20-F

As filed with the Securities and Exchange Commission on April 27, 2018

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ 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 1-14418

SK Telecom Co., Ltd.

(Exact name of Registrant as specified in its charter)

SK Telecom Co., Ltd.

(Translation of Registrant’s name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

SK T-Tower

65, Eulji-ro, Jung-gu, Seoul, Korea

(Address of principal executive offices)

Ms. Min Joo Kim

65, Eulji-ro, Jung-gu, Seoul, Korea

Telephone No.: 82-2-6100-2114

Facsimile No.: 82-2-6100-7830

(Name, telephone, email 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-ninth of one share of Common Stock	New York Stock Exchange
Common Stock, par value ￦500 per share	New York Stock Exchange*

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

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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

70,609,160 shares of common stock, par value ￦500 per share (not including 10,136,551 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  ☑    No  ☐

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  ☐    No  ☑

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  ☑    No  ☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☐

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

Large accelerated filer  ☑            Accelerated filer  ☐            Non-accelerated filer  ☐            Emerging growth company  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ☐     International Financial Reporting Standards as issued by the International Accounting Standards Board  ☑     Other  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐     Item 18  ☑

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  ☐    No  ☑

TABLE OF CONTENTS

CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT		1
FORWARD-LOOKING STATEMENTS		1
Part I		3
Item 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
Item 1.A.	Directors and Senior Management	3
Item 1.B.	Advisers	3
Item 1.C.	Auditors	3
Item 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	3
Item 3.	KEY INFORMATION	3
Item 3.A.	Selected Financial Data	3
Item 3.B.	Capitalization and Indebtedness	6
Item 3.C.	Reasons for the Offer and Use of Proceeds	6
Item 3.D.	Risk Factors	6
Item 4.	INFORMATION ON THE COMPANY	21
Item 4.A.	History and Development of the Company	21
Item 4.B.	Business Overview	23
Item 4.C.	Organizational Structure	43
Item 4.D.	Property, Plants and Equipment	44
Item 4.E.	UNRESOLVED STAFF COMMENTS	44
Item 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	44
Item 5.A.	Operating Results	44
Item 5.B.	Liquidity and Capital Resources	57
Item 5.C.	Research and Development, Patents and Licenses, etc.	64
Item 5.D.	Trend Information	65
Item 5.E.	Off-Balance Sheet Arrangements	65
Item 5.F.	Tabular Disclosure of Contractual Obligations	65
Item 5.G.	Safe Harbor	65
Item 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	65
Item 6.A.	Directors and Senior Management	65
Item 6.B.	Compensation	67
Item 6.C.	Board Practices	68
Item 6.D.	Employees	69
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	72
Item 7.C.	Interests of Experts and Counsel	72
Item 8.	FINANCIAL INFORMATION	72
Item 8.A.	Consolidated Statements and Other Financial Information	72
Item 8.B.	Significant Changes	75
Item 9.	THE OFFER AND LISTING	75
Item 9.A.	Offering and Listing Details	75
Item 9.B.	Plan of Distribution	75
Item 9.C.	Markets	75
Item 9.D.	Selling Shareholders	83
Item 9.E.	Dilution	83
Item 9.F.	Expenses of the Issue	83
Item 10.	ADDITIONAL INFORMATION	83
Item 10.A.	Share Capital	83
Item 10.B.	Material Contracts	96

(i)

Item 10.C.	Exchange Controls	96
Item 10.D.	Taxation	100
Item 10.E.	Dividends and Paying Agents	105
Item 10.F.	Statements by Experts	105
Item 10.G.	Documents on Display	105
Item 10.H.	Subsidiary Information	105
Item 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	105
Item 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	107
Item 12.A.	Debt Securities	107
Item 12.B.	Warrants and Rights	107
Item 12.C.	Other Securities	107
Item 12.D.	American Depositary Shares	107
Part II		108
Item 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	108
Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	108
Item 15.	CONTROLS AND PROCEDURES	108
Item 16.	RESERVED	109
Item 16.A.	AUDIT COMMITTEE FINANCIAL EXPERT	109
Item 16.B.	CODE OF ETHICS	109
Item 16.C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	109
Item 16.D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	110
Item 16.E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	110
Item 16.F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	110
Item 16.G.	CORPORATE GOVERNANCE	110
Item 16.H.	MINE SAFETY DISCLOSURE	111
Part III		111
Item 17.	FINANCIAL STATEMENTS	111
Item 18.	FINANCIAL STATEMENTS	112
Item 19.	EXHIBITS	113
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-13.2
EX-15.3
EX-15.4

(ii)

CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT

All references to “Korea” contained in this annual report shall mean The Republic of Korea. All references to the “Government” shall mean the government of The Republic of Korea. All references to “we,” “us,” or “our” shall mean SK Telecom Co., Ltd. and, unless the context otherwise requires, its consolidated subsidiaries. References to “SK Telecom” shall mean SK Telecom Co., Ltd., but shall not include its consolidated subsidiaries. All references to “U.S.” shall mean the United States of America.

All references to “MHz” contained in this annual report shall mean megahertz, a unit of frequency denoting one million cycles per second. All references to “GHz” shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to “Mbps” shall mean one million bits per second and all references to “Gbps” shall mean one billion bits per second. All references to “GB” shall mean gigabytes, which is one billion bytes. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All references to “Won,” or “￦” in this annual report are to the currency of Korea, all references to “Dollars”, “U.S. dollar” or “US$” are to the currency of the United States of America and all references to “euro” or “€” are to the currency of the European Union.

The Ministry of Science and ICT (the “MSIT”) is charged with regulating information and telecommunications and the Korea Communications Commission (the “KCC”) is charged with regulating the public interest aspects of and fairness in broadcasting. Subscriber information for the wireless and fixed-line telecommunications industry set forth in this annual report are derived from information published by the MSIT unless expressly stated otherwise.

The consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). As such, we make an explicit and unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015 included in this annual report.

In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission (the “SEC”), which became effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United States, or U.S. GAAP.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements,” as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “project” and similar expressions, or that certain events, actions or results “may,” “might,” “should” or “could” occur, be taken or be achieved.

Forward-looking statements in this annual report include, but are not limited to, statements about the following:

• our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors;

• our implementation of long-term evolution (“LTE”) technology, long-term evolution advanced (“LTE-A”) technology and the next-generation wireless technology, which we call “5G” technology;

1

• our plans for capital expenditures in 2018 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our Internet of Things (“IoT”) solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course;

• our efforts to make significant investments to build, develop and broaden our businesses, including developing our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products and services offered through our platform services, including artificial intelligence solutions;

• our ability to comply with governmental rules and regulations, including the regulations of the Government related to telecommunications providers, the Mobile Device Distribution Improvement Act (“MDDIA”), rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”) and the effectiveness of steps we have taken to comply with such regulations;

• our ability to effectively manage our bandwidth and to timely and efficiently implement new bandwidth-efficient technologies and our intention to participate in, and acquire additional bandwidth pursuant to, frequency bandwidth auctions held by the MSIT;

• our expectations and estimates related to interconnection fees, rates charged by our competitors, regulatory fees, operating costs and expenditures, working capital requirements, principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases, and research and development expenditures and other financial estimates;

• the success of our various joint ventures and investments, including SK Hynix, Inc. (known as Hynix Semiconductor Inc. at the time of such acquisition, “SK Hynix”), a memory-chip maker;

• our ability to successfully attract and retain subscribers; and

• the growth of the telecommunications industry in Korea and other markets in which we do business and the effect that economic, political or social conditions have on our number of subscribers and results of operations.

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. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment, technology changes, potential litigation and governmental actions, changes in the competitive environment, political changes, foreign exchange currency risks, foreign ownership limitations, credit risks and other risks and uncertainties that are more fully described under the heading “Item 3. Key Information — Risk Factors” and elsewhere in this annual report. 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.

2

PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT 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

Not applicable.

Item 3. KEY INFORMATION

Item 3.A. Selected Financial Data

You should read the selected consolidated financial and operating data below in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report. The selected consolidated financial data set forth below as of and for each of the five years ended December 31, 2017 have been derived from our audited consolidated financial statements and related notes thereto, which have been prepared in accordance with IFRS as issued by the IASB.

In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission of Korea (the “FSC”) and the Korea Exchange Inc. (the “Korea Exchange”) under the Financial Investment Services and Capital Markets Act (the “FSCMA”). English translations of such financial statements are furnished to the SEC on Form 6-K. K-IFRS requires operating profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses. The presentation of operating profit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating profit in the consolidated statements of income prepared in accordance with K-IFRS for the corresponding periods in certain respects. For additional information, see “Item 5.A. Operating Results — Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

3

	Year Ended December 31,
	2017			2016			2015			2014			2013
	(In billions of Won, except per share and number of shares data)
STATEMENT OF INCOME DATA
Operating Revenue and Other Income	￦	17,552.0		￦	17,158.3		￦	17,167.6		￦	17,220.3		￦	16,677.0
Revenue		17,520.0			17,091.8			17,136.7			17,163.8			16,602.1
Other income		32.0			66.5			30.9			56.5			74.9
Operating Expense		16,327.4			15,854.9			15,672.2			15,612.4			15,098.6
Operating Profit		1,224.6			1,303.4			1,495.4			1,607.8			1,578.4
Profit before Income Tax		3,403.3			2,096.1			2,035.4			2,253.8			1,827.1
Profit from Continuing Operations		2,657.6			1,660.1			1,515.9			1,799.3			1,426.3
Profit from Discontinued Operation, net of income taxes		—			—			—			—			183.2
Profit for the Year		2,657.6			1,660.1			1,515.9			1,799.3			1,609.5
Basic Earnings per Share(1)		36,582			23,497			20,988			25,154			23,211
Diluted Earnings per Share(2)		36,582			23,497			20,988			25,154			23,211
Basic Earnings per Share from Continuing Operations(1)		36,582			23,497			20,988			25,154			20,708
Diluted Earnings per Share from Continuing Operations(2)		36,582			23,497			20,988			25,154			20,708
Dividends Declared per Share (Won)		10,000			10,000			10,000			9,400			9,400
Dividends Declared per Share (US$)(3)		9.4			8.3			8.6			8.6			8.9
Weighted Average Number of Shares		70,609,160			70,609,160			71,551,966			70,936,336			70,247,592
	As of December 31,
	2017			2016			2015			2014			2013
	(In billions of Won)
STATEMENT OF FINANCIAL POSITION DATA
Working Capital (Deficit)(4)		(907.3	)	￦	(447.5	)	￦	(96.3	)	￦	(337.2	)	￦	(945.8	)
Property and Equipment, Net		10,144.9			10,374.2			10,371.3			10,567.7			10,196.6
Total Assets		33,428.7			31,297.7			28,581.4			27,941.2			26,576.5
Non-current Liabilities(5)		8,290.4			8,737.1			7,950.8			7,272.7			6,340.7
Share Capital		44.6			44.6			44.6			44.6			44.6
Total Equity		18,029.2			16,116.4			15,374.1			15,248.3			14,166.6
	As of December 31,
	2017			2016			2015			2014			2013
	(In billions of Won, except percentage data)
OTHER FINANCIAL DATA
Capital Expenditures(6)		2,715.9		￦	2,490.5		￦	2,478.8		￦	3,008.0		￦	2,879.1
Research and Development Expense		395.3			344.8			315.8			390.9			352.4
Depreciation and Amortization Expense		3,097.5			2,941.9			2,845.3			2,714.7			2,661.6
Net Cash Provided by Operating Activities		3,855.8			4,243.2			3,778.1			3,677.4			3,558.6
Net Cash Used in Investing Activities		(3,070.6	)		(2,462.2	)		(2,880.5	)		(3,683.2	)		(2,506.5	)
Net Cash Provided by (Used in) Financing Activities		(826.6	)		(1,044.8	)		(964.6	)		(559.4	)		(573.2	)
Margins (% of total sales):
Operating Margin(7)		7.0	%		7.6	%		8.7	%		9.3	%		9.5	%
Net Margin		15.2	%		9.7	%		8.8	%		10.4	%		9.7	%

4

	As of or for the year ended December 31,
	2017			2016			2015			2014			2013
SELECTED OPERATING DATA
Population of Korea (in millions)(8)		51.8			51.7			51.5			51.3			51.1
Our Wireless Penetration(9)		58.3	%		57.2	%		55.6	%		55.1	%		53.5	%
Number of Employees(10)		30,608			25,844			25,992			25,689			23,789
Our Wireless Subscribers (in thousands)(11)		30,195			29,595			28,626			28,279			27,352
Our LTE Subscribers (in thousands)(12)		22,865			21,078			18,980			16,737			13,487
Our LTE Penetration(13)		75.7	%		71.2	%		66.3	%		59.2	%		49.3	%
Average Monthly Data Usage per Subscriber(14)		6.0GB			5.2GB			3.9GB			3.0GB			2.0GB
Average Monthly Churn Rate(15)		1.5	%		1.5	%		1.5	%		2.0	%		2.3	%
Cell Sites		57,758			54,986			55,085			50,158			44,764

(1) Basic earnings per share is calculated by dividing profit attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. Basic earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period.

(2) Diluted earnings per share is calculated by dividing profit attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. Diluted earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds.

(3) The Dollar amounts shown for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 were translated at the rate of Won 1,067.4 to US$1.00, Won 1,203.7 to US$1.00, Won 1,169.3 to US$1.00, Won 1,090.9 to US$1.00 and Won 1,055.3 to US$1.00, respectively, the noon buying rates in effect at the end of the respective years.

(4) Working capital means current assets minus current liabilities.

(5) Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rates prevailing at the end of each reporting period. See note 4(19) of the notes to our consolidated financial statements.

(6) Consists of cash outflows for the acquisition of property and equipment.

(7) Operating revenue and other income and operating profit used in the calculation of these ratios exclude the operating revenue and other income and operating profit from discontinued operations.

(8) Population numbers reflect the number of registered residents as published by the Ministry of the Interior and Safety of Korea.

(9) Our wireless penetration is determined by dividing our wireless subscribers by total estimated population, as of the end of the period.

(10) Includes regular employees and temporary employees. See “Item 6.D. Employees.”

(11) Wireless subscribers include those subscribers who are temporarily deactivated, including (i) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (ii) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history. The number of subscribers as of December 31, 2017, 2016, 2015, 2014 and 2013 include 3.4 million subscribers, 3.2 million subscribers, 2.7 million subscribers, 2.1 million subscribers and 1.1 million subscribers, respectively, of mobile virtual network operators (“MVNO”) that lease our wireless networks.

(12) The number of LTE subscribers as of December 31, 2017, 2016 and 2015 include 0.5 million subscribers, 0.3 million subscribers and 0.1 million subscribers, respectively, of MVNOs that lease our LTE network.

(13) Our LTE wireless penetration is determined by dividing our LTE subscribers by our total wireless subscribers, as of the end of the period.

5

(14) Average monthly data usage per LTE subscriber is determined by dividing the total GBs of data usage for the last month of the period by the average number of LTE subscribers for such month.

(15) The average monthly churn rate for a period is the number calculated by dividing the sum of voluntary and involuntary deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period, then dividing that number by the number of months in the period. Churn includes subscribers who upgrade to a next-generation service, such as LTE, by terminating their service and opening a new subscriber account.

Exchange Rates

The following table sets forth, for the periods and dates indicated, certain information concerning the noon buying rate for translations of Won amounts into Dollars. We make no representation that the Won or Dollar amounts we refer to in this annual report could have been or could be converted into Dollars or Won, as the case may be, at any particular rate or at all.

Period	At End of Period		Average Rate(1)		High		Low
	(Won per US$1.00)
2013		1,055.3		1,094.7		1,161.3		1,050.1
2014		1,090.9		1,052.3		1,117.7		1,008.9
2015		1,169.3		1,131.0		1,196.4		1,063.0
2016		1,203.7		1,159.3		1,242.6		1,090.0
2017		1,067.4		1,129.0		1,207.2		1,067.4
October		1,115.7		1,130.9		1,146.2		1,115.7
November		1,084.8		1,099.8		1,120.0		1,079.3
December		1,067.4		1,082.9		1,094.6		1,067.4
2018 (through April 20)		1,071.0		1,070.0		1,093.0		1,054.6
January		1,068.3		1,065.6		1,073.6		1,057.6
February		1,082.1		1,078.5		1,093.0		1,065.3
March		1,061.0		1,069.9		1,081.3		1,060.3
April (through April 20)		1,071.0		1,065.2		1,071.6		1,054.6

Source: Federal Reserve Bank of New York.

(1) The average rates for the annual periods were calculated based on daily noon buying rates for cable transfers in New York City certified for customs purposes by the Federal Reserve Bank of New York.

On April 20, 2018, the noon buying rate was Won 1,071.0 to US$1.00.

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

Risks Relating to Our Business

Competition may reduce our market share and harm our results of operations and financial condition.

We face substantial competition across all our businesses, including our wireless telecommunications business. We expect competition to intensify as a result of the development of new technologies, products and services. We expect that such trends will continue to put downward pressure on the rates we can charge our subscribers.

6

Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, us, KT Corporation (“KT”) and LG Uplus Corp. (“LG U+”). Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings.

The collective market share of our competitors amounts to approximately 51.8%, in terms of number of wireless subscribers, as of December 31, 2017. We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIT. For example, in October 2015, three companies applied for licenses to become Korea’s fourth mobile network operator. Although the MSIT rejected the applications of all three companies in January 2016, the MSIT may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future.

We believe the increase in market share of MVNOs and the entrance of a new mobile network operator in the wireless telecommunications market may further increase competition in the telecommunications sector, as well as cause downward price pressure on the fees we charge for our services, which, in turn, may have a material adverse effect on our results of operations, financial position and cash flows.

Our fixed-line telephone service competes with KT and LG U+, as well as other providers of voice over Internet protocol (“VoIP”) services. As of December 31, 2017, our market share of the fixed-line telephone and VoIP service market was 16.1% (including the services provided by SK Broadband Co., Ltd. (“SK Broadband”) and SK Telink Co., Ltd. (“SK Telink”)) in terms of number of subscribers compared to KT with 58.0% and LG U+ with 17.4%. In addition, our broadband Internet access and Internet protocol TV (“IPTV”) services provided through SK Broadband competes with other providers of such services, including KT, LG U+ and cable companies. As of December 31, 2017, our market share of the broadband Internet market was 25.7% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 18.0%. As of December 31, 2017, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.4% compared to KT with 23.0% and LG U+ with 10.9% and the collective market share of other pay TV providers with 52.7%.

Continued competition from other wireless and fixed-line service providers has also resulted in, and may continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business and results of operations. In 2017, the monthly churn rate in our wireless telecommunications business ranged from 1.4% to 1.5%, with an average monthly churn rate of 1.5%, which remained unchanged from 2016. Intensification of competition in the future may cause our churn rates to increase, which in turn may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers.

With respect to the e-commerce business operated by SK Planet Co., Ltd. (“SK Planet”), 11st, our marketplace business, faces intense competition from various e-commerce providers, including online open marketplaces such as Gmarket, Auction and Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups. The industry in which 11st competes is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally.

Our ability to compete successfully in all of the businesses in which we operate will depend on our ability to anticipate and respond to various competitive factors affecting the respective industries, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors.

7

Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless telecommunications industry will likely have a material adverse effect on our financial condition, results of operation, cash flows and business.

The telecommunications industry has been characterized by continual improvement and advances in technology, and this trend is expected to continue. We and our competitors have continually implemented technology upgrades from our basic code division multiple access (“CDMA”) network to our wideband code division multiple access (“WCDMA”) network, and subsequently to LTE technology. We commenced commercial LTE services in July 2011 at the same time as LG U+, while KT commenced its commercial LTE services in January 2012. In June 2013, we commenced providing commercial LTE-A services using carrier aggregation technology which combines spectrum frequencies to improve data transmission speeds, and in June 2014, we launched wideband LTE-A services of up to 225 Mbps and expanded coverage nationwide in 2014.

In December 2014, we commenced tri-band LTE-A services, which bundled three different bandwidths to allow faster network service at speeds of up to 300 Mbps. In June 2017, we commenced five-band LTE-A services, which bundles five different bandwidths to allow even faster network service at speeds of up to 700 Mbps as well as enhanced tri-band LTE-A services utilizing 4x4 multiple input multiple output (“MIMO”) technology providing for data transmission speeds of up to 900 Mbps. KT and LG U+ have also launched similar LTE-A services around the same time as us. The more successful operation of an LTE network or development of improved LTE technology by a competitor, including better market acceptance of a competitor’s LTE services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our LTE network or our other businesses. Additionally, in order to promote the growth of our IoT solutions business, we deployed new networks nationwide, namely our high-speed LTE-M network in March 2016 and our low-cost Low Power Wide Area Network based on LoRa technology (our “LoRa network”) in July 2016. We believe that these new networks will support the active development and provision of diverse IoT solutions at a lower cost. For a more detailed description of our backbone networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.”

Our business could also be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner, such as the implementation of 5G technology. In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, our results of operations could be adversely affected.

Implementation of new wireless technology has required, and may continue to require, significant capital and other expenditures, which we may not recoup.

We have made, and intend to continue to make, capital investments to develop, launch and enhance our wireless service. In 2017, 2016 and 2015, we spent Won 1,131.8 billion, Won 1,104.0 billion and Won 1,022.7 billion, respectively, in capital expenditures to build and enhance our LTE network. We plan to make further capital investments related to our wireless services in the future, including services that can potentially leverage our future 5G network. Our wireless technology-related investment plans are subject to change, and will depend, in part, on market demand for LTE and future 5G services, the competitive landscape for provision of such services and the development of competing technologies. There may not be sufficient demand for services based on our latest wireless technologies, as a result of competition or otherwise, to permit us to recoup or profit from our wireless technology-related capital investments.

Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows.

Most of our businesses are subject to extensive governmental supervision and regulation.

Rate Regulation. Under the MDDIA (described in more detail below), wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the

8

applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017. We believe these Government measures will adversely affect our revenues and our results of operations. In addition, we may be required to provide other rate discounts in the future to comply with the Government’s public policy guidelines or suggestions, and such measures may have a material adverse effect on our results of operations.

When the former President Park Geun-hye took office in February 2013, she announced that the Government would work toward reducing telecommunications service charges and promoting transparency in the decision making of telecommunications service providers. Accordingly, the Government set detailed policy objectives to (1) gradually reduce and abolish initial subscription fees by 2015, (2) expand MVNO and mobile VoIP service, (3) intensify regulations on handset subsidies and (4) construct a data-based rate system. Pursuant to these policy objectives, we ceased charging initial subscription fees to new subscribers starting in November 2014. Similarly, the Government has periodically reviewed the rates charged by wireless telecommunications service providers and has, from time to time, suggested rate reductions. Although these suggestions were not binding, we have implemented some rate reductions in response to such recommendations. The Government may suggest other rate reductions in the future and any further rate reductions we make in response to such suggestion may adversely affect our results of operations.

In furtherance of the above policy objectives, the Government also enacted the MDDIA, which became effective on October 1, 2014. The MDDIA was enacted for the purpose of establishing a transparent and fair distribution practice for mobile devices, and it limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber and (ii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. The MDDIA also prohibited providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, which prohibition expired in September 2017. The expiration of the ceiling on handset subsidies may have a material adverse effect on our results of operations as we believe it may lead to an increase in our marketing expenses and affect consumer behavior and our competitors in ways we cannot fully predict. See “Item 5. Operating and Financial Review and Prospects — Item 5.A. Operating Results — Overview — New Rate Regulations.”

Selection of Technology Standards. The Government also plays an active role in the selection of technology to be used by telecommunications operators in Korea. For example, the Government adopted the WCDMA and CDMA2000 technologies as the only standards available in Korea for implementing third generation services. The MSIT may impose similar restrictions on the choice of technology used in future telecommunications services, including 5G technology, and it is possible that technologies promoted by the Government in the future may not provide the best commercial returns for us.

Frequency Allocation. The Government sets the policies regarding the use of frequencies and allocates the spectrum of frequencies used for wireless telecommunications. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Frequency Allocation.” The reallocation of the spectrum to our existing competitors could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business.

MVNOs. Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIT, which currently include only us, are required to lease their networks or allow use of their networks (collectively, a “wholesale lease”) to other network service providers, such as an MVNO, that have requested such a wholesale lease in order to provide their own services using the leased networks. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. We believe that leasing a portion of our bandwidth capacity to an MVNO impairs our ability to use our bandwidth in ways that would generate maximum revenues and strengthens our MVNO competitors by granting them access and lowering their costs to enter into and operate in our markets. Accordingly, our profitability has and may continue to be adversely affected.

9

Interconnection. Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Our interconnection arrangements, including the interconnection rates we pay and interconnection rates we charge, affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. The KCC, which determined such basic framework under the previous Government, changed the basic framework for interconnection arrangements several times. We cannot assure you that we will not be adversely affected by the MSIT’s interconnection policies and future changes to such policies. See “Item 4.B. Business Overview — Interconnection — Domestic Calls.”

Regulatory Action. The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. For information about the penalties imposed on us for violating Governmental regulations, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.” Such penalties, which may include the revocation of cellular licenses, suspension of business or imposition of monetary penalties by the KCC, could have a material adverse effect on our business. We believe we are currently in compliance with the material terms of all our cellular licenses.

We are subject to additional regulations as a result of our dominant market position in the wireless telecommunications sector, which could harm our ability to compete effectively.

The Government endeavors to promote competition in the Korean telecommunications markets through measures designed to prevent a dominant service provider from exercising its market power and deterring the emergence and development of viable competitors. We have been designated by the MSIT as the “dominant network service provider” in respect of our wireless telecommunications business. As such, we are subject to additional regulations to which certain of our competitors are not subject. For example, under current Government regulations, we must obtain prior approval from the MSIT to raise our existing rates or introduce new rates. On June 24, 2016, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevant sub-committee and there is no assurance as to whether such bill will be passed. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.” The MSIT could also require us to charge higher usage rates than our competitors for future services or to take certain actions earlier than our competitors, as when the KCC required us to introduce number portability earlier than our competitors, KT and LG U+.

We also qualify as a “market-dominating business entity” under the Fair Trade Act, which subjects us to additional regulations and we are prohibited from engaging in any act of abusing our position as a market-dominating entity. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation.” The additional regulations to which we are subject has affected our competitiveness in the past and may materially hurt our profitability and impede our ability to compete effectively against our competitors in the future.

Declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and American Depositary Shares (“ADSs”) as well as our results of operation.

As of December 31, 2017, we held a 20.1% equity interest in SK Hynix, which is listed on the KRX KOSPI Market and is one of the world’s largest memory-chip makers by revenue. As of December 31, 2017, the fair value of our holding in SK Hynix was Won 11,176.7 billion. We received dividend payments of Won 87.7 billion in 2017, Won 73.1 billion in 2016 and Won 43.8 billion in 2015 related to such shareholding.

From time to time, the memory semiconductor industry has experienced significant and sometimes prolonged downturns, which often occur in connection with a deterioration of global economic conditions, and is subject to intense competition. For example, SK Hynix and its subsidiaries, on a consolidated basis, incurred net losses of Won 158.8 billion and Won 56.0 billion in 2012 and 2011, respectively, primarily due to increased supply and weak

10

demand for semiconductor products. Although the memory semiconductor industry has recovered since then and SK Hynix has been reporting net profits since 2013, the industry is subject to cyclical fluctuations and we expect that there may be future downturns in the industry. Accordingly, SK Hynix’s operating results would be adversely affected if it fails to compete successfully or decrease manufacturing costs at an adequate level. Our share of any net losses incurred by SK Hynix would be reflected in our income statement as share of losses related to investments in associates.

Accordingly, declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and American Depositary Shares as well as our results of operation.

We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions or joint ventures, and such transactions may negatively impact our business.

We continue to seek opportunities to develop new businesses that we believe are complementary to our existing product and service portfolio and expand our global business through selective acquisitions. Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives, some of which may be significant in size. For example, while we have not made any decision in connection therewith, we are currently considering the potential acquisition of ADT CAPS, a security systems company in Korea. In recent years, we acquired interests in NSOK Co., Ltd. (“NSOK”) (formerly, Neosnetworks Co., Ltd.), a provider of residential and small business electronic security and other related alarm monitoring services, Iriver Ltd. (“Iriver”), a manufacturer of digital audio players and other portable media devices and Shopkick Inc. (“Shopkick”), the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, in order to penetrate the mobile commerce market in the United States. In 2016, we acquired a 46.2% interest in SM Mobile Communications Co., Ltd. (“SM Mobile Communications”) for Won 12.1 billion, which was subsequently merged into Iriver, and in 2017, we acquired S.M. Life Design Company Japan Inc. (“SM Life Design”) for Won 30.0 billion, in light of potential synergies that may be achieved through the entertainment business. For a more detailed description of our recent investments in new businesses, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Investments in New Businesses and Global Expansion and Other Needs.”

In addition, in some cases we are unable to successfully complete our planned acquisitions. For example, in November 2015, SK Broadband entered into a merger agreement with CJ HelloVision, which was subsequently terminated due to the Korea Fair Trade Commission’s failure to approve the proposed merger. While we are hoping to benefit from a range of synergies from our recent or future acquisitions as well as develop new growth engines for our business, we may not be able to successfully complete or integrate such acquisitions or new businesses and may fail to realize the expected benefits in the near term, or at all. In addition, when we enter into new businesses with partners through joint ventures or other strategic alliances, we and those partners may have disagreements with respect to strategic directions or other aspects of business, or may otherwise be unable to coordinate or cooperate with each other, any of which could materially and adversely affect our operations in such businesses. Our business may be negatively impacted if we fail to successfully integrate or realize the anticipated benefits of such transactions.

Due to the existing high penetration rate of wireless telecommunications services in Korea, we are unlikely to maintain our subscriber growth rate, which could adversely affect our results of operations.

According to data published by the MSIT and the historical population data published by the Ministry of the Interior and Safety, the penetration rate for the Korean wireless telecommunications industry as of December 31, 2017 was approximately 121.0%, which is relatively high compared to many industrialized countries. Therefore, we expect that the penetration rate for wireless telecommunications service in Korea will remain relatively stable. As a result of the already high penetration rate in Korea for wireless telecommunications services coupled with our leading market share, we expect our subscriber growth rate to decrease. Slowed growth in the penetration rate without a commensurate increase in revenues through the introduction of new services and increased use of our services by existing subscribers would likely have a material adverse effect on our financial condition, results of operations and cash flows.

11

Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.

One of the principal limitations on a wireless network’s subscriber capacity is the amount of spectrum available for use by the network. We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our wireless broadband Internet (“WiBro”) services.

The growth of our wireless data businesses has been a significant factor in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. In particular, the increasing popularity of smartphones and data intensive applications among smartphone users has recently been a major factor for the high utilization of our bandwidth. This trend has been offset in part by the implementation of new technologies, such as our tri-band LTE-A service utilizing 4x4 MIMO technology and our five-band LTE-A technology, which enables more efficient usage of our bandwidth than was possible on our basic LTE network. However, if the current trend of increased data transmission use by our subscribers continues, or the volume of the multimedia content we offer through our wireless data services substantially grows, our bandwidth capacity requirements are likely to increase. While we believe that we can address the capacity constraint issue through system upgrades and efficient allocation of bandwidth, inability to address such capacity constraints in a timely manner may adversely affect our business, results of operations, financial position and cash flows. In the event we are unable to maintain sufficient bandwidth capacity, our subscribers may perceive a general slowdown of wireless telecommunications services. Growth of our wireless telecommunications business will depend in part upon our ability to effectively manage our bandwidth capacity and to implement efficiently and in a timely manner new bandwidth-efficient technologies if they become available. We cannot assure you that bandwidth constraints will not adversely affect the growth of our wireless telecommunications business.

We plan to participate in frequency bandwidth auctions expected to be held by the MSIT in June 2018 in order to acquire bandwidths that are complementary to our existing network and to prepare for the future commercialization of our 5G service. We may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand and we may not be successful in acquiring the necessary bandwidth to meet such demand, which may adversely affect our financial condition and results of operations.

We rely on key researchers and engineers and senior management, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business.

Our success depends to a significant extent upon the continued service of our research and development and engineering personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit engineers with expertise in cutting-edge technologies. We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, or at all.

The loss of the services of any of our key research and development and engineering personnel or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.

We need to observe certain financial and other covenants under the terms of our debt instruments, the failure to comply with which would put us in default under those instruments.

Certain of our debt instruments contain financial and other covenants with which we are required to comply on an annual and semi-annual basis. The financial covenants with respect to SK Telecom’s debt instruments include, but are not limited to, a maximum net debt-to-EBITDA ratio of 2.75 and a minimum interest coverage ratio of 4.00, each as determined on a separate financial statement basis. The debt arrangements also contain negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or

12

acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.

If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.

We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations.

As a network-based wireless telecommunications provider, we have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks. We spent Won 2,715.9 billion for capital expenditures in 2017. We expect to spend a slightly higher amount for capital expenditures in 2018 compared to 2017 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. If we acquire new bandwidths in the frequency bandwidth auction to be held by the MSIT in June 2018, we would be required to spend additional amounts on capital expenditures in connection with building out our networks on such new bandwidths.

In particular, we continue to make significant capital investments to expand and upgrade our wireless networks in response to growing bandwidth demand by our subscribers. Bandwidth usage by our subscribers has rapidly increased in recent years primarily due to the increasing popularity of smartphones and data intensive applications among smartphone users. If heavy usage of bandwidth-intensive services grows beyond our current expectations, we may need to invest more capital than currently anticipated to expand the bandwidth capacity of our networks or our customers may have a suboptimal experience when using our services. Any of these events could adversely affect our competitive position and have a material adverse effect on our business, financial condition, results of operation and cash flow. For a more detailed discussion of our capital expenditure plans and a discussion of other factors that may affect our future capital expenditures, see “Item 5.B. Liquidity and Capital Resources.”

As of December 31, 2017, we had Won 2,198.4 billion in contractual payment obligations due in 2018, which mostly involve repayment of debt obligations and payments related to frequency licenses. See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.”

We have not arranged firm financing for all of our current or future capital expenditure plans and contractual payment obligations. We have, in the past, obtained funds for our proposed capital expenditure and payment obligations from various sources, including our cash flow from operations as well as from financings, primarily debt and equity financings. Any material adverse change in our operational or financial condition could impact our ability to fund our capital expenditure plans and contractual payment obligations. Still volatile financial market conditions may also curtail our ability to obtain adequate funding. Inability to fund such capital expenditure requirements may have a material adverse effect on our financial condition, results of operations and business. In addition, although we currently anticipate that the capital expenditure levels estimated by us will be adequate to meet our business needs, such estimates may need to be adjusted based on developments in technology and markets. In the event we are unable to meet any such increased expenditure requirements or to obtain adequate financing for such requirements, on terms acceptable to us, or at all, this may have a material adverse effect on our financial condition, results of operations and business.

Termination or impairment of our relationship with a small number of key suppliers for network equipment and for leased lines could adversely affect our results of operations, financial position and cash flows.

We purchase wireless network equipment from a small number of suppliers. To date, we have purchased substantially all of the equipment for our networks from Samsung Electronics Co., Ltd. (“Samsung Electronics”), Ericsson-LG Co., Ltd. (“Ericsson-LG”) and Nokia Siemens Networks B.V. We believe Samsung Electronics

13

currently manufactures approximately half of the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we require, sourcing such equipment from other manufacturers could result in unanticipated costs in the maintenance and enhancement of our wireless networks. Inability to obtain the equipment needed for our networks in a timely manner may have an adverse effect on our business, financial condition, results of operations and cash flows.

We cannot assure you that we will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any discontinuation or interruption in the availability of equipment from our suppliers for any reason could have an adverse effect on our results of operations. Inability to lease adequate lines at commercially reasonable rates may impact the quality of the services we offer and may also damage our reputation and our business.

Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.

We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. In addition to active research and development efforts, our success depends in part on our ability to obtain patents and other intellectual property rights covering our services.

We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although we have not experienced any significant patent or other intellectual property disputes, we cannot be certain that any significant patent or other intellectual property disputes will not occur in the future. Defending our patent and other proprietary rights could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to employ certain technologies to provide services.

Malicious and abusive Internet practices could impair our services and we may be subject to significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.

Our business involves the storage and transmission of large amounts of confidential information, and cybersecurity breaches expose us to a risk of loss of this information, which may lead to improper use or disclosure of such information, ensuing potential liability and litigation, any of which could harm our reputation and adversely affect our business. For example, in July 2011, there was a leak of personal information of subscribers of websites operated by SK Communications Co., Ltd. (“SK Communications”), our consolidated subsidiary. Various lawsuits were filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to the eight lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of March 31, 2018, five of the lawsuits, seeking damages of approximately Won 12.6 million in aggregate, were pending at various appellate courts and the Supreme Court of Korea.

Our cybersecurity measures may also be breached due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across all our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts, or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is harmed, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations.

In addition, our wireless and fixed-line subscribers increasingly utilize our network to access the Internet and, as a consequence, we or they may become victim to common malicious and abusive Internet activities, such as unsolicited mass advertising (i.e., “spam”), hacking of personal information and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and

14

our customers, including degradation of service, excessive call volume to call centers and damage to our or our customers’ equipment and data. Significant incidents could lead to customer dissatisfaction and, ultimately, loss of customers or revenue, in addition to increased costs to us to service our customers and protect our network. Any significant loss of our subscribers or revenue due to incidents of malicious and abusive Internet practices or significant increase in costs of serving those subscribers could adversely affect our business, financial condition and results of operations.

Labor disputes may disrupt our operations.

Although we are not experiencing any significant labor disputes, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.

Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a two-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain such a working relationship with our employees and will not experience labor disputes resulting from disagreements with the labor union in the future.

Concerns that radio frequency emissions may be linked to various health concerns could adversely affect our business and we could be subject to litigation relating to these health concerns.

In the past, allegations that serious health risks may result from the use of wireless telecommunications devices or other transmission equipment have adversely affected share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on Cancer (the “IARC”), a part of the World Health Organization, announced that it has classified radiofrequency electromagnetic fields associated with wireless phone use as possibly carcinogenic to humans, based on an increased risk for glioma, a malignant type of brain cancer. The IARC conducts research on the causes of human cancer and the mechanisms of carcinogenesis and aims to develop scientific strategies for cancer control. We cannot assure you that these health concerns will not adversely affect our business. Several class action and personal injury lawsuits have been filed in the United States against several wireless phone manufacturers and carriers, asserting product liability, breach of warranty and other claims relating to radio transmissions to and from wireless phones. Certain of these lawsuits have been dismissed. We could be subject to liability or incur significant costs defending lawsuits brought by our subscribers or other parties who claim to have been harmed by or as a result of our services. In addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on our business by reducing the number of our subscribers or the usage per subscriber.

Our ability to deliver services may be disrupted due to a systems failure, shutdown in our networks or natural disaster.

Our services are currently carried through our wireless and fixed-line networks, which could be vulnerable to damage or interruptions in operations due to fires, floods, earthquakes, power losses, telecommunication failures, network software flaws, unauthorized access, computer viruses and similar events, which may occur from time to time. The occurrence of any of these events could impact our ability to deliver services, we may be liable for damages to our customers caused by such interruptions, our reputation may be damaged and our customers may lose confidence in us, which could have a negative effect on our results of operations.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on our results of operations and the market value of our common shares and ADSs.

Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of 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; and

15

• an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies.

Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar equivalent of the Won price of the our common shares on the KRX KOSPI Market of the Korea Exchange (the “KRX KOSPI Market”). These fluctuations also will affect:

• the amounts a registered holder or beneficial owner of ADSs will receive from the American Depositary Receipt (“ADR”) depositary in respect of dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars;

• the Dollar value of the proceeds that a holder will receive upon sale in Korea of our common shares; and

• the secondary market price of our ADSs.

For historical exchange rate information, see “Item 3.A. Selected Financial Data — Exchange Rates.”

If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.

The Telecommunications Business Act currently sets a 49.0% limit on the aggregate foreign ownership of our issued shares. Under the Telecommunications Business Act, as amended, a Korean entity, such as SK Holdings Co., Ltd. (“SK Holdings”), is deemed to be a foreign entity if its largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder (together with the shareholdings of its related parties) holds 15.0% or more of the issued voting stock of the Korean entity. As of December 31, 2017, SK Holdings owned 20,363,452 shares of our common stock, or 25.22%, of our issued shares. If SK Holdings were considered to be a foreign shareholder, then its shareholding in us would be included in the calculation of our aggregate foreign shareholding and our aggregate foreign shareholding (based on our foreign ownership level as of December 31, 2017, which we believe was 41.4%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2017, the two largest foreign shareholders of SK Holdings each held a 3.5% stake therein.

If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, if SK Holdings is considered a foreign shareholder, it will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. For a description of further actions that the MSIT could take, see “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.”

Risks Relating to Korea

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

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 of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices, increases in interest rates globally and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies has fluctuated significantly. See “Item 3.A. Selected Financial Data — Exchange Rates.” Furthermore, as a result of adverse global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (known as the “KOSPI”) and large amounts

16

of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy include:

• adverse conditions or uncertainty in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, as well as increased uncertainty in the wake of a referendum in the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union (“Brexit”);

• increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, euro, Chinese yuan or Japanese yen exchange rates and the overall impact of Brexit on the value of the Korean Won), interest rates, inflation rates or stock markets;

• a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small- and medium-sized enterprise borrowers;

• declines in consumer confidence and a slowdown in consumer spending;

• the continued growth 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);

• investigations of large Korean conglomerates and their senior management for possible misconduct;

• social and labor unrest;

• decreases in the market prices of Korean real estate;

• a decrease in tax revenues or a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that would lead to an increased Government budget deficit;

• financial problems or lack of progress in the 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 concerning certain Korean conglomerates;

• increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

• the economic impact of any pending or future free trade agreements or changes in existing free trade agreements;

• geo-political uncertainty and risk of further attacks by terrorist groups around the world;

• natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

• the occurrence of severe health epidemics in Korea and other parts of the world (such as the Middle East Respiratory Syndrome outbreak in Korea in 2015);

• deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States commencing in March 2017 and the economic and other retaliatory measures imposed by China against Korea during the remainder of 2017);

17

• political uncertainty or increasing strife among or within political parties in Korea;

• hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

• increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners;

• political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets; and

• an increase in the level of tensions 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 and the market value of our common shares and ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

• North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

• In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas.

• In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although a bilateral summit between the two Koreas was held on April 27, 2018 and there has been an announcement in March 2018 of a potential summit between the United States and North Korea, there can be no assurance that the level of tension affecting the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material

18

adverse effect on our business, results of operations and financial condition and the market value of our common shares and ADSs.

Korea’s legislation allowing class action suits related to securities transactions may expose us to additional litigation risk.

The Securities-related Class Action Act of Korea enacted in January 2004 allows class action suits to be brought by shareholders of companies (including us) listed on the KRX KOSPI Market for losses incurred in connection with purchases and sales of securities and other securities transactions arising from (1) false or inaccurate statements provided in the registration statements, prospectuses, business reports, audit reports, semi-annual or quarterly reports and material fact reports and omission of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. This law permits 50 or more shareholders who collectively hold 0.01% of the shares of a company to bring a class action suit against, among others, the issuer and its directors and officers. Because of the relatively recent enactment of the act, there is not enough judicial precedent to predict how the courts will apply the law. Litigation can be time-consuming and expensive to resolve, and can divert management time and attention from the operation of a business. We are not aware of any basis upon which such suit may be brought against us, nor are any such suits pending or threatened. Any such litigation brought against us could have a material adverse effect on our business, financial condition and results of operations.

There are special risks involved with investing in securities of Korean companies, including the possibility of restrictions being imposed by the Government in emergency circumstances.

As we are a Korean company and operate in a business and cultural environment that is different from that of other countries, there are risks associated with investing in our securities that are not typical for investments in securities of companies in other jurisdictions.

Under the Korean Foreign Exchange Transactions Act, if the Government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Ministry of Strategy and Finance (the “MOSF”) for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities or other transactions involving foreign exchange.

Risks Relating to Securities

Sales of our shares by SK Holdings and/or other large shareholders may adversely affect the market value of our common shares and ADSs.

Sales of substantial amounts of our common shares, or the perception that such sales may occur, could adversely affect the prevailing market value of our common shares or ADSs or our ability to raise capital through an offering of our common shares.

As of December 31, 2017, SK Holdings owned 25.22% of our total issued common shares and has not agreed to any restrictions on its ability to dispose of our shares. See “Item 7.A. Major Shareholders.” We can make no prediction as to the timing or amount of any sales of our common shares. We cannot assure you that future sales of our common shares, or the availability of our common shares for future sale, will not adversely affect the prevailing market value of our common shares or ADSs from time to time.

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

Under the deposit agreement, holders of our common shares may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the ADR depositary and receive our common shares. However, under the terms of the deposit agreement, as amended, the depositary bank is required to obtain our prior consent to any such deposit if, after giving effect to such deposit, the total

19

number of our common shares represented by ADSs, which was 8,804,190 shares as of March 31, 2018, exceeds a specified maximum, subject to adjustment under certain circumstances. In addition, the depositary bank or the custodian may not accept deposits of our common shares for issuance of ADSs under certain circumstances, including (1) if it has been determined by us that we should block the deposit to prevent a violation of applicable Korean laws and regulations or our articles of incorporation or (2) if a person intending to make a deposit has been identified as a holder of at least 3.0% of our common shares. See “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares.” It is possible that we may not give the consent. Consequently, an investor who has surrendered his or her ADSs and withdrawn the underlying shares may not be allowed to deposit the shares again to obtain ADSs.

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

The Korean Commercial Code 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 a right to subscribe for additional new common shares or any other rights of similar nature, the ADR depositary, 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 ADR depositary, 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 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 with respect to any ADSs. 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 or her preemptive rights for additional shares. As a result, ADS holders may suffer dilution of their equity interest in us.

Short selling of our ADSs by purchasers of securities convertible or exchangeable into our ADSs could materially adversely affect the market price of our ADSs.

SK Holdings, through one or more special purpose vehicles, has engaged and may in the future engage in monetization transactions relating to its ownership interest in us. These transactions have included and may include offerings of securities that are convertible or exchangeable into our ADSs. Many investors in convertible or exchangeable securities seek to hedge their exposure in the underlying equity securities at the time of acquisition of the convertible or exchangeable securities, often through short selling of the underlying equity securities or similar transactions. Since a monetization transaction could involve debt securities linked to a significant number of our ADSs, we expect that a sufficient quantity of ADSs may not be immediately available for borrowing in the market to facilitate settlement of the likely volume of short selling activity that would accompany the commencement of a monetization transaction. This short selling and similar hedging activity could place significant downward pressure on the market price of our ADSs, thereby having a material adverse effect on the market value of ADSs owned by you.

A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against us any judgments obtained from the United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

20

We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies, which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the New York Stock Exchange (the “NYSE”), we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information available could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

Item 4. INFORMATION ON THE COMPANY

Item 4.A. History and Development of the Company

As Korea’s first wireless telecommunications service provider, we have a recognized history of leadership and innovation in the domestic telecommunications sector. Today, we remain Korea’s leading wireless telecommunications services provider and have continued to pioneer the commercial development and implementation of state-of-the-art wireless technologies. We had 30.2 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2017, representing a market share of 48.2%, the largest market share among Korean wireless telecommunications service providers. We believe we are also a leader in developing new products and services that reflect the increasing convergence of telecommunications technologies, as well as the growing synergies between the telecommunications sector and other industries, and are well-positioned to become Korea’s leading platform service provider through our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions.

In February 2012, we acquired an equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of Won 3.4 trillion, and became its largest shareholder. As of December 31, 2017, we held a 20.1% equity interest in SK Hynix.

On March 31, 2018, we had a market capitalization of approximately Won 18.9 trillion (US$17.7 billion, as translated at the noon buying rate of March 31, 2018) or approximately 1.2% of the total market capitalization on the KRX KOSPI Market, making us the nineteenth largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representing one-ninth of one share of our common stock, have traded on the NYSE since June 27, 1996.

We established our telecommunications business in March 1984 under the name Korea Mobile Telecommunications Co., Ltd. We changed our name to SK Telecom Co., Ltd., effective March 21, 1997. In January 2002, we merged with Shinsegi Telecom Co., Ltd. (“Shinsegi”), which was then the third-largest wireless telecommunications service provider in Korea. Our registered office is at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea and our telephone number is +82-2-6100-2114.

Korean Telecommunications Industry

Established in March 1984, we became the first wireless telecommunications service provider in Korea. We remained the sole provider of wireless telecommunications services until April 1996, when Shinsegi commenced cellular service. The Government began to introduce competition into the fixed-line and wireless telecommunications services markets in the early 1990’s. During this period, the Government allowed new competitors to enter the fixed-line sector, sold a controlling stake in us to the SK Group, and granted a cellular license to our first competitor, Shinsegi. In October 1997, three additional companies began providing wireless telecommunications services under Government licenses to provide wireless telecommunications services. In 2000 and 2001, the Korean wireless telecommunications market experienced significant consolidation. In January 2002,

21

Shinsegi was merged into us. Additionally, two of the other wireless telecommunications services providers merged.

There are currently three mobile network operators in Korea: our company, KT and LG U+. As of December 31, 2017, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 31.2% and 20.6%, respectively (compared to our market share of 48.2%), each including MVNO subscribers leasing the respective networks. As of December 31, 2017, MVNOs had a combined market share of 12.0%, of which MVNOs leasing our networks represented 5.5%, MVNOs leasing KT’s networks represented 5.6% and MVNOs leasing LG U+’s networks represented 0.9%.

Telecommunications industry growth in Korea has been among the most rapid in the world, with fixed-line penetration being under five lines per 100 population in 1978 and increasing to 47.9 lines per 100 population as of December 31, 2006 before decreasing to 29.0 lines per 100 population as of December 31, 2017, and wireless penetration increasing from 7.0 subscribers per 100 population in 1996 to 121.0 subscribers per 100 population as of December 31, 2017. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:

	As of December 31,
	2017		2016		2015		2014		2013
	(In thousands, except for per population amounts)
Population of Korea(1)		51,779		51,696		51,529		51,328		51,141
Wireless Subscribers		62,651		60,287		57,937		56,310		54,681
Wireless Subscribers per 100 Population		121.0		116.6		112.4		109.7		106.9
Telephone Lines in Service		15,039		15,746		16,341		16,939		17,620
Telephone Lines per 100 Population		29.0		30.5		31.7		33.0		34.5

(1) Source: The Ministry of the Interior and Safety.

Since the introduction of short text messaging in 1998, Korea’s wireless data market has grown rapidly. This growth has been driven, in part, by the rapid development of wireless Internet service since its introduction in 1999 and the implementation of LTE technology providing for fast data transmission speeds and large data transmission capacity. As of December 31, 2017, approximately 57.1 million Korean wireless subscribers owned Internet-enabled handsets capable of accessing wireless Internet services, including 48.6 million subscribers that own smartphones that have direct access to the Internet using mobile Internet technology. The table below sets forth certain penetration information regarding the number of Internet-enabled handsets, smartphones and wireless subscribers in Korea as of the dates indicated:

	As of December 31,
	2017			2016			2015			2014			2013
	(In thousands, except for percentage data)
Number of Wireless Internet-Enabled Handsets		57,089			55,085			53,737			52,833			50,858
Number of Smartphones		48,607			46,418			43,668			40,560			37,517
Total Number of Wireless Subscribers		62,651			60,287			57,937			56,310			54,681
Penetration of Wireless Internet-Enabled Handsets		91.1	%		91.4	%		92.8	%		93.8	%		93.0	%
Penetration of Smartphones		77.6	%		77.0	%		75.4	%		72.0	%		66.9	%

In addition to its well-developed wireless telecommunications sector, Korea has one of the largest Internet markets in the Asia Pacific region. From the end of 2005 to the end of 2017, the number of broadband Internet access subscribers increased from approximately 12.2 million to approximately 21.2 million. In connection with such growth in broadband Internet usage, the number of IPTV subscribers has also increased rapidly. The table below sets forth certain information regarding broadband Internet access subscribers and IPTV subscribers as of the dates indicated:

	As of December 31,
	2017		2016		2015		2014		2013
	(In thousands)
Number of Broadband Internet Access Subscribers(1)		21,225		20,556		20,025		19,199		18,738
Number of IPTV Subscribers		15,381		11,850		10,991		9,670		8,738

22

(1) Includes subscribers accessing Internet service using digital subscriber line, or xDSL, connections; cable modem connections; local area network, or LAN, connections; fiber-to-the-home, or FTTH, connections and satellite connections.

Item 4.B. Business Overview

Overview

We are Korea’s leading wireless telecommunications services provider and continue to pioneer the commercial development and implementation of state-of-the-art wireless and fixed-line technologies and services as well as develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions. Our operations are reported in four segments:

• cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services;

• fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services;

• e-commerce services, which include 11st, our open marketplace business, and other commerce solutions; and

• other businesses.

Our Business Strategy

We believe that the current trends in the Korean telecommunications industry are characterized by technological change, evolving consumer needs and increasing digital convergence. Against the backdrop of these industry trends, we aim to maintain our leading position in the Korean market for wireless telecommunications services and actively develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services. We plan to further utilize our big data analysis capabilities to create products and services that are tailored to our customers’ evolving needs, as well as incorporate artificial intelligence capabilities directly into many of the products and services we offer.

Our corporate vision is to “Create Customer’s Pride” and provide enhanced customer value through integrated products and services that better meet our customers’ needs. To take advantage of these industry trends and further realize our corporate vision and become a leader in information and communication technologies (“ICT”), we have undertaken the following strategic initiatives.

• Maintain our leadership in the wireless services business by offering customer-oriented products and services. We plan to maintain our leadership in the wireless services business by accurately analyzing the needs of our subscribers and providing products and services that meet such needs. We plan to strengthen our customer relationships by engaging our subscribers to integrate our service offerings in various aspects of their daily lives such as “T map,” our interactive navigation service which we provide to all users free of charge and “oksusu,” our mobile IPTV service with a wide range of unique media offerings. We also provide bundled subscriptions to our wireless and fixed-line service offerings, and we believe such bundled subscriptions contribute to increased customer retention and acquisition of new subscribers for both our wireless and fixed-line services due to convenience. In addition, we believe our “T Membership” program, our membership service, also contributes to our subscriber retention with the breadth of membership benefits we provide through our membership partners.

• Develop our next-generation growth businesses. We aim to develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions, which we believe complement and create synergies with our wireless and fixed-line services and through which we can generate new sources of revenue growth. We believe these services will enable us to increase the retention of our wireless subscribers as well as attract new customers.

23

• Develop our technological capabilities to support our future 5G network. We aim to research and develop cutting-edge 5G technologies that will be adopted as the technological standard for 5G and to acquire the necessary bandwidth to launch 5G services. In addition, we aim to collaborate with various partners to identify new business opportunities that can potentially leverage our future 5G network.

Cellular Services

We offer wireless voice and data transmission services, sell wireless devices and provide IoT solutions and innovative platform services through our cellular services segment. Our wireless voice and data transmission services are offered through our backbone networks that collectively can be accessed by approximately 99.0% of the Korean population. We had 30.2 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2017, representing a market share of 48.2%, the largest market share among Korean wireless telecommunications service providers. The table below sets forth the number of subscribers, including subscribers of MVNOs that lease our wireless networks, using our various digital wireless networks as of the dates indicated:

	As of December 31,
	2017		2016		2015		2014		2013
	(in thousands)
Network
LTE		22,865		21,078		18,980		16,737		13,487
WCDMA		5,842		6,491		7,008		8,020		9,909
CDMA		1,488		2,026		2,638		3,521		3,957
Total		30,195		29,595		28,626		28,278		27,353

In 2017, 2016 and 2015, our cellular services segment revenue was Won 13,262.1 billion, Won 13,004.9 billion and Won 13,269.3 billion, respectively, representing 75.7%, 76.1% and 77.4%, respectively, of our consolidated revenue.

Wireless Services

We offer wireless voice transmission and data transmission services to our subscribers through our backbone networks. Our wireless telecommunications services are available to our subscribers receiving service under the SK Telecom brand. In addition, customers can obtain wireless telecommunications services that operate on our network from MVNOs that lease our wireless networks. We derive revenues from our wireless telecommunications service principally through monthly plan-based fees as described in “— Rate Plans” below.

We provide a voice-over-LTE service, known as our “HD Voice” service, to all of our LTE subscribers featuring high-quality voice transmission, fast call connection, voice-to-video call switching and digital content sharing during calls. We also offer our subscribers a wide range of wireless data transmissions services. Our messaging service allows our subscribers to send and receive text, graphic, audio and video messages. In addition, our subscribers can access a wide variety of digital content and services through mobile applications providing music, video, gaming, news, commerce and financial services as well as solutions that enable subscribers to access the Internet and e-mail. We intend to continue to build our wireless data services as a platform for growth, extending our portfolio of wireless data services and developing new content for our subscribers.

Through service agreements with various foreign wireless telecommunications service providers, we offer cellular global roaming services, branded as our “T-Roaming” service. Global roaming services allow subscribers traveling abroad to make and receive calls using their regular mobile phone numbers. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider.

Through SK Telink, we also operate our MVNO business under the brand “SK 7Mobile,” which we believe offers excellent quality at reasonable rates utilizing SK Telecom’s wireless networks. SK Telink is focused on developing low-cost distribution channels and targeting niche customer segments that have a lower average revenue per user than that of SK Telecom’s subscriber base.

24

In addition, we provide interconnection service to connect our networks to domestic and international fixed-line and other wireless networks. See “Item 4.B. Business Overview — Interconnection.”

Wireless Device Sales

We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet access devices and wearable devices that are sold through an extensive distribution network, which consists of authorized exclusive dealers and independent retailers, as well as branch offices and stores directly operated by us through our wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). As of December 31, 2017, approximately 23.0 million, or 76.1%, of our subscribers (including MVNO subscribers leasing our networks) owned smartphones that have direct access to the Internet compared to approximately 21.9 million subscribers, or 73.9%, as of December 31, 2016. We purchase a substantial majority of our wireless devices from Samsung Electronics, Apple and LG Electronics.

Smartphones and Basic Phones.    We offer smartphones that are enabled to utilize our digital wireless networks and run on various operating systems, such as Apple iOS and Google Android. We also offer basic phones that have the ability to access wireless Internet services.

Tablets and Other Internet Devices.    We offer tablets which can access the Internet via our digital wireless networks and a Wi-Fi connection. The tablets run primarily on the Apple iOS and Google Android operating systems. In addition, we also offer “T Pocket-Fi” devices that provide a mobile LTE connection and are capable of connecting multiple Wi-Fi enabled devices to the Internet at one time. We offer targeted rate plans for our T Pocket-Fi device. See “— Rate Plans” below.

Wearable Devices.    We offer various wearable devices including smart watches and “T kids’ phone-Joon.” These devices utilize our digital wireless networks and have specific features for the relevant target customer. For example, T kids’ phone-Joon is a wearable phone targeted towards children and provides simple calling, messaging and chat services as well as global positioning system (“GPS”) tracking capabilities. We offer targeted rate plans that are specific to these wearable devices. See “— Rate Plans” below.

IoT Solutions

Through our IoT solutions business, we provide a home monitoring service platform for residential customers and network access and enhanced services to support telemetry-type applications, which are characterized by machine-to-machine (“M2M”) wireless connections, to business customers. In order to promote the growth of our IoT solutions business, we deployed networks nationwide that are designed to support IoT devices, namely our high-speed LTE-M network in March 2016 and our low-cost Low Power Wide Area Network based on LoRa technology in July 2016. In 2018, we expect to increase the battery efficiency of our IoT devices by launching our LTE Cat.M1 technology and further enhance our competitiveness in this business.

In May 2015, we launched “Smart Home,” a mobile application-based home monitoring service for residential customers. Smart Home is a paid subscription service available not only to our wireless and fixed-line service subscribers but also to subscribers of our competitors’ wireless and fixed-line services. Through partnerships with more than 35 construction companies, we provided built-in Smart Home services to more than 14,000 homes as of December 31, 2017. Through Smart Home, users can control and monitor their home environment from their mobile devices and enhance the safety and convenience of their daily lives. We have also partnered with more than 70 electronics and appliance manufacturers, including Samsung Electronics and LG Electronics, to develop a wide range of appliances, electronic devices, door security, heating and lighting systems that are compatible with our Smart Home service.

We also provide network access and customized IoT solutions to our business customers. Our M2M services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, in 2016, we partnered with Renault Samsung Motors, SsangYong Motor, Jaguar Land Rover and Kia Motors to integrate T-map with their in-vehicle navigation systems, and we expect to further expand our “connected car” technologies over the next few years. In addition, we provide enhanced solutions to businesses in order to connect with and monitor their equipment, such as fleet management devices used to monitor city-operated rental bicycles and utility monitoring devices for smart grid applications.

25

Platform Services

Through our platform services business, we seek to provide innovative products and services that meet our customers’ evolving needs in an increasingly connected world. For example, we provide location-based services such as T map, which we provide to our and our competitors’ wireless subscribers free of charge. T map uses GPS technology to transmit driving directions, real-time traffic updates and emergency rescue assistance to wireless devices. As of December 31, 2017, there were approximately 10.4 million monthly average users of our T map service. As discussed in “— IoT Solutions”, in 2016, we integrated our T map services with our automotive IoT solutions. In September 2017, we also integrated NUGU, described in more detail below, into our T map service enabling users to use voice commands to operate their mobile devices while driving.

In addition, we provide “T phone” service, which provides our customers with a number of convenient call functions, including a function to block spam calls and a function called “T114” that informs customers of the phone numbers of stores, hospitals and other facilities closest to the customer’s current location.

We also offer artificial intelligence solutions through our platform services business. For example, in September 2016, we launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. NUGU currently offers a wide range of services including music streaming, connectivity with “Smart Home” and other IoT solutions for the home, ordering food, and informational and other personal assistance services, and we plan to continually enhance its functionalities through software updates. Through cloud-based deep-learning technology, NUGU is designed to evolve on its own as it collects more data about its users over time. We have integrated NUGU into our T map service as discussed above as well as our B tv service as further discussed in “— Fixed-line Telecommunication Services — Advanced Media Platform (including IPTV).” We continue to explore ways in which we can leverage our NUGU technology to enhance our existing products and services.

Rate Plans

We offer our wireless telecommunications services on both a postpaid and prepaid basis. Approximately 93.4% of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2017. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom under which a subscriber is billed in advance a monthly fixed rate in return for a monthly network service allowance and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears, where payment of the total amount of the bill is due at the end of the month. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no fixed-term contract at all. We provide various subsidies and discounts, including handset subsidies, depending on the length of the contract and the subscriber’s chosen rate plan. Our prepaid service enables individuals to obtain wireless telecommunications services without a fixed-term contract by paying for all services in advance according to expected usage. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “Item 4.B. Business Overview — Interconnection.”

We also charge our customers a 10.0% value-added tax. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes.

Basic Rate Plans.    We offer various postpaid account plans for smartphones and basic phones that are designed to meet a wide range of subscriber needs and interests. As of December 31, 2017, approximately 15 million subscribers have subscribed to “Band Data” plans, which are our representative smartphone rate plans featuring unlimited domestic voice minutes and text messaging and a fixed data transmission allowance per month as well as free access to live TV on “oksusu,” our mobile IPTV service, that range from Won 29,900 to Won 69,000 per month. Our “Voice Free” plans are available for our basic phones and feature a fixed allowance of voice minutes and 50 text messages per month with rates that range from Won 19,000 to Won 94,000 per month. We also offer a standard rate plan for Won 11,000 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.

26

In addition, we provide a variety of differentiated rate plans for our customer segments such as our “T Global” rate plans for foreigners featuring unlimited domestic voice minutes and text messaging, a fixed allowance of international voice minutes and data transmission per month and our “Weekend Ting” rate plans for teenagers featuring more data transmission allowance on weekends. We also provide “T Signature” rate plans for customers seeking unlimited wireless data usage for fixed rates and a multitude of other premium benefits such as mobile device insurance coverage and mobile device upgrades.

For our T Pocket-Fi device, we provide a fixed monthly data transmission allowance of 10 GB for Won 15,000 per month and 20 GB for Won 22,500 per month. With respect to the wearable devices that we offer, we offer targeted rate plans for smart watches that range from Won 10,000 to Won 11,000 per month, and the “Cookiz” rate plans for our T kids’ phone-Joon devices that range from Won 8,000 to Won 18,000 per month.

Data Add-on Rate Plans.    We offer a variety of optional “add-on” rate plans that are designed to meet a wide range of subscriber needs with respect to increased data usage that followed the widespread use of smartphones and faster transmission speeds made possible by LTE technology. For example, we offer data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,000 per month. For certain rate plan subscribers, we also offer a daily allowance of 1 GB of oksusu access and a monthly allowance of 8,000 points to purchase media content on oksusu through our “oksusu Safe” plan for Won 5,000 or Won 8,000 per month, depending on the subscribers’ basic rate plan. “Safe Option Premium” offers an additional daily data transmission allowance of 50 MB to subscribers who have used the maximum data transmission on their existing plan without incurring additional data transmission fees for a fixed rate of Won 8,000 per month. We also offer “T Data Coupons,” through which subscribers can purchase a fixed amount of data for a fixed price and can also be sent as “gifts” to family and friends that need additional data allowance. We believe that our data add-on rate plan offerings have contributed to the increase in data usage to 6.0 GB of average monthly data usage per LTE subscriber as of December 31, 2017 from 5.2 GB as of December 31, 2016.

Roaming Plans.    We provide fixed-rate international roaming plans such as our “T Roaming Data OnePass” plans which provide data roaming services at different speeds depending on usage amount for Won 9,000 to Won 15,000 per day and are available in up to 160 countries, depending on the specific plan chosen. With respect to international calls placed by a subscriber, unless the subscriber uses one of our fixed-rate international roaming plans, we bill the subscriber the international rate charged by the Korean international telephone service provider through which the call is routed. We remit to that provider the international charge less our usage charges. See “Item 4.B. Business Overview — Interconnection.”

Digital Wireless Network

We offer wireless voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our LTE network, WCDMA network, CDMA network, Wi-Fi network and LoRa network. We continually upgrade and increase the capacity of our wireless networks to keep pace with advancements in technology, the growth of our subscriber base and the increased usage of voice and wireless data services by our subscribers.

LTE Network.    LTE technology has become widely accepted globally as the standard fourth generation technology and enables data to be transmitted at speeds faster than our CDMA and WCDMA networks. We commenced commercial wireless telecommunications services based on LTE technology in July 2011 and expanded the coverage area of our LTE services to nationwide by the end of April 2012. We launched our LTE multi-carrier service in the 1.8 GHz spectrum in July 2012. In June 2013, we commenced providing commercial LTE-A services at speeds of up to 150 Mbps using carrier aggregation technology which combines spectrum frequencies to improve data transmission speed and capacity, and in June 2014, we launched wideband LTE-A services at speeds of up to 225 Mbps and expanded coverage nationwide in 2014. In December 2014, we commenced tri-band LTE-A services, which bundled three different bandwidths to allow faster network service at speeds of up to 300 Mbps. In June 2017, we commenced five-band LTE-A services, which bundles five different bandwidths to allow even faster network service at speeds of up to 700 Mbps as well as enhanced tri-band LTE-A

27

services utilizing 4x4 MIMO technology providing data transmission speeds of up to 900 Mbps. With these developments in LTE technology, our LTE penetration increased to 75.7% as of December 31, 2017 compared to 49.3% as of December 31, 2013. We continue to deploy improved LTE-A technology to increase the maximum data transmission speed of our services. In March 2016, we also launched our LTE-M services at speeds of up to 10 Mbps for M2M connections relating to our IoT solutions. Our continued upgrades to our LTE technology enables even faster data transmission speeds, as shown below.

Wireless network technology (Date of commencement of services)	Maximum download speed for data transmission		Maximum upload speed for data transmission
LTE (July 2011)		75 Mbps		37.5 Mbps
LTE-A (June 2013)		150 Mbps		75 Mbps
Wideband LTE-A (June 2014)		225 Mbps		112.5 Mbps
Tri-band LTE-A (December 2014)		300 Mbps		150 Mbps
Five-band LTE-A (June 2017)		700 Mbps		350 Mbps
Tri-band LTE-A with 4x4 MIMO (June 2017)		900 Mbps		450 Mbps

We believe that our advanced LTE technology and dense network infrastructure enable us to provide the fastest LTE data transmission network nationwide. In December 2017, the MSIT announced that our LTE network provided the fastest upload and download speeds among the three mobile network operators, KT, LG U+ and us. The nationwide average download speed of our LTE network was 163.9 Mbps compared to 131.0 Mbps for KT’s LTE network and 105.3 Mbps for LG U+’s LTE network.

The faster data transmission speed of our LTE network has allowed us to offer significantly improved wireless data transmission services, providing our subscribers with faster wireless access to multimedia content. We have been building new access networks and evolved packet cores for our LTE network, while we utilize our existing WCDMA network for other parts of our LTE network. For more information about our capital expenditures relating to our LTE network, see “Item 5.B. Liquidity and Capital Resources.”

CDMA and WCDMA Networks.    CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals for wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize CDMA cellular service.

WCDMA technology enables us to offer significantly faster and higher-quality voice and data transmission and supports more sophisticated wireless data transmission services than is possible through our CDMA network. We commenced provision of our WCDMA services on a limited basis in Seoul at the end of 2003. Since then, we expanded our WCDMA network nationwide and implemented various technologies to improve data transmission speeds within our WCDMA network.

Wi-Fi Network.    Wi-Fi technology enables our subscribers with Wi-Fi-capable devices such as smartphones, laptops and tablet computers to access mobile Internet. We started to build Wi-Fi access points in 2010 and, as of December 31, 2017, we had more than 142,000 Wi-Fi access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While each Wi-Fi access point typically has a radius of approximately 20-30 meters, some of our Wi-Fi hot zones, which have multiple Wi-Fi access points, including those installed at public transportation facilities and amusement parks, have much wider service areas. We also have a WiBro network that we use as a backhaul for our Wi-Fi network.

LoRa Networks.    A Low-Power Wide-Area Network based on LoRa technology is a type of telecommunications network designed to support communication among IoT devices. It can transmit data over tens of kilometers while consuming much less power than LTE networks, lowering costs for connectivity as well as lowering battery power usage. We completed the nationwide deployment of our LoRa network in July 2016. We expect that our LoRa network will provide the infrastructure necessary for the growth of not only our own IoT solutions business but also the IoT industry as a whole.

28

Network Infrastructure

The principal components of our wireless networks are:

• cell sites, which are physical locations equipped with transmitters, receivers and other equipment that communicate by radio signals with wireless handsets within range of the cell (typically a 3 to 40 kilometer radius);

• switching stations, which switch voice and data transmissions to their proper destinations, which may be, for instance, a mobile phone of one of our subscribers (for which transmissions would originate and terminate on our wireless networks), a mobile phone of a KT or LG U+ subscriber (for which transmissions would be routed to KT’s or LG U+’s wireless networks, as applicable), a fixed-line telephone number (for which calls would be routed to the public switched telephone network of a fixed-line network operator), an international number (for which calls would be routed to the network of a long distance service provider) or an Internet site; and

• transmission lines, which link cell sites to switching stations and switching stations with other switching stations.

As of December 31, 2017, our LTE, WCDMA, CDMA and WiBro networks had an aggregate of 57,758 cell sites.

We have purchased substantially all of the equipment for our networks from Samsung Electronics, Ericsson–LG and Nokia Siemens Networks B.V. Most of the transmission lines we use, including virtually all of the lines linking switching stations, as well as a portion of the lines linking cell sites to switching stations, comprise optical fiber lines that we own and operate directly. However, we have not undertaken to install optical fiber lines to link every cell site and switching station. In places where we have not installed our own transmission lines, we have leased lines from KT and LG U+. We intend to increase the efficiency of our network utilization and provide optimal services by internalizing transmission lines.

We use a wireless network surveillance system. This system oversees the operation of cell sites and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the cell sites lets the system immediately rebalance to the most suitable setting, and the surveillance system provides for automatic dispatch of repair teams and quick recovery in emergency situations.

Marketing, Distribution and Customer Service

Marketing.    Our marketing strategy is focused on offering solutions tailored to the needs of our various customer segments, promoting our brand and leveraging our extensive distribution network. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet and point-of-sale media promotions designed to relay a consistent message across all of our markets. We market our wireless products and services under the “T” brand, which signifies the centrality of “Telecommunications” and “Technology” to our business and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers.

We have implemented certain information technology improvements in connection with our marketing strategy, including customer management systems, as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, which, in turn, has helped us to develop more effective and targeted marketing strategies. We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that provides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can also change their rate plans, verify the charges accrued on their accounts, receive their bills online and send text messages to our other subscribers through our website at www.tworld.co.kr and through our “T world” mobile application.

We strive to improve subscriber retention through our T Membership program, which is a membership service available to our wireless subscribers. Our T Membership program provides various membership benefits to its

29

members such as discounts with our membership partners for dining, shopping, entertainment and travel, access to our online membership shopping mall and invitations to various promotional events. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs due to our large subscriber base and breadth of membership benefits.

Distribution.    We use a combination of an extensive network, including branch offices and stores, directly operated by us through our subsidiary, PS&Marketing, more than 3,700 authorized exclusive dealers and an extensive network of independent retailers in order to increase subscriber growth while reducing subscriber acquisition costs.

As part of our initiative to provide a differentiated customer service experience, we operate T Premium Stores that allow our potential and existing subscribers to experience certain of our services such as services that are available through our IoT solutions and platform services. As of December 31, 2017, we operated more than 320 T Premium Stores and we intend to further expand the number of T Premium Stores in 2018.

In addition, we operate an online distribution channel, “T World Direct,” through which subscribers can conveniently purchase wireless devices and subscribe to our services online. We intend to continue to develop our online distribution channel to leverage our offline distribution capabilities to provide convenience and additional value to our subscribers. For example, subscribers purchasing wireless devices through T World Direct can opt to pick up their devices at one of our offline stores.

Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a percentage of that subscriber’s monthly plan-based rate for the first four years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer financing plan, pursuant to which we provide to each authorized dealer a loan of up to Won 4.0 billion with a repayment period of up to three years. As of December 31, 2017, we had an aggregate of Won 61.9 billion outstanding in loans to authorized dealers.

Customer Service.    We provide high-quality customer service directly through our two subsidiaries, Service Ace Co., Ltd. and Service Top Co., Ltd., rather than rely on outsourcing. Network O&S Co., Ltd. operates our switching stations and related transmission and power facilities and offers quality customer service primarily to our business customers. We have held the top position with respect to our telecommunications service and retail sales service in Korea’s leading three customer satisfaction indices, the National Customer Satisfaction Index, the Korean Customer Satisfaction Index and the Korean Standard Service Quality Index, for 20 years, 20 years and 18 years, respectively.

Fixed-line Telecommunication Services

We offer fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) and business communications services through our fixed-line telecommunication services segment. Our fixed-line telecommunications services are provided by our subsidiaries, SK Broadband and SK Telink. The following table sets forth historical information about our subscriber base for our fixed-line telecommunication services for the periods indicated:

	As of December 31,
	2017		2016		2015
Fixed-Line Telephone (including VoIP)(1)		4,322,767		4,494,766		4,672,195
Broadband Internet		5,439,272		5,207,495		5,036,057
IPTV(2)		4,370,416		3,967,603		3,489,077

(1) Includes subscribers to VoIP services of SK Broadband and SK Telink.

(2) Includes subscribers to SK Broadband’s B tv service and video-on-demand only service subscribers.

In 2017, 2016 and 2015, our fixed-line telecommunication services segment revenue was Won 2,724.2 billion, Won 2,651.2 billion and Won 2,494.5 billion, respectively, representing 15.5%, 15.5% and 14.6%, respectively, of our consolidated revenue.

30

Fixed-line Telephone Services

Our fixed-line telephone services comprise local, domestic long distance, international long distance and VoIP services. VoIP is a technology that transmits voice data through an Internet Protocol network. As of December 31, 2017, we had approximately 4.3 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband and SK Telink). Our fixed-line telephone services are primarily offered under the “B phone” brand name. SK Telink also provides affordable international calling services under the brand name “00700.”

Broadband Internet Access Services

Our broadband Internet access network covered more than 80% of households in Korea as of December 31, 2017. As of December 31, 2017, we had approximately 5.4 million broadband Internet access subscribers. We offer broadband Internet access products with various throughput speeds, including “band Giga,” which is up to 10 times faster than data transmission speeds on networks utilizing fiber-to-the-home, or FTTH, technology and allows for data transmission at a maximum speed of 1 Gbps.

Advanced Media Platform (including IPTV)

As part of our initiative to be the leading next-generation platform provider, we aim to provide an advanced media platform with various media content and service offerings.

We have offered video-on-demand services since 2006 and launched real-time IPTV services in 2009. We currently offer IPTV services under the brand name “B tv” with access to our standard 56 live high definition channels and to as many as 219 channels depending on the subscription service, as well as video-on-demand service providing a wide range of media content, including recent box office movie releases, popular U.S. and other foreign TV shows and various children’s TV programs. We also offer “B tv UHD,” which is an ultra-high definition IPTV service and has a resolution that is four times as high as the standard high definition broadcasting service in the IPTV industry. As of December 31, 2017, we had approximately 4.4 million IPTV subscribers. In January 2018, we launched Btv NUGU, which is an all-in-one set top box that incorporates NUGU voice recognition technology and can search for and play media content as well as connect to our Smart Home service through voice commands.

In January 2016, we launched “oksusu,” a mobile IPTV service that is a combination of the services we previously provided as “B tv mobile” and “hoppin” and provides subscribers access to a wide variety of media contents, including various television programs, movies and other video contents that can be downloaded to wireless devices. Oksusu subscribers have access to more than 90 live TV channels, a wide range of sports contents and popular U.S. and other foreign TV shows, among other contents. We are also collaborating with media content developers to provide original media content for our oksusu service. As of December 31, 2017, we had approximately 8.6 million subscribers to oksusu.

We continue to expand the scope of our media services and content offerings to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless networks and our fixed-line network.

Business Communications Services

We offer other business communications services to our business customers, including corporations and government entities. Our business communications services include leased line solutions, Internet data center solutions and network solution services.

Our leased line solutions are exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. We hold a license to operate leased line services on a nationwide basis in Korea and also use international transmission lines to provide leased line services to other countries. Our leased line services enable high volumes of data to be transmitted swiftly and reliably. We also provide back-up storage for transmitted data. Through our Internet data center, we provide our business subscribers with server-based support including co-location, dedicated server hosting and cloud computing services. Our network solution service utilizes our network infrastructure and voice platform to provide 24-hour monitoring and control of our customers’ networks. Through this service, we conduct remote monitoring of our customers’ data and voice communications infrastructure and network and traffic conditions, and carry out preventive examinations and on-site visits.

31

Rate Plans

For our residential customers, we offer both bundled rate plans for a combination of our fixed-line service offerings as well as individual rate plans for each separate service offering. Bundled rate plans are offered at a discount compared to subscribing to the same services through individual rate plans. Approximately 84% of subscribers to our fixed-line services subscribe to two or more of our services through our bundled rate plans. Bundled rate plans for a combination of fixed-line telephone, broadband Internet access and IPTV services range from Won 32,000 to Won 60,750 per month.

Our “Unlimited Home Phone” plan for subscribers to our fixed-line telephone service features unlimited domestic land-to-land voice minutes for a fixed rate and range from Won 7,000 to Won 10,500 per month depending on whether or not the subscriber opts for a contract and if so, the length of the contract period. We offer individual fixed-rate plans for our broadband Internet access service that range from Won 20,000 to Won 50,000 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV service that range from Won 6,000 to Won 28,000 per month depending on the number of channels provided and existence and length of a contract. In addition, subscribers can purchase individual videos on demand or subscribe to certain paid content on a periodic basis.

With respect to our business communications services, we offer rates that are tailored to the specific needs of our business customers. We also charge certain installation fees and equipment rental fees as well as other ancillary fees with respect to certain of our fixed-line telecommunications services.

Marketing, Distribution and Customer Service

We focus on bringing our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) to residential users, and various business communications services to corporate users. We market our fixed-line telecommunications products and services under the “B” brand. Our “B” brand signifies the centrality of “Broadband” to our business and also seeks to emphasize our commitment to providing the “Best” quality products and services to our customers that go “Beyond” expectations, leading to a “Bravo” response. Our “B” brand also strengthens our shared identity with our wireless service’s “T” brand.

We currently outsource a significant portion of our retail sales force needs. We market our services and provide after-sales service support to customers through more than 90 customer centers and a network of more than 250 authorized exclusive dealers located throughout Korea. In addition, SK Telecom’s direct retail stores and authorized dealers for wireless telecommunications services also market our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV), which we believe has contributed to the increase in the number of subscribers to such services. We have contracts with our customer centers to sell our services exclusively. These centers receive a commission for each service contract and installation contract secured. In addition, we pay these centers for the maintenance and repair work that they perform for our subscribers. Customer and service centers often enter into sub-contracts with smaller distribution outlets within their area to increase their sales coverage and engage in telemarketing efforts. Authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer.

Sales to business subscribers are handled through our in-house sales group. Our sales teams focus on securing contracts with large commercial complexes, allowing us to install our remote terminals at their premises. After installation, sales teams direct their attention to individual business clients within these premises. Sales teams that have secured contracts with business clients remain the primary contacts for all aspects of the client’s needs, including further installation and customer and follow-up service.

E-Commerce Services

Our e-commerce services segment consists primarily of our marketplace business operated by our subsidiary, SK Planet. In 2017, 2016 and 2015, our e-commerce services segment revenue was Won 1,044.2 billion, Won 1,001.3 billion and Won 1,060.0 billion, respectively, representing 6.0%, 5.9% and 6.2%, respectively, of our consolidated revenue.

Marketplace.    We operate “11st” which is an online open marketplace that offers a wide range of products through an online and mobile platform. Individual consumers can buy a vast array of products such as clothes and

32

accessories, beauty products, groceries, baby products, books, office supplies, furniture, home goods, outdoor and sporting goods, appliances, electronics, travel packages, entertainment tickets and local deals for restaurants and other services from small- to large-sized retailers that operate “mini malls” on the 11st platform.

As of December 31, 2017, the mobile version of 11st was the leading mobile commerce platform in terms of unique visitors according to Korean Click. The mobile version of 11st is continuing to grow with an increase in the percentage of annual gross merchandise volume, which represents the total annual monetary value of customer purchases of goods and services, net of estimated refunds, derived from the mobile platform to 61% in 2017 from 52% in 2016 and 41% in 2015.

We have expanded our online open marketplace business globally to Turkey, Malaysia and Thailand. In March 2013, Dogus Planet, a joint venture between SK Planet and Dogus Group, a Turkish conglomerate, launched “n11.com” in Turkey. In April 2015, Celcom Planet, a joint venture between SK Planet and Celcom Axiata, a Malaysian telecommunications service provider, launched “11street” in Malaysia. Our online marketplaces in Turkey and Malaysia have rapidly grown into top tier players. In February 2017, SK Planet launched 11street in Thailand through a wholly-owned subsidiary.

We intend to continue our efforts to increase usage of the mobile version of 11st and enhance the convenience of our 11st mobile and web user interface and maintain our growth in overseas e-commerce markets.

Other Commerce Solutions.    We provide other commerce solutions, which include the following:

• Syrup Wallet, a mobile wallet service that is the successor to our Smart Wallet service, allows users to conveniently manage membership card points and payment methods such as coupons, credit cards and gift vouchers on their mobile devices for both online and offline purchases and provides shopping information to users in certain shopping areas using advanced location-based technology;

• OK Cashbag, a loyalty points program which allows members to collect and redeem loyalty points at its partnering merchants and offers differentiated marketing services to such partnering merchants; and

• 11Pay, a convenient and secure payment service through which users can register their credit card to simplify payments for online and mobile purchases, including through 11st, our online open marketplace.

We have also expanded our commerce solutions business globally. In October 2014, a 95.2%-owned subsidiary of SK Planet acquired a 100.0% ownership interest in Shopkick, the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, for an aggregate purchase price of Won 230.9 billion and the assumption of Won 18.7 billion in current liabilities. As of December 31, 2017, shopkick had 24.9 million subscribers compared to 24.3 million subscribers as of December 31, 2016.

Other Businesses

We strive to continually diversify our products and services and develop new growth engines that we believe are complementary to our existing products and services, such as our portal service and other miscellaneous businesses, which we include in our others segment. In 2017, 2016 and 2015, our others segment revenue was Won 489.5 billion, Won 434.4 billion and Won 312.9 billion, respectively, representing 2.8%, 2.5% and 1.8%, respectively, of our consolidated revenue.

We offer a portal service under our “Nate” brand name through SK Communications. Nate can be accessed through its website, www.nate.com, or through its mobile application. Nate offers a wide variety of content and services, including Nate Search, an Internet search engine, Nate News, which provides a library of articles about current events, sports, entertainment and culture, Nate Pann, a user-generated content service as well as access to free e-mail accounts through Nate Mail.

We offer high-end audio devices under the brand name “Astell&Kern” that are manufactured by our subsidiary, Iriver. In 2016, two of Iriver’s audio devices were selected as CES Innovation Awards Honorees in the Portable Media Player and Accessories category and High Performance Home Audio/Video category, respectively, and in 2017, an Iriver audio device was selected as an CES Innovation Awards Honoree in the Accessories category. In 2014 and 2017, we acquired equity interests in Iriver, a manufacturer of digital audio players and other portable media devices, and as of December 31, 2017, we had a 45.9% equity interest in Iriver.

33

In addition, we operate a security and network surveillance business through NSOK, a provider of residential and small business electronic security and other related alarm monitoring services. In 2014 and 2015, we acquired an 83.9% interest in NSOK for an aggregate of Won 64.0 billion, as part of our initiative to further develop our IoT solutions business. In October 2016, we acquired the remaining 16.1% interest in NSOK through SK Telink.

We also operate a mobile application marketplace, “One Store” in collaboration with KT, LG U+ and NAVER Corporation. Through this joint collaboration, we expect to increase the competitiveness of One Store to compete with Google Playstore, the leading mobile application marketplace in Korea. As of December 31, 2017, we held a 65.5% interest in One Store.

Interconnection

Our wireless and fixed-line networks interconnect with the public switched telephone networks operated by KT and SK Broadband and, through their networks, with the international gateways of KT and LG U+, as well as the networks of the other wireless telecommunications service providers in Korea. These connections enable our subscribers to make and receive calls from telephones outside our networks. Under Korean law, service providers are required to permit other service providers to interconnect to their networks. If a new service provider desires interconnection with the networks of an existing service provider but the parties are unable to reach an agreement within 90 days, the new service provider can appeal to the KCC.

Domestic Calls

Guidelines issued by the MSIT require that all interconnection charges levied by a regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii) imputed costs. Starting in 2016, the MSIT determines interconnection rates applicable to each carrier based on changes in traffic volume, taking into account other factors such as research results, competition and trends in technology development.

Wireless-to-Fixed-line.    According to our interconnection arrangement with KT, for a call from our wireless network to KT’s fixed-line network, we collect the usage rate from our wireless subscriber and in turn pay KT the interconnection charges. Similarly, KT pays interconnection charges to SK Broadband for a call from KT’s wireless network to SK Broadband’s fixed-line network. The interconnection rate applicable to both KT and SK Broadband was Won 11.98 per minute, Won 11.98 per minute and Won 13.44 per minute for 2017, 2016 and 2015, respectively.

Fixed-line-to-Wireless.    The MSIT determines interconnection arrangements for calls from a fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our wireless subscribers, the fixed-line network operator collects our usage fee from the fixed-line user and remits to us an interconnection charge. Interconnection with KT accounts for substantially all of our fixed-line-to-wireless interconnection revenue and expenses.

The interconnection rates paid by fixed-line network service providers to each wireless network service provider are set out below. Beginning in 2017, a single interconnection rate applies to all wireless telecommunications service providers, which will eliminate the cost benefit that KT and LG U+ had historically derived from the higher interconnection rates they had received.

	Rate per Minute (in Won)
Applicable Year	SK Telecom		KT		LG U+
2013	￦	26.27	￦	26.98	￦	27.04
2014		22.22		22.73		22.78
2015		19.53		19.92		19.96
2016		17.03		17.14		17.17
2017		14.56		14.56		14.56
2018		14.56		14.56		14.56

Wireless-to-Wireless.     Interconnection charges also apply to calls between wireless telephone networks in Korea. Under these arrangements, the operator originating the call pays an interconnection charge to the operator terminating the call. The applicable interconnection rate is the same as the fixed-line-to-wireless interconnection rate set out in the table above.

34

Our revenues from the wireless-to-wireless charge were Won 505.1 billion in 2017, Won 540.3 billion in 2016 and Won 582.6 billion in 2015. Our expenses from these charges were Won 512.2 billion in 2017, Won 548.1 billion in 2016 and Won 579.0 billion in 2015. The charges above were agreed among the parties involved and confirmed by the KCC.

International Calls and International Roaming Arrangements

With respect to international calls, if a call is initiated by our wireless subscribers, we bill the wireless subscriber for the international charges of KT, LG U+ or SK Broadband, and we receive interconnection charges from such operators. If an international call is received by our subscriber, KT, LG U+ or SK Broadband pays interconnection charges to us based on our imputed costs.

To complement the services we provide to our subscribers in Korea, we offer international voice and data roaming services. We charge our subscribers usage fees for global roaming service and, in turn, pay foreign wireless network operators fees for the corresponding usage of their network. For a more detailed discussion of our global roaming services, see “Item 4.B. Business Overview — Cellular Services — Wireless Services” above.

Competition

We operate in highly saturated and competitive markets, and we believe that our subscriber growth is affected by many factors, including the expansion and technical enhancement of our networks, the development and deployment of new technologies, the effectiveness of our marketing and distribution strategy, the quality of our customer service, the introduction of new products and services, competitive pricing of our rate plans, new market entrants and regulatory changes.

Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, KT, LG U+ and us. Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings.

The following table shows the market share information, based on number of subscribers, as of December 31, 2017, for the following markets.

	Market Share (%)
	SK Telecom		KT		LG U+		Others
Wireless Service(1)		48.2		31.2		20.6		—
LTE Service(1)		45.3		30.6		24.1		—
Fixed-Line Telephone (including VoIP)		16.1		58.0		17.4		8.5
Broadband Internet		25.7		41.3		18.0		15.0
IPTV(2)		13.4		23.0		10.9		52.7

(1) Includes MVNO subscribers that lease the wireless networks of the respective mobile network operator.

(2) Includes video-on-demand only service subscribers. Market share is expressed as a percentage of the pay TV market (which includes IPTV, cable TV and satellite TV).

Cellular Services

As of December 31, 2017, we had 30.2 million subscribers, representing a market share of approximately 48.2%, including MVNO subscribers leasing our networks. As of December 31, 2017, KT and LG U+ had 19.6 million and 12.9 million subscribers, respectively, representing approximately 31.2% and 20.6%, respectively, of the total number of wireless subscribers in Korea on such date, each including MVNO subscribers leasing its networks. As of December 31, 2017, we had 22.9 million LTE subscribers and KT and LG U+ had 15.4 million and 12.1 million LTE subscribers, respectively, each including MVNO subscribers leasing its networks.

In 2017, we had 5.8 million activations and 5.2 million deactivations. For 2017, our monthly churn rate ranged from 1.4% to 1.5%, with an average monthly churn rate of 1.5% for 2017, which remained unchanged from 2016. In 2017, we gained 39.2% of the total number of new wireless subscribers and subscribers that migrated to a different wireless telecommunications service provider, compared to KT with 33.1% and LG U+ with 27.6%.

35

We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. As of December 31, 2017, MVNOs had a combined market share of 12.0%, of which MVNOs leasing our networks represented 5.5%, MVNOs leasing KT’s networks represented 5.6% and MVNOs leasing LG U+’s networks represented 0.9%.

In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIT. For example, in October 2015, three companies applied for licenses to become Korea’s fourth mobile network operator. Although the MSIT rejected the applications of all three companies in January 2016, the MSIT may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future. For a description of the risks associated with the competitive environment in which we operate, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Competition may reduce our market share and harm our results of operations and financial condition.”

Prior to 2015, competition in the wireless telecommunications business had caused us to significantly increase our marketing and advertising expenses. Between 2012 and 2014, marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, fluctuated heavily between 23.9% to 33.7%, depending on the competitive landscape. Such percentage was 24.3% in 2015, 23.9% in 2016 and 25.0% in 2017. We attribute such stabilization to the maturity of the LTE market and the implementation of the MDDIA, which prohibits wireless telecommunications service providers from unfairly providing discriminatory subsidies based on certain criteria and from providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, among other restrictions and requirements. However, the prohibition from providing handset subsidies exceeding the amount set by the KCC expired in September 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. For a more detailed discussion of the MDDIA, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.”

We face competition from KT and LG U+ as well as other platform service providers in our other cellular service businesses. For example, our Smart Home service competes with KT’s Giga IoT Home service and LG U+’s IoT@Home service.

Fixed-Line Telecommunication Services

Our fixed-line telephone service competes with KT and LG U+ as well as providers of other VoIP services. As of December 31, 2017, our market share of the fixed-line telephone and VoIP service market was 16.1% (including the services provided by SK Broadband and SK Telink) in terms of number of subscribers compared to KT with 58.0% and LG U+ with 17.4%.

We are the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and our network covered more than 80% of households in Korea as of December 31, 2017. As of December 31, 2017, our market share of the broadband Internet market was 25.7% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 18.0%.

Our IPTV service competes with other providers of such pay TV services, including KT, LG U+ and cable companies. As of December 31, 2017, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.4% compared to KT with 23.0% and LG U+ with 10.9% and the collective market share of other pay TV providers of 52.7%. With respect to our mobile IPTV business, we face competition from similar services provided by KT and LG U+. We also face increasing competition from global media streaming service providers such as Amazon Video and Netflix, which launched its services in Korea in January 2016.

E-Commerce Services

The e-commerce industry is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally. Our marketplace business, 11st, faces intense competition from various e-commerce providers, including online open marketplaces such as Gmarket, Auction and

36

Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups.

Other Investments and Relationships

We have investments in several other businesses and companies and have entered into various business arrangements with other companies. Our principal investments fall into the following categories:

SK Hynix

As of December 31, 2017, we held a 20.1% equity interest in SK Hynix, one of the world’s largest memory-chip makers by revenue. SK Hynix designs, manufactures and sells advanced memory semiconductor products, including DRAM and NAND flash products, used in various electronic devices. SK Hynix operates four wafer fabrication facilities in Korea and China.

As of December 31, 2017, the fair value of our holding in SK Hynix was Won 11,176.7 billion, constituting 33.4% of our total assets as of such date. We received dividend payments of Won 87.7 billion in 2017, Won 73.1 billion in 2016 and Won 43.8 billion in 2015 related to such shareholding. In 2017, 2016 and 2015, SK Hynix and its subsidiaries, on a consolidated basis, reported revenues of Won 30,109.4 billion, Won 17,198.0 billion and Won 18,798.0 billion, respectively, profit before income tax of Won 13,439.6 billion, Won 3,216.5 billion and Won 5,269.1 billion, respectively, and profit for the year of Won 10,642.2 billion, Won 2,960.5 billion and Won 4,323.6 billion, respectively. The increase in SK Hynix’s revenues in 2017 was primarily due to increases in both volume and average selling prices of DRAM and NAND flash products. As of December 31, 2017, 2016 and 2015, SK Hynix and its subsidiaries, on a consolidated basis, reported total assets of Won 45,418.5 billion, Won 32,216.0 billion and Won 29,677.9 billion, respectively, and total equity of Won 33,820.1 billion, Won 24,023.5 billion and Won 21,387.7 billion, respectively. For a more detailed discussion of the risks relating to our shareholding in SK Hynix, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and ADSs as well as our results of operation.”

Healthcare Business

We believe that the healthcare business is one of the new growth industries as society ages and medical and health technologies evolve and become integrated with ICT. In 2011, we began pursuing new opportunities in the healthcare business area by acquiring a 9.3% equity interest in NanoEnTek Inc. (“NanoEnTek”), a biotechnology and nanotechnology company manufacturing, among others, point-of-care diagnostics devices. In April 2014, we became the largest shareholder of NanoEnTek with a 26.0% equity interest. In January 2016, NanoEnTek acquired Bio Focus Co., Ltd., a manufacturer of in vitro diagnostic products. In 2016, NanoEnTek received approvals from the U.S. Food and Drug Administration and the China Food and Drug Administration to market certain of its devices in the United States and China. In the first quarter of 2013, we also acquired a 49.0% equity interest in X’ian Tianlong Science and Technology Co., Ltd., a Chinese medical device manufacturer, which has since expanded its product portfolio with the development of a new diagnostic product and entry into new business areas.

KEB HanaCard

In February 2010, we purchased shares newly issued by Hana SK Card Co., Ltd. (which was subsequently merged into KEB Card Co., Ltd. and renamed KEB HanaCard Co., Ltd. (“KEB HanaCard”) in November 2014), a credit card services provider, for a total purchase price of Won 400.0 billion. As of December 31, 2017, we held 15.0% of the total outstanding shares of KEB HanaCard. KEB HanaCard offers certain credit card products that provide for discounts on some of our wireless network services and integrate T Membership benefits, among other features.

37

Hana-SK Fintech Corporation

In order to provide an everyday finance platform, we entered into a joint venture agreement with Hana Financial Group in July 2016. Combining our leading mobile technology and big data analysis capabilities with Hana Financial Group’s financial service, Hana-SK Fintech Corporation provides innovative mobile financial services such as mobile asset management, easy payment and overseas wire transfer services and launched the finance platform “Finnq” in the third quarter of 2017. We hold a 49.0% equity interest in the joint venture, and Hana Financial Group holds the remaining 51.0%.

Law and Regulation

Overview

Korea’s telecommunications industry is subject to comprehensive regulation by the MSIT, which is responsible for information and telecommunications policies. The MSIT regulates and supervises a broad range of communications issues, including:

• entry into the telecommunications industry;

• scope of services provided by telecommunications service providers;

• allocation of radio spectrum;

• setting of technical standards and promotion of technical standardization;

• rates, terms and practices of telecommunications service providers;

• interconnection and revenue-sharing between telecommunications service providers;

• research and development of policy formulation for information and telecommunications; and

• competition among telecommunications service providers.

The MSIT is charged with regulating information and telecommunications and the KCC is charged with regulating the public interest aspects of and fairness in broadcasting.

Telecommunications service providers are currently classified into three categories: network service providers, value-added service providers, and specific service providers. We are classified as a network service provider because we provide telecommunications services with our own telecommunications networks and related facilities. As a network service provider, we are required to obtain a license from the MSIT for the services we provide. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies and fourth generation wireless telecommunications services using LTE technology.

The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control and corrective orders issued in connection with any violation of rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. A network service provider that wants to cease its business or dissolve must notify its users 60 days prior to the scheduled date of cessation or dissolution and obtain MSIT approval.

In the past, the Government has stated that its policy was to promote competition in the Korean telecommunications market 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. While all network service providers are subject to MSIT regulation, we are subject to increased regulation because of our position as the dominant wireless telecommunications services provider in Korea.

Competition Regulation

The KCC is charged with ensuring that network service providers engage in fair competition and has broad powers to carry out this goal. If a network service provider is found to be in violation of the fair competition

38

requirement, the KCC may take corrective measures it deems necessary, including, but not limited to, prohibiting further violations, requiring amendments to the articles of incorporation or to service contracts with customers, requiring the execution or performance of, or amendments to, interconnection agreements with other network service providers and prohibiting advertisements to solicit new subscribers. The KCC is required to consult with the Minister of the MSIT before it takes certain corrective measures.

In addition, we qualify as a “market-dominating business entity” under the Fair Trade Act. Accordingly, we are prohibited from engaging in any act of abusing our position as a market-dominating entity, such as unreasonably determining, maintaining or altering service rates, unreasonably controlling the rendering of services, 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.

Because we are a member company of the SK Group, which is a large business group as designated by the FTC, we are subject to the following restrictions under the Fair Trade Act:

• Restriction on debt guarantee among affiliates.    Any affiliate within the SK Group may not guarantee the debts of another domestic affiliate, except for certain guarantees prescribed in the Fair Trade Act, such as those relating to the debts of a company acquired for purposes of industrial rationalization, bid deposits for overseas construction work or technology development funds.

• Restriction on cross-investment.    A member company of the SK Group may not acquire or hold shares in an affiliate belonging to the SK Group that owns shares in the member company.

• Restrictions on circular investments.    A member company of the SK Group may not acquire or hold shares which would constitute “circular investments” in an affiliate company which also forms part of the SK Group where “circular investments” refer to a cross-affiliate shareholding relationship under which three or more affiliate companies become connected through cross affiliate shareholdings by owning shares in other affiliates or by becoming an entity whose shares are owned by other affiliates.

• Public notice of board resolution on large-scale transactions with specially related persons.    If a member company of the SK Group engages in a transaction with a specially related person in the amount of 5.0% or more of the member company’s capital or paid-in capital or for Won 5.0 billion or more, the transaction must be approved by a resolution of the member company’s board of directors and the member company must publicly disclose the transaction.

• Restrictions on investments by subsidiaries and sub-subsidiaries of holding companies.    The Fair Trade Act prohibits subsidiaries of holding companies from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless such domestic affiliates are their own subsidiaries. Furthermore, any subsidiaries of a holding company’s subsidiaries (“sub-subsidiaries”) are prohibited from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless all shares issued by the affiliates are held by the sub-subsidiary. Therefore, we and other subsidiaries of SK Holdings may not invest in any domestic affiliate that is also a member company of the SK Group, except in the case where we invest in our own subsidiary or where another subsidiary of SK Holdings invests in its own subsidiary.

• Public notice of the current status of a business group.    Under the Fair Trade Act and the Enforcement Decree thereof, a member company of the SK Group must publicly disclose the general status of the SK Group, including the name, business scope and financial status of affiliates, information on the officers of affiliates, information on shareholding and cross-investments between member companies of the SK Group, information on transactions with certain related persons and, if a member company engages in a transaction with an affiliated company in the amount of 5.0% or more of the member company’s quarterly sales or Won 5.0 billion or more, information on transactions with such affiliated company on a quarterly basis.

Rate Regulation.    Most network service providers must report to the MSIT the rates and contractual terms for each type of service they provide. However, as the dominant network service provider for specific services (based on having the largest market share in terms of number of subscribers and meeting certain revenue thresholds), we must obtain prior approval of the MSIT on our rates and terms of service; provided, however, that such pre-approval

39

of the MSIT is not required, if we are planning to reduce the rates for any type of services that we provide under the MSIT-approved contractual terms. The MSIT’s policy is to approve rates if they are appropriate, fair and reasonable (that is, if the rates have been reasonably calculated, considering supply costs, profits, classification of costs and profits for each service, cost savings through changes in the way services are provided and the influence on fair competition, among others). The MSIT may order changes in the submitted rates if it deems the rates to be significantly unreasonable or against public policy. On June 24, 2016, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevant sub-committee and there is no assurance as to whether such bill will be passed.

Furthermore, in 2007, the Government announced a “road map” highlighting revisions in regulations to promote deregulation of the telecommunications industry. In accordance with the road map and pursuant to the Combined Sales Regulation, promulgated in May 2007, telecommunications service providers are now permitted to bundle their services, such as wireless data transmission service, wireless voice transmission service, broadband Internet access service, fixed-line telephone service and IPTV service, at a discounted rate; provided, however, that we and KT, as market-dominating business entities under the Telecommunications Business Act, allow other competitors to employ the services provided by us and KT, respectively, so that such competitors can provide similar discounted package services. In September 2007, the regulations and provisions under the Telecommunications Business Act were amended to permit licensed transmission service providers to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses.

Moreover, an MVNO system has been adopted and is in effect until its expiration on September 22, 2019 under the amended Telecommunications Business Act, which became effective on March 14, 2017. Under this system, the MSIT may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunication network facilities at a rate mutually agreed upon that complies with the standards set by the MSIT. We were designated as the only wireless telecommunications services provider obligated to allow the other wireless telecommunications services provider to use our telecommunications network facilities. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us.

On October 1, 2014, the MDDIA, enacted for the purpose of establishing a transparent and fair mobile distribution practice, became effective. The MDDIA limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber and (ii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. The MDDIA also prohibited providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, which prohibition expired in September 2017. See “Item 5.A. Operating Results — Overview — New Rate Regulations.”

In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017. We believe these Government measures will adversely affect our revenues and our results of operations. In addition, we cannot provide assurance that we will not provide other rate discounts in the future to comply with the Government’s public policy guidelines or suggestions, or that such measures will not have a material adverse effect on our results of operations.

Interconnection.    Dominant network service providers such as ourselves that own essential infrastructure facilities or possess a certain market share are required to provide interconnection of their telecommunications network facilities to other service providers upon request. The MSIT sets and announces the standards for

40

determining the scope, procedures, compensation and other terms and conditions of such provision, interconnection or co-use. We have entered into interconnection agreements with KT, LG U+ and other network service providers permitting these entities to interconnect with our network. We expect that we will be required to enter into additional agreements with new operators as the MSIT grants permits to additional telecommunications service providers.

Frequency Allocation.    The MSIT has the discretion to allocate and adjust the frequency bandwidths for each type of service and may auction off the rights to certain frequency bandwidths. Upon allocation of new frequency bandwidths or adjustment of frequency bandwidths, the MSIT is required to give a public notice. The MSIT also regulates the frequency to be used by each radio station, including the transmission frequency used by equipment in our cell sites. All of our frequency allocations are for a definite term. We pay fees to the MSIT for our frequency usage that are determined based upon our number of subscribers, frequency usage by our networks and other factors. For 2017, 2016 and 2015, the fee amounted to Won 150.3 billion, Won 186.8 billion and Won 189.8 billion, respectively.

We currently use 10 MHz of bandwidth in the 800MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our WiBro services. For more information regarding the license fees for the various bandwidths that we use, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 16 of the notes to our consolidated financial statements.

In April 2018, the MSIT announced that it plans to hold a frequency bandwidth auction in June 2018 to allocate bandwidths that are capable of utilizing 5G technology in preparation for the commercial launch of 5G networks in Korea. The MSIT plans to auction 280 MHz of bandwidth in the 3.5 GHz spectrum and 2.4 GHz of bandwidth in the 28 GHz spectrum. The MSIT announced that it expects to allocate such bandwidths in December 2018 in accordance with the results of the auction and that it will provide further details regarding the auction in May 2018.

For risks relating to the maintenance of adequate bandwidth capacity, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”

Mandatory Contributions and Obligations

Universal Service Obligation.    All telecommunications service providers other than value-added service providers and regional paging service providers or any telecommunications service providers whose net annual revenue is less than an amount determined by the MSIT (currently set at Won 30.0 billion) are required to provide “universal” telecommunications services including local telephone services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships and telephone services for handicapped and low-income citizens, or contribute toward the supply of such universal services. The MSIT designates universal services and the service provider who is required to provide each service. Currently, under the MSIT guidelines, we are required to offer free subscription and a discount of between 30.0% to 50.0% of our monthly fee for wireless telecommunications services to handicapped and low-income citizens.

In addition to such universal services for handicapped and low-income citizens, we are also required to make certain monetary contributions to compensate for other service providers’ costs for the universal services. The size of a service provider’s contribution is based on its net annual revenue (calculated pursuant to the MSIT guidelines, which differ from our accounting practices). Our contribution amount for our fiscal year 2017 has not yet been determined. In 2016, our contribution amount was Won 13.6 billion for our fiscal year 2015. In 2015, our contribution amount was Won 21.1 billion for our fiscal year 2014. As a wireless telecommunications services provider, we are not considered a provider of universal telecommunications services and do not receive funds for providing universal service. Other network service providers that do provide universal services make all or a portion of their “contribution” in the form of expenses related to the universal services they provide.

41

Foreign Ownership and Investment Restrictions and Requirements

Because we are a network service provider, and the exception for the foreign shareholding limit under the amended Telecommunications Business Act, which became effective on August 13, 2013, does not apply to us, foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) are prohibited from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of the outstanding voting stock of such Korean entities are also deemed foreigners. If this 49.0% ownership limitation is violated, certain of our foreign shareholders will not be permitted to exercise voting rights in excess of the limitation, and the MSIT may require other corrective action.

As of December 31, 2017, SK Holdings owned 20,363,452 shares of our common stock, or 25.22% of our issued shares. As of December 31, 2017, the two largest foreign shareholders of SK Holdings each held a 3.5% stake therein. If such foreign shareholders increase their shareholdings in SK Holdings to 15% or more and any such foreign shareholder constitutes the largest shareholder of SK Holdings, SK Holdings will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Holdings’ shareholding in us is included in the calculation of our aggregate foreign shareholding, then our aggregate foreign shareholding, assuming the foreign ownership level as of December 31, 2017 (which we believe was 41.4%), would reach 66.7%, exceeding the 49.0% ceiling on foreign shareholding.

If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, SK Holdings will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. If a corrective order is issued to us by the MSIT arising from the violation of the foregoing foreign ownership limit, and we do not comply within the prescribed period under such corrective order, the MSIT may:

• revoke our business license;

• suspend all or part of our business; or

• if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years.

Additionally, the Telecommunications Business Act also authorizes the MSIT to assess monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is not complied with, as well as a prison term of up to one year or a penalty of Won 50 million. See “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.”

We are required under the Foreign Exchange Transaction Act to file a report with a designated foreign exchange bank or with the MOSF, in connection with any issue of foreign currency denominated securities by us in foreign countries. Issuances of US$30 million or less require the filing of a report with a designated foreign exchange bank, and issuances that are over US$30 million in the aggregate within one year from the filing of a report with a designated foreign exchange bank require the filing of a report with the MOSF.

The Telecommunications Business Act provides for the creation of a Public Interest Review Committee under the MSIT to review investments in or changes in the control of network service providers. The following events would be subject to review by the Public Interest Review Committee:

• the acquisition by an entity (and its related parties) of 15.0% or more of the equity of a network service provider;

• a change in the largest shareholder of a network service provider;

42

• agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network service provider, such as the appointment of officers and directors and transfer of businesses; and

• a change in the shareholder that actually controls a network service provider.

If the Public Interest Review Committee determines that any of the foregoing transactions or events would be detrimental to the public interest, then the MSIT may issue orders to stop the transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant network service provider. Additionally, if a dominant network service provider (which would currently include us and KT), together with its specially related persons (as defined under the FSCMA), holds more than 5.0% of the equity of another dominant network service provider, the voting rights on the shares held in excess of the 5.0% limit may not be exercised.

Patents and Licensed Technology

Access to the latest relevant technology is critical to our ability to offer the most advanced wireless telecommunications services and to design and manufacture competitive products. In addition to active internal and external research and development efforts as described in “Item 5.C. Research and Development, Patents and Licenses, etc.,” our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our products. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. Our patents are mainly related to LTE technology and wireless Internet applications. We have also acquired a number of patents related to WCDMA and CDMA technologies. There are no licensed patents that are material to our business.

We are not currently involved in any material litigation regarding patent infringement. For a description of the risks associated with our reliance on intellectual property, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.”

Seasonality of the Business

Our business is not affected by seasonality.

Item 4.C. Organizational Structure

Organizational Structure

We are a member of the SK Group, based on the definition of “group” under the Fair Trade Act. As of December 31, 2017, SK Group members owned in aggregate 25.22% of the shares of our issued common stock. The SK Group is a diversified group of companies incorporated in Korea with interests in, among other things, telecommunications, trading, energy, chemicals, engineering and leisure industries.

Significant Subsidiaries

For information regarding our subsidiaries, see note 1(2) of the notes to our consolidated financial statements.

43

Item 4.D. Property, Plants and Equipment

The following table sets forth certain information concerning our principal properties as of December 31, 2017:

Location	Primary Use	Approximate Area in Square Feet
Seoul Metropolitan Area	Corporate Headquarters		988,447
	Regional Headquarters		607,249
	Customer Service Centers		107,277
	Training Centers		616,845
	Central Research and Development Center		482,719
	Others(1)		1,248,744
Busan	Regional Headquarters		363,282
	Others(1)		609,693
Daegu	Regional Headquarters		148,065
	Others(1)		335,186
Jeolla and Jeju Provinces	Regional Headquarters		265,614
	Others(1)		685,167
Chungcheong Province	Regional Headquarters		459,302
	Others(1)		855,398

(1) Includes cell sites.

In December 2004, we constructed a building with an area of approximately 82,624 square feet, of which we have full ownership, for use as our corporate headquarters. In addition, we own or lease various locations for cell sites and switching equipment. We do not anticipate that we will encounter material difficulties in meeting our future needs for any existing or prospective leased space for our cell sites. See “Item 4.B. Business Overview — Cellular Services — Network Infrastructure.”

We maintain a range of insurance policies to cover our assets and employees, including our directors and officers. We are insured against business interruption, fire, lightning, flooding, theft, vandalism, public liability and certain other risks that may affect our assets and employees. We believe that the types and amounts of our insurance coverage are in accordance with general business practices in Korea.

Item 4.E. UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion together with our consolidated financial statements and the related notes thereto which appear elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In addition, you should read carefully the section titled “— Critical Accounting Policies, Estimates and Judgments” as well as note 4 of the notes to our consolidated financial statements which provide summaries of certain critical accounting policies that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.

Item 5.A. Operating Results

Overview

Our operations are reported in four segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services, (2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced

44

media platform services (including IPTV) and business communications services, (3) e-commerce services, which include our open marketplace platform, 11st, and other commerce solutions, and (4) other businesses, which include our portal service, our hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.

In our cellular services segment, we earn revenue principally from our wireless voice and data transmission services through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers as well as interconnection fees paid to us by other telecommunications operators for use of our wireless network by their customers and subscribers. We also derive revenue from sales of wireless devices by PS&Marketing. Other sources of revenue include revenue from our IoT solutions and platform services, including artificial intelligence solutions, as well as other miscellaneous cellular services.

In our fixed-line telecommunication services segment, we earn revenue principally from our fixed-line telephone services and broadband Internet services and advanced media platform services (including IPTV) through monthly plan-based fees and usage charges as well as interconnection fees paid to us by other telecommunications operators for use of our fixed-line network by their customers and subscribers. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers.

Our e-commerce services segment became a separate reportable segment as of January 1, 2016. In our e-commerce services segment, we derive revenue from our subsidiary SK Planet, which earns revenue principally through third-party seller fees earned (including commissions) for transactions in which it acts as a selling agent to the “mini malls” on 11st, its online open marketplace platform, as well as advertising revenue from 11st and its other commerce solutions. In March 2016, SK Planet effected a spin-off of its former platform and T Store businesses by establishing SK TechX Co., Ltd. (“SK TechX”) and One Store, respectively. As a result, the results of operations from SK Planet’s former platform business and T store business were included in our e-commerce services segment prior to March 2016 but subsequently, such revenues are included in our others segment.

In our others segment, we earn revenue from our hardware businesses through sales of projection display devices and high-end audio devices, our security business operated by our subsidiary, NSOK, advertising revenue from our “Nate” portal service operated by our subsidiary, SK Communications, and sales commissions through our mobile application marketplaces. As discussed above, the results of operations from SK TechX and One Store are included in our others segment subsequent to the spin-offs from SK Planet in March 2016.

Our cellular service revenue and fixed-line telecommunications service revenue depend principally upon the number of our wireless subscribers, the rates we charge for our services, the frequency and volume of subscriber usage of our services and the terms of our interconnection with other telecommunications operators. Our e-commerce service revenue depends principally upon the gross merchandise volume, which is the total monetary value of customer purchases of goods and services, net of estimated refunds, of 11st and the number of merchants that utilize 11st to advertise and promote their products and services and the extent of such advertisement and promotion.

Among other factors, management uses operating profit of each reportable segment presented in accordance with K-IFRS (“segment operating profit”) in its assessment of the profitability of each reportable segment. The sum of segment operating profit for all four reportable segments differs from our operating profit presented in accordance with IFRS as issued by the IASB as segment operating profit does not include certain items such as donations, gain and loss from disposal of property and equipment and intangible assets and impairment loss on property and equipment and intangible assets. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” In addition to the information set forth below, see note 5 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.

45

A number of recent developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:

New Rate Regulations.    Under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving handset subsidies. Handset subsidies are provided to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017.

In 2017, the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA increased due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 25%. In the fourth quarter of 2017, approximately 60% of our new subscribers elected to receive discounted rates in lieu of handset subsidies compared to 47% in the previous quarter. As of December 31, 2017, approximately one-third of our subscribers who elected to receive these discounted rates are receiving the increased 25% rate discount. We expect that these Government measures will adversely affect our revenues and results of operations as more subscribers elect to receive the 25% rate discount. On the other hand, we expect that this will also reduce our marketing expenses as the amount of handset subsidies paid to subscribers will decline and that this will also contribute to maintaining a stable churn rate.

With respect to handset subsidies, in October 2014, the Government started limiting the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers under the MDDIA. The prohibition from providing handset subsidies exceeding the amount set by the KCC (which was Won 330,000 from April 2015 to September 2017) expired in September 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. Although the expiration of this provision may lead to increased handset subsidies provided to subscribers among us and our competitors, we do not expect that the impact will be significant as a greater number of subscribers elect to receive discounted rates in lieu of such subsidies due to the increase in the applicable discount rate to 25% in September 2017.

Failure to comply with the MDDIA may lead to suspension of our business or imposition of monetary penalties. For more information about the MDDIA and the penalties imposed for violating Government regulations, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation” and “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.”

Decrease in Interconnection Fees.    Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Charges for interconnection affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. Under our interconnection agreements, we are required to make payments in respect of calls which originate from our networks and terminate in the networks of other Korean telecommunications operators, and the other operators are required to make payments to us in respect of calls which originate in their networks and terminate in our network. The MSIT has continued to gradually decrease the interconnection rates in Korea, which has led to a continued decrease in our interconnection revenue as well as interconnection expenses from 2012 to 2017 and any further reduction in interconnection rates by the MSIT may continue to impact our results of operations. Beginning in 2017, a single interconnection rate paid by fixed-line network service providers for fixed-line to wireless calls applies to all wireless telecommunications service providers. For more information about our interconnection revenue and expenses, see “Item 4.B. Business Overview — Interconnection.”

Decrease in Monthly Revenue per Subscriber.    We measure monthly average per subscriber using two metrics: billing average monthly per subscriber (“billing ARPU”) and total average monthly revenue per subscriber (“total ARPU”). Billing ARPU is derived by dividing the sum of total SK Telecom revenues from voice service and data service for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period.

46

Total ARPU is derived by dividing the sum of total SK Telecom revenues from voice service, data service, initial subscription fees and interconnection revenue, as well as other revenues, for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period.

Our billing ARPU decreased by 1.2% to Won 35,216 in 2017 from Won 35,636 in 2016, which represented a decrease of 1.3% from Won 36,118 in 2015. Our total ARPU decreased by 0.8% to Won 40,800 in 2017 from Won 41,126 in 2016, which represented a decrease of 2.6% from Won 42,221 in 2015. The decreases in billing ARPU and total ARPU in 2017 and 2016 were primarily due to a decrease in revenue attributable to an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies. In addition, the decreases in billing ARPU and total ARPU in 2017 were also partially due to the increase in the applicable discount rate offered to subscribers not receiving handset subsidies from 20% to 25% in September 2017, offset in part by an increase in subscribers that subscribe to our unlimited data usage plans.

Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS

In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with K-IFRS as adopted by the KASB, which we are required to file with the FSC and the Korea Exchange under the FSCMA.

K-IFRS requires operating profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. The presentation of operating profit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating profit in the consolidated statements of income prepared in accordance with K-IFRS for the corresponding periods in certain respects. The table below sets forth a reconciliation of our operating profit as presented in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB for each of the three years ended December 31, 2017 to the operating profit as presented in the consolidated statements of income prepared in accordance with K-IFRS.

	For the Year Ended December 31,
	2017			2016			2015
	(In billions of Won)
Operating profit pursuant to IFRS as issued by the IASB	￦	1,224.6		￦	1,303.4		￦	1,495.4
Differences:
Other income pursuant to IFRS that are classified as other non-operating income pursuant to K-IFRS
Fee revenues		(1.4	)		(0.6	)		—
Gain on disposal of property and equipment and intangible assets		(14.0	)		(6.9	)		(7.1	)
Others		(16.6	)		(59.1	)		(23.8	)
		(32.0	)		(66.6	)		(30.9	)
Other operating expenses pursuant to IFRS that are classified as other non-operating expenses pursuant to K-IFRS
Loss on impairment of property and equipment and intangible assets		54.9			24.5			35.8
Loss on disposal of property and equipment and intangible assets		60.1			63.8			21.4
Donations		112.6			96.6			72.5
Bad debt for accounts receivable — other		5.8			40.3			15.3
Others		110.6			73.7			98.5
		344.0			298.9			243.5
Operating profit pursuant to K-IFRS	￦	1,536.6		￦	1,535.7		￦	1,708.0

However, there is no impact on profit for the year or earnings per share for each of the three years ended December 31, 2017.

47

Recently Issued International Financial Reporting Standards

We plan to adopt IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments in the year beginning on January 1, 2018 and IFRS 16, Leases in the year beginning on January 1, 2019. See note 4(28) of the notes to our consolidated financial statements for a summary of significant accounting standards that have been issued but not yet adopted.

IFRS 15 requires us to capitalize certain costs associated with commissions paid to sales agents to obtain new customer contracts, which we previously expensed. We pay commissions for each service contract to our direct retail stores and authorized dealers. Upon adoption of IFRS 15, we will recognize the commissions as prepaid expenses as these are the incremental costs of obtaining a contract and we will amortize such assets over the relevant expected service periods. In addition, IFRS 15 requires us to allocate the transaction price of each performance obligation in a contract in proportion to its stand-alone selling price when we provide a wireless telecommunications service contract together with a digital handset to a customer. We expect that this change will negatively impact our wireless service revenue, but positively impact our wireless device sales revenue. In connection with this, the difference between the revenue recognized for the wireless device sale and the transaction price will be recorded as a contract asset that will be amortized over the expected wireless service period to offset the relevant wireless service revenue.

We plan to adopt IFRS 15 by recognizing the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of retained earnings as of January 1, 2018. We elected to apply IFRS 15 retrospectively only to contracts that were not completed as of January 1, 2018. The following table sets forth the expected financial impact of the adoption of IFRS 15 on our statement of financial position as of January 1, 2018 based on our evaluation to date.

	As of December 31, 2017 (Before adoption of IFRS 15)			Adjustments			As of January 1, 2018 (After adoption of IFRS 15)
	(In billions of Won)
Current Assets		6,201.9			1,804.1			8,006.0
Accounts receivable — trade, net		2,126.0			(4.3	)		2,121.7
Prepaid expenses		197.0			1,695.7			1,892.7
Contract assets — multiple performance obligations		—			112.2			112.2
Contract assets — right of return		—			0.5			0.5
Others		3,878.9			—			3,878.9
Non-Current Assets		27,226.8			718.8			27,945.6
Long-term prepaid expenses		90.8			693.3			784.1
Long-term contract assets — multiple performance obligations		—			30.4			30.4
Deferred tax assets		88.1			(4.9	)		83.2
Others		27,047.9			—			27,047.9
Total Assets		33,428.7			2,522.9			35,951.6
Current Liabilities		7,109.1			12.5			7,121.6
Provisions		52.1			(0.2	)		51.9
Contract liabilities		—			114.3			114.3
Receipts in advance		161.3			(161.3	)		—
Unearned revenue		175.7			(175.7	)		—
Withholdings		961.5			235.4			1,196.9
Others		5,758.5			—			5,758.5
Non-Current Liabilities		8,290.4			610.4			8,900.8
Long-term contract liabilities		—			19.1			19.1
Long-term unearned revenue		7.1			(7.1	)		—
Other non-current liabilities		44.1			(0.9	)		43.2
Deferred tax liabilities		978.7			599.3			1,578.0
Others		7,260.5			—			7,260.5
Total Liabilities		15,399.5			622.9			16,022.4
Equity attributable to owners of the Parent Company		17,842.2			1,900.0			19,742.2
Share capital		44.6			—			44.6
Capital surplus and others		196.4			—			196.4
Retained earnings		17,835.9			1,900.0			19,735.9
Reserves		(234.7	)		—			(234.7	)
Non-controlling interests		187.0			—			187.0
Total Shareholders’ Equity		18,029.2			1,900.0			19,929.2

48

Our preliminary assessment of the financial impact resulting from the adoption of IFRS 9 did not indicate any material impact on our consolidated financial statements if such adoptions were applied as of December 31, 2017. Our preliminary assessments in connection with IFRS 9 and 15 set forth herein are subject to change. The expected impact of the adoption of IFRS 16 on our consolidated results of operations and financial position is currently unknown or cannot be reasonably estimated.

Operating Results

The following table sets forth summary consolidated income statement information, including that expressed as a percentage of operating revenue and other income, for the periods indicated:

	For the year ended December 31,
	2017				2016					2015
	(In billions of Won, except percentages)
Operating revenue and other income	￦	17,552.0	100.0	%	￦	17,158.3		100.0	%	￦	17,167.6		100.0	%
Revenue		17,520.0	99.8			17,091.8		99.6			17,136.7		99.8
Other income		32.0	0.2			66.5		0.4			30.9		0.2
Operating expenses		16,327.4	93.0			15,854.9		92.4			15,672.2		91.3
Operating profit		1,224.6	7.0			1,303.4		7.6			1,495.4		8.7
Profit before income tax		3,403.3	19.4			2,096.1		12.2			2,035.4		11.9
Income tax expense		745.7	4.2			436.0		2.5			519.5		3.0
Profit for the year		2,657.6	15.1			1,660.1		9.7			1,515.9		8.8
Attributable to:
Owners of the Parent Company		2,599.8	14.8			1,676.0		9.8			1,518.6		8.8
Non-controlling interests		57.8	0.3			(15.9	)	(0.1	)		(2.7	)	(0.0	)

The following table sets forth additional information about our operations with respect to our reportable segments during the periods indicated:

	For the year ended December 31,
	2017					2016					2015
	Amount		Percentage of Total Revenue			Amount		Percentage of Total Revenue			Amount		Percentage of Total Revenue
	(In billions of Won, except percentages)
Cellular Services Revenue
Wireless Service(1)	￦	10,639.0		60.7	%	￦	10,583.0		61.9	%	￦	10,720.5		62.6	%
Cellular Interconnection		592.7		3.4			614.4		3.6			710.0		4.1
Wireless Device Sales		1,052.2		6.0			922.4		5.4			963.4		5.6
Miscellaneous(2)		978.2		5.6			885.1		5.2			875.4		5.1
Total Cellular Services Revenue		13,262.1		75.7			13,004.9		76.1			13,269.3		77.4
Fixed-line Telecommunication Services Revenue
Fixed-line Telephone Service		316.8		1.8			357.8		2.1			420.6		2.5
Fixed-line Interconnection		116.1		0.7			134.1		0.8			57.1		0.3
Broadband Internet Service		1,641.6		9.4			1,472.8		8.6			1,308.8		7.6
International Calling Service		89.4		0.5			96.0		0.6			99.1		0.6
Miscellaneous(3)		560.3		3.1			590.5		3.4			608.9		3.6
Total Fixed-line Telecommunication Services Revenue		2,724.2		15.5			2,651.2		15.5			2,494.5		14.6
E-commerce Services Revenue(4)(6)		1,044.2		6.0			1,001.3		5.9			1,060.0		6.2
Other Revenue
Portal Service(5)		44.0		0.3			54.2		0.3			71.8		0.4

49

	For the year ended December 31,
	2017						2016						2015
	Amount			Percentage of Total Revenue			Amount			Percentage of Total Revenue			Amount			Percentage of Total Revenue
	(In billions of Won, except percentages)
Miscellaneous(4)(6)		445.5			2.5			380.2			2.2			241.1			1.4
Total Other Revenue		489.5			2.8			434.4			2.5			312.9			1.8
Total Revenue		17,520.0			100.0			17,091.8			100.0			17,136.7			100.0
Total Revenue Growth		2.5	%					(0.3	)%					(0.2	)%
Segment Operating Expense(7)
Cellular Services		11,548.1			65.9			11,205.8			65.6			11,591.0			67.6
Fixed-line Telecommunication Services		2,556.7			14.6			2,518.8			14.7			2,386.2			13.9
E-commerce Services		1,312.0			7.5			1,366.5			8.0			1,066.7			6.3
Others		566.6			3.2			465.0			2.7			384.8			2.2
Total Segment Operating Expense		15,983.4			91.2			15,556.1			91.0			15,428.7			90.0
Segment Operating Profit
Cellular Services		1,714.0			9.8			1,799.1			10.5			1,678.3			9.8
Fixed-line Telecommunication Services		167.5			0.9			132.4			0.8			108.3			0.6
E-commerce Services		(267.8	)		(1.5	)		(365.2	)		(2.1	)		(6.7	)		(0.0	)
Others		(77.1	)		(0.4	)		(30.6	)		(0.2	)		(71.9	)		(0.4	)
Total Segment Operating Profit	￦	1,536.6			8.8	%	￦	1,535.7			9.0	%	￦	1,708.0			10.0	%

(1) Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers.

(2) Miscellaneous cellular services revenue includes revenue from our IoT solutions as well as other miscellaneous cellular services.

(3) Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink.

(4) E-commerce services revenue is derived from SK Planet’s revenue, which includes revenues from 11st, our open marketplace platform, and other commerce solutions. As a result of the respective spin-offs from SK Planet, the results of operations from SK Planet’s former platform business and T store business were included in our e-commerce services segment prior to March 2016 but subsequently, such revenues are included in our others segment.

(5) Portal service revenue includes revenues from “Nate,” our online portal service operated by SK Communications.

(6) Miscellaneous others revenue includes revenues from our hardware business, our security business operated by our subsidiary, NSOK, our marketing and sales solutions business operated by our subsidiary, M&Service, and our online open marketplace for mobile applications, among other operations. Additionally, as a result of the respective spin-offs from SK Planet, the results of operations from SK TechX and One Store are included in our others segment beginning March 2016 under miscellaneous others revenue.

(7) “Segment operating expense” means operating expense for each reportable segment presented in accordance with K-IFRS and therefore does not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the differences between our consolidated operating expense pursuant

50

to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

2017 Compared to 2016

Operating Revenue and Other Income.     Our consolidated operating revenue and other income increased by 2.3% to Won 17,552.0 billion in 2017 from Won 17,158.3 billion in 2016, due to an increase in operating revenue, offset in part by a decrease in other income, as discussed below.

Our consolidated operating revenue increased by 2.5% to Won 17,520.0 billion in 2017 from Won 17,091.8 billion in 2016, primarily due to increases in cellular services revenue as well as revenue increases from our other three segments.

Our consolidated other income decreased by 51.9% to Won 32.0 billion in 2017 from Won 66.5 billion in 2016, primarily due to refunds received in 2016 in connection with the overturn of certain fines previously imposed on us by the FTC that we had paid compared to no such refunds in 2017.

The following sets forth additional information about our operating revenues with respect to each of our reportable segments.

• Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, increased by 2.0% to Won 13,262.1 billion in 2017 from Won 13,004.9 billion in 2016. The increase in our cellular services revenue was due to increases in wireless device sales, miscellaneous cellular services revenue and wireless service revenue, partially offset by a decrease in cellular interconnection revenue.

• Wireless device sales revenue increased by 14.1% to Won 1,052.2 billion in 2017 from Won 922.4 billion in 2016, primarily due to an increase in sales of handsets with relatively higher unit prices such as the Samsung Galaxy S8 and S8+, which were released in the second quarter of 2017, and the iPhone 8 and iPhone X, which were released in the fourth quarter of 2017.

• Miscellaneous cellular services revenue increased by 10.5% to Won 978.2 billion in 2017 from Won 885.1 billion in 2016, primarily because of an increase in revenue from our IoT solutions business.

• Wireless service revenue increased by 0.5% to Won 10,639.0 billion in 2017 from Won 10,583.0 billion in 2016, primarily attributable to an increase in the total number of wireless service subscribers and an increase in average monthly data usage to 6.0GB in 2017 from 5.2GB in 2016, despite the increase in the percentage of wireless service subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA and the increase in the applicable discount rate to 25% in September 2017 from 20%.

• Cellular interconnection revenue decreased by 3.5% to Won 592.7 billion in 2017 from Won 614.4 billion in 2016. The decrease was primarily attributable to decreases in interconnection rates and land-to-mobile call volume.

• Fixed-line telecommunications services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 2.8% to Won 2,724.2 billion in 2017 from Won 2,651.2 billion in 2016, primarily due to an increase in our broadband Internet service and advanced media platform service (including IPTV) revenue, partially offset by decreases in fixed-line telephone service revenue and miscellaneous fixed-line telecommunication services revenue.

• Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 11.5% to Won 1,641.6 billion in 2017 from Won 1,472.8 billion in 2016, primarily due to an increase in the number of IPTV subscribers to 4.4 million subscribers as of December 31, 2017 from 4.0 million subscribers as of December 31, 2016 and an increase in the number of premium subscriptions with higher monthly rates and purchases of premium video-on-demand content.

51

• Fixed-line telephone service revenue decreased by 11.5% to Won 316.8 billion in 2017 from Won 357.8 billion in 2016, primarily due to a decrease in the number of fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband and SK Telink) to 4.3 million as of December 31, 2017 from 4.5 million as of December 31, 2016 and a decrease in residential calling volume as a result of shifting consumer preferences toward wireless communication.

• Miscellaneous fixed-line telecommunication services revenue decreased by 5.1% to Won 560.3 billion in 2017 from Won 590.5 billion in 2016, primarily due to a decline in new contracts for business communications services provided by SK Broadband.

• E-commerce services: The revenue of our e-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, increased by 4.3% to Won 1,044.2 billion in 2017 from Won 1,001.3 billion in 2016, primarily due to an increase in revenue from mobile 11st as there was an increase in sales of products through which we received relatively high third-party seller fees, despite the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where revenue from the spun-off entities was included in e-commerce services revenue prior to the spin-offs in 2016, but not in 2017.

• Others: The revenue of our others segment, which is composed of revenue from our portal service and miscellaneous other revenue, increased by 12.7% to Won 489.5 billion in 2017 from Won 434.4 billion in 2016, due to an increase in miscellaneous other revenue. Miscellaneous other revenue increased by 17.2% to Won 445.5 billion in 2017 from Won 380.2 billion in 2016, primarily due to the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where revenue from the spun-off entities was included in miscellaneous other revenue for the full year in 2017, but only a part of 2016.

Operating Expense.    Our consolidated operating expense increased by 3.0% to Won 16,327.4 billion in 2017 from Won 15,854.9 billion in 2016, primarily due to a 5.3% increase in depreciation and amortization to Won 3,097.5 billion in 2017 from Won 2,941.9 billion in 2016, a 2.0% increase in commissions to Won 5,486.3 billion in 2017 from Won 5,376.7 billion in 2016, a 5.2% increase in labor costs to Won 1,966.2 billion in 2017 from Won 1,869.8 billion in 2016 and a 19.2% increase in advertising expenses to Won 522.8 billion in 2017 from Won 438.5 billion in 2016, partially offset by a 8.3% decrease in network interconnection expenses to Won 875.0 billion in 2017 from Won 954.3 billion in 2016 and a 13.2% decrease in leased line expenses to Won 342.2 billion in 2017 from Won 394.4 billion in 2016.

The increase in depreciation and amortization was primarily due to the full year of amortization in 2017 of certain frequency bandwidth usage rights we acquired or re-licensed in 2016 compared to only partial year amortization in 2016 as well as the amortization of our sales management IT system software beginning in 2017.

The increase in commissions was attributable mainly to an increase in marketing costs relating to our wireless service, which was partially offset by a decrease in marketing costs relating to our e-commerce services, the impact of certain value-added tax refunds relating to discount coupons received in 2017 and the decrease in commissions following the establishment of Home & Service Co., Ltd. (“Home & Service”) as described below.

The increase in labor costs was primarily due to the additional personnel on payroll in connection with the establishment in June 2017 of our subsidiary, Home & Service, which provides in-home customer service primarily to our fixed-line telecommunication service subscribers. Prior to the establishment of Home & Service, we outsourced these services to a third party vendor and the related costs were classified as commissions.

The increase in advertising expenses was primarily due to an increase in advertising expenses by SK Planet and media and online advertising for B tv and oksusu, which was partially offset by a decrease in cellular services advertising.

The decrease in network interconnection expenses was mainly attributable to decreases in wireless-to-fixed-line and fixed-line-to-wireless interconnection rates.

The decrease in leased line expenses was primarily due to a decrease in the number of facilities that use leased lines due to the increase in facilities that opt to build their own network and a decrease in rates for leased lines.

52

The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

• Cellular services: The segment operating expense for our cellular services segment increased by 3.1% to Won 11,548.1 billion in 2017 from Won 11,205.8 billion in 2016, attributable mainly to increases in marketing costs to attract subscribers that purchase handsets with high unit prices and increases in depreciation and amortization for the reasons described above, partially offset by decreases in network interconnection and leased line expenses for the reasons described above and a decrease in frequency bandwidth usage fees.

• Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment increased by 1.5% to Won 2,556.7 billion in 2017 from Won 2,518.8 billion in 2016, primarily due to an increase in marketing costs to gain more subscribers to our ultra-high definition IPTV and high speed broadband Internet services and an increase in labor costs for the reasons described above.

• E-commerce services: The segment operating expense for our e-commerce services segment decreased by 4.0% to Won 1,312.0 billion in 2017 from Won 1,366.5 billion in 2016, primarily due to a decrease in marketing costs and the impact of the value-added tax refunds described above.

• Others: The segment operating expense for our others segment increased by 21.8% to Won 566.6 billion in 2017 from Won 465.0 billion in 2016, primarily due to the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where marketing costs of the spun-off entities was included in miscellaneous other revenue for the full year in 2017, but only a part of 2016.

Operating Profit.    Our consolidated operating profit decreased by 6.0% to Won 1,224.6 billion in 2017 from Won 1,303.4 billion in 2016, as the increase in operating expense outpaced the increase in operating revenue and other income in 2017.

The following sets forth additional information about our segment operating profit with respect to each of our reportable segments. Our segment operating profit with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all four reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

• Cellular services: The segment operating profit of our cellular services segment decreased by 4.7% to Won 1,714.0 billion in 2017 from Won 1,799.1 billion in 2016, due to the greater increase in segment operating expense, as compared to the increase in segment operating revenue, for the various reasons described above. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating profit divided by revenue from such segment, expressed as a percentage) of our cellular services segment decreased to 12.9% in 2017 from 13.8% in 2016.

• Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 26.5% to Won 167.5 billion in 2017 from Won 132.4 billion in 2016, primarily due to an increase in revenue from our IPTV business as described above. As a result, the segment operating margin of our fixed-line telecommunication services segment increased to 6.1% in 2017 from 5.0% in 2016.

• E-commerce services: The segment operating loss of our e-commerce services segment decreased by 26.7% to Won 267.8 billion in 2017 from Won 365.2 billion in 2016, primarily due to the impact of the value-added tax refunds described above. 

53

• Others: The segment operating loss of our others segment increased by 151.6% to Won 77.0 billion in 2017 from Won 30.6 billion in 2016, primarily due to the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016.

Finance Income and Finance Costs.    Our finance income decreased by 36.3% to Won 366.6 billion in 2017 from Won 575.1 billion in 2016, primarily due to a significant decrease in gain on disposal of long-term investment securities to Won 4.9 billion in 2017 from Won 459.3 billion in 2016, which primarily related to the sale of our 15.0% interest in Loen Entertainment in February 2016 and the sale of our 1.4% interest in POSCO in November 2016, which was partially offset by a significant increase in gain on valuation of derivatives to Won 223.9 billion in 2017, primarily relating to the valuation of redeemable convertible preferred shares issued by Bluehole Inc. (“Bluehole”) that we hold, from Won 4.1 billion in 2016.

Our finance costs increased by 32.7% to Won 433.6 billion in 2017 from Won 326.8 billion in 2016, primarily due to an increase in other finance costs to Won 35.9 billion in 2017, relating to management fees paid in connection with our investment in Bluehole’s securities, from none in 2016 and an increase on loss of disposal of long-term investment securities to Won 36.0 billion in 2017 from Won 2.9 billion in 2016 primarily due to the disposal of our shares of Kakao Corporation, which we had obtained for our 15.0% interest in Loen Entertainment mentioned above, for Won 112.6 billion in cash in April 2017, through which we recognized a loss of Won 35.5 billion.

Gains (Losses) Related to Investments in Subsidiaries and Associates.    Gains related to investments in subsidiaries and associates increased by 312.4% to Won 2,245.8 billion in 2017 from Won 544.5 billion in 2016, primarily due to an increase in share of profits of SK Hynix to Won 2,175.9 billion in 2017 from Won 572.1 billion in 2016. Such increase was primarily due to an increase in SK Hynix’s profit for the year to Won 10,642.2 billion in 2017 from Won 2,960.5 billion in 2016.

Income Tax.    Income tax expense increased by 71.0% to Won 745.7 billion in 2017 from Won 436.0 billion in 2016 primarily due to a 62.4% increase in profit before income tax to Won 3,403.3 billion in 2017 from Won 2,096.1 billion in 2016. Our effective tax rate in 2017 increased by 1.1% to 21.9% from 20.8% in 2016, primarily for the reasons set forth above. Our effective tax rates in 2017 and 2016 were lower than the statutory tax rate of 24.2%, primarily due to a tax refund in 2017 and changes in unrecognized deferred taxes in 2016.

Profit for the Year.    Principally as a result of the factors discussed above, our profit for the year increased by 60.1% to Won 2,657.6 billion in 2017 from Won 1,660.1 billion in 2016. Profit for the year as a percentage of operating revenue and other income was 15.1% in 2017 compared to 9.7% in 2016.

2016 Compared to 2015

Operating Revenue and Other Income.    Our consolidated operating revenue and other income decreased by 0.1% to Won 17,158.3 billion in 2016 from Won 17,167.6 billion in 2015, due to a decrease in operating revenue, offset in part by an increase in other income, as discussed below.

Our consolidated operating revenue decreased slightly by 0.3% to Won 17,091.8 billion in 2016 from Won 17,136.7 billion in 2015, primarily due to decreases in wireless service revenue, cellular interconnection revenue, fixed-line telephone service revenue and e-commerce services revenue, partially offset by increases in broadband Internet service and advanced media platform service revenue, miscellaneous revenue and fixed-line interconnection revenue, each as further discussed below.

Our consolidated other income increased by 115.2% to Won 66.5 billion in 2016 from Won 30.9 billion in 2015 primarily due to refunds received in 2016 in connection with the overturn of certain fines previously imposed on us by the FTC that we had paid.

The following sets forth additional information about our operating revenues with respect to each of our reportable segments.

• Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, decreased by 2.0% to Won 13,004.9 billion in 2016 from Won 13,269.3 billion in 2015. The decrease in our

54

cellular services revenue was due to decreases in our wireless service revenue, cellular interconnection revenue and wireless device sales.

• Wireless service revenue decreased by 1.3% to Won 10,583.0 billion in 2016 from Won 10,720.5 billion in 2015, primarily attributable to an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014.

• Cellular interconnection revenue decreased by 13.5% to Won 614.4 billion in 2016 from Won 710.0 billion in 2015. The decrease was primarily attributable to decreases in interconnection rates and land-to-mobile call volume in 2016.

• Wireless device sales decreased by 4.3% to Won 922.4 billion in 2016 from Won 963.4 billion in 2015, primarily attributable to a decrease in the number of wireless devices sold in 2016 as a result of the maturity of the wireless device market.

• Fixed-line telecommunications services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 6.3% to Won 2,651.2 billion in 2016 from Won 2,494.5 billion in 2015, due to increases in our broadband Internet service and advanced media platform service (including IPTV) revenue and fixed-line interconnection revenue, partially offset by decreases in fixed-line telephone service revenue, miscellaneous fixed-line telecommunication services revenue and international calling service revenue.

• Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 12.5% to Won 1,472.8 billion in 2016 from Won 1,308.8 billion in 2015, primarily due to an increase in the number of IPTV subscribers to 4.0 million subscribers as of December 31, 2016 from 3.5 million subscribers as of December 31, 2015 and an increase in the purchase of paid media content by IPTV subscribers. Fixed-line interconnection revenue increased by 134.9% to Won 134.1 billion in 2016 from Won 57.1 billion in 2015, primarily due to additional interconnection charges we received from KT and LG U+ as a result of certain changes to the methodology for calculating interconnection charges.

• Fixed-line telephone service revenue decreased by 14.9% to Won 357.8 billion in 2016 from Won 420.6 billion in 2015, primarily due to a decrease in residential calling volume as a result of shifting consumer preferences toward wireless communication. Miscellaneous fixed-line telecommunication services revenue decreased by 3.0% to Won 590.5 billion in 2016 from Won 608.9 billion in 2015, primarily due to a decline in new contracts for business communications services provided by SK Broadband. International calling service revenue decreased by 3.1% to Won 96.0 billion in 2015 from Won 99.1 billion in 2015, primarily due to a decrease in international calling volume.

• E-commerce services: The revenue of our e-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, decreased by 5.5% to Won 1,001.3 billion in 2016 from Won 1,060.0 billion in 2015, primarily due to the spin-offs of SK Planet’s former platform business and T store business in March 2016 as revenues from these businesses were included in our e-commerce services segment prior to the spin-offs but excluded thereafter.

• Others: The revenue of our others segment, which is composed of revenue from our portal service and miscellaneous other revenue, increased by 38.8% to Won 434.4 billion in 2016 from Won 312.9 billion in 2015, due to an increase in miscellaneous other revenue. Miscellaneous other revenue increased by 57.7% to Won 380.2 billion in 2016 from Won 241.1 billion in 2015, primarily due to the spin-offs of SK Planet’s former platform business and T store business as revenues from these businesses were included in our others segment beginning in March 2016.

55

Operating Expense.    Our consolidated operating expense increased by 1.2% to Won 15,854.9 billion in 2016 from Won 15,672.2 billion in 2015, primarily due to a 3.3% increase in commissions to Won 5,376.7 billion in 2016 from Won 5,207.0 billion in 2015 and a 3.4% increase in depreciation and amortization to Won 2,941.9 billion in 2016 from Won 2,845.3 billion in 2015. Such increases were partially offset by a 6.0% decrease in cost of products that have been resold to Won 1,838.4 billion in 2016 from Won 1,955.9 billion in 2015.

The increase in commissions was attributable mainly to an increase in marketing costs relating to promotional activities for 11st, our open marketplace platform, which was partially offset by a decrease in marketing costs relating to our cellular services.

The increase in depreciation and amortization was primarily due to amortization of certain frequency bandwidth usage rights we acquired or re-licensed in 2016 as well as amortization of software.

The decrease in cost of products that have been resold was primarily due to a decrease in the number of wireless devices resold in 2016.

The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

• Cellular services: The segment operating expense for our cellular services segment decreased by 3.3% to Won 11,205.8 billion in 2016 from Won 11,591.0 billion in 2015, attributable mainly to a decrease in marketing costs due to the stabilized competitive environment due to the maturity of the LTE market and the implementation of the MDDIA as well as an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA.

• Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment increased by 5.6% to Won 2,518.8 billion in 2016 from Won 2,386.2 billion in 2015, primarily due to an increase in marketing costs to gain more subscribers to our ultra-high definition IPTV and high speed broadband Internet services and an increase in expenses paid to obtain certain rights to media content.

• E-commerce services: The segment operating expense for our e-commerce services segment increased by 28.1% to Won 1,366.5 billion in 2016 from Won 1,066.7 billion in 2015, primarily due to an increase in marketing costs relating to promotional activities for 11st, our online open marketplace, which more than offset the impact of the exclusion of SK Planet’s former platform and T store businesses from our e-commerce services segment beginning in 2016.

• Others: The segment operating expense for our others segment increased by 20.8% to Won 465.0 billion in 2016 from Won 384.8 billion in 2015, primarily due to an increase in marketing costs relating to the impact of the inclusion of SK Planet’s former platform and T store businesses in the others segment beginning in 2016.

Operating Profit.    Our consolidated operating profit decreased by 12.8% to Won 1,303.4 billion in 2016 from Won 1,495.4 billion in 2015, due to the decrease in operating revenue and other income and the increase in operating expense.

The following sets forth additional information about our segment operating profit with respect to each of our reportable segments. Our segment operating profit with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all four reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

• Cellular services: The segment operating profit of our cellular services segment increased by 7.2% to Won 1,799.1 billion in 2016 from Won 1,678.3 billion in 2015, due to the greater decrease in segment

56

operating expense, as compared to the decrease in segment revenue, for the reasons described above. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating profit divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 13.8% in 2016 from 12.6% in 2015.

• Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 22.1% to Won 132.4 billion in 2016 from Won 108.3 billion in 2015, primarily due to the increase in revenue from our IPTV service despite the increase in costs to expand our advanced media platform service business. As a result, the segment operating margin of our fixed-line telecommunication services segment increased to 5.0% in 2016 from 4.3% in 2015.

• E-commerce services: The segment operating loss of our e-commerce services segment increased significantly to Won 365.2 billion in 2016 from Won 6.7 billion in 2015, primarily due to the increase in marketing costs relating to promotional activities for 11st described above.

• Others: The segment operating loss of our others segment decreased by 57.4% to Won 30.6 billion in 2016 from Won 71.9 billion in 2015, primarily due to the inclusion of the results of operations from SK TechX and One Store in our others segment as described above.

Finance Income and Finance Costs.    Our finance income increased by 453.5% to Won 575.1 billion in 2016 from Won 103.9 billion in 2015, primarily due to a significant increase in gain on disposal of long-term investment securities to Won 459.3 billion in 2016 from Won 10.8 billion in 2015 relating to the sale of our 15.0% interest in Loen Entertainment in February 2016 and the sale of our 1.4% interest in POSCO in November 2016.

Our finance costs decreased by 6.7% to Won 326.8 billion in 2016 from Won 350.1 billion in 2015 primarily due to a 75.7% decrease in impairment loss for available-for-sale financial assets to Won 5.3 billion in 2016 from Won 21.8 billion in 2015, primarily due to an increase in the fair value of certain of our available-for-sale financial assets, and a 2.4% decrease in interest expense to Won 290.5 billion in 2016 from Won 297.7 billion in 2015.

Gains (Losses) Related to Investments in Subsidiaries and Associates.    Gains related to investments in subsidiaries and associates decreased by 30.7% to Won 544.5 billion in 2016 from Won 786.2 billion in 2015, primarily due to a 32.1% decrease in share of profits of SK Hynix to Won 572.1 billion in 2016 from Won 842.1 billion in 2015. Such decrease was primarily due to the 31.5% decrease in SK Hynix’s profit for the year to Won 2,960.5 billion in 2016 from Won 4,323.6 billion in 2015.

Income Tax.    Income tax expense decreased by 16.1% to Won 436.0 billion in 2016 from Won 519.5 billion in 2015 notwithstanding a 3.0% increase in profit before income tax to Won 2,096.1 billion in 2016 from Won 2,035.4 billion in 2015, primarily due to changes in the interpretation of certain tax regulations allowing for the use in 2016 of tax loss carryforwards incurred by SK Planet relating to its loss on disposal of shares of SK Communications. Our effective tax rate in 2016 decreased by 4.8% to 20.8% in 2016 from 25.5% in 2015, primarily for the reasons set forth above.

Profit for the Year.    Principally as a result of the factors discussed above, our profit for the year increased by 9.5% to Won 1,660.1 billion in 2016 from Won 1,515.9 billion in 2015. Profit for the year as a percentage of operating revenue and other income was 9.7% in 2016 compared to 8.8% in 2015.

Inflation

We do not consider inflation in Korea to have had a material impact on our results of operations in recent years. According to data published by The Bank of Korea, annual inflation in Korea was 1.9% in 2017, 1.0% in 2016 and 0.7% in 2015.

Item 5.B. Liquidity and Capital Resources

Liquidity

We had a working capital deficit (current liabilities in excess of current assets) of Won 907.3 billion as of December 31, 2017 and Won 447.5 billion as of December 31, 2016. The working capital deficits as of

57

December 31, 2016 and 2017 were primarily due to working capital needs in the ordinary course of business. We plan to fund our current liabilities with the cash flow generated by our operations, proceeds from the disposal of investment securities or property and equipment that are no longer deemed profitable and proceeds from additional borrowings, as necessary.

We had cash and cash equivalents, short-term financial instruments and short-term investment securities of Won 2,218.9 billion as of December 31, 2017 and Won 2,081.4 billion as of December 31, 2016. We had outstanding short-term borrowings of Won 130.0 billion as of December 31, 2017 and Won 2.6 billion as of December 31, 2016. As of December 31, 2017, we had credit lines with several local banks that provided for borrowing of up to Won 440.0 billion, of which Won 390.0 billion was available for borrowing.

Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 1,457.7 billion as of December 31, 2017 and Won 1,505.2 billion as of December 31, 2016. We believe 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.

	Year ended December 31,									Change
	2017			2016			2015			2017 to 2016					2016 to 2015
	(In billions of Won, except percentages)
Net cash provided by operating activities		3,855.8			4,243.2			3,778.1			(387.4	)	(9.1	)%		465.1		12.3	%
Net cash used in investing activities		(3,070.6	)		(2,462.2	)		(2,880.5	)		(608.4	)	24.7			418.3		(14.5	)
Net cash used in financing activities		(826.6	)		(1,044.8	)		(964.6	)		218.2		(20.9	)		(80.2	)	8.3
Effect of exchange rate changes on cash and cash equivalents held in foreign currencies		(6.2	)		0.2			1.5			(6.4	)	N.A.			(1.3	)	(86.7	)
Net increase (decrease) in cash and cash equivalents		(41.4	)		736.2			(67.0	)		(777.6	)	N.A.			803.2		N.A.
Cash and cash equivalents at beginning of period		1,505.3			768.9			834.4			736.4		95.8			(65.5	)	(7.8	)
Cash and cash equivalents at end of period		1,457.7			1,505.3			768.9			(47.6	)	(3.2	)		736.4		95.8

N.A. = Not available

Cash Flows from Operating Activities.    Net cash provided by operating activities was Won 3,855.8 billion in 2017, Won 4,243.2 billion in 2016 and Won 3,778.1 billion in 2015. Profit for the year was Won 2,657.6 billion in 2017, Won 1,660.1 billion in 2016 and Won 1,515.9 billion in 2015. Net cash provided by operating activities in 2017 decreased by 9.1% from 2016 primarily due to an increase in outstanding accounts receivable at the year-end of 2017 compared to the year-end of 2016. Net cash provided by operating activities in 2016 increased by 12.3% from 2015 primarily due to the fulfillment of certain year-end cash payment obligations on the next business day after December 31, 2016, which was not a business day.

Cash Flows from Investing Activities.    Net cash used in investing activities was Won 3,070.6 billion in 2017, Won 2,462.2 billion in 2016 and Won 2,880.5 billion in 2015. Cash inflows from investing activities were Won 456.8 billion in 2017, Won 1,140.7 billion in 2016 and Won 914.5 billion in 2015. Cash inflows in 2017 were primarily attributable to the collection of short-term loans of Won 216.7 billion and proceeds from disposals of long-term investment securities of Won 129.7 billion, mostly in connection with the disposal of our shares of Kakao Corporation for Won 112.6 billion in cash in April 2017. Cash inflows in 2016 were primarily attributable to proceeds from disposals of long-term investment securities of Won 555.5 billion, mostly in connection with the disposal of our 15.0% interest in Loen Entertainment for shares of Kakao Corporation and Won 218.0 billion in cash in February 2016 and the disposal of our 1.4% interest in POSCO for Won 305.1 billion in November 2016, collection of short-term loans of Won 239.0 billion and decrease in short-term financial instruments, net of Won 222.3 billion. Cash inflows in 2015 were primarily attributable to collection of short-term loans of Won 398.3 billion and proceeds from disposals of investments in associates and joint ventures of Won 185.1 billion, mostly in connection with the disposal of 27,725,264 shares of KEB HanaCard for Won 176.3 billion.

Cash outflows for investing activities were Won 3,527.4 billion in 2017, Won 3,602.9 billion in 2016 and Won 3,795.0 billion in 2015. Cash outflows in 2017, 2016 and 2015 were primarily attributable to expenditures

58

related to the acquisition of property and equipment of Won 2,715.9 billion, Won 2,490.5 billion and Won 2,478.8 billion, respectively, primarily in connection with the acquisition of LTE equipment and the expansion of our LTE network.

Cash Flows from Financing Activities.    Net cash used in financing activities was Won 826.6 billion in 2017, Won 1,044.8 billion in 2016 and Won 964.6 billion in 2015. Cash inflows from financing activities were Won 1,261.8 billion in 2017, Won 861.6 billion in 2016 and Won 1,375.2 billion in 2015. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 973.3 billion in 2017, Won 776.7 billion in 2016 and Won 1,375.0 billion in 2015 and proceeds from long-term borrowings, which provided cash of Won 120.0 billion in 2017 and Won 49.0 billion in 2016. In 2017, we also received net proceeds from short-term borrowings of Won 127.4 billion.

Cash outflows for financing activities were Won 2,088.4 billion in 2017, Won 1,906.5 billion in 2016 and Won 2,339.8 billion in 2015. Cash outflows for financing activities included repayment of debentures, payment of dividends, repayments of other long-term accounts payable and cash outflows from settlement of derivatives, among other items. Repayment of debentures were Won 842.7 billion in 2017, Won 770.0 billion in 2016 and Won 620.0 billion in 2015. Payment of dividends were Won 706.1 billion in 2017, Won 706.1 billion in 2016 and Won 668.5 billion in 2015. Repayments of other long-term account payables were Won 305.5 billion in 2017, Won 122.7 billion in 2016 and Won 191.4 billion in 2015. Cash outflows from settlement of derivatives were Won 105.3 billion in 2017, none in 2016 and Won 0.7 billion in 2015. In 2015, we had cash outflows of Won 490.2 billion due to acquisition of treasury stock and cash outflows of Won 220.4 billion related to equity interest transactions, principally in connection with a share exchange transaction (the “Share Exchange”) in June 2015 through which we acquired all of the shares of SK Broadband that we did not otherwise own in exchange for 1,692,824 of our treasury shares and cash.

As of December 31, 2017, we had total long-term debt (excluding current portion) outstanding of Won 5,808.1 billion, which included debentures in the amount of Won 5,596.6 billion and bank and institutional borrowings in the amount of Won 211.5 billion. As of December 31, 2016, we had total long-term debt (excluding current portion) outstanding of Won 6,478.6 billion, which included debentures in the amount of Won 6,338.9 billion and bank and institutional borrowings in the amount of Won 139.7 billion. For a description of our long-term debt, see note 17 of the notes to our consolidated financial statements.

As of December 31, 2017, we had (i) Won 5,285.8 billion aggregate principal amount of Korean Won-denominated debentures outstanding, of which SK Telecom issued Won 3,970.3 billion, SK Broadband issued Won 1,310 billion and Iriver issued Won 5.6 billion, and (ii) Won 1,821.4 billion aggregate principal amount of debentures outstanding denominated in U.S. dollars. The fixed interest rates of our debentures range from 1.00% to 6.63% depending on the offering size, maturity, interest rate environment at the time of the offering and currency, among other factors. We have a diversified maturity profile with respect to our debentures. See “— Contractual Obligations and Commitments” for more details.

As of December 31, 2017, all of our foreign currency-denominated long-term borrowings, which amounted to 25.5% of our total outstanding long-term debt, including the current portion and present value discount as of such date, was denominated in Dollars. However, substantially all of our revenue and operating expenses are denominated in Won. We generally pay for imported capital equipment in Dollars. Appreciation of the Won against the Dollar will result in net foreign currency transaction and translation gains, while depreciation of the Won against the Dollar will result in net foreign currency transaction and translation losses. Changes in foreign currency exchange rates will also affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on our foreign currency-denominated debt. For a description of swap or derivative transactions we have entered into, among other transactions, to mitigate the effects of such losses, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Capital Requirements

Historically, capital expenditures, repayment of outstanding debt, frequency usage payments and research and development expenditures have represented our most significant use of funds. In recent years, we have also increasingly dedicated capital resources to develop and invest in new growth engines, including our next-generation

59

growth businesses in IoT solutions, media and e-commerce and other innovative products and services offered through our platform services, including artificial intelligence solutions.

To fund our scheduled debt repayment and planned capital expenditures over the next several years, we intend to rely primarily on cash flows from operating activities, as well as bank and institutional borrowings, and offerings of debt or equity in the domestic or international markets. We believe that these sources will be sufficient to fund our planned capital expenditures for 2018. Our ability to rely on these alternatives could be affected by the liquidity of the Korean financial markets or by Government policies regarding Won and foreign currency borrowings and the issuance of equity and debt. Our failure to make needed expenditures would adversely affect our ability to sustain subscriber growth and provide quality services and, consequently, our results of operations.

Capital Expenditures.    The following table sets forth our actual capital expenditures for 2017, 2016 and 2015:

	Year ended December 31,
	2017		2016		2015
	(In billions of Won)
LTE Network		1,131.8		1,104.0		1,022.7
WCDMA Network		29.0		27.7		90.0
Fixed-line Network(1)		790.0		699.6		559.4
Other Network(2)		436.2		376.3		332.4
Others(3)		328.9		282.9		474.3
Total		2,715.9		2,490.5		2,478.8

(1) Includes all capital expenditures made by SK Broadband.

(2) Includes investments in our CDMA, WiBro and Wi-Fi networks as well as other capital expenditures related to our networks.

(3) Includes non-network related investments such as capital expenditures for product development and maintenance and upgrades of our information technology systems and equipment.

We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2017, 2016 and 2015 were Won 2,715.9 billion, Won 2,490.5 billion and Won 2,478.8 billion, respectively. Of such amounts, we spent approximately 41.7%, 44.3% and 41.3% in 2017, 2016 and 2015, respectively, on capital expenditures related to expanding and enhancing the quality of our LTE network. Our other non-network related capital expenditures in 2017, 2016 and 2015 primarily related to developing new products and maintenance and upgrades to our information technology systems.

In addition, we have been making capital expenditures to build more advanced networks based on LTE technology. We commenced commercial LTE services in July 2011 and expanded our LTE network nationwide and launched our LTE multi-carrier technology in 2012. We launched our LTE-A service in June 2013, our wideband LTE-A service in June 2014, our tri-band LTE-A service in December 2014 and our five-band LTE-A service in June 2017. For a more detailed description of our LTE network, see “Item 4.B. Business Overview — Digital Wireless Network — LTE Network.” We plan to continue to make capital investments in 2018 to further improve and expand our LTE network and develop related technologies as well as to prepare for the commercialization of our future 5G network.

60

The following table sets forth our payment obligations relating to our acquisitions of frequency usage rights.

Band	Technology (width)		Date of Acquisition	Initial Payment Amount (in billions of Won)		Initial Payment Year		Annual Payment Amount (in billions of Won)		Annual Payment Term
800MHz	CDMA(10M)		June 2011		208.3		2011		69.4		2013-2015
	LTE(20M)
1.8GHz	LTE(35M)	20M	Dec. 2011		248.8		2011		74.6		2012-2021
		15M	Sept. 2013		115.3		2013		43.2		2014-2021
2.1GHz	LTE(20M)		Dec. 2001		650.0		2001		130.0		2007-2011
	WCDMA(20M)		Dec. 2016		141.2		2016		85.3		2017-2021
2.3GHz	WiBro(27M)		March 2012		8.7		2012		2.9		2014-2016
2.6GHz	LTE(40M+20M)		August 2016		332.5		2016		99.8		2017-2026

For more information, see note 16 of the notes to our consolidated financial statements.

We expect that our capital expenditure amount in 2018 will be slightly higher than that of 2017. Our expenditures will be for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. However, our overall expenditure levels and our allocation among projects remain subject to many uncertainties. We may increase, reduce or suspend our planned capital expenditures for 2018 or change the timing and area of our capital expenditure spending from the estimates described above in response to market conditions or for other reasons. We may also make additional capital expenditure investments as opportunities arise, including in connection with building out our networks on any new bandwidths we may choose to acquire in the frequency bandwidth auction expected to be held by the MSIT in June 2018. Accordingly, we periodically review the amount of our capital expenditures and may make adjustments based on the current progress of capital expenditure projects and market conditions. No assurance can be given that we will be able to meet any such increased expenditure requirements or obtain adequate financing for such requirements, on terms acceptable to us, or at all. For more information regarding the frequency bandwidth auction expected to be held by the MSIT in June 2018, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Frequency Allocation.”

Repayment of Outstanding Debt.    As of December 31, 2017, our principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases outstanding were as follows for the periods indicated:

Year Ending December 31,	Total
	(In billions of Won)
2018		1,533.0
2019		984.9
2020		978.5
2021 and thereafter		3,854.3

We note that no commercial bank in Korea may extend credit (including loans, guarantees and purchase of bonds) in excess of 20.0% of its shareholders’ equity to any one borrower. In addition, no commercial bank in Korea may extend credit exceeding 25.0% of the bank’s shareholders’ equity to any one borrower and to any person with whom the borrower shares a credit risk.

Investments in New Growth Businesses.    We may also require capital for investments to support our development of new growth businesses.

In August 2014, we acquired a 39.3% equity interest of Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of

61

Won 54.5 billion. In 2017, we made capital contributions of Won 25.0 billion and as of December 31, 2017, we had a 45.9% equity interest in Iriver.

In 2014 and 2015, we acquired an 83.9% interest in NSOK, a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate of Won 64.0 billion. In October 2016, we acquired the remaining 16.1% interest in NSOK through SK Telink.

In 2016, we acquired a 46.2% interest in SM Mobile Communications for Won 12.1 billion, which was subsequently merged into Iriver, and in 2017, we acquired SM Life Design for Won 30.0 billion, in light of potential synergies that may be achieved through the entertainment business.

From time to time, we may make other investments in telecommunications or other businesses, in Korea or abroad, where we perceive attractive opportunities for investment. From time to time, we may also dispose of existing investments when we believe that doing so would be in our best interest.

Severance Payments.    The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 2017 was Won 62.0 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 663.6 billion to fund a portion of the employees’ severance indemnities.

Also see “Item 6.D. Employees — Employee Benefits” and note 21 of the notes to our consolidated financial statements.

Dividends.    Total cash outflows for payments of dividends amounted to Won 706.1 billion in 2017, Won 706.1 billion in 2016 and Won 668.5 billion in 2015.

In April 2018, we distributed annual dividends at Won 9,000 per share (exclusive of an interim dividend of Won 1,000 per share) to our shareholders for an aggregate payout amount of Won 635.5 billion.

Contractual Obligations and Commitments

The following summarizes our contractual cash obligations at December 31, 2017, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

	Payments Due by Period(1)
	Total		Less Than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(In billions of Won)
Bonds
Principal		7,097.0		1,491.4		1,837.0		1,340.0		2,428.6
Interest		1,134.0		190.8		287.6		210.6		445.0
Long-term borrowings
Principal		253.7		41.6		156.4		55.7		—
Interest		14.1		6.3		6.4		1.4		—
Capital lease obligations
Principal		—		—		—		—		—
Interest		—		—		—		—		—
Operating leases		—		—		—		—		—
Facility deposits		6.5		0.6		—		—		5.9
Derivatives		40.3		29.0		—		11.3		—
Other long-term payables(2)
Principal		1,710.2		302.9		605.7		402.6		399.0
Interest		71.3		5.8		37.9		16.5		11.1
Short-term borrowings		130.0		130.0		—		—		—
Total contractual cash obligations		10,457.0		2,198.4		2,931.0		2,038.1		3,289.6

(1) We are contractually obligated to make severance payments to eligible employees we have employed for more than one year, upon termination of their employment, regardless of whether such termination is voluntary or

62

involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table.

(2) Related to acquisition of frequency licenses. See note 14 of the notes to our consolidated financial statements.

See note 37 of the notes to our consolidated financial statements for details related to our other commitments and contingencies.

Critical Accounting Policies, Estimates And Judgments

Our consolidated financial statements are prepared in accordance with K-IFRS. The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments including those related to allowances for doubtful accounts, fair value measurements of financial instruments, estimated useful lives and impairment of long-lived assets, impairment of goodwill, provisions, retirement benefit plans and income taxes. We base our estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, the following may involve a higher degree of judgment or complexity:

Allowances for Doubtful Accounts

An allowance for doubtful accounts is provided based on a review of the status of individual receivable accounts at the end of the year. We maintain allowances for doubtful accounts for estimated losses that result from the inability of our customers to make required payments. We base our allowances on the likelihood of recoverability of accounts receivable based on the aging of accounts receivables at the end of the period, past customer default experience and their credit status, and economic and industrial factors. Allowance for doubtful accounts amounted to Won 362.2 billion as of December 31, 2017 and Won 369.3 billion as of December 31, 2016. As there was no significant change in our assumptions and judgments including on the aging of accounts receivables, past customer default experience and credit status, and economic and industrial factors, there was no significant change in the percentage of allowance for doubtful accounts as of December 31, 2017 compared to the prior year. If economic or specific industry trends worsen beyond our estimates, the allowances for doubtful accounts we have recorded may be materially adjusted in the future.

Fair Value Measurement of Financial Instruments

Subsequent to initial recognition, available-for-sale financial assets and derivative financial assets are stated at fair value with any gains or losses arising on remeasurement recognized in profit for the period or other comprehensive income. When measuring fair value, we use quoted prices in active markets to the extent such prices exist. The fair values of financial instruments, including derivative instruments, that are not traded in an active market are determined using valuation techniques that require management’s estimates of future cash flows and discount rates. Our management uses its judgment to select a variety of methods and makes assumptions that are mainly based on market conditions existing at the end of each reporting period. See note 2(4) of the notes to our consolidated financial statements.

Impairment of Long-lived Assets Including the Frequency Usage Rights

Long-lived assets generally consist of property, plant and equipment and intangible assets. We review our depreciation and amortization methods, estimated useful lives and residual values of long-lived assets at the end of each annual reporting period. An impairment loss is recognized when the asset’s recoverable amount is less than its carrying amount. The recoverable amount of a long-lived asset is the greater of an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amounts of cash-generating units are determined based on value-in-use calculations, which require the use of estimates. If such assets are considered to

63

be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated recovery value.

Our intangible assets include our frequency usage rights, which have contractual lives of 5 to 10.25 years and are amortized from the date commercial service is initiated through the end of their contractual lives. Because the use of frequency usage rights presents risks and challenges to our business, any or all of which, if realized or not properly addressed, may have a material adverse effect on our financial condition, results of operations and cash flows, we review the frequency usage rights for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow forecasts. The use of different assumptions within our cash flow model could result in different recoverable amounts for our frequency usage rights. The results of our review using the testing method described above resulted in no impairment of our frequency usage rights in 2017. See note 16 of the notes to our consolidated financial statements.

Impairment of Goodwill

Goodwill is measured as the excess of the sum of: (1) the consideration transferred, (2) the amount of any non-controlling interests in the acquiree and (3) the fair value of the acquirer’s previously held equity interest in the acquiree (if any), over the net fair value of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not depreciated, but tested for impairment at the end of each annual reporting period or whenever there is an indication that the asset may be impaired. Goodwill is carried at cost less accumulated impairment losses and the impairment losses are not reversed. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires our management to estimate the future cash flows expected related to the respective cash-generating unit and the determination of an appropriate discount rate in order to calculate present value. See note 15 of the notes to our consolidated financial statements.

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 year’s liability by taxing authorities. We believe that the accounting estimate related to assessment of deferred tax assets for recoverability 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. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so. As of December 31, 2017 and 2016, unused tax loss carryforwards of Won 921.3 billion and Won 755.1 billion, respectively, were not recognized as deferred tax assets because we did not believe that their realization would be probable. The increase of Won 166.3 billion in unrecognized tax loss carryforwards in 2017 compared to 2016 was primarily related to the net losses incurred by SK Planet. See note 31 of the notes to our consolidated financial statements.

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

We maintain a high level of spending on our research and development activity. We also donate funds to several Korean research institutes and educational organizations that focus on research and development activity. We believe that we must maintain a substantial in-house technology capability to achieve our strategic goals.

In 2017, 2016 and 2015, our annual research and development expenses were Won 395.3 billion, Won 344.8 billion and Won 315.8 billion, respectively. Our total research and development expenses were approximately 2.3% in 2017, 2.0% in 2016 and 1.8% in 2015, respectively, of operating revenue and other income.

The main focus of our research and development activity is the development of new wireless technologies and services and value-added technologies and services for our LTE network, such as wireless data communications, as

64

well as development of new technologies that reflect the growing convergence between telecommunications and other industries. Our research and development activity is centered at a research center with state-of-the-art facilities and equipment established in January 1999 in Bundang-gu, Seongnam-si, Gyeonggi-do, Korea. To more efficiently manage our research and development resources, our research and development center is organized into the following core areas:

• Network Technology R&D Center, through which we research and develop 5G-related technologies as well as technologies for access network, core network, broadband Internet, wireless devices and next-generation open source software;

• Future Technology R&D Center, through which we research and develop technologies for human machine interface, artificial intelligence, video, big data and other business solutions;

• Platform Technology R&D Center, through which we research and develop technologies for our IoT solutions, media and commerce and other innovative products and services offered through our platform services and quantum technologies; and

• Network IT Convergence R&D Center, through which we research and develop technologies that converge network technology and information technology in the ICT area.

Each business unit also has its own research team that can concentrate on specific short-term research needs. Such research teams permit our research center to concentrate on long-term, technology-intensive research projects. We aim to establish strategic alliances with selected domestic and foreign companies with a view to exchanging or jointly developing technologies, products and services.

Item 5.D. Trend Information

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

Item 5.E. Off-Balance Sheet Arrangements

None.

Item 5.F. Tabular Disclosure of Contractual Obligations

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

Item 5.G. Safe Harbor

These matters are discussed under “Forward-Looking Statements.”

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A. Directors and Senior Management

Our board of directors has ultimate responsibility for the management of our affairs. Under our articles of incorporation, our board is to consist of at least three but no more than twelve directors, more than half of whom must be independent non-executive directors. We currently have a total of eight directors, five of whom are independent non-executive directors. We elect our directors at a general meeting of shareholders with the approval of at least a majority of those shares present or represented at such meeting. Such majority must represent at least one-fourth of our total issued and outstanding shares with voting rights.

As required under relevant Korean laws and our articles of incorporation, we have a committee for recommendation of independent non-executive directors within the board of directors, the Independent Director Nomination Committee. Independent non-executive directors are appointed from among those candidates recommended by the Independent Director Nomination Committee.

The term of offices for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms. Our shareholders may

65

remove them from office by a resolution at a general meeting of shareholders adopted by the holders of at least two-thirds of the voting shares present or represented at the meeting, and such affirmative votes also represent at least one-third of our total voting shares then issued and outstanding.

Representative directors are directors elected by the board of directors with the statutory power to represent our company.

The following are the names and positions of our standing and non-standing directors. The business address of all of our directors is the address of our registered office at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 100-999, Korea.

Standing directors are our full-time employees and executive officers, and they also comprise the senior management, or the key personnel who manage us. Their names, dates of birth and positions at our company, other positions and business experience are set forth below:

Name	Date of Birth		Director Since		Expiration of Term		Position	Other Positions	Business Experience
Jung Ho Park		May 27, 1963		2017		2020	Executive Director	President and Chief Executive Officer	Chief Executive Officer, SK Holdings; Head of Corporate Development Office, SK C&C Co., Ltd.; Head of Business Development Office, SK Telecom
Young Sang Ryu		May 15, 1970		2018		2021	Executive Director	Head of Corporate Center	Executive Vice President of Business Development Group, SK Holdings; Senior Vice President of Business Development Office, SK Telecom

Our current non-standing directors are as set forth below:

Name	Date of Birth		Director Since		Expiration of Term		Position	Other Positions	Business Experience
Dae Sik Cho		Nov. 27, 1960		2017		2020	Non-executive Director	Chairman, SK SUPEX Council	Chief Executive Officer, SK Holdings; Chief Finance Officer, Head of Finance Division and Risk Management & Corporate Auditing Office, SK Holdings; Head of Business Management, SK Holdings
Dae Shick Oh		Nov. 28, 1954		2013		2019	Independent Non-executive Director	Advisor, Bae, Kim & Lee LLC	Outside Director, CJ Corporation, Head of Seoul Regional Tax Office; Head of Investigation Department, Korea National Tax Service

66

Name	Date of Birth		Director Since		Expiration of Term		Position	Other Positions	Business Experience
Jae Hoon Lee		Sep. 26, 1955		2017		2020	Independent Non-executive Director	President, Association of Future Strategy Forum on Energy & Resources Development	Vice Minister, Ministry of Knowledge Economy; Vice Minister, Ministry of Commerce, Industry and Energy; Assistant Minister, Ministry of Commerce, Industry and Energy
Jae Hyeon Ahn		Feb. 2, 1961		2017		2020	Independent Non-executive Director	Professor, Advanced Innovative Management Program, KAIST	Vice President, College of Business, KAIST; Dean, College of Information and Media Management, KAIST; Dean, College of Information and Media Management Association; Senior Technical Staff Member, AT&T Bell Labs
Jung Ho Ahn		Feb. 11, 1978		2017		2020	Independent Non-executive Director	Associate Professor, Graduate School of Convergence Science and Technology, Seoul National University	Visiting Scholar, Google Inc.; Senior Research Scientist, Exascale Computing Lab, HP Labs
Youngmin Yoon		Dec. 19, 1963		2018		2021	Independent Non-executive Director	Dean of School of Media and Communications and Graduate School of Journalism and Mass Communication, Korea University	Professor, School of Media & Communication, Korea University; Vice-chair, Korean Academic Society for Public Relations; Advisor, Ministry of Land, Infrastructure and Transport Public Relations Division; Advisor, Korea Media Rating Board

Item 6.B. Compensation

The aggregate of the remuneration paid and in-kind benefits granted to the directors (all standing directors, who also serve as our executive officers, and non-standing directors) during the year ended December 31, 2017 totaled approximately Won 2.2 billion.

Remuneration for the directors is determined by shareholder resolution. Severance allowances for directors are determined by the board of directors in accordance with our regulation on severance allowances for officers, which was adopted by shareholder resolution. The regulation provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount of performance bonuses is independently decided by a resolution of the board of directors.

In March 2002, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, certain of our directors and officers were granted options to purchase our common shares, which have all expired without being exercised. On March 24, 2017, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, Mr. Jung Ho Park, our President and Chief Executive Officer, was

67

granted options to purchase 66,504 shares of our common stock. On February 20, 2018, our board of directors resolved to grant options to certain executive officers, which was approved by shareholder resolution on March 21, 2018, as set forth in the table below. The following table summarizes the exercisable stock options granted as of the date of this annual report:

Recipient	Position	Exercise period		Exercise price (per share)		Number of shares issuable
		From	To
Jung Ho Park	Executive Director, President and Chief Executive Officer	March 25, 2019	March 24, 2022		246,750		22,168
		March 25, 2020	March 24, 2023		266,490		22,168
		March 25, 2021	March 24, 2024		287,810		22,168
Sung Won Suh	Head of MNO Business	February 21, 2020	February 20, 2023		254,120		2,755
Sang Ho Lee	Head of Service Platform Business	February 21, 2020	February 20, 2023		254,120		1,594
Young Sang Ryu	Head of Corporate Center	February 21, 2020	February 20, 2023		254,120		1,358

Item 6.C. Board Practices

For information regarding the expiration of each director’s term of appointment, as well as the period from which each director has served in such capacity, see the table set out under “Item 6.A. Directors and Senior Management” above.

Termination of Directors, Services

Directors are given a retirement and severance payment upon termination of employment in accordance with our internal regulations on severance payments. Upon retirement, directors who have made significant contributions to our company during their term may be appointed to serve either as an advisor to us or as an officer of an affiliate company.

Audit Committee

Under relevant Korean laws and our articles of incorporation, we are required to have an audit committee under the board of directors. The committee is composed of at least three members, two-thirds of whom must be independent non-executive directors in accordance with applicable rules. The members of the audit committee are appointed annually by a resolution of the general meeting of shareholders. They are required to:

• examine the agenda for the general meeting of shareholders;

• examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders;

• review the administration by the board of directors of our affairs; and

• examine the operations and asset status of us and our subsidiaries.

In addition, the audit committee must appoint independent auditors to examine our financial statements. An audit and review of our financial statements by independent auditors is required for the purposes of a securities report. Listed companies must provide such report on an annual, semi-annual and quarterly basis to the FSC and the KRX KOSPI Market.

Our audit committee is composed of four independent non-executive directors: Dae Shick Oh, Jae Hoon Lee, Jae Hyeon Ahn, and Youngmin Yoon, each of whom is financially literate and independent under the rules of the NYSE as applicable. The board of directors has determined that Dae Shick Oh is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”

68

Independent Director Nomination Committee

This committee is devoted to recommending independent non-executive directors for the board of directors. The objective of the committee is to help promote fairness and transparency in the nomination of candidates for these positions. The board of directors decides from time to time who will comprise the members of this committee. The committee is comprised of one executive director, Jung Ho Park, and two independent directors, Jae Hoon Lee and Jae Hyeon Ahn.

Capex Review Committee

This committee is responsible for reviewing our business plan (including the budget). It also examines major capital expenditure revisions, and routinely monitors capital expenditure decisions that have already been executed. The committee is comprised of one executive director, Young Sang Ryu, and five independent directors, Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Jung Ho Ahn and Youngmin Yoon.

Compensation Review Committee

This committee oversees our overall compensation scheme for top-level executives and directors. It is responsible for reviewing both the criteria for and level of compensation. It is comprised of three independent directors, Jae Hoon Lee, Dae Shick Oh and Jung Ho Ahn.

Corporate Citizenship Committee

This committee was established to help us achieve world-class sustainable growth and to help us fulfill our corporate social responsibilities. It is comprised of three independent directors, Jae Hyeon Ahn, Jung Ho Ahn and Youngmin Yoon.

Item 6.D. Employees

The following table sets forth the numbers of our regular employees, temporary employees and total employees as of the dates indicated:

	Regular Employees		Temporary Employees		Total
December 31, 2015		24,479		1,513		25,992
December 31, 2016		24,569		1,275		25,844
December 31, 2017		29,450		1,158		30,608

Labor Relations

As of December 31, 2017, SK Telecom had a company union consisting of 2,257 regular employees out of 4,495 total regular employees. We have never experienced a work stoppage of a serious nature. Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a two-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Our wage negotiations for 2015 were completed in November 2015 and resulted in an average monthly wage increase of Won 80,000 for SK Telecom employees. Our wage negotiations for 2016 were completed in September 2016 and resulted in no change to the average monthly wage of SK Telecom employees. Our wage negotiations for 2017 were completed in November 2017 and resulted in an average monthly wage increase of 3% for SK Telecom employees. Our wage negotiations for 2018 have not commenced yet. We consider our relations with our employees to be good.

Employee Benefits

Since April 1999, we have been required to contribute an amount equal to 4.5% of employee wages toward a national pension plan. Employees are eligible to participate in an employee stock ownership association. We are not required to, and we do not, make any contributions to the employee stock ownership association, although we subsidize the employee stock ownership association through the Employee Welfare Fund by providing low interest rate loans to employees who desire to purchase our stock through the plan in the event of a capitalization by the association.

69

We are required to pay a severance amount to eligible employees who voluntarily or involuntarily cease employment with us, including through retirement. This severance amount is based upon the employee’s length of service with us and the employee’s salary level at the time of severance. As of December 31, 2017, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 679.6 billion for all of our employees are reflected in our consolidated financial statements as a liability, of which a total of Won 663.6 billion was funded. Under Korean laws and regulations, we are prevented from involuntarily terminating a full-time employee except under certain limited circumstances. In September 2002, we entered into an employment stabilization agreement with the union. Among other things, in the event that we reorganize a department into a separate entity or we outsource an employee to a separate entity where the wage is lower, this agreement provides for a guarantee of the same wage level for the year that such an event occurs.

Under the Basic Labor Welfare Act, we may also contribute up to 5.0% of our annual earnings before tax for employee welfare. Contribution amounts are determined annually following negotiation with the union. The contribution amount for 2017 was set at 2.49% of SK Telecom’s profit before income tax on a separate basis, or Won 40.0 billion. The contribution amount for 2016 was set at 2.24% of SK Telecom’s profit before income tax on a separate basis, or Won 35.0 billion. The contribution amount for 2015 was set at 2.04% of SK Telecom’s profit before income tax on a separate basis, or Won 30.0 billion.

In addition, we provide our employees with miscellaneous other fringe benefits including medical cost subsidies, family camp programs and sabbatical programs for long-term employees.

Item 6.E. Share Ownership

The following table sets forth the share ownership by our standing and non-standing directors as of March 31, 2018:

Name	Position	Number of Shares Owned		Percentage of Total Shares Outstanding			Special Voting Rights	Options
Standing Director:
Jung Ho Park	President & Chief Executive Officer		1,000		0.0	%	None	66,504
Young Sang Ryu	Chief Financial Officer		0		0		None	1,358
Non-Standing Directors:
Dae Sik Cho	Non-executive Director		0		0		None	None
Dae Shick Oh	Independent Non-executive Director		0		0		None	None
Jae Hoon Lee	Independent Non-executive Director		0		0		None	None
Jae Hyeon Ahn	Independent Non-executive Director		0		0		None	None
Jung Ho Ahn	Independent Non-executive Director		0		0		None	None
Youngmin Yoon	Independent Non-executive Director		0		0		None	None

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A. Major Shareholders

As of the close of our shareholders’ registry on December 31, 2017, approximately 58.6% of our issued shares were held in Korea by approximately 53,935 shareholders. According to Citibank, N.A. (“Citibank”), depositary for our ADRs, as of December 31, 2017, there were at least 33,186 record holders of our ADRs evidencing ADSs resident in the United States to the best of Citibank’s knowledge, and 8,899,423 shares of our common stock were held in the form of ADSs. As of such date, outstanding ADSs represented approximately 11.0% of our outstanding common shares.

70

The following table sets forth certain information as of December 31, 2017 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares and with respect to the total amount of such shares owned by our officers and directors, as a group:

Shareholder/Category	Number of Shares		Percentage Total Shares Issued			Percentage Total Shares Outstanding
Domestic Shareholders
SK Holdings		20,363,452		25.22	%		28.84	%
Treasury shares(1)		10,136,551		12.55			—
Officers and Directors		1,000		0.00			0.00
National Pension Service		7,392,350		9.16			10.47
Other Domestic Shareholders		9,401,926		11.64			13.32
Foreign Shareholders(2)
Shareholders holding ADRs		8,899,423		11.02			12.60
Shareholders holding common stock		24,551,009		30.41			34.77
Total Issued Shares		80,745,711		100	%		—
Total Outstanding Shares(3)		70,609,160		—			100	%

(1) Treasury shares do not have any voting rights. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program.

(2) Based on the data collected by the KRX KOSPI Market under the Foreign Exchange Transaction Laws.

(3) Represents total issued shares excluding treasury shares.

The following table sets forth significant changes in the percentage ownership held by our major shareholders during the past three years:

	As of December 31,
Shareholder	2017			2016			2015
	(As a percentage of total issued shares)(1)
SK Group(2)		25.22	%		25.22	%		25.22	%
SK Holdings		25.22			25.22			25.22
National Pension Service		9.16			8.87			8.62

(1) Includes 10,136,551 shares held in treasury as of December 31, 2017, 2016 and 2015, respectively. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program.

(2) SK Group’s ownership interest as of December 31, 2017, 2016 and 2015 consisted of the ownership interest of SK Holdings only.

Except as described above, other than companies in the SK Group, no other persons or entities known by us to be acting in concert, directly or indirectly, jointly or severally, own in excess of 5.0% of our total shares outstanding or exercise control or could exercise control over our business.

On July 1, 2007, the company formerly known as SK Corporation underwent a corporate reorganization, pursuant to which SK Corporation spun off substantially all of its operating business divisions into a newly established corporation named SK Energy Co., Ltd. The surviving company currently operates as a holding company, renamed SK Holdings. Ownership of all our shares held by SK Corporation immediately preceding the reorganization passed to SK Holdings as of July 1, 2007. On August 1, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings.

71

As of March 31, 2018, SK Holdings held 25.22% of our shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control” and “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In the event that SK Holdings announces plans of a sale of our shares, we expect to be able to discuss the details of such sale with them in advance and will endeavor to minimize any adverse effects on our share prices as a result of such sale.

As of March 31, 2018, the total number of our common shares outstanding was 70,609,160.

Other than as disclosed herein, there are no other arrangements, to the best of our knowledge, which would result in a material change in the control of us. Our major shareholders do not have different voting rights.

Item 7.B. Related Party Transactions

We are part of the SK Group of affiliated companies. See “Item 7.A. Major Shareholders.” As disclosed in note 36 of the notes to our consolidated financial statements, we had related party transactions with a number of affiliated companies of the SK Group during the year ended December 31, 2017.

SK Networks

As of December 31, 2017, we had Won 3.1 billion of accounts receivable from SK Networks. As of the same date, we had Won 267.3 billion of accounts payable to SK Networks, mainly relating to payments for wireless devices by PS&Marketing. The aggregate fees we paid to SK Networks for dealer commissions amounted to Won 1,220.3 billion in 2017, Won 1,131.6 billion in 2016 and Won 1,258.0 billion in 2015.

SK Holdings

We enter into agreements with SK Holdings from time to time for specific information technology-related projects. The aggregate fees we paid to SK Holdings for information technology services amounted to Won 397.0 billion in 2017, Won 449.2 billion in 2016 and Won 324.1 billion in 2015. We also purchase various information technology-related equipment from SK Holdings from time to time. The total amount of such purchases was Won 283.6 billion in 2017, Won 235.5 billion in 2016 and Won 236.4 billion in 2015. We are a party to several service agreements with SK Holdings relating to the development and maintenance of our information technologies systems. We also pay SK Holdings for use of the SK brand.

SK TNS

SK TNS Co., Ltd. (“SK TNS”) provides us with network construction and maintenance services and related equipment. The total amount of network equipment purchased from SK TNS was Won 494.6 billion in 2017 and Won 387.5 billion in 2016. As of December 31, 2017, we had Won 140.3 billion of accounts payable to SK TNS, mainly relating to payments for such services and equipment.

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 G-77.

Legal Proceedings

FTC Proceedings

In March 2012, the FTC fined us Won 21.9 billion for allegedly colluding with KT, LG U+, Samsung Electronics, LG Electronics and Pantech (which were also assessed separate fines) to inflate the prices of handsets

72

while advertising that the handsets are offered at a discount through subsidy plans. We paid such fine in September 2012 and filed an appeal at the Seoul High Court, which ruled against us in October 2014. We appealed the decision to the Supreme Court of Korea, where the case is currently pending.

KCC Proceedings

On March 12, 2015, the KCC imposed a fine of Won 934 million on us and issued a correctional order for violating the MDDIA with respect to our compensation programs for used handsets. On March 26, 2015, the KCC imposed a fine of Won 23.5 billion on us and imposed a suspension on acquiring new subscribers for a period of seven days for providing subsidies to subscribers in excess of the amounts permitted under the MDDIA. We suspended acquisition of new customers during the period from October 1, 2015 to October 7, 2015. On May 13, 2015, the KCC imposed a fine of Won 3.6 billion on us and issued a correctional order for violating its obligations to protect personal information. We paid such fine in July 2015 and reported to the KCC on the implementation of actions pursuant to the correctional order in September 2015. On May 28, 2015 and December 10, 2015, the KCC imposed a fine of Won 350 million and Won 560 million, respectively, on us and issued a correctional order for misleading and exaggerated advertisement of bundled wireless and fixed-line telecommunications products.

On January 14, 2016, the KCC imposed a fine of Won 15 million on us and issued a correctional order for failure to comply with the retention period for our subscribers’ personal information. On December 6, 2016, the KCC imposed a fine of Won 3.75 billion on us for unfair marketing practices in connection with our bundled wireless and fixed-line telecommunications services. On December 21, 2016, the KCC imposed fines of Won 100 million and Won 30 million on us for engaging in certain prohibited sales activities and violating certain subscriber location data protection regulations, respectively.

On March 21, 2017, the KCC imposed a fine of Won 794 million on us for providing subsidies to foreign subscribers in excess of the amounts permitted under the MDDIA. On December 6, 2017, the KCC issued a correctional order relating to restrictions on cancelling broadband Internet and bundled service subscriptions. On January 24, 2018, the KCC imposed an aggregate fine of Won 21.4 billion on us for providing discriminatory subsidies in violation of the MDDIA.

With respect to the correctional orders issued by the KCC set forth above, we have implemented remedial measures pursuant to such correctional orders and reported to the KCC on the implementation of such measures.

SK Communications Litigation

In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications, our consolidated subsidiary. Various lawsuits were filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to the eight lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of March 31, 2018, five of the lawsuits, seeking damages of approximately Won 12.6 million in aggregate, were pending at various appellate courts and the Supreme Court of Korea.

Except as described above, neither we nor any of our subsidiaries are involved in any litigation, arbitration or administrative proceedings relating to claims which may have, or have had during the twelve months preceding the date hereof, a significant effect on our financial position or the financial position of our subsidiaries taken as a whole, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.

Dividends

Annual dividends, if any, on our outstanding shares must be approved at the annual general meeting of shareholders. This meeting is generally held in March of the following year, and the annual dividend is generally paid shortly after the meeting. Since our shareholders have discretion to declare annual dividends, we cannot give any assurance as to the amount of dividends per share or that any dividends will be declared at all. Interim dividends, if any, can be approved by a resolution of our board of directors. Once declared, dividends must be claimed within five years, after which the right to receive the dividends is extinguished and reverted to us.

73

We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement, cash dividends received by the ADR depositary generally are to be converted by the ADR depositary into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental charges and the ADR depositary’s fees and expenses. The ADR depositary’s designated bank in Korea must approve this conversion and remittance of cash dividends. See “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares” and “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

The following table sets forth the dividend per share and the aggregate total amount of dividends declared (including any interim dividends), as well as the number of outstanding shares entitled to dividends, with respect to the years indicated. The dividends set out for each of the years below were paid in the immediately following year.

Year Ended December 31,	Dividend per Share		Total Amount of Dividends		Number of Shares Entitled to Dividend
	(In Won)		(In billions of Won)
2013	￦	9,400	￦	666.4		70,936,336
2014		9,400		666.8		70,936,336
2015		10,000		708.1		70,609,160	(1)
2016		10,000		706.1		70,609,160
2017		10,000		706.1		70,609,160

(1) The number of shares entitled to the interim dividend was 72,629,160.

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our 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. The dividend on the non-voting shares is between 9.0% and 25.0% of the par value as determined by the board of directors at the time of their issuance. If the dividends for common shares exceed the dividends for non-voting shares, the holders of non-voting shares will be entitled to participate in the distribution of such excess amount with the holders of common shares. If the amount available for dividends is less than the aggregate amount of the minimum required dividend, holders of non-voting shares will be entitled to receive such accumulated unpaid dividend from dividends payable in the next fiscal year before holders of common shares. There are no non-voting shares issued or outstanding.

We declare dividends annually at the annual general meeting of shareholders which is generally 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 or registered pledges 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. Dividends in shares may not exceed one-half of the annual dividend. Our obligation to pay dividend expires if no claim to dividend is made for five years from the payment date.

Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus reserve, (3) legal reserve accumulated up to the end of the relevant dividend period and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses. In addition, we may not pay an annual dividend unless we have set aside as a legal reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we have accumulated a legal reserve of not less than one-half of our stated capital. We may not use our legal reserve to pay cash dividends but may transfer amounts from our legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit.

In addition, the Korean Commercial Code and our articles of incorporation provide that, in addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike annual dividends, the decision to pay interim dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to the shareholders of record as of June 30 of the relevant fiscal year.

Under the Korean Commercial Code, the total amount of interim dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (1) a

74

company’s capital in the immediately preceding fiscal year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at the general shareholders’ meeting with respect to the immediately preceding fiscal year and (4) the amount of legal reserve that should be set aside for the current fiscal year following the interim dividend payment. Furthermore, the rate of interim dividends for non-voting shares must be the same as that for our common shares.

Our obligation to pay interim dividends expires if no claims to such dividends are made for a period of five years from the payment date.

Item 8.B. Significant Changes

Not applicable.

Item 9. THE OFFER AND LISTING

Item 9.A. Offering and Listing Details

These matters are described under Item 9.C. below where relevant.

Item 9.B. Plan of Distribution

Not applicable.

Item 9.C. Markets

The principal trading market for our common shares is the KRX KOSPI Market. As of March 31, 2018, 70,609,160 shares of our common stock were outstanding.

The ADSs are traded on the NYSE and the London Stock Exchange. The ADSs have been issued by the ADR depositary and are traded on the NYSE under the ticker symbol “SKM”. Each ADS represents one-ninth of one share of our common stock. As of March 31, 2018, ADSs representing 8,804,190 shares of our common stock were outstanding.

75

Shares of Common Stock

The following table sets forth the high, low and closing prices and the average daily trading volume of our common shares on the KRX KOSPI Market since January 1, 2013:

	Prices						Average Daily Trading Volume
Calendar Year	High(1)		Low(1)		Close
	(Won per shares)						(Number of shares)
2013		238,500		150,000		230,000		212,769
First Quarter		185,500		150,000		180,500		234,684
Second Quarter		225,500		172,000		210,000		245,151
Third Quarter		226,500		202,000		218,500		175,670
Fourth Quarter		238,500		211,500		230,000		195,925
2014		298,500		196,500		268,000		170,709
First Quarter		229,000		196,500		215,500		184,185
Second Quarter		243,500		198,000		236,500		180,743
Third Quarter		298,500		236,000		290,000		152,740
Fourth Quarter		298,500		259,000		268,000		165,710
2015		301,000		215,000		215,500		185,999
First Quarter		301,000		264,000		272,500		151,786
Second Quarter		293,500		240,500		250,000		209,931
Third Quarter		263,000		237,000		263,000		185,542
Fourth Quarter		261,500		215,000		215,500		195,488
2016		233,500		193,000		224,000		157,834
First Quarter		233,500		193,000		208,500		212,966
Second Quarter		222,000		201,500		215,500		152,755
Third Quarter		232,000		214,500		226,000		120,700
Fourth Quarter		232,500		216,000		224,000		146,790
2017		283,000		218,000		267,000		172,987
First Quarter		262,500		218,000		252,000		170,277
Second Quarter		266,000		235,500		266,000		199,148
Third Quarter		283,500		242,000		255,000		160,091
Fourth Quarter		278,000		250,500		267,000		162,875
October		271,500		257,500		264,000		161,370
November		266,000		250,500		264,000		151,552
December		278,000		265,000		267,000		177,252
2018 (through April 25)		280,000		222,000		226,500		179,421
First Quarter		280,000		226,500		233,500		177,266
January		280,000		259,500		265,500		178,936
February		262,000		239,500		240,000		169,110
March		239,500		226,500		233,500		182,507
Second Quarter (through April 25)		237,000		222,000		226,500		186,725
April (through April 25)		237,000		222,000		226,500		186,725

Source: Korea Exchange

(1) Both high and low prices are based on the daily closing prices for the period.

76

American Depositary Shares

The following table sets forth the high, low and closing prices and the average daily trading volume of the ADSs on the NYSE since January 1, 2013:

	Prices						Average Daily Trading Volume
Calendar Year	High(1)		Low(1)		Close
	(US$ per ADS)						(Number of ADS)
2013		25.16		15.69		24.62		1,407,958
First Quarter		18.69		15.69		17.87		1,884,190
Second Quarter		22.37		17.05		20.33		1,724,433
Third Quarter		22.70		19.47		22.70		848,082
Fourth Quarter		25.16		22.16		24.62		1,204,890
2014		31.75		20.76		27.01		905,341
First Quarter		24.07		20.76		22.57		952,847
Second Quarter		26.50		20.76		25.94		903,143
Third Quarter		31.75		25.54		30.34		963,636
Fourth Quarter		30.62		27.01		27.01		803,932
2015		30.07		20.15		20.15		598,527
First Quarter		29.76		26.22		27.21		787,402
Second Quarter		30.07		23.96		24.79		598,632
Third Quarter		25.22		22.08		24.40		510,694
Fourth Quarter		25.49		20.15		20.15		506,235
2016		23.17		17.89		20.90		621,501
First Quarter		20.98		17.89		20.17		674,708
Second Quarter		21.08		19.27		20.92		745,167
Third Quarter		23.17		20.48		22.60		485,527
Fourth Quarter		22.60		20.71		20.90		582,486
2017		28.65		20.64		27.91		546,992
First Quarter		25.85		20.64		25.18		658,687
Second Quarter		25.89		23.14		25.67		481,912
Third Quarter		27.88		23.57		24.59		583,505
Fourth Quarter		28.65		24.64		27.91		463,863
October		26.61		24.64		26.14		485,191
November		27.44		25.06		27.44		466,935
December		28.65		27.31		27.91		437,177
2018 (through April 25)		28.82		23.02		23.04		499,512
First Quarter		28.82		23.26		24.17		505,693
January		28.82		27.26		27.52		448,572
February		27.19		24.32		24.35		544,621
March		24.70		23.26		24.17		527,594
Second Quarter (through April 25)		24.83		23.02		23.04		478,567
April (through April 25)		24.83		23.02		23.04		478,567

Source: New York Stock Exchange

(1) Both high and low prices are based on the daily closing prices for the period.

The Korean Securities Market

The Korea Exchange Inc.

With the enactment of the Korea Stock and Futures Exchange Act, which came into effect on January 27, 2005, the three existing spot and futures exchanges (which were the Korea Stock Exchange, Korean Futures Exchange, and KOSDAQ) and KOSDAQ Committee, a sub-organization of Korea Securities Dealers Association,

77

were merged and integrated into the Korea Exchange as a joint stock company. There are four different markets run by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has three trading floors located in Seoul, one for the KRX KOSPI Market, one for the KRX KOSDAQ Market and one for the KRX KONEX 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 (1) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (2) the Small & Medium Business Corporation, (3) the Korea Securities Finance Corporation and (4) the Korea Financial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is run by membership, having most of Korean securities companies and some Korean branches of foreign securities companies as its members.

As of December 31, 2017, the aggregate market value of equity securities listed on the KRX KOSPI Market was approximately Won 1,605.8 trillion. For the year ended December 31, 2017, the average daily trading volume of equity securities was approximately 340.5 million shares with an average trading value of Won 5,325.8 billion. For the year ended December 31, 2016, the average daily trading volume of equity securities was approximately 376.8 million shares with an average trading value of Won 4,523.0 billion. For the year ended December 31, 2015, the average daily trading volume of equity securities was approximately 455.3 million shares with an average trading value of Won 5,351.7 billion.

The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-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 that 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 an excess capacity in a particular industry and induced private companies to publicly offer their securities.

The Korea Exchange publishes the KOSPI, every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing KOSPI 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.

78

Movements in KOSPI are set out in the following table together with the associated dividend yields and price to earnings ratios:

									Period Average
Year	Opening		High		Low		Closing		Dividend Yield(1) (%)		Price to Earnings(2)
1980		100.00		119.36		100.00		106.87		20.9		2.6
1981		97.95		165.95		93.14		131.37		13.2		3.1
1982		123.60		134.49		106.00		127.31		10.5		3.4
1983		122.52		134.46		115.59		121.21		6.9		3.8
1984		116.73		142.46		114.37		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		928.77		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		860.47		1,027.37		1.2		16.2
1995		1,013.57		1,016.77		847.09		882.94		1.2		16.4
1996		888.85		986.84		651.22		651.22		1.3		17.8
1997		653.79		792.29		350.68		376.31		1.5		17.0
1998		385.49		579.86		280.00		562.46		1.9		10.8
1999		587.57		1,028.07		498.42		1,028.07		1.1		13.5
2000		1,059.04		1,059.04		500.60		504.62		2.4		15.3
2001		520.95		704.50		468.76		693.70		1.7		29.3
2002		724.95		937.61		584.04		829.44		1.8		15.6
2003		635.17		822.16		515.24		810.71		2.1		10.1
2004		821.26		936.06		719.59		895.92		2.1		15.8
2005		893.71		1,379.37		870.84		1,379.37		1.7		11.0
2006		1,389.27		1,464.70		1,192.09		1,434.46		1.7		11.4
2007		1,435.26		2,064.85		1,355.79		1,897.13		1.4		16.8
2008		1,853.45		1,888.88		938.75		1,124.47		2.6		9.0
2009		1,157.4		1,718.88		1,018.81		1,682.77		1.2		23.7
2010		1,696.14		2,052.97		1,532.68		2,051.00		1.1		17.8
2011		2,070.08		2,228.96		1,652.71		1,825.74		1.6		10.9
2012		1,826.37		2,049.28		1,769.31		1,997.05		1.3		12.9
2013		2,031.10		2,059.58		1,780.63		2,011.34		1.2		13.5
2014		2,013.11		2,093.08		1,881.73		1,915.59		1.1		15.3
2015		1,926.44		2,173.41		1,829.81		1,961.31		1.2		16.1
2016		1,918.76		2,068.72		1,835.28		2,026.46		1.5		14.3
2017		2,026.16		2,557.97		2,026.16		2,467.49		1.4		14.3
2018 (through April 25)		2,479.65		2,598.19		2,363.77		2,448.81		1.3		13.1

Source: Korea Exchange

(1) Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only.

(2) The price to earnings ratio is based on figures for companies that record a profit in the preceding year.

KOSPI closed at 2,448.81 on April 25, 2018.

79

Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI 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,” upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15.0% of the previous day’s closing price of the shares, rounded down as set out below:

Previous Day’s Closing Price ￦	Rounded Down to ￦
Less than 5,000	￦	5
5,000 to less than 10,000		10
10,000 to less than 50,000		50
50,000 to less than 100,000		100
100,000 to less than 500,000		500
500,000 or more		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.

The brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. 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.E. Taxation — Korean Taxation.”

80

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

	Market Capitalization on the Last Day of Each Period						Average Daily Trading Volume, Value
Year	Number of Listed Companies		(Billions of Won)		(Millions of US$)(1)		Thousands of Shares		(Millions of Won)		(Thousands of US$)(1)
1981		343	￦	2,959	US$	4,223		10,565	￦	8,708	US$	12,427
1982		334		3,001		4,012		9,704		6,667		8,914
1983		328		3,490		4,361		9,325		5,941		7,425
1984		336		5,149		6,207		14,847		10,642		12,829
1985		342		6,570		7,362		18,925		12,315		13,798
1986		355		11,994		13,863		31,755		32,870		37,991
1987		389		26,172		32,884		20,353		70,185		88,183
1988		502		64,544		93,895		10,367		198,364		288,571
1989		626		95,477		140,119		11,757		280,967		412,338
1990		669		79,020		109,872		10,866		183,692		255,412
1991		686		73,118		95,541		14,022		214,263		279,973
1992		688		84,712		107,027		24,028		308,246		389,445
1993		693		112,665		138,870		35,130		574,048		707,566
1994		699		151,217		190,762		36,862		776,257		979,257
1995		721		141,151		181,943		26,130		487,762		628,721
1996		760		117,370		138,490		26,571		486,834		928,418
1997		776		70,989		41,881		41,525		555,759		327,881
1998		748		137,799		114,261		97,716		660,429		547,619
1999		725		349,504		307,662		278,551		3,481,620		3,064,806
2000		704		188,042		148,415		306,163		2,602,211		2,053,837
2001		689		255,850		194,785		473,241		1,997,420		1,520,685
2002		683		258,681		216,071		857,245		3,041,598		2,540,590
2003		684		355,363		298,624		542,010		2,216,636		1,862,719
2004		683		412,588		398,597		372,895		2,232,109		2,156,419
2005		702		655,075		648,589		467,629		3,157,662		3,126,398
2006		731		704,588		757,622		279,096		3,435,180		3,693,742
2007		746		951,900		1,017,205		363,732		5,539,588		5,919,697
2008		765		576,888		457,122		355,205		5,189,644		4,112,238
2009		770		887,316		762,528		485,657		5,795,552		4,980,494
2010		777		1,114,882		1,260,486		379,171		5,607,749		6,340,121
2011		791		1,041,999		899,438		353,759		6,863,146		5,924,166
2012		784		1,154,294		1,085,679		486,734		4,824,610		4,537,819
2013		777		1,185,974		1,123,826		328,325		3,993,422		3,784,158
2014		773		1,192,253		1,092,908		278,082		3,983,580		3,651,646
2015		770		1,242,832		1,062,885		455,256		5,351,734		4,576,870
2016		779		1,308,440		1,086,988		376,772		4,523,044		3,757,524
2017		774		1,605,821		1,504,395		340,457		5,325,760		4,989,377
2018 (through April 25)		777		1,634,742		1,526,370		409,131		7,139,579		6,666,274

Source: Korea Exchange

(1) Converted at the noon buying rate as certified by the Federal Reserve Bank of New York in effect on April 20, 2018 (the latest available noon buying rate prior to filing this annual report).

The Korean securities markets are principally regulated by the FSC and became subject to the FSCMA beginning in February 2009. The law imposes restrictions on insider trading and price manipulation, requires

81

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

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 Korea Stock Exchange. 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.

In addition, the Korea Stock Exchange opened new option markets for stocks of seven companies including our shares of common stock and common stock of six other companies on January 28, 2002. Foreigners will be permitted to invest in such options for individual stocks subject to certain procedural requirements.

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 Korea Stock Exchange or registered on the KOSDAQ, 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 FSC 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 most Korean companies that are not listed on the KRX KOSPI Market or the KRX KOSDAQ Market and in bonds that are not listed.

Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies with a Brokerage License

Under Korean law, the relationship between a customer and a financial investment company with a brokerage license 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 financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or rehabilitation procedure involving a financial investment company with a brokerage license, the customer of such financial investment company is entitled to the proceeds of the securities sold by such financial investment company.

When a customer places a sell order with a financial investment company with a brokerage license which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company with a brokerage license which is a member of the Korea Exchange, 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 rehabilitation of the non-member company.

Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company with a brokerage license which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of 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 company’s creditors are concerned.

82

As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company with a brokerage license if a bankruptcy or rehabilitation procedure is instituted against such financial investment 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 Won 50 million per investor in case of such financial investment company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the FSCMA, subject to certain exceptions, financial investment companies with a brokerage license are required to deposit the cash received from their customers with the Korea Securities Finance Corporation, a special entity established pursuant to the FSCMA. Set-off or attachment of cash deposits by financial investment companies with a brokerage license is prohibited. The premiums related to this insurance under the Depositor Protection Act are paid by financial investment companies with a brokerage license.

Item 9.D. Selling Shareholders

Not Applicable.

Item 9.E. Dilution

Not Applicable.

Item 9.F. Expenses of the Issue

Not Applicable.

Item 10. ADDITIONAL INFORMATION

Item 10.A. Share Capital

Not Applicable.

Description of Capital Stock

This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Korean Commercial Code, the Telecommunications Business Act 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 FSCMA, the Korean Commercial Code and the Telecommunications Business Act. We have filed copies of our articles of incorporation and the Telecommunications Business Act as exhibits to our annual reports on Form 20-F.

General

The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of our articles of incorporation, as amended and approved at our general shareholders meeting held on March 24, 2017, our objectives are the rational management of the telecommunications business, development of telecommunications technology, and contribution to public welfare and convenience. In order to achieve these objectives, we are engaged in the following:

• information and communication business;

• sale and lease of subscriber handsets;

• new media business;

• advertising business;

• mail order sales business;

• real estate business (development, management and leasing, etc.) and chattel leasing business;

83

• research and technology development relating to the first four items above;

• overseas and import/export business relating to the first four items above;

• manufacture and distribution business relating to the first four items above;

• travel business;

• electronic financial services business;

• film business (production, import, distribution and screening);

• lifetime education and management of lifetime educational facilities;

• electric engineering business;

• information- and communication-related engineering business;

• ubiquitous city construction and related service business;

• any related business through investment, management and operation of our Korean or offshore subsidiaries and investment companies;

• construction business, including the machine and equipment business;

• export/import business and export/import intermediation/agency business;

• electrical business such as intelligent electrical grid business; and

• any business or undertaking incidental or conducive to the attainment of the objectives stated above.

Currently, our authorized share capital is 220,000,000 shares, which consists of shares of common stock, par value Won 500 per share, and shares of non-voting stock, par value Won 500 per share (common shares and non-voting shares together are referred to as “shares”). Under our articles of incorporation, we are authorized to issue up to 5,500,000 non-voting preferred shares. As of March 31, 2018, 80,745,711 common shares were issued, of which 10,136,551 shares were held by us in treasury. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program to further increase shareholder value. We have never issued any non-voting preferred shares. All of the issued and outstanding 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.

Board of Directors

Meetings of the board of directors are convened by the representative director as he or she deems necessary or upon the request of three or more directors. The board of directors determines all important matters relating to our business. In addition, the prior approval of the majority of the independent non-executive directors is required for certain matters, which include:

• investment by us or any of our subsidiaries in a foreign company in equity or acquisition of such foreign company’s other overseas assets in an amount equal to 5.0% or more of our equity under our most recent balance sheet; and

• contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10.0 billion through one or a series of transactions.

Resolutions of the board are adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors present. No director who has an interest in a matter for resolution may exercise his or her vote upon such matter.

There are no specific shareholding requirements for director’s qualification. Directors are elected at a general meeting of shareholders if the approval of the holders of the majority of the voting shares present at such meeting is obtained and if such majority also represents at least one-fourth of the total number of shares outstanding. Under the

84

Korean Commercial Code, unless otherwise stated in the articles of incorporation, holders of an aggregate of 1.0% or more of the outstanding shares with voting rights may request cumulative voting in any election for two or more directors. Our articles of incorporation permit cumulative voting for the election of directors.

The term of office for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms and our shareholders may remove them from office at any time by a special resolution adopted at a general meeting of shareholders.

Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares. For a detailed discussion of our dividend policy, see “Item 8.A. Consolidated Statements and Other Financial Information — Dividends.”

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 at times issue authorized but unissued shares, unless otherwise provided in the Korean Commercial Code, on terms determined by our board of directors. All our shareholders are generally entitled to subscribe to 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’ registry as of the relevant record date. We must give public notice of the 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 Korean Commercial Code and our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing shareholders only if (1) the new shares are issued for the purpose of issuing depositary receipts in accordance with the relevant regulations or through an offering to public investors and (2) the purpose of such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. If we make an allotment of new shares to persons other than our existing shareholders, we are required by the Korean Commercial Code to notify our existing shareholders of (a) the class and number of new shares, (b) the issuance price of new shares and the date set for the payment thereof, (c) in cases of no par value shares, the amount to be included in the paid-up capital out of the issuance price of new shares and (d) the method of subscription to new shares by no later than two weeks before the date of payment of the subscription price, or publicly announce such information. Under our articles of incorporation, only our board of directors is authorized to set the terms and conditions with respect to such issuance of new shares.

In addition, under our articles of incorporation, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 400.0 billion, to persons other than existing shareholders, where such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition.

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 FSCMA. 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 exceed 20.0% of the sum of the number of shares then outstanding and the number of newly-issued shares.

85

General Meeting of Shareholders

We generally 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 holders of an aggregate of 3.0% or more of our outstanding common shares;

• at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares and preferred shares for at least six months; or

• at the request of our audit committee.

Holders of non-voting preferred shares may request a general meeting of shareholders only after the non-voting shares become entitled to vote or “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 voting 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 The Korea Economic Daily News and Maeil Business Newspaper, both published in Seoul, for this purpose, but we may give notice in the future through electronic means. Shareholders who are not on the shareholders’ registry 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 preferred shares, unless enfranchised, are not entitled to receive notice of or vote at general meetings of shareholders.

Our general meetings of shareholders have historically been held in or near Seoul.

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 (including treasury shares and shares held by bank trust funds controlled by us), or by a corporate shareholder in which we own more than 10.0% equity interest, either directly or indirectly, may not be exercised. The Korean Commercial Code, unless otherwise stated in the articles of incorporation, permits cumulative voting, which would allow each shareholder to have multiple voting rights corresponding to the number of directors to be appointed in the voting and to exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting for the election of directors.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting if such affirmative votes also represent at least one-fourth of our total voting shares then issued and outstanding. However, under the Korean 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, and such affirmative votes must also represent at least one-third of our total voting shares then issued and outstanding:

• amending our articles of incorporation;

• removing a director;

• 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 a part of the business of any other company having a material effect on our business;

• reducing our capital; or

• issuing any new shares at a price lower than their par value.

86

In general, holders of non-voting preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders.

However, in case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of the non-voting preferred shares, approval of the holders of non-voting preferred shares is required. We may obtain the approval by a resolution of holders of at least two-thirds of the non-voting preferred shares present or represented at a class meeting of the holders of non-voting preferred shares, where the affirmative votes also represent at least one-third of our total issued and outstanding non-voting shares. In addition, if we are unable to pay dividends on non-voting preferred 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 beginning at the next general meeting of shareholders to be held after the declaration of non-payment of dividends is made until such dividends are paid. The holders of enfranchised non-voting preferred shares will 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. A shareholder may give proxies only to another shareholder, except that a corporate shareholder may give proxies to its officers or employees.

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 our common shares underlying their ADSs.

Limitation on Shareholdings

The Telecommunications Business Act prohibits foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of such Korean entities’ outstanding voting stock are deemed foreigners. A foreigner who has acquired shares of our voting stock in excess of such limitation may not exercise the voting rights with respect to the shares exceeding such limitation and may be subject to the MSIT’s corrective orders.

Rights of Dissenting Shareholders

Under Financial Investment Services and Capital Market Act, in some limited circumstances, including the transfer of all or a significant part of our business or our merger or consolidation with another company (with certain exceptions), dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders, including holders of non-voting shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Then, 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 such 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 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 resolution. However, a court may determine the purchase price if we or dissenting shareholders do not accept the purchase price.

Registry of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It records and registers transfers of shares on the register of shareholders upon 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 registry of shareholders is closed for the period from January 1 to January 31 of the

87

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 Report

At least one week before the annual general meeting of shareholders, we must make our annual reports 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 FSCMA, we must file with the FSC and the Korea Exchange (1) an annual securities report within 90 days after the end of our fiscal year, (2) a mid-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the FSC and the Korea Exchange.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his or her name, seal and address registered on our registry of shareholders, maintained by our transfer agent. A non-Korean shareholder may file a sample signature in place of a seal, unless he or she 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 in Korea authorized to receive notices on his or her behalf and file his or her mailing address in Korea.

Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians 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-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

Our transfer agent is Kookmin Bank, located at 24, Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.

Restrictions Applicable to Shares

Pursuant to the Telecommunications Business Act, the maximum aggregate foreign shareholding in us is limited to 49.0%. See “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In addition, certain foreign exchange controls and securities regulations apply to the acquisition of securities by non-residents or non-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

Acquisition of Shares by Us

We may acquire our own shares pursuant to an approval at the general meeting of shareholders, through purchases on the Korea Exchange or a tender offer, or by acquiring the interests in a trust account holding our own shares through agreements with trust companies and asset management companies. The aggregate purchase price for the shares may not exceed the total amount available for distribution as dividends as of the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements.

Under the Korean Commercial Code, we may resell or transfer any shares acquired by us to a third party pursuant to an approval by the Board of Directors. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our common stock. Under the FSCMA, we are subject to certain selling restrictions with respect to the shares acquired by us.

88

Liquidation Rights

In the event of our liquidation, remaining assets after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to their shareholdings. Holders of non-voting preferred shares have no preference in liquidation. Holders of debt securities have no preference over other creditors in the event of liquidation.

Description of American Depositary Shares

The following is a summary of the deposit agreement dated as of May 31, 1996, as amended by amendment no. 1 dated as of March 15, 1999, amendment no. 2 dated as of April 24, 2000 and amendment no. 3 dated as of July 24, 2002, among us, Citibank, as ADR depositary, and all holders and beneficial owners of ADSs, as supplemented by side letters dated as of July 25, 2002, October 1, 2002 and October 1, 2007. The deposit agreement is governed by the laws of the State of New York. Because it is a summary, this description does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the ADR. The deposit agreement has been filed as an exhibit to our Annual Report on Form 20-F filed with the SEC on June 30, 2006. Copies of the deposit agreement are available for inspection at the principal New York office of the ADR depositary, currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, United States of America, and at the principal London office of the ADR depositary, currently located at Canada Square, Canary Wharf, London, E14 5LB, England.

American Depositary Receipts

The ADR depositary may execute and deliver ADRs evidencing the ADSs. Each ADR evidences a specified number of ADSs, each ADS representing one-ninth of one share of our common stock to be deposited with the ADR depositary’s custodian in Seoul. Korea Securities Depository is the institution authorized under applicable law to effect book-entry transfers of our common shares, known as the “Custodian”. The Custodian is located at 358-8, Hosu-ro, Ilsandong-gu, Goyang-si, Gyeonggi-do 411-770, Korea. An ADR may represent any number of ADSs. We and the ADR depositary will treat only persons in whose names ADRs are registered on the books of the registrar as holders of ADRs.

Deposit and Withdrawal of Shares of Common Stock

Notwithstanding the provisions described below, under the terms of the deposit agreement, the deposit of shares and issuance of ADSs may only be made if the total number of shares represented by ADSs after such deposit does not exceed a specified maximum of 24,321,893 shares as of March 31, 2018. This limit will be adjusted in certain circumstances, including (1) upon the cancellation of existing ADSs, (2) upon future offerings of ADSs by us or our shareholders, (3) rights offerings and (4) adjustments for share reclassifications. The limit also may be decreased in certain circumstances. As of March 31, 2018, the outstanding ADSs represented 8,804,190 shares of our common stock. Notwithstanding the foregoing, the ADR depositary and the Custodian may not accept deposits of shares of common stock for issuance of ADSs if it has been notified by us in writing that we block deposits to prevent a violation of applicable Korean laws or regulations or a violation of our articles of incorporation. In addition, the ADR depositary may not accept deposits of shares of common stock for issuance of ADSs from a person who identifies him-, her- or itself to the depositary, and has been identified in writing by us, as a holder of at least 3.0% of our shares of common stock.

The shares of common stock underlying the ADSs are delivered to the ADR depositary’s Custodian in book-entry form. Accordingly, no share certificates will be issued but the ADR depositary will hold the shares of common stock through the book-entry settlement system of the Custodian. The delivery of the shares of common stock pursuant to the deposit agreement will take place through the facilities of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will execute and deliver ADSs if you or your broker deposit shares or evidence of rights to receive shares of common stock with the Custodian. Upon payment of fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes, the ADR depositary will register the appropriate number of ADSs in the names you designate. The ADR depositary and the ADR depositary’s Custodian will refuse to accept shares of common stock for deposit whenever we restrict transfer of shares of common stock to

89

comply with ownership restrictions under applicable law or our articles of incorporation or whenever the deposit would cause the total number of shares of common stock deposited to exceed a level we determine from time to time. We may instruct the ADR depositary to take certain actions with respect to a holder of ADSs who holds in excess of the ownership limitation set forth in the deposit agreement, including the mandatory sale or disposition of the shares represented by the ADSs in excess of such ownership limitations if, and to the extent, permitted by applicable law.

You may surrender your ADRs to the ADR depositary to withdraw the underlying shares of our common stock. Upon payment of the fees and any governmental charges and taxes provided in the deposit agreement, and subject to applicable laws and regulations of Korea and our articles of incorporation, you will be entitled to physical delivery or electronic delivery to an account in Korea or, if permissible under applicable Korean law, outside the United States, of the shares of common stock evidenced by the ADRs and any other property at the time represented by ADR you surrendered. If you surrender an ADR evidencing a number of ADSs not evenly divisible by nine, the ADR depositary will deliver the appropriate whole number of shares of common stock represented by the surrendered ADSs and will execute and deliver to you a new ADR evidencing ADSs representing any remaining fractional shares of common stock.

If you request withdrawal of shares of common stock, you must deliver to the ADR depositary a written order directing the ADR depositary to cause the shares of common stock being withdrawn to be delivered or to cause such delivery upon the written order of the person designated in your order, subject to applicable Korean laws and the provisions of the deposit agreement.

Under the provisions of the deposit agreement, the ADR depositary may not lend shares of common stock or ADSs. However, subject to the provisions of the deposit agreement and limitations established by the ADR depositary, the ADR depositary may execute and deliver ADSs before deposit of the underlying shares of common stock. This is called a pre-release of the ADS. The ADR depositary may also deliver shares of common stock upon cancellation of pre-released ADSs (even if the cancellation occurs before the termination of the pre-release). The ADR depositary may pre-release ADSs only under the following circumstances:

• before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the ADR depositary in writing that the person, or, in case of an institution its customer, owns the shares of common stock or ADSs to be deposited and show evidence of the ownership to the ADR depositary’s satisfaction;

• before or at the time of such pre-release, the person to whom the pre-release is being made must agree in writing that he or she will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the ADR depositary or Custodian, reflect on his or her records the ADR depositary as owner of such shares of common stock or ADSs and deliver such shares of common stock upon the ADR depositary’s request;

• the pre-release must be fully collateralized with cash or U.S. government securities;

• the ADR depositary must be able to terminate the pre-release on not more than five business days’ notice; and

• the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate.

The ADR depositary may retain for its own account any compensation received by it in connection with the pre-release, such as earnings on the collateral.

If you want to withdraw the shares of common stock from the depositary facility, you must register your identity with the Financial Supervisory Service of Korea (the “FSS”) before you acquire the shares of common stock unless you intend to sell the shares of common stock within three months. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations — Restrictions Applicable to Shares.”

Dividends, Other Distributions and Rights

If the ADR depositary can, in its judgment and pursuant to applicable law, convert Won (or any other foreign currency) into Dollars on a reasonable basis and transfer the resulting Dollars to the United States, the ADR

90

depositary will as promptly as practicable convert all cash dividends and other cash distributions received by it on the deposited shares of common stock into Dollars and distribute the Dollars to you in proportion to the number of ADSs representing shares of common stock held by you, after deduction of the fees and expenses of the ADR depositary. If the ADR depositary determines that in its judgment any currency other than Dollars it receives from us cannot be converted and distributed on a reasonable basis, the ADR depositary may distribute the currency it receives to the extent permitted under applicable law or hold the currency for your account if you are entitled to receive the distribution. The ADR depositary will not be liable for any interest. Before making a distribution, the ADR depositary will deduct any withholding taxes that must be paid.

In the event that the ADR depositary or the ADR depositary’s Custodian receives any distribution upon any deposited shares of common stock in property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock), the ADR depositary will distribute the property or securities to you in proportion to your holdings in any manner that the ADR depositary deems, after consultation with us, equitable and practicable. If the ADR depositary determines that any distribution of property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock) cannot be made proportionally, or if for any other reason the ADR depositary deems the distribution not to be feasible, the ADR depositary may, after consultation with us, dispose of all or a portion of the property or securities in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable or practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of the property or securities, after the deduction of the fees and expenses of the ADR depositary.

If a distribution by us consists of a dividend in, or free distribution of, our shares of common stock, the ADR depositary may, with our approval, and will, if we request, deposit the shares of common stock and either (1) distribute to you, in proportion to your holdings, additional ADSs representing those shares of common stock, or (2) reflect on the records of the ADR depositary the increase in the aggregate number of ADSs representing those number of shares of common stock, in both cases, after the deduction of the fees and expenses of the ADR depositary. If the ADR depositary deems that such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the shares of common stock received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole ADSs. If the ADR depositary does not distribute additional ADSs, then each outstanding ADS will also represent the new shares so distributed.

If a distribution by us consists of a dividend in, or free distribution of, shares of non-voting preferred stock, the ADR depositary will deposit such shares of non-voting preferred stock under a non-voting preferred stock deposit agreement to be entered into among us, the ADR depositary and all holders and beneficial owners of depositary shares. The ADR depositary will deliver to you, in proportion to your holdings of ADSs, depositary shares issued under the non-voting preferred stock deposit agreement representing the number of non-voting shares received as such dividend or distribution. If the ADR depositary deems such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the nonvoting shares received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole depositary shares. We are not obligated to list depositary shares representing non-voting shares on any exchange.

If we offer holders of our securities any rights to subscribe for additional shares of common stock or any other rights, the ADR depositary may make these rights available to you. The ADR depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary determines that it is not lawful or feasible to make these rights available to you, then upon our request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it would do with cash. The ADR depositary may allow these rights that are not distributed or sold to lapse. In that case, you will receive no value for these rights.

If we issue any rights with respect to non-voting shares, the securities issuable upon any exercise of such rights by holders or beneficial owners will be depositary shares representing those non-voting shares issued under the provisions of a non-voting preferred stock deposit agreement.

91

If a registration statement under the Securities Act is required with respect to the securities to which any rights relate in order for us to offer the rights to you and to sell the securities represented by these rights, the ADR depositary will not offer such rights to you until such a registration is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act or any required filing, report, approval or consent has been submitted, obtained or granted. We or the ADR depositary will not be obligated to register the rights or securities under the Securities Act or to submit, obtain or request any filing, report, approval or consent.

The ADR depositary may not be able to convert any currency or to sell or dispose of any distributed or offered property or rights in a timely manner or at a specified price, or at all.

Record Dates

The ADR depositary will fix a record date, after consultation with us, in each of the following situations:

• any cash dividend or other cash distribution becomes payable;

• any distribution other than cash is made;

• rights are issued with respect to deposited shares of common stock;

• the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or

• the ADR depositary receives notice of any shareholders’ meeting.

The record date will, to the extent practicable, be as near as the record date fixed by us for the shares of common stock. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; or (2) the ADR holders who are entitled to receive notices or exercise rights.

Voting of the Underlying Shares of Common Stock

We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies immediately after we finalize the form and substance of such notice but not less than 14 days before the meeting. As soon as practicable after it receives our notice, the ADR depositary will fix a record date, and upon our written request, the ADR depositary will mail to you a notice that will contain the following:

• the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the information provided by us;

• a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and

• a statement as to the manner in which the ADR holders may give their instructions.

Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted the deposited shares of common stock in accordance with the instructions set forth in your written requests. The ADR depositary may not itself exercise any voting discretion over any deposited shares of common stock. You may only exercise the voting rights in respect of nine ADSs or multiples of nine ADSs. ADR holders may not be entitled to give instruction to vote the shares represented by the ADSs if, and to the extent, the total number of shares represented by the ADSs of an ADR holder exceeds the limit set under applicable law. We can give no assurance to you, however, that we will notify the ADR depositary sufficiently in advance of the scheduled date of a meeting or solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of notices to you, or that you will receive the notices sufficiently in advance of a meeting or solicitation of consents or proxies to give instructions to the ADR depositary.

92

Inspection of Transfer Books

The ADR depositary will keep books at its principal New York office, which is currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, for the registration and transfer of ADRs. You may inspect the books of the ADR depositary as long as the inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs.

Reports and Notices

On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of shareholders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of the shares of common stock, we will transmit to the Custodian and the ADR depositary sufficient copies of the notice in English in the form given or to be given to shareholders. We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock, including our annual reports, with annual audited consolidated financial statements prepared in conformity with IFRS and unaudited non-consolidated semiannual financial statements prepared in conformity with IFRS. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.

Notices to you under the deposit agreement will be deemed to have been duly given if personally delivered or sent by mail or cable, telegraph or facsimile transmission, confirmed by letter, addressed to you at your address as it appears on the transfer books of the ADR depositary or at such other address as you have notified the ADR depositary.

In addition, the ADR depositary will make available for inspection by holders at its principal New York office and its principal London office any notices, reports or communications, including any proxy soliciting materials, received from us that we generally transmit to the holders of our common stock or other deposited securities, including the ADR depositary. The ADR depositary will also send to you copies of reports and communications we will provide as provided in the deposit agreement.

Changes Affecting Deposited Shares of Common Stock

In case of a change in the par value, or a split-up, consolidation or any other reclassification of our common shares or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting us, any securities received by the ADR depositary or the Custodian in exchange for, in conversion of or in respect of deposited shares of our common stock will be treated as new deposited shares of common stock under the deposit agreement. In that case, ADSs will, subject to the terms of the deposit agreement and applicable laws and regulations, including any registration requirements under the Securities Act, represent the right to receive the new deposited shares of common stock, unless additional ADRs are issued, as in the case of a stock dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.

Amendment and Termination of the Deposit Agreement

We may agree with the ADR depositary to amend the deposit agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the ADR depositary, or prejudices any substantial existing right of ADR holders, it will only become effective 30 days after the ADR depositary notifies you of the amendment. If you continue to hold your ADSs at the time an amendment becomes effective, you will be considered to have agreed to the amendment and to be bound by the deposit agreement as amended. Except as otherwise required by any mandatory provisions of applicable law, no amendment may impair your right to surrender your ADSs and to receive the underlying deposited securities.

93

The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days’ prior written notice. The ADR depositary may also terminate the deposit agreement if the ADR depositary has notified us at least 90 days in advance that it would like to resign and we have not appointed a new depositary. In both cases, the ADR depositary must notify you at least 30 days before the termination date.

If any ADRs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit agreement, except:

• to collect dividends and other distributions pertaining to the deposited shares of common stock;

• to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and

• to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for surrendered ADRs.

At any time after the expiration of six months from the date of termination, the ADR depositary may sell any remaining deposited shares of common stock and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for interest, for the pro rata benefit of the holders of ADSs that have not been surrendered by then.

Charges of ADR Depositary

The fees and expenses of the ADR depositary as agreed between us and the ADR depositary include:

• taxes and other governmental charges;

• registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement;

• cable, telegraph and facsimile transmission expenses that are expressly provided in the deposit agreement;

• expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement;

• a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs under the deposit agreement; and

• a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other corporate action involving distributions to shareholders.

For a detailed description of fees and charges payable by the holders of ADSs under the deposit agreement, see “Item 12.D. American Depositary Shares — Fees and Charges under Deposit Agreement.”

General

Neither we nor the ADR depositary will be liable to you if prevented or delayed by law, governmental authority, any provision of our articles of incorporation or any circumstances beyond our or its control in performing our or its obligations under the deposit agreement. The deposit agreement provides that the ADR depositary will hold the shares of common stock for your sole benefit. Our obligations and those of the ADR depositary under the deposit agreement are expressly limited to performing, in good faith and without negligence, our and its respective duties specified in the deposit agreement.

The ADSs are transferable on the books of the ADR depositary, provided that the ADR depositary may, after consultation with us, close the transfer books at any time or from time to time, when deemed expedient by it in connection with the performance of its duties. As a condition precedent to the execution and delivery of any ADSs, registration of transfer, split-up, combination of any ADR or surrender of any ADS for the purpose of withdrawal of deposited shares of common stock, the ADR depositary or the Custodian may require payment from the depositor of

94

the shares of common stock or a holder of ADSs of a sum sufficient to reimburse the ADR depositary for any tax or other governmental charge and any stock transfer or registration fee and payment of any applicable fees payable by the holders of ADSs.

Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may be required from time to time to file with the ADR depositary or the Custodian a proof of citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or governmental charges, or legal or beneficial ownership and the nature of their interest, to provide information relating to the registration on our shareholders’ register (or our appointed agent for the transfer and registration of shares of common stock) of the shares of common stock presented for deposit or other information, to execute certificates and to make representations and warranties as we or the ADR depositary may deem necessary or proper or to enable us or the ADR depositary to perform our and its obligations under the deposit agreement. The ADR depositary may withhold the execution or delivery or registration of transfer of all or part of any ADR or the distribution or sale of any dividend or other distribution of rights or of the proceeds from their sale or the delivery of any shares deposited under the deposit agreement and any other securities, property and cash received by the ADR depositary or the Custodian until the proof or other information is filed or the certificates are executed or the representations and warranties are made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner, with copies of any of these proofs and certificates and these written representations and warranties.

The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any period when our or the ADR depositary’s transfer books are closed or, if that action is deemed necessary or advisable by us or the ADR depositary, at any time or from time to time in accordance with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of shares of common stock where the transfers may result in ownership of shares of common stock in excess of limits under applicable law. Except as described in “— Deposit and Withdrawal of Shares of Common Stock” above, notwithstanding any other provision of the deposit agreement, the surrender of outstanding ADRs and withdrawal of Deposited Securities (as defined in the deposit agreement) represented by the ADRs may be suspended, but only as required in connection with (1) temporary delays caused by closing the transfer books of the ADR depositary or the issuer of any Deposited Securities (or the appointed agent or agents for such issuer for the transfer and registration of such Deposited Securities) in connection with voting at a shareholders’ meeting or the payment of dividends, (2) payment of fees, taxes and similar charges, or (3) compliance with any United States or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the Deposited Securities.

Governing Law

The deposit agreement and the ADRs will be interpreted under, and all rights under the deposit agreement or the ADRs are governed by, the laws of the State of New York.

We have irrevocably submitted to the non-exclusive jurisdiction of New York State or United States Federal Courts located in New York City and waived any objection to legal actions or proceedings in these courts whether on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum.

This submission was made for the benefit of the ADR depositary and the holders and will not limit the right of any of them to take legal actions or proceedings in any other court of competent jurisdiction nor will the taking of legal actions or proceedings in one or more jurisdictions preclude the taking of legal actions or proceedings in any other jurisdiction (whether concurrently or not), to the extent permitted under applicable law.

Information Relating to the ADR Depositary

Citibank has been appointed as ADR depositary pursuant to the deposit agreement. Citibank is an indirect wholly-owned subsidiary of Citigroup Inc., a Delaware corporation whose principal office is located in New York, New York. Citibank is a global financial services organization serving individuals, businesses, governments and financial institutions in approximately 100 countries around the world.

Citibank was originally organized on June 16, 1812, and now is a national banking association organized under the National Bank Act of 1864 of the United States of America. Citibank is primarily regulated by the United States Office of the Comptroller of the Currency. Its principal office is at 399 Park Avenue, New York, NY 10022.

95

The consolidated balance sheets of Citibank are set forth in Citigroup’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each on file with the SEC.

Citibank’s Articles of Association and By-laws, each as currently in effect, together with Citigroup’s most recent annual and quarterly reports will be available for inspection at the Depositary Receipt office of Citibank, N.A., 388 Greenwich Street, 14th Floor, New York, New York 10013.

Item 10.B. Material Contracts

We have not entered into any material contracts since January 1, 2017, other than in the ordinary course of our business. For information regarding our agreements and transactions with entities affiliated with the SK Group, see “Item 7.B. Related Party Transactions” and note 36 of the notes to our consolidated financial statements. For a description of certain agreements entered into during the past three years related to our capital commitments and obligations, see “Item 5.B. Liquidity and Capital Resources.”

Item 10.C. Exchange Controls

Korean Foreign Exchange Controls and Securities Regulations

General

The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The FSC has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Subject to certain limitations, the MOSF has authority to take the following actions under the Foreign Exchange Transaction Laws:

• if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOSF may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange), impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies or impose an obligation on a resident that holds a claim against a non-resident to collect such claim to enable the recovery of the relevant debt back to Korea; and

• if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOSF may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies.

Under the regulations of the FSC amended on February 4, 2009, (1) if a company listed on the KRX KOSPI Market or a company listed on the KRX KOSDAQ Market has submitted a public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the FSC and the Korea Exchange, and (2) if a KRX KOSPI Market-listed company or KRX KOSDAQ Market-listed company is approved for listing on a foreign stock market or determined to be de-listed from the foreign stock market or actually listed on, or de-listed from a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the FSC and the Korea Exchange.

96

Government Review of Issuances of ADSs

In order for us to issue ADSs in excess of US$30 million, we are required to submit a report to the MOSF with respect to the issuance of the ADSs prior to and after such issuance; provided that such US$30 million threshold amount would be reduced by the aggregate principal amount of any foreign currency loans borrowed, and any securities offered and issued, outside Korea during the one-year period immediately preceding the report’s submission date. The MOSF may at its discretion direct us to take necessary measures to avoid exchange rate fluctuation in connection with its acceptance of report of the issuance of the ADSs.

• Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs).

• In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. See “Item 10.B. Memorandum and Articles of Incorporation — Description of American Depositary Shares.” Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.

We submitted a report to and obtained acceptance thereof by the MOSF for the issuance of ADSs up to an amount corresponding to 24,321,893 common shares. No additional Korean governmental approval is necessary for the issuance of ADSs except that if the total number of our common shares on deposit for conversion into ADSs exceeds 24,321,893 common shares, we may be required to file a report to and obtain acceptance thereof by the MOSF with respect to the increase of such limit and the issuance of additional ADSs.

Reporting Requirements for Holders of Substantial Interests

Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively referred to as “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 outstanding equity securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to affect control over management of the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5.0% ownership interest threshold and promptly deliver a copy of such report to the issuer. In addition, any change (1) in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding equity securities, or (2) in the shareholding purpose is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change. However, reporting deadline of such reporting requirement is extended to (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by the tenth day of the month immediately following the month of share acquisition or change in their shareholding. Those who reported the purpose of shareholding is to affect control over management of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to the report under the FSCMA.

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 ownership of unreported equity securities exceeding 5.0%. Furthermore, the FSC may issue an order to dispose of such non-reported equity securities.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our common shares accounts for 10.0% or more of the total issued and outstanding shares with voting rights (a “major shareholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major shareholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violations of these reporting requirements may subject a person to criminal sanctions, such as fines or imprisonment.

97

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 of shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the FSS, as described below. The acquisition of the shares by a foreigner must be reported by the foreigner or his or her standing proxy in Korea immediately to the Governor of the FSS (the “Governor”).

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.

In addition, we are required to file a securities registration statement with the FSC and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of the FSC, together referred to as the Investment Rules, adopted in connection with the stock market opening from January 1992 and after that date, 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, among others:

• odd-lot trading of shares;

• acquisition of shares by a foreign company as a result of a merger;

• acquisition or disposal of shares in connection with a tender offer;

• acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“converted shares”);

• acquisition of shares through exercise of rights under securities issued outside of Korea;

• 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;

• acquisition of shares by direct investment under the Foreign Investment Promotion Law;

• acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or KRX KOSDAQ Market and such overseas stock exchange;

• arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person; and

• acquisition and disposal of shares through alternative trading systems.

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, a financial investment company with a brokerage license 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 financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from financial investment companies with respect to shares which are subject to a foreign ownership limit.

98

The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the KRX KOSPI Market or the KRX KOSDAQ Market (including converted shares) and shares being publicly offered for initial listing on the KRX KOSPI Market or the KRX KOSDAQ Market to register its identity with the FSS 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 Foreign Investment Promotion Law. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or longer, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree promulgated under the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s 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 card system is designed to control and oversee foreign investment through a computer system. However, where a foreign investor acquires or sells shares outside the KRX KOSPI Market and the KRX KOSDAQ Market, such acquisition or sale of shares must be reported by the foreign investor or such foreign investor’s standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale 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 by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. In the event a foreign investor desires to acquire or sell shares outside the KRX KOSPI Market or the KRX KOSDAQ Market and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the KRX KOSPI Market or the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain circumstances. A foreign investor must appoint one or more standing proxies among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians which 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. Generally, a foreign investor may not permit any person, other than his, her or its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on his, her or its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor 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. The Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his, her or its custodian deposits the 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 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

99

corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3.0% of the total number of shares in their articles of incorporation. 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 outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry and Energy of Korea, which delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency under the relevant regulations. The acquisition of our shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Act. The Telecommunications Business Act generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the outstanding shares. A foreigner who has acquired shares in excess of such restriction described above may not exercise the voting rights with respect to the shares exceeding such limitations and may be subject to corrective orders.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a portfolio investment in shares of a Korean company listed on the KRX KOSPI Market or the KRX KOSDAQ Market must designate a foreign exchange bank at which he, she or it 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 a securities company. 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 such shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment companies with a securities dealing, brokerage or collective investment license or the investor’s Won account. Funds in the investor’s Won account may be transferred to such investor’s foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount is reported to the tax authorities by the foreign exchange bank at which the Won account is maintained. Funds in the investor’s 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.

Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies 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.D. Taxation

United States Taxation

This summary describes certain material U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold our common shares 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 securities holdings;

• a bank;

• a life insurance company;

100

• a tax-exempt organization;

• a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;

• a person that holds common shares 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 10.0% or more of any class of our stock.

This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

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

For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:

• a citizen or resident of the United States;

• a U.S. domestic corporation; or

• otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares 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 common share 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 “passive income” dividend income and will not be eligible for the dividends received deduction. 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 receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, 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.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a preferential rate if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) 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 as defined for U.S. federal income tax purposes (“PFIC”), as discussed below under “— Passive Foreign Investment Company Rules”. The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements, as well as relevant market and shareholder data, we believe that we were not a PFIC with respect to our 2017 taxable year but could become a PFIC for our 2018 taxable year or in subsequent years, as discussed below.

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

Sale or Other Disposition

For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the

101

common shares 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.

Passive Foreign Investment Company Rules

Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if either (i) 75 percent or more of our gross income for the taxable year is passive income; or (ii) the average percentage of the value of our assets that produce or are held for the production of passive income is at least 50 percent. Investments in companies in which we own less than 25 percent of the stock (by value) are considered to be assets that produce passive income.

The determination whether we are a PFIC is made annually based on the particular facts and circumstances, such as the valuation of our assets at the time. Although we do not believe that we were a PFIC in 2017, there is a significant risk that we could be treated as a PFIC in the current year or in future years due to our substantial investment in the stock of SK Hynix, which is treated as a passive asset for this purpose. If so, the considerations discussed below could become applicable to U.S. Holders.

If we are classified as a PFIC, and you do not make a mark-to-market election, as described in the following paragraph, you will be subject to a special tax at ordinary income tax rates on “excess distributions,” including certain distributions by us and gain that you recognize on the sale of your shares or ADSs. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period you hold your shares or ADSs. Classification as a PFIC may also have other adverse tax consequences, including, in the case of individuals, the denial of a step-up in the basis of your shares or ADSs at death.

You can avoid the unfavorable rules described in the preceding paragraph by electing to mark your shares or ADSs to market. If you make this mark-to-market election, you will be required in any year in which we are a PFIC to include as ordinary income the excess of the fair market value of your shares at year-end over your basis in those shares. In addition, any gain you recognize upon the sale of your shares will be taxed as ordinary income in the year of sale.

You should consult your own tax advisor regarding the U.S. federal income tax considerations discussed above and in particular the desirability of making a mark-to-market election.

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 advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned our common shares 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, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax may be treated for U.S. federal income tax purposes as imposed on “general category” income. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes.

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

Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.

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. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

102

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments of dividends and sales proceeds 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 and demonstrates this when required 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.

Korean Taxation

The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who are non-resident individuals or non-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected (“Non-resident Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.

Tax on Dividends

Dividends on the common shares or ADSs paid (whether in cash or in shares) to a Non-resident Holder will be subject to Korean withholding taxes at the rate of 22.0% (including local income tax) or such lower rate as is applicable under a treaty between Korea and such Non-resident Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes.

The tax is withheld by the payer of the dividend. Since the payer is required to withhold the tax, Korean law does not entitle the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, except in certain limited circumstances.

Tax on Capital Gains

As a general rule, capital gains earned by Non-resident Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (including local income tax) of the gross proceeds realized or (2) 22.0% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with the Non-resident Holder’s country of tax residence.

103

However, a Non-resident Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if the Non-resident Holder (1) has no permanent establishment in Korea and (2) did not or has not owned (together with any shares owned by any entity with certain special relationship with such Non-resident Holder) 25.0% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.

It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (2) 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. The taxes are imposed if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.

Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.

Securities Transaction Tax

Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.5% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as our common shares), the securities transaction tax is imposed generally at the rate of (1) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (2) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market.

Securities transaction tax or the agricultural and fishery special surtax is not applicable if (1) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (2) the sale of the shares takes place on such exchange.

Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by a Non-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (1) between 10.0% to 40.0% of the tax amount due, depending on the nature of the improper reporting, and (2) 10.95% per annum on the tax amount due for the default period.

Tax Treaties

Currently, Korea has income tax treaties with a number of countries, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States under which the rate of withholding tax on dividend and interest is reduced, generally to between 5.0% and 16.5% (including local income tax), and the tax on capital gains derived by a non-resident from the transfer of securities issued by a Korean company is often eliminated.

Each Non-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest,

104

dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates.

Furthermore, in order for a non-resident of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of such non-resident issued by a competent authority of the non-resident’s country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income.

For a non-resident of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is a non-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository.

At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.

Item 10.E. Dividends and Paying Agents

Not applicable.

Item 10.F. Statements by Experts

Not applicable.

Item 10.G. Documents on Display

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s Website at http://www.sec.gov.

Documents filed with annual reports and documents filed or submitted to the SEC are also available for inspection at our principal business office during normal business hours. Our principal business office is located at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea.

Item 10.H. Subsidiary Information

Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities and to equity price risk as a result of our investment in equity instruments.

We have entered into a floating-to-fixed cross currency swap contract to hedge foreign currency and interest rate risks with respect to long-term borrowings of US$300 million of bonds issued in March 2013. In addition, we have entered into fixed-to-fixed cross currency swap contracts to hedge the foreign currency risks of US$400 million of bonds issued in July 2007, US$700 million of bonds issued in November 2012, US$300 million of bonds issued in October 2013 and US$51.8 million of borrowings from December 2013. We also entered into floating-to-fixed interest rate swap contracts to hedge interest rate risks with respect to Won 49.0 billion of

105

borrowings from December 2016, Won 28.6 billion of borrowings from January 2017, Won 30.0 billion of borrowings from March 2017 and Won 50.0 billion of borrowings from December 2017. See note 22 of the notes to our consolidated financial statements. We may consider in the future entering into other such transactions solely for hedging purposes.

The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.

Exchange Rate Risk

Korea is our main market and, therefore, substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. These liabilities relate primarily to foreign currency denominated debt, primarily in Dollars. A 10.0% increase in the exchange rate between the Won and all foreign currencies would result in an increase in profit before income tax of 0.2%, or Won 8.0 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2017. For a further discussion of our exchange rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. The following table summarizes the carrying amounts and fair values, maturity and contract terms of our exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2017:

	Maturities
	2018			2019			2020			2021			2022			Thereafter			Total		Fair Value
	(In billions of Won, except for percentage data)
Local currency:
Fixed-rate		519.6			893.5			618.4			608.5			727.6			2,004.3			5,371.9		5,500.4
Average weighted rate(1)		3.26	%		2.78	%		2.34	%		2.76	%		2.60	%		2.85	%
Variable rate		59.3			77.0			54.8			24.8			12.5			—			228.4		228.3
Average weighted rate(1)		2.46	%		2.71	%		2.80	%		2.32	%		2.37	%		—
Sub-total		578.9			970.5			673.2			633.3			740.1			2,004.3			5,600.3		5,728.7
Foreign currency:
Fixed-rate		1,082.3			12.3			12.3			12.3			6.1			423.5			1,548.8		1,719.8
Average weighted rate(1)		2.35	%		1.70	%		1.70	%		1.70	%		1.71	%		6.71	%
Variable rate		—			—			320.9			—			—			—			320.9		320.9
Average weighted rate(1)		—			—			2.57	%		—			—			—
Sub-total		1,082.3			12.3			333.2			12.3			6.1			423.5			1,869.7		2,040.7
Total		1,661.2			982.8			1,006.4			645.6			746.2			2,427.8			7,470.0		7,769.4

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

A 1.0% point increase in interest rates would result in a decrease in profit before income tax of Won 0.7 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2017. For a further discussion of our interest rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Equity Price Risk

We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2017, 2016 and 2015, a 10.0% increase in the equity indices where our available-for-sale equity instruments are listed, with all other variables held constant, would have increased our total equity by Won 58.9 billion, Won 52.6 billion and Won 89.8 billion, respectively, with a 10.0%

106

decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our available-for-sale equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables. For a further discussion of our equity price risk exposures, see note 35(1) of the notes to our consolidated financial statements.

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

Fees and Charges under Deposit Agreement

The ADR depositary will charge the party receiving ADSs up to US$5.00 per 100 ADSs (or fraction thereof), provided that the ADR depositary has agreed to waive such fee as would have been payable by us in the case of (1) an offering of ADSs by us or (2) any distribution of shares of common stock or any rights to subscribe for additional shares of common stock. The ADR depositary will not charge the party to whom ADSs are delivered against deposits. The ADR depositary will charge the party surrendering ADSs for delivery of deposited securities up to US$5.00 per 100 ADSs (or fraction thereof) surrendered. The ADR depositary will also charge the party to whom any cash distribution, or for whom the sale or exercise of rights or other corporate action involving distributions to shareholders, is made with respect to ADSs up to US$0.02 per ADS held plus the expenses of the ADR depositary on a per-ADS basis. We will pay the expenses of the ADR depositary and any entity acting as registrar for the shares only as specified in the deposit agreement. The ADR depositary will pay any other charges and expenses of the ADR depositary and the entity acting as registrar for the shares.

Holders of ADRs must pay (1) taxes and other governmental charges, (2) share transfer registration fees on deposits of shares of common stock, (3) such cable, telex, facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares of common stock or holders of ADRs and (4) such reasonable expenses as are incurred by the ADR depositary in the conversion of foreign currency into United States dollars.

Notwithstanding any other provision of the deposit agreement, in the event that the ADR depositary determines that any distribution in property (including shares or rights to subscribe therefor or other securities) is subject to any tax or governmental charges which the ADR depositary is obligated to withhold, the ADR depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such manner as the ADR depositary deems necessary and practicable to pay such taxes or governmental charges, including by public or private sale, and the ADR depositary will distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes or governmental charges to the holders of ADSs entitled thereto in proportion to the number of ADSs held by them respectively.

All such charges may be changed by agreement between the ADR depositary and us at any time and from time to time, subject to the deposit agreement. The right of the ADR depositary to receive payment of fees, charges and expenses shall survive the termination of this deposit agreement and, as to any depositary, the resignation or removal of such depositary pursuant to the deposit agreement.

For a detailed summary of the deposit agreement, see “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares.”

107

Payments made by ADS Depositary

The depositary reimburses us for certain expenses we incur in connection with our ADR program, subject to certain ceilings. These reimbursable expenses currently include expenses relating to the preparation of SEC filings and submissions, listing fees, education and training fees, corporate action expenses and other miscellaneous fees. In the fiscal year 2017, we received approximately US$1,264,021 from the depositary in connection with such reimbursements.

PART II

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item 15. 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, 2017. 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 such date. 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 SEC’s 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.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as of December 31, 2017. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated 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. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

Report of the Independent Registered Public Accounting Firm on the Effectiveness of Our Internal Control Over Financial Reporting

The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), on the effectiveness of our internal control over financial reporting as of December 31, 2017 is included in Item 18 of this Form 20-F.

108

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16. RESERVED

Item 16.A. AUDIT COMMITTEE FINANCIAL EXPERT

Dae Shick Oh is the chairman of our audit committee and was elected and designated an “audit committee financial expert” within the meaning of this Item 16A at a meeting of the board of directors in April 2014. The board of directors have further determined that Dae Shick Oh is independent within the meaning of applicable SEC rules and the listing standards of the NYSE. See “Item 6.C. Board Practices — Audit Committee” for additional information regarding our audit committee.

Item 16.B. CODE OF ETHICS

Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller

We have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, senior accounting officers and employees. We also have internal control and disclosure policy designed to promote full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed documents. A copy of our code of ethics is available on our website at www.sktelecom.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 website.

Item 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The table sets forth the fees we paid to our independent registered public accounting firm KPMG Samjong and its affiliates for the years ended December 31, 2017 and 2016:

	Year Ended December 31,
	2017		2016
	(In millions of Won)
Audit Fees	￦	5,625	￦	5,181
Audit-Related Fees	￦	35	￦	14
Tax Fees	￦	323	￦	273
All Other Fees	￦	300	￦	—
Total	￦	6,283	￦	5,468

“Audit Fees” are the aggregate fees billed by KPMG Samjong for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.

“Audit-Related Fees” are fees charged by KPMG Samjong for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for advisory services associated with our financial reporting.

“Tax Fees” are fees for professional services rendered by KPMG Samjong for tax compliance, tax advice on actual or contemplated transactions and tax planning services.

“All Other Fees” for 2017 in the table above relate to the fees billed by KPMG Samjong for consulting services related to our corporate social responsibility project.

Pre-Approval of Audit and Non-Audit Services Provided by Independent Registered Public Accounting Firm

Our audit committee pre-approves all audit services to be provided by KPMG Samjong, our independent registered public accounting firm. Our audit committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by our audit committee. Non-audit services that are prohibited to be provided to us by our independent auditors under the rules of the SEC

109

and applicable law may not be pre-approved. In addition, prior to the granting of any pre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm.

Our audit committee did not pre-approve any non-audit services under the de minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the SEC.

Item 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

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 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16.G. CORPORATE GOVERNANCE

The following is a summary of the significant differences between the NYSE’s corporate governance standards and those that we follow under Korean law.

NYSE Corporate Governance Standards	Our Corporate Governance Practice
Director Independence
Listed companies must have a majority of independent directors.	Of the eight members of our board of directors, six are independent directors.
Executive Session
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.	Our audit committee, which is comprised solely of four independent directors, holds meetings whenever there are matters related to management directors, and such meetings are generally held once every month.
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.	Although we do not have a separate nomination/ corporate governance committee, we maintain an independent director nomination committee composed of two independent directors and one management director.
Compensation Committee
Listed companies must have a compensation committee composed entirely of independent directors. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member	We maintain a compensation review committee comprised of three independent directors.

110

NYSE Corporate Governance Standards	Our Corporate Governance Practice
has a relationship with the company that will materially affect that member’s duties to the compensation committee.
Audit Committee
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule 10A 3 under the Exchange Act. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.	We maintain an audit committee comprised solely of four independent directors.
Audit Committee Additional Requirements
Listed companies must have an audit committee that is composed of at least three directors.	Our audit committee has four independent directors.
Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.	We currently have two equity compensation plans: a stock option plan for officers and directors and employee stock ownership plan for employees (“ESOP”). We manage such compensation plans in compliance with the applicable laws and our articles of incorporation, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines.	Although we do not maintain separate corporate governance guidelines, we are in compliance with the Korean Commercial Code in connection with such matters, including the governance of the board of directors.
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 directors or executive officers.	We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees, and such code is also available on our website at www.sktelecom.com.

Item 16.H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

Item 17. FINANCIAL STATEMENTS

Not applicable.

111

Item 18. FINANCIAL STATEMENTS

Index to Financial Statements	F-1
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements	F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	F-3
Consolidated Statements of Financial Position as of December  31, 2017 and 2016	F-4
Consolidated Statements of Income for the years ended December  31, 2017, 2016 and 2015	F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015	F-8
Consolidated Statements of Cash Flows for the years ended December  31, 2017, 2016 and 2015	F-10
Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015	F-12
Financial Statements of SK Hynix
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements	G-1
Consolidated Statements of Financial Position as of December  31, 2017 and 2016	G-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	G-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015	G-5
Consolidated Statements of Cash Flows for the years ended December  31, 2017, 2016 and 2015	G-7
Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015	G-8

112

Item 19. EXHIBITS

Number	Description
1.1	Articles of Incorporation (incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F filed on April 27, 2017)
2.1	Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No.  2 dated as of April 24, 2000 and Amendment No. 3 dated as of July  24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares (incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2006)
8.1	List of Subsidiaries of SK Telecom Co., Ltd.
12.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Framework Act on Telecommunications, as amended (English translation) (incorporated by reference to Exhibit 15.1 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2016)
15.2	Enforcement Decree of the Framework Act on Telecommunications, as amended (English translation) (incorporated by reference to Exhibit 15.2 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2011)
15.3	Telecommunications Business Act, as amended (English translation)
15.4	Enforcement Decree of the Telecommunications Business Act, as amended (English translation)
15.5	Government Organization Act, as amended (English translation) (incorporated by reference to Exhibit  15.5 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2016)

113

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-3
Consolidated Statements of Financial Position as of December 31, 2017 and 2016		F-4
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015		F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015		F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015		F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015		F-10
Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015		F-12

Financial Statements of SK Hynix
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements	G-1
Consolidated Statements of Financial Position as of December 31, 2017 and 2016	G-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	G-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015	G-5
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	G-7
Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015	G-8

F-1

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors

SK Telecom Co., Ltd.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and subsidiaries (the Group) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 27, 2018 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error of fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor since 2012.

Seoul, Korea

April 27, 2018

F-2

Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors

SK Telecom Co., Ltd.:

Opinion on Internal Control Over Financial Reporting

We have audited SK Telecom Co., Ltd. and subsidiaries’(the Group) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Group as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements) and our report dated April 27, 2018, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

Group’s 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 the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 company’s 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 company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

April 27, 2018

F-3

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017 and 2016

(In millions of won)	Note		December 31, 2017		December 31, 2016
Assets
Current Assets:
Cash and cash equivalents		34,35	￦	1,457,735		1,505,242
Short-term financial instruments		6,34,35,37		616,780		468,768
Short-term investment securities		9,34,35		144,386		107,364
Accounts receivable — trade, net		7,34,35,36		2,126,007		2,240,926
Short-term loans, net		7,34,35,36		62,830		58,979
Accounts receivable — other, net		7,34,35,36,37		1,260,835		1,121,444
Prepaid expenses				197,046		169,173
Inventories, net		8		272,403		259,846
Advanced payments and other		7,9,34,35,36		63,777		64,886
Total Current Assets				6,201,799		5,996,628
Non-Current Assets:
Long-term financial instruments		6,34,35		1,222		937
Long-term investment securities		9,34,35		887,007		828,521
Investments in associates and joint ventures		12		9,538,438		7,404,323
Property and equipment, net		13,36,37		10,144,882		10,374,212
Goodwill		10,15		1,915,017		1,932,452
Intangible assets, net		16		3,586,965		3,776,354
Long-term loans, net		7,34,35,36		50,874		65,476
Long-term accounts receivable — other		7,34,35,37		287,048		149,669
Long-term prepaid expenses				90,834		88,130
Guarantee deposits		7,34,35,36		292,590		298,964
Long-term derivative financial assets		22,34,35		253,213		214,770
Defined benefit assets		21		45,952		30,247
Deferred tax assets		31		88,132		75,111
Other non-current assets		7,34,35		44,696		61,869
Total Non-Current Assets				27,226,870		25,301,035
Total Assets			￦	33,428,669		31,297,663

See accompanying notes to the consolidated financial statements.

F-4

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Financial Position — (Continued)

As of December 31, 2017 and 2016

(In millions of won)	Note		December 31, 2017			December 31, 2016
Liabilities and Shareholders’ Equity
Current Liabilities:
Short-term borrowings		17,34,35	￦	130,000			2,614
Current portion of long-term debt, net		17,34,35		1,530,948			888,467
Current portion of long-term payables — other		18,34,35		302,703			301,773
Accounts payable — trade		34,35,36		351,711			402,445
Accounts payable — other		34,35,36		1,867,074			1,767,799
Withholdings		34,35,36		961,501			964,084
Accrued expenses		34,35		1,327,906			1,125,816
Income tax payable		31		219,791			474,931
Unearned revenue				175,732			188,403
Provisions		19		52,057			66,227
Receipts in advance				161,266			174,588
Derivative financial liabilities		22,34,35		28,406			86,950
Other current liabilities				28			2
Total Current Liabilities				7,109,123			6,444,099
Non-Current Liabilities:
Debentures, excluding current portion, net		17,34,35		5,596,570			6,338,930
Long-term borrowings, excluding current portion		17,34,35		211,486			139,716
Long-term payables — other		18,34,35		1,346,763			1,624,590
Long-term unearned revenue				7,052			2,389
Defined benefit liabilities		21		61,960			70,739
Long-term derivative financial liabilities		22,34,35		11,064			203
Long-term provisions		19		32,669			31,690
Deferred tax liabilities		31		978,693			479,765
Other non-current liabilities		34,35		44,094			49,112
Total Non-Current Liabilities				8,290,351			8,737,134
Total Liabilities				15,399,474			15,181,233
Shareholders’ Equity
Share capital		1,23		44,639			44,639
Capital deficit and others		23,24,25,26		(202,237	)		(198,739	)
Hybrid bonds		25		398,518			398,518
Retained earnings		27		17,835,946			15,953,164
Reserves		28		(234,727	)		(226,183	)
Equity attributable to owners of the Parent Company				17,842,139			15,971,399
Non-controlling interests				187,056			145,031
Total Shareholders’ Equity				18,029,195			16,116,430
Total Liabilities and Shareholders’ Equity			￦	33,428,669			31,297,663

See accompanying notes to the consolidated financial statements.

F-5

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2017, 2016 and 2015

(In millions of won except for per share data)	Note		2017			2016			2015
Operating revenue and other income:		5,36
Revenue			￦	17,520,013			17,091,816			17,136,734
Other income		29		31,997			66,548			30,935
				17,552,010			17,158,364			17,167,669
Operating expenses:		36
Labor				1,966,156			1,869,763			1,893,745
Commissions				5,486,263			5,376,726			5,206,951
Depreciation and amortization		5		3,097,466			2,941,886			2,845,295
Network interconnection				875,045			954,267			957,605
Leased line				342,240			394,412			389,819
Advertising				522,753			438,453			405,005
Rent				520,244			517,305			493,586
Cost of products that have been resold				1,886,524			1,838,368			1,955,861
Others		29		1,630,747			1,523,766			1,524,377
				16,327,438			15,854,946			15,672,244
Operating profit		5		1,224,572			1,303,418			1,495,425
Finance income		5,30		366,561			575,050			103,900
Finance costs		5,30		(433,616	)		(326,830	)		(350,100	)
Gain relating to investments in subsidiaries, associates and joint ventures, net		1,5,12		2,245,732			544,501			786,140
Profit before income tax		5		3,403,249			2,096,139			2,035,365
Income tax expense		31		745,654			436,038			519,480
Profit for the year			￦	2,657,595			1,660,101			1,515,885
Attributable to:
Owners of the Parent Company			￦	2,599,829			1,675,967			1,518,604
Non-controlling interests				57,766			(15,866	)		(2,719	)
Earnings per share:		32
Basic and diluted earnings per share (in won)			￦	36,582			23,497			20,988

See accompanying notes to the consolidated financial statements.

F-6

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)	Note		2017			2016			2015
Profit for the year			￦	2,657,595			1,660,101			1,515,885
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss, net of taxes:
Remeasurement of defined benefit liabilities		21		5,921			(7,524	)		(14,489	)
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
Net change in unrealized fair value of available-for-sale financial assets		28,30		158,440			(223,981	)		(3,661	)
Net change in other comprehensive income of investments in associates and joint ventures		12,28		(141,008	)		(9,939	)		(5,709	)
Net change in unrealized fair value of derivatives		22,28,30		22,586			(13,218	)		(1,271	)
Foreign currency translation differences for foreign operations		28		(46,952	)		7,331			26,965
Other comprehensive income (loss) for the year, net of taxes				(1,013	)		(247,331	)		1,835
Total comprehensive income			￦	2,656,582			1,412,770			1,517,720
Total comprehensive income (loss) attributable to:
Owners of the Parent Company			￦	2,597,160			1,432,982			1,522,280
Non-controlling interests				59,422			(20,212	)		(4,560	)

See accompanying notes to the consolidated financial statements.

F-7

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	Attributable to owners																Non- controlling interests
	Share capital		Capital surplus (deficit) and others			Hybrid bonds		Retained earnings			Reserves			Total						Total equity
Balance at January 1, 2015	￦	44,639		(120,520	)		398,518		14,188,591			(4,489	)		14,506,739			741,531			15,248,270
Total comprehensive income:
Profit (loss) for the year		—		—			—		1,518,604			—			1,518,604			(2,719	)		1,515,885
Other comprehensive income (loss)		—		—			—		(13,402	)		17,078			3,676			(1,841	)		1,835
		—		—			—		1,505,202			17,078			1,522,280			(4,560	)		1,517,720
Transactions with owners:
Annual dividends		—		—			—		(595,865	)		—			(595,865	)		(143	)		(596,008	)
Interim dividends		—		—			—		(72,629	)		—			(72,629	)		—			(72,629	)
Interest on hybrid bonds		—		—			—		(16,840	)		—			(16,840	)		—			(16,840	)
Acquisition of treasury shares		—		(490,192	)		—		—			—			(490,192	)		—			(490,192	)
Disposal of treasury shares		—		425,744			—		—			—			425,744			—			425,744
Changes in consolidation scope		—		—			—		—			—			—			(5,226	)		(5,226	)
Changes in ownership in subsidiaries		—		(24,040	)		—		(832	)		(3,286	)		(28,158	)		(608,585	)		(636,743	)
		—		(88,488	)		—		(686,166	)		(3,286	)		(777,940	)		(613,954	)		(1,391,894	)
Balance at December 31, 2015	￦	44,639		(209,008	)		398,518		15,007,627			9,303			15,251,079			123,017			15,374,096
Balance at January 1, 2016	￦	44,639		(209,008	)		398,518		15,007,627			9,303			15,251,079			123,017			15,374,096
Total comprehensive income:
Profit (loss) for the year		—		—			—		1,675,967			—			1,675,967			(15,866	)		1,660,101
Other comprehensive loss		—		—			—		(7,499	)		(235,486	)		(242,985	)		(4,346	)		(247,331	)
		—		—			—		1,668,468			(235,486	)		1,432,982			(20,212	)		1,412,770
Transactions with owners:
Annual dividends		—		—			—		(635,482	)		—			(635,482	)		(300	)		(635,782	)
Interim dividends		—		—			—		(70,609	)		—			(70,609	)		—			(70,609	)
Interest on hybrid bonds		—		—			—		(16,840	)		—			(16,840	)		—			(16,840	)
Changes in ownership in subsidiaries		—		10,269			—		—			—			10,269			42,526			52,795
		—		10,269			—		(722,931	)		—			(712,662	)		42,226			(670,436	)
Balance at December 31, 2016	￦	44,639		(198,739	)		398,518		15,953,164			(226,183	)		15,971,399			145,031			16,116,430

See accompanying notes to the consolidated financial statements.

F-8

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Changes in Equity — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	Attributable to owners																Non- controlling interests
	Share capital		Capital surplus (deficit) and others			Hybrid bonds		Retained earnings			Reserves			Total						Total equity
Balance at January 1, 2017	￦	44,639		(198,739	)		398,518		15,953,164			(226,183	)		15,971,399			145,031			16,116,430
Total comprehensive income:
Profit for the year		—		—			—		2,599,829			—			2,599,829			57,766			2,657,595
Other comprehensive income (loss)		—		—			—		5,875			(8,544	)		(2,669	)		1,656			(1,013	)
		—		—			—		2,605,704			(8,544	)		2,597,160			59,422			2,656,582
Transactions with owners:
Annual dividends		—		—			—		(635,482	)		—			(635,482	)		(281	)		(635,763	)
Interim dividends		—		—			—		(70,609	)		—			(70,609	)		—			(70,609	)
Interest on hybrid bonds		—		—			—		(16,840	)		—			(16,840	)		—			(16,840	)
Share option		—		414			—		—			—			414			—			414
Changes in ownership in subsidiaries		—		(3,912	)		—		9			—			(3,903	)		(17,116	)		(21,019	)
		—		(3,498	)		—		(722,922	)		—			(726,420	)		(17,397	)		(743,817	)
Balance at December 31, 2017	￦	44,639		(202,237	)		398,518		17,835,946			(234,727	)		17,842,139			187,056			18,029,195

See accompanying notes to the consolidated financial statements.

F-9

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)	2017			2016			2015
Cash flows from operating activities:
Cash generated from operating activities
Profit for the year	￦	2,657,595			1,660,101			1,515,885
Adjustments for income and expenses (Note 38)		2,096,764			3,039,561			3,250,143
Changes in assets and liabilities related to operating activities (Note 38)		(261,468	)		13,764			(685,734	)
Sub-total		4,492,891			4,713,426			4,080,294
Interest received		66,713			44,602			43,400
Dividends received		106,674			98,267			62,973
Interest paid		(234,127	)		(245,236	)		(275,796	)
Income tax paid		(576,331	)		(367,891	)		(132,742	)
Net cash provided by operating activities		3,855,820			4,243,168			3,778,129
Cash flows from investing activities:
Cash inflows from investing activities:
Decrease in short-term financial instruments, net		—			222,322			—
Decrease in short-term investment securities, net		—			—			105,158
Collection of short-term loans		216,700			238,980			398,308
Decrease in long-term financial instruments		27			28			7,424
Proceeds from disposals of long-term investment securities		129,726			555,519			149,310
Proceeds from disposals of investments in associates and joint ventures		5,925			66,852			185,094
Proceeds from disposals of property and equipment		29,368			22,549			36,586
Proceeds from disposals of intangible assets		8,848			16,532			3,769
Proceeds from disposals of assets held for sale		—			—			1,009
Collection of long-term loans		6,205			1,960			2,132
Decrease in deposits		24,550			14,894			14,635
Proceeds from disposals of other non-current assets		1,185			728			607
Proceeds from disposals of subsidiaries		30,132			—			155
Increase in cash due to merger		4,112			—			10,355
Receipt of government grants		—			300			—
Sub-total		456,778			1,140,664			914,542
Cash outflows for investing activities:
Increase in short-term financial instruments, net		(156,012	)		—			(385,612	)
Increase in short-term investment securities, net		(28,975	)		(6,334	)		—
Increase in short-term loans		(205,878	)		(239,303	)		(370,378	)
Increase in long-term loans		(5,869	)		(32,287	)		(16,701	)
Increase in long-term financial instruments		(2,034	)		(342	)		(10,008	)
Acquisitions of long-term investment securities		(19,328	)		(30,949	)		(312,261	)
Acquisitions of investments in associates and joint ventures		(193,100	)		(130,388	)		(65,080	)
Acquisitions of property and equipment		(2,715,859	)		(2,490,455	)		(2,478,778	)
Acquisitions of intangible assets		(145,740	)		(635,387	)		(127,948	)
Increase in deposits		(26,377	)		(12,943	)		(12,536	)
Increase in other non-current assets		(47	)		(763	)		(2,542	)
Acquisitions of businesses, net of cash acquired		—			(4,498	)		(13,197	)
Acquisitions of subsidiaries, net of cash acquired		(26,566	)		(19,032	)		—
Liquidation of subsidiary		(1,600	)		(191	)		—
Sub-total		(3,527,385	)		(3,602,872	)		(3,795,041	)
Net cash used in investing activities	￦	(3,070,607	)		(2,462,208	)		(2,880,499	)

F-10

See accompanying notes to the consolidated financial statements.

SK TELECOM CO., LTD. and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)	2017			2016			2015
Cash flows from financing activities:
Cash inflows from financing activities:
Proceeds from short-term borrowings, net	￦	127,386			—			—
Proceeds from issuance of debentures		973,291			776,727			1,375,031
Proceeds from long-term borrowings		120,000			49,000			—
Cash inflows from settlement of derivatives		188			251			175
Cash received from transfer of interests in subsidiaries to non-controlling interests		40,938			35,646			—
Sub-total		1,261,803			861,624			1,375,206
Cash outflows for financing activities:
Decrease in short-term borrowings, net		—			(257,386	)		(106,600	)
Repayments of long-term account payables-other		(305,476	)		(122,723	)		(191,436	)
Repayments of debentures		(842,733	)		(770,000	)		(620,000	)
Repayments of long-term borrowings		(32,701	)		(33,387	)		(21,924	)
Cash outflows from settlement of derivatives		(105,269	)		—			(655	)
Payments of finance lease liabilities		—			(26	)		(3,206	)
Payments of dividends		(706,091	)		(706,091	)		(668,494	)
Payments of interest on hybrid bonds		(16,840	)		(16,840	)		(16,840	)
Acquisitions of treasury shares		—			—			(490,192	)
Transactions with non-controlling shareholders		(79,311	)		—			(220,442	)
Sub-total		(2,088,421	)		(1,906,453	)		(2,339,789	)
Net cash used in financing activities		(826,618	)		(1,044,829	)		(964,583	)
Net increase (decrease) in cash and cash equivalents		(41,405	)		736,131			(66,953	)
Cash and cash equivalents at beginning of the year		1,505,242			768,922			834,429
Effects of exchange rate changes on cash and cash equivalents		(6,102	)		189			1,446
Cash and cash equivalents at end of the year	￦	1,457,735			1,505,242			768,922

See accompanying notes to the consolidated financial statements.

F-11

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements

For the years ended December 31, 2017, 2016 and 2015

1. Reporting Entity

(1)    General

SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The head office of the Parent Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea.

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2017, the Parent Company’s total issued shares are held by the following shareholders:

	Number of shares		Percentage of total shares issued(%)
SK Holdings Co., Ltd.		20,363,452		25.22
National Pension Service		7,392,350		9.16
Institutional investors and other minority shareholders		42,853,358		53.07
Treasury shares		10,136,551		12.55
Total number of shares		80,745,711		100.00

These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuals as “Group entities”). SK Holdings Co., Ltd. is the ultimate controlling entity of the Parent Company.

(2)    List of subsidiaries

The list of subsidiaries as of December 31, 2017 and 2016 is as follows:

				Ownership (%)(*1)
Subsidiary		Location	Primary business	Dec. 31, 2017		Dec. 31, 2016
Subsidiaries owned by the Parent Company	SK Telink Co., Ltd.(*2)	Korea	Telecommunication and MVNO service		100.0		85.9
	SK Communications Co., Ltd.(*3)	Korea	Internet website services		100.0		64.5
	SK Broadband Co., Ltd	Korea	Telecommunication services		100.0		100.0
	PS&Marketing Corporation	Korea	Communications device retail business		100.0		100.0
	SERVICEACE Co., Ltd.	Korea	Customer center management service		100.0		100.0
	SERVICE TOP Co., Ltd.	Korea	Customer center management service		100.0		100.0
	Network O&S Co., Ltd.	Korea	Base station maintenance service		100.0		100.0
	SK Planet Co., Ltd.	Korea	Telecommunication service		98.1		98.1
	IRIVER LIMITED(*4, 5)	Korea	Manufacturing digital audio players and other portable media devices.		45.9		48.9
	SK Telecom China Holdings Co., Ltd.	China	Investment		100.0		100.0

F-12

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

				Ownership (%)(*1)
Subsidiary		Location	Primary business	Dec. 31, 2017		Dec. 31, 2016
	SK Global Healthcare Business Group, Ltd.	Hong Kong	Investment		100.0		100.0
	SKT Vietnam PTE. Ltd.	Singapore	Telecommunication service		73.3		73.3
	SKT Americas, Inc.	USA	Information gathering and consulting		100.0		100.0
	YTK Investment Ltd.	Cayman Islands	Investment association		100.0		100.0
	Atlas Investment	Cayman Islands	Investment association		100.0		100.0
	Entrix Co., Ltd.(*6)	Korea	Cloud streaming services		—		100.0
	SK techx Co., Ltd.	Korea	System software development and supply		100.0		100.0
	One Store Co., Ltd.	Korea	Telecommunication services		65.5		65.5
Subsidiaries owned by SK Planet Co., Ltd.	SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.)	Korea	Data base and internet website service		100.0		100.0
	SK Planet Japan, K. K.(*5)	Japan	Digital contents sourcing service		79.5		100.0
	SK Planet Global PTE. Ltd.	Singapore	Digital contents sourcing service		100.0		100.0
	SKP GLOBAL HOLDINGS PTE. LTD.	Singapore	Investment		100.0		100.0
	SKP America LLC.	USA	Digital contents sourcing service		100.0		100.0
	shopkick Management Company, Inc.	USA	Investment		100.0		100.0
	shopkick, Inc.	USA	Reward points-based in-store shopping app development		100.0		100.0
	Planet11 E-commerce Solutions India Pvt. Ltd.(*6)	India	Electronic commerce platform service		—		99.0
	11street (Thailand) Co., Ltd.	Thailand	Electronic commerce		100.0		100.0
	Hello Nature Ltd.	Korea	Retail of agro-fisheries and livestock		100.0		100.0
Subsidiaries owned by IRIVER LIMITED	iriver Enterprise Ltd.	Hong Kong	Management of Chinese subsidiary		100.0		100.0
	iriver Inc.	USA	Marketing and sales in North America		100.0		100.0
	iriver China Co., Ltd.	China	Sales and manufacturing MP3,4 in China		100.0		100.0
	Dongguan iriver Electronics Co., Ltd.	China	Sales and manufacturing e-book in China		100.0		100.0
	groovers JP Ltd.	Japan	Digital music contents sourcing and distribution service		100.0		100.0

F-13

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

				Ownership (%)(*1)
Subsidiary		Location	Primary business	Dec. 31, 2017		Dec. 31, 2016
	S.M. LIFE DESIGN COMPANY JAPAN INC.(*6)	Japan	Selling of goods in Japan		100.0		—
	S.M. Mobile Communications JAPAN Inc.(*6)	Japan	Digital contents service		100.0		—
Subsidiaries owned by SK Telink Co., Ltd.	NSOK Co., Ltd. (formerly, Neosnetworks Co., Ltd.)(*7)	Korea	Guarding of facilities		100.0		100.0
Subsidiaries owned by SK techx Co., Ltd.	K-net Culture and Contents Venture Fund	Korea	Capital investing in startups		59.0		59.0
Subsidiaries owned by SK Broadband Co., Ltd.	Home & Service Co., Ltd.(*6)	Korea	Operation of information and communication facility		100.0		—
	SK stoa Co., Ltd.(*6)	Korea	Other telecommunication retail business		100.0		—
Others(*8)	SK Telecom Innovation Fund, L.P.	USA	Investment		100.0		100.0
	SK Telecom China Fund I L.P.	Cayman Islands	Investment		100.0		100.0
	Stonebridge Cinema Fund(*6)	Korea	Capital investing in startups		—		60.0

(*1) The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.

(*2) On September 28, 2017, the board of directors of the Parent Company resolved to acquire the shares of SK Telink Co., Ltd. held by the non-controlling shareholders of SK Telink Co., Ltd. on December 14, 2017 at ￦270,583 per share in cash. The Parent Company paid ￦35,281 million in cash, in aggregate, and wholly owns SK Telink Co., Ltd. as of December 31, 2017.

(*3) On November 24, 2016, the board of directors of the Parent Company resolved to acquire all of the shares of SK Communications Co., Ltd. held by the non-controlling shareholders of SK Communications Co., Ltd. on February 7, 2017 at ￦2,814 per share in cash. The Parent Company paid ￦41,550 million in cash ,in aggregate, and wholly owns SK Communications Co., Ltd. as of December 31, 2017.

(*4) Although the Group has less than 50% of the voting rights of IRIVER LIMITED, the Group is considered to have control over IRIVER LIMITED since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed.

(*5) The ownership interest changed due to the non-proportional capital increase during the year ended December 31, 2017.

(*6) Details of changes in consolidation scope for the year ended December 31, 2017 are presented in Note 1-(4).

(*7) During the year ended December 31, 2017, Neosnetworks Co., Ltd. changed its name to NSOK Co., Ltd.

(*8) Others are owned together by Atlas Investment and one other subsidiary of the Parent Company.

F-14

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3)    Condensed financial information of subsidiaries

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2017 is as follows:

(In millions of won)	As of December 31, 2017						2017
Subsidiary	Total assets		Total liabilities		Total equity		Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	455,685		104,727		350,958		389,944		32,728
SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.)		113,515		62,795		50,720		193,256		1,249
SK Communications Co., Ltd.		90,923		28,410		62,513		47,546		(35,454	)
SK Broadband Co., Ltd.		3,802,349		2,616,317		1,186,032		3,050,083		32,030
K-net Culture and Contents Venture Fund		250,747		35,900		214,847		—		196,250
PS&Marketing Corporation		506,883		288,881		218,002		1,766,142		391
SERVICEACE Co., Ltd.		77,681		45,501		32,180		197,408		2,599
SERVICE TOP Co., Ltd.		65,406		41,860		23,546		186,117		3,309
Network O&S Co., Ltd.		87,000		45,248		41,752		255,841		6,283
SK Planet Co., Ltd.		1,534,866		920,677		614,189		1,082,685		(513,667	)
IRIVER LIMITED(*)		130,878		17,204		113,674		69,452		(14,092	)
SKP America LLC.		412,251		—		412,251		—		(57	)
SK techx Co., Ltd.		237,700		41,561		196,139		195,948		26,827
One Store Co., Ltd.		104,891		39,874		65,017		115,596		(27,254	)
Home & Service Co., Ltd.		83,698		38,350		45,348		141,739		11
shopkick Management Company, Inc.		338,650		—		338,650		—		(238	)
shopkick, Inc.		37,336		32,219		5,117		48,836		(25,249	)

(*) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and six other subsidiaries of IRIVER LIMITED. Information for the other subsidiaries in the above summary is based on their separate financial statements.

F-15

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2016 is as follows:

(In millions of won)	As of December 31, 2016						2016
Subsidiary	Total assets		Total liabilities		Total equity		Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	440,956		122,741		318,215		406,930		61,585
SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.)		107,768		56,596		51,172		173,816		4,958
SK Communications Co., Ltd.		128,233		31,592		96,641		58,154		(20,411	)
SK Broadband Co., Ltd.		3,523,494		2,376,429		1,147,065		2,942,976		21,526
PS&Marketing Corporation		546,803		328,846		217,957		1,679,735		11,908
SERVICEACE Co., Ltd.		67,735		40,014		27,721		199,828		3,605
SERVICE TOP Co., Ltd.		59,004		39,121		19,883		186,740		3,971
Network O&S Co., Ltd.		69,774		35,798		33,976		218,917		3,755
SK Planet Co., Ltd.(*1)		1,935,663		834,151		1,101,512		1,177,323		(30,959	)
IRIVER LIMITED(*2)		50,075		11,941		38,134		52,328		(9,987	)
SKP America LLC.		439,209		—		439,209		—		1,226
SK techx Co., Ltd.		212,819		52,563		160,256		193,396		28,213
One Store Co., Ltd.		134,207		41,738		92,469		106,809		(22,161	)
shopkick Management Company, Inc.		354,627		—		354,627		—		(85	)
shopkick, Inc.		37,947		34,024		3,923		45,876		(27,149	)

(*1) The separate financial information of SK Planet Co., Ltd. includes pre-merger income and expenses of Commerce Planet Co., Ltd. prior to the merger date of February 1, 2016.

(*2) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and five other subsidiaries of IRIVER LIMITED.

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2015 is as follows:

(In millions of won)	As of December 31, 2015							2015
Subsidiary	Total assets		Total liabilities		Total equity			Revenue		Profit (loss)
SK Telink Co., Ltd.	￦	309,955		113,878		196,077			431,368		55,781
SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.)		89,452		42,414		47,038			143,255		5,549
SK Communications Co., Ltd.		152,496		35,014		117,482			80,147		(14,826	)
SK Broadband Co., Ltd.		3,291,707		2,170,484		1,121,223			2,731,344		10,832
PS&Marketing Corporation		509,580		300,364		209,216			1,791,944		4,835
SERVICEACE Co., Ltd.		65,424		34,240		31,184			206,338		2,778
SERVICE TOP Co., Ltd.		61,897		38,482		23,415			197,092		4,396
Network O&S Co., Ltd.		77,426		48,069		29,357			210,676		6,466
SK Planet Co., Ltd.		2,406,988		784,631		1,622,357			1,624,630		(75,111	)
IRIVER LIMITED(*)		60,434		12,377		48,057			55,637		635
SKP America LLC.		380,141		—		380,141			—		791
Entrix Co., Ltd.		30,876		3,186		27,690			4,895		(1,826	)
shopkick Management Company, Inc.		306,248		7		306,241			7		(2,455	)
shopkick, Inc.		25,388		32,243		(6,855	)		33,851		(52,390	)

F-16

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and five other subsidiaries of IRIVER LIMITED.

(4)    Changes in subsidiaries

The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2017 is as follows:

Subsidiary	Reason
S.M. LIFE DESIGN COMPANY JAPAN INC. (Refer to Note10)	Acquired by IRIVER LIMITED
S.M. Mobile Communications JAPAN Inc. (Refer to Note10)	Acquired by IRIVER LIMITED
Home & Service Co., Ltd.	Established by SK Boradband Co., Ltd.
SK stoa Co., Ltd.	Established by SK Boradband Co., Ltd.

The list of subsidiaries that were excluded from consolidation during the year ended December 31, 2017 is as follows:

Subsidiary	Reason
Entrix Co., Ltd.	Merged into SK techx Co., Ltd. during the year ended December 31, 2017.
Planet11 E-commerce Solutions India Pvt. Ltd.	Disposed during the year ended December 31, 2017.
Stonebridge Cinema Fund	Liquidated during the year ended December 31, 2017.

F-17

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(5)    The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2017, 2016 and 2015 are as follows. There were no dividends paid during the years ended December 31, 2017, 2016 and 2015 by subsidiaries of which non-controlling interests are significant.

(In millions of won)
	K-net Culture and Contents Venture Fund			IRIVER LIMITED			One Store Co., Ltd.
Ownership of non-controlling interests (%)		41.00			54.10			34.46
	As of December 31, 2017
Current assets	￦	625			74,873			76,810
Non-current assets		250,122			56,005			28,081
Current liabilities		(35,900	)		(9,563	)		(38,547	)
Non-current liabilities		—			(7,641	)		(1,327	)
Net assets		214,847			113,674			65,017
Carrying amount of non-controlling interests		88,087			63,382			22,405
	2017
Revenue	￦	—			69,452			115,596
Profit (loss) for the year		196,250			(14,092	)		(27,254	)
Total comprehensive profit (loss)		201,693			(14,278	)		(27,452	)
Profit (loss) attributable to non-controlling interests		80,463			(7,438	)		(9,392	)
Net cash provided by (used in) operating activities	￦	(7	)		(7,553	)		13,912
Net cash used in investing activities		(600	)		(45,002	)		(2,000	)
Net cash provided by (used in) financing activities		—			64,571			(7	)
Net increase (decrease) in cash and cash equivalents		(607	)		12,016			11,905

(In millions of won)
	SK Communications Co., Ltd.			One Store Co., Ltd.
Ownership of non-controlling interests (%)		35.46			34.46
	As of December 31, 2016
Current assets	￦	81,806			90,414
Non-current assets		46,427			43,793
Current liabilities		(30,098	)		(40,969	)
Non-current liabilities		(1,494	)		(769	)
Net assets		96,641			92,469
Carrying amount of non-controlling interests		34,265			31,863
	2016
Revenue	￦	58,154			106,809
Loss for the year		20,411			22,161
Total comprehensive loss		20,841			22,402
Loss attributable to non-controlling interests		7,240			6,772
Net cash used in operating activities	￦	(4,891	)		(4,447	)
Net cash provided by (used in) investing activities		3,625			(20,796	)
Net cash provided by financing activities		—			51,426
Net increase(decrease) in cash and cash equivalents		(1,266	)		26,183

F-18

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	SK Communications Co., Ltd.
Ownership of non-controlling interests (%)		35.46
	As of December 31, 2015
Current assets	￦	95,662
Non-current assets		56,834
Current liabilities		(33,306	)
Non-current liabilities		(1,708	)
Net assets		117,482
Carrying amount of non-controlling interests		41,659
	2015
Revenue	￦	80,147
Loss for the period		14,826
Total comprehensive loss		16,698
Loss attributable to non-controlling interests		5,254
Net cash used in operating activities	￦	(2,706	)
Net cash provided by investing activities		8,723
Net cash provided by financing activities		—
Net increase in cash and cash equivalents		6,017

2. Basis of Presentation

(1)    Statement of compliance

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were authorized for issuance by the Board of Directors on February 2, 2018.

(2)    Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statement of financial position:

• derivative financial instruments measured at fair value;

• financial instruments at fair value through profit or loss measured at fair value;

• available-for-sale financial assets measured at fair value; and

• liabilities(assets) for defined benefit plans recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(3)    Functional and presentation currency

Financial statements of Group entities within the Group are prepared in functional currency of each group entity, which is the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

F-19

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(4)    Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1)    Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 4 for the following areas: consolidation: whether the Group has de facto control over an investee, and classification of lease.

2)    Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, and recognition of deferred tax assets (liabilities).

3)    Fair value measurement

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has established policies and processes with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executives.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about assumptions used for fair value measurements are included in Note 35.

F-20

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

3. Changes in accounting policies

Except the following amendments to the standards that are effective for annual periods beginning on January 1, 2017, the accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

(1)    International Accounting Standards (“IAS”) 7, Cash Flow Statements

The Group adopted the amendments to IAS 7, which form a part of the IASB’s broader disclosure in the period beginning on January 1, 2017. The amendment requires the Group to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group disclosed the reconciliation of the opening and closing balances of liabilities arising from financing activities including changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes in Note 38.

(2)    IAS 12, Income Taxes

The Group adopted the amendments to IAS 12 in the period beginning January 1, 2017. The amendments clarify the necessity to consider whether there are restrictions on tax laws on the sources of taxable profits which may be used for the reversal of deductible temporary difference. In addition, the amendments provide the guidance on how to estimate the probable future taxable profit and specify the circumstances where an asset can be recovered for more than its carrying amount. These amendments have no impact on the Group’s consolidated financial statements.

4. Significant Accounting Policies

The significant accounting policies applied by the Group in the preparation of its consolidated financial statements in accordance with IFRS are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(1)    Operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has four reportable segments which consist of cellular services, fixed-line telecommunication services, e-commerce services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The Group’s chief operating decision maker receives and reviews operating income based on Korean IFRS as the measure of segment profit and loss for each operating segment. Segment operating income differs from consolidated operating income used in the Group’s consolidated statements of income. Segment operating profit does not include certain items such as fee revenues, gain/loss from disposal of property, plant, equipment and intangible assets, impairment losses on property, plant, equipment and intangible assets, donations, bad debt expense and penalties. The chief operating decision maker does not receive any information about segment assets and liabilities.

F-21

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2)    Basis of consolidation

(i)    Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. The difference between the acquired company’s fair value and the consideration transferred is accounted for goodwill. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on IAS 32 and 39.

Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss.

Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration through profit or loss.

(ii)    Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

(iii)    Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

(iv)    Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(v)    Interest in investees accounted for using the equity method

Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement has rights to the net assets of the arrangement.

The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

F-22

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(vi)    Intra-group transactions

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(vii)    Business combinations under common control

SK Holdings Co., Ltd. is the ultimate controlling entity of the Group. The assets and liabilities acquired under business combination under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from capital surplus and others.

(3)    Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits and financial assets with maturities of three months or less from the acquisition date that are easily convertible to cash and subject to an insignificant risk of changes in their fair value.

(4)    Inventories

Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to track inventory quantities, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses.

(5)    Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the acquisition of the asset.

(i)    Financial assets at fair value through profit or loss

A financial asset is classified as financial asset at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii)    Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investment. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

F-23

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(iii)    Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iv)    Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value with changes in fair value, net of any tax effect, recorded in other comprehensive income (OCI) in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(v)    De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi)    Offsetting between financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6)    Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i)    Hedge accounting

The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designates derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge

Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income.

F-24

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

(ii)    Separable embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

(a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

(c) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii)    Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7)    Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes following loss events:

• significant financial difficulty of the issuer or obligor;

• a breach of contract, such as default or delinquency in interest or principal payments;

• the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

F-25

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

• it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

• the disappearance of an active market for that financial asset because of financial difficulties; or

• observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If financial assets have objective evidence that they are impaired, impairment losses are measured and recognized.

(i)    Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. The Group can recognize impairment losses directly or by establishing an allowance account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed either directly or by adjusting an allowance account.

(ii)    Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(iii)    Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss subsequently. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

(8)    Property and equipment

Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent to initial recognition, an item of property and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

F-26

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property and equipment is depreciated over its separate useful life.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized as other non-operating income (loss).

The estimated useful lives of the Group’s property and equipment are as follows:

	Useful lives (years)
Buildings and structures		15 ~ 40
Machinery		3 ~ 15
Other property and equipment		2 ~ 10

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9)    Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period do not exceed the amount of borrowing costs incurred during that period.

(10)    Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, club memberships are expected to be available for use as there are no foreseeable limits to the periods. This intangible asset is determined as having indefinite useful lives and not amortized.

F-27

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

The estimated useful lives of the Group’s intangible assets are as follows:

	Useful lives (years)
Frequency usage rights	5 ~ 13
Land usage rights	5
Industrial rights	5, 10
Development costs	3 ~ 5
Facility usage rights	10, 20
Customer relations	3 ~ 7
Other	3 ~ 20

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11)    Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(i)    Grants related to assets

Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires a long-term asset are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii)    Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

(12)    Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

F-28

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(13)    Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss to the extent the carrying amount of the asset exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the business acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14)    Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i)    Finance leases

At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statement of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

F-29

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased assets are impaired at the reporting date.

(ii)    Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(iii)    Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance charge on the liability is recognized using the Group’s incremental borrowing rate of interest.

(15)    Non-current assets held for sale

Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with IAS 36, Impairment of Assets.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(16)    Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(i)    Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issue of the financial liability are recognized in profit or loss as incurred.

F-30

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(ii)    Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the issue of the financial liability. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(17)    Employee benefits

(i)    Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii)    Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service. The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

(iii)    Retirement benefits: defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv)    Retirement benefits: defined benefit plans

At the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized at present value of defined benefit obligations net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

F-31

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(v)    Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value.

(18)    Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision is used only for expenditures for which the provision was originally recognized.

(19)    Transactions in foreign currencies

(i)    Foreign currency transactions

Transactions in foreign currencies are translated to the functional currency of Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments.

(ii)    Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate at the reporting date.

F-32

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20)    Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are directly recognized in equity being as transaction with owners.

(21)    Hybrid bond

The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(22)    Share-based Payment

For equity-settled share-based payment transaction, if the fair value of the goods or services received cannot be reliably estimated, the Group measures their value indirectly by reference to the fair value of the equity instruments granted. Related expense, with a corresponding increase in capital surplus and others is recognized over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

(23)    Revenue

Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue.

When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

(i)    Services rendered

Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed.

Revenue from fixed-line services includes domestic and long distance call charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed.

Revenue from other services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

F-33

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(ii)    Goods sold

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(iii)    Commission revenue

In connection with the commission revenue from e-commerce services with following characteristics, the Group has determined that it is acting as an agent.

• The Group does not bear inventory risk or have responsibility for the delivery goods;

• All of the credit risks are borne by suppliers of goods though the Group collects the proceeds from end customers on behalf of the suppliers; and

• The Group has no latitude in establishing prices regarding goods sold in e-commerce.

(iv)    Customer loyalty programs

For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programs is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(24)    Operating profit

Operating profit is the result generated from the continuing principal revenue producing activities of the Group as well as other income and expenses related to operating activities. Operating profit excludes net finance costs, share of profit of equity accounted investees and income taxes.

(25)    Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets, changes in fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, changes in fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(26)    Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

F-34

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

The Group pays income tax in accordance with the tax-consolidation system which applies to the Parent Company and wholly owned subsidiaries.

(i)    Current tax

In accordance with the tax-consolidation system, the Parent Company calculates current taxes for the Parent Company and its wholly owned domestic subsidiaries and recognizes the income tax payable as current tax liabilities of the Parent Company. Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and includes interests and fines related to income taxes paid or payable. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii)    Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences, except for the difference associated with investments in subsidiaries and associates that the Group 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. The Group recognizes a deferred tax asset for all deductible temporary differences to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

A deferred tax asset is recognized for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Future taxable profit is dependent on the reversal of taxable temporary differences. If there are insufficient taxable temporary differences to recognize the deferred tax asset, the business plan of the Group and the reversal of existing temporary differences are considered in determining the future taxable profit.

The Group reviews the carrying amount of a deferred tax asset at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they are intended to be settled current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

(27)    Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of

F-35

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any.

(28)    Standards issued but not yet effective

The following new standards are effective for annual periods beginning after January 1, 2017 and earlier application is permitted; however, the Group has not early adopted the following new standards in preparing these financial statements.

1)    IFRS 9, Financial Instruments

IFRS 9, published in July 2014 which will replace the IAS 39 Financial Instruments: Recognition and Measurement, is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group currently plans to apply IFRS 9 in the period beginning on January 1, 2018.

IFRS 9 will be applied retrospectively with exemption allowing the Group not to restate comparative information for prior periods with respect to classification and measurement including impairment changes. The Group will recognize any difference on the measurement of financial assets and liabilities in the opening balance of retained earnings of the year beginning January 1, 2018. In the case of hedge accounting, the prospective application is allowed except for those specified in IFRS 9 such as accounting for the time value of options and the forward element of forward contracts which requires retrospective application.

Key features of IFRS 9 includes new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics, impairment model based on changes in expected credit losses, and new approach to hedge qualification and methods for assessing hedge effectiveness.

To ensure smooth implementation of IFRS 9, the Group needs to assess the financial impact of adopting IFRS 9, to formulate the accounting policy, and to design, implement and enhance the accounting system and related controls. The expected quantitative impact of adopting IFRS 9 on the Group’s financial statements cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgments that it will make in the future.

Based on the circumstances and information available as of December 31, 2017, the Group preliminary assessed the financial impact on its consolidated financial statements resulting from the adoption of IFRS 9. The results of the preliminary assessment are as follows. The results are subject to change according to additional information available in subsequent period.

F-36

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

i)    Classification and measurement of financial assets

Classification of financial assets under IFRS 9 is driven by the entity’s business model for managing financial assets and their contractual cash flows. This contains three principal classification categories: financial assets measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Derivatives embedded in contracts where the host is a financial asset are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Details of the classification based on business models and contractual cash flows are as follows:

	Contractual cash flow characteristics
Business model assessment(*1)	Solely payments of principal and interest	Others
Hold to collect contractual cash flows	Amortized cost(*2)	FVTPL-measured at fair value(*3)
Hold to collect contractual cash flows and sell financial assets	FVOCI- measured at fair value(*2)
Hold to sell financial assets and others	FVTPL-measured at fair value

(*1) The business model is expected to be assessed at portfolio level.

(*2) To eliminate or significantly reduce the accounting mismatch, the Group may irrevocably designate a financial asset as measured at FVTPL using the fair value option at initial recognition.

(*3) Equity instruments that are not held for trading may be irrevocably designated as FVOCI using the fair value option. This election will be made on an investment-by-investment basis.

As new classification requirements for financial assets under IFRS 9 are more stringent than requirements under IAS 39, the adoption of the new standard may result in increase in financial assets designated as FVTPL and higher volatility in profit or loss of the Group. As of December 31, 2017, the Group’s financial assets consist of ￦6,176,575 million of loans and receivables, ￦934,390 million of available-for-sale financial assets, and ￦328,314 million of financial assets at fair value through profit or loss.

A financial asset is measured at amortized cost under IFRS 9 if the asset is held by the Group to collect its contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has ￦6,176,575 million of loans and receivables measured at amortized cost.

Based on preliminary assessment, most of the Group’s loans and receivables are held to collect their contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. Though some are held for collecting the asset’s contractual cash flows and sale, management does not expect this to have a significant impact due to the short term nature of the receivables.

A financial asset is measured at FVOCI under IFRS 9 if the objective of the business model is achieved both by collecting contractual cash flows and selling financial assets; and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has ￦19,928 million of debt instruments classified as available-for-sale financial assets.

Most of the debt instruments held by the Group classified as available-for-sale financial assets are expected to be classified as financial assets measured at FVOCI upon adoption IFRS 9 as at January 1, 2018. Therefore, management does not expect there to be a significant impact.

Under IFRS 9, equity instruments that are not held for trading may be irrevocably designated as FVOCI on initial recognition with no recycling of amounts from OCI to profit and loss. As of December 31, 2017, the Group has ￦914,462 million of available-for-sale equity instruments.

F-37

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

As the Group plans to classify the equity instruments with long-term investment purposes to financial assets measured at FVOCI under IFRS 9, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements except no recycling of amounts from OCI to profit and loss is allowed.

All other financial assets are measured at FVTPL. As of December 31, 2017, the Group has ￦97,003 million of debt instruments classified as financial assets at FVTPL.

Most of the financial assets classified as FVTPL under IAS 39 of the Group are expected to be designated as financial assets measured at FVTPL under IFRS 9. Therefore, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 as at January 1, 2018.

ii)    Classification and measurement of financial liabilities

Under IFRS 9, for the financial liabilities designated as FVTPL using the fair value option, the element of gains or losses attributable to changes in the own credit risk should normally be recognized in OCI, with the remainder recognized in profit or loss. These amounts recognized in OCI are not recycled to profit or loss even when the liability is derecognized. However, if presentation of the fair value change in respect of the liability’s credit risk in OCI results in or enlarges an accounting mismatch in profit or loss, gains and losses are entirely presented in profit or loss.

Adoption of IFRS 9 may result in decrease in profit or loss, since the amount of fair value changes that is attributable to changes in the credit risk of the liability will be presented in OCI.

As of December 31, 2017, the Group’s total financial liability amounts to ￦12,725,704 million, among which the financial liabilities designated as FVTPL using fair value option amount to ￦60,278 million.

As of December 31, 2017, most of the financial liabilities designated as FVTPL of the Group have short-term maturities with no significant changes in their credit risks. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 as of January 1, 2018.

iii)    Impairment: financial assets and contract assets

The current impairment requirements under IAS 39 are based on an ‘incurred loss model’, where the impairment exists if there is objective evidence as a result of one or more events that occurred after the initial recognition of an asset. However, IFRS 9 replaces the incurred loss model in IAS 39 with an ‘expected credit loss model’ which applies to debt instruments measured at amortized cost or at fair value through other comprehensive income.

Under IFRS 9, the Group should recognize a loss allowance or provision at an amount equal to 12-month expected credit losses or lifetime expected credit losses for financial assets determined by the extent of probable credit deterioration since initial recognition as explained below. Therefore, the new impairment requirements are expected to result in earlier recognition of credit losses compared to the incurred loss model of IAS 39.

Stages(*1)		Loss allowances
Stage 1	No significant increase in credit risk since initial recognition(*2)	Loss allowances are determined for the amount of the expected credit losses that result from default events that are possible within 12 months after the reporting date.
Stage 2	Significant increase in credit risk since initial recognition	Loss allowances are determined for the amount of the expected credit losses that result from all possible default events over the expected life of the financial instrument.
Stage 3	Objective evidence of credit risk impairment

(*1) Under IFRS 15, Revenue from Contracts with Customers (see note 4 (28) (2)), for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to

F-38

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. The Group expects to perform the analysis on whether there was a significant increase in credit risk on collective basis instead of on individual instrument basis. In addition, when information that is more forward-looking than past due status is not available without undue cost or effort, the Group expects to use past due information to determine whether there have been significant increases in credit risk since initial recognition.

(*2) The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date.

IFRS 9 allows the Group to only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets at the reporting date. As of December 31, 2017, the Group has ￦6,176,575 million of debt instrument financial assets measured at amortized cost and ￦362,171 million as loss allowances for these assets. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 on January 1, 2018.

iv)    Hedge accounting

IFRS 9 maintains the mechanics of hedge accounting from those in IAS 39. However, IFRS 9 replaces existing rule-based requirements under IAS 39 that are complex and difficult to apply with principle based requirement focusing more on the Group’s risk management purposes and procedures. Under IAS 9, more hedging instruments and hedged items are permitted and 80%-125% effectiveness requirement is removed.

By complying with the hedging rules in IFRS 9, the Group may apply hedge accounting for transactions that currently do not meet the hedging criteria under IAS 39 thereby reducing volatility in profit or loss. As of December 31, 2017, the Group recognized the total amount of ￦2,026,434 million as hedged liabilities that applied hedge accounting and changes in fair value of cash flow hedge in the amount of ￦73,828 million was recognized in OCI for the year ended December 31, 2017.

Upon initial application of IFRS 9, the Group may choose as its accounting policy to continue to apply hedge accounting requirements under IAS 39 instead of the requirements in IFRS 9.

The Group is yet to decide on its accounting policy whether to continuously apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9 when initially applying IFRS 9. The Group designates derivatives such as currency swaps as hedging instruments to hedge the risk of variability in cash flows associated with the foreign currency debentures and borrowings. As the Group’s hedging instruments as of December 31, 2017 satisfy the hedge requirements of retrospective testing (80~125%) under IAS 39, the adoption of IFRS 9 is not expected to have material impact on the Group’s consolidated financial statements.

2)    IFRS 15, Revenue from Contracts with Customers

IFRS 15, Revenue from Contracts with Customers, published in May 2014 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. It replaces existing revenue recognition guidance, including IAS 18, Revenue, IAS 11, Construction Contracts, SIC 31, Revenue: Barter Transactions Involving Advertising Services, International Financial Reporting Interpretations Committee (“IFRIC”) 13, Customer Loyalty Programs, IFRIC 15, Agreements for the Construction of Real Estate, and IFRIC 18, Transfers of Assets from Customers. The Group plans to adopt IFRS 15 on January 1, 2018. The Group plans to apply IFRS 15 by recognizing the cumulative effect of initially applying the IFRS 15 as an adjustment to the opening balance of

F-39

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

retained earnings (or other component of equity, as appropriate) of the year beginning January 1, 2018. The Group elected to apply IFRS 15 retrospectively only to contracts that are not completed contracts at the date of initial application (January 1, 2018) using the transition method permitted by IFRS 15.

IAS 18 provides separate revenue recognition criteria by transaction type which include sale of goods, rendering of services, and use of entity assets by others yielding interest, royalties and dividends. However, IFRS 15 introduces a five-step model for revenue recognition that focuses on the ‘transfer of control’ rather than the ‘transfer of risks and rewards’. The steps in five-step model are as follows:

• identification of the contract with a customer;

• identification of the performance obligations in the contract;

• determination of the transaction price;

• allocation of the transaction price to the performance obligations in the contract; and

• recognition of revenue when (or as) the entity satisfies a performance obligation.

The Group performed evaluation and identified necessary changes to its accounting system and related controls based on the understanding of the revenue stream of the Group with the assistance of external information technology and accounting specialists. The Group is assessing the financial impact of the adoption of IFRS 15 on its consolidated financial statements and plans to complete the assessment by March 31, 2018.

Based on the circumstances and information available as of December 31, 2017, the Group preliminarily assessed the financial impact on its consolidated financial statements resulting from the adoption of IFRS 15. The results of the preliminary assessment are as follows. The results are subject to change according to the additional information available to use in subsequent periods.

i) Identification of performance obligations in the contract

A substantial portion of the Group’s revenues are generated from provision of wireless telecommunications services. IFRS 15 requires the Group to evaluate goods or services promised to customers to determine if they are performance obligations other than wireless telecommunications service that should be accounted for separately. The amount and timing of revenue recognition under IFRS 15 may be different from those under IAS 18 depending on the conclusion over the existence of separately identifiable performance obligations and the timing of satisfying each performance obligation.

In the case that the Group provides the wireless telecommunications services and a handset to one customer, the Group will allocate considerations from the customer between handset sale revenue and wireless telecommunications service revenue. The handset sales revenue is recognized when handset is sold and the wireless telecommunications service revenue is recognized as revenue over the period of the contract term as stated in the subscription contract.

ii) Allocate the transaction price to the separate performance obligations

In accordance with IFRS 15, the Group should allocate the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price. The Group plans to use adjusted market assessment method for estimating the stand-alone selling price. However, in some circumstances, ‘expected cost plus a margin’ approach will be used.

The Group is in the progress of assessing the financial impact of allocating the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price for the case where the Group provides the wireless telecommunications services and handset to one customer. Based on the preliminary assessment, the Group expects that wireless telecommunications service revenue will be decreased, while handset sale revenue will be increased upon adoption of IFRS 15.

F-40

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

iii) Incremental costs to acquire a contract

The Group has exclusive contracts with its sales agents to sell the Group’s wireless telecommunications services to subscribers. These agents receive commissions depending on the number of subscribers newly added and retained. The commissions paid to the agents constitute a significant portion of the Group’s operating expenses. Currently, the portion of these commissions that would not have been incurred if there have been no binding contracts with the subscribers are expensed.

Under IFRS 15, for the Group’s incremental costs to acquire a subscription contract, the Group expects to capitalize such amounts and amortized over the expected subscription period estimated based on historical experience. However, as a practical expedient, the Group plans to expense the incremental cost as incurred if the amortization period of the contract acquisition and fulfillment cost is considered to be not longer than one year.

As of December 31, 2017, the Group is assessing the impact of capitalizing the incremental costs associated with obtaining customer contracts. Based on the preliminary assessment, the Group expects commission expenses to decrease, while corresponding assets capitalized (incremental costs of obtaining a contract) and amortization expenses to be recognized and incurred, respectively.

3)    IFRS 16, Leases

IFRS 16, published in January 2016 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS16 replaces existing leases guidance including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC 15, Operating Leases — Incentives and SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16, at the inception date of a contract and the first implementation of the standard, requires the Group to determine whether a contract is, or contains, a lease unless the Group applies the practical expedient for the existing lease contract at the date of adoption of the standard.

When accounting for lease, lessee and lessor should account for each lease component within the contract as a lease separately from non-lease components of the contract.

Lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. However, there are optional exemptions for short-term leases and leases of low value items. As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

Lessor accounting remains similar to the current standard IAS 17. For a sale and leaseback arrangement, IFRS 16 requires the Group to apply the requirements for determining when a performance obligation is satisfied in IFRS 15 to determine whether the transfer of an asset is accounted for as a sale of that asset. However, sale and leaseback arrangements entered into before the adoption of IFRS 16 may not be reassessed.

i) Lease accounting for lessees

As a lessee, the Group can either apply the IFRS 16 using a full retrospective approach; or modified retrospective approach. The full retrospective approach requires the Group to retrospectively apply the new standard to each prior reporting period presented, while modified retrospective approach requires the lessee to recognize the cumulative effect of initial application at the date of initial application of the new leases standard.

ii) Lease accounting for lessors

In case where the Group is an intermediate lessor, the Group should reassess subleases that were classified as operating leases applying IAS 17 and are ongoing at the date of initial application, whether each sublease should be

F-41

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

classified as an operating lease or a finance lease applying IFRS 16. For subleases that were classified as operating leases applying IAS 17 but finance leases applying IFRS 16, the Group should accounts for such sublease as a new finance lease entered into at the date of initial application of IFRS 16.

The Group plans to update its accounting system and related controls and complete the assessment of impact on its consolidated financial statements resulting from the adoption of IFRS 16 by December 31, 2018.

5. Operating Segments

The Group’s operating segments have been identified to be each business unit, by which the Group provides independent services and merchandise. The Group’s reportable segments are cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services; fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services; e-commerce services, which include open marketplace platform, 11st, and other commerce solutions, and other businesses, which include online portal service, hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments.

(1) Segment information for the years ended December 31, 2017, 2016 and 2015 is as follows:

(In millions of won)
	2017
	Cellular Services		Fixed-line telecommu- nication services		E-commerce Services			Others			Sub-total		Adjustments			Total
Total revenue	￦	14,873,543		3,586,887		1,091,903			788,836			20,341,169		(2,821,156	)		17,520,013
Inter-segment revenue		1,611,408		862,736		47,732			299,280			2,821,156		(2,821,156	)		—
External revenue		13,262,135		2,724,151		1,044,171			489,556			17,520,013		—			17,520,013
Depreciation and amortization		2,390,016		592,877		54,486			60,087			3,097,466		—			3,097,466
Operating profit (loss)		1,714,078		167,515		(267,829	)		(77,138	)		1,536,626		(312,054	)		1,224,572
Gain relating to investments in subsidiaries, associates and joint ventures, net																	2,245,732
Finance income																	366,561
Finance costs																	(433,616	)
Profit before income tax																	3,403,249

F-42

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	2016
	Cellular Services		Fixed-line telecommu- nication services		E-commerce Services			Others			Sub-total		Adjustments			Total
Total revenue	￦	14,635,720		3,349,905		1,177,323			726,374			19,889,322		(2,797,506	)		17,091,816
Inter-segment revenue		1,630,811		698,712		176,007			291,976			2,797,506		(2,797,506	)		—
External revenue		13,004,909		2,651,193		1,001,316			434,398			17,091,816		—			17,091,816
Depreciation and amortization		2,262,363		551,811		68,298			59,414			2,941,886		—			2,941,886
Operating profit (loss)		1,799,127		132,459		(365,194	)		(30,648	)		1,535,744		(232,326	)		1,303,418
Gain relating to investments in subsidiaries, associates and joint ventures, net																	544,501
Finance income																	575,050
Finance costs																	(326,830	)
Profit before income tax																	2,096,139
(In millions of won)
	2015
	Cellular Services		Fixed-line telecommu- nication services		E-commerce Services			Others			Sub-total		Adjustments			Total
Total revenue	￦	14,962,689		3,162,712		1,703,278			410,265			20,238,944		(3,102,210	)		17,136,734
Inter-segment revenue		1,693,411		668,139		643,299			97,361			3,102,210		(3,102,210	)		—
External revenue		13,269,278		2,494,573		1,059,979			312,904			17,136,734		—			17,136,734
Depreciation and amortization		2,174,819		531,106		112,537			26,833			2,845,295		—			2,845,295
Operating profit (loss)		1,678,339		108,252		(6,740	)		(71,845	)		1,708,006		(212,581	)		1,495,425
Gain relating to investments in subsidiaries, associates and joint ventures, net																	786,140
Finance income																	103,900
Finance costs																	(350,100	)
Profit before income tax																	2,035,365

F-43

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Reconciliation of total segment operating income to consolidated operating profit from continuing operations for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)	2017			2016			2015
Total segment operating income	￦	1,536,626			1,535,744			1,708,006
Other operating income:
Gain on disposal of property and equipment and intangible assets		13,991			6,908			7,140
Others(*1)		18,006			59,640			23,795
		31,997			66,548			30,935
Other operating expenses:
Impairment loss on property and equipment and intangible assets		(54,946	)		(24,506	)		(35,845	)
Loss on disposal of property and equipment and intangible assets		(60,086	)		(63,797	)		(21,392	)
Donations		(112,634	)		(96,633	)		(72,454	)
Bad debt for accounts receivable — other		(5,793	)		(40,312	)		(15,323	)
Others(*2)		(110,592	)		(73,626	)		(98,502	)
		(344,051	)		(298,874	)		(243,516	)
Consolidated operating profit from continuing operations	￦	1,224,572			1,303,418			1,495,425

(*1) Others for the year ended December 31, 2016 include ￦25 billion of penalty refund.

(*2) Others for the years ended December 31, 2017, 2016 and 2015 primarily consist of ￦21.4 billion, ￦7.6 billion and ￦29.5 billion of penalties, respectively, and various other expenses with inconsequential amounts.

Since there are no intersegment sales of inventory or depreciable assets, there is no unrealized intersegment profit to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2017, 2016 and 2015 amounts to ￦17,374 billion, ￦16,940 billion and ￦17,083 billion, respectively. Domestic non-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2017, 2016 and 2015 amount to ￦15,554 billion, ￦15,949 billion and ￦14,474 billion, and non-current assets outside of Korea amount to ￦257 billion, ￦286 billion and ￦287 billion, respectively.

No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2017, 2016 and 2015.

F-44

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) The Group’s operating revenue by service type is as follows:

(In millions of won)
	2017		2016		2015
Cellular revenue:
Wireless service(*1)	￦	10,638,961		10,582,963		10,720,518
Cellular interconnection		592,754		614,446		710,026
Wireless device sales		1,052,203		922,449		963,354
Miscellaneous(*2)		978,217		885,051		875,380
		13,262,135		13,004,909		13,269,278
Fixed-line telecommunication services revenue:
Fixed line telephone service		316,763		357,754		420,611
Fixed line interconnection		116,070		134,089		57,130
Broadband internet service and advanced media platform service		1,641,645		1,472,776		1,308,789
International calling service		89,412		95,986		99,106
Miscellaneous(*3)		560,261		590,588		608,937
		2,724,151		2,651,193		2,494,573
E-commerce services revenue(*4)		1,044,171		1,001,316		1,059,979
Other revenue:
Portal service(*5)		43,952		54,177		71,812
Miscellaneous(*6)		445,604		380,221		241,092
		489,556		434,398		312,904
Consolidated operating revenue	￦	17,520,013		17,091,816		17,136,734

(*1) Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers.

(*2) Miscellaneous cellular services revenue includes revenue from IoT solutions as well as other miscellaneous cellular services.

(*3) Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink

(*4) E-commerce service revenue includes revenues from 11st, open marketplace platform, and other commerce solutions.

(*5) Portal service revenue includes revenues from Nate, and online portal service operated by SK Communications.

(*6) Miscellaneous other revenue includes revenues from hardware business, security business operated by one of the Group’s subsidiaries, NSOK Co., Ltd., marketing and sales solutions business operated by one of the Group’s subsidiaries, SK m&service Co., Ltd., and online open marketplace for mobile applications among other operations.

F-45

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

6. Restricted Deposits

Deposits which are restricted in use as of December 31, 2017 and 2016 are summarized as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Short-term financial instruments(*)	￦	89,850		90,278
Long-term financial instruments(*)		1,222		937
	￦	91,072		91,215

(*) Financial instruments include charitable trust fund established by the Group where profits from the fund are donated to charitable institutions. As of December 31, 2017, the funds cannot be withdrawn before maturity.

7. Trade and Other Receivables

(1) Details of trade and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Gross amount		Allowances for doubtful accounts			Carrying amount
Current assets:
Accounts receivable — trade	￦	2,365,270		(239,263	)		2,126,007
Short-term loans		63,380		(550	)		62,830
Accounts receivable — other		1,336,247		(75,412	)		1,260,835
Accrued income		3,979		—			3,979
Others		3,927		—			3,927
		3,772,803		(315,225	)		3,457,578
Non-current assets:
Long-term loans		97,635		(46,761	)		50,874
Long-term accounts receivable — other		287,048		—			287,048
Guarantee deposits		292,590		—			292,590
Long-term accounts receivable — trade		12,933		(185	)		12,748
		690,206		(46,946	)		643,260
	￦	4,463,009		(362,171	)		4,100,838

F-46

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	December 31, 2016
	Gross amount		Allowances for doubtful accounts			Carrying amount
Current assets:
Accounts receivable — trade	￦	2,482,502		(241,576	)		2,240,926
Short-term loans		59,526		(547	)		58,979
Accounts receivable — other		1,200,421		(78,977	)		1,121,444
Accrued income		2,780		—			2,780
Others		3,937		—			3,937
		3,749,166		(321,100	)		3,428,066
Non-current assets:
Long-term loans		113,456		(47,980	)		65,476
Long-term accounts receivable — other		149,669		—			149,669
Guarantee deposits		298,964		—			298,964
Long-term accounts receivable — trade		20,637		(252	)		20,385
		582,726		(48,232	)		534,494
	￦	4,331,892		(369,332	)		3,962,560

(2) Changes in allowances for doubtful accounts of trade and other receivables for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017			2016
Balance at January 1	￦	369,332			344,016
Bad debt expense		40,377			78,132
Write-offs		(70,802	)		(79,891	)
Other		23,264			27,075
Balance at December 31	￦	362,171			369,332

(3) Details of overdue but not impaired, and impaired trade and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017						December 31, 2016
	Accounts receivable - trade			Other receivables			Accounts receivable - trade			Other receivables
Neither overdue nor impaired	￦	1,585,714			1,930,261			1,715,966			1,617,349
Overdue but not impaired		29,304			3,113			41,613			5,663
Impaired		763,185			151,432			745,560			205,741
		2,378,203			2,084,806			2,503,139			1,828,753
Allowances for doubtful accounts		(239,448	)		(122,723	)		(241,828	)		(127,504	)
	￦	2,138,755			1,962,083			2,261,311			1,701,249

The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

F-47

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(4) The aging of overdue but not impaired accounts receivable as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017				December 31, 2016
	Accounts receivable - trade		Other receivables		Accounts receivable - trade		Other receivables
Less than 1 month	￦	7,150		2,679		11,543		2,838
1 ~ 3 months		1,663		44		9,144		140
3 ~ 6 months		1,576		124		4,643		1
More than 6 months		18,915		266		16,283		2,684
	￦	29,304		3,113		41,613		5,663

8. Inventories

Details of inventories as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017							December 31, 2016
	Acquisition cost		Write-down			Carrying amount		Acquisition cost		Write-down			Carrying amount
Merchandise	￦	251,463		(7,488	)		243,975		232,871		(6,913	)		225,958
Finished goods		1,889		(557	)		1,332		1,931		(363	)		1,568
Work-in-process		1,906		(956	)		950		2,895		(347	)		2,548
Raw materials and supplies		29,395		(3,249	)		26,146		31,141		(1,369	)		29,772
	￦	284,653		(12,250	)		272,403		268,838		(8,992	)		259,846

The amount of the inventory write-downs and write-off of inventories charged to statement of income are as follows:

(In millions of won)
	2017			2016			2015
Charged to cost of products that have been resold	￦	6,079			3,751			1,983
Write-off upon sale		(2,820	)		(1,299	)		(2,095	)

There are no significant reversals of inventory write-downs for the periods presented.

9. Investment Securities

(1) Details of short-term investment securities as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Beneficiary certificates(*)	￦	144,386		107,364

(*) The income distributable in relation to beneficiary certificates as of December 31, 2017 were accounted for as accrued income.

F-48

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Details of long-term investment securities as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Equity securities:
Marketable equity securities(*1)	￦	589,202		526,363
Unlisted equity securities etc.(*2)		277,877		295,403
		867,079		821,766
Debt securities:
Investment bonds		19,928		6,755
	￦	887,007		828,521

(*1) During the year ended December 31, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. in exchange for 1,357,367 shares of Kakao Corp. and ￦218,037 million in cash. In connection with the sale of Loen Entertainment shares, the Group recognized gain on disposal of long-term investment securities amounting to ￦314,745 million.

The Group recognized gain on disposal amounting to ￦138,779 million as the Group disposed its entire marketable equity securities of POSCO Co., Ltd. for ￦305,110 million of cash during the year ended December 31, 2016.

In addition, the Group sold 1,357,367 shares of Kakao Corp. in exchange for ￦112,649 million in cash during the year ended December 31, 2017. In connection with the sale of Kakao Corp. shares, the Group recognized loss on disposal of long-term investment securities amounting to ￦35,468 million.

(*2) Unlisted equity securities and equity investments whose fair value cannot be measured reliably are recorded at cost.

10. Business Combination

(1) 2017

1) Acquisition of S.M. LIFE DESIGN COMPANY JAPAN INC. by IRIVER LIMITED

On September 1, 2017, IRIVER LIMITED, a subsidiary of the Parent Company, acquired all of the S.M. LIFE DESIGN COMPANY JAPAN INC.’s shares from S.M. ENTERTAINMENT JAPAN, Inc. in order to enter overseas business and enhance its competitiveness with the consideration of ￦30,000 million in cash. The Group recognized the difference between the consideration paid and the fair value of net assets acquired amounting to ￦21,748 million as goodwill. Subsequent to the acquisition, S.M. LIFE DESIGN COMPANY JAPAN INC. recognized revenues and net profit of amounting to ￦6,365 million and ￦1,244 million, respectively, in 2017.

2) Merger of SM mobile communications Co., Ltd. by IRIVER LIMITED

On October 1, 2017, IRIVER LIMITED merged SM mobile communications Co., Ltd. in order to enter contents business and enhance competitiveness of its device business. As a result of merger, IRIVER LIMITED obtained control over S.M. Mobile Communications JAPAN Inc. which was wholly owned by SM mobile communications Co., Ltd. The consideration transferred was measured at the fair value of the shares transferred based on the merger ratio set on October 1, 2017. The Group recognized the difference between the consideration and the fair value of net assets amounting to ￦13,473 million as goodwill. Subsequent to the consummation of the merger, S.M. Mobile Communications JAPAN Inc. recognized no revenue with ￦103 million of net loss in 2017.

F-49

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

3) Considerations paid and assets and liabilities recognized at the acquisition date are as follows:

(In millions of won)
	S.M. LIFE DESIGN COMPANY JAPAN INC.			S.M. Mobile Communications JAPAN Inc.
Considerations paid:
Cash and cash equivalents	￦	30,000			—
Shares of IRIVER LIMITED		—			24,650
Assets and liabilities acquired:
Cash and cash equivalents	￦	3,434			4,112
Trade and other receivables		1,471			237
Inventories		1,879			—
Property and equipment		4			311
Intangible assets		6,677			7,445
Other assets		—			41
Trade and other payables		(2,563	)		(815	)
Deferred tax liabilities		(2,324	)		—
Other liabilities		(326	)		(154	)
Net assets	￦	8,252			11,177

(2) 2015

1) General information

On April 1, 2015, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, acquired an unmanned machine security business of Joeun Safe Co., Ltd., which provides security and maintenance services, in order to expand infrastructure and enhance competitiveness of its security business.

The Group recognized the acquired assets and liabilities at fair value and the difference between the consideration and fair value of net assets as goodwill.

2) Considerations paid and identifiable assets acquired and liabilities assumed

Considerations paid and assets in succession recognized at the acquisition date are as follows:

(In millions of won)
	2015
Considerations paid and liabilities assumed:
Cash and cash equivalents	￦	13,197
Accounts payable — other		1,858
	￦	15,055
Assets acquired:
Property and equipment	￦	3,208
Intangible assets		8,486
Other assets		1,603
	￦	13,297

11. Business Combinations under Common Control

(1) 2016

During the year ended December 31, 2016, the Parent Company distributed its entire ownership interests in Neosnetworks Co., Ltd. to SK Telink Co., Ltd., a subsidiary of the Parent Company as contribution in kind.

F-50

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

Neosnetworks Co., Ltd. became a wholly owned subsidiary of SK Telink Co., Ltd. As this transaction is a business combination under common control, SK Telink Co., Ltd. recognized the book value of the assets and liabilities of Neosnetworks Co., Ltd. in its financial statements. There’s no effect on the assets and liabilities of the consolidated financial statements.

(2) 2015

During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Parent Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd., a subsidiary of the Parent Company. There is no impact on the consolidated financial statements as it is a business combination under common control.

12. Investments in Associates and Joint Ventures

(1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2017 and 2016 are as follows:

(In millions of won)
		December 31, 2017				December 31, 2016
	Country	Ownership (%)		Carrying amount		Ownership (%)		Carrying amount
Investments in associates:
SK China Company Ltd.(*1)	China		27.3	￦	526,099		9.6	￦	46,354
Korea IT Fund(*2)	Korea		63.3		257,003		63.3		263,850
KEB HanaCard Co., Ltd.(*3)	Korea		15.0		280,988		15.0		265,798
NanoEnTek, Inc.	Korea		28.5		38,718		28.5		39,514
SK Industrial Development China Co., Ltd.(*1)	Hong Kong		—		—		21.0		74,717
SK Technology Innovation Company	Cayman Islands		49.0		42,511		49.0		47,488
HappyNarae Co., Ltd.(*4)	Korea		45.0		21,873		42.5		17,236
SK hynix Inc.	Korea		20.1		8,130,000		20.1		6,132,122
SK MENA Investment B.V.	Netherlands		32.1		13,853		32.1		15,451
SKY Property Mgmt. Ltd.(*1)	Virgin Island		—		—		33.0		263,225
S.M. Culture & Contents Co., Ltd.(*5)	Korea		23.4		64,966		—		—
Xian Tianlong Science and Technology Co., Ltd.	China		49.0		25,891		49.0		25,880
Daehan Kanggun BcN Co., Ltd. and others	—		—		96,479		—		115,181
Sub-total					9,498,381				7,306,816
Investments in joint ventures:
Dogus Planet, Inc.(*6)	Turkey		50.0		13,991		50.0		20,081
PT XL Planet Digital(*7)	Indonesia		—		—		50.0		27,512
Finnq Co., Ltd.(*8)	Korea		49.0		16,474		49.0		24,174
Celcom Planet and others	—		—		9,592		—		25,740
Sub-total					40,057				97,507
Total				￦	9,538,438			￦	7,404,323

(*1) During the year ended December 31, 2017, the Group contributed its shares in SKY Property Mgmt. Ltd. and SK Industrial Development China Co., Ltd., both equity method investees of the Group, to SK China Company Ltd., and participated in SK China Company Ltd.’s rights issue amounting to USD 100,000,000,

F-51

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

which resulted in Group’s acquiring 8,101,884 and 2,107,037 shares of SK China Company Ltd., respectively. This investment in associates acquired through this contribution in kind transaction was measured at fair value.

(*2) Investment in Korea IT Fund was classified as investment in associates as the Group does not have control over Korea IT Fund under the contractual agreement with other shareholders.

(*3) This investment was classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of board of directors even though the Group has less than 20% of equity interests.

(*4) The Group acquired 40,000 shares of HappyNarae Co., Ltd. at ￦17,212 per share during the year ended December 31, 2017.

(*5) During the year ended December 31, 2017, the Group subscribed to a third-party allocation of new shares of 22,033,898 by S.M. Culture & Contents Co., Ltd. at ￦65,341 million in cash.

(*6) The investment is held by SK Planet Co., Ltd.

(*7) PT XL Planet Digital was disposed during the year ended December 31, 2017.

(*8) Investment in Finnq Co., Ltd. was classified as investment in joint venture as the Group has joint control pursuant to the agreement with the other shareholders.

(2) The market price of investments in listed associates as of December 31, 2017 and 2016 are as follows:

(In millions of won, except for share data)
	December 31, 2017						December 31, 2016
	Market value per share (in won)		Number of shares		Fair value		Market value per share (in won)		Number of shares		Fair value
NanoEnTek, Inc.	￦	5,950		6,960,445		41,415		5,020		6,960,445		34,941
SK hynix Inc.		76,500		146,100,000		11,176,650		44,700		146,100,000		6,530,670
S.M. Culture & Contents Co., Ltd.		2,700		22,033,898		59,492		—		—		—

(3) The financial information of significant associates as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	As of December 31, 2017
	SK hynix Inc.(*)			KEB HanaCard Co., Ltd. (*)			SK China Company Ltd. (*)
Current assets	￦	17,310,444			7,339,492			729,872
Non-current assets		28,108,020			220,258			1,031,647
Current liabilities		8,116,133			1,181,746			81,161
Non-current liabilities		3,481,412			4,861,842			64,717
	2017
Revenue		30,109,434			1,519,607			69,420
Profit for the year		10,642,219			106,352			11,492
Other comprehensive income (loss)		(422,042	)		(984	)		27,190
Total comprehensive income		10,220,177			105,368			38,682

(*) The financial information of SK hynix Inc., KEB HanaCard Co., Ltd., and SK China Company Ltd. are consolidated financial information.

F-52

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	As of December 31, 2016
	SK hynix Inc.(*)		KEB HanaCard Co., Ltd.(*)
Current assets	￦	9,838,982		6,868,387
Non-current assets		22,377,044		239,758
Current liabilities		4,160,849		1,219,327
Non-current liabilities		4,031,647		4,476,979
	2016
Revenue		17,197,975		1,413,077
Profit for the year		2,960,483		75,595
Other comprehensive income (loss)		28,844		(154	)
Total comprehensive income		2,989,327		75,441

(*) The financial information of SK hynix Inc. and KEB HanaCard Co., Ltd. are consolidated financial information.

(In millions of won)
	SK hynix Inc.		KEB HanaCard Co., Ltd.
	2015
Revenue	￦	18,797,998		1,472,830
Profit for the year		4,323,595		10,119
Other comprehensive income (loss)		40,215		(547	)
Total comprehensive income		4,363,810		9,572

(4) The condensed financial information of joint ventures as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	Dogus Planet, Inc.			Finnq Co., Ltd.
	As of December 31, 2017
Current assets	￦	39,656			32,232
Cash and cash equivalents		25,818			4,590
Non-current assets		21,159			15,610
Current liabilities		32,622			5,685
Accounts payable, other payables and provision		2,743			2,290
Non-current liabilities		212			13,862
	2017
Revenue		82,791			—
Depreciation and amortization		(6,152	)		(1,077	)
Interest income		781			532
Interest expense		(4	)		(276	)
Loss for the year		(4,535	)		(15,699	)
Total comprehensive loss		(4,535	)		(15,699	)

F-53

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	Dogus Planet, Inc.			PT XL Planet Digital			Finnq Co., Ltd.
	As of December 31, 2016
Current assets	￦	46,433			20,077			48,699
Cash and cash equivalents		45,839			14,985			48,408
Non-current assets		20,218			50,765			673
Current liabilities		26,417			14,513			138
Accounts payable, other payables and provision		1,971			10,306			15
Non-current liabilities		72			1,305			784
	2016
Revenue		53,864			9,492			—
Depreciation and amortization		(5,299	)		(940	)		(12	)
Interest income		394			267			182
Interest expense		(2,139	)		—			—
Income tax benefit		—			51			—
Loss for the year		(22,017	)		(49,438	)		(829	)
Total comprehensive loss		(22,017	)		(49,438	)		(829	)

(In millions of won)
	Dogus Planet, Inc.			PT. Melon Indonesia			PT XL Planet Digital
	2015
Revenue	￦	38,944			17,094			5,536
Depreciation and amortization		(5,318	)		(132	)		(2,746	)
Interest income		465			288			525
Income tax benefit		—			—			7,025
Profit (Loss) for the year		(32,713	)		1,853			(21,381	)
Total comprehensive income (loss)		(32,713	)		1,853			(21,381	)

(5) Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*1,2)	￦	33,814,467		20.1		6,997,560		1,132,440		8,130,000
KEB HanaCard Co., Ltd.		1,516,162		15.0		227,424		53,564		280,988
SK China Company Ltd.(*1)		1,612,899		27.3		439,857		86,242		526,099

(In millions of won)
	December 31, 2016
	Net assets		Ownership interests (%)		Net assets attributable to the ownership interests		Cost-book value differentials		Carrying amount
Associates:
SK hynix Inc.(*1,2)	￦	24,016,955		20.1		4,970,267		1,161,855		6,132,122
KEB HanaCard Co., Ltd.		1,411,839		15.0		211,776		54,022		265,798

F-54

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*1) Net assets of these entities represent net assets excluding those attributable to their non-controlling interests.

(*2) The ownership interest is based on the number of shares owned by the Parent Company as divided by the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company and the total issued shares outstanding less investee’s treasury shares.

(6) Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)	2017
	Beginning balance		Acquisition and disposition			Share of profit (loss)			Other compre- hensive income (loss)			Impair- ment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.(*1)	￦	46,354		113,803			2,707			(36,783	)		—			400,018			526,099
Korea IT Fund(*2)		263,850		—			(8,815	)		3,371			—			(1,403	)		257,003
KEB HanaCard Co., Ltd.		265,798		—			15,494			(304	)		—			—			280,988
NanoEnTek, Inc.		39,514		—			(733	)		(63	)		—			—			38,718
SK Industrial Development China Co., Ltd.(*1)		74,717		—			5,154			(1,092	)		—			(78,779	)		—
SK Technology Innovation Company		47,488		—			433			(5,410	)		—			—			42,511
HappyNarae Co., Ltd.		17,236		688			3,929			20			—			—			21,873
SK hynix Inc.(*2)		6,132,122		—			2,175,887			(90,349	)		—			(87,660	)		8,130,000
SK MENA Investment B.V.		15,451		—			131			(1,729	)		—			—			13,853
SKY Property Mgmt. Ltd.(*1)		263,225		—			2,362			1,141			—			(266,728	)		—
S.M. Culture & Contents Co., Ltd.		—		65,341			(375	)		—			—			—			64,966
Xian Tianlong Science and Technology Co., Ltd.		25,880		—			11			—			—			—			25,891
Daehan Kanggun BcN Co., Ltd. and others(*2)		115,181		(1,306	)		(6,924	)		(2,723	)		(1,311	)		(6,438	)		96,479
Sub-total		7,306,816		178,526			2,189,261			(133,921	)		(1,311	)		(40,990	)		9,498,381
Investments in joint ventures
Dogus Planet, Inc.		20,081		2,162			(2,267	)		(5,985	)		—			—			13,991
PT XL Planet Digital(*3)		27,512		(18,864	)		(8,648	)		—			—			—			—
Finnq Co., Ltd		24,174		—			(7,691	)		(9	)		—			—			16,474
Celcom Planet and others		25,740		—			(6,228	)		(833	)		—			(9,087	)		9,592
Sub-total		97,507		(16,702	)		(24,834	)		(6,827	)		—			(9,087	)		40,057
Total	￦	7,404,323		161,824			2,164,427			(140,748	)		(1,311	)		(50,077	)		9,538,438

(*1) Other increase (decrease) is due to merger of SK China Company Ltd., SK Industrial Development China Co., Ltd. and SKY Property Mgmt. Ltd.

(*2) Dividends received from the associates are deducted from the carrying amount during the year ended December 31, 2017.

F-55

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*3) During the year ended December 31, 2017, the Group disposed the shares of PT XL Planet Digital and recognized loss on disposal of ￦27,900 million.

(In millions of won)
	2016
	Beginning balance		Acquisition and disposition			Share of profit (loss)			Other compre- hensive income (loss)			Impair- ment loss			Other increase (decrease)			Ending balance
Investments in associates
SK China Company Ltd.	￦	43,814		—			2,257			283			—			—			46,354
Korea IT Fund(*1)		260,456		—			14,864			(5,388	)		—			(6,082	)		263,850
KEB HanaCard Co., Ltd.		254,177		—			11,658			(37	)		—			—			265,798
Candle Media Co., Ltd.		20,144		(18,860	)		(673	)		(611	)		—			—			—
NanoEnTek, Inc.		45,008		—			(3,950	)		(1,544	)		—			—			39,514
SK Industrial Development China Co., Ltd.		86,324		—			(6,298	)		(5,309	)		—			—			74,717
SK Technology Innovation Company		45,891		—			162			1,435			—			—			47,488
HappyNarae Co., Ltd.		17,095		—			240			(99	)		—			—			17,236
SK hynix Inc.(*1)		5,624,493		—			572,086			8,593			—			(73,050	)		6,132,122
SK MENA Investment B.V.		14,929		—			63			459			—			—			15,451
SKY Property Mgmt. Ltd.		251,166		—			16,066			(4,007	)		—			—			263,225
Xian Tianlong Science and Technology Co., Ltd.		25,767		—			113			—			—			—			25,880
Daehan Kanggun BcN Co., Ltd. and others		161,058		(26,798	)		(13,179	)		754			(6,972	)		318			115,181
Sub-total		6,850,322		(45,658	)		593,409			(5,471	)		(6,972	)		(78,814	)		7,306,816
Investments in joint ventures
Dogus Planet, Inc.		15,118		18,722			(11,008	)		(2,751	)		—			—			20,081
PT. Melon Indonesia(*2)		4,339		(3,488	)		918			(1,769	)		—			—			—
PT XL Planet Digital		23,108		29,123			(24,719	)		—			—			—			27,512
Finnq Co., Ltd		—		24,580			(406	)		—			—			—			24,174
Celcom Planet and others		3,406		43,769			(21,435	)		—			—			—			25,740
Sub-total		45,971		112,706			(56,650	)		(4,520	)		—			—			97,507
Total	￦	6,896,293		67,048			536,759			(9,991	)		(6,972	)		(78,814	)		7,404,323

(*1) Dividends received from the associate are deducted from the carrying amount during the year ended December 31, 2016.

(*2) During the year ended December 31, 2016, the Group disposed of all shares of PT. Melon Indonesia and recognized gain on disposal of ￦11,634 million.

F-56

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(7) The Group discontinued the application of equity method to the following investees due to their carrying amounts being reduced to zero. The details of cumulative unrecognized equity method losses as of December 31, 2017 are as follows:

(In millions of won)
	Unrecognized loss (profit)					Unrecognized change in equity
	Year ended December 31, 2017			Cumulative loss		Year ended December 31, 2017		Cumulative loss
Wave City Development Co., Ltd.	￦	(1,190	)		2,100		—		—
Daehan Kanggun BcN Co., Ltd. and others		(5,475	)		5,316		—		365
	￦	(6,665	)		7,416		—		365

13. Property and Equipment

(1) Property and equipment as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	￦	862,861		—			—			862,861
Buildings		1,638,749		(756,099	)		—			882,650
Structures		866,909		(488,334	)		—			378,575
Machinery		30,343,739		(23,262,762	)		(1,179	)		7,079,798
Other		1,722,441		(1,188,893	)		(2,491	)		531,057
Construction in progress		409,941		—			—			409,941
	￦	35,844,640		(25,696,088	)		(3,670	)		10,144,882

(In millions of won)
	December 31, 2016
	Acquisition cost		Accumulated depreciation			Accumulated impairment loss			Carrying amount
Land	￦	835,909		—			—			835,909
Buildings		1,604,863		(704,891	)		—			899,972
Structures		812,010		(453,055	)		—			358,955
Machinery		29,705,088		(22,667,047	)		(1,991	)		7,036,050
Other		1,701,794		(1,138,303	)		(457	)		563,034
Construction in progress		680,292		—			—			680,292
	￦	35,339,956		(24,963,296	)		(2,448	)		10,374,212

F-57

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Changes in property and equipment for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017
	Beginning balance		Acquisition		Disposal			Transfer(*)			Depreci- ation			Impair- ment			Business Combination		Other			Ending balance
Land	￦	835,909		13,093		(4,449	)		18,308			—			—			—		—			862,861
Buildings		899,972		5,098		(477	)		29,614			(51,557	)		—			—		—			882,650
Structures		358,955		46,614		(74	)		8,386			(35,306	)		—			—		—			378,575
Machinery		7,036,050		656,731		(41,692	)		1,644,045			(2,214,524	)		(778	)		—		(34	)		7,079,798
Other		563,034		720,431		(9,252	)		(597,404	)		(143,261	)		(2,234	)		315		(572	)		531,057
Construction in progress		680,292		1,317,389		(4,172	)		(1,583,560	)		—			—			—		(8	)		409,941
	￦	10,374,212		2,759,356		(60,116	)		(480,611	)		(2,444,648	)		(3,012	)		315		(614	)		10,144,882

(*) Includes reclassification to intangible assets.

(In millions of won)
	2016
	Beginning balance		Acquisition		Disposal			Transfer(*)			Depreciation			Impairment			Ending balance
Land	￦	812,947		2,464		(3,514	)		24,012			—			—			835,909
Buildings		911,129		4,637		(9,176	)		43,910			(50,528	)		—			899,972
Structures		344,221		33,802		(33	)		15,145			(34,180	)		—			358,955
Machinery		7,342,009		660,629		(45,672	)		1,234,737			(2,152,725	)		(2,928	)		7,036,050
Other		473,438		807,047		(6,052	)		(568,644	)		(142,700	)		(55	)		563,034
Construction in progress		487,512		1,154,424		(9,710	)		(951,934	)		—			—			680,292
	￦	10,371,256		2,663,003		(74,157	)		(202,774	)		(2,380,133	)		(2,983	)		10,374,212

(*) Includes reclassification to intangible assets.

14. Investment Property

(1) There are no investment property as of December 31, 2017 and 2016.

(2) Changes in investment properties for the year ended December 31, 2016 are as follows:

(In millions of won)
	2016
	Beginning balance		Reclassification(*)			Depreciation			Ending balance
Land	￦	10,634		(10,634	)		—			—
Buildings		4,437		(4,334	)		(103	)		—
	￦	15,071		(14,968	)		(103	)		—

(*) Includes reclassification to property and equipment.

F-58

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) Income and expenses from investment property for the years ended December 31, 2016 and 2015 are as follows:

(In millions of won)
	2016			2015
Rent revenue	￦	386			850
Operating expense		(114	)		(240	)

15. Goodwill

(1) Goodwill as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Goodwill related to acquisition of Shinsegi Telecom, Inc.	￦	1,306,236		1,306,236
Goodwill related to acquisition of SK Broadband Co., Ltd.		358,443		358,443
Other goodwill		250,338		267,773
	￦	1,915,017		1,932,452

Goodwill is allocated to the following CGUs for the purpose of impairment testing.

• goodwill related to Shinsegi Telecom, Inc.(*1): cellular services;

• goodwill related to SK Broadband Co., Ltd.(*2): fixed-line telecommunication services; and

• other goodwill: e-commerce and other.

(*1) Goodwill related to acquisition of Shinsegi Telecom, Inc.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.6% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.4% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

(*2) Goodwill related to acquisition of SK Broadband Co., Ltd.

The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 5.1% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 1.0% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

F-59

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Details of the changes in goodwill for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017			2016
Beginning balance	￦	1,932,452			1,908,590
Acquisition		35,221			19,974
Impairment loss		(33,441	)		—
Other		(19,215	)		3,888
	￦	1,915,017			1,932,452

Accumulated impairment losses as of December 31, 2017 and 2016 are ￦50,710 million and ￦17,269 million, respectively.

16. Intangible Assets

(1) Intangible assets as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Acquisition cost		Accumulated amortization			Accumulated impairment			Carrying amount
Frequency usage rights	￦	4,843,955		(2,667,015	)		—			2,176,940
Land usage rights		65,841		(50,091	)		—			15,750
Industrial rights		166,082		(54,735	)		—			111,347
Development costs		140,460		(134,828	)		(1,529	)		4,103
Facility usage rights		153,438		(116,987	)		—			36,451
Customer relations		20,796		(16,761	)		—			4,035
Club memberships(*1)		108,382		—			(34,768	)		73,614
Other(*2)		3,911,749		(2,733,485	)		(13,539	)		1,164,725
	￦	9,410,703		(5,773,902	)		(49,836	)		3,586,965

(In millions of won)
	December 31, 2016
	Acquisition cost		Accumulated amortization			Accumulated impairment			Carrying amount
Frequency usage rights	￦	4,843,955		(2,263,127	)		—			2,580,828
Land usage rights		65,148		(44,314	)		—			20,834
Industrial rights		160,897		(39,697	)		—			121,200
Development costs		141,727		(136,446	)		(410	)		4,871
Facility usage rights		151,906		(110,118	)		—			41,788
Customer relations		19,742		(13,090	)		—			6,652
Club memberships(*1)		113,161		—			(39,122	)		74,039
Other(*2)		3,315,921		(2,386,992	)		(2,787	)		926,142
	￦	8,812,457		(4,993,784	)		(42,319	)		3,776,354

(*1) Club memberships are classified as intangible assets with indefinite useful life and are not amortized.

(*2) Other intangible assets primarily consist of computer software and usage rights to a research facility which the Group built and donated, and the Group is given rights-to-use for a definite number of years in turn.

F-60

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Details of the changes in intangible assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017
	Beginning balance		Acquisition		Disposal			Transfer (*1)			Amortization			Impair- ment (*2)			Business combina- tion(*3)		Others			Ending balance
Frequency usage rights	￦	2,580,828		—		—			—			(403,888	)		—			—		—			2,176,940
Land usage rights		20,834		3,689		(972	)		200			(8,001	)		—			—		—			15,750
Industrial rights		121,200		2,677		(28	)		(5,635	)		(6,870	)		—			4		(1	)		111,347
Development costs		4,871		3,813		(9	)		(793	)		(2,660	)		(1,119	)		—		—			4,103
Facility usage rights		41,788		2,805		(36	)		129			(8,235	)		—			—		—			36,451
Customer relations		6,652		1,054		—			—			(3,671	)		—			—		—			4,035
Club memberships		74,039		5,023		(3,452	)		122			—			(769	)		—		(1,349	)		73,614
Other		926,142		127,396		(19,698	)		503,277			(369,546	)		(16,605	)		14,118		(359	)		1,164,725
	￦	3,776,354		146,457		(24,195	)		497,300			(802,871	)		(18,493	)		14,122		(1,709	)		3,586,965

(*1) Includes reclassification from advance payments and property and equipment.

(*2) The Group recognized the difference between recoverable amount and the carrying amount of club memberships amounting to ￦18,493 million as impairment loss for the year ended December 31, 2017.

(*3) Includes intangible assets acquired as a result of IRIVER LIMITED’s purchase and merge of S.M. LIFE DESIGN COMPANY INC. and SM mobile communications Co., Ltd. during the year ended December 31, 2017.

(In millions of won)
	2016
	Beginning balance		Acquisition		Disposal			Transfer (*2)		Amortiza -tion			Impair- ment(*3)			Business combina- tion		Ending balance
Frequency usage rights(*1)	￦	1,103,517		1,810,076		—			—		(332,765	)		—			—		2,580,828
Land usage rights		26,576		5,338		(1,921	)		—		(9,159	)		—			—		20,834
Industrial rights		116,542		6,226		(148	)		5,004		(6,424	)		—			—		121,200
Development costs		7,472		1,404		—			338		(3,933	)		(410	)		—		4,871
Facility usage rights		48,019		2,181		(50	)		231		(8,593	)		—			—		41,788
Customer relations		7,175		499		—			—		(4,051	)		—			3,029		6,652
Club memberships		91,507		7,983		(7,624	)		—		—			(17,827	)		—		74,039
Other		903,976		141,045		(20,306	)		228,110		(323,397	)		(3,286	)		—		926,142
	￦	2,304,784		1,974,752		(30,049	)		233,683		(688,322	)		(21,523	)		3,029		3,776,354

(*1) During the year ended December 31, 2016, the Parent Company acquired the frequency right for bandwidth blocs in the 2.6 GHz band for ￦1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea and made the initial payment in accordance with the terms of the agreement in August 2016. The remaining consideration will be paid on an annual installment basis for 10 years from August 2016. In addition, the Parent Company extended frequency usage rights for 2.1 GHz band for ￦568,500 million with the initial payment made to MSIP during the year ended December 31, 2016. The remaining consideration will be paid on an annual installment basis for 5 years from December 2016.

F-61

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*2) Includes reclassification from advance payments and property and equipment.

(*3) The Group recognized the difference between recoverable amount and the carrying amount of intangible assets, amounting to ￦21,523 million as impairment loss for the year ended December 31, 2016.

(3) Research and development expenditures recognized as expense for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
Research and development costs expensed as incurred	￦	395,276		344,787		315,790

(4) The carrying amount and residual useful lives of frequency usage rights as of December 31, 2017 are as follows, all of which are amortized on a straight-line basis:

(In millions of won)
	Amount		Description	Commencement of amortization		Completion of amortization
800MHz license	￦	141,904	Frequency usage rights relating to CDMA and LTE service		Jul. 2011		Jun. 2021
1.8GHz license		502,480	Frequency usage rights relating to LTE service		Sept. 2013		Dec. 2021
WiBro license		2,957	WiBro service		Mar. 2012		Mar. 2019
2.6GHz license		1,092,770	Frequency usage rights relating to LTE service		Sept. 2016		Dec. 2026
2.1GHz license		436,829	Frequency usage rights relating to W-CDMA and LTE service		Dec. 2016		Dec. 2021
	￦	2,176,940

17. Borrowings and Debentures

(1) Short-term borrowings as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	Lender		Annual interest rate (%)		December 31, 2017		December 31, 2016
Short-term borrowings		Shinhan Bank		2.85	￦	30,000		—
		Woori Bank		2.88		—		2,614
Commercial paper		KEB Hana Bank		1.67		50,000		—
Bank overdraft		KEB Hana Bank		3.17		30,000		—
		Shinhan Bank		3.38		20,000		—
					￦	130,000		2,614

F-62

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Long-term borrowings as of December 31, 2017 and 2016 are as follows:

(In millions of won )
Lender	Annual interest rate (%)		Maturity		December 31, 2017			December 31, 2016
Korea Development Bank(*1)		3.20		Mar. 31, 2020	￦	30,000			—
KEB Hana Bank		3.18		Feb. 28, 2019		40,000			—
Kookmin Bank		1.29		Mar. 15, 2017		—			500
Kookmin Bank		1.95		Mar. 15, 2018		717			3,583
Korea Development Bank(*2)		1.99		Jul. 30, 2019		22,750			35,750
Korea Development Bank(*2)		1.99		Jul. 30, 2019		5,833			9,167
Korea Development Bank(*2)		2.27		Dec. 20, 2021		49,000			49,000
Korea Development Bank(*2)		2.37		Dec. 21, 2022		50,000			—
Export Kreditnamnden(*3)		1.70		Apr. 29, 2022		55,471			76,493
						(USD 51,775	)		(USD 63,296	)
Sub-total						253,771			174,493
Less present value discount						(954	)		(1,586	)
						252,817			172,907
Less current portion						(41,331	)		(33,191	)
					￦	211,486			139,716

(*1) SK Planet Co., Ltd., one of the subsidiaries of the Parent Company entered into a floating-to-fixed interest rate swap agreement to hedge the interest rate risk.

(*2) SK Broadband Co., Ltd., one of the subsidiaries of the Parent Company entered into a floating-to-fixed interest rate swap agreement to hedge the interest rate risk.

(*3) The long-term borrowings are to be repaid by installments on an annual basis from 2014 to 2022.

(3) Debentures as of December 31, 2017 and 2016 are as follows:

(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2017		December 31, 2016
Unsecured corporate bonds	Other fund	2018	5.00	￦	200,000		200,000
Unsecured corporate bonds	Operating fund	2021	4.22		190,000		190,000
Unsecured corporate bonds	Operating and refinancing fund	2019	3.24		170,000		170,000
Unsecured corporate bonds		2022	3.30		140,000		140,000
Unsecured corporate bonds		2032	3.45		90,000		90,000
Unsecured corporate bonds	Operating fund	2023	3.03		230,000		230,000
Unsecured corporate bonds		2033	3.22		130,000		130,000
Unsecured corporate bonds		2019	3.30		50,000		50,000
Unsecured corporate bonds		2024	3.64		150,000		150,000
Unsecured corporate bonds(*1)		2029	4.72		60,278		59,600
Unsecured corporate bonds	Refinancing fund	2019	2.53		160,000		160,000
Unsecured corporate bonds		2021	2.66		150,000		150,000
Unsecured corporate bonds		2024	2.82		190,000		190,000
Unsecured corporate bonds	Operating and refinancing fund	2022	2.40		100,000		100,000
Unsecured corporate bonds	refinancing fund	2025	2.49		150,000		150,000

F-63

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity	Annual interest rate (%)	December 31, 2017		December 31, 2016
Unsecured corporate bonds		2030	2.61		50,000		50,000
Unsecured corporate bonds	Operating fund	2018	1.89		90,000		90,000
Unsecured corporate bonds		2025	2.66		70,000		70,000
Unsecured corporate bonds		2030	2.82		90,000		90,000
Unsecured corporate bonds	Operating and refinancing fund	2018	2.07		80,000		80,000
Unsecured corporate bonds		2025	2.55		100,000		100,000
Unsecured corporate bonds		2035	2.75		70,000		70,000
Unsecured corporate bonds	Operating fund	2019	1.65		70,000		70,000
Unsecured corporate bonds		2021	1.80		100,000		100,000
Unsecured corporate bonds		2026	2.08		90,000		90,000
Unsecured corporate bonds		2036	2.24		80,000		80,000
Unsecured corporate bonds		2019	1.62		50,000		50,000
Unsecured corporate bonds		2021	1.71		50,000		50,000
Unsecured corporate bonds		2026	1.97		120,000		120,000
Unsecured corporate bonds		2031	2.17		50,000		50,000
Unsecured corporate bonds	Refinancing fund	2020	1.93		60,000		—
Unsecured corporate bonds		2022	2.17		120,000		—
Unsecured corporate bonds		2027	2.55		100,000		—
Unsecured corporate bonds	Operating and refinancing fund	2032	2.65		90,000		—
Unsecured corporate bonds	Operating fund	2020	2.39		100,000		—
Unsecured corporate bonds	Operating and refinancing fund	2022	2.63		80,000		—
Unsecured corporate bonds	Refinancing fund	2027	2.84		100,000		—
Unsecured corporate bonds(*2)	Operating fund	2017	4.28		—		100,000
Unsecured corporate bonds(*2)		2017	3.27		—		120,000
Unsecured corporate bonds(*2)		2019	3.49		210,000		210,000
Unsecured corporate bonds(*2)		2019	2.76		130,000		130,000
Unsecured corporate bonds(*2)		2018	2.23		50,000		50,000
Unsecured corporate bonds(*2)		2020	2.49		160,000		160,000
Unsecured corporate bonds(*2)		2020	2.43		140,000		140,000
Unsecured corporate bonds(*2)		2020	2.18		130,000		130,000
Unsecured corporate bonds(*2)		2019	1.58		50,000		50,000
Unsecured corporate bonds(*2)	Operating and refinancing fund	2021	1.77		120,000		120,000
Unsecured corporate bonds(*2)	Operating fund	2022	2.26		150,000		—

F-64

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won, thousands of U.S. dollars and thousands of other currencies)
	Purpose	Maturity		Annual interest rate (%)		December 31, 2017			December 31, 2016
Unsecured corporate bonds(*2)	Refinancing fund		2022		2.34		30,000			—
Unsecured corporate bonds(*2)	Operating and refinancing fund		2022		2.70		140,000			—
Unsecured corporate bonds(*3)	Operating fund		2017		3.48		—			20,000
Convertible bonds(*4)			2019		1.00		5,558			—
Unsecured global bonds			2027		6.63		428,560			483,400
							(USD 400,000	)		(USD 400,000	)
Unsecured private Swiss bonds			2017		1.75		—			354,399
bonds										(CHF 300,000	)
Unsecured global bonds			2018		2.13		749,980			845,950
							(USD 700,000	)		(USD 700,000	)
Unsecured corporate Australian bonds			2017		4.75		—			261,615
										(AUD 300,000	)
Floating rate notes(*5)			2020		3M Libor + 0.88		321,420			362,550
							(USD 300,000)			(USD 300,000	)
Foreign global bonds(*2)			2018		2.88		321,420			362,550
							(USD 300,000	)		(USD 300,000	)
Sub-total							7,107,216			7,220,064
Less discounts on bonds							(21,029	)		(25,858	)
							7,086,187			7,194,206
Less current portion of bonds							(1,489,617	)		(855,276	)
						￦	5,596,570			6,338,930

(*1) The Group eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss. The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by ￦10,278 million as of December 31, 2017.

(*2) Unsecured corporate bonds were issued by SK Broadband Co., Ltd.

(*3) Unsecured corporate bonds were issued by PS&Marketing Corporation.

(*4) During the year ended December 31, 2017, the Parent Company sold the convertible bonds issued by IRIVER LIMITED to third parties.

(*5) As of December 31, 2017, 3M LIBOR rate is 1.69%.

F-65

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

18. Long-term Payables — Other

(1) Long-term payables — other as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Payables related to acquisition of frequency usage rights	￦	1,328,630		1,602,943
Other(*)		18,133		21,647
	￦	1,346,763		1,624,590

(*) Other includes other long-term employee compensation liabilities.

(2) As of December 31, 2017 and 2016, details of long-term payables — other which consist of payables related to the acquisition of frequency usage rights are as follows (See Note 16):

(In millions of won)
	December 31, 2017			December 31, 2016
Long-term payables — other	￦	1,710,255			2,013,122
Present value discount on long-term payables — other		(79,874	)		(108,406	)
		1,630,381			1,904,716
Less current portion of long-term payables — other		(301,751	)		(301,773	)
Carrying amount at December 31	￦	1,328,630			1,602,943

(3) The repayment schedule of the principal amount of long-term payables — other related to acquisition of frequency usage rights as of December 31, 2017 is as follows:

(In millions of won)
	Amount
Less than 1 year	￦	302,867
1~3 years		605,734
3~5 years		402,624
More than 5 years		399,030
	￦	1,710,255

19. Provisions

(1) Changes in provisions for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	For the year ended December 31, 2017														As of December 31, 2017
	Beginning balance		Increase		Utilization			Reversal			Other		Ending balance		Current		Non-current
Provision for installment of handset subsidy(*1)	￦	24,710		2		(8,898	)		(11,940	)		—		3,874		3,874		—
Provision for restoration(*2)		64,679		12,066		(2,517	)		(1,006	)		45		73,267		40,598		32,669
Emission allowance(*3)		2,788		4,663		(518	)		(2,283	)		—		4,650		4,650		—
Other provisions		5,740		952		(3,757	)		—			—		2,935		2,935		—
	￦	97,917		17,683		(15,690	)		(15,229	)		45		84,726		52,057		32,669

F-66

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	For the year ended December 31, 2016														As of December 31, 2016
	Beginning balance		Increase		Utilization			Reversal			Other		Ending balance		Current		Non-current
Provision for installment of handset subsidy(*1)	￦	5,670		37,530		(18,490	)		—			—		24,710		19,939		4,771
Provision for restoration(*2)		59,954		6,677		(1,082	)		(913	)		43		64,679		37,760		26,919
Emission allowance(*3)		1,477		1,480		(169	)		—			—		2,788		2,788		—
Other provisions		3,104		3,237		(601	)		—			—		5,740		5,740		—
	￦	70,205		48,924		(20,342	)		(913	)		43		97,917		66,227		31,690

(*1) The Group recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis. The amount recognized as a provision for handset subsidies is the Group’s best estimate of the expenditure required to settle the current obligations to the relevant subscribers at the end of the reporting period, which is calculated as of the present values of estimated handset subsidies to be granted over the relevant service periods, taking into account the customer retention rate for the relevant subscribers. The discount rate used in calculating the present values is based on AAA-rated corporate bonds with a two-year maturity. The customer retention rate is based on the Group’s historical retention rate.

(*2) In the course of the Group’s activities, base station and other assets are installed on leased premises which are expected to have costs associated with restoring the premises to their original conditions where these assets are situated upon ceasing their use on those premises. The associated cash outflows, which are long-term in nature, are generally expected to occur at the dates of the termination of lease contracts to which the assets relate. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the liability. Forecasts of estimated future cash outflows are revised in light of future changes in business conditions or technological requirements. The Group records these restoration costs as property and equipment and subsequently expenses them using the straight-line method over the asset’s useful life, and records the accretion of the liability as a charge to finance costs.

(*3) The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

(2) The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period.

	Key assumptions
Provision for handset subsidy	estimation based on historical service retention period data
Provision for restoration	estimation based on cost of demolition and inflation with an assumption of demolishing the relevant assets after six years

F-67

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

20. Lease

In 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. These sale and leaseback transactions were accounted for as operating leases. The Group entered into operating lease agreements and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues as of December 31, 2017 are as follows:

(In millions of won)
	Minimum lease payments		Revenues
Less than 1 year	￦	49,289		1,926
1~5 years		101,872		916
	￦	151,161		2,842

21. Defined Benefit Liabilities(Assets)

(1) Details of defined benefit liabilities(assets) as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017			December 31, 2016
Present value of defined benefit obligations	￦	679,625			595,667
Fair value of plan assets		(663,617	)		(555,175	)
Defined benefit assets(*)		(45,952	)		(30,247	)
Defined benefit liabilities		61,960			70,739

(*) Since the Group entities neither have legally enforceable right nor intention to settle the defined benefit obligations of Group entities with defined benefit assets of other Group entities, defined benefit assets of Group entities have been separately presented from defined benefit liabilities.

(2) Principal actuarial assumptions as of December 31, 2017 and 2016 are as follows:

	December 31, 2017	December 31, 2016
Discount rate for defined benefit obligations	2.58%~4.03%	1.90%~2.96%
Expected rate of salary increase	3.08%~5.93%	2.49%~6.09%

Discount rate for defined benefit obligation is determined based on market yields of high-quality corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio.

F-68

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) Changes in defined benefit obligations for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017			2016
Beginning balance	￦	595,667			525,269
Current service cost		125,526			114,528
Interest cost		15,991			13,441
Remeasurement - Demographic assumption		(287	)		677
- Financial assumption		(20,731	)		(2,462	)
- Adjustment based on experience		11,561			6,229
Benefit paid		(60,883	)		(55,350	)
Others		12,781			(6,665	)
Ending balance	￦	679,625			595,667

(4) Changes in plan assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017			2016
Beginning balance	￦	555,175			426,413
Interest income		13,821			9,826
Remeasurement		(5,540	)		(6,320	)
Contributions		155,834			159,687
Benefit paid		(60,006	)		(34,247	)
Others		4,333			(184	)
Ending balance	￦	663,617			555,175

The Group expects to make a contribution of ￦146,086 million to the defined benefit plans in 2018.

(5) Total amount of expenses recognized in profit and loss (included in labor in the consolidated statement of income) and capitalized into construction-in-progress for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Current service cost	￦	125,526		114,528		106,764
Net interest cost		2,170		3,615		3,257
	￦127,696		118,143		110,021

(6) Details of plan assets as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Equity instruments	￦	15,567		13,640
Debt instruments		134,710		95,359
Short-term financial instruments, etc.		513,340		446,176
	￦	663,617		555,175

F-69

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(7) As of December 31, 2017, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:

(In millions of won)
	0.5% Increase			0.5% Decrease
Discount rate	￦	(24,702	)		26,808
Expected salary increase rate		26,988			(25,138	)

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

A weighted average duration of defined benefit obligations as of December 31, 2017 is 8.17 years.

22. Derivative Instruments

(1) Currency and interest rate swap contracts under cash flow hedge accounting as of December 31, 2017 are as follows:

(In millions of won and thousands of foreign currencies)
Borrowing date	Hedging Instrument(Hedged item)	Hedged risk	Financial institution	Duration of contract
Jul. 20, 2007	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)	Foreign currency risk	Morgan Stanley and four other banks	Jul. 20, 2007 ~ Jul. 20, 2027
Nov. 1, 2012	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)	Foreign currency risk	Standard Chartered and eight other banks	Nov. 1, 2012~ May. 1, 2018
Mar. 7, 2013	Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk and interest rate risk	DBS bank	Mar. 7, 2013 ~ Mar. 7, 2020
Oct. 29, 2013	Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)	Foreign currency risk	Korea Development Bank and others	Oct. 29, 2013 ~ Oct. 26, 2018
Dec. 16, 2013	Fixed-to-fixed cross currency swap (U.S. dollar borrowing amounting to USD 51,775)	Foreign currency risk	Deutsche bank	Dec. 16, 2013 ~ Apr. 29, 2022
Dec. 20, 2016	Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 49,000)	Interest rate risk	Korea Development Bank	Dec. 20, 2016~ Dec. 20, 2021
Jan. 30, 2017	Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 28,583)	Interest rate risk	Korea Development Bank	Nov. 10, 2016~ Jul. 30, 2019
Mar. 31, 2017	Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 30,000)	Interest rate risk	Korea Development Bank	Mar. 31, 2017- Mar. 31, 2020
Dec. 21, 2017	Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 50,000)	Interest rate risk	Korea Development Bank	Dec. 5, 2017- Dec. 21, 2022

F-70

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) As of December 31, 2017, details of fair values of the above derivatives recorded in assets or liabilities are as follows:

(In millions of won and thousands of foreign currencies)
Hedging instrument(Hedged item)	Cash flow hedge			Held for trading		Embedded derivatives		Fair value
Non-current assets:
Redeemable convertible preferred shares issued by Bluehole INC.	￦	—			—		222,257		222,257
Structured bond(face value of KRW 50,000)		—			9,054		—		9,054
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000)		21,554			—		—		21,554
Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 49,000)		307			—		—		307
Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 28,583)		43			—		—		43
Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 50,000)		(2	)		—		—		(2	)
Total assets								￦	253,213
Current liabilities:
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000)	￦	(27,791	)		—		—		(27,791	)
Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)		(615	)		—		—		(615	)
Non-current liabilities:
Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000)		(7,613	)		—		—		(7,613	)
Fixed-to-fixed long-term borrowings (U.S. dollar borrowing amounting to USD 51,775)		(3,106	)		—		—		(3,106	)
Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 30,000)		(345	)		—		—		(345	)
Total liabilities								￦	(39,470	)

F-71

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

23. Share Capital and Capital Surplus (deficit) and Others

The Parent Company’s outstanding share capital consists entirely of common shares with a par value of ￦500. The number of authorized, issued and outstanding common shares and the details of capital surplus (deficit) and others as of December 31, 2017 and 2016 are as follows:

(In millions of won, except for share data)
	December 31, 2017			December 31, 2016
Number of authorized shares		220,000,000			220,000,000
Number of issued shares(*1)		80,745,711			80,745,711
Share capital
Common share	￦	44,639			44,639
Capital surplus (deficit) and others:
Paid-in surplus		2,915,887			2,915,887
Treasury shares(Note 24)		(2,260,626	)		(2,260,626	)
Share option(Note 26)		414			—
Others(*2)		(857,912	)		(854,000	)
	￦	(202,237	)		(198,739	)

(*1) In 2002 and 2003, the Parent Company retired treasury shares with reduction of retained earnings before appropriation. As a result, the Parent Company’s outstanding shares have decreased without change in share capital.

(*2) Others primarily consist of the excess of the consideration paid by the Group over the carrying values of net assets acquired from entities under common control.

There were no changes in share capital during the years ended December 31, 2017 and 2016 and details of shares outstanding as of December 31, 2017 and 2016 are as follows:

(In shares)	2017						2016
	Issued shares		Treasury shares		Outstanding shares		Issued shares		Treasury shares		Outstanding shares
Shares outstanding		80,745,711		10,136,551		70,609,160		80,745,711		10,136,551		70,609,160

24. Treasury Shares

The Parent Company acquired treasury shares to provide share dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and stabilize its share prices.

Treasury shares as of December 31, 2017 and 2016 are as follows:

(In millions of won, shares)
	December 31, 2017		December 31, 2016
Number of shares		10,136,551		10,136,551
Acquisition cost	￦	2,260,626		2,260,626

F-72

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

25. Hybrid Bonds

Hybrid bonds classified as equity as of December 31, 2017 are as follows:

(In millions of won)
	Type	Issuance date	Maturity(*1)	Annual interest rate(%)(*2)		Amount
Private hybrid bonds	Unsecured subordinated bearer bond	June 7, 2013	June 7, 2073		4.21	￦	400,000
Issuance costs							(1,482	)
						￦	398,518

Hybrid bonds issued by the Parent Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shares in the event of a liquidation or reorganization of the Parent Company.

(*1) The Parent Company has a right to extend the maturity under the same terms at issuance without any notice or announcement. The Parent Company also has the right to defer interest payment at its sole discretion.

(*2) Annual interest rate is calculated as yield rate of 5 year national bonds plus premium. According to the step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

26. Share option

(1) At the shareholders’ meeting held on March 24, 2017, the Parent Company established a share option program that entitles key management personnel the option to purchase common shares of the Parent Company. The terms and conditions related to the grants of the share options under the share option program are as follows:

	Series
	1-1	1-2	1-3
Grant date	March 24, 2017
Types of shares to be issued	66,504 of registered common shares
Grant method	Reissue of treasury shares
Number of shares (in shares)	22,168	22,168	22,168
Exercise price (in won)	246,750	266,490	287,810
Exercise period	Mar. 25, 2019 ~ Mar. 24, 2022	Mar. 25, 2020 ~ Mar. 24, 2023	Mar. 25, 2021 ~ Mar. 24, 2024
Vesting conditions	2 years’ service from the grant date	3 years’ service from the grant date	4 years’ service from the grant date

(2) Share compensation expense recognized during the year ended December 31, 2017 and the remaining share compensation expense to be recognized in subsequent periods are as follows:

(In millions of won)	Share compensation expense
During the year ended December 31, 2017	￦	414
In subsequent periods		977
	￦	1,391

F-73

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) The Group used binomial option pricing model in the measurement of the fair value of the share options at grant date and the inputs used in the model are as follows:

	1-1			1-2			1-3
Risk-free interest rate		1.86	%		1.95	%		2.07	%
Estimated option’s life		5 years			6 years			7 years
Share price (Closing price on the preceding day in won)		262,500			262,500			262,500
Expected volatility		13.38	%		13.38	%		13.38	%
Expected dividends		3.80	%		3.80	%		3.80	%
Exercise price (in won)		246,750			266,490			287,810
Per share fair value of the option (in won)		27,015			20,240			15,480

27. Retained Earnings

(1) Retained earnings as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Appropriated:
Legal reserve	￦	22,320		22,320
Reserve for research & manpower development		—		60,001
Reserve for business expansion		10,171,138		9,871,138
Reserve for technology development		3,071,300		2,826,300
		13,264,758		12,779,759
Unappropriated		4,571,188		3,173,405
	￦	17,835,946		15,953,164

(2) Legal reserve

The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.

28. Reserves

(1) Details of reserves, net of taxes, as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017			December 31, 2016
Valuation gain on available-for-sale financial assets	￦	168,211			12,534
Other comprehensive loss of investments in associates		(320,060	)		(179,167	)
Valuation loss on derivatives		(73,828	)		(96,418	)
Foreign currency translation differences for foreign operations		(9,050	)		36,868
	￦	(234,727	)		(226,183	)

F-74

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Changes in reserves for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)	2017
	Valuation gain on available-for-sale financial assets		Other compre- hensive loss of investments in associates			Valuation gain (loss) on derivatives			Foreign currency translation differences for foreign operations			Total
Balance at January 1, 2017	￦	12,534		(179,167	)		(96,418	)		36,868			(226,183	)
Changes, net of taxes		155,677		(140,893	)		22,590			(45,918	)		(8,544	)
Balance at December 31, 2017	￦	168,211		(320,060	)		(73,828	)		(9,050	)		(234,727	)

(In millions of won)
	2016
	Valuation gain (loss) on available-for-sale financial assets			Other compre- hensive loss of investments in associates			Valuation loss on derivatives			Foreign currency translation differences for foreign operations		Total
Balance at January 1, 2016	￦	232,316			(169,520	)		(83,200	)		29,707		9,303
Changes, net of taxes		(219,782	)		(9,647	)		(13,218	)		7,161		(235,486	)
Balance at December 31, 2016	￦	12,534			(179,167	)		(96,418	)		36,868		(226,183	)

(3) Changes in valuation gain on available-for-sale financial assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017		2016
Balance at January 1	￦	12,534		232,316
Amount recognized as other comprehensive income during the year, net of taxes		132,586		4,606
Amount reclassified through profit or loss, net of taxes 23,091		23,091		(224,388	)
Balance at December 31	￦	168,211		12,534

(4) Changes in valuation gain (loss) on derivatives for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017			2016
Balance at January 1	￦	(96,418	)		(83,200	)
Amount recognized as other comprehensive loss during the year, net of taxes		17,965			(12,213	)
Amount reclassified through profit or loss, net of taxes		4,625			(1,005	)
Balance at December 31	￦	(73,828	)		(96,418	)

F-75

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

29. Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Other Operating Income:
Gain on disposal of property and equipment and intangible assets		13,991		6,908		7,140
Others(*)		18,006		59,640		23,795
	￦	31,997		66,548		30,935
Other Operating Expenses:
Communication	￦	27,973		31,196		43,979
Utilities		299,825		277,497		270,621
Taxes and dues		27,819		35,020		36,118
Repair		333,101		326,076		312,517
Research and development		395,276		344,787		315,790
Training		32,853		33,303		37,278
Bad debt for accounts receivable — trade		34,584		37,820		60,450
Travel		24,095		25,263		27,860
Supplies and other		111,170		113,930		176,248
Loss on disposal of property and equipment and intangible assets		60,086		63,797		21,392
Impairment loss on other investment securities		9,003		24,033		42,966
Impairment loss on property and equipment and intangible assets		54,946		24,506		35,845
Donations		112,634		96,633		72,454
Bad debt for accounts receivable — other		5,793		40,312		15,323
Others(*)		101,589		49,593		55,536
	￦	1,630,747		1,523,766		1,524,377

(*) See Note 5-(2).

F-76

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

30. Finance Income and Costs

(1) Details of finance income and costs for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Finance Income:
Interest income	￦	76,045		54,353		45,884
Gain on sale of accounts receivable — trade		18,548		18,638		—
Dividends		12,416		19,161		16,102
Gain on foreign currency transactions		13,676		14,186		18,923
Gain on foreign currency translations		7,110		5,085		5,090
Gain on disposal of long-term investment securities		4,890		459,349		10,786
Gain on valuation of derivatives		223,943		4,132		1,927
Reversal of impairment loss on available-for-sale financial assets		9,900		—		—
Gain relating to financial assets at fair value through profit or loss		33		25		—
Gain relating to financial liability at fair value through profit or loss		—		121		5,188
	￦	366,561		575,050		103,900
Finance Costs:
Interest expense	￦	299,100		290,454		297,662
Loss on sale of accounts receivable — trade		9,682		—		—
Loss on foreign currency transactions		19,263		16,765		17,931
Loss on foreign currency translations		8,419		3,991		4,750
Loss on disposal of long-term investment securities		36,024		2,919		2,599
Loss on settlement of derivatives		10,031		3,428		4,845
Loss relating to financial liability at fair value through profit or loss		678		4,018		526
Impairment loss on long-term investment securities(*)		14,519		5,255		21,787
Other finance costs		35,900		—		—
	￦	433,616		326,830		350,100

(*) See Note 30-(5).

(2) Details of interest income included in finance income for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Interest income on cash equivalents and short-term financial instruments	￦	28,130		20,203		20,009
Interest income on installment receivables and others		47,915		34,150		25,875
	￦	76,045		54,353		45,884

F-77

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) Details of interest expenses included in finance costs for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Interest expense on borrowings	￦	11,774		7,962		19,577
Interest expense on debentures		228,568		239,560		238,450
Interest on finance lease liabilities		—		—		58
Others		58,758		42,932		39,577
	￦	299,100		290,454		297,662

(4) Finance income and costs by category of financial instruments for the years ended December 31, 2017, 2016 and 2015 are as follows. Bad debt expense (reversal of allowance for doubtful accounts) for accounts receivable — trade, loans and receivables are presented and explained separately in Note 7.

(i)    Finance income

(In millions of won)
	2017		2016		2015
Financial Assets:
Financial assets at fair value through profit or loss	￦	223,976		4,157		1,927
Available-for-sale financial assets		30,598		484,300		31,220
Loans and receivables		111,677		86,256		64,749
Sub-total		366,251		574,713		97,896
Financial Liabilities:
Financial liabilities at fair value through profit or loss		—		121		5,188
Financial liabilities measured at amortized cost		310		216		816
Sub-total		310		337		6,004
	￦	366,561		575,050		103,900

(ii)    Finance costs

(In millions of won)
	2017		2016		2015
Financial Assets:
Financial assets at fair value through profit or loss	￦	—		2,791		4,188
Available-for-sale financial assets		86,445		8,174		24,386
Loans and receivables		37,040		15,810		15,861
Derivatives designated as hedging instruments		—		637		657
Sub-total		123,485		27,412		45,092
Financial Liabilities:
Financial liabilities at fair value through profit or loss		678		4,018		526
Financial liabilities measured at amortized cost		299,422		295,400		304,482
Derivatives designated as hedging instruments		10,031		—		—
Sub-total		310,131		299,418		305,008
	￦	433,616		326,830		350,100

F-78

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(iii)    Other comprehensive income (loss)

(In millions of won)
	2017		2016			2015
Financial Assets:
Available-for-sale financial assets	￦	158,440		(223,981	)		(3,661	)
Derivatives designated as hedging instruments		1,554		(172	)		(3,248	)
Sub-total		159,994		(224,153	)		(6,909	)
Financial Liabilities:
Derivatives designated as hedging instruments		21,032		(13,046	)		1,977
Sub-total		21,032		(13,046	)		1,977
	￦	181,026		(237,199	)		(4,932	)

(5) Details of impairment losses for financial assets for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Available-for-sale financial assets(*)	￦	14,519		5,255		21,787
Accounts receivable — trade		34,584		37,820		60,450
Other receivables		5,793		40,312		15,323
	￦	54,896		83,387		97,560

(*) This is included in other finance costs (See Note 30-(1)).

31. Income Tax Expense

(1) Income tax expenses for the years ended December 31, 2017, 2016 and 2015 consist of the following:

(In millions of won)
	2017			2016			2015
Current tax expense
Current year	￦	424,773			473,543			417,022
Current tax of prior years(*)		(105,158	)		(11,925	)		(4,124	)
		319,615			461,618			412,898
Deferred tax expense
Changes in net deferred tax assets		426,039			(25,580	)		106,399
Others (tax rate differences, etc.)		—			—			183
Income tax expense	￦	745,654			436,038			519,480

(*) Current tax of prior years are mainly composed of the income tax refund due to a change in the interpretation of the tax authority in relation to the income tax previously recognized by the Group.

F-79

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2017, 2016 and 2015 is attributable to the following:

(In millions of won)
	2017			2016			2015
Income taxes at statutory income tax rate	￦	823,124			506,804			492,096
Non-taxable income		(40,080	)		(38,989	)		(85,589	)
Non-deductible expenses		31,285			52,648			44,770
Tax credit and tax reduction		(34,300	)		(29,484	)		(25,756	)
Changes in unrecognized deferred taxes		31,857			(84,276	)		83,623
Others (income tax refund, etc.)(*)		(66,232	)		29,335			10,336
Income tax expense	￦	745,654			436,038			519,480

(*) Based on the amendment to Korean Tax Law that was enacted in 2017, the income tax rate for taxable income in excess of ￦300,000 million is changed from 24.2% to 27.5%, which will be effective from January 1, 2018. The Group remeasured deferred tax assets and liabilities as a result of this rate change.

Tax rates applied for the above taxable income for the years ended December 31, 2017, 2016 and 2015 are corporate income tax rates applied to taxable income in the Republic of Korea, in which the Parent Company is located.

(3) Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017			2016		2015
Valuation gain (loss) on available-for-sale financial assets	￦	(55,883	)		82,993		2,461
Share of other comprehensive income (loss) of associates		(260	)		2		(63	)
Valuation gain (loss) on derivatives		(3,019	)		4,454		(448	)
Remeasurement of defined benefit liabilities		1,618			3,174		2,719
	￦	(57,544	)		90,623		4,669

F-80

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(4) Details of the changes in deferred tax assets (liabilities) for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017
	Beginning			Deferred tax expense (income)			Directly charged to (credited from) equity			Others			Ending
Deferred tax assets (liabilities) related to temporary differences:
Allowance for doubtful accounts	￦	61,911			5,091			—			—			67,002
Accrued interest income		(616	)		(1,851	)		—			—			(2,467	)
Available-for-sale financial assets		101,472			8,192			(55,883	)		—			53,781
Investments in subsidiaries, associates and joint ventures		(476,098	)		(461,271	)		(260	)		—			(937,629	)
Property and equipment (depreciation)		(253,323	)		17,980			—			—			(235,343	)
Provisions		7,448			(5,136	)		—			—			2,312
Retirement benefit obligation		35,505			1,237			1,618			—			38,360
Valuation gain on derivatives		28,975			—			(3,019	)		—			25,956
Gain or loss on foreign currency translation		19,369			2,562			—			—			21,931
Reserve for research and manpower development		(4,775	)		2,388			—			—			(2,387	)
Goodwill		3,105			(938	)		—			—			2,167
Others		34,911			(29,248	)		—			(2,324	)		3,339
		(442,116	)		(460,994	)		(57,544	)		(2,324	)		(962,978	)
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards
Tax loss carryforwards		37,462			34,955			—			—			72,417
	￦	(404,654	)		(426,039	)		(57,544	)		(2,324	)		(890,561	)

F-81

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
	2016
	Beginning			Deferred tax expense (income)			Directly charged to (credited from) equity		Ending
Deferred tax assets (liabilities) related to temporary differences:
Allowance for doubtful accounts	￦	59,957			1,954			—		61,911
Accrued interest income		(2,567	)		1,951			—		(616	)
Available-for-sale financial assets		30,365			(11,886	)		82,993		101,472
Investments in subsidiaries, associates and joint ventures		(355,273	)		(120,827	)		2		(476,098	)
Property and equipment (depreciation)		(327,572	)		74,249			—		(253,323	)
Provisions		2,485			4,963			—		7,448
Retirement benefit obligation		28,327			4,004			3,174		35,505
Valuation gain on derivatives		24,521			—			4,454		28,975
Gain or loss on foreign currency translation		19,517			(148	)		—		19,369
Reserve for research and manpower development		(7,162	)		2,387			—		(4,775	)
Goodwill		3,713			(608	)		—		3,105
Unearned revenue (activation fees)		2,065			(2,065	)		—		—
Others		(23,782	)		58,693			—		34,911
		(545,406	)		12,667			90,623		(442,116	)
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards
Tax loss carryforwards		24,549			12,913			—		37,462
	￦	(520,857	)		25,580			90,623		(404,654	)

(5) Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets, in the consolidated statements of financial position as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Allowance for doubtful accounts	￦	88,521		165,935
Investments in subsidiaries, associates and joint ventures		168,268		228,025
Other temporary differences		425,653		320,260
Unused tax loss carryforwards		921,309		755,050
Unused tax credit carryforwards		4,092		1,211

(6) The amount of unused tax loss carryforwards and unused tax credit carryforwards which are not recognized as deferred tax assets as of December 31, 2017 are expiring within:

(In millions of won)
	Unused tax loss carryforwards		Unused tax credit carryforwards
Less than 1 year	￦	—		869
1 ~ 2 years		7,686		101
2 ~ 3 years		358,237		119
More than 3 years		555,386		3,003
	￦	921,309		4,092

F-82

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

32. Earnings per Share

(1)     Basic earnings per share

1) Basic earnings per share for the years ended December 31, 2017, 2016 and 2015 are calculated as follows:

(In millions of won, shares)
	2017			2016			2015
Basic earnings per share attributable to owners of the Parent Company:
Profit attributable to owners of the Parent Company	￦	2,599,829			1,675,967			1,518,604
Interest on hybrid bonds		(16,840	)		(16,840	)		(16,840	)
Profit attributable to owners of the Parent Company on common shares		2,582,989			1,659,127			1,501,764
Weighted average number of common shares outstanding		70,609,160			70,609,160			71,551,966
Basic earnings per share (in won)	￦	36,582			23,497			20,988

2) The weighted average number of common shares outstanding for the years ended December 31, 2017, 2016 and 2015 are calculated as follows:

(In shares)
	2017			2016			2015
Issued common shares at January 1		80,745,711			80,745,711			80,745,711
Effect of treasury shares		(10,136,551	)		(10,136,551	)		(9,193,745	)
Weighted average number of common shares outstanding at December 31		70,609,160			70,609,160			71,551,966

(2)    Diluted earnings per share

For the years ended December 31, 2017, 2016 and 2015, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

33.    Dividends

(1)    Details of dividends declared

Details of dividend declared for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won, except for face value and share data)
Year	Dividend type	Number of shares outstanding		Face value (in won)		Dividend ratio			Dividends
2017	Cash dividends (Interim)		70,609,160		500		200	%	￦	70,609
	Cash dividends (Year-end)		70,609,160		500		1,800	%		635,482
									￦	706,091
2016	Cash dividends (Interim)		70,609,160		500		200	%	￦	70,609
	Cash dividends (Year-end)		70,609,160		500		1,800	%		635,482
									￦	706,091
2015	Cash dividends (Interim)		72,629,160		500		200	%	￦	72,629
	Cash dividends (Year-end)		70,609,160		500		1,800	%		635,482
									￦	708,111

F-83

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2)    Dividends yield ratio

Dividends yield ratios for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In won)
Year	Dividend type	Dividend per share	Closing price at year-end	Dividend yield ratio
2017	Cash dividends	10,000	267,000	3.75%
2016	Cash dividends	10,000	224,000	4.46%
2015	Cash dividends	10,000	215,500	4.64%

34.    Categories of Financial Instruments

(1) Financial assets by category as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivatives hedging instrument		Total
Cash and cash equivalents	￦	—		—		1,457,735		—		1,457,735
Financial instruments		—		—		618,002		—		618,002
Short-term investment securities		97,003		47,383		—		—		144,386
Long-term investment securities		—		887,007		—		—		887,007
Accounts receivable — trade		—		—		2,138,755		—		2,138,755
Loans and other receivables(*)		—		—		1,962,083		—		1,962,083
Derivative financial assets		231,311		—		—		21,902		253,213
	￦	328,314		934,390		6,176,575		21,902		7,461,181

(In millions of won)
	December 31, 2016
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Derivatives hedging instrument		Total
Cash and cash equivalents	￦	—		—		1,505,242		—		1,505,242
Financial instruments		—		—		469,705		—		469,705
Short-term investment securities		—		107,364		—		—		107,364
Long-term investment securities		—		828,521		—		—		828,521
Accounts receivable — trade		—		—		2,261,311		—		2,261,311
Loans and other receivables(*)		—		—		1,701,249		—		1,701,249
Derivative financial assets		7,368		—		—		207,402		214,770
	￦	7,368		935,885		5,937,507		207,402		7,088,162

F-84

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*) Details of loans and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Short-term loans	￦	62,830		58,979
Accounts receivable — other		1,260,835		1,121,444
Accrued income		3,979		2,780
Other current assets		3,927		3,937
Long-term loans		50,874		65,476
Long-term accounts receivable — other		287,048		149,669
Guarantee deposits		292,590		298,964
	￦	1,962,083		1,701,249

(2) Financial liabilities by category as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivatives hedging instrument		Total
Accounts payable — trade	￦	—		351,711		—		351,711
Derivative financial liabilities		—		—		39,470		39,470
Borrowings		—		382,817		—		382,817
Debentures(*1)		60,278		7,025,909		—		7,086,187
Accounts payable — other and others(*2)		—		4,865,519		—		4,865,519
	￦	60,278		12,625,956		39,470		12,725,704

(In millions of won)
	December 31, 2016
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Derivatives hedging instrument		Total
Accounts payable — trade	￦	—		402,445		—		402,445
Derivative financial liabilities		—		—		87,153		87,153
Borrowings		—		175,521		—		175,521
Debentures(*1)		59,600		7,134,606		—		7,194,206
Accounts payable — other and others (*2)		—		4,842,734		—		4,842,734
	￦	59,600		12,555,306		87,153		12,702,059

(*1) Bonds classified as financial liabilities at fair value through profit or loss as of December 31, 2017 and 2016 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate a measurement inconsistency with the related derivatives.

F-85

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*2) Details of accounts payable — other and others as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017		December 31, 2016
Accounts payable — other	￦	1,867,074		1,767,799
Withholdings		1,736		1,525
Accrued expenses		1,327,906		1,125,816
Current portion of long-term payables — other		302,703		301,773
Long-term payables — other		1,346,763		1,624,590
Other non-current liabilities		19,337		21,231
	￦	4,865,519		4,842,734

35. Financial Risk Management

(1) Financial risk management

The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks.

The Group’s financial assets consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, accounts receivable — trade and other. Financial liabilities consist of accounts payable — trade and other, borrowings, and debentures.

1) Market risk

(i)     Currency risk

The Group incurs exchange position due to revenue and expenses from its global operations. Major foreign currencies where the currency risk occur are USD, JPY and EUR. The Group determines the currency risk management policy after considering the nature of business and the presence of methods that mitigate the currency risk for each Group entities. Currency risk occurs on forecasted transactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of each Group entity. The Group manages currency risk arising from business transactions by using currency forwards, etc.

Monetary assets and liabilities denominated in foreign currencies as of December 31, 2017 are as follows:

(In millions of won, thousands of foreign currencies)
	Assets				Liabilities
	Foreign currencies		Won equivalent		Foreign currencies		Won equivalent
USD		124,901	￦	133,836		1,817,808	￦	1,947,599
EUR		15,669		20,044		63		80
JPY		596,059		5,658		169,729		1,611
Others		—		530		—		195
			￦	160,068			￦	1,949,485

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to Note 22)

F-86

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

As of December 31, 2017, a hypothetical change in exchange rates by 10% would have increase (reduce) the Group’s income before income tax as follows:

(In millions of won)
	If increased by 10%		If decreased by 10%
USD	￦	5,590		(5,590	)
EUR		1,997		(1,997	)
JPY		405		(405	)
Others		34		(34	)
	￦	8,026		(8,026	)

(ii)    Equity price risk

The Group has listed and non-listed equity securities for its liquidity management and operating purpose. As of December 31, 2017, available-for-sale equity instruments measured at fair value amount to ￦734,487 million.

(iii)    Interest rate risk

The interest rate risk of the Group arises from borrowings and debenture. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows are not influenced by the changes in market interest rates.

Accordingly, the Group performs various analysis to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging.

As of December 31, 2017, the floating-rate borrowings and bonds of the Group are ￦228,300 million and ￦321,420 million, respectively, and the Group has entered into interest rate swap agreements, as described in Note 22, for all floating-rate borrowings and debentures to hedge interest rate risk.

If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the year ended December 31, 2017, would change by ￦707 million in relation to floating-rate borrowings that are exposed to interest rate risk.

2) Credit risk

The maximum credit exposure as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	2017		2016
Cash and cash equivalents	￦	1,457,416		1,505,082
Financial instruments		618,002		469,705
Available-for-sale financial assets		19,928		6,755
Accounts receivable — trade		2,138,755		2,261,311
Loans and other receivables		1,962,083		1,701,249
Derivative financial assets		30,956		214,770
	￦	6,227,140		6,158,872

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations.

F-87

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Group establishes credit limits for each customer or counterparty.

The Group establishes an allowance for doubtful account that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Also, the Group’s credit risk can arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of December 31, 2017.

3) Liquidity risk

The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains enough liquidity within credit lines through active operating activities.

Contractual maturities of financial liabilities as of December 31, 2017 are as follows:

(In millions of won)
	Carrying amount		Contractual cash flows		Less than 1 year		1 - 5 years		More than 5 years
Accounts payable — trade	￦	351,711		351,711		351,711		—		—
Borrowings(*1)		382,817		397,776		177,910		219,866		—
Debentures(*1)		7,086,187		8,230,952		1,682,206		3,675,178		2,873,568
Accounts payable — other and others(*2)		4,865,519		5,030,105		3,519,489		1,093,611		417,005
	￦	12,686,234		14,010,544		5,731,316		4,988,655		3,290,573

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*1) Includes interest payables.

(*2) The Group provides with USD 12,240,000 of payment guarantees for Celcom Planet, one of the joint ventures of the Group, in relation to its borrowings. The contractual cash flows for accounts payable — other and others include the maximum amount that the Group is required to pay in connection with the guarantees.

As of December 31, 2017, periods in which cash flows from cash flow hedge derivatives are expected to occur are as follows:

(In millions of won)
	Carrying amount			Contractual cash flows			Less than 1 year			1 - 5 years			More than 5 years
Assets	￦	21,902			17,118			7,446			28,075			(18,403	)
Liabilities		(39,470	)		(40,220	)		(28,960	)		(11,260	)		—
	￦	(17,568)			(23,102)			(21,514	)		16,815			(18,403	)

F-88

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Capital management

The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2016.

The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity; both are from the consolidated financial statements.

Debt-equity ratio as of December 31, 2017 and 2016 are as follows:

(In millions of won)
	December 31, 2017			December 31, 2016
Total liabilities	￦	15,399,474			15,181,233
Total equity		18,029,195			16,116,430
Debt-equity ratios		85.41	%		94.20	%

(3) Fair value

1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2017 are as follows:

(In millions of won)
	December 31, 2017
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that are measured at fair value
Financial assets at fair value through profit or loss	￦	328,314		—		106,057		222,257		328,314
Derivative financial assets		21,902		—		21,902		—		21,902
Available-for-sale financial assets		734,487		589,202		47,383		97,902		734,487
	￦	1,084,703		589,202		175,342		320,159		1,084,703
Financial liabilities that are measured at fair value
Financial liabilities at fair value through profit or loss	￦	60,278		—		60,278		—		60,278
Derivative financial liabilities		39,470		—		39,470		—		39,470
	￦	99,748		—		99,748		—		99,748
Financial liabilities that are not measured at fair value
Borrowings	￦	382,817		—		383,748		—		383,748
Debentures		7,025,909		—		7,325,370		—		7,325,370
Long-term payables — other		1,649,466		—		1,766,451		—		1,766,451
	￦	9,058,192		—		9,475,569		—		9,475,569

F-89

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

2) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2016 are as follows:

(In millions of won)
	December 31, 2016
	Carrying amount		Level 1		Level 2		Level 3		Total
Financial assets that are measured at fair value:
Financial assets at fair value through profit or loss	￦	7,368		—		7,368		—		7,368
Derivative financial assets		207,402		—		207,402		—		207,402
Available-for-sale financial assets		741,285		526,363		107,364		107,558		741,285
	￦	956,055		526,363		322,134		107,558		956,055
Financial liabilities that are measured at fair value:
Financial liabilities at fair value through profit or loss	￦	59,600		—		59,600		—		59,600
Derivative financial liabilities		87,153		—		87,153		—		87,153
	￦	146,753		—		146,753		—		146,753
Financial liabilities that are not measured at fair value:
Borrowings	￦	175,521		—		177,600		—		177,600
Debentures		7,134,606		—		7,568,361		—		7,568,361
Long-term payables — other		1,926,363		—		2,103,788		—		2,103,788
	￦	9,236,490		—		9,849,749		—		9,849,749

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values.

Available-for-sale financial assets amounting to ￦199,903 million and ￦194,600 million as of December 31, 2017 and December 31, 2016, respectively, are measured at cost in accordance with IAS 39 since they are equity instruments which do not have quoted price in an active market for the identical instruments and for which fair value cannot be reliably measured using other valuation methods.

Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date.

The Group uses various valuation methods for determination of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

F-90

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

Interest rates used by the Group for the fair value measurement as of December 31, 2017 are as follows:

	Interest rate
Derivative instruments		1.54% ~ 2.67%
Borrowings and debentures		2.48% ~ 2.55%
Long-term payables — other		2.23% ~ 2.60%

3) There have been no transfers from Level 2 to Level 1 in 2017 and changes of financial assets classified as Level 3 for the year ended December 31, 2017 are as follows:

(In millions of won)
	Balance at beginning		Valuation		Transfer		Other compre- hensive loss			Disposal			Balance at ending
Financial assets at fair value through profit or loss(*)	￦	—		222,257		—		—			—			222,257
Available-for-sale financial assets		107,558		—		3,938		(8,942	)		(4,652	)		97,902

(*) The Group holds redeemable convertible preferred shares issued by Bluehole INC. The conversion rights attached to the investments are bifurcated from the host contract as embedded derivatives and the Group recognized ￦222,257 million as financial assets at FVTPL and gain on valuation of derivatives, respectively, as of and during the year ended December 31, 2017. The host contract was recognized as available-for-sale financial assets of ￦15,342 million measured by discounting the amount of collection at maturity including the principal, guaranteed interests, and dividend. The fair value of the conversion rights were measured using the binomial option pricing model by considering inputs such as expected volatility, exercise price, and common share price.

The major inputs used and their correlations with the fair value measurements are as follows.

Significant non-observable inputs	Correlations between inputs and fair value measurements
Value of common shares	If the value of common share increases (decreases), Fair value will increase (decrease)
Exercise price	If the exercise price increases (decreases), Fair value will decrease (increase)
Discount rate	If the discount rate increases (decreases), Fair value will decrease (increase)
Volatility	If the share price volatility increases (decreases), Fair value will increase (decrease)

F-91

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(4) Enforceable master netting agreement or similar agreement

Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2017 and 2016 are as follows:

(In millions of won)	2017
	Gross financial instruments recognized		Amount offset			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position			Net amount
								Financial instruments
Financial assets:
Derivatives(*)	￦	26,645		—			26,645		(19,875	)		6,770
Accounts receivable — trade and others		93,146		(92,409	)		737		—			737
	￦	119,791		(92,409	)		27,382		(19,875	)		7,507
Financial liabilities:
Derivatives(*)	￦	19,875		—			19,875		(19,875	)		—
Accounts payable — other and others		92,409		(92,409	)		—		—			—
	￦	112,284		(92,409	)		19,875		(19,875	)		—

(In millions of won)	2016
	Gross financial instruments recognized		Amount offset			Net financial instruments presented on the statements of financial position		Relevant amount not offset on the statements of financial position			Net amount
								Financial instruments
Financial assets:
Derivatives(*)	￦	87,566		—			87,566		(87,153	)		413
Accounts receivable — trade and others		114,135		(103,852	)		10,283		—			10,283
	￦	201,701		(103,852	)		97,849		(87,153	)		10,696
Financial liabilities:
Derivatives(*)	￦	87,153		—			87,153		(87,153	)		—
Accounts payable — other and others		103,852		(103,852	)		—		—			—
	￦	191,005		(103,852	)		87,153		(87,153	)		—

(*) The Group entered into derivative contracts which include enforceable master netting arrangement in accordance with International Swap and Derivatives Association (ISDA). Generally, all contracts made with the identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur.

ISDAagreements do not allow the Group to exercise rights of set-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Group does not have enforceable rights of set-off.

F-92

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

36. Related Parties and Others

(1) List of related parties

Relationship	Company
Ultimate Controlling Entity	SK Holdings Co., Ltd.
Joint ventures	Dogus Planet, Inc. and 3 others
Associates	SK hynix Inc. and 40 others
Others	The Ultimate Controlling Entity’s subsidiaries and associates, etc.

(2) Compensation for the key management

The Parent Company considers registered directors who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management. The compensation given to such key management for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Salaries	￦	2,169		1,645		1,971
Defined benefits plan expenses		258		424		626
Share option		414		—		—
	￦	2,841		2,069		2,597

Compensation for the key management includes salaries, non-monetary salaries, and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.

F-93

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(3) Transactions with related parties for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
		2017
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Collection of loans
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	￦	25,049		600,600		283,556		—
Associates	F&U Credit information Co., Ltd.		3,431		52,150		153		—
	HappyNarae Co., Ltd.		3,025		29,276		68,472		—
	SK hynix Inc(*2)		123,873		251		—		—
	KEB HanaCard Co., Ltd.		17,873		15,045		—		—
	Others(*3)		10,720		33,389		940		204
			158,922		130,111		69,565		204
Others	SK Engineering & Construction Co., Ltd.		5,865		1,077		—		—
	SK Networks Co., Ltd.		21,694		1,220,251		671		—
	SK Networks Services Co., Ltd.		510		96,949		6,346		—
	SK Telesys Co., Ltd.		417		51,394		152,659		—
	SK TNS Co., Ltd.		137		37,051		494,621		—
	SK Energy Co., Ltd.		8,505		779		—		—
	SK Gas Co., Ltd.		2,727		4		—		—
	SK Innovation Co., Ltd.		7,639		950		—		—
	SK Shipping Co., Ltd.		3,183		35		—		—
	Ko-one energy service Co., Ltd		5,164		44		—		—
	SK infosec Co., Ltd.		1,185		52,634		15,648		—
	SKC INFRA SERVICE Co., Ltd.		19		46,900		47,163		—
	Others		18,233		28,209		17		—
			75,278		1,536,277		717,125		—
Total		￦	259,249		2,266,988		1,070,246		204

(*1) Operating expense and others include ￦203,635 million of dividends paid by the Parent Company.

(*2) Operating revenue and others include ￦87,660 million of dividends received from SK Hynix Inc. which was deducted from the investment in associates.

(*3) Operating revenue and others include ￦6,597 million of dividends received from the Korea IT Fund and others.

F-94

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)		2016
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Collection of loans
Ultimate Controlling Entity	SK Holdings Co., Ltd.(*1)	￦	23,104		652,855		235,502		—		—
Associates	F&U Credit information Co., Ltd.		2,865		47,905		—		—		—
	HappyNarae Co., Ltd.		304		15,506		38,984		—		—
	SK hynix Inc.(*2)		100,861		306		—		—		—
	KEB HanaCard Co., Ltd.		19,730		14,804		—		—		—
	Others(*3)		8,018		21,853		1,573		1,100		3,194
			131,778		100,374		40,557		1,100		3,194
Others	SK Engineering & Construction Co., Ltd.		5,916		1,739		10,694		—		—
	SK Networks Co., Ltd.		13,756		1,131,567		—		—		—
	SK Networks Services Co., Ltd.		1,248		94,906		6,793		—		—
	SK Telesys Co., Ltd.		419		52,488		142,605		—		—
	SK TNS Co., Ltd.		109		48,192		387,496		—		—
	SK Energy Co., Ltd.		7,670		834		—		—		—
	SK Gas Co., Ltd.		2,500		4		—		—		—
	SK Innovation Co., Ltd.		9,757		915		1,080		—		—
	SK Shipping Co., Ltd.		5,435		—		—		—		—
	Ko-one energy service Co., Ltd		6,005		46		—		—		—
	SK infosec Co., Ltd.		230		53,068		19,882		—		—
	SKC INFRA SERVICE Co., Ltd.		43		30,663		32,141		—		—
	Others		13,437		17,626		246		—		—
			66,525		1,432,048		600,937		—		—
Total		￦	221,407		2,185,277		876,996		1,100		3,194

(*1) Operating expense and others include ￦203,635 million of dividends paid by the Parent Company.

(*2) Operating revenue and others include ￦73,050 million of dividends paid by the associate which was deducted from the investment in associates.

(*3) Operating revenue and others include ￦6,082 million of dividends received from the Korea IT Fund.

F-95

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
		2015
Scope	Company	Operating revenue and others		Operating expense and others		Acquisition of property and equipment		Loans		Collection of loans
Ultimate Controlling Entity	SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1)	￦	20,260		324,078		236,414		—		—
	SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3)		1,299		212,378		117		—		—
			21,559		536,456		236,531		—		—
Associates	F&U Credit information Co., Ltd.		2,510		43,967		—		—		—
	HappyNarae Co., Ltd.		297		6,886		13,495		—		—
	SK hynix Inc.(*4)		55,949		2,384		—		—		—
	SK Wyverns Baseball Club., Ltd.		3,849		18,544		—		—		204
	KEB HanaCard Co., Ltd.		21,414		16,057		—		—		—
	Xian Tianlong Science and Technology Co., Ltd.		—		—		—		8,287		—
	Others(*5)		6,397		11,917		1,864		690		—
			90,416		99,755		15,359		8,977		204
Other	SK Engineering & Construction Co., Ltd.		15,598		27,243		240,701		—		—
	SK Networks Co., Ltd.		11,923		1,257,975		2		—		—
	SK Networks Services Co., Ltd.		10,491		94,097		6,472		—		—
	SK Telesys Co., Ltd.		397		48,900		141,870		—		—
	SK Energy Co., Ltd.		9,930		978		—		—		—
	SK Gas Co., Ltd.		3,561		2		—		—		—
	Others		29,409		71,314		194,945		—		—
			81,309		1,500,509		583,990		—		—
Total		￦	193,284		2,136,720		835,880		8,977		204

(*1) On August 1, 2015, SK C&C Co., Ltd., the ultimate controlling entity of the Parent Company merged with SK Holdings Co., Ltd., its equity method investee, and changed its name to SK Holdings Co., Ltd.

(*2) These relates to transactions occurred before July 31, 2015, the date of merger with SK C&C Co., Ltd.

(*3) Operating expense and others include ￦191,416 million of dividends paid by the Parent Company.

(*4) Operating revenue and others include ￦43,830 million of dividends paid by SK hynix Inc. and was deducted from the investment in associates.

F-96

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(*5) Operating revenue and others include ￦2,103 million and ￦457 million of dividends paid by Korea IT Fund and UniSK, respectively, and was deducted from the investments in associates.

(4) Account balances with related parties as of December 31, 2017 and 2016 are as follows:

(In millions of won)
		December 31, 2017
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade and others		Accounts payable-other and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	￦	—		2,068		148,066
Associates	HappyNarae Co., Ltd.		—		15		6,865
	F&U Credit information Co., Ltd.		—		21		1,612
	SK hynix Inc.		—		2,803		94
	Wave City Development Co., Ltd.		—		38,412		—
	Daehan Kanggun BcN Co., Ltd.(*)		22,147		—		—
	KEB HanaCard Co., Ltd.		—		1,427		11,099
	S.M. Culture & Contents Co., Ltd.		—		448		8,963
	Xian Tianlong Science and Technology Co., Ltd.		7,032		—		—
	Others		611		2,272		1,164
			29,790		45,398		29,797
Other	SK Engineering & Construction Co., Ltd.		—		2,033		69
	SK Networks. Co., Ltd.		—		3,050		267,297
	SK Networks Services Co., Ltd.		—		15		9,522
	SK Telesys Co., Ltd.		—		36		58,346
	SK TNS Co., Ltd.		—		3		140,311
	SK Innovation Co., Ltd.		—		4,112		599
	SK Energy Co., Ltd.		—		2,965		582
	SK Gas Co., Ltd.		—		1,941		9
	Others		—		2,998		27,318
			—		17,153		504,053
Total		￦	29,790		64,619		681,916

(*) The Parent Company has recognized allowances for doubtful accounts on the entire balance of loans to Daehan Kanggun BcN Co., Ltd as of December 31, 2017.

F-97

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(In millions of won)
		December 31, 2016
		Accounts receivable				Accounts payable
Scope	Company	Loans		Accounts receivable-trade and others		Accounts payable-other and others
Ultimate Controlling Entity	SK Holdings Co., Ltd.	￦	—		3,519		149,574
Associates	HappyNarae Co., Ltd.		—		18		21,063
	F&U Credit information Co., Ltd.		—		34		1,328
	SK hynix Inc.		—		22,379		92
	Wave City Development Co., Ltd.		—		38,412		—
	Daehan Kanggun BcN Co., Ltd.(*)		22,147		—		—
	KEB HanaCard Co., Ltd.		—		1,619		7,676
	Xian Tianlong Science and Technology Co., Ltd.		8,287		—		—
	Others		813		4,191		945
			31,247		66,653		31,104
Other	SK Engineering & Construction Co., Ltd.		—		1,808		4,975
	SK Networks. Co., Ltd.		—		3,254		247,728
	SK Networks Services Co., Ltd.		—		13		13,913
	SK Telesys Co., Ltd.		—		20		24,918
	SK TNS Co., Ltd.		—		3		68,276
	SK Innovation Co., Ltd.		—		1,350		892
	SK Energy Co., Ltd.		—		1,213		113
	SK Gas Co., Ltd.		—		1,769		9
	Others		—		2,783		30,209
			—		12,213		391,033
Total		￦	31,247		82,385		571,711

(*) The Parent Company has recognized allowances for doubtful accounts on the entire balance of loans to Daehan Kanggun BcN Co., Ltd. as of December 31, 2016.

(5) SK m&service Co., Ltd., a subsidiary of the Parent Company, has entered into a performance agreement with SK Energy Co., Ltd. and provided a blank note to SK Energy Co., Ltd., with regard to this transaction.

(6) As of December 31, 2017, the Group provides with USD 12,240,000 of payment guarantees for the borrowings of the Celcom Planet, the joint ventures of the Group.

(7) There were additional investments in associates and joint ventures during the years ended December 31, 2017 and 2016 as presented in Note 12.

F-98

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

37. Commitments and Contingencies

(1) Collateral assets and commitments

SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of ￦4,144 million as of December 31, 2017.

SK Broadband Co., Ltd., has guaranteed for employees’ borrowings relating to employee stock ownership program and provided short-term financial instruments amounting to ￦300 million as collateral as of December 31, 2017.

(2) Legal claims and litigations

As of December 31, 2017 the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. In connection with those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

(3) Accounts receivables from sale of handsets

The sales agents of the Parent Company sell handsets to the Parent Company’s subscribers on an installment basis. During the year ended December 31, 2017, the Parent Company entered into a comprehensive agreement to purchase the accounts receivables from handset sales with agents and to transfer the accounts receivables from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.

The accounts receivables from sale of handsets amounting to ￦1,111,614 million as of December 31, 2017, which the Parent Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable — other and long-term accounts receivable — other.

F-99

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

38. Statements of Cash Flows

(1) Adjustments for income and expenses from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017			2016			2015
Interest income	￦	(76,045	)		(54,353	)		(45,884	)
Dividend		(12,416	)		(19,161	)		(16,102	)
Gain on foreign currency translation		(7,110	)		(5,085	)		(5,090	)
Gain on disposal of long-term investment securities		(4,890	)		(459,349	)		(10,786	)
Gain on valuation of derivatives		(223,943	)		(4,132	)		(1,927	)
Gain relating to investments in associates and joint ventures, net		(2,245,732	)		(544,501	)		(786,140	)
Gain on sale of accounts receivable — trade		(18,548	)		(18,638	)		—
Gain on disposal of property and equipment and intangible assets		(13,991	)		(6,908	)		(7,140	)
Gain relating to financial assets at fair value through profit or loss		(33	)		(25	)		—
Gain related to financial liabilities at fair value through profit or loss		—			(121	)		(5,188	)
Reversal of impairment loss on available-for-sale financial assets		(9,900	)		—			—
Other income		(1,129	)		(2,123	)		(7,577	)
Interest expenses		299,100			290,454			297,662
Loss on foreign currency translation		8,419			3,991			4,750
Loss on disposal of long-term investment securities		36,024			2,919			2,599
Other finance costs		14,519			5,255			21,787
Loss on sale of accounts receivable — trade		9,682			—			—
Loss on settlement of derivatives		10,031			3,428			4,845
Income tax expense		745,654			436,038			519,480
Expense related to defined benefit plan		127,696			118,143			110,021
Share option		414			—			—
Depreciation and amortization		3,247,519			3,068,558			2,993,486
Bad debt expense		34,584			37,820			60,450
Loss on disposal of property and equipment and intangible assets		60,086			63,797			21,392
Impairment loss on property and equipment and intangible assets		54,946			24,506			35,845
Loss relating to financial liabilities at fair value through profit or loss		678			4,018			526
Bad debt for accounts receivable — other		5,793			40,312			15,323
Loss on impairment of investment assets		9,003			24,033			42,966
Other expenses		46,353			30,685			4,845
	￦	2,096,764			3,039,561			3,250,143

F-100

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(2) Changes in assets and liabilities from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017			2016			2015
Accounts receivable — trade	￦	46,144			88,549			7,554
Accounts receivable — other		(159,960	)		(446,286	)		(11,108	)
Accrued income		14			445			116
Advance payments		(1,269	)		47,615			(35,906	)
Prepaid expenses		(28,362	)		(30,311	)		(40,464	)
Value-Added Tax refundable		(3,080	)		(4,587	)		1,385
Inventories		(17,958	)		798			(7,814	)
Long-term accounts receivable — other		(137,979	)		(147,117	)		—
Guarantee deposits		14,696			4,844			(11,238	)
Accounts payable — trade		(26,151	)		75,585			12,442
Accounts payable — other		134,542			316,464			(107,114	)
Advanced receipts		(13,470	)		37,429			6,421
Withholdings		(13,041	)		107,516			(191,209	)
Deposits received		(4,916	)		(2,153	)		(9,661	)
Accrued expenses		116,065			173,072			(28,845	)
Value-Added Tax payable		7,505			(4,072	)		3,494
Unearned revenue		(339	)		(36,209	)		(115,187	)
Provisions		(20,488	)		20,235			(30,562	)
Long-term provisions		(2,449	)		4,115			(4,447	)
Plan assets		(95,828	)		(125,440	)		(67,831	)
Retirement benefit payment		(60,883	)		(55,350	)		(58,513	)
Others		5,739			(11,378	)		2,753
		￦(261,468)			13,764			(685,734	)

(3) Significant non-cash transactions for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Increase of accounts payable — other related to acquisition of property and equipment and intangible assets	￦	44,214		1,511,913		39,973

F-101

SK TELECOM CO., LTD. and Subsidiaries

Notes to the Consolidated Financial Statements — (Continued)

For the years ended December 31, 2017, 2016 and 2015

(4) Reconciliation of liabilities arising from financing activities for the year ended December 31, 2017 is as follows:

(In millions of won)
	January 1, 2017			Cash flows			Non-cash transactions								December 31, 2017
							Exchange rate changes			Fair value changes			Other changes
Total liabilities from financing activities
Short-term borrowings	￦	2,614			127,386			—			—			—		130,000
Long-term borrowings		172,906			87,299			(7,898	)		—			510		252,817
Debentures		7,194,207			130,558			(245,456	)		—			6,878		7,086,187
Long-term payables — other		1,918,024			(305,476	)		—			—			28,533		1,641,081
Derivative financial liabilities		87,153			(105,269	)		13,281			39,267			5,038		39,470
Derivative financial assets		(214,770	)		188			922			(40,235	)		682		(253,213	)
	￦	9,160,134			(65,314	)		(239,151	)		(968	)		41,641		8,896,342
Other cash flows from financing activities
Payments of cash dividends	￦				(706,091	)
Payments of interest on hybrid bond					(16,840	)
Transactions with non-controlling interests					(38,373	)
					(761,304	)
Total	￦				(826,618	)

39. Cash Dividends paid to the Parent Company

Cash dividends received from the consolidated subsidiaries and associates for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won)
	2017		2016		2015
Cash dividends received from consolidated subsidiaries	￦	—		15,693		—
Cash dividends received from associates		89,063		79,132		46,390
	￦	89,063		94,825		46,390

F-102

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

SK hynix, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of SK hynix, Inc. and subsidiaries (the “Group”) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error of fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor since 2012.

Seoul, Korea

April 27, 2018

G-1

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2017 and 2016

	Note		2017		2016
			(In millions of won)
Assets
Current assets
Cash and cash equivalents		5,6	￦	2,949,991		613,786
Short-term financial instruments		5,6,7		5,604,663		3,521,893
Trade receivables, net		5,6,8,31		5,552,795		3,251,652
Loans and other receivables, net		5,6,8,31		37,613		25,611
Inventories, net		9		2,640,439		2,026,198
Current tax assets		29		1,305		489
Other current assets		10		523,638		399,353
				17,310,444		9,838,982
Non-current assets
Investments in associates and joint ventures		11		359,864		131,016
Available-for-sale financial assets		5,6,12		43,226		147,779
Loans and other receivables, net		5,6,8,31		42,410		39,490
Other financial assets		5,6,7		273		423
Property, plant and equipment, net		13,32		24,062,601		18,777,402
Intangible assets, net		14,28		2,247,290		1,915,591
Investment property, net		13,15		2,468		2,573
Deferred tax assets		20,29		599,783		792,368
Employee benefit assets		19		13,385		—
Other non-current assets		10		736,720		570,402
				28,108,020		22,377,044
Total assets			￦	45,418,464		32,216,026

See accompanying notes to the consolidated financial statements.

G-2

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Financial Position,  continued

As of December 31, 2017 and 2016

	Note		2017			2016
	(In millions of won)
Liabilities
Current liabilities
Trade payables		5,6	￦	758,578			696,144
Other payables		5,6,31		2,724,547			1,606,417
Other non-trade payables		5,6		1,340,225			685,154
Borrowings		5,6,16,31		773,780			704,860
Other financial liabilities		5,6,21		—			288
Provisions		18,32		81,351			42,822
Current tax liabilities		29		2,385,876			374,666
Other current liabilities		17		51,776			50,498
				8,116,133			4,160,849
Non-current liabilities
Other non-trade payables		5,6		3,412			27,426
Borrowings		5,6,16,31		3,397,490			3,631,118
Defined benefit liabilities, net		19		6,096			306,488
Deferred tax liabilities		20		5,554			4,732
Other non-current liabilities		17		68,860			61,883
				3,481,412			4,031,647
Total liabilities				11,597,545			8,192,496
Equity
Equity attributable to owners of the Parent Company
Capital stock		1,22		3,657,652			3,657,652
Capital surplus		22		4,143,736			4,143,736
Other equity		22		(771,100	)		(771,913	)
Accumulated other comprehensive loss		23		(502,264	)		(79,103	)
Retained earnings		24		27,287,256			17,066,583
Total equity attributable to owners of the Parent Company				33,815,280			24,016,955
Non-controlling interests				5,639			6,575
Total equity				33,820,919			24,023,530
Total liabilities and equity			￦	45,418,464			32,216,026

See accompanying notes to the consolidated financial statements.

G-3

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2017, 2016 and 2015

	Note		2017			2016			2015
			(In millions of won, except per share information)
Revenue		4,31	￦	30,109,434			17,197,975			18,797,998
Cost of sales		26,31		12,701,843			10,787,139			10,515,353
Gross profit				17,407,591			6,410,836			8,282,645
Selling and administrative expense		25,26		(3,686,265	)		(3,134,090	)		(2,946,545	)
Finance income		27		996,468			814,892			846,752
Finance expenses		27		(1,249,617	)		(846,328	)		(829,913	)
Share of profit of equity-accounted investees		11		12,367			22,752			24,642
Other income		28		77,882			52,371			40,479
Other expenses		28		(118,860	)		(103,979	)		(148,939	)
Profit before income tax				13,439,566			3,216,454			5,269,121
Income tax expense		29		2,797,347			255,971			945,526
Profit for the year				10,642,219			2,960,483			4,323,595
Other comprehensive income (loss)
Item that will never be reclassified to profit or loss:
Remeasurements of defined benefit liability, net of tax		19		2,762			106,822			(21,871	)
Items that are or may be reclassified to profit or loss:
Foreign operations – foreign currency translation differences, net of tax		23		(387,683	)		(82,066	)		33,479
Loss on valuation of available-for-sale financial assets, net of tax		12,29		(10,735	)		—			—
Equity-accounted investees – share of other comprehensive income, net of tax		11,23		(26,386	)		4,088			6,487
Other comprehensive income (loss) for the year, net of tax				(422,042	)		28,844			18,095
Total comprehensive income for the year			￦	10,220,177			2,989,327			4,341,690
Profit attributable to:
Owners of the Parent Company			￦	10,641,512			2,953,774			4,322,356
Non-controlling interests				707			6,709			1,239
Total comprehensive income (loss) attributable to:
Owners of the Parent Company				10,221,113			2,982,703			4,340,700
Non-controlling interests				(936	)		6,624			990
Earnings per share		30
Basic earnings per share (in won)				15,073			4,184			6,002
Diluted earnings per share (in won)				15,072			4,184			6,002

See accompanying notes to the consolidated financial statements.

G-4

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Changes in Equity

For the year ended December 31, 2015

	Attributable to owners of the Parent Company																Non-controlling interests			Total equity
	Capital stock		Capital surplus		Other components of equity			Accumulated other comprehensive income (loss)			Retained earnings			Total
	(In millions of won)
Balance at January 1, 2015	￦	3,657,652		4,143,736		(24	)		(41,815	)		10,276,904			18,036,453			(150	)		18,036,303
Total comprehensive income
Profit for the year		—		—		—			—			4,322,356			4,322,356			1,239			4,323,595
Other comprehensive income (loss)		—		—		—			40,215			(21,871	)		18,344			(249	)		18,095
Total comprehensive income		—		—		—			40,215			4,300,485			4,340,700			990			4,341,690
Transactions with owners of the Parent Company
Dividends paid		—		—		—			—			(218,401	)		(218,401	)		—			(218,401	)
Acquisition of treasury shares		—		—		(771,889	)		—			—			(771,889	)		—			(771,889	)
Total transactions with owners of the Parent Company		—		—		(771,889	)		—			(218,401	)		(990,290	)		—			(990,290	)
Balance at December 31, 2015	￦	3,657,652		4,143,736		(771,913	)		(1,600	)		14,358,988			21,386,863			840			21,387,703

See accompanying notes to the consolidated financial statements.

G-5

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Changes in Equity,  continued

For the years ended December 31, 2017 and 2016

	Attributable to owners of the Parent Company
	Capital stock		Capital surplus		Other components of equity			Accumulated other comprehensive income (loss)			Retained earnings			Total			Non- controlling interests			Total equity
	(In millions of won)
Balance at January 1, 2016	￦	3,657,652		4,143,736		(771,913	)		(1,600	)		14,358,988			21,386,863			840			21,387,703
Total comprehensive income
Profit for the year		—		—		—			—			2,953,774			2,953,774			6,709			2,960,483
Other comprehensive income (loss)		—		—		—			(77,893	)		106,822			28,929			(85	)		28,844
Total comprehensive income		—		—		—			(77,893	)		3,060,596			2,982,703			6,624			2,989,327
Transactions with owners of the Parent Company
Dividends paid		—		—		—			—			(353,001	)		(353,001	)		—			(353,001	)
Disposal of a subsidiary		—		—		—			390			—			390			(889	)		(499	)
Total transactions with owners of the Parent Company		—		—		—			390			(353,001	)		(352,611	)		(889	)		(353,500	)
Balance at December 31, 2016		3,657,652		4,143,736		(771,913	)		(79,103	)		17,066,583			24,016,955			6,575			24,023,530
Balance at January 1, 2017		3,657,652		4,143,736		(771,913	)		(79,103	)		17,066,583			24,016,955			6,575			24,023,530
Total comprehensive income
Profit for the year		—		—		—			—			10,641,512			10,641,512			707			10,642,219
Other comprehensive income (loss)		—		—		—			(423,161	)		2,762			(420,399	)		(1,643	)		(422,042	)
Total comprehensive income		—		—		—			(423,161	)		10,644,274			10,221,113			(936	)		10,220,177
Transactions with owners of the Parent Company
Dividends paid		—		—		—			—			(423,601	)		(423,601	)		—			(423,601	)
Share-based payment transaction		—		—		813			—			—			813			—			813
Total transactions with owners of the Parent Company		—		—		813			—			(423,601	)		(422,788	)		—			(422,788	)
Balance at December 31, 2017	￦	3,657,652		4,143,736		(771,100	)		(502,264	)		27,287,256			33,815,280			5,639			33,820,919

See accompanying notes to the consolidated financial statements.

G-6

SK HYNIX, INC. and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2017, 2016 and 2015

	Note		2017			2016			2015
			(In millions of won)
Cash flows from operating activities
Cash generated from operating activities		33	￦	15,373,261			6,486,781			10,357,267
Interest received				41,680			42,895			51,610
Interest paid				(120,332	)		(125,818	)		(124,304	)
Dividends received				14,841			20,744			17,045
Income tax paid				(618,836	)		(875,680	)		(982,098	)
Net cash provided by operating activities				14,690,614			5,548,922			9,319,520
Cash flows from investing activities
Decrease (increase) in short-term financial instruments, net				(2,119,004	)		109,803			39,533
Decrease in other financial assets				308			5			—
Increase in other financial assets				(167	)		(2	)		—
Collection of loans and other receivables				18,437			15,422			10,692
Increase in loans and other receivables				(22,009	)		(13,613	)		(14,134	)
Proceeds from disposal of available-for-sale financial assets				3,431			2,651			1,319
Acquisition of available-for-sale financial assets				(26,204	)		(19,085	)		(5,359	)
Cash inflows from derivative transactions				902			1,077			1,672
Cash outflows from derivative transactions				(1,201	)		(1,525	)		(2,088	)
Proceeds from disposal of property, plant and equipment				244,897			162,120			220,097
Acquisition of property, plant and equipment				(9,128,303	)		(5,956,354	)		(6,774,625	)
Proceeds from disposal of intangible assets				3,249			1,585			7,963
Acquisition of intangible assets				(784,911	)		(530,375	)		(623,743	)
Proceeds from disposal of assets held for sale				—			—			22,630
Receipt of government grants				5,900			133			406
Acquisition of investments in associates				(114,487	)		(2,293	)		(9,893	)
Net cash used in investing activities				(11,919,162	)		(6,230,451	)		(7,125,530	)
Cash flows from financing activities
Proceeds from borrowings		33		782,330			2,080,343			3,933,056
Repayments of borrowings		33		(710,635	)		(1,610,466	)		(4,405,023	)
Acquisition of treasury shares				—			—			(771,889	)
Dividends paid				(423,601	)		(353,001	)		(218,401	)
Net cash provided by (used in) financing activities				(351,906	)		116,876			(1,462,257	)
Effect of movements in exchange rates on cash and cash equivalents				(83,341	)		2,720			7,225
Net increase (decrease) in cash and cash equivalents				2,336,205			(561,933	)		738,958
Cash and cash equivalents at beginning of the year				613,786			1,175,719			436,761
Cash and cash equivalents at end of the year			￦	2,949,991			613,786			1,175,719

See accompanying notes to the consolidated financial statements.

G-7

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

1.    Reporting Entity

(1) General information about SK hynix, Inc. (the “Parent Company” or the “Company”) and its subsidiaries (collectively the “Group”) is as follows:

The Parent Company is engaged in the manufacture, distribution and sales of semiconductor products and its shares have been listed on the Korea Exchange since 1996. The Parent Company’s headquarters is located at 2091 Gyeongchung-daero, Bubal-eup, Icheon-si, Gyeonggi-do, South Korea, and the Group has manufacturing facilities in Icheon-si and Cheongju-si, South Korea, and Wuxi and Chongqing, China.

As of December 31, 2017, the shareholders of the Parent Company are as follows:

Shareholder	Number of shares		Percentage of ownership (%)
SK Telecom Co., Ltd.		146,100,000		20.07
National Pension Service		72,818,475		10.00
Other investors		487,083,320		66.91
Treasury shares		22,000,570		3.02
		728,002,365		100.00

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange and the Luxembourg Stock Exchange.

G-8

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

1.    Reporting Entity,  continued

(2) Details of the Group’s consolidated subsidiaries as of December 31, 2017 and 2016 are as follows:

				Ownership (%)
Company	Location		Business	2017		2016
SK hyeng Inc.		Korea	Domestic subsidiary		100.00		100.00
SK hystec Inc.		Korea	Domestic subsidiary		100.00		100.00
Siliconfile Technologies Inc.		Korea	Development and manufacturing of electronic component		100.00		100.00
Happy More Inc.		Korea	Domestic subsidiary		100.00		100.00
SK hynix system ic Inc.1		Korea	Foundry business		100.00		—
SK hynix America Inc. (SKHYA)		U.S.A.	Overseas sales subsidiary		97.74		97.74
SK hynix Deutschland GmbH (SKHYD)		Germany	Overseas sales subsidiary		100.00		100.00
SK hynix Asia Pte. Ltd. (SKHYS)		Singapore	Overseas sales subsidiary		100.00		100.00
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		Hong Kong	Overseas sales subsidiary		100.00		100.00
SK hynix U.K. Ltd. (SKHYU)		U.K.	Overseas sales subsidiary		100.00		100.00
SK hynix Semiconductor Taiwan Inc. (SKHYT)		Taiwan	Overseas sales subsidiary		100.00		100.00
SK hynix Japan Inc. (SKHYJ)		Japan	Overseas sales subsidiary		100.00		100.00
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)		China	Overseas sales subsidiary		100.00		100.00
SK hynix Semiconductor India Private Ltd. (SKHYIS)2		India	Overseas sales subsidiary		100.00		100.00
SK hynix (Wuxi) Semiconductor Sales Ltd. (SKHYCW)		China	Overseas sales subsidiary		100.00		100.00
SK hynix Semiconductor (China) Ltd. (SKHYCL)		China	Overseas manufacturing subsidiary		100.00		100.00
SK hynix Semiconductor (Wuxi) Ltd. (SKHYMC)		China	Overseas manufacturing subsidiary		100.00		100.00
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)3		China	Overseas manufacturing subsidiary		100.00		100.00
SK hynix Italy S.r.l (SKHYIT)		Italy	Overseas R&D center		100.00		100.00
SK hynix memory solutions Inc. (SKHMS)		U.S.A.	Overseas R&D center		100.00		100.00
SK hynix Flash Solution Taiwan (SKHYFST)		Taiwan	Overseas R&D center		100.00		100.00
Softeq Flash Solutions LLC. (SOFTEQ)		Belarus	Overseas R&D center		100.00		100.00
SK APTECH Ltd. (SKAPTECH)		Hong Kong	Overseas investment subsidiary		100.00		100.00
SK hynix Venture Hong Kong Ltd. (SKH Ventures)		Hong Kong	Overseas investment subsidiary		100.00		100.00
MMT (Money Market Trust)		Korea	Money Market Trust		100.00		100.00

¹ SK hynix system ic Inc. was established during the year ended December 31, 2017.

²  Subsidiary of SK hynix Asia Pte. Ltd.

³  Subsidiary of SK APTECH Ltd.

G-9

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

1.    Reporting Entity,  continued

(3) Changes in the consolidated subsidiaries during the year ended December 31, 2017 are follows:

	Company	Description
Newly included	SK hynix system ic Inc.	Newly established

(4) Major subsidiaries’ summarized separate statements of financial position as of December 31, 2017 and 2016 are as follows:

	2017						2016
	Assets		Liabilities		Equity		Assets		Liabilities		Equity
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	2,522,348		2,259,210		263,138		1,584,043		1,279,493		304,550
SK hynix Deutschland GmbH (SKHYD)		108,470		70,430		38,040		83,388		45,575		37,813
SK hynix Asia Pte. Ltd. (SKHYS)		636,286		559,400		76,886		337,506		253,918		83,588
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		1,043,889		918,305		125,584		932,437		810,556		121,881
SK hynix U.K. Ltd. (SKHYU)		325,434		308,999		16,435		146,327		128,807		17,520
SK hynix Semiconductor Taiwan Inc. (SKHYT)		566,155		536,592		29,563		310,933		290,174		20,759
SK hynix Japan Inc. (SKHYJ)		632,590		569,810		62,780		251,274		184,504		66,770
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)		414,850		379,888		34,962		46,177		18,595		27,582
SK hynix Semiconductor (China) Ltd. (SKHYCL)		4,043,100		322,545		3,720,555		3,476,086		232,117		3,243,969
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		388,033		195,849		192,184		350,305		171,088		179,217

(5) Major subsidiaries’ summarized separate statements of comprehensive income for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017
	Revenue		Profit (Loss)			Total comprehensive income (loss)
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	11,096,526		(7,243	)		(7,243	)
SK hynix Deutschland GmbH (SKHYD)		476,709		(120	)		(120	)
SK hynix Asia Pte. Ltd. (SKHYS)		2,645,084		2,872			2,872
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		8,717,022		19,456			19,456
SK hynix U.K. Ltd. (SKHYU)		1,088,697		953			953
SK hynix Semiconductor Taiwan Inc. (SKHYT)		2,629,453		12,446			12,446
SK hynix Japan Inc. (SKHYJ)		940,254		1,761			1,761
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)		1,332,939		8,230			8,230
SK hynix Semiconductor (China) Ltd. (SKHYCL)		2,185,341		338,969			338,969
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		355,982		23,441			23,441

G-10

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

1.    Reporting Entity,  continued

	2016
	Revenue		Profit		Total comprehensive income
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	5,398,193		117,848		117,848
SK hynix Deutschland GmbH (SKHYD)		321,309		1,747		1,747
SK hynix Asia Pte. Ltd. (SKHYS)		1,497,869		1,929		1,929
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		5,655,093		20,019		20,019
SK hynix U.K. Ltd. (SKHYU)		532,661		374		374
SK hynix Semiconductor Taiwan Inc. (SKHYT)		1,742,632		2,676		2,676
SK hynix Japan Inc. (SKHYJ)		673,127		867		804
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)		345,863		6,073		6,073
SK hynix Semiconductor (China) Ltd. (SKHYCL)		2,137,576		123,753		123,753
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		296,121		2,674		2,674

	2015
	Revenue		Profit		Total comprehensive income
	(In millions of won)
SK hynix America Inc. (SKHYA)	￦	7,599,679		89,716		89,716
SK hynix Deutschland GmbH (SKHYD)		414,489		1,072		1,072
SK hynix Asia Pte. Ltd. (SKHYS)		1,612,550		1,303		1,303
SK hynix Semiconductor Hong Kong Ltd. (SKHYH)		4,181,208		6,909		6,909
SK hynix U.K. Ltd. (SKHYU)		702,329		1,289		1,289
SK hynix Semiconductor Taiwan Inc. (SKHYT)		1,915,465		5,852		5,852
SK hynix Japan Inc. (SKHYJ)		934,001		1,116		1,322
SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS)		528,670		8,150		8,150
SK hynix Semiconductor (China) Ltd. (SKHYCL)		2,273,536		206,446		206,446
SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)		350,110		13,328		13,328

(6) There are no significant non-controlling interests to the Group as of December 31, 2017, 2016 and 2015.

2.     Basis of Preparation

(1)    Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements were authorized for issuance by the board of directors on January 24, 2018.

(2)    Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

• derivative financial instruments are measured at fair value

• financial instruments at fair value through profit or loss are measured at fair value

G-11

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

2.     Basis of Preparation,  continued

• available-for-sale financial assets are measured at fair value

• assets or liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(3)    Functional and presentation currency

Financial statements of entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(4)    Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(a)    Critical judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes for classification of leases.

(b)    Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next fiscal year are included in the following notes for net realizable value of inventories, impairment of development costs and goodwill, recognition and measurement of provisions, measurement of defined benefit obligations, recognition of deferred tax assets.

(c)    Fair value measurement

The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for various financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation department, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy.

The valuation department regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation department reviews whether the valuation based on third party information includes classifications by levels within the fair value hierarchy and meets the requirements for the relevant standards.

The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation methods as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

G-12

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

2.     Basis of Preparation,  continued

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

If various inputs used to measure fair value of assets or liabilities fall into different levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value. The Group recognizes transfers between levels at the end of the reporting period of which such transfers occurred.

Information about assumptions used for fair value measurements are included in note 6.

3.    Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial statements are explained below. Except for the new accounting standards that are effective for annual periods beginning on or after January 1, 2017, the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(1)    Operating Segments

An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the Group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. The Group’s CODM is the board of directors, who do not receive and therefore do not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic, product and customer information are provided in note 4.

(2)    Basis of consolidation

(a)    Business combination

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

G-13

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(b)    Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(c)    Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

(d)    Loss of control

If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(e)    Interests in equity-accounted investees

The Group’s interest in equity-accounted investees comprise interests in an associate and a joint venture. An associate is an entity in which the Group has significant influence, but not control or joint control, over the entity’s financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in an associate and a joint venture are initially recognized at cost including transaction costs. Subsequent to initial recognition, their carrying amounts are increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture. Distributions from equity-accounted investees are accounted for as deduction from the carrying amounts.

(f)    Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with equity-accounted investees are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(g)    Business combinations under common control

The assets and liabilities acquired in the combination of entities or business under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is added to or deducted from other capital adjustments.

(3)    Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

G-14

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(4)    Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method (except for goods in-transit that is based on the specific identification method), and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

(5)    Non-derivative financial assets

The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the asset’s acquisition.

(a)    Financial assets at fair value through profit or loss

A financial asset is classified as financial assets at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b)    Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, is classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(c)    Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method.

(d)    Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, and changes in their fair value, net of any tax effect, are recorded in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

G-15

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(e) De-recognition of financial assets

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group neither transfers nor retains substantially all of the risks and rewards of ownership of the financial assets, it derecognizes the financial assets when it does not retain control over the transferred financial assets. If the Group has retained control over the transferred financial assets, it continues to recognize the assets to the extent of its continuing involvement. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f)    Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6)    Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(a)    Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met:

• the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract;

• a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

• the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss.

Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(b)    Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7)    Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

G-16

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

Objective evidence that a financial asset is impaired includes:

• significant financial difficulty of the issuer or obligor;

• a breach of contract, such as default or delinquency in interest or principal payments;

• the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

• it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

• the disappearance of an active market for that financial asset because of financial difficulties; or

• observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot be identified with the individual financial assets in the group

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a)    Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the financial asset’s estimated future cash flows, impairment losses would be measured based on prices from any observable current market transactions. Impairment losses are deducted through an allowance account or directly from the carrying amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss either directly or by adjusting an allowance account.

(b)    Financial assets carried at cost

The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c)    Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

(8)    Property, plant and equipment

Property, plant and equipment are initially measured at cost. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable

G-17

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other income or expenses.

The estimated useful lives of the Group’s property, plant and equipment are as follows:

	Useful lives (years)
Buildings		10 - 50
Structures		10 - 30
Machinery		4 - 15
Vehicles		4 - 10
Other		3 - 15

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(9)    Borrowing costs

The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period does not exceed the amount of borrowing costs incurred during that period.

G-18

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(10)    Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Goodwill arising from business combinations is recognized as the excess of the consideration transferred in the acquisition over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, certain intangible assets are determined as having indefinite useful lives and not amortized as there is no foreseeable limit to the period over which the assets are expected to be available for use.

The estimated useful lives of the Group’s intangible assets are as follows:

	Useful lives (years)
Industrial rights	5 - 10
Development costs	2
Other intangible assets	4 - 50

Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11)     Government grants

Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(a)     Grants related to assets

Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires non-current assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the useful lives of depreciable assets.

(b)     Grants related to income

Government grants which are intended to compensate the Group for expenses incurred are recognized in profit or loss by as deduction of the related expenses.

G-19

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(12)     Investment property

Property held for the purpose of earning rental income or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation and impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over estimated useful lives.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(13)     Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, and deferred tax assets, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

The Group estimates the recoverable amount of an individual asset; however if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from business combination. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis.

Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14)     Leases

The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

G-20

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(a)     Finance leases

At the commencement of the lease term, the Group recognizes as finance lease assets and finance lease liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews whether the leased asset is impaired.

(b)     Operating leases

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(c)     Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance expense on the liability recognized using the purchaser’s incremental borrowing rate of interest.

(15)     Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(a)     Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, any directly attributable transaction costs are recognized in profit or loss as incurred.

G-21

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(b)     Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method. The Group derecognizes a financial liability from the consolidated statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expires).

(16)     Employee benefits

(a)     Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(b)     Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the reporting period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

(c)     Retirement benefits: defined benefit plans

As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations, net of fair value of plan assets.

The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of the net defined benefit liability (asset) comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset), and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset), and are recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss.

When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

(d)    Retirement benefits: defined contribution plans

When an employee has provided service for a certain period of time in relation to the defined contribution plan, the contribution to the defined contribution plan is recognized in profit or loss except to be included in the cost of the asset. The contributions to be paid are recognized as liabilities (accrued expenses) less the contributions that have been already paid.

G-22

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(e)    Termination benefits

The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are not payable within 12 months after the end of the reporting period, then they are discounted to their present value.

(17)    Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision is used only for expenditures for which the provision was originally recognized.

(18)    Emissions Rights

The Group accounts for greenhouse gases emission right and the relevant liability as below pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission.

(a)    Greenhouse Gases Emission Right

Greenhouse Gases Emission Right consists of emission allowances, which are allocated from the government free of charge or purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.

Emission rights held for the purpose of performing the obligation is classified as intangible asset and is initially measured at cost and after initial recognition are carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period.

The Group derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government in which the future economic benefits are no longer expected to be probable.

(b)    Emission liability

Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when it is probable that outflows of resources will be required to settle the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligations for emission rights to be submitted to the government for the

G-23

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period.

(19)    Foreign currencies

(a)    Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on the settlement or retranslation of monetary items are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

(b)    Foreign operations

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at exchange rates at the reporting date.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20)    Equity capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares is recognized as a deduction from equity, net of any tax effects.

When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

G-24

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(21)    Share-based payment

The Group has granted shares or share options to its employees. For equity-settled share-based payment transactions, the Group measures the goods or services received, and the corresponding increase in equity as a capital adjustment at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Group cannot reliably estimate the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. If the fair value of the equity instruments cannot be estimated reliably at the measurement date, the Group measures them at their intrinsic value and recognizes the goods or services received based on the number of equity instruments that ultimately vest.

For cash-settled share-based payment transactions, the Group measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at each reporting date and at the date of settlement, with changes in fair value recognized in profit or loss for the period.

(22)    Revenue

Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.

(a)     Sale of goods

Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(b)     Sale of services

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(23)     Finance income and finance expenses

Finance income comprises interest and dividend income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets, and changes in the fair value of financial instruments at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive dividend is established.

Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, and changes in the fair value of financial instruments at fair value through profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(24)     Income taxes

Income tax expense comprises current and deferred tax. Current and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

G-25

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(a)     Current tax

Current tax is the expected tax payable or refundable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

(b)     Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures except to the extent that the Group 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. The Group recognizes deferred tax assets for all deductible temporary differences including unused tax loss and tax credit to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.

(25)     Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of outstanding ordinary shares, adjusted for own shares held, for the effects of all dilutive potential ordinary shares including convertible notes.

(26)     Change in Accounting Policies

The Group adopted the amendments to IAS 7 ‘Statement of Cash Flows‘ in the period beginning January 1, 2017. The amendment requires the Group to provide disclosures that enable users of financial statements to evaluate

G-26

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group has disclosed the reconciliation of the opening and closing balances of liabilities arising from financing activities including changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes in note 33.

(27)     Standards issued but not yet adopted

The following new standards, amendments to standards are effective for annual periods beginning after January 1, 2017 and earlier application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements.

(a)    IFRS 9, Financial Instruments

IFRS 9, ‘Financial Instruments’ is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing guidance in IAS 39, ‘Financial Instruments: Recognition and Measurement’. The Group plans to adopt IFRS 9 for the year beginning on January 1, 2018.

IFRS 9 will generally be applied retrospectively; however, the Group plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement (including impairment) changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options.

Key features of the new standard, IFRS 9, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.

IFRS 9 will require the Group to assess the financial impact from application of IFRS 9 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting IFRS 9 will be dependent on the financial instruments the Group holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.

During the year ended December 31, 2017, the Group assessed the impacts of adoption of IFRS 9 on its consolidated financial statements, the accounting system and the internal controls. The potential general impact on its consolidated financial statements resulting from the application of new standard are as follows:

(i)    Classification and measurement of financial assets

Under IFRS 9, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) based on the business model in which assets are managed and their cash flow characteristics, as detailed in the below table.

G-27

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

Under IFRS 9, derivatives embedded in hybrid contracts where the host is a financial asset are not bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

Business model	Contractual cash flows are solely payments of principal and interests	All other cases
To collect contractual cash flows	At amortized cost1
Both to collect contractual cash flows and sell financial assets	At FVOCI1	FVTPL2
For trading, and others	At FVOCI

¹ The Group may irrevocably designate as at FVTPL to eliminate or significantly reduce an accounting mismatch.

² The Group may irrevocably designate equity investments that is not held for trading as at FVOCI.

As there are additional requirements for a financial asset to be classified as measured at amortized costs or FVOCI under IFRS 9 compared to the existing guidance in IAS 39, the adoption of IFRS 9 would potentially increase the proportion of financial assets that are measured at FVTPL, increasing volatility in the Group’s profit or loss.

As of December 31, 2017, the Group has loans and receivables amounting to ￦13,257,944 million, available-for-sale financial assets amounting to ￦43,226 million, and financial assets at fair value through profit or loss amounting to ￦929,801 million.

Under IFRS 9, a financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Under IFRS 9, a financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

Under IFRS 9, on initial recognition of equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI, and will not reclassify(recycle) the those items in OCI to profit or loss subsequently.

Under IFRS 9, a financial asset is measured at FVTPL if the contractual terms of the financial asset give rise to specified dates to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the debt instrument is held within a business model whose objective is to sell the asset, or the equity instruments that are not elected to be designated as measured at FVOCI.

G-28

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

Based on the evaluation to date, the expected impact on classification and measurement on financial assets that existed as of December 31, 2017 resulting from the adoption of the new standard is as follows.

	Under IAS 39	Under IFRS 9	Under IAS 39		Under IFRS 9
	(In millions of won)
Cash and cash equivalents	Loans and receivables	Amortized cost	￦	2,949,991		2,949,991
Short-term financial instruments	Financial assets at fair value through profit or loss	FVTPL		929,801		929,801
Short-term financial instruments	Loans and receivables	Amortized cost		4,674,862		4,674,862
Trade receivables	Loans and receivables	Amortized cost		5,552,795		5,552,795
Loans and other receivables	Loans and receivables	Amortized cost		80,023		80,023
Other financial assets	Loans and receivables	Amortized cost		273		273
Available-for-sale financial assets	Available-for-sale financial assets	FVTPL		43,226		43,226
			￦	14,230,971		14,230,971

(ii)    Classification and measurement of financial liabilities

Under IFRS 9, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in OCI, not recognized in profit or loss, and the OCI amount will not be reclassified (recycled) to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss.

As a portion of fair value change, which was recognized in profit or loss under the existing standard, IAS 39, will be presented in OCI under IFRS 9, profit or loss related to valuation of financial liabilities is likely to decrease. As of December 31, 2017, there was no financial liabilities measured at FVTPL.

(iii)    Impairment: Financial assets and contract assets

IFRS 9 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts.

Under IFRS 9, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in IAS 39 as loss allowances will be measured on either of the 12-month or lifetime ECL based on the extent of increase in credit risk since inception as shown in the below table.

Classification1		Loss allowances
Stage 1	Credit risk has not increased significantly since the initial recognition2	12-month ECL: ECLs that resulted from possible default events within the 12 months after the reporting date
Stage 2	Credit risk has increase significantly since the initial recognition	Lifetime ECL: ECL that resulted from all possible default events over the expected life of a financial instrument
Stage 3	Credit-impaired

G-29

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

¹ Under IFRS 15, for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses.

² The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the end of reporting period.

Under IFRS 9, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime ECL since the initial recognition are recognized as loss allowances.

As of December 31, 2017, the Group has financial instruments (loans and receivables) measured at amortized cost amounting to ￦13,260,404 million, and has recognized loss allowances for ￦2,460 million.

Upon adoption of IFRS 9, the Group expects to measure the loss allowance based on the amount of expected credit losses over the entire period for trade receivables, contract assets and lease receivables that have significant financial elements. In addition, the Group plans to use the practical expedient by considering that the financial assets’ credit risks had not increased significant from initial recognition through January 1, 2018.

(b)    IFRS 15, Revenue from Contracts from Customers

IFRS 15 ‘Revenue from Contracts from Customers’, published in May 2014, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts, SIC 31 Revenue- Barter transactions involving advertising services, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers. The Group plans to adopt IFRS 15 in its consolidated financial statements for the year beginning on January 1, 2018, and in regards with transition to IFRS 15, the Group has decided to apply the cumulative effect method, i.e. recognizing the cumulative effect of applying IFRS 15 at the date of initial application, which is January 1, 2018, without restatement of the comparative periods presented. In doing so, the Group also decided to apply the practical expedients as allowed by IFRS 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application.

Existing IFRS standards and interpretations including IAS 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, IFRS 15, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.

The Group established a separate task force team to prepare for the adoption of IFRS 15 during the year ended December 31, 2017. The Group analyzed the revenue transactions of the Group with assistance from external professional accounting advisory firm and IT system service advisors, improved the internal control processes and established the related financial reporting system. As the adoption of IFRS 15 is expected to affect not only the accounting function, but also overall business practices including product sales strategy and business behavior, the Group are in the process of training employees on the changes as a result of the adoption of the new standard. The adoption plan and progress status of the new standard are reported to management on a regular basis. The information of expected impacts upon adoption of IFRS 15 disclosed herein is subject to change as management obtains new information and completes its transition efforts.

G-30

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(i)    Identification of performance obligations in the contract

The Group is engaged in the research and development, manufacture, distribution and sales of semiconductor products (DRAM, NAND flash and others), which generates a substantial portion of the consolidated revenue.

When applying IFRS 15, ① sales of products and ② delivery of products (i.e. shipping service) are identified as separate performance obligations in the contracts with customers. However, for transactions for which the shipping terms are on delivery basis, which is the Group’s most common transaction term, those two performance obligations are not separately identified as the control over the products is transferred upon the completion of delivery. However, for the export transactions for which the shipping terms are on shipment basis (“C-terms”) and the customer pays shipping costs or insurance premiums, the two performance obligations are separately accounted for because delivery of products is performed after the control over the products is transferred to the customer. The transaction price allocated to the performance obligation of delivery service will be recognized when the obligation of delivery of the product is completed.

In estimating the financial impact of the Group in connection with the adoption of IFRS 15, the Group’s revenue in relation to the performance obligation of delivery of products under C-terms is expected to be deferred, however, the impact is not expected to be material.

(ii)    Performance obligations that are satisfied over time: Foundry service

SK hynix system ic Inc., a subsidiary of the Parent Company, is engaged in providing foundry services to semi-conductor manufacturers and the period from the receipt of the customer’s order to the completion of production and delivery is generally within two months. Under the current standards, the Group recognized revenue upon the completion of delivery of items produced and the revenue recognized ￦116,083 million for the year ended December 31, 2017.

According to IFRS 15, the revenue in connection with the above transactions can be recognized over time under completion of percentage method when the produced items do not have any alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.

Based on the result of analysis for the contract conditions for foundry services and any past experience in which the Group billed intermediate payments for services performed on unfinished items, management of the Group does not believe enforceable right to payment existed for the services performed on partially completed items. Therefore, in connection with the adoption of IFRS 15, the Group does not expect any financial impact in relation to the above foundry service performance obligation that is satisfied over time.

(iii)    Variable consideration

In general, the Group’s contract with customers allows a customer to return the products. Under IFRS 15, the Group initially recognizes revenue, which is measured at the gross transaction price, less the expected level of returns using the guidance on estimating variable considerations and the constraint. The expected level of returns is estimated by using the method the Group expects to better predict the amount of consideration to which it will be entitled. Also, the Group includes an amount of variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the return period expires. The Group recognizes the amounts received or receivable for which the Group does not expect to be entitled as a refund liability.

Based on the evaluation to date, upon adoption of IFRS 15 on January 1, 2018, the Group’s provisions are expected to decrease by ￦30,672 million and Group’s other current assets and other current liabilities are expected to increase by ￦17,884 million and ￦48,556 million, respectively.

G-31

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(iv)    Allocation of the transaction price to performance obligations

In applying IFRS 15, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. To estimate the stand-alone selling price, ‘adjusted market assessment approach’ will be used; however, for certain transactions, ‘expected cost plus a margin approach’ will be used under exceptional cases.

(v)    The adoption of IFRS 15 does not have any impact on the Group’s consolidated statements of cash

flows.

(c)    IFRS 16, Leases

IFRS 16 ‘Leases’ is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 replaces existing leases guidance including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC 15, Operating Leases—Incentives and SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16 provides a single model where leasee recognize assets and liabilities in relation with lease contract on financial statements. Lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. However, there are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard of IAS 17.

The Group started initial assessment on the adoption of IFRS 16, however more detailed assessment has not been conducted. The actual financial impact at the date of initial adoption when IFRS 16 is applied is determined by a future economic environments at the date of initial application such as the borrowing interest rate and a portfolio of lease contracts as of January 1, 2019, execution of lease renewal option and coverage in use of a practical expedient and lease recognition exemption and others.

Based on the evaluation to date, the most significant impact identified is that the Group shall recognize assets and liabilities for the warehouses and manufacturing facilities used under an operating lease.

As a result of the adoption of IFRS 16, the nature of costs in relation with leases will be changed as the operating lease expenses previously recognized on a straight-line basis will be changed to depreciation expenses of right-of-use assets and interest expenses of lease liabilities.

(i)    Determining whether arrangement contains a lease

There are certain arrangements, which are not in the legal form of a lease but determined to contain lease under IFRIC 4. In applying IFRS 16, the Group may elect either:

• applying the definition of lease under IFRS 16 for the Group’s entire lease contracts; or

• applying a practical expedient that the Group does not reassess whether an arrangement is, or contains, a lease

The Group plans to apply the practical expedient that maintains the definition of lease for the lease contracts existing at the date of initial application. When the practical expedient is applied, leases contracted before January 1, 2019 and identified as a lease under IAS 17 or IFRIC 4 are accounted for by applying IFRS 16 without reassessing whether the contracts satisfy the definition of lease under the new standard.

G-32

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

3.    Significant Accounting Policies,  continued

(ii)    Transition

As a lessee, the Group can apply the IFRS 16 using either:

• a full retrospective approach; or

• a modified retrospective approach with a practical expedient.

Lessee should apply one of the approach consistently for lessee’s entire lease contracts. Modified retrospective approach requires the lessee to recognize the cumulative effect of initial application in retained earnings as of January 1, 2019 and the comparative financial statement will not be restated.

When modified retrospective approach is applied for the lease contracts classified as an operating lease under IAS 17, leasee may elect the application of various practical expedients for each existing lease contracts at the date of adoption of the standard. The Group is assessing the financial impact when the practical expedient is applied.

4.     Geographic, Product and Customer Information

The Group has a single reportable segment that is engaged in the manufacture and sale of semiconductor products. The management of the Group reviews the operation result of the semiconductor business for reporting information used and reviewed when establishing the Group’s business strategy.

(1) Details of the Group’s revenue for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Sale of goods	￦	30,035,297		17,146,961		18,739,177
Sale of services		74,137		51,014		58,821
	￦	30,109,434		17,197,975		18,797,998

(2) Details of the Group’s revenue by product and service types for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
DRAM	￦	22,887,259		12,340,767		14,045,339
NAND Flash		6,648,748		4,347,535		4,148,315
Other		573,427		509,673		604,344
	￦	30,109,434		17,197,975		18,797,998

(3) The Group’s revenue information by region based on the location of selling entities for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Korea	￦	1,207,464		1,099,426		1,204,642
China		10,074,686		5,960,235		4,496,357
Taiwan		2,626,577		1,732,573		1,899,649
Asia (other than China and Taiwan)		3,574,788		2,165,201		2,536,009
U.S.A.		11,063,503		5,397,944		7,549,622
Europe		1,562,416		842,596		1,111,719
	￦	30,109,434		17,197,975		18,797,998

G-33

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

4.     Geographic, Product and Customer Information,  continued

(4) The Group’s non-current assets (excluding financial assets, loans and other receivables, equity-accounted- investees and deferred tax assets) information by region based on the location of subsidiaries as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Korea	￦	23,959,991		18,078,337
China		2,768,494		2,805,712
Taiwan		5,752		6,835
Asia (other than China and Taiwan)		1,100		1,522
U.S.A.		318,567		364,188
Europe		8,560		9,374
	￦	27,062,464		21,265,968

(5) Revenue from customer A constituting more than 10% of the Group’s consolidated revenue for the year ended December 31, 2017 amounts to ￦4,113,904 million (2016: ￦2,195,935 million, 2015: ￦3,485,795 million) and revenue from customer B constituting more than 10% of the Group’s consolidated revenue for the year ended December 31, 2017 amounted to ￦3,690,504 million (2016: ￦1,503,256 million, 2015: ￦2,078,835 million), respectively.

5.     Categories of Financial Instruments

(1) Categories of financial assets as of December 31, 2017 and 2016 are as follows:

	2017
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Total
	(In millions of won)
Cash and cash equivalents	￦	—		—		2,949,991		2,949,991
Short-term financial instruments		929,801		—		4,674,862		5,604,663
Trade receivables		—		—		5,552,795		5,552,795
Loans and other receivables		—		—		80,023		80,023
Other financial assets		—		—		273		273
Available-for-sale financial assets		—		43,226		—		43,226
	￦	929,801		43,226		13,257,944		14,230,971

G-34

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

5.     Categories of Financial Instruments,  continued

	2016
	Financial assets at fair value through profit or loss		Available- for-sale financial assets		Loans and receivables		Total
	(In millions of won)
Cash and cash equivalents	￦	—		—		613,786		613,786
Short-term financial instruments		1,570,172		—		1,951,721		3,521,893
Trade receivables		—		—		3,251,652		3,251,652
Loans and other receivables		—		—		65,101		65,101
Other financial assets		—		—		423		423
Available-for-sale financial assets		—		147,779		—		147,779
	￦	1,570,172		147,779		5,882,683		7,600,634

(2) Categories of financial liabilities as of December 31, 2017 and 2016 are as follows:

	2017
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Total
	(In millions of won)
Trade payables	￦	—		758,578		758,578
Other payables		—		2,724,547		2,724,547
Other non-trade payables1		—		1,343,637		1,343,637
Borrowings		—		4,171,270		4,171,270
	￦	—		8,998,032		8,998,032

	2016
	Financial liabilities at fair value through profit or loss		Financial liabilities measured at amortized cost		Total
	(In millions of won)
Trade payables	￦	—		696,144		696,144
Other payables		—		1,606,417		1,606,417
Other non-trade payables1		—		712,580		712,580
Borrowings		—		4,335,978		4,335,978
Other financial liabilities		288		—		288
	￦	288		7,351,119		7,351,407

G-35

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

5.     Categories of Financial Instruments,  continued

¹  Details of other non-trade payables as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Current
Accrued expenses	￦	1,340,225		685,154
Non-current
Rent deposits payable		3,412		2,554
Long-term other payables		—		24,872
		3,412		27,426
	￦	1,343,637		712,580

(3) Details of gain and loss on financial assets and liabilities by category for the years ended December 31, 2017, 2016 and 2015 are as follows:

(a) profit or loss

	2017			2016			2015
	(In millions of won)
Loans and receivables
Interest income	￦	54,275			34,174			40,715
Foreign exchange differences		(679,287	)		167,736			300,163
Reversal of impairment		2,119			5,617			82
		(622,893	)		207,527			340,960
Available-for-sale financial assets
Dividend income		13			18			1,265
Gain on disposal		30,920			—			—
		30,933			18			1,265
Financial assets at fair value through profit or loss
Gain on valuation		1,399			1,133			2,280
Gain on disposal		15,754			15,348			33,814
		17,153			16,481			36,094
Financial liabilities measured at amortized cost
Interest expenses		(123,918	)		(120,122	)		(118,505	)
Foreign exchange differences		447,707			(129,670	)		(242,532	)
		323,789			(249,792	)		(361,037	)
Financial liabilities at fair value through profit or loss
Gain on valuation from derivative instruments		—			395			25
Loss on transaction from derivative instruments		(11	)		(448	)		(386	)
		(11	)		(53	)		(361	)
	￦	(251,029	)		(25,819	)		16,921

G-36

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

5.     Categories of Financial Instruments,  continued

(b) Other comprehensive income

	2017			2016		2015
	(In millions of won)
Loss on valuation of available-for-sale financial assets , net of tax	￦	(10,735	)		—		—

6.    Financial Risk Management

(1)    Financial risk management

The Group’s activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

Risk management is carried out by the Parent Company’s corporate finance division in accordance with policies approved by the board of directors. The Parent Company’s corporate finance division identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk; use of derivative financial instruments and non-derivative financial instruments; and the investment of excess liquidity.

(a)    Market risk

(i)    Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Euro and Japanese Yen. Foreign exchange risk arises from future commercial transactions; recognized assets and liabilities in foreign currencies; and net investments in foreign operations.

Monetary foreign currency assets and liabilities as of December 31, 2017 are as follows:

	Assets				Liabilities
	Foreign currencies		Korean won equivalent		Foreign currencies		Korean won equivalent
	(In millions of won and millions of foreign currencies)
USD		11,622	￦	12,452,053		5,182	￦	5,551,604
EUR		18		22,871		91		116,751
JPY		1,659		15,746		64,691		613,991

As of December 31, 2017, the impacts from foreign exchange risks on each monetary foreign currency assets and liabilities assuming change in exchange rate by 10% are as follows:

	If increased by 10%			If decreased by 10%
	(In millions of won)
USD	￦	690,045			(690,045	)
EUR		(9,388	)		9,388
JPY		(59,825	)		59,825

G-37

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

6.    Financial Risk Management,  continued

(ii)    Interest rate risk

Interest rate risk of the Group is defined as the risk that the interest expenses arising from borrowings will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings, and is partially offset by interests received from floating rate financial assets.

As of December 31, 2017, the Group is partially exposed to a risk of increase in interest rates. If interest rates on borrowings were 100 basis points higher/lower with all other variables held constant, profit before income tax for the following year would be ￦20,571 million (2016: ￦22,277 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and interest income on floating rate financial assets.

(iii)    Price risk

The Group invests in equity and debt securities resulted from its business needs and the purpose of liquidity management. The Group’s equity and debt securities are exposed to price risk as of December 31, 2017.

(b)    Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from operating and investing activities. In order to manage credit risk, the Group periodically evaluates the credit worthiness of each customer or counterparty through the analysis of its financial information, historical transaction records and other factors, based on which the Group establishes credit limits for each customer or counterparty.

(i)    Trade and other receivables

For each new customer, the Group individually analyzes its credit worthiness before standard payment and delivery terms and conditions are offered. In addition, the Group is consistently managing trade and other receivables by reevaluating the customer’s credit worthiness and securing collaterals in order to limit its credit risk exposure.

The Group reviews at the end of each reporting period whether trade and other receivables are impaired and maintains credit insurance policies to manage credit risk exposure from oversea customers. The maximum exposure to credit risk as of December 31, 2017 is the carrying amount of trade and other receivables.

(ii)    Other financial assets

Credit risk also arises from other financial assets such as cash and cash equivalents; short-term financial instruments; and deposits with banks and financial institutions as well as short-term and long-term loans mainly due to the bankruptcy of each counterparty to those financial assets. The maximum exposure to credit risk as of December 31, 2017 is the carrying amount of those financial assets. The Group transacts only with banks and financial institutions with high credit ratings, and accordingly management does not expect any losses from non-performance by these counterparties.

(c)     Liquidity risk

Liquidity risk is defined as the risk that the Group is unable to meet its short-term payment obligations on time due to deterioration of its business performance or inability to access financing. The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to manage liquidity risk proactively.

The Group invests surplus cash in interest-bearing current accounts, time deposits, demand deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

G-38

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

6.    Financial Risk Management,  continued

Contractual maturities of financial liabilities as of December 31, 2017 and 2016 are as follows:

	2017
	Less than 1 year		1 - 2 years		2 - 5 years		More than 5 years		Total
	(In millions of won)
Borrowings (other than finance lease liabilities)	￦	732,902		1,155,876		2,248,059		81,038		4,217,875
Finance lease liabilities		10,773		10,773		32,254		34,748		88,548
Trade payables		758,578		—		—		—		758,578
Other payables		2,724,885		—		—		—		2,724,885
Other non-trade payables		1,317,032		—		3,412		—		1,320,444
Financial guarantee contract		8		—		—		—		8
	￦	5,544,178		1,166,649		2,283,725		115,786		9,110,338

	2016
	Less than 1 year		1 - 2 years		2 - 5 years		More than 5 years		Total
	(In millions of won)
Borrowings (other than finance lease liabilities)	￦	785,989		706,827		2,853,218		235,562		4,581,596
Finance lease liabilities		27,043		5,350		16,050		18,725		67,168
Trade payables		696,144		—		—		—		696,144
Other payables		1,610,757		—		—		—		1,610,757
Other non-trade payables		667,485		25,224		2,554		—		695,263
Derivatives		288		—		—		—		288
Financial guarantee contract		8		—		—		—		8
	￦	3,787,714		737,401		2,871,822		254,287		7,651,224

The table above analyzes the Group’s non-derivative financial liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and include estimated interest payments.

(2)    Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to shareholders, proceeds and repayments of borrowings, issue new shares or sell assets to reduce debt.

G-39

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

6.    Financial Risk Management,  continued

The debt-to-equity ratio and net borrowing ratio as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Total liabilities (A)	￦	11,597,545		8,192,496
Total equity (B)		33,820,919		24,023,530
Cash and cash equivalents and short-term financial instruments (C)		8,554,654		4,135,679
Total borrowings (D)		4,171,270		4,335,978
Debt-to-equity ratio (A/B)		34.29%		34.10%
Net borrowing ratio (D-C)/B1		—		0.83%

¹ Does not present net borrowing ratio as of December 31, 2017 as the ratio was calculated as negative.

(3)     Fair value

(a) The following table presents the carrying amounts and fair values of financial instruments by categories, including their levels in the fair value hierarchy, as of December 31, 2017 and 2016:

			2017
	Carrying amounts		Level 1		Level 2		Level 3		Total
	(In millions of won)
Financial assets measured at fair value
Short-term financial instruments	￦	929,801		—		929,801		—		929,801
Available-for-sale financial assets		13,526		—		—		13,526		13,526
		943,327		—		929,801		13,526		943,327
Financial assets not measured at fair value
Cash and cash equivalents1		2,949,991		—		—		—		—
Short-term financial instruments1		4,674,862		—		—		—		—
Trade receivables1		5,552,795		—		—		—		—
Loans and other receivables1		80,023		—		—		—		—
Other financial assets1		273		—		—		—		—
Available-for-sale financial assets1,2		29,700		—		—		—		—
		13,287,644		—		—		—		—
Financial liabilities not measured at fair value
Trade payables1		758,578		—		—		—		—
Other payables1		2,724,547		—		—		—		—
Other non-trade payables1		1,343,637		—		—		—		—
Borrowings		4,171,270		—		4,178,598		—		4,178,598
	￦	8,998,032		—		4,178,598		—		4,178,598

G-40

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

6.    Financial Risk Management,  continued

			2016
	Carrying amounts		Level 1		Level 2		Level 3		Total
	(In millions of won)
Financial assets measured at fair value
Short-term financial instruments	￦	1,570,172		—		1,570,172		—		1,570,172
		1,570,172		—		1,570,172		—		1,570,172
Financial assets not measured at fair value
Cash and cash equivalents1		613,786		—		—		—		—
Short-term financial instruments1		1,951,721		—		—		—		—
Trade receivables1		3,251,652		—		—		—		—
Loans and other receivables1		65,101		—		—		—		—
Other financial assets1		423		—		—		—		—
Available-for-sale financial assets1,2		147,779		—		—		—		—
		6,030,462		—		—		—		—
Financial liabilities measured at fair value
Other financial liabilities		288		—		288		—		288
		288		—		288		—		288
Financial liabilities not measured at fair value
Trade payables1		696,144		—		—		—		—
Other payables1		1,606,417		—		—		—		—
Other non-trade payables1		712,580		—		—		—		—
Borrowings		4,335,978		—		4,366,234		—		4,366,234
	￦	7,351,119		—		4,366,234		—		4,366,234

¹  Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximate fair values.

² Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with IAS 39, ‘Financial Instrument: Recognition and Measurement’ as fair values of such equity instruments cannot be reliably measured using other valuation techniques.

(b) Valuation Techniques

The valuation techniques of recurring and non-recurring fair value measurements and quoted prices classified as level 2 or level 3 are as follows:

	Fair value		Level		Valuation Techniques
	(In millions of won)
Short-term financial instruments:
Financial assets at fair value through profit or loss	￦	929,801		2	The present value method
Available-for-sale financial assets:
Available-for-sale equity instruments		13,526		3	The binomial model and others

G-41

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

6.    Financial Risk Management,  continued

(c) There was no transfer between fair value hierarchy levels for the year ended December 31, 2017 and the changes in financial assets classified as level 3 fair value measurements during the year ended December 31, 2017 are as follows:

	Beginning Balance		Transfers		Acquisition		Disposals			Other Comprehensive loss			Ending Balance
	(In millions of won)
Available-for-sale financial assets	￦	—		24,963		3,392		(22	)		(14,807	)		13,526

7.     Restricted Financial Instruments

Details of restricted financial instruments as of December 31, 2017 and 2016 are as follows:

	2017		2016		Description
	(In millions of won)
Short-term financial instruments	￦	227,500		77,500	Restricted for supporting small business
		5,695		6,220	Pledged for consumption tax
		1,287		—	Others
		234,482		83,720
Other financial assets		—		308	Pledged for borrowings
		11		12	Bank overdraft guarantee deposit
		262		104	Others
		273		424
	￦	234,755		84,144

8.    Trade Receivables and Loans and Other Receivables

(1) Details of loans and other receivables as of December 31, 2017 and 2016 are as follows:

	2017		2016
Current	(In millions of won)
Other receivables	￦	10,816		11,571
Accrued income		22,308		9,732
Short-term loans		2,886		3,145
Short-term guarantee and other deposits		1,603		1,163
		37,613		25,611
Non-current
Long-term other receivables		56		60
Long-term loans		11,098		6,008
Guarantee deposits		31,109		33,261
Long-term deposits		147		161
		42,410		39,490
	￦	80,023		65,101

G-42

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

8.    Trade Receivables and Loans and Other Receivables,  continued

(2) Trade receivables and loans and other receivables, net of provision for impairment, as of December 31, 2017 and 2016 are as follows:

	2017
	Gross amount		Provision for impairment			Carrying amount
	(In millions of won)
Trade receivables	￦	5,552,841		(46	)		5,552,795
Current loans and other receivables		38,940		(1,327	)		37,613
Non-current loans and other receivables		43,497		(1,087	)		42,410
	￦5,635,278		(2,460)			5,632,818

	2016
	Gross amount		Provision for impairment			Carrying amount
	(In millions of won)
Trade receivables	￦	3,253,489		(1,837	)		3,251,652
Current loans and other receivables		26,982		(1,371	)		25,611
Non-current loans and other receivables		40,966		(1,476	)		39,490
	￦3,321,437		(4,684)			3,316,753

(3) Details of provision for impairment

Movements in the provision for impairment of trade receivables for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	1,837			2,974
Reversal		(1,778	)		(836	)
Receivables written off during the year as uncollectible		—			(306	)
Foreign exchange difference		(13	)		5
Ending balance	￦	46			1,837

Movements in the provision for impairment of current loans and other receivables for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	1,371			1,433
Provision		32			—
Reversal		(85	)		(62	)
Foreign exchange difference		9			—
Ending balance	￦	1,327			1,371

G-43

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

8.    Trade Receivables and Loans and Other Receivables,  continued

Movements in the provision for impairment of non-current loans and other receivables for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	1,476			6,143
Provision		—			34
Reversal		(297	)		(4,753	)
Foreign exchange difference		(92	)		52
Ending balance	￦	1,087			1,476

(4) The aging analysis of trade receivables and loans and other receivables as of December 31, 2017 and 2016 are as follows:

	2017
	Not impaired
			Overdue
	Not Past due		Less than 3 months		Over 3 months and less than 6 months		Over 6 months		Impaired		Total
	(In millions of won)
Trade receivables	￦	5,551,276		1,560		—		1		4		5,552,841
Current loans and other receivables		37,654		—		—		—		1,286		38,940
Non-current loans and other receivables		43,395		—		—		—		102		43,497
	￦	5,632,325		1,560		—		1		1,392		5,635,278

	2016
	Not impaired
			Overdue
	Not Past due		Less than 3 months		Over 3 months and less than 6 months		Over 6 months		Impaired		Total
	(In millions of won)
Trade receivables	￦	3,252,891		598		—		—		—		3,253,489
Current loans and other receivables		25,692		—		—		—		1,290		26,982
Non-current loans and other receivables		40,864		—		—		—		102		40,966
	￦	3,319,447		598		—		—		1,392		3,321,437

G-44

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

9.     Inventories

(1) Details of inventories as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Finished goods	￦	433,405		391,503
Work-in-process		1,616,889		1,130,493
Raw materials		296,252		260,677
Supplies		270,804		194,678
Goods in transit		23,089		48,847
	￦	2,640,439		2,026,198

(2) The amount of the inventories recognized as cost of sales is as follows:

	2017		2016		2015
	(In millions of won)
Inventories recognized as cost of sales	￦	12,700,702		10,787,034		10,514,640

(3) The changes in inventory valuation allowance during the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	64,200			188,246
Charged to cost of sales		133,164			13,192
Utilization upon sales		(15,253	)		(137,238	)
Ending balance	￦	182,111			64,200

There were no significant reversals of inventory write-downs recognized during 2017 and 2016.

10.     Other Current and Non-current Assets

Details of other current and non-current assets as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Current
Advance payments	￦	34,887		1,853
Prepaid expenses		222,411		238,831
Value added tax refundable		263,287		148,756
Others		3,053		9,913
		523,638		399,353
Non-current
Long-term advance payments		183,489		—
Long-term prepaid expenses		553,231		568,907
Others		—		1,495
		736,720		570,402
	￦	1,260,358		969,755

G-45

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

11.     Investments in Associates and Joint Ventures

(1) Details of investments in associates and joint ventures as of December 31, 2017 and 2016 are as follows:

				2017				2016
Type	Investee	Ownership (%)		Net asset value		Carrying amount		Carrying amount
		(In millions of won)
Associate	Stratio, Inc.1		9.12	￦	104		2,105		2,151
	SK China Company Limited (SK China) 1, 2		11.87		192,561		244,912		—
	Gemini Partners Pte. Ltd.		20.00		2,308		4,003		5,199
	TCL Fund1		11.06		2,634		2,634		2,219
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH)		45.00		106,210		106,210		121,447
				￦			359,864		131,016

¹  The Group is able to exercise significant influence through its right to appoint a director to the board of directors of each investee. Accordingly, the investments in these investees have been accounted for using the equity method.

²  During the year ended December 31, 2017, the Group acquired shares of SK China through a combination of contribution in kind of available-for-sale financial assets for which the fair value amounted to ￦143,209 million as of acquisition date and cash in the amount of ￦113,960 million.

(2) Changes in investments in associates and joint ventures for the years ended December 31, 2017 and 2016 are as follows:

	2017
	Beginning balance		Acquisition		Share of profit (loss)			Other equity movement			Dividend			Ending balance
			(In millions of won)
Stratio, Inc.	￦	2,151		—		(30	)		(16	)		—			2,105
SK China		—		257,169		—			(12,257	)		—			244,912
Gemini Partners Pte. Ltd.		5,199		—		(1,084	)		(112	)		—			4,003
TCL Fund		2,219		526		16			(127	)		—			2,634
HITECH		121,447		—		13,465			(13,874	)		(14,828	)		106,210
	￦	131,016		257,695		12,367			(26,386	)		(14,828	)		359,864

	2016
	Beginning balance		Acquisition		Share of profit (loss)			Other equity movement			Dividend			Ending balance
	(In millions of won)
Stratio, Inc.	￦	2,171		—		(24	)		4			—			2,151
Gemini Partners Pte. Ltd.		7,976		—		(2,909	)		132			—			5,199
TCL Fund		—		2,293		50			(124	)		—			2,219
HITECH		112,462		—		25,635			4,076			(20,726	)		121,447
	￦	122,609		2,293		22,752			4,088			(20,726	)		131,016

G-46

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

11.     Investments in Associates and Joint Ventures,  continued

(3) Associate and joint venture’s statements of financial position as of December 31, 2017 and 2016 are as follows:

	2017
	Current assets		Non-current assets		Current liabilities		Non-current liabilities
	(In millions of won)
Stratio, Inc.	￦	681		577		111		—
SK China		812,882		934,872		54,752		70,213
Gemini Partners Pte. Ltd.		6,227		5,314		2		—
TCL Fund		7,863		15,957		—		—
HITECH		192,905		334,678		79,725		211,835

	2016
	Current assets		Non-current assets		Current liabilities		Non-current liabilities
	(In millions of won)
Stratio, Inc.	￦	998		686		27		—
Gemini Partners Pte. Ltd.		13,047		4,467		93		—
TCL Fund		16,388		3,993		329		—
HITECH		184,048		350,094		82,581		181,679

(4) Summary of associate and joint venture’s statements of comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017					2016					2015
	Revenue		Profit (loss) for the year			Revenue		Profit (loss) for the year			Revenue		Profit (loss) for the year
	(In millions of won)
Stratio, Inc.	￦	33		(339	)		4		(198	)		—		(385	)
SK China		—		—			—		—			—		—
Gemini Partners Pte. Ltd.		183		(5,423	)		—		(5,848	)		—		(747	)
TCL Fund		—		152			—		(4	)		—		—
HITECH		585,904		29,923			566,893		55,346			677,284		54,835

G-47

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

12.    Available-for-sale Financial Assets

(1) Details of available-for-sale financial assets as of December 31, 2017 and 2016 are as follows:

	2017						2016
	Ownership (%)/ Type		Acquisition cost		Book value		Book value
	(In millions of won)
ProMOS		7.93	￦	21,847		—		—
JNT Frontier Private Equity Unit		Certificate		684		684		971
SV M&A No.1 Equity Unit		Certificate		—		—		805
Daishin Aju IB Investment Co., Ltd. Equity Unit		Certificate		483		483		483
Seoul Investment Early & Green Venture Fund		Certificate		1,513		1,513		1,648
TS 2011-4 Technology Transfer & Business Equity Unit		Certificate		318		318		566
IMM Investment Equity Unit		—		—		—		224
L&S Venture Capital Equity Unit		Certificate		1,170		1,170		1,170
KTC-NP-Growth Equity Unit		Certificate		2,155		2,155		2,956
Semiconductor Growth Fund		Certificate		17,250		17,250		—
Intellectual Discovery, Ltd.		7.05		4,000		1,699		4,000
SKY Property Mgmt. Ltd. 1		—		—		—		112,360
CHINA WALDEN VENTURE INVESTMENTS II		Certificate		7,312		6,116		6,188
Exnodes Inc.		Convertible Bond		716		716		716
Netspeed		6.07		3,083		558		3,083
Keyssa, lnc.		2.29		6,174		832		6,174
MEMS DRIVE, INC.		2.94		2,246		844		2,246
AutoTech Fund I, LP		Certificate		1,444		1,444		—
RENO SUB-SYSTEM, INC.		2.68		2,246		204		—
IMEC.XPAND COMM.VA		Certificate		1,607		1,607		—
Equity investment in a construction guarantee association		0.01		709		709		709
Information and communication guarantee association		0.01		15		15		15
Beijing Starblaze Tech Co., Ltd.		6.29		3,273		3,273		3,465
Shanghai Natlinear Electronics Co., Ltd.		4.12		1,636		1,636		—
			￦	79,881		43,226		147,779

¹  The Group acquired shares in SK China Company Limited through the contribution in kind of available-for-sale financial assets (SKY Property Mgmt. Ltd.) with the book value of ￦112,360 million. The Group recognized a gain on disposal of available-for-sale financial assets amounted to ￦30,849 million during the year ended December 31, 2017.

G-48

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

12.    Available-for-sale Financial Assets,  continued

(2) Changes in the carrying amount of available-for-sale financial assets for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	147,779			131,354
Acquisition		26,204			19,085
Disposal		(115,720	)		(2,652	)
Loss on valuation		(14,807	)		—
Foreign exchange difference		(230	)		(8	)
Ending balance	￦	43,226			147,779

13.    Property, Plant and Equipment

(1) Changes in property, plant and equipment for the years ended December 31, 2017 and 2016 are as follows:

	2017
	Land			Buildings			Structures			Machinery			Vehicles			Others			Construction -in-progress			Total
	(In millions of won)
Beginning net book amount	￦	575,755			2,514,376			516,145			13,196,508			1,041			435,643			1,537,934			18,777,402
Changes during 2017
Additions		7,950			216,035			279,553			6,642,678			117			161,007			2,980,042			10,287,382
Receipt of government grants		—			(1,000	)		—			—			—			—			—			(1,000	)
Disposals		(2,220	)		(2,141	)		(3,180	)		(164,301	)		(1	)		(507	)		(47,615	)		(219,965	)
Depreciation		—			(112,343	)		(49,851	)		(4,301,152	)		(379	)		(155,051	)		—			(4,618,776	)
Transfers		1,483			330,333			108,366			876,697			—			6,463			(1,323,342	)		—
Impairments		—			—			—			—			—			—			—			—
Exchange differences and others		(1,427	)		(14,507	)		(11,413	)		(120,362	)		(1	)		(5,334	)		(9,398	)		(162,442	)
Ending net book amount		581,541			2,930,753			839,620			16,130,068			777			442,221			3,137,621			24,062,601
Acquisition cost		581,541			3,807,324			1,262,928			46,463,886			3,081			1,217,216			3,137,621			56,473,597
Accumulated depreciation		—			(851,655	)		(404,204	)		(30,163,696	)		(2,304	)		(774,959	)		—			(32,196,818	)
Accumulated impairment		—			(23,699	)		(19,104	)		(165,509	)		—			(35	)		—			(208,347	)
Government grants		—			(1,217	)		—			(4,613	)		—			(1	)		—			(5,831	)
	￦	581,541			2,930,753			839,620			16,130,068			777			442,221			3,137,621			24,062,601

G-49

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

13.    Property, Plant and Equipment,  continued

	2016
	Land			Buildings			Structures			Machinery			Vehicles			Others			Construction -in-progress			Total
	(In millions of won)
Beginning net book amount	￦	567,614			2,525,041			424,609			11,639,208			1,369			395,938			1,412,473			16,966,252
Changes during 2016
Additions		567			35,972			116,419			4,690,241			54			131,975			1,221,974			6,197,202
Receipt of government grants		—			—			—			(133	)		—			—			—			(133	)
Disposals		(2,824	)		(53	)		(45	)		(147,960	)		—			(396	)		(7,063	)		(158,341	)
Depreciation		—			(100,250	)		(34,907	)		(3,866,582	)		(381	)		(131,660	)		—			(4,133,780	)
Transfers		10,018			61,213			18,264			957,016			—			40,771			(1,087,282	)		—
Impairments		—			(264	)		(2,814	)		(668	)		—			—			—			(3,746	)
Exchange differences		380			(7,283	)		(5,381	)		(74,614	)		(1	)		(985	)		(2,168	)		(90,052	)
Ending net book amount		575,755			2,514,376			516,145			13,196,508			1,041			435,643			1,537,934			18,777,402
Acquisition cost		575,755			3,287,424			909,991			43,439,176			3,555			1,085,379			1,537,934			50,839,214
Accumulated depreciation		—			(749,076	)		(374,742	)		(29,993,593	)		(2,514	)		(649,669	)		—			(31,769,594	)
Accumulated impairment		—			(23,698	)		(19,104	)		(243,540	)		—			(59	)		—			(286,401	)
Government grants		—			(274	)		—			(5,535	)		—			(8	)		—			(5,817	)
	￦	575,755			2,514,376			516,145			13,196,508			1,041			435,643			1,537,934			18,777,402

(2) Details of depreciation expense allocation for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Cost of sales	￦	4,213,339		3,797,210		3,365,460
Selling and administrative expenses		292,325		276,969		263,938
Other expenses		7,647		5,307		8,050
Development costs		105,465		54,294		56,997
	￦	4,618,776		4,133,780		3,694,445

(3) Certain property, plant and equipment are pledged as collaterals for borrowings as of December 31, 2017 (note 32).

(4) During 2017, the Group capitalized borrowing costs amounting to ￦3,964 million (2016: ￦14,663 million and 2015: ￦18,892 million) on qualifying assets. Borrowing costs were calculated using a capitalization rate of 1.53% (2016: 3.59% and 2015: 4.83%) for the year ended December 31, 2017.

(5) The Group leases certain machinery and others from ME Semiconductor Rental First L.L.C. and other under finance lease agreements.

The book value of the machinery and others subject to finance lease agreement amounted to: ￦79,161 million as of December 31, 2017 (as of December 31, 2016: ￦67,245 million). The machinery and others are pledged as collateral for the finance lease liabilities.

G-50

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

13.    Property, Plant and Equipment,  continued

The Group leases certain machinery and others from Macquarie Capital and others under operating lease agreements. The payment schedule of minimum lease payments under operating lease agreements as of December 31, 2017 is as follows:

	Minimum lease payments
	(In millions of won)
No later than 1 year	￦	164,349
Later than 1 year		194,161
	￦	358,510

(6) As of December 31, 2017, certain inventories; property, plant and equipment; and investment properties are insured and details of insured assets is as follows:

	Insured assets	Insured amount		Insurance Company
		(In millions of won)
Package insurance	Property, plant and equipment, investment property, inventories and business interruption	￦	63,622,518	Hyundai Marine & Fire Insurance Co., Ltd. and others
Fire insurance	Property, plant and equipment, investment property		75,348
Erection all risks insurance	Property, plant and equipment		8,912,280
		￦	72,610,146

In addition to the assets stated above, vehicle and delivery equipment are insured by vehicle comprehensive insurance and liability insurance.

G-51

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

14.     Intangible Assets

(1) Changes in intangible assets for the years ended December 31, 2017 and 2016 are as follows:

	2017
	Goodwill			Industrial property rights			Development costs			Others			Total
	(In millions of won)
Beginning net book amount	￦	730,204			98,963			629,882			456,542			1,915,591
Changes during 2017
Internal development		—			—			511,647			—			511,647
Separate acquisition		—			26,572			—			246,692			273,264
Disposals		—			(4,872	)		—			(1,076	)		(5,948	)
Amortization		—			(15,810	)		(259,279	)		(132,265	)		(407,354	)
Impairment		—			—			—			(769	)		(769	)
Exchange differences		(35,131	)		—			—			(4,010	)		(39,141	)
Ending net book amount		695,073			104,853			882,250			565,114			2,247,290
Acquisition cost		695,073			184,971			2,293,388			950,432			4,123,864
Accumulated amortization and impairment		—			(80,118	)		(1,411,138	)		(354,424	)		(1,845,680	)
Government grants		—			—			—			(30,894	)		(30,894	)
	￦	695,073			104,853			882,250			565,114			2,247,290
	2016
	Goodwill			Industrial property rights			Development costs			Others			Total
	(In millions of won)
Beginning net book amount	￦	720,755			89,787			483,330			411,024			1,704,896
Changes during 2016
Internal development		—			—			352,022			—			352,022
Separate acquisition		—			28,269			—			150,352			178,621
Disposals		—			(5,208	)		—			(1,595	)		(6,803	)
Amortization		—			(14,299	)		(205,198	)		(103,072	)		(322,569	)
Impairment		—			—			(272	)		(98	)		(370	)
Exchange differences		9,449			414			—			(69	)		9,794
Ending net book amount		730,204			98,963			629,882			456,542			1,915,591
Acquisition cost		730,204			171,873			1,797,606			718,765			3,418,448
Accumulated amortization and impairment		—			(72,910	)		(1,167,724	)		(227,262	)		(1,467,896	)
Government grants		—			—			—			(34,961	)		(34,961	)
	￦	730,204			98,963			629,882			456,542			1,915,591

G-52

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

14.     Intangible Assets,  continued

(2) Details of amortization expense allocation for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Cost of sales	￦	46,308		28,877		12,811
Selling and administrative expenses		360,183		293,316		244,978
Development costs		863		376		289
	￦	407,354		322,569		258,078

(3) Goodwill impairment tests

Goodwill impairment tests are undertaken annually. As the Group has only one CGU, goodwill was allocated to one CGU. Recoverable amount of the CGU was determined based on fair value less costs to sell, which was determined using the current stock price as of December 31, 2017. No impairment loss of goodwill was recognized since the recoverable amount is higher than carrying value of the CGU as of December 31, 2017

(4) Details of development costs

(a) Detailed criteria for capitalization of development costs

The Group’s development projects for a new product proceeds in the process of review and planning phases (Phase 0 ~ 4) and product design and mass production phases (Phase 5 ~ 8). The Group recognizes expenditures incurred after Phase 4 in relation with the development for new technology is recognized as an intangible asset. Expenditures incurred at phase 0 through 4 are recognized as expenses.

(b) Development cost capitalized and expenses on research and development

Among costs associated with development activities, ￦511,647 million (2016: ￦352,022 million) that met capitalization criteria, were capitalized as development cost for the year ended December 31, 2017. In addition, costs associated with research activities and other development expenditures that did not meet the criteria in the amount of ￦1,975,386 million (2016: ￦1,744,711 million) were recognized as expenses for the year ended December 31, 2017.

G-53

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

14.     Intangible Assets,  continued

(c) Details of development costs as of December 31, 2017 and 2016 are as follows:

	2017
	Individual Asset	Book value		Residual amortization period
	(In millions of won)
DRAM	1xnm B	￦	305,848	19 months
	1xynm1		192,260	—
NAND	F14		3,990	4 months
	3D(48)		42,343	9 months
	3D(72)		111,164	18 months
	3D(96)1		186,488	—
	3D(128)1		8,635	—
CIS	Hi-1332		2,520	9 months
	Hi-13331		7,695	—
	Hi-13361		7,235	—
	Hi-12211		3,431	—
	Hi-16311		10,641	—
		￦	882,250

¹ Amortization has not started as of December 31, 2017.

	2016
	Individual Asset	Book value		Residual amortization period
	(In millions of won)
DRAM	1xnm A	￦	45,967	7 months
	1xnm B1		279,531	—
	1xynm1		20,399	—
NAND	3D(36) A		14,566	10 months
	3D(36) B		8,554	10 months
	F14		15,960	16 months
	3D(48)		98,800	21 months
	3D(72)1		109,479	—
	3D(96)1		27,099	—
CIS	Hi-842		91	5 months
	Hi-1331		774	5 months
	Hi-1332		5,880	21 months
	Hi-13331		1,956	—
	Hi-12211		826	—
		￦	629,882

¹ Amortization has not started as of December 31, 2016

(d) There are no impairment losses and reversals of impairment in development costs recognized for the years ended December 31, 2017, 2016 and 2015 and there are no accumulated impairment losses in development costs recognized as of December 31, 2017, 2016.

G-54

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

15.     Investment Property

Changes in investment property during the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning net book amount	￦	2,573			2,679
Changes for the year
Depreciation		(105	)		(106	)
Ending net book amount		2,468			2,573
Acquisition cost		5,170			5,170
Accumulated depreciation		(2,702	)		(2,597	)
	￦	2,468			2,573

The depreciation expense of ￦105 million was charged to cost of sales for the year ended December 31, 2017 (2016: ￦106 million and 2015: ￦713 million).

Rental income from investment property during the year ended December 31, 2017 was ￦495 million (2016: ￦500 million and 2015: ￦2,627 million).

16.    Borrowings

(1) Details of borrowings as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Current
Short-term borrowings	￦	192,686		—
Current portion of long-term borrowings		361,258		384,124
Current portion of debentures		219,836		320,736
		773,780		704,860
Non-current
Long-term borrowings		2,080,333		2,095,737
Debentures		1,317,157		1,535,381
		3,397,490		3,631,118
	￦	4,171,270		4,335,978

(2) Details of short-term borrowings as of December 31, 2017 and 2016 are as follows:

	Financial Institutions	Interest rate per annum in 2017 (%)		2017		2016
				(In millions of won)
Foreign currency general borrowings	Korea Export-Import Bank		3M LIBOR + 0.73	￦	107,140		—
	City Bank		3M LIBOR + 0.80		53,466		—
	Industrial & Commercial Bank of China		3M LIBOR + 1.35		21,387		—
	China Bank		3M LIBOR + 1.10		10,693		—
				￦	192,686		—

G-55

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

16.    Borrowings,  continued

(3) Details of long-term borrowings as of December 31, 2017 and 2016 are as follows:

	Financial institutions	Interest rate per annum in 2017 (%)1		2017			2016
				(In millions of won)
Local currency borrowings:
Borrowings for childcare facilities	NongHyup Bank		—	￦	—			62
Funds for equipment	Korea Development Bank		—		—			83,333
	KEB Hana Bank		—		—			30,000
	Korea Development Bank		2.02 ~ 2.50		500,000			200,000
Finance lease liabilities	Hansu Technical Service Ltd.		3.70		74,557			38,948
	ME Semiconductor Rental First L.L.C.		—		—			8,688
Funds for equipment	NongHyup Bank		1.00		1,170			—
Finance lease liabilities	Veolia Water Industrial Development Co., Ltd.		4.00		1,732			—
					577,459			361,031
Foreign currency borrowings:
General borrowings	Export-Import Bank of Korea		3M LIBOR + 1.00 ~ 1.40		910,690			825,808
	Woori Bank		3M LIBOR + 1.20		107,140			120,850
			3M LIBOR + 0.98		160,710			181,275
Funds for equipment	Korea Development Bank		3M LIBOR + 1.15		107,140			120,850
			3M LIBOR + 0.95		160,710			181,275
			3M LIBOR + 1.25		214,280			241,700
	KEB Hana Bank		3M LIBOR + 1.23		85,712			96,680
	NongHyup Bank		3M LIBOR + 1.33		64,284			96,680
			—		—			120,850
Finance lease liabilities	Goodmemory First L.L.C.		—		—			12,671
Funds for equipment	Standard Chartered Bank Ltd.		3M LIBOR + 3.45		53,466			120,191
					1,864,132			2,118,830
					2,441,591			2,479,861
Less:
Current maturities					(361,258	)		(384,124	)
				￦	2,080,333			2,095,737

¹  As of December 31, 2017, the annual interest rates are as follows:

Type	Interest rate per annum as of December 31, 2017 (%)
3M LIBOR		1.69

G-56

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

16.    Borrowings,  continued

(4) Details of debentures as of December 31, 2017 and 2016 are as follows:

	Maturity date		Interest rate per annum in 2017 (%)		2017			2016
					(In millions of won)
Unsecured notes in local currency:
212th		May 30, 2019		5.35	￦	450,000			450,000
213th		Sep. 4, 2017		—		—			200,000
214-1st		Aug. 26, 2020		2.27		210,000			210,000
214-2nd		Aug. 26, 2022		2.63		140,000			140,000
215-1st		Nov. 25, 2018		2.26		70,000			70,000
215-2nd		Nov. 25, 2020		2.56		100,000			100,000
215-3rd		Nov. 25, 2022		2.75		10,000			10,000
216-1st		Feb. 19, 2018		1.74		70,000			70,000
216-2nd		Feb. 19, 2021		2.22		180,000			180,000
216-3rd		Feb. 19, 2023		2.53		80,000			80,000
217-1st		May 27, 2018		1.73		80,000			80,000
217-2nd		May 27, 2021		2.30		150,000			150,000
Secured notes in foreign currency:
Foreign 8th		Jun. 20, 2017		—		—			120,850
						1,540,000			1,860,850
Less: Discounts on debentures						(3,007	)		(4,733	)
Current portion						(219,836	)		(320,736	)
					￦	1,317,157			1,535,381

(5) Finance lease liability

Lease liabilities are effectively secured as the rights to the leased asset belong to the lessor. Details of future minimum lease payments to the lessor as of December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Total minimum lease payment
No later than 1 year	￦	10,773			27,043
Between 1 and 5 years		43,027			21,400
Later than 5 years		34,748			18,725
		88,548			67,168
Discount on present value		(12,259	)		(6,861	)
Net minimum lease payment
No later than 1 year		10,563			26,603
Between 1 and 5 years		38,550			19,136
Later than 5 years		27,176			14,568
	￦	76,289			60,307

G-57

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

17.    Other Current and Non-current Liabilities

Details of other current and non-current liabilities as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Current
Advance receipts	￦	3,040		3,781
Unearned income		81		228
Withholdings		39,862		42,622
Deposits received		989		1,539
Others		7,804		2,328
		51,776		50,498
Non-current
Other long-term employee benefits		63,960		61,883
Long-term advance receipts		4,900		—
		68,860		61,883
	￦	120,636		112,381

18.    Provisions

(1) Details of changes in provisions for the years ended December 31, 2017 and 2016 are as follows:

	2017
	Beginning balance		Increase		Utilization			Reversal		Ending Balance
	(In millions of won)
Warranty	￦	2,997		7,682		(6,872	)		—		3,807
Sales returns		13,317		118,564		(101,209	)		—		30,672
Legal claims		400		9,460		(400	)		—		9,460
Emission allowances		26,108		11,999		(695	)		—		37,412
	￦	42,822		147,705		(109,176	)		—		81,351

	2016
	Beginning balance		Increase		Utilization			Reversal			Ending Balance
	(In millions of won)
Warranty	￦	2,936		38,584		(38,523	)		—			2,997
Sales returns		14,736		33,284		(34,703	)		—			13,317
Legal claims		1,523		400		(1,097	)		(426	)		400
Emission allowances		6,081		21,366		(1,339	)		—			26,108
	￦	25,276		93,634		(75,662	)		(426	)		42,822

(2)    Provisions for warranty

The Group estimates the expected warranty costs based on historical results and accrues provisions for warranty.

G-58

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

18.    Provisions,  continued

(3)    Provisions for sales returns

The Group estimates the expected sales returns based on historical results and adjusts sales and cost of sales, respectively. Accordingly, related gross profit and estimated expenses related to the return (such as transportation costs) are recorded as provisions for sales returns.

(4)    Provisions for legal claims

The Group recognizes provisions for legal claims when the Group has a present legal or constructive obligation as a result of past events and an outflow of resources required to settle the obligation is probable and the amount can be reliably estimated.

(5)    Provision for emission allowances

The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

19.    Defined Benefit Liabilities

Under the defined benefit plan, the Group pays employee benefits to retired employees in the form of a lump sum that are based on their salaries and years of service at the time of their retirement. Accordingly, the Group is exposed to a variety of actuarial assumption risks such as risk associated with expected years of service, interest risk, and market (investment) risk.

(1) Details of defined benefit liabilities as of December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Present value of defined benefit obligations	￦	1,330,559			1,195,047
Fair value of plan assets		(1,337,848	)		(888,559	)
Net defined benefit liabilities (assets)	￦	(7,289	)		306,488
Defined benefit liabilities		6,096			306,488
Defined benefit assets1		(13,385	)		—

¹  The Parent Company’s fair value of plan assets in excess of the present value of defined benefit obligations amounted to ￦13,385 million as of December 31, 2017 is presented as defined benefit assets.

(2) Principal actuarial assumptions as of December 31, 2017 and 2016 are as follows:

	2017 (%)	2016 (%)
Discount rate for defined benefit obligations	3.81 ~ 4.35	3.09 ~ 4.10
Expected rate of salary increase	2.20 ~ 5.46	2.20 ~ 5.48

(3) Weighted average durations of defined benefit obligations as of December 31, 2017 and 2016 are 11.47 and 12.11 years, respectively.

G-59

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

19.    Defined Benefit Liabilities,  continued

(4) Changes in defined benefit obligations for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	1,195,047			1,055,340
Current service cost		156,777			159,190
Past service cost		—			33,198
Interest cost		46,877			41,148
Transfer from (to) associates		546			(2,440	)
Remeasurements:		(23,406	)		(47,817	)
Financial assumption		(47,319	)		5,792
Adjustment based on experience		23,913			(53,609	)
Benefits paid		(45,241	)		(43,602	)
Effect of movements in exchange rates		(41	)		30
Ending balance	￦	1,330,559			1,195,047

(5) Changes in plan assets for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	888,559			570,363
Contributions		460,772			327,640
Interest income		34,880			20,204
Transfer from (to) associates		550			(1,331	)
Benefits paid		(27,383	)		(19,151	)
Remeasurements		(19,530	)		(9,166	)
Ending balance	￦	1,337,848			888,559

(6) The amounts recognized in profit or loss for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Current service cost	￦	156,777		159,190		139,486
Past service cost		—		33,198		—
Net interest expense		11,997		20,944		20,698
	￦	168,774		213,332		160,184

(7) The amounts in which defined benefit plan related expenses are included for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Cost of sales (manufacturing costs)	￦	95,301		125,241		88,415
Selling and administrative expenses		73,473		88,091		71,769
	￦	168,774		213,332		160,184

G-60

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

19.    Defined Benefit Liabilities,  continued

(8) Details of plan assets as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Deposits	￦	1,336,484		887,074
Other		1,364		1,485
	￦	1,337,848		888,559

Actual return on plan assets for the year ended December 31, 2017 amounted to ￦15,350 million (2016: ￦11,038 million and 2015: ￦9,884 million).

(9) As of December 31, 2017, the Group funded defined benefit obligations through insurance plans with Mirae Asset Life Insurance Co., Ltd. and other insurance companies. The Group’s reasonable estimation of contribution to the plan assets for the year ending December 31, 2018 is ￦254,554 million under the assumption that the Group maintains the defined benefit plan.

(10) The sensitivity analysis of the defined benefit obligations as of December 31, 2017 to changes in the principal assumptions is as follows:

	Effects on defined benefit obligation
	Increase of rate			Decrease of rate
	(In millions of won)
Discount rate (if changed by 1%)	￦	(135,018	)		158,508
Expected rate of salary increase (if changed by 1%)		159,116			(137,904	)

The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used.

(11) Information about the maturity profile of the defined benefit obligation as of December 31, 2017 is as follows:

	2017
	Less than 1 year		1 - 5 years		5 - 10 years		10 - 20 years		Total
	(In millions of won)
Benefits paid	￦	44,905		313,626		779,466		2,944,492		4,082,489

Information about the maturity profile is based on undiscounted amount of defined benefit obligation and classified to employee’s expected years of remaining services.

(12) The Group adopted defined contribution retirement pension for the employees subject to peak wage system. Contributions to defined contribution plans amounting to ￦76 million (2016: ￦12 million) was recognized as cost of sales for the year ended December 31, 2017.

G-61

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

20.     Deferred Tax Assets and Liabilities

(1) Changes in deferred income tax assets and liabilities for the years ended December 31, 2017 and 2016 without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:

	2017
	January 1, 2017			Profit or loss			Equity			Foreign exchange differences			December 31, 2017
	(In millions of won)
Loss on valuation of inventories	￦	16,976			32,342			—			(152	)		49,166
Accumulated depreciation		85,032			223,393			—			(8,792	)		299,633
Defined benefits liabilities		60,889			(59,344	)		(1,114	)		(15	)		416
Available-for-sale financial assets		34,441			4,802			4,072			—			43,315
Employee benefits		28,671			5,490			—			(3	)		34,158
Provisions		36,758			4,147			—			(137	)		40,768
Advanced depreciation provision		(55,666	)		(7,553	)		—			—			(63,219	)
Others		39,597			13,743			—			(1,505	)		51,835
Deferred tax assets for temporary differences, net		246,698			217,020			2,958			(10,604	)		456,072
Tax credit carryforwards recognized		360,131			(351,182	)		—			(912	)		8,037
Tax loss carryforwards recognized		180,807			(31,852	)		—			(18,835	)		130,120
Deferred tax assets recognized	￦	787,636			(166,014	)		2,958			(30,351	)		594,229

	2016
	January 1, 2016			Profit or loss			Equity		Foreign exchange differences			December 31, 2016
	(In millions of won)
Loss on valuation of inventories	￦	40,341			(23,388	)		—		23			16,976
Accumulated depreciation		51,963			34,331			—		(1,262	)		85,032
Defined benefits liabilities		15,985			(23,267	)		68,171		—			60,889
Available-for-sale financial assets		34,427			14			—		—			34,441
Employee benefits		4,955			23,716			—		—			28,671
Provisions		22,151			14,607			—		—			36,758
Advanced depreciation provision		(55,666	)		—			—		—			(55,666	)
Others		76,591			(31,898	)		—		(5,096	)		39,597
Deferred tax assets for temporary differences, net		190,747			(5,885	)		68,171		(6,335	)		246,698
Tax credit carryforwards recognized		128,145			231,881			—		105			360,131
Tax loss carryforwards recognized		34,730			139,323			—		6,754			180,807
Deferred tax assets recognized	￦	353,622			365,319			68,171		524			787,636

(2) As of December 31, 2017, the deductible temporary differences that are not recognized as deferred tax assets (liabilities) are as follows:

	2017		2016
	(In millions of won)
Investments in subsidiaries, associates, and joint ventures and others	￦	317,133		787,500

G-62

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

21.    Derivative Financial Instruments

(1) Details of derivative financial liabilities as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Current
Interest rates swap	￦	—		288

(2) Details of gains and losses from derivative instruments for the years ended December 31, 2017, 2016 and 2015 are follows:

	2017
	Gain on valuation		Loss on valuation		Gain on transaction		Loss on transaction
	(In millions of won)
Interest rates swap	￦	—		—		902		913

	2016
	Gain on valuation		Loss on valuation		Gain on transaction		Loss on transaction
	(In millions of won)
Interest rates swap	￦	395		—		1,077		1,525

	2015
	Gain on valuation		Loss on valuation		Gain on transaction		Loss on transaction
	(In millions of won)
Interest rates swap	￦	25		—		1,672		2,058

22.    Capital Stock, Capital Surplus and Other Equity

(1) The Parent Company has 9,000,000,000 authorized shares and the face value per share is ￦5,000 as of December 31, 2017. The number of shares issued, common shares, capital surplus and other equity as of December 31, 2017 and 2016, are as follows:

	2017			2016
	(In millions of won, thousands of shares)
Issued shares1		731,530			731,530
Capital stock:
Common shares	￦	3,657,652			3,657,652
Capital surplus:
Additional paid in capital		3,625,797			3,625,797
Others		517,939			517,939
		4,143,736			4,143,736
Other equity:
Acquisition cost of treasury shares		(771,913	)		(771,913	)
Stock option		813			—
	￦	(771,100	)		(771,913	)
Number of treasury shares		22,001			22,001

G-63

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

22.    Capital Stock, Capital Surplus and Other Equity,  continued

¹  As of December 31, 2017, the number of outstanding shares is 728,002 thousand shares, which differs from total issued shares due to the effect of stock retirement.

(2) There are no changes in number of outstanding shares during the years ended December 31, 2017, 2016 and 2015.

23.    Accumulated Other Comprehensive Loss

(1) Details of accumulated other comprehensive loss as of December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Equity-accounted investees — share of other comprehensive income (loss)	￦	(20,442	)		5,944
Loss on valuation of available-for-sale financial asset		(10,735	)		—
Foreign operations — foreign currency translation differences		(471,087	)		(85,047	)
	￦	(502,264	)		(79,103	)

(2) Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2017 and 2016 are as follows:

	2017
	Beginning			Change			Ending
	(In millions of won)
Equity-accounted investees — share of other comprehensive income (loss)	￦	5,944			(26,386	)		(20,442	)
Loss on valuation of available-for-sale financial assets		—			(10,735	)		(10,735	)
Foreign operations — foreign currency translation differences		(85,047	)		(386,040	)		(471,087	)
	￦	(79,103	)		(423,161	)		(502,264	)

	2016
	Beginning			Change			Ending
	(In millions of won)
Equity-accounted investees — share of other comprehensive income	￦	1,856			4,088			5,944
Foreign operations — foreign currency translation differences		(3,456	)		(81,591	)		(85,047	)
	￦	(1,600	)		(77,503	)		(79,103	)

24.    Retained Earnings and Dividends

(1) Details of retained earnings as of December 31, 2017 and 2016 are as follows:

	2017		2016
	(In millions of won)
Legal reserve1	￦	108,354		65,994
Discretionary reserve2		235,506		235,506
Unappropriated retained earnings		26,943,396		16,765,083
	￦	27,287,256		17,066,583

¹  The Commercial Code of the Republic of Korea requires the Parent Company to appropriate for each financial year, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals

G-64

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

24.    Retained Earnings and Dividends,  continued

50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit.

²  Discretionary reserve is a reserve for technology development.

(2) Dividends of the Parent Company

(a) Details of dividends for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won and In thousands of shares)
Type of dividends		Cash Dividends		Cash Dividends		Cash Dividends
Outstanding ordinary shares		706,002		706,002		706,002
Par value (in won)	￦	5,000		5,000		5,000
Dividend rate		20%		12%		10%
Total dividends	￦	706,002		423,601		353,001

(b) Dividend payout ratio for the years ended December 31, 2017, 2016 and 2015 is as follows:

	2017		2016		2015
	(In millions of won)
Dividends	￦	706,002		423,601		353,001
Profit attributable to owners of the Parent Company		10,641,512		2,953,774		4,322,356
Dividend payout ratio		6.63%		14.34%		8.17%

(c) Dividend yield ratio for the years ended December 31, 2017, 2016 and 2015 is as follows:

	2017		2016		2015
	(In won)
Dividends per share	￦	1,000		600		500
Closing stock price		76,500		44,700		30,750
Dividend yield ratio		1.31%		1.34%		1.63%

G-65

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

25.     Selling and Administrative Expenses

Selling and administrative expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
	(In millions of won)
Selling and administrative expenses:
Salaries	￦	467,824			348,571			385,281
Defined benefit plan		25,841			30,135			25,499
Employee benefits		87,299			86,721			81,606
Commission		232,799			230,903			212,129
Depreciation		96,153			82,461			89,879
Amortization		348,519			282,392			239,227
Freight and custody charge		38,920			31,821			41,999
Legal cost		33,251			9,286			7,722
Rental		13,633			14,571			18,698
Taxes and dues		17,132			18,160			18,436
Training		27,105			19,503			20,314
Advertising		83,748			47,055			43,411
Utility		14,480			14,204			13,595
Supplies		82,108			56,067			51,630
Repair		35,871			6,185			9,629
Travel and transportation		11,166			10,459			12,854
Sales promotion cost		57,180			42,170			46,169
Product warranties		7,682			38,584			396
Other		30,168			20,131			7,747
		1,710,879			1,389,379			1,326,221
Research and development:
Expenditure on research and development		2,487,033			2,096,733			1,969,588
Development cost capitalized		(511,647	)		(352,022	)		(349,264	)
		1,975,386			1,744,711			1,620,324
	￦	3,686,265			3,134,090			2,946,545

G-66

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

26.     Expenses by Nature

Nature of expenses for the years ended December 31, 2017, 2016 and 2015 is as follows:

	2017			20162			20152
	(In millions of won)
Changes in finished goods and work-in-process	￦	(528,298	)		(60,415	)		(290,904	)
Raw materials and consumables		4,257,017			3,437,714			3,473,238
Employee benefit		3,059,690			2,317,687			2,439,456
Depreciation and amortization		4,912,260			4,396,478			3,887,900
Royalty		221,789			229,422			210,902
Commission		1,254,084			986,059			832,608
Utility		971,489			840,129			740,833
Repair		946,132			604,458			613,987
Outsourcing		895,996			785,755			982,457
Other		397,949			383,942			571,421
Total1	￦	16,388,108			13,921,229			13,461,898

¹  Total expenses consist of cost of sales and selling and administrative expenses.

²  Expenses for the years ended December 31, 2016 and 2015 were reclassified to conform with the classification for the year ended December 31, 2017.

27.     Finance Income and Expenses

Finance income and expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
	(In millions of won)
Finance income:
Interest income	￦	54,275			34,174			40,715
Dividend income		13			18			1,265
Foreign exchange differences		893,047			762,747			766,981
Gain from derivative instruments		902			1,472			1,697
Gain on disposal of financial assets at fair value through profit or loss		15,754			15,348			33,814
Gain on valuation of financial assets at fair value through profit or loss		1,399			1,133			2,280
Gain on disposal of available-for-sale financial assets		31,078			—			—
		996,468			814,892			846,752
Finance expenses:
Interest expenses		123,918			120,122			118,505
Foreign exchange differences		1,124,628			724,681			709,350
Loss on disposal of available-for-sale financial assets		158			—			—
Loss from derivative instruments		913			1,525			2,058
		1,249,617			846,328			829,913
Net finance income (expense)	￦	(253,149	)		(31,436	)		16,839

G-67

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

28.    Other Income and Expenses

Other income for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Gain on disposal of property, plant and equipment	￦	35,161		13,167		16,554
Gain on disposal of intangible asset		758		—		—
Other		41,963		39,204		23,925
	￦	77,882		52,371		40,479

Other expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Loss on disposal of property, plant and equipment	￦	10,229		6,566		19,540
Loss on disposal of intangible assets		4,872		5,218		5,493
Loss on disposal of trade receivables		7,049		3,137		1,413
Loss on impairment of property, plant and equipment		—		3,746		22,055
Loss on impairment of intangible assets		769		98		1,771
Donation		76,195		51,629		55,131
Other		19,746		33,585		43,536
	￦	118,860		103,979		148,939

29.    Income Tax Expense

(1) Income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
	(In millions of won)
Current tax:
Current tax on profits for the year	￦	2,687,405			543,594			1,026,791
Adjustments for the current tax liabilities attributable to prior year, but recognized in current year		(56,072	)		77,696			—
		2,631,333			621,290			1,026,791
Deferred tax:
Changes in net deferred tax assets		166,014			(365,319	)		(81,265	)
Income tax expense	￦	2,797,347			255,971			945,526

G-68

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

29.    Income Tax Expense,  continued

(2) The relationship between income tax expense and accounting profit for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
	(In millions of won)
Profit before tax	￦	13,439,566			3,216,454			5,269,121
Tax calculated at domestic tax rates applicable to profits in the respective countries		3,204,233			777,920			1,266,293
Tax effects of:
Tax-exempt income		(157	)		(2,669	)		(24	)
Non-deductible expenses		4,703			3,981			6,614
Changes in unrecognized deferred tax assets		(113,829	)		(517,805	)		(252,088	)
Tax credit		(126,213	)		(101,843	)		(104,425	)
Adjustments for prior years’ tax liabilities due to changes in estimates		(56,072	)		77,696			—
Others		64,682			18,691			29,156
Income tax expense	￦	2,797,347			255,971			945,526

(3) The income taxes recorded directly in equity for the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Remeasurements of defined benefit liabilities	￦	(1,114	)		68,171
Gain on valuation of available-for-sale financial assets		4,072			—
	￦	2,958			68,171

30.    Earnings Per Share

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the Parent Company by the weighted average number of outstanding ordinary shares during the years.

(1) Basic earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won, except for shares and per share amounts)
Profit attributable to ordinary shareholders	￦	10,641,512		2,953,774		4,322,356
Weighted average number of outstanding ordinary shares1		706,001,795		706,001,795		720,143,294
Basic earnings per share (in won)		15,073		4,184		6,002

¹  Weighted average number of outstanding ordinary shares is calculated as follows:

	2017			2016			2015
	(In shares)
Outstanding ordinary shares		728,002,365			728,002,365			728,002,365
Acquisition of treasury shares		(22,000,570	)		(22,000,570	)		(7,859,071	)
Weighted average number of outstanding ordinary shares		706,001,795			706,001,795			720,143,294

G-69

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

30.     Earnings Per Share,  continued

(2) Diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won, except for shares and per share amounts)
Profit attributable to ordinary shareholders of the Parent Company	￦	10,641,512		2,953,774		4,322,356
Weighted average number of diluted outstanding ordinary shares1		706,038,232		706,001,795		720,143,294
Diluted earnings per share (in won)	￦	15,072		4,184		6,002

¹  Weighted average number of outstanding ordinary shares is calculated as follows:

	2017		2016		2015
	(In shares)
Weighted average number of outstanding ordinary shares		706,001,795		706,001,795		720,143,294
Stock options		36,437		—		—
Weighted average number of diluted outstanding ordinary shares		706,038,232		706,001,795		720,143,294

31.    Transactions with Related Parties

(1) List of related parties as of December 31, 2017 are as follows:

Type	Name of related parties
Associates	Stratio, Inc., SK China Company Limited, Gemini Partners Pte. Ltd., TCL Fund
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.
Other related parties	SK Telecom Co., Ltd., which has significant influence over the Group, SK Holdings Co., Ltd., which has control over SK Telecom Co., Ltd., and their subsidiaries

(2) Significant transactions for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017
	Company	Operating revenue and others		Operating expense and others		Asset acquisition		Dividend income
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	5,782		582,745		—		14,828
Other related parties	SK Telecom Co., Ltd.1		318		96,441		24,183		—
	SK Holdings Co., Ltd.2		994		174,556		142,913		—
	ESSENCORE Limited		749,238		—		—		—
	SK Engineering & Construction Co., Ltd.		27,433		7,290		1,464,735		—
	SK Energy Co., Ltd.		5,075		54,682		—		—
	SK Networks Co., Ltd.		—		5,350		—		—
	SKC Solmics Co., Ltd.		—		30,486		1,020		—
	Chungcheong energy service Co., Ltd.		10		16,062		10		—
	Happynarae Co., Ltd.		34		455,632		36,516		—
	SK Materials Co., Ltd.		3		50,657		—		—
	SK Siltron Co., Ltd.		1,538		84,791		—		—
	Others		667		172,703		29,787		—
		￦	791,092		1,731,395		1,699,164		14,828

G-70

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

31.    Transactions with Related Parties,  continued

¹  Operating expense and others include dividend payments of ￦87,660 million.

²  For the year ended December 31, 2017, royalty paid for the use of the SK brand amounted to ￦34,882 million.

	2016
	Company	Operating revenue and others		Operating expense and others		Asset acquisition		Dividend income
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	1,171		568,526		17,678		20,726
Other related parties	SK Telecom Co., Ltd.1		375		81,125		12,181		—
	SK Holdings Co., Ltd.2		907		133,441		146,823		—
	ESSENCORE Limited		571,639		—		—		—
	SK Engineering & Construction Co., Ltd.		2,512		21,838		659,312		—
	SK Energy Co., Ltd.		4,683		47,768		—		—
	SK Networks Co., Ltd.		—		4,747		—		—
	SKC Solmics Co., Ltd.		—		34,433		432		—
	Chungcheong energy service Co., Ltd.		10		16,460		—		—
	Happynarae Co., Ltd.		30		173,948		13,595		—
	SK Materials Co., Ltd.		—		43,213		—		—
	Others		432		125,662		17,528		—
		￦	581,759		1,251,161		867,549		20,726

¹  Operating expense and others include dividend payments of ￦73,050 million.

²  For the year ended December 31, 2016, royalty paid for the use of the SK brand amounted to ￦37,887 million.

	2015
	Company	Operating revenue and others		Operating expense and others		Asset acquisition		Dividend income
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	1,364		675,112		—		15,780
Other related parties	SK Telecom Co., Ltd.1		2,384		52,944		3,984		—
	SK Holdings Co., Ltd.2,3		199		81,997		76,398		—
	ESSENCORE Limited		147,992		—		—		—
	SK Engineering & Construction Co., Ltd.		1,923		1,378		1,084,554		—
	SK Energy Co., Ltd.		5,245		44,893		—		—
	SK Networks Co., Ltd.		—		3,627		—		—
	Ko-one energy service Co., Ltd.		—		2,685		7		—
	SKC Solmics Co., Ltd.		—		36,055		269		—
	Chungcheong energy service Co., Ltd.		—		24,292		—		—
	Happynarae Co., Ltd.		3,176		83,258		21,448		—
	Others		493		63,845		14,516		—
		￦	162,776		1,070,086		1,201,176		15,780

¹  Operating expense and others include dividend payments of ￦43,830 million.

²  For the year ended December 31, 2015, royalty paid for the use of the SK brand amounted to ￦34,597 million.

G-71

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

31.    Transactions with Related Parties,  continued

³  Meanwhile, on August 1, 2015, SK C&C Co., Ltd. merged with SK Holdings Co., Ltd. and changed its name to SK Holdings Co., Ltd.

(3) The balances of significant transactions as of December 31, 2017 and December 31, 2016 are as follows:

	2017
	Company	Trade receivables and others		Other payables and others
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	—		90,782
Other related parties	SK Telecom Co., Ltd.		94		3,014
	SK Holdings Co., Ltd.		5,530		108,038
	ESSENCORE Limited		90,367		—
	SK Engineering & Construction Co., Ltd.		7,327		946,517
	SK Energy Co., Ltd.		500		10,505
	SK Networks Co., Ltd.		—		1,395
	SKC Solmics Co., Ltd.		—		3,393
	Chungcheong energy service Co., Ltd.		11		2,128
	Happynarae Co., Ltd.		3		55,126
	SK Materials Co., Ltd.		—		11,692
	SK Siltron Co., Ltd.1		150,521		21,071
	Others		90		99,043
		￦	254,443		1,352,704

¹  The Group has paid ￦150,000 million in advance for the purchase of wafers during the year ended December 31, 2017 (See note 32).

	2016
	Company	Trade receivables and others		Other payables and others
		(In millions of won)
Joint venture	HITECH Semiconductor (Wuxi) Co., Ltd.	￦	—		99,328
Other related parties	SK Telecom Co., Ltd.		92		4,281
	SK Holdings Co., Ltd.		6,343		98,396
	ESSENCORE Limited		72,507		—
	SK Engineering & Construction Co., Ltd.		2,016		530,940
	SK Energy Co., Ltd.		417		6,544
	SK Networks Co., Ltd.		—		1,143
	SKC Solmics Co., Ltd.		—		10,067
	Chungcheong energy service Co., Ltd.		—		1,804
	Happynarae Co., Ltd.		3		23,046
	SK Materials Co., Ltd.		—		9,205
	Others		5		45,656
		￦	81,383		830,410

G-72

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

31.    Transactions with Related Parties,  continued

(4) Key management compensation

Key management includes the Parent Company’s directors, members of the board of directors, chief financial officer, and internal auditors. The compensation paid to key management for employee services for the years ended December 31, 2017, 2016 and 2015 are as follows:

Details	2017		2016		2015
	(In millions of won)
Salaries	￦	106,291		68,504		60,024
Defined benefit plan related expenses		8,840		8,184		7,025
Share-based payment		813		—		—
Others		13		21		15
	￦	115,957		76,709		67,064

32.    Commitments and Contingencies

(1)    The details of litigations and claims of the Group as of December 31, 2017 are as follows:

(a)    Lawsuit from Netlist, Inc.

Netlist, Inc. filed a lawsuit against SK hynix, the Parent Company and others, which are subsidiaries of the Parent Company alleging infringement of multiple patents to U.S. District Court for the Central District of California, on August 31, 2016 and June 14, 2017, to the U.S. International Trade Commission on September 1, 2016 and October 31, 2017 and to German District Court of Munich and Beijing Intellectual Property Court, respectively, on July 11, 2017. As of December 31, 2017, the patent infringement lawsuits filed by Netlist, Inc. in the U.S. have not been finalized and the final result cannot be predicted.

Meanwhile, the lawsuit filed to the US International Trade Commission on September 1, 2016 was finalized on January 16, 2018 in conclusion that the Parent Company and its subsidiaries did not infringe the patents of Netlist, Inc.

(b)    Other patent infringement claims and litigation

In addition to the above litigations, the Group has responded to various disputes related to intellectual property rights and has recognized a liability when it is probable that an outflow of resources will arise and a loss can be reliably estimated.

(2)    Technology and patent license agreements

The Group has entered into a number of patent license agreements with several companies. The related royalties are paid on a lumpsum or running basis in accordance with the respective agreements. The lumpsum royalties are expensed over the contract period using the straight-line method.

(3)    Contract for supply of industrial water

The Group has entered into a contract with Veolia Water Industrial Development Co., Ltd. (“VWID”) under which the Group purchases industrial water from VWID by March 2018. According to the contract, the Group is obligated to pay base service charges, which are predetermined and additional service charges which are variable according to the amount of water used.

G-73

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

32.    Commitments and Contingencies,  continued

(4)    Post- process service contract with HITECH

The Group has entered into an agreement with HITECH to be provided with post-process service by HITECH. The conditions of the service provided includes package, package test, modules and others. According to the agreement, the Group is liable to guarantee a certain level of margin to HITECH.

(5)    Assets provided as collateral

Details of assets provided as collateral as of December 31, 2017 are as follows:

	Book value		Pledged amount		Remark
	(In millions of won)
Land	￦	18,055
Buildings		52,582		1,398,765	Borrowings for equipment and others
Machinery		1,114,508
	￦	1,185,145		1,398,765

Other than the above assets provided as collateral, the finance lease assets of the Group are pledged as collateral for the finance lease liabilities in accordance with the finance lease contracts.

(6)    Financing agreements

Details of credit lines with financial institutions as of December 31, 2017 are as follows:

	Financial Institution	Commitment	Currency	Amount
			(In millions of won and millions of foreign currencies)
The Parent Company	KEB Hana Bank and others	Import finance including usance	USD		265
		Export finance including bills bought	USD		250
		Comprehensive limit contract for import and export	USD		960
		Accounts receivable factoring contracts which have no right to recourse	KRW		140,000
SK Hynix Semiconductor (China) Ltd. (SKHYCL)	Agricultural Bank of China and others	Import finance including usance	RMB USD		1,300 232
SK Hynix America Inc. (SKHYA) and other sales entities	Citibank and others	Accounts receivable factoring contracts which have no right to recourse	USD		319
Domestic subsidiaries	KEB Hana Bank and others	Export finance including bills bought	KRW		500
		Guarantee	KRW		10,000
		Agent contract for procurement payment	KRW		15,000

G-74

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

32.    Commitments and Contingencies,  continued

(7)    Details of guarantees provided to others as of December 31, 2017 are as follows:

	Amount		Remark
	(In millions of won)
Employees	￦	8	Guarantees for employees’ borrowings relating to employee stock ownership

(8)    Capital commitments

The Group’s unrecorded commitments in relation to the capital expenditures on property, plant and equipment as of December 31, 2017 and 2016 are ￦661,588 million and ￦293,730 million, respectively.

(9)    Equity investment in Toshiba semiconductor business

The Group has decided to invest JPY 266,000 million in BCPE Pangea Intermediate Holdings Cayman, LP and acquire convertible bonds of JPY 129,000 million issued by BCPE Pangea Cayman 2 Limited, by participating in a consortium including Bain Capital (“Bain Consortium”) in connection with the Bain Consortium’s acquisition of Toshiba’s semiconductor business.

Meanwhile, the Bain Consortium and Toshiba signed an agreement to acquire Toshiba’s semiconductor business and approvals from various countries’ government were in process as of December 31, 2017. The completion of the arrangement is subject to the results of compliance in the prerequisites set forth in the arrangement including the approval by various countries’ government.

(10) Long-term purchase agreement for raw materials

The Group has entered into a procurement agreement with SK Siltron Co., Ltd. from 2019 to 2023 for stable supply of wafer with an advanced payment of ￦150,000 million during the year ended December 31, 2017. In addition, SK Siltron Co., Ltd. has committed to provide certain portion of its investment assets as collateral to secure the advanced payment of ￦150,000 million prepaid by the Group.

G-75

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

33.    Cash Generated from Operating Activities

(1) Reconciliations between profit for the year and net cash inflow from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017			2016			2015
	(In millions of won)
Profit for the year		￦10,642,219			2,960,483			4,323,595
Adjustment
Income tax expense		2,797,347			255,971			945,526
Defined benefit plan related expenses		168,774			213,332			160,184
Depreciation of property, plant and equipment and investment property		4,618,881			4,133,886			3,695,158
Amortization		407,354			322,569			258,078
Loss on impairment of property, plant and equipment		—			3,746			22,055
Loss on foreign currency translation		246,316			116,500			143,768
Interest expense		123,918			120,122			118,505
Gain on foreign currency translation		(310,978	)		(106,840	)		(58,658	)
Interest income		(54,275	)		(34,174	)		(40,715	)
Loss on derivative instruments, net		11			53			361
Gain on equity method investments, net		(12,367	)		(22,752	)		(24,642	)
Others, net		(63,803	)		(17,069	)		(18,231	)
Changes in operating assets and liabilities
Decrease (increase) in trade receivables		(2,964,272	)		(470,792	)		1,260,172
Decrease (increase) in loans and other receivables		(36,541	)		62,758			724,149
Increase in inventories		(634,623	)		(110,769	)		(414,830	)
Increase in other assets		(302,967	)		(55,760	)		(177,316	)
Increase (decrease) in trade payables		514,751			(208,439	)		(156,074	)
Decrease in other payables		(110	)		(23,558	)		(60,252	)
Increase (decrease) in other non-trade payables		666,770			(328,871	)		(147,392	)
Increase (decrease) in provisions		38,860			17,521			(6,889	)
Increase (decrease) in other liabilities		4,081			5,018			(29,327	)
Payment of defined benefit liabilities		(15,313	)		(18,514	)		(6,392	)
Contribution to plan assets		(460,772	)		(327,640	)		(153,566	)
Cash generated from operating activities	￦	15,373,261			6,486,781			10,357,267

(2) Details of significant transactions without inflows and outflows of cash for the years ended December 31, 2017, 2016 and 2015 are as follows:

	2017		2016		2015
	(In millions of won)
Investment in-kind for SK China Company Limited	￦	143,209		—		—
Increase in other payables related to acquisition of property, plant and equipment		1,154,195		224,412		—

G-76

SK HYNIX, INC. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2017, 2016 and 2015

33.    Cash Generated from Operating Activities,  continued

(3) Changes in liabilities arising from financial activities during the years ended December 31, 2017 and 2016 are as follows:

	2017			2016
	(In millions of won)
Beginning balance	￦	4,335,978			3,818,595
Cash flows from financing activities
Proceeds from borrowings		782,329			2,080,343
Repayments of borrowings		(710,635	)		(1,610,466	)
Foreign currency differences		(238,112	)		44,345
Present value discount (interest expense)		1,710			3,161
Ending balance	￦	4,171,270			4,335,978

34. Share-based payment

(1) The Group granted equity-settled stock options to the Group’s key management during the year ended December 31, 2017 and the stock options as of December 31, 2017 are as follows.

	Total numbers of share option granted		Exercised		Forfeited or Cancelled		Outstanding at December 31, 2017
	(In shares)
1st		99,600		—		—		99,600
2nd		99,600		—		—		99,600
3rd		99,600		—		—		99,600
		298,800		—		—		298,800

	Grant date	Service Period for Vesting	Exercisable Period	Exercise price (in won)
1st	March 24, 2017	March 24, 2017—March 24, 2019	March 25, 2019—March 24, 2022		48,400
2nd	March 24, 2017	March 24, 2017—March 24, 2020	March 25, 2020—March 24, 2023		52,280
3rd	March 24, 2017	March 24, 2017—March 24, 2021	March 25, 2021—March 24, 2024		56,460

(2) Measurement of fair value

The compensation cost is calculated by applying a binomial option-pricing model in estimating the fair value of the option at grant date. The inputs used are as follows:

	1st			2nd			3rd
Expected volatility		23.23	%		23.23	%		23.23	%
Estimated fair value of share option (in won)		10,026			9,613			9,296
Dividend yield ratio		1.20	%		1.20	%		1.20	%
Risk free ratio		1.86	%		1.95	%		2.07	%

(3) The compensation expense for the year ended December 31, 2017 was ￦813 million.

G-77

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.

SK TELECOM CO., LTD. (Registrant)
/s/    Jeong Hwan Choi
Name:	Jeong Hwan Choi
Title:	Senior Vice President, IRO

Date: April 27, 2018

EX-8.1

Exhibit 8.1

List of Subsidiaries of SK Telecom Co., Ltd.

(As of December 31, 2017)

Subsidiary Name	Jurisdiction of Incorporation
SK Telink Co., Ltd.	Korea
SK m&service Co., Ltd.	Korea
SK Communications Co., Ltd.	Korea
SK Broadband Co., Ltd.	Korea
K-net Culture and Contents Venture Fund	Korea
PS&Marketing Co., Ltd.	Korea
Service Ace Co., Ltd.	Korea
Service Top Co., Ltd.	Korea
Network O&S Co., Ltd.	Korea
SK Planet Co., Ltd.	Korea
NSOK Co., Ltd.	Korea
Iriver Ltd.	Korea
Iriver Enterprise Ltd.	Hong Kong
Iriver Inc.	U.S.A.
Iriver China Co., Ltd.	China
Dongguan Iriver Electronics Co., Ltd.	China
Groovers JP Ltd.	Japan
SK Telecom China Holdings Co., Ltd.	China
SK Global Healthcare Business Group, Ltd.	Hong Kong
SK Planet Japan	Japan
SKT Vietnam PTE., Ltd.	Singapore
SK Planet Global PTE. Ltd.	Singapore
SKP Global Holdings PTE. Ltd.	Singapore
SKT Americas, Inc.	U.S.A.
SKP America LLC	U.S.A.
YTK Investment Ltd.	Cayman Islands
Atlas Investment	Cayman Islands
SK Telecom Innovation Fund, L.P.	U.S.A.
SK Telecom China Fund I L.P.	Cayman Islands
Shopkick Management Company, Inc.	U.S.A.
Shopkick, Inc.	U.S.A.
SK techx Co., Ltd.	Korea
One Store Co., Ltd.	Korea
Hello Nature Ltd.	Korea
11street (Thailand) Co., Ltd.	Thailand
S.M. Life Design Company Japan Inc.	Japan
S.M. Mobile Communications Japan Inc.	Japan
Home & Service Co., Ltd.	Korea
SK stoa Co., Ltd.	Korea

EX-12.1

Exhibit 12.1

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act 2002

I, Jung Ho Park, certify that:

1. I have reviewed this annual report on Form 20-F of SK Telecom Co., Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 27, 2018

/s/ Jung Ho Park

Jung Ho Park

President and Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Young Sang Ryu, certify that:

1. I have reviewed this annual report on Form 20-F of SK Telecom Co., Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 27, 2018

/s/ Young Sang Ryu

Young Sang Ryu

Chief Financial Officer

EX-13.1

Exhibit 13.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of SK Telecom Co., Ltd., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2017 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: April 27, 2018	/s/ Jung Ho Park
	Jung Ho Park
	President and Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

EX-13.2

Exhibit 13.2

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of SK Telecom Co., Ltd., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2017 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: April 27, 2018	/s/ Young Sang Ryu
	Young Sang Ryu
	Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

EX-15.3

Exhibit 15.3

TELECOMMUNICATIONS BUSINESS ACT

As partially amended by Act No. 14576 of March 14, 2017, effective March 15, 2018

CHAPTER I. GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to contribute to the promotion of public welfare by encouraging sound development of telecommunications business and ensuring convenience to the users of telecommunications service through proper management of such business.

Article 2 (Definitions)

The definitions of the terms as used in this Act shall be as follows:

1. the term “telecommunication” means sending and receiving of sign, wording, sound or image through wired, wireless, optic or other electronic means;

2. the term “telecommunications facilities” means equipment, devices, lines and other facilities necessary for telecommunication;

3. the term “telecommunication line facilities” means telecommunication line portion of the telecommunications facilities which is necessary for sending, receiving and routing telecommunication and include exchange equipment and other annexed facilities;

4. the term “commercial telecommunications facilities” means telecommunications facilities for providing telecommunication business;

5. the term “proprietary telecommunications facilities” means telecommunications facilities other than commercial telecommunications facilities that a person installs for his own telecommunication use;

6. the term “telecommunications service” means connecting of customer’s communication through the use of telecommunications facilities or providing telecommunications facilities for customer’s communication;

7. the term “telecommunication business” means the business of providing telecommunications service;

8. the term “telecommunications business operator” means a person who provides telecommunications service with holding a license or making a registration or report under this Act;

9. the term “user” means a person who has made a contract for the use of any telecommunications service with the telecommunications business operator in order to receive a provision of telecommunications service;

10. the term “universal service” means the basic telecommunications service which any user may receive at reasonable fees anytime and anywhere;

11. the term “key communications service” means the telecommunications service such as telephone and internet services which transmit or receive voice, data, image, etc. without changing their content and the telecommunications service where telecommunication line facilities is lent for transmission and receipt of voice, data, image, etc.; provided, however, that individual telecommunications services determined and announced by the Minister of Science and ICT (individual telecommunications service under Article 6) are excluded;

12. the term “value-added communications services” means telecommunications services other than key communications services;

13. the term “special type of value-added communications services” means services corresponding to one of the following items:

A. Value-added communications services provided by special type of online service providers under Article 104 of the Copyright Act;

1

B. Value-added communications services which send text messages by directly or indirectly connecting the text message system to telecommunications business operator’s telecommunications facilities.

14. the term “telecommunications number” means the number used to separate and identify communications networks, telecommunications service, region or users in order to provide or use telecommunications services.

Article 3 (Duty of Providing Services, etc.)

(1) A telecommunications business operator shall not refuse to provide any telecommunications service, without justifiable reasons.

(2) A telecommunications business operator shall guarantee the fairness, speediness and accuracy in performing his business.

(3) A fee for telecommunications service shall be reasonably fixed so as to ensure a smooth development of telecommunications business and to provide the users with convenient and diverse telecommunications services in the fair and inexpensive manner.

Article 4 (Universal Service)

(1) All telecommunications business operators shall have the obligation to provide universal service or to replenish the losses incurred by such provisions.

(2) The Minister of Science and ICT may, notwithstanding paragraph (1) above, exempt the telecommunications business operator in each of the following subparagraphs from the obligation specified paragraph (1) above:

1. the telecommunications business operator determined by the Enforcement Decree as a telecommunications business operator for whom an imposition of obligation under paragraph (1) is deemed inadequate in view of the peculiarity of telecommunications service; and

2. the telecommunications business operator whose turnover of telecommunications service is less than the amount as determined by the Enforcement Decree within the limit of 1/100 of total turnover of the telecommunications services, from the relevant obligations.

(3) The details of universal service shall be determined by the Enforcement Decree in consideration of the following matters:

1. Level of the development of information and communications technology;

2. Level of the dissemination of telecommunications service;

3. Public interest and safety;

4. Promotion of social welfare; and

5. Acceleration of informatization.

(4) In order to provide effective, stable universal service, the Minister of Science and ICT may, in consideration of size and quality of universal service, level of price and the technical capability of a telecommunications business operator, designate a telecommunications business operator through the method and procedure prescribed by the Enforcement Decree.

(5) Under the method and procedure prescribed by the Enforcement Decree, the Minister of Science and ICT may have a telecommunications business operator bear compensation for losses incurred in the course of providing universal service based on the total sales.

Article 4-2 (Telecommunications Relay Services for the Disabled Persons)

(1) Any person who shall provide relay services using telecommunications facilities under Article 21 (4) of the Act on the Prohibition of Discrimination of Disabled Persons, Remedy against Infringement of Their Rights, etc. (hereinafter referred to as the “telecommunications relay services”) may provide the telecommunications relay services directly or by entrusting to an operating institution designated by the Minister of Science and ICT.

2

(2) Any person who shall provide the telecommunications relay services shall submit the plan for the provision of telecommunications relay services of each fiscal year to the Minister of Science and ICT within one (1) month after the commencement of each fiscal year.

(3) Any person who is or was engaged in the telecommunications relay services shall not disclose other’s secrets which have been known to him in the course of performing his duties.

(4) The Minister of Science and ICT may provide financial, technical and other necessary assistance to any person who falls under any of the following subparagraphs:

1. A key communications business operator which provides the telecommunications relay services directly or by entrusting to others; or

2. A person who provides the telecommunications relay services by entrustment.

(5) Details on criteria, procedures and method of designating the operating institution under paragraph (1) shall be determined and announced by the Minister of Science and ICT.

CHAPTER II. TELECOMMUNICATIONS BUSINESS

SECTION 1. General Provisions

Article 5 (Classification, etc. of Telecommunications Business)

(1) The telecommunications businesses shall be classified into a key communications business, a specific communications business and a value-added communications business.

(2) The key communications business shall be the business to install telecommunication line facilities, and thereby provide the key telecommunications service by making use of telecommunication line facilities.

(3) The specific communications business shall correspond to one of the following subparagraphs:

1. Business which provides a key communications service by making use of telecommunication line facilities, etc. of a person who has obtained a license for key communications business under Article 6 (hereinafter referred to as a “key communications business operator”); and

2. Business which installs the telecommunications facilities in the premises as determined by the Enforcement Decree, and provides a telecommunications service therein by making use of the said facilities.

(4) The value-added communications business shall be the business providing value-added communication services.

SECTION 2. Key Communications Business

Article 6 (License etc. of Key Communications Business Operator)

(1) A person who intends to run a key communications business shall obtain a license from the Minister of Science and ICT.

(2) The Minister of Science and ICT shall, in granting a license under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs:

1. financial capability necessary for implementing the key communications service plan;

2. technical capability necessary for implementing the key communications service plan;

3. adequacy of plans for a user protection; and

4. other matters relevant to capacity for providing stable key communications services as determined under the Enforcement Decree of the Act.

3

(3) The Minister of Science and ICT may establish a basic plan to grant a license of a key communications business operator taking into consideration the result of competition assessment of key communications business as referred to in Article 34 (2) hereof and a plan to use frequencies under Article 8 (3) 2 of the Radio Waves Act.

(4) A person who intends to operate a key communications business using frequencies assigned under Article 10 of the Radio Waves Act shall apply for assignment of frequencies and license for key communications business to the Minister of Science and ICT.

(5) The Minister of Science and ICT shall set forth the detailed examination criteria by examining item under paragraph (2), period for license and outline of application for license, and make a public announcement thereof.

(6) The Minister of Science and ICT may, in case where it grants a license for key communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication, in this case such conditions shall be published on its official publication and official webpage.

(7) A person subject to a license under paragraph (1) shall be limited to a juristic person.

(8) Procedures for a license under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.

Article 7 (Reasons for Disqualification for License)

Persons falling under each of the following subparagraphs shall not be entitled to obtain the license for a key communications business as referred to in Article 6:

1. The State or local governments;

2. Foreign governments or foreign corporations; and

3. Corporations whose stocks are owned by foreign governments or foreigners in excess of the restrictions on stock possessions as referred to in Article 8 (1).

Article 8 (Restrictions on Stock Possessions of Foreign Governments or Foreigners)

(1) The stocks of a key communications business operator (excluding non-voting class stocks under Article 344-3 (1) of the Commercial Act, and including the stock equivalents with voting rights, such as stock depositary receipts, etc. and investment equities; hereinafter the same shall apply) shall not be owned in excess of 49/100 of the gross number of issued stocks, when adding up all of those owned by the foreign governments or foreigners.

(2) A corporation whose largest stockholder (hereinafter referred to as the “largest stockholder “) under Article 9(1)1 of the Financial Investment Services and Capital Markets Act is a foreign government or a foreigner (including, throughout this Act, a specially-related person under Article 9(1)1 of the Financial Investment Services and Capital Markets Act) and owns not less than 15/100 of the gross number of its issued stocks (hereinafter referred to as the “fictitious corporation of foreigners”) shall be regarded as a foreigner.

(3) A corporation that falls under any of the following subparagraphs shall not be regarded as a foreigner even if it is equipped with the requirements as referred to in paragraph (2), except for a foreigner referred to in Articles 10 (1) 3 and 86 (3):

1. A corporation which owns less than 1/100 of the gross number of stocks issued by a key communications business operator; or

2. A corporation whose largest stockholder is a foreign government or a foreigner of a counterparty country to free trade agreements determined and announced by the Minister of Science and ICT out of those free trade agreements executed, bilaterally or multilaterally, between or among the Republic of Korea and a foreign country(s) and owns not less than 15/100 of the gross number of its issued stocks, and which is determined by the Minister of Science and ICT after the examination of the corporation from the perspective of public interest nature under Article 10 that there exists no danger of impeding the public interests.

4

Article 9 (Grounds for Disqualifying Officers)

(1) Any person falling under each of the following subparagraphs shall be disqualified to serve as an officer of any key communications business operator:

1. A minor, an adult ward or a limited ward;

2. A person who has yet to be reinstated after having been declared bankrupt;

3. A person who has been sentenced to imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection (excluding matters not directly related to telecommunication business, hereinafter “this Act, etc.”), and for whom three years have yet to pass from the date on which the execution of the sentence is terminated (including a case where the execution of the sentence is deemed to be terminated) or the execution of the sentence is exempted;

4. A person who is in a stay period after having been sentenced to a stay of the execution of the imprisonment without prison labor or a heavier punishment on charges of violating this Act, etc.;

5. A person who has been sentenced to a fine on charges of violating this Act, etc. and for whom one years have yet to pass from the date of such sentence; and

6. A person who has been subject to a disposition taken to revoke all or part of his permission in accordance with Article 20 (1), a disposition taken to revoke all or part of his registration in accordance with Article 27 (1), or an order given in accordance with paragraph (2) of the same Article to discontinue all or part of his business and for whom three years have yet to pass from the date of such disposition or order. In the case of a corporation, the person refers to the person who commits the act of causing the disposition to revoke permission, the disposition to revoke registration or the order to discontinue business, and its representative.

(2) In the event that any officer is found to fall under each subparagraph of paragraph (1) or is found to fall under each subparagraph of paragraph (1) at the time that he is selected and appointed as an officer, he shall rightly resign from the office.

(3) Any act in which any officer has been involved prior to his resignation under paragraph (2) shall not lose its legal efficacy.

Article 10 (Examination of Public Interest Nature of Stock Acquisition, etc. by Key Communications Business Operator)

(1) The Public Interest Nature Examination Committee (hereinafter referred to as the “Committee”) shall be established in the Ministry of Science and ICT in order to make an examination regarding whether or not what falls under each of the following subparagraphs impedes the public interests as prescribed by the Enforcement Decree (hereinafter referred to as the “examination of public interest nature”), such as the national safety guarantee and maintenance of public peace and order, etc:

1. Where the principal comes to own not less than 15/100 of the gross number of stocks issued by a key communications business operator, when adding up those owned by the specially-related person as referred to in Article 9 paragraph (1) subparagraph 1 of the Capital Market Integration Act(hereinafter referred to as the “specially-related person”);

2. Where the largest stockholder of a key communications business operator is altered;

3. Where a key communications business operator or any stockholder of a key communications business operator concludes an agreement for important management matters as prescribed by the Enforcement Decree, such as the appointment and dismissal of executives and the transfer or takeover, etc. of business of the relevant key communications business operator, with a foreign government or a foreigner; and

4. Other cases as prescribed by the Enforcement Decree, where there exists a change in the persons who have de facto management rights of a key communications business operator.

5

(2) Where a key communications business operator or any stockholder of a key communications business operator comes to fall under each of subparagraphs of paragraph (1), he shall file a report thereon with the Minister of Science and ICT within thirty days from the time when such a fact took place.

(3) Where a key communications business operator or any stockholder of a key communications business operator is to come to fall under each of subparagraphs of paragraph (1), he may, prior to the said situation, request the Minister of Science and ICT to make an examination as referred to in paragraph (1).

(4) Where the Minister of Science and ICT has received a report as referred to in paragraph (2) or a request for examination as referred to in paragraph (3), it shall refer it to the Committee.

(5) Where the Minister of Science and ICT judges that there exists a danger of impeding the public interests by the cases falling under each of subparagraphs of paragraph (1) in view of the result of examination as referred to in paragraph (1), it may order the alteration of agreement detail and suspension of its implementation, the suspension of exercise of voting rights, or the sale of relevant stocks.

(6) The report as referred to in paragraph (2) or (3), or the scope of key communications business operators to be examined of public interest nature shall be as follows:

1. A key communications business operator which operates and manages important communications under Article 92 (2) 3;

2. A key communications business operator which owns an artificial satellite for which a space station has been established under Article 20-2 (3) of the Radio Waves Act and subparagraph 30 of Article 29 of the Enforcement Decree thereof;

3. A key communications business operator which has been designated and announced by the Minister of Science and ICT as the key communications business operator falling under Articles 35 (2) 1 and 3, 39 (3), 41 (3) and 42 (3);

4. A key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act; provided that the key communications business operator whose turnover of telecommunications service for the immediately preceding year is less than the amount determined by the Enforcement Decree hereof taking into consideration the market situation, market share, etc. shall be excluded; and

5. A key communications business operator whose turnover exceeds the amount announced by the Minister of Science and ICT taking into consideration the market situation, market share, etc., out of those key communications business operators whose turnover of telecommunications service for the immediately preceding year is 30 billion won or more.

(7) The procedures for reports and examinations of public interest nature under the above paragraph (2) or (3) and other necessary matters shall be stipulated by the Enforcement Decree.

Article 11 (Composition and Operation, etc. of Public Interest Nature Examination Committee)

(1) The Committee shall consist of not less than five but not more than fifteen members including one Chairman.

(2) The Chairman of the Committee shall be one of the Vice Ministers of Science and ICT designated by the Minister of Science and ICT, and the members shall be the persons commissioned by the Chairman from among the public officials ranking Grade III or higher grade of related central administrative agencies or public officials who belong to senior executive service as specified by the Enforcement Decree of the Act, and falling under each of the following subparagraphs:

1. Persons having profound knowledge and experiences in the information and communications;

2. Persons recommended by the Government-contributed research institutes relating to the national safety guarantee and maintenance of public peace and order;

3. Persons recommended by the nonprofit non-governmental organizations as referred to in Article 2 of the Assistance for Nonprofit Non-Governmental Organizations Act; and

4. Other persons deemed necessary by the Chairman.

6

(3) The Committee may conduct necessary investigations for the examination of public interest nature, or request the interested parties or the reference witnesses to provide the data. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.

(4) Where the Committee deems it necessary, it may have the interested parties or the reference witnesses attend the Committee, and hear their opinions. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.

(5) Matters necessary for the organization or operation, etc. of the Committee shall be prescribed by the Enforcement Decree.

Article 12 (Restrictions, etc. on Stockholders of Excessive Possession)

(1) Where a foreign government or a foreigner has acquired the stocks in contravention of the provisions of Article 8 (1), no voting rights shall be exercised for the stocks under the said excessive possession.

(2) The Minister of Science and ICT may order the stockholder who has acquired stocks in contravention of the provisions of Article 8 (1), a key communications business operator wherein exists the said stockholder, or the stock-holder of the fictitious corporation of foreigners, to make corrections in the relevant matters, with specifying the period within the limit of six months.

(3) Persons subjected to the order for corrections as referred to in paragraph (2) shall make corrections in the relevant matters within the specified period.

(4) With regard to the stockholder in contravention of the provisions of Article 8 (1), a key communications business operator may refuse any renewals for the excessive portion in the register of stockholders or of members.

Article 13 (Charge for Compelling Execution)

(1) Against the persons who were subjected to the orders as referred to in Articles 10 (5), 12 (2) or 18 (8)(hereinafter referred to as the “corrective orders”) and has failed to comply with them within the specified period, the Minister of Science and ICT may levy the charge for compelling the execution. In such case, the charge for compelling the execution leviable per day shall be not more than 3/1,000 of purchase prices of relevant possessed stocks, but in the case not related with the stock possession, it shall be the amount not exceeding 100 million won.

(2) The period subject to a levy of the charge for compelling the execution as referred to in paragraph (1) shall be from the day next to the date of expiration of the period set in the corrective orders to the date of implementing the corrective orders. In such case, a levy of the charge for compelling the execution shall be made within 30 days from the day next to the expiration date of the period set in the corrective orders, except for the case where there exists a special reason.

(3) Provisions of Article 53 (5) and (7) shall apply mutatis mutandis to the collection of the charge for compelling the execution.

(4) Matters necessary for the levy, payment, refund, etc. of the charge for compelling the execution shall be prescribed by the Enforcement Decree.

Article 14 (Issuance of Stocks)

A key communications business operator shall, in a case of an issuance of stocks, issue the registered ones.

Article 15 (Obligation of Commencing Business)

(1) A key communications business operator shall install telecommunications facilities and commence business within the period as fixed by the Minister of Science and ICT.

(2) The Minister of Science and ICT may, in case where the said business operator is unable to commence business within the period under paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator.

7

Article 16 (Modification of License)

(1) Where a key communications business operator intends to modify the important matters prescribed by the Enforcement Decree from among the matters licensed under Article 6, he shall obtain a modified license from the Minister of Science and ICT, under the conditions as prescribed by the Enforcement Decree.

(2) The provisions of Articles 6 (6) and Article 15 shall be applicable mutatis mutandis to a modified license for change under paragraph (1).

Article 17 (Concurrent Operation of Business)

(1) A key communications business operator shall, in case where he intends to run any of the businesses set forth in the following subparagraphs, obtain approval from the Minister of Science and ICT; provided that this provision shall not apply to any key communications business operator with less than 30,000,000,000 Korean Won in turnover of services.

1. manufacturing of telecommunications equipment;

2. information and communications work pursuant to paragraph 3 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation work for electronic telecommunications network); and

3. services pursuant to subparagraph 6 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation of electronic telecommunications network).

(2) The Minister of Science and ICT shall grant approval under paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under paragraph (1), and that it is required for the development of telecommunications.

Article 18 (Takeover of Business and Merger of Juristic Persons etc.)

(1) A person who belongs to any one of the categories set forth in the following paragraphs shall obtain an authorization from the Minister of Science and ICT under the conditions as prescribed by the Enforcement Decree; provided, notwithstanding subparagraph 3 below, that in case that person sells telecommunications circuit installations except the ones prescribed by the Enforcement Decree, he shall report it to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree:

1. a person who takes or intends to take over the whole or part of a key communications business;

2. a person who intends to merge with a juristic person which is a key communications business operator;

3. a key communications business operator intending to sell the telecommunications circuit installations necessary for provision of key communications service;

4. a person who, along with a certain related person intends to become the largest shareholder of a key communications business operator or own 15% of more of the issued shares of the key communications business operator;

5. a person seeking to acquire control over a key communications business operator by acquiring shares or entering into an agreement, as specified by the Enforcement Decree of the Act; or

6. a key communications business operator seeking to establish a company to provide part of the key communications services provided under authorization through such company.

(2) The Minister of Science and ICT shall, in case where it intends to grant authorization under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs; provided, however, that part of the examination may be omitted when acquisition of a key communications business or merger of a juristic person that is a key communications business operator has insignificant effect on the competition between the key communication businesses:

1. Appropriateness of financial and technical capability and business operational capability;

8

2. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.;

3. Impact on the competition of key communications business;

4. Impact on the protection of users and the public interests; and

5. Impact on public interests, such as the use of telecommunications facilities and communication networks, efficiency of research and development and international competitive power of the communications industry, etc.

(3) Matters necessary for the detailed examination standards by examination items and the examination procedures, etc. under paragraph (2) shall be fixed and publicly announced by the Minister of Science and ICT.

(4) A person falling under any of the following shall succeed to the telecommunication licensee status of the key communications business operator:

1. A person who has taken over the business of a key communications business operator by obtaining an authorization under paragraph (1) 1;

2. a juristic person surviving a merger or that established by a merger, or that established by obtaining an authorization under paragraph (1) 2; or

3. a company incorporated to provide part of key communications services with the approval under paragraph (1) 6.

(5) The Minister of Science and ICT may, in case where it grants authorization or authorization under paragraph (1), attach conditions under Article 6 (6).

(6) The Minister of Science and ICT shall, in case where it intends to grant an authorization under paragraph (1), go through a consultation with the Fair Trade Commission.

(7) In regard to the criteria for rejection of authorization in paragraph (1), Article 7 shall be applicable mutatis mutandis.

(8) In the event any person/entity subject to paragraph (1) 4 or 5 fails to acquire the permit under paragraph (1), the Minister of Science and ICT may order suspension of its voting right or sale of the applicable shares, and if the conditions attached under paragraph (5) are not carried out, may order such performance within a specific time frame.

(9) A person seeking authorization under paragraph (1) shall not do each of the following prior to obtaining such authorization:

1. unify communications networks,

2. appoint officers,

3. transferring, consolidating, entering into contract concerning disposing of facilities or

4. take follow-up measures regarding establishment of a company.

(10) Where a person falling under each of subparagraphs of paragraph (1) is subject to the examination of public interest nature, the person may submit the documents required for the examination of public interest nature at the same time when the person applies for the authorization under paragraph (1).

(11) Cases that have insignificant effect on the competition between the key communication businesses and the matters required for omission of examination shall be determined by the Enforcement Decree.

Article 19 (Suspension, Closedown of Business or Dissolution of Juristic Persons, etc.)

(1) A key communications business operator shall, in case where he intends to suspend or discontinue the whole or part of a key communications business run by him, as specified by the Enforcement Decree of the Act notify the users at least 60 days prior to the date of termination and obtain approval of such suspension or discontinuation from the Minister of Science and ICT.

9

(2) In the event separate measures of protection is deemed to be necessary for the protection of users upon suspension or discontinuance of the relevant key communications business, the Minister of Science and ICT may order such measures (including assistance for membership change, bearing expenses, termination of membership) to be taken.

(3) The Minister of Science and ICT shall, in case where an application for approval or authorization under paragraph (1) is made, shall grant the relevant approval or authorization except for the following cases:

1. Where required documents determined by the Enforcement Decree such as details of the business to be suspended or discontinued, and drawings of such business’s territories have a defect;

2. Where it is deemed that the business operator’s notice on its plan to suspend or discontinue the business is not appropriately made;

3. Where the business operator’s user protection plan and the implementation of such user protection plan is not sufficient and thus, it is expected that the suspension or discontinuation of the business may cause considerable loss or damage to the users; or

4. Where it is deemed that maintenance of the concerned key communications business is urgently required in order to respond to national emergencies such as war, hostilities, or any other incident equivalent thereto or in order to prevent or handle material disaster.

Article 20 (Cancellation of License, etc.)

(1) The Minister of Science and ICT may, in case where a key communications business operator falls under any one of the following subparagraphs, cancel whole or part of the relevant license or give an order to suspend the whole or part of business with fixing a period of no more than one year; provided that the license shall be cancelled entirely or partially if paragraph 1 is applicable:

1. Where he has obtained a license by deceit and other illegal means;

2. Where he has failed to implement the conditions under Articles 6 (6) and 18 (5);

3. Where he has failed to observe the orders under Article 12 (2);

4. Where he has failed to commence business within the period under Article 15 (1) (in case of obtaining an extension of the period under Article 15 (2), the extended period);

4-2. Where he has failed to obtain approval set forth in Article 19 (1) and not provided his key communications service for a period exceeding the period determined by the Enforcement Decree;

5. Where he has failed to comply with the standardized terms and conditions, that is authorized or reported under Article 28 (1) and (2); and

6. Where he fails to comply with a correction order under Article 92 (1) without any justifiable reasons.

(2) Criteria and procedures for the dispositions under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.

(3) In the event that the Minister of Science and ICT cancels whole or part of the relevant license or gives an order to suspend the whole or part of business, it may also order measures necessary to protect users as prescribed in Article 19 (2).

SECTION 3. Specific Communications Business and Value-Added Communications Business

Article 21 (Registration of Specific Communications Business Operator)

(1) A person who intends to operate a specific communications service shall register the following matters with the Minister of Science and ICT (including registration through information network) under the conditions as determined by the Enforcement Decree:

1. Financial and technical capability;

10

2. Plans for a user protection; and

3. Business plans, etc. and other matters as determined by the Enforcement Decree.

(2) The Minister of Science and ICT may, upon receipt of the registration of a specific communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication.

(3) The Minister of Science and ICT shall allow such registration as set forth in paragraph (1) except for the following cases:

1. Where the matters set forth in subparagraphs of paragraph (1) are not prepared;

2. Where required documents determined by the Enforcement Decree including articles of incorporation or terms and conditions of a juristic person has a defect; or

3. Where a person who applied for registration is not a juristic person.

(4) A person who registered his specific communications business under paragraph (1) (hereinafter referred to as a “specific communications business operator”) shall commence operation within 1 year from the registration date.

(5) Procedures and requirements for the registration under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.

Article 22 (Report, etc. of Value-Added Communications Business Operator)

(1) A person who intends to run a value-added communications business shall report to the Minister of Science and ICT (including reports via information network), according to the requirements and procedures as prescribed by the Enforcement Decree.

(2) Notwithstanding the provisions of paragraph (1), a person who intends to operate a special type of value-added communications business shall register such business with the Minister of Science and ICT (including registration through information network) after satisfying the following requirements:

1. a plan for implementing technical measures in order to perform the provisions of Article 22-3 (1) hereof, and Article 104 of the Copyright Act (limited to a person providing the services prescribed in A of subparagraph 13 of Article 2);

1-2. a plan for implementing technical measures in order to prevent false display of the caller’s telephone number including altering of telephone number (limited to a person providing the services prescribed in B of subparagraph 13 of Article 2);

2. personnel and physical facilities necessary for providing services;

3. financial soundness; and

4. any other matters as prescribed by the Enforcement Decree such as a business plan.

(3) Upon receipt of the registration of a value-added communications business pursuant to paragraph (2), the Minister of Science and ICT may set conditions necessary to implement the plan referred to in subparagraph 1 or 1-2 of paragraph (2).

(4) Notwithstanding paragraph (1), a person falling under any of the following shall be deemed to have reported his value-added communications business:

1. a person who intends to run a small value-added communication business whose size of a capital, etc. matches the criteria prescribed by the Enforcement Decree; or

2. a key communications service operator who intends to run a value-added communications business.

(5) A person who reported a value-added communications business under paragraph (1) or a person who registered such business under paragraph (2) shall commence operation within 1 year from the reporting date or registration date respectively.

11

(6) Procedures and requirements for the report under the first part of paragraph (1) and the registration under paragraph (2), and other necessary matters shall be determined by the Enforcement Decree.

Article 22-2 (Reasons for Disqualification for Registration)

An individual, a juristic person for whom three years have yet to pass from the date on which the registration of his/its business is canceled pursuant to Article 27(2), or the major shareholder of such juristic person at the time of such cancellation (an investor as prescribed by the Enforcement Decree) may not make a registration under Article 22(2).

Article 22-3 (Technical Measures, etc. of Special Type of Value-added Communications Business Operators)

(1) A person who has registered a special type of value-added communications business under Article 22 (2) (hereafter in this Article, referred to as “special type of value-added communications business operator”) and provides the services prescribed in A of subparagraph 13 of Article 2 shall take the following technical measures:

1. as required in order to comply with Articles 42, 42-2 and 45 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.; and

2. as determined by the Enforcement Decree in order to prevent the circulation of illegal information under Article 44-7 (1) 1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.

(2) No person shall intentionally or negligently get rid of, alter, or incapacitate the technical measures as referred to in paragraph (1) through detour; provided that the same shall not apply to the case falling under any of the following subparagraphs:

1. If it is necessary for central administrative agency’s or municipalities’ reasonable and lawful performance of its business; or

2. If it is necessary for investigative agencies, chief information security officer under the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. and the Korea Internet & Security Agency to respond to occurrence of information network trespass such as hacking.

(3) A special type of value-added communications business operator (limited to a person providing the services prescribed in A of subparagraph 13 of Article 2) shall ensure that the status of operation and management of the technical measures as referred to in paragraph (1) is automatically recorded in the system and keep it for the period as determined by the Enforcement Decree.

(4) The Minister of Science and ICT or the Korea Communications Commission, with respect to respective responsible affairs, may cause relevant public official belonging thereto to check the status of operation and management of the technical measures as referred to in paragraph (1) or order a special type of value-added communications business to submit any required information including the records under paragraph (3).

(5) No person shall destroy, forge or falsify the records under paragraph (3) without any justifiable authority.

Article 22-4 (Value-added Communications Service Required of Reporting of Fees)

(1) When a telecommunications business operator provided a value-added communications service prescribed in B of subparagraph 13 of Article 2, he shall report the fees of such service to the Minister of Science and ICT (including modified report; hereinafter, the same shall apply) except for a telecommunications business operator whose turnover of telecommunications service is less than the amount as determined and announced by the Minister of Science and ICT considering the market situation, market share, etc.

(2) A telecommunications business operator shall disclose the contents reported under paragraph (1).

(3) Procedures and methods of the reporting under paragraph (1) and disclosure under paragraph (2) shall be determined by the Enforcement Decree.

12

Article 23 (Modification of Registered or Reported Matters)

Specific communications business operator, a person who has made a report of a value-added communications business operator under Article 22 (1), or a person who has made a registration of a value-added communications business under Article 22 (2) shall, when he intends to modify the matters as determined by the Enforcement Decree from among the relevant registered or reported matters, make in advance a modified registration or modified report (including modified registration or modified report through information network) to the Minister of Science and ICT under the conditions as prescribed by the Enforcement Decree.

Article 24 (Transfer or Takeover, etc. of Business)

In case where there exists a transfer or takeover of the whole or part of a specific communications business or a value-added communications business, or a merger or succession of a juristic person which is a specific communications business operator or a value-added communications business operator (a person who has reported value-added communications services pursuant to Article 22 (1), a person who has made a registration of a value-added communications business under Article 22 (2) or is deemed to have made such reporting under paragraph (4) of the same Article, hereinafter refer to the same), each of the following persons shall make the report thereon (including reports through information network) to the Minister of Science and ICT, according to the requirements and procedures as prescribed by the Enforcement Decree; provided, however, that this shall not apply to a person who has been deemed to report a value-added communications service under Article 22(4) resulting from a transfer or takeover of the whole or part of a value-added communications business or a merger or succession of a juristic person which is a value-added communications business operator:

1. a person who has taken over the relevant business;

2. the juristic person surviving the merger, the juristic person founded by the merger; or

3. the successor to the business in question.

Article 25 (Succession of Business)

In case where there has existed a transfer or takeover of a specific communications business or a value-added communications business, a merger of a juristic person which is a specific communications business or a value-added communications business operator, or a succession of a value-added communications business, under Article 24, each of the following persons shall succeed to the status of a former specific communications business operator or a value-added communications business operator:

1. a person who has taken over the business;

2. a juristic person surviving a merger, or a juristic person founded by a merger; or

3. a successor to the business.

Article 26 (Suspension or Closedown, etc. of Business)

(1) A specific communications business operator or a value-added communications business operator shall, in case where he intends to suspend or close down the whole or part of his business, in a manner determined in the Enforcement Decree of the Act, notify the relevant contents to the users of relevant services, and report thereon to the Minister of Science and ICT (including reports through information network) not later than thirty days prior to the slated date of the relevant suspension or closedown. In this case, the business shall not be continually suspended for more than 1 year.

(2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Minister of Science and ICT (including reports through information network).

Article 27 (Cancellation of Registration and Order for Closedown of Business)

(1) The Minister of Science and ICT may, when a specific communications business operator falls under any of the following subparagraphs, cancel his registration wholly or partially, or suspend his business wholly or

13

partially by specifying the period of not more than one year; provided that when he falls under subparagraph 1, the Minister of Science and ICT shall cancel whole or part of his registration:

1. Where he makes a registration by deceit and other illegal means;

2. Where he fails to implement the conditions under Article 21 (2);

3. Where he fails to commence business within one year from the date on which a registration was made under Article 21 (4), or in violation of the latter part of Article 26(1) continually suspends business operation for not less than one year; or

4. Where he fails to comply with a corrective order under Article 92 (1) without any justifiable reasons.

(2) The Minister of Science and ICT may, when a value added communications business operator falls under any of the following subparagraphs, issue an order to him for a closedown of the whole or part of business (in case of a special type of value-added communications business operator, for a cancellation of the whole or part of business) or for a suspension of the whole or part of business by specifying a period of not more than one year; provided that when he falls under subparagraph 1,, the said Minister shall issue an order to him for a closedown of whole or part of business:

1. Where he makes a report or registration by deceit and other illegal means;

2. Where he fails to implement the conditions under Article 22(3);

3. Where he fails to commence the business within one year from the reporting date or registration date under Article 22(5), or in violation of the latter part of Article 26(1) suspend the business operation for not less than one year;

3-2. Where the Korea Communications Commission requests it because the technical measures as set forth in Article 22-3 (1) has not been taken;

4. Where he fails to comply with a correction order under Article 92 (1) without any justifiable reasons;

5. Where he fails to comply with an order to take corrective measures under Article 64(4) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. without any justifiable reasons; or

6. Where he who has been punished by a fine for negligence pursuant to Article 142(1) and Article 142(2)3 of the Copyright Act more than 3 times is subject to a fine for negligence again and such an order is requested by the Minister of Culture, Sports and Tourism after the Korea Copyright Commission’s deliberation pursuant to Article 112 of the same Act.

(3) Criteria and procedures for dispositions taken under paragraph (1) or (2) and other necessary matters shall be determined by the Enforcement Decree of the Act.

CHAPTER III. TELECOMMUNICATIONS SERVICE

Article 28 (Report, etc. of Standardized Terms and Conditions)

(1) A key communications business operator shall set forth the fees and other terms for use by service with respect to the telecommunications service which he intends to provide (hereinafter referred to as the “standardized terms and conditions”), and report thereon (including a modified report, hereinafter refer to the same) to the Minister of Science and ICT.

(2) Notwithstanding paragraph (1), in a case of a key communications service of key communications business operator whose size of business and market share correspond to the standards as determined by the Enforcement Decree, it shall obtain an authorization of the Minister of Science and ICT (including a modified authorization, hereinafter refer to the same), provided that, any decrease in the service-specific charges included the approved standard terms and conditions of usage shall be reported to the Minister of Science and ICT.

14

(3) In regard to the main body of paragraph (2), the Minister of Science and ICT shall authorize the standardized terms and conditions, if it falls under the criteria of every following subparagraph:

1. Fees for telecommunications service shall be reasonably calculated considering but not limited to costs of supply, profits, classification of costs/ profits by labor, cost savings achieved by methods of provision of labor, and effects on fair competitive environments;

2. Matters concerning the responsibility of key communications business operators and relevant users, cost-sharing methods concerning the installation work of telecommunications facilities and other works shall not be unreasonably disadvantageous to users;

3. Forms of use of telecommunication line facilities by other telecommunications business operators or users shall not be unduly restricted;

4. Undue discriminatory treatments shall not be made to specific persons; and

5. Matters on securing the important communications under Article 85 shall take into consideration matters such as achieving efficient performance of State’s function.

(4) A person intending to acquire the approval under paragraph (1) and (2) or file a report with respect to the telecommunications services shall submit the supporting data for calculation of fee (including subscription fee, basic fee, usage fee, value-added service fee, and actual expense). In case of business change, a table comparing the old (before change) and new (after change) supporting data should be submitted to the Minister of Science and ICT for comparison.

(5) Details necessary and not otherwise specified in paragraphs (1) through (4) in regard to the scope of and procedures of reporting and authorization shall be specified under the Enforcement Decree of the Act.

Article 29 (Reduction or Exemption of Fees)

A key communications business operator may reduce or exempt the fees for telecommunications service under the conditions prescribed by the Enforcement Decree, such as national security guarantee, disaster relief, social welfare and public interest.

Article 30 (Restriction on Use by Others)

No person shall intermediate other’s communications or provide for other’s communications by making use of telecommunications services provided by a telecommunications business operator; provided that the same shall not apply to the case falling under any of the following subparagraphs:

1. Where it is needed to ensure the prevention and rescue from disaster, traffic and communication, and the supply of electricity, and to maintain order in a national emergency situation;

2. Where telecommunications services are incidentally rendered to clients while running a business other than the telecommunications business;

3. Where it is allowed to use on a trial basis for the purpose of developing and marketing telecommunications facilities, such as terminal devices, etc. which enable to use the telecommunications services;

4. Where any user permits any third party to use to the extent that the latter does not use repeatedly; and

5. Where it is necessary for the public interests or where the business run by any telecommunications business operator is not impeded, which is prescribed by the Enforcement Decree.

Article 31 (Use of Transmission or Line Equipment, etc.)

(1) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide the transmission or line equipment or the cable broadcasting equipment possessed under the methods prescribed by the Enforcement Decree to the key communications business operators.

15

(2) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act shall, when he intends to provide value-added communications services by making use of the transmission or line equipment or cable broadcasting equipment, make a report thereon to the Minister of Science and ICT pursuant to Article 22 (1).

(3) The provisions of Articles 35 through 55 shall be applicable mutatis mutandis to the transmission or line equipment or cable broadcasting facilities under paragraph (1).

(4) The provisions of Articles 28 (2) through (7) of the Framework Act on Telecommunications shall be applicable mutatis mutandis to the offer of services under paragraph (2).

Article 32 (Protection of Users)

(1) A telecommunications business operator shall exert efforts to prevent any loss or damage to the users and take a prompt measure on the reasonable opinions or dissatisfactions raised by the users with respect to the telecommunications service. In this case, if it is difficult to take a prompt measure, he shall notify the users of the reasons thereof and the schedule for measures.

(2) The Korea Communications Commission may assess the user protection and disclose the result thereof. In such cases, the Korea Communications Commission may order a telecommunications business operator to submit the data necessary for such assessment.

(3) When a telecommunications business operator determined by the Enforcement Decree considering the matters such as the type, business scale and user protection of the telecommunications service enters into an agreement on the use of the telecommunications service (including revision of the agreement), it shall send a copy of such agreement to the users in writing or through information network as specified by the Enforcement Decree.

(4) A telecommunications business operator providing key communications services shall subscribe a guarantee insurance with the person designated by the Minister of Science and ICT as beneficiary in an amount determined in accordance with the criteria specified under the Enforcement Decree of the Act and not exceeding the aggregate prepaid phone service charges to be received prior to providing prepaid phone services to be able to compensate losses to users arising from not being able to provide services after receiving service charges in advance; provided that the foregoing requirement may be waived in the case specified under the Enforcement Decree of the Act where such telecommunications business operator’s financial capacity and services charges are taken in consideration.

(5) The person designated as beneficiary under paragraph (4) shall distribute insurance proceeds received under the guarantee insurance under paragraph (4) to users who have not received services after paying services charges in advance.

(6) Details necessary in regard to the subjects, criteria, or procedures of user protection, utilization of results, subscription, renewal and distribution of insurance proceeds under paragraph (2) and (5) shall be specified in the Enforcement Decree of the Act.

Article 32-2 (Notice of Excess of Maximum Limit of Fees)

(1) A telecommunications business operator utilizing frequencies assigned under the Radio Waves Act shall notify the users of any of the following facts when it occurs:

1. When a user exceeds the maximum limit of telecommunications service fees initially committed by the user; or

2. When any fees incurred from using international telecommunications services such as international call are charged to a user.

(2) Any matters necessary for users subject to notice or method of notice under paragraph (1) shall be determined and publicly announced by the Minister of Science and ICT.

16

Article 32-3 (Restrictions on Provision of Telecommunications Services)

(1) The Minister of Science and ICT may order a telecommunications business operator to suspend provision of telecommunications services to the relevant telecommunications numbers if there is any of the following requests by the head of the relevant administrative agency:

1. a request to suspend provision of telecommunications services under Article 9-6 of the Act on Registration of Credit Business, Etc. and Protection of Finance Users;

2. a request to suspend provision of telecommunications services under Article 13-3 of the Special Act on Prevention of Damage and Refund of Amount of Damage Caused by Telecommunications Bank Fraud;

3. a request to suspend provision of telecommunications services under Article 6-2 of the Electronic Financial Transactions Act;

(2) A telecommunications business operator who receives an order from the Minister of Science and ICT under paragraph (1) shall comply with such order and shall, in such cases, send a notice before suspending telecommunications services, to the user of relevant telecommunications services specifying the administrative agency requesting the suspension of the telecommunications services, reason(s) for such request and procedures for filing a formal objection thereto.

(3) Matters necessary for the notice methods etc. regarding procedures for filing a formal objection pursuant to paragraph (2) shall be prescribed by Enforcement Decree.

Article 32-4 (Prevention of Unauthorized Use of Mobile Device)

(1) No person shall engage in any of the following acts:

1. An act to open a mobile device (it means a device necessary to use a key communications services utilizing frequencies assigned under the Radio Waves Act; hereinafter, the same shall apply) account related to which an agreement on the provision of the telecommunications service is executed under a different person’s name on condition to give or borrow some money in order to use the telecommunications service provided to such mobile device or to use the service for recovery of such money; or

2. An act to solicit, mediate, broker or advertise an agreement on the provision of the telecommunications service necessary to use the mobile device on condition to give or borrow some money.

(2) If a telecommunications business operator determined by the Enforcement Decree considering the matters such as the type, business scale and user protection of the telecommunications service enters into an agreement on the provision of the telecommunications service (including execution of an agreement on the provision of the telecommunications service by an agent or commission agency that enters into the agreement on behalf of or entrusted by a telecommunications business operator), it shall, with the consent of the counterparty, confirm the counterparty’s identity using the fraud subscription detection system under Article 32-5 (1) and may refuse to enter into an agreement if the counterparty fails to verify his identity or refuse to have his identity confirmed. If users are changed resulting from the transfer of provision of the telecommunications service or succession of user status, this shall also apply to a person who intends to receive the telecommunications service according to such change.

(3) When a telecommunications business operator confirm the counterparty’s identity under paragraph (2), a telecommunications business operator may demand the counterparty to present certificates and documents that can make identification such as resident registration number and driver’s license.

(4) Details necessary in regard to the methods for identification under paragraph (2) and types of certificates and documents that can make identification shall be determined by the Enforcement Decree.

Article 32-5 (Establishment of Fraud Subscription Detection System)

(1) The Minister of Science and ICT shall establish a system necessary to identify the users in order to prevent execution of an agreement on the provision of the telecommunications service through fraud way (hereinafter,

17

“fraud subscription detection system”) and ensure that a telecommunications business operator under Article 32-4 (2) may use the fraud subscription detection system.

(2) The Minister of Science and ICT, for the purpose of establishment and operation of the fraud subscription detection system, may request the head of the government entities and public agencies who possess the following information necessary for identification of the users (including legal representative) to verify authenticity of the certificates presented under Article 32-4 (3) through sharing of administrative information under Article 36 (1) of the Electronic Government Act. In such cases, the head of the government entities and public agencies who have received such request shall comply with such request unless there is any justifiable reason:

1. information on an individual’s resident registration and family relationship;

2. information on a juristic person’s registration and business registration;

3. information on a foreign national’s and overseas Korean’s registration/resident report and immigration; and

4. other information on the certificates and documents presented under Article 32-4 (3).

(3) The Minister of Science and ICT may entrust the affairs for establishment and operation of the fraud subscription detection system with the Korea Association for ICT Promotion (“KAIT”) under the Framework Act on Broadcasting Communications Development as determined by the Enforcement Decree.

Article 32-6 (Provision of Identity Theft Prevention Service)

(1) A telecommunications business operator who provide a key telecommunications service shall provide service informing the users, via text message or registered mail, that an agreement on the use of telecommunications service has been entered into under the name of the concerned users (“identity theft prevention service”) with the consent of the users; provided that the identity theft prevention service shall be provided via registered mail to the users who cannot receive the text message since they have no mobile devices or have reported on the loss of mobile devices.

(2) The Minister of Science and ICT may designate the KAIT as an institution taking exclusive charge of the support for provision of the identity theft prevention service.

(3) Details necessary for the content and procedures of the identity theft prevention service shall be determined and announced by the Minister of Science and ICT.

[Date of Enforcement: March 15, 2018] Article 32-6

Article 32-7 (Blocking of Media Product Harmful to Juveniles)

(1) When a telecommunications business operator using frequencies assigned under the Radio Waves Act enters into an agreement on the provision of the telecommunications service with a juvenile under the Juvenile Protection Act shall provide a tool to block the media product harmful to juveniles under subparagraph 3 of Article 2 of the Juvenile Protection Act and information with an obscene content under Article 44-7 (1) 1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.

(2) The Korea Communication Commission may inspect the status of provision of such a tool for blocking as set forth in paragraph (1).

(3) Details necessary for the method and procedures of provision of a tool for blocking as set forth in paragraph (1) shall be determined by the Enforcement Decree.

Article 32-8 (Call Forwarding Service)

(1) A telecommunications business operator may provide telecommunications service connecting a phone call received through a user’s telecommunications number to the other telecommunications number that the user has set up in advance (“call forwarding service”).

(2) A telecommunications business operator providing a call forwarding service as referred to in paragraph (1) shall report on the call forwarding service including its content and procedures for subscription and set up to the Minister of Science and ICT.

18

(3) A telecommunications business operator providing a call forwarding service as referred to in paragraph (1) shall not provide the a call forwarding service in a different way from that he reported under paragraph (2).

(4) A telecommunications business operator shall not set up a call forwarding service at his own discretion without the user’s application.

Article 33 (Compensation for Damages)

A telecommunications business operator shall make compensations when he inflicts any damages on the users in the course of providing telecommunications services or in relation to occurrence of reasons causing the opinions or dissatisfactions and delay of handling of such opinions or dissatisfactions under Article 32 (1); provided that if such damages are the results of force majeure, or of intent or negligence of the users, the relevant liability for compensations shall be reduced or exempted.

CHAPTER IV. PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS BUSINESS

Article 34 (Promotion of Competition)

(1) The Minister of Science and ICT shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services.

(2) The Minister of Science and ICT shall conduct annual evaluation of competition system with respect to key communications business in order to construct an efficient competition system and to promote fair competition in the telecommunications services industry pursuant to paragraph (1) above.

(3) The specific evaluation standards, procedure and method for evaluating competition system under paragraph (2) above shall be prescribed by the Enforcement Decree.

Article 35 (Provision of Facilities, etc.)

(1) A key communications business operator or an institution constructing, operating and managing road, railroad, subway, water supply/sewage, electric poles, cables, telecommunications line facilities (“facility management institution”) may, upon receipt of a request for the provision of conduit line, common duct, electric poles, cables, operation sites and other facilities (including telecommunications facilities, hereinafter the same) or facilities (“facilities, etc.”) from other key communications business operator, provide the facilities, etc. by concluding an agreement with him.

(2) A key communications business operator falling under any of the following subparagraphs shall, upon receipt of a request under paragraph (1), provide the facilities, etc. by concluding an agreement, notwithstanding the provisions of paragraph (1); provided that the foregoing is not applicable in case there is a usage plan, etc. of the facility management institution:

1. A key communications business operator who possesses the equipment indispensable for other telecommunications business operators in providing the telecommunications services; and

2. Each of the following facility management institutions owning conduit line, common duct, electric pole, cable and other facilities, etc.:

A. the Korea Expressway Corporation organized under the Korea Highway Corporation Act

B. the Korea Water Resources Corporation organized under the Korea Water Resources Corporation Act

C. the Korea Electric Power Corporation organized under the Korea Electric Power Corporation Act

D. the Korea Rail Network Authority organized under the Korea Rail Network Authority Act

E. local public enterprises under Local Public Enterprise Act

19

F. municipalities under Local Autonomy Act

G. the Regional Construction Management Administration under the Road Act

3. A key communications business operator whose business scale and market shares, etc. of key communications services are equivalent to the criteria as determined by the Enforcement Decree.

(3) The Minister of Science and ICT shall set forth and publicly notify the scope of facilities, etc., the conditions, procedures and methods for the provision of facilities, and the standards for calculation of prices under paragraphs (1) and (2). In this case, the scope of facilities, etc. to be provided under paragraph (2) shall be determined in view of the demand for facilities, etc. by the key communications business operators and facility management institution falling under each subparagraph of the same paragraph.

(4) A telecommunications business operator who intends to receive the provision of the facilities, etc. shall conclude an agreement as set forth in paragraph (1) and may install the apparatus enhancing the efficiency of the relevant facilities, within the limit necessary for the provision of the licensed telecommunications services. In such cases, he shall give prior notice to a key communications business operators and facility management institution providing such facilities, etc. as determined by the Enforcement Decree and get rid of such apparatus upon termination of the agreement or expiration of the period for utilization.

(5) The Minister of Science and ICT may perform a field investigation into the status of provision and use of the facilities, etc. in order to efficiently utilize and manage the facilities, etc. In such cases, Article 51 (3) through (6) shall apply mutatis mutandis to the procedures and methods of such field investigation.

(6) Deleted.

(7) For provision of facilities, etc. under paragraphs (1) and (2), the Minister of Science and ICT may appoint an expert institution.

(8) Details necessary for appointment and operation guidelines for expert institutions under paragraph (7) shall be determined and announced by the Minister of Science and ICT.

Article 35-2 (Duty to Maintain Aerial Cables)

(1) A telecommunications business operator and facility management institution shall maintain the cables installed on the electronic poles (“aerial cables”) to protect city fine views.

(2) The Minister of Science and ICT shall set up a plan to maintain aerial cables (hereafter in this Article, referred to as the “maintenance plan”) on an annual basis in order to carry out the maintenance as set forth in paragraph (1) systematically. In such cases, such plan shall be subject to review by the Council of Maintenance of Aerial Cables consisting of relevant Ministries and departments and telecommunications business operators.

(3) A telecommunications business operator and facility management institution shall follow the maintenance plan and costs and expenses incurred to implement the maintenance plan shall be jointly borne by the persons providing and using the concerned facilities, etc. as specified by the Enforcement Decree.

(4) Details necessary for constitution and operation of the Council of Maintenance of Aerial Cables as referred to in paragraph (2) shall be determined by the Enforcement Decree.

Article 36 (Joint Utilization of Subscriber’s Lines)

(1) A key communications business operator shall, in case where other telecommunications business operators as determined and publicly noticed by the Minister of Science and ICT have made a request for a joint utilization with respect to the lines installed in the section from the exchange facilities directly connected with the users to the users (hereafter in this Article, referred to as the “subscriber’s lines”), allow it.

(2) The Minister of Science and ICT shall set forth and publicly notify the scope of joint utilization of the subscriber’s lines under paragraph (1), its conditions, procedures and methods, and the standards for calculation of prices.

20

Article 37 (Joint Utilization of Radio Communications Facilities)

(1) A key communications business operator may, upon receipt of a request for the joint utilization of radio communications facilities (hereinafter referred to as the “joint utilization”) from other key communications business operators, allow it by concluding an agreement. In this case, the prices for the joint utilization among the key communications business operators as set forth and publicly notified by Minister of Science, ICT and Future Planning shall be computed and settled accounts by a fair and reasonable means.

(2) The key communications business operators as determined and publicly notified by the Minister of Science and ICT shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Minister of Science and ICT, allow it by concluding an agreement, notwithstanding the provisions of paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users.

(3) The Minister of Science and ICT shall set forth and publicly notify the standard for computing the prices for joint utilization under the latter part of paragraph (1) and its procedures and payment methods, etc., and the scope of joint utilization under paragraph (2), its conditions, procedures and methods, and the computation of prices, etc.

Article 38 (Wholesale Provision of Telecommunications Services)

(1) Upon request from other telecommunication business operator, a key communications business operator may enter into an agreement to allow such telecommunication business operator to resell the telecommunications services it provides to users (“resale”) by providing such services to such other telecommunication business operator or permitting part or all of the telecommunications facilities necessary for such provision of telecommunications services (“wholesale provision”).

(2) To encourage competition in the telecommunication industry, the Minister of Science and ICT may, upon request from a telecommunication business operator, designate and announce telecommunication s services (“designated wholesale services”) of a key communications business provider which would need to enter into an agreement for wholesale provision (“designated wholesale provider”). In this case, designated wholesale services of the designated wholesale provider shall be selected from telecommunications services of key communications business providers satisfying the criteria specified in the Enforcement Decree of the Act which would take into consideration business size and market share.

(3) After evaluating the competition status of the communications market each year, if the Minister of Science and ICT determines that the competition in the telecommunications industry has increased to the degree where the sufficient wholesale of telecommunications services have been provided or the set criteria are not met, it may withdraw its designation of designated wholesale services of the designated wholesale provider.

(4) The Minister of Science and ICT shall determine and announce the terms and conditions of the wholesale provision when the designated wholesale provider enters into an agreement about the designated wholesale services. In this case, the consideration shall be calculated on the basis of subtracting avoidable costs (costs that the key communications business operator can avoid when not providing services directly to users) from retail prices of the designated wholesale services.

(5) Upon request for wholesale provision from other telecommunications business operator, a key communications business operator shall enter into an agreement within 90 days unless there are special reasons and shall report such agreement to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement. The same applies in the case of a change or abolition of the agreement.

(6) An agreement under paragraph (5) shall satisfy the criteria announced by the Minister of Science and ICT under paragraph (4).

Article 39 (Interconnection)

(1) A telecommunications business operator may allow the interconnection by concluding an agreement, upon a request from other telecommunications business operators for an interconnection of telecommunications facilities.

21

(2) The Minister of Science and ICT shall set forth and publicly notify the scope of interconnections of telecommunications facilities, the conditions, procedures and methods, and the standards for calculation of prices under paragraph (1).

(3) Notwithstanding the provisions of paragraphs (1) and (2), the key communications business operators falling under any of the following subparagraphs shall allow the interconnection by concluding an agreement, upon receipt of a request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.

Article 40 (Prices of Interconnection)

(1) Prices for using the interconnection shall be calculated by a fair and proper means and deducted from each other’s accounts. The detailed standards for such calculation, their procedures and methods shall be governed by the standards of Article 39 (2).

(2) A telecommunications business operator may deduct the prices for interconnection from each other’s accounts under the conditions as prescribed by the standards under Article 39 (2), if he suffers any disadvantages due to the causes of no liability on his part, in the method of interconnection, the quality of connected conversations, or the provision of information required for interconnection, etc.

Article 41 (Joint Use, etc. of Telecommunications Facilities)

(1) A key communications business operator may allow an access to or a joint use of the telecommunications equipment or facilities by concluding an agreement, upon receipt of a request from other telecommunications business operators for an access to or a joint use of the telecommunications equipment or facilities such as pipes, cables, poles, or stations of the relevant key communications business operator, for the establishment or operation of facilities required for interconnection of telecommunications facilities.

(2) The Minister of Science and ICT shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under paragraph (1).

(3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall allow an access to or a joint use of the telecommunications equipment or facilities under paragraph (1) by concluding an agreement, upon a receipt of request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.

Article 42 (Provision of Information)

(1) A key communications business operator may provide requested information by concluding an agreement, upon a receipt of request from other telecommunications business operators for a provision of information related to technological information or the user’s personal matters which are required for a provision or wholesale provision of facilities, etc., interconnection, or joint use, etc. and imposition and collection of fees and a guide to the telecommunications number.

(2) The Minister of Science and ICT shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under paragraph (1).

22

(3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall provide the requested information by concluding an agreement, upon a receipt of request under paragraph (1):

1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and

2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.

(4) A key communications business operator under paragraph (3) shall set forth the technical standards required for a use by other telecommunications business operators or users by means of a connection of a monitor and other telecommunications equipment on the relevant telecommunications facilities, the standards for use and provision, and other standards required for a creation of fair competitive environments, and make a public notice thereof by obtaining approval from the Minister of Science and ICT.

(5) Upon request from the manufacturer, importer or distributor of communication terminal devices (referring to the terminal devices that may use the telecommunications service utilizing frequencies assigned under the Radio Waves Act; hereinafter the same shall apply), a key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall provide information on the standards of telecommunications service to such manufacturer, importer or distributor to the extent that such information is necessary for the manufacturing, import, distribution or sales of the communication terminal devices purchased by the users not through the relevant key communications business operator.

(6) Scope and method of provision of the information referred to in paragraph (5) and other necessary matters shall be prescribed by the Enforcement Decree.

Article 43 (Prohibition of Use of Information for Other Purpose)

A telecommunications business operator shall use the technological information provided under Article 42 (1) and (3) for intended purposes and shall not use it wrongfully for other purposes nor provide it to a third party.

Article 44 (Report, etc. of Agreement on Interconnection, etc.)

(1) A key communications business operator and facility management institution shall conclude an agreement under Article 35 (1) and (2), the earlier part of 37 (1), 39 (1), 41 (1) or 42 (1) within ninety days unless there exist any special reasons and report it to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement, upon receipt of a request from other telecommunications business operators for a provision, a joint utilization, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information. The same applies in the case of a change or abolition of the agreement.

(2) Notwithstanding the provision of paragraph (1), in case of an agreement in which a key communications business operator under the latter part of Article 37 (1) and (2), Articles 39 (3), 41 (3), and 42 (3) is a party concerned, shall enter into an agreement within 90 days upon receipt of the request, unless there is a special reason, and the key communications business operator receiving the request shall apply for authorization to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of the Agreement and reveal the contents of the agreement within 30 days from the authorization date. The same applies in the case of a change or abolition of the agreement.

(3) Notwithstanding the provision of paragraph (2), an ancillary agreement is entered into such as in cases where an agreement is entered into in order to add new services based on the agreement already authorized, such ancillary agreement shall be reported to the Minister of Science and ICT within 30 days from the execution of the ancillary agreement and the contents of the agreement shall be revealed within 30 days from the date of report. The same applies in the case of a change or abolition of the ancillary agreement.

(4) The agreement under paragraphs (1) and (3) shall meet the standards which are publicly notified by the Minister of Science and ICT under Articles 35 (3), 37 (3), 39 (2), 41 (2)or 42 (2).

23

(5) The Minister of Science and ICT may, if any application for authorization or report referred to in paragraph (2) or (3) needs supplemented, order such application for authorization supplemented for a fixed period.

(6) The agreement under Articles 41 (1) and 42 (1) may be concluded by an inclusion in the agreement under Article 39 (1).

(7) Notwithstanding the provisions of paragraph (2) through (3), if change of the agreement does not cause any change in the prices for use or if change of the agreement is made only in insignificant matters as determined and announced by the Minister of Science and ICT, such change shall be exempted from being subject to authorization or report. In such cases, the contents of change in the agreement shall be revealed within 30 days from the date on which the change is made.

Article 45 (Ruling of the Korea Communications Commission)

(1) A telecommunications business operator or user may request to the Korea Communications Commission for an arbitration if they fail to agree on are not able to agree on any of the following:

1. indemnification under Article 33

2. execution of an agreement within a 90-day period regarding provision of facilities, etc. interconnection, joint use or provision of information, etc.

3. performance or indemnification under an agreement regarding provision of facilities, etc. interconnection, joint use or provision of information, etc.

4. other disputes concerning telecommunications business or matters specified as subject to the Korea Communications Commission’s ruling under other bodies of law.

(2) Upon receipt of the request for an arbitration under paragraph (1), the Korea Communications Commission shall notify the parties of that fact and set a timeline for providing them with a chance to make their cases, provided that the foregoing is not applicable if a relevant party does not submit to the procedures without any justifiable reason.

(3) The Korea Communications Commission shall make a ruling within 90 days from the request for arbitration provided that such period may be extended by one additional 90-days upon the resolution of the Korea Communications Commission if it is not possible to make a ruling within the original 90-day period for any unavoidable reason.

(4) If any part to the arbitration files a suit during the arbitration proceeding, the Korea Communications Commission shall suspend the arbitration proceeding and notify the other party of that fact. The same applies if it is found out that a lawsuit was filed prior to the receipt of request for arbitration.

(5) When it has made a ruling for the request made under paragraph (1), the Korea Communications Commission shall provide such written ruling to the parties without delay.

(6) Within 60 days from the date on which the originals of written ruling of the Korea Communications Commission were sent to the parties, if no lawsuit regarding the dispute between the parties to the arbitration has been filed or such lawsuit has been withdrawn or the parties clearly indicate their acceptance of the ruling to the Korea Communications Commission, an agreement equivalent to the contents of the ruling shall be deemed to have been made.

Article 46 (Solicitation for Outside Arbitration)

If the Korea Communications Commission, upon receiving request for arbitration under Article 45(1), deems that it is inappropriate to conduct arbitration or is necessary for other reasons, it may form a separate commission for each dispute and solicit for outside arbitration.

24

Article 47 (Demand for Attendance, Hearing, etc.)

(1) When necessary for proceeding with the arbitration case, the Korea Communications Commission may on its own motion or upon request from a party take any of the following actions:

1. demand for attendance of a party or witness and hold a hearing

2. demand for appraisal to an appraiser

3. demand for submission of documents or objects relevant for the dispute and provisional seizure of the documents or objects so submitted.

(2) Necessary matters concerning the procedures for the ruling and solicitation of the Korea Communications Commission, in addition to the matters prescribed in paragraph (1) and Articles 45 and 46, shall be determined and announced by the Korea Communications Commission.

Article 48 (Management Plan for Telecommunications Number Resources)

(1) The Minister of Science and ICT shall formulate and enforce the management plan for telecommunications number resources including the matters relating to the telecommunications system, and granting, withdrawal and integration of telecommunications number, in order to make an efficient provision of telecommunications service, and the promotion of user’s convenience and of the environments of fair competition among telecommunications business operators and efficient use of telecommunications numbers, which are limited national resources.

(2) The Minister of Science and ICT shall, when he has formulated the plans under paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan.

(3) A telecommunications business operator shall observe the matters publicly noticed under paragraph (2).

Article 48-2 (Prohibition of Sale and Purchase of Telecommunications Number)

(1) No one shall sale or purchase the telecommunications number, which is a limited national resources.

(2) If any information regarding the sale and purchase of the telecommunications number is published in the communications network, the Minister of Science and ICT may order telecommunications service providers to stop the service or restrict such telecommunications service providers’ publication.

Article 49 (Accounting Adjustment)

(1) A key communications business operator shall adjust the accounting, prepare a business report for the preceding year by the end of within 3 months after the end of each fiscal year, and submit it to the Minister of Science and ICT, under the conditions as determined by the Enforcement Decree, and keep the related books and authoritative documents.

(2) The Minister of Science and ICT shall, when it intends to determine the matters of accounting adjustments under paragraph (1), go in advance through a consultation with the Minister of Strategy and Finance.

(3) The Minister of Science and ICT may verify contents of any business report submitted by any key communications business operator in accordance with paragraph (1).

(4) The Minister of Science and ICT may, if it is necessary to conduct the verification referred to in paragraph (3), order the relevant key communications business operator to submit related material or launch inspection necessary to ascertain the facts.

(5) The Minister of Science and ICT shall, when it intends to launch inspection in accordance with paragraph (4), notify the relevant key communications business operator of the plans of such inspection including inspection period, reasons, and contents of the inspection within seven (7) days prior to the scheduled date of inspection.

(6) A person verifying the contents pursuant to paragraph (4) shall present the proof of the authorization therefor and give documents indicating his name, stay period and purpose of entrance to related party at the time of his first entrance.

25

Article 50 (Prohibited Act)

(1) A telecommunications business operator shall not commit any of the following acts (hereinafter referred to as “prohibited act”) which undermines or is feared to undermine fair competition or users’ interests, or have other telecommunications business operators or the third parties commit such act:

1. Act of imposing unfair or unreasonable condition or restriction in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.;

2. Act of unfairly refusing a conclusion of agreement, or act of non-performance of the concluded agreement without any justifiable reasons in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.;

3. Act of unfairly diverting the information of other telecommunications business operators to his own business activities, which have been known to him in the course of a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc., or a provision of information, etc.;

4. Act of computing the fees, etc. for a use of telecommunications services, or the prices for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, by unfairly itemizing the expenses or revenues;

5. Act of rendering the telecommunications services in a manner different from the standardized terms and conditions (the standardized terms and conditions refers to only those of which was reported or approved as pursuant to the Article 28 (1) and (2)) or act of rendering the telecommunications services in a manner which significantly undermines the profits of users;

5-2. Act by a telecommunications business operator of failure to explain or notify or of false explanation or notification to the users important matters such as the fees, contract conditions, fee discount, etc.;

6. Act of setting and maintaining the compensation for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, unreasonably high compared to its supply costs;

7. Act of refusing or restricting fair allocation of income in a transaction where telecommunications services using frequencies assigned under the Radio Waves Act are to be used to provide digital contents.

(2) When any person acting on behalf of any telecommunications business operator under a contract therewith in executing contracts between such telecommunications business operator and its users (including making any amendment to such contracts) commits any act falling under paragraph (1) 5 and 5-2, his act shall be deemed the act committed by such telecommunications business operator and only the provisions of Articles 52 (1) and 53 shall apply to such act; provided that the same shall not apply to a case where the relevant telecommunications business operator has paid reasonable attention to the prevention of such act.

(3) Necessary matters concerning categories of and standards for the prohibited act referred to in paragraph (1) shall be prescribed by the Enforcement Decree.

Article 51 (Investigation of Fact)

(1) In the event the Korea Communications Commission believes that activities in violation of Article 50(1) have been committed, it may order the relevant public official belonging to the Korea Communications Commission to conduct investigation thereof.

(2) The Korea Communications Commission may order public officials belonging to the Korea Communications Commission to enter into the offices or workplaces of the telecommunications business operators or the workplaces of the persons entrusted with handling of the business of telecommunications business operators (limited, throughout this Article, to telecommunications business operators entrusted with work related to Article 50) and inspect books, documents and other data and objects.

(3) In the event any investigation is to be conducted pursuant to paragraph (1), the Korea Communications Commission shall notify the relevant telecommunications business operator at least seven (7) days prior to the

26

expected date of investigation with information on the duration, purpose and content of the investigation; provided that this provision may not apply in the event of emergency or if there is risk that the evidence will be destroyed.

(4) A person who investigates by visiting the offices or workplaces of the telecommunications business operators, or the workplaces of the persons handling, under an entrustment, the business of telecommunications business operators, under paragraph (2) shall carry a certificate indicating the authority, and present it to the persons concerned. He also should be accompanied by the person of the corresponding offices or workplaces.

(5) A public official who investigates pursuant to paragraph (2) may order telecommunications business operators or persons entrusted with handling of the business of telecommunications business operators to submit any necessary information or object. In the event there is a possibility of abandonment, concealment, or replacement of the information or object so submitted, the public official may temporarily take them into custody.

(6) The Korea Communications Commission shall immediately return the information or object under its custody if it falls under any one of the following:

1. It is deemed, after an examination of the information or object under the custody, that it has no relevance to the current investigation.

2. The purpose of investigation is fully accomplished so that keeping the information or object under its custody is no longer necessary.

Article 52 (Measures on Prohibited Acts)

(1) The Korea Communications Commission may order any telecommunication business operator to take the measures falling under each of the following subparagraphs when it is recognized that any act in violation of paragraph (1) of Article 50 has been committed; provided that the Korea Communications Commission hears the opinion of the Minister of Science and ICT prior to ordering measures under subparagraphs 1 through 5, 8, and 9:

1. Separation of the supply system of telecommunications service;

2. Change of internal accounting regulations, etc. concerning telecommunications service;

3. Disclosure of information concerning telecommunications service;

4. Conclusion, performance or change of contents of the agreement between the telecommunications business operators;

5. Change of the standardized terms and conditions and the articles of incorporation of the telecommunications business operators;

6. Suspension of prohibited acts;

7. Public announcement of a fact of receiving a correction order due to committing the prohibited acts;

8. Measures necessary for restoring the violated matters due to the prohibited acts to their original status, such as the removal of telecommunications facilities which have caused the prohibited acts;

9. Improvement of business conduct procedures regarding telecommunications service;

10. Prohibition of soliciting new users (for a period not exceeding 3 months and limited to cases where the same violation has occurred for 3 times or more despite sanctions under subparagraphs 1 through 9 or where such sanctions are deemed insufficient to prevent harm to users); and

11. Such other matters prescribed by the Enforcement Decree as may be necessary for the measures referred to in subparagraphs 1 through 10.

(2) The telecommunications business operators shall execute any order issued by the Korea Communications Commission under paragraph (1) within the period specified by the Enforcement Decree; provided that the Korea Communications Commission may extend the relevant period only once, if it is deemed that the telecommunications business operators are unable to carry out the order within the specified period due to natural disasters and other unavoidable causes.

27

(3) The Korea Communications Commission shall, before ordering the measures under paragraph (1), notify the parties concerned of the content of relevant measures, and provide them with an opportunity to make a statement within a specified period, and may hear, where deemed necessary, demand for attendance of an interest party or witness, hearing or appraiser by an appraiser; provided that this shall not apply when the parties concerned fail to respond without any justifiable reasons.

(4) The Korea Communications Commission, when it orders to take the measures under paragraphs (1) through (3), shall notify it to the Minister of Science and ICT.

(5) The Minister of Science and ICT may order a telecommunications business operator, who fails to fulfill the orders under paragraph (1) within the period set forth under paragraph (2) without a justifiable reason, to suspend his business in part.

(6) Details necessary for criteria, procedures and other necessary matters shall be determined by the Enforcement Decree.

(7) The Minister of Science and ICT, when it orders a key communications business operator to suspend his business in part under paragraph (5), may order the measures necessary for user protection under Article 19 (2).

(8) In the event five (5) years have passed from the date on which any acts committed in violation of paragraph 1 of Article 50 have been terminated, the Korea Communications Commission shall not order any measures pursuant to paragraph 1 or impose a penalty surcharge pursuant to Article 53; provided that this provision shall not apply if any measure or imposition of penalty surcharge is cancelled by court order and a new measure is to be taken pursuant to that court order.

Article 52-2 (Charge for Compelling Execution on Prohibited Acts)

(1) The Minister of Science and ICT may impose the charge for compelling the execution against the persons who were subjected to the orders as referred to in Article 52 (1) (hereafter in this Article, referred to as the “corrective measure order”) and failed to comply with them within the period set forth in the corrective measure order at the amount not more than 3/1,000 of its revenue per day.

(2) The Minister of Science and ICT, before it imposes the charge for compelling the execution as referred to in paragraph (1), shall give prior notice in writing of such imposition and collection of the charge for compelling the execution.

(3) The Minister of Science and ICT shall impose the charge for compelling the execution under paragraph (1) by written documents containing the matters relating to the charge such as the amount, reason for imposition, deadline for payment, collecting agency, method to raise an objection, and agency to receive an objection.

(4) The Minister of Science and ICT may repeatedly impose and collect the charge for compelling the execution as referred to in paragraph (1) every 90 days after the day in which it made such corrective measure order until the corrective measure orders are fulfilled.

(5) When a person who received the corrective measure order fulfils the order, the Minister of Science and ICT shall immediately stop imposition of the charge for compelling the execution but collect the charge already imposed.

(6) When a person who was imposed the charge for compelling the execution under paragraph (1) fails to pay the charge by the payment deadline, the Minister of Science and ICT shall collect them according to the example of a disposition taken to collect the national taxes in arrears.

(7) Details necessary for the matters such as imposition, payment, procedures for raising an objection, etc. in relation to the charge for compelling the execution shall be determined by the Enforcement Decree.

Article 53 (Imposition, etc. of Penalty Surcharge on Prohibited Acts)

(1) The Korea Communications Commission may, in case where there exists any act in violation of paragraph 1 of Article 50, impose a penalty surcharge not exceeding 3/100 of the turnover as prescribed by the

28

Enforcement Decree on the relevant telecommunications business operator. If the telecommunications business operator refuses to submit the data used for calculation of the amount of turnover or submits erroneous data, an estimate of the amount can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status); provided that where there is no turnover or it is difficult to calculate the turnover as prescribed by the Enforcement Decree, it may impose the penalty surcharge not exceeding one billion won.

(2) The Minister of Science and ICT may impose on a key communications business operator that submits a business report under Article 49 a find up to 3% of its revenue as determined in a manner specified under the Enforcement Decree of the Act if it commits any of the following:

1. failure to submit a business report under Article 49 or to abide by an order to submit relevant information

2. omission of a material item or inclusion of a false statement in a business report under Article 49

3. failure to adjust the accounting or keep the related books and authoritative documents in violation of Article 49(1)

(3) The Minister of Science and ICT or the Korea Communications Commission shall, in the event of imposing a penalty surcharge under paragraph (1) or (2), take each of the following into consideration:

1. details of violation and the extent thereof;

2. duration and frequency of violation;

3. amount of profit obtained in connection with the violation; and

4. the amount of turnover obtained as a result of the prohibited activities or adjustment of the accounting of the telecommunications business operator.

(4) A penalty surcharge under paragraph (1) or (2) shall be calculated taking paragraph (3) into consideration, provided specific calculation standard and procedure shall be set forth by the Enforcement Decree.

(5) The Minister of Science and ICT or the Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) fails to do so by the payment deadline, collect an additional due equivalent to 6/100 per year, with respect to the penalty surcharge in arrears, from the day following the expiry of such payment deadline.

(6) The Minister of Science and ICT or the Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) fails to do so by the payment deadline, demand him to pay it with fixing a period, and if he fails to pay the penalty surcharge and an additional due under paragraph (5) within the fixed period, collect them according to the example of a disposition taken to collect the national taxes in arrears.

(7) The period for which the additional due as referred to in paragraph (5) shall be paid shall not exceed 60 months.

(8) In the event the penalty surcharge imposed under paragraph (1) or (2) is to be returned pursuant to the court order, an additional due equivalent to 6/100 per year with respect to the penalty surcharge in arrears (accrued from the day of payment to the day of payment) shall be paid.

Article 54 (Relations with Other Acts)

In case where a measure is taken under Article 52(1) or a penalty surcharge is imposed under Article 53 against the acts in violation of paragraph (1) of Article 50, a corrective measure or an imposition of penalty surcharge under the Monopoly Regulation and Fair Trade Act shall not be made under the same grounds against the same acts of the relevant business operator.

Article 55 (Compensation for Damages)

In case where a correction measure has been taken under Article 52 (1), a person who is damaged by the prohibited act may claim for compensation against the telecommunications business operator who conducted the prohibited act, and the relevant telecommunications business operator may not shirk liability unless he can prove that there was no malicious intention or negligence.

29

Article 56 (Quality Improvement of Telecommunications Services)

(1) A telecommunications business operator shall endeavor to make a quality improvement of the telecommunications services he provides.

(2) The Minister of Science and ICT shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users.

(3) The Minister of Science and ICT may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under paragraph (2).

Article 56-2 (Provision of Information on Telecommunications Services)

(1) A telecommunications business operator shall provide to the users the information necessary to choose the telecommunications services that he provides such as the area where the telecommunications services are available and providing method.

(2) Type, and providing method and procedures of the information that shall be provided under paragraph (1) shall be determined and publicly notified by the Minister of Science and ICT.

(3) The Minister of Science and ICT shall check the status of providing the information under paragraph (1) on a regular basis and shall announce the result on an annual basis.

Article 57 (Prior Selection Systems)

(1) The Minister of Science and ICT shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the “prior selection systems”). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Enforcement Decree from among the same telecommunications service provided by the plural number of telecommunications business operators.

(2) The telecommunications business operator shall not force the users to select in advance a specified telecommunications business operator, or commit the acts to recommend or induce by unlawful means.

(3) The Minister of Science and ICT may, for the purpose of performing the prior selection systems efficiently and neutrally, designate the specialized institutes performing the registration or alteration affairs of the prior selection (hereinafter referred to as the “prior selection registration center”). The matters necessary for designation of the prior selection registration center shall be determined and publicly notified by the Minister of Science and ICT.

(4) Deleted.

Article 58 (Mobility of Telecommunications Number)

(1) The Minister of Science and ICT may, in order that the users are able to maintain their previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the “plans for mobility of numbers”).

(2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs:

1. Kinds of services subject to the mobility of telecommunications numbers;

2. Time for introduction by service subject to the mobility of telecommunications numbers; and

3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator.

(3) The Minister of Science and ICT may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures.

30

(4) The Minister of Science and ICT may designate an institution specializing in the work of registration and alteration of the mobility of numbers (hereinafter referred to as the “mobility of numbers management institution”) to efficiently and neutrally implement the mobility of numbers of the telecommunications.

(5) The Minister of Science and ICT shall prescribe and publish necessary matters concerning the implementation of the mobility of numbers of the telecommunications, the designation of any mobility of numbers management institution and its work, etc.

Article 59 (Restrictions, etc. on Mutual Possession of Stocks)

(1) Where a key communications business operator falling under Article 39 (3) 1 or 2 (including the specially-related persons) possesses in excess of 5/100 of the gross number of voting stocks issued by the mutually different key communications business operators, shall not be allowed to exercise any voting rights with regard to the stocks in excess of the relevant ceiling.

(2) Provisions of paragraph (1) shall not apply to the relation of possessions between a key communications business operator falling under Article 39 (3) 1 or 2 and the key communications business operator established by the said key communications business operator by becoming the largest stockholder.

Article 60 (Provision of Directory Assistance Service)

(1) The telecommunications business operator shall provide an information service of guiding the general public to the telecommunications numbers of the users by means of voice, booklets or Internet, etc. (hereinafter referred to as the “directory assistance service”) by obtaining a consent of the users; provided that the same shall not apply to the minor business determined and publicly announced by the Minister of Science and ICT by taking account of the numbers of the users and the turnovers, etc.

(2) If necessary for the protection of private personal information, the Minister of Science and ICT may limit the provision of the directory assistance service.

(3) Matters necessary for a provision of the directory assistance service may be stipulated by the Enforcement Decree.

Article 60-2 (Interruption of Using Communication Terminal Devices Reported due to Loss, etc.)

(1) A telecommunications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall share the unique international identification number (hereinafter referred to as the “unique identification number”) of the communication terminal device reported to the telecommunications business operator due to such reason as loss, theft, etc. with other telecommunications business operators in order to interrupt the use of such device.

(2) The Minister of Science and ICT may designate the specialized institutes for an efficient sharing of unique identification numbers.

(3) If it is necessary to interrupt the use of the communication terminal device which has been reported to the telecommunications business operator due to such reason as loss, theft, etc., the Minister of Science and ICT may request for cooperation to the head of relevant administrative agencies and public agencies.

(4) Necessary matters for the designation of the specialized institutes referred to in paragraph (2) and treatment of business shall be prescribed by the Enforcement Decree.

Article 60-3 (Prohibition of Damage, etc. to Unique Identification Numbers)

No one may damage, forge or falsify the unique identification numbers of communication terminal devices in order to disturb the interruption of using the communication terminal devices reported to the telecommunication business operator due to such reason as loss or theft.

31

CHAPTER V. TELECOMMUNICATIONS FACILITIES

Section 1. Commercial Telecommunications Facilities

Article 61 (Maintenance and Repair of Telecommunications Facilities)

For stable provision of its telecommunications services, a telecommunications business operator shall maintain and repair the telecommunications facilities it provides up to technical specifications specified under the Enforcement Decree of the Act for stable supply of telecommunications.

Article 62 (Report and Authorization of Telecommunications Facilities Installation)

(1) When a key communications business operator seeks to install or modify any significant telecommunications facilities, it shall report it to the Minister of Science and ICT in a manner specified under the Enforcement Decree of the Act; provided that, for the telecommunications facilities installed for the first time for new telecommunication technology, an authorization from the Minister of Science and ICT shall be obtained in a manner specified in the Enforcement Decree of the Act.

(2) The scope of significant telecommunications facilities under paragraph (1) shall be determined and announced by the Minister of Science and ICT.

Article 63 (Joint Installation of Telecommunications Facilities)

(1) A key communications business operator may agree with another key communications business operator to jointly install and use telecommunications facilities.

(2) A key communications business operator whose size of business, etc. corresponds to the standards as determined by the Enforcement Decree shall compose and operate a council to negotiate on joint installation of the telecommunications facilities as set forth in paragraph (1).

(3) The Minister of Science and ICT shall determine and publicly announce the criteria for the matters relating to the council as referred to in paragraph (2) such as composition, operating procedures, facilities subject to negotiation, and scope of target area.

(4) The Minister of Science and ICT, if necessary to efficiently promote the joint installation of the telecommunications facilities as set forth in paragraph (1), may designate an agency to be exclusively responsible for the affairs relating thereto.

(5) The matters necessary for designation of an agency and handling methods as referred to in paragraph (4) shall be determined and publicly notified by the Minister of Science and ICT.

(6) The Minister of Science and ICT may recommend joint installation of telecommunications facilities under paragraph (1) to key communications business operators in a manner specified under the Enforcement Decree in any of the following cases:

1. where no agreement is reached under paragraphs (1) and (2), and request is made by one of the key communications business operators

2. where it is deemed necessary for the public good

(7) If a key communications business operator fails to reach an agreement on the use of land or buildings owned by the government, public agencies under the Act on the Management of Public Agencies (“public agencies” in this Article) or another key communications business operator when such use is necessary for joint installation of telecommunications facilities, it may request for help from the Minister of Science and ICT on use of such land or building.

(8) Upon receiving the request for help under paragraph (7), the Minister of Science and ICT may make a demand to the head of the government entities, municipalities, public agencies or the other key communications business operator for reaching an agreement with the use of relevant land or building with the key communications business operator making the request for help. In this case, the head of the government entities, municipalities, public agencies or the other key communications business operator shall make such agreement unless there is a justifiable reason.

32

Section 2. PROPRIETARY TELECOMMUNICATIONS FACILITIES

Article 64 (Installation of Proprietary Telecommunications Facilities)

(1) A person seeking to install proprietary telecommunications facilities shall make a report to the special metropolitan city mayor, metropolitan city mayor, metropolitan autonomous city, provincial governor, or special self-governing provincial governor (“mayor or governor”) having jurisdiction over the location of the office where the main facilities are installed in a manner specified under the Enforcement Decree of the Act. The same applies when an important aspect of reporting items as specified under the Enforcement Decree is sought to be modified.

(2) Notwithstanding paragraph (1), in case of wireless proprietary telecommunications facilities and military telecommunications facilities and others where other bodies of law are applicable, such bodies of law shall be applicable.

(3) A person who has made a report on installation or modification of proprietary telecommunications facilities under paragraph (1) shall receive confirmation from the mayor or governor in a manner specified under the Enforcement Decree of the Act when such installation or modification construction is complete and before commencement of its use.

(4) Notwithstanding paragraph (1), certain proprietary telecommunications facilities specified under the Enforcement Decree of the Act may be installed without filing a report.

Article 65 (Restriction on Non-Proprietary Use)

(1) A person who has installed proprietary telecommunications facilities may not use such facilities to interconnect other’s communication or operate it outside its installation purposes, provided that the foregoing is not applicable in cases where other bodies of law have special provisions of any of the following is applicable:

1. use by a person in law enforcement of disaster rescue industries for law enforcement or emergency rescue operation; and

2. use by a specially related person of the installer of proprietary telecommunications facilities as announced by the Minister of Science and ICT.

(2) A person who has installed proprietary telecommunications facilities may provide telecommunications facilities such as conduit line to a key communications business operator in a manner specified under the Enforcement Decree of the Act.

(3) Articles 35, 44 (excluding paragraph (6)) and 45 through 47 shall be applicable in case of provision of facilities under paragraph (2).

(4) When a person who has installed proprietary telecommunications facilities violates paragraph (1), the Minister of Science and ICT may order the person to suspend using the proprietary telecommunications facilities for the period not exceeding one year. In such cases, the Minister of Science and ICT shall notify the fact that it ordered suspension of the use to the mayor or governor having jurisdiction over the relevant location.

Article 66 (Securing Communication Lines in Case of Emergency)

(1) When a war, accident or natural disaster or other national emergency has happened or is likely to happen, the Minister of Science and ICT may order a person who has installed proprietary telecommunications facilities to engage in telecommunications services or other important communications services or connect the telecommunications facilities to other telecommunications facilities. In this case, Articles 28 through 32, 33 through 55 shall be applicable.

(2) When the Minister of Science and ICT deems necessary for the purposes of paragraph (1), may order a key communications business operator to handle such task.

(3) The costs of performing the task or interconnecting facilities under paragraph (1) shall be borne by the government, provided that when proprietary telecommunications facilities are used for telecommunications services, the key communications business operator receiving such service shall bear its costs.

33

Article 67 (Order on the Person Installing Proprietary Telecommunications Facilities, Etc.)

(1) When a person who has installed proprietary telecommunications facilities fails to abide by the Act or order under this Act in relation to installation, change or operation (except for operation in violation of Article 65 (1)), the mayor or governor may order a corrective measure to be carried out within a specific time frame.

(2) If a person who has installed proprietary telecommunications facilities falls under any of the following, the mayor or governor may order a cessation of use for a period not exceeding one year:

1. failure to carry out the corrective order under paragraph (1);

2. use of proprietary telecommunications facilities without receiving confirmation in violation of Article 64(3);

3. deleted.

(3) When the mayor or governor deems that proprietary telecommunications facilities are interfering with other’s telecommunications or likely to harm other’s telecommunications facilities, it may order the person who installed such facilities to stop using, modify, repair or take other corrective measures.

Section 3. JOINT CONSTRUCTION OF TELECOMMUNICATIONS FACILITIES, ETC.

Article 68 (Installation of Common Duct or Conduit Line, etc.)

(1) A person installing or arranging any of the following (hereinafter referred to as the “facility installer”) shall solicit and reflect an opinion from a key communications business operator about installing a common duct or conduit line for telecommunications facilities, provided that the forgoing obligation does not apply when there is a special reason for not being able to honor the key communications business operator’s opinion.

1. road under Article 2(1) of the Road Act

2. railroad under Article 2(1) of the Railroad Enterprise Act

3. urban railroad under Article 2(2) of the Urban Railroad Act

4. industrial complex under Article 2(5) of the Industrial Sites and Development Act

5. free trade zone under Article 2(1) of the Act on Designation and Management of Free Trade Zone

6. airport area under Article 2.4 of the Aviation Facility Act

7. port area under Article 2.4 of the Harbor Act

8. other facilities or land as specified under the Enforcement Decree of the Act

(2) An opinion set forth by key communications business operator about installation of common duct or conduit line under paragraph (1) shall satisfy the installation requirements for common duct specified under the Enforcement Decree of the Act.

(3) Articles 35, 44 (excluding paragraph (5)) and 45 through 47 shall be applicable in case of provision of common duct or conduit line installed under paragraph (1).

(4) When a facility installer is unable to reflect the opinion of key communications business operator under paragraph (1), it shall notify the key communications business operator of the reason for such inability within 30 days from the receipt of such opinion.

(5) When a facility installer does not reflect the opinion of key communications business under paragraph (1), the key communications business operator may ask for reconciliation from the Minister of Science and ICT.

(6) When attempting reconciliation upon receipt of the reconciliation request under paragraph (5), the Minister of Science and ICT shall consult with the head of relevant administrative organization in advance.

(7) Details necessary for reconciliation under paragraphs (5) and (6) shall be specified under the Enforcement Decree of the Act.

34

Article 69 (Installation of Telecommunication: Line Facilities for Internal Routing, etc.)

(1) A building under Article 2(1)2 of the Building Act shall install telecommunication line facilities for internal routing and set aside a certain area for connection with telecommunication grid facilities.

(2) Details on the scope of building, standards for installing telecommunication line facilities and the setting aside of a certain area for connection with telecommunication grid facilities shall be specified under the Enforcement Decree of the Act.

Article 69-2 (Installation of Mobile Communications Facilities for Internal Routing)

(1) Mobile communications facilities for internal routing (it means telecommunications facilities necessary to use a key communications services utilizing frequencies assigned under the Radio Waves Act) shall be installed in the following facilities:

1. buildings as determined by the Enforcement Decree among the buildings under Article 2 (1) 2 of the Building Act aggregated total of floor areas of which is 1,000 m² or more;

2. housings and facilities built in the housing complex with 500 housings or more as determined by the Enforcement Decree among the housing complexes under Article 2 (12) of the Housing Act; and

3. urban railroad facilities under Article 2 (3) of the Urban Railroad Act.

(2) Details on the mobile communications facilities for internal routing such as the type and standards and procedures of installation shall be determined by the Enforcement Decree.

Article 70 Deleted.

Article 71 Deleted.

Section 4. Installation and Preservation of Telecommunications Facilities

Article 72 (Use of Land, etc.)

(1) A key communications business operator may, when necessary for the installation of line tracks, antennas and the appurtenant facilities to be available for telecommunications service (hereinafter referred to as the “line tracks, etc.”), make use of others’ land, or buildings and structures appurtenant thereto, and surface and bottom of the water (hereinafter referred to as the “land, etc.”). In this case, a key communications business operator shall make a consultation with owners or possessors of the relevant land, etc. in advance.

(2) Where a consultation under paragraph (1) is not or cannot be made, a key communications business operator may use the land, etc. owned by others, pursuant to the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor.

Article 73 (Temporary Use of Land, etc.)

(1) A key communications business operator may, when necessary for the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities, temporarily use the private, national or public telecommunications facilities, and the land, etc., within the limit of not substantially impeding a current use.

(2) No one may, without any justifiable reason, interfere with the temporary use of telecommunications facilities, and land, etc., for the purposes of the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities under paragraph (1).

(3) A key communications business operator shall, when intending to temporarily use the private, national or public property under paragraph (1), notify the possessors, in advance, of the purposes and period of such use: provided, that in case where it is difficult to make a prior notification, a prompt notification shall be made during or after its use, and in case where such notification of the purposes and period of such use may not be made due to an obscurity of address and whereabouts of possessors, a public notice thereof shall be made.

(4) The temporary period of use of the land, etc. under paragraph (1) shall not exceed six months.

35

(5) A person who temporarily uses the private, national or public telecommunications facilities or the land, etc. under paragraph (1) shall carry the certificate indicating the authority, and present it to the persons related.

Article 74 (Entry to Land, etc.)

(1) A key communications business operator may enter others’ land, etc., when necessary for a measurement, examination, etc., for the installation and preservation of his telecommunications facilities; provided that, in case where the place intended for such entry is a residential building, a consent from residents shall be obtained.

(2) No one may, without any justifiable reason, interfere with the temporary entry of telecommunications facilities, and land, etc., for the purposes of the measurement, examination, etc., for the installation and preservation of telecommunications facilities under paragraph (1).

(3) Article 73(3) and (5) shall be applicable in regard to providing notice and showing an identification when a person doing measurement or examination under paragraph (1) enters private or public land, etc.

Article 75 (Request for Elimination of Obstacles, etc.)

(1) A key communications business operator may request the owners or possessors of gas pipes, water pipes, drain pipes, electric lamp lines, electricity lines or private telecommunications facilities, which impede or are likely to impede the installation of line tracks, etc. or telecommunications facilities themselves (hereinafter referred to as the “obstacles, etc.”), for the removal, remodeling, repair and other measures with respect to the relevant obstacles, etc.

(2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves.

(3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Minister of Science and ICT. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants.

(4) The owners or possessors of the obstacles, etc., which impede or are likely to impede the telecommunications facilities of a key communications business operator, shall make a consultation in advance with the key communications business operator, when they are in need of a new construction, enlargement, improvement, removal or alteration of the relevant obstacles, etc.

Article 76 (Obligation for Restoration to Original State)

A key communications business operator shall restore the relevant land, etc. to its original state, when a use of the land, etc. under Articles 72 and 73 is finished or a need of providing the land, etc. for telecommunications service is gone, and in case where a restoration to the original state becomes impossible, make a proper compensation for damages suffered by the owners or possessors.

Article 77 (Compensation for Damages)

A key communications business operator shall, in case of incurring damages on others in case of Article 73 (1), 74 (1) or 75, make a proper compensation to the suffered person.

Article 78 (Procedures for Compensation for Damages on Land, etc.)

(1) When a key communications business operator compensates under Article 76 or 77 for any of the following reasons, it shall consult with the person has incurred losses:

1. temporary use of land under Article 73(1);

2. entry in land, etc. under Article 74(1);

36

3. moving, modifying, repairing obstacles or removal of plants under Article 75; or

4. inability to restore to the original state under Article 76.

(2) When a consultation under paragraph (1) is not or cannot be made, an application for adjudications shall be filed with the competent Land Expropriation Commission under the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor.

(3) Except for those as otherwise prescribed by this Act, the provisions of the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor shall be applied mutatis mutandis to the criteria, methods and procedures regarding a compensation for damages, etc. to the land, etc. under paragraph (1), and an application for adjudications under paragraph (2).

Article 79 (Protection of Telecommunications Facilities)

(1) No person shall destruct the telecommunications facilities, and obstruct the flow of telecommunications by impeding the function of telecommunications facilities by means of having other objects contact them or by any other devices.

(2) No person shall stain the telecommunications facilities or damage the measurement marks of the telecommunications facilities by means of throwing objects to the telecommunications facilities or fastening an animal, vessel or a log raft thereto.

(3) A key communications business operator may, if necessary for the protection of submarine communications cable and their peripheral equipment (hereinafter referred to as the “Submarine Cable”), file an application to the Minister of Science and ICT for the designation of alert areas for the Submarine Cable.

(4) Upon receiving an application pursuant to paragraph (3), the Minister of Science and ICT may consider the necessity of such designation and may designate and publicly notify the alert areas for the Submarine Cable through consultation with the relevant state administrative agency.

(5) Designation applications, methods and procedures of such designation and its public notification, and methods of alert area indication shall be determined by the Enforcement Decree.

Article 80 (Moving of Facilities, etc.)

(1) The owners or possessors of the land, etc. may, in case where the telecommunications facilities of a key communications business operator have become an obstacle to a use of the land, etc. due to changes in the purpose of use or in the methods of using the land, etc. where such facilities are located, or the land adjacent to it, request a key communications business operator to move the telecommunications facilities, and take other measures necessary for removing the obstacles.

(2) A key communications business operator shall, upon receipt of a request under paragraph (1), take necessary measures, except for the cases where such measures are difficult to be taken for a business performance or technologies.

(3) Expenses necessary for taking the measures under paragraph (2) shall be borne by the person who provided the cause for the move or taking other measures necessary for removing the obstacles after the installation of the subject telecommunications facilities; provided that, in the event the person who bears the expenses is the owner or possessor of the land and falls under any one of the following subparagraphs, the key communications business operator may reduce or exempt the person’s expenses, considering the indemnification amount paid at the time of installation of the telecommunications facilities and the amount of time it took to build the telecommunications facilities:

1. where the key communications business operator establishes and implements a plan to move the telecommunications facilities or remove other obstacles;

2. where the moving the telecommunications facilities or removal of other obstacles is beneficial to other telecommunications facilities;

37

3. where the state or a local autonomous entity demands such moving of telecommunications facilities or removal of other obstacles; or

4. where the telecommunications facilities within private land are being removed because they greatly obstruct the use of such land.

Article 81 (Cooperation of Other Organizations, etc.)

A key communications business operator may ask the related public agencies for a cooperation, in case where the operation of vehicles, vessels, airplanes and other carriers for the installation and preservation of his telecommunications facilities is necessary. In this case, the public agency in receipt of a request for cooperation shall comply with it, unless there exist any justifiable reasons.

Article 82 (Inspection Report, Etc.)

(1) When necessary for establishing telecommunication policies and other cases specified under the Enforcement Decree of the Act, the Minister of Science and ICT may inspect the facility status, accounting books and documents of installers of telecommunications facilities or demand them to make a report on the facilities.

(2) When there is an installer telecommunications facilities in violation of this Act, the Minister of Science and ICT may order the removal of the relevant facilities or other necessary actions.

CHAPTER VI. SUPPLEMENTARY PROVISIONS

Article 83 (Protection of Communication Secrecy)

(1) No person shall infringe on or divulge the secrecy of communication dealt with by telecommunications business operator.

(2) A person who is or has been engaged in the telecommunications service shall not divulge others’ secrecy obtained with respect to communication while in office.

(3) A telecommunications business operator may comply with a request for the perusal or the provision of the data falling under each of the following subparagraphs (hereinafter referred to as the “supply of communication data”) from a court, a prosecutor, the head of an investigation agency (including the head of any military investigation agency, the commissioner of the National Tax Service and the commissioners of regional Tax Offices; hereinafter the same shall apply) and the head of an intelligence and investigation agency, who intends to collect information or intelligence for the purpose of the prevention of any threat to a trial, an investigation (including an investigation of any transgression taken place during commission of any crime falling under Article 10(1), (3) or (4) of the Punishment of Tax Evaders Act), the execution of a sentence or the guarantee of the national security:

1. Names of users;

2. Resident registration numbers of users;

3. Addresses of users;

4. Phone numbers of users;

5. IDs of users (referring to the identification codes of users that are used to identify the rightful users of computer systems or communications networks); and

6. Dates on which users subscribe or terminate their subscriptions.

(4) The request for supply of communication data under paragraph (3) shall be made in writing (hereinafter referred to as a “written request for data supply”), which states a reason for such request, relation with the relevant user and the scope of necessary data; provided that where an urgent reason exists that makes a request in writing impossible, such request may be made without resorting to writing, and when such reason disappears, a written request for data supply shall be promptly filed with the telecommunications business operator.

38

(5) A telecommunications business operator shall, where he has supplied the communication data pursuant to the procedures of paragraphs (3) and (4), keep the ledgers as prescribed by the Enforcement Decree, which contain necessary matters such as the facts of supplies of communication data, and the related data such as the written requests for data supply, etc.

(6) A telecommunications business operator shall report, to the Minister of Science and ICT, twice a year the current status, etc. of supplying the communication data, by the methods prescribed by the Enforcement Decree, and the Minister of Science and ICT may check whether the content of a report made by a telecommunications business operator is authentic and the management status of related data according to paragraph (5).

(7) A telecommunications business operator shall, by the methods prescribed by the Enforcement Decree, notify the contents entered in the ledgers according to paragraph (5) to the head of a central administrative agency whereto a person requesting supply of communications data according to paragraph (3) belongs; provided that in the event that a person who asks for providing the communications data is a court, the relevant telecommunications business operator shall notify the Minister of the Court Administration thereof.

(8) A telecommunications business operator shall establish and operate a setup in full charge of the affairs related to the users’ communication secrets; and the matters concerning the function and composition, etc. of the relevant setup shall be prescribed by the Enforcement Decree.

(9) Matters necessary for the scope of persons holding the decisive power on written request for data supply shall be prescribed by the Enforcement Decree.

Article 84 (Notice of Transmitter’s Telephone Number)

(1) The telecommunications business operator may, upon request from the recipient, notify him of the transmitter’s telephone number, etc.; provided that this shall not apply to the case where the transmitter expresses his content to refuse the transmission of his telephone number.

(2) Notwithstanding the proviso of paragraph (1), the telecommunications business operator may, in any of the following cases notify the recipient of the transmitter’s telephone number, etc.

1. in case where the recipient requests according to the requisites and procedures set by the Enforcement Decree in order to protect the recipients from the violent language, intimidations, harassments, etc.

2. Of the special telephone number services, those necessary for national security, crime prevention, disaster response, etc. as specified under the Enforcement Decree of the Act.

(3) Deleted.

(4) Deleted.

Article 84-2 (Prohibition of Erroneous Display of Telephone Number and User Protection)

(1) No person shall display an erroneous telephone number by altering the caller’s telephone number, etc. while making a phone call (including text messages; hereinafter the same shall apply in this Article) for property profit or for the purpose of inflicting harm on others through violent language, intimidations, harassments, etc..

(2) No person shall provide services that enable display of an erroneous telephone number by altering the caller’s telephone number, etc. for profit; provided that this provision under paragraph (4) shall not apply in the event any justifiable grounds for exception exist (e.g., for public interest or recipient’s convenience).

(3) A telecommunications business operator shall take the following measures in order to prevent the users’ damages arising from the telephone number erroneously displayed unless there is any justifiable ground as referred to in the proviso of paragraph (2):

1. measures to block sending a call from a telephone number erroneously displayed by altering the number, or to send a call to a recipient after changing the telephone number to the caller’s correct number;

2. measures to give a guide on the international call coming in to Korea informing that it is an international call;

39

3. measures to stop providing the telecommunications services for the line of a person transmitting the telephone number erroneously displayed by altering the number, etc.;

4. other matters as determined by the Minister of Science and ICT for user protection.

(4) The Minister of Science and ICT, in order to check whether the measures set forth in paragraph (3) has been taken or not, or to prevent the users’ damages from expanding, may request access to or submission of the following information to a telecommunications business operator or may conduct a necessary inspection:

1. If a call from the telephone number erroneously displayed by altering the number, etc. is blocked, the concerned telephone number, the time when the blocking is made, and company name sending the call;

2. If a recipient reports on the telephone number erroneously displayed by altering the number, the company name sending the call;

3. Other relevant data that can confirm whether the measures of each subparagraph of paragraph (3) have been taken.

(5) The Minister of Science and ICT, in order to check whether the measures of each subparagraph of paragraph (3) have been taken or not and implement the measures under paragraph (4), may entrust the affairs with the Korea Internet & Security Agency under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. and bear the costs incurred thereto.

(6) The Minister of Science and ICT may determine and publicly notify the justifiable grounds under the proviso of paragraph (2), measures under each subparagraph of paragraph (3) and detailed procedures and methods for implementation of paragraph (4).

(7) Articles 64, 64-2 and 69 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. shall apply mutatis mutandis to the access, submission of the information as referred to in paragraph (4).

Article 85 (Restriction and Suspension of Business)

The Minister of Science and ICT may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Enforcement Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications.

Article 86 (Approval for International Telecommunications Services)

(1) When there exist special provisions in the treaties or agreements on international telecommunications business joined by the Government, those provisions shall govern.

(2) A telecommunications business operator shall, where he intends to conclude an agreement to provide transboundary key communications services under Article 87 (1) or an agreement on international telecommunications business as prescribed by the Enforcement Decree, obtain approval from the Minister of Science and ICT fulfilling the requisites prescribed by the Enforcement Decree. The same shall apply to the case where he intends to alter or abolish such agreement or contract; provided that he may conclude such agreement without an approval from the Minister of Science and ICT if he meets the following qualifications:

1. A person who intends to provide a key communications service shall be a foreigner of the counterparty country to free trade agreements determined and announced by the Minister of Science and ICT out of those free trade agreements that have been executed, bilaterally and multilaterally, between or among the Republic of Korea and a foreign country(s) and come into effect;

2. The key communications business that transmits sound, data, image, etc. related to TV broadcasting or radio broadcasting by and among the broadcasting business operators shall be provided by using an artificial satellite; and

3. The key communications business shall not be provided by and among the domestic broadcasting business operators.

40

(3) A telecommunications business operator providing key communication services shall, where he concludes an agreement or a contract with a foreign government or a foreigner with respect to the adjustments of fees following the handling of international telecommunications services, report such to the Minister of Science and ICT, provided that the foregoing is not applicable in case the size of telecommunications facilities, paid-in capital, number assignment, etc. satisfy the standards specified under the Enforcement Decree of the Act.

(4) Deleted.

(5) Details on the report under paragraph (3) shall be determined and publicly announced by the Minister of Science and ICT.

Article 87 (Transboundary Provision of Key Communications Services)

(1) A person, who intends to provide key communications service from abroad into the homeland without establishing a domestic business place (hereinafter referred to as the “transboundary provision of key communications services”), shall conclude a contract on transboundary provision of key communications services with a domestic key communications business operator or a specific communications business operator who provides the same key communications service.

(2) The provisions of Articles 28, 32, 33, 45 through 47, 50 through 55, 83, 84, 84-2, 85, 88 and 92 of this Act and Article 44-7 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. shall apply mutatis mutandis to the provision of services as determined in a contract by a key communications business operator or a specific communications business operator who has concluded the contract under paragraph (1).

(3) Where a person, who intends to provide a transboundary key communications service under paragraph (1), or a key communications business operator or a specific communications business operator, who has concluded a contract with him, violates the relevant provisions which applies mutatis mutandis under paragraph (2), the Minister of Science and ICT may cancel approval under Article 86 (2), or issue an order to suspend a transboundary provision of the whole or part of key communications services as determined in the relevant contract, with fixing a period of not more than one year.

(4) Criteria and procedures, etc. for dispositions under paragraph (3) and other necessary matters shall be determined by the Enforcement Decree.

Article 87-2 (Marking of Warning Messages)

(1) A person manufacturing or importing/selling mobile devices may mark the warning messages that using the mobile devices while moving may incur a risk of an accident in the mobile devices.

(2) The government may provide necessary support such as the costs to be incurred under paragraph (1).

(3) The matters necessary for the content and method how to mark the warning messages as set forth in paragraph (1) shall be determined and publicly notified by the Minister of Science and ICT.

Article 88 (Report, etc. on Statistics)

(1) A telecommunications business operator shall report the statistics on a provision of telecommunications service as prescribed by the Enforcement Decree, such as a current status of facilities by telecommunications service, subscription record, current status of users, and the data related to telephone traffic required for the imposition and collection of fees, to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree, and keep the related data available.

(2) A key communications business operator and stockholders thereof, or the specific communications business operator and stockholders thereof shall submit the related data necessary for a verification of the facts of Article 8, pursuant to the provisions of the Enforcement Decree.

(3) The Minister of Science and ICT may, in order to verify the facts under paragraph (2), or to examine the genuineness of the data submitted, request the administrative agencies and other related agencies to examine the data submitted or to submit the related data. In this case, the agencies in receipt of such request shall accede thereto unless there exist any justifiable reasons.

41

(4) The mayor or governor shall report the following matters to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree, and keep the related data available:

1. status of the report on the installation of the proprietary telecommunications facilities and report on the modification under Article 64 (1);

2. status of correction, suspension of use, remodeling, repair or other measures under Article 67;

3. status of imposition of penalty surcharge under Article 90 (2);

4. status of imposition of fine for negligence under Article 104 (5) 10.

Article 89 (Hearing)

The Minister of Science and ICT shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing:

1. Cancellation, in whole or part, of license for a key communications business operator under Article 20 (1);

2. Cancellation, in whole or part, of registration of a specific communications business under Article 27 (1);

3. Closedown, in whole or part, of a value-added communications business under Article 27 (2); and

4. Cancellation of approval under Article 87 (3).

Article 90 (Imposition of Penalty Surcharge, etc.)

(1) The Minister of Science and ICT may impose a penalty surcharge equivalent to the amount of not more than 3/100 of the sales amount that is calculated under the conditions as prescribed by the Enforcement Decree in lieu of the relevant business suspension, in case where he has to order a business suspension to a telecommunications business operator who falls under subparagraphs of Article 20 (1), subparagraphs of Article 27 (1) and (2) or Article 52(5), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. If the telecommunications business operator refuses to submit the data used for calculation of turnover or submits erroneous data, an estimate of the turnover can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status); provided that in the event that the sales amount is nonexistent or difficult to calculate the sales amount, as prescribed by the Enforcement Decree, the Minister of Information and Communication may impose a penalty surcharge not exceeding 1 billion won.

(2) When the Minister of Science and ICT and the mayor or governor orders cessation of use in regard to proprietary telecommunications facilities under Articles 65 (4) and 67 (2), it may replace such order with a penalty surcharge not exceeding 1 billion won if such order causes significant inconvenience to users of telecommunications services provided with the use of the relevant proprietary telecommunications facilities or other public harm is expected.

(3) Specific standards for the imposition of penalty surcharge under paragraphs (1) and (2) shall be determined by the Enforcement Decree.

(4) Articles 53(5) through (8) shall apply in regard to additional dues of penalty surcharge, demand for payment and return-additional dues of penalty surcharge under paragraphs (1) and (2).

Article 91 (Extension of Time Limit of Payment of Penalty Surcharge and Payment in Installments)

(1) Where a penalty surcharge to be paid by a telecommunications business operator under Articles 53 and Article 90 exceeds the amount as prescribed by the Enforcement Decree, and where deemed that a person liable for a payment of penalty surcharge finds it difficult to pay it in a lump sum due to the reasons falling under any one of the following subparagraphs, the Minister of Science and ICT or the Korea Communications Commission may either extend the time limit of payment, or have him pay it in installments. In this case, the Minister of Science and ICT or the Korea Communications Commission may, if deemed necessary, have him put up a security therefor:

1. Where he suffers a severe loss of property due to natural disasters or fire;

42

2. Where his business faces a serious crisis due to an aggravation of his business environments; and

3. Where it is expected that he will be in great financial difficulty if he pays the penalty surcharge in a lump sum.

(2) Matters necessary for an extension of the deadline for payment of a penalty surcharge, the payment in installments and the laying of a security shall be prescribed by the Enforcement Decree.

Article 92 (Correction Orders, etc.)

(1) The Minister of Science and ICT or the Korea Communications Commission shall issue correction orders within the scope of its respective competent duties in case where a telecommunications business operator or facility management institution falls under any of the following subparagraphs:

1. Where it violates Articles 3, 4, 4-2, 6, 9 through 11, 14 through 22, 22-3, 22-4, 23, 24, 26 through 28, 30 through 32, 32-3, 32-4, 32-6, 32-7, 32-8, 33 through 35, 35-2, 36 through 44, 47 through 49, 51, 56 through 60, 60-2, 60-3, 61, 62, 64 through 66, 69, 73 through 75, 79 or 82 through 84, 84-2, 85 through 87 and 88 or any order thereunder;

2. Where the procedures for business performances of telecommunications business operator are deemed to inflict significant harms on the users’ interests; and

3. Where he fails to take swift measures necessary for removing obstructions such as repairs, etc. when impediments have occurred to the supply of telecommunications services.

(2) The Minister of Science and ICT may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications:

1. Integrated operation and management of telecommunications facilities, etc.;

2. Expansion of communications facilities for the enhancement of social welfare;

3. Construction and management of communications networks determined by the Enforcement Decree for important communications to achieve efficient performance of State’s functions; and

4. Other matters as prescribed by the Enforcement Decree.

(3) The Minister of Science and ICT may order the persons falling under any of the following subparagraphs to take measures, such as the suspension of acts to provide telecommunications service or the removal of telecommunications facilities, etc.:

1. Persons who operate a key communications business without obtaining a permit under Article 6 (1);

2. Persons who operate a specific communications business without making a registration under Article 21 (1); and

3. Persons who operate a value-added communications business without making a report under Article 22 (1).

4. Persons who operate a special type of value-added communications services without making a registration under Article 22 (2)

(4) The Minister of Science and ICT or the Korea Communications Commission, if it deems that a telecommunications business operator cannot observe the orders within the period determined by the orders under paragraphs (1) through (3) for reasons such as acts of God or any other inevitable reasons, may extend such period only one time.

(5) The government may provide financial assistance of the costs incurred in construction and management of important communications in order to secure the important communications referred to in paragraph 2 (3).

Article 93 (Delegation and Entrustment of Authority)

(1) The following authority of the Minister of Science and ICT shall be delegated and entrusted to the Korea Communications Commission.

1. order on a telecommunications business operator of suspension of part of his business under Article 52 (5);

43

2. imposition or collection of the charge for compelling the execution under Article 52 (5);

3. imposition of penalty surcharge under 90 (1) (limited to a case where the penalty surcharge is imposed in lieu of the suspension of the business in part under Article 52 (5))

(2) The authority of the Minister of Science and ICT (except for the authority to delegate or entrust to the Korea Communications Commission as specified in paragraph (1)) or the Korea Communications Commission under this Act may be delegated and entrusted in part to the respective head of the affiliated agencies under the conditions as prescribed by the Enforcement Decree.

Article 93-2 (Deemed Public Official in Application of Penal Provisions)

Any member of the Committee who is not a public official shall be deemed as a public official when Articles 129 through 132 of the Korean Commercial Code is applied.

CHAPTER VII. PENAL PROVISIONS

Article 94 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than five years or by a fine not exceeding 200 million won:

1. A person who runs a key communications business without obtaining a license under Article 6 (1);

2. A person who has operated key communications services in violation of partial cancellation of license under Article 20(1);

3. A person who obstructs the flow of telecommunications by impeding a function of telecommunications facilities by means of damaging telecommunications facilities, or having the objects contacted thereon and other methods, in violation of Article 79 (1);

4. A person who divulges other’s secrets with respect to communications which have been known to him while in office, in violation of Article 83 (2); and

5. A person who supplies communication data, and person who receives such supply, in violation of Article 83 (3).

Article 95 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 150 million won:

1. A person who refuses a provision of telecommunications service without any justifiable reasons, in violation of Article 3 (1);

2. A person who violates a disposition taken to suspend his business under Article 20 (1);

3. A person who operates a specific communications business without making a registration under Article 21 (1) or a person who operates a value-added communications business without making a registration under 3-2, Article 22(2);

4. A person who has operated specific communications services in violation of partial cancellation of license under Article 27(1);

5. A person who fails to implement an order under Article 52 (1);

5-2. A person who has violates an order of suspension of the business in part under Article 52 (5);

6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 73 (2); and

7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 83 (1).

44

Article 95-2 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 100 million won:

1. A person who divulges other’s secrets which have been known to him while in office in violation of Article 4-2(3);

2. A person who engages in an act to open a mobile device account under a different person’s name on condition to give or borrow some money in order to use the telecommunications service provided to such mobile device or to use the service for recovery of such money in violation of Article 32-4 (1) 1;

3. A person who engages in an act to solicit, mediate, broker or advertise an agreement on the provision of the telecommunications service necessary to use the mobile device on condition to give or borrow some money in violation of Article 32-4 (1) 2;

4. A person who displays an erroneous telephone number by altering the caller’s telephone number, etc. while making a phone call (including text messages) for property profit or for the purpose of inflicting harm on others through violent language, intimidations, harassments, etc. in violation of Article 84-2 (1);

5. A person who provide services that enable display of an erroneous telephone number by altering the caller’s telephone number, etc. for profit in violation of Article 84-2 (2).

Article 96 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than two years or by a fine not exceeding 100 million won:

1. A person who fails to obtain a modified license under Article 16;

2. A person who fails to obtain approval under Articles 17 (1) and 42 (4);

3. A person who fails to obtain an authorization under the text of Article 18 (1) other than sub-paragraphs or approval according to Article 19 (1);

4. A person who violates Article 18 (9) by unifying communication networks, appointing officers, executing any other activities such as transferring, consolidating, enforcing a facilities sales contract or taking follow-up measures relating to establishment of a company before receiving a license;

5. A person who violates user protection measures ordered under Articles 19 (2) and 20 (3);

6. A person who runs the value-added communications business without making a report under Article 22(1);

6-2. A person who gets rid of, alters, or incapacitates the technical measures as referred to in paragraph (1) of Article 22-3 through detour without any justifiable authority in violation of Article 22-3 (2);

7. A person who violates a disposition taken to suspend his business under Article 27(1);

8. A person who fails to execute the order given to discontinue his business under Article 27 (2);

9. A person who fails to subscribe for a guarantee insurance in violation of Article 32(3);

10. A person who discloses, uses or provides the information, in violation of the main body of Article 43 (1) or paragraph (2) of the same Article;

10-2 A person who has damaged, forged or falsified the unique identification number of communication terminal devices in order to disturb the interruption of using the communication terminal devices reported to the telecommunication business operator due to such reason as loss or theft, etc. in violation of Article 60-3;

11. A person who fails to implement the partial restriction or cessation measure ordered pursuant to Article 85; and

12. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 86 (2).

45

Article 97 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding 50 million won:

1. A person who fails to execute the order given under Articles 10(5), 18 (8) or 12 (2) (including a case where the provisions are applied mutatis mutandis under Article 4 (4) of the Addenda of the Telecommunications Business Act amended by Act No. 5385);

2. A person who fails to make a report under provisos of Article 18 (1) other than sub-paragraphs;

3. A person who fails to make a modified registration under Article 23;

4. A person who fails to make a report under Article 24;

5. A person who violates a disposition taken to suspend his business under Article 27 (2);

6. A person who provides telecommunications service without making a report or modification report under Article 28(1) and the proviso of (2) or receiving an authorization or modification approval under paragraph (2) of the same Article; and

7. A person who intermediates other person’s communication or furnishes for use by other person, by making use of telecommunications services rendered by the telecommunications business operator, in contravention of the provisions of the text of Article 30 other than subparagraphs.

Article 98 (Penal Provisions)

A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding 10 million won:

1. A person who fails to report on the fees in violation of Article 22-4 (1) or provides telecommunications services not in accordance with the contents that he has reported;

2. A person who installs or modifies significant telecommunications facilities without making a report under the main text of Article 62(1) or has installed telecommunications facilities without obtaining approval under the proviso of the same Article;

3. A person who installs proprietary telecommunications facilities without making a report or modification report under Article 64(1);

4. A person who interconnects other’s communication through proprietary telecommunications facilities or uses it outside its purpose in violation of Article 65(1);

5. A person who violates an order under Article 66(1) to handle telecommunications services or other communication services or connect the pertinent facilities to other telecommunications facilities;

6. A person violates a usage cessation order under Article 67(2) or an order under paragraph (3) of the same article;

7. A person violates an order for removal of telecommunications facilities or other corrective measures under Article 82(2).

Article 99 (Penal Provisions)

A person who commits any of the prohibited acts under Article 50(1) (excluding providing telecommunications services not in accordance with the standard usage terms and conditions under Article 50 (1) 5 or acts under Article 50 (1) 5-2) shall be punished by a fine not exceeding 300 million won.

Article 100 Deleted.

Article 101 (Penal Provisions)

A person who stains the telecommunications facilities or damages the measurement marks of the telecommunications facilities, in violation of Article 79 (2) shall be punished by a fine or penalty not exceeding one million won.

46

Article 102 (Attempted Criminal)

An attempted criminal under subparagraphs 3 and 4 of Article 94 and subparagraph 7 of Article 95 shall be punished.

Article 103 (Joint Penal Provisions)

When a representative of a juristic person or an agent, an employee or any other employed person of the juristic person or individual commits violation under Articles 94, 95, 95-2, 96 through 99 in connection with the business of such juristic person or individual, then a fine under the related Article shall be imposed on the juristic person or individual, in addition to the punishment of the violator except in cases where such juristic person or individual has not been lax in exercising due care and supervision in regard to the relevant business to prevent such violation.

Article 104 (Fine for Negligence)

(1) A person who refuse, disrupt or avoid the inspection under Article 51 (2) shall be punished by a fine for negligence not exceeding 50 million won.

(2) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 30 million won:

1. A person who has sold or purchased the telecommunications number in violation of Article 48-2(1);

2. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 73 (2), without justifiable reasons;

3. A person who refuses or impedes an entry to the land, etc. under Article 74 (2), without justifiable reasons;

4. A person who refuses the moving, alteration, repair and other measures on the obstacles, etc. under Article 75 (1), or the request for removal of the plants under Article 75 (2), without justifiable reasons;

5. A person who fails to take the measures under each subparagraph of Article 84-2 (3).

(3) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 20 million won:

1. A person who fails to take technical measures in violation of Article 22-3 (1), or record or manage the status of operation and management of the technical measures in violation of Article 22-3 (3);

2. A person who fails to stop provision of a telecommunications services in violation of Article 32-3 (2);

3. A person who fails to apply for approval in regard to execution of an agreement in violation of Article 44(2).

(4) A person falling under any of the following shall be punished by a fine not exceeding 15 million won:

1. A person who fails to report in regard to execution of an agreement in violation of Article 44 (1) or 44 (3);

2. A person who fails to make a report under the main text of Article 86 (3).

(5) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won:

1. A person who fails to make a report as referred to in Article 10 (2) or to comply with a request for providing the data or an order to attend as referred to in Article 11 (3) or (4);

2. A person who, in violation of Article 19 (1), fails to notify the user 60 days prior to the expected date of termination;

2-2. A person who fails to follow the Korea Communications Commission’s order to submit the information under Article 22-3 (4) or submits false information;

3. A person who fails to make a report under Article 26;

47

4. A person who violates the obligation concerning the protection of users under Article 32 (1) (excluding efforts to prevent any damages to the users);

4-2. A person who fail to observe an order to submit the information under the latter part of Article 32 (2);

4-3. A person who fails to send a copy of an agreement in violation of Article 32 (3);

4-4. A person who fails to notify about exceeding the maximum limit of fees under Article 32-2 (1);

4-5 A person who fails to report in violation of Article 32-8 or provides telecommunications services not in accordance with the contents that he has reported;

5. Deleted;

6. A person who fails to make a public announcement of the technical standards, and the standards for use and provision, or the standards for a creation of fair competitive environments, in violation of Article 42 (4);

6-2. A person who fails to provide the information on standards of telecommunications service in violation of Article 42 (5);

7. A person who fails to observe the publicly announced matters under Article 48(2), in violation of Article 48 (3);

7-2. A person who fails to observe the order of the Minister of Science and ICT to stop the service or restrict such telecommunications service providers’ publication under Article 48-2(2);

8. A person who refuses, avoids, or intervenes with the order to submit information or object under Article 51 (5), or the temporary custody of the information or object submitted under the same Article;

9. A person who fails to execute orders given to furnish related data under the provisions of Article 56 (3);

10. A person who has used proprietary telecommunications facilities without receiving confirmation under Article 64(3)

11. A person who refuses or interferes with inspection under Article 82(1)

12. A person who fails to report under Article 82(2) or makes a false report

13. A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 83 (5);

14. A person who does not report the contents in the ledgers, including provision of telecommunications data, to the head of central administrative agency in violation Article 83(7)

15. A person who fails to follow a request for access to, or submission of the information or inspection or submits a false information;

16. A person who fails to make reports or submit the data under Article 88, or falsely do such acts; and

17. A person who fails to follow correction orders, etc., under Article 92 (1) through (3). .

(6) The fine for negligence under paragraphs (2) through (5) shall be imposed and collected by the Minister of Science and ICT, under the conditions as prescribed by the Enforcement Decree; provided, however, that the fine for negligence under paragraph (1), subparagraph 1 of paragraph (3), subparagraphs 2-2, 4-2 and 8 of paragraph (5) shall be imposed and collected by the Korea Communications Commission, the fine for negligence under subparagraph 10 of paragraph (5) shall be imposed and collected by the mayor or governor, and the fine for negligence under subparagraph 17 of paragraph (5) shall be imposed and collected by the Minister of Science and ICT or the Korea Communications Commission according to its respective competent duties.

ADDENDA

Article 1 (Enforcement Date)

This Act shall be effective on the date of its announcement.

48

Article 2 through Article 4 Omission

Article 5 (Amendment to Other Acts) In this Act, the Minister of Science, ICT and Future Planning shall be replaced with the Minister of Science and ICT.

In Article 10-2, the Ministry of Science, ICT and Future Planning shall be replaced with the Ministry of Science and ICT.

In Article 11(2), the Vice Ministers of Science, ICT and Future Planning shall be replaced with the Vice Ministries of Science and ICT.

Article 6 Omission

49

EX-15.4

Exhibit 15.4

ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BUSINESS ACT

As partially amended by Enforcement Decree No. 28283 of September 5, 2017, effective September 5, 2017

Chapter 1. General Provisions

Article 1 (Purpose)

The purpose of this Decree is to provide for matters delegated under the Telecommunications Business Act and matters necessary for its enforcement.

Article 2 (Contents of Universal Service)

(1) Pursuant to Article 4(3) of the Telecommunications Business Act (the “Act”), the contents of universal services shall be as follows:

1. Wire telephone services;

2. Telephone services for emergency communications; and

3. Services of which fees are reduced or exempted for the disabled and the low income class.

(2) The detailed contents of universal services under paragraph (1) shall be as follows:

1. Wire telephone services are telephone services within an area publicly notified by the Minister of Science and ICT based on methods and conditions of use (the “Calling Area”), falling under any one of the following:

(a) a local telephone service which is a telephone service (excluding, throughout this Enforcement Decree, the island communication service referred to in (c) below) enabling communication through subscription telephones;

(b) a public telephone service which is a telephone service enabling communication through public telephones; or

(c) an island communication service which is a telephone service enabling radio communication between shore and an island or between islands.

2. Telephone services for emergency communications are telephone services necessary for maintaining social order and securing human life, falling under any of the following:

(a) a special telephone number service, among the key communications services, publicly notified by the Minister of Science and ICT; or

(b) a wireless telephone service for vessels which is a telephone service, among the key communications services, enabling communication between shore and a vessel or between vessels.

3. Services of which fees are reduced or exempted for the disabled and the low income class are services offered to the disabled and the low income class for the purpose of improving social welfare, falling under any of the following:

(a) a local telephone service and a telephone service between the Calling Areas (the “Long Distance Telephone Service”);

(b) a directory assistant service which is a service incidental to a local telephone service and the Long Distance Telephone Service;

(c) a mobile telephone service, a personal communication service, IMT-2000 service or LTE service among the key communications services;

(d) an Internet subscriber connection service;

1

(e) an Internet phone service; or

(f) a portable Internet service.

(3) Any of the following shall be entitled to the services of which fees are reduced or exempted pursuant to subparagraph 3 of paragraph (2); provided, however, that the services for which fees are reduced or exempt pursuant to subparagraphs 8 and 9 below shall be limited to the mobile telephone service, the personal communication service, the IMT-2000 service and the LTE service:

1. the disabled registered under Article 32 of the Act on Welfare of Persons with Disabilities or welfare institutions or groups for the disabled under the Act on Welfare of Persons with Disabilities; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant disabled person belongs shall be entitled to reduction or exemption of service fees;

2. special schools under the Elementary and Secondary Education Act;

3. child welfare institutions under the Child Welfare Act;

4. recipients of livelihood benefits under subparagraph 1 of Article 7(1) or medical benefits under subparagraph 3 of Article 7(1) of the National Basic Livelihood Security Act. However, households composed of such persons in the event of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service or an Internet phone service

5. the Korean Association of Wounded Soldiers and Police Officials or the Association Commemorating the April 19 Democratic Revolution under the Act on Establishment of Organizations for Persons, etc. of Distinguished Services to the State;

6. soldiers or policemen wounded in action, soldiers or policemen wounded on duty, wounded activists of the April 19 Revolution, public officials wounded on duty, wounded special contributor to national and social development or wounded anticommunist captive under the Act on Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant person belongs shall be entitled to reduction or exemption of service fees;

7. wounded activists of the May 18 Democratization Movement among the persons of distinguished services to the May 18 democratization movement under the Act on Honorable Treatment of Persons of Distinguished Services to the May 18 Democratization Movement; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant person belongs shall be entitled to reduction or exemption of service fees;

8. members of a family having at least one of its members fitting any of the descriptions below qualifying as a member of the next needy class under subparagraph 10 of Article 2 of the National Basic Livelihood Security Act and the number of family members eligible for fee reduction or exemption for such family shall be determined by the Minister of Science and ICT.

(a) a person taking part in the project required for self-support pursuant to Article 9(5) of the National Basic Livelihood Security Act;

(b) a person having a rare and serious disease as described item (d) of section 3 in Table 2 and is eligible for reduction in his or her share of fees;

(c) Deleted;

(d) Deleted;

(e) a person receiving disability allowances pursuant to Article 49 of the Welfare of the Disabled Persons Act and a person receiving allowances for raising and protecting disabled children pursuant to Article 50(1) of the same Act;

2

(f) a person requiring protection under Article 5 of the Single-Parent Family Assistance Act, including a person who has ratio of recognized income to standard median income of 52/100 or below;

(g) a person receiving a disability pension pursuant to Article 10 of the Pension Act for the Disabled;

(h) a person who is registered as the next needy class with the social security information system under Article 37(2) of the Framework Act on Social Security and meets the qualifications determined and announced by the Minister of Science and ICT.

9. recipients who do not receive livelihood benefits under subparagraph 1 of Article 7(1) of the National Basic Livelihood Security Act or medical benefits under subparagraph 3 of Article 7(1) among the recipient under the same Act (including family members of the recipients who receive education benefits under subparagraph 4). In this case, the number of family members eligible for fee reduction or exemption for such family shall be determined and announced by the Minister of Science and ICT.

(4) An application for reduction or exemption of service fees under subparagraph 3 of paragraph (2) shall be filed by the following person:

1. In case of filing an application pursuant to the proviso to subparagraph 1 of paragraph (3), the proviso to subparagraph 4 or 7: Person who is entitled to reduction or exemption of service fees of the members of a family or householder;

2. Deleted;

3. In case of filing an application pursuant to the provisions other than subparagraph 1: Person who is entitled to reduction or exemption of service fees (referring to each member of a family in case of subparagraphs 8 and 9 of paragraph (3)).

(5) Criteria for reduction or exemption of service fees with respect to the persons who are entitled to reduction or exemption of service fees under subparagraph 3 of paragraph (2) shall be determined and announced by the Minister of Science and ICT taking into consideration the business size of telecommunications business operators and the level of their service fees.

Article 3 (Designation of Telecommunications Business Operator who Provides Universal Services)

(1) If the Minister of Science and ICT intends to designate a telecommunications business operator who provides universal services (the “Business Operator Providing Universal Services”) under Article 4 (4) of the Act, it can do so after taking into consideration such operator’s opinion.

(2) For the purpose of checking the status of provision of universal service, the Minister of Science and ICT may request a telecommunications business operator designated as a business operator providing universal service pursuant to paragraph (1) to submit a report on the provision of universal service, and the relevant documents, including the expenses incurred in providing the relevant service. When such request is made, the business operator providing universal service shall comply with the request unless there is a reasonable cause not to comply.

Article 4 (Compensation for Losses Incurred through Provision of Universal Services)

(1) The Minister of Science and ICT may have the telecommunications business operators who are not Business Operators Providing Universal Services bear part of the expenses for compensating whole or part of the losses incurred through a provision of universal services by Business Operators Providing Universal Services (the “Compensation For Losses Incurred Through Universal Services”) in proportion to their respective sales.

(2) A Business Operator Providing Universal Services who intends to receive the Compensation For Losses Incurred Through Universal Services shall submit a report on the actual results of a provision of universal services, including expenditures for, and incomes and losses from, the provision thereof, to the Minister of Science and ICT within three months after the expiration of the relevant fiscal year.

(3) The Minister of Science and ICT may, if deemed necessary for the verification of the report on the actual results of a provision of universal services submitted pursuant to paragraph (2), consult a professional institution to examine it.

3

Article 5 (Universal Services Entitled To Compensation For Losses Incurred Through Universal Services)

(1) The scope of universal services entitled to the Compensation For Losses Incurred Through Universal Services shall be any of the following:

1. among local telephone services pursuant to Article 2(2)1(a) hereof, a local telephone service offered in areas selected in accordance with the standards determined and publicly notified by the Minister of Science and ICT considering the expenditures and income (meaning the expenses and income calculated in accordance with the method publicly notified by the Minister of Science and ICT considering the efficiency of managing communication lines, etc.; hereinafter the same shall apply in Article 6) as a result of provision of such service;

2. among public telephone services pursuant to Article 2(2)1(b) hereof, a public telephone service offered in areas selected in accordance with the standards determined and publicly notified by the Minister of Science and ICT considering the characteristics of place;

3. an island communication service pursuant to Article 2(2)1(c) hereof; or

4. a wireless telephone service for vessels pursuant to Article 2(2)2(b) hereof.

(2) In Article 4 (2) 1 of the Act, “the telecommunications business operators prescribed under the Enforcement Decree of the Act” means value-added communications business operators or regional wireless call operators.

(3) In Article 4 (2) 2 of the Act, “the amount prescribed under the Enforcement Decree of the Act” means 30 billion won.

Article 6 (Methods for Computing the Compensation For Losses Incurred Through Universal Services)

(1) Losses incurred through provision of the universal services prescribed under each of the paragraphs in Article 5(1) hereof shall be the amount of expenses of providing the relevant service less the relevant income. In such case, at the time of calculating the losses incurred through a provision of the universal services under Article 5(1) 2, the incomes and any indirect advantages such as improved brand value and user preference shall be included.

(2) The provisional Compensation For Losses Incurred Through Universal Services shall be computed by multiplying the amount obtained under paragraph (1) and the rate of compensation for losses determined and publicly notified by the Minister of Science and ICT; provided that, with respect to a wireless telephone service for vessels under Article 5(1)4 hereof, the target amount for efficient management determined and publicly notified by the Minister of Science and ICT shall be the provisional Compensation For Losses Incurred Through Universal Services.

(3) The Compensation For Losses Incurred Through Universal Services shall be the amount of the provisional Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (2) subtracted by each of the amounts described below:

1. the amount paid by telecommunications business operators providing any of the universal services prescribed under each of the subparagraphs of Article 5(1) hereof based on their sales from telecommunications services other than the relevant universal service provided (excluding value-added communications services); and

2. the amount computed by the Minister of Science and ICT considering the payment capacity of telecommunications business operators paying for the Compensation For Losses Incurred Through Universal Services (the “Business Operators Paying For Losses”).

(4) The Business Operators Paying For Losses shall pay for the Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (3) in proportion to their respective sales relating to telecommunications services (excluding value-added communications services).

(5) The Minister of Science and ICT shall determine and announce all other necessary details with respect to the rates by which telephone services fees are reduced or exempted for the disabled and the low income class and the methods for computing the Compensation For Losses Incurred Through Universal Services.

4

Chapter 2. Telecommunications Business

Article 7 Deleted.

Article 8 (Scope of Premises)

The “premises determined under the Enforcement Decree of the Act” in Article 5(3)2 of the Act means any of the following:

1. a building;

2. a site (limited to that owned by one person or owned through common ownership by two or more persons) and any building located on such site;

3. two or more buildings possessed by one person and the site on which such buildings are located, limited to those buildings the distance between which is not more than 500 meters; or

4. any buildings or sites adjacent to the buildings or sites prescribed under paragraphs 1-3 and publicly notified by the Minister of Science and ICT.

Article 9 (Permit Application, etc.)

(1) A person who wishes to obtain a permit under Article 6(1) of the Act may make an application in the name of the representative of a corporation or the representative, such as a shareholder, etc., of a corporation to be established.

(2) The “premises determined under the Enforcement Decree of the Act” in Article 6(2)4 of the Act means the following

1. matters concerning the suitability of investment plan in advancing telecommunications facilities;

2. matters concerning the stability and expertise of supply plan for key communication services; and

3. matters similar to paragraph 1 or 2 as determined and announced by the Minister of Science and ICT.

Article 10 (Documents to be Attached to Permit Application)

A person who wishes to obtain a permit for a key communications business under Article 6(1) of the Act shall submit to the Minister of Science and ICT a key communications business permit application with each of the following documentation attached thereto:

1. articles of incorporation of the corporation (including, throughout this Article 10, the corporation to be incorporated);

2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation; and

3. a business proposal.

The Minister of Science and ICT receiving a permit application pursuant to paragraph (1) shall verify the commercial registry extracts by using the public administrative information made available under Article 36(1) of the E-Government Act.

Article 11

Deleted.

Article 12 (Issuance of License)

(1) When permitting a key communications business under Article 6(1) of the Act or permitting any change under Article 16(1) of the Act, the Minister of Science and ICT shall issue a key communications business operator’s license upon making recordation of each of the following in a license registry of key communications business operators:

1. number and date of license;

5

2. title or trade name of the business and name of the representative;

3. the areas where the telecommunications service is offered;

4. location of the principal office;

5. capital or asset valuation amount;

6. details of major business facilities and equipment and the locations where such facilities and equipment are installed;

7. details concerning technical personnel; and

8. any conditions upon which the license is issued.

A key communications business operator whose license, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the license to the Minister of Science and ICT by writing the reason for such loss or damage in its application thereto.

Article 13 (Criteria for Examination of Public Interest Nature)

(1) The term “public interests as prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 10 (1) of the Act means the maintenance of national security, public peace and social order.

(2) The term “important management matters, including the key communication provider’s appointment and dismissal of officer, transfer or takeover business, etc., prescribed under the Enforcement Decree of the Act” in Article 10(1)3 of the Act means the matters falling under each of the following subparagraphs:

1. appointment and dismissal of the representative director of a key communications business operator, or appointment and dismissal of one third or more of the officers;

2. transfer and takeover of a key communications business; and

3. entrance by a key communications business operator into a new key communications business.

(3) The term “case prescribed under the Enforcement Decree of the Act” in Article 10(1)4 of the Act means any of the following.

1. the case where a de facto change is made in the management right of a key communications business operator by an agreement of shareholders who are not the largest shareholder of such key communications business operator to jointly exercise voting rights;

2. the control of the holding company (as that term is defined under Article 2(1)2 of the Monopoly Regulation and Fair Trade Act) of the key communication provider has actually changed hands;

3. the control of the key communications business operator has actually changed since the largest shareholder of a corporation which is the largest shareholder of the key communications business operator has changed; or

4. the control of the key communications business operator has actually changed since the person who is not the shareholder of such key communications business operator has agreed with the shareholders of such key communications business operator or the person who has the actual control of such key communications business operator with respect to the exercise of voting rights.

Article 14 Deleted.

Article 15 (Procedures for Examination of Public Interest Nature)

(1) A person who wishes to file a report or request a screening pursuant to Article 10(2) and 10(3) of the Act shall submit to the Minister of Science and ICT documentation indicating each of the following:

1. name and address of the person filing a report or requesting a screening (in the case of a corporation, the name and address of (i) such corporation and (ii) the representative of such corporation);

6

2. purpose of, and reason for, the report or screening request; and

3. details of any of the facts falling under each of the subparagraphs of Article 10(1) of the Act.

(2) The Minister of Science and ICT may, where it deems necessary, request for the documentation already submitted to it to be supplemented within a period reasonably fixed.

(3) Except under special circumstances, with respect to any matter the Minister of Science and ICT referred to the public interest nature examination committee under Article 10(1) of the Act (the “Public Interest Nature Examination Committee”), the Public Interest Nature Examination Committee shall notify the Minister of Science and ICT of the result of its screening within 3 months of the date of such referral.

(4) The Minister of Science and ICT shall notify the person filing a report or requesting a screening of the result of examination of public interest Nature under paragraph (3).

Article 16 (Composition etc. of Public Interest Nature Examination Committee)

(1) The term “related central administrative agencies prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 11(2) of the Act means the agencies falling under each of the following:

1. the Ministry of Strategy and Finance;

2. the Ministry of Foreign Affairs;

3. the Ministry of Justice;

4. the Ministry of National Defense;

5. the Ministry of Interior and Safety;

6. the Ministry of Trade, Industry and Energy;

7. the Fair Trade Commission; and

8. the National Police Agency.

(2) The term of office of the members shall be two years and consecutive appointment may be permitted; provided that, the term of office of the members who are public officials shall be the period of service in their positions as public officials.

Article 16-2 (Dismissal of Members of Public Interest Nature Examination Committee)

If any member commissioned in accordance with Article 11(2) of the Act falls under any of the following cases, the chairman of the Public Interest Nature Examination Committee may dismiss such member:

1. where a member cannot perform his/her duties due to his/her mental and physical disability;

2. where a member is engaged in any illegal act related to his/her duties;

3. where a member is acknowledged to be not suitable to act as a member due to negligence of his/her duties or injury to dignity; or

4. where a member expresses his/her intent that he/she cannot perform his/her duties.

Article 17 (Operation etc. of Public Interest Nature Examination Committee)

(1) The chairman of the Public Interest Nature Examination Committee shall represent the Public Interest Nature Examination Committee and exercise an overall control of its affairs.

(2) If the chairman is inevitably unable to perform his duties, a member previously appointed by the chairman shall act on her or his behalf.

7

(3) The chairman shall convene and preside over a meeting of the Public Interest Nature Examination Committee.

(4) Deliberation of a meeting of the Public Interest Nature Examination Committee shall start by the attendance of a majority of all incumbent members, and its resolution shall require the consent of a majority of those present.

(5) The Public Interest Nature Examination Committee shall have one secretary general in order to deal with its affairs, but the secretary general shall be appointed by the chairman among the public officials belonging to the Ministry of Science and ICT.

(6) Any matters necessary for the operation of the Public Interest Nature Examination Committee other than the matters set forth in paragraphs (1) through (5) shall be determined by the chairman through a resolution of the Public Interest Nature Examination Committee.

Article 18 (Imposition and Payment etc. of Charges for Compelling Execution)

(1) When determining the amount of charges for compelling execution pursuant to Article 13 of the Act, the Minister of Science and ICT shall take into account such factors as the reasons for failure to comply with corrective orders and the scale of benefits to be gained by such failure.

(2) The date of compliance with corrective orders pursuant to Article 13(2) of the Act shall be determined by the classifications falling under each of the following:

1. delivery date of shares in the case of disposal of shares;

2. date of executing a contract in the case of amending details of a contract;

3. date of suspending the relevant acts in the case of suspending the acts impeding public benefits; and

4. date of satisfying relevant conditions in the case of conditional performance.

(3) Where the Minister of Science and ICT wishes to impose charges for compelling execution pursuant to Article 13 of the Act, it shall furnish a notification thereof in writing, indicating such matters as the amount of charges for compelling execution per day, reasons for imposition, payment term and receiving agency, methods of raising objections, and agencies to where such objections must be directed.

(4) Any person who has been notified under paragraph (3) shall pay the charges for compelling execution within 30 days of the date of receiving such notice; provided that, in the event such person is unable to pay the charges for compelling execution within said period due to a natural disaster or other unavoidable circumstances, such person shall pay the charges for compelling execution within 30 days of the day on which said causes have disappeared.

(5) In collecting charges for compelling execution and in the event a corrective order has not been complied with after 90 days elapsed from the date of expiration of the period set by the corrective order, the Minister of Science and ICT may collect charges for compelling execution whenever every 90 day period elapses from said expiration date.

(6) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution.

Article 19 (Permit to Change)

(1) A person who wishes to obtain a permit to change to a key communications business pursuant to Articles 16 (1) of the Act shall submit to the Minister of Science and ICT an application for a permit to change to a key communications business with supporting documents confirming proposed changes attached thereto.

(2) The Minister of Science and ICT shall issue public notice with respect to details about application guidelines, submission procedures, submission method, etc. for a permit to change to a key communications business under Article 16(1) of the Act.

(3) Deleted.

(4) The “important matters prescribed under the Enforcement Decree of the Act” in Article 16(1) of the Act means each of the following;

8

1. matters concerning changes to key communications business permitted pursuant to Article 6(1) of the Act (including the case where services cancelled under Article 20(1) of the Act are to be resumed); and

2. matters concerning the permission criteria under Article 6(6) of the Act.

Article 20 (Authorization Application for Transfer, Merger, etc.)

(1) A person who wishes to obtain authorization of the transfer of the whole or part of a key communications business pursuant to Article 18(1)1 of the Act shall submit to the Minister of Science and ICT an authorization application for the transfer of a key communications business with each of the following documentation attached thereto:

1. a copy of the transfer agreement;

2. articles of incorporation of the transferor and the transferee, and documentation supporting the transfer;

3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the transferee;

4. present status of the transferor and the transferee; and

5. post-transfer business proposal.

(2) A person who wishes to obtain authorization of the merger with a corporation that is a key communications business pursuant to Article 18(1)2 of the Act shall submit to the Minister of Science and ICT an authorization application for the merger with a key communications business with each of the following documentation attached thereto:

1. a copy of the merger agreement;

2. articles of incorporation of the parties to the merger agreement, and documentation supporting the merger;

3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation that shall continue to exist after the merger or be incorporated through the merger;

4. present status of the parties to the merger agreement; and

5. post-merger business proposal.

(3) A key communications business operator who wishes to obtain authorization of the sale of telecommunications line facilities and equipment pursuant to Article 18(1)3 of the Act shall submit to the Minister of Science and ICT an authorization application for the sale of telecommunications line facilities and equipment with each of the following documentation attached thereto:

1. a copy of the sale and purchase agreement concerning telecommunications line facilities and equipment, and other documentation supporting such agreement;

2. articles of incorporation of the seller and the purchaser, and documentation supporting the sale and purchase;

3. shareholder register, or documentation related to ownership by shareholders, etc., of the purchaser;

4. present status of the seller and the purchaser; and

5. post-sale business proposal.

(4) A person who wishes to own 15% or more of the total outstanding shares of a key communications business operator or become the largest shareholder of a key communications business operator pursuant to Article 18(1)4 of the Act shall submit to the Minister of Science and ICT an authorization application for the ownership of shares, or for becoming the largest shareholder, of a key communications business with each of the following documentation attached thereto:

1. documentation supporting the share purchase, such as a copy of the share purchase agreement;

2. articles of incorporation of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;

9

3. present status of the shareholders of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;

4. present status of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;

5. purpose of, reasons for and an analysis of the effect of acquisition of the shares;

6. proposal for dual appointment of officers (only when considering dual appointment of an officer of the counterparty); and

7. post-share acquisition business proposal (only when seeking to become the largest shareholder).

(5) A person who wishes to obtain authorization for purchase of shares or execution of an agreement under Article 18(1)5 shall attach the following to an authorization application submit them to the Minister of Science and ICT.

1. documents confirming the acquisition of managerial control such as copies of share purchase agreement or other agreement, etc.

2. articles of incorporation of the purchaser or the party to the agreement and the counterparty;

3. shareholders registers of the purchaser or the party to the agreement and the counterparty

4. descriptions of businesses of the purchaser or the party to the agreement and the counterparty

5. purposes of and impact analysis of the share purchase or execution of the agreement;

6. a plan for overlapping officers and directors (applicable when such officers or directors also act as officers or directors the counterparty); and

7. a business plan for the period following the-share acquisition or execution of the agreement.

(6) The “premises determined under the Enforcement Decree of the Act” in Article 18(1)5 of the Act means any of the following.

1. where one person alone or together with his specially related persons seek to acquire shares (including shares issued by specially related persons to largest shareholders) issued by the largest shareholder of a key communications business operator and effectively exercises the voting rights of such largest shareholder;

2. where persons (including specially related persons) with the common aim of controlling a key communications business operator seek to acquire more shares than the voting rights held by the largest shareholder of such key communications business operator;

3. where the control of a key communications business operator is sought by way of business lease, delegation of managerial control or other agreements with the key communications business operator or its largest shareholder; and

4. where a shareholder of a key communications business operator seeks enter into an agreement with other shareholders, except the largest shareholder to exercise jointly more voting rights than the largest shareholder.

(7) A key communications business operator that seeks to receive an authorization to establish a corporation to provide part of the key communications services it has provided with the authorization under Article 18(1)6 shall attach the following documents to an incorporation authorization application and submit them to the Minister of Science and ICT.

1. articles of incorporation of the corporation to be incorporated

2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation to be incorporated;

3. business status of the services to be provided (applicable only to the key communications business that already provides the services to be provided by the corporation to be incorporated; and

4. a business plan of the corporation to be incorporated.

10

(8) The authorization application and attachments under paragraphs (1) through (5) and (7) may be submitted electronically.

(9) The Minister of Science and ICT receiving an authorization application for transfer, merger, sale, share acquisition or changing the largest shareholder pursuant to paragraphs (1)-(7) shall verify the commercial registry extracts of the party seeking to transfer, merge, sell, become the largest shareholder, acquire shares, execute an agreement or incorporate a corporation by using the public administrative information made available under Article 36(1) of the E-Government Act.

(10) The Minister of Science and ICT shall issue a key communications business operator’s license upon approving the authorization application for transfer, merger or incorporation pursuant to paragraph (1), (2) or (7).

(11) Cases that have insignificant effect on the competition between the key communication businesses in the provisos other than each subparagraph of Article 18(2) of the Act and Article 18(11) of the Act means cases where a person who falls under any subparagraph of Article 18(1) of the Act (excluding a person falling under subparagraphs 3 and 6 of Article 18 of the Act and a key communications business operator who is determined and announced under Article 39(3) of the Act; hereinafter referred to as the “transferee • purchaser, etc.” in this Article) is engaged in any of the acts falling under each subparagraph of Article 18(1) of the Act (excluding an act falling under subparagraphs 3 and 6 of Article 18 of the Act; hereinafter referred to as the “takeover • merger, etc.” in this Article) against a key communications business operator, whose sales in the key communications business during the immediately preceding year are less than 10 billion won, and falls under any of the following cases:

1. where any of the following relationship (hereinafter referred to as the “controlling relationship”) is not formed due to the takeover • merger, etc.:

(a) where the ratio of shares (including the equity; hereinafter the same shall apply) held by the transferee • purchaser, etc. is not less than 50/100;

(b) where the ratio of shares held by the transferee • purchaser, etc. is less than 50/100 and the transferee • purchaser, etc. falls any of the following cases:

1) where the transferee • purchaser, etc. as the majority shareholder is able to control a company due to exercise of shareholder right in light of the dispersion of shares; or

2) where the transferee • purchaser, etc. supplies at least 50/100 of the raw materials and is a market dominant business operator in the production area of raw materials under subparagraph 7 of Article 2 of the Monopoly Regulation and Fair Trade Act;

2. where the transferee • purchaser, etc. acquires the key communications business of the key communications business operator with whom the controlling relationship has been already formed; or

3. where the transferee • purchaser, etc. merges with a company which is the key communications business operator with whom the controlling relationship has been already formed.

(12) Pursuant to the provisos other than each subparagraph of Article 18(2) of the Act and Article 18(11) of the Act, with respect to those who fall under paragraph (11), the Minister of Science and ICT may grant an authorization after examining only the propriety of their measures to protect users under subparagraph 4 of Article 18(2) of the Act and after consulting with the Fair Trade Commission under Article 18(6) of the Act.

Article 21 (Criteria for Major Telecommunications Line Facilities and Equipment)

The “major telecommunications line facilities and equipment prescribed under the Enforcement Decree of the Act” in provisos other than each subparagraph of Article 18(1) of the Act means facilities and equipment for exchange, transmission and wire pursuant to Article 3(1)8-10 of the Regulations on Broadcasting Communications Facilities and Equipment of which the sum of the sales prices is not less than 5 billion won.

Article 22 (Report on Sale of Telecommunications Line Facilities and Equipment)

A person who wishes to file a report on sale of telecommunications line facilities and equipment pursuant to provisos other than each subparagraph of Article 18(1) of the Act shall submit to the Minister of Science and ICT a

11

report on sale of telecommunications line facilities and equipment (including electronic application) with each of the following documentation (including electronic documentation) attached thereto:

1. documentation supporting the sale, such as a copy of the sales agreement concerning telecommunications line facilities and equipment;

2. types, details and prices of the facilities and equipment being sold; and

3. plans for service provision and user protection subsequent to the sale.

Article 23 Deleted.

Article 24 (Application for an Approval to Suspend Business, etc.)

(1) A person who wishes to obtain approval to suspend or discontinue business pursuant to Article 19(1) of the Act shall submit to the Minister of Science and ICT each of the following documentation at least 60 days prior to the expected suspension or closedown date:

1. details of the business to be suspended or discontinued, and drawings of such business’s territories;

2. documentation indicating details of major telecommunications facilities and equipment relating to the business to be suspended or discontinued;

3. written permission (only where the whole business is discontinued);

4. statement of reasons for such suspension or closedown;

5. notice about the proposed suspension or closedown; and

6. documentation stating a plan for customer protection in connection with the proposed suspension or disconsolation.

(2) The term “required documents determined by the Enforcement Decree such as details of the business to be suspended or discontinued, and drawings of such business’s territories” in subparagraph 1 of Article 19(3) of the Act shall mean the documents under each subparagraph of Article 24(1).

Article 25 (Criteria, Procedures, etc. for Revocation of Permits)

(1) The term “the period determined by the Enforcement Decree” in subparagraph 4-2 of Article 20(1) of the Act shall means six months.

(2) The criteria for revocation of permits, cancellation of registration and suspension or closedown of business pursuant to Articles 20(2) and 27(3) of the Act are as provided in Table 1 attached hereto.

(3) Upon revocation of permits, cancellation of registration or suspension or closedown of business under paragraph (2), the Minister of Science and ICT shall issue public notification thereof without delay, and notify the relevant telecommunications business operator in writing.

Article 26 (Application for Registration)

(1) A person who wishes to register as a specific communications business operator pursuant to Article 21(1) of the Act shall submit to the Minister of Science and ICT an application (including an electronic application) to register as a specific communications business operator with each of the following documentation (including electronic documentation) attached thereto:

1. a business proposal relating to a specific communications business;

2. articles of incorporation of the corporation (including, throughout this Article, the corporation to be established);

3. details, installment locations and a network map of major business facilities and equipment;

4. standardized terms and conditions containing provisions relating to user protection, and details of, and a management proposal for, an office for user protection; and

12

(2) The Minister of Science and ICT receiving who receives a registration application pursuant to paragraph (1) shall verify the commercial registry extracts and national technical qualification certificates of the technical personnel by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the relevant documentation copies thereof to its license application.

Article 27 (Issuance of Certificates of Registration)

(1) Upon receipt of a registration application under Article 26(1) hereof, the Minister of Science and ICT shall verify whether such registration application meets the registration requirements under Article 28 hereof, make recordation of each of the following in a registration registry of specific communications business operators and issue to the applicant a certificate of registration as a specific communications business operator within 30 days of the date of application:

1. number and date of registration;

2. title or trade name of the business and name of the representative;

3. location of the principal office;

4. capital;

5. types of services provided;

6. details of major business facilities and equipment and the locations where such facilities and equipment are installed;

7. details concerning technical personnel; and

8. any conditions upon which the registration is authorized.

(2) The Minister of Science and ICT may, where it deems necessary, request for a registration application already submitted to it under Article 26 hereof to be supplemented or revised by no later than 7 days thereafter; provided that, such period may be extended upon request of the applicant and may not count towards the processing time referred to in paragraph (1).

(3) A specific communications business operator whose certificate of registration, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of registration to the Minister of Science and ICT.

Article 28 (Registration Requirements for Specific Communications Business)

The registration requirements for a specific communications business pursuant to Article 21(5) of the Act are as provided in Table 2 attached hereto.

Article 29 (Reporting Procedures, etc. of Value-Added Communications Business)

(1) A person who wishes to file a report of a value-added communications business under the former part of Article 22(1) of the Act shall submit to the Minister of Science and ICT a value-added communications business report (including an electronic report) and each of the following documentation (including an electronic documentation):

1. a network map diagram (applicable only where new types of value-added communications services are reported and the Minister of Science and ICT deems such diagram to be necessary and requests for it); and

2. a report about the privacy protection system (applicable only when personal data are handled).

(2) A person who wishes to operate a special type of value-added communications business under Article 22(2) of the Act shall submit to the Minister of Science and ICT a registration application for special type of

13

value-added communications business (including an electronic application) and each of the following documentation (including an electronic documentation):

1. articles of incorporation of the corporation (applicable only to a corporation including the corporation to be incorporated); and

2. any document verifying whether such registration application meets the registration requirements under each of the subparagraphs of Article 22(2) of the Act.

(3) The Minister of Science and ICT receiving a report pursuant to paragraph (1) and a registration application pursuant to paragraph (2) shall verify the commercial registry extracts by using the public administrative information available pursuant to Article 36(1) of the E-Government Act.

(4) When there is an error in a value-added communications business report under paragraph (1) or a registration application for special type of value-added communications business under paragraph (2), or the documentation attached to such report or application is insufficient, the Minister of Science and ICT may request for such report or application to be supplemented by no later than 10 days thereafter; provided that, such period may be extended upon request by the person filing the report or application.

(5) Upon receipt of a value-added communications business report under paragraph (1), the Minister of Science and ICT shall issue a report certificate to the person filing such report.

(6) Upon receipt of a registration application under paragraph (2), the Minister of Science and ICT shall verify whether such registration application meets the registration requirements under paragraph 9 hereof, and then, make recordation of each of the following in a registration registry of special type of value-added communications business operators and issue to the applicant a certificate of registration as a special type of value-added communications business operator within 30 days of the date of application:

1. registration number and date of registration;

2. title or trade name of the business and name of the representative;

3. location of the principal office;

4. capital;

5. types of services provided;

6. details of major business facilities and equipment and the locations where such facilities and equipment are installed; and

7. any conditions upon which the registration is authorized.

(7) A value-added communications business operator whose report certificate, issued pursuant to paragraph (5) or registration certificate issued pursuant to paragraph (6), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of report or registration to the Minister of Science and ICT.

(8) The term “any other matters as prescribed by the Enforcement Decree such as a business plan” in Article 22(2)4 means a business plan and a user protection plan.

(9) The registration requirements for a special type of value-added communications business pursuant to Article 22(2) of the Act are as provided in Table 3 attached hereto.

Article 30 (Exemption from Value-added Communications Business Operator Report)

(1) The “small-scale value-added communications business meeting the criteria prescribed under the Enforcement Decree of the Act” in subparagraph 1 of Article 22(4) of the Act means value-added communications business operators who provide value-added communications services using the Internet and where the capital is 100 million won or less

14

(2) In the event a value-added communications business operator who is exempted from filing a report pursuant to paragraph (1) comes to have more than 100 million won as its capital, such value-added communications business operator shall file a report to the Minister of Science and ICT, within 1 month of the date on which it ceased to satisfy such criteria, in accordance with Article 22 (1) of the Act.

Article 30-2 (Reasons for Disqualification for Registration)

“An investor as prescribed by the Enforcement Decree” in Article 22-2 of the Act means any person falling under any of the following:

1. a person who holds the largest number of outstanding shares with voting rights and equity interests with voting rights of the concerned corporation (throughout this Article, the “Shares, etc.”), jointly with any specially related person of the person as defined in any subparagraph of Article 3(1) of the Enforcement Decree of the Act on Corporate Governance of Financial Companies, on his/her own account, regardless of in whose name they are held; and

2. a person who holds more than 10/100 of the Shares, etc. on his/her own account, regardless of in whose name they are held or a shareholder who has de facto control over the matters material to the concerned corporation, such as appointment and dismissal of executives and falls under any of the subparagraphs of B. of Article 2. 6 of the Act on Corporate Governance of Financial Companies.

Article 30-3 (Technical Measures, etc. for Prevention of Circulation of Illegal and Obscene Information)

(1) The term “technical measures as determined by the Enforcement Decree” in Article 22-3(1) of the Act means the following measures:

1. measures that a person, who provides service falling under A of subparagraph 13 of Article 2 of the Act among those who have registered a special type of value-added communications business pursuant to Article 22(2) of the Act (hereinafter referred to as the “business operator” in this Article), may recognize that such information is illegal information under subparagraph 1 of Article 44-7(1) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. (hereinafter referred to as “illegal and obscene information”) comparing the title and characteristics of such information;

2. measures taken by the business operator to restrict the users to search or transmit or receive such information in order to prevent the circulation of illegal and obscene information recognized by such business operator pursuant to subparagraph 1;

3. when the business operator finds the circulation of illegal and obscene information due to its failure to recognize such information although it has taken measures referred to in subparagraph 1, subsequent measures taken by the business operator to restrict the users to search or transmit or receive such information; or

4. measures taken by the business operator to send a warning notice regarding prohibition of circulation of illegal and obscene information to those who transmit such illegal and obscene information.

(2) The term “period as determined by the Enforcement Decree” in Article 22-3(3) of the Act means two years.

Article 30-4 (Reporting and Disclosure of Value-added Communications Service Fees)

(1) Pursuant to Article 22-4(1) of the Act, if a telecommunications business operator intends to report or make a report on the change of the value-added communications services fees under B of Article 2.13 of the Act to the Minister of Science and ICT, it shall submit the following documents:

1. Report on fees: Fees and supporting data for calculation; and

2. Report on changed fees: Change of fees and supporting data for such change.

(2) Pursuant to Article 22-4(2) of the Act, if a telecommunications business operator intends to disclose any information that it has reported or has made a report on change under Article 22-4(1) of the Act, it shall display the fees or changed fees under Article 30-4(1) on its website.

15

Article 31 (Amendment of Registration or Report)

(1) “As prescribed under the Enforcement Decree of the Act” in Article 23 of the Act means each of the following:

1. title or trade name, and address;

2. representative;

3. types of services provided;

4. capital (for specific communications business operators only);

5. expert personnel (for specific communications business operators only);

6. standardized terms and conditions (for specific communications business operators who entered into an agreement with a key communications business operators providing telecommunications services by using frequencies assigned under the Radio Waves Act; and

7. changes to specific communications business or added-value communications business under Article 21(1), the former part of Article 22(1) and Article 22(2) (includes cases where businesses which have been subject to partial cancellation of the registration or partial suspension under main bodies of Article 27(1) and (2) are sought to be resumed ).

(2) In order to amend any of the information set forth in paragraph (1), an application to register amendment to the specific communications business, a report of amendment to the value-added communications business, or an application to register amendment to the special type of value-added communications business (including an electronic application or report), and documentation (including electronic documentation) supporting the relevant amendment shall be submitted to the Minister of Science and ICT.

(3) Upon receipt and registration, or receipt and processing, of an application to register amendment or a report of amendment, the Minister of Science and ICT shall issue either a registration certificate on which the relevant amendment is recorded or a report certificate.

(4) The Minister of Science and ICT receiving an application to register amendment or a report of amendment pursuant to paragraph (2) shall verify the commercial registry extracts or business registration certificate by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant or person filing the report does not consent to such verification method, such applicant or person shall be required to attach the corporate registry or business registration certificate to its report.

Article 32 (Report on Transfer of Business)

(1) A person who wishes to file a report on transfer of a specific communications business or a value-added communications business pursuant to Article 24 of the Act shall within 30 days from the date on which a business transfer agreement is executed submit to the Minister of Science and ICT a business transfer application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:

1. a copy of the business transfer agreement;

2. documentation prescribed under each of the subparagraphs of Article 26(1) or Article 29(1) and (2) hereof; and

3. a registration certificate or a report certificate.

(2) A person who wishes to file a report on merger of a corporation that is either a specific communications business operator or a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which a merger agreement is executed submit to the Minister of Science and ICT a merger application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:

1. a copy of the merger agreement;

16

2. documentation prescribed under each of the subparagraphs of Article 26(1) or Article 29(1) and (2) hereof; and

3. a registration certificate or a report certificate.

(3) A person who wishes to file a report on inheritance of a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which the cause for the inheritance has occurred submit to the Minister of Science and ICT an inheritance report (including an electronic application) with documentation (including electronic documentation) demonstrating that she or he is the heir attached thereto.

(4) The Minister of Science and ICT receiving a report under paragraphs (1)-(3) shall verify, through the information sharing channel under Article 36(1) of the Electronic Government Act, the commercial registry extracts of the transferor or party to a merger agreement (meaning the existing or newly established corporation), national technical qualification certificates of the technical personnel or a certificate of recorded details of the heir’s family relations; provided that, in the event the person filing the report does not consent to such verification method, such person shall be required to attach the relevant documentation (copies of national technical qualification certificates or a certificate of recorded details of the heir’s family relations) to its report.

(5) Upon receipt of a report to register on transfer or merger of a specific communications business or a value-added communications business under paragraph (1) or (2), the Minister of Science and ICT shall issue either a specific communications business registration certificate, a value-added communications business report certificate or a special type of value-added communications business registration certificate.

Article 33 (Report on Suspension or Closedown of Business)

(1) A person who wishes to file a report on suspension or closedown of a specific communications business or a value-added communications business under Article 26(1) of the Act shall at least 15 days prior to the expected suspension or closedown date submit to the Minister of Science and ICT a report on suspension or closedown of a specific communications business or a value-added communications business (including an electronic report) with documentation (including electronic documentation) demonstrating that users have been notified of such suspension or closedown attached thereto; provided that, in the event the information contained in any of such documentation can be verified through the public administrative information available pursuant to Article 36(1) of the E-Government Act, such verification may substitute for the relevant documentation.

(2) A person who wishes to file a report on dissolution of a corporation that is a specific communications business operator or a value-added communications business operator under Article 26(2) of the Act shall immediately submit to the Minister of Science and ICT a report on dissolution of a corporation (including an electronic report).

Chapter 3. Telecommunications Operation

Article 34 (Authorization of Standardized Terms and Conditions)

(1) The services for which key communications business operators must obtain authorization (including an authorization of amendment) of standardized terms and conditions pursuant to the main body of Article 28(2) of the Act shall be any of the following:

1. among the telecommunications services provided by the key communications business operator with the highest market share based on sales in the immediately preceding year in the unit markets determined pursuant to Article 38, the key communications service determined and publicly notified by the Minister of Science and ICT taking into consideration the market size, number of users, competition status, etc.; or

2. if a key communications business operator providing the service prescribed under subparagraph 1 completes business consolidation with another key communications business operator pursuant to Article 12(1)1 or 12(1)4 of the Monopoly Regulation and Fair Trade Act, the service prescribed under subparagraph 1 provided by such other key communications business operator.

17

(2) By December 31 each year, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators and services prescribed under paragraph (1); provided that, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators and services falling under subparagraph 2 of paragraph (1) immediately after the date of report on business consolidation thereunder.

(3) Notwithstanding the provisions under paragraph (1), a key communications business operator who wishes to amend minor aspects of standardized terms and conditions as prescribed by the Minister of Science and ICT may file a report thereon with the Minister of Science and ICT.

Article 35 (Application for Authorization of Standardized terms and conditions)

A person who wishes to file a report (including a report on amendment) on standardized terms and conditions with respect to telecommunications services pursuant to Article 28(1) or the proviso of Article 28(2) of the Act or obtain an authorization (including an authorization of amendment) pursuant to the main body of Article 28(2) of the Act shall submit to the Minister of Science and ICT standardized terms and conditions containing each of the following with documentation demonstrating the bases for price computation pursuant to Article 28 (4) of the Act attached thereto:

1. types and details of telecommunications services;

2. areas in which telecommunications services are provided;

3. prices of telecommunications services, including fees and actual expenses;

4. details concerning the responsibilities of telecommunications business operators and users of telecommunications services; and

5. any other information necessary for the provision or use of the relevant telecommunications services.

Article 36 (Services Entitled to Reduction or Exemption of Fees)

Telecommunications services entitled to the reduction or exemption of fees pursuant to Article 29 of the Act shall be as follows.

1. Telecommunications services for the communications concerning the rescue of human lives and properties in danger, and the rescue from disasters or for the communications by the victims of disasters;

2. Telecommunications services for the whole or part of exclusive line communications used by such agencies, in case where the exclusive line communications of agencies which are fully responsible for military, public order and national security, and a part of self-communications network of the State, local governments or public institutions under the Act on the Management of Public Institutions are integrated into the telecommunications net-work of a key communications business;

3. Telecommunications services for the communications required for military operations in wartime;

4. Telecommunications services for the newspapers under the Act on the Promotion of Newspapers, etc., for news communications under the Act on Promotion of News Communications and for communication for news reports by the broadcasting stations under the Broadcasting Act;

5. Telecommunications services for a communication which is required for facilitating the use, and for diffusing the distribution, of information communications;

6. Telecommunications services for a communication by those who are in need of the protection for the improvement of social welfare;

7. Telecommunications services for a communication which is required for the promotion of interchange and cooperation between North and South Korea; and

8. Telecommunications services for a communication which is specially required for the operation of postal services.

18

Article 37 (Provision of Transmission or Line Facilities and Equipment, etc.)

Pursuant to Article 31(1) of the Act, the composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide transmission or line facilities and equipment or the cable TV broadcasting facilities and equipment (the “Transmission or Line Facilities and Equipment, etc.”) to key communications business operators in a manner falling under one of the following:

1. sale or lease of transmission or line facilities, etc.;

2. commissioned performance of the communications or exchange operations, etc. by making use of transmission or line facilities, etc.; or

3. manners corresponding to subparagraphs 1 and 2, which are determined by a consultation between key communications business operator and the composite cable TV business operator or transmission network business operator or relay cable broadcasting business operator.

Article 37-2 (Targets for Assessment of User Protection, etc.)

(1) When the Korea Communications Commission assesses the user protection of a telecommunications business operator under Article 32(2) of the Act, it shall select the targets generally taking into account the following matters:

1. Size of users per telecommunications service of the telecommunications business operator;

2. Frequency of users’ complaints; and

3. Frequency of an act that damages the interests of users such as prohibited act under Article 50(1) of the Act.

(2) The Korea Communications Commission shall assess the user protection of the targets under paragraph (1) according to the following criteria every year:

1. Adequacy of management system of user protection;

2. Records of compliance with user protection -related laws;

3. Records of activity to prevent damage to users;

4. Records of handling users’ opinions or complaints; and

5. Other matters regarding user protection.

(3) The Korea Communications Commission shall give a written notice to the targets under paragraph (1) of the assessment plan including assessment schedule and relevant information at least ten days prior to the assessment date and may order them to submit necessary materials.

(4) The Korea Communications Commission shall give a notice to each target of the assessment result of user protection under paragraph (2) and reflect such result when it promotes the relevant policy.

Article 37-3 (Business Operator to Send Copy of Contract and Procedures)

(1) The term “telecommunications business operator determined by the Enforcement Decree” in Article 32(3) of the Act means a telecommunications business operator that provides key communications service except for a telecommunications business operator that directly delivers the contract to users according to the terms and conditions of such service.

(2) The telecommunications business operator under the main body of paragraph (1) shall deliver a copy of the contract to the users by any of the following methods selected by the users within one month from the execution date of the contract under Article 32(3) of the Act; provided that if the users do not select the method of delivery, the copy of the contract shall be delivered by any of the methods under any subparagraph below:

1. by mail or fax; or

19

2. by a notice using information and communications network such as e-mail (hereinafter referred to as the “information and communications network”) under subparagraph 1 of Article 2(1) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

Article 37-4 (Prepaid phone services and subscription of guarantee insurance)

(1) A key communications services operator that seeks to provide telecommunications services on a prepaid basis (“prepaid phone services”) pursuant to the main body of Article 32(4) shall submit each of the following items to the Minister of Science and ICT, provided that a specific communications business operator shall submit it to the head of the Central Radio Management Office.

1. a copy of guarantee insurance;

2. data about the aggregate service charges for the prepaid phone services for the pertinent year (“prepaid phone service charges”);

3. guide for the use of the prepaid phone services;

4. other materials specified and announced by the Minister of Science and ICT for prepaid phone services business standards and customer protection, etc.

(2) A telecommunications business operator seeking to provide the prepaid phone services under paragraph (1) shall abide by each of the following:

1. the prepaid phone services shall be provided within the coverage period of the guarantee insurance;

2. if additional prepaid phone services are to be provided within the coverage period of the guarantee insurance, such additional prepaid phone services shall be provided within the actually used portion of the prepaid phone service charges;

3. if the prepaid phone service charges are to be changed, the guarantee insurance shall be renewed at least 30 days prior to such change. In this case, a copy of the renewed guarantee insurance policy shall be provided to the Minister of Science and ICT or the head of the Central Radio Management Office within 7 days of such renewal;

4. if the services are to be provided after the expiration of the guarantee insurance, the guarantee insurance shall be renewed at least 30 days prior to the expiration date. In this case, financial statements and other materials specified by the Minister of Science and ICT shall be provided to the Minister of Science and ICT or the head of the Central Radio Management Office within seven days of the renewal of the guarantee insurance; and

5. measures to make paragraph (1)3 and 4 easily comprehensible to users shall be taken.

(3) The “amount calculated according to standards specified under the Enforcement Decree of the Act” in the main body of Article 32(4) is an amount not less than 50% of the prepaid phone service charges and determined in accordance with the standards announced by the Minister of Science and ICT, taking into consideration the prepaid phone service provider’s pain-in capital and the prepaid phone service charges.

(4) The “case specified under the Enforcement Decree of the Act” in the proviso of Article 32(4) means each of the following case:

1. average annual revenue from telecommunications services provided by a telecommunications business operator for the recent 3-year period is 30 billion won or more;

2. aggregate prepaid phone service charges is less than 10% of the annual revenue from telecommunications services provided by a telecommunications business in the past year; and

3. provision of prepaid phone services in the past 3-year period without suspension or closedown.

(5) When the beneficiary receives insurance proceeds, such shall be distributed to users within 60 days from the date of receipt under Article 32(5) of the Act, provided that if the distributions payable amount exceeds the insurance proceeds, the insurance proceeds will be distributed in proportion to loss amounts.

20

(6) business standards and methods concerning the guarantee insurance and insurance proceeds not otherwise specified in paragraph (2) and (5) shall be determined and announced by the Minister of Science and ICT.

Article 37-5 (Notice of Procedures for Filing Formal Objection and Method)

(1) A telecommunications business operator who receives an order from the Minister of Science and ICT to suspend provision of telecommunications services under Article 32-3(1) of the Act shall send a notice to the user of relevant telecommunications services specifying the following matters under Article 32-3(2) of the Act:

1. The relevant administrative agency that requests for the suspension of the provision of relevant telecommunications services, the relevant department and their telephone numbers;

2. Reasons for the suspension of the provision of relevant telecommunications services; and

3. Period and procedures for filing a formal objection as follows:

A. Upon receipt of a request to suspend under Article 32-3(1)1 of the Act: Period and procedures for filing a formal objection under Article 6-5(2) of the Enforcement Decree of the Act on Registration of Credit Business and Protection of Finance Users;

B. Upon receipt of a request to suspend under Article 32-3(1)2 of the Act: Period and procedures for filing a formal objection under Article 10-2(1) of the Enforcement Decree of the Special Act on the Prevention of Loss Caused by Telecommunications-Based Financial Fraud and Refund for Loss; and

C. Upon receipt of a request to suspend under Article 32-3(1)3 of the Act: Period and procedures for filing a formal objection under Article 6-2(1) of the Enforcement Decree of the Electronic Financial Transactions Act.

(2) Pursuant to Article 32-3(3) of the Act, a telecommunications business operator shall give a notice to the user of relevant telecommunications services of the procedures for filing a formal objection under paragraph (1) by any of the following methods:

1. by mail or fax;

2. by e-mail; or

3. by telephone or text message.

Article 37-6 (Identification upon Execution of Contract)

(1) The term “telecommunications business operator determined by the Enforcement Decree” in Article 32-4(2) of the Act means a telecommunications business operator who provided mobile telecommunications service under subparagraph 1 of Article 2 of the Act on Improvement of Distribution Structures of Mobile Device.

(2) The telecommunications business operator under paragraph (1) shall confirm the identity of a counterparty to the contract (including his/her legal representative; hereinafter the same shall apply in this Article) by confirming any of the following certificates and documents submitted by such counterparty under Article 32-4(3) and (4) of the Act. In this case, when entering into a contract using the information and communications network, the telecommunications business operator may replace the above method with the confirmation of his/her official electric signature under subparagraph 3 of Article 2 of the Digital Signature Act:

1. Individual: Resident registration card, driver’s license, registration card of disabled person, card of persons of distinguished services to the State, card of persons of distinguished service to independence, card of persons of distinguished service to the May 18 Democratization Movement or passport of Korean nationals;

2. Corporation: Certificate of business entity registration or certificate of taxpayer identification number;

3. Entity other than corporation: Certificate of taxpayer identification number; or

4. Foreigner and Korean nationals residing abroad: Alien registration card, resident registration card, domestic residence report card or passport.

21

(3) The telecommunications business operator under paragraph (1) shall confirm the authenticity of certificates and documents under each subparagraph of paragraph (2) using fraud subscription detection system under Article 32-5(1) of the Act (the “fraud subscription detection system”).

(4) Notwithstanding paragraphs (2) and (3), if the counterparty to the contract cannot submit the certificates and documents under paragraph (2) or the telecommunications business operator under paragraph (1) cannot confirm the authenticity of such certificates and documents, the telecommunications business operator shall confirm the identity of such counterparty with the certificates, etc. determined by such telecommunications business operator with the terms and conditions which are equivalent to such certificates and documents.

Article 37-7 (Entrustment of Business to Construct and Operate Fraud Subscription Detection System)

(1) The Minister of Science and ICT shall entrust to Korea Association for ICT Promotion under Article 15 of the Framework Act on Broadcasting Communications Development (the “KAIT”) the business to construct and operate the fraud subscription detection system in accordance with Article 32-5(3) of the Act. (2) The Minister of Science and ICT may support necessary costs and expenses for the performance of business delegated under paragraph (1).

Article 37-8 (Method and Procedure for Providing Tool to Block Media Product Harmful to Juveniles, etc.)

(1) A telecommunications business operator who enters into a contract for provision of telecommunications service under Article 32-7(1) of the Act with a juvenile under the Juvenile Protection Act shall provide to the mobile device any tool to block media product harmful to juveniles, etc. such as relevant software in order to prevent such juvenile from accessing to such media product harmful to juveniles and illegal and obscene information (hereinafter referred to as the “media product harmful to juveniles, etc.”) under subparagraph 3 of Article 2 of the Juvenile Protection Act through such telecommunications service.

(2) When the telecommunications business operator provides a tool to block under paragraph (1), it shall comply with the following procedures:

1. Upon execution of contract:

A. Notify the juvenile and his/her legal representative of the types and contents of a tool to block; or

B. Confirm whether the tool to block has been installed.

2. After execution of contract: If the tool to block is deleted or fails to function for more than fifteen days, the telecommunications business operator shall give a notice to the legal representative of such juvenile every month.

Chapter 4. Promoting Competition In Telecommunications Business

Article 38 (Criteria and Procedures for, and Methods of, Evaluating Competition Status)

(1) When making determination concerning unit markets for the purpose of evaluating competition status pursuant to Article 34(2) of the Act, all of the following factors shall be considered:

1. demand substitutability and supply substitutability of the services;

2. geographical scope of the services provided;

3. transaction stages of the services provided such as retail (meaning transactions between telecommunications business operators and ultimate users of the services provided by such telecommunications business operators) and wholesale (meaning transactions through which telecommunications facilities and equipment, etc., installed to provide wholesale services, are offered to other telecommunications business operators); and

4. special characteristics of users such as differences in purchasing power and negotiating edge or uniqueness of demand.

22

(2) Evaluation of competition status with respect to the unit markets determined under paragraph (1) shall be implemented by comprehensively considering each of the following factors:

1. market structure such as market share and entrance barrier;

2. response capacity of users such as accessibility of information related to service use and ease of switching service providers;

3. activities of telecommunications business operators such as those relating to price and quality competition and technology innovation; and

4. market performances such as the level of price and quality and the size of excess profits made by telecommunications business operators.

(3) Where it deems necessary for evaluating competition status, the Minister of Science and ICT may invite opinions from relevant professionals and related parties.

Article 39 (Criteria applicable to Key Communications Business Operators, etc.)

(1) The “key communications business operators satisfying the criteria prescribed under the Enforcement Decree of the Act” in Articles 35(2)3, 39(3)2, 41(3)2 and 42(3)2 of the Act means the business operators determined and publicly announced by the Minister of Science and ICT taking into the market size, number of users, competition status, etc. as the key communications business operators with the highest market share in the immediately preceding year in the unit markets determined pursuant to Article 38.

(2) A facility management institution under Article 35(2)3 is a facility management institution whose the aggregate size of facilities, etc. under Article 35(1) (“facilities, etc.”) owned last year or revenue from providing facilities, etc. exceeds certain thresholds announced by the Minister of Science and ICT.

(3) By 31 December, each year, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators prescribed under Articles 35(2)1 and 3, 39(3), 41(3) and 42(3) of the Act and facilities management institution prescribed under Article 35(2)3 of the Act.

Article 39-2 (Procedures for Attaching Device to Equipment, etc.)

(1) A telecommunications business operator who has entered into an agreement under Article 35(1) of the Act and has been provided with the equipment, etc. (hereinafter referred to as the “use business operator”) intends to attach any device to such equipment, etc. in order to enhance an efficiency of such equipment, etc. under the former part of Article 35(4) of the Act, it shall give a notice of the following matters to the key communications business operator or facility management institution that provides such equipment, etc. (hereinafter referred to as the “provision business operator”) at least one day prior to the date for attaching such device to the equipment, etc.:

1. Type, size and quantity of device;

2. Place to which device will be attached and period; and

3. Other necessary matters in connection with the attachment of device.

(2) The use business operator who has attached device to the equipment, etc. under paragraph (1) shall remove such device within 30 days from the date when the agreement under Article 35(1) of the Act is terminated or the period of attaching device expires.

(3) Notwithstanding paragraphs (1) and (2), if the use business operator and the provision business operator otherwise determine the notice period of device, information to be notified or period of removal, they shall comply with such determination.

Article 39-3 Deleted.

Article 39-4 (Composition and Operation of Council of Maintenance of Aerial Cables)

(1) The Council for Maintenance of Aerial Cables in the latter part of Article 35-2(2) of the Act (hereinafter referred to as the “Council for Maintenance of Aerial Cables” in this Article and Article 39-5) shall consist of not more than 15 members, including one chairman.

23

(2) The second vice minister of the Minister of Science and ICT shall serve as the chairman of the Council for Maintenance of Aerial Cables (hereinafter referred to as the “chairman” in this Article and Article 39-5) and the members of the Council for Maintenance of Aerial Cables (hereinafter referred to as the “members” in this Article) shall be appointed or commissioned by the Minister of Science and ICT from among those falling under any of the following subparagraphs:

1. public officials who belong to senior executive service of the Ministry of Science and ICT;

2. persons designated by the chief of the affiliated agencies from among public officials who belong to senior executive service of the Ministry of Science and ICT and the Ministry of Land, Infrastructure and Transport;

3. persons designated by the chief of the affiliated agencies from among public officials of ranking Grade III or higher grade of special metropolitan city, metropolitan cities, provinces or special self-governing province;

4. persons who have profound knowledge and experiences in the maintenance of aerial cables and belong to the telecommunications business operator, facility management institution, or organization related to maintenance of aerial cables; or

5. other persons having profound knowledge and experiences in the fine view of city and the maintenance of aerial cables.

(3) The term of office of the members under subparagraphs 4 and 5 of paragraph (2) shall be two years and they may be reappointed only once.

(4) The chairman shall represent the Council for Maintenance of Aerial Cables and oversee its business; provided that if the chairman cannot perform his/her duties for any unavoidable reason, the member designated by the chairman in advance shall perform the duties of the chairman.

(5) Any other matters for the composition and operation of the Council for Maintenance of Aerial Cables other than those set for in paragraphs (1) through (4) shall be determined by the chairman through the resolution of the Council for Maintenance of Aerial Cables.

Article 39-5 (Functions of Council for Maintenance of Aerial Cables)

(1) The Council for Maintenance of Aerial Cables shall examine the following matters:

1. Matters on basic directions and policies of maintenance of aerial cables;

2. Matters on mid-and-long term plan of maintenance of aerial cables;

3. Matters on yearly establishment of maintenance plan of aerial cables (referring to maintenance plan of aerial cables under Article 35-2(2) of the Act; hereinafter referred to as the “maintenance plan”);

4. Matters on system improvement of maintenance of aerial cables;

5. Matters on inspection and evaluation of promotion status of maintenance of aerial cables; and

6. Other matters that the chairman deems it necessary for an efficient promotion of maintenance of aerial cables and refers to the examination.

(2) If necessary, the Council for Maintenance of Aerial Cables may listen to the opinions of the chief of central administrative agency, local government, telecommunication business operators, facility management institutions and experts in order to examine the matters referred to in paragraph (1).

Article 39-6 (Burden of Costs for Maintenance of Aerial Cables)

The telecommunications business operator and the facility management institution shall pay the costs of maintenance of equipment, etc. owned by it of the costs incurred in the implementation of the maintenance plan under Article 35-2(3) of the Act.

Article 39-7 (Standards for Providing Obligatory Wholesale Services)

(1) The “telecommunications services of a key communications business operator, which satisfies the criteria specified under Article 38(2) of the Act” means the key communications services determined and publicly notified

24

by the Minister of Science and ICT taking into consideration the market size, number of users, competition status, etc. among the telecommunications services provided by the key communications business operator with the highest market share on the basis of revenue in the immediately preceding year in the unit markets determined pursuant to Article 38.

(2) The Minister of Science and ICT shall designate and announce key communications business operators under paragraph (1) by December 31 of each year.

Article 40 (Report on Accord, etc. concerning Interconnections, etc.)

(1) A person who wishes, under Article 38(5) or 44(1) through (3) of the Act, to file a report on, or obtain an authorization of wholesale provision, provision, common use or interconnection of facilities, etc. and equipment or the execution or termination of, or an amendment to, an accord on provision of information shall submit to the Minister of Science and ICT each of the following documentation to the Minister of Science and ICT, provided that in case of report on termination or authorization for termination, only the documents referred to in paragraphs 1 and 6 need to be submitted:

1. copy of the accord;

2. documentation demonstrating the amounts due from, or payable to, the parties to the accord, the computation methods with respect to such amounts and how the accord shall be implemented;

3. documentation demonstrating wholesale provision, provision, common use or interconnection of, or conditions upon which information shall be provided on, facilities, etc. and equipment, and any other costs related to the accord;

4. drawings indicating wholesale provision, provision, facilities, etc. provision, common use or interconnection of, or a summary of the information (including outlay of connection grid and connection points) to be provided on, facilities, etc. and equipment;

5. documentation comparing the new accord against the old (applicable only to filing of a report of amendment or applying for an authorization of amendment); and

6. documentation confirming closedown (including electronic documentation).

(2) Upon receipt of documentation under paragraph (1), the Minister of Science and ICT shall examine whether such documentation comply with the criteria for provision, common use, wholesale provision or interconnection of, or provision of information on, facilities, etc. and equipment pursuant to Article 35(3), 37(3), 38(4), 39(2), 41(2) or 42(2) of the Act.

(3) A key communications business operator that has received authorization for execution, amendment or termination of an agreement under Article 44(2) of the Act and a key communications business operator that has filed a report on execution, amendment or termination of an agreement under Article 44(3) of the Act shall publish details of such on its website.

(4) Pursuant to Article 65(3) of the Act, upon receipt of documentation under paragraph (1), the Minister of Science and ICT shall examine whether such documentation complies with the criteria for provision, common use or interconnection of, or provision of information on, telecommunications facilities and equipment pursuant to Article 35(3) of the Act, and whether the private telecommunications facilities and equipment provided were installed by an individual to be used for her or his own telecommunications.

Article 40-2 (Request for Arbitration)

(1) A person wishing to make a request for arbitration under Article 45(1) of the Act shall attach each of the following documentation to its arbitration application and submit them to the Korea Communications Commission, provided that the item under subparagraph 3 shall be submitted only in the case of the request under Article 45(1)3.

1. documents about overview of the arbitration request;

2. documents about negotiation between the parties; and

3. each of the documentation under Article 40(1).

25

(2) After reviewing the application documents under paragraph (1), the Korea Communications Commission may demand the applicant to submit additional information within a reasonable period of time for any of the following reasons:

1. in the case where any required document is missing; and

2. in the case where any entry in the application and attachments is vague.

(3) If the applicant fails to provide additional information within the time period specified under paragraph (2), the Korea Communications Commission shall return the application along with a reason for such return.

Article 40-3 (Arbitration Decision)

(1) An arbitration decision by the Korea Communications Commission shall be made in writing.

(2) The arbitration decision under paragraph (1) shall state the ruling, reason and date of decision, be signed by the Commissioner of the Korea Communications Commission and commission members who attended the arbitration deliberation and be sent to the parties to the dispute.

Article 40-4 (Provision of Information on Standards of Telecommunications Services)

(1) The telecommunications services whose information on standards shall be provided as set forth in Article 42(5) of the Act are as follows:

1. Voice communication service and video calling service (including the voice communication service through LTE communications network);

2. Short message service and multimedia message service (including the short message service and multimedia message service based on the Internet protocol multimedia system);

3. Emergency calling service;

4. Caller identification service, caller identification restriction service, call forwarding service, call hold service and call waiting service; and

5. Other telecommunications services determined and publicly notified by the Minister of Science and ICT, information of which standards is necessary for the manufacturing, import, distribution and sale of communication terminal devices under Article 42(5) of the Act.

(2) Request for providing information on the standards of telecommunications services under Article 42(5) of the Act (hereinafter referred to as the “information on standards” in this Article) shall be made in writing containing the following information:

1. Name (or company name in case of a company) and address of a person who requests for providing information on standards; and

2. Scope and purpose of using information on standards and time of providing such information.

(3) The key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall provide the information on standards within seven (7) days from the date on which it receives the request as prescribed in paragraph (2); provided, however, that it may provide the information within thirty (30) days from the date on which it receives the request in an avoidable case, but it shall notify the person who has made such request of the relevant cause in advance.

(4) The method of providing the information on standards shall comply with the method determined by the parties after consultation each other such as online transmission or delivery of books, etc.

Article 41 (Reporting prohibited acts)

(1) Any person recognizing any of the prohibited acts prescribed under Article 50(1) of the Act (the “Prohibited Acts”) may report to the Korea Communications Commission of such act and request any measures prescribed under each of the subparagraphs of Article 52(1) of the Act to be taken.

26

(2) A person who wishes to make a report under paragraph (1) shall submit to the Korea Communications Commission documentation indicating each of the following:

1. name (if a corporation, the name of the corporation and its representative) and address of the person making the report;

2. trade name, or name (if a corporation, the name of its representative), and address of the person being reported;

3. details of the prohibited act; and

4. measures necessary for addressing the prohibited act.

(3) The Korea Communications Commission may, where it deems necessary, request that the documentation submitted to it under paragraph (2) be supplemented within a period reasonably fixed.

(4) The details of handling procedures and methods concerning application, supplementation, prohibition and violation under paragraphs (1) through (3) shall be determined and announced by the Korea Communications Commission.

Article 42 (Types of and Criteria for Prohibited Acts)

(1) The types of, and criteria for, the prohibited acts pursuant to Article 50(3) of the Act shall be as provided in Table 4 attached hereto.

(2) The Korea Communications Commission may, where it deems necessary for the purpose of applying to specific telecommunications fields or specific prohibited acts, determine and issue public notification of the details concerning the types of, and criteria for, the prohibited acts under paragraph (1).

Article 43 Deleted.

Article 44 (Measures Taken, etc. on Offenses)

The term “other matters prescribed under the Enforcement Decree of the Act” in Article 52(1)11 of the Act refers to each of the following:

1. submission of a plan for implementing the provisions under Article 52(1)1-10 of the Act;

2. report on the results of the implementation of the provisions under Article 52(1)1-10 of the Act; and

3. preservation of relevant materials and notification of a fact that any damage has occurred to the users necessary for implementing of the provisions under Article 52(1)8.

Article 44-2 (Announcement of Corrective Order)

The details of contents and method of announcement about corrective order made under Article 52(1)8 shall be determined and announced by the Korea Communications Commission.

Article 45 (Implementation Period of Corrective Orders)

The period by the end of which telecommunications business operators shall implement the corrective order issued by the Korea Communications Commission pursuant to Article 52(2) of the Act shall be as provided in Table 5 attached hereto.

Article 45-2 (Standards and Procedures for Giving Order to Suspend Business in Part)

(1) Standards for giving an order to suspend business in part under Article 52(5) of the Act shall be as provided in Table 5-2 attached hereto.

(2) If the Korea Communications Commission has given an order to suspend business in part under Article 52(5) of the Act, it shall immediately give a written notice thereof to the relevant telecommunications business operator and issue public notification of such fact.

27

Article 45-3 (Imposition, Etc. of Charges for Compelling Execution)

(1) The revenue under Article 52-2(1) of the Act shall mean the revenue for the service that is directly or indirectly affected by the violation during the period while the relevant telecommunications business operator is engaged in any act to violate Article 50(1) of the Act (the “Relevant Revenue”).

(2) If any person who has been subject to the imposition of charges for compelling execution under Article 52-2(1) of the Act intends to file a formal objection to such imposition, it shall do so within thirty (30) days from the date of receiving the notice for such imposition.

(3) Article 49 shall apply mutatis mutandis to the procedures for demanding the charges for compelling execution. In such case, the “penalty surcharge” shall be deemed to be the “charges for compelling execution in arrears.”

(4) Any necessary matters regarding the calculation of the Relevant Revenue and the imposition of the charges for compelling execution other than the matters provided for in paragraphs (1) through (3) above shall be determined and publicly announced by the Korea Communications Commission.

Article 46 (Offenses Subject to Imposition of Penalty surcharge and Amount of Such Penalty surcharge, etc.)

(1) The upper limit of penalty surcharge by classification of offenses subject to imposition of penalty surcharge, and the criteria for imposition of such penalty surcharge pursuant to Article 53(1) of the Act shall be as provided in Table 6 attached hereto.

(2) Maximum fine amount by type of violations subject to fine under Article 53(2) of the Act, and fine calculation method shall be as provided in Table 7.

Article 47 (Computation Methods and Procedure of Penalty Surcharge)

(1) The term “sales as prescribed under the Enforcement Decree of the Act” in the former part of Article 53(1) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator and the “sales as prescribed under the Enforcement Decree of the Act” in Article 53(2) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator; provided that, if, as of the first day of the applicable fiscal year, less than 3 years have elapsed since the commencement of the relevant business as of the first day of the relevant fiscal year, such term shall mean the sales of the period from the commencement of the relevant business until the last day of the preceding fiscal year, converted into annual average sales, or if the relevant business has been commenced in the applicable fiscal year, such term shall mean sales of the period from the commencement date of the relevant business until the date of commission of the offense, converted into annual sales.

(2) The term “the time prescribed under the Enforcement Decree of the Act” in the provision of Article 53(1) of the Act means any of the following:

1. where there has been no sales result due to such reasons as non-commencement or suspension of business; or

2. where it is difficult to make an objective computation of sales.

(3) If necessary for the calculation of the turnover under Article 53(1) of the Act, the Korea Communications Commission may request the relevant telecommunications business operator to submit the financial documents such as the financial statements and the materials regarding its business status within 20 days.

Article 48 (Imposition and Payment of Penalty Surcharge)

(1) The Minister of Science and ICT or the Korea Communications Commission shall, where it intends to impose penalty surcharge pursuant to Article 53 of the Act and subsequent to its investigation and verification of the relevant offense, notify, in writing, the person subject to such penalty surcharge of the fact of offense, the amount thereof and the method of, and the period for, raising objection thereto.

28

(2) A person who receives a notification under paragraph (1) shall pay the relevant penalty surcharge to a financial company, etc. designated by the Minister of Science and ICT or the Korea Communications Commission within 20 days from the date of receiving such a notification; provided that, if the person is unable to pay the penalty surcharge within such period due to a natural disaster or other unavoidable circumstances, the person shall pay the penalty surcharge within 7 days from the date on which said reason ceases to exist.

(3) A financial company, etc. in receipt of a payment of penalty surcharge under paragraph (2) shall deliver a receipt thereof to the person who paid the penalty surcharge.

Article 49 (Demand for Penalty Surcharge)

(1) A demand for penalty surcharge pursuant to Article 53(6) of the Act shall be made in writing within 7 days from the date on which the payment deadline expires.

(2) Where a demand note is issued under paragraph (1), a deadline for payment of any penalty surcharge in arrear shall be within 10 days from the date on which such demand note is issued.

Article 50 (Services Subject To Prior Selection)

The “telecommunications services prescribed under the Enforcement Decree of the Act” in the latter part of Article 57(1) of the Act means the Long Distance Telephone Service.

Article 50-2 (Provision of Directory Assistant Service)

(1) Telecommunications business operators providing a directory assistant service pursuant to Article 60(1) of the Act may furnish any of the following information:

1. name or trade name of the user;

2. telephone number of the user; or

3. address of the user up to Eup/Myeon/Dong or road name address under subparagraphs 1 through 4 of Article 3 of the Enforcement Decree of the Road Name Address Act; provided, however, that in case of a subscriber in the name of the company, the address of Eup/Myeon/Dong/Ri/lot number (including the name of building, number of dong and number of office) or road name address under subparagraphs 1 through 7 of Article 3 of the Enforcement Decree of the Road Name Address Act.

(2) Telecommunications business operators shall obtain users’ consent to a directory assistant service through a method that can be used to verify as to whether such consent has been indeed given by the user, such as the user’s handwritten or electronic signature, and to prove at a later date that such consent has been given.

(3) Users may withdraw their consent given under paragraph (2) at any time, and telecommunications business operators shall, without any delay, take the necessary measures so that a directory assistance service shall not be provided with respect to such users who withdrew their consent; provided that, where the pertinent directory assistance service is provided through a written material, a user shall have to withdraw his or her consent at least 30 days prior to the print date of such written material for the withdrawal to take effect.

Article 51 (Specialized Institutes, etc. sharing Unique Identification Numbers)

(1) The specialized institutes that have been designated for efficient sharing of unique international identification numbers (hereinafter referred to as the “unique identification numbers”) of communication terminal devices under Article 60-2(2) of the Act shall establish the integrated management center of unique identification numbers and perform the following business:

1. Establishment and management of information system (hereinafter referred to as the “integrated management system of unique identification numbers”) in order to share the unique identification numbers of communication terminal devices (hereinafter referred to as the “reported devices”) which have been reported due to loss or theft among the telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act;

29

2. Provision of information for interrupting use of the reported devices and assistance of inquiry service; and

3. Assistance for sharing the unique identification numbers with the foreign governments, etc.

(2) The telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act shall immediately register the unique identification number of the reported device with the integrated management system of unique identification numbers and if the reporter requests for the cancellation of such registration, it shall immediately delete such registered information.

(3) The telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act shall confirm whether the reported device has accessed to the communications network through the integrated management system of unique identification numbers and interrupt the provision of telecommunications services to the reported devices.

(4) The Minister of Science and ICT may provide financial assistance to the necessary costs for establishment and operation of the integrated management center of unique identification numbers under paragraph (1).

Chapter 5. Telecommunications Facilities and Equipment

Article 51-2 (Report and Approval of Telecommunications Facilities Installation)

(1) A key communications business operator seeking to install or change material telecommunications facilities under the main body of Article 62(1) of the Act shall submit an installation or change application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Minister of Science and ICT.

1. details of installation or change of telecommunications facilities (diagram of connection grid included); and

2. security plan for telecommunications facilities.

(2) A key communications business operator seeking to receive approval for telecommunications facilities installed under the proviso of Article 62(1) of the Act shall submit an installation approval application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Minister of Science and ICT.

1. business plan;

2. security plan for telecommunications facilities;

3. domestic and international specifications and technological profile of the pertinent telecommunications facilities;

4. research status of the pertinent telecommunications facilities; and

5. agreement (throughout this Article, if installed or used jointly with other domestic or international business operator).

(3) After receiving an application under paragraph (2), the Minister of Science and ICT shall notify the applicant of its decision within 15 days of the submission date after reviewing each of the following:

1. feasibility of the business plan;

2. appropriateness of the security plan for telecommunications facilities;

3. conformity with the domestic and international technological standards; and

4. legality of the agreement.

Article 51-3 (Council for Joint Installation of Telecommunications Facilities)

(1) The term “a key communications business operator whose size of business, etc. corresponds to the standards as determined by the Enforcement Decree” in Article 63(2) of the Act means a key communications business operator that provides a local telephone service under A. of subparagraph 3 of Article 2(2) and an Internet subscriber connection service under D. together.

30

(2) A key communications business operators other than the key communications business operator under paragraph (1) may participate in the council under Article 63(2) of the Act.

Article 51-4 Deleted.

Article 51-5 (Recommendation of Joint Installation of Telecommunications Facilities)

(1) In the event the Minister of Science and ICT recommends joint installation of telecommunications facilities to key communications business operator under Article 63(6) of the Act, such recommendation shall include specific telecommunications facilities to be installed, installation area, installation interval, installation period.

(2) A key communications business operator requesting a joint installation of telecommunication under Article 63(6)1 shall submit each of the following documentation to the Minister of Science and ICT:

1. plan for the joint installation of telecommunications facilities;

2. economic impact of the joint installation of telecommunications facilities; and

3. matters not yet agreed with the key communications business operator participating in the joint installation of telecommunications facilities and proposed solutions.

(3) A key communications business operator that has received a recommendation for joint installation of telecommunications facilities shall notify the Minister of Science and ICT on whether it is accepting the recommendation and, if it is being rejected, reason for such rejection within 21 days from the receipt of such recommendation.

Article 51-6 (Report of proprietary telecommunications facilities)

(1) A person desiring to install proprietary telecommunications facilities under Article 64 of the Act shall submit to the special metropolitan city mayor, metropolitan city mayor, metropolitan autonomous city, provincial governor, or special self-governing provincial governor (“mayor or governor”) having jurisdiction over the location of the office where the main facilities are installed at least 21 days prior to the start of such installation a proprietary telecommunication installation application (including electronic application) including all of the following with blueprints of the installation attached.

1. applicant

2. type of business

3. purpose of installation

4. electronic communication method

5. installation site

6. overview of telecommunications facilities

7. (expected) operation date of facilities

(2) The “material items specified in the Enforcement Decree of the Act” in the bottom text of the Article 64(1) of the Act means items under paragraphs (1)2 to (6).

(3) If a person who reported the installation of proprietary telecommunications facilities seeks to amend items in paragraph (2) shall submit to the mayor or governor an modification application (including electronic application) with blue prints (including a comparison of pre- and post-modification) of installation proprietary telecommunications facilities at least 21 days prior to the effective date of such modification (in case of modification to any of paragraph (1)4 through (6), the start date of construction regarding such modification).

(4) Upon receiving an installation or installation modification application under paragraph (1) or (3), the mayor or governor shall review the following:

1. whether it satisfies technological standards under Article 28(1) of the Base Act on Broadcasting Communication Advancement; and

31

2. whether the purpose and reason for installing telecommunications facilities is for the use of proprietary telecommunication.

(5) The mayor or governor shall issue an installation/modification certificate if it concludes, after conducting a review, that all criteria under paragraph (4) are satisfied.

Article 51-7 (Confirmation of Installation)

(1) A person who filed an installation or modification application in regard to proprietary telecommunications facilities under Article 64(3) shall receive confirmation from the mayor or governor within seven days from the completion of installation or modification construction.

(2) A person desiring to receive confirmation of proprietary telecommunications facilities under paragraph (1) shall submit to the mayor or governor a proprietary telecommunications facilities confirmation application (including electronic application) with each of the following documentation (including electronic documentation) as attachment.

1. documentation showing that the construction was completed in satisfaction of the technological standards under Article 28(1) of the Base Act on Broadcasting Communication Advancement;

2. documentation showing that the construction was completed in accordance with blue prints under Article 28(3) of the Base Act on Broadcasting Communication Advancement; and

3. copy of construction firm’s license.

(3) After reviewing the application documents under paragraph (2), the mayor or governor may demand the applicant to submit additional information within a reasonable period of time for any of the following reasons:

1. in the case where any required document is missing; and

2. in the case where any entry in the application and attachments is vague.

Article 51-8 (Exemption from Proprietary Telecommunications Facilities Installation Application)

Under Article 64(4) of the Act, proprietary telecommunications facilities may be installed without filing an application in any of the following cases:

1. proprietary telecommunications facilities consisting of main equipment and terminals within one building and its lot;

2. proprietary telecommunications facilities consisting of main equipment and terminals within two or more buildings and their lots owned by 1 person and whose shortest distance between them is shorter than 100 meters (excluding those buildings or lots separated by road or water stream); and

3. proprietary telecommunications facilities installed for urgent police action and is used for less than 1 month.

Article 51-9 (Supply of Proprietary Telecommunications Facilities)

(1) A person who installed proprietary telecommunications facilities may provide excess capacity provided by the proprietary telecommunications facilities installed in the interval requested by a key communications business operator under Article 65(2) of the Act over his need to the key communications business operator.

(2) If the proprietary telecommunications facilities are provided to a key communications business operator under paragraph (1), the compensation for such supply shall not exceed the sum of the installation costs, maintenance expenses and investment return and shall be determined in accordance with the criteria announced by the Minister of Science and ICT.

Article 51-10 (Standards for Cessation Order)

The standards for cessation order under Articles 65(4) and 67(2) of the Act are set forth in Table 8.

32

Article 51-11 (Facilities subject to Public Space Needs)

The “facilities and areas specified under the Enforcement Decree of the Act” under Article 68(1)8 of the Act means each of the following:

1. passenger car terminal under the Passenger Transport Service Act;

2. logistics terminal and logistics complex under the Act on the Development and Management of Logistics Facilities;

3. small and medium enterprise joint complex under the Small and Medium Enterprises Promotion Act;

4. tourist site or complex under the Tourism Promotion Act; and

5. sewage path under the Sewerage Act.

Article 51-12 (Adjustment for Public Space Needs)

(1) When the Minister of Science and ICT drafts a corrective plan upon the request under Article 68(5) of the Act, it shall solicit opinions from the head of relevant administrative bodies and the parties involved.

(2) When the Minister of Science and ICT has drafted a corrective plan under paragraph (1), it shall notify the parties of such plan and recommend their adoption of the plan within a period it specifies which shall not be shorter than 30 days.

(3) When the parties adopt the corrective plan under paragraph (2), the Minister of Science and ICT shall draft a corrective agreement including the following items and have it executed by the parties.

1. case number;

2. names and addresses of the parties, their representatives or agents;

3. reason for corrective adjustment;

4. provisions amended; and

5. date of the agreement.

Article 51-13 Deleted.

Article 51-14 Deleted.

Article 51-15 Deleted.

Article 51-16 Deleted.

Article 52 (Designation of Alert Areas for Submarine Cable)

(1) A key communications business operator who wishes to apply for designation of alert areas for submarine cable under Article 79(3) of the Act shall submit to the Minister of Science and ICT documentation demonstrating each of the following:

1. need to designate alert areas; and

2. legs and width of the alert areas indicated by using coordinates of latitude and longitude.

(2) The Minister of Science and ICT may, where necessary for designation of alert areas for submarine cable, request additional information further to the documentation prescribed under paragraph (1) from any key communications business operator who applies for such designation.

(3) Upon receipt of the documentation submitted to it under paragraphs (1) and (2), the Minister of Science and ICT shall send such documentation to the heads of the relevant state administrative organs prescribed under Article 79(4) of the Act for consultation.

33

(4) Except under ordinary circumstances, the Minister of Science and ICT shall, within 60 days of the date of application for designation of an alert area for submarine cable, notify the key communications business operator making such application, and if such designation is approved, issue, without any delay, public notification of the newly designated alert area.

(5) Once the Minister of Science and ICT designates and issues public notification of a new alert area under paragraph (4), the key communications business operator who applied for such designation shall disclose the location of the new alert area on its website, etc., and may place buoys, etc. in the new alert area for marking purposes.

Article 52-2 (Inspection and Report of Telecommunications Facilities)

(1) The “cases necessary for the implementation of telecommunication policies specified under the Enforcement Decree of the Act” in Article 82(1) of the Act shall mean each of the following:

1. in case where necessary for the implementation of telecommunication policies;

2. in case where necessary for verifying the suitability of installation and management of telecommunications facilities; or

3. in case where a national emergency occurs or where necessary for securing communication channels in case of disasters.

(2) When an inspection is made pursuant to Article 82(1) of the Act, an inspection plan specifying inspection period, purpose and items shall be sent to the person who installed the telecommunications facilities being inspected at least 7 days prior to such inspection, provided that, the foregoing requirement is waived if necessary for emergency or for the purpose of preventing destruction of evidence which would thwart the purpose of inspection.

(3) A public servant carrying out the inspection under paragraph (2) shall carry evidence of his authority and show it to relevant parties and provide at the time of entrance a document stating the time and purpose of the entrance to relevant parties.

Chapter 6. Supplementary Provisions

Article 53 (Protection of Communication Secrets)

(1) Telecommunications business operators shall preserve the ledger of communications data supplied, prescribed under Article 83(5) of the Act, for a period of 1 year.

(2) Reports on, and notification of, the status of communications data supplied pursuant to Articles 83(6) and 83(7) of the Act respectively, must be provided within 30 days after the expiration of each half-year.

(3) An office dedicated to protection of communication secrets pursuant to Article 83(8) of the Act (the “Dedicated Office”) shall undertake to perform each of the following:

1. oversee tasks related to communication secrets of users;

2. regulate illegal or undue infringement of communication secrets of users by employees of telecommunications business operators or third parties;

3. report on the present status of communications information supplied under Article 83(6) of the Act;

4. furnish notification of the recordation in the ledger of communications data supplied under Article 83(7) of the Act;

5. address complaints or opinions from users with respect to communication secrets;

6. train the employees in charge of tasks connected with communication secrets; and

7. any other matters necessary for protection of communication secrets of users.

34

(4) The Dedicated Office shall be based at the headquarters of each telecommunications business operator with the officers thereof in charge.

(5) An authorized signatory for written request for data supply under Article 83(9) of the Act shall be either (i) a judge, a prosecutor or an investigatory entity (including, throughout this Enforcement Decree, a military investigatory body, the National Tax Service and regional tax services) (ii) a public official of Grade 4 or higher who belongs to an intelligence agency (including a public official of Grade 5 who is the head of an investigatory body or intelligence agency) or (iii) a public official who belongs to senior executive service; provided that, (x) with respect to the police and marine police, such authorized signatory shall be a public officer whose position is senior superintendent or higher (including a superintendent who is the head of a district policy agency) and (y) with respect to a military investigatory body, it shall be a military prosecutor or a person whose rank is lieutenant colonel or higher (including a major with respect to a military investigatory body at which a major is the commanding officer).

(6) The written request for data supply prescribed under Article 83(9) of the Act shall clearly indicate the authorized signatory’s name and rank; provided that, with respect to intelligence agencies prescribed under Article 2(6) of the Regulation on Planning and Coordination of Information Security, only the title of the authorized signatory shall be indicated, and with respect to courts, the title and name of the authorized signatory shall be clearly indicated.

Article 54 (Caller Identification, etc.)

(1) Telecommunications business operators may not impose charges on users who choose, pursuant to the proviso of Article 84(1) of the Act, not to allow their telephone numbers to be identified when making telephone calls.

(2) A person who wishes to be informed of the telephone number of the caller pursuant to Article 84(2)1 of the Act shall make a written request therefor to the pertinent telecommunications business operator with any of the following documentation demonstrating in detail that the person has been subjected to abusive language, threats or harassment over the telephone attached thereto:

1. written records of the date, time and contents of threats, etc. over the telephone;

2. voice records of threats, etc. over the telephone;

3. documentation supporting that a crime report has been filed with the police in connection with threats, etc. over the telephone;

4. documentation supporting that advice has been sought from a clinic with respect to the damages incurred from threats, etc. over the telephone;

5. any other documentation equivalent or similar to those set forth in subparagraphs 1-4.

(3) “As prescribed under the Enforcement Decree of the Act” in Article 84(2)2 of the Act means where each of the following telephone services is used:

1. to report international terror-related crime (111);

2. to report crime (112);

3. to report spies (113);

4. to report cyber terror and seek advice in relation thereto (118);

5. to report fire or seek emergency rescue (119);

6. to report marine accidents or crime (122);

7. to report smuggling (125); or

8. Deleted.

35

Article 54-2 (Entrustment of Business to Prohibit Erroneous Display of Telephone Number)

The Minister of Science and ICT shall entrust to the KAIT under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. any of the following business with respect to the prohibition of erroneous display of telephone number in accordance with Article 84-2(5) of the Act:

1. Business to confirm whether the actions are implemented under Article 84-2(3) of the Act; or

2. Business to request for access to or submission of the materials and to inspect under Article 84-2(4) of the Act.

Article 55 (Restriction on and Suspension of Service)

(1) Where the Minister of Science and ICT issues, under Article 85 of the Act, an order to restrict or suspend the whole or part of the telecommunications business of telecommunications business operators, it may allow communications for undertaking the matter falling under each of the following in the order of their priority, in proportion to the scope and severity of the relevant restriction or suspension:

1. top priority

(a) national security;

(b) military affairs and public security;

(c) transmission of the civil defense alarm; and

(d) electronic wave control;

2. second priority

(a) disaster relief;

(b) telecommunications, navigation safety, weather, firefighting, electricity, gas, water service, transportation and the press;

(c) affairs of the State and local government, except for those mentioned in items (a) and (b); and

(d) affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea;

3. third priority

(a) affairs of the enterprises subject to resources control and the firms of defense industry; and

(b) affairs of public institutions under the Act on the Management of Public Institutions, and medical institutions; and

4. forth priority: matters other than those listed in subparagraphs 1 through 3.

(2) The restriction or suspension on the telecommunications services under paragraph (1) shall be the least of those required for securing the important communications.

(3) A telecommunications business operator shall, in case where he restricts or suspends the whole or part of telecommunications services under paragraph (1), report the content thereof without delay to the Minister of Science and ICT.

Article 56 (Approval, etc. for International Telecommunications Services)

(1) The term “international telecommunications business as prescribed under the Enforcement Decree of the Act” in the main body other than each subparagraph of Article 86(2) of the Act means the installation and lease of a satellite for providing international telecommunications services.

(2) A person who intends to obtain approval in the main body other than each subparagraph of Article 86(2) of the Act shall submit the following documents to the Minister of Science and ICT:

1. duplicate copy of written agreement or contract;

36

2. comparative table between new and old agreements or contracts (limited to the cases where an application for modified approval is filed);

3. document certifying the fact that the agreements or contracts have been abrogated (limited to the cases where an application for approval of abrogation is filed); and

4. business plan (only where an application is made for approval of an agreement to provide transboundary key communications services under Article 87 (1) of the Act)

(3) If the Minister of Science and ICT intends to approve the agreement to provide transboundary key communications services under Article 87(1) of the Act in accordance with the main body other than each subparagraph of Article 86 (2) of the Act, he shall comprehensively examine the followings:

1. Possible provision of stable service;

2. Effect on the competition in the domestic telecommunications market; and

3. Matters on the protection of users.

(4) The “criteria specified by the Enforcement Decree of the Act” in the proviso of Article 86(3) means telecommunication business operators whose capital is less than 3 billion won and who do not have an international calling identification number issued by the Minister of Science and ICT.

Article 57 (Revocation of Approval for Agreement to Provide Transboundary Key Communications Services)

(1) The criteria for revocation of approval for agreements to provide transboundary key communications services and for suspension of provision of transboundary key communications services pursuant to Article 87(4) of the Act shall be as follows.

1. first violation shall result in suspension of 6 months or less, or suspension of invitation of new users; and

2. second violation shall result in revocation of approval.

(2) Upon revoking approval or ordering suspension, the Minister of Science and ICT shall issue public notification and notify the relevant telecommunications business operator in writing thereof.

Article 58 (Report on Statistics)

(1) The types of statistics telecommunications business operators must report to the Minister of Science and ICT pursuant to Article 88(1) of the Act are as follows.

1. present status of telecommunications facilities, including those for exchange, transmission, wire and power per service;

2. use records of telecommunications, including sales and times of use per service, period, distance stage, time zone, country (including the use records per foreign telecommunications business operator) and Calling Area and between Calling Areas;

3. present status of telecommunications users, including the number of subscribers per service, city and province and Calling Area;

4. information related to call volume, including (i) call volume between Calling Areas and per service, period, distance stage, time zone, city and province, country (including the call volume per foreign telecommunications business operator) and Calling Area and (ii) information on provision of facilities and equipment and on interconnection;

4-2. information related to data use volume, including data use volume per technique method, period, and traffic that provides loads to telecommunications facilities;

5. information related to accounting, including a sales report prepared for each service and business provided; and

6. aggregated issue amount of prepaid calling cards and use records of the Calling Areas (applicable only to specific communications business operators).

37

The Minister of Science and ICT shall determine and announce the reporting method and format, submission method, reporting deadline of the relevant statistics under paragraph (1) and any other matters related thereto.

Article 59 (Submission of Documentation)

(1) Pursuant to Article 88(2) of the Act, key communications business operators and their shareholders shall submit to the Minister of Science and ICT each of the following:

1. present status of the corporation’s outstanding shares (including, throughout this Article, equities);

2. present shareholding (including, throughout this Article, equity investment ratios) status of shareholders owning the corporation’s outstanding shares (including, throughout this Article, equity investors) and their related parties;

3. purpose of shareholding and reasons for the change (applicable only to shareholders of key communications business operators);

4. date of acquiring the shares and details of capital used for such acquisition (applicable only to shareholders of key communications business operators);

5. form of shareholding (applicable only to shareholders of key communications business operators); and

6. documentation supporting any of the information set forth in subparagraphs 1 through 5.

(2) Business operators obliged to submit documentation under paragraph (1) shall submit such documentation to the Minister of Science and ICT by the date classified as follows:

1. if the business operator is a key communications business operator whose share certificates are listed on a stock exchange under Article 9(15)3 of the Financial Investment Services and Capital Markets Act, within 30 days from the date its shareholder registry is closed; or

2. if the key communications business operator does not fall under subparagraph 1, by January 30 of each year.

Article 59-2 (Report on Status of Report on Installation of Proprietary Telecommunications Facilities)

Pursuant to Article 88(4) of the Act, the mayor or governor shall report to the Minister of Science and ICT every quarter the data under each subparagraph of Article 88(4) of the Act within 30 days from the last day of each quarter.

Article 60 (Methods for Computing Penalty surcharge)

(1) The term “sales calculated under the conditions prescribed under the Enforcement Decree of the Act” in the former part of Article 90(1) of the Act means the annual average sales for 3 fiscal years immediately preceding of the telecommunications services by the relevant telecommunications business operator; provided that, where 3 years have not elapsed since the start of business as of the first day of the relevant fiscal year, it shall mean sales from the period from the start of the relevant business until the end of the immediately preceding fiscal year, converted into annual average sales; and where a business was started in the relevant fiscal year, it shall mean sales from the period from the date of starting the business until the date of an offense, converted into annual sales.

(2) The term “where it is prescribed under the Enforcement Decree of the Act” in the proviso of Article 90 (1) of the Act means the case falling under any of the following:

1. where there exists no business record due to a failure of starting a business or a suspension of business, etc.;

2. where a telecommunications business operator has refused to submit the data for computing sales or has submitted false data; or

3. other cases where it is difficult to compute the amount of objective sales.

Article 61 (Offenses Subject to Imposition of Penalty surcharge and Amount of Penalty surcharge, etc.)

(1) Classifications of offenses subject to the imposition of a penalty surcharge and the amount of a penalty surcharge under Article 90(1) of the Act shall be as provided in Table 9 attached hereto.

38

(2) The types of violation subject to fine under Article 90(2) of the Act and amounts are set forth in Table 10.

(3) In determining the amount of penalty surcharge under paragraph (1) or (2), The Minister of Science and ICT and the mayor or governor may increase or decrease such amount by up to 50% after taking the following items into consideration, provided that even in case of increase, the total penalty surcharge amount cannot exceed the maximum penalty surcharge amount specified under Article 90(1) or (2) of the Act.

1. the peculiarities of providing telecommunications services

2. the severity and frequency of each offense

3. willfulness negligence of violation

4. reason and contents of violation

5. prior penalty surcharge received for violation of law

(4) The provisions under Articles 48 and 49 hereof shall apply mutatis mutandis to the imposition, payment and demand of penalty surcharge under Article 90 of the Act. In such case, “the Minister of Science and ICT or the Korea Communications Commission” in Article 48(1) and (2) shall be deemed to be “the Minister of Science and ICT or the mayor or governor.”

Article 62 (Extension of Payment Due Date, and Installment Payment, of Penalty Surcharge)

(1) A person who intends to extend the payment due date of a penalty surcharge or pay it in installments under Article 91 of the Act shall make an application to the Minister of Science and ICT or the Korea Communications Commission along with the document certifying grounds of the extension of payment due date or the payment in installments not later than 10 days prior to the relevant due date of payment.

(2) The term “amount as prescribed under the Enforcement Decree of the Act” in Article 91(1) of the Act means either the amount equal to the sales under Article 47 multiplied by 1%, or 300 million won.

(3) The extension of the payment due date of a penalty surcharge under Article 91 of the Act shall not exceed 1 year from the day immediately following said payment due date.

(4) When making installment payments under Article 91 of the Act, the intervals between the respective installment payment due dates shall not exceed 4 months, and the frequency of installments shall not exceed three times.

(5) The Minister of Science and ICT or the Korea Communications Commission may, if a person liable for a payment of a penalty surcharge for whom the payment due date has been extended or installment payments have been permitted under Article 91 of the Act comes to fall under any of the following, revoke such extension of payment due date, or the decision to allow such installment payments, and collect it in a lump sum:

1. where the person fails to pay a penalty surcharge for which the payment in installments has been decided, within the payment due date thereof;

2. where the person fails to implement an order necessary for a change of security or other security integrity, which is given by the Minister of Science and ICT or the Korea Communications Commission; or

3. where it is deemed that the whole or remainder of a penalty surcharge is uncollectible, such as the compulsory execution, commencement of auction, adjudication of bankruptcy, dissolution of a juristic person or dispositions on national or local taxes in arrears, etc.

Article 63 (Classification and Appraisal, etc. of Securities)

The provisions of Articles 29 through 34 of the Framework Act on National Taxes, and of Articles 13 through 17 of its Enforcement Decree shall apply mutatis mutandis to the provision of security under Article 91 of the Act.

Article 64 (Important Communications)

(1) The term important communications in Article 92(2)3 of the Act means:

1. business telecommunications related to the national security, military affairs, public peace and order, civil defense alarm transmission and radio wave control; or

39

2. other communications publicly notified by the Minister of Science and ICT in order to efficiently perform the State affairs.

(2) Deleted.

Article 65 (Delegation of Authority)

The Minister of Science and ICT shall delegate the authority falling under any of the following to the Director General of the Central Radio Management Office pursuant to Article 93 of the Act:

1. registration and imposition of registration criteria of specific communications business under Article 21 of the Act;

2. acceptance of a report on the value-added communications business under the text of Article 22(1) of the Act;

3. registration and imposition of registration criteria of special type of value-added communications business under Article 22(2) and (3) of the Act;

4. acceptance of a modified registration for the specific communications business and of a modified report for value-added communications business, and a modified registration for special type of value-added communications business under Article 23 of the Act;

5. acceptance of a report on the transfer or takeover of a specific communications business or a value-added communications business, and on the merger or succession of a juristic person, under Article 24 of the Act;

6. acceptance of a report on the suspension or closedown of a specific communications business or a value-added communications business, and on the dissolution of a juristic person under Article 26 of the Act;

7. order to cancel registration of or suspend a specific communications business under Article 27(1) of the Act;

8. order to closedown a value-added communications business, or to cancel registration of or suspend a special type of value-added communications business under Article 27(2) of the Act;

8-2. order to suspend the provision of telecommunications service under Article 32-3(1) of the Act;

8-3. field investigation of status of provision and use of equipment, etc. under Article 35(5) of the Act;

9. order to suspend the use of proprietary telecommunications facilities and notification of the order to suspend the use to the mayor or governor under Article 65(4) of the Act;

10. Deleted;

11. Deleted;

12. Deleted;

13. Deleted;

14. permission for a felling or transplanting of the plants under the former part of Article 75 (3) of the Act;

15. inspection of and demand for reports from persons who have installed telecommunications facilities under Article 82(1) of the Act;

16. telecommunications facilities removal or other necessary corrective order under Article 82(2) of the Act;

17. acceptance of applications by specific communication business operators for agreements on settlement of charges for international telecommunications services under Article 86(3) of the Act;

18. hearing on the order to cancel registration of a specific communications business or to closedown a value-added communications business under Article 89(2) and (3) of the Act;

19. imposition and collection of penalty surcharge (excluding penalty surcharge imposed in lieu of the suspension of business in part under Article 52(5) of the Act) under Article 90(1) of the Act and permission for extension of time limit for payment of and payment in installment of such penalty surcharge under Article 91 of the Act, except against a key communications business operator;

40

19-2. imposition and collection of penalty surcharge (limited to penalty surcharge in lieu of the order to suspend the use to those who have installed the proprietary telecommunications facilities under Article 65(4) of the Act);

20. correction order under Article 92(1) of the Act, except against a key communications business operator;

21. order to suspend the provision of telecommunications service or to remove telecommunications facilities under Article 92(3) of the Act, except against a key communications business operator;

22. imposition and collection of fine for negligence under Article 104 of the Act, except against a key communications business operator.

Article 65-2 (Handling of Unique Identifying Information)

(1) The Minister of Science and ICT (including a person to whom the Minister of Science and ICT delegates its authority under Article 65) or the Korea Communications Commission may handle any materials containing resident registration numbers or alien registration numbers under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act when it is unavoidable to implement the following affairs:

1. affairs regarding license of key communications business under Article 6 of the Act;

2. affairs regarding modification of license of key communications business under Article 16 of the Act;

3. affairs regarding authorization or report of takeover of key communications business and merger of juristic persons under Article 18 of the Act;

4. affairs regarding approval of suspension or discontinuation of key communications business under Article 19 of the Act;

5. affairs regarding registration of specific communications business under Article 21 of the Act;

6. affairs regarding report and registration of value-added communications business under Article 22 of the Act;

7. affairs regarding modified registration of specific communications business, or modified report and modified registration of value-added communications business under Article 23 of the Act;

8. affairs regarding report of transfer or takeover, etc. of specific communications business or value-added communications business under Article 24 of the Act;

9. affairs regarding report of suspension or closedown of specific communications business or value-added communications business and report of dissolution of juristic person under Article 26 of the Act;

10. affairs regarding arbitration under Article 45 of the Act;

11. deleted;

12. affairs concerning fact-finding investigations under Article 51 of the Act;

12-2 affairs regarding the imposition and collection of charges for compelling execution under Article 52-2 of the Act;

13. affairs concerning imposition/collection of penalty surcharges under Article 53 of the Act;

14. deleted;

15. deleted;

16. affairs concerning the extension of a payment deadline for penalty surcharges and payment in installments under Article 91 of the Act.

(2) Where it is unavoidable in conducting the following affairs, a telecommunications business operator providing common telecommunications services or the Korea Association for ICT Promotion may process data

41

including a resident registration number or a foreigner registration number under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act:

1. Affairs concerning provision of services regarding reduction of or exemption from charges under Article 4 of the Act and Article 2(2)(3) of this Decree;

2. Affairs concerning reduction or exemption of fees under Article 29 of the Act;

3. Affairs concerning the prevention of subscription without confirming the subscription intent of the telecommunications users and the prevention of provision of telecommunications services in a manner different from the contractual terms and conditions (only includes the terms and conditions on refunding of charges), which are among the prohibited acts under Article 50(1)(5) of the Act; and

4. Affairs concerning the prevention of any prohibited act under Article 50(1) 5-2 of the Act.

(3) The head of the mobility of numbers management institution designated under Article 58(4) of the Act may handle any materials containing resident registration numbers or alien registration numbers under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act when it is unavoidable to carry out its business such as the registration or change of mobility of numbers under Article 58(4) of the Act.

(4) Where it is inevitable to conduct affairs concerning registration of number portability and modification thereto, etc. under Article 58 of the Act, the head of a number portability management institution designated pursuant to Article 58 (4) of the Act may process data including a resident registration number or a foreigner registration number under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act.

Article 65-3 (Re-examination of Regulations)

(1) The Minister of Science and ICT shall examine the feasibility of the following items based on the record date of each item every three years (referring to the previous date of every third anniversary date) and take actions such as improvement of such item:

1. Request for submission of data on business operators providing universal service referred to in Article 3(2): January 1, 2015;

2. Submission of report on the actual results of provision of universal services under Article 4: January 1, 2017;

3. Imposition and payment of the charges for compelling execution: January 1, 2017;

4. Documentation attached to the application for approval of transfer, merger, etc. under Article 20: January 1, 2017;

5. Registration requirements for specific communications business under Article 28: January 1, 2017;

6. Documentation related to report of value-added communications business, the matters to be included in the registration registry of a special type of value-added communications business and registration requirements for a special type of value-added communications business under Article 29: January 1, 2017;

7. Registered or reported matters of value-added communications business under Article 31: January 1, 2017;

8. Scope of services whose standardized terms and conditions must be authorized under Article 34: January 1, 2017;

9. Documentation attached to the report or approval for installation of telecommunications facilities and the matters of telecommunications facilities to be reviewed under Article 51-2: January 1, 2017;

10. Matters to be included in the report on proprietary telecommunications facilities and the matters of report on installation and change of installation under Article 51-6: January 1, 2017; and

11. Type of report on statistics under Article 58: January 1, 2017.

42

Chapter 7. PENAL PROVISIONS

Article 66 (Imposition Criteria for Fine for Negligence)

The imposition criteria of fine for negligence imposed under Article 104(1) through (5) of the Act are set forth in Table 11.

ADDENDA

Article 1 (Enforcement Date) This Enforcement Decree shall take effect after three months pass from the date of its enforcement; however, Article 6 of the Addenda shall take effect on the date of its announcement.

Articles 2 through 5 Omission

Article 6 (Amendment to Other Acts) (1) through (3): Omission

(4) This Enforcement Decree shall be partially amended as follows:

“Each subparagraph of Article 8 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act” in Article 30-2.1 shall be replaced with “each subparagraph of Article 3(1) of the Enforcement Decree of the Act on Corporate Governance of Financial Companies” and “any subparagraph of Article 9 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act” in Article 30-2.2 shall be replaced with “each subparagraph of B of Article 2.6 of the Enforcement Decree of the Act on Corporate Governance of Financial Companies.”

(5) and (6): Omission

43