SK Telecom Co., Ltd.

Good morning and good evening. Thank you all for joining the conference call for the SK Telecom earnings results. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star and one on your phone during the Q&A. Now we will begin the presentation on SK Telecom's third quarter of fiscal year 2025 earnings results.

Hello, I am Jung Hee-Joon from SK Telecom. I will start the 3rd quarter of the conference call. Today's conference call will briefly talk about the financial performance, mint, and business changes, and we will proceed in the order of Q&A. And I will tell you in advance that the content related to the future outlook can vary depending on the market, business environment, and various factors. Then, I will listen to Kim Yang-seop, CFO.

Good morning, I am Jung Hee-Joon, IRL of SK Telecom. Let us begin the earnings conference call for Q3 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.

Good morning. This is Kim Yang-seop, CFO of SK Telecom.

The third quarter of 2025 was the period where we renew our mobile business by implementing the Accountability and Commitment Program to overcome the cybersecurity incident and reassess company-wide AI capabilities, thereby renew our goals and determination for the future.

This quarter, these responsibilities and promises have had a significant financial impact.

In this quarter, the Accountability and Commitment Program has had a significant financial impact.

In this quarter, the Accountability and Commitment Program

The consolidated revenue posted $3,978.1 billion, a 12.2% decline year-on-year. The M&A revenue fell by approximately $547.7 billion year-on-year due to 50% tariff discount in August for all customers with the customer appreciation package and series of team membership discounts.

The significant sales decline led to 90.9% year-on-year drop in operating income to $48.4 billion.

The significant sales decline led to 90.9% year-on-year drop in operating income to $48.4 billion.

The net income turned negative due to the penalties from the cybersecurity incident.

Given the unprecedented deterioration in the financial performance, The company inevitably decided not to declare dividends for the third quarter. While the financial impact of the incident continues to weigh on the result, we are fully committed to restoring stability and resuming dividend payments going forward. Now, let me report on business updates.

The fixed and mobile businesses are showing gradual recovery from the cybersecurity incident.

The number of 5G subscribers increased by approximately 240,000 to 17.26 million, and broadband and IPTV subscribers also recorded positive net additions.

As part of the innovation of wireless business, the company has recently released a digital communication service called AIR. By carefully analyzing the needs of 2030 customers,

As part of our mobile business innovation, the company recently launched AIR, a digital communication service exclusively for unlocked devices. Designed with an emphasis on simplicity and practicality based upon in-depth analysis of the needs of the customers in their 20s and 30s, This service is expected to play a key role in broadening our mobile customer base.

AIDC, AIDC, AIDC, AIDC, AIDC,

The AI business is bringing together previously distributed AI capabilities under one structure. Functions and organizations including AIDC, A.B for enterprises, A.Service for B2C, and global AI partnerships and investment, and AI R&D are being reorganized into the AICIC, establishing a more cohesive and efficient business structure.

이번 분기 AI 사업 매출은 전년 동기 대비 35.7% 증가하며 중장기 목표 달성을 위한 성과 기반을 확장해 나가고 있습니다.

AI DC 사업은 판교 데이터 센터 인수 및 GPU 임차 지원 사업 수주에 힘입어

전년동기 대비 53.8% 성장한 1,498억원의 매출을 기록하였습니다.

강사는 향후에도 데이터센터 사업을 규모감 있게 성장시켜 나가기 위한

The Ulsan AI Data Center, which will be the driving force for the growth of the data center's sales, will be established in August and is in full swing. In addition, recently, we are preparing another opportunity by organizing a large-scale meeting to jointly build the Open AI and the Open AI-only AI data center in Seonam-gu, Korea.

The company continues to expand the scale and profitability of its data center operations. The Allsun AI data center, poised to be a key driver of data center revenue growth, held its groundbreaking ceremony in late August and is now under full construction. In addition, the company recently signed a memorandum of understanding with OpenAI to jointly build an AI data center dedicated for open AI in Korea's southwest region, positioning itself to capture new opportunities in the rapidly evolving AI infrastructure market.

The AIX business has recorded a sales of 55.7 billion won, which has grown by 3.1% compared to the previous year. The AI agent A.B.G., which launched officially at the end of June, DAX revenue posted $55.7 billion, up 3.1% year-on-year.

Officially launched in late June, ADAT-based An AI agent designed for enterprise use has received positive initial feedback as a workplace AI tool that helps employees focus more on their core tasks. In this quarter, the service was rolled out to about 10 SK Group affiliates, including the company, and is planned to be expanded to a total of 25 affiliates by the end of this year.

ADOT introduced the latest AI LLM such as ADOT X 4.0 and GPT-5 through this quarter's upgrade, and newly introduced the AI message function that warns against spam, phishing, and suspicious messages. In addition, as it was applied to the T-Map in September, more customers were able to experience ADOT.

Through its latest upgrade this quarter, ADOT has integrated cutting-edge AL LLM, such as AS 4.0 and GPT-5, while introducing a new AI message feature that alerts users to potential spam or phishing texts. In addition, with its recent integration into TMAP in September, ADOT is now accessible to a broader base of users. allowing more people to experience the service firsthand.

Based on the long-standing LLM capacity, SK Telecom Consortium has been selected as the exclusive AI foundation model project management team led by the Science and Technology Information Ministry last August. Through the project, we will strengthen the AI competitiveness of the parties, seek new business opportunities, and contribute to the Sovereign AI.

Building on its longstanding expertise in LLM, the SK Telecom Consortium was selected in August as a core team for the Proprietary AI Foundation Model project led by the Ministry of Science and ICT. Through the project, the company aims to further strengthen its AI competitiveness, pursue new business opportunities, and contribute to the development of sovereign AI.

The past six months has been the most challenging period for SK Telecom since its founding.

the entire organization has been fully mobilized to respond to the cybersecurity incident. While it served as an opportunity to emerge as a stronger and more secure company, it also led to the loss of many customers and continued financial impact.

In order to recover from the crisis and move on the path of the system, the company has set a goal to continue its information protection innovation. Information protection investment, next-generation technology input, To move beyond this crisis toward a recovery and renewed growth,

The company has set a clear goal of driving continuous innovation in information security. We will strengthen execution across key areas such as increased security investment, adoption of next-generation technologies, and enhancement of external verification systems. In the telecom business, we will place customer trust restoration at the highest priority and focus on reinforcing our core competitiveness to reclaim our position as Korea's leading telecom company. At the same time, in the AI business, we will focus on delivering tangible results.

SK Telecom wants to take this crisis as an opportunity for the system to become a stronger company. We ask for your warm encouragement and support for our new start. Thank you.

SK Telecom is determined to turn this crisis into an opportunity for renewed growth and to emerge as a stronger, more resilient company. We sincerely ask for the warm encouragement and continued support of our investors and analysts as we embark on this new beginning.

Thank you.

Now we'll begin the Q&A.

지금부터 질의응답을 시작하겠습니다. 질문을 하실 분은 전화기 버튼에 별표와 1번을 누르시기 바랍니다. 질문을 취소하시려면 별표와 2번을 누르시면 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 provided by Jaemin Ahn from NH Investment and Securities.

Please go ahead with your question. It's a bit of a shame, but I'd appreciate it if you could mention a little bit about the 4th quarter. It's a little too early to talk about the 26th quarter, but I'd like to ask you to look forward to whether the 2026 quarter will return to the level of 2024. The second question is about the 3rd quarter This is Ahn Jae-min from NH Securities.

I have two questions. First question is about dividend. During the presentation, you have said that you will not declare the dividend for the third quarter, which is regrettable. And I'd like to hear about your focus on the fourth quarter dividend. And it might be a bit too early to discuss about the 2026 dividend policy. Can you give us a heads up as to the dividend of the 2026 will return to the level of 24? The second question is about the performance. The third quarter's poor performance is something to be expected. And I'd like to ask you about the fourth quarter outlook, because the free offering of the 50-gigabyte data and the discount is still ongoing, so there could be the potential for the charts downselling. So I'd like to hear about your 4Q performance outlook.

Thank you for this question.

I'd like to respond to your second question first, the impact of the incident on the third quarter performance.

The financial impact from the cybersecurity incidents in Q3 was mostly reflected on the revenue side.

Mobile revenue declined about 500 billion won Q&Q, nearly all attributable to the incident.

The 50% discount on the August communication fee was the biggest impact on the entire customer base. The increase in membership benefits also led to a decrease in mobile communication sales.

The largest factor was the 50% discount on August tariffs offered to all customers as part of the customer appreciation package, while immense membership benefits also contributed to the revenue decline.

On the coast side,

134.8 billion won of fine imposed by the Personal Information Protection Commission was recognized as a non-operating expense in Q3.

Membership benefits and additional data are provided. As the customer service package continues until the end of the year, we should expect a certain amount of mobile communication sales to decrease in the fourth quarter, but compared to the third quarter,

As the customer appreciation package such as additional data and the membership benefits will continue through the year-end, so some decline in mobile revenue is expected to persist in Q4, but the impact should be significantly smaller than in Q3.

영업이익 측면에서는 다소 보수적인 접근이 필요하다는 것을 말씀드리고 싶습니다.

That said, Q4 typically involves concentrated spending activities, so a cautious approach is warranted regarding operating profit.

2026년은 아직 경영계획 확정 전이라서 구체적인 전망치를 말씀드리기는 어렵겠지만, While it is too early to provide detailed guidance for FY26 before finalizing management plans,

The company aims to drive a steady recovery in mobile revenue through restored customer trust while maximizing cost efficiency to return to pre-incident operating profit levels.

We expect the AI business to contribute to the turnaround of the performance. We expect the AI business to contribute to the turnaround of the

company's AI business including AIDC continues to show solid growth momentum, which is expected to contribute to a turnaround in overall performance. Further details on FY26 guidance will be provided once management plans are finalized.

Thank you. Let me respond to the question about dividends for the whole year, FI25 and FI26.

As mentioned earlier, following a resolution by the board, the company has decided not to declare a dividend for the third quarter. This was an unavoidable decision, taking into account the financial impact of the cybersecurity incident, cash flow condition, and overall financial stability. We ask for your kind understanding.

I hope you understand that it is difficult to say for sure at this point, but at the end of the year, we will consider the overall capital allocation balance, such as growth investment potential and financial structure, considering the overall capital allocation balance.

As for the Q4 dividend, it is difficult to make a definitive statement at this time, but the Board will review the matter once the full-year performance and cash flow are finalized, taking into consideration the company's growth investment capacity, financial structure, and overall capital allocation balance.

However, the impact of the cyber-crime accident is mostly reflected in the 25-year performance, In 2026, we expect the results to be normalized. Also, we expect that AI projects such as AITC in the next year will also achieve real results, so the results of the OI, or Operation Implement, will also be reflected in the results. In 2026, we will do our best to recover the previous year level in the improved results and online.

As the impact of the cybersecurity incidents will be mostly reflected in 2025, the operations are expected to normalize from 2026, and all the operation improvement measures will be fully implemented. And we will make every effort to restore the dividend to the pre-incidence level in line with improved performance.

Next question.

The next question will be presented by Heejin Lim from City Securities.

Please go ahead with your question. Next question is provided by Imhijin of CT.

I have two questions. First is that this is the first earnings call. after the incident and implementation of the ratification measures. So the question is that how much of the customers that you have lost in the previous quarter you have regained in this quarter, and what are your plans to win back the customer? And I'd like to learn about your marketing plan. The second question is about the error that was mentioned during the earlier presentation. So it seems that AIR is a smart service that is offered at an affordable pricing range. So I'd like to understand its implication on the touch line and our proof.

Thank you for your question. I will answer two questions from the Marketing Strategy Department.

Thank you for this question. And this question will be answered by the marketing strategy team.

Yes. I will answer the first question. The company tried to change the market atmosphere through customer trust recovery after the exemption period was ended by July 14th. As a result, in August and September, the company successfully introduced a new policy 가입자 선증 기조로의 전환을 이루어냈습니다.

상호 시장 운영은 Going forward, rather than focusing on numerical recovery of the customer churn, which could overheat the market, the company plans to pursue quantitative recovery centered on strengthening fundamental competitiveness and improving customer and revenue quality.

Through granular customer analytics, we provide optimized products, subscription methods, rate plans, and value-add services tailored to customer needs.

across different distribution channels. The recently launched AIR service is a prime example designed to meet diverse customer demands. The company will continue to enhance customer satisfaction by offering segment-optimized products and services while strengthening its overall competitiveness in the market.

So let me respond to your second question about AIR.

On October 13th, the company officially launched AIR, a digital communication service exclusively for unlocked devices.

AIR represents SK Telecom's new initiative to respond to the shift in mobile usage patterns among customers in the 20s and 30s towards SIM-only and fully digital experiences.

It allows customers to complete all service procedures directly through the app without visiting offline stores.

In addition, AIR does not provide a simple fee for six types of data that customers use a lot, and does not support keyword, team membership, remote connection, or family connection, but only provides the necessary core functions at a cheaper price.

The service offers six simple rate plans focused on the most commonly used data tiers. While it does not support T-Work, T-Membership, fixed mobile bundles, or family discounts, it provides only the essential features at more affordable prices.

If the existing T-Service is aimed at customers who want various benefits such as family discount or short-term assistance,

While existing T-Service cater to customers seeking a wide range of benefits, such as family bundle discounts or device subsidies, AIR is designed for unlocked device users who value digital convenience and practical benefits. Through the launch of AIR, the company expects to meet the needs of a wider customer base and broaden its marketing reach.

AIR is expected to contribute to the additional acquisition of all wireless subscribers and the top-line by providing a new communication service for the user of the stimulants, and the ARF capacity will be limited due to the monthly gap of similar levels as the T-Direct plan.

I'm offering a new telecom service for unlocked device users. AIR is expected to gradually expand the overall wireless subscriber base and continue to top-line growth. In terms of its price, it will be in the same range as the T-Direct plan, so its impact on our crew will be minimal.

Next question, please.

The next question is from Sohyun Park from UBS.

The following question will be presented by Sohyun Park from UBS. Please go ahead with your question.

Hello, I'm Sohyun Park from UBS. Thank you for your question. I'd like to ask you two questions. I remember that the Ulsan AIDC, which is running with AWS, was unannounced around the end of August. I think it would be good if you could share with us the current situation of Ulsan DC and the mid-term plans. Also, if you have any plans to expand DC, please share them with us. Secondly, we have reached 10 million subscribers on ADOT, and it seems that we have acquired some kind of side-up customership, so if you have any plans to make it more profitable, please share them with us.

Next question is from Park Soyeon with UBS. Two questions I have. The first question is about the Osan AIDC. So this is something that you are working together with AWS and understand that the groundbreaking ceremony was held sometime at the end of August. So I'd like to understand the progress of the Osan AIDC project and when do you foresee the completion of this construction and the beginning of the operation? And if you have any additional plans to add other data center facilities, please do share. The second question is about ADA service. You have recently surpassed the 10 million subscriber landmark and now was able to secure quite sizable user base. So I'd like to understand if you have any plans to actually charge the service.

Thank you for the question. The first question is from the AITC Business Administration. Thank you for this question.

First question will be answered by the AIDC development team.

And the second question will be answered by the AI growth strategy team.

So let me respond to you about the progress of the Ulsan AIDC project.

The construction of the OSAN AI Data Center began on September 1st and is progressing smoothly according to the plan.

The revenue from the Ulsan AI Data Center will follow a ramp-up structure and increasing in proportion to the utilization.

Ulsan AI Data Center will also play an important role in the expansion of the AIDC business as a reference for global big tech and AWS in Korea. The profit generation is expected from 27 and expected to grow steadily thereafter.

The Ulsan AI Data Center will also serve as a key reference case, marking SK Telecom's successful attraction over global big tech partners to Korea, and will act as an important catalyst for future expansion of the company's AI data center business. In addition, the company is in active discussions with global investment firms and other major technology companies considering AI data center projects in Korea and across the broader APEC region, exploring various forms of collaboration.

Next, I would like to talk about the expansion plan for the data center. Next, I'd like to discuss our data center expansion plan.

As mentioned in the previous earnings call, the company aims to achieve trillion won level revenue by operating a cumulative 300 megawatt or more of data center capacity by 2030. To this end, we are currently pursuing the construction of an additional AI data center in Kuro, Seoul, and the design work has just begun.

We expect that there will be a high demand due to the lack of capacity to build a data center in Seoul and a large number of facilities.

Given that this location represents the last valuable site in Seoul with secured power capacity for data center development, it offers ample land to accommodate large-scale facilities. We anticipate a strong demand for the project. We will provide further details to the market as the project progresses and plans become more concrete.

Yes, I'm Kim Ji-yoon, the head of the AI business strategy department. I'd like to talk to you about the AIDA. At the end of September, the total number of AIDA was 10.56 million, which increased by 8.3% compared to the end of June. In addition to the AIDA app, there are more than 10 million MAUs, including users who are using AIDA functions within the top service such as phone and BTV.

This is the head of AI Business Strategy, Kim Jihoon. Let me respond to your second question of the plan to charge the ADOT service. As of the end of September, the cumulative subscriber for ADOT has surpassed 10,560,000. That is the growth of 8.3% versus the end of June. When we include the other ADAT function users outside of the ADAT app, which mainly refers to the phone and the BTD, then the total MAU exceeded 10 million as well.

After the official launch, after two years, more than 10 million users and the expansion of the MAU have been able to secure continuous internal services,

So we were able to achieve this performance within two years from the official launch. The achievement meaning that subscriber over 10 million and the AU exceeding 10 million. That is thanks to the continuous service sophistication and active expansion into the external platform.

Last June, we have launched note and briefing.

In August, we offered 4.0 update. and the agent workflow function has been added, and this has garnered a strong response from the users. In September, ADOT is made available in TMAP and contributed further to the increase in AU.

B2C URIO model is reviewing B2C URIO models based on killer services in ADOT, and we are aiming to launch B2C URIO models in the first half of next year.

The B2C paid model will be reviewed, or under review, and will most likely in the form of the subscription of the branded products centering around ADOT's pillar services, and our target launching period is the first half of 2026. Until that time, they will continue to focus on improving usability of ADOT's core services and expand customer base.

On the other hand, the B2B swing model, such as ADOT's agentic workflow function, is expected to generate sales from the fourth quarter through the application within the team app, and will gradually expand from there. That's all.

Regarding the B2B profit model including the ADOT's agentic workflow, that will be implemented into the T-MAP, and we expect the revenue generation from the fourth quarter, and that will be the beginning, and we expect the gradual expansion of the revenue.

Operator, are there any more people waiting for questions?

Currently, one person is waiting for questions.

There are one people waiting in the question queue.

The last question will be presented by Hongshik Kim from Hana Securities.

Please go ahead with your question. I think that the investors who are trying to use the deposit this time will pay a lot of money. If you look at it now, there are more and more companies that provide the possibility of a deposit in the business report. If we don't pay the deposit in at least 3 minutes, we don't have any plans to do this. If we don't pay the deposit in at least 3 minutes, we don't have any plans to do this. I would like to ask this question. In the end, at this point, I think there should be a re-evaluation of the dividend. It hasn't been many years since we said that we would divide and make a dividend, but it is very unfortunate that there is already a situation where we do not pay the dividend. Secondly, if we look at the formula, it is said that the connection rate is 50% dividend, As far as we understand it, it was understood as the adjustment ranking. But this time, as a result of this, we see that it is not an adjustment, but just a short-term ranking. Shouldn't we look at 50%? Then, in the future, if there is a continuous cost-effectiveness cost, we will continue to determine whether or not we should reduce the cost reduction according to it. I would appreciate it if you could tell me the principles of the exact cost reduction.

This is Kim Hong-Shik from Hana Securities. I will have to ask some difficult questions. Then you have started the quarterly dividend payout, but this quarter you have decided not to declare the dividend. And from the perspective of the investors who have been waiting for this cash flow from the dividend, we are at a loss and would like to understand more visibility into the future. And according to the business report, there are some companies that are showing higher degree of the visibility or the productivity when it comes to the dividend. So in that line, I'd like to ask the company, do you have any plan for the future dividend? And if so, please share. So if you are not able to provide any dividend for the third quarter, I believe that there should be some sufficient response going forward. So please specify them. And at this point, this is the lead at high time that you need to revisit the plan to provide dividend on a quarterly basis, because you have made the disclaimer or announcement some time ago, but you are not able to provide this quarterly dividend for this quarter. So this is extremely regrettable situation, I have to say. And the second question is that according to the report is that or the basis of providing the dividend is the 50% of the consolidated net income. And it is our existing understanding is that it is adjusted consolidated net income, but it turns out that decision to waiver the third quarter dividend is based upon not adjusted, but the net income of this quarter. So does that suggest that in case of any future incidents that might involve the significant one-time expenses, then there will be some wavering of the dividend for the particular quarter. So please share with us your dividend profile.

So let me respond to your question.

This is the CFO.

First of all, our company has been continuously paying back with stable results, but this year, we were unable to pay back due to an unpredictable financial situation due to a cyber-crime accident, and as a CF, I am very embarrassed and sorry to the investors.

So as you might understand and appreciate that we have been providing the stable provision of the dividend based upon the strong performance. But due to this unforeseeable incident that we're not able to provide the dividend for this quarter as a CFO, this is an extremely unsettling situation. And I'd like to extend my sincere apology to the investors.

Mr. Lee, So we take your question and the feedback with great heart and try to figure out the best way forward.

And I'd like to give you this commitment as a CFO that we will make every effort to normalize our business environment. And this is something that I will share the commitment to you on behalf of every single employee of SK Telecom.

And I'd like to talk a little bit about the adjustment ranking of 50% of our delivery policy.

So, let me respond to your question about the 50% of the adjusted consolidated net income.

In terms of the financial policy of Namsan, the main business activities, such as sales and operating costs, are categorized as normal income.

So in relation to our shareholder return policy, the company classified items such as operating revenue and operating expenses, which arise from its principal business activities as recurring income or loss items. And conversely, non-operating income and expenses that are not directly related to the operating activities are categorized as non-recurring items.

In the case of this year, the personal information protection committee's overpayment is in line with the non-competitive income statement. The cost of the customer appreciation package replacement is related to the main business activities of the party, so we do not see it as a non-competitive amount.

The administrative fine imposed by the PIPC this year is classified as a non-recurring item. The customer appreciation packages and the SIM card replacement costs are directly associated with the company's core business activities and, therefore, are not regarded as one-off or non-recurring items. Companies' shareholder return policy, which is returning 50% of adjusted consolidated net income, represent a symbolic lower bound. This threshold expresses our commitment to provide dividends at a higher level than the minimum target, and historically, our dividend payout ratio has remained above this level.

For additional inquiry, please contact our IR organization and we will make sure that you get the full response.

This concludes the 2325 earnings call.

If you have any further questions, please contact us. Thank you.