SK Telecom Co.,Ltd (SKM) Q3 2026 Earnings Report, Transcript and Summary

[Interpreted] Good morning and good evening. Thank you all for joining the conference call for the SK Telecom earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on SK Telecom's Third Quarter of Fiscal Year 2026 Earnings Results.

[Interpreted] Good afternoon. I am Tae Hee Kim, IRO of SK Telecom. Let us begin the earnings conference call for the third quarter of 2026. Today, we will first deliver a presentation on the financial and business highlights, followed by a Q&A session. Please note that all forward-looking statements are subject to change depending on various factors such as market and management situations. Let me now present our CFO.

[Interpreted] Good afternoon. This is Jong-seok Park, CFO of SK Telecom. SK Telecom has announced that in 2026, it would strive to strengthen fundamental competitiveness of the telecom business focused on customer value and restore financial performance and dividend levels based on the success of its AI business achieved through a strategy of focus and prioritization. This year, driven by efforts to restore customers' trust and improve business fundamentals to achieve qualitative growth, our telecom business has been delivering tangible results with improvements in both subscriber growth and profitability. For AI business, we have refined our growth strategy and execution framework with a focus on AI data centers and have been accelerating our efforts to move the business forward. Following the establishment of SK Hyper in July, we announced a plan to establish SK Horizon in August to strengthen operational expertise of our existing data center and submarine cable business and secure funds for business expansion. Since then, we have successfully secured external investments. Building on the progress we have made toward recovery and the business foundation we have built this year, we will strive to ensure that these changes lead to a recovery in our annual performance. Let me now report on the consolidated financial performance for the third quarter. Consolidated revenue posted KRW 4,497.3 billion, up 3.2% Q-on-Q and 13.1% year-over-year, driven by mobile service revenue growth. With the third quarter consolidated operating income of KRW 552.3 billion, we have posted operating income of over KRW 500 billion for 3 consecutive quarters. With a cumulative consolidated operating income of KRW 1,655.9 billion for the first 3 quarters this year, we are continuing the trend of earnings recovery that we promised at the beginning of the year, thanks to our ongoing efforts to improve profitability. Next is shareholder return. EPS for the third quarter is KRW 831. We will do our utmost to maintain stable shareholder returns based on a stable profitability base. Let me now present business highlights by business line. Mobile service revenue has been gradually recovering through efficient market operations centered on subscriber recovery and customer lifetime value. On the back of the launch of flagship handsets such as Galaxy Fold and iPhone, mobile service revenue saw a Q-o-Q growth driven by high-quality handset subscriber acquisition. As a result of the efforts to enhance our core competitiveness through customer-friendly products and services, we ranked first in the mobile communication service category in the Korean Customer Satisfaction Index last September. Following this year's National Customer Satisfaction Index and the Korean Standard Service Quality Index for the first time in 2 years, we have once again topped all 3 of Korea's major customer satisfaction surveys. We will continue to ensure that these efforts and changes translate into improvement in competitiveness and profitability of our telecom business. Next is AI business. For AIDC business, we have streamlined the execution framework for the AI infrastructure business by establishing the 2 companies mentioned earlier, one in charge of the operations and expansion of the current AI infrastructure and the other in charge of AIDC business development. With this governance restructuring, SK Telecom will oversee the overall strategy, risk management and global collaboration for the AIDC business, while the 2 new companies will develop expertise and decision-making systems tailored to their respective business characteristics, thereby accelerating the pace of execution. Based on the operational capability of the current data centers, SK Horizon is pursuing a plan to build new data centers in Ulsan and Seoul with a target capacity of approximately 180 megawatts. We also plan to expand the submarine cable business in phases. The E2A submarine cable project that we are involved in is targeting the launch of commercial services in 2029. For SK Hyper, we're currently discussing concrete terms with potential tenants for AI data centers primarily in the Ulsan area. We plan to secure customer demand quickly and build an AI data center on the prepared site. We will share more details with the market as soon as they become available. For the AI service business, we continue to build connections among models, infrastructure and the customer base. The scope of application for our proprietary AI foundation model is being expanded to include A dot and workplace AI services. We aim to establish Korea's largest AI service ecosystem by combining our telecom and AI capability through the participation in the Everyone's AI project. As AI technology advances and its range of applications expands, the relationship between telecommunications and AI is becoming even closer. Against this backdrop, we aim to implement a single growth strategy for both telecom business competitiveness and AI business development. We will apply AI technology to strengthen telecom services tailored to customers and improve network operation while utilizing our telecom customer base and network capabilities to expand the adoption of AI services across everyday life and industries. We will develop AI infrastructure not only as a foundation for AI technology, but also as a key growth driver in the medium and long run. We will ensure that these achievements we have made in our telecom and AI domains will lead to bigger growth. We ask for the continued support and interest of our investors and analysts. Thank you.

[Interpreted] [Operator Instructions] We would now like to begin the Q&A session. The first question will be provided by Seung Woong Lee from Yuanta Securities.

[Interpreted] I'm Seung Woong from Yuanta Securities. I would like to ask 2 questions regarding the newly established companies for AIDC business development. First of all, I'd like to get some updates on SK Hyper. You mentioned during the second quarter earnings call that you will try to secure customer demand first before making specific investments. So I'd like to get some updates on your customer acquisition-related situations as well as discussions with financial investors. If there are any concrete details you can provide us, I would appreciate it. And I would also like to understand if there's any time line or any schedules or targets for these types of activities. My second question is related to the SK Horizon, which will be established early next year. I'd like to understand the reason behind your decision to establish another company, SK Horizon. And what will be the roles between SK Hyper and SK Horizon in pursuing your data center business?

[Interpreted] Thank you for your questions. First, I'd like to comment on your question on the recent updates on business development for SK Hyper. Since established in July, SK Hyper has secured sites and have been actively carrying out business development activities to attract customers. More specifically, we obtained construction permits for certain capacity in Ulsan and are currently discussing concrete business terms with 3 to 4 global companies. On multiple candidate sites other than Ulsan, we're developing business, including securing land and power and attracting customers. As consultations with potential tenants are ongoing, we will not be able to disclose any details on contract volumes or schedules, but we aim to secure enough customer demand for initial operation by the first half of next year, obtain permits and build the data center in order to open the data center in phases starting from the second half of 2029. AIDC business requires a massive amount of investment. So it is essential to secure stable demand through long-term contracts to be able to obtain external funding. So while we are discussing contract terms with potential customers, we're also considering various financing options at the same time, including project financing and funding through strategic and/or financial investors. Next, I'd like to comment on the different roles to be played by SK Horizon and SK Hyper. Since SK Hyper and SK Horizon have different business stages, there was a necessity to establish execution systems tailored to the characteristics of each business. SK Horizon handles the data center business in the capital area, construction of 100-megawatt capacity in Ulsan and expansion of submarine cable business. So it already has certain commercial contracts and financing structure already in place. So we concluded that it would be better for us to maintain a majority stake in SK Horizon to maintain business stability. In developing gigawatt-scale AIDC business, SK Hyper needs to secure commercial contracts, seek large-scale investment funding and take other necessary steps. Therefore, there was a need to have a different framework to allow more flexibility in the process of business development and execution. So likewise, we will continue to employ appropriate business structures to strengthen execution capability, manage financial burdens and expand our AIDC business in stages.

[Interpreted] The following question will be presented by Jungchan Kim from Korea Investment & Securities.

[Interpreted] I'm Jungchan Kim From Korea Investment & Securities. I have 2 questions. First of all, about your MNO business. Even though the number of handset subscribers declined in the third quarter, your mobile service revenue has increased on a quarter-over-quarter basis. So I'd like to understand the driver behind the MNO revenue growth and get some color on the future outlook going forward. My second question has to do with low earth orbit satellite communications. And recently, in the U.S., SpaceX has acquired bandwidth as well as acquiring base stations. And such low earth orbit satellite operators may have some impact on SK Telecom as well as the domestic MNO market. So what is your view on the potential impact of such operations?

[Interpreted] Thank you very much for your questions. I will first address your question on the impact of satellite communication service on our business as well as the domestic MNO market. And I will hand over to the executive in charge of MNO support to get more information about the MNO business status. Currently, in Korea, low earth orbit satellite communications are primarily used in areas where existing terrestrial networks have limited coverage, such as those for aviation and maritime operations. To be able to compete with mobile network operators in the B2C mobile service market, significant investment is needed to secure additional bandwidth to handle higher data traffic and build ground infrastructure for in-building coverage. Currently, the domestic operators already have excellent network quality and service competitiveness based on nationwide 5G coverage and high levels of in-building coverage. So the impact of satellite-based services on the domestic MNO market is expected to be quite limited. Nevertheless, satellite service operators may further improve their coverage and data processing capacity by combining satellite and ground networks. So we will continue to monitor future technology development, business models and changes in the domestic regulations. Now I will hand over to Bai Byeong Chan in charge of MNO network to answer your first question.

[Interpreted] I'm Bai Byeong Chan, in charge of MNO network service. Starting from early this year, we have been focusing on acquiring high-quality subscribers through customer value innovation and restoring fundamental competitiveness through qualitative growth rather than engaging in competition to acquire subscribers through excessive marketing. In the third quarter, using flagship handset launches as a momentum, we continue to improve subscriber base quality by attracting high LTV subscribers and target new segments such as foreigners to expand the subscriber base. As a result, both the mobile service revenue and ARPU have been growing. We will maintain this growth strategy in the fourth quarter as well. And if we continue to enhance customer value and fundamental competitiveness, MNO revenue is expected to continue to recover.

[Interpreted] The following question will be presented by Hoi Jae Kim from Daishin Securities.

[Interpreted] I'm Kim Hoi Jae from Daishin Securities. I would like to ask you 2 questions. First of all, about your shareholder return policy. Your current shareholder return policy is until 2026, and it includes the shareholder return of more than 50% of the consolidated adjusted operating income. And you earlier mentioned that there will be treasury share cancellation as well as dividend payouts. But recently, only dividends have been paid without treasury share cancellation or any other actions. So I'd like to understand what your future shareholder return policy would look like, whether it will include more than 50% of return to shareholders, whether it will include treasury share cancellation or whether it would include a minimum DPS guarantee. And I would also like to understand if you decide to sell your stake in Anthropic after the IPO, I wonder if this proceeds will be used for shareholder return or will be used for investment? My second question is on your mobile business. Everyone is paying attention to your AIDC business, but I believe that fundamental telecom business is critical for SK Telecom. So I'd like to get some updates on SKT's efforts regarding 5G SA, 5G and 6G.

[Interpreted] Thank you for your questions. I will answer your question on our future shareholder return policy. And regarding MNO technology development, I will hand over to Mr. Lee Jong-Hoon in charge of SK strategy to answer your question. Our basic shareholder return policy and direction is to maintain minimum the current level of dividend by strengthening competitiveness and profitability of our telecom business and based on stable profit and cash flow. What we are thinking about in terms of future shareholder return policy is the amount of investment that is needed to build a basis for growth, including AI data center development. In order to build gigawatt scale data centers, a lot of investments are needed. And it is our position that we will try to reduce our own direct investment burden by actively utilizing external funding, including financial investors. However, even though we actively utilize external investments, we still need to execute some CapEx for AIDC development. So compared to the past periods where there was no need for new data center development in the future, we may need to execute some level of investment. Therefore, we will continue to consider and review the necessary size of investments for different businesses and their execution schedules as well as our financing structures to make sure that we will have enough investment efficiency and financial soundness. As for our next shareholder return policy, we have just started the process of reviewing the future plan. And after discussing this with the Board members and after making necessary revisions, we will be able to make an announcement. The timing of the announcement is not fixed yet, but as late as before the first quarter of 2027, DPS is determined. As for our decision to sell our stake in Anthropic, we are going to make this decision in consideration of various factors, such as the possibility of creating synergy between Anthropic and SK Telecom, market conditions and necessary funds for growth investment. As for the usage of disposal proceeds, we're going to take into consideration various factors, including medium- to long-term investment plans for AI data center, the actual funding requirements as well as the financial situations in a way that we'll be able to maximize shareholder value going forward. Now I will hand over to Mr. Lee Jong-hoon, in charge of network strategy to comment on any updates on network development.

[Interpreted] I'm Lee Jong-hoon, in charge of network strategy. Let me first comment on 5G SA. 5G SA is a technology standard that uses 5G network alone, and we have already completed relevant technology optimization and commercial network verification, and we're planning to commercialize this in December 2026. 5G advanced refers to sophisticated technology where software upgrade is made to the existing 5G equipment and network. Currently, we're in the process of conducting study and validation of the relevant technology and relevant elements, and we will consider future customer and service demand as well as technology ecosystem to introduce this in phases. The technology standardization for 6G is targeted for 2029 and commercial launch of 6G is expected to happen after 2030. We're actively participating in 6G technology research and development as well as standardization, and we're monitoring major technology and global trends. And going forward, we will consider standardization status and technology maturity as well as market conditions before we decide to launch 6G commercially.

[Interpreted] We will take the final question. The last question will be presented by Joonsop Kim from KB Securities.

[Interpreted] I'm Kim Joonsop from KB Securities. I would like to ask 2 questions. The first question is on your -- the growth gear strategy that was mentioned in early October. And the second question is related to SK Hyper. Now for the first question, the growth gear strategy that was mentioned in the media in early October was about combining customer touch points and AI infrastructure. It was quite impressive. If you start to implement this growth gear strategy in full swing, I'd like to understand what areas will be monetized first for SK Telecom, whether it would be business AI services or AI infrastructure utilization or telecom subscriber-based services. So which area will be monetized first? My second question is regarding SK Hyper, which was established in July. Compared to July, the current interest rate environment is quite different. We have higher interest rates and the external environment continue to change. So this may lead to more challenges in attracting investments. So I'd like to understand SK Telecom's strategy in responding to these current situations.

[Interpreted] Thank you for your questions. I'm CFO. Let me comment first on our growth gear strategy. We're currently working on and refining details regarding the growth gear strategy, but the big picture is to connect telecommunications and AI services and infrastructure with one growth framework so that we can position ourselves in the AI token economy. SK Telecom has more than 23 million subscribers and the transaction and payment systems as well as the platforms and infrastructure that can offer different AI models. So based on these capabilities, we are working on a Token Gateway business that will manage customers' AI usages and connect different models and infrastructure for different purposes. You asked about which area will be monetized first. Already telecom and AI infrastructure have the basic business models in place. And for AI infrastructure with rising utilizations of data centers, we are expecting rapid growth. As for enterprise AI services, it may take some more time before we can produce tangible results. But given our full stack AI capabilities, including our network competitiveness and the infrastructure and agents, I believe there is huge potential. We believe that opportunities will open up first in the public sector and national defense, and we aim to create a structure where monetization happens through AI usage and operation based on the Token Gateway. We're also reviewing ways to connect telecommunications products with subscriber base, and we will make all the necessary preparations to be able to deliver tangible results. Next, I'd like to comment on the changing environment surrounding SK Hyper. We plan to utilize actively external funding for AIDC construction and business expansion. So it is true that interest rates affect funding costs, but what matters more in securing investment is project bankability. As for SK Horizon, we were able to receive large external investments after we secured business stability and profitability based on long-term contracts. So under the principle of seeking investment after securing customer demand, if we develop enough business visibility through competitive contracts, we believe we can secure necessary investments despite market uncertainties such as interest rate trends. And we will continue to monitor the funding situations in the capital market and focus on developing attractive bankable businesses based on customer demand. Thank you.

[Interpreted] This concludes the earnings conference call for the third quarter of 2026. If you need further explanations or have additional questions, please contact IR at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]