On 6 November, SK Telecom said consolidated operating income fell 46% to KRW301 billion in the third quarter, while revenue remained nearly flat at KRW4.1 trillion versus the previous year.

These results -- which are credit negative -- indicate that its leverage, as measured by adjusted consolidated debt/EBITDA for the latest 12 months, rose to 2.2x in September from 2.1x in June.

SK Telecom's weak operating results reflected its record-high quarterly marketing expenses of KRW1.0 trillion, resulting from intense competition, as telecom operators migrate subscribers from 3G to long-term-evolution (LTE) or 4G services.

Also, SK Telecom raised its capex guidance for 2012 to KRW2.8 trillion from KRW2.3 trillion in order to enhance the quality of its LTE network.

"The increased capex, as well as the larger-than-expected decline in profits, will weigh on SK Telecom's leverage. As a result, its financial profile for 2012 will remain weakly positioned for its current A3 rating despite the company's deleveraging initiatives, including the disposal of part of its POSCO (Baa1 negative) shares for KRW438 billion in last October and planned property sales," says Yoshio Takahashi, a Moody's Assistant Vice President and Analyst.

However, the Korean regulator has directed telecom companies to decrease their aggressive spending on marketing, and firms seem to have embarked on taking steps to lessen competition and thus stymie ongoing margin erosion, as evidenced by the decrease in mobile number portability subscribers in October.

Such developments, together with the improvement in average revenue per user because of the increase in LTE subscribers, should help SK Telecom restore its profitability in 2013, albeit from low base. Any efforts to further monetize its assets could help the company to bring down leverage.

Moody's also recognizes SK Telecom's excellent access to debt markets, which gives the company a great degree of flexibility in coordinating its financing arrangements, particularly in terming out its debt maturity profile.

The principal methodology used in rating SK Telecom was the Global Telecommunications Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

SK Telecom is the largest mobile telecommunications provider in Korea, with an estimated market share of 50.3% as of September 2012. Its core business is to provide voice and wireless Internet services for mobile phones.

It is also the controlling shareholder of SK Broadband Co., Ltd. (Baa3 positive), Korea's second-largest fixed-line operator by subscribers.

Yoshio TakahashiAsst Vice President - Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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