KT M Mobile, the No. 1 operator in the budget phone market, decided to pay dividends this year to its parent, KT, in an amount equal to 90% of last year's operating profit, right after wiping out accumulated deficits through a free capital reduction last year. Although profitability in the budget phone market continues to deteriorate due to slowing subscriber growth and the burden of wholesale fees and marketing expense, most of KT M Mobile's profits are effectively being used as a fund for dividends to the parent company rather than to strengthen service competitiveness.
KT M Mobile paid 288.6 billion won last year to KT in operating expenses with the nature of wholesale fees, and plans to hand over an additional 10.4 billion won as a settlement of account dividends this year. That is why some are saying the top budget phone subsidiary is serving as KT's "cash bag."
According to KT M Mobile's audit report on the 17th, the company plans to carry out a 10.4 billion won settlement of account dividends this year. That amounts to 90.4% of last year's 11.5 billion won in operating profit and 87% of 11.95 billion won in net profit. The dividend per share is 520 won. Because KT owns 100% of KT M Mobile's shares, all dividends accrue to KT. KT M Mobile is the No. 1 budget phone company in Korea, with about 1.9 million subscribers as of the end of last year.
In the industry, there are concerns that if KT M Mobile shifts from a one-off dividend to a regular dividends structure, KT Group's cash recovery function could grow over securing competitiveness in the budget phone business.
◇ Deficit resolved with free capital reduction… shift to a structure that allows dividends
The reason KT M Mobile can pursue dividends this year is a free capital reduction carried out last year. KT M Mobile reduced its capital from 200 billion won to 100 billion won last year. In the process, it offset 56.8 billion won in deficits and reflected 43.2 billion won as capital surplus from reduction gains.
As a result, the 56.8 billion won in unappropriated deficits at the end of 2024 was resolved, and 11.6 billion won in retained earnings had accumulated by the end of last year. Under the Commercial Act, a company can pay profit dividends only within the scope of distributable income. If accumulated deficits remain, even current net profit is used to cover the deficit. By settling the deficit issue through a free capital reduction, KT M Mobile secured a financial structure that allows a settlement of account dividends this year.
In the industry, there is an interpretation that KT M Mobile's role in KT Group's budget phone business could change now that it has finished clearing deficits. Until now, budget phone subsidiaries mainly focused on defending telecom subscribers and meeting demand for low-priced plans. But as KT M Mobile continues to post profits and has begun paying dividends, it has grown in importance to KT as a revenue source that secures both wholesale fees and dividends. Still, there is room for debate over whether channeling most net profit into dividends is appropriate. With competition intensifying in the budget phone market and the burden of marketing expense growing, the structure could be seen as prioritizing parent cash recovery over investment.
According to the Korea Budget Telecom Operators Association, the average profit margin of the budget phone business among member companies in 2024 was -1.5%. There was also a projection that by 2027, when they fully bear the radio frequency usage fee, losses could widen to 3.9%. A telecom industry official said, "With competition intensifying in the budget phone market, securing the capacity to invest to improve competitiveness is crucial. The balance between business investment and dividends to the parent is the key."
◇ "Key is balance between investment and dividends as budget phone competition intensifies"
KT M Mobile's operating expenses recognized for KT last year totaled 288.6 billion won, up 12.6% from the previous year (256.3 billion won). KT M Mobile's operating expenses for KT increased from 224.2 billion won in 2023 to 256.3 billion won in 2024 and 288.6 billion won last year. KT M Mobile's revenue last year was 390.7 billion won. Operating expenses for KT amounted to 73.9% of revenue. A significant portion of this expense is wholesale fees.
KT M Mobile is a budget phone operator that provides services using KT's network and has entered into an agreement with KT on wholesale provision of telecommunications services. Budget phone operators do not own their own networks and provide services by leasing the networks of the three mobile carriers. As a result, even if subscribers increase and revenue grows, the burden of network usage fees and subscriber acquisition expense rises in tandem.
A KT M Mobile official said, "The capital reduction carried out last year was not to pay dividends to the parent, but to improve the financial structure."