One year after full privatization, KT, the country's dominant fixed-line telecom operator, has intensified its efforts to build more transparent boardroom politics.

During the past 12 months, KT adopted a cumulative voting system to protest the rights of minority shareholders. It also hired more outside directors than any other big Korean company, including Samsung Electronics and SK Telecom, hoping to get rid of opaque decision-making processes in the boardroom.

Out of 15 board members, nine are outside directors. The roles of the chief executive officer and the chairman of board have been distinctly separated to differentiate between the decision-making process and implementation.

Early this year, KT cut annual spending to about 2.6 trillion won from 3 trillion won last year, in line with demands from foreign shareholders.

In a recent interview, Hwang Ju-myung, Attorney at Law of Hwang Mok Park, one of Korea's leading law firms, described KT's corporate governance as being crystal-clear.

``KT's governance could probably be one of the best in Asia,'' said Hwang, who is also a chairman of KT’s board of outside directors.

``A transparent boardroom is essential for KT, because it is no longer a government-run company,'' he added.

KT has been recognized for its good corporate governance. In July 2002, the Korea Stock Exchange awarded KT a prize for making big strides in the standard of governance and updates in its annual reports. Goldman Sachs, a foreign investment bank, said, ``KT's governance structure is one of the best in Asia.''

To encourage the board to function as a real decision-maker, KT opened a total of 41 board meetings in 2002. The figures compared with Samsung Electronics, which held board meetings eight times last year.

KT CEO Lee Yong-kyung said, ``Since we have been privatized, our constant efforts to maintain transparency and stockholder-oriented management seem to have been widely recognized.''

``Knowing that management based on trust is the only way to survive global competition, we will continue our efforts to become a model example for the privatization of public enterprises."

Those moves are aimed at implementing ``fresh changes'' in KT's corporate culture, which was owned by the government for more than two decades. KT also reorganized its structure to transform itself into a customer-oriented company.

In 2003, KT is aiming at 6.75 million subscribers in both broadband and high-speed wireless Internet, also known as Wi-Fi technology.

Its broadband connections offer Internet access through a telephone line, or through an optical Internet line, while Wi-Fi allows notebook computer or personal digital assistant users to have wireless high-speed Internet access within zones called ``hotspots.''

KT said it targets about 5.7 million subscribers from fixed-line broadband this year, up from 4.9 million at the end of 2002. Meanwhile, it targets about 500,000 to 1.1 million high-speed wireless Internet users in 2003, up from 112,000 a year earlier.

KT also plans to invest more in its new businesses this year, including its home-networking business. The company aims to boost revenue from these operations to about 1 trillion won by 2005, it said.

The company is also reducing expenses and cutting investments in 11 operations, including public telephony services and integrated services digital network (ISDN), in a move to boost profitability.

For the second quarter ended June 30, KT posted a 33 percent decline in net profit year-on-year, hurt by falling fixed-line telephone revenues and a slowdown in the growth of broadband subscribers.

As more and more users are going mobile, KT said its second-quarter net profit fell to 325.5 billion won from 488.5 billion won a year earlier. However, its operating profit surged 43 percent to 643.2 billion won, compared with a year earlier, boosted by a reduction in costs, such as labor and depreciation.

KT said its operating expense for the second quarter highlighted its focus on managing costs to improve profitability.

Its revenue for the second quarter slightly rose 3.1 percent to 2.95 trillion won from 2.86 trillion won a year ago. Its quarterly operating expenses for the period fell 4.5 percent to 2.3 trillion won.

The moderate growth in both broadband and high-speed wireless Internet services helped KT's quarterly revenue to rise for the period, the company officials said.

Revenues from Internet-related businesses rose 20 percent from a year earlier to 597.2 billion won, of which broadband accounted for 488.1 billion won, up 27 percent from a year ago.

For the period, revenue from traditional telephone services fell 2 percent to 1.18 trillion won from 1.21 trillion won a year ago as more subscribers relied on their cell phones instead of telephones to make calls.

``KT's second-quarter results can be summarized as improved profitability with slower revenue growth,'' said Yang Jong-in, a telecom analyst at the local brokerage Dongwon Securities.

``Excluding a one-time gain for the same period of a year ago, KT's quarterly results were a bit better than expected,'' Yang said. He said KT gained 205.6 billion won from the disposal of shares in rival SK Telecom, the country's top mobile carrier, in the second quarter of 2002.

He added that KT shares have been under pressure mainly due to the government's unfavorable regulatory moves against KT.

To boost revenue growth, now almost at a standstill, KT has pushed to find new revenue streams, including satellite-based digital media broadcasting, 2.3-gigahertz wireless Internet access, smart cards and home networking.

In addition, the country's highly competitive fixed-line telecom business environment could pose a challenge for KT. The government's move to introduce a phone number portability is one of a few possible threats against the company, which serves more than 96 percent of fixed-line telephone customers.

A recent experiment showed that the introduction of phone number portability is expected to undermine KT's dominance in fixed-line telephones.

During a one-month trial starting at the end of June in four small cities, Ansan, Kimhae, Chongju and Sunchon, a total of 1,056 KT customers switched their operator to Hanaro Telecom, the country's smaller fixed-line telephone carrier.

As only eight Hanaro customers moved to KT during the trial, it seems number portability could hurt KT's 22 million subscriber base if it is implemented throughout the country.

Number portability allows telephone users to change their operator without having to get new telephone numbers.

As a result, consumers can choose their telephone operator in line with pricing or quality of service without the hassle of changing their numbers.

To help Hanaro better compete with dominant rival KT, the Ministry of Information and Communication, a telecom regulator, ordered fixed-line telephone carriers to allow customers to switch operators, but keep their numbers.

``The outcome is especially notable, because we didn't take use publicity to promote number portability in those cities (in the trial),'' said a senior Hanaro official.

The ministry plans to extend the coverage of number portability nationwide starting early next year.

The Hanaro official said it would benefit from number portability with better marketing campaigns and aggressive pricing than its rivals.

Although competition is increasing, it is still relatively limited and the regulatory environment is supportive, analysts said.

On Feb. 17, Standard and Poor’s, an international rating agency, raised its long-term credit rating of KT to A-minus from BBB-plus, based on the expectation that the company will improve its capital structure over the next few years.

The agency said KT has a dominant, stable share of the domestic fixed-line market, which provides it with stable profitability. Although the company generated the largest amount of debt in its history in fiscal 2002, its capital structure is expected to improve, backed by its strong cash generating ability.

Compared with its international telecom peers, KT enjoys a favorable competitive position in its home market, the agency said.