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KT faces challenge to increase earnings despite restructuring: analysts

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Published : 2014-04-10 20:39
Updated : 2014-04-10 20:39

South Korea’s No. 2 mobile carrier KT Corp. is still faced with the challenge of improving its earnings despite latest efforts to reduce labor costs, analysts said Thursday, due to the dull performance of its fixed-line sector and the ever-intensifying battle with the rivals.

“While cutting expenditures may have a positive effect for the short term, it will not be a fundamental solution to the slowed growth,” said Kim Jang-won, an analyst at IBK Investment & Securities.

Hwang Chang-kyu, who took the helm of the telecom giant in January, announced an earlier-than-expected restructuring plan in the hopes of easing the financial burden brought on by a workforce larger than that of its competitors.

KT on Wednesday offered voluntary retirement packages to employees who have been with the company for 15 or more years.

About 23,000 of the company’s 32,000 workers are estimated to be eligible to apply for retirement, with 6,000 workers, or 20 percent of the workforce, expected to leave.

As of 2013, SK Telecom, the No. 1 industry player, had 4,192 workers, and LG Uplus, the smallest, a comparable figure of 6,780.

“KT desperately needed to restructure by cutting its workforce after posting a shortfall in 2013,” said Yang Jong-in, an analyst at Korea Investment & Securities. “The expenditures on workers took up 16.6 percent of KT‘s revenue in 2013, while that for SK Telecom and LG Uplus were only 9.4 percent and 9.6 percent, respectively.”

Analysts, however, said the company’s performance is likely to remain flat, as its earnings in both its fixed-line and mobile businesses are stagnant.

The fixed-line sector, KT’s core business, has been the laggard as more users turn to mobile phones. The fixed-line division recorded revenue of 2.9 trillion won in 2013, falling sharply from the 4.3 trillion won posted in 2010.

Due to the lackluster performance, KT logged a net loss of 60.3 billion won in 2013, despite efforts to improve its finances through other businesses such as car rentals.

“If 6,000 workers leave KT this year, the mobile carrier will save 330 billion won annually,” said Choi Yun-mee, an analyst at Shinyoung Securities Co., an amount not enough to recoup annual losses from the fixed-line arm.

“KT will also face challenges in its mobile business,” said Kim Hong-seek, an analyst at Hana Daetoo Securities Co. “The fixed-line sector will be less of a problem for the company as it will hit the bottom in 2014,” with no more room to fall, he said.

According to the analyst, KT has been losing its subscribers to LG Uplus, the smallest player, while the No. 1 SK Telecom has maintained its dominance in the market.

He added that the restructuring measure may not have a significant impact on KT’s financial health unless the remaining workers’ wages are fixed for the time being.

“KT must either slash the workforce every year, or cut at least 10,000 workers in 2014 if it is to actually see some meaningful effect,” he said. “Otherwise, the mobile carrier will eventually realize that it has saved nothing from the restructuring measure.”

Analysts also warned that there is no guarantee the estimated 6,000 workers would volunteer for the retirement program this year like in 2009.

As the retirees will be allowed to work at KT’s affiliates if they wish to, the actual impact of the belt-tightening move will further be limited, they added.

KT is accepting applications for the retirement program from Thursday through April 24. (Yonhap)

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