Skeptic Report on SKM

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Skeptic Report on SKM

• Steven Novakovic
• 11-07-2005

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What type of returns can we expect?
DJ US telecom index
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What type of returns can we expect?
Vangaurd Telecommunication Services (US)
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What type of returns can we expect?
Dow Jones World (ex US) Telecom Index
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What type of returns can we expect?
Dow Jones World (ex US) Telecom Index
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What type of returns can we expect?
Dow Jones World (ex US) Telecom Index
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What type of returns can we expect?
Dow Jones World (ex US) Telecom Index
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Shinsegi Acquisition

• In 2003, SKM acquired Shinsegi
• Regulators were concerned of size of company and
  set forth conditions
• SKM voluntarily set a limit to its Korean
  Wireless market share at 42.3 through the end of
  2005
• Since imposing the limit in May 2004, SKM has
  reduced its marketing effort and commissions paid
  to acquire new subscribers
• Regulators continue to restrict SKMs wireless
  business

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W-CDMA

• Telecom is moving to 3G
• There are costs associated with switching to 3G
  from CDMA
• The process is costly and should take a few years
  to complete
• At this point, a good portion of the costs are
  sunk
• However, there are risks and costs may crop up

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South Korea

• South Korea has one of the highest wireless
  market penetration rates in the world (nearly 76
  at the end of 2004)
• The economy has grown at about 4 a year recently
• Quite dependent on the US economy and the Chinese
  economy
• End result not a high growth stock?

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Numbers

• Operating margins have steadily decreased
• TTM 22.8 5-year average 26.2
• Due to the implementation of number portability
  for the Korean Wireless market in January 2004,
  SKM had already lost 965,000 subscribers via
  transfers by April 2004.
• KT Freetel and LG telecom did not have to
  introduce number portability until July 1, 2004
  and January 1, 2005 respectively