Good morning. I am Hee Jun Chung, IRO of SK Telecom. Thank you for joining SK Telecom's earnings conference call. Today, we will first deliver a presentation on major events, 2023 full year earnings highlights and business performances, which will be followed by a Q&A session.

The call is attended by our executives from relevant business divisions, including Yang-Seob Kim, CFO of SK Telecom, and we're providing consecutive interpretation for the call. As you may know, I'd like to remind you that all forward-looking statements are subject to change depending on various factors, such as market and macro situations.

Let me now present our CFO..

Good morning. This is Yang-Seob Kim, CFO of SK Telecom. It is my first time to greet you and as we head into the Lunar New Year holiday, I would like to wish you a very happy New Year. In the third quarter of last year, SK Telecom announced the AI Pyramid Strategy to become a global AI company.

At CES 2024 held in Las Vegas last month, we showcased AI technologies that promise to change our daily lives and actively engage in discussions with global leading AI players to expand global partnerships. Through these efforts, we will strive to produce concrete AI business results this year.

Let me first report on the annual consolidated financial results for 2023. Thanks to improved earnings of SK Telecom and SK Broadband, consolidated revenue reported KRW 17,608.5 billion, up 1.8% year-over-year. Operating income posted KRW 1,753.2 billion, up 8.8% year-over-year and net income posted KRW 1,145.9 billion.

On a non-consolidated basis, revenue posted KRW 12,589.2 billion, up 1.4% year-over-year. Operating income and net income reported KRW 1,455.9 billion and KRW 1,059.7 billion, respectively. Let me now turn to business highlights for 2023 and strategic directions in accordance with the AI Pyramid Strategy.

First, I'd like to cover the AI infrastructure domain, which serves as the foundation of the AI Pyramid. Supported by the continued increase in utilization rates, data center revenue for 2023 achieved a 30% growth year-over-year. Demand for data centers that accommodate GPUs is expected to grow significantly with the arrival of the AI era.

Therefore, SK Telecom plans to drive the data center business more strongly focused on the next-generation AI data centers and global expansion. SAPEON, an AI semiconductor company launched X330, a next-generation inference chip set at the end of last year.

At this year's CES, SAPEON had discussions with Supermicro, a global server provider on how to cooperate to increase the sales of X330. The 2 companies also plan to pursue business cooperation on next-generation AI data centers. SK Telecom has been pursuing a 2-track multi-LLM strategy centered on our own capabilities as well as external partnerships.

To be more specific, we are striving to evolve A.X, our own LLM into a multimodal LLM through continuous performance enhancements. We're also developing an AI platform that will offer diverse LLMs in cooperation with leading domestic and foreign AI companies such as Anthropic, OpenAI, Allganize and Konan Technology.

Furthermore, together with the Global Telco AI Alliance, concrete global expansion plans are being developed with the telco-specific LLM that SK Telecom has been working on.

Next, the AIX domain covers our internal core businesses such as MNO, broadband and enterprise as well as closely related external businesses such as mobility, health care and media.

Among the internal areas of AIX, the MNO business recorded 15.67 million 5G subscribers as of the end of 2023, which accounts for more than 68% of the total subscriber base. SK Broadband's Pay TV subscribers and Broadband subscribers reached 9.55 million and 6.93 million, respectively, as of the end of 2023.

We're planning to launch a personalized AI TV service that will give our customers a new experience. The enterprise business continues to gain orders for IoT lines while striving for growth by developing diverse AI business items such as AICC, Vision AI and Big Data.

The cloud business grew its annual revenue by more than 30% year-on-year, thanks to the increase in recurring MSP sales. Moreover, based on the multi-LLM strategy aimed at providing diverse LLM models that cater to specific environments and needs of customers, we opened the subscription-type enterprise AI market in January.

At the same time, we will pursue on-premise implementation projects for clients in the financial and public sectors where security is of utmost priority. These are part of our efforts to gain leadership in the enterprise AI market this year. Moving on to the external areas of AIX, we are focusing on taking the lead in the UAM business.

This year, we will showcase actual UAM aircraft by Joby Aviation for the first time in Korea at the K-UAM Grand Challenge. The 2 companies will also enter the global UAM market together through close cooperation.

Regarding X Caliber, an AI-powered veterinary X-ray analysis solution, we entered the global market last year through strategic partnerships in Japan, Australia and Singapore. In January, SK Telecom signed an MOU with Vetology Innovations, a global leader in veterinary imaging services to target the U.S. market. Let me now report on the AI services.

With the official launch last year, A. created a huge start in the market in October by launching call recording and summary functions. A. continues to innovate customers' communication experience with new features, including a real-time call interpretation service in December. We will keep adding killer services to enable A.

to become a truly personal AI assistant. Thanks to the popularity of if home launched in May last year, ifland recorded the MAU of 3.61 million as of the end of 2023 and achieved meaningful growth in overseas markets such as India.

Furthermore, the economic system introduced last year is contributing to enhancing the platform's vitality such as the increase in usage time. This year, we will offer differentiated services, such as AI Persona and AI Studio by actively combining generative AI capabilities with ifland services.

T Universe achieved the MAU of more than 2.35 million as of the end of 2023 through partnerships with big players such as YouTube Premium, having positioned itself as Korea's leading subscription service.

We will continue to add impactful products such as Netflix and pursue substantial growth by transforming T Universe as an AI-based subscription commerce platform. The amount of dividends for 2023 was determined by the Board at KRW 3,541 including KRW 2,491 that was already paid out and KRW 1,051 for Q4.

It is subject to the approval at the General Meeting of Shareholders in March. Finally, our annual consolidated revenue target for 2024 is KRW 17.9 trillion, up approximately 2% year-over-year.

With the clear slowing down trend in 5G subscriber growth and M&A revenue growth, the internal and external environment remains challenging, raising concerns for this year. However, by producing meaningful results in the new growth businesses and AI domains, we will strive to maximize corporate value and shareholder value.

We ask for your continued support and encouragement. Thank you. We will now begin the Q&A session..

Now Q&A session will begin. [Operator Instructions] The first question will be presented by Seyon Park from Morgan Stanley..

I am Park Seyon from Morgan Stanley. I would like to ask 2 questions. First of all, I'd like to know more about your outlook on the MNO revenue as well as MNO ARPU trend for 2024. The second question has to do with your shareholder return policy. Your 3-year shareholder return policy has ended in 2023.

So, what is your plan for shareholder return going forward?.

Hello. I am Yang-Seob Kim, CFO of SK Telecom. Let me first answer your question on our outlook on 2024 MNO revenue and ARPU trend. As of the end of 2023, our 5G handset subscribers reached 15.67 million, with the 5G penetration rate exceeding 68%. Therefore, we expect a growth of subscribers and MNO revenue to clearly slow down year-over-year.

We believe that this is an inevitable trend as more than 5 years have passed since the launch of 5G service in 2019. So, we are determined to drive MNO growth through other various means in addition to subscriber net adds.

For instance, we will attract and retain customers through killer services such as A.'s call recording feature for iPhone users, which garnered much attention. Also, we will continue to add differentiated benefits, including the link to subscription services such as T Universe in order to drive customer demand for premium plans.

In addition, we will actively utilize AI to offer and recommend customized products and services for customers and provide efficient and quality customer consultation, which will contribute to improving customer experience and leading to better productivity and profitability.

And furthermore, just like the roaming service that enjoyed more than 10% growth from even the pre-pandemic level, we will continue to develop and expand diverse revenue streams to continue the growth momentum. Nevertheless, in the process of enterprise business expansion, the number of IoT lines that have lower ARPU is constantly on the rise.

So, the blended ARPU, including IoT connections is expected to decline slightly as was the case in 2023. Now, let me address your question regarding our shareholder return policy. 2023 was the last year when the previous shareholder return policy was implemented.

Last year's DPS was KRW 3,541 which is about 7% higher than the historical level and also with share buyback of KRW 300 billion and cancellation of treasury shares worth KRW 200 billion, we believe that last year, we recorded a higher level of shareholder return than before. And we're currently working on the next shareholder return policy.

While keeping higher shareholder value as our top priority, we are considering numerous factors, including the sluggish growth of the MNO business, AI-related investments needed to secure new growth engines and a balance in resources allocation between growth and shareholder return.

So, we will develop the most optimal plan and discuss it with the Board and then communicate with the market when more details are available. We ask for your patience..

The following question will be presented by Joonsop Kim from KB Securities..

I am Kim Joonsop from KB Securities. I'd like to ask questions regarding your AI business and enterprise business. First of all, there is a great interest in your AI Pyramid Strategy in the market.

So, I'd like to understand some of the tangible results that you have been producing by making investment in Anthropic and by pursuing the Global Telco AI Alliance. The second question has to do with your enterprise business. You mentioned that the data center business and the cloud business has been enjoying some good growth.

And so could you share with us some milestones and the current status as well as future directions, which will help us better understand your future direction?.

As for your question on the results of an investment in Anthropic as well as the Global Telco AI Alliance and the future business directions, Mr. Choi Hwan-seok, Head of the AI Strategic Partnership will address this question. And then the Head of Enterprise Business Strategy Office will address your question on our enterprise business..

As you may know, SK Telecom invested $100 million in Anthropic, a global AI leader in August 2023. We have been advancing our own LLM while building the telco-specific LLM in cooperation with global leading AI companies such as OpenAI and Anthropic.

The telco-specific LMM is currently under development, utilizing the large telco data that the company has. It is our target to release commercial features that can be applied for AI contact centers and telco agents in the first half of this year.

Also through the global telco AI alliance launched in July last year, we're developing concrete plans for the global expansion of the telco-specific LLM. We're also expanding the K-AI Alliance through investments in Allganize and Imprimed in the fourth quarter of last year and we will continue to pursue AI transformation in diverse industries.

Let me now elaborate more on our Global Telco AI Alliance. As an AI service provider, SK Telecom aims to offer telco-specific LLM services, utilizing our large telco data.

We're currently working on commercializing AI tools that will effectively support localization and advancement of diverse telco-specific services through our own efforts as well as cooperation with external partners.

Launched in July 2023, the Global Telco AI Alliance consists of SK Telecom, Deutsche Telekom, e& and Singtel whose total subscribers stand at 1.4 billion in 50 countries around the world and other global leading telcos have shown interest in joining the alliance.

We plan to expand telco-specific LLMs by incorporating data and needs of the alliance members. If we can commercialize AI solutions based on the economies of scale afforded by the Alliance members, we will be one of the few companies in the world that can gain meaningful earnings from AI businesses..

I am Young-joo, Head of Enterprise Business Strategy Office. Let me first comment on the success of SK Telecom's enterprise business. In 2023, driven by higher data center utilization rates and cloud volume, all areas of enterprise business enjoyed growth.

As a result, the Q4 revenue recorded KRW 436.6 billion, up 11.4% year-on-year and the full year revenue posted KRW 1,630.6 billion, up 8.1% year-over-year. Moving on to the prospects for data center and other businesses, first of all, for data center business, we expect continued quarterly growth along with increasing utilization of new data centers.

So this trend is expected to continue. And this year's annual data center revenue is expected to grow at a similar rate as of the previous year. Also, we are in the process of adding new data centers in the metropolitan area with the goal of becoming Korea's #1 data center operator by doubling our data center capacity by 2030 to 200-megawatts.

Next, on our cloud business, we plan to pursue this cloud business centered on expanding the AI cloud business to capitalize on the growing demand for AI cloud with the popularity of that ChatGPT as well as improving our multi-cloud business for MSPs.

Also, we're working on cloud business scale up to win orders from big accounts based on SK Telecom's own cost optimization technologies..

The following question will be presented by Soojin Kim from Mirae Asset Daewoo..

I'm Kim Soojin from Mirae Asset Securities. I'd like to ask 2 questions. First of all, regarding the A. service that you officially launched last year, we understand that this service is doing really well. So, if there are any specific performance numbers that you can share with us, we would appreciate that. And I would also like to understand the A.

success on the impact on the fixed and mobile business, the current trend as well as the future direction. As for the second question, I'd like to understand the IPO plans for SK Broadband as well as your outlook on the earnings for SK Broadband in 2024..

Regarding our thoughts on SK Broadband's IPO, I'm going to comment on this question and then more specific details will be provided by the Head of Corporate Planning Office at SK Broadband. Then the Head of AI Assistant will provide you with answers on the current performance of A. and future plans.

SK Broadband continues to expand the basis for media and B2C business through subscriber growth and strengthen growth prospects and competitiveness of the data center and solution business based on the synergy between SK Telecom and SK Broadband.

Fundamental strengthening of the competitive edge and stable financial structure are expected to continue to contribute to both consolidated earnings and SK Telecom's corporate value.

Regarding the IPO of SK Broadband, we will come up with the most optimal plan based on the goal of realizing the true value of SK Broadband and maximizing corporate value of SK Telecom.

So, we will continue to -- we will closely monitor the market situations and determine when and whether to go ahead with the IPO of SK Broadband and see what will be the most appropriate timing and then we will develop specific plans and share them with the market..

I am Lee Joon-ho, Head of the Corporate Planning Office at SK Broadband. Let me provide you with comments on the outlook for SK Broadband going forward.

First of all, we're going to continue to drive the B2C subscriber growth and expand the B2B business centered on data center and enterprise, thereby maintaining the rate of growth similar to the previous year.

And we will not only grow the subscriber base, but also pursue qualitative growth focused on high-value business to enhance both the top line and the bottom line of the B2C business. Moving on to our Enterprise business, we will achieve growth by capitalizing on new opportunities in the market to expand the fixed volume -- fixed line volume.

And at the same time, we will further advance the fixed and mobile cooperation structure between SK Telecom and SK Broadband to focus on expanding the business models based on AI solutions.

For data center, we will pursue top line growth through higher utilization of the new data centers while improving the operational efficiency through AI in order to build the foundation for sustainable growth in the medium to long term..

I am Kim Yong-hun, Head of AI Assistant. Let me provide comments on the actual performance of A. and future directions. Since the official launch in September 2023, A.'s cumulative subscribers reached 3.4 million and the growth trend is continuing and the cumulative subscribers grew nearly 300% for the past year, which shows a good performance of A.

since official launch. After the official launch, A. topped the chart in the lifestyle category in both Apple App Store and Google Play Store, and it is still ranked high. And also in the Korean mobile app Hall of Fame, A. ranked first in the chatting app category in the second half of 2023, demonstrating its popularity and usefulness in the market.

We believe that the success of A. is the result of continued effort to deliver value to customers by offering diverse useful services and features such as call recording and summary and fleet management. And we recently released the call interpretation service as part of iPhone call recording function and a conversational playlist creation function.

In the first quarter of 2024, the call interpretation service will be available for other platforms as well. And these are receiving good attention in the market. And we are collaborating with SK Broadband in the media area to boost the popularity of A. And likewise, A.

will continue to encourage customers acquired through communication-based services to use other life assistance services of A. by continuing to enhance functions and we plan to grow the usage volume of A. in 2024 as well. And we are developing monetization models based on such traffic.

And we are considering various performance indicators on customer usage patterns of A. services and functions. And when our internal discussions are finalized, we will share them with you in the market..

This concludes the earnings conference call for 2023. And if you need further explanation or have additional questions, please contact the IR team any time. Thank you..