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SK Telecom Co., Ltd.
8/8/2023
Good afternoon. I am Heejun Jung, ILO of SK Telecom. Thank you for joining SK Telecom's Earnings Conference Call.
Today, we will first deliver a presentation on major events, quarterly earnings highlights, and business performances, which will be followed by the Q&A session. The call is attended by our executives from relevant business divisions, including Chin Won Kim, CFO of SK Telecom, and we're providing consecutive interpretation for the call.
As you can see, the future prospects and predictions may vary depending on the market and macro environment.
As you may know, I would like to remind you that all forward-looking statements are subject to change depending on various factors such as market and macro situations.
Let me now present our CFO. Good afternoon. This is Jinwon Kim, CFO of SK Telecom.
SK Telecom has been at the forefront in transforming itself into an AI company. Since we launched ADOT Beta service in May last year,
ChatGPT has become a hot topic, creating a global rush for AI technology by global big tech companies, and various large language models and services based on them have been launched competitively.
With this change in the environment, AI-based change and innovation have created a global consensus that survival is difficult. Therefore, SK Telecom, in addition to the AIDA service structure based on its own LNM, has gathered the power of global telcos These changes in the business environment have resulted in a shared understanding around the world that companies cannot survive without change and innovation based on AI.
Against this backdrop, while continuing to further advance the ADAPT service based on its own LLM, SK Telecom launched the Global Telco AI Alliance in late July to build a comprehensive cooperation framework and jointly access AI markets by mobilizing forces of global telcos. Led by SK Telecom, the alliance consists of major telcos from Europe, the Middle East, and Asia, including Deutsche Telekom, EN, and Singtel.
The Global Telco AI Alliance entails business cooperation to develop multilingual LLM jointly to gain AI leadership in the global market
And we will continue to create business synergies through broader discussions, including strategic cooperation with major LLM players.
Now, let me report on the consolidated financial results of Q2 2023. Consolidated revenue reported 4 trillion 306.4 billion won, up 0.4% year on year, thanks to the growth of both the fixed and mobile business and the new businesses. It reported a decline of 1.5% Q on Q,
due to the drop in handset sales of the subsidiary company without new flagship handset launch in Q2. The operating income in Q2 posted 463.4 billion won, up 0.8% year-on-year thanks to the growth in revenue, and down 6.4% Q1Q due to the increase in other expenses. Net income grew 34.8% year-on-year and 15% Q&Q to come in at 347.8 billion won. On a non-consolidated basis, revenue posted $3,119.2 billion won, which is a similar level YOY and Q&Q. Operating income and net income reported $379.1 billion won and $272.8 billion won, respectively.
Next, I would like to talk about the main management performance and strategy direction of the company, which is being transformed into an AI company in the second quarter of 2023.
Let me now turn to Q2 business highlights and strategic directions of the company that is pursuing transformation into an AI company.
SK Telecom is expanding its AI technology and services with various domestic and domestic AI companies. ADOT has launched ADOT 2.0, which has fully remodeled UX in June, and has introduced CHAT-T, which uses the CHAT-GPT model, and has also introduced SCATTERDAP and
Esky Telecom is expanding its AI technology capabilities and services through active collaboration and partnerships with various domestic and foreign AI companies. In June, we released ADOT 2.0 with a completely revamped UX, added ChatGPT by utilizing the ChatGPT model, and announced an emotion-based AI agent called ADOT Friends in collaboration with ScatterLab.
Also, we have upgraded our own large language model for ADOT 2.0 to support multi-turn conversations where the model understands the context and intentions.
With this enhancement, ADOT is evolving as a more user-friendly conversational AI service.
In November of last year, E-FRIEND, which was launched globally, achieved 30% of the overall MAU abroad. Currently, it continues to expand its global cooperation with various overseas companies such as Deutsche Telekom, T-Mobile US, and Singtel. On the other hand, since E-FORM, a new concept called Metaverse SNS, was introduced last May,
With global launch in November last year, IF Land has attracted more than 30% of MAU from overseas. It is expanding the scope of global cooperation with various foreign companies, including Deutsche Telekom, T-Mobile US, and Singtel. After a new type of metaverse social media feature called IF Home was released in May, a total of more than 400,000 IF Homes were created as of the end of July, taking the IF Land service to the next level.
We're well on our way to introduce an economic system based on in-app payments in late September.
The global expansion of IFLAND and popularity of IFHOME are expected to be a big help in operating this revenue model.
T-UZU has achieved more than 2 million real users in the second quarter of the month, and is strengthening its competitiveness through its partnership with big players such as YouTube Premium. T-UZU will continue to expand its revenue system, and we plan to increase the proportion of self-employed channels with high customer retention through attractive product revenue.
With MAU exceeding 2 million in Q2, T-Universe has further strengthened its competitiveness based on partnerships with big players such as U2 Premium. It will continue to expand the list of impactful partners and increase the share of voluntary sign-up channels with higher customer retention rates through compelling product partnerships.
On the other hand, SK Telecom is the world's number one UAM machine manufacturer at the end of June. SK Telecom has acquired approximately 2% stake in Joby Aviation, a global number one UAM manufacturer,
with $100 million equity investment. The investment will allow exclusive use of their aircrafts in Korea, UAM-related technology cooperation, and joint entry into overseas markets to create synergies in diverse areas, which will help solidify our leadership in the UAM industry.
The enterprise business has maintained its stable performance in the past, especially in the data center and cloud business.
The enterprise business is maintaining a stable revenue in the least-line business while showing a noticeable growth trend in data center and cloud businesses.
The data center industry has maintained a stable growth rate in the data center, with a stable growth rate in the virtual and food data centers, and has maintained a sales growth rate of more than 30% compared to the previous year due to the opening of the e-Center, and the expansion of domestic progress of global CSPs leads to an increase in demand for data center businesses.
부지 확보 등을 포함한 신규 데이터 센터 오픈 준비도 착실히 진행되고 있습니다. The data center business sustained the revenue growth trend of more than 30% year-on-year thanks to stable increase in the utilization rate of 가산 and 식사 data centers and the opening of 분당2 center. As the business expansion of global CPSs in Korea is leading to the growth in demand for data centers, Preparations to open new data centers, including securing sites, are well underway.
The cloud business is expected to reach its annual goal by more than 60% compared to the previous year, and additional growth is expected, especially in terms of AI services and hybrid cloud market expansion. In particular, this quarter, there were smart 19-inch games, financial business, and so on,
The cloud business is expected to be on track to meet its annual target with its revenue growing more than 60% year-on-year. Additional growth is expected as we benefit from the expanding market for AI services and hybrid cloud. In the second quarter, we secured orders for smart chip development as well as gaming and financial businesses. We're currently exploring additional business opportunities focused on big accounts.
SK Telecom has launched a new 5G 5G 5G 5G 5G 5G 5G 5G 5G 5G 5G 5G
To meet diverse needs of customers, SK Telecom introduced 25 new 5G price plans in the first half of the year. In particular, Zero Youth Plan has been well received by the market, helping us continue to strengthen our retention of younger customers. Thanks to these achievements, the number of 5G subscribers reached 14.67 million as of the end of Q2.
On the other hand, in late June, SK Broadband had 9,460,000 paid subscribers and 681,000 online subscribers. SK Broadband achieved the No. 1 spot on the IPTV and high-speed internet market in the first half of the year, and continued to grow. In the future, we will continue to focus on the niche market of B2C and B2B as well as the second TV market.
As of the end of June, the paid TV subscribers and broadband subscribers of SK Broadband reached 9.46 million and 6.81 million, respectively. We continue to grow the subscriber base by achieving number one net ads for IPTV and broadband in the first half of the year. We're planning to pursue additional growth by actively targeting niche markets mixed with B2C and B2B, as well as continuously expanding in the single-person household and second TV markets.
Finally, let me report on our shareholder return policy.
The board determined the second quarter DPS to be the same as the previous quarter at 831.
Furthermore, we decided to buy Treasury shares of 300 billion won and cancel 200 billion won worth of shares in order to fulfill the increased shareholder return
that we have been communicating to our investors since the beginning of the year.
We will continue to do our best to ensure that corporate value and shareholder value will be maximized by making our core businesses more efficient
and advancing our AI services through transformation into an AI company.
We ask for your continued support and encouragement. Thank you. We will now begin the Q&A session.
Now, Q&A session will begin. Please press star 1, that is star and 1 if you have any questions. Questions will be taken according to the order you pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. The first question will be presented by Seung-woong Lee from EVEST Investment & Securities. Please go ahead with your question.
Hello, I'm Seung-woong Lee from EVEST Investment & Securities. First of all, there are two questions. In the case of the first one, you just mentioned self-employment. First of all, in the case of self-employment, you said that you will sell 3 trillion won of self-employment this year and exceed 2 trillion won. I'm wondering if this trend can happen again next year. I wonder if it has an effect on cash payments because self-employment is carried out. And the second question is, you often talk about AI, but I know that the global Telco AI Alliance has recently been released in the news. I would appreciate it if you could explain the background, plans, and effects of it. Thank you.
I am Yi-Sing Wong from EVEST. Thank you for this opportunity. I would like to ask you two questions. First of all, you mentioned that you are going to purchase Treasury shares worth $300 billion and retire $200 billion of Treasury shares for this year. So I wonder if you will continue to do so next year or going forward. And I wonder if there is going to be any impact of such action on your cash dividend. Secondly, you've been talking about your AI-related plans, and the news media reported on the launch of the Global Telco AI Alliance recently. So I'd like to understand the background behind this alliance and future plans and expected benefits.
First, I'd like to explain about the AI Alliance and then talk about the Global Telco AI Alliance.
Thank you for the questions. I would like to first address your question regarding our plan for treasury shares, and secondly, responding to your question on the Global Telco AI Alliance.
Last year, you gave a question about self-employment during the 1st quarter of the year. At that time, we were in a situation where the value of our company was undervalued. There were questions related to our potential share buyback and cancellation at the first quarter earnings call as well as the year-end earnings call. And we mentioned that we are possibly
positively considering the option of share buyback and cancellation, but we did not specify the specific timing or the size of such action. And the board, in July, decided that we are going to purchase 300 billion won worth of treasury shares and cancel 200 billion won of them going forward.
In terms of macro, the interest rate is still continuing, and there is still a lot of uncertainty in terms of the economy,
While macro uncertainties are still present, including interest rate hikes and economic downturn, the Board agreed that it was necessary to enhance corporate value through additional shareholder return, which is why we decided to go ahead with share buyback and cancellation.
I'm sure many of you are interested in what will happen next year. When we look at the recent cases of various companies, the feedback from the market companies is very good for companies that have continuously bought and sold their own shares and are going to sell their own shares. In terms of resources, we have been receiving donations from self-employed companies and investment companies, including broadband, from this year.
I understand that the market is interested in whether we will continue to go in this direction next year and going forward, and we understand that there are many companies who continue to purchase and retire treasury shares to enhance corporate value, and such measures have been well received in the market. In addition, we have the stable operating cash flow, and we are starting to receive dividends from SK Broadband and the invested companies this year and onward, which can be used as funds for share buyback in the future.
So, we are going to seriously review the direction that we are taking in the future. However, we are not going to discuss the size, time, and details of the investment and the It's a situation that needs to be considered in terms of the management environment, and it will be decided through the discussion of the board of directors, so I think we need to look at the time in the future. However, if we continue to build up market-friendly practices on the stock market, we will continue to work hard to confirm the will of the company on the stock market.
Against this backdrop, we will seriously and positively consider the option of continued share buyback and cancellation going forward. Of course, regarding details concerning timing and size of share buyback and cancellation, these need to be determined at the Board through discussions and in consideration of the overall business environment, but we will continue to accumulate market-friendly practice around shareholder return to show the market that the company has a strong commitment to increasing corporate value.
In addition, in terms of the cash payment part, we are already carrying out interest payments, and in terms of returning stable cash flow to shareholders as a global standard, such as interest payments, we have introduced this system based on the separation period. As for the self-serve maker, the self-serve itself has decided to expand the number of shareholders, but the principle of maintaining a stable payment level
Regarding its potential impact on our cash dividend, as you know, we are already practicing a dividend policy in line with global standards by paying out quarterly dividends to our shareholders. Therefore, this decision for share buyback was, of course, to increase the total size of shareholder return And this has been our practice since the spin-off, and we're committed to the direction and principle of maintaining a stable cash dividend level.
In addition, regarding the global Telco AI Alliance, we have already mentioned our vision as an AI company since last year. We have already released specific services such as ADOT services, and we are continuing to test the market. There are various news flows in the market as the concerns about the overall AI strategy direction and such contents are detailed. Please explain more about the Global Telco AI Alliance that was recently in place.
Moving on to your second question on our AI-related vision, since last year we've been talking about our vision of transforming SK Telecom into an AI company, and we have been launching various services, including ADOT, to test the market. And there have been many news announcements about specific AI strategies and detailed plans. And regarding your question on the Global Telco AI Alliance, I'd like to ask Mr. Jung Seok-geun, head of Global AI Tech Business Division, who has been leading this initiative to provide you with more details.
I think many of you know that AI has been changing into a big paradigm in web and mobile. In particular, how well you use artificial intelligence is a key factor It's a very important momentum to set relationships. So, if you look at those things, in the past, telecommunications companies have been mobile for the past 20 years, or before that, whenever there was a trend like the Internet, we couldn't make good use of the advantages of contact with various customers, and it seems that we have taken a lot of solutions from the contact with customers and customers to mobile business owners on the Internet. As you may know very well, the tech paradigm is being shifted from web and mobile to AI, especially generative AI. For the past 20 years, whenever there was such a tech paradigm shift,
From the internet to mobile, many telcos failed to maintain their points of contact with customers, and they have lost the hegemony and leadership to internet companies and mobile companies. In this regard, in preparation for this new era of generative AI, we are taking action preemptively so that we can utilize AI for our business enhancement.
AI technology can be used in various industries to increase efficiency. In the case of telecommunications companies, they have a lot of customers all over the world, and especially because they are paid customers, they have a very high level of difficulty in setting relationships with them and their services. So, we understand that the industry that can make the biggest value with AI is the telco industry, whether it is to manage internal business efficiency or to use it well to change relationships with customers. So, if we can create a transformation that successfully applies AI in this most difficult industry, not only can we create a big value in our industry, but we can create a platform or reference that can be used in other industries and even commercialize it.
We understand that AI technology can enhance value in a diverse number of industries, but when it comes to the telecommunications industry, telcos around the world have the largest customer base, and these customers are paying customers. And there's a high level of customer relations management and customer service. Therefore, we understand that telecommunications industry can benefit the most from using AI by increasing their business efficiency and innovating their customer relations. In this regard, if we can successfully use AI and go through AI transformation in this particular telecommunications industry that has the highest level of difficulty in managing the customers, We believe that we can prove the value of using AI and we can apply these references to other industries by providing platforms and successful references.
Recently, the biggest change in AI is the potential of LLM technology. So, the demand for this has increased a lot. LLM technology itself is mainly based on global big techs, and we have to use it well. telcos are in a reality where it is difficult to secure this technology. So, SK Telecom has invested a lot in AI over the past few years. So, we lead this and make an alliance with a lot of global telecommunications companies, and we want to create an economy of scale through this. So, first of all, through this scale economy, we believe that we can secure cooperation through scale in comparison to global big tech companies, Secondly, we are developing various LLM technologies for telcos based on our own LLM technology, and lastly, we are providing AI assistant services that they can use to make telcos easily participate in the flow of LLM.
In the AI industry, we are seeing a great potential of utilizing LLM, and there is growing demand for large language models. And currently, the large language model technology has been led mainly by global big tech companies, which means that telcos are struggling to secure LLM-related technology. As you may know, SK Telecom has been making investments in AI for the past couple of years, so we believe that we can lead this particular alliance with global telcos so that we can gain the economies of scale. By doing so, we can strengthen the negotiating power of the telcos as part of the alliance, and we can use our own LLM technology to build AI platforms for global telcos, develop LLM technologies together, and provide AI assistant services for telcos to utilize. And in this way, we can help telcos around the world to utilize LLM more successfully. This is the purpose of this alliance.
So, more specifically, I think that communicators will be able to optimize the efficiency of the existing operations using this generative AI technology. Through this, I think that we will be able to reduce costs through marketing, network management, and outsourcing. In addition, I expect that we will be able to set up a new relationship with existing customers through AI Assistant Services and secure a new business model through them.
To be more specific, the telcos in the alliance will be able to utilize the generative AI-based AI transformation to increase efficiency in their marketing, network management, and outsourcing, and they can further develop new business models using AI assistance and innovate the customer experiences.
So, after the MWC in February last year, we had a continuous discussion Among the major telecommunications companies, we have formed an alliance with the representative telecommunications companies and founding members who represent Europe, Middle East, and Asia. They are Deutsche Telekom, EN, Singtel, etc. So, we made an MOU with them and made a joint investment in order to actually implement it. Discussions for the formation of such an alliance began since February when we attended the MWC and we decided to join hands with the leading telco companies representing Europe, Asia, and the Middle East.
and they participated as the founding members. They include the Deutsche Telekom, EN, and Singtel. We signed an MOU together, and we are currently carrying out discussions on various issues, including joint investments. And we will further invite other telcos to join us, and we're going to utilize their subsidiaries and the advanced markets so that we can increase the size of the alliance.
Through Telco AI Alliance, we are going to create a Telco AI platform and LLM. Based on this, we are going to create various AI services, and we are going to create local services in each country, both locally and locally, through global services and Telco. So, in order to make this more specific, after the previous Alliance CEO Summit, through the operation of the Joint Working Group, Through the Global Telco AI Alliance, we will develop the Telco AI platform and large language model so that we can offer diverse AI services which can be provided at the global level and also localized and further advanced
for the respective local markets. And the Global Telco AI Alliance, ever since the CEO summit, will create the joint working group to discuss specific matters related to governance and business plan and development direction. And C-level executives will be designated for this alliance so that they can pursue extensive cooperation. Thank you.
The next question is from Kim from Daesin. The following question will be presented by Kim from Daesin Securities. Please go ahead with your question. Hello, I'm Kim from Daesin Securities. I have two questions.
First, I have a question about the announcement of the government's announcement of the government's announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the announcement of the I am Kim Yeo-jae from Daeshin Securities. Thank you for this opportunity. I have two questions. First of all, the government recently announced plans to promote
competition in the telecommunications industry. As the MNO market has been growing, I wonder what kind of impact these government announcements will have on your MNO business going forward. And secondly, the YouTube Premium has been added as an option for T-Universe subscription, so I'd like to know the impact of such addition of YouTube Premium on T-Universe and its outlook going forward.
Thank you for the questions.
Let me first address your question on the impact of the government's decision to promote competition in the industry.
On the other hand, in terms of leading the competition in the market, we have released a number of funds. In the COVID-19 period, we also released cheap untaxed funds, and last August and early this year, we expanded our 5G service in various 5G funds that greatly increased users' choices.
Since the launch of 5G, the number of 5G subscribers has been on the rise, and we've been leading market competition by announcing measures to expand benefits and choices for users. During the pandemic, we were the first company to launch the most affordable untaxed price plan, and we added more 5G price plans in August last year and early this year to offer more choices for customers, which has been helping growing the 5G market.
On the other hand, we have secured a large 5G customer base. Through this, we have contributed to the future improvement of users and the public safety policy of the government. Last July, the government's announcement of the promotion of the competition of the telecommunications market is also an improvement in user convenience through the service quality competition of these telecommunications companies.
Based on the differentiated customer choices and benefits, we have secured a large 5G subscriber base and contributed to the government's effort to stabilize the livelihood of the public by enhancing the welfare of the customers. The government's announcement in July to promote competition in the telecom market is in line with the company's value pursuit value pursued through market leadership in that it aims to enhance user benefits and convenience through service quality competition among the telcos.
In addition to the measures proposed by the government, I think there are some cases where it takes time to check the details. So, there is no choice but to restrict the impact on the performance at the current point. However, basically, in response to the government's policy structure, we continue to maintain the policy that the user's right to choose and strengthen their discriminatory competitiveness. On the other hand, there will be days of travel, but there is also a part called efficient cost execution. Through this, we will take care of the overall performance of the company. On the other hand, the response is important in the M&O market, but as I said before, it is a part of our vision as an AI company related to AI. The government's announcement includes various measures including a potential introduction of another telco player and measures related to MVNL players. And some of the measures announced by the government may have the potential to impact our revenue.
but some of the measures require relevant laws to be revised, so it may take some time for us to understand the details and their potential impact on our revenue. And at the same time, we have these stands that we will continue to offer more choices and differentiated benefits for our customers, and we're going to engage in conversation with the government continuously. And at the same time, while some of the measures may have an impact on our revenue, we will continue to improve efficiency in our operation so that we can maintain a solid level of earnings continuously. Because it is not only important to respond to the M&O market, but also to realize the vision of becoming an AI company, we need to have a solid earnings basis to pursue these measures, pursue future measures to achieve this vision. So that is our overall stance.
In addition, regarding our subscription business, there was a question about the impact of our YouTube Premium release that we prepared last year. In this regard, Mr. Na, who is in charge of our subscription business, will give an additional explanation.
Your second question is related to the benefit or impact of YouTube Premium on the performance of T-Universe. And in this regard, I'd like to invite Ms. Na Seo-young, the Subscription Service Planning Team Leader, to comment on this question.
Yes, T-Universe released YouTube Premium last May. The results are good so far, but we are looking forward to the future.
Yes, the YouTube Premium was included as an option in May this year, and this has been very successful, and there's much more to expect in the future. We've been carrying out some marketing activities, but it has rather become more viral by the customers on social media. So it's been contributing to the increase of subscriber base of T-Universe. . The reason why this has been well received by the market is because of the value that it offers. When you sign up for U-Pass, a universe pass that includes the YouTube Premium, then you can get the benefit of maximum 60,000 won per month for the same price that you would pay for the YouTube Premium subscription only.
Yes, the attractiveness of this product is directly linked to the results. Among the U-Pass subscribers, the proportion of those who choose the YouTube Premium Because of this wonderful benefit in terms of value, there has been very good results, and YouTube Premium has become already one of the top three most popular selections of Universe Pass. Thanks to this, the number of T-Universe subscribers has already reached 2 million in the second quarter, and in the first half of this year, the GMB amounts to about 630 billion won.
In addition to the U2 premium service, we are constantly engaging in negotiations and discussions to include popular products and services as part of the subscription package. And we're going to continue to introduce and add impactful partnerships and products going forward, so I'd like to ask for your continued interest.
The following question will be presented by Junseop Kim from KB Securities.
Please go ahead with your question.
I would like to ask two questions regarding the marketing cost and the cloud business strategy. First of all, regarding the marketing cost, the marketing cost of wireless communications is generally stabilized. First of all, I think there are some people who are looking forward to the flagship 단말기 that will be released in the second half of the year. It is a strategy that predicts the optimization of the wireless communication new user registration market. If you give us a guideline for the second half of the year marketing market outlook and marketing cost that SK Telecom is looking at, I think it will help us to achieve the profitability of SK Telecom. Next, I would like to ask a question about the growth and business strategy of the cloud business. The cloud revenue has grown by 60% compared to the previous period, and Mr. CF said that he will see an increase in the number of AI services and hybrid cloud markets. If you share more detailed information, I think you will be able to better understand the annual revenue goal of 5.5 billion won plus alpha in the cloud business by 2027. What clients are you focusing on?
I'm Kim Junseo from KB Securities. I have two questions. The first question is related to your marketing-related outlook, and the second is related to your cloud business. First of all, we see that there has been a stabilization trend for marketing expenses in the MNO market, and there are some expectations for flagship handset launches in the second half of the year. and there may be some competition to acquire additional 5G or new subscribers. So in the second half of the year and going forward, how much marketing expense are you planning to execute, and what is the overall guideline for marketing-related expenses? The second question has to do with your cloud business, and I'd like to understand more in terms of cloud business growth potential and business strategies. As the CFO mentioned, there has been a 60% growth Q&Q of your cloud business revenue And as CEO mentioned that the company may benefit from increasing demand for AI and hybrid cloud. So to be more specific, what kinds of clients are you targeting and what kinds of cloud strategies are you going to pursue so that you could achieve 500 billion won or alpha of revenue by 2027? Thank you.
Yes, as CEO Kim said, we have a lot of opportunities In terms of BSP-1, I think it is the marketing cost. I think it will be in line with the purpose of the question you asked, which is to assess the increase in the level of the marketing cost. Also, if you look at it as a quarter, the release of flagships is related to the release schedule of each manufacturer, so I think it will be a little difficult to compare it as a quarter. I think it will be meaningful to compare it with the same period last year. In the second quarter of this year, we saw a decrease of about 0.6% in the starting cost of the marketing cost, so I think that a stable foundation is maintained. Currently, through the market stabilization that we have pursued, I would like to say that there is no change in the efficient market operation foundation of the profitability center itself. Regarding the recent market atmosphere, Kim Ji-young, who is in charge of comprehensive marketing strategy, made additional explanations,
Thank you for your questions. Yes, looking at the trend of marketing expenses is a litmus test to see how much of competition there is in the market. Therefore, it may be meaningful to take a look at the overall trend of marketing expenses. But when it comes to the comparisons because of the flagship handset launch schedules announced by the manufacturers, the quarter over quarter comparison may not be meaningful that much compared to the YOY comparison. So in terms of the YOY basis, I would like to say that the marketing expenses for the second quarter declined by 0.6% and it has been maintaining a stable level. And going forward, we will continue to stick with the existing stance of focusing more on margin and profitability while engaging in efficient market operation. And regarding the overall market landscape, I'm going to invite Kim Ji-hyung, head of the Integrated Marketing Strategy Office, to comment more on that. And moving on to your second question, I'm going to invite Kim Myung-guk, head of Cloud Business Office, to comment on our cloud-related strategies.
Hello, I'm Kim Ji-young, Head of Integrated Marketing Strategy Office.
When we look at the current market, it has been maintaining stability because of the lengthening of the handset replacement period.
As you mentioned, in the second half of the year, flagship handset releases are to be scheduled. However, as the 5G market becomes more mature, we see an increasing share of customers switching from 5G to 5G.
Therefore, it is our view that competition to acquire additional new 5G subscribers will not be fierce.
Therefore, we will continue to manage our marketing expenses in a strategic and efficient manner in consideration of the market situations. Thank you.
I am Kim Myung-guk, Head of Cloud Business Office.
In the second quarter of 2023, the cloud revenue recorded 39.8 billion won, up 67.67% year-on-year. This is based on combining and providing competitive telco assets such as domestic first-class wireless network capacity, AI big data, data center, and security, and so on, and I think that even after the change of the hybrid cloud of the future customers, the stable VM at the center of MSP can be maintained.
In particular, as for MSP, the recurring revenue takes up more than 90% of the total revenue for five consecutive quarters. This has been made possible thanks to our fundamental strengths, including being number one in terms of mobile and fixed telecommunications business in Korea, and we have the AI and big data and other very high-quality telecommunications assets, which have been the basis for such a success. And going forward, as there will be increasing demand for hybrid cloud, we believe that we can continue to utilize these assets and serve as the sophisticated MSP.
We will continue to utilize these assets and serve as the sophisticated MSP.
We will not just doing the reselling as CSPE, but rather provide a customized cloud-related consulting services and help customers maximize their cost efficiency using AI and provide more tailored total solutions to our clients so that we can continue to increase the portion of recurring revenue from MSP business.
For example, in finance, data analysis, For instance, for the financial institutions, we can provide support in terms of data analysis and information security using AI CC. And for AI developing companies, we can provide a GPS-supported cloud infrastructure. And we will continue to utilize our own AI cloud and design capabilities and collaborate with Sapione so that we can actively address and respond to public and hybrid cloud demand triggered by ChatGPT. By utilizing these capabilities and strengths, SK Telecom will continue to pursue high growth in the medium to long term by operating in the markets where CSPs or reselling MSPs cannot enter easily. Yes, that's all. Thank you.
This concludes the earnings conference call for the second quarter of 2023. If you need further explanations or have additional questions, please feel free to contact IR. Thank you.