KT Corporation

However, salary negotiations were reflected in Q4 last year while we were able to smooth out content sourcing costs this year.

In this regard, operating income has increased YY in both consolidated and standalone basis to continue solid growth. Excluding wage negotiations and content sourcing costs moving, operating income recorded 512.2 billion won on consolidated basis and 383.7 billion won on standalone basis in Q3. which is a 13.1% and 18.6% YOY growth, respectively.

In addition, on October 17th, KT announced the new mid-term shareholder return policy

which is for the fiscal year 2023 to 2025 period. We are planning to use 50% of the standalone adjusted net income as resources for shareholder return.

We are planning to use 50% of the standalone adjusted net income as resources for shareholder return.

Dividend per share should be maintained at a minimum of 2022 levels. We also plan to purchase and cancel treasury shares within the financial resources available for shareholder return. Quarterly dividends should be introduced after receiving approval at the Ordinary General Shareholders Meeting in 2024.

KT will implement the Digital Service First Strategy

by leveraging the company's CT and IT strengths.

ICT capabilities are essential to offer differentiated and innovative digital services sought out by customers.

As such, we will make utmost effort to integrate and strengthen the outstanding telco and IT strengths of KT. We plan to boost corporate value by focusing on fundamentals based on the company's ICT capabilities to pursue quality growth.

그럼 지금부터 2023년 3분기 실적에 대해서 말씀드리겠습니다.

Next, I will go over the business performance of 2023 Q3.

영업 수익은 전년 동기 대비 3.4% 증가한 6조 6,974억 원입니다.

Operating revenue reached 6,697.4 billion won, which is a 3.4% worldwide increase.

영업 이익은 임금 단체 협상 결과 반영과 content sourcing cost decreased by 28.9% compared to the previous year.

Operating income recorded 321.9 billion won, which is a 28.9% YOY decrease caused by reflection of collective dollar renegotiations and smoothing out of content sourcing costs.

The net profit is 2883 million won, which decreased by 11.6% compared to the previous year.

Net income declined by 11.6% yy to 288.3 billion won and EBITDA decreased by 7.3% yy to 1 trillion 259.9 billion won. I will now go over the operating expense on the next page. Operating expense increased by 5.8% YOY to reach $6,375.5 billion won. The next slide is about the company's financial position.

In the end of September 2023, the financial position was 134.9%, and the net financial position was

The debt-to-equity ratio as of September 2023 stood at 134.9%, while net debt-to-equity decreased by 6.1 percentage points, QOQ, to 38.5%.

Next, I will go over CAPEX. KT Group's cumulative Q3 CAPEX amounted to $2,253.2 billion won.

On standalone basis, cumulative CapEx as of Q3 stood at 1 trillion, 600.4 billion won. The group's CapEx, including the core business areas such as finance, media content, and real estate, recorded 652.8 billion won. CapEx implementation is in line with the annual investment plan.

Now I will go over each business line. We revised the revenue categorization system to better align revenue with our business direction, which is to concentrate on fundamental growth and to enhance intuitive understanding of our businesses.

We have broken down revenue into wireless, fixed, and B2B service and will work to deliver quality growth for each business line.

Revenue of the wireless business rose by 1.6% YY to 1,708.1 billion won. Roaming business sales have grown to more than before COVID-19, and leadership in the iPhone market is also strengthening.

5G subscribers recorded 9.51 million, which now covers 70% of total handsets. With travel gaining traction, roaming revenue has recovered to pre-COVID levels, and we are also solidifying our leadership in the MVNO market.

In particular, rather than just acquiring subscribers through simple number of subscribers,

In particular, wireless revenue continues to show robust growth as we focus on premium subscribers driven by quality growth rather than volume growth.

Next is the fixed line business. 전년 동기 대비 3.2% 성장한 6,194억 원을 기록했습니다.

Broadband revenue rose by 3.2% YY to 619.4 billion won thanks to increased demand for high-quality services and growing giga subscribers.

Home 유선전화 수익은 전년 동기 대비 7.6% 줄어온 1,863억 원입니다.

Home telephony revenue decreased by 7.6% YY to 186.3 billion won. Media revenue increased by 3.9% YY, which was supported by the expansion of IPTV subscriber base, which was mainly driven by high ARPU subscribers.

KT IPTV, which was supported by the expansion of IPTV subscriber base, was mainly driven by high ARPU subscribers. Since rebranding KTIP TV to Genie TV in October last year, VOD and OTT usage doubled, cementing its role as the first media window at homes.

We will continue to strengthen differentiated services that are sought out by customers to contribute to invigorating the domestic media ecosystem.

Next is B2B services.

B2B service revenue rose by 2.7% YOY thanks to the monetization of enterprise DX backlog orders and a robust real estate market.

Revenue from corporate broadband and data slightly declined YOY due to rationalization of some low-profit businesses.

But main product segments showed balanced growth as higher demand for social safety and infrastructure drove sales of lease lines for CCTV and the core net business grew supported by expansion of local and global CP customer base. Enterprise DX continues to show growth as previously secured orders such as the MVCN project starts turning into revenue.

B2B demand of government and corporations is consistently rising.

We expect B2B backlog orders to remain above 3 trillion won this year. Also, AI new business revenue declined by 11.9% YOY to 106 billion won as some order placements are delayed and low-profit projects are rationalized.

KT AICC is leading the AICC market by applying the demand of all customers, from large companies to small and medium-sized companies, based on cloud-based subscription services.

Meanwhile, the KT-AICC service is accommodating a wide clientele from large corporates to small and medium businesses with a cloud-based subscription model to lead the AICC market.

And the KT-Large AI service, 믿음, which was released on October 31, is a plan to build a growth base in five areas, including manufacturing, finance, public education, and global, from a light model to a large model.

In addition, KT launched Mideum, KT's large AI service on October 31st. Mideum has four main lineups ranging from light to super large models to satisfy every corporate size and purpose. We will be focusing on key five areas which are manufacturing, finance, public, education, and global markets as future growth drivers. Next, I will go over the performance of main subsidiaries. BCH card revenue saw 1.2% YOY growth to reach 995.7 billion won, mainly driven by new businesses such as PLCC and loans.

High-life 수익은 TPS 사업이 성장했으나 HCN의 가입자 감소 등 영향으로 Sky Life revenue decreased by 2.8% YY to 260.5 billion won due to the decline in HCN subscribers despite growth of TPS. KT Studio Genie and Sky TV released four original dramas and three original variety shows in Q3.

New Recruit Season 2 topped the Monday-Tuesday drama rankings in terms of both buzz and viewership. Also, the viewership of Not Others, Longing for You, and The Kidnapping Day all showed upward trend, evidencing the strength of our content production capabilities based on strong storytelling.

SPY TV is also building up a variety of entertainment content lineups, such as I Am Solo and Steel Troops 3.

ITV is also establishing a lineup of hit shows, with the successful launch of new seasons creating massive buzz, such as I Am Solo and R&S God 3. However, revenue from the content subsidiaries decreased by 3.6% YY to 290.4 billion won, due to contraction of the advertising and commerce market amid economic recession.

KT Estate jumped by 30.3% YY to 142.3 billion won.

thanks to higher office lease revenue and robust hotel business.

In particular, the diversification strategy of the hotel business, launching customer bespoke packages while attracting corporate clients, was effective.

KT Cloud revenue rose by 34.5% YY to 193.8 billion won, driven by robust growth of private cloud project orders and the IDC business.

KT's large AI model, Medium Service,

is offered with KT Cloud's AI full-stock package, which helps customers reduce their AI introduction cost. We believe that this combination will contribute to the popularization of large AIs. This concludes the earnings presentation of KT in Q3 2023.

KT will continue to focus on its fundamental ICT capabilities

as the digital innovation partner of Korea, KT will focus on strengthening our fundamental ICT capabilities and preemptively developing and launching services that maximize the customer experience to pioneer the transformation of the digital paradigm.

We ask for the continued interest and support of shareholders and analysts. Thank you. We ask for the continued interest and support of shareholders and analysts. Thank you.

For more details, please refer to the earnings presentation which has been previously circulated. We will now begin the Q&A session. In order to allow as many Q&A opportunities as possible, we would appreciate only two questions from each participant.

Thank you. Now, Q&A session will begin. Please press star 1, star, and 1 if you have any questions. Please press star 2, star, and 2 if you want to cancel questions. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be presented by Hwe Jae Kim from Daesin Securities. Please go ahead with your question.

Hello, I'm Hwe Jae Kim from Daesin Securities. I have two questions. The first is, if you look at the recent MNO-based wireless registration numbers, the gap with Uplus is decreasing. I'm also curious about the KT's position and the future response strategy. The second question is related to the performance. The performance of the third quarter was lower than expected, but the cost to be recognized in the fourth quarter seems to have been recognized early in the third quarter. So, I would like to know how much the cost has been reduced in which areas, and what the prospects are for the fourth quarter and the annual performance. Thank you.

Good afternoon. I am Kim Hyo-jae from Taishan Securities, and I have two questions. First is regarding the number of MNO subscribers. It seems that the number of subscribers, the gap between ourselves, KT, and you plus is reducing. And so what would be this number for KT, and how do you plan on responding to this reduction of gap of the MNO subscribers? And my second question is regarding the earnings. In Q3, it seems that KT has slightly underperformed market expectations. It seems that this is because some of the costs that would be normally recognized in Q4 has already been recognized in Q3. What are those items? And also, what would be your outlook for Q4 and also for the full year performance? Thank you.

Yes, Ms. Kim, thank you for the two questions. I will answer the second question first. Thank you for the questions.

I will answer the second question first, and then regarding your first question, we have the head of the customer division here with us to entertain your first question.

First of all, I would like to explain this to you on a separate basis. In terms of our sales, we have a strong growth in mobile and Internet TV business I will first go over the standalone basis.

So revenue in Q3 actually recorded over $4 trillion for two consecutive quarters, thanks to the following reasons. We have observers... observed robust growth in the mobile broadband TV businesses, and the previously secured orders in the B2B business is now starting to generate revenue.

You asked about the early recognition of 3Q's performance and 4Q's cost. The income negotiation results reflected in the 4th quarter of last year were reflected in the 3rd quarter of this year. This has affected about 1,400 billion won. And in Q3, you asked about some of the costs that were recognized earlier, costs that should have been recognized in Q4.

So regarding the salary negotiations, last year those associated costs was recognized in Q4, But this year, those negotiations concluded early, so we recognized around $140 billion won in related costs in Q3 this year. And then there's another $50 billion won cost regarding the smoothing out of content sourcing costs. And so for these two reasons, the standalone basis, YOY, declined slightly.

This is an adjustment of the cost schedule for the second half of the year. This is more like a quarterly adjustment of cost recognition.

These items should not impact the full year performance of the company. So if you exclude the salary negotiations and the smoothing out of the content sourcing costs, the operating income in Q3 actually increased by 19% YY.

And then as for your question regarding the outlook for Q4 and the full year performance,

So because some of the costs that would have been usually recognized in Q4 has already been recognized in Q3, on a YOY basis, Q4 numbers should show improvement. And we will also make utmost effort to improve the full year performance compared to the previous year by year end.

Second, I would like to talk about the financial performance and outlook of the connection standard.

And now I will briefly go over the consolidated performance of the company.

And in Q3, we saw the main subsidiaries show robust growth, especially in finance, media, DX, and real estate.

And thanks to the robust growth of all of these subsidiaries, we were able to see the highest revenue recorded ever since going public.

According to the current trend, the group's growth in advertising and commerce has decreased a little, but as the profits of major group companies such as BC Card, KT Cloud, and Estate have been strengthened, the 3-minute group business profit margin has been recorded at a level similar to the previous year.

Because of the economic recession, we did see some decline in the advertising and commerce segments, but BC Card, KT Cloud, and KT Estate all showed strong profitability, and so their contribution to the overall group's performance in Q3 has remained similar to previous years.

In the remaining period, we will try to increase the growth portfolio of the group and increase the profitability of the group.

And for the remaining months of this year, we will make efforts to ensure that the company's growth portfolio and the profitability of the main subsidiaries remain robust so that on a full-year basis, they can maintain such high contribution to the group's profits.

Hello, Chairman. I'm Park Hyo-yool, the Director-General of the Customer Experience Innovation Department. Good afternoon.

My name is Park Kyu-il, and I am the head of the customer division, and I would like to answer your first question regarding the reduction of the gap of subscribers of MNO between KT and LG. The recent increase in the number of subscribers or lines of our competitor, according to the numbers and statistics of the government, are solely based on IoTs, especially in the remote control devices. They are not coming from the actual human customers.

For your reference, I would like to highlight that other than these remote control devices, so for example, vehicles and wireless payment devices, KT is still definitely the market leader. Of course, each company will have their own strategy and will make business decisions accordingly.

However, I would just like to highlight that for KT, we are not really interested in low-end bidding projects that generate less than 1,000 won per month in revenue just to secure millions of lines at once, which this is mainly happening in the IoT remote control device segment.

In addition to low-end bidding, there are also high-end bidding projects

Also, as a company, we are focused on profitability, the scalability of projects, technological innovation, and the possibility to build new ecosystems. And so we would not sacrifice these elements just to secure more volume growth. We have been maintaining the gap on the areas of actual human subscribers, wearable devices, and second devices. And we have been always concentrating on enhancing customer value to generate high-quality revenue and profits. And as a result of these efforts, in terms of 5G penetration and ARPU, which are the main quality indicators of a telco company, we maintain the gap against our competitors. As the 5G market enters maturity, the growth momentum can slow down in the future.

We will maintain our MNO service competitiveness

by encouraging our LTE subscribers to change into 5G plans and to ensure that the high-end customers maintain their first-tier plans and to ensure that our 5G customers will be satisfied with new 5G plans so that they can generate higher ART proof for the company. We are also focusing on new value-adding services further enhance customer satisfaction. And even in the MVNO market, we will be targeting the markets by different segments to enhance overall customer satisfaction, and we will also work to secure high ARPU customers so that the MVNO business can also continue the growth of the wireless business. We will make utmost effort to ensure that we can continue the robust growth of our telco and wireless business as expected by our investors. by focusing on the fundamentals of our business and also continuing to make effort to enhance customer value.

Next question, please. The following question will be presented by Jaemin Ahn from NH Investment and Securities.

Please go ahead with your question. I'd appreciate it if you could tell us if you have any plans to communicate in the market in the future. The second is the B2B business. We know that B2B is doing well, but I'd appreciate it if you could tell us how you're going to take the strategies in the future and the prospects for growth in the B2B business next year.

Good afternoon. My name is Jamie Nam from NH Investment Securities. I have two questions. First, a new CEO has been appointed to KT. I don't think there has been a lot of communication regarding the new CEO's business strategy and direction. So can you give us some more color on that? And also, does the company have plans to encourage communication between the CEO and the market in the future? Second question is regarding the B2B business. KT is very strong in this market. I would like to know more about the strategy that you have and also the outlook that you foresee for the B2B market.

Thank you for those questions, Mr. Ahn. So I would like to answer your first question.

So KT's large group direction is to make sure that the fundamental IT capabilities generate quality growth in the B2B market, sustainable profits in the B2C market, and also to ensure that AI will serve as a foundation to encourage and trigger innovation and growth of overall KT. This is the main strategy of our CEO.

A little more to say, in the B2B field, we will achieve joint growth through choice and focus based on IT capabilities.

In the B2C segment, we will be focusing on selective concentration based on IT capabilities so that we can generate both revenue and profit growth. In the B2C segment, we will be focusing on launching customized services and also new services to satisfy customers so that the B2C business can serve as a cash cow for the company.

And as for leveraging AI, we will be using AI to develop new profit generating business models,

At the same time, we will be using AI to come up with differentiated services and also to boost the overall productivity of the company.

You asked a question about more specific management and market communication. Currently, we are reviewing all aspects of the current medium-term management strategy, and we plan to communicate with the market when the specific strategy is further confirmed. We expect that to happen around the beginning of next year.

And you also asked about opportunities for communicating with the market. So we are currently developing the mid-term strategy of the company. And once those strategies crystallize, I think we will have an opportunity for our CEO to meet with market participants. And I think that timing will be around early next year.

The second question is about B2B business. And you also asked about the B2B market.

So KT has the widest and most extensive coverage in both wireless and fixed markets. We have a sales force that can reach out to the individual customers and to the various office buildings throughout Korea.

Recently, with the popularization of the digital transformation among corporates, the AI, big data, and cloud capabilities are essential.

We have all of these capabilities, and based on our capabilities, we are developing customized services for corporates, and this is enabled by the various corporate products that we have. We will be continuously expanding our B2B business, taking advantage of the strength of the company and the digital transformation trend of the industry.

First of all, we plan to strengthen competitiveness through the discrimination of the communication itself and improve profitability through the improvement of the cost structure. Based on the overwhelming coverage of the communication infrastructure, we plan to strengthen customer convenience through end-to-end communication with the advantages of stability and security of the service.

We have the most extensive network in the industry. And based on our IT fundamental capabilities, we will be developing differentiated services to further gain competitiveness. We will also be working to reform our cost structure to enhance profitability. And based on the extensive coverage that I mentioned earlier, We will be leveraging the skills that we have in terms of providing stable services and data security and overall network security skills. And we will be working to provide end-to-end services that can enhance the customer convenience to strengthen customer satisfaction.

Secondly, we will continue to expand customer value by combining communication, AI big data, and IDC cloud. We have key skills in telco, AI, big data, IDC, and cloud.

And based on these skills, we have the capability to enhance a customer value. And for example, we can use telco AI and big data capabilities to offer targeted marketing services and targeting advertising services. And we can leverage the skills that we have in the telco and it businesses to make unlimited offers to strengthen customer value.

Oh, so once you're in a platform, what are you talking at all? Who is in a panel? It's a popcorn. Okay. We will continue to make efforts to create a new market through 5G special network and industrial solution.

And with the telco business becoming more of a platform business, we will be working to change the paradigm in this area. For example, by combining telco messaging and intelligent networks, we can offer and build platforms for our customers so that our customers come up with new business opportunities. We also have launched FlexLine, which offers flexible plans and flexible frequencies so that they can develop their own services that can be satisfying for their own customers. So we are continuously making efforts to develop new values for our customers. With the 5G specialized network and other various capabilities of the company, we will be able to come up with the most optimal services that can satisfy the needs of each industry and customer.

Fourth, AICC and energy mobility businesses And in the AICC business, we can leverage some of the mobility technology and services that we have.

And these technologies and capabilities can help the company to drive internal quality growth of our DX services. We will also be focusing on some of the service subscription offers that we have to further generate growth here.

Public cloud and SaaS business KT Cloud, KTDS 등 그룹사 시너지를 기반으로 해서 지속 확대해 나갈 계획입니다.

Lastly, along with Cloud and IDC, we have the large AI service, and we are working to pioneer this new market in Korea. We have extensive experience in the public cloud segment, And based on this extensive track record, we will be expanding into the corporate cloud segment. We also have the experience in the SaaS and the public sector as well. So we can leverage this experience and combine it with the services offered by KT Cloud and other KT subsidiaries to generate synergy and further penetrate this market. And we will be continuously evolving in this area with our large AI medium to propose and offer customized LLM models for the public finance manufacturing sectors.

KT is going to continue to grow as a digital innovation partner that can satisfy various needs of corporate customers based on technology development and Dx conversion needs of corporate customers. KT is going to continue to grow as a digital innovation partner that can satisfy various needs of corporate customers based on IT capabilities such as AI, big data, and cloud, as well as communication infrastructure with existing strengths.

And in conclusion, with the advancement of technology and the digital transformation trend among our customers, I believe that we have the key capabilities that can take advantage of the growth of this segment. And in that sense, our B2B business should continue to show robust growth. Combining our telco and IT, such as AI, big data, and cloud capabilities, we will be able to offer various services that are required to satisfy the needs of our customers, thereby becoming the digital innovation partner that is sought out by our main customer base.

Thank you.

We can move on to the next question.

The next question is from Jisoo Jung from Merit Securities. The following question will be presented by Jisoo Jung from Merit Securities. Please go ahead with your question.

Hello, I'm Jisoo Jung from Merit Securities. Thank you for the question. I have two questions. First, in the case of competitors, the performance was negative in terms of power and other goods, but I'm curious about how KT is doing. Second, the recent AI competition with telecommunications companies is fierce, Good afternoon.

My name is Jisoo Sung from Merit Securities, and I have two questions. First, if you look at the results of your competitors, inflationary pressures such as the utility cost and electricity cost seem to have been a burden this quarter. So what was the inflationary pressures like for KT? And second, the AI competition among telcos in Korea is quite intensive at the moment. Can you give a little bit more color on your business strategies and your goals in the AI segment?

Thank you for the two questions, Mr. Jang.

And your first question was about the inflationary pressures such as the power costs.

The inflationary pressures, including the utility cost, has been observed across the board, and KT is the same.

We have seen inflationary pressures regarding electricity and some of the commission and fees as well, and this has had impact on our numbers.

In the case of power bills, they have increased by two places compared to the previous year due to steep price increases. Nevertheless, KT is continuing its efforts to reduce costs through early removal of equipment that have low energy efficiency, optimization of communication equipment and structural cost improvement.

And if you look at our utility electricity cost in a special dollar, it has increased in double digits, why why basis based on the deep increase of the unit cost of power. However, we have been making continuous effort to replace equipment and facilities that have been showing low energy efficiency. And we have been working to optimize our equipment and facilities. At the same time, we have been making effort to achieve structural cost reduction as well.

And other than the main utility and fees cost, in order to enhance cost competitiveness in our overall businesses,

We have been improving our business processes to become more efficient. We have been also leveraging AI and DX technologies to further increase our cost, improve our cost structure.

To be more specific, we are improving the efficiency and productivity of the customer's self-explanatory work through the self-explanatory work through the self-explanatory work through the self-explanatory work.

For example, there may be some commissions regarding the opening of new handsets. So we have been encouraging self-opening of new handsets for our customers so that we can enhance the efficiency of our after-service network in this area. Also, we have been applying AI to our call centers, and these efforts have led to higher productivity and also efficiency.

We will be making continuous effort to achieve structural improvement to enhance both productivity and efficiency by improving our overall business processes.

And of course, these are not one-off efforts. These are sustainable structural improvements. So they should have continued positive impact to our business.

The second question is about the difference in AI competition. On October 31st, KT launched a super-large AI medium and launched a super-large AI business for corporate customers.

And then your second question was regarding the KT strength in the AI competition in Korea. So on the 31st of October, we launched our large AI service, Mideum, and we will be starting our corporate business with our Mideum service in earnest very soon.

The new Mideum service will be launched in Korea We launched four services from light to the large, super large models with the medium service.

So currently our service lineup can satisfy every corporate size and purpose. We also work with KT Cloud to offer the full AI stack with the medium service. This means that even if a corporate customer does not have the infrastructure for development and learning for the AI service, we can offer the full package. So this will significantly reduce the cost of introducing AI for our customers, and also we can offer customized services to our customers.

Like you've mentioned, there are many players entering the large AI market,

I believe that KT has largely three key strengths as key competitiveness against our peers.

The first is that we offer the light service all the way up to the super large service.

So we are able to offer customized services for all of our customers.

And the second is that we offer the full stack

including the Korean AI software, hardware, and so on. We are the only Korean operator. We are the only operator in Korea that can offer the full stack of AI because we have the cloud and AI and the cloud farm of the KT group, and the customers can leverage these capabilities of KT to develop customized services that will satisfy the exact need for their own business.

Our medium is embedded in the Korean system.

So compared to our global competitors, in terms of the answers that the AI can provide, And in terms of the security of the overall AI system, I believe we have the competitive edge.

KT is planning to target the private LLM market for B2B customers in various areas based on ultra-high-end AI. In addition, KT's AI business, such as AICC and GigaGini, will improve profitability and

And our initial goal would be to penetrate the private LLM market in Korea because we have strong B2B customer base and our current capabilities can help customers develop customized LLM models. We believe that the private LLM market will be a good start. At the same time, we have existing AI services such as AICC and Giga Internet. So the large AI model can be applied to these existing services to boost profitability of these services. At the same time, they can be applied to our own business to boost the overall productivity and efficiency, further contributing to the profitability of the company.

Thank you. Next, please.

Thank you.

We can move on to the next question. The following question will be presented by Junseop Kim from KB Securities. Please go ahead with your question.

Yes, hello. I'm Junseop Kim from KB Securities. Thank you for the question. I'd like to ask about IDC. I'm curious about KT's view on domestic IDC market revenue. Thank you.

Good afternoon. My name is Junseop Kim from KB Securities. Thank you for the opportunity today. I have a question regarding IDC business. So what is KT's view in terms of the supply and demand situation of IDC in Korea? There are multiple operators and many new data centers have been completed recently. At the same time, the data center projects, some of them are falling apart before they are completed. So what is KT's view in terms of mid-long-term market outlook, and what would be the strategy of KT and KT Cloud in this area?

Thank you for the question, Mr. Kim.

Your question was regarding the mid-long-term outlook of the Korean IDC market and the strategy of KT Cloud.

If you look at the Korean IDC and cloud markets,

Corporates in Korea continuously are showing demand for digital transformation, which generates more demand for data centers. At the same time, the introduction of large AI models are continuing to support this growth momentum.

Considering the current market situation, if we look at the supply and demand outlook of domestic and foreign markets, the current supply and demand is absolutely insufficient.

If you look at the mid-long-term market outlook here, if you compare the demand and the supply, the demand is definitely outpacing the supply. So I think the key strategy should be the ability to respond to this strong demand in a timely manner, and this trend should continue for the time being. KT will leverage the key competitiveness in the IDC market to continuously pioneer and dominate the IDC market in Korea.

KT has more than 20 plus years of experience in building IDCs.

We have the most superb network infrastructure in Korea. And our seven IDCs are located in geographically accessible Seoul and larger Seoul metropolitan area.

Currently, we have around 150 megawatts.

In the next five years, we plan to add 100 megawatts. And so by actively expanding the capacity, we plan to address the strong demand coming for these type of services.

So KT is the only operator in Korea

that can offer services that combine IDC, cloud and network. And therefore, we have the ability to satisfy all types of various demands of customers. And this is key strength, and we will be leveraging these key strengths to further grow in this area.

Next question, please. The next question is from Morgan Stanley. The following question will be presented by Seyeon Park from Morgan Stanley. Please go ahead with your question.

Hello. Thank you for the question. I also have a question about KT Cloud. The growth rate of this quarter has been quite high. Is there any possibility of this happening in the background? I would like to ask if we can continue to see this trend in the fourth quarter and in 2024, with the relative growth rate of more than 30% or 35%. In addition, I would like to ask you how you see the profit or loss rate of KT Cloud. Thank you.

Thank you for the opportunity today, and I have also a question regarding KT Cloud. So KT Cloud has been showing very strong quarterly growth, and I was wondering the reason behind it. Is it due to some one-off factor, or is this 30% to 35% growth sustainable? What is your outlook for Q4 and 2024? And also, I would also like to know a little bit more around the profit levels and the margins that you expect for KT Cloud.

Thank you. Thank you. Thank you for the question, Mr. Park.

So regarding KT Cloud, there were extensive amounts of orders that we won last year in the public cloud and private cloud markets. And those previously secured orders are now turning into revenue. Also, the IDC in Yongsan has been completed. So due to these factors, in Q3, KT Cloud recorded 34.5% growth in revenue in YOY terms.

KT Cloud continues to grow as an AI full-stack-based AI cloud, and I think this growth will continue based on evidence of demand for the ID market and pricing up.

We believe that this growth momentum will continue as we solidify our leadership in the public cloud segment, as we continue the growth in the AI service business by offering the full-stack AI, and also we are continuously adding new IDCs and implementing the price-off strategy.

KT Cloud 2021. So in 2022, KT Cloud's revenue amounted 550 billion won.

We expect double digit growth for this year, and this type of growth trend should be continued for the time being next year as well.

You also asked about the profit and margin of KT Cloud.

So if you compare the operating margin of KT Cloud to the group average, it is slightly higher. But recently, there has been some upfront investment, and also we have been attracting high-quality talent as well, which can increase the overall cost levels that can bring down the margin. But like I've just mentioned, we are seeing strong growth coming from the cloud and IDC business and so on. So the margin should show upward trend again and continue to show that trend for the time being.

Thank you. Do you have any more questions?

No one has any more questions.

If there are no more questions, we will end the Q&A session here. Thank you for your questions and interest. Thank you once again to all of you who participated in today's busy schedule. If there are no more questions, we will conclude the Q&A session.

Thank you for your questions and interest in KT. Thank you once again for attending today's earnings call despite your busy schedule. We will conclude the earnings call for KT for the third quarter of 2023. Thank you.