KT and SK Telecom are taking diverging paths in artificial intelligence (AI) investment. While SK Telecom, selected for the government's independent AI foundation model project elite team, increased both research and development (R&D) expense in the first half and its R&D ratio to revenue, KT, which did not make the elite team, saw its R&D expense drop by about 30% from a year earlier, and its ratio to revenue fell by the largest margin among the three telecom companies.
What stands out is that during this period, the size of KT's contracts to use Microsoft (MS) AI and cloud technology actually grew. As the gap with SK Telecom becomes evident in the in-house technology development race, this is why some say KT is doubling down on a strategy to speed up commercialization of AX (AI transformation) by leveraging technology from global big tech.
◇ KT R&D down 28.2% in a year… among the three telecom companies, only SKT increased
An analysis of the half-year reports of the three telecom companies by ChosunBiz on the 4th showed that KT's R&D expense ratio to consolidated revenue fell 0.32 percentage points (P), from 1.35% in the first half of last year to 1.03% in the first half of this year. R&D expense also decreased 28.2%, from 193.249 billion won to 138.793 billion won.
LG Uplus also saw its R&D ratio fall 0.03 percentage points, from 0.98% to 0.95%, and expense decreased 3.7%, from 74.1 billion won to 71.4 billion won. In contrast, SK Telecom was the only one among the three telecom companies to increase both R&D expense and ratio. The R&D ratio rose from 2.07% to 2.13%, and expense increased 2.5%, from 182.3 billion won to 186.8 billion won.
Compared with last year's annual R&D expense, KT's scale in the first half of this year was relatively small. KT's first-half R&D expense was 39.1% of last year's annual 355.3 billion won. SK Telecom's was 52.5% of last year's annual 355.8 billion won, and LG Uplus' was 48.8% of 146.4 billion won.
Some say the independent AI foundation model project selection results may have influenced KT's and SK Telecom's R&D investment. In Aug. last year, SK Telecom was included among the five elite teams selected from 15 support teams by the government, but KT was eliminated. SK Telecom has since continued competing and, in Aug. this year, was named one of three teams that passed the second-stage evaluation, along with LG AI Research Institute and Upstage.
◇ As R&D fell, MS Azure contract size rose 9.6%
While KT reduced R&D expense, its use of MS AI and cloud technology expanded. The Azure service provision and operation contract that KT signed this year through KT Cloud totaled 174.1 billion won, up 9.6% from last year (158.9 billion won).
In September 2024, KT signed a five-year strategic partnership with MS to jointly develop a Korea-style AI model and services and a secure public cloud. Joint R&D and AI talent development were also included in the cooperation. KT Cloud signed a contract to use MS Azure from Oct. 2024 for five years, totaling 1.365 trillion won.
R&D expense and Azure usage contracts have different accounting characteristics and cannot be directly compared, and it cannot be concluded that the R&D decline was due to expanded cooperation with MS. However, the fact that the scale of leveraging external AI and cloud technology through MS grew at a time when KT failed to make the elite team for the independent AI foundation model project and its R&D investment intensity weakened is a point to consider in examining KT's AI strategy.
Leveraging global big tech technology can cut massive development costs and time and speed up AX commercialization. Ultimately, the task for KT is not to stop at simply using MS technology, but to internalize it into its own services, specialists, and technology asset. Whether external technology use leads to stronger in-house competitiveness is expected to be the yardstick for evaluating KT's transition to an "AX platform corporations."