South Korea by pengxiuhui


									Dr. M. Sours

RBE Asia

December 1998

                    Analysis of the

                Investment Opportunity

                    of SK Telecom

                    in South Korea

                                         Hak Ju Kim
                                   Investment Analysis SK Telecom South Korea

Statement of Significance / Executive Summary

Whereas many financial analysts are predicting the fallout from the Asian economic crisis to settle in 18

months to two years, one has to wonder how these economies will be able to pick up where they left off

without high levels of foreign direct investment. Even though almost all Asian economies are talking the

talk of measures to liberalize their economies by increasing direct foreign investment, the overall

investment environment continues to be bleak with only a few bright spots. Adding to the economic

bleakness caused by the banking and financial collapse are newly fired up ethnic and religious tensions

caused by the stress of a collapsing economy, which in turn make the investment potential for the area

even more risky. One positive corollary of these dismal conditions is that there may be an opportunity to

make a lucrative foreign direct investment at 'bargain-basement' prices.

This analysis examines the South Korean economy in the midst of this crisis by focusing on one company

within the telecommunications sector.     The structure of the paper allows an investor with moderate

knowledge of the telecommunications industry to make a 'first-cut' decision on whether or not to invest in

South Korea's SK Telecom. In other words, enough overview information is presented about the countries

surrounding South Korea, about the past and current state of the South Korean economy, and enough

detailed information is presented about South Korea's telecommunication sector and about SK Telecom so

that an investor can chose to spend resources on a full scale in depth analysis of SK Telecom or decide

that the company merits no further investment investigation.

As part of our analysis we offer the potential investor our recommendations about the investment

opportunity in SK Telecom. We hope to show that although there are risks involved in such an investment,
                                    Investment Analysis SK Telecom South Korea

because no one has the silver bullet solution to the current crisis, a foreign direct investment in the growing

telecommunications infrastructure of the 11th largest economy in the world at bargain rate prices deserves

a more detailed analysis.
                                                      Investment Analysis SK Telecom South Korea

Table of Contents

Business Environment in South Korea ............................................................................................................ 1
   Asian Crisis ................................................................................................................................................... 2
   Infrastructure: Transportation and Industry .................................................................................................. 6
   Neighbors' Economic Influence on South Korea.......................................................................................... 7
   Economic Evaluation of the Telecommunications Industry ....................................................................... 10
SK Telecom Overview ................................................................................................................................... 12
   Corporate Culture ....................................................................................................................................... 12
   Services and Products................................................................................................................................ 13
   Cellular Services ......................................................................................................................................... 13
   Paging Services .......................................................................................................................................... 15
   IMT-2000 .................................................................................................................................................... 15
   Iridium World Satellite Service ................................................................................................................... 16
   International Business ................................................................................................................................ 18
      Paging Service in India ........................................................................................................................... 18
      Cellular Service In Thailand .................................................................................................................... 19
      CDMA Cellular Project in Vietnam .......................................................................................................... 19
Conclusion ..................................................................................................................................................... 20
Appendix I: SK Telecom Corporate History in Brief ...................................................................................... 22
Appendix II: Tables on South Korea's Past Economic Achievements ......................................................... 24
                                      Investment Analysis SK Telecom South Korea

Business Environment in South Korea

One of the key factors in determining South Korea‟s business environment is a geographical placement it

can do nothing about. Specifically, South Korea is separated from China by the Yellow Sea to the west

and has Japan as its neighbor to the east, just across the Sea of Japan. This placement, however, is

perhaps not the most influential part of South Korea‟s economic success, a success many economists are

still calling a miracle, even with the general recession in Asia. North Korea has a similar and perhaps even

more advantageous geographic placement but has the antithesis of economic success, thus this points to

some non-geographical factors as being paramount in South Korea‟s economic gains.

Whereas it‟s relatively easy to point to some key events in South Korea‟s past as pivotal points in its

economic development, such as it joining the OECD in 1996, the real story is its dedication to a 30 year

process based on a cultural ethic of hard work, savings, and education and on the government‟s

commitment to an advanced technological infrastructure and to gradual liberalization of many aspects of

the economy. Korea was able to maintain a real annual GDP growth rate of 10% from 1986-1991 . Even

more remarkably, Korea had a sustained 8.5% growth from 1961 to 1996 . In 1996, South Korea‟s GDP

exceeded $US480 billion, making it the 11th largest economy in the world . Until recently, exports and

technological expansion gave South Korea one of the fast growing economies in the world and offered its

    AT&T Korea Fact File. October 1999.
    Korean Economic Development Website. November 1998.
    Korean Economic Development Website. November 1998.

Page 1                                                                                        08/22/11
                                      Investment Analysis SK Telecom South Korea
citizens a GDP per capita of over $US14,000 in 1996 . The recent economic crisis caused South Korea to

begin to negotiate and IMF bailout of $US57 billion to help manage its $US154 billion 1997 debt .

Among the many key cultural factors that have contributed to South Korea‟s growth, the main one is

arguably the overwhelming homogeneity of the population. Of the 46,000,000 inhabitants of South Korea

all are ethnic Koreans, except for about 20,000 Chinese . A positive contribution of this single ethnicity

based culture is the stability of South Korea‟s democracy. Although there have been radical changes of

power, as recent as last December‟s elections, the new leadership is accepted by the people so power

“vacuums that plague other Asian nations like Indonesia and now Japan ” don‟t negatively effect South

Korea. In fact it may provide „new blood‟ enthusiasm and support. The democratic will of the people and

the support they give their leadership is the one of the more dramatic and causal differences between

South Korea and the communism of North Korea. Part of the dedication that the South Korean‟s have for

their government has been earned from the government‟s consistent support of education and

technological investments, giving South Korea one of most educated and skilled work forces in Asia.

Asian Crisis
South Korea, long hailed as one of the four Asian tigers, has faired better economically than most other

Asian and South East Asian neighbors during the recent Asian crisis.               In fact, it‟s possible to interpret

some economic indicators as more favorable compared to Japan‟s, Asia‟s longest standing economic

    US CIA Country Factbook. 1996 estimate.
    “South Korea”. Political and Economic Risk Constancy, LTD. October, 3rd 1998
    US CIA Country Factbook July 1997 estimate.

Page 2                                                                                                 08/22/11
                                       Investment Analysis SK Telecom South Korea

powerhouse. Although most sectors of South Korea‟s economy have been damaged by the general

economic slowdown in Asia, some key sectors, such as telecommunications, have actually grown. The

effect of the crisis on the economy in general is different in many ways to what has happened in other

regional economies; thus creating a slightly different set of options to help deal with the crisis.          For

example, in the first quarter 1998 GDP fell 3.8%, however inflation steadied around only 9%,

unemployment reached 9%, and wages fell only .2% . Even though these figures are disgraceful for South

Koreans, they represent a fundamental economic stability when compared to the other countries in the

region, especially most ASEAN countries. This relative stability gave Korea the choice to accept the IMF's

financial aid package totaling $58.35 billion that includes loans worth $21 billion from the IMF, $14 billion

from the IBRD and the ADB, and $23.35 billion from the G-7 and other countries . This loan structure

forced high government officials to publicly apologize to the Korean people for failing to foresee the crisis

and adapt to it more quickly. This failure, the officials noted, has laid the burden of recovery on the people

themselves. This 'humbling' rhetoric along with the election of a new president set the stage for the public

acceptance of some 'adjustment measures' to help the country meet the reform demands put in place by

the IMF. Some of the ways the Korean government has planned to meet those demands are:

             Commitment to a free market economy

             Restructuring of the chaebol based system

             Labor market reform - reduction salary bonuses, layoffs, agreements to not strike

    “South Korea”. Political and Economic Risk Constancy, LTD. October, 3rd 1998.
    Korean Ministry of Finance and Economy ( and
      Asia - Special Report. Time.Com. August, 17th 1998.
    Accepted December 3, 1997.

Page 3                                                                                            08/22/11
                                      Investment Analysis SK Telecom South Korea

            Domestic market liberalization

            Foreign investment promotion

            Downsizing of the government

            Businesses must reduce reliance on debt financing and close inefficient affiliates

In general the public reaction to the government's measures have been overwhelming supportive. This

acceptance is a key indicator of the public's tremendous resolve to pull the country out of the crisis, since

some of the reforms are near cultural revolutions in themselves, such as the break up the chaebols and the

shattering of the lifetime employment ideal with legal layoff reform. So far the country has been able to

meet the demands of the IMF and begin the repayment on time. Some other indicators of revival are:

            13 major foreign creditor banks agreed to extend maturities of eligible short-term

            three consecutive months of trade surpluses since last November

            the stock price index has recovered substantially due to the resumption of foreign capital influx

            high interest rates are also making the Korean bond market more attractive to foreign investors.

            foreign exchange reserves are rising again - projected to rise to $39.1 billion by the end of 1998

Whereas the crisis is still the major concern for South Korea, the controls and reforms that are in the

process of being implemented contain the crisis to a level of pure contagion. In other words, the leaders of

the economy and the general public are doing everything they can to stabilize the economy, however no

one is immune to further massive erosion of neighboring economies, especially from Japan and the

ASEAN countries. Perhaps the most important factor to monitor is the not the economy itself, but foreign

exchange rates. One reason this is so important is because financial analysts believe the rates are an

indicator of internal and external confidence in the economy. The Korean Won has not fared as well as its

economy in general. On May 1st 1997, the Won was trading at 890 to 1 US dollar; a year later the value

Page 4                                                                                            08/22/11
                                      Investment Analysis SK Telecom South Korea

was 1335 Won to 1 US dollar. The only good news in this scenario, is that the Won is currently trading

around 1214 per US dollar . Even though the current rate is still a devastating devaluation compared to

the May 1997 rate, it does reflect an improved global attitude about the economy's chance for recovery.

Some other important steps taken by the government to achieve the recent trade surplus has been

speeding up deregulation of industries that had been highly controlled, such as telecommunications and

banking. In parallel and complementary to the deregulation is another form of liberalization: the gradual

dissolving of the chaebol system.       The weakening of those conglomerates‟ influence and control on

political and economic policy has not only paved the way for general foreign investment reform, but has

helped erode a long held psychological bias against foreign influence. Little by little the government has

changed policies such as offering tax incentives, increasing shareholder rights, eliminating the requirement

for the board of directors to approve a shareholder exceeding 33% of equity, and eliminating the ban on

„hostile‟ takeovers.

Even though many reforms are taking place daily, some important invisible constraints still exist for

investors. For example, some analysis warn that the banking industry has not yet achieved the desired

level of transparency.     Banking is seen as one industry where the chaebol‟s are still being given

preferential treatment. Even though the government has made economic and rhetorical moves towards

supporting foreign investment, some anti foreign sentiment still exists in both the unions and the consumer

population. Cooperative strategies, such as having a local partners or structuring changes to keep as

many people as possible employed, are still an unspoken requirement for doing business.

Page 5                                                                                              08/22/11
  Xenon Laboratories Universal Currency Converter. All values are sourced directory from their respective dates.
                                   Investment Analysis SK Telecom South Korea

Several recent and very large foreign investments have been essential for maintaining confidence in South

Korea‟s economy. Investments, such as Proctor & Gamble‟s purchase of Ssangyong Paper and British

Telecom‟s 23% stake in LG Telecom, are a very positive long term investment environment and may

provide enough stimulus to keep South Korea from succumbing more to the Asian contagion. Even though

these are singular events that are significant symbols or markers of economic stability, a solid analysis of

the economy should focus, as we mention above, on the overall process of both the culture and the

government‟s reaction to stresses on the economy. This why these events and others, such a Motorola‟s

continued investment in the economy, provide verification the success of what is essentially a national

belief system.

Infrastructure: Transportation and Industry

As alluded to above, South Korea has spent billions of dollars on infrastructure improvements. Its GDP

composition by sector, agriculture 8%, industry 45%, and services 47% highlight the development disparity

between two of its closest neighbors: China, agriculture 31%, industry 49%, and services 31%; and North

Korea agriculture 25%, industry 60%, and services 15%; and its economic similarity to Japan, agriculture

2%, industry 42%, and services 56%. South Korea has more paved airports and cargo ships per capita

than any other Asian nation, and with 20 million phones it parallels Japan‟s telecommunication density. To

emphasize this government‟s infrastructure focus, one article stated, “to prepare for future growth, and in

assuming its role as a regional business hub, Korea has targeted more than $100 billion for massive

Page 6                                                                                        08/22/11
                                    Investment Analysis SK Telecom South Korea
infrastructure development in the next twenty years.”        Although the marketing goals of the source should

add some suspicion on the true magnitude of the plan, even a fraction of this investment would be

significant, and with the past success of large scale investment by both South Korea and Singapore, this

type of government financed infrastructure revolution is not without successful models. Credibility is added

bit by bit as South Korea outlines more specific plans of 27 new ports, a new international airport to

accommodate 100 million passengers annually, a high speed rail system from Seoul to Pussan, and a fiber

information highway to link businesses, government and educational institutions.

The global positioning of some of Korea‟s industries cannot be ignored as contributors to economic

success.     Several key sectors elevate South Korea to one of the elite manufacturers and users of

technologies. South Korea is second in the world in shipbuilding, third in semiconductor manufacturing,

the third largest producer of telecom components, fourth largest producer of electronic components, fifth in

automobile production, fifth in petrochemicals, sixth in steel, and the seventh largest producer of telecom

equipment. Some of its major low end exports include textiles, finished clothes and footwear. South Korea

is a net importer of food, oil, and organic chemicals. Its dependency on oil is lessened by past investment

in hydro and nuclear power.

Neighbors' Economic Influence on South Korea

Two main schools of thought exist on the potential future impact of North Korea on South Korea‟s economy

with both representing great financial strain.     Although South Korea spends more in absolute terms

     Korean Economic Development Website. November 1998.

Page 7                                                                                           08/22/11
                                     Investment Analysis SK Telecom South Korea

($US17.4 billion) on military expenditures than North Korea ($US7 billion), North Korea‟s expenditures eat

up 25% of its GDP, compared to only 3% of South Korea‟s . Because so much of North Korea‟s focus is

militaristic, it presents quite a threat to South Korea. Fortunately North Korea‟s support from both China

and Russia have been greatly reduced, so the threat of a full out attack has become minimal. But, as that

threat has decreased, the opposite threat of „surrender‟ has increased. This means that it may become not

only economically advantageous, but economically necessary, for North Korea to try to merge more and

more with South Korea.        If cooperation was increased in phases, economic merging could be quite

lucrative for both countries. North Korea contains a great deal of natural resources such as minerals, and

South Korea has both technological and capital resources. If cooperation does not occur, intervention for

humanitarian reasons may be a necessary step for South Korea. Since neither cooperation or intervention

is occurring at the moment, these potentials are just some aspects to be aware of when assessing the

strengths and weaknesses of South Korea's economic future.

Relationships with other countries are also mitigating circumstances that will greatly influence South

Korea‟s economy. As with North Korea, some of these relationship some of portend both good and bad

news, with the final outcome somewhat indeterminable until some Asian economic fallout settles. The two

key unilateral relationships are with Japan and China, and a multilateral set of relationships exists with the

ASEAN region. South Korea‟s relationship with Japan is very important is the short term, whereas China‟s

is probably more important in the long term.          The current weakening in the Japanese economy is

negatively effecting Korea in three key areas: the weakening Yen has created a general Asian currency

     US CIA Country Factbook. 1995 estimates.

Page 8                                                                                          08/22/11
                                       Investment Analysis SK Telecom South Korea

slide; Japan has many exporting companies that might be forced to become even more competitive to

Korean firms; and Japan had in the recent past represented Korea‟s largest influx of foreign direct

investment. The relationship may be turning from one of big brother little brother to a relationship based on

mutual support. A recent action plan, signed by Japan‟s Prime Minister Keizo Obuchi and South Korea‟s

President Kim Dae Jung, contains 43 separate action items, including a bilateral focus on ASEAN

development; improved exchanges of technologies, including scientific and telecommunications; and

exchanges of entrepreneurs and labor management .

ASEAN provides yet another set, over several sets, of complex issues. South Korea is poised to be a

major provider of technologies, such as telecommunications and infrastructure enhancements. As well

South Korea has been a major investor in the region. Loans and securities investments in Indonesia alone

came to over $US5.3 billion in 1997 . Further collapse of South East Asia‟s main economies would pull

South Korea‟s own economy into a deeper recession, but if it can withstand the pressure until those

economies begin to recover, South Korea is poised to reap many financial long term benefits from its

positioning as a main investor and supplier in the region.

The situation in China presents another set of complexities, one of needing balance. On one hand, South

Korea would like to see China‟s economic growth continue because of the importance of the Chinese

market to Korea.        Certain industries within South Korea, such as telecommunications, could benefit

enormously from high growth from China. A faltering Chinese economy would certainly not only have

     Japan Economic Newswire. October, 8th 1998.
     Asia Pulse. February, 2nd 1998.

Page 9                                                                                         08/22/11
                                       Investment Analysis SK Telecom South Korea

great negative impact on South Korea, but could also be enough to force the Asian economy into a deep

recession. On the other hand, if China‟s economy has enough momentum to pull it through the crisis it

could become a key competitor of South Korea‟s in just a few years. For the short term however, South

Korea would profit more by stable and growing Chinese economies in both China and Japan.

Economic Evaluation of the Telecommunications Industry

One sector of South Korea‟s economy that continues to grow despite the recession is its telecom industry.

Part of the success of this sector is from ongoing strategic relationships that have long been fostered by

the government. Although until recently the day to day operations of telecommunications as a service has

been highly regulated, companies like Motorola have been investing in the area for over a decade.

Whereas some sectors of the economy are not growing to predicted rates, or are shrinking, the

government‟s Policy Research Institute for Information and Communication Industry released a report

projecting that South Korea‟s information technology and telecommunications industry will incur a surplus

of $US14.2 billion in 1998 .

Perhaps the most important aspect of this industry‟s future is the recent government decision to not only

privatize the South Korean telcos, but to allow up to 49% foreign ownership in them. Among the currently

slated purchases include British Telecom purchasing a 23% stake in LG Telecom, Southwestern Bell

     South Korean Briefs. Volume 6 No. 2, January, 29th, 1998.

Page 10                                                                                      08/22/11
                                     Investment Analysis SK Telecom South Korea

purchasing $US500 million in Shinsegi Telecom, and Motorola‟s announced investment of $US300 million

to expand its operations.

Part of Korea‟s success in the telecommunications industry is actually attributable to its relatively late entry

into the market, compared to the US, Europe, and Japan. The advantage South Korea had over these

other high tech players is that it benefited from not having to build a large terrestrial wireline infrastructure.

When South Korea was building its own telecommunications infrastructure, wireless technology had a

mature enough market history to be both affordable and sufficient for the needs of government and

business. The United States and Europe, and to a lessor extent Japan, have had to account for the higher

cost of maintaining and evolving a fixed wire telecommunications legacy along side the new wireless

upgrades. South Korea‟s timing into the market and its technological sophistication helped it to become

the first country to offer the wireless technology CDMA. CDMA is short for code division multiplexing

access and is important in the context we‟re describing here because it is both a basic medium of sending

wireless phone signals and also a highly efficient medium of state of the art signal transport. Being the first

to market with this advanced technology and being able to make that technology the basis for internal

wireless communication gave South Korea the all important first mover advantage both in the

manufacturing of CDMA capable telecommunications equipment and in establishing itself as one of the

premier countries in terms of telecommunication infrastructure and service offerings.

The synergy of this infrastructure is explosive. Because of the availability of a highly efficient telecom

network, South Korea has experienced high growth rate in Internet hosting services. PC users in the

Page 11                                                                                             08/22/11
                                        Investment Analysis SK Telecom South Korea

nation number more than 8 million, with over 1.5 million of them subscribed to internet access. To make

this access even more appealing and stable, South Korea uses three INTELSAT earth stations, two in the

Pacific Ocean and one in the Indian Ocean . In part because of the high density of computers in business

and homes and in part because of the extensiveness of the telecommunications network,

telecommunication service based industries are expected to grow 19.7 percent annually from 1997-2001 .

These services include EDI (electronic data interchange) and other information based access, gathering,

and analysis. These types of services are important to note because they are examples of the synergies

that were alluded to above. Because South Korea has not been content to merely sell a box, such a

common modem, it has created a consumer base who will continue to buy upgrades and enhanced

services. This leveraging of high tech customers bodes well not only for the short term success of South

Korea's technical industries, but also points to a clearly thought out long term development plan that

makes its high tech sectors, especially communications, one of the more lucrative investments areas.

SK Telecom Overview

Corporate Culture

     Korean Economic Development Website. November 1998.
     Information was synthesized from SK Telecom's website (
       and from team member's working knowledge of the corporate structure and offerings.

Page 12                                                                                           08/22/11
                                    Investment Analysis SK Telecom South Korea

SK Telecom is emerging as a major world player in the information and communications field. SK Telecom

works closely with the customer to create new kinds of value. The company is committed to becoming a

major world player by constantly satisfying the customer with distinctive products and services.

Services and Products

SK Telecom was first in Korea to provide paging and cellular phone services. In January 1996, it also

became the world's first to commercialize CDMA technology. As of May 1998, SK Telecom had over five

million people subscribing to cellular service. In the process, the company has become Korea's largest

cellular telephone service provider. SK Telecom is also the nation's leader in paging services. As of 1998,

the company had over 5 million people subscribing to its paging services, making us the largest provider in

Korea and the third largest in the world. Korea's first on-line service with Internet access, Netsgo, offers

multimedia functions that link a variety of different services. Netsgo is a highly convenient, next generation

on-line service that allows you to send and receive information whenever and wherever you want. Iridium,

the world's first global wireless communications network, launched its service in September 1998. Iridium

is backed by sixty-six low earth orbit satellites; thus as a member of the Iridium consortium, SK Telecom

will elevate the position of Korea's entire information and telecommunications industry.

Cellular Services

With more than five million eight hundred thousand subscribers, SK Telecom is Korea's largest cellular

phone service provider. SK Telecom was the first in the world to commercialize CDMA cellular service and

is now using its expertise to open the next generation of telecommunications. Competition in the Korean

Page 13                                                                                         08/22/11
                                     Investment Analysis SK Telecom South Korea

market intensified in 1997 with the entry of three PCS providers. At the same time, the entire domestic

economy has been facing severe hardship after the IMF bailout at the end of the year. SK Telecom, with its

priority on the customer, has strengthened its position as Korea's leading cellular phone service provider.

During 1997, the company added 1,380 more base stations to its nationwide network, offering service to

78 cities and towns and to 193 rural communities. Underground service has also been greatly enhanced

with the installation of more than 600 repeaters. The overall network has been upgraded through the

installation of high-volume signaling-oriented switching centers, and overall operations have been

stabilized through the replacement of aging equipment. The result is better quality service for customers.

Meanwhile, SK Telecom is committed to creating value as part of an aggressive customer satisfaction

program. The company continues to commercialize a wide range of value-added services such as data

messenger and voice activated dialing. It also operates some of the world's finest Customer Service

Centers, staffed with professionals capable of solving any problem or answering any question. In 1997, SK

Telecom became Korea's first information and telecommunications service provider to earn ISO 9002

certification for customer satisfaction and after-sales service.

The company also won the Consumer Satisfaction Grand Prize at the 1997 Korean Consumer Festival as

well as the 1998 Productivity Grand Prize in the Customer Satisfaction category awarded by the Korea

Productivity Center. SK Telecom plans to focus R&D efforts on wide-band CDMA technology so that the

company can offer services that also handle data and video in the near future.

Page 14                                                                                        08/22/11
                                    Investment Analysis SK Telecom South Korea

Paging Services
With over seven million subscribers, SK Telecom is the world's third largest paging service provider.

Customer satisfaction continues to grow with the ongoing development of value-added services. SK

Telecom began offering paging services in 1984, and since then has continued to develop new services to

accommodate changing needs. SK Telecom is applying its advanced technology to break new ground in

the industry by developing satellite paging service, high-speed paging service, two-way data transmission

service and wide area paging service.

The satellite transmission network is being built and expanded, while at the same time new technology is

constantly being developed and existing hardware upgraded in order to minimize system failures. Pager

call success rates have been greatly improved by the installation of a tele-monitoring system for controlling

base station operations at 460 locations.

Paging services will continue to be popular in the future because of the low cost and the high call success

rate. SK Telecom is working to become a comprehensive multimedia service provider for the 21st century

by developing value-added paging services that incorporate wireless cable TV technology, satellite

transmission and internet access.

Continued investments in R&D have allowed SK Telecom to develop an even more bandwidth efficient W-

CDMA Modem and to succeed in developing IMT-2000 Test-bed, a.k.a. "dream communication of the 21st

century." SK Telecom developed this Dream Technology to allow multimedia services no matter where,

Page 15                                                                                        08/22/11
                                      Investment Analysis SK Telecom South Korea

when or with whom you wish to talk. To better serve customers, it has set up IMT-2000 R&D Center and is

working on developing two types of IMT-2000 systems, an asynchronous intercell mode and a

synchronous intercell mode system in preparation for adoption of Multiple Standards. The open platform

styled development of multiple standards has been an essential system component for SK Telecom's

growth in that it allows other vendors' products to be easily added.

Iridium World Satellite Service
Customers who live and work in areas outside cellular network coverage or in places with poor landline

service will benefit from the direct link of Iridium World Satellite Service. Satellite calls are routed directly

form an Iridium handheld phone to the Iridium satellite orbiting above a customers to give the best

available signal clarity and power. Iridium World Satellite Service enable customer providing to

communicate in remote or underserved regions, where cellular or landline networks are limited or non-


The Iridium World Roaming Service gives customers access to the cellular networks of Iridium's roaming

partners. Using standard cellular telephones or dual-mode satellite/cellular phones, calls may be placed or

received over cellular networks throughout the world. This service component is appropriate for users who

travel frequently, both internationally and domestically, and require continuous communications in urban

areas that offer existing cellular service.

The Iridium system offers a unique paging service that covers the Earth's entire surface. As a stand alone

service or complement to other Iridium services, Iridium World Page Service allows customers to receive

Page 16                                                                                            08/22/11
                                      Investment Analysis SK Telecom South Korea

alphanumeric messages of up to 200 characters in any one of 16 languages, and numeric messages of up

to 20 digits, virtually anywhere on the planet.

Also available is a feature that will automatically track customers around the world and permit callers to

leave either voice mail or numeric messages on the customer's Iridium pager. With Iridium World Page

Service, customers can be reached anytime, even if their phones are turned off or out of reach. The

combination of Iridium paging, satellite, and roaming services will assure customers of receiving any

Messages. The Iridium Calling Card service provides convenient access to public-switched telephone

networks around the world. Public phones in hotels, airports, and elsewhere, will become more accessible

to Iridium customers, who no longer have to worry about carrying local currency to place a call.

Global Notification Service (GNS) is a unique feature of the Iridium system, providing voice subscribers

continuous communications capability. This feature allows a caller, who is unable to reach an Iridium voice

subscriber, to leave a message that will be delivered to the subscriber's Iridium pager. GNS is a global

paging service that automatically follows the subscriber, based on the location of the last registration of the

subscriber's handset. The Iridium system will be unique in its ability to offer a global "follow-me" paging

service that will interconnect with both cellular networks and the Iridium satellite network. GNS provides

several benefits to the subscriber.

Page 17                                                                                          08/22/11
                                    Investment Analysis SK Telecom South Korea

International Business

SK Telecom laid the foundation of technological independence of Korea's telecommunications industry as

the number one wireless telecommunication service provider on the basis of the technological know-how of

the state-of-the-art telecommunications that it has accumulated for the past 14 years.

Paging Service in India

DSS Mobile Communications Ltd. (DSS) first began its paging service in Delhi in October 1995. The

service is available in ten major cities of India including the five biggest cities where 80% of the commercial

transactions has been generated - Delhi, Mumbai, Chennai, Calcutta and Bangalore. SK Telecom made a

great contribution to the successful performance of DSS business through not only transfer of technology

and marketing know-how but also training of the local workforce. Thanks to its devoted efforts, DSS

secured a competitive edge over its competitors early on. The company has grown into the India's largest

paging service provider with 240,000 subscribers and 35% of the domestic market share as of the end of

May 1998.

Page 18                                                                                          08/22/11
                                   Investment Analysis SK Telecom South Korea

Cellular Service In Thailand

Encouraged by the Thai government's promotional policy of its cellular market, SK Telecom invested in

Wireless Communications Service Co., Ltd. (WCS) established in June 1996. WCS is the third cellular

service operator of Thailand, whose investors include SK Telecom, TAC (Thai's second cellular service

operator) and Goldman Sachs, one of the three largest investment banks in the world.

CDMA Cellular Project in Vietnam

SK Telecom has employed a multi-pronged approach for entering the Vietnamese telecommunication

market on top of taking advantages of CDMA technology that it was first to commercialize. As a result of its

active promotion of the benefits and advantages as well as private sectors' cooperation and exchanges,

the Vietnamese government came to adopt the CDMA system as the national standard.

Page 19                                                                                       08/22/11
                                    Investment Analysis SK Telecom South Korea


In the Business Environment section of this analysis our strategy was to develop the general thesis that not

only has the South Korean economy been one of the strongest in the region in the past decade, but we

also offered evidence that the economy has not faired too badly in the light of the current regional crisis

and that it is well on its way to recovery. The recent large scale investments in the telecommunication

sector is a compelling reason to believe that sector in particular is a fertile area for investment. To bolster

the view of the solidity of the telecommunications sector, we were able to include a fair amount of

information about South Korea's long term plans to make itself a high tech telecommunications hub.

Although we mention South Korea's recent acceptance of the IMF bailout as a cultural embarrassment, we

also tried to clarify the importance of the IMF enforceable plan to restructure debt and investment methods

as a very positive sign that the country will stay on the path of breaking up the chaeobols. As well, the plan

creates external motivation for South Korea to take the necessary steps to achieve the transparency that

lures high levels of stable FDI, instead of the unstable hot money portfolio investments that were a

foundational weakness in Asia's financing. As well it's important to remember the cultural solidarity of the

Koreans and their often alluded to national will power.

For a macro-view of investment risk, we focused on the regional risks on the South Korean economy with

the potential overall threat from North Korea and the potential economic threat if regional economies in

ASEAN and Japan continue to slide. We substantiated some or our claims of South Korea's economic

Page 20                                                                                          08/22/11
                                     Investment Analysis SK Telecom South Korea

resistance with a discussion of the Asian crisis. However, this is not meant to lesson or ignore the truly

high risk of any Asian investment.

Finally, we created a highly detailed product and technology based snapshot of SK Telecom so a reader

could see the breadth and depth of its product offerings, especially in wireless. Although we realize than

some readers may not have the telecommunications background to recognize the truly visionary path and

customer service focus SK Telecom has, the section clearly illuminates SK Telecom as a premier

telecommunications vendor not only in South Korea but also internationally.

After reading this assessment, and reviewing the two attached appendixes (a time table of SK Telecom's

history and several tables on South Korean economic metrics), a potential investor in SK Telecom should

be very excited about this investment opportunity. Since the government is allowing up to a 49% FDI in its

telecom companies, the investment is even more lucrative than non-regulated industries, because the 51%

South Korean ownership makes it less likely the venture will fail, than if it were purely owned by non-

Koreans. Our final recommendation is that potential investors spend the resources needed to examine the

exact nature of the investment in greater financial detail, which would involve negotiating directly with SK

Telecom. Although we don't want to underscore the risk in the region, which we continue to assert does

exist, we want to strongly recommend that any investors interested in further pursuing this opportunity do

so quickly because as we mentioned in the beginning, an equity investment in the growing infrastructure of

the world's 11th largest economy at reduced prices is going to be attracting many other savvy investors.

Page 21                                                                                       08/22/11
                                     Investment Analysis SK Telecom South Korea

Appendix I: SK Telecom Corporate History in Brief
March 1984        Korea Mobile Telecommunications Services Co., Ltd. established.
May       1984    Car phone service begun.
April     1988    Company designated as public telecommunications service provider.
May       1988    Corporate name changed to Korea Mobile Telecommunications Corp.(KMT).
July      1988    Cellular phone service begun.
April     1992    Number of paging subscribers reaches 1 million.
June      1994    SK Group participates in the company management as major shareholder.
Jan.      1995    Number of cellular phone and paging subscribers reaches 1 million and 4 million,
Feb.      1995    "MOVE 21" vision for the next century unveiled.
July      1995    US R&D center established (in New York).
Jan.      1996    World's first commercial digital CDMA cellular phone service launched (in the Korean cities
          of Inchon and Buchon).
April     1996    Digital CDMA cellular phone service launched in Seoul.
June      1996    $620 million in ADRs listed on New York Stock Exchange (a first among non-government
          Korean enterprises.)
June      1996    Company given A+ credit rating by Standard and Poor's.
July      1996    Company given A1 credit rating by Moody's (the highest ever granted to a mobile
          communications service provider).
July      1996    Number of digital CDMA cellular phone subscribers reaches 100,000.
Jan.      1997    Company joins the SK Group.
March 1997        Corporate name changed to SK Telecom Co.,Ltd. at the 13              annual shareholders'
March 1997        New corporate identity program unveiled.
March 1997        Number of digital CDMA cellular phone service subscribers reaches 1 million.
April     1997    $230 million worth of Yankee bonds issued.
May       1997    Cellular phone service launched in Thailand (partnership with WCS)
July      1997    High-speed paging service launched.
Sept.     1997    Number of cellular phone service subscribers reaches 4 million.
Sept.     1997    Development of IMT-2000 test bed system completed.
Oct.      1997    Netsgo on-line multimedia service launched.
Dec.      1997    Number of digital CDMA cellular phone subscribers reaches 3 million.
Jan.      1998    EVRC service launched.
Jan.      1998    Company granted ISO 9002 certification (the first for a Korean wireless communications

Page 22                                                                                                08/22/11
                                    Investment Analysis SK Telecom South Korea

April     1998   Company awarded Productivity Grand Prize in Customer Satisfaction category by the
          Korean Productivity Center.
May       1998   Number of cellular phone subscribers reaches 5 million.

Page 23                                                                                    08/22/11
                                        Investment Analysis SK Telecom South Korea

Appendix II: Tables on South Korea's Past Economic Achievements 19

                        1962             1985              1995                 1996            1997
GNP                     $2.3 billion     $90 billion       $452 billion         $480 billion
Per Capita GNP          $87              $2,194            $10,076              $10,548
GNP Growth              2.2              7.0               9.3                  6.2
Gross                   9.9              30.3              37.5                 38.6
Gross Savings           11.0             29.8              36.2                 34.6
Total Trade             $0.5 billion     $61 billion       $260 billion         $280 billion    $280 billion

                                 1962            1985            1995            1996           1997
Exports                          $0.05 billion   $30             $125 billion    $130 billion   $136 billion
-Primary Goods                   72.3            billion         4.9             6.331          7.9
-Light Industrial Goods          27.7            9.7             22.5            558.7          32.6
(%)                                              36.9            72.6                           92.5
-Heavy Industrial Goods                          54.4
Imports                          $0.42 billion   $31             $135 billion    $150 billion   $144.6 billion
-Consumer Goods (%)              23.6            billion         10.2            16.5           15.3
-Raw Materials                   54.0            8.5             50.0            74.8           76.5
-Capital Goods                   22.4            55.9            39.8            58.9           52.9
Industrial Structure             37.0            12.5            7.0
-Primary Sector                  16.4            30.5            27.2
-Secondary Sector                46.6            57.0            65.8
-Tertiary Sector
Unemployment Rate %              8.2             4.0             2.0             2.0            2.6
Employment Structure
(%)                              63.1            24.9            12.5            9.02           10.9
-Primary Sector                  8.7             24.4 50.6       3.5             2.7            21.2
-Secondary Sector                28.2                            64.0            68.3           67.9

     Korean Customs Service Administration and National Statistical Office Republic of Korea

Page 24                                                                                                   08/22/11
                   Investment Analysis SK Telecom South Korea

-Tertiary Sector

Page 25                                                         08/22/11
                                   Investment Analysis SK Telecom South Korea

Appendix II: Tables on South Korea's Past Economic Achievements (cont)

                            UNIT        1988      1990       1994       1995     1996      1997
Current balance             million $   14,16     -2,179     -4,531     -8,817   -         -8,618
                                        1                                        23,716
-Trade balance              million $   11,44     -2,004     -3,145     -4,749   -         -3,874
                                        5                                        15,306
-Invisible trade balance    million $   1,267     -451       -1,989     -3,512   -
-Unrequited transfers       million $   1,448     275        604        -556     -765.3
Long-term capital balance   million $   -         548        5,862      7,903    11,797
-Basic balance              million $   11,42     -1,632     1,331      -1,120   -
                                        8                                        11,918

Investments from            million $   1,284     803        1,317      1,941    3,203     6,971
-U.S.A                      (%)         (22.2)    (39.6)     (23.6)     (33.2)   (27.3)    (45.8)
-Japan                      (%)         (54.2)    (29.4)     (32.5)     (21.5)
-Germany                    (%)         (5.8)     (7.8)      (4.6)      (2.3)

Overseas direct             million $   224       959        2,331      3,058    4,219     2,953
(Total investment)
-South-east Asia            (%)         (18.9)    (31.3)     (46.2)     (53.6)   (10)      (17.8)
-North America              (%)         (44.4)    (45.3)     (24.6)     (17.9)   (37.5)    (17.5)
-Europe                     (%)         (8.6)     (9.9)      (19.6)     (20.0)   (15.6)    (14.7)

Foreign exchange rate
-U.S.A. per U.S.$           won         684.1     716.4      788.7      774.7    844.2     1,680.0
-Japan per 100 yen          won         547.7     532.4      790.7      745.6              1,268
-Germany per DM             won         386.7     479.4      509.0      538.9              922.17
-France per F.Fr.           won         112.9     140.7      147.8      157.9

Page 26                                                                                            08/22/11
                                Investment Analysis SK Telecom South Korea

KOREA Figures in Short 1997 National Statistical Office Republic of Korea

            94        94        95          95           96           96        97        97
            Exports   Imports   Exports     Imports      Exports      Imports   Exports   Imports
Total       96,013    102,348   125,058     135,119      129,715      150,339   136,625   144,635
            (16.8)    (22.1)    (30.3)      (32.0)       (3.7)        (11.3)    (5.3)     (-3.8)
Asia        45,619    42,220    61,565      54,921       65,736       57,600    62,927    51,198
            (18.0)    (22.7)    (35.0)      (30.1)       (6.8)        (4.9)     (5.7)     (-2.5)
Japan       13,523    25,390    17,049      32,606       15,767       31,449    13,640    25,959
            (16.9)    (26.9)    (26.1)      (28.4)       (-7.5)       (-3.6)    (-5.8)    (-10.1)
China       6,203     5,463     9,144       7,401        11,377       8,539     12,287    9,276
            (20.4)    (39.0     (47.4)      (35.5)       (24.4)       (15.4)    (22.2)    (19.6)
Hong        8,015     660       10,682      838          11,131       1,143     10,743    805
Kong        (24.6)    (-29.4)   (33.3)      (27.0)       (4.2)        (36.3)    (5.9)     (-23.8)
Singapor    3,869     1,660     6,689       2,168        6,439        2,527     5,451     2,204
e           (4.4)     (7.8)     (61.1)      (30.6)       (-3.8)       (16.6)    (-6.5)    (-3.3)
Middle      3,869     9,264     4,880       11,837       5,718        15,080    4,591     15,806
East        (4.0)     (5.4)     (26.1)      (27.8)       (17.2)       (27.4)    (-11.6)   (18.0)
Europe      13,878    17,341    20,854      22,452       21,395       26,244    22,439    22,010
            (12.5)    (31.4)    (50.3)      (29.5)       (2.6)        (16.9)    (15.7)    (-8.3)
European    10,616    13,237    16,302      18,191       15,325       21,204    15,203    17,624
Union       (12.8)    (30.2)    (53.6)      (37.4)       (-6.0)       (16.6)    (9.8)     (-9.1)
North       21,943    23,584    25,922      33,008       22,874       36,029    21,001    30,491
America     (12.5)    (20.2)    (18.1)      (40.0)       (-11.8)      (9.2)     (0.4)     (-6.6)
America     20,553    21,579    24,131      30,404       21,670       33,305    19,916    28,067
            (13.3)    (20.4)    (17.4)      (40.9)       (-10.2)      (9.5)     (1.0)     (-6.6)
Canada      1,390     2,005     1,790       2,604        1,203        2,724     1,384     2,424
            (1.1)     (18.3)    (28.8)      (29.9)       (-32.8)      (4.6)     (25.6)    (4.0)
Central &   6,430     3,280     7,370       3,964        8,961        4,392     7,766     3,646
S           (30.7)    (37.6)    (14.6)      (20.9)       (21.6)       (10.8)    (-3.0)    (-11.0)
Mexico      1,289     229       941         307          1,191        408       850       506
            (29.3)    (45.1)    (-27.0)     (34.2)       (26.5f)      (33.1)    (28.6)    (24.0)
Africa      2,502     1,197     2,227       1,962        2,250        2,521     2,685     4,178
            (71.2)    (52.0)    (-11.0)     (63.9)       (1.0)        (28.5)    (30.9)    (79.7)
Oceanic     1,508     4,789     1,896       6,050        2,433        7,404     4,475     11,945
            (7.4)     (9.9)     (25.7)      (26.3)       (28.3)       (22.4)    (-39.5)   (61.3)

Page 27                                                                                        08/22/11
                                     Investment Analysis SK Telecom South Korea
( ) = increase from previous years

Page 28                                                                           08/22/11

To top