SK Telecom Co., Ltd.

Good afternoon. I am Hee-Joon Jung, IRO of SK Telecom. Let us begin the earnings conference call for the second quarter of 2025. Today, we will first deliver a presentation on the financial and business highlights followed by a Q&A session. Please note that all forward-looking statements are subject to change depending on various factors such as market and management situations. Let me now present our CFO.

Hello. I am CFO of SK Telecom, Kim Yang-Soo. Good afternoon, this is Yangseok Kim, CFO of SK Telecom.

Results of the joint public-private investigation into SK Telecom's cybersecurity incident were announced in early July. SK Telecom takes the findings of the investigation very seriously, and we sincerely apologize to our customers and investors for the concern we have caused.

All of the employees of SK Telecom have received a heavy voice from the customer at the accident site, and we have also heard from the Customer Trust Committee and the Group Information Protection Innovation Special Committee. Above all, as a company that takes responsibility for the customer's daily life,

The executives and employees of SK Telecom have taken seriously our customers' voices that we have gathered on the ground after the incident and carefully considered the advice and recommendations of SK Telecom's Customer Trust Committee and SK Group's Special Committee on Information Protection Innovation. Above all, as a company responsible for our customers' daily lives, we have given careful consideration to convey our desire to continue to be with them, and through this process, we have announced the Accountability and Commitment Program.

We have strengthened the customer safety package, such as providing a free delivery of the mobile short-word security solution that can respond to the latest cyber threats, In the next five years, we have prepared an information protection innovation to have a global-level information protection system, including investment of 7 billion won. We are also implementing customer appreciation packages, including D-Membership Relay discount, including 50GB of monthly data and D-Membership Relay discount to customers who trust and wait for the company.

We have strengthened the customer assurance package, which includes the provision of a mobile device security solution free of charge to all subscribers to prevent any secondary damage resulting from the incident and protect against the sophisticated cybersecurity threats in the future. We have developed information protection innovation plan where 700 billion won will be invested over the next five years to build a world-class information protection system. In addition, we have prepared the Customer Appreciation Package to express our appreciation to our customers for their loyalty, including 50% tariff discounts for August, additional 50GB of data every month until the end of the year, and team membership discounts and benefits.

Inevitably, our 2025 earnings will be temporarily affected by the measures that we've been taking to respond to the incident, including using replacements for all subscribers.

the Accountability and Commitment Program, and M&O contract cancellation fee waivers. However, from the medium to long-term perspective, we believe that our highest priority is to restore the trust of the customers, which is the foundation of our business, through these efforts. We are determined to take this as an opportunity to strengthen our business fundamentals and ultimately enhance corporate value.

Thank you.

Let me now report on the consolidated financial results for the second quarter of 2025.

Let me now report on the consolidated financial results for the second quarter of 2025. Consolidated revenue posted $4,338.8 billion won.

MNO revenue fell due to net subscriber losses on the back of the cybersecurity incident and suspension of new subscriber sign-ups. With the additional impact of sales of certain subsidiaries at the end of last year, the consolidated revenue saw a decline of 1.9% year-on-year. The impact of the customer appreciation package on earnings, including 50% tariff discounts and team membership discounts, will be reflected in Q3 and Q4 when these benefits are provided.

영업이익은 전년동기 대비 37.1% 감소한 . . . . .

Operating income posted 338.3 billion won, down 37.1% year-on-year. As for USIM replacement costs, according to accounting principles, theoretical maximum costs were reflected in the second quarter based on a conservative assumption that all customers could request USIM replacements. In addition, one of costs totaling approximately 250 billion won incurred in the second quarter including loss compensation for authorized dealers. Net income posted 83.2 billion won, down 76.2% year-on-year. Next, let me report on business updates.

Sixth and mobile business saw a decline in the subscriber base due to the impact of the cybersecurity incident

and suspension of new subscriber acquisition for more than a month. The number of 5G subscribers declined by approximately 220,000 quarter-on-quarter to 17.02 million, accompanied by the loss in the broadband and IPTV subscribers.

The AI business has grown by 13.9% compared to the previous year, and some of the sales have dropped. The AITC business has grown by 13.9% A.D.A.T., which has grown by 13.3% compared to the previous year, has achieved a sales of 1,087 billion won, and A.I.X. has achieved a sales of 4.68 billion won, which has grown by 15.3% compared to the previous year, due to the increase in B2B solution sales. A.D.A.T., which has surpassed 10 million subscribers by the end of July, is launching A.D.A.T. notes and briefing beta services, and is building a foundation for user-friendly.

The AI business revenue grew 13.9% year-on-year, partially offsetting the drop in telecom revenue. AIDC revenue posted 108.7 billion won, up 13.3% year-on-year, thanks to the increase in data center utilization rates. AIX revenue grew 15.3% year-over-year to 46.8 billion won on the back of the increase in B2B solution sales. With the cumulative subscribers surpassing a 10 million mark at the end of July, ADOT is building a basis for monetization by launching new features such as ADOT Note and Briefing Beta service.

In particular, last June, we announced a hyper-scale AIDC management plan with AWS SK Group officials. With AWS, the global number one cloud company in the Ulsan region, which has abundant resources and potential,

In June, SK Telecom announced a plan to establish a hyperscale AI data center together with AWS and SK Group affiliates. In the Ulsan region where SK Group has secured sufficient land and electricity, we will build Korea's first and largest AI data center with the world's largest cloud company, AWS, to secure a hub for AI infrastructure superhighway.

Ulsan AIDC is aiming to start operation in 2027. Including Seoul, Guro, and DC, Ulsan AIDC will secure more than 300 MW of data center capacity by 2030, and with the increase in operation rate, the data center alone will be able

We aim to start the operation of Ulsan AIDC in 2027. Together with the data center in Seoul, we will secure a combined capacity of over 300 megawatts by 2030. In the future, data centers alone are expected to generate approximately 1 trillion won of annual sales following the increase in their utilization rates.

SK Telecom will review and strengthen its core telecom business while continuing to grow its AI business and generate profits through AI. 마지막으로 2025년 2분기 배당금은 주당 830원으로 이사회에서 결정하였으며 The deadline is August 31.

Finally, the Board of Directors resolved to set the second quarter DPS at 831 with the record date of August 31.

SK Telecom will look back on this cyber-crime incident and promise to make thorough improvements. With the changes and changes of SK Telecom, investors and analysts' continuous interest Please give us a warm speech. Thank you.

SK Telecom is firmly committed to facing the cybersecurity incident with a clear head and unwavering resolve and making thorough improvements. We ask for your continued interest and warm support of investors and analysts as we embark on a new chapter of growth and transformation with a renewed sense of purpose. Thank you.

We would now like to 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 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 provided by Hoji Kim from Daishin Securities. Please go ahead with your question.

Hello, I'm Kim Hyo-jae from Daishin Securities. I have two questions for you. I'd like to ask two questions.

First of all, I'd like to understand specific response measures that you have been taken to respond to the cyber security incident in more detail, as well as the prevention measures that you will continue to employ. And I would also like to understand in more detail the financial impact of the incident on your earnings. Thank you.

Thank you for your question. I will answer your question about the company's measures against cyber-crime accidents and preventive measures.

Thank you for your questions.

First, I'd like to respond to your question on our response measures and future prevention measures regarding the cybersecurity incident. We humbly accept the government's announcement and the investigation results.

In addition to quickly implementing the recommended corrective measures, we have also announced the accountability and commitment program which includes the customer assurance package to thoroughly prevent any damage from customers, damage for customers, and the information protection innovation plan to invest a total of $700 billion for the next five years. And the head of the infrastructure strategy will provide you with more details.

Hello, I'm the head of the infrastructure strategy. I'd like to talk about disaster prevention measures.

I am the head of the infrastructure strategy. I'd like to give you more detail in terms of the responses and preventive measures. First of all, after the cybersecurity incident, we introduced a customer assurance package to fundamentally prevent any damage from occurring to our customers so that they can be reassured. The customer assurance package includes the SIM protection service that is provided to all customers as of May 14th, the highest level of the operation of the fraud detection system, and the USIM replacements for those who request them.

In addition, a world-class mobile device security solution used by militaries and government agencies is provided free of charge for one year

And further customer protection will be provided by introducing a cybersecurity damage compensation insurance program to compensate for all the costs related to the damage if that happens to customers in the future. Also, through the medium and long-term information protection innovation measures, SK Telecom will become a company with very strong level of security. Right after the incident, we restructured and improved the security system to ensure that there is zero malicious code and installed next-generation security solutions such as EDR and NDR to our major systems to block any data leak and intrusion. Furthermore, USIM information encryption has been completed.

And going forward, we will continue to strengthen information security levels

with 700 billion won of investment for the next five years and put priority on IT security in our business management. To this end, we are working on the implementation of the information protection innovation plan, which includes restructuring of the security governance framework, implementing multi-layered next generation information protection systems based on the zero trust principle, strengthening personal information security beyond legal obligations, and operating a systematic internal and external verification framework.

Through all of these measures, we aim to strengthen our IT security and information security to the global top levels

based on the cybersecurity framework by the National Institute of Standards and Technology of the U.S.

Next, let me respond to your question on the financial impact of the cybersecurity incident and our annual earnings guidance. First of all, the financial impact of the incident started to be reflected in the second quarter and larger financial impact is anticipated in the second half of the year.

The financial impact in the second quarter include MNO, a revenue decline due to subscriber turnout, and increase in costs due to the free USIM replacements and compensation for sellers.

With the suspension of new subscriber sign-ups to secure USIM chips for the existing customers, the handset subscribers as of the end of June fell 750,000 from the end of March,

resulting in the drop of 38.7 billion won quarter-over-quarter in M&O revenue.

Also, the M&O, including the M&O, included the M&O, including the M&O, including the M&O, including the M&O, including the M&O,

The cost of replacing USIM for all customers including MVNO subscribers free of charge was fully recognized in the second quarter, and compensation was paid to the dealers to partially cover for damages incurred by the distributors due to the incident and suspension of new contract sign-ups, and as a result, approximately $250 billion of one-off expense incurred.

The accountability and commitment program will be implemented in full swing in the second half of the year,

In particular, 50% tariff discounts are scheduled for the third quarter, which bears the biggest financial impact. So we anticipate a decline in revenue and operating profit compared to Q2.

Considering these circumstances, we have adjusted sales guidance from 17.8 trillion won to 17 trillion won this year, and we expect sales to be as high as last year.

This is why we have lowered the annual revenue guidance from $17.8 trillion won to $17 trillion won, and this year's operating profit is also expected to underperform compared to the prior year.

This year's operating profit is expected to underperform compared to the prior year. So the financial impact of the cybersecurity incident this year will be substantial.

However, it is important to protect our customer base, which is the biggest asset of SK Telecom. So we will regain the trust of our customers through a full implementation of the accountability and commitment program and further enhance our corporate value. Thank you.

The next question is from Jung Hwan-seong of Shinyoung Securities.

The following question will be presented by Won-suk Young from Shinyoung Securities. Please go ahead with your question.

Thank you for the question. I have two questions. The first question is related to the payment. After the announcement of the 2nd quarter payment, it seems that investors are looking at the 4th quarter payment. I would like to ask you if the amount of payment can be maintained annually. The second question is a question about the strategy to recover the subscribers. When I looked at the data you posted today, I found that about 750,000 subscribers decreased based on M&O Handle Set subscribers. I would like to ask if you are considering a strategy such as increasing the amount of subsidies for the recovery of subscribers. Thank you.

I'm Jung Won-suk from Sinyoung Securities. I would like to ask two questions. The first question is related to your dividend payout plans. You already made an announcement regarding the second quarter dividend, but investors are interested in learning more about the full year dividend guidance. So if you can provide us with more details, we would appreciate it. And we'd like to know if the level of dividend payout for the whole year will be maintained. The second question is related to your strategies to win back customers that you have lost. According to the presentation materials you provided, we can see that there was a decline of 750,000 people of MNO handset subscribers because of the incident. I'd like to understand if you have any specific strategies to win them back, including the payout of subsidies. Thank you.

Yes, thank you for the question. First of all, I will answer the first question about the payment.

Thank you for your questions. Let me first answer your question on our dividend policy.

As you know, our dividend policy for the second quarter will be the same as last quarter, 830 won per share. As for the future dividend policy, it will be decided at a more specific time than now.

As you are already aware, the July Board determined the second quarter dividend per share to be the same as the prior quarter at $831. But regarding future dividends, the Board will have discussions when we have more visibility for the whole-year earnings.

As I mentioned earlier, the Board made the announcement on July 4, but considering the actual impact of the cyber-discrimination incident, As we announced on July 4th, we adjusted the 2025 annual revenue guidance down from 17.8 trillion won

to 17 trillion won in consideration of the financial impact of the cybersecurity incident on our earnings. Also, our 2025 profit is expected to decline significantly compared to the prior year.

So we're currently giving serious thought to our shareholder return policy. Going forward, we will make decisions on dividends in consideration of various factors, but as we strive to regain customers' trust through the accountability and commitment program,

I'd like to reiterate that we consider trust of our shareholders and shareholder value extremely important because they are valuable stakeholders for the company. Thank you. Regarding your second question on strategies to win back customers, the head of marketing strategy will respond.

I am Yoon Jae-woong, head of marketing strategy. Let me comment on our strategies to win back customers.

For about three months from April 19th, when the incident occurred, until July 14th, when the cancellation fee waiver period ended, we had 1.05 million MNP out and 330,000 MNP in.

During this period, there were situations such as new recruitment restrictions and tax exemptions, but the party has been actively providing a package of 5.5 billion won of customer compensation in order to reduce the number of customers.

And despite the suspension of new subscriber acquisition and cancellation fee waivers, we also offered 500 billion won worth of the customer appreciation package to minimize customer turnout. And we executed marketing expenses at levels higher than normal, focused on handset replacement.

For those who have already switched to other operators, rather than trying to win them back with any quantitative target or measures,

we are going to continue to regain their trust naturally by becoming a telecom operator with the strongest level of security. The Customer Assurance Package and the Information Protection Innovation Plan are part of our efforts to regain their trust.

We are restoring the membership and registration rates for those who re-register within three years so that they can return without any burden. For those who re-register this year,

Also, to help customers return to SK Telecom without any burden, we are restoring their subscription years and membership grades if they come back within three years. And those who come back within this year will also enjoy benefits such as membership discount benefits as part of the customer appreciation package.

From July 22nd, the group law was abolished, so we were able to pay additional support funds to the retail stores, and the naturalness of the promotion has also increased. As a result, there may be costs for customer acquisition, but since the customer base is the company's most important asset, the company is planning to proceed with the customer win-back in the direction of providing practical customer benefits through more sophisticated and personalized marketing.

In addition, the handset subsidy law was abolished on July 22nd, so we can give additional subsidies to dealers and have more autonomy in terms of promotions. These may lead to one-off increase in expenses, but we will operate the market in a way that can offer maximum substantial benefits to our customers through more sophisticated and personalized marketing. Thank you.

Before I take the next question, The following question will be presented by Aram Kim from Shinhan Securities.

Please go ahead with your question.

SK Telecom is preparing and looking forward to what's coming. I'm curious.

I'm Kim Aram from Shinhan. I'd like to ask two questions regarding your new businesses. First of all, you made an announcement to build an AI data center in Ulsan. I'd like to understand the overall annual investment plans and the actual or revenue projections that you have for the Ulsan AIDC. I would also like to understand if this project will have an impact on the medium to long-term CapEx guidance. The second question is related to your AI business. SK Telecom was selected as a company that is responsible for the national AI model development by the government. I'd like to understand what specific plans and preparations you are making regarding sovereign AI development. Thank you.

Yes, thank you for the question. Regarding the question, I would like to answer it from the Director-General of AITC.

Thank you for your questions. I'd like to hand it over to Yeonwoo, head of AIDC development, for his responses.

I'm Yeonwoo, head of AIDC development. I'd like to hand it over to Yeonwoo, head of AIDC development, for his responses. I'm Yeonwoo, head of AIDC development. I'd like to hand it over to Yeonwoo, head of AIDC development. I'd like to hand it over to Yeonwoo, head of AIDC development. I'd like to hand it over to Yeonwoo, head of AIDC development. I'd like to hand it over to Yeonwoo, head of AIDC development. I am the head of the AIDC development.

Thank you for your question on our AIDC investment plans and revenue projections. First of all, SK Broadband, our subsidiary, will carry out investments to design and build Ulsan AI data center, and AWS will invest AI computing facilities such as these GPUs that go into the data center.

So, SK Broadband will carry out most of the investments from 2025 to 2028. Please understand that the specific annual investment plans cannot be disclosed.

Most of the investments by SK Broadband will be made from the second half of 2025 until 2028. Please understand that we cannot disclose any specific annual investment plans due to the agreement with AWS for confidentiality.

Ulsan A.I. Data Center's expected revenue is also difficult to tell you in detail, but from the perspective of the entire A.I. Data Center's business plan, we plan to secure more than 300 megawatts of capacity by 2030, and we expect a revenue of 1 trillion won per year by 2030, depending on the increase in operation rate.

Also, please understand that we cannot share with you any specific revenue projection numbers for Ulsan AI Data Center alone, but given the overall AI Data Center business plans of SK Telecom, we aim to secure a total of more than 300 megawatts capacity by 2030 and expect an annual revenue of around 1 trillion won with increasing utilization rates.

Ulsan AI Data Center is Unlike conventional data centers, we implemented a highly-intensive rack density to implement high computing power, and a high-end structure design and cooling system will be applied to handle this, so we expect it to be advantageous in terms of profitability compared to previous data centers.

The Ulsan AI Data Center features ultra-high rack density to support strong computing power for AI and advanced solutions to support the operation, including structural design and cooling systems. Therefore, this AIDC is expected to bear higher profitability compared to conventional data centers.

Also, it can safely supply large-scale power from SK multi-utility, We also will secure a stable supply of massive amounts of electricity from SK Multi Utility, which is a district electricity business operator.

And we can shorten the construction period by utilizing a large ground area that we have secured in Ulsan

and these factors are expected to increase the profitability of the Ulsan AI Data Center.

Before I hand it over back to the head of AIDC development, I'd like to comment on the impact of this particular project on our CAPEX guidance. It is true that the recent decision to invest in Ulsan AI Data Center and also invest investment in information protection will drive up the total capex amount.

Ulsan AIDC는 계약에 따라 세부 수치를 공개하기는 어렵지만 올 하반기 착공에 들어가는 만큼 This year, SK Broadband's CAPEX is expected to increase by nearly 10% compared to last year.

Due to the contract on Ulsan AIDC, we cannot disclose any specific figures, but the groundbreaking is scheduled for the second half of the year. As a result, SK Broadband's CAPEX is expected to be up nearly 10% year-over-year.

However, due to structural factors such as the completion of the 5G network,

However, thanks to the structural factors such as the completion of nationwide 5G network, this year's combined capex of SK Telecom and SK Broadband is expected to continue to maintain a stable trend this year and onward. Thank you.

Moving on to the question on SK Telecom's plans and opportunities regarding the sovereign AI initiative by the government.

We have been actively participating in the government-led sovereign AI projects, and we have been accumulating relevant references. And indeed, some projects have already produced meaningful outcomes.

To be specific, one of the AI infrastructure projects that the government has been promoting in May has been selected as a provider of NVIDIA's latest GPU AI data center by applying for a GPI support project.

To give you more details, in May, we applied to the GPU lead support project to secure national AI infrastructure, and we were chosen as a supplier of AI data center featuring NVIDIA's advanced GPUs. And in July, we led the creation of a consortium which submitted a proposal to participate in a government project to develop and advance sovereign AI foundation models, and we were chosen as one of the five finalists.

In addition to participating in national AI projects, efforts are also being made to develop new business opportunities and to secure policy support based on the growth of the AI industry. In addition to participating in these national AI projects, we're also making efforts to capture new business opportunities and secure policy support in line with the government's initiatives to promote the AI industry.

For instance, in June, we announced a plan to build an AI data center in Ulsan, which is expected to contribute proactively to the government's initiative to build an AI highway and create a national AI innovation hub, thereby positioning SK Telecom as an important partner for the government in terms of AI policy implementation.

In addition, we announced an open source version of the Korean LLM, A.X 3.1, furthermore we released a.x 3.1 our own korean specific llm as open source

to support AI adoption in diverse domestic and foreign business sectors, and we tested Rebellion's AI chip, Atom, for our AI services, including ADOT Call. These represent our efforts to boost AI technology independence and establish an AI ecosystem based on proprietary technologies.

Last year, our company established a domestic AI ecosystem through the construction of Korean Sovereign AI at the SK AI Summit, We already declared a vision at last year's SK AI Summit that we would realize independence of the domestic AI ecosystem through Korean sovereign AI development,

and create new business opportunities in this ecosystem as a key player.

Based on our prepared capabilities, we will establish ourselves as a leading AI company representing Korea.

With that, we would like to conclude the second quarter earnings conference call for SK Telecom. If you have additional inquiries, please contact us. Thank you.