South Korea’s incumbent fixed-line telephone carrier KT Corporation (KTC) has announced a major workforce restructuring program. The company is reportedly eliminating 5,992 jobs through an early retirement program, equating to 16% of its workforce (roughly 37,026 employees). This represents KT’s largest job cut ever.
The early retirement program applies to the employees who have worked for more than 15 years and have applied for voluntary retirement. Approximately 65% of these employees are in their 50s. KT plans to fill the vacuum by expanding the recruitment of new entrants and reducing unemployment among young people.
The job cut is expected to save KRW460 billion (US$393 million) annually in labor costs. However, the one-time cost for severance pay associated with the voluntary retirement program will halve KT’s operating profit for 2009 to KRW900 billion (US$769 million) from the earlier expectation of KRW1.8 trillion (US$1.5 billion). KT is expected to incur KRW840 million (US$718 million) in retirement payouts which will drag its fourth-quarter 2009 results. However, the job cut will be accretive to earnings in 2010.
Following its merger with wireless subsidiary KT Freetel in June 2009, KT has become a full-service provider controlling approximately 90% and 31% of the South Korean fixed-line and wireless market, respectively.
However, KT continues to experience greater-than-expected declines in its legacy wireline business due to intense competition. The company is battling for market share with its archrival SK Telecom (SKM), South Korea’s largest wireless carrier, in the highly matured domestic market. To counter competition and boost profits, KT is currently seeking new avenues of growth and streamlining its business structure.
KT is also set to enter the lucrative Chinese mobile content market. The company is reportedly buying a 25% stake in Omnitel China, the Chinese subsidiary of South Korea’s leading mobile content developer Omnitel Inc. The financial terms of the deal (expected to close in July 2010) have not been disclosed.
Omnitel China provides mobile content services (including video-on-demand and ring back tone) to leading Chinese carriers such as China Mobile (CHL). The company is growing its business rapidly by leveraging the extremely high growth Chinese wireless market.
Omnitel China has amassed 12 million subscribers for its mobile content services, boosted by the rapid growth of smartphones and netbooks that are being used for high-bandwidth applications. The entity is planning to further expand its reach in the mobile content market by offering more entertainment services. Thus, a stake in Omnitel China will enable KT to effectively penetrate this highly promising market.
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