20-F 1 d408889d20f.htm FORM 20-F Form 20-F
Table of Contents
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As filed with the Securities and Exchange Commission on April 27, 2023
 
 
 
 
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, 2022
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 04539, Korea
(Address of principal executive offices)
Ms. Woo Sun Cho
65, Eulji-ro,
Jung-gu,
Seoul 04539, 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
 
Trading Symbol(s)
 
Name of Each Exchange on Which Registered
American Depositary Shares, each representing
five-ninths
of one share of Common Stock
 
SKM
  New York Stock Exchange
Common Stock, par value ₩100 per share
 
SKM
  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.
218,032,053 shares of common stock, par value
100 per share (not including 801,091 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
((§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
Large accelerated filer  
                Accelerated filer  
                Non-accelerated
filer  
                Emerging growth company  
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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).  
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 “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐    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  
 
Auditor Name: Ernst & Young Han Young
   Auditor Location: Seoul, Korea   
Auditor Firm ID: 1437
 
 
 
 


Table of Contents

TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT

     1  

FORWARD-LOOKING STATEMENTS

     2  

Part I

     4  

Item 1.

  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      4  

Item 1.A.

  Directors and Senior Management      4  

Item 1.B.

  Advisers      4  

Item 1.C.

  Auditors      4  

Item 2.

  OFFER STATISTICS AND EXPECTED TIMETABLE      4  

Item 3.

  KEY INFORMATION      4  

Item 3.A.

  [Reserved]      4  

Item 3.B.

  Capitalization and Indebtedness      4  

Item 3.C.

  Reasons for the Offer and Use of Proceeds      4  

Item 3.D.

  Risk Factors      4  

Item 4.

  INFORMATION ON THE COMPANY      22  

Item 4.A.

  History and Development of the Company      22  

Item 4.B.

  Business Overview      25  

Item 4.C.

  Organizational Structure      47  

Item 4.D.

  Property, Plants and Equipment      47  

Item 4A.

  UNRESOLVED STAFF COMMENTS      48  

Item 5.

  OPERATING AND FINANCIAL REVIEW AND PROSPECTS      48  

Item 5.A.

  Operating Results      48  

Item 5.B.

  Liquidity and Capital Resources      60  

Item 5.C.

  Research and Development, Patents and Licenses, etc      65  

Item 5.D.

  Trend Information      66  

Item 5.E.

  Critical Accounting Estimates      66  

Item 6.

  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES      66  

Item 6.A.

  Directors and Senior Management      66  

Item 6.B.

  Compensation      71  

Item 6.C.

  Board Practices      73  

Item 6.D.

  Employees      74  

Item 6.E.

  Share Ownership      75  

Item 6.F.

  Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation      77  

Item 7.

  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS      77  

Item 7.A.

  Major Shareholders      77  

Item 7.B.

  Related Party Transactions      78  

Item 7.C.

  Interests of Experts and Counsel      79  

Item 8.

  FINANCIAL INFORMATION      79  

Item 8.A.

  Consolidated Statements and Other Financial Information      79  

Item 8.B.

  Significant Changes      81  

Item 9.

  THE OFFER AND LISTING      81  

Item 9.A.

  Offering and Listing Details      81  

Item 9.B.

  Plan of Distribution      81  

Item 9.C.

  Markets      81  

Item 9.D.

  Selling Shareholders      82  

Item 9.E.

  Dilution      82  

Item 9.F.

  Expenses of the Issue      82  

Item 10.

  ADDITIONAL INFORMATION      82  

Item 10.A.

  Share Capital      82  

Item 10.B.

  Memorandum and Articles of Association      82  

 

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Item 10.C.

  Material Contracts      88  

Item 10.D.

  Exchange Controls      88  

Item 10.E.

  Taxation      92  

Item 10.F.

  Dividends and Paying Agents      98  

Item 10.G.

  Statements by Experts      98  

Item 10.H.

  Documents on Display      99  

Item 10.I.

  Subsidiary Information      99  

Item 10.J.

  Annual Report to Security Holders      99  

Item 11.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      99  

Item 12.

  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES      100  

Item 12.A.

  Debt Securities      100  

Item 12.B.

  Warrants and Rights      100  

Item 12.C.

  Other Securities      100  

Item 12.D.

  American Depositary Shares      101  

Part II

     102  

Item 13.

  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES      102  

Item 14.

  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS      102  

Item 15.

  CONTROLS AND PROCEDURES      102  

Item 16.

  RESERVED      103  

Item 16A.

  AUDIT COMMITTEE FINANCIAL EXPERT      103  

Item 16B.

  CODE OF ETHICS      103  

Item 16C.

  PRINCIPAL ACCOUNTANT FEES AND SERVICES      103  

Item 16D.

  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES      104  

Item 16E.

  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      104  

Item 16F.

  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT      104  

Item 16G.

  CORPORATE GOVERNANCE      104  

Item 16H.

  MINE SAFETY DISCLOSURE      105  

Item 16I.

  DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS      105  

Part III

     106  

Item 17.

  FINANCIAL STATEMENTS      106  

Item 18.

  FINANCIAL STATEMENTS      106  

Item 19.

  EXHIBITS      107  

 

 

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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 and all references to “Dollars,” “U.S. dollar” or “US$” are to the currency of the United States of America.

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, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020, included in this annual report.

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

Effective as of November 1, 2021, we conducted a horizontal spin-off (the “Spin-off”) of our businesses related to the management of our equity interests in certain subsidiaries and investees (the “Spin-off Portfolio Companies”) engaged in the semiconductor and certain other non-telecommunications businesses, including security, e-commerce and other new information and communications technologies (“ICT”) businesses (the “Spin-off Businesses”). The Spin-off was accomplished through the establishment of a new company named SK square Co., Ltd. (“SK Square”), to which our equity interests in the Spin-off Portfolio Companies were transferred, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. As a result of the Spin-off, our business operations relating to the Spin-off Businesses have been accounted for as discontinued operations in our consolidated financial statements for the years ended December 31, 2022, 2021 and 2020, included in this annual report.

As part of the Spin-off, all of our equity interests in SK hynix Co., Ltd. (“SK Hynix”) were transferred to SK Square, effective as of November 1, 2021. As a result, the consolidated financial statements of SK Hynix incorporated by reference in this annual report are as of October 31, 2021 and December 31, 2020 and for the ten months ended October 31, 2021 and for the year ended December 31, 2020, in each case pursuant to, and in accordance with, the requirements of Rule 3.09 of Regulation S-X of the U.S. Securities Act of 1933, as amended (the “Securities Act”). Accordingly, the financial information of SK Hynix contained in the consolidated financial statements of SK Hynix incorporated by reference in this annual report for the ten months ended October 31, 2021 is not directly comparable to such financial information for the year ended December 31, 2020.

 

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FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements,” as defined in Section 27A of 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 continued implementation of fifth generation wireless technology, which we refer to as “5G” technology;

 

   

our plans for capital expenditures in 2023 for a range of projects, including investments to expand and improve our 5G network, investments to maintain our fourth generation long-term evolution (“LTE”) network and related 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 (“AI”) solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 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 our next-generation growth businesses in cloud computing, data centers, smart factories, subscription services, metaverse, media, platform and other innovative products and services, and to actively integrate AI technology into, and create synergies among, our various businesses;

 

   

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, or other allocations of bandwidth, 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 short-term borrowings, and research and development expenditures and other financial estimates;

 

   

the success of our various joint ventures, investments, strategic alliances and cooperation efforts as well as other corporate restructuring activities, including the Spin-off;

 

   

our ability to successfully attract and retain subscribers of our telecommunications-related businesses and customers of our other businesses; and

 

   

the growth of the telecommunications and other industries in which we operate in Korea and other markets and the effect that economic, political or social conditions have on our number of subscribers and customers and results of operations.

 

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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.D. 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.

 

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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.

[Reserved]

 

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 business, financial condition and results of operations.

We face substantial competition across all of 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.

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. As of December 31, 2022, the collective market share of KT and LG U+ amounted to approximately 56.8% in terms of number of wireless subscribers (including an aggregate of 13.8% attributable to mobile virtual network operators (“MVNOs”) that lease KT’s and LG U+’s respective networks).

Our competitors for subscriber activations include 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 recent years, a number of new entrants have entered the MVNO business, including affiliates of leading financial institutions in Korea. Some of these new entrants have engaged in aggressive marketing campaigns and promotional discounts while leveraging the brand

 

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power of their affiliates as part of their efforts to gain subscribers. In addition, other companies may enter the wireless network services market. While new entries into such market have historically required obtaining requisite licenses from the MSIT, pursuant to an amendment to the Telecommunications Business Act that went into effect in June 2019, companies meeting certain regulatory criteria may become a network service provider by registering with the MSIT without a separate license requirement. Although such amendment has not yet resulted in any new entries into the Korean wireless network services market, it may have the effect of encouraging new entries in the future.

We believe that an increase in market share of MVNOs (including through the entrance of new MVNOs, if any) and the entrance of new mobile network operators (including in connection with the potential allocation of 800 MHz of bandwidth in the 28 GHz spectrum to a new mobile network operator, as announced by the MSIT in January 2023), if any, 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 business, financial position and results of operations. See “— Our business, financial condition and results of operations may be adversely affected if we fail to acquire adequate additional frequency usage rights or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage” and “— Our businesses are subject to various types of Government regulation, and any change in Government policy relating to the telecommunications industry could have an adverse effect on our business, financial condition and results of operations.”

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, 2022, our market share of the fixed-line telephone and VoIP service market was 15.6% (including the services provided by SK Broadband Co., Ltd. (“SK Broadband”)) in terms of number of subscribers compared to KT with 55.0% and LG U+ with 18.7%. In addition, our broadband Internet access, Internet protocol TV (“IPTV”) and cable TV services provided through SK Broadband compete with other providers of such services, including KT, LG U+ and cable companies. Furthermore, our IPTV and cable TV services are facing an increasing level of competition from global operators of online video streaming platforms, such as YouTube, Netflix, Disney Plus and Apple TV, leading domestic video streaming platforms such as TVING, Wavve, Coupang Play and Watchaa, and the video services offered by leading domestic online and mobile search and communications platforms including NAVER and Kakao, as such services continue to become increasingly popular to serve as a substitute to traditional television programming. As of December 31, 2022, our market share of the broadband Internet market was 28.5% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 21.0%. As of December 31, 2022, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 25.6% compared to KT with 36.6% (including its IPTV, cable TV and satellite TV services) and LG U+ with 24.8% (including its IPTV and cable TV services), and the collective market share of other pay TV providers was 13.1%.

Recently, the Korean fixed-line telecommunications industry has been going through significant consolidation involving major pay television service providers. In April 2020, we completed the merger of Tbroad Co., Ltd., a former leading cable television and other fixed-line telecommunications services provider in Korea, and two of its subsidiaries, Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co. Ltd. (collectively, “Tbroad”), with and into SK Broadband. In the same month, SK Telecom acquired a 55.0% equity interest in Broadband Nowon Co., Ltd. (formerly known as Tbroad Nowon Broadcasting Co., Ltd.), another subsidiary of Tbroad Co., Ltd., which was subsequently merged with and into SK Broadband in October 2022. As a result of such transactions (the “Tbroad Merger”), we owned approximately 74.4% of SK Broadband’s total outstanding shares as of December 31, 2022 and were the second-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2022. In December 2019, LG U+ acquired a majority equity stake in CJ Hello Co., Ltd. and changed the acquired company’s name to LG HelloVision Co., Ltd. (“LG HelloVision”). In August 2021, KT acquired HCN Co., Ltd. (“HCN”), a major Korean cable TV service provider, through its subsidiary KT Skylife Co., Ltd. (“KT Skylife”). Such transactions, as well as further consolidation in the fixed-line telecommunications industry, may result in increased competition, as the entities emerging from such consolidation and other remaining players in the industry may actively pursue expanding or protecting their respective market shares.

 

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Furthermore, the Government has historically enforced regulations on cable TV and IPTV service providers that prohibited them from having a market share of more than one-third of the total number of subscribers in the relevant pay TV market on each of their respective platforms. In June 2015, the Government amended the regulation to impose the same limit on the market share of the entire pay TV market, including satellite TV service providers as well. Such amended regulation, however, expired in June 2018.

Continued competition from other wireless and fixed-line telecommunications 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, financial condition and results of operations. In 2022, the monthly churn rate in our wireless telecommunications business ranged from 0.6% to 1.0%, with an average monthly churn rate of 0.8%, which remained unchanged compared to 2021. 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.

As we continue to expand our business into areas beyond the traditional wireless and fixed-line telecommunications businesses, we also face competition from major players in the relevant sectors, such as television shopping (“T-commerce”), cloud services, data center services and smart factories. Some of our competitors may have stronger brand recognition, more robust technological capabilities and/or more significant financial resources than us in their respective areas of business.

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.

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 business, financial condition and results of operations.

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 the currently dominant LTE and 5G technologies. Our business could be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner, such as the continued implementation and enhancement of 5G technology and the eventual development and implementation of a successor technology to 5G technology. We launched wireless service plans using the 5G network in April 2019 following the commencement of sales of the first 5G-compatible smartphones, and we are in the process of further expanding our 5G network coverage. Our 5G network coverage currently includes all of the major metropolitan and other urban areas, as well as subway lines, in Korea, and we expect to be able to provide full nationwide coverage within the next several years. KT and LG U+ have also rolled out their respective 5G wireless service plans in April 2019. The more successful operation of a 5G network or development of improved 5G technology by a competitor, including better market acceptance of a competitor’s 5G services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our 5G network or our other businesses.

In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. For example, we discontinued our wireless broadband Internet access (“WiBro”) services in January 2019 and our second generation CDMA wireless services in July 2020. If we are unable to introduce new technologies and offerings on a cost-effective and timely basis, our business, financial condition and results of operations could be adversely affected.

Implementation of new wireless technology and enhancement of existing wireless technology have 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 2022, 2021 and 2020, we spent Won 1,837.2 billion, Won 1,850.9 billion and Won

 

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1,878.6 billion, respectively, in capital expenditures to build and enhance our wireless networks. Our continued implementation and expansion of 5G services, which use a higher frequency spectrum than our LTE services, will require additional base stations (which are also commonly referred to as “cell sites”) and other infrastructure, which may result in an increase in our capital expenditures in the future. We also plan to make further capital investments related to our wireless services in the future, including services that can potentially leverage our 5G network. In addition, we plan to continue maintaining our LTE network, which we expect will continue to be used by a significant portion of our subscriber base during the near future, as we and our competitors further expand 5G networks and services and wireless service users continue to migrate to the 5G network over time. Our wireless technology-related investment plans are subject to change, and will depend, in part, on market demand for 5G and LTE 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 various types of Government regulation, and any change in Government policy relating to the telecommunications industry could have an adverse effect on our business, financial condition and results of operations.

Our businesses are generally subject to governmental supervision and various types of regulation.

Rate Regulation. The Government has periodically reviewed the rates charged by wireless telecommunications service providers and has, from time to time, released public policy guidelines or suggested rate reductions. Although these guidelines or suggestions were not binding, we have implemented some rate reductions in response to them. For example, 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. In June 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 we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively. See “Item 4.B. Business Overview — Law and Regulation — Rate Regulation” and “Item 5.A. Operating Results — Overview — Rate Regulations.” Such discounts have contributed to a general decrease in the monthly revenue per subscriber of our wireless telecommunications services. See “Item 5.A. Operating Results — Overview — Decrease in Monthly Revenue per Subscriber.” In July 2022, the MSIT requested wireless telecommunications service providers, including us, to introduce additional mid-tier 5G rate plans to provide 5G subscribers with more diverse and affordable rate plans that better meet their data usage patterns. We introduced several types of such new plans in August 2022 and March 2023 and expect to launch additional new plans in May and June 2023. The Government may suggest other policy initiatives relating to rate plans of wireless telecommunications service providers in the future, including additional selections of more affordable subscription plans for 5G wireless services for different customer segments such as those with lower volumes of data usage or the elderly, and any further changes to our rate plans we make in response to such suggestion may adversely affect our profitability and results of operations.

Technology Standards. The Government also plays an active role in setting the timetable and quality standards for the adoption and implementation of new technologies to be used by telecommunications operators in Korea. For example, the Government provided such guidance in connection with the introduction of LTE and 5G technologies in the past. The Government may provide similar guidance or recommendations in connection with the adoption and implementation of technologies to be used in future telecommunications services, and it is possible that adherence to such guidance or recommendations promoted by the Government in the future may not provide us with the best commercial returns.

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 — Frequency Allocation.” The reallocation of the spectrum to our existing competitors or a new entrant to the wireless telecommunications business could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business, financial condition and results of operations.

 

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See “— Our business, financial condition and results of operations may be adversely affected if we fail to acquire adequate additional frequency usage rights or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”

MVNOs. Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIT, which included only us, were 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 until September 2022. While such regulatory requirement has expired, we have continued to comply with such requirement pending future regulatory development, which may either extend or eliminate such requirement. Currently, 14 MVNOs provide 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 been, and may continue to be, adversely affected.

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. Such basic framework for interconnection arrangements has been changed several times in the past, and 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 MSIT or, depending on the subject matter of the violation, 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 that we are currently in compliance with the material terms of all of 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, the MSIT has fifteen days to object to any new rates and terms of service reported by us. See “Item 4.B. Business Overview — Law and 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 have 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.

 

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COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.

“COVID-19,” an infectious disease caused by severe acute respiratory syndrome coronavirus 2 that was first reported to have been transmitted to humans in late 2019 and has since spread globally, has materially and adversely affected the global economy and caused significant volatility and uncertainty in global financial markets to date, as well as disrupted our business operations from time to time. The World Health Organization declared COVID-19 as a pandemic in March 2020. We have implemented remote work arrangements for most of our employees at our headquarters and certain other locations from time to time in light of the Government’s recommendation for social distancing. In addition, the travel restrictions imposed by governments in response to the COVID-19 pandemic resulted in a significant decrease in revenue from roaming services during much of the pandemic, and the pandemic also contributed to lower customer demand for new wireless devices, resulting in a decrease in our wireless device sales revenue in 2020 and 2021. Furthermore, more recently, rapid increases in interest rates globally to combat inflation caused, among others, by the easing of monetary policies globally to promote economic recovery from the COVID-19 pandemic, have materially and adversely affected the Korean economy as well as the global economy and financial markets. See “— Risks relating to Korea — Unfavorable financial and economic developments in Korea may have an adverse effect on us.”

While we do not believe that the COVID-19 pandemic and the resulting temporary remote work arrangements or such decreases in revenue have had a material adverse impact on our business to date, a future exacerbation of the COVID-19 pandemic or other types of widespread infectious diseases may result in further disruption in the normal operations of our business, including implementation of further work arrangements requiring employees to work remotely and/or temporary closures of our facilities, which may, among others, lead to a reduction in labor productivity, as well as further decrease in revenue from roaming services or wireless device sales.

Other risks associated with a prolonged outbreak of COVID-19 or other types of widespread infectious diseases include:

 

   

an increase in unemployment among, and/or a decrease in disposable income of, our customers, who may not be able to meet payment obligations or otherwise choose to decrease their spending levels, which in turn may decrease demand for some of our products and services or cause an increase in delinquent subscriber accounts;

 

   

a slowdown in the rate of subscriber migration to our 5G service, which generally entails higher-priced subscription plans and wireless devices;

 

   

disruptions in operations, and/or a decrease in the demand for products and services, of our corporate customers, which in turn may decrease such customers’ demand for our services and products;

 

   

service disruptions, outages and performance problems due to capacity constraints caused by an overwhelming number of people accessing our services simultaneously;

 

   

disruptions in the supply of mobile handsets or telecommunications equipment from our vendors (or components of such mobile handsets and equipment such as semiconductors) as well as in the installation of our network infrastructure;

 

   

continued instability in global and Korean financial markets, which may adversely affect our ability to meet capital funding needs on a timely and cost-effective basis;

 

   

a decrease in the fair value of our investments in companies that may be adversely affected by the pandemic; and

 

   

depreciation of the Won against major foreign currencies, which in turn may increase the cost of imported equipment necessary for expansion and enhancement of our telecommunications infrastructure.

It is not possible to predict the duration or full magnitude of harm from COVID-19. In the event that COVID-19 or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations may be adversely affected.

 

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We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions, joint ventures or other strategic alternatives or corporate reorganizations, including the Spin-off, 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. We also continue to seek ways to optimize our corporate structure to maximize the value of our traditional businesses on the one hand and newly developed businesses on the other hand. Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives as well as corporate reorganizations, some of which may be significant in size.

For example, we completed the Tbroad Merger in April 2020, partly as a result of which we became the second-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2022. In addition, in order to strengthen our security business and explore potential synergies with our wireless and fixed-line business portfolio, we acquired a 55.0% interest in Life & Security Holdings Co., Ltd. (“LSH”), which owned 100% of ADT CAPS Co., Ltd. (“Former ADT CAPS”), a leading Korean physical security service company, and two sister companies for Won 696.7 billion in October 2018, and a 100% interest in SK Infosec Co., Ltd. (“SK Infosec”), Korea’s leading information security company, in a share exchange transaction pursuant to which we issued 1,260,668 treasury shares with an aggregate book value of Won 281.2 billion in exchange for all of the outstanding common shares of SK Infosec in December 2018 from SK Inc., our largest shareholder. We subsequently combined LSH, Former ADT CAPS and SK Infosec into a single entity through a series of mergers and the surviving entity, SK Infosec, changed its name to ADT CAPS Co., Ltd. in March 2021 and then to SK shieldus Co., Ltd. (“SK shieldus”) in November 2021.

We have also pursued other strategic alternatives, such as forming a strategic alliance in October 2019 with Kakao Corp. (“Kakao”), a Korean Internet company and the operator of Korea’s most popular mobile messaging application, to collaborate in the ICT sector through the sale of 1,266,620 of our treasury shares to Kakao, representing a 1.6% interest, for Won 300.0 billion and a concurrent issuance by Kakao of 2,177,401 of its shares, representing a 2.5% interest, to us for Won 302.3 billion. In addition, in July 2022, we entered into a strategic alliance with Hana Financial Group Inc. (“Hana Financial Group”), a leading financial holding company in Korea with subsidiaries having significant presences in commercial banking, credit card business, securities brokerage and insurance, among others, to seek synergies through convergence between finance and ICT technology. As part of such strategic alliance, we transferred the entirety of our 15.0% interest in HanaCard Co., Ltd. (“HanaCard”), a leading credit card company in Korea and a subsidiary of Hana Financial Group, for Won 330.0 billion in July 2022 and acquired 8,630,949 shares of Hana Financial Group (representing a 2.9% interest) for Won 330.0 billion between July and November 2022, and HanaCard acquired 1,307,471 common shares of us (representing a 0.6% interest) for Won 68.4 billion between July and September 2022.

Furthermore, in December 2020, we spun off our mobility business into a new wholly-owned subsidiary, T map Mobility Co., Ltd. (“T Map Mobility”), in order to enhance its competitiveness and promote its future growth, and we also formed a strategic partnership with Uber Technologies, Inc. (“Uber”) pursuant to which Uber has invested approximately US$50 million in T Map Mobility and approximately US$100 million in UT LLC, a joint venture formed in April 2021 between T Map Mobility and Uber. In April 2021, we launched through UT LLC a taxi hailing service that integrated our affiliated taxi driver network and mapping and AI technologies with Uber’s ride hailing technology.

In order to pursue enhancement of shareholder value and acceleration of growth of the Spun-off Businesses, we effected the Spin-off in November 2021. Following the Spin-off, we have become primarily focused on our core wireless and fixed-line telecommunications businesses, as our equity interests in the Spin-off Portfolio Companies (including our interest in, among others, SK Hynix, SK shieldus (a 68% interest in which is expected to be acquired by EQT Partners, a global investment company specializing in private equity, infrastructure and real estate investments, while SK Square is expected to retain the remaining 32% interest in the company and jointly manage the company with EQT Partners, pursuant to a definitive agreement entered into in March 2023 and subject to customary closing conditions including regulatory approvals), Eleven Street, T Map Mobility and Content Wavve Co., Ltd. (which operates Wavve, a leading online contents platform in Korea)) comprising our previous

 

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semiconductor and new ICT businesses were transferred to SK Square pursuant to the Spin-off. Our business operations relating to the Spin-off Businesses have been accounted for as discontinued operations in our consolidated financial statements for the years ended December 31, 2022, 2021 and 2020 included elsewhere in this annual report.

More recently, in January 2022, we spun off our AI-enabled semiconductor business into a new subsidiary, SAPEON Inc. (“Sapeon”), in which we hold a majority equity interest and each of SK Square and SK Hynix holds a minority equity interest. Through Sapeon, we expect to actively collaborate with SK Square and SK Hynix to target customers in the United States and develop and commercialize next-generation AI-enabled semiconductors for applicable-specific uses. In February 2022, we established SAPEON Korea Inc. (“Sapeon Korea”) to target customers in Korea and sold our entire equity interest in Sapeon Korea to Sapeon for Won 40.0 billion. Furthermore, in February 2022, we unveiled our new vision entitled “SKT 2.0,” pursuant to which we announced our plan to reorganize our operations into five major business groups, comprising (i) wireless and fixed-line telecommunications, (ii) media (consisting of broadcast and advertising platform, content and T-commerce businesses), (iii) enterprise (consisting of data center, cloud, artificial intelligence of things (“AIoT”) and leased line businesses), (iv) “AIVERSE” (consisting of subscription, metaverse and AI agent businesses) and (v) “Connected Intelligence” (consisting of future technology areas such as urban air mobility (“UAM”) and autonomous driving). By re-defining the areas of our business focus and optimizing our customer groups, services and technology for each business group, we intend to pursue the maximization of our overall growth and enterprise value, including by emphasizing AI technology across our various business areas and customer service. In February 2022, in order to strengthen our online distribution capabilities and explore synergies with our other businesses in the ICT sector, we indirectly re-acquired a 100.0% equity interest in SK m&service Co., Ltd. (“SK M&Service”), which provides online corporate employee benefits management and training services to Korean businesses and public institutions, through our wholly-owned subsidiary PS&Marketing Corporation (“PS&Marketing”), for Won 72.9 billion from SK Planet. 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 Growth Businesses.”

While we are hoping to benefit from a range of synergies and efficiencies from the Spin-off and our other recent or future acquisitions and corporate reorganizations as well as develop new businesses, we may not be able to successfully complete or integrate such acquisitions, new businesses or reorganized entities 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 business, financial condition and 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, 2022 was approximately 147.7%, which was 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 business, financial condition and results of operations.

 

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Our business, financial condition and results of operations may be adversely affected if we fail to acquire adequate additional frequency usage rights 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 frequency spectrum available for use by the network. We have acquired a number of frequency usage rights to secure bandwidth capacity to provide our broad range of services, for which we typically make an initial payment as well as pay usage fees during the license period. We made frequency usage right fee payments of Won 103.9 billion in 2022, Won 120.8 billion in 2021 and Won 136.6 billion in 2020. For more information regarding the various bandwidths that we use and the usage right fees for such bandwidths, see “Item 4.B. Business Overview — Law and Regulation — Frequency Allocation,” “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 17 of the notes to our consolidated financial statements.

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 been a major factor for the high utilization of our bandwidth in recent years. Although such trend has been offset in part by the implementation of new technologies that enable more efficient usage of our bandwidth, we expect that the current trend of increased data transmission use by our subscribers will continue to accelerate in the near future as more subscribers migrate to our 5G network and the volume and sophistication of the multimedia content we offer through our wireless data services continue to grow in the 5G environment. 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, financial condition and results of operations. 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.

In 2021, the MSIT reallocated a total of 310 MHz of frequency bandwidths to KT, LG U+ and us, 95 MHz (in the 800 MHz, 2.1 GHz and 2.6 GHz spectrums) of which was allocated to us. See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.” In December 2022, citing the lack of progress made to date with respect to the implementation of 5G infrastructure for our use of the 28 GHz spectrum (800 MHz of bandwidth which was allocated to us in December 2018 for a period of five years until November 2023), the MSIT reduced the duration of our license for the use of such bandwidth by six months and asked us to install 15,000 base stations that use the 28 GHz spectrum by the end of May 2023. We believe that it would not be practically feasible to install the requisite number of base stations within the Government’s requested timetable. While we do not believe that the loss of such allocated bandwidth will have a material adverse effect on our business, as the use of the 28 GHz spectrum has yet to become commercially viable, we cannot assure you that we will be able to reacquire such bandwidth in the future following its scheduled expiration or that the failure to reacquire such bandwidth will not adversely affect our future prospects. Furthermore, in December 2022, the Government cancelled the allocations of bandwidth in the 28 GHz spectrum that had been provided to KT and LG U+, also citing the lack of progress made by these companies, and, in January 2023, announced that it plans to seek re-allocation of one of these cancelled allocations to a potential new mobile network operator. Although no official notice of such process has yet been issued, the Government has also indicated that the terms of such re-allocation will include additional policy benefits and concessions in order to encourage participation by potential new mobile network operators.

We may be required to pay a substantial amount to acquire additional bandwidth capacity in the future in order to meet increasing bandwidth demand or renew the rights to use our existing bandwidth, and we may not be successful in acquiring the necessary bandwidth to meet such demand at commercially attractive terms or at all, which may adversely affect our business, financial condition and results of operations.

 

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We rely on key technology professionals 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 on the continued service of our research and development and engineering personnel, and our ability to continue to attract, retain and motivate qualified technology professionals including researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit technology professionals with expertise in cutting-edge technologies. Such employees are in high demand, and we devote significant resources to identifying, hiring, training, successfully integrating and retaining these employees. Competition for these individuals could cause us to offer higher compensation and other benefits to attract and retain them. 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 technology professionals or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our results of 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 3.50 and a minimum EBITDA-to-total interest expense 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 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.

We have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks and invest in businesses that complement our wireless and fixed-line telecommunications businesses. We spent Won 2,908.3 billion for capital expenditures in 2022. We expect to spend a similar amount for capital expenditures in 2023 compared to 2022 for a range of projects, including investments to expand and improve our 5G network, investments to maintain our LTE network and related services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including AI solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 5G network, and investments in 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. In 2021, the MSIT reallocated a total of 310 MHz of frequency bandwidths to KT, LG U+ and us, 95 MHz (in the 800 MHz, 2.1 GHz and 2.6 GHz spectrums) of which was allocated to us. See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.” We would be required to spend additional amounts on capital expenditures in connection with our continued efforts to build out our networks on such reallocated 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 number of data intensive mobile applications and use of such applications by 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

 

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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 and results of operations. 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 — Capital Requirements — Capital Expenditures.”

As of December 31, 2022, we had Won 3,189.3 billion in contractual payment obligations (excluding short-term leases and leases of low-value assets) due in 2023, which mostly involved repayment of debt obligations and payments related to lease liabilities and 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. Volatile financial market conditions and an increasing interest rate environment may also curtail our ability to obtain adequate funding and/or increase our cost of borrowings, which would have an adverse effect on our liquidity and financial position. Inability to fund such capital expenditure requirements may have a material adverse effect on our business, financial condition and results of operations. 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. Failure to meet any such increased expenditure requirements or to obtain adequate financing for such requirements on terms acceptable to us, or at all, may have a material adverse effect on our business, financial condition and results of operations.

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

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 Corporation (“Nokia”). We believe Samsung Electronics currently manufactures more than 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 and results of operations.

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 business, financial condition and results of operations. In addition, 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.

 

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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.

Our cybersecurity measures may also be breached due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across all of 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 attacks are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. While we have experienced minor isolated cybersecurity incidents in the past, we do not believe that any such incidents had a material adverse effect on our business, financial condition or results of operations. If an actual or perceived breach of our cybersecurity of a material nature occurs or the market perception of the effectiveness of our cybersecurity measures is materially 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 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, distributed denial-of-service attacks and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and 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 have never experienced 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 have an adverse effect on our business, financial condition and results of operations.

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 relationship 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

 

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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 business, financial condition and 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

 

   

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. These fluctuations will also 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.

If SK Inc. causes us to breach the foreign ownership limitations on our common shares by being deemed to be a foreign entity, 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 Inc., 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.

Notwithstanding the above, pursuant to an amendment to the Telecommunications Business Act which became effective in April 2022, a Korean entity, so long as (i) such entity’s largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreign entity specifically designated by the MSIT incorporated in a country that has entered into a bilateral or multilateral free trade agreement with Korea, and (ii) such shareholder (together with the shareholdings of its related parties) owns 15.0% or more of the issued voting stock of such entity, may own more than 49.0% of our issued shares but may not exercise its voting rights with respect to the shares held in excess of the 49% ceiling until the end of the MSIT’s Public Interest Review (see “Item 4.B Business Overview — Foreign Ownership and Investment Restrictions and Requirements”).

 

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As of December 31, 2022, SK Inc. owned 65,668,397 shares of our common stock, or 30.0%, of our issued shares. SK Inc. is currently not deemed to be a foreign entity. However, should SK Inc. be considered to be a foreign shareholder in the future, 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, 2022, which we believe was 45.6%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2022, the two largest foreign shareholders of SK Inc. each held a 3.3% stake therein.

If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Inc. if the breach is caused by an increase in foreign ownership of SK Inc.) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Inc. Furthermore, if SK Inc. 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 substantial portion of our operations and assets are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our performance and successful fulfillment of our operational strategies are dependent in large part on the overall Korean economy. Due to the debilitating effects of the COVID-19 pandemic on the Korean economy and the economies of Korea’s major trading partners, the economic indicators in Korea have shown mixed signs of deterioration and uncertain recovery since the outbreak of the COVID-19 pandemic. See “— Risks relating to Our Business — COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.” As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices, supply chain disruptions and the increasing weakness of the global economy, mainly due to the COVID-19 pandemic, Russia’s invasion of Ukraine and ensuing sanctions against Russia and, more recently, difficulties faced by several banks in the Unites States and Europe as well as rapid increases in policy interest rates globally (including Korea) to combat rising inflationary pressures, 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 and, as a result of uncertain global and Korean economic conditions, there has been significant volatility in the stock prices of Korean companies recently. Future declines in the Korea Composite Stock Price Index (the “KOSPI”), and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may 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:

 

   

declines in consumer confidence and a slowdown in consumer spending, including as a result of the COVID-19 pandemic;

 

   

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the Won against the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;

 

   

adverse conditions or developments 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, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties in the global financial markets and industry;

 

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the occurrence of severe health epidemics in Korea and other parts of the world (such as the COVID-19 pandemic);

 

   

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

 

   

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

 

   

shortages of imported raw materials, natural resources, rare earth minerals or component parts, including semiconductors, due to disruptions to the global supply chain;

 

   

a 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;

 

   

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

 

   

a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Government’s policies to increase minimum wages and limit working hours of employees;

 

   

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

 

   

social and labor unrest;

 

   

substantial changes in the market prices of Korean real estate;

 

   

a substantial decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, in particular in light of the Government’s ongoing efforts to provide emergency relief payments to households and emergency loans to corporations in need of funding in light of the COVID-19 pandemic, which together would likely lead to a national budget deficit as well as an increase in the Government’s debt;

 

   

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;

 

   

geopolitical uncertainty and the risk of further attacks by terrorist groups around the world;

 

   

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

 

   

hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries have taken or may take in the future) and the resulting adverse effects on the global supply of oil and other natural resources and the global financial markets;

 

   

hostilities or political or social tensions involving oil producing countries in the Middle East (including a potential escalation of hostilities between the United States and Iran) and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

   

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

 

   

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

 

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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 has conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs and warheads that can be mounted on ballistic missiles. Over the years, North Korea has continued to conduct a series of missile tests, including ballistic missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. North Korea has increased the frequency of its missile tests in 2022, firing over 60 ballistic missiles, including eight intercontinental ballistic missiles. 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. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

 

   

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 bilateral summit meetings were held between the two Koreas in April, May and September 2018 and between the United States and North Korea in June 2018, February 2019 and June 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any 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 adverse effect on our business, financial condition and results of operations 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, annual reports, audit reports, and semi-annual or quarterly reports or omissions of material information in such documents, (2) insider trading, (3) market manipulation and (4) unfair trading. In addition, there are bills currently pending in the National Assembly that would allow for class action suits for losses arising from false or inaccurate statements provided in reports of material facts or omissions of material information in such documents. 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

 

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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 a significant disruption in the international balance of payments and international financial markets or extreme difficulty in carrying out currency, exchange rate or other macroeconomic policies due to the movement of capital between Korea and other countries, 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 Economy and Finance (the “MOEF”) 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. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

Risks Relating to Securities

Sales of our shares by SK Inc. 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, 2022, SK Inc. owned 30.0% 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.

We believe that we may have been classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ending December 31, 2021, which could subject U.S. investors in our common shares or ADSs to significant adverse U.S. federal income tax consequences.

Due to fluctuations in our stock price and changes in the value and composition of our assets, including our substantial investment in the stock of SK Hynix prior to the Spin-off, we believe that we may have been classified as a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for our taxable year ending December 31, 2021. We do not believe, however, that we were classified as a PFIC for our taxable year ending December 31, 2022, and we do not expect to be classified as a PFIC for the current taxable year or in the reasonably foreseeable future. See “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules” for additional details.

A non-U.S. corporation will be a PFIC if, in any particular taxable year, either (a) 75% or more of its gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income.

If we are classified as a PFIC in any taxable year, a U.S. holder (as defined in “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations”) may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the common shares or ADSs and on the receipt of distributions on the common shares or ADSs to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules, and such U.S. holder may be subject to burdensome reporting requirements. The amount of income tax on any excess distributions will be increased by an interest

 

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charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period that the U.S. holder holds its common shares or ADSs. Further, if we are a PFIC for any year during which a U.S. holder holds our commons shares or ADSs, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. holder holds our common shares or ADSs unless we cease to be a PFIC and the U.S. holder makes a special election.

U.S. holders are strongly urged to consult their own tax advisors regarding our potential classification as a PFIC in 2021 and the U.S. federal income tax consequences of acquiring, holding, and disposing of our common shares or ADSs during such taxable year, including the advisability of making the special election. See “Item 10.E. Additional Information — Taxation — United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules” for more details.

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 number of our common shares represented by ADSs, which was 13,718,088 shares as of March 31, 2023, exceeds a specified maximum, which was 73,861,029 shares as of March 31, 2023, 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 4.0% of our common 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 Inc., 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

 

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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 annual report reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this annual report 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.

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 (“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 32.8 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2022, representing a market share of 43.2%, 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.

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. In November 2021, we transferred all of our 20.1% equity interest in SK Hynix to SK Square pursuant to the Spin-off, as further described below.

Effective as of November 1, 2021, we conducted the Spin-off, pursuant to which we spun off our equity interests in certain subsidiaries and investees (collectively comprising the Spin-off Portfolio Companies) engaged in the semiconductor and certain other non-telecommunications businesses, including our security, e-commerce and other new ICT businesses (collectively comprising the Spin-off Businesses) to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock.

 

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In connection with the Spin-off, we also engaged in a 5-to-1 stock split of our common stock (the “Stock Split”), pursuant to which the par value of our common stock changed from Won 500 per share to Won 100 per share and the number of issued shares of our common stock increased from 72,060,143 shares to 360,300,715 shares, in each case effective as of October 28, 2021. Immediately following, and as a result of, the Stock Split, each ADS outstanding as of October 28, 2021 represented five-ninths of one share of our common stock. On March 31, 2023, we had a market capitalization of approximately Won 10.6 trillion (US$8.1 billion, as translated at the noon buying rate of March 31, 2023) or approximately 0.5% of the total market capitalization on the KRX KOSPI Market, making us the 31st largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representing five-ninths of one share of our common stock, have traded on the NYSE since June 27, 1996.

We are a corporation with limited liability organized under the laws of Korea. 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. Our website address is http://www.sktelecom.com.

The SEC maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

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

There are currently three mobile network operators in Korea: us, KT and LG U+. As of December 31, 2022, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 30.9% and 25.9%, respectively (compared to our market share of 43.2%), each including MVNO subscribers leasing the respective networks. As of December 31, 2022, MVNOs had a combined market share of 16.9%, of which MVNOs leasing our networks represented 3.1%, MVNOs leasing KT’s networks represented 8.6% and MVNOs leasing LG U+’s networks represented 5.1%.

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 22.6 lines per 100 population as of December 31, 2022, and wireless penetration increasing from 7.0 subscribers per 100 population in 1996 to 147.7 subscribers per 100 population as of December 31, 2022. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:

 

     As of December 31,  
     2022      2021      2020  
     (In thousands, except for per population amounts)  

Population of Korea(1)

     51,439        51,639        51,829  

Wireless Subscribers(2)

     75,958        71,920        69,542  

Wireless Subscribers per 100 Population

     147.7        139.3        134.2  

Telephone Lines in Service

     11,621        12,212        12,859  

Telephone Lines per 100 Population

     22.6        23.6        24.8  

 

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(1)

Source: The Ministry of the Interior and Safety.

(2)

Includes subscribers of non-mobile phone wireless services, such as services for tablet computers, wearable devices, IoT devices and others.

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 and 5G technologies providing for fast data transmission speeds and large data transmission capacity. As of December 31, 2022, approximately 54.2 million Korean wireless subscribers owned smartphones that had direct access to the Internet using mobile Internet technology. The table below sets forth certain penetration information regarding the number of smartphones and wireless subscribers in Korea as of the dates indicated:

 

     As of December 31,  
     2022     2021     2020  
     (In thousands, except for percentage data)  

Number of Smartphones

     54,249       53,465       52,223  

Total Number of Wireless Subscribers(1)

     75,958       71,920       69,542  

Penetration of Smartphones

     71.4     74.3     75.1

 

 

(1)

Includes subscribers of non-mobile phone wireless services, such as services for tablet computers, wearable devices, IoT devices and others.

The decreases in the penetration rate of smartphones as of December 31, 2022 compared to December 31, 2021, and as of December 31, 2021 compared to December 31, 2020, were primarily due to a faster increase in the number of subscribers of non-mobile phone wireless services, such as tablet computers, wearable devices, IoT devices and others, as compared to the increase in the number of smartphones.

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 2010 to the end of 2022, the number of broadband Internet access subscribers increased from approximately 17.2 million to approximately 23.5 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,  
     2022      2021      2020  
     (In thousands)  

Number of Broadband Internet Access Subscribers(1)

     23,537        22,944        22,327  

Number of IPTV Subscribers

     21,289        20,628        19,364  

 

 

(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.

 

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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 other new services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms, including a broad range of IoT solutions, platform services, cloud services, smart factory solutions, subscription services, advertising and curated shopping services, and metaverse platform-based services. Our operations are reported in three segments:

 

   

cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions, platform services, cloud services, smart factory solutions, subscription services, advertising and curated shopping services, and metaverse platform-based services;

 

   

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

 

   

other businesses, which include our T-commerce business and certain other miscellaneous 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 by leveraging our AI and digital infrastructure technologies. In pursuit of such objectives, we plan to further utilize AI technology and our big data analysis capabilities to develop and commercialize new products and services that are tailored to our customers’ evolving needs, as well as incorporate AI capabilities directly into many of the products and services we offer. In doing so, we plan to actively collaborate with the new ICT businesses operated by the Spin-off Portfolio Companies (comprising our former subsidiaries and investees that were spun off to SK Square pursuant to the Spin-off) as well as other affiliates of the SK Group and third parties. Through such efforts, we strive to become a socially respected “AI Company” as universally recognized by our customers, business partners and shareholders. To take advantage of evolving industry trends and further realize our corporate vision to become a socially respected “AI Company,” we have undertaken the following strategic initiatives:

 

   

Maintain our leadership in the wireless services business by offering innovative 5G services and customer-oriented products and services. We plan to maintain our leadership in the wireless services business by offering innovative 5G services that provide differentiated subscriber experiences. We also plan to promote the proliferation of 5G services by offering services and content that are specialized for the 5G environment, such as cloud gaming, hands-on experience services, metaverse platform-based services and e-sports. In addition, we will continue to analyze the needs of our subscribers leveraging our AI technology and provide products and services that meet such needs.

 

   

Develop our next-generation growth businesses through hyper-collaboration. We believe that we have evolved from being a domestic telecommunications provider in Korea to possessing the fundamental capabilities that enable us to pursue a broad range of collaboration in the field of ICT with both domestic and international partners, including the Spin-off Portfolio Companies. We have formed strategic partnerships with industry leaders to create synergies in various areas, such as 5G cloud gaming, mobile edge computing (“MEC”) and e-sports, and we are continually expanding the areas for collaboration. We aim to create an environment for “hyper-collaboration” to develop and foster our next-generation growth businesses, including media (consisting of broadcast and advertising platform, content and T-commerce businesses), enterprise (consisting of data center, cloud, AIoT and leased line businesses), AIVERSE (consisting of subscription, metaverse and AI agent businesses) and Connected Intelligence (consisting of future technology areas such as UAM and autonomous driving).

 

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Develop our technological capabilities and new products and services to support our 5G network. We aim to continue developing cutting-edge technologies that will be adopted as the technological standard for 5G services. In addition, we will seek to apply our 5G infrastructure and capabilities to our various other key businesses such as media, enterprise, AIVERSE and Connected Intelligence to create unique new products and services geared to serve evolving customer needs. Furthermore, we aim to collaborate with various partners to identify new business opportunities that can potentially leverage our 5G network.

 

   

Pursue sustainable management to seek mutual growth with the broader society. The SK Management System, which is the business philosophy and foundation of the corporate culture of the SK Group, includes as a key component the goal of growing together with the broader society by contributing to its economic growth, creating social value and promoting environmentally friendly technology. In line with the “double bottom line” management policy, which aims to achieve long-term shareholder value while creating social value by leveraging our business capabilities, we strive to contribute to the well-being of all stakeholders and the enhancement of our corporate value in the long-term.

As part of our ongoing efforts to pursue such strategies, effective as of November 1, 2021, we conducted the Spin-off, pursuant to which we spun off our equity interests in certain subsidiaries and investees (comprising the Spin-off Portfolio Companies) engaged in semiconductor and certain other non-telecommunications businesses, including our security, e-commerce and other new ICT businesses (collectively comprising the Spin-off Businesses) to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. See “Certain Defined Terms and Conventions Used in this Annual Report” for the accounting treatment of the Spin-off in our consolidated financial statements included in this annual report.

Furthermore, in February 2022, we unveiled our new vision entitled “SKT 2.0,” pursuant to which we announced our plan to reorganize our operations into five major business groups, comprising wireless and fixed-line telecommunications, media, enterprise, AIVERSE and Connected Intelligence. By re-defining the areas of our business focus and optimizing our customer groups, services and technology for each business group, we intend to pursue the maximization of our overall growth and enterprise value. In November 2022, we announced our mission to become “an AI Company that benefits customers through AI-focused technologies and services” as part of our “SKT 2.0” vision. Such vision was further delineated in our February 2023 announcement to pursue our vision of “AI to Everywhere,” pursuant to which we seek to become a leader in transforming the global telecommunications industry into one that connects customers, business partners and the broader society through AI technology. As part of such vision, we seek to enhance customer engagement levels and strengthen our customer relationships through “A.” (or “A dot”), the world’s first large language model-based AI agent service in Korean, which was first introduced in May 2022, and actively incorporate AI technology in order to digitally transform our wireless telecommunications services and enhance our media and “T Universe” subscription service offerings.

We are also expanding our services to not only focus on connecting people through more traditional means of telecommunications but also through “Ifland,” our AI-driven metaverse services which we launched in July 2021, and our planned mobility services (including UAM and autonomous driving, both of which are currently under development). Furthermore, we are building and expanding “AIX,” a new collaborative AI technology framework, through an alliance of leading Korean AI technology companies led by us, which strategy includes pursuing opportunities for acquisitions and investments in companies in business areas that would benefit from our AI and digital transformation capabilities, thereby increasing the enterprise values of such companies that in turn would ultimately increase our enterprise value. In addition, as part of our commitment to pursue sustainable management, we seek to make positive contributions to the society and environment by using AI technology to solve social challenges.

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 32.8 million wireless subscribers, including MVNO subscribers leasing our

 

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networks, as of December 31, 2022, representing a market share of 43.2%, the largest market share among Korean wireless telecommunications service providers. We launched our wireless services using our 5G network in April 2019, and we are continually expanding our 5G network coverage and enhancing service quality. 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,  
     2022      2021      2020  
     (in thousands)  

Network

        

5G

     13,466        9,911        5,476  

LTE

     18,084        20,198        22,848  

WCDMA

     1,285        1,660        2,920  

CDMA(1)

            115        139  
  

 

 

    

 

 

    

 

 

 

Total

     32,836        31,884        31,384  

 

 

(1)

In July 2020, we terminated our second generation wireless services using our CDMA network. CDMA subscribers as of December 31, 2021 and 2020 consist of subscribers who had not upgraded to our other networks or terminated their subscriptions as of such date.

In 2022, 2021 and 2020, our cellular services segment revenue was Won 12,942.3 billion, Won 12,718.5 billion and Won 12,348.0 billion, respectively, representing 74.8%, 75.9% and 76.8%, respectively, of our consolidated revenue from continuing operations.

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 and 5G 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, metaverse community 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 our subsidiary SK Telink Co., Ltd. (“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.

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

 

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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. As of December 31, 2022, approximately 24.3 million, or 74.1%, of our subscribers (including MVNO subscribers leasing our networks) owned smartphones that have direct access to the Internet compared to approximately 24.5 million, or 76.9%, as of December 31, 2021, which decrease was primarily due to a faster increase in the number of non-mobile phone wireless devices, such as tablet computers, wearable devices, IoT devices and others, as compared to the increase in the number of smartphones. We purchase a substantial majority of our wireless devices from Samsung Electronics and Apple.

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 Wearable Devices.    We offer tablets and wearable devices, primarily comprising smart watches, which can access the Internet via our digital wireless networks and a Wi-Fi connection. The tablets and wearable devices run primarily on the Apple iOS and Google Android operating systems, and we provide targeted rate plans that are specific to such devices. See “— Rate Plans” below.

IoT Solutions

Through our IoT solutions business, we provide network access and enhanced services to support telemetry-type applications, which are characterized by massive machine-type communication (“mMTC”) 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 (our “LoRa network”) in July 2016. In April 2018, we increased the battery efficiency of our IoT devices by launching our LTE Cat.M1 technology, and we have further enhanced our competitiveness in this business with our newly deployed 5G network.

We provide network access and customized IoT solutions to our business customers. Our IoT services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, our Cloud Energy Management Solution (“Cloud EMS”) business provides a one-stop cloud computing-based energy management platform that collects and analyzes energy usage data from business customers and offers solutions to optimize and reduce their energy consumption. As of December 31, 2022, Cloud EMS had more than 200 customers, mostly from energy-intensive industries such as the petrochemical industry as well as the luxury retail industry.

Platform Services

Through our platform services business, we seek to provide innovative AI products and services that meet our customers’ evolving needs in an increasingly connected world. In September 2016, we launched NUGU, the first intelligent AI service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. 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 offer a variety of smart devices based on NUGU and have also integrated NUGU into our B tv service as further discussed in “— Fixed-line Telecommunications Services — Advanced Media Platform (including IPTV and Cable TV Services).” In addition, we integrated NUGU into our “T phone” service, which offers our customers a number of convenient call functions, such as a spam-call blocking function and a search function that informs customers of the phone numbers of shops, hospitals and other facilities closest to the customer’s current location. We continue to explore ways in which we can leverage our NUGU technology to launch new, and enhance our existing, products and services.

 

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In May 2022, we launched a beta-test version of A., the world’s first large language model-based AI agent solution in Korean. A. offers the ability to verbally communicate with the user and handle a variety of tasks on the user’s smartphone, including recommending and playing personalized music, video, game and television contents. We plan to continually strengthen the level of personalization offered, and expand the portfolio of services handled, by A., including through collaboration with third parties in areas such as language models. We have applied long-term memory technology and multi-modal function to A. and expect to fully launch the application during 2023, with the ultimate goal of A. becoming an essential part of our customers’ daily routine.

Other New Businesses

In recent periods, we have launched a variety of new businesses leveraging our capabilities in telecommunications technology and ICT, and we are continuing to invest in these and other emerging new business areas, including the following:

 

   

Cloud services. We provide comprehensively managed cloud services in Korea, which entail ongoing and regular support and active administration services ranging from those relating to network, application, infrastructure and security, leveraging our advanced 5G MEC technology and platform. Customers that subscribe to our cloud services primarily include businesses that require secure and ultra-low latency communications, focusing on the game, media, logistics, healthcare, finance and manufacturing industries. We completed the construction of MEC infrastructure at four strategic locations during 2020 and we launched our first MEC-based cloud service, “5GX Edge Cloud,” in collaboration with Amazon Web Services in December 2020. In March 2022, in collaboration with Dell Technologies Inc. (“Dell”), we launched a MEC platform that combines our 5G MEC solution and Dell’s servers and began offering cloud services to global telecommunications companies. We have also entered into strategic partnerships with a number of other leading cloud service providers to pursue further collaboration in the 5GX Edge Cloud business.

 

   

Smart Factory Solutions. We provide tailored smart factory solutions that leverage our 5G and other wireless technology infrastructure as well as our capabilities in AIoT technology and big data analysis to cater primarily to businesses in high-tech industries. Our smart factory solutions, which are typically provided on a subscription basis, cater to the various needs of our customers including those related to manufacturing process, quality control, equipment management, industrial safety and logistics.

 

   

Subscription service. In August 2021, we launched a subscription-based membership service under our “T Universe” brand name. T Universe currently offers several types of subscription packages, and a subscriber can choose from a variety of available benefits including free shipping and discount coupons on merchandise purchases made on the Amazon Global Store (which operates on Eleven Street’s 11st e-commerce platform), access to a cloud storage service, and discounts and/or coupons from various participating food and beverage store chains and delivery service providers, online video streaming and music services. Customers can also choose to subscribe to specific products or services. In order to continue expanding our T Universe membership base, we plan to pursue additional business partnerships with popular consumer brands and service providers to increase the number and appeal of the businesses that participate in the T Universe subscription program. We also plan to continue to invest in improving our customers’ user experience and strengthen the use of AI and digital technologies in our marketing efforts to promote to grow and evolve T Universe into an “AI-based subscription commerce platform.”

 

   

Metaverse. In July 2021, we launched a metaverse community platform called “Ifland.” Ifland, which is available as a mobile application on the Google Android and the Apple iOS operating systems, allows users to create personal avatars and communicate with other users by joining one or more of Ifland’s thousands of active virtual communities. Users can also create their own communities. In addition, businesses and public institutions have been actively promoting their services, products and events on the Ifland platform. Since its initial launch in Korea, our Ifland mobile application has been able to quickly increase its user base, and during the fourth quarter of 2022, we launched Ifland in 49 other countries. As of December 31, 2022, Ifland had over 21 million cumulative downloads globally. We plan to further enhance our customers’ user experience by increasing the media and game contents available on the platform through collaboration with

 

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third-party content creators and strategic partners. We have also begun supporting economic transactions on the Ifland platform by introducing virtual points that may be monetized into cash, and we plan to further enhance the level of economic activities on the platform through the introduction of in-app purchases and the use of non-fungible token technologies.

 

   

Advertising and curated shopping services. We offer advertising services to businesses by leveraging our wireless telecommunications services platform. Our advertising services primarily consist of display advertising on our proprietary mobile applications for smartphones, including “T Phone” (which manages our wireless customers’ voice calls) and “T Membership” (which manages our customer loyalty program under the same name). In addition, we offer a text message-based curated shopping service under our “T Deal” brand. Our customers who have consented to the T Deal service receive a daily text message on their smartphones with a link to a broad range of merchandise with significant discounts that are specially curated to maximize customer interest by utilizing AI technology and big data.

Rate Plans

We offer our wireless telecommunications services on both a postpaid and prepaid basis. Substantially all of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2022. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom pursuant to which a subscriber is billed in advance a monthly fixed service fee 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 “— Interconnection” below.

We also charge our customers a 10.0% value-added tax, which is included in the price of all of our rate plans. 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. Our 5G services are primarily provided through the “5GX” plans, which offer unlimited domestic voice minutes and text messaging and unlimited data transmission allowance per month and range from Won 69,000 to Won 125,000 per month. We also offer “5G Basic” and “5G Slim” plans, ranging from Won 49,000 to Won 59,000 per month, with smaller data transmission allowances per month compared to our 5GX plans that target subscribers who seek more affordable rate plans. Our representative smartphone rate plans for our LTE services are the “T” plans, which feature unlimited domestic voice minutes and text messaging and a fixed or unlimited data transmission allowance per month and range from Won 33,000 to Won 100,000 per month. We also offer “Direct” plans that are exclusively available through our online distribution channel, ranging from Won 34,000 to Won 69,000 per month for 5G services and from Won 22,000 to Won 48,000 per month for LTE services. 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 20,900 to Won 103,400 per month. We also offer a standard rate plan for Won 12,100 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.

In addition, we provide a variety of differentiated rate plans for our customer segments such as our “0” plans for smartphone users who are 24 years old or younger tailored for younger demographics, our “0 Teen” plans for teenagers who are 18 years old or younger, our “ZEM” plans for children who are 12 years old or younger, our “T Senior” LTE and 5G plans for users who are 65 years or older, our “5G Happiness (Haengbok-nuri)” plans for customers with visual impairment or hearing loss and our “0 Hero” LTE plans for users who are performing mandatory military service.

 

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With respect to the tablet and smart watches we offer, we provide a monthly 5G data transmission allowance of 4GB (with reduced speeds after 4GB of usage) for Won 26,000 per month in the case of tablets and a fixed monthly data transmission allowance of 250MB and 50 minutes of voice calling for Won 12,100 per month for smart watches.

We also offer bundled rate discount plans combining multiple wireless devices as well as those combining our wireless services with our fixed-line communications services and/or SK shieldus’ physical security services. In addition, we offer bundled rate plans that provide discounts for family members or co-inhabitants of the same household.

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. For example, we offer specialized add-on data plans such as our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, for a fixed rate of Won 9,900 per month. For certain rate plan subscribers, we also offer unlimited access to the wavve video streaming service through our “wavve and Data Plus” plan at no additional cost, at a discounted rate ranging between Won 2,400 and Won 3,690 per month, or at the standard rate of Won 12,300 per month, depending on the subscribers’ basic rate plan. “Safe Option Premium” offers an additional daily data transmission allowance of 50MB 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 8,800 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. In addition, we expect to introduce optional add-on data purchase plans for our 5G Basic plans beginning in May 2023.

Roaming Plans.    “Baro Roaming Plan” is our representative international roaming plan for longer term travelers and provides fixed data transmission allowances of 3GB for Won 29,000, 4GB for Won 39,000 or 7GB for Won 59,000 that can be used over a specified number of days between seven to 30 days in 187 countries. Subscribers between the age of 18 and 29 receive an additional data allowance of 1GB. In addition, we offer monthly benefits to subscribers of the Baro Roaming Plan, including discount coupons for overseas travel insurance. Our “OnePass 300” and “OnePass 500” plans, which are more suitable for short-term travellers, provide data roaming of 300MB at a fixed rate of Won 9,900 per day and 500MB for Won 16,500 per day, respectively, and are available in 188 countries. We also offer “OnePass Data VIP” plan, which provides unlimited data roaming for Won 17,600 per day in 136 countries. All of our roaming plans include free high-quality data voice calls and text messages to Korea through our T Phone application. We also provide to all of our roaming service subscribers an automatic roaming service called “Safe Automatic T Roaming,” which provides 30 minutes of voice calls per day (including three minutes of free voice calls) for a maximum of Won 10,000 (with voice calls in excess of 30 minutes per day incurring additional charges) without having to separately purchase a roaming plan.

Digital Wireless Network

We offer wireless voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our 5G network, LTE network, WCDMA 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. For more information about our capital expenditures relating to our wireless networks, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures.”

5G Network.    5G is the state-of-the-art wireless network that enables data to be transmitted at speeds faster than our LTE network with lower latency. We began the operation of our 5G network in December 2018 on a limited basis for business customers, beginning with a few major commercial districts in Seoul and other metropolitan areas. In April 2019, we launched wireless service plans using the 5G network following the commencement of sales of the first 5G-compatible smartphones, and we are in the process of further expanding our 5G network coverage. Our 5G network coverage currently includes all of the major metropolitan and other urban areas, as well as subway lines, in Korea, and we expect to be able to provide full nationwide coverage within the next several years. Our 5G services provided a maximum data transmission speed of 2.75 Gbps, and our 5G

 

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penetration, which represents the number of our 5G subscribers as a percentage of our total number of subscribers, in each case including MVNO subscribers leasing our networks, was 41.0% as of December 31, 2022. We have also deployed our 5G network for mMTC connections relating to our IoT solutions.

We believe that our 5G technology and network infrastructure enable us to provide the fastest 5G data transmission network nationwide. In December 2022, the MSIT announced that our 5G 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 5G network was 1,002 Mbps compared to 921 Mbps for KT’s 5G network and 765 Mbps for LG U+’s 5G network.

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 WCDMA network. Since first commencing our LTE services in July 2011, we have developed and launched various upgraded LTE networks and related services providing faster network speeds, enhanced connectivity and broader coverage areas. Our LTE penetration, which represents the number of our LTE subscribers as a percentage of our total number of subscribers, in each case including MVNO subscribers leasing our networks, increased to a peak of 79.3% as of December 31, 2019 compared to 49.3% as of December 31, 2013, before decreasing to 55.1% as of December 31, 2022 as a result of the ongoing customer migration to the 5G network. We expect that wireless services based on LTE technology will continue to be used by a significant portion of our users in the near future, as we and our competitors further expand 5G networks and services and wireless service users continue to migrate to the 5G network over time, and plan to continue to deploy improved LTE technology to increase the maximum data transmission speed of our services.

We believe that our advanced LTE technology and dense network infrastructure enable us to provide the fastest LTE data transmission network nationwide. In December 2022, 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 209.0 Mbps compared to 135.4 Mbps for KT’s LTE network and 111.4 Mbps for LG U+’s LTE 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, 2022, we had more than 100,700 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.

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.

Network Infrastructure

The principal components of our wireless networks are:

 

   

base stations (or 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

 

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transmission lines, which link base stations to switching stations and switching stations with other switching stations.

As of December 31, 2022, our 5G, LTE and WCDMA networks had an aggregate of 58,558 base stations. As we continue to expand our 5G network coverage, the number of our base stations is expected to increase accordingly.

We have purchased substantially all of the equipment for our networks from Samsung Electronics, Ericsson-LG and Nokia. 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 base stations 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 base station 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 base stations and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the base stations 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 members such as discounts with our membership partners for dining, shopping, entertainment and travel, membership points accumulation, 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 3,000 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 receive detailed information on our subscription services. As of December 31, 2022, we operated 907 T Premium Stores.

 

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In addition, we operate an online distribution channel, “T Direct Shop,” through which subscribers can conveniently purchase wireless devices and subscribe to our services online. We also operate a dedicated online shop on 11st, our former subsidiary Eleven Street’s e-commerce marketplace. In light of increasing customer preference for online service, in part due to the COVID-19 pandemic, the level of distribution of our wireless devices and our services through online channels has significantly increased in recent years. 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 Direct Shop 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 five 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, 2022, we had an aggregate of Won 70.9 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. SK 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 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 25 years, 25 years and 23 years, respectively.

Fixed-line Telecommunications Services

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

 

     As of December 31,  
     2022      2021      2020  
     (in thousands)  

Fixed-Line Telephone (including VoIP)(1)

     3,559        3,634        3,753  

Broadband Internet(2)

     6,704        6,581        6,476  

IPTV(3)

     6,504        6,137        5,657  

Cable TV

     2,819        2,863        2,929  

 

 

(1)

Includes subscribers to VoIP services of SK Broadband and, in the cases of December 31, 2019 and 2020, SK Telink. SK Broadband acquired SK Telink’s VoIP and ancillary service business in April 2021.

 

(2)

Excludes dedicated broadband Internet lines for Internet cafes.

 

(3)

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

In 2022, 2021 and 2020, our fixed-line telecommunications services segment revenue was Won 3,813.0 billion, Won 3,677.7 billion and Won 3,432.2 billion, respectively, representing 22.0%, 22.0% and 21.3%, respectively, of our consolidated revenue from continuing operations.

As part of our efforts to enhance our capabilities and increase our market share in the fixed-line business, we completed the Tbroad Merger in April 2020. We currently own approximately 74.4% of SK Broadband’s total outstanding shares. See “Item 3.D. Risk Factors — Risks Relating to Our Business — We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions, joint ventures or other strategic alternatives or corporate reorganizations, including the Spin-off, and such transactions may negatively impact our business.”

 

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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, 2022, we had approximately 3.6 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband). Our fixed-line telephone services are primarily offered under the “B phone” brand name. A portion of our fixed-line telephone services were previously provided through the VoIP services of our subsidiary SK Telink that targeted corporate customers, which business was acquired by SK Broadband in April 2021.

Broadband Internet Access Services

Our broadband Internet access network covered more than 87% of households in Korea as of December 31, 2022. As of December 31, 2022, we had approximately 6.7 million broadband Internet access subscribers. We offer broadband Internet access products with various throughput speeds, ranging from “Giga Premium,” which is up to 10 times faster than data transmission speeds on networks utilizing FTTH technology and allows for data transmission at a maximum speed of 1 Gbps, to “Giga Premium×10,” which provides data transmission speeds of up to 10 Gbps.

Advanced Media Platform (including IPTV and Cable TV Services)

As part of our initiative to be the leading next-generation platform provider, we 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 as many as 263 high definition channels depending on the subscription service as of December 31, 2022, as well as pay-per-view and subscription-based video-on-demand services 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, 2022, we had approximately 6.5 million IPTV subscribers. Since 2018, we have unveiled a number of smart set-up boxes that incorporate voice recognition and command capabilities as well as AI-based services that utilize our proprietary NUGU platform and, in some cases, Google Assistant capabilities.

In November 2021, we launched our “Apple TV 4K” set top box in collaboration with Apple, which offers a convenient solution for customers to experience our high definition IPTV services as well as other types of Apple iOS-based entertainment services (such as the Apple TV+ video streaming service) while providing seamless integration with other Apple iOS-based hardware. The Apple TV+ video streaming service is also available on other types of our latest set top boxes. In January 2022, we introduced “Play Z,” an innovative home entertainment platform supported by a portable set top box that can be connected to television sets and personal computers. Play Z allows customers to search for and purchase content offerings from a variety of popular online video streaming services, and also offers free advertising-supported television streaming contents and other video-on-demand offerings as well as other forms of home entertainment including video games and karaoke.

Following the Tbroad Merger, we also offer cable TV services under the “B tv Cable” brand with access to as many as 224 channels. As of December 31, 2022, we had approximately 2.8 million cable TV subscribers.

In January 2021, in order to strengthen our content generation capabilities, we established a new subsidiary, Media S Co., Ltd. (“Media S”), which currently operates two TV channels, “Channel S,” which primarily broadcasts entertainment contents, and “Channel S Plus,” which specializes in regional contents. Some of the contents broadcasted on these two channels are original contents co-produced by Media S and leading entertainment production companies. We plan to further invest in developing additional original video contents to increase the attractiveness of the channels operated by Media S.

We also offer advertising services on our advanced media platform, primarily consisting of advertisements on video-on-demand and streaming contents and our TV channels.

 

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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, which we believe will also increase the appeal of our advanced media platform to businesses as an advertising platform.

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 centers, 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.

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 85% of subscribers to our broadband Internet 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 or cable TV services, which are subject to a contract of one to three years, range from Won 19,800 to Won 67,650 per month, depending on the services included and the length of the contract. We also offer bundled rate plans combining our fixed-line communication services with our wireless services and physical security services, respectively, as well as bundled rate plans that provide discounts for family members or co-inhabitants of the same household.

Our “5,000 minute” plan for subscribers to our fixed-line telephone service features 5,000 voice minutes for domestic land-to-land calls for a fixed rate and range from Won 7,700 to Won 11,550 per month depending on whether or not the subscriber opts for a long-term 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 22,000 to Won 104,500 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV and cable TV services that range from Won 4,400 to Won 25,300 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 and cable TV services) 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.

 

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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 our customer centers and an extensive network of 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 and cable TV services), 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.

Other Businesses

We strive to continually diversify our products and services and develop new businesses that we believe are complementary to our existing products and services, which we include in our other businesses segment. In 2022, 2021 and 2020, the revenue of our other businesses segment, which primarily consisted of our T-commerce and portal service businesses following the elimination of our discontinued operations and re-segmentation of certain of our businesses reflecting the effect of the Spin-off (see “Item 4.A. History and Development of the Company” and “Item 5.A. Operating Results—Overview”), was Won 549.7 billion, Won 352.4 billion and Won 307.6 billion, respectively, representing 3.2%, 2.1% and 1.9%, respectively, of our consolidated revenue from continuing operations.

T-Commerce

We operate a T-commerce network, “SK stoa,” through our consolidated subsidiary SK Stoa, which offers a broad assortment of goods and services through pre-recorded television programming. The goods and services promoted on SK stoa’s T-commerce programming can be purchased through telephone orders, SK stoa’s mobile application or online open marketplace, or a virtual application appearing on the television screen using the viewer’s remote controller. In March 2019, SK Stoa launched “SK stoa ON,” which offers searchable shopping programming that is available to viewers at their convenience by utilizing video-on-demand capabilities, and is continually enhancing the level of personalized product and service recommendations offered by such platform by leveraging our AI technology and wealth of customer data. SK Stoa launched its private fashion brands, “Hellen Karen” and “indicode,” in September 2019 and February 2021, respectively, and its private health supplement brand, “Diet & Morosil Easy” in June 2022, and it is planning to further strengthen its portfolio of exclusively distributed high-margin products in fashion, health and beauty. SK stoa also acts as the exclusive T-commerce distributor for certain products and services of SK Group companies, such as food, electronics, home appliances and car rentals.

Portal Service

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, and Nate Pann, a user-generated content service as well as access to free e-mail accounts through Nate Mail.

Online Employee Benefits Management and Training Services

In February 2022, we indirectly re-acquired a 100.0% equity interest in SK M&Service, which provides online corporate employee benefits management and training services to Korean businesses and public institutions,

 

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through our wholly-owned subsidiary PS&Marketing, for Won 72.9 billion from SK Planet. We believe that such acquisition will strengthen our online distribution capabilities and create opportunities for synergies with our other businesses in the ICT sector.

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, certain service providers, including us, 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. 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 7.59 per minute, Won 7.96 per minute and Won 8.56 per minute for 2022, 2021 and 2020, 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 rate paid by fixed-line network service providers to each wireless network service provider was Won 9.65 per minute, Won 10.33 per minute and Won 10.61 per minute for 2022, 2021 and 2020, respectively.

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.

Our revenues from the wireless-to-wireless interconnection charges were Won 438.9 billion in 2022, Won 458.6 billion in 2021 and Won 449.1 billion in 2020. Our expenses from these charges were Won 434.8 billion in 2022, Won 459.6 billion in 2021 and Won 451.6 billion in 2020.

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 “— Wireless Services” above.

 

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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, 2022, for the following markets.

 

     Market Share (%)  
     SK Telecom     KT     LG U+     Others  

Wireless Service(1)

     43.2     30.9     25.9    

Fixed-Line Telephone (including VoIP)

     15.6       55.0       18.7       10.7  

Broadband Internet

     28.5       41.3       21.0       9.2  

Pay TV(2)

     25.6 (3)      36.6 (4)      24.8 (5)      13.1  

 

 

(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).

 

(3)

Consists of 17.8% from our IPTV service and 7.7% from our cable TV service.

 

(4)

Consists of 25.9% from KT’s IPTV service, 7.3% from its satellite TV service provided through KT Skylife and 3.5% from KT’s cable TV service provided through HCN, which was acquired by KT in August 2021.

 

(5)

Consists of 14.7% from LG U+’s IPTV service and 10.1% from its cable TV service provided through LG HelloVision, a subsidiary of LG U+.

Cellular Services

As of December 31, 2022, we had 32.8 million subscribers, representing a market share of approximately 43.2%, including MVNO subscribers leasing our networks. As of December 31, 2022, KT and LG U+ had 23.5 million and 19.6 million subscribers, respectively, representing approximately 30.9% and 25.9%, respectively, of the total number of wireless subscribers in Korea on such date, each including MVNO subscribers leasing its networks.

In 2022, we had 4.4 million activations and 3.7 million deactivations. For 2022, our monthly churn rate ranged from 0.6% to 1.0%, with an average monthly churn rate of 0.8%, which remained unchanged compared to 2021. In 2022, we gained 40.7% of the total number of new wireless subscribers and subscribers that migrated to a different wireless telecommunications service provider, compared to KT with 27.9% and LG U+ with 31.4%, in each case excluding MVNO subscribers.

Our competitors for subscriber activations include 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. Currently, 14 MVNOs provide wireless telecommunications services using the networks leased from us. As of December 31, 2022, MVNOs had a combined market share of 16.9%, of which MVNOs leasing our networks represented 3.1%, MVNOs leasing KT’s networks represented 8.6% and MVNOs leasing LG U+’s networks represented 5.1%.

In recent years, a number of new entrants have entered the MVNO business, including affiliates of leading financial institutions in Korea. Some of these new entrants have engaged in aggressive marketing campaigns and promotional discounts while leveraging the brand power of their affiliates as part of their efforts to gain subscribers.

 

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In addition, other companies may enter the wireless network services market, including in connection with the potential allocation of 800 MHz of bandwidth in the 28 GHz spectrum to a new mobile network operator, as announced by the MSIT in January 2023. See “— Law and Regulation — Frequency Allocation” and “Item 3.D. Risk Factors — Risks Relating to Our Business — Our businesses are subject to various types of Government regulation, and any change in Government policy relating to the telecommunications industry could have an adverse effect on our business, financial condition and results of operations.” New entries in such market have historically required obtaining requisite licenses from the MSIT. However, pursuant to an amendment to the Telecommunications Business Act that went into effect in June 2019, companies meeting certain regulatory criteria may become a network service provider by registering with the MSIT without a separate license requirement, which may have the effect of encouraging new entries into the Korean wireless network services market 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 business, financial condition and results of operations.”

Historically, competition in the wireless telecommunications business had caused us to significantly increase our marketing and advertising expenses from time to time depending on the prevailing competitive landscape, with marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, reaching a peak of 28.2% in 2012. Such percentage was 26.1% in 2020, 26.6% in 2021 and 24.7% in 2022. We believe that the maturity of the overall wireless telecommunication market and the implementation of the MDDIA, which prohibits wireless telecommunications service providers from unfairly providing discriminatory subsidies based on certain criteria, have contributed to the general stabilization of our marketing expenses in recent years. For a more detailed discussion of the MDDIA, see “— Law and Regulation — Rate Regulation” below.

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 Telecommunications Services

Our fixed-line telephone service competes with KT and LG U+ as well as providers of other VoIP services. As of December 31, 2022, our market share of the fixed-line telephone and VoIP service market was 15.6% (including the services provided by SK Broadband) in terms of number of subscribers compared to KT with 55.0% and LG U+ with 18.7%.

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 87% of households in Korea as of December 31, 2022. As of December 31, 2022, our market share of the broadband Internet market was 28.5% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 21.0%.

Our IPTV and cable TV services compete with other providers of pay TV services, including KT, LG U+ and cable companies. As of December 31, 2022, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) in terms of number of subscribers was 25.6% compared to KT with 36.6% (including its IPTV, cable TV and satellite TV services) and LG U+ with 24.8% (including its IPTV and cable TV services), and the collective market share of other pay TV providers was 13.1%. Furthermore, our IPTV and cable TV services are facing an increasing level of competition from global operators of online video streaming platforms, such as YouTube, Netflix, Disney Plus and Apple TV, leading domestic video streaming platforms such as TVING, Wavve, Coupang Play and Watchaa, and the video services offered by leading domestic online and mobile search and communications platforms including NAVER and Kakao, as such services continue to become increasingly popular to serve as a substitute to traditional television programming.

Recently, the Korean fixed-line telecommunications industry has been going through significant consolidation involving major pay television service providers. We completed the Tbroad Merger in April 2020, partly as a result of which we have become the second-largest pay TV provider in Korea in terms of number of subscribers as of December 31, 2022. In December 2019, LG U+ acquired a majority equity stake in LG HelloVision. In August 2021, KT acquired HCN, a major Korean cable TV service provider, through its subsidiary KT Skylife. Such transactions, as well as further consolidation in the fixed-line telecommunications industry, may result in increased

 

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competition, as the entities emerging from such consolidation and other remaining players in the industry may actively pursue expanding or protecting their respective market shares.

Furthermore, the Government has historically enforced regulations on cable TV and IPTV service providers that prohibited them from having a market share of more than one-third of the total number of subscribers in the relevant pay TV market on each of their respective platforms. In June 2015, the Government amended the regulation to impose the same limit on the market share of the entire pay TV market, including satellite TV service providers as well. Such amended regulation, however, expired in June 2018.

Other Investments and Relationships

We have investments in several other businesses and companies and have entered into various business arrangements with other companies. We formed a strategic alliance in October 2019 with Kakao, a Korean Internet company and the operator of Korea’s most popular mobile messaging application, to collaborate in the ICT sector through the sale of 1,266,620 of our treasury shares to Kakao, representing a 1.6% interest, for Won 300.0 billion and a concurrent issuance by Kakao of 2,177,401 of its shares, representing a 2.5% interest, to us for Won 302.3 billion. In addition, in July 2022, we entered into a strategic alliance with Hana Financial Group, a leading financial holding company in Korea with subsidiaries having significant presences in commercial banking, credit card business, securities brokerage and insurance, among others, to seek synergies through convergence between finance and ICT technology. As part of such strategic alliance, we transferred the entirety of our 15.0% interest in HanaCard for Won 330.0 billion in July 2022 and acquired 8,630,949 shares of Hana Financial Group (representing a 2.9% interest) for Won 330.0 billion between July and November 2022, and HanaCard acquired 1,307,471 common shares of us (representing a 0.6% interest) for Won 68.4 billion between July and September 2022.

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 two categories: network service providers and value-added 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 were previously required to obtain a license from the MSIT for the services we provide. However, an amendment to the Telecommunications Business Act, pursuant to which companies meeting certain regulatory criteria may become a network service provider without a separate license requirement, went into effect in June 2019. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies, fourth generation wireless telecommunications services using LTE technology and fifth generation wireless telecommunications services using 5G technology.

 

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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 MSIT or, depending on the subject matter of the violation, 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 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 notify the Minister of the MSIT upon ordering 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 Korea Fair Trade Commission (the “KFTC”), 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

 

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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 Inc. 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 Inc. 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

Network service providers whose sales proceeds exceed the amount prescribed by law must report to the MSIT the rates and contractual terms for each type of service they provide. Under the current reporting requirement, which does not apply to other network service providers with respect to the rates they provide, the MSIT has fifteen days to object to any new rates and terms of service reported by us, and we may implement such new rates and terms of service after the fifteen-day period expires in the absence of the MSIT’s objection.

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 under which the MSIT may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunications network facilities at a rate mutually agreed upon that complies with the standards set by the MSIT became effective on March 14, 2017 under the amended Telecommunications Business Act. 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. The expiration of such system was extended to September 22, 2022 pursuant to an amendment to the Telecommunications Business Act. While such regulatory requirement has expired, we have continued to comply with such requirement pending future regulatory development, which may either extend or eliminate such requirement. Currently, 14 MVNOs provide 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. See “Item 5.A. Operating Results — Overview — 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. In June

 

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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 we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively. We cannot provide assurance that we will not provide other rate discounts or lower-priced subscription plans in the future to comply with the Government’s public policy guidelines or suggestions.

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 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 base stations. 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 2022, 2021 and 2020, the fee amounted to Won 103.9 billion, Won 120.8 billion and Won 136.6 billion, respectively.

We currently use 10 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 30 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 100 MHz of bandwidth in the 3.5 GHz spectrum and 800 MHz of bandwidth in the 28 GHz spectrum for our 5G services. In 2020, we recognized an impairment loss of Won 186.0 billion in connection with the frequency usage rights for the 800 MHz of bandwidth in the 28 GHz spectrum as the carrying amount exceeded the recoverable amount. In December 2022, citing the lack of progress made to date with respect to the implementation of 5G infrastructure for our use of the 28 GHz spectrum (800 MHz of bandwidth which was allocated to us in December 2018 for a period of five years until November 2023), the MSIT reduced the duration of our license for the use of such bandwidth by six months and asked us to install 15,000 base stations that use the 28 GHz spectrum by the end of May 2023. Furthermore, in December 2022, the Government cancelled the allocations of bandwidth in the 28 GHz spectrum that had been provided to KT and LG U+, also citing the lack of progress made by these companies, and, in January 2023, announced that it plans to seek re-allocation of one of these cancelled allocations to a potential new wireless telecommunications service provider. Although no official notice of such process has yet been issued, the Government has also indicated that the terms of such re-allocation will include additional policy benefits and concessions in order to encourage participation by potential new wireless telecommunications service providers. 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 17 of the notes to our consolidated financial statements.

In 2021, the MSIT reallocated a total of 310 MHz of frequency bandwidths to KT, LG U+ and us, 95 MHz (in the 800 MHz, 2.1 GHz and 2.6 GHz spectrums) of which was allocated to us. See “Item 5.B. Liquidity and Capital Resources — Capital Requirements.”

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

 

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Mandatory Contributions and Obligations

All telecommunications service providers other than (i) value-added service providers and regional paging service providers or (ii) 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 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 annual 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 for the previous year (calculated pursuant to the MSIT guidelines, which differ from our accounting practices).We recognized expenses relating to such contributions of Won 22.1 billion, Won 18.7 billion and Won 16.2 billion in 2022, 2021 and 2020, respectively. 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.

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.

Notwithstanding the above, pursuant to an amendment to the Telecommunications Business Act which became effective in April 2022, a Korean entity, so long as (i) such entity’s largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreign entity specifically designated by the MSIT incorporated in a country that has entered into a bilateral or multilateral free trade agreement with Korea, and (ii) such shareholder (together with the shareholdings of its related parties) owns 15.0% or more of the issued voting stock of such entity, may own more than 49.0% of our issued shares but may not exercise its voting rights with respect to the shares held in excess of the 49.0% ceiling until the end of the MSIT’s Public Interest Review.

As of December 31, 2022, SK Inc. owned 65,668,397 shares of our common stock, or 30.0%, of our issued shares. As of December 31, 2022, the two largest foreign shareholders of SK Inc. each held a 3.3% stake therein. If such foreign shareholders increase their shareholdings in SK Inc. to 15% or more and any such foreign shareholder constitutes the largest shareholder of SK Inc., SK Inc. will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Inc.’s 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, 2022 (which we believe was 45.6%), would reach 75.6%, 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 Inc. if the breach is caused by an increase in foreign ownership of SK Inc.) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Inc. Furthermore, SK Inc. 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

 

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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 three years or a penalty of Won 150 million. See “Item 3.D. Risk Factors — Risks Relating to Our Business — If SK Inc. 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 MOEF, 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 MOEF.

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;

 

   

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;

 

   

a deemed foreigner (as discussed above) from a country whose government has entered into a bilateral or multilateral free trade agreement designated by the MSIT with the Government owning in excess of 49.0% of the outstanding voting stock of a network service provider (which became effective on April 20, 2022); 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 wireless (LTE, 5G and Wi-Fi) technology, video codec, wireless Internet applications, augmented reality, virtual reality and AI.

 

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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, 2022, SK Group members owned in aggregate 30.0% 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.

 

Item 4.D.

Property, Plants and Equipment

The following table sets forth certain information concerning our principal properties as of December 31, 2022:

 

Location

  

Primary Use

   Approximate Area
in Square Feet
 

Seoul Metropolitan Area

  

Corporate Headquarters

     921,727 (1) 
  

Regional Headquarters

     608,670  
  

Customer Service Centers

     107,277  
  

Training Centers

     279,372  
  

Central Research and Development Center

     319,789  
  

Others(2)

     2,250,414  

Gyeongsang Provinces

  

Regional Headquarters

     384,399  
  

Others(2)

     1,151,198  

Jeolla and Jeju Provinces

  

Regional Headquarters

     265,614  
  

Others(2)

     792,893  

Chungcheong Province

  

Regional Headquarters

     566,386  
  

Others(2)

     668,523  

 

 

(1)

Represents our 93.25% ownership of SK T-Tower.

 

(2)

Includes base stations.

Our registered office and corporate headquarters are located at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea, which occupy a total land area of approximately 64,515 square feet. We own 93.25% of SK T-Tower, while the remaining 6.75% is owned by SK Square following the transfer of such interest to it by us pursuant to the Spin-off. In addition, we own or lease various locations for base stations 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 base stations. 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.

 

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Item 4A.

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 notes 2(4) and 3 of the notes to our consolidated financial statements which provide summaries of certain critical accounting estimates 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

Unless otherwise indicated, the amounts set forth below in this Item 5.A. exclude the results of operations of our former businesses comprising the Spin-off Businesses, which are classified as discontinued operations. See “Item 4.A. History and Development of the Company” and “— Overview.”

Overview

Our operations are reported in three segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services as well as certain other new growth businesses and other miscellaneous cellular services, (2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV and cable TV services) and business communications services, and (3) other businesses, which include our T-commerce, portal service, and certain other miscellaneous businesses 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 AI solutions, as well as other miscellaneous cellular services and our new services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms, including a broad range of IoT solutions, platform services, cloud services, smart factory solutions, subscription services, advertising and curated shopping services, and metaverse platform-based 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 and cable TV services) 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, and advertising fees paid to us by businesses that advertise their products and services on our advanced media platforms. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers. Following the Tbroad Merger in April 2020, the cable TV and broadband Internet services of the former Tbroad have become a part of our fixed-telecommunication services segment.

In our others segment, we principally earn revenue from the T-commerce business of SK Stoa, which derives revenue through third-party seller fees earned (including commissions) for transactions in which it acts as a selling agent on SK stoa, its T-commerce network, our “Nate” portal service operated by SK Communications and online corporate employee benefit management and training services provided by SK M&Service, which we acquired in February 2022.

Pursuant to the Spin-off, our former businesses comprising the Spin-off Businesses were transferred to SK Square, including businesses that were included in our former security services segment, former commerce segment

 

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and a substantial majority of the businesses that were formerly part of our others segment for the year ended December 31, 2020, and such businesses have been accounted for as discontinued operations in our consolidated financial statements for the year ended December 31, 2021 included in this annual report. Similarly, our consolidated statements of income for the year ended December 31, 2020 included in this annual report have been restated to present such businesses as discontinued operations. See “Certain Defined Terms and Conventions Used in this Annual Report.” As a result, our former security services segment and commerce services segment were eliminated from our operating segments, and SK Stoa’s T-commerce business (which was previously part of our former commerce services segment) was reclassified as part of our others segment for the years ended December 31, 2022 and 2021. The breakdown of our results of operations by operating segment for the year ended December 31, 2020 in our consolidated audited financial statements have been recast to retroactively apply such changes in segmentation.

Our cellular service revenue and fixed-line telecommunications service revenue depend principally upon the number of our 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 others 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 SK stoa and the number of merchants that utilize SK stoa and the Nate Portal 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 three 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 4 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.

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:

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. In June 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 we adopted in September 2017, and to offer additional discounts to low income customers, including those on government welfare programs and senior citizen recipients of the basic pension, which we implemented in December 2017 and July 2018, respectively.

These Government measures have adversely affected our revenues and results of operations as more subscribers elected to receive the 25% rate discount in recent years. On the other hand, this has also led to a reduction of, or partially offset increases in, our marketing expenses as the number of subscribers who have elected to receive handset subsidies has generally declined in recent years, and has contributed to maintaining a stable churn rate.

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 — 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

 

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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 an overall decrease in our interconnection revenue as well as interconnection expenses from 2012 to 2022 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.”

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

Our ARPU increased by 0.1% to Won 30,546 in 2022 from Won 30,517 in 2021, which represented an increase of 0.7% from Won 30,314 in 2020. Our ARPU including MVNO increased by 0.3% to Won 28,582 in 2022 from Won 28,485 in 2021, which represented an increase of 2.1% from Won 27,895 in 2020. The increases in our ARPU and our ARPU including MVNO in both 2022 and 2021 were primarily due to an increase in the number of subscribers who subscribe to our higher-priced 5G plans.

Effects of COVID-19 and Economic Conditions in Korea.    Demand for our products and services may fluctuate in light of the overall economic conditions in Korea. The overall prospects for the Korean economy and, in turn, the market conditions for the industries in which we operate, remain uncertain, especially in light of the COVID-19 pandemic and, more recently, due to Russia’s invasion of Ukraine and ensuing sanctions against Russia as well as rapid increases in policy interest rates globally (including Korea) to combat rising inflationary pressures, which have adversely affected, and may continue to adversely affect, the Korean economy. For example, the travel restrictions imposed by governments in response to the COVID-19 pandemic have resulted in a significant decrease in revenue from roaming services in 2020 and 2021 before it increased significantly in 2022 in light of the substantial lifting of such travel restrictions in most countries, and the pandemic has contributed to lower customer demand for new wireless devices, resulting in a decrease in our wireless device sales revenue in 2020 and 2021 before it slightly increased in 2022 as the negative effects of the COVID-19 pandemic began to taper. In addition, an increase in unemployment among, and/or a decrease in disposable income of, our customers resulting from a deterioration of the Korean economy due to COVID-19 and, more recently, the increasing interest rate environment may decrease demand for some of our products and services or cause an increase in delinquent subscriber accounts. While it is not possible to predict the duration or full magnitude of harm from COVID-19, a continued and prolonged outbreak of COVID-19 or other types of widespread infectious diseases may have a material adverse effect on our business, financial condition and results of operations. See “Item 3.D. Risk Factors — Risks Relating to Our Business — COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition and results of operations.”

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.

 

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K-IFRS requires operating profit, which is calculated as operating revenue less operating expenses, 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, 2022 to the operating profit as presented in the consolidated statements of income prepared in accordance with K-IFRS.

 

     For the Year Ended December 31,  
     2022     2021     2020  
     (In billions of Won)  

Operating profit pursuant to IFRS as issued by the IASB

   1,594.3     1,432.4     1,035.0  

Differences:

      

Other income pursuant to IFRS that are classified as other non-operating income pursuant to K-IFRS:

      

Gain on disposal of property and equipment and intangible assets

     (16.0     (39.1     (34.6

Others

     (40.3     (76.6     (61.1
  

 

 

   

 

 

   

 

 

 
     (56.3     (115.8     (95.8

Other operating expenses pursuant to IFRS that are classified as other non-operating expenses pursuant to K-IFRS:

      

Impairment loss on property and equipment and intangible assets

     17.0       3.1       200.7  

Loss on disposal of property and equipment and intangible assets

     20.5       28.2       25.6  

Donations

     13.1       12.8       16.1  

Bad debt for accounts receivable — other

     3.0       4.0       6.6  

Others

     20.4       22.5       60.3  
  

 

 

   

 

 

   

 

 

 
     74.0       70.6       309.3  
  

 

 

   

 

 

   

 

 

 

Operating profit pursuant to K-IFRS

   1,612.1     1,387.2     1,248.6  
  

 

 

   

 

 

   

 

 

 

See note 4(2) of the notes to our consolidated financial statements. However, there is no impact on profit for the year or earnings per share for each of the three years ended December 31, 2022, 2021 and 2020.

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,  
     2022     2021     2020  
     (In billions of Won, except percentages)  

From continuing operations:

              

Operating revenue and other income

   17,361.2        100.0   16,864.3        100.0   16,183.5       100.0

Revenue

     17,305.0        99.7       16,748.6        99.3       16,087.7       99.4  

Other income

     56.3        0.3       115.8        0.7       95.8       0.6  

Operating expenses

     15,766.9        90.8       15,432.0        91.5       15,148.5       93.6  

Operating profit

     1,594.3        9.2       1,432.4        8.5       1,035.0       6.4  

Profit before income tax

     1,236.2        7.1       1,718.2        10.2       905.2       5.6  

Income tax expense

     288.3        1.7       446.8        2.6       221.3       1.4  
  

 

 

      

 

 

      

 

 

   

Profit from continuing operations

     947.8        5.5       1,271.4        7.5       684.0       4.2  

Profit from discontinued operations(1)

                  1,147.6        6.8       816.6       5.0  
  

 

 

      

 

 

      

 

 

   

Profit for the year

     947.8        5.5       2,419.0        14.3       1,500.5       9.3  

Attributable to:

              

Owners of the Parent Company

     912.4        5.3       2,407.5        14.3       1,504.4       9.3  

Non-controlling interests

     35.4        0.2       11.5        0.1       (3.8     (0.0

 

 

(1)

Pursuant to the Spin-off, the Spin-off Businesses were transferred to SK Square, and such businesses have been accounted for as discontinued operations in our consolidated statement of income for the years ended December 31, 2022, 2021 and 2020 included in this annual report. See “Certain Defined Terms and Conventions Used in this Annual Report.”

 

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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,  
     2022     2021     2020  
     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)

   10,253.2       59.2   10,100.4        60.3   9,806.7       61.0

Cellular Interconnection

     471.2       2.7       493.8        2.9       472.2       2.9  

Wireless Device Sales

     969.0       5.6       959.9        5.7       983.4       6.1  

Miscellaneous(2)

     1,248.9       7.2       1,164.4        7.0       1,085.7       6.7  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Cellular Services Revenue

     12,942.3       74.8       12,718.5        75.9       12,348.0       76.8  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Fixed-line Telecommunication Services Revenue

             

Fixed-line Telephone Service

     156.7       0.9       217.0        1.3       230.4       1.4  

Fixed-line Interconnection

     21.2       0.1       69.8        0.4       83.8       0.5  

Broadband Internet Service and Advanced Media Platform Service(3)

     2,452.5       14.2       2,443.9        14.6       2,210.7       13.7  

International Calling Service

     180.7       1.0       162.4        1.0       160.3       1.0  

Miscellaneous(4)

     1,001.9       5.8       784.6        4.7       747.0       4.6  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Fixed-line Telecommunication Services Revenue

     3,813.0       22.0       3,677.7        22.0       3,432.2       21.3  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Others Revenue

             

T-commerce(5)

     329.2       1.9       316.2        1.9       268.5       1.7  

Portal Service(6)

     24.7       0.1       27.0        0.2       30.7       0.2  

Miscellaneous(7)

     195.7       1.1       9.2        0.1       8.3       0.1  

Total Other Revenue

     549.7       3.2       352.4        2.1       307.6       1.9  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Revenue

     17,305.0       100.0       16,748.6        100.0       16,087.7       100.0  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Segment Operating Expenses(8)

             

Cellular Services

     11,646.2       67.3       11,643.4        69.5       11,341.2       70.5  

Fixed-line Telecommunication Services

     3,494.2       20.2       3,380.2        20.2       3,189.3       19.8  

Others

     552.5       3.2       337.8        2.0       308.6       1.9  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Segment Operating Expenses

     15,692.9       90.7       15,361.4        91.7       14,839.1       92.2  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Segment Operating Profit (Loss)(9)

             

Cellular Services

     1,296.1       7.5       1,075.1        6.4       1,006.8       6.3  

Fixed-line Telecommunication Services

     318.8       1.8       297.5        1.8       242.9       1.5  

Others

     (2.8     (0.0     14.6        0.1       (1.1     (0.0
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Segment Operating Profit

   1,612.1       9.3   1,387.2        8.3   1,248.6       7.8
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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(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 such as fees for our cloud services and T Universe subscription program paid by wireless subscribers.

 

(2)

Miscellaneous cellular services revenue includes revenue from our IoT and other solutions as well as other miscellaneous cellular services.

 

(3)

Broadband internet service and advanced media platform service revenue includes revenues from our broadband Internet services as well as IPTV and cable TV services.

 

(4)

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

 

(5)

T-commerce services revenue includes revenues from SK Stoa.

 

(6)

Portal service revenue includes revenues from Nate, our online portal service operated by SK Communications.

 

(7)

Miscellaneous revenue includes revenues from SK M&Service and other minor miscellaneous revenue items.

 

(8)

“Segment operating expenses” mean operating expenses 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 expenses 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.”

 

(9)

Segment operating profit (loss) for each of the segments above is presented net of consolidation adjustments. Accordingly, they do not reconcile with the segment operating profit (loss) for each of such segments set forth in note 4(1) of the notes to our consolidated financial statements, which is expressed prior to making such consolidation adjustments.

2022 Compared to 2021

Operating Revenue and Other Income. Our consolidated operating revenue and other income increased by 2.9% to Won 17,361.2 billion in 2022 from Won 16,864.3 billion in 2021 due to increases in operating revenue and other income, as discussed below.

Our consolidated operating revenue increased by 3.3% to Won 17,305.0 billion in 2022 from Won 16,748.6 billion in 2021, primarily due to increases in cellular services revenue, others revenue and fixed-line telecommunications services revenue.

Our consolidated other income decreased by 51.4% to Won 56.3 billion in 2022 from Won 115.8 billion in 2021, primarily due to the one-time effect of the difference in the previously estimated and actual amounts of certain regulatory fees recognized in 2021.

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 1.8% to Won 12,942.3 billion in 2022 from Won 12,718.5 billion in 2021. The increase in our cellular services revenue was due to increases in wireless service revenue, miscellaneous cellular services revenue and wireless device sales revenue, partially offset by a decrease in cellular interconnection revenue.

 

   

Wireless service revenue increased by 1.5% to Won 10,253.2 billion in 2022 from Won 10,100.4 billion in 2021, primarily attributable to the continued increase in the number of subscribers who subscribe to our higher-priced 5G plans and an increase in the usage of our roaming services in light of the substantial lifting of travel restrictions imposed by governments in response to the COVID-19 pandemic.

 

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Miscellaneous cellular services revenue increased by 7.3% to Won 1,248.9 billion in 2022 from Won 1,164.4 billion in 2021, primarily due to increases in revenue from our cloud services, IoT solutions and other new businesses.

 

   

Wireless device sales revenue slightly increased by 0.9% to Won 969.0 billion in 2022 from Won 959.9 billion in 2021, primarily due to an increase in the sale of 5G-compatible devices that generally command higher prices.

 

   

Cellular interconnection revenue decreased by 4.6% to Won 471.2 billion in 2022 from Won 493.8 billion in 2021. The decrease was primarily attributable to a decrease in interconnection rates, partially offset by an increase in the volume of mobile to mobile calls.

 

   

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 and cable TV services), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 3.7% to Won 3,813.0 billion in 2022 from Won 3,677.7 billion in 2021, primarily due to an increase in miscellaneous fixed-line telecommunication services revenue, partially offset by decreases in fixed-line telephone service revenue and fixed-line interconnection revenue.

 

   

Miscellaneous fixed-line telecommunication services revenue increased by 27.7% to Won 1,001.9 billion in 2022 from Won 784.6 billion in 2021, primarily due to an increase in revenue from our business communications services, including our data center services.

 

   

Fixed-line telephone service revenue decreased by 27.8% to Won 156.7 billion in 2022 from Won 217.0 billion in 2021, primarily due to decreases in the residential calling volume as a result of a continued shift in consumer preference toward wireless communication and the number of fixed-line telephone subscribers to 3.56 million as of December 31, 2022 from 3.63 million as of December 31, 2021.

 

   

Fixed-line interconnection revenue decreased by 69.6% to Won 21.2 billion in 2022 from Won 69.8 billion in 2021, primarily due to a decrease in interconnection rates, as well as decreases in the residential calling volume and the number of fixed-line telephone subscribers as described above.

 

   

Others: The revenue of our others segment increased by 56.0% to Won 549.7 billion in 2022 from Won 352.4 billion in 2021, primarily due to our acquisition of SK M&Service in February 2022 as well as a 4.1% increase in revenue of SK Stoa’s T-commerce business to Won 329.3 billion in 2022 from Won 316.2 billion in 2021, which mainly reflected an increase in the volume of merchandise sold.

Operating Expenses.    Our consolidated operating expenses increased by 2.2% to Won 15,766.9 billion in 2022 from Won 15,432.0 billion in 2021, primarily due to a 6.5% increase in labor costs to Won 2,449.8 billion in 2022 from Won 2,300.8 billion in 2021, a 8.6% increase in cost of goods sold to Won 1,268.1 billion in 2022 from Won 1,167.4 billion in 2021, a 6.8% increase in other operating expenses to Won 1,529.0 billion in 2022 from Won 1,431.6 billion in 2021 and a 1.7% increase in commissions to Won 5,518.8 billion in 2022 from Won 5,426.1 billion in 2021.

The increase in labor costs was primarily due to a general increase in the base salary of our employees.

The increase in cost of goods sold was primarily due to an increase in sales of miscellaneous telecommunications equipment to our corporate customers.

The increase in other operating expenses was primarily due to an increase in utilities, mainly reflecting increases in the number of base stations and electricity prices.

The increase in commissions was primarily due to increases in fees paid to third party service and contents providers relating to our new businesses and the sales of IPTV service subscriptions through our authorized dealers and independent retailers.

 

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The following sets forth additional information about our segment operating expenses 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 expenses 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” and note 4(2) of the notes to our consolidated financial statements.

 

   

Cellular services: The segment operating expenses for our cellular services segment remained relatively constant at Won 11,646.2 billion in 2022 compared to Won 11,643.4 billion in 2021, as increases in SK Telecom’s labor costs as described above as well as fees paid to third party service and contents providers and advertising fees relating to SK Telecom’s new businesses were substantially offset by decreases in commissions paid to SK Telecom’s authorized dealers and independent retailers, as the market for new 5G subscribers began to stabilize, and depreciation and amortization expenses, primarily reflecting the expiration of the applicable amortization period for certain of our software assets and a decrease in the amortization expenses for our frequency usage rights.

 

   

Fixed-line telecommunication services: The segment operating expenses for our fixed-line telecommunication services segment increased by 3.4% to Won 3,494.2 billion in 2022 from Won 3,380.2 billion in 2021, primarily due to an increase in SK Broadband’s marketing expenses and commissions, primarily reflecting an increase in the sale of IPTV service subscriptions.

 

   

Others: The segment operating expenses for our others segment increased by 63.6% to Won 552.5 billion in 2022 from Won 337.8 billion in 2021, primarily due to our acquisition of SK M&Service in February 2022 and an increase in the operating expenses of SK Stoa, which mainly reflected a corresponding increase in the revenue generated by SK Stoa’s T-commerce business.

Operating Profit. Our consolidated operating profit increased by 11.3% to Won 1,594.3 billion in 2022 from Won 1,432.4 billion in 2021, as the increase in operating revenue and other income outpaced the increase in operating expenses in 2022.

The following sets forth additional information about our segment operating profit (loss) with respect to each of our reportable segments. Our segment operating profit (loss) with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all three 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” and note 4(2) of the notes to our consolidated financial statements.

 

   

Cellular services: The segment operating profit of our cellular services segment increased by 20.6% to Won 1,296.1 billion in 2022 from Won 1,075.1 billion in 2021, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the various reasons described above. The segment operating margin (which, with respect to each reportable segment, is segment operating profit (loss) divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 10.0% in 2022 from 8.5% in 2021.

 

   

Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 7.2% to Won 318.8 billion in 2022 from Won 297.5 billion in 2021, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the reasons described above. The segment operating margin of our fixed-line telecommunication services segment increased to 8.4% in 2022 from 8.1% in 2021.

 

   

Others: Our others segment recorded operating loss of Won 2.8 billion in 2022 compared to operating profit of Won 14.6 billion in 2021, due to the greater increase in segment operating expenses as compared to the increase in segment operating revenue as described above. As a result, the segment operating margin of our others segment declined to (0.5)% in 2022 from 4.1% in 2021.

Finance Income and Finance Costs. Our finance income increased by 15.9% to Won 179.8 billion in 2022 from Won 155.1 billion in 2021, primarily due to a 56.8% increase in gain relating to financial instruments at fair

 

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value through profit or loss to Won 94.4 billion in 2022 from Won 60.2 billion in 2021, primarily relating to a decrease in the fair value of long-term derivative financial liability recognized with respect to our rights and obligations under the shareholders agreement with the former shareholders of Tbroad, which we had entered into in connection with the Tbroad Merger in April 2020, as well as a 59.4% increase in interest income to Won 58.5 billion in 2022 from Won 36.7 billion in 2021, which primarily reflected higher market interest rates. The impact of such increases was partially offset by a decrease in gain on sale of accounts receivable — other related to our sale of accounts receivable for handset installment payments to Won 1.0 billion in 2022 from Won 27.7 billion in 2021.

Our finance costs increased by 44.6% to Won 456.3 billion in 2022 from Won 315.6 billion in 2021, primarily due to a loss on sale of accounts receivable — other related to our sale of accounts receivable for handset installment payments of Won 61.8 billion in 2022 compared to nil in 2021, as well as a 17.4% increase in in interest expense to Won 328.3 billion in 2022 from Won 279.7 billion in 2021, which primarily reflected higher market interest rates.

Gains (Losses) Related to Investments in Associates and Joint Ventures. We recorded net losses related to investments in associates and joint ventures of Won 81.7 billion in 2022, primarily due to loss of Won 48.6 billion from disposal of our equity interest in HanaCard in 2022, compared to net gains related to investments in associates and joint ventures of Won 446.3 billion in 2021, primarily due to an increase of Won 270.3 billion in our share of profits of SK China Company Ltd., as well as gain of Won 100.0 billion from disposal of our equity interest in SK Wyverns Co., Ltd.

Income Tax. Income tax expense decreased by 35.5% to Won 288.3 billion in 2022 from Won 446.8 billion in 2021 primarily due to a 28.1% decrease in profit before income tax to Won 1,236.2 billion in 2022 from Won 1,718.2 billion in 2021. Our effective tax rate in 2022 decreased to 23.3% from 26.0% in 2021. Our effective tax rates in 2022 and 2021 were lower than the maximum statutory tax rate of 27.5% for both years, primarily due to, in the case of 2022, a decrease in net deferred tax liability due to an expected decrease in the corporate income tax rate in Korea beginning in 2023, as well as changes in unrecognized deferred taxes and tax credits and tax reductions, and in the case of 2021, changes in unrecognized deferred taxes and tax credits and tax reductions.

Profit from Continuing Operations. Principally as a result of the factors discussed above, our profit from continuing operations decreased by 25.5% to Won 947.8 billion in 2022 from Won 1,271.4 billion in 2021.

Profit from Discontinued Operations. We did not recognize any profit from discontinued operations in 2022. Our profit from discontinued operations, net of taxes, was Won 1,147.6 billion in 2021, primarily reflecting our share of profits of SK Hynix, our equity interest in which was transferred to SK Square as of November 1, 2021 pursuant to the Spin-off.

Profit for the Year. Principally as a result of the factors discussed above, our profit for the year decreased by 60.8% to Won 947.8 billion in 2022 from Won 2,419.0 billion in 2021. Profit for the year as a percentage of operating revenue and other income was 5.5% in 2022 compared to 14.3% in 2021.

2021 Compared to 2020

Operating Revenue and Other Income. Our consolidated operating revenue and other income increased by 4.2% to Won 16,864.3 billion in 2021 from Won 16,183.5 billion in 2020 due to increases in operating revenue and other income, as discussed below.

Our consolidated operating revenue increased by 4.1% to Won 16,748.6 billion in 2021 from Won 16,087.7 billion in 2020, primarily due to increases in cellular services revenue and fixed-line telecommunications services revenue, and to a smaller extent, an increase in others revenue.

Our consolidated other income increased by 20.9% to Won 115.8 billion in 2021 from Won 95.8 billion in 2020, primarily due to the difference in the previously estimated and actual amounts of certain regulatory fines.

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,

 

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increased by 3.0% to Won 12,718.5 billion in 2021 from Won 12,348.0 billion in 2020. The increase in our cellular services revenue was due to increases in wireless service revenue, miscellaneous cellular services revenue and cellular interconnection revenue, partially offset by a decrease in wireless device sales revenue.

 

   

Wireless service revenue increased by 3.0% to Won 10,100.4 billion in 2021 from Won 9,806.7 billion in 2020, primarily attributable to the continued increase in the number of subscribers who subscribe to our higher-priced 5G plans. The impact of such increase was partially offset by an increase in the cumulative percentage of wireless service subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA as well as a continued decrease in the usage of our roaming services, mainly reflecting the continued negative impact of the ongoing COVID-19 pandemic on outbound international travel from Korea.

 

   

Miscellaneous cellular services revenue increased by 7.2% to Won 1,164.4 billion in 2021 from Won 1,085.7 billion in 2020, primarily due to an increase in revenue from our IoT solutions, platform services and other new businesses as well as revenue from leasing our network to MVNO service providers.

 

   

Cellular interconnection revenue increased by 4.6% to Won 493.8 billion in 2021 from Won 472.2 billion in 2020. The increase was primarily attributable to an increase in the volume of mobile to mobile calls, partially offset by a decrease in interconnection rates.

 

   

Wireless device sales revenue decreased by 2.4% to Won 959.9 billion in 2021 from Won 983.4 billion in 2020, primarily due to a decrease in sales of handsets as a result of a limited supply of new flagship devices of the leading device manufacturers being available in 2021 as a whole.

 

   

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 and cable TV services), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 7.2% to Won 3,677.7 billion in 2021 from Won 3,432.2 billion in 2020, primarily due to increases in our broadband Internet service and advanced media platform service revenue and miscellaneous fixed-line telecommunication services revenue, partially offset by decreases in fixed-line interconnection revenue and fixed-line telephone service revenue.

 

   

Revenue from our broadband Internet service and advanced media platform service (including our IPTV and cable TV services) increased by 10.5% to Won 2,443.9 billion in 2021 from Won 2,210.7 billion in 2020, primarily due to increases in the number of IPTV subscribers to 6.1 million subscribers as of December 31, 2021 from 5.7 million subscribers as of December 31, 2020 and the number of subscribers who subscribe to our higher-priced plans.

 

   

Miscellaneous fixed-line telecommunication services revenue increased by 5.0% to Won 784.6 billion in 2021 from Won 747.0 billion in 2020, primarily due to an increase in revenue from our business communications services.

 

   

Fixed-line interconnection revenue decreased by 16.7% to Won 69.8 billion in 2021 from Won 83.8 billion in 2020, primarily due to a decrease in interconnection rates, as well as decreases in the number of fixed-line telephone subscribers and residential calling volume as described above.

 

   

Fixed-line telephone service revenue decreased by 5.8% to Won 217.0 billion in 2021 from Won 230.4 billion in 2020, primarily due to decreases in the number of fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband, which in turn included such services formerly provided by SK Telink that were acquired by SK Broadband in April 2021) to 3.63 million as of December 31, 2021 from 3.75 million as of December 31, 2020 and residential calling volume as a result of a continued shift in consumer preference toward wireless communication.

 

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Others: The revenue of our others segment increased by 14.6% to Won 352.4 billion in 2021 from Won 307.6 billion in 2020, primarily due to a 17.8% increase in revenue of SK Stoa’s T-commerce business to Won 316.2 billion in 2021 from Won 268.5 billion in 2020, which mainly reflected an increase in the volume of merchandise sold.

Operating Expenses. Our consolidated operating expenses increased by 1.9% to Won 15,432.0 billion in 2021 from Won 15,148.5 billion in 2020, primarily due to a 6.3% increase in commissions to Won 5,426.1 billion in 2021 from Won 5,103.0 billion in 2020, a 9.1% increase in labor costs to Won 2,300.8 billion in 2021 from Won 2,108.5 billion in 2020 and a 5.6% increase in cost of goods sold to Won 1,167.4 billion in 2021 from Won 1,106.0 billion in 2020, partially offset by a 13.7% decrease in other operating expenses to Won 1,431.6 billion in 2021 from Won 1,658.4 billion in 2020.

The increase in commissions was primarily due to increases in the sales of our 5G wireless service and IPTV service subscriptions through our authorized dealers and independent retailers.

The increase in labor costs was primarily due to the transfer of our treasury shares to certain of our officers and employees as bonus payments in 2021, the fair value of which was recognized as part of our labor costs.

The increase in cost of goods sold was primarily due to an increase in the volume of merchandise sold by SK Stoa’s T-commerce business.

The decrease in other operating expenses was primarily due to a significant decrease in impairment loss on property and equipment and intangible assets to Won 3.1 billion in 2021 from Won 200.7 billion in 2020, which mainly reflected impairment losses we recognized on frequency usage rights in 2020.

The following sets forth additional information about our segment operating expenses 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 expenses 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” and note 4(2) of the notes to our consolidated financial statements.

 

   

Cellular services: The segment operating expenses for our cellular services segment increased by 2.7% to Won 11,643.4 billion in 2021 from Won 11,341.2 billion in 2020, mainly attributable to the transfer of our treasury shares to certain of our officers and employees as bonus payments in 2021, the fair value of which was recognized as part of labor costs for this segment, and an increase in commissions, primarily reflecting an increase in the sale of our 5G wireless service subscriptions through our authorized dealers and independent retailers.

 

   

Fixed-line telecommunication services: The segment operating expenses for our fixed-line telecommunication services segment increased by 6.0% to Won 3,380.2 billion in 2021 from Won 3,189.3 billion in 2020, primarily due to an increase in SK Broadband’s marketing expenses and commissions, primarily reflecting an increase in the sale of IPTV service subscriptions, and the transfer of SK Broadband’s treasury shares to certain of SK Broadband’s officers and employees as bonus payments in 2021.

 

   

Others: The segment operating expenses for our others segment increased by 9.5% to Won 337.8 billion in 2021 from Won 308.6 billion in 2020, primarily due to an increase in the cost of goods sold of SK Stoa, which mainly reflected a corresponding increase in the revenue generated by SK Stoa’s T-commerce business.

Operating Profit. Our consolidated operating profit increased by 38.4% to Won 1,432.4 billion in 2021 from Won 1,035.0 billion in 2020, as the increase in operating revenue and other income outpaced the increase in operating expenses in 2021.

The following sets forth additional information about our segment operating profit (loss) with respect to each of our reportable segments. Our segment operating profit (loss) with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all three reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of

 

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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” and note 4(2) of the notes to our consolidated financial statements.

 

   

Cellular services: The segment operating profit of our cellular services segment increased by 6.8% to Won 1,075.1 billion in 2021 from Won 1,006.8 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the various reasons described above. The segment operating margin (which, with respect to each reportable segment, is segment operating profit (loss) divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 8.5% in 2021 from 8.2% in 2020.

 

   

Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 22.5% to Won 297.5 billion in 2021 from Won 242.9 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses, for the reasons described above. The segment operating margin of our fixed-line telecommunication services segment increased to 8.1% in 2021 from 7.1% in 2020.

 

   

Others: Our others segment recorded operating profit of Won 14.6 billion in 2021 compared to operating loss of Won 1.1 billion in 2020, due to the greater increase in segment operating revenue as compared to the increase in segment operating expenses as described above. As a result, the segment operating margin of our others segment improved to 4.1% in 2021 from (0.4)% in 2020.

Finance Income and Finance Costs. Our finance income increased by 10.2% to Won 155.1 billion in 2021 from Won 140.7 billion in 2020, primarily due to an increase in dividends to Won 12.0 billion in 2021 (which mainly related to shares of PanAsia Semiconductor Materials LLC) from Won 1.2 billion in 2020.

Our finance costs decreased by 2.3% to Won 315.6 billion in 2021 from Won 322.9 billion in 2020, primarily due to a 3.2% decrease in interest expense to Won 279.7 billion in 2021 from Won 289.0 billion in 2020, which primarily reflected lower market interest rates. The effect of such decrease was partially offset by a 21.7% increase in loss relating to financial instruments at fair value through profit or loss to Won 16.8 billion in 2021 from Won 13.8 billion in 2020, mainly related to our investments in certain fund products.

Gains (Losses) Related to Investments in Associates and Joint Ventures. Gains related to investments in associates and joint ventures increased by 750.1% to Won 446.3 billion in 2021 from Won 52.5 billion in 2020, primarily due to an increase of Won 270.3 billion in our share of profits of SK China Company Ltd., as well as gain of Won 100.0 billion from disposal of our equity interest in SK Wyverns Co., Ltd.

Income Tax. Income tax expense increased by 101.9% to Won 446.8 billion in 2021 from Won 221.3 billion in 2020 primarily due to an 89.8% increase in profit before income tax to Won 1,718.2 billion in 2021 from Won 905.2 billion in 2020. Our effective tax rate in 2021 increased to 26.0% from 24.4% in 2020. Our effective tax rates in 2021 and 2020 were lower than the maximum statutory tax rate of 27.5% for both years, primarily due to changes in unrecognized deferred taxes and tax credits and tax reductions in both years.

Profit from Continuing Operations. Principally as a result of the factors discussed above, our profit from continuing operations increased by 85.9% to Won 1,271.4 billion in 2021 from Won 684.0 billion in 2020.

Profit from Discontinued Operations. Our profit from discontinued operations, net of taxes, increased by 40.5% to Won 1,147.6 billion in 2021 from Won 816.6 billion in 2020, primarily due to an increase in our share of profits of SK Hynix, our equity interest in which was transferred to SK Square as of November 1, 2021 pursuant to the Spin-off.

Profit for the Year. Principally as a result of the factors discussed above, our profit for the year increased by 61.2% to Won 2,419.0 billion in 2021 from Won 1,500.5 billion in 2020. Profit for the year as a percentage of operating revenue and other income was 14.3% in 2021 compared to 9.3% in 2020.

 

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Item 5.B.

Liquidity and Capital Resources

Liquidity

We had a working capital deficit (current liabilities in excess of current assets) of Won 827.3 billion as of December 31, 2022, a working capital deficit of Won 607.8 billion as of December 31, 2021 and a working capital surplus (current assets in excess of current liabilities) of Won 597.1 billion as of December 31, 2020. The decrease in our working capital as of December 31, 2022 compared to December 31, 2021 was mainly due to our 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 2,119.5 billion as of December 31, 2022, Won 1,386.4 billion as of December 31, 2021 and Won 2,947.0 billion as of December 31, 2020. We had outstanding short term borrowings and current portion of long-term debt of Won 2,110.6 billion as of December 31, 2022, Won 1,443.3 billion as of December 31, 2021 and Won 1,049.2 billion as of December 31, 2020. As of December 31, 2022, SK Telecom had credit lines with several local banks that provided for borrowing of up to Won 750.0 billion, all of which was available for borrowing.

For the presentation of the statement of cash flows for the years ended December 31, 2021 and 2020 in our consolidated financial statements, we elected to combine cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category. The absence of cash flows from discontinued operations is not expected to affect our future liquidity and capital resources.

Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 1,882.3 billion as of December 31, 2022, Won 872.7 billion as of December 31, 2021 and Won 1,369.7 billion as of December 31, 2020. 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  
     2022     2021     2020     2021 to 2022     2020 to 2021  
     (In billions of Won, except percentages)  

Net cash provided by operating activities

   5,159.3     5,031.3     5,821.9     128.0       2.5   (790.6     (13.6 )% 

Net cash used in investing activities

     (2,807.8     (3,486.2     (4,250.4     678.4       (19.5     764.2       (18.0

Net cash used in financing activities

     (1,349.9     (2,053.6     (1,457.6     703.7       (34.3     (596.0     40.9  

Net increase (decrease) in cash and cash equivalents

     1,001.6       (508.5     113.9       1,510.1       N.A.       (622.4     N.A.  

Effect of exchange rate changes on cash and cash equivalents held in foreign currencies

     7.9       11.6       (15.1     (3.7     31.9       26.7       N.A.  

Cash and cash equivalents at beginning of period

     872.7       1,369.7       1,270.8       (497.0     (36.3     98.9       7.8  

Cash and cash equivalents at end of period

     1,882.3       872.7       1,369.7       1,009.6       115.7       (497.0     (36.3

 

N.A. = Not available

Cash Flows from Operating Activities.    Net cash provided by operating activities was Won 5,159.3 billion in 2022, Won 5,031.3 billion in 2021 (which includes Won 59.3 billion of net cash provided by operating activities of our discontinued operations) and Won 5,821.9 billion in 2020 (which includes Won 495.7 billion of net cash provided by operating activities of our discontinued operations). Profit for the year was Won 947.8 billion in 2022, Won 2,419.0 billion in 2021 (of which Won 1,147.6 billion was from discontinued operations) and Won 1,500.5 billion in 2020 (of which Won 816.6 billion was from discontinued operations). Net cash provided by

 

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operating activities in 2022 increased by 2.5% from 2021, primarily due to increases in accounts payable – other, mainly reflecting an increase in the outstanding year-end payables relating to our operational expenditures, as well as income tax paid in 2022. Net cash provided by operating activities in 2021 decreased by 13.6% from 2020, primarily due to increases in income tax paid and payments of costs associated with obtaining customer contracts in 2021.

Cash Flows from Investing Activities.    Net cash used in investing activities was Won 2,807.8 billion in 2022, Won 3,486.2 billion in 2021 (which includes Won 967.1 billion of net cash used in investing activities of our discontinued operations) and Won 4,250.4 billion in 2020 (which includes Won 483.6 billion of net cash used in investing activities of our discontinued operations). Cash inflows from investing activities were Won 1,229.9 billion in 2022, Won 600.2 billion in 2021 and Won 428.9 billion in 2020. Cash inflows in 2022 mainly reflected proceeds from disposals of investments in associates and joint ventures, mainly related to the disposal of our equity interest in HanaCard, and a decrease in long-term financial instruments, mainly related to the acquisition of shares of Hana Financial Group. Cash inflows in 2021 mainly reflected a net decrease in short-term financial instruments, mainly related to SK Broadband’s disposal of certain investment securities, and collection of short-term loans, primarily related to SK Telecom’s collection of short-term loans that were made to authorized dealers. Cash inflows in 2020 mainly reflected net cash inflows from business combinations, which mainly related to the Tbroad Merger, as well as proceeds from disposals of property and equipment, primarily related to the disposal of certain training facilities to SK Hynix.

Cash outflows for investing activities were Won 4,037.7 billion in 2022, Won 4,086.4 billion in 2021 and Won 4,679.4 billion in 2020. Cash outflows in 2022, 2021 and 2020 were primarily attributable to expenditures related to the acquisition of property and equipment of Won 2,908.3 billion, Won 2,915.9 billion and Won 3,557.8 billion, respectively, primarily in connection with the acquisition of 5G and LTE equipment, the expansion of our 5G network and the maintenance of our LTE network.

Cash Flows from Financing Activities.    Net cash used in financing activities was Won 1,349.9 billion in 2022, Won 2,053.6 billion in 2021 (which includes Won 88.9 billion of net cash used in financing activities of our discontinued operations) and Won 1,457.6 billion in 2020 (which includes Won 22.9 billion of net cash used in financing activities of our discontinued operations). Cash inflows from financing activities were Won 1,802.0 billion in 2022, Won 1,796.8 billion in 2021 and Won 3,499.6 billion in 2020. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 1,200.1 billion in 2022, Won 873.2 billion in 2021 and Won 1,421.0 billion in 2020, and proceeds from long-term borrowings, which provided cash of Won 440.0 billion in 2022, Won 350.0 billion in 2021 and Won 1,947.8 billion in 2020.

Cash outflows for financing activities were Won 3,151.9 billion in 2022, Won 3,850.4 billion in 2021 and Won 4,957.2 billion in 2020. Cash outflows for financing activities included repayments of debentures, repayments of long-term borrowings, payments of dividends, repayments of other long-term payables and repayments of lease liabilities, among other items. Repayments of debentures were Won 1,390.0 billion in 2022, Won 890.0 billion in 2021 and Won 975.5 billion in 2020. Repayments of long-term borrowings were Won 41.5 billion in 2022, Won 286.9 billion in 2021 and Won 1,950.9 billion in 2020. Payments of dividends were Won 904.0 billion in 2022, Won 1,028.5 billion in 2021 and Won 742.1 billion in 2020. Repayments of other long-term payables were Won 400.2 billion in 2022, Won 426.3 billion in 2021 and Won 428.1 billion in 2020. In addition, repayments of lease liabilities were Won 401.1 billion in 2022, Won 431.7 billion in 2021 and Won 412.7 billion in 2020. Acquisition of treasury shares was nil in 2022, Won 76.1 billion in 2021 and Won 426.7 billion in 2020. Cash outflows for spin-off were Won 626.0 billion in 2021.

As of December 31, 2022, we had total long-term debt (excluding current portion) outstanding of Won 7,192.2 billion, which included debentures in the amount of Won 6,524.1 billion and bank and institutional borrowings in the amount of Won 668.1 billion. As of December 31, 2021, we had total long-term debt (excluding current portion) outstanding of Won 7,390.5 billion, which included debentures in the amount of Won 7,037.4 billion and bank and institutional borrowings in the amount of Won 353.1 billion. For a description of our long-term debt, see note 18 of the notes to our consolidated financial statements.

As of December 31, 2022, we had (i) Won 6,485.0 billion aggregate principal amount of Korean Won-denominated debentures outstanding, of which SK Telecom issued Won 5,485.0 billion and SK Broadband

 

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issued Won 1,000.0 billion, and (ii) Won 1,901.0 billion aggregate principal amount of debentures outstanding denominated in U.S. dollars. The fixed interest rates of our debentures range from 1.17% 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, 2022, substantially all of our foreign currency-denominated long-term borrowings and debentures, which in the aggregate amounted to 20.8% 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 lease payments have represented our most significant use of funds. In recent years, we have also increasingly dedicated capital resources to develop and invest in new ICT businesses (some of which were transferred to SK Square as of November 1, 2021 pursuant to the Spin-off) as well as other innovative services and products utilizing our AI and digital infrastructure capabilities and our telecommunications platforms.

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 2023. 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 2022, 2021 and 2020, in each case including capital expenditures relating to discontinued operations:

 

     Year ended December 31,  
     2022      2021      2020  
     (In billions of Won)  

Wireless Networks(1)

   1,837.2      1,850.9      1,878.6  

Fixed-line Network(2)

     820.2        822.8        818.3  

Others(3)

     250.9        242.2        860.9  
  

 

 

    

 

 

    

 

 

 

Total

   2,908.3      2,915.9      3,557.8  
  

 

 

    

 

 

    

 

 

 

 

 

(1)

Includes investments in wireless networks, primarily our 5G, LTE and Wi-Fi networks, as well as other capital expenditures related to our networks.

 

(2)

Includes all capital expenditures made by SK Broadband.

 

(3)

Includes non-network related investments such as capital expenditures for product development, upgrades of our information technology systems and equipment and investments in data infrastructure, including certain investments made in connection with our discontinued operations.

We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2022, 2021 and 2020 were Won 2,908.3 billion, Won 2,915.9 billion and Won 3,557.8 billion, respectively. Of such amounts, we spent approximately 63.2%, 63.5% and 52.8%, respectively, on capital

 

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expenditures related to building and enhancing our wireless networks. Our other non-network related capital expenditures in 2022, 2021 and 2020 primarily related to developing new products, upgrades to our information technology systems and equipment and investments in data infrastructure, which included certain capital expenditures made in connection with our discontinued operations.

In particular, we have been making capital expenditures to build and expand our 5G network. We commenced commercial 5G services in April 2019. We have also been making capital expenditures to maintain our LTE network. For a more detailed description of our 5G and LTE networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.” We plan to continue to make capital investments in 2023 to build and expand our 5G network and develop related technologies, as well as to maintain our LTE network.

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

 

Spectrum   Technology (width)   Date of Acquisition
(including renewals)
   

Initial Payment
Amount

(in billions of Won)

    Initial
Payment Year
   

Annual Payment
Amount

(in billions of Won)

    Annual
Payment Term
 

800 MHz

  LTE (20 MHz)     Jul. 2021     56.8       2021     34.1       2022-2026  

1.8 GHz

  LTE (20 MHz + 15 MHz)     Dec. 2021       136.9       2021       82.2       2022-2026  

2.1 GHz

 

  LTE (30 MHz)     Dec. 2021       102.9       2021       61.8       2022-2026  
  WCDMA (10 MHz)

2.6 GHz

  LTE (40 MHz + 20 MHz)     Aug. 2016       332.5       2016       99.8       2017-2026  

3.5 GHz

  5G (100 MHz)     Dec. 2018       304.6       2018       91.4       2019-2028  

28 GHz

  5G (800 MHz)     Dec. 2018       51.8       2018       31.1       2019-2023 (1) 

 

 

(1)

The license period for our use of 800 MHz of bandwidth in the 28 GHz spectrum was reduced by six months by the MSIT, as a result of which the usage and payment term is expected to expire in May 2023 instead of November 2023. See “Item 4.B. Business Overview — Law and Regulation — Frequency Allocation.”

We expect to spend a similar amount for capital expenditures in 2023 compared to 2022 for a range of projects, including investments to expand and improve our newly implemented 5G network, investments to maintain our LTE network and related services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including AI solutions, investments in data infrastructure, investments in research and development of 5G technology, investments in businesses that can potentially leverage our 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. In 2021, the MSIT reallocated a total of 310 MHz of frequency bandwidths to KT, LG U+ and us, 95 MHz of which in the 800 MHz, 2.1 GHz and 2.6 GHz spectrums was allocated to us. We would be required to spend additional amounts on capital expenditures in connection with our continued efforts to build out our networks on such reallocated bandwidths. 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 2023 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. 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.

Repayment of Outstanding Debt.    As of December 31, 2022, our principal repayment obligations with respect to long-term borrowings, bonds and short-term borrowings outstanding were as follows for the periods indicated:

 

Year Ending December 31,

   Total  
     (In billions of Won)  

2023

   2,111.8  

2024

     1,622.5  

2025

     2,242.7  

2026 and thereafter

     3,345.0  

 

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Lease Payments.    Pursuant to IFRS 16, Leases, we recognize right-of-use assets representing our rights to use the underlying assets and lease liabilities representing our obligation to make lease payments in relation to substantially all of our lease arrangements, except for certain short-term leases and leases of low-value assets. As of December 31, 2022, our aggregate current and long-term lease liabilities amounted to Won 1,782.1 billion, which primarily related to land, buildings and structures we leased from third parties in the ordinary course of our business. As of December 31, 2022, our payment obligations with respect to our lease liabilities were as follows for the periods indicated:

 

Year Ending December 31,

   Total  
     (In billions of Won)  

2023

   391.7  

2024

     389.0  

2025

     283.8  

2026 and thereafter

     998.7  

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

In January 2022, we spun off our AI-enabled semiconductor business into a new subsidiary, Sapeon, in which we hold a majority equity interest and each of SK Square and SK Hynix holds a minority equity interest. Through Sapeon, we expect to actively collaborate with SK Square and SK Hynix to target customers in the United States and develop and commercialize next-generation AI-enabled semiconductors for applicable-specific uses. In February 2022, we established Sapeon Korea to target customers in Korea and sold our entire equity interest in Sapeon Korea to Sapeon for Won 40.0 billion.

In February 2022, we acquired a 100.0% interest in SK M&Service for Won 72.9 billion in order to strengthen the competitiveness of our online distribution capabilities and explore synergies with our other businesses in the ICT sector.

In June 2022, we acquired a 2.8% interest in HAEGIN Co., Ltd., a metaverse game developer, for Won 25.1 billion in order to improve the user experience of our AI service customers and add game-related functions to our metaverse platforms.

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. Effective as of November 1, 2021, we conducted the Spin-off, pursuant to which we spun off our equity interests in the Spin-off Portfolio Companies engaged in the semiconductor and certain other non-telecommunications businesses to SK Square, a newly established holding company, and we distributed SK Square’s shares of common stock on a pro rata basis to the holders of our common stock. See “Item 4.A. History and Development of the Company.”

Severance Payments.    The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 2022, was Won 0.1 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 1,214.0 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 904.0 billion in 2022, Won 1,028.5 billion in 2021 and Won 742.1 billion in 2020.

In April 2023, we distributed annual dividends at Won 830 per share (exclusive of aggregate interim dividends of Won 2,490 per share distributed during the course of 2022) to our shareholders for an aggregate payout amount of Won 181.0 billion.

 

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Contractual Obligations and Commitments

The following summarizes our contractual cash obligations (excluding short-term leases and leases of low-value assets) at December 31, 2022, 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     More Than
5 Years
 
    (In billions of Won)  

Bonds

         

Principal

  8,385.9     1,843.8     3,200.2     1,341.9     2,000.0  

Interest

    1,083.6       230.8       339.2       195.8       317.8  

Long-term borrowings

         

Principal

    793.1       125.0       665.0       3.1        

Interest

    38.0       20.2       17.8              

Lease liabilities

    2,063.4       391.7       672.9       431.2       567.6  

Facility deposits

    7.6       2.9                   4.7  

Other long-term payables(2)

         

Principal

    1,690.4       400.2       738.3       460.5       91.4  

Interest

    83.6       29.9       39.1       13.0       1.6  

Short-term borrowings

    144.8       144.8                    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual cash obligations

  14,290.4     3,189.3     5,672.5     2,445.5     2,983.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(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 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 19 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.

 

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.

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 5G network and LTE network, such as wireless data communications, as well as the development of new technologies that reflect the growing convergence between telecommunications and other industries, such as AI, big data analytics, media, metaverse and UAM. SK Telecom’s research and development activity is primarily conducted through our AIX Center, which is subdivided into Future R&D Group, Media R&D Group, Vision R&D Group, Data R&D Group, Open AIX R&D Group and AIX Support Group.

Each business unit also has its own research team that can concentrate on specific short-term research needs, and some of our consolidated subsidiaries also have their own research and development organizations to focus on activities related to their respective business areas. 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.

 

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Item 5.D.

Trend Information

These matters are discussed under “Item 5.A. Operating Results” and “Item 5.B. Liquidity and Capital Resources” above where relevant.

 

Item 5.E.

Critical Accounting Estimates

Our financial statements are prepared in accordance with IFRS as issued by the IASB. See notes 2(4) and 3 of the notes to our consolidated financial statements which provide summaries of certain critical accounting estimates 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 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

Item 6.A.

Directors and Senior Management

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. The total term of office of independent directors may not exceed six years, and when combined with the term of office at our affiliates, may not exceed nine years. Our shareholders may 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 executive and non-executive 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 04539, Korea.

Executive directors are our directors who also serve as our 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

  Month and
Year of
Birth
     Director
Since
     Expiration
of Term
    

Position

  

Other Positions

  

Business Experience

Young Sang Ryu

    May 1970        2018        2024      Executive Director, President and Chief Executive Officer    President and Chief Executive Officer of SK Broadband    President of Mobile Network Operations Division, SK Telecom; Executive Vice President of Business Development Group, SK Inc.; Head of Corporate Center, SK Telecom

Jong Ryeol Kang

    Oct. 1964        2022        2025      Executive Director, Head of ICT Infra       Head of Corporate Culture Center, SK Telecom

 

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

 

Name

   Month and
Year of
Birth
     Director
Since
     Expiration
of Term
    

Position

  

Other Positions

  

Business Experience

Kyu Nam Choi

     Apr. 1964        2021        2024      Non-executive Director    Head of Investment 1, SK SUPEX Council    Head of Global Business Development, SK SUPEX Council; Representative Director and President, Jeju Air

Youngmin Yoon

     Dec. 1963        2018        2024      Independent Non-executive Director    Professor, School of Media & Communication, Korea University    Dean of School of Media and Communications and Graduate School of Journalism and Mass 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

Seok-Dong Kim

     May 1953        2019        2025      Independent Non-executive Director    Chairman, JIPYONG Institute of Humanities and Society    Chairman, Financial Services Commission; Vice Minister, Ministry of Finance and Economy; Vice Chairman, Financial Supervisory Commission

Yong-Hak Kim

     Jan. 1953        2020        2026      Independent Non-executive Director    Professor Emeritus, Yonsei University    President, Yonsei University; BK Planning Committee, Ministry of Education; Member, Presidential Advisory Council of Policy Planning; Professor of Sociology, Yonsei University

Junmo Kim

     Sept. 1976        2020        2026      Independent Non-executive Director    Associate Professor of Electrical Engineering, KAIST    Assistant Professor of Electrical Engineering, KAIST; Senior Researcher, Samsung Advanced Institute of Technology

Haeyun Oh

     Nov. 1974        2023        2026      Independent Non-executive Director    President, KAIST Artificial Intelligence Research Institute    Director, KAIST Center for MARS Artificial Intelligence Research

Other Executive Officers

In addition to our executive directors, we currently have the following executive officers:

 

Name

 

Month and
Year of
Birth

 

Position

 

Business Experience

Chungsik Kang   Nov. 1971   Officer of Communication Team, SUPEX Council Project   Project Leader, Communication Committee PR Team
Hyuncheol Ku   Dec. 1971   Head of Sales   Leader of Policy Cell
Young Sang Kwon   Mar. 1971   Head of Strategy   Leader of Policy System Team
Dae Sung Kim   Dec. 1971   Head of Customer Planning   Head of MNO Support
Kyeong Deog Kim   Apr. 1966   Head of Enterprise CIC   Chief Executive Officer, Dell Technologies Korea
Byong Jun Kim   Feb. 1970   Head of SK Research Institute   Leader of mySUNI Innovation Design College
Seong Joon Kim   Jul. 1970   Head of Digital Channel   Representative of Service Top

 

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Name

 

Month and
Year of
Birth

 

Position

 

Business Experience

Yeong Joon Kim   Sept. 1972   Head of A. Conversation   Leader of Voice Recognition Technology Cell
Jung Hoon Kim   Nov. 1963   Head of Cloud Infra   Head of Platform Infrastructure Group
Jiwon Kim   Jun. 1985   Head of Multimodal AI   Professional Researcher, Samsung Advanced Institute of Technology
Jee Hyun Kim   Oct. 1972   Head of PMO   Research Officer of Deep Change, SK Research Institute
Ji Hyung Kim   Oct. 1971   Head of Integrated Marketing Strategy   Head of Untact CP
Ji Hoon Kim   Sept. 1978   Head of A. Product Growth   Leader of Integrated Product Offering Team
Jin Won Kim   Sept. 1966   Head of Corporate Planning   Representative, SK USA
Hyuk Kim   Sept. 1967   Head of Media Business&Alliance   Head of Media Business Support Group
Hee Sup Kim   Oct. 1968   Head of Communication   Head of Public Relations Office
Suk Kwon Na   Nov. 1966   Head of SK Research Institute   Director of Statistical Policy, Statistics Korea
Jung Hwan Ryu   Jun. 1970   Head of Infra Strategy&Tech CT   Head of Infrastructure Support Group
Kap In Moon   May 1969   Head of Smart Device CT   Head of Strategy Group Team
Myung Soon Park   Feb. 1969   Head of Infra DT   Head of AI Business Unit
Yong Joo Park   May 1965   Head of ESG   Seoul Central District Prosecutor’s Office
Ji Su Park   Jun. 1976   Officer of Talent Development, SUPEX Council Project   Project Leader, HR Support Team, SUPEX Council Project
Jin Woo So   Dec. 1961   Chairman of China’s Foreign Cooperation, SUPEX Council Project   Representative, SK Planet
Suk Ham Sung   Apr. 1970   Head of Policy Cooperation   Evaluation Manager of Performance Evaluation Office, MSIT
Jin Soo Seong   May 1968   Head of Infra Service CT   Head of Daegu Infrastructure Division
Sang Wook Shin   Jun. 1979   Head of Content   Head of A. Service Unit
Yong Sik Shin   Aug. 1971   Head of Connect Infra CO   Head of Energy Business Team
Jeong Yeol Ahn   Aug. 1969   Head of HR Department   Head of Corporate Center, Eleven Street
Jung Whan Ahn   Jul. 1966   Head of Corporate Culture   Head of HR Support Division, SK shieldus
June Hyeon Ahn   Nov. 1969   Officer of VM Cooperation, SUPEX Council Project   Officer of SUPEX Council Project Corporate Relations Team
Maeng Seog Yang   Mar. 1969   Head of Metaverse CO   Head of 5GX MNO Business Group
Seung Hyun Yang   Apr. 1969   Head of AIX   Vice President, Konan Technology
Sung Jin Yeum   Oct. 1972   Head of Corporate Culture Department   Head of CR Support
Yong-Seop Yum   Oct. 1962   Head of SK Research Institute   Head of Future Research Office
Hui Kang Yea   Oct. 1970   Head of Brand Strategy   Head of Brand 2 Office, Hyundai Card
Kyung Sig Oh   Mar. 1966   Head of Sports Marketing   Leader of Sports Communications Team
Se Hyeon Oh   Jul. 1963   Head of Web3 CO   Head of SK C&C DT Business Development Division
Man Seog Ryu   May 1966   Director of SK Academy   Head of Corporate Culture, SK Hynix
Jae Ho Yoo   Dec. 1973   Head of Portfolio Management   Growth Business Group, Eleven Street
Sung Eun Yoon   Jan. 1973   Officer of Communication Team, SUPEX Council Project   Head of Corporate Relations Strategy Office Policy System Team

 

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Name

 

Month and
Year of
Birth

 

Position

 

Business Experience

Yong Chul Yoon   May 1965   Officer of Communication Team, SUPEX Council Project   Head of Department, MBC Newsroom
Jae Woong Yoon   Nov. 1972   Head of Subscription Service CO   Head of 5GX Cluster Marketing
Hyeong Sig Yoon   Apr. 1968   Head of Infra Customer CT   Head of Infrastructure DT Team
Gahp Jae Lee   Feb. 1973   Head of Region CP   Head of Central Marketing Office
Kwan Woo Lee   Jun. 1973   Head of Cloud Application   Head of Data Development Operations Group
Gyu Sik Lee   Jan. 1970   Head of Enterprise AI Business   Leader of Change 1 Cell
Ki Yoon Lee   Dec. 1969   Head of Change Management 2   Project Leader, Customer Value Innovation Office
Dong Kee Lee   Jan. 1982   Head of Cloud/MEC Technology   Head of 5GX MEC Product
Sang Gu Lee   Jul. 1970   Head of Messaging CO   Head of MNO Data Business Team
Sang Heon Lee   Aug. 1965   Head of Policy Development   Head of Corporate Relations Strategy Office
Seung Yeoll Lee   Feb. 1970   Head of PR1   Head of Public Relations Planning
Jong Min Lee   Jul. 1978   Head of Future R&D   Head of Media Technology Institute
Joo Young Lee   May 1975   Head of SK Research Institute   RF Researcher, Deep Change
Joon Ho Lee   Aug. 1968   Head of ESG Development   Head of Public Relation Office 2
Joong Ho Lee   Nov. 1967   Head of Metropolitan Area CP   Head of Busan Marketing Office
HyunA Lee   Aug. 1971   Head of Comm Service   Head of SK Planet Conversational Commerce Division
Bong Ho Lim   Dec. 1966   Head of Customer CIC   Head of Metropolitan Area Marketing Division
Jeong Yeon Lim   May 1976   Head of Media R&D   Leader of Media Processing Development Team
Jong Pil Lim   Nov. 1960   Officer of ICT Advisory Division   Head of Essencore
Hyuk Joon Chang   Jun. 1967   Head of Corporate Planning   Head of Finance, SK Hynix
Hyun Ki Chang   Jan. 1971   Head of Digital Innovation CT   General Manager, Shinhan Financial Group Digital Platform Implementation
Hong Sung Chang   Mar. 1969   Head of AdTech CO   Head of Data Technology Center
Dae Dug Jeong   Sept. 1967   Head of Finance   Head of Tax Team
Doh Hee Jung   Sept. 1974   Head of Data R&D   Head of Data Analysis Team 2
Sang Rok Jung   Jul. 1969   Officer of VM Cooperation Team, SUPEX Council Project   Head of External Cooperation Office, SK Hynix
Jai Hun Jung   Dec. 1959   Officer of ICT Advisory Division   Officer of Corporate Growth, SK Square
Chang Kawn Jung   Jul. 1970   Head of Infra Business   Head of Infrastructure Engineering Group
Hui Yong Jeong   Mar. 1973   Head of Business Development   Head of Strategic Planning Office, SK Inc.
Dong Hwan Cho   Nov. 1970   Head of Cloud Technology   Head of Data CoE
Young Log Cho   Jun. 1971   Head of CR   Assistant to Head of External Cooperation Office
Ik Hwan Cho   Oct. 1977   Head of Metaverse Development   Head of 5GX Service Development
Jong Keun Chai   Jul. 1968   Head of Compliance   Head of Compliance Team
Nag Hun Choi   Nov. 1972   Head of Industrial AIX CO   Head of IoT Business Support Group
Yong Jin Choi   Feb. 1977   Head of Open AIX R&D   Head of MNO DT Labs
Woo Seong Choi   Jan. 1974   Head of SK Telecom Japan   Project Leader, Tokyo Office
Il Gyu Choi   Nov. 1970   Head of Digital Infra CO   Head of Public Business Unit

 

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Name

 

Month and
Year of
Birth

 

Position

 

Business Experience

Chang Won Chey   Aug. 1964   Vice President of SK Research Institute   Chief Executive Officer, SK Chemical
Tae Won Chey   Dec. 1960   Chairman   Representative Director of SK Inc., SK Innovation and SK Hynix
Hwa Sik Choi   Jul. 1971   Head of Serious Accident Prevention   Head of Growth SCM
Hwan Seok Choi   Aug. 1971   Head of Corporate Strategy   Head of IPO Promotion
Myung Bok Ha   Mar. 1971   Head of Central Regional CP   Head of Service Ace
Min Yong Ha   Sept. 1970   Head of Corporate Development   Head of Global Alliance Group
Myung Jin Han   Oct. 1973   Head of Corporate Strategy   Head of Global Alliance Group
Geun Man Hur   Aug. 1966   Head of Metropolitan Infra   Head of Infrastructure Engineering Group
Jin Hur   Jan. 1971   Head of SK Research Institute   Deep Change Research Officer, SK Research Institute
Seung Tae Hong   Jul. 1971   Head of Customer Value Innovation   Leader of Portfolio Innovation Team
Davis Eric Hartman   Oct. 1980   Head of GLM   Head of Global AI Development Group
Hai Sung Kwon   Jul. 1975   Head of AI/DT   Acting Head of AI/DT
Dong Hyun Kim   May 1977   Head of Brand Comm   Acting Head of Brand Communications
Sang Bum Kim   Jul. 1970   Head of Distribution   Acting Head of Distribution
Eun Jung Kim   May 1978   Officer of SV Promotion Team, SUPEX Council Project   Acting Officer of SV Promotion Team, SUPEX Council Project
Bu Sik Min   Sept. 1972   Head of ER   Acting Head of ER
Jae Won Bok   Aug. 1973   Head of Infra Red   Acting Head of IP Infrastructure
Ji Hwan Suk   Sept. 1976   Head of Cloud Data   Acting Head of Cloud Data
In Hyuk Sohn   Oct. 1978   Head of PMO   Acting Head of PMO
Su Yeon Song   Apr. 1978   Officer of Investment Team 2, SUPEX Council Project   Project Leader, Investment Team 2, SUPEX Council Project
Kun Koo Lee   Aug. 1976   Officer of Strategy Support Team, SUPEX Council Project   Project Leader, Strategy Support Team, SUPEX Council Project
Young Tak Lee   Jul. 1972   Head of CR Support   Acting Head of CR Support
Jung Ryong Lee   Dec. 1975   Head of A.Data   Acting PO, Data Engineering
Jong Hoon Lee   Nov. 1975   Head of Infra Engineering   Acting Head of Infrastructure Solutions
Joon Hyoung Lee   Dec. 1973   Head of Platform   Acting Head of A.Platform
Dae In Jeong   Jul. 1971   Head of SKTA   Project Leader, SKTA
Sang Hyuk Cho   Jun. 1972   Head of Strategic Partnership   Acting Head of Strategic Alliances
Jai Won Choi   Oct. 1970   Head of Western Regional CP   Acting Head of West Region
Sang Dong Han   Apr. 1974   Head of Growth Support   Acting Head of Growth Support
Jae Sang Noh   Mar. 1973   Head of Malaysia Office   Country Office Project Leader, SK E&S Indonesia
Jong Hwan Um   Jul. 1974   Head of ESG Alliance   Project Leader, Business Support Team, SK Inc.
Eun Kyung Sung   Sept. 1973   Head of SKTA Business Development   Officer of Investment Team 1, SK Inc.
Do Youn Kim   Oct. 1973   Head of Learning Center   Head of mySUNI LMS
Do Youn Kim   Feb. 1973   Head of Ethics Management   Vice President, SK China
Yong Suk Lee   Nov. 1961   Research Officer at SK Research Institute   Head of ESG Group, SK Research Institute
Yong Hun Kim   Jul. 1978   Head of A. Product   CPO, WooWa Brothers

 

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Item 6.B.

Compensation

The aggregate of the remuneration paid and in-kind benefits granted to our directors (all executive directors, who also serve as our executive officers, and non-executive directors) during the year ended December 31, 2022 totaled approximately Won 3.5 billion.

The compensation of our directors who received total annual compensation exceeding Won 500 million in 2022 was as follows:

 

Name

 

Position

  Composition of Total Compensation     Total
Compensation
 
  Salary     Bonus     Other Earned
Income
    Severance  
        (in millions of Won)  

Young Sang Ryu

  Executive Director   1,100     1,024     13            2,137  

Jong Ryeol Kang

  Executive Director     519                         519  

Remuneration for our directors is determined by shareholder resolution. Severance allowances for our 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.

The aggregate of the remuneration paid and in-kind benefits granted to our executive officers (excluding all executive directors, who also serve as our executive officers) during the year ended December 31, 2022 totaled approximately Won 52.0 billion.

The compensation of the five individuals who received the highest compensation among those who received total annual compensation exceeding Won 500 million in 2022 was as follows:

 

Name

  

Position

  Composition of Total Compensation     Total
Compensation
 
  Salary     Bonus     Other Earned
Income
    Severance  
         (in millions of Won)  

Jin Woo So

   Vice-chairman   1,600      1,752     2          3,354  

Jung Ho Park

   Former Vice-chairman           2,106       25             2,800 (1) 

Young Sang Ryu

   Executive Director     1,100       1,024       13             2,137  

Yong-Seop Yum

   Head of SK Research Institute     825       743       1             1,569  

Yong Chul Yoon

   Officer of Communication Team, SUPEX Council Project     450       838       9             1,297  

 

 

(1)

Includes Won 670 million from the exercise of options to purchase shares of our common stock.

 

 

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On February 20, 2020, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 26, 2020. On February 25, 2021, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 25, 2021. On February 24, 2022, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 25, 2022. On February 24, 2023, our board of directors resolved to grant options to purchase shares of our common stock to certain directors and executive officers, which was approved by shareholder resolution on March 28, 2023. The following table summarizes the exercisable stock options granted to our current and former directors and executive officers as of March 31, 2023:

 

                                                                                                                                                     

Recipient

  Position   Grant date   Exercise period   Exercise price
(per share)
    Number of
shares issuable
 
  From   To

Jung Ho Park

  Former Executive
Director, President
and Chief
Executive Officer
  March 24, 2017   March 25, 2021   March 24, 2024    57,562       67,320  
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       337,408  

Young Sang Ryu

  Executive
Director, President
and Chief
Executive Officer
  March 26, 2019   March 27, 2021   March 26, 2024     50,862       5,265  
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       7,145  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       18,190  
  March 25, 2022   March 26, 2025   March 25, 2029     56,860       295,275  

Jong Ryeol Kang

  Executive
Director, Head of
ICT Infra
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       6,219  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       7,136  
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       21,743  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       22,000  

Hyoung Il Ha

  Former Head of
Corporate
Development
  February 22, 2019   February 23, 2021   February 22, 2024     53,052       4,749  
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       5,955  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       11,418  

Poong Young Yoon

  Former Head of
Corporate Center 1
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       5,293  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       10,203  

Seong Ho Ha

  Former Head of
Corporate
Relations Center
  February 22, 2019   February 23, 2021   February 22, 2024     53,052       4,157  
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       5,028  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       5,830  
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       9,341  

Dong Hwan Cho

  Head of Cloud
Technology
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       4,631  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       5,375  
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       8,697  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

HyunA Lee

  Head of Comm
Service
  March 26, 2020   March 27, 2023   March 26, 2027     38,452       4,631  
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       8,746  
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       12,884  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Sang Kyu Shin

  Former Head of
Corporate Culture
Center
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       4,646  

Jae Seung Song

  Former Head of
Corporate
Development
Croup
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       8,047  

Myung Jin Han

  Head of Corporate
Strategy
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       4,403  
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       11,274  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Byung Hoon Ryu

  Former Head of
Corporate Strategy
Group
  March 25, 2021   March 26, 2023   March 25, 2026     50,276       3,796  

 

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Recipient

  Position   Grant date   Exercise period   Exercise price
(per share)
    Number of
shares issuable
 
  From   To

Bong Ho Lim

  Head of Customer
CIC
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       8,858  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Jin Won Kim

  Head of Corporate
Planning
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       10,629  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Yong Joo Park

  Head of ESG   March 25, 2022   March 26, 2024   March 25, 2027     56,860       10,334  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Hee Sup Kim

  Head of
Communication
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       7,086  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Jung Whan Ahn

  Head of Corporate
Culture
  March 25, 2022   March 26, 2024   March 25, 2027     56,860       8,858  
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Kyeong Deog Kim

  Head of Enterprise
CIC
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Hyuk Kim

  Head of Media
Business&Alliance
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Min Yong Ha

  Head of Corporate
Development
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Young Log Cho

  Head of CR   March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Yong Hun Kim

  Head of A.
Product
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

Hyun Ki Chang

  Head of Digital
Innovation CT
  March 28, 2023   March 29, 2025   March 28, 2028     47,280       12,000  

 

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: Seok-Dong Kim, Yong-Hak Kim, Youngmin Yoon and Haeyun Oh, each of whom is financially literate and independent under the rules of the

 

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NYSE as applicable. Seok-Dong Kim is the chairman of the committee. The board of directors has determined that Seok-Dong Kim is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”

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 non-independent director, Kyu Nam Choi, and three independent directors, Yong-Hak Kim, Seok-Dong Kim and Junmo Kim. Junmo Kim is the chairman of the committee.

Strategy Committee

This committee is responsible for reviewing our annual business plan as well as establishing our key performance indicators (“KPIs”) and measuring our performance against such KPIs. The committee is comprised of two executive directors, Young Sang Ryu and Jong Ryeol Kang, one non-independent director, Kyu Nam Choi, and five independent directors, Yong-Hak Kim, Seok-Dong Kim, Youngmin Yoon, Junmo Kim and Haeyun Oh. Yong-Hak Kim is the chairman of the committee.

Compensation Committee

This committee oversees our overall compensation scheme for the representative director and the non-independent directors. The committee is responsible for reviewing both the criteria for and level of compensation. It is comprised of one non-independent director, Kyu Nam Choi, and three independent directors, Yong-Hak Kim, Seok-Dong Kim and Youngmin Yoon. Youngmin Yoon is the chairwoman of the committee.

ESG Committee

This committee is responsible for establishing and reviewing the direction of our environmental, social and governance policy as well as public filings and communications with related parties. 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 one executive director, Jong Ryeol Kang, and three independent directors, Youngmin Yoon, Junmo Kim and Haeyun Oh. Haeyun Oh is the chairwoman of the committee.

 

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, 2020(1)

     34,847        6,250        41,097  

December 31, 2021

     23,457        668        24,125  

December 31, 2022

     25,099        954        26,053  

 

 

(1)

Includes employees of our former subsidiaries that were spun off pursuant to the Spin-off in November 2021.

Labor Relations

As of December 31, 2022, SK Telecom had a company union consisting of 2,643 regular employees out of 5,036 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 2020 were completed in September 2020 and resulted in an average monthly wage increase of 2.0% for SK Telecom employees. Our wage negotiations for 2021 were completed in March 2021 and resulted in an average monthly wage increase of 3.0% for SK Telecom employees. Our wage negotiations for 2022 were completed in May 2022 and resulted in an average monthly wage increase of 5.3% for SK Telecom employees. We consider our relations with our employees to be good.

 

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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.

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, 2022, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 1,038.3 billion for all of our employees is reflected in our consolidated financial statements as a liability, of which a total of Won 1,214.0 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 2000, 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 2022 was set at 5.32% of SK Telecom’s profit before income tax on a separate basis, or Won 61.0 billion. The contribution amount for 2021 was set at 4.09% of SK Telecom’s profit before income tax on a separate basis, or Won 56.0 billion. The contribution amount for 2020 was set at 5.00% of SK Telecom’s profit before income tax on a separate basis, or Won 50.0 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 directors and executive officers as of March 31, 2023:

 

Name

 

Position

  Number of
Shares
Owned
     Percentage of
Total Shares
Outstanding
    Special
Voting
Rights
    Options  

Directors:

          

Young Sang Ryu

  Executive Director, President and Chief Executive Officer     11,974        *       None       325,875  

Jong Ryeol Kang

  Executive Director, Head of ICT Infra     5,758        *       None       57,098  

Executive Officers:

          

Hyuncheol Ku

  Head of Sales     2,294        *       None        

Young Sang Kwon

  Head of Strategy     3,270        *       None        

Dae Sung Kim

  Head of Customer Planning     2,294        *       None        

Kyeong Deog Kim

  Head of Enterprise CIC        *       None       12,000  

Seong Joon Kim

  Head of Digital Channel     3,932        *       None        

Yeong Joon Kim

  Head of A. Conversation     2,277        *       None        

Jung Hoon Kim

  Head of Cloud Infra     2,643        *       None        

Jiwon Kim

  Head of Multimodal AI     2,808        *       None        

Jee Hyun Kim

  Head of PMO     1,576        *       None        

Ji Hyung Kim

  Head of Integrated Marketing Strategy     1,350        *       None        

Ji Hoon Kim

  Head of A. Product Growth     203        *       None        

Jin Won Kim

  Head of Corporate Planning     6,538        *       None       22,629  

Hyuk Kim

  Head of Media Business&Alliance     3,185        *       None       12,000  

 

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Name

 

Position

  Number of
Shares
Owned
     Percentage of
Total Shares
Outstanding
    Special
Voting
Rights
    Options  

Hee Sup Kim

  Head of Communication     3,856        *       None       19,086  

Jung Hwan Ryu

  Head of Infra Strategy&Tech CT     3,456        *       None        

Kap In Moon

  Head of Smart Device CT     4,329        *       None        

Myung Soon Park

  Head of Infra DT     2,030        *       None        

Yong Joo Park

  Head of ESG     6,978        *       None       22,334  

Suk Ham Sung

  Head of Policy Cooperation     4,135        *       None        

Jin Soo Seong

  Head of Infra Service CT     6,710        *       None        

Sang Wook Shin

  Head of Content     1,974        *       None        

Yong Sik Shin

  Head of Connect Infra CO     3,587        *       None        

Jeong Yeol Ahn

  Head of HR Department     2,790        *       None        

Jung Whan Ahn

  Head of Corporate Culture     1,243        *       None       20,858  

Maeng Seog Yang

  Head of Metaverse CO     2,856        *       None        

Sung Jin Yeum

  Head of Corporate Culture Department     3,450        *       None        

Hui Kang Yea

  Head of Brand Strategy     4,739        *       None        

Kyung Sig Oh

  Head of Sports Marketing     2,636        *       None        

Se Hyeon Oh

  Head of Web3 CO     1,626        *       None        

Jae Ho Yoo

  Head of Portfolio Management     3,429        *       None        

Sung Eun Yoon

  Officer of Communication Team, SUPEX Council Project     1,911        *       None        

Yong Chul Yoon

  Officer of Communication Team, SUPEX Council Project     303        *       None        

Jae Woong Yoon

  Head of Subscription Service CO     1,474        *       None        

Hyeong Sig Yoon

  Head of Infra Customer CT     2,972        *       None        

Gahp Jae Lee

  Head of Region CP     3,632        *       None        

Kwan Woo Lee

  Head of Cloud Application     3,427        *       None        

Gyu Sik Lee

  Head of Enterprise AI Business     4,060        *       None        

Ki Yoon Lee

  Head of Change Management 2     4,143        *       None        

Dong Kee Lee

  Head of Cloud/MEC Technology     1,842        *       None        

Sang Gu Lee

  Head of Messaging CO     3,784        *       None        

Sang Heon Lee

  Head of Policy Development     2,986        *       None        

Seung Yeoll Lee

  Head of PR1     1,906        *       None        

Jong Min Lee

  Head of Future R&D     2,383        *       None        

Joon Ho Lee

  Head of ESG Development     2,854        *       None        

Joong Ho Lee

  Head of Metropolitan Area CP     2,929        *       None        

HyunA Lee

  Head of Comm Service     1,860        *       None       38,261  

Bong Ho Lim

  Head of Customer CIC     3,624        *       None       20,858  

Jeong Yeon Lim

  Head of Media R&D     1,802        *       None        

Hyuk Joon Chang

  Head of Corporate Planning     1,326        *       None        

Hyun Ki Chang

  Head of Digital Innovation CT            *       None       12,000  

Hong Sung Chang

  Head of AdTech CO     3,493        *       None        

Dae Dug Jeong

  Head of Finance     2,629        *       None        

Doh Hee Jung

  Head of Data R&D     1,971        *       None        

Jai Hun Jung

  Officer of ICT Advisory Division     303        *       None        

Chang Kawn Jung

  Head of Infra Business     2,882        *       None        

Hui Yong Jeong

  Head of Business Development     1,261        *       None        

Dong Hwan Cho

  Head of Cloud Technology     3,815        *       None       30,703  

Young Log Cho

  Head of CR     5,135        *       None       12,000  

Ik Hwan Cho

  Head of Metaverse Development     2,149        *       None        

Jong Keun Chai

  Head of Compliance     5,454        *       None        

Nag Hun Choi

  Head of Industrial AIX CO     3,463        *       None        

Yong Jin Choi

  Head of Open AIX R&D     2,668        *       None        

 

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Name

 

Position

  Number of
Shares
Owned
     Percentage of
Total Shares
Outstanding
    Special
Voting
Rights
    Options  

Woo Seong Choi

  Head of SK Telecom Japan     303        *       None        

Il Gyu Choi

  Head of Digital Infra CO     2,272        *       None        

Tae Won Chey

  Chairman     303        *       None        

Hwa Sik Choi

  Head of Serious Accident Prevention     1,921        *       None        

Hwan Seok Choi

  Head of Corporate Strategy     2,103        *       None        

Myung Bok Ha

  Head of Central Regional CP     1,839        *       None        

Min Yong Ha

  Head of Corporate Development     4,749        *       None       12,000  

Myung Jin Han

  Head of Corporate Strategy     10,638        *       None       27,677  

Geun Man Hur

  Head of Metropolitan Infra     2,886        *       None        

Jin Hur

  Head of SK Research Institute     197        *       None        

Seung Tae Hong

  Head of Customer Value Innovation     2,722        *       None        

Davis Eric Hartman

  Head of GLM     1,205        *       None        

Hai Sung Kwon

  Head of AI/DT     1,637        *       None        

Dong Hyun Kim

  Head of Brand Comm     2,653        *       None        

Sang Bum Kim

  Head of Distribution     1,554        *       None        

Bu Sik Min

  Head of ER     598        *       None        

Jae Won Bok

  Head of Infra Red     740        *       None        

Ji Hwan Suk

  Head of Cloud Data     1,368        *       None        

In Hyuk Sohn

  Head of PMO     2,656        *       None        

Su Yeon Song

  Officer of Investment Team 2, SUPEX Council Project     774        *       None        

Young Tak Lee

  Head of CR Support     1,505        *       None        

Jung Ryong Lee

  Head of A.Data     1,339        *       None        

Jong Hoon Lee

  Head of Infra Engineering     1,063        *       None        

Joon Hyoung Lee

  Head of Platform     1,247        *       None        

Sang Hyuk Cho

  Head of Strategic Partnership     1,560        *       None        

Jai Won Choi

  Head of Western Regional CP     1,715        *       None        

Sang Dong Han

  Head of Growth Support     1,068        *       None        

Jong Hwan Um

  Head of ESG Alliance     49        *       None        

Yong Hun Kim

  Head of A. Product            *       None       12,000  
   

 

 

    

 

 

     

 

 

 

Total

      162,145        *         657,379  

 

 

*

Less than 1%.

See “Item 6.B. Compensation” for information regarding the exercisable stock options granted to our directors and executive officers.

 

Item 6.F.

Disclosure of a Registrants Action to Recover Erroneously Awarded Compensation

Not applicable.

 

Item 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

Item 7.A.

Major Shareholders

As of the close of our shareholders’ registry on December 31, 2022, approximately 54.4% of our issued shares were held in Korea by approximately 202,069 shareholders. We estimate that, as of December 31, 2022, there were at least 27,252 record holders of our ADRs evidencing ADSs resident in the United States, and 2,876,366 shares of our common stock were held in the form of ADSs. As of such date, outstanding ADSs represented approximately 1.3% of our outstanding common shares.

 

 

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The following table sets forth certain information as of December 31, 2022 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares:

 

Shareholder

   Number of
Shares
     Percentage of
Total Shares
Issued(1)
    Percentage of
Total Shares

Outstanding(2)
 

SK Inc.

     65,668,397        30.0     30.1

National Pension Service

     16,846,066        7.7       7.7  

 

 

(1)

Calculated based on 218,833,144 total issued shares, which include 801,091 treasury shares, as of December 31, 2022.

 

(2)

Calculated based on 218,032,053 total outstanding shares as of December 31, 2022.

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

   2022     2021     2020  
     (As a percentage of total
issued shares)(1)
 

SK Group(2)

     30.0     30.0     26.8

SK Inc.

     30.0       30.0       26.8  

National Pension Service

     7.7       9.6       11.0  

 

 

(1)

Includes 801,091 shares, 1,250,992 shares and 9,418,558 shares held in treasury as of December 31, 2022, 2021 and 2020, respectively. In 2022, we transferred 449,901 treasury shares as bonus payments to certain of our officers and employees. In 2021, we repurchased 288,000 common shares under a share repurchase agreement with SK Securities Co., Ltd., a securities brokerage firm, dated August 28, 2020 (the “Share Repurchase Agreement”), and transferred 626,740 treasury shares as bonus payments to certain of our officers and employees, in each case prior to the effectiveness of the Stock Split. The Share Repurchase Agreement was terminated on April 30, 2021.

 

(2)

SK Group’s ownership interest as of December 31, 2022, 2021 and 2020 consisted of the ownership interest of SK Inc. 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.

As of March 31, 2023, SK Inc. held 30.0% of our total issued shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Our Business — If SK Inc. 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 Inc. 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, 2023, the total number of our common shares outstanding was 218,466,141.

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, 2022.

 

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SK Networks

As of December 31, 2022, we had Won 0.5 billion of accounts receivable from SK Networks. As of the same date, we had Won 113.9 billion of accounts payable to SK Networks, mainly relating to payments for wireless devices provided by PS&Marketing. The operating expenses we incurred with respect to SK Networks, including aggregate fees we paid to SK Networks for dealer commissions, amounted to Won 904.3 billion in 2022, Won 1,055.5 billion in 2021 and Won 1,023.0 billion in 2020.

SK Inc.

We enter into agreements with SK Inc. from time to time for specific information technology-related projects, and we also pay SK Inc. for use of the SK brand. The operating expenses we incurred with respect to SK Inc., including aggregate fees we paid to SK Inc. for such information technology services and the use of the SK brand, amounted to Won 389.7 billion in 2022, Won 385.2 billion in 2021 and Won 380.3 billion in 2020. We also purchase various information technology-related equipment from SK Inc. from time to time. The total amount of such purchases was Won 114.9 billion in 2022, Won 82.2 billion in 2021 and Won 76.5 billion in 2020. We are a party to several service agreements with SK Inc. relating to the development and maintenance of our information technologies systems.

 

Item 7.C.

Interests of Experts and Counsel

Not applicable.

 

Item 8.

FINANCIAL INFORMATION

 

Item 8.A.

Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-126.

Legal Proceedings

KFTC Proceedings

In March 2021, the KFTC imposed a fine of Won 3.2 billion on each of SK Telecom and SK Broadband (which SK Telecom and SK Broadband have paid in full) and issued a correctional order in connection with the payment by SK Telecom of a portion of sales commissions for SK Broadband’s IPTV services in the course of bundling and selling services that combine SK Telecom’s wireless and high-speed wireless Internet services with SK Broadband’s IPTV services in violation of the Fair Trade Act. In April 2021, we initiated an administrative proceeding, which is currently pending, requesting the revocation of the fine and the correctional order.

The KFTC is currently investigating all three of the mobile network operators in the Korean market, including us, in connection with alleged violations of the Act on Fair Labeling and Advertising relating to the advertised transmission speed of the 5G wireless services of each of these mobile network operators. The outcome of this pending investigation cannot be predicted at this time.

KCC Proceedings

On June 4, 2020, the KCC imposed a fine of Won 4 million on us and issued a correctional order for obtaining consent from subscribers for collection of personal information through contracts with material omissions in violation of the Location Information Act of Korea. On July 8, 2020, the KCC imposed a fine of Won 22.3 billion on us and issued a correctional order for providing handset subsidies that were in excess of their officially announced amounts and were discriminatory in nature, as well as unlawfully requiring subscribers to enroll to certain subscription plans or purchase certain value-added services in return, in connection with attracting new subscribers of 5G wireless services during the period between April 2019 and August 2019 in violation of the MDDIA. On September 9, 2020, the KCC imposed a fine of Won 76 million on us and issued a correctional order for false, exaggerated or deceptive advertising in violation of the Telecommunications Business Act.

 

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With respect to the fines imposed by the KCC set forth above, we have paid such fines in full. 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.

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, could be approved by a resolution of our board of directors. We replaced the interim dividend system with a quarterly dividend system pursuant to an amendment to our articles of incorporation at our annual general meeting of shareholders held on March 25, 2021. Once declared, dividends must be claimed within five years, after which the right to receive the dividends is extinguished and reverted to us.

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.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.”

The following table sets forth the interim and annual dividend per share and the aggregate total amount of dividends declared, as well as the number of outstanding shares entitled to dividends, with respect to the years ended December 31, 2020, 2021 and 2022. The annual dividend was paid in the immediately following year, and the interim dividends were paid in the same year.

 

Dividend Type

   Dividend
per Share
     Total Amount of
Dividends
     Number of
Shares Entitled
to Dividend
 
     (In Won)      (In billions of Won)         

Interim dividend (for the period ended June 30, 2020)

   1,000      73.1        73,136,448  

Annual dividend (for the year ended December 31, 2020)

     9,000        641.9        71,327,153  

Interim dividend (for the period ended June 30, 2021)

     2,500        177.9        71,160,643  

Interim dividend (for the period ended September 30, 2021)

     2,500        177.9        71,160,643  

Annual dividend (for the year ended December 31, 2021)

     1,660        361.2        217,582,152 (1) 

Interim dividend (for the period ended March 31, 2022)

     830        180.9        218,002,830 (1) 

Interim dividend (for the period ended June 30, 2022)

     830        181.0        218,032,053 (1) 

Interim dividend (for the period ended September 30, 2022)

     830        181.0        218,032,053 (1) 

Annual dividend (for the year ended December 31, 2022)

     830        181.0        218,032,053 (1) 

 

 

(1)

Reflects the Stock Split, which became effective as of October 28, 2021.

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

 

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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 FSCMA and our articles of incorporation provide that, in addition to annual dividends, we may pay quarterly dividends. Unlike annual dividends, the decision to pay quarterly dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any quarterly dividends must be paid in cash to the shareholders of record as of March 31, June 30 or September 30 of the relevant fiscal year.

Under the FSCMA, the total amount of quarterly 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 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 quarterly dividend payment. Furthermore, the rate of quarterly dividends for non-voting shares must be the same as that for our common shares. In addition, no quarterly dividends can be paid if there is a concern over the net assets of the current fiscal year falling short of the aggregate 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 current fiscal year 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.

Our obligation to pay quarterly 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

None.

 

Item 9.

THE OFFER AND LISTING

 

Item 9.A.

Offering and Listing Details

These matters are described under “Item 9.C. Markets” 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. Our common shares are traded on the KRX KOSPI Market under the identification code 017670. As of March 31, 2023, 218,466,141 shares of our common stock were outstanding.

 

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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 five-ninths of one share of our common stock. As of March 31, 2023, ADSs representing 13,718,088 shares of our common stock were outstanding.

 

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.

 

Item 10.B.

Memorandum and Articles of Association

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 a copy of our articles of incorporation as an exhibit 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, 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;

 

   

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;

 

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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;

 

   

data production, trading and utilization business, including MyData business;

 

   

manufacture, import, maintenance, sale and lease of medical equipment and veterinary medical equipment business; and

 

   

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

Currently, our authorized share capital is 670,000,000 shares, which consists of shares of common stock, par value Won 100 per share, and shares of non-voting stock, par value Won 100 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, 2023, 218,833,144 common shares were issued, of which 367,003 shares were held by us in treasury. In connection with the Spin-off, we also engaged in the Stock Split, pursuant to which the par value of our common stock changed from Won 500 per share to Won 100 per share and the number of issued shares of our common stock increased from 72,060,143 shares to 360,300,715 shares, in each case effective as of October 28, 2021. In 2021, we repurchased 288,000 common shares under the Share Repurchase Agreement and transferred 626,740 treasury shares as bonus payments to certain of our officers and employees, in each case prior to the application of the effects of the Stock Split. In 2022, we transferred an additional 449,901 treasury shares as bonus payments to certain of our officers and employees. 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.

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

 

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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 do not 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. The total term of office of independent directors may not exceed six years, and when combined with the term of office at our affiliates, may not exceed nine years.

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 of 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 of 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.

 

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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 do not 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.

 

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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, subject to certain exceptions. See “Item 4.B Business Overview — Foreign Ownership and Investment Restrictions and Requirements.” 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.

 

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The record date for annual dividends is December 31. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may set a record date with at least two weeks’ prior public notice by a resolution of our board of directors.

Annual Report

When sending a written notice for the general meeting of shareholders, we must attach our annual report prepared under the FSCMA and audit report prepared under the Act on External Audit of Stock Companies. Alternatively, we may inform the shareholders of the annual report and audit report by email or uploading them to our website one week before the general meeting of shareholders. Furthermore, at least one week before the annual general meeting of shareholders, we must make our business 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 business 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 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 and the Act on Electronic Registration of Stocks, Bonds, etc., the transfer of shares is effected by registration on the electronic registration ledger. 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.

 

 

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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.

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.

 

Item 10.C.

Material Contracts

We have not entered into any material contracts during the two years immediately preceding the date of this annual report, 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.D.

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 MOEF 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 MOEF 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 MOEF 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

 

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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.

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 MOEF 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 MOEF 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. 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 MOEF 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 MOEF 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, the reporting deadline of such reporting requirement is extended for (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by up to the tenth day of the month immediately following the last month of the quarter in which the share acquisition or change in their shareholding occurred. 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

 

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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.

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 Financial Supervisory Service of Korea (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

 

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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.

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.

Shares of Korean companies must be electronically registered 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.

 

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

Taxation

United States Taxation

This summary describes certain 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 or other financial institution;

 

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a life insurance company;

 

   

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;

 

   

a person that owns or is deemed to own 10.0% or more of any class of our stock (by vote or value); or

 

   

an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes (or partners therein).

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. As described below under “Passive Foreign Investment Company Rules”, we believe that we may have been classified as a PFIC with respect to our taxable year ending December 31, 2021, but we do not believe that we were classified as a PFIC with respect to our taxable year ending December 31, 2022. We do not expect to be classified as a PFIC for the current taxable year or in the reasonably foreseeable future based on the present composition of our income and assets and our expectations regarding our income and assets in the future. Accordingly, U.S. holders of commons shares or ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate for dividends with respect to our common shares or ADSs.

 

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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

Subject to the discussion below under “Passive Foreign Investment Company Rules,” 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 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) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. 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 composition of our income and the valuation of our assets. Due to fluctuations in our stock price and changes in the value and composition of our assets, including our substantial investment in the stock of SK Hynix prior to the Spin-off, which was treated as a passive asset for this purpose, we believe that we may have been classified as a PFIC for U.S. federal income tax purposes for our taxable year ending December 31, 2021, but we do not believe that we were classified as a PFIC with respect to our taxable year ending December 31, 2022. We do not expect to be classified as a PFIC for the current taxable year or in the reasonably foreseeable future, based on the present composition of our income and assets and our expectations regarding our income and assets in the future. Stock market volatility could exacerbate these considerations. See “Item 3.D. Risk Factors — Risks Relating to Korea — Unfavorable financial and economic developments in Korea may have an adverse effect on us.”

You should consult your own tax advisors regarding our classification as a PFIC for 2021, 2022 or in the current or future years.

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” (generally, any distributions that you receive in a taxable year that are greater than 125 percent of the average annual distributions that you have received in the preceding three taxable years, or your holding period, if shorter), including gain that you recognize on the sale of your common 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 common 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 common shares or ADSs at death.

Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year during which a U.S. holder holds our common shares or ADSs, such U.S. holder will generally be subject to the unfavorable rules described above for that year and for each subsequent year in which such U.S. holder holds the common shares or ADSs (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, a U.S. holder can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if such U.S. holder’s common shares or ADSs had been sold on the last day of the last taxable year during which we were a PFIC. As discussed above, we may have been a PFIC for our taxable year ending December 31, 2021. U.S. holders who held common shares or ADSs at any time during that year should consult their own tax advisor about the advisability of making this election.

A U.S. holder may be able to avoid the unfavorable rules described above by electing to mark its ADSs to market, provided the ADSs are treated as “marketable stock.” The ADSs generally will be treated as marketable stock if the ADSs are “regularly traded” on a “qualified exchange or other market” (which includes the NYSE).

 

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Further, it should also be noted that only the ADSs and not the common shares are listed on the NYSE. Consequently, a U.S. holder that holds common shares that are not represented by ADSs may not be eligible to make a mark-to-market election in respect of those common shares. If the U.S. holder makes a mark-to-market election, the U.S. holder 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 its ADSs at year-end over the U.S. holder’s basis in those ADSs. If at the end of the U.S. holder’s taxable year, the U.S. holder’s basis in the common shares or ADSs exceeds their fair market value, the U.S. holder will be entitled to deduct the excess as an ordinary loss, but only to the extent of the U.S. holder’s net mark-to-market gains from previous years. A U.S. holder’s adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. In addition, any gain the U.S. holder recognizes upon the sale of the U.S. holder’s ADSs in a year in which we are a PFIC will be taxed as ordinary income in the year of sale and any loss will be treated as an ordinary loss to the extent of the U.S. holder’s net mark-to-market gains from previous years. If a U.S. holder makes a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no longer regularly traded on a “qualified exchange or other market” or the Internal Revenue Service (“IRS”) consents to the revocation of the election. If a U.S. holder makes a mark-to-market election in respect of a corporation classified as a PFIC and such corporation ceases to be classified as a PFIC, the U.S. holder will not be required to take into account the mark-to-market gain or loss described above during any period that such corporation is not classified as a PFIC. Because a mark-to-market election generally cannot be made for any lower-tier PFICs that we may own (unless shares of such lower-tier PFIC are themselves “marketable”), a U.S. holder who makes a mark-to-market election with respect to our common shares may continue to be subject to the general PFIC rules with respect to such U.S. holder’s indirect interest in any of our non-United States subsidiaries that is classified as a PFIC. U.S. holders are urged to consult their own tax advisors about the availability of the mark-to-market election, the consequences of not making a mark-to-market election for the first year during which a U.S. holder holds interests in our common shares or ADSs and we are a PFIC, and whether making the election would be advisable in their particular circumstances.

Although a U.S. holder can also avoid the unfavorable PFIC rules described above by electing to treat its common shares or ADSs as interests in a qualified electing fund (“QEF”), we do not intend to provide the information that would allow a U.S. holder to make such an election. Accordingly, in the event that we are treated as a PFIC, a U.S. holder will not be able to make a “QEF election.”

A U.S. holder that owns an equity interest in a PFIC must annually file IRS Form 8621, and may be required to file other IRS forms. A failure to file one or more of these forms as required may toll the running of the statute of limitations in respect of each of the U.S. holder’s taxable years for which such form is required to be filed. As a result, the taxable years with respect to which the U.S. holder fails to file the form may remain open to assessment by the IRS indefinitely, until the form is filed.

The U.S. federal income tax rules relating to PFICs are complex. U.S. holders are strongly urged to consult their own tax advisors regarding our potential classification as a PFIC and regarding the U.S. federal income tax consequences of acquiring, holding and disposing of our common shares or ADSs if we are so classified, including the advisability of making a mark-to-market election, if available.

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 (the “Treaty”).

Subject to generally applicable limitations and conditions, Korean withholding tax imposed on dividends paid at the appropriate rate applicable to a U.S. holder may be eligible for a credit against such U.S. holder’s U.S. federal income tax liability. These generally applicable limitations and conditions include new requirements recently adopted by the IRS and any Korean tax will need to satisfy these requirements in order to be eligible to be a creditable tax for a U.S. holder. In the case of a U.S. holder that is eligible for, and properly elects, the benefits of the Treaty, the Korean tax may be treated as meeting the new requirements and therefore as a creditable tax. The application of these requirements to the Korean tax on any dividends is uncertain and we have not determined

 

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whether these requirements are met, including requirements applicable to the Treaty. If the Korean tax is not a creditable tax for a U.S. holder or the U.S. holder does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year, the U.S. holder may be able to deduct the Korean tax in computing such U.S. holder’s taxable income for U.S. federal income tax purposes. Dividends will constitute income from sources without the United States and, if such withholding tax is a creditable tax for a U.S. holder that elects to claim foreign tax credits, generally will constitute “passive category income” for foreign tax credit purposes.

Gain, if any, realized by a U.S. holder on the sale or other disposition of the common shares or ADSs generally will be treated as U.S. source income for U.S. foreign tax credit purposes. A U.S. holder that is eligible for, and properly elects, the benefits of the Treaty, will generally not be subject to Korean withholding tax on capital gains. If a U.S. holder is not eligible for benefits under the Treaty and is therefore subject to Korean withholding tax on capital gains, the U.S. holder may not be able to use the foreign tax credit arising from any Korean tax imposed on the disposition of common shares or ADSs unless such credit can be applied (subject to applicable limitations) against U.S. federal income tax due on other income derived from foreign sources. Instead of claiming a credit, a U.S. holder may, at its election, deduct such Korean taxes in computing taxable income, if the U.S holder has elected to deduct all foreign income taxes for the taxable year.

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

The rules with respect to foreign tax credits are complex and U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, the common shares or ADSs.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year or U.S.$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS 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

 

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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. While it is the payer that is required to withhold the tax, Korean law generally entitles the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld upon providing evidence that it was entitled to have tax withheld at a lower rate if certain conditions are met.

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.

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 a tax resident of 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 depending on the value of the property and 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 0.35% 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) 0.20% 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, 0.35% of the sales price of such shares if traded outside the KRX KOSPI Market.

 

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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) 8.03% 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, 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.F.

Dividends and Paying Agents

Not applicable.

 

Item 10.G.

Statements by Experts

Not applicable.

 

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Item 10.H.

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.I.

Subsidiary Information

Not applicable.

 

Item 10.J.

Annual Report to Security Holders

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 interest rate swap contract to hedge foreign currency and interest rate risks with respect to US$300 million of bonds issued in March 2020. 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$500 million of bonds issued in April 2018 and US$300 million of bonds issued in August 2018. We also entered into floating-to-fixed interest rate swap contracts to hedge interest rate risks with respect to Won 12.5 billion of borrowings from December 2018. 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 Won 4.7 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2022. For a further discussion of our exchange rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

 

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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, 2022:

 

    Maturities  
    2023     2024     2025     2026     2027     Thereafter     Total     Fair Value  
    (In billions of Won, except for percentage data)  

Local currency:

               

Fixed-rate

  1,072.8     1,568.2     1,846.0     449.8     423.8     1,994.2     7,354.8     6,723.5  

Average weighted rate(1)

    2.85     2.28     2.86     1.98     3.46     2.46    

Variable rate

    12.5       40.0                               52.5       52.5  

Average weighted rate(1)

    4.80     6.31                            
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

    1,085.3       1,608.2       1,846.0       449.8       423.8       1,994.2       7,407.3       6,776.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency:

               

Fixed-rate

    1,012.8                         503.6             1,516.4       1,569.9  

Average weighted rate(1)

    3.80                       6.63          

Variable rate

                379.1                         379.1       379.1  

Average weighted rate(1)

                5.66                      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total

    1,012.8             379.1             503.6             1,895.5       1,949.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  2,098.1     1,608.2     2,225.1     449.8     927.4     1,994.2     9,302.8     8,725.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(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 16.9 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2022. 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, 2022, 2021 and 2020, a 10.0% increase in the equity indices where our equity investments at fair value through other comprehensive income are listed, with all other variables held constant, would have increased our total equity by Won 103.8 billion, Won 140.0 billion and Won 94.6 billion, respectively, with a 10.0% 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 equity investments at fair value through other comprehensive income 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.

 

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.

 

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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.

Payments made by ADR Depositary

The ADR 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 2022, we received US$1,314,492.18, net of taxes, from the ADR depositary in connection with such reimbursements.

 

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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, 2022. 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, 2022. 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, 2022.

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, Ernst & Young Han Young, or E&Y, on the effectiveness of our internal control over financial reporting as of December 31, 2022 is included in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Item 16.

RESERVED

 

Item 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Seok-Dong Kim is the chairman of our audit committee and determined to be an “audit committee financial expert” within the meaning of this Item 16A by the board of directors. The board of directors have further determined that Seok-Dong Kim 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 16B.

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 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The table sets forth the fees we paid to our current independent registered public accounting firm E&Y and its affiliates for the year ended December 31, 2022 and our former independent registered public accounting firm KPMG Samjong Accounting Corp. (“KPMG Samjong”) and its affiliates for the year ended December 31, 2021:

 

     Year Ended December 31,  
         2022              2021      
     (In millions of Won)  

Audit Fees

   4,654      5,969  

Audit-Related Fees

            62  

Tax Fees

     26        262  

All Other Fees

     200         
  

 

 

    

 

 

 

Total

   4,880      6,293  

“Audit Fees” are the aggregate fees billed by our independent registered public accounting firm 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 our independent registered public accounting firm 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, in 2021, (i) the provision of documents in connection with the MSIT’s reallocation of certain of our frequency usage rights and (ii) performance of agreed-upon procedures services regarding quarterly financial information relating to the Spin-off Businesses’ presentation as discontinued operations in our consolidated financial statements.

“Tax Fees” are fees for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice on actual or contemplated transactions and tax planning services.

All Other Fees” are fees billed by our independent registered public accounting firm for the issuance of System and Organization Controls (“SOC”) reports for a subsidiary in 2022.

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 our independent registered public accounting firm. Our audit committee’s policy regarding the pre-approval of non-audit services to be provided to us

 

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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 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 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

Item 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the fiscal year ended December 31, 2022, we did not make any purchase of our common shares.

 

Item 16F.

CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

The disclosure called for by paragraph (a) of this Item 16F was previously reported, as that term is defined in Rule 12b-2 under the Exchange Act, in our Annual Report on Form 20-F for the year ended December 31, 2021 (File No. 333-04906), filed on April 28, 2022.

 

Item 16G.

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, five 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 one non-independent director and three independent directors.

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 SEC rules adopted pursuant to Section 952 of the Dodd-Frank Act, the NYSE listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company.    We maintain a compensation committee comprised of one non-independent director and three independent directors.

 

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NYSE Corporate Governance Standards

  

Our Corporate Governance Practice

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.

Shareholder Approval of Equity Offerings

  
Listed companies must allow its shareholders to exercise their voting rights with respect to equity offerings that do not qualify as public offerings for cash, and offerings of equity of related parties.    Pursuant to the Korean Commercial Code and the FSCMA, our shareholders are generally entitled to preemptive rights with respect to the issuance of new shares. Exceptions include public offerings as prescribed in the FSCMA and allotments to third parties in cases necessary for the achievement of a business purpose, such as the introduction of new technology and the improvement of our financial condition.

Corporate Governance Guidelines

  
Listed companies must adopt and disclose corporate governance guidelines.    We have adopted a Corporate Governance Charter, which is available (in Korean) on our website at www.sktelecom.com. We are also 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 16H.

MINE SAFETY DISCLOSURE

Not applicable.

 

Item 16I.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

 

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PART III

 

Item 17.

FINANCIAL STATEMENTS

Not applicable.

 

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 the Consolidated Financial Statements

     F-4  

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

     F-5  

Consolidated Statements of Financial Position as of December 31, 2022 and 2021

     F-7  

Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020

     F-9  

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020

     F-10  

Consolidated Statements of Changes in Equity for the years ended December 31, 2022, 2021 and 2020

     F-11  

Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020

     F-14  

Notes to the Consolidated Financial Statements for the years ended December 31, 2022, 2021 and 2020

     F-16  

Financial Statements of SK Hynix (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Consolidated Statements of Financial Position as of October 31, 2021 and December 31, 2020 (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Consolidated Statements of Comprehensive Income for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019 (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Consolidated Statements of Changes in Equity for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019 (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Consolidated Statements of Cash Flows for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019 (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

Notes to the Consolidated Financial Statements for the ten months ended October 31, 2021 and the years ended December 31, 2020 and 2019 (incorporated by reference to Item 18 of the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)

  

 

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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 28, 2022)
  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)
  2.2    Description of Capital Stock (See Item 10.B. Memorandum and Articles of Association)
  2.3    Description of American Depositary Shares (incorporated by reference to Exhibit 2.3 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2020)
  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    Letter of KPMG Samjong dated April 28, 2022 (incorporated by reference to Exhibit 15.1 to the Registrant’s Annual Report on Form 20-F filed on April 28, 2022)
101.INS    Inline XBRL Instance Document
101.SCH    Inline XBRL Taxonomy Extension Schema Document
101.CAL    Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE    Inline XBRL Taxonomy Extension Presentation Linkbase Document
104    The cover page for the Company’s Annual Report on Form 20-F for the year ended December 31, 2022, has been formatted in Inline XBRL

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

SK TELECOM CO., LTD.

(Registrant)

/s/ Hee Jun Chung
Name:     Hee Jun Chung
Title:     Vice President, Head of IR

Date: April 27, 2023

 

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LIBOR rate 3M2018-08-132018-04-162021-072021-122016-092021-122019-042021-012026-062026-122026-122026-122028-112023-05
INDEX TO FINANCIAL STATEMENTS
 
    
Page
 
     F-2  
   
     F-4  
   
     F-5  
   
     F-7  
   
     F-9  
   
     F-10  
   
     F-11  
   
     F-14  
   
     F-16  
 
F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
SK Telecom Co., Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of SK Telecom Co., Ltd. and subsidiaries (the “Group”) as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, 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, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards (“IFRS”) 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, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 27, 2023 expressed an unqualified opinion thereon.
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 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 the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
 
F-2

 
Impairment assessment of goodwill for the fixed-line telecommunication services cash generating unit
 
Description of the Matter
At December 31, 2022, the amount of goodwill allocated to the fixed-line telecommunication services CGU is ₩764,082 million. As described in notes 3 (12) and 16 of the consolidated financial statements, the Group assesses impairment of goodwill allocated to a cash generating unit (“CGU”), at least, annually or when there is an indication of possible impairment by comparing the carrying amount of the CGU to its recoverable amount based on value-in-use (“VIU”).
 
  Auditing management’s evaluation of goodwill impairment for the fixed-line telecommunication services CGU was complex due to the significant judgment involved in the management’s estimates of future operating revenue, perpetual growth rate and discount rate applied in determining the recoverable amount of the fixed-line telecommunication services CGU.
 
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness, of controls over the Group’s goodwill impairment assessment process, including controls over management’s review of the significant assumptions described above.
  To test the estimated recoverable amount of the Group’s fixed line telecommunication services CGU, we performed audit procedures that included, among others, sensitivity analyses over both the discount rate and the perpetual growth rate used in the discounted cash flow forecast to assess the impact of changes in these assumptions on the Group’s determination of the VIU of the fixed-line telecommunication services CGU. We also assessed the Group’s ability to make accurate forecast by comparing the historical projections with the actual results and evaluated the appropriateness of the estimated operating revenue by comparing it with the financial budgets approved by the Group.
 
  In addition, we involved our internal specialists to assist us in evaluating the reasonableness of: (1) the estimated operating revenue and perpetual growth rate by comparing them with telecommunication industry reports as well as the Group’s historical performance; and (2) the discount rate by comparing it with a discount rate that was independently developed using publicly available market data for comparable entities.
/s/ Ernst &Young Han Young
We have served as the Group’s auditor since 2022.
Seoul, the Republic of Korea
April 27, 2023
 
F-3

Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
SK Telecom Co., Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the consolidated statement of financial position of SK Telecom Co., Ltd. and subsidiaries (the “Group”) as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021, and the results of its operations and its cash flows for each of the years in the
two-year
period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Spin-off
of Semiconductor and New ICT businesses
As described in Note 3 and Note 41, SK Telecom Co., Ltd. completed the
spin-off
of certain businesses on November 1, 2021. The
spin-off
company, namely SK Square Co., Ltd., is engaged in managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments. The
spun-off
businesses are presented as discontinued operations, and the comparative consolidated statements of income for 2020 have been
re-presented
to present the discontinued operations separately from continuing operations.
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 or 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 served as the Group’s auditor from 2012 to 2021.
Seoul, Korea
April 28, 2022
 
F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
SK Telecom Co., Ltd.:
Opinion on Internal Control Over Financial Reporting
We have audited SK Telecom Co., Ltd. and subsidiaries (the “Group”)’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Group as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”), and our report dated April 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The 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 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.
 
F-5

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/ Ernst &Young Han Young
Seoul, the Republic of Korea
April 27, 2023
 
F-6

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2022 and 2021
 
(In millions of won)
  
Note
    
December 31,

2022
    
December 31,
2021
 
Assets
                          
Current Assets:
                          
Cash and cash equivalents
  
 
5,34,35
 
   1,882,291        872,731  
Short-term financial instruments
  
 
5,34,35
 
     237,230        508,677  
Short-term investment securities
  
 
10,34,35
 
            5,010  
Accounts receivable — trade, net
  
 
6,34,35,36
 
     1,970,611        1,913,511  
Short-term loans, net
  
 
6,34,35,36
 
     78,590        70,817  
Accounts receivable — other, net
  
 
6,34,35,36,37
 
     479,781        548,362  
Contract assets
  
 
8,35
 
     83,058        76,698  
Prepaid expenses
  
 
7
 
     1,974,315        1,987,503  
Prepaid income taxes
  
 
31
 
     415        77  
Derivative financial assets
  
 
22,34,35,38
 
     168,527        30,110  
Inventories, net
  
 
9
 
     166,355        204,637  
Non-current
assets held for sale
  
 
40
 
     6,377        8,734  
Advanced payments and others
  
 
6,34,35
 
     171,646        125,798  
             
 
 
    
 
 
 
             
 
7,219,196
 
  
 
6,352,665
 
             
 
 
    
 
 
 
Non-Current
Assets:
                          
Long-term financial instruments
  
 
5,34,35
 
     375        375  
Long-term investment securities
  
 
10,34,35
 
     1,410,736        1,715,078  
Investments in associates and joint ventures
  
 
12
 
     1,889,289        2,197,351  
Investment property, net
  
 
14
 
     25,137        23,034  
Property and equipment, net
  
 
13,15,36,37
 
     13,322,492        12,871,259  
Goodwill
  
 
11,16
 
     2,075,009        2,072,493  
Intangible assets, net
  
 
17
 
     3,324,910        3,869,769  
Long-term contract assets
  
 
8,35
 
     49,163        41,580  
Long-term loans, net
  
 
6,34,35,36
 
     26,973        21,979  
Long-term accounts receivable — other
  
 
6,34,35,36,37
 
     373,951        275,238  
Long-term prepaid expenses
  
 
7
 
     1,073,422        1,069,148  
Guarantee deposits, net
  
 
6,34,35,36
 
     167,441        186,713  
Long-term derivative financial assets
  
 
22,34,35,38
 
     152,633        187,484  
Deferred tax assets
  
 
31
 
     6,860        128  
Defined benefit assets
  
 
21
 
     175,748        18,427  
Other
non-current
assets
  
 
6,34,35
 
     14,927        8,556  
             
 
 
    
 
 
 
             
 
24,089,066
 
  
 
24,558,612
 
             
 
 
    
 
 
 
Total Assets
           
31,308,262
 
  
 
30,911,277
 
             
 
 
    
 
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-
7

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Financial Position — (Continued)
As of December 31, 2022 and 2021
 
(In millions of won)
  
Note
    
December 31,

2022
   
December 31,
2021
 
Liabilities and Shareholders’ Equity
                         
Current Liabilities:
                         
Accounts payable — trade
  
 
34,35,36
 
   89,255       190,559  
Accounts payable — other
  
 
34,35,36
 
     2,427,906       2,071,870  
Withholdings
  
 
34,35,36
 
     803,555       790,489  
Contract liabilities
  
 
8
 
     172,348       166,436  
Accrued expenses
  
 
26,34,35
 
     1,505,549       1,295,404  
Income tax payable
  
 
31
 
     112,358       192,221  
Derivative financial liabilities
  
 
22,34,35,38
 
           52  
Provisions
  
 
20,39
 
     39,683       61,656  
Short-term borrowings
  
 
18,34,35,38
 
     142,998       12,998  
Current portion of long-term debt, net
  
 
18,34,35,38
 
     1,967,586       1,430,324  
Current portion of long-term payables — other
  
 
19,34,35,38
 
     398,874       398,823  
Lease liabilities
  
 
34,35,36,38
 
     386,429       349,568  
Other current liabilities
                    35  
             
 
 
   
 
 
 
           
8,046,541
   
6,960,435
 
             
 
 
   
 
 
 
Non-Current
Liabilities:
                         
Debentures, excluding current portion, net
  
 
18,34,35,38
 
     6,524,095       7,037,424  
Long-term borrowings, excluding current portion, net
  
 
18,34,35,38
 
     668,125       353,122  
Long-term payables — other
  
 
19,34,35,38
 
     1,239,467       1,611,010  
Long-term lease liabilities
  
 
34,35,36,38
 
     1,395,628       1,184,714  
Long-term contract liabilities
  
 
8
 
     61,574       36,531  
Defined benefit liabilities
  
 
21
 
     61       13,157  
Long-term derivative financial liabilities
  
 
22,34,35,38
 
     302,593       321,084  
Long-term provisions
  
 
20
 
     79,415       65,339  
Deferred tax liabilities
  
 
31
 
     763,766       941,301  
Other
non-current
liabilities
  
 
34,35,36
 
     71,801       52,022  
             
 
 
   
 
 
 
             
 
11,106,525
 
 
 
11,615,704
 
             
 
 
   
 
 
 
Total Liabilities
           
 
19,153,066
 
 
 
18,576,139
 
             
 
 
   
 
 
 
Shareholders’
Equity:
                         
Share capital
  
 
1,23
 
     30,493       30,493  
Capital surplus and others
  
 
11,23,24,26
 
     (11,965,876     (12,022,485
Hybrid bonds
  
 
25
 
     398,759       398,759  
Retained earnings
  
 
27
 
     22,463,711       22,437,341  
Reserves
  
 
28
 
     391,233       735,238  
             
 
 
   
 
 
 
Equity attributable to owners of the Parent Company
              11,318,320       11,579,346  
Non-controlling
interests
              836,876       755,792  
             
 
 
   
 
 
 
Total Shareholders’ Equity
           
 
12,155,196
 
 
 
12,335,138
 
             
 
 
   
 
 
 
Total Liabilities and Shareholders’ Equity
           
31,308,262
 
 
 
30,911,277
 
             
 
 
   
 
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-
8

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won except for per share data)
  
Note
    
2022
   
2021
   
2020
 
Continuing operations
                                 
Operating revenue and other income:
                                 
Revenue
  
 
4,36
 
   17,304,973       16,748,585       16,087,747  
Other income
  
 
4,29,36
 
     56,259       115,763       95,751  
             
 
 
   
 
 
   
 
 
 
                17,361,232       16,864,348       16,183,498  
             
 
 
   
 
 
   
 
 
 
Operating expenses:
  
 
36
 
                        
Labor
              2,449,813       2,300,754       2,108,496  
Commission
  
 
7
 
     5,518,786       5,426,114       5,103,012  
Depreciation and amortization
  
 
4
 
     3,621,325       3,672,555       3,664,665  
Network interconnection
              715,285       749,599       770,712  
Leased lines
              268,426       310,141       293,960  
Advertising
              252,402       233,401       272,091  
Rent
              143,747       140,418       171,179  
Cost of goods sold
              1,268,124       1,167,417       1,106,001  
Others
  
 
4,29
 
     1,528,976       1,431,587       1,658,362  
             
 
 
   
 
 
   
 
 
 
                15,766,884       15,431,986       15,148,478  
             
 
 
   
 
 
   
 
 
 
Operating profit
  
 
4
 
  
 
1,594,348
 
 
 
1,432,362
 
 
 
1,035,020
 
Finance income
  
 
4,30
 
     179,838       155,133       140,685  
Finance costs
  
 
4,30
 
     (456,327     (315,604     (322,943
Gain (loss) relating to investments in subsidiaries, associates and joint ventures, net
  
 
4,12
 
     (81,707     446,300       52,456  
             
 
 
   
 
 
   
 
 
 
Profit before income tax
  
 
4
 
  
 
1,236,152
 
 
 
1,718,191
 
 
 
905,218
 
Income tax expense
  
 
31
 
     288,321       446,796       221,262  
             
 
 
   
 
 
   
 
 
 
Profit from continuing operations
           
 
947,831
 
 
 
1,271,395
 
 
 
683,956
 
Profit from discontinued operations, net of taxes
  
 
41
 
           1,147,594       816,582  
             
 
 
   
 
 
   
 
 
 
Profit for the year
           
947,831
 
 
 
2,418,989
 
 
 
1,500,538
 
             
 
 
   
 
 
   
 
 
 
Attributable to:
                                 
Owners of the Parent Company
            912,400       2,407,523       1,504,352  
Non-controlling
interests
              35,431       11,466       (3,814
Earnings per share
  
 
32
 
                        
Basic earnings per share (in won)
            4,118       7,191       4,093  
Basic earnings per share — continuing operations (in won)
              4,118       3,614       1,741  
Diluted earnings per share (in won)
              4,116       7,187       4,092  
Diluted earnings per share — continuing operations (in won)
              4,116       3,613       1,741  
 
The accompanying notes are an integral part o
f th
e consolidated financial statements.
 
F-
9

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
Note
   
2022
   
2021
   
2020
 
Profit for the year
         
947,831
 
 
 
2,418,989
 
 
 
1,500,538
 
Other comprehensive income (loss)
                               
Items that will not be reclassified subsequently to profit or loss, net of taxes:
                               
Remeasurement of defined benefit liabilities (assets)
 
 
21
 
    70,885       16,374       (2,637
Net change in other comprehensive income of investments in associates and joint ventures
 
 
12,28
 
          4,796       271  
Valuation gain (loss) on financial assets at fair value through other comprehensive income
 
 
28,30
 
    (491,853     920,871       579,678  
Items that are or may be reclassified subsequently to profit or loss, net of taxes:
                               
Net change in other comprehensive income (loss) of investments in associates and joint ventures
 
 
12,28
 
    119,707       356,503       (114,478
Net change in unrealized fair value of derivatives
 
 
22,28,30
 
    (21,366     16,133       19,138  
Foreign currency translation differences for foreign operations
 
 
28
 
    16,401       47,515       (20,150
           
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss) for the year, net of taxes
         
 
(306,226
 
 
1,362,192
 
 
 
461,822
 
           
 
 
   
 
 
   
 
 
 
Total comprehensive income
         
641,605
 
 
 
3,781,181
 
 
 
1,962,360
 
           
 
 
   
 
 
   
 
 
 
Total comprehensive income attributable to:
 
                       
Owners of the Parent Company
          601,193       3,473,445       1,869,075  
Non-controlling
interests
            40,412       307,736       93,285  
 
The accompanying notes are an
inte
gral part of the consolidated financial statements.
 
F-
1
0

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Attributable to owners
   
Non-controlling

interests
   
Total equity
 
    
Share capital
    
Capital surplus

(deficit)

and others
   
Hybrid
bonds
    
Retained
earnings
   
Reserves
   
Sub-total
 
Balance, January 1, 2020
  
 44,639 
 
  
 
607,722
 
 
 
398,759
 
  
 
22,228,683
 
 
 
(329,576
 
 
22,950,227
 
 
 
(133,293
 
 
22,816,934
 
Total comprehensive income:
                                                                  
Profit (loss) for the year
                         1,504,352             1,504,352       (3,814     1,500,538  
Other comprehensive income (loss) (note 12,21,22,28,30)
                         (4,992     369,715       364,723       97,099       461,822  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                           1,499,360       369,715       1,869,075       93,285       1,962,360  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Transactions with owners:
                                                                  
Annual dividends (note 33)
                         (658,228           (658,228     (5,771     (663,999
Interim dividends (note 33)
                         (73,136           (73,136           (73,136
Share option (note 26)
            179                          179       1,256       1,435  
Interest on hybrid bonds (note 25)
                         (14,766           (14,766           (14,766
Acquisition of treasury shares (note 24)
            (426,664                        (426,664           (426,664
Changes in ownership in subsidiaries (note 11)
            97,207                          97,207       696,872       794,079  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
              (329,278            (746,130           (1,075,408     692,357       (383,051
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance, December 31, 2020
  
44,639
 
  
 
278,444
 
 
 
398,759
 
  
 
22,981,913
 
 
 
     40,139
 
 
 
23,743,894
  
 
 
652,349
 
 
 
24,396,243
  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-1
1

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Attributable to owners
   
Non-controlling

interests
   
Total equity
 
    
Share

capital
   
Capital surplus

(deficit)

and others
   
Hybrid
bonds
    
Retained
earnings
   
Reserves
   
Sub-total
 
Balance, January 1, 2021
  
44,639
 
 
 
278,444
 
 
 
398,759
 
  
 
22,981,913
 
 
 
40,139
 
 
 
23,743,894
 
 
 
652,349
 
 
 
24,396,243
 
Total comprehensive income:
                                                                 
Profit for the year
                        2,407,523             2,407,523       11,466       2,418,989  
Other comprehensive income
(note 12,21,22,28,30)
                        26,371       1,039,551       1,065,922       296,270       1,362,192  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
                          2,433,894       1,039,551       3,473,445       307,736       3,781,181  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Transactions with owners:
                                                                 
Annual dividends (note 33)
                        (641,944           (641,944     (25,771     (667,715
Interim dividends (note 33)
                        (355,804           (355,804           (355,804
Share option (note 26)
           75,498                          75,498       12,124       87,622  
Interest on hybrid bonds (note 25)
                        (14,766           (14,766           (14,766
Acquisition of treasury shares
(note 24)
           (76,111                        (76,111           (76,111
Disposal of treasury shares (note 24)
           57,017                          57,017             57,017  
Retirement of treasury shares (note 24)
           1,965,952              (1,965,952                        
Changes from
spin-off
(note 41)
     (14,146     (14,460,588                  (344,452     (14,819,186     (186,211     (15,005,397
Changes in ownership in subsidiaries
(note 11)
           137,303                          137,303       (4,435     132,868  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
       (14,146     (12,300,929            (2,978,466     (344,452     (15,637,993     (204,293     (15,842,286
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance, December 31, 2021
  
30,493
 
 
 
(12,022,485
 
 
398,759
 
  
 
22,437,341
 
 
 
735,238
 
 
 
11,579,346
 
 
 
755,792
 
 
 
12,335,138
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-1
2

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Changes in Equity — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Attributable to owners
   
Non-controlling

interests
    
Total equity
 
    
Share

capital
    
Capital surplus

(deficit)

and others
   
Hybrid
bonds
    
Retained
earnings
   
Reserves
   
Sub-total
 
Balance, January 1, 2022
  
30,493
 
  
 
(12,022,485
 
 
398,759
 
  
 
22,437,341
 
 
 
735,238
 
 
 
11,579,346
 
 
 
755,792
 
  
 
12,335,138
 
Total comprehensive income:
                                                                   
Profit for the year
                         912,400             912,400       35,431        947,831  
Other comprehensive income
(loss) (note 12,21,22,28,30)
                         32,798       (344,005     (311,207     4,981        (306,226
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
                           945,198       (344,005     601,193       40,412        641,605  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Transactions with owners:
                                                                   
Annual dividends (note 33)
                         (361,186           (361,186            (361,186
Interim dividends (note 33)
                         (542,876           (542,876            (542,876
Share option (note 26)
            72,261                          72,261              72,261  
Interest on hybrid bonds (note 25)
                         (14,766           (14,766            (14,766
Transactions of treasury shares
(note 24)
            (2,683                        (2,683            (2,683
Changes in ownership in subsidiaries
(note 11)
            (12,969                        (12,969     40,672        27,703  
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
              56,609              (918,828           (862,219     40,672        (821,547
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
Balance, December 31, 2022
  
30,493
 
  
 
(11,965,876
 
 
398,759
 
  
 
22,463,711
 
 
 
391,233
 
 
 
11,318,320
 
 
 
836,876
 
  
 
12,155,196
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
    
 
 
 
 
The accompanying notes are an integral pa
rt o
f the consolidated financial statements.
 
F-1
3

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Note
  
2022
   
2021
   
2020
 
Cash flows from operating activities:
                             
Cash generated from operating activities
                             
Profit for the year
        947,831       2,418,989       1,500,538  
Adjustments for income and expenses
  
38
     4,719,438       3,473,779       4,256,654  
Changes in assets and liabilities related to operating activities
  
38
     118,106       (568,695     302,458  
         
 
 
   
 
 
   
 
 
 
            5,785,375       5,324,073       6,059,650  
Interest received
          52,163       37,403       41,832  
Dividends received
          16,388       327,906       166,019  
Interest paid
          (259,719     (306,634     (397,351
Income tax paid
          (434,890     (351,469     (48,274
         
 
 
   
 
 
   
 
 
 
Net cash provided by operating activities
       
 
5,159,317
 
 
 
5,031,279
 
 
 
5,821,876
 
         
 
 
   
 
 
   
 
 
 
Cash flows from investing activities:
                             
Cash inflows from investing activities:
                             
Decrease in short-term financial instruments, net
          264,693       162,565        
Decrease in short-term investment securities, net
          5,010       32,544       17,684  
Collection of short-term loans
          123,700       137,196       77,114  
Decrease in long-term financial instruments
          330,032       343       99  
Proceeds from disposals of long-term investment securities
          104,190       78,261       46,065  
Proceeds from disposals of investments in associates and joint ventures
          342,645       100,634       2,715  
Proceeds from disposals of
non-current
assets held for sale
          20,136              
Proceeds from disposals of property and equipment
          15,792       61,425       102,526  
Proceeds from disposals of intangible assets
          10,993       14,618       39,654  
Collection of long-term loans
          1,134       4,166       4,608  
Decrease in deposits
          10,056       6,941       16,244  
Proceeds from settlement of derivatives
          1,542       1,495       845  
Proceeds from disposals of subsidiaries
                      165  
Cash inflow from business combination, net
                      115,834  
Cash inflow from transfers of business, net
                      5,395  
         
 
 
   
 
 
   
 
 
 
            1,229,923       600,188       428,948  
Cash outflows for investing activities:
                             
Increase in short-term financial instruments, net
                      (596,025
Increase in short-term loans
          (127,263     (100,209     (103,604
Increase in long-term loans
          (11,724     (9,877     (11,044
Increase in long-term financial instruments
          (330,032     (21     (2
Acquisitions of long-term investment securities
          (436,753     (286,566     (95,474
Acquisitions of investments in associates and joint ventures
          (11,065     (222,765     (170,292
Acquisitions of property and equipment
          (2,908,287     (2,915,851     (3,557,800
Acquisitions of intangible assets
          (138,136     (392,588     (129,976
Increase in deposits
          (12,146     (51,274     (12,175
Cash outflow for business combinations, net
          (62,312     (107,226     (2,958
         
 
 
   
 
 
   
 
 
 
            (4,037,718     (4,086,377     (4,679,350
         
 
 
   
 
 
   
 
 
 
Net cash used in investing activities
       
(2,807,795)
 
 
 
(3,486,189
 
 
(4,250,402
         
 
 
   
 
 
   
 
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
F-1
4

SK TELECOM CO., LTD. and Subsidiaries
Consolidated Statements of Cash Flows — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Note
  
2022
   
2021
   
2020
 
Cash flows from financing activities:
                             
Cash inflows from financing activities:
                             
Proceeds from short-term borrowings, net
           130,000             76,375  
Proceeds from issuance of debentures
          1,200,122       873,245       1,420,962  
Proceeds from long-term borrowings
          440,000       350,000       1,947,848  
Increase in financial liabilities at FVTPL
                129,123        
Cash inflows from settlement of derivatives
          768       332       36,691  
Transactions with
non-controlling
shareholders
          31,151       444,124       17,766  
         
 
 
   
 
 
   
 
 
 
            1,802,041       1,796,824       3,499,642  
Cash outflows for financing activities:
                             
Repayments of short-term borrowings, net
                (50,823      
Repayments of long-term payables — other
          (400,245     (426,267     (428,100
Repayments of debentures
          (1,390,000     (890,000     (975,500
Repayments of long-term borrowings
          (41,471     (286,868     (1,950,874
Payments of dividends
          (904,020     (1,028,520     (742,136
Payments of interest on hybrid bonds
          (14,766     (14,766     (14,766
Repayments of lease liabilities
          (401,054     (431,674     (412,666
Acquisition of treasury shares
                (76,111     (426,664
Cash outflows resulting from
spin-off
                (626,000      
Transactions with
non-controlling
shareholders
          (367     (19,406     (6,515
         
 
 
   
 
 
   
 
 
 
            (3,151,923     (3,850,435     (4,957,221
         
 
 
   
 
 
   
 
 
 
Net cash used in financing activities
  
38
  
 
(1,349,882
 
 
(2,053,611
 
 
(1,457,579
         
 
 
   
 
 
   
 
 
 
Net increase (decrease) in cash and cash equivalents
       
 
1,001,640
 
 
 
(508,521
 
 
113,895
 
Cash and cash equivalents at beginning of the year
          872,731       1,369,653       1,270,824  
Effects of exchange rate changes on cash and cash equivalents
          7,920       11,599       (15,066
         
 
 
   
 
 
   
 
 
 
Cash and cash equivalents at end of the year
       
1,882,291
 
 
 
872,731
 
 
 
1,369,653
 
         
 
 
   
 
 
   
 
 
 
 
The accompanying notes are
an
integral part of the interim consolidated financial statements.
 
F-1
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2022, 2021 and 2020
 
1.
Reporting Entity
(1)    General
SK Telecom Co., Ltd. (the “Parent Company”) was incorporated
o
n March 29, 1984, under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication 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 are listed on the Stock Market of Korea Exchange, and its depositary receipts (DRs) are listed on the New York Stock Exchange and the London Stock Exchange. As of December 31, 2022, the Parent Company’s total issued shares are held by the following shareholders:
 
 
  
Number of shares
 
  
Percentage of

total shares issued (%)
 
 
  
2022
 
  
2021
 
  
2022
 
  
2021
 
SK Inc.
     65,668,397        65,668,397        30.01        30.00  
National Pension Service
     16,846,066        21,076,493        7.69        9.63  
Institutional investors and other shareholders
     131,671,103        126,990,775        60.17        58.04  
Kakao Corp.
            3,846,487               1.76  
Kakao Investment Co., Ltd.
     3,846,487               1.76         
Treasury shares
     801,091        1,250,992        0.37        0.57  
    
 
 
    
 
 
    
 
 
    
 
 
 
       218,833,144        218,833,144        100.00        100.00  
    
 
 
    
 
 
    
 
 
    
 
 
 
These consolidated financial statements comprise the Parent Company and its subsidiaries (collectively referred to as the “Group”). SK Inc. is the ultimate controlling entity of the Parent Company.
On November 1, 2021, the date of
spin-off,
the Parent Company completed the
spin-off
of its business of managing investments in semiconductor, New Information and Communication Technologies(“ICT”) and other business and making new investments (See note 41).
(2)    List of subsidiaries
The list of subsidiaries as of December 31, 2022 and 2021 is as follows:
 
           
Ownership (%)(*1)
 
Subsidiary
 
Location
 
Primary business
 
Dec. 31,

2022
   
Dec. 31,

2021
 
Subsidiaries
owned by the
Parent Company
 
SK Telink Co., Ltd.
  Korea   International telecommunication and Mobile Virtual Network Operator service     100.0       100.0  
 
SK Communications Co., Ltd.
  Korea   Internet website services     100.0       100.0  
 
SK Broadband Co., Ltd.
  Korea   Fixed-line telecommunication services     74.4       74.3  
  PS&Marketing Corporation   Korea   Communications device retail business     100.0       100.0  
 
SERVICE ACE Co., Ltd.
  Korea   Call center management service     100.0       100.0  
 
SERVICE TOP Co., Ltd.
  Korea   Call center management service     100.0       100.0  
    SK O&S Co., Ltd.   Korea   Base station maintenance service     100.0       100.0  
   
SK Telecom China Holdings Co., Ltd.
  China   Investment (Holdings company)     100.0       100.0  
   
SK Global Healthcare Business Group Ltd.
  Hong Kong   Investment     100.0       100.0  
   
YTK Investment Ltd.
  Cayman Islands   Investment     100.0       100.0  
   
Atlas Investment
  Cayman Islands   Investment     100.0       100.0  
   
SK Telecom Americas, Inc.
  USA   Information gathering and consulting     100.0       100.0  
   
Quantum Innovation Fund I
  Korea   Investment     59.9       59.9  
   
SK Telecom Japan Inc.
  Japan   Information gathering and consulting     100.0       100.0  
   
Happy Hanool Co., Ltd.
  Korea   Service     100.0       100.0  
   
SK stoa Co., Ltd.
  Korea   Other telecommunication retail business     100.0       100.0  
   
Broadband Nowon Co., Ltd.(*2)
  Korea   Cable broadcasting services           100.0  
   
SAPEON Inc.(*2,3)
  USA   Manufacturing non-memory and other electronic integrated circuits     62.5        
 
F-1
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
           
Ownership (%)(*1)
 
Subsidiary
 
Location
 
Primary business
 
Dec. 31,

2022
   
Dec. 31,

2021
 
           
Subsidiaries owned by SK Broadband Co., Ltd.  
Home & Service Co., Ltd.
  Korea   Operation of information and communication facility     100.0       100.0  
 
Media S Co., Ltd.
  Korea   Production and supply services of broadcasting programs     100.0       100.0  
           
Subsidiary owned by PS&Marketing Corporation  
SK m&service Co., Ltd.(*2,4)
  Korea   Database and Internet website service     100.0        
           
Subsidiary owned by Quantum Innovation Fund I  
PanAsia Semiconductor Materials LLC.
  Korea   Investment     66.4       66.4  
           
Subsidiary owned by SK Telecom Japan Inc.  
SK Planet Japan, K. K.
  Japan   Digital contents sourcing service     79.8       79.8  
           
Subsidiary owned by SAPEON Inc.  
SAPEON Korea Inc.(*2,5)
  Korea   Manufacturing non-memory and other electronic integrated circuits     100.0        
           
Others(*6)  
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  
 
(*1)
The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company.
 
(*2)
Details of changes in the consolidation scope for the year ended December 31, 2022 are presented in note
1-(4).
 
(*3)
The Parent Company newly established SAPEON inc. and the ownership interest of the Parent Company in SAPEON inc. has changed from 100% to 62.5% due to unequal
paid-in
capital increase of SAPEON Inc. incurred after the establishment for the year ended December 31, 2022.
 
(*4)
PS&Marketing Corporation acquired 3,099,112 shares (100%) of SK m&service Co., Ltd. at
72,859 million in cash for the year ended December 31, 2022 in order to strengthen the distribution competitiveness and improve the synergy within SK ICT Family.
 
(*5)
The Parent Company newly established SAPEON Korea Inc. and disposed the entire shares of SAPEON Korea Inc. to SAPEON Inc. at
40,000 million in cash during the year ended December 31, 2022.
 
(*6)
Others are owned by Atlas Investment and another subsidiary of the Parent Company.
(3)    Condensed financial information of subsidiaries
 
  1)
Condensed financial information of significant subsidiaries as of and for the year ended December 31, 2022 is as follows:
 
(In millions of won)
  
As of December 31, 2022
    
2022
 
Subsidiary
  
Total assets
    
Total

liabilities
    
Total

equity
    
Revenue
    
Profit

(loss)
 
SK Telink Co., Ltd.
   196,281        60,927        135,354        302,595        15,008  
SK Broadband Co., Ltd.
     6,245,484        3,134,949        3,110,535        4,162,093        212,816  
PS&Marketing Corporation
     403,030        177,739        225,291        1,376,400        3,856  
SERVICE ACE Co., Ltd.
     97,597        59,189        38,408        194,798        2,429  
SERVICE TOP Co., Ltd.
     81,590        53,589        28,001        179,365        1,613  
SK O&S Co., Ltd.
     121,755        70,280        51,475        331,715        2,059  
Home & Service Co., Ltd.
     158,248        102,184        56,064        413,259        (1,217
SK stoa Co., Ltd.
     103,910        44,696        59,214        329,304        9,977  
SK m&service Co., Ltd.(*)
     160,704        95,263        65,441        211,081        4,157  
 
 
(*)
The financial information is the condensed financial information after the entity was included in the scope of consolidation.
 
F-1
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
  2)
Condensed financial information of significant subsidiaries as of and for the year ended December 31, 2021 is as follows:
 
(In millions of won)
  
As of December 31, 2021
    
2021
 
Subsidiary
  
Total assets
    
Total

liabilities
    
Total

equity
    
Revenue
    
Profit
 
SK Telink Co., Ltd.
   174,837        52,821        122,016        313,404        8,846  
SK Broadband Co., Ltd.
     5,971,505        3,091,837        2,879,668        4,058,997        213,468  
PS&Marketing Corporation
     478,745        263,457        215,288        1,445,540        3,179  
SERVICE ACE Co., Ltd.
     99,059        66,496        32,563        197,146        2,519   
SERVICE TOP Co., Ltd.
     72,026        46,067        25,959        185,452        2,066  
SK O&S Co., Ltd.
     95,748        58,870        36,878        285,591        69  
Home & Service Co., Ltd.
     131,947        90,775        41,172        405,255        550  
SK stoa Co., Ltd.
     107,943        59,931        48,012        316,249        19,163  
 
  3)
Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2020 is as follows:
 
(In millions of won)
  
As of December 31, 2020
    
2020
 
Subsidiary
  
Total assets
    
Total

liabilities
    
Total

equity
    
Revenue
    
Profit

(loss)
 
SK Telink Co., Ltd.
   176,872        60,702        116,170        351,334          18,010  
Eleven Street Co., Ltd.
     999,225        542,534        456,691        545,556        (29,623
SK m&service Co., Ltd.
     129,738        74,962        54,776        214,949        2,759  
SK Broadband Co., Ltd.
     5,765,808        3,119,489        2,646,319        3,713,021        150,694  
K-net
Culture and Contents Venture Fund
     377,683        65,896        311,787               (44,737
PS&Marketing Corporation
     470,521        257,809        212,712        1,427,218        (847
SERVICE ACE Co., Ltd.
     96,258        71,890        24,368        206,612        2,905  
SERVICE TOP Co., Ltd.
     69,496        51,584        17,912        195,479        2,592  
SK O&S Co., Ltd.
     88,663        54,012        34,651        278,948        778  
SK Planet Co., Ltd.
     536,981        214,846        322,135        276,462        1,305  
Dreamus Company(*1)
     172,443        76,642        95,801        226,329        (23,068
SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.)(*2)
     2,927,396        2,550,936           376,460        1,327,150        14,227  
Onestore Co., Ltd.
     243,442        99,943        143,499        155,218        1,952  
Home & Service Co., Ltd.
     124,197        88,740        35,457        397,754        (20
SK stoa Co., Ltd.
     107,982        79,339        28,643        268,693        17,154  
FSK L&S Co., Ltd.(*3)
     66,117        35,192        30,925        205,623        3,022  
Incross Co., Ltd.(*4)
     179,308        104,778        74,530        39,440        12,307  
Tmap Mobility Co., Ltd.
     170,381        17,179        153,202               (1,857
 
 
(*1)
The condensed financial information of Dreamus Company is consolidated financial information including iriver Enterprise Ltd. and three other subsidiaries of Dreamus Company.
 
(*2)
The condensed financial information of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) is consolidated financial information including SKinfosec Information Technology(Wuxi) Co., Ltd. and two other subsidiaries of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) and including profit and loss which Life Security & Holdings Co., Ltd. recognized prior to the merger.
 
(*3)
The condensed financial information of FSK L&S Co., Ltd. is consolidated financial information including FSK L&S (Shanghai) Co., Ltd. and two other subsidiaries of FSK L&S Co., Ltd.
 
F-1
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(*4)
The condensed financial information of Incross Co., Ltd. is consolidated financial information including Infra Communications Co., Ltd. and another subsidiary of Incross Co., Ltd.
(4)    Changes in subsidiaries
1)    The list of subsidiaries that were newly included in consolidation for the year ended December 31, 2022 is as follows:
 
Subsidiary
  
Reason
SAPEON Korea Inc.
   Established by the Parent Company
   
SAPEON Inc.
   Established by the Parent Company
   
SK m&service Co., Ltd.
   Acquired by PS&Marketing Corporation
2)    The list of subsidiaries that were excluded from consolidation for the year ended December 31, 2022 is as follows:
 
Subsidiary
  
Reason
Broadband Nowon Co., Ltd.
   Merged into SK Broadband Co., Ltd
(5)    The financial information of significant
non-controlling
interests of the Group as of and for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
  
SK Broadband

Co., Ltd.(*)
 
Ownership of
non-controlling
interests (%)
     25.3  
   
    
As of

December 31,

2022
 
Current assets
   1,348,305  
Non-current
assets
     5,076,410  
Current liabilities
     (1,707,805
Non-current
liabilities
     (1,488,834
Net assets
     3,228,076  
Carrying amount of
non-controlling
interests
     816,676  
   
    
2022
 
Revenue
   4,156,326  
Profit for the year
     217,303  
Total comprehensive income
     237,860  
Profit attributable to
non-controlling
interests
     51,528  
Net cash provided by operating activities
        1,184,794   
Net cash used in investing activities
     (807,965
Net cash used in financing activities
     (415,908
Effects of exchange rate changes on cash and cash equivalents
     (584
Net decrease in cash and cash equivalents
     (39,663
Dividends paid to
non-controlling
interests for the year ended December 31, 2022
    
 
 
(*)
The condensed financial information above is the consolidated financial information of the subsidiary and is reflected fair value adjustments that occurred a business combination.
 
F-
19

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
SK Broadband

Co., Ltd.(*)
 
Ownership of
non-controlling
interests (%)
     25.1  
   
    
As of

December 31,

2021
 
Current assets
   1,252,935  
Non-current
assets
     4,886,448  
Current liabilities
     (1,433,800
Non-current
liabilities
     (1,717,074
Net assets
     2,988,509  
Carrying amount of
non-controlling
interests
     740,771  
   
    
2021
 
Revenue
   4,049,156  
Profit for the year
     198,268  
Total comprehensive income
     214,003  
Profit attributable to
non-controlling
interests
     52,935  
Net cash provided by operating activities
   1,072,307  
Net cash used in investing activities
     (615,510
Net cash used in financing activities
     (248,139
Effects of exchange rate changes on cash and cash equivalents
     (59
Net increase in cash and cash equivalents
     208,599  
Dividends paid to
non-controlling
interests for the year ended December 31, 2021
    
 
 
(*)
The condensed financial information above is the consolidated financial information of the subsidiary and is reflected fair value adjustments that occurred a business combination.
 
 
F-
2
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
Dreamus

Company
   
Onestore

Co., Ltd.
   
Eleven Street

Co., Ltd.
   
SK Shieldus

Co., Ltd.(Formerly,

ADT CAPS

Co., Ltd.)(*)
   
Incross Co., Ltd.
   
SK Broadband

Co., Ltd.
 
Ownership of
non-controlling
interests (%)
    48.6       47.4       18.2       37.4       55.2       24.9  
   
   
As of December 31, 2020
 
Current assets
  146,278       215,672       896,828       306,520       165,668       1,179,743  
Non-current
assets
    26,165       27,770       102,397       2,620,876       13,640       4,586,065  
Current liabilities
    (72,762     (96,139     (508,427     (417,194     (101,065     (1,279,132
Non-current
liabilities
    (3,880     (3,804     (34,107     (2,133,742     (3,713     (1,840,357
Net assets
    95,801       143,499       456,691       376,460       74,530       2,646,319  
Fair value adjustment and others
                (14,297     (1,227,442            
Net assets on the consolidated financial statements
    95,801       143,499       442,394       (850,982     74,530       2,646,319  
Carrying amount of
non-controlling
interests
    47,452       68,573       81,754       (318,267     46,010       665,020  
   
   
2020
 
Revenue
  226,329       155,218       545,556       1,327,150       39,440       3,713,021  
Profit (loss) for the year
    (23,068     1,952       (29,623     14,227       12,307       150,694  
Depreciation of the fair value adjustment and others
                (492     (19,229            
Profit (loss) for the year on the consolidated financial statements
    (23,068     1,952       (30,115     (5,002     12,307       150,694  
Total comprehensive income (loss)
    (22,740     2,278       (15,793     (3,758     12,145       151,417  
Profit (loss) attributable to
non-controlling
interests
    (10,770     930       (5,565     (12,432     7,568       27,240  
Net cash provided by operating activities
  15,223       38,006       65,499       248,524       24,629       1,035,474  
Net cash used in investing activities
    (2,471     (62,816     (71,644     (229,130     (2,284     (844,454
Net cash provided by (used in) financing activities
    (2,329     (2,499     (18,059     11,134       (4,278     (93,259
Effects of exchange rate changes on cash and cash equivalents
    (2,053           (385     (554            
Net increase (decrease) in cash and cash equivalents
    8,370       (27,309     (24,589     29,974       18,067       97,761  
Dividends paid to
non-controlling
interests for the year ended December 31, 2020
              5,000       17,273              
 
 
(*)
The condensed financial information of SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co., Ltd.) includes profit and loss, cash flows which Life Security & Holdings Co., Ltd. recognized prior to the merger.
 
2.
Basis of Preparation
(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”).
 
F-2
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
These consolidated financial statements were authorized for issue by the Board of Directors on February 7, 2023 for statutory shareholders’ approval purpose, and
re-authorized
for issue by management in connection with the filing with the U.S. Securities Exchange Commission on April 27, 2023.
(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 measured at fair value through profit or loss (“FVTPL”);
 
   
financial instruments measured at fair value through other comprehensive income (“FVOCI”);
 
   
liabilities measured at fair value for cash-settled share-based payment arrangement; and
 
   
liabilities (assets) for defined benefit plans recognized at 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-22

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(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 effects on the amounts recognized in the consolidated financial statements is included in notes for the following areas: consolidation (whether the Group has de facto control over an investee), and determination of stand-alone selling prices.
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: loss allowance (notes 6 and 35), estimated useful lives of costs to obtain a contract (notes 7), property and equipment and intangible assets (notes 3 (7), (9), 13 and 17), impairment of goodwill (notes 3 (12) and 16), recognition of provision (notes 3 (17) and 20), measurement of defined benefit liabilities (notes 3 (16) and 21), transaction of derivative instruments (notes 3 (6) and 22) and recognition of deferred tax assets (liabilities) (notes 3 (25) and 31).
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 an established policies and processes with respect to the measurement of fair values including Level 3 fair values, and the measurement of fair values is reviewed and is directly reported to the finance executives.
The Group 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 Group 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 (unadjusted) market prices 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 or indirectly; 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.
 
F-23

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Information about assumptions used for fair value measurements are included in note 22 and note 35.
 
3.
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. Except for certain standards and amendments which are effective for annual periods beginning on or after January 1, 2022, the significant accounting policies applied by the Group in these consolidated financial statements have been consistently applied for all periods presented, except for the changes described below.
The new and amended standards and interpretations that are effective for annual periods beginning on or after January 1, 2022 are as follows. These amended standards had no significant impact on the Group’s consolidated financial statements.
 
   
Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 7).
 
   
Reference to Conceptual Framework (Amendments to IFRS 3).
 
   
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
 
   
Annual Improvements to IFRS 2018-2020.
As described in note 41, the Parent Company carried out a
spin-off
of its businesses of managing investments in semiconductor, New Information and Communication Technologies(“ICT”) and other businesses and making new investments pursuant to the resolution of the Board of Directors on June 10, 2021 and approval of shareholders’ meeting on October 12, 2021. The Group has applied IFRS 5,
Non-current
Assets Held for Sale and Discontinued Operations
, and accordingly, presented profit or loss of the
spin-off
business as discontinued operations.
(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 three reportable segments as described in note 4. 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.
(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.
In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
 
F-2
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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, except if related to the costs to issue debt or equity securities recognized based on IAS 32 and IFRS 9.
Consideration transferred does not include the amount settled in relation to the
pre-existing
relationship. Such amounts are 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.
(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 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.
(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)    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)    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
 
F-2
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
(g)    Business combinations under common control
SK Inc. 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 investment securities 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 initially recognized at the acquisition cost and subsequently measured using the weighted average method. During the period, a perpetual inventory system is used to track inventory quantities, which is adjusted based on the physical inventory counts performed at the period end. When the net realizable value of inventories is less than cost, the carrying amount is reduced to the net realizable value, and any difference is charged to current period as operating expenses.
(5)    Non-derivative
financial assets
(a)    Recognition and initial measurement
Accounts receivable — trade and debt investments issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless an accounts receivable — trade without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. An accounts receivable — trade without a significant financing component is initially measured at the transaction price.
(b)    Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at:
 
   
FVTPL
 
   
FVOCI — equity investment
 
   
FVOCI — debt investment
 
   
Financial assets at amortized cost
A financial asset is classified based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
 
F-2
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
 
   
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
 
   
its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
 
   
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
 
   
its contractual terms give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on specified dates.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income (“OCI”). This election is made on an
investment-by-investment
basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
The following accounting policies are applied to the subsequent measurement of financial assets.
 
Financial assets at FVTPL
   These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
   
Financial assets at amortized cost
   These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
   
Debt investments at FVOCI
   These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
   
Equity investments at FVOCI
   These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
(c)    Impairment
The Group estimates the expected credit losses (“ECL”) for the debt instruments measured at amortized cost and FVOCI based on the Group’s historical experience and informed credit assessment that includes forward-looking information. The impairment approach is decided based on the assessment of whether the credit risk of a financial asset has increased significantly since initial recognition. However, the Group applies a practical expedient and recognizes impairment losses equal to lifetime ECLs for accounts receivable – trade and lease receivables from the initial recognition.
 
F-2
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
ECL is a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e., the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
At each reporting date, the Group assesses whether financial assets measured at amortized cost and debt investments at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Loss allowance on financial assets measured at amortized cost is deducted from the carrying amount of the respective assets, while loss allowance on debt instruments at FVOCI is recognized in OCI, instead of reducing the carrying amount of the transferred assets.
(d)    Derecognition
Financial assets
The Group derecognizes a financial asset when:
 
   
the contractual rights to the cash flows from the financial asset expire; or
 
   
it transfers the rights to receive the contractual cash flows in a transaction in which either:
 
   
substantially all of the risks and rewards of ownership of the financial asset are transferred; or
 
   
the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognized in its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized.
Interest rate benchmark reform
When the basis for determining the contractual cash flows of a financial asset or financial liability measured at amortized cost changed as a result of interest rate benchmark reform, the Group updated the effective interest rate of the financial asset or financial liability to reflect the change that is required by the reform. A change in the basis for determining the contractual cash flows is required by interest rate benchmark reform if the following conditions are met:
 
   
the change is necessary as a direct consequence of the reform; and
 
   
the new basis for determining the contractual cash flows is economically equivalent to the previous basis — i.e., the basis immediately before the change.
When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by interest rate benchmark reform, the Group first updated the effective rate of the financial asset or financial liability to reflect the change that is required by interest rate benchmark reform. After that, the Group applied the policies on accounting for modifications to the additional changes.
(e)    Offsetting
Financial assets and financial liabilities are offset, and the net amount is presented in the statement of financial position when the Group currently has a legally enforceable right to offset the recognized amounts and it intends either to settle on a net basis or to settle the liability and realize the asset simultaneously.
 
F-2
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
A financial asset and a financial liability are offset only when the right to set off the amount is not contingent on future event and legally enforceable even on the event of default, insolvency or bankruptcy.
(6)    Derivative financial instruments, including hedge accounting
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value at the end of each reporting period, and changes therein are accounted for as described below.
(a)    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 variability in cash flow associated with 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.
Hedges directly affected by interest rate benchmark reform
When uncertainty arises about the interest rate benchmark designated as a hedged risk and the timing or the amount of the interest rate
benchmark-based
cash flows of the hedged item or of the hedging instrument as a result of IBOR reform, for the purpose of evaluating whether there is an economic relationship between the hedged items and the hedging instruments, the Group assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based is not altered as a result of interest rate benchmark reform.
For a cash flow hedge of a forecast transaction, the Group assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur.
The Group will cease applying the specific policy for assessing the economic relationship between the hedged item and the hedging instrument
 
   
to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate
benchmark-based
cash flows of the respective item or instrument; or
 
   
when the hedging relationship is discontinued.
When the basis for determining the contractual cash flows of the hedged item or hedging instrument changes as a result of IBOR reform and therefore there is no longer uncertainty arising about the cash flows of the hedged item or the hedging instrument, the Group amends the hedge documentation of that hedging relationship to reflect the change(s) required by IBOR reform.
The Group amends the formal hedge documentation by the end of the reporting period during which a change required by IBOR reform is made to the hedged risk, hedged item or hedging instrument. These amendments in the formal hedge documentation do not constitute the discontinuation of the hedging relationship or the designation of a new hedging relationship.
If changes are made in addition to those changes required by interest rate benchmark reform to the financial asset or financial liability designated in a hedging relationship or to the designation of the hedging relationship, the
 
F-
29

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Group determines whether those additional changes result in the discontinuation of hedging accounting. If the additional changes do not result in the discontinuation of hedging accounting, the Group amend the formal designation of the hedging relationship.
When the interest rate benchmark on which the hedged future cash flows had been based is changed as required by IBOR reform, for the purpose of determining whether the hedged future cash flows are expected to occur, the Group deems that the hedging reserve recognized in OCI for that hedging relationship is based on the alternative benchmark rate on which the hedged future cash flows will be based.
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.
(b)    Other derivative financial instruments
Other derivative financial instrument not designated as a hedging instrument are measured at fair value, and the changes in fair value of the derivative financial instrument is recognized immediately in profit or loss.
(7)    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.
Property and equipment, subsequently, are carried at cost less accumulated depreciation and accumulated impairment losses.
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 reliably measured. 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
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 ~ 1530
Other property and equipment
   3 ~10
Right-of-use
assets
   1 ~ 50
 
F-
3
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
The Group reviews estimated residual values, expected useful lives, and depreciation methods annually at the end of each reporting date and adjusts, if appropriate. The change is accounted for as a change in an accounting estimate.
(8)    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, and assets that are ready for their intended use or sale when acquired are not qualifying assets either.
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 the period.
(9)    Intangible assets
Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses
, as applicable
.
Intangible assets, except for goodwill, are amortized 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 and brand are expected to be available for use as there are no foreseeable limits to the periods. These intangible assets are determined as having indefinite useful lives and, therefore, not amortized.
The estimated useful lives of the Group’s intangible assets are as follows:
 
    
Useful lives (years)
Frequency usage rights
   2.4 ~ 10
Land usage rights
   5
Industrial rights
   5, 10
Development costs
   5
Facility usage rights
   10, 20
Customer relations
   3 ~ 15
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, if appropriate, 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 reliably measured, 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.
 
F-3
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
(10)    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 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.
(b)    Grants related to income
Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.
(11)    Investment property
Investment properties are properties held to earn
rent
i
ncome
 
and/or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are reported at cost less accumulated depreciation and accumulated impairment losses.
Subsequent expenditures are recognized in carrying amount of an asset or as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably. The carrying amount of those parts that are replaced is derecognized. The costs associated with routine maintenance and repairs are recognized in profit or loss as incurred.
Investment property, except for land, is depreciated on a straight-line basis over estimated useful lives of 30 years. In addition,
right-of-use
asset classified as investment property is depreciated using the
straight-line
basis from the commencement date to the end of the lease term.
The depreciation method, estimated 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.
(12)    Impairment of
non-financial
assets
The carrying amounts of the Group’s
non-financial
assets other than contract assets recognized for revenue arising from contracts with a customer, assets recognized for the costs to obtain or fulfill a contract with a customer, 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 amounts to their carrying amounts.
The Group estimates the recoverable amount of an individual asset, and 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
 
F-3
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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 synergy arising from the business acquired. Any impairment identified at the CGU level will first reduce the carrying amount 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.
(13)    Leases
A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
(a)    Group as a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, the Group has elected not to separate
non-lease
components and account for the lease and
non-lease
components as a single lease component.
The Group recognizes a
right-of-use
asset and a lease liability at the lease commencement date. The
right-of-use
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The
right-of-use
asset is subsequently depreciated using the
straight-line
basis from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the
right-of-use
asset reflects that the Group will exercise a purchase option. In that case the
right-of-use
asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the
right-of-use
asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
 
   
fixed payments, including
in-substance
fixed payments;
 
F-3
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
   
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
 
   
amounts expected to be payable under a residual value guarantee; and
 
   
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised
in-substance
fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the
right-of-use
asset, or is recorded in profit or loss if the carrying amount of the
right-of-use
asset has been reduced to zero.
The Group presents
right-of-use
assets that do not meet the definition of investment property in ‘property and equipment’ in the statement of financial position.
The Group has elected not to recognize
right-of-use
assets and lease liabilities for leases of
low-value
assets and short-term leases. The Group recognizes the lease payments on short-term leases and leases of low value assets as an expense on a straight-line basis over the lease term.
(b)    Group as a lessor
At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, is accounts for its interests in the head lease and the
sub-lease
separately. It assesses the lease classification of a
sub-lease
with reference to the
right-of-use
asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the
sub-lease
as an operating lease.
If an arrangement contains lease and
non-lease
components, then the Group applies IFRS 15 to allocate the consideration in the contract.
The Group applies derecognition and impairment requirements in IFRS 9 to the net investment in the lease. The Group further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.
(14)    Non-current
assets held for sale
Non-current
assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sales rather than through continuing use, are classified as held for sale. In order to be classified as
 
F-3
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
held for sale, the assets (or disposal groups) must be available for immediate sale in their present condition and their sale must be highly probable. The assets or disposal groups that are classified as
non-current
assets held for sale are measured at the lower of their carrying amounts and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of assets (or disposal groups) 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.
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).
(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. 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 liabilities.
(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, these liabilities are measured at fair value. The amount of change in fair value of financial liability that is attributable to changes in the credit risk of that liability shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability shall be presented 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.
(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 minus transaction costs that are directly attributable to the issue of the financial liabilities. Subsequent to initial recognition, other financial liabilities are measured at amortized cost and the interest expenses are recognized using the effective interest method.
(c)    Derecognition of financial liability
The Group extinguishes a financial liability only when the contractual obligation is fulfilled, canceled or expires. The Group recognizes new financial liabilities at fair value based on new contracts and eliminates existing liabilities when the contractual terms of the financial liabilities change and the cash flows change substantially.
When a financial liability is derecognized, the difference between the carrying amount and the consideration paid (including any transferred
non-cash
assets or liabilities assumed) is recognized in profit or loss.
(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 period in which the employees render related services. When an employee has rendered a 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.
 
F-3
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(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 period in which the employees render related services. 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.
(c)    Retirement benefits: defined contribution plans
When an employee has rendered a 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.
(d)    Retirement benefits: defined benefit plans
At the end of reporting period, defined benefit 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 (asset), 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 a gain or loss on a settlement when the settlement of defined benefit plan occurs.
(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 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.
(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. If the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.
 
F-3
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
If 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 in Korea.
(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.
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)    Emissions liability
Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. 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. The emissions liabilities are derecognized when they are surrendered to the government.
(19)    Transactions in foreign currencies
(a)    Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the 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 exchange rate at the reporting date.
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.
Exchange differences arising from monetary items except for financial liabilities designated cashflow hedging instruments are recognized in profit or loss. If a gain or loss on a
non-monetary
item is recognized in other comprehensive income, any foreign exchange differences are also recognized in other comprehensive income. When a gain or loss on a
non-monetary
item is recognized in profit or loss, any foreign exchange differences are also 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
 
F-3
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
When a foreign operation is disposed, 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 Parent Company repurchases its own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The gains 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 the value indirectly by reference to the fair value of the equity instruments granted. The 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.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value of the share appreciation rights. Any changes in the fair value of the liability are recognized in profit or loss.
(23)    Revenue
(a)    Identification of performance obligations in contracts with customers
The Group identifies the distinct services or goods as performance obligations in contracts with customers such as (1) providing wireless and fixed-line telecommunications services, (2) sale of handsets and (3) providing other goods and services. In the case of providing both wireless telecommunications service and selling a handset together to one customer, the Group allocates considerations from the customer between the separate performance obligations for handset sale and wireless telecommunications service. The handset sale revenue is recognized when handset is delivered, and the wireless telecommunications service revenue is recognized over the period of the contract term as stated in the subscription contract.
 
F-3
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(b)    Allocation of the transaction price to each performance obligation
The Group allocates the transaction price of a contract to each performance obligation identified on a relative stand-alone selling price basis. The Group uses “adjusted market assessment approach” for estimating the stand-alone selling price of a good or service.
(c)    Incremental costs of obtaining a contract
The Group pays commissions to its retail stores and authorized dealers in connection with acquiring service contracts. The commissions paid to these parties constituted a significant portion of the Group’s operating expenses. These commissions would not have been paid if there have been no binding contracts with subscribers and, therefore, the Group capitalizes certain costs associated with commissions paid to obtain new customer contracts and amortize them over the expected contract periods.
(d)    Customer loyalty programs
The Group provides customer loyalty points to customers based on the usage of the service to which the Group allocates a portion of consideration received as a performance obligation distinct from wireless telecommunications services. The amount to be allocated to the loyalty program is measured according to the relative stand-alone selling price of the customer loyalty points. The amount allocated to the loyalty program is deferred as a contract liability and is recognized as revenue when loyalty points are redeemed.
(e)     Consideration payable to a customer
Based on the subscription contract, a customer who uses the Group’s wireless telecommunications services may receive a discount for purchasing goods or services from a designated third party. The Group pays a portion of the price discounts that the customer receives to the third party which is viewed as consideration payable to a customer. The Group accounts for the amounts payable to the third party as a reduction of the wireless telecommunications service revenue.
(24)    Finance income and finance costs
Finance income comprises interest income on funds invested (including financial assets measured at fair value), dividend income, gains on disposal of financial assets at FVTPL, changes in fair value of financial instruments at FVTPL, 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 when the right to receive the dividend is established.
Finance costs comprise interest expense on borrowings, changes in fair value of financial instruments at FVTPL, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures is recognized as it accrues in profit or loss using the effective interest rate method.
(25)    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 OCI.
The Group pays income tax in accordance with the
tax-consolidation
system when the Parent Company and its subsidiaries are economically unified.
(a)    Current tax
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
 
F-
39

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
(b)    Deferred tax
Deferred tax is recognized by 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 the Group has a legally enforceable right to offset the amount recognized and intends to settle the 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.
(c)    Uncertainty over income tax treatments
The Group assesses the uncertainty over income tax treatments pursuant to IAS 12. If the Group concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the Group reflects the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty:
 
   
The most likely amount: the single most likely amount in a range of possible outcomes.
 
   
The expected value: the sum of the
probability-weighted
amounts in a range of possible outcomes.
(26)    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 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.
 
F-
4
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(27)    Discontinued operation
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:
 
   
represents a separate major line of business or geographic area of operations;
 
   
is part of a single
co-ordinated
plan to dispose of a separate major line of business or geographic area of operations; or
 
   
is a subsidiary acquired only for a purpose of resale.
When an operation is classified as a discontinued operation, the comparative statements of income and comprehensive income are
re-presented
as if the operation had been discontinued from the start of the
earliest 
comparative year.
(28)    Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective for annual period beginning after January 1, 2022 are disclosed below. The following amendments are not expected to have a significant impact on the Group’s consolidated financial statements.
 
   
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
 
   
Classification of Liabilities as Current or
Non-current
(Amendments to IAS 1).
 
   
IFRS 17
Insurance Contracts
and amendments to IFRS 17
Insurance Contracts
.
 
   
Disclosure of Accounting Polices (Amendments to IAS 1).
 
   
Definition of Accounting Estimates (Amendments to IAS 8).
 
4.
Operating Segments
The Group’s operating segments have been identified to be each business unit, by which the Group provides different services and merchandise. The Group’s reportable segments include: cellular services, which include cellular voice service, wireless data service and wireless internet services; fixed-line telecommunication services, which include telephone services, internet services, and leased line services; and all other businesses, which include providing shopping channel and digital platform for selling products and other immaterial operations, each of which does not meet the quantitative threshold to be considered as a reportable segment and are presented collectively as others.
 
(1)
Segment information for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                                       
    
2022
 
    
Continuing operations
 
    
Cellular

services
    
Fixed-line

telecommunication

services
    
Others (*1)
   
Sub-total
    
Adjustments

(*2)
   
Total
 
Total revenue
   14,496,866        4,895,791        592,188       19,984,845        (2,679,872     17,304,973  
Inter-segment revenue
     1,554,550        1,082,802        42,520       2,679,872        (2,679,872      
External revenue
     12,942,316        3,812,989        549,668       17,304,973              17,304,973  
Depreciation and amortization
     2,738,547        981,838        22,730       3,743,115        (121,790     3,621,325  
Operating profit (loss)
     1,334,306        311,210        (2,126     1,643,390        (49,042     1,594,348  
Finance income and costs, net
                                                (276,489
Loss relating to investments in associates and joint ventures, net
                                                (81,707
Profit before income tax
                                                1,236,152  
 
F-4
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
   
2021
 
   
Continuing operations
   
Discontinued

operations
 
   
Cellular

services
   
Fixed-line

telecommunication

services
   
Others (*1)
   
Sub-total
   
Adjustments

(*2)
   
Total
 
Total revenue
  14,214,407       4,790,641       362,978       19,368,026       (2,619,441     16,748,585       2,845,424  
Inter-segment revenue
    1,495,934       1,112,935       10,572       2,619,441       (2,619,441           462,341  
External revenue
    12,718,473       3,677,706       352,406       16,748,585             16,748,585       2,383,083  
Depreciation and amortization
    2,812,827       958,462       11,318       3,782,607       (110,052     3,672,555       287,412  
Operating profit (loss)
    1,123,147       294,070       14,550       1,431,767       595       1,432,362       73,005  
Finance income and costs, net
                                            (160,471     (222,406
Gain relating to investments in subsidiaries, associates and joint ventures, net
                                            446,300       1,502,147  
Profit before income tax
                                            1,718,191       1,352,746  
 
(In millions of won)
 
   
2020
 
   
Continuing operations
   
Discontinued

operations
 
   
Cellular

services
   
Fixed-line

telecommunication

services
   
Others (*1)
   
Sub-total
   
Adjustments

(*2)
   
Total
 
Total revenue
  13,853,274       4,467,863       317,065       18,638,202       (2,550,455     16,087,747       3,015,563  
Inter-segment revenue
    1,505,311       1,035,645       9,499       2,550,455       (2,550,455           478,659  
External revenue
    12,347,963       3,432,218       307,566       16,087,747             16,087,747       2,536,904  
Depreciation and amortization
    2,892,460       874,562       10,675       3,777,697       (113,032     3,664,665       326,417  
Operating profit (loss)
    1,031,887       258,973       645       1,291,505       (256,485     1,035,020       69,614  
Finance income and costs, net
                                            (182,258     (73,739
Gain relating to investments in subsidiaries, associates and joint ventures, net
                                            52,456       975,947  
Profit before income tax
                                            905,218       971,822  
 
 
(*1)
The Parent Company carried out
spin-off
of its business of managing investments in semiconductor, new Information and Communication Technologies(“ICT”) and making new investments during the year ended December 31, 2021. Accordingly, the Group reclassified SK stoa Co., Ltd. from Commerce Services segment to Others segment.
 
(*2)
Adjustments for operating profit (loss) are the amount differences from operating profit (loss) included in CODM report which is based on Korean IFRS to operating profit (loss) under IFRS. The reconciliation of these amounts is included in note
4-(2).
Adjustments for depreciation and amortization and operating profit (loss) also included the amount due to the consolidation adjustments, such as internal transactions.
The Group has restated the previously reported segment information for the year ended December 31, 2020 to reflect reclassification of operating segments due to
spin-off.
 
F-4
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Reconciliation of total segment operating profit to consolidated operating profit from continuing operations for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                  
    
2022
   
2021
   
2020
 
Total segment operating profit (Before adjustments)
     1,643,390         1,431,767         1,291,505  
Adjustments(*1)
     (31,320     (44,605     (42,927
    
 
 
   
 
 
   
 
 
 
Total segment operating profit
     1,612,070       1,387,162       1,248,578  
       
Other operating income:
                        
Gain on disposal of property and equipment and intangible assets
     15,985       39,136       34,625  
Others(*2)
     40,274       76,627       61,126  
    
 
 
   
 
 
   
 
 
 
       56,259       115,763       95,751  
       
Other operating expenses:
                        
Impairment loss on property and equipment and intangible assets
     (17,027     (3,135     (200,705
Loss on disposal of property and equipment and intangible assets
     (20,465     (28,158     (25,633
Donations
     (13,125     (12,800     (16,051
Bad debt for accounts receivable — other
     (3,011     (3,995     (6,640
Others(*3)
     (20,353     (22,475     (60,280
    
 
 
   
 
 
   
 
 
 
       (73,981     (70,563     (309,309
    
 
 
   
 
 
   
 
 
 
Consolidated operating profit from continuing operations
   1,594,348       1,432,362       1,035,020  
    
 
 
   
 
 
   
 
 
 
 
 
(*1)
Adjustments for operating profit included the amount due to the consolidation adjustments, such as internal transactions.
 
(*2)
Others for the year ended December 31, 2020 includes ₩12 billion of gain on business transfer and various other income with inconsequential amounts.
 
(*3)
Others for the years ended December 31, 2022, 2021 and 2020 include ₩6.1 billion, ₩17.0 billion and ₩51.2 billion of penalties, respectively, and various other expenses with inconsequential amounts.
Domestic revenue for the years ended December 31, 2022, 2021 and 2020 amounts to ₩17,302 billion, ₩16,734 billion and ₩16,072 billion, respectively. Domestic
non-current
assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2022, 2021 and 2020 amount to ₩20,056 billion, ₩20,227 billion and ₩22,242 billion, and
non-current
assets outside of Korea amount to ₩4 billion, ₩4 billion and ₩63 billion, respectively.
No single customer contributed 10% or more to the Group’s total revenue for the years ended December 31, 2022, 2021 and 2020.
The Group principally operates its businesses in Korea and the revenue amounts earned outside of Korea are immaterial. Therefore, no entity-wide geographical information is presented.
 
F-4
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
Disaggregation of operating revenues considering the economic factors that affect the amounts, timing and uncertainty of the Group’s revenue and future cash flows is as follows:
 
(In millions of won)
                         
         
2022
    
2021
    
2020
 
Goods and Services transferred at a point in time:
 
        
Cellular revenue
   Goods(*1)    969,025        959,932        983,431  
Fixed-line telecommunication revenue
   Goods      66,477        105,340        90,692  
Other revenue
   Others(*2)      464,805        328,328        284,221  
         
 
 
    
 
 
    
 
 
 
            1,500,307        1,393,600        1,358,344  
         
 
 
    
 
 
    
 
 
 
Goods and Services transferred over time:
 
        
Cellular revenue
   Wireless service(*3)      10,253,217        10,100,368        9,806,719  
     Cellular interconnection      471,163        493,820        472,215  
     Other(*4)      1,248,911        1,164,353        1,085,598  
Fixed-line telecommunication revenue
   Fixed-line service      156,662        217,000        230,401  
     Cellular interconnection      21,209        69,769        83,762  
     Internet Protocol Television(*5)      1,816,130        1,786,765        1,606,740  
     International calls      180,689        162,379        160,293  
     Internet service and miscellaneous(*6)      1,571,822        1,336,453        1,260,330  
Other revenue
   Miscellaneous      84,863        24,078        23,345  
         
 
 
    
 
 
    
 
 
 
            15,804,666        15,354,985        14,729,403  
         
 
 
    
 
 
    
 
 
 
Continuing operations
          17,304,973        16,748,585        16,087,747  
         
 
 
    
 
 
    
 
 
 
Discontinued operations
               2,383,083        2,536,904  
         
 
 
    
 
 
    
 
 
 
      17,304,973        19,131,668        18,624,651  
         
 
 
    
 
 
    
 
 
 
 
 
(*1)
Cellular revenue includes revenue from sales of handsets and other electronic accessories.
 
(*2)
Miscellaneous other revenue includes revenue from considerations received for the product sales-type data broadcasting channel use and sales of goods through data broadcasting.
 
(*3)
Wireless service includes revenue from wireless voice and data transmission services principally derived from usage charges to wireless subscribers.
 
(*4)
Other revenue includes revenue from billing and collection services as well as other miscellaneous services.
 
(*5)
Internet Protocol Television (“IPTV”) service revenue includes revenue from IPTV services principally derived from usage charges to IPTV subscribers.
 
(*6)
Internet service includes revenue from the high speed broadband internet service principally derived from usage charges to subscribers as well as other miscellaneous services.
 
F-4
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
5.
Deposits with Restrictions on Use
Deposits which are restricted in use as of December 31, 2022 and 2021 are summarized as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Cash and cash equivalents(*)
   43         
Short-term financial instruments (*)
     79,514        79,500  
Long-term financial instruments (*)
     375        372  
    
 
 
    
 
 
 
     79,932        79,872  
    
 
 
    
 
 
 
 
 
(*)
Includes the followings: i) deposits restricted in use due to the court’s order for seizure and collection of bonds; and ii) charitable trust fund established by the Group, profits from which shall be donated to charitable institutions. As of December 31, 2022, such deposits and funds cannot be withdrawn before maturity.
 
6.
Trade and Other Receivables
 
(1)
Details of trade and other receivables as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                   
    
December 31, 2022
 
    
Gross

amount
    
Loss

allowance
   
Carrying

amount
 
Current assets:
                         
Accounts receivable — trade
   2,205,530        (234,919     1,970,611  
Short-term loans
     79,298        (708     78,590  
Accounts receivable — other(*)
     522,091        (42,310     479,781  
Accrued income
     1,732              1,732  
Guarantee deposits (Other current assets)
     113,204              113,204  
    
 
 
    
 
 
   
 
 
 
       2,921,855        (277,937     2,643,918  
Non-current
assets:
                         
Long-term loans
     71,857        (44,884     26,973  
Long-term accounts receivable — other(*)
     375,829        (1,878     373,951  
Guarantee deposits
     167,741        (300     167,441  
Long-term accounts receivable — trade (Other
non-current
assets)
     14,165        (4     14,161  
    
 
 
    
 
 
   
 
 
 
       629,592        (47,066     582,526  
    
 
 
    
 
 
   
 
 
 
     3,551,447        (325,003     3,226,444  
    
 
 
    
 
 
   
 
 
 
 
 
(*)
Gross and carrying amounts of accounts receivable – other as of December 31, 2022 include ₩332,669 million of financial instruments classified as FVTPL.
 
F-4
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
                   
    
December 31, 2021
 
    
Gross

amount
    
Loss

allowance
   
Carrying

amount
 
Current assets:
                         
Accounts receivable — trade
   2,152,358        (238,847     1,913,511  
Short-term loans
     71,750        (933     70,817  
Accounts receivable — other(*)
     593,109        (44,747     548,362  
Accrued income
     762              762  
Guarantee deposits (Other current assets)
     92,046              92,046  
    
 
 
    
 
 
   
 
 
 
       2,910,025        (284,527     2,625,498  
Non-current
assets:
                         
Long-term loans
     66,431        (44,452     21,979  
Long-term accounts receivable — other(*)
     277,116        (1,878     275,238  
Guarantee deposits
     186,713              186,713  
Long-term accounts receivable — trade (Other
non-current
assets)
     8,140        (34     8,106  
    
 
 
    
 
 
   
 
 
 
       538,400        (46,364     492,036  
    
 
 
    
 
 
   
 
 
 
     3,448,425        (330,891     3,117,534  
    
 
 
    
 
 
   
 
 
 
 
 
(*)
Gross and carrying amounts of accounts receivable — other as of December 31, 2021 include ₩459,959 million of financial instruments classified as FVTPL.
 
(2)
Changes in the loss allowance on accounts receivable — trade measured at amortized costs for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                                              
    
Beginning

balance
    
Impairment
    
Write-offs (*2)
   
Collection of

receivables

previously

written-off
    
Business

combination
    
Spin-off
   
Ending

balance
 
2022
   238,881        27,053        (42,296     11,282        3              234,923  
2021(*1)
   264,498        31,546        (65,852     14,565        878        (6,754     238,881  
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group writes off the trade and other receivables that are determined to be uncollectable due to reasons such as termination of operations or bankruptcy.
 
(3)
The Group applies the practical expedient that allows the Group to estimate the loss allowance for accounts receivable — trade at an amount equal to the lifetime expected credit losses. The expected credit losses include the forward-looking information. To make the assessment, the Group uses its historical credit loss experience over the past three years and classifies the accounts receivable — trade by their credit risk characteristics and days overdue. Details of loss allowance on accounts receivable — trade as of December 31, 2022 are as follows:
 
(In millions of won)
                             
    
Less than

6 months
   
6 months ~

1 year
   
1 ~ 3 years
   
More than

3 years
 
Telecommunications service revenue
   Expected credit loss rate      2.24     76.22     85.59     93.00
   Gross amount    1,408,471       47,412       126,479       20,100  
   Loss allowance      31,500       36,139       108,249       18,693  
         
 
 
   
 
 
   
 
 
   
 
 
 
Other revenue
   Expected credit loss rate      2.92     50.75     69.89     97.02
   Gross amount    589,484       3,464       8,606       15,679  
   Loss allowance      17,357       1,758       6,015       15,212  
         
 
 
   
 
 
   
 
 
   
 
 
 
 
F-4
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
As the Group is a wireless and fixed-line telecommunications service provider, the Group’s financial assets measured at amortized cost primarily consist of receivables from numerous individual customers, and, therefore, no significant credit concentration risk arises.
Receivables related to other revenue mainly consist of receivables from corporate customers. The Group transacts only with corporate customers with credit ratings that are considered to be low at credit risk. In addition, the Group is not exposed to significant credit concentration risk as the Group regularly assesses their credit risk by monitoring their credit rating. While the contract assets are under the impairment requirements, no significant credit risk has been identified.
 
7.
Prepaid expenses
The Group pays commissions to its retail stores and authorized dealers, primarily for wireless and fixed-line telecommunication services. The Group capitalized certain costs associated with commissions paid to retail stores and authorized dealers to obtain new and retained customer contracts as prepaid expenses. These prepaid expenses are amortized on a straight-line basis over the periods that the Group expects to maintain its customers.
(1)    Details of prepaid expenses as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Current assets:
                 
Incremental costs of obtaining contracts
   1,888,182        1,886,680  
Others
     86,133        100,823  
    
 
 
    
 
 
 
     1,974,315        1,987,503  
    
 
 
    
 
 
 
Non-current
assets:
                 
Incremental costs of obtaining contracts
   996,180        977,236  
Others
     77,242        91,912  
    
 
 
    
 
 
 
     1,073,422        1,069,148  
    
 
 
    
 
 
 
(2) Incremental costs of obtaining contracts
The amortization in connection with incremental costs of obtaining contracts recognized for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                    
    
2022
    
2021(*)
    
2020(*)
 
Amortization recognized
   2,485,593        2,634,134        2,418,947  
 
 
(*)
Includes amounts related to discontinued operations.
 
8.
Contract Assets and Liabilities
In case of providing both wireless telecommunication services and sales of handsets, the Group allocated the consideration based on relative stand-alone selling prices and recognized unbilled receivables from handset sales as contract assets. The Group recognized receipts in advance for prepaid telecommunications services and unearned revenue for customer loyalty programs as contract liabilities.
 
F-4
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(1)
Details of contract assets and liabilities as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Contract assets:
                 
Allocation of consideration between performance obligations
   132,221        118,278  
Contract liabilities:
                 
Wireless service contracts
     18,544        18,397  
Customer loyalty programs
     7,706        12,699  
Fixed-line service contracts
     136,880        118,525  
Others
     70,792        53,346  
    
 
 
    
 
 
 
     233,922        202,967  
    
 
 
    
 
 
 
 
(2)
The amount of revenue recognized for the years ended December 31, 2022 and 2021 related to the contract liabilities carried forward from the prior periods are ₩109,867 million and ₩185,515 million, respectively and are included in amounts of revenue related to discontinued operations for the year ended December 31, 2021. Details of revenue expected to be recognized from contract liabilities as of December 31, 2022 are as follows:
 
(In millions of won)
                           
    
Less than

1 year
    
1 ~ 2 years
    
More than

2 years
    
Total
 
Wireless service contracts
   18,544                      18,544  
Customer loyalty programs
     6,141        1,048        517        7,706  
Fixed-line service contracts
     88,051        14,198        34,631        136,880  
Others
     59,612        10,935        245        70,792  
    
 
 
    
 
 
    
 
 
    
 
 
 
     172,348        26,181        35,393        233,922  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
9.
Inventories
 
(1)
Details of inventories as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                                       
    
December 31, 2022
    
December 31, 2021
 
  
Acquisition
cost
    
Write-
down
   
Carrying
amount
    
Acquisition
cost
    
Write-
down
   
Carrying
amount
 
Merchandise
   156,919        (5,616     151,303        204,545        (3,419     201,126  
Supplies
     15,052              15,052        3,511              3,511  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
     171,971        (5,616     166,355        208,056        (3,419     204,637  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
 
(2)
The amount of the inventory write-downs and
write-off
of inventories charged to statement of income are as follows:
 
(In millions of won)
                  
    
2022
   
2021(*)
   
2020(*)
 
Charged to cost of products that have been resold
   2,297       (3,287     (1,560
Write-off
upon sale
     (756     (347     (3,312
 
 
(*)
Includes amounts related to discontinued operations.
 
F-4
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
There are no significant reversals of inventory write-downs for the periods presented.
 
(3)
Inventories recognized as operating expenses for the years ended December 31, 2022, 2021, and 2020 are ₩1,266,271 million, ₩1,417,339 million, and ₩1,385,016 million, respectively, which are included in the cost of goods sold. Those amounts include profit or loss from discontinued operations.
 
10.
Investment Securities
 
(1)
Details of short-term investment securities as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                    
    
   Category   
    
December 31,
2022
    
December 31,
2021
 
Beneficiary certificates
     FVTPL                                 5,010  
 
(2)
Details of long-term investment securities as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                    
    
Category
    
December 31,
2022
    
December 31,
2021
 
Equity instruments
     FVOCI(*)      1,189,597        1,510,428  
       FVTPL        44,440        57,830  
             
 
 
    
 
 
 
                1,234,037        1,568,258  
Debt instruments
     FVOCI               1,177  
       FVTPL        176,699        145,643  
             
 
 
    
 
 
 
                176,699        146,820  
             
 
 
    
 
 
 
              1,410,736        1,715,078  
             
 
 
    
 
 
 
 
 
 
(*)
The Group designated investments in equity instruments that are not held for trading as financial assets at FVOCI, the amounts to those FVOCI as of December 31, 2022 and 2021 are ₩1,189,597 million and ₩1,510,428 million, respectively.
 
11.
Business Combinations
 
(1)
2022
 
1)
Acquisition of SK m&service Co., Ltd. by PS&Marketing Corporation:
PS&Marketing Corporation obtained control over SK m&service Co., Ltd. by acquiring its 3,099,112 shares (100%) for the year ended December 31, 2022. As this transaction is a business combination under common control, the assets acquired and liabilities assumed were recognized at the carrying amounts in the ultimate controlling entity’s consolidated financial statements, and the difference between the consideration transferred and the carrying amounts of net assets was recognized as capital surplus and others. Subsequent to the acquisition of control, SK m&service Co., Ltd. recognized ₩211,081 million of revenue and ₩4,157 million of net profit. Meanwhile, assuming that business combination occurred as of January 1, 2022, the Group would have recognized ₩250,108 million of revenue and ₩4,695 million of net profit.
 
F-
49

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   SK m&service Co., Ltd.
Location
   16
th
floor, 34,
Supyo-ro,
Jung-gu,
Seoul, Korea
CEO
   Park,
Jeong-Min
Industry
   Database and internet website service
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   72,859  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     10,547  
Accounts receivable — trade and other, net
     76,035  
Inventories, net
     3,349  
Property and equipment, net
     27,138  
Intangible assets, net
     12,462  
Goodwill
     2,516  
Other assets
     10,394  
Accounts payable — trade and other
     (53,894
Income tax payable
     (399
Lease liabilities
     (6,503
Provisions
     (991
Defined benefit liabilities
     (2,739
Other liabilities
     (18,337
    
 
 
 
       59,578  
    
 
 
 
III. Capital surplus and others(I - II)
   13,281  
    
 
 
 
 
(2)
2021
 
1)
Merger of ADT CAPS Co., Ltd. by SK Shieldus Co., Ltd.(Formerly, ADT CAPS Co, Ltd., at the time of merger, SK Infosec Co., Ltd.):
On March 4, 2021, SK Infosec Co., Ltd. merged with ADT CAPS Co., Ltd., a subsidiary of SK Infosec Co., Ltd., to improve management efficiency. As this transaction is a business combination under common control, the acquired assets and liabilities were recognized at the carrying amounts in the ultimate controlling entity’s consolidated financial statements and there is no effect on the assets and liabilities of the consolidated financial statements. After the date of the merger, SK Infosec Co., Ltd. changed its name to ADT CAPS Co., Ltd. and then again, in October 2021, ADT CAPS Co., Ltd. changed its name to SK Shieldus Co., Ltd.
Identifiable assets acquired and liabilities assumed were transferred to the
spin-off
company.
 
2)
Acquisition of Studio Dolphin Co., Ltd. by Dreamus Company:
Dreamus Company obtained control by acquiring 10,000 shares(100%) of Studio Dolphin Co., Ltd. for the year ended December 31, 2021. The consideration transferred was ₩1,500 million in cash and the difference
 
F-
5
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
between the fair value of net assets acquired and the consideration transferred amounting to ₩1,465 million was recognized as goodwill. Subsequent to the acquisition of control, Studio Dolphin Co., Ltd. recognized revenue of ₩245 million and net loss of ₩304 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   Studio Dolphin Co., Ltd.
Location
   3
rd
floor, 10,
Jandari-ro
7an-gil,
Mapo-gu,
Seoul, Korea
CEO
   Kim,
Dong-Hee
Industry
   Music and sound recording business
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   1,500  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     20  
Accounts receivable — trade and other
     31  
Other assets
     7  
Accounts payable — trade and other
     (4
Short-term borrowings
     (2
Other liabilities
     (17
    
 
 
 
       35  
    
 
 
 
III. Goodwill(I - II)
   1,465  
    
 
 
 
 
3)
Acquisition of YLP Inc. by Tmap Mobility Co., Ltd.:
Tmap Mobility Co., Ltd. obtained control by acquiring 168,012 shares(100%) of YLP Inc. during the year ended December 31, 2021. The consideration transferred was ₩79,000 million, among which ₩55,598 million was paid in cash to acquire 118,242 shares(70.4%) and on June 29, 2021, Tmap Mobility Co., Ltd. issued 267,700 of its new common shares (with a fair value of ₩23,402 million) to the shareholders of YLP Inc. in exchange for the remaining 49,770 shares(29.6%) owned by those shareholders. The difference between the fair value of net assets acquired and the consideration transferred amounting to ₩69,516 million was recognized as goodwill. Subsequent to the acquisition of control, YLP Inc. recognized revenue of ₩20,488 million and net loss of ₩1,632 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
F-5
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   YLP Inc.
Location
   1740,
Cheongwon-ro,
Pyeongtaek-si,
Gyeonggi-do,
Korea
CEO
   Lee,
Hyeok-Ju
Industry
   Freight forwarders and cargo agents
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   55,598  
Fair value of shares of Tmap Mobility Co., Ltd.
     23,402  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     1,897  
Financial instruments
     4,000  
Accounts receivable — trade and other, net
     4,480  
Property and equipment, net
     431  
Intangible assets, net
     3,595  
Other assets
     325  
Borrowings
     (1,000
Accounts payable — trade and other
     (3,542
Lease liabilities
     (327
Other liabilities
     (48
Deferred tax liabilities
     (327
    
 
 
 
       9,484  
    
 
 
 
III. Goodwill(I - II)
   69,516  
    
 
 
 
 
4)
Acquisition of Rokmedia Co., Ltd. by Onestore Co., Ltd.:
Onestore Co., Ltd. obtained control by acquiring 60,000 shares(100%) of Rokmedia Co., Ltd. for the year ended December 31, 2021. The consideration transferred was ₩40,000 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to ₩33,641 million was recognized as goodwill. Subsequent to the acquisition of control, Rokmedia Co., Ltd. recognized revenue of ₩10,915 million and net profit of ₩1,066 million and the amounts are included in profit or loss from discontinued operation.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   Rokmedia Co., Ltd.
Location
   3
rd
floor, 330,
Seongam-ro,
Mapo-gu,
Seoul, Korea
CEO
   Kang,
Jun-Gyu
/ Kim,
Jeong-Su
Industry
   Publishing and telecommunications retail business
 
F-5
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:

(In millions of won)
  
 
 
 
  
Amounts
 
I. Consideration transferred:
  
Cash and cash equivalents
   40,000  
 
II. Fair value of identifiable assets acquired and liabilities assumed:
 
Cash and cash equivalents
     719  
Financial instruments
     2,170  
Accounts receivable — trade and other, net
     1,374  
Inventories
     933  
Other assets
     3,212  
Short-term loans, net
     30  
Property and equipment, net
     792  
Intangible assets, net
     2,677  
Accounts payable — trade and other
     (1,885
Contract liabilities
     (1,401
Borrowings
     (1,485
Provisions
     (385
Lease liabilities
     (56
Other liabilities
     (111
Deferred tax liabilities
     (135
Income tax payable
     (90
    
 
 
 
       6,359  
    
 
 
 
III. Goodwill(I - II)
   33,641  
    
 
 
 
 
5)
Acquisition of GOOD SERVICE Co., Ltd. by Tmap Mobility Co., Ltd.:
Tmap Mobility Co., Ltd. obtained control by acquiring 2,000 shares (100%) of GOOD SERVICE Co., Ltd. for the year ended December 31, 2021. The consideration transferred was ₩10,000 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to ₩4,844 million was recognized as goodwill. Subsequent to the acquisition of control, GOOD SERVICE Co., Ltd. recognized revenue of ₩1,063 million and net profit of ₩621 million and the amounts are included in profit or loss from discontinued operations.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   GOOD SERVICE Co., Ltd.
Location
   4
th
floor, 54,
Daeheung-ro,
Mapo-gu,
Seoul, Korea
CEO
   Kim, Seung-Wook
Industry
   Surrogate driving service business and related business
 
F-5
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   10,000  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     1,328  
Financial instruments
     116  
Accounts receivable — trade and other, net
     1,881  
Property and equipment, net
     116  
Intangible assets, net
     3,492  
Accounts payable — trade and other
     (883
Other liabilities
     (85
Deferred tax liabilities
     (696
Lease liabilities
     (113
    
 
 
 
       5,156  
    
 
 
 
III. Goodwill(I - II)
   4,844  
    
 
 
 
 
(3)
2020
 
1)
Merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd.:
On April 30, 2020, SK Broadband Co., Ltd., a subsidiary of the Parent Company, merged with Tbroad Co., Ltd., Tbroad Dongdaemun Broadcasting Co., Ltd. and Korea Digital Cable Media Center Co., Ltd. in order to strengthen the competitiveness and enhance the synergy as a comprehensive media company. The considerations transferred included shares of SK Broadband Co., Ltd. transferred based on the merger ratio and the obligations and rights pursuant to the shareholders’ agreement between the Parent Company and the acquiree’s shareholders, both measured at fair value as of April 30, 2020. The Group recognized the difference between the fair value of net assets acquired and the consideration transferred amounting to ₩405,639 million as goodwill.
The Group’s consolidated revenue and profit for the year would have been ₩16,294,243 million and ₩1,516,857 million, respectively, if the acquisition has occurred on January 1, 2020. The Group cannot reasonably identify the acquiree’s revenue and profit for the year included in the consolidated statement of income, as the business of Tbroad Co., Ltd. and the other two companies were merged with the Group’s subsidiary, SK Broadband Co., Ltd., and no separate financial information post acquisition is available.
 
F-5
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Fair value of shares of SK Broadband Co., Ltd.
   862,147  
Fair value of derivative liability(*1)
     320,984  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     110,644  
Short-term financial instruments
     6  
Accounts receivable — trade and other
     66,241  
Prepaid expenses
     36,324  
Contract assets
     14,033  
Long-term investment securities
     6,239  
Investments in associates and joint ventures
     13,637  
Property and equipment, net
     245,654  
Intangible assets, net(*2)
     423,515  
Other assets
     3,261  
Deferred tax assets
     1,296  
Accounts payable — trade and other
     (105,179
Contract liabilities
     (1,674
Income tax payable
     (18,065
Provisions
     (2,755
Defined benefit liabilities
     (30
Other liabilities
     (15,655
    
 
 
 
       777,492  
    
 
 
 
III. Goodwill(I - II)
   405,639  
    
 
 
 
 
 
(*1)
The Parent Company has recognized fair value of obligations and rights in connection with the shareholders’ agreement with the acquiree’s shareholders as consideration for the business combination. (See note 22)
(*2)
Identifiable intangible assets recognized by the Group in the business combination included customer relationships measured at fair value on the acquisition date of ₩374,019 million. Fair value of the customer relationship was estimated based on the multi-period excess earnings method (“MPEEM”). MPEEM is a valuation technique under income approach which estimates fair value by discounting the expected future excess earnings attributable to an intangible asset using risk adjusted discount rate. The following table shows the details of valuation technique used in measuring fair values as well as the significant unobservable inputs used.
 
F-5
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Type
  
Valuation
technique
  
Significant
unobservable inputs
  
Interrelationship between key unobservable
inputs and
fair value measurement
Customer relationships    MPEEM   
•  Estimated revenue per user
•  Future churn rates
•  Weighted average cost of capital (“WACC”)
(7.7% for Tbroad Co., Ltd. and 8.3% for Tbroad Dongdaemun Broadcasting Co., Ltd.)
  
•  The fair value of customer relationship will increase if expected revenue per subscriber increases and customer churn rate in the future and WACC decrease.
•  The fair value of customer relationship will decrease if expected revenue per subscriber decreases and customer churn rate in the future and WACC increase.
 
2)
Acquisition of Broadband Nowon Co.,Ltd. by the Parent Company:
The Parent Company has obtained control by acquiring 627,000 shares(55%) of Tbroad Nowon Broadcasting Co., Ltd., and Tbroad Nowon Broadcasting Co., Ltd. changed its name to Broadband Nowon Co., Ltd. for the year ended December 31, 2020. The consideration transferred was ₩10,421 million in cash and the difference between the fair value of net assets acquired and the consideration transferred amounting to ₩733 million was recognized as other
 
operating
income. Subsequent to the acquisition, Broadband Nowon Co., Ltd. recognized revenue of ₩5,756 million and net profit of ₩426 million.
 
(i)
Summary of the acquiree
 
    
Information of acquiree
Corporate name
   Broadband Nowon Co., Ltd.
Location
   21, 81gil,
Dobong-ro,
Gangbuk-gu,
Seoul, Korea
CEO
   Yoo,
Chang-Wan
Industry
   Cable broadcasting services
 
(ii)
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   10,421  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Cash and cash equivalents
     18,106  
Accounts receivable — trade and other
     1,122  
Property and equipment, net
     1,784  
Intangible assets, net
     360  
Other assets
     595  
Accounts payable — trade and other
     (1,351
Other liabilities
     (336
    
 
 
 
       20,280  
   
III.
Non-controlling
interests:
     9,126  
    
 
 
 
IV. Gain on bargain purchase(I - II+III)
   (733
    
 
 
 
 
F-5
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
3)
Acquisition of security equipment construction and security services business of SK hystec inc. by ADT CAPS Co., Ltd.
ADT CAPS Co., Ltd., a subsidiary of the Parent Company before
spin-off,
acquired the security equipment construction and security services business from SK hystec inc., a related party of the Group, in order to strengthen the expertise and the competitiveness of security business for the year ended December 31, 2020. The consideration transferred was ₩8,047 million, among which ₩2,958 million was paid in cash for the year ended December 31, 2020 and the remaining balance will be paid at ₩3,000 million annually in July 2021 and July 2022. The Group recognized the difference between the fair value of net assets acquired and the consideration transferred amounting to ₩2,892 million as goodwill.
Identifiable assets acquired, liabilities assumed and goodwill were transferred to
spin-off
company.
Considerations transferred, identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
 
(In millions of won)
      
    
Amounts
 
I. Consideration transferred:
        
Cash and cash equivalents
   8,047  
   
II. Fair value of identifiable assets acquired and liabilities assumed:
        
Accounts receivable — trade and other
     6,787  
Property and equipment, net
     363  
Intangible assets, net
     6,460  
Other assets
     4  
Accounts payable — trade and other
     (5,306
Defined benefit liabilities
     (1,227
Deferred tax liabilities
     (1,554
Other liabilities
     (372
    
 
 
 
       5,155  
    
 
 
 
III. Goodwill (I - II)
   2,892  
    
 
 
 
 
4)
Merger of Life & S
ecur
ity Holdings Co., Ltd. by SK Infosec Co., Ltd.
SK Infosec Co., Ltd., a subsidiary of the Parent Company before
spin-off,
merged with Life & Security Holdings Co., Ltd. to improve business management efficiency on December 30, 2020. As this transaction is a business combination under common control, the acquired assets and liabilities were recognized at the carrying amounts in the ultimate controlling entity’s consolidated financial statements and there is no effect on the assets and liabilities of consolidated financial statements. As a result of the merger, the Parent Company’s ownership interest of SK Infosec Co., Ltd. has changed from 100% to 62.6%.
 
F-5
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
12.
Investments in Associates and Joint Ventures
(1)    Investments in associates and joint ventures accounted for using the equity method as of December 31, 2022 and 2021 are as follows:
 

 
  
 
 
  
December 31, 2022
 
  
December 31, 2021
 
(In millions of won)
  
Country
 
  
Ownership

(%)
 
  
Carrying
amount
 
  
Ownership
(%)
 
  
Carrying
amount
 
Investments in associates:
  
  
  
  
  
SK China Company Ltd.
     China        27.3      879,527        27.3      793,754  
Korea IT Fund(*1)
     Korea        63.3        324,860        63.3        339,976  
HanaCard Co., Ltd.(*2)
     Korea                      15.0        349,866  
UniSK
     China        49.0        20,839        49.0        19,156  
SK Technology Innovation Company
     Cayman
Islands
 
 
     49.0        69,375        49.0        86,301  
SK MENA Investment B.V.
     Netherlands        32.1        14,296        32.1        15,343  
SK Latin America Investment S.A.
     Spain        32.1        11,961        32.1        14,004  
SK South East Asia Investment Pte. Ltd.
     Singapore        20.0        357,537        20.0        348,782  
Pacific Telecom Inc.(*3)
     USA        15.0        48,542        15.0        43,789  
SM. Culture & Contents Co., Ltd.
     Korea        23.1        59,611        23.1        60,261  
Digital Games International Pte. Ltd.(*4)
     Singapore                      33.3        2,208  
Invites Healthcare Co., Ltd.(*5)
     Korea        31.1               27.1        26,474  
Nam Incheon Broadcasting Co., Ltd.
     Korea        27.3        13,575        27.3        12,525  
Home Choice Corp.(*3)
     Korea        17.8        4,456        17.8        3,052  
Konan Technology Inc.
     Korea        20.8        8,366        26.5        3,639  
CMES Inc.(*3,6)
     Korea        7.7        900                
12CM JAPAN and others(*3,7)
                   69,734               68,966  
                      
 
 
             
 
 
 
                         1,883,579                 2,188,096  
                      
 
 
             
 
 
 
Investments in joint ventures:
                                            
Finnq Co., Ltd.(*8)
     Korea                      49.0        7,255  
UTC
Kakao-SK
Telecom ESG Fund(*9)
     Korea        48.2        5,710        48.2        2,000  
                      
 
 
             
 
 
 
                         5,710                 9,255  
                      
 
 
             
 
 
 
                       1,889,289               2,197,351  
                      
 
 
             
 
 
 
 
 
(1)
Investments in associates and joint ventures accounted for using the equity method as of December 31, 2022 and 2021 are as follows, Continued:
 
(*1)
Investment in Korea IT Fund was classified as investment in associates as the Group does not have control over the investee under the contractual agreement with other shareholders.
 
(*2)
The Group disposed the entire shares of HanaCard Co., Ltd. to Hana Financial Group Inc. for ₩330,032 million in cash and recognized ₩48,693 million of loss on disposal of investments in associates for the year ended December 31, 2022.
 
(*3)
Although the Group holds less than 20% of equity interests in these investees, investments in such investees were classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of the Board of Directors.
 
(*4)
The Group disposed the entire shares of Digital Games International Pte. Ltd. and recognized ₩1,462 million of gain on disposal of investments in associates for the year ended December 31, 2022.
 
(*5)
The Group recognized the carrying amount of investments in Invites Healthcare Co., Ltd. in entirety as an impairment loss for the year ended December 31, 2022.
 
F-5
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(*6)
As the Group obtained significant influence over the investee, ₩900 million of financial assets at FVOCI are reclassified to investments in associates for the year ended December 31, 2022.
 
(*7)
The Group additionally contributed ₩2,000 million in cash to Smart SKT Infinitum Game Fund for the year ended December 31, 2022. In addition, the Group disposed the shares of
Start-up
Win-Win
Fund (₩4,850 million) at ₩5,800 million in cash and recognized ₩950 million of gain on disposal of investments in associates, accordingly. The Group also disposed the shares of Daekyo Wipoongdangdang Contents Korea Fund (₩1,080 million) at ₩1,080 million in cash and reclassified the entire shares as
non-current
assets held for sale. Furthermore, the Group newly invested ₩4,000 million in cash to KB ESG Fund of three telecommunications companies for the year ended December 31, 2022.
 
(*8)
The Group disposed the entire shares of Finnq Co., Ltd. to Hana Financial Group Inc. for ₩5,733 million in cash and recognized ₩1,043 million of gain on disposal of investments in joint ventures for the year ended December 31, 2022.
 
(*9)
The Group additionally contributed ₩4,000 million in cash to the investee for the year ended December 31, 2022, but there is no change in the ownership interest. As the Group has a joint control over the investee pursuant to the agreement with the other shareholders, the investment in the investee was classified as investments in joint ventures.
(2)    The market value of investments in listed associates as of December 31, 2022 and 2021 are as follows:
 
(In millions of won, except for share data)
 
December 31, 2022
   
December 31, 2021
 
 
Market price
per share

(in won)
   
Number of
shares
   
Market value
   
Market price

per share

(in won)
   
Number of
shares
   
Market value
 
SM.Culture & Contents Co.,Ltd.
    2,960       22,033,898       65,220       4,485       22,033,898       98,822  
Konan Technology Inc.
    28,250       1,179,580       33,323                    
(3)    The condensed financial information of significant associates as of and for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
        
(In millions of won)
  
Korea IT

Fund
   
SK China

Company
Ltd.(*)
   
SK South East Asia
Investment Pte.
Ltd.(*)
 
                    
    
As of December 31, 2022
 
Current assets
   98,132       1,223,426       146,589  
Non-current
assets
     414,804       2,050,001       3,034,335  
Current liabilities
           76,654       488,132  
Non-current
liabilities
           276,525        
   
    
2022
 
Revenue
   19,916       62,334       72,658  
Profit (loss) for the year
     7,505       (11,681     (17,504
Other comprehensive income (loss)
     (11,779     58,034       (34,220
Total comprehensive income (loss)
     (4,274     46,353       (51,724
 
F-
59

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
HanaCard

Co., Ltd.(*)
    
Korea IT

Fund
   
SK China

Company
Ltd.(*)
    
SK South East Asia
Investment Pte.
Ltd.(*)
 
                            
    
As of December 31, 2021
 
Current assets
   9,130,044        117,172       1,124,219        133,110  
Non-current
assets
     465,333        419,632       1,849,102        2,853,184  
Current liabilities
     1,281,783              53,199        412,962  
Non-current
liabilities
     6,284,587              316,470         
   
    
2021
 
Revenue
   1,270,568        58,741       80,241        9,945  
Profit (loss) for the year
     250,484        50,107       933,475        (188,678
Other comprehensive income (loss)
     909        (6,847     326,661        304,700  
Total comprehensive income
     251,393        43,260       1,260,136        116,022  
 
(In millions of won)
  
SK hynix
Inc.(*)
   
HanaCard

Co., Ltd.(*)
   
Korea IT
Fund
    
SK China
Company
Ltd.(*)
    
SK South East Asia
Investment Pte.
Ltd. (*)
 
                                  
    
As of December 31, 2020
 
Current assets
   16,570,953       7,910,517       107,652        380,413        797,045  
Non-current
assets
     54,602,900       298,438       402,812        1,706,634        1,672,412  
Current liabilities
     9,072,360       897,594              51,025        67  
Non-current
liabilities
     10,192,396       5,531,968              308,606         
   
    
2020
 
Revenue
   31,900,418       1,231,815       52,330        107,791         
Profit (loss) for the year
     4,758,914       154,521       36,615        20,369        (158,680
Other comprehensive income (loss)
     (107,378     (4,283     9,647        42,921        (390,851
Total comprehensive income (loss)
     4,651,536       150,238       46,262        63,290        (549,531
 
(*)
The financial information of SK hynix Inc., HanaCard Co., Ltd., SK China Company Ltd. and SK South East Asia Investment Pte. Ltd. are consolidated financial information.
(4)    There are no significant joint ventures as of December 31, 2022 and 2021, the condensed financial information of significant joint ventures as of and for the years ended December 31, 2020 are as follows:
 
(In millions of won)
  
Dogus Planet, Inc.
    
Finnq Co., Ltd.
 
               
    
As of December 31, 2020
 
Current assets
   55,951        26,781  
Cash and cash equivalents
     9,083        23,936  
Non-current
assets
     30,408        8,530  
Current liabilities
     46,186        7,367  
Accounts payable, other payables and provisions
     28,145        5,094  
Non-current
liabilities
     10,031        879  
 
F-
6
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
    
2020
 
Revenue
   177,084       3,937  
Depreciation and amortization
     (4,642     (4,417
Interest income
     1,878       29  
Interest expense
     (555     (51
Profit (loss) for the year
     7,030       (19,426
Total comprehensive loss
     (1,659     (19,426
(5)    Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
December 31, 2022
 
    
Net assets
    
Ownership
interests
(%)
    
Net assets
attributable to
the ownership
interests
    
Cost-book
value
differentials
    
Carrying
amount
 
Korea IT Fund
   512,936        63.3        324,860               324,860  
SK China Company Ltd.(*)
     2,920,248        27.3        796,387        83,140        879,527  
SK South East Asia
Investment Pte. Ltd.(*)
     1,787,685        20.0        357,537               357,537  
   
(In millions of won)
  
December 31, 2021
 
    
Net assets
    
Ownership
interests
(%)
    
Net assets
attributable to
the ownership
interests
    
Cost-book
value
differentials
    
Carrying
amount
 
HanaCard Co., Ltd.
   2,029,007        15.0        304,351        45,515        349,866  
Korea IT Fund
     536,804        63.3        339,976               339,976  
SK China Company Ltd.(*)
     2,603,336        27.3        709,961        83,793        793,754  
SK South East Asia
Investment Pte. Ltd.(*)
     1,743,908        20.0        348,782               348,782  
 
(*)
Net assets of these entities represent net assets excluding those attributable to their
non-controlling
interests.
 
F-6
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(6)    Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
2022
 
    
Beginning
balance
    
Acquisition
and
Disposal
   
Share of
profit

(loss)
   
Other

compre-
hensive

income
(loss)
   
Other
increase

(decrease)
   
Ending
balance
 
Investments in associates:
                                                 
SK China Company Ltd.
   793,754              (19,395     105,168             879,527  
Korea IT Fund(*1)
     339,976              4,753       (7,459     (12,410     324,860  
HanaCard Co., Ltd.
     349,866        (368,389     17,749       774              
UniSK
     19,156              2,424       (741           20,839  
SK Technology Innovation Company
     86,301              (22,923     5,997             69,375  
SK MENA Investment B.V.
     15,343              (2,059     1,012             14,296  
SK Latin America Investment S.A.
     14,004              (2,083     40             11,961  
SK South East Asia Investment Pte. Ltd.
     348,782              (6,975     15,730             357,537  
Pacific Telecom Inc.
     43,789              2,890       1,863             48,542  
SM. Culture & Contents Co., Ltd.
     60,261        37       (756     69             59,611  
Digital Games International Pte. Ltd.
     2,208        (1,757     (562     111              
Invites Healthcare Co., Ltd.(*2)
     26,474              (11,759     (74     (14,641      
Nam Incheon Broadcasting Co., Ltd.(*1)
     12,525              1,186             (136     13,575  
Home Choice Corp.
     3,052              1,403       1             4,456  
Konan Technology Inc.
     3,639        5,451       (710     (14           8,366  
CMES Inc.(*3)
                              900       900  
12CM JAPAN and others(*4)
     68,966        1,873       1,245             (2,350     69,734  
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
       2,188,096        (362,785     (35,572     122,477       (28,637     1,883,579  
Investments in joint ventures:
                                                 
Finnq Co., Ltd.
     7,255        (3,840     (3,617     202              
UTC
Kakao-SK
Telecom ESG Fund
     2,000        4,000       (290                 5,710  
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
       9,255        160       (3,907     202             5,710  
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
     2,197,351        (362,625     (39,479     122,679       (28,637     1,889,289  
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
(*1)
Dividends distributed by the associates are deducted from the carrying amount for the year ended December 31, 2022.
 
(*2)
The Group recognized ₩14,641 million of impairment loss for the year ended December 31, 2022.
 
(*3)
As the Group obtained significant influence over the investee, ₩900 million of financial assets at FVOCI are reclassified to investments in associates for the year ended December 31, 2022.
 
(*4)
The acquisition for the year ended December 31, 2022 includes ₩2,000 million of cash investment in Smart SKT Infinitum Game Fund, ₩4,000 million of cash investment in KB ESG Fund of three telecommunications companies and ₩12 million of cash investment in SK VENTURE CAPITAL, LLC. The disposal for the year ended December 31, 2022 includes ₩4,850 million relating to disposal of the part of shares of
Start-up
Win-Win
Fund and ₩1,080 million relating to disposal of the part of shares of Daekyo Wipoongdangdang Contents Korea Fund. In addition, dividends amounting to ₩1,290 million received from
Start-up
Win-Win
Fund deducted from the carrying amount for the year ended December 31, 2022.
 
F-6
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
2021
 
   
Beginning

balance
   
Acquisition

and

Disposal
   
Share of

profits

(losses)
   
Other

compre-
hensive

income

(loss)
   
Other

increase

(decrease)
   
Spin-off
   
Ending

balance
 
 
 
Investments in associates:
                                                       
SK China Company Ltd.(*1)
  555,133             274,066       95,696       (131,141           793,754  
Korea IT Fund(*1)
    323,294             31,734       (4,336     (10,716           339,976  
HanaCard Co., Ltd.
    314,930             35,057       (121                 349,866  
SK Telecom CS T1 Co., Ltd.(*2)
    53,010       4,888       (8,769     (575           (48,554      
NanoEnTek, Inc.(*2)
    43,190             1,836       (86           (44,940      
UniSK
    15,700             1,475       1,981                   19,156  
SK Technology Innovation Company
    41,579             39,256       5,466                   86,301  
SK MENA Investment B.V.
    14,043             2       1,298                   15,343  
SK hynix Inc.(*1,2)
    12,251,861       19,482       1,542,757       197,473       (170,937     (13,840,636      
SK Latin America Investment S.A.
    13,930             (49     123                   14,004  
Grab Geo Holdings PTE. LTD.(*2)
    30,063                               (30,063      
SK South East Asia Investment Pte. Ltd.
    311,990             (18,218     55,010                   348,782  
Pacific Telecom Inc.
    39,723             1,598       2,468                   43,789  
SM. Culture & Contents Co., Ltd.
    62,248       144       (2,484     353                   60,261  
Contents Wavve Co., Ltd.(*2)
    75,803       100,000       (20,716                 (155,087      
Hello Nature Co., Ltd.(*2,3)
    11,969       9,980       (10,899     (1     (1,730     (9,319      
Digital Games International Pte. Ltd.
    6,449             (4,529     288                   2,208  
Invites Healthcare Co., Ltd.
    25,536       7,000       (5,968     (94                 26,474  
Nam Incheon Broadcasting Co., Ltd.(*1)
    10,902             1,759             (136           12,525  
NANO-X
IMAGING LTD.(*2)
    28,484       (47     (2,049           2,437       (28,825      
Home Choice Corp.
    3,585             (533                       3,052  
Carrot General Insurance Co., Ltd.(*4)
    13,469       12,289       (6,666     (358     (8,734     (10,000      
Bertis Inc.(*2)
          15,739       (423                 (15,316      
UT LLC(*2)
          86,319       (7,773                 (78,546      
SPARKPLUS Co., Ltd.(*2)
          34,166                         (34,166      
Konan Technology Inc.
    1,265       2,015       357       2                   3,639  
12CM JAPAN and others(*2,5)
    64,485       7,023       (3,226     7,691       (1,624     (5,383     68,966  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      14,312,641       298,998       1,837,595       362,278       (322,581     (14,300,835     2,188,096  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
F-6
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
2021
 
   
Beginning

balance
   
Acquisition

and

Disposal
   
Share of

profits

(losses)
   
Other

compre-
hensive

income

(loss)
   
Other

increase

(decrease)
   
Spin-off
   
Ending

balance
 
 
Investments in joint ventures:
                                                       
Dogus Planet, Inc.(*2)
    15,071             (6,990     (1,447           (6,634      
Finnq Co., Ltd.
    13,342             (5,969     (118                 7,255  
NEXTGEN BROADCAST SERVICES CO, LLC(*2)
    5,850       9,048       (1,276           892       (14,514      
NEXTGEN ORCHESTRATION, LLC(*2)
    1,600                         142       (1,742      
Techmaker GmbH(*2)
    5,609             (94     145             (5,660      
WAVVE Americas Inc. (Formerly, Korea Content Platform, Inc.)(*2)
          30,191       (14           598       (30,775      
UTC
Kakao-SK
Telecom ESG Fund
          2,000                               2,000  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      41,472       41,239       (14,343     (1,420     1,632       (59,325     9,255  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    14,354,113       340,237       1,823,252       360,858       (320,949     (14,360,160     2,197,351  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
 
(*1)
Dividends received from the associates are deducted from the carrying amount for the year ended December 31, 2021.
 
(*2)
Investment in SK Telecom CS T1 Co., Ltd. and twenty-three other associates and joint ventures were transferred to the
spin-off
company for the year ended December 31, 2021. In addition, profit or loss related to investments in associates and joint ventures, which are transferred to the
spin-off
company, are included in profit or loss from discontinued operations.
 
(*3)
The Group recognized ₩1,730 million of impairment loss for the investments in Hello Nature Co., Ltd. for the year ended December 31, 2021.
 
(*4)
The Parent Company has entered into an agreement whereby the entire shares of Carrot General Insurance Co., Ltd. will transfer to Tmap Mobility Co., Ltd. In accordance with the agreement, the Parent Company reclassified the investments in Carrot General Insurance Co., Ltd. amounting to ₩ 8,734 million as
non-current
assets held for sale (See note 40). Meanwhile, the investment in Carrot General Insurance Co., Ltd. amounting to ₩10,000 million owned by Tmap Mobility Co., Ltd., a subsidiary of the Parent Company before
spin-off,
were transferred to the
spin-off
company for the year ended December 31, 2021.
 
(*5)
The acquisition for the year ended December 31, 2021 includes ₩1,000 million of cash investment in Studio Yesone Co., Ltd. and ₩1,000 million of cash investment in SONNORI Corp. and ₩687 million of cash investment in WALDEN SKT VENTURE FUND and ₩3,000 million of cash investment in Smart SKT Infinitum Game Fund and ₩1,600 million of cash investment in Laguna Dynamic Game&Contents Fund. The disposal for the year ended December 31, 2021 includes ₩334 million relating to disposal of the part of shares of KDX Korea Data Exchange.
 
(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, 2022 are as follows:
 
F-6
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
Unrecognized loss
    
Unrecognized change in equity
 
    
2022
    
Cumulative loss
    
2022
    
Cumulative loss
 
Wave City Development Co., Ltd.
   152        8,695                
Daehan Kanggun BcN Co., Ltd. and others
            5,780               (124
    
 
 
    
 
 
    
 
 
    
 
 
 
     152        14,475               (124
    
 
 
    
 
 
    
 
 
    
 
 
 
 
13.
Property and Equipment
(1)     Property and equipment as of December 31, 2022 and 2021 are as follows:
 
    
December 31, 2022
 
(In millions of won)
  
Acquisition cost
    
Accumulated

depreciation
    
Accumulated

impairment loss
    
Carrying

amount
 
Land
   1,005,857                      1,005,857  
Buildings
     1,736,257        (950,582      (450      785,225  
Structures
     935,276        (668,019      (1,601      265,656  
Machinery
     37,100,715        (29,185,881      (1,934      7,912,900  
Other
     1,771,890        (1,273,655      (841      497,394  
Right-of-use
assets
     2,555,685        (766,350      (3,206      1,786,129  
Construction in progress
     1,069,331                      1,069,331  
    
 
 
    
 
 
    
 
 
    
 
 
 
     46,175,011        (32,844,487      (8,032      13,322,492  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
    
December 31, 2021
 
(In millions of won)
  
Acquisition cost
    
Accumulated
depreciation
    
Accumulated
impairment loss
    
Carrying
amount
 
Land
   972,800                      972,800  
Buildings
     1,692,239        (897,336      (450      794,453  
Structures
     922,637        (629,757      (1,601      291,279  
Machinery
     35,770,485        (27,771,040      (1,518      7,997,927  
Other
     1,718,337        (1,230,128      (493      487,716  
Right-of-use
assets
     2,229,945        (669,389      (1,223      1,559,333  
Construction in progress
     767,751                      767,751  
    
 
 
    
 
 
    
 
 
    
 
 
 
     44,074,194        (31,197,650      (5,285      12,871,259  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
F-6
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Changes in property and equipment for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
                                               
   
2022
 
   
Beginning
balance
   
Acquisition
   
Disposal
   
Transfer
   
Depreciation
   
Impairment
   
Business
combination(*)
   
Ending
balance
 
Land
  972,800       79       (175     30,364                   2,789       1,005,857  
Buildings
    794,453       1,071       (638     36,219       (54,463           8,583       785,225  
Structures
    291,279       2,288       (32     10,422       (38,301                 265,656  
Machinery
    7,997,927       560,889       (49,586     1,696,447       (2,292,358     (419           7,912,900  
Other
    487,716       780,382       (938     (672,199     (105,730     (391     8,554       497,394  
Right-of-use
assets
    1,559,333       720,932       (65,961     (27,579     (403,794     (3,133     6,331       1,786,129  
Construction in progress
    767,751       1,564,345       (1,709     (1,261,937                 881       1,069,331  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    12,871,259       3,629,986       (119,039     (188,263     (2,894,646     (3,943     27,138       13,322,492  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(*)
Includes assets acquired from the acquisition of SK m&service Co., Ltd. by PS&Marketing Corporation, a subsidiary of the Parent Company.
 
(In millions of won)
                                           
   
2021
 
   
Beginning

balance
   
Acquisition
   
Disposal
   
Transfer
   
Deprecia-
tion(*1)
   
Impairment

(*2)
   
Business

combina-
tion(*3)
   
Spin-off
   
Ending

balance
 
Land
  1,039,323       634       (21,557     24,789                         (70,389     972,800  
Buildings
    858,606       3,919       (9,706     47,612       (55,818           639       (50,799     794,453  
Structures
    317,403       2,482       (6,124     16,546       (37,968                 (1,060     291,279  
Machinery
    8,376,212       593,225       (44,477     1,816,003       (2,394,351     (1,054           (347,631     7,997,927  
Other
    653,616       830,277       (2,286     (607,271     (180,980     (495     193       (205,338     487,716  
Right-of-use
assets
    1,472,035       672,723       (60,159     (9,610     (433,970     (1,223     507       (80,970     1,559,333  
Construction in progress
    659,882       1,695,316       (1,071     (1,554,047                       (32,329     767,751  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    13,377,077       3,798,576       (145,380     (265,978     (3,103,087     (2,772     1,339       (788,516     12,871,259  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group recognized impairment losses for obsolete assets for the year ended December 31, 2021.
 
(*3)
Includes assets acquired from the acquisition of YLP Inc. and another company by Tmap Mobility Co., Ltd. and from the acquisition of Rokmedia Co., Ltd. by Onestore Co., Ltd.
 
F-6
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
14.
Investment Property
 
(1)
Investment property as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
    
December 31, 2022
    
December 31, 2021
 
    
Acquisition

cost
    
Accumulated

depreciation
   
Carrying

amount
    
Acquisition

cost
    
Accumulated

depreciation
   
Carrying

amount
 
 
Land
   6,115              6,115        6,071              6,071  
Buildings
     21,490        (14,606     6,884        21,021        (13,668     7,353  
Right-of-use
assets
     17,057        (4,919     12,138        12,577        (2,967     9,610  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
     44,662        (19,525     25,137        39,669        (16,635     23,034  
    
 
 
    
 
 
   
 
 
    
 
 
    
 
 
   
 
 
 
 
(2)
Changes in Investment property for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
    
2022
 
    
Beginning

balance
    
Transfer
    
Depreciation
   
Ending

balance
 
 
Land
   6,071        44              6,115  
Buildings
     7,353        564        (1,033     6,884  
Right-of-use
assets
     9,610        4,124        (1,596     12,138  
    
 
 
    
 
 
    
 
 
   
 
 
 
     23,034        4,732        (2,629     25,137  
    
 
 
    
 
 
    
 
 
   
 
 
 
 
(In millions of won)
 
    
2021
 
    
Beginning

balance
    
Transfer
    
Ending

balance
 
 
Land
          6,071        6,071  
Buildings
            7,353        7,353  
Right-of-use
assets
            9,610        9,610  
    
 
 
    
 
 
    
 
 
 
            23,034        23,034  
    
 
 
    
 
 
    
 
 
 
 
(3)
The Group recognized lease income of ₩5,222 million and ₩5,036 million from investment property for the years ended December 31, 2022 and 2021, respectively.
 
(4)
The fair value of investment property is ₩73,934 million and ₩66,128 million as of December 31, 2022 and 2021, respectively.
 
F-6
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
15.
Leases
 
(1)
Group as a lessee
1)     Details of the
right-of-use
assets as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31,

2022
    
December 31,

2021
 
Land, buildings and structures
   1,546,918        1,392,925  
Others
     239,211        166,408  
    
 
 
    
 
 
 
     1,786,129        1,559,333  
    
 
 
    
 
 
 
2)     Details of amounts recognized in the consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 as a lessee are as follows:
 
(In millions of won)
  
2022
    
2021(*)
    
2020(*)
 
Depreciation of
right-of-use
assets(*):
                          
Land, buildings and structures
   346,499        338,304        347,166  
Others
     57,295        95,666        89,065  
    
 
 
    
 
 
    
 
 
 
     403,794        433,970        436,231  
    
 
 
    
 
 
    
 
 
 
Interest expense on lease liabilities
   29,996        23,998        22,976  
 
 
(*)
Includes amounts related to discontinued operations.
Expenses related to short-term leases and leases of
low-value
assets the Group recognized are immaterial.
 
3)
The total cash outflows due to lease payments for the years ended December 31, 2022, 2021 and 2020 amounted to ₩449,196 million, ₩484,879 million and ₩459,132 million, respectively. The amounts for the years ended December 31, 2021 and 2020 include cash flows from discontinued operations.
 
(2)
Group as a lessor
1)     Finance lease
The Group recognized interest income of ₩910 million, ₩2,053 million and ₩2,223 million on lease receivables for the years ended December 31, 2022, 2021 and 2020, respectively, The amounts for the years ended December 31, 2021 and 2020 include profit or loss from discontinued operations.
 
F-6
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
The following table sets out a maturity analysis for lease receivables, presenting the undiscounted lease payments to be received subsequent to December 31, 2022.
 
(In millions of won)
 
    
Amount
 
Less than 1 year
   11,079  
1 ~ 2 years
     3,707  
2 ~ 3 years
     2,062  
3 ~ 4 years
     509  
4 ~ 5 years
     231  
    
 
 
 
Undiscounted lease payments
   17,588  
    
 
 
 
Unrealized finance income
     449  
Net investment in the lease
     17,139  
2)     Operating lease
The Group recognized lease income of ₩246,279 million, ₩230,140 million and ₩238,545 million for the years ended December 31, 2022, 2021 and 2020, respectively, of which variable lease payments received are ₩8,622 million, ₩17,686 million and ₩21,715 million, respectively.
The following table sets out a maturity analysis of lease payments, presenting the undiscounted fixed payments to be received subsequent to December 31, 2022.
 
(In millions of won)
 
    
Amount
 
Less than 1 year
   239,174  
1 ~ 2 years
     132,802  
2 ~ 3 years
     60,808  
3 ~ 4 years
     9,424  
4 ~ 5 years
     3,520  
More than 5 years
     1,706  
    
 
 
 
     447,434  
    
 
 
 
 
16.
Goodwill
(1)     Goodwill as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31,

2022
    
December 31,

2021
 
Goodwill related to merger of Shinsegi Telecom, Inc.
   1,306,236        1,306,236  
Goodwill related to acquisition of SK Broadband Co., Ltd.
     764,082        764,082  
Other goodwill
     4,691        2,175  
    
 
 
    
 
 
 
     2,075,009        2,072,493  
    
 
 
    
 
 
 
(2)     Details of the impairment testing of Goodwill as of December 31, 2022 is as follows:
Goodwill is allocated to the following CGUs for the purpose of impairment testing.
 
   
goodwill related to Shinsegi Telecom, Inc.(*1): Cellular services;
 
F-
69

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
   
goodwill related to SK Broadband Co., Ltd.(*2): Fixed-line telecommunication services; and
 
   
other goodwill: Others.
 
(*1)
Goodwill related to merger of Shinsegi Telecom, Inc.
The recoverable amount of the CGU is based on its value in use calculated by applying the post-tax annual discount rate of 
6.7% (2021: 6.6
%)
(pre-tax
annual discount rate for 2022 and 2021:
9.0% and 9.0%
)
 to the estimated future post-tax cash flows based on financial budgets for the next five
years. An annual growth rate of 
0.0% (2021: 0.5%)
 was applied for the cash flows expected to be incurred after five years and is not expected to exceed the long-term wireless telecommunication industry growth rate.
 
(*2)
Goodwill related to acquisition of SK Broadband Co., Ltd.
The recoverable amount of the CGU is based on its value in use (VIU). To determine the VIU, the Group has applied the post-tax annual discount
rate of 
6.7% (2021: 7.1%)
 
(pre-tax annual discount rate for 2022 and 2021: 
8.5% and 9.2%)
 to the estimated future post-tax cash flows, which are derived from the most recent financial budgets/forecasts approved by management for the next five years, including, among other elements, the estimated operating revenue which is based on past performance, business plans and its expectation of future market changes. The Group has estimated subsequent cash flows beyond five years based on an annual growth rate of 
1.0% (2021: 1.0%
)
 
which is not expected to exceed the long-term fixed-line telecommunication industry growth rate. 
 
(3)
Details of the changes in goodwill for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
2022
    
2021
 
Beginning balance
   2,072,493        3,357,524  
Acquisition(*)
     2,516        111,928  
Other
            (43
Spin-off
            (1,396,916
    
 
 
    
 
 
 
Ending balance
   2,075,009        2,072,493  
    
 
 
    
 
 
 
 
 
(*)
It consists of goodwill recognized as PS&Marketing Corporation’s acquisition of SK m&service Co., Ltd for the years ended December 31,2022. It consists of goodwill recognized as Tmap Mobility Co., Ltd.’s acquisition of YLP Inc. and another company, goodwill recognized as Dreamus Company’s acquisition of Studio Dolphin Co., Ltd. and goodwill recognized from Onestore Co., Ltd.’s acquisition of Rokmedia Co., Ltd. for the year ended December 31, 2021 (See Note 11).
As of December 31, 2022 and 2021, accumulated impairment losses are ₩33,441 million, respectively.
 
F-
7
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
17.
Intangible Assets
 
(1)
Intangible assets as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
December 31, 2022
 
    
Acquisition

cost
    
Accumulated

amortization
   
Accumulated

impairment
   
Carrying

amount
 
Frequency usage rights(*1)
   3,767,590        (1,499,158     (186,000     2,082,432  
Land usage rights
     59,389        (58,165           1,224  
Industrial rights
     94,238        (30,068     (12,378     51,792  
Development costs
     14,497        (14,213           284  
Facility usage rights
     157,651        (142,654           14,997  
Customer relations
     505,063        (204,882           300,181  
Club memberships(*2)
     116,401              (24,430     91,971  
Other(*3)
     4,627,565        (3,839,030     (6,506     782,029  
    
 
 
    
 
 
   
 
 
   
 
 
 
     9,342,394        (5,788,170     (229,314     3,324,910  
    
 
 
    
 
 
   
 
 
   
 
 
 
 
(In millions of won)
  
December 31, 2021
 
    
Acquisition

cost
    
Accumulated

amortization
   
Accumulated

impairment
   
Carrying

amount
 
Frequency usage rights(*1)
   7,221,735        (4,476,046     (186,000     2,559,689  
Land usage rights
     48,318        (45,586           2,732  
Industrial rights
     92,332        (36,342     (36     55,954  
Development costs
     34,393        (34,193           200  
Facility usage rights
     156,062        (138,188           17,874  
Customer relations
     507,581        (180,324           327,257  
Club memberships(*2)
     113,300              (24,806     88,494  
Other(*3)
     4,347,971        (3,524,002     (6,400     817,569  
    
 
 
    
 
 
   
 
 
   
 
 
 
     12,521,692        (8,434,681     (217,242     3,869,769  
    
 
 
    
 
 
   
 
 
   
 
 
 
 
(*1)
The Parent Company was reassigned 800 MHz, 1.8 GHz and 2.1 GHz band of frequency licenses from the Ministry of Science and Information and Communication Technology (“ICT”) in exchange for ₩227,200 million, ₩547,800 million and ₩411,700 million, respectively, for the year ended December 31, 2021. The band of frequency was assigned to the Parent Company at the date of initial lump sum payment for the year ended December 31, 2021 and the annual payments in installment for the remaining balances are made in the next five years starting from the date of initial lump sum payment.
 
(*2)
Club memberships are classified as intangible assets with indefinite useful lives and are not amortized.
 
(*3)
Other intangible assets primarily consist of computer software and others.
 
F-7
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Changes in intangible assets for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
   
2022
 
   
Beginning
balance
   
Acquisition
   
Disposal
   
Transfer
   
Amortization
   
Impairment(*1)
   
Business

combination(*2)
   
Ending

balance
 
Frequency usage rights
  2,559,689                         (477,257                 2,082,432  
Land usage rights
    2,732                         (1,508                 1,224  
Industrial rights
    55,954       13,428       (823     (103     (4,324     (12,343     3       51,792  
Development costs
    200                         (573           657       284  
Facility usage rights
    17,874       1,396       (2     252       (4,523                 14,997  
Customer relations
    327,257                         (27,076                 300,181  
Club memberships(*1)
    88,494       9,926       (7,113                 (725     1,389       91,971  
Other(*2)
    817,569       108,144       (380     189,075       (342,776     (16     10,413       782,029  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    3,869,769       132,894       (8,318     189,224       (858,037     (13,084     12,462       3,324,910  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(*1)
The Group recognized the difference between recoverable amount and the carrying amount of intangible assets amounting to ₩13,084 million as impairment loss for the year ended December 31, 2022.
 
(*2)
Includes assets acquired from the acquisition of SK m&service Co., Ltd. by PS&Marketing Corporation, a subsidiary of the Parent Company.
 
(In millions of won)
       
   
2021
 
   
Beginning

balance
   
Acquisition
   
Disposal
   
Transfer
   
Amorti-

zation

(*1)
   
Reversal

(Impairment)

(*2)
   
Business

Combina-

tion(*3)
   
Spin-off
   
Ending

balance
 
Frequency usage rights
  1,932,765       1,145,999                   (519,075                       2,559,689  
Land usage rights
    4,720       175       (76           (2,087                       2,732  
Industrial rights
    71,442       5,158       (8     390       (6,377     (36           (14,615     55,954  
Development costs
    9,364       1,279       (150           (3,210                 (7,083     200  
Facility usage rights
    21,880       1,690       (21     328       (6,003                       17,874  
Customer relations
    919,863       4,854       (461           (53,342           4,705       (548,362     327,257  
Club memberships
    106,865       6,518       (9,925                 653             (15,617     88,494  
Brands
    374,096                                           (374,096      
Other
    995,199       80,713       (4,580     276,890       (421,213     (111     5,059       (114,388     817,569  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    4,436,194       1,246,386       (15,221     277,608       (1,011,307     506       9,764       (1,074,161     3,869,769  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group recognized the difference between recoverable amount and the carrying amount of intangible assets amounting to ₩147 million as impairment loss and ₩653 million as reversal of impairment loss, respectively, for the year ended December 31, 2021.
 
(*3)
Includes assets acquired from the acquisition of YLP Co., Ltd. and another company by Tmap Mobility Co., Ltd., and Rokmedia Co., Ltd. by Onestore Co., Ltd.
 
F-7
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
Research and development expenditures recognized as expense for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                    
    
2022
    
2021(*)
    
2020(*)
 
Research and development costs expensed as incurred
   340,864        406,672        416,445  
 
 
(*)
Includes amounts
related
to discontinued operations.
 
(4)
Details of frequency usage rights as of December 31, 2022 are as follows:
 
(In millions of won)
 
    
As of December 31, 2022
 
    
Amount
    
Description
    
Commencement

of amortization
    
Completion of

amortization
 
800MHz license
   153,704        LTE service        Jul. 2021       
Jun. 2026
 
1.8GHz license
     414,317        LTE service        Dec. 2021        Dec. 2026  
2.6GHz license
     485,670        LTE service        Sep. 2016        Dec. 2026  
2.1GHz license
     311,381       
W-CDMA and LTE service
       Dec. 2021        Dec. 2026  
3.5GHz license
     712,594        5G service        Apr. 2019        Nov. 2028  
28GHz license
     4,766        5G service        Jan. 2021        May. 2023  
    
 
 
                            
     2,082,432                             
    
 
 
                            
 
18.
Borrowings and Debentures
 
(1)
Short-term borrowings as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
Lender
  
Annual interest

rate (%)
  
Maturity
  
December 31,

2022
    
December 31,

2021
 
BNK Securities. Co.,Ltd.
   4.60    Jan. 20, 2023    100,000         
KEB Hana Bank
   6.62    Oct. 31, 2023      30,000         
Hana Financial Investment Co., Ltd.(*)
   6.30    May. 29, 2023      4,642        4,642  
DB Financial Investment Co., Ltd.(*)
   6.30    May. 29, 2023      2,785        2,785  
Shinhan Financial Investment Co., Ltd.(*)
   6.20    Feb. 20, 2023      5,571        5,571  
              
 
 
    
 
 
 
               142,998        12,998  
              
 
 
    
 
 
 
 
 
(*)
PanAsia Semiconductor Materials LLC., a subsidiary of the Parent Company, has pledged its ₩21,981 million of equity instruments at FVTPL on ₩12,998 million of short-term loans as of December 31, 2022.
 
F-7
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Long-term borrowings as of December 31, 2022 and 2021 are as follows:
 
(In millions of won and thousands of other currencies)
 
Lender
  
Annual interest

rate (%)
    
Maturity
    
December 31,

2022
   
December 31,

2021
 
Korea Development Bank(*1)
     1.87        Feb. 10, 2026      40,625       50,000  
Korea Development Bank(*2)
     3M CD + 0.71        Dec. 21, 2022              12,500  
Credit Agricole CIB(*2,3)
     3M CD + 0.82        Dec. 14, 2023        12,500       25,000  
Export Kreditnamnden
     1.70        Apr. 29, 2022             
6,746
(USD 5,690)
 
 
Mizuho bank, Ltd.
     1.35        May. 20, 2024        100,000       100,000  
DBS bank Ltd.
     1.32        May. 28, 2024        200,000       200,000  
DBS bank Ltd.
     2.68        Mar. 10, 2025        200,000        
Credit Agricole CIB
     3.30        Apr. 29, 2024        50,000        
Mizuho Bank, Ltd.
     3.29        Nov. 27, 2023        100,000        
Nonghyup Bank(*4)
     MOR + 1.96        Nov. 17, 2024        40,000        
Credit Agricole CIB
     4.89        Nov. 28, 2025        50,000        
                      
 
 
   
 
 
 
                         793,125       394,246  
Less: present value discount
                       (13     (59
                      
 
 
   
 
 
 
                         793,112       394,187  
Less: current portions
                       (124,987     (41,065
                      
 
 
   
 
 
 
                       668,125       353,122  
                      
 
 
   
 
 
 
 
 
(*1)
The long-term borrowings are to be repaid by installments on an annual basis from 2022 to 2026.
 
(*2)
3M CD rates are
3.98
% and
1.29
% as of December 31, 2022 and 2021, respectively.
 
(*3)
The long-term borrowings are to be repaid by installments on an annual basis from 2020 to 2023.
 
(*4)
6M MOR rates are 4.35% as of December 31, 2022.
 
F-7
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
Debentures as of December 31, 2022 and 2021 are as follows:
 
(In millions of won and thousands of U.S. dollars)
 
    
Purpose
  
Maturity
    
Annual

interest rate (%)
   
December 31,

2022
   
December 31,

2021
 
Unsecured corporate bonds
   Operating and refinancing fund      2022        3.30             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
     2024        3.64       150,000       150,000  
Unsecured corporate bonds
   Refinancing fund      2024        2.82       190,000       190,000  
Unsecured corporate bonds
  
Operating and
refinancing fund
     2022        2.40             100,000  
Unsecured corporate bonds
     2025        2.49       150,000       150,000  
Unsecured corporate bonds
     2030        2.61       50,000       50,000  
Unsecured corporate bonds
   Operating fund      2025        2.66       70,000       70,000  
Unsecured corporate bonds
     2030        2.82       90,000       90,000  
Unsecured corporate bonds
   Operating and refinancing fund      2025        2.55       100,000       100,000  
Unsecured corporate bonds
     2035        2.75       70,000       70,000  
Unsecured corporate bonds
   Operating fund      2026        2.08       90,000       90,000  
Unsecured corporate bonds
     2036        2.24       80,000       80,000  
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      2022        2.17             120,000  
Unsecured corporate bonds
     2027        2.55       100,000       100,000  
Unsecured corporate bonds
  
Operating and
refinancing fund
     2032        2.65       90,000       90,000  
Unsecured corporate bonds
  
Operating and
refinancing fund
     2022        2.63             80,000  
Unsecured corporate bonds
   Refinancing fund      2027        2.84       100,000       100,000  
Unsecured corporate bonds
     2023        2.81       100,000       100,000  
Unsecured corporate bonds
     2028        3.00       200,000       200,000  
Unsecured corporate bonds
     2038        3.02       90,000       90,000  
Unsecured corporate bonds
  
Operating and
refinancing fund
     2023        2.33       150,000       150,000  
Unsecured corporate bonds
     2038        2.44       50,000       50,000  
Unsecured corporate bonds
   Operating fund      2022        2.03             180,000  
Unsecured corporate bonds
     2024        2.09       120,000       120,000  
Unsecured corporate bonds
     2029        2.19       50,000       50,000  
Unsecured corporate bonds
     2039        2.23       50,000       50,000  
Unsecured corporate bonds
  
Operating and
refinancing fund
     2022        1.40             120,000  
Unsecured corporate bonds
     2024        1.49       60,000       60,000  
Unsecured corporate bonds
     2029        1.50       120,000       120,000  
Unsecured corporate bonds
     2039        1.52       50,000       50,000  
Unsecured corporate bonds
     2049        1.56       50,000       50,000  
Unsecured corporate bonds
   Operating fund      2022        1.69             230,000  
Unsecured corporate bonds
     2024        1.76       70,000       70,000  
Unsecured corporate bonds
     2029        1.79       40,000       40,000  
Unsecured corporate bonds
     2039        1.81       60,000       60,000  
Unsecured corporate bonds
   Operating and refinancing fund      2023        1.64       170,000       170,000  
 
F-7
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won and thousands of U.S. dollars)
 
    
Purpose
  
Maturity
    
Annual

interest rate (%)
   
December 31,

2022
   
December 31,
2021
 
Unsecured corporate bonds
   Operating fund      2025        1.75       130,000       130,000  
Unsecured corporate bonds
     2030        1.83       50,000       50,000  
Unsecured corporate bonds
     2040        1.87       70,000       70,000  
Unsecured corporate bonds
   Refinancing fund      2025        1.40       140,000       140,000  
Unsecured corporate bonds
     2030        1.59       40,000       40,000  
Unsecured corporate bonds
     2040        1.76       110,000       110,000  
Unsecured corporate bonds
   Refinancing fund      2024        1.17       80,000       80,000  
Unsecured corporate bonds
     2026        1.39       80,000       80,000  
Unsecured corporate bonds
     2031        1.80       50,000       50,000  
Unsecured corporate bonds
     2041        1.89       100,000       100,000  
Unsecured corporate bonds
   Refinancing fund      2024        2.47       90,000       90,000  
Unsecured corporate bonds
     2026        2.69       70,000       70,000  
Unsecured corporate bonds
     2041        2.68       40,000       40,000  
Unsecured corporate bonds
          2025        3.80       240,000        
Unsecured corporate bonds
          2027        3.84       70,000        
Unsecured corporate bonds
     2042        3.78       40,000        
Unsecured corporate bonds
          2025        4.00       300,000        
Unsecured corporate bonds
     2027        4.00       95,000        
Unsecured corporate bonds
          2024        4.79       100,000        
Unsecured corporate bonds
     2025        4.73       110,000        
Unsecured corporate bonds
     2027        4.74       60,000        
Unsecured corporate bonds
          2032        4.69       40,000        
Unsecured corporate bonds(*1)
   Operating fund      2022        2.26             150,000  
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
     2022        2.70             140,000  
Unsecured corporate bonds(*1)
          2023        2.93       80,000       80,000  
Unsecured corporate bonds(*1)
   Refinancing fund      2022        2.00             50,000  
Unsecured corporate bonds(*1)
     2024        2.09       160,000       160,000  
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
     2022        1.71             80,000  
Unsecured corporate bonds(*1)
          2024        1.71       100,000       100,000  
Unsecured corporate bonds(*1)
          2026        1.86       50,000       50,000  
Unsecured corporate bonds(*1)
   Refinancing fund      2023        1.48       100,000       100,000  
Unsecured corporate bonds(*1)
  
Operating and
refinancing fund
     2025        1.64       100,000       100,000  
 
F-7
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won and thousands of U.S. dollars)
 
    
Purpose
  
Maturity
    
Annual

interest rate (%)
    
December 31,

2022
   
December 31,

2021
 
Unsecured corporate bonds(*1)
   Refinancing fund      2025        1.41        160,000       160,000  
Unsecured corporate bonds(*1)
          2024        1.69        100,000       100,000  
Unsecured corporate bonds(*1)
          2025        2.58        100,000           
Unsecured corporate bonds(*1)
          2032        2.92        50,000           
Unsecured global bonds
   Operating fund      2027        6.63       
506,920
(USD 400,000
 
   
474,200
(USD
400,000
 
 
Unsecured global bonds
          2023        3.75       
633,650
(USD 500,000
 
   
592,750
(USD 500,000
 
Unsecured global bonds(*1)
   Refinancing fund      2023        3.88       
380,190
(USD 300,000
 
   
355,650
(USD 300,000
 
Floating rate notes(*2)
   Operating fund      2025       
3M LIBOR
+ 0.91
 
 
    
380,190
(USD 300,000
 
   
355,650
(USD 300,000
 
                           
 
 
   
 
 
 
         8,385,950       8,448,250  
Less: discounts on bond
 
     (19,256     (21,567
      
 
 
   
 
 
 
         8,366,694       8,426,683  
Less: current portions of bonds
 
     (1,842,599     (1,389,259
      
 
 
   
 
 
 
         6,524,095       7,037,424  
      
 
 
   
 
 
 
 
 
(*1)
Unsecured corporate bonds were issued by SK Broadband Co., Ltd., a subsidiary of the Parent Company.
 
(*2)
3M LIBOR rates are 4.75% and 0.21% as of December 31, 2022 and 2021, respectively.
 
19.
Long-term Payables – other
 
(1)
As of December 31, 2022 and 2021, details of long-term payables — other related to the acquisition of frequency usage rights are as follows (See note 17):
 
(In millions of won)
 
    
December 31, 2022
   
December 31, 2021
 
Long-term payables — other
   1,690,470       2,090,715  
Present value discount on long-term payables — other
     (52,129     (80,882
Current installments of long-term payables — other
     (398,874     (398,823
    
 
 
   
 
 
 
Carrying amount as of December 31
   1,239,467       1,611,010  
    
 
 
   
 
 
 
 
F-7
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
The sum of portions repaid among the principal of long-term payables — other for the years ended December 31, 2022 and 2021 amounts at ₩400,245 million and ₩425,349 million, respectively. The repayment schedule of the principal amount of long-term payables — other as of December 31, 2022 is as follows:
 
(In millions of won)
      
    
Amount
 
Less than 1 year
   400,245  
1~3 years
     738,300  
3~5 years
     460,538  
More than 5 years
     91,387  
    
 
 
 
     1,690,470  
    
 
 
 
 
20.
Provisions
Changes in provisions for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
   
2022
   
As of December 31,

2022
 
   
Beginning

balance
   
Increase
   
Utilization
   
Reversal
   
Other
   
Business

combination
   
Ending

balance
   
Current
   
Non-current
 
Provision for restoration
  114,731       6,823       (5,679     (1,767     (10     991       115,089       36,998       78,091  
Emission allowance
    1,885       2,719             (2,418                 2,186       2,186        
Other provisions
    10,379       4,071       (9,509     (3,080     (38           1,823       499       1,324  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    126,995       13,613       (15,188     (7,265     (48     991       119,098       39,683       79,415  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(In millions of won)
 
   
2021
   
As of December 31,

2021
 
   
Beginning

balance
   
Increase
   
Utilization
   
Reversal
   
Other
   
Business

combination
   
Spin-off
   
Ending

balance
   
Current
   
Non-current
 
Provision for restoration
  113,653       12,648       (6,283     (440     172             (5,019     114,731       59,204       55,527  
Emission allowance
    7,424       1,368       (1,091     (5,816                       1,885       1,885        
Other provisions
    29,800       1,655       (18,909     (1,820           385       (732     10,379       567       9,812  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    150,877       15,671       (26,283     (8,076     172       385       (5,751     126,995       61,656       65,339  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
21.
Defined Benefit Liabilities (Assets)
 
(1)
Details of defined benefit liabilities (assets) as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
            
    
December 31,

2022
   
December 31,

2021
 
Present value of defined benefit obligations
   1,038,320       1,035,016  
Fair value of plan assets
     (1,214,007     (1,040,286
    
 
 
   
 
 
 
Defined benefit assets(*)
     (175,748     (18,427
    
 
 
   
 
 
 
Defined benefit liabilities
     61       13,157  
    
 
 
   
 
 
 
 
F-7
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
 
 
(*)
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, 2022 and 2021 are as follows:
 
    
December 31, 2022
  
December 31, 2021
Discount rate for defined benefit obligations
   5.09% ~ 5.71%    2.35 ~ 3.29%
Expected rate of salary increase
   2.00% ~ 8.37%    2.00 ~ 5.29%
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.
 
(3)
Changes in defined benefit obligations for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
    
2022
   
2021(*1)
 
Beginning balance
   1,035,016       1,278,550  
Current service cost
     134,847       186,395  
Interest cost
     32,572       28,617  
Remeasurement
- Demographic assumption
     (28,222     (794
- Financial assumption
     (84,532     (29,399
- Adjustment based on experience
     2,369       5,773  
Business combinations(*2)
     29,357        
Benefit paid
     (79,117     (114,897
Spin-off
           (318,476
Others(*3)
     (3,970     (753
    
 
 
   
 
 
 
Ending balance
   1,038,320       1,035,016  
    
 
 
   
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
Includes liabilities acquired from the acquisition of SK m&service Co., Ltd. by PS&Marketing Corporation, a subsidiary of the Parent Company.
 
(*3)
Others include changes of liabilities due to employee’s transfers among affiliates for the years ended December 31, 2022 and 2021.
 
F-
79

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(4)
Changes in plan assets for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
    
2022
   
2021(1*)
 
Beginning balance
   1,040,286       1,127,163  
Interest income
     32,910       24,550  
Remeasurement
     (18,622     (3,798
Contributions
     215,254       152,208  
Benefit paid
     (83,123     (100,511
Business combinations(*2)
     26,618        
Spin-off
           (157,522
Others
     684       (1,804
    
 
 
   
 
 
 
Ending balance
   1,214,007       1,040,286  
    
 
 
   
 
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
Includes assets acquired from the acquisition of SK m&service Co., Ltd. by PS&Marketing Corporation, a subsidiary of the Parent Company.
The Group expects to contribute ₩191,597 million to the defined benefit plans in 2023.
 
(5)
Total cost of benefit plan, which is recognized in profit and loss (included in labor in the statement of income) for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
For the year ended December 31
 
    
2022
   
2021(*)
 
Current service cost
   134,847       186,395  
Net interest cost
     (338     4,067  
    
 
 
   
 
 
 
     134,509       190,462  
    
 
 
   
 
 
 
 
 
(*)
Includes amounts related to discontinued operations.
Costs related to the defined benefit except for the amounts transferred to construction in progress are included labor expenses and Research and development expenses.
 
(6)
Details of plan assets as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31,

2022
    
December 31,

2021
 
Equity instruments
   17,716        25,083  
Debt instruments
     174,385        228,534  
Short-term financial instruments, etc.
     1,021,906        786,669  
    
 
 
    
 
 
 
     1,214,007        1,040,286  
    
 
 
    
 
 
 
 
F-
80

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(7)
As of December 31, 2022, 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
   (35,826)        38,337  
Expected salary increase rate
     38,500        (36,315
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 durat
io
n of defined benefit obligations as of December 31, 2022 and 2021 are 7.53 years and 9.19 years, respectively.
 
22.
Derivative Instruments
(1) Currency and interes
t rate
swap contracts under cash
flow
hedge accounting as of December 31, 2022 are as follows:
 
(In millions of won and thousands of U.S. dollars)
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
         
Apr. 16,
2018
  
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds face value of USD
500,000
)
  Foreign currency risk    The Export-Import Bank of Korea and three other banks  
Apr. 16, 2018 ~
Apr. 16, 2023
         
Mar. 4, 2020   
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    Citibank  
Mar. 4, 2020 ~
Jun. 4, 2025
         
Aug. 13,
2018
  
Fixed-to-fixed
 
cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)
  Foreign currency risk    Citibank   Aug. 13, 2018 ~ Aug. 13, 2023
         
Dec. 19, 2018   
Floating-to-fixed
interest rate swap (Korean won borrowing amounting to KRW
12,500
)
  Interest rate risk    Credit Agricole CIB  
Mar.19, 2019 ~
Dec.14, 2023
 
(2)
SK Broadband Co., Ltd., a subsidiary of the Parent Company, entered into Total Return Swap(TRS) contract amou
n
ting to ₩270,000 million and ₩64,000 million with beneficiary certificates as underlying asset with IGIS Professional Investment Type Private Real Estate Investment Trust No. 156 and Hana Professional
 
F-8
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
  Alternative Investment Type Private Real Estate Investment Trust No. 62, respectively. The contracts consist of the settlement of the difference resulting from the change in the value of the real estate on the maturity date of the contract and the settlement of the difference between the dividend and the standard dividend during the contract period. Each contract expires in November 2025 and September 2024, respectively. SK Broadband Co., Ltd. has an obligation to guarantee fixed rate of returns to the other party to each contract. SK Broadband Co., Ltd. recognized derivative financial assets of ₩20,631 million and ₩6,988 million for TRS as of December 31, 2022 and 2021, respectively.
Derivative
financial assets were measured using the discounted present value methods for estimated future cash flows.
 
(3)
In relation to the business acquisition by SK Broadband Co., Ltd. for the year ended December 31, 2020 the Parent Company has entered into a shareholders’ agreement with the shareholders of the acquirees. Pursuant to the agreement, when certain conditions are met within a period of time subsequent to the merger, the shareholders of the acquirees can exercise their drag-along rights and require the Parent Company to sell its shares in SK Broadband Co., Ltd. Should the shareholders exercise their drag-along rights, the Parent Company also can exercise its call options over the shares held by those shareholders. The Group recognized a long-term derivative financial liability of ₩302,593 million (₩321,025 million and 320,984 million as of December 31, 2021 and 2020, respectively) for the rights prescribed in the shareholders’ agreement as of December 31, 2022.
The fair value of SK Broadband Co., Ltd.’s common stock was estimated using
5-year
projected cash flows discounted at 6.7% per annum. The fair value of the derivative financial liability was determined by using the Binomial Model based on various assumptions including the price of common stock and its price fluctuations. The significant unobservable inputs used in the fair value measurement and interrelationship between significant unobservable inputs and fair value measurement are as follows:
 
Significant unobservable inputs
  
Correlations between inputs
and fair value measurements
Fair value of SK Broadband Co., Ltd.’s common stock    The estimated fair value of derivative financial liabilities would decrease (increase) if the fair value of common stock would increase (decrease)
   
Volatility of stock price    The estimated fair value of derivative financial liabilities would decrease (increase) if the volatility of stock price increase (decrease)
 
(4)
The Group has entered into the agreement with Newberry Global Limited, whereby the Group has been granted subscription right and contingent subscription right to acquire Newberry
series-C
redeemable convertible preferred stock for the year ended December 31, 2020. The Group recognized derivative financial assets ₩13,136 (₩15,477 million as of December 31, 2021) million and ₩8,083 million (₩9,524 million as of December 31, 2021), respectively, for subscription right and contingent subscription right.
The fair value of Newberry
series-C
redeemable convertible preferred stock (“RCPS”) was estimated using the fair value of Newberry Global Limited’s common stock which was estimated by using market approach and its price fluctuations. The fair value of derivative financial asset was determined by using the Binomial Model based on various assumptions including the price of RCPS and its
v
olatility
. Meanwhile, if the fair value of RCPS, significant unobservable input used in the fair value measurement, increases (decreases), the estimated fair value of derivative financial asset would increase (decrease). If the volatility of stock price, significant unobservable input used in the fair value measurement, increases (decrease), the estimated fair value of derivative financial asset would increase (decrease).
 
(5)
The Parent Company has entered into the agreement with HAEGIN Co., Ltd., whereby the Parent Company has been granted contingent subscription right to acquire HAEGIN Co., Ltd.’s common stock for the year ended December 31, 2022. The Parent Company is able to exercise the right in accordance with the agreement when
 
F-8
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
  certain conditions are met and recognized long-term derivative financial assets of ₩6,895 million for the contingent subscription right as of December 31, 2022. The fair value of HAEGIN Co., Ltd.’s common stock was estimated using
5-year
projected cash flows discounted at 12% per annum. Meanwhile, if the fair value of HAEGIN Co., Ltd.’s common stock, significant unobservable input used in the fair value measurement, increases (decreases), the estimated fair value of derivative financial asset would increase (decrease). If the volatility of stock price, significant unobservable input used in the fair value measurement, increases (decreases), the estimated fair value of derivative financial asset would increase (decrease).
 
(6)
The fair value of derivative financial instruments to which the Group applies cash flow hedge is recorded in the consolidated financial statements as derivative financial assets, long-term derivative financial assets. As of December 31, 2022, details of fair values of the derivatives assets and liabilities are as follows:
 
(In millions of won and thousands of U.S. dollars)
 
Hedging instrument (Hedged item)
  
Cash flow hedge
    
Fair value
 
Current assets:
                 
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds face value of USD 300,000)
   44,365        44,365  
Fixed-to-fixed
cross currency swap (U.S. dollar denominated bonds face value of USD 500,000)
     102,780        102,780  
Floating-to-fixed
interest rate swap (Korean won borrowing amounting to KRW 12,500)
     164        164  
Non-current
assets:
                 
Fixed-to-fixed
cross currency swap (U.S dollar denominated bonds face value of USD 400,000)
   82,735        82,735  
Floating-to-fixed
cross currency interest rate swap (U.S dollar denominated bonds face value of USD 300,000)
     37,107        37,107  
    
 
 
    
 
 
 
     267,151        267,151  
    
 
 
    
 
 
 
 
(7)
The fair value of derivatives held for trading is recorded in the consolidated financial statements as derivative financial assets, long-term derivative financial assets and long-term derivative financial liabilities. As of December 31, 2022, details of fair values of the derivative assets and liabilities are as follows:
 
(In millions of won)
 
 
  
Held for trading
   
Fair value
 
Current assets:
                
Contingent subscription right
   8,083       8,083  
Subscription right
     13,135       13,135  
    
 
 
   
 
 
 
       21,218       21,218  
Non-current
assets:
                
Contingent subscription right
     6,895       6,895  
Total return swap
     25,896       25,896  
    
 
 
   
 
 
 
       32,791       32,791  
    
 
 
   
 
 
 
     54,009       54,009  
    
 
 
   
 
 
 
Non-current
liabilities:
                
Drag-along and call option rights
   (302,593     (302,593
 
F-8
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
23.
Share Capital and Capital Surplus and Others
 
(1)
Details of share capital as of December 31, 2022 and 2021 are as follows:
 
(In millions of won, except for share data)
             
    
December 31, 2022
    
December 31, 2021
 
Number of authorized shares(*1)
     670,000,000        670,000,000  
Par value (in
W
on)(*1)
     100        100  
Number of issued shares
     218,833,144        218,833,144  
Share capital:
                 
Common share(*2)
   30,493        30,493  
 
 
(*1)
As a result of stock split and
spin-off
for the year ended December 31, 2021, the number of shares that the Parent Company is allowed to be issue under its article of incorporation has changed from 220,000,000 shares with a par value of ₩500 to 670,000,000 shares with a par value of ₩100.
 
(*2)
The Parent Company’s share capital decreased by ₩14,146 million as a result of
spin-off
for the year ended December 31, 2021. In addition, the Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation, as a result, the Parent Company’s issued shares have decreased without change in share capital for the year ended December 31, 2021. Meanwhile, in 2002 and 2003, the Parent Company retired treasury shares with reduction of its retained earnings before appropriation. As a result, the Parent Company’s issued shares have decreased without change in share capital.
 
(2)
Changes in issued shares for the years ended December 31, 2022 and 2021 are as follows:
 
(In shares)
             
    
2022
    
2021
 
Issued shares as of January 1
     218,833,144        80,745,711  
Retirement of treasury shares(*1)
            (8,685,568
Stock split(*2)
            288,240,572  
Spin-off(*3)
            (141,467,571
    
 
 
    
 
 
 
Issued shares as of December 31
     218,833,144        218,833,144  
    
 
 
    
 
 
 
 
 
(*1)
The Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation for the year ended December 31, 2021.
 
(*2)
The stock split of the Parent Company’s common share was approved at the shareholders’ meeting held on October 12, to increase the number of its outstanding shares, effective from October 28, 2021. The par value of issued shares has changed from ₩500 to ₩100.
 
(*3)
The allocation of new shares to shareholders of the
spin-off
company is based on the number of shares at par value of ₩100 held by the shareholders of the Parent Company after the stock split and is allocated at the rate of the table below per common share of the Parent Company.
 
    
Surviving Company
    
Spin-off Company
 
Company name
     SK Telecom Co., Ltd.        SK Square Co., Ltd.  
Common shares (in the number of shares)
     0.6073625        0.3926375  
 
F-8
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
Details of shares outstanding as of December 31, 2022 and 2021 are as follows:
 
(In shares)
  
December 31, 2022
    
December 31, 2021
 
    
Issued

shares
    
Treasury
shares
    
Outstanding
shares
    
Issued

shares
    
Treasury
shares
    
Outstanding
shares
 
Shares outstanding
     218,833,144        801,091        218,032,053        218,833,144        1,250,992        217,582,152  
 
(4)
Details of capital surplus and others as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
            
    
December 31, 2022
   
December 31, 2021
 
Paid-in
surplus
   1,771,000       1,771,000  
Treasury shares (Note 24)
     (36,702     (57,314
Hybrid bonds (Note 25)
     398,759       398,759  
Share option (Note 26)
     2,061       47,166  
Others (*)
     (13,702,235     (13,783,337
    
 
 
   
 
 
 
     (11,567,117     (11,623,726
    
 
 
   
 
 
 
 
 
(*)
Others primarily
consists
of the consideration paid
in excess of
the carrying amount of
the 
net assets acquired from
the 
entities under common control.
 
24.
Treasury Shares
 
(1)
Treasury shares as of December 31, 2022 and 2021 are as follows:
 
(In millions of won, except for the number of shares)
             
    
December 31, 2022
    
December 31, 2021
 
Number of shares
     801,091        1,250,992  
Acquisition cost
   36,702        57,314  
 
(2)
Changes in treasury shares for the years ended December 31, 2022 and 2021 are as follows:
 
(In shares)
            
    
2022
   
2021
 
Treasury shares as of January 1
     1,250,992       9,418,558  
Acquisition (*1)
           288,000  
Disposal (*2)
           (626,740
Retirement of treasury shares (*3)
           (8,685,568
Stock split (*4)
           1,577,000  
Spin-off
(*5)
           (719,955
Disposal (*6)
     (449,901     (303
    
 
 
   
 
 
 
Treasury shares as of December 31
     801,091       1,250,992  
    
 
 
   
 
 
 
 
 
(*1)
The Parent Company acquired 288,000 of its treasury shares for ₩72,982 million in an effort to increase shareholder value by stabilizing its stock price for the years ended December 31, 2021.
 
(*2)
The Parent Company distributed 626,240 treasury shares (acquisition cost: ₩141,342 million) as bonus payment to the employees and congratulatory bonus payment for the
spin-off,
resulting in gain on disposal of treasury shares of ₩2,659 million and loss on disposal of treasury shares of ₩114,359 million,
 
F-8
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
  respectively. In addition, the Parent Company distributed 500 treasury shares (acquisition cost: ₩113 million) as compensation to the
non-executive
directors, resulting in gain on disposal of treasury shares of ₩48 million for the year ended December 31, 2021.
 
(*3)
The Parent Company retired 8,685,568 treasury shares with reduction of its retained earnings before appropriation, as a result, the Parent Company’s issued shares have decreased without change in share capital for the year ended December 31, 2021.
 
(*4)
The stock split of the Parent Company’s common stock was approved at the shareholders’ meeting held on October 12, 2021, to increase the number of its outstanding shares, effective from October 28, 2021.
 
(*5)
773,987 treasury shares, some of treasury shares held by the Parent Company, have been replaced common shares of SK Square Co., Ltd.,
spin-off
company, due to
spin-off
for the year ended December 31, 2021. Meanwhile. The Parent Company acquired 54,032 of its treasury shares (acquisition cost: ₩3,129 million) for the purpose of handling single shares after stock split and
spin-off
for the year ended December 31, 2021.
 
(*6)
The Parent Company distributed 303 treasury shares (acquisition cost: ₩14 million) as congratulatory bonus payment of
spin-off
to its employees, resulting in loss on disposal of treasury shares of ₩14 million for the year ended December 31, 2021. Meanwhile, the Parent Company distributed 449,901 treasury shares (acquisition cost: ₩20,612 million) as bonus payment to its employees, resulting in gain on disposal of treasury shares of ₩4,813 million for the year ended December 31, 2022.
 
25.
Hybrid Bonds
Hybrid bonds classified as equity as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
    
Type
  
Issuance date
  
Maturity(*1)
  
Annual
interest
rate(%)(*2)
    
December 31,
2022
   
December 31,
2021
 
Series
2-1
hybrid bonds
   Unsecured subordinated bearer bond    June 7, 2018    June 7, 2078      3.70      300,000       300,000  
Series
2-2
hybrid bonds
   Unsecured subordinated bearer bond    June 7, 2018    June 7, 2078      3.65        100,000       100,000  
Issuance costs
                             (1,241     (1,241
                            
 
 
   
 
 
 
                             398,759       398,759  
                            
 
 
   
 
 
 
As there is no contractual obligation to deliver financial assets to the holders of hybrid bonds, the Parent Company classified the hybrid bonds as equity.
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 without any notice or announcement.
 
(*2)
Annual interest rate is determined as yield rate of
5-year
national bond 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.
 
F-8
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
 
26.
Share based payment arrangement
 
(1)
The terms and conditions related to the grants of the share-based payment arrangement are as follows:
1)     Share-based payment arrangement with cash alternatives
 
   
Series
   
1-2
 
1-3
 
2
 
3
 
4
 
5(*2)
 
6(*2)
Grant date
  March 24, 2017   February 20,
2018
  February 22,
2019
  March 26,
2019
  March 26,
2020
  March 25,
2021
Types of shares to be issued
  Registered common shares
Grant method
  Reissue of treasury shares, Cash settlement
Number of shares (*1) (in share)
  67,320   67,320   4,124   8,907   5,266   376,313   87,794
Exercise price (*1) (in won)
  53,298   57,562   50,824   53,052   50,862   38,452   50,276
Exercise period
  Mar. 25, 2020 ~
Mar. 24, 2023
  Mar. 25, 2021 ~
Mar. 24, 2024
  Feb. 21, 2020 ~
Feb. 20, 2023
  Feb. 23, 2021 ~
Feb. 22, 2024
  Mar. 27, 2021 ~
Mar. 26, 2024
  Mar. 27, 2023 ~
Mar. 26, 2027
  Mar. 26, 2023 ~
Mar. 25, 2026
Vesting conditions
  3 years’
service from
the grant date
  4 years’
service from the
grant date
  2 years’
service from
the grant date
  2 years’
service from
the grant date
  2 years’
service from the
grant date
  3 years’
service from
the grant date
  2 years’
service from
the grant date
 
    
Series
    
7-1
  
7-2(*2)
Grant date
   March 25, 2022
Types of shares to be issued
   Registered common shares
Grant method
   Reissue of treasury shares, Cash settlement
Number of shares (in share)
   295,275    109,704
Exercise price (in won)
   56,860    56,860
Exercise period
   Mar. 26, 2025 ~
Mar. 25, 2029
   Mar. 26, 2024 ~
Mar. 25, 2027
Vesting conditions
   2 years’
service from
the grant date
   2 years’
service from
the grant date
2)     Cash-settled share-based payment arrangement
 
    
2021
  
2022
    
Share appreciation rights of

SK Telecom Co., Ltd. (*3)
  
Share appreciation rights of

SK Square Co., Ltd. (*3)
  
Share appreciation rights of

SK Telecom Co., Ltd. (*3)
Grant date
   January 1, 2021    January 1, 2022
Grant method
   Cash settlement
Number of shares (*1) (in share)
   183,246    118,456    338,525
Exercise price (*1) (in won)
   50,276         56,860
Exercise period
   Jan. 1, 2023 ~
Mar. 28, 2024
        Jan. 1, 2024 ~
Mar. 25, 2025
Vesting conditions
   2 years’ service
from the grant date
        2 years’ service
from the grant date
 
(*1)
Number of shares granted and exercise price are adjusted as a result of stock split and
spin-off
for the year ended December 31, 2021, and the remaining part of
1-1st
share option and 3rd share option were fully and partially exercised
for the year ended December 31, 2022.
 
F-8
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(*2)
Parts of the grant that have not met the vesting conditions have been forfeited for the years ended December 31, 2022 and 2021.
 
(*3)
The Parent Company newly established the long-term incentive policy as part of the compensation related to the growth of corporate value and granted cash settled share appreciation rights to executives. Meanwhile, parts of the grant that have not met the vesting conditions have been forfeited for the year ended December 31, 2022.
 
(2)
The Parent Company has changed the accounting treatment for share-based payment arrangements with cash alternatives from equity-settled share-based payment arrangements to cash-settled share-based payment arrangements for the year ended December 31, 2022. The fair value of the goods or services that the Parent Company acquired from its employees and the liability incurred at the date of reclassification is ₩4,221 million, which is included in accrued expenses as of December 31, 2022. The Parent Company recognized the difference between the fair value of the liability at the date of reclassification and amount of the share options that the Parent Company had already recognized as capital surplus and others. Share compensation expense for share-based payment arrangements with cash alternatives recognized for the year ended December 31, 2022 and the remaining share compensation expense to be recognized in subsequent periods are as follows:
 
(In millions of won)
      
    
Share
compensation expense
 
As of December 31, 2021
   76,979  
For the year ended December 31, 2022
     78,600  
In subsequent periods
     40  
    
 
 
 
     155,619  
    
 
 
 
The carrying amount of liabilities recognized by the Parent Company in relation to the cash-settled share-based payment arrangement is ₩906 million and ₩1,774 million as of December 31, 2022 and 2021, respectively.
 
F-8
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
The Parent Company 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)     Share-based payment arrangement with cash alternatives
(i) SK Telecom Co., Ltd.
 
(In won)
  
Series
 
    
1-2
   
1-3
   
2
   
3
   
4
   
5
   
6
 
Risk-free interest rate
     3.67     3.70     3.65     3.70     3.70     3.76     3.74
Estimated option’s life
     6 years       7 years       5 years       5 years       5 years       7 years       5 years  
Share price on the remeasurement date
     47,400       47,400       47,400       47,400       47,400       47,400       47,400  
Expected volatility
     20.80     20.80     20.80     20.80     20.80     20.80     20.80
Expected dividends
     6.90     6.90     6.90     6.90     6.90     6.90     6.90
Exercise price(*)
     53,298       57,562       50,824       53,052       50,862       38,452       50,276  
Per-share
fair value of the option(*)
     250       947       357       1,639       2,289       9,628       3,837  
 
(In won)
  
Series
 
    
7-1
   
7-2
 
Risk-free interest rate
     3.75     3.76
Estimated option’s life
     7 years       5 years  
Share price on the
                
remeasurement date
     47,400       47,400  
Expected volatility
     20.80     20.80
Expected dividends
     6.90     6.90
Exercise price
     56,860       56,860  
Per-share
fair value of the option
     3,153       2,693  
(ii) SK Square Co., Ltd.
 
(In won)
  
Series
 
    
1-2
   
1-3
   
2
   
3
   
4
   
5
   
6
 
Risk-free interest rate
     1.95     2.07     2.63     1.91     1.78     1.52     1.55
Estimated option’s life
     6 years       7 years       5 years       5 years       5 years       7 years       5 years  
Share price (Closing price on the preceding day)(*)
     52,500       52,500       48,700       51,800       50,600       34,900       49,800  
Expected volatility
     13.38     13.38     16.45     8.30     7.70     8.10     25.70
Expected dividends
     3.80     3.80     3.70     3.80     3.90     5.70     4.00
Exercise price(*)
     53,298       57,562       50,824       53,052       50,862       38,452       50,276  
Per-share
fair value of the option(*)
     4,048       3,096       4,798       1,720       1,622       192       8,142  
 
F-
89

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
2)     Cash-settled share-based payment arrangement
 
(In won)
  
2021
   
2022
 
    
Share appreciation rights of

SK Telecom Co., Ltd.
   
Share appreciation rights of

SK Square Co., Ltd.
   
Share appreciation rights of

SK Telecom Co., Ltd.
 
Risk-free interest rate
     3.70     3.70     3.72
Estimated option’s life
     3.25 years       3.25 years       3.25 years  
Share price on the remeasurement date
     47,400       33,550       47,400  
Expected volatility
     20.80     37.40     20.80
Expected dividends
     6.90     0.00     6.90
Exercise price(*)
     50,276       50,276       56,860  
Per-share
fair value of the option
     2,308       1,760       1,625  
 
(*)
Share price (closing price on the preceding day), exercise price and
per-share
fair value of the option are adjusted as a result of stock split and
spin-off
for the year ended December 31, 2021.
Meanwhile, the Board of Directors of the Parent Company resolved to dispose its treasury shares for the purpose of allotment of shares as bonus payment on October 12, 2021. The transaction is equity-settled share-based payment transactions in accordance with IFRS 2 and 505,350 shares (before stock split) were granted on October 12, 2021 (i.e., grant date). 7,700 shares (before stock split) out of 505,350 shares (before stock split) were transferred to
spin-off
company on November 1, 2021. Vesting conditions are 6 months from the grant date and
per-share
fair value on the grant date are measured at ₩300,500 that is closing price of common shares on the grant date before stock split and
spin-off.
The fair value of these share-based payment on the grant date is ₩151,858 million, among which the awards with a fair value of ₩9,935 million were transferred to
spin-off
company.
 
27.
Retained Earnings
 
(1)
Retained earnings as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Appropriated:
                 
Legal reserve
   22,320        22,320  
Reserve for business expansion
     9,631,138        11,631,138  
Reserve for technology development
     4,365,300        4,365,300  
    
 
 
    
 
 
 
       13,996,438        15,996,438  
Unappropriated
     8,444,953        6,418,583  
    
 
 
    
 
 
 
     22,463,711        22,437,341  
    
 
 
    
 
 
 
 
(2)
Legal re
ser
ve
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.
 
F-
9
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
28.
Reserves
 
(1)
Details of reserves, net of taxes, as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Valuation gain on FVOCI
   173,281        633,240  
Other comprehensive gain of investments in associates and
joint ventures
     173,477        53,770  
Valuation gain on derivatives
     14,463        33,918  
Foreign currency translation differences for foreign operations
     30,012        14,310  
    
 
 
    
 
 
 
     391,233        735,238  
    
 
 
    
 
 
 
 
(2)
Changes in reserves for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
    
Valuation gain
(loss) on
financial assets
at FVOCI
   
Other

comprehensive

income (loss) of

investments in

associates and

joint ventures
   
Valuation gain

(loss) on

derivatives
   
Foreign currency

translation

differences for

foreign

operations
   
Total
 
 
Balance as of January 1, 2021
   438,979       (392,333     17,615       (24,122     40,139  
Changes, net of taxes
     194,261       446,103       16,303       38,432       695,099  
Balance as of December 31, 2021
   633,240       53,770       33,918       14,310       735,238  
Changes, net of taxes
     (459,959     119,707       (19,455     15,702       (344,005
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance as of December 31, 2022
   173,281       173,477       14,463       30,012       391,233  
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(3)
Changes in valuation gain (loss) on financial assets at FVOCI for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
      
    
2022
   
2021
 
Balance as of January 1
   633,240       438,979  
Amount recognized as other comprehensive income (loss) for the year, net of taxes
     (490,959     627,833  
Amount reclassified to retained earnings, net of taxes
     31,000       (12,429
Changes from
spin-off,
net of taxes
           (421,143
    
 
 
   
 
 
 
Balance as of December 31
   173,281       633,240  
    
 
 
   
 
 
 
 
(4)
Changes in valuation gain (loss) on derivatives for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
            
    
2022
   
2021
 
Balance as of January 1
   33,918       17,615  
Amount recognized as other comprehensive income (loss) for the year, net of taxes
     (25,630     9,731  
Amount reclassified to profit, net of taxes
     6,175       6,572  
    
 
 
   
 
 
 
Balance as of December 31
     14,463          33,918   
    
 
 
   
 
 
 
 
F-9
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
29.
Other Operating Income and Expenses
Details of other operating income and
expenses for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                    
    
2022
    
2021
    
2020
 
Other Operating Income:
                          
Gain on disposal of property and equipment and intangible assets
   15,985        39,136        34,625  
Others(*)
     40,274        76,627        61,126  
    
 
 
    
 
 
    
 
 
 
     56,259        115,763        95,751  
    
 
 
    
 
 
    
 
 
 
Other Operating Expenses:
                          
Communication
   31,881        32,462        34,462  
Utilities
     401,025        350,678        336,187  
Taxes and dues
     49,445        33,935        34,577  
Repair
     435,572        425,606        399,376  
Research and development
     340,864        347,711        353,198  
Training
     39,632        31,761        33,384  
Bad debt for accounts receivable — trade
     27,053        29,402        45,002  
Travel
     15,684        7,813        7,534  
Supplies and other
     113,839        101,656        105,333  
Loss on disposal of property and equipment and intangible assets
     20,465        28,158        25,633  
Impairment loss on property and equipment and intangible assets
     17,027        3,135        200,705  
Donations
     13,125        12,800        16,051  
Bad debt for accounts receivable — other
     3,011        3,995        6,640  
Others(*)
     20,353        22,475        60,280  
    
 
 
    
 
 
    
 
 
 
     1,528,976        1,431,587        1,658,362  
    
 
 
    
 
 
    
 
 
 
 
 
(*)
See note 4 (2).
 
F-9
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
30.
Finance Income and Costs
 
(1)
Details of finance income and costs for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                    
    
2022
    
2021
    
2020
 
Finance Income:
                          
Interest income
   58,472        36,708        37,030  
Gain on sale of accounts receivable — other
     1,043        27,725        22,605  
Dividends
     2,552        12,039        1,170  
Gain on foreign currency transactions
     21,283        10,987        9,029  
Gain on foreign currency translations
     2,095        7,505        7,888  
Gain relating to financial instruments at FVTPL
     94,393        60,169        62,963  
    
 
 
    
 
 
    
 
 
 
     179,838        155,133        140,685  
    
 
 
    
 
 
    
 
 
 
Finance Costs:
                          
Interest expense
   328,307        279,737        288,972  
Loss on sale of accounts receivable — other
     61,841                
Loss on foreign currency transactions
     19,485        12,270        11,053  
Loss on foreign currency translations
     3,814        6,764        8,973  
Loss on disposal of long-term investment securities
                   98  
Loss relating to financial instruments at FVTPL
     41,597        16,833        13,847  
Loss on disposal of investment assets
     1,283                
    
 
 
    
 
 
    
 
 
 
        456,327           315,604           322,943  
    
 
 
    
 
 
    
 
 
 
 
(2)
Details of interest income included in finance income for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
  
2022
    
2021(*)
    
2020(*)
 
Interest income on cash equivalents and financial instruments
   27,991        16,141        24,378  
Interest income on loans and others
     30,481        27,709        25,979  
    
 
 
    
 
 
    
 
 
 
          58,472             43,850             50,357  
    
 
 
    
 
 
    
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
(3)
Details of interest expenses included in finance costs for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
  
2022
    
2021(*)
    
2020(*)
 
Interest expense on borrowings
   25,736        66,188        116,397  
Interest expense on debentures
     217,475        224,144        225,309  
Others
     85,096        52,010        57,470  
    
 
 
    
 
 
    
 
 
 
        328,307           342,342           399,176  
    
 
 
    
 
 
    
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
(4)
Finance income and costs by category of financial instruments for the years ended December 31, 2022, 2021 and 2020 are as follows. Bad debt expense (reversal of loss allowance) for accounts receivable – trade, loans and receivables are presented and explained separately in notes 6 and 35.
 
F-9
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
1)     Finance income and costs
 
(In millions of won)
      
    
2022
 
    
Finance income
    
Finance costs
 
Financial Assets:
  
 

                        

 
  
 

                        

 
Financial assets at FVTPL
   104,068        103,292  
Financial assets at FVOCI
     1,495        1,283  
Financial assets at amortized cost
     45,008        23,094  
Derivatives designated as hedging instrument
            146  
    
 
 
    
 
 
 
       150,571        127,815  
    
 
 
    
 
 
 
Financial Liabilities:
                 
Financial liabilities at FVTPL
     18,432         
Financial liabilities at amortized cost
     10,835        328,512  
    
 
 
    
 
 
 
       29,267        328,512  
    
 
 
    
 
 
 
     179,838        456,327  
    
 
 
    
 
 
 
 
(In millions of won)
      
    
2021
 
    
Finance income(*)
    
Finance costs(*)
 
Financial Assets:
  
 
                        
 
  
 
                        
 
Financial assets at FVTPL
   149,590        67,503  
Financial assets at FVOCI
     3,413        142,015  
Financial assets at amortized cost
     48,940        12,262  
Derivatives designated as hedging instrument
            600  
    
 
 
    
 
 
 
       201,943        222,380  
    
 
 
    
 
 
 
Financial Liabilities:
                 
Financial liabilities at FVTPL
            8,036  
Financial liabilities at amortized cost
     607        355,011  
    
 
 
    
 
 
 
       607        363,047  
    
 
 
    
 
 
 
     202,550        585,427  
    
 
 
    
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
F-9
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
      
    
2020
 
    
Finance income(*1)
    
Finance costs(*1)
 
Financial Assets:
  
 
                        
 
  
 
                        
 
Financial assets at FVTPL(*2)
   180,254        10,894  
Financial assets at FVOCI
     993        44,832  
Financial assets at amortized cost(*2)
     46,135        24,601  
Derivatives designated as hedging instrument
            1,867  
    
 
 
    
 
 
 
       227,382        82,194  
    
 
 
    
 
 
 
Financial Liabilities:
                 
Financial liabilities at FVTPL
            12,115  
Financial liabilities at amortized cost
     6,434        400,678  
Derivatives designated as hedging instrument
     7,380        2,206  
    
 
 
    
 
 
 
       13,814        414,999  
    
 
 
    
 
 
 
     241,196        497,193  
    
 
 
    
 
 
 
 
(*1)
Includes amounts related to discontinued operations.
 
(*2)
The Group reclassified the category of financial assets measured at amortized cost. Accordingly, the category of financial income arising on reclassification of a financial asset is reclassified.
2)     Other comprehensive income (loss)
 
(In millions of won)
                   
    
2022
   
2021
    
2020
 
Financial Assets:
                         
Financial assets at FVOCI
   (491,853     920,871        579,678  
Derivatives designated as hedging instrument
     (21,548     15,427        24,320  
    
 
 
   
 
 
    
 
 
 
       (513,401     936,298        603,998  
    
 
 
   
 
 
    
 
 
 
Financial Liabilities:
                         
Derivatives designated as hedging instrument
     182       706        (5,182
    
 
 
   
 
 
    
 
 
 
     (513,219     937,004        598,816  
    
 
 
   
 
 
    
 
 
 
 
(5)
Details of impairment losses for financial assets for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                    
    
2022
    
2021(*)
    
2020(*)
 
Accounts receivable — trade
   27,053        31,546        48,625  
Other receivables
     3,011        6,001        10,559  
    
 
 
    
 
 
    
 
 
 
        30,064          37,547          59,184  
    
 
 
    
 
 
    
 
 
 
 
(*)
Includes amounts related to discontinued operations.
 
F-9
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
31.
Income Tax Expense
 
(1)
Income tax expenses for the years ended December 31, 2022, 2021 and 2020 consist of the following:
 
(In millions of won)
                   
    
2022
   
2021
    
2020
 
Current tax expense:
                         
Current year
   274,902       319,539        286,717  
Current tax of prior years(*)
     73,477       705        14,536  
    
 
 
   
 
 
    
 
 
 
       348,379       320,244        301,253  
    
 
 
   
 
 
    
 
 
 
Deferred tax expense:
                         
Changes in net deferred tax assets
     (60,058     331,704        75,249  
    
 
 
   
 
 
    
 
 
 
Income tax expense
                         
Tax expense of continuing operation
     288,321       446,796        221,262  
Tax expense of discontinued operation
           205,152        155,240  
    
 
 
   
 
 
    
 
 
 
     288,321       651,948        376,502  
    
 
 
   
 
 
    
 
 
 
 
(*)
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.
 
(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, 2022, 2021 and 2020 is attributable to the following:
 
(In millions of won)
                  
    
2022
   
2021(*)
   
2020(*)
 
Income taxes at statutory income tax rate
   329,580       834,146       505,824  
Non-taxable
income
     (14,969     (13,924     (41,084
Non-deductible
expenses
     24,679       15,329       31,882  
Tax credit and tax reduction
     (10,300     (62,075     (48,774
Changes in unrecognized deferred taxes
     21,057       (68,589     (69,776
Changes in tax rate
     (42,307     (36,193     24,537  
Income tax refund and others
     (19,419     (16,746     (26,107
    
 
 
   
 
 
   
 
 
 
Income tax expense
   288,321       651,948       376,502  
    
 
 
   
 
 
   
 
 
 
 
(*)
The aggregated amount of profit before income tax from continuing and discontinued operations.
 
(3)
Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                  
    
2022
   
2021
   
2020
 
Valuation gain (loss) on financial assets measured at fair value
   167,249       (208,490     (166,612
Share of other comprehensive loss of investment in associates and joint ventures
     (2,972     (34     (14
Valuation gain (loss) on derivatives
     7,649       (5,709     (6,886
Remeasurement of defined benefit liabilities
     (20,867     (3,780     (164
Gain (loss) on disposal of treasury shares and others
     (28,108     26,970        
    
 
 
   
 
 
   
 
 
 
     122,951       (191,043     (173,676
    
 
 
   
 
 
   
 
 
 
 
F-9
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(4)
Details of the changes in deferred tax assets (liabilities) for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
   
2022
 
   
Beginning
   
Deferred tax

expense
(income)
   
Directly charged

to (credited

from) equity
   
Business

combinations
   
Ending
 
Deferred tax assets (liabilities) related to temporary differences:
                                       
Loss allowance
  77,357       (2,315                 75,042  
Accrued interest income
    (166     (5,057           (2,680     (7,903
Financial assets measured at fair value
    (157,828     (19,592     167,249             (10,171
Investments in subsidiaries, associates and joint ventures
    (31,817     51,635       (2,972           16,846  
Property and equipment and intangible assets
    (305,967     (46,895           257       (352,605
Provisions
    4,198       (2,569                 1,629  
Retirement benefit obligation
    52,332       (875     (20,867     29       30,619  
Valuation gain on derivatives
    6,336       (1,217     7,649             12,768  
Gain (loss) on foreign currency translation
    21,378       (745                 20,633  
Incremental costs to acquire a contract
    (749,871     26,971                   (722,900
Contract assets and liabilities
    (2,201     6,480                   4,279  
Right-of-use
assets
    (389,502     (41,895                 (431,397
Lease liabilities
    381,537       47,111                   428,648  
Others
    68,481       41,691       (28,108     3,652       85,716  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      (1,025,733     52,728       122,951       1,258       (848,796
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards:
                                       
Tax loss carryforwards
          2,007                   2,007  
Tax credit
    84,560       5,323                   89,883  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      84,560       7,330                   91,890  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    (941,173)       60,058       122,951       1,258       (756,906
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
F-9
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
   
2021
 
   
Beginning
   
Deferred tax

expense

(income)
   
Directly charged

to (credited

from) equity
   
Business

combinations
   
Spin-off
   
Ending
 
Deferred tax assets (liabilities) related to temporary differences:
                                               
Loss allowance
  91,285       (8,397                 (5,531     77,357  
Accrued interest income
    (1,631     (2,022                 3,487       (166
Financial assets measured at fair value
    (81,055     (6,765     (208,490           138,482       (157,828
Investments in subsidiaries, associates and joint ventures
    (1,673,906     (281,035     (34           1,923,158       (31,817
Property and equipment and intangible assets
    (511,862     (42,456           (1,023     249,374       (305,967
Provisions
    6,294       (1,436                 (660     4,198  
Retirement benefit obligation
    102,285       (3,563     (3,780           (42,610     52,332  
Valuation gain (loss) on derivatives
    14,767       210       (5,709           (2,932     6,336  
Gain (loss) on foreign currency translation
    21,774       (396                       21,378  
Incremental costs to acquire a contract
    (807,831     53,492                   4,468       (749,871
Contract assets and liabilities
    (2,606     405                         (2,201
Right-of-use
assets
    (372,297     (35,851                 18,646       (389,502
Lease liabilities
    362,476       38,600                   (19,539     381,537  
Others
    120,514       (95,537     26,970       (135     16,669       68,481  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      (2,731,793     (384,751     (191,043     (1,158     2,283,012       (1,025,733
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards:
                                               
Tax loss carryforwards
    88,223       7,915                   (96,138      
Tax credit
    39,583       45,132                   (155     84,560  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
      127,806       53,047                   (96,293     84,560  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    (2,603,987     (331,704     (191,043     (1,158     2,186,719       (941,173
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
F-9
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(5)
Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets (liabilities), in the consolidated statements of financial position as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
            
    
December 31, 2022
   
December 31, 2021
 
Loss allowance
   85,969       85,998  
Investments in subsidiaries, associates and joint ventures
     (434,253     (176,520
Other temporary differences
     61,817       61,368  
Unused tax loss carryforwards
     229,410       347,889  
Unused tax credit carryforwards
           34  
 
(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, 2022 are expiring within the following periods:
 
(In millions of won)
      
    
Unused tax loss carryforwards
 
Less than 1 year
    
1 ~ 2 years
     11,544  
2 ~ 3 years
     14,345  
More than 3 years
     203,521  
    
 
 
 
     229,410  
    
 
 
 
 
32.
Earnings per Share
Earnings per share is calculated as the profit attributable to the owners of the parent company for common stock and dilutive potential common stock, and details are as follows.
(1)    Basic earnings per share
 
1)
Basic earnings per share for the years ended December 31, 2022, 2021 and 2020 are calculated as follows:
 
(In millions of won, except for share data)
                  
    
2022
   
2021
   
2020
 
Basic earnings per share attributable to owners of the Parent Company:
                        
Profit attributable to owners of the Parent Company
   912,400       1,217,520       648,579  
Interest on hybrid bonds
     (14,766     (14,766     (14,766
    
 
 
   
 
 
   
 
 
 
Profit from continuing operation attributable to owners of the Parent Company on common shares
     897,634       1,202,754       633,813  
Profit from discontinued operation attributable to owners of the Parent Company on common shares
           1,190,003       855,773  
Weighted average number of common shares outstanding
     217,994,490       332,761,592       363,977,155  
    
 
 
   
 
 
   
 
 
 
Basic earnings per share (in
W
on)
                        
Continuing operation
   4,118       3,614       1,741  
    
 
 
   
 
 
   
 
 
 
Discontinued operation
           3,576       2,352  
    
 
 
   
 
 
   
 
 
 
 
F-
99

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
2)
The weighted average number of common shares outstanding for the years ended December 31, 2022, 2021 and 2020 are calculated as follows:
 
(In shares)
            
    
2022
 
    
Number of common shares
   
Weighted average number
of common shares
 
Issued shares as of January 1, 2022
     218,833,144       218,833,144  
Treasury shares as of January 1, 2022
     (1,250,992     (1,250,992
Disposal of treasury shares
     449,901       412,338  
    
 
 
   
 
 
 
       218,032,053       217,994,490  
    
 
 
   
 
 
 
 
(In shares)
            
    
2021
 
    
Number of common shares
   
Weighted average number
of common shares
 
Issued shares as of January 1, 2021
     403,728,555       403,728,555  
Treasury shares as of January 1, 2021
     (47,092,790     (47,092,790
Acquisition of treasury shares
     (1,494,032     (1,383,241
Disposal of treasury shares
     3,134,003       1,022,242  
Spin-off
     (140,693,584     (23,513,174
    
 
 
   
 
 
 
       217,582,152       332,761,592  
    
 
 
   
 
 
 
 
(In shares)
            
    
2020
 
    
Number of common shares
   
Weighted average number

of common shares
 
Issued shares as of January 1, 2020
     403,728,555       403,728,555  
Treasury shares as of January 1, 2020
     (38,046,315     (38,046,315
Acquisition of treasury shares
     (9,046,475     (1,705,085
    
 
 
   
 
 
 
       356,635,765       363,977,155  
    
 
 
   
 
 
 
Weighted average number of common shares for comparative period has been retrospectively adjusted to reflect the effect of the stock split (see note 23 (2)).
 
F-
10
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)    Diluted earnings per share
 
1)
Diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 are calculated as follows:
 
(In millions of won, except for share data)
                   
    
2022
    
2021
   
2020
 
Profit from continuing operation attributable to owners of the Parent Company on common shares
   897,634        1,202,754       633,813  
Profit from discontinued operation attributable to owners of the Parent Company on common shares
            1,190,003       855,773  
    
 
 
    
 
 
   
 
 
 
Adjusted weighted average number of common shares outstanding
     218,108,742        332,917,848        364,041,895  
    
 
 
    
 
 
   
 
 
 
Diluted earnings per share (in won)
                         
Continuing operation
   4,116        3,613       1,741  
Discontinued operation
            3,574       2,351  
    
 
 
    
 
 
   
 
 
 
 
2)
The adjusted weighted average number of common shares outstanding for the years ended December 31, 2022, 2021 and 2020 are calculated as follows:
 
(In shares)
                   
    
2022
    
2021
   
2020
 
Outstanding shares as of January 1
     217,582,152        356,635,765       365,682,240  
Effect of treasury shares
     412,338        (360,999     (1,705,085
Effect of
Spin-off
            (23,513,174      
Effect of share option
     114,252        156,256       64,740  
    
 
 
    
 
 
   
 
 
 
Adjusted weighted average number of common shares outstanding
     218,108,742        332,917,848       364,041,895  
    
 
 
    
 
 
   
 
 
 
 
33.
Dividends
(1)     Details of dividends declared
Details of dividend declared in Parent Company for the years ended December 31, 2022, 2021 and 2020 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
 
2022    Cash dividends (Interim)      218,002,830        100        830   180,942  
     Cash dividends (Interim)      218,032,053        100        830     180,967  
     Cash dividends (Interim)      218,032,053        100        830     180,967  
     Cash dividends
(Year-end)
     218,032,053        100        830     180,967  
                                   
 
 
 
                                    723,843  
                                   
 
 
 
2021    Cash dividends (Interim)      217,616,645        100        1,635   355,804  
     Cash dividends
(Year-end)
     217,582,152        100        1,660     361,186  
                                   
 
 
 
                                    716,990  
                                   
 
 
 
2020    Cash dividends (Interim)      73,136,448        500        200   73,136  
     Cash dividends
(Year-end)
     71,327,153        500        1,800     641,944  
                                   
 
 
 
                                    715,080  
                                   
 
 
 
 
F-10
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)     Dividends yield ratio
Dividends yield ratios for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In won)
Year
  
Dividend type
  
Dividend per share
  
Closing price at
year-end
  
Dividend yield ratio
2022
   Cash dividends      3,320      47,400    7.00%
2021
   Cash dividends      3,295      57,900    5.69%
2020
   Cash dividends    10,000    238,000    4.20%
 
34.
Categories of Financial Instruments
 
(1)
Financial assets by category as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
      
    
December 31, 2022
 
    
Financial
assets at

FVTPL
    
Equity
instruments
at FVOCI
    
Financial

assets at
amortized
cost
    
Derivatives
hedging
instrument
    
Total
 
Cash and cash equivalents
   245,982               1,636,309               1,882,291  
Financial instruments
     148,365               89,240               237,605  
Long-term investment securities(*)
     221,139        1,189,597                      1,410,736  
Accounts receivable — trade
                   1,984,772               1,984,772  
Loans and other receivables
     332,669               909,003               1,241,672  
Derivative financial assets
     54,009                      267,151        321,160  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
     1,002,164        1,189,597        4,619,324        267,151        7,078,236  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(*)
The Group designated ₩1,189,597 million of equity instruments that are not held for trading as financial assets at FVOCI.
 
(In millions of won)
     
   
December 31, 2021
 
   
Financial
assets at

FVTPL
    
Equity
instruments at
FVOCI
    
Debt
instruments

at FVOCI
    
Financial

assets at
amortized
cost
    
Derivatives
hedging
instrument
    
Total
 
Cash and cash equivalents
  505,578                      367,153               872,731  
Financial instruments
    389,368                      119,684               509,052  
Short-term investment securities
    5,010                                    5,010  
Long-term investment securities(*)
    203,473        1,510,428        1,177                      1,715,078  
Accounts receivable —
trade
                         1,921,617               1,921,617  
Loans and other receivables
    459,959                      735,958               1,195,917  
Derivative financial assets
    34,933                             182,661        217,594  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
    1,598,321            1,510,428        1,177        3,144,412        182,661        6,436,999  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(*)
The Group designated ₩1,510,428 million of equity instruments that are not held for trading as financial assets at FVOCI.
 
F-10
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Financial liabilities by category as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
      
    
December 31, 2022
 
    
Financial

liabilities at
FVTPL
    
Financial

liabilities at
amortized
cost
    
Total
 
Accounts payable — trade
          89,255        89,255  
Derivative financial liabilities
     302,593               302,593  
Borrowings
            936,110        936,110  
Debentures
            8,366,694        8,366,694  
Lease liabilities(*)
            1,782,057        1,782,057  
Accounts payable — other and others
            5,505,465        5,505,465  
    
 
 
    
 
 
    
 
 
 
       302,593        16,679,581        16,982,174  
    
 
 
    
 
 
    
 
 
 
 
(In millions of won)
      
    
December 31, 2021
 
    
Financial

liabilities at
FVTPL
    
Financial

liabilities at
amortized cost
    
Derivatives
hedging
instrument
    
Total
 
Accounts payable — trade
          190,559               190,559  
Derivative financial liabilities
     321,025               111        321,136  
Borrowings
            407,185               407,185  
Debentures
            8,426,683               8,426,683  
Lease liabilities(*)
            1,534,282               1,534,282  
Accounts payable — other and others
            5,524,692               5,524,692  
    
 
 
    
 
 
    
 
 
    
 
 
 
     321,025          16,083,401        111        16,404,537  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(*)
Lease liabilities are not applicable on category of financial liabilities, but are classified as financial liabilities measured at amortized cost on consideration of nature for measurement of liabilities.
 
35.
Financial Risk Management
(1) Financial risk management
The Group is exposed to market risk, credit risk and liquidity risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates and interest rates. 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, investment securities, accounts receivable — trade and other, etc. Financial liabilities consist of accounts payable – trade and other, borrowings, debentures, lease liabilities and others.
 
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, EUR and others. The Group determines the currency risk management policy after considering the nature of business and the presence of methods that mitigate the currency
 
F-10
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
risk for each Group entities. The Group manages currency risk arising from business transactions by using currency forwards, etc. 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.
Monetary assets and liabilities denominated in foreign currencies as of December 31, 2022 are as follows:
 
(In millions of won, thousands of foreign currencies)
 
    
Assets
    
Liabilities
 
    
Foreign

currencies
    
Won

equivalent
    
Foreign

currencies
    
Won

equivalent
 
USD
     53,243      67,475        1,517,930      1,923,672  
EUR
     5,626        7,602        20        27  
Others
            452               175  
             
 
 
             
 
 
 
                        75,529               1,923,874  
             
 
 
             
 
 
 
In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign debentures. (See note 22)
As of December 31, 2022, a hypothetical change in exchange rates by 10% would have increased (decreased) the Group’s profit before income tax as follows:
 
(In millions of won)
             
    
If increased by 10%
    
If decreased by 10%
 
USD
   3,933        (3,933
EUR
     758        (758
Others
     28        (28
    
 
 
    
 
 
 
     4,719        (4,719
    
 
 
    
 
 
 
(ii)    Interest rate risk
The interest rate risk of the Group arises from borrowings, debentures and long-term payables – other. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows from the interest-bearing assets are not influenced by the changes in market interest rates.
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, 2022, floating-rate borrowings and debentures amount to ₩52,500 million and ₩380,190 million, respectively, and the Group has entered into interest rate swaps to hedge interest rate risk related to the floating-rate borrowings amounting to ₩12,500 million and debentures as described in note 22.
If the interest rate increases (decreases) 1%p with all other variables held constant, profit before income taxes for the year ended December 31, 2022, would change by ₩400 million in relation to the floating-rate borrowings which has not entered into interest rate swaps.
As of December 31, 2022, the floating-rate long-term payables — other are ₩1,690,470 million. If the interest rate increases (decreases) 1%p with all other variables held constant, profit before income taxes for the year ended December 31, 2022, would change by ₩16,905 million in relation to the floating-rate long-term payables – other that are exposed to interest rate risk.
 
F-10
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Interest rate benchmark reform and associated risks
A fundamental reform of major interest rate benchmarks is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). Especially, in the case of LIBOR, all of the calculations were suspended as of December 31, 2021, except for the overnight, one month, three months, six months, and 12 months of USD LIBOR, and the aforementioned five USD LIBORs will also be suspended as of June 30, 2023. The alternative interest rate benchmark of USD LIBOR is the Secured Overnight Financing Rate(“SOFR”). Meanwhile, in case of Korean CD rate, the alternative interest rate benchmark has selected as Korea Overnight Financing Repo Rate(“KOFR”) and as part of interest rate benchmark reform, the interest rate has been disclosed through Korea Securities Depository since November 26, 2021. KOFR is calculated using the overnight RP rate as collateral for government bonds and monetary stabilization bonds. However, unlike LIBOR, calculation of CD rate will not be suspended, it is unclear when and how the transition to KOFR will take place.
The Group plans to include fallback clauses into financial instruments relating to LIBOR to which calculation has not been suspended yet, or change their LIBOR directly to alternative interest rates before the calculation is suspended. Meanwhile, The Group is closely monitoring market trends for CD rate-related financial instruments.
The Group’s financial instruments exposed to the risk arising from interest rate benchmark reform as of December 31, 2022 are indexed to the USD LIBOR. The Group is exposed to legal risk to amend the terms of contracts on the financial instruments subject to interest rate benchmark reform as well as process and operation risks to manage such amendments. In addition, the Group is exposed to the risk of monitoring the market trend regarding the alternative interest rate and establishing the corresponding risk management strategy. If the IBOR is designated as the hedged item, the Group is required to replace it to an alternative benchmark interest and review the effects on the hedging relationship. In addition, the Group is exposed to the risk of minimizing hedge ineffectiveness by aligning the method and timing of the transition to the alternative benchmark interest applied to the hedged item and the hedging instrument.
The Group evaluates the extent to which contracts reference IBOR cash flows, whether such contracts will need to be amended as a result of IBOR reform and how to manage communication about IBOR reform with counterparties.
Non-derivative
financial liabilities
The Parent Company’s
non-derivative
financial liabilities subject to Interest rate benchmark reform as of December 31, 2021 were floating-rate bonds indexed to USD LIBOR. As explained above, the Group is discussing with the counterparty about including the fallback clauses as of December 31, 2022.
Derivatives
The Group’s most derivative instruments designated as cash flow hedge are governed by contracts based on the International Swaps and Derivatives Association (ISDA)’s master agreements. As part of interest rate benchmark reform, ISDA has included a new fallback clause regarding which alterative benchmark interest rate to be applied when the calculation of major IBOR is suspended in the master agreement. The master agreement is applied to derivative contracts after January 25, 2021 and the transaction parties is required to adhere to ISDA protocol to include the same fallback clause to derivative contracts before January 25, 2021. The Group has adhered to ISDA protocol for transition to the alternative benchmark interest rate and the fallback clause will be included when counterparties adhere to the protocol to include. The Group’s counterparties have adhered to ISDA protocol and agreed to include the fallback clause.
Hedge accounting
The Group’s hedged items and hedging instruments as of December 31, 2022 are indexed to USD LIBOR. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual.
 
F-10
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
2)
Credit risk
The maximum credit exposure as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
             
    
December 31, 2022
    
December 31, 2021
 
Cash and cash equivalents
   1,882,093        872,550  
Financial instruments
     237,605        509,052  
Investment securities
     900        2,077  
Accounts receivable — trade
     1,984,772        1,921,617  
Contract assets
     132,221        118,278  
Loans and other receivables
     1,241,672        1,195,917  
Derivative financial assets
     321,160        217,594  
    
 
 
    
 
 
 
     5,800,423        4,837,085  
    
 
 
    
 
 
 
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. 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.
(i) Accounts receivable — trade and contract assets
The Group establishes a loss allowance in respect of accounts receivable — trade and contract assets. 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 are expected to occur. The collective loss allowance is determined based on historical data of collection statistics for similar financial assets. Details of changes in loss allowance for the year ended December 31, 2022 are included in note 6.
(ii) Debt investments
The credit risk arises from debt investments included in ₩237,605 million of financial instruments, ₩900 million of investment securities and ₩1,241,672 million of loans and other receivables. To limit the exposure to this risk, the Group transacts only with financial institutions with credit ratings that are considered to be low credit risk.
Most of the Group’s debt investments are considered to have a low risk of default and the borrower has a strong capacity to meet its contractual cash flow obligations in the near term. Thus, the Group measured the loss allowance for the debt investments at an amount equal to 12-month expected credit losses.
Meanwhile, the Group monitors changes in credit risk at each reporting date. The Group recognized the loss allowance at an amount equal to lifetime expected credit losses when the credit risk on the debt investments is assumed to have increased significantly if it is more than 30 days past due.
 
F-10
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
The Group’s maximum exposure to credit risk is equal to each financial asset’s carrying amount. The gross carrying amounts of each financial asset except for the accounts receivable — trade and derivative financial assets as of December 31, 2022 are as follows.
 
(In millions of won)
 
    
Financial assets at

FVTPL
    
Financial assets at amortized cost
 
    
12-month ECL
   
Lifetime ECL —

not credit impaired
   
Lifetime ECL —

credit impaired
 
Gross amount
   481,935        994,868       5,592       87,862  
Loss allowance
            (3,081     (3,314     (83,685
    
 
 
    
 
 
   
 
 
   
 
 
 
Carrying amount
   481,935        991,787       2,278       4,177  
    
 
 
    
 
 
   
 
 
   
 
 
 
Changes in the loss allowance for the debt investments for the year ended December 31, 2022 are as follows:
 
(In millions of won)
     
   
12-month ECL
   
Lifetime ECL —
not credit impaired
   
Lifetime ECL —
credit impaired
   
Total
 
December 31, 2021
  2,787       6,190       83,033       92,010  
Remeasurement of loss allowance, net
    1,571       (1,517     2,957       3,011  
Transfer to lifetime ECL — not credit impaired
    (1,277     1,277              
Transfer to lifetime ECL — credit impaired
          (2,636     2,636        
Amounts written off
                (6,594     (6,594
Recovery of amounts written off
                1,653       1,653  
   
 
 
   
 
 
   
 
 
   
 
 
 
                                 
December 31, 2022
  3,081       3,314       83,685       90,080  
   
 
 
   
 
 
   
 
 
   
 
 
 
(iii) Cash and cash equivalents
The Group deposits ₩1,882,093 million of cash and cash equivalents as of December 31, 2022 (₩872,550 million as of December 31, 2021) at banks and financial institutions with credit ratings above the certain level. Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Group considered that its cash and cash equivalents have low credit risk based on the credit ratings of the counterparties assigned by external credit rating agencies.
 
3)
Liqu
idit
y 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.
 
F-
107

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
Contractual maturities of financial liabilities as of December 31, 2022 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
  89,255       89,255       89,255              
Borrowings(*)
    936,110       975,960       290,024       685,936        
Debentures(*)
    8,366,694       9,469,549       2,074,631       5,077,080       2,317,838  
Lease liabilities
    1,782,057       2,063,294       391,686       1,104,040       567,568  
Accounts payable — other and others(*)
    5,505,465       5,641,277       4,291,518       1,256,702       93,057  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    16,679,581       18,239,335       7,137,114       8,123,758       2,978,463  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(*)
Includes interest payables.
The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.
As of December 31, 2022, 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
 
Assets
  267,151       281,636       169,761       111,875  
 
(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, 2021.
The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity from the consolidated financial statements.
Debt-equity ratio as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
            
    
December 31,

2022
   
December 31,

2021
 
Total liabilities
   19,153,066       18,576,139  
Total equity
     12,155,196       12,335,138  
    
 
 
   
 
 
 
Debt-equity ratios
     157.57     150.60
    
 
 
   
 
 
 
 
F-10
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(3)
Fair value
 
1)
Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2022 are as follows:
 
(In millions of won)
 
December 31, 2022
 
   
Carrying
amount
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets that are measured at fair value:
                                       
FVTPL
  1,002,164       44,431       727,014       230,719       1,002,164  
Derivative hedging instruments
    267,151             267,151             267,151  
FVOCI
    1,189,597       993,765             195,832       1,189,597  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    2,458,912       1,038,196       994,165       426,551       2,458,912  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities that are measured at fair value:
                                       
FVTPL
  302,593                   302,593       302,593  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities that are not measured at fair value:
                                       
Borrowings
  936,110             911,597             911,597  
Debentures
    8,366,694             7,813,420             7,813,420  
Long-term payables — other
    1,638,341             1,614,934             1,614,934  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    10,941,145             10,339,951             10,339,951  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
2)
Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2021 are as follows:
 
(In millions of won)
 
December 31, 2021
 
   
Carrying
amount
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial assets that are measured at fair value:
                                       
FVTPL
  1,598,321       55,455       1,359,915       182,951       1,598,321  
Derivative hedging instruments
    182,661             182,661             182,661  
FVOCI
    1,511,605       1,344,434             167,171       1,511,605  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    3,292,587       1,399,889       1,542,576       350,122       3,292,587  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities that are measured at fair value:
                                       
FVTPL
  321,025                   321,025       321,025  
Derivative hedging instruments
    111             111             111  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    321,136             111       321,025       321,136  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities that are not measured at fair value:
                                       
Borrowings
  407,185             392,237             392,237  
Debentures
    8,426,683             8,679,472             8,679,472  
Long-term payables — other
    2,009,833             2,010,852             2,010,852  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    10,843,701             11,082,561             11,082,561  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
F-1
09

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
Fair value of the financial instruments that are traded in an active market (financial assets at FVOCI and financial assets at FVTPL) 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. Derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Other financial assets are determined using the methods such as discounted cash flow and market approach. 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.
Interest rates used by the Group for the fair value measurement as of December 31, 2022 are as follows:
 
    
Interest rate
Derivative instruments
   4.18% ~ 5.20%
Borrowings and debentures
   4.89% ~ 5.10%
Long-term payables — other
   4.59% ~ 5.06%
 
3)
There have been no transfers between Level 2 and Level 1 for the year ended December 31, 2022. The changes of financial instruments classified as Level 3 for the year ended December 31, 2022 are as follows:
 
(In millions of won)
 
 
 
Balance as of
January 1,
2022
 
 
Gain / (Loss)
 
 
OCI
 
 
Acquisition
 
 
Disposal
 
 
Transfer
 
 
Balance as of

December 31,

2022
 
Financial assets
                                                       
FVTPL
  182,951       42,145       1,375       48,458       (38,894     (5,316     230,719  
FVOCI
    167,171             1,088       55,333       (26,860     (900     195,832  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    350,122       42,145       2,463       103,791       (65,754     (6,216     426,551  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Financial liabilities
                                                       
FVTPL
  (321,025     18,432                               (302,593
 
(4)
Enforceable master netting agreement or similar agreement
Carrying amounts of financial instruments recognized of which offset agreements are applicable as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
  
December 31, 2022
 
    
Gross
financial
instruments
recognized
    
Amount
offset
   
Net financial
instruments
presented on the
consolidated
statements of
financial position
 
Financial assets:
                         
Accounts receivable — trade and others
   245,835        (236,921     8,914  
Financial liabilities:
                         
Accounts payable — other and others
   244,509        (236,921     7,588  
 
F-1
10

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
  
December 31, 2021
 
    
Gross
financial
instruments
recognized
    
Amount
offset
   
Net financial
instruments
presented on the
consolidated
statements of
financial position
 
Financial assets:
                         
Accounts receivable — trade and others
   197,828        (189,424     8,404  
Financial liabilities:
                         
Accounts payable — other and others
   200,849        (189,424     11,425  
 
36.
Transactions with Related Parties
(1) List of related parties
 
Relationship
  
Company
Ultimate controlling entity
   SK Inc.
Joint venture
   UTC Kakao-SK Telecom ESG Fund
Associate
   SK China Company Ltd. and 42 others
Others
   The Ultimate controlling entity’s subsidiaries and associates and others
For the periods presented, the Group belongs to SK Group, a conglomerate as defined in the
Monopoly Regulation and Fair Trade Act of the Republic of Korea
. All of the other entities included in SK Group are considered related parties of the Group.
(2) Compensation for the key management
The Parent Company considers registered directors (three executive and five non-executive 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, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
             
    
2022
    
2021
    
2020
 
Salaries
   3,487        5,956        10,029  
Defined benefits plan expenses
     761        2,845        3,459  
Share option
     1,598        146        158  
    
 
 
    
 
 
    
 
 
 
     5,846      8,947      13,646  
    
 
 
    
 
 
    
 
 
 
 
F-11
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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.
 
  (3)
Transactions with related parties for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                         
         
2022
 
Scope
  
Company
  
Operating
revenue and
others
    
Operating
expense

and others(*1)
    
Acquisition of

property and

equipment
 
Ultimate Controlling Entity
   SK Inc.(*2)    22,162        662,247        114,895  
         
 
 
    
 
 
    
 
 
 
Associates
  
F&U Credit information Co., Ltd.
     3,490        49,227        265  
    
HanaCard Co., Ltd.(*3)
     8,932        1,820        22  
     Daehan Kanggun BcN Co., Ltd.      20,290                
     Others(*4)      13,795        5,608        80  
         
 
 
    
 
 
    
 
 
 
            46,507        56,655        367  
         
 
 
    
 
 
    
 
 
 
Others
  
SK Innovation Co., Ltd.
     27,524        19,598         
    
SK Energy Co., Ltd.
     4,585        710         
     SK Geo Centric Co., Ltd.      925        1         
    
SK Networks Co., Ltd.(*5)
     4,312        904,320        288  
    
SK Networks Service Co., Ltd.
     6,110        71,432        7,891  
    
SK Ecoplant Co., Ltd.
     3,330        112         
    
SK hynix Inc.
     60,933        75         
    
SK Shieldus Co., Ltd.
     39,455        147,731        35,854  
    
Content Wavve Corp.
     6,797        108,760        229  
    
Eleven Street Co., Ltd.
     71,972        31,589         
    
SK Planet Co., Ltd.
     19,753        95,261        17,481  
    
SK RENT A CAR Co., Ltd.
     14,992        15,891         
     SK Magic Co., Ltd.      2,204        1,071         
     Tmap Mobility Co., Ltd.      22,011        4,973        892  
     Onestore Co., Ltd.      17,181        24         
     Dreamus Company      7,235        85,193        649  
     UbiNS Co., Ltd.      283        46,222        53,897  
     Happy Narae Co., Ltd.      1,637        24,727        143,188  
     Others      40,058        29,610        20,555  
         
 
 
    
 
 
    
 
 
 
            351,297        1,587,300        280,924  
         
 
 
    
 
 
    
 
 
 
          419,966        2,306,202        396,186  
         
 
 
    
 
 
    
 
 
 
 
(*1)
Operating expenses and others include lease payments paid by the Group.
 
(*2)
Operating expenses and others include ₩272,524 million of dividends declared to be paid by the Parent Company.
 
(*3)
HanaCard Co., Ltd. was excluded from the related parties due to the disposal of the Group’s shares in the entity for the year ended December 31, 2022, and the transactions above occurred before the disposal.
 
(*4)
Operating revenue and others include ₩13,700 million of dividends deducted from the investment in associates as a result of receipt by the Group.
 
(*5)
Operating expenses and others include costs for handset purchases amounting to ₩844,157 million.
 
F-11
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
                         
         
2021
 
Scope
  
Company
  
Operating
revenue and
others
    
Operating

expense

and

others(*1)
    
Acquisition

of property

and
equipment
 
Ultimate Controlling Entity
   SK Inc.(*2)    33,253        633,868        82,191  
         
 
 
    
 
 
    
 
 
 
Associates
  
F&U Credit information Co., Ltd.
     3,828        50,029         
     HanaCard Co., Ltd.      17,962        4,374         
     SK Wyverns Co., Ltd.(*3)      202        8,203         
     Daehan Kanggun BcN Co., Ltd.      10,943                
     SK China Company Ltd.(*4)      131,141                
     Others(*5)      11,778        8,356         
         
 
 
    
 
 
    
 
 
 
            175,854        70,962         
         
 
 
    
 
 
    
 
 
 
Others
  
SK Innovation Co., Ltd.
     53,445        19,093         
     SK Energy Co., Ltd.      18,970        1,250         
    
SK Geo Centric Co., Ltd.
     33,435        9         
    
SK TNS Co., Ltd.(*3)
     75        6,868        57,903  
     SKC Infra Service Co., Ltd.(*3)      26        30,798        8,028  
     SK Networks Co., Ltd.(*6)      14,439        1,055,512        24  
     SK Networks Service Co., Ltd.      7,292        73,596        3,520  
     SK hynix Inc.(*7)      285,104        199         
     Happy Narae Co., Ltd.      6,899        20,229        133,625  
    
SK Shieldus Co., Ltd.(*8)
     5,793        18,861        20,382  
     Content Wavve Co., Ltd.      174        78,964         
     Eleven Street Co., Ltd.      2,785        5,699         
    
SK Planet Co., Ltd.
     2,048        16,747        6,081  
    
SK hynix Semiconductor (China) Ltd.
     48,546                
    
SK hynix system ic (Wuxi) Co., Ltd.
     20,807                
    
SK ON Hungary Kft.
     38,413                
     SK RENT A CAR Co., Ltd.      5,843        18,564         
     Dreamus Company      795        20,074        396  
     SK m&service Co., Ltd.      764        3,670        888  
     UbiNS Co., Ltd.      415        42,335        50,847  
     Others      156,055        30,762        23,428  
         
 
 
    
 
 
    
 
 
 
            702,123        1,443,230        305,122  
         
 
 
    
 
 
    
 
 
 
          911,230        2,148,060        387,313  
         
 
 
    
 
 
    
 
 
 
 
(*1)
Operating expense and others include lease payments paid by the Group.
 
(*2)
Operating expense and others include ₩248,677 million of dividends paid by the Parent Company.
 
(*3)
Transactions occurred before the related party relationship terminated.
 
(*4)
Operating revenue and others include ₩131,141 million of dividends that were received from SK China Company Ltd. and deducted from the investment in associates.
 
F-11
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(*5)
Operating revenue and others include ₩10,716 million of dividends that were received from Korea IT Fund which was deducted from the investment in associates.
 
(*6)
Operating expenses and others include costs for handset purchases amounting to ₩996,910 million.
 
(*7)
Operating revenue and others include ₩170,937 million of dividend income received from SK hynix Inc.
 
(*8)
Operating revenue and others include ₩9,637 million of dividend income received from SK Shieldus Co., Ltd. (Formerly, ADT CAPS Co., Ltd.).
 
F-11
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
                         
         
2020
 
Scope
  
Company
  
Operating

revenue and

others
    
Operating

expense

and

others(*1)
    
Acquisition

of property

and

equipment
 
Ultimate Controlling Entity
   SK Inc.(*2)    40,717        596,509        76,534  
         
 
 
    
 
 
    
 
 
 
Associates
  
F&U Credit information Co., Ltd.
     3,484        51,228         
     SK hynix Inc.(*3)      316,001        267         
     HanaCard Co., Ltd.      683        3,065         
     SK Wyverns Co., Ltd.      1,279        19,354         
     Content Wavve Co., Ltd.      446        56,631         
     Others(*4)      65,431        12,511        78  
         
 
 
    
 
 
    
 
 
 
            387,324        143,056        78  
         
 
 
    
 
 
    
 
 
 
Others
  
SK Ecoplant Co., Ltd. (Formerly, SK Engineering & Construction Co., Ltd.)
     12,349        238         
     SK Innovation Co., Ltd.      38,999        18,464         
    
SK Networks Co., Ltd.(*5)
     13,893        1,022,976        32  
    
SK Networks Services Co., Ltd.
     6,936        76,653        2,023  
    
SK Telesys Co., Ltd.
     388        10,751        30,453  
    
SK TNS Co., Ltd.
     1,118        43,767        496,460  
    
SK Energy Co., Ltd.
     16,009        296         
    
SK hynix Semiconductor (China) Ltd.
     73,683                
    
SK ON Hungary Kft.
(Formerly, SK Battery Hungary Kft.)
     19,394                
    
SK Geo Centric Co., Ltd. (Formerly, SK Global Chemical Co., Ltd.)
     20,667        9         
    
SK Global Chemical International Trading (Shanghai) Co., Ltd.
     15,898        8         
     HappyNarae Co., Ltd.      9,871        17,361        129,621  
     Others      102,141        128,268        83,693  
         
 
 
    
 
 
    
 
 
 
            331,346        1,318,791        742,282  
         
 
 
    
 
 
    
 
 
 
          759,387        2,058,356        818,894  
         
 
 
    
 
 
    
 
 
 
 
(*1)
Operating expense and others include lease payments by the Group.
 
(*2)
Operating expense and others include ₩216,241 million of dividends paid by the Parent Company.
 
(*3)
Operating revenue and others include ₩146,100 million of dividends received from SK hynix Inc. which was deducted from the investment in associates and ₩70,495 million of disposal amounts of Yongin SK Academy training facility.
 
(*4)
Operating revenue and others include ₩18,749 million of dividends declared by Korea IT Fund and Pacific Telecom Inc. and UniSK which was deducted from the investments in associates.
 
(*5)
Operating expenses and others include costs for handset purchases amounting to ₩961,167 million.
 
F-11
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(4)
Account balances with related parties as of December 31, 2022 and 2021 are as follows:
 
(In millions of won)
                     
       
December 31, 2022
 
       
Receivables
   
Payables
 
Scope
 
Company
 
Loans
   
Accounts

receivable – trade,
etc.
   
Accounts
payable – other,
etc.
 
Ultimate Controlling Entity
 
SK Inc.
        2,383       103,141  
Associates
 
F&U Credit information Co., Ltd.
          64       5,682  
    SK USA, Inc.                 1,519  
   
Wave City Development Co., Ltd.(*1)
          901        
   
Daehan Kanggun BcN Co., Ltd.(*2)
    22,147       3,199        
    Others                 65  
       
 
 
   
 
 
   
 
 
 
          22,147       4,164       7266  
       
 
 
   
 
 
   
 
 
 
Others
 
SK Innovation Co., Ltd.
          9,726       33,091  
    SK Networks Co., Ltd.           488       113,943  
   
Mintit Co., Ltd.
          35,058       3  
   
SK hynix Inc.
          15,494       311  
   
Happy Narae Co., Ltd.
          31       31,979  
   
SK Shieldus Co., Ltd.
          14,035       17,447  
   
Content Wavve Corp.
          349       19,244  
   
Incross Co., Ltd.
          3,774       16,152  
   
Eleven Street Co., Ltd.
          6,797       13,026  
   
SK Planet Co., Ltd.
          8,190       43,238  
   
SK RENT A CAR Co., Ltd.
          1,291       22,895  
    UbiNS Co., Ltd.                 21,179  
    Others(*3)     16,475       13,996       41,890  
       
 
 
   
 
 
   
 
 
 
          16,475       109,229       374,398  
       
 
 
   
 
 
   
 
 
 
        38,622       115,776       484,805  
       
 
 
   
 
 
   
 
 
 
 
(*1)
As of December 31, 2022, the Parent Company recognized loss allowance amounting to ₩379 million on accounts receivable – trade.
 
(*2)
As of December 31, 2022, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.
 
(*3)
During the year ended December 31, 2022, SK Telecom Innovation Fund, L.P., a subsidiary of the Parent Company, entered into a convertible loan agreement for USD 13,000,000 with id Quantique SA, classified as an other related party.
 
F-11
6

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
                           
       
December 31, 2021
 
       
Receivables
   
Payables
 
Scope
 
Company
 
Loans
   
Accounts
receivable – trade,
etc.
   
Accounts

payable – other,
etc.
 
Ultimate Controlling Entity
 
SK Inc.
        2,092       69,652  
Associates
 
F&U Credit information Co., Ltd.
          4       5,265  
   
Wave City Development Co., Ltd.(*1)
          2,623        
   
Daehan Kanggun BcN Co., Ltd.(*2)
    22,147       3,857        
   
HanaCard Co., Ltd.
          529       48,020  
   
Others
          84       1,197  
       
 
 
   
 
 
   
 
 
 
          22,147       7,097       54,482  
       
 
 
   
 
 
   
 
 
 
Others
 
SK Innovation Co., Ltd.
          3,022       38,022  
   
SK Networks Co., Ltd.
          241       198,631  
   
Mintit Co., Ltd.
          17,929       131  
   
SK hynix Inc.
          11,526       166  
   
Happy Narae Co., Ltd.
          6       49,349  
   
SK m&service Co., Ltd.
          1,453       18,921  
   
SK Shieldus Co., Ltd.
          2,649       24,593  
   
Content Wavve Co., Ltd.
          183       9,873  
   
Incross Co., Ltd.
          3,610       11,829  
   
Eleven Street Co., Ltd.
          2,851       7,782  
   
SK Planet Co., Ltd.
          668       31,652  
   
SK RENT A CAR Co., Ltd.
          116       16,715  
   
UbiNS Co., Ltd.
          24       14,932  
   
Others
          8,307       29,106  
       
 
 
   
 
 
   
 
 
 
                52,585       451,702  
       
 
 
   
 
 
   
 
 
 
        22,147       61,774       575,836  
       
 
 
   
 
 
   
 
 
 
 
(*1)
As of December 31, 2021, the Parent Company recognized loss allowance amounting to ₩1,102 million on the accounts receivable — trade.
 
(*2)
As of December 31, 2021, the Parent Company recognized full loss allowance for the balance of loans to Daehan Kanggun BcN Co., Ltd.
 
(5)
The Group has granted SK REIT Co., Ltd. The right of first offer regarding the disposal of real estate owned by the Group. Whereby, the negotiation period is within 3 to 5 years from June 30, 2021, date of agreement, and the Group has been granted the right by SK REIT Co., Ltd. to lease the real estate in preference to a third party if SK REIT Co., Ltd. purchases the real estate from the Group.
 
(6)
The details of additional investments and disposal of associates and joint ventures for the year ended December 31, 2022 as presented in note 12.
 
F-11
7

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
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 ₩1,513 million as of December 31, 2022.
Meanwhile, PanAsia Semiconductor Materials LLC., a subsidiary of the Parent Company, has pledged its ₩21,981 million of equity instruments at FVTPL on ₩12,998 million of short-term borrowings as of December 31, 2022.
(2)    Legal claims and litigations
As of December 31, 2022, 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 receivable from sale of handsets
The sales agents of the Parent Company sell handsets to the Parent Company’s subscribers on an installment basis. The Parent Company entered into comprehensive agreements to purchase accounts receivable from handset sales with retail stores and authorized dealers and to transfer the accounts receivable from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively.
The accounts receivable from sale of handsets amounting to ₩357,467 million and ₩493,277 million as of December 31, 2022 and 2021, respectively, which the Parent Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable – other and long-term accounts receivable – other.
(4)  Commitment of the acquisition and disposal of shares
The Board of Directors of the Parent Company resolved the acquisition and disposal of certain shares in order to strengthen the strategic alliance with Hana Financial Group Inc. (“HFG”) at the Board of Directors’ meeting held on July 22, 2022. In accordance with the resolution, as of July 27, 2022, the Parent Company disposed of its entire common shares of HanaCard Co., Ltd. (39,902,323 shares) and entire common shares of Finnq Co., Ltd. (6,370,000 shares) to HFG for ₩330,032 million and ₩5,733 million, respectively. Through the agreement with HFG, the Parent Company is obligated to acquire HFG’s common shares from July 27, 2022 to January 31, 2024, after depositing ₩330,032 million in a specific money trust, and the Parent Company completed the acquisition of the shares for the year ended December 31, 2022. As a part of the aforementioned transaction, as of July 27, 2022, the Parent Company disposed of its entire common shares of SK Square Co., Ltd. (767,011 shares) to HanaCard Co., Ltd. for ₩31,563 million, and HanaCard Co., Ltd. is obligated to acquire the Parent Company’s common shares from July 27, 2022 to January 31, 2024, after depositing ₩68,437 million in a specific money trust. Before March 31, 2025, the Parent Company, HFG, and HanaCard Co., Ltd. may not dispose of shares they have acquired or will acquire under the aforementioned transaction.
 
(5)
The acquisition cost of property and equipment and intangible assets to be incurred in subsequent periods under arrangements is ₩26,374 million as of December 31, 2022.
 
F-11
8

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
38.     Statements of Cash Flows
 
(1)
Adjustments for income and expenses from operating activities for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                  
    
2022
   
2021
   
2020
 
Interest income
   (58,472     (43,850     (50,357
Dividends
     (2,552     (14,132     (1,170
Gain on foreign currency translations
     (2,095     (10,753     (8,928
Gain on sale of accounts receivable — other
     (1,043     (27,725     (22,605
Gain (loss) relating to investments in associates and joint ventures, net
     81,707       (1,948,447     (1,028,403
Gain on disposal of property and equipment and intangible assets
     (15,985     (40,109     (35,644
Gain on business transfer
           (82,248     (12,455
Gain relating to financial instruments at FVTPL
     (94,393     (91,244     (145,016
Other income
     (6,515     (10,369     (4,220
Interest expense
     328,307       342,342       399,176  
Loss on foreign currency translations
     3,814       8,005       12,730  
Loss on sale of accounts receivables-other
     61,841              
Loss on disposal of long-term investment securities
                 98  
Income tax expense
     288,321       651,948       376,502  
Expense related to defined benefit plan
     134,509       190,462       198,794  
Share option
     84,463       91,646       4,313  
Bonus paid by treasury shares
     25,425       29,643        
Depreciation and amortization
     3,755,312       4,114,394       4,169,996  
Bad debt for accounts receivables — trade
     27,053       31,546       48,625  
Loss on disposal of property and equipment and intangible assets
     20,465       47,369       41,598  
Impairment loss on property and equipment and intangible assets
     17,027       3,135       208,833  
Bad debt for accounts receivable — other
     3,011       6,001       10,559  
Loss relating to financial instruments at FVTPL
     41,597       76,142       27,082  
Loss on disposal of investment assets
     1,283              
Other financial fees
           142,015       44,734  
Other expenses
     26,358       8,008       22,412  
    
 
 
   
 
 
   
 
 
 
     4,719,438       3,473,779       4,256,654  
    
 
 
   
 
 
   
 
 
 
 
F-1
19

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Changes in assets and liabilities from operating activities for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                  
    
2022
   
2021
   
2020
 
Accounts receivable — trade
   (60,546     (95,374     (33,410
Accounts receivable — other
     54,988       (152,038     (50,003
Advanced payments
     (25,377     (43,212     (945
Prepaid expenses
     11,989       77,404       112,270  
Inventories
     39,633       (70,601     (7,219
Long-term accounts receivable — other
     (74,729     83,658       26,027  
Contract assets
     (13,400     (11,582     1,528  
Guarantee deposits
     6,245       8,125       26,122  
Accounts payable — trade
     (101,465     12,312       3,023  
Accounts payable — other
     369,693       (109,476     311,737  
Withholdings
     4,964       (55,925     33,348  
Contract liabilities
     18,910       (2,158     35,426  
Deposits received
     99       (3,737     (1,028
Accrued expenses
     116,039       7,505       61,848  
Provisions
     (20     (19,324     (30,773
Long-term provisions
     (13,792     (260     (548
Plan assets
     (132,131     (51,697     (145,214
Retirement benefit payment
     (79,117     (114,897     (76,987
Others
     (3,877     (27,418     37,256  
    
 
 
   
 
 
   
 
 
 
     118,106       (568,695     302,458  
    
 
 
   
 
 
   
 
 
 
 
(3)
Significant
non-cash
transactions for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                   
    
2022
   
2021
    
2020
 
Increase (decrease) in accounts payable — other relating to the acquisition of property and equipment and intangible assets
   (39,977     1,063,800        (426,723
Increase of
right-of-use
assets
     720,932       672,723        736,157  
Merger of Tbroad Co., Ltd. and two other companies by SK Broadband Co., Ltd.
                  1,072,487  
Change in assets and liabilities by
spin-off
(Note 41)
           14,379,397         
Retirement of treasury shares
           1,965,952         
Disposal of treasury shares (Congratulatory bonus for
spin-off)
           114,373         
Transfer from property and equipment to investment property
     4,732       23,034         
 
F-1
2
0

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(4)
Reconciliation of liabilities arising from financing activities for the years ended December 31, 2022 and 2021 are as follows:
 
(In millions of won)
 
   
2022
 
               
Non-cash
transactions
       
   
January 1,

2022
   
Cash flows
   
Exchange

rate
changes(*)
   
Fair value
changes
   
Business

combinations
   
Other
changes
   
December 31,

2022
 
Total liabilities from financing activities:
                                                       
Short-term borrowings
  12,998       130,000                               142,998  
Long-term borrowings
    394,187       398,529                         397       793,113  
Debentures
    8,426,683       (189,878     122,350                   7,538       8,366,693  
Lease liabilities
    1,534,281       (401,054                 6,503       642,327       1,782,057  
Long-term payables — other
    2,009,833       (400,245                       28,753       1,638,341  
Derivative financial liabilities
    111                   (111                  
Derivative financial assets
    (182,661     768             (85,258                 (267,151
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    12,195,432       (461,880     122,350       (85,369     6,503       679,015       12,456,051  
Other cash flows from financing activities:
                                                       
Payments of cash dividends
          (904,020                                        
Payments of interest on hybrid bonds
            (14,766                                        
Cash inflow from transactions with the
non-controlling
shareholders
            31,151                                          
Cash outflow from transactions with the
non-controlling
shareholders
            (367                                        
           
 
 
                                         
              (888,002                                        
           
 
 
                                         
            (1,349,882                                        
           
 
 
                                         
 
 
(*)
The effect of changes in foreign exchange rates for financial liabilities at amortized cost.
 
F-12
1

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(In millions of won)
 
   
2021
 
               
Non-cash
transactions
       
   
January 1,
2021
   
Cash flows
   
Exchange

rate

changes(*)
   
Fair value
changes
   
Business

combinations
   
Spin-off
   
Other
changes
   
December 31,
2021
 
Total liabilities from financing activities:
                                                               
Short-term borrowings
  109,998       (50,823                 1,825       (48,510     508       12,998  
Long-term borrowings
    2,028,924       63,132       600             662       (1,703,300     4,169       394,187  
Debentures
    8,579,743       (16,755     145,584                   (295,544     13,655       8,426,683  
Lease liabilities
    1,436,777       (431,674                 497       (85,322     614,003       1,534,281  
Long-term payables — other
    1,566,954       (426,267                             869,146       2,009,833  
Derivative financial liabilities
    54,176       332             (42,282           (12,115           111  
Derivative financial assets
    (65,136                 (117,525                       (182,661
Financial liabilities at FVTPL
          129,123             7,996             (137,119            
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
    13,711,436       (732,932     146,184       (151,811     2,984       (2,281,910     1,501,481       12,195,432  
Other cash flows from financing activities:
                                                               
Payments of cash dividends
          (1,028,520                                                
Payments of interest on hybrid bonds
            (14,766                                                
Acquisition of treasury shares
            (76,111                                                
Cash inflow from transactions with the
non-controlling
shareholders
            444,124                                                  
Cash outflow from transactions with the
non-controlling
shareholders
            (19,406                                                
Cash outflow from
spin-off
            (626,000                                                
           
 
 
                                                 
              (1,320,679                                                
           
 
 
                                                 
            (2,053,611                                                
           
 
 
                                                 
 
 
(*)
The effect of changes in foreign exchange rates for financial liabilities at amortized cost.
 
39.
Emissions Liabilities
 
(1)
The quantity of emissions rights allocated free of charge for each implementation year as of December 31, 2022 are as follows:
 
(In
tCO2-eQ)
 
    
Quantities

allocated in 2020
    
Quantities
allocated in 2021
    
Quantities
allocated in

2022
    
Total
 
Emissions rights allocated free of charge
     814,842        1,387,671        1,410,823        3,613,336  
 
F-12
2

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
(2)
Changes in emissions rights quantities the Parent Company held are as follows:
 
(In
tCO2-eQ)
 
    
Quantities
allocated in

2020
   
Quantities

allocated in

2021
   
Quantities
allocated in

2022
   
Total
 
Beginning
     (60,977     306,234       281,234       526,491  
Allocation at no cost
     814,842       1,387,671       1,410,823       3,613,336  
Additional allocation
     217,643                   217,643  
Other changes
           (8,049     3,573       (4,476
Purchase
     68,471                   68,471  
Surrender or shall be surrendered
     (1,039,979     (1,424,476     (1,421,550     (3,886,005
Borrowing
           19,854       108,790       128,644  
    
 
 
   
 
 
   
 
 
   
 
 
 
Ending
           281,234       382,870       664,104  
    
 
 
   
 
 
   
 
 
   
 
 
 
 
(3)
As of December 31, 2022, the estimated annual greenhouse gas emissions quantities of the Parent Company are 1,533,206
tCO2-eQ.
 
40.
Non-current
Assets Held for Sale
 
  (1)
On February 25, 2021, the Parent Company has decided to dispose of the investments in an associate engaged in mobility business to Tmap Mobility Co., Ltd. pursuant to the approval of the Board of Directors and reclassified entire shares of the investments in associates as
non-current
assets held for sale. The disposal of the investment in the associate was completed in 2022 after the Financial Services Commission approved the transaction.
 
(In millions of won)
             
         
December 31, 2021
 
Investments in associates
   Carrot General Insurance Co., Ltd.            8,734  
 
  (2)
The Group classified investment securities scheduled to be liquidated as
non-current
assets held for sale as of December 31, 2022, and the details are as follows:
 
(In millions of won)
             
         
December 31, 2022
 
Investments in associates
   Daekyo Wipoongdangdang Contents Korea Fund            1,062  
         
 
 
 
FVTPL
   Digital Content Korea Fund      3,645  
   InterVest Fund      107  
   Central Fusion Content Fund      1,563  
         
 
 
 
            5,315  
         
 
 
 
          6,377  
         
 
 
 
 
F-12
3

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
 
41.
Spin-off
 
  (1)
In accordance with the resolution of the Board of Directors held on June 10, 2021 and shareholders’ meeting held on October 12, 2021, the Parent Company completed the
spin-off
of its business of managing investments in semiconductor, New Information and Communication Technologies(“ICT”) and other business making new investments on November 1, 2021, and the registration of the
spin-off
was completed as of November 2, 2021. The details of the
spin-off
are as follows:
 
Method of
spin-off
   Horizontal
spin-off
Company    SK Telecom Co., Ltd. (Surviving Company)
   SK Square Co., Ltd.
(Spin-off Company)
Effective date of
spin-off
   November 1, 2021
 
  (2)
The details of financial information due to the
spin-off
of its business of managing investments in semiconductor, New ICT and other business and making new investments are as follows:
 
  1)
Statements of Income
The details of profit or loss from discontinued operations for the years ended December 31, 2021, 2020 are as follows:
 
(In millions of won)
             
    
2021
    
2020
 
Operating revenue and other operating income
   2,469,329        2,541,133  
Revenue
     2,383,083        2,536,904  
Other income
     86,246        4,229  
Operating expenses:
     2,396,324        2,471,519  
Labor
     824,505        897,676  
Commission
     349,344        244,074  
Depreciation and amortization
     287,412        326,417  
Network interconnection
     863        762  
Advertising
     158,512        159,589  
Rent
     2,754        2,115  
Cost of goods sold
     426,161        502,469  
Others
     346,773        338,417  
    
 
 
    
 
 
 
Operating profit
  
 
73,005
 
  
 
69,614
 
Finance income
     47,417        100,511  
Finance costs
     269,823        174,250  
Gain relating to investments in subsidiaries, associates and joint ventures,
     1,502,147        975,947  
    
 
 
    
 
 
 
Profit before income tax
  
 
1,352,746
 
  
 
971,822
 
Income tax expense
     205,152        155,240  
    
 
 
    
 
 
 
Profit from discontinued operations, net of taxes
  
1,147,594
 
  
 
816,582
 
    
 
 
    
 
 
 
 
F-12
4

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
 
  2)
Statements of Cash Flows
The details of cash flows from discontinued operations for the years ended December 31, 2021 and 2020 are as follows:
 
(In millions of won)
                
    
2021
   
2020
 
Cash flows from operating activities
   59,255       495,696  
Cash flows from investing activities
     (967,053     (483,599
Cash flows from investing activities
     (88,872     (22,902
 
(3)
The details of assets and liabilities derecognized from the financial statements due to the
spin-off
of its business of managing investments in semiconductor, New ICT and other business and making new investments are as follows. Subsequent to the
spin-off,
the Parent Company lost control over the related businesses. The
spin-off
was accounted for by derecognizing all related assets and liabilities. The net assets of the
spin-off
business as of the
spin-off
date was recognized in capital surplus and others.
 
(In millions of won)
 
    
Amount
 
Current assets
   2,608,601  
Non-current
assets
     19,269,615  
    
 
 
 
Total assets
   21,878,216  
Current liabilities
   2,161,458  
Non-current
liabilities
     4,676,324  
    
 
 
 
Total liabilities
   6,837,782  
    
 
 
 
Net assets
   15,040,434  
    
 
 
 
 
(4)
As of November 1, 2021, the Parent Company has split the business division for the purpose of new investments and management of shares in related investee companies belong to semiconductors and New ICT sector. The Parent Company has the obligation to jointly and severally reimburse the liabilities incurred by the Parent Company prior to the
spin-off
with SK Square Co., Ltd., the
spin-off
company, in accordance with Article
530-9
(1) of Korean Commercial Act.
 
42.
Cash Dividends paid to the Parent Company
Cash dividends paid to the Parent Company for the years ended December 31, 2022, 2021 and 2020 are as follows:
 
(In millions of won)
                          
    
2022
    
2021
    
2020
 
Cash dividends received from consolidated subsidiaries
   35,733        12,646        119,036  
Cash dividends received from associates
     13,700        312,793        164,850  
    
 
 
    
 
 
    
 
 
 
     49,443        325,439        283,886  
    
 
 
    
 
 
    
 
 
 
 
F-12
5

SK TELECOM CO., LTD. and Subsidiaries
Notes to the Consolidated Financial Statements — (Continued)
For the years ended December 31, 2022, 2021 and 2020
 
 
43.
Subsequent Events
On February 7, 2023, the Board of Directors of the Parent Company approved the disposal of treasury shares and details of the transaction are as follows:
 
    
Information of disposal
Number of treasury shares
  
324,580 Common shares
Price of the treasury per shares (in won)
  
46,700
Aggregate disposal value
  
15,158 million
Disposal date
  
February 9, 2023
Purpose of disposal
  
Allotment of shares as bonus payment
Method of disposal
  
Over-the-counter
 
F-12
6