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SK TELECOM SHOULD MAINTAIN STRONG MARKET SHARE

NEW YORK-After a six-month review, Moody’s Investors Service July 22 confirmed the investment-grade rating of Baa1 on about $280 million in dollar-denominated debt issued by Seoul-based SK Telecom Co. Ltd., South Korea’s largest wireless carrier.

However, the rating agency also characterized as “negative” the rating outlook, saying it would “continue to monitor economic developments in Korea and pressures on SK Telecom’s operating environment.”

Three new personal communications services providers entered the market late last year. They took about 30-percent market share from cellular incumbents like SK Telecom during their first six months of operation “by offering substantially larger handset subsidies and lower tariffs,” Moody’s said.

“However, these thinly capitalized service providers are likely to face increasing difficulties in securing additional financial resources to support their high marketing expenses and lower tariffs,” said Takahiro Morita, senior vice president of ratings for Moody’s in Tokyo, and Robert Konefal, managing director of corporate finance for Moody’s in New York.

SK Telecom also has an advantage in that it is nearly finished building out its nationwide Code Division Multiple Access network and therefore faces lower future capital expenses, they said.

“While SK Telecom may see modest erosion in its current market share [of] over 50 percent, the company should be able to maintain a strong market position supported by its superior network coverage,” Morita and Konefal said.

“With current (overall wireless) … penetration of less than 20 percent, Moody’s believes the (South Korean) market still enjoys long-term growth potential. However, weak economic conditions … have substantially slowed the penetration rate.”

The rating agency noted depreciation of the won has made SK Telecom’s “foreign-currency-denominated payment obligations … more expensive in local currency terms.”

However, Moody’s also said the carrier “maintains an acceptable level of liquidity, both in U.S. dollars and Korean won, to repay its foreign-currency-denominated debt obligations scheduled to mature over the next few years.”

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