SK Telecom Co., Ltd.

Good afternoon. First of all, thank you all for joining this conference call. And now we will begin the conference call by the Fiscal Year 2020 Fourth Quarter Earnings Results by SK Telecom. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press 1 and 4. And now we shall commence the presentation by SK Telecom.

I am Jung Seok Bo, head of IR planning at SK Telecom. Today's conference call will consist of the presentation on the earnings results for fiscal year 2020 and the future management plans and strategic direction by Pong Young Yoon, CFO and head of Corporate Center 1, and Hyung Il Ha, head of Corporate Center 2, followed by a Q&A session. Today, the achievements and strategic plans for M&O will be provided by Pung Yeong Yoon, Head of Corporate Center 1, and Hyung Il Ha, Head of Corporate Center 2, will discuss that of the new ICT business division. We also have here with us executives from the relevant business divisions for your understanding. Before we begin, I want to remind you that all forward-looking statements are subject to change depending on the macroeconomic and market situation. Let me now present our CFO.

First of all, I would like to talk about the annual revenue for 2020.

Good afternoon. This is Song Young Yoon, CFO of SK Telecom. Let me first discuss the consolidated earnings highlights for fiscal year 2020.

The annual revenue for the fiscal year 2020 is 6,142 billion won, which is higher than last year. Based on the various ICT portfolios that have been built around initial revenue, we will quickly adapt to the untaxed environment Consolidated revenue for fiscal year 2020 recorded 18,624.7 billion won, up 5% year-on-year.

A well-diversified ITC portfolio built around hyper-connectivity enabled quick adaptation to the non-face-to-face business environment, thus resulting in sustained quarterly growth in all business divisions of MNO, Media, Security, and Commerce. As a result, we recorded yet another record high revenue this year as we did last year.

Consolidated operating income recorded 1,349.3 billion won.

Up 21.8% year-on-year thanks to M&O's operating income turnaround and operating income improvement of media and commerce. The contribution of the new ICT businesses to earnings, including M&O, increased 10 percentage points year-on-year to 24%, which indicates that the new ICT businesses began to contribute not only to revenue but also to operating income.

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Let me now discuss major achievements and strategic direction for each business division.

Non-consolidated MNO revenue for 2020 recorded 11,746.6 billion won, up 2.8% year-on-year.

Decline in roaming revenue due to the pandemic had a negative impact, but we achieved an annual revenue turnaround based on 5G subscriber growth and data usage increase.

MNO business profit was recorded at 1,231,000,000 won, which increased by 7.5% compared to the previous year. Although the marketing cost and the price-to-price ratio increased, the turnaround was achieved in business profit due to the increase in sales due to the 5G expansion.

M&O operating income grew 7.5% year-on-year to record 1 trillion 23.1 billion won. While marketing expense and depreciation and amortization costs increased, revenue growth backed by 5G expansion led to a turnaround in operating income as well.

In 2020, M&O expanded its 5G MS by responding to the untaxed environment with distribution strategy and reasonable market operation and maintained the market share. I re-checked the M&O leadership. The number of 5G subscribers has reached 5.48 million by the end of 2020, and we expect 9 million people by the end of this year. We will continue to increase the number of subscribers through new services and continuous innovation while maintaining a stable market.

In 2020, our MNO leadership was reconfirmed as we increased 5G market share and maintained number one position through reasonable market operation and distribution innovation to cater to the non-face-to-face business environment. The 5G subscriber count stands at 5.48 million as of the end of 2020, which is expected to reach 9 million by the end of 2021. We will continue to increase the subscriber base with new services and ceaseless innovation while maintaining the stable market trend.

This year, MNO will evolve into an AI platform-based subscription-based company. Based on Flow, Wave, Cloud Game, and V-Coloring, which are expanding the number of subscribers, we plan to launch various subscription products beyond the range of mobile phones or smartphones. Subscribers will not be limited to SK Telecom mobile phone customers,

This year, we will grow M&O Business into an AI platform-based subscription service company. Based on flow, wave, cloud gains, and decoloring, whose subscriber bases have been expanding, we plan to introduce various subscription products and services to go beyond the boundaries of mobile lines or smartphones. These subscription products will be offered not only to SK Telecom MNO customers but to everyone in Korea. In addition, we will create an AI-based subscription service platform with easy accessibility and restructure the membership programs. We are making all the necessary preparations to implement these plans because a subscription service company is a new goal and direction of MNO business for this year, and we will do our best to make this an opportunity to expand the scope of MNO business.

Media 사업은 SK브로드밴드 연결 기준으로 매출 3조 7,135억 원을 기록하였습니다. Moving on to media, SK Broadband's consolidated revenue recorded 3,713.5 billion won. With the T-Broad merger and IPTV subscriber growth, it rose by 17.2% year-on-year.

Thanks to the record high revenue, operating income increased by 59.2% year-on-year, recording 330.9 billion won. The operating income increased by 59.2% year-on-year, recording 330.9 billion won.

The operating income increased by 59.2% year-on-year, recording 330.9 billion won. The operating income increased by 59.2% year-on-year, recording 330.9 billion won.

Security business recorded 1,338.6 billion won in revenue. With sound growth of core business such as CMS and information security, and new businesses such as home, parking, and contactless solutions related to COVID-19, the revenue increased by 12.2% year-on-year. Operating Income recorded 140.9 billion won, down 8.2% year-on-year due to reasons related to new business expansion.

Commerce revenue recorded $814.3 billion won, up 12.1% year-on-year, thanks to GMB growth driven by the context-less business environment and strategic marketing drive. Operating income recorded $11 billion won, posting surplus for two consecutive years.

2020 was a year when we achieved greater volume and higher margin despite intensified competition in the commerce market. We will make efforts to strengthen the competitiveness of commerce business based on our experience last year. Next, Hyung Il Ha, Head of Corporate Center 2, will discuss the achievements and strategic direction for the new ICT businesses.

Hello, I'm Hyung-Il Ha, the head of Corporate Center 2. Allow me to discuss the achievements and plans for the new ICT business division. First, media. Last year, SK Broadband successfully completed the merger with T-Broad.

First, the media business. Last year, the merger of SK Broadband and T-Broad was completed successfully. Thanks to the effect of the merger and IPTV subscriber growth, we have secured 8.59 million paid TV subscribers in 2020, based on which we achieved record high revenue and operating income. We will continue on with this high growth trend through media business growth and B2B business expansion in 2021. Next is security.

Last November, the U.S. government and the U.S. government Next is security business. In November last year, we decided to merge ADT Caps and SK InfoSec

To lead the security market and accelerate growth. And the merger will be completed in Q1 of 2021. We're determined to lead the integrated security service market by combining SK Telecom's 5G and AI, SK InfoSec's information security platform, and ADT Caps' CMS infrastructure.

In 2018, ADT Caps recorded a annual sales of about 7.8 billion won. In the past three years, ADT Caps' sales

At the time of acquisition in 2018, the annual revenue of ADT Caps was around 780 billion won. After three years, we expect that the revenue of the merged entity will double to surpass 1.6 trillion won this year.

Commerce

Moving on to commerce business, it recorded a two-digit growth in GMB and achieved a positive operating income. 11th Street saw more than 10% growth in GMB thanks to strategic marketing such as co-marketing with sellers and providing point benefits to consumers. SK SOA achieved GMB growth of more than 50% on the back of a virtual cycle of growing customer base and expanded product sourcing capabilities.

11th Street will continue to grow as a global distribution hub platform. As announced in November, Going forward, 11th Street will emerge as a global retail hub platform.

As was announced in November last year, we will cooperate with Amazon for e-commerce business innovation to allow customers to buy Amazon products through 11th Street.

Let me now touch upon mobility, which has become the fifth business division of SK Telecom.

Launched in December last year, T-Map Mobility will grow into an all-in-one mobility-as-a-service provider that covers a wide range of services including public transit, car rentals, car sharing, and taxi.

T-Map Mobility is planning to launch JV and service for Uber and taxi calling joint business in April. Uber is planning to launch JV for over $100 million. and T-Map Mobility.

T-Map Mobility and Uber will establish a joint venture for a taxi e-hailing service in April. Uber plans to invest more than $100 million in the JV and around $50 million in T-Map Mobility.

Lastly, I would like to talk about One Store, which is preparing to go public this year. Lastly, let me move on to One Store, which is preparing for an IPO this year.

Backed by a virtual cycle of growing number of users and large game titles, GMB growth continued for 10 consecutive quarters, and the business became profitable in terms of net income last year. We will maintain the revenue growth trend this year for one store and proceed with the IPO process.

I will now hand it back to the CFO who will discuss the guidance for 2021. Thank you.

The dividend for 2020 has been decided by the Board at 10,001 including the paid out 1,001 interim dividend. The amount will be confirmed after the approval of the March AGM. Let me now present to you this year's guidance according to the management plan. Annual consolidated revenue is expected to be 19 trillion 500 billion won, up 5% year-on-year, based on the solid growth of both M&O and new ICT businesses.

We will do our best to exceed our guidance. In 2020, despite the unprecedented pandemic situation, SK Telecom achieved meaningful results with the highest ever revenue and operating income growth. We believe that these achievements have been driven by constant innovation of services and technology based on AI and a competitive business portfolio that allowed us to remain competitive in the non-face-to-face business environment. This year we will further advance the business portfolio, carry out our first subsidiary IPO, and strive for constant innovation and growth based on AI and openness in order to create greater corporate value. We ask for the continued interest and support from investors and analysts. Thank you.

Now the Q&A session will begin.

Please press 1 and 4 if you have any questions. Questions will be taken according to the order you have pressed to number 1 and 4. Please press 1 and 5 if you want to cancel your questions. The first question will be provided by Ahn Jae Min from NH Investments and Securities. Please go ahead, sir.

Hello, I'm Jae-min Ahn from NHL. Thank you for the question. I have two questions for you. I think the most recent issue has been the issue related to the change in the governance structure. I think there was an event like the change in the Fair Trade Act. I would appreciate it if you could tell us if there is a possibility of a change in the governance structure related to this year. Thank you for this opportunity to ask you questions. I have two questions. The first question is, in recent months, you can see that there have been a lot of talks about possible corporate governance structure change.

and there have been some legislative changes as well. So what is the likelihood of any meaningful corporate governance change within this year? Can you provide us with some color on this topic? The second question is about price plans. Recently, three telcos in Korea have been launching lower-end 5G price plans in a competitive manner. So what is the impact of this lower-end price plan on your earnings?

Mr. Ahn, thank you for your question. Let me address your question regarding the possible corporate governance change according to the legislative change.

Based on the ultimate goal of maximizing shareholder value by having not only our M&O business but also new businesses being recognized in their value in the financial market, we have been open to all possibilities and we have been exchanging opinions with various stakeholders including shareholders.

We have not made any specific decisions regarding corporate governance change including various options of taking off some of the businesses. However, we have to mention that the basic assumption will be to

Maximize the corporate value and we will opt for options that will be in line with the interests of shareholders.

As soon as we have some specific decisions, we will communicate them with the market.

Let me now move on to your question regarding the potential impact of the new price plan on our earnings. In January this year, as the first case of reporting and announcing new price plan under the new regime, we have announced the new online lower-end plan. This new price plan is an online-only price plan, which is about 30% lower than the existing tariff scheme. Therefore, as we have seen the increase in non-face-to-face consumption trend, there has been a lot of interest in this price plan. Compared to the existing tariff scheme and the selective discount option, ARPU is likely to go down slightly. However, with more reasonable pricing available in the market, we expect the new subscriber growth and revenue growth as well. Thank you.

The next question will be presented.

Kim Hwe Jae from Dae Shin Securities. Please go ahead, sir.

I wonder if M&O business will be able to achieve more than 9,000 won. Secondly, the communication industry is looking forward to competition. Before the Galaxy S21 was launched, I heard that the funding was greatly increased. What is the marketing situation so far since the launch of the iPhone 5G at the end of last year? And please explain the prospect of this year's marketing environment. Thank you.

Thank you for this opportunity. I have two questions. The first question is related to your dividend plan. You communicated to us that starting from the year 2021, the interim dividend will be linked to the dividend situation of SK Hynix and the subsidiaries. So what will be the overall DPS range going forward? And as for the year-end dividend, it is linked to the performance of your M&O business. And currently, you said that you will maintain the level of 9,001 But in order for this to be maintained or to enjoy some dividend upside, what will be the level of MNO performance that we will expect? Any guidelines for that? The second question is regarding the market competition landscape. Before the Galaxy 21 was launched, there were some talks about potential increase of subsidy for this new device. And after the iPhone's launch in December last year, What is the current marketing situation and what is your outlook for marketing situation going forward?

Thank you, Mr. Kim, for your questions. Let me first give you comments on our dividend policy for year 2021.

Last year, we announced our dividend policy direction, and we mentioned that our dividend policy will be maintained in a stable manner by linking it to M&O performance, and we will also be more flexible in our dividends, especially for interim dividends, by linking it to Hynix and other subsidiary performances.

This basic stance will be maintained, but we do understand that there are market expectations about interim dividend upside as the dividend from SK Hynix has been increased slightly.

In consideration of these factors, we will make discussions at the board and once the decision is made, we will communicate this with the market.

The year-end dividend for fiscal year 2020, as was announced, has been decided at 9,001.

We will do our best to increase our dividend payout capability by accelerating revenue growth of various businesses including operational efficiency improvement and strengthening of competitiveness of our M&O business. In addition to that, we have been spending a lot of time considering various options and measures to make our shareholder return policy more effective and efficient in order to maximize shareholder value. Once we have some specific plans, we will communicate them with the market.

Let me now answer your question regarding the intensifying competition in the market in terms of marketing.

It is quite a natural phenomenon that subsidies go up temporarily whenever new devices are launched.

However, overall the stable market trend is continuing and we expect this stable market trend to continue for the rest of the year.

Going forward, SK Telecom will continue to lead healthy competition based on differentiated services rather than price or cost competition.

Thank you.

The next question will be preventive bump.

The next question will be presented by Lee Soon-hak from Hanwha Investment and Securities. Please go ahead, sir.

Thank you for the opportunity to ask a question. I will ask two questions. The first question is about the MNO's AI-based subscription-based company strategy. This part is a bit unfamiliar. I would like to know the specific details such as the expected subscription products and the participants' sales goals. Thank you for this opportunity. I would like to ask you two questions. The first question is that in your presentation, you mentioned that you're planning to

Transform your MNO business into an AI-based subscription service company. This is quite new to us, so can you elaborate more on that, especially in terms of your expected subscriber increase or revenue target? If there are any specific targets, please share them with us. The second question is related to your mobility business. In December last year, the team at Mobility was launched. and you mentioned that you will grow this into an all-in-one mobility as a service company. So what's the current situation after this entity was launched and what is your expectation for this company?

Yes, thank you for your question. I will answer the first question about the subscription-type company and Ha Young Il will answer the next question about the mobility business.

Thank you, Mr. Lee, for your questions. Regarding your question on M&O business, I'm going to cover this and then I will hand it over to Mr. Ha for the mobility-related question.

2021 M&O business is trying to create a new growth story by promoting the change through a subscription-based marketing company based on AI platform.

In 2021, we would like to create a new growth story by transforming our M&O business into an AI platform-based subscription service company. So we would like to go beyond the limits of M&O business to collaborate with various players in the areas of F&B, education, rentals, and travel so that we can offer subscription products and services that will have huge impact on our customers. In order to carry out this subscription service company-related marketing, we are currently in the process of building a new infrastructure, and we're also preparing to revamp our membership program that has been used as a very strong marketing tool as a telecom company.

Based on these plans, we are aiming to achieve 20 million subscribers and 6 billion won in sales by 2023.

Based on these plans, we target 20 million subscription service users by the year 2023 and the revenue target of 600 billion won.

Corporate 2 Center장 하형일입니다. TeamMobility 분사 이후 사업 진행 상황과 TeamMobility의 전략을 말씀드리겠습니다.

Hello, I am Yeong Il Ha from Corporate Center 2. Let me answer your question regarding the performance of TMAP Mobility after the split-off and the strategy.

As you mentioned, in December last year, the Mobility Business Division of SK Telecom became TMAP Mobility. Uber Y TaxiJB 설립 및 서비스 공식 출시는 4월 중에 이루어질 것으로 예상하고 있습니다.

In terms of financial investment raising and service preparation, we're smooth sailing right now and we expect a joint venture established with Uber for taxi services and official service launch to be happening in April.

대리운전과 Mobility as a Service도 이후 단계적으로 출시할 계획입니다.

We're also planning to launch various services including designated driver service and mobility as a service in a gradual manner.

TMAP Mobility is planning to grow its five core areas by utilizing Korea's largest mobility platform, TMAP,

and the corporate value target by 2025 is 4.5 trillion won.

The first of such core areas is a T-MAP life platform which is for B2C customers.

They include advertising, usage-based insurance, parking, and other existing businesses, which will be expanded, and we will also launch new types of subscription membership services.

B2B 영역의 Tmap Oto는 차량 제조사를 대상으로 한 Embedded Tmap 사업을 성장시키고, 내비게이션 뿐만 아니라 엔터테인먼트 등 SKT가 보유한 모바일 생태계를 차량으로 확장시킬 계획입니다.

For B2B business, it's going to be centered around T-Map Auto, which is about growing the embedded T-Map business for car OEMs, and we are planning to expand the mobile ecosystem to the vehicles by offering navigation as well as infotainment services.

Mobility on Demand 영역에서는 대리운전을 포함해 이동을 중개하는 디지털 플랫폼 사업을 추진할 계획입니다.

And for mobility on-demand area, we are planning to launch digital platform business including designated driver service and many other mobility services that we will mediate. And for taxi service, we are going to offer differentiated services in collaboration with Uber for joint venture.

Finally, we're preparing for a mobility as a service where various transportation means can be utilized and bundled in one service. Thank you.

The next question will be presented by Kim Jun-seop from KB Securities. Please go ahead, sir.

Yes, thank you for the question. I'm Kim Jun-seop from KB Securities. I'd like to ask you two questions about media and commerce. Recently, there have been a lot of news about Disney Plus and J.U. I'd like to know how you're working on the OTT service like Wave. And the second question is about commerce. Thank you for this opportunity.

I have two questions. One is regarding media and the other one is regarding commerce. You mentioned that there is a lot of interest in OTT services and for your Wave business, are there any strategies related to collaborating with Disney and other companies? And the second question is regarding commerce. Can you update us on your partnership with Amazon since November? You mentioned that you are planning to grow 11th Street as a global retail hub platform. So if this happens in the near future, what is your specific user target or GMB target? What is your overall strategy for this part of the business?

Thank you, Mr. Kim, for your questions.

First, let me comment on your question regarding Wave's strategy to maintain competitiveness in the market. SK Telecom, in terms of media business for IPTV and OTT, we are open to various options for hyper-collaboration, but please do understand that we cannot disclose any specific names for potential partnerships.

In the fourth quarter of 2020, there was original content lineup expansion including Delayed Justice and Cheat on Me If You Can on the Wave platform as well as the popularity of drama series Penthouse

Hyunjae Wave is a company that aims to expand its original content investment and global revenue Currently, WAVE is considering various options to improve the competitiveness through original content investment expansion and global partnerships.

Let me move on to your question regarding 11th Street and cooperation with Amazon.

Currently, 11th Street is making preparations in collaboration with Amazon so that 11th Street customers can purchase Amazon products at the 11th Street. And together with Amazon, we expect to offer unique shopping experiences for domestic customers. Based on smooth cooperation with Amazon, we are now in the process of making preparations so that we can offer differentiated benefits and services to our customers as soon as possible. When customers purchase Amazon products at 11th Street, this will lead to an increase in traffic for direct cross-border buying cases. And this will not only increase the volume of cross-border purchase, but also the increase of the scale of domestic shopping.

This collaboration between 11th Street and Amazon is expected to increase the size of domestic cross-border purchase, which is currently around 4 trillion won in volume.

and we will also work hard to allow domestic sellers to sell their products overseas. SK Telecom also expects to continue to collaborate with Amazon so that it's not only commerce area but also in other ICT areas we will create synergies.

Please understand that it is difficult to answer. We will give you more details when it is possible to share.

Because of the constraints regarding the contract with Amazon, we are not able to provide with any further details, so please do understand. But when time is right, we will communicate more details with the market.

Thank you.

Thank you.

How many people are waiting for questions?

Yes, we have one more question. Yes, we have one more question and we will wrap up today's presentation.

Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation.

Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation.

Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation.

Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. Yes, we will wrap up today's presentation. You have shared the guidance on sales. What is your view on mobile service revenue? Thank you. The second question is about KPEX. In 2020, KPEX decreased a lot more than expected. Please share your outlook for 2021.

I have two questions. The first question is that you mentioned in your presentation the overall guidance for 2021 in terms of revenue. Can you provide us with some breakdowns of your outlook on MNO revenue? The second question is related to CAPEX. In 2020, the executed CAPEX had declined quite substantially. So what is your outlook for the deployment of CAPEX for 2021? Mr. Yoo, thank you very much for your question.

First, let me answer your question regarding the MNO subscriber and revenue outlook. Of course, we have to see the pace of subscriber growth going forward, but we expect that the mobile side wireless revenue for 2021 is going to increase by 3-4% year-on-year. Regarding your question on the CAPEX outlook, it's going to be similar to the level of 2020, and we will make sure to manage our CAPEX efficiently. Thank you.

Thank you very much for joining us for this conference call. If you have any further questions, please contact the IR team. Thank you. This is the end of conference call for fiscal year 2020 for SK Telecom.

Thank you.