SK Telecom Co., Ltd.

Good morning. I am Heejun Jung, IRO of SK Telecom. Thank you for joining SK Telecom's Earnings Conference Call. Today, we will first deliver a presentation on major events, 2023 full-year earnings highlights, and business performances, which will be followed by a Q&A session.

The call is attended by our executives from relevant business divisions, including Yangseop Kim, CFO of SKHL Telecom, and we're providing consecutive interpretation for the call. As you may know, I'd 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 morning. This is Yangseop Kim, CFO of SK Telecom. It is my first time to greet you, and as we head into the Lunar New Year holiday, I would like to wish you a very happy new year.

SK Telecom has announced its AI pyramid strategy for the third quarter of last year's global AI company leap. In addition, the CES 2024, which was held in Las Vegas last month, showed AI technologies that change daily lives, In the third quarter of last year, SK Telecom announced the AI pyramid strategy to become a global AI company. At CES 2024 held in Las Vegas last month,

We showcased AI technologies that promise to change our daily lives and actively engaged in discussions with global leading AI players to expand global partnerships. Through these efforts, we will strive to produce concrete AI business results this year.

Let me first report on the annual consolidated financial results for 2023. As a result of SK Telecom and SK Broadband's performance improvement, sales increased by 1.8% compared to last year by 17.6085 billion won, and sales increased by 8.8% compared to last year by 1.7532 billion won. The short-term profit was recorded at 1.1459 billion won.

Thanks to improved earnings of SK Telecom and SK Broadband, consolidated revenue reported 17,608.5 billion won, up 1.8% year-over-year. Operating income posted 1,753.2 billion won, up 8.8% year-over-year, and net income posted 1,145.9 billion won.

On a non-consolidated basis, revenue posted 12 trillion 589.2 billion won, up 1.4% year-over-year.

Operating income and net income reported 1,455.9 billion won and 1,059.7 billion won respectively. Let me now turn to business highlights for 2023 and strategic directions in accordance with the AEI pyramid strategy. First, I'd like to cover the AI infrastructure domain, which serves as the foundation of the AI pyramid.

supported by the continued increase in utilization rates, data center revenue for 2023 achieved a 30% growth year-over-year. Demand for data centers that accommodate GPUs is expected to grow significantly with the arrival of the AI era.

Therefore, SK Telecom plans to drive the data center business more strongly, focused on the next-generation AI data centers and global expansion.

AI semiconductor company Sapio released its next-generation chip set X330 at the end of last year. In this CES, Sapio discussed cooperation methods to expand global server manufacturers Supermicro and X330, We plan to promote business cooperation with the next-generation AI data center.

Sapione, an AI semiconductor company, launched X330, a next-generation inference chipset, at the end of last year. At this year's CES, Sapione had discussions with Supermicro, a global server provider, on how to cooperate to increase the sales of X330. The two companies also plan to pursue business cooperation on next-generation AI data centers.

The two companies also plan to pursue business cooperation on next-generation AI data centers. The two companies also plan to pursue business cooperation on next-generation AI data centers. The two companies also plan to pursue business cooperation on next-generation AI data centers. The two companies also plan to pursue business cooperation on next-generation AI data centers. The two companies also plan to pursue business cooperation on next-generation AI data centers. SK Telecom has been pursuing a two-track multi-LLM strategy centered on our own capabilities as well as external partnerships.

To be more specific, we're striving to evolve A.x, our own LLM, into a multimodal LLM through continuous performance enhancements. We're also developing an AI platform that will offer diverse LLMs in cooperation with leading domestic and foreign AI companies such as Anthropic, OpenAI, Organize, and Conan Technology. Furthermore, together with the Global Telco AI Alliance, concrete global expansion plans are being developed for the telco-specific LLM that SK Telecom has been working on.

Next, the AI

AIX domain covers our internal core businesses, such as M&O, broadband, and enterprise, as well as closely related external businesses, such as mobility, health care, and media.

First, in the AIX internal area, mobile business, the number of 5G users recorded 15.67 million by the end of 2023, and the 5G customer base reached 68%. In the case of broadband, Among the internal areas of AIX, the MNO business recorded 15.67 million 5G subscribers as of the end of 2023,

which accounts for more than 68% of the total subscriber base. SK Broadband's pay TV subscribers and broadband subscribers reached 9.55 million and 6.93 million, respectively, as of the end of 2023. We're planning to launch a personalized AI TV service that will give our customers a new experience.

On the other hand, as the enterprise business continues to expand its IOT damage collection, The enterprise business continues to gain orders for IoT lines while striving for growth by developing diverse AI business items such as AICC,

vision AI, and big data. The cloud business grew its annual revenue by more than 30% year-on-year, thanks to the increase in recurring MSP sales.

Especially, the company is based on a multi-LNM strategy that provides a variety of LNM models that suit the environment and needs of customers, and has opened a subscription enterprise AI market in January. For customers who need security, such as public finance,

Moreover, based on the multi-LLM strategy aimed at providing diverse LLM models that cater to specific environments and needs of customers, we opened the subscription-type enterprise AI market in January. At the same time, we will pursue on-premise implementation projects for clients in the financial and public sectors where security is of utmost priority. These are part of our efforts to gain leadership in the enterprise AI market this year.

In the external area of AIX, the company is focusing on leading the UAM business. In this year's KUAM GLAND Challenge, the company will be the first in Korea to present the actual UAM aircraft of Joby Aviation. Yangsan wants to promote joint progress in the global UAE market through a close cooperation system.

Moving on to the external areas of AIX, we are focusing on taking the lead in the UAM business. This year, we will showcase actual UAM aircrafts by Jovi Aviation for the first time in Korea at the KUAM Grand Challenge. The two companies will also enter the global UAN market together through close cooperation.

Last year, the company entered the global market through a partnership agreement between Japan, Australia, and Singapore through Xcalibur, an X-ray analysis solution based on AI. Last January, the company entered the global market through a partnership agreement

Regarding Excalibur, an AI-powered veterinary X-ray analysis solution, we entered the global market last year through strategic partnerships in Japan, Australia, and Singapore. In January, SK Telecom signed an MOU with Pathology Innovations, a global leader in veterinary imaging services, to target the U.S. market. Let me now report on the AI services. With the official launch last year, ADOT created a huge stir in the market in October by launching the Call Recording and Summary functions. ADOT continues to innovate customers' communication experience with new features including a real-time call interpretation service in December. We will keep adding killer services to enable ADOT to become a truly personal AI assistant.

E-FRIEND, which launched in May last year, has recorded 3.61 million MAUs by the end of 2023, and is showing meaningful growth in the global market, such as India. In addition, the economic system introduced last year contributes to the improvement of vitality, such as increasing the treatment time of E-FRIEND, and this year, E-FRIEND services and the combination of artificial intelligence and AI, AI Persona, AI Studio,

Thanks to the popularity of IF Home launched in May last year, IF Land recorded the MAU of 3.61 million as of the end of 2023 and achieved meaningful growth in overseas markets such as India. Furthermore, the economic system introduced last year is contributing to enhancing the platform's vitality such as the increase in usage time. This year, we will offer differentiated services, such as AI Persona and AI Studio, by actively combining generative AI capabilities with IFLAN services.

T-UZU was established as a representative subscription service in Korea, achieving more than 2.35 million monthly users by the end of 2023 with the permission of BigPlayer, such as YouTube Premium. T-Universe achieved the MAU of more than 2.35 million as of the end of 2023 through partnerships with big players such as YouTube Premium, having positioned itself as Korea's leading subscription service.

we will continue to add impactful products such as Netflix, and pursue substantial growth by transforming T-Universe as an AI-based subscription commerce platform.

In 2023, the dividend will be agreed to be 3,540 won per year, including 1,050 won per quarter in the fundamental settlement board and 2,490 won per quarter. After the approval of the General Assembly in March, 최종 확정될 예정입니다. The amount of dividends for 2023 was determined by the Board at 3,541, including 2,491 that was already paid out and 1,051 for Q4.

It is subject to the approval at the General Meeting of Shareholders in March.

with a goal of 7.9 billion won. While the growth rate of 5G participants and wireless sales has already been significantly reduced, the environment is not good, so many difficulties are expected this year, but we will do our best to maximize the value of the company and the stock market through the beneficial achievements in the new growth business and the AI field.

Finally, our annual consolidated revenue target for 2024 is $17.9 trillion, up approximately 2% year-over-year. With a clear slowing downtrend in 5G subscriber growth and M&A revenue growth, the internal and external environment remains challenging, raising concerns for this year. However, by producing meaningful results in the new growth businesses and AI domains, We will strive to maximize corporate value and shareholder value.

We ask for your continued support and encouragement. Thank you. We will now begin the Q&A session.

질문을 하실 분은 전화기 버튼의 별표와 1번을 눌러주시기 바랍니다. 질문을 취소하시려면 별표와 2번을 눌러주시면 됩니다. 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 have 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 Se-yeon Park from Morgan Stanley. Please go ahead with your question.

Yes, thank you for the opportunity to ask a question. There are two questions. First, I would like to ask how you view the wireless service sales or wireless ARF prospects in 2024. The second question is related to the stock exchange policy. As far as I know, the three-year policy ended in 2023. Please explain how we should predict the future stock exchange policy. Thank you.

I am from Morgan Stanley. Thank you for this opportunity. I would like to ask two questions. First of all, I'd like to know more about your outlook on the revenue as well as trend for 2024. The second question has to do with your shareholder return policy. Your three year shareholder return policy has ended in 2023. So what is your plan for shareholder return going forward?

Hello, I am Yang Sub Kim, CFO of SK Telecom. Thank you for your questions. Let me first answer your question on our outlook on the 2024 MNO revenue and ARPU trend. As of the end of 2023, our 5G handset subscribers reached 15.67 million, with the 5G penetration rate exceeding 68%.

Therefore, we expect the growth of subscribers and M&O revenue to clearly slow down year-over-year.

This is an inevitable situation in terms of the 5G service that started in 2019. We would like to promote the growth of wireless sales in a variety of ways, not only in the interest of the participants.

We believe that this is an inevitable trend as more than five years have passed since the launch of 5G service in 2019. So, we are determined to drive MNO growth through other various means in addition to subscriber net ads.

Through killer services such as ADOT's iPhone call recording, which has recently become a hot topic, we will strengthen customer positioning and retention,

For instance, we will attract and retain customers through killer services such as ADOT's call recording feature for iPhone users, which garnered much attention. Also, we will continue to add differentiated benefits, including the link to subscription services such as T-Universe, in order to drive customer demand for premium plans.

We will also actively use AI to suggest products and services optimized for customers, provide efficient and high-quality customer counseling, and improve customer experience to increase productivity and profitability.

In addition, we will actively utilize AI to offer and recommend customized products and services for customers and provide efficient and quality customer consultation, which will contribute to improving customer experience and leading to better productivity and profitability.

And in addition to the roaming service, which has grown by more than 10% compared to before the COVID-19 pandemic, we will also

furthermore just like the roaming service that enjoyed more than 10 percent growth from even the pre-pandemic level we will continue to develop and expand diverse revenue streams to continue the growth momentum Nevertheless, in the process of enterprise business expansion, the number of IoT lines that have lower ARPU is constantly on the rise. So the blended ARPU, including IoT connections, is expected to decline slightly, as was the case in 2023.

Now, let me address your question regarding our shareholder return policy. 2023 was the last year when the previous shareholder return policy was implemented. Last year's DPS was 3,541, which is about 7% higher than the historical level.

And also with share buyback of 300 billion won and cancellation of treasury shares worth 200 billion won, we believe that last year, we recorded a higher level of shareholder return than before.

We are currently reviewing the new share buyback policy. Above all, based on the increase in share value, we are working to improve the growth of the M&O business We are currently working on the next shareholder return policy.

While keeping higher shareholder value as our top priority, we are considering numerous factors, including the sluggish growth of the M&O business, AI-related investments needed to secure new growth engines, and a balance in resources allocation between growth and shareholder return. So we will develop the most optimal plan and discuss it with the board and then communicate with the market when more details are available.

We ask for your patience. The following question will be presented by Junseop Kim from KB Securities. Please go ahead with your question.

Thank you for the question. I am Junseop Kim from KB Securities. I would like to ask a question about AI-related business and enterprise business. I know that investors are interested in the implementation of the AI pyramid strategy. Therefore, I would like to ask you to update the specific business orientation such as entropic investment or global takeover AI alliance. And secondly, I would like you to talk about the enterprise business. You said that enterprise businesses such as data centers and cloud businesses are growing. If you share how it is going now and how you are looking at the milestone in the future, it will be of great help to understand the future prospects. Thank you.

Thank you for the opportunity. I am Kim Junseo from KB Securities. I'd like to ask questions regarding your AI business and enterprise business. First of all, there is a great interest in your AI pyramid strategy in the market. So I'd like to understand some of the tangible results that you have been producing by making investment in Anthropik and by pursuing the Global Talco AI Alliance. The second question has to do with your enterprise business. You mentioned that the data center business and the cloud business have been enjoying some good growth. And so could you share with us some milestones and the current status, as well as future directions, which will help us better understand your future direction?

Yes, thank you for the question. Among the questions, I would like to talk about the direction of the global tech AI alliance, Thank you for your questions. As for your question on the results of an investment in Atropic as well as the Global Telco AI Alliance and the future business directions, Mr. Cho Sang-Yeok, head of the AI Strategic Partnership, will address this question.

And then, the head of Enterprise Business Strategy Office will address your question on our enterprise business.

Hello, I'm Sanghaegi Cho. You all know that SKT invested $100 million in Entropiq, a global AI leading company in August of 2023. The company continues to improve its self-developed LLM performance, and cooperates with global AI companies such as Entropiq, OpenAI, and other market leading companies to build Telco-specialized LLMs.

As you may know, SK Telecom invested $100 million in Anthropik, a global AI leader, in August 2023. We have been advancing our own LLM while building the Telco-specific LLM in cooperation with global leading AI companies such as OpenAI and Anthropik.

The Telco-specific LLM, which is being built using the vast Telco data that the company possesses, can be applied to AI contact centers and Telco agents

The telco-specific LLM is currently under development utilizing the large telco data that the company has. It is our target to release commercial features that can be applied for AEI contact centers and telco agents in the first half of this year. Also, through the Global Telco AI Alliance launched in July last year, we're developing concrete plans for the global expansion of the telco-specific LLM.

We're also expanding the KAI Alliance through investments in Organize and Imprimed in the fourth quarter of last year and we will continue to pursue AI transformation in diverse industries.

Let me now elaborate more on our global Telco AI Alliance.

SK Telecom is an AI service provider that uses extensive Telco data to provide Telco2K LLM services. Through collaboration and collaboration, various Telco-type services are flexible

As an AI service provider, SK Telecom aims to offer telco-specific LLM services utilizing our large telco data. We're currently working on commercializing AI tools that will effectively support localization and advancement of diverse telco-specific services through our own efforts as well as cooperation with external partners.

Launched in July 2023, the Global Telco AI Alliance consists of SK Telecom, Deutsche Telekom, EN, and Singtel,

whose total subscribers stand at 1.4 billion in 50 countries around the world, and other global leading telcos have shown interest in joining the alliance.

The company plans to expand its telco patent LLM by reflecting the data and needs of the Global Telco AI Alliance members, and if the AI solution is developed based on the size of the economy through the members, the company will be one of the few companies that can generate real income through AI business all over the world.

We plan to expand telco-specific LLMs by incorporating data and needs of the Alliance members. If we can commercialize AI solutions based on the economies of scale afforded by the Alliance members, we will be one of the few companies in the world that can gain meaningful earnings from AI businesses.

Hello, I am Jae-Joon Bae, and I am in charge of the enterprise business strategy. First, I would like to talk about the achievements of the enterprise business. The company's enterprise business in 2023 As the operation rate of the data center increased and the number of cloud increases increased, the enterprise's entire business area grew evenly, and in the fourth quarter of 2023, YY increased by 436.6 billion won, and the annual sales increased by 1.6306 billion won, achieving YY's 8.1% growth.

I am Bae Jae-Joon, Head of Enterprise Business Strategy Office. Let me first comment on the success of SK Telecom's enterprise business. In 2023, driven by higher data center utilization rates and cloud volume, all areas of enterprise business enjoyed growth. As a result, the Q4 revenue recorded 436.6 billion won, up 11.4% year-on-year, and the full year revenue posted 1 trillion 630.6 billion won up 8.1% year-over-year.

and expanding to more than 200 MW. We are also establishing a new data center in the capital with the goal of becoming the number one data center in Korea.

Moving on to the prospects for data center and other businesses. First of all, for data center business, we expect continued quarterly growth along with increasing utilization of new data centers. So this trend is expected to continue. And this year's annual data center revenue is expected to grow at a similar rate as of the previous year. Also, we're in the process of adding new data centers in the metropolitan area with the goal of becoming Korea's number one data center operator by doubling our data center capacity by 2030 to 200 megawatts.

Yes, we expect the growth of AI cloud demand from the latest GPT will be simplified. In connection with this, we expect AI cloud business to expand as well. Next, on our cloud business, we plan to pursue this cloud business centered on expanding the AI cloud business to capitalize on the growing demand for AI cloud with the popularity of ChatJPT

as well as improving our multi-cloud business for MSPs. Also, we're working on cloud business scale-up to win orders from big accounts based on SK Telecom's own cost optimization technologies.

The next question is from Sojin Kim from Mira Esteteo. The following question will be presented by Sojin Kim from Mira Esteteo. Please go ahead with your question.

Hello. Thank you for the question. I would like to ask two questions. First of all, I know that ADOT is showing a very good response since it was officially released last year. I would like to know if you have any specific achievements that you can share with us. Also, I would like to know what kind of changes there are in the U-MUSUN business. Secondly, I would like to ask a question about SK Broadband's IPO plan and 24-year prospects. Thank you.

I'm Kim Soojin from Mirae Asset Securities. Thank you for the opportunity. I'd like to ask two questions. First of all, regarding the ADOT service that you officially launched last year, we understand that this service is doing really well. So if there are any specific performance numbers that you can share with us, we would appreciate that. And I would also like to understand the ADOT success on the impact on the fixed and mobile business, the current trend, as well as the future direction. As for the second question, I'd like to understand the IPO plans for SK Broadband, as well as your outlook on the earnings for SK Broadband in 2024. Thank you for the question.

First of all, I would like to answer the question regarding the IPO plans for SK Broadband. I would like to answer the question regarding the IPO plans for SK Broadband. The Assistant Director will answer your questions about the performance of ADAC and the change and trend after the official release. First, I will talk about SK Broadband's IPO plan.

Thank you for your questions. Regarding our thoughts on SK Broadband's IPOs, I'm going to comment on this question, and then more specific details will be provided by the Head of Corporate Planning Office at SK Broadband. Then, the head of AI Assistant will provide you with answers on the current performance of ADOT and the future plans.

SK Broadband continues to grow in terms of both the media and B2C business, and SK Telecom and SK Broadband's wireless synergy strengthens the growth and competitiveness of the data center and solution business.

SK Broadband continues to expand the basis for media and B2C business through subscriber growth and strengthen growth prospects and competitiveness of the data center and solution business based on the synergy between SK Telecom and SK Broadband. Fundamental strengthening of the competitive edge and stable financial structure are expected to continue to contribute to both consolidated earnings and SK Telecom's corporate value. Regarding the IPO of SK Broadband, we will come up with the most optimal plan based on the goal of realizing the true value of SK Broadband and maximizing corporate value of SK Telecom.

We will carefully monitor the market situation in the future and make detailed plans and communications with the market in the best possible time.

So, we will closely monitor the market situations and determine when and whether to go ahead with the IPO of SK Broadband and see what will be the most appropriate timing, and then we will develop specific plans and share them with the market.

Hello, I am Lee Joon-woo, CEO of SK Broadband. Next, I would like to talk about the prospects for the performance of SK Broadband in the next 24 years. I am Lee Joon-woo, head of the corporate planning office at the SK Broadband. Let me provide you with comments on the outlook for SK Broadband going forward.

First of all, we're going to continue to drive the B2C subscriber growth and expand the B2B business centered on data center and enterprise, thereby maintaining the rate of growth similar to the previous year.

Not only will we increase the size of the subscribers, but we will also continue to increase the profitability and sales of B2C businesses through quality growth centered on high value.

And we will not only grow the subscriber base, but also pursue qualitative growth focused on high-value business to enhance both the top line and the bottom line of the B2C business.

The enterprise business will expand its growth in the opportunity market and expand its existing exclusive market size, and at the same time, it will focus on expanding the B&M based on AI solutions by enhancing the cooperation structure of SK Telecom and SK Broadband.

Moving on to our enterprise business, we will achieve growth by capitalizing on new opportunities in the market to expand the fixed-volume, fixed-line volume, and at the same time, we will further advance the fixed and mobile cooperation structure between SK Telecom and SK Broadband to focus on expanding the business models based on AI solutions.

In addition to the growth of sales through the increase in the operation rate of new centers, Through the application of AI technology, we will strengthen the high level of operational facilities and quality competitiveness, and we will build the foundation for long-term continuous growth.

For a data center, we will pursue a top-line growth through higher utilization of the new data centers while improving the operational efficiency through AI in order to build the foundation for sustainable growth in the medium to long term.

Hello, I am Kim Ji-yoon, the AI Assistant. I would like to talk about ADAT's performance and major progress. ADAT has been growing with 3.4 million new subscribers since its official launch in September 2023. The results of the increase of the number of new subscribers by about 300% over the past year have also been revealed following this official launch.

I am Kim Jihoon, head of AI Assistant. Let me provide comments on the actual performance of ADOT and future directions. Since the official launch in September 2023, ADOT's cumulative subscribers reached 3.4 million and the growth trend is continuing. And the cumulative subscribers grew nearly 300% for the past year, which shows a good performance of ADOT since official launch.

After its official launch, it ranked first in the A.son Apple App Store and Google Play Store in terms of lifestyle, and it is still in the high ranking. In addition, it ranked first in the second half of the chat field in the 23rd year of the Korea Mobile App Honor Hall, proving the efficiency and popularity of the market.

After the official launch, ADOT topped the chart in the Lifestyle category in both Apple App Store and Google Play Store, and it is still ranked high. And also in the Korean Mobile App Hall of Fame, ADOT ranked first in the Chatting App category in the second half of 2023, demonstrating its popularity and usefulness in the market.

The growth of ADOT in terms of efficiency, We believe that the success of ADOT is the result of continued effort to deliver value to customers by offering diverse, useful services and features

such as call recording and summary and sleep management. And we recently released the call interpretation service as part of iPhone call recording function and a conversational playlist creation function. In the first quarter of 2024, the call interpretation service will be available for other platforms as well. And these are receiving good attention in the market.

In terms of strengthening media-related services, We are also cooperating with SK Broadband, and we are working hard on continuous function enhancement to transfer these A.C communication-based customers to other life assistance areas. In 2023 and 2024, we are also promoting the discovery of a swing model based on traffic by paralleling the continuous growth of these A.C users.

And we're collaborating with SK Broadband in the media area to boost the popularity of ADOT. And likewise, ADOT will continue to encourage customers acquired through communication-based services to use other life assistance services of ADOT by continuing to enhance functions. And we plan to grow the usage volume of ADOT in 2024 as well. And we're developing monetization models based on such traffic.

And we are considering various performance indicators on customer usage patterns of ADOT services and functions. And when our internal discussions are finalized, we will share them with you in the market.

Operator, are there any more people who are currently waiting for questions?

Yes, there is no one who is currently waiting for questions. I see.

Then, I'll stop asking questions here. With this, I will finish all of the 2023 annual performance announcements and conference calls. If you have any additional questions or if you have any questions, This concludes the earnings conference call for 2023, and if you need further explanation or have additional questions, please contact the IR team anytime.

Thank you.