,914 | ) | 42 | (37,872 | ) | ||||||||||||||||||||||||
Valuation gains on cashflow hedge |
4, 7 | | | | 13,924 | | 13,924 | 28 | 13,952 | |||||||||||||||||||||||||||
Shares of other comprehensive income of associates and joint ventures |
| | | (1,357 | ) | | (1,357 | ) | (251 | ) | (1,608 | ) | ||||||||||||||||||||||||
Shares of loss on remeasurements of associates and joint ventures |
| | (2,109 | ) | | | (2,109 | ) | (298 | ) | (2,407 | ) | ||||||||||||||||||||||||
Currency translation differences |
| | | (177 | ) | | (177 | ) | (4,707 | ) | (4,884 | ) | ||||||||||||||||||||||||
Transactions with equity holders |
||||||||||||||||||||||||||||||||||||
Dividends paid to non-controlling interest of subsidiaries |
| | | | | | (41,575 | ) | (41,575 | ) | ||||||||||||||||||||||||||
Appropriation of retained earnings related to loss on disposal of treasury stock |
| | (24,766 | ) | | 24,766 | | | | |||||||||||||||||||||||||||
Changes in consolidation scope |
| | | | | | (154,188 | ) | (154,188 | ) | ||||||||||||||||||||||||||
Changes in ownership interest in subsidiaries |
| | | | (2,968 | ) | (2,968 | ) | 2,699 | (269 | ) | |||||||||||||||||||||||||
Others |
| | | | 6,048 | 6,048 | 2,708 | 8,756 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Balance at December 31, 2015 |
₩ | 1,564,499 | ₩ | 1,440,258 | ₩ | 9,049,971 | ₩ | 13,870 | ₩ | (1,232,863 | ) | ₩ | 10,835,735 | ₩ | 1,320,396 | ₩ | 12,156,131 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
KT Corporation and Subsidiaries
Consolidated Statements of Changes in Equity (Continued)
Years ended December 31, 2014, 2015 and 2016
Attributable to owners of the Controlling Company |
||||||||||||||||||||||||||||||||
(in millions of Korean won) | Notes |
Share capital |
Share premium |
Retained earnings |
Accumulated Other Comprehensive income |
Other Components of equity |
Total | Non-controlling interest |
Total equity |
|||||||||||||||||||||||
Balance at January 1, 2016 |
₩1,564,499 | ₩ | 1,440,258 | ₩ | 9,049,971 | ₩ | 13,870 | ₩ | (1,232,863 | ) | ₩ | 10,835,735 | ₩ | 1,320,396 | ₩ | 12,156,131 | ||||||||||||||||
Comprehensive income |
||||||||||||||||||||||||||||||||
Profit for the year |
| | 708,362 | | | 708,362 | 86,755 | 795,117 | ||||||||||||||||||||||||
Changes in value of available-for-sale financial assets |
4, 7 | | | | 1,691 | 1,691 | 5,394 | 7,085 | ||||||||||||||||||||||||
Remeasurements of the net defined benefit liability |
17 | | | 8,531 | | | 8,531 | (4,318 | ) | 4,213 | ||||||||||||||||||||||
Valuation losses on cashflow hedge |
4, 7 | | | | (11,075 | ) | | (11,075 | ) | | (11,075 | ) | ||||||||||||||||||||
Shares of other comprehensive income of associates and joint ventures |
| | | (571 | ) | | (571 | ) | (31 | ) | (602 | ) | ||||||||||||||||||||
Shares of gain on remeasurements of associates and joint ventures |
| | 94 | | | 94 | 22 | 116 | ||||||||||||||||||||||||
Currency translation differences |
| | | (5,347 | ) | | (5,347 | ) | (60 | ) | (5,407 | ) | ||||||||||||||||||||
Transactions with equity holders |
||||||||||||||||||||||||||||||||
Dividends paid by the Controlling Company |
| | (122,425 | ) | | | (122,425 | ) | | (122,425 | ) | |||||||||||||||||||||
Dividends paid to non-controlling interest of subsidiaries |
| | | | | | (61,674 | ) | (61,674 | ) | ||||||||||||||||||||||
Changes in ownership interest in subsidiaries |
| | | | 11,369 | 11,369 | (15,550 | ) | (4,181 | ) | ||||||||||||||||||||||
Appropriation of retained earnings related to loss on disposal of treasury stock |
| | (50 | ) | | 50 | | | | |||||||||||||||||||||||
New shares of subsidiary issued to non-controlling interest |
| | | | | | 21,769 | 21,769 | ||||||||||||||||||||||||
Others |
| | | | 3,510 | 3,510 | 141 | 3,651 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Balance at December 31, 2016 |
₩1,564,499 | ₩ | 1,440,258 | ₩ | 9,644,483 | ₩ | (1,432 | ) | ₩ | (1,217,934 | ) | ₩ | 11,429,874 | ₩ | 1,352,844 | ₩ | 12,782,718 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-9
KT Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2015 and 2016
(in millions of Korean won) | ||||||||||||||||
Notes | 2014 | 2015 | 2016 | |||||||||||||
Cash flows from operating activities |
||||||||||||||||
Cash generated from operations |
31 | ₩ | 2,379,311 | ₩ | 4,579,260 | ₩ | 5,202,520 | |||||||||
Interest paid |
(604,012 | ) | (436,363 | ) | (372,525 | ) | ||||||||||
Interest received |
192,563 | 128,422 | 104,679 | |||||||||||||
Dividends received |
32,106 | 35,768 | 10,824 | |||||||||||||
Income tax paid |
(83,555 | ) | (77,122 | ) | (174,748 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net cash inflow from operating activities |
1,916,413 | 4,229,965 | 4,770,750 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities |
||||||||||||||||
Collection of loans |
37,589 | 38,856 | 47,887 | |||||||||||||
Grant of loans |
(82,258 | ) | (79,136 | ) | (57,400 | ) | ||||||||||
Disposal of derivatives |
| 176,681 | | |||||||||||||
Disposal of available-for-sale financial assets |
77,365 | 243,125 | 35,791 | |||||||||||||
Acquisition of available-for-sale financial assets |
(78,095 | ) | (99,111 | ) | (44,302 | ) | ||||||||||
Disposal of investments in associates and joint ventures |
22,251 | 42,946 | 11,074 | |||||||||||||
Acquisition of investments in associates and joint ventures |
(18,396 | ) | (12,238 | ) | (38,675 | ) | ||||||||||
Disposal of current and non-current financial instruments |
630,216 | 363,260 | 293,283 | |||||||||||||
Acquisition of current and non-current financial instruments |
(427,585 | ) | (341,373 | ) | (597,345 | ) | ||||||||||
Disposal of property and equipment and investment properties |
77,644 | 28,303 | 93,401 | |||||||||||||
Acquisition of property and equipment and investment properties |
(2,852,869 | ) | (3,115,728 | ) | (2,764,346 | ) | ||||||||||
Disposal of intangible assets |
9,438 | 25,841 | 17,891 | |||||||||||||
Acquisition of intangible assets |
(578,377 | ) | (399,377 | ) | (455,763 | ) | ||||||||||
Cash inflow(outflow) from disposal of subsidiaries, net |
6,228 | 741,834 | (2,124 | ) | ||||||||||||
Cash inflow(outflow) from acquisition of subsidiaries, net |
5,891 | (15,751 | ) | (24,330 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Net cash outflow from investing activities |
(3,170,958 | ) | (2,401,868 | ) | (3,484,958 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities |
||||||||||||||||
Proceeds from borrowings and debentures |
10,037,067 | 5,675,302 | 1,122,898 | |||||||||||||
Repayments of borrowings and debentures |
(8,757,284 | ) | (6,648,177 | ) | (1,768,768 | ) | ||||||||||
Settlement of derivative assets and liabilities, net |
(66,484 | ) | (3,371 | ) | (33,199 | ) | ||||||||||
Disposal of treasury stock |
34,053 | | | |||||||||||||
Cash inflow from capital transactions with Non-controlling interest |
99,211 | | 800 | |||||||||||||
Cash outflow from capital transactions with Non-controlling interest |
| | (5,140 | ) | ||||||||||||
Dividends paid to shareholders |
(222,773 | ) | (41,575 | ) | (184,099 | ) | ||||||||||
Decrease in finance leases liabilities |
(52,099 | ) | (146,175 | ) | (75,763 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net cash inflow(outflow) from financing activities |
1,071,691 | (1,163,996 | ) | (943,271 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||
Effect of exchange rate change on cash and cash equivalents |
648 | 6,700 | (1,674 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net increase(decrease) in cash and cash equivalents |
(182,206 | ) | 670,801 | 340,847 | ||||||||||||
Cash and cash equivalents |
||||||||||||||||
Beginning of the year |
2,070,869 | 1,888,663 | 2,559,464 | |||||||||||||
|
|
|
|
|
|
|||||||||||
End of the year |
₩ | 1,888,663 | ₩ | 2,559,464 | ₩ | 2,900,311 | ||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-10
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
1. | General Information |
The consolidated financial statements include the accounts of KT Corporation, which is the controlling company as defined under IFRS 10, Consolidated Financial Statements, and its 56 controlled subsidiaries as described in Note 1.2 (collectively referred to as the Group).
The Controlling Company
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. The headquarters are located in Seongnam City, Gyeonggi Province, Republic of Korea, and the address of its registered head office is 90, Buljeong-ro, Bundang-gu, Seongnam City, Gyeonggi Province.
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. On July 2, 2001, the additional ADS representing 55,502,161 government-owned shares were issued at the New York Stock Exchange.
In 2002, the Controlling Company acquired the entire government-owned shares in accordance with the Korean governments privatization plan.
F-11
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Consolidated Subsidiaries
The consolidated subsidiaries as of December 31, 2015 and 2016, are as follows:
Controlling percentage ownership1 (%) |
||||||||||
Subsidiary | Type of Business | Location | December 31, 2015 |
December 31, 2016 |
Closing month | |||||
KT Powertel Co., Ltd.2 |
Trunk radio system business | Korea | 44.8% | 44.8% | December | |||||
KT Linkus Co., Ltd. |
Public telephone maintenance | Korea | 91.4% | 91.4% | December | |||||
KT Submarine Co., Ltd.2,5 |
Submarine cable construction and maintenance | Korea | 39.3% | 39.3% | December | |||||
KT Telecop Co., Ltd. |
Security service | Korea | 86.8% | 86.8% | December | |||||
KT Hitel Co., Ltd. |
Data communication | Korea | 67.1% | 67.1% | December | |||||
KT Service Bukbu Co., Ltd. |
Opening services of fixed line | Korea | 67.3% | 67.3% | December | |||||
KT Service Nambu Co., Ltd. |
Opening services of fixed line | Korea | 77.3% | 77.3% | December | |||||
KT Commerce Inc. |
B2C, B2B service | Korea | 100.0% | 100.0% | December | |||||
KT New Business Fund No.1 |
Investment fund | Korea | 100.0% | 100.0% | December | |||||
KT Strategic Investment Fund No.1 |
Investment fund | Korea | 100.0% | 100.0% | December | |||||
KT Strategic Investment Fund No.2 |
Investment fund | Korea | 100.0% | 100.0% | December | |||||
KT Strategic Investment Fund No.3 |
Investment fund | Korea | | 100.0% | December | |||||
BC Card Co., Ltd. |
Credit card business | Korea | 69.5% | 69.5% | December | |||||
VP Inc. |
Payment security service for credit card, others | Korea | 50.9% | 50.9% | December | |||||
H&C Network |
Call centre for financial sectors | Korea | 100.0% | 100.0% | December | |||||
BC Card China Co., Ltd. |
Software development and data processing | China | 100.0% | 100.0% | December | |||||
INITECH Co., Ltd.5 |
Internet banking ASP and security solutions | Korea | 58.2% | 58.2% | December | |||||
Smartro Co., Ltd. |
VAN (Value Added Network) business | Korea | 81.1% | 81.1% | December | |||||
KTDS Co., Ltd.5 |
System integration and maintenance | Korea | 95.5% | 95.5% | December | |||||
KT M Hows Co., Ltd. |
Mobile marketing | Korea | 65.0% | 90.0% | December | |||||
KT M&S Co., Ltd. |
PCS distribution | Korea | 100.0% | 100.0% | December | |||||
KT Music Corporation4 |
Online music production and distribution | Korea | 49.9% | 49.9% | December | |||||
KT Skylife Co., Ltd.5 |
Satellite broadcasting business | Korea | 50.3% | 50.3% | December | |||||
Skylife TV Co., Ltd. |
TV contents provider | Korea | 92.6% | 92.6% | December | |||||
KT Estate Inc. |
Residential building development and supply | Korea | 100.0% | 100.0% | December | |||||
KT AMC Co., Ltd. |
Asset management and consulting services | Korea | 100.0% | 100.0% | December | |||||
NEXR Co., Ltd. |
Cloud system implementation | Korea | 100.0% | 100.0% | December | |||||
KTSB Data service |
Data centre development and related service | Korea | 51.0% | 51.0% | December | |||||
KT Innoedu Co., Ltd. |
E-learning business | Korea | 95.6% | 96.8% | December | |||||
KT Sat Co., Ltd. |
Satellite communication business | Korea | 100.0% | 100.0% | December | |||||
Nasmedia, Inc.3 |
Online advertisement | Korea | 45.4% | 42.8% | December |
F-12
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Controlling percentage ownership1 (%) |
||||||||||
Subsidiary | Type of Business | Location | December 31, 2015 |
December 31, 2016 |
Closing month | |||||
KT Sports |
Management of sports group | Korea | 100.0% | 100.0% | December | |||||
KT Music Contents Fund No.1 |
Music contents investment business | Korea | 80.0% | 80.0% | December | |||||
KT-Michigan Global Content Fund |
Content investment business | Korea | 81.3% | 88.6% | December | |||||
Autopion Co., Ltd. |
Service for information and communication | Korea | 100.0% | 100.0% | December | |||||
KTCS Corporation2,5 |
Database and online information provider | Korea | 30.9% | 30.9% | December | |||||
KTIS Corporation2,5 |
Database and online information provider | Korea | 30.0% | 30.1% | December | |||||
KT M mobile |
Special category telecommunications operator and sales of communication device | Korea | 100.0% | 100.0% | December | |||||
KT Investment Co., Ltd. |
Technology business finance | Korea | 100.0% | 100.0% | December | |||||
NgeneBio4 |
Medicine and Pharmacy development business | Korea | 49.8% | 49.8% | December | |||||
Whowho&Company Co., Ltd. |
Software development and supply | Korea | | 100.0% | December | |||||
KT Rwanda Networks Ltd. |
Network installation and management | Rwanda | 51.0% | 51.0% | December | |||||
AOS Ltd. |
System integration and maintenance | Rwanda | 51.0% | 51.0% | December | |||||
KT Belgium |
Foreign investment business | Belgium | 100.0% | 100.0% | December | |||||
KT ORS Belgium |
Foreign investment business | Belgium | 100.0% | 100.0% | December | |||||
Korea Telecom Japan Co., Ltd. |
Foreign telecommunication business | Japan | 100.0% | 100.0% | December | |||||
KBTO sp.zo.o. |
Electronic communication business | Poland | 60.0% | 75.0% | December | |||||
Korea Telecom China Co., Ltd. |
Foreign telecommunication business | China | 100.0% | 100.0% | December | |||||
KT Dutch B.V |
Super iMax and East Telecom management | Netherlands | 100.0% | 100.0% | December | |||||
Super iMax LLC |
Wireless high speed internet business | Uzbekistan | 100.0% | 100.0% | December | |||||
East Telecom LLC |
Fixed line telecommunication business | Uzbekistan | 91.0% | 91.0% | December | |||||
Korea Telecom America, Inc. |
Foreign telecommunication business | USA | 100.0% | 100.0% | December | |||||
PT. KT Indonesia |
Foreign telecommunication business | Indonesia | 99.0% | 99.0% | December | |||||
PT. BC Card Asia Pacific |
Software development and supply | Indonesia | 99.9% | 99.9% | December | |||||
KT Hongkong Telecommunications Co., Ltd. |
Fixed line communication business | Hong Kong | | 100.0% | December | |||||
N SEARCH MARKETING Corp. |
Advertising agency business | Korea | | 100.0% | December |
1 | Sum of the ownership interests owned by the Controlling Company and subsidiaries. |
2 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company can exercise the majority voting rights in its decision-making process at all times considering the historical voting pattern at the shareholders meetings. |
F-13
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
3 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company holds the majority of voting right based on an agreement with other investors. |
4 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company holds the potential voting rights by a stock purchase agreement with other investors. |
5 | The number of subsidiaries treasury stock is deducted from the total number of shares when calculating the controlling percentage ownership. |
Changes in scope of consolidation in 2016 are as follows:
Changes | Location | Subsidiary | Reason | |||
Included |
Korea | Smart Channel Co., Ltd. | Gain of actual control | |||
K-Realty Rental Housing REIT 2 | Newly established | |||||
K-Realty US REIT 1 | Newly established | |||||
Whowho&Company Co., Ltd. | Spun-off | |||||
KT Strategic Investment Fund No.3 | Newly established | |||||
N SEARCH MARKETING Corp. | Acquisition of share | |||||
Hong Kong | KT Hongkong Telecommunications Co., Ltd. | Newly established | ||||
Excluded |
Korea | K-Realty Rental Housing REIT 1 | Decrease in percentage of ownership | |||
K-Realty Rental Housing REIT 2 | Decrease in percentage of ownership | |||||
Smart Channel Co., Ltd. | Bankrupt | |||||
K-REALTY US Rental Housing REIT 2 | Liquidation | |||||
KTC Media Contents Fund 2 | Liquidation |
F-14
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Summarized information for consolidated subsidiaries as of and for the years ended December 31, 2014, 2015 and 2016, is as follows:
(in millions of Korean won) | 2014 | |||||||||||||||
Total assets | Total liabilities |
Operating revenues |
Profit (loss) for the year |
|||||||||||||
KT Powertel Co., Ltd. |
₩ | 157,330 | ₩ | 29,996 | ₩ | 105,250 | ₩ | 5,368 | ||||||||
KT Linkus Co., Ltd. |
70,718 | 64,043 | 106,642 | 1,076 | ||||||||||||
KT Submarine Co., Ltd. |
111,877 | 16,188 | 77,292 | 9,018 | ||||||||||||
KT Telecop Co., Ltd. |
305,988 | 161,188 | 258,692 | (6,576 | ) | |||||||||||
KT Hitel Co.,Ltd.1 |
226,994 | 31,429 | 494,455 | 12,205 | ||||||||||||
KT Capital Co., Ltd.1 |
2,038,263 | 1,759,641 | 186,114 | 69,491 | ||||||||||||
BC Card Co., Ltd.1 |
2,700,388 | 1,794,923 | 3,297,308 | 134,450 | ||||||||||||
H&C Network1 |
223,896 | 69,537 | 217,256 | 8,506 | ||||||||||||
Nasmedia, Inc. |
97,502 | 34,933 | 29,865 | 7,956 | ||||||||||||
Sofnics, Inc. |
213 | 48 | 349 | (1,029 | ) | |||||||||||
KTDS Co., Ltd1. |
92,676 | 58,486 | 354,094 | (11,394 | ) | |||||||||||
KT M Hows Co., Ltd. |
22,846 | 17,446 | 23,683 | (5,626 | ) | |||||||||||
KT M&S Co., Ltd. |
281,787 | 221,227 | 885,456 | 6,391 | ||||||||||||
KT Music Corporation |
83,386 | 27,069 | 86,449 | 3,240 | ||||||||||||
KT Skylife Co., Ltd.1 |
683,009 | 246,326 | 656,430 | 55,162 | ||||||||||||
KT Estate Inc.1 |
1,496,815 | 169,788 | 247,256 | 11,212 | ||||||||||||
KTSB Dataservice |
25,094 | 1,384 | 2,457 | (3,960 | ) | |||||||||||
Centios Co., Ltd 1 |
40,503 | 26,464 | 21,954 | (4,012 | ) | |||||||||||
Enswers Inc. |
7,260 | 23,244 | 4,644 | (4,533 | ) | |||||||||||
Ustream Inc. |
635 | 246 | 1,818 | (1,313 | ) | |||||||||||
KT Innoedu Co., Ltd. |
8,761 | 11,913 | 21,010 | (7,291 | ) | |||||||||||
KT Rental1 |
2,656,385 | 2,317,650 | 1,074,569 | 51,388 | ||||||||||||
KT Media Hub Co., Ltd. |
172,621 | 76,995 | 335,451 | 14,054 | ||||||||||||
KT Sat Co., Ltd. |
480,689 | 45,540 | 139,865 | 30,016 | ||||||||||||
Best Partners Co., Ltd. |
113 | 100 | 346 | (753 | ) | |||||||||||
T-ON Telecom |
2,543 | 1,903 | 469 | (1,802 | ) | |||||||||||
KT Sports |
15,753 | 8,220 | 42,320 | (1,305 | ) | |||||||||||
KT Music Contents Fund No.1 |
10,573 | 304 | 230 | (74 | ) | |||||||||||
KT-Michigan Global Content Fund |
5,610 | | 29 | (617 | ) | |||||||||||
Autopion Co., Ltd. |
5,791 | 3,194 | 9,892 | 662 | ||||||||||||
KTCS Corporation1 |
303,574 | 155,603 | 234,852 | 4,704 | ||||||||||||
KTIS Corporation |
215,741 | 68,046 | 83,850 | (539 | ) | |||||||||||
Korea Telecom Japan Co., Ltd. |
16,551 | 21,279 | 34,717 | (22,769 | ) | |||||||||||
Korea Telecom China Co., Ltd. |
1,011 | 213 | 1,532 | (25 | ) | |||||||||||
KT Dutch B.V.1 |
43,312 | 8 | 519 | 462 | ||||||||||||
Super iMax LLC |
11,565 | 6,337 | 7,660 | (710 | ) | |||||||||||
East Telecom LLC |
27,916 | 13,602 | 18,672 | 278 | ||||||||||||
Korea Telecom America, Inc. |
5,627 | 1,295 | 6,318 | 211 | ||||||||||||
PT. KT Indonesia |
32 | | | 1 | ||||||||||||
KT Rwanda Networks Ltd. |
201,130 | 105,095 | 3,809 | (18,984 | ) | |||||||||||
KT Belgium |
72,405 | 14 | | (192 | ) | |||||||||||
KT ORS Belgium |
1,932 | 6 | | (82 | ) | |||||||||||
KBTO sp.zo.o. |
3 | 33 | | (32 | ) | |||||||||||
Africa Olleh Services Ltd. |
9,870 | 255 | 4,773 | (1,772 | ) |
F-15
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2015 | |||||||||||||||
Total assets | Total liabilities | Operating revenues |
Profit (loss) for the year |
|||||||||||||
KT Powertel Co., Ltd. |
₩ | 113,515 | ₩ | 21,182 | ₩ | 104,527 | ₩ | (32,417 | ) | |||||||
KT Linkus Co., Ltd. |
77,141 | 65,745 | 116,095 | 3,449 | ||||||||||||
KT Submarine Co., Ltd. |
160,314 | 63,518 | 67,268 | 4,145 | ||||||||||||
KT Telecop Co., Ltd. |
269,191 | 134,966 | 302,844 | (7,593 | ) | |||||||||||
KT Hitel Co., Ltd. |
235,757 | 33,938 | 162,155 | 7,258 | ||||||||||||
KT Service Bukbu Co., Ltd2 |
31,879 | 22,627 | 89,498 | (4,630 | ) | |||||||||||
KT Service Nambu Co., Ltd2 |
20,729 | 10,567 | 110,129 | (5,055 | ) | |||||||||||
BC Card Co., Ltd.1 |
2,963,952 | 1,945,634 | 3,504,946 | 218,969 | ||||||||||||
H&C Network1 |
248,189 | 70,635 | 241,008 | 19,513 | ||||||||||||
Nasmedia, Inc. |
141,733 | 72,202 | 45,630 | 9,916 | ||||||||||||
KTDS Co., Ltd.1 |
162,518 | 116,654 | 423,015 | 12,836 | ||||||||||||
KT M Hows Co., Ltd. |
25,093 | 17,980 | 19,352 | 1,728 | ||||||||||||
KT M&S Co., Ltd. |
256,246 | 217,892 | 853,011 | (18,776 | ) | |||||||||||
KT Music Corporation |
90,518 | 30,704 | 90,005 | 3,446 | ||||||||||||
KT Skylife Co., Ltd.1 |
711,294 | 217,850 | 668,521 | 72,987 | ||||||||||||
KT Estate Inc.1 |
1,603,438 | 260,292 | 254,776 | 27,487 | ||||||||||||
KTSB Data service |
23,063 | 1,730 | 4,390 | (2,444 | ) | |||||||||||
KT Innoedu Co., Ltd. |
5,858 | 7,585 | 18,156 | (4,288 | ) | |||||||||||
KT Sat Co., Ltd. |
679,959 | 210,110 | 133,326 | 27,174 | ||||||||||||
KT Sports |
15,341 | 11,643 | 51,801 | (3,836 | ) | |||||||||||
KT Music Contents Fund No.1 |
10,206 | 47 | 468 | (111 | ) | |||||||||||
KT-Michigan Global Content Fund |
5,401 | | 861 | (209 | ) | |||||||||||
Autopion Co., Ltd. |
7,102 | 3,317 | 10,585 | 1,123 | ||||||||||||
KT M mobile |
64,756 | 13,121 | 42,478 | (36,725 | ) | |||||||||||
KT Investment Co., Ltd. |
49,485 | 30,827 | 4,704 | (219 | ) | |||||||||||
NgeneBio |
7,894 | 4,683 | | (434 | ) | |||||||||||
KTCS Corporation1 |
346,949 | 194,367 | 1,066,556 | 13,685 | ||||||||||||
KTIS Corporation |
211,164 | 55,370 | 473,892 | 15,041 | ||||||||||||
Korea Telecom Japan Co., Ltd. |
13,889 | 14,393 | 25,652 | (248 | ) | |||||||||||
Korea Telecom China Co., Ltd. |
909 | 198 | 1,748 | (95 | ) | |||||||||||
KT Dutch B.V.1 |
29,402 | 27 | 161 | 118 | ||||||||||||
Super iMax LLC |
14,962 | 8,186 | 8,291 | (2,220 | ) | |||||||||||
East Telecom LLC |
30,833 | 17,066 | 24,066 | 664 | ||||||||||||
Korea Telecom America, Inc. |
6,016 | 1,378 | 6,391 | 156 | ||||||||||||
PT. KT Indonesia |
22 | | | (9 | ) | |||||||||||
KT Rwanda Networks Ltd. |
188,951 | 147,653 | 7,299 | (28,721 | ) | |||||||||||
KT Belgium |
77,058 | 4 | | (127 | ) | |||||||||||
KT ORS Belgium |
1,996 | 20 | | (75 | ) | |||||||||||
KBTO sp.zo.o. |
1,471 | 1,817 | | (328 | ) | |||||||||||
Africa Olleh Services Ltd. |
11,928 | 12,187 | 8,712 | (923 | ) |
F-16
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2016 | |||||||||||||||
Total assets | Total liabilities | Operating revenue |
Profit (loss) for the year |
|||||||||||||
KT Powertel Co., Ltd. |
₩ | 113,725 | ₩ | 19,899 | ₩ | 81,390 | ₩ | 202 | ||||||||
KT Linkus Co., Ltd. |
64,318 | 56,953 | 117,587 | (3,830 | ) | |||||||||||
KT Submarine Co., Ltd. |
156,993 | 55,573 | 84,137 | 5,146 | ||||||||||||
KT Telecop Co., Ltd. |
265,553 | 132,344 | 315,948 | 143 | ||||||||||||
KT Hitel Co., Ltd. |
249,202 | 46,941 | 198,994 | 4,298 | ||||||||||||
KT Service Bukbu Co., Ltd. |
32,863 | 24,580 | 182,952 | 694 | ||||||||||||
KT Service Nambu Co., Ltd. |
32,621 | 24,282 | 218,602 | 772 | ||||||||||||
BC Card Co., Ltd.1 |
3,651,065 | 2,602,404 | 3,567,512 | 163,131 | ||||||||||||
H&C Network1 |
272,110 | 80,983 | 266,613 | 14,749 | ||||||||||||
Nasmedia, Inc.1 |
263,925 | 159,502 | 70,037 | 11,972 | ||||||||||||
KTDS Co., Ltd.1 |
197,970 | 151,644 | 476,379 | 10,838 | ||||||||||||
KT M Hows Co., Ltd. |
28,539 | 18,466 | 19,922 | 2,865 | ||||||||||||
KT M&S Co., Ltd. |
247,854 | 227,507 | 724,144 | (12,955 | ) | |||||||||||
KT Music Corporation |
110,080 | 41,953 | 111,450 | 8,235 | ||||||||||||
KT Skylife Co., Ltd.1 |
777,948 | 231,452 | 668,945 | 68,863 | ||||||||||||
KT Estate Inc.1 |
1,734,729 | 375,341 | 405,417 | 6,815 | ||||||||||||
KTSB Data service |
20,075 | 759 | 5,136 | (1,983 | ) | |||||||||||
KT Innoedu Co., Ltd. |
6,477 | 7,259 | 15,599 | 103 | ||||||||||||
KT Sat Co., Ltd. |
744,653 | 253,041 | 144,594 | 36,266 | ||||||||||||
KT Sports |
16,925 | 13,573 | 48,476 | (198 | ) | |||||||||||
KT Music Contents Fund No.1 |
10,592 | 331 | 349 | 103 | ||||||||||||
KT-Michigan Global Content Fund |
16,250 | 163 | 133 | (514 | ) | |||||||||||
Autopion Co., Ltd. |
6,163 | 2,794 | 7,772 | (409 | ) | |||||||||||
KT M mobile |
131,446 | 20,369 | 112,532 | (40,041 | ) | |||||||||||
KT Investment Co., Ltd.1 |
39,506 | 23,123 | 10,130 | (1,832 | ) | |||||||||||
NgeneBio |
6,361 | 4,733 | 244 | (1,833 | ) | |||||||||||
KTCS Corporation1 |
327,128 | 171,012 | 955,050 | 7,892 | ||||||||||||
KTIS Corporation |
221,176 | 63,871 | 436,914 | 9,991 | ||||||||||||
Korea Telecom Japan Co., Ltd. |
3,592 | 5,374 | 5,122 | (1,391 | ) | |||||||||||
Korea Telecom China Co., Ltd. |
532 | 188 | 930 | 60 | ||||||||||||
KT Dutch B.V |
34,197 | 73 | 166 | 85 | ||||||||||||
Super iMax LLC |
10,308 | 6,734 | 10,759 | (1,802 | ) | |||||||||||
East Telecom LLC |
31,885 | 16,554 | 27,492 | 3,257 | ||||||||||||
Korea Telecom America, Inc. |
4,464 | 1,306 | 7,113 | 181 | ||||||||||||
PT. KT Indonesia |
16 | | | (7 | ) | |||||||||||
KT Rwanda Networks Ltd. |
167,112 | 149,421 | 13,435 | (31,455 | ) | |||||||||||
KT Belguium |
79,391 | 7 | | (67 | ) | |||||||||||
KT ORS Belgium |
2,013 | 23 | | (46 | ) | |||||||||||
KBTO sp.zo.o. |
1,166 | 2,378 | 21 | (2,587 | ) | |||||||||||
AOS Ltd. |
10,025 | 10,683 | 14,481 | (1,123 | ) | |||||||||||
KT Hongkong Telecommunications Co., Ltd. |
1,571 | 956 | 1,568 | 120 |
1 | These companies are the intermediate controlling companies of other subsidiaries and the above financial information is from their consolidated financial statements. |
F-17
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2 | These entities were newly consolidated for the years ended December 31, 2015. Only operating revenues and net income subsequent to the inclusion of consolidation scope are disclosed above. |
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Group in the preparation of its financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 | Basis of Preparation |
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board (IASB).
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Groups accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.
Certain accounts within the consolidated statement of financial position as of December 31, 2015 presented for comparative purpose have been reclassified in accordance with presentation method used in consolidated statement of financial position as of December 31, 2016. These reclassifications do not have any impacts on net asset and profit or loss reported as of and for the year ended December 31, 2015.
2.2 | Changes in Accounting Policy and Disclosures |
(1) New standards and amendments adopted by the Group
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2016. The adoption of these amendments did not have any material impact on the consolidated financial statements.
- Disclosure Initiative Amendments to IAS 1, Presentation of Financial Statements
Amendment to IAS 1, Presentation of Financial Statements clarifies that materiality applies to the exclusion or inclusion or aggregation of the disclosures in the notes and also, clarifies that the share of OCI arising from equity-accounted should be presented in total for items which will and will not be reclassified to profit or loss. Additional amendments are made in relation to a particular order of the notes and other.
- Clarification of Acceptable methods of Depreciation and Amortization Amendments to IAS 16, Property, plant and equipment, and IAS 38, Intangible assets: Amortization based on revenue
Amendments to IAS 16, Property, plant and equipment clarify that a revenue-based method should not be used to calculate the depreciation of items of property, plant and equipment. IAS 38, Intangible assets: Amortization based on revenue now includes a rebuttable presumption that the amortization of intangible assets based on revenue is inappropriate. This presumption can be overcome if either; the intangible asset is expressed as a measure of revenue, or it can be shown that revenue and the consumption of economic benefits generated by the asset are highly correlated.
F-18
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
- Investment entities: Applying the Consolidation Exception Amendments to IFRS 10, Consolidated Financial Statements, IAS 28, Investment in Associates and Joint Ventures, and IFRS 12, Disclosures of Interests in Other Entities
| Amendments made to IFRS 10, Consolidated Financial Statements clarify that the exception from preparing consolidated financial statement is also available to intermediate parent entities which are subsidiaries of investment entities. If an investment entity has a subsidiary that is an investment entity and whose activities are providing services that related to the investment entitys investment activities, the investment entity measures the subsidiary at fair value through profit or loss. |
| Amendments made to IAS 28, Investment in Associates and Joint Ventures clarify that entities which are not investment entities but have an interest in an associate which is an investment entity have a policy choice when applying the equity method of accounting. |
| Amendments made to IFRS 12, Disclosures of Interests in Other Entities clarify that an investment entity which does not prepare consolidated financial statements should present disclosures relating to investment entities required by IFRS 12. |
- Annual Improvements to IFRSs 2012-2014 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle consist of the following amendments. The application does not have a material impact on the consolidated financial statements.
| IFRS 5, Non-current Assets Held for Sale and Discontinued Operations clarifies when an asset (or disposal group) is reclassified from held for sale to held for distribution or vice versa, this does not have to be accounted for as such. |
| IFRS 7, Financial Instruments: Disclosures clarifies the specific guidance for transferred financial assets to help management determine whether the terms of a servicing arrangement constitute continuing involvement, and also clarifies that the additional disclosures relating to the amendments in 2012 Offsetting of Financial Assets and Financial Liabilities only need to be included in interim reports if required by IAS 34, Interim Financial Reporting. |
| IAS 19, Employee Benefits clarifies that when determining the discount rate for post-employment benefit obligations, it is the currency in which the liabilities are denominated that is important, and not the country where they arise. |
| IAS 34, Interim Financial Reporting clarifies what is meant by the reference in the standard to information disclosed elsewhere in the interim financial report; and also amended requirements for a cross-reference from the interim financial statements to the location of that information. |
(2) New standards, amendments and interpretations not yet adopted
Certain new accounting standards and interpretations that have been published that are not mandatory for December 31, 2016 reporting periods and have not been early adopted by the Group are set out below.
- Amendments to IAS 7, Statement of Cash Flows
Amendments to IAS 7, Statement of Cash Flows requires to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including
F-19
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
both changes arising from cash flows and non-cash flows. The Group will apply this amendment for annual reporting periods beginning on or after January 1, 2017. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.
- Amendments to IFRS 2, Share-based Payment
Amendments to IFRS 2 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Also, the amendments clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. The Group will apply the amendments for annual periods beginning on or after January 1, 2018. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.
- IFRS 9, Financial Instruments
The new standard for financial instruments issued on September 25, 2015 are effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace IAS 39, Financial Instruments: Recognition and Measurement. The Group will apply the standards for annual periods beginning on or after January 1, 2018.
The standard requires retrospective application with some exceptions. For example, an entity is not required to restate prior period in relation to classification and measurement (including impairment) of financial instruments. The standard requires prospective application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions.
IFRS 9, Financial Instruments requires all financial assets to be classified and measured on the basis of the entitys business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit or loss. Also, hedge accounting rules are amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting.
An effective implementation of IFRS 9 requires preparation processes including financial impact assessment, accounting policy establishment, accounting system development and the system stabilization. The impact on the Groups financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Group and macroeconomic variables. The following areas are likely to be affected in general with the implementation of IFRS 9. The Group is in preparation for analyzing the effects to the consolidated financial statement.
(a) Classification and Measurement of Financial Assets
When implementing IFRS 9, the classification of financial assets will be driven by the Groups business model for managing the financial assets and contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. For hybrid (combined) instruments, if the Group is unable to measure an embedded derivative separately from its host contract, financial assets with embedded derivatives are classified in their entirety.
F-20
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Business model for the characteristics |
Solely represent payments
of |
All other | ||||
Hold the financial asset for the collection of the contractual cash flows | Measured at amortized cost1 | Recognized at fair value through profit or loss2 | ||||
Hold the financial asset for the collection of the contractual cash flows and trading | Recognized at fair value through other comprehensive income1 | |||||
Hold for trading | Recognized at fair value through profit or loss |
1 | A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable). |
2 | Equity investments not held for trading can be recorded in other comprehensive income (irrevocable). |
With the implementation of IFRS 9, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income are more strictly applied than the criteria applied with IAS 39. Accordingly, the financial assets at fair value through profit or loss may increase by implementing IFRS 9 and may result an extended fluctuation in profit or loss.
As of December 31, 2016, the Group owns loans and receivables of ₩9,653,443 million and financial assets available-for-sales of ₩404,774 million.
According to IFRS 9, equity instruments that are not held for trading, the Group can make an irrevocable election at initial recognition to classify the instruments as assets measured at fair value through other comprehensive income, which all subsequent changes in fair value being recognized in other comprehensive income and not recycled to profit or loss. As at December 31, 2016, the Group holds equity instruments of ₩378,090 million classified as financial assets available-for-sale.
According to IFRS 9, debt instruments those contractual cash flows do not represent solely payments of principal and interest and held for trading, and equity instruments that are not designated as instruments measured at fair value through other comprehensive income are measured at fair value through profit or loss.
(b) Impairment: Financial Assets and Contract Assets
IFRS 9 sets out a new forward looking expected loss impairment model which replaces the incurred loss model under IAS 39 and applies to:
| Financial assets measured at amortized cost |
| Debt investments measured at fair value through other comprehensive income, and |
| Certain loan commitments and financial guaranteed contracts. |
And the Group could recognize credit losses early in accordance with IAS 39. The Group holds debt instrument of ₩9,683,586 million (Loan and trade receivables of ₩9,653,443 million, Held-to-maturity ₩30,143 million). For this assets, the Group provides loss allowance of ₩612,487 million.
F-21
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(c) Hedge Accounting
Hedge accounting mechanics (fair value hedges, cash flow hedges and hedge of net investments in a foreign operations) required by IAS 39 remains unchanged in IFRS 9, however, the new hedge accounting rules will align the accounting for hedging instruments more closely with the Groups risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. IFRS 9 allows more hedging instruments and hedged items to qualify for hedge accounting, and relaxes the hedge accounting requirement by removing two hedge effectiveness tests that are a prospective test to ensure that the hedging relationship is expected to be highly effective and a quantitative retrospective test (within range of 80-120 %) to ensure that the hedging relationship has been highly effective throughout the reporting period. As of December 31, 2016, the Group applies the hedge accounting to its assets and liabilities that amount to ₩227,318 million and ₩14,928 million respectively.
- IFRS 15 Revenue from Contracts with Customers
The Group will apply IFRS 15 Revenue from Contracts with Customers issued on November 6, 2015 for annual reporting periods beginning on or after January 1, 2018. This standard replaces IAS 18, Revenue, IAS 11, Construction Contracts, SIC-31, Revenue-Barter Transactions Involving Advertising Services, IFRIC 13, Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate and IFRIC 18 Transfers of assets from customers. The Group must apply IFRS 15, Revenue from Contracts with Customers within annual reporting periods beginning on or after January 1, 2018, and will apply the standard retrospectively to prior reporting period presented in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors and apply simplified transition method with no restatement for completed contracts and other as of January 1, 2017.
The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue from contract with customer can be recognized:
| Identify contracts with customers |
| Identify the separate performance obligation |
| Determine the transaction price of the contract |
| Allocate the transaction price to each of the separate performance obligations, and |
| Recognize the revenue as each performance obligation is satisfied. |
The Group had organized separate Task Force team for implementation of IFRS 15 since December 31, 2014 for preparation of implementing IFRS 15 Revenue from Contracts with Customers. Also, the Group has been developing the internal control system and constructs accounting process system by analyzing the Groups revenue structure with accounting firm and computation expert. IFRS 15 will affect not only accounting method but also the general business practice including strategy for sales and business attitude. Therefore, the Group opens an orientation program for both Groups directors and employees, and periodically reports to the managements about plan for implementation and progress.
F-22
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
As at the December 31, 2016 the Group is analyzing the effects on the consolidated financial statement with the implementation of IFRS 15. The Group plans to complete the detailed analysis on financial effects of applying the standard by March 31, 2018. The Group identified the following areas are likely to be affected in general.
(a) | Identifying performance obligations |
The Group provides telecommunication services and sells handsets as their main business. With the implementation of IFRS 15, the Group identifies performance obligations with a customer such as providing telecommunication services, selling handsets and other. The timing of revenue recognition depends on a performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.
(b) | Allocation the transaction price |
With implementation of IFRS 15, the Group allocates the transaction price to each performance obligation identified in a contract based on the relative stand-alone selling prices of the goods or services being provided to the customer. To allocate the transaction price to each performance obligation on a relative stand-alone price basis, the Group determines the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling price. The stand-alone selling price is the price at which the Group would sell a promised good or service separately to the customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the Group sells that good or service separately in similar circumstances and to similar customers.
(c) | Incremental costs of obtaining a contract |
The Group pays the commission fees when new customer subscribe for telecommunication services. The incremental costs of obtaining a contract are those commission fees that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.
According to IFRS 15, the Group recognizes as an asset the incremental cost of obtaining contract and amortize it through the contract period. However, as a practical expedient, the Group may recognize the incremental costs of obtaining a contracts as an expense when incurred if the amortization period of the asset is one year or less.
2.3 | Consolidation |
The Group has prepared the consolidated financial statements in accordance with IFRS 10, Consolidated Financial Statements.
(1) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
F-23
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests proportionate share of the acquired entitys net identifiable assets. All other non-controlling interests are measured at fair values, unless otherwise required by other standards. Acquisition-related costs are expensed as incurred.
The excess of consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(2) Changes in ownership interests in subsidiaries without change of control
Any difference between the amount of the adjustment to non-controlling interest that do not result in a loss of control and any consideration paid or received is recognized in a separate reserve within equity attributable to owners of the Controlling Group.
(3) Disposal of subsidiaries
When the Group ceases to consolidate for a subsidiary because of a loss of control, any retained interest in the subsidiary is remeasured to its fair value with the change in carrying amount recognized in profit or loss.
(4) Associates
Associates are all entities over which the Group has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Groups interest in the associates. If there is any objective evidence that the investment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the associate and its book amount as impairment loss.
(5) Joint arrangement
A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets,
F-24
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
liabilities, revenues and expenses. A joint venture has rights to the net assets relating to the joint venture and accounts for that investment using the equity method.
2.4 | Segment Reporting |
Information of each operating segment is reported in a manner consistent with the business segment reporting provided to the chief operating decision-maker (Note 32). The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.
2.5 | Foreign Currency Translation |
(1) Functional and presentation currency
Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic environment in which the each entity operates (the functional currency). The consolidated financial statements are presented in Korean won, which is the Controlling Companys functional and presentation currency.
(2) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income.
(3) Translation to the presentation currency
The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
| assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period, |
| income and expenses for each statement of profit or loss are translated at average exchange rates, |
| equity is translated at the historical exchange rate, and |
| all resulting exchange differences are recognized in other comprehensive income. |
2.6 | Cash and Cash Equivalents |
Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of less than three months.
F-25
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2.7 | Financial Assets |
(1) Classification and measurement
The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity financial assets. Regular way purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to purchase or sell the asset.
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. And, loans and receivables and held-to-maturity investments are subsequently carried at amortized cost using the effective interest method.
Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are recognized in profit or loss within other income or other expenses. Gains or losses arising from changes in the available-for-sale financial assets are recognized in other comprehensive income, and amounts are reclassified to profit or loss when the associated assets are sold or impaired.
(2) Impairment
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.
Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from their carrying amount. The Group writes off financial assets when the assets are determined to be no longer recoverable.
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:
| Significant financial difficulty of the issuer or obligor; |
| A breach of contract, such as a default or delinquency in interest or principal payments; |
| For economic or legal reasons relating to the borrowers financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; |
| It becomes probable that the borrower will enter bankruptcy or other financial reorganization; |
| The disappearance of an active market for that financial asset because of financial difficulties; or |
| Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio. |
F-26
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(3) Derecognition
If the Group transfers a financial asset and the transfer does not result in derecognition because the Group has retained substantially of all risks and rewards of ownership of the transferred asset due to a recourse in the event the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received. The related financial liability is classified as borrowings in the statement of financial position.
(4) Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.
2.8 | Derivative Instruments |
Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of profit or loss within other income (expenses) and finance income (expenses) according to the nature of transactions.
If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of the financial instrument, there may be a difference between the transaction price and the amount determined using that valuation technique (Day 1 profit and loss). In these circumstances, the fair value of the financial instrument is recognized as the transaction price and the difference is amortized by using the straight-line method over the life of the financial instrument. If the fair value of the financial instrument is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss in the statement of profit or loss.
The Group applies cash flow hedge accounting to hedge the risks of foreign exchange and interest rates of the variable rate foreign currency bonds. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately as finance income (expenses) in the statement of profit or loss. Amounts of changes in fair value of effective hedging instruments accumulated in other comprehensive income are recognized as finance income (expenses) for the periods when the corresponding transactions affect profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that is reported in other comprehensive income is recognized as finance income (expenses).
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity.
F-27
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2.9 | Inventories |
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the moving average method, except for inventories in-transit which is determined using the specific identification method.
2.10 | Non-current Assets (or Disposal Group) Held-for-sale |
Non-current assets (or disposal group) are classified as assets held-for-sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The assets are measured at the lower amount between their carrying amount and the fair value less costs to sell.
2.11 | Property, plant and Equipment |
Property, plant and equipment are stated at its cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.
Depreciation of all property, plant, and equipment, except for land is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows:
Estimated Useful Life | ||
Buildings |
5 40 years | |
Structures |
5 40 years | |
Machinery and equipment (Telecommunications equipment and others) Others |
2 40 years | |
Vehicles |
4 6 years | |
Tools |
4 6 years | |
Office equipment |
2 6 years |
The depreciation method, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.
2.12 | Investment Property |
Investment property is a property held to earn rentals or for capital appreciation or both. An investment property is measured initially at its cost. After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. Investment property, except for land, is depreciated using the straight-line method over their useful lives from 10 to 40 years.
2.13 | Intangible Assets |
(1) Goodwill
Goodwill is measured as explained in Note 2.3 (1) and goodwill arising from acquisition of subsidiaries and business are included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.
F-28
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(2) Intangible assets except goodwill
Intangible assets, except for goodwill, are initially recognized at its historical cost, and carried at cost less accumulated amortization and accumulated impairment losses. Membership rights (condominium membership and golf membership) and broadcast rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the assets are expected to be utilized. The Group amortizes intangible assets with a limited useful life using the straight-line method over the following periods:
Estimated Useful Life | ||
Development costs |
5 6 years | |
Software |
6 years | |
Industrial property rights |
5 50 years | |
Frequency usage rights |
5 10 years | |
Others1 |
2 50 years |
1 | Membership rights (condominium membership and golf membership) and broadcast license included in others are classified as intangible assets with indefinite useful life. |
2.14 | Borrowing Costs |
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are expensed in the period in which they are incurred.
2.15 | Government Grants |
Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants related to assets are presented in the statement of financial position by setting up the grant as deferred income that is recognized in profit or loss on a systematic basis over the useful life of the asset. Grants related to income are presented as a credit in the statement of profit or loss within other income.
2.16 | Impairment of Non-Financial Assets |
Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at the end of reporting period.
F-29
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2.17 | Financial Liabilities |
(1) Classification and measurement
The Groups financial liabilities at fair value through profit or loss are financial instruments held for trading and designated as financial liabilities at fair value through profit or loss. Financial liabilities held for trading are financial liabilities that are incurred principally for the purpose of repurchasing them in the near term and derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives. Financial liabilities that the Group designated as at fair value through profit or loss are structured financial liabilities containing embedded derivatives issued by the Group.
As it was unable to measure the embedded derivatives separately from its host contract, the Group designated the entire hybrid contact as at fair value through profit or loss. The financial liability that the Group designated as at fair value through profit or loss is a foreign convertible bond.
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as trade payables, borrowings, and other financial liabilities in the statement of financial position.
Preferred shares that provide for a mandatory redemption at a particular date are classified as liabilities. Interest expenses on these preferred shares calculated using the effective interest method are recognized in the statement of profit or loss as finance costs, together with interest expenses recognized from other financial liabilities.
(2) Derecognition
Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.
2.18 | Financial Guarantee Contracts |
Financial guarantees contracts provided by the Group are initially measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Groups liabilities under such guarantees are measured at the higher of the amounts below and recognized as other financial liabilities:
| the amount determined in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets; or |
| the amount initially recognized less cumulative amortization in accordance with IAS 18, Revenue. |
2.19 | Compound Financial Instruments |
Compound financial instruments are convertible bonds that can be converted into equity instruments at the option of the holder. The liability component of a compound financial instrument
F-30
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially on the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
2.20 | Employee Benefits |
(1) Post-employment benefits
The Group operates both defined benefit and defined contribution plans.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as employee benefit expenses when an employee has rendered service.
A defined benefit plan is a pension plan that is not a defined contribution plan. Generally, post-employment benefits are payable after the completion of employment, and the benefit amount depended on the employees age, periods of service or salary levels. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which they occur, directly in other comprehensive income.
Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognized immediately in profit or loss as past service costs.
(2) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits at the earlier of the following dates: when the entity can no longer withdraw the offer of those benefits or when the entity recognizes costs for a restructuring.
2.21 | Share-based payments |
Equity-settled share-based payment is recognized at fair value of equity instruments on grant date, and employee benefit expense is recognized over the vesting period. At the end of each period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
When the options are exercised, the Group issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized as share capital (nominal value) and share premium.
F-31
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2.22 | Provisions |
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, and the increase in the provision due to passage of time is recognized as interest expense.
2.23 | Leases |
(1) Lessee
A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases where all the risks and rewards of ownership are not transferred to the Group are classified as operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term.
Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized as lease assets and liabilities at the leases inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments.
(2) Lessor
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership at the inception of the lease. A lease other than a finance lease is classified as an operating lease. Lease income from operating leases is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.
2.24 | Share Capital |
The Group classifies ordinary shares as equity. Where the Controlling Company purchases its own shares, the consideration paid, including any directly attributable incremental costs, is deducted from equity until the share are cancelled or reissued. When these treasury shares are reissued, any consideration received is including in equity attributable to the equity holders of the Controlling Company.
2.25 | Revenue Recognition |
Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or rendering of services arising from the normal activities of the Group. Amounts disclosed as revenue are net of value added taxes, returns, rebates and discounts and after elimination of intra-group transactions.
The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group; and when specific criteria have been met for each of the Groups activities, as described below. The Group bases its estimate on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
F-32
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(1) Rendering of Services
When providing interconnection or telecommunications service to a customer based on service plans, the related revenue is recognized at the time service is provided. If the customer uses the telecommunications equipment according to the service plans, the related revenue is recognized on straight-line basis over the contract period. Revenue related to the other telecommunications services is recognized when the service is provided to the customer.
For other services such as information technology and network services, satellite service, security service and others, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with such a transaction is recognized by reference to the stage of performance of the services. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognized only to the extent of the expenses recognized that are recoverable.
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.
(2) Sales of goods
The Group sells a range of handsets. Revenue from the sale of goods is recognized when products are delivered to the purchaser.
(3) Interest income
Interest income is recognized using the effective interest method according to the time passed. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognized using the original effective interest rate.
(4) Commission fees
Commission fees related to credit card business are recognized when it is probable that future economic benefits will flow to the entity and these benefits can be reliably measured. Revenues from acquiree fee, agent fee, optional service fees, member service fees and credit card service charge are measured at the fair value of the consideration received and recognized on an accrual basis.
(5) Royalty income
Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements.
(6) Dividend income
Dividend income is recognized when the right to receive payment is established.
F-33
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(7) Customer loyalty program
The Group operates a customer loyalty program where customers accumulate points for purchases made which entitle them to discounts on future purchases. The reward points are recognized as a separately identifiable component of the initial sale transaction. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the reward points and the other components of the sale. The fair value of the reward points is measured by taking into account the proportion of the reward points that are not expected to be redeemed by customers. Revenue from the reward points is recognized when the points are redeemed.
2.26 | Current and Deferred Income Tax |
The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
Management periodically evaluates tax policies that are applied in tax returns in which applicable tax regulation is subject to interpretation. The Group recognizes current income tax on the basis of the amount expected to be paid to the tax authorities.
Deferred tax is recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
Deferred tax assets are recognized only if it is probable that future taxable amount will be available to utilize those temporary differences and losses.
Deferred tax liability is recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group 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. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
2.27 | Dividend |
Dividend distribution to the Groups shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Groups shareholders.
F-34
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2.28 | Approval of Issuance of the Financial Statements |
The issuance of the December 31, 2016 financial statements of the Group was approved by the directors on April 28, 2017.
3. | Critical Accounting Estimates and Assumptions |
The Group makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
3.1 | Impairment of Goodwill |
The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of cash-generating units (CGUs) is determined based on value-in-use calculations (Note 12).
3.2 | Income Taxes |
The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain (Note 28).
If certain portion of the taxable income is not used for investments or increase in wages or dividends in accordance with the Tax System For Recirculation of Corporate Income, the Group is liable to pay additional income tax calculated based on the tax laws. The new tax system is effective for three years from 2015. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new system. As the Groups income tax is dependent on the investments, increase in wages and dividends, there is an uncertainty in measuring the final tax effects.
3.3 | Fair Value of Derivatives and Financial Instruments |
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period (Note 35).
3.4 | Allowance for doubtful accounts |
The Group recognizes provisions for accounting of estimated loss in customers insolvency. When the Allowance for doubtful accounts is estimated, it is based on the aging analysis of trade receivables balances, incurred loss experience, customers credit rates and changes of payment terms. If the customers financial position becomes worse, the actual loss amount will be increased more than the estimated.
F-35
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
3.5 | Net defined benefit liability |
The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate (Note 17).
3.6 | Deferred Revenue |
Service installation fees and initial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. The estimate of expected terms of customer relationship is based on the historical rate. If managements estimation is amended, it may cause significant differences in the timing of revenue recognition and amount recognized.
3.7 | Provisions |
As described in Note 16, the Group records provisions for litigation and assets retirement obligations as of the end of the reporting period. The provisions are estimated based on the factors such as the historical experiences.
3.8 | Useful lives of Property and Equipment, Intangible Assets and Investment Property |
Depreciation on the property and equipment, intangible assets and investment property, excluding land, condominium memberships, golf club memberships, and broadcasting concession, is calculated using the straight-line method over their useful lives. The estimated useful lives are determined based on expected usage of the assets and the estimates can be materially affected by technical changes and other factors. The Group will increase depreciation if the useful lives are considered shorter than the previously estimated useful lives.
4. | Financial Instruments by Category |
Financial instruments by category as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||||||||||
Financial assets | Loans and receivables |
Assets at fair and loss |
Derivatives used for hedge |
Available- for-sale |
Held-to- Maturity |
Total | ||||||||||||||||||
Cash and cash equivalents |
₩ | 2,559,464 | ₩ | | ₩ | | ₩ | | ₩ | | ₩ | 2,559,464 | ||||||||||||
Trade and other receivables |
5,557,779 | | | | | 5,557,779 | ||||||||||||||||||
Other financial assets |
434,093 | 18 | 139,088 | 360,037 | 18,030 | 951,266 |
(In millions of Korean won) | 2015 | |||||||||||||||
Financial liabilities | Liabilities at and loss |
Derivatives used for |
Financial liabilities at amortized cost |
Total | ||||||||||||
Trade and other payables |
₩ | | ₩ | | ₩ | 7,004,000 | ₩ | 7,004,000 | ||||||||
Borrowings |
| | 8,634,897 | 8,634,897 | ||||||||||||
Other financial liabilities |
2,006 | 62,883 | 82,439 | 147,328 |
F-36
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2016 | |||||||||||||||||||||||
Financial assets | Loans and receivables |
Assets at fair value through and loss |
Derivatives used for hedge |
Available- for-sale |
Held-to- Maturity |
Total | ||||||||||||||||||
Cash and cash equivalents |
₩ | 2,900,311 | ₩ | | ₩ | | ₩ | | ₩ | | ₩ | 2,900,311 | ||||||||||||
Trade and other receivables |
6,036,363 | | | | | 6,036,363 | ||||||||||||||||||
Other financial assets |
716,769 | 6,277 | 227,318 | 404,774 | 30,143 | 1,385,281 |
(In millions of Korean won) | 2016 | |||||||||||||||
Financial liabilities | Liabilities at fair value through profit and loss |
Derivatives used for |
Financial liabilities at amortized cost |
Total | ||||||||||||
Trade and other payables |
₩ | | ₩ | | ₩ | 8,328,082 | ₩ | 8,328,082 | ||||||||
Borrowings |
| | 8,120,791 | 8,120,791 | ||||||||||||
Other financial liabilities |
1,973 | 14,928 | 91,763 | 108,664 |
Gains or losses arising from financial instruments by category for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Loans and receivables |
||||||||||||
Interest income1, 4 |
₩ | 94,380 | ₩ | 85,603 | ₩ | 129,813 | ||||||
Loss on foreign currency transaction |
(1,086 | ) | (365 | ) | (7,493 | ) | ||||||
Gain on foreign currency translation |
7,954 | 1,921 | 3,083 | |||||||||
Loss on disposal |
(16,464 | ) | (2,539 | ) | (15,838 | ) | ||||||
Loss on valuation |
(230,791 | ) | (141,555 | ) | (92,589 | ) | ||||||
Assets at fair value through profit or loss |
||||||||||||
Gain(loss) on disposal |
(587 | ) | 368 | 186 | ||||||||
Loss on valuation |
(794 | ) | | (7,184 | ) | |||||||
Derivatives used for hedging |
||||||||||||
Loss on transaction |
(34,653 | ) | (5,157 | ) | | |||||||
Gain on valuation |
64,700 | 141,512 | 109,436 | |||||||||
Other comprehensive income for the year2 |
28,928 | 100,401 | 60,501 | |||||||||
Reclassified to profit or loss from other comprehensive income for the year2,3 |
(49,524 | ) | (88,003 | ) | (71,915 | ) | ||||||
Available-for-sale |
||||||||||||
Interest income1,4 |
45 | 73 | 40 | |||||||||
Dividend income |
3,808 | 7,733 | 3,926 | |||||||||
Gain(loss) on disposal |
(13,495 | ) | 131,045 | 22,695 | ||||||||
Impairment loss |
(70,022 | ) | (1,471 | ) | (966 | ) | ||||||
Other comprehensive income for the year2 |
39,336 | 47,381 | 10,925 | |||||||||
Reclassified to profit or loss from other comprehensive income for the year2 |
(17,173 | ) | (83,397 | ) | (3,840 | ) | ||||||
Held-to-Maturity |
||||||||||||
Interest income1,4 |
159 | 226 | 213 |
F-37
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Liabilities at fair value through profit and loss |
||||||||||||
Loss on foreign currency transaction |
(134 | ) | | | ||||||||
Gain(loss) on disposal |
13 | (850 | ) | (632 | ) | |||||||
Gain(loss) on valuation |
32 | (2,006 | ) | 33 | ||||||||
Derivatives used for hedging |
||||||||||||
Gain(loss) on transactions |
2,121 | (273 | ) | 8,329 | ||||||||
Gain(loss) on valuation |
3,179 | (1,733 | ) | (138 | ) | |||||||
Other comprehensive income for the year2 |
(11,938 | ) | 11,513 | 4,295 | ||||||||
Reclassified to profit or loss from other comprehensive income for the year2,3 |
4,729 | (9,959 | ) | (3,956 | ) | |||||||
Financial liabilities at amortized cost |
||||||||||||
Interest expense4 |
(475,084 | ) | (385,925 | ) | (337,219 | ) | ||||||
Gain(loss) foreign currency transaction |
12,443 | (23,416 | ) | (7,518 | ) | |||||||
Loss foreign currency translation |
(99,145 | ) | (166,254 | ) | (112,864 | ) | ||||||
Other liabilities |
||||||||||||
Financial guarantee gain |
5,198 | | | |||||||||
Total |
₩ | (753,865 | ) | ₩ | (385,127 | ) | ₩ | (308,677 | ) |
1 | BC Card, a subsidiary of the Group, recognized interest income as operating revenue. Interest income recognized as operating revenue is ₩14,380 million (2014: ₩14,340 million, 2015: ₩15,867 million) for the year ended December 31, 2016. |
2 | The amounts directly reflected in equity before adjustments of deferred income tax. |
3 | During the year, certain derivatives of the Group were settled and the related gain or loss on valuation of cash flow hedge in other comprehensive income was reclassified to profit or loss for the year. |
4 | Excluded the interest income amounting to ₩75,221 million (2014: ₩143,391 million) and the interest expense amounting to ₩59,889 million (2014: ₩103,126 million) recognized by KT Rental Co., Ltd. and KT Capital Co., Ltd., former subsidiaries, as they are classified as discontinued operations for the year ended December 31, 2015. |
5. | Cash and Cash Equivalents to Restricted Cash |
Restricted cash and cash equivalents as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | Type | 2015 | 2016 | Description | ||||
Restricted cash and cash equivalents |
Restricted deposit | ₩9,033 | ₩19,920 | Deposit restricted for governmental project and others |
Cash and cash equivalents in the statement of financial position equal to cash and cash equivalents in the statement of cash flows.
F-38
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
6. | Trade and Other Receivables |
Trade and other receivables as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||
(In millions of Korean won) |
Total amounts |
Allowance doubtful accounts |
Present value |
Carrying amount |
||||||||||||
Current assets |
||||||||||||||||
Trade receivables |
₩ | 3,483,719 | ₩ | (468,263 | ) | ₩ | (8,879 | ) | ₩ | 3,006,577 | ||||||
Other receivables |
2,023,195 | (175,753 | ) | (387 | ) | 1,847,055 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 5,506,914 | ₩ | (644,016 | ) | ₩ | (9,266 | ) | ₩ | 4,853,632 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Non-current assets |
||||||||||||||||
Trade receivables |
₩ | 248,212 | ₩ | (478 | ) | ₩ | (16,644 | ) | ₩ | 231,090 | ||||||
Other receivables |
583,562 | (75,089 | ) | (35,416 | ) | 473,057 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 831,774 | ₩ | (75,567 | ) | ₩ | (52,060 | ) | ₩ | 704,147 | |||||||
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||
(In millions of Korean won) |
Total amounts |
Allowance doubtful accounts |
Present value |
Carrying amount |
||||||||||||
Current assets |
||||||||||||||||
Trade receivables |
₩ | 3,161,234 | ₩ | (470,239 | ) | ₩ | (5,343 | ) | ₩ | 2,685,652 | ||||||
Other receivables |
2,763,942 | (121,972 | ) | (270 | ) | 2,641,700 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 5,925,176 | ₩ | (592,211 | ) | ₩ | (5,613 | ) | ₩ | 5,327,352 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Non-current assets |
||||||||||||||||
Trade receivables |
₩ | 263,367 | ₩ | (632 | ) | ₩ | (12,835 | ) | ₩ | 249,900 | ||||||
Other receivables |
507,251 | (19,644 | ) | (28,496 | ) | 459,111 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 770,618 | ₩ | (20,276 | ) | ₩ | (41,331 | ) | ₩ | 709,011 | |||||||
|
|
|
|
|
|
|
|
The fair values of trade and other receivables with original maturities less than one year equal to their carrying amounts because the discounting effect is immaterial. The fair value of trade and other receivables with original maturities longer than one year, which are mainly from sales of goods, is determined discounting the expected future cash flow at the weighted average interest rate.
Details of changes in Allowance for doubtful accounts the years ended December 31, 2015 and 2016, are as follows:
2015 | 2016 | |||||||||||||||
(In millions of Korean won) | Trade receivables |
Other receivables |
Trade receivables |
Other receivables |
||||||||||||
Beginning balance |
₩ | 527,617 | ₩ | 311,082 | ₩ | 468,741 | ₩ | 250,842 | ||||||||
Provision |
95,489 | 46,066 | 84,975 | 7,736 | ||||||||||||
Reversal or written-off |
(135,381 | ) | (33,282 | ) | (80,518 | ) | (108,638 | ) | ||||||||
Changes in the scope of consolidation |
(16,752 | ) | (69,732 | ) | 215 | 56 | ||||||||||
Others |
(2,232 | ) | (3,292 | ) | (2,542 | ) | (8,380 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
₩ | 468,741 | ₩ | 250,842 | ₩ | 470,871 | ₩ | 141,616 | ||||||||
|
|
|
|
|
|
|
|
F-39
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Provisions for impairment on trade and other receivables are recognized as operating expenses, other expenses and finance costs.
Details of aging analysis of trade receivables as of December 31, 2015 and 2016, are as follows:
(in millions of Korean won) | 2015 | 2016 | ||||||
Neither past due nor impaired |
₩ | 2,756,471 | ₩ | 2,377,637 | ||||
|
|
|
|
|||||
Past due and impaired |
||||||||
Up to 6 months |
606,704 | 685,288 | ||||||
6 months to 12 months |
82,668 | 87,547 | ||||||
Over 12 months |
260,565 | 255,951 | ||||||
|
|
|
|
|||||
949,937 | 1,028,786 | |||||||
Less: Allowance for doubtful accounts |
(468,741 | ) | (470,871 | ) | ||||
|
|
|
|
|||||
₩ | 3,237,667 | ₩ | 2,935,552 | |||||
|
|
|
|
Details of other receivables as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Loans |
₩ | 117,808 | ₩ | 80,308 | ||||
Receivables1 |
1,973,280 | 2,709,177 | ||||||
Accrued income |
10,119 | 9,903 | ||||||
Refundable deposits |
403,816 | 390,035 | ||||||
Loans receivable |
29,101 | 10,355 | ||||||
Finance lease receivables |
14,645 | 16,280 | ||||||
Others |
22,185 | 26,369 | ||||||
Less: Allowance for doubtful accounts |
(250,842 | ) | (141,616 | ) | ||||
|
|
|
|
|||||
₩ | 2,320,112 | ₩ | 3,100,811 | |||||
|
|
|
|
1 | The settlement receivables of BC Card Co., Ltd. of ₩1,962,880 million (2015: ₩1,211,272 million) are included. |
Details of aging analysis of other receivables as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Neither past due nor impaired |
₩ | 2,203,796 | ₩ | 2,971,239 | ||||
|
|
|
|
|||||
Past due and impaired |
||||||||
Up to 6 months |
114,920 | 134,231 | ||||||
6 months to 12 months |
12,163 | 12,805 | ||||||
Over 12 months |
240,075 | 124,152 | ||||||
|
|
|
|
|||||
367,158 | 271,188 | |||||||
Less: Allowance for doubtful accounts |
(250,842 | ) | (141,616 | ) | ||||
|
|
|
|
|||||
Total |
₩ | 2,320,112 | ₩ | 3,100,811 | ||||
|
|
|
|
The maximum exposure of trade and other receivables to credit risk is the carrying amount of each class of receivables mentioned above as of December 31, 2016.
F-40
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
7. | Other Financial Assets and Liabilities |
Details of other financial assets and liabilities as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Other financial assets |
||||||||
Financial assets at fair value through profit or loss |
₩ | 18 | ₩ | 6,277 | ||||
Derivatives used for hedge |
139,088 | 227,318 | ||||||
Financial instruments1 |
434,093 | 716,769 | ||||||
Available-for-sale financial assets1 |
360,037 | 404,774 | ||||||
Held-to-maturity investments |
18,030 | 30,143 | ||||||
Less: Non-current |
(658,323 | ) | (664,726 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 292,943 | ₩ | 720,555 | ||||
|
|
|
|
|||||
Other financial liabilities |
||||||||
Financial liabilities at fair value through the profit or loss |
₩ | 2,006 | ₩ | 1,973 | ||||
Derivatives used for hedge |
62,883 | 14,928 | ||||||
Other financial liabilities2 |
82,439 | 91,763 | ||||||
Less: Non-current |
(103,683 | ) | (108,431 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 43,645 | ₩ | 233 | ||||
|
|
|
|
1 | As of December 31, 2016, the Groups financial instruments amounting to ₩49,721 million (December 31, 2015: ₩42,669 million), which consist of certain proceeds from the disposal of Ustream Inc. deposited in an escrow account, checking account deposits and deposits for Win-win Growth Cooperative loans, are subject to withdrawal restrictions. |
2 | Redeemable preferred shares of subsidiaries of ₩87,769 million (2015: ₩79,238 million) are included. |
Financial instruments at fair value through profit or loss as of December 31, 2015 and 2016, are as follows:
2015 | 2016 | |||||||||||||||
(In millions of Korean won) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Financial instruments at fair value through profit and loss |
₩ | | ₩ | | ₩ | 6,277 | ₩ | | ||||||||
Other derivatives liabilities |
₩ | 18 | ₩ | 2,006 | ₩ | | ₩ | 1,973 |
The valuation gains and losses on financial assets held for trading for the years ended December 31, 2014, 2015 and 2016, are as follows:
2014 | 2015 | 2016 | ||||||||||||||||||||||
(in millions of Korean won) | Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
||||||||||||||||||
Interest rate swap |
₩ | | ₩ | 1 | ₩ | | ₩ | | ₩ | | ₩ | | ||||||||||||
Other derivatives |
611 | 1,006 | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 611 | ₩ | 1,007 | ₩ | | ₩ | | ₩ | | ₩ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-41
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The valuation gains and losses on financial instruments at fair value through profit or loss for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Loss foreign currency translation |
₩ | (134 | ) | ₩ | | ₩ | | |||||
Loss on valuation |
(398 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | (532 | ) | ₩ | | ₩ | | |||||
|
|
|
|
|
|
The maximum exposure of debt securities of financial instruments at fair value through profit or loss to credit risk is carrying amount as of December 31, 2016.
The valuation gains and losses on financial assets and liabilities at fair value through profit or loss and held for trading for the years ended December 31, 2014, 2015 and 2016, are as follows:
Financial assets and liabilities at fair value through profit or loss
2014 | 2015 | 2016 | ||||||||||||||||||||||
(in millions of Korean won) | Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
||||||||||||||||||
Valuation gains and losses on financial assets |
₩ | | ₩ | | ₩ | | ₩ | | ₩ | 470 | ₩ | 7,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | | ₩ | | ₩ | | ₩ | | ₩ | 470 | ₩ | 7,654 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Held for trading
2014 | 2015 | 2016 | ||||||||||||||||||||||
(in millions of Korean won) | Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
Valuation gains |
Valuation losses |
||||||||||||||||||
Valuation gains and losses on financial assets |
₩ | 32 | ₩ | | ₩ | | ₩ | 2,006 | ₩ | 33 | ₩ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 32 | ₩ | | ₩ | | ₩ | 2,006 | ₩ | 33 | ₩ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The maximum exposure of debt securities of financial instruments at fair value through profit or loss to credit risk is carrying amount as of December 31, 2016.
Derivatives used for hedge as of December 31, 2015 and 2016, are as follows:
2015 | 2016 | |||||||||||||||
(in millions of Korean won) | Assets | Liabilities | Assets | Liabilities | ||||||||||||
Interest rate swap1 |
₩ | | ₩ | 2,859 | ₩ | | ₩ | 3,278 | ||||||||
Currency swap2 |
137,100 | 58,284 | 214,648 | 11,650 | ||||||||||||
Currency forwards3 |
1,988 | 1,740 | 12,670 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
139,088 | 62,883 | 227,318 | 14,928 | ||||||||||||
Less: non-current |
(139,088 | ) | (19,238 | ) | (97,220 | ) | (14,695 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current |
₩ | | ₩ | 43,645 | ₩ | 130,098 | ₩ | 233 | ||||||||
|
|
|
|
|
|
|
|
1 | The interest rate swap contract is to hedge the risk of variability in future fair value of the bond. |
F-42
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2 | The currency swap contract is to hedge the risk of variability in cash flow from the bond. In applying the cash flow hedge accounting, the Group hedges its exposures to cash flow fluctuation until September 7, 2034. |
3 | The currency forward contract is to hedge the risk of variability in cash flow from transactions in foreign currencies due to changes in foreign exchange rate. |
The full value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.
The valuation gains and losses on the derivatives contracts for the years ended December 31, 2014, 2015 and 2016, are as follows:
(in millions of Korean won) |
2014 | 2015 | 2016 | |||||||||||||||||||||||||||||||||
Type of Transaction |
Valuation gain |
Valuation loss |
Other comprehensive |
Valuation gain |
Valuation loss |
Other comprehensive |
Valuation gain |
Valuation loss |
Other comprehensive |
|||||||||||||||||||||||||||
Interest rate swap |
₩ | | ₩ | | ₩ | 334 | ₩ | | ₩ | | ₩ | (2,858 | ) | ₩ | | ₩ | 148 | ₩ | (142 | ) | ||||||||||||||||
Currency swap |
93,235 | 25,356 | 22,080 | 141,512 | 1,733 | 150,255 | 97,158 | (10 | ) | 85,479 | ||||||||||||||||||||||||||
Currency forwards |
| | | | | 247 | 12,278 | | 146 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
₩ | 93,235 | ₩ | 25,356 | ₩ | 22,414 | ₩ | 141,512 | ₩ | 1,733 | ₩ | 147,644 | ₩ | 109,436 | ₩ | 138 | ₩ | 85,483 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | The amounts before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest. |
The ineffective portion recognized in profit or loss on the cash flow hedge is valuation gain of ₩1,637 million for the current period (2014: valuation income of ₩1,178 million, 2015: valuation gain of ₩2,663 million).
Details of available-for-sale financial assets as of December 31, 2015, and 2016 are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Marketable equity securities |
₩ | 41,202 | ₩ | 5,387 | ||||
Non-marketable equity securities |
297,447 | 372,703 | ||||||
Debt securities |
21,388 | 26,684 | ||||||
|
|
|
|
|||||
Total |
360,037 | 404,774 | ||||||
Less: non-current |
(342,562 | ) | (384,798 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 17,475 | ₩ | 19,976 | ||||
|
|
|
|
F-43
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Changes of available-for-sale financial assets for the years ended December 31, 2015, and 2016 are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Beginning |
₩ | 525,556 | ₩ | 360,037 | ||||
Acquisition |
99,111 | 44,302 | ||||||
Disposal |
(222,103 | ) | (18,161 | ) | ||||
Valuation1 |
62,508 | 14,413 | ||||||
Impairment |
(1,471 | ) | (966 | ) | ||||
Reclassification |
125 | 5,149 | ||||||
Changes in scope of consolidation |
(103,689 | ) | | |||||
|
|
|
|
|||||
Ending |
₩ | 360,037 | ₩ | 404,774 | ||||
|
|
|
|
1 | The amounts before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest. |
The maximum exposure of debt securities of available-for-sale financial assets to credit risk is carrying amount as of December 31, 2016.
Available-for-sale financial assets are measured at fair value. However, non-marketable equity securities that do not have quoted market prices in an active market and the fair value of which cannot be reliably measured are recognized at cost and the impairment loss is recognized if any.
None of the available-for-sale financial assets are past due and the impaired assets amount to ₩788 million as of December 31, 2016.
Investment in Korea Software Financial Cooperative amounting to ₩1,000 million is provided as collateral as consideration for payment guarantees provided by Korea Software Financial Cooperative (Note 19).
8. | Inventories |
Inventories as of December 31, 2015 and 2016, are as follows:
2015 | 2016 | |||||||||||||||||||||||
(In millions of Korean won) | Acquisition cost |
Valuation allowance |
Book amount |
Acquisition cost |
Valuation allowance |
Book amount |
||||||||||||||||||
Merchandise |
₩ | 580,761 | ₩ | (66,996 | ) | ₩ | 513,765 | ₩ | 403,938 | ₩ | (46,634 | ) | ₩ | 357,304 | ||||||||||
Others |
103,501 | (355 | ) | 103,146 | 97,778 | (494 | ) | 97,284 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 684,262 | ₩ | (67,351 | ) | ₩ | 616,911 | ₩ | 501,716 | ₩ | (47,128 | ) | ₩ | 454,588 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories recognized as expenses for the year ended December 31, 2016, amounts to ₩3,589,809 million (2014: ₩3,823,397 million, 2015: ₩3,760,892 million) and reversal of valuation loss on inventory recognized amounts to ₩20,223 million for year ended December 31, 2016 (2014: reversal of valuation allowance of ₩59,973 million, 2015: valuation loss on inventory amounts to ₩4,116 million).
F-44
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
9. | Other Assets and Liabilities |
Other assets and liabilities as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Other assets |
||||||||
Advance payments |
₩ | 148,037 | ₩ | 148,299 | ||||
Prepaid expenses |
244,890 | 255,464 | ||||||
Others |
26,336 | 13,471 | ||||||
Less: Non-current |
(102,359 | ) | (106,099 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 316,904 | ₩ | 311,135 | ||||
|
|
|
|
|||||
Other liabilities |
||||||||
Advances received |
₩ | 234,575 | ₩ | 281,071 | ||||
Withholdings |
46,769 | 89,679 | ||||||
Unearned revenue |
15,363 | 24,142 | ||||||
Others |
41,200 | 6,160 | ||||||
Less: Non-current |
(26,737 | ) | (58,761 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 311,170 | ₩ | 342,291 | ||||
|
|
|
|
10. | Property, Plant and Equipment |
Changes in property, plant and equipment for the years ended December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||||||||||
(in millions of Korean won) | Land | Buildings and structures |
Machinery and equipment |
Others | Construction- in-progress |
Total | ||||||||||||||||||
Acquisition cost |
₩ | 1,287,821 | ₩ | 3,345,587 | ₩ | 33,390,640 | ₩ | 4,806,849 | ₩ | 845,662 | ₩ | 43,676,559 | ||||||||||||
Less: Accumulated depreciation (including accumulated impairment loss and others) |
(132 | ) | (1,336,337 | ) | (23,556,971 | ) | (2,311,219 | ) | (3,704 | ) | (27,208,363 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Beginning, net |
1,287,689 | 2,009,250 | 9,833,669 | 2,495,630 | 841,958 | 16,468,196 | ||||||||||||||||||
Acquisition |
34,686 | 10,564 | 445,452 | 258,094 | 2,563,372 | 3,312,168 | ||||||||||||||||||
Disposal/Abandonment |
(423 | ) | (797 | ) | (139,687 | ) | (8,294 | ) | (3,787 | ) | (152,988 | ) | ||||||||||||
Depreciation |
| (117,328 | ) | (2,674,339 | ) | (190,630 | ) | | (2,982,297 | ) | ||||||||||||||
Impairment |
| | (28,206 | ) | (2,270 | ) | (1,831 | ) | (32,307 | ) | ||||||||||||||
Transfer in (out) |
10,134 | 230,535 | 2,064,871 | 67,483 | (2,373,023 | ) | | |||||||||||||||||
Inclusion in scope of consolidation |
15 | 177 | 139 | 990 | 187 | 1,508 | ||||||||||||||||||
Exclusion from scope of consolidation |
(37,314 | ) | (25,743 | ) | (638 | ) | (2,079,426 | ) | (237 | ) | (2,143,358 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Others |
(7,170 | ) | (7,614 | ) | 7,532 | 9,406 | 5,838 | 7,992 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending, net |
₩ | 1,287,617 | ₩ | 2,099,044 | ₩ | 9,508,793 | ₩ | 550,983 | ₩ | 1,032,477 | ₩ | 14,478,914 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Acquisition cost |
₩ | 1,287,749 | ₩ | 3,558,460 | ₩ | 34,388,584 | ₩ | 1,951,749 | ₩ | 1,033,777 | ₩ | 42,220,319 | ||||||||||||
Less: Accumulated depreciation (including accumulated impairment loss and others) |
(132 | ) | (1,459,416 | ) | (24,879,791 | ) | (1,400,766 | ) | (1,300 | ) | (27,741,405 | ) |
F-45
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2016 | ||||||||||||||||||||||||
(In millions of Korean won) | Land | Buildings and structures |
Machinery and equipment |
Others | Construction- in-progress |
Total | ||||||||||||||||||
Acquisition cost |
₩ | 1,287,749 | ₩ | 3,558,460 | ₩ | 34,388,584 | ₩ | 1,951,749 | ₩ | 1,033,777 | ₩ | 42,220,319 | ||||||||||||
Less: Accumulated depreciation (including accumulated impairment loss and others) |
(132 | ) | (1,459,416 | ) | (24,879,791 | ) | (1,400,766 | ) | (1,300 | ) | (27,741,405 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Beginning, net |
1,287,617 | 2,099,044 | 9,508,793 | 550,983 | 1,032,477 | 14,478,914 | ||||||||||||||||||
Acquisition |
291 | 3,608 | 247,431 | 146,471 | 2,297,346 | 2,695,147 | ||||||||||||||||||
Disposal and termination |
(855 | ) | (1,650 | ) | (112,135 | ) | (8,155 | ) | (3,357 | ) | (126,152 | ) | ||||||||||||
Depreciation |
| (135,389 | ) | (2,498,837 | ) | (143,978 | ) | | (2,778,204 | ) | ||||||||||||||
Impairment (Recovery of impairment) |
| | 361 | (47,086 | ) | | (46,725 | ) | ||||||||||||||||
Transfer in (out) |
4,274 | 136,041 | 2,060,936 | 11,073 | (2,212,324 | ) | | |||||||||||||||||
Inclusion in scope of consolidation |
| | 68 | 764 | | 832 | ||||||||||||||||||
Others |
17,625 | 23,078 | 53,568 | 14,851 | (20,823 | ) | 88,299 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending, net |
₩ | 1,308,952 | ₩ | 2,124,732 | ₩ | 9,260,185 | ₩ | 524,923 | ₩ | 1,093,319 | ₩ | 14,312,111 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Acquisition cost |
₩ | 1,309,084 | ₩ | 3,729,228 | ₩ | 35,106,184 | ₩ | 1,895,332 | ₩ | 1,093,941 | ₩ | 43,133,769 | ||||||||||||
Less: Accumulated depreciation (including accumulated impairment loss and others) |
(132 | ) | (1,604,496 | ) | (25,845,999 | ) | (1,370,409 | ) | (622 | ) | (28,821,658 | ) |
Details of property, plant and equipment provided as collateral as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||||
Carrying amount |
Secured amount |
Related line item |
Related amount |
Secured party | ||||||||||||||
Land and Buildings |
₩ | 12,529 | ₩ | 12,000 | Borrowings | ₩ | 8,000 | Standard Charted Bank | ||||||||||
Others |
57,374 | 42,192 | 35,835 | Shinhan Bank |
(In millions of Korean won) | 2016 | |||||||||||||||||
Carrying amount |
Secured amount |
Related line item |
Related amount |
Secured party | ||||||||||||||
Land and Buildings |
13,337 | 16,009 | Borrowings | 11,540 | Standard Charted Bank | |||||||||||||
Others |
55,951 | 43,506 | 25,379 | Shinhan Bank |
The borrowing costs capitalized for qualifying assets amount to ₩16,451 million (2015: ₩11,877 million) in 2016. The interest rate applied to calculate the capitalized borrowing costs in 2016 is 2.29% to 3.50% (2015: 2.46% to 4.07%).
F-46
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
11. | Investment Properties |
Changes in investment properties for the years ended December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||
Land | Buildings | Construction-in- progress |
Total | |||||||||||||
Acquisition cost |
₩ | 315,794 | ₩ | 1,003,031 | ₩ | 19,378 | ₩ | 1,338,203 | ||||||||
Less: Accumulated depreciation |
| (278,573 | ) | | (278,573 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Beginning |
315,794 | 724,458 | 19,378 | 1,059,630 | ||||||||||||
Acquisition |
26,194 | 17,210 | 55,621 | 99,025 | ||||||||||||
Disposal/Abandonment |
| (4,436 | ) | | (4,436 | ) | ||||||||||
Depreciation |
| (48,524 | ) | | (48,524 | ) | ||||||||||
Transfer |
6,828 | (1,636 | ) | (791 | ) | 4,401 | ||||||||||
Changes in scope of consolidation |
(8,026 | ) | | | (8,026 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending |
₩ | 340,790 | ₩ | 687,072 | ₩ | 74,208 | ₩ | 1,102,070 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Acquisition cost |
₩ | 340,790 | ₩ | 1,011,236 | ₩ | 74,208 | ₩ | 1,426,234 | ||||||||
Less: Accumulated depreciation |
| (324,164 | ) | | (324,164 | ) |
(In millions of Korean won) | 2016 | |||||||||||||||
Land | Buildings | Construction-in- progress |
Total | |||||||||||||
Acquisition cost |
₩ | 340,790 | ₩ | 1,011,236 | ₩ | 74,208 | ₩ | 1,426,234 | ||||||||
Less: Accumulated depreciation |
| (324,164 | ) | | (324,164 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Beginning |
340,790 | 687,072 | 74,208 | 1,102,070 | ||||||||||||
Acquisition |
51 | 417 | 160,138 | 160,606 | ||||||||||||
Disposal/Abandonment |
(5,837 | ) | (1,802 | ) | | (7,639 | ) | |||||||||
Depreciation |
| (43,575 | ) | | (43,575 | ) | ||||||||||
Transfer |
(32,254 | ) | 124,417 | (155,581 | ) | (63,418 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending |
₩ | 302,750 | ₩ | 766,529 | ₩ | 78,765 | ₩ | 1,148,044 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Acquisition cost |
₩ | 302,750 | ₩ | 1,119,885 | ₩ | 78,765 | ₩ | 1,501,400 | ||||||||
Less: Accumulated depreciation |
| (353,356 | ) | | (353,356 | ) |
The fair value of investment properties is ₩2,340,893 million as of December 31, 2016 (2015: ₩2,645,246 million). The fair value of investment properties is estimated based on the expected cash flow.
Rental income from investment properties is ₩184,670 million in 2016 (2015: ₩184,819 million) and direct operating expenses (including repairs and maintenance) arising from investment properties that generated rental income during the period are recognized as operating expenses.
Details of investment properties provided as collateral as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||
Carrying amount |
Secured amount |
Related account |
Related amount |
|||||||||||
Buildings |
₩ | 634,028 | ₩ | 66,034 | Deposits | ₩ | 55,765 |
F-47
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2016 | |||||||||||||
Carrying amount |
Secured amount |
Related account |
Related amount |
|||||||||||
Buildings |
₩ | 711,989 | ₩ | 98,543 | Deposits | ₩ | 84,334 | |||||||
Land and Buildings |
₩ | 8,035 | ₩ | 7,891 | Borrowings | ₩ | 5,260 |
12. | Intangible Assets |
Changes in intangible assets for the years ended December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||||||||||
(In millions of Korean won) | Goodwill | Development costs |
Software | Frequency usage rights |
Others | Total | ||||||||||||||||||
Acquisition cost |
₩ | 609,817 | ₩ | 1,589,994 | ₩ | 747,343 | ₩ | 2,768,943 | ₩ | 1,154,915 | ₩ | 6,871,012 | ||||||||||||
Less: Accumulated amortization (including accumulated impairment loss and others) |
(30,069 | ) | (939,307 | ) | (503,682 | ) | (1,364,753 | ) | (489,168 | ) | (3,326,979 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Beginning, net |
579,748 | 650,687 | 243,661 | 1,404,190 | 665,747 | 3,544,033 | ||||||||||||||||||
Acquisition |
549 | 41,108 | 67,640 | 7,722 | 91,374 | 208,393 | ||||||||||||||||||
Disposal |
(1,272 | ) | (28,645 | ) | (4,251 | ) | | (33,651 | ) | (67,819 | ) | |||||||||||||
Amortization |
| (183,845 | ) | (76,866 | ) | (254,439 | ) | (94,035 | ) | (609,185 | ) | |||||||||||||
Impairment1 |
(100,352 | ) | | (2,200 | ) | (184,703 | ) | (5,090 | ) | (292,345 | ) | |||||||||||||
Inclusion in scope of consolidation |
| | 306 | | 160 | 466 | ||||||||||||||||||
Exclusion in scope of consolidation |
(136,332 | ) | (19,916 | ) | (3,799 | ) | | (29,321 | ) | (189,368 | ) | |||||||||||||
Others |
| 2,154 | 6,893 | | (3,471 | ) | 5,576 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending, net |
₩ | 342,341 | ₩ | 461,543 | ₩ | 231,384 | ₩ | 972,770 | ₩ | 591,713 | ₩ | 2,599,751 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Acquisition cost |
₩ | 449,379 | ₩ | 1,487,420 | ₩ | 805,387 | ₩ | 2,591,229 | ₩ | 1,109,085 | ₩ | 6,442,500 | ||||||||||||
Less: Accumulated amortization (including accumulated impairment loss and others) |
(107,038 | ) | (1,025,877 | ) | (574,003 | ) | (1,618,459 | ) | (517,372 | ) | (3,842,749 | ) |
1 | The amount ₩184,703 million is recognized as an impairment loss on intangible assets related to 800MHz frequency usage rights. |
2016 | ||||||||||||||||||||||||
(In millions of Korean won) | Goodwill | Development costs |
Software | Frequency usage rights |
Others | Total | ||||||||||||||||||
Acquisition cost |
₩ | 449,379 | ₩ | 1,487,420 | ₩ | 805,387 | ₩ | 2,591,229 | ₩ | 1,109,085 | ₩ | 6,442,500 | ||||||||||||
Less: Accumulated amortization (including accumulated impairment loss and others) |
(107,038 | ) | (1,025,877 | ) | (574,003 | ) | (1,618,459 | ) | (517,372 | ) | (3,842,749 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Beginning, net |
342,341 | 461,543 | 231,384 | 972,770 | 591,713 | 2,599,751 | ||||||||||||||||||
Acquisition and capital expenditure1 |
| 36,075 | 35,631 | 978,309 | 74,312 | 1,124,327 | ||||||||||||||||||
Disposal and termination |
| (8,600 | ) | (1,928 | ) | | (16,397 | ) | (26,925 | ) | ||||||||||||||
Amortization |
| (162,682 | ) | (78,643 | ) | (273,790 | ) | (84,606 | ) | (599,721 | ) | |||||||||||||
Impairment |
(131,600 | ) | | (46 | ) | | (3,618 | ) | (135,264 | ) | ||||||||||||||
Inclusion in scope of consolidation |
42,745 | | 2,462 | | 16,015 | 61,222 | ||||||||||||||||||
Others |
| 8,340 | 8,278 | | (17,205 | ) | (587 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Ending, net |
₩ | 253,486 | ₩ | 334,676 | ₩ | 197,138 | ₩ | 1,677,289 | ₩ | 560,214 | ₩ | 3,022,803 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Acquisition cost |
₩ | 492,105 | ₩ | 1,483,205 | ₩ | 838,532 | ₩ | 2,531,654 | ₩ | 1,154,993 | ₩ | 6,500,489 | ||||||||||||
Less; Accumulated amortization (including accumulated impairment loss and others) |
(238,619 | ) | (1,148,529 | ) | (641,394 | ) | (854,365 | ) | (594,779 | ) | (3,477,686 | ) |
F-48
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
1 | The Company had acquired the 1.8GHz and 2.1GHz frequency usage rights amortized using the straight-line method. |
The carrying amount of membership rights with indefinite useful life not subject to amortization is ₩128,539 million (2015: ₩122,829 million) as of December 31, 2016.
Goodwill is allocated to the Groups cash-generating unit which is identified by operating segments. As of December 31, 2016, goodwill allocated to each cash-generation unit is as follows:
(In millions of Korean won) Cash generating Unit |
Amount | |||
Marketing/Customer |
||||
Telecom Wireless business1 |
₩ | 65,057 | ||
Finance |
||||
BC Card Co., Ltd.2 |
41,234 | |||
Others |
||||
KT Skylife Co., Ltd.3 |
78,200 | |||
N SEARCH MARKETING Corporation4 |
42,745 | |||
Others |
26,250 | |||
|
|
|||
Total |
₩ | 253,486 | ||
|
|
1 | The recoverable amounts of mobile business are calculated based on value-in use calculations. These calculations use cash flow projections for the next five years based on financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five years. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate (-2.52%) based on past performance and its expectation of future market changes. In addition, management estimated the cash flow based on past performance and its expectation of market growth and the discount rate of 4.36% used is reflect specific risks relating to the relevant CGUs. |
2 | The recoverable amounts of BC Card Co., Ltd. is calculated based on value-in use. Calculation uses cash flow projections for the next five years based on financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five years. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate (-0.31%) based on past performance and its expectation of future market changes. The Group determined cash flow projections based on past performance and its estimation of market growth. Specific risk of related operating segment is reflected in its discount rate of 12.72%. |
3 | The recoverable amount (₩651,735 million) of Skylife Co., Ltd. is calculated based on fair value less costs to sell. |
4 | The goodwill is recognized from the business combination in 2016 (Note 36). |
As a result of the impairment test, the Group recognized the impairment losses of ₩131,600 million on goodwill allocated to Satellite TV segment. It resulted from reflecting market circumstances where the competition with other players such as the internet providers, IPTV and Cable TV operators becomes more intense. The impairment loss was recognized as operating expenses in the consolidated statement of operations. The Group considers that the carrying amount of other cash generating units does not exceed the recoverable amount of the CGUs.
F-49
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
13. | Investments in Associates and Joint Ventures |
Details of associates as of December 31, 2016, are as follows:
Percentage of ownership (%) | Location | Reporting period end |
||||||||||||
2015 | 2016 | |||||||||||||
Korea Information & Technology Fund |
33.3 | % | 33.3 | % | Korea | 31-Dec | ||||||||
KT-SB Venture Investment1 |
50.0 | % | 50.0 | % | Korea | 31-Dec | ||||||||
Mongolian Telecommunications |
40.0 | % | 40.0 | % | Mongolia | 31-Dec | ||||||||
KT Wibro Infra Co., Ltd. |
26.2 | % | 26.2 | % | Korea | 31-Dec | ||||||||
KT-CKP New Media Investment Fund |
49.7 | % | 49.7 | % | Korea | 31-Dec |
1 | At the end of the reporting period, even though the Group has 50% ownership, the equity method of accounting has been applied as the Group, which is a limited partner of investment fund, cannot participate in determining the operating and financial policies. |
Changes in investments in associates and joint ventures for the years ended December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||||||
(In millions of Korean won) | Beginning | Acquisition (Disposal) |
Share of net profit from associates and joint ventures1 |
Others | Ending | |||||||||||||||
Korea Information & Technology Fund |
₩ | 122,967 | ₩ | | ₩ | 3,696 | ₩ | 920 | ₩ | 127,583 | ||||||||||
KT-SB Venture Investment |
22,557 | (3,691 | ) | (2,210 | ) | (11,795 | ) | 4,861 | ||||||||||||
Mongolian Telecommunications |
7,477 | | (121 | ) | 127 | 7,483 | ||||||||||||||
KT Wibro Infra Co., Ltd. |
68,491 | | 843 | (6 | ) | 69,328 | ||||||||||||||
KT-CKP New Media Investment Fund |
3,986 | | (126 | ) | | 3,860 | ||||||||||||||
Others |
113,302 | (64,601 | ) | 3,480 | 4,733 | 56,914 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
₩ | 338,780 | ₩ | (68,292 | ) | ₩ | 5,562 | ₩ | (6,021 | ) | ₩ | 270,029 | |||||||||
|
|
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||||||||||
(In millions of Korean won) | Beginning | Acquisition (Disposal) |
Share of net profit from associates and joint ventures1 |
Impairment | Others | Ending | ||||||||||||||||||
Korea Information & Technology Fund |
₩ | 127,583 | ₩ | | ₩ | 7,446 | ₩ | | ₩ | (60 | ) | ₩ | 134,969 | |||||||||||
KT-SB Venture Investment |
4,861 | | (125 | ) | | | 4,736 | |||||||||||||||||
Mongolian Telecommunications |
7,483 | | 32 | | (1,271 | ) | 6,244 | |||||||||||||||||
KT Wibro Infra Co., Ltd. |
69,328 | | | (17,128 | ) | | 52,200 | |||||||||||||||||
KT-CKP New Media Investment Fund |
3,860 | | 594 | | | 4,454 | ||||||||||||||||||
Others |
56,914 | 29,052 | (5,400 | ) | | 906 | 81,472 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
₩ | 270,029 | ₩ | 29,052 | ₩ | 2,547 | ₩ | (17,128 | ) | ₩ | (425 | ) | ₩ | 284,075 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-50
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
1 | KT investment Co., Ltd., a subsidiary of the Group, recognized its share in net profit from associates and joint ventures as operating revenue and expense. These include its share in loss from associates and joint ventures of ₩52 million recognized as operating expense during the period. Meanwhile, share in loss from subsidiary of ₩193 million recognized as operation expense of KT Capital Co., Ltd, which were recognized in loss from discontinued operations, are included. |
Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2015 and 2016, is as follows:
(In millions of Korean won) | 2015 | |||||||||||||||
Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
|||||||||||||
Korea Information & Technology Fund |
₩ | 152,070 | ₩ | 230,678 | ₩ | | ₩ | | ||||||||
KT-SB Venture Investment |
882 | 9,218 | 378 | | ||||||||||||
Mongolian Telecommunications |
10,823 | 8,520 | 635 | | ||||||||||||
KT Wibro Infra Co., Ltd. |
230,505 | 39,062 | 5,099 | 37 | ||||||||||||
KT-CKP New Media Investment Fund |
3,253 | 4,523 | 4 | |
(In millions of Korean won) | 2015 | |||||||||||||||||||
Operating revenue |
Profit (loss) for the year |
Other comprehensive income |
Total comprehensive income |
Dividend received from associates |
||||||||||||||||
Korea Information & Technology Fund |
₩ | 33,041 | ₩ | 11,088 | ₩ | (2,759 | ) | ₩ | 8,329 | ₩ | 1,107 | |||||||||
KT-SB Venture Investment |
361 | (4,419 | ) | | (4,419 | ) | 11,795 | |||||||||||||
Mongolian Telecommunications |
11,354 | (302 | ) | (317 | ) | (619 | ) | 35 | ||||||||||||
KT Wibro Infra Co., Ltd. |
814 | 3,217 | | 3,217 | | |||||||||||||||
KT-CKP New Media Investment Fund |
75 | (254 | ) | | (254 | ) | |
(In millions of Korean won) | 2016 | |||||||||||||||
Current assets |
Non-current assets |
Current liabilities |
Non-current liabilities |
|||||||||||||
Korea Information & Technology Fund |
₩ | 154,651 | ₩ | 250,257 | ₩ | | ₩ | | ||||||||
KT-SB Venture Investment |
1,009 | 8,704 | 242 | | ||||||||||||
Mongolian Telecommunications |
9,852 | 9,055 | 3,296 | | ||||||||||||
KT Wibro Infra Co., Ltd. |
274,811 | 6 | 4,996 | 52 | ||||||||||||
KT-CKP New Media Investment Fund |
1,801 | 7,170 | 4 | |
(In millions of Korean won) | 2016 | |||||||||||||||||||
Operating revenue |
Profit (loss) for the year |
Other comprehensive income |
Total comprehensive income |
Dividend received from associates |
||||||||||||||||
Korea Information & Technology Fund |
₩ | 26,942 | ₩ | 22,338 | ₩ | (9,425 | ) | ₩ | 12,913 | ₩ | 3,201 | |||||||||
KT-SB Venture Investment |
2 | (251 | ) | | (251 | ) | | |||||||||||||
Mongolian Telecommunications |
10,336 | 81 | 3,178 | 3,259 | | |||||||||||||||
KT Wibro Infra Co., Ltd. |
391 | 5,025 | | 5,025 | | |||||||||||||||
KT-CKP New Media Investment Fund |
1,684 | 1,195 | | 1,195 | |
F-51
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Details of a reconciliation of the summarized financial information to the carrying amount of interests in the associates and joint ventures as of and for the years end December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||
(In millions of Korean won) | Net assets | Percentage of ownership |
Share in net assets |
Carrying amount |
||||||||||||
Korea Information & Technology Fund |
₩ | 382,748 | 33.3 | % | ₩ | 127,583 | ₩ | 127,583 | ||||||||
KT-SB Venture Investment |
9,722 | 50.0 | % | 4,861 | 4,861 | |||||||||||
Mongolian Telecommunications |
18,708 | 40.0 | % | 7,483 | 7,483 | |||||||||||
KT Wibro Infra Co., Ltd. |
264,431 | 26.2 | % | 69,328 | 69,328 | |||||||||||
KT-CKP New Media Investment Fund |
7,772 | 49.7 | % | 3,860 | 3,860 |
2016 | ||||||||||||||||||||
(In millions of Korean won) | Net assets | Percentage of ownership |
Share in net assets |
Intercompany transaction and others |
Carrying amount |
|||||||||||||||
Korea Information & Technology Fund |
₩ | 404,908 | 33.3 | % | ₩ | 134,969 | ₩ | | ₩ | 134,969 | ||||||||||
KT-SB Venture Investment |
9,471 | 50.0 | % | 4,736 | | 4,736 | ||||||||||||||
Mongolian Telecommunications |
15,610 | 40.0 | % | 6,244 | | 6,244 | ||||||||||||||
KT Wibro Infra Co., Ltd. |
269,769 | 26.2 | % | 70,679 | (18,479 | ) | 52,200 | |||||||||||||
KT-CKP New Media Investment Fund |
8,967 | 49.7 | % | 4,454 | | 4,454 |
Marketable investments in associates and joint ventures as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||
Number of shares | Carrying amount | Fair Value | ||||||||||
(In millions of Korean won) |
(In millions of Korean won) |
|||||||||||
Mongolian Telecommunications |
10,348,111 | ₩ | 7,483 | ₩ | 4,884 |
2016 | ||||||||||||
Number of shares | Carrying amount | Fair Value | ||||||||||
(In millions of Korean won) |
(In millions of Korean won) |
|||||||||||
Mongolian Telecommunications |
10,348,111 | ₩ | 6,244 | ₩ | 3,940 |
Due to discontinuance of equity method of accounting, the Group has not recognized loss from associates and joint ventures of ₩1,354 million for the year (2014: ₩11,425 million, 2015: ₩601 million,). The accumulated comprehensive loss of associates and joint ventures as of December 31, 2016, which was not recognized by the Group is ₩18,096 million (2014: ₩50,996 million, 2015: ₩51,597 million).
F-52
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
14. | Trade and other payables |
Details of trade and other payables as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | December 31, 2015 | December 31, 2016 | ||||||
Current liabilities |
||||||||
Trade payables |
₩ | 1,290,373 | ₩ | 1,235,955 | ||||
Other payables |
5,044,654 | 5,903,816 | ||||||
|
|
|
|
|||||
Total |
₩ | 6,335,027 | ₩ | 7,139,771 | ||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Trade payables |
₩ | 9,944 | ₩ | 8,041 | ||||
Other payables |
659,029 | 1,180,270 | ||||||
|
|
|
|
|||||
Total |
₩ | 668,973 | ₩ | 1,188,311 | ||||
|
|
|
|
Details of other payables as of December 31, 2015 and 2016 are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Non-trade payables1 |
₩ | 3,581,505 | ₩ | 4,803,642 | ||||
Accrued expenses |
921,650 | 1,061,002 | ||||||
Operating deposits |
885,566 | 861,739 | ||||||
Others |
314,962 | 357,703 | ||||||
Less: non-current |
(659,029 | ) | (1,180,270 | ) | ||||
|
|
|
|
|||||
Current |
₩ | 5,044,654 | ₩ | 5,903,816 | ||||
|
|
|
|
1 | Settlement payables of BC Card Co., Ltd. of ₩2,095,989 million related to credit card transactions included as of December 31, 2016 (2015: ₩1,386,081 million). |
15. | Borrowings |
Details of borrowings as of December 31, 2015 and 2016, are as follows:
Debentures
(In millions of Korean won and thousands of foreign currencies) | 2015 | 2016 | ||||||||||||||||||||
Type | Maturity | Annual interest rates |
Foreign currency |
Korean won |
Foreign currency |
Korean won |
||||||||||||||||
MTNP notes1 |
Sept. 07, 2034 | 6.50% | USD 100,000 | ₩ | 117,200 | USD 100,000 | ₩ | 120,850 | ||||||||||||||
MTNP notes1 |
May 03, 2016 | | USD 200,000 | 234,400 | | | ||||||||||||||||
MTNP notes |
Jan. 20, 2017 | 3.88% | USD 350,000 | 410,200 | USD 350,000 | 422,975 | ||||||||||||||||
FR notes2 |
Aug. 28, 2018 | LIBOR(3M)+1.15% | USD 300,000 | 351,600 | USD 300,000 | 362,550 | ||||||||||||||||
MTNP notes |
Apr. 22, 2017 | 1.75% | USD 650,000 | 761,800 | USD 650,000 | 785,525 | ||||||||||||||||
MTNP notes |
Apr. 22, 2019 | 2.63% | USD 350,000 | 410,200 | USD 350,000 | 422,975 | ||||||||||||||||
MTNP notes |
Jan. 29, 2016 | | JPY 18,200,000 | 176,906 | | | ||||||||||||||||
MTNP notes |
Jan. 29, 2018 | 0.86% | JPY 6,800,000 | 66,097 | JPY 6,800,000 | 70,503 | ||||||||||||||||
MTNP notes |
Feb. 23, 2018 | 0.48% | JPY 15,000,000 | 145,802 | JPY 15,000,000 | 155,522 | ||||||||||||||||
MTNP notes |
July 18, 2026 | 2.50% | | | USD 400,000 | 483,400 | ||||||||||||||||
The 173-2nd Public bond |
Aug. 06, 2018 | 6.62% | | 100,000 | | 100,000 | ||||||||||||||||
The 176-3rd Public bond |
May 28, 2016 | | | 260,000 | | |
F-53
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won and thousands of foreign currencies) | 2015 | 2016 | ||||||||||||||||||||
Type | Maturity | Annual interest rates |
Foreign currency |
Korean won |
Foreign currency |
Korean won |
||||||||||||||||
The 177-3rd Public bond |
Feb. 09, 2017 | 5.38% | | 170,000 | | 170,000 | ||||||||||||||||
The 179th Public bond |
Mar. 29, 2018 | 4.47% | | 260,000 | | 260,000 | ||||||||||||||||
The 180-1st Public bond |
Apr. 26, 2016 | | | 210,000 | | | ||||||||||||||||
The 180-2nd Public bond |
Apr. 26, 2021 | 4.71% | | 380,000 | | 380,000 | ||||||||||||||||
The 181-1st Public bond |
Aug. 26, 2016 | | | 260,000 | | | ||||||||||||||||
The 181-2nd Public bond |
Aug. 26, 2018 | 3.99% | | 90,000 | | 90,000 | ||||||||||||||||
The 181-3rd Public bond |
Aug. 26, 2021 | 4.09% | | 250,000 | | 250,000 | ||||||||||||||||
The 182-1st Public bond |
Oct. 28, 2016 | | | 320,000 | | | ||||||||||||||||
The 182-2nd Public bond |
Oct. 28, 2021 | 4.31% | | 100,000 | | 100,000 | ||||||||||||||||
The 183-1st Public bond |
Dec. 22, 2016 | | | 50,000 | | | ||||||||||||||||
The 183-2nd Public bond |
Dec. 22, 2021 | 4.09% | | 90,000 | | 90,000 | ||||||||||||||||
The 183-3rd Public bond |
Dec. 22, 2031 | 4.27% | | 160,000 | | 160,000 | ||||||||||||||||
The 184-1st Public bond |
Apr. 10, 2018 | 2.74% | | 120,000 | | 120,000 | ||||||||||||||||
The 184-2nd Public bond |
Apr. 10, 2023 | 2.95% | | 190,000 | | 190,000 | ||||||||||||||||
The 184-3rd Public bond |
Apr. 10, 2033 | 3.17% | | 100,000 | | 100,000 | ||||||||||||||||
The 185-1st Public bond |
Sept. 16, 2018 | 3.46% | | 200,000 | | 200,000 | ||||||||||||||||
The 185-2nd Public bond |
Sept. 16, 2020 | 3.65% | | 300,000 | | 300,000 | ||||||||||||||||
The 186-1st Public bond |
June 26, 2017 | 2.86% | | 120,000 | | 120,000 | ||||||||||||||||
The 186-2nd Public bond |
June 26, 2019 | 3.08% | | 170,000 | | 170,000 | ||||||||||||||||
The 186-3rd Public bond |
June 26, 2024 | 3.42% | | 110,000 | | 110,000 | ||||||||||||||||
The 186-4th Public bond |
June 26, 2034 | 3.70% | | 100,000 | | 100,000 | ||||||||||||||||
The 187-1st Public bond |
Sept. 02, 2017 | 2.69% | | 110,000 | | 110,000 | ||||||||||||||||
The 187-2nd Public bond |
Sept. 02, 2019 | 2.97% | | 220,000 | | 220,000 | ||||||||||||||||
The 187-3rd Public bond |
Sept. 02, 2024 | 3.31% | | 170,000 | | 170,000 | ||||||||||||||||
The 187-4th Public bond |
Sept. 02, 2034 | 3.55% | | 100,000 | | 100,000 | ||||||||||||||||
The 188-1st Public bond |
Jan. 29, 2020 | 2.26% | | 160,000 | | 160,000 | ||||||||||||||||
The 188-2nd Public bond |
Jan. 29, 2025 | 2.45% | | 240,000 | | 240,000 | ||||||||||||||||
The 188-3rd Public bond |
Jan. 29, 2035 | 2.71% | | 50,000 | | 50,000 | ||||||||||||||||
The 189-1st Public bond |
Jan. 27, 2019 | 1.76% | | | | 100,000 | ||||||||||||||||
The 189-2nd Public bond |
Jan. 27, 2021 | 1.95% | | | | 130,000 | ||||||||||||||||
The 189-3rd Public bond |
Jan. 27, 2026 | 2.20% | | | | 100,000 | ||||||||||||||||
The 189-4th Public bond |
Jan. 27, 2036 | 2.35% | | | | 70,000 | ||||||||||||||||
Unsecured public bond in won |
Jan. 24, 2016 | | | 30,000 | | | ||||||||||||||||
The 17th unsecured bond |
Apr. 22, 2018 | 1.89% | | 60,000 | | 60,000 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||
7,924,205 | 7,344,300 | |||||||||||||||||||||
Less: Current portion |
(1,540,771 | ) | (1,607,570 | ) | ||||||||||||||||||
Discount on bonds |
(20,480 | ) | (20,852 | ) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||
Total |
₩ | 6,362,954 | ₩ | 5,715,878 | ||||||||||||||||||
|
|
|
|
1 | As of December 31, 2016, the Controlling Company has outstanding notes in the amount of USD 100 million with fixed interest rates under Medium Term Note Program (MTNP) registered in the Singapore Stock Exchange, which allowed issuance of notes of up to USD 2,000 million. However, the MTN Program has been suspended since 2007. |
2 | Libor (3M) are approximately 0.998% as of December 31, 2016. |
F-54
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Short-term borrowings
(In millions of Korean won) | 2015 | 2016 | ||||||||||
Type | Financial institution | Annual interest rates | ||||||||||
Operational |
Shinhan Bank | 2.75% ~ 4.19% | ₩ | 131,000 | ₩ | 120,300 | ||||||
Standard Charted Bank | 2.52% | 8,000 | 8,000 | |||||||||
Woori Bank | | 6,346 | | |||||||||
Kookmin Bank | | 1,452 | | |||||||||
Korea Development Bank | 2.02% ~ 3.47% | 20,100 | 20,800 | |||||||||
Indutrial Bank of Korea | 4.95% | 4,000 | 1,000 | |||||||||
SooHyup Bank | 3.79% | | 3,000 | |||||||||
Acuoncapital | | 3,900 | | |||||||||
|
|
|
|
|||||||||
Total | ₩ | 174,798 | ₩ | 153,100 | ||||||||
|
|
|
|
Long-term borrowings
(In millions of Korean won and thousands of foreign currencies) | 2015 | 2016 | ||||||||||||||||||||
Financial institution | Type | Annual interest rates | Foreign currency |
Korean won |
Foreign currency |
Korean won |
||||||||||||||||
Export-Import Bank of Korea |
Inter-Korean Cooperation Fund1 | 1.50% | | ₩ | 5,428 | | ₩ | 5,181 | ||||||||||||||
Shinhan Bank |
General loans | 2.39% ~ 2.87% | | 32,000 | | 31,000 | ||||||||||||||||
Facility loans | 2.30% ~ 2.56% | | 2,497 | | 6,493 | |||||||||||||||||
Vessel facility loans2 | LIBOR(3M)+0.36% | USD 27,000 | 31,644 | USD 21,000 | 25,379 | |||||||||||||||||
KEB Hana Bank |
General loans | 3.95% | | | | 3,000 | ||||||||||||||||
Woori Bank |
General loans | 2.53% ~ 3.94% | | | | 13,000 | ||||||||||||||||
NongHyup Bank |
Facility loans | 2.00% | | 123 | | 123 | ||||||||||||||||
Korea Development Bank |
General loans | 3.27% | | | | 30,000 | ||||||||||||||||
Kookmin Bank |
Facility loans | 2.59% | | | | 7,000 | ||||||||||||||||
NH Investment & Security Co., Ltd. |
Commercial papers | 3.17% | | 300,000 | | 300,000 | ||||||||||||||||
Others |
Redeemable convertible preferred stock3 | | | 950 | | 950 | ||||||||||||||||
Kookmin Bank and other2 |
LIBOR(3M)+1.85% | USD 156,768 | 183,732 | USD 183,796 | 222,117 | |||||||||||||||||
|
|
|
|
|||||||||||||||||||
₩ | 556,374 | ₩ | 644,243 | |||||||||||||||||||
Less: Current portion |
(10,529 | ) | (59,331 | ) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||
Total |
₩ | 545,845 | ₩ | 584,912 | ||||||||||||||||||
|
|
|
|
1 | The Inter-Korean Cooperation Fund is repayable in installments over 13 years after a seven-year grace period. |
F-55
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2 | LIBOR(3M) is approximately 0.998% as of December 31, 2016. |
3 | Skylife TV Co., Ltd., a subsidiary of the Group, issued 1,900,000 of redeemable convertible preferred stock with a par value per share of ₩500 in 2010. |
Repayment schedule of the Groups borrowings including the portion of current liabilities as of December 31, 2016, is as follows:
(In millions of Korean won) | ||||||||||||||||||||||||||||
Debentures | Borrowings | Total | ||||||||||||||||||||||||||
In local currency |
In foreign currency |
Sub- total | In local currency |
In foreign currency |
Sub- total | |||||||||||||||||||||||
Jan 1, 2017 ~ Dec 31, 2017 |
₩ | 400,000 | ₩ | 1,208,500 | ₩ | 1,608,500 | ₩ | 169,753 | ₩ | 42,678 | ₩ | 212,431 | ₩ | 1,820,931 | ||||||||||||||
Jan 1, 2018 ~ Dec 31, 2018 |
830,000 | 588,575 | 1,418,575 | 40,043 | 54,486 | 94,529 | 1,513,104 | |||||||||||||||||||||
Jan 1, 2019 ~ Dec 31, 2019 |
490,000 | 422,975 | 912,975 | 336,518 | 54,486 | 391,004 | 1,303,979 | |||||||||||||||||||||
Jan 1, 2020 ~ Dec 31, 2020 |
460,000 | | 460,000 | 518 | 50,861 | 51,379 | 511,379 | |||||||||||||||||||||
After 2021 |
2,340,000 | 604,250 | 2,944,250 | 3,015 | 44,985 | 48,000 | 2,992,250 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
₩ | 4,520,000 | ₩ | 2,824,300 | ₩ | 7,344,300 | ₩ | 549,847 | ₩ | 247,496 | ₩ | 797,343 | ₩ | 8,141,643 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount and fair value of the Groups debentures and borrowings as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||||||||||
Type | Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
||||||||||||
Debentures |
₩ | 7,903,725 | ₩ | 7,965,097 | ₩ | 7,323,448 | ₩ | 7,387,085 | ||||||||
Long-term borrowings (Including current portion of long-term borrowings) |
556,374 | 544,991 | 644,243 | 644,010 | ||||||||||||
Short-term borrowings |
174,798 | 174,798 | 153,100 | 153,100 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 8,634,897 | ₩ | 8,684,886 | ₩ | 8,120,791 | ₩ | 8,184,195 | ||||||||
|
|
|
|
|
|
|
|
The fair values of debentures and long-term borrowings are calculated by discounting the expected future cash flows at weighted average borrowing rate. The weighted average borrowing rate is approximately 1.36% ~ 3.95% as of December 31, 2016 (2015: 1.03% ~ 4.20%).
F-56
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
16. | Provisions |
Changes in provisions for the years ended December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||
(In millions of Korean won) | Litigation | Restoration cost | Others | Total | ||||||||||||
Beginning balance |
₩ | 20,239 | ₩ | 98,122 | ₩ | 99,508 | ₩ | 217,869 | ||||||||
Increase (transfer) |
10,633 | 6,093 | 15,162 | 31,888 | ||||||||||||
Usage |
(6,860 | ) | (7,498 | ) | (23,625 | ) | (37,983 | ) | ||||||||
Reversal |
(6,488 | ) | (4,890 | ) | (5,124 | ) | (16,502 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
₩ | 17,524 | ₩ | 91,827 | ₩ | 85,921 | ₩ | 195,272 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current |
17,524 | 1,124 | 85,259 | 103,907 | ||||||||||||
Non-current |
| 90,703 | 662 | 91,365 | ||||||||||||
2016 | ||||||||||||||||
(In millions of Korean won) | Litigation | Restoration cost | Others | Total | ||||||||||||
Beginning balance |
₩ | 17,524 | ₩ | 91,827 | ₩ | 85,921 | ₩ | 195,272 | ||||||||
Increase (Transfer) |
3,392 | 13,653 | 40,293 | 57,338 | ||||||||||||
Usage |
(640 | ) | (3,378 | ) | (37,378 | ) | (41,396 | ) | ||||||||
Reversal |
(1,238 | ) | (790 | ) | (12,007 | ) | (14,035 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
₩ | 19,038 | ₩ | 101,312 | ₩ | 76,829 | ₩ | 197,179 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current |
18,988 | 2,334 | 75,163 | 96,485 | ||||||||||||
Non-current |
50 | 98,978 | 1,666 | 100,694 |
17. | Net Defined Benefit Liabilities |
The amounts recognized in the statement of financial position are determined as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Present value of defined benefit obligations |
₩ | 1,601,974 | ₩ | 1,713,184 | ||||
Fair value of plan assets |
(1,077,891 | ) | (1,334,780 | ) | ||||
|
|
|
|
|||||
Liabilities |
₩ | 524,083 | ₩ | 378,404 | ||||
|
|
|
|
Changes in the defined benefit obligations for the years ended December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Beginning |
₩ | 1,460,957 | ₩ | 1,601,974 | ||||
Current service cost |
200,994 | 205,114 | ||||||
Interest expense |
40,641 | 37,378 | ||||||
Benefit paid |
(119,366 | ) | (127,581 | ) | ||||
Changes due to settlements of plan |
| (424 | ) | |||||
Remeasurements: |
||||||||
Actuarial gains and losses arising from changes in demographic assumptions |
(8,637 | ) | (53,407 | ) | ||||
Actuarial gains and losses arising from changes in financial assumptions |
47,230 | 26,717 | ||||||
Actuarial gains and losses arising from experience adjustments |
8,469 | 18,809 | ||||||
Changes in scope of consolidation |
(28,314 | ) | 4,604 | |||||
|
|
|
|
|||||
Ending |
₩ | 1,601,974 | ₩ | 1,713,184 | ||||
|
|
|
|
F-57
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Changes in the fair value of plan assets for the years ended December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Beginning |
₩ | 867,119 | ₩ | 1,077,891 | ||||
Interest income |
23,848 | 25,237 | ||||||
Remeasurements: |
||||||||
Return on plan assets (excluding amounts included in interest income) |
(2,901 | ) | (2,323 | ) | ||||
Benefits paid |
(88,490 | ) | (88,876 | ) | ||||
Employer contributions |
297,967 | 322,851 | ||||||
Changes in scope of consolidation |
(19,652 | ) | | |||||
|
|
|
|
|||||
Ending |
₩ | 1,077,891 | ₩ | 1,334,780 | ||||
|
|
|
|
Amounts recognized in the statements of operations for the years ended December 31, 2014 and 2015, 2016 are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Current service cost |
₩ | 184,870 | ₩ | 200,994 | ₩ | 205,114 | ||||||
Net Interest cost |
17,897 | 16,793 | 12,141 | |||||||||
Losses on settlements |
666,299 | | 424 | |||||||||
Transfer out |
(6,173 | ) | (11,942 | ) | (8,737 | ) | ||||||
Transfer to discontinued operation |
(5,721 | ) | (3,031 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total expenses |
₩ | 857,172 | ₩ | 202,814 | ₩ | 208,942 | ||||||
|
|
|
|
|
|
Principal actuarial assumptions used are as follows:
2014.12.31 | 2015.12.31 | 2016.12.31 | ||||||||||
Discount rate |
2.74 | % | 2.43 | % | 2.43 | % | ||||||
Future salary increase |
4.03 | % | 4.06 | % | 4.10 | % |
The sensitivity of the defined benefit obligations as of December 31, 2016, to changes in the principal assumptions is:
(In percentage, in millions of Korean won) | Effect on defined benefit obligation | |||||||||
Changes in assumption |
Increase in assumption |
Decrease in assumption |
||||||||
Discount rate |
0.5% point | ₩ | (61,737 | ) | ₩ | 66,653 | ||||
Salary growth rate |
0.5% point | 61,939 | (58,084 | ) |
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans bond holdings.
The above sensitivity analyses are based on an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.
The Group annually reviews funding levels of plan assets and has plan asset policies that require maintaining the funding level of the Group equal to or more than the level required under the
F-58
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Employee Retirement Benefit Security Act. Expected contributions to post-employment benefit plans for the year ending December 31, 2017, are ₩160,301 million.
Expected maturity analysis of undiscounted pension benefits as of December 31, 2016, is as follows:
(In millions of Korean won) | Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
Over 5 years | Total | |||||||||||||||
Pension benefits |
₩ | 127,453 | ₩ | 149,881 | ₩ | 535,579 | ₩ | 3,280,732 | ₩ | 4,093,645 |
The weighted average duration of the defined benefit obligations is 8.5 years.
18. | Defined Contribution Plan |
Recognized expense related to the defined contribution plan for the year ended December 31, 2016, is ₩46,023 million (2014: ₩25,423, 2015: ₩35,699 million).
19. | Commitments and Contingencies |
As of December 31, 2016, major commitments with local financial institutions are as follows:
(In millions of Korean won and foreign currencies in thousands) |
Financial institution | Currency | Limit | Used amount | ||||||||
Bank overdraft |
Kookmin Bank and others | KRW | 1,863,300 | | ||||||||
Commercial papers Factoring |
KEB Hana Bank and others | KRW | 520,000 | 300,000 | ||||||||
Collateralized loan on accounts receivable-trade |
NH Bank | KRW | 31,560 | | ||||||||
Collateralized loan on electronic accounts receivable-trade |
Shinhan Bank and others | KRW | 601,000 | 13,673 | ||||||||
Plus electronic notes payable |
Industrial Bank of Korea | KRW | 50,000 | 140 | ||||||||
Loans for working capital |
Korea Development Bank | KRW | 300,400 | 230,100 | ||||||||
and others | USD | 960 | | |||||||||
Green energy factoring |
Shinhan Bank | KRW | 92 | 92 | ||||||||
FX forward trading commitment |
Shinhan Bank | USD | 11,500 | | ||||||||
Facility loans |
Kookmin Bank and others | KRW | 13,616 | 13,616 | ||||||||
USD | 212,000 | 183,796 | ||||||||||
Facility loans on ships |
Shinhan Bank | USD | 27,000 | 21,000 | ||||||||
Inter-Korean Cooperation Fund |
Export-Import Bank of Korea | KRW | 37,700 | 5,181 | ||||||||
Total |
KRW | 3,417,668 | 562,802 | |||||||||
USD | 251,460 | 204,796 |
F-59
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
As of December 31, 2016, guarantees received from financial institutions are as follows:
(In millions of Korean won and foreign currencies in thousands) |
Financial institution | Currency | Limit | |||||||
Performance guarantee |
Seoul Guarantee Insurance and others |
KRW | 127,542 | |||||||
USD | 4,148 | |||||||||
Guarantee for import letters of credit |
Industrial Bank of Korea and others | USD | 5,980 | |||||||
Performance guarantee |
PT Bank KEB Hana | IDR | 1 | 123,023,153 | ||||||
Counter guarantee |
Woori Bank | IDR | 1 | 123,023,153 | ||||||
Guarantee for payment in foreign currency |
Export-Import Bank of Korea and others |
USD | 78,005 | |||||||
PLN | 2 | 23,000 | ||||||||
Guarantee for advances received |
Export-Import Bank of Korea | USD | 7,414 | |||||||
Comprehensive credit line |
KEB Hana Bank and others | KRW | 45,000 | |||||||
Guarantee for payment in local currency |
Kookmin Bank and others | KRW | 1,197 | |||||||
Bid guarantee |
Korea Software Financial Cooperative | KRW | 110,343 | |||||||
Performance guarantee / Warranty guarantee |
Korea Software Financial Cooperative | KRW | 262,758 | |||||||
Guarantee for advances received/others |
Korea Software Financial Cooperative and others |
KRW | 70,100 | |||||||
Warranty guarantee |
Seoul Guarantee Insurance | KRW | 786 | |||||||
Guarantees for licensing |
Seoul Guarantee Insurance | KRW | 12,408 | |||||||
Guarantees for public sale |
Seoul Guarantee Insurance | KRW | 307 | |||||||
Guarantees for deposits |
Seoul Guarantee Insurance and others |
KRW | 3,558 | |||||||
Total |
KRW | 633,999 | ||||||||
USD | 95,547 | |||||||||
IDR | 1 | 246,046,306 | ||||||||
PLN | 2 | 23,000 |
1 | Indonesia Rupiah. |
2 | Polish Zloty. |
As of December 31, 2016, guarantees provided by the Group for third parties, are as follows:
(In millions of Korean won) | Subject to payment Guarantees | Creditor | Limit | Used amount | Period | |||||
KT Estate Inc. |
Individuals with the right of ownership of Busan Lotte Castle Blue Ocean Apartment | Shinhan Bank | 56,373 | 49,977 | July 31, 2015 ~ Nov. 30, 2017 |
The Controlling Company is jointly and severally obligated with KT Sat Co., Ltd. to pay KT Sat Co., Ltd.s liabilities prior to spin-off. As of December 31, 2016, the Controlling Company and KT Sat Co., Ltd. are jointly and severally liable for reimbursement of ₩6,004 million.
For the year ended December 31, 2016, the Group entered into agreements with Olleh KT Twenty-fifth to Twenty-sixth Securitization Specialty Co., Ltd. and GIGA LTE Twenty-seventh to Thirtieth Securitization Specialty Co., Ltd. (2015: Olleh KT Nineteenth to Twenty-fourth Securitization Specialty Co., Ltd.), and disposed its trade receivables related to handset sales. The Group also made asset management agreements with each securitization specialty company and will receive the related management fees.
F-60
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
As of December 31, 2016, the Group is a defendant in 181 lawsuits with the total claimed amount of ₩77,461 million (2015: ₩85,833 million). As of December 31, 2016, litigation provisions of ₩19,038 million for various pending lawsuits and unasserted claims are recorded as liabilities for potential loss in the ordinary course of business. The Company cannot yet predict the final outcomes of the cases because these matters involve significant uncertainties related to the legal theory or the nature of the claims as well as the complexity of the facts.
According to the financial and other covenants included in certain debentures and borrowings, the Group is required to maintain certain financial ratios such as debt-to-equity ratio, use the funds for the designated purpose and report to the creditors periodically. The covenant also contains restriction on provision of additional collateral and disposal of certain assets.
20. | Lease |
The Groups non-cancellable lease arrangements are as follows:
The Group as the Lessee
Finance Lease
Details of finance lease assets as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Acquisition costs |
₩ | 285,932 | ₩ | 298,631 | ||||
Less: Accumulated depreciation |
(122,617 | ) | (105,013 | ) | ||||
|
|
|
|
|||||
Net balance |
₩ | 163,315 | ₩ | 193,618 | ||||
|
|
|
|
As of December 31, 2016, the Group recognized financial lease assets as other property, plant and equipment. The related depreciation amounted to ₩50,704 million (2015: ₩72,297 million) for the year ended December 31, 2016.
Details of future minimum lease payments as of December 31, 2015 and 2016, under finance lease contracts are summarized below:
(In millions of Korean won) | 2015 | 2016 | ||||||
Total amount of minimum lease payments |
||||||||
Within one year |
₩ | 78,996 | ₩ | 79,644 | ||||
From one year to five years |
105,555 | 131,813 | ||||||
|
|
|
|
|||||
Total |
₩ | 184,551 | ₩ | 211,457 | ||||
|
|
|
|
|||||
Unrealized interest expense |
(28,354 | ) | (30,743 | ) | ||||
|
|
|
|
|||||
Net amount of minimum lease payments |
||||||||
Within one year |
61,175 | 64,008 | ||||||
From one year to five years |
95,022 | 116,706 | ||||||
|
|
|
|
|||||
Total |
₩ | 156,197 | ₩ | 180,714 | ||||
|
|
|
|
F-61
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Operating Lease
Details of future minimum lease payments as of December 31, 2015 and 2016, under operating lease contracts are summarized below:
(In millions of Korean won) | 2015 | 2016 | ||||||
Within one year |
₩ | 110,771 | ₩ | 102,015 | ||||
From one year to five years |
297,027 | 270,462 | ||||||
Thereafter |
77,859 | 16,549 | ||||||
|
|
|
|
|||||
Total |
₩ | 485,657 | ₩ | 389,026 | ||||
|
|
|
|
Operating lease expenses incurred for the years ended December 31, 2014, 2015 and 2016, amounted to ₩125,430 million, ₩111,776 million, and ₩121,852 million, respectively.
21. | Share Capital |
As of December 31, 2015 and 2016, the Controlling Companys number of authorized shares is one billion.
2015 | 2016 | |||||||||||||||||||||||
Number of outstanding |
Par value per share (Korean won) |
Ordinary shares (in millions of Korean won) |
Number of outstanding |
Par value per share (Korean won) |
Ordinary shares (in millions of Korean won) |
|||||||||||||||||||
Ordinary shares1 |
261,111,808 | ₩ | 5,000 | ₩ | 1,564,499 | 261,111,808 | ₩ | 5,000 | ₩ | 1,564,499 |
1 | The Controlling Company retired 51,787,959 treasury shares against retained earnings. Therefore, the ordinary shares amount differs from the amount resulting from multiplying the number of shares issued by ₩5,000 par value per share of ordinary shares. |
22. | Retained Earnings |
Details of retained earnings as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Legal reserve1 |
₩ | 782,249 | ₩ | 782,249 | ||||
Voluntary reserves2 |
4,738,028 | 4,651,362 | ||||||
Unappropriated retained earnings |
3,529,694 | 4,210,872 | ||||||
|
|
|
|
|||||
Total |
₩ | 9,049,971 | ₩ | 9,644,483 | ||||
|
|
|
|
1 | 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. |
2 | The provision of research and development of human is separately accumulated with tax reserve fund during earned surplus disposal by Tax Reduction and Exemption Control Act of Korea. Reversal of this provision can be paid out as dividends according to related tax law. |
F-62
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
23. | Accumulated Other Comprehensive Income and Other Components of Equity |
As of December 31, 2015 and 2016, the details of the Controlling Companys accumulated other comprehensive income are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Changes in investments in associates and joint ventures |
₩ | (10,312 | ) | ₩ | (10,883 | ) | ||
Loss on derivatives valuation |
(23,234 | ) | (34,309 | ) | ||||
Gain of valuation on available-for-sale |
52,415 | 54,106 | ||||||
Foreign currency translation adjustment |
(4,999 | ) | (10,346 | ) | ||||
|
|
|
|
|||||
Total |
₩ | 13,870 | ₩ | (1,432 | ) | |||
|
|
|
|
Changes in accumulated other comprehensive income for the years ended December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||
(In millions of Korean won) | Beginning | Increase /decrease |
Reclassified to gain or loss |
Ending | ||||||||||||
Changes in investments in associates and joint ventures |
₩ | (8,955 | ) | ₩ | (1,357 | ) | ₩ | | ₩ | (10,312 | ) | |||||
Gain or loss on derivatives valuation |
(37,158 | ) | 111,886 | (97,962 | ) | (23,234 | ) | |||||||||
Gain or loss of valuation on available-for-sale |
76,725 | 39,164 | (63,474 | ) | 52,415 | |||||||||||
Foreign currency translation adjustment |
(4,822 | ) | (177 | ) | | (4,999 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 25,790 | ₩ | 149,516 | ₩ | (161,436 | ) | ₩ | 13,870 | |||||||
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||
(In millions of Korean won) | Beginning | Increase /decrease |
Reclassified to gain or loss |
Ending | ||||||||||||
Changes in investments in associates and joint ventures |
₩ | (10,312 | ) | ₩ | (571 | ) | ₩ | | ₩ | (10,883 | ) | |||||
Gain or loss on derivatives valuation |
(23,234 | ) | 64,796 | (75,871 | ) | (34,309 | ) | |||||||||
Gain or loss of valuation on available-for-sale |
52,415 | 5,204 | (3,513 | ) | 54,106 | |||||||||||
Foreign currency translation adjustment |
(4,999 | ) | (5,347 | ) | | (10,346 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 13,870 | ₩ | 64,082 | ₩ | (79,384 | ) | ₩ | (1,432 | ) | ||||||
|
|
|
|
|
|
|
|
As of December 31, 2015 and 2016, the other components of equity are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Treasury stock1 |
₩ | (866,156 | ) | ₩ | (859,789 | ) | ||
Loss on disposal of treasury stock2 |
2,869 | 607 | ||||||
Share-based payments |
3,737 | 5,762 | ||||||
Others3 |
(373,313 | ) | (364,514 | ) | ||||
|
|
|
|
|||||
Total |
₩ | (1,232,863 | ) | ₩ | (1,217,934 | ) | ||
|
|
|
|
1 | During the year ended December 31, 2016, the Controlling Company granted 136,351 treasury shares (2015: 3,008 treasury shares) as share-based payment. |
2 | The amount directly reflected in equity is ₩738 million (2015: ₩16 million) as of December 31, 2016. |
F-63
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
3 | Profit or loss incurred from transactions with non-controlling interest and investment difference incurred from change in proportion of subsidiaries are included. |
As of December 31, 2015 and 2016, the details of treasury stock are as follows:
2015 | 2016 | |||||||
Number of shares |
16,262,008 | 16,140,165 | ||||||
Amounts (In millions of Korean won) |
₩ | 866,156 | ₩ | 859,789 |
Treasury stock is expected to be used for the stock compensation for the Groups directors and employees and other purposes.
24. | Share-based Payments |
Details of share-based payments as of December 31, 2016, are as follows:
10th | ||
Grant date |
July 28, 2016 | |
Grantee |
CEO, inside directors, outside directors, executives | |
Vesting conditions |
Service condition: 1 year Non-market performance condition: achievement of performance | |
Fair value per option (in Korean won) |
₩31,750 | |
Total compensation costs (in Korean won) |
₩5,762 million | |
Estimated exercise date (exercise date) |
During 2017 | |
Valuation method |
Fair value method |
Changes in the number of stock options and the weighted-average exercise price as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||||||||||||||
Beginning | Granted | Expired | Forfeited | Exercised1 | Ending | Number of shares exercisable |
||||||||||||||||||||||
8th grant |
251,833 | | 248,825 | | 3,008 | | | |||||||||||||||||||||
9th grant |
| 263,123 | | | | 263,123 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
251,833 | 263,123 | 248,825 | | 3,008 | 263,123 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||||||||||||||
Beginning | Granted | Expired | Forfeited | Exercised1 | Ending | Number of shares exercisable |
||||||||||||||||||||||
9th grant |
263,123 | 54,913 | 181,685 | | 136,351 | | | |||||||||||||||||||||
10th grant |
| 318,506 | | | | 318,506 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
263,123 | 373,419 | 181,685 | | 136,351 | 318,506 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 | The weighted average price of ordinary shares at the time of exercise during 2016 was ₩31,750 (2015: ₩30,900). |
F-64
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
25. | Operating Revenues |
Operating revenues for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Services provided |
₩ | 19,107,078 | ₩ | 19,455,693 | ₩ | 19,935,865 | ||||||
Sale of goods |
3,252,202 | 2,755,980 | 2,819,141 | |||||||||
Others |
253,433 | 488,183 | 365,872 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 22,612,713 | ₩ | 22,699,856 | ₩ | 23,120,878 | ||||||
|
|
|
|
|
|
26. | Operating Expenses |
Operating expenses for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Salaries and wages |
₩ | 3,918,750 | ₩ | 3,303,484 | ₩ | 3,477,596 | ||||||
Depreciation |
2,760,915 | 2,756,131 | 2,762,773 | |||||||||
Amortization of intangible assets |
564,779 | 582,467 | 582,493 | |||||||||
Commissions |
1,355,169 | 1,036,852 | 1,099,429 | |||||||||
Interconnection charges |
797,329 | 689,293 | 690,285 | |||||||||
International interconnection fee |
238,404 | 231,060 | 216,633 | |||||||||
Purchase of inventories |
3,508,689 | 3,963,036 | 3,407,263 | |||||||||
Changes of inventories |
254,735 | (198,028 | ) | 162,323 | ||||||||
Sales commission |
2,628,978 | 1,856,595 | 1,968,035 | |||||||||
Service cost |
1,280,506 | 1,163,887 | 1,322,337 | |||||||||
Utilities |
313,329 | 319,303 | 323,406 | |||||||||
Taxes and dues |
232,056 | 256,958 | 255,480 | |||||||||
Rent |
451,365 | 469,950 | 455,457 | |||||||||
Insurance premium |
210,711 | 211,104 | 178,231 | |||||||||
Installation fee |
317,684 | 249,413 | 156,669 | |||||||||
Advertising expenses |
152,122 | 177,348 | 185,560 | |||||||||
Research and development expenses |
192,034 | 183,821 | 167,881 | |||||||||
Card service cost |
2,883,060 | 2,959,765 | 3,049,559 | |||||||||
Others |
1,330,938 | 1,410,349 | 1,319,688 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 23,391,553 | ₩ | 21,622,788 | ₩ | 21,781,098 | ||||||
|
|
|
|
|
|
Details of employee benefits for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Short-term employee benefits |
₩ | 2,627,785 | ₩ | 3,055,699 | ₩ | 3,206,904 | ||||||
Post-employment benefits(Defined benefit plan) |
857,172 | 202,814 | 208,942 | |||||||||
Post-employment benefits(Defined contribution plan) |
25,423 | 35,699 | 46,023 | |||||||||
Post-employment benefits(Others) |
404,743 | 5,535 | 8,017 | |||||||||
Share-based payment |
3,627 | 3,737 | 7,710 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 3,918,750 | ₩ | 3,303,484 | ₩ | 3,477,596 | ||||||
|
|
|
|
|
|
F-65
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
27. | Financial Income and Costs |
Details of financial income for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Interest income |
₩ | 80,244 | ₩ | 70,035 | ₩ | 115,686 | ||||||
Gain on foreign currency transactions |
37,226 | 18,766 | 24,915 | |||||||||
Gain on foreign currency translation |
34,749 | 11,280 | 12,165 | |||||||||
Gain on settlement of derivatives |
2,134 | 368 | 8,515 | |||||||||
Gain on valuation of derivatives |
93,235 | 141,512 | 109,436 | |||||||||
Others |
5,501 | 30,899 | 25,422 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 253,089 | ₩ | 272,860 | ₩ | 296,139 | ||||||
|
|
|
|
|
|
Details of financial expenses for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Interest expenses |
₩ | 475,084 | ₩ | 385,925 | ₩ | 337,219 | ||||||
Loss on foreign currency transactions |
25,961 | 42,831 | 37,936 | |||||||||
Loss on foreign currency translation |
126,074 | 175,613 | 121,949 | |||||||||
Loss on settlement of derivatives |
35,240 | 6,280 | 632 | |||||||||
Loss on valuation of derivatives |
25,357 | 1,733 | 138 | |||||||||
Loss on disposal of trade receivables |
16,464 | 2,539 | 15,838 | |||||||||
Impairment loss on available-for-sale financial assets |
70,022 | 1,805 | 966 | |||||||||
Others |
17,998 | 28,605 | 409 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 792,200 | ₩ | 645,331 | ₩ | 515,087 | ||||||
|
|
|
|
|
|
28. | Deferred Income Tax and Income Tax Expense |
The analysis of deferred tax assets and deferred tax liabilities as of December 31, 2015 and 2016, is as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Deferred tax assets |
||||||||
Deferred tax assets to be recovered within 12 months |
₩ | 308,838 | ₩ | 265,997 | ||||
Deferred tax assets to be recovered after |
1,182,043 | 1,124,420 | ||||||
|
|
|
|
|||||
₩ | 1,490,881 | ₩ | 1,390,417 | |||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Deferred tax liability to be recovered within 12 months |
(14,188 | ) | (48,033 | ) | ||||
Deferred tax liability to be recovered after |
(760,946 | ) | (778,655 | ) | ||||
|
|
|
|
|||||
(775,134 | ) | (826,688 | ) | |||||
|
|
|
|
|||||
Deferred tax assets after offsetting |
₩ | 845,397 | ₩ | 701,409 | ||||
|
|
|
|
|||||
Deferred tax liabilities after offsetting |
₩ | 129,650 | ₩ | 137,680 | ||||
|
|
|
|
F-66
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The gross movements on the deferred income tax account for the years ended December 31, 2015 and 2016, are calculated as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Beginning |
₩ | 934,828 | ₩ | 715,747 | ||||
Charged(credited) to the statement of operations |
(232,134 | ) | (152,102 | ) | ||||
Charged(credited) to other comprehensive income |
21,977 | 84 | ||||||
Changes in scope of consolidation |
(8,924 | ) | | |||||
|
|
|
|
|||||
Ending |
₩ | 715,747 | ₩ | 563,729 | ||||
|
|
|
|
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
(In millions of Korean won) | 2015 | |||||||||||||||||||
Beginning | Statement of operations |
Other comprehensive income |
Changes in scope of consolidation |
Ending | ||||||||||||||||
Deferred tax liabilities |
||||||||||||||||||||
Derivative instruments |
₩ | (422 | ) | ₩ | (14,281 | ) | ₩ | (4,454 | ) | ₩ | 2 | ₩ | (19,155 | ) | ||||||
Available-for-sale financial assets |
(40,816 | ) | (42 | ) | 11,499 | (71 | ) | (29,430 | ) | |||||||||||
Investment in subsidiaries, associates and joint ventures |
(44,678 | ) | (6,630 | ) | 1,282 | (209 | ) | (50,235 | ) | |||||||||||
Depreciation |
(52,383 | ) | (1,489 | ) | | | (53,872 | ) | ||||||||||||
Advanced depreciation provision |
(238,130 | ) | 6,438 | | | (231,692 | ) | |||||||||||||
Deposits for severance benefits |
(204,986 | ) | (50,730 | ) | | 3,792 | (251,924 | ) | ||||||||||||
Accrued income |
(1,675 | ) | (173 | ) | | 40 | (1,808 | ) | ||||||||||||
Reserve for technology and human resource development |
(22,637 | ) | 21,421 | | | (1,216 | ) | |||||||||||||
Others |
(148,912 | ) | 10,347 | | 2,763 | (135,802 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(754,639 | ) | (35,139 | ) | 8,327 | 6,317 | (775,134 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Deferred tax assets |
||||||||||||||||||||
Derivatives instruments |
18,174 | (18,174 | ) | | | | ||||||||||||||
Provisions for impairment on trade receivables |
142,806 | (8,117 | ) | | 2,054 | 136,743 | ||||||||||||||
Inventory valuation |
(19 | ) | 75 | | | 56 | ||||||||||||||
Contribution for construction |
22,040 | (2,422 | ) | | | 19,618 | ||||||||||||||
Accrued expenses |
50,627 | 13,669 | | (179 | ) | 64,117 | ||||||||||||||
Provisions |
28,330 | (4,048 | ) | | (3,929 | ) | 20,353 | |||||||||||||
Property, plant and equipment |
239,683 | 108 | | | 239,791 | |||||||||||||||
Retirement benefit obligations |
297,497 | 25,686 | 12,091 | (3,294 | ) | 331,980 |
F-67
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2015 | |||||||||||||||||||
Beginning | Statement of operations |
Other comprehensive income |
Changes in scope of consolidation |
Ending | ||||||||||||||||
Withholding of facilities expenses |
7,809 | (449 | ) | | | 7,360 | ||||||||||||||
Accrued payroll expenses |
19,776 | 6,646 | | (4,788 | ) | 21,634 | ||||||||||||||
Deduction of installment receivables |
4,310 | 6,203 | | | 10,513 | |||||||||||||||
Assets retirement obligation |
18,362 | (1,388 | ) | | | 16,974 | ||||||||||||||
Gain or loss foreign currency translation |
16,980 | 26,303 | | | 43,283 | |||||||||||||||
Deferred revenue |
64,649 | (20,628 | ) | | (229 | ) | 43,792 | |||||||||||||
Real-estate sales |
872 | 2,108 | | | 2,980 | |||||||||||||||
Tax credit carryforwards |
203,278 | 9,542 | | | 212,820 | |||||||||||||||
Accumulated deficit |
411,755 | (304,270 | ) | | | 107,485 | ||||||||||||||
Others |
142,538 | 72,161 | 1,559 | (4,876 | ) | 211,382 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,689,467 | (196,995 | ) | 13,650 | (15,241 | ) | 1,490,881 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net balance |
₩ | 934,828 | ₩ | (232,134 | ) | ₩ | 21,977 | ₩ | (8,924 | ) | ₩ | 715,747 | ||||||||
|
|
|
|
|
|
|
|
|
|
(In millions of Korean won) | 2016 | |||||||||||||||
Beginning | Statement of operations |
Other comprehensive income |
Ending | |||||||||||||
Deferred tax liabilities |
||||||||||||||||
Derivative instruments |
₩ | (19,155 | ) | ₩ | (33,569 | ) | ₩ | 3,536 | ₩ | (49,188 | ) | |||||
Available-for-sale financial assets |
(29,430 | ) | (10 | ) | (2,262 | ) | (31,702 | ) | ||||||||
Investment in subsidiaries, associates and joint ventures |
(50,235 | ) | (666 | ) | 155 | (50,746 | ) | |||||||||
Depreciation |
(53,872 | ) | 14,374 | | (39,498 | ) | ||||||||||
Advanced depreciation provision |
(231,692 | ) | 6,005 | | (225,687 | ) | ||||||||||
Deposits for severance benefits |
(251,924 | ) | (55,806 | ) | | (307,730 | ) | |||||||||
Accrued income |
(1,808 | ) | (216 | ) | | (2,024 | ) | |||||||||
Reserve for technology and human resource development |
(1,216 | ) | 469 | | (747 | ) | ||||||||||
Others |
(135,802 | ) | 16,436 | | (119,366 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(775,134 | ) | (52,983 | ) | 1,429 | (826,688 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deferred tax assets |
||||||||||||||||
Provisions for impairment on trade receivables |
136,743 | (26,467 | ) | | 110,276 | |||||||||||
Inventory valuation |
56 | (8 | ) | | 48 | |||||||||||
Contribution for construction |
19,618 | (1,527 | ) | | 18,091 | |||||||||||
Accrued expenses |
64,117 | 16,239 | | 80,356 | ||||||||||||
Provisions |
20,353 | (132 | ) | | 20,221 | |||||||||||
Property, plant and equipment |
239,791 | (6,876 | ) | | 232,915 | |||||||||||
Retirement benefit obligations |
331,980 | 41,857 | (1,345 | ) | 372,492 |
F-68
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(In millions of Korean won) | 2016 | |||||||||||||||
Beginning | Statement of operations |
Other comprehensive income |
Ending | |||||||||||||
Withholding of facilities expenses |
7,360 | (450 | ) | | 6,910 | |||||||||||
Accrued payroll expenses |
21,634 | 4,281 | | 25,915 | ||||||||||||
Deduction of installment receivables |
10,513 | 3,374 | | 13,887 | ||||||||||||
Assets retirement obligation |
16,974 | 1,112 | | 18,086 | ||||||||||||
Gain or loss foreign currency translation |
43,283 | 24,418 | | 67,701 | ||||||||||||
Deferred revenue |
43,792 | (17,679 | ) | | 26,113 | |||||||||||
Real-estate sales |
2,980 | 871 | | 3,851 | ||||||||||||
Tax credit carryforwards |
212,820 | (13,221 | ) | | 199,599 | |||||||||||
Accumulated deficit |
107,485 | (107,485 | ) | | | |||||||||||
Others |
211,382 | (17,426 | ) | | 193,956 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,490,881 | (99,119 | ) | (1,345 | ) | 1,390,417 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net balance |
₩ | 715,747 | ₩ | (152,102 | ) | ₩ | 84 | ₩ | 563,729 | |||||||
|
|
|
|
|
|
|
|
The tax impacts recognized directly to equity as of December 31, 2014, 2015 and 2016, are as follows:
2014 | 2015 | 2016 | ||||||||||||||||||||||||||||||||||
(In millions of Korean won) |
Before recognition |
Tax effect |
After recognition |
Before recognition |
Tax effect |
After recognition |
Before recognition |
Tax effect |
After recognition |
|||||||||||||||||||||||||||
Available-for-sale valuation gain(loss) |
₩ | 29,239 | ₩ | (7,076 | ) | ₩ | 22,163 | ₩ | (47,515 | ) | ₩ | 11,499 | ₩ | (36,016 | ) | ₩ | 9,347 | ₩ | (2,262 | ) | ₩ | 7,085 | ||||||||||||||
Hedge instruments valuation gain(loss) |
(36,682 | ) | 8,877 | (27,805 | ) | 18,406 | (4,454 | ) | 13,952 | (14,611 | ) | 3,536 | (11,075 | ) | ||||||||||||||||||||||
Remeasurements from net defined benefit liabilities |
(312,186 | ) | 75,549 | (236,637 | ) | (49,963 | ) | 12,091 | (37,872 | ) | 5,558 | (1,345 | ) | 4,213 | ||||||||||||||||||||||
Shares of gain(loss) of associates and joint ventures |
4,628 | (1,120 | ) | 3,508 | (5,297 | ) | 1,282 | (4,015 | ) | (641 | ) | 155 | (486 | ) | ||||||||||||||||||||||
Foreign Currency Translation adjustment |
4,652 | (1,126 | ) | 3,526 | (6,443 | ) | 1,559 | (4,884 | ) | (7,133 | ) | 1,726 | (5,407 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total |
₩ | (310,349 | ) | ₩ | 75,104 | ₩ | (235,245 | ) | ₩ | (90,812 | ) | ₩ | 21,977 | ₩ | (68,835 | ) | ₩ | (7,480 | ) | ₩ | 1,810 | ₩ | (5,670 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Details of income tax expense (benefit) for the years ended December 31, 2014, 2015 and 2016, are calculated as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Current income tax expense(benefit) |
₩ | 45,674 | ₩ | (5,003 | ) | ₩ | 176,212 | |||||
Impact of change in deferred taxes |
(317,115 | ) | 232,134 | 152,102 | ||||||||
|
|
|
|
|
|
|||||||
Income tax expense(benefit) |
₩ | (271,441 | ) | ₩ | 227,131 | ₩ | 328,314 | |||||
|
|
|
|
|
|
The tax on the Groups profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the entities as follows:
2014 | 2015 | 2016 | ||||||||||
Profit(loss) before income tax expense(benefit) |
₩ | (1,299,254 | ) | ₩ | 710,741 | ₩ | 1,123,431 | |||||
|
|
|
|
|
|
|||||||
Statutory income tax expense(benefit) |
₩ | (314,419 | ) | ₩ | 171,999 | ₩ | 271,870 | |||||
Tax effect |
||||||||||||
Income not taxable for taxation purposes |
(44,145 | ) | (21,881 | ) | (28,093 | ) | ||||||
Non-deductible expenses |
39,071 | 28,849 | 21,947 | |||||||||
Tax credit |
(39,490 | ) | (9,660 | ) | (13,764 | ) | ||||||
Additional payment of income taxes |
1,079 | 997 | (4,780 | ) | ||||||||
Tax effect and adjustment on consolidation |
||||||||||||
Goodwill impairment |
851 | 23,185 | 31,847 | |||||||||
Eliminated dividend income from subsidiaries |
32,393 | 20,452 | 40,087 | |||||||||
Changes of out-side tax effect |
10,165 | 9,844 | (567 | ) | ||||||||
Others |
43,054 | 3,346 | 9,767 | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense(benefit) |
₩ | (271,441 | ) | ₩ | 227,131 | ₩ | 328,314 | |||||
|
|
|
|
|
|
29. | Earnings per Share |
Basic earnings per share is calculated by dividing the profit from operations attributable to equity holders of the Controlling Company by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares purchased by the Group and held as treasury stock.
Basic earnings per share from operations for the years ended December 31, 2014, 2015 and 2016, is calculated as follows:
2014 | 2015 | 2016 | ||||||||||
Profit(loss) attributable to ordinary shares (in millions of Korean won) |
₩ | (1,030,240 | ) | ₩ | 546,361 | ₩ | 708,362 | |||||
Profit(loss) from continuing operations attributable to ordinary shares |
(1,094,177 | ) | 404,045 | 708,362 | ||||||||
Profit from discontinued operations attributable to ordinary shares |
63,937 | 142,316 | | |||||||||
Weighted average number of ordinary shares outstanding (in number of shares) |
244,443,771 | 244,854,364 | 244,892,313 | |||||||||
Basic earnings(loss) per share (in Korean won) |
(4,215 | ) | 2,231 | 2,893 | ||||||||
Basic earnings(loss) per share from continuing operations |
(4,477 | ) | 1,650 | 2,893 | ||||||||
Basic earnings per share from discontinued operations |
262 | 581 | |
F-70
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Diluted earnings per share from operations is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Controlling Company has dilutive potential ordinary shares from redeemable convertible preferred stocks from stock options.
Diluted earnings per share from operations for the years ended December 31, 2014, 2015 and 2016 is calculated as follows:
2014 | 2015 | 2016 | ||||||||||
Profit(loss) attributable to ordinary shares (in millions of Korean won) |
₩ | (1,030,240 | ) | ₩ | 546,361 | ₩ | 708,362 | |||||
Adjusted net income attributable to ordinary shares (in millions of Korean won) |
(13 | ) | (75 | ) | (67 | ) | ||||||
Diluted profit(loss) attributable to ordinary shares (in millions of Korean won) |
(1,030,253 | ) | 546,286 | 708,295 | ||||||||
Diluted profit(loss) from continuing operations attributable to ordinary shares |
(1,094,190 | ) | 403,970 | 708,295 | ||||||||
Diluted income from discontinued operations attributable to ordinary shares |
63,937 | 142,316 | | |||||||||
Number of dilutive potential ordinary shares outstanding (in number of shares) |
| 1,104 | 84,245 | |||||||||
Weighted average number of ordinary shares outstanding (in number of shares) |
244,443,771 | 244,855,468 | 244,976,558 | |||||||||
Diluted earnings(loss) per share (in Korean won) |
(4,215 | ) | 2,231 | 2,891 | ||||||||
Diluted earnings(loss) per share from continuing operations |
(4,477 | ) | 1,650 | 2,891 | ||||||||
Diluted earnings per share from discontinued operations |
262 | 581 | |
30. | Dividend |
The dividends paid by the Controlling Company in 2016 and 2014 were ₩122,425 million (₩500 per share) and ₩195,112 million (₩800 per share), respectively. There were no dividends paid in 2015. A dividend in respect of the year ended December 31, 2016, of ₩800 per share, amounting to a total dividend of ₩195,977 million, was approved at the shareholders meeting on March 24, 2017.
F-71
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
31. | Cash Generated from Operations |
Cash flows from operating activities for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
1. Profit(loss) for the year |
₩ | (941,413 | ) | ₩ | 624,685 | ₩ | 795,117 | |||||
2. Adjustments to reconcile net income |
||||||||||||
Income tax expense(benefit) |
(266,335 | ) | 346,146 | 328,314 | ||||||||
Interest income |
(237,975 | ) | (161,123 | ) | (130,066 | ) | ||||||
Interest expense |
578,210 | 445,814 | 337,219 | |||||||||
Dividends income |
(15,007 | ) | (11,371 | ) | (3,926 | ) | ||||||
Depreciation |
3,242,346 | 3,030,821 | 2,821,779 | |||||||||
Amortization of intangible assets |
612,418 | 609,185 | 599,721 | |||||||||
Provision for severance benefits |
869,066 | 217,787 | 217,255 | |||||||||
Impairment losses on trade receivables |
231,934 | 161,448 | 92,711 | |||||||||
Share of net profit of associates and joint ventures |
(24,361 | ) | (5,562 | ) | (2,547 | ) | ||||||
Gain on disposal of associates and joint ventures |
8,036 | (4,848 | ) | (1,450 | ) | |||||||
Impairment loss of associates and joint ventures |
| | 17,128 | |||||||||
Gain on disposal of subsidiaries |
11,028 | (256,230 | ) | | ||||||||
Loss on disposal of property, plant and equipment and investment in properties |
133,374 | 129,466 | 74,913 | |||||||||
Loss on disposal of intangible assets |
17,528 | 33,978 | 7,703 | |||||||||
Loss on impairment of intangible assets |
87,275 | 292,345 | 135,264 | |||||||||
Loss on foreign currency translation |
91,362 | 164,374 | 109,784 | |||||||||
Gain on valuation of derivatives |
(34,011 | ) | (306,538 | ) | (117,181 | ) | ||||||
Impairment losses on available-for-sale financial assets |
70,022 | 1,805 | 966 | |||||||||
Gain on disposal of available-for-sale financial assets |
13,495 | (131,041 | ) | (22,695 | ) | |||||||
Others |
(26,101 | ) | 24,140 | 64,863 | ||||||||
3. Changes in operating assets and liabilities |
||||||||||||
Decrease in trade receivables |
13,008 | 112,674 | 252,196 | |||||||||
Decrease(increase) in other receivables |
355,749 | (21,749 | ) | (770,893 | ) | |||||||
Decrease(increase) in other current assets |
271,475 | (19,701 | ) | 48,549 | ||||||||
Increase in other non-current assets |
(1,200,843 | ) | (137,532 | ) | (51,765 | ) | ||||||
Decrease(increase) in inventories |
301,210 | (270,343 | ) | 167,873 | ||||||||
Increase(decrease) in trade payables |
(417,944 | ) | 81,295 | (114,838 | ) | |||||||
Increase(decrease) in other payables |
(260,421 | ) | (48,680 | ) | 705,807 | |||||||
Increase(decrease) in other current liabilities |
19,010 | (9,452 | ) | 37,798 | ||||||||
Increase in other non-current liabilities |
38,030 | 119,836 | 30,762 | |||||||||
Increase(decrease) in provisions |
26,029 | (8,902 | ) | (12,583 | ) | |||||||
Increase(decrease) in deferred revenue |
1,359 | (82,582 | ) | (69,179 | ) | |||||||
Decrease(increase) in plan assets |
238,987 | (223,194 | ) | (224,244 | ) | |||||||
Payment of severance benefits |
(1,427,229 | ) | (117,691 | ) | (121,835 | ) | ||||||
|
|
|
|
|
|
|||||||
4. Cash generated from operations (1+2+3) |
₩ | 2,379,311 | ₩ | 4,579,260 | ₩ | 5,202,520 | ||||||
|
|
|
|
|
|
F-72
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The Group made agreements with securitization specialty companies and disposed of its trade receivables related to handset sales (Note 19). Cash flows from the disposals are presented in cash generated from operations.
Significant transactions not affecting cash flows for the years ended December 31, 2014, 2015 and 2016, are as follows:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Reclassification of the current portion of debentures |
₩ | 1,805,553 | ₩ | 1,551,300 | ₩ | 1,617,175 | ||||||
Reclassification of construction-in-progress to property, plant and equipment |
2,478,164 | 2,373,023 | 2,212,324 | |||||||||
Reclassification of accounts payable from property, plant and equipment |
310,270 | 78,663 | 91,407 | |||||||||
Reclassification of accounts payable from intangible assets |
179,395 | (170,870 | ) | 668,564 | ||||||||
Reclassification of payable from defined benefit liability |
26,250 | 1,675 | 5,746 | |||||||||
Reclassification of payable from plan assets |
20,695 | 13,717 | (9,731 | ) | ||||||||
Exercise of convertible bonds |
19,052 | | |
32. | Segment Information |
The Groups operating segments are as follows:
Details |
Business service | |
Customer/Marketing |
Mobile/fixed line telecommunication service and convergence business | |
Finance |
Credit card business | |
Satellite TV |
Satellite broadcasting business | |
All other segments |
Information technology business, security business, global business and other businesses operated by subsidiaries |
Details of each segment for the years ended December 31, 2014, 2015 and 2016, are as follows:
2014 | ||||||||||||
(In millions of Korean won) | Operating revenues |
Operating income(loss) |
Depreciation and |
|||||||||
Customer/Marketing |
₩ | 16,784,511 | ₩ | (426,786 | ) | ₩ | 2,913,221 | |||||
Finance |
3,296,273 | 166,302 | 24,346 | |||||||||
Satellite TV1 |
656,430 | 68,857 | 85,295 | |||||||||
All other segments1 |
4,857,209 | (558,122 | ) | 298,100 | ||||||||
|
|
|
|
|
|
|||||||
25,594,423 | (749,749 | ) | 3,320,962 | |||||||||
Elimination |
(2,981,710 | ) | (29,091 | ) | 4,732 | |||||||
|
|
|
|
|
|
|||||||
Consolidated amount |
₩ | 22,612,713 | ₩ | (778,840 | ) | ₩ | 3,325,694 | |||||
|
|
|
|
|
|
F-73
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2015 | ||||||||||||
(In millions of Korean won) | Operating revenues |
Operating income(loss) |
Depreciation and Amortization |
|||||||||
Customer/Marketing |
₩ | 16,130,454 | ₩ | 816,679 | ₩ | 2,897,876 | ||||||
Finance |
3,512,721 | 281,477 | 25,466 | |||||||||
Satellite TV1 |
668,521 | 97,701 | 95,951 | |||||||||
All other segments1 |
6,115,520 | (99,601 | ) | 314,691 | ||||||||
|
|
|
|
|
|
|||||||
26,427,216 | 1,096,256 | 3,333,984 | ||||||||||
Elimination |
(3,727,360 | ) | (19,188 | ) | 4,614 | |||||||
|
|
|
|
|
|
|||||||
Consolidated amount |
₩ | 22,699,856 | ₩ | 1,077,068 | ₩ | 3,338,598 | ||||||
|
|
|
|
|
|
1 | The amounts of 2014, 2015 were revised due to change in reportable segments. |
2016 | ||||||||||||
(In millions of Korean won) | Operating revenues |
Operating income |
Depreciation and Amortization |
|||||||||
Customer/Marketing |
₩ | 16,144,415 | ₩ | 1,050,053 | ₩ | 2,870,161 | ||||||
Finance |
3,577,549 | 208,566 | 28,868 | |||||||||
Satellite TV |
668,945 | 79,987 | 98,895 | |||||||||
All other segments |
6,308,203 | 40,047 | 339,429 | |||||||||
|
|
|
|
|
|
|||||||
26,699,112 | 1,378,653 | 3,337,353 | ||||||||||
Elimination |
(3,578,234 | ) | (38,873 | ) | 7,913 | |||||||
|
|
|
|
|
|
|||||||
Consolidated amount |
₩ | 23,120,878 | ₩ | 1,339,780 | ₩ | 3,345,266 | ||||||
|
|
|
|
|
|
Operating revenues for the year ended December 31, 2014, 2015 and 2016 and non-current assets as of December 31, 2015 and 2016 by geographical regions, are as follows:
(In millions of Korean won) |
Operating revenues |
Non-current assets1 | ||||||||
Location | 2014 | 2015 | 2016 | 2015.12.31 | 2016.12.31 | |||||
Domestic |
₩22,531,190 | ₩22,628,778 | ₩23,026,255 | ₩17,989,844 | ₩18,308,310 | |||||
Overseas |
81,523 | 71,078 | 94,623 | 190,891 | 174,648 | |||||
|
|
|
|
| ||||||
Total |
₩22,612,713 | ₩22,699,856 | ₩23,120,878 | ₩18,180,735 | ₩18,482,958 | |||||
|
|
|
|
|
1 | Non-current assets include property, plant and equipment, intangible assets and investment properties. |
F-74
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
33. | Related Party Transactions |
The list of related party of the Group as of December 31, 2016, is as follows:
Relationship | Name of Entry | |
Associates and joint ventures |
Korea Information & Technology Investment Fund, KT WiBro Infra Co., Ltd., K-Realty CR-REITs No.1, Mongolian Telecommunications, KT-SB Venture Investment Fund, Boston Global Film & Contents Fund L.P., QTT Global (Group) Company Limited, CU Industrial Development Co., Ltd., HooH Healthcare Inc., KD Living, Inc., ChungHo EZ-Cash Co., Ltd., MOS GS Co., Ltd., MOS Daegu Co., Ltd., MOS Chungcheong Co., Ltd., MOS Gangnam Co., Ltd., MOS GB Co., Ltd., MOS BS Co., Ltd., MOS Honam Co., Ltd., Oscar Ent. Co., Ltd., Texno Pro Sistem, KT-CKP New Media Investment Fund, LoginD Co., Ltd., K-REALTY CR-REIT 6, ISU-kth Contents Investment Fund, Daiwon Broadcasting Co., Ltd., KT-DSC creative economy youth start-up investment fund, Gyeonggi-KT Green Growth Fund, Korea electronic Vehicle charging service, PT. Mitra Transaksi Indonesia, K-REALTY RENTAL HOUSING REIT 2, KT-IBKC future investment fund 1, AI RESEARCH INSTITUTE, Gyeonggi-KT Yoojin Superman Fund, FUNDA Co., Ltd. |
Outstanding balances of receivables and payables in relations to transactions with related parties as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||||||||
Receivables | Payables | |||||||||||||||||||||
(In millions of Korean won) | Trade receivables |
Loans | Other receivables |
Trade payables |
Other payables |
|||||||||||||||||
Associates and joint ventures |
KT Wibro Infra Co., Ltd. | ₩ | | ₩ | | ₩ | | ₩ | | ₩ | 86,507 | |||||||||||
Smart Channel Co., Ltd.1 | 8,684 | 46,914 | 39,950 | 995 | 1,308 | |||||||||||||||||
K-Realty CR-REITs No.1 | 927 | | 34,200 | | | |||||||||||||||||
MOS GS Co., Ltd. | 33 | | 1 | | 1,454 | |||||||||||||||||
MOS Daegu Co., Ltd. | 8 | | 23 | | 1,051 | |||||||||||||||||
MOS Chungcheong Co., Ltd. | 4 | | 1 | | 1,184 | |||||||||||||||||
MOS Gangnam Co., Ltd. | 3 | | 1 | | | |||||||||||||||||
MOS GB Co., Ltd. | 6 | | 1 | 108 | 2,801 | |||||||||||||||||
MOS BS Co., Ltd. | 1 | | 1 | | 1,086 | |||||||||||||||||
MOS Honam Co., Ltd. | 3 | | | | 1,793 | |||||||||||||||||
Others | 738 | | 1,499 | 110 | 3,010 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 10,407 | ₩ | 46,914 | ₩ | 75,677 | ₩ | 1,213 | ₩ | 100,194 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
1 | The Group provided allowance for doubtful accounts of ₩95,548 million against trade receivables, loans and other receivables from Smart Channel Co., Ltd. |
F-75
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2016 | ||||||||||||||||||||||
Receivables | Payables | |||||||||||||||||||||
(In millions of Korean won) | Trade receivables |
Loans | Other receivables |
Trade payables |
Other payables |
|||||||||||||||||
Associates and joint ventures |
KT Wibro Infra Co., Ltd. | ₩ | | ₩ | | ₩ | | ₩ | | ₩ | 43,394 | |||||||||||
K-Realty CR-REITs No.1 | 882 | | 33,110 | | | |||||||||||||||||
MOS GS Co., Ltd. | 9 | | 1 | | 1,494 | |||||||||||||||||
MOS Daegu Co., Ltd. | 1 | | | | 1,082 | |||||||||||||||||
MOS Chungcheong Co., Ltd. | 6 | | 1 | | 2,065 | |||||||||||||||||
MOS Gangnam Co., Ltd. | 6 | | 1 | | 1,129 | |||||||||||||||||
MOS GB Co., Ltd. | 19 | | 5 | | 2,167 | |||||||||||||||||
MOS BS Co., Ltd. | 34 | | 1 | | 1,114 | |||||||||||||||||
MOS Honam Co., Ltd. | 2 | | | | 1,289 | |||||||||||||||||
Others | 481 | | 179 | 3 | 1,266 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 1,440 | ₩ | | ₩ | 33,298 | ₩ | 3 | ₩ | 55,000 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
Significant transactions with related parties for the years ended December 31, 2014, 2015 and 2016, are as follows:
2014 | ||||||||||
(In millions of Korean won) | Sales | Purchases2 | ||||||||
Associates and joint ventures |
ktcs Corporation1 | ₩ | 59,739 | ₩ | 245,648 | |||||
ktis Corporation1 | 78,546 | 243,336 | ||||||||
KT Service Bukbu | 6,787 | 54,450 | ||||||||
Information Technology Solution Nambu Corporation | 7,574 | 45,940 | ||||||||
Information Technology Solution Seobu Corporation | 6,388 | 40,251 | ||||||||
Information Technology Solution Busan Corporation | 4,093 | 26,174 | ||||||||
KT Service Nambu | 7,187 | 37,436 | ||||||||
Information Technology Solution Honam Corporation | 4,976 | 36,081 | ||||||||
Information Technology Solution Daegu Corporation | 3,460 | 21,006 | ||||||||
KT Wibro Infra Co., Ltd. | 11 | 1,237 | ||||||||
Smart Channel Co., Ltd. | 14,002 | 2 | ||||||||
K-Realty CR-REITs No.1 | 2,067 | 37,413 | ||||||||
MOS GS Co., Ltd. | 1,593 | 17,063 | ||||||||
MOS Daegu Co., Ltd. | 894 | 12,092 | ||||||||
MOS Chungcheong Co., Ltd. | 867 | 12,105 | ||||||||
MOS Gangnam Co., Ltd. | 775 | 16,209 | ||||||||
MOS GB Co., Ltd. | 2,017 | 21,114 | ||||||||
MOS BS Co., Ltd. | 858 | 15,762 | ||||||||
MOS Honam Co., Ltd. | 780 | 14,417 | ||||||||
Others | 4,401 | 11,903 | ||||||||
|
|
|
|
|||||||
Total3 |
₩ | 207,015 | ₩ | 909,635 | ||||||
|
|
|
|
1 | The transactions for the year ended December 31, 2014, before ktcs and kits were included in the consolidation scope. |
2 | The amount includes acquisition of property, plant and equipment and others. |
3 | Operating income and expenses of KT Capital Co., Ltd. and KT Rental that were classified as discontinued operations amounting to ₩17,707 million and ₩1,271 million, respectively, during the year ended December 31, 2014, is included. |
F-76
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2015 | ||||||||||
(In millions of Korean won) | Sales | Purchases2 | ||||||||
Associates and joint ventures |
KT Service Bukbu1 | ₩ | 2,143 | ₩ | 28,550 | |||||
Information Technology Solution Nambu Corporation1 |
2,707 | 24,025 | ||||||||
Information Technology Solution Seobu Corporation1 | 2,324 | 20,031 | ||||||||
Information Technology Solution Busan Corporation1 | 1,496 | 14,049 | ||||||||
KT Service Nambu1 | 1,972 | 21,133 | ||||||||
Information Technology Solution Honam Corporation1 | 2,050 | 29,538 | ||||||||
Information Technology Solution Daegu Corporation1 | 1,256 | 18,272 | ||||||||
KT Wibro Infra Co., Ltd. | 11 | 814 | ||||||||
Smart Channel Co., Ltd. | 6,545 | 4,722 | ||||||||
K- Realty CR-REITs No.1 | 2,133 | 38,167 | ||||||||
MOS GS Co., Ltd. | 752 | 17,474 | ||||||||
MOS Daegu Co., Ltd. | 357 | 12,227 | ||||||||
MOS Chungcheong Co., Ltd. | 310 | 12,735 | ||||||||
MOS Gangnam Co., Ltd. | 454 | 15,829 | ||||||||
MOS GB Co., Ltd. | 964 | 21,582 | ||||||||
MOS BS Co., Ltd. | 453 | 15,482 | ||||||||
MOS Honam Co., Ltd. | 470 | 17,004 | ||||||||
Others | 4,394 | 13,510 | ||||||||
|
|
|
|
|||||||
Total3 |
₩ | 30,791 | ₩ | 325,144 | ||||||
|
|
|
|
1 | The transactions for the year ended December 31, 2015, after KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. were merged and included in the consolidation scope. |
2 | The amount includes acquisition of property, plant and equipment, and others. |
3 | Operating income amounting to ₩6,634 million of KT Capital Co., Ltd. and KT Rental that were classified as discontinued operations during the year ended December 31, 2015, is included. |
2016 | ||||||||||
(In millions of Korean won) | Sales | Purchases2 | ||||||||
Associates and joint ventures |
KT Wibro Infra Co., Ltd. | ₩ | 11 | ₩ | 391 | |||||
Smart Channel Co., Ltd.1 | 766 | | ||||||||
K- Realty CR-REITs No.1 | 1,989 | 37,469 | ||||||||
MOS GS Co., Ltd. | 663 | 17,361 | ||||||||
MOS Daegu Co., Ltd. | 291 | 12,220 | ||||||||
MOS Chungcheong Co., Ltd. | 408 | 13,469 | ||||||||
MOS Gangnam Co., Ltd. | 412 | 15,797 | ||||||||
MOS GB Co., Ltd. | 891 | 21,802 | ||||||||
MOS BS Co., Ltd. | 441 | 15,346 | ||||||||
MOS Honam Co., Ltd. | 418 | 14,389 | ||||||||
Others | 1,719 | 29,422 | ||||||||
|
|
|
|
|||||||
Total |
₩ | 8,009 | ₩ | 177,666 | ||||||
|
|
|
|
1 | The transactions for the year ended December 31, 2016, before Smart Channel Co., Ltd. was included in the consolidation scope. |
2 | The amount includes acquisition of property, plant and equipment, and others. |
F-77
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Key management compensation for the years ended December 31, 2014, 2015 and 2016, consists of:
(In millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Salaries and other short-term benefits |
₩ | 1,817 | ₩ | 2,455 | ₩ | 2,629 | ||||||
Post-employment benefits |
400 | 413 | 381 | |||||||||
Stock-based compensation |
965 | 997 | 1,237 | |||||||||
|
|
|
|
|
|
|||||||
Total |
₩ | 3,182 | ₩ | 3,865 | ₩ | 4,247 | ||||||
|
|
|
|
|
|
Fund transactions with related parties for the years ended December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||
Loan transactions |
Borrowing transactions |
Equity contributions in cash |
Dividend income |
|||||||||||||
Loans | Repayment | |||||||||||||||
Associates and joint ventures |
||||||||||||||||
KT-DSC creative economy youth start-up investment fund |
₩ | | ₩ | | ₩ | 4,000 | ₩ | | ||||||||
Smart Channel Co., Ltd.1 |
37,276 | | | | ||||||||||||
Korea Electronic Vehicle Charging Service |
| | 1,368 | | ||||||||||||
2010 KIF-IMM IT Investment Fund2 |
| | 617 | | ||||||||||||
KTC-NP-Growth Champ 2011-2 PEF2 |
| | 6,400 | | ||||||||||||
Korea Information & Technology Investment Fund |
| | | 1,107 | ||||||||||||
Exdell Corporation |
| | | 13 | ||||||||||||
KT Service Bukbu3 |
| | | 9 | ||||||||||||
Information Technology Solution Nambu Corporation3 |
| | | 9 | ||||||||||||
Information Technology Solution Seobu Corporation3 |
| | | 9 | ||||||||||||
Information Technology Solution Busan Corporation3 |
| | | 9 | ||||||||||||
KT Service Nambu3 |
| | | 9 | ||||||||||||
Information Technology Solution Honam Corporation2 |
| | | 9 | ||||||||||||
Information Technology Solution Daegu Corporation2 |
| | | 9 | ||||||||||||
KT-SB Venture Investment Fund |
| | | 11,795 | ||||||||||||
K-Realty CR-REITs No.1 |
| | | 3,345 | ||||||||||||
Mongolian Telecommunications |
| | | 35 | ||||||||||||
Daiwon Broadcasting Co., Ltd. |
| | | 85 | ||||||||||||
Others |
| | | 83 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 37,276 | ₩ | | ₩ | 12,385 | ₩ | 16,526 | ||||||||
|
|
|
|
|
|
|
|
1 | The Group provided Allowance for doubtful accounts of ₩37,276 million against loans for Smart Channel Co., Ltd. |
F-78
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2 | The transactions related to KT Capital Co., Ltd. that was classified as disposal group held for sale during the year ended December 31, 2015, are included. |
3 | The transactions for the year ended December 31, 2015, after KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. were merged and included in the consolidation scope. |
(In millions of Korean won) | 2016 | |||||||
Equity contributions in cash |
Dividend income |
|||||||
Associates and joint ventures |
||||||||
KT-DSC creative economy youth start-up investment fund |
₩ | 6,000 | ₩ | | ||||
PT. Mitra Transaksi Indonesia |
16,626 | | ||||||
K-REALTY RENTAL HOUSING REIT 2 |
5,500 | | ||||||
AI RESEARCH INSTITUTE |
3,000 | | ||||||
KT-IBKC future investment fund 1 |
3,750 | | ||||||
Gyeonggi-KT Yoojin Superman Fund |
1,000 | | ||||||
FUNDA Co., Ltd. |
2,799 | | ||||||
K-Realty CR-REITs No.1 |
| 4,186 | ||||||
Korea Information & Technology Investment Fund |
| 3,201 | ||||||
Daiwon Broadcasting Co., Ltd. |
| 85 | ||||||
Others |
| 82 | ||||||
|
|
|
|
|||||
Total |
₩ | 38,675 | ₩ | 7,554 | ||||
|
|
|
|
34. | Financial risk management |
(1) Financial risk factors
The Groups activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Groups overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Groups financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
The Groups financial policy is set up in the long-term perspective and annually reported to the Board of Directors. The financial risk management is carried out by the Value Management Office, which identifies, evaluates and hedges financial risks. The treasury department in the Value Management Office considers various finance market conditions to estimate the effect from the market changes.
1) Market risk
The Groups market risk management focuses on controlling the extent of exposure to the risk in order to minimize revenue volatility. Market risk is a risk that decreases value or profit of the Groups portfolio due to changes in market interest rate, foreign exchange rate and other factors.
(i) Sensitivity analysis
Sensitivity analysis is performed for each type of market risk to which the Group is exposed. Reasonably possible changes in the relevant risk variable such as prevailing market interest rates,
F-79
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
currency rates, equity prices or commodity prices are estimated and if the rate of change in the underlying risk variable is stable, the Group does not alter the chosen reasonably possible change in the risk variable. The reasonably possible change does not include remote or worst case scenarios or stress tests.
(ii) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from operating, investing and financing activities. Foreign exchange risk is managed within the range of the possible effect on the Groups cash flows. Foreign exchange risk unaffecting the Groups cash flows is not hedged but can be hedged at a particular situation.
As of December 31, 2014, 2015 and 2016, if the foreign exchange rate had strengthened/weakened by 10% with all other variables held constant, the effects on profit before income tax and shareholders equity would have been as follows:
(In millions of Korean won) | Fluctuation of foreign exchange rate |
Income before tax | Shareholders equity | |||||||||
2014.12.31 |
10 | % | ₩ | (45,430 | ) | ₩ | (38,437 | ) | ||||
-10 | % | 45,430 | 38,437 | |||||||||
2015.12.31 |
10 | % | (52,157 | ) | (45,632 | ) | ||||||
-10 | % | 52,157 | 45,632 | |||||||||
2016.12.31 |
10 | % | (28,134 | ) | (23,817 | ) | ||||||
-10 | % | 28,134 | 23,817 |
The above analysis is a simple sensitivity analysis which assumes that all the variables other than foreign exchange rates are held constant. Therefore, the analysis does not reflect any correlation between foreign exchange rates and other variables, nor the managements decision to decrease the risk.
Details of financial assets and liabilities in foreign currencies as of December 31, 2014, 2015 and 2016, are as follows:
2014 | 2015 | 2016 | ||||||||||||||||||||||
(In thousands) | Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
Financial assets |
Financial liabilities |
||||||||||||||||||
USD |
197,221 | 2,532,614 | 183,254 | 2,351,003 | 210,474 | 2,536,090 | ||||||||||||||||||
SDR1 |
573 | 1,027 | 444 | 849 | 311 | 737 | ||||||||||||||||||
JPY |
34,168 | 30,051,367 | 73,716 | 40,279,411 | 80,555 | 21,802,051 | ||||||||||||||||||
GBP |
| 257 | 8 | 888 | 1 | 151 | ||||||||||||||||||
EUR |
134 | 177 | 29 | 29 | 40 | 2,571 | ||||||||||||||||||
DZD2 |
929 | | | | 471 | | ||||||||||||||||||
CNY |
3,957 | | 15,562 | 107 | 15,262 | 381 | ||||||||||||||||||
UZS3 |
7,978,633 | | | | 39,531 | | ||||||||||||||||||
RWF4 |
13,593 | | | | 1,203 | | ||||||||||||||||||
IDR5 |
| | | | 15,646,011 | 53,142,167 | ||||||||||||||||||
MMK6 |
| | | | 2,750 | | ||||||||||||||||||
TZS7 |
| | | | 29,987 | | ||||||||||||||||||
BWP8 |
| | | | 15 | | ||||||||||||||||||
HKD |
158 | | 9 | | 254 | | ||||||||||||||||||
BDT9 |
299 | | 6 | | 69,473 | | ||||||||||||||||||
COP10 |
23,583 | | | | | | ||||||||||||||||||
PLN11 |
28,195 | | 207,273 | | 106,025 | | ||||||||||||||||||
VND12 |
273,313 | 93,756 | 270,000 | | 515,412 | | ||||||||||||||||||
CHF |
| 78 | | | | |
F-80
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
1 | Special Drawing Rights. |
2 | Algeria Dinar. |
3 | Uzbekistan Sum. |
4 | Rwanda Franc. |
5 | Indonesia Rupiah. |
6 | Myanmar Kyat. |
7 | Tanzanian Shilling. |
8 | Botswana Pula. |
9 | Bangladesh Taka. |
10 | Columbia Peso. |
11 | Polish Zloty. |
12 | Vietnam Dong. |
(iii) Price risk
As of December 31, 2014, 2015 and 2016, the Group is exposed to equity securities price risk because the securities held by the Group are traded in active markets. If the market prices had increased/decreased by 10% with all other variables held constant, the effects on profit before income tax and shareholders equity would have been as follows:
(In millions of Korean won) | Fluctuation of price | Income before tax | Equity | |||||||
2014.12.31 |
10% | ₩ | | ₩ | 6,593 | |||||
-10% | | (6,593 | ) | |||||||
2015.12.31 |
10% | ₩ | | ₩ | 3,469 | |||||
-10% | | (3,469 | ) | |||||||
2016.12.31 |
10% | ₩ | | ₩ | 539 | |||||
-10% | | (539 | ) |
The above analysis is based on the assumption that the equity index had increased/decreased by 10% with all other variables held constant and all the Groups marketable equity instruments had moved according to the historical correlation with the index.
(iv) Cash flow and fair value interest rate risk
The Groups interest rate risk arises from liabilities in foreign currency such as foreign currency debentures. Debentures in foreign currency issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by swap transactions. Debentures and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group sets the policy and operates to minimize the uncertainty of the changes in interest rates and financial costs.
As of December 31, 2014, 2015 and 2016, if the market interest rate had increased/decreased by 100bp with other variables held constant, the effects on profit before income tax and shareholders equity would be as follows:
(In millions of Korean won) | Fluctuation of interest rate |
Income before tax | Shareholders equity |
|||||||
2014.12.31 |
+ 100 bp | ₩ | (4,717 | ) | ₩ | 4,892 | ||||
- 100 bp | (4,632 | ) | (11,064 | ) | ||||||
2015.12.31 |
+ 100 bp | ₩ | (3,601 | ) | ₩ | (245 | ) | |||
- 100 bp | 3,615 | (5,764 | ) | |||||||
2016.12.31 |
+ 100 bp | ₩ | (3,456 | ) | ₩ | (1,673 | ) | |||
- 100 bp | 3,445 | (5,025 | ) |
F-81
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The above analysis is a simple sensitivity analysis which assumes that all the variables other than market interest rates are held constant. Therefore, the analysis does not reflect any correlation between market interest rates and other variables, nor the managements decision to decrease the risk.
2) Credit risk
Credit risk is managed on the Group basis with the purpose of minimizing financial loss. Credit risk arises from the normal transactions and investing activities, where clients or other party fails to discharge an obligation on contract conditions. To manage credit risk, the Group considers the counterpartys credit 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, only the financial institutions with strong credit ratings are accepted.
As of December 31, 2015 and 2016, maximum exposure to credit risk is as follows.
(In millions of Korean won) | 2015 | 2016 | ||||||
Cash equivalents(except cash on hand) |
₩ | 2,537,536 | ₩ | 2,875,383 | ||||
Trade and other receivables |
5,557,779 | 6,036,363 | ||||||
Other financial assets |
||||||||
Financial assets at fair value through profit or loss |
18 | 6,277 | ||||||
Derivative used for hedging |
139,088 | 227,318 | ||||||
Time deposits and others |
434,093 | 716,769 | ||||||
Available-for-sale financial assets |
21,388 | 26,684 | ||||||
Held-to-maturity financial assets |
18,030 | 30,143 | ||||||
Financial guarantee contracts1 |
106,550 | 56,373 | ||||||
|
|
|
|
|||||
Total |
₩ | 8,814,482 | ₩ | 9,975,310 | ||||
|
|
|
|
1 | Total amounts guaranteed by the Group according to the guarantee contracts. |
3) Liquidity risk
The Group manages its liquidity risk by liquidity strategy and plans. The Group considers the maturity of financial assets and financial liabilities and the estimated cash flows from operations.
The table below analyzes the Groups liabilities (including interest expenses) into relevant maturity groups based on the remaining period at the date of the end of each reporting period to the contractual maturity date. These amounts are contractual undiscounted cash flows.
2015.12.31 | ||||||||||||||||
(In millions of Korean won) | Less than 1 year | 1-5 years | More than 5 years |
Total | ||||||||||||
Trade and other payables |
₩ | 6,987,882 | ₩ | 695,167 | ₩ | 139,843 | ₩ | 7,822,892 | ||||||||
Borrowings(including debentures) |
1,768,171 | 5,859,467 | 1,981,497 | 9,609,135 | ||||||||||||
Other non-derivative financial liabilities |
2,935 | 2,858 | | 5,793 | ||||||||||||
Financial guarantee contracts1 |
106,550 | | | 106,550 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 8,865,538 | ₩ | 6,557,492 | ₩ | 2,121,340 | ₩ | 17,544,370 | ||||||||
|
|
|
|
|
|
|
|
F-82
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2016.12.31 | ||||||||||||||||
(In millions of Korean won) | Less than 1 year | 1-5 years | More than 5 years |
Total | ||||||||||||
Trade and other payables |
₩ | 7,682,604 | ₩ | 1,121,452 | ₩ | 217,411 | ₩ | 9,021,467 | ||||||||
Borrowings(including debentures) |
2,034,524 | 4,834,151 | 2,458,749 | 9,327,424 | ||||||||||||
Other non-derivative financial liabilities |
233 | 3,272 | 22,917 | 26,422 | ||||||||||||
Financial guarantee contracts1 |
56,373 | | | 56,373 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 9,773,734 | ₩ | 5,958,875 | ₩ | 2,699,077 | ₩ | 18,431,686 | ||||||||
|
|
|
|
|
|
|
|
1 | Total amount guaranteed by the Group according to guarantee contracts. Cash flow from financial guarantee contracts is classified as the maturity group in the earliest period when the financial guarantee contracts can be executed. |
Cash outflow and inflow of derivatives settled gross or net are undiscounted contractual cash flow and can differ from the amount in the financial statements.
2014.12.31 | ||||||||||||||||
(In millions of Korean won) | Less than 1 year | 1-5 years | More than 5 years |
Total | ||||||||||||
Outflow |
₩ | 242,051 | ₩ | 2,282,242 | ₩ | 38,795 | ₩ | 2,563,088 | ||||||||
Inflow |
210,045 | 2,217,211 | 43,418 | 2,470,674 |
2015.12.31 | ||||||||||||||||
(In millions of Korean won) | Less than 1 year | 1-5 years | More than 5 years |
Total | ||||||||||||
Outflow |
₩ | 335,970 | ₩ | 2,138,379 | ₩ | 38,184 | ₩ | 2,512,533 | ||||||||
Inflow |
276,066 | 2,284,219 | 46,194 | 2,606,479 |
2016.12.31 | ||||||||||||||||
(In millions of Korean won) | Less than 1 year | 1-5 years | More than 5 years |
Total | ||||||||||||
Outflow |
₩ | 1,174,147 | ₩ | 1,176,715 | ₩ | 536,005 | ₩ | 2,886,867 | ||||||||
Inflow |
1,302,112 | 1,306,199 | 588,559 | 3,196,870 |
(2) Disclosure of capital management
The Groups objectives when managing capital are to safeguard the Groups ability to continue as a going concern in order to provide returns for shareholders and benefits for other shareholders and to maintain an optimal capital structure to reduce the cost of capital.
The Groups capital structure consists of liabilities including borrowings, cash and cash equivalents, and shareholders equity. The treasury department monitors the Groups capital structure and considers cost of capital and risks related each capital component.
The debt-to-equity ratios as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
Total liabilities |
₩ | 17,248,594 | ₩ | 17,881,580 | ||||
Total equity |
12,156,131 | 12,782,718 | ||||||
Debt-to-equity ratio |
142 | % | 140 | % |
The Group manages capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity in the statement of financial position plus net debt.
F-83
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The gearing ratios as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won, %) | 2015 | 2016 | ||||||
Total borrowings |
₩ | 8,791,094 | ₩ | 8,301,505 | ||||
Less: cash and cash equivalents |
(2,559,464 | ) | (2,900,311 | ) | ||||
|
|
|
|
|||||
Net debt |
6,231,630 | 5,401,194 | ||||||
Total equity |
12,156,131 | 12,782,718 | ||||||
Total capital |
18,393,761 | 18,183,912 | ||||||
Gearing ratio |
34 | % | 30 | % |
(3) Offsetting Financial Assets and Financial Liabilities
Details of the Groups recognized financial assets subject to enforceable master netting arrangements or similar agreements are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||||||||||
Gross assets |
Gross liabilities offset |
Net amounts position |
Amounts not offset | Net amount |
||||||||||||||||||||
Financial instruments |
Cash collateral |
|||||||||||||||||||||||
Derivative assets for hedging purpose1 |
₩ | 20,627 | ₩ | | ₩ | 20,627 | ₩ | (20,627 | ) | ₩ | | ₩ | | |||||||||||
Trade receivables2 |
90,448 | | 90,448 | (86,184 | ) | | 4,264 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 111,075 | ₩ | | ₩ | 111,075 | ₩ | (106,811 | ) | ₩ | | ₩ | 4,264 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(In millions of Korean won) | 2016 | |||||||||||||||||||||||
Gross assets |
Gross liabilities offset |
Net amounts position |
Amounts not offset | Net amount |
||||||||||||||||||||
Financial instruments |
Cash collateral |
|||||||||||||||||||||||
Derivative assets for hedging purpose1 |
₩ | 35,334 | ₩ | | ₩ | 35,334 | ₩ | (5,707 | ) | ₩ | | ₩ | 29,627 | |||||||||||
Trade receivables2 |
95,865 | | 95,865 | (91,662 | ) | | 4,203 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 131,199 | ₩ | | ₩ | 131,199 | ₩ | (97,369 | ) | ₩ | | ₩ | 33,830 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | The amount applied with master netting arrangements under the standard contract of International Swap and Derivatives Association (ISDA). |
2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies. |
F-84
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
The Groups recognized financial liabilities subject to enforceable master netting arrangements or similar agreements are as follows:
2015 | ||||||||||||||||||||||||
(In millions of Korean won) | Gross liabilities |
Gross assets offset |
Net amounts position |
Amounts not offset | Net amount |
|||||||||||||||||||
Financial instruments |
Cash collateral |
|||||||||||||||||||||||
Derivative liabilities for hedging purpose1 |
₩ | 28,544 | ₩ | | ₩ | 28,544 | ₩ | (20,627 | ) | ₩ | | ₩ | 7,917 | |||||||||||
Trade payables2 |
87,093 | | 87,093 | (86,184 | ) | | 909 | |||||||||||||||||
Other payables2 |
102 | (12 | ) | 90 | | | 90 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 115,739 | ₩ | (12 | ) | ₩ | 115,727 | ₩ | (106,811 | ) | ₩ | | ₩ | 8,916 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2016 | ||||||||||||||||||||||||
(In millions of Korean won) | Gross liabilities |
Gross offset |
Net amounts position |
Amounts not offset | Net amount |
|||||||||||||||||||
Financial instruments |
Cash collateral |
|||||||||||||||||||||||
Derivative liabilities for hedging purpose1 |
₩ | 20,627 | ₩ | | ₩ | 20,627 | ₩ | (20,627 | ) | ₩ | | ₩ | | |||||||||||
Trade payables2 |
90,435 | | 90,435 | (86,184 | ) | | 4,251 | |||||||||||||||||
Other payables2 |
48 | (4 | ) | 44 | | | 44 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
₩ | 111,110 | ₩ | (4 | ) | ₩ | 111,106 | ₩ | (106,811 | ) | ₩ | | ₩ | 4,295 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | The amount applied with master netting arrangements under the standard contract of International Swap and Derivatives Association (ISDA). |
2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies. |
F-85
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
35. | Fair Value |
35.1 | Fair Value of Financial Instruments by Category |
Carrying amount and fair value of financial instruments by category as of December 31, 2015 and 2016, are as follows:
2015 |
2016 | |||||||
(In millions of Korean won) | Carrying amount |
Fair value | Carrying amount |
Fair value | ||||
Financial assets |
||||||||
Cash and cash equivalents1 |
₩2,559,464 | ₩2,559,464 | ₩2,900,311 | ₩2,900,311 | ||||
Trade and other receivables1 |
5,557,779 | 5,557,779 | 6,036,363 | 6,036,363 | ||||
Other financial assets |
||||||||
Financial instruments at fair value through profit or loss |
18 | 18 | 6,277 | 6,277 | ||||
Derivative financial instruments for hedging purpose |
139,088 | 139,088 | 227,318 | 227,318 | ||||
Time deposits and others1 |
434,093 | 434,093 | 716,769 | 716,769 | ||||
Held-to-maturity |
18,030 | 18,030 | 30,143 | 30,143 | ||||
Available-for-sale financial assets2 |
308,539 | 308,539 | 299,001 | 299,001 | ||||
|
|
|
| |||||
₩9,017,011 | ₩9,017,011 | ₩10,216,182 | ₩10,216,182 | |||||
|
|
|
| |||||
Financial liabilities |
||||||||
Trade and other liabilities1 |
₩7,004,000 | ₩7,004,000 | ₩8,328,082 | ₩8,328,082 | ||||
Borrowings |
8,634,897 | 8,684,886 | 8,120,791 | 8,184,195 | ||||
Other financial liabilities |
||||||||
Financial instruments at fair value through profit or loss |
2,006 | 2,006 | 1,973 | 1,973 | ||||
Derivative financial instruments for hedging purpose |
62,883 | 62,883 | 14,928 | 14,928 | ||||
Other1 |
82,439 | 82,439 | 91,763 | 91,763 | ||||
|
|
|
| |||||
₩15,786,225 | ₩15,836,214 | ₩16,557,537 | ₩16,620,941 | |||||
|
|
|
|
1 | The Group did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value. |
2 | Equity instruments that do not have a quoted price in an active market are measured at cost because their fair value cannot be measured reliably and excluded from the fair value disclosures. |
F-86
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
35.2 | Financial Instruments Measured at Cost |
Available-for-sale financial assets measured at cost as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||
K-Bank |
₩ | | ₩ | 36,500 | ||||
IBK-AUCTUS Green Growth Private Equity Fund |
11,134 | 9,506 | ||||||
CBC II Fund |
10,150 | 8,601 | ||||||
TRANSLINK No.2 Fund |
10,085 | 9,395 | ||||||
WALDEN No.6 Fund |
5,686 | 4,710 | ||||||
Storm IV Fund |
6,602 | 7,550 | ||||||
Others |
7,841 | 29,511 | ||||||
|
|
|
|
|||||
Total |
₩ | 51,498 | ₩ | 105,773 | ||||
|
|
|
|
The range of cash flow estimates is significant and the probabilities of the various estimates cannot be reasonably assessed and therefore, these instruments are measured at cost.
The Group does not have any plans to dispose of the above-mentioned equities instruments in the near future. These instruments will be measured at fair value when the Group can develop a reliable estimate of the fair value.
35.3 | Fair Value Hierarchy |
Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:
| Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). |
| Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, prices) or indirectly (that is, derived from prices) (Level 2). |
| Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). |
F-87
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||||||||
(In millions of Korean won) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Recurring fair value measurements |
||||||||||||||||
Other financial assets |
||||||||||||||||
Financial assets at fair value through profit or loss |
₩ | | ₩ | | ₩ | 18 | ₩ | 18 | ||||||||
Derivative financial assets for hedging purpose |
| 139,088 | | 139,088 | ||||||||||||
Available-for-sale financial assets |
41,202 | | 267,337 | 308,539 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
41,202 | 139,088 | 267,355 | 447,645 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Disclosed fair value |
||||||||||||||||
Associates and joint ventures |
4,884 | | | 4,884 | ||||||||||||
Investment properties1 |
| | 2,645,246 | 2,645,246 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,884 | | 2,645,246 | 2,650,130 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 46,086 | ₩ | 139,088 | ₩ | 2,912,601 | ₩ | 3,097,775 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Recurring fair value measurements |
||||||||||||||||
Other financial liabilities |
||||||||||||||||
Financial liabilities at fair value through profit or loss |
₩ | | ₩ | | ₩ | 2,006 | ₩ | 2,006 | ||||||||
Derivative financial liabilities for hedging purpose |
| 62,883 | | 62,883 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| 62,883 | 2,006 | 64,889 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Disclosed fair value |
||||||||||||||||
Borrowings |
| | 8,684,886 | 8,684,886 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| | 8,684,886 | 8,684,886 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | | ₩ | 62,883 | ₩ | 8,686,892 | ₩ | 8,749,775 | |||||||||
|
|
|
|
|
|
|
|
F-88
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2016 | ||||||||||||||||
(In millions of Korean won) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Recurring fair value measurements |
||||||||||||||||
Other financial assets |
||||||||||||||||
Financial assets at fair value through profit or loss |
₩ | | ₩ | | ₩ | 6,277 | ₩ | 6,277 | ||||||||
Derivative financial assets for hedging purpose |
| 227,318 | | 227,318 | ||||||||||||
Available-for-sale financial assets |
5,387 | 5,725 | 287,889 | 299,001 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
5,387 | 233,043 | 294,166 | 532,596 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Disclosed fair value |
||||||||||||||||
Associates and joint ventures |
3,940 | | | 3,940 | ||||||||||||
Investment properties1 |
| | 2,340,893 | 2,340,893 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,940 | | 2,340,893 | 2,344,833 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | 9,327 | ₩ | 233,043 | ₩ | 2,635,059 | ₩ | 2,877,429 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Recurring fair value measurements |
||||||||||||||||
Other financial liabilities |
||||||||||||||||
Financial liabilities at fair value through profit or loss |
₩ | | ₩ | | ₩ | 1,973 | ₩ | 1,973 | ||||||||
Derivative financial liabilities for hedging purpose |
| 14,928 | | 14,928 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| 14,928 | 1,973 | 16,901 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Disclosed fair value |
||||||||||||||||
Borrowings |
| | 8,184,195 | 8,184,195 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| | 8,184,195 | 8,184,195 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
₩ | | ₩ | 14,928 | ₩ | 8,186,168 | ₩ | 8,201,096 | |||||||||
|
|
|
|
|
|
|
|
1 | The highest and best use of a non-financial asset does not differ from its current use. |
35.4 | Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements |
(a) | Details of transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements are as follows: |
There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.
F-89
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
(b) | Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows: |
2015 | ||||||||||||||||||||
(In millions of Korean won) | Financial assets profit or loss |
Derivative financial assets for hedging purpose |
Available-for-sale | Other derivative liabilities |
Financial liabilities designated as at fair value through profit or loss |
|||||||||||||||
Beginning balance |
₩ | 6,983 | ₩ | 7,342 | ₩ | 329,260 | ₩ | 646 | ₩ | 3,334 | ||||||||||
Amount recognized in profit or loss |
171,990 | (5,157 | ) | (704 | ) | 2,006 | | |||||||||||||
Amount recognized in other comprehensive income |
| 8,105 | 47,189 | | | |||||||||||||||
Purchases |
| | 40,707 | | | |||||||||||||||
Sales |
| | (113,634 | ) | (551 | ) | (3,334 | ) | ||||||||||||
Settlement |
(176,681 | ) | (10,290 | ) | | | | |||||||||||||
Change in scope of consolidation |
(2,274 | ) | | (35,481 | ) | (95 | ) | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Ending balance |
₩ | 18 | ₩ | | ₩ | 267,337 | ₩ | 2,006 | ₩ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
2016 | ||||||||||||
(In millions of Korean won) | Financial assets at fair value profit or loss |
Available-for-sale | Other derivative liabilities |
|||||||||
Beginning balance |
₩ | 18 | ₩ | 267,337 | ₩ | 2,006 | ||||||
Amount recognized in profit or loss |
(7,184 | ) | (426 | ) | (33 | ) | ||||||
Amount recognized in other comprehensive income |
| 15,099 | | |||||||||
Purchases |
13,461 | 1,561 | | |||||||||
Sales |
(18 | ) | (1,405 | ) | | |||||||
Reclassification |
| 5,723 | | |||||||||
|
|
|
|
|
|
|||||||
Ending balance |
₩ | 6,277 | ₩ | 287,889 | ₩ | 1,973 | ||||||
|
|
|
|
|
|
F-90
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
35.5 | Valuation Technique and the Inputs |
Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as of December 31, 2015 and 2016, are as follows:
2015 | ||||||||||
(In millions of Korean won) | Fair value | Level | Valuation techniques | |||||||
Assets |
||||||||||
Recurring fair value measurements |
||||||||||
Other financial assets |
||||||||||
Financial assets at fair value through profit or loss |
||||||||||
Held for trading financial assets |
||||||||||
Other derivative assets |
₩ | 18 | 3 | Monte-Carlo Simulation Option model | ||||||
Derivative financial assets for hedging purpose |
139,088 | 2 | Discounted cash flow model | |||||||
Available-for-sale financial assets |
267,337 | 3 | Discounted cash flow model | |||||||
Disclosed fair value |
||||||||||
Investment properties |
2,645,246 | 3 | Discounted cash flow model | |||||||
Liabilities |
||||||||||
Recurring fair value measurements |
||||||||||
Other financial liabilities |
||||||||||
Derivative financial liabilities for hedging purpose |
62,883 | 2 | Discounted cash flow model | |||||||
Other derivative financial liabilities |
2,006 | 3 | Discounted cash flow model Comparable Company Analysis | |||||||
Disclosed fair value |
||||||||||
Borrowings |
8,684,886 | 3 | Discounted cash flow model |
F-91
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2016 | ||||||||||
(In millions of Korean won) | Fair value | Level | Valuation techniques | |||||||
Assets |
||||||||||
Recurring fair value measurements |
||||||||||
Other financial assets |
||||||||||
Derivative financial assets for hedging purpose |
₩ | 227,318 | 2 | Discounted cash flow model | ||||||
Available-for-sale financial assets |
293,614 | 2,3 | Discounted cash flow model | |||||||
Others |
6,277 | 3 | Discounted cash flow model | |||||||
Disclosed fair value |
||||||||||
Investment properties |
2,340,893 | 3 | Discounted cash flow model | |||||||
Liabilities |
||||||||||
Recurring fair value measurements |
||||||||||
Other financial liabilities |
||||||||||
Derivative financial liabilities for hedging purpose |
14,928 | 2 | Discounted cash flow model | |||||||
Other derivative financial liabilities |
1,973 | 3 | Discounted cash flow model Comparable Company Analysis | |||||||
Disclosed fair value |
||||||||||
Borrowings |
8,184,195 | 3 | Discounted cash flow model |
35.6 | Valuation Processes for Fair Value Measurements Categorized Within Level 3 |
The Group uses external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discusses valuation processes and results with the CFO in line with the Groups reporting dates.
35.7 | Gains and losses on valuation at the transaction date |
In the case that the Group values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instruments. However, in the case that inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the year.
F-92
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
In relation to this, details and changes of the total deferred difference for the years ended December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | 2016 | ||||||||||||||
Other derivative financial assets |
Other derivative financial liabilities |
Other derivative financial assets |
Other derivative financial liabilities |
|||||||||||||
Beginning balance |
₩ | | ₩ | 32,492 | ₩ | 11,293 | ₩ | | ||||||||
New transactions |
14,116 | | | | ||||||||||||
Amortization |
(2,823 | ) | | | | |||||||||||
Disposal |
| (32,492 | ) | (2,823 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balance |
₩ | 11,293 | ₩ | | ₩ | 8,470 | ₩ | | ||||||||
|
|
|
|
|
|
|
|
36. | Business Combination |
(1) N SEARCH MARKETING Corporation
The Controlling Company acquired 17,393 shares (33.3%) of N SEARCH MARKETING Corporation for strengthen online advertisement business. Nasmedia, Inc. a subsidiary of the Group, acquired 34,787 shares (66.7%) of N SEARCH MARKETING Corp. on October 10, 2016.
N SEARCH MARKETING Corporation became a subsidiary as a result of this acquisition transaction accounted for in accordance with IFRS 3 Business Combinations.
As a result of applying acquisition method, the Group recognized an identifiable intangible assets of ₩18,049 million and goodwill of ₩42,745 million. The goodwill of ₩42,745 million arising from the acquisition is attributable to economies of scale expected from combining the operations of the Group and N SEARCH MARKETING Corporation.
Details of the consideration transferred, fair value of the acquired identifiable assets and liabilities and goodwill at the acquisition date are as follows:
(In millions of Korean won) | ||||
Consideration transferred (a) |
₩ | 61,830 | ||
|
|
|||
Recognized amounts of assets acquired and liabilities assumed1 |
||||
Cash and cash equivalents |
₩ | 15,731 | ||
Trade and other receivables |
33,826 | |||
Other financial assets |
772 | |||
Tangible assets |
832 | |||
Intangible assets |
18,477 | |||
Other assets |
2,376 | |||
Trade and other payables |
(30,045 | ) | ||
Borrowings |
(9,000 | ) | ||
Current income tax liabilities |
(605 | ) | ||
Provisions |
(355 | ) | ||
Net defined benefit liabilities |
(4,604 | ) | ||
Other liabilities |
(8,320 | ) | ||
|
|
|||
Total amounts of identifiable assets and liabilities measured at fair value (b) |
₩ | 19,085 | ||
|
|
|||
Goodwill (a-b) |
₩ | 42,745 | ||
|
|
1 | The assets acquired and liabilities assumed are measured at fair value in accordance with IFRS 3 Business Combination. |
F-93
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
After the acquisition date, the operating revenue and profit for the year for consolidation of N SEARCH MARKETING Corporation before the elimination of related party transactions with its subsidiaries are ₩8,193 million and ₩731 million, respectively. If N SEARCH MARKETING Corporation was consolidated on January 1, 2016, the operating revenue and profit for the year included in consolidated statements of profit or loss would have been ₩31,418 million and ₩4,927 million, respectively.
The fair value of trade accounts receivable and others acquired from N SEARCH MARKETING Corporation is ₩33,826 million, and all are deemed collectible.
37. | Interests in Unconsolidated Structured Entities |
Details of information about its interests in unconsolidated structured entities, which the Group does not have control over, including the nature, purpose and activities of the structured entity and how the structured entity is financed, are as follows:
Remarks |
Nature, purpose, activities and others | |
Real estate finance |
A structured entity incorporated for the purpose of real estate development is provided with funds by investors investments in equity and borrowings from financial institutions (including long-term and short-term loans and issuance of ABCP due in three months), and based on these, the structured entity implements activities such as real estate acquisition, development and mortgage loans. The structured entity repays loan principals with funds incurred from instalment house sales after the completion of real estate development or with collection of the principal of mortgage loan. The remaining shares are distributed to investors. As of December 31, 2016, this entity is engaged in real estate finance structured entity, and generates revenues by receiving dividends from direct investments in or receiving interests on loans to the structured entity. Financial institutions, including the Entity, are provided with guarantees including joint guarantees or real estate collateral from investors and others. Consequently, the entity is a priority over other parties in the preservation of claim. However, when the credit rating of investors and others decreases or when the value of real estate decreases, the entity may be obliged to cover losses. | |
PEF and investment funds |
Minority investors including managing members contribute to PEF and investment funds incorporated for the purpose of providing funds to the small, medium, or venture entities, and the managing member implements activities such as investments in equity or loans based on the contributions. As of December 31, 2016, the entity is engaged in PEF and investment funds structured entity, and after contributing to PEF and investment funds, the entity receives dividends for operating revenues from these contributions. The entity is provided with underlying assets of PEF and investment funds as collateral. However, when the value of the underlying assets decreases, the entity may be obliged to cover losses. |
F-94
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Remarks |
Nature, purpose, activities and others | |
M&A finance |
A structured entity incorporated for the purpose of supporting a certain groups financial structure improvement or acquiring equity or convertible bonds is provided with funds by investors investments in equity and long-term or short-term borrowings from financial institutions, and based on these, the structured entity acquires shares held by the entity, which has plans to improve its financial structure, or to dispose convertible bonds and others. The structured entity repays loan principals with funds incurred from disposals of holding shares after a certain period. The remaining shares are distributed to investors. As of December 31, 2016, the entity is engaged in M&A finance structured entity, and receives interests. Financial institutions are provided with guarantees including joint guarantees or shares subject to M&A from investors and others. Consequently, the entity is a priority over other parties in the preservation of claim. However, when the credit rating of investors and others decreases or when the value of shares provided as collateral decreases, the Group may be obliged to cover losses. | |
Asset securitization |
A transferor other than this entity transfers the assets, which are subject to securitization, to a structured entity incorporated by the transferor or other financial institutions other than the entity, and based on this as underlying assets, the structured entity is provided with funds by asset-backed borrowings and pays acquisition costs of the acquired underlying assets. As of December 31, 2016, the entity is engaged in the structured entity, and generates revenues by receiving interest income as the entity provides asset-backed loans directly to the structured entity. When the structured entity has difficulty repaying loan principal, the transferor has obligation to cover the lack of funds. Consequently, the financial institutions including the entity are a priority over other parties in the preservation of claim. However, when the credit rating of transferor decreases, the said entity may be obliged to cover losses. | |
Other |
There are other structured entity types, which the entity is engaged in, such as shipping finance, SPAC and others. Interest income is realized from the entitys loans to the relevant structured entity. When the credit rating of the shipping group decreases, or the value of vessels decreases, the entity may be obliged to cover losses. When SPAC is listed or merged after the entity invests in shares or convertible bonds issued by the relevant structured entity, revenues are realized from disposal of the shares of the convertible bonds. However, the entity may be obliged to cover losses when SPAC is liquidated if the SPAC is not listed or merged. |
F-95
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
Details of scale of unconsolidated structured entities and nature of the risks associated with an entitys interests in unconsolidated structured entities as of December 31, 2015 and 2016, are as follows:
(In millions of Korean won) | 2015 | |||||||||||||||
Real Estate Finance | PEF &Investment Fund |
Asset-backed Securitization |
Total | |||||||||||||
Total amount of Unconsolidated Structured Entities |
₩ | 98,192 | ₩ | 3,498,552 | ₩ | 2,625,075 | ₩ | 6,221,819 | ||||||||
Assets recognized in statement of financial position |
||||||||||||||||
Other financial assets |
₩ | | ₩ | 54,874 | ₩ | | ₩ | 54,874 | ||||||||
Associates and joint ventures |
9,303 | 148,294 | | 157,597 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 9,303 | ₩ | 203,168 | ₩ | | ₩ | 212,471 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Maximum loss exposure1 |
||||||||||||||||
Investment Assets |
₩ | 9,303 | ₩ | 203,168 | ₩ | | ₩ | 212,471 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 9,303 | ₩ | 203,168 | ₩ | | ₩ | 212,471 | ||||||||
|
|
|
|
|
|
|
|
(In millions of Korean won ) | 2016 | |||||||||||||||
Real Estate Finance | PEF &Investment Fund |
Asset-backed Securitization |
Total | |||||||||||||
Total amount of Unconsolidated Structured Entities |
₩ | 1,075,471 | ₩ | 3,759,246 | ₩ | 2,841,886 | ₩ | 7,676,603 | ||||||||
Assets recognized in statement of financial position |
||||||||||||||||
Other financial assets |
₩ | 21,932 | ₩ | 60,782 | ₩ | | ₩ | 82,714 | ||||||||
Associates and joint ventures |
10,086 | 165,638 | | 175,724 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 32,018 | ₩ | 226,420 | ₩ | | ₩ | 258,438 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Maximum loss exposure1 |
||||||||||||||||
Investment Assets |
₩ | 32,018 | ₩ | 226,420 | ₩ | | ₩ | 258,438 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
₩ | 32,018 | ₩ | 226,420 | ₩ | | ₩ | 258,438 | ||||||||
|
|
|
|
|
|
|
|
1 | Maximum exposure to loss includes the investments recognized in the Groups financial statements and the amounts which are probable to be determined when certain conditions are met by agreements including purchase agreements, credit granting and others. |
F-96
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
38. | Information About Non-controlling Interests |
38.1 | Changes in Accumulated Non-controlling Interests |
Profit or loss allocated to non-controlling interests and accumulated non-controlling interests of subsidiaries that are material to the Group for the years ended December 31, 2014, 2015 and 2016 is as follows:
(In millions of Korean won) | 2014 | |||||||||||||||||||||||
Non- controlling |
Accumulated non-controlling interests at the beginning of the year |
Profit or loss allocated to non-controlling interests |
Dividend paid controlling |
Others | Accumulated non-controlling interests at the end of the year |
|||||||||||||||||||
KT Skylife Co., Ltd. |
49.73 | % | ₩ | 283,981 | ₩ | 26,828 | ₩ | (10,538 | ) | ₩ | (2,971 | ) | ₩ | 297,300 | ||||||||||
BC Card Co., Ltd. |
30.46 | % | 261,716 | 31,414 | (7,299 | ) | 7,100 | 292,931 | ||||||||||||||||
KT Rental |
42.00 | % | 123,668 | 15,538 | (1,903 | ) | (121 | ) | 137,182 | |||||||||||||||
KT Powertel Co., Ltd. |
55.15 | % | 67,906 | 2,961 | (631 | ) | (5 | ) | 70,231 | |||||||||||||||
KT Hitel Co.,Ltd. |
36.30 | % | 56,020 | 2,195 | | (7,079 | ) | 51,136 |
(In millions of Korean won) | 2015 | |||||||||||||||||||||||
Non- controlling |
Accumulated non-controlling interests at the beginning of the year |
Profit or loss allocated to non-controlling interests |
Dividend paid controlling |
Others | Accumulated non-controlling interests at the end of the year |
|||||||||||||||||||
KT Skylife Co., Ltd. |
49.73 | % | ₩ | 297,300 | ₩ | 27,032 | ₩ | (8,325 | ) | ₩ | 873 | ₩ | 316,880 | |||||||||||
BC Card Co., Ltd. |
30.46 | % | 292,931 | 62,943 | (22,650 | ) | (10,303 | ) | 322,921 | |||||||||||||||
KT Powertel Co., Ltd. |
55.15 | % | 70,231 | (17,880 | ) | (1,118 | ) | (307 | ) | 50,926 | ||||||||||||||
KT Hitel Co.,Ltd. |
36.30 | % | 51,136 | (608 | ) | | 161 | 50,689 | ||||||||||||||||
KT Telecop Co., Ltd. |
13.18 | % | 104,821 | (1,000 | ) | | (393 | ) | 103,428 |
(In millions of Korean won) | 2016 | |||||||||||||||||||||||
Non- controlling |
Accumulated non-controlling interests at the beginning of the year |
Profit or loss allocated to non-controlling interests |
Dividend paid controlling |
Others | Accumulated non-controlling interests at the end of the year |
|||||||||||||||||||
KT Skylife Co., Ltd. |
49.73 | % | ₩ | 316,880 | ₩ | 22,445 | ₩ | (8,279 | ) | ₩ | (1,370 | ) | ₩ | 329,676 | ||||||||||
BC Card Co., Ltd. |
30.46 | % | 322,921 | 47,068 | (44,637 | ) | 3,986 | 329,338 | ||||||||||||||||
KT Powertel Co., Ltd. |
55.15 | % | 50,926 | 112 | | 713 | 51,751 | |||||||||||||||||
KT Hitel Co.,Ltd. |
35.27 | % | 50,689 | 1,274 | | (165 | ) | 51,798 | ||||||||||||||||
KT Telecop Co., Ltd. |
13.18 | % | 103,428 | 19 | | 85 | 103,532 |
F-97
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
38.2 | Summarized Financial Information on Subsidiaries |
The summarized financial information for each subsidiary with non-controlling interests that are material to the Group before inter-company eliminations is as follows:
Summarized consolidated statements of financial position as of December 31, 2014, 2015 and 2016, are as follows:
2014 | ||||||||||||||||||||
(In millions of Korean won) | KT Skylife Co., Ltd. |
BC Card Co., Ltd. |
KT Rental | KT Powertel Co., Ltd. |
KT Hitel Co., Ltd. |
|||||||||||||||
Non-controlling Interests rate(%) |
49.73 | % | 30.46 | % | 42.00 | % | 55.15 | % | 36.30 | % | ||||||||||
Current assets |
₩ | 260,391 | ₩ | 2,023,465 | ₩ | 377,916 | ₩ | 83,846 | ₩ | 119,957 | ||||||||||
Non-current assets |
422,618 | 676,923 | 2,278,469 | 73,484 | 107,037 | |||||||||||||||
Current liabilities |
226,878 | 1,723,966 | 718,852 | 21,787 | 29,748 | |||||||||||||||
Non-current liabilities |
19,448 | 70,957 | 1,598,798 | 8,209 | 1,681 | |||||||||||||||
Equity |
436,683 | 905,465 | 338,735 | 127,334 | 195,565 | |||||||||||||||
Accumulated non-controlling interests |
297,300 | 292,931 | 143,457 | 70,231 | 51,136 | |||||||||||||||
Operating revenue |
656,430 | 3,297,308 | 1,074,569 | 105,250 | 494,455 | |||||||||||||||
Profit or loss for the year |
55,162 | 134,450 | 51,388 | 5,368 | 12,205 | |||||||||||||||
Total comprehensive income |
53,990 | 331,599 | 52,437 | 5,368 | 9,873 | |||||||||||||||
The profit or loss allocated to non-controlling interests |
26,828 | 31,414 | 19,543 | 2,961 | 2,195 | |||||||||||||||
Cash flows from operating activities |
140,057 | 176,019 | (346,743 | ) | 10,190 | 65,096 | ||||||||||||||
Cash flows from investing activities |
(20,889 | ) | (21,699 | ) | (35,632 | ) | (647 | ) | (44,712 | ) | ||||||||||
Cash flows from financing activities before dividend paid to non-controlling interests |
(26,411 | ) | (31,497 | ) | 359,510 | (1,137 | ) | | ||||||||||||
Dividend paid to non-controlling interests |
(10,538 | ) | (7,299 | ) | (1,903 | ) | (631 | ) | | |||||||||||
Effect of exchange rate change on cash and cash equivalents |
| | | | (12 | ) | ||||||||||||||
Net (decrease)/increase in cash and cash equivalents |
82,219 | 115,524 | (24,768 | ) | 7,775 | 20,372 |
F-98
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
2015 | ||||||||||||||||||||
(In millions of Korean won) | KT Skylife Co., Ltd. |
BC Card Co., Ltd. |
KT Powertel Co., Ltd. |
KT Hitel Co., Ltd. |
KT Telecop Co., Ltd. |
|||||||||||||||
Non-controlling Interests rate(%) |
49.73 | % | 30.46 | % | 55.15 | % | 36.30 | % | 13.18 | % | ||||||||||
Current assets |
₩ | 279,480 | ₩ | 2,291,047 | ₩ | 65,739 | ₩ | 157,355 | ₩ | 58,457 | ||||||||||
Non-current assets |
431,814 | 672,905 | 47,776 | 78,402 | 210,734 | |||||||||||||||
Current liabilities |
143,511 | 1,882,363 | 16,016 | 33,656 | 82,353 | |||||||||||||||
Non-current liabilities |
74,339 | 63,271 | 5,166 | 282 | 52,613 | |||||||||||||||
Equity |
493,444 | 1,018,318 | 92,333 | 201,819 | 134,225 | |||||||||||||||
Accumulated non-controlling interests |
316,880 | 322,921 | 50,926 | 50,689 | 103,428 | |||||||||||||||
Operating revenue |
668,521 | 3,504,946 | 104,527 | 162,155 | 302,844 | |||||||||||||||
Profit or loss for the year |
72,987 | 218,969 | (32,417 | ) | 7,258 | (7,593 | ) | |||||||||||||
Total comprehensive income |
73,147 | 188,360 | (32,417 | ) | 6,769 | (7,593 | ) | |||||||||||||
The profit or loss allocated to non-controlling interests |
27,032 | 62,943 | (17,880 | ) | (608 | ) | (1,000 | ) | ||||||||||||
Cash flows from operating activities |
157,762 | 128,927 | (12,016 | ) | 22,556 | 36,216 | ||||||||||||||
Cash flows from investing activities |
(92,350 | ) | 73,118 | 10,691 | (19,949 | ) | (91,846 | ) | ||||||||||||
Cash flows from financing activities before dividend paid to non-controlling interests |
(35,984 | ) | (75,121 | ) | (2,015 | ) | | (32,491 | ) | |||||||||||
Dividend paid to non-controlling interests |
(8,325 | ) | (22,650 | ) | (1,118 | ) | | | ||||||||||||
Net (decrease)/increase in cash and cash equivalents |
29,428 | 126,924 | (3,340 | ) | 2,607 | (88,121 | ) |
2016 | ||||||||||||||||||||
(In millions of Korean won) | KT Skylife Co., Ltd. |
BC Card Co., Ltd. |
KT Powertel Co., Ltd. |
KT Hitel Co., Ltd. |
KT Telecop Co., Ltd. |
|||||||||||||||
Non-controlling Interests rate(%) |
49.73 | % | 30.46 | % | 55.15 | % | 35.27 | % | 13.18 | % | ||||||||||
Current assets |
₩ | 352,980 | ₩ | 2,945,584 | ₩ | 69,046 | ₩ | 158,210 | ₩ | 63,802 | ||||||||||
Non-current assets |
424,968 | 705,480 | 44,679 | 90,992 | 201,751 | |||||||||||||||
Current liabilities |
151,329 | 2,530,832 | 17,910 | 45,277 | 53,903 | |||||||||||||||
Non-current liabilities |
80,123 | 71,571 | 1,989 | 1,664 | 78,441 | |||||||||||||||
Equity |
546,496 | 1,048,661 | 93,826 | 202,261 | 133,209 | |||||||||||||||
Accumulated non-controlling interests |
329,676 | 329,338 | 51,751 | 51,798 | 103,532 | |||||||||||||||
Operating revenue |
668,945 | 3,567,512 | 81,390 | 198,994 | 315,948 | |||||||||||||||
Profit or loss for the year |
68,863 | 163,131 | 202 | 4,298 | 143 | |||||||||||||||
Total comprehensive income |
68,785 | 178,744 | 202 | 1,399 | 143 | |||||||||||||||
The profit or loss allocated to non-controlling interests |
22,445 | 47,068 | 112 | 1,274 | 19 | |||||||||||||||
Cash flows from operating activities |
155,399 | 92,818 | 7,271 | 28,987 | 60,461 | |||||||||||||||
Cash flows from investing activities |
(210,480 | ) | (37,313 | ) | (8,191 | ) | (33,238 | ) | (45,243 | ) | ||||||||||
Cash flows from financing activities before dividend paid to non-controlling interests |
(16,647 | ) | (147,306 | ) | | | | |||||||||||||
Dividend paid to non-controlling interests |
(8,279 | ) | (44,637 | ) | | | | |||||||||||||
Gain or loss foreign currency translation |
| (178 | ) | | 3 | | ||||||||||||||
Net (decrease)/increase in cash and cash equivalents |
(71,728 | ) | (91,801 | ) | (920 | ) | (4,251 | ) | 15,218 |
F-99
KT Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2015 and 2016
38.3 | Transactions with Non-controlling Interests |
The effect of changes in the ownership interest on the equity attributable to owners of the Group during 2014, 2015 and 2016 is summarized as follows:
(in millions of Korean won) | 2014 | 2015 | 2016 | |||||||||
Carrying amount of non-controlling interests acquired |
₩ | 16,136 | ₩ | | ₩ | 8,564 | ||||||
Consideration paid to non-controlling interests |
(9,764 | ) | 2,699 | 6,986 | ||||||||
|
|
|
|
|
|
|||||||
Excess of consideration paid recognized in parents equity |
₩ | 6,372 | ₩ | 2,699 | ₩ | 15,550 | ||||||
|
|
|
|
|
|
39. | Discontinued Operations |
The Group disposed of KT Rental, a subsidiary of the Group, on June 3, 2015, and KT Capital Co., Ltd. on August 20, 2015. The profit and loss on the related operations of KT Rental and KT Capital Co., Ltd. are presented as discontinued operations and the related financial information is as follows:
Profit and loss from discontinued operations for the years ended December 31, 2014 and 2015 are as follows:
(In millions of Korean won) | 2014 | 2015 | ||||||
Revenue |
₩ | 1,115,977 | ₩ | 546,440 | ||||
Expenses |
1,024,472 | 534,383 | ||||||
Profit on disposal of discontinued operations |
| 248,033 | ||||||
Profit before tax of discontinued operations |
91,505 | 260,090 | ||||||
Income tax expense |
5,105 | 119,015 | ||||||
|
|
|
|
|||||
Profit for the period from discontinued operations |
₩ | 86,400 | ₩ | 141,075 | ||||
|
|
|
|
Cash flows from discontinued operations for the years ended December 31, 2014 and 2015 are as follows:
(In millions of Korean won) | 2014 | 2015 | ||||||
Cash flows from operating activities |
₩ | (265,655 | ) | ₩ | (134,226 | ) | ||
Cash flows from investing activities |
(4,647 | ) | 24,157 | |||||
Cash flows from financing activities |
220,064 | 93,566 | ||||||
|
|
|
|
|||||
Net cash flows |
₩ | (50,238 | ) | ₩ | (16,503 | ) | ||
|
|
|
|
F-100
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
March 16, 2012
March 15, 2013
March 27, 2015
March 25, 2016
March 24, 2017
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 and Internet Multimedia Broadcasting 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, electrical construction business and fire protection facility business |
9. | Real estate and housing business |
9-1. | Business facilities management and Business support services |
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 |
14. | Frequency-based telecommunications services and other telecommunications services |
15. | Value-added telecommunications business |
16. | Manufacture, provision (screening) and distribution of contents such as musical records, music videos, movies, videos and games |
17. | Issuance and management of pre-paid electronic payment instruments, and businesses related to electronic finance such as payment gateway services |
18. | Sales and leasing of equipment and facilities related to the activities mentioned in Subparagraphs 14 through 17 |
19. | Any overseas business or export and import business related to activities mentioned in Subparagraphs 14 through 18 |
20. | Tourism |
21. | (Deleted) |
22. | New and renewable energy, energy generation business and electrical system design business |
23. | Health Informatics business |
24. | Manufacture of communication equipment, device or facilities for military purpose |
25. | Energy examination business, Energy service company(ESCO) business, and other R of energy use related businesses |
26. | Business related to Information Security & Certification Service |
27. | Activities of management consultancy |
28. | Warehousing and storage |
29. | 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 Gyeonnggi Province. KT may establish requisite sub-offices at site(s) pursuant to resolution of the Board of Directors.
Article 4. (Method of Public Notice) Public notices by KT shall be given in The Seoul Shinmun circulated in Seoul, Republic of Korea. Provided, however, that if the public notices cannot be published in The Seoul Shinmun due to unavoidable circumstances, such public notices may be given in any daily newspaper published in Seoul, Republic of Korea.
CHAPTER II. SHARES OF STOCK
Article 5. (Amount of Authorized Capital)
The total number of shares authorized to be issued by KT shall be one billion shares.
Article 6. (Par Value and Types of Shares and Share Certificates)
(1) Par value per share issued by KT shall be 5,000 Korean Won. The type of shares shall be common shares and preferred shares, both of which shall be in registered form.
(2) Share certificates shall be in eight (8) denominations of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1000) and ten thousand (10,000) shares.
Article 7. (Shares to be Issued at the Time of Incorporation)
The total number of shares to be issued by KT at the time of incorporation shall be 395,675,369 shares.
Article 8. (Number and Description of Preferred Shares)
(1) The total number of Preferred Shares to be issued by KT shall be up to one-fourth (1/4) of the total number of shares issued and outstanding, which shall be without voting rights.
(2) Dividends on Preferred Shares shall be an amount not less than nine (9) percent p.a. of the par value as determined by the Board of Directors at the time of issuance.
(3) If the dividends on the Common Shares exceed those on Preferred Shares, the excess dividend amount shall also be paid to the holders of Preferred Shares commensurate to the rate applicable to Common Shares.
(4) If dividends on Preferred Shares are not paid for any fiscal year, the holders of such Preferred Shares shall be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in the next fiscal year.
Article 9. (Preemptive Rights)
(1) When KT issues new shares, the shareholders of KT shall be entitled to subscribe for such new shares in proportion to their existing shareholdings.
(2) Notwithstanding Paragraph (1) above, new shares may be issued to persons other than the shareholders of KT, in the following cases:
1. | When the new shares are issued by public offering or subscribed by underwriters pursuant to Article 4 and Article 119 of the Financial Investment Services and Capital Markets Act (FSCMA); |
2. | When the members of the Employee Stock Ownership Association of KT have preemptive rights to subscribe for such new shares pursuant to Article 165-7 of the FSCMA; |
3. | When the new shares are represented by depositary receipt pursuant to Article 165-16 of the FSCMA |
4. | When the new shares are issued by the exercise of stock options set forth in Article 10 of these Articles of Incorporation; |
5. | When the new shares are issued in order to accomplish specific business purposes such as strategic alliance, inducement of foreign funds, other capital raising requirements, introduction of new technology, and improvement of financial structure. |
6. | When the new shares are issued by a resolution of the Board of Directors through a general public offering pursuant to Article 165-6 of the FSCMA. However, in such case, the total number of the shares to be issued shall not exceed ten percent (10%) of the total number of KT issued and outstanding; or |
7. | When there exists an immediate need for the company to raise funds, new shares can be issued to domestic and foreign financial institutions (enacted on March 21, 2001). |
(3) The method of disposition of shares in respect of which preemptive rights have not been exercised or where fractions of shares occur shall be determined by a resolution of the Board of Directors.
(4) Notwithstanding Paragraph (1) above, shareholders who acquire shares in violation of any laws and regulations or these Articles of Incorporation shall not be entitled to subscribe for new shares in respect of such shares.
Article 10. (Stock Options)
(1) KT may grant stock options to its officers and employees who have contributed, or are capable of contributing, to the establishment, management or technical innovation of KT, except for officers or employees in any of the following cases, by a Special Resolution of the General Meeting of Shareholders pursuant to Article 340-2 and Article 542-3 of the Commercial Code of Korea, to the extent not exceeding fifteen percent (15%) of the total number of issued shares, provided that KT may grant stock options by a resolution of the Board of Directors adopted by affirmative votes of two-thirds (2/3) of the directors in offices, to the extent not exceeding one percent (1%) of the total number of issued shares. In such case, the provision of the latter part of the Proviso of Paragraph 1 of Article 38 shall apply mutatis mutandis:
1. | The largest shareholder of KT and the Related Person thereto (refers to the Related Person as prescribed in Paragraph 2-5, Article 542-8 of the Commercial Code of Korea. The same shall apply in this Article); |
2. | Major Shareholders (refers to the Major Shareholders as prescribed in Paragraph (2-6) of Article 542-8 of the Commercial Code of Korea. The same shall apply hereinafter) and the Related Person thereto; or |
3. | Any person who shall become a Major Shareholder of KT by exercising his/her stock options. |
(2) The proviso of Paragraph (1) shall not apply to the directors of KT, and the grant of stock options pursuant to the proviso of Paragraph (1) shall be approved by the General Meeting of Shareholders which is held after such grant of stock options.
(3) The shares to be issued to the officers or employees by the exercise of their stock options (in case where KT pays in cash or shares the difference between the exercise price of stock options and the market price, refers to the shares which are the basis for such calculation) shall be Common Shares in registered form.
(4) The number of officers and employees of KT who are granted with stock options shall not exceed ninety nine percent (99%) of the total number of officers and employees in office. Stock options granted to one single officer or employee shall not exceed ten percent (10%) of total number of shares issued and outstanding.
(5) The exercise price per share of the stock options shall not be less than the price as set forth in the Commercial Code of Korea.
(6) Unless otherwise provided for by the relevant laws, the exercise period of stock options shall be determined by separate agreements, to the extent that such exercise 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) In case KT issues new shares through right issues, bonus issues and stock dividends, with respect to the distribution of dividends on the new shares, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year during which the new shares are issued.
Article 12. (Transfer Agent)
(1) KT may appoint a transfer agent to make entries in the register of shareholders.
(2) The transfer agent, and the place and scope of business of the transfer agent shall be determined by a resolution of the Board of Directors, and a public notice shall be given thereof.
Article 13. (Report of Names, Addresses and Seals of Shareholders)
(1) Shareholders and registered pledgees shall report their names, addresses, and seals to the transfer agent referred to in Article 12. Any changes thereto shall also be reported.
(2) Shareholders and registered pledgees who reside in foreign countries shall appoint and report the place where, and an agent to whom, notices will be given in Korea. Any changes there to shall also be reported.
Article 14. (Closing of the Register of Shareholders and the Record Date)
(1) KT shall suspend the entries of any changes into the register of shareholders regarding any rights on Shares from January 1 to January 31 of each year.
(2) KT shall let the shareholders who are entered into the register of shareholders on December 31 of each year exercise their rights thereof at the Ordinary General Meeting of Shareholders.
(3) KT may, for convening an Extraordinary General Meeting of Shareholders or when necessary, by a resolution of the Board of Directors, set the record date or close the register of shareholders for a certain period not exceeding three (3) months by giving at least two (2) weeks prior public notice.
CHAPTER III. DEBENTURES
Article 15. (Issuance of Convertible Bonds)
(1) KT may issue convertible bonds to persons other than shareholders to the extent that the aggregate face value of the convertible bonds so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of convertible bonds to persons other than shareholders may be made in cases provided for by any of the Subparagraphs of Paragraph (2) of Article 9.
(2) The Board of Directors may determine that the convertible bonds referred to in 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 Paragraph(2) of Article 9.
(2) The amount of new shares which can be subscribed by the holders of the bonds with warrants shall be determined by the Board of Directors, provided that the maximum amount of such new shares shall not exceed the aggregate face value of the bonds with warrants.
(3) The type of shares to be issued upon exercise of warrants shall be common shares. The issue price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.
(4) The period during which warrants may be exercised shall commence on the date set forth in the FSCMA after the date of issuance of the relevant bonds with warrants and end on the date immediately preceding the redemption date thereof. Provided that, the Board of Directors may adjust the conversion period in accordance with the relevant laws within the above period by its resolution.
(5) For the purposes of any distribution of dividends on the shares issued upon exercise of warrants, shares shall be deemed to have been issued at the end of the fiscal year immediately preceding the fiscal year in which the subscription monies therefor are fully paid.
Article 17. (Applicable Provisions regarding Issuance of Bonds) The provisions of Articles 12 and 13 shall apply mutatis mutandis to the issuance of bonds.
CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS
Article 18. (Convening of General Meeting)
(1) Ordinary General Meeting of Shareholders shall be convened within three (3) months after the end of each fiscal year, and Extraordinary General Meeting of Shareholders may be convened at any time, by the President (hwejang) pursuant to a resolution of the Board of Directors except as otherwise provided by the relevant laws and regulations. Provided, however, that Article (29), Paragraph (2) shall apply mutatis mutandis in the event the President (hwejang) fails to perform his duties.
(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.
(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. 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 managing 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 events occur. 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. |
(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. | (Deleted) |
3. | (Deleted) |
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) The aggregated term of office of an outside director shall be not more than ten (10) years.
Article 28. (By-election of Directors)
(1) In case of any vacancy in the office of a director, a director shall be elected to fill such vacancy at the General Meeting of Shareholders, provided that election thereof may not be made unless such vacancy results in lack of the requisite number of the directors or a difficulty in the administration of business.
(2) The term of office of an outside director elected to fill a vacancy shall be the remainder of the term of office of his/her predecessor.
Article 29. (Duties of the President (hwejang) and Directors)
(1) The Representative Directors (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.
(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:
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.
(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.
(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. (Managing Officers)
(1) For the efficient operation, KT shall have managing officers including inside directors.
(2) The managing officers shall consist of positions determined by the Board of Directors.
(3) The number and remuneration of the managing 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 managing officers shall be paid in accordance with KTs regulations for payment of officers severance allowance adopted at a General Meeting of Shareholders.
(4) Managing 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 managing 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.
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.
(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. |
(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. (Managing Officers Meeting)
(1) KT may convene managing 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 managing officers meeting set forth in Paragraph 1 above shall be determined by a resolution of the Board of Directors.
CHAPTER VII. ACCOUNTING
Article 45. (Fiscal Year) The fiscal year of KT shall be from January 1 to December 31 of each year.
Article 46. (Preparation, Submission and Maintenance of the Financial Statements)
(1) The President (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. | Other documents, as defined by the Commercial Code and enforcement ordinance, that reflect financial position and management performance of the company |
4. | Consolidated financial statements of the company |
(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.
(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.
(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 company employees shall be as prescribe by THE ACT ON PROHIBITION OF AGE DISCRIMINATION IN EMPLOYMENT AND AGED EMPLOYMENT PROMOTION.
Article 51. (Publication of Management Information)
KT shall make public any and all matters deemed to be necessary for the promotion of transparency in management.
ADDENDUM
Article 1. (Enforcement Date) These Articles of Incorporation shall be effective from October 1, 1997.
Article 2. (Term of Office of the First President and Standing Directors) Notwithstanding Paragraph (1), Article (29) hereof, the term of office of the first President and the standing directors to be elected at the General Meeting of Shareholders convened after the execution of these Articles of Incorporation shall be extended until the end of the Ordinary General Meeting of Shareholders convened after the expiration of the said term of office.
Article 3. (Term of Office of First Non-Standing Director) (1) Pursuant to Article (3) of the Addenda of the Special Act, candidates for non-standing directors who are recommended by the Temporary Non-standing Directors Recommendation Committee shall be classified into three groups, i.e., first, second and third groups, which shall consist of one, two and three persons, respectively.
(2) Notwithstanding Article (29), Paragraph (1) hereof, the term of office of a non-standing director in the first group shall expire at the close of the first Ordinary General Meeting of Shareholders convened after one (1) year has elapsed. The term of office of non-standing directors in the second and third group shall expire at the close of the first Ordinary General Meetings of Shareholders convened after two (2) and three (3) years have elapsed, respectively.
Article 4. (Special Provisions for Term of Office of Standing Directors succeed to the Term of Office of an Executive Officer) In the event that a former executive officer who has been elected prior to the date of enforcement of these Articles of Incorporation is elected as a first standing director of KT after the enforcement of these Articles, his/her term of office may be shortened to the remainder of the term of office of an executive officer prior to the date of enforcement of these Articles of Incorporation.
ADDENDUM (December 8, 1997)
These articles of Incorporation shall be effective from the date of resolution of the general meeting of shareholders thereon.
ADDENDUM (September 18, 1998)
Article 1. (Enforcement Date)These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.
Article 2. (Interim Measures for the Acquisition of Shares of KT by Foreigners) Those provisions of Paragraph (3), Article (10) hereof shall not be applicable where Foreigners have acquired any shares of KT prior to the date of enforcement of these Articles of Incorporation pursuant to the relevant laws and regulations. In this regard, the number of shares so acquired shall be included in the maximum aggregate shareholdings ceiling prescribed in Item 1, Paragraph (2), Article (10) above.
ADDENDUM (March 19, 1999)
Article 1. (Enforcement Date) These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.
Article 2. (Interim Measure) The cumulative voting system provided for in Article (382-2) of the Commercial Code shall not apply until each of the requirements set forth in Paragraph (1), Article (21) of the Special Act has been satisfied.
ADDENDUM (March 24, 2000)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 21, 2001)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 22, 2002)
These Articles of Incorporation shall be effective as of the date of resolution of the general meeting of Shareholders.
ADDENDUM (August 20, 2002)
Article 1. (Enforcement Date) These Articles of Incorporation shall become effective from the date on which a resolution on the foregoing amendments is adopted at the General Meeting of Shareholders. Provided, however, that the amended provision of Article 41-3 shall become effective from the date following the day on which the first General Meeting of Shareholders is convened after enforcement of these amended Articles of Incorporation.
Article 2. (Interim Measures regarding Auditor) (1) The amended provisions regarding auditor of Articles 27, 28, 29, 30, 32, 33, 37 and 40 shall remain invalid, concurrently upon establishment of the Audit Committee.
(2) The term, auditor referred in Paragraph 3 of Article 31 and Article 44, shall be interpreted to be Audit Committee, respectively, concurrently upon establishment of the Audit Committee.
Article 3. (Interim Measures on Increase in Number of Outside Directors)
Notwithstanding the amended provision of Article 26, a candidate for outside director recommended by the Shareholders Committee established in accordance with the previous AOI, shall be deemed to have been recommended by the Outside Director Recommendation Committee, and the term of office of such additionally appointed outside director in the above shall be until the date on which the Ordinary General Meeting of Shareholders is held in the year of 2005.
ADDENDUM (March 14, 2003)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 12, 2004)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 11, 2005)
These Articles of Incorporation shall become effective as of the date when the General Meeting of Shareholders resolved adoption hereof.
ADDENDUM (August 19, 2005)
These Articles of Incorporation shall take effect upon approval by the General Meeting of Shareholders.
ADDENDUM (March 10, 2006)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 16, 2007)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 27, 2009)
Article 1. (Enforcement Date) These Articles of Incorporation shall become effective upon resolution of the General Meeting of Shareholders approving the amendment hereof.
Article 2. (Interim Measure) The person who is President (sajang) as of the amendment date of these Articles of Incorporation will become the President (hwejang), and in applying Article 32(1)-2 ex-Presidents (sajang) prior to the amendment date will be interpreted as ex-Presidents (hwejang).
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.
ADDENDUM (March 16, 2012)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders. Notwithstanding the foregoing, Clause 1 of Article 46, shall become effective as of April 15, 2012
ADDENDUM (March 15, 2013)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 27, 2015)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 25, 2016)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 24, 2017)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
Exhibit 8.1
List of Subsidiaries of KT Corporation
(As of December 31, 2016)
Name |
Jurisdiction of | |
KT Powertel Co. Ltd. | Korea | |
KT Linkus co., Ltd. | Korea | |
KT Submarine | Korea | |
KT Telecop Co. Ltd. | Korea | |
KTCS | Korea | |
KTIS | Korea | |
KT Skylife | Korea | |
kt service bukbu | Korea | |
kt service nambu | Korea | |
KT New Business Investment Fund No.1 | Korea | |
KT Data System Co., Ltd. | Korea | |
KT Capital Media Contents Investment Fund No. 2 | Korea | |
KT Estate | Korea | |
KT Strategic Investment Fund No. 1 | Korea | |
Gyeonggi-KT green growth fund | Korea | |
SkylifeTV co., Ltd. | China | |
KT SB Data service | Korea | |
BC card | Korea | |
H&C Network | Korea | |
KT innoedu | Korea | |
KT Hitel | Korea | |
KT Commerce, Inc. | Korea | |
KT mhows Co., Ltd. | Korea | |
KT M&S Co., Ltd. | Korea | |
KT Music Co., Ltd. | Korea | |
Nasmedia Co., Ltd | Korea | |
Nsearch Marketing | Korea | |
KT Sat | Korea | |
KT Strategic Investment Fund No. 2 | Korea | |
KT Strategic Investment Fund No. 3 | Korea | |
KT-Music Contents Investment fund no.1 | Korea | |
KT Sports | Korea | |
KT-Michigan Global Contents Fund | Korea | |
Autopion | Korea | |
KT M mobile | Korea | |
Kt investment.inc | Korea | |
Smart Channel | Korea | |
Korea Telecom America, Inc. | USA | |
Korea Telecom Japan Co., Ltd. | Japan |
1
Korea Telecom China Co., Ltd. | China | |
KT Dutch B.V. | Netherlands | |
PT.KT Indonesia | Indonesia | |
kt Belgium | Belgium | |
KT ORS Belgium | Belgium | |
KBTO | Poland | |
Hong Kong Telecom | Hong Kong |
2
Exhibit 12.1
CERTIFICATION
I, Chang-Gyu Hwang, 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: April 28, 2017
/s/ CHANG-GYU HWANG |
Chang-Gyu Hwang Chief Executive Officer |
Exhibit 12.2
CERTIFICATION
I, Kwang Suk Shin, 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: April 28, 2017
/s/ KWANG SUK SHIN |
Kwang Suk Shin 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, 2016 (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/ CHANG-GYU HWANG |
Chang-Gyu Hwang |
Chief Executive Officer |
Date: April 28, 2017
/s/ KWANG SUK SHIN |
Kwang Suk Shin |
Executive Vice President and Chief Financial Officer |
Date: April 28, 2017
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
FRAMEWORK ACT ON TELECOMMUNICATIONS
[Enforced on December 22, 2015] [Amended by Act No. 13586, December 22, 2015, Partial Amendment]
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 equipment means apparatus, machinery, parts or line equipment, 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 Minister of Science, ICT, and Future Planning, except the ones stipulated specifically by this Act or other Acts. <Amended on Dec. 30, 1996, Feb. 29, 2008, March 23, 2013>
Article 4 (Government Policies)
Minister of Science, ICT, and Future Planning shall devise basic and comprehensive government policies concerning telecommunications to attain the purpose of this Act. <Amended on Dec. 30, 1996, Feb. 29, 2008, March 23, 2013>
Article 5 (Establishment of Basic Telecommunications Plans)
(1) Minister of Science, ICT, and Future Planning 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 on Dec. 30, 1996, Feb. 29, 2008, March 23, 2013>
(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) Minister of Science, ICT, and Future Planning 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 on Dec. 30, 1996, Feb. 29, 2008, March 23, 2013>
Article 6 Deleted <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 on Aug. 28, 1997>
[This Article Wholly Amended by Act No. 4905, Jan. 5, 1995]
CHAPTER II Deleted <May 22, 2009> <May 22, 2009>
Article 8 Deleted <May 22, 2009>
Article 9 Deleted <May 22, 2009>
Article 10 Deleted <May 22, 2009>
Article 11 Deleted <May 22, 2009>
Article 12 Deleted <May 22, 2009>
Article 13 Deleted <May 22, 2009>
Article 14 Deleted <Dec. 30, 1996>
Article 15 Deleted <Dec. 30, 1996>
Article 15-2 Deleted <Jan. 29, 1999>
CHAPTER III Deleted <March 22, 2010> <March 22, 2010>
SECTION 1 Deleted <March 22, 2010> <March 22, 2010>
Article 16 Deleted <March 22, 2010>
Article 17 Deleted <March 22, 2010>
Article 18 Deleted <March 22, 2010>
Article 19 Deleted <Dec. 30, 1996>
SECTION 2 Deleted <March 22, 2010> <March 22, 2010>
Article 20 Deleted <March 22, 2010>
Article 21 Deleted <March 22, 2010>
Article 22 Deleted <March 22, 2010>
Article 23 Deleted <March 22, 2010>
Article 24 Deleted <March 22, 2010>
SECTION 3 Deleted <March 22, 2010> <March 22, 2010>
Article 15 Deleted <March 22, 2010>
Article 16 Deleted <March 22, 2010>
Article 17 Deleted <March 22, 2010>
Article 18 Deleted <March 22, 2010>
Article 19 Deleted <March 22, 2010>
Article 20 Deleted <March 22, 2010>
SECTION 4 Deleted <March 22, 2010> <March 22, 2010>
Article 30-2 Deleted <March 22, 2010>
Article 30-3 Deleted <March 22, 2010>
Article 30-4 Deleted <Dec. 26, 2002>
Article 31 Deleted <March 22, 2010>
Article 32 Deleted <March 22, 2010>
CHAPTER IV MANAGEMENT OF TELECOMMUNICATIONS EQUIPMENT
Article 33 Deleted <July 23, 2010>
Article 33-2 Deleted <July 23, 2010>
Article 33-3 Deleted <July 23, 2010>
Article 34 Deleted <Jan. 28, 2000>
Article 34-2 Deleted <July 23, 2010>
Article 35 Deleted <July 23, 2010>
Article 36 Deleted <July 23, 2010>
CHAPTER V Deleted <Feb. 29, 2008> <Feb. 29, 2008>
Article 37 Deleted <Feb. 29, 2008>
Article 38 Deleted <Feb. 29, 2008>
Article 39 Deleted <Feb. 29, 2008>
Article 40 Deleted <Feb. 29, 2008>
Article 40-2 Deleted <March 22, 2010>
Article 40-3 Deleted <March 22, 2010>
Article 41 Deleted <Feb. 29, 2008>
Article 42 Deleted <Feb. 29, 2008>
Article 43 Deleted <March 22, 2010>
Article 44 Deleted <Feb. 29, 2008>
Article 44-2 Deleted <March 13, 2009>
CHAPTER VI SUPPLEMENTARY PROVISIONS
Article 45 Deleted <March 22, 2010>
Article 45-2 Deleted <July 23, 2010>
Article 46 (Delegation and Entrustment of Authority)
(1) | Part of the authority of Minister of Science, ICT, and Future Planning 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 on March 23, 2013> |
(2) | Deleted <March 22, 2010> |
CHAPTER VII PENAL PROVISIONS
Article 47 (Penal Provisions)
(1) Deleted <Dec. 22, 2015>
(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 (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 on Dec. 22, 2015>
[The Article 47(1) which the Constitutional Court found as of December 28, 2010 unconstitutional is deleted under Act No. 13586 on December 22, 2015.]
Article 48 Deleted <July 23, 2010>
Article 48-2 Deleted <Jan. 16, 2001>
Article 49 Deleted <July 23, 2010>
Article 50 Deleted <Jan. 28, 2000>
Article 51 Deleted <July 23, 2010>
Article 52 Deleted <July 23, 2010>
Article 53 Deleted <July 23, 2010>
ADDENDA <Amended by Act No. 13586, December 22, 2015>
This Act shall enter into force on the date of its promulgation.
Exhibit 15.3
TELECOMMUNICATIONS BUSINESS ACT
[Enforced on July 28, 2016] [Amended by Act No. 13823, January 27, 2016, Partial Amendments]
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, <Amended on May 19, 2011, Mar. 23, 2013, Aug. 13, 2013, Oct. 15, 2014>
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 equipment, 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 equipment 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;
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 (individual service of telecommunication service under subparagraph 6 of Article 2) determined and announced by the Minister of Ministry of Science, ICT and Future Planning are excluded;
12. The term value-added telecommunication services means telecommunication services other than key communication services;
13. The term value-added telecommunication services of a special type means the service that falls under any of the followings:
A. The value-added telecommunication services of an online service provider of a special type under Article 104 of the Copyright Act;
B. The value-added telecommunication services that send text messages by directly or indirectly linking a text message sending system to the telecommunication facilities of a telecommunications business operator.
2
14. The term telecommunication number means identification numbers that enable to identify each of telecommunications networks, telecommunication services, regions, users, etc. by differentiating their number in order to provide or use telecommunication 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.
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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
3
(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 Minister of Ministry of Science, ICT and Future Planning may, in consideration of size and quality of universal service, level of price and the technical capability of a telecommunications business operator, designate a telecommunications business operator through the method and procedure prescribed by the Enforcement Decree. < Amended on Mar. 23, 2013>
(5) Under the method and procedure prescribed by the Enforcement Decree, the Minister of Ministry of Science, ICT and Future Planning may have a telecommunications business operator bear compensation for losses incurred in the course of providing universal service based on the total sales. < Amended on Mar. 23, 2013>
Article 4-2 (Telecommunications Relay Service for Disabled Persons)
(1) Operators who have to secure relay and provide services using telecommunications equipment and facilities (hereinafter the telecommunications relay service) pursuant to Article 21(4) of the Act on the Prohibition of Discrimination of Disabled Persons, Remedy Against Infringement of Their Rights, etc. may provide the telecommunications relay service directly to the disabled persons or indirectly by entrusting such service to the agency designated by the Minister of Ministry of Science, ICT and Future Planning.
(2) Operators who have to secure relay and provide the telecommunications relay service shall submit the plans to provide the telecommunications relay service to the Minister of Ministry of Science, ICT and Future Planning within 1 month after the commencement of every fiscal period.
4
(3) Operators who have been engaging or once engaged in the telecommunications relay service shall not disclose anothers secret which has come to their knowledge in the course of the practice of the service.
(4) The Minister of Ministry of Science, ICT and Future Planning may provide necessary supports including financial and technical supports to the operator who falls under one of the following:
1. | A key communications business operator who provides the telecommunications relay service directly to the disabled persons or indirectly by entrusting such service to the agency; or |
2. | An agency entrusted to provide the telecommunications relay service. |
(5) Details regarding the criteria, proceedings and methods of the designation of the agency under Paragraph (1) shall be set forth and publicly notified by the Minister of Ministry of Science, ICT and Future Planning.
[This Article Newly Inserted on Aug. 13, 2013]
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 key communication services.
(3) The specific communications business shall correspond to one of the following subparagraphs:
5
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)
(1) A person who intends to run a key communications business shall obtain a license from the Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(2) The Minister of Ministry of Science, ICT and Future Planning shall, in granting a license under Paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs: < Amended on Mar. 23, 2013>
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.
6
(3) The Minister of Ministry of Science, ICT and Future Planning may formulate every year a master plan for licenses for key communications business operators by considering the results of the evaluation of competition among key communications business operators under Article 34(2) and by considering the plan for the utilization of frequencies under Article 8(3)2 of the Radio Waves Act. <This Article Newly Inserted on Oct. 15, 2014>
(4) A person, who desires to newly conduct a key communications business after obtaining allocation of frequencies under Article 10 of the Radio Waves Act, shall file an application for allocation of frequencies, together with an application for license of key communications business, with The Minister of Ministry of Science, ICT and Future Planning after a public announcement about allocation of frequencies. <This Article Newly Inserted Oct. 15, 2014>
(5) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(6) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(7) A person subject to a license under Paragraph (1) shall be limited to a juristic person. <Amended on Oct. 15, 2014>
(8) Procedures for a license under Paragraph (1) and other necessary matters shall be determined by the Enforcement Decree. < Amended on Oct. 15, 2014>
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:
1. The State or local governments;
7
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 class of stocks under Article 344-3(1) 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. < Amended on Aug. 13, 2013>
(2) A corporation, whose largest stockholder under Article 9(1)1 of the Capital Markets and Financial Investment Business Act (hereinafter the largest shareholder) is a foreign government or a foreigner (including, throughout this Act, a specially-related person under Article 9(1)1 of the same Act) and whose largest shareholder owns more than 15/100 of the gross number of its issued stocks (hereinafter referred to as the fictitious corporation of foreigners), shall be regarded as a foreigner. < Amended on Aug. 13, 2013>
(3) A corporation that falls under one of the following subparagraphs shall not be regarded as a foreigner, even if it is equipped with the requirements as referred to in Paragraph (2). Provided that this shall not apply to the foreigners under Article-1(3) and Article 86(3): < Amended on Aug. 13, 2013>
1. | A corporation holding less than 1/100 of the gross number of stocks issued by the key communications business operator; or |
2. | A corporation whose Largest Shareholder is a foreign government which is a signatory nation to a free trade agreement entered effect into between the Republic of Korea and one or more other countries and set forth and publicly notified by the Minister of Ministry of Science, ICT and Future Planning or a foreigner and whose Largest Shareholder owns more than 15/100 of the gross number of its issued stocks but decided by the Minister of Ministry of Science, ICT and Future Planning as not being harmful to public interest after the examination of public interest under Article 10. |
8
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: < Amended on Oct. 15, 2014>
1. A minor/incompetent person under the adult guardianship, or a quasi-incompetent person under the limited guardianship;
2. A person who has yet to be reinstated after having been declared bankrupt;
3. A person who has been sentenced to imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection (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;
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.
9
(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)
(1) The Public Interest Nature Examination Committee (hereinafter referred to as the Committee) shall be established in the Ministry of Science, ICT and Future Planning in order to make an examination regarding whether or not what falls under each of the following subparagraphs impedes the public interests as prescribed by the Enforcement Decree (hereinafter referred to as the examination of public interest nature), such as the national safety guarantee and maintenance of public peace and order, etc.: < Amended on Mar. 23, 2013, Aug. 13, 2013>
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;
4. Other cases as prescribed by the Enforcement Decree, where there exists a change in the persons who have de facto management rights of a key communications business operator. < Amended on Aug. 13, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning within thirty days from the time when such a fact took place. < Amended on Mar. 23, 2013>
10
(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 such situation, request the Minister of Ministry of Science, ICT and Future Planning to make an examination as referred to in Paragraph (1). < Amended on Mar. 23, 2013>
(4) Where the Minister of Ministry of Science, ICT and Future Planning has received a report as referred to in Paragraph (2) or a request for examination as referred to in Paragraph (3), it shall refer it to the Committee. < Amended on Mar. 23, 2013>
(5) Where the Minister of Ministry of Science, ICT and Future Planning judges that there exists a danger of impeding the public interests by the cases falling under each of subparagraphs of Paragraph (1) in view of the result of examination as referred to in Paragraph (1), it may order the alteration of contract detail and suspension of its implementation, the suspension of exercise of voting rights, or the sale of relevant stocks. < Amended on Mar. 23, 2013>
(6) The scope of key communications business operators who have to report as referred to in Paragraph (2) or (3), or can request the examination of public interest shall be as following: < Amended on Aug. 13, 2013>
1. | Key communications business operators operating and managing important communications provided in Subparagraph 3 of Article 92(2); |
2. | Key communications business operators owning man-made satellites in which space stations under Article 20-2(3) of the Radio Waves Act and Subparagraph 30 of Article 29 of the Enforcement Decree of the same Act are established |
3. | Key communications business operators designated as the key communications business operators in Subparagraph 1 and 3 of Article 35(2), Article 39(3), Article 41(3) and Article 42(3) and publicly notified by the Minister of Ministry of Science, ICT and Future Planning; |
4. | Key communications business operators providing telecommunication services by utilizing the frequencies allotted under the Radio Waves Act, provided that any key communications operators whose turnover of telecommunications service of the preceding year is less than the amount as determined by the Enforcement Decree in consideration of the market conditions, market share etc. shall be excluded; and |
11
5. | Key communications business operators whose turnover of telecommunications service of the preceding year is more than KRW 30,000,000,000 and at the same time, exceeds the amount publicly notified by the Minister of Ministry of Science, ICT and Future Planning in consideration of the market conditions, market share etc. < This Article Newly Inserted on Aug. 13, 2013> |
(7) Proceedings and details regarding the report and the examination of public interest in Paragraph (2) or (3) shall be stipulated by the Enforcement Decree. < This Article Newly Inserted on Aug. 13, 2013>
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 fifteen members including one Chairman. < Amended on Aug. 13, 2013>
(2) One of the Vice Ministers of Science, ICT and Future Planning nominated by the Minister of Ministry of Science, ICT and Future Planning shall hold office as the Chairman, 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: < Amended on Mar. 23, 2013>
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;
12
4. Other persons deemed necessary by the Chairman.
(3) The Committee may conduct necessary investigations for the examination of public interest nature, or request the interested parties or the reference witnesses to provide the data. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.
(4) Where the Committee deems it necessary, it may have the interested parties or the reference witnesses attend the Committee, and hear their opinions. 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 Minister of Ministry of Science, ICT and Future Planning 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 < Amended on Mar. 23, 2013>
(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.
13
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 Minister of Ministry of Science, ICT and Future Planning may levy the charge for compelling the execution. In such case, the charge for compelling the execution leviable per day shall be not more than 3/1,000 of purchase prices of relevant possessed stocks, but in the case not related with the stock possession, it shall be the amount not exceeding 100 million won. < Amended on Mar. 23, 2013>
(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) and (7) shall apply mutatis mutandis to the collection of the charge for compelling the execution. < Amended on Oct. 15, 2014>
(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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(2) The Minister of Ministry of Science, ICT and Future Planning may, in case where the said business operator is unable to commence business within the period under Paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator. < Amended on Mar. 23, 2013>
14
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 Minister of Ministry of Science, ICT and Future Planning, under the conditions as prescribed by the Enforcement Decree. < Amended on Mar. 23, 2013>
(2) The provisions of Article 6 (6) and Article 15 shall be applicable mutatis mutandis to a modified license for change under Paragraph (1). < Amended on Oct. 15, 2014>
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 Minister of Ministry of Science, ICT and Future Planning: Provided that, this provision shall not apply to any key communications business operator with less than 30,000,000,000 Korean Won in turnover of services. < Amended on Mar. 23, 2013>
1. Communications equipment manufacturing business;
2. Information and communications construction business 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. Service business 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 Minister of Ministry of Science, ICT and Future Planning shall grant approval under Paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under Paragraph (1), and that it is required for the development of telecommunications. < Amended on Mar. 23, 2013>
15
Article 18 (Takeover of Business and Merger of Juristic Persons, etc.)
(1) Any person who belongs to any one of the categories set forth in the following Paragraphs shall obtain an authorization from the Minister of Ministry of Science, ICT and Future Planning 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 Minister of Ministry of Science, ICT and Future Planning under the conditions as determined by the Enforcement Decree < Amended on Mar. 23, 2013>
1. Any person who takes or intends to take over the whole or part of a business of a key communications business operator;
2. Any person who intends to merge with a juristic person which is a key communications business operator;
3. Any key communications business operator intending to sell the telecommunications circuit installations necessary for provision of key communications service;
4. Any 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. Any 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. Any 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 Minister of Ministry of Science, ICT and Future Planning 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. Provided, however, that the Minister may omit some part of the examination in case the impact of a takeover of a key communications business, a merger with a key communications business, etc. is negligible on competition among key communications business operators. <Amended on Mar. 23, 2013, Oct. 15, 2014>
16
1. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.;
2. Impact on the competition of key communications business;
3. Impact on the protection of users and the public interests; and
4. 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.
(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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(4) Any person falling under any of the following shall succeed to the telecommunication licensee status of the key communication business operator:
1. Any person who has taken over the business of a key communications business operator by obtaining an authorization under Paragraph (1);
2. Any juristic person surviving a merger or that established by a merger, or that established by obtaining an authorization under Paragraph (2);
3. Any company incorporated to provide part of key communication services with the approval under Paragraph (1)6.
(5) The Minister of Ministry of Science, ICT and Future Planning may, in case where it grants authorization or authorization under Paragraph (1), attach conditions under Article 6(6). < Amended on Mar. 23, 2013, Oct. 15, 2014>
(6) The Minister of Ministry of Science, ICT and Future Planning shall, in case where it intends to grant an authorization under Paragraph (1), go through a consultation with the Fair Trade Commission. < Amended on Mar. 23, 2013>
17
(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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(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.
(10) Where any person falling under Paragraph (1) is subject to the examination on public benefits, he/.she may present the documents required to be submitted for the examination on public benefits, when applying for authorization under Paragraph (1).
(11) Cases in which the impact on competition among key communications business operators is negligible under the proviso of Paragraph (2), and matters necessary for the procedure of omitting some part of examination shall be determined by the Enforcement Decree. <This Article Newly Inserted on Oct. 15, 2014>
18
Article 19 (Suspension or Discontinuation of Business)
(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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning may order such measures (including assistance for membership change, bearing expenses, termination of membership) to be taken. < Amended on Mar. 23, 2013>
(3) The Minister of Ministry of Science, ICT and Future Planning shall, in case where an application for approval or authorization under Paragraph (1) is made, grant the relevant approval or authorization, except for each of the following subparagraphs. <Amended on Oct. 15, 2014>
1. Where there is a flaw in the documents required by the Enforcement Decree, including the details of the business intended to be suspended or discontinued and the drawing of business area;
2. Where the notice to users regarding suspension or discontinuance plan is considered inappropriate;
3. Where suspension or discontinuance is expected to inflict significant damage to users due to insufficient user protection measures and insufficient implementation of the said measures;
4. Where it is recognized that it is urgently needed to maintain a relevant key communications business to respond to a war or engagement or other similar national emergencies or to prevent or recover from a serious disaster.
Article 20 (Cancellation of License, etc.)
(1) The Minister of Ministry of Science, ICT and Future Planning 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: < Amended on Mar. 23, 2013, Oct. 15, 2014, Jan. 27, 2016>
19
1. Where he has obtained a license by deceit and other illegal means;
2. Where he has failed to implement the conditions under Articles 6 (6) 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);
4-2. Where he has failed to continuously provide key communications services for the period exceeding the period as determined by the Enforcement Decree without obtaining approval under Article 19(1);
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 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.
(3) In case the Minister of Ministry of Science, ICT and Future Planning cancels all or part of a license or orders the suspension of all or part of a business under Paragraph (1), the Minister may order user protection measures under Article 19(2). <This Article Newly Inserted on Oct. 15, 2014>
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 Minister of Ministry of Science, ICT and Future Planning (including registration through information network) under the conditions as determined by the Enforcement Decree: < Amended on Mar. 23, 2013>
20
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 Minister of Ministry of Science, ICT and Future Planning 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.
(3) The Minister of Ministry of Science, ICT and Future Planning shall accept the registration under Paragraph (1) unless the person falls under one of the following subparagraphs. <Amended on Oct. 15, 2014>
1. Where matters provided in each subparagraph of Paragraph (1) are not satisfied;
2. Where there is a flaw in the documents required by the Enforcement Decree including the articles of incorporation of a company and the standardized use contract;
3. Where the applicant for registration is not a corporation.
(4) A person subject to the registration of specific communications business under Paragraph (1) shall be limited to a juristic person.
(5) 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.
(6) Procedures and requirements for the registration under Paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.
21
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 Minister of Ministry of Science, ICT and Future Planning (including reports via information network), according to the requirements and procedures as prescribed by the Enforcement Decree: < Amended on Mar. 23, 2013, Oct. 15, 2014>
(2) Notwithstanding Paragraph (1), a person who intends to run a value-added communications business shall register under the Minister of Ministry of Science, ICT and Future Planning (including reports via information network), by fulfilling below each item: <Newly inserted on May 19, 2011, Mar. 23, 2013, Oct. 15, 2014>
1. Plan for implementation of technical measures for performance of Article 22(3)1 and Article 104 of the Copyright Act (This subparagraph shall apply only to the person who falls under Article 2(13)A);
1-2. Plan for implementation of technical measures to prevent callers telephone number from being falsely displayed via alteration, etc. thereof (This subparagraph shall apply only to the person who falls under Article 2(13)B);
2. Personnel and physical facilities necessary for work performance;
3. Financial solvency; and
4. Other matters determined by the Enforcement Decree such as business plan.
(3) When the Minister of Ministry of Science, ICT and Future Planning has received an application for registration of value-added communications business pursuant to Paragraph (2), the Minister may add conditions necessary for the performance of a plan pursuant to subparagraph 1 or 1-2 of the same Paragraph. <Newly Inserted on May 19, 2011, Mar. 23, 2013, Oct. 15, 2014>
(4) Notwithstanding Paragraph (1), if a person falls under any of the following subparagraphs, the person shall be deemed to have reported his/her value-added communications business. <Amended on Oct. 15, 2014>
1. | A person who intends to carry on small-scale value-added communications business, whose capital, etc. fall under the criteria set by the Enforcement Decree; |
22
2. A key communications business operator who intends to carry on a value-added communications business.
(5) A person who reported value-added communications business under Paragraph (1) and a person who registered value-added communications business under Paragraph (2) shall commence operation within 1 year from the reporting or registration date. <Amended on May 19, 2011, Oct. 15, 2014>
(6) A report pursuant to Paragraph (1), registration requirements and procedures pursuant to Paragraph (2) and other necessary matters shall be determined by the Enforcement Decree. <Newly Inserted on May 19, 2011, Oct. 15, 2014>
Article 22-2 (Reasons for Disqualification from Registration)
Any person or legal entity not exceeding three years from the date of registration cancelation pursuant to Article 27(2) or a person who was the majority shareholder of such corporation (investors determined by the Enforcement Decree) at the time of such cancelation may not make a registration pursuant to Article 22(2).
[This Article Newly Inserted on May 19, 2011]
Article 22-3 (Technical Measures, etc. of Value-Added Communications Business of a Special Type)
(1) A person who has registered a value-added communications business of a special type under Article 22(2) (hereinafter refer to value-added communications business of a special type in this article), and who falls under Article 2(13)A, shall take each of the following technical measures. <Amended on Dec. 1, 2015>
1. Technical measures for performance of Article 42, Article 42-2 and Article 45 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.;
23
2. Technical measures determined by the Enforcement Decree to prevent circulation of unlawful information under Article 44-7(1)1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.
(2) No person shall intentionally or negligently incapacitatevia removal or alteration, or circumvention ofthe technical measures of Paragraph (1) without reasonable authority, except for any of the following cases:
1. Where it is necessary for central administrative agencies or local governments to conduct work under laws and regulations;
2. Where it is necessary for an investigative agency, or a chief information protection officer, National Internet Development Agency, etc. under the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. to respond to the occurrence of information and communications network infringements including computer hacking.
(3) A person who carries on a value-added communications business of a special type (limited to the person who falls under Article 2(13)A) shall ensure that the status of operation and management of the technical measures of Paragraph (1) is automatically recorded in a system, and shall keep the record for the period determined by the Enforcement Decree.
(4) Depending on its relevant business, the Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission may order its officials to examine the status of operation and management of the technical measures of Paragraph (1), or order a person carrying on a value-added communications business of a special type to submit necessary documents including the record of Paragraph (3). In this case, Article 51 shall apply mutatis mutandis to the examination procedure and method. <Amended on Dec. 1, 2015>
(5) No person shall damage, counterfeit or alter the record in Paragraph (3) above without just power.
[This Article Newly Inserted on Oct. 15, 2014]
24
Article 22-4 (Value-Added Telecommunication Services Required to Make Fee Report)
(1) If telecommunications business operators provide a value-added telecommunication service as described in Article 2(13)B, they shall make a report on their service fees to the Minister of Ministry of Science, ICT and Future Planning (including modified report; hereinafter in this Article the same shall apply.), unless their revenue from the value-added telecommunication service is less than the amount determined in consideration of market situation, market share, etc. and publicly announced by the Minister of Ministry of Science, ICT and Future Planning.
(2) Telecommunications business operators shall disclose the content of their reports made under Paragraph (1).
(3) The procedure and method of the report under Paragraph (1) and the disclosure under Paragraph (2) shall be determined by the Enforcement Decree.
[This Article Newly Inserted on Jan. 27, 2016]
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 Article 22(1) or has registered value-added communications business under Paragraph (2) of the same Act 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 Minister of Ministry of Science, ICT and Future Planning under the conditions as prescribed by the Enforcement Decree. <Amended on May 19, 2011, Mar. 23, 2013, Oct. 15, 2014>
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 Article 22(1), has registered value-added communications services pursuant to Paragraph (2) of the same Act, or is deemed to have made such reporting under Paragraph (4) 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 Minister of Ministry of Science, ICT and Future Planning, according to the requirements and procedures as prescribed by the Enforcement Decree. Provided, however, the foregoing shall not apply to such person who is regarded as having reported a value-added communications business under Article 22(4) due to the transfer or takeover of the whole or part of a value-added communications business or due to the merger or succession of a juristic person who is a value-added communications business operator. <Amended on May, 19, 2011, Mar. 23, 2013, Oct. 15, 2014, Oct. 15, 2014>
25
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 of the relevant business.
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 Minister of Ministry of Science, ICT and Future Planning (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. < Amended on Mar. 23, 2013>
26
(2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Minister of Ministry of Science, ICT and Future Planning (including reports through information network). < Amended on Mar. 23, 2013>
Article 27 (Cancellation of Registration and Order for Closedown of Business)
(1) The Minister of Ministry of Science, ICT and Future Planning 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 Minister of Ministry of Science, ICT and Future Planning shall cancel his registration: < Amended on Mar. 23, 2013, Jan. 27, 2016>
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 for correction Article 92 (1) without any justifiable reasons;
(2) The Minister of Ministry of Science, ICT and Future Planning 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 (in case of a special type of value-added telecommunications business operator, the cancelation of the whole or part of the registration) 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 <Amended on May 19, 2011, Mar. 23, 2013, Oct. 15, 2014, Jan. 27, 2016>:
27
1. Where he makes a report or registration by deceit and other illegal means;
2. Where he fails to perform conditions under Article 22(3);
3. Where he fails to commence the business within one year from the reporting or registration date under Article 22(5), or in violation of the latter part of Article 26(1) suspend the business operation for not less than one year;
3-2. Where there is a request from the Korea Communications Commission because the business operator failed to take technical measures under Article 22(3)1.
4. Where he fails to comply with a correction order under Article 92 (1) without any justifiable reasons;
5. Where he fails to comply with an order under Article 64(4) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. without any justifiable reasons; and
6. Where a person who had been punished by a fine for negligence more than three times pursuant to Article 142(1) and Article 142(2)3 became subject to the disposition of fine for negligence again and where the Minister of Culture, Sports and Tourism requests after the deliberation of the Korea Copyright Commission pursuant to Article 112 of the same Act.
(3) Criteria and procedures for dispositions taken under Paragraph (1) or (2) and other necessary matters shall be determined by the Enforcement Decree.
28
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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning (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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(3) In regard to the main body of Paragraph (2), the Minister of Ministry of Science, ICT and Future Planning shall authorize the standardized use contract, if it falls under the criteria of every following subparagraph: < Amended on Mar. 23, 2013>
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 Minister of Ministry of Science, ICT and Future Planning for comparison. < Amended on Mar. 23, 2013>
29
(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.
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.
30
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.
(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 equipment or cable broadcasting equipment, make a report thereon to the Minister of Ministry of Science, ICT and Future Planning pursuant to Article 22. < Amended on Mar. 23, 2013>
(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 make efforts to prevent users from damage and immediately address users reasonable opinions or dissatisfactions, 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. <Amended on Oct. 15, 2014>
(2) The Korea Communications Commission may disclose the results after evaluating the user protection measures of Paragraph (1). In this case, the Korea Communications Commission may order the relevant telecommunications business operator to submit necessary documents for the evaluation. <Amended on Oct. 15, 2014>
31
(3) In case the telecommunications business operator who is determined by the Enforcement Decree in consideration of the type of telecommunication service, business size, user protection measures, etc., enters into a contract with users concerning the use of telecommunication services (including amended contract), the operator shall send the copy of the contract to users via in writing or via information and communications network as determined by the Enforcement Decree. <Newly Inserted Oct. 15, 2014>
(4) A telecommunications business operator providing key communications services shall subscribe a guarantee insurance with the person designated by the Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(5) The person designated as beneficiary under Paragraph (4) shall distribute insurance proceeds received under the guarantee insurance under Paragraph (4) to users who have not received services after paying service charges in advance. <Amended on Oct. 15, 2014>
(6) Matters necessary in regard to the target, criteria and procedure of evaluation of user protection measures, the utilization of evaluation results, the procedure of sending the copy of a contract, and the subscription, renewal and distribution of insurance proceeds under Paragraph (2) and (5) shall be specified in the Enforcement Decree. <Amended on Oct. 15, 2014>
Article 32-2 (Notification of Excess of Maximum Fee Limit)
(1) Any operator of telecommunication business who uses frequencies allocated in accordance with the Radio Waves Act shall give notice to users in such cases where falling under any of the following subparagraphs:
1. Where the maximum fee limit by telecommunication services which the user initially agreed to is exceeded; and
32
2. Where any fee incurred by international telecommunication services including international call is imposed.
(2) Matters necessary for object and means of notification under Paragraph (1) shall be determined and publicly announced by the Minister of ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
[This Article Newly Inserted on Jan. 17, 2012]
Article 32-3 (Limitation on Provision of Telecommunication Services)
(1) The Minister of Ministry of Science, ICT and Future Planning may order a telecommunications business operator to suspend its provision of telecommunication service for relevant telecommunication number, in case a relevant administrative agencys head makes any of the following requests. < Amended on Jan. 27, 2016>
1. Request for suspension of provision of telecommunication service under Article 9-6 of the Act on Registration of Credit Business, etc. and Protection of Finance Users;
2. Request for suspension of provision of telecommunication service under Article 13-3 of the Special Act on Refund of Amount of Damage Caused by Telecommunications Bank Fraud;
3. Request for suspension of provision of telecommunication service under Article 6-2 of Electronic Financial Transactions Act.
(2) The telecommunications business operator who receives the order from the Minister of Ministry of Science, ICT and Future Planning under Paragraph (1) shall obey it, and in this case, the business operator shall notify its telecommunication services users of the administrative agency requesting the suspension of service, the causes of request, and the procedure of raising objection, before suspending the provision of telecommunication service.
(3) Matters necessary for method, etc. of notifying the procedure of raising objection under Paragraph (2) shall be determined by the Enforcement Decree.
[This Article Newly Inserted on Oct. 15, 2014]
33
Article 32-4 (Prevention, etc. of Misuse of Mobile Communications Terminal)
(1) No person shall conduct an act that falls under any of the following subparagraphs.
1. An act of using telecommunication service provided to a mobile communications terminal or using a mobile communications terminal to collect the relevant funds, after opening a mobile communications terminal (i.e., a terminal required to use a key communications service that uses the frequencies allocated under the Radio Waves Act; hereinafter, the same shall apply.) by entering into a contract concerning provision of telecommunication service in anothers name on condition that he will provide or finance funds;
2. An act of soliciting, arranging or mediating, or advertising a contract concerning the provision of telecommunication service required for the use of a mobile communications terminal on condition of providing or financing funds.
(2) If a telecommunications business operator determined by the Enforcement Decree in consideration of type of telecommunication service, business size, user protection, etc. enters into a contract concerning provision of telecommunication services (including entering to a contract via agency or entrusted agency which represents the telecommunications business operator or is entrusted with providing telecommunication services), the telecommunication business operator shall confirm the identity of the counterparty by using the system for prevention of unlawful subscription, etc. under Article 32-5(1) with the consent of the counterparty. If the counterparty is not the person himself or rejects such confirmation procedure, the telecommunication business operator may reject the conclusion of contract. The same shall apply where a user is changed due to assignment of the provision of telecommunication services, succession of user status, etc., to the new user of telecommunication services.
(3) When a telecommunications business operator checks the identity of a counterparty under Paragraph (2), the telecommunications business operator may request the counterparty to present certificates and documents including resident ID card, drivers license, etc. that may confirm the identity.
(4) Details of the method of confirming the identity under Paragraph (2), and the type of certificates and documents used for the identity check under Paragraph (3) shall be determined by the Enforcement Decree.
34
[This Article Newly Inserted on Oct. 15, 2014]
Article 32-5 (Establishment of System for Prevention of Unlawful Subscription)
(1) The Minister of Ministry of Science, ICT and Future Planning shall establish a system required to confirm the identity of a subscriber to prevent telecommunication service contracts from being entered into by unlawful means (system for prevention of unlawful subscription) and shall enable telecommunications business operators under Article 32-4 (2) to use the system.
(2) To establish and operate the system for prevention of unlawful subscription, the Minister of Ministry of Science, ICT and Future Planning may, based on the common use of administrative information under Article 36(1) of the Electronic Government Act, request the head of a government agency or a public organization that holds the following information necessary for the identity check of a subscriber (including agent by law) to verify the authenticity of certificates, etc. submitted under Article 32-4(3). In this case, the requested head of the government agency or public organization shall accept the request unless there is no reasonable cause to reject.
1. Information about an individuals resident registration and family members;
2. Information about a corporations registration and business registration;
3. Information about foreigners or Korean nationals registration/address report and entry/departure;
4. Other information about certificates and documents submitted under Article 32-4(3).
(3) The Minister of Ministry of Science, ICT and Future Planning may, as determined by the Enforcement Decree, entrust the task of establishment and operation of the system for prevention of unlawful subscription to the Korea Association for ICT Promotion (Korea Association for ICT Promotion) under Article 15 of the Framework Act on Broadcasting Communications Development.
[This Article Newly Inserted on Oct. 15, 2014]
35
Article 32-6 (Provision, etc. of Identity Theft Prevention Service)
(1) A telecommunications business operator that provides key communications services shall provide a user with the service that informs the user of the fact that a telecommunication service use contract has been concluded in the name of, and with the consent of, the user (identity theft prevention service).
(2) To support the provision of identity theft prevention service, the Minister of Ministry of Science, ICT and Future Planning may designate the Korea Association for ICT Promotion as an organization in charge.
(3) Matters necessary for the contents, procedure, etc. of the identity theft prevention service shall be determined and announced by the Minister of Ministry of Science, ICT and Future Planning.
[This Article Newly Inserted on Oct. 15, 2014]
Article 32-7 (Blocking of Media Product, etc. Harmful to Juveniles)
(1) If a telecommunications business operator using the frequencies allocated under the Radio Waves Act enters into a telecommunication service use contract with a juvenile as defined in the Juvenile Protection Act, the telecommunications business operator shall provide the means to block the media product harmful to juveniles under Article 2(3) of the Juvenile Protection Act and to block information with an obscene content under Article 44-7(1)1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.
(2) The Korea Communications Commission may inspect the status of provision of the said means under Paragraph (1).
(3) Matters necessary for the method and procedure of providing the means to block the harmful media product, etc. under Paragraph (1) shall be determined by the Enforcement Decree.
[This Article Newly Inserted on Oct. 15, 2014]
Article 32-8 (Call Forwarding Service)
(1) A telecommunications business operator may provide users with a telecommunication service that forwards a call, etc. received by a users telecommunication number to a specific telecommunication number set in advance by the user (hereinafter the Call Forwarding Service).
36
(2) The telecommunications business operator providing the Call Forwarding Service under Paragraph (1) above shall make a report on the details of the service, the procedure of subscription and setting of the service, etc. to the Minister of Ministry of Science, ICT and Future Planning.
(3) The telecommunications business operator providing the Call Forwarding Service under Paragraph (1) shall not provide the Call Forwarding Service which is different from the Call Forwarding Service reported under Paragraph (2) above.
(4) The telecommunications business operator providing the Call Forwarding Service under Paragraph (1) shall not arbitrarily establish such service without users application.
[This Article Newly Inserted on Jan. 27, 2016]
Article 33 (Compensation for Damages)
A telecommunications business operator shall make compensations when he inflicts any damages on the users with regard to the provision of telecommunications services or the occurrence of a cause leading to users comments or complaints under Article 32(1) and the delay in addressing them. Provided, however, 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. <Amended on Oct. 15, 2014>
CHAPTER IV PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS BUSINESS
Article 34 (Promotion of Competition)
(1) The Minister of Ministry of Science, ICT and Future Planning shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services< Amended on Mar. 23, 2013>
(2) The Minister of Ministry of Science, ICT and Future Planning 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 on Mar. 23, 2013>
37
(3) The specific evaluation standards, procedure and method for evaluating competition system under Paragraph 2 above shall be prescribed by the Enforcement Decree.
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 equipment 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; |
38
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. |
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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(4) A telecommunications business operator who wants to be provided with the telecommunications facilities shall conclude an agreement in advance under Paragraph (1) above, and may install the apparatus enhancing the efficiency of the relevant facilities within the limit necessary for the provision of the telecommunications services. In this case, the telecommunications business operator shall notify in advance a key communications business operator or a facility management institution, which provides the relevant facilities, as determined in the Enforcement Decree, and shall remove the apparatus upon the termination of the aforesaid agreement or upon the expiration of the period of use. <Amended Jan. 20, 2015>
(5) For efficient use and management of facilities, etc., the Minister of Ministry of Science, ICT and Future Planning may conduct a site inspection of the status of provision and use of facilities, etc. In this case, Article 51 (3) through (6) shall apply mutatis mutandis to the procedure and method of site inspection. <Newly Inserted on Oct. 15, 2014>
(6) < Deleted on Dec. 1, 2015>
(7) For provision of facilities, etc. under Paragraphs (1) and (2), the Minister of Ministry of Science, ICT and Future Planning may appoint an expert institution. < Amended on Mar. 23, 2013, Oct. 15, 2014>
39
(8) Details necessary for appointment and operation guidelines for expert institutions under Paragraph (7) shall be determined and announced by the Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013, Oct. 15, 2014>
Article 35-2 (Obligations to Repair and Maintain Aerial Cableway)
(1) Telecommunications business operators and facility management institutions shall repair and maintain cables installed in electric poles for city appearance (hereinafter in this Article aerial cableway).
(2) The Minister of Ministry of Science, ICT and Future Planning shall every year establish a plan for repairing and maintenance of aerial cableway (hereinafter in this Article repairing and maintenance plan) to ensure systematic repairing and maintenance under Paragraph (1) above. In this case, the repairing and maintenance plan shall require the deliberation by the deliberation committee on repairing and maintenance of aerial cableway consisting of relevant ministries, relevant telecommunications business operators, etc.
(3) Telecommunications business operators and facility management institutions shall comply with the aforesaid repairing and maintenance plan, and the cost required for implementing the repairing and maintenance plan shall be shared by the persons who provide/use relevant facilities, etc. as determined by the Enforcement Decree.
(4) Matters related to constitution and operation of the deliberation committee on repairing and maintenance of aerial cableway under Paragraph (2) above shall be determined by the Enforcement Decree.
[This Article Newly Inserted on Jan. 20, 2015]
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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
40
(2) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
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 Minister of Ministry of Science, ICT and Future Planning shall be computed and settled accounts by a fair and reasonable means. < Amended on Mar. 23, 2013>
(2) The key communications business operators as determined and publicly notified by the Minister of Ministry of Science, ICT and Future Planning shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Korea Communications Commission, allow it by concluding an agreement, notwithstanding the provisions of Paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users. < Amended on Mar. 23, 2013>
(3) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
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).
41
(2) To encourage competition in the telecommunication industry, the Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(3) After evaluating the competition status of the communications market each year, if the Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(4) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(6) An agreement under Paragraph (5) shall satisfy the criteria announced by the Minister of Ministry of Science, ICT and Future Planning under Paragraph (4). < Amended on Mar. 23, 2013> [Paragraph (2) through (4) shall be effective until September 22, 2013 under the Article 2 of the Addenda to the Act No. 10166 (2010.3.22)]
42
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 Minister of Ministry of Science, ICT and Future Planning 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). < Amended on Mar. 23, 2013>
(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.
43
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 Minister of Ministry of Science, ICT and Future Planning shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under Paragraph (1). < Amended on Mar. 23, 2013>
(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.
44
(2) The Minister of Ministry of Science, ICT and Future Planning shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under Paragraph (1). < Amended on Mar. 23, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(5) A key communications business operator providing telecommunication services by utilizing the frequencies allotted under the Radio Waves Act shall, to the extent necessary for manufacture, import, distribution or sales of the telecommunications termination equipment (refers to the termination equipment which allows use of telecommunication services by utilizing the frequencies allotted under the Radio Waves Act) purchased by the users without going through the relevant key communications business operator, provide information regarding telecommunications services standards upon request of manufacturer, importer or distributor. < Newly Inserted on Aug. 13, 2013>
(6) Necessary matters for scope and method of the provision of information under Paragraph (5) shall be stipulated by the Enforcement Decree. < Newly Inserted on Aug. 13, 2013>
45
Article 43 (Prohibition of the Use of Information Other Than the Purpose)
A telecommunications business operator shall use the technological information provided under Articles 42 (1) and (3) only for the purpose of provision and may not use it unjustly, or provide it to the third parties.
<Wholly Amended on Dec. 1, 2015>
Article 44 (Report, etc. of Agreement on Interconnection, etc.)
(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 Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(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 Minister of Ministry of Science, ICT and Future Planning 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 < Amended on Mar. 23, 2013>
(3) Notwithstanding Paragraph (2), in case a supplementary agreement is entered into, based on an authorized agreement, to add new services, it shall be reported to the Minister of Ministry of Science, ICT and Future Planning as determined by the Enforcement Decree within 30 days of the execution date, and the contents of the supplementary agreement shall be disclosed within 30 days of the reporting date. The foregoing shall apply to the amendment or abolishment of the supplementary agreement. <Newly Inserted on Oct. 15, 2014>
46
(4) The agreement under Paragraphs (1) through (3) shall meet the standards which are publicly notified by the Minister of Ministry of Science, ICT and Future Planning under Articles 35 (3), 37 (3), 39 (2), 41 (2) or 42 (2). < Amended on Mar. 23, 2013, Oct. 15, 2014>
(5) The Minister of Ministry of Science, ICT and Future Planning may, if any application for authorization, or any report, referred to in Paragraph (2) or Paragraph (3) needs supplemented, order such application for authorization or report supplemented for a fixed period. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(6) The agreement under Articles 41 (1) and 42 (1) may be concluded by an inclusion in the agreement under Article 39 (1). < Amended on Oct. 15, 2014>
(7) Notwithstanding Paragraphs (1) through (3), in case the agreement is modified for the matter of minor importance as determined and announced by the Minister of Ministry of Science, ICT and Future Planning, including modification without a change in the price for uses, such modification shall not be subject to obtaining authorization or making a report. In this case, the modified contents of the agreement shall be disclosed within 30 day of the date of modification. < Newly Inserted on Oct. 15, 2014>
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;
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.;
47
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 for an 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.
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.
48
Article 47 (Demand for Attendance, Hearing, etc.)
(1) 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: < Amended on Aug. 13, 2013>
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.
(2) Necessary details for proceedings of ruling and referral by the Korea Communications Commission other than matters stipulated by Paragraph (1), Article 45 and 46 shall be set forth and publicly notified by the Korea Communications Commission. < Newly Inserted on Aug. 13, 2013>
Article 48 (Management Plan for Telecommunications Number Resources)
(1) The Minister of Ministry of Science, ICT and Future Planning shall formulate and enforce the management plan for telecommunications number resources, which includes matters about telecommunications number system and the allocation, collection, integration, etc. of telecommunications numbers, in order to make an efficient provision of telecommunications service, promote users convenience, create the environments of fair competition among telecommunications business operators, and efficiently use telecommunications number resources, a limited resource of the country. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(2) The Minister of Ministry of Science, ICT and Future Planning shall, when he has formulated the plans under Paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan. < Amended on Mar. 23, 2013>
(3) A telecommunications business operator shall observe the matters publicly noticed under Paragraph (2).
[Heading Amended on Oct. 15, 2014]
49
Article 48-2 (Prohibition of Sale/Purchase of Telecommunication Number)
(1) No one shall sell/purchase telecommunication numbers which are the limited national resources.
(2) If information about the sale/purchase of telecommunication number in violation of Paragraph (1) above is posted on an information and communications network, the Minister of Ministry of Science, ICT and Future Planning may order the provider of information and communications service, as defined in Article 2(1)3 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc., to close the service or restrict postings.
[This Article Newly Inserted on Jan. 27, 2016]
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 Minister of Ministry of Science, ICT and Future Planning, under the conditions as determined by the Enforcement Decree, and keep the related books and authoritative documents. < Amended on Mar. 23, 2013>
(2) The Minister of Ministry of Science, ICT and Future Planning shall, when it intends to determine the matters of accounting adjustments under Paragraph (1), go in advance through a consultation with the Minister of Strategy and Finance. < Amended on Mar. 23, 2013>
(3) The Minister of Ministry of Science, ICT and Future Planning may verify contents of any business report submitted by any key communications business operator in accordance with Paragraph (1). < Amended on Mar. 23, 2013>
(4) The Minister of Ministry of Science, ICT and Future Planning may, if it is necessary to conduct the verification referred to in Paragraph (3), order the relevant key communications business operator to submit related material or launch inspection necessary to ascertain the facts. < Amended on Mar. 23, 2013>
50
(5) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
(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.
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: < Amended on Jan. 27, 2016>
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.;
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;
51
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;
5-2. Act of not explaining or not notifying or act of falsely explaining or falsely notifying users of important matters including the prices for use of service, the terms and condition of agreement, and fee discount;
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 Radios Wave Act are to be used to provide digital contents
(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 Article 5(1) and 5-2, his act shall be deemed the act committed by such telecommunications business operator and only the provisions of Articles 52(1) 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 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:
52
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.;
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 Radios Wave Act are to be used to provide digital contents
(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.
53
(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.
(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.
54
(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: Provided, That where it orders a measure under subparagraphs 1 through 5, 8 and 9, it shall consider the opinion of the Minister of Ministry of Science, ICT and Future Planning: < Amended on Mar. 23, 2013>
1. Separation of the supply system of telecommunications service;
2. Change of internal accounting regulations, etc. concerning telecommunications service;
3. Disclosure of information concerning telecommunications service;
4. Conclusion, performance or change of contents of the agreement between the telecommunications business operators;
5. Change of the standardized use contract and the articles of incorporation of the telecommunications business operators;
6. Suspension of prohibited acts;
7. Public announcement of a fact of receiving a correction order due to committing the prohibited acts;
55
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) If the Korea Communications Commission orders an measure under Paragraphs (1) through (3) above, it shall notify the Minister of Ministry of Science, ICT and Future Planning of it. < Newly Inserted on Jan. 27, 2016>
(5) If a telecommunications business operator fails to implement an order under Paragraph (1) within the period under Paragraph (2) without justifiable reason, the Minister of Ministry of Science, ICT and Future Planning may order partial suspension of business to the telecommunications business operator. < Newly Inserted on Jan. 27, 2016>
56
(6) The standards and procedure of the disposition under Paragraph (5) and other necessary matters related thereto shall be determined by the Enforcement Decree. <Newly Inserted on Jan. 27, 2016>
(7) If the Minister of Ministry of Science, ICT and Future Planning orders partial suspension of business to a telecommunications business operator under Paragraph (5), the Minister may order the measures necessary to protect users under Article 19(2). <Newly Inserted on Jan. 27, 2016>
(8) 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. <Amended on Jan. 27, 2016>
Article 52-2 (Charge for Compelling the Performance with regard to the Measures on Prohibited Acts)
(1) The Minister of Ministry of Science, ICT and Future Planning may impose the charge for compelling the performance on the person, who fails to comply with an order given under Article 52(1) (hereinafter in this Article correction order) within the period prescribed in the correction order, to the extent that a days charge does not exceed 3/1000 of the persons total revenue. In this case, the criteria for calculating the aforesaid revenue shall be determined by the Enforcement Decree in consideration of relevance of violation, and the period and number of violence.
(2) If the Minister of Ministry of Science, ICT and Future Planning imposes the charge for compelling the performance under Paragraph (1), the Minister shall send a written notice in advance that it will impose and collect such charge.
(3) When the Minister of Ministry of Science, ICT and Future Planning imposes the charge for compelling the performance under Paragraph (1), it shall put down in writing the amount of the charge, reason for imposition, payment due date, receiving agency, and method of raising objection and agency with which objection may be filed.
57
(4) The Minister of Ministry of Science, ICT and Future Planning may impose and collect the charge for compelling the performance under Paragraph (1), every 90 days from the initial date of the said correction order until the correction order is performed.
(5) If the person receiving the correction order performs the correction order, the Minister of Ministry of Science, ICT and Future Planning shall immediately stop imposing the charge for compelling the performance; provided that the charge already imposed shall be collected.
(6) If the person receiving the charge for compelling the performance under Paragraph (1) fails to pay the charge within the payment due date, the Minister of Ministry of Science, ICT and Future Planning shall collect the charge according to the example of a disposition taken to collect the national taxes in arrears.
(7) Matters necessary for imposition, payment, collection, objection procedure, etc. with regard to the charge for compelling the performance shall be determined by the Enforcement Decree.
[This Article Newly Inserted on Jan. 27, 2016]
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 Minister of Ministry of Science, ICT and Future Planning 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: < Amended on Mar. 23, 2013>
1. Failure to submit a business report under Article 49 or to abide by an order to submit relevant information;
58
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 Minister of Ministry of Science, ICT and Future Planning or 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. < Amended on Mar. 23, 2013>
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.
(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.
(5) The Minister of Ministry of Science, ICT and Future Planning or 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. < Amended on Mar. 23, 2013>
(6) The Minister of Ministry of Science, ICT and Future Planning or 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. < Amended on Mar. 23, 2013>
59
(7) The period for payment of an additional due under Paragraph (5) shall not exceed 60 months. <Amended on Oct. 15, 2014>
(8) 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. <Amended on Oct. 15, 2014>
Article 54 (Relations with Other Acts)
In case where a measure is taken under Article 52(1) or a penalty surcharge is imposed under Article 53 against the acts in violation of Paragraph (1) of Article 50, a corrective measure or an imposition of penalty surcharge under the Monopoly Regulation and Fair Trade Act shall not be made under the same grounds against the same acts of the relevant business operator. . <Amended on Jan. 27, 2016>
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.
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 Minister of Ministry of Science, ICT and Future Planning shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users. < Amended on Mar. 23, 2013>
60
(3) The Minister of Ministry of Science, ICT and Future Planning may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under Paragraph (2). < Amended on Mar. 23, 2013>
Article 56-2 (Provision of Information on Telecommunication Service)
(1) A telecommunications business operator shall provide users the information necessary for users to choose a telecommunication service, including as the area where telecommunication service is available and the method of service provision.
(2) The type of information and the method and procedure of provision of information under Paragraph (1) shall be determined and publicly announced by the Minister of Ministry of Science, ICT and Future Planning.
(3) The Minister of Ministry of Science, ICT and Future Planning shall regularly check the status of provision of information under Paragraph (1) and public announce the result every year. [Newly Inserted on Jan. 27, 2016]
Article 57 (Prior Selection Systems)
(1) The Minister of Ministry of Science, ICT and Future Planning shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the prior selection systems). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Enforcement Decree from among the same telecommunications service provided by the plural number of telecommunications business operators. < Amended on Mar. 23, 2013>
(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.
61
(3) The Minister of Ministry of Science, ICT and Future Planning 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), and matters necessary for the designation of the prior selection registration center shall be set forth and publicly notified by the Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013, Dec. 1, 2015>
(4) Deleted <Dec. 1, 2015>
Article 58 (Mobility of Telecommunication Numbers)
(1) The Minister of Ministry of Science, ICT and Future Planning may, in order that the users are able to maintain their previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the plans for mobility of numbers). < Amended on Mar. 23, 2013>
(2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs:
1. Kinds of services subject to the mobility of telecommunications numbers;
2. Time for introduction by service subject to the mobility of telecommunications numbers; and
3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator.
(3) The Minister of Ministry of Science, ICT and Future Planning may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures. < Amended on Mar. 23, 2013>
(4) The Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
62
(5) The Korea Communications 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.
Article 59 (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 Minister of Ministry of Science, ICT and Future Planning by taking account of the numbers of the users and the turnovers, etc. < Amended on Mar. 23, 2013>
(2) If necessary for the protection of private personal information, the Minister of Ministry of Science, ICT and Future Planning may limit the provision of the number guidance service. < Amended on Mar. 23, 2013>
(3) Matters necessary for a provision of the number guidance service may be stipulated by the Enforcement Decree.
63
Article 60-2 (Suspension of Use of Telecommunications Termination Equipment Reported Lost, etc.)
(1) A key communications business operator providing telecommunication services by utilizing the frequencies allotted under the Radio Wave Act shall, for the purpose of the suspension of use of telecommunications termination equipment reported lost or stolen to such communications business operator, share the international identification number of the relevant telecommunications termination equipment (hereinafter, the identification number) with each other.
(2) The Minister of Ministry of Science, ICT and Future Planning may designate specialized agency for efficient sharing of the identification number.
(3) If necessary, the Minister of Ministry of Science, ICT and Future Planning shall, for the purpose of the suspension of use of telecommunications termination equipment reported lost or stolen to communications business operators, request cooperation from the head of relevant administrative agency and public agency.
(4) Necessary matters for designation of and management of business of the specialized agency under Paragraph (2) shall be set forth by the Enforcement Decree.
[This Article Newly Inserted on Aug. 13, 2013]
Article 60-3 (Prohibition against Damage, etc. of Identification Number)
No person shall damage, counterfeit or alter the identification number of the telecommunications termination equipment, for the purpose of disturbing the suspension of use of telecommunications termination equipment reported lost or stolen to communications business operators.
[This Article Newly Inserted on Aug. 13, 2013]
64
CHAPTER V TELECOMMUNICATIONS FACILITIES
Section 1. Commercial Telecommunication Facilities
Article 61 (Maintenance and Repair of Telecommunications Facilities)
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 Minister of Ministry of Science, ICT and Future Planning 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 Minister of Ministry of Science, ICT and Future Planning shall be obtained in a manner specified in the Enforcement Decree of the Act. < Amended on Mar. 23, 2013>
(2) The scope of significant telecommunications facilities under Paragraph (1) shall be determined and announced by the Korea Communications Commission. < Amended on Mar. 23, 2013>
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) Key communications business operators that fall under the criteria, including business size, determined by the Enforcement Decree shall compose and operate a council to negotiate with each other about joint installation of telecommunication facilities under Paragraph (1). < Amended on Oct. 15, 2014>
(3) The Minister of Ministry of Science, ICT and Future Planning shall determine and announce the criteria regarding the procedure of composition and operation of the council under Paragraph (2) and regarding the scope of target facilities and areas of negotiations. < Amended on Oct. 15, 2014>
65
(4) For efficient conduct of joint installation of telecommunication facilities under Paragraph (1), the Minister of Ministry of Science, ICT and Future Planning may designate an agency responsible for the relevant task. <Newly Inserted on Oct. 15, 2014>
(5) Matters necessary for the designation of the responsible agency under Paragraph (4) and for the method of conducting the task shall be determined and announced by the Minister of Ministry of Science, ICT and Future Planning. <Newly Inserted on Oct. 15, 2014>
(6) The Minister of Ministry of Science, ICT and Future Planning may recommend joint installation of telecommunications facilities under Paragraphs (1) and (2) to key communications business operators in a manner specified under the Enforcement Decree in any of the following cases: < Amended on Mar. 23, 2013, Oct. 15, 2014>
1. Where no agreement is reached under Paragraph (1) and request is made by one of the key communications business operators;
2. Where it is deemed necessary for the public good.
(7) 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 Minister of Ministry of Science, ICT and Future Planning on use of such land or building. < Amended on Mar. 23, 2013, Oct. 15, 2014>
(8) Upon receiving the request for help under Paragraph (7), the Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013, Oct. 15, 2014>
66
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 Special Metropolitan City Mayor, a Metropolitan City Mayor, a Special Self-Governing City Mayor, a Do Governor, or the Governor of a Special Self-Governing Province (hereinafter referred to as Mayor/Do Governor) having jurisdiction over where the office in which the main facilities are installed is located 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. < Amended on Mar. 23, 2013, Dec. 1, 2015>
(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 Mayor/Do Governor 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. < Amended on Mar. 23, 2013, Dec. 1, 2015>
(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: < Amended on Mar. 23, 2013>
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 Minister of Ministry of Science, ICT and Future Planning.
67
(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). <Amended on Oct. 2014>
(4) If a person who has installed proprietary telecommunications facilities fails to abide by Paragraph (1) above, the Minister of Ministry of Science, ICT and Future Planning may order a cessation of use for a period not exceeding one year. In such case, the Minister of Ministry of Science, ICT and Future Planning shall give a notice of such cessation to the Mayor/Do Governor having jurisdiction over the applicable location. <Newly Inserted on Dec. 1, 2015>
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 Minister of Ministry of Science, ICT and Future Planning 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 32 and Article 33 through 55 shall be applicable. < Amended on Mar. 23, 2013, Aug. 13, 2013>
(2) When the Minister of Ministry of Science, ICT and Future Planning deems necessary for the purposes of Paragraph (1), may order a key communications business operator to handle such task. < Amended on Mar. 23, 2013>
(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.
68
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 in connection with the installment, change and operation of proprietary telecommunications facilities (except for the operation of proprietary telecommunications facilities in breach of Article 65(1) hereof), the Mayor/Do Governor may order a corrective measure to be carried out within a specific time frame. < Amended on Mar. 23, 2013, Dec. 1, 2015>
(2) If a person who has installed proprietary telecommunications facilities falls under any of the following, the Mayor/Do Governor may order a cessation of use for a period not exceeding one year: < Amended on Mar. 23, 2013, Dec. 1, 2015>
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. Deleted <Dec. 1, 2015>
(3) When the Mayor/Do Governor 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. < Amended on Mar. 23, 2013, Dec. 1, 2015>
Section 3. JOINT ESTABLISHMENT OF TELECOMMUNICATIONS FACILITIES, ETC.
Article 68 (Installation of Common Duct or Conduit Line, etc.)
(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. <Amended on Jan. 7, 2014, Jan, 14, 2014, Mar. 29, 2016>
1. | Road under Article 2(1) of the Road Act; |
69
2. | Railroad under Article 2(1) of the Railroad Enterprise Act; |
3. | Urban railroad under Article 2(2) 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(4) of the Aviation Act; |
7. | Port area under Article 2(4) of 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). <Amended on Oct. 15, 2014>
(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.
(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 Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(6) When attempting reconciliation upon receipt of the reconciliation request under Paragraph (5), the Minister of Ministry of Science, ICT and Future Planning shall consult with the head of relevant administrative organization in advance. < Amended on Mar. 23, 2013>
70
(7) Details necessary for reconciliation under Paragraphs (5) and (6) shall be specified under the Enforcement Decree of the Act.
[Enforcement Date: Mar. 30, 2017] Article 68
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 69-2 (Installation of Mobile Telecommunications Facilities for Internal Routing)
(1) The mobile telecommunications facilities for internal routing (referring to the telecommunications facilities required for the use of the key communication service using frequencies allocated pursuant to the Radio Waves Act) shall be installed in any of the following facilities:
1. | Buildings under Article 2(1)(1) of the Building Act, having a total floor area of 1,000 or more square meters, as determined by the Enforcement Decree; |
2. | Housing complex under Article 2(12) of the Housing Act, consisting of 500 or more households, as determined by the Enforcement Decree; and |
3. | Urban railroad facilities under Article 2(3) of the Urban Railroad Act. |
(2) Matters related to the type of the mobile telecommunications facilities for internal routing, standards and procedures for installing thereof shall be specified under the Enforcement Decree.
[This Article Newly Inserted on Jan. 27, 2016]
71
Article 70 Deleted <Dec. 1, 2015>
Article 71 Deleted <Dec. 1, 2015>
Section 4. Installation and Preservation of Telecommunications Facilities
Article 72 (Use of Land, etc.)
(1) A key communications business operator may, when necessary for the installation of line tracks, antenna 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. < Amended on Dec. 1, 2015>
(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.
72
(4) The temporary period of use of the land, etc. under Paragraph (1) shall not exceed six months.
(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, 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.
73
(2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves.
(3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under Paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Minister of Ministry of Science, ICT and Future Planning. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants. < Amended on Mar. 23, 2013>
(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);
74
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.
(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 Minister of Ministry of Science, ICT and Future Planning for the designation of alert areas for the Submarine Cable. < Amended on Mar. 23, 2013>
(4) Upon receiving an application pursuant to Paragraph (3), the Minister of Ministry of Science, ICT and Future Planning 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. < Amended on Mar. 23, 2013>
75
(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.
(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
76
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 are any existing justifiable reasons.
Article 82 (Inspection, Report, etc.)
(1) When necessary for establishing telecommunication policies and other cases specified under the Enforcement Decree of the Act, the Minister of Ministry of Science, ICT and Future Planning may inspect the facility status, accounting books and documents of installers of telecommunications facilities or demand them to make a report on the facilities. < Amended on Mar. 23, 2013>
(2) When there is an installer telecommunications facility in violation of this Act, the Minister of Ministry of Science, ICT and Future Planning may order the removal of the relevant facilities or other necessary actions. < Amended on Mar. 23, 2013>
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.
77
(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;
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.
78
(6) A telecommunications business operator shall report, to the Minister of Ministry of Science, ICT and Future Planning, twice a year the current status, etc. of supplying the communication data, by the methods prescribed by the Enforcement Decree, and the Minister of Ministry of Science, ICT and Future Planning 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). < Amended on Mar. 23, 2013>
(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.
(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.
(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. 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. Where it is prescribed by Enforcement Decree for national security, crime prevention, disaster relief, etc. when providing phone services with special numbers.
79
(3) Deleted <Oct., 15, 2014>
(4) Deleted <Oct. 15, 2014>
Article 84-2 (Prevention of False Display of Telephone Number and Protection of Users)
(1) | No person shall fraudulently display outgoing telephone number by altering, etc. the telephone number, when he makes a call (including text messages; hereinafter in this article, the same shall apply.) in order to take a profit in property by cheating another person or to inflict harm including violent language, intimidations, harassments, etc. |
(2) | No person shall provide, for profit, the service that enables another person to fraudulently displayby altering, etc.outgoing telephone number. Provided, however, this provision under Paragraph (2) shall not apply in the event any justifiable grounds for exception exist (e.g., for public interest or recipients convenience). |
(3) | Telecommunications business operators shall take each of the following measures to prevent users from being damaged by fraudulently displayed telephone number. Provided, however, the foregoing shall not apply in case there exist justifiable grounds under the proviso of Paragraph (2). |
1. | Measure to block a caller from sending fraudulently displayedvia altering, etc.telephone number or to correct the fraudulently displayed callers phone number before transmitting it to the recipient; |
2. | Measure to inform that a call is made from a foreign country, in case the call is from overseas; |
3. | Measure to suspend the provision of telecommunication services to the relevant line of the caller who fraudulently displayed, via altering, etc., his telephone number; |
4. | Other matters determined to protect users by the Minister of Ministry of Science, ICT and Future Planning; |
80
(4) The Minister of Ministry of Science, ICT and Future Planning may request a telecommunications business operator to submit, or enable the Minister to read, the following materials or may conduct a necessary examination, to confirm the implementation of the measure under Paragraph (3) or to prevent the spread of damage to users.
1. Blocked telephone number, blocking time, and the name of an entity that made the call, in case the telecommunications business operator has blocked a callers telephone number that was fraudulently displayed, via alteration, etc.;
2. The name of the entity that made a call, in case a recipient has made a report on fraudulently displayed, via alteration, etc. telephone number;
3. Other relevant materials that may confirm the implementation of each measure under Paragraph (3).
(5) To confirm the implementation of the measures under Paragraph (3) and enforce the measures under Paragraph (4), the Minister of Ministry of Science, ICT and Future Planning may entrust the National Internet Development Agency under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. with tasks as determined by the Enforcement Decree.
(6) The Minister of Ministry of Science, ICT and Future Planning may determine and announce the justifiable grounds under the proviso of Paragraph (2) and specific procedures and methods for implementation of the measures under each of subparagraphs of Paragraph (3) and implementation of Paragraph (4).
(7) Article 64, Article 64-2, and Article 69 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. shall apply mutatis mutandis to the perusal or provision of the materials under Paragraph (4).
[This Article Newly Inserted on Oct. 15, 2014]
Article 85 (Restriction and Suspension of Business)
The Minister of Ministry of Science, ICT and Future Planning may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Enforcement Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications. < Amended on Mar. 23, 2013>
81
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 contract on cross-border provision of key communications services under Article 87(1) and the Enforcement Decree, obtain approval from the Minister of Ministry of Science, ICT and Future Planning fulfilling the requisites prescribed by the Enforcement Decree and the same shall apply to the case where he intends to alter or abolish such agreement or contract. Provided that such telecommunications business operator who has satisfied each of the following requirements may enter into a contract without approval of the Minister of Ministry of Science, ICT and Future Planning: < Amended on Mar. 23, 2013, Aug. 13, 2013>
1. A person who intends to provide key communications services is a citizen of a signatory nation to a free trade agreement entered effect into between the Republic of Korea and one or more other countries and set forth and publicly notified by the Minister of Ministry of Science, ICT and Future Planning;
2. Key communications services transmitting sounds, data, videos, etc. regarding television broadcast or radio broadcast between TV business operators are provided through man-made satellites; and
3. Such operator does not provide key communications service between domestic TV business operators.
(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 Minister of Ministry of Science, ICT and Future Planning, 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. < Amended on Mar. 23, 2013>
82
(4) Deleted. < on Aug. 13, 2013>
(5) Details on the report under Paragraph (3) shall be determined and publicly announced by the Minister of Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013, Aug. 13, 2013>
Article 87 (Cross-Border 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 cross-border provision of key communications services), shall conclude a contract on cross-border 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, 84, 84-2, 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). <Amended on Oct. 15, 2014>
(3) Where a person, who intends to provide a cross-border 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 Minister of Ministry of Science, ICT and Future Planning may cancel approval under Article 86 (2), or issue an order to suspend a cross-border 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. < Amended on Mar. 23, 2013>
(4) Criteria and procedures for dispositions under Paragraph (3) and other necessary matters shall be determined by the Enforcement Decree.
83
Article 87-2 (Display, etc. of Warning)
(1) Any person who manufactures or imports/sells mobile communications terminals may display, on a mobile communications terminal, a warning of the danger of using a mobile communications terminal on the move.
(2) The government may provide necessary support including the cost required under Paragraph (1).
(3) Matters necessary for the content, method, etc. of displaying a warning under Paragraph (1) shall be determined and announced by the Minister of Ministry of Science, ICT and Future Planning.
[This Article Newly Inserted on Oct. 15, 2014]
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 Minister of Ministry of Science, ICT and Future Planning under the conditions as determined by the Enforcement Decree, and keep the related data available. < Amended on Mar. 23, 2013>
(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. < Amended on Mar. 23, 2013>
(3) The Minister of Ministry of Science, ICT and Future Planning 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 are any existing justifiable reasons. < Amended on Mar. 23, 2013>
(4) Mayor/Do Governor shall report the following to the Minister of Ministry of Science, ICT and Future Planning and keep related materials as prescribed by the Enforcement Decree. <Newly Inserted on Dec. 1, 2015>:
84
1. Current state of reporting of installation, and change of installation, of proprietary telecommunications facilities under Article 64(1);
2. Current state of correction, cessation of use, modification, repair and other measures in regard to proprietary telecommunications facilities under Article 67;
3. Current state of imposition of penalty surcharge under Article 90(2); and
4. Current state of imposition of fine for negligence under Article 104(5)10
Article 89 (Hearing)
The Minister of Ministry of Science, ICT and Future Planning shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing: < Amended on Mar. 23, 2013>
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
4. Cancellation of approval under Article 87 (3).
Article 90 (Imposition, etc. of Penalty Surcharge)
(1) The Minister of Ministry of Science, ICT and Future Planning 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 any of subparagraphs of Article 27 (1) and (2) or Article 52(5), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. If the telecommunications business operator refuses to submit the data used for calculation of turnover or submits erroneous data, an estimate of the turnover can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status): Provided, That in the event that the sales amount is nonexistent or difficult to calculate the sales amount, as prescribed by the Enforcement Decree, the Minister of Information and Communication may impose a penalty surcharge not exceeding 1 billion won. < Amended on Mar. 23, 2013, Jan. 27, 2016>
85
(2) When the Minister of Ministry of Science, ICT and Future Planning and Mayor/Do Governor orders cessation of use in regard to proprietary telecommunications facilities under Article 65(4) and 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. < Amended on Mar. 23, 2013, Dec. 1, 2015>
(3) Specific standards for the imposition of penalty surcharge under Paragraph (1) and (2) shall be determined by the Enforcement Decree.
(4) Article 53(5) through (8) shall apply in regard to penalty surcharge, demand for payment and return surcharge. <Amended on Oct. 15, 2014>
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 Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission may either extend the time limit of payment, or have him pay it in installments. In this case, the Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission may, if deemed necessary, have him put up a security therefor: < Amended on Mar. 23, 2013>
86
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.
Article 92 (Correction Orders, etc.)
(1) The Minister of Ministry of Science, ICT and Future Planning or Korea Communications Commission shall issue correction orders in case where a telecommunications business operator or a facility management institution falls under any of the following subparagraphs: < Amended on Mar. 23, 2013, Aug. 13, 2013, Oct. 15, 2014, Jan. 20, 2015, Dec. 1, 2015 and Jan. 27, 2016>
1. Where it violates Articles 3, 4, 4-2, 6, 9 through 11, 14 through 22, 22-3, 22-4. 23, 24, 26 through 28, 30 through 32, 32-3, 32-4, 32-6, 32-7, 32-8, 33 through 35, 35-2, 36 through 44, 47 through 49, 51, 56 through 60, 60-2, 60-3, 61, 62, 64 through 66, 69, 73 through 75, 79 or 82 through 84, 84-2, 85 through 87, and 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 Minister of Ministry of Science, ICT and Future Planning may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications: < Amended on Mar. 23, 2013, Aug. 13, 2013>
1. Integrated operation and management of telecommunications facilities, etc.;
87
2. Expansion of communications facilities for the enhancement of social welfare;
3. Construction and management of communications networks for important communications necessary to achieve efficient performance of States functions, determined by the Enforcement Decree; 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.: <Amended on Mar. 23, 2013, Oct. 15, 2014>
1. Persons who operate a key communications business without obtaining a permit under Article 6 (1);
2. Persons who operate a specific communications business without making a registration under Article 21 (1);
3. Persons who operate a value-added communications business without making a report under Article 22 (1);
4. Persons who operate a value-added communications business of a special type without making a registration under Article 22 (2).
(4) The Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission may extend the period only once in case it is acknowledged that a telecommunications business operator cannot implement the order within the period provided by the order under Paragraphs (1) through (3) due to natural disaster or other unavoidable reason. <This Provision Newly Inserted on Oct. 15, 2014>
(5) The government may subsidize the expenses for construction and management of the important communications in order to secure the important communications in Subparagraph 3 of Paragraph (2). < Newly Inserted on Aug. 13, 2013, Oct. 15, 2014>
88
Article 93 (Delegation and Consignment of Authority)
(1) The following authority of the Minister of Ministry of Science, ICT and Future Planning shall be consigned to the Korea Communications Commission:
1. | Order for partial suspension of business against a telecommunications business operator under Article 52(5); |
2. | Imposition and collection of the charge for compliance under Article 52-2; or |
3. | Imposition of the penalty under Article 90(1) (which shall be limited to the cases where such penalty is imposed as a substitution for a partial suspension of business under Article 52(5); |
(2) The authority of the Minister of Ministry of Science, ICT and Future Planning under this Act (except for the authority consigned to the Korea Communications Commission pursuant to Paragraph (1)) or the authority of the Korea Communications Commission may partially be delegated to the head of affiliated agency, as prescribed by the Enforcement Decree.
[Wholly amended on Jan. 27, 2016]
Article 93-2 (Legal Fiction in Application of Penalty) any member of the committee who is not a public official shall be deemed to be a public official when the provisions of Articles 129 through 132 of the Criminal Act shall apply.
[This Article Newly Inserted on Jan. 27, 2016]
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:
89
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);
5. A person who supplies communication data, and the person who receives such supply, in violation of Article 83 (3).
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: <Amended on May 19, 2011, Jan. 27, 2016>
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);
3-2. A person who operated a value-added telecommunications business without making a registration under Article 22 (2);
4. A person who has operated specific communications services in violation of partial cancellation of license under Article 27(1);
90
5. A person who fails to implement an order under Article 52 (2);
5-2. A person who violates an order for partial suspension of business under Article 52(5);
6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 73 (2);
7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 83 (1).
Article 95-2 (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 100 million won: <Amended on October, 15, 2014, Jan. 27, 2016>
1. | A person who has disclosed anothers secret during his term of office in violation of Article 4-2(3); |
2. | A person who, in violation of Article 32-4 (1) 1, opens a mobile communications terminal in anothers name on condition that he would provide or finance funds and uses the telecommunication service provided to the mobile communications terminal or uses the mobile communications terminal to collect the relevant funds; |
3. | A person who, in violation of Article 32-4 (1) 2, solicits, arranges or mediates, or advertises a contract concerning the provision of telecommunication service required for the use of a mobile communications terminal on condition that he will provide or finance funds; |
4. | A person who, in violation of Article 84-2 (1), fraudulently displays outgoing telephone number by altering, etc. it when he makes a call (including text messages) in order to take a profit in property by cheating another person or inflict harm including violent language, intimidations, harassments, etc. |
91
5. | A person who, in violation of Article 84-2 (2), provides, for profit, the service that enables another person to fraudulently displayby altering, etc.outgoing telephone number. |
[This Article Newly Inserted on Aug. 13, 2013]
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: < Amended on Aug. 13, 2013, Oct. 15, 2014, Dec. 1, 2015>
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);
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) or Article 20(3);
6. A person who runs the value-added communications business without making a report under Article 22(1);
6-2. A person who violates Article 22-3(2) by incapacitatingvia removal or alteration, or circumvention ofthe technical measures under Article 22-3 (1) without reasonable authority;
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);
92
9. A person who fails to subscribe for a guarantee insurance in violation of Article 32(4);
10. A person who discloses, uses or provides the information, in violation of the text of Article 43;
10-2. A person who, for the purpose of disturbing the suspension of use of telecommunications termination equipment reported lost or stolen to communications business operators, damages, counterfeits or alters the Identification number of the telecommunications termination equipment, in violation of Article 60-3;
11. A person who fails to implement the partial restriction or cessation measure ordered pursuant to Article 85;
12. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 86 (2).
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: <Oct. 15, 2014>
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 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);
93
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;
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 <Amended on Jan. 27, 2016>:
1. A person who fails to report on charges in violation of Article 22-4(1) or provides telecommunications services not in accordance with those reported;
2. 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;
3. A person who installs proprietary telecommunications facilities without making a report or modification report under Article 64(1);
4. A person who interconnects others communication through proprietary telecommunication facilities or uses it outside its purpose in violation of Article 65(1);
5. 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;
6. A person violates a usage cessation order under Article 67(2) or an order under Paragraph (3) of the same article;
94
7. 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 an act of providing telecommunications services not in accordance with the standard usage terms and conditions under Article 50(1)5 or those under Article 50(1)5(2)) shall be punished by a fine not exceeding 300 million won <Amended on Jan. 27, 2016>.
Article 100 Deleted <Oct. 15, 2014>
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.
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, 95, 95-2 and 96 through 99 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. < Amended on Aug. 13, 2013, Oct. 15, 2014>
95
Article 104 (Fine for Negligence)
(1) A person who rejects or interferes with or avoids the inspection under Article 51(2) shall be punished by a fine for negligence not exceeding 50 million won. <Newly Inserted on Oct. 15, 2014>
(2) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 30 million won: < Amended on Oct. 15, 2014, Jan. 27, 2016>
1. A person who sells or purchases a telecommunication number in violation of Article 48-2(1);
2. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 73 (2), without justifiable reasons;
3. A person who refuses or impedes an entry to the land, etc. under Article 74 (2), without justifiable reasons;
4. 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;
5. A person who fails to take measures under each of the subparagraphs under Article 84-2(3).
(3) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 20 million won: <Amended on Oct. 15, 2014>
1. A person who violates Article 22(3)1 by failing to take technical measures or violates Article 22(3)3 by failing to record/manage the status of the operation/management of technical measures;
2. A person who violates Article 32-3(2) by failing to not suspend the provision of telecommunication services;
96
3. A person who violates Article 44(2) by failing to apply for approval in regard to execution of an agreement.
(4) A person falling under any of the following shall be punished by a fine not exceeding 15 million won: <Amended on Oct. 15, 2014>
1. | A person who fails to report in regard to execution of an agreement in violation of Article 44(1) or Article 44(3); |
2. | A person who fails to make a report under the main text of Article 86(3). |
(5) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: < Amended on Mar. 23, 2013, Aug. 13, 2013, Oct. 15, 2014, Jan. 20, 2015, Jan. 27, 2016>
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;
2-2. A person who fails to respond to the Korea Communications Commissions order to submit data under Article 22-3(4) or who submits false data;
3. A person who fails to make a report under Article 26;
4. A person who violates the obligation (excluding the effort to prevent users from being damaged) concerning the protection of users under Article 32 (1);
4-2. A person who fails to implement the order of submission of data under the latter part of Article 32(2);
4-3. A person who fails to send the copy of a contract in violation of Article 32(3);
4-4. A person who fails to make a notification of excess of maximum fee limit, etc. under Article 32(2)1.
97
4.5. A person who fails to make a report or provides any telecommunication service which is different from the reported service in violation of Article 32-8;
5. <Deleted on Dec. 1, 2015>;
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);
6-2. A person who fails to provide information regarding telecommunications services standards in violation of Article 42(5);
7. A person who fails to observe the publicly announced matters under Article 48(2), in violation of Article 48 (3);
7-2. A person who fails to comply with an order for closing of the service, or restriction of postings issued by the Minister of Ministry of Science, ICT and Future Planning under Article 48-2(2);
8. 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;
9. A person who fails to execute orders given to furnish related data under the provisions of Article 56 (3);
10. A person who has used proprietary telecommunications facilities without receiving confirmation under Article 64(3);
11. A person who refuses or interferes with inspection under Article 82(1);
12. A person who fails to report under Article 82(1) or makes a false report;
13. A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 83(5);
98
14. 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);
15. A person who fails to respond to the perusal/submission and inspection of the data under Article 84-2(4) or submits false data;
16. A person who fails to make reports or submit the data under Article 88, or falsely do such acts;
17. A person who fails to follow correction orders, etc., under Article 92(1) to (3).
(6) The fine for negligence under Paragraphs (2) through (5) shall be imposed and collected by the Minister of Ministry of Science, ICT and Future Planning, under the conditions as prescribed by the Enforcement Decree: Provided that the fine for negligence under Paragraph (1), Paragraph (3)1, and subparagraphs 2-2, 4-2, and 8 of Paragraph (5) shall be imposed and collected by the Korea Communications Commission and the fine for negligence under subparagraph 17 of Paragraph (5) shall be imposed and collected by the Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission in accordance with the business affairs under the control of each of them. < Amended on Mar. 23, 2013, Oct. 15, 2014, Dec. 1, 2015>
SUPPLEMENTARY PROVISION <No. 13823, Jan. 27, 2016>
Article 1 (Enforcement Date) This Act shall enter into force six months after the date of its promulgation; provided, that Article 93-2 shall enter into force on the date of its promulgation.
Article 2 (Applicability concerning Order for Suspension of Business and Fine Substituting Therefor) The amended provisions of Article 20(1)6, Paragraphs (1)4 and (2)4 of Article 27, Paragraphs (5) through (7) of Article 52 and Article 90(1) shall also apply to any administrative action against any violation of an order under Article 52(1) committed prior to the enforcement of this Act.
Article 3 (Applicability concerning Non-Performance Penalties) Notwithstanding the amended provisions of Article 52(5) and Article 2 of Supplementary Provisions, the amended provisions of Article 52-2 shall apply from the day when the Korea Communications Commission issues an order pursuant to Article 52(1) after the enforcement of this Act.
99
Article 4 (Applicability concerning Order for Partial Suspension of Business and Imposition of Fine following Delegation of Authority) The amended provisions of Subparagraphs 1 and 3 of Article 93(1) shall also be applicable to any failure to comply with any order issued by the Korea Communications Commission prior to the enforcement of this Act pursuant to Article 52(1).
Article 5 (Transitional Measures Resulting from the Enforcement of the Wholly Amended Provisions of the Housing Act Act No. 00000) Subparagraph 12 of Article 2 set forth in the amended provisions of Article 69-2(1)2 shall be deemed to be Subparagraph 6 of Article 2 until August 11, 2016.
100
Exhibit 15.4
ENFORCEMENT DECREE OF
THE TELECOMMUNICATIONS BUSINESS ACT
[Enforced on Jan. 31, 2017] [Amended by Enforcement Decree No. 27750 of Dec. 30, 2016, Partial Amendments]
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.
1. | Wire telephone services; |
2. | Telephone services for emergency communications; and |
3. | 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 on Mar. 23, 2013>
1. | Wire telephone services are telephone services within an area publicly notified by the Minister of Science, ICT(information, communication, technology) and Future Planning based on methods and conditions of use (the Calling Area), falling under any one of the following: |
1
(a) | a local telephone service which is a telephone service (excluding, throughout this Enforcement Decree, the island communication service referred to in (c) below) enabling communication through subscription telephones; |
(b) | a local public telephone service which is a telephone service enabling communication through public telephones; or |
(c) | an island communication service which is a telephone service enabling radio communication between shore and an island or between islands. |
2. | Telephone services for emergency communications are telephone services necessary for maintaining social order and securing human life, falling under any of the following: |
(a) | a special telephone number service, among the key communications services, publicly notified by the Minister of Science, ICT and Future Planning; 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. | Services of which fees are reduced or exempted for the disabled and the low income class are 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 LTE service among the key communications services; or |
2
(d) | an Internet subscriber connection service; |
(e) | an Internet phone service. |
(f) | Mobile Internet Service |
(3) Any of the following shall be entitled to the services of which fees are reduced or exempted pursuant to subparagraph 3 of paragraph (2); provided, however, that the services for which fees are reduced or exempt pursuant to subparagraphs 8 and 9 below shall be limited to the mobile telephone service, the personal communication service, the IMT-2000 service, and the LTE service: <Amended on Nov. 30, 2015>
1. | the disabled under Article 32 of the Welfare of Disabled Persons Act or welfare institutions or groups for the disabled under the same Act. Provided, that a family which includes the disabled as a member of the family shall be exempted from paying service fees of the local phone service, long distance phone service, internet subscriber access service and internet phone service; |
2. | special schools under the Elementary and Secondary Education Act; |
3. | child welfare institutions under the Child Welfare Act; |
4. | the recipients of livelihood benefits under Article 7(1)1 of the National Basic Livelihood Security Act or the recipients of medical benefits under Article 7(1)3 of the same Act: Provided that in the event of a local telephone service, the Long Distance Telephone Service, Internet subscriber connection service or Interne Phone Service, households composed of such persons. |
5. | the Korean Association of Wounded Soldiers and Police Officials or the Association Commemorating the April 19 Democratic Revolution under the Act on Establishment of Organizations for Persons, etc. of Distinguished Services to the State; |
3
6. | soldiers or policemen wounded in action, soldiers or policemen wounded on duty, wounded activists of the April 19 Revolution, public officials wounded on duty, wounded special contributor to national and social development or wounded anticommunist captive under the Act on Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State. Provided, that a family which includes the disabled as a member of the family shall be exempted from paying service fees of the local phone service, long distance phone service, internet subscriber access service and internet phone service; 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. Provided, that a family which includes the disabled as a member of the family shall be exempted from paying service fees of the local phone service, long distance phone service, internet subscriber access service, and internet phone service. |
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(10) 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 Minister of Science, ICT and Future Planning: |
(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) | <Deleted on Jan. 7, 2014> |
(d) | <Deleted on May 31, 2013> |
(e) | a person receiving disability allowances pursuant to Article 49 of the Welfare of the Disabled Persons Act and a person receiving allowances for raising and protecting disabled children pursuant to Article 50(1) of the same Act; and |
4
(f) | a person requiring protection under Article 5 of the Single-Parent Family Assistance Act, including a person who has ratio of recognized income to median income of 52 or below to 100. |
(g) | A person receiving disability support pension pursuant to Article 10 of the Pension Act for the Disabled. |
(h) | A person who belongs to the working poor class in the Social Security Information System under Article 37 Paragraph 2 of the Framework Act on Social Security and is relevant to conditions, determined and publicly notified by the Minister of Science, ICT, and Future Planning. |
9. | Recipients under the National Basic Livelihood Security Act who do not receive the livelihood benefits under Article 7(1)1 of the National Basic Livelihood Security Act or the medical benefits under Article 7(1)3 of the same Act (including the family members of the recipients of educational benefits under subparagraph 4 of the same paragraph). The number of family members eligible for fee reduction or exemption for such family shall be determined by the Minister of Science, ICT and Future Planning. |
(4) Any person of followings shall apply for the service fees exemption under the Paragraph 2 Subparagraph 3 <Amended, Nov. 30, 2015>:
1. In case where the service fee is exempt under Paragraph 3 Subparagraph 1, 4, or 7, either a person exempted from paying service fees or a head of a household among members of the family;
2. Deleted <Nov. 30, 2015>;
3. In case where the service fees exemption is applied under situations, other than situations, prescribed in Subparagraph 1, a person exempted from paying service fees (In case of Paragraph 3 Subparagraphs 8 and 9, each of members of the household)
(5) The Minister of Science, ICT, and Future Planning shall publicly notify the standard of service fee exemption, prescribed in Paragraph 2 Subparagraph 3, and this public notice shall be based on the consideration of the business scale, the level of service fee, etc., of the service provider. <Newly inserted on May 31, 2013>
[Wholly amended on Feb. 28, 2012]
5
Article 3 (Designation of Telecommunications Business Operator who Provides Universal Services)
(1) If the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(2) To confirm the status of the provision of universal services, the Minister of Science, ICT and Future Planning may request a telecommunications business operator who is designated as a Business Operator Providing Universal Services under paragraph (1) shall to submit data about the results of provision of universal services, the cost relevant to the provision, etc. In this case, the Business Operator Providing Universal Services shall respond to the request without justifiable reasons. <Amended on Dec. 23, 2014>
[Wholly Amended on Feb. 28, 2012]
Article 4 (Compensation for Losses Incurred through Provision of Universal Services)
(1) The Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
(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 Minister of Science, ICT and Future Planning within three months after the expiration of the relevant fiscal year. <Amended on Mar. 23, 2013>
6
(3) The Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
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: <Amended on Mar. 23, 2013>
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 Minister of Science, ICT and Future Planning 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. |
7
(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.
(3) In Article 4 (2) 2 of the Act, the amount prescribed under the Enforcement Decree of the Act means 30 billion won.
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning; 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 Minister of Science, ICT and Future Planning shall be the provisional Compensation For Losses Incurred Through Universal Services. <Amended on Mar. 23, 2013>
(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: <Amended on Mar. 23, 2013>
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 |
8
2. | the amount computed by the Minister of Science, ICT and Future Planning 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 Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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 on Mar. 23, 2013>
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 |
9
4. | any buildings or sites adjacent to the buildings or sites prescribed under paragraphs 1-3 and publicly notified by the Minister of Science, ICT and Future Planning. |
[Wholly Amended on Feb. 28, 2012]
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, Amended on Mar. 23, 2013 >
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 Minister of Science, ICT and Future Planning.
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 Minister of Science, ICT and Future Planning a key communications business permit application with each of the following documentation attached thereto: <Amended on Mar. 23, 2013>
1. | articles of incorporation of the corporation (including, throughout this Article 10, the corporation to be incorporated); |
10
2. | shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation; and |
3. | a business proposal. |
(2) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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 modification of license under Article 16(1) of the Act, the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
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; |
6. | details of major business facilities and equipment and the locations where such facilities and equipment are installed; |
11
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 Minister of Science, ICT and Future Planning by writing the reason for such loss or damage in its application thereto. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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.
(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.
12
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. |
3. | In case where the control of the key telecommunications business operator is, in fact, changed since there are any changes in the largest shareholders of the business operator |
4. | In case where the control of the key telecommunications business operator is actually changed by an agreement, related to the exercise of voting right, by and between a person who is not a shareholder of the business operator and a shareholder of the business operator (or a person who actually controls the business operator). |
Article 14 <Deleted by Enforcement Decree No. 22616 Oct. 1, 2010>
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 Minister of Science, ICT and Future Planning documentation indicating each of the following: <Amended on Mar. 23, 2013>
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 |
13
3. | details of any of the facts falling under each of the subparagraphs of Article 10(1) of the Act. |
(2) The Minister of Science, ICT and Future Planning may, where it deems necessary, request for the documentation already submitted to it to be supplemented within a period reasonably fixed. < Amended on Mar. 23, 2013>
(3) Except under special circumstances, with respect to any matter the Minister of Science, ICT and Future Planning referred to the public interest aspect examination committee, the public interest aspect examination committee shall notify the Minister of Science, ICT and Future Planning of the result of its screening within 3 months of the date of such referral. <Amended on Mar. 23, 2013>
(4) The Minister of Science, ICT and Future Planning shall notify the person filing a report or requesting a screening of the result of examination of public interest aspect under paragraph (3). < Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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 on Mar. 23, 2013>
1. | the Ministry of Strategy and Finance; |
2. | the Ministry of Foreign Affairs; |
3. | the Ministry of Justice; |
4. | the Ministry of National Defense; |
5. | the Ministry of Government Administration and Home Affairs; |
14
6. | the Ministry of Trade, Industry and Energy. |
7. | the Fair Trade Commission |
8. | the National Police Agency |
(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.
[Wholly Amended on Feb. 28, 2012]
Article 16-2 (Dismissal of Members of Public Interest Aspect Examination Committee)
Where a member of the Public Interest Aspect Examination Committee as prescribed in Article 11(2) of the Act falls under any of the following, the chairman of the Public Interest Aspect Examination Committee may dismiss or withdraw nomination of the concerned member from the Public Interest Aspect Examination Committee:
1. | Where the member becomes unable to perform his/her duties as a member of the Public Interest Aspect Examination Committee; |
2. | Where the member has committed a misdeed in connection with his/her duties; |
3. | Where the member is deemed unsuitable as a member of Public Interest Aspect Examination Committee due to his/her neglect of duties, injury to dignity or other reasons; or |
4. | Where the member voluntarily expresses that it is impracticable to conduct his/her duties. |
[Newly inserted on January 17, 2017]
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.
15
(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 Ministry of Science, ICT and Future Planning. < Amended on Mar. 23, 2013>
(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.
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(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:
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; |
16
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 Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(4) Any person who has been notified under paragraph (3) shall pay the charges for compelling execution within 30 days of the date of receiving such notice; provided that, in the event such person is unable to pay the charges for compelling execution within said period due to a natural disaster or other unavoidable circumstances, such person shall pay the charges for compelling execution within 30 days of the day on which said causes have disappeared.
(5) In collecting charges for compelling execution and in the event a corrective order has not been complied with after 90 days elapsed from the date of expiration of the period set by the corrective order, the Minister of Science, ICT and Future Planning may collect charges for compelling execution based on the dates on which each 90 day period elapses from said expiration date. < Amended on Mar. 23, 2013>
(6) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution.
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning an application for a permit to change to a key communications business with supporting documents confirming proposed changes attached thereto: < Amended on Feb. 28, 2012, Amended on Mar. 23, 2013>
17
(2) The Minister of Science, ICT and Future Planning 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. <Amended on Feb. 28, 2012, Amended on Mar. 23, 2013>
(3) Deleted <October 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 on Apr. 14, 2015>
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 |
2. | matters concerning the permission criteria under Article 6(6) of the Act. |
[Title of this Article Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning an approval application for the transfer of a key communications business with each of the following documentation attached thereto: <Amended on Mar. 23, 2013>
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; |
18
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 Minister of Science, ICT and Future Planning an approval application for the merger with a key communications business with each of the following documentation attached thereto: <Amended on Mar. 23, 2013>
1. | a copy of the merger agreement; |
2. | articles of incorporation of the parties to the merger agreement, and documentation supporting the merger; |
3. | shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation that shall continue to exist after the merger or be incorporated through the merger; |
4. | present status of the parties to the merger agreement; and |
5. | post-merger business proposal. |
(3) A key communications business operator who wishes to obtain approval of the sale of telecommunications line facilities and equipment pursuant to Article 18(1)3 of the Act shall submit to the Minister of Science, ICT and Future Planning an approval application for the sale of telecommunications line facilities and equipment with each of the following documentation attached thereto: <Amended on Mar. 23, 2013>
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; |
19
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 Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
1. | documentation supporting the share purchase, such as a copy of the share purchase agreement; |
2. | articles of incorporation of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement; |
3. | present status of the shareholders of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement; |
4. | present status of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement; |
5. | purpose of, reasons for and an analysis of the effect of acquisition of the shares; |
6. | proposal for dual appointment of officers (only when considering dual appointment of an officer of the counterparty); and |
20
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 and submit them to the Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
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. shareholder 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
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.
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;
21
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.
(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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
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.
22
(9) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(10) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
(11) If a person falling in each subparagraph of Article 18(1) of the Act (excluding a person falling in Article 18, subparagraphs 3 and 6 of the Act and a key communication business operator designated and announced in accordance with Article 39(3) of the Act, called hereinafter in this Article as the Transferee) conducts any of the activities falling in each subparagraph of Article 18(1) of the Act (excluding any activity falling in Article 18, subparagraph 3 or 6 of the Act, called hereinafter in this Article as Transfer & Merger) with respect to a key communications operator whose sales in the preceding year recorded KRW 10 billion or less to lead to any of the following results, such will be seen to have trivial effect on competition of key communications business under proviso clauses to each subparagraph of Article 18(2) or Article 18(11) of the Act: <Newly inserted on Apr. 14, 2015>
1. | When the relevant Transfer & Merger does not create any of the relationships (Controlling Relationship) falling in any of the following items: |
a. When the shares (including interests, the same below in this Article) of the Transferee account for 50/100 or more; or
b. When the shares of the Transferee account for less than 50/100 and the Transferee is one of the following persons:
1) | If the Transferee is the largest shareholder and may in view of the stock dispersion level control the Company through exercise of the shareholders rights; or |
23
2) | If the Transferee supplies more than 50/100 of the raw materials and is a market dominant enterprise under Article 2, subparagraph 7 of the Monopoly Regulation and Fair Trade Act in the field of production of raw materials. |
2. When the Transferee acquires key communications business of a key communications business operator having already formed Controlling Relationship; or;
3. When the Transferee merges a corporation being a key communications business operator having already formed Controlling Relationship.
(12) In accordance with proviso clauses to each subparagraph of Article 18(2) or Article 18(11) of the Act, the Minister of Science, ICT and Future Planning may with respect to a person falling in paragraph (11) in the above approve Transfer & Merger after consulting with the Fair Trade Commission under Article 18(6) of the Act only upon examination as to whether the protective measures of users are proper under Article 18(2)4 of the Act. <Newly inserted on Apr. 14, 2015>
[Wholly amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
24
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. |
[Wholly Amended on Feb. 28, 2012]
Article 23 <Deleted on Oct. 1, 2010>
Article 24 (Application for a Permit to Suspend Business, etc.)
(1) A person who wishes to obtain authorization to suspend or discontinue business pursuant to Article 19(1) of the Act shall submit to the Minister of Science, ICT and Future Planning each of the following documentation at least 60 days prior to the expected suspension or discontinuation date. <Amended on Apr. 14, 2015>
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. |
25
(2) Documents required by the Presidential Decree including the details of the business to be suspended or discontinued, and drawings of such businesss territories under Article 19(3)1 of the Act shall mean each of the documents under paragraph (1) in the above. <Newly inserted on Apr. 14, 2015>
[Wholly Amended on Feb. 28, 2012]
Article 25 (Criteria, Procedures, etc. for Revocation of Permits)
(1) The period prescribed by the Presidential Decree pursuant to Article 20(1)4-2 of the Act shall means six (6) months. <Newly inserted on Apr. 14, 2015>
(2) 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 on Apr. 14, 2015>
(3) Upon revocation of permits, cancellation of registration or suspension or discontinuation of business under paragraph (2), the Minister of Science, ICT and Future Planning shall issue public notification thereof without delay, and notify the relevant telecommunications business operator in writing. <Amended on Feb. 28, 2012, Amended on Apr. 14, 2015>
[Title of this Article amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
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); |
26
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 |
(2) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
Article 27 (Issuance of Certificates of Registration)
(1) Upon receipt of a registration application under Article 26(1) hereof, the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
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; |
27
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. |
(2) The Minister of Science, ICT and Future Planning 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). <Amended on Mar. 23, 2013>
(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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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.
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning a value-added communications business report (including an electronic report) and each of the following documentation (including an electronic report) : <Amended on Mar. 23, 2013>
28
1. | a network map diagram (including an electronic diagram, but applicable only where new types of value-added communications services are reported and the Minister of Science, ICT and Future Planning 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) A person who wishes to register a value-added telecommunication business of a special type under the former part of Article 22(2) of the Act shall submit to the Minister of Science, ICT and Future Planning an application form for the registration of a value-added telecommunications business of a special type (including an electronic report) and each of the following documentation (including an electronic report) : <Amended on Mar. 23, 2013>
1. articles of corporation (only for the legal entity including a corporation to be incorporated); and
2. documentation supporting the registration application meets the registration requirements under each of the subparagraphs of Article 22(2) hereof.
(3) the Minister of Science, ICT and Future Planning receiving report under paragraph (1) or registration application under paragraph (2) shall confirm a certificate of details of corporate register through joint use of administrative information under Article 36(1) of the Electronic Government Act. <Amended on Mar. 23, 2013>
(4) When there is an error in a value-added telecommunications business report under paragraph (1) or an application form for the registration of a value-added telecommunication business operator of a special type pursuant under paragraph (2) or the documentation attached to such report is insufficient, the Minister of Science, ICT and Future Planning may request for such report or application 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 or applying for the registration. <Amended on Mar. 23, 2013>
29
(5) Upon receipt of a value-added communications business report under paragraph (1), the Minister of Science, ICT and Future Planning shall issue a report certificate to the person filing such report. <Amended on Mar. 23, 2013>
(6) Upon receipt of a registration application under paragraph (2) hereof, the Minister of Science, ICT and Future Planning shall verify whether such registration application meets the registration requirements under paragraph (9) hereof, make recordation of each of the following in a registration registry of a value-added telecommunication business operators of a special type and issue to the applicant a certificate of registration as a special-type of value-added telecommunications business operator within 30 days of the date of application: <Amended on Mar. 23, 2013>
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. | any conditions upon which the registration is authorized. |
(7) A value-added communications business operator whose report certificate, issued pursuant to paragraph (5) or certificate of registration issued pursuant to paragraph (6), 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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
(8) Matters determined by the Presidential Decree such as business plan under Article 22(2)4 constitutes a business plan and a user protection plan.
30
(9) The registration requirements for a value-added telecommunication business of a special type under Article 22(2) are shown in Table 3.
[Wholly Amended on Feb. 28, 2012]
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 Article 22(4)1 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 on Apr. 14, 2015>
(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, to the Minister of Science, ICT and Future Planning in accordance with Article 22 (1) of the Act. <Amended on Apr. 14, 2015>
[Wholly Amended on Feb. 28, 2012]
Article 30-2 (Reasons for Disqualification from Registration)
An investor determined by the Presidential Decree under Article 22(2) means a person falling under each of the following subparagraphs:
1. A person who holds the larger amount of shares for his own account regardless of the title thereof between a person who owns issued shares having the voting right of the corresponding legal entity or shares invested (referred to as shares, etc. in this Article) and a person with special relationship falling under any one of the subparagraphs of Article 8 of the Enforcement Decree of the Financial investment Service and Capital Market Act.
31
2. Any person who owns more than 10/100 of the corresponding legal entitys shares for his own account regardless of the title thereof or a shareholder who exercises its power on the management of the corporation by way of appointment of executives, etc. and falling under any one of the subparagraphs of Article 9 of the Enforcement Decree of the Financial investment Service and Capital Market Act.
<Newly inserted on Nov. 14, 2011> <Enforcement Date: Nov. 20, 2011>
Article 30-3 (Technical Measures, Etc. to Prevent Distribution of Illegal Obscene Information)
(1) Technical measures prescribed by the Presidential Decree under Article 22-3(1) of the Act shall include any of the following measures:
1. Measures allowing a person (Operator, below in this Article) providing services under Article 2, subparagraph 13, item a of the Act among those who have registered a special type of value-added communications business in accordance with Article 22(2) of the Act to recognize any information as illegal information (Illegal Obscene Information) under Article 44-7(1)1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. based on review of titles and characteristics, etc. of such information;
2. Measures restricting search or transmission and receipt of the relevant information by users in order to prevent distribution of illegal obscene information recognized by the Operator in accordance with subparagraph 1 in the above;
3. In case the Operator finds the illegal obscene information being distributed due to failure to recognize such information notwithstanding the measures under subparagraph 1, measures of restricting search or transmission and receipt by users; and
4. The Operators sending of warnings to transmitters of illegal obscene information on prohibition of distribution of illegal obscene information.
(2) The period prescribed by the Presidential Decree under Article 22-3(3) of the Act shall mean two (2) years.
[Newly inserted on Apr. 14, 2015]
32
Article 30-4 (Report and Disclosure of Value-Added Telecommunication Services Fees)
(1) If telecommunications business operators intend to make a report of their service fees for the value-added telecommunication services as described in Article 2(13)B of the Act to the Minister of Ministry of Science, ICT and Future Planning (including modified report), the following documents shall be submitted for the purpose set forth below:
1. | Report of Service Fees: Grounds for calculation of service fees |
2. | Report of Change in Service Fees: Details and grounds for change in services fees |
(2) If telecommunications business operators intend to disclose the content of their reports made under Article 22-4(1) of the Act pursuant to Article 22-4(2) of the Act, telecommunications business operators shall publish details thereof on their website.
[Newly Inserted on July 28, 2016]
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; |
3. | types of services provided; |
4. | capital (for specific communications business operators only); |
5. | expert personnel (for specific communications business operators only); |
6. | user agreements (only for specific communications business operators who concluded an agreement with a key communications business operator using frequency allocated pursuant to the Radio Waves Act); |
33
7. | changes to specific communications business or added-value communications business under Article 21(1), former part of Article 22(1) or paragraph (2) of the same Act (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 ). |
(1) 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 or an application to register amendment to the value-added telecommunication business of a special type (including an electronic application or report), and documentation (including electronic documentation) supporting the relevant amendment shall be submitted to the Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
(2) Upon receipt and registration, or receipt and processing, of an application to register amendment or a report of amendment, the Minister of Science, ICT and Future Planning shall issue either a registration certificate on which the relevant amendment is recorded or a report certificate. <Amended on Mar. 23, 2013>
(3) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning a business transfer application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: <Amended on Mar. 23, 2013>
34
1. | a copy of the business transfer agreement; |
2. | documentation prescribed under each of the subparagraphs of Article 26(1) or Article 29(1) and (2); 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 Minister of Science, ICT and Future Planning a merger application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: <Amended on Mar. 23, 2013>
1. | a copy of the merger agreement; |
2. | documentation prescribed under each of the subparagraphs of Article 26(1) or 29(1) & (2) 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 Minister of Science, ICT and Future Planning an inheritance report (including an electronic application) with documentation (including electronic documentation) demonstrating that she or he is the heir attached thereto. <Amended on Mar. 23, 2013>
35
(4) The Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(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 Minister of Science, ICT and Future Planning shall issue either a specific communications business registration certificate, a value-added telecommunication business report certificate or the certificate of registration of a value-added telecommunication business of a special type. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
Article 33 (Report on Suspension or Discontinuation of Business)
(1) 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 pursuant to Article 26(1) shall at least 15 days prior to the expected suspension or discontinuation date submit to the Minister of Science, ICT and Future Planning a report on suspension or discontinuation 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 on Mar. 23, 2013>
(2) A person who wishes to file a report on dissolution of a corporation that is a specific communications business operator or a value-added communications business operator pursuant to Article 26(2) shall submit to the Minister of Science, ICT and Future Planning a report on dissolution of a specific communications business or a value-added communications business (including an electronic application) without delay. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
36
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 on Mar. 23, 2013>
1. | Among the key telecommunications 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, in the unit market, defined in Article 38, the service publicly notified by the Minister of Science, ICT and Future Planning whose public notice is based on consideration of the market scale, the number of users, competition status, etc., ; 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 Minister of Science, ICT and Future Planning shall designate and issue public notification of the key communications business operators and services prescribed under paragraph (1); provided that, the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
37
(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 Minister of Science, ICT and Future Planning may file a report with the Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
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 the proviso of Article 28(1) or (2) of the Act shall submit to the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
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. |
[Wholly Amended on Feb. 28, 2012]
Article 36 (Services Entitled to Exemption of Fees)
Telecommunications services entitled to the exemption of fees pursuant to Article 29 of the Act shall be as follows.
38
1. | Telecommunications services for the communications concerning the rescue of human lives and properties in danger, and the rescue from disasters or for the communications by the victims of disasters; |
2. | Telecommunications services for the whole or part of exclusive line communications used by such agencies, in case where the exclusive line communications of agencies which are fully responsible for military, public order and national security, and a part of self-communications network of public institutions under the Enforcement Decree of the Act on the Management of Public Institutions 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. | Newspapers under the Act on the Promotion of Newspapers, news communications under the Act on the Promotion of News Communications, and telecommunications services for 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. |
[Wholly amended on Feb. 28, 2012]
39
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:
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. |
[Wholly amended on Feb. 28, 2012]
Article 37-2 (Evaluation of User Protection Duties) (1) When the Korea Communications Commission evaluates the user protection duty of telecommunications service providers in accordance with Article 32(2) of the Act, the Commission shall select providers subject to evaluation based on overall consideration of the following matters:
1. Size of users per telecommunications service of telecommunications service providers;
2. Frequencies of complaints raised by users; and
3. Frequencies of acts harming benefit of users including prohibited acts under Article 50(1) of the Act.
(2) The Korea Communications Commission shall each year evaluate user protection duty of the telecommunications service providers subject to evaluation under paragraph (1) in the above in accordance with the following criteria of evaluation:
40
1. | Adequacy of the user protection duty managing system; |
2. | Records of compliance with the applicable laws in connection with user protection duty; |
3. | Records of activities preventing harm to users; |
4. | Records of handling with opinions or complaints from users; and |
5. | Any other relevant matters to user protection duty |
(3) The Korea Communications Commission shall give a written notice of the evaluation plan setting out the evaluation schedule and particulars to the persons subject to evaluation under paragraph (1) in the above not later than 10 days prior to the date set for such evaluation and may order the evaluated person to submit necessary data.
(4) The Korea Communications Commission shall notify each evaluated person of the evaluation result of user protection duty in accordance with paragraph (2), and shall reflect such result on the pursuit of the relevant policies.
[Newly inserted on Apr. 14, 2015]
[The former provision of Article 37-2 is transferred to Article 37-2 <Apr. 14, 2015>]
Article 37-3 (Operators Required to Deliver a Copy of the Contract and the Method of Delivery) (1) Telecommunications service providers prescribed by the Presidential Decree under Article 32(3) of the Act shall mean telecommunications service providers providing key communications service: provided, however, that a telecommunications service provider who directly delivers contracts to users in accordance with terms of use shall be excluded.
(2) Telecommunications service providers under the main body of foregoing paragraph (1) shall send a copy of the contract to users by way of any of the following methods selected by users within one (1) month from the execution date in accordance with Article 32(3) of the Act: provided, however, that if the user does not select any of the following methods, the copy shall be sent by way of the method under subparagraph 1:
1. Mail or facsimile or
2. Notice by way of information communications network under Article 2(1)1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. including e-mail.
41
[Newly inserted on Apr. 14, 2015]
Article 37-4 (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(4) shall submit each of the following items to the Minister of Science, ICT and Future Planning, provided that a specific communications business operator shall submit it to the head of the Central Radio Management Office. <Amended on Apr. 14, 2015>
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 Minister of Science, ICT and Future Planning for prepaid phone services business standards and customer protection, etc.
(2) A telecommunications business operator seeking to provide the prepaid phone services under paragraph (1) shall abide by each of the following: <Amended on Mar. 23, 2013>
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;
42
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 Minister of Science, ICT and Future Planning 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 to the expiration date. In this case, financial statements and other materials specified by the Minister of Science, ICT and Future Planning shall be provided to the Minister of Science, ICT and Future Planning 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(4) is an amount not less than 50% of the prepaid phone service charges and determined in accordance with the standards announced by the Minister of Science, ICT and Future Planning, taking into consideration the prepaid phone service providers pain-in capital and the prepaid phone service charges. <Amended on Apr. 14, 2015>
(4) The case specified under the Enforcement Decree of the Act in the proviso of Article 32(4) means each of the following case: <Amended on Apr. 14, 2015>
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;
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.
43
(5) When the beneficiary receives insurance proceeds, such shall be distributed to users within 60 days from the date of receipt under Article 32(5) 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. <Amended on Apr. 14, 2015>
(6) business standards and methods concerning the guarantee insurance and insurance proceeds not otherwise specified in paragraph (2 )and (5) shall be determined and announced by the Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
[Transferred from Article 37-2 <Apr. 14, 2015>]
Article 37-5 (Particulars and Method of Raising Objections) (1) A telecommunications service provider in receipt of an order for suspension of telecommunications service from the Minister of Science, ICT and Future Planning in accordance with Article 32-3(1) of the Act shall notify the users of each of the following matters in accordance with Article 32(2) of the Act: <Amended on Jul. 6, 2016, Jul. 28, 2016>
1. | Name, department in charge and telephone number of the administrative authority requesting suspension of the relevant telecommunications service; |
2. | Reasons of suspending the provision of the relevant telecommunications service; and |
3. | The period and process of raising objections as per the following classification: |
a. Request for suspension under Article 32-3(1)1 of the Act: the period and process of raising objections in accordance with Article 6-5(2) of the Enforcement Decree of the Act on Registration of Credit Business, Etc.
b. Request for suspension under Article 32-3(1)2 of the Act: the period and process of raising objections in accordance with Article 10-2(1) of the Enforcement Decree of the Special Act on the Prevention of Loss Caused by Telecommunications-Based Financial Fraud and Refund for Loss
44
c. Request for suspension under Article 32-3(1)3 of the Act: the period and process of raising objections in accordance with Article 6-2(1) of the Enforcement Decree of the Electronic Financial Transactions Act
(2) In accordance with Article 32-3(3) of the Act, a telecommunications service provider shall notify the users of the relevant telecommunications service of the process of raising objections under foregoing paragraph (1) by way of any of the following methods:
1. Mail or facsimile;
2. E-mail; or
3. Telephone or text message.
[Newly inserted on Apr. 14, 2015]
Article 37-6 (Identity Verification at the Time of Entering into Contracts) (1) Telecommunications Service Providers prescribed by the Presidential Decree under Article 32-4(2) of the Act shall mean the telecommunications service providers providing mobile communications service under Article 2, subparagraph 1 of the Act on the Mobile Device Distribution Improvement Act.
(2) The telecommunications service providers under paragraph (1) shall verify the identification of the counterparty (including his/her/its legal representatives) through any of the certificates and documents set out in the following subparagraphs to be submitted by the counterparty in accordance with Article 32-4, paragraphs (3) and (4) of the Act. Such verification may be replaced by official electronic signature under Article 2, subparagraph 3 of the Digital Signature Act when a contract is entered into by way of communications network system:
1. Individual: Resident registration I.D. certificate, drivers license certificate, disabled persons registration certificate, national honoree certificate, independence patriot certificate, 5 . 18 democracy contribution certificate or passport of Korean national;
45
2. Corporation: Business registration certificate or unique number certificate;
3. Entities not being a corporation: Unique number certificate; or
4. Foreigners and Korean residents abroad: Unique number certificate.
(3) Telecommunications service providers under paragraph (1) shall check the genuineness of the documents and the certificates under foregoing paragraph (2) by way of the System for Prevention of Unlawful Subscription under Article 32-5(1) of the Act.
(4) In case where the counterparty may not submit the certificates or the documents under foregoing paragraph (2) or genuineness of such certificates or documents cannot be checked by ways of the System for Prevention of Unlawful Subscription, the telecommunications service provider under paragraph (1) shall notwithstanding paragraph (2) or (3) verify the identification of the counterparty through certificates, etc. under the terms of use equivalent to the certificates or documents set out in paragraph (2) in the above.
[Newly inserted on Apr. 14, 2015]
Article 37-7 (Entrustment of Establishment and Operation of the System for Prevention of Unlawful Subscription) (1) The Minister of Science, ICT and Future Planning shall entrust the duties relating to establishment and operation of the system for prevention of unlawful subscription to the Korea Association for ICT Promotion under Article 15 of the Framework Act on Broadcasting Communications Development in accordance with Article 32-5(3) of the Act.
(2) The Minister of Science, ICT and Future Planning may assist expenses incurred for the conduct of the duties entrusted in accordance with foregoing paragraph (1).
[Newly inserted on Apr. 14, 2015]
46
Article 37-8 (Method and Process of Provision of Media Products Harmful to Juveniles) (1) A telecommunications service provider entering into the telecommunications service provision contract with the juveniles under the Juvenile Protection Act shall provide in their mobile communications terminals software, etc. blocking media products harmful to juveniles under Article 2, subparagraph 3 of the Juvenile Protection Act in order to block access by the juveniles to media products and illegal obscene information harmful to juveniles (media products harmful to juveniles) in accordance with Article 32-7(1) of the Act.
(2) Provision of the blocking means in accordance with foregoing paragraph (1) shall be done in the following process:
1. Upon execution of the contract:
a. Notification to the juveniles and their legal representatives of the means and particulars of blocking means; and
b. Confirmation of installation of the blocking means
2. After execution of the contract: If the blocking means are deleted or not operational for 15 days, notification thereof each month to the legal representative.
[Newly inserted on Apr. 14, 2015]
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:
1. | demand substitutability and supply substitutability of the services; |
2. | geographical scope of the services provided; |
47
3. | transaction stages of the services provided such as retail (meaning transactions between telecommunications business operators and ultimate users of the services provided by such telecommunications business operators) and wholesale (meaning transactions through which telecommunications facilities and equipment, etc., installed to provide wholesale services, are offered to other telecommunications business operators); and |
4. | special characteristics of users such as differences in purchasing power and negotiating edge or uniqueness of demand. |
(2) Evaluation of competition status with respect to the unit markets determined under paragraph (1) shall be implemented by comprehensively considering each of the following factors:
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 Minister of Science, ICT and Future Planning may invite opinions from relevant professionals and related parties. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
48
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, the key communications business operators, among key telecommunications business operators with more than 50% of market share with respect to the aggregate national sales based on sales from each service in the preceding year, in the unit market, defined in Article 38, and the key communications business operator publicly notified by the Minister of Science, ICT and Future Planning. |
(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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
(3) By 31. December, each year, the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
Article 39-2 (Procedures for Installation of Apparatus for Facilities, Etc.)
(1) If a telecommunications business operator who has been provided with equipment and facilities by concluding a contract under Article 35(1) of the Act pursuant to the former part of Article 35(4) of the Act (hereinafter referred to as the user in this Article) intends to install the apparatus enhancing the efficiency of the relevant equipment and facilities, such telecommunications business operator shall notify the key communications business operator or the facility management authority providing the equipment and facilities (hereinafter referred to as the provider in this Article) of the following information at least one day prior to the date of installation:
1. Type, specifications and quantity of the apparatus;
2. Place and period of installation of the apparatus; and
3. Other matters relating to the installation of the apparatus.
49
(2) The user who has installed the apparatus under paragraph (1) above shall remove the apparatus within thirty (30) days from the date on which the contract under Article 35(1) of the Act is terminated or the period of installation of the apparatus expires.
(3) Notwithstanding paragraphs (1) and (2) above, if the user and the provider otherwise determine the period and details of the notice regarding the apparatus or the period for removal by mutual consultation, the matters determined so shall apply.
[Newly Inserted on Jul. 20, 2015]
[The former Article 39-2 moved to Article 39-3 <Jul. 20, 2015>]
Article 39-3 Deleted <May 31, 2016>
Article 39-4 (Composition and Operation of Aerial Cable Maintenance Council)
(1) The aerial cable maintenance council under the latter part of Article 35-2(2) of the Act (hereinafter referred to as the maintenance council in this Article and Article 39-5) shall consist of not more than fifteen (15) members including one Chairman.
(2) The 2nd Vice Minister of Science, ICT and Future Planning shall be the Chairman of the maintenance council (hereinafter referred to as the Chairman in this Article and Article 39-5), and members of the maintenance council (hereinafter referred to as members in this Article) shall be appointed by the Minister of Science, ICT and Future Planning from among the following persons:
1. Public officials in general service belonging to the Senior Civil Service of the Ministry of Science, ICT and Future Planning;
2. Persons nominated by the head of the relevant agency from among public officials in general service belonging to the Senior Civil Service of the Ministry of Trade, Industry and Energy and the Ministry of Land, Infrastructure and Transport;
3. Persons nominated by the head of the relevant agency from among public officials ranking Grade III of any special city, metropolitan city, special self-governing city or Do, or special self-governing Do;
4. Persons belonging to a telecommunications business operator, a facility management authority or an aerial cable maintenance organization who have extensive expert knowledge and experience in aerial cable maintenance; or
50
5. Other persons who have extensive expert knowledge and experience in the beauty of a city and aerial cable maintenance.
(3) The term of office of members under subparagraphs 4 and 5 of paragraph (2) shall be two years, and the members may be reappointed only once.
(4) The Chairman shall represent the maintenance council and generally manage the business of the council. Provided, however, that if the Chairman is unable to perform his/her duties for unavoidable reasons, the member nominated by the Chairman in advance shall act for the Chairman.
(5) Any matters necessary for the composition and operation of the maintenance council other than those set forth in paragraphs (1) through (4) above shall be determined by the Chairman by a resolution of the maintenance council.
[Newly Inserted on Jul. 20, 2015]
Article 39-5 (Functions of Maintenance Council)
(1) The maintenance council shall deliberate on the following matters:
1. Matters relating to the basic direction and policy for aerial cable maintenance;
2. Matters relating to medium- and long-term plan for aerial cable maintenance;
3. Matters relating to the establishment of an annual aerial cable maintenance plan (referring to the aerial cable maintenance plan under Article 35-2(2); hereinafter referred to as the maintenance plan);
4. Matters relating to aerial cable maintenance system improvement;
5. Matters relating to the inspection and evaluation of the progress of aerial cable maintenance; and
6. Other matters deemed by the Chairman necessary for the efficient implementation of aerial cable maintenance and submitted to a meeting of the council for deliberation.
(2) If it is necessary for the purpose of deliberating on the matters referred to in each subparagraph of paragraph (1) above, the maintenance council may listen to opinions of the head of the relevant central administrative agency, the head of the local government, the telecommunications business operator, the facility management authority and experts, etc.
51
[Newly Inserted on Jul. 20, 2015]
Article 39-6 (Sharing of Expenses for Aerial Cable Maintenance)
The telecommunications business operator and the facility management authority shall each bear maintenance expenses for their own equipment and facilities among the expenses incurred in relation to the implementation of the maintenance plan under Article 35-2(3) of the Act.
[Newly Inserted on Jul. 20, 2015]
Article 39-7 (Standards for Providing Obligatory Wholesale Services)
(1) The telecommunications services of a key communications business operator applicable to the standard prescribed in the Presidential Decree in Article 38 Paragraph 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 in the unit market, defined in Article 38 and services publicly notified by the Minister of Science, ICT and Future Planning. The public notice of the Minister is based on consideration of the market scale, the number of users, competition status, etc., of the telecommunication services
(2) The Minister of Science, ICT and Future Planning shall designate and announce key communications business operators under paragraph (1) by December 31 of each year. <Amended on Mar. 23, 2013>
[Wholly Amended on Feb. 28, 2012]
[Moved from Article 39-3 <Jul. 20, 2015>]
Article 40 (Report on Accord, etc. concerning Interconnections, etc.)
(1) A person who wishes, under Article 38(5) or 44(1) to (3) 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 Minister of Science, ICT and Future Planning each of the following documentation to the Minister of Science, ICT and Future Planning, provided that in case of termination, only paragraphs 1 and 6 need to be submitted: <Amended on Mar. 23, 2013, Apr. 14, 2015>
52
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). |
6. | documentation confirming discontinuation (including electronic documentation) |
(2) Upon receipt of documentation under paragraph (1), the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
(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 and a key communications business operator who has submitted a report on the execution, amendment or termination of the contract under Article 44(3) of the Act shall publish details of such on its website. <Newly Inserted by Act No. 22616 Oct. 1, 2010> <Amended on Apr. 14, 2015>
53
(4) Pursuant to Article 65(3) of the Framework Act on Telecommunications, upon receipt of documentation under paragraph (1), the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
Article 40-2 (Request for Arbitration)
(1) 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;
2. documents about negotiation between the parties; and
3. each of the documentation under Article 40(1).
(2) After reviewing the application documents under paragraph (1), the Korea Communications Commission may demand the applicant to submit additional information within a reasonable 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.
(3) 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.
[Wholly amended on Feb. 28, 2012]
54
Article 40-3 (Arbitration Decision)
(1) An arbitration decision by the Korea Communications Commission shall be made in writing.
(2) 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.
[Wholly amended on Feb. 28, 2012]
Article 40-4 (Provision of standardized information of the telecommunication service)
(1) The telecommunication service, object to provision of the standardized information under the Article 42 Paragraph 5 of the Act, is as follows:
1. | Voice communication and video communication service (including voice communication service via LTE communication network) |
2. | Short message and multi-media message service (including short message and multi-media message service based on the internet protocol multi-media system) |
3. | Emergent telephone service |
4. | The caller identification service, call restriction service, call transition service, call holding service, and call waiting service |
5. | The telecommunication service which requires the information of the standard of the manufacture, supply, import, and distribution, in order to manufacture, supply, import, and distribute the hand terminal under the Article 42 Paragraph 5, and is publicly notified by the Minister of Science, ICT, and Future Planning, |
55
(2) | A request for information as to the standard of the telecommunication service under Article 42 Paragraph 5 (hereinafter the standard information), shall include provisions, prescribed in following subparagraphs: |
1. Name (in case where a company requests for the standard information, companys name and trade name shall be included) and address of a person who requests for the standard information
2. Scope, use purpose and time for provision of the standard information
(3) | The key telecommunications business operator who provides telecommunications services, by using frequencies, allocated under the Radio Waves Act, shall provide the requested standard information within 7 days from the receipt of the request under Paragraph 2. Provided that it is unable to provide the standard information within 7 days, the standard information may be provided within 30 days from the receipt of the request, but the reason for the delay shall be notified to the person who requests for the standard information. |
(4) | Methods of the standard information shall be online transmission, transmission by a booklet, and other methods, agreed by parties. |
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.
(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; |
56
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 reasonable period.
(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.
[Wholly amended on Feb. 28, 2012]
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 4 attached hereto.
(2) The Korea Communications Commission may, where it deems necessary for the purpose of applying to specific telecommunications fields or specific offenses, determine and issue public notification of the details concerning the types of, and criteria for, the offenses under paragraph (1).
[Wholly amended on Feb. 28, 2012]
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:
1. | submission of a plan for implementing the provisions under Article 52(1)1-10 of the Act; and |
57
2. | report on the results of the implementation of the provisions under Article 52(1)1-10 of the Act. |
3. | Conservation of material necessary for the implementation of the provisions under Article 52(1)8 of the Act and report on damages incurred to the users. |
[Wholly amended on Feb. 28, 2012]
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.
[Wholly amended on Feb. 28, 2012]
Article 45-2 (Criteria, Procedures, etc. for Partial Suspension of Business)
(1) The criteria for partial suspension of business pursuant to Article 52(5) of the Act are as provided in Table 5-2 attached hereto.
(2) If the Korea Communications Commission orders partial suspension of business pursuant to Article 52(5) of the Act, the Korea Communications Commission shall immediately notify the relevant telecommunications business operators in writing and issue public notification thereof.
[Newly Inserted on Jul. 28, 2016]
58
Article 45-3 (Imposition etc. of Charges for Compelling Execution)
(1) The turnover under Article 52-2(1) of the Act shall be the turnover arising from services directly or indirectly affected by the activities in violation of Article 50(1) of the Act occurring during the period in which the relevant telecommunications business operator breaches Article 50(1) of the Act (the Relevant Turnover).
(2) If any person to whom the charges for compelling execution are imposed pursuant to Article 52-2(1) of the Act intends to raise an objection thereto, such person shall do so within 30 days from the date of receipt of the notification of the imposition of the charges for compelling execution under Article 52-2(3) of the Act.
(3) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution. In this case, the penalties in arrear shall be deemed to be the charges for compelling execution in arrears.
(4) Matters related to the calculation of the Relevant Turnover and imposition of the charges for compelling execution not set forth in Paragraphs (1) through (3) above shall be determined and notified by the Korea Communications Commission.
[Newly inserted on Jul., 28, 2016]
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 6 attached hereto.
(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 7.
[Wholly amended on Feb. 28, 2012]
59
Article 47 (Computation Methods and Procedures of Penalties)
(1) The term sales as prescribed under the Enforcement Decree of the Act in the former part of 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.
(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:
1. | where there has been no sales result due to such reasons as non-commencement or suspension of business; or |
2. | where it is difficult to make an objective computation of sales. |
(3) If it is necessary for the calculation of the turnover in the former part of text of Article 53(1) of the Act, the Korea Communications Commission may demand the relevant telecommunications business operator to submit accounting documents including financial statements and materials related to business state within a period of 20 days. <Newly inserted on Jul. 28, 2016>
[Wholly amended on Feb. 28, 2012]
[Title amended on Jul. 28, 2016]
Article 48 (Imposition and Payment of Penalties)
(1) The Minister of Science, ICT and Future Planning or 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.
60
(2) A person who receives a notification under paragraph (1) shall pay the relevant penalties to a financial company designated by the Minister of Science, ICT and Future Planning or 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 company in receipt of a payment of penalties under paragraph (2) shall deliver a receipt thereof to the person who paid the penalties.
[Wholly amended on Feb. 28, 2012]
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.
(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.
[Wholly amended on Feb. 28, 2012]
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]
61
Article 50-2 (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:
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 or Road name address, under Article 3 subparagraph 1 through subparagraph 4 of the Road Name Address Act. Provided that the user subscribes to the service with the trade name, address of Eup/Myeon/Dong (including building name, apartment and flat number) or road name address, under Article 3 subparagraph 1 through 7 may be used. |
(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.
[Wholly amended on Feb. 28, 2012]
Article 51 (Unique identification Number Sharing Specialized Institute)
(1) A specialized Institute, appointed to efficiently share a unique international identification number of a handy terminal (hereinafter unique identification number), under Article 60-2, Paragraph 2 of the Act, shall establish the Integrated Control Center of unique identification number, and perform following duties:
62
1. Establishment and management of the information system to share unique identification number of handy terminal which is reported for loss, theft, or etc. (hereinafter reported handy terminal), with telecommunications service business operators who provide telecommunications service, by using frequencies, allocated under the Radio Wave Act (hereinafter Integrated Control System of unique identification number).
2. Support for provision of and enquiry into information to prevent usage of reported handy terminal.
3. Support for sharing of unique identification number with foreign governments, etc.
(2) The telecommunications service business operator who provides telecommunication services with using frequencies, allocated under the Radio Wave Act, shall register the unique identification number of the reported handy terminal to the Integrated Control System of unique identification number. In case where the reporter requests for deregistration, the registered information shall be deleted.
(3) The telecommunications service business operator who provides telecommunication service with using frequencies, allocated under the Radio Wave Act shall check whether or not the reported handy terminal accesses to the network via the Integrated Control System of unique identification number and shall prevent the reported handy terminal from providing telecommunication services.
(4) The Minister of Science, ICT, and Future Planning may support for expense, necessary to establishment and management of the Integrated Control System of unique identification number, under Paragraph 1.
Chapter 5. Telecommunications Facilities and Equipment
<Amended by Enforcement Decree No. 22616 Oct. 1, 2010>
63
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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
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 Minister of Science, ICT and Future Planning shall notify the applicant of its decision within 15 days of the submission date after reviewing the items as below: <Amended on Mar. 23, 2013>
1. validity of business plan;
2. appropriateness of security plan for telecommunication facilities;
64
3. suitability of domestic and international technology standards; and
4. legality of agreement.
[Wholly amended on Feb. 28, 2012]
Article 51-3 (Council for Join Installation of Telecommunication Facilities)
(1) The term key communications business operators falling under the standards as prescribed by Presidential Decree in Article 63(2) of the Act means key communications business operators who provide both a local telephone service under Article 2(2)3(a) hereof and an Internet subscriber connection service under Article 2(2)3(d) hereof.
(2) Any key communications business operators other than the key communications business operators under paragraph (1) above may participate in the council under Article 63(2) of the Act.
[Wholly Amended on Apr. 14, 2015]
Article 51-4 Deleted. <Apr. 14, 2015>
Article 51-5 (Recommendation of Joint Installation of Telecommunication Facilities)
(1) In the event the Minister of Science, ICT and Future Planning recommends joint installation of telecommunication facilities to key communications business operator under Article 63(6) of the Act, such recommendation shall include specific telecommunication facilities to be installed, installation area, installation interval, installation period. <Amended on Mar. 23, 2013, Apr. 14, 2015>
(2) A key communications business operator requesting a joint installation of telecommunication under Article 64(6)1 shall submit each of the following documentation to the Minister of Science, ICT and Future Planning: <Amended on Mar. 23, 2013, Apr. 14, 2015>
65
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 Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
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 Special Metropolitan City Mayor, a Metropolitan City Mayor, a Special Self-Governing City Mayor, a Do Governor, or the Governor of a Special Self-Governing Province (hereinafter referred to as Mayor/Do Governor) having jurisdiction over where the office in which the main facilities are installed is located 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. <Amended on Mar. 23, 2013, May 31, 2016>
1. | Applicant |
2. | type of business |
3. | purpose of installation |
66
4. | electronic communication method |
5. | installation site |
6. | overview of telecommunication facilities |
7. | operation or expected 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 Mayor/Do Governor 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). <Amended on Mar. 23, 2013, May 31, 2016>
(4) Upon receiving an installation or installation modification application under paragraph (1) or (3), the Mayor/Do Governor reviews the following: <Amended on Mar. 23, 2013, May 31, 2016>
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 Mayor/Do Governor shall issue an installation/modification certificate if it concludes, after conducting a review, that all criteria under paragraph (4) are satisfied. <Amended on Mar. 23, 2013, May 31, 2016>
[Wholly amended on Feb. 28, 2012]
67
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 Mayor/Do Governor within seven days from the completion of installation or modification construction. <Amended on Mar. 23, 2013, May 31, 2016>
(2) A person desiring to receive confirmation of proprietary telecommunication facilities under paragraph (1) shall submit to the Mayor/Do Governor a proprietary telecommunication facilities confirmation application (including electronic application) with each of the following documentation (including electronic documentation) as attachment. <Amended on Mar. 23, 2013, May 31, 2016>
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
(3) After reviewing the application documents under paragraph (2), the Mayor/Do Governor may demand the applicant to submit additional information within a reasonable period of time for any of the following reasons: <Amended on Mar. 23, 2013, May 31, 2016>
1. in the case where any required document is missing; and
2. in the case where any entry in the application and attachments is vague.
[Wholly amended on Feb. 28, 2012]
68
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.
[Wholly amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
69
Article 51-10 (Standards for Cessation Order)
The standards for cessation order under Articles 65(4) and 67(2) of the Act are set forth in Table 5-3. <Amended on May 31, 2016>
[Wholly amended on Feb. 28, 2012]
Article 51-11 (Facilities subject to Public Space Needs)
The facilities or areas specified under the Enforcement Decree of the Act under Article 68(1)8 of the Act means each of the following: <Amended on Jul. 16, 2014>
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 |
5. | sewage culvert under the Sewerage Act |
[Wholly amended on Feb. 28, 2012]
Article 51-12 (Adjustment for Public Space Needs)
(1) When the Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
(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. <Amended on Mar. 23, 2013>
70
(3) When the parties adopt the corrective plan under paragraph (2), the Minister of Science, ICT and Future Planning shall draft a corrective agreement including the following items and have it executed by the parties. <Amended on Mar. 23, 2013>
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 |
[Wholly amended on Feb. 28, 2012]
Article 51-13 Deleted <May 31, 2016>
Article 51-14 Deleted <May 31, 2016>
Article 51-15 Deleted <May 31, 2016>
Article 51-16 Deleted <May 31, 2016>
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 Minister of Science, ICT and Future Planning documentation demonstrating each of the following: <Amended on Mar. 23, 2013>
1. | need to designate alert areas; and |
2. | legs and width of the alert areas indicated by using coordinates of latitude and longitude. |
71
(2) The Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
(3) Upon receipt of the documentation submitted to it under paragraphs (1) and (2), the Minister of Science, ICT and Future Planning shall send such documentation to the heads of the relevant state administrative organs prescribed under Article 79(4) of the Act for consultation. <Amended on Mar. 23, 2013>
(4) Except under ordinary circumstances, the Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
(5) Once the Minister of Science, ICT and Future Planning 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. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
Article 52-2 (Inspection and Report of Telecommunication Facilities)
(1) 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
72
3. in case where necessary for securing communication channels in case of national emergency and disasters
(2) 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.
(3) 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.
[Wholly amended on Feb. 28, 2012]
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.
(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.
(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:
1. | oversee tasks related to communication secrets of users; |
73
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; |
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 application for communication data 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 (including those belong to the Ministry of Public Safety and Security, 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 on Nov. 19, 2014>
74
(6) The application for communication data 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.
[Wholly amended on Feb. 28, 2012]
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.
(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:
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:
75
1. | to report international terror-related crime (111); |
2. | to report crime (112); |
3. | to report spies (113); |
4. | to report cyber terror and seek advice in relation thereto (118); |
5. | to report fire or seek emergency rescue (119); |
6. | to report marine accidents or crime (122); |
7. | to report smuggling (125); or |
8. | to report drug offenders (127). |
[Wholly amended on Feb. 28, 2012]
Article 54-2 (Entrustment of Affairs Relating to Prohibition, Etc. on False Indication of Callers Phone Number)
Pursuant to Article 84-2(5) of the Act, the Minister of Science, ICT and Future Planning shall entrust any of the following affairs relating to the prohibition on false indication of a callers phone number to Korea Internet & Security Agency under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.:
1. Affairs relating to the verification of whether actions under Article 84-2(3) of the Act have been taken; or
2. Affairs relating to request for inspection and submission of data and inspection of data under Article 84-2(4) of the Act.
[Newly Inserted on Apr. 14, 2015]
76
Article 55 (Restriction on and Suspension of Service)
(1) Where the Minister of Science, ICT and Future Planning 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 on Mar. 23, 2013>
1. | top priority |
(a) | national security; |
(b) | military affairs and public security; |
(c) | transmission of the civil defense alarm; and |
(d) | electronic wave control; |
2. | second priority |
(a) | disaster relief; |
(b) | telecommunications, navigation safety, weather, fire fighting, electricity, gas, water service, transportation and the press; |
(c) | affairs of the State and local government, except for those mentioned in items (a) and (b); and |
(d) | affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea; |
3. | third priority |
(a) | affairs of the enterprises subject to resources control and the firms of defense industry; and |
(b) | affairs of public institutions and medical institutions under the Act on the Management of Public Institutions; and |
77
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 Minister of Science, ICT and Future Planning. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
Article 56 (Approval, etc. for International Telecommunications Services)
(1) The term international telecommunications business as prescribed under the Enforcement Decree of the Act in other provisions than as provided in subparagraphs of Article 86(2) of the Act means establishment and lease of satellite for the provision of international telecommunications service.
(2) A person who intends to obtain approval under other parts than as provided in subparagraphs of Article 86(2) of the Act shall submit the following documents to the Minister of Science, ICT and Future Planning: <Amended on Mar. 23, 2013>
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). |
78
4. | Business Plan (only applicable where the approval is applied for cross-border supply agreement of key telecommunications service under Article 87-1 of the Act.) |
(3) In accordance of other parts than as provided in subparagraphs of Article 86 Paragraph 2, the Minister of Science, ICT, and Future Planning shall synthetically examine following provisions to approve the cross-border supply agreement of key telecommunications service, under Article 87 Paragraph 1.
1. Possibility to provide stable service
2. Effect on competition of domestic telecommunication market
3. Protection of users
(4) 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..
[Wholly amended on Feb. 28, 2012]
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.
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 Minister of Science, ICT and Future Planning shall issue public notification and notify the relevant telecommunications business operator in writing thereof. <Amended on Mar. 23, 2013>
[Wholly amended on Feb. 28, 2012]
79
Article 58 (Report on Statistics)
(1) The types of statistics telecommunications business operators must report to the Minister of Science, ICT and Future Planning pursuant to Article 88(1) of the Act are as follows. <Amended on Mar. 23, 2013, May 31, 2013, Dec. 30, 2016>
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; |
4-2. | Materials, related to the Data usage: Materials, related to the Data usage, with respect to each technique method, period, traffic loading to the telecommunication equipment and facilities; |
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). |
80
(2) The Minister of Science, ICT and Future Planning shall determine and publicly notify the preparation, format, submission method and reporting deadline of the relevant statistics under paragraph (1) and any other matters related thereto. <Amended on Mar. 23, 2013>
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 Minister of Science, ICT and Future Planning each of the following: <Amended on Mar. 23, 2013>
4. | present status of the corporations outstanding shares (including, throughout this Article, equities); |
5. | 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; |
6. | purpose of shareholding and reasons for the change (applicable only to shareholders of key communications business operators); |
7. | date of acquiring the shares and details of capital used for such acquisition (applicable only to shareholders of key communications business operators); |
8. | form of shareholding (applicable only to shareholders of key communications business operators); and |
9. | documentation certifying 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 Minister of Science, ICT and Future Planning by each of the following dates: <Amended on Mar. 23, 2013>
1. | A business operator who 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 |
81
2. | A business operator who is a key communications business operator not falling under subparagraph 1: by January 30 of each year. |
[This Article Wholly Amended on Feb. 28, 2012]
Article 59-2 (Report of Current State of Reporting of Installation of Proprietary Telecommunications Facilities)
Pursuant to Article 88(4) of the Act, the Mayor/Do Governor shall report the materials set forth in each of the subparagraph of Article 88(4) of the Act to the Minister of Ministry of Science, ICT and Future Planning in quarterly basis within 30 days from the last day of each quarter.
[Newly inserted on May 31, 2016]
Article 60 (Methods for Computing Penalties)
(1) The term sales calculated under the conditions prescribed under the Enforcement Decree of the Act in the former part 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.
(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.; |
82
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. |
[This Article Wholly Amended on Feb. 28, 2012]
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 9 attached hereto.
(2) The types of violation subject to fine under Article 90(2) of the Act and fine amounts are set forth in Table 10.
(3) In determining the amount of penalties under paragraph (1) or (2), the Minister of Science, ICT and Future Planning and the Mayor/Do Governor 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. <Amended on Mar. 23, 2013, May 31, 2016>
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 |
83
(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. In this case, the Minister of Ministry of Science, ICT and Future Planning or the Korea Communications Commission under Articles 48(1) and 48(2) shall be deemed to be the Minister of Ministry of Science, ICT and Future Planning or the Mayor/Do Governor. <Amended on May 31, 2016>
[Wholly Amended on Feb. 28, 2012]
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 Minister of Science, ICT and Future Planning or 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 on Mar. 23, 2013>
(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.
(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.
(4) When making installment payments under Article 91 of the Act, each of 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 Minister of Science, ICT and Future Planning or 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 on Mar. 23, 2013>
84
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 Minister of Science, ICT and Future Planning or 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. |
[This Article Wholly Amended on Feb. 28, 2012]
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.
[This Article Wholly Amended on Feb. 28, 2012]
Article 64 (Important Communications)
(1) The term important communications in Article 92(2)3 of the Act means: <Amended on Mar. 23, 2013>
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 Minister of Science, ICT and Future Planning in order to efficiently perform the State affairs. |
[This Article Wholly Amended on Feb. 28, 2012]
85
Article 65 (Delegation of Authority)
The Minister of Science, ICT and Future Planning shall delegate the authority falling under any of the following to the Director General of the Central Radio Management Office pursuant to Article 93(2) of the Act: <Amended on Mar. 23, 2013, Apr. 14, 2015, May 31, 2016, Jul. 28, 2016>
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; |
3. | registration and imposition of registration criteria for a value-added telecommunications business of a special type under the text of Article 22 (2) and (3) of the Act; |
4. | a modified registration for the specific communications business and for the value-added telecommunications business of a special type, and acceptance of a modified report for value-added communications business, under Article 23 of the Act; |
5. | 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; |
6. | 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; |
7. | order to cancel registration of or suspend a specific communications business under Article 27(1) of the Act; |
8. | order to close down a value added communications business or to cancel registration of or suspend the value-added telecommunications business of a special type under Article 27(2) of the Act; |
86
8-2. | matters related to order to suspend the provision of telecommunication service under Article 32-3(1) of the Act; |
8-3 | on-site investigation of the status of provision and use of equipment, etc. under Article 35(5) of the Act; |
9. | order to cease the use of the proprietary telecommunications facilities under the former part of Article 65(4) of the Act and notice of cessation of use to the Mayor/Do Governor under the latter part of Article 65(4); |
10. | Deleted <May 31, 2016> |
11. | Deleted <May 31, 2016> |
12. | Deleted <May 31, 2016> |
13. | Deleted <May 31, 2016> |
14. | permission for a felling or transplanting of the plants under the former part of Article 75 (3) of the Act; |
15. | inspection of and demand for reports from persons who have installed telecommunication facilities under Article 82(1) of the Act |
16. | telecommunication facilities removal or other corrective order under Article 82(2) of the Act |
17. | 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 |
18. | hearing on the order to cancel registration of a specific communications business or to close down a value-added communications business under Article 89(2) and (3) of the Act; |
87
19. | imposition and collection of surcharge under Article 90(1) of the Act (excluding surcharge imposed in lieu of the partial suspension of business under Article 52(5) 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; |
19-2. | imposition and collection of surcharge under Article 90(2) of the Act (limited to the surcharge imposed in lieu of the order of cessation of use to a person who has installed proprietary telecommunications facilities under Article 65(4) of the Act); |
20. | correction order under Article 92(1) of the Act, except against a key communications business operator; |
21. | 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; |
22. | imposition and collection of surcharge under Article 104 of the Act, except against a key communications business operator. |
[This Article Wholly Amended on Feb. 28, 2012]
Article 65-2 (Processing of Unique Identifier Information)
(1) The Minister of Science, ICT and Future Planning, including
those who hold the authority delegated by the Minister of Science, ICT and Future Planning under Article 65, or the Korea Communications Commission, may process data comprising resident registration numbers or foreigner registration numbers as
defined under Article 19 (1) or (4) of the
Enforcement Decree of Personal Data Protection Act
if processing of such is required in order to perform the following operations: <Amended on Mar. 23, 2013, Aug. 6, 2014, Jul. 28, 2016>
1. | those relevant to granting a license for a key communications business under Article 6 of the Act; |
2. | those relevant to confirming the disqualification reason of a key communications business operators officer under Article 9 of the Act; |
88
3. | those relevant to granting a modified license for a key communications business under Article 16 of the Act; |
4. | those relevant to approval or report of takeover or merger of a key communications business under Article 18 of the Act; |
5. | those relevant to approval of suspension or closedown of a key communications business under Article 19 of the Act; |
6. | those relevant to registration of a specific communications business under Article 21 of the Act; |
7. | those relevant to report and registration of a value-added communications business under Article 22 of the Act; |
8. | those relevant to modified registration of a specific communications business or to modified report and registration of a value-added communications business under Article 23 of the Act; |
9. | those relevant to report of transfer or takeover of a specific communications business or a value-added communications business under Article 24 of the Act; |
10. | those relevant to report of dissolution of a juristic person or of suspension or closedown of a specific communications business or a value-added communications business under Article 26 of the Act; |
11. | Deleted. <Apr. 14, 2015> |
12. | those relevant to investigation of fact under Article 51 of the Act; |
12-2. those relevant to imposition and collection of the charge for compelling the performance under Article 52-2 of the Act
13. | those relevant to imposition/collection of penalty surcharge under Article 53 of the Act; |
89
14. | Deleted. <Apr. 14, 2015> |
15. | Deleted. <Apr. 14, 2015> |
16. | those relevant to extension of time limit of payment of penalty surcharge and payment in installments under Article 91 of the Act. |
(2) A telecommunication business operator who provides key communications services or the Korea Association for ICT Promotion may handle the data which contains the resident registration number or foreigner registration number under Article 19(1) or Article 19(5) of the Enforcement Decree to Personal Information Protection Act, in order to conduct each of the following affairs: <Newly Inserted on Aug. 6, 2014, Apr. 14, 2015, July 28, 2016>
1. affairs relevant to the provision of services of which fees are reduced or exempted under Article 4 of the Act and Article 2(2)3 of the Enforcement Decree;
2. affairs relevant to the reduction/exemption of fees under Article 29 of the Act;
3. affairs relevant to the prevention of an act of entering into a use contract without confirmation of a users intention of subscription and an act of providing different telecommunication services from a standardized use contract (limited to the standard use contracts provisions concerning the return of fees) among many prohibited acts under Article 50(1)5 of the Act;
4. affairs relevant to the prevention of an prohibited act under Article 50(1)5-2 of the Act.
(3) The head of pre-selection registration center, prescribed in Article 57 Paragraph 3 of the Act, may dispose materials, including resident registration or foreigner registration number under Article 19 Subparagraph 1 or 4 of the Enforcement Decree of the Personal Information Protection Act, if necessary to register pre-selection or to modify thereto. <Newly Inserted on Jan. 7, 2014, Aug. 6, 2014>
90
(4) The head of number portability management institution, prescribed in Article 58 Paragraph 4 of the Act, may dispose materials, including resident registration or foreigner registration number under Article 19 Subparagraph 1 or 4 of the Enforcement Decree of the Person Information Protection Act, if necessary to register number portability and to modify thereto. <Newly Inserted on Jan. 7, 2014, Aug. 6, 2014>
[This Article Newly Inserted on January 6, 2012]
Article 65-3 (Review of Regulations)
(1) | The Minister of Ministry of Science, ICT and Future Planning shall take measures (improvements, etc.) on each of the following matters after reviewing feasibility thereof every three years (before the same day as the base date by every three years) calculated based on the base date provided in each of the following subparagraphs: |
1. | Request to a Business Operator Providing Universal Services for submission of data under Article 3(2): January 1, 2017. |
2. | Submission of the report on actual results of the provision of universal services under Article 4: January 1, 2017. |
3. | Imposition and payment of charges for compelling execution under Article 18: January 1, 2017. |
4. | Attachments to the approval application for transfer, merger, etc. under Article 20: January 1, 2017. |
5. | Registration requirements for the specific communications business under Article 28: January 1, 2017. |
6. | Reporting documentations of a value-added communications business, matters to be stated in the registry by a value-added communications business operator of special type, and registration requirements for a value-added communications business operator of special type under Article 29: January 1, 2017. |
91
7. | Matters registered or reported regarding the value-added communications business under Article 31: January 1, 2017. |
8. | Scope of the services subject to approval of terms of use under Article 34: January 1, 2017. |
9. | Attachments to report and approval of telecommunication facilities installation and matters to be considered regarding telecommunication facilities under Article 51-2: January 1, 2017. |
10. | Matters mentioned in the proprietary telecommunication application and matters to be reviewed upon receiving installation or installation modification application under Article 51-6: January 1, 2017. |
11. | Types of reports on statistics under Article 58: January 1, 2017 |
[Wholly amended on Dec. 30, 2016]
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 (5) of the Act are set forth in Table 11. <Amended on Jul. 20, 2015>
[This Article Wholly Amended on Feb. 28, 2012]
ADDENDA <Enforcement Decree No. 27789, Jan. 17, 2017>
This Decree shall take effect on the date of its promulgation.
92