KT CORP - Annual Report 2008 | FinancialReports.eu

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As filed with the Securities and Exchange Commission on June 29, 2009

callerid=999 iwidth=540 length=0 callerid=999 iwidth=540 length=0

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended
December 31, 2008
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
	Date of event requiring this shell company
report
	For the transition period
from to

Commission file number 1-14926

KT Corporation

(Exact name of Registrant as specified in its charter)

KT Corporation	The Republic of Korea
(Translation of
Registrants name into English)	(Jurisdiction of incorporation
or organization)

206 Jungja-dong

Bundang-ku, Sungnam, Gyunggi-do

463-711 Korea

(Address of principal executive offices)

Thomas Bum Joon Kim

206 Jungja-dong

Bundang-ku, Sungnam, Gyunggi-do

463-711 Korea

Telephone: +82-31-727-0850; E-mail: [email protected]

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing one-half of one share of common stock	New York Stock Exchange, Inc.
Common Stock, par value W 5,000 per share*	New York Stock Exchange, Inc.*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

As of December 31, 2008, there were 202,035,296 shares of common stock, par value W 5,000 per share, outstanding (not including 71,500,404 shares of common stock held by the company as treasury shares)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing. U.S. GAAP o IFRS o Other þ

If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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Not for trading, but only in connection with the registration of the American Depositary Shares.

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TABLE OF CONTENTS

PART I	1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR
MANAGERS AND ADVISERS	1
Item 1.A. Directors and Senior Management	1
Item 1.B. Advisers	1
Item 1.C. Auditors	1
ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE	1
Item 2.A. Offer Statistics	1
Item 2.B. Method and Expected Timetable	1
ITEM 3. KEY INFORMATION	1
Item 3.A. Selected Financial Data	1
Item 3.B. Capitalization and Indebtedness	5
Item 3.C. Reasons for the Offer and Use of
Proceeds	5
Item 3.D. Risk Factors	5
ITEM 4. INFORMATION ON THE COMPANY	14
Item 4.A. History and Development of the
Company	14
Item 4.B. Business Overview	15
Item 4.C. Organizational Structure	37
Item 4.D. Property, Plants and Equipment	37
ITEM 4A. UNRESOLVED STAFF COMMENTS	40
ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS	40
Item 5.A. Operating Results	40
Item 5.B. Liquidity and Capital Resources	53
Item 5.C. Research and Development, Patents
and Licenses, Etc.	61
Item 5.D. Trend Information	62
Item 5.E. Off-balance Sheet Arrangements	62
Item 5.F. Tabular Disclosure of Contractual
Obligations	62
Item 5.G. Safe Harbor	62
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES	62
Item 6.A. Directors and Senior Management	62
Item 6.B. Compensation	66
Item 6.C. Board Practices	67
Item 6.D. Employees	68
Item 6.E. Share Ownership	70
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS	70
Item 7.A. Major Shareholders	70
Item 7.B. Related Party Transactions	70
Item 7.C. Interests of Experts and
Counsel	71
ITEM 8. FINANCIAL INFORMATION	71
Item 8.A. Consolidated Statements and Other
Financial Information	71
Item 8.B. Significant Changes	72
ITEM 9. THE OFFER AND LISTING	73
Item 9.A. Offer and Listing Details	73
Item 9.B. Plan of Distribution	74

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(continued)

Item 9.C. Markets	74
Item 9.D. Selling Shareholders	78
Item 9.E. Dilution	79
Item 9.F. Expenses of the Issuer	79
ITEM 10. ADDITIONAL INFORMATION	79
Item 10.A. Share Capital	79
Item 10.B. Memorandum and Articles of
Association	79
Item 10.C. Material Contracts	84
Item 10.D. Exchange Controls	85
Item 10.E. Taxation	88
Item 10.F. Dividends and Paying Agents	92
Item 10.G. Statements by Experts	92
Item 10.H. Documents on Display	92
Item 10.I. Subsidiary Information	92
ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK	93
ITEM 12. DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES	94
Item 12.A. Debt Securities	94
Item 12.B. Warrants and Rights	94
Item 12.C. Other Securities	94
Item 12.D. American Depositary Shares	94
PART II	94
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES	94
ITEM 14. MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	94
ITEM 15. CONTROLS AND PROCEDURES	95
ITEM 16. [Reserved]	96
ITEM 16A. AUDIT COMMITTEE FINANCIAL
EXPERT	96
ITEM 16B. CODE OF ETHICS	96
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES	96
ITEM 16D. EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES	96
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY
THE ISSUER AND AFFILIATED PURCHASERS	97
ITEM 16G. CORPORATE GOVERNANCE	97
PART III	99
ITEM 17. FINANCIAL STATEMENTS	99
ITEM 18. FINANCIAL STATEMENTS	99
ITEM 19. EXHIBITS	99
EX-1
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-15.1
EX-15.2
EX-15.3
EX-15.4

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PRESENTATION

All references to Korea or the Republic contained in this annual report mean the Republic of Korea. All references to the Government are to the government of the Republic of Korea. All references to we, us or the Company are to KT Corporation and, as the context may require, its subsidiaries.

All references to Won or W in this annual report are to the currency of the Republic and all references to Dollars, $, US$ or U.S. dollars are to the currency of the United States of America. Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W 929.6 to US$1.00, W 938.2 to US$1.00 and W 1,257.5 to US$1.00 at December 31, 2006, 2007 and 2008, respectively. Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2008 have been translated into United States dollars at the rate of W 1,262.0 to US$1.00, the noon buying rate in the City of New York for cable transfers in Won as certified for customs purposes by the Federal Reserve Bank of New York at December 31, 2008.

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (SKAS) No. 1 through No. 25. Among these statements, SKAS No. 1 through No. 10 and SKAS No. 12 through No. 20 are required to be applied in the prior periods. Although SKAS No. 11 and SKAS No. 21 through No. 25 are required to be applied starting in 2007, the accompanying consolidated financial statements for the year ended December 31, 2006 has been reclassified in accordance with Statements of Korea Accounting Standards No. 16 and No. 21 for comparison purposes.

PART I

ITEM 1. Identity of Directors, Senior Managers and Advisers

Item 1.A. Directors and Senior Management

Not applicable.

Item 1.B. Advisers

Not applicable.

Item 1.C. Auditors

Not applicable.

ITEM 2. Offer Statistics and Expected Timetable

Item 2.A. Offer Statistics

Not applicable.

Item 2.B. Method and Expected Timetable

Not applicable.

ITEM 3. Key Information

Item 3.A. Selected Financial Data

You should read the selected consolidated financial data below in conjunction with the Consolidated Financial Statements as of December 31, 2007 and 2008 and for each of the years in the three-year period ended December 31, 2008, and the reports of the independent registered public accounting firms on these statements included herein.

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The selected consolidated financial data for the five years ended December 31, 2008 are derived from our audited consolidated financial statements.

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in Korea (Korean GAAP), which differ in certain significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). See Note 38 to the Consolidated Financial Statements for a description of the nature and the effect of such differences.

Income Statement Data

	Year Ended December 31, — 2004		2005		2006		2007		2008		2008
	(In billions of Won and millions of Dollars, except per share
data)
Korean
GAAP (1) :
Operating revenues	W	17,068	W	17,192	W	17,825	W	18,660	W	19,645	U	S$15,566
Operating expenses		14,588		14,781		15,442		16,915		18,217		14,435
Operating income		2,481		2,411		2,383		1,745		1,428		1,131
Donations and contribution
payments (2)		147		84		86		90		80		63
Income
taxes (3)		578		399		476		357		168		133
Income from continuing operations		1,431		1,365		1,510		1,097		513		407
Income (loss) from discontinuing operations				(5	)			74
Net Income		1,431		1,360		1,510		1,171		513		407
Attributable to equity holders of the parent		1,282		1,085		1,292		1,056		450		357
Attributable to minority interests		149		275		218		115		63		50
Basic income per share from continuing operations		6,084		5,154		6,153		4,754		2,217		1.76
Basic net income per
share (4)		6,084		5,131		6,155		5,112		2,217		1.76
Diluted income per share from continuing operations		5,697		5,148		6,146		4,754		2,217		1.76
Diluted net income per
share (5)		5,697		5,124		6,148		5,112		2,217		1.76
Dividends per
share (6)		3,000		3,000		2,000		2,000		1,120		0.89
U.S.
GAAP (7) :
Operating revenues	W	12,240	W	12,328	W	14,088	W	17,961	W	18,613	U	S$14,749
Operating income		1,944		1,539		1,868		1,498		1,194		946
Income taxes		387		356		357		270		178		141
Income from continuing operations		1,405		1,154		1,329		995		518		411
Income (loss) from discontinuing operations				(5	)			74
Net income		1,405		1,149		1,329		1,069		518		411
Basic income per share from continuing operations		6,663		5,452		6,331		4,814		2,554		2.02
Basic income per
share (4)		6,663		5,428		6,333		5,172		2,554		2.02
Diluted income per share from continuing operations		6,215		5,447		6,325		4,814		2,554		2.02
Diluted income per
share (5)		6,215		5,423		6,327		5,172		2,554		2.02

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Balance Sheet Data

	Year Ended December 31,
	2004			2005		2006		2007		2008		2008
	(In billions of Won and millions of Dollars)
Korean
GAAP (1) :
Working
capital (8)	W	(1,526	)	W	1,309	W	558	W	564	W	1,833	US$	1,452
Net property and equipment		15,721			15,087		15,167		15,288		15,189		12,035
Total assets		26,473			24,678		24,243		24,127		26,139		20,712
Long term debt, excluding current portion		6,985			7,360		6,097		5,973		7,947		6,297
Refundable deposits for telephone installation		1,087			958		907		841		782		619
Total stockholders equity		9,026			10,390		10,697		11,138		11,088		8,786
U.S.
GAAP (7) :
Working
capital (8)	W	(763	)	W	334	W	333	W	332	W	1,640	US$	1,299
Net property and equipment		10,846			10,677		14,729		14,671		14,460		11,458
Total assets		20,384			18,383		24,098		24,023		25,974		20,582
Total stockholders equity		6,660			7,345		8,038		8,438		8,490		6,728

Other Financial Data

	Year Ended December 31,
	2004		2005		2006		2007		2008		2008
	(In billions of Won and millions of Dollars)
Korean GAAP:
Net cash provided by operating activities	W	4,719	W	5,865	W	5,714	W	4,265	W	2,919	US$	2,313
Net cash used in investing activities		(3,618	)	(2,526	)	(3,061	)	(3,449	)	(3,531	)	(2,798	)
Net cash provided by (used in) financing activities		(106	)	(3,601	)	(2,367	)	(1,368	)	1,051		833
U.S.
GAAP (7) :
Net cash provided by operating activities	W	3,613	W	3,588	W	4,667	W	4,260	W	2,889	US$	2,289
Net cash used in investing activities		(2,607	)	(735	)	(2,432	)	(3,410	)	(3,502	)	(2,775	)
Net cash provided by (used in) financing activities		(19	)	(3,362	)	(1,671	)	(1,271	)	1,147		909

Operating Data

2004	2005	2006	2007	2008
(Unaudited)
Lines installed
(thousands) (9)	25,577	26,190	26,838	26,671	26,008
Lines in service
(thousands) (9)	21,091	20,837	20,331	19,980	18,883
Lines in service per 100
inhabitants (9)	43.8	43.1	42.0	41.2	38.8
Mobile subscribers
(thousands) (10)	11,729	12,302	12,914	13,721	14,365
Broadband Internet subscribers (thousands)	6,078	6,242	6,353	6,516	6,712

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(1) Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (SKAS) No. 1 through No. 25. Among these statements, SKAS No. 1 through

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| | No. 10 and SKAS No. 12 through No. 20 are
required to be applied in the prior periods. Although SKAS
No. 11 and SKAS No. 21 through No. 25 are
required to be applied starting in 2007, the balances of 2005
and 2006 have been reclassified in accordance with SKAS
No. 16 and No. 21. The balances of 2004 have not been
reclassified in accordance with such statements. |
| --- | --- |
| (2) | Includes donations and contributions to the Governments
Information and Telecommunication Improvement Fund, the Korea
Electronic Telecommunication Research Institute and other
institutes supporting science and technology research prior to
2005. In 2007, we reclassified the contributions to the
Governments Information and Telecommunication Improvement
Fund to operating expenses and modified related figures for
2007, 2006 and 2005. |
| (3) | With the early adoption in 2006 of the Application of Korea
Accounting Standard 06-2 Deferred Tax Accounting for Investments in Subsidiaries,
Affiliated Companies Accounted for Using the Equity Method, and
Interest in Joint Ventures, the amounts for 2005 and prior
years were restated in 2006 as required by this standard. |
| (4) | Basic earnings per share under Korean GAAP and U.S. GAAP is
calculated by dividing net earnings by the weighted average
number of shares outstanding during the period. The weighted
average number of shares of common stock outstanding during the
period was 210,759 thousand for 2004, 211,565 thousand for 2005,
209,895 thousand for 2006, 206,599 thousand for 2007 and 202,891
thousand for 2008. |
| (5) | Diluted earnings per share are calculated based on the effect of
dilutive securities that were outstanding during the period. The
denominator of the diluted earnings per share computation is
adjusted to include the number of additional common shares that
would have been outstanding if the dilutive securities had been
converted into common stock. In addition, the numerator is
adjusted to include the after-tax amount of interest recognized
associated with convertible notes. The weighted average number
of common and common equivalent shares outstanding was 233,270
thousand for 2004, 211,822 thousand for 2005,
210,150 thousand for 2006, 206,599 thousand for 2007 and
202,891 thousand for 2008. |
| (6) | The calculation of dividends per share represents the weighted
average dividends paid per share. |
| (7) | See Note 38 to the Consolidated Financial Statements for
reconciliation to U.S. GAAP. |
| (8) | Working capital means current assets minus current
liabilities. |
| (9) | Including public telephones. |
| (10) | Includes subscribers of KTF and resale subscribers of KT
Corporation. As of December 31, 2004, KTF had approximately
9.5 million subscribers and KT Corporation had
approximately 2.2 million resale subscribers. As of
December 31, 2005, KTF had approximately 9.8 million
subscribers and KT Corporation had approximately
2.5 million resale subscribers. As of December 31,
2006, KTF had approximately 10.2 million subscribers and KT
Corporation had approximately 2.7 million resale
subscribers. As of December 31, 2007, KTF had approximately
10.8 million subscribers and KT Corporation had
approximately 2.9 million resale subscribers. As of
December 31, 2008, KTF had approximately 11.5 million
subscribers and KT Corporation had approximately
2.8 million resale subscribers. |

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Exchange Rate Information

The following table sets out information concerning the market average exchange rate for the periods and dates indicated.

Period	At End — of Period	Average — Rate (1)	High	Low
	(Won per US$1.00)
2004	1,043.8	1,145.3	1,195.5	1,038.3
2005	1,013.0	1,024.2	1,060.3	998.2
2006	929.6	956.1	1,013.0	918.0
2007	938.2	929.2	950.0	902.2
2008	1,257.5	1,102.6	1,509.0	934.5
December	1,257.5	1,373.8	1,352.4	1,335.0
2009 (through June 26)	1,283.6	1,349.5	1,573.6	1,236.1
January	1,368.5	1,346.1	1,391.0	1,257.5
February	1,516.4	1,429.5	1,516.4	1,376.2
March	1,377.1	1,462.0	1,573.6	1,328.9
April	1,348.0	1,341.9	1,398.2	1,316.2
May	1,272.9	1,258.7	1,307.3	1,236.1
June (through June 26)	1,283.6	1,258.9	1,287.7	1,236.7

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Source: Seoul Money Brokerage Services, Ltd.

(1) The average rate for each full year is calculated as the average of the market average exchange rates on the last business day of each month during the relevant year. The average rate for a full month is calculated as the average of the market average exchange rates on each business day during the relevant month (or portion thereof).

Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W 929.6 to US$1.00, W 938.2 to US$1.00 and W 1,257.5 to US$1.00 at December 31, 2006, 2007 and 2008, respectively.

Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2008 have been translated into United States dollars at the rate of W 1,262.0 to US$1.00, the noon buying rate in the City of New York for cable transfers in Won as certified for customs purposes by the Federal Reserve Bank of New York at December 31, 2008.

We make no representation that the Won or Dollar amounts contained in this annual report could have been or could be converted into Dollar or Won, as the case may be, at any particular rate or at all.

Item 3.B. Capitalization and Indebtedness

Not applicable

Item 3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3.D. Risk Factors

You should carefully consider the following factors.

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Risks Relating to Our Business

Increased competition in Korea has had and may continue to have an adverse effect on our results of operations and financial condition.

The telecommunications sector in Korea is rapidly evolving. We face increasing competition from new entrants to the telecommunications market, and we expect the number of service providers in the market to continue to change. Future business combinations and alliances in the telecommunications industry may also significantly change the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom Co., Ltd. (or SK Telecom) acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband Co., Ltd. (or SK Broadband). The acquisition enables SK Telecom to provide fixed-line telecommunications, broadband Internet access and Internet television (or IP-TV) services together with its mobile telecommunications services. On June 1, 2009, KT Freetel Co., Ltd. (or KTF) merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. In addition, advances in technology as well as changes in the regulatory environment are occurring. Any significant changes in the competitive landscape of the telecommunications sector and our inability to adapt to such changes could have a material adverse effect on our business, financial condition and results of operations.

Fixed-line Telephone Services. Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. Since then, various competitors have entered the local, domestic long-distance and international long-distance telephone service markets in Korea, which have eroded our market shares. LG DACOM Corporation and SK Broadband currently provide local, domestic long-distance and international long-distance telephone services. In addition, Onse Telecom Corporation and SK Telink, Inc. currently provide domestic long-distance and international long-distance telephone services. Starting in 1998, specific service providers, such as Internet phone service providers, voice resellers and call-back service providers, also began offering international long-distance service in Korea. While we offer our own Internet phone service, the entry of these and other potential competitors into the local, domestic long-distance and international long-distance telephone service markets has had and may continue to have a material adverse effect on our revenues and profitability from these businesses. We had a market share in local telephone service of 89.8% as of December 31, 2008 in terms of number of subscribers announced by the Korea Communications Commission and a market share in domestic long-distance service of 85.2% in 2008 in terms of number of subscribers announced by the Korea Communications Commission. Further increase in competition may decrease our market shares in such businesses.

Mobile Service. We provide mobile services based on Code Division Multiple Access or CDMA technology and Wideband Code Division Multiple Access or W-CDMA technology. Prior to the merger of KTF into KT Corporation on June 1, 2009, we provided such services through KTF, which was formerly a consolidated subsidiary. Competitors in the mobile telecommunications service industry are SK Telecom and LG Telecom Co., Ltd. (or LG Telecom). KTF (including resale subscribers of KT Corporation) had a market share of 31.5% as of December 31, 2008 in terms of the number of mobile service subscribers in Korea announced by the Korea Communications Commission, making KTF the second largest mobile telecommunications service provider. SK Telecom had a market share of 50.5% as of December 31, 2008.

Mobile subscribers are allowed to switch their service provider while retaining the same mobile phone number. In addition, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number, as well as those switching to a third-generation mobile service, are given the uniform mobile code of 010 as the first three digits of their mobile numbers without regard to the mobile service provider. In recent years, mobile service providers also began granting subsidies to subscribers who purchase new handsets. We provide usage charge discounts and subsidies to subscribers who purchase new handsets and additional monthly fees and usage charge discounts and subsidies to those who agree to a subscription period of at least 12 months. Mobile number portability and handset subsidies have intensified competition among the mobile service providers and increased their marketing expenses. If the mobile service providers adopt a strategy of expanding market share through price competition, it could lead to a decrease in our net profit margins.

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In recent years, SK Telecom and we also launched third-generation mobile telecommunications services, which we believe have further intensified competition between the two companies and resulted in an increase in their marketing expenses. KTF expanded its coverage area of High Speed Downlink Packet Access (or HSDPA)-based IMT-2000 services nationwide in March 2007 under the brand name SHOW. IMT-2000 is a third-generation, high-capacity wireless communications technology, which allows operators to provide to their customers significantly more bandwidth capacity. Although we expect that SK Telecom will face similar challenges to those that we expect to face in implementing this third-generation technology, we cannot assure you that we will continue to be able to successfully compete with SK Telecom. Our inability to compete effectively with SK Telecom could have a material adverse effect on our financial condition and results of operations.

Internet Services. The Korean broadband Internet access service market has experienced significant growth since Korea Thrunet first introduced its Hybrid Fiber Coaxial (or HFC) based service in 1998. SK Broadband (formerly Hanarotelecom) entered the broadband market in 1999 offering both HFC and Asymmetric Digital Subscriber Line (or ADSL) services. We also began offering broadband Internet access service in 1999, followed by Dreamline, Onse and LG DACOM. In recent years, numerous cable television operators have also begun HFC-based services at rates lower than ours. We had a market share of 43.4% as of December 31, 2008 based on the number of subscribers in Korea announced by the Korea Communications Commission. As a result of having to compete with a number of competitors and the maturing of the Internet access service market, we currently encounter, and we expect to encounter, pressure to increase marketing expenses in the future.

The market for other Internet-related services in Korea is also very competitive. We anticipate that competition will continue to intensify as the usage and popularity of the Internet grows and as new domestic and international competitors enter the Internet industry in Korea. The substantial growth and potential size of the Internet industry in Korea have attracted many competitors and as a result may lead to increasing price competition to provide Internet-related services. Increased competition in the Internet industry could have a material adverse effect on the number of subscribers of our Internet-related service and on our results of operations.

We may fail to realize the anticipated benefits of the merger of KTF into KT Corporation.

On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. The success of the merger of KTF with KT Corporation will depend, in part, on our ability to realize the anticipated synergies, growth opportunities and, to a lesser extent, cost savings from combining these two companies. The realization of these anticipated benefits may be blocked, delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include:

| | difficulties in integrating the operations of KTF with those of
KT Corporation, including information systems, personnel,
policies and procedures, and in reorganizing or reducing
overlapping personnel, operations, marketing networks and
administrative functions; |
| --- | --- |
| | unforeseen contingent risks or latent liabilities relating to
the merger that may become apparent in the future; |
| | difficulties in managing a larger business; and |
| | loss of key management personnel or customers. |

Accordingly, we cannot assure you that we will realize the anticipated benefits of the merger or that the merger will not adversely affect our combined business, financial condition and results of operations.

The integration of the operations of KTF into KT Corporation may require significant amounts of time, financial resources and management attention. KT Corporations management intends to implement a business plan to effectively combine the operations of KTF with the operations of KT Corporation. If this business plan is not effective in integrating these operations, however, we may not realize the anticipated benefits of the merger. The integration process could also result in the disruption of our ongoing business and information technology systems, or inconsistencies in standards, controls, procedures and policies and a reduction in employee morale, each of which may adversely affect our ability to maintain relationships with customers and to retain key personnel.

In addition, as conditions to the approval of the merger of KTF into KT Corporation, the Korea Communications Commission is requiring us to (i) allow competing service providers to have greater access to

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our cable tunnels and telephone poles, (ii) improve Public Switched Telephone Network (or PSTN) number portability and voice over Internet protocol (VoIP) number portability, and (iii) allow competing service providers to access our wireless Internet network. Such conditions may intensify competition in the telecommunications industry, which could have a material adverse effect on the number of our subscribers and results of operations.

Our WiBro service poses challenges and risks to us.

In March 2005, we acquired a license to provide wireless broadband Internet access service for W 126 billion. The license is valid for seven years from the grant date and the license amount is amortized over the remaining contractual life commencing from June 2006. Wireless broadband Internet access (or WiBro) service enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. A subscriber is able to access the WiBro service network during transit at speeds of up to 120 kilometers per hour. We positioned WiBro service to provide Internet Protocol (IP)-based triple-play services, which are voice, data and video. We conducted trial service of WiBro service in parts of Seoul and Gyunggi Province starting in April 2006 and commercially launched our service in these areas in June 2006. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008. We believe that substantial additional amounts of capital expenditures and research and development will be required to complete the buildout of our WiBro service network, and we plan to spend approximately W 53 billion in capital expenditures in 2009 to expand our WiBro service network, which we may adjust subject to market demand. No assurance can be given that the network will gain broad market acceptance such that we will be able to derive revenues from WiBro service to justify the license fee, capital expenditures and other investments required to provide such service.

Disputes with our labor union may disrupt our business operations.

In the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base. Although we have not experienced any significant labor disputes or unrests in recent years, there can be no assurance that we will not experience labor disputes or unrests in the future, including expanded protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.

We also negotiate collective bargaining agreements every two years with our labor union and annually negotiate a wage agreement. Our current collective bargaining agreement expires on November 12, 2009. Although we have been able to reach collective bargaining agreements and wage agreements with our labor union in recent years, there can be no assurance that we will not experience labor disputes and unrests resulting from disagreements with the labor union in the future.

The Korean telecommunications and Internet protocol broadcasting industries are subject to extensive Government regulations, and changes in Government policy relating to these industries could have a material adverse effect on our operations and financial condition.

The Government, primarily through the Korea Communications Commission, has authority to regulate the telecommunications industry. The Korea Communications Commissions policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. Under current Government regulations, if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates service providers the rates and the general terms of which must be approved by the Korea Communications Commission. In recent years, the Korea Communications Commission has so designated us for local telephone service and broadband Internet access service and SK Telecom for mobile service, and the Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us and SK Telecom for such services. The Korea Communications Commission currently does not regulate our domestic long-distance, international long-distance and mobile service rates, but the inability to freely

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set our local telephone service and broadband Internet access rates may hurt profits from those businesses and impede our ability to compete effectively against our competitors. See Item 4. Information on the Company Item 4.B. Business Overview Regulation Rates. The form of our standard agreement for providing local network service and each agreement for interconnection with other service providers are also subject to approval by the Korea Communications Commission.

Furthermore, the Korea Communications Commission announced in December 2008 its key policy initiatives for 2009. These include (i) promotion of convergence between the telecommunications and the broadcasting industries, (ii) market-friendly regulatory reforms and (iii) consumer protection. Specific measures being reviewed by the Korea Communications Commission include (i) permitting companies with a minimum asset size of W 10 trillion to engage in general programming and broadcasting contents activities, (ii) formulating a regulatory basis for auctioning superior frequency bandwidth for more efficient use of public frequencies, (iii) lowering the entry barrier for the telecommunications market by moving from a regulatory permit regime to a reporting regime and (iv) relaxing restrictions on service bundling.

We also plan to put more focus on the Internet protocol (or IP) media market, and we began offering IP-TV service on November 17, 2008. IP-TV is a service which combines video-on-demand services with real-time high definition broadcasting via broadband networks. The Korea Communications Commission has the authority to regulate the IP media market, including IP-TV services. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission, and anyone intending to engage in the broadcasting of certain contents must obtain additional approval of the Korea Communications Commission. We obtained our IP-TV license on September 8, 2008, and we plan to expand our real-time broadcasting channel offerings via our IP-TV service. Although we currently believe that we may freely compete in this market, there can be no assurance that Government regulations and policies will permit us to continue to do so.

Government policies and regulations relating to the above as well as other regulations involving the Korean telecommunications and IP broadcasting industries (including as a result of the implementation of free trade agreements between Korea and other countries, including the United States and the European Union) may change, which could have a material adverse effect on our operations and financial condition. See Item 4. Information on the Company Item 4.B. Business Overview Regulation.

We are subject to various regulations under the Monopoly Regulation and Fair Trade Act.

The Monopoly Regulation and Fair Trade Act provides for various regulations and restrictions on large business groups enforced by the Korea Fair Trade Commission. The Korea Fair Trade Commission initially designated us as a large business group under the Monopoly Regulation and Fair Trade Act on April 1, 2002, which subjects us to regulations prohibiting, among other things, our cross guarantees of debt and cross shareholdings by members of a business group.

In July 2004, the Korea Fair Trade Commission began an antitrust investigation into alleged unfair collaborative practices by us, SK Broadband, LG DACOM and Onse in local, domestic long-distance and international long-distance telephone service markets, as well as in broadband Internet access and Internet leased line service markets. On May 25, 2005, the Korea Fair Trade Commission imposed fines of W 116 billion on us, W 2 billion on SK Broadband and W 1 billion on LG DACOM, claiming that we and these other companies engaged in unfair collaborative practices in local telephone and Internet leased line service markets. On September 14, 2005, the Korea Fair Trade Commission imposed an additional fine of W 24 billion on us for our alleged unfair collaborative practices in domestic and international long-distance telephone service markets. We were following administrative guidelines from the Ministry of Information and Communication, which had advised that we, as a dominant service provider in these markets, assist late market entrants in order to promote a more competitive local telephone service market in Korea. The legality of such administrative guidelines from the Ministry of Information and Communication has been disputed by the Korea Fair Trade Commission.

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December 24, 2008, the Supreme Court of Korea affirmed the Korea Fair Trade Commissions administrative actions relating to the domestic long distance telephone service markets. The Supreme Courts decision on the administrative actions relating to the local telephone service market is, however, still pending. We cannot provide any assurance that the ultimate outcome of the remaining Supreme Court decision or related future actions will be favorable to us or reduce the amount of fine imposed on us and that any future investigations by the Korea Fair Trade Commission on alleged unfair collaborative price-fixing practices will not have a material adverse effect on our financial condition or results of operations. See Item 8. Financial Information Item 8.A. Consolidated Statements and Other Financial Information Legal Proceedings.

Disruptions in global credit and financial markets and the resulting governmental actions around the world could have a material adverse impact on our business and the ability to meet our funding needs, and could cause the market value of our securities to decline.

Global credit markets have been experiencing difficulties and volatility since the second half of 2008. The market uncertainty that started from the U.S. residential market further expanded to other markets such as those for leveraged finance, collateralized debt obligations and other structured products. These developments have resulted in significant contraction, de-leveraging and reduced liquidity in the global credit markets, as well as bankruptcy or acquisition of, and government assistance to, several major U.S. and European financial institutions, beginning with the bankruptcy filing of Lehman Brothers in September 2008. In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including Korea, have implemented a number of policy measures designed to enhance stability to financial markets. However, the overall impact of these legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilizing effects. The United States Securities and Exchange Commission, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws.

We are exposed to risks related to changes in the global and Korean economic environments, changes in interest rates and instability in the global financial markets. As liquidity and credit concerns and volatility in the global financial markets increased significantly, the value of the Won relative to the Dollar has depreciated at an accelerated rate. The market average exchange rate, as announced by Seoul Money Brokerage Services, Ltd., depreciated from W 934.5 to US$1.00 on January 3, 2008 to W 1,573.6 to US$1.00 on March 3, 2009. The market average exchange rate, as announced by Seoul Money Brokerage Services, Ltd., was W 1,283.6 to US$1.00 on June 26, 2009. Such depreciation of the value of the Won may adversely affect our business. See Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities. Furthermore, as a result of adverse global and Korean economic conditions, there has been a significant overall decline and continuing volatility in securities prices of Korean companies, including ours, which may result in trading and valuation losses on our trading and investment securities portfolio. The Korea Stock Price Index declined from 1,888.88 on May 16, 2008 to 938.75 on October 24, 2008. The Korea Stock Price Index was 1,394.53 on June 26, 2009. In addition, recent increases in credit spreads, as well as limitations on the availability of credit resulting from heightened concerns about the stability of the markets generally and the strength of counterparties specifically have led many lenders and institutional investors to reduce or cease providing funding to borrowers, which may negatively impact our liquidity and results of operation. Major market disruptions and the current adverse changes in market conditions and regulatory climate may further impair our ability to meet our desired funding needs. We cannot predict how long the current market conditions will last. These recent and developing economic and governmental factors may have a material adverse effect on our business and the ability to meet our funding needs, as well as negatively affect the market prices of our securities.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities.

Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect the results of our operations because, among other things, it causes an increase in the amount of Won required by us to make interest and principal payments on our foreign-currency-denominated debt, the costs of telecommunications

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equipment that we purchase from overseas sources, net settlement payments to foreign carriers and administrations and certain payments related to our derivative instruments entered into for foreign exchange risk hedging purposes. Of the W 7,947 billion total long-term debt (excluding current portion) outstanding as of December 31, 2008, W 3,088 billion was denominated in foreign currencies with interest rates ranging from 1.45% to 16.5%. See Item 3. Key Information Item 3.A. Select Financial Data Exchange Rate Information and Item 5. Operating and Financial Review and Prospects Item 5.B. Liquidity and Capital Resources.

Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of the shares of our common stock on the KRX KOSPI Market and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the Dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Won on shares of common stock represented by the ADSs.

Risks Relating to Korea

Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.

We are incorporated in Korea and a significant portion of our operations is based in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs, and future growth of the Korean economy is subject to many factors beyond our control. Events related to terrorist attacks in the United States that took place on September 11, 2001, developments in the Middle East, including the war in Iraq and Afghanistan, fluctuations in oil and commodity prices, and the occurrence of natural disasters or outbreak of disease in Asia and other parts of the world have increased the uncertainty of world economic prospects in general and continue to have an adverse effect on the Korean economy. In addition, recent difficulties affecting the U.S. and global financial sectors, adverse conditions and volatility in the U.S. and worldwide credit and financial markets and the general weakness of the U.S. and global economy have increased the uncertainty of global economic prospects in general and have adversely affected and may continue to adversely affect the Korean economy. Any future deterioration of the Korean and global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Koreas economy include:

| | continuing difficulties in the housing and financial sectors in
the United States and elsewhere and the resulting adverse effect
on the global financial markets; |
| --- | --- |
| | a slowdown in consumer spending and the overall economy; |
| | adverse changes or volatility in foreign currency reserve
levels, commodity prices (including oil prices), exchange rates
(including fluctuation of the Dollar or Japanese Yen exchange
rates or revaluation of the Chinese renminbi), interest rates or
stock markets; |
| | adverse developments in the economies of countries that are
important export markets for Korea, such as the United States,
Japan and China, or in emerging market economies in Asia or
elsewhere; |
| | the continued emergence of the Chinese economy, to the extent
its benefits (such as increased exports to China) are outweighed
by its costs (such as competition in export markets or for
foreign investment and the relocation of the manufacturing base
from Korea to China); |
| | the economic impact of any pending or future free trade
agreements, including those with the United States or the
European Union; |
| | social and labor unrest; |
| | substantial decreases in the market prices of Korean real estate; |
| | a decrease in tax revenues and a substantial increase in the
Governments expenditures for unemployment compensation and
other social programs that, together, would lead to an increased
government budget deficit; |

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| | financial problems or lack of progress in restructuring of
Korean conglomerates, other large troubled companies, their
suppliers or the financial sector; |
| --- | --- |
| | loss of investor confidence arising from corporate accounting
irregularities and corporate governance issues of certain Korean
conglomerates; |
| | geo-political uncertainty and risk of further attacks by
terrorist groups around the world; |
| | the recurrence of severe acute respiratory syndrome or an
outbreak of avian flu in Asia and other parts of the world; |
| | deterioration in economic or diplomatic relations between Korea
and its trading partners or allies, including deterioration
resulting from trade disputes or disagreements in foreign policy; |
| | political uncertainty or increasing strife among or within
political parties in Korea; |
| | hostilities involving oil producing countries in the Middle East
and any material disruption in the supply of oil or increase in
the price of oil; and |
| | an increase in the level of tension or an outbreak of
hostilities between North Korea and Korea or the United States. |

Escalations in tensions with North Korea could have an adverse effect on us.

Relations between Korea and North Korea have been tense throughout Koreas modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Koreas nuclear weapon and long-range missile programs and increased uncertainty regarding North Koreas actions and possible responses from the international community. In December 2002, North Korea removed the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations International Atomic Energy Agency. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since the renouncement, Korea, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North Koreas nuclear weapons program.

In addition to conducting test flights of long-range missiles, North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council passed a resolution that prohibits any United Nations member state from conducting transactions with North Korea in connection with any large scale arms and material or technology related to missile development or weapons of mass destruction and from providing luxury goods to North Korea, imposes an asset freeze and travel ban on persons associated with North Koreas weapons program, and calls upon all United Nations member states to take cooperative action, including through inspection of cargo to or from North Korea. In response, North Korea agreed in February 2007 at the six-party talks to shut down and seal the Yongbyon nuclear facility, including the reprocessing facility, and readmit international inspectors to conduct all necessary monitoring and verifications. In June 2008, North Korea demolished the cooling tower at its main reactor complex in Yongbyon. After reaching an agreement with North Korea on a series of measures to verify North Koreas efforts in dismantling its nuclear program, the United States provisionally rescinded the designation of the North Korea as a State Sponsor of Terrorism, effective from October 11, 2008. However, on April 5, 2009, North Korea launched a long-range rocket over the Pacific Ocean, claiming that the launch intended to put an orbital satellite into space. The United States Northern Command issued a statement that North Koreas long-range rocket flew over Japan, with its payload landing in the Pacific Ocean. On April 13, 2009, the United Nations Security Council unanimously passed a resolution that condemned North Korea for the launch and decided to tighten sanctions against North Korea. In response, North Korea announced on April 14, 2009 that it would permanently pull out of nuclear disarmament talks and restart its nuclear program. On May 25, 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range, surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution on June 12, 2009 that condemned North Korea for the nuclear test and tightened sanctions against North Korea.

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There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in tension, including a breakdown of high-level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our operations and the market value of the securities.

Risks Relating to the Securities

If an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs.

Korean law currently limits foreign ownership of the ADSs and our shares. In addition, under our deposit agreement, the depositary bank cannot accept deposits of shares and deliver ADSs representing those shares unless (1) we have consented to such deposit or (2) Korean counsel has advised the depositary bank that the consent required under (1) is no longer required under Korean laws and regulations. Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. The depositary bank has informed us that, at a time it considers to be appropriate, the depositary bank plans to start accepting deposits of shares without our consent and to deliver ADSs representing those shares up to the amount allowed under current Korean laws and regulations. Until such time, however, the depositary bank will continue to obtain our consent for such deposits of shares and delivery of ADSs, which we may not provide. Consequently, if an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. See Item 10. Additional Information Item 10.D. Exchange Controls.

A foreign investor may not be able to exercise voting rights with respect to common shares exceeding the number of common shares held by our largest domestic shareholder.

Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. Under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, such foreign shareholder may not be able to exercise voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.

Holders of ADSs will not be able to exercise dissenters rights unless they have withdrawn the underlying common stock and become our direct shareholders.

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their shares under Korean law. A holder of ADSs will not be able to exercise dissenters rights unless he has withdrawn the underlying common stock and become our direct shareholder. See Item 10. Additional Information Item 10.B. Memorandum and Articles of Association.

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An investor may not be able to exercise preemptive rights for additional shares and may suffer dilution of his equity interest in us.

The Commercial Code of Korea and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the depositary bank, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to the ADS holder. The depositary bank, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

| | a registration statement filed by us under the Securities Act of
1933, as amended, is in effect with respect to those
shares; or |
| --- | --- |
| | the offering and sale of those shares is exempt from or is not
subject to the registration requirements of the Securities Act. |

We are under no obligation to file any registration statement. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his preemptive rights for additional shares. As a result, the ADS holder may suffer dilution of his equity interest in us.

Forward-looking statements may prove to be inaccurate.

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as anticipate, believe, estimate, expect, intend, project, should, and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

ITEM 4. Information on the Company

Item 4.A. History and Development of the Company

In 1981, the Government established us under the Korea Telecom Act to operate the telecommunications services business that it previously directly operated. Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act, the Government had greater control over our business and affairs. Effective October 1, 1997, the Korea Telecom Act was repealed and the Government-Invested Enterprises Management Basic Act became inapplicable to us. As a result, we became a corporation under the Commercial Code, and our corporate organization and shareholders rights were governed by the Privatization Law and the Commercial Code. Among other things, we began to exercise greater autonomy in setting our annual budget and making investments in the telecommunications industry, and our directors, who used to be appointed by the Government under the Korea Telecom Act, are now elected by our shareholders.

Until 1993, the Government owned all of the issued shares of our common stock. From 1993 through May 2002, the Government disposed of all of its equity interest in us. With the completion of disposition of the Governments ownership interest in us in May 2002, the Privatization Law ceased to apply to us in August 2002. We amended our legal name from Korea Telecom Corp. to KT Corporation in March 2002.

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Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. The Government began to introduce competition in the telecommunications services market in the early 1990s. As a result, including ourselves, there are currently three local telephone service providers, five domestic long-distance carriers and numerous international long-distance carriers (including voice resellers) in Korea. In addition, the Government has awarded licenses to several new service providers to enhance the competition in other telecommunications business areas such as mobile telephone services and data network services. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. See Item 4.B. Business Overview Competition.

Our legal and commercial name is KT Corporation. Our principal executive offices are located at 206 Jungja-dong, Bundang-ku, Sungnam, Gyunggi-do, Korea, and our telephone number is (8231) 727-0114.

Item 4.B. Business Overview

We are the leading telecommunications service provider in Korea and one of the largest and most advanced in Asia. As an integrated telecommunications service provider, our principal services include:

| | telephone services, including local, domestic long-distance and
international long-distance fixed-line telephone services and
interconnection services to other telecommunications companies; |
| --- | --- |
| | broadband Internet access service and other Internet-related
services, including IP-TV services; |
| | PCS mobile telecommunications service and third-generation
HSDPA-based IMT-2000 wireless Internet and video multimedia
communications services; and |
| | various other services, including leased line service and other
data communication service, satellite service and information
technology and network services. |

We own substantially all of the domestic public exchanges, the nationwide network of local telephone lines, the principal public long-distance telephone transmission facilities and the principal data communications network in Korea, as well as two satellites in operation. In addition, we operate nationwide PCS and HSDPA-based IMT-2000 networks.

Historically, we have derived a substantial majority of our revenues from fixed-line telephone services. However, as our traditional businesses have matured and new technologies have become available, we have successfully leveraged our nationwide network, strong brand name and established customer base in Korea to pursue new growth opportunities.

We are focusing on building upon our strong position in each of our principal lines of business:

| | We are currently the dominant provider of fixed-line telephone
services in Korea with approximately 26.0 million installed
lines, of which 18.9 million lines were in service as of
December 31, 2008. As of December 31, 2008, our market
share of the local market was 89.8% based on the number of local
fixed-line subscribers announced by the Korea Communications
Commission. Based on number of subscribers in 2008 announced by
the Korea Communications Commission, our market share of the
domestic long-distance market was 85.2%; |
| --- | --- |
| | We are Koreas largest broadband Internet access provider
in terms of subscribers, with 6.7 million subscribers as of
December 31, 2008, representing a market share of 43.4% in
Korea based on the number of Internet subscribers announced by
the Korea Communications Commission; |
| | We are Koreas second largest mobile telecommunications
service provider. We had approximately 14.4 million
subscribers (including our resale subscribers) as of
December 31, 2008, representing a market share of 31.5% of
the total mobile service market in Korea based on the number of
mobile subscribers announced by the Korea Communications
Commission; and |
| | We are also the leading provider of data communication service
in Korea. |

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For the year ended December 31, 2008, under Korean GAAP, our operating revenues were W 19,645 billion, our net income was W 513 billion and our basic net income per share was W 2,217. As of December 31, 2008, our total stockholders equity was W 11,088 billion.

The Telecommunications Industry in Korea

The Korean telecommunications industry is one of the most developed in Asia in terms of broadband Internet and mobile penetration rates. As of December 31, 2008, the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscribers by the number of households in Korea, was 92.7%, and the mobile penetration rate, which is calculated by dividing the number of mobile subscribers by the population of Korea, was 93.8%. According to the Korea Communications Commission, the number of broadband Internet access subscribers totaled 15.5 million as of December 31, 2008 and the number of mobile subscribers totaled 45.6 million as of such date.

The Korea Communications Commission has the primary responsibility for regulating the telecommunications industry in Korea. See Regulation.

Broadband Internet Access Market

With the advancement of broadband technology, the Korean broadband Internet access market has experienced significant growth. Broadband Internet connection can be achieved through satellite, terrestrial wireless and fiber optic-based solutions. However, the principal technologies used in the provision of high speed Internet access are xDSL, HFC and fiber optic LAN. xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. xDSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. Fiber optic LAN is a technology that combines fiber optic cables and Unshielded Twisted Pair (or UTP) cables. Fiber optic cables are connected to residential and commercial buildings with UTP cable-based LAN capabilities. While xDSL and HFC are more widely used technologies because of their relative reliability, ease of provisioning and cost effectiveness, fiber optic LAN usage has been steadily increasing in recent years. As of December 31, 2008, almost a third of the total subscribers of broadband Internet access service in Korea rely on fiber optic LAN technology.

Since the subscribers of two-way cable networks share a limited bandwidth, the downstream speed tends to slow down as the number of subscribers increases, thereby decreasing the quality of HFC-based service. While xDSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent broadband access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. In recent years, certain service providers have been upgrading their broadband network to provide fiber optic LAN-based service to their subscribers, which further enhances data transmission speed up to 100 Mbps as well as improves connection quality, and enables such service providers to offer video-on-demand services with real-time high definition broadcasting.

In recent years, Broadband Internet access service providers and mobile telecommunications service providers have focused their attention to provide wireless Internet connection capabilities. They have introduced wireless LAN service with speeds of up to 54 Mbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops or PDAs in hot-spot zones and at home. Some service providers have also developed wireless Internet networks to provide WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. Commercial WiBro service was launched in parts of Seoul and Gyunggi Province in June 2006. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008.

Mobile Telecommunications Service Market

The Korean cellular market was formally established in 1984 when SK Telecom, formerly Korea Mobile Telecom, became the first mobile telephone operator in Korea. SK Telecom remained the only cellular operator in Korea until Shinsegi Telecomm began service in 1994. In order to encourage further market growth and competition, the Ministry of Information and Communication awarded three PCS licenses in June 1996. KTF

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was awarded a license alongside LG Telecom and Hansol M.com. Commercial PCS service was launched in October 1997.

Since the introduction of three new operators in 1997, the Korean mobile market has undergone consolidation and significant growth. Following SK Telecoms purchase of a controlling stake in Shinsegi, we acquired a 47.9% interest in Hansol M.com in 2000 and renamed the company KT M.com. KT M.com merged into KTF in May 2001 and Shinsegi merged into SK Telecom in January 2002. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated:

2004	2005	2006	2007	2008
Total Korean
Population (1)	48,199	48,294	48,378	48,457	48,607
Mobile
Subscribers (2)	36,586	38,342	40,197	43,498	45,607
Mobile Subscriber Growth Rate	8.9 %	4.8 %	4.8 %	8.2 %	4.9 %
Mobile
Penetration (3)	75.9 %	79.4 %	83.1 %	89.8 %	93.8 %

callerid=999 iwidth=456 length=60

| (1) | In thousands, based on population trend estimates by the
National Statistical Office of Korea. |
| --- | --- |
| (2) | In thousands, based on information announced by the Korea
Communications Commission. |
| (3) | Penetration is determined by dividing mobile subscribers by
total Korean population. |

Koreas highly developed mobile market also extends into an advanced mobile data market. Mobile Internet service in Korea has grown rapidly since its introduction in 2001. All the mobile operators have developed extensive mobile data and Internet service portals. Korean operators have also invested in networks compatible with Evolution-Data Optimized (or EV-DO) handsets which allow subscribers to enjoy 2.5 generation high speed wireless data services. They also offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia communications services which use significantly greater bandwidth capacity.

Business Strategy

We believe the telecommunications market in Korea will continue to expand due to Koreas growing economy, consumers willingness to adopt new technologies, relatively high income and a relatively large middle class. In order to enhance the management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively respond to the convergence trends in the telecommunications industry, KTF merged into KT Corporation on June 1, 2009, with KT Corporation surviving the merger. We also restructured our organization into three sub-groups, the Home Customer Group, the Personal Customer Group and the Enterprise Customer Group, so that we may more effectively address differing needs of our customer segments. Consistent with our strategic objectives, we aim to pursue growth through the following five core areas:

| | Home Customer Group. We aim to offer a one-stop-shop that
satisfies various information technology and telecommunications
needs of a household. In March 2009, we launched a new brand
QOOK to promote our bundled products, which include
broadband Internet access service, IP-TV service, Internet phone service and fixed-line telephone
service. We aim to differentiate ourselves from our competitors
by providing broadband Internet access service using high-speed
fiber-to-the-home (or FTTH) connection and offering Internet
phone service with value-added features such as video
communication, short message service and phone banking. We also
began offering real-time broadcasting service on our IP-TV service starting in November 2008. |
| --- | --- |
| | Personal Customer Group. We believe that Internet
browsing services using open platform operating systems
encourage development of more innovative mobile data
communication applications and enhance the Internet browsing
experience of mobile subscribers. Our Personal Customer Group
plans to focus on upgrading our mobile services to be based on
such open platform operating systems, which we believe will lead
to greater customer satisfaction and business opportunities. In
addition, we aim to further enhance our position in the mobile
telecommunications market by leveraging on KTs strong
brand, nationwide marketing network and ability to bundle
fixed-line and mobile services. |

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| | Enterprise Customer Group. For our enterprise customers,
we plan to upgrade our services from traditional network-related
services such as leased lines and private branch exchange
services to infrastructure management outsourcing services, in
which we offer a wide range of services from designing and
implementing data communications and information technology
infrastructure to overseeing their day-to-day operations,
including network management, help desk operations, data center
operations and applications management. We believe that such
outsourcing services will enable our enterprise customers to
achieve operational efficiencies and cost savings. |
| --- | --- |
| | Convergence. We believe that convergence of fixed-line
and mobile communications technologies will provide a
competitive advantage to us because we have the technological
know-how and experience to design and construct a unified
delivery platform for a new generation of value-added services.
We plan to make such platform be readily available to others so
that they may create additional contents and convenience
solutions such as electronic commerce and digital transaction
applications that can be utilized anywhere using various media
and communications devices. |
| | Diversification. We aim to carefully seek out promising
new opportunities to diversify our revenue base. Technological
developments have enhanced the coverage area of individual
telecommunications facilities, which enable us to better utilize
our existing land and other real estate holdings through
property development. Other revenue diversification strategies
include (i) leveraging our extensive customer base and
expertise in telemetering technology to enhance our position in
the security surveillance market, (ii) selectively entering
into alternative energy generation businesses, such as
geothermal or solar energy, by utilizing our accumulated
knowledge and resources in the power management field, and
(iii) selectively pursuing investment opportunities abroad,
primarily in emerging economies with high growth potential for
telecommunications and data communications services. |

Our Services

Telephone Services

Fixed-line Telephone Services. We utilize our extensive nationwide telephone network to provide fixed-line telephone services, which consist of local, domestic long-distance and international long-distance services. These fixed-line telephone services accounted for 19.2% of our operating revenues in 2008. Our telephone network includes exchanges, long-distance transmission equipment and fiber optic and copper cables. The following table gives some basic measures of the development of our telephone system:

2004	2005	2006	2007	2008
Total Korean
Population (1)	48,199	48,294	48,378	48,457	48,607
Lines installed
(thousands) (2)	25,577	26,190	26,838	26,671	26,008
Lines in service
(thousands) (2)	21,091	20,837	20,331	19,980	18,883
Lines in service per 100
inhabitants (3)	43.8	43.1	42.0	41.2	38.8
Fiber optic cable (kilometers)	157,707	167,857	212,715	267,421	312,232
Number of public telephones installed (thousands)	317	267	218	185	161
Domestic long-distance call minutes
(millions) (4)(5)	14,826	13,417	14,769	13,375	11,591
Local call pulses
(millions) (4)	20,585	18,566	16,182	14,676	12,449

callerid=999 iwidth=456 length=60

| (1) | In thousands, based on population trend estimates by the
National Statistical Office of Korea. |
| --- | --- |
| (2) | Including lines used for public telephones but excluding lines
dedicated to centralized extension system services for corporate
subscribers. |
| (3) | Determined based on lines in service and total Korean population. |
| (4) | Excluding calls placed from public telephones. |
| (5) | Estimated by KT Corporation. |

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Our domestic long-distance cable network is entirely made up of fiber optic cable and can carry both voice and data transmissions. Compared to conventional materials such as coaxial cable, fiber optic cable provides significantly greater transmission capacity with less signal fading, thus requiring less frequent amplification. In recent years, we have also increased the proportion of our lines that are connected to exchanges capable of handling digital signal technology. A principal limitation of the older analog technology is that applications other than voice communications, such as the transmission of text and computer data, require either separate networks or conversion equipment. Digital systems permit a range of voice, text and data applications to be transmitted simultaneously on the same network. We completed connection of all installed lines to digital exchanges in June 2003.

The following table shows the number of minutes of international long-distance calls recorded by us and specific service providers utilizing our international long-distance network in each specified category for each year in the five-year period ended December 31, 2008:

2004	2005	2006	2007	2008
(In millions of billed minutes)
Incoming international long-distance calls	569.8	558.9	519.4	627.4	603.7
Outgoing international long-distance calls	527.4	467.8	400.9	431.4	398.1
Total	1,097.2	1,026.7	920.3	1,058.8	1,001.8

United States (20.3%), Japan (14.3%) and China (13.1%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2008. In recent years, the volume of our incoming calls exceeded the volume of our outgoing calls. The agreed settlement rate is applied to the call minutes to determine the applicable net settlement payment.

Interconnection. Under the Telecommunications Business Act, we are required to permit other service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include SK Broadband and LG DACOM (offering local, domestic long-distance and international long-distance services), Onse and SK Telink (offering international and domestic long-distance services), and SK Telecom, and LG Telecom (transmitting calls to and from their mobile networks). We expect that interconnection revenues and payments will remain important for our results of operations. In recent years, revenues from a landline user for a call initiated by a landline user to a mobile service subscriber (land-to-mobile interconnection) have become a significant portion of our results of operations, accounting for 7.1% of our operating revenues in 2008. We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as an expense the amount of interconnection charge paid to the mobile service provider.

Internet phone services. The volume of calls made through Internet phone services has significantly increased since Internet phone service was first introduced in Korea in March 1998. We provide Internet phone services that enable VoIP phone devices with broadband connection to make domestic and international calls. In order to differentiate our Internet phone services from our competitors services, we provide value-added services such as video communication, short message service, phone banking and a variety of traffic and local news information. In March 2009, we changed our brand name to QOOK Internet Phone.

Internet Services

Broadband Internet Access Service. Leveraging on our nationwide network of 312,232 kilometers of fiber optic cable network, we have achieved a leading market position in the broadband Internet access market in Korea. We believe we have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we can utilize our existing networks nationwide to provide broadband Internet access service. Our broadband Internet access service accounted for 10.4% of our operating revenues in 2008. Our principal Internet access services include:

xDSL, Ethernet and FTTH services under the QOOK Internet (formerly, Megapass) brand name;

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| | wireless LAN service under the Nespot brand name,
which is designed to integrate fixed-line and wireless services
by offering high speed wireless Internet access to laptops and
PDAs in hot-spot zones and QOOK Internet service in fixed-line
environments; and |
| --- | --- |
| | WiBro Internet access service, which enables two-way wireless
broadband Internet access to portable computers, mobile phones
and other portable devices at a speed averaging 1 Mbps per
user. |

We had 6.7 million fixed-line QOOK Internet subscribers as of December 31, 2008. We also had 0.4 million Nespot service subscribers as of December 31, 2008. We conducted trial service of WiBro service in parts of Seoul and Gyunggi Province starting in April 2006 and commercially launched our service in these areas in June 2006. Due to the limited service coverage, we have approximately 160,000 subscribers of WiBro service as of December 31, 2008. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008. Starting in the second half of 2007, we began bundling our WiBro service with QOOK Internet and Nespot services at a discount in order to attract additional subscribers.

xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. ADSL is a technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. ADSL transforms the existing public telephone network from one limited to voice, text and low-resolution graphics to a system capable of bringing multimedia to subscriber premises without new cabling. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading information from the Internet. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. We are currently upgrading our broadband network to enable FTTH connection, which further enhances downstream speed up to 100 Mbps and connection quality.

The high-speed downstream rates can reach up to 8 Mbps for ADSL and 100 Mbps for VDSL and FTTH. Downstream rates depend on a number of factors. For a constant wire gauge, the data rate decreases as the length of the copper wire increases. Generally, if the separation between the telephone office and the subscriber is greater than four kilometers, line attenuation is so severe that broadband speeds can no longer be achieved. Approximately 95% of the households subscribing to our basic local telephone service are located within a four kilometer radius of our telephone offices, making our QOOK Internet service available to most of the Korean population. Fiber-optic cable used by FTTH, on the other hand, uses laser light to carry signals that travel long distances inside fiber optic cable without degradation.

Our Ntopia service connects fiber-optic cables to apartment complexes and buildings with LAN capabilities. This technology allows data transmission speed of up to 100 Mbps. Because the service is UTP cable-based, a subscriber is directly connected to the Internet whenever his or her personal computer is in operation. We began offering our Ntopia service in November 2000.

In February 2002, we launched a wireless LAN service called Nespot, which provides laptops and PDAs wireless access to high speed Internet in hot-spot zones and QOOK Internet service in fixed-line environments. Nespot enables subscribers to access the Internet at up to 54 Mbps. We sponsored approximately 11,000 hot-spot zones nationwide for wireless connection as of December 31, 2008.

In June 2006, we also launched our WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. A subscriber is able to access the WiBro service network during transit at speeds of up to 120 kilometers per hour. We positioned WiBro service to provide IP-based triple play services, which are voice, data and video.

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Other Internet-related Services. Our Internet-related services focus primarily on providing infrastructure and solutions for business enterprises, as well as IP-TV and network portal services. Our Internet-related services accounted for 3.2% of our operating revenues in 2008.

We provide dedicated and secure broadband Internet connection service to institutional customers under the Kornet brand name. We provide high-speed connection up to 2.2 Tbps, as well as rent to our customers and install necessary routers to ensure reliable Internet connection and enhanced security. We provide discount rates to qualified customers, including small- and medium-sized enterprises, businesses engaging in Internet access services and government agencies.

We operate seven Internet data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storages and leased lines. Internet data centers are facilities used to house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data. Our Internet data centers are designed to meet international standards, and are equipped with temperature control systems, regulated and reliable power supplies, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the Internet. Internet data centers allow corporations or Internet service providers to outsource their application and server hardware management.

Our Internet data centers offer network outsourcing services, server operation services and system support services. Our network outsourcing services include co-location, which is the installation of our customers network equipment at our Internet data centers. Co-location is designed to increase customers Internet connection speed and reduce connection time and costs by directly connecting the customers server to the Internet backbone switch at our Internet data centers. Our server operation services include optimal server management service and technical support service we provide with respect to the leased servers that are linked directly to our Internet backbone switch. We also lease servers and network equipment for a fixed monthly fee. Our system support services include providing system resources for a wide range of Internet computing services, such as application transfer, network storage, video streaming and application download, as well as sending short text messages and messages containing multimedia objects, such as images, audio and video.

We also offer a service called Bizmeka to develop and commercialize business-to-business solutions targeting small- and medium-sized business enterprises in Korea. Bizmeka is an applied application service provider which provides industry-specific business solutions, including customer database management and electronic data interchange.

In addition, we began providing standard definition video-on-demand services to customers of our broadband Internet access services in June 2004, and high definition video-on-demand services in July 2007. We began promoting video-on-demand services under the brand name MegaTV in June 2007, which offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee. Through a digital set-top box that we rent to our customers, our customers are able to browse the catalogue of digital media contents and view selected media streams on their television. A set-top box provides two-way communications on an IP network and decodes video streaming data. We expanded our MegaTV service to include IP-TV service with real-time broadcasting on November 17, 2008. We began providing such services under the new brand name QOOK TV in March 2009, and we plan to expand our real-time broadcasting channel offerings.

Mobile Service

We provide mobile services based on CDMA technology and W-CDMA technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a consolidated subsidiary. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. KTF obtained one of the three licenses to provide nationwide PCS service in June 1996 and began offering PCS service in all major population centers in Korea in October 1997. PCS service is a digital wireless telephone and data transmission system that uses portable handsets with long battery life to communicate via low-power antennae. Our PCS service uses CDMA technology and utilizes 40 MHz of bandwidth in the 1800 MHz frequency. In May 2001, KTF launched

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its 2.5 generation high speed wireless data services. Subscribers who have EV-DO-compatible handsets are able to enjoy high speed multimedia services including voice, data and video transmission. KTF also expanded its coverage area of HSDPA-based IMT-2000 services to 84 cities in December 2006 and nationwide in March 2007. HSDPA-based IMT-2000 is a third-generation, high-capacity wireless Internet and video multimedia communications technology which allows an operator to provide to its subscribers significantly more bandwidth capacity. We currently offer such services under the brand name SHOW.

Prior to the merger of KTF into KT Corporation on June 1, 2009, we maintained an air-time reselling arrangement with KTF, under the brand name Lets 010, through which we use our extensive marketing network and strong brand name to attract subscribers who can utilize the mobile networks of KTF. We billed directly to our resale subscribers for their usage of KTFs mobile networks and collected all fees and charges relating to such usage, including initial subscription fees, monthly fees and usage charges for outgoing calls, wireless data communications and value-added monthly services. We had approximately 2.8 million resale subscribers who utilized KTFs network as of December 31, 2008.

Revenues related to mobile service accounted for 31.9% of our operating revenues in 2008. The following table shows selected information concerning the usage of KTFs network during the periods indicated and the number of KTFs subscribers as of the end of such periods:

	As of or for the Year Ended December 31, — 2006		2007		2008
Outgoing Minutes (in
thousands) (1)		19,763,593		20,407,676		22,144,588
Average Monthly Outgoing Minutes per
Subscriber (1)(2)		164		161		164
Average Monthly Revenue per
Subscriber (1)(3)	W	38,768	W	39,852	W	40,270
Number of Subscribers (in
thousands) (4)		12,914		13,721		14,365

callerid=999 iwidth=456 length=60

| (1) | Not including figures related to resale subscribers of KT
Corporation. |
| --- | --- |
| (2) | The average monthly outgoing minutes per subscriber is computed
by dividing the total minutes of usage for the period by the
weighted average number of subscribers for the period and
dividing the quotient by the number of months in the period. The
weighted average number of subscribers is the sum of the total
number of subscribers at the end of each month divided by the
number of months in the period. |
| (3) | The average monthly revenue per subscriber is computed by
dividing total monthly fees, usage charges, interconnection fees
and value-added service fees for the period by the weighted
average number of subscribers and dividing the quotient by the
number of months in the period. |
| (4) | Includes resale subscribers of KT Corporation who utilized
KTFs network. KT Corporation had approximately
2.8 million resale subscribers as of December 31, 2008. |

We compete with SK Telecom, a mobile service provider that has a longer operating history than us, and LG Telecom, that began its service at around the same time as KTF. As of December 31, 2008, KTF had approximately 14.4 million subscribers (including resale subscribers of KT Corporation), which was second largest among the three mobile service providers. As of December 31, 2008, in terms of number of subscribers announced by the Korea Communications Commission, KTF had a market share of 31.5% of the mobile service market. Among KTFs 14.4 million subscribers (including resale subscribers of KT Corporation), 8.3 million subscribers signed up for SHOW as of December 31, 2008, representing a market share of 50.1% in terms of number of subscribers using third-generation HSDPA-based IMT-2000 service as estimated by KTF.

Starting in January 2004 for SK Telecom subscribers, July 2004 for KTF subscribers and January 2005 for LG Telecom subscribers, mobile subscribers have been allowed to switch their service provider while retaining the same mobile phone number. In addition, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number, as well as those switching to a third-generation mobile service, are given the uniform mobile code of 010 as the first three digits of their mobile numbers without regard to the mobile service provider.

We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2008, there were approximately 2,200 shops managed by independent exclusive dealers of KTF. In

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addition to assisting new subscribers to activate mobile service and purchase handsets, authorized dealers are connected to our database and are able to assist customers with account information. Although most of these dealers sell exclusively our products and services, sub-dealers hired by exclusive dealers may sell products and services offered by other mobile telecommunications service providers. Authorized dealers are entitled to a commission for each new subscriber registered, as well as ongoing commissions for the first five years based primarily on the subscribers monthly fee, usage charges and length of subscription. The handsets sold by us to the dealers cannot be returned to us unless they are defective. If a handset is defective, it may be exchanged for a new one within 14 days from the date of purchase.

We conduct the screening process for new subscribers with great caution. A potential subscriber must meet all minimum credit criteria before receiving mobile service. The procedure includes checking the history of non-payment and credit information from banks and credit agencies such as the National Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the mobile service by using a pre-paid card.

Data Communication Service

Our data communication service involves offering exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. As of December 31, 2006, 2007 and 2008, we leased 400,287 lines, 391,383 lines and 386,917 lines to domestic and international businesses. The data communication service accounted for 6.8% of our operating revenues in 2008.

We currently have two satellites in operation, Koreasat 3 and Koreasat 5. We launched Koreasat 3 in September 1999. Koreasat 3 carries transponders that are used for direct-to-home satellite broadcasting, telecommunications, video distribution and high-speed data communications services for sparsely populated areas. Most of the direct-to-home satellite broadcasting transponders are utilized by Korea Digital Satellite Broadcasting Inc.

We launched Koreasat 5 in August 2006, which replaced Koreasat 2. Koreasat 5 is the first commercial satellite in Korea to provide satellite services to neighboring countries, and the service zone of the twelve beam repeaters include Japan, China, Taiwan and the Philippines. The design life of Koreasat 5 is fifteen years. The design life of Koreasat 3 is twelve years, and we plan to launch Koreasat 6 in August 2010 to replace Koreasat 3.

Miscellaneous Services

We also engage in various business activities that extend beyond telephone services and data communications services, including information technology and network services and real estate. Our miscellaneous services accounted for 6.7% of our operating revenues for 2008.

We offer a broad array of integrated information technology and network services to our business customers. Our range of services include consulting, designing, building and maintaining systems and communication networks that satisfy the individual needs of our customers in the public and private sectors.

We own land and real estate in various locations nationwide. Technological developments have enhanced the coverage area of individual telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings. In recent years, we have engaged in the planning and development of commercial and office buildings and condominiums on our unused sites, as well as in the leasing of buildings we own.

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Revenues and Rates

The table below shows the percentage of our revenues derived from each category of services for each of the years from 2006 through 2008:

2006	2007	2008
Telephone services:
Local service	16.3 %	15.3 %	14.0 %
Non-refundable service initiation fees	0.3	0.2	0.1
Domestic long-distance service	4.0	3.6	3.0
International long-distance service	2.2	2.3	2.2
Land-to-mobile interconnection	10.0	8.5	7.1
Sub-total	32.8	29.9	26.4
Internet services:
Broadband Internet access service	12.1	11.1	10.4
Other Internet-related
services (1)	1.8	2.3	3.2
Sub-total	13.9	13.4	13.6
Mobile service	30.9	31.5	31.9
Sales of
goods (2)	10.6	12.5	14.6
Data communications service	7.2	6.8	6.8
Miscellaneous
services (3)	4.6	5.9	6.7
Operating revenues	100.0 %	100.0 %	100.0 %

callerid=999 iwidth=456 length=60

Telephone Services

Local Telephone Service. Our revenues from local telephone service consist primarily of:

	Service initiation fees for new lines;
	Monthly basic charges; and
	Monthly usage charges based on the number of call pulses.

All calls are currently measured by call pulses. Each pulse is determined by the duration of the call and the time of the day at which the call is made. For instance, during regular service hours, a call pulse is triggered at the beginning of each local telephone call and every three minutes thereafter.

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The rates we charge for local calls are currently subject to approval by the Korea Communications Commission after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. The following table summarizes our local usage rates as of each date on which rates were revised:

	Dec 1, — 1996		Sept 1, — 1997		April 15, — 2001		May 1, — 2002
Local Usage Charges (per
pulse) (1)
Regular service	W	41.6	W	45	W	39	W	39
Public telephone		40		50		50		70

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(1) Since January 1, 1990, usage charges for local service in those metropolitan areas subject to measured service have been based on the number of pulses, which are a function of the duration and number of calls, and per pulse rates. Before January 1, 1993, in areas not subject to measured service, a pulse was triggered once for each local telephone call, regardless of the length of the call. Commencing January 1, 1993, measured service applies to all lines in service. A pulse is triggered at the beginning of each local call and every three minutes thereafter from 8:00 a.m. to 9:00 p.m. on weekdays and every 258 seconds thereafter on holidays and from 9:00 p.m. to 8:00 a.m. on weekdays.

Before September 1998, in addition to a non-refundable service initiation fee of W 8,000 and a monthly basic charge, a customer was required to pay at the time of a telephone service initiation a non-interest-bearing refundable deposit. The deposit ranged from W 122,000 to W 242,000 depending on the size of the local calling area in which the phone was installed. In September 1998, we implemented an alternative telephone service initiation charge system that allowed our customers to choose between the original service plan and a second service plan. The charges under each plan were as follows:

Rates from September 1998 to April 14, 2001	Original Plan	Second Plan
Service Initiation Deposit (refunded upon termination of service)	Between W 122,000 to W 242,000,
depending on location	None
Non-refundable Service Initiation Fee	W 8,000	W 100,000
Monthly Basic Charge	Between W 1,500 to W 2,500,
depending on location	Between W 2,000 to W 4,000,
depending on location

Through April 14, 2001, approximately 7.1 million customers switched to or enrolled under the second plan. To each of our customers switching plans, we refunded between W 30,000 and W 150,000 of their telephone service initiation deposits while keeping W 92,000, reflecting the W 100,000 non-refundable telephone service initiation fee under the second plan minus the W 8,000 non-refundable service initiation fee paid under the original plan.

Starting on April 15, 2001, we implemented a new telephone service initiation charge system. The changes are as follows:

Rates Starting April 15, 2001	New Plan
Service initiation Deposit (refunded upon termination of service)	None
Non-refundable Service Initiation Fee	W 60,000 (including value added tax)
Monthly Basic Charge	Between W 3,000 to W 5,200,
depending on location

All new customers subscribing to our local service on or after April 15, 2001 are enrolled under the new plan. Our existing customers who are enrolled in the original plan may switch to the new plan and receive their service initiation deposit back (less W 52,000, reflecting the W 60,000 non-refundable service initiation fee paid under the new plan minus the W 8,000 non-refundable service initiation fee paid under the original plan). Our existing customers who switched to or enrolled under the second plan cannot switch to the new plan.

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Starting in November 2007, we began waiving the W 60,000 non-refundable service initiation fee for new subscribers who subscribe to our local service through our online application process.

As of December 31, 2008, we had W 782 billion of refundable service initiation deposits outstanding and 3,560 thousand subscribers who are enrolled under the mandatory deposit plan and eligible to switch to the no deposit plan and receive their service initiation deposit back (less W 52,000 as described above).

Domestic Long-distance Telephone Service. Our revenues from domestic long-distance service consist of charges for calls placed, charged for the duration, time of day and day of the week a call is placed, and the distance covered by the call. We are able to set our own rates for domestic long-distance service without approval from the Korea Communications Commission.

The following table summarizes our domestic long-distance rates as of each date on which rates were revised. These charges do not reflect discounts applicable to calls made during off-peak hours or holidays.

| | Date of Rate
Change (1) — Dec. 1, | | Sept. 1, | | Dec. 1, | | April 15, | | Nov. 1, | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | 1996 | | 1997 | | 2000 | | 2001 | | 2001 | |
| Domestic Long-Distance Charges (per three
minutes) (1)(2) | | | | | | | | | | |
| Up to 30 km | W | 41.6 | W | 45 | W | 45 | W | 39 | W | 39 |
| Up to 100 km | | 182 | | 172 | | 192 | | 192 | | 261 |
| 100 km or longer | | 277 | | 245 | | 252 | | 252 | | 261 |

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| (1) | Domestic long-distance calls of up to 30 kilometers are billed
on the same basis as local calls. Before April 15, 2001,
for domestic long-distance calls in excess of 30 kilometers, a
pulse was triggered at the beginning of each call and every 47
seconds for calls up to 100 kilometers or every 33 seconds
for calls in excess of 100 kilometers. Commencing
April 15, 2001, a pulse was triggered at the beginning of
each call and every 30 seconds thereafter. Commencing
November 1, 2001, a pulse is triggered at the beginning of
each call and every 10 seconds thereafter. |
| --- | --- |
| (2) | Rates for domestic long-distance calls in excess of 30
kilometers are currently discounted (by an adjustment in the
period between pulses) by 10% on holidays and from
6:00 a.m. to 8:00 a.m. on weekdays, and by 30% from
midnight to 6:00 a.m. every day. |

In recent years, we have begun to offer optional flat rate plans and discount plans in order to mitigate the impact from lower usage of local and domestic long-distance calls and stabilize our revenues from fixed-line telephone services. Some of our new plans introduced in recent years include the following:

| | starting in September 2006, a subscriber who elects to pay the
monthly average of the past six months of local and domestic
long-distance usage amounts plus an extra monthly change of W 500 is able to make free local and domestic
long-distance calls up to twice the historical minutes. A
subscriber who elects to pay an extra monthly charge of W 1,000 is able to make free calls up to three
times the historical minutes. Usage minutes exceeding these free
amounts are charged at a 50.0% discount; |
| --- | --- |
| | starting in November 2007, a subscriber who elects to pay an
additional monthly flat rate of W 3,000 is able
to make local and domestic long-distance calls at a flat rate of W 39 per call without regard to length of the
call; |
| | starting in November 2007, a subscriber who elects to pay an
additional monthly flat rate of W 2,000 is able
to make domestic long-distance calls at a rate of W 39 per three minutes; and |
| | starting in June 2008, a subscriber who elects to pay a monthly
flat rate of W 12,500 is able to make free local
and domestic long-distance calls after 9 p.m. on weekdays
or at any time on weekends. Each month, the subscriber also
receives a free movie ticket and free 60 minutes of
land-to-mobile calls. The subscriber is also eligible to receive
a discount of up to 20%, subject to the length of the mandatory
subscription period. |

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International Long-distance Service. Our revenues from international long-distance service consist of:

| | amounts we bill to customers for outgoing calls made to foreign
countries (including customers who make calls to Korea from
foreign countries under our home country direct-dial service); |
| --- | --- |
| | amounts we bill to foreign telecommunications carriers and
administrations for connection to the Korean telephone network
in respect of incoming calls (including calls placed in Korea by
customers of the foreign carriers for home country direct-dial
service); and |
| | other revenues, including revenues from international calls
placed from public telephones. |

We bill outgoing calls made by customers in Korea (and calls made to Korea from foreign countries under our home country direct-dial service) in accordance with our international long-distance rate schedule for the country called. These rates vary depending on the time of day at which a call is placed. We bill outgoing international calls on the basis of one-second increments. We are able to set our own rates for international long-distance service without approval from the Korea Communications Commission.

For incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service), we receive settlement payments from the relevant foreign carrier or administration at the applicable settlement rate specified under the agreement with the foreign entity. We have entered into numerous bilateral agreements with foreign carriers and administrations. We negotiate the settlement rates under these agreements with each foreign carrier, subject to Korea Communications Commission approval. It is the practice among international carriers for the carrier in the country in which the call is billed to collect payments due in respect of the use of overseas networks. Although we record the gross amounts due to and from us in our financial statements, we make settlements with most carriers quarterly on a net basis.

Interconnection. We provide other telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network.

Land-to-mobile Interconnection. For a call initiated by a landline user to a mobile service subscriber, we collect from the landline user the land-to-mobile usage charge and remit to the mobile service provider a land-to-mobile interconnection charge. The Korea Communications Commission periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The Korea Communications Commission determines the land to mobile interconnection charge by calculating the long run incremental cost of mobile service providers, taking into consideration technology development and future expected costs.

The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators for landline to mobile calls.

	Effective Starting — January 1,		January 1,		January 1,		January 1,
	2006		2007		2008		2009
SK Telecom	W	33.1	W	32.8	W	33.4	W	33.4
KTF		40.1		39.6		38.7		38.7
LG Telecom		47.0		45.1		39.1		39.1

The following table shows the usage charge per minute collected from a landline user for a call initiated by a landline user to a mobile service subscriber.

	Effective Starting — May 1,		July 1,		September 1,
	2002		2003		2004
Weekday	W	93.8	W	89.0	W	87.0
Weekend		88.9		84.0		82.0
Evening (1)		83.9		79.2		77.2

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(1) Evening rates are applicable from 12:00 a.m. to 6:00 a.m. everyday.

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We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as expense the amount of interconnection charge paid to the mobile service provider.

Land-to-land and Mobile-to-land Interconnection. For a call initiated by a landline subscriber of our competitor to our fixed-line user, the landline service provider collects from its subscriber its normal rate and remits to us a land-to-land interconnection charge. In addition, for a call initiated by a mobile service subscriber to our landline user, the mobile service provider collects from its subscriber its normal rate and remits to us a mobile-to-land interconnection charge.

The following table shows such interconnection charge per minute collected for a call depending on the type of call, as determined by the Korea Communications Commission.

	Effective Starting — January 1,		January 1,		January 1,		January 1,
	2006		2007		2008		2009
Local
access (1)	W	16.6	W	17.3	W	18.3	W	18.1
Single toll
access (2)		18.2		19.0		19.5		19.3
Double toll
access (3)		19.9		20.7		20.6		20.4

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Source: The Korea Communications Commission.

| (1) | Interconnection between local switching center and local access
line. |
| --- | --- |
| (2) | Interconnection involving access to single long-distance
switching center. |
| (3) | Interconnection involving access to two long-distance switching
centers. |

Internet Services

Broadband Internet Access Service. We offer broadband Internet access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a one time installation fee per site of W 30,000 and modem rental fee ranging from W 3,000 to W 8,000 on a monthly fixed basis. The rates we charge for broadband Internet access service are subject to approval by the Korea Communications Commission.

The following table summarizes our charges for various broadband Internet services as of December 31, 2008:

QOOK Internet Special	100	36,000
QOOK Internet Lite	50	30,000
WiBro
Slim (2)(6)	3	10,000
WiBro
Basic (3)(6)	3	20,000
WiBro
Special (4)(6)	3	30,000
WiBro
Premium (5)(6)	3	40,000

callerid=999 iwidth=456 length=60

| (1) | We provide discounts of up to 15.0% for mandatory subscription
periods ranging from one to three years. |
| --- | --- |
| (2) | We charge a monthly fee of W 10,000 for up to
500 megabytes of data transmission and W 50
per megabyte for any additional data transmission in excess of
500 megabytes per month. |
| (3) | We charge a monthly fee of W 20,000 for up to
2,000 megabytes of data transmission and W 25 per megabyte for any additional data
transmission in excess of 2,000 megabytes per month. |
| (4) | We charge a monthly fee of W 30,000 for up to
4,000 megabytes of data transmission and W 10 per megabyte for any additional data
transmission in excess of 4,000 megabytes per month. |
| (5) | We charge a monthly fee of W 40,000 for up to
6,000 megabytes of data transmission and W 7 per megabyte for any additional data
transmission in excess of 6,000 megabytes per month. |
| (6) | In order to promote our WiBro service, we are currently offering
promotional rates to all new customers subscribing before
June 30, 2009. New subscribers may elect either flat rate
plans in which the subscriber pays |

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either a monthly fee of W 19,800 for up to 30,000 megabytes of data transmission or a monthly fee of W 27,000 for up to 50,000 megabytes of data transmission, or a discount plan in which the subscriber pays a monthly fee of W 10,000 for up to 1,000 megabytes of monthly data transmission and W 25 per megabyte for data transmission in excess of such amount, with the maximum monthly fee capped at W 150,000. Both promotional plans are subject to mandatory subscription periods.

Mobile Service and Mobile Handset Sales

Our mobile handset sales are included in our consolidated operating revenues as sales of goods. In addition, we derive revenues from mobile service principally from:

	initial subscription fees;
	monthly fees;
	usage charges for outgoing calls;
	usage charges for wireless data transmission;
	contents download fees; and
	value-added monthly service fees.

Prior to the merger of KTF into KT Corporation on June 1, 2009, we also generated operating revenues from mobile resale service through our air-time reselling arrangement with KTF. We may set mobile service fees and charges, including any promotional rates, without approval from the Korea Communications Commission. Like all Korean mobile service providers, we do not charge our customers for incoming calls. Instead, we receive interconnection charges from other mobile and fixed-line service operators for calls initiated by their subscribers.

We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. We charge an initial subscription fee of W 30,000 to new subscribers. Under the standard rate plan for PCS service, we charge a monthly fee of W 13,000 and usage charges of W 18 per ten seconds, and the subscriber is provided with 10 free minutes. Under the standard rate plan for HSDPA-based SHOW service, we charge a monthly fee of W 12,000 and usage charges of W 18 per ten seconds, but no free minutes are offered.

In order to promote our mobile services, we acquire mobile handsets in bulk for resale to our subscribers. We provide usage charge discounts and subsidies to subscribers who purchase new handsets and additional monthly fees and usage charge discounts and subsidies to those who agree to a subscription period of at least 12 months.

Data Communication Service

We charge customers of domestic leased-lines on a monthly fixed-cost basis based on the distance of the leased line, the capacity of the line measured in bits per second (bps), the type of line provided and whether the service site is local or long-distance. In addition, we charge customers a one-time installation fee per site ranging from W 56,000 to W 1,940,000 depending on the capacity of the line.

Bundled Products

We utilize our extensive customer relationships and market knowledge to expand our revenue base by cross-selling our telecommunications products and services. We launched a new brand QOOK in March 2009 to promote our bundled products, and we plan to gradually unify brand names for our various service offerings as QOOK and SHOW. In order to attract additional subscribers to our new services, we bundle our services, such as our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service and mobile services, at a discount.

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The following table summarizes our various bundled packages that we will launch on July 1, 2009. The packages require subscribers to agree to a subscription period of three years.

	Monthly Rates			Usage Charge Discounts — Between	Calls to
	Off-Line		Mobile	Family	Designated
	Flat
Rate (1)		Monthly Fee	Members	Numbers (2)
Internet / Internet Phone / Mobile	W	25,000	Discounts of between	50%	20%
Internet / Fixed-Line Phone / Mobile		27,000	10% to 50%, subject to	50%	20%
Internet / IP-TV /
Mobile		29,000	the number of subscribers	50%	20%
Internet / Internet Phone / IP-TV /
Mobile		30,000	who participate (up to	50%	50%
Internet / Fixed-Line Phone / IP-TV /
Mobile		32,000	5 mobile numbers)	50%	50%

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| (1) | Assuming QOOK Internet Lite service. If QOOK Internet Special is
selected, additional monthly charge of W 5,000. |
| --- | --- |
| (2) | Limited to one designated mobile number and one designated
fixed-line number. |

We have also entered into partnerships with a leading online shopping mall, an operator of cinema complexes and a manufacturer of health drinks, and our subscribers may elect to receive monthly gift certificates or movie tickets with value of up to W 50,000 per month in lieu of monthly rate discounts.

We believe that subscribers who sign up for bundled products are less likely to cancel our services than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue recognition policy for each service.

Competition

Under the Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers in Korea are currently classified into network service providers, value-added service providers and specific service providers. See Regulation.

Network Service Providers

All network service providers in Korea are permitted to set the rates for international or domestic long-distance services on their own without Korea Communications Commission approval. Many of our competitors have set their rates lower than ours. Currently, we can compete freely with other providers on the basis of rates in all services except for rates we charge for local calls and broadband Internet access service, which require advance approval from the Korea Communications Commission. In all service areas, we compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our broad customer base and our ability to provide various telecommunication services.

We and SK Telecom have been designated as market-dominating business entities in the respective markets under the Telecommunications Business Act. Under this Act, a market-dominating business entity may not engage in any act of abuse, such as unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers. The Korea Communications Commission has also issued guidelines on fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the Korea

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Communications Commission may take necessary corrective measures against it after a hearing at which the service provider may defend its action.

Local Telephone Service. We compete with SK Broadband and LG DACOM in the local telephone service business. SK Broadband began providing local telephone service in 1999, followed by LG DACOM in 2004. In addition, the services provided by mobile service providers have had a material adverse effect on KT Corporation in terms of our revenues from fixed-line telephone services. We expect this trend to continue.

The following table shows the market share in the local telephone service market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:

KT	SK	LG
Corporation	Broadband	DACOM
December 31, 2006	92.1	7.5	0.4
December 31, 2007	90.4	8.8	0.8
December 31, 2008	89.8	8.7	1.5

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Source: Korea Communications Commission.

Although the local usage charge of our competitors and us is the same at W 39 per pulse (generally three minutes), our competitors non-refundable telephone service initiation charge and basic monthly charge are lower than ours. Our customers pay a non-refundable telephone service initiation charge of W 60,000 and a basic monthly charge of up to W 5,200 depending on location. On the other hand, customers of our competitors pay a non-refundable telephone service initiation charge of W 30,000 and a basic monthly charge of up to W 5,200 depending on location.

Domestic Long-distance Telephone Service. We compete with SK Broadband, LG DACOM, Onse and SK Telink in the domestic long-distance market. LG DACOM began offering domestic long-distance service in 1996, followed by Onse in 1999 and SK Broadband and SK Telink in 2004. The following table shows the market shares in the domestic long-distance market in terms of number of subscribers announced by the Korea Communications Commission for the years indicated:

KT	LG	SK
Corporation	DACOM	Broadband	Onse	SK Telink
2006	85.6	6.1	4.8	2.1	1.4
2007	85.4	7.4	3.9	1.8	1.5
2008	85.2	7.8	3.7	1.7	1.6

callerid=999 iwidth=456 length=60

Source: Korea Communications Commission.

Our competitors and we charge W 39 per three minutes for domestic long-distance calls up to 30 kilometers. For domestic long-distance calls greater than 30 kilometers, our competitors typically charge between 3% to 5% less than us. The following table is a comparison of our standard long-distance usage charges per three minutes with the standard rates of our competitors as of December 31, 2008:

	KT — Corporation		SK — Broadband		LG — DACOM		Onse		SK Telink
30 kilometers or longer	W	261	W	250	W	253	W	248	W	248

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Source: Korea Communications Commission.

International Long-Distance Telephone Service. Four companies, SK Broadband, LG DACOM, Onse and SK Telink, directly compete with us in the international long-distance market. LG DACOM began offering international long-distance service in 1991, followed by Onse in 1997 and SK Broadband in 2004. SK Telink, which only provides Internet phone service, entered the international long-distance market in 2003 and offers its services at rates lower than those of network-based international long-distance telephone services. The entry of Internet phone service providers and other telecommunications service providers, such as voice resellers, that can offer

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telecommunications services at rates lower than ours has increased competition in the international long-distance market and adversely affected our revenues and profitability from international long-distance services. See Specific Service Providers.

Our competitors generally charge less than us for international long-distance calls. The following table is a comparison of our standard long-distance usage charges per one minute with the standard rates of our competitors as of December 31, 2008:

	KT — Corporation		SK — Broadband		LG — DACOM		Onse		SK — Telink
United States	W	282	W	276	W	288	W	276	W	156
Japan		696		672		678		672		384
China		990		984		996		984		780
Australia		1,086		1,044		1,086		1,044		528
Great Britain		1,008		966		996		966		498
Germany		948		912		942		912		402

callerid=999 iwidth=456 length=60

Source: KT Corporation.

Broadband Internet Access Service. The Korean broadband Internet access market has experienced significant growth since Korea Thrunet first introduced its HFC-based service in 1998. SK Broadband entered the broadband market in 1999 offering both HFC and ADSL services, and we entered the market with our ADSL services in 1999, followed by Dreamline, Onse, LG Powercom and LG DACOM. In addition, the entry of cable television providers that offer HFC-based broadband Internet access services at rates lower than ours has increased competition in the broadband Internet access market. We expect industry consolidation among our competitors in the near future, and smaller competitors in the broadband market today may become larger competitors.

The following table shows the market share in the broadband Internet access market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:

KT	SK	LG
Corporation	Broadband	Powercomm	Others
December 31, 2006	45.2	25.7	8.6	20.5
December 31, 2007	44.3	24.9	11.7	19.1
December 31, 2008	43.4	22.9	14.1	19.6

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Source: Korea Communications Commission.

Our competitors generally charge less than us for broadband Internet access service. The following table is a comparison of fees for our QOOK Internet Lite service with three year mandatory subscription period with fees of our competitors for comparable services as of December 31, 2008:

	KT — Corporation		SK — Broadband		LG — Powercomm		Cable — Providers(1)
Monthly subscription fee	W	25,500	W	25,200	W	25,000	W	19,600
Monthly modem rental fee		3,000		3,000				3,000
Additional installation fee upon moving		10,000		10,000		20,000		varies

callerid=999 iwidth=456 length=60

Source: KT Corporation.

(1) These are fees typically charged by cable providers.

Mobile Service. Competition in the mobile telecommunications industry in Korea is intense among SK Telecom, LG Telecom and us. Such competition intensified in recent years due to the implementation of mobile number portability, which enables mobile subscribers to switch their service provider while retaining the same mobile phone number, as well as payments of handset subsidies to purchasers of new handsets.

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The following table shows the market share in the mobile telecommunications market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:

KTF	SK Telecom	LG Telecom
December 31, 2006	32.1	50.4	17.4
December 31, 2007	31.5	50.5	18.0
December 31, 2008	31.5	50.5	18.0

callerid=999 iwidth=456 length=60

Source: Korea Communications Commission.

The following table shows the market share of third-generation HSDPA-based IMT-2000 service in terms of number of subscribers as estimated by us as of the dates indicated:

KTF	SK Telecom
December 31, 2007	56.2	43.8
December 31, 2008	50.1	49.9

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Source: KT Corporation.

Data Communication Service. We had a monopoly in domestic data communication service until 1994, when LG DACOM was authorized to provide the leased-line service. The data communications service market has become more competitive with limited growth during the past decade, and we primarily compete with SK Broadband and LG DACOM.

Value-Added Service Providers

Value-added service providers may commence operations following filing of a report to the Korea Communications Commission. The scope of business of a value-added service provider includes specific value-added telecommunications activities (other than services reserved for network service providers), such as data communications utilizing telecommunications facilities leased from network service providers.

Specific Service Providers

Specific service providers, such as Internet phone service providers and voice resellers, started operations in Korea in 1998. We began providing Internet phone service for international long-distance calls in May 1998. Our Internet phone service also competes with international long-distance services provided by voice resellers who have also seen sharp increases in demand for their services.

Foreign Competition

Under the multilateral agreement on basic telecommunications services among the members of the WTO, effective November 27, 1997, the Government of Korea agreed to gradually reduce the restrictions on foreign and individual shareholdings in KT Corporation and other network service providers in Korea. Currently, the Telecommunications Business Law limits aggregate ownership of shares with voting rights (including equivalent securities with voting rights, such as depository certificates and certain other equity interests, and all references to shares with voting rights include such equivalent securities) in network service providers (including us) by foreign shareholders to 49.0% of issued shares with voting rights. In addition, the Telecommunications Business Law and the Foreign Investment Promotion Act prohibit a foreign shareholder from being our largest shareholder if such shareholder holds 5.0% or more of our shares. See Regulation Foreign Investment. While the WTO Agreement enables us to seek foreign investors and strategic partners and to more easily take advantage of

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opportunities for investments in overseas telecommunications projects, it may also benefit our competitors and further intensify competition in the domestic market.

Regulation

Under the Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers are currently classified into three categories:

| | network service providers, such as us, which typically provide
telecommunications services with their own telecommunications
networks and related facilities. Their services may include
local, domestic long-distance and international long-distance
telephone services, mobile communications service, paging
service and trunked radio system service; |
| --- | --- |
| | value-added service providers, which provide telecommunications
services other than those services specified for network service
providers, such as data communications using telecommunications
facilities leased from network service providers; and |
| | specific service providers, which may occupy a middle ground
between network service providers and value-added service
providers and are broadly defined by law as telecommunications
service providers that provide network services using the
telecommunications network facilities or services of network
service providers. |

Under the Telecommunications Basic Law and the Telecommunications Business Law, the Korea Communications Commission has comprehensive regulatory authority over the telecommunications industry and all network service providers. The Korea Communications Commission is established under the direct jurisdiction of the President and is comprised of five standing commissioners. Commissioners of the Korea Communications Commission are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the National Assembly. The Korea Communications Commissions policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. A network service provider must be licensed by the Korea Communications Commission. Our license as a network service provider permits us to engage in a wide range of telecommunications services.

Under the Use and Protection of Credit Information Act, telecommunications service providers are also required to disclose personal credit information of their customers only for the purpose of validating and maintaining telecommunications service agreements. Korean telecommunications service providers may use their customers credit information only to the extent allowed by the Use and Protection of Credit Information Act, which has gained greater importance in recent years due to the occurrence of personal information leakage incidents.

The Korea Communications Commission announced in December 2008 its key policy initiatives for 2009. These include (i) promotion of convergence between the telecommunications and the broadcasting industries, (ii) market-friendly regulatory reforms and (iii) consumer protection. Specific measures being reviewed by the Korea Communications Commission include (i) permitting companies with a minimum asset size of W 10 trillion to engage in general programming and broadcasting contents activities, (ii) formulating a regulatory basis for auctioning superior frequency bandwidth for more efficient use of public frequencies, (iii) lowering the entry barrier for the telecommunications market by moving from a regulatory permit regime to a reporting regime and (iv) relaxing restrictions on service bundling.

The Korea Communications Commission also has the authority to regulate the IP media market, including IP-TV services. We began offering IP-TV services with real-time high definition broadcasting on November 17, 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission. The ownership of the shares of an IP media broadcasting company by a newspaper, a news agency or a foreigner is limited, and broadcasting of certain contents must obtain additional approval of the Korea Communications Commission.

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Rates

Under current regulations implementing the Telecommunications Business Act, a network service provider may set its rates at its discretion, although it must report to the Korea Communications Commission the rates and the general terms and conditions for each type of network service provided by it. There is, however, one exception to this general rule: if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates the service providers and the types of services for which the rates and the general terms must be approved by the Korea Communications Commission. In 2008, the Korea Communications Commission designated us for local telephone service and broadband Internet access service and SK Telecom for cellular service. The Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, is required to approve the rates proposed by a network service provider if (1) the proposed rates are appropriate, fair and reasonable and (2) the calculation method for the rates are appropriate and transparent.

Other Activities

A network service provider, such as us, must obtain the permission of the Korea Communications Commission in order to:

| | engage in certain businesses specified in the Presidential
Decree under the Telecommunications Business Act, such as the
telecommunications equipment manufacturing business and the
telecommunications network construction business; |
| --- | --- |
| | change the conditions for its licenses; |
| | transfer, terminate, suspend or spin off all or a part of the
business for which it is licensed; |
| | acquire all or a part of the business of another network service
provider; or |
| | enter into a merger with another network service provider. |

A telephone service provider may provide some network services using the equipment it currently has by submitting a report to the Korea Communications Commission. The Korea Communications Commission can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the Korea Communications Commission under the Telecommunications Business Law.

The responsibilities of the Korea Communications Commission also include:

| | formulating the basic plan for the telecommunications
industry; and |
| --- | --- |
| | preparing periodic reports to the National Assembly of Korea
regarding developments in the telecommunications industry. |
| | The responsibilities of the Ministry of Knowledge Economy
include: |
| | drafting and implementing plans for developing
telecommunications technology; |
| | fostering and providing guidance to institutions and entities
that conduct research relating to telecommunications; and |
| | recommending to network service providers that they invest in
research and development or that they contribute to
telecommunications research institutes in Korea. |

In addition, since January 2000, all network service providers (other than regional paging service providers) are obligated to contribute toward the supply of universal telecommunications services in Korea. Telecommunications service providers designated as universal service providers by the Korea Communications Commission are required to provide universal telecommunications services such as local services, local public telephone services, discount services for persons with disabilities and for certain low-income persons, telecommunications services for remote islands and wireless communication services for ships. We have been designated as

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a universal service provider. The costs and losses recognized by universal service providers in connection with providing these universal telecommunications services will be shared on an annual basis by all network service providers (other than regional paging service providers), including us, on a pro rata basis based on their respective net annual revenue calculated pursuant to a formula set by the Korea Communications Commission.

Due to the amendment of the Telecommunications Business Law, effective April 9, 2001, a network service provider must permit other network service providers to co-use wirelines connecting the switching equipment to end-users, upon the request of such other network service providers. In addition, a network service provider may permit other network service providers to co-use its wireless communication systems upon the request of any of such other network service providers. The compensation method for the co-use must be determined by the Korea Communications Commission and be settled, by fair and proper methods.

In addition, starting April 2002, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper lines that represent our excess capacity to other companies upon their request at rates that are determined by the Korea Communications Commission based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services. Revenues from local loop unbundling are recognized as revenues from miscellaneous services.

Foreign Investment

The Telecommunications Business Act restricts the ownership and control of network service providers by foreign shareholders. Foreigners, foreign governments and foreign invested companies may not own more than 49.0% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder if such shareholder holds 5.0% or more of our shares. For purposes of the Telecommunications Business Act, the term foreign invested company means a company in which foreigners and foreign governments hold 15.0% or more shares with voting rights in the aggregate and a foreigner or a foreign government is the largest shareholder, provided, however, that such company will not be counted as a foreign shareholder for the purposes of the above-referenced 49.0% limit if it holds less than 1.0% of our total issued and outstanding shares with voting rights. As of December 31, 2008, 41.0% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in excess of such limitation, and the Korea Communications Commission may require corrective measures be taken to comply with the ownership restrictions. There is no restriction on foreign ownership for specific service providers and value-added service providers.

Individual Shareholding Limit

The Privatization Law ceased to apply to us in August 2002, and the ceiling on individual shareholding specified in the articles of incorporation has been eliminated. Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. In addition, under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, the Telecommunications Business Act restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.

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Customers and Customer Billing

We typically charge residential subscribers and business subscribers similar rates for services provided. On a case-by-case basis, we also provide discount rates for some of our high-volume business subscribers. We bill all of our customers on a monthly basis. Our customers may make payment at either payment points such as local post offices, banks or our service offices, through a direct-debit service that automatically deducts the monthly payment from a subscribers designated bank account, or through a direct-charge service that automatically charges the monthly payment to a subscribers designated credit card account. Approximately 73% of our subscribers as of December 31, 2008 pay through the direct-debit service. Accounts of subscribers who fail to pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of time determined by the type of subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are written off.

Insurance

We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and Internet data centers, we do not carry insurance covering losses to outside plant or to equipment because we believe the cost of such insurance is excessive and the risk of material loss or damage is insignificant. We do not have any provisions or reserves against such loss or damage. We do not carry any business interruption insurance.

We provide co-location and a variety of value-added services including server-hosting services to a number of corporations whose business largely depends on critical data operated on our servers or on their servers located at our data centers. Any disruptions, interruptions, physical or electronic data loss, delays or slow down in communication connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services.

Item 4.C. Organizational Structure

These matters are discussed under Item 4.B. where relevant.

Item 4.D. Property, Plants and Equipment

Our principal fixed asset is our integrated telecommunications network that consists of exchanges and transmission equipment, access lines, backbone network, and mobile network. In addition, we own buildings and real estate throughout Korea.

Our fixed-line equipment vendors and mobile equipment suppliers include well-known international and local suppliers such as Samsung Electronics, LG Electronics, Cisco Systems and Alcatel-Lucent.

Exchanges

Exchanges include local exchanges and toll exchanges that connect local exchanges to long-distance transmission facilities. We had 26.0 million lines connected to local exchanges and 1.6 million lines connected to toll exchanges as of December 31, 2008.

All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges in June 2003 in order to provide higher speed and larger volume services. Starting in 2006, we also began conversion of our exchanges to be compatible to Internet protocol platform in preparation for building our next generation broadband convergence network by 2015. As of December 31, 2008, approximately 51% of our lines connected to toll exchanges are compatible to Internet protocol platform.

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Internet Backbone

Our Internet backbone network, called KORNET, has the capacity to handle an aggregate traffic of our broadband Internet access subscribers, Internet data centers and Internet exchange system at any given moment of up to 3.2 Tbps as of December 31, 2008. We have set up contingent plans to prepare against various incidents that could affect reliable Internet access service. Starting in 2005, we have also begun deploying our Internet protocol premium network that enables us to more reliably support QOOK TV, WiBro, QOOK Internet Phone, upgraded VoIP services and other Internet protocol services. As of December 31, 2008, our Internet protocol premium network had 270,000 lines installed to provide voice over Internet protocol services and a total capacity to handle up to 340 Gbps of video-on-demand services. We plan to continue to expand our Internet protocol premium network in 2009.

Access Lines

As of December 31, 2008, we had 11.3 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability using xDSL and FTTH technology. As of December 31, 2008, we had approximately 7.9 million broadband lines with speeds of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers.

Transmission Network

Our domestic fiber optic cable network consisted of 312,232 kilometers of fiber optic cables as of December 31, 2008, of which 82,127 kilometers of fiber optic cables are used to connect our backbone network and 230,196 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes dense wavelength division multiplexing technology for connecting major cities as well as optical add-drop multiplexer technology for connecting neighboring cities. Dense wavelength division multiplexing technology improves bandwidth efficiency by enabling transmission of data from multiple signals across one fiber strand in a cable by carrying each signal on a separate wavelength. We enhanced our backbone network connecting six major cities in Korea by implementing an optical cross-connector (OXC) architecture in 2008 and are in the process of building our next generation broadband convergence network through installation of network equipment utilizing optical reconfigurable add-drop multiplexer technology and multi-service provisioning platform.

Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consists of 56 relay sites.

International Network

Our international network infrastructure consists of both submarine cables and satellite transmission systems, including two submarine cable-landing stations in Busan and Keoje and two satellite teleports in Kumsan and Boeun. Data services such as international private lease circuits, Internet protocol and very small aperture terminals are provided through submarine cables and satellite transmission. In order to guarantee high quality services to our end customers, our submarine cables and satellite transmission systems are linked to various points-of-presence in the United States, Asia and Europe. In addition, our international telecommunications networks are directly linked to 247 telecommunications service providers in various international destinations and are routed through our three international switching centers in Seoul, Daejeon and Busan.

Our international Internet backbone with capacity of 130 Gbps is connected to approximately 190 Internet service providers through our two Internet gateways in Heawha and Guro. In addition, we operate a video backbone with capacity of 665 Mbps to transmit video signals from Korea to the United States, Japan and Singapore.

Satellites

In order to provide broadcasting, video distribution and broadband data services in select areas, we operate two satellites, Koreasat 3 and 5, launched in 1999 and 2006, respectively. These two satellites are expected to reach the

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end of their normal operational lives in 2011 and 2021, respectively. See Item 4.B. Business Overview Our Services Satellite Services.

Mobile Networks

Our mobile network architecture includes the following components:

| | cell sites, which are physical locations equipped with base
transceiver stations consisting of transmitters, receivers and
other equipment used to communicate through radio channels with
subscribers mobile telephone handsets within the range of
a cell; |
| --- | --- |
| | base station controllers, which connect to and control, the base
transceiver stations; |
| | mobile switching centers, which in turn control the base station
controllers and the routing of telephone calls; and |
| | transmission lines, which connect the mobile switching centers,
base station controllers, base transceiver stations and the
public switched telephone network. |

The following table lists selected information regarding mobile networks of KTF as of December 31, 2008:

Mobile switching centers	42	22
Base station controllers	397	219
Base transceiver stations	10,750	6,997
Indoor and outdoor repeaters	47,450	196,587

We have 40 MHz of bandwidth in the 1,800 MHz spectrum to provide PCS services based on CDMA wireless network standards and another 40 MHz of bandwidth in the 2,000 MHz spectrum to provide IMT-2000 services based on W-CDMA wireless network standards. We have also installed an intelligent network on our mobile network infrastructure to provide a wide range of advanced call features and value-added services.

International Submarine Cable Networks

International traffic is handled by telecommunications satellites and submarine cables. Because of the high cost of laying a submarine cable, the usual practice is for multiple carriers to jointly commission a new cable and share the costs and the capacity. We own interests in several international fiber optic submarine cable networks, including:

| | a 2.3% interest in the 12,083-kilometer Asia Pacific Cable
Network connecting Korea, Japan and Hong Kong with six Southeast
Asian countries and Australia, activated since January 1997; |
| --- | --- |
| | a 1.4% interest in the 29,000-kilometer FLAG Europe-Asia network
connecting Korea, Southeast Asia, the Middle East and Europe,
activated since April 1997; |
| | a 1.9% interest in the 39,000-kilometer Southeast Asia-Middle
East-Western Europe 3 Cable Network linking 34 countries,
activated since December 1999; |
| | a 6.7% interest in the 30,444-kilometer China-U.S. Cable
Network linking Korea, China, Japan, Taiwan and the United
States, activated since January 2000; |
| | a 2.5% interest in the 19,000-kilometer Asia Pacific Cable
Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong,
Philippines, Singapore and Malaysia, activated since December
2001; |
| | a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated
since March 2002.; and |
| | a 13.1% interest in the 16,500-kilometer Trans Pacific Express
Cable Network linking Korea, China, Taiwan and the United
States, activated since September 2008. |

We have also invested in 15 other international fiber optic submarine cables around the world.

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Item 4A. Unresolved Staff Comments

We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934.

ITEM 5. Operating and Financial Review and Prospects

Item 5.A. Operating Results

Overview

We are an integrated provider of telecommunications services. Our principal services include fixed-line telephone services, Internet services including broadband Internet access service, mobile service and data communication service. The principal factors affecting our revenues from these services have been our rates for, and the volume of usage of, these services, as well as the number of subscribers. For information on rates we charge for our services, see Item 4. Information on the Company Item 4.B. Business Overview Revenues and Rates.

Historically, our revenues were derived principally from telephone services which consist of local, domestic long-distance and international long-distance services and land-to-mobile interconnection service. In recent years, we have been deriving an increasing portion of our operating revenues from Internet services and mobile service.

The following table shows, for each of the years in the three-year period ended December 31, 2008, our operating revenues, expenses and operating income determined in accordance with Korean GAAP, and each amount as a percentage of consolidated operating revenues.

	Year Ended December 31,
	2006			2007			2008
		(Percentage			(Percentage			(Percentage
		of			of			of
	(In	consolidated		(In	consolidated		(In	consolidated
	billions of	operating		billions of	operating		billions of	operating
	Won)	revenues)		Won)	revenues)		Won)	revenues)
Operating revenues:
Telephone services:
Local service	W	2,909	16.3 %	W	2,856	15.3 %	W	2,752	14.0 %
Non-refundable service installation fees		46	0.3		43	0.2		28	0.1
Domestic long-distance service		711	4.0		673	3.6		587	3.0
International long-distance service		386	2.2		432	2.3		442	2.2
Land-to-mobile interconnection		1,765	10.0		1,588	8.5		1,391	7.1
Sub-total		5,817	32.8		5,592	29.9		5,200	26.4
Internet services:
Broadband Internet access service		2,149	12.1		2,074	11.1		2,050	10.4
Other Internet-related
services (1)		322	1.8		424	2.3		629	3.2
Sub-total		2,471	13.9		2,498	13.4		2,679	13.6
Mobile service		5,510	30.9		5,875	31.5		6,261	31.9
Sale of
goods (2)		1,889	10.6		2,324	12.5		2,867	14.6
Data communication
service (3)		1,284	7.2		1,271	6.8		1,336	6.8
Miscellaneous
services (4)		854	4.6		1,100	5.9		1,302	6.7
Total operating revenues		17,825	100.0		18,660	100.0 %		19,645	100.0 %
Operating expenses:
Salaries and related costs		2,993	16.8		3,133	16.8		3,214	16.4
Depreciation and amortization		3,557	20.0		3,602	19.3		3,630	18.5
Other operating and
maintenance (5)		8,892	49.9		10,180	54.6		11,373	57.9
Total operating expenses		15,442	86.7		16,915	90.6 %		18,217	92.7 %
Operating income	W	2,383	13.3 %	W	1,745	9.4 %	W	1,428	7.3 %

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callerid=999 iwidth=456 length=60

| (1) | Includes revenues from Kornet Internet connection service and
services provided by our Internet data centers, Bizmeka and QOOK
TV. |
| --- | --- |
| (2) | Includes mobile handset sales. |
| (3) | Includes revenues from satellite service. |
| (4) | Includes revenues from information technology and network
services and real estate development. |
| (5) | For a breakdown of other operating and maintenance expenses, see
Item 5.A. Operating Results Other
Operating and Maintenance Expenses. |

We have two reportable operating segments a wireline communications segment and a mobile services segment. All financial information included in the wireline communications segment discussion is based on non-consolidated financial statements of KT Corporation prior to elimination of intercompany transactions. Wireline communications include all services provided to fixed-line customers, including Internet access services, data communication services, leased line services and telephone services. All financial information included in the mobile service segment discussion is based on non-consolidated financial statements of KTF prior to elimination of intercompany transactions. Mobile services include both PCS service and IMT-2000 service. The operations of all other entities are included in the Other segment.

One of the major factors contributing to our historical performance was the growth of the Korean economy, and our future performance will depend at least in part on Koreas general economic growth and prospects. For a description of recent developments that have had and may continue to have an adverse effect on our results of operations and financial condition, see Item 3. Key Information Item 3.D. Risk Factors Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate. A number of other developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:

	merger of KTF into KT Corporation on June 1, 2009;
	IMT-2000 service license payments;
	changes in the rate structure for our services;
	developing and launching WiBro service; and
	deployment of FTTH.

As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.

Merger of KTF into KT Corporation

On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. The merger was consummated pursuant to a comprehensive stock transfer under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. We delivered 700,108 shares of our newly issued common stock (par value W 5,000) and 45,629,480 shares of our treasury shares (par value W 5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger.

Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at W 38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and W 29,284 for each share of KTF common stock properly submitted to KTF for appraisal. KT Corporation and KTF spent an aggregate of W 298 billion to purchase such shares properly submitted for appraisal, which are now held as treasury shares.

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IMT-2000 Service License Payments

We acquired the right to purchase one of three licenses to provide IMT-2000 services on December 15, 2000, as a member of a consortium of companies including KT Corporation and KTF. In March 2001, KT ICOM, a company created by the consortium, paid half of the W 1.3 trillion license fee payable to the Korea Communications Commission. KTF, which subsequently merged with KT ICOM, paid W 90 billion in 2007 and W 110 billion in 2008, and we are obligated to pay the remaining W 450 billion as follows: W 130 billion in 2009, W 150 billion in 2010 and W 170 billion in 2011. This payable accrues interest at the applicable three-year Government bond interest rate minus 0.75%. The accrued interest is paid on an annual basis to the Korea Communications Commission. KTF expanded its coverage area of HSDPA-based IMT-2000 services to 84 cities in December 2006 and began offering nationwide services in March 2007 under the brandname SHOW.

Changes in the Rate Structure for Our Services

Periodically, we change our rate structure for our services. In order to mitigate the impact from lower usage charges of local and domestic long-distance calls, we have increased our basic monthly charges and began offering optional flat rate plans for our fixed-line subscribers. Such adjustments in the rate structure have had a positive effect on our financial condition by increasing the portion of fixed income and stabilizing our cash flow. In addition, because the growing use of mobile telecommunications services has decreased the usage of our fixed-line telephone services, we believe we are able to maximize our revenues from fixed-line telephone services by adjusting the rate structure so as to increase our basic monthly charges. Starting in the second half of 2007, we also began bundling our services at a discount in order to attract additional subscribers to our new services. We launched a new brand QOOK in March 2009 to promote our bundled products, and we currently bundle our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service and mobile services at a discount. For a discussion of adjustments in our rate structure, see Item 4. Information on the Company Item 4.B. Business Overview Revenues and Rates.

Developing and Launching WiBro Service

Upgrading of Broadband Network to FTTH

FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content. We are currently upgrading our broadband network to enable FTTH connection, which enhances downstream speed up to 100 Mbps and connection quality. We are planning to spend approximately W 297 billion in capital expenditures in 2009 to upgrade our broadband network to FTTH, which we may adjust after periodic assessments.

Critical Accounting Policies

The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with Korean GAAP. Korean GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America. We have summarized these differences and their

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effect on our stockholders equity as of December 31, 2007 and 2008 and the results of our operations for each of the years in the three-year period ended December 31, 2008, in Note 38 to the Consolidated Financial Statements.

The preparation of financial statements in conformity with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the years reported. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates under different assumptions and conditions.

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, our management has identified critical accounting estimates. These estimates have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.

These critical accounting estimates include:

	allowances for doubtful accounts;
	useful lives of property, plant and equipment;
	impairment of long-lived assets, including the IMT-2000
frequency usage right;
	impairment of investment securities;
	income taxes; and
	valuation of derivatives.

Allowances for doubtful accounts

Allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an analysis of portfolio quality and historical write-off experience. Account balances are charged off against the allowance when all means of collection have been exhausted and the potential for recovery is considered remote. Our past experience shows that the possibility of collection is remote after three years of collection effort.

Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2008 are summarized as follows:

	Year Ended December 31,
	2006		2007		2008
	(In millions of Won)
Balance at beginning of year	W	613,873	W	563,164	W	487,729
Provision		111,285		71,502		150,583
Write-offs		(161,994	)	(146,937	)	(149,573	)
Balance at end of year	W	563,164	W	487,729	W	488,739

If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording additional expense or benefit. Our study shows that a 5.0% decrease or increase in the historical write-off experience would increase or decrease the provision for doubtful accounts by approximately W 2.8 billion as of December 31, 2008.

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Useful lives of property, plant and equipment

Property, plant and equipment are depreciated based on the useful lives disclosed in Note 2(h) to the Consolidated Financial Statements. Generally, the useful lives are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. In certain cases and as permitted under Korean GAAP, those useful lives used for accounting purposes are different from the estimated economic lives of the related asset. In addition, the estimated lives of certain other assets, including underground access to cable tunnels, and concrete and steel telephone poles are based on rates established by a ruling by the Korean National Tax Service (which is also applicable under Korean GAAP). If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. A decrease of remaining estimated useful life by one year of our property, plant and equipment would result in an increase of depreciation expense of approximately W 246 billion in 2008.

Impairment of long-lived assets including the IMT-2000 frequency usage right

Long-lived assets generally consist of property, plant and equipment and intangible assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, we evaluate our long-lived assets for impairment each year as part of our annual forecasting process. An impairment loss would be considered when estimated undiscounted future net cash flow expected to result 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 impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Our intangible assets include the IMT-2000 frequency usage right, which has a contractual life of 13 years and is amortized from the date commercial service is initiated through the end of its contractual life, which is November 2016. We started to amortize this frequency usage right in December 2003, and we review the IMT-2000 frequency usage right for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow forecasts developed as part of our planning process. The results of our review using the testing method described above did not indicate any need to impair the IMT-2000 frequency usage right in 2008. The use of different assumptions within our cash flow model could result in different amounts for the IMT-2000 frequency usage right.

Impairment of investment securities

For investments in companies, whether or not publicly held, that are not controlled, but under our significant influence, we utilize the equity method of accounting. Under the equity method of accounting, our initial investment is recorded at cost and is subsequently increased to reflect our share of the investee income and reduced to reflect our share of the investee losses or dividends received. Any excess in our acquisition cost over our share of the investees identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill or other intangibles is recorded against the equity income (losses) of affiliates.

Under U.S. GAAP, when events or circumstances indicate that the carrying amount of an equity method investment may not be recoverable, we review the investment for other-than-temporary impairment. As part of this review, the investees operating results, net asset value and future performance forecasts as well as general market conditions are taken into consideration. If we believe, based on this review, that the market value of our investment may realistically be expected to recover, the loss will continue to be classified as temporary. If economic or specific industry trends worsen beyond our estimates, valuation losses previously determined to be recoverable may need to be charged as a valuation loss in equity income (losses) of affiliates.

Significant management judgment is involved in the evaluation of declines in value of individual investments. The estimates and assumptions used by management to evaluate declines in value can be impacted by many factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested and, for publicly-traded securities, the length of time and the extent to which fair value has been less than

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cost. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.

Income Taxes

We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each years liability by taxing authorities.

We believe that the accounting estimate related to establishing tax valuation allowances is a critical accounting estimate because: (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities, and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Managements assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so.

Under Korean GAAP, recognition of deferred tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is construed to mean five years. We do not believe it is probable to realize such benefit from KT Corporations investor-level goodwill amortization expenses within five years. Accordingly, we wrote off the related deferred income tax assets in the amount of W 26 billion in 2006 and W 38 billion in 2007 by taking a charge to deferred income tax expense. Our unrecognized deferred income tax assets decreased by W 38 billion in 2008 primarily due to a decrease in income tax rate from 27.5% to 22.0%.

Under U.S. GAAP, deferred tax assets are recognized for the excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). We purchased additional shares of KTF in 2006, which became a consolidated subsidiary under U.S. GAAP as of August 20, 2006. We had recognized deferred tax assets amounting to W 417 billion as of August 20, 2006 relating to the basis difference for our investment in KTF while being accounted for under the equity method. As a result of the consolidation of KTF, the deferred tax assets can no longer be recorded since it is not apparent that the temporary difference will reverse in the foreseeable future. We eliminated the deferred tax assets with the corresponding charge applied to an increase of goodwill as part of purchase accounting and the initial consolidation of KTF under U.S. GAAP.

Valuation of derivatives

We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. Gains and losses that result from the change in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounts, the effective portion of the gain or loss on the derivative instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income (loss).

Significant management judgment is involved in determining the fair value of derivative instruments. The estimates and assumptions used by our management to determine fair value can be impacted by many factors, such as the credit quality of each derivative counterparty, interest rate, market volatility or the overall condition of the economy and its impact on the capital markets. Any changes in these assumptions could significantly affect the valuation and timing of recognition of valuation losses classified as other than temporary.

Adoption of New Accounting Standards

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statements for the years ended December 31, 2006 have been reclassified in accordance with Statements of Korea Accounting Standards No. 16 and No. 21 for comparison purposes.

Operating Results

We have adopted new accounting standards and reclassified certain of our accounts effective January 1, 2007, and we have made the corresponding reclassification to our 2006 consolidated financial statements. Our discussion of operating results is prepared using the reclassified consolidated financial statements. See Adoption of New Accounting Standards for the effects of the adoption of new accounting standards.

Telephone Service Revenues

Local Service Revenues. Local service revenues include basic monthly charges and monthly usage charges from local telephone service and revenues from other value-added services, including local telephone directory assistance, call waiting and caller identification services. In addition, we charge interconnection fees to fixed-line competitors and mobile service providers whenever fixed-line competitors and mobile service providers use our local network in providing their services. Basic monthly charges vary depending on the location of the customer and the telephone installation charge system selected by the customer, and monthly usage charges are based on the number of call pulses. Service revenues from local service vary principally depending on the number of lines in service, the number of new lines placed in service, rates and the volume of calls. All lines in service are subject to measured service under which call pulses are a function of the number of calls made, each calls duration and the time of day at which each call is made. Revenues from local calls placed from public telephones are also included in local service revenues.

In 2007, we had local service revenues of W 2,856 billion, representing a decrease of 1.8% compared to 2006 local service revenues of W 2,909 billion. The decrease in local service revenues in 2007 was due principally to a 9.3% decrease in the number of local call pulses in 2007 compared to 2006, which was attributable to the substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by our efforts in recent years to mitigate the impact from lower usage of local calls and stabilize our revenues from fixed-line telephone services by offering optional flat rate plans, as well as an increase in revenues from value-added services.

In 2008, we had local service revenues of W 2,752 billion, representing a decrease of 3.6% compared to 2007 local service revenues of W 2,856 billion. The decrease in local service revenues in 2008 was due principally to a 15.2% decrease in the number of local call pulses in 2008 compared to 2007 attributable to the continuing substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from value-added services.

Non-refundable Service Installation Fee. We implemented a new telephone installation charge system in April 2001, pursuant to which new customers who did not previously subscribe to our local service must pay a W 60,000 non-refundable installation fee. We also recognize such non-refundable installation fee as revenue. See Item 4. Information on the Company Item 4.B. Business Overview Revenues and Rates Telephone Services Local Telephone Service. We recognized as revenue W 46 billion in non-refundable service installation fees in 2006, W 43 billion in 2007 and W 28 billion in 2008.

Domestic Long-distance Revenues. Service revenues from domestic long-distance service depend on rates, the number of call minutes, and the distance and the time of day each call is made. In addition, we charge interconnection fees to fixed-line competitors, mobile service providers and voice resellers whenever they use our domestic long-distance network in providing their services. Domestic long-distance revenues include revenues from domestic long-distance calls placed from public telephones. Revenues from domestic long-distance service have decreased in recent years and are accounting for a smaller portion of our consolidated operating revenues.

In 2007, we had domestic long-distance revenues of W 673 billion, representing a decrease of 5.3% from 2006 domestic long-distance revenues of W 711 billion. The decrease in domestic long-distance revenues in 2007 was due principally to a decrease in the number of domestic long-distance call minutes in 2007 compared to 2006

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primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. Effects from such decrease were partially offset by our efforts in recent years to mitigate the impact from lower usage of domestic long-distance calls and stabilize our revenues from fixed-line telephone services by offering optional flat rate plans.

In 2008, we had domestic long-distance revenues of W 587 billion, representing a decrease of 12.8% from 2007 domestic long-distance revenues of W 673 billion. The decrease in domestic long-distance revenues in 2008 was due principally to a decrease in the number of domestic long-distance call minutes in 2008 compared to 2007 primarily due to a continuing substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by participation by some of our subscribers in optional flat rate plans.

International Long-distance Revenues. Service revenues from international long-distance service consist of:

| | amounts we bill to our customers for outgoing calls made to
foreign countries (including customers who make calls to Korea
from foreign countries under our home country direct-dial
service); |
| --- | --- |
| | amounts we bill to foreign telecommunications carriers and
administrations for connection to the Korean telephone network
in respect of incoming calls (including calls placed in Korea by
customers of the foreign carriers for home country direct-dial
service); |
| | amounts we charge to fixed-line competitors, mobile service
providers and voice resellers as interconnection fees for using
our international network in providing their services; and |
| | other revenues, including revenues from international calls
placed from public telephones and international leased lines. |

Outgoing calls made by customers in Korea (and by customers from foreign countries under our home country direct-dial service) are billed in accordance with our rate schedule for the country called, under which rates vary depending on the time of day when a call is placed. Incoming calls are billed by us to the relevant foreign carrier or administration at the applicable settlement rate specified under the relevant agreement with the foreign entity. International long-distance calls to and from the United States, Japan and China in the aggregate accounted for 47.7% of our total international long-distance call minutes in 2008. See Item 4. Information on the Company Item 4.B. Business Overview Our Services Telephone Services Fixed-line Telephone Services.

In 2007, we had international long-distance revenues of W 432 billion, representing an increase of 11.9% compared to 2006 international long-distance revenues of W 386 billion. Our international long-distance revenues increased in 2007 primarily due to an increase in the number of international long-distance call minutes in 2007 compared to 2006 resulting from an increase in traffic from specific service providers utilizing our international long-distance network as well as an increase in revenues from international calls made using our Internet phone services.

In 2008, we had international long-distance revenues of W 442 billion, representing an increase of 2.3% compared to 2007 international long-distance revenues of W 432 billion. Our international long-distance revenues increased in 2008 primarily due to an increase in the number of international long-distance call minutes in 2008 compared to 2007 resulting from an increase in traffic from specific service providers utilizing our international long-distance network as well as an increase in revenues from international calls made using our Internet phone services.

Land-to-mobile Interconnection Revenues. When a landline user initiates a call to a mobile subscriber, we record the entire amount of the usage charges for these calls in land-to-mobile interconnection revenues and pay an interconnection charge to the relevant mobile service provider. See Item 4. Information on the Company Item 4.B. Business Overview Revenues and Rates Telephone Services Interconnection.

In 2007, we had land-to-mobile interconnection revenues of W 1,588 billion, representing a decrease of 10.0% from 2006 interconnection revenues of W 1,765 billion, primarily due to increased volume of calls between mobile subscribers, which in turn reduced volume of calls between landline users to mobile subscribers.

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In 2008, we had land-to-mobile interconnection revenues of W 1,391 billion, representing a decrease of 12.4% from 2007 interconnection revenues of W 1,588 billion, primarily due to increased volume of calls between mobile subscribers, which in turn reduced the volume of calls between landline users to mobile subscribers.

Internet Service Revenues

Broadband Internet access service accounted for 12.1% of our operating revenues in 2006, 11.1% in 2007 and 10.4% in 2008. Other Internet-related services include broadband Internet connection service to institutional customers under the Kornet brand name and services provided by our Internet data centers, Bizmeka and QOOK TV.

Broadband Internet Access Service Revenues. Broadband Internet access service revenues include basic monthly charges for fixed-line broadband service and wireless LAN service, as well as applicable one-time installation fees. We do not charge usage fees to our subscribers of broadband Internet access service.

Broadband Internet access service revenues decreased by 3.5% to W 2,074 billion in 2007 from W 2,149 billion in 2006 primarily due to special discounts provided to long-term subscribers in 2007, which was offset in part by an increase in the number of subscribers.

Broadband Internet access service revenues decreased by 1.2% to W 2,050 billion in 2008 from W 2,074 billion in 2007, primarily due to special discounts offered to long-term subscribers and bundled products in 2008, which was offset in part by an increase in the number of subscribers.

Other Internet-related Service Revenues. Other Internet-related service revenues increased by 31.7% to W 424 billion in 2007 from W 322 billion in 2006, primarily due to an increase in revenues related to our Internet data centers and Bizmeka service. Other Internet-related service revenues increased by 48.3% to W 629 billion in 2008 from W 424 billion in 2007 primarily due to a further increase in revenues related to our Internet data centers and Bizmeka service, as well as an increase in revenues from our IP-TV service.

Mobile Revenues

We derive revenues from mobile service principally from:

	initial subscription fees;
	monthly fees;
	usage charges for outgoing calls;
	usage charges for wireless data transmission;
	contents download fees; and
	value-added monthly service fees.

Prior to the merger of KTF into KT Corporation on June 1, 2009, we also generated operating revenues from mobile resale service through our air-time reselling arrangement with KTF.

Mobile service revenues increased by 6.6% to W 5,875 billion in 2007 from W 5,510 billion in 2006, primarily due to a 6.2% increase in the number of subscribers, including resale subscribers of KT Corporation, to 13.7 million as of December 31, 2007 from 12.9 million as of December 31, 2006. The average monthly revenue per subscriber of KTF increased to W 39,852 in 2007 from W 38,768 in 2006.

Mobile service revenues increased by 6.6% to W 6,261 billion in 2008 from W 5,875 billion in 2007, primarily due to a 4.7% increase in the number of subscribers, including resale subscribers of KT Corporation, to 14.4 million subscribers as of December 31, 2008 from 13.7 million subscribers as of December 31, 2007, as well as an increase in revenues from wireless data usage. The average monthly revenue per subscriber of KTF increased to W 40,270 in 2008 from W 39,852 in 2007.

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Sale of Goods

Our revenues from sale of goods are generated through sale of mobile handsets and specially designed phones for fixed-line services.

Revenues from sale of goods increased by 23.0% to W 2,324 billion in 2007 from W 1,889 billion in 2006. Revenues from sale of goods increased in 2007 due primarily to an increase in the number of HSDPA-based IMT-2000 service compatible handsets.

Revenues from sale of goods increased by 23.4% to W 2,867 billion in 2008 from W 2,324 billion in 2007, primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets.

Data Communications Revenues

Revenues from data communications service include basic monthly charges of leased lines based on their distance, the capacity of the line and the type of line provided, and applicable one-time installation fees, as well as revenues from our satellite service. Data communications service revenues decreased by 1.0% in 2007 to W 1,271 billion from W 1,284 billion in 2006 primarily as a result of increased competition among leased line service providers. Data communications service revenues increased by 5.1% in 2008 to W 1,336 billion from W 1,271 billion in 2007 due to an increase in demand for our virtual private network service.

Miscellaneous Revenues

Miscellaneous revenues consist primarily of revenues from information technology and network services and real estate development.

Revenues from miscellaneous services increased by 28.8% to W 1,100 billion in 2007 from W 854 billion in 2006 and increased further by 18.4% to W 1,302 billion in 2008, primarily due to an increase in revenues from international roaming service, fees charged to voice resellers for using our international network and KT Capital, which offset a decrease in revenues from information technology and network services and real estate development.

Salaries and Related Costs

The principal components of salaries and related costs are salaries and wages, employee welfare expenses, severance indemnities and share-based payments. Employee welfare expenses include meal subsidies and commuting subsidies. The severance indemnities are a lump-sum amount paid to employees who have been employed by us for more than one year when they leave.

In 2007, salaries and related costs were W 3,133 billion, representing a 4.7% increase from W 2,993 billion in 2006, primarily due to an increase in provisions for severance indemnities resulting from an increase in the average salary rate compared to the prior year.

In 2008, salaries and related costs were W 3,214 billion, representing a 2.6% increase from W 3,133 billion in 2007, primarily as a result of an increase in salaries and wages resulting from an increase in the number of employees of our consolidated subsidiaries.

Wireline Communications. In 2007, salaries and related costs increased by 3.4% to W 2,672 billion from W 2,585 billion in 2006, primarily as a result of an increase in provisions for severance indemnities. In 2008, salaries and related costs decreased by 0.9% to W 2,649 billion from W 2,672 billion in 2007, primarily as a result of a decrease in salaries and wages resulting from a decrease in the number of employees to 35,063 as of December 31, 2008 compared to 36,913 as of December 31, 2007.

Mobile Service. In 2007, salaries and related costs increased by 6.4% to W 230 billion from W 216 billion in 2006, primarily as a result of an increase in the number of employees of KTF. In 2008, salaries and related costs increased by 3.1% to W 237 billion from W 230 billion in 2007, primarily as a result of a further increase in the number of employees of KTF.

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Depreciation and Amortization

In 2007, depreciation and amortization expense increased by 1.3% to W 3,602 billion from W 3,557 billion in 2006. Depreciation and amortization expense amounted to W 3,630 billion in 2008, which represented a 0.8% increase from W 3,602 billion in 2007.

Wireline Communications. In 2007, depreciation and amortization expense increased by 0.7% to W 2,135 billion from W 2,121 billion in 2006 due primarily to an expansion of its network facilities. In 2008, depreciation and amortization expense increased by 3.3% to W 2,205 billion from W 2,135 billion in 2007 due primarily to an increase in assets with short useful lives.

Mobile Service. In 2007, depreciation and amortization expense increased by 0.7% to W 1,142 billion from W 1,135 billion in 2006. In 2008, depreciation and amortization expense decreased by 2.1% to W 1,118 billion from W 1,142 billion in 2007.

Other Operating and Maintenance Expenses

The largest components of other operating and maintenance expenses are cost of goods sold, sales commission, commissions and cost of services, interconnection charges, promotion expenses and repairs and maintenance costs. The following table shows other operating and maintenance expenses broken down by major components and the percentage changes in these expenses for each of the years in the three-year period ended December 31, 2008.

	Year Ended December 31, — 2006		2007		2008	2006 vs 2007		2007 vs 2008
	(In billions of Won)
Cost of goods sold	W	1,682	W	1,912	W	2,367	13.7	%	23.8	%
Sales commission		1,348		1,902		2,130	41.1		12.0
Commissions and cost of services		1,648		1,925		2,015	16.8		4.7
Interconnection charge		1,178		1,200		1,234	1.9		2.8
Promotion expenses		561		749		1,080	33.5		44.1
Repairs and maintenance		705		611		580	(13.3	)	(5.0	)
Miscellaneous expenses		1,769		1,881		1,967	6.3		4.6
Total	W	8,891	W	10,180	W	11,373	14.5	%	11.7	%

Our cost of goods sold consists primarily of our sale of mobile handsets and specially designed phones for fixed-line services. In 2007, cost of goods sold increased by 13.7% to W 1,912 billion from W 1,682 billion in 2006 primarily as a result of an increase in the number of HSDPA-compatible handsets sold. In 2008, cost of goods sold increased by 23.8% to W 2,367 billion from W 1,912 billion in 2007 primarily as a result of an increase in the sales of HSDPA-compatible handsets and specially designed phones for fixed-line services.

Sales commission consists principally of commission related to procurement of mobile subscribers and mobile handset sales. In 2007, our sales commission increased by 41.1% to W 1,902 billion from W 1,348 billion in 2006, primarily due to an increase in the number of our SHOW subscribers as well as an increase in sales commission to mobile sales agents resulting primarily from an increase in sales volume of HSDPA-compatible handsets, which are more expensive than regular handsets. In 2008, our sales commission increased by 12.0% to W 2,130 billion from W 1,902 billion in 2007, primarily due to a further increase in the number of our SHOW subscribers as well as a further increase in sales commission to mobile sales agents resulting primarily from an increase in sales volume of HSDPA-compatible handsets.

Commissions and cost of services consist principally of payments for third-party outsourcing services, including commissions to the call center staff. In 2007, our commissions increased by 16.8% to W 1,925 billion from W 1,648 billion in 2006, primarily due to an increase in outsourcing costs related to call center services. In 2008, our commissions increased further by 4.7% to W 2,015 billion from W 1,925 billion in 2007, primarily due to outsourcing of activation and installation activities to third-parties.

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We recognize as an expense the interconnection payments to mobile service providers for calls from landline users and our mobile subscribers to our competitors mobile service subscribers. Our interconnection charges increased by 1.9% to W 1,200 billion in 2007 from W 1,178 billion in 2006 primarily due to an increase in the amount of call traffic to mobile subscribers. In 2008, our interconnection charges increased by 2.8% to W 1,234 billion from W 1,200 billion in 2007 primarily due to continued increase in the amount of call traffic to mobile subscribers. For a discussion of the interconnection payment calculation methodology, see Item 4. Information on the Company Item 4.B. Business Overview Revenues and Rates Telephone Services Interconnection.

Our promotion expenses consist primarily of handset subsidies. In 2007, our promotion expenses increased by 33.5% to W 749 billion from W 561 billion in 2006 primarily due to an increase in the sales volume of HSDPA-compatible handsets. In 2008, our promotion expenses increased by 44.1% to W 1,080 billion from W 749 billion in 2007 primarily due to further increase in the sales volume of HSDPA-compatible handsets.

In 2007, our repair and maintenance expenses decreased by 13.3% to W 611 billion from W 705 billion in 2006 primarily due to a decrease in repair and maintenance activities related to our broadband Internet network. In 2008, our repair and maintenance expenses decreased by 5.0% to W 580 billion from W 611 billion in 2007 primarily as a result of decrease in repair and maintenance activities related to our transmission network facilities.

Wireline Communications. The largest components of other operating and maintenance expenses are sales commission, commissions, cost of services, interconnection payments for landline to mobile calls and cost of goods sold. In 2007, other operating and maintenance expenses increased by 5.6% to W 5,696 billion from W 5,394 billion in 2006. Other operating and maintenance expenses increased by 2.1% in 2008 to W 5,817 billion from W 5,696 billion in 2007.

Mobile Service. The largest components of other operating and maintenance expenses are cost of handset sales, sales commissions, interconnection charges, commissions and promotion expenses. In 2007, other operating and maintenance expenses increased by 22.1% to W 5,481 billion from W 4,488 billion in 2006 primarily due to an increase in cost of handset sales and marketing expenses related to the promotion of SHOW services. In 2008, other operating and maintenance expenses increased by 19.3% to W 6,537 billion from W 5,481 billion in 2007 primarily due to increases in cost of handset sales, promotion expenses and sales commissions.

Operating Income

Operating income decreased by 26.8% in 2007 to W 1,745 billion from W 2,383 billion in 2006, as the increase in operating expenses more than offset the increase in operating revenues described above. Accordingly, our operating margin decreased to 9.4% in 2007 from 13.4% in 2006. Operating income further decreased by 18.2% to W 1,428 billion in 2008 from W 1,745 billion in 2007, as the increase in operating expenses more than offset the increase in operating revenues described above. Accordingly, our operating margin decreased to 7.3% in 2008 from 9.4% in 2007.

Wireline Communications. In 2007, operating income decreased by 18.3% to W 1,434 billion from W 1,756 billion in 2006 as the increase in operating expenses more than offset the increase in operating revenues described above. Operating margin decreased to 12.0% in 2007 from 14.8% in 2006. In 2008, operating income further decreased by 22.3% to W 1,113 billion from W 1,434 billion in 2007 as the operating expenses increased while operating revenues decreased. Operating margin decreased to 9.4% in 2008 from 12.0% in 2007.

Mobile Service. In 2007, operating income decreased by 36.0% to W 441 billion from W 689 billion in 2006 as the increase in operating expenses more than offset the increase in revenues described above. Operating margin decreased to 6.0% in 2007 from 10.6% in 2006. In 2008, operating income increased by 3.1% to W 454 billion from W 441 billion in 2007 as the increase in operating revenues described above was greater than the increase in operating expenses described above. Operating margin decreased to 5.4% in 2008 from 6.0% in 2007.

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Income Taxes

In 2007, our income tax expense was W 357 billion and our effective tax rate was 24.6%, and we recognized tax credit of W 121 billion. In 2008, our income tax expense was W 168 billion and our effective tax rate was 24.6%, and we recognized tax credit of W 203 billion in 2008.

We had net deferred income tax assets of W 483 billion as of December 31, 2008.

Wireline Communications. In 2007, income tax expense decreased by 14.1% to W 293 billion from W 341 billion in 2006, primarily due to a decrease in income before income tax expense to W 1,275 billion from W 1,574 billion in 2006. In 2008, income tax expense decreased by 62.3% to W 110 billion from W 293 billion in 2007, primarily due to a decrease in income before income tax expense to W 560 billion from W 1,275 billion in 2007.

Mobile Services. In 2007, income tax expense decreased by 58.1% to W 43 billion from W 102 billion in 2006, primarily due to a decrease in income before income tax expense to W 287 billion in 2007 from W 514 billion in 2006. In 2008, income tax expense decreased by 49.1% to W 22 billion from W 43 billion in 2007, primarily due to a decrease in income before income tax expense to W 186 billion from W 287 billion in 2007.

Net Income

In 2007, our net income decreased by 22.4% to W 1,171 billion from W 1,510 billion in 2006 primarily as a result of a 26.8% decrease in operating income discussed above, a net loss on foreign exchange translation and transaction in 2007 compared to a net gain in 2006 and a decrease in net gain on disposal of available-for-sale securities, the effects of which were offset in part by a net gain on valuation and settlement of derivatives in 2007 compared to a net loss in 2006, a gain from discontinuing operations in 2007 compared to no such gain in 2006, an increase in interest income and a decrease in interest expenses.

Such factors were principally attributable to the following:

| | We recorded a net loss on foreign exchange translation and
transaction of W 13 billion in 2007
compared to a net gain of W 136 billion in
2006 primarily as a result of the depreciation of the Korean Won
against the Dollar in 2007 compared to appreciation in 2006. In
terms of the market average exchange rates announced by Seoul
Money Brokerage Services, Ltd., the Won depreciated against the
Dollar from W 929.6 to US$1.00 as of
December 29, 2006 to W 938.2 to US$1.00 as
of December 31, 2007. |
| --- | --- |
| | Our net gain on disposal of available-for-sale securities
decreased by 88.4% in 2007 to W 9 billion
from W 78 billion in 2006 primarily as a
result of a decrease in disposal of such securities in 2007
compared to 2006. |
| | We recorded a net gain on valuation and settlement of
derivatives of W 23 billion in 2007
compared to a net loss of W 95 billion in
2006 primarily resulting from the depreciation of the Korean Won
against the Dollar in 2007 compared to appreciation in 2006. |
| | We recorded a gain of W 74 billion in 2007
as non-operating revenues from discontinuing operations of Korea
Telecom Philippines Inc. and Korea Telecom Venture
Fund No. 1, primarily due to reversal of cumulative
loss from such operations. |
| | Our interest income increased by 39.2% in 2007 to W 156 billion from W 112 billion in 2006 primarily as a result
of an increase in our interest-earning assets, as well as a
general increase in market interest rates in Korea in 2007. Our
interest expenses decreased by 6.6% in 2007 to W 466 billion from W 499 billion in 2006 primarily as a result
of a decrease in our borrowing amounts. |

In 2008, our net income decreased by 56.2% to W 513 billion from W 1,171 billion in 2007 primarily as a result of a 18.2% decrease in operating income discussed above, an increase in net loss on foreign exchange translation and transaction and a decrease in reversal of accrued provisions, the effects of which were offset in part by a net gain on valuation and settlement of derivatives.

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Such factors were principally attributable to the following:

| | We recorded a significant increase in net loss on foreign
exchange translation and transaction to W 758 billion in 2008 from W 13 billion in 2007 primarily as a result
of the depreciation of the Korean Won against the Dollar in
2008. Depreciation of the Won causes an increase in the amount
of Won required by us to make interest and principal payments on
our foreign currency-denominated debt, the costs of
telecommunications equipment that we purchase from overseas
sources and net settlement payments to foreign carriers and
administrations. In terms of the market average exchange rate
announced by Seoul Money Brokerage Services, Ltd., the Won
depreciated against the Dollar from W 938.2 to
US$1.00 as of December 31, 2007 to W 1,257.5 to US$1.00 as of December 31,
2008. |
| --- | --- |
| | We recorded a decrease of 92.0% in reversal of accrued
provisions to W 4 billion in 2008 from W 51 billion in 2007 primarily as a result
of a decrease in the amount of reversal of accrued provisions
relating to points accrued under our KT membership point program. |

These effects were partially offset by a significant increase in net gain on valuation and settlement of derivatives of W 647 billion in 2008 compared to W 23 billion in 2007, reflecting our decision to hedge against the depreciation of the Korean Won against the Dollar in 2008.

Wireline Communications. In 2007, net income decreased by 20.4% in 2007 to W 982 billion from W 1,233 billion in 2006, and further decreased by 54.2% in 2008 to W 450 billion from W 982 billion in 2007 primarily as a result of the reasons discussed above.

Mobile Service. In 2007, net income decreased by 40.7% to W 244 billion from W 412 billion in 2006 primarily as a result of a 36.0% decrease in operating income in 2007 discussed above. In 2008, net income decreased by 32.6% to W 165 billion from W 244 billion in 2007 primarily as a result of an increase in loss on equity method investments. KTF recorded a 480.5% increase in net loss on equity method investments to W 105 billion in 2008 from net loss of W 18 billion in 2007 primarily due to losses from KTF M&S Co., Ltd. and KTF Technologies Co., Ltd.

Inflation

We do not consider that inflation in Korea has had a material impact on our results of operations in recent years. Inflation in Korea was 2.2% in 2006, 2.5% in 2007 and 4.7% in 2008. See Item 3. Key Information Item 3.D. Risk Factors Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.

Item 5.B. Liquidity and Capital Resources

The following table sets forth the summary of our cash flows determined in accordance with Korean GAAP for the periods indicated.

	For the Years Ended December 31,
	2006		2007		2008
	(In billions of Won)
Net cash provided by operating activities	W	5,714	W	4,265	W	2,919
Net cash used in investing activities		(3,061	)	(3,449	)	(3,531	)
Net cash provided by (used in) financing activities		(2,367	)	(1,368	)	1,051
Cash and cash equivalents at beginning of period		1,547		1,829		1,385
Cash and cash equivalents at end of period		1,829		1,385		1,891
Net increase (decrease) in cash and cash equivalents		282		(444	)	506

Capital Requirements

Historically, uses of cash and cash equivalents consisted principally of purchases of property, plant and equipment and other assets and repayments of borrowings. In recent years, we have also used cash for acquisition of treasury shares and shares of our affiliates and payment of retirement and severance benefits for early retirement

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programs. From time to time, we may also require capital for investments involving acquisitions and strategic relationships.

Net cash used in investing activities was W 3,061 billion in 2006, W 3,449 billion in 2007 and W 3,531 billion in 2008, including additions to property, plants and equipment of W 3,518 billion in 2006, W 3,636 billion in 2007 and W 3,362 billion in 2008.

In our financing activities, we used cash of W 1,284 billion in 2006, W 1,359 billion in 2007 and W 2,147 billion in 2008 for repayment of current portion of bonds and long-term borrowings as well as W 109 billion in 2006 and W 413 billion in 2008 for repayment of short-term borrowings.

From time to time, we have also required capital needs for acquisition of treasury shares and shares of our affiliates and payment of retirement and severance benefits for early retirement programs. We spent W 214 billion in 2006, W 196 billion in 2007 and W 74 billion in 2008 for acquisition of treasury shares. In addition, we spent W 364 billion in 2006 to acquire additional equity interest in consolidated subsidiaries, including W 358 billion to purchase 12,489,850 shares of KTF. We spent approximately W 509 billion in the first half of 2009 to purchase and retire 13,124,000 treasury shares.

In connection with KTFs merger into KT Corporation on June 1, 2009, we also spent an aggregate of W 298 billion to purchase shares of KT Corporation and KTF properly submitted for appraisal, which are now held as treasury shares. Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at W 38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and W 29,284 for each share of KTF common stock properly submitted to KTF for appraisal. The merger was consummated pursuant to a comprehensive stock transfer under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. We delivered 700,108 shares of our newly issued common stock (par value W 5,000) and 45,629,480 shares of our treasury shares (par value W 5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger.

Payments of cash dividends amounted to W 426 billion in 2006, W 473 billion in 2007 and W 409 billion in 2008.

We anticipate that capital expenditures, and, to a lesser extent, repayment of outstanding contractual obligations and commitments will represent the most significant use of funds for the next several years. We may also require capital for investments involving acquisitions and strategic relationships, as well as the purchase of additional treasury shares and shares of our affiliates.

We compete in the telecommunications sector in Korea, which is rapidly evolving. We also face increasing competition from new entrants to the market. We may need to incur additional capital expenditures to keep up with unexpected developments in rapidly evolving telecommunications technology. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources that are sufficient for our unanticipated needs.

Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, including repair and maintenance. As of December 31, 2008, we had various contractual obligations and commitments which are more fully disclosed in the notes to our consolidated financial statements.

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The following table sets forth selected information regarding our contractual obligations to make future payments as of December 31, 2008:

	Payments Due by Period
			Less than		1-3		4-5		After 5
Contractual
Obligations (1)(2)	Total		1 Year		Years		Years		Years
	(In billions of Won)
Long-term debt obligations (including current portion of
long-term debt)	W	9,431	W	1,441	W	3,777	W	1,970	W	2,243
Capital lease obligations		19		11		8
Operating lease obligations		1		1
Severance payment obligations		1,709		6		29		71		1,603
Long-term accounts payable others		450		130		320
Total	W	11,610	W	1,589	W	4,134	W	2,041	W	3,846
Estimate of interest payment based on contractual interest rates
effective as of December 31, 2008	W	1,929	W	492	W	688	W	364	W	385

callerid=999 iwidth=456 length=60

| (1) | Contractual obligations represent contractual liabilities as of
the consolidated balance sheet date excluding refundable
deposits for telephone installation and accruals for customer
call bonus points, which do not have definitive payment
schedules. |
| --- | --- |
| (2) | Excluding a put and call combination contract we entered into
with Woori Investment & Securities Co., Ltd. On
December 26, 2008, Woori Investment & Securities,
which acquired shares of the Korea Digital Satellite
Broadcasting Co., Ltd. from JP Morgan Whitefriars Inc., and we
entered into a put and call combination contract. Under this
contract, we may exercise a call option to acquire
9.2 million shares of the Korea Digital Satellite
Broadcasting from Woori Investment & Securities during
the period from December 26, 2009 to December 26,
2011, and Woori Investment & Securities has the option
to exercise a put option on such shares to us on
December 26, 2011. The exercise price under the contract
for both parties is W 46 billion. |

Capital Resources

We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through debt financing. Our major sources of cash have been net cash provided by operating activities, including net income, expenses not involving cash payments such as depreciation and amortization and net foreign currency translation loss (offset in large part by gain on valuation of derivatives), and proceeds from issuance of bonds and long-term borrowings. We expect that these sources will continue to be our principal sources of cash in the future. Net income was W 1,510 billion in 2006, W 1,171 billion in 2007 and W 513 billion in 2008 due to the reasons discussed in Item 5.A. Operating Results. Depreciation and amortization remained relatively stable at W 3,618 billion in 2006, W 3,657 billion in 2007 and W 3,703 billion in 2008 primarily reflecting our capital investment activities during the past three years. We recorded net foreign currency translation gain of W 111 billion in 2006 compared to net foreign currency losses of W 7 billion in 2007 and W 762 billion in 2008, primarily reflecting fluctuation of the Won against the Dollar. Such loss on foreign currency translation in 2008 was offset in large part by gain on valuation of derivatives of W 651 billion, reflecting our decision to hedge against the depreciation of the Korean Won against the Dollar in 2008. Aggregate cash proceeds from issuance of bonds and long-term borrowings were W 285 billion in 2006, W 878 billion in 2007 and W 3,780 billion in 2008. On May 27, 2009, we issued W 344 billion of 2.024% exchangeable bonds due 2014 to NTT DoCoMo. The bonds are exchangeable into common shares or ADRs of KT Corporation at W 40,743 per share. A certain portion of the KTF shares owned by NTT DoCoMo were provided to us as proceeds for the issuance of the bonds.

We periodically adjust our long-term debt financing depending on changes in our capital requirements. For example, we significantly increased proceeds from issuance of bonds and long-term borrowings in 2008 primarily to repay W 2,147 billion in current portion of bonds and long-term borrowings in 2008 as well as to procure capital

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relating to the merger of KTF into KT Corporation on June 1, 2009. In 2008, our proceeds from issuance of bonds were W 2,406 billion and our proceeds from long-term borrowings were 1,374 billion.

We believe that we have sufficient working capital available to us for our current requirements and that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings denominated in Won and various foreign currencies. For example, we updated our Medium Term Note program in June 2005 from US$1 billion to US$2 billion, of which US$700 million remained unused as of December 31, 2008. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Governments policies regarding Won currency and foreign currency borrowings. Other factors which could materially affect our liquidity in the future include unanticipated increase in capital expenditures and decrease in cash provided by operations resulting from a significant decrease in demand for our services. We may also need to raise additional capital sooner than we expect in order to fund unanticipated investments and acquisitions.

Our total stockholders equity increased from W 10,697 billion as of December 31, 2006 to W 11,138 billion as of December 31, 2007 primarily as a result of net income in 2007, which was offset in part by dividend payments and acquisition of treasury shares. However, our total stockholders equity decreased from W 11,138 billion as of December 31, 2007 to W 11,088 billion as of December 31, 2008 primarily as a result of our dividend payments, appropriation of subsidiaries treasury shares and acquisition of treasury shares, which more than offset our net income in 2008.

Liquidity

We had a working capital (current assets minus current liabilities) surplus of W 558 billion as of December 31, 2006, W 564 billion as of December 31, 2007 and W 1,833 billion as of December 31, 2008. The following table sets forth the summary of our significant current assets for the periods indicated.

	As of December 31, — 2006		2007		2008
	(In billions of Won)
Cash and cash equivalents	W	1,829	W	1,385	W	1,891
Short-term investment assets		671		460		417
Accounts receivable trade		2,543		2,621		3,015
Inventories		237		299		425

Our cash, cash equivalents and short-term investment assets maturing within one year totaled W 2,500 billion as of December 31, 2006 and W 1,845 billion as of December 31, 2007 and W 2,308 billion as of December 31, 2008. Under Korean GAAP, bank deposits and all highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term investment assets primarily consist of time and trust deposits with maturities between four to twelve months and short-term loans and current portion of securities such as beneficiary certificates and available-for-sale securities.

The following table sets forth the summary of our significant current liabilities for the periods indicated:

	As of December 31, — 2006		2007		2008
	(In billions of Won)
Accounts payable trade	W	773	W	1,020	W	834
Short-term borrowings		185		226		274
Current portion of bonds and long-term borrowings		1,353		1,020		1,440
Accounts payable other		1,708		1,442		1,476
Accrued expenses		422		484		528

As of December 31, 2008, we entered into various commitments with financial institutions totaling W 2,879 billion and US$110 million. See Note 32 to the Consolidated Financial Statements. As of December 31,

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2008, W 536 billion and US$63 million were outstanding under these facilities. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements. We issued guarantees in favor of our consolidated subsidiaries indebtedness and contract performance of W 10 billion as of December 31, 2008.

Capital Expenditures

Capital expenditures on property, plants and equipment in 2008 totaled W 3,362 billion compared to W 3,636 billion in 2007 and W 3,518 billion in 2006.

Our current capital expenditure plan (including expenditures on property, plants and equipment) calls for the expenditure of approximately W 3,200 billion in 2009. The principal components of our capital investment plans are:

| | Approximately W 913 billion in general
expansion and modernization of our network infrastructure; |
| --- | --- |
| | Approximately W 297 billion in upgrading
our broadband network to enable FTTH connection; |
| | Approximately W 790 billion in capital
investments for IMT-2000 (W-CDMA) service; |
| | Approximately W 53 billion in capital
investments for WiBro service; |
| | Approximately W 280 billion in capital
investments for IP-TV service; and |
| | Approximately W 119 billion in capital
investments for development of services over Internet protocol. |

Recent Accounting Pronouncements in Korean GAAP

Effective January 1, 2008, we adopted Statements of Korean Accounting Standard No. 25 Consolidated Financial Statements. The adoption of these standards did not have a significant impact on our consolidated financial statements. For the adoption of accounting standards applied in prior periods, see Item 5.A. Operating Results Adoption of New Accounting Standards.

U.S. GAAP Reconciliation

In 2006, we recorded net earnings of W 1,329 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W 1,292 billion under Korean GAAP, primarily because of difference in the treatment of depreciation and reversal of goodwill amortization relating to equity method investments. In 2007, we recorded net earnings of W 1,069 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W 1,056 billion under Korean GAAP, primarily because of difference in the treatment of depreciation, reversal of goodwill amortization relating to equity method investments and the timing of recognition of service installation fees. In 2008, we recorded net earnings of W 518 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W 450 billion under Korean GAAP, primarily because of difference in the treatment of depreciation and reversal of goodwill amortization relating to equity method investments.

Stockholders equity under U.S. GAAP is lower than under Korean GAAP by W 2,700 billion as of December 31, 2007 and W 2,598 billion as of December 31, 2008 primarily as a result of:

	the difference in the treatment of minority interests;
	the difference in the treatment of impairment loss relating to
equity investees;
	the difference in the treatment of depreciation; and
	the difference in the treatment of deferred service installation
fees,

which more than offset the effect of:

| | other differences in the treatment of equity in earnings of
equity method affiliates; and |
| --- | --- |
| | the aggregate effect of deferred income taxes recognized under
U.S. GAAP. |

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For further discussion of the principal differences between Korean GAAP and U.S. GAAP as they relate to us, see Note 38 to the Consolidated Financial Statements.

Recent Accounting Pronouncements in U.S. GAAP

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS No. 157) which provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. SFAS No. 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The standard also requires that a company use its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008, the FASB approved a FASB Staff Position (FSP) that permits companies to partially defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FSP did not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. SFAS No. 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually for financial statements issued for fiscal years beginning after November 15, 2007. The provisions of SFAS No. 157 will be applied prospectively. We intend to defer adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis and are currently evaluating the effects, if any, that SFAS No. 157 may have on our consolidated financial condition and results of operations.

In September 2006, the FASB ratified Emerging Issue Task Force (EITF) Issue No. 06-1, Accounting for Consideration Given by a Service Provider to a Manufacturer or Reseller of Equipment Necessary for an End- Customer to Receive Service from the Service Provider (EITF No. 06-1), which provides guidance regarding whether the consideration given by a service provider to a manufacturer or reseller of specialized equipment should be characterized as a reduction of revenue or as an expense. EITF No. 06-1 is effective for the first annual reporting period beginning after June 15, 2007. Entities are required to recognize the effects of applying this issue as a change in accounting principle through retrospective application to all prior periods unless it is impracticable to do so. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of SFAS No. 115 (SFAS No. 159), which permits an entity to measure certain financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair value option to available-for-sale and held-to-maturity securities. The Statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. SFAS No. 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. We do not expect the adoption of this standard to have a material impact on our consolidated financial condition and results of operations.

In June 2007, the FASB ratified EITF Issue No. 07-3, Accounting for Nonrefundable Payments for Goods or Services to Be Used in Future Research and Development Activities (EITF 07-3), requiring that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts should be expensed as the related goods are delivered or the related services are performed. The Statement is effective for fiscal years beginning after December 15, 2007. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.

In June 2007, the FASB ratified EITF Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards (EITF 06-11), which requires entities to record to additional paid-in capital the tax benefits on dividends or dividend equivalents that are charged to retained earnings for certain share-based awards. In a share-based payment arrangement, employees may receive dividends or dividend equivalents on awards of

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nonvested equity shares, nonvested equity share units during the vesting period, and share options until the exercise date. Generally, the payment of such dividends can be treated as deductible compensation for tax purposes. The amount of tax benefits recognized in additional paid-in capital should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is effective for fiscal years beginning after December 15, 2007. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)) which retained the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) will require that: (1) for all business combinations, the acquirer records all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain contingent assets and liabilities acquired be recognized at their fair values on the acquisition date; (3) contingent consideration be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of this statement should also apply the provisions of SFAS No. 141(R). This standard will be applied to all future business combinations after December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51 (SFAS No. 160) which amends ARB 51 to establish new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS No. 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; and, (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings. SFAS No. 160 is effective on a prospective basis for all fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We are currently evaluating the effects, if any, that SFAS No. 160 may have on our consolidated financial condition and results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No. 133 (SFAS No. 161), that expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 161 requires additional disclosures regarding: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. In addition, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entitys risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We anticipate that the adoption of this statement will have a material effect on our consolidated financial position and results of operations.

In April 2008, the FASB issued FSP FAS 142-3, Determining of the Useful Life of Intangible Assets, (FSP FAS 142-3) to improve the consistency between the useful life of a recognized intangible asset under

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SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. GAAP standards. FSP FAS 142-3 establishes additional factors to be considered by an entity in developing assumptions about renewal or extension used to determine the useful life of an intangible asset recognized under SFAS No. 142. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. We anticipate that the adoption of this statement will have a material effect on our financial position and results of operations.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement), (FSP APB 14-1) which specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the issuers nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We are currently evaluating the effects, if any, which FSP APB 14-1 may have on our consolidated financial condition and results of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162) that is intended to improve financial reporting by identifying a consistent framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 is effective 60 days following the Securities and Exchanges Commissions approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

In June 2008, the EITF issued EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, (EITF No. 03-6-1). The FASB concluded that all unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the effects, if any, which EITF No. 03-6-1 may have on our consolidated financial condition and results of operations.

In September 2008, the EITF issued EITF No. 08-5, Issuers Accounting for Liabilities at Fair Value with a Third-Party Credit Enhancement (EITF No. 08-5). EITF No. 08-5 states that the issuer of debt with a third-party credit enhancement that is inseparable from the debt instrument shall not include the effect of the credit enhancement in the fair value measurement of liability. EITF No. 08-5 is effective on a prospective basis for periods ending after December 15, 2008. We are currently evaluating the effects, if any, which EITF No. 08-5 may have on our consolidated financial condition and results of operations.

In November 2008, the EITF issued EITF No. 08-6, Equity Method Investment Accounting Considerations (EITF No. 08-6) that addresses: (1) determination of the initial carrying value of an equity method investment; (2) performance of impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment; (3) treatment of equity method investees issuance of shares; and (4) treatment of a change in investment from equity method to cost method. EITF No. 08-6 is effective in fiscal years beginning on or after December 15, 2008 and their interim periods. EITF No. 08-6 is applied prospectively with prohibition on early application. We are currently evaluating the effects, if any, which EITF No. 08-6 may have on our consolidated financial condition and results of operations.

In November 2008, the EITF issued EITF No. 08-7, Accounting for Defensive Intangible Assets, (EITF No. 08-7) which applies to defensive intangible assets. Defensive intangible assets are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SAFS No. 141(R) and SFAS No. 157. EITF No. 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008.

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In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1), to provide guidance on an employers disclosure relating to plan assets of a defined benefit pension or other post-retirement plan. FSP FAS 132(R)-1 provides objectives for the disclosure relating to the employers (1) investment policies and strategies; (2) categories of plan assets; (3) fair value measurements; and (4) significant concentration of risks. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods that are presented for comparative purposes. Earlier adoption is permitted. Because this impacts the disclosure and not the accounting treatment for benefit and other post-retirement plans, we believe the adoption of FSP FAS 132(R)-1 will not have a material effect on our consolidated financial condition and results of operations.

In April 2009, the FASB issued three staff positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly, provides guidelines for determining fair value measurements consistently with the principles presented in SFAS No. 157 when the volume and level of activity for the asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, expands the frequency of fair value disclosures for publicly traded entities relating to the fair value of certain financial instruments not recognized at fair value in the statement of financial position to include interim reporting periods. FSP FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends the other-than-temporary impairment guidance for debt securities and modifies the presentation and disclosure requirements for all other-than-temporary impairments. The staff positions are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted. We anticipate that the adoption of these staff positions will have a material effect on our consolidated financial position and results of operations.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, (SFAS No. 165) addressing accounting and disclosure requirements related to subsequent events. SFAS No. 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the entitys expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Entities will be required to disclose the date through which subsequent events have been evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. We believe the adoption of SFAS No. 165 will not have a material effect on our consolidated financial position and results of operations.

Item 5.C. Research and Development, Patents and Licenses, Etc.

In order to maintain our leadership in the converging telecommunications business environment and develop additional platforms, services and applications, we operate:

	a future technology laboratory;
	a platform laboratory;
	an infrastructure laboratory;
	a marketing laboratory; and
	a network technology laboratory.

As of December 31, 2008, these research centers employed a total of 692 researchers and employees, of whom 122 had doctoral degrees and 417 had masters degrees. As of December 31, 2008, KT Corporation had 3,475 registered patents and 4,063 patents pending domestically and had 286 registered patents and 775 patents pending internationally.

Under the Telecommunications Basic Law, network service providers and specific service providers are obligated to contribute 0.75% and 0.5% of their total annual revenues, respectively, to the Institute of Information Technology Advancement, which uses the fund to promote research and development in information technology.

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We make contributions as a network service provider and specific service provider to the Korean government (Information and Telecommunication Improvement Fund), the Korea Electronic Telecommunication Research Institute and other research and development institutes. Including such contributions, total expenditures on research and development were W 282 billion in 2006, W 291 billion in 2007 and W 283 billion in 2008.

In recent years, we have focused our research and development efforts in the following areas:

| | fixed mobile multimedia convergence solutions including WiBro,
femtocell mobile IP-TV, mobile VoIP; |
| --- | --- |
| | VoIP solutions and related value-added services; |
| | future network structures and solutions; |
| | next generation wireless Internet evolution technologies such as
WiBro, HSDPA and femtocell; |
| | platform and application services for IP-TV services; and |
| | network technologies for backbone and access network including
FTTH solutions. |

Item 5.D. Trend Information

These matters are discussed under Item 5.A. above where relevant.

Item 5.E. Off-balance Sheet Arrangements

These matters are discussed under Item 5.B. above where relevant.

Item 5.F. Tabular Disclosure of Contractual Obligations

These matters are discussed under Item 5.B. above where relevant.

Item 5.G. Safe Harbor

See Item 3. Key Information Item 3.D. Risk Factors Forward-looking statements may prove to be inaccurate.

ITEM 6. Directors, Senior Management and Employees

Item 6.A. Directors and Senior Management

Directors

Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of:

	up to three standing directors, including the President; and
	up to eight outside directors.

All of our directors are elected at the general shareholders meeting. If the total assets of a company listed on the KRX KOSPI Market as of the end of the preceding year exceeds W 2,000 billion, which is the case with us, the Commercial Code of Korea requires such company to have more than three outside directors with at least half of its total directors being outside directors. The term of office for all directors is up to three years, but the term is extended to the close of the annual shareholders meeting convened with respect to the last fiscal year of the term.

Under the Commercial Code of Korea, we must establish a committee to nominate candidates for outside directors within the board of directors, and outside directors must make up not less than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one standing director and all of our outside directors. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders meeting.

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One-third of the outside directors must be up for election in any given year. Upon the request of any director, a meeting of the board of directors will be assembled. The chairman of the board of directors is elected from among the outside directors by a resolution of the board of directors. The term of office of the chairman is one year.

Our current directors are as follows:

		Director		Expiration — of Term
Name	Position	Since	Date of Birth	of Office
Standing
Directors (1)
Suk-Chae Lee	Chief Executive Officer	January 2009	September 11, 1945	2012
Sang-Hoon Lee	President	March 2009	January 24, 1955	2010
Hyun-Myung Pyo	Senior Executive Vice President	March 2009	October 21, 1958	2010
Outside
Directors (1)
E. Han Kim	Chairperson of the Board of Directors, Chair Professor,
University of Michigan	March 2009	May 27, 1946	2012
Jeong-Suk Koh	Chief Executive Officer of Ilshin Investment Co., Ltd.	February 2008	May 22, 1957	2011
Si-Chin Kang	Auditor, Catholic Education Foundation	January 2009	September 15, 1947	2010
In-Man Song	Professor, Sungkyunkwan University	January 2009	August 28, 1950	2010
Joon Park	Professor, Seoul National University	January 2009	October 30, 1954	2011
Choon-Ho Lee	Professor, Inha University	March 2009	July 22, 1945	2012
Jeung-Soo Huh	Professor, Kyungpook National University	March 2009	June 10, 1960	2012

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(1) All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.

Suk-Chae Lee is a standing director and has served as our chief executive officer since January 2009. Prior to joining us, he served as a senior advisor of Bae, Kim & Lee LLC, chief economic advisor to the President of Korea, Minister of Information and Telecommunications and Vice Minister of Finance and Economy. Mr. Lee holds a bachelors degree in economics from Seoul National University, an M.A. degree in political economy from Boston University and a Ph.D. degree in economics from Boston University.

Sang-Hoon Lee is a standing director and has served as the president of the Enterprise Customer Group since March 2009. He has previously served as senior executive vice president of the Business Development Group and executive vice president of the Business Marketing Unit. Mr. Lee holds a bachelors degree in engineering from Seoul National University and both his masters degree and Ph.D degree in electric engineering from University of Pennsylvania.

Hyun-Myung Pyo is a standing director and has served as the senior executive vice president of the Corporate Center since March 2009. He has previously served as senior vice president of the Wibro Business Unit and head of the Marketing Group of KTF. Mr. Pyo holds a bachelors degree in electronic engineering from Korea University and both his graduate and Ph.D degrees in electronic engineering from Korea University.

E. Han Kim has served as our outside director since March 2009. He is currently a chair professor of business administration of University of Michigan and has served as outside director of POSCO and Hana Bank. Mr. Kim holds a bachelors degree from Rochester University, a masters degree in business administration from Cornell University and a Ph.D. degree in finance from State University of New York-Buffalo.

Jeong-Suk Koh has served as our outside director since February 2008. He is currently chief executive officer of Ilshin Investment Co., Ltd. and was formerly a management consultant at McKinsey & Company. Mr. Koh holds a bachelors degree in business administration from Seoul National University, a masters degree in management science from Korea Advanced Institute of Science and Technology and a doctoral degree from Massachusetts Institute of Technology.

Si-Chin Kang was elected as our outside director in January 2009. He is currently an auditor of the Catholic Education Foundation. Mr. Kang previously served as an auditor of the Korean Institute of Certified Public Accountants and the vice president of Samil PricewaterhouseCoopers. Mr. Kang holds a bachelors degree in

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business administration from Busan National University and a masters degree in business administration from Korea University.

In-Man Song has served as our outside director since January 2009. He is currently a professor at the Graduate School of Business of Sungkyunkwan University and the chairman of Internal Control over Financial Reporting Committee in Korea. Mr. Song previously served as the president of the Korean Accounting Association and a board member of the Korean Accounting Standard Board. Mr. Song holds a bachelors degree in business administration from Sungkyunkwan University and has received both his graduate and Ph.D. degrees in accounting from University of Wisconsin-Madison.

Joon Park was elected as our outside director in January 2009. He is currently a professor at the Seoul National University School of Law. Mr. Park holds a bachelors degree in law from Seoul National University and an LL.M. degree in law from Harvard Law School.

Choon-Ho Lee has served as our outside director since March 2009. She is currently a professor of politics and foreign affairs of Inha University and has served as a director of the board of Seoul Foundation for Arts and Culture. Ms. Lee holds a bachelors degree in politics and foreign affairs from Ewha Womans University and has received both her graduate and Ph.D. degrees in politics and foreign affairs from Ewha Womans University.

Jeung-Soo Huh has served as our outside director since March 2009. He is currently a professor of material science and metallurgical engineering of Kyungpook National University and was formerly a visiting professor at Manchester University. Mr. Huh holds a bachelors degree in physical metallurgy from Seoul National University, a graduate degree in material engineering from Seoul National University and a Ph.D. degree in material engineering from Massachusetts Institute of Technology.

For the purposes of the Korean Commercial Code, our President is deemed to be the representative director who is authorized to perform all judicial and extra-judicial acts relating to our business. Our shareholders elect the President in accordance with the provisions of the Commercial Code and our articles of incorporation. A candidate for President is nominated by a committee formed for that purpose. The president candidate nominating committee consists of:

	all of our outside directors;
	one person who is designated by the board of directors from
among the ex-presidents; and
	one civilian designated by outside directors, except former and
present officers and employees of telecom carriers competing
with us, their affiliates, our officers and employees and
government officers.

Under our articles of incorporation, the president candidate nominating committee must submit a draft management contract between the company and the candidate covering the management objectives of the company to the shareholders meeting at the time of nomination of the candidate to the meeting. When the draft management contract has been approved at the shareholders meeting, the company enters into such management contract with the president. In such case, the chairman of the president candidate nominating committee, on behalf of the company, signs the management contract.

The board of directors may conduct performance review discussions to determine if the new president performed his or her duties under the management contract, or hire a professional evaluation agency for such purpose. If the board of directors determines, based on the results of the performance review, that the new president has failed to achieve the management goals, it may propose to dismiss the president at a shareholders meeting.

Senior Management

Our executive officers consist of President, Senior Executive Vice President, Executive Vice Presidents and Senior Vice Presidents. The executive officers other than the standing directors are appointed by the President and may serve up to three years.

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The current executive officers are as follows:

		Current — Position Held	Years with
Name (1)	Title and Responsibilities	Since	the Company	Age
Ho-Ick Suk	Vice Chairman, Corporate Relations Group	June 2009		56
Woo-Sik Kim	President, Personal Customer Group	June 2009	30	55
Tae-Suk Roh	President, Home Customer Group	January 2009	30	54
Sang-Hoon Lee	President, Enterprise Customer Group	January 2009	18	54
Seong-Bok Jeong	President, Legal & Ethics Office	January 2009		54
Doo-Whan Choi	President, Service Design Group	December 2006	18	55
Sam-Soo Pyo	President, Technology Strategy Office	March 2009		55
Hyun-Myung Pyo	Senior Executive Vice President, Corporate Center	February 2009	3	50
Yu-Yeol Seo	Senior Executive Vice President, Group Shared Service Group	January 2009	31	52
Sung-Man Kim	Senior Executive Vice President, Network Group	January 2009	26	52
Soo-Ho Maeng	Senior Executive Vice President, Global Business Unit	January 2009	19	49
Young-Whan Kim	Senior Executive Vice President, Corporate Relations Office	January 2009	26	51
Han-Suk Kim	Senior Executive Vice President, Human Resource Office	January 2009	19	53
Hyun-Mi Yang	Executive Vice President, Personal Customer Strategy Business
Unit	June 2009		45
Tae Jin Kang	Executive Vice President, Service Incubation Office	January 2009	1	49
Jong-Ryul Seo	Executive Vice President, Media Business Unit	January 2009		49
Tae-Gyoo Lee	Executive Vice President, Economics & Management Research
Laboratory	June 2008	1	45
Kyung-Soo Lee	Executive Vice President, Convergence WIBRO Business Unit	January 2009	17	49
Yeon-Hak Kim	Executive Vice President, Financial Management Office	January 2009	22	47
Tae-Yol Yoo	Executive Vice President, Economics & Management Research
Laboratory	January 2009	25	49
Gil-Joo Lee	Executive Vice President, Public Relations Office	November 2006	33	53
Sang-Hong Lee	Executive Vice President, Central R&D Laboratory	January 2009	25	53
Jeong-Tae Park	Executive Vice President, Purchasing Strategy Office	January 2009	25	49
Tae-Il Park	Executive Vice President, Network Operation Business Unit	September 2005	31	53
In-Sung Jeon	Executive Vice President, Real Assets Management Office	January 2009	29	50
Gyoo-Taek Nam	Executive Vice President, Integrated Image Department	January 2009	23	48
Sang-Heon Song	Senior Vice President, Customer Support Business Unit	January 2009	29	50
Young-Hee Lee	Senior Vice President, Southern Seoul Corporate Business Center	January 2009	28	51
Deok-Rae Lim	Senior Vice President, Cooperation TFT	January 2009	28	54
Tae-Poong Kang	Senior Vice President, Northern Seoul Marketing Center	January 2009	29	54
Kyung-Choon Shin	Senior Vice President, Southern Seoul Marketing Center	January 2009	29	54
Dae-Jeon Roh	Senior Vice President, Northern Gyeonggi Marketing Center	January 2009	25	50
Ok-Kie Lee	Senior Vice President, Southern Gyeonggi Marketing Center	May 2009	25	50
Ouk-Jung Hwang	Senior Vice President, Incheon Marketing Center	January 2009	34	54
In-Kyu Park	Senior Vice President, Daegu Marketing Center	January 2009	24	53
Jong-Jin Chae	Senior Vice President, Small & Medium Business Business Unit	January 2009	23	47
Seok-Joon Park	Senior Vice President, Northern Seoul Corporate Business Center	January 2009	28	51
Kie-You Song	Senior Vice President, Southern Gyeonggi Corporate Business
Center	January 2009	19	49
Yoon-Hak Bang	Senior Vice President, Daejeon Corporate Business Center	January 2009	25	51
Sung-Ho Myung	Senior Vice President, Jeonbuk Corporate Business Center	January 2009	25	51
Young-Goon Yoo	Senior Vice President, Gangwon Corporate Business Center	January 2009	26	53
Byoung-Seon Jeon	Senior Vice President, Chungbuk Corporate Business Center	January 2009	10	48
Dong-Myun Lee	Senior Vice President, Service Support Office	January 2009	18	46
Dong-Hoon Han	Senior Vice President, Technology Support Business Unit	November 2006	28	49
Sun-Cheol Gweon	Senior Vice President, Network R&D Laboratory	January 2009	18	47

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		Current — Position Held	Years with
Name (1)	Title and Responsibilities	Since	the Company	Age
Ju-Ouk Uhm	Senior Vice President, Gangbuk Network O&M Center	January 2009	24	49
Il-Sung Nam	Senior Vice President, Busan Network O&M Center	January 2009	26	54
Dong-Hyun Han	Senior Vice President, CC Strategic Investment Department	January 2009	1	41
Jae-Geun Choi	Senior Vice President, Legal Affairs TFT	March 2009		47
Kyung-Lim Yoon	Senior Vice President, Contents TFT	January 2009	3	45
Sun-Jong Heo	Senior Vice President, Corporate Relations Office	July 2006	3	50
Sang-Jik Lee	Senior Vice President, Legal Affairs Department	June 2009		43
Dae-San Lee	Senior Vice President, Mobile Network Business Unit	June 2009	22	48
Jong-Seog Koh	Senior Vice President, Mobile R&D Laboratory	June 2009	20	49
Tae-Hyo Ahn	Senior Vice President, Group Strategy CFT Corporate Strategy
Department 2	June 2009	24	47
Hyun-Mun Lim	Senior Vice President, Personal Marketing Strategy Department	June 2009	22	48
Seok-Gyoon Na	Senior Vice President, Personal Customer Business Business Unit	June 2009	12	50
Bong-Goon Kwak	Senior Vice President, Mobile Data Business Business Unit	June 2009	24	49
Seong-Mook Oh	Senior Vice President, Metropolitan Mobile Network O&M
Center	June 2009	23	48
Jong-Hack Kang	Senior Vice President, KT Sports	June 2009	24	50
Choong-Seop Lee	Senior Vice President, Corporate Relations Department 2	June 2009	13	50
Jung-Sik Suh	Senior Vice President, Group Strategy CFT Corporate Strategy
Department 1	January 2009	2	39
Hyung-Joon Kim	Senior Vice President, CC Corporate Planning Department	March 2009	15	45
Sang-Cheon Shim	Senior Vice President, CC Corporate Synergy Department	January 2009	23	49
Hyun-Mo Gu	Senior Vice President, CC Post Merger Integration Department	December 2007	22	45
Yoon-Young Park	Senior Vice President, Home Customer Business Unit	January 2009	17	47
Kwan-Young Jung	Senior Vice President, Youngdong Division	March 2009	23	48
Sang-Choon Kim	Senior Vice President, Busan Marketing Center	January 2009	33	52
Ho-Soo Song	Senior Vice President, Gyeongnam Marketing Center	January 2009	33	53
Ouk-Young Yoo	Senior Vice President, Gyeongbuk Marketing Center	January 2009	34	52
Yoon-Sik Jung	Senior Vice President, Enterprise Product Strategy Department	May 2009	1	44
Seung-Dong Gye	Senior Vice President, Enterprise Customer Business Unit	January 2009	32	50
Kyung-Seok Park	Senior Vice President, IMO Business Unit	December 2007	23	51
Hyung-Oak Park	Senior Vice President, Gwangju Corporate Business Center	May 2009	36	54
Yung-Sig Yoon	Senior Vice President, Gangnam Network O&M Center	January 2009	25	52
Ju-Kyo Shim	Senior Vice President, Jungbu Network O&M Center	May 2009	28	50
Chan-Kyung Park	Senior Vice President, Daegu Network O&M Center	January 2009	4	50
Young-Lyoul Lee	Senior Vice President, Media Advertisement & Commerce
Department	January 2009	2	46
Pan-Sik Shin	Senior Vice President, Global Investment Department	November 2006	23	50
Won-Sik Han	Senior Vice President, Financial Management Office	January 2009	24	48
Bum-Joon Kim	Senior Vice President, Investor Relations Department	September 2005	4	44
Jung-Won Park	Senior Vice President, Strategic Purchasing Department	January 2009	23	49

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(1) All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.

Item 6.B. Compensation

Compensation of Directors and Executive Officers

In 2008, the total amount of salaries, bonuses (including long-term performance-based incentives for standing directors) and allowances paid and accrued to all standing directors and executive officers of KT Corporation for services in all capacities was approximately W 14 billion. The aggregate amount accrued by us to provide retirement benefits to such persons was W 1.9 billion in 2008. Outside directors do not receive salaries or

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retirement and severance benefits, but we paid long-term performance-based incentives as well as expenses related to the execution of their duties in 2008. Starting in 2009, we no longer pay long-term performance-based incentives to our outside directors.

The chairman of the president nominating committee enters into an employment agreement on our behalf with our President. The employment agreement sets certain management targets to be achieved by the President, including a target for the amount of EBITDA to be achieved in each year. EBITDA is defined as earnings before interest, tax, depreciation and amortization. Failure to achieve certain thresholds below the targets will allow the board of directors to take actions with respect to the Presidents employment, including proposing to the shareholders meeting an early termination of his employment. In addition, the head of each of our functional departments, the president of each of our subsidiaries and the heads of each regional head office have entered into employment agreements with the President that provides for similar management targets to be achieved by each of our departments, subsidiaries and regional head offices.

Item 6.C. Board Practices

As of December 31, 2008, none of our standing or outside directors maintained directors service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment.

Outside Director Candidate Nominating Committee

The Outside Director Candidate Nominating Committee consists of one standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. The committees duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside directors on our board of directors. The committee members terms expire immediately after the adjournment of the shareholders meeting where the outside directors are elected.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is currently comprised of four outside directors, Jeong-Suk Koh, In-Man Song, Choon-Ho Lee and Jeung-Soo Huh. The chairman is Jeong-Suk Koh. The committees duties include the appointment of an outside management evaluation consulting firm, prior review of the Presidents management goals, terms and conditions proposed for inclusion in the employment contract of the President, including, but not limited to, determining whether the President has achieved the management goals, and the determination of compensation of the President and the standing directors. The committee members are elected by the board after the closing of the annual meeting, and the term of the committee members is for one year.

Executive Committee

The Executive Committee is currently comprised of all of the standing directors. The chairman is Suk-Chae Lee. The committees duties include the establishment and management of branch offices, the acquisition and disposal of real estate having market value between W 15 billion to W 30 billion, making investments and providing guarantees up to W 30 billion, the disposal and sale of stocks of our subsidiaries, which stocks have a market value of between W 15 billion and W 30 billion, provided that no change of control with respect to such subsidiary occurs as a result of such disposal or sale, the authorization of charitable contributions between W 100 million to W 1 billion and the issuance of certain debt securities.

Related-Party Transactions Committee

The Related-Party Transactions Committee is currently comprised of four outside directors, Choon-Ho Lee, Joon Park, Jeung-Soo Huh and Jeong-Suk Koh. The chairman is Joon Park. This committee reviews transactions between KT Corporation and its subsidiaries and ensures compliance with applicable antitrust laws. The committee members are elected by the board after the annual meeting, and the term of the committee members is for one year.

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Audit Committee

Under the Commercial Code of Korea, we are required to establish an audit committee comprised of three or more outside directors comprised of at least two-thirds of the audit committee members. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of E. Han Kim, In-Man Song, Joon Park, and Si-Chin Kang. The chairman is Si-Chin Kang. Members of the committee are elected by our shareholders at the shareholders meeting. Our internal and external auditors report directly to the committee.

The duties of the committee include:

	engaging independent auditors;
	evaluating performance of independent auditors;
	approving services to be provided by the independent auditors;
	reviewing annual financial statements;
	reviewing audit results and reports;
	reviewing and evaluating our system of internal controls and
policies; and
	examining improprieties or suspected improprieties.

In addition, in connection with the shareholders meeting, the committee examines the agenda for, and financial statement and other reports to be submitted by the board of directors, at each shareholders meeting.

Corporate Governance Committee

We maintain a Corporate Governance Committee formed on a temporary basis in May 2009 to prepare for our merger with KTF and recommend to the board revisions to the corporate governance practices applicable to the merged company. The Corporate Governance Committee is comprised of five outside directors and one standing director, Jeong-Suk Koh, Si-Chin Kang, Joon Park, Choon-Ho Lee, E. Han Kim and Hyun-Myung Pyo. The chairman is E. Han Kim. The committee is expected to dissolve in December 2009.

Item 6.D. Employees

KT Corporation had 35,063 employees as of December 31, 2008, compared to 36,913 employees as of December 31, 2007 and 37,514 employees as of December 31, 2006. KTF had 2,560 employees as of December 31, 2008, compared to 2,521 employees as of December 31, 2007 and 2,505 employees as of December 31, 2006.

The Voluntary Early Retirement Programs

We sponsor voluntary early retirement programs where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2006, 564 employees retired under KT Corporations voluntary early retirement plan. Another 538 employees and 1,331 employees retired under KT Corporations voluntary early retirement plan in 2007 and 2008, respectively.

Labor Relations

We consider our current relations with our work force to be good. However, in the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base.

Under Korean labor law, our employees are permitted to strike. However, because the maintenance of our network is in the public interest, the Government has the authority to mediate or arbitrate any strike, as well as any disagreement involving the collective bargaining process. Criminal proceedings may be brought against any party refusing Government mediation or arbitration. The current collective bargaining agreement provides that even in

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the event of a strike, the minimum number of employees necessary to operate the telecommunications business must continue to work.

As of December 31, 2008, about 81.1% of all employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the Union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on November 12, 2009. The Union also negotiates with us an annual agreement on wages on behalf of its members. In November 2008, the Union agreed to a salary freeze. The agreement includes a one-time bonus payment of W 1 million per employee for 2008 as well as an increase in monthly meal and transportation allowance by W 40,000 starting in 2009. In addition, we agreed to allocate W 60 billion to the welfare fund to be used for employee benefits. Under the Act of the Promotion of Workers Participation and Cooperation, our Employee-Employer Cooperation Committees, which are composed of representatives of management and labor for each business unit and regional office, meet quarterly to discuss employee grievances, working conditions and potential employee-initiated improvements in service or management.

Employee Stock Ownership and Benefits

We have an employee stock ownership association, which may purchase on behalf of its members up to 20.0% of any of our shares offered publicly in Korea. The employee stock ownership association owned 4.8% of our issued shares as of December 31, 2008.

We maintain a retirement and severance plan, as required by Korean labor law. Employees terminating their employment after one year or more of service are entitled to receive a lump-sum payment based upon the length of their service and their wage rates, with adjustments, at the time of termination. We make provision for our obligations under the retirement plan. In addition, we provide a wide range of fringe benefits to our employees, including physical education grants, meal allowances, housing, housing loans, medical examinations and training and resort centers. See Item 5. Operating and Financial Review and Prospects Item. 5.A. Operating Results Salaries and Related Costs.

Employee Training

The objective of our training program is to develop information and technology specialists who are able to create value for our customers. In recent years, we have been focusing our efforts on development of (i) consultants who interact closely with our customers such as sales professionals and information and technology supporters, (ii) key management professionals and (iii) professionals who are dedicated to developing, marketing and servicing new growth businesses such as WiBro, IP-TV and VoIP. In order to develop skills of our employees, we require 100 hours of training per year from most of our employees, using personally-tailored curriculums based on individual assessments. We also operate Cyber Academy to provide online classes to our employees, as well as offer various foreign language classes to our employees. In addition, we provide tuition and living expense reimbursements to our high potential individuals who pursue graduate programs in Korea and abroad, as well as provide financial assistance to those who pursue work-related professional licenses or participate in after-work study programs.

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Item 6.E. Share Ownership

Common Stock

The persons who are currently our directors held, as a group, 3,667 common shares as of May 15, 2009, the most recent date for which this information is available. The table below shows the ownership of our common shares by directors.

	Number of Common
Shareholders	Shares Owned
Suk-Chae Lee
Sang-Hoon Lee	3,531
Hyun-Myung Pyo	136
Jeong-Suk Koh
Si-Chin Kang
In-Man Song
Joon Park
E. Han Kim
Choon-Ho Lee
Jeung-Soo Huh

Stock Options

We have not granted any stock options to our current directors and executive officers.

ITEM 7. Major Shareholders and Related Party Transactions

Item 7.A. Major Shareholders

The following table sets forth certain information relating to the shareholders of our common stock as of December 31, 2008:

	Number of	Percent — of Total
Shareholders	Shares	Shares Issued
Employee stock ownership association	13,188,220	4.82 %
National Pension Corporation	16,179,637	5.92 %
Directors as a group	3,667	0.00 %
Public	172,663,772	63.12 %
KT Corporation (held in the form of treasury
stock) (1)	71,500,404	26.14 %
Total issued shares	273,535,700	100 %

callerid=999 iwidth=456 length=60

(1) Includes shares of treasury stock owned by our treasury stock fund.

Before 1993, the Government owned all of our shares. Since 1993, the Government has gradually reduced its ownership and completed the disposition of its ownership interest in us in May 2002.

For a discussion of our relationship with the Government, see Item 4. Information on the Company Item 4.B. Business Overview Relationship with the Government. For a discussion of the Governments dispositions and plans for future dispositions of shares, see Item 4. Information on the Company Item 4.C. Organizational Structure.

Item 7.B. Related Party Transactions

We have issued guarantees of W 35 billion as of December 31, 2006, W 113 billion and $31 million as of December 31, 2007 and W 10 billion as of December 31, 2008 in favor of our consolidated subsidiaries. We have

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also engaged in various transactions with our subsidiaries and affiliated companies. See Note 17 to the Consolidated Financial Statements.

Item 7.C. Interests of Experts and Counsel

Not applicable.

ITEM 8. Financial Information

Item 8.A. Consolidated Statements and Other Financial Information

See Item 18 Financial Statements and pages F-1 through F-118.

Legal Proceedings

Dispute with the Korea Fair Trade Commission

In July 2004, the Korea Fair Trade Commission began an antitrust investigation into alleged unfair collaborative practices by us, SK Broadband, LG DACOM and Onse in local, domestic long-distance and international long-distance telephone service markets, as well as in broadband Internet access and Internet leased line service markets. On May 25, 2005, the Korea Fair Trade Commission imposed fines of W 116 billion on us, W 2 billion on SK Broadband and W 1 billion on LG DACOM, claiming that we and these other companies engaged in unfair collaborative practices in local telephone and Internet leased line service markets. On September 14, 2005, the Korea Fair Trade Commission imposed an additional fine of W 24 billion on us for our alleged unfair collaborative practices in domestic and international long-distance telephone service markets. We were following administrative guidelines from the Ministry of Information and Communication, which had advised that we, as a dominant service provider in these telephone service markets, assist late market entrants in order to promote more competitive telephone service markets in Korea. The legality of such administrative guidelines from the Ministry of Information and Communication has been disputed by the Korea Fair Trade Commission.

In response to the initial ruling by the Korea Fair Trade Commission, we have recorded W 140 billion as taxes and dues under operating expenses in 2005 and paid such amount in 2006. However, we filed for judicial review of such administrative actions relating to domestic long-distance and local telephone service markets. On December 24, 2008, the Supreme Court of Korea affirmed the Korea Fair Trade Commissions administrative actions relating to the domestic long distance telephone service markets. The Supreme Courts decision on the administrative actions relating to the local telephone service market is, however, still pending.

Miscellaneous

We are a defendant in various court proceedings involving claims for civil damages arising in the ordinary course of our business. While we are unable to predict the ultimate disposition of these claims, in the opinion of our management, the ultimate disposition of these claims will not, taken as a whole, have a material adverse effect on us.

Dividends

The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding common stock to shareholders of record on June 30 of the years indicated.

	Annual Dividend per	Interim Dividend	Average Total — Dividend per
Year	Common Stock	per Common Stock	Common Stock
	(In Won)	(In Won)	(In Won)
2004	2,000	1,000	3,000
2005	2,000	1,000	3,000
2006	2,000		2,000
2007	2,000		2,000
2008	1,120		1,120

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If sufficient profits are available, the Board of Directors may propose annual dividends on the outstanding common stock, which our shareholders must approve by a resolution at the ordinary general meeting of shareholders. This meeting is generally held in March of the following year and if our shareholders at such ordinary general meeting of shareholders approve the annual dividend, we must pay such dividend within one month following the date of such resolution. Typically, we pay such dividends shortly after the meeting. The declaration of annual dividends is subject to the vote of our shareholders, and consequently, there can be no assurance as to the amount of dividends per common stock or that any such dividends will be declared. Interim dividends paid in cash can be declared by a resolution of the board of directors. See Item 10. Additional Information Item 10.B. Memorandum and Articles of Association Dividends and Item 12. Description of Securities Other than Equity Securities Description of American Depositary Shares Dividends and Distributions.

The Commercial Code provides that shares of a company of the same class must receive equal treatment. However, major shareholders may consent to receive dividend distributions at a lesser rate than minor shareholders. Previously, the Government consented to receiving a smaller dividend compared to other shareholders. The Government no longer holds any interest in us.

Any cash dividends relating to the shares held in the form of ADSs will be paid to the depositary bank in Won. The deposit agreement provides that, except in certain circumstances, cash dividends received by the depositary bank will be converted by the depositary bank into Dollars and distributed to the holders of the ADRs, less withholding tax, other governmental charges and the depositary banks fees and expenses. See Item 12. Description of Securities Other than Equity Securities Description of the American Depositary Shares Dividends and Distributions.

Item 8.B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

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ITEM 9. The Offer and Listing

Item 9.A. Offer and Listing Details

Market Price Information

Common Stock

Our shares were listed on the KRX KOSPI Market on December 23, 1998. The price of the shares on the KRX KOSPI Market as of the close of trading on June 26, 2009 was W 36,500 per share. The table below shows the high and low closing prices and the average daily volume of trading activity on the KRX KOSPI Market for the shares.

High	Low	Trading Volume
(In Won)		(Number of shares)
2004	47,550	34,200	577,620
2005	45,150	37,600	539,707
2006	49,350	37,600	539,707
2007	56,100	40,150	917,274
First quarter	48,000	42,050	649,901
Second quarter	46,450	40,150	928,878
Third quarter	46,950	41,000	899,070
Fourth quarter	56,100	41,800	1,190,247
2008	52,200	29,500	1,019,430
First quarter	52,200	44,750	942,445
Second quarter	50,400	43,800	818,889
Third quarter	47,100	40,200	1,082,102
Fourth quarter	41,550	29,500	1,221,297
2009 (through June 26)	42,000	35,800	1,503,567
First quarter	42,000	35,800	1,275,616
January	42,000	38,750	1,304,669
February	40,600	35,800	1,071,391
March	40,100	36,900	1,436,184
Second quarter (through June 26)	39,000	33,100	1,737,339
April	39,000	36,100	1,840,227
May	38,300	33,100	1,768,747
June (through June 26)	38,150	34,600	1,580,410

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Source: KRX KOSPI Market

ADSs

The outstanding ADSs, each of which represents one-half of one share of our common stock, have been traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999.

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The price of the ADSs on the New York Stock Exchange as of the close of trading on June 26, 2009 was $14.33 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2004.

High	Low	Trading Volume
(In US$)		(Number of ADSs)
2004	22.73	16.57	671,995
2005	23.21	19.75	457,082
2006	26.66	20.11	562,859
2007	29.22	21.51	592,205
First quarter	25.82	22.01	557,559
Second quarter	24.72	21.82	638,232
Third quarter	25.11	21.51	493,274
Fourth quarter	29.22	22.80	679,756
2008	27.10	10.10	819,767
First quarter	27.10	23.35	824,931
Second quarter	25.35	21.20	561,939
Third quarter	23.03	16.79	765,989
Fourth quarter	17.18	10.10	1,126,453
2009 (through June 26)	15.74	11.42	845,524
First quarter	15.74	11.42	973,568
January	15.74	13.97	839,058
February	14.59	11.55	903,166
March	14.66	11.42	1,156,651
Second quarter (through June 26)	15.09	13.14	717,480
April	14.72	13.31	832,162
May	15.09	13.14	785,343
June (through June 26)	14.83	13.72	529,202

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Source: New York Stock Exchange.

Item 9.B. Plan of Distribution

Not applicable.

Item 9.C. Markets

The KRX KOSPI Market

On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the KOSDAQ) and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (ii) the Small Business Corporation, (iii) the Korea Securities Finance Corporation and (iv) the Korea Securities Dealers Association. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean securities companies and some Korean branches of foreign securities companies.

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The KRX KOSPI Market has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The KRX KOSPI Market also restricts share price movements. All listed companies are required to file accounting reports annually and quarterly and to release immediately all information that may affect trading in a security.

The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.

The KRX KOSPI Market publishes the Korea Composite Stock Price Index every two seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing the Korea Composite Stock Price Index was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

Movements in Korea Composite Stock Price Index are set out in the following table together with the associated dividend yields and price earnings ratios.

					Period Average
					Dividend	Price
					Yield (1)(2)	Earnings
Year	Opening	High	Low	Closing	(Percent)	Ratio (2)(3)
1983	122.52	134.46	115.59	121.21	6.9	3.8
1984	115.25	142.46	115.25	142.46	5.1	4.5
1985	139.53	163.37	131.40	163.37	5.3	5.2
1986	161.40	279.67	153.85	272.61	4.3	7.6
1987	264.82	525.11	264.82	525.11	2.6	10.9
1988	532.04	922.56	527.89	907.20	2.4	11.2
1989	919.61	1,007.77	844.75	909.72	2.0	13.9
1990	908.59	928.82	566.27	696.11	2.2	12.8
1991	679.75	763.10	586.51	610.92	2.6	11.2
1992	624.23	691.48	459.07	678.44	2.2	10.9
1993	697.41	874.10	605.93	866.18	1.6	12.7
1994	879.32	1,138.75	855.37	1,027.37	1.2	16.2
1995	1,027.45	1,016.77	847.09	882.94	1.2	16.4
1996	882.29	986.84	651.22	651.22	1.3	17.8
1997	647.67	792.29	350.68	376.31	1.5	17.0
1998	374.41	579.86	280.00	562.46	1.9	10.8
1999	565.10	1,028.07	498.42	1,028.07	1.1	13.5
2000	1,028.33	1,059.04	500.60	504.62	1.6	18.6
2001	503.31	704.50	468.76	693.70	2.0	14.2
2002	698.00	937.61	584.04	627.55	1.4	17.8
2003	633.03	822.16	515.24	810.71	2.2	10.9
2004	821.26	936.06	719.59	895.92	2.1	15.8
2005	896.00	1,379.37	870.84	1,379.37	1.7	11.0
2006	1,383.32	1,464.70	1,203.86	1,434.46	1.7	11.4
2007	1,435.26	2,064.85	1,355.79	1,897.13	1.6	14.8
2008	1,853.45	1,888.88	938.75	1,124.47	2.6	8.9
2009 (through June 26)	1,401.57	1,404.01	1,388.38	1,394.53	1.44	18.45

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Source: The KRX KOSPI Market

(1) Dividend yields are based on daily figures. Dividend yields after January 3, 1984 include cash dividends only.

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| (2) | Starting in April 2000, dividend yield and price earnings ratio
are calculated based on KOSPI 200, an index of 200 equity
securities listed on the KRX KOSPI Market. Starting in April
2000, KOSPI 200 excludes classified companies, companies which
did not submit annual reports to the KRX KOSPI Market, and
companies which received qualified opinion from external
auditors. |
| --- | --- |
| (3) | The price earnings ratio is based on figures for companies that
record a profit in the preceding year. |

Shares are quoted ex-dividend on the first trading day of the relevant companys accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in the Korea Composite Stock Price Index between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.

With certain exceptions, principally to take account of a share being quoted ex-dividend and ex-rights, permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the KRX KOSPI Market to 15% of the previous days closing price of the shares, rounded down as set out below:

Previous Days Closing Price	Rounded Down To
Less than W 5,000	W	5
W 5,000 to less than W 10,000	W	10
W 10,000 to less than W 50,000	W	50
W 50,000 to less than W 100,000	W	100
W 100,000 to less than W 500,000	W	500
W 500,000 or more	W	1,000

As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.

Due to a deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the KRX KOSPI Market by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares at the rate of 0.15% if such transfer is made through the KRX KOSPI Market. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See Item 10. Additional Information Item 10.A. Taxation Korean Taxation.

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The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:

	Market Capitalization
	on the Last Day of Each Period			Average Daily Trading Volume,
	Number of			Value
	Listed	(Billions of	(Millions of	Thousands	(Millions of	(Thousands of
Year	Companies	Won)	Dollars) (1)	of Shares	Won)	Dollars) (1)
1983	328	3,490	4,387	9,325	5,941	7,468
1984	336	5,149	6,223	14,847	10,642	12,862
1985	342	6,570	7,381	18,925	12,315	13,834
1986	355	11,994	13,924	31,755	32,870	38,159
1987	389	26,172	33,033	20,353	70,185	88,583
1988	502	64,544	94,348	10,367	198,364	289,963
1989	626	95,477	140,490	11,757	280,967	414,430
1990	669	79,020	110,301	10,866	183,692	256,411
1991	686	73,118	96,107	14,022	214,263	281,629
1992	688	84,712	107,448	24,028	308,246	390,977
1993	693	112,665	139,420	35,130	574,048	710,367
1994	699	151,217	191,730	36,862	776,257	984,223
1995	721	141,151	182,201	26,130	487,762	629,613
1996	760	117,370	139,031	26,571	486,834	575,680
1997	776	70,989	50,162	41,525	555,759	392,707
1998	748	137,799	114,091	97,716	660,429	546,803
1999	725	349,504	305,137	278,551	3,481,620	3,039,655
2000	704	188,042	149,275	306,163	2,602,211	2,065,739
2001	689	255,850	192,934	473,241	1,997,420	1,506,237
2002	683	258,681	215,496	857,245	3,041,598	2,533,815
2003	684	355,363	296,679	542,010	2,216,636	1,850,589
2004	683	412,588	395,275	372,895	2,232,109	2,138,445
2005	702	655,075	646,158	467,629	3,157,662	3,114,679
2006	731	704,588	757,948	279,096	3,435,180	3,695,331
2007	745	951,900	1,017,205	363,732	5,539,588	5,917,731
2008	763	576,888	457,122	355,205	5,189,644	4,112,238
2009 (through June 26)	758	721,831	562,349	423,778	4,809,359	3,746,774

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Source: The KRX KOSPI Market

(1) Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by Seoul Money Brokerage Services Limited, as the case may be, at the end of the periods indicated.

The Korean securities markets are principally regulated by the Financial Services Commission of Korea and the Financial Investment Services and Capital Markets Act. The Securities and Exchange Act which regulated the securities markets in the past was replaced with the Financial Investment Services and Capital Markets Act on February 4, 2009. The new law, as did the Securities and Exchange Act, imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

Further Opening of the Korean Securities Market

A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the KRX KOSPI Market. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.

Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the KRX KOSPI Market or registered on the KRX KOSDAQ Market,

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subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.

As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The Financial Services Commission sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.

Currently, foreigners are permitted to invest in securities including shares of all Korean companies which are not listed on the KRX KOSPI Market nor registered on the KRX KOSDAQ Market and in bonds which are not listed.

Protection of Customers Interest in Case of Insolvency of Securities Companies

Under Korean law, the relationship between a customer and a securities company in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the securities company) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agents creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company.

When a customer places a sell order with a securities company which is not a member of the KRX KOSPI Market and this securities company places a sell order with another securities company which is a member of the KRX KOSPI Market, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company.

Under the Financial Investment Services and Capital Markets Act, the KRX KOSPI Market is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the KRX KOSPI Market breaches its obligation in connection with a buy order, the KRX KOSPI Market is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.

When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member companys creditors are concerned.

As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to W 50 million in case of the securities companys bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, securities companies are required to deposit the cash received from its customers to the extent the amount not covered by the insurance with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act.

Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.

Item 9.D. Selling Shareholders

Not applicable.

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Item 9.E. Dilution

Not applicable.

Item 9.F. Expenses of the Issuer

Not applicable.

ITEM 10. Additional Information

Item 10.A. Share Capital

Currently, our authorized share capital is 1,000,000,000 shares, which consists of shares of common stock, par value W 5,000 per share (Common Shares) and shares of non-voting preferred stock, par value W 5,000 per share (Non-Voting Shares). Common Shares and Non-Voting Shares together are referred to as Shares. Under our articles of incorporation, we are authorized to issue Non-Voting Shares up to one-fourth of our total issued capital stock. As of December 31, 2008, 273,535,700 Common Shares were issued, of which 71,500,404 shares were held by the treasury stock fund or us as treasury shares. We have never issued any Non-Voting Shares. All of the issued Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Item 10.B. Memorandum and Articles of Association

This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the Financial Investment Services and Capital Markets Act, the Commercial Code and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act and the Commercial Code. We have filed copies of our articles of incorporation and these laws as exhibits to registration statements under the Securities Act or the Securities Exchange Act previously filed by us.

Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. No dividends are distributed with respect to shares held by us or our treasury stock fund. The Common Shares represented by the ADSs have the same dividend rights as other outstanding Common Shares.

Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Common Shares in an amount of not less than 9% of the par value of the Non-Voting Shares as determined by the board of directors at the time of their issuance, provided that if the dividends on the Common Shares exceed those on the Non-Voting Shares, the Non-Voting Shares will also participate in the distribution of such excess dividend amount in the same proportion as the Common Shares. If the amount available for dividends is less than the aggregate amount of such minimum dividend, the holders of Non-Voting Shares will be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in respect of the next fiscal year.

We declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in Shares. However, a dividend of Shares must be distributed at par value. If the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend. We may pay interim dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.

Under the Commercial Code, we may pay our dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period. In addition, we may not pay any dividend

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unless we have set aside as legal reserve an amount equal to at least 10% of the cash portion of the dividend or unless we have accumulated a legal reserve of not less than one-half of our stated capital. Financial Services Commission regulations applicable to companies listed on the KRX KOSPI Market requires us to set aside specified amounts as financial structure improvement reserve until the ratio of our shareholders equity to the total assets reaches 30.0%. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.

Distribution of Free Shares

In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.

Preemptive Rights and Issuance of Additional Shares

We may issue authorized but unissued shares at times and, unless otherwise provided in the Commercial Code, on terms our board of directors may determine. Subject to the limitation described in Limitation on Shareholdings below, all our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders approval, the terms of these preemptive rights for different classes of shares. We must give notice to all persons who are entitled to exercise preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur.

Under the Commercial Code, it is required that the new Shares, convertible bonds or bonds with warrants be issued to persons other than the existing shareholders solely for the purpose of achieving managerial objectives. Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:

| | publicly offered pursuant to the Financial Investment Services
and Capital Markets Act; |
| --- | --- |
| | issued to members of our employee stock ownership association; |
| | represented by depositary receipts; |
| | issued upon exercise of stock options granted to our officers
and employees; |
| | issued through an offering to public investors, the amount of
which is no more than 10% of the issued Shares; |
| | issued in order to satisfy specific needs such as strategic
alliance, inducement of foreign funds or new technology,
improvement of financial structure or other capital raising
requirement; or |
| | issued to domestic or foreign financial institutions when
necessary for raising funds in emergency cases. |

In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of W 2,000 billion, to persons other than existing shareholders in the situations described above.

Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the Shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not then exceed 20.0% of the total number of Shares then issued (including in such total both: (i) all issued and outstanding Shares at the time the preemptive rights are exercised; and (ii) all Shares to be newly issued in the applicable share issuance transaction in connection with which such preemptive rights are exercised). As of December 31, 2008, 4.8% of the issued Shares were held by members of our employee stock ownership association.

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Limitation on Shareholdings

The Telecommunications Business Act permits maximum aggregate foreign shareholding in us to be 49.0% of our total issued and outstanding Shares with voting rights (including equivalent securities with voting rights, e.g., depositary certificates and certain other equity interests). For the purposes of the foregoing, a shareholder is a foreign shareholder if such shareholder is: (1) a foreign person; (2) a foreign government; or (3) a company whose largest shareholder is a foreign person (including any specially related persons as determined under the Financial Investment Services and Capital Markets Act) or a foreign government, in circumstances where (i) such foreign person or foreign government holds, in aggregate, 15.0% or more of such companys total voting shares, and (ii) such company holds at least 1.0% of our total issued and outstanding Shares with voting rights. For the avoidance of doubt, all of conditions (i) to (ii) in the foregoing item (3) must exist for such a company to be counted as a foreign shareholder for the purposes of calculating whether the 49.0% foreign shareholding threshold is reached under the Telecommunications Business Act. In addition, the Telecommunications Business Act prohibits a foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction, any two or more foreign persons or foreign governments who enter into an agreement to act in concert in the exercise of their voting rights will be counted together and prohibited from becoming our largest shareholder in the event that they collectively hold 5.0% or more of our Shares. The Foreign Investment Promotion Act also prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction under the Foreign Investment Promotion Act, a foreign shareholder is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Act, provided, however, that no exception is made under the Foreign Investment Promotion Act regulations for companies that own less than 1.0% of our Shares (see item (3)(ii) above in this paragraph). A foreigner who has acquired the Shares in excess of such ceiling described above may not exercise its voting rights for shares in excess of such limitation, and the Korea Communications Commission may require corrective measures to comply with the ownership restrictions.

General Meeting of Shareholders

We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:

	as necessary;
	at the request of shareholders of an aggregate of 3.0% or more
of our issued Common Shares;
	at the request of shareholders holding an aggregate of 1.5% or
more of our issued Shares for at least six months; or
	at the request of our audit committee.

Holders of Non-Voting Shares may request a general meeting of shareholders only after the Non-Voting Shares become entitled to vote or are enfranchised, as described under Voting Rights below.

We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding Common Shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use Seoul Shinmun, Maeil Business Newspaper and The Korea Economic Daily published in Seoul for this purpose. Shareholders not on the shareholders register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of Non-Voting Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings.

Our general meetings of shareholders are held at our head office, in Sungnam, or if necessary, may be held anywhere near our head office or in Seoul.

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Voting Rights

Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10.0% owned by us either directly or indirectly, may not be exercised. The Commercial Code permits cumulative voting, under which voting method each shareholder has multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders meeting. Under the Commercial Code of Korea, any shareholder holding shares equivalent to not less than 1 / 100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then outstanding:

	amending our articles of incorporation;
	removing a director;
	reduction of our capital stock;
	effecting any dissolution, merger or consolidation of us;
	transferring the whole or any significant part of our business;
	effecting our acquisition of all of the business of any other
company or our acquisition of a part of the business of any
other company which will significantly affect our
business; or
	issuing any new Shares at a price lower than their par value.

In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation of us, or in some other cases that affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the Non-Voting Shares present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total outstanding Non-Voting Shares. In addition, if we are unable to pay dividends on Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until those dividends are paid. The holders of enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders.

Shareholders may exercise their voting rights by proxy. The proxy must present a document evidencing an appropriate power of attorney prior to the start of the general meeting of shareholders. Additionally, shareholders may exercise their voting rights in absentia by submission of signed write-in voting forms. To make it possible for our shareholders to proceed with voting on a write-in basis, we are required to attach the appropriate write-in voting form and related informational material to the notices distributed to shareholders for convening the relevant general meeting of shareholders. Any of our shareholders who desires to vote on such write-in basis must submit their completed and signed write-in voting forms to us no later than one day prior to the date that the relevant general meeting of shareholders is convened.

Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs. See Item 12. Description of Securities Other than Equity Securities Description of American Depositary Shares Voting Rights.

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Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant board resolution and (3) the weighted average of the daily Share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant board resolution. However, if we or any of the dissenting shareholders do not accept the purchase price calculated using the above method, the rejecting party may request the court to determine the purchase price. Holders of ADSs will not be able to exercise dissenters rights unless they have withdrawn the underlying common stock and become our direct shareholders.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates.

The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from the day after the record date to January 31 of the following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed.

Annual Reports

At least one week before the annual general meeting of shareholders, we must make our annual report and audited non-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.

Transfer of Shares

Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A non-Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs.

Under current Korean regulations, Korean securities companies and banks, including licensed branches of non-Korean securities companies and banks, investment management companies, futures trading companies,

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internationally recognized foreign custodians and the Korea Securities Depository may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of Shares by non-residents or non-Koreans. See Item 10. Additional Information Item 10.D. Exchange Controls.

Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Youngdungpo-ku, Seoul, Korea.

Acquisition of Shares by Us

We may not acquire our own Shares except in limited circumstances, such as a reduction in capital. In addition, pursuant to the Financial Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) a tender offer, or (iii) receiving Shares returned to us upon the cancellation or termination of a trust agreement with a trustee who acquired the Shares by either of the methods indicated above. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year, subject to certain procedural requirements, provided that, in case of acquisition of our own Shares by us for the purpose of cancellation, the aggregate purchase price may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year minus certain reserves.

In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our Shares.

As of December 31, 2008, there were 71,500,404 treasury shares including shares held by our treasury stock fund.

Liquidation Rights

In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares have no preference in liquidation.

Item 10.C. Material Contracts

The Merger Agreement between KT Corporation and KTF

On January 20, 2009, KTF and KT Corporation entered into a merger agreement, pursuant to which KTF merged into KT Corporation on June 1, 2009. KTF common stockholder received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock that they owned. KT Corporation waived issuance of any merger consideration in respect of all of the outstanding shares of KTF common stock held by KT Corporation immediately prior to the merger.

Pursuant to the merger agreement, all of the assets, liabilities, rights and obligations (including contractual rights and obligations) of KTF were comprehensively succeeded by KT Corporation. The employees of KTF became employees of KT Corporation as a result of the merger, and the obligations to pay severance payments to those employees were succeeded by KT Corporation.

KT Corporation delivered 700,108 shares of its newly issued common stock (par value W 5,000) and 45,629,480 shares of its treasury shares (par value W 5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger. See Item 5. Operating and Financial Review and Prospects Item 5.A. Operating Result Overview Merger of KTF into KT Corporation.

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Item 10.D. Exchange Controls

General

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the Foreign Exchange Transaction Laws) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.

Government Review of Issuance of ADSs

In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.

Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.

Reporting Requirements for Holders of Substantial Interests

Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the Equity Securities) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5.0% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5.0% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total issued Equity Securities is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change. The required information to be included in the 5.0% report may be different if the acquisition of such shareholding interest is for the purpose of exercising influence over the management, as opposed to an acquisition for investment purposes. Any person reporting the holding of 5.0% or more of the total issued Equity Securities and any person reporting the change in the ownership interest which equals or exceeds 1.0% of the total issued Equity Securities pursuant to the requirements described above must also deliver a copy of such reports to us.

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Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the unreported ownership of Equity Securities exceeding 5.0%. Furthermore, the Financial Services Commission may issue an order to dispose of non-reported Equity Securities.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration certificate from the Financial Supervisory Service as described below. In general, the acquisition of the shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository.

Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission regulations adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:

	odd-lot trading of shares;
	acquisition of shares (Converted Shares) by exercise
of warrant, conversion right under convertible bonds or
withdrawal right under depositary receipts issued outside of
Korea by a Korean company;
	acquisition of shares as a result of inheritance, donation,
bequest or exercise of shareholders rights, including
preemptive rights or rights to participate in free distributions
and receive dividends;
	over-the-counter transactions between foreigners of a class of
shares for which the ceiling on aggregate acquisition by
foreigners, as explained below, has been reached or exceeded
certain exceptions;
	shares acquired by direct investment as defined in the Foreign
Investment Promotion Law;
	disposal of shares pursuant to the exercise of appraisal rights
of dissenting shareholders;
	disposal of shares in connection with a tender offer;
	acquisition of shares by a foreign depositary in connection with
the issuance of depositary receipts;
	acquisition and disposal of shares through overseas stock
exchange market if such shares are simultaneously listed on the
KRX KOSPI Market or the KRX KOSDAQ Market and such overseas
stock exchange; and
	arms length transactions between foreigners, if all of
such foreigners belong to an investment group managed by the
same person.

For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, an investment broker licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a licensed investment trader in Korea as the other

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party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from a securities company with respect to shares which are subject to a foreign ownership limit.

The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Financial Investment Services and Capital Markets Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment registration certificates in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investors purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration certificate system is designed to control and oversee foreign investment through a computer system. However, a foreign investors acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository; and further provided that a foreign investor must ensure that any acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the Financial Supervisory Service by the investment trader, the investment broker, the Korea Securities Depository or the financial securities company engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, investment traders, investment brokers, the Korea Securities Depository, financial securities companies and internationally recognized custodians that satisfies all relevant requirements under the Financial Investment Services and Capital Markets Act and will act as a standing proxy to exercise shareholders rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks including domestic branches of foreign banks, investment traders, investment brokers, collective investment business entities and internationally recognized custodians satisfying the relevant requirements under the Financial Investment Services and Capital Markets Act are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.

Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate and a ceiling

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on the acquisition of shares by a single foreign investor pursuant to the articles of incorporation of such corporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Act, which is, in general, subject to the report to, and acceptance, by the Ministry of Knowledge Economy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company. A foreigner who has acquired shares of our common stock in excess of this ceiling may not exercise his voting rights with respect to the shares of our common stock exceeding the limit.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at an investment broker or an investment trader. Funds in the foreign currency account may be remitted abroad without any governmental approval.

Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investors investment broker or investment trader or his Won Account. Funds in the investors Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors stock investments in Korea. Through these accounts, these investment brokers and investment traders may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.E. Taxation

The following summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.

Korean Taxation

The following summary of Korean tax considerations applies to you as long as you are not:

	a resident of Korea;
	a corporation organized under Korean law; or
	engaged in a trade or business in Korea through a permanent
establishment or a fixed base.

Shares or ADSs

Dividends on Shares of Common Stock or ADSs

Unless an applicable tax treaty provides otherwise, we will deduct Korean withholding tax from dividends paid to you either in cash or shares at a rate of 22.0% (including resident surtax). If you are a resident of a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax under such a treaty. For example, if you are a qualified resident of the United States for purposes of the US-Korea Tax Treaty (the

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Treaty) and you are the beneficial owner of a dividend, a reduced withholding tax rate of 16.5% generally will apply. You will not be entitled to claim treaty benefits if you are not the beneficial owner of a dividend.

In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. In the case of ADSs, evidence of tax residence may be submitted to us through the depositary. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have tax withheld at a lower rate.

If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be a deemed dividend subject to Korean tax.

Capital Gains

Capital gain from a sale of shares of common stock will generally be exempt from Korean taxation if you have owned, together with certain related parties, less than 25.0% of our total issued shares during the year of sale and the five calendar years before the year of sale, and the sale is made through the KRX KOSPI Market, and you have no permanent establishment in Korea. Capital gain earned by a non-Korean holder from a sale of ADSs outside of Korea are exempt from Korean taxation by virtue of the Special Tax Treatment Control Law of Korea (the STTCL), provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL.

If you are subject to tax on capital gain from a sale of ADSs, or shares of common stock that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the shares of common stock, although there are no specific Korean tax provisions or rulings on this issue. In the absence of the application of a tax treaty that exempts tax on capital gain, the amount of Korean tax imposed on such capital gains will be the lesser of 11.0% (including resident surtax) of the gross realization proceeds or, subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 22.0% (including resident surtax) of the net capital gain.

If you sell your shares of common stock or ADSs, the purchaser or, in the case of a sale of shares of common stock on the KRX KOSPI Market or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% of the gross realization proceeds and to make payment thereof to the Korean tax authorities, unless you establish your entitlement to an exemption of taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and the transaction costs for the shares of common stock or ADSs. In order to obtain the benefit of an exemption of tax pursuant to a tax treaty, you must submit to the purchaser or the securities company (or through the depositary), as the case may be, prior to the first payment, an exemption application, together with a certificate of your tax residence issued by a competent authority of your residence country. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate.

Most tax treaties that Korea has entered into provide exemptions for capital gains tax for capital gains from sale and purchase of shares of common stock. However, Koreas tax treaties with Japan, Austria, Spain and a few other countries do not provide an exemption from such capital gains tax. For example, Article 13 of Koreas tax treaty with Japan provides that if a taxpayer holding 25% or more (including those shares held by any related party of the taxpayer) of total issued shares of a company in a taxable year sells 5% or more (including those sold by any related party of the taxpayer) of total issued shares of the same company in the same taxable year, the country where the company is a resident may impose tax on such taxpayer.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (a) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (b) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. Taxes are currently imposed at the rate of 10% to 50% if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.

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Under Korean Inheritance and Gift Tax Law, shares issued by a Korean corporation are deemed located in Korea irrespective of where they are physically located or by whom they are owned. It remains unclear whether, for Korean inheritance and gift tax purposes, a non-resident holder of ADSs will be treated as the owner of the shares underlying the ADSs. If such non-resident is treated as the owner of the shares, the heir or donee of such non-resident (or in certain circumstances, the non-resident as the donor) will be subject to Korean inheritance or gift tax at the same rate as described above.

Securities Transaction Tax

If you transfer shares of common stock on the KRX KOSPI Market, you will be subject to securities transaction tax at a rate of 0.15% and an agriculture and fishery special tax at a rate of 0.15%, calculated based on the sales price of the shares. If you transfer shares of common stock and your transfer is not made on the KRX KOSPI Market you will generally be subject to the securities transaction tax at a rate of 0.5% and will generally not be subject to the agriculture and fishery special tax. Transfers of ADSs will not be subject to either the securities transaction tax or the agriculture and fishery special tax.

With respect to transfers of ADSs, a tax ruling recently issued in 2004 by the Korean tax authority appears to hold that depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax. In May 2007, the Seoul Administrative Court held that depositary receipts do not constitute share certificates subject to the securities transaction tax. In 2008, the case was upheld by the Seoul High Court and was further upheld by the Supreme Court. However, as the Supreme Court dismissed the tax authorities appeal without ruling on the substantive law issue, it is not clear if the Supreme Courts decision for this case will serve as the Supreme Courts precedent on this issue. Even if depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax under the Securities Transaction Tax Law, capital gains from a transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other qualified foreign exchanges are exempt from the securities transaction tax.

United States Federal Income Taxation

This summary describes the material U.S. federal income tax consequences to you, if you are a U.S. holder (as defined below), of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

	a dealer in securities or currencies;
	a trader in securities that elects to use a mark-to-market
method of accounting for your securities holdings;
	a bank;
	a life insurance company;
	a tax-exempt organization;
	a person that holds shares of common stock or ADSs that are a
hedge or that are hedged against interest rate or currency risks;
	a person that holds shares of common stock or ADSs as part of a
straddle or conversion transaction for tax purposes;
	a person whose functional currency for tax purposes is not the
U.S. dollar; or
	a person that owns or is deemed to own 10% or more of any class
of our stock.

This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.

Please consult your own tax advisers concerning the U.S. federal, state, local and other national tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances.

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For purposes of this summary, you are a U.S. holder if you are a beneficial owner of shares of common stock or ADSs that is:

	a citizen or resident of the United States;
	a U.S. domestic corporation; or
	subject to U.S. federal income tax on a net income basis
with respect to income from the shares of common stock or ADSs.

The Shares of Common Stock and ADSs

In general, if you hold ADSs, you will be treated as the holder of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositarys) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by a U.S. holders that are converted into U.S. dollars on a date subsequent to receipt.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs and common stock will be subject to taxation at a maximum rate of 15% if the dividends are qualified dividends. Dividends paid on the ADSs and common stock will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The income tax treaty between Korea and the United States (the Treaty) has been approved for the purposes of the qualified dividend rules. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2007 or 2008 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2009 taxable year. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in the light of your own particular circumstances.

Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Sales and Other Dispositions

For U.S. federal income tax purposes, gain or loss that you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take

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advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you generally may claim a credit, up to any applicable reduced rates provided under the Treaty, against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. tax unless you can use the credit against United States tax due on other foreign-source income.

Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holders particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

U.S. Information Reporting and Backup Withholding Rules

Payments in respect of the shares of common stock or ADSs that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Item 10.F. Dividends and Paying Agents

See Item 8. Financial Information Consolidated Statements and Other Financial Information Dividends for information concerning our dividend policies and our payment of dividends. See Item 10. Additional Information Item 10.B. Memorandum and Articles of Association Dividends for a discussion of the process by which dividends are paid on our common shares. See Item 12. Description of Securities Other than Equity Securities Description of American Depositary Shares Dividends and Distributions for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A.

Item 10.G. Statements by Experts

Not applicable.

Item 10.H. Documents on Display

We are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commissions public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. We are required to make filings with the Commission by electronic means, which will be available to the public over the Internet at the Commissions web site at http://www.sec.gov.

Item 10.I. Subsidiary Information

Not applicable.

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ITEM 11. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to foreign exchange rate and interest rate risks primarily associated with underlying liabilities, and to equity price risk as a result of our investment in equity-linked securities. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures. These contracts are entered into with major financial institutions, thereby minimizing the risk of credit loss. The activities of our finance division are subject to policies approved by our foreign exchange and interest rate risk management committee. These policies address the use of derivative financial instruments, including the approval of counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments only for hedging purposes.

For details of the assets and liabilities recorded relating to our derivative contracts outstanding as of December 31, 2007 and 2008, see Note 33 to the Consolidated Financial Statements. We recognized a valuation gain of W 40 billion and a valuation loss of W 16 billion in 2007 and a valuation gain of W 651 billion and a valuation loss of W 17 billion in 2008.

Exchange Rate Risk

Substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, mostly in Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers.

In 2007 and 2008, we entered into various currency-related derivative contracts with various financial institutions, including the following:

Transaction Type	Financial Institution	Description
Currency swap contracts	Merrill Lynch and others	Exchange foreign currency cash flow for local currency cash flow
for a specified period
Combined interest rate currency swap contracts	Merrill Lynch and others	Exchange foreign currency-denominated fixed or variable interest
rate payments for local currency-denominated variable or fixed
interest rate payments
Currency forward contracts	Kookmin Bank and others	Exchange a specified currency at an agreed exchange rate at a
specified date

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. We use, to a limited extent, interest rate swap contracts and combined interest rate and currency swap contracts to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. We entered into several interest rate swap contracts with Merrill Lynch and others in which we exchange fixed interest rate payments with variable interest rate payments for a specified period, as well as entered into the combined interest rate and currency swap contracts described above.

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The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2008 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.


						December 31, 2008
2009	2010	2011	2012	2013	Thereafter	Total	Fair Value
(In Won millions except rates)
Local currency:
Fixed rate	1,636,291	1,524,326	1,405,771	580,608	730,608	608,428	6,486,032	6,389,560
Average weighted
rate (1)	6.18 %	5.67 %	5.98 %	4.62 %	5.96 %	5.18 %	5.74 %
Variable rate	27,927	29,384	18,018	4,630	911		80,870	80,256
Average weighted
rate (1)	6.64 %	6.75 %	6.24 %	5.91 %	5.91 %	0.00 %	6.54 %
Sub-total	1,664,218	1,553,710	1,423,789	585,238	731,519	608,428	6,566,902	6,469,816
Foreign currency:
Fixed rate		50,424	38,535	251,500		1,634,750	1,975,209	1,955,797
Average weighted
rate (1)	0.00 %	4.88 %	6.00 %	5.13 %	0.00 %	5.62 %	5.53 %
Variable rate	50,803	28,170	682,257	146,373	255,524		1,163,127	1,080,953
Average weighted
rate (1)	5.81 %	4.94 %	2.92 %	4.45 %	4.36 %	0.00 %	3.53 %
Subtotal	50,803	78,594	720,792	397,873	255,524	1,634,750	3,138,336	3,036,750
Total	1,715,021	1,632,304	2,144,581	983,111	987,043	2,243,178	9,705,238	9,506,567

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(1) Weighted average rates of the portfolio at the period end.

ITEM 12. Description of Securities Other than Equity Securities

Item 12.A. Debt Securities

Not applicable.

Item 12.B. Warrants and Rights

Not applicable.

Item 12.C. Other Securities

Not applicable.

Item 12.D. American Depositary Shares

Not applicable.

PART II

ITEM 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

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ITEM 15. Controls and Procedures

Disclosure Controls and Procedures

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2008. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Managements Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on criteria in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2008.

Deloitte Anjin LLC, an independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2008, as stated in their report which is included herein, has issued an attestation report on the effectiveness of our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is furnished in Item 18 of this Form 20-F.

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Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the year covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. [Reserved]

Item 16A. Audit Committee Financial Expert

At our annual shareholders meetings in January and March 2009, our shareholders elected In-Man Song, Joon Park, Si-Chin Kang and E. Han Kim as members of the Audit Committee. Our Audit Committee is comprised of In-Man Song, Joon Park, Si-Chin Kang and E. Han Kim. The board of directors has approved this newly elected Audit Committee and determined that In-Man Song and Si-Chin Kang are audit committee financial experts and further determined that they are independent within the meaning of applicable SEC rules and the listing standards of the New York Stock Exchange.

Item 16B. Code of Ethics

We have adopted a code of ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, as well as to our directors, other officers and employees. Our code of ethics is available on our web site at www.kt.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site.

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by our independent auditors during the fiscal year ended December 31, 2007 and 2008:

	Year Ended
	December 31,
	2007		2008
	(In millions)
Audit fees	W	3,078	W	3,741
Audit-related fees
Tax fees		12		25
Other fees
Total fees	W	3,090	W	3,766

Audit fees in the above table are the aggregate fees billed by our auditors in connection with the audit of our annual financial statements and the review of our interim financial statements.

Audit Committee Pre-Approval Policies and Procedures

Our audit committee has not established pre-approval policies and procedures for the engagement of our independent auditors for services. Our audit committee instead expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our consolidated subsidiaries or us.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

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Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2008:


			of Shares	Number of
			Purchased as	Shares that
			Part of	May Yet be
	Total Number	Average Price	Publicly	Purchased
	of Shares	Paid per Share	Announced	Under the
Period	Purchased	(In Won)	Plans (2)	Plans (2)
January 1 to January 31	0		0	0	0
February 1 to February 29	0		0	0	0
March 1 to March 31	0		0	0	0
April 1 to April 30	0		0	0	0
May 1 to May 31	0		0	0	1,666,700
June 1 to June 30	280,000	(1)	44,848	280,000	1,386,700
July 1 to July 31	1,386,700	(1)	44,132	1,386,700	0
August 1 to August 31	0		0	0	0
September 1 to September 30	0		0	0	0
October 1 to October 31	0		0	0	0
November 1 to November 30	0		0	0	0
December 1 to December 31	0		0	0	0
Total	1,666,700		44,252	1,666,700	0

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(1)	Purchased through open-market transactions.
(2)	On June 18, 2008, we announced a plan to repurchase up to
1,666,700 common shares during the period from June 23,
2008 to September 19, 2008. On July 18, 2008, we
completed the repurchase of such shares under this plan.

Neither we nor any affiliated purchaser, as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

Item 16G. Corporate Governance

The following is a summary of the significant differences between the New York Stock Exchanges corporate governance standards and those that we follow under Korean law.

NYSE Corporate Governance Standards

KT Corporations Corporate Governance Practice

Director Independence

Independent directors must comprise a majority of the board.

The Commercial Code of Korea requires that our board of directors must comprise no less than a majority of outside directors. Our outside directors must meet the criteria for outside directorship set forth under the Commercial Code of Korea. The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchanges standards), and 7 out of 10 directors are outside directors.

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NYSE Corporate Governance Standards	KT Corporations Corporate Governance Practice
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate governance
committee composed entirely of independent directors.	We have not established a separate nomination/corporate
governance committee. However, we maintain an Outside Director
Candidate Nominating Committee composed of all of our outside
directors and one standing director. We also maintain a
Corporate Governance Committee comprised of five outside
directors and one standing director. The committee was formed on
a temporary basis in May 2009 to prepare for our merger with KTF
and recommend to the board revisions to the corporate governance
practices applicable to the merged company. The committee is
expected to dissolve in December 2009.
Compensation Committee
Listed companies must have a compensation committee composed
entirely of independent directors.	We maintain an Evaluation and Compensation Committee composed of
four outside directors.
Executive Session
Listed companies must hold meetings solely attended by
non-management directors to more effectively check and balance
management directors.	Our outside directors hold meetings solely attended by outside
directors in accordance with the charter of our board of
directors.
Audit Committee
Listed companies must have an audit committee that is composed
of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act.	We maintain an Audit Committee comprised of four outside
directors who meet the applicable independence criteria set
forth under Rule 10A-3 under the Exchange Act.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow their shareholders to exercise their
voting rights with respect to any material revision to the
companys equity compensation plan.	We currently have two equity compensation plans: one providing
for the grant of stock options to officers and standing
directors; and an employee stock ownership association program.
	All material matters related to the granting stock options are
provided in our articles of incorporation, and any amendments to
the articles of incorporation are subject to shareholders
approval. Matters related to the employee stock ownership
association program are not subject to shareholders
approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance
guidelines.	We have adopted Corporate Governance Guidelines in March 2009
setting forth our practices with respect to corporate governance
matters. Our Corporate Governance Guidelines are in compliance
with Korean law but do not meet all requirements established by
the New York Stock Exchange for U.S. companies listed on the
exchange. A copy of our Corporate Governance Guidelines in
Korean is available on our website at www.kt.com
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of business
conduct and ethics for directors, officers and employees, and
promptly disclose any waivers of the code for executive officers.	We have adopted a Code of Ethics for all directors, officers and
employees. A copy of our Code of Ethics in Korean is available
on our website at www.kt.com

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PART III

ITEM 17. Financial Statements

Not applicable.

ITEM 18. Financial Statements

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION

| Report of Independent Registered Public
Accounting Firm on Internal Control over Financial Reporting | F-1 |
| --- | --- |
| Report of Independent Registered Public
Accounting Firm | F-2 |
| Report of Independent Registered Public
Accounting Firm | F-3 |
| Consolidated Balance Sheets as of
December 31, 2007 and 2008 | F-4 |
| Consolidated Statements of Income for the Years
Ended December 31, 2006, 2007 and 2008 | F-6 |
| Consolidated Statements of Cash Flows for the
Years Ended December 31, 2006, 2007 and 2008 | F-8 |
| Notes to Consolidated Financial Statements | F-16 |

ITEM 19. Exhibits

| 1 | | Articles of Incorporation of KT Corporation (English
translation) Form of Common Stock Certificate of KT Corporation,
par value W 5,000 per share (including
translation in English) |
| --- | --- | --- |
| 2 | .1 | Deposit Agreement dated as of May 25, 1999 entered into
among KT Corporation, Citibank, N.A., as depositary, and all
Holders and Beneficial Owners of American Depositary Shares
evidenced by the American Depositary Receipts issued thereunder,
including the form of American depositary receipt (incorporated
herein by reference to Exhibit(a)(i) of the Registrants
Registration Statement (Registration No. 333-13578) on Form F-6) |
| 2 | .2 | Form of Amendment No. 1 Deposit Agreement dated as of
May 25, 1999 entered into among KT Corporation, Citibank,
N.A., as depositary, and all Holders and Beneficial Owners of
American Depositary Shares evidenced by the American Depositary
Receipts issued thereunder, including the form of American
depositary receipt (incorporated herein by reference to
Exhibit(a)(ii) of the Registrants Registration Statement
(Registration No. 333-13578) on Form F-6) |
| 2 | .3 | Letter from Citibank, N.A., as depositary, to the Registrant
relating to the pre-release of the American depositary receipts
(incorporated herein by reference to the Registrants
Registration Statement (Registration No. 333-10330) on Form F-6) |
| 2 | .4 | Letter from Citibank, N.A., as depositary, to the Registrant
relating to the establishment of a direct registration system
for ADSs and the issuance of uncertified ADSs as part of the
direct registration system. (incorporated herein by reference to
Exhibit 2.4 of the Registrants Annual Report on Form 20-F filed on June 30, 2008) |
| 4 | .1* | The Merger Agreement dated January 20, 2009, entered into
by and between KT Corporation and KT Freetel Co., Ltd.
(incorporated herein by reference to Annex I of the
Registrants Registration Statement (Registration No. 333-156817) on Form F-4) |
| 8 | .1 | List of subsidiaries of KT Corporation |
| 12 | .1 | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| 12 | .2 | Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| 13 | .1 | Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
| 15 | .1 | The Telecommunications Basic Law (English translation) |
| 15 | .2 | Enforcement Decree of the Telecommunications Basic Law (English
translation) |
| 15 | .3 | The Telecommunications Business Act (English translation) |
| 15 | .4 | Enforcement Decree of the Telecommunications Business Act
(English translation) |

callerid=999 iwidth=456 length=60

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders of KT Corporation Sungnam, Korea

We have audited the internal control over financial reporting of KT Corporation and subsidiaries (the Company) as of December 31, 2008, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Annual Report on Internal Control Over Financial Reporting in Item 15. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets and the related Consolidated Statements of Income, Cash Flows, and Changes in Equity of the Company as of and for the year ended December 31, 2008. Our report dated June 24, 2009 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the adoption of Statements of Korean Accounting Standards, reclassification of certain accounts in prior periods to conform to current periods presentation, our audit comprehending the convenience translation of Korean won amounts to U.S. dollar amounts and information relating to the nature and effect of differences between accounting principles generally accepted in the Republic of Korea and accounting principles generally accepted in the United States of America.

/s/ Deloitte Anjin LLC

Seoul, Korea

June 24, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of KT Corporation Sungnam, Korea

We have audited the accompanying Consolidated Balance Sheets of KT Corporation and subsidiaries (the Company) as of December 31, 2007 and 2008, and the related Consolidated Statements of Income, Cash Flows and Changes in Equity for years then ended (all expressed in Korean won). These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2006, before the effects of the adjustments to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassification of certain accounts as discussed in Note 2 to the consolidated financial statements were audited by other auditors whose report, dated May 25, 2007, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, such consolidated financial statements present fairly, in all material respects, the financial position of KT Corporation and subsidiaries at December 31, 2007 and 2008, and the results of their operations and their cash flows for years then ended, in conformity with accounting principles generally accepted in the Republic of Korea.

As discussed in Note 2 to the consolidated financial statements, we have also audited the adjustments to the 2006 consolidated financial statements to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassify certain accounts in prior periods to conform to current periods presentation. Our procedures included (1) comparing the adjustment amounts to the Companys underlying analysis, and (2) testing the mathematical accuracy of the underlying analysis, and (3) on a test basis compared the adjustments to the Companys supporting documentation. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2006 consolidated financial statements of the Company other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2006 consolidated financial statements taken as a whole.

Our audit also comprehended the translation of Korean won amounts into U.S. dollar amounts and, in our opinion, such convenience translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers of financial statements.

Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 24, 2009 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.

/s/ Deloitte Anjin LLC

Seoul, Korea

June 24, 2009

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KT Corporation:

We have audited, before the effects of the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2, the accompanying consolidated statements of income, changes in equity and cash flows of KT Corporation and subsidiaries (the Company) for the year ended December 31, 2006, expressed in Korean Won. The 2006 consolidated financial statements before the effects of the adjustments and reclassifications discussed in note 2 are not presented herein. The 2006 consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of KT Freetel Co., Ltd. (KTF), a 52.2% owned subsidiary at December 31, 2006, as of and for the year ended December 31, 2006. The financial statements of KTF, which are included in the consolidated financial statements of the Company, reflect total revenues constituting 32.6% for the year ended December 31, 2006, of the related consolidated totals before the effects of the adjustments and reclassifications discussed in note 2. Those financial statements were audited by other auditors whose report has been furnished to us, and our report, insofar as it relates to the amounts included for KTF, is based solely on the report of the other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the 2006 consolidated financial statements, before the effects of the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2, present fairly, in all material respects, the results of the Companys operations and their cash flows for the year ended December 31, 2006 in accordance with accounting principles generally accepted in the Republic of Korea.

We were not engaged to audit, review, or apply any procedures to the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments and disclosures were audited by a successor auditor.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

May 25, 2007

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KT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2007 AND 2008


	2007		2008		2008
					In thousands of
					U.S. dollars
	In millions of Korean won
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 2, 16 and 31)	W	1,384,985	W	1,890,918	$	1,498,350
Short-term investment assets (Notes 3, 6 and 16)		460,170		417,138		330,537
Accounts receivable trade, less allowance for
doubtful accounts of W 484,279 million in
2007 and W 482,242 million in 2008
(Notes 2, 11, 16, 17 and 32)		2,621,035		3,014,687		2,388,817
Loans, less allowance for doubtful accounts of W 2,887 million in 2007 and W 4,142 million in 2008 (Notes 2, 5
and 16)		215,945		292,884		232,079
Current finance lease receivables, less allowance for doubtful
accounts of W 563 million in 2007 and W 2,355 million in 2008 (Notes 2, 14
and 29)		78,103		180,954		143,387
Accounts receivable other, less allowance for
doubtful accounts of W 93,561 million in
2007 and W 109,312 million in 2008
(Notes 2, 11 and 16)		176,317		202,872		160,754
Accrued revenues		13,684		21,413		16,968
Advance payments		67,272		73,962		58,607
Prepaid expenses		54,918		99,214		78,616
Prepaid income taxes		1,411		1,518		1,203
Guarantee deposits (Note 16)		9,414		1,382		1,095
Current derivative instruments assets (Notes 2 and 33)		696		201,709		159,833
Current deferred income tax assets (Notes 2 and 26)		259,525		249,941		198,052
Inventories (Notes 2, 4 and 29)		299,104		424,841		336,641
Other current assets		220		393		311
Total Current Assets		5,642,799		7,073,826		5,605,250
NON-CURRENT ASSETS:
Available-for-sale securities (Notes 2 and 6)		83,352		74,744		59,227
Equity method investment securities (Notes 2 and 7)		234,582		353,347		279,990
Held-to-maturity securities (Notes 2 and 6)		244		8,077		6,400
Long-term loans to employees		107,675		85,969		68,121
Long-term financial instruments (Note 3)		2,864		44		35
Other investment assets		41,478		23,819		18,874
Property and equipment, at cost (Note 2, 8, 9, 14 and 29)		49,503,020		49,393,746		39,139,260
Less accumulated depreciation		(33,998,827	)	(33,965,691	)	(26,914,177	)
Less accumulated impairment loss		(10,990	)	(6,957	)	(5,513	)
Less contribution for construction		(205,201	)	(232,467	)	(184,205	)
Net property and equipment		15,288,002		15,188,631		12,035,365
Intangible assets, net (Notes 2 and 10)		1,735,323		1,474,238		1,168,176
Leasehold rights and deposits (Notes 2 and 16)		347,217		352,655		279,441
Long-term accounts receivable trade, less allowance
for doubtful accounts of W 10,601 million
in 2007 and W 13,320 million in 2008
(Notes 2, 11 and 17)		144,804		282,162		223,583
Long-term loans, less allowance for doubtful accounts of W 3,028 million in 2007 and W 7,734 million in 2008 (Notes 2 and 5)		145,967		253,445		200,828
Non-current finance lease receivables, less allowance for
doubtful accounts of W 860 million in 2007
and W 3,642 million in 2008 (Notes 2,
14 and 29)		137,827		290,799		230,427
Non-current deferred income tax assets (Notes 2 and 26)		91,429		235,514		186,620
Long-term accounts receivable other (Notes 2
and 11)		36,171		17,260		13,677
Non-current derivative instruments assets (Notes 2 and 33)		3,681		302,689		239,849
Other non-current assets		83,470		121,385		96,184
Total Non-current Assets		18,484,086		19,064,778		15,106,797
TOTAL ASSETS	W	24,126,885	W	26,138,604	$	20,712,047

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KT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2007 AND 2008


	2007		2008		2008
					In thousands of
					U.S. dollars
	In millions of Korean won
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable trade (Notes 11, 16 and 17)	W	1,020,487	W	833,818	$	660,712
Short-term borrowings (Note 16)		225,970		274,306		217,358
Accounts payable other (Notes 11, 14, 16 and 17)		1,441,686		1,475,873		1,169,471
Advance receipts		87,442		119,356		94,577
Withholdings (Note 16)		200,744		228,517		181,075
Accrued expenses (Notes 16 and 17)		483,596		528,004		418,387
Income taxes payable (Note 2)		303,096		151,794		120,281
Current portion of bonds and long-term borrowings (Notes 2,
11, 12 and 16)		1,019,802		1,439,960		1,141,014
Unearned revenue		7,807		9,170		7,266
Key money deposits (Notes 16 and 17)		101,360		127,689		101,180
Current derivative instruments liabilities (Notes 2 and 33)		132,325		13,619		10,792
Current accrued provisions (Notes 2 and 13)		47,417		38,815		30,757
Other current liabilities		6,889		107		84
Total Current Liabilities		5,078,621		5,241,028		4,152,954
NON-CURRENT LIABILITIES:
Bonds (Notes 2, 12 and 16)		5,842,827		7,662,663		6,071,841
Long-term borrowings in Korean won (Notes 2, 11 and 12)		110,935		146,813		116,334
Long-term borrowings in foreign currency (Notes 2, 12 and
16)		19,709		137,249		108,755
Provisions for severance indemnities (Note 2)		514,991		507,819		402,392
Refundable deposits for telephone installation (Note 15)		840,962		781,525		619,275
Long-term accounts payable trade (Note 11)				16,856		13,357
Long-term accounts payable other (Notes 2, 11
and 14)		469,255		317,101		251,269
Long-term deposits received		42,257		93,800		74,326
Non-current accrued provisions (Notes 2 and 13)		25,420		85,146		67,469
Non-current deferred income tax liabilities (Notes 2 and 26)		1,896		2,734		2,166
Non-current derivative instruments liabilities (Notes 2 and
33)				6,777		5,370
Other non-current liabilities		42,246		51,195		40,566
Total Non-current Liabilities		7,910,498		9,809,678		7,773,120
Total Liabilities		12,989,119		15,050,706		11,926,074
EQUITY:
Common Stock (Notes 1 and 18)		1,560,998		1,560,998		1,236,924
Capital Surplus		1,440,777		1,440,633		1,141,548
Capital Adjustments:
Treasury stock (Note 22)		(3,825,688	)	(3,824,881	)	(3,030,809	)
Stock options (Notes 2 and 21)		8,880		8,880		7,037
Other share based payments (Notes 2 and 21)		1,022		1,420		1,125
Other capital adjustments		(168,143	)	(180,155	)	(142,754	)
Total Capital Adjustments		(3,983,929	)	(3,994,736	)	(3,165,401	)
Accumulated Other Comprehensive Income (Note 20):
Gain on translation of foreign operations (Note 2)		2,471		11,083		8,782
Loss on translation of foreign operations (Note 2)		(13,195	)	(4,887	)	(3,872	)
Unrealized gain on valuation of available-for-sale securities
(Notes 2 and 6)		10,644		4,813		3,814
Unrealized loss on valuation of available-for-sale securities
(Notes 2 and 6)				(4,345	)	(3,443	)
Gain on valuation of derivatives for cash flow hedge
(Notes 2 and 33)		2,024		11,136		8,824
Loss on valuation of derivatives for cash flow hedge
(Notes 2 and 33)				(13,710	)	(10,864	)
Increase in equity of associates (Notes 2 and 7)		2,766		10,369		8,216
Decrease in equity of associates (Notes 2 and 7)		(4,568	)	(3,580	)	(2,837	)
Total Accumulated Other Comprehensive Income		142		10,879		8,620
Retained Earnings		9,843,775		9,814,115		7,776,636
Equity attributable to equity holders of the parent		8,861,763		8,831,889		6,998,327
Minority Interest		2,276,003		2,256,009		1,787,646
Total Equity		11,137,766		11,087,898		8,785,973
TOTAL LIABILITIES AND EQUITY	W	24,126,885	W	26,138,604	$	20,712,047

See accompanying notes to consolidated financial statements

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KT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008


	2006		2007		2008		2008
	In millions of Korean won						In thousands of
							U.S. dollars
OPERATING REVENUES (Notes 2, 17, 23, 24 and 34)
Service revenue	W	15,935,902	W	16,336,254	W	16,777,327	$	13,294,237
PCS handset sales		1,888,978		2,323,828		2,867,216		2,271,962
		17,824,880		18,660,082		19,644,543		15,566,199
OPERATING EXPENSES (Notes 2, 17, 25, 34 and 35)		15,441,504		16,914,741		18,216,781		14,434,850
OPERATING INCOME		2,383,376		1,745,341		1,427,762		1,131,349
NON-OPERATING REVENUES:
Interest income		111,988		155,862		151,563		120,097
Dividend income		1,561		583		1,060		840
Foreign currency transaction gain		37,956		7,508		67,475		53,467
Foreign currency translation gain (Note 2)		126,215		8,626		40,668		32,225
Equity in income of associates (Notes 2 and 7)		8,685		24,285		16,061		12,727
Gain on breach of contracts		2,784		1,821		1,555		1,232
Gain on disposal of useless materials		21,919		25,328
Gain on disposal of short-term investment assets		880		2,094		446		353
Gain on valuation of short-term investment assets		158		1,085		537		426
Gain on disposal of available-for-sale securities (Note 6)		83,581		9,664		3,996		3,166
Reversal of impairment losses of available-for-sale securities
(Notes 2)		227		76
Reversal of impairment losses of held-to-maturity securities
(Note 2)		12,493
Gain on disposal of equity method investment securities		5,029		1,832		1		1
Gain on disposal of property and equipment		8,953		29,459		5,391		4,272
Gain on disposal of intangible assets		131		221		1,000		792
Reversal of accrued provisions (Note 13)		21,124		50,945		4,069		3,224
Amortization of negative goodwill (Notes 2 and 10)				518		65		52
Gain on settlement of derivatives (Note 2)		8,730		9,778		17,183		13,616
Gain on valuation of derivatives (Notes 2 and 33)		8,654		40,140		650,680		515,594
Other non-operating revenue		104,097		118,157		92,157		73,025
Total Non-operating Revenues		565,165		487,982		1,053,907		835,109
NON-OPERATING EXPENSES:
Interest expense		(499,169	)	(466,461	)	(481,629	)	(381,639	)
Other bad debt expense (Note 2)		(19,148	)	(4,473	)	(22,355	)	(17,714	)
Foreign currency transaction loss		(12,638	)	(13,064	)	(63,422	)	(50,255	)
Foreign currency translation loss (Note 2)		(15,675	)	(15,819	)	(802,452	)	(635,857	)
Equity in loss of associates (Notes 2 and 7)		(15,390	)	(8,407	)	(28,386	)	(22,493	)
Loss on disposal of equity method investment securities		(143	)	(549	)	(137	)	(109	)
Loss on impairment of equity method investment securities
(Notes 2 and 7)						(2,654	)	(2,103	)
Contribution payments for research and development		(10,000	)
Donations		(76,257	)	(89,563	)	(79,544	)	(63,030	)
Loss on disposal of short-term investment assets						(1,004	)	(796	)
Loss on valuation of short-term investment assets						(1,841	)	(1,459	)
Loss on disposal of available-for-sale securities (Note 6)		(5,161	)	(828	)	(250	)	(198	)

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KT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008


	2006		2007		2008		2008
	In millions of Korean won						In thousands of
							U.S. dollars
Loss on Impairment of available-for-sale securities
(Notes 2 and 6)		(2,091	)	(1,809	)	(3,826	)	(3,032	)
Loss on impairment of investment assets		(899	)	(6,855	)	(2,677	)	(2,121	)
Loss on disposal of property and equipment		(108,290	)	(94,775	)	(94,308	)	(74,729	)
Loss on impairment of property and equipment (Notes 2 and 8)		(1,555	)	(7,990	)	(20,676	)	(16,384	)
Loss on disposal of intangible assets		(1,541	)	(535	)	(1,653	)	(1,310	)
Loss on impairment of intangible assets (Notes 2 and 10)		(10,885	)	(9,178	)	(17,435	)	(13,815	)
Loss on disposal of accounts receivable trade		(10,881	)	(492	)	(582	)	(461	)
Loss on lease cancellation		(22,695	)
Loss on settlement of derivatives (Note 2)		(25,313	)	(11,381	)	(9,665	)	(7,658	)
Loss on valuation of derivatives (Notes 2 and 33)		(86,715	)	(15,542	)	(10,936	)	(8,666	)
Other non-operating expense		(38,249	)	(37,839	)	(155,088	)	(122,891	)
Total Non-operating Expenses		(962,695	)	(785,560	)	(1,800,520	)	(1,426,720	)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE		1,985,846		1,447,763		681,149		539,738
INCOME TAX EXPENSE ON CONTINUING OPERATIONS (Note 26)		476,125		356,799		167,859		133,011
NEWLY INCLUDED SUBSIDIARYS NET LOSS BEFORE ACQUISITION				5,810
INCOME FROM CONTINUING OPERATIONS		1,509,721		1,096,774		513,290		406,727
INCOME (LOSS) FROM DISCONTINUING OPERATIONS (Note 27)		(4	)	74,204
NET INCOME	W	1,509,717	W	1,170,978	W	513,290	$	406,727
Attributable to:
EQUITY HOLDERS OF THE PARENT	W	1,291,863	W	1,056,227	W	449,810	$	356,426
MINORITY INTEREST		217,854		114,751		63,480		50,301
	W	1,509,717	W	1,170,978	W	513,290	$	406,727
NET INCOME PER SHARE (Note 28)(*)
Basic income per share from continuing operations (in Korean won)	W	6,153	W	4,754	W	2,217	$	1,757
Basic net income per share (in Korean won)	W	6,155	W	5,112	W	2,217	$	1,757
Diluted income per share from continuing operations (in Korean
won)	W	6,146	W	4,754	W	2,217	$	1,757
Diluted net income per share (in Korean won)	W	6,148	W	5,112	W	2,217	$	1,757

callerid=999 iwidth=456 length=60

(*) Income per share attributable to the equity holders of the parent

See accompanying notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008


	2006		2007		2008		2008
	In millions of Korean won						In thousands of
							U.S. dollars
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	W	1,509,717	W	1,170,978	W	513,290	$	406,727
Expenses not involving cash payments:
Share-based payment		531		1,239		1,922		1,523
Accrued severance indemnities		240,843		359,473		362,342		287,117
Depreciation		3,228,293		3,225,887		3,264,291		2,586,601
Amortization		389,710		430,623		438,544		347,499
Provision for doubtful accounts		111,285		69,790		150,583		119,321
Interest expense		27,292		27,942		45,581		36,118
Other bad debt expense		19,148		3,539		22,355		17,714
Foreign currency translation loss		15,675		15,810		801,357		634,990
Equity in loss of associates		15,390		6,268		28,386		22,493
Loss on disposal of equity method investment securities		143		549		137		109
Loss on impairment of equity method investment securities						2,654		2,103
Loss on disposal of short-term investment assets						1,004		796
Loss on valuation of short-term investment assets						1,841		1,459
Loss on disposal of available-for-sale securities		5,161		603		250		198
Loss on impairment of available-for-sale securities		4,185		1,809		3,826		3,032
Loss on impairment of investment assets		899		139		2,677		2,121
Loss on disposal of property and equipment		108,290		94,604		94,308		74,729
Loss on impairment of property and equipment		1,555		7,990		20,676		16,384
Loss on disposal of intangible assets		1,541		535		1,653		1,310
Loss on impairment of intangible assets		10,885		8,957		17,435		13,815
Loss on valuation of derivatives		86,715		15,542		10,936		8,666
Other non-operating expenses		2,675		15,943		16,935		13,418
Sub-total		4,270,216		4,287,242		5,289,693		4,191,516
Income not involving cash receipts:
Interest income		8,432		6,380		20,964		16,612
Foreign currency translation gain		130,038		8,279		40,490		32,084
Equity in income of associates		8,685		24,250		16,061		12,727
Gain on disposal of short-term investment assets		880		2,052		446		353
Gain on valuation of short-term investment assets		158		1,085		537		426
Gain on disposal of available-for-sale securities		83,605		9,479		3,996		3,166
Reversal of impairment losses of available-for-sale securities		227		76
Reversal of impairment losses of held-to-maturity securities		12,493
Gain on disposal of equity method investment securities		5,029		1,832		1		1
Gain on disposal of property and equipment		8,953		29,382		5,391		4,272
Gain on disposal of intangible assets		131		221		1,000		792
Amortization of negative goodwill		518		518		65		52
Gain on valuation of derivatives		8,654		40,140		650,680		515,594
Other non-operating revenues				4,373		2,780		2,202
Sub-total		(267,803	)	(128,067	)	(742,411	)	(588,281	)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008

2006		2007		2008		2008
In millions of Korean won						In thousands of
						U.S. dollars
Changes in assets and liabilities related to operating
activities:
Accounts receivable trade	88,336		(463,325	)	(367,263	)	(291,017	)
Loans	33,134		(228,022	)	(71,188	)	(56,409	)
Current finance lease receivables			75,577		78,103		61,888
Accounts receivable other	(26,848	)	123,167		20,460		16,212
Accrued revenues	791		(2,538	)	(7,676	)	(6,082	)
Advance payments	45,414		(25,946	)	(6,919	)	(5,483	)
Prepaid expenses	(8,343	)	(12,522	)	(44,282	)	(35,089	)
Prepaid income taxes			(223	)	(107	)	(85	)
Guarantee deposits	904		(7,195	)	8,026		6,360
Derivative instruments, net	(35,807	)	(3,381	)	166		132
Deferred income tax, net	74,351		(45,506	)	(126,811	)	(100,484	)
Other current assets	(151	)	(77	)	(173	)	(137	)
Inventories	140,036		(65,106	)	(131,305	)	(104,045	)
Leasehold rights and deposits	(953	)	(36,349	)	(3,804	)	(3,014	)
Long-term accounts receivable trade	159,544		97,729		(253,257	)	(200,679	)
Long-term loans	(192,656	)	(7,326	)	(113,229	)	(89,722	)
Non-current finance lease receivables			(109,895	)	(299,257	)	(237,129	)
Long-term accounts receivable other	183		(26,910	)	(8,146	)	(6,455	)
Other non-current assets			(8,778	)	(19,536	)	(15,480	)
Accounts payable trade	(132,168	)	239,238		(262,733	)	(208,188	)
Accounts payable other	153,661		(242,595	)	(160,717	)	(127,351	)
Advance receipts	(420	)	(30,293	)	31,905		25,281
Withholdings	16,046		25,650		26,901		21,316
Accrued expenses	(35,593	)	67,302		44,402		35,184
Income taxes payable	184,726		(86,281	)	(152,286	)	(120,670	)
Unearned revenue	(672	)	2,512		1,363		1,080
Key money deposits	7,967		4,049		77,868		61,702
Accrued provisions	(6,110	)	(29,931	)	18,500		14,659
Other current liabilities	3,091		(1,143	)	(6,782	)	(5,374	)
Payment of severance indemnities	(79,533	)	(103,955	)	(220,800	)	(174,960	)
Deposits for severance indemnities	(151,773	)	(132,471	)	(148,848	)	(117,946	)
Contribution to National Pension Fund	109		(51	)	122		97
Refundable deposits for telephone installation	(49,670	)	(66,145	)	(59,437	)	(47,097	)
Long-term accounts payable trade					30,794		24,401
Long-term accounts payable other	(6,446	)			(24,833	)	(19,677	)
Other non-current liabilities	20,296		35,153		8,949		7,090
Sub-total	201,446		(1,065,587	)	(2,141,830	)	(1,697,171	)
Net Cash Provided by Operating Activities	5,713,576		4,264,566		2,918,742		2,312,791

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008

2006		2007		2008		2008
In millions of Korean won						In thousands of
						U.S. dollars
CASH FLOWS FROM INVESTING ACTIVITIES :
Cash inflows from investing activities :
Decrease in short-term investment assets	728,351		182,501		544,946		431,811
Disposal of available-for-sale securities	19,303		1,183,121		614,822		487,181
Decrease in equity method investment securities	7,001		10,807		1,047		830
Disposal of equity method investment securities					1,580		1,252
Collection of held-to-maturity securities	607		252		65		51
Collection of long-term loans to employees	12,649		25,736		10,001		7,925
Disposal of long-term financial instruments					2,819		2,234
Decrease in other investment assets	760		3,480		5,630		4,461
Disposal of land	14,757		15,246		9,222		7,307
Disposal of buildings	13,892		4,791		17,650		13,986
Disposal of structures	377		17		4,674		3,704
Disposal of machinery	18,643		68,889		4,665		3,696
Disposal of vehicles	2,005		16,536		665		527
Disposal of other property and equipment	8,403		13,978		19,463		15,422
Disposal of construction-in-progress	902		10		26		21
Increase of contribution for construction	66,368		76,625		74,228		58,818
Disposal of intangible assets			706		17,013		13,481
Sub-total	894,018		1,602,695		1,328,516		1,052,707
Cash outflows for investing activities :
Acquisition of short-term investment assets	31,200		61,397		343,115		271,882
Acquisition of available-for-sale securities	150,150		989,112		714,831		566,427
Acquisition of equity method investment securities	11,140		7,220		123,371		97,758
Acquisition of assets and liabilities of consolidated
subsidiaries			124,384		55,655		44,101
Acquisition of held-to-maturity securities	281		5		13,988		11,084
Increase in long-term loans to employees	10,005		25,451		50,421		39,953
Increase in long-term financial instruments	1,089		18		11		9
Increase in other investment assets	23,938		19,826		6,245		4,948
Acquisition of land	304		1,424		225		178
Acquisition of buildings	910		3,398		38,787		30,735
Acquisition of structures	148		122		482		382
Acquisition of machinery	72,420		65,188		67,543		53,521
Acquisition of vehicles	2,076		990		33,161		26,277
Acquisition of other property and equipment	118,464		258,167		134,534		106,604
Acquisition of construction-in-progress	3,323,375		3,306,356		3,087,737		2,446,701
Acquisition of intangible assets	209,433		188,995		189,772		150,374
Sub-total	(3,954,933	)	(5,052,053	)	(4,859,878	)	(3,850,934	)
Net Cash Used in Investing Activities	(3,060,915	)	(3,449,358	)	(3,531,362	)	(2,798,227	)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008


	2006		2007		2008		2008
	In millions of Korean won						In thousands of
							U.S. dollars
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities :
Increase in short-term borrowings		179,748		49,601		455,117		360,632
Issuance of bonds		208,680		777,981		2,405,577		1,906,163
Increase in long-term borrowings		76,423		100,104		1,374,480		1,089,128
Inflows from capital transactions of consolidated entities		7,698		2,128		7,951		6,300
Sub-total		472,549		929,814		4,243,125		3,362,223
Cash outflows for financing activities :
Repayment of short-term borrowings		109,252				412,579		326,925
Payment of accounts payable other				118,470		29,764		23,585
Repayment of current portion of bonds and long-term borrowings		1,207,144		1,353,689		2,146,790		1,701,101
Repayment of long-term borrowings		42,543		132		697		552
Repayment of bonds		34,300		5,000
Increase in accounts receivable trade		200,000
Payment of dividends		426,113		472,774		409,270		324,303
Loss on translation of foreign operations		10,131
Acquisition of treasury stock		213,664		196,329		73,807		58,484
Outflows for capital transactions of consolidated entities		596,566		151,666		118,868		94,190
Sub-total		(2,839,713	)	(2,298,060	)	(3,191,775	)	(2,529,140	)
Net Cash Provided by (Used in) Financing Activities		(2,367,164	)	(1,368,246	)	1,051,350		833,083
EFFECT OF CHANGES IN CONSOLIDATED ENTITIES		(3,571	)	108,992		48,482		38,417
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS				462		18,721		14,834
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		281,926		(443,584	)	505,933		400,898
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR		1,546,643		1,828,569		1,384,985		1,097,452
CASH AND CASH EQUIVALENTS AT END OF THE YEAR	W	1,828,569	W	1,384,985	W	1,890,918	$	1,498,350

See accompanying notes to consolidated financial statements

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2006

								Other
	Common		Capital		Capital			Comprehensive			Retained		Minority
	Stock		Surplus		Adjustments			Income (Loss)			Earnings		Interest		Total
	(In millions of Korean won)
Balance as of January 1, 2006 (as reported)	W	1,560,998	W	1,391,432	W	(3,870,288	)	W	3,166		W	8,786,413	W	2,518,213	W	10,389,934
Cumulative effect of changes in accounting policies (Note 2)				48,826		(48,826	)
As restated		1,560,998		1,440,258		(3,919,114	)		3,166			8,786,413		2,518,213		10,389,934
Dividends												(426,113	)	(67,814	)	(493,927	)
Retained earnings after appropriations												8,360,300		2,450,399		9,896,007
Net income for the period												1,291,863		217,854		1,509,717
Disposal of treasury stock				652		13,913										14,565
Retirement of treasury stock												(213,664	)			(213,664	)
Appropriation of loss on disposal of treasury stock						38,431						(38,431	)
Acquisition of subsidiaries stock						(94,435	)							(269,433	)	(363,868	)
Disposal of subsidiaries treasury stock						5,646								2,052		7,698
Appropriation of subsidiaries treasury stock						(22,130	)							(142,754	)	(164,884	)
Retirement of subsidiaries treasury stock						10,848								(10,848	)
Changes in consolidated entities														20,492		20,492
Stock options						227								(158	)	69
Other share-based payments						462										462
Gain (loss) in translation of foreign operations									(10,520	)				389		(10,131	)
Gain on valuation of available-for-sale securities									(1,130	)				(796	)	(1,926	)
Increase in equity of associates									2,712					55		2,767
Balance as of December 31, 2006	W	1,560,998	W	1,440,910	W	(3,966,152	)	W	(5,772	)	W	9,400,068	W	2,267,252	W	10,697,304

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2007

								Other
	Common		Capital		Capital			Comprehensive			Retained		Minority
	Stock		Surplus		Adjustments			Income (Loss)			Earnings		Interest		Total
	(In millions of Korean won)
Balance as of January 1, 2007 (as reported)	W	1,560,998	W	1,292,475	W	(3,817,717	)	W	(5,772	)	W	9,400,068	W	2,267,252	W	10,697,304
Cumulative effect of changes in accounting policies
(Note 2)				148,435		(148,435	)
As restated		1,560,998		1,440,910		(3,966,152	)		(5,772	)		9,400,068		2,267,252		10,697,304
Dividends												(416,191	)	(56,583	)	(472,774	)
Retained earnings after appropriations												8,983,877		2,210,669		10,224,530
Net income for the year												1,056,227		114,751		1,170,978
Acquisition of treasury stock						(196,329	)									(196,329	)
Disposal of treasury stock						884										884
Retirement of treasury stock						196,329						(196,329	)
Gain (loss) on disposal of treasury stock				(133	)											(133	)
Acquisition of subsidiaries stock						(1,152	)							(365	)	(1,517	)
Increase in subsidiaries capital stock						212								1,916		2,128
Acquisition of subsidiaries treasury stock						(392	)							(620	)	(1,012	)
Appropriation of subsidiaries treasury stock						(14,489	)							(79,582	)	(94,071	)
Changes in consolidated entities						(3,302	)		(20,688	)				25,096		1,106
Stock options						25										25
Other share-based payment						1,022										1,022
Other capital adjustments						(585	)							(687	)	(1,272	)
Gain on translation of foreign operations									55							55
Loss on translation of foreign operations									19,240					2,896		22,136
Unrealized gain on valuation of available-for-sale Securities									2,496					1,668		4,164
Gain on valuation of derivatives for cash flow hedge									2,024							2,024
Increase in equity of associates									(975	)				261		(714	)
Decrease in equity of associates									3,762							3,762
Balance as of December 31, 2007	W	1,560,998	W	1,440,777	W	(3,983,929	)	W	142		W	9,843,775	W	2,276,003	W	11,137,766

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2008

								Other
	Common		Capital		Capital			Comprehensive		Retained		Minority
	Stock		Surplus		Adjustments			Income (Loss)		Earnings		Interest		Total
	(In millions of Korean won)
Balance as of January 1, 2008 (as reported)	W	1,560,998	W	1,272,634	W	(3,815,786	)	W	142	W	9,843,775	W	2,276,003	W	11,137,766
Cumulative effect of changes in accounting policies
(Note 2)				168,143		(168,143	)				1,711		2,141		3,852
As restated		1,560,998		1,440,777		(3,983,929	)		142		9,845,486		2,278,144		11,141,618
Dividends											(407,374	)	(1,896	)	(409,270	)
Retained earnings after appropriations											9,438,112		2,276,248		10,732,348
Net income for the year											449,810		63,480		513,290
Acquisition of treasury stock						(73,807	)								(73,807	)
Disposal of treasury stock						807									807
Retirement of treasury stock						73,807					(73,807	)
Gain (loss) on disposal of treasury stock				(144	)										(144	)
Acquisition of subsidiaries stock						(944	)						(210	)	(1,154	)
Increase in subsidiaries capital stock						2,439							13,428		15,867
Acquisition of subsidiaries treasury stock						158							140		298
Appropriation of subsidiaries treasury stock						(14,651	)						(112,298	)	(126,949	)
Changes in consolidated entities													14,964		14,964
Other share-based payment						398									398
Other capital adjustments						986							221		1,207
Gain on translation of foreign operations									8,612				4,947		13,559
Loss on translation of foreign operations									8,308				3,471		11,779
Unrealized gain on valuation of available-for-sale Securities									(5,831	)			(3,108	)	(8,939	)
Unrealized loss on valuation of available-for-sale securities									(4,345	)			(3,200	)	(7,545	)
Gain on valuation of derivatives for cash flow hedge									9,112				262		9,374
Loss on valuation of derivatives for cash flow hedge									(13,710	)			(4,660	)	(18,370	)
Increase in equity of associates									7,603				2,351		9,954
Decrease in equity of associates									988				(27	)	961
Balance as of December 31, 2008	W	1,560,998	W	1,440,633	W	(3,994,736	)	W	10,879	W	9,814,115	W	2,256,009	W	11,087,898

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)

FOR THE YEAR ENDED DECEMBER 31, 2008

						Other
	Common	Capital	Capital			Comprehensive	Retained		Noncontrolling
	Stock	Surplus	Adjustments			Income (Loss)	Earnings		Interest		Total
	(In thousands of U.S. dollars)
Balance as of January 1, 2008 (as reported)	$ 1,236,924	$ 1,008,426	$	(3,023,602	)	$ 113	$	7,800,138	$	1,803,489	$	8,825,488
Cumulative effect of changes in accounting policies (Note 2)		133,236		(133,236	)			1,356		1,696		3,052
As restated Dividends	1,236,924	1,141,662		(3,156,838	)	113		7,801,494		1,805,185		8,828,540
Retained earnings after appropriations								(322,800	)	(1,502	)	(324,302	)
Net income for the year								7,478,694		1,803,683		8,504,238
Acquisition of treasury stock								356,426		50,301		406,727
Disposal of treasury stock				(58,484	)							(58,484	)
Retirement of treasury stock				640								640
Gain (loss) on disposal of treasury stock				58,484				(58,484	)
Acquisition of subsidiaries stock		(114	)									(114	)
Increase in subsidiaries capital stock				(748	)					(166	)	(914	)
Acquisition of subsidiaries treasury stock				1,933						10,640		12,573
Appropriation of subsidiaries treasury stock				125						111		236
Changes in consolidated entities				(11,609	)					(88,984	)	(100,593	)
Other share-based payment										11,857		11,857
Other capital adjustments				315								315
Gain on translation of foreign operations				781						175		956
Loss on translation of foreign operations						6,824				3,920		10,744
Unrealized gain on valuation of available-for-sale Securities						6,583				2,751		9,334
Unrealized loss on valuation of available-for-sale securities						(4,620	)			(2,463	)	(7,083	)
Gain on valuation of derivatives for cash flow hedge						(3,443	)			(2,536	)	(5,979	)
Loss on valuation of derivatives for cash flow hedge						7,220				208		7,428
Increase in equity of associates						(10,864	)			(3,693	)	(14,557	)
Decrease in equity of associates						6,024				1,863		7,887
Balance as of December 31, 2008	$ 1,236,924	$ 1,141,548	$	(3,165,401	)	$ 8,620	$	7,776,636	$	1,787,646	$	8,785,973

See accompanying notes to consolidated financial statements

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008

ORGANIZATION AND DESCRIPTION OF THE BUSINESS

a. Parent

KT Corporation (KT) commenced operations on January 1, 1982 through the segregation of specified operations from the previous Korean Ministry of Information and Communication (the MIC) for the purpose of contributing to the convenience in national life and improvement of public welfare through rational management of the public telecommunication business and improvement of telecommunication technology under the Korea Telecom Act.

Upon the announcements of the Government-Invested Enterprises Management Basic Act and the Privatization Law, as of October 1, 1997, KT became a government invested institution regulated by the Korean Commercial Code and KTs shares were listed on the Korea Exchange (formerly Korea Stock Exchange) on December 23, 1998. KT issued 24,282,195 additional shares on May 29, 1999 and issued American Depository Shares (ADS), representing these new shares and government-owned shares on the New York Stock Exchange and the London Exchange. On July 2, 2001, additional ADS representing 55,502,161 government-owned shares were issued.

In 2002, KT acquired its 60,294,575 government-owned shares according to the governments privatization plan for government-owned companies and there is no government-owned share as of December 31, 2008.

KTs shares as of December 31, 2008 are owned as follows:

Shares	Percentage (%)
Employee Stock Ownership Association	13,184,421	4.82 %
National Pension Service	16,179,637	5.92 %
Others	172,667,439	63.12 %
Treasury stock	71,500,404	26.14 %
Total	273,535,700	100.00 %

Prior to 1991, KT was the only telecommunication service provider in Korea. Since then, several new providers have entered the markets, as licensed by the MIC; an international call service by LG Dacom, the second telecommunication service provider, in December 1991, and local call service by Hanaro Telecom, the second local call provider, in 1999. Onse Telecom also entered a long-distance call service after its international call service. The entry of these new providers into the markets resulted in severe competition in fixed-line telephone services and high speed internet services in which large growth is not expected in the future. In order to develop new business areas, KT commercialized the Wireless Broadband Internet (WiBro) service in 2006 and launched new products such as mixed products which combine certain previous services and Internet Contests On Demand (ICOD) services under the new brand name MegaTV in 2007.

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

b. Consolidated Subsidiaries

The consolidated financial statements included the subsidiaries of which KT is the largest stockholder with more than 30% of ownership interests. The consolidated subsidiaries as of December 31, 2008 are as follows:

	Year of	Year of — Obtaining			Financial
Subsidiary	Incorporation	Control	Primary Business	Location	Year End
KT Powertel Co., Ltd. (KTP)	1985	1985	Trunk radio system business	Korea	Dec.31
KT Networks Corporation (KTN)	1986	1986	Group telephone management	Korea	Dec.31
KT Linkus Co., Ltd. (KTL)	1988	1988	Public telephone maintenance	Korea	Dec.31
KT Hitel Co., Ltd. (KTH)	1991	1992	Data communication	Korea	Dec.31
KT Submarine Co., Ltd. (KTSC)	1995	1995	Submarine cable construction and maintenance	Korea	Dec.31
KT Freetel Co., Ltd. (KTF)	1997	1997	PCS business	Korea	Dec.31
KT Commerce Inc. (KTC)	2002	2002	B2C, B2B service	Korea	Dec.31
KTF Technologies Inc. (KTFT)	2001	2002	PCS handset development	Korea	Dec.31
KT Internal Venture Fund No. 2	2003	2003	Investment fund	Korea	Feb.28
KTF M Hows Co., Ltd. (KTF M Hows)	2004	2004	Mobile marketing	Korea	Dec.31
KT Rental Co., Ltd. (KTR)	2005	2005	Rental service	Korea	Dec.31
Sidus FNH Corporation (Sidus FNH)	2005	2005	Movie production	Korea	Dec.31
Sidus FNH Benex Cinema Investment Fund	2006	2006	Movie investment fund	Korea	Dec.31
KT Capital Co., Ltd. (KT Capital)	2006	2006	Financing service	Korea	Dec.31
Telecop Service Co., Ltd. (TSC)	2006	2006	Security service	Korea	Dec.31
Olive Nine Co., Ltd. (Olive Nine)	1999	2006	Broad casting production	Korea	Dec.31
KTF M&S Co., Ltd. (KTF M&S)	2007	2007	PCS distribution	Korea	Dec.31
KT FDS Co., Ltd. (KT FDS)	1990	2007	Software development and system integration	Korea	Dec.31
KTF Music Corporation (KTF Music formerly, Bluecord
Technology Co., Ltd.)	1991	2007	Semiconductor and telecommunication equipment manufacture	Korea	Dec.31
Doremi Media Co., Ltd. (Doremi Media)	1997	2007	Recording device (magneto-optical disk) and music disc
manufacture	Korea	Dec.31
Nasmedia, Inc. (Nasmedia)	2000	2008	Online advertisement	Korea	Dec.31
Sofnics, Inc.(Sofnics)	2008	2008	Software development and sales	Korea	Dec.31
JungBoPremiumEdu Co., Ltd. (JB Edu)	2008	2008	Online education business	Korea	Dec.31
KT New Business Fund No. 1	2008	2008	Investment fund	Korea	Dec.31
KT DataSystems Co., Ltd. (KTDS)	2008	2008	System integration and maintenance	Korea	Dec.31
Korea Telecom America, Inc. (KTAI)	1993	1993	Foreign telecommunication business	America	Dec.31
New Telephone Company, Inc. (NTC)	1993	1998	Foreign telecommunication business	Russia	Dec.31
Korea Telecom Japan Co., Ltd. (KTJ)	1999	1999	Foreign telecommunication business	Japan	Dec.31
Korea Telecom China Co., Ltd. (KTCC)	2003	2003	Foreign telecommunication business	China	Dec.31
PT. KTF Indonesia	2005	2005	Foreign telecommunication business	Indonesia	Dec.31
Super iMax	2007	2007	Wireless high speed internet business	Uzbekistan	Dec.31
East Telecom	2003	2007	Fixed line telecommunication business	Uzbekistan	Dec.31
KTSC Investment Management B.V.	2007	2007	Management of investment in Super iMax and East Telecom	Netherlands	Dec.31

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Details of investments in subsidiaries as of December 31, 2006, 2007 and 2008 are as follows :

Subsidiary	Year of — Establishment	Primary Business	Ownership percentage (%) — 2006	2007	2008
KTP	1985	Trunk radio system business	44.85 %	44.85 %	44.85 %
KTN	1986	Group telephone management	100.00 %	100.00 %	100.00 %
KTL	1988	Public telephone maintenance	93.82 %	93.82 %	93.82 %
KTH	1991	Data communication	65.94 %	65.94 %	65.94 %
KTSC	1995	Submarine cable construction and maintenance	36.92 %	36.92 %	36.92 %
KTF (Note 1)	1997	PCS Business	52.19 %	52.99 %	54.25 %
KTC (Note 2)	2002	B2C, B2B service	100.00 %	100.00 %	100.00 %
KTFT	2001	PCS handset development	74.94 %	78.79 %	78.79 %
KT Internal Venture Fund No. 2	2003	Investment fund	94.34 %	94.34 %	94.34 %
KTF M Hows (Note 3)	2004	Mobile marketing	51.00 %	51.00 %	51.00 %
KTR	2005	Rental service	100.00 %	100.00 %	100.00 %
Sidus FNH (Note 4)	2005	Movie production	51.00 %	51.00 %	51.00 %
Sidus FNH Benex Cinema Investment Fund (Note 5)	2006	Movie investment fund	43.33 %	43.33 %	43.33 %
KT Capital (Note 6)	2006	Financing service	100.00 %	100.00 %	100.00 %
TSC (Note 7)	2006	Security service	93.82 %	93.82 %	90.12 %
Olive Nine. (Note 8)	1999	Broadcasting production	19.68 %	19.20 %	19.48 %
KTF M&S (Note 9)	2007	PCS distribution		100.00 %	100.00 %
KT FDS	1990	Software development and system integration		100.00 %	100.00 %
KTF Music (formerly, Bluecord Technology Co.,Ltd.) (Note 10)	1991	Semiconductor and telecommunication equipment manufacture		35.28 %	35.28 %
Doremi Media (Note 11)	1997	Recording device (magneto-optical disk) and music disc
manufacture		64.24 %	64.24 %
Nasmedia (Note 12)	2008	Online advertisement			50.00 %
Sofnics (Note 13)	2008	Software development and sales			60.00 %
JB Edu (Note 14)	2008	Online education business			54.55 %
KT New Business Fund No. 1 (Note 15)	2008	Investment fund			100.00 %
KTDS (Note 16)	2008	System integration and maintenance			100.00 %
KTAI	1993	Foreign telecommunication business	100.00 %	100.00 %	100.00 %
NTC	1993	Foreign telecommunication business	79.96 %	79.96 %	79.96 %
KTJ	1999	Foreign telecommunication business	100.00 %	100.00 %	100.00 %
KTCC	2003	Foreign telecommunication business	100.00 %	100.00 %	100.00 %
PT. KTF Indonesia (Note 17)	2005	Foreign telecommunication business	99.00 %	99.00 %	99.00 %
Super iMax (Note 18)	2007	Wireless high speed internet business		60.00 %	100.00 %
East Telecom (Note 18)	2003	Fixed line telecommunication business		51.00 %	85.00 %
KTSC Investment Management B.V. (Note 18)	2007	Management of investment in Super iMax and East Telecom		60.00 %	60.00 %

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callerid=999 iwidth=456 length=60

| (Note 1) | KTF purchased 4,448,000 shares of treasury stock for
retirement by a charge against its retained earnings. As a
result, the Companys equity ownership interest in KTF
increased from 53.0% to 54.3% as of December 31, 2008. |
| --- | --- |
| (Note 2) | KTC is owned 19.0% by KT and 81.0% by KTH, respectively. |
| (Note 3) | KTF M Hows is owned 51.0% by KTF. |
| (Note 4) | Sidus FNH is owned 35.7% by KT and 15.3% by KTF, respectively. |
| (Note 5) | Sidus FNH Benex Cinema Investment Fund is owned 13.3% by KT,
6.7% by KTF, 3.3% by KTH and 20.0% by Sidus FNH, respectively. |
| (Note 6) | On December 1, 2006, KTR was spun off into KTR and KT
Capital. |
| (Note 7) | During the year ended December 31, 2008, TSC, which was
spun off from the KTL on November 14, 2006, issued new
shares and accordingly, KTs ownership interest in TSC has
decreased from 93.8% to 90.1% as of December 31, 2008. |
| (Note 8) | As KT holds rights to appoint the majority of the members of the
board of directors of Olive Nine, it is determined that Olive
Nine is controlled by KT and included in the consolidated
subsidiaries. In addition, KTs ownership interest in Olive
Nine increased from 19.2% to 19.5% at December 31, 2008
according to the conversion of convertible bonds and purchase of
additional shares. |
| (Note 9) | KTF M&S is owned 100.0% by KTF. |
| (Note 10) | KTF Music (formerly, Bluecord Technology Co., Ltd.) is owned
35.3% by KTF. |
| (Note 11) | Doremi Media is owned 64.2% by KTF Music (formerly, Bluecord
Technology Co., Ltd.). |
| (Note 12) | During the year ended December 31, 2008, KT obtained 50.0%
ownership interest plus one share of Nasmedia for W 26,055 million. |
| (Note 13) | During the year ended December 31, 2008, KT obtained 60.0%
ownership interest of Sofnics for W 600 million. |
| (Note 14) | During the year ended December 31, 2008, KT obtained 54.6%
ownership interest of JB Edu for W 6,000 million. |
| (Note 15) | During the year ended December 31, 2008, KT and KT Capital
obtained 90.9% and 9.1% ownership interests for W 10,000 million and W 1,000 million, respectively, of KT New
Business Fund No. 1, respectively. |
| (Note 16) | During the year ended December 31, 2008, KT and KTF
obtained 80.0% and 20.0% ownership interests for W 9,600 million and W 2,400 million of KTDS, respectively. |
| (Note 17) | PT. KTF Indonesia is owned 99.0% by KTF. |
| (Note 18) | During the year ended December 31, 2008, KT additionally
invested in KTSC Investment Management B.V. cash of W 15,009 million and in-kind contribution
of W 15,836 million which consists of the
shares of Super iMax and East Telecom totaling W 1,321 million and W 14,515 million, respectively, together
with other stockholder on a proportionate basis. As a result,
KTSC Investment Management B.V. obtained 100.0% ownership
interest of Super iMax and 85.0% ownership interest of East
Telecom, respectively. |

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. To conform more closely to presentations customary in filings with the Securities and

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Exchange Commission of the United States of America, the accompanying consolidated financial statements have been restructured and translated into English for the convenience of the readers of financial statements. Certain supplementary information included in the statutory Korean language consolidated financial statements, not required for a fair presentation of the Company and its subsidiaries financial position or result of operations, is not presented in the accompanying consolidated financial statements.

b. Adoption of Statements of Korea Accounting Standards (SKAS)

Through December 31, 2008, Korea Accounting Institute and Financial Supervisory Service have issued and revised various Korea accounting standards and the following is a summary of major changes, which are newly adopted by the Company.

Accounting Standards	Key Requirements
SKAS No. 25 Consolidated Financial Statements	If negative consolidated capital surplus
is incurred, it is first charged to related consolidated capital
surplus, and remaining amount is recorded as a consolidated
capital adjustment.
Opinion on Application of Accounting Standards 06-2, Accounting for Recognition of Deferred Tax Related to
Investments on a Subsidiary	Temporary differences related to
investments in subsidiary, equity method investee or joint
venture are not classified by origin but are treated as a
lump-sum difference in considering whether to recognize deferred
tax assets or liabilities. However, temporary differences
arising from certain transactions under SKAS No. 16, such as
elimination of inter-company transactions through equity method,
shall be separately treated in the same way as they are
recognized in the consolidated financial statements.

As a result of the adoption of the accounting standards, the Companys total assets at the beginning of 2008 and as of December 31, 2008 increased by W 3,852 million and W 7,933 million, respectively, and net income for the year ended December 31, 2008 increased by W 2,196 million, even though there was no impact on the net income for the years ended December 31, 2006 and 2007.

c. Cash and Cash Equivalents

Cash and cash equivalents includes cash, substitute securities including checks issued by others, and checking accounts, ordinary deposits and financial instruments, which can be easily converted into cash and whose value changes due to changes in interest rates are not material, with maturities (or date of redemption) of three months or less upon acquisition.

d. Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided to cover estimated losses on receivables (account receivable trade, accounts receivable other, loans and other), based on collection experience and analysis of the collectability of individual outstanding receivables.

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Changes in the allowance for doubtful accounts for accounts receivable trade and loans for each of the three years in the period ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Balance at the beginning of year	2006 — W	613,873	W	563,164	W	487,729
Provision		111,285		71,502		150,583
Write-offs		(161,994	)	(146,937	)	(149,573	)
Balance at the end of year	W	563,164	W	487,729	W	488,739

e. Inventories

Inventories, which consist mainly of supplies for telecommunication facilities and PCS handsets for sales, are stated at the acquisition cost, with cost determined using the moving average method, except for goods-in-transit and land for construction for which cost are determined using the specific identification method. During the year, perpetual inventory systems are used to value inventories, which are adjusted to physical inventory counts performed at the end of the year. When the market value of inventories (net realizable value for merchandise and current replacement cost for supplies) is less than the carrying value, carrying value is stated at the lower of cost or market. The lower of cost or market method is applied by group of inventories and loss on inventory valuation is presented as a deductive item from inventories and charged to operating expenses. However, when the circumstances that previously caused inventories to be written down below cost no longer exist and the new market value of inventories subsequently recovers, the valuation loss is reversed to the extent of the original valuation loss and the reversal is deducted from operating expenses.

f. Securities (excluding the equity method investment securities)

Debt and equity securities are initially stated at the market value of consideration given for acquisition (market value of securities acquired if market value of consideration given is not available) plus incidental costs attributable to the acquisition of the securities and are classified into trading, available-for-sale and held-to-maturity securities depending on the purpose and nature of acquisition. Trading securities are presented as short-term investments while available-for-sale securities and held-to-maturity securities are presented as short-term investments or long-term investment securities depending on their nature in the balance sheet. The moving average method for equity securities and the specific identification method for debt securities are used to determine the cost of securities for the calculation of gain (loss) on disposal of those securities.

 Trading securities

Securities that are bought and held principally for the purpose of selling them in the near term with active and frequent buying and selling, including securities which consist of a portfolio of securities with the clear objective of generating profits on short-term differences in price, are classified as trading securities. Trading securities are recorded at their fair value and unrealized gains or losses from trading securities are recorded as gain (loss) on valuation of trading securities included in the non-operating revenues (expenses).

 Held-to-maturity securities

Debt securities that have fixed or determinable payments with a fixed maturity are classified as held-to-maturity securities only if the Company has both the positive intent and ability to hold those securities to maturity. However, debt securities, whose maturity dates are due within one year from the balance sheet date are classified as current assets.

After initial recognition, held-to-maturity securities are stated at amortized cost in the balance sheet. When held-to-maturity securities are measured at amortized costs, the difference between their acquisition cost and face

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value is amortized using the effective interest rate method and the amortization is included in the cost and interest income.

When the possibility of not being able to collect the principal and interest of held-to-maturity securities according to the terms of the contracts is highly likely, the difference between the recoverable amount (the present value of expected cash flows using the effective interest rate upon acquisition of the securities) and book value are recorded as loss on impairment of held-to-maturity securities included in the non-operating expenses and the held-to-maturity securities are stated at the recoverable amount after impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss are recorded as reversal of impairment loss on held-to-maturity securities included in non-operating revenues. However, the resulting carrying amount after the reversal of impairment loss shall not exceed the amortized cost that would have been measured, at the date of the reversal, if no impairment loss were recognized.

 Available-for-sale securities

Debt and equity securities that do not fall under the classifications of trading or held-to-maturity securities are categorized and presented as available-for-sale securities included in investment assets. However, if an available-for-sale security matures or it is certain that such security will be disposed of within one year from the balance sheet date, it is classified as a current asset.

Available-for-sale securities are recorded at fair value. Unrealized gain or loss from available-for-sale securities are presented as gain or loss on valuation of available-for-sale securities included in accumulated other comprehensive income of stockholders equity. In addition, accumulated gain or loss on valuation of available-for-sale securities are reflected in either gain or loss on disposal of available-for-sale securities or loss on impairment of available-for-sale securities upon disposal or recognition of impairment of the securities. However, available-for-sale equity securities that are not marketable and whose fair value cannot be reliably measured are recorded at acquisition cost.

When there is objective evidence that the available-for-sale securities are impaired and the recoverable amount is lower than the cost (amortized cost for debt securities) of the available-for-sale securities, an impairment loss is recognized as loss on impairment of available-for-sale securities of non-operating expenses and the related unrealized gain or loss remaining in stockholders equity is adjusted to the impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss can be recognized up to the previously recorded impairment loss as a reversal of loss on impairment of available-for-sale securities included in non-operating revenues. However, if the fair value increases after the impairment loss is recognized but does not relate to the recovery of impairment loss as described above, the increase in fair value is recorded in stockholders equity.

 Reclassification of securities

Trading securities should not be reclassified to other categories of securities. However, when those securities can no longer be held for sale in the near-term to generate profits from short-term price differences, the trading securities can be reclassified as available-for-sale or held-to-maturity securities. When those securities are no longer traded in an active market, such securities are reclassified as available-for-sale securities.

When trading securities are reclassified to other categories, the fair value (latest market value) as of the date of the reclassification becomes new acquisition cost of the security and the securitys unrealized holding gain or loss through the date of the reclassification should be recorded in non-operating revenues or expenses.

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g. Equity Method Investment Securities

Investments in equity securities of companies, over which the Company exercises significant influence, are reported using the equity method of accounting.

 Accounting for changes in the equity of the investee

Under the equity method of accounting, the Company records changes in its proportionate equity of the net assets of the investee depending on the nature of the underlying changes in the investee as follows; (i) equity in income (loss) of associates in the non-operating revenues (expense) for net income (loss) of the investee; (ii) increase (decrease) in retained earnings of associates in the retained earnings for changes in beginning retained earnings of the investee; (iii) increase (decrease) in equity of associates in the accumulated other comprehensive income (loss) for other changes in stockholders equity of the investee.

When the equity method investees unappropriated retained earnings carried over from prior period changes due to significant error corrections, the Company records the changes in equity as equity in income (loss) of associates included in the non-operating revenues (expenses) unless the impact of the changes on the Companys consolidated financial statements is significant. If the changes results from the changes in accounting policies of the equity method investee, they are reflected in the unappropriated retained earnings carried over from prior period in accordance with SKAS on changes in accounting policy and errors corrections. When the investee declares cash dividends, the dividends to be received are deducted directly from equity method investment securities.

 Treatment of investment difference

Difference between the acquisition cost and the Companys proportionate equity in the fair value of net assets of the investee upon acquisition (Investment difference) are considered as (negative) goodwill and accounted for in accordance with accounting standards for business combination. The goodwill portion which is amortized over useful lives (4 ~ 10 years) on a straight line method and the negative goodwill portion which is amortized over the weighted average useful lives of depreciable non-monetary assets of the investee are included in equity in income (loss) of associates.

When the Companys equity interest in the investee increases due to an increase (or decrease) in contributed capital with (or without) consideration, the changes in the Companys proportionate equity in the investee is accounted for as investment difference. If the Companys equity interest decreases, the changes are accounted for as gain (loss) on disposal of the equity method investment securities.

 Difference between the fair value and book value of net assets of the investee

Upon acquisition of the equity method investment securities, the Companys proportionate shares in the differences between the fair values and book values of the identifiable assets and liabilities of the investee are amortized/reversed and included in equity in income (loss) of associates in accordance with the investees methods of accounting for the assets and liabilities.

 Elimination of unrealized gain or loss from intercompany transactions

The Companys proportionate share in the gain (loss) arising from transactions between the Company and the investee, which remains in the book value of assets held as of balance sheet date is considered unrealized gain (loss) and adjusted to equity method investment securities.

 Impairment loss on equity method investment securities

When there is objective evidence that the equity method investment securities are impaired and the recoverable amount is lower than the carrying amount of the equity method investment securities, an impairment loss is

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recognized as loss on impairment of equity method investment securities included in non-operating expenses and shall first reduce the unamortized investment difference, if any. When the recoverable amount is recovered after the recognition of impairment loss, the reversal of impairment loss can be recognized as income up to the previously recorded impairment loss. The book value of the equity method investment securities after the reversal of the impairment loss cannot exceed the book value calculated as if the impairment loss had not been originally recognized. The reversal of the impairment loss recognized against the unamortized investment difference is not allowed.

 Translation of financial statements of overseas investees

For overseas investees whose financial statements are prepared in foreign currencies, the equity method of accounting is applied after assets and liabilities are translated in accordance with the accounting treatments for the translation of the financial statements of overseas subsidiaries for consolidated financial statements. The Companys proportionate share of the difference between assets net of liabilities and stockholders equity after translation into Korean won is accounted for as increase (decrease) in equity of associates included in the accumulated other comprehensive income (loss).

h. Property and Equipment

Property and equipment are stated at cost (acquisition cost or manufacturing cost plus expenditures directly related to preparing the asset ready for use), except for those contributed by the government and stated at amounts revalued on January 1, 1982, and assets acquired from investment in kind, by donation or free of charge in other ways are stated at fair value as an acquisition cost. Expenditures after acquisition or completion that increase future economic benefit in excess of the most recently assessed capability level of the asset are capitalized; other expenditures are charged to expense as incurred. Borrowing costs in relation to the manufacture, purchase, construction or development of assets are charged to current operations.

Depreciation is computed by the declining-balance method (except for buildings, structures, underground access to cable tunnels, and concrete and steel telephone poles that are depreciated using the straight-line method) based on the following useful lives of the related units of property and equipment and the accumulated depreciation and impairment are directly deducted from the related assets.

	Useful Lives (Years)
Buildings	5-60
Structures	5-40
Machinery and equipment:
Underground access to cable tunnels, and concrete and steel
telephone poles	20-40
Machinery	3-15
Other	6-15
Vehicles	3-10
Tools, furniture and fixtures	2-20

When the expected future cash flow from use or disposal of the property and equipment is lower than the carrying amount due to obsolescence, physical damage and other, the carrying amount is adjusted to the recoverable amount (the higher of net sales price or value in use) and the difference is recognized as an impairment loss. The Company recorded loss on impairment of property and equipment totaling W 1,555 million, W 7,990 million and W 20,676 million for the years ended December 31, 2006, 2007 and 2008, respectively. Meanwhile, when the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before previous impairment as adjusted by depreciation. There was no reversal of impairment loss for the years ended December 31, 2006, 2007 and 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

i. Intangible Assets

Intangible assets are initially recognized at acquisition cost (purchase cost plus expenditures directly related to preparing the asset ready for use) and subsequently presented at amortized cost using the straight-line method, with amortization beginning when the asset is available for use. Meanwhile, rights to utilize buildings and facilities and copyrights are amortized over 30 or 50 years since the Company has contractual or lawful exclusive rights to them.

Intangible assets are amortized based on the following useful lives:

	Useful lives (Years)
Research and development cost	2-6
Goodwill and negative goodwill	4-10
Software	3-6
Industrial rights	5-10
Frequency usage rights	5.75 from the date of service commencement or 13
Other intangible assets	10-50

Research related costs are generally expensed as operating expenses. Development costs which meet certain requirements and from which future economic benefit is certain are capitalized as intangible assets and the amortization over the estimated useful lives is recorded as operating expenses. Development costs associated with new telecommunication businesses such as Integrated Customer Information System (ICIS) and Broadband Integrated Services Digital Network (B-ISDN) and software such as Integrated Logistics Information System, Information Superhighway and Enterprise Resource Planning (ERP) are accounted for as intangible assets.

The Company was elected as a WiBro business provider on January 20, 2005 and paid W 125,800 million to the MIC in exchange for the usage right to frequency range of 2331.5 ~ 2358.5 Mhz obtained on March 30, 2005. The rights have a contractual life of 7 years from the grant date and are amortized over the remaining contractual life commencing from June 30, 2006 when commercial service was initiated.

On December 15, 2000, KTF acquired the license to provide third generation mobile services utilizing 2GHz frequency band (IMT-2000 service) for which a total payment of W 1,300 billion is to be paid to KCC as a license fee. KTF paid W 650 billion out of the total license fee on March 20, 2001 and the remaining balance of W 650 billion is required to be paid including interest for five years from 2007 to 2011 of which W 90 billion and W 110 billion was paid in 2007 and 2008, respectively.

Future payment schedule of the license fees as of December 31, 2008 is as follows (in millions of Korean won):

Year Ending December 31, — 2009	W	130,000
2010		150,000
2011		170,000
Total	W	450,000

The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. When the recoverable amount (the higher of net sales price or value in use) of intangible assets is significantly lower than the carrying amount due to obsolescence, and other, the difference is recognized as an impairment loss. When the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before the previous impairment as adjusted for amortization. The Company recorded

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loss on impairment of intangible assets totaling W 10,885 million, W 9,178 million and W 17,435 million for the years ended December 31, 2006, 2007 and 2008, respectively. There was no reversal of impairment loss for the years ended December 31, 2006, 2007 and 2008.

Goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired related to entities that are being consolidated, is amortized on a straight-line basis over a reasonable period. However, if the recoverable amount is significantly lower than the book value, an impairment loss on goodwill is charged against current earnings. Negative goodwill, which represents the excess of the fair value of net identifiable assets acquired over the acquisition cost, is recorded as a contra account (reduction) to intangible assets. For the years ended December 31, 2006, 2007 and 2008, the amortization of goodwill of W 133,988 million, W 138,405 million and W 145,154 million, respectively, are included in operating expenses and the reversal of negative goodwill of W 518 million, W 518 million and W 65 million, respectively, are included in non-operating revenues.

j. Contributions for Construction and Others

Government subsidies and contributions for construction granted for the purpose of acquisition of certain assets are recorded as a deduction from the assets granted or other assets acquired for the temporary use of the assets granted. When the related assets are acquired, they are recorded as a deduction from the acquired assets and offset against the depreciation of the acquired assets over their useful lives. In addition, government subsidies and contributions for construction without any repayment obligation is offset against the related expenses for which they are intended to compensate, however, if there is no matching expense, they are recorded as operating or non-operating revenue depending on whether they are directly related to the Companys principal operating activities. Government subsidies and contributions for construction with a repayment obligation are recorded as a liability.

k. Present Value Discount for Assets and Liabilities

Receivables or payables from long-term installment transactions, long-term loans/borrowings or the other similar transactions are stated at present value which is determined by discounting total amounts receivable or payable in the future using the effective interest rate, if the nominal value is significantly different from the present value. The discount or premium resulting from the determination of present value should be reported in the balance sheet as a direct deduction from or addition to the nominal value of the related receivables or payables and the amortization by the effective interest rate method is included in the period income (loss).

l. Translation of Assets and Liabilities Denominated in Foreign Currency

Transactions denominated in foreign currencies are recorded in Korean won translated at the exchange rate prevailing on the transaction date and the resulting gain (loss) from foreign currency transactions is included in non-operating revenues (expenses). Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W 929.6: USD 1, W 938.2: USD 1 and W 1,257.5: USD 1 at December 31, 2006, 2007 and 2008, respectively, and the resulting gain (loss) from foreign currency translation is included in non-operating revenues (expenses).

m. Convertible Bonds

The proceeds from issuance of convertible bonds are allocated between the conversion right and the debt issued. When additional amount is paid upon maturity to guarantee certain yield rate, the redemption premium is recognized as an addition to the convertible bonds and the conversion right, which represents the difference between the issue price of the convertible bonds and the present value of normal bonds, is accounted for as capital surplus. The redemption premium, the conversion right and the expenses incurred for the issuance of the bonds are adjusted

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to the bonds and amortized to interest expense using the effective interest rate method over the redemption period of the convertible bonds.

n. Provisions for Severance Indemnities

In accordance with KT and its domestic subsidiaries policies, all employees with more than one year of service are entitled to receive lump-sum severance payments upon termination of their employment, based on their current rates of salary and length of service. The accrual for severance indemnities is computed as if all employees were to terminate at the balance sheet dates and amounted to W 1,566,313 million and W 1,708,640 million for the years ended December 31, 2007 and 2008, respectively.

The Company has insured a portion of its obligations for severance indemnities by making deposits, that will be directly paid to employees, with Samsung Life Insurance and other and records them as deposits for severance insurance deposits which is directly deducted from the accrued severance indemnities.

o. Provisions

The Company recognizes a provision for a liability with uncertain timing or amount when (1) there is a present obligation of the Company arising from past events, (2) it is highly likely that an outflow of resources will be required to settle the obligation, and (3) the amount for the settlement of the obligation can be reliably measurable.

If there is a significant difference between the nominal value and present value of such provision, the provision is stated at the present value of the expenditures expected to be required to settle the obligation.

p. Derivative Instruments

The Company records rights and obligations arising from derivative instruments in assets and liabilities, which are stated at fair value. Gains and losses that result from the changes in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that cash flow hedge accounting applies to, the effective portion of the gain or loss on the derivatives instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in the accumulated other comprehensive income (loss).

q. Share-based Payment

The Companys share-based payment transactions are accounted for in accordance with SKAS No. 22 Share-based Payment which is effective from fiscal year beginning on or after December 31, 2006. As allowed in the transition clause of SKAS No. 22, for employee stock options granted before January 1, 2008, the Company accounts for them in accordance with Interpretation No. 39-35 Accounting for Stock Options.

(i) Stock Options

The Company has granted stock options to its executive officers and directors prior to January 1, 2008, and for equity-settled stock options, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding credit to the stock options of the capital adjustments. When the options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustments account and the par value of the new shares issued, is recorded as additional paid-in capital. In the event the Company grants stock options based on cash-settled share-based payment, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding liability recorded.

When stock options are forfeited because the specified vesting requirements are not satisfied, previously recognized compensation costs are reversed to earnings and the corresponding capital adjustments or liabilities are

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reversed as well. When stock options expire unexercised, previously recognized compensation costs and corresponding capital adjustments are reversed to capital surplus.

(ii) Other Share-based Payments

Other share-based payments granted on or after January 1, 2007 are measured as below:

For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity (capital adjustments), directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the Company measures the value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

For cash-settled share-based payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Company re-measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in value recognized in profit or loss for the period.

For share-based payment transactions in which the terms of the arrangement provide either the Company or the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company is required to account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.

r. Accounting for Leases

A lease is classified as a finance lease or an operating lease depending on the extent of transfer to the Company of the risks and rewards incidental to ownership. If a lease meets any one of the following criteria, it is accounted for as a finance lease:

| | The lease transfers ownership of the asset to the lessee by the
end of the lease term; |
| --- | --- |
| | The lessee has the option to purchase the asset at a bargain
price and it is certain that the option will be exercised; |
| | The lease term is for the major part (75% or more) of the
economic life of the asset even if title is not transferred; |
| | At the date of lease commencement the present value of the
minimum lease payments amounts to at least substantially all
(90% or more) of the fair value of the leased asset; or |
| | The leased assets are of such a specialized nature that only the
Company can use them without major modifications. |

All other leases are treated as operating leases.

(i) Lessees

For operating leases, lease payments excluding guaranteed residual value are recognized as an expense on a straight-line basis over the lease term and contingent rent is expensed as incurred. Finance leases are recognized as assets and liabilities at the lower of fair value of the leased property or the present value of the minimum lease payments discounted using the implicit interest rate of the lessor (or the Companys incremental borrowing rate if the implicit interest rate is not practicable to determine). Any initial direct costs incurred by the Company are added to the amount recognized as an asset. The depreciation policy for depreciable leased assets is consistent with that for

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the similar depreciable assets that are owned by the Company. Annual minimum lease payments excluding guaranteed residual value is allocated to interest expense, which is calculated using the effective interest rate, and finance lease repayment amount. Contingent rent relating to finance are charged as expenses in the periods in which they are incurred, however, if the amount is material it is allocated to principal and interest, respectively, over the remaining lease term.

(ii) Lessors

For operating leases, lease payments on a lease contract are recognized as other revenues on a straight-line basis over the lease term. For finance leases, lessors are required to present finance lease assets as receivables in balance sheets, at an amount equal to the fair value of the leased property at the inception of lease and required to recognize the lease payments received as repayment of the finance lease receivables and interest income.

s. Revenue Recognition

The Companys service revenues, which include revenues derived from telephone services, internet services and data services, are recognized on a service-rendered basis. In connection with such services, KCC and other government entities have extensive authority to regulate the Companys fees. KCC has responsibility for approving rates for local service and interconnection and broadband internet access services provided by the Company. As for other telecommunication services, the related rates are just required to be reported to KCC.

The Company recognizes sales on PCS handsets when these are delivered to the dealers. In addition, the Companys construction revenue is recognized by reference to the percentage of completion of the contract which is calculated by the ratio of the actual contract costs incurred to date to the estimated total contract costs. As for subscribed construction-type contracts, the Company recognizes revenue using the percentage-of-completion method only for the subscribed portion.

Meanwhile, the Company recognizes sales revenues on a gross basis when the Company is the primary obligor in the transactions with customers and if the Company merely acts as an agent for the buyer or seller from whom it earns a commission, then the sales revenues are recognized on a net basis.

Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue according to revenue recognition policy for the service.

t. Income Taxes

When the Company recognizes deferred income tax assets or liabilities for the temporary differences between the carrying amount of an asset and liability and tax base, a deferred income tax liability for taxable temporary difference is fully recognized except to the extent in accordance with income tax related SKAS while a deferred tax asset for deductible temporary difference is recognized to the extent that it is almost certain that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred income tax asset (liability) is classified as current or non-current asset (liability) depending on the classification of related asset (liability) in the balance sheet. Deferred income tax asset (liability) which does not relate to specific asset (liability) account in the balance sheet such as deferred income tax asset recognized for tax loss carryforwards is classified as current or non-current asset (liability) depending on the expected reversal period. Deferred income tax assets and liabilities in the same tax jurisdiction and in the same current or non-current classification are presented on a net basis. Current and deferred income tax expense are included in income tax expense in the statement of operations and additional income taxes or tax refunds for the prior periods are included in income tax expense for the current period when recognized. However, income taxes resulting from transactions or events, which were directly recognized in stockholders equity in current or prior periods, or business combinations are directly adjusted to equity account or goodwill (or negative goodwill).

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u. Use of Estimates

The Companys management uses reasonable estimates and assumptions in preparing the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea. The estimates and assumptions can change according to additional experiences, changes in circumstances, new information and other and may be different from actual results.

v. Elimination of Inter-Company Unrealized Gain/Loss

Unrealized gains and losses included in the inventories, property and equipment and other which were acquired by transactions amongst KT and subsidiaries are fully eliminated using the gross margin ratio of the transactions and the gains and losses on disposal.

w. Translation of Overseas Subsidiaries Financial Statements

For overseas subsidiaries whose financial statements are prepared in foreign currencies, assets and liabilities are translated at the exchange rate at the consolidated balance sheet date and statement of income items are translated at the average exchange rate for the respective fiscal period. Net translation adjustments are recorded as gain (loss) on translation of foreign operations included in the accumulated other comprehensive income.

x. Changes in Consolidated Entities

For the year ended December 31, 2008, Nasmedia, Sofnics, JB Edu, KT New Business Fund No. 1 and KTDS are newly acquired in 2008 and included in the consolidation.

In addition, when a subsidiary is acquired during the year, it is presented in the consolidated statements of income as though it had been acquired at the beginning of the year, and its earning (loss) prior to acquisition is separately presented as a deductive (additive) line item in the consolidated statements of income.

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y. Adoption of New Accounting Standards and Reclassifications of Financial Statements

In 2007, the Company made adjustments to the 2006 consolidated financial statements to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassify certain accounts in prior periods to conform to current periods presentation. Such reclassification did not have an effect on the net assets as of December 31, 2006 and net income of the Company for the year ended December 31, 2006. Additionally, the Company made an adjustment to the consolidated statements of cash flows due to the change of policy in 2008 and reclassified prior periods to be in conformity with current year presentation (in millions of Korean won):

	As Initially
	Reported		SKASs		Reclassification			As Adjusted
2006
Current assets	W	5,980,390	W	1,030	W			W	5,981,420
Non-current assets		18,241,646		20,268					18,261,914
Total assets	W	24,222,036	W	21,298	W			W	24,243,334
Current liabilities	W	5,422,088	W	1,027	W			W	5,423,115
Non-current liabilities		8,102,644		20,271					8,122,915
Total liabilities		13,524,732		21,298					13,546,030
Common stock		1,560,998							1,560,998
Capital surplus		1,289,803		148,435		2,672			1,440,910
Capital adjustments		(3,820,817	)	(142,663	)	(2,672	)		(3,966,152	)
Accumulated other comprehensive income				(5,772	)				(5,772	)
Retained earnings		9,400,068							9,400,068
Minority interest		2,267,252							2,267,252
Total equity		10,697,304							10,697,304
Total liabilities and equity	W	24,222,036	W	21,298	W			W	24,243,334
Operating revenues	W	17,756,156	W		W	68,724		W	17,824,880
Operating expenses		(15,376,920	)	265		(64,849	)		(15,441,504	)
Operating income		2,379,236		265		3,875			2,383,376
Non-operating revenues		654,235		(20,346	)	(68,724	)		565,165
Non-operating expenses		(1,033,708	)	6,164		64,849			(962,695	)
Income from continuing operations before income tax expense		1,999,763		(13,917	)				1,985,846
Income tax expense on continuing operations		(490,046	)	13,921					(476,125	)
Income from continuing operations		1,509,717		4					1,509,721
Loss from discontinuing operations				(4	)				(4	)
Net income	W	1,509,717	W		W			W	1,509,717
Cash flows from operating activities	W	5,764,199	W		W	(50,623	)	W	5,713,576
Cash flows from investing activities		(3,061,868	)			953			(3,060,915	)
Cash flows from financing activities		(2,416,834	)			49,670			(2,367,164	)
Effect of changes in consolidated entities		(3,571	)						(3,571	)
Net increase in cash and cash equivalents	W	281,926	W		W			W	281,926

z. Basis of Translating Consolidated Financial Statements

The consolidated financial statements are expressed in Korean won and, solely for the convenience of the reader, the consolidated financial statements as of and for the years ended December 31, 2008, have been translated

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into U.S. dollars at the rate of W 1,262.0 to USD1 at December 31, 2008, the noon buying rate in the City of New York for cable transfers in Korean won as certified for customs purposes by the Federal Reserve Bank of New York on the last business day of the year ended December 31, 2008. The translation should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate.

RESTRICTED DEPOSITS

Details of restricted deposits as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

Short-term investment assets	Time deposits	2007 — W	1,904	2008 — W	24,687	Description — Guarantee deposits and others
Long-term financial instruments	Checking account deposit		61		44	Checking account deposit and others
Total		W	1,965	W	24,731

INVENTORIES

Inventory valuations as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

	2007							2008
			Lower of Cost							Lower of Cost
			or Market		Valuation					or Market		Valuation
	Cost		Value		Allowance			Cost		Value		Allowance
Merchandise	W	284,313	W	250,028	W	(34,285	)	W	413,448	W	386,595	W	(26,853	)
Supplies		35,169		30,538		(4,631	)		27,008		25,547		(1,461	)
Other		18,538		18,538					12,699		12,699
	W	338,020	W	299,104	W	(38,916	)	W	453,155	W	424,841	W	(28,314	)

LOANS

Loans as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

a. Loans

Factoring receivables	2007 — W	5,459		2008 — W	9,074
Allowance for doubtful accounts		(27	)		(63	)
Loans		173,840			256,010
Deferred incidental expense (revenue) of loans		(95	)		(88	)
Allowance for doubtful accounts		(1,157	)		(2,773	)
Accounts receivable-loans		315			994
Allowance for doubtful accounts		(2	)		(12	)
Loans for installment credit		37,408			29,891
Deferred incidental expense (revenue) of loans		(10	)		(10	)
Allowance for doubtful accounts		(1,472	)		(1,285	)
Accounts receivable-loans for installment credit		1,915			1,155
Allowance for doubtful accounts		(229	)		(9	)
Total loans	W	218,832		W	297,026
Total allowance for doubtful accounts	W	(2,887	)	W	(4,142	)

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b. Long-term loans

Factoring receivables	2007 — W	6,463		2008 — W	2,770
Allowance for doubtful accounts		(32	)		(19	)
Loans		89,818			207,647
Deferred incidental expense (revenue) of loans		(543	)		(2,876	)
Allowance for doubtful accounts		(592	)		(4,760	)
Loans for installment credit		50,489			49,936
Deferred incidental expense (revenue) of loans		768			334
Allowance for doubtful accounts		(2,199	)		(2,493	)
New technology financial investment assets		2,000			1,000
Allowance for doubtful accounts		(205	)		(400	)
New technology financial loans					2,368
Allowance for doubtful accounts					(62	)
Total long-term loans	W	148,995		W	261,179
Total allowance for doubtful accounts	W	(3,028	)	W	(7,734	)

SECURITIES

Securities as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

a. Short-term Investment assets

Short-term financial instruments	2007 — W	305,540	2008 — W	243,649
Short-term loans		104,057		43,456
Beneficiary certificates		46,085		39,696
Available-for-sale securities (Equity securities)		3,064		82,071
Available-for-sale securities (Debt securities)		1,419		2,171
Held-to-maturity securities		5		6,095
Total	W	460,170	W	417,138

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b. Available-for-sale Securities

Equity securities

Percentage of	Acquisition		Fair Value or		Book		Unrealized Gains
Ownership (%)	Cost		Net Book Value		Value		(Losses) (Note 1)
Current assets:
Beneficiary certificates	W	563	W	973	W	973	W	410
Infravalley, Inc.	3.8 %	200		2,091		2,091		1,891
Sub total		763		3,064		3,064		2,301
Non-current assets:
Krtnet Corp.	7.4 %	1,954		4,122		4,122		2,168
GaeaSoft Corp.	2.0 %	533		756		756		223
Zakang Inc.	0.0 %	300		5		5		(295	)
Geotel Corp.	7.8 %	1,143		4,322		4,322		3,179
PT.Mobile-8	2.3 %	10,069		10,508		10,508		439
Solid Technologies, Inc.	4.7 %	590		4,120		4,120		3,530
EST Soft Corp.	14.2 %	1,650		5,062		5,062		3,412
Ongamenet Co., Ltd.	11.4 %	1,061		4,831		4,831		3,645
Cape Industries Ltd.	0.1 %	125		226		226		101
Bixolon Co., Ltd.	0.0 %	11		9		9		(2	)
Sesil Corporation	0.4 %	199		225		225		26
Zmos Technology, Inc. (Note 2)	8.6 %	1,872		506		1,872
Shinhan Venture Capital Co., Ltd. (Note 2)	0.0 %	1,800		900		900
Korea Information Certificate Authority, Inc. (Note 2)	9.3 %	2,000		1,891		2,000
KM Credit Information Inc. (Note 2)	6.4 %	1,202
Korea Software Financial Cooperative (KSFC)
(Note 2)	1.1 %	1,160		1,315		1,160
Digitalinside Co., Ltd. (Note 2)	10.2 %	499		766		499
Vacom, Wireless Inc. (Note 2)	16.8 %	1,880		1,122		641
CXP, Inc. (Note 2)	12.1 %	1,200		8		50
CEC Mobile (Note 2)	16.7 %	4,456
Korea Smart Card Co., Ltd. (Note 2)	0.7 %	326		90		24
Metrix Corporation Inc. (Note 2)	2.0 %	200		25		14
Wiz Communication Co., Ltd. (Note 2)	18.4 %	490		823		490
MIC2001-4TG Venture (Note 2)	5.0 %	350		350		350
Korea Telecommunications Operators Association
(KTOA) (Note 2)	9.9 %	689		689		689
Prime Venture Capital Corp. (Note 2)	2.7 %	1,000		194
DirectMedia Co., Ltd. (Note 2)	12.5 %	435		309		248
Ncerti Co., Ltd. (Note 2)	19.9 %	328		407		328

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Percentage of	Acquisition		Fair Value or		Book		Unrealized Gains
Ownership (%)	Cost		Net Book Value		Value		(Losses) (Note 1)
ICO Global Communication Ltd. (Note 2)	0.2 %	617
Softbank Korea Co., Ltd. (Note 2)	6.7 %	1,406		959		959
Binext CT Financial Cooperative (Note 2)	15.0 %	1,500		1,454		1,500
Entaz Co., Ltd. (Note 2)	10.1 %	1,000		828		1,000
Luxpia Co., Ltd. (Note 2)	6.0 %	1,000		1,000		1,000
Paramount Music Co., Ltd. (Note 2)	48.9 %	1,000		368		1,000
Neighbor Systems Co., Ltd. (Note 2)	10.4 %	525		451		525
Digital Multimedia Interactive Co., Ltd. (Note 2)	8.0 %	495		229		495
Beneficiary certificates		14,730		14,325		14,325		(405	)
Others (Note 2)		30,743		13,524		15,299
Sub total		90,538		76,719		79,554		16,021
Total	W	91,301	W	79,783	W	82,618	W	18,322

Percentage of	Acquisition		Fair Value or		Book		Unrealized Gains
Ownership (%)	Cost		Net Book Value		Value		(Losses) (Note 1)
Current assets:
Beneficiary certificates	W	82,000	W	82,071	W	82,071	W	71
Non-current assets:
Krtnet Corp.	7.4 %	1,954		1,832		1,832		(122	)
GaeaSoft Corp.	2.0 %	533		282		282		(251	)
Zakang Inc.	0.0 %	300		1		1		(299	)
PT.Mobile-8	2.3 %	10,069		2,322		2,322		(7,747	)
Solid Technologies, Inc.	4.7 %	590		1,602		1,602		1,012
EST Soft Corp.	14.2 %	1,650		4,435		4,435		2,785
Ongamenet Co., Ltd.	11.4 %	1,186		4,474		4,474		3,288
Bixolon Co., Ltd.	0.0 %	11		7		7		(4	)
Sesil Corporation.	0.2 %	199		137		137		(62	)
Dalsvyaz Primorye	0.3 %	688		3		3		(685	)
Zmos Technology, Inc. (Note 2)	9.9 %	1,872
Shinhan Venture Capital Co., Ltd. (Note 2)	0.0 %	1,800		900		900
Korea Information Certificate Authority, Inc. (Note 2)	9.3 %	2,000		2,242		2,000
KM Credit Information Inc. (Note 2)	2.1 %	1,202
Korea Software Financial Cooperative (KSFC)
(Note 2)	0.9 %	1,000		1,229		1,000

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Percentage of	Acquisition		Fair Value or		Book		Unrealized Gains
Ownership (%)	Cost		Net Book Value		Value		(Losses) (Note 1)
Digitalinside Co., Ltd. (Note 2)	7.2 %	499
Vacom, Wireless Inc. (Note 2)	16.8 %	1,880		1,516		641
CXP, Inc. (Note 2)	12.1 %	1,200		1		50
CEC Mobile (Note 2)	16.7 %	4,456
Wiz Communication Co., Ltd. (Note 2)	7.5 %	200		609		200
Korea Telecommunications Operators Association
(KTOA) (Note 2)	0.0 %	689		689		689
Prime Venture Capital Corp. (Note 2)	2.7 %	1,000		186
ICO Global Communication Ltd. (Note 2)	0.2 %	617
Softbank Korea Co., Ltd. (Note 2)	6.7 %	1,406		959		959
Binext CT Financial Cooperative (Note 2)	15.0 %	1,500		1,409		1,500
Entaz Co., Ltd. (Note 2)	8.7 %	1,000		919		1,000
Luxpia Co., Ltd. (Note 2)	6.0 %	1,000		1,000		1,000
Neighbor Systems Co., Ltd. (Note 2)	10.4 %	525		453		525
Beneficiary certificates		12,431		11,815		11,815		(616	)
Others (Note 2)		50,097		28,267		32,543
Sub total		103,554		67,289		69,917		(2,701	)
Total	W	185,554	W	149,360	W	151,988	W	(2,630	)

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| (Note 1) | The amounts are before adjustments for the tax effects and
minority interests in consolidated subsidiaries. |
| --- | --- |
| (Note 2) | Investments in equity securities above, which are recorded at
book value of W 31,043 million and W 43,007 million for the years ended December
31, 2007 and 2008, respectively, do not have readily
determinable fair values and therefore are stated at cost. In
addition, if the estimated recoverable amount of the securities
below their acquisition cost and such difference is not deemed
recoverable, write-downs of the individual securities are
recorded to reduce the carrying value. |

For the year ended December 31, 2008, the Company disposed of its investments in Geotel Corp. and other investments and recognized gross gains and losses on disposal of available-for-sale securities amounting to W 3,996 million and W 250 million, respectively. As the estimated recoverable amount of the investment in Zmos Technology, Inc., Digitalinside Co., Ltd. and other investments fell below the acquisition cost and such difference is not deemed recoverable, the Company recognized an impairment loss amounting to W 3,826 million for the year ended December 31, 2008.

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Debt securities

		2007
			Amortized		Fair		Unrealized Gains
		Maturity	Cost		Value		(Losses) (Note)
Current assets:
Government and public bonds	National and local governments	2008	W	929	W	929	W
Convertible bonds	DreamWiz Inc.	2008		490		490
Sub total				1,419		1,419
Non-current assets:
Government and public bonds	National and local governments	2009 ~ 2013		208		208
Convertible bonds	Borazon Co., Ltd.	2009		600		600
	Neurons lnc.	2009		650		650
	ImageClick Corporation.	2009		400		400
Bonds with warrant	Nexscien Co., Ltd.	2010		1,940		1,940
Sub total				3,798		3,798
Total			W	5,217	W	5,217	W

		2008
			Amortized		Fair		Unrealized Gains
		Maturity	Cost		Value		(Losses) (Note)
Current assets:
Government and public bonds	National and local governments	2009	W	121	W	121	W
Financial bonds of small and medium enterprise	Industrial Bank of Korea	2009		1,000		1,000
Convertible bonds	Neurons, lnc.	2009		650		650
	ImageClick Corporation.	2009		400		400
Sub total				2,171		2,171
Non-current assets:
Government and public bonds	National and local governments	2010 ~ 2019		115		115
Convertible bonds	Inno GDN, Inc.	2011		2,800		2,800
	Foosung Co., Ltd.	2011		2,000		1,820		(180	)
Bonds with warrant	Samyoung connect Co., Ltd.	2010		92		92
Sub total				5,007		4,827		(180	)
Total			W	7,178	W	6,998	W	(180	)

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(Note) The amounts are before adjustments for the tax effects and minority interests in consolidated subsidiaries.

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Changes in unrealized gains (losses)

	2007
	Equity		Debt		Equity			Debt
	Securities		Securities		Securities			Securities
Balance at beginning of the year	W	15,449	W	519	W	18,322		W
Realized losses (gains) on disposal of securities, net		(1,074	)	(519	)	(5,587	)
Changes in unrealized gains (losses), net		3,947				(15,365	)		(180	)
Balance at end of the year	W	18,322	W		W	(2,630	)	W	(180	)

The amounts are before adjustments for the tax effects and minority interests in consolidated subsidiaries.

d. Held-to-maturity Securities

		2007
			Amortized
		Maturity	Cost		Book Value
Current assets:
Government and public bonds	National and local governments	2008	W	5	W	5
Sub total				5		5
Non-current assets:
Government and public bonds	National and local governments	2009 ~ 2012		84		84
Subordinated bonds	Shinhan Bank	2009		100		100
Asset backed securities	DCIF 1 Co., Ltd.	2009		60		60
Sub total				244		244
Total			W	249	W	249

		2008
			Amortized
		Maturity	Cost		Book Value
Current assets:
Government and public bonds	National and local governments	2009	W	9	W	9
Commercial paper	IBK Capital Corporation	2009		1,030		1,030
	Lotte Engineering & Construction Co., Ltd.	2009		4,956		4,956
Subordinated bonds	Shinhan Bank	2009		100		100
Sub total				6,095		6,095
Non-current assets:
Government and public bonds	National and local governments	2011		77		77
	New Generation Securitization
Asset backed securities	Specialty Co., Ltd.	2010 ~ 2014		8,000		8,000
Sub total				8,077		8,077
Total			W	14,172	W	14,172

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EQUITY METHOD INVESTMENT SECURITIES

a. Details of Equity Method Investment Securities

Details of investments in securities accounted for using the equity method as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):


	Percentage of
Number of	Ownership		Acquisition		Equity in Net		Book		Market
Shares	(%)		Cost		Asset Value		Value		Value
Korea Telephone Directory Co., Ltd. (KTD)	1,360,000	34.0 %	W	6,800	W	8,085	W	8,085	W
Korea Information Technology Fund	100	33.3 %		100,000		110,826		110,826
KBSi Co., Ltd.	952,000	32.4 %		4,760		3,408		3,408
eNtoB Corp.	880,000	27.5 %		5,000		6,725		7,039
Korea Digital Satellite Broadcasting Co., Ltd. (KDB)	22,706,000	23.0 %		195,976		3,036		24,892
Sky Life Contents Fund	45	22.5 %		4,500		4,997		4,997
Kiwoom Investment Co. Ltd. (formerly, Korea IT Venture
Partners Inc)	1,800,000	20.2 %		9,000		7,147		7,147
Goodmorning F Co., Ltd. (Note 3)	114,000	19.0 %		254		1,151		1,151
CURD (formerly, Korea New Realty Development and
Construction Co., Ltd.) (Note 3)	266,000	19.0 %		506		3,788		3,788
Korea Information Data Corp. (KID) (Note 3)	760,000	19.0 %		3,800		13,541		13,541
Korea Information Service Corp. (KIS) (Note 3)	570,000	19.0 %		2,850		10,792		10,792
Korea Seoul Contact all Co., Ltd. (Note 3)	45,600	19.0 %		228		271		271
Korea Service and Communication Co., Ltd. (Note 3)	45,600	19.0 %		228		274		274
Korea Call Center Co., Ltd. (Note 3)	45,600	19.0 %		228		266		266
TMWorld Co., Ltd. (Note 3)	45,600	19.0 %		228		294		294
Ubiquitous Marketing Service and Communication Co., Ltd.
(UMS&C) (Note 3)	45,600	19.0 %		228		275		275
Exdell Corporation (Note 3)	38,000	19.0 %		190		177		177
Information Technology Service Bukbu Corporation (Note 3)	38,000	19.0 %		190		190		190
Information Technology Solution Nambu Corporation (Note 3)	38,000	19.0 %		190		190		190
Information Technology Solution Seobu Corporation (Note 3)	38,000	19.0 %		190		190		190
Information Technology Solution Busan Corporation (Note 3)	38,000	19.0 %		190		190		190

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	Percentage of
Number of	Ownership	Acquisition		Equity in Net		Book	Market
Shares	(%)	Cost		Asset Value		Value	Value
Information Technology Solution Jungbu Corporation (Note 3)	38,000	19.0 %	190		190		190
Information Technology Solution Honam Corporation (Note 3)	38,000	19.0 %	190		190		190
Information Technology Solution Daegu Corporation (Note 3)	38,000	19.0 %	190		190		190
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.) (Note 3)	200,000	17.9 %	5,000		316		3,016
Korea Telecom Philippines, Inc. (KTPI)	744,476	100.0 %	2,481
Mongolian Telecommunications (MTC)	10,348,111	40.0 %	3,450		10,020		10,020	41,491
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1) (Note 4)	50	50.0 %	5,000		5,011		5,011
KTF-DoCoMo Mobile Investment Fund	45	45.0 %	4,500		4,491		4,491
Boston Film Fund (Note 4)	800	39.0 %	8,000		7,149		7,149
Harex InfoTech Inc.	225,000	21.2 %	3,375		417		1,183
Olive Nine Entertainment Co., Ltd. (Note 5)	140,000	67.7 %	4,200		(629	)	659
The Contents Entertainment (Note 5)	30,500	50.8 %	1,754		158		1,578
Olive Nine Creative Co., Ltd.	40,000	42.9 %	200		218		218
Tourtainment Inc.	15,000	24.6 %	150		34		34
Music City China Co., Ltd (Note 5)		100.0 %	144
Doremi Music Publishing Co., Ltd (Note 5)	10,000	100.0 %	200		237		217
Bluecord Corp. (Note 5)	3,000,000	100.0 %	2,778		1,684		1,611
Parangoyangi (Note 5)	4,000,000	100.0 %	2,900		58		58
Music City Media Co., Ltd. (Note 5)	208,000	94.6 %	1,040		(527	)
Dooristar Co., Ltd.	980,000	49.0 %	1,500		230		112
Oscar ent. Co., Ltd.	7,865	49.0 %	650		417		417
Netcom	156	26.5 %	90		90		90
TPS (Note 5)		100.0 %	164		164		164
ETN (Note 5)		100.0 %	1		1		1
Total		W	383,683	W	205,922	W	234,582

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	Percentage of
Number of	Ownership		Acquisition		Equity in net		Book		Market
Shares	(%)		Cost		Asset Value		Value		Value
Company K Movie Asset Fund No. 1 (Notes 1 and 4)	90	60.0 %	W	9,000	W	8,803	W	8,803	W
KT-Global New Media Fund (Note 1)	600	50.0 %		6,000		5,817		5,817
Korea Telephone Directory Co., Ltd. (KTD)	1,360,000	34.0 %		6,800		8,358		8,358
Metropol Property LLC (Note 1)		34.0 %		1,739		434		1,776
Korea Information Technology Fund	100	33.3 %		100,000		110,909		110,909
KBSi Co., Ltd.	952,000	32.4 %		4,760		4,679		4,679
eNtoB Corp. (Note 2)	970,000	30.3 %		6,050		8,187		8,740
Korea Digital Satellite Broadcasting Co., Ltd. (KDB)	22,706,000	23.3 %		195,976		22,000		32,928
Sky Life Contents Fund	45	22.5 %		4,500		3,737		3,737
Everyshow (Note 1)	300,000	21.3 %		1,500		1,226		1,226
Kiwoom Investment Co., Ltd.(formerly, Korea IT Venture
Partners Inc.)	1,800,000	20.2 %		9,000		6,953		6,953
Goodmorning F Co., Ltd. (Note 3)	114,000	19.0 %		254		1,460		1,460
CURD (formerly, Korea New Realty Development and
Construction Co., Ltd.) (Note 3)	266,000	19.0 %		506		8,369		8,369
Korea Information Data Corp. (KID) (Note 3)	760,000	19.0 %		3,800		13,666		13,666
Korea Information Service Corp. (KIS) (Note 3)	570,000	19.0 %		2,850		12,812		12,812
Korea Seoul Contact all Co., Ltd. (Note 3)	45,600	19.0 %		228		327		327
Korea Service and Communication Co., Ltd. (Note 3)	45,600	19.0 %		228		341		341
Korea Call Center Co., Ltd. (Note 3)	45,600	19.0 %		228		332		332
TMWorld Co., Ltd. (Note 3)	45,600	19.0 %		228		320		320
Ubiquitous Marketing Service and Communication Co., Ltd.
(UMS&C) (Note 3)	45,600	19.0 %		228		293		293
Exdell Corporation (Note 3)	38,000	19.0 %		190		218		218
Information Technology Service Bukbu Corporation (Note 3)	38,000	19.0 %		190		225		225
Information Technology Solution Nambu Corporation (Note 3)	38,000	19.0 %		190		221		221
Information Technology Solution Seobu Corporation (Note 3)	38,000	19.0 %		190		222		222
Information Technology Solution Busan Corporation (Note 3)	38,000	19.0 %		190		246		246
Information Technology Solution Jungbu Corporation (Note 3)	38,000	19.0 %		190		295		295

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	Percentage of
Number of	Ownership	Acquisition		Equity in net		Book	Market
Shares	(%)	Cost		Asset Value		Value	Value
Information Technology Solution Honam Corporation (Note 3)	38,000	19.0 %	190		248		248
Information Technology Solution Daegu Corporation (Note 3)	38,000	19.0 %	190		218		218
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.) (Note 3)	200,000	17.9 %	5,000		41		41
Wooridul Entertainment Investment Fund-1 (Note 1)	1,600	20.0 %	1,600		1,529		1,529
Mongolian Telecommunications (MTC)	10,348,111	40.0 %	3,450		13,289		13,289	12,806
KTC Media Contents Investment Fund No. 1 (Notes 1
and 5)	45	81.8 %	4,500		4,510		4,510
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1) (Note 4)	50	50.0 %	5,000		5,038		5,038
KTF-DoCoMo Mobile Investment Fund	45	45.0 %	4,500		4,439		4,439
Boston Film Fund (Note 4)	800	39.0 %	8,000		4,281		4,281
Harex InfoTech Inc.	225,000	21.2 %	3,375		248		631
U-Mobile (Notes 1 and 3)	62,601,493	16.5 %	96,700		33,102		82,663
Shinhan-KTF Mobilecard Co., Ltd. (Note 1)	199,999	50.0 %	1,000		708		708
Olive Nine Entertainment Co., Ltd. (Note 5)	140,000	67.7 %	4,200		(1,074	)
The Contents Entertainment (Note 5)	30,500	50.8 %	1,754		3		950
Olive Nine Creative Co., Ltd.	40,000	42.9 %	200		150		150
Music City China Co., Ltd. (Note 5)		100.0 %	144
Doremi Music Publishing Co., Ltd. (Note 5)	10,000	100.0 %	200		(7	)
Parangoyangi (Note 5)	4,000,000	100.0 %	2,900		(303	)
Music City Media Co., Ltd. (Note 5)	208,000	94.6 %	1,040		(688	)
Dooristar Co., Ltd.	980,000	49.0 %	1,500		(398	)
Oscar ent. Co., Ltd.	7,865	49.0 %	650		384		384
D&G Star Co., Ltd. (Note 5)	52,000	70.3 %	260		190		190
Paramount Music Co., Ltd.	7,848	48.9 %	1,000		313		313
Onestone Communication Co., Ltd. (Notes 5 and 6)	100,000	100.0 %	1,159		263		206
Netcom	156	26.5 %	90		80		80
TPS (Note 5)		100.0 %	164		205		205
ETN (Note 5)		100.0 %	1		1		1
Total		W	503,782	W	287,220	W	353,347

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| (Note 1) | In 2008, the Company acquired 60.0% ownership interest of
Company K Movie Asset Fund No. 1 for W 9,000 million, 50.0% ownership interest of
KT-Global New Media Fund for W 6,000 million,
34.0% ownership interest of Metropol Property LLC for W 1,739 million, 21.3% ownership interest of
Everyshow for W 1,500 million, 20.0% ownership
interest of Wooridul Entertainment Investment Fund-1 for W 1,600 million, 81.8% ownership interest of KTC
Media Contents Investment Fund No. 1 for W 4,500 million, 16.5% ownership interest of
U-Mobile for W 96,700 million and 50.0%
ownership interest of Shinhan-KTF Mobilecard Co., Ltd. for W 1,000 million, respectively. |
| --- | --- |
| (Note 2) | The Companys ownership interest in eNtoB Corp. increased
from 27.5% to 30.3% as of December 31, 2008 due to the
additional acquisition of ownership interest. |
| (Note 3) | Although the Companys ownership in these companies is less
than 20%, the Company has significant influence over these
companies through the participation in these companies
various management decisions. As a result, the Company accounts
for these investments using the equity method. |
| (Note 4) | The Company is the largest stockholder of these companies with
more than 30% ownership interest. However, since the Company has
no control over these companies, these investments are accounted
for using the equity method. |
| (Note 5) | The unlisted company whose total assets as of December 31 of the
prior year are less than W 7,000 million is
excluded from the consolidation. |
| (Note 6) | Nasmedia is newly included in the consolidation in 2008 and its
investment in Onestone Communication Co., Ltd. is accounted for
using the equity method. |

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b. Changes in Carrying Amount Resulting from the Equity Method

Changes in carrying amount resulting from the equity method of accounting for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
			Equity in		Increase
			Income		(Decrease) in			Other
	January 1,		(Loss)		Equity of			Increase		December 31,
	2007		(Note 4)		Associates			(Decrease)		2007
KTD (Note 1)	W	7,867	W	219	W	(1	)	W		W	8,085
Korea Information Technology Fund		101,609		7,802		1,647			(232	)	110,826
KBSi Co., Ltd.		2,810		598							3,408
eNtoB Corp. (Note 1)		5,112		720		7			1,200		7,039
KDB (Note 1)		16,455		7,676		761					24,892
Sky Life Contents Fund		5,050		(53	)						4,997
Kiwoom Investment Co., Ltd. (formerly, Korea IT Venture
Partners Inc) (Note 1)		9,204		(1,668	)	160			(549	)	7,147
Goodmorning F Co., Ltd.		826		324		1					1,151
CURD (formerly, KNRDC)		2,375		1,413							3,788
KID		12,230		1,463					(152	)	13,541
KIS		8,382		2,524					(114	)	10,792
Korea Seoul Contact all Co., Ltd.		228		43							271
Korea Service and Communication Co., Ltd.		228		46							274
Korea Call Center Co., Ltd.		228		38							266
TMWorld Co., Ltd.		228		66							294
UMS&C		228		47							275
Exdell Corporation (Note 1)				(13	)				190		177
Information Technology Service Bukbu Corporation (Note 1)									190		190
Information Technology Solution Nambu Corporation (Note 1)									190		190
Information Technology Solution Seobu Corporation (Note 1)									190		190
Information Technology Solution Busan Corporation (Note 1)									190		190
Information Technology Solution Jungbu Corporation (Note 1)									190		190
Information Technology Solution Honam Corporation (Note 1)									190		190
Information Technology Solution Daegu Corporation (Note 1)									190		190
MOS facilities Co., Ltd. (Mostech Co., Ltd.)
(Note 1)		4,186		(1,170	)						3,016
Pivotec Co., Ltd.		6,299		38		(3,359	)		(2,978	)
MTC (Note 1)		9,321		1,233		52			(586	)	10,020
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1) (Note 1)		5,025		(14	)						5,011
KTF-DoCoMo Mobile Investment Fund (Note 1)				(9	)				4,500		4,491
Boston Film Fund (Note 1)		8,014		(865	)						7,149
Harex InfoTech Inc.		1,902		(719	)						1,183
Olive Nine Entertainment Co., Ltd.		833		(1,071	)				897		659
The Contents Entertainment		2,133		(555	)						1,578
Olive Nine Creative Co., Ltd.		249		(31	)						218
Tourtainment, Inc.		134		(100	)						34
Music City China Co., Ltd. (Notes 1 and 3)
Doremi Music Publishing Co., Ltd. (Note 1)									217		217
Bluecord Corp. (Note 1)									1,611		1,611
Parangoyangi (Note 1)									58		58
Music City Media Co,, Ltd. (Notes 1 and 3)
Dooristar Co., Ltd. (Note 1)									112		112
Oscar Ent. Co., Ltd. (Note 1)									417		417
Netcom									90		90
TPS									164		164
ETN									1		1
Total	W	211,156	W	17,982	W	(732	)	W	6,176	W	234,582

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2008
			Equity in			Increase
			Income			(Decrease) in		Other
	January 1,		(Loss)			Equity of		Increase		December 31,
	2008		(Note 4)			Associates		(Decrease)		2008
Company K Movie Asset Fund No. 1	W		W	(197	)	W		W	9,000	W	8,803
KT-Global New Media Fund (Note 1)				(183	)				6,000		5,817
KTD (Note 1)		8,085		273							8,358
Metropol Property LLC (Note 1)				(12	)		49		1,739		1,776
Korea Information Technology Fund		110,826		2,506			(1,696	)	(727	)	110,909
KBSi Co., Ltd.		3,408		1,271							4,679
eNtoB Corp. (Note 1)		7,039		655			(4	)	1,050		8,740
KDB (Note 1)		24,892		1,527			6,183		326		32,928
Sky Life Contents Fund		4,997		(1,260	)						3,737
Everyshow				(274	)				1,500		1,226
Kiwoom Investment Co., Ltd. (formerly, Korea IT Venture
Partners Inc.)(Note 1)		7,147		64			(258	)			6,953
Goodmorning F Co., Ltd.		1,151		314			(5	)			1,460
CURD (formerly, KNRDC)		3,788		4,631			(50	)			8,369
KID		13,541		353					(228	)	13,666
KIS (Note 1)		10,792		2,191					(171	)	12,812
Korea Seoul Contact all Co., Ltd.		271		56							327
Korea Service and Communication Co., Ltd.		274		67							341
Korea Call Center Co., Ltd.		266		66							332
TMWorld Co., Ltd.		294		26							320
UMS&C		275		18							293
Exdell Corporation (Note 1)		177		41							218
Information Technology Service Bukbu Corporation		190		35							225
Information Technology Solution Nambu Corporation		190		31							221
Information Technology Solution Seobu Corporation (Note 1)		190		32							222
Information Technology Solution Busan Corporation		190		56							246
Information Technology Solution Jungbu Corporation		190		105							295
Information Technology Solution Honam Corporation		190		58							248
Information Technology Solution Daegu Corporation		190		28							218
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.) (Notes 1 and 2)		3,016		(1,047	)				(1,928	)	41
Wooridul Entertainment Investment Fund-1 (Note 1)				(71	)				1,600		1,529
MTC (Note 1)		10,020		1,520			2,397		(648	)	13,289
KTC Media Contents Investment Fund No. 1 (Note 1)				10					4,500		4,510
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1)		5,011		27							5,038
KTF-DoCoMo Mobile Investment Fund		4,491		(52	)						4,439
Boston Film Fund		7,149		(2,868	)						4,281
Harex InfoTech Inc.		1,183		(552	)						631
U-Mobile				(19,699	)		5,662		96,700		82,663
Shinhan-KTF Mobilecard Co., Ltd.				(292	)				1,000		708
Olive Nine Entertainment Co., Ltd. (Note 3)		659		(659	)
The Contents Entertainment		1,578		(628	)						950
Olive Nine Creative Co., Ltd.		218		(68	)						150
Tourtainment Inc. (Note 5)		34		(5	)				(29	)
Music City China Co., Ltd. (Notes 1 and 3)
Doremi Music Publishing Co,, Ltd. (Notes 1 and 3)		217		(217	)
Bluecord Corp. (Notes 1 and 3)		1,611		109					(1,720	)
PARANGOYANGI (Notes 1 and 3)		58		(58	)
Music City Media Co., Ltd. (Notes 1 and 3)
Dooristar Co., Ltd. (Notes 1 and 3)		112		(112	)
Oscar ent. Co., Ltd. (Note 1)		417		(33	)						384
D&G Star Co., Ltd. (Notes 1 and 2)				(42	)				232		190
Paramount Music Co., Ltd. (Note 2)									313		313
Onestone Communication Co., Ltd. (Notes 1 and 2)				(25	)				231		206
Netcom		90		(32	)				22		80
TPS		164							41		205
ETN		1									1
Total	W	234,582	W	(12,316	)	W	12,278	W	118,803	W	353,347

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| (Note 1) | These securities were accounted for using the equity method
based on unaudited financial statements as of and for the year
ended December 31, 2008 as the audited financial statements on
these companies could not be obtained by the Companys
year-end closing. In order to verify the reliability of such
unaudited financial statements, the Company has performed the
following procedures and found no significant exceptions: |
| --- | --- |
| | i) Obtain the unaudited financial statements signed by the
investees chief executive officer and statutory auditor. |
| | ii) Identify whether major transactions or accounting
events, including those disclosed to public by the investee,
which were acknowledged by the Company are properly reflected in
the unaudited financial statements. |
| | iii) Identify major accounting issues under discussion
between the investee and its external auditors and the
investees plan to resolve such issues. |
| | iv) Analyze the effect of potential difference between the
unaudited and audited financial statements. |
| (Note 2) | For the year ended December 31, 2008, the Company recognized
impairment loss on investment difference totaling W 2,654 million due to the decline in the
recoverable amount of MOS facilities Co., Ltd. (formerly,
Mostech Co., Ltd.) and other three equity method investments. |
| (Note 3) | The Company discontinued the equity method of accounting since
the book values of the investments in Olive Nine Entertainment
Co., Ltd. and other six equity method investments are below zero
due to accumulated deficit. |
| (Note 4) | Equity income (loss) until the date of acquisition from the
newly consolidated entities in 2008 was excluded. Meanwhile, in
accordance with the SKAS No. 24 Preparation and
Presentation of Financial Statements II (Financial
Industry), equity income amounting to W 9
million recognized by KT Capital is reclassified as operating
revenue. |
| (Note 5) | As the Company lost significant influence on investment in
equity securities of Tourtainment Inc. during the year ended
December 31, 2008, such securities were transferred to
available-for-sale securities. |

c. Changes in Investment Difference

Changes in investment differences from equity method investment securities for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007										2008
	January 1,										January 1,							Impairment			December 31,
Affiliate	2007		Increase		Amortization			Other			2008		Increase		Amortization			Loss			2008
Metropol Property LLC	W		W		W			W			W		W	1,491	W	(149	)	W			W	1,342
eNtoB Corp.				346		(32	)					314		316		(77	)					553
KDB		33,413				(11,557	)					21,856				(10,928	)					10,928
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.)		3,471				(771	)					2,700				(772	)		(1,928	)
Harex InfoTech Inc.		1,149				(383	)					766				(383	)					383
U-Mobile														58,307		(8,746	)					49,561
OliveNine Entertainment		1,932				(644	)					1,288				(644	)					644
The Contents Entertainment		1,876				(456	)					1,420				(473	)					947
Doremi Music Publishing Co., Ltd.									(23	)		(23	)			8						(15	)
D&G Star Co., Ltd.														28					(28	)
Paramount Music Co., Ltd.														687					(687	)
Total	W	41,841	W	346	W	(13,843	)	W	(23	)	W	28,321	W	60,829	W	(22,164	)	W	(2,643	)	W	64,343

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d. Elimination of Unrealized Gains (Losses)

Unrealized gains (losses) arising from intercompany transactions, which are eliminated, as of December 31, 2008 are nil.

e. Cumulative Changes in the Companys Equity in Net Asset Value of The Investees Not Recognized

Cumulative changes in the Companys equity in net asset value of the investees not recognized due to the discontinuance of the equity method of accounting as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

Olive Nine Entertainment Co., Ltd.	2007 — W			2008 — W	(1,074	)
Doremi Music Publishing Co., Ltd.					(7	)
Parangoyangi					(303	)
Music City Media Co., Ltd.		(527	)		(688	)
Dooristar Co., Ltd.					(398	)
Total	W	(527	)	W	(2,470	)

f. Condensed Financial Information of the Investees

Condensed financial information of the investees in which investments are accounted for using the equity method of accounting as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
							Net
	Total		Total				Income
	Assets		Liabilities		Revenue		(Loss)
KTD	W	62,967	W	39,190	W	43,570	W	643
Korea Information Technology Fund		332,476				33,644		22,712
KBSi Co., Ltd.		18,429		7,904		26,227		1,845
eNtoB Corp.		64,311		39,728		563,278		3,014
KDB		513,708		341,515		387,393		38,199
Sky Life Contents Fund		22,716		505		469		(236	)
Kiwoom Investment Co., Ltd. (formerly, Korea IT Venture
Partners Inc)		35,609		173		3,979		(7,690	)
Goodmorning F Co., Ltd.		16,988		10,927		56,842		1,707
CURD (formerly, KNRDC)		46,034		26,100		62,074		7,435
KID		99,632		28,363		194,977		7,862
KIS		82,373		25,571		143,024		13,409
Korea Seoul Contact all Co., Ltd.		4,989		3,565		37,876		224
Korea Service and Communication Co., Ltd.		4,150		2,708		31,015		243
Korea Call Center Co., Ltd.		4,070		2,671		27,523		199
TMworld Co., Ltd.		3,799		2,371		26,995		348
UMS&C		4,255		2,808		26,691		247
Exdell Corporation		1,020		90		200		(70	)
Information Technology Service Bukbu Corporation		1,000
Information Technology Solution Nambu Corporation		1,000
Information Technology Solution Seobu Corporation		1,000
Information Technology Solution Busan Corporation		1,000

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			Net
Total	Total		Income
Assets	Liabilities	Revenue	(Loss)
Information Technology Solution Jungbu Corporation	1,000
Information Technology Solution Honam Corporation	1,000
Information Technology Solution Daegu Corporation	1,000
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.)	7,501	5,735	19,879	(2,222	)
KTPI	208	112,751	20	(13,481	)
MTC	32,149	7,100	28,229	3,081
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1)	10,133	112		8
KTF-DoCoMo Mobile Investment Fund	10,083	104		(20	)
Boston Film Fund	18,832	513	1,319	(2,215	)
Harex InfoTech Inc.	3,544	1,573	5,626	(1,589	)
Olive Nine Entertainment Co., Ltd.	770	1,702	1,284	630
The Contents Entertainment	1,275	964	3,046	193
Olive Nine Creative Co., Ltd.	675	165	2	(70	)
Tourtainment, Inc.	219	79	157	(404	)
Doremi Music Publishing Co., Ltd.	251	14	179	(32	)
Bluecord Corp.	5,003	3,323	1,685	(690	)
Parangoyangi	856	798	2,789	(279	)
Music City Media Co., Ltd.	556	1,114	1,322	92
Dooristar Co., Ltd.	998	529	533	(218	)
Oscar ent. Co., Ltd.	1,129	278	1,606	250

	2008
							Net
	Total		Total				Income
	Assets		Liabilities		Revenue		(Loss)
Company K Movie Asset Fund No. 1	W	14,671	W		W		W	(329	)
KT-Global New Media Fund		11,654		19				(365	)
KTD		62,779		38,198		44,325		804
Metropol Property LLC		1,310		33		847		403
Korea Information Technology Fund		332,724				19,742		7,518
KBSi Co., Ltd.		21,638		7,188		31,526		3,926
eNtoB Corp.		79,327		52,189		756,983		2,635
KDB		508,039		287,103		386,958		31,225
Sky Life Contents Fund		16,798		189		795		(5,602	)
Everyshow		6,301		538		1,359		(1,287	)
Kiwoom Investment Co., Ltd.(formerly, Korea IT Venture
Partners Inc)		34,651		177		6,146		316
Goodmorning F Co., Ltd.		12,476		4,791		54,851		1,654
CURD (formerly, KNRDC)		83,655		39,607		67,241		24,374
KID		103,117		31,191		211,410		2,020
KIS		94,355		26,921		149,293		11,654
Korea Seoul Contact all Co., Ltd.		6,420		4,700		43,581		296
Korea Service and Communication Co., Ltd.		4,860		3,064		31,584		354

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			Net
Total	Total		Income
Assets	Liabilities	Revenue	(Loss)
Korea Call Center Co., Ltd.	4,893	3,144	29,851	349
TMworld Co., Ltd.	4,487	2,803	30,386	257
UMS&C	4,737	3,196	31,121	94
Exdell Corporation	2,331	1,186	11,280	215
Information Technology Service Bukbu Corporation	4,802	3,619	11,802	183
Information Technology Solution Nambu Corporation	5,593	4,430	13,954	162
Information Technology Solution Seobu Corporation	4,782	3,612	12,430	170
Information Technology Solution Busan Corporation	5,095	3,799	11,182	296
Information Technology Solution Jungbu Corporation	5,600	4,045	12,569	555
Information Technology Solution Honam Corporation	4,872	3,567	11,907	305
Information Technology Solution Daegu Corporation	3,324	2,175	6,690	148
MOS facilities Co., Ltd. (formerly, Mostech Co.,
Ltd.)	6,892	6,661	21,135	(1,535	)
Wooridul Entertainment Investment Fund-1	7,594	1	68	(407	)
MTC	40,992	7,769	28,167	3,799
KTC Media Contents Investment Fund No. 1	5,591	79	91	12
KTF-CJ Music Contents Investment Fund (formerly, Centurion
Music 1)	10,126	50	621	(10	)
KTF-DoCoMo Mobile Investment Fund	10,378	515	416	(116	)
Boston Film Fund	11,482	513	345	(7,408	)
Harex InfoTech Inc.	2,252	1,082	2,798	(801	)
U-Mobile	307,425	106,809	27,314	(66,379	)
Shinhan-KTF Mobilecard Co., Ltd.	1,509	93	34	(584	)
Olive Nine Entertainment Co., Ltd.	251	1,837	1,384	(653	)
The Contents Entertainment	752	747	1,937	(305	)
Olive Nine Creative Co., Ltd.	548	198	53	(160	)
Doremi Music Publishing Co., Ltd.	17	24	39	26
Parangoyangi	408	711	572	(355	)
Music City Media Co., Ltd.	464	1,089	639	19
Dooristar Co., Ltd.	243	586	24	182
Oscar ent. Co., Ltd.	895	213	807	(82	)
D&G Star Co., Ltd.	235	815	879	(632	)
Onestone Communication Co., Ltd.	397	133		(38	)

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PROPERTY AND EQUIPMENT

Changes in property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
			Acquisition Cost
			(Including
	January 1,		Capital					Depreciation			Impairment			Others			December 31,
	2007		Expenditures)		Disposal			(Note 1)			Loss			(Note 2)			2007
Land (Note 3)	W	1,208,244	W	1,424	W	(3,471	)	W			W			W	48,982		W	1,255,179
Buildings (Note 3)		3,245,655		3,398		(10,744	)		(138,362	)					152,090			3,252,037
Structures		246,597		122		(1,642	)		(19,657	)					20,010			245,430
Machinery		9,508,929		65,188		(149,797	)		(2,767,946	)		(4,931	)		2,850,166			9,501,609
Vehicles		13,830		990		(3,581	)		(4,667	)					3,255			9,827
Others		551,991		258,167		(23,896	)		(295,255	)		(3,059	)		127,028			614,976
Construction- in-progress		392,183		3,306,356		(209	)								(3,289,386	)		408,944
	W	15,167,429	W	3,635,645	W	(193,340	)	W	(3,225,887	)	W	(7,990	)	W	(87,855	)	W	15,288,002

	2008
			Acquisition Cost
			(Including
	January 1,		Capital					Depreciation			Impairment			Others			December 31,
	2008		Expenditures)		Disposal			(Note 1)			Loss			(Note 2)			2008
Land (Note 3)	W	1,255,179	W	225	W	(6,175	)	W			W			W	40,001		W	1,289,230
Buildings (Note 3)		3,252,037		38,787		(26,905	)		(146,589	)					298,587			3,415,917
Structures		245,430		482		(8,188	)		(19,079	)					11,031			229,676
Machinery		9,501,609		67,543		(83,732	)		(2,778,108	)		(20,521	)		2,686,282			9,374,073
Vehicles		9,827		33,161		(670	)		(9,328	)					1,616			34,606
Others		614,976		134,534		(20,592	)		(311,187	)		(155	)		132,126			549,702
Construction- in-progress		408,944		3,087,737		(20	)								(3,201,234	)		295,427
	W	15,288,002	W	3,362,469	W	(145,282	)	W	(3,264,291	)	W	(20,676	)	W	(31,591	)	W	15,188,631

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| (Note 1) | Depreciation until the date of acquisition of the newly
consolidated entities in 2007 was excluded. |
| --- | --- |
| (Note 2) | Others mainly consist of the transfers from
construction-in-progress to machinery, increase in contribution
for construction, increase due to changes in consolidated
entities and reclassifications. |
| (Note 3) | Certain portion of lands and buildings were pledged as
collateral relating to short-term and long-term borrowings and
certain lease contracts. The maximum pledged amount as of
December 31, 2008 was W 65,726 million. |

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CONTRIBUTION FOR CONSTRUCTION

Changes in contribution for construction which was used in the acquisition of property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
	January 1,									December 31,
	2007		Increase		Decrease			Transfer		2007
Buildings	W	2,732	W		W	(1,337	)	W	911	W	2,306
Structures		1,402				(170	)		285		1,517
Machinery		98,371				(43,037	)		55,977		111,311
Others		1,490				(1,038	)		1,085		1,537
Construction-in-progress		70,163		76,625					(58,258	)	88,530
Total	W	174,158	W	76,625	W	(45,582	)	W		W	205,201

	2008
	January 1,									December 31,
	2008		Increase		Decrease			Transfer		2008
Buildings	W	2,306	W		W	(221	)	W	103	W	2,188
Structures		1,517				(175	)		165		1,507
Machinery		111,311				(45,196	)		53,196		119,311
Others		1,537				(1,370	)		1,619		1,786
Construction-in-progress		88,530		74,228					(55,083	)	107,675
Total	W	205,201	W	74,228	W	(46,962	)	W		W	232,467

INTANGIBLE ASSETS

Changes in intangible assets for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
					Reversal
	January 1,				(Amortization)			Impairment					December 31,
	2007		Increase		(Note)			Loss			Others		2007
Goodwill	W	488,650	W		W	(138,405	)	W			W	21,255	W	371,500
Negative goodwill		(518	)			518
Frequency usage rights		1,040,878				(115,417	)					1,320		926,781
Development costs		208,625		113,902		(115,370	)		(324	)		1,327		208,160
Industrial rights		7,918		3,196		(1,764	)					6		9,356
Software		105,198		31,451		(32,807	)		(1,216	)		1,653		104,279
Others		108,840		40,446		(26,860	)		(7,417	)		238		115,247
Total	W	1,959,591	W	188,995	W	(430,105	)	W	(8,957	)	W	25,799	W	1,735,323

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	2008
	January 1,				Reversal			Impairment					December 31,
	2008		Increase		(Amortization)			Loss			Others		2008
Goodwill	W	371,500	W		W	(145,154	)	W	(16,078	)	W	18,126	W	228,394
Negative goodwill						65						(65	)
Frequency usage rights		926,781		1,005		(115,649	)							812,137
Development costs		208,160		100,118		(114,345	)					(140	)	193,793
Industrial rights		9,356		2,324		(1,825	)					348		10,203
Software		104,279		37,298		(36,436	)		(322	)		1,328		106,147
Others		115,247		49,027		(25,135	)		(1,035	)		(14,540	)	123,564
Total	W	1,735,323	W	189,772	W	(438,479	)	W	(17,435	)	W	5,057	W	1,474,238

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(Note) Amortization until the date of acquisition of the newly consolidated entities in 2007 was excluded.

The Companys research and ordinary development expenses amounted to W 291,010 million and W 283,147 million for the years ended December 31, 2007 and 2008, respectively.

Details of goodwill and negative goodwill as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
	January 1,				Reversal			December 31,
	2007		Increase		(Amortization)			2007
KTF	W	455,397	W		W	(130,113	)	W	325,284
Sidus FNH		15,498				(3,875	)		11,623
Oilve Nine		17,755				(3,551	)		14,204
KTFT		(518	)			518
KT FDS				5,772		(866	)		4,906
KTF Music (formerly, Bluecord Technology Co., Ltd.)				11,206					11,206
East Telecom				4,277					4,277
Total	W	488,132	W	21,255	W	(137,887	)	W	371,500

	2008
	January 1,				Reversal			Impairment			December 31,
	2008		Increase		(Amortization)			Loss			2008
KTF	W	325,284	W		W	(130,114	)	W			W	195,170
Sidus FNH		11,623				(3,874	)		(5,425	)		2,324
Oilve Nine		14,204				(3,551	)		(10,653	)
KT FDS		4,906				(1,154	)					3,752
KTF Music (formerly, Bluecord Technology Co., Ltd.)		11,206				(2,241	)					8,965
East Telecom		4,277		1,508		(1,157	)					4,628
Nasmedia				14,436		(2,654	)					11,782
Sofnics				(65	)	65
JB Edu				2,182		(409	)					1,773
Total	W	371,500	W	18,061	W	(145,089	)	W	(16,078	)	W	228,394

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PRESENT VALUE OF ASSETS AND LIABILITIES

Assets and liabilities measured at present value as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007 — Discount	Collection	Nominal		Present
Accounts	Rate (%)	Period	Value		Value		Discount
Accounts receivable trade	5.33 ~ 7.04	2008	W	302,946	W	299,466	W	3,480
Accounts receivable other	5.38 ~ 8.85	2008		18,738		17,718		1,020
Long-term accounts receivable trade	5.33 ~ 7.04	2009 ~ 2025		126,955		99,504		27,451
Long-term accounts receivable other	5.38 ~ 8.85	2009 ~ 2011		38,438		36,171		2,267
Accounts payable other	9.93	2008		110,000		108,920		1,080
Current portion of long-term bonds and borrowings	4.23 ~ 7.45	2008		1,020,464		1,020,444		20
Long-term accounts payable other	9.93	2009 ~ 2011		456,972		413,260		43,712
Long-term borrowings	7.35	2009 ~ 2015		4,256		3,126		1,130

	2008 — Discount	Collection	Nominal		Present
Accounts	Rate (%)	Period	Value		Value		Discount
Accounts receivable trade	5.23 ~ 7.9	2009	W	553,806	W	537,973	W	15,833
Accounts receivable other	5.23 ~ 8.85	2009		32,831		31,204		1,627
Long-term accounts receivable trade	5.23 ~ 7.9	2010 ~ 2025		335,044		287,706		47,338
Long-term accounts receivable other	5.23 ~ 8.85	2010 ~ 2011		17,144		16,466		678
Accounts payable trade	5.91 ~ 10.36	2009		15,178		13,417		1,761
Accounts payable other	5.23 ~ 5.83	2009		134,200		132,757		1,443
Long-term accounts payable trade	5.91 ~ 10.36	2010 ~ 2018		23,583		16,856		6,727
Long-term accounts payable other	6.78 ~ 9.93	2010 ~ 2011		323,292		300,430		22,862
Long-term borrowings	5.23 ~ 8.85	2010 ~ 2015		3,564		2,693		871

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

LONG-TERM DEBT

a. Bonds

Bonds as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousand of foreign currencies):

	2007
						Interest Rate
Company	Type	Issue Date	Amount	Maturity	Repayment Method	per Annum
	MTNP notes (Note 1)	6/24/2004	W 562,920 (USD 600,000	)	6/24/2014	Payable in full at maturity	5.88 %
	MTNP notes (Note 1)	9/7/2004	W 93,820 (USD100,000	)	9/7/2034	Payable in full at maturity	6.50 %
	MTNP notes (Note 1)	7/15/2005	W 375,280 (USD 400,000	)	7/15/2015	Payable in full at maturity	4.88 %
	MTNP notes (Note 1)	5/3/2006	W 187,640 (USD 200,000	)	5/3/2016	Payable in full at maturity	5.88 %
	Euro bonds	4/11/2007	W 187,640 (USD 200,000	)	4/11/2012	Payable in full at maturity	5.13 %
	The 130th Public bond	1/19/2001	W 50,000		1/19/2008	Payable in full at maturity	7.28 %
	The 132nd Public bond	2/9/2001	70,000		2/9/2011	Payable in full at maturity	7.68 %
	The 133rd Public bond	2/12/2001	50,000		2/12/2008	Payable in full at maturity	6.78 %
	The 138th Public bond	2/28/2001	100,000		2/28/2008	Payable in full at maturity	7.45 %
	The 154th Public bond	7/31/2002	220,000		7/31/2009	Payable in full at maturity	6.70 %
	The 156th Public bond	9/30/2002	180,000		9/30/2009	Payable in full at maturity	6.35 %
KT	The 158th Public bond	4/30/2003	220,000		4/30/2008	Payable in full at maturity	5.29 %
	The 159th Public bond	10/27/2003	300,000		10/27/2013	Payable in full at maturity	5.39 %
	The 160th Public bond	11/24/2003	200,000		11/24/2010	Payable in full at maturity	5.45 %
	The 161st Public bond	12/23/2003	230,000		12/23/2010	Payable in full at maturity	5.61 %
	The 162nd Public bond	2/27/2004	320,000		2/27/2011	Payable in full at maturity	5.52 %
	The 163rd Public bond	3/30/2004	170,000		3/30/2014	Payable in full at maturity	5.51 %
	The 164th Public bond	6/21/2004	260,000		6/21/2011	Payable in full at maturity	5.22 %
	The 165-1st Public bond	8/26/2004	130,000		8/26/2011	Payable in full at maturity	4.22 %
	The 165-2nd Public bond	8/26/2004	140,000		8/26/2014	Payable in full at maturity	4.44 %
	The 166-1st Public bond	3/21/2005	220,000		3/21/2010	Payable in full at maturity	4.37 %
	The 166-2nd Public bond	3/21/2005	100,000		3/21/2012	Payable in full at maturity	4.57 %
	The 167-1st Public bond	4/20/2005	100,000		4/20/2012	Payable in full at maturity	4.59 %
	The 167-2nd Public bond	4/20/2005	100,000		4/20/2015	Payable in full at maturity	4.84 %
	The 168-1st Public bond	6/21/2005	240,000		6/21/2012	Payable in full at maturity	4.43 %
	The 168-2nd Public bond	6/21/2005	90,000		6/21/2015	Payable in full at maturity	4.66 %
	The 169th Public bond	4/3/2007	140,000		4/3/2012	Payable in full at maturity	5.01 %
KTP	Private bond	5/3/2006	8,333		3/3/2009	Payable in installments	6.32 %
	Private bond	12/15/2006	9,300		12/15/2008	Payable in full at maturity	6.25 %
KTN	The 18th Private bond	3/31/2005	5,000		3/31/2008	Payable in full at maturity	5.29 %
	Public bond	4/17/2007	10,000		4/17/2010	Payable in full at maturity	5.29 %
	The 44th Public bond	2/19/2004	360,000		2/19/2009	Payable in full at maturity	5.66 %
	The 45th Public bond	3/15/2004	320,000		3/15/2008	Payable in full at maturity	5.24 %
KTF	The 47-1st Public bond	7/12/2004	230,000		7/13/2009	Payable in full at maturity	4.95 %
	The 47-2nd Public bond	7/12/2004	70,000		7/12/2011	Payable in full at maturity	5.32 %
	The 48th Public bond	2/15/2005	200,000		2/15/2010	Payable in full at maturity	5.31 %
	The 16th Private bond	1/4/2005	750		1/4/2008	Payable in installments	4.39 %
	The 19-1st Public bond	5/10/2005	40,000		5/10/2008	Payable in full at maturity	4.23 %
	The 19-2nd Public bond	5/10/2005	10,000		5/10/2010	Payable in full at maturity	4.69 %
KTR	The 21-1 ~ 5th Private
bond	6/15/2005	4,000		6/15/2008	Payable in installments	4.58 %
	The 22nd Private bond	8/31/2005	2,500		8/31/2008	Payable in installments	4.95 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2007
							Interest Rate
Company	Type	Issue Date		Amount	Maturity	Repayment Method	per Annum
	The 23rd Public bond		9/14/2005	30,000	9/14/2008	Payable in full at maturity	5.02	%
	The 10th Public bond		6/18/2007	40,000	6/18/2010	Payable in full at maturity	5.70	%
	The 11th Private bond		12/6/2007	20,000	12/6/2010	Payable in full at maturity	6.85	%
	The 1st Private bond		3/16/2007	30,000	3/16/2010	Payable in full at maturity	5.42	%
	The 2nd Private bond		4/16/2007	20,000	4/16/2010	Payable in full at maturity	5.56	%
	The 3rd Private bond		4/19/2007	20,000	4/19/2008	Payable in full at maturity	5.59	%
	The 4th Public bond		5/30/2007	40,000	5/30/2010	Payable in full at maturity	5.70	%
	The 5th Private bond		6/29/2007	20,000	6/29/2010	Payable in full at maturity	5.67	%
	The 6-1st Public bond		8/3/2007	20,000	8/3/2009	Payable in full at maturity	5.64	%
KT Capital	The 6-2nd Public bond		8/3/2007	30,000	8/3/2010	Payable in full at maturity	5.72	%
	The 7-1st Public bond		8/31/2007	30,000	8/31/2009	Payable in full at maturity	5.99	%
	The 7-2nd Public bond		8/31/2007	20,000	8/31/2010	Payable in full at maturity	6.05	%
	The 8th Private bond		9/28/2007	30,000	9/28/2010	Payable in full at maturity	6.26	%
	The 9-1st Public bond		10/18/2007	30,000	10/18/2009	Payable in full at maturity	6.37	%
	The 9-2nd Public bond		10/18/2007	20,000	10/18/2010	Payable in full at maturity	6.44	%
	The 10th Public bond		11/12/2007	50,000	11/12/2008	Payable in full at maturity	6.26	%
	The 11th Public bond		12/27/2007	20,000	12/27/2010	Payable in full at maturity	CD(91D	) + 1.39%
Olive Nine	The 5th Private CB (Note 2)		2/17/2006	3,000	2/17/2009	Payable in full at maturity	10.00	%
KTF Music (formerly, Bluecord Technology)	The 2nd Private bond with warrant (Note 3)		9/2/2005	2,100	9/2/2008	Payable in full at maturity	7.11	%
	Total	W	6,782,283
Less current portion			(910,316	)
Long-term portion			5,871,967
Conversion right adjustment			(277	)
Repayment premium			695
Discount on bonds			(29,558	)
	Net	W	5,842,827

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2008
						Interest Rate
Company	Type	Issue Date	Amount	Maturity	Repayment Method	per Annum
	MTNP notes (Note 1)	6/24/2004	W 754,500 (USD 600,000	)	6/24/2014	Payable in full at maturity	5.88 %
	MTNP notes (Note 1)	9/7/2004	W 125,750 (USD 100,000	)	9/7/2034	Payable in full at maturity	6.50 %
	MTNP notes (Note 1)	7/15/2005	W 503,000 (USD 400,000	)	7/15/2015	Payable in full at maturity	4.88 %
	MTNP notes (Note 1)	5/3/2006	W 251,500 (USD 200,000	)	5/3/2016	Payable in full at maturity	5.88 %
	Euro bonds	4/11/2007	W 251,500 (USD 200,000	)	4/11/2012	Payable in full at maturity	5.13 %
	FR notes	9/11/2008	W 251,500 (USD 200,000	)	9/11/2013	Payable in full at maturity	4.32 %
	The 132nd Public bond	2/9/2001	W 70,000		2/9/2011	Payable in full at maturity	7.68 %
	The 154th Public bond	7/31/2002	220,000		7/31/2009	Payable in full at maturity	6.70 %
	The 156th Public bond	9/30/2002	180,000		9/30/2009	Payable in full at maturity	6.35 %
	The 159th Public bond	10/27/2003	300,000		10/27/2013	Payable in full at maturity	5.39 %
	The 160th Public bond	11/24/2003	200,000		11/24/2010	Payable in full at maturity	5.45 %
	The 161st Public bond	12/23/2003	230,000		12/23/2010	Payable in full at maturity	5.61 %
	The 162nd Public bond	2/27/2004	320,000		2/27/2011	Payable in full at maturity	5.52 %
	The 163rd Public bond	3/30/2004	170,000		3/30/2014	Payable in full at maturity	5.51 %
KT	The 164th Public bond	6/21/2004	260,000		6/21/2011	Payable in full at maturity	5.22 %
	The 165-1st Public bond	8/26/2004	130,000		8/26/2011	Payable in full at maturity	4.22 %
	The 165-2nd Public bond	8/26/2004	140,000		8/26/2014	Payable in full at maturity	4.44 %
	The 166-1st Public bond	3/21/2005	220,000		3/21/2010	Payable in full at maturity	4.37 %
	The 166-2nd Public bond	3/21/2005	100,000		3/21/2012	Payable in full at maturity	4.57 %
	The 167-1st Public bond	4/20/2005	100,000		4/20/2012	Payable in full at maturity	4.59 %
	The 167-2nd Public bond	4/20/2005	100,000		4/20/2015	Payable in full at maturity	4.84 %
	The 168-1st Public bond	6/21/2005	240,000		6/21/2012	Payable in full at maturity	4.43 %
	The 168-2nd Public bond	6/21/2005	90,000		6/21/2015	Payable in full at maturity	4.66 %
	The 169th Public bond	4/3/2007	140,000		4/3/2012	Payable in full at maturity	5.01 %
	The 170th Public bond	1/11/2008	W 174,236 (JPY 12,500,000	)	1/11/2011	Payable in full at maturity	1.45 %
	The 171st Public bond	2/28/2008	100,000		2/28/2013	Payable in full at maturity	5.41 %
	The 172-1st Public bond	3/31/2008	W 62,875 (USD 50,000	)	3/31/2011	Payable in full at maturity	4.20 %
	The 172-2nd Public bond	3/31/2008	W 138,325 (USD 110,000	)	3/31/2012	Payable in full at maturity	4.30 %
	The 173-1st Public bond	8/6/2008	W 100,000		8/6/2013	Payable in full at maturity	6.49 %
	The 173-2nd Public bond	8/6/2008	100,000		8/6/2018	Payable in full at maturity	6.62 %
	The 174-1st Public bond	12/19/2008	100,000		12/19/2010	Payable in full at maturity	5.34 %
	The 174-2nd Public bond	12/19/2008	130,000		12/19/2011	Payable in full at maturity	5.56 %
KTP	The 4th Private bond	5/3/2006	1,667		3/3/2009	Payable in installments	6.66 %
KTN	Public bond	4/17/2007	10,000		4/17/2010	Payable in full at maturity	5.29 %
	Public bond	7/24/2008	5,000		7/24/2011	Payable in full at maturity	6.82 %
	The 44th Public bond	2/19/2004	360,000		2/19/2009	Payable in full at maturity	5.66 %
	The 47-1st Public bond	7/12/2004	230,000		7/13/2009	Payable in full at maturity	4.95 %
KTF	The 47-2nd Public bond	7/12/2004	70,000		7/12/2011	Payable in full at maturity	5.32 %
	The 48th Public bond	2/15/2005	200,000		2/15/2010	Payable in full at maturity	5.31 %
	The 49th Public bond	2/25/2008	W 220,063 (USD 175,000	)	2/25/2011	Payable in full at maturity	3.66 %
	The 50th Public bond	4/28/2008	W 97,572 (JPY 7,000,000	)	4/28/2011	Payable in full at maturity	2.48 %
	The 51-1st Public bond	6/20/2008	W 119,463 (USD 95,000	)	6/20/2011	Payable in full at maturity	3.13 %
KTF	The 51-2nd Public bond	6/20/2008	W 70,000		6/20/2013	Payable in full at maturity	6.41 %
	The 52-1st Public bond	8/4/2008	100,000		8/4/2011	Payable in full at maturity	6.20 %
	The 52-2nd Public bond	8/4/2008	100,000		8/4/2013	Payable in full at maturity	6.64 %
	The 53-1st Public bond	12/1/2008	20,000		12/1/2010	Payable in full at maturity	8.23 %

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	2008
						Interest Rate
Company	Type	Issue Date	Amount	Maturity	Repayment Method	per Annum
	The 53-2nd Public bond	12/1/2008	180,000	12/1/2011	Payable in full at maturity	8.36	%
	Public bond (the 19-2nd)	5/10/2005	10,000	5/10/2010	Payable in full at maturity	4.69	%
	The 10th Public bond	6/18/2007	40,000	6/18/2010	Payable in full at maturity	5.70	%
	The 11th Private bond	12/6/2007	20,000	12/6/2010	Payable in full at maturity	6.85	%
KTR	The 12th Public bond	5/23/2008	20,000	5/23/2011	Payable in full at maturity	6.39	%
	The 13-1st Public bond	10/2/2008	20,000	10/2/2009	Payable in full at maturity	8.05	%
	The 13-2nd Public bond	10/2/2008	10,000	4/2/2010	Payable in full at maturity	8.30	%
	The 1st Private bond	3/16/2007	30,000	3/16/2010	Payable in full at maturity	5.80	%
	The 2nd Private bond	4/16/2007	20,000	4/16/2010	Payable in full at maturity	5.94	%
	The 4th Public bond	5/30/2007	40,000	5/30/2010	Payable in full at maturity	5.70	%
	The 5th Private bond	6/29/2007	20,000	6/29/2010	Payable in full at maturity	5.67	%
	The 6-1st Public bond	8/3/2007	20,000	8/3/2009	Payable in full at maturity	5.64	%
	The 6-2nd Public bond	8/3/2007	30,000	8/3/2010	Payable in full at maturity	5.72	%
	The 7-1st Public bond	8/31/2007	30,000	8/31/2009	Payable in full at maturity	5.99	%
	The 7-2nd Public bond	8/31/2007	20,000	8/31/2010	Payable in full at maturity	6.05	%
	The 8th Private bond	9/28/2007	30,000	9/28/2010	Payable in full at maturity	6.26	%
	The 9-1st Public bond	10/18/2007	30,000	10/18/2009	Payable in full at maturity	6.37	%
	The 9-2nd Public bond	10/18/2007	20,000	10/18/2010	Payable in full at maturity	6.44	%
	The 11th Public bond	12/27/2007	20,000	12/27/2010	Payable in full at maturity	CD(91D	) + 1.39%
	The 12-1st Public bond	1/23/2008	30,000	1/23/2009	Payable in full at maturity	7.50	%
	The 12-2nd Public bond	1/23/2008	30,000	7/23/2009	Payable in full at maturity	7.60	%
KT Capital	The 13-1st Public bond	2/21/2008	30,000	2/21/2010	Payable in full at maturity	6.33	%
	The 13-2nd Public bond	2/21/2008	30,000	2/21/2011	Payable in full at maturity	6.48	%
	The 14-1st Public bond	3/28/2008	10,000	3/28/2010	Payable in full at maturity	6.37	%
	The 14-2nd Public bond	3/28/2008	10,000	3/28/2011	Payable in full at maturity	6.47	%
	The 15th Private bond	4/21/2008	20,000	4/21/2010	Payable in full at maturity	MOR(3M	)+ 1.28%
	The 16-1st Public bond	4/30/2008	60,000	1/30/2010	Payable in full at maturity	6.33	%
	The 16-2nd Public bond	4/30/2008	10,000	4/30/2011	Payable in full at maturity	6.46	%
	The 17-1st Public bond	5/30/2008	30,000	11/30/2009	Payable in full at maturity	6.71	%
	The 17-2nd Public bond	5/30/2008	20,000	11/30/2009	Payable in full at maturity	6.66	%
	The 17-3rd Public bond	5/30/2008	50,000	5/30/2013	Payable in full at maturity	7.14	%
	The 18-1st Public bond	6/23/2008	30,000	12/23/2009	Payable in full at maturity	7.00	%
	The 18-2nd Public bond	6/23/2008	40,000	6/23/2010	Payable in full at maturity	7.12	%
	The 18-3rd Public bond	6/23/2008	20,000	6/23/2011	Payable in full at maturity	7.22	%
	The 18-4th Public bond	6/23/2008	10,000	6/23/2013	Payable in full at maturity	7.55	%
	The 19-1st Public bond	9/11/2008	40,000	9/11/2009	Payable in full at maturity	7.68	%
	The 19-2nd Public bond	9/11/2008	10,000	3/11/2010	Payable in full at maturity	7.80	%
	The 19-3rd Public bond	9/11/2008	20,000	9/11/2010	Payable in full at maturity	7.93	%
KT Capital	The 19-4th Public bond	9/11/2008	10,000	9/11/2010	Payable in full at maturity	CD(91D	)+ 2.10%
	The 20th Public bond	10/27/2008	10,000	10/27/2009	Payable in full at maturity	8.98	%
	The 21st Public bond	11/26/2008	30,000	11/26/2009	Payable in full at maturity	9.10	%
	Total		W 9,016,951
Less current portion			(1,311,667	)
Long-term portion			7,705,284
Discount on bonds			(42,621	)
	Net		W 7,662,663

callerid=999 iwidth=456 length=60

(Note 1) As of December 31, 2008, the Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (MTNP) registered in the Singapore Stock Exchange, which allows issuance of notes up to USD 2,000 million and the unused balance under the program is USD 700 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Note 2) Details of convertible bonds without guarantee are as follows :

Issued amount (in Korean won)	:	W 4,000 million
Stated interest rate (%)	:	3 %
Guaranteed yield rate (%)	:	10 %
Conversion price (in Korean won)	:	W 1,584 per share
Convertible period	:	February 17,
2007 ~ February
16, 2009
Number of total convertible shares	:	2,525,252 shares
Converted shares	:	631,313 shares
Unconverted shares	:	1,893,939 shares

On January 7, 2008, above convertible notes were fully converted to 1,893,939 of common shares at W 1,584 per share.

(Note 3) Details of bonds with warrants are as follows :

Issued amount (in Korean won)	:	W 3,000 million
Stated interest rate(%)	:	7.11	%
Exercise price (in Korean won)	:	W 4,518 per share
Exercise period	:	September 3,
2006 ~ August
2, 2008
Number of total exercisable shares	:	664,010 shares
Exercised shares	:
Unexercised shares	:	664,010 shares
Others	:	Subject to request by the holders, certain portion of the bonds
are early redeemable before maturity; up to 10	% of issued amount at one year after
1 st anniversary of issuance and 20% of issued amount at the interest
payment date after
2 nd anniversary of issuance. W 900 million of the
issued amount was early redeemed through December 31, 2008.

Above bonds are to be repaid in full in 2009 and the remaining balance of W 2,100 million was reclassified as current liabilities as of December 31, 2008.

b. Long-term Borrowings in Korean Won

Long-term borrowings in Korean won as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

Maturity	Interest Rate			Maturity	Interest Rate
Date	per Annum	Amount		Date	per Annum	Amount
Informatization Promotion Fund	2008 ~ 2012	4.72 ~ 5.39 %	W 47,365	2009 ~ 2013	4.86 ~ 6.28 %	W 35,869
Inter-Korean Cooperation Fund	2026	2.00 %	5,665	2026	2.00 %	6,415
Facility and working capital loans	2008 ~ 2015	6.02 ~ 7.60 %	82,356	2009 ~ 2015	5.00 ~ 8.12 %	79,611
General purpose loans	2009 ~ 2010	5.74 ~ 6.19 %	52,132	2009 ~ 2011	5.74 ~ 7.01 %	74,034
Commercial papers	2008	6.33 ~ 6.45 %	30,000	2011	6.55 ~ 6.71 %	30,000
Total			217,518			225,929
Less current portion			(105,453	)		(78,245	)
Long-term portion			112,065			147,684
Less present value discount			(1,130	)		(871	)
Net			W 110,935			W 146,813

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Above Informatization Promotion Funds are repayable in installments for three years after two year grace period and Inter-Korean Cooperation Fund is repayable in installments for thirteen years after seven year grace period.

c. Long-term Borrowings in Foreign Currency

Long-term borrowings in foreign currency as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):


		Amount
Maturity	Interest Rate	Foreign		Korean Won
Date	per Annum (%)	Currencies		Equivalent
New Telephone Company, Inc.	2008	Libor+3.50	RUB 16,364		W 942
New Telephone Company, Inc.	2009	Libor+3.50	RUB 32,728		1,883
KT Capital	2008 ~ 2010	Libor+0.99	USD 23,000		21,579
Total			RUB 49,092 USD 23,000		24,404
Less current portion			(RUB 16,364	) (USD 4,000)	(4,695	)
Net			RUB 32,728 USD 19,000		W 19,709

	2008
			Amount
	Maturity	Interest Rate	Foreign	Korean Won
Company	Date	per Annum (%)	Currencies	Equivalent
KTSC	2013	Libor+1.70	USD 28,800		W 36,216
KTF	2010 ~ 2011	4.87 ~ 5.77	USD 100,000		125,750
KT Capital	2010	Libor+0.99	USD 19,000		23,893
NTC	2010	Libor+3.50	RUB 29,380		1,260
		14.00	RUB 2,877		123
East Telecom	2011	16.50	SUM 890,000		810
Total			USD147,800 RUB 32,257 SUM 890,000		188,052
Less current portion			(USD 40,400	)	(50,803	)
Net			USD 107,400 RUB 32,257 SUM 890,000		W 137,249

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d. Repayment Schedule

Repayment schedule of the Companys long-term debt as of December 31, 2008 is as follows (in millions of Korean won):

	Bonds
Year Ending	In Local		In Foreign			Borrowings in		Borrowings in
December 31,	Currency		Currency		Sub-total	Local Currency		Foreign Currency		Total
2009	W	1,311,667	W		W	1,311,667	W 78,245	W	50,803	W	1,440,715
2010		1,490,000				1,490,000	63,710		78,594		1,632,304
2011		1,255,000		774,209		2,029,209	68,789		46,583		2,144,581
2012		580,000		389,825		969,825	5,238		8,048		983,111
2013		730,000		251,500		981,500	1,519		4,024		987,043
Thereafter		600,000		1,634,750		2,234,750	8,428				2,243,178
Total		W 5,966,667		W 3,050,284		W 9,016,951	W 225,929		W 188,052		W 9,430,932

PROVISIONS

Changes in provisions for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):


January 1,	Increase	Decrease						December 31,
2007	(Note 7)	Reversal		Use		Other, Net		2007
Current portion:
Litigation (Note 1)	W 4,991	W 34,269	W (4,970	)	W (1,441	)	W		W 32,849
KT members points (Note 2)	1,402	1,600			(1,251	)			1,751
Lets 010 call bonus points (Note 5)	497				(535	)	4,370		4,332
Sales warranty (Note 3)	3,505	10,549			(8,642	)			5,412
Others	305	2,902	(12	)	(122	)			3,073
Sub total	10,700	49,320	(4,982	)	(11,991	)	4,370		47,417
Non-current portion:
Call bonus points (Note 4)	72,693		(44,097	)	(8,509	)			20,087
Lets 010 call bonus points (Note 5)	17,758		(829	)	(5,492	)	(6,800	)	4,637
Others	1,617	133	(1,037	)	(17	)			696
Sub total	92,068	133	(45,963	)	(14,018	)	(6,800	)	25,420
Total	W 102,768	W 49,453	W (50,945	)	W (26,009	)	W (2,430	)	W 72,837

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January 1,		Decrease				Other,		December 31,
2008	Increase	Reversal		Use		Net		2008
Current portion:
Litigation (Note 1)	W 32,849	W 18,748	W (1	)	W (32,024	)	W		W 19,572
KT members points (Note 2)	1,751	257	(1,045	)	(282	)			681
KT points (Note 4)					(5,414	)	10,188		4,774
Lets 010 call bonus points (Note 5)	4,332				(4,493	)	5,665		5,504
Sales warranty (Note 3)	5,412	8,623			(8,736	)			5,299
Others	3,073	5,908	(7	)	(5,989	)			2,985
Sub total	47,417	33,536	(1,053	)	(56,938	)	15,853		38,815
Non-current portion:
KT points (Note 4)	20,087		(2,800	)			(10,188	)	7,099
Lets 010 call bonus points (Note 5)	4,637	6,137					(5,665	)	5,109
Asset retirement obligation (Note 6)		20,382					51,151		71,533
Others	696	925	(216	)					1,405
Sub total	25,420	27,444	(3,016	)			35,298		85,146
Total	W 72,837	W 60,980	W (4,069	)	W (56,938	)	W 51,151		W 123,961

callerid=999 iwidth=456 length=60

| (Note 1) | The amount recognized as litigation provision represents the
estimate of payments required to settle the obligation. |
| --- | --- |
| (Note 2) | The Company recorded provisions for the KT members points,
for VIP customers of the fixed-line or mobile telephone users
who are entitled to receive certain goods and other benefits
with W 25,000 per person. |
| (Note 3) | KTFT, a subsidiary, recorded sales warranty provisions based on
the estimated warranty cost for the products sold. Sales
warranty provisions are calculated in proportion to cost of
goods sold based on the historical defect experiences. |
| (Note 4) | The amount recognized as call bonus points represents the
estimate of payments for KT points which are provided to
fixed-line customers based on the usage of the services. Once
certain criteria are met, customers are entitled to receive
certain goods and other benefits from the Company. Such
provision is reviewed at each balance sheet date and adjusted to
reflect the current best estimate when new estimates are
necessary as a result of changes in circumstances, which were
used as the bases for such estimates, or an acquisition of new
information or additional experience on the usage rate, the
expiration of points and others. |
| (Note 5) | The Company recorded provision for the Lets 010 (KT-PCS)
call bonus points provided to its PCS subscribers who are
entitled to receive certain goods and other benefits from the
Company. |
| (Note 6) | When the Company is responsible for restoration of leased
facility after termination of the lease contract, the present
value of expected future expenditure for the restoration is
recorded as a liability. |
| (Note 7) | Amount until the date of acquisition of the newly consolidated
entities in 2007 was excluded. |

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LEASE

a. Lessees

Property and equipment acquired through lease arrangements with GE Capital and others as of December 31, 2007 and 2008 are as follows:

i) Finance Lease

Property and equipment acquired through finance lease arrangements with GE Capital as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

Acquisition cost	2007 — W	66,965	W	67,208
Accumulated depreciation		(44,482	)	(53,596	)
Net balance	W	22,483	W	13,612
Depreciation	W	14,742	W	8,852

Annual future lease payments of such leases as of December 31, 2008 are as follows (in millions of Korean won):

Year Ending December 31, — 2009	Lease Payment — W	11,038
2010 ~ 2013		7,588
Total		18,626
Less amounts representing interest		(1,139	)
Principal amount		17,487
Less current portion		(10,185	)
Net	W	7,302

ii) Operating Lease

Annual future lease payments of operating lease arrangements with HP Financial Co., Ltd. and others as of December 31, 2008 are as follows (in millions of Korean won):

Year Ending December 31,	Lease Payment
2009	W	1,040
2010		184
Total	W	1,224

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b. Lessors

i) Finance Lease

The present values of minimum lease payments and gross investments in the leased assets provided by the Company as of December 31, 2008 are as follows (in millions of Korean won):

Year Ending December 31, — 2009	Lease Payment — W	185,312
2010 ~ 2013		290,552
Thereafter		5,608
Total		481,472
Less amounts representing interest		(3,722	)
Principal amount		477,750
Less current portion		(183,309	)
Net	W	294,441

ii) Operating Lease

Annual future lease receipts from operating lease arrangements to be recognized by the Company as of December 31, 2008 are as follows (in millions of Korean won):

Year Ending December 31,	Lease Payment
2009	W	36,556
2010 ~ 2013		27,218
Total	W	63,774

REFUNDABLE DEPOSITS FOR TELEPHONE INSTALLATION

Through September 15, 1998, the Company received deposits for telephone installation in accordance with the Korea Public Telecommunication Business Law. Such deposits (which are reflected as a liability) are to be refunded without interest to the telephone subscribers upon termination of service.

Beginning on September 15, 1998, the Company allowed customers to choose between alternative plans for basic telephone service. Under such plans, customers were permitted the option to either place fully refundable deposits or pay a reduced non-refundable service initiation fee. Effective April 15, 2001, all new customers are required to pay a non-refundable service initiation fee.

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ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

Significant assets and liabilities denominated in foreign currencies (excluding those held by overseas subsidiaries) as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousands of foreign currencies):


		Korean			Korean
Foreign		Won	Foreign		Won
Currencies		Equivalent	Currencies		Equivalent
Assets:
Cash and cash equivalents	USD 18,346	W	17,211	USD 26,124	W	32,851
	JPY 12,067		101	JPY 20,278		282
Short-term investment assets	USD 15,327		14,380	USD 15,327		19,273
Accounts receivable trade	USD 168,404		157,996	USD 164,536		206,905
	JPY 6,898		57	JPY 178,880		2,493
	SDR 19,033		28,187	SDR 17,623		34,301
	EUR 286		395	EUR 486		864
Loans	USD 23,000		21,579	USD 49,000		61,618
Accounts receivable other	USD 506		476	USD 2,975		3,741
				JPY 2,139		30
Guarantee deposits	USD 557		523	USD 557		700
Deposits provided	USD 24		22	USD 10		12
	USD 226,164			USD 258,529
	JPY 18,965			JPY 201,297
	SDR 19,033			SDR 17,623
Total assets	EUR 286	W	240,927	EUR 486	W	363,070
Liabilities:
Accounts payable trade	USD 158,782	W	148,969	USD 135,049	W	169,824
	JPY 107,080		892	JPY 134,945		1,882
	SDR 16,350		24,213	SDR 12,413		24,160
	EUR 123		170	EUR 468		831
	AUD 112		92	AUD 17		15
Accounts payable other	USD 18,180		17,057	USD 2,227		2,800
	JPY 507,945		4,233
	GBP 194		363	GBP 1		2
	KWD 4		13
	EUR 540		745	EUR 25		44
				CNY 6		1
				HKD 17		3
	USD 25,067		23,517	USD 2,601		3,271
Short-term borrowings	JPY 267,296		2,227	JPY 58,587		817
Withholdings	USD 39		37	USD 215		271
Accrued expenses	USD 524		492	USD 1,470		1,849
	EUR 15		21	EUR 15		26
Current portion of bonds and long-term borrowings				USD 6,400		8,048
Key money deposits				USD 14		18
Bonds and long-term borrowings	USD 1,523,000		1,428,879	USD 2,271,400		2,856,286
				JPY 19,500,000		271,808
	USD 1,725,592			USD 2,419,376
	SDR 16,350			SDR 12,413
	EUR 678			EUR 508
	AUD 112			AUD 17
	JPY 882,321			JPY 19,693,532
	GBP 194			GBP 1
	KWD 4
				CNY 6
Total liabilities		W	1,651,920	HKD 17	W	3,341,956

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TRANSACTIONS AND BALANCES WITH RELATED PARTIES

KT and subsidiaries have engaged in various business transactions amongst themselves and equity method investees. The transactions include providing PCS network capacities, system and network integration service, public telephone maintenance service, 114 call center operation service and other.

KTs significant account balances with related parties as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

Related Party	Account	2007		2008
Subsidiary:
KTF	Receivables	W	47,850	W	52,750
	Payables		188,701		172,700
	Key money deposits received		23,988		21,392
KTH	Receivables		777		1,320
	Accrued expenses		12,943		12,046
KTN	Receivables		7,351		5,413
	Payables		45,508		42,912
KTL	Receivables		681		99
	Payables		20,408		24,188
KTFT	Receivables		629		2,496
	Payables		13,010		11,117
KTC	Receivables		1,844		2,010
	Payables		15,298		19,403
KTR	Receivables		1,077		60
	Payables		58,912		56,128
KTP	Receivables		776		1,225
	Payables		50		1,474
KT Capital	Receivables		4		1
	Payables		3,823		42,074
KTDS	Receivables				5
	Payables				27,864
Others	Receivables		3,933		3,275
	Payables		8,379		4,203
Equity method investee:
KDB	Receivables		6,944		6,453
	Payables		7,682		7,308
KID	Receivables		1,074		1,269
	Payables		15,763		14,700
CURD (formerly, KNRDC)	Receivables		33		1
	Payables		11,486		4,415
KIS	Receivables		18		570
	Payables		12,211		8,514
Goodmorning F Co., Ltd.	Payables		8,267		7,266
eNtoB Corp.	Payables		17,198		10,585
Korea Seoul Contact all Co., Ltd.	Payables		3,482		4,829
Korea Service and Communication Co., Ltd.	Payables		2,768		3,247
Korea Call Center Co., Ltd.	Payables		2,395		3,231
TMworld Co., Ltd.	Payables		2,364		3,217
UMS&C	Payables		2,582		3,075
Information Technology Service Bukbu Corporation	Payables				3,854
Information Technology Solution Nambu Corporation	Payables				4,606
Information Technology Solution Seobu Corporation	Payables				3,777
Information Technology Solution Busan Corporation	Payables				4,321
Information Technology Solution Jungbu Corporation	Payables				4,310
Information Technology Solution Honam Corporation	Payables				3,713
Information Technology Solution Daegu Corporation	Payables				2,567
Other	Receivables		14		738
	Payables		1,110		3,289
Total	Receivables	W	73,005	W	77,685
	Payables	W	478,328	W	536,325

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Significant transactions between KT and its related parties for the years ended December 31, 2006, 2007 and 2008 are summarized as follows (in millions of Korean won):

Related Party	Transactions	Account	2006		2007		2008
Subsidiary:
KTF	Leased line charges and other	Operating revenue	W	424,512	W	451,668	W	443,880
	Purchase of PCS networks and other	Operating expense		730,399		761,299		756,002
KTH	Leased line charges and other	Operating revenue		3,493		5,071		10,935
	Commission and other	Operating expense		41,020		46,510		45,396
KTN	Leased line charges and other	Operating revenue		39,644		38,663		38,970
	Cost of system integration (SI), network integration business and other	Operating expense		172,716		147,994		178,408
KTL	Leased line charges and other	Operating revenue		10,605		1,710		1,311
	Commissions and other	Operating expense		98,277		86,188		79,428
KTFT	Telecommunication revenue and other	Operating revenue		1,175		3,327		2,347
	Cost of goods sold and other	Operating expense		86,720		88,443		52,847
KTC	Telecommunication revenue and other	Operating revenue		976		1,027		1,912
	Commissions and other	Operating expense		28,004		24,226		22,573
KTR	Telecommunication revenue and other	Operating revenue		2,549		2,600		2,232
	Commissions and other	Operating expense		34,394		42,991		44,917
KTP	Telecommunication revenue and other	Operating revenue		21,531		12,655		10,716
	Commissions and other	Operating expense		1,681		1,071		946
KT Capital	Telecommunication revenue and other	Operating revenue				45		87
	Interest expense of lease and other	Operating expense				88		2,129
KTDS	Telecommunication revenue and other	Operating revenue						3,106
	Commissions and other	Operating expense						55,101
Other	Telecommunication revenue and other	Operating revenue		2,925		11,043		12,815
	Commissions and other	Operating expense		7,323		23,722		26,116
Equity method investee:
KDB	SI revenue and other	Operating revenue		89,520		86,363		77,414
	Commission and other	Operating expense		5,591		5,497		1,822
KID	Rent and other	Operating revenue		12,666		12,419		14,051
	Commission and other	Operating expense		111,425		95,117		91,034
Goodmorning F Co., Ltd.	Telecommunication revenue and other	Operating revenue		449		494		487
	Commission and other	Operating expense		50,677		47,789		42,830
CURD (formerly, KNRDC)	Telecommunication revenue and other	Operating revenue		649		773		459
	Commission and other	Operating expense		58,035		38,773		23,008
KIS	Telecommunication revenue and other	Operating revenue		17,610		18,064		17,298
	Commission and other	Operating expense		75,806		68,892		50,403
eNtoB Corp.	Commission and other	Operating expense		132,655		129,802		110,753
MOS facilities (formerly, Mostech)	Telecommunication revenue and other	Operating revenue				207		342
	Commission and other	Operating expense				13,387		8,107
Korea Seoul Contact all Co., Ltd.	Commission and other	Operating expense				37,184		41,426
Korea Service and Communication Co., Ltd.	Commission and other	Operating expense				30,428		30,761
Korea Call Center Co., Ltd.	Commission and other	Operating expense				27,460		28,965
TMworld Co., Ltd.	Commission and other	Operating expense				26,983		29,478
UMS&C	Commission and other	Operating expense				26,434		29,921
Information Technology Service Bukbu Corporation	Commission and other	Operating expense						11,802
Information Technology Solution Nambu Corporation	Commission and other	Operating expense						13,954
Information Technology Solution Seobu Corporation	Commission and other	Operating expense						12,430
Information Technology Solution Busan Corporation	Commission and other	Operating expense						11,282
Information Technology Solution Jungbu Corporation	Commission and other	Operating expense						12,569
Information Technology Solution Honam Corporation	Commission and other	Operating expense						11,907
Information Technology Solution Daegu Corporation	Commission and other	Operating expense						6,690
Other	Telecommunication revenue and other	Operating revenue		582		3,020		8,218
	Commission and other	Operating expense		35,986		2,261		16,413
Total		Revenues	W	628,886	W	649,149	W	646,580
		Expenses	W	1,670,709	W	1,772,539	W	1,849,418

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Compensation to KTs key management personnel for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

| Benefits | 2006 — W | 20,878 | 2007 — W | 19,397 | 2008 — W | 20,203 | Description — Salaries, bonuses and other allowances, retirement benefits,
medical benefits and other |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Share-based payments | | 227 | | 1,047 | | 1,420 | Other share-based payments and others |
| Total | W | 21,105 | W | 20,444 | W | 21,623 | |

KT considers its management of vice president or higher, who have the authority and responsibility for planning, operation and control and are in charge of business or division unit, and non-permanent directors as key management personnel.

Significant account balances amongst subsidiaries as of December 31, 2007 and 2008 are as follows (in millions of Korea won):

Creditor — KTFT	KTF	Account — Accounts receivable trade	2007 — W	92,269	2008 — W	59,902
KTR	KTP	Long-term accounts receivable trade and others		31,303		29,164
Other				35,066		68,261
Total			W	158,638	W	157,327

Significant transactions amongst subsidiaries for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korea won):

Seller	Purchaser	2006		2007		2008
KTFT	KTF	W	218,924	W	358,150	W	304,361
KTF	KTF M&S				137,602		398,556
Other			90,291		163,213		412,795
Total		W	309,215	W	658,965	W	1,115,712

As of December 31, 2008, the Company has provided guarantees for related parties as follows (in millions of Korean won):

Guarantor	Guarantee	Description	Amount
KTN	KTR	Guarantee for loan	W	10,352
KTF Music	Music City Media	Joint liability on guarantee for borrowings		61
Olive Nine	Olive Nine Entertainment	Joint liability on guarantee for borrowings		34
Total			W	10,447

COMMON STOCK AND CAPITAL SURPLUS

As of December 31, 2008, the Companys number of shares authorized are 1,000,000,000 shares with par value of W 5,000 per share.

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As of December 31, 2007 and 2008, the number of shares issued by the Company are 275,202,400 shares and 273,535,700 shares, respectively, and the common stock amounted to W 1,560,998 million. As allowed by the Securities Exchange Law, the Company retired 36,997,259 and 38,663,959 treasury shares by charges against retained earnings through December 31, 2007 and 2008, respectively. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by W 5,000 par value of common stock.

RETAINED EARNINGS RESTRICTED IN USE

Retained earnings appropriated to the legal reserve cannot be used as cash dividends under the applicable laws and regulations. The Korean Commercial Code requires the Company to appropriate an amount equal to at least 10% of the cash dividend amount to a legal reserve at the end of the year for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to capital.

In accordance with the relevant tax laws, the Company is allowed to appropriate a reserve for technology and human resource development to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. This reserve used for its original purpose and the remaining balance after use are restored to retained earnings and may be used for dividends in accordance with the relevant tax laws.

20. COMPREHENSIVE INCOME

Comprehensive income for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

Description — Net income	2007 — W	1,170,978	W	513,290
Cumulative effect of changes in accounting policies				3,852
Other comprehensive income (loss):
Gain on translation of foreign operations		55		13,559
Loss on translation of foreign operations (Tax effect: W 5,005 million for 2007 and
( W 3,632) million for 2008)		22,136		11,779
Unrealized gain on available-for-sale securities (Tax effect: W 1,189 million for 2007 and W 2,988 million for 2008)		4,164		(8,939	)
Unrealized loss on available-for-sale securities (Tax effect: W 1,872 million for 2008)				(7,545	)
Increase in equity of associates (Tax effect:
( W 2,789) million for 2007 and W 3,779 million for 2008)		(714	)	9,954
Decrease in equity of associates (Tax effect:
( W 4,942) million for 2007 and
( W 6,517) million for 2008)		3,762		961
Gain on valuation of derivatives for cash flow hedge (Tax
effect: ( W 768) million for 2007
( W 2,288) million for 2008)		2,024		9,374
Loss on valuation of derivatives for cash flow hedge (Tax
effect: W 4,989 million for 2008)				(18,370	)
Comprehensive income	W	1,202,405	W	527,915
Attributable to : Equity holders of the parent	W	1,082,829	W	462,258
Minority interest		119,576		65,657
	W	1,202,405	W	527,915

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SHARE-BASED PAYMENTS

KT granted stock options to its executive officers and directors through 2006 in accordance with the stock option plan approved by its board of directors of which details are as follows:

	1 st Grant	2 nd Grant	3 rd Grant	4 th Grant	5 th Grant
Grant date	Dec. 26, 2002	Sep. 16, 2003	Dec. 12, 2003	Feb. 4, 2005	Apr. 28, 2005
Grantee	Executives	Outside directors	Executives	Executives	Executives
Number of basic allocated shares upon grant	460,000	36,400	80,000	50,800	45,700
Number of additional shares related to business performance upon
grant	220,000		40,000	20,000	20,000
Number of shares expected to be exercised upon grant	562,958	36,400	106,141	60,792	55,692
Number of settled or forfeited shares	191,326	33,400	106,141	10,800	65,700
Number of allocated shares as of December 31, 2008	300,415	3,000		40,000
Number of additional shares related to business performance as
of December 31, 2008	71,217			3,153
Number of shares expected to be exercised	371,632	3,000		43,153
Fair value (in Korean won)	W 22,364	W 12,443	W 10,926	W 12,322	W 10,530
Total compensation cost
(in millions of Korean won)	W 8,311	W 38	W	W 531	W
Exercise price (in Korean won)	W 70,000	W 57,000	W 65,000	W 54,600	W 50,400
Exercise period	Dec.27, 2004	Sep.17, 2005	Dec.13, 2005	Feb. 5, 2007	Apr. 29, 2007
	~ Dec.
26, 2009	~ Sep.16,
2010	~ Dec.12,
2010	~ Feb.
4, 2012	~ Apr.
28, 2012
Valuation method	Fair value method	Fair value method	Fair value method	Fair value method	Fair value method

Upon exercise, the Company can elect one of the following settlement methods; an issuance of new shares, a provision of treasury stock or cash settlement (cash and provision of treasury stock) subject to its circumstances.

KT adopted the fair value method to measure compensation costs based on the following valuation assumptions and methods are as follows:

	1 st Grant	2 nd Grant	3 rd Grant	4 th Grant	5 th Grant
Risk free interest rate	5.46%	4.45%	5.09%	4.43%	4.07%
Expected duration	4.5 years to	4.5 years	4.5 years to	4.5 years to	4.5 years to
	5.5 years		5.5 years	5.5 years	5.5 years
Expected volatility	49.07%	34.49%	31.26%	33.41%	33.51%
	~ 49.90%		~ 33.90%	~ 42.13%	~ 35.92%
Expected dividend yield ratio	1.10%	1.57%	1.57%	5.86%	5.86%

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Of total compensation costs calculated using the fair value method, the compensation costs recognized through December 31, 2008 are as follows (in millions of Korean won):

Total compensation costs before adjustment	1 st Grant — W	10,602	W	453	W	1,160	W	749	W	586	W	13,550
Total compensation costs cancelled		(2,291	)	(415	)	(1,160	)	(218	)	(586	)	(4,670	)
Total compensation costs after adjustment		8,311		38				531				8,880
Compensation costs recognized in prior years		(8,311	)	(38	)			(531	)			(8,880	)
Compensation costs to be reflected in current year
Compensation costs recognized in current year
Compensation costs to be recognized after current year	W		W		W		W		W		W

Details of stock grants to directors including chief executive officer after January 1, 2007 are as follows:

	1 st Grant	2 nd Grant
Grant date	March 29, 2007	March 27, 2008
Grantee	Registered directors	Registered directors
Estimated number of shares granted upon grant	23,925 shares	29,481 shares
	Service condition: one
year	Service condition: one year
	Non-market performance condition:	Non-market performance condition:
Vesting Conditions	achievement of performance	achievement of performance
Fair value per option (in Korean won)	W 42,706	W 48,160
Total compensation costs (in Korean won)	W 1,022 million	W 1,420 million
Estimated exercise date	March 29, 2008	March 27, 2009
Valuation method	Fair value method	Fair value method

Above compensation costs were calculated based on the fair value method and charged to current operations for the year ended December 31, 2008 as follows (in millions of Korean won):

Total compensation costs	1 st Grant — W	1,022	W	1,420
Compensation costs recognized in prior years		(1,022	)
Compensation costs to be reflected in current year				1,420
Compensation costs recognized in current year				(1,420	)
Compensation costs to be recognized after current year	W		W

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TREASURY STOCK

Changes in KTs treasury stock for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won except for share data):


January 1, 2007			Increase			Disposal					Retirement					December 31, 2007
Number of			Number of			Number of					Number of					Number of
Shares		Amount	Shares		Amount	Shares			Amount		Shares			Amount		Shares		Amount
Direct purchase by the Securities and Exchange Act	70,273,052	W	3,733,861	4,425,000	W	196,329	(16,645	)	W	(884	)	(4,425,000	)	W	(196,329	)	70,256,407	W	3,732,977
Indirect purchase through trust agreement and other	1,259,170		92,711														1,259,170		92,711
	71,532,222	W	3,826,572	4,425,000	W	196,329	(16,645	)	W	(884	)	(4,425,000	)	W	(196,329	)	71,515,577	W	3,825,688


January 1, 2008			Increase			Disposal					Retirement					December 31, 2008
Number of			Number of			Number of					Number of					Number of
Shares		Amount	Shares		Amount	Shares			Amount		Shares			Amount		Shares		Amount
Direct purchase by the Securities and Exchange Act	70,256,407	W	3,732,977	1,666,700	W	73,807	(15,173	)	W	(807	)	(1,666,700	)	W	(73,807	)	70,241,234	W	3,732,170
Indirect purchase through trust agreement and other	1,259,170		92,711														1,259,170		92,711
	71,515,577	W	3,825,688	1,666,700	W	73,807	(15,173	)	W	(807	)	(1,666,700	)	W	(73,807	)	71,500,404	W	3,824,881

Above treasury stocks are expected to be used for the stock compensation to the Companys directors and employees, swap with KTF stocks in the expected merger with KTF and other purposes.

OPERATING REVENUES

Operating revenues for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Internet services	2006 — W	2,471,086	2007 — W	2,497,897	2008 — W	2,678,513
Data communication services		1,284,213		1,270,607		1,335,728
Telephone services		5,817,000		5,592,349		5,199,711
PCS services		5,510,319		5,874,610		6,261,045
PCS handsets sales		1,888,978		2,323,828		2,867,216
Other		853,284		1,100,791		1,302,330
Total	W	17,824,880	W	18,660,082	W	19,644,543

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CONSTRUCTION CONTRACTS

Details of construction contracts as of December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

	2006
	Beginning Contract		Increase		Recognized as			Ending Contract
	Balance		(Decrease)		Revenue (Note)			Balance
Jungja Dong, Suwon	W	48,657	W		W	(21,499	)	W	27,158
Sungsu Dong, Seoul		140,000		11,081		(34,114	)		116,967
Bugae Dong, Incheon		191,713				(7,534	)		184,179
Gaya Dong, Busan		11,055		(36	)	(11,019	)
Total	W	391,425	W	11,045	W	(74,166	)	W	328,304

	2007
	Beginning Contract				Recognized as			Ending Contract
	Balance		Increase		Revenue (Note)			Balance
Jungja Dong, Suwon	W	27,158	W	37	W	(26,916	)	W	279
Sungsu Dong, Seoul		116,967		1,600		(54,731	)		63,836
Bugae Dong, Incheon		184,179		6,260		(33,347	)		157,092
Total	W	328,304	W	7,897	W	(114,994	)	W	221,207

	2008
	Beginning Contract				Recognized as			Ending Contract
	Balance		Increase		Revenue (Note)			Balance
Jungja Dong, Suwon	W	279	W		W	(279	)	W
Sungsu Dong, Seoul		63,836				(50,308	)		13,528
Bugae Dong, Incheon		157,092				(78,220	)		78,872
Sungsu dong, Seoul (factory building)				64,689		(212	)		64,477
Total	W	221,207	W	64,689	W	(129,019	)	W	156,877

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(Note) These revenues are classified as other in operating revenues.

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OPERATING EXPENSES

Operating expenses for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Salaries and wages	2006 — W	2,224,598	W	2,242,295	W	2,281,587
Share-based payment		531		1,251		1,922
Provision for severance indemnities		240,843		360,476		362,342
Employee welfare		527,062		528,902		567,878
Travel		42,057		38,568		31,725
Communications		65,825		76,983		58,981
Electric and water charges		227,262		245,231		248,848
Taxes and dues		197,196		195,874		200,287
Supplies		37,199		37,765		37,541
Publications		5,773		6,281		5,215
Rent		219,825		226,327		249,827
Depreciation		3,185,193		3,193,591		3,214,325
Amortization		371,616		408,611		415,393
Repairs		414,428		288,715		207,332
Maintenance		290,590		322,364		373,006
Automobile maintenance		29,307		30,637		20,337
Insurance		20,496		23,157		30,003
Commissions		1,042,180		1,147,640		1,489,471
Advertising		232,202		274,450		221,779
Education and training		39,092		31,331		29,432
Praise and reward		10,894		11,168		12,707
Research		225,321		238,722		235,508
Development		56,424		52,288		47,639
Interconnection charges		1,177,896		1,200,373		1,234,474
Cost of services		606,440		776,782		525,527
International settlement payment		203,339		216,962		263,464
Cost of goods sold		1,682,009		1,911,897		2,367,211
Promotion		561,186		749,029		1,079,580
Sales commission		1,348,156		1,902,106		2,129,674
Provision for doubtful accounts		111,285		71,502		150,583
Other		99,009		145,747		163,380
Sub-total		15,495,234		16,957,025		18,256,978
Less : transfer to other accounts		(53,730	)	(42,284	)	(40,197	)
	W	15,441,504	W	16,914,741	W	18,216,781

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INCOME TAX EXPENSE

Components of income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

| Current income tax expense (including additional income taxes
and tax refunds) | 2006 — W | 399,097 | W | 402,254 | W | 294,620 | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Changes in deferred income tax assets and liabilities related to
temporary differences (including tax loss and credits
carryforwards) (Note) | | 77,275 | | (45,506 | ) | (126,811 | ) |
| Income tax expense directly reflected in stockholders
equity | | (247 | ) | 51 | | 50 | |
| Income tax expense | W | 476,125 | W | 356,799 | W | 167,859 | |

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(Note) Changes in deferred income tax assets and liabilities related to temporary differences (in millions of Korean won):

Ending deferred income tax assets	2007 — W	349,058	W	482,721
Beginning deferred income tax assets		(305,856	)	(349,058	)
Changes in deferred income tax assets (liabilities) directly
added to (deducted from) stockholders equity		2,304		(3,000	)
Other				(3,852	)
Changes in deferred income tax assets	W	45,506	W	126,811

An explanation of the relationship between income tax expense and income from continuing operations before income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won) :

Income from continuing operations before income tax expense	2006 — W	1,985,846		2007 — W	1,447,763		2008 — W	681,149
Income tax expense at statutory income tax rate (For 2006 and
2007: Less than W 100 million: 14.3% Over W 100 million: 27.5% For 2008: Less than W 200 million: 12.1% Over W 200 million: 27.5%)		546,108			398,123			187,285
Differences (Note)		(69,983	)		(41,324	)		(19,426	)
Income tax expense on continuing operations	W	476,125		W	356,799		W	167,859
Effective tax rates		23.98	%		24.64	%		24.64	%
(Note) Differences:
Non-temporary difference	W	79,895		W	18,704		W	25,412
Changes in deferred income tax assets (liabilities) unrecognized
related to equity method investment securities		24,918			37,987			91,072
Tax credit		(160,875	)		(121,159	)		(203,070	)
Additional income tax and tax refund for prior years		(13,921	)		30,545			(4,377	)
Tax rate changes								72,839
Other					(7,401	)		(1,302	)
	W	(69,983	)	W	(41,324	)	W	(19,426	)

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Changes in temporary differences, including tax loss and credits carryforwards, and deferred income tax assets (liabilities) for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007
			Final Tax Return									Deferred Income Tax Assets
			Amount							December 31,		(Liabilities)
	January 1, 2007		(Note 1)		Increase		Decrease			2007		Current		Non-Current
(Deductible temporary differences)
Allowance for doubtful accounts	W	490,318	W	419,703	W		W	(61,625	)	W	358,078	W	92,990	W	5,480
Inventories		42,972		42,256				(7,277	)		34,979		9,619
Derivative instruments		158,962		158,746		5,975					164,721		45,298
Available-for-sale securities		18,941		19,009				(5,727	)		13,282				3,653
Equity method investment securities		1,301,777		1,301,777		118,542		(19,496	)		1,400,823				385,226
Contribution for construction		176,404		176,404		29,204					205,608				56,542
Accrued expenses		238,753		246,775		51,146					297,921		81,928
Provisions		102,768		113,234				(29,315	)		83,919		19,275		3,802
Provision for severance indemnities		772,554		775,962		232,432					1,008,394				277,309
Refundable deposits for telephone installation		56,851		56,851				(2,851	)		54,000				14,850
Other		19,173		111,793		37,789					149,582		(19,583	)	60,720
Sub total		3,379,473	W	3,422,510	W	475,088	W	(126,291	)		3,771,307		229,527		807,582
Not recognized as deferred income tax assets (Note 2)		(1,417,575	)								(1,559,920	)	(3,320	)	(425,659	)
Recognized as deferred income tax assets		1,961,898									2,211,387		226,207		381,923
Tax rate (Note 3)		27.5	%								27.5	%
Deferred income tax assets		539,522									608,130		226,207		381,923

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	2007
				Final Tax
				Return									Deferred Income Tax Assets
	January 1,			Amount							December 31,		(Liabilities)
	2007			(Note 1)			Increase			Decrease	2007		Current		Non-Current
(Taxable temporary differences)
Accrued interest income		(5,305	)	W	(5,589	)	W	(527	)	W		(6,116	)	(1,682	)
Equity method investment securities		(82,043	)		(82,043	)		(40,026	)			(122,069	)			(33,569	)
Depreciation		(96,013	)		(98,339	)					60,105	(38,234	)			(10,515	)
Deposits for severance indemnities		(746,828	)		(749,807	)		(220,946	)			(970,753	)			(266,956	)
Derivatives instruments								(2,792	)			(2,792	)			(768	)
Reserve for technology and human resource development		(320,000	)		(320,000	)					106,667	(213,333	)			(58,667	)
Sub total		(1,250,189	)	W	(1,255,778	)	W	(264,291	)	W	166,772	(1,353,297	)	(1,682	)	(370,475	)
Not recognized as deferred income tax liabilities (Note 2)		82,043										122,069				33,569
Recognized as deferred income tax liabilities		(1,168,146	)									(1,231,228	)	(1,682	)	(336,906	)
Tax rate (Note 3)		27.5	%									27.5	%
Deferred income tax liabilities		(321,240	)									(338,588	)	(1,682	)	(336,906	)
(Tax loss carryforwards)
Total loss carryforwards		70,143										67,377				18,529
Not recognized as deferred income tax assets (Note 4)												(38,428	)			(10,568	)
Recognized as deferred income tax assets		70,143										28,949				7,961
Tax rate (Note 3)		27.5	%									27.5	%
Deferred income tax assets		19,289										7,961				7,961
(Tax credit carryforwards)
Total tax credit		101,695										111,456				111,456
Not recognized as deferred income tax assets		(16,905	)									(22,991	)			(22,991	)
Recognized as deferred income tax assets		84,790										88,465		35,000		36,555
Deferred income tax assets		68,285										71,555		35,000		36,555
Deferred income tax assets, net	W	305,856									W	349,058	W	259,525	W	89,533

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	2008
			Final Tax Return									Deferred Income Tax Assets
			Amount							December 31,		(Liabilities)
	January 1, 2008		(Note 1)		Increase		Decrease			2008		Current		Non-Current
(Deductible temporary differences)
Allowance for doubtful accounts	W	358,078	W	457,474	W	253,716	W	(213,518	)	W	497,672	W	113,861	W	5,994
Inventories		34,979		137,182		20,435		(137,225	)		20,392		628		3,915
Derivative instruments		164,721		38,474		11,729		(22,701	)		27,502		6,655
Available-for-sale securities		13,282		24,462		15,105		(230	)		39,337				8,840
Equity method investment securities		1,400,823		1,532,097		239,810		(7,022	)		1,764,885				388,275
Contribution for construction		205,608		205,610		27,496					233,106				51,283
Accrued expenses		297,921		149,058		212,483		(138,951	)		222,590		53,825
Provisions		83,919		88,036		139,193		(44,673	)		182,556		35,845		7,577
Provision for severance indemnities		1,008,394		1,019,900		151,580		(19,177	)		1,152,303				253,508
Refundable deposits for telephone installation		54,000		54,000				(3,068	)		50,932				11,205
Other		149,582		275,449		983,596		(118,633	)		1,140,412		56,751		199,485
Sub total		3,771,307	W	3,981,742	W	2,055,143	W	(705,198	)		5,331,687		267,565		930,082
Not recognized as deferred income tax assets (Note 2)		(1,559,920	)								(1,861,675	)	(16,330	)	(395,012	)
Recognized as deferred income tax assets		2,211,387									3,470,012		251,235		535,070
Tax rate (Note 3)		27.5	%								24.2%, 22%
Deferred income tax assets		608,130									786,305		251,235		535,070

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	2008
				Final Tax
				Return											Deferred Income Tax Assets
	January 1,			Amount								December 31,			(Liabilities)
	2008			(Note 1)			Increase			Decrease		2008			Current			Non-Current
(Taxable temporary differences)
Accrued interest income	W	(6,116	)	W	(8,750	)	W	(5,959	)	W	3,057	W	(11,652	)	W	(2,674	)	W	(124	)
Equity method investment securities		(122,069	)		(229,851	)		(82,002	)		2,517		(309,336	)					(68,055	)
Depreciation		(38,234	)		(31,906	)					8,311		(23,595	)					(5,191	)
Deposits for severance indemnities		(970,753	)		(980,981	)		(136,824	)		5,959		(1,111,846	)					(244,640	)
Derivative instruments		(2,792	)		(9,126	)		(497,413	)		22		(506,517	)		(40,974	)		(74,184	)
Reserve for technology and human resource development		(213,333	)		(213,333	)					106,666		(106,667	)		(25,813	)
Sub total		(1,353,297	)	W	(1,473,947	)	W	(722,198	)	W	126,532		(2,069,613	)		(69,461	)		(392,194	)
Not recognized as deferred income tax liabilities (Note 2)		122,069											119,892						26,377
Recognized as deferred income tax liabilities		(1,231,228	)										(1,949,721	)		(69,461	)		(365,817	)
Tax rate (Note 3)		27.5	%										24.2%, 22%
Deferred income tax liabilities		(338,588	)										(435,278	)		(69,461	)		(365,817	)
(Tax loss carryforwards)
Total loss carryforwards		67,377											223,560						49,183
Not recognized as deferred income tax assets (Note 4)		(38,428	)										(220,869	)					(48,591	)
Recognized as deferred income tax assets		28,949											2,691						592
Tax rate (Note 3)		27.5	%										24.2%, 22%
Deferred income tax assets		7,961											592						592
(Tax credit carryforwards)
Total tax credit		111,456											153,193			75,116			78,077
Not recognized as deferred income tax assets		(22,991	)										(22,091	)		(6,949	)		(15,142	)
Recognized as deferred income tax assets		88,465											131,102			68,167			62,935
Deferred income tax assets		71,555											131,102			68,167			62,935
Deferred income tax assets, net	W	349,058										W	482,721		W	249,941		W	232,780

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| (Note 1) | Tax effects from true-up for
prior year tax return arising from temporary difference and
non-temporary differences were adjusted in deferred income tax
assets and current earnings, respectively. Changes in temporary
difference resulting from tax investigation in the current
period were adjusted in final tax return amount. |
| --- | --- |
| (Note 2) | The Company did not recognize deferred income tax assets of W 381,489 million related to the tax
effects of deductible temporary differences from equity in
losses since it was not almost certain that the Company would be
able to realize the related tax benefits in the foreseeable
future. The Company also did not recognize deferred income tax
liabilities totaling W 26,377 million since
it is almost certain that the differences will not reverse in
the foreseeable future given that the Company is able to control
the timing of reversal of the temporary difference and the
investees have not declared dividends in the past 5 years.
Meanwhile, certain subsidiaries including KTR did not recognize
deferred income tax assets amounting to W 29,853 million which resulted from the
tax effects of deductible temporary differences of W 128,473 million in excess of taxable
differences and future taxable income. |
| (Note 3) | Tax rate is the enacted marginal tax rate which is expected to
apply to taxable income in the periods in which the deferred
income tax liability or asset is expected to be settled or
realized. |
| (Note 4) | Certain subsidiaries including TSC did not recognize deferred
income tax assets amounting to W 48,591 million which resulted from the
tax effects of tax loss carryforwards of W 220,869 million |

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in excess of taxable differences and future taxable income. Meanwhile, the tax loss carryforwards will be expired through 2013.

Deferred income tax assets (liabilities) and income tax benefits (expenses) added to (deducted from) stockholders equity as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007						2008
				Deferred Income						Deferred Income
	Income Tax			Tax Assets			Income Tax			Tax Assets
	Expense			(Liabilities)			Expense			(Liabilities)
Gain on disposal of treasury stock (capital surplus)	W	(196	)	W			W	(144	)	W
Other capital adjustment					(5,956	)					(4,147	)
Gain on translation of foreign operations
Loss on translation of foreign operations					5,005						1,373
Gain on valuation of available-for-sale securities					(3,218	)					(230	)
Loss on valuation of available-for-sale securities											1,872
Gain on valuation of derivatives for cash flow hedge					(768	)					(3,056	)
Loss on valuation of derivatives for cash flow hedge											4,989
Increase in equity of associates					(3,791	)					(12	)
Decrease in equity of associates					7,688						1,171
Total	W	(196	)	W	(1,040	)	W	(144	)	W	1,960

INCOME FROM DISCONTINUING OPERATIONS

Korea Telecom Venture Fund No. 1 (the Fund) and KTPI were excluded from the consolidation as of December 31, 2007. The Fund and KTPIs net income (loss) for the years ended December 31, 2006 and 2007 were reclassified into income (loss) from discounting operations as follows (in millions of Korean won):

	2006								2007
	Fund No. 1			KTPI		Total			Fund No. 1		KTPI			Total
Operating and non-operating income (loss) from discontinuing
operations	W	(1,945	)	W	1,941	W	(4	)	W	388	W	(38,727	)	W	(38,339	)
Reversal of cumulative loss from discontinuing operations
(Note 1)												112,543			112,543
Income (loss) from discontinuing operations (Note 2)	W	(1,945	)	W	1,941	W	(4	)	W	388	W	73,816		W	74,204

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| (Note 1) | Since future outflows of economic resources from the cumulative
loss totaling W 112,543 million of
KTPI are not expected, the cumulative loss was reversed as
income. |
| --- | --- |
| (Note 2) | There were no tax effects for income (loss) from discontinuing
operations. |

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INCOME PER SHARE

The Companys net income per share for the years ended December 31, 2006, 2007 and 2008 is computed as follows (in millions of Korean won, except for per share data):

a. Basic Income Per Share From Continuing Operations

Net income from continuing operations	2006 — W	1,291,515	2007 — W	982,093	2008 — W	449,810
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Basic income per share from continuing operations (in Korean won)	W	6,153	W	4,754	W	2,217

b. Basic Income Per Share From Discontinuing Operations

Net income from discontinuing operations	2006 — W	348	2007 — W	74,134	2008 — W
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Basic income per share from discontinuing operations (in Korean
won)	W	2	W	358	W

c. Basic Net Income Per Share

Net income	2006 — W	1,291,863	2007 — W	1,056,227	2008 — W	449,810
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Basic net income per share (in Korean won)	W	6,155	W	5,112	W	2,217

d. Diluted Income Per Share From Continuing Operations

Net income from continuing operations	2006 — W	1,291,515	2007 — W	982,093	2008 — W	449,810
Interest on exchangeable bonds		52
Adjusted income from continuing operations		1,291,567		982,093		449,810
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Number of shares with dilutive effects		254,949
Diluted income per share from continuing operations (in Korean
won)	W	6,146	W	4,754	W	2,217

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e. Diluted Income Per Share From Discontinuing Operations

Net income from discontinuing operations	2006 — W	348	2007 — W	74,134	2008 — W
Adjusted income from discontinuing operations		348		74,134
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Number of shares with dilutive effects		254,949
Diluted income (loss) per share from discontinuing operations
(in Korean won)	W	2	W	358	W

f. Diluted Net Income Per Share

Net income	2006 — W	1,291,863	2007 — W	1,056,227	2008 — W	449,810
Interest on exchangeable bonds		52
Adjusted net income		1,291,915		1,056,227		449,810
Weighted average number of common stock outstanding		209,894,649		206,599,294		202,891,015
Number of shares with dilutive effects		254,949
Diluted net income per share (in Korean won)	W	6,148	W	5,112	W	2,217

Meanwhile, basic net income per share is computed on the basis of the weighted-average number of common shares outstanding which is adjusted to include the number of common shares outstanding at the beginning of the years (208,095,178 shares and 203,686,823 shares as of January 1, 2007 and 2008, respectively) and treasury stock acquired for the years ended December 31, 2007 and 2008 (1,495,884 shares and 795,808 shares for the years ended December 31, 2007 and 2008, respectively).

For the purpose of calculating diluted income per share, interest expense for exchangeable bonds multiplied by (1-marginal tax rate) and all dilutive potential common stock were added to net income attributable to common stock holders and the weighted average number of shares outstanding, respectively. Diluted income per share is calculated by dividing adjusted income by the weighted average number of common stock and all dilutive potential common stock. Share-based payments have no dilutive effect and are excluded from the calculation of diluted income per share.

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(Note) Potential common stock as of December 31, 2007 and 2008 are as follows:

	Par Value	Issue Date	Maturity Date	Exercisable Period	Common Shares to be Issued — 2007	2008
Stock option	(Note 1)	December 26, 2002	December 26, 2009	Increase in the number of exercisable shares by 1/3 every year
after two years from grant date	371,632	371,632
Stock option	(Note 2)	September 16, 2003	September 16, 2010	From 2 years after grant date till maturity date	3,000	3,000
Stock option	(Note 3)	February 4, 2005	February 4, 2012	Increase in the number of exercisable shares by 1/3 every year
after two years from grant date	43,153	43,153
Other share-based payments	(Note 4)	March 29, 2007	March 27, 2008	On maturity date, subject to the resolution of board of directors	23,925
Other share-based payments	(Note 4)	March 27, 2008	March 27, 2009	On maturity date, subject to the resolution of board of directors		29,481
Total					441,710	447,266

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(Note 1) Exercise price of W 70,000 per common stock.

(Note 2) Exercise price of W 57,000 per common stock.

(Note 3) Exercise price of W 54,600 per common stock.

(Note 4) Shares to be given subject to performance

INSURANCE

As of December 31, 2008, certain assets are insured with Samsung Fire and Marine Insurance Co., Ltd. and other insurance companies as follows (in millions of Korean won):

Finance lease receivables	Risk Covered — Movables package	Coverage — W	219,740
Inventories	Theft and fire		70,000
Buildings	Fire and other		1,404,341
Structures	Property package		59,728
Machinery	Property package and other		1,400,511
Vessel (vehicles)	Vessel and other		68,094
Others	Fire and other		138,352
Total		W	3,360,766

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DIVIDENDS

Details of KTs dividends for common stocks for the years ended December 31, 2006, 2007 and 2008 are as follows (in Korean won except for share data):

a. Dividends

Dividends per share (dividend ratio)	2006 — W	2,000 (40	2007 — W	2,000 (40	2008 — W	1,120 (22.4
Number of shares outstanding (Note)		208,095,178		203,686,823		202,035,296
Dividends	W	416,190,356,000	W	407,373,646,000	W	226,279,531,520

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(Note) 71,532,222 shares, 71,515,577 shares and 71,500,404 shares of treasury stock as of December 31, 2006, 2007 and 2008, respectively, are excluded.

b. Dividend Payout Ratios

Dividends	416,190,356,000	407,373,646,000	226,279,531,520
Net income (Attributable to equity holders of the parent)	1,291,863,401,102	1,056,227,165,634	449,809,735,316
Payout ratio	32.22 %	38.57 %	50.31 %

c. Dividend Yield Ratios

Dividends per share	2,000	2,000	1,120
Stock price at the end of the year	46,500	48,900	37,500
Dividend yield ratio	4.30 %	4.09 %	2.99 %

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STATEMENTS OF CASH FLOWS

The statements of cash flows have been presented using the indirect method. Significant non-cash transactions for the years ended December 31, 2006, 2007 and 2008 are detailed as follows (in millions of Korean won):

| Construction in progress transferred to property and equipment
and other accounts | 3,291,167 | 3,122,246 | 3,080,337 |
| --- | --- | --- | --- |
| Conversion of convertible notes | 14,812 | | |
| Transferred to newly included subsidiarys net income or
loss before acquisition: | | | |
| Share-based payment | | 12 | |
| Provision for severance indemnities | | 1,003 | |
| Depreciation | | 2,010 | |
| Amortization | | 431 | |
| Bad debt | | 1,712 | |
| Foreign currency translation gains | | 92 | |
| Gain on disposal of property and equipment | | 77 | |
| Gain on disposal of available-for-sale securities | | 185 | |
| Gain on disposal of trading securities | | 42 | |
| Equity in income of associates | | 35 | |
| Other bad debt | | 934 | |
| Loss on disposal of available-for-sale securities | | 225 | |
| Equity in loss of associates | | 2,139 | |
| Loss on disposal of property | | 171 | |
| Impairment loss on investment assets | | 6,716 | |
| Impairment loss on intangible assets | | 221 | |

COMMITMENTS AND CONTINGENCIES

a. Legal Matters

On May 25, 2005, the Fair Trade Commission (FTC) imposed a fine of W 116,168 million to the Company related to local telephone services and leased line services for internet cafes. On September 14, 2005, the FTC imposed an additional fine of W 24,258 million to the Company related to domestic and international long-distance services. The Company expensed these fines for the year ended December 31, 2005. As of December 31, 2008, the Company has appealed certain portion of the fine imposed by the FTC amounting to W 113,048 million to the Supreme Court. However, the final result of this appeal cannot be presently determined.

The Company is also in various litigations as a defendant in other cases as of December 31, 2008. The Company accrued W 19,572 million as provisions related to the litigation as of December 31, 2008. However, the final results of these litigations cannot be presently determined.

b. Commitments with Financial Institutions

As of December 31, 2008, major commitments with local financial institutions are as follows (in millions of Korean won and thousands of foreign currencies)

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Commitment	Amount		Related Companies
Bank overdraft	W	1,071,000	KT, KTF, KTR, TSC, KT Capital and KTDS
Commercial paper issuance		248,000	KT, TSC and KT Capital
Collateralized loan on accounts receivable trade		615,000	KT and KTDS
Note discount		10,000	KTL
Local credit agreements		910,000	KTF
Corporate bonds		20,000	TSC
General loans		5,000	TSC
Letters of credit		USD 106,638	KT, KTSC, KTR and KT Capital
Working capital loans		USD 2,000	KTSC
Collection for foreign currency denominated checks		USD 1,000	KT
Guarantee agreements in foreign currency		USD 75	KTSC
Total	W	2,879,000
		USD 109,713

Guarantee	Financial institution	Limit		Used Amount		Related Companies
Performance guarantee	Korea Eximbank		USD 2,175		USD 2,175	KT
for construction	Korea Eximbank		SAR 735		SAR 735	KT
	Korea Software Financial Cooperative and others	W	271,930	W	271,930	KT, KTN, KTSC, KT Capital, Nasmedia, KT FDS and KTF M Hows
General guarantee	Korea Exchange Bank		USD 1,000		USD 30	KT
	Korea Exchange Bank and Korea Eximbank	W	1,513	W	1,413	KT and KTN
Foreign currency guarantee for International financing	Kookmin Bank		USD 25,000		USD 25,000	KT
Foreign currency payment guarantee	Kookmin Bank		USD 7,735		USD 7,735	KT
Warranty performance guarantee agreements	Seoul Guarantee Insurance	W	3,689	W	3,689	KT, KT FDS, KTF M Hows and Nasmedia

Loss on sale of accounts receivable from the transfer of those receivables amounted to W 582 million for the year ended December 31, 2008, and accounts receivable sold but not matured as of December 31, 2008 are W 1,218 million.

c. Stockholders Agreement between KT and NTT DoCoMo

In December 2005, KTF and NTT DoCoMo Inc. (DoCoMo) entered into a strategic alliance. As part of this strategic alliance, DoCoMo acquired a 10% equity interest in KTF (20,176,309 shares). In addition, on December 26, 2005, KT and DoCoMo entered into a shareholders agreement related to shares of KTF. Under the shareholders agreement, DoCoMo has the right to put its 20,176,309 shares for the acquisition amount plus interests to KT if an agreed target network coverage for W-CDMA service within Korea is not met by December 31, 2008. However, as of August 3, 2007, KTF reached the target network coverage mentioned above, and the right of DoCoMo to put its shares to KT has been now extinguished.

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d. Put and Call Combination Contract with Woori Investment & Securities Co., Ltd.

On December 27, 2005, the Company and JPMorgan Chase Bank, N.A. entered into a Put and Call Combination contract based on the shares of Korea Digital Satellite Broadcasting (KDB), an equity method investee, and the contract expired on December 26, 2008.

On December 26, 2008, the Company and Woori Investment & Securities Co., Ltd. which acquired KDB shares from JP Morgan Whitefriars Inc. entered into a Put and Call Combination contract based on the shares of KDB. Under this contract, during the period from December 26, 2009 to December 26, 2011, KT has the option to acquire 9,200,000 shares of KDB that were purchased by Woori Investment & Securities Co., Ltd. on December 26, 2008, and Woori Investment & Securities Co., Ltd. has the option to exercise the put option on such KDB shares to KT on December 26, 2011. The exercise price under the contract for both KT and Woori Investment & Securities Co., Ltd. is W 46,000 million.

e. Payment of a Handset Subsidy to PCS or WiBro Users

According to the provisions of the Telecommunications Business Law (TBL), the Company has provided a onetime handset subsidy to eligible mobile phone users, who have subscribed to the Companys service or any other mobile carriers for 18 consecutive months, within the next two years from March 27, 2006 to March 26, 2008.

Above handset subsidy program was terminated effective March 27, 2008, however the Company currently provides a variety of handset subsidy programs to PCS or WiBro subscribers according to its operation policy and sets forth the programs in details in the service agreement. The handset subsidy provided by the Company is expensed as incurred.

DERIVATIVES

For the years ended December 31, 2006, 2007 and 2008, the Company entered into various derivatives contracts with financial institutions. Details of these derivative contracts are as follows:

Type of Transaction	Financial Institution	Description
Interest rate swap	Merrill Lynch and others	Exchange fixed interest rate for variable interest rate for a
specified period
Currency swap	Merrill Lynch and others	Exchange foreign currency cash flow for local currency cash flow
local currency cash flow for a specified period
Combined interest rate currency swap	Merrill Lynch and others	Exchange foreign currency fixed (variable) swaps interest rate
for local currency variable (fixed) interest
Currency forward	Kookmin Bank and others	Exchange a specified currency at the agreed exchange rate at a
specified date
Put Option	PT. Mobile-8	A contract giving the right to sell an underlying security at a
specified price

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The assets and liabilities relating to outstanding contracts as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):

	2007
	Fair Value
			Assets		Assets		Liabilities
Type of Transaction	Contract Amount		(Current)		(Non-Current)		(Current)
Interest rate swap	W	486,540 USD 100,000	W	493	W		W	3,944
Currency swap (Note)		USD 220,000				1,710		2,833
Combined interest rate currency swap		USD 715,165		105				125,548
Currency forward		JPY 325,000		98
Put Option						1,971
	W	486,540
		USD 1,035,165
Total		JPY 325,000	W	696	W	3,681	W	132,325

	2008
	Fair Value
			Assets		Assets		Liabilities		Liabilities
Type of Transaction	Contract Amount		(Current)		(Non-Current)		(Current)		(Non-Current)
Interest rate swap	W	307,240 USD 100,000	W		W		W	13,610	W	2,031
Currency swap (Note)		USD 220,000		14,793		57,334
Combined interest rate currency swap (Note)		USD 1,430,000
		JPY 19,500,000		172,376		245,355
Currency forward		USD 35,201
		JPY 20,000						9		4,746
Put Option				14,540
	W	307,240
		USD 1,785,201
Total		JPY 19,520,000	W	201,709	W	302,689	W	13,619	W	6,777

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(Note) Details of the foreign currency swap contracts to which cash flow hedge accounting is applied as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):

				Fair Value Assets
			Contract	(Non-Current)
Type of Transaction	Contract Date	Maturity Date	Amount	2007		2008
Currency swap	April 4, 2007	April 11, 2012	USD 150,000	W	1,710	W	57,046
(Notes 1 and 2)	October 6, 2008	April 11, 2012	USD 50,000				288
Combined interest	January 4, 2008	January 11, 2011	JPY 12,500,000				62,636
rate currency swap	February 12, 2008	February 25, 2011	USD 70,000				20,210
(Note 2)	February 13, 2008	February 25, 2011	USD 35,000				10,066
	February 13, 2008	February 25, 2011	USD 30,000				8,500
	February 14, 2008	February 25, 2011	USD 20,000				5,831
	February 14, 2008	February 25, 2011	USD 20,000				5,893
	March 3, 2008	December 13, 2010	USD 70,000				20,744
	March 20, 2008	March 31, 2011	USD 50,000				11,917
	March 20, 2008	March 31, 2012	USD 110,000				27,043
	April 18, 2008	April 28, 2011	JPY 4,000,000				15,914
	April 21, 2008	April 28, 2011	JPY 3,000,000				12,370
	June 11, 2008	June 20, 2011	USD 50,000				8,790
	June 11, 2008	June 20, 2011	USD 15,000				2,666
	June 13, 2008	June 20, 2011	USD 30,000				4,807
	July 1, 2008	April 2, 2011	USD 30,000				5,181
	September 2, 2008	September 11, 2013	USD 200,000				22,787
			USD 930,000
Total			JPY 19,500,000	W	1,710	W	302,689

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(Note 1) Among financial institutions with which the Company entered into foreign currency swap contracts totaling USD 200 million in 2007, Lehman Brothers Holdings, Inc. (Lehman) filed for Chapter 11 bankruptcy with the United States Bankruptcy Court during the third quarter of 2008. Lehmans bankruptcy filing caused the Company to discontinue its cash flow hedge accounting for foreign exchange swap contracts with Lehman totaling USD 50 million and accordingly the related derivative asset balance amounting to W 9,891 million was adjusted to the fair value and reclassified into accounts receivable other while the difference between the carrying amount and the fair value was expensed as incurred. However, the Company concluded that the occurrence of the related forecasted transaction is still expected to be probable and W 1,382 million of unrealized derivative gain included in accumulated other comprehensive income as of December 31, 2008 will be reclassified into current operations in the periods in which the hedged forecasted transactions affect earnings.

(Note 2) Above foreign currency swap contracts are to hedge the risk of variability in future cash flows from foreign currency bonds and as of December 31, 2008, the gain and loss on valuation of the swap contract amounting to W 11,136 million and W 13,710 million, net of income tax effect, are included in accumulated other comprehensive income and for the year ended December 31, 2008, and the gain on valuation of the swap contract totaling W 322,560 million is recognized in current operations as a result of foreign currency translation loss from foreign currency bonds. In applying cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 11, 2013. Approximately

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W 3,433 million of net derivative gain included in accumulated other comprehensive income at December 31, 2008 is expected to be reclassified into current operations within 12 months from that date.

The valuation gains and losses on the derivative contracts for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

	2006
	Valuation Gain					Valuation Loss
	For		For			For		For
Type of Transaction	Trading		Hedging	Total		Trading		Hedging	Total
Interest rate swap	W	8,654	W	W	8,654	W	1,435	W	W	1,435
Currency swap							4,855			4,855
Combined interest rate currency swap							80,412			80,412
Currency futures							13			13
Total	W	8,654	W	W	8,654	W	86,715	W	W	86,715

	2007
												Valuation
												Gain
	Valuation Gain						Valuation Loss					(Note 2)
	For		For				For		For			For
Type of Transaction	Trading		Hedging		Total		Trading		Hedging	Total		Hedging
Interest rate swap	W	1,973	W		W	1,973	W	10,823	W	W	10,823	W
Currency swap				2,280		2,280		4,719			4,719		2,792
Combined interest rate currency swap		35,313				35,313
Currency forwards		98				98
Put Option		476				476
Total	W	37,860	W	2,280	W	40,140	W	15,542	W	W	15,542	W	2,792

	2008
													Valuation
													Gain
	Valuation Gain						Valuation Loss (Note 1)						(Note 2)
	For		For				For		For				For
Type of Transaction	Trading		Hedging		Total		Trading		Hedging		Total		Hedging
Interest rate swap	W		W		W		W	10,798	W		W	10,798	W
Currency swap		17,626		54,905		72,531				97		97		11,708
Combined interest rate currency swap		297,925		267,655		565,580								(22,146	)
Currency forwards								6,088				6,088
Put Option		12,569				12,569
Total	W	328,120	W	322,560	W	650,680	W	16,886	W	97	W	16,983	W	(10,438	)

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(Note 1) In accordance with the SKAS No. 24 Preparation and Presentation of Financial Statements II (Financial Industry), the loss on valuation of currency forwards amounting to W 4,746 million and loss on valuation of interest rate swap amounting to W 1,301 million recognized in KT Capital are classified as operating expense.

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(Note 2) The amounts are before adjustment of deferred income tax, which shall be directly reflected to equity, and are included in equity.

SEGMENT INFORMATION

The Company has two operating segments, fixed-line telecommunication services and PCS services. Fixed-line telecommunication services include telephone services, internet services, data communication services and leased line services. PCS services include IMT-2000 services and handset sales while submarine cable construction and maintenance and intercommunication system management are both included in the other segment.

Details of each segment for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

	2006
	Fixed-Line
	Telecom											Consolidated
	Services		PCS Services		Other		Sub-Total		Elimination			Amount
Total sales	W	11,856,009	W	6,507,350	W	1,443,772	W	19,807,131	W	(1,982,251	)	W	17,824,880
Internal sales		(506,655	)	(719,384	)	(756,212	)	(1,982,251	)	1,982,251
Net sales	W	11,349,354	W	5,787,966	W	687,560	W	17,824,880	W			W	17,824,880
Operating income	W	1,756,228	W	668,747	W	54,274	W	2,479,249	W	(95,873	)	W	2,383,376
Total assets	W	17,962,333	W	8,068,028	W	1,648,946	W	27,679,307	W	(3,435,973	)	W	24,243,334

	2007
	Fixed-Line
	Telecom											Consolidated
	Services		PCS Services		Other		Sub-Total		Elimination			Amount
Total sales	W	11,936,381	W	7,293,321	W	1,839,503	W	21,069,205	W	(2,409,123	)	W	18,660,082
Internal sales		(491,440	)	(719,384	)	(1,198,299	)	(2,409,123	)	2,409,123
Net sales	W	11,444,941	W	6,573,937	W	641,204	W	18,660,082	W			W	18,660,082
Operating income	W	1,433,722	W	440,900	W	74,173	W	1,948,795	W	(203,454	)	W	1,745,341
Total assets	W	17,950,064	W	7,460,705	W	2,382,708	W	27,793,477	W	(3,666,592	)	W	24,126,885

	2008
	Fixed-Line
	Telecom											Consolidated
	Services		PCS Services		Other		Sub-Total		Elimination			Amount
Total sales	W	11,784,835	W	8,346,220	W	2,426,572	W	22,557,627	W	(2,913,084	)	W	19,644,543
Internal sales		(538,965	)	(1,166,162	)	(1,207,957	)	(2,913,084	)	2,913,084
Net sales	W	11,245,870	W	7,180,058	W	1,218,615	W	19,644,543	W			W	19,644,543
Operating income	W	1,113,389	W	454,381	W	23,823	W	1,591,593	W	(163,831	)	W	1,427,762
Total assets	W	18,684,922	W	8,056,122	W	3,179,646	W	29,920,690	W	(3,782,086	)	W	26,138,604

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Assets and liabilities by industry as of December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007						2008
					Consolidated						Consolidated
	Non-Financial		Financial		Amount		Non-Financial		Financial		Amount
Assets:
Current assets
Quick assets	W	5,072,971	W	270,724	W	5,343,695	W	6,105,052	W	543,933	W	6,648,985
Inventories		299,104				299,104		424,841				424,841
Sub-total		5,372,075		270,724		5,642,799		6,529,893		543,933		7,073,826
Non-current assets
Investments		458,048		12,147		470,195		510,807		35,193		546,000
Property and equipment		15,211,550		76,452		15,288,002		15,142,938		45,693		15,188,631
Intangible assets		1,735,295		28		1,735,323		1,474,099		139		1,474,238
Other		727,044		263,522		990,566		1,342,091		513,818		1,855,909
Sub-total		18,131,937		352,149		18,484,086		18,469,935		594,843		19,064,778
Total assets	W	23,504,012	W	622,873	W	24,126,885	W	24,999,828	W	1,138,776	W	26,138,604
Liabilities:
Current liabilities	W	4,914,796	W	163,825	W	5,078,621	W	4,787,070	W	453,958	W	5,241,028
Non-current liabilities		7,544,424		366,074		7,910,498		9,173,005		636,673		9,809,678
Total liabilities	W	12,459,220	W	529,899	W	12,989,119	W	13,960,075	W	1,090,631	W	15,050,706

Results of operations by industry for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

	2007						2008
					Consolidated						Consolidated
	Non-Financial		Financial		Amount		Non-Financial		Financial		Amount
Operating revenues	W	18,630,403	W	29,679	W	18,660,082	W	19,536,181	W	108,362	W	19,644,543
Operating expenses		16,898,066		16,675		16,914,741		18,111,907		104,874		18,216,781
Operating income		1,732,337		13,004		1,745,341		1,424,274		3,488		1,427,762
Non-operating revenues		486,628		1,354		487,982		1,053,885		22		1,053,907
Non-operating expenses		772,507		13,053		785,560		1,800,449		71		1,800,520
Income from continuing operations before income tax expense		1,446,458		1,305		1,447,763		677,710		3,439		681,149
Income tax expense on continuing operations		356,454		345		356,799		166,419		1,440		167,859
Newly included subsidiarys net loss before acquisition		5,810				5,810
Income from continuing operations		1,095,814		960		1,096,774		511,291		1,999		513,290
Income from discontinuing operations		74,204				74,204
Net income	W	1,170,018	W	960	W	1,170,978	W	511,291	W	1,999	W	513,290

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VALUE ADDED INFORMATION

Value added information included in operating expenses for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Salaries and wages	2006 — W	2,224,598	2007 — W	2,242,295	2008 — W	2,281,587
Share-based payment		531		1,239		1,922
Severance indemnities		240,843		359,473		362,342
Employee welfare		527,062		528,902		567,878
Rent		219,825		226,327		249,827
Depreciation		3,228,293		3,225,887		3,264,291
Amortization		389,710		430,623		438,544
Taxes and dues		197,196		195,874		200,287
Total	W	7,028,058	W	7,210,620	W	7,366,678

EMPLOYEE WELFARE

Employee welfare through various plans spent by the Company for the years ended December 31, 2007 and 2008 totaled W 528,902 million and W 567,878 million, respectively.

Meanwhile, the Company donates cash to Employee Welfare Foundation each year. The related expenses recognized for the years ended December 31, 2007 and 2008 amounted to W 84,500 million and W 74,300 million, respectively.

SUBSEQUENT EVENT

a. Merger with KTF

On March 27, 2009, the shareholders meeting of the Company approved the merger agreement with KTF. The Company completed merger with KTF on June 1, 2009.

i) Purpose of Merger

Through the merger, the Company expects to grow as a global competitive company by actively responding to a fixed-mobile convergence environment, increasing management efficiency and maximizing synergy effects.

ii) Appraisal rights of Shareholders

Pursuant to Article 522-3 of the Korean Commercial Code, and Article 191 of the Korean Securities and Exchange Act, stockholders dissenting to the merger exercised the appraisal rights from March 27, 2009 through April 16, 2009. As a result, the Company purchased those 451,038 shares for W 17,381 million on May 15, 2009.

iii) Merger Ratio

In the merger, each holder of one outstanding share of KTF common stock received 0.7192335 common shares of KT Corporation common stock.

iv) Accounting Treatment

As this is a merger between parent and subsidiary, the Company will account for the merger using the carrying amounts in its consolidated financial statements.

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b. Foreign Currency Exchangeable Bonds

On January 20, 2009, the Company entered into the Purchase Agreement with NTT DoCoMo, Inc. to issue exchangeable bonds denominated in U.S. dollars as follows (in millions of Korean won, thousands of USD):

Total issue amount :	W 344,409 (USD 253,261)
Shares to be exchanged :	KT common stocks or KT ADRs
Exchange price per share (in Korean won) :	W 40,743
Period of exercise :	June 2, 2009 through May 26, 2014
Maturity date of bond :	May 26, 2014
Interest rate at maturity :	2.024%
Interest payment method :	Payable twice a year in arrears (every six months)
Repayment method :	Lump-sum payment on maturity date
Subscription date :	May 27, 2009
Subscription method :	KTF shares owned by NTT DoCoMo, Inc.

On June 2, 2009, KTs treasury stocks (8,453,222 shares) were exchanged for total exchangeable bonds.

c. Retirement of Treasury Stock

The board of directors of the Company resolved to retire 13,124,000 shares of treasury stocks, which will be acquired during the period from March 10, 2009 to June 9, 2009, by charging against retained earnings. Meanwhile, the Company expects that the total amount of W 500,024 millions will be spent for the acquisition.

RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Korea (Korean GAAP), which differ in certain respects from accounting principles generally accepted in the United States of America (U.S. GAAP). The significant differences are described below. Other differences do not have a significant effect on either consolidated net income or stockholders equity.

a. Companies Included in Consolidation

Under Korean GAAP, all majority-owned subsidiaries and entities of which the Company or a controlled subsidiary owns more than 30% of total outstanding voting stock and is the largest stockholder are consolidated. However, U.S. GAAP generally requires that majority-owned subsidiaries be consolidated and that an entity which the Company has significant influence, generally including those in which it owns 20-50% of total outstanding voting stock, should not be consolidated; rather that entity should be accounted for under the equity method of accounting.

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The following table shows the Companys percentage of ownership and carrying value of each of its affiliates that are excluded from consolidation under U.S. GAAP and instead are accounted for under the equity method (in millions of Korean won):

2006	2007	2008		Carrying Value — 2007		2008
Entity
Listed :
Olivenine	19.7	19.2	19.5	W	21,431	W	2,769
KTSC	36.9	36.9	36.9	W	12,338	W	11,072
KTF Music (formerly, Bluecord Technology)		35.3	35.3	W	19,526	W	18,705
Unlisted :
KTP	44.9	44.9	44.9	W	28,848	W	31,633
SFNH BF-(1)	43.3	43.3	43.3	W	12,978	W	10,505
Doremi Media

The quoted market values (based on closing KOSDAQ prices) of Olivenine, KTSC and KTF Music shares held by the Company is W 4,995 million, W 11,820 million and W 7,494 million as of December 31, 2008, respectively.

The Company acquired additional shares of KTF during the period from February 28, 2006 to September 15, 2006. The Companys ownership percentage of KTF increased from 44.6% to 50.8% as a result of this series of acquisitions. Percentage of ownership exceeded 50% as of August 21, 2006 and accordingly, the Company became the majority stockholder and began to consolidate the financial statements of KTF under U.S. GAAP which were previously accounted for using the equity method until August 20, 2006.

Condensed balance sheet data of KTF as of August 20, 2006 under U.S. GAAP is as follows (in millions of Korean won):

Current assets — Accounts receivable trade	W	1,420,193
Other current assets		1,477,580
Total current assets		2,897,773
Property and equipment, net		4,177,784
Other assets		2,464,479
Total assets	W	9,540,036
Current liabilities
Accounts payable	W	1,213,506
Other current liabilities		830,290
Total current liabilities		2,043,796
Long-term debt, excluding current portion		1,597,631
Other long-term liabilities		804,763
Total liabilities		4,446,190
Minority interest in consolidated subsidiaries		4,321
Stockholders equity		5,089,525
Total liabilities, minority interest and stockholders
equity	W	9,540,036

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The acquisition was accounted for as a step acquisition. The purchase price of additional shares was W 357,582 million including direct costs of acquisition, and goodwill amounting to W 484,599 million was recognized as a result of purchase price allocation. Deferred income tax assets amounting to W 416,928 million relating to the basis difference for its investment in KTF while being accounted for under the equity method was derecognized as it is not apparent that the temporary difference will reverse in the foreseeable future and was included in the determination of the total purchase price. Percentage of ownership of KTF is 52.2% as of December 28, 2006 due to the purchase and retirement of treasury stock by KTF. The purchase and retirement of treasury stock is considered a separate step acquisition for which consideration was W 164,884 million resulting in additional goodwill of W 23,212 million.

The following unaudited pro forma financial information presents the combined results of operations of the Company and KTF in accordance with U.S. GAAP as if the acquisition of KTF had occurred at January 1, 2006 (in millions of Korean won except per share data).

Net revenue	2006 — W	17,440,435
Net earnings	W	1,323,671
Net earnings per share:
Basic (in Korean won)	W	6,306
Diluted (in Korean won)	W	6,299

After acquisition, KTF retired 2,979,000 shares and 4,448,000 shares of treasury stock on November 13, 2007 and July 21, 2008, respectively. Due to this retirement of treasury stock by KTF, the percentage of ownership of KTF is 54.3% as of December 31, 2008 and the Company recognized additional goodwill accounting to W 43,437 million.

KTFT (owned 73.1% by KTF), KTFM (owned 51.0% by KTF), and KTFI (owned 99.0% by KTF), are consolidated by KTF, accordingly these companies were consolidated in the Companys consolidated financial statements beginning August 21, 2006. In addition, as of August 21, 2006, Sidus FNH, which is owned by KT and KTF by 35.7% and 15.3%, respectively, was consolidated.

Presented below is the summarized combined financial information of those entities that are consolidated under Korea GAAP but not for U.S. GAAP, prepared in accordance with Korean GAAP as of December 31, 2007 and 2008, and for each of the three years in the period ended December 31, 2008. As KTF became a consolidated subsidiary as of August 21, 2006, the condensed statement of income for 2006 includes operational results of KTF for the period from January 1, 2006 through August 20, 2006 (in millions of Korean won).

Current assets	2007 — W	169,535	2008 — W	185,447
Non-current assets		179,439		172,011
Total assets		348,974		357,458
Current liabilities		115,068		104,128
Non-current liabilities		33,817		66,491
Total liabilities		148,885		170,619
Net assets	W	200,089	W	186,839

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Operating revenues	2006 — W	4,335,555	2007 — W	210,170	2008 — W	272,407
Operating income	W	556,766	W	214,369	W	268,978
Net earnings	W	202,879	W	8,294	W	(15,551	)

Net cash provided by operating activities	2006 — W	1,045,235	W	4,487	W	30,172
Net cash used in investing activities		(690,269	)	(23,322	)	(53,271	)
Net cash used in financing activities		(350,278	)	(19,992	)	(2,546	)
Effect of changes in consolidated entities		(287,591	)	16,536
Net increase (decrease) in cash and cash equivalents		(282,903	)	(22,291	)	(25,645	)
Cash and cash equivalents at beginning of the year		352,329		69,425		47,185
Cash and cash equivalents at end of the year	W	69,426	W	47,134	W	21,540

The Companys proportionate share of U.S. GAAP adjustments of KTF, KTSC, KTFT, KTFM, KTFI, Sidus FNH, KTP and SFNH BF-(1), Olivenine, KTF Music (formerly, Bluecord Technology) and Doremi Media for periods prior to consolidation are presented in the line item U.S. GAAP adjustments of equity method affiliates in the U.S. GAAP reconciliation of net earnings and stockholders equity for the applicable periods. Condensed consolidated balance sheets as of December 31, 2007 and 2008, and condensed consolidated statements of cash flows of the Company under U.S. GAAP for each of the three years in the period ended December 31, 2008 are presented in Note 38 s.

b. Debt and Equity Securities

Under Korean GAAP, non-marketable securities classified as available-for-sale securities are carried at cost or fair value if applicable with unrealized holding gains and losses reported as a capital adjustment, net of tax. For U.S. GAAP purposes, investment in non-marketable equity securities are accounted for under the cost method or the equity method of accounting in accordance with Accounting Principles Board Opinion (APB) No. 18.

Under Korean GAAP, available-for-sale securities, whose likelihood of being disposed within one year from the balance sheet date is probable, are classified as current. Under U.S. GAAP, when the disposition of available-for-sale securities within one year is reasonably expected, available-for-sale securities are classified as current.

For U.S. GAAP purposes, the Company accounts for marketable equity and debt investments under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115 Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 requires that marketable equity securities and all debt securities be classified in three categories and accounted for as follows:

| | Debt securities that the enterprise has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost. |
| --- | --- |
| | Debt and equity securities that are bought and held principally
for the purpose of selling in the short term are classified as
trading securities and reported at fair value, with unrealized
gains and losses included in earnings. |
| | Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value,
with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholders equity
until realized. |

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Information under U.S. GAAP with respect to investments under SFAS No. 115 at December 31, 2007 and 2008 is as follows (in millions of Korean won):

	2007
			Gross		Gross
	Cost or		Unrealized		Unrealized
	Amortized Cost		Holding Gains		Holding Losses		Fair Value
Equity securities (available-for-sale)	W	25,488	W	19,705	W	297	W	44,896
Debt securities (available-for-sale)		5,156						5,156
	W	30,644	W	19,705	W	297	W	50,052

	2008
			Gross		Gross
	Cost or		Unrealized		Unrealized
	Amortized Cost		Holding Gains		Holding Losses			Fair Value
Equity securities (available-for-sale)	W	103,388	W	7,300	W	(9,170	)	W	101,518
Debt securities (available-for-sale)		6,117				(180	)		5,937
	W	109,505	W	7,300	W	(9,350	)	W	107,455

The proceeds from sales of available-for-sale securities were W 690,177 million in 2006, W 1,181,025 million in 2007 and W 614,405 million in 2008. The realized gains on those sales were W 68,293 million in 2006, W 11,428 million in 2007 and W 5,587 million in 2008. The average-cost method is used to calculate gains or losses from the sale of available-for-sale securities.

Under Korean GAAP, when the subsequent recoveries of impaired available-for-sale securities and held-to-maturity securities result in an increase of their carrying amount, the recovery gains are reported in current operations up to the previously recognized impairment loss as reversal of loss on impairment of investment securities.

Under U.S. GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity securities is not allowed. The subsequent increase in fair value of available-for-sale securities is reported in other comprehensive income.

The subsequent recovery of the impaired held-to-maturity securities amounted to W 12,493 million in 2006, while the subsequent recoveries of impaired available-for-sale securities amounted to W 227 million in 2006 and W 76 million in 2007. However, such differences have not been reconciled for U.S. GAAP purposes, since the amounts are immaterial and nil in 2008.

On November 3, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 115-1 and SFAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP nullifies certain requirements of Emerging Issue Task Force (EITF) Issue No. 03-1 and supersedes EITF Abstracts , Topic No. D-44, Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value. This FSP carries forward the disclosure requirements included in EITF Issue No. 03-1. The Company has not included the disclosure requirements of EITF Issue No. 03-1 related to investments gross unrealized losses and fair value, since the amounts were immaterial. These pronouncements were effective for fiscal years beginning after December 15, 2005.

c. Goodwill Impairment including Investor-level Goodwill

Under Korean GAAP, goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired, is amortized on a straight-line basis over its estimated economic useful life not exceeding 20 years. When it is no longer probable that goodwill will be recovered from expected future economic

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benefits, it is expensed immediately. Also, for investments in affiliated companies accounted for using the equity method, the excess of acquisition cost of the affiliates over the Companys share of their net assets at the acquisition date is amortized by the straight-line method over its estimated useful life.

Under U.S. GAAP, goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment on an annual basis by comparing the fair value of the Companys reporting units to their carrying amounts. The investor-level goodwill is tested for impairment in accordance with APB No. 18. The investor-level goodwill, which is recorded only at the investors financial statements, represents the excess of the acquisition cost of equity method investees over the fair value of investors share of net identifiable assets acquired.

The changes in the carrying amount of goodwill which is recorded in the PCS segment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):

Balance as of January 1, 2007	W	507,811
Goodwill acquired during the year		18,745
Balance as of December 31, 2007		526,556
Goodwill acquired during the year		24,692
Balance as of December 31, 2008	W	551,248

d. Equity Method Accounting

Under Korean GAAP, a put and call combination contract should be recorded as a right and obligation of the Company to acquire shares in accordance with the terms of the contract. Accordingly, the Company recorded the right and obligation of the option contract as additional equity method investment securities and long-term accounts payable.

Under U.S. GAAP, the potential equity ownership that may become available to the Company upon exercise of the option is not recorded prior to exercise, as the Company does not have legal ownership of the underlying shares. However, based on the nature of the Companys arrangement to potentially acquire additional shares in KDB, the Company has resumed recognition of its share, including the potential equity ownership, of investee gains and losses, and the amount recognized in earnings under U.S. GAAP is the same as that recognized under Korean GAAP, except for the effect of other differences described herein.

e. Additional Equity Investments in and Transactions of Subsidiaries

Under Korean GAAP, subsequent to acquiring a controlling financial interest in a subsidiary, additional equity investments by the Company in a subsidiaries stock and other equity transactions of subsidiaries are accounted for assuming such transactions occur as of the date of audited or reviewed financial statements of the acquired subsidiary closest to the date of acquisition. In addition, the difference between the Companys cost of the acquired additional interest and the corresponding share of stockholders equity of the acquired subsidiary is presented as an adjustment to capital surplus.

Under U.S. GAAP, such equity investments in and transactions of affiliates and subsidiaries are recorded and accounted for as of the date the transaction occurs. As a result, the Company has a different basis in its equity investments in the subsidiaries under Korean GAAP as compared to U.S. GAAP. Therefore, any gains or losses recorded by the Company (which are recorded as capital transactions in stockholders equity) when an equity investee sells shares of its stock will be different under U.S. GAAP as compared to Korean GAAP. In addition, under U.S. GAAP, the cost of an additional equity interest would be allocated based on the fair value of net tangible and identifiable assets acquired and liabilities assumed, with the excess allocated to goodwill.

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f. Intangible Assets

Under Korean GAAP, the frequency usage right related to the second generation (2G) paid by the initial stockholders to obtain the operating licenses prior to the establishment of KTM.Com Co., Ltd. (KTM), which was merged into KTF in 2001, was not recognized as an intangible asset in applying purchase accounting of KTM by KT in 2000.

Under U.S. GAAP, the 2G frequency usage right was considered as indefinite lived intangible asset and thus in the process of purchase accounting of KTM, KT recognized the frequency usage right at fair value. However, on December 31, 2005, the Korea Communication Act (Act) was revised effective July 1, 2006. Under the revised Act, the frequency usage right of 2G will expire by June 2011. Thus, KTF amortizes the frequency usage right of 2G over the remaining useful life under U.S. GAAP beginning \for the years ended December 31, 2006.

Identifiable intangible assets determined in accordance with U.S. GAAP as of December 31, 2007 and 2008 are presented below.

	2007
	Gross Carrying		Accumulated
	Amount		Amortization		Net Amount
	(In millions of Korean won)
Amortizable intangible assets:
Internal-use software	W	775,845	W	464,290	W	311,555
Frequency usage rights		1,465,990		460,757		1,005,233
Buildings and facility utilization rights		126,742		73,437		53,305
Other		307,372		196,180		111,192
Total	W	2,675,949	W	1,194,664	W	1,481,285

	2008
	Gross Carrying		Accumulated
	Amount		Amortization		Net Amount
	(In millions of Korean won)
Amortizable intangible assets:
Internal-use software	W	876,471	W	579,663	W	296,808
Frequency usage rights		1,465,990		594,354		871,636
Buildings and facility utilization rights		127,896		79,799		48,097
Other		325,485		218,756		106,729
Total	W	2,795,842	W	1,472,572	W	1,323,270

Amortization expense: — For the year ended December 31, 2006	182,378 million
For the year ended December 31, 2007	284,016 million
For the year ended December 31, 2008	306,000 million

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Estimated amortization expense (in millions of Korean won):

Year Ending December 31, — 2009	296,491
2010	232,948
2011	194,973
2012	147,591
2013	128,430

The weighted-average amortization period of total amortized intangible assets, internal-use software, frequency usage rights and utilization rights are 9 years, 6 years, 11 years and 20 years, respectively. The Company has no identifiable intangible assets that are not subject to amortization.

g. Depreciation

In 1995, KT adopted a method of depreciation, as allowed under Korean GAAP, whereby property and equipment placed in service at any time during the first half of the year received a full year of depreciation expense, and property and equipment placed in service at any time during the second half of the year received one-half year of depreciation. Also, as permitted under Korean GAAP, depreciation of these assets was based on lives which are shorter than their economic useful lives. In 1996, KT adopted the policy, also acceptable under Korean GAAP, whereby property and equipment is depreciated from the actual date it is placed in service, while continuing to use useful lives which are shorter than the economic useful lives of such assets. In 1998, under Korean GAAP, as required under a ruling by the National Tax Service (which is also applicable under Korean GAAP), the Company changed the estimated useful lives of certain assets, including underground access to cable tunnels and concrete and steel telephone poles acquired after 1995, from 6 years to periods ranging from 20 years to 40 years, and changed the depreciation method from the declining-balance method to the straight-line method.

In 1999, under Korean GAAP, the Company changed its depreciation method for buildings and structures acquired before December 31, 1994, from the declining-balance method to the straight-line method in order to be consistent with the method applied to buildings and structures acquired after January 1, 1995.

Under U.S. GAAP, property and equipment is generally depreciated over its estimated useful life in a systematic and rational manner. In addition, the depreciation method in the year of acquisition based on the Companys in-service dates for its capital additions in 1995 described above, does not comply with U.S. GAAP in that significant depreciation expense is recognized prior to the actual use of the asset. The change in estimated useful lives in 1998, and the changes in 1998 and 1999 from the declining-balance method to the straight-line method would also not be appropriate under U.S. GAAP. Accordingly, adjustments have been reflected for U.S. GAAP purposes for the effect of each of these items.

Under U.S. GAAP, property and equipment is generally depreciated by using the declining-balance method except for the assets of certain subsidiaries, buildings and structures acquired in 1995 and thereafter which are depreciated using the straight-line method.

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Under U.S. GAAP, the useful lives of property and equipment are summarized as follows:

Buildings and structures	5-60 years
Underground access to cable tunnels, and concrete and steel
telephone poles	10-40 years
Machinery and equipment	3-15 years
Vehicles	3-10 years
Tools, furniture and fixtures:
Steel safe boxes	20 years
Tools, computer equipment, furniture and fixtures	3-8 years

h. Interest Capitalization

Under Korean GAAP, prior to January 1, 2003, interest was capitalized on borrowings related to the construction of all property and equipment and IMT-2000 frequency usage right, incurred prior to completing the acquisition, as part of the cost of such assets. Effective January 1, 2003, Korean GAAP was revised to allow a company to charge such interest expense to current operations. For Korean GAAP purpose, the Company adopted in 2003 the accounting policy not to capitalize such financing costs prospectively.

Under U.S. GAAP, interest costs related to certain assets that are routinely manufactured or otherwise produced in large quantities on a regular basis are not in the scope of interest capitalization. In addition, interest is capitalized in the amount that would have theoretically been avoided had expenditures not been made for assets which require a period of time to get them ready for their intended use.

Under U.S. GAAP, details of interest capitalization for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Total interest costs incurred	2006 — W	379,017	2007 — W	458,951	2008 — W	471,816
Interest capitalized		9,169		13,372		15,376
Amounts charged to expense	W	369,848	W	445,579	W	456,440

i. Revenue Recognition

Under Korean GAAP, non-refundable service installation fees for telephone and initial subscription fees for broadband internet access and PCS services are recognized as revenue when installation and initiation services are rendered. The related direct incremental acquisition costs are expensed as incurred.

Under U.S. GAAP, service installation fees and initial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. The expected terms of customer relationships for telephone, broadband internet access and leased-line service, and PCS are 15 years, 3 years and 4 years, respectively. The related incremental direct costs related to customer acquisition are deferred and recognized over the period of the customer relationship.

Under Korean GAAP, handset subsidy paid by the Company is accounted as expenses. However, under U.S. GAAP, the handset subsidy is treated as reduction of revenue in accordance with EITF Issue No. 01-09 Accounting for Consideration Given by a Vendor to a Customer.

j. Income Taxes

Under Korean GAAP, effective January 1, 2005, due to the adoption of SKAS No. 16 Income Taxes , deferred income taxes are recognized on the temporary difference related to unrealized gains and losses on investment

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securities that are reported as a separate component of stockholders equity. Any adjustments to income tax provision attributable to prior years are included in income tax expense (benefit). Consequently, there is no GAAP difference as of December 31, 2007 and 2008, respectively, in terms of deferred income taxes on unrealized gains and losses on investment securities.

Under U.S. GAAP, deferred income taxes are recognized on the temporary difference related to unrealized gains and losses on investment securities that are reported as other comprehensive income. Any adjustments to income tax provision attributable to prior years are included in income tax expense (benefit).

Under Korean GAAP, recognition of deferred income tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is interpreted to mean within 5 years. The Company does not believe it is probable to realize such benefit within 5 years.

Under U.S. GAAP, deferred income tax assets are recognized for an excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). However, deferred income tax assets related to consolidated subsidiaries are recognized only if it is apparent that the temporary difference will reverse in the foreseeable future.

Under Korean GAAP, prior to January 1, 2005, all deferred income tax assets and liabilities were recorded as non-current. Effective January 1, 2005, per SKAS No. 16, deferred income tax assets and liabilities shall be classified as current or non-current based on the classification of the related assets or liabilities for financial reporting or the expected reversal date of the temporary difference. As a result of adoption of SKAS No. 16, there is no difference between Korean GAAP and U.S. GAAP as of December 31, 2007 and 2008, respectively.

Under Korean GAAP, in accordance with SKAS No. 16, effective from January 1, 2005, the Company did not recognize deferred income tax liabilities of W 26,377 million related to equity in gains of affiliates as of December 31, 2008 since it is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Under U.S. GAAP, deferred income tax liabilities are fully recognized for an excess of the amount for financial reporting over the tax basis of an investment in domestic subsidiaries and corporate joint ventures, unless the investment in the subsidiary can be recovered tax-free under local tax laws and management expects that it will ultimately use that means. However, deferred income tax liabilities are not recognized in an investment in a more than 50 percent-owned foreign subsidiary or foreign corporate joint venture that is essentially permanent in duration.

In 2006 the Company adopted KAI opinion 06-2 Deferred Tax Accounting for Investments in Subsidiaries, Affiliated Companies Accounted for Using the Equity Method, and Interest in Joint Ventures. This statement requires recognition of deferred income tax asset or liability based on net of all temporary differences arising from the same subsidiary or investee rather than on an individual basis. According to the transition rule of the statement, Korean GAAP prior year financial statements have been restated. However, in 2008 the KAI opinion 06-2 was slightly amended as described in note 2 (b), in which temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, should be separately treated as an individual basis when they are recognized in the consolidated financial statements. Consequently, there is no GAAP difference as of December 31, 2008, in terms of the recognition of temporary differences arising from certain transactions mentioned above.

Under U.S. GAAP, effective January 1, 2007 the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), which supplements SFAS No. 109 Accounting for Income Taxes (SFAS No. 109), by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effect(s) of a position be recognized only if it is more-likely-than-not to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position.

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If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of FIN 48, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Any necessary adjustment would be recorded directly to retained earnings and reported as a change in accounting principle. As a result of the adoption of FIN 48 as of January 1, 2007, the Company recorded a decrease to retained earnings of W 58,667 million as a cumulative effect of a change in accounting principle with an increase to the liability amounting to W 67,142 million for uncertain tax positions and an increase to the deferred income tax asset amounting to W 8,475 million.

k. Foreign Currency Transactions

Under Korean GAAP, prior to January 1, 2003, all unrealized foreign currency translation gains and losses on monetary assets and liabilities, except for amounts included in the cost of property and equipment, were included in results of operations. Effective January 1, 2003 the Company adopted SKAS No. 7, Capitalization of Financing Costs. As allowed by the standard, the Company elected to include all unrealized foreign currency translation gains and losses (including property and equipment) in the results of operations.

Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to as translation gains and losses under Korean GAAP) are included in the results of operations for the current period and therefore, the amounts included in property and equipment and related depreciation expense under Korean GAAP are reversed.

Under Korean GAAP, the convertible notes denominated in a foreign currency are regarded as non-monetary liabilities since they have equity-like characteristics, and the Company does not recognize the associated foreign currency translation gain and loss.

Under U.S. GAAP, the convertible notes denominated in a foreign currency are translated at the rate of exchange on the balance sheet date, and the resulting foreign currency transaction gain and loss is included in the results of operations.

l. Minority Interest Income in Consolidated Subsidiaries

Under Korean GAAP, minority interest incomes in consolidated subsidiaries are presented as a component of stockholders equity in the consolidated balance sheet.

Under U.S. GAAP, minority interest incomes in consolidated subsidiaries are not included in stockholders equity; rather, it is presented between liabilities and stockholders equity item in the consolidated balance sheet.

The differences relating to minority interest income in net profit between Korean GAAP and U.S. GAAP consist of reconciliation items affecting non-wholly-owned subsidiaries that are allocable to the minority interest holders.

m. Stockholders Agreement between KT and DoCoMo

Under Korean GAAP, stockholders agreement between the Company and DoCoMo is regarded as a contingency which does not require recognition other than disclosure.

Under U.S. GAAP, the agreement is regarded as a guarantee provided by the Company to DoCoMo on behalf of KTF and is subject to FIN 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Upon commencement of the guarantee, the Company evaluated fair value of the guarantee and obtained fair value. Since the fair value of the guarantee was immaterial and as of August 3, 2007 the right of DoCoMo was extinguished, the Company has not recorded the guarantee.

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n. Other

Korean GAAP requires gains and losses from the sale of property and equipment and impairment write-downs to be included as part of non-operating revenues (expenses). Under U.S. GAAP, gains and losses from the sale of property and equipment and impairment write-downs are required to be recorded as a component of operating income.

Under Korean GAAP, purchase of treasury stock is regarded as temporary and does not impact the ownership percentages of stockholders unless there is an explicit purpose of retirement of the repurchased shares in accordance with resolution of board of directors or stockholders meeting. Under U.S. GAAP, purchase of treasury stock results in a change of an entitys ownership structure and ownership percentages of stockholders.

o. Comprehensive Income

Prior to January 1, 2007, Korean GAAP did not require the presentation comprehensive income, however, effective January 1, 2007, the Company adopted SKAS No. 21, Preparation and Presentation of Financial Statements 1, which requires separate disclosure of the details of comprehensive income. Consequently, there is no GAAP difference as of December 31, 2007, in terms of disclosure of comprehensive income and its components.

Under U.S. GAAP, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in stockholders equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of operations.

Comprehensive income for the years ended December 31, 2006, 2007 and 2008 are summarized as follows (in millions of Korean won):

Net earnings as adjusted in accordance with U.S. GAAP	2006 — W	1,329,343	W	1,068,533	2008 — W	518,245
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(10,520	)	19,295		16,921
Unrealized gains on investments:
Unrealized holding gains (losses), net of tax of W 1,351 million, W 1,023 million and
( W 1,907) million in 2006, 2007 and 2008,
respectively		3,562		2,698		(6,762	)
Reclassification adjustment for losses realized in net earning
due to disposal, net of tax of W 39 million, W 1,004 million and W 687 million in 2006, 2007 and 2008,
respectively		102		2,648		2,436
Gains (losses) on valuation of derivatives for cash flow hedge,
net of tax of W 768 million and
( W 1,297) million in 2007 and 2008,
respectively				2,024		(4,598	)
Comprehensive income as adjusted in accordance with U.S. GAAP	W	1,322,487	W	1,095,198	W	526,242

p. Statements of Cash Flows

Statements of cash flows under Korean GAAP include the cash flows of KTSC, KTP, SFNH BF-(1), Olivenine, KTF Music (formerly, Bluecord Technology) and Doremi Media, which are accounted for under the equity method under U.S. GAAP.

Under Korean GAAP, cash flows from contributions that are restricted for the purposes of constructing assets are included in investing activities. For U.S. GAAP purposes, those cash flows are included in financing activities. In addition, under Korean GAAP cash flows from initial consolidation or deconsolidation of a subsidiary is

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presented as a separate line whereas for U.S. GAAP purposes, it is categorized as investing activities net of cash paid or received.

q. Significant New Accounting Pronouncements

(i) In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)) which retained the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) will require that: (1) for all business combinations, the acquirer records all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain contingent assets and liabilities acquired should be recognized at their fair values on the acquisition date; (3) contingent consideration should be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs should be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control should be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of this statement should also apply the provisions of SFAS No. 141(R). This standard will be applied to all future business combinations after December 31, 2008.

(ii) In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51 (SFAS No. 160) which amends ARB 51 to establish new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS No. 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; and, (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings. SFAS No. 160 is effective on a prospective basis for all fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. Management is currently evaluating the effects, if any, that SFAS No. 160 may have on the Companys consolidated financial condition and results of operations.

(iii) In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an Amendment of FASB Statement No. 133 (SFAS No. 161), that expands the disclosure requirements of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 161 requires additional disclosures regarding: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (3) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. In addition, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entitys risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. Management does anticipate that the adoption of this statement will have a material effect on our consolidated financial position or results of operations.

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(iv) In April 2008, the FASB issued FSP FAS 142-3, Determining of the Useful Life of Intangible Assets, (FSP FAS 142-3) with the objective of improving the consistency between the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets, (SFAS 142) and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. GAAP standards. FSP FAS 142-3 establishes additional factors to be considered by an entity in developing assumptions about renewal or extension used to determine the useful life of an intangible asset recognized under SFAS No. 142. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. Management does anticipate that the adoption of this statement will have a material effect on our financial position or results of operations.

(v) In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement), (FSP APB 14-1) was issued which specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the issuers nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management is currently evaluating the effects, if any, which FSP APB 14-1 may have on the Companys consolidated financial condition and results of operations.

(vi) In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162) that is intended to improve financial reporting by identifying a consistent framework, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 is effective 60 days following the Securities and Exchanges Commissions approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.

(vii) In June 2008, the EITF issued EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, (EITF No. 03-6-1). The FASB concluded that all unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is currently evaluating the effects, if any, which EITF No. 03-6-1 may have on the Companys consolidated financial condition and results of operations.

(viii) In September 2008, the EITF issued EITF No. 08-5, Issuers Accounting for Liabilities at Fair Value with a Third-Party Credit Enhancement (EITF No. 08-5). EITF No. 08-5 states that the issuer of debt with a third-party credit enhancement that is inseparable from the debt instrument shall not include the effect of the credit enhancement in the fair value measurement of the liability. EITF No. 08-5 is effective on a prospective basis for periods ending after December 15, 2008. Management is currently evaluating the effects, if any, which EITF No. 08-5 may have on the Companys consolidated financial condition and results of operations.

(ix) In November 2008, the EITF issued EITF No. 08-6, Equity Method Investment Accounting Considerations (EITF No. 08-6) that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefeinite-lived intangible asset of an equity method investment should be performed, how an equity method investees issuance of shares should be accounted for, and how to account for a change in an investment from equity method to the cost method. EITF No. 08-6 shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. EITF No. 08-6 shall be applied prospectively with early application prohibited. Management is currently evaluating the effects, if any, which EITF No. 08-6 may have on the Companys consolidated financial condition and results of operations.

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(x) In November 2008, the EITF issued EITF No. 08-7, Accounting for Defensive Intangible Assets, (EITF No. 08-7) applies to defensive intangible assets, which are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SAFS No. 141(R) and SFAS No. 157. EITF No. 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008.

(xi) In December 2008, the FASB issued FSP FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132(R)-1), to provide guidance on an employers disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 provides objectives for the disclosure about the employers (1) investment policies and strategies, (2) categories of plan assets, (3) fair value measurements, and (4) significant concentrations of risk. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods that are presented for comparative purposes. Earlier adoption is permitted. Because this impacts the disclosure and not the accounting treatment for benefit and other postretirement plans, management believes the adoption of FSP FAS 132(R)-1 will not have a material effect on the consolidated financial condition or results of operations.

(xii) In April 2009, the FASB issued three staff positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. The first, FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset of Liability Have Significantly Decreased and Identifying Transaction That Are Not Orderly, provides guideline for determining fair value measurements consistently with the principles presented in SFAS No. 157 when the volume and level of activity for the asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. The second, FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, expands the frequency of fair value disclosures for publicly traded entities about the fair value of certain financial instruments not recognized at fair value in the statement of financial position to include interim reporting periods. The third, FSP FAS 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, amends the other-than-temporary impairment guidance for debt securities, and modifies the presentation and disclosure requirements for all other-than-temporary impairments. The staff positions are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted of all three FSPs together. The Company did not early adopt these FSPs. Management does anticipate that the adoption of these staff positions will have a material effect on the consolidated financial position or results of operations.

(xiii) In May 2009, the FASB issued SFAS No. 165, Subsequent Events, addressing accounting and disclosure requirements related to subsequent events (SFAS No. 165). SFAS No. 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the entitys expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Entities will be required to disclose the date through which subsequent events have been evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. Management believes the adoption of SFAS No. 165 will not have a material effect on our consolidated financial position or results of operations.

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r. U.S. GAAP Reconciliations

The effects of the significant adjustments to net earnings and stockholders equity for the years ended December 31, 2006, 2007 and 2008 which would be required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows (in millions of Korean won except per share data):

Reference	2006		2007		2008
Net income (attributable to equity holders of the parent) in
accordance with Korean GAAP	W	1,291,863	W	1,056,227	W	449,810
Adjustments:
U.S. GAAP adjustments of equity method affiliates	38.a	1,250
Goodwill impairment	38.c					(13,948	)
Equity in income of associates:
Reversal of amortization of goodwill	38.c	145,510		180,343		166,422
Impairment loss relating to equity investee	38.c					(9,466	)
Additional acquisitions of equity investees	38.e	(26,337	)	(15,760	)	6,351
Intangible assets	38.f	(4,742	)	(13,652	)	(14,329	)
Property and equipment	38.g	(150,885	)	(207,573	)	(114,744	)
Interest capitalization (including related depreciation), net	38.h	8,631		5,310		(2,128	)
Capitalized foreign exchange transactions, net	38.k	2,789		3,433		880
Service installation fees	38.i	17,615		(9,236	)	5,865
Deferred income tax methodology difference	38.j	37,590		(22,618	)	4,275
Deferred income tax effects of U.S. GAAP adjustments	38.j	1,346		57,363		(15,228	)
Miscellaneous accounts	38.j	(68	)	13,886		35,230
Foreign currency translation of convertible notes	38.k	948
Minority interest income	38.l	3,833		20,810		19,255
	W	37,480	W	12,306	W	68,435
Net earnings as adjusted in accordance with U.S. GAAP	W	1,329,343	W	1,068,533	W	518,245

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2006, 2007 and 2008:

	2006 — Diluted		Basic		2007 — Diluted		Basic		2008 — Diluted		Basic
			(In millions of Korean won except per share data)
CONSOLIDATED
Earnings from continuing operations	W	1,329,034	W	1,328,995	W	994,399	W	994,399	W	518,245	W	518,245
Earnings from discontinuing operations		348		348		74,134		74,134
Net earnings available		1,329,382		1,329,343		1,068,533		1,068,533		518,245		518,245
AVERAGE EQUIVALENT SHARES
Shares of common stock outstanding		209,894,649		209,894,649		206,599,294		206,599,294		202,891,015		202,891,015
Dilutive effect of convertible notes		254,949
Total average equivalent shares		210,149,598		209,894,649		206,599,294		206,599,294		202,891,015		202,891,015
PER SHARE AMOUNTS
Earnings from continuing operations		6,325		6,331		4,814		4,814		2,554		2,554
Earnings from discontinuing operations		2		2		358		358
Net earnings per share	W	6,327	W	6,333	W	5,172	W	5,172	W	2,554	W	2,554

Basic earnings per share is computed on the basis of the weighted-average number of common stock outstanding. Diluted earnings per share is computed on the basis of the weighted-average number of common stock outstanding plus the effect of outstanding convertible notes using the if-converted method. The denominator of the diluted earnings per share computation is adjusted to include the number of additional common stock that would have been outstanding had the dilutive potential common stock been issued at the beginning of the period. In addition, the numerator is adjusted to include the after-tax amount of interest and foreign currency translation gain (loss) recognized associated with the convertible notes. Stock options were not considered when calculating diluted earnings per share because the exercise price of the stock options was greater than the average market price of the shares and, therefore, the effect would have been antidilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stockholders equity in accordance with Korean GAAP	W	11,137,766	W	11,087,898
Adjustments:
Goodwill impairment	38.c	(12,947	)	(26,895	)
Equity in earnings of equity method affiliates:
Reversal of goodwill amortization	38.c	846,305		1,012,727
Impairment loss relating to equity investee	38.c	(1,462,443	)	(1,471,474	)
Additional acquisitions of equity investees	38.e	766,291		787,293
Different useful life of intangibles	38.f	111,631		111,631
Intangible assets	38.f	53,010		38,681
Accumulated depreciation	38.g	(510,021	)	(624,765	)
Interest capitalization, net	38.h	67,822		65,694
Capitalized foreign exchange transactions, net	38.k	(3,896	)	(3,016	)
Service installation fees	38.i	(481,618	)	(475,753	)
Deferred tax methodology difference	38.j	28,518		32,864
Deferred tax effects of U.S. GAAP adjustments	38.j	226,605		209,666
Miscellaneous accounts	38.j	(44,704	)	(9,474	)
Minority interest	38.l	(2,283,928	)	(2,244,679	)
		(2,699,375	)	(2,597,500	)
Stockholders equity as adjusted in accordance with U.S.
GAAP	W	8,438,391	W	8,490,398

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

s. Condensed Consolidated U.S. GAAP Financial Information

Condensed consolidated balance sheets in accordance with U.S. GAAP as of December 31, 2007 and 2008 are presented as follows (in millions of Korean won):

	2007		2008
Current assets
Accounts receivable trade	W	2,510,955	W	2,963,183
Other current assets		2,974,231		3,946,259
Total current assets		5,485,186		6,909,442
Investments		413,012		496,052
Property and equipment, net		14,670,821		14,460,108
Goodwill		557,119		584,761
Other assets		2,897,283		3,523,729
Total assets	W	24,023,421	W	25,974,092
Current liabilities
Accounts payable trade	W	1,009,032	W	827,971
Other current liabilities		4,144,455		4,441,864
Total current liabilities		5,153,487		5,269,835
Long-term debt, excluding current portion		5,970,098		7,910,118
Other long-term liabilities		2,310,831		2,184,470
Total liabilities		13,434,416		15,364,423
Minority interest in consolidated subsidiaries		2,150,614		2,119,271
Stockholders equity		8,438,391		8,490,398
Total liabilities, minority interest and stockholders
equity	W	24,023,421	W	25,974,092

Changes in consolidated stockholders equity in accordance with U.S. GAAP for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Beginning of the year	2006 — W	7,345,041	W	8,037,993	W	8,438,391
Net earnings		1,329,343		1,068,533		518,245
Retirement of treasury stock		(213,644	)	(196,329	)	(73,807	)
Foreign currency translation adjustments		(10,520	)	19,295		16,921
Unrealized gains on investments, net of tax		3,664		5,346		(4,326	)
Sale of treasury stock, net		14,368		884		807
Dividends		(426,113	)	(416,191	)	(407,374	)
Adoption of FIN 48				(58,667	)
Changes in consolidated entities				(23,990	)
Other, net of tax		(4,146	)	1,517		1,541
End of the year	W	8,037,993	W	8,438,391	W	8,490,398

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Condensed consolidated statements of cash flows in accordance with U.S. GAAP for the years ended December 31, 2006, 2007 and 2008 are set out below (in millions of Korean won):

	2006
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income	W	1,329,343	W	1,068,533	W	518,245
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization		2,882,488		3,695,405		3,663,037
Provision for doubtful accounts		47,515		67,263		139,441
Loss on disposal of property and equipment		73,539		76,839		89,734
Equity in loss of associates		(81,488	)	(145,861	)	(164,336	)
Deferred income tax expense (benefit)		(15,261	)	(68,417	)	(115,337	)
Gain on disposition of available-for-sale securities, net		(63,133	)	(11,428	)	(5,587	)
Impairment losses of equity method affiliates						22,058
Foreign currency translation gain (loss), net		(114,950	)	7,293		753,592
Gain (loss) on settlement and valuation of derivatives, net		92,784		(22,440	)	(649,360	)
Minority interest income in earnings of consolidated subsidiaries		93,874		91,521		55,178
Changes in assets and liabilities related to operating
activities:
Notes and accounts receivable		250,695		(416,506	)	(161,287	)
Inventories		68,218		(72,708	)	(142,512	)
Advance payments		52,575		(20,599	)	(2,795	)
Notes and long-term accounts receivable		(20,705	)	(9,384	)	(654,248	)
Accounts payable		(81,279	)	14,740		(423,619	)
Advance receipts		(610	)	(30,484	)	19,783
Income taxes payable		234,888		(150,832	)	(153,173	)
Prepaid expenses		(5,314	)	(12,678	)	(44,291	)
Withholdings		(340	)	24,657		26,404
Accrued expenses		7,821		66,584		24,904
Refundable deposits for telephone installation		(48,557	)	(66,145	)	(59,437	)
Payment of severance indemnities		158,423		254,671		140,352
Deposits for severance indemnities		(150,621	)	(132,427	)	(148,822	)
Other, net		(42,900	)	52,483		160,633
Net Cash Provided by Operating Activities		4,667,005		4,260,080		2,888,557
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisition of property and equipment		(2,827,851	)	(3,621,428	)	(3,322,381	)
Disposal of property and equipment		54,819		103,471		53,606
Decrease (increase) in short-term financial instruments, net		369,902		114,459		209,474
Disposal of available-for-sale securities		690,177		1,181,025		614,405
Decrease in equity method investment securities		60,785		10,807		1,047

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Collection of held-to-maturity securities	2006	607		252		5
Acquisition of available-for-sale securities		(647,051	)	(981,008	)	(692,289	)
Acquisition of equity method investment securities		(9,482	)	(7,220	)	(123,171	)
Acquisition of held-to-maturity securities		(281	)	(5	)	(13,988	)
Acquisition of assets and liabilities of consolidated
subsidiaries		(109,853	)	(31,928	)	(5,619	)
Other, net		(13,715	)	(178,630	)	(223,359	)
Net Cash Used in Investing Activities		(2,431,943	)	(3,410,205	)	(3,502,270	)
CASH FLOWS FROM FINANCING ACTIVITIES :
Payment of dividends		(426,663	)	(472,774	)	(408,242	)
Repayment of short-term borrowings		25,485		30,601		55,440
Repayment of long-term borrowings and current portion of
long-term debt		(922,740	)	(1,314,424	)	(2,121,831	)
Increase in long-term borrowings		235,831		872,085		3,735,500
Acquisition of treasury stock		(213,664	)	(195,217	)	(73,807	)
Inflows (outflows) from capital transactions of consolidated
entities		(164,884	)	(150,055	)	(110,917	)
Increase in accounts receivable trade		(200,000	)
Other, net		(3,597	)	(41,383	)	70,702
Net Cash Used in Financing Activities		(1,670,232	)	(1,271,167	)	1,146,845
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		564,830		(421,292	)	533,132
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR		1,194,314		1,759,144		1,337,852
CASH AND CASH EQUIVALENTS AT END OF THE YEAR	W	1,759,144	W	1,337,852	W	1,870,984
Supplemental schedule:
Cash paid for interest (net of amounts capitalized)	W	385,553	W	433,471	W	406,485
Cash paid for income taxes	W	322,866	W	486,448	W	453,532

ADDITIONAL U.S. GAAP DISCLOSURES

a. Income Tax Expense

The components of income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):

Current income tax expense	2006 — W	372,351	W	337,904	W	293,512
Deferred income tax expense (benefit)		(15,261	)	(68,417	)	(115,337	)
Income tax expense	W	357,090	W	269,487	W	178,175

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Substantially all income before income taxes and related income tax expense (benefit) are attributable to domestic operations. The provision for income taxes using statutory tax rates differs from the actual provision for the years ended December 31, 2006, 2007 and 2008 for the following reasons (in millions of Korean won):

Provision for income taxes at statutory tax rates	2006 — W	489,584	W	372,704	W	191,502
Tax credits		(147,509	)	(121,159	)	(197,492	)
Additional income tax payment (refund) related to prior year		(26,449	)	(23,683	)	(4,716	)
Non-temporary difference		51,341		18,217		24,863
Changes in deferred income tax unrecognized		(9,877	)	10,039		16,058
Tax rate changes						142,437
Others				13,369		5,523
Actual provision for income taxes	W	357,090	W	269,487	W	178,175

The effective tax rates after adjustments of certain differences between amounts reported for financial accounting and income tax purpose, were approximately 20.1%, 18.8% and 25.6% for the years ended December 31, 2006, 2007 and 2008, respectively.

The tax effects of temporary differences that resulted in significant portions of the deferred income tax assets and liabilities at December 31, 2007 and 2008, computed under U.S. GAAP, and a description of financial statement items that created these differences are as follows (in millions of Korean won):

	2007
Deferred income tax assets:
Allowance for doubtful accounts	W	98,470	W	119,855
Refundable deposits for telephone installation		14,850		11,205
Investment securities		3,653		8,840
Inventories		9,619		4,543
Property and equipment		130,553		130,443
Unearned revenue		111,144		74,560
Equity method investment securities		46,131		24,251
Tax credit carryforwards		71,555		131,102
Tax loss carryforwards		18,529		49,183
Accrued expenses		81,928		53,825
Other		98,816		240,529
Total deferred income tax assets		685,248		848,336
Valuation allowance		(20,558	)	(78,444	)
Deferred income tax assets		664,690		769,892
Deferred income tax liabilities:
Equity method investment securities		(58,973	)	(41,678	)
Accrued interest income		(1,682	)	(2,798	)
Deferred income tax liabilities		(60,655	)	(44,476	)
Net deferred income tax assets	W	604,035	W	725,416

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KT CORPORATION AND SUBSIDIAIRIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2007 and 2008, valuation allowance were recognized by certain subsidiaries as realization of deferred income tax asset was not assessed as more likely than not mainly due to lack of expected future taxable income.

In 2008, the Company was eligible for tax credits of W 305,651 million. However, due to the minimum tax provisions, the Company utilized only W 152,556 million. The remaining tax credit will expire in 2013. During 2008, the Company concluded that the remaining tax credit was more likely than not of realization in the future based on future taxable income estimates. As a result, the Company recorded an income tax benefit of W 131,102 million of the tax credit. The tax loss carryforwards of W 223,560 million as of December 31, 2008 will expire in 2013. During 2008, certain subsidiaries including TSC did not recognize deferred income tax assets amounting to W 48,591 million which resulted from the tax effects of tax loss carryforwards of W 220,869 million in excess of taxable differences and future taxable income.

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax carryforwards are utilizable. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred income tax assets are deductible, management believes that it is more likely than not the Company will realize the benefits of these deductible differences and tax carryforwards.

Upon adoption of FIN 48 as of January 1, 2007, the Company recorded a decrease to retained earnings of W 58,667 million as a cumulative effect of the liability for uncertain tax positions. At January 1, 2007, the Company had W 67,142 million of total gross unrecognized tax benefits, of which W 46,386 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate. The amount of unrecognized tax benefits that would favorably affect the effective income tax rate was W 441 million and W 784 million for the years ended December 31, 2007 and 2008, respectively. These amounts consider the guidance in FIN 48-1, Definition of Settlement in FASB Interpretation No. 48. The liability for uncertain tax positions is classified as a non-current liability.

A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows (in millions of Korean won):

Balance at January 1,	2007 — W	67,142	W	6,450
Additions to tax positions recorded during the current year		3,303		573
Additions to tax positions recorded during prior years				268
Reductions to tax positions recorded during prior years				(226	)
Reductions in tax positions due to lapse of statutory limitations
Reductions for settlement		(63,995	)	(2,813	)
Balance at December 31,	W	6,450	W	4,252

The Companys practice is to classify interest on uncertain tax positions in non-operating expense whereas penalties are classified in income tax expense. The Company recognized W 311 million and W 295 million in penalties for the years ended December 31, 2007 and 2008, respectively. As of December 31, 2007 and 2008, the Company had W 477 million and W 683 million accrued for the payment of penalties.

The Company has open tax years ranging from 2004 to 2008, by which our taxes remain subject to examination. However, the Company does not anticipate that the total amount of unrecognized tax benefits will significantly change in the next 12 months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

b. Fair Value Measurements (SFAS No. 157)

The Company carries certain assets and liabilities as fair value recognized in the consolidated financial statements each year. The Company makes estimates regarding valuation of assets and liabilities measured at fair value in preparing the consolidated financial statements. These assets and liabilities mainly include available-for-sale debt and equity securities accounted for pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and derivative contracts accounted for pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements, for all financial and nonfinancial assets and liabilities recognized at fair value in the consolidated financial statements on a recurring basis. The adoption of this statement did not change our previous accounting for financial assets and liabilities. The provisions of SFAS No. 157 will be applied to nonfinancial assets and liabilities that are recognized at fair value in the consolidated financial statements on a nonrecurring basis beginning January 1, 2009. Upon application of the remaining provisions of SFAS No. 157 on January 1, 2009, the Company will provide additional disclosures regarding the nonrecurring fair value measurements.

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a three-tier fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Following is a description of the valuation methodologies the Company used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Securities

The Company classifies its securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market. The Company generally classifies its securities within Level 2 of the valuation hierarchy where quoted market prices are not available. If quoted market prices are not available, the Company determines the fair value of its securities using pricing models, quoted prices of securities with similar characteristics or discounted cash flow models.

Derivatives

The Company generally classifies derivatives within Level 2 of the valuation hierarchy. The derivative financial instruments consist of cross currency interest rate swap and put option contracts. The cross currency interest swaps are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors and current and forward market prices for foreign currency.

The Company classifies put option within Level 3 of the valuation hierarchy. The put option is valued using internal model with significant unobservable inputs as Level 3 of the valuation hierarchy. The fair value of the put option is measured using Black-Sholes option pricing model that utilizes unobservable inputs such as expectation about dividend and future volatility. In addition, considering the fair value measurement, management judgments are applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality and the Companys own nonperformance risk, where relevant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following fair value hierarchy table presents information regarding the assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 (in millions of Korean won):

	Level 1		Level 2		Level 3		Total
ASSETS
Securities
Beneficiary certificates	W	39,696	W		W		W	39,696
Available-for-sale securities :		107,455						107,455
Held-to-maturity securities				14,073				14,073
Derivative instruments assets :
Currency swap				72,127				72,127
Combined interest rate currency swap				417,731				417,731
Put option						14,540		14,540
Total	W	147,151	W	503,931	W	14,540	W	665,622
LIABILITIES
Derivative instruments liabilities :
Interest rate swap				15,641				15,641
Currency forwards				4,755				4,755
Total	W		W	20,396	W		W	20,396

The following table provides a reconciliation of the beginning and ending balances for the year ended December 31, 2008 of the Companys put option, as the option is measured at fair value using significant unobservable inputs (in millions of Korean won):

Balances at January 1, 2008	W	1,971
Unrealized gain included in earnings		12,569
Unrealized gain (loss) included in other comprehensive income
Purchases, sales, issuances and settlements, net
Transfer in and/or out of Level 3
Balances at December 31, 2008	W	14,540

c. Fair Value of Financial Instruments (SFAS No. 107)

The following method and assumptions were used to estimate the fair value of each significant class of financial instrument for which it was practicable to estimate such value:

(i) Cash and cash equivalents, short-term financial instruments, accounts receivable, accounts payable and short-term borrowings

The carrying amount approximates fair value due to the short-term maturity of these instruments.

(ii) Loans to employees

The carrying amount of short-term loans approximates fair value due to the short term maturities of these loans. The fair value of long-term loans is estimated based on discounted cash flows using current rates offered for loans of the similar remaining maturities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(iii) Long-term debt

The fair value of the long-term debt, including current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.

The estimated fair values of the Companys significant financial instruments at December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):

	2007 — Carrying Amount		Fair Value		2008 — Carrying Amount		Fair Value
Cash and cash equivalents	W	1,337,852	W	1,337,852	W	1,871,018	W	1,871,018
Short-term financial instruments		259,504		259,504		86,059		86,059
Notes and accounts receivable		3,058,264		3,058,264		3,805,072		3,805,072
Loans to employees		163,864		149,305		56,020		52,616
Accounts payable		1,009,032		1,009,032		1,212,756		1,212,756
Short-term borrowings		199,768		199,768		261,006		261,006
Long-term debt, including current portion		6,979,913		6,848,696		9,371,938		9,182,625

d. Accrued Severance Indemnities

The Company expects to pay the following future benefits to its employees upon their normal retirement age (in millions of Korean won):

Year Ending December 31, — 2009	5,795
2010	13,701
2011	15,130
2012	24,614
2013	46,633
2014-2018	551,582

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

KT CORPORATION

(Registrant)

/s/ Suk-Chae Lee

callerid=999 iwidth=456 length=0

Name: Suk-Chae Lee

Title: Chief Executive Officer

Date: June 29, 2009

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Exhibit Index

callerid=999 iwidth=456 length=60

Filed previously.

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KT CORP Annual Report 2008

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