Annual Report 2004

Annual Report 2004

Celebrating with KTF !
Welcome to KTF party,
full of exciting opportunities to share endless rewards!
 Corporate Profile

Creating mobile and wireless dreams

KT Freetel (KTF) has been at the forefront of developing the information
and communications industry in Korea since its establishment as
a personal communications service (PCS) provider in December 1997.
Today, as a leading mobile operator, it is dedicated to exploring open-ended
possibilities and opportunities for mobile communications,
digital convergence and wireless Internet services.
Its shares are traded on the Korea Exchange.

As of 2004-end, KTF recorded total assets of US$7,691 million (KRW7,960 billion)

and total shareholders’ equity of US$3,075 million KRW3,183 billion.
Sales and net income amounted to US$5,634 million (KRW5,831 billion)
and US$274 million (KRW284 billion), respectively,
while the number of KTF subscribers reached 11.73 million.

KTF will continue to remain focused on customer satisfaction,

based on a multi-layered management philosophy
that advocates “value management,” “leading management,” “field management”
and “responsible management” under a single corporate vision:
KTF as “Mobile Life Partner.” At the same time,
it will remain committed to delivering limitless value
to customers, shareholders and society.

Contents
01 Corporate Profile 02 Operational & Financial Highlights

04 PARTY 1 “NOBILITY PARTY”

06 Corporate Governance 10 CEO’s Message 12 Interview with CEO 14 Corporate Culture 16 Social Involvement 18 Have a good time with KTF!

20 PARTY 2 “FAMILY PARTY”

22 MNP & Marketing 24 Management Highlights 26 2004 Highlights & Awards Winner 28 History of KTF 30 Special Section

32 PARTY 3 “YOUNG PARTY”

34 Market Overview 36 Mid-Term Growth Strategy 38 Voice Service 40 Wireless Data Service 42 New Business & Service 44 A Blueprint for Business & Service

46 PARTY 4 “SUCCESS PARTY”

48 MD&A 60 Report of Independent Public Accountants 62 Financial Statements

99 Epilogue 100 Corporate Data

Invitation
 Welcome to KTF party,
Full of exciting opportunities to share endless rewards!

We cordially invite our valued customers

and shareholders to enjoy the exciting benefits we have to offer.

Join us for our dynamic opening

and closing accounts that are destined for success!
Operational & Financial Highlights

Calculated growth Operational Highlights Financial Highlights

strategy for a In 2004, KTF successfully induced additional subscribers through sequential
MNP and acquired new 010 subscribers. These encouraging strides were
Service revenue increased 9.2% year-on-year (YoY) to
reach 4,589.2 billion in 2004, led by a rise in number of
Service sales
[Billions of Korean Won]
Data sales
[Billions of Korean Won]

better future based on an improved fundamental competitiveness such as high call

quality, wireless data competitiveness and good customer services through
subscribers and a growth in wireless data sales. This was
attained despite the tariff cut of 1,000 and changes in
4,201
4,589
362
524

the “Good Time campaign.” interconnection revenue. Accordingly, we anticipate this

The total number of subscribers increased by 1.29 million over the year to year’s growth in service revenue should be positive and
peak at 11.73 million, recording a 1% rise in market share to 32.1%. expect that it will relieve investor worries over stagnant
‘03 ‘04 ‘03 ‘04
Specifically, the 1.09 million subscribers induced by MNP (KTF only : 0.76 sales.
million) should exert a positive influence on our sales growth and More importantly, wireless data revenue jumped by 45% Operating Income EBITDA
[Billions of Korean Won] [Billions of Korean Won]
profitability, as they represent a relatively higher ARPU than existing YoY to 523.6 billion, becoming a driving engine for the
782 1,626 1,615
subscribers. We also expanded the number of EV-DO subscribers which company’s sales growth. This significant rise was 529
produce relatively higher data ARPU to reach 3.06 million at 2004-end (up attributed to an expansion in the EV-DO subscriber base.
from 0.82 million in 2003). After-discount average revenue per user (ARPU) from
In 2005, as MNP takes effect for all three domestic mobile operators, KTF wireless data service made up 16.6% of total after-
will devote even more efforts toward customer satisfaction to retain those discount ARPU as of the end of the fourth quarter, and ‘03
‘03 ‘04 ‘04
subscribers with our improved fundamentals. represented a rise of 4.0%bp -on-year to prove the
activation of the wireless data business. EBITDA Margin Debt-To-Equity Ratio
[%] [%]
Despite sales growth in 2004, attributed to an expanded
subscriber base, our profitability deteriorated in 38.7 35.2 150
142
comparison to the previous year. This was led by a rise in
marketing expenses following exacerbated competition.
EBITDA margin fell 3.5%bp YoY to 35.2%, while
operating income and net income decreased by a ‘03 ‘04 ‘03 ‘04
respective 32.3% and 30.3% to record 529.0 billion and
Net Debt-To-Equity Ratio Total Marketing Expenses
EV-DO subscribers 283.9 billion. Such downturns in profitability, however,
[%] [Billions of Korean Won]
Number of subscribers Number of subscribers Ratio of EV-DO subscribers After-discount average ARPU corresponded with the estimates we presented to
1,005
[Thousand] [Thousand] to total subscribers [Korean won] shareholders following our focus on external growth 91 98
692
[%] during 2004. However, KTF will focus on profitability-
11,729 29,514
10,442 3,055 29,037 oriented management in 2005. Our debt-to-equity ratio
26 rose 8.4% YoY to 150.1%, but it should retreat behind
improved cash flows and profitability in 2005. ‘03 ‘04 ‘03 ‘04
For 2004 shareholders, we plan to payout cash dividend
816 Marketing Expenses to
of 550 per share as part of our shareholder return
7.8 Service Sales
policy, which is 40% of net profit in 2004. [%]
Remaining portion of 40% after cash dividend will be
21.9
used for share buy back and cancellation, which is to be
‘03 ‘04 ‘03 ‘04 ‘03 ‘04 ‘03 ‘04 16.5
executed by the year end.
Furthermore, we intend to return 50% of our net income
(Korean won) to shareholders in 2005 with an aim of increasing
Change in ARPU 03-4Q 04-1Q 04-2Q 04-3Q 04-4Q shareholder value. ‘03 ‘04
After-discount ARPU (Excluding interconnection charges)
DATA ARPU (Net amount)
DATA ARPU (total amount)

02 | KTF Annual Report 2004 | 03

 06 Corporate Governance
10 CEO’s Message
12 Interview with CEO
14 Corporate Culture
16 Social Involvement
18 Have a good time with KTF!

NOBILITY PARTY
Merrymaking for the Noble Aristocrat

Sophisticated and advanced

We are secured for the future
KTF is devoted to executing best practice with change and initiative to accomplish
our top priority : “maximization of shareholder value.”
Corporate Governance
A paradigm for
corporate
governance
Shareholders’
Rights
Maximization
of Shareholders’
Value
Transparent Board
Management Effectiveness
KTF prepares to become a world
premier mobile operator through
customer satisfaction management and
development of new growth engines.
Accordingly, KTF established the
“maximization of shareholder value” as
its top priority in the decision-making
process. To accomplish such ideals, the
company has been actively carrying
forward the construction of an
advanced corporate governance
structure, including respect for
shareholder rights, transparent
management and the institution of an
independent and professional board of
directors. It has been also devoted to
the enhancement of BOD activities,
construction of transparent accounting
processes, expansion of profit returns
to shareholders, and the establishment
of a division in exclusive charge of
corporate governance. Such efforts for
shareholder profits have been highly
appraised both at home and overseas.
06 | KTF
Respect for Shareholder Rights
KTF is devoted to establishing the finest practices in relation to expanded
Independent and Professional Board of Directors (BOD)
Above all else, KTF is concentrating its energy on the reinforcement of advanced Composition : 3 outside directors
corporate governance to strengthen the BOD’s independence and professionalism. Audit (current vacancies will be appointed at the regular
shareholder rights, while executing reformative and innovative programs far
ahead of other companies. Accordingly, the membership of the BOD has been set at nine
representatives to enable effective decision-making, while
Committee
General Shareholders Meeting in March 2005)
Number of meetings held : 7
appointing the majority (five) of these positions with Composition : 1 outside director,
Board of Finance 2 inside directors
IR-type general shareholders’ meeting outside directors (current vacancies for outside directors Committee
Open General
will be appointed at the regular General Shareholders
Directors Number of meetings held : 1
Shareholders’ Panel of expert analysts in attendance
Meeting in March 2005). The BOD is comprised of four 4 inside directors, Composition: 3 outside directors,
Meeting Real-time broadcasting via the Internet Remuneration 2 inside directors
specialized committees—the Audit Committee, Finance 5 outside directors Committee Number of meetings held : 5
Committee, Outside Director Candidate Recommendation
Composition : 2 outside directors,
Management places importance Committee, and Compensation Committee—that enjoy Compensation 2 inside directors (non-standing)
on surplus cash flows complete and reinforced independence thanks to the appointment Committee Number of meetings held : 2
2004 shareholder returns of all their heads with outside directors.
Shareholder KRW500 per share
benefit return KRW48.5 billion worth share buyback Plans are in the works to further strengthen the functions of the Audit Committee,
schedule and cancellation by appointing a financial accounting specialist as an outside director and audit
40% of net income to shareholders committee member at the 2005 General Shareholders Meeting.
in 2004 and 50% in 2005
Board of Directors
Number of meetings held : 12
Transparent Management and BEL Participation rate 88% (outside directors: 92%)
Major decisions reached include : Re-listing of shares to KSE, establishment of a joint venture mobile advertising agency,
KTF is making public the decisions of its board of directors (BOD) through stock buyback and retirement, issuance of publicly placed bonds and 2005 management plans
the Financial Supervisory Service (FSS) and the Korea Exchange, so as to
unfold important managerial resolutions in a transparent manner on a real- CG Team
time basis. In addition, it is opening a window to the public through its Effective Corporate Governance
homepage, so that shareholders can be constantly updated on company
KTF established the CG Team in February 2003 to support the BOD, and
activities. Furthermore, with the establishment and operation of the
Business Ethics Leader (BEL) Center, ethical management practices have
help outside directors more actively participate in decision-making and
understand the overall execution of management activities. Meanwhile, the Management
been secured within the company along with the implementation of a
Management Audit Team aides the Audit Committee, and the IR Team Audit Team
IR Team
variety of compliance programs.
takes exclusive charge of smooth communications between the company Board of
and shareholders through the issuance of public notices. Directors
Transactions The Fair Competition Team strives to secure fair and transparent practices
with affiliates by restricting all manner of illicit transactions, including unconscionable inside
bargaining. In addition, the Compliance Team supports the activities of these
teams while the Ethical Management Team is devoted to expanding ethical Fair
practices on the part of management and employees through the BEL Competition Compliance
Public
Compliance Center. Finally, the Legal Team is dedicated to supporting the activities of all Team Team
announcements
Transparent
program
these teams.
disclosure
Selected as the excellent company in the corporate governance
evaluation among the KSE listed Korean companies by the Korea
High ratings on Corporate Governance Service (KCGS) in June 2004
Code of ethics BOD agenda
at homepage
KTF’s advanced Hyundai Securities suggested “Buy” on KTF in November 2004,
citing its management transparency maintained by a shareholder-
friendly profit return policy, in November 2004
BEL (Business Ethics Leader)
CG and transparent Dongwon Securities suggested “Buy” on KTF, mentioning a
number of the company’s differentiated positive factors including
KTF aims to be a business ethics leader (BEL) through internal reforms. Accordingly, it formulated
basic principles and ‘KTF Ethics Platforms’ to be observed by staff, customers, shareholders,
community and other interested parties. To this end, it has organized an in-house ethics
management at high management transparency, improved shareholder benefits and
cash dividend-oriented policies, in December 2004.
committee, BEL Committee, in a bid to implement ethical management on a companywide level,
and a working level committee, BEL Center, to encourage the practice of ethical programs. In home and overseas Received Transparent Management Grand Prize in the Korea Ethical
advocating the BEL, KTF will continue to demonstrate the most transparent and ethical corporate Management Awards hosted by the New Industry Management
practices based on the ‘Good Time Management’ declared for customer satisfaction. Academy in February 2005
Annual Report 2004 | 07
Corporate Governance

”Transparent” and “Responsible” Management
Through Advanced Corporate Governance
KTF knows that the nucleus of an enterprise is its shareholders, while the
duty of a manager is to maximize shareholder value. Contemporary
business philosophy invites shareholders to play a much greater role in
singled out for a variety of professional accolades. The company’s CEO
Joong Soo Nam received the President Award from the Fair Trade
Commission and was selected as the most improved IR company by the
Institutional Investor Research Group (IIRG) of Reuter, and made the
shortlist of the top 20 excellent CG companies among 100 firms in Asia by
Credit Lyonnais Securities Asia (CLSA) in 2003. In addition, after its shares

Committed to profitability-oriented company policy—including decision-making—to protect their rights and

strengthen corporate competitiveness.
In working to become a world-class company, KTF has focused
were transferred to be traded on the Korea Stock Exchange (currently
Korea Exchange) in 2004, it was selected as the best CG company by the
Corporate Governance Service (CGS). In February 2005, it received the
value generation backed by throughout the year on activating the ‘Board of Directors (BOD) System’ of
good corporate governance (CG). To heighten the trust and confidence of
Transparent Management Grand Prize at the Korea Ethical Management
Awards hosted by the New Industry Management Academy. In
its investors and shareholders, the company elected to appoint five of
transparent management and these positions with outside directors (ratio of internal to outside directors:
5:4) (current vacancies for outside directors to be appointed at the regular
December, Dongwon Securities pointed out the company’s CG and policy
to return shareholder benefits as differentiated positive factors.
These achievements contributed to heightening KTF’s enterprise value

a progressive corporate structure General Shareholders Meeting in March 2005). The BOD is comprised of
the Audit Committee, Finance Committee, Outside Director Candidate
Recommendation Committee, and Compensation Committee, and all
and are expected to exert a positive influence on investment decisions by
foreign and local investors.

KTF has been consistently devoted to executing transparent
management for the maximization of equity value through advanced
systems. The company is working to generate shareholder-centered
gains and high value-added returns, by shoring up net earnings and
share prices through synergy in substantiality-oriented operations.
The company’s ethos is based upon the principles of check and
balance, and aims at distributing the benefits reaped among
shareholders. Moving forward, with its helm navigated by a
managerial team of independence, professionalism and
responsibility, KTF will continue to practice global-standard CG and
create a sound and healthy management culture.
committees are headed by outside directors to drastically heighten
transparency.
Remain focused on heightening shareholder returns,
corporate values, global competitiveness
At the highest levels of management, KTF has striven to heighten the trust
and confidence of investors and shareholders through an exhaustive
disclosure of necessary corporate information and data while preemptively
carrying out investor relation (IR) activities.
As a result of this drive to reinforce competitiveness and corporate
transparency on behalf of its customers and shareholders, KTF has been
Fortifying global competitiveness with advanced CG
KTF has been exhaustively making public its financial statements and
management information, and has formulated and applied a progressive
code of ethics to fulfill its social responsibilities. To secure the BOD’s
independence, it has strengthened internal systems while activating the
participation of outside directors in management. Furthermore, with the
aim of underscoring its already advanced CG processes, the company will
continue to practice transparent and responsible management by
complementing its organizational structure. KTF pledges to heighten its
corporate value by providing multilateral systems, thereby securing an
advanced CG structure and reinforcing its global competitiveness.

Joong Soo Nam Standing Director
Ph.D. in Business Administration,
University of Massachusetts, USA
Head of Policy, Regulation Business
& Cooperation Office, KT
Head of Chungbuk Regional Business Group, KT
Head of IMT Business Group, KT
Head of Finance Office, KT
Presently :
President and CEO, KTF
Deog Nam Hwang Outside Director
LL. B., Seoul National University, Korea
MA in Health Sciences, Yonsei University, Korea
Judge, Seoul High Court of Justice
Legal Secretary, Secretariat, Presidential Office, ROK
Public Member, National Labor Relations Commission
Presently :
Commissioner of Bureau of Administrative
Appeals Management under the Prime Minister
Lawyer, Law Firm Segye
Hong Ki Kim Outside Director
MBA, Sogang University, Korea
Formerly:
Chief of Planning Office, Cheil Industries
Director, Samsung Electronics
Representative Director and President, Samsung SDS
Management Advisor, Samsung SDS
Presently :
President, Korea Information Processing
Society President, Dongbu Information Technology
Haing Min Kwon Non-standing Director
BA in Business Administration,
Seoul National University, Korea
MS in Business Administration, KAIST, Korea
Head of Management Analysis Research Team of
R&D Group, KT
Head of Privatization Planning Team of
Privatization Office, KT
Head of Vision & Corporate Strategy Office, KT
(Assistant Executive Director)
Presently :
Assistant Managing Director,
Financial Management Office , KT
Ki Kwon Doh Outside Director & Auditor
MBA, Duke University Graduate School, USA
Director of Marketing/Retail Banking/Business,
Citibank Korea
Representative Director and President,
Citicorp Finance & Securities Ltd. (Thailand)
Representative Director and President,
Ssangyong Investment and Securities
Representative and President,
Good Morning Shinhan Securities
Presently :
Good Morning Shinhan Securities
Young Chu Cho Standing Director
Ph.D.& MS in Traffic Engineering,
Seoul National University, Korea
Head of Business Management Office of Marketing
Division, KT
Head of Business Planning Group of IMT 2000
Business Division, KT
President & CEO, KTICOM
Presently :
Head of External Affairs Group,
KTF (Senior Executive Vice President)

Jae Chul Lee Outside Director and Auditor
BA in Law, Seoul National University, Korea
Presiding Judge, Suwon District Court
Representative Director,
Shinwon Country Club/Ilshin Leisure
Presently :
Representative Lawyer, Law Firm Madang
Judge, Request Judging Committee,
Gyeonggi Province, Korea
Legal Adviser, Gyeonggi Province, Korea
Hi Chang Roh Non-standing Director
BA in Business Administration,
Hannam University, Korea
Head of Secretariat, KT
Head of Los Angeles Office, KT America, INC.
Managing Director of Investment Management
Team of Planning & Coordination Office, KT
Vice President of Planning & Coordination Office, KT
Presently :
Managing Director, Management Strategy Office , KT

08 | KTF Annual Report 2004 | 09

CEO’s Message

To Our Shareholders

Joong Soo Nam / President & CEO

10 | KTF Annual Report 2004 | 11

share in cash dividends and completed share buyback & cancellations worth W53.0 billion. KTF plans to return even
greater portions of its net income in 2005 and 2006, distributing a respective 40% and 50% back to its loyal shareholders.
In 2005, we will initiate our mid-term business strategy to achieve the goal of becoming a “mobile communications &
convergence enterprise.” KTF will continue to materialize new business models and lead the future
telecommunications market with a focus on such services as music, media and games, in order to make a dynamic
transition from voice-centered business activities.
In recent months we have witnessed the convergence of broadcasting and communication technologies, such as DMB
(Digital Mobile Broadcasting) and WiBro (Wireless Broadband), and seen the introduction of new converged
services that combine wired and wireless platforms. In step with such innovations, we will carry forward a ‘co-petition’
strategy to expand the mobile telecommunication industry into newer areas. By ‘co-petition’ we mean cooperating with
our competitors and strengthening partnerships with other industry leaders to further expand business opportunities.
Through these efforts, we expect to attain 5% year-on-year growth in service sales and 39-41% EBITDA margins in
2005 as well as 6% CAGR and W5.5 trillion in service sales by the year 2007. Thus, we will move away from the old
paradigm of quantitative growth to focus on profitability and organic growth.
With the start of full-way MNP, fierce competition among industry players is expected. Nevertheless, we will
continue to focus on our fundamentals: 1) high call quality 2) convenient services 3) competitive price plans to draw in
high ARPU subscribers, and improved profitability to heighten both corporate and shareholder value.
Thank you.
From
President & CEO
To To our shareholders
We would first like to express our deepest appreciation for your on-going support and encouragement of KTF’s Good
Time Management in 2004.
In 2004, KTF moved swiftly into position as a Mobile Number Portability (MNP) market leader, demonstrating a
net increase of 1.29 million subscribers, as well as capturing a market share of 43%--the industry’s largest. This
remarkable result came despite the market’s concern of KTF achieving positive results. Moreover, we overcame
stagnant expansion levels to record sales growth of over 9.2%. Thanks to the solid support of our investors and
customers, we ranked first in the National Customer Satisfaction Index (NCSI) managed by the Korea
Productivity Center (KPC), and received the Korea Customer Satisfaction Management Awards from the KMA
Consultants, Inc. (KMAC) for the third consecutive year.
These accomplishments were mainly attributable to the ready participation and strong trust of our shareholders and
customers as well as tremendous efforts on the part of all KTF staff. Correspondingly, in 2004 KTF paid W500 per
share in cash dividends and completed share buyback & cancellations worth W53.0 billion. KTF plans to return even
greater portions of its net income in 2005 and 2006, distributing a respective 40% and 50% back to its loyal shareholders.
In 2005, we will initiate our mid-term business strategy to achieve the goal of becoming a “mobile communications &
convergence enterprise.” KTF will continue to materialize new business models and lead the future
telecommunications market with a focus on such services as music, media and games, in order to make a dynamic
transition from voice-centered business activities.
In recent months we have witnessed the convergence of broadcasting and communication technologies, such as DMB
(Digital Mobile Broadcasting) and WiBro (Wireless Broadband), and seen the introduction of new converged
services that combine wired and wireless platforms. In step with such innovations, we will carry forward a ‘co-petition’
strategy to expand the mobile telecommunication industry into newer areas. By ‘co-petition’ we mean cooperating with
our competitors and strengthening partnerships with other industry leaders to further expand business opportunities.
Through these efforts, we expect to attain 5% year-on-year growth in service sales and 39-41% EBITDA margins in
2005 as well as 6% CAGR and W5.5 trillion in service sales by the year 2007. Thus, we will move away from the old
paradigm of quantitative growth to focus on profitability and organic growth.
With the start of full-way MNP, fierce competition among industry players is expected. Nevertheless, we will
continue to focus on our fundamentals: 1) high call quality 2) convenient services 3) competitive price plans to draw in
high ARPU subscribers, and improved profitability to heighten both corporate and shareholder value.
Thank you.
From
President & CEO
share in cash dividends and completed share buyback & cancellations worth W53.0 billion. KTF plans to return even
greater portions of its net income in 2005 and 2006, distributing a respective 40% and 50% back to its loyal shareholders.
In 2005, we will initiate our mid-term business strategy to achieve the goal of becoming a “mobile communications &
convergence enterprise.” KTF will continue to materialize new business models and lead the future
telecommunications market with a focus on such services as music, media and games, in order to make a dynamic
transition from voice-centered business activities.
In recent months we have witnessed the convergence of broadcasting and communication technologies, such as DMB
(Digital Mobile Broadcasting) and WiBro (Wireless Broadband), and seen the introduction of new converged
services that combine wired and wireless platforms. In step with such innovations, we will carry forward a ‘co-petition’
strategy to expand the mobile telecommunication industry into newer areas. By ‘co-petition’ we mean cooperating with
our competitors and strengthening partnerships with other industry leaders to further expand business opportunities.
Through these efforts, we expect to attain 5% year-on-year growth in service sales and 39-41% EBITDA margins in
2005 as well as 6% CAGR and W5.5 trillion in service sales by the year 2007. Thus, we will move away from the old
paradigm of quantitative growth to focus on profitability and organic growth.
With the start of full-way MNP, fierce competition among industry players is expected. Nevertheless, we will
continue to focus on our fundamentals: 1) high call quality 2) convenient services 3) competitive price plans to draw in
high ARPU subscribers, and improved profitability to heighten both corporate and shareholder value.
Thank you.
From
President & CEO
To To our shareholders
We would first like to express our deepest appreciation for your on-going support and encouragement of KTF’s Good
Time Management in 2004.
In 2004, KTF moved swiftly into position as a Mobile Number Portability (MNP) market leader, demonstrating a
net increase of 1.29 million subscribers, as well as capturing a market share of 43%--the industry’s largest. This
remarkable result came despite the market’s concern of KTF achieving positive results. Moreover, we overcame
stagnant expansion levels to record sales growth of over 9.2%. Thanks to the solid support of our investors and
customers, we ranked first in the National Customer Satisfaction Index (NCSI) managed by the Korea
Productivity Center (KPC), and received the Korea Customer Satisfaction Management Awards from the KMA
Consultants, Inc. (KMAC) for the third consecutive year.
These accomplishments were mainly attributable to the ready participation and strong trust of our shareholders and
customers as well as tremendous efforts on the part of all KTF staff. Correspondingly, in 2004 KTF paid W500 per
share in cash dividends and completed share buyback & cancellations worth W53.0 billion. KTF plans to return even
greater portions of its net income in 2005 and 2006, distributing a respective 40% and 50% back to its loyal shareholders.
In 2005, we will initiate our mid-term business strategy to achieve the goal of becoming a “mobile communications &
convergence enterprise.” KTF will continue to materialize new business models and lead the future
telecommunications market with a focus on such services as music, media and games, in order to make a dynamic
transition from voice-centered business activities.
In recent months we have witnessed the convergence of broadcasting and communication technologies, such as DMB
(Digital Mobile Broadcasting) and WiBro (Wireless Broadband), and seen the introduction of new converged
services that combine wired and wireless platforms. In step with such innovations, we will carry forward a ‘co-petition’
strategy to expand the mobile telecommunication industry into newer areas. By ‘co-petition’ we mean cooperating with
our competitors and strengthening partnerships with other industry leaders to further expand business opportunities.
Through these efforts, we expect to attain 5% year-on-year growth in service sales and 39-41% EBITDA margins in
2005 as well as 6% CAGR and W5.5 trillion in service sales by the year 2007. Thus, we will move away from the old
paradigm of quantitative growth to focus on profitability and organic growth.
With the start of full-way MNP, fierce competition among industry players is expected. Nevertheless, we will
continue to focus on our fundamentals: 1) high call quality 2) convenient services 3) competitive price plans to draw in
high ARPU subscribers, and improved profitability to heighten both corporate and shareholder value.
Thank you.
From
President & CEO
Interview with CEO

Q KTF announced its mid and long-term growth strategy: “Unlimited

KTF! By 2007.” Would you explain this idea in a little more detail?
Q How would you evaluate KTF’s
achievements in 2004, including its

A
results in the mobile number Our mid and long-term strategy: “Unlimited KTF! By 2007” aims to reposition the company from a
“mobile carrier” to a “mobile communication and convergence service provider.” We also intend to
portability (MNP) and the new reinforce multimedia-type data communication and convergence businesses and expand into the
‘010’ number market? What are entertainment sector, including media, thereby spreading our net beyond a focus on communication
services.
your prospects for 2005? As to the voice market, we will seek continued stable growth, through the development of
supplementary services, an increase in the number of subscribers and strengthened market

A
In contrast to the market consensus that KTF would
assume a disadvantageous position by the
introduction of MNP, we demonstrated improvements
with a net increase of 1.29 million subscribers and
Q The MNP will be launched on a full-
scale beginning from January 2005.
How do you view the market and
foundations. We hope that this market will faithfully play the role of a ‘cash cow’ for new growth
territories.
Concerning the wireless data business with high growth potential, we will evolve from the present
models centered on data access fees, and expand into earning models based on raised information
sales growth of 9.2%, thereby overcoming the what marketing strategies is KTF access fees. For instance, we will provide convergence services by adding new consumer options
in a bid to heighten overall convenience. We will also develop and supply a variety of wired and
deficits of 2003. Such accomplishments should be contemplating? wireless integrated services by utilizing the competitive edges of the KT Group, which has secured
attributed to the strengthened fundamental the largest and finest infrastructure for wired services.
competitiveness developed through our “Good

A Q
Time Management” drive, including high call quality, When looking at 2004, we can see that there was a
competitive tariff plans, a variety of handset line-ups great deal of pent up demand in the initial period of There have been worries within the group over investment priorities
and good customer services. MNP. We believe that this demand will appear in the and duplication in regard to WCDMA and WiBro investments.
In addition, shareholders showed a favorable beginning of 2005 as well. The market environment Would you comment on these issues?
response to our management plan, especially for will likely stabilize overall as mobile carriers refrain
investors. Our foreign ownership has risen by 8.35% from overwrought competition, taking a lesson from

over the year. The share price reflecting our results
also recorded the highest growth rate among mobile
communication shares, rising up to 24,700 from
19,100 at 2003-end. In 2005, we will be
committed to satisfying our shareholders,
customers and employees by concentrating our
energies on customer retention.
A
their deteriorated profitability after fierce vying for
market share during 2004. KTF will carry forward
qualitative competition to create customer-oriented
value through marketing strategies that befit the
needs and preferences of customers, such as design
marketing and culture marketing. These initiatives
form part of our “Good Time Campaign,” which we
have solidly pursued over the last couple of years.
It’s true that some are concerned about possible earnings erosion for mobile communications
following the establishment of a competitive relationship between WCDMA and WiBro. However,
the WiBro market should coalesce around small-scale congested areas or vertical markets due to
limited coverage, although it can provide high-speed multimedia services.
WCDMA should be suitable for the mass market as it can economically ensure high mobility and
broad coverage, such as the 2G network. Consequently, these two services are expected to play
complementary roles in offering optimized services in accordance with customers’ lifestyles, thereby
expanding the wireless data market. KTF has examined the positioning of these two services in
depth and will expand their synergies by adjusting investment timing, volume and priorities between
W-CDMA and WiBro. We also intend to work hard in developing differentiated combined services
and contents.

Q Would you comment on the possibility of

a merger between KT and KTF?
Q What are your plans in pursuing the WCDMA business?

A A
A merger between companies should be determined by multiple variables, such as changes in
market environment and corporate business and financial situations, government regulations, and
shareholder interests.
To begin with, customer needs and demands must be mature enough to support the merger
between a wired service provider and a wireless service provider. It should be also clear that the
merger will generate synergistic effects.
Second, government policies and environmental conditions in laws and systems should be advanced
in a supporting direction.
Third, in order to attain the merger, a consensus must first be reached in regard to the raise of
shareholder value for the two companies.
We are not yet at a stage of discussion for the merger, as institutional obstacles are still present,
various conditions remain immature and its effectiveness is uncertain. Nevertheless we possess the
core competencies to lead the convergence and ubiquitous sectors, and will heighten customer
convenience and shareholder benefits while overhauling the industry’s development. To this end, we
plan to reinforce cooperation for the activation of wired and wireless combined and convergence
services, including WiBro, and ensure their full flower going forward.
WCDMA technology will likely secure high investment efficiency. This is because it should be able to secure relatively
inexpensive equipment and handsets on the back of: favorable frequency effectiveness as compared to CDMA; a
variety of suppliers; and the economies of scale. This enables not only roaming services in Global System for Mobile
Communications (GSM) areas, which account for about 80% of the entire world, but also strategic alliances and
investment cooperation thereby leading to high applicability for global businesses. Yet the technological problems with
existing CDMA haven’t been completely resolved, and the lack of differentiated services and unsatisfactory content
development are hindering activation of the service.
Unlike the existing 2G, in order to secure matching competitiveness with competitors KTF will expand our investments
by stages, comprehensively taking into account the market demand, economic recoveries at home and overseas, the
supplementation and substitution of mobile Internet access and other factors. We plan to make flexible investments in
conformity with the investment environment, customer needs and market demand.
This year, we will prepare for market formation by focusing on the improvement of handset competitiveness and the
development of WCDMA specialized services, as we expand our coverage into 17 cities located in metropolitan areas.
Particularly, we intend to secure coverage for major cities the country over by stretching investments on a full scale
from 2006, when HSDPA will likely be commercialized.

12 | KTF Annual Report 2004 | 13

Corporate Culture
Be the Change!
To work with KTF is to enter
a bright world of joy
and happiness.
Dreams : the driving force of our culture
Underlining the internal reforms KTF is carrying forward are
three key catchphrases: Kids, Trust and Fun. All KTF officers and
employees are striving to create an enjoyable and thriving
workplace, not only to enhance staff productivity but also to
boost the quality of their lives. Through the ongoing “Think
Reform” campaign, we are sharing the passion and enthusiasm
of children (Kids), mutual dependence among seniors and
colleagues (Trust), and the joy of a harmonious workplace (Fun).
“Kids” who passionately challenge and seek change
Under the catchphrase of ‘Kids,’ KTF intends to enhance business
efficiency by putting its creative ideas and plans into practice. Specifically,
this plan aims at enlivening daily operations while creating an open and
pleasant working environment.
Every Wednesday is designated as “Kids Day” to bring forth an
atmosphere of youthful passion within KTF’s internal corporate culture.
This becomes the most energetic day of the week, in sharp contrast to
the common notion of Wednesday as the “mid-week slump”. All
employees are encouraged to wear jeans and casual clothes, and work
14 | KTF
starts at 9 AM with five minutes of light morning exercise. Another ten
minutes are then spent on “Idea Time” sharing views and exchanging
ideas.
From 9:17 AM to 11:30 AM, everyone gets to concentrate on his or her
work, avoiding even meetings or calls and coffee breaks. Then, five
minutes before leaving the office all employees engage in an activity
called “Cleaning Time.” At 5:55 PM, everyone merrily finishes his or her
daily work as cheerful music spreads throughout the company building.
KTF people are full of youthful enthusiasm, and are always seeking out
change even in their ordinary lives.
“Trust” built on faith and reliability
Under the catchphrase of “Trust,” KTF seeks to form the consensus that
will become the core of our great workplace campaign. Specifically, we
are operating programs such as “We are all CEOs” and “Let's listen to
leaders in each field.”
The first program opens the library of management to all employees,
allowing trusted KTF staff to explore the innermost workrooms of the
company through “Freenet.” This inspirational program introduces easy
statistics and looks to create a unanimous agreement on the status of
management, thus allowing everyone to gain a CEO spirit and
comprehensive understanding of other departments.
“Let's listen to leaders in each field” plays the role of a window to
activate internal communication and abolish vertical and horizontal walls
within the organization. It aims at building firm trust among KTF officials
and employees through ongoing dialogue via talk shows, lectures,
discussions, company broadcasts and company news.
‘Fun’ from the joy of working together
Under the “Fun” catchphrase, KTF seeks to inject a spirit of joy and
vitality into the workplace. Specifically, by operating diversely intertwined
platforms such as “My Fun Place,” “Our Fun Place,” and the “KTF Fun
Place” platform, the program aims at animating employee
communication and hosting clubs of common interest. Individuals can
enjoy personal growth through hobby clubs and research activities in
various fields, and establish win-win relationships through cooperation for
joint goals. By leveraging open communication within teams, this
program serves to upgrade the KTF image and promote our ‘young and
daring’ corporate culture.
HEART BOARD
HEART BOARD is a meeting of young executives at the vanguard
of change and innovation in KTF. It becomes a source of
corporate competitiveness, representing diverse voices and
enhancing management capabilities.
The Heart Board is the “Board of Young Directors” operated
under the direct control of the president, while the “Change
Management Team” plays the role of an executive secretary on
the Board. Participated in by all employees, the Heart Board
carries out the following tasks to support the CEO:
l Seek solutions to improve management
l Suggest unique and creative directions to resolve important external
and internal company issues
l Present viable alternatives to unnecessary and inefficient operating processes
l Play the role of a direct communication channel to the CEO
l Offer suggestions to address pending issues that reflect a diversity of voices
l Advocate a bold management philosophy and strategic direction throughout
the organization
Annual Report 2004 | 15
Social Involvement

Children Education Projects

KTF launched a “Goodtime Puppet Theatrical Troupe” with the Korea Welfare
We are creating a happy world together with Foundation. Since its inauguration on July 1, 2004, the troupe has performed with
help from the donated mileage points of KTF customers and volunteer support.
The performances teach children ways of coping with everyday problems, and
“Friends Unfolding Dreams” have been touring pre-schools, hospitals, childcare centers and orphanages around
the country.

KTF is committed to putting “Good Time” in practice through

Support for Teenage Leaders
a style of corporate citizenship that values positive social Since its organization in February 2002, Friends Unfolding Dreams has been raising
change, as well as “Good Time Service” to provide customers scholarships for almost 150 teenage breadwinners through the
with unlimited telecommunications services. “Small But Great Love” campaign via KTF’s intranet.
KTF also invited some 100 participants and winners of the “17th Essay Writing by
We believe in taking responsibility for and returning our Teenage Breadwinners” to watch the New Year’s sunrise on Mt. Geumgang.
corporate profits to society, and are actively unfolding and
participating in a broad array of public service and social
contribution activities. These efforts are mainly led by: Staff Volunteer Group, Friends Unfolding Dreams
“Friends Unfolding Dreams,” a social service group of KTF KTF designated October as a time to practice the “Goodtime of Sharing.” During this month, KTF
officials and employees launched in February 2002; “KTF vigorously unfolded a broad array of public service activities with over 1,100 employees from across
the nation. The staff volunteer group has been executing many humanitarian activities, including
Green Campaign,” a public advertising campaign seeking to environmental protection campaigns, to benefit alienated sectors of society in a systematic and
uphold KTF’s way of thinking and behavior to create a bright organized manner.
The staff volunteer group has been executing many humanitarian activities, including environmental
and healthy society; and sponsorship for diverse sectors protection campaigns, to benefit the alienated sectors of society with “Good Time” management idea.
including education and sports.

In addition, we sponsor the KTF Magic s cyber-gaming

team and host one of the country’s most prestigious game Charity Activities
KTF invited 160 preschool children from Kangwon province to experience and enjoy natural history alongside 40
matches—“KTF Starcraft Championship.” volunteer employees and others from World Vision International, a relief and development organization. The group
Our goal is to highlight domestic and overseas cybersports, visited Jurassic Park, located in COEX, Seoul, on March 16.
KTF provided playgrounds and a flower garden to Good Neighbors on April 1 just before Arbor Day. The playrooms
lead the game industry, and initiate the age of mobile games. and flowerbeds built in the foundation’s rest areas, named Good Time Good Neighbors, will be utilized as a valuable
space where abused children can obtain emotional security and peaceful sanctuary.
From May 24-28, KTF dispatched a volunteer service team to Dandong, China, to carry out disaster relief activities
for victims of a huge explosion at Ryongchon Station in North Korea. KTF employees also voluntarily raised
contributions of 53 million to purchase the construction materials, school supplies and living necessities required
to restore an elementary school in the disaster area.
KTF jointly kicked off the “Emergency Blood Donation Service” with the Republic of Korea National Red Cross,
utilizing cell phones in a bid to solve social problems arising from undersupplied blood banks. The new mobile-based
service sends out local broadcast appeals for blood donations to consenting subscribers of MultiQ, one of our
Support For Disadvantaged Children wireless broadcasting services. Related PR campaigns were deployed from November 23-27 in the downtown
streets of five major cities, including Seoul and Busan.
KTF held vacation classes for 1,200 undernourished children from 47
elementary schools across the nation during January and August 2004, in cooperation with a social welfare foundation called
Good Neighbors. These summer and winter classes provided the children with diverse educational programs including English,
computer and cultural experiences in addition to well-balanced nutritious meals.
KTF invited 70 disadvantaged children to Yongpyong Ski Resort, where KTF new employees joined the youngsters in events
KTF Magic s
like “Fun Sleighing,” “Cooking Class for Children” and “Ski Class For Beginners.” This two-day program was an opportunity for KTF inaugurated KTF Magic s in December
new KTF staff members to realize the true value of volunteer service. 1999 to support the creation of a new culture
Other events and programs to empower children with hope and help fulfill their dreams included the “Book Satchel And and introduce cyber sports to a broader
Lunchbox Presentation Event” in February for malnourished elementary school students, “Gathering Coins of Love” in March- audience. Since then it has become one of the
May for children in Korea and developing countries, and the five-day national Chuseok (Thanksgiving) Holiday event in finest e-sports teams in Korea, demonstrating Professional Golf
September to reach out and share the holiday spirit with 300 children. excellent results at all kinds of championships and Basketball Sponsorship
backed by summit-level professional gamers.
KTF supports LPGA professional golfers to maximize corporate PR activities
KTF is supporting the KT-KTF Premier League,
and boost the company’s push for globalization, making the KTF brand a
“Bigi” game camp education program and is
household name around the globe. By sponsoring world-class female Korean
also actively participating in international
Educational Support tournaments.
pro-golfer Kim Mi-hyun, as well as next-generation frontrunners such as Kim
Ju-yon, we seek to promote KTF and Koreans in the global community.
Spearheaded by Friends Unfolding Dreams, KTF has been opening the “Bigi IT Study Room” Such activities help entrench expansion and
In addition, KTF sponsors a professional basketball team,
every month for the IT education of less fortunate adolescents, popularity of e-sports at home and overseas.
the Busan KTF Magic Wings, which was organized in 2004 to
providing them with projectors and PCs with Internet access. contribute to the sport’s overall development and expansion.
In January, we invited 150 teenagers and teachers to the KTF-sponsored Bigi
IT Study Rooms to enjoy an operetta ringing in the New Year.

16 | KTF Annual Report 2004 | 17

Have a good time with KTF!
Have a good time with KTF!
Vision and Management Philosophy
KTF desires to be a ‘mobile life partner’ providing
customers with the refined services they need
anytime, anywhere.
On this note, KTF management aims to satisfy its
customers, shareholders, and employees.
Accordingly, it is focused on achieving “trust
management,” “fundamentals management” and
“talent management” for all.
Trust management
Trust management is designed to build trust and secure strong
bonds by embodying a trustworthy companion for customers as a
mobile life partner, a respectful company for shareholders and
investors through transparent management and the restructuring of
corporate governance, and a great workplace via open
communications among employees and between labor and
management.
Fundamentals management
Fundamentals management aims to strengthen internal values and
core competitiveness for true customer satisfaction based on fair
competition, just management and clean marketing. It is also
focused on maximizing shareholder value by heightening enterprise
value while seeking business opportunities through strategic
partnerships.
Talent management
Talent management begins from an understanding that each
company’s growth is determined by the securing of human
resources with creativity, expertise and technologies in this
information age. KTF is also committed to fostering a youthful and
challenging work environment, and promoting an ideal corporate
culture to ensure top-tier competitiveness.
18 | KTF
Good Time Management for Customer,
Employee and Shareholder Satisfaction
Based on these philosophical goals, KTF will pursue a ‘Good Time’
for Customer Satisfaction with unparalleled quality, price and service,
backed by a solid infrastructure and unbeatable wireless network.
KTF technologies are built to fit the changing market environment
and fill the demand for mobile applications. The company will also
pursue a ‘Good Time’ for Shareholder Satisfaction with profitability
Trust Management and growth potential through substantial earnings-based operations,
and a ‘Good Time’ for Employee Satisfaction with fair evaluations
and compensation.
Strategies for Good Time Management are centered on:
1) Good time services for customers, by continuously carrying out
Fundamentals Management innovative customer-centered activities in service quality, customer
support, and handsets to enhance fundamental service
competitiveness;
2) Continuous innovations through quality business
management by securing leadership, expanding our
customer base and expanding growth potential in the
wireless data business based on multimedia and digital
convergence services;
3) Partnerships and synergies with other businesses and
within the KT group by actively examining and implementing
new business fields, such as satellite broadcasting, DMB and
home networking; and
4) Long-term growth foundations by developing new businesses
to lead the next-generation market including the wired/wireless
Talent Management ubiquitous services.
Achievements of “Good Time Management”
With the pursuit of “Good Time Management,” KTF has improved
customer services by unfolding companywide customer satisfaction (CS)
activities, establishing service quality management systems, heightening the
profile of CS-related structures and forming a differentiated customer-friendly
brand image.
All of this pioneering hard work has enabled KTF to realize total customer
satisfaction. As a result, KTF received the grand prize in the 2004 CRM Awards
(in the Information & Communication/IT Category) from the Federation of
Korean Information Industries, and ranked first in the 2004 National Customer
Satisfaction Index (in the mobile phone service category), jointly managed by
the Korea Production Center and the University of Michigan. The company
was also given the Korea Customer Satisfaction Management Awards from
the KMA Consultants for the third consecutive year.
In 2005, KTF will continue to be focused on its fundamentals in pursuing
“Good Time Management” for customer, employee and shareholder
satisfaction. It aims to heighten both corporate and shareholder value by
implementing the second stage of its Goodtime Management policy,
Goodtime Party, with the “Guarantee” of customer satisfaction in “Fresh,”
“Fun,” “Friendly” and “Personalized” services.
Annual Report 2004 | 19
22 MNP & Marketing
24 Management Highlights
26 2004 Highlights & Awards Winner
28 History of KTF
30 Special Section

FAMILY PARTY
Wholesome Family Fun

Positive and Proactive

We are creating values.
KTF ranked first in the National Customer Satisfaction Index (NCSI), and was selected
as a benchmarking enterprise and the most transparent enterprise for two consecutive years.
MNP & Marketing

010 for everyone, MNP Results

and KTF for everyone Net subscriber increase Market Share Net subscriber increase MNP subscribers
(first among three mobile carriers) (first among three mobile carriers)
[million] [%]
‘Good Time Chance’ to enjoy ‘Good Time Services’ 11,729
[thousand]
1,287
[thousand]
1,268
32.1
by KTF 1,161
1,237
Mobile Number Portability 10,441
31.1
Good Time Chance!
Beginning in 2004, mobile communication consumers have been given the 577
identification number “010” when newly subscribing to all three mobile operators 470
in Korea. The integrated “010” number system seeks a more efficient usage of
mobile communication numbers as national resources. It also aims to prevent
inconvenience and induce healthy and productive competition for mobile number
brands by enabling users to retain the same phone number when changing service
providers. It means that consumers will be able to choose their service provider
‘03 ‘04 ‘03 ‘04 S L KTF S L KTF
based on service, not simply by the identification numbers.
Heightened Brand Value—New Leader in “010”
Good Time Party!
MNP was a new opportunity for KTF. The company reinforced its “customer-oriented” image by
With the implementation of the MNP, competition among the three mobile carriers
relentlessly promoting the ‘Have a Good Time’ campaign and securing leadership in the “010” brand
to induce new subscribers and retain existing customers became more intense
with “010.com”. It also targeted MNP while aggressively waging the “010 for everyone” campaign. As
than ever. Through the “010 for everyone and KTF for everyone” marketing plan in
a result, KTF brand value improved to 83.5% in overall BPI as of 2004-end, up from 82% the previous
2004, KTF secured 1.29 million new customers to account for a 43% net increase
year-end as compared to the top industry player SKT.
in the whole market, and expanded its market share by 1%.

010 for everyone—Good Number Self-Reservation Service
All customers can select and reserve desired numbers.
Not only KTF subscribers but also customers of other service providers
can search, book in advance and use available “010” numbers.
KTF for everyone—Good Change Service
All calls to your previous number will be safely redirected after changing to a
“010” number. For three months, free of charge, when KTF customers call
you at your old number the new “010” digits will be sent by SMS.
2004 Marketing Review
The Trinity of Strategy, Communication and Marketing
1st half 2nd half
Consolidated Competitive Capabilities—Upgrade to Good Time Party!
KTF is continuing its upgraded “Good Time” campaign from “Good Time Change” to “Good Time Party,”
targeting MNP customers and maintaining a consistent brand message centered on the “Have a Good
Time” slogan. KTF also introduced a variety of customized rate systems, featuring the industry’s most
competitive unlimited rate schemes, and strengthened competitive capabilities with a broad array of
sophisticated functionality including 14 exclusive models.
Efficient Marketing—Selection and Concentration
The quality subscribers that KTF secured in the MNP market during the first half of 2004 will prepare a
foundation for qualitative management after 2005 and into the future. KTF also achieved stable cost
efficiency by carrying forward active subscriber acquisition and retention strategies based on selection
and concentration.
Awards
Ranked first in 2004 NCSI
Received CS Management Award for three years running

Good Time Chance Good Time Party

Campaigns to expand demand for conversion
Campaigns to secure switching customers
Good Time Tariff Plans
Unlimited: Fixed rate/couple/text/family, etc
Customized: 1011/ double
designated numbers, etc
Differentiated: Rollover tariff plan
Handset competitiveness
Secured 14 exclusive models for KTF,
the industry’s largest
Wider distribution channels
Including home shopping, special sales,
personal sales
Flexible sales policies
Promptly coping with changes
in market environment
Campaigns targeting existing customers
Marketing plans in 2005 will be focused on:
Campaigns with a focus on Total Service
Good Time Party Activation of earnings-based businesses : Induce high-end rates, introduce high-earnings rate products
Launched “010 for everyone” campaigns
Diversified Reinforcement of core growth businesses : Strengthen hybrid products, data and value-added monthly
Introduced “010 self reservation service” ARPU growth fixed-rate products
Expansion of investments in new business : Introduce new cutting-edge services
Maintenance of existing Revamp quality customer-centered subscription retention programs
customers Improve customer grading and expand benefits for quality customers by reinforcing long-term
Providing Good Time Party campaigns and services subscription benefits.
Communications and promotions Establish CRM-based companywide marketing systems
Efficient marketing
Reinforcement of customer participation marketing: Support mutual communications
activities activities among customers
Handset change programs
Induce core and target customers to Cost-effective Quantitative efficiency : Contract expenses year-on-year
change their handsets marketing Qualitative efficiency : Strengthen inspection of expense spending
Reinforced rate competitiveness
New couple rates, unlimited photo mail Reinforcement of Strengthen fundamental competitiveness : Rate systems, “Good Time” services, distribution, handsets, etc.
marketing competitiveness. Strengthen relative competitiveness : Effectively confront marketing activities of competitors

22 | KTF Annual Report 2004 | 23

Management Highlights
Changing the way you mobile
129
Attained a net increase of 1.29
million subscribers utilizing
the MNP system
The number of KTF subscribers amounted to 11.73
million at 2004-end, representing a yearly net increase of
1.29 million subscribers and a rise of 1% in market share
(to 32.1%). This was attributed to bolstered services such
as competitive rate products, differentiated handsets and
heightened customer services.
Relisting in KSE
KTF maximized its shareholder value by
striving to improve market credibility
and diversifying investors through the
transfer and re-listing of its shares on
the Korea Stock Exchange (currently
Korea Exchange).
KTF annual report
ranked among the world best
The KTF 2003 annual report was highly acclaimed the world over,
receiving Gold Prize both in the 2003 Vision Awards Annual Report
Competition from the League of American Communications
Professionals (LACP) and at the 2004 International ARC Awards (in
the telecommunications category). It was given a particularly
favorable reception on transparent CG, and on its creative and
original design. The company will continue to be devoted to the
production of simple and significant annual reports in the pursuit
of transparent management and future growth strategies.
24 | KTF
Won Grand Prize at 2004 CRM Awards in the
Information and Communication/IT Category
KTF received the grand prize at the 2004 CRM Awards (in the Information & Communication/IT
Category) from the Federation of Korean Information Industries, recognizing its integrated
customer relationship management for marketing, sales and services by introducing the
CReaM: Customer Relationship Enhancement & Agility Frame.
It was ranked first in the 2004 National Customer Satisfaction Index (in the mobile phone service
category), jointly managed by the Korea Production Center and the University of Michigan. The
company was also given the Korea Customer Satisfaction Management Awards from the KMA
Consultants for the third consecutive year.
Selected as the Most Transparent
Company for Two Consecutive Years
KTF was selected as the most transparent enterprise among 100 listed Korean
companies by the Korea Corporate Governance Service (KCGS),
acknowledging its ongoing efforts for transparent management through the
operation of exemplary BOD. It was also top-ranked among the
KOSDAQ-listed companies in last year’s CG evaluation.
Published mid-term growth strategy : “Unlimited KTF!
By 2007”
KTF announced a mid-term growth strategy “Unlimited KTF! By 2007” to actively
foster its global businesses into new growth engines, while supporting endeavors
such as media and contents distribution (including mobile broadcasting and
gaming). Based on these activities, the company plans to attain total service
sales of over 5.5 trillion by 2007, with an average annual service sales growth
of more than 6% for the next three years.
1 Ranked first in the National
Customer Satisfaction Index
KTF has been totally committed to meeting customer needs
with all-out efforts including customized rate systems, call
quality, membership benefits and Good Time handsets
through ‘Good Time Management,’ a new management
ideal for customer satisfaction. As a result, the company
ranked first in the National Customer Satisfaction Index
(NCSI) in the mobile communications service category.
Annual Report 2004 | 25
2004 Highlights & Awards Winner

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ded ice
Recor year n serv
3 % ) for the n e n avigatio
(to 4 ho
obile p
u n lim ited m
for
e plan
a n e w pric
uced
Introd

05.1
26 | KTF Annual Report 2004 | 27
History of KTF

Practicing excellence:
”The happiness of your mobile life depends on the quality
of service you are provided. We spell excellence in whatever we do.”

19 96 June

December
Acquired personal communication system (PCS)
business rights
Established as KT Freetel Co., Ltd.
(Authorized capital : 2 trillion, Paid-in capital :
20 00 March
April
Launched exclusive wireless Internet PCS phone, “KTF-3016”
Posted the largest number of wireless subscribers in Korea
within the shortest period (4.27 million subscribers as of 1999-end)
2002 April Launched exclusive mobile commerce band, “K-merce”
Launched international automatic roaming service
with China Mobile, a first in Korea
50 million) to register in the Guinness Book of World Records May CEO Yong Kyung Lee won the Top Manager Prize
in the 10th Korean Marketing Awards from the Korean
June Developed communications network analyzing system, “NetProbe”

19 97 March
May
Acquired the identification number ‘016’
Launched the Freetel logo and ‘PCS 016’ brand July
Constructed “Internet World” with nine Internet portals in Korea
Launched Freetel Club Membership Card for all customers
Management Association
Launched IMT-2000 service, “Fimm”
Number of subscribers reached more than 10 million
June Became the first company in Korea to demonstrate the September Offered joint 016-018 services via agents in rural districts June Selected as No. 1 in the global mobile telecommunications
PCS model service and successfully tested its communications category in the Business Week’s “World’s 100 Top IT Enterprises”
system during high-speed operation October KT and FIFA signed an agreement for KT as
a World Cup official partner Won the 3G CDMA Performance Prize in the 3G World
Structured a companywide support management system Held a wireless Internet contents provider (CP) competition Conference organized by the CDMA Development Group
of enterprise resources planning (ERP) Commercialized mobile phone-based tele-health management, Launched automatic roaming service between Korea and Japan
August Inaugurated nationwide networks “Medibill Service” September CEO Kyung Jun Lee received the Prime Minister’s Prize
Offered a cybercall service, a first in the Korean mobile industry in Electronic Wave Technology organized by the Ministry
October Launched commercial services nationwide
December Developed Korea’s first interactive short messaging system
(SMS) and launched international roaming services (in 76 nations)
KTF wireless SSL recognized as secure by the Financial Supervisory
Service (FSS)
Launched exclusive wireless Internet device, “KTF-4016”
of Information and Communication
KTF Members' Center earned “AAA” accreditation for
Service Quality organized by KMA
20 04 April Launched “Magic ⁄ Outlook” to offer wireless-wired
synchronized services by incorporating the essential
functions of Microsoft Outlook
Forged a strategic alliance with Hansol PCS to construct and November KT-KTF-KTM.Com concluded an MOU as official World Cup partners Company website selected as superior site in private KTF shares transferred and listed on the Korea Stock Exchange
operate an integrated network Launched the world’s first mobile device-based information protection by the Korean Association Ranked first in the National Customer Satisfaction Index (NCSI)
wireless credit card payment device of Information and Telecommunications
May Released mobile telematics brand, “K-Ways”

19 98 January
February
Published Braille-type leaflets for the blind, a first in the industry
Number of subscribers reached over 500,0000
20
March Launched interactive SMS service, the first in Korea
April Developed a system of designing and analyzing the quality
of wireless networks (‘Net Spider’)
Developed an intelligent fiber distribution system, a first in Korea
Number of subscribers reached more than 1 million
Developed PCS equipment preservation system (“FOMS”)
July Launched Internet phone service
September
October
Launched a dealership consulting fostering program (“STAR”)
Jumped to second place in the Korean mobile communications
industry (Number of subscribers reached over 2 million)
Won the Customer Value Management Grand Prize in the Best
Innovative Management Category at the 1998 Management Reform
Competition from the Korean Management Association (KMA)
November Won the Corporate Grand Prize in the Specialized Business Division
of the 1998 New Media Awards
19 99 March
April
Number of subscribers reached more than 3 million
Exported CDMA design, management, and network operation
technologies to Hutchison in Australia
May Held an international code division multiple access (CDMA)
technology symposium
June Declared Customer Service Chapter
Acquired Y2K accreditation for all divisions,
a first in the Korean IT industry sector
July Demonstrated “IS-95B” commercial system, a first in Korea
August Developed Korea’s smallest type home repeater, “Smart-H”
Announced the new brand, “ 016”
September Launched the KT Freetel-developed Internet PCS device, “Neon”
Number of subscribers passed 4 million
01 January Launched Korea’s largest wired/wireless Internet portal,
“Magic ,” with 5 million subscribers
October Won the Grand Prize in Internet Trading at the 2002 Korean
Internet Awards
Pushed to purchase shares of KTICOM
Launched “Good Time Family Unlimited,” a new call plan
allowing users to make unlimited calls to family members.
Launched real-time Sky Life broadcasting service
Launched wireless Internet downloading service, “Plug In” November Won the ‘10th Customer Satisfaction Award’ June The number of “K-merce” shopping members exceeded
Offered free insurance services for lost 018 mobile phones in the Across-the-Board Division from KMA 2 million
February Launched Korea’s largest wired/wireless internet portal October Signed the KTF and KTICOM merger agreement Selected as the most transparent enterprise among KSE-listed
“Magic ” theme train on Subway Line No. 3 CEO Kyung Jun Lee won the “Information Korean companies by the Korea Corporate Governance Service
Launched a wireless religion Internet portal service and Communication Person of the Year” award (KCGS) for two consecutive years
Launched wireless phone broadcasting mobile-casting service from the Korean Science Journalists’ Association July Entered the second-stage of Good Time Management
Launched B2B brand, “VIZ” under the slogan of “Good Time Party”
Received Gold Prize in the 2003 Vision Awards Annual Report
March Merger between KTF and KTM.Com approved
Developed next-generation mobile phone repeater
Launched CDMA business in Indonesia
Demonstrated commercial high data rate (HDR) technology,
2003 January
April
Merged with KTICOM
Won President Award for the Establishment of Fair Trade
Competition (in the telecommunications category) from the
League of American Communications Professionals (LACP)
Received Gold Prize in the 2004 International IARC Awards
May Introduced Personal Digital Assistant (PDA) rates for teenagers (in the telecommunications category), the largest international
a first in Korea
June Received “Internet Grand Prix” award from the Minister competition honoring excellence in annual reports
April Launched wireless credit payment device, “ Check” of Information and Communication August Opened mobile phone music search service “Search Music”
Launched CDMA wireless communication module-equipped Selected as a benchmark enterprise for KTF’s
pocket PC, ‘Luxian’ July Selected as “Company with the Best Corporate Governance”
by the Corporate Governance Service (CGS) “Good Time Management” by the Korea Management
May Merged with KTM.Com Association (KMA)
Launched commercial cdma2000-1x service August Launched “Have a good time! KTF” campaign Signed an agreement to provide total solutions for 3G
Inaugurated official company name “KTF”
Number of subscribers surpassed 9 million
Launched five new price plans as part of
“Good Time Management” drive
Opened Gangnam Members Center
service to Vibo Telecom, a new CDMA business entity
in Taiwan
June Forged an alliance with China Unicom September Exhibited new ubiquitous technologies at the ITU
Company name changed to ‘KT Freetel (KTF) Co., Ltd." September Opened Campus Mobile Service TELECOM Asia 2004 held in Busan
Launched “Good Time Supporters”
approved at General Shareholders Meeting Released wireless-platform online storage service, “My Disk”
(24-hour “Call Quality Management” organization
August Launched exclusive 1318-generation brand, “Bigi” October Released “Mobile Network Game Unlimited” price plan,
Developed state-of-the-art wireless streaming video October Invested $10 million in Indonesian “PT Mobile-8 Telecom” enabling infinite mobile network gaming, an industry first
Participated in International Telecommunication Union (ITU)
on demand (VOD) solution Released “Mobile Stocks Unlimited,” a new mobile price
Telecom World 2003 plan offering unlimited use of mobile stock market services
September Commercialized use of mobile payment service, “nPayMagic”
November Received Customer Satisfaction Management Award Established a joint venture in Indonesia to offer value added
October Launched exclusive 2535-generation brand, “Main” for second consecutive year from KMA Consultants and wireless Internet services
Terminal Devices division established as separate entity and the Korean Customer Satisfaction Association. November Decided to buy back and retire shares worth 48.5 billion
under the name “KTF Technologies”
Won Grand Prize in the 2004 CRM Awards in the Information
Launched a PDA portal service, the industry's first
and Communication/IT Category

October
Launched Korea’s first wired/wireless portal, “Persnet”
Won Best Prize in Mobile Communications in the Corporate
November
Division of the 1999 KMA Knowledge Management Awards
November Launched KT Freetel Club Membership Card
Launched home theft prevention service, “Home Care Service”
Forged strategic alliances and attracted foreign investments
Entered China's CDMA market
Launched KTF Members Samsung Card
Established a Consultative Council for Venture Firms
20
Won best prize at the 9th KMA Customer Satisfaction
Competition in the category of innovative services
04 January Introduced “Unlimited fixed rate price plan”
Signed a consortium business contract with the Korea
Advanced Institute of Science and Technology (KAIST)
to build a wireless digital library (WDL) solution for 50
universities all over the country
Ranked second on the “Top 100 Korean Brands” list
published by Brand Stock
December
Introduced mobile business card service, a first in Korea
Disclosed a blueprint for mid-term growth strategy:
“Unlimited KTF! By 2007”
Established joint venture KTF mhow’s for mobile marketing
advertising with global advertising agency Dentsu
and domestic ad company Phoenix Communications
Introduced design marketing, an industry first

December
from Microsoft, Qualcomm, and CDPQ
Listed on KOSDAQ
Won the 1999 Communications Management Grand Prize
20 02 February Launched world’s first mobile-based online/offline credit
payment service
Inaugurated official volunteer service group,
February Introduced the Roll-Over Minutes price plan
Initiated joint mobile banking services with Kookmin Bank
Number of 2004 new subscribers reached 1 million
Entered an agreement to collaborate on satellite
DMB (digital multimedia broadcasting) with TU Media,
a new-generation multimedia service provider combining
“Friends Unfolding Dreams” broadcasting with telecommunications
from the Korean Institute of Communication Sciences March Inaugurated the new “Good Time Shop” paradigm
March Forged an agreement with China Mobile to launch mutual for exclusive dealerships Recorded annual net increase of 1.29 million subscribers
international roaming services Opened an integrated data center (to 11.73 million subscribers) and a rise of 1% market share
Organized an open-type W-CDMA service (to 32.1%)
April Received “Best New Labor Relations Culture Company 2002”
award from the Ministry of Labor development council
Launched mobile banking service with KorAm
Advanced into the China mobile phone market
(currently Citibank Korea) and Pusan Bank
20 05 January Introduced a new price plan for unlimited mobile phone
navigation service

28 | KTF Annual Report 2004 | 29

Moving Toward “Unlimited KTF! By 2007”
KTF is executing its mid and long-term strategy : “Unlimited KTF! By 2007.”
The purpose is to transform the company into a “mobile communications
and convergence business entity” leading the “ubiquitous services” age.
The focus is on a future of unlimited passion for KTF.
 34 Market Overview
36 Mid-Term Growth Strategy
38 Voice Service
40 Wireless Data Service
42 New Business & Service
44 A Blueprint for Business & Service

YOUNG PARTY
Youth Festival
Dynamic and Confident
We are uncovering new driving forces with leadership.
KTF is actively developing new business fields, such as home networking,
to lead the next-generation market including
the wired/wireless ubiquitous services.
Market Overview

Major themes and strategies for the domestic wireless

communications market in 2005
Expansion of the MNP
The mobile number portability will be expanded on a full scale from January 2005. All consumers will be allowed
to change their mobile communication service provider at any location of their newly selected operator’s network,
without having to undergo cancellation procedures. Therefore, voluntary change and subscription will likely be
steadily ongoing in 2005 based on service quality and marketing. Excessive cost spending should diminish and the
competition structure will stabilize, however, as the three mobile carriers will discontinue the cut-throat
competition that led to deteriorating profitability last year
In light of these market conditions, KTF will seek qualitative competition to create customer-centered values
through marketing strategies that befit the sentiments of customers, while continuously deploying the “Good

Relentlessly focused Time Campaign” for the third consecutive year. Above all, the company will work to expand its customer base
through a determined focus on service and quality.

on profitable management and W-CDMA

Wideband code division multiple access (W-CDMA) technology enables faster data transportation, sending data in
a digital format over a range of frequencies. In recognition of its guaranteed mobility and wider coverage, KTF
shareholder value intends to concentrate squarely on this next-generation mobile communications service. W-CDMA service also
ensures high investment efficiency as it features higher frequency efficiency than synchronized systems, and
Market Overview enables the securing of relatively low-priced handsets thanks to variety of suppliers and the economies of scale.
This also can greatly contribute to the development of global businesses, as it makes possible roaming services
with the GSM region (about 80% of the world) as well as strategic alliances and investment cooperation. The
We reconfirmed our foundation for profitable company is especially primed to materialize High Speed Downlink Packet Access (HSDPA), which enables
management in 2005 through an expanded customer superior 14 Mbps data transmission speed to outstrip the capability of existing networks.

base DMB (Digital Multimedia Broadcasting)

Digital multimedia signals over the Internet or satellites, including voices, pictures and short video clips, to be
KTF recorded a net increase of 1.29 million subscribers, accounting for 43% of the tuned in by multimedia receivers or players. Commercial satellite digital TV broadcasting to fixed mobile handsets
entire market’s net expansion, on the strength of reinforced competitiveness for vehicles was launched in Korea during 2005. The company plans to focus on satellite DMB resale and
(including telephone call quality, rates, handsets and customer services) through terrestrial DMB services as core units of its media businesses, offering superior quality services to customers.
“Good Time Management.” Based on such accomplishments, the company expects
to shore up its corporate value through profitability-oriented management and a rise
in shareholder value.
KTF will concentration on the launch of a mid-term business strategy towards
becoming a “mobile communications and convergence service provider” in 2005,
with plans to attain service sales of more than 5.5 trillion and sales growth of over
6% by 2007.

34 | KTF Annual Report 2004 | 35

Mid-Term Growth Strategy

Change in KTF’s Positioning

Currently By 2007 Currently By 2007

Mobile Communication +
Mobile communications & Communication value, information value,
Companywide
“Unlimited KTF! 2007
communications convergence Provided values information value, Convenience +
positioning service provider Convenience value
service provider fun value

Mid-Term Mid-term Growth Strategy”

Growth Strategy
KTF is executing its mid and long-term strategy. Mid-term Growth Strategy By Sector
The purpose is to transform the company into a “mobile
communications and convergence business entity” leading the Core businesses
Voice handsets
Secure stable growth and improve profitability as base for the growth
Growth
‘ubiquitous services’ age. strategies
of other businesses subscription benefits.

Wireless Data, M-Commerce & Solutions

(for sales Growth businesses Nurture as core growth engines while maximizing growth potential
In terms of repositioning, KTF will strengthen its industry position through mobile Mobile growth by
communications and convergence services by: expanding wireless data business focused on communications business) Global, media, contents distribution
New businesses Construct and strengthen foundation as mid and long-term growth areas
existing voice communications and low-use contents to multimedia data communication & convergence
services; strengthening convergence business in areas including finance and distribution; and service provider Efficiency Optimization of Seek optimal CAPEX volume management and efficient cost structure
pushing forward into new entertainment sectors, such as mobile broadcasting and games. Improve corporate structure through business & service
heightening resource distribution portfolio management
To achieve these goals, KTF will develop new growth engines over the next three years and policies
create distinct growth strategies for each business. It will also seek to boost profitability from the (to support Reinforcing competence
Consolidate marketing capabilities and infrastructure efficiency
stable growth of its voice-based business. By expanding its convergence business, including growth) of corporate activities
landline-wireless synergy, RFID, and finance, KTF will make wireless data, M-campus and
mobile solutions a core foundation of growth.
Existing voice services will be pursued in the direction of developing better supplementary Sales Growth
services and heightening subscriber ARPU, while also strengthening their market base through
MNP. These services are uniquely positioned to play the role of “cash cow” thanks to a highly
positive expectation for stable growth. As to the wireless data business, which is still enjoying a
2003 2007
strong performance, it will expand earnings models from an emphasis on data usage fees to CAGR = 6.0%
comprehensive information usage fees. To this end, it will provide advanced convergence 4.2 trillion 5.5 trillion
services and improve customer convenience.
In addition, we will develop and provide a variety of wired and wireless services by mobilizing
the competitive advantage of KT Group with the largest full infrastructure for wired services.

Industry-first growth rate, Double earnings, Establish a foundation for 3 new growth engines
Strengthen position as a mobile communications & convergence enterprise

2007
Maximize Maximize
shareholder financial
employee value
value results

Unlimited KTF 2007

mid-term strategy:
Strengthen position as
a mobile communications
& convergence
Growth Efficiency
service provider
Attain industry-first Establish a foundation for
growth rate 3 new growth engines
Sales : Over 5.5 trillion
Attain the highest growth Media businesses including
Maximize Revamp group Sales growth rate : mobile broadcasting
rate among domestic
customer value competitiveness mobile operators Over 6.0% Contents distribution including
gaming contents
Global business

36 | KTF Annual Report 2004 | 37

Voice Service Change in ARPU
[Korean Won]
Steady Growth of ARPU (Average Revenue per User)
37.342
Despite a series of unfavorable factors, such as excessive competition among the three mobile
operators behind rate cuts and the introduction of contracted discount schemes, the number of EV- 36,828
DO subscribers ballooned 274% year-on-year. The ratio of EV-DO subscribers to total subscribers also
expanded to 26% from 7% in the previous year, demonstrating remarkable qualitative growth.

Excluding Interconnection 29.037

Excluding Interconnection 29.514

Interconnection ARPU 7,791 +

Interconnection ARPU7,828 +
Strategies

We aim to attain stable growth in the voice business. To this end, we will prevent cancellations by
enhancing customer loyalty, consolidate our subscriber base by a securing dominant position in the
new business markets, and seek substantial ARPU growth. ‘03 ‘04
Growth Strategies for the Voice Business

Business Service Growth Strategy Sales Ratio CAPEX Ratio

Voice telephone Concentrate on enhancing profitability as a core business
Voice communication / Maintain high ARPU, actively inducing quality subscribers
Supplementary services

Strategic Directions

Strengthen “fine article” marketing based on

Prevent cancellations Marketing “design management”
by enhancing customer
Strengthen loyalty Service Reorganize quality customer-centered care programs
subscriber base Secure leadership Preoccupy fresh markets
Secure dominance
Voice Service in new markets
Secure Wired and wireless integrated services

Na From growth to profitability Expand ARPU

subscribers Strategically utilize new businesses to be fostered

Improve rate discount structures

Bigi Maintain ARPU Develop differentiated value equity-type rate products
growth Activate value-added
Main In 2004, when MNP was launched, the majority of mobile service provider changers chose services and special
Develop new voice-type supplementary services
Strengthen CRM and communications
KTF. This growth was attained amid intensifying competition, and combined with qualitative category businesses
DRAMA growth including significant increases in ED-VO subscribers and data sales. In 2005,
profitability will improve on a grand scale based on our competitiveness in handsets, DMB
and wireless data services.
Brand

2004 Results When you meet Na, a whole new world unfolds before you! - A dream networking service for n-generations
The fast-paced world of youth is composed of its own individual shapes, colors and variety, and charged with unlimited power and the
potential to lead our society and culture. ”Na” is a total entertainment service designed to provide satisfaction for the younger generation. It
Substantial growth of subscribers is a tailor-made service that combines mobile communication with all kinds of cultural activities. “Na” offers an exciting range of progressive
The number of subscribers to our voice service rose sharply by 1,287,000 over the course of the year. contents and benefits such as franchise membership services, which can be enjoyed anywhere across the country. It also operates a total
entertainment space called “Nazit” in 12 major commercial areas around Korea.
This was led by our active marketing strategies and service improvement, efficiently utilizing the time
difference in the launch of MNP.
Getting bigger and bigger - A specialized service targeting the teenage market with a focus on “growth potential” and “lifetime values”
KTF fully understands the unique communication culture of teenagers, and created “Bigi” to give its young friends more voice and SMS
Change in the Number of Subscribers Market Share options than they can access anywhere else in the mobile communication industry. Specially designed for teenagers, the service features a
[Thousand] [%] unique flat rate system, allowing customers to choose and adjust their own rate plan. It is carefully packaged to consider the potential power
11,729 of the teenage market and their value as “Life Time Customers.”

10,422 54.5 Living with passion and love! - A sophisticated service with specially designed benefits for youth
10,333
9,591 32.1 “Main” is a service designed specifically for young men and women aged 25 to 35. This important consumer segment forms the
51.3 mainstream of society, and “Main” has been specially tailored to offer economical and practical rate plans according to each customer's
lifestyle and telephone call patterns. It hosts a range of dynamic cultural events, additional services such as special benefits at theatres,
5,285 31.1 automotive clinics, leisure centers, travel agents, and much more.
4,267
16.6
2,353 The Privilege of Being Female - A competitive brand for women
350 14.4 “DRAMA” is exactly the right service for ladies who want to enjoy a life filled with happiness and confidence.
“DRAMA” provides a wide array of fabulous services and benefits by recognizing and touching the deep emotions and needs of women. It
is filled with valuable offline contents such as Book Cafe, Internet PC Zone, Make-up Zone, and the exclusive women's cultural area of
“Drama House.” This service also operates the “Drama Kids” series, which offers practical help in caring for and entertaining the children of
‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 S L KTF our customers. “DRAMA” allows women to be more unique, beautiful, and happy.

38 | KTF Annual Report 2004 | 39

Wireless Data Service

A multimedia world in your hand,

provided by KTF -
Wireless data Service “Mobile Life Partner”
K-merce
Viz Solution As a "Mobile Life Partner,” KTF is expanding wireless service areas with a wealth of contents
Telematics and fresh ideas. Our wireless data services range from simple SMS to MMS (Multimedia Strategies for Growth Businesses
Messaging Service), games, securities, entertainments and a variety of applications based on
the color multimedia download service Multipack. Also available are real-time TV viewing,
Business Specifications Growth Strategy SalesPortion
Sales
Sales Portion
Portion CAPEXPortion
CAPEX
CAPEX Portion
Portion
and access to the EV-DO network, moving image contents and soon, satellite DMB.
Wireless data / Maximize growth potential as core growth engine
Wireless data Messaging Develop and reinforce business competitiveness
and new earnings models
2004 Results M-commerce Convergence Maximize growth potential as core growth engine
& solutions infrastructure / Develop and reinforce business competitiveness
Platforms and new earnings models

Wireless data sales Wireless Data Sales, a Drive Engine for Sales Growth
[billion] Wireless Data Business
Wireless data sales grew sharply, surging 45% year-on-year to record 523.6 billion at 2004-end from
361.5 billion in 2003. This also presented stable and qualitative growth, driven by significant increases We will maximize the growth of our wireless data business by securing a quality data customer base and
5,236
in sales percentage and monthly fixed rate sales of Magin following an expansion in contents usage, strengthening service competitiveness, and ensure a basis for continuous growth by developing new earnings
activation of EV-DO service, and a rise in wireless data usage volume. models.
Strategic Directions for the Wireless Data Business
Wireless Data by Service Number of Subscribers by Service
3,615 [Thousands] Actively expand handset supply in linkage with service directions
KTF supports the 2G, CDMA 1X Secure quality data Secure quality customers in linkage with voice business
and EV-DO networks, which saw 7,440 customers Extend data business foundation
intense consumer interest in 2004 Maximization of growth Optimize data rates and bolster data marketing

with 1,234,000, 7,440,000 and 6,656 Reinforce service

Diversify service and strengthen multimedia Increase users and usage rate
3,055,000 respective subscribers 3,055
competitiveness
by year-end. The rise in subscribers 2,969
Continue new business Fortify wired Magic
‘03 ‘04 to EV-DO and CDMA 1X Multipack
development Seek affiliation with other companies including Paran.com, Naver and Daum
(with relatively higher ARPU) is Secure basis for
definitely contributing to the growth 1,234 continuous growth
Integrate wired and wireless (including Wi-Fi)
of total wireless data sales. Backed
816
Generate new sales Open-Policy platform business
by this strong showing, KTF will
continue to lead the wireless data
market. M-commerce & Solutions
‘03 4Q ‘04 4Q ‘03 4Q ‘04 4Q ‘03 4Q ‘04 4Q
M-commerce business: activate business with a focus on m-Payment
Business solution business: Concentrate on selective businesses
Wireless Data by Handset Function
Number of subscribers by handset function Telematics: Pursue BM (before market)-oriented growth
[Thousands] KTF is also supporting handsets and applications that enable a wide array of functions and services.
Strategic Directions for M-commerce & Solution Business
There has been a dramatic leap in the number of subscribers carrying handsets with the Fimm function,
9,648 enabling MMS and the color display option required to materialize multimedia functions. Thus, most
subscribers are now enjoying the brilliant wireless data services offered by KTF. Strengthen business models Strengthen and develop business models with a focus on m-Payment

M-commerce Improve business value to

5,306 Gradually expand infrastructure for IC chip handsets and mobile settlements
expand infrastructure
5,911
Suggesting a new lifestyle
Swiftly leading you into
a world of excitement
K-Ways for drivers with Telematics
Reorganize portfolio based
on profitability
Biz Solution Activate businesses focused on m –Office and z-Networking
Selection and concentration
1,330
The best choice for effective of resources
and convenient financial A business solution for Expand alliance with automobile OEM partners
Enhance cooperative partnerships
transactions leading-edge companies Increase sales BM (before market)-oriented sales
‘03 4Q ‘04 4Q ‘03 4Q ‘04 4Q Telematics Provide high-quality service to
Revolutionary high-speed Expand profitability-based K-Ways service in selective AM (after market)
target customers
multimedia mobile
communications service
40 | KTF Annual Report 2004 | 41
New Business & Service

A Ubiquitous world,
New Business & Service Worldwide KTF, Everywhere KTF
Global Business
DMB
Contents Business Strategies for the Cultivation of New Businesses MEDIA/ DMB

Business Type Specifications Growth Strategy Sales Ratio CAPEX Ratio KTF is carrying forward its media operations based on a strategic
business portfolio that will encompass satellite DMB resale and
Global Platform sales & Develop new markets overseas terrestrial DMB by 2007. The media business will be pursued on a
Business consulting Gradually expand abroad based on models full scale after securing a groupwide KTF broadcasting platform in
of successful experience
the mid and long-term.
Advance into new sectors upon a
Media communications and broadcasting package Strategic Directions
(Mobile Constitute strategic portfolios in the short-term
broadcasting) and secure group-wide platforms in the
Entertainment Organize strategic portfolio for mobile
Business mid-term Business Short-term multimedia broadcasting
Utilize portals and infrastructure models Mid & long-term Advance by securing group-wide platforms
Contents
distribution for gaming phones
Selectively pursue gaming and video by stage
Strategic Policies for Mobile Broadcasting Business

GLOBAL BUSINESSES 2005 ~ 2006 2006 ~ 2007 2008 ~

Design strategic portfolio Secure broadcasting platforms Provide platform base services
Going Global with Good Time Partnerships Launch marketing through self- broadcasting service
Satellite DMB resale Examine and compare/review marketability
KTF aims to expand its overseas businesses and strengthen global roaming services through Terrestrial DMB service technologies of service alternatives and manage subscribers
BCMCS/MediaFlo service Secure cooperative models and broadcasting Strengthen cooperation and alliances to maximize
consulting services and product sales that can utilize our resources and core capabilities, strategic tie- KT group synergies
licenses & platforms with KT and affiliates
ups and joint ventures. To this end, we are looking to strengthen the competence of our specialists Reinforce company image as a media & entertainment
while resolutely expanding investments. service provider

Strategic Directions for Global Business

Fully utilize core capabilities and resources

Specifications Wireless Internet portals & contents, consulting, MBRT (Music Ring Back Tone)
CONTENTS DISTRIBUTION
Strengthen Strengthen marketing capabilities by fostering and securing global specialists
Actively seek strategic alliances and joint ventures In the short-term, KTF intends to enter the contents distribution market for large-volume mobile games, music and
capabilities
images through alliances with publishing companies. Based on the capabilities to be secured, in the mid and long-
term it will expand this business sector with the establishment of in-house publishing.
2004 Core Results
Strategic Directions
August 2004 : Signed an agreement to provide total solutions for 3G service to Vibo Telecom,
a new CDMA business entity in Taiwan Short-term Mobile gaming contents distribution via
October 2004 : Established a joint venture in Indonesia to process supplementary services Gaming contents alliances with publishing companies
February 2005 : Signed an MOU to jointly pursue MRBT with Unefone, the second-largest distribution Mid & long-term Expand business realm with self-publishing
mobile carrier in Mexico.

Goals and Regions for Advancement Strategic Policies

04 ~ 05 06 ~ 07
2004 ~ 2005 2006 2007 ~
Focus on Asia including Southeast Asia Expand business sectors in newly advanced regions
Goals Pursue competitive supplementary businesses Expand business to the Americas Pursue affiliated models Prepare for self-publishing Alliances and self-publishing
Establish affiliated cooperative models Strengthen sales basis securing fee-based users Pursue self-publishing business models based
Newly advanced regions Indonesia, Taiwan, China, Australia and others. USA and others
Establish relevant internal business systems Advance overseas through tie-up with manufacturers on successful affiliated models
Build marketing basis and partners Examine and pursue integrated mobile services
Consulting Prepare for self-publishing based on capabilities secured
Major business Wireless Internet portals & contents
Add new businesses including integrated
wired & wireless
opportunities Music Ring Back Tone

42 | KTF Annual Report 2004 | 43

 Exploring New Potential With Initiative
“Mobile” is a small world connected by people.
This small world is endlessly evolving and expanding
into the realms of the economy, entertainment,
telematics and wireless Internet.
Enabling you to see the world through a small window
and enrich your life, “Mobile” delivers fun and happiness
as well as boundless convenience.
Your “Mobile Life Partner” for a ubiquitous globe,
KTF is building tomorrow with “Good Time” services.

04 | KTF Annual Report 2004 | 05

 SUCCESS PARTY
Stylish Affair with Wine and Classical Music

Flourishing and Self-assured

48 MD&A
60 Report of Independent Public Accountants We are focused on profit-centered performance.
62 Financial Statements We remain focused on heightening shareholder returns, corporate values and global competitiveness,
backed by transparent management and a progressive corporate structure.
Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

1. Overview
KTF’s total revenue went up 14.9% year-on-year (YoY) to KRW5,830.8 billion as of 2004-end. This rise was led by the growth
of PCS revenues and handset sales. PCS revenues advanced 9.2% YoY on the back of a net increase of 1.29 million
subscribers and the inducement of high ARPU subscribers through MNP, despite the application of base rate cuts in
September 2004. Subsequently, handset sales soared by 41.9% over the year.
Marketing expenses also soared, however, climbing 45.3% YoY due to the company’s aggressive marketing campaign,
brought on by intensified competition in the wake of MNP. This led to a 23.5% YoY climb in total operating expenses.
Accordingly, operating profit dropped 32.3% YoY to KRW529.0 billion, while recurring income and net income fell 32.8% YoY
and 30.3% YoY, respectively, to KRW308.6 billion and KRW283.9 billion at 2004-end.
The company’s EBITDA, calculated by adding depreciation costs to PCS operating profit, edged down a marginal 0.7% YoY to
reach KRW1,614.9 billion. EBITDA margin (EBITDA divided by PCS revenues) also backed off 3.5%p YoY to 35.2%, allowing
the company to maintain a high earnings level and minimum EBITDA margin decrease in comparison to industry rivals.
KTF’s debt-to-equity ratio improved 8.4%p YoY to 150.1%, continuing to demonstrate a healthy financial stability. This ratio is
expected to contract in 2005 thanks to improved profitability and cash flows.
Income Statement Summary
(In millions of Korean won)
2004 2003 % Change
2. Revenues
Revenues boosted 14.9% YoY to KRW5,830.8 billion as of 2004-end. By sector, PCS revenues increased 9.2% YoY, backed
by a 1.29 million net increase in subscribers and the inducement of high ARPU subscribers through MNP, despite the
application of base rate cuts in September 2004. Subsequently, handset sales also soared 41.9% over the year. In almost
every sector PCS sales recorded YoY growth, including subscription fees, base fees, value-added services, KT resales,
revenues from sales to other companies and others.
Subscription fees swelled 75.9% YoY to 71.5 billion, led by a substantial expansion in the number of new subscribers
following the introduction of MNP. Base fees and call charges widened by 11.5% YoY and 0.4% YoY, respectively.
The former figure reflects the decision of a majority of new subscribers to choose rates with relatively higher base fees
(including unlimited fixed rates) in 2004, thereby undercutting the growth of call charges.
The most noticeable outcome was an increase in sales from value-added services. Sales from these services surged 25.9%
YoY to KRW592.0 billion in spite of rate cuts for caller ID service.
Observing the breakdown of value-added services, data service sales jumped 50.0% YoY, whereas voice service sales
retreated 14.8% YoY. The percentage of data service to total value-added services also expanded to 74.8% at 2004-end from
62.8% in 2003.
Data service sales made a significant 45% improvement YoY to reach KRW523.6 billion at 2004-end from KRW361.5 billion in
2003. This was triggered by an expansion in the ratio of EV-DO subscribers to total subscribers and a rise in the usage of
wireless data.
Interconnection revenues gained 6.5% YoY owing to a 16% YoY rise in mobile-to-mobile calls. KT resale revenue grew 43.2%
YoY thanks to added subscribers and qualitative improvement.

Revenues 5,830,818 5,076,345 14.9% Other sectors slipped 41.5% YoY to 41.5 billion at 2004-end, following weakened revenue growth from e-commerce and
overseas businesses.
PCS revenues (4,589,209) (4,201,297) 9.2%
Sales discount increased 46.6% YoY to KRW266.2 billion, due to the introduction of contracted long-term discounts to secure
Handset sales (1,241,609) (875,047) 41.9%
long-term customers, as well as a rise in Magic discounts after vigorous subscriber interest in the monthly fixed rate plan
Operating expenses 5,301,831 4,294,569 23.5% for wireless data service.
PCS expenses (4,064,943) (3,423,968) 18.7% Handset sales ballooned 41.9% over the year, stimulated by a sharp net increase in the number of subscribers in 2004. This
Handset expenses (1,236,888) (870,601) 42.1% also reflected a gain in handset prices on the back of newly upgraded functions including EV-DO.
Operating profit 528,987 781,775 32.3%
Non-operating income 108,931 94,737 16.08
Non-operating expenses 329,308 417,429 20.9% Revenues
(In millions of Korean won)
Recurring profit 308,610 459,083 32.8%
Income tax expenses 24,709 51,657 52.2% 2004 2003 % Change
Net income 283,901 407,426 30.3%
PCS revenues 4,589,209 4,201,297 9.2%
EBITDA 1,614,911 1,626,104 0.7%
Subscription fees 71,547 40,670 75.9%
EBITDA margin 35.2% 38.4% 3.5%
Monthly basic fees 1,743,282 1,564,121 11.5%
Debt-to-equity ratio 150.1% 141.7% 8.4%
Call charges 1,202,168 1,197,123 0.4%
Value-Added Services 592,033 470,148 25.9%
Voice (148,884) (174,782) 14.8%
Data (443,138) (295,366) 50.0%
(Sales discount) 266,263 181,663 46.6%
Interconnection revenues 881,353 827,833 6.5%
KT resales 315,959 220,579 43.2%
Income from sales to other companies 6,948 6,573 7.2%
Others 41,512 55,914 41.5%
Handset sales 1,241,609 875,047 41.9%
Total revenues 5,830,818 5,076,345 14.9%

48 | KTF Annual Report 2004 | 49

Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

Operating Expenses
3. Operating Expenses
4.5% 4.2%
Operating expenses rose 23.5% YoY to reach KRW5,301.8 billion at 2004-end. PCS business-related operating expenses, 8.8% 7.6%
20.3%
excluding handset cost, increased 18.7% YoY to KRW4,064.9 billion. 23.3%
Personnel Expenses
Other sectors like sales and wages, commission expenses, interconnection expenses, depreciation cost, and marketing 9.6% Commission expenses
10.8%
expenses were above 2003. Personnel expenses rose 19.9% YoY due to an increase in the payment of incentives following Interconnection expenses
salary negotiation and accomplishments from MNP. Depreciation cost
‘03 ‘04
11.4% Lease line fees
Commission expenses moved up 6.0% YoY, under pressure from increased network maintenance, repair expenses and all 9.0%
Marketing expenses
kinds of outsourcing expenses. Interconnection expenses went up 9.2% YoY driven by a rise in MOU and land-to-mobile (LM) Others
interconnection rate hikes. 19.8% 20.6%
Handset sales cost
Depreciation and amortization cost escalated 28.5% YoY to KRW1,090.6 billion at year-end, led by the amortization of 16.1%
19.0%
W-CDMA frequency usage rights and the rise in depreciation cost from investment assets. Marketing expenses, the 8.3% 6.7%
central focus of operating expenses, shot up 45.3% YoY alongside the company’s aggressive marketing policy for
subscription acquisition and retention after the introduction of MNP.
In 2004 the sharpest increase in operating expenses was on the part of marketing expenses, particularly subscription
Among operating expenses, bad-debt expenses plunged 51.8% YoY to KRW25.4 billion at the end of 2004 despite a rise in
acquisition costs, as the company focused on growth of subscribers utilizing MNP. Consequently, total marketing expenses
bad debt expenses related to sales agents. This was because the company reflected part of its impairment loss of maturing
increased 45.3% YoY to KRW1,005.0 billion at 2004-end.
securities for the issuance of ABS in non-operating expenses.
Among marketing expenses, sales commission expenses swelled 56.3% YoY to KRW718.1 billion at year-end, while sales
Both a decrease in net income and effective tax rate(from loss carried over) effected a 5.2% YoY decline of tax and dues to
promotion expenses advanced 32.8% YoY to KRW163.7 billion. On the contrary, advertising expenses edged up slightly by
KRW45.2 billion. Universal service obligation decreased 18.6% YoY as the company reflected the settled amount in the fourth
8.9% YoY to record KRW123.3 billion at year-end.
quarter.
Sales commission expenses and sales promotion expenses are comprised of subscription acquisition expenses and
Operating Expenses subscription retention expenses. Of these, subscription acquisition costs shot up 119.4% YoY to KRW331.0 billion, leading to
(In millions of Korean won) a 42% YoY increase in SAC to KRW105,119.

2004 2003 % Change While subscription acquisition expenses rose substantially behind a rise in the payment of incentives to sales agents, for
successful accomplishment of MNP goals, subscription retention expenses rose only 28.8% YoY to KRW551.0 billion.
Salaries and wages 170,285 142,019 19.9% Overall, marketing expenses remained at a high level until the third quarter, but decreased 10.4% quarter-on-quarter in the
Miscellaneous allowances/ Severance pay/ Severance 13,509 17,365 22.2% fourth quarter. This was because the company focused on profitability-oriented management to target secured subscribers as
Employee benefits 27,904 26,259 6.3% the market began to stabilize from the beginning of the fourth quarter. The increase in marketing expenses in 2004 should be
Rent 113,441 100,531 12.8% a temporary result from the company’s strengthening of marketing activities for MNP.
Lease 61,307 40,839 50.1%
Commission expenses 408,168 385,038 6.0% Marketing Expenses
Depreciation & amortization cost 1,090,645 848,775 28.5% (In millions of Korean won)
Tax and dues 45,170 47,638 5.2%
2004 2003 % Change
Interconnection expenses 506,982 464,264 9.2%
Lease line fees 357,257 355,936 0.4% Sales commission expenses 718,089 455,282 56.3%
Universal service obligations 30,557 37,526 18.6% Sales promotion expenses 163,653 123,221 32.8%
Ordinary R&D expenses 10,513 17,660 40.5% Advertising expenses 123,261 113,197 8.9%
Marketing expenses 1,005,003 691,670 45.3% Total marketing expenses 1,005,003 691,700 45.3%
Bad-debt expenses 25,448 52,763 51.8%
Electricity/water/light & heat 149,142 143,441 4.0%
Other 49,613 52,213 5.0%

Subtotal 4,064,943 3,423,968 18.7%

Handset sales cost 1,236,887 870,601 42.1%
Total 5,301,831 4,294,569 23.5%

50 | KTF Annual Report 2004 | 51

Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

Marketing Expenses Net interconnection revenues increased 3.0% YoY to KRW374.4 billion in 2004, influenced by a rise in both interconnection
revenues/expenses due to an overall increase in inbound and outbound call traffic.
12.3%
16.4% As for interconnection revenues, mobile-to-mobile (MM) interconnection revenues rose 16.1% YoY to KRW527.5 billion at
2004-end. On the other hand, land-to-mobile (LM) interconnection revenues continued their downward trajectory in 2004,
falling 5.3% YoY to KRW353.9 billion.
16.3% Sales commission expenses In the case of interconnection expenses, LM surged 24.5% YoY to KRW102.2 billion, while MM moved up 5.9% YoY to
‘03 Sales promotion expenses KRW403.8 billion led by a rise in LM rates to KRW18 from KRW15.
17.8% ‘04 Advertising expenses
Interconnection-related Revenues/Expenses
(In millions of Korean won)
65.8% 71.4%
2004 2003 % Change

Interconnection revenues 881,353 827,833 6.5%

LM (Land to Mobile) 353,863 373,533 5.3%
Marketing Expenses Breakdown MM (Mobile to Mobile) 527,490 454,300 16.1%
(In millions of Korean won) Interconnection expenses 506,982 464,264 9.2%
LM (Land to Mobile) 102,161 82,844 24.5%
2004 2003 % Change MM (Mobile to Mobile) 403,821 381,420 5.9%
Subscriber acquisition expenses (1) 330,532 150,637 119.4% Net interconnection income 374,372 363,569 3.0%
Sales commission expenses 286,950 124,010 131.4%
Sales promotion expenses 43,582 26,627 63.7%
Subscriber acquisition cost per subscriber (won) 105,119 73,841 42.4%
4. EBITDA & CAPEX
Subscriber retention expenses (2) 551,210 427,866 28.8% In 2004, although operating profit and net income fell 32.3% YoY and 30.3% YoY, respectively, EBITDA only edged down by
Sales commission expenses 431,139 331,272 30.1% 0.7% YoY, enabling the company to maintain a high level of profitability.
Sales promotion expenses 120,071 96,595 24.3% EBITDA margins decreased 3.5%p YoY to 35.2%, but the decline range remained at a minimum level when compared to
Advertising expenses (3) 123,261 113,197 8.9% other market players while being above the company’s annual guidance of 35%. Specifically, EBITDA margin reached 37% in
Total marketing expenses (1) + (2) + (3) 1,005,003 691,700 45.3% the fourth quarter, the highest quarterly record, while marketing expenses were slightly reduced. Therefore, in 2005, we
expect to secure a higher EBITDA margin than in the prior years.
Facility investments, or capital expenditures (CAPEX), rose 10.9% YoY to KRW1.6 trillion in 2004. Actual investments were
W1.01 trillion, almost nearing the guideline of KRW1 trillion given the deferred amount from 2003 (KRW124.0 billion) till 2005
Subscriber acquisition (KRW80.0 billion).
Marketing Expenses Breakdown cost per subscriber
[won] EBITDA & CAPEX (In millions of Korean won)
12.3% 105,119
16.4%
21.8% 2004-4Q 2004-3Q % Change
32.9%
85,791 EBITDA 437,978 422,644 3.6%
Subscriber acquisition
expenses EBITDA margin 37.0% 36.2% 0.8%
‘03 ‘04 Subscriber retention 73,841 Depreciation cost 256,218 251,927 1.7%
expenses
CAPEX 322,200 154,200 108.9%
Advertising expenses
(In millions of Korean won)

2004 FY 2003 FY % Change

61.8%
54.8% ‘02 ‘03 ‘04
EBITDA 1,614,911 1,626,104 0.7%
EBITDA margin 35.2% 38.7% 3.5%
Depreciation cost 992,901 848,775 17.0%
CAPEX 1,059,800 955,300 10.9%

52 | KTF Annual Report 2004 | 53

Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

5. Non-operating Income and Loss 6. Income Tax Expenses

As for non-operating performance, KTF recorded a total non-operating loss of KRW220.4 billion at 2004-end, falling 31.7% Income tax expenses contracted 52.2% YoY to KRW24.7 billion at 2004-end. This was primarily attributed to a 32.8% YoY
YoY from the non-operating loss of KRW322.7 billion in 2003. decrease in before-tax net income to KRW308.6 billion. It was also partly due to a KRW13.8 billion increase in deferred
Interest income dropped 47.3% YoY to KRW12.7 billion at 2004-end, reflecting the interest income of KRW17.2 billion taxes(decrease in tax expense) from the merger with KTM.com.
temporarily generated at the time of the first-phase ABS clearing in 2003. Also temporary differences and utilization of accumulated tax credit carried forward increased KRW1.0bn and KRW135 million
respectively.
Accounting for the majority of the interest income in 2004 was the KRW7.0 billion generated during the second phase of ABS
clearing in the fourth quarter. As a result, the effective income tax rate edged down 3.3%p to 8.0% in 2004. Meanwhile, income tax payable declined
44.4% YoY to KRW39.6 billion.
Interest expenses decreased 19.2% YoY to KRW220.6 billion at year-end, mainly attributed to a decline in weighted average Of note, KTF has enjoyed the effect of curtailments in income tax expenses since 2001, thanks to deficits carried forward
interest expenses. from merger with KTM.com.
Accordingly, net interest losses amounted to KRW207.9 billion, slipping 16.5% from a year earlier due to a decrease in
interest expenses. Net interest losses should contract further as the company strives to reduce borrowings and refinance
with lower interest rates. Income Tax Expenses
(In millions of Korean won)
Thanks to a bullish won, the company posted net foreign exchange (F/X)-related income of KRW23.1 billion in 2004, turning
into net gains from net losses of KRW26.9 billion at 2003-end. Net other non-operating losses also contracted 24.1% YoY to 2004 2003 % Change
KRW35.6 billion at year-end, down from KRW46.8 billion in 2003. This was attributed to a KRW57.8 billion YoY decline of
Before-tax net income 308,610 459,084 32.8%
losses on the disposition of tangible assets from advanced network integration activities.
Income tax expenses 24,709 51,657 52.2%
Effective income tax rate 8.0% 11.3% 3.3%
Non-operating Performance
(In millions of Korean won)

2004 2003 % Change Composition of Income Tax Expenses (In millions of Korean won)
Interest income 12,691 24,095 47.3% 2004 2003
Interest expenses 220,606 272,992 19.2%
Net interest gains 207,914 248,897 16.5% Income tax currently payable 39,623 71,319
F/X-related gains 25,069 807 3006.81% Temporary differences 1,029 12,046
F/X-related losses 1,971 27,754 92.9% Utilization of accumulated tax losses carried forward 13,750 0
Net F/X gains 23,098 26,947 Utilization of accumulated tax credit carried forward 135 7,616
185.8%
Income tax expenses 24,709 51,657
Other non-operating gains 71,171 69,835 1.9%
Other non-operating losses 106,731 116,683 8.5%
Net other non-operating gains 35,561 46,847 24.1%
Total non-operating income 108,931 94,737 16.1%
Total non-operating losses 329,308 417,429 20.9%
Net total non-operating income 220,377 322,692 31.7%

54 | KTF Annual Report 2004 | 55

Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

7. Balance Sheet Summary 8. Long-Term Investment Securities

Total assets increased 4.9% YoY KRW7,960.4 billion at 2004-end, up from KRW7,591.9 billion in 2003. This was mostly led Long-term investment securities including investment securities using the equity method decreased by 17.9% over the year
by a 45.0% YoY surge in current assets to KRW1,612.5 billion, as quick assets and inventories rose by a respective 45.1% to KRW144.4 billion at 2004-end. The decline was mainly because KRW19.3 billion worth of debt securities from 2nd SPC
YoY and 44.1% YoY. which were classified as debt securities in the previous year but were not reflected in 2004. Held-to-maturity securities refer
Fixed assets amounted to KRW6,348.0 billion, slipping 2.0% YoY but hovering around a figure similar to that recorded at to the non-par value beneficiary certificates (BCs) issued by Shinhan Bank, which KTF acquired in relation to ABS from
2003-end. This was due mainly to a 6.3% YoY rise in investment assets led by an upswing in the valuation of stakes in KTF accounts receivable. Meanwhile, the company reflected a difference of KRW42.1 billion between the estimated amount to be
Technologies. Total intangible assets backed off 7.4% YoY following the amortization of KRW92.4 billion in frequency usage recovered and the acquisition value of BCs as impaired loss on long-term investment securities. The estimated value of
rights. marketable securities such as Wide Telecom, Gaea Soft and KRTnet Corporation decreased to KRW4.2 billion from KRW5.4
billion at 2003-end. Non-listed securities increased 29.1% over the year to record KRW11.0 billion, boosted by the new
Liabilities increased 7.3% YoY to KRW4,777.7 billion at 2004-end. Current liabilities edged up 2.2% YoY, driven by a rise in application of KRW2.6 billion in KTF M House and KRW3.4 billion in HAREX Info Tech. The sharp increase in investment
current long-term liabilities, including accounts payable, short-term borrowings and maturing of bonds. securities using the equity method was driven by a rise in the valuation of KTF Technologies, which soared from KRW3.3
Fixed liabilities increased 12.9% to KRW2,410.9 billion at 2004-end, up from KRW2,135.1 billion in 2003, reflecting the four billion to KRW18.9 billion at 2003-end.
issuances of non-guaranteed bonds amounting to KRW1,280 billion.
Retained earnings edged up 4.1% YoY to KRW985.3 billion. Capital adjustment decreased marginally due to sharebuyback Long-term Investment Securities
(In millions of Korean won)
and cancellation. In result, total equity increased 1.3% YoY to reach KRW3,182.8 billion in 2004-end.
2004 2003 % Change
Balance Sheet Summary
(In millions of Korean won) Available-for-sale securities (1) 55,706 75,865 26.6%
Marketable securities 4,159 5,391 22.9%
2004 2003 % Change Non-listed equity securities 10,973 8,501 29.1%
Current assets 1,612,548 1,112,195 45.0% Investment in partnerships 38,383 40,633 5.5%
Quick assets 1,376,779 948,550 45.1% Debt securities 2,190 21,341 89.7%
Inventories 235,769 163,646 44.1% Held-to-maturity securities (2) 88,667* 99,914 11.3%
Fixed assets 6,347,882 6,479,693 2.0% Long-term investment securities (1)+(2) 144,373 175,779 17.9%
Investment assets 607,893 572,112 6.3% Investment securities using the equity method 18,905 6,432 193.9%
Tangible assets 4,600,893 4,677,035 1.6% Total 163,277 182,211 10.4%
Intangible assets 1,139,096 1,230,545 7.4% * Acquisition cost is KRW130.7 billion, but reflected book value after an impaired loss of KRW42.1 billion.
Total assets 7,960,430 7,591,888 4.9%
Current liabilities 2,366,726 2,315,691 2.2%
Investment Securities Using Equity Method
Fixed liabilities 2,410,947 2,135,063 12.9% (In thousands of Korean won)
Total liabilities 4,777,673 4,450,754 7.3% 2004 2003
Capital stock 955,703 955,703 0% Company Name Equity (%) Acquisition Book vale Acquisition Book vale
Capital surplus 1,325,489 1,325,489 0%
Retained earnings 985,275 946,898 4.1% Korea Digital Satellite Broadcasting 2.38 9,953,963 0 9,953,963 3,178,052
Capital adjustment 83,709 86,955 3.7% KTF Technologies 70.75 15,372,487 18,904,725 2,372,500 3,253,625
Total shareholders’ equity 3,182,757 3,141,134 1.3% Total 73.13 25,326,450 18,904,725 12,326,463 6,431,677
Total liabilities and total shareholders’ equity 7,960,430 7,591,888 4.9%

56 | KTF Annual Report 2004 | 57

Management Discussion & Analysis

MANAGEMENT DISCUSSION & ANALYSIS MANAGEMENT DISCUSSION & ANALYSIS

9. Intangible Assets 11. Cash Flows

Intangible assets slipped 7.4% over the year to record KRW1,139.1 billion at 2004-end. Of this total, 98% was comprised of Cash flows from operating activities increased KRW246.5 billion to KRW907.6 billion. Expenses not involving cash outflows
frequency usage rights taken from KT ICOM following the merger in 2003. Acquisition cost amounted to KRW1,208.4 billion amounted to KRW1,249.7 billion, up KRW167.9 billion over the year even though bad debt expense, loss on disposition of
and the balance at 2004-end was KRW1,116 billion, behind the amortization of KRW92.4 billion in 2004. The rights will be tangible assets and loss on foreign exchange translation steeply decreased. This was due to the fact that impairment loss in
amortized for the next 13 years on a average monthly basis. long-term investments showed a temporary increase affecting an increase of KRW167.9bn to KRW1,249.7bn.
The acquisition cost of intangible assets excluding frequency usage rights stood at KRW6.4 billion, while the amortization of In addition, cash outflows resulting from a change in working capital fell KRW210.8 billion over the year, dropping to
intangible assets recorded KRW97.8 billion including that of frequency usage rights. KRW602.8 billion from a balance of KRW813.5 billion in 2003. This was because accrued receivables and prepaid payments
dropped YoY, even as accounts payable and other accrued payments experienced a rise from the prior year.
Intangible Assets
(In millions of Korean won) Cash flows from investment activities recorded KRW919.1 billion, up from KRW70.4 billion in 2003. This was led by a YoY
decline in cash inflows from investing activities to KRW203.7 billion, accompanied by a 3% YoY rise in cash outflows from
Beginning of year Increase Decrease End of year investing activities due to a gain in assets under construction.
Cash flows from financing activities amounted to a net inflow of KRW29.7 billion from an outflow of KRW602.6 billion at
Goodwill 13,141 3,656 3,835 12,961
2003-end. Such increase was mainly due to increase in cash inflows from issue of KRW1,275.4bn in debentures and also an
Industrial property right 1,333 768 387 1,715
increase in short-term borrowings due to refinancing of KRW2,368.8bn. Despite cash outflows from sharebuyback and
Facility use rights 7,532 2,112 1,283 8,360 repayment of current portion of long-term debts in the amount of KRW1,736.5bn.
Frequency use rights 1,208,429 0 92,433 1,115,996
As a consequence, cash held by the company increased KRW18.2 billion over the year to record KRW28.9 billion at the end of
Other 110 0 47 63
2004.
Total 1,230,545 6,445 97,745 1,139,096

Cash Flows Summary (In millions of Korean won)

10. Borrowings 2004 2003 YoY Change % Change

KTF’s total borrowings, including debentures, increased KRW273.8 billion, increasing by 9.5% YoY to reach KRW3,149.5 Cash flows from operating activities 907,626 661,140 246,486 37.3%
billion at 2004-end. Short-term borrowings increased KRW50.0 billion to KRW300.0 billion while accumulated long-term Net income 283,901 407,426 123,525 30.3%
borrowings stood at zero, following a repayment of KRW50.0 billion.
Addition of expenses not involving cash outflows 1,249,741 1,081,882 167,859 15.5%
Debentures rose by KRW223.8 billion to record KRW2,849.5 billion at 2004-end, up from the KRW2,625.7 billion recorded a Deduction of revenues not involving cash inflows 23,238 14,622 8,616 58.9%
year earlier. This 8.5% YoY rise was due to the new issuance of non-guaranteed bonds of KRW1280 billion over four Change in working capital 602,778 813,546 210,768 25.9%
occasions in 2004, although the company paid back non-guaranteed bonds of KRW1,005.0 billion.
Cash flows in investing activities 919,138 70,427 848,711 1,205.1%
Such refunding led to a noticeable reduction in expenses, with the weighted average interest rate falling to 5.4% in 2004 Cash inflows from investing activities 203,704 1,019,388 815,684 80.0%
from 6.3% in 2003. Cash outflows from investing activities 1,122,842 1,089,815 33,027 3.0%
The debt-to-equity ratio increased 8.7%p YoY to 150.1% at 2004-end, although the ratio has rapidly stabilized to improve by
Cash flows from financing activities 29,663 602,637 632,300 104.9%
50%p quarter-on-quarter as compared to 3Q04.
Cash inflows from financing activities 7,045,396 4,676,611 2,368,785 50.7%
Borrowings Cash outflows from financing activities 7,015,733 5,279,248 1,736,485 32.9%
(In millions of Korean won)
Net increase in cash 18,151 11,924 30,075 252.2%
2004 2003 YoY Change % Change Beginning of the year 10,736 22,660 11,924 52.6%
End of the year 28,887 10,736 18,151 169.1%
Short-term borrowings 300,000 250,000 50,000 20%
Long-term borrowings 0 50,000 50,000 100%
Current portion 0 50,000 50,000 100%
Balance 0 0 0 0
Debenture 2,849,470 2,625,685 223,785 8.5%
Current portion 1,030,288 1,050,532 20,244 1.3%
Balance 1,819,182 1,575,153 244,029 15.5%
Total 3,149,470 2,875,685 273,785 9.5%

58 | KTF Annual Report 2004 | 59

Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT
English Translation of a Report Originally Issued in Korea
To the Shareholders and Board of Directors of
KT Freetel Co., Ltd.:
We have audited the accompanying non-consolidated balance sheets of KT Freetel Co., Ltd. (the “Company”) as of December
31, 2004 and 2003, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows
for the years then ended, all expressed in Korean won. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2004 and 2003, and the results of its operations, changes in its retained earnings and its cash flows
for the years then ended in conformity with financial accounting standards in the Republic of Korea.
60 | KTF
INDEPENDENT AUDITORS’ REPORT
The translated amounts in the accompanying financial statements have been translated into U.S. dollars, solely for the
convenience of the reader, on the basis set forth in Note 2.
As explained in Note 20, revenues and expenses to and from related parties amounted to 642,039 million and 766,066
million, respectively, for the year ended December 31, 2004, and 575,297 million and 632,025 million, respectively, for the
year ended December 31, 2003. Related receivables and payables amounted to 156,184 million and 443,037 million,
respectively, as of December 31, 2004, and 159,664 million and 388,290 million, respectively, as of December 31, 2003.
Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial
statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and
practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied
in other countries. Accordingly, this report and the accompanying financial statements are for use by those knowledgeable about
Korean accounting procedures and auditing standards and their application in practice.
Anjin Deloitte LLC
Seoul, Korea
January 21, 2005
This report is effective as of January 21, 2005, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the
auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial
statements and may result in modification to the auditors’ report.
Annual Report 2004 | 61
FY 2004 Financial Reports

NON-CONSOLIDATED BALANCE SHEETS NON-CONSOLIDATED BALANCE SHEETS(CONTINUED)

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

(In millions of Korean won, In thousands of U.S dollars) (In millions of Korean won, In thousands of U.S dollars)

2004 2003 2004 2003 2004 2003 2004 2003

ASSETS Deferred income tax assets(Note 17) 109,171 94,257 105,469 91,061
CURRENT ASSETS: Property and equipment, net(Notes 9 and 11) 4,600,893 4,677,035 4,444,878 4,518,438
Cash and cash equivalents(Note 18) 28,887 10,737 $ 27,908 $ 10,373 Intangibles(Note 10) 1,139,096 1,230,545 1,100,470 1,188,818
Short-term investment securities(Note 6) 6,518 7,272 6,297 7,025 Other non-current assets 9,532 8,751 9,209 8,454
Trade accounts and notes receivable, net of 6,347,882 6,479,693 6,132,627 6,259,968
allowance for doubtful accounts of Total Assets 7,960,430 7,591,888 $ 7,690,494 $ 7,334,449
140,315 million in 2004 and 162,807 LIABILITIES AND SHAREHOLDERS’ EQUITY
million in 2003, and net of discount on CURRENT LIABILITIES:
present value of 5,145 million in 2004 Short-term borrowings(Note 12) 300,000 250,000 $ 289,827 $ 241,523
(Notes 2, 4 and 20) 1,181,886 823,728 1,141,808 795,796 Trade accounts and notes payable(Note 20) 222,099 195,947 214,567 189,302
Accounts receivable-other, net of allowance Current portion of long-term debt, net of
for doubtful accounts of 2,576 discount on debentures of 565 million
million in 2004 and 4,714 in 2004 and 4,997 million in 2003, and
million in 2003(Notes 2 and 20) 97,688 67,475 94,376 65,187 addition of accrued interest of 15,731
Prepaid expenses 11,178 13,319 10,799 12,867 million in 2004(Notes 12 and 13) 1,030,288 1,050,532 995,351 1,014,909
Inventories, net of allowance of Accounts payable-other(Notes 18 and 20) 499,383 584,112 482,449 564,305
1,681 million in 2004 235,769 163,646 227,774 158,097 Accrued expenses 142,709 110,997 137,870 107,233
Short-term loans(Note 5) 19,606 7,795 18,941 7,531 Withholdings124,352 74,784 120,135 72,248
Other current assets 31,016 18,223 29,964 17,605 Income tax payable 21,908 35,097 21,165 33,907
1,612,548 1,112,195 1,557,867 1,074,481 Other current liabilities 25,987 14,222 25,107 13,739
NON-CURRENT ASSETS: 2,366,726 2,315,691 2,286,471 2,237,166
Long-term financial instruments(Note 3) 19 46 18 44 LONG-TERM LIABILITIES:
Long-term investment securities(Note 7) 144,373 175,779 139,477 169,818 Long-term accounts payable-other, net(Note 15) 538,207 518,761 519,957 501,170
Long-term loans(Notes 5 and 18) 37,746 51,121 36,466 49,387 Debentures, net(Note 13) 1,819,182 1,575,153 1,757,494 1,521,740
Investment securities using the equity Accrued severance indemnities, net(Note 2) 36,674 32,344 35,430 31,247
method(Note 8) 18,905 6,432 18,264 6,214 Other long-term liabilities 16,884 8,805 16,311 8,507
Long-term trade accounts and notes 2,410,947 2,135,063 2,329,192 2,062,664
receivable, net(Note 2) 83,046 - 80,230 - Total Liabilities 4,777,673 4,450,754 4,615,663 4,299,830
Guarantee deposits, net of allowance for
doubtful accounts of 2,012 million in (continued)

2004 and 4,989 million in 2003 205,101 235,727 198,146 227,734

(continued)

62 | KTF Annual Report 2004 | 63

FY 2004 Financial Reports

NON-CONSOLIDATED BALANCE SHEETS(CONTINUED) NON-CONSOLIDATED STATEMENTS OF INCOME

AS OF DECEMBER 31, 2004 AND 2003 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

(In millions of Korean won, In thousands of U.S dollars) (In millions of Korean won, In thousands of U.S dollars)

2004 2003 2004 2003 2004 2003 2004 2003

SHAREHOLDERS’ EQUITY: OPERATING REVENUE(Notes 19, 20 and 22) 5,830,818 5,076,344 $ 5,633,096 $ 4,904,206
Common stock(Note 16) 955,703 955,703 923,295 923,295 OPERATING EXPENSES(Notes 19 and 20) 5,301,831 4,294,569 5,122,047 4,148,941
Paid-in capital in excess of par value(Note 16) 1,325,489 1,325,489 1,280,542 1,280,542 OPERATING INCOME 528,987 781,775 511,049 755,265
Retained earnings 985,275 946,898 951,865 914,789
OTHER INCOME(EXPENSES), NET:
Capital adjustments:
Interest income 12,691 24,095 12,261 23,278
Treasury stock(Note 16) (93,799) (97,588) (90,618) (94,279)
Rental income 10,452 11,002 10,098 10,629
Gain on valuation of available-for-sale
Gain on foreign currency transactions, net 5,269 567 5,090 548
securities(Notes 6 and 7) 5,006 7,377 4,836 7,127
Gain on valuation of investment securities Gain(loss) on foreign currency translation, net 17,830 (27,515) 17,225 (26,582)

using the equity method(Note 8) 19 2,136 18 2,064 Interest expense (220,606) (272,992) (213,125) (263,735)
Loss on disposal of treasury stock - (1,535) - (1,483) Loss on disposal of trade accounts
Stock compensation(Note 16) 5,064 2,654 4,893 2,564 and notes receivable(Note 4) (11,816) (10,103) (11,415) (9,760)
Total Shareholders’ Equity 3,182,757 3,141,134 3,074,831 3,034,619 Loss on valuation of inventories - (726) - (701)
Total Liabilities and Shareholders’ Equity 7,960,430 7,591,888 $ 7,690,494 $ 7,334,449 Gain(loss) on disposal of short-term
investment securities, net 437 (1,746) 422 (1,687)
See accompanying notes to non-consolidated financial statements.
Gain(loss) on valuation using the equity
method, net(Note 8) 1,590 (1,641) 1,536 (1,585)
Loss on disposal of long-term investment
securities, net (3,526) (2,774) (3,406) (2,680)
Loss on disposal of property and
equipment, net (13,840) (70,544) (13,371) (68,152)
Impairment loss on investment
securities(Note 7) (45,856) (2,280) (44,301) (2,203)
Recovery of impairment loss on
investment securities - 3,579 - 3,458
Loss on valuation of currency options(Note 14) (1,349) - (1,303) -
Other, net 28,347 28,386 27,385 27,422
(220,377) (322,692) (212,904) (311,750)

(continued)

64 | KTF Annual Report 2004 | 65

FY 2004 Financial Reports

NON-CONSOLIDATED STATEMENTS OF INCOME(CONTINUED) NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

(In millions of Korean won, In thousands of U.S dollars) (In millions of Korean won, In thousands of U.S dollars)

2004 2003 2004 2003 2004 2003 2004 2003

ORDINARY INCOME 308,610 459,083 298,145 443,515 RETAINED EARNINGS BEFORE APPROPRIATIONS:
EXTRAORDINARY ITEM - - - - Unappropriated retained earnings carried over

INCOME BEFORE INCOME TAX EXPENSE 308,610 459,083 298,145 443,515 from prior years 21,812 542,644 $ 21,072 $ 524,243
Loss on valuation using the equity method - (3,172) - (3,064)
INCOME TAX EXPENSE(Note 17) (24,709) (51,657) (23,871) (49,905)
Retirement of treasury stock(Note 16) (149,853) - (144,771) -
NET INCOME 283,901 407,426 $ 274,274 $ 393,610
Net income 283,901 407,426 274,274 393,610
EARNINGS PER SHARE(Note 2) 1,545 2,174 $ 1.493 $ 2.100
155,860 946,898 150,575 914,789
DILUTED EARNINGS PER SHARE(Note 2) 1,514 2,112 $ 1.463 $ 2.040
APPROPRIATIONS OF RETAINED EARNINGS:
Legal reserve 9,972 9,414 9,634 9,095
See accompanying notes to non-consolidated financial statements. Loss on disposal of treasury stock - 1,535 - 1,483
Reserve for business expansion 30,000 820,000 28,983 792,194
Dividends(Note 16) 99,715 94,137 96,333 90,945
139,687 925,086 134,950 893,717
UNAPPROPRIATED RETAINED EARNINGS
TO BE CARRIED FORWARD TO
SUBSEQUENT YEAR 16,173 21,812 $ 15,625 $ 21,072

See accompanying notes to non-consolidated financial statements.

66 | KTF Annual Report 2004 | 67

FY 2004 Financial Reports

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS NON-CONSOLIDATED STATEMENTS OF CASH FLOWS(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

(In millions of Korean won, In thousands of U.S dollars) (In millions of Korean won, In thousands of U.S dollars)

2004 2003 2004 2003 2004 2003 2004 2003

CASH FLOWS FROM OPERATING ACTIVITIES: Decrease in income tax payable (13,190) (5,707) $ (12,743) $ (5,513)
Net income 283,901 407,426 $ 274,274 $ 393,610 Increase(Decrease) in other current liabilities 11,765 (1,923) 11,366 (1,858)
Addition of expenses not involving cash outflows: Decrease in National Pension 144 337 139 326
Loss on disposal of property and equipment, net 13,840 70,544 13,371 68,152 Increase in deferred income tax assets (14,914) (19,662) (14,408) (18,995)
Depreciation 992,900 837,971 959,231 809,556 Increase in other long-term liabilities 6,787 4,530 6,557 4,376
Amortization of intangibles 97,745 10,804 94,430 10,438 (602,779) (813,546) (582,338) (785,959)
Long-term accrued interest 7,643 7,420 7,384 7,168 Net cash provided by operating activities 907,625 661,141 876,848 638,722
Amortization of discounts on debentures 12,789 11,883 12,355 11,480 CASH FLOWS FROM INVESTING ACTIVITIES:
Amortization of discounts on long-term payable-other 19,445 14,722 18,786 14,223 Cash inflows from investing activities
Provision for severance indemnities 12,130 12,066 11,719 11,657 Collection of short-term loans 22,724 24,362 21,953 23,536
Loss on disposal of trade accounts and notes receivable 11,816 10,103 11,415 9,760 Proceeds from sale of long-term investment securities 18,688 23,145 18,054 22,360
Loss on valuation using the equity method - 1,641 - 1,585 Disposal of short-term investment securities 100,437 416,258 97,031 402,143
Loss on disposal of short-term investment securities, net - 1,746 - 1,687 Withdrawal of guarantee deposits 58,670 48,400 56,681 46,759
Loss on disposal of long-term investment securities, net 3,526 2,774 3,406 2,680 Withdrawal of short term financial instruments - 370,000 - 357,453
Loss on valuation of inventories - 726 - 701 Proceeds from disposal of property and equipment 2,922 137,111 2,823 132,462
Stock compensation 2,409 4,560 2,327 4,405 Proceeds from disposal of intangible assets 236 20 228 19
Impairment loss on investment securities 45,856 2,280 44,301 2,203 Other 27 92 26 89
Bad debt expense 25,448 52,763 24,585 50,974 203,704 1,019,388 196,796 984,821
Loss on foreign currency translation, net - 27,515 - 26,582 Cash outflow from financing activities
Loss on valuation of currency options 1,349 - 1,303 - Purchase of short-term financial instruments - (35,000) - (33,813)
Other 1,758 1,340 1,698 1,295 Purchase of short-term investment securities (100,000) (34,150) (96,609) (32,992)
1,248,654 1,070,858 1,206,311 1,034,546 Purchase of long-term investment securities (7,370) (2,614) (7,120) (2,525)
Deduction of revenues not involving cash inflows: Purchase of investment securities using the equity method (13,000) - (12,559) -
Gain on foreign currency translation, net 17,830 - 17,225 - Payment of guarantee deposits (27,599) (44,285) (26,663) (42,783)
Gain on disposal of short-term investment securities, net 437 - 422 - Acquisition of property and equipment (945,623) (927,393) (913,557) (895,945)
Gain on valuation using the equity method 1,590 - 1,536 - Increase in intangibles (6,445) (14,220) (6,226) (13,738)
Recovery of impairment loss in investment securities - 3,579 - 3,458 Payment of long-term loans (22,023) (32,152) (21,276) (31,062)
Other 2,294 18 2,216 17 Other (782) - (756) -
22,151 3,597 21,399 3,475 (1,122,842) (1,089,814) (1,084,766) (1,052,858)
Changes in assets and liabilities resulting from operations: Net cash used in investing activities (919,138) (70,426) (887,970) (68,037)
Increase in trade accounts and notes receivable (424,633) (472,897) (410,234) (456,861) CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in accounts receivable-other (19,805) (4,906) (19,133) (4,740) Cash inflows from financing activities
Decrease in prepaid expenses 9,094 14,371 8,786 13,884 Proceeds from sale of trade accounts and notes receivable - 512,000 - 494,638
Increase in inventories (72,123) (3,461) (69,677) (3,344) Proceeds from short-term borrowings 5,770,000 3,850,000 5,574,341 3,719,447
Decrease(Increase) in other current assets (19,744) 37,037 (19,074) 35,781 Proceeds from issuance of debentures 1,275,396 - 1,232,147 -
Increase in long-term trade accounts and notes receivables (83,046) - (80,230) - Increase from merger - 314,610 - 303,942
Payment of severance indemnities (7,996) (13,843) (7,725) (13,374) 7,045,396 4,676,610 6,806,488 4,518,027
Increase(Decrease) in trade accounts and notes payable 26,151 (198,317) 25,264 (191,592) Cash outflows from financing activities
Decrease in accounts payable-other (82,550) (145,511) (79,751) (140,577) Repayment of short-term borrowings (5,720,000) (4,130,000) (5,526,036) (3,989,953)
Increase in accrued expenses 31,713 25,978 30,638 25,097 Repayment of accounts payable-other - (312,933) - (302,322)
Increase(Decrease ) in withholdings 49,568 (29,572) $ 47,887 $ (28,569) Repayment of current portion of long-term debt (1,055,529) (831,802) $ (1,019,736) $ (803,596)

(continued) (continued)

68 | KTF Annual Report 2004 | 69

FY 2004 Financial Reports

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS(CONTINUED) NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

(In millions of Korean won, In thousands of U.S dollars)

1. GENERAL:
2004 2003 2004 2003 KT Freetel Co., Ltd.(the “Company”) was incorporated on January 3, 1997, under the Commercial Code of the Republic of Korea, and

Decrease in income tax payable (13,190) (5,707) $ (12,743) $ (5,513) listed on the Korean Securities Dealers Association Automated Quotation System(the KOSDAQ) in December 1999. On April 19, 2004,
Acquisition of treasury stock (146,064) (4,317) (141,111) (4,171) the Company transferred from the KOSDAQ to the Korea Stock Exchange. The Company is currently engaged in providing personal
Dividends (94,137) (90,945) communications service(“PCS”), value added services, and sale and lease of personal communication devices.
Repayment of other non-current liabilities (3) (19) (3) (18)
As of December 31, 2004, the shareholders of the Company are as follows:
Other - (177) (177) (171) (171)
(7,015,733) (5,279,248) (6,777,831) (5,100,231)
Net cash provided by(used in) financing activities 29,663 (602,638) 28,657 (582,204) Percentage of
Number of shares ownership(%)
NET INCREASE(DECREASE ) IN CASH AND
CASH EQUIVALENTS 18,150 (11,923) 17,535 (11,519) KT Corporation 89,640,088 48.70
CASH AND CASH EQUIVALENTS, Qualcomm Incorporated 4,416,350 2.40
BEGINNIG OF YEAR 10,737 22,660 10,373 21,892
HyoSung Corp. 3,017,276 1.64
CASH AND CASH EQUIVALENTS, END OF YEAR 28,887 10,737 27,908 10,373
Microsoft Corp. 2,030,000 1.10
TRANSACTIONS NOT INVOLVING CASH:
Transfer of trade accounts and notes SSB-WTCO NA 1,580,690 0.86
receivable tolong-term investments securities 30,831 119,168 29,786 115,127 NTC-GOV SPORE 1,118,240 0.61
Transfer of debentures to current Others 82,264,675 44.69
portion of long term debt 1,014,556 994,014 980,153 960,307 184,067,319 100.00
Transfer of long-term obligation under capital
lease to current portion of long-term debt - 550 - 531
Transfer of long-term debt to current 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
portion of long-term debt - 100,000 - 96,609
Transfer of long-term loans to short-term loans 34,534 26,752 33,363 25,845 Basis of Financial Statement Presentation
Transfer of long-term investments securities The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean
to trade accounts and notes receivable - 22,332 - 21,575
language(Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting
Transfer of long-term investments securities
principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea
to short-term investments securities 4,894 1,420 4,728 1,372
may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are
Recognition of loss on valuation of investments
securities using the equity method intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial
as capital adjustments 2,117 58,197 $ 2,045 $ 56,224 statements have been condensed, restructured and translated into English(with certain expanded descriptions) from the Korean
language financial statements.
See accompanying notes to non-consolidated financial statements.
The U.S. dollar amounts presented in these financial statements were computed by translating the Korean won into U.S. dollars based
on the noon buying rate of 1,035.10 to US$1.00 at December 31, 2004 in the City of New York for cable transfers in won as certified
for customs purposes by the Federal Reserve Bank of New York, solely for the convenience of the reader. This convenience translation
into U.S. dollars should not be construed as a representation that the Korean won amounts have been, could have been, or could in the
future be, converted at this or any other rate of exchange.

Significant accounting policies followed by the Company in preparing the accompanying financial statements are summarized as follows:

Adoption of Newly Effective Statements of Korea Accounting Standards

The Company prepared its financial statements in accordance with the Statements of Korea Accounting Standards(“SKAS”), which
are effective from January 1, 2004. The revised accounting standards include SKAS No.10 - “Inventories”, No.12 - “Construction-
Contracts” and No.13 - “Troubled Debt Restructurings”. The comparative financial statements were restated applying these
accounting standards.

70 | KTF Annual Report 2004 | 71

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

Use of Estimates (2) Valuation of Securities

The preparation of financial statements in accordance with Korean GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. The most significant estimates and assumptions
relate to the allowance for doubtful accounts and depreciation. Actual results could differ from those estimates and may affect amounts
reported in future periods. Management believes that the estimates are reasonable.
Revenue Recognition
The Company’s revenues are principally derived from sales of PCS handsets and PCS service revenues, which consist of non-
refundable initial subscription fees, fixed monthly access fees and usage charges. The Company recognizes sales on PCS handsets
when they are delivered to the dealers, fixed monthly access fees in the period earned, and usage charges and non-refundable initial
subscription fees at the time services are rendered.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided based on the estimated collectibility of individual accounts and historical bad debt
experience.
Changes in allowance for doubtful trade accounts and notes receivable and accounts receivable-other for the years ended December
31, 2004 and 2003 are summarized as follows:
(In millions of Korean won)
Securities are recognized initially at cost, which includes the market value of the consideration given and incidental expenses. If the
market price of the consideration given is not available, the market prices of the securities purchased are used as the basis of
measurement. If neither the market price of the consideration given nor those of the acquired securities are available, the acquisition
cost is measured at the best estimates of its fair value.
After initial recognition, held-to-maturity securities are valued at amortized cost. The difference between their acquisition costs and face
values is amortized over the remaining term of the securities by applying the effective interest method and added to or subtracted from the
acquisition costs and interest income of the remaining period. Trading securities are valued at fair value, with unrealized gains or losses
included in current operations. Available-for-sale securities are also valued at fair value, with unrealized gains or losses included in capital
adjustments, until the securities are sold or if the securities are determined to be impaired and the lump-sum cumulative amount of
capital adjustments are reflected in current operations. However, available-for-sale securities that are not traded in an active market and
whose fair values cannot be reliably estimated are accounted for at acquisition costs. For those securities that are traded in an active
market(marketable securities), fair values refer to the quoted market prices, which are measured as the closing price at the balance
sheet date. The fair values of non-marketable securities are measured at the discounted future cash flows by using the discount rate
that appropriately reflects the credit rating of the issuing entity assessed by a publicly reliable independent credit rating agency. If
application of such measurement method is not feasible, estimates of the fair values may be made using a reasonable valuation model
or quoted market prices of similar debt securities issued by entities conducting similar business in similar industries.

Securities are evaluated at each balance sheet date to determine whether there is any objective evidence of impairment loss. When
2004 2003
any such evidence exists, unless there is a clear counter-evidence that recognition of impairment is unnecessary, the Company
Beginning of year 167,521 163,134 estimates the recoverable amount of the impaired security and recognizes any impairment loss in current operations. The amount of
Write-offs (50,078) (48,376) impairment loss of held-to-maturity security or non-marketable equity security is measured as the difference between the recoverable
117,443 114,758 amount and the carrying amount. The recoverable amount of held-to maturity security is the present value of expected future cash
Provision 25,448 52,763 flows discounted at the securities’ original effective interest rate. For available-for-sale debt or equity security, the amount of

End of year 142,891 167,521
Inventories
Inventories are stated at the lower of cost or net realized value, cost being determined using the average cost method. If the net
realizable value of inventories is lower than cost, inventories are adjusted to net realizable value and the difference between cost and
revalued amount is charged to current operations.
Investment Securities Other than those Accounted for Using the Equity Method
(1) Classification of Securities
At acquisition, the Company classifies securities into one of the three categories: trading, held-to-maturity or available-for-sale. Trading
securities are those that were acquired principally to generate profits from short-term fluctuations in prices. Held-to-maturity securities
are those with fixed and determinable payments and fixed maturity that an enterprise has the positive intent and ability to hold to
maturity. Available-for-sale securities are those not classified as either held-to-maturity or trading securities. Trading securities are
classified as short-term investment securities, whereas available-for-sale securities and held-to-maturity securities are classified as long-
term investment securities, except for those maturity dates or whose likelihood of being disposed of are within one year from balance
sheet date, which are classified as short-term investment securities.
impairment loss to be recognized in the current period is determined by subtracting the amount of impairment loss of debt or equity
security already recognized in prior period from the amount of amortized cost in excess of the recoverable amount for debt security or
from the amount of acquisition cost in excess of fair value for equity security.
If the realizable value subsequently recovers, in case of a security stated at fair value, the increase in value in recorded in current
operations, up to the amount of the previously recognized impairment loss, while security stated at amortized cost or acquisition cost,
the increase in value is recorded in current operations, so that its recovered value does not exceed what its amortized cost would be as
of the recovery date if there had been no impairment loss.
(3) Reclassification of Securities
When transfers of securities between categories are needed because of changes in an entity’s intention and ability to hold those
securities, such transfer is accounted for as follows: trading securities cannot be reclassified into available-for-sale and held-to-maturity
securities, and vice versa, except when certain trading securities lose their marketability. Available-for-sale securities and held-to-
maturity securities can be reclassified into each other after fair value recognition. When held-to-maturity security is classified into
available-for-sale security, the difference between fair value and book value is recorded as capital adjustments. Whereas, in case
available-for-sale security is reclassified into held-to-maturity security, the difference is recorded as capital adjustments and amortized
using effective interest rate method for the remaining periods.
Investment Securities Using the Equity Method
Equity securities held for investments in companies in which the Company is able to exercise significant influence over the investees

72 | KTF Annual Report 2004 | 73

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

are accounted for using the equity method. The Companys share in net income or net loss of investees is reflected in current
operations. Changes in the retained earnings, capital surplus or other capital accounts of investees are accounted for as an adjustment
to retained earnings or to capital adjustment.
Property and Equipment
Property and equipment are stated at cost. Routine maintenance and repairs are expensed at the time incurred. Expenditures that result in
enhancement of the value or extension of the useful lives of the facilities involved are capitalized as additions to property and equipment.
Long-term Accounts and Notes Receivable
Long-term accounts and notes receivable arising from long-term contracts are recorded at the net present value of future cash flows,
calculated using the effective interest rate at the time of the contract execution. The difference between the nominal value and the
present value of these accounts and notes receivable is amortized over the contract period using the effective interest rate method.
The amortization is recognized as interest income. Long-term accounts and notes receivable(handset installment receivable) as of
December 31, 2004 is recorded at net present value using the weighted average borrowing interest rate as follows:

Depreciation is computed using the straight-line method based on the estimated useful lives of the assets as follows: Amount

Long-term accounts and notes receivable 89,382

Estimated useful lives
Discount (6,336)
Buildings and structures 15~30 years 83,046
Machinery and equipment 8 years
Vehicles 4~8 years
Convertible Bonds
Other 4~8 years
Interest expense on convertible bonds is recognized using the effective interest rate, which equalizes the issued amount of bonds to
the present value of the future cash outflow of bonds. Accordingly, the differences between accrued interest and interest paid are
Long-Lived Assets presented as an addition to the normal value of bonds in the long-term accrued interest account.
Long-lived assets are subject to review for impairment whenever events or changes in circumstances indicate that the carrying amount of Discounts on Debentures
an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future net cash flows expected to result Discounts on debentures are amortized over the redemption period of the debentures using the effective interest rate method.
from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the Amortization of discounts is recognized as interest expense.
impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Accrued Severance Indemnities
Leases
All employees with more than one year of service are entitled to receive a lump-sum payment upon termination of their employment with the
Lease agreements that include a bargain purchase option, result in the transfer of ownership by the end of the lease term, have a term Company, based on their length of service and rate of pay at the time of termination. The severance indemnities that would be payable assuming
equal to at least 75% of the estimated economic life of the leased property or where the present value of the minimum lease all eligible employees were to resign amount to 37,124 million and 32,938 million as of December 31, 2004 and 2003, respectively.
payments at the beginning of the lease term equals or exceeds 90% of the fair value of the leased property are accounted for as capital
Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay(as defined) to the
leases. All other leases are accounted for as operating leases. Assets and liabilities related to capital leases are recorded as property,
National Pension Fund in accordance with the National Pension Law of Korea. The Company paid half of the employees’ 6 percent
plant and equipment and long-term debt, respectively, and the related interest is calculated using the effective interest rate method. In
portion and is paid back at the termination of service by offsetting the receivable against the severance payments. Such receivables,
respect to operating leases, the future minimum lease payments are expensed ratably over the lease term while contingent rentals are
with a balance of 450 million and 594 million as of December 31, 2004 and 2003, respectively, are presented as deduction from
expensed as incurred.
accrued severance indemnities. Starting April 1999, the Company and its employees each pay 4.5 percent of monthly pay to the
Intangibles National Pension Fund under the revised National Pension Law of Korea.

Intangible assets are stated at cost, net of accumulated amortization computed using the straight-line method over the useful lives of Changes in accrued severance indemnities for the years ended December 31, 2004 and 2003 are as follows:
the assets as described below. (In millions of Korean won)

2004 2003
Estimated useful lives
Beginning of year 32,938 31,423
Frequency use rights 13 years
Severance payments (7,996) (13,843)
Goodwill 5 years
24,942 17,580
Intellectual property rights 5~10 years
Provision 12,130 12,066
Facility use rights 10~15 years
Increase due to taking over 52 3,292
Development costs 5 years
End of year 37,124 32,938

74 | KTF Annual Report 2004 | 75

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

Accounting for Foreign Currency Transactions and Translation computing diluted earnings and ordinary income per share was 193,748 thousand shares and 197,322 thousand shares for the years
The Company maintains its accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on the ended December 31, 2004 and 2003, respectively. Diluted ordinary income and earnings were 293,373 million and 416,712 million
prevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies are recorded for the years ended December 31, 2004 and 2003, respectively.
and reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet date and the translation The dilutive potential shares as of December 31, 2004 are as follows:
gains or losses are reflected in current operations. The balances have been translated using the rate of 1,043.80 and 1,197.80 to
US$1.00 at December 31, 2004 and 2003, respectively.
Number of
Exercise period common shares to be issued
Accounting for Derivative Instruments
All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the Convertible bonds Nov. 29, 2003 ~ Nov. 29, 2005 9,946,236
derivative instruments in not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current Stock options March 29, 2004 ~ March 28, 2009 18,000
operations. The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the Stock options March 25, 2005 ~ March 24, 2010 44,800
transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair value Stock options Sep. 9. 2005 ~ Sep. 8. 2010 629,500
hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure
to changes in the fair value of an asset or a liability or a firm commitment(hedged item) that is attributable to a particular risk. The
gain or loss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in 3. RESTRICTED DEPOSITS:
current operations. Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to
As of December 31, 2004 and 2003, the deposits under long-term financial instruments amounting to 19 million and 46 million,
variability in expected future cash flows of an asset or liability or a forecasted transaction that is attributable to a particular risk. The
respectively, are subject to withdrawal restriction as collateral for borrowings and guarantee of checking accounts.
effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as capital adjustment and
the ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as a capital adjustment is
reclassified to current earnings in the same period during which the hedged forecasted transaction affects earnings. If the hedged
4. DISPOSAL OF TRADE ACCOUNTS AND NOTES RECEIVABLE:
transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss in capital adjustment is added to or On November 4, 2003, the Company transferred the handset installment receivable of 339,677 million and guarantee insurance and
deducted from the asset or the liability. other incident rights to KTF Second Securitization Specialty Co., Ltd. As a result of this disposal, the Company received cash of
Income Tax 312,000 million and subordinate debt securities of 19,254 million, and the Company recognized a loss on disposal of trade
accounts and notes receivable of 8,423 million for the year ended December 31, 2003. In addition, on December 19, 2003, the
The provision for income tax consists of the corporate income tax and resident surtax currently payable and changes in deferred income
Company transferred PCS service receivables of 253,247 million as of October 31, 2003, and future trade receivables, which were
taxes for the period. The Company recognizes deferred taxes arising from temporary differences between amounts reported for
expected to be incurred until February 28, 2007 to Shinhan Bank Trust. As a result of this disposal, the Company received cash of
financial accounting and income tax purposes. Deferred income taxes will be offset against those incurred in the future, if any. Deferred
200,000 million and beneficiary certificate of 53,247 million, and the Company recognized a loss on disposal of trade accounts and
income taxes are recalculated based on the actual rate, effective at each balance sheet date.
notes receivable of 11,816 million and 1,680 million for the years ended 2004 and 2003, respectively.
Stock Compensation Expense
The Company records the difference between the present value of the exercise price and the stock price at the grant date as 5. LOANS TO EMPLOYEES:
compensation expense with a corresponding credit to the capital adjustment account(“the fair value method”). The computed deferred
As of December 31, 2004 and 2003, the Company has provided loans to its employees for housing, tuition and purchase of the
compensation expenses are allocated over the contracted vesting period. When the stock options are exercised with the issuance of
Company’s stock with the balance of 1,375 million and 1,677 million, respectively, which is recorded in short-term loans and
new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustment account and the
3,108 million and 5,164 million, respectively, in long-term loans.
par value of the new shares issued, is recorded as additional paid-in capital.

Basic and Diluted Ordinary Income per Share and Earnings per Share
Ordinary income per share and earnings per share are computed by dividing ordinary income(after deducting the income tax effect) and
net income by the weighted average number of common shares outstanding during the period. The number of shares used in
computing earnings and ordinary income per share was 183,802 thousand shares and 187,405 thousand shares for the years ended
December 31, 2004 and 2003, respectively.

Diluted ordinary income per share and earnings per share are computed by dividing ordinary income(after deducting the income tax
effect) and net income by the weighted average number of common shares outstanding, including the additional common share that
would have been outstanding if the dilutive potential common shares had been issued during the period. The number of shares used in

76 | KTF Annual Report 2004 | 77

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

6. SHORT-TERM INVESTMENT SECURITIES: (3) Non-listed equity securities as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won)
Short-term investment securities as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won) 2004 2003
2004 2003 Ownership Acquisition Net asset Book Book
(%) cost value value value
Acquisition cost Fair value Gain on valuation Fair value
Mondex Korea Co., Ltd. 6.02 920 - - -
Available-for-sale securities: Internet Metix Inc. 2.00 200 21 23 23
Listed equity securities 2,885 6,518 3,633 7,272 Geotel Co., Ltd. 10.55 263 498 263 263
Inews24. Co., Ltd. 3.58 350 - - -

The gain on valuation of the above listed equity securities is recorded in capital adjustments. ENtoB Corp. 3.13 500 483 500 500
The Radio News Co., Ltd. 10.73 624 - - -
7. LONG-TERM INVESTMENT SECURITIES: Prime Venture Capital Co., Ltd. 10.00 1,000 - 93 1,000
Onse Telecom Corp. 0.17 2,148 162 105 105
(1) Long-term investment securities as of December 31, 2004 and 2003 are as follows: NAZCA Entertainment Co., Ltd. 11.74 500 111 46 46
(In millions of Korean won)
Toysoft Co., Ltd 8.78 500 41 80 80
Ohmylove Co., Ltd. 12.06 1,200 131 131 1,200
2004 2003
Vacom Wireless, Inc. 16.77 1,880 719 719 1,880
Available-for-sale securities: Citylover Co., Ltd. 3.45 38 - - 38
Listed equity securities 4,159 5,391 MDS Planning Co., Ltd. 4.00 120 - - 120
Non-listed equity securities 10,973 8,500 Directmedia Co., Ltd. 16.09 435 233 435 -
Investments in funds 38,383 40,633 KTFMhows Co., Ltd. 51.00 2,550 2,550 2,550
Debt securities 2,191 21,341 Harex Info Tech Ltd. 23.12 3,375 1,896 3,375
Held-to maturity securities: Others - 3,357 3,135 2,653 3,245
Beneficiary certificates 88,667 99,914 19,960 9,980 10,973 8,500
144,373 175,779

In 2004, the Company recognized an additional impairment loss of 3,778 million on non-listed equity securities of Prime Venture
(2) Listed equity securities as of December 31, 2004 and 2003 are as follows: Capital Co., Ltd. and other companies for which the net equity value had declined compared to the acquisition cost and it is not
(In millions of Korean won) expected to recover. KTFMhows Co., Ltd. and Harex Info Tech Ltd. are not subject to the equity method in accordance with the
interpretation 42-59 of the financial accounting standards in Korea.
2004 2003
Gain(loss) on
Acquisition cost Fair value valuation Fair value

Wide Telecom Co. 300 11 (289) 24

Gaeasoft Co., Ltd. 532 514 (18) 913
KRTnet Corp. 1,954 3,634 1,680 4,454
2,786 4,159 1,373 5,391

The gain(loss) on valuation of the above listed equity securities is included in capital adjustments.

78 | KTF Annual Report 2004 | 79

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

(4) Investments in funds as of December 31, 2004 and 2003 are as follows: (7) Held-to-maturity securities as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won) (In millions of Korean won)

2004 2003 2004 2003

Ownership Acquisition Net asset Ownership Acquisition Net asset Acquisition cost Book value Acquisition cost Book value
(%) cost value (%) cost value
Beneficiary certificates 130,745 88,667 99,914 99,914
CEC Mobile Ltd. 16.67 4,456 4,456 16.67 4,456 4,456
PT. KTF Indonesia 99.00 234 234 99.00 234 234
The Company acquired the above beneficiary certificates issued by Shinhan Bank Trust in relation to the disposal of trade accounts and
Korea IT Fund 10.00 30,000 30,000 10.00 30,000 30,000
notes receivable(Note 4). The Company recognized the difference between fair value and acquisition cost as impairment loss of
Korea Telecom Strategy Fund 10.00 2,000 2,000 10.00 2,000 2,000
42,078 million, which may arise from the uncollectibility of the trade accounts and notes receivable.
KT Freetel Internal Venture - - - 95.00 950 950
Others - 1,693 1,693 - 2,993 2,993 8. INVESTMENT SECURITIES USING THE EQUITY METHOD:
38,383 38,383 40,633 40,633
(1) Investment securities using the equity method as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won)
PT. KTF Indonesia is not subject to the equity method in accordance with the interpretation 42-59 of the financial accounting standards in Korea.
2004 2003
(5) Debt securities as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won)
Ownership Acquisition Book Acquisition Book
(%) cost value cost value
2004 2003 Korea Digital Satellite
Acquisition cost Book value Acquisition cost Book value Broadcasting Co., Ltd. 2.38 9,954 - 9,954 3,178
KTF Technologies Co., Ltd 70.75 15,372 18,905 2,372 3,254
KTF Second Securitization Specialty Co., Ltd. - - 19,254 19,254
25,326 18,905 12,326 6,432
Government bonds 1,691 1,691 1,587 1,587
Convertible bonds 500 500 500 500
2,191 2,191 21,341 21,341
(2) Details of valuation using the equity method for the year ended December 31, 2004 are as follows:
(In millions of Korean won)

(6) Maturities of debt securities as of December 31, 2004 are as follows: Beginning Gain(loss) on
of year valuation Other changes End of year
(In millions of Korean won)

Korea Digital Satellite

2-5 years 6-10 years
Broadcasting Co., Ltd. 3,178 (1,042) (2,136) -
Government bonds 1,688 3 KTF Technologies Co., Ltd 3,254 2,632 13,019 18,905
Convertible bonds 500 - 6,432 1,590 10,883 18,905
2,188 3

The Company recognized gain on valuation using equity method of 19 million, which was recorded in capital adjustments as of
December 31, 2004.

80 | KTF Annual Report 2004 | 81

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

9. PROPERTY AND EQUIPMENT: (In millions of Korean won)

<2003> Increase Decrease

Changes in property and equipment for the year ended December 31, 2004 and 2003 are as follows:
(In millions of Korean won) Beginning
of year Acquisition Merger Other Disposal Other End of year
<2004> Increase Decrease
Land 124,401 2,388 - - 4,077 - 122,712
Beginning
of year Acquisition Other Disposal Other End of year Buildings and structures 284,979 25,484 28 480 8,128 - 302,843
Machinery and equipment 5,552,307 462,533 23,822 351,478 134,058 243 6,255,439
Land 122,712 88 - 960 - 121,840
Vehicles 9,938 295 1,495 501 506 - 11,723
Buildings and structures 302,843 3,182 5,773 3,408 76 308,314
Other 453,264 107,212 3,434 20,806 10,049 1,802 572,865
Machinery and equipment 6,255,439 355,997 671,977 32,473 70,607 7,180,333
Construction in progress 415,848 329,481 110,465 - 130,306 370,820 354,668
Vehicles 11,723 341 - 242 - 11,822
6,840,737 927,393 139,244 372,865 287,124 372,865 7,620,250
Other 572,865 45,589 104,724 6,007 65 717,106
Increase Decrease
Construction in progress 354,668 540,426 51 - 711,867 183,278
Beginning
7,620,250 945,623 782,525 43,090 782,615 8,522,693
of year Depreciation Other Disposal Other End of year
Increase Decrease
Less: Accumulated depreciation
Beginning Buildings and structures 39,232 10,079 4 1,656 - 27,767
of year Depreciation Other Disposal Other End of year
Machinery and equipment 1,909,744 726,599 10,963 70,701 10,934 2,585,562
Less: Accumulated depreciation
Vehicles 4,505 1,787 - 304 - 5,988
Buildings and structures 47,658 10,816 1 779 - 57,696
Other 229,937 99,506 - 5,513 32 323,898
Machinery and equipment 2,565,671 844,930 - 8,858 30,799 3,370,944
2,183,418 837,971 10,967 78,174 10,966 2,943,215
Vehicles 5,988 1,854 - 116 - 7,726
Net book value 4,657,319 4,677,035
Other 323,898 135,300 30,798 4,562 - 485,434
2,943,215 992,900 30,799 14,315 30,799 3,921,800
Net book value 4,677,035 4,600,893 The market value of the Company’s land based on the official price of land(published by the Ministry of Construction and Traffic) is
93,919 million as of December 31, 2004.

Depreciable assets are insured against fire and other casualty losses up to 577,345 million as of December 31, 2004.

82 | KTF Annual Report 2004 | 83

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

10. INTANGIBLES: 11. LEASED ASSETS:

(1) Changes in intangibles for the years ended December 31, 2004 and 2003 are as follows: (1) The Company maintains operating lease agreements for certain machinery and equipment. The
(In millions of Korean won) following are the future minimum rental payments under operating leases as of December 31, 2004:
<2004> (In millions of Korean won)
Increase Decrease
Beginning Year Operating lease payment
of period Acquisition Other Amortization Other End of year
2005 61,307
Goodwill 13,140 3,566 90 3,626 209 12961
2006 60,527
Intellectual property rights 1,334 768 - 387 - 1,715
121,834
Facility use rights 7,532 2,112 - 1,252 31 8,361
Frequency use rights 1,208,429 - - 92,433 - 1,115,996
Other 110 - - 47 - 63 12. BORROWINGS:
1,230,545 6,446 90 97,745 240 1,139,096
(1) Short-term borrowings as of December 31, 2004 and 2003 are as follows:
(In millions of Korean won)
(In millions of Korean won)
Interest rate
<2003> Increase Decrease per annum(%)
Beginning 2004 2004 2003
of year Acquisition Merger Amortization Other End of year
General loans 4.18 ~ 4.19 100,000 50,000
Goodwill 1,951 12,798 - 1,608 - 13,141 Discounted promissory notes 3.96 ~ 4.02 200,000 200,000
Intellectual property rights 1,038 608 - 311 2 1,334 300,000 250,000
Facility use rights 7,807 814 - 1,044 45 7,532
Frequency use rights - - 1,216,223 7,794 - 1,208,429
Other 157 - - 47 - 110 (2) Long-term borrowings as of December 31, 2004 and 2003 are as follows:
10,953 14,220 1,216,223 10,804 47 1,230,545 (In millions of Korean won)

Interest rate
(2) 10,513 million and 17,660 million of ordinary development costs were charged to expense for the per annum(%)
years ended December 31, 2004 and 2003, respectively. 2004 2004 2003

(3) On December 15, 2000, KT ICOM Co., Ltd.(“KT ICOM”) acquired the license to provide third generation Long-term debt in local currency:
mobile services utilizing 2Ghz frequency band(“IMT-2000 service”) with W-CDMA technology. KT ICOM General loans - - 50,000
paid 650 billion of the total license fee of 1,300 billion on March 20, 2001 and the remaining balance Less: Current portion - (50,000)
was required to be paid including interest for the period from 2007 to 2011. On December 4, 2001, MIC - -
granted the license to KT ICOM and assigned the related frequency band, giving KT ICOM the right to
provide IMT-2000 services using W-CDMA technology for 15 years from that date.

On March 6, 2003, KT ICOM was merged into the Company, and the Company started to provide IMT-
2000 service on December 28, 2003.

84 | KTF Annual Report 2004 | 85

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

13. DEBENTURES: (3) On November 29, 2002, the Company issued convertible bonds with a 1.0% coupon interest rate and a
guaranteed interest rate on maturity rate of 2.0%. The bonds may be converted into common stock
(1) Debentures as of December 31, 2004 and 2003 are as follows: from November 29, 2002 to November 29, 2005 at the conversion price of 37,200. For the bonds not
(In millions of Korean won) converted, the Company will redeem them with a premium calculated by applying the compound
interest rate method to the difference between the guaranteed interest rate and the coupon interest
Interest rate
per annum(%) rate. In relation to these convertible bonds, the Company recorded 15,731 million as current long
term accrued interest, which is shown as addition to current portion of long-term debt, as of
2004 2004 2003
December 31, 2004.
General debentures 2.64 ~ 7.00 2,472,147 2,213,666
Convertible bonds 1.00 370,000 370,000 (3) Payment schedules for the Company’s debentures as of December 31, 2004 are as follows:
2,842,147 2,583,666 (In millions of Korean won)
Less: Current portion (1,015,122) (1,004,994)
Discount on debentures (7,843) (11,608) Year Amount
Add: Long-term accrued interest - 8,089 2005 1,015,122
1,819,182 1,575,153 2006 347,025
2007 500,000
(2) General debentures as of December 31, 2004 and 2003 are as follows: 2008 320,000
(In millions of Korean won, In millions of JPY) 2009 590,000
2011 70,000
Interest rate
per annum(%) 2,842,147

Due date 2004 2004 2003

20th Feb. 9, 2006 6.00 300,000 300,000
21st Mar. 19, 2004 6.00 - 400,000 14. DERIVATIVES:
22nd Apr. 18, 2004 2.70 - 104,994
- (JPY 9,391) The Company has entered into currency option contracts with Shinhan Bank to hedge the exposure to the change in value of
23rd Apr. 20, 2006 3.13 47,025 52,492 debentures that are linked with Japanese yen. Currency option contracts as of December 31, 2004 are as follows:
(JPY 4,695) (JPY 4,695)
28th Apr. 8, 2004 7.00 - 200,000
37th May 24, 2005 2.64 95,122 106,180 Term Contract amount Type Exercisable exchange rate (JPY/ )

(JPY 9,497) (JPY 9,497)

Shinhan Bank 2004.05.10 ~ 2005.5.24 JPY 2,000,000,000 JPY Call / JPY Put 10.3 ~ 10.85
38th July 16,2004 6.00 - 300,000
40th Feb. 18, 2005 6.00 350,000 350,000 2004.05.10 ~ 2006.4.20 JPY 2,000,000,000 JPY Call / JPY Put 10.65 ~ 13.4
41st Aug. 26, 2005 5.92 200,000 200,000
42nd Nov. 14, 2007 5.94 200,000 200,000 In relation to the currency option contracts, the Company recognized loss on valuation of currency options of 1,349 million.
44th Feb. 19, 2009 5.66 360,000 -
45th Mar. 15, 2008 5.24 320,000 -
46th May 10, 2007 4.61 300,000 -
47-1st July 13, 2009 4.95 230,000 -
47-2nd July 12, 2011 5.32 70,000 -
2,472,147 2,213,666
(JPY 14,192) (JPY 23,583)

Discounts on debentures are amortized over the period from the issue date to due date, using effective
interest rate, and the amortized amounts are charged as interest expense.

86 | KTF Annual Report 2004 | 87

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

15. LONG-TERM ACCOUNTS PAYABLE-OTHER: 16. SHAREHOLDERS’ EQUITY:

Long-term account payable-other is related to frequency use rights and required to be paid including applicable interest from 2007 (1) Capital stock
to 2011.
The Company has authorized 400,000,000 shares of 5,000 par value common stock and issued 184,067,319 shares as of December
Long-term accounts payable-other as of December 31, 2004 is stated at the net present value of future cash flows, calculated using the 31, 2004.
effective interest rate(9.93%) at the time of receipt of frequency use license as follows:
On March 9, 2004, the Company retired 4,796,200 shares of treasury stock amounting to 96,765 million and on December 28, 2004,
(In millions of Korean won)
the Company retired 2,277,000 shares of treasury stock amounting to 53,088 million.
Amount
The changes in capital stock for the year ended December 31, 2004 are as follows:
Long-term account payable-other 650,000 (In millions of Korean won)

Discount (111,793)
Cause of Par value Number of Paid in capital in
538,207 Date changes (won) shares Capital Stock excess of par value

Beginning of period - 5,000 191,140,519 955,703 1,325,489

The maturities of the Company's long-term account payable-other as of December 31, 2004 are as follows:
(In millions of Korean won) Retirement of
March 9, 2004 - (4,796,200) - -
treasury stock
Year Amount Retirement of
December 28, 2004 - (2,277,000) - -
treasury stock
2007 90,000
184,067,319 955,703 1,325,489
2008 110,000
2009 130,000
2010 150,000 (2) Treasury stock
2011 170,000
650,000 As of December 31, 2004, the Company holds 2,766,951 treasury shares and intends to dispose of the
treasury stock in near future.

(3) Stock Option Plan

The Company entered into stock option agreements with the Chief Executive Officer and senior managers.
The details of the stock options granted as of December 31, 2004 are as follows:
(In millions of Korean won)

Number of Exercise
Grant Date Employee shares price/share Methods Exercise period

2001. 3.29 Former CEO 18,000 41,273 New stock issue 2004. 3.29~2009. 3.28
2002. 3.25 Senior managers 44,800 45,178 New stock issue 2005. 3.25~2010. 3.24
2003. 9. 8 CEO, Senior managers 541,900 30,000 New stock issue 2005.9.9~2010. 9.8

The Company values stock options granted based on the fair value method(see Note 2). Total compensation expense of 6,656 million
was allocated over the vesting period, and the compensation expense charged to operations for the year ended December 31, 2004 is
2,409 million.

(4) Dividends
The Company is scheduled to pay cash dividends of 99,715 million for the 181,300 thousand outstanding shares at 550 dividend
per share and the dividend pay out ratio(Dividend / Net income) is 35.1% in 2004.

88 | KTF Annual Report 2004 | 89

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

17. INCOME TAX AND DEFERRED INCOME TAXES: 19. OPERATING REVENUE AND EXPENSES:
(1) The statutory corporate income tax rate(including resident surtax) applicable to the Company was (1) Operating revenue for the years ended December 31, 2004 and 2003 consist of the following:
approximately 29.7 percent in 2004 and 2003, respectively. Income tax expense for the years ended (In millions of Korean won)
December 31, 2004 and 2003 is as follows: (In millions of Korean won)
2004 2003
2004 2003
PCS 4,231,059 3,924,805
Income before income tax 308,610 459,083 Merchandise sales 1,241,609 875,047
Adjustments: Other 358,150 276,492
Permanent differences, net 16,882 16,472 5,830,818 5,076,344
Temporary differences, net 19,658 43,078
36,540 59,550
(2) Operating expenses for the years ended December 31, 2004 and 2003 is summarized below.
Taxable income before tax loss carryforward 345,150 518,634
(In millions of Korean won)
Tax loss carryforward from KTM.Com (109,860) (135,600)
Taxable income 235,290 383,034 2004 2003
Tax rate(%) 29.7 29.7
Tax calculated on taxable income 69,881 113,761 Salaries and wages 171,634 143,046
Tax credit (30,258) (42,442) Provision for severance indemnities 12,130 12,066
Income tax currently payable 39,623 71,319 Employee welfare 27,904 26,259
Decrease(Increase) in deferred income taxes: Rent 113,441 100,531
Temporary differences (1,029) (12,046) Lease 61,307 40,839
Utilization of accumulated tax losses carried forward (13,750) - Commissions 438,725 422,564
Utilization of accumulated tax credit carried forward (135) (7,616) Depreciation 992,900 837,971
Income tax expense 24,709 51,657 Amortization 97,745 10,804
Tax and dues 45,170 47,638
Interconnection charges 506,982 464,264
(2) The changes in deferred income taxes for the years ended December 31, 2004 and 2003 are as follows: Leased line charges 357,257 355,936
(In millions of Korean won)
Ordinary development costs 10,513 17,660
2004 2003 Sales promotion 163,653 123,221
Sales commissions 718,089 455,282
Beginning of year 94,257 77,681
Advertisements 123,261 113,197
Increase 14,914 19,662
Bad debt 25,448 52,763
Deferred income tax liabilities transferred from KT ICOM - (3,086)
Water and electricity 49,362 43,864
End of year 109,171 94,257
Communications 28,827 29,233
Repairs and maintenance 58,302 59,365
18. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY: Cost of PCS handset sales 1,236,887 870,601
Other 62,294 67,466
As of December 31, 2004 and 2003, assets and liabilities denominated in foreign currencies, other than the lease obligations under 5,301,831 4,294,569
capital lease, long-term debt and debentures in foreign currencies, described in Note 13, are as follows:
(foreign currencies other than U.S. dollars are translated into U.S. dollars; In millions of Korean won)

2004 2003
Account U.S. dollars Won equivalent U.S.dollars Won equivalent
Cash and cash equivalents $ 326 340 $ 101 121
Long-term loans 7,185 7,500 1,450 1,737
Accounts payable- other 18,740 19,561 1,516 1,816

90 | KTF Annual Report 2004 | 91

FY 2004 Financial Reports

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AS OF DECEMBER 31, 2004 AND 2003

20. RELATED PARTY TRANSACTIONS: 22. BUSINESS SEGMENTS:

(1) Transactions with related parties for the years ended December 31, 2004 and 2003 are as follows: The Company’s operations consist of 016 division and 018 division classified by recognition code providing the same services and
(In millions of Korean won) devices. Details of the Company’s business segment information for the years ended and as of December 31, 2004 and 2003 is
as follows:
Revenues:
Transaction 2004 2003 (In millions of Korean won)

KT Corporation Interconnection charges & others 631,544 561,579 2004 016 division 018 division IMT 2000 Total
KT Solutions Interconnection charges & others 8,772 9,513
Operating revenue 5,138,634 692,184 - 5,830,818
KT Hitel Interconnection charges & others 43 38
Operating income 396,456 132,531 - 528,987
Others Interconnection charges & others 1,680 4,167
Ordinary income 202,240 106,370 - 308,610
642,039 575,297
Depreciation 875,032 117,868 - 992,900
Expenses: Transaction 2004 2003 Property and equipment, net(*) 3,825,616 515,320 76,679 4,417,615
KT Corporation Leased line charges & others 482,900 466,406 2003 016 division 018 division IMT 2000 Total
KTF Technologies Co., Ltd PCS revenues & others 248,293 150,524
Operating revenue 4,049,564 1,026,780 - 5,076,344
KT Hitel 24,424 9,353
Operating income 584,510 197,265 - 781,775
Others 10,449 5,742
Ordinary income 333,307 125,776 - 459,083
766,066 632,025
Depreciation 668,476 164,495 - 837,971
Property and equipment, net(*) 3,408,433 864,220 49,714 4,322,367
(2) Receivables and payables with related parties as of December 31, 2004 and 2003 are as follows:
(*) Construction in progresses is not included.
(In millions of Korean won)

Receivables Payables
2004 2003 2004 2003
KT Corporation 155,301 156,874 389,725 354,902
KT Solutions 300 150 377 201
KT Hitel 2 - 2,584 28
KTF Technologies Co., Ltd - - 50,058 31,837
Others 581 2,640 293 1,322
156,184 159,664 443,037 388,290

21. COMMITMENT:
The Company has entered into an agreement covering the resale of PCS with KT Corporation. As compensation for providing
telecommunications network, the Company receives certain amount by multiplying outgoing call generated from KT Corporation’s
subscribers by rate per minute.

92 | KTF Annual Report 2004 | 93

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