SK Telecom Co. reported a drop in operating profit for a second-straight quarter after South Korea’s largest mobile-phone operator spent more on promoting smartphones to keep customers from switching to rival KT Corp.

Operating income fell 15 percent to 480.5 billion won ($431 million) in the three months ended March 31, from 564 billion won a year earlier, SK Telecom said yesterday. Sales increased 4.9 percent to 3.02 trillion won.

SK Telecom boosted spending on subsidies for smartphones to compete with KT, which in November introduced Apple Inc.’s iPhone in Korea exclusively. SK Telecom’s profit will likely increase from the current period after the nation’s communications regulator said it will limit telecom companies’ marketing spending from this year, analysts at Mirae Asset Securities Co. and Daewoo Securities Co. said.

“Marketing competition has cooled down since April and the first quarter should be the bottom for SK Telecom’s earnings this year,” Denny Kim, an analyst at Eugene Investment & Securities Co., wrote in a report April 15.

The company was projected to post operating profit, or sales minus the cost of goods sold and administrative expenses, of 500.1 billion won, according to the average of eight analyst estimates compiled by Bloomberg this month.

First-quarter net income rose 1.6 percent to 321.8 billion won after a stronger won reduced the cost of the company’s foreign-currency debt, SK Telecom said.

SK Telecom rose 0.3 percent to 172,000 won at 12:10 p.m. in Seoul trading, while the benchmark KOSPI index lost 0.6 percent.

First-quarter marketing spending, which includes the cost of advertising, and subsidizing users’ handset payments, rose 28 percent to 846 billion won, SK Telecom said. Analysts in a separate Bloomberg News survey projected the expenses would be 879.1 billion won.

The Korea Communications Commission said last month it will require telecom companies to keep marketing spending to no more than 22 percent of total revenue in 2010 and 20 percent from next year to help ease competition.

SK Telecom is betting on wireless Internet sales and new businesses to help offset stalling revenue growth in a market where more than 95 percent of people already own a mobile phone. The carrier plans to increase sales of smartphones almost fivefold in 2010. SK Telecom bought a stake in Hana Financial Group Inc.’s credit-card unit to expand its wireless payment business.

Wireless-Internet sales gained 6.8 percent as more users surfed the Web using their mobile phones and the number of subscribers signing up for flat-rate data plans instead of metered bills increased. SK Telecom has said it plans to raise its number of flat-rate customers to 5 million this year from 3 million in 2009.

Shipments of smartphones in Korea may reach more than 5 million handsets in 2010, accounting for about 25 percent of the total market, according to estimates by Oh In Bum, an analyst at Dongbu Securities Co.

SK Telecom said in January it aims to increase sales by about 7 percent to 13 trillion won this year and plans to invest 1.75 trillion won.

SK Telecom accounted for 50.7 percent of the Korean mobile- phone market at the end of March, compared with KT’s 31.4 percent and LG Telecom Ltd.’s 17.9 percent, according to government data.

(Bloomberg)