6-K 1 d6k.htm FORM 6-K

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of December 2007

Commission File Number 1-14926

KT Corporation

(Translation of registrant’s name into English)

206 Jungja-dong

Bundang-gu, Sungnam

Kyunggi-do

463-711

Korea

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  þ     Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨     No  þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-  _______________

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: December 12, 2007 KT Corporation
By:		/s/ Thomas Bum Joon Kim
Name:		Thomas Bum Joon Kim
Title:		Managing Director
By:		/s/ Byung Ho Kim
Name:		Byung Ho Kim
Title:		Director

KT CORPORATION

NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean

To the Stockholders and Board of Directors of

KT Corporation:

We have reviewed the accompanying non-consolidated balance sheet of KT Corporation (the “Company”) as of September 30, 2007 and the related non-consolidated statements of income for the three months and nine months then ended and of changes in equity and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. The non-consolidated statement of income for the three months and nine months ended September 30, 2006 and cash flows for the nine months then ended, were reviewed by KPMG Samjong Accounting Corp. (“KPMG”) in accordance with standards for review of interim financial statements in the Republic of Korea, whose report dated November 1, 2006 expressed that nothing had come to their attention that caused them to believe that the financial statements were not presented fairly, in all material respects, in conformity with accounting principles generally accepted in the Republic of Korea. The non-consolidated statements of income for the three months and nine months ended September 30, 2006 and cash flows for the nine months then ended, were reviewed by KPMG before the effects of the adjustments discussed in Note 29 to the accompanying non-consolidated financial statements, but the accompanying non-consolidated financial statements for the three months and nine months then ended presented herein for comparative purpose include such adjustments.

We conducted our review in accordance with standards for review of interim financial statements in the Republic of Korea. Those standards require that we plan and perform the review to obtain moderate assurance as to whether the non-consolidated financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the financial statements as of and for the three months and nine months ended September 30, 2007 referred to above are not presented fairly, in all material respects, in conformity with accounting principles generally accepted in the Republic of Korea.

The non-consolidated balance sheet of the Company as of December 31, 2006 and the related non-consolidated statements of income, appropriations of retained earnings and cash flows (not included in the accompanying financial statements) for the year ended December 31, 2006, were audited by KPMG in accordance with auditing standards generally accepted in the Republic of Korea, whose report dated February 6, 2007, expressed an unqualified opinion on those non-consolidated financial statements. The accompanying non-consolidated balance sheet as of December 31, 2006, which is comparatively presented, does not differ in material respects from such audited non-consolidated balance sheet.

Accounting principles and review standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to review such non-consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those knowledgeable about Korean accounting principles and review standards and their application in practice.

November 12, 2007

Notice to Readers

This report is effective as of November 12, 2007, the accountants’ review report date. Certain subsequent events or circumstances may have occurred between the accountants’ review report date and the time the accountants’ review report is read. Such events or circumstances could significantly affect the accompanying non-consolidated financial statements and may result in modification to the accountants’ review report.

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

(Unaudited)

ASSETS		September 30, 2007				December 31, 2006
		(In millions of Korean won)
CURRENT ASSETS:
Cash and cash equivalents (Notes 2, 3 and 20)		(Won)	905,346			(Won)	1,036,765
Short-term financial instruments (Notes 2, 3 and 4)			211,861				120,563
Short-term loans (Note 20)			103,090				110,224
Accounts receivable – trade, net of allowance for doubtful accounts of (Won)236,235 million as of 2007 and (Won)308,240 million as of 2006 and present value discount of (Won)1,467 million as of 2007 and (Won)3,292 million as of 2006 (Notes 2, 8, 20 and 21)			1,800,590				1,522,136
Accounts receivable – other, net of allowance for doubtful accounts of (Won)96,492 million as of 2007 and (Won)99,958 million as of 2006 and present value discount of (Won)1,100 million as of 2007 and (Won)854 million as of 2006 (Notes 2, 8, 20 and 21)			203,697				160,984
Inventories, net (Notes 2, 5 and 11)			96,662				92,982
Other current assets (Notes 2, 20, 23 and 30)			238,290				195,534
Total Current Assets			3,559,536				3,239,188
NON- CURRENT ASSETS:
Investment Assets:
Available-for-sale securities (Notes 2 and 6)			17,024				12,052
Equity securities of affiliates (Notes 2 and 7)			3,397,454				3,461,226
Long-term loans			94,693				187,581
Other investment assets			—				208
Total Investment Assets			3,509,351				3,661,067
Property and Equipment:
Property and equipment, at cost			37,207,251				36,417,217
Less accumulated depreciation			(26,775,610	)			(25,844,975	)
Less accumulated impairment			(4,457	)			—
Less contribution for construction			(190,041	)			(174,158	)
Property and Equipment, Net (Notes 2, 9, 10, 11, 12 and 18)			10,237,143				10,398,084
Intangible Assets, Net (Notes 2, 13 and 14)			419,610				470,782
Other Non-Current Assets (Notes 2, 21 and 30)			217,264				193,212
Total Non-Current Assets			14,383,368				14,723,145
TOTAL ASSETS		(Won)	17,942,904			(Won)	17,962,333

(Continued)

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY		September 30, 2007				December 31, 2006
		(In millions of Korean won)
CURRENT LIABILITIES:
Accounts payable – trade (Notes 8 and 20)		(Won)	643,717			(Won)	657,392
Accounts payable – other (Notes 8 and 18)			539,481				829,328
Advance receipts			46,960				66,174
Withholdings			67,897				65,492
Accrued expenses (Note 8)			540,986				285,151
Income taxes payable			270,637				340,065
Current portion of long-term debt, net (Notes 2 and 15)			590,083				709,150
Other current liabilities (Notes 2, 8, 17, 22 and 23)			285,183				317,497
Total Current Liabilities			2,984,944				3,270,249
NON-CURRENT LIABILITIES:
Long-term debt, excluding current portion, net (Notes 2, 15 and 20)			4,592,149				4,700,228
Refundable deposits for telephone installation (Note 19)			858,130				907,519
Accrued severance indemnities, net (Notes 2 and 16)			454,592				336,910
Other long-term liabilities (Notes 2, 8, 17,18 ,22 and 30)			155,519				198,347
Total Non-current Liabilities			6,060,390				6,143,004
Total Liabilities			9,045,334				9,413,253
STOCKHOLDERS’ EQUITY:
Common stock (Notes 1 and 24)			1,560,998				1,560,998
Capital Surplus:
Additional paid-in capital			1,440,258				1,440,258
Other additional surplus (Note 30)			519				652
Total Capital Surplus			1,440,777				1,440,910
Capital adjustments:
Treasury stock (Note 26)			(3,825,688	)			(3,826,572	)
Stock options (Notes 2 and 33)			8,880				8,855
Stock grants (Notes 2 and 33)			767				—
Total Capital Adjustments			(3,816,041	)			(3,817,717	)

(Continued)

KT CORPORATION

NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)

AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY		September 30, 2007			December 31, 2006
		(In millions of Korean won)
Accumulated Other Comprehensive Income (Note 32)
Unrealized gain on valuation of available-for-sale securities (Notes 2, 6 and 30)			4,038			4,386
Other changes in equity of affiliates, net (Notes 2, 7 and 30)			6,541			6,592
Gain on valuation of derivatives, net (Note 23)			2,285			—
Total Other Comprehensive Income (Note 32)			12,864			10,978
Retained Earnings:
Legal reserve (Note 25)			780,499			780,499
Reserve for business rationalization			443,416			443,416
Reserve for business expansion			4,000,000			4,000,000
Reserve for special bonds			207,947			207,947
Reserve for technology and human resource development (Note 25)			350,000			350,000
Unappropriated retained earnings			3,917,110			3,572,049
Total Retained Earnings			9,698,972			9,353,911
Total Stockholders’ Equity			8,897,570			8,549,080
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		(Won)	17,942,904		(Won)	17,962,333

See accompanying notes to non-consolidated financial statements.

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

		September 30, 2007								September 30, 2006
		3 months				9 months				3 months				9 months
		(In millions of Korean won)
OPERATING REVENUES (Notes 2, 8, 27, 28 and 37)		(Won)	2,952,606			(Won)	8,923,094			(Won)	3,011,280			(Won)	8,887,707
OPERATING EXPENSES (Notes 8, 29, 33, 35, 39 and 40)			2,640,386				7,690,071				2,583,700				7,230,459
OPERATING INCOME			312,220				1,233,023				427,580				1,657,248
OTHER INCOME (EXPENSES):
Interest income			24,311				75,787				18,296				57,358
Interest expense			(77,253	)			(235,243	)			(79,473	)			(251,076	)
Equity in gains (losses) of affiliates, net (Notes 2 and 7)			(1,802	)			6,264				6,814				20,195
Foreign currency transactions and translation gains (losses), net (Note 2)			8,819				13,121				23,460				104,296
Loss on disposal of property and equipment, net			(4,857	)			(8,142	)			(2,279	)			(23,483	)
Loss on disposal of intangible assets, net			—				(161	)			(3	)			(4	)
Contribution payments for research and development and donations (Note 36)			(25,930	)			(53,787	)			(15,158	)			(48,327	)
Derivatives settlement and valuation gains (losses), net (Notes 2 and 23)			13,339				11,216				23,945				(100,550	)
Reversal of accrued provisions			1,782				50,993				6,182				7,291
Reversal of allowance for doubtful accounts			43,309				9,450				4,052				—
Other bad debt expense			—				—				(23,982	)			(35,781	)
Additional payment of income taxes			(3,423	)			(57,737	)			—				(8,625	)
Impairment losses on property and equipment (Note 9)			(4,457	)			(4,457	)			—				—
Impairment losses on intangible assets (Note 14)			(3,692	)			(7,066	)			—				—
Gain (loss) on disposal of available-for-sale securities, net			—				(520	)			10,433				10,448
Gain (loss) on disposal of equity securities in affiliates, net			(166	)			(166	)			—				4,871
Dividend income			2				2				—				1,000
Other, net (Notes 38 and 39)			25,759				88,397				14,565				48,767
Net			(4,259	)			(112,049	)			(13,148	)			(213,620	)
INCOME BEFORE INCOME TAX EXPENSE			307,961				1,120,974				414,432				1,443,628
INCOME TAX EXPENSE (Notes 2 and 30)			55,261				268,205				81,392				346,051
NET INCOME		(Won)	252,700			(Won)	852,769			(Won)	333,040			(Won)	1,097,577
BASIC NET INCOME PER SHARE OF COMMON STOCK (in Korean won) (Note 31)		(Won)	1,228			(Won)	4,113			(Won)	1,602			(Won)	5,281
DILUTED NET INCOME PER SHARE OF COMMON STOCK (in Korean won) (Note 31)		(Won)	1,228			(Won)	4,113			(Won)	1,600			(Won)	5,274

See accompanying notes to non-consolidated financial statements.

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

		September 30,
		2007				2006
		(In millions of Korean won)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		(Won)	852,769			(Won)	1,097,577
Expenses not involving cash payments:
Depreciation			1,437,635				1,448,758
Amortization			116,232				84,583
Accrued severance indemnities			257,406				147,538
Loss on disposal of property and equipment			22,551				29,704
Impairment losses on property and equipment assets			4,457				—
Loss on disposal of intangible assets			161				4
Loss on disposal of available-for-sale securities			520				1,261
Loss on disposal of equity securities in affiliates			549				—
Impairment losses on intangible assets			7,066				—
Foreign currency translation loss			2,299				11,111
Provision for doubtful accounts receivable – trade			—				22,306
Provision for doubtful accounts receivable – other			—				35,781
Equity in losses of affiliates			42,815				21,553
Loss on valuation of derivative contracts			10,219				94,952
Interest expense			3,059				3,630
Share-based payment			792				160
Other			4,140				490
Sub-total			1,909,901				1,901,831
Income not involving cash receipts:
Foreign currency translation gain			(16,329	)			(96,551	)
Gain on disposal of property and equipment			(14,409	)			(6,221	)
Gain on disposal of equity securities in affiliates			(383	)			(4,871	)
Gain on disposal of available-for-sale securities			—				(11,709	)
Equity in earnings of affiliates			(49,079	)			(41,748	)
Reversal of allowance for doubtful accounts			(9,450	)			—
Gain on valuation of derivative contracts			(22,030	)			(6,249	)
Interest income			(3,878	)			(6,223	)
Other			—				(2	)
Sub-total			(115,558	)			(173,574	)

(Continued)

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

		September 30,
		2007			2006
		(In millions of Korean won)
Changes in assets and liabilities related to operating activities:
Accounts receivable – trade		(313,492	)		(62,668	)
Accounts receivable – other		14,574			(36,887	)
Inventories		(4,488	)		12,998
Other current assets		(74,383	)		(55,863	)
Accounts payable – trade		(12,617	)		(57,533	)
Accounts payable – other		(296,965	)		(287,073	)
Withholdings		2,405			2,054
Advance receipts		(19,214	)		(2,788	)
Accrued expenses		256,585			88,402
Income taxes payable		(69,273	)		234,990
Payment of severance benefits		(61,883	)		(29,025	)
Severance benefits insurance deposit		(77,840	)		(19,835	)
Others, net		(114,108	)		(52,153	)
Sub-total		(770,699	)		(265,381	)
Net Cash Provided by Operating Activities		1,876,413			2,560,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash inflows from investing activities:
Collection of short-term loans		83,056			89,543
Disposal of available-for-sale securities		2,457			13,156
Decrease in equity securities of affiliates		64,240			68,030
Collection of long-term loans		16,966			7,864
Increase in other investment assets		208			—
Disposal of property and equipment		97,646			56,673
Sub-total		264,573			235,266
Cash outflows for investing activities:
Increase in short-term financial instruments		(91,297	)		(57,509	)
Increase in short-term loans		—			(2,084	)
Acquisition of available-for-sale securities		—			(1,500	)
Acquisition of equity securities of affiliates		(9,008	)		(361,700	)
Acquisition of property and equipment		(1,352,727	)		(1,375,730	)
Acquisition of intangible assets		(76,427	)		(53,731	)
Sub-total		(1,529,459	)		(1,852,254	)
Net Cash Used in Investing Activities		(1,264,886	)		(1,616,988	)

(Continued)

KT CORPORATION

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

		September 30,
		2007				2006
		(In millions of Korean won)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash inflows from financing activities:
Issuance of bonds			324,144				183,478
Increase in long-term debt			12,918				1,920
Sub-total			337,062				185,398
Cash outflows for financing activities:
Repayment of long-term debt			(553,533	)			(793,160	)
Payment of dividends			(416,190	)			(426,113	)
Purchase of treasury stock			(91,517	)			(213,664	)
Other, net			(18,768	)			(6,079	)
Sub-total			(1,080,008	)			(1,439,016	)
Net Cash Used in Financing Activities			(742,946	)			(1,253,618	)
NET DECREASE IN CASH AND CASH EQUIVALNETS			(131,419	)			(310,153	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,036,765				1,043,780
CASH AND CASH EQUIVALENTS AT END OF PERIOD		(Won)	905,346			(Won)	733,627

See accompanying notes to non-consolidated financial statements.

KT CORPORATION

NON-CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(Unaudited)

		Common stock			Capital surplus				Capital adjustments			Other comprehensive income				Retained earnings				Total
		(In millions of Korean won)
Balance as of January 1, 2007 (as reported)		(Won)	1,560,998		(Won)	1,440,910			((Won)3,817,717	)		(Won)	10,978			(Won)	9,353,911			(Won)	8,549,080
Dividends			—			—			—				—				(416,191	)			(416,191	)
Retained earnings after appropriations																	8,937,720				8,132,889
Purchase of treasury stock			—			—			(91,517	)			—				—				(91,517	)
Retirement of treasury stock			—			—			91,517								(91,517	)			—
Disposal of treasury stock			—			—			884				—				—				884
Loss on disposal of treasury stocks			—			(133	)		—				—				—				(133	)
Stock options			—			—			25				—				—				25
Stock grants			—			—			767				—				—				767
Unrealized gain on valuation of available-for-sale securities, net			—			—			—				(348	)			—				(348	)
Other changes in equity of affiliates, net			—			—			—				(51	)			—				(51	)
Gain on valuation of derivatives, net			—			—			—				2,285				—				2,285
Net income			—			—			—				—				852,769				852,769
Balance as of September 30, 2007		(Won)	1,560,998		(Won)	1,440,777			((Won)3,816,041	)		(Won)	12,684			(Won)	9,698,972			(Won)	8,897,570

See accompanying notes to non-consolidated financial statements.

KT CORPORATION

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS

KT Corporation (the “Company”) commenced operations on January 1, 1982 through the segregation of specified operations from the Korean Ministry of Information and Communication (the “MIC”) for the purpose of contributing to the convenience in national life and improvement of public welfare through rational management of the public telecommunications business and improvement of telecommunications technology under the Korea Telecom Act.

Upon the announcements of the Government-Invested Enterprises Management Basic Act and the Privatization Law, as of October 1, 1997, the Company became a government invested institution regulated by the Korean Commercial Code and the Company’s shares were listed on the Korea Exchange (formerly “Korea Stock Exchange”) on December 23, 1998. The Company issued 24,282,195 additional shares on May 29, 1999 and issued American Depository Shares (“ADS”), representing these new shares and government-owned shares on the New York Stock Exchange and the London Exchange. On July 2, 2001, additional ADS representing 55,502,161 government-owned shares were issued.

The Korean government gradually reduced its ownership interest in the Company since 1993 and completed the disposal of all of its equity interests in the Company on May 24, 2002. On March 22, 2002, the Company changed its name from Korea Telecom Corp. to KT Corporation.

In recent years, the Company has been subject to increasing competition as a result of the government’s issuance of additional licenses to create competition in the telecommunications market and to foster new telecommunication business areas. Additionally, in June 1997, the MIC awarded a license to a second carrier to provide local telephone service. This new carrier commenced operations in 1999. A third carrier commenced international long-distance service in 1997 and domestic long-distance service in 1999. The entry of these new carriers into the local and long-distance telephone service markets has had, and is expected to continue to have a negative impact on the Company’s telephone service revenues and profitability.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English with certain expanded descriptions from the Korean language financial statements. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations or cash flows, is not presented in the accompanying non-consolidated financial statements.

b. Adoption of Statements of Korea Accounting Standards (“SKAS”)

The accompanying non-consolidated financial statements of the Company have been prepared in accordance with Statements of Korea Accounting Standards (“SKAS”). On January 1, 2007, the Company adopted SKAS No.11 (“Discontinuing Operations”), No.21 (“Preparation and Presentation of Financial Statements I”), No.22 (“Shared-based Payment”), No.23 (“Earnings Per Share”) and No.24 (“Preparation and Presentation of Financial Statements II—Financial Industry”) which are effective as of January 1, 2007. As a result of adopting SKAS No.21 (“Preparation and Presentation of Financial Statements I”) the accompanying non-consolidated balance sheet as of December 31, 2006 and the related non-consolidated statements of income and cash flows for the three months and nine months ended September 30, 2006 are reclassified. However, as allowed by the transition clause of SKAS No.21, the Company only stated the statement of changes in equity for the nine months ended September 30, 2007. In addition, as the Company early adopted the amended SKAS No.2 (“Interim Financial Reporting”), the Company only presented the statements of cash flows and changes in equity for the nine months ended September 30, 2007. Such adoption of SKASs did not have a material effect on the non-consolidated financial position of the Company as of December 31, 2006 and operating income and net income for the three months and nine months ended September 30, 2006.

Significant accounting policies followed by the Company in preparing the accompanying non-consolidated financial statements are summarized as follows:

c. Revenue Recognition

The Company’s service revenues, which include revenues derived from telephone services, internet services and data services, are recognized on a service-rendered basis. In connection with such services, the MIC and other government entities have extensive authority to regulate the Company’s fees. The MIC has responsibility for approving rates for local service and interconnection and broadband internet access services provided by the Company. The Company has responsibility for setting rates for domestic long-distance service, international long-distance service and other services without approval from the MIC, but such rates must be reported to the MIC.

The Company recognizes sales on PCS handsets when these are delivered to the dealers. In addition, the Company’s construction revenue is recognized by calculating the ratio of the actual contract costs incurred to date to the estimated total contract costs. For subscribed construction-type contracts, the Company recognizes revenue using the percentage-of-completion method only for the subscribed portion for which a signed written agreement exists. Meanwhile, the Company recognizes sales revenues on a gross basis when the Company is the primary obligor in the transactions with customers and if the Company merely acts as an agent for the buyer or seller from whom it earns a commission, then the sales revenues are recognized on a net basis.

d. Cash Equivalents

Cash equivalents are highly liquid investments, which are readily convertible without significant transaction cost and do not have significant risk of changes in interest rates, with original maturities of three months or less.

e. Financial Instruments

Short-term financial instruments are financial instruments handled by financial institutions which are held for short-term cash management purposes, maturing within one year. Such investments include time deposits and certificates of deposits.

f. Allowance for Doubtful Accounts

The Company determines the allowance for doubtful accounts receivable based on the estimated collectibility of individual accounts and historical bad debt experience.

g. Inventories

Inventories, which consist mainly of supplies for telecommunication facilities and PCS handsets for sales, are stated at the lower of cost or market value, with cost determined using the moving average method, except for goods-in-transit and land for construction for which cost are determined using the specific identification method. The Company maintains perpetual inventory systems, which are adjusted to physical inventory counts performed at fiscal year end. When the market value of inventories is less than the acquisition cost, the carrying amount is reduced to the market value and any difference is charged to current operations as operating expenses.

h. Securities (excluding securities accounted for using the equity method of accounting)

Debt and equity securities are classified into trading, available-for-sale and held-to-maturity securities depending on the acquisition purpose and nature.

Debt securities whose payment terms for principal and interest are fixed or determinable by a contract and for which the management has an intent and an ability to hold until maturity are classified as held-to-maturity securities under non-current assets. Meanwhile, debt and equity securities bought and held for the purpose of selling them in the near term are classified as trading securities, and securities that do not fall under the classifications of trading or held-to-maturity securities are categorized as available-for-sale securities under non-current assets.

Debt and equity securities are initially stated at their acquisition costs (fair value of considerations paid) including incidental cost incurred in connection with acquisition of the related securities using the weighted average method. Held-to-maturity securities are recorded at their amortized cost while, trading and available-for-sale securities are recorded at fair value. However, available-for-sale equity securities, of which fair value cannot be reliably measured, are recorded at cost.

Debt and equity securities that have quoted market prices in an active trading market are accounted for at quoted market price, which is measured as the closing price as of the balance sheet date.

The fair value of available-for-sale debt securities without quoted market price is estimated by discounting the expected future cash flows at an interest rate commensurate with the credit rating published by independent credit rating institutions. Meanwhile, beneficiary certificates with no readily measurable fair value are recorded at fair value provided by fund-managing firms. Valuation gain or loss from trading securities is recorded in current operations.

Unrealized gain or loss from available-for-sale securities is recorded as accumulated other comprehensive income and when either the decline in fair value is not deemed recoverable or securities are disposed of, the related gain or loss is recorded in the current operations.

i. Equity Securities Accounted for Using the Equity Method

Investments in equity securities of companies, over which the Company exercises significant influence, are accounted for using the equity method. Under the equity method, the Company records changes in its proportionate equity of the book value of the investee as current operations, capital adjustments or adjustments to retained earnings, depending on the nature of the underlying changes in the investee. The Company provides for additional losses for those investments accounted for using the equity method that are reduced to zero to the extent that the Company has other investment assets related to the equity method investees.

The difference between the acquisition cost and the Company’s share of net asset fair value of the investee at the date of acquisition is amortized over the estimated useful life no longer than 20 years using the straight-line method.

In case the Company’s ownership percentage in the investee increases as a result of the investee’s changes in capital, the difference from such change is accounted for as a goodwill, whereas the Company’s ownership decreases, the difference is accounted for as disposal loss on securities. However, if equity method investees are subsidiaries, such differences in the Company’s proportionate shares in the investees are accounted for as equity in accumulated other comprehensive income of affiliates in the accumulated other comprehensive income.

Unrealized intercompany gain or loss is the amount calculated by multiplying the Company’s ownership percentage of the equity method investees to the total amount of gains or losses arising from transactions between the Company and the equity method investees., the portion of the calculated amount that continues to be reflected in the carrying amount of the investees investment held as of the balance sheet date. Unrealized gains shall be accounted for as a reduction of the carrying amount of the investment in the equity method investees, while unrealized losses shall be added to the carrying amount of the investment in the equity method investees

KT Freetel Co., Ltd (“KTF”) and other equity method investees, depreciate their machinery and equipment by the straight-line method in accordance with Korean GAAP considering the attributes and nature of the underlying assets. Accordingly, the Company does not conform the depreciation method of those investees to the declining-balance method used by the Company.

In translating the foreign currency statements of the Company’s investees operating overseas, the Company applies (a) the foreign exchange rate at the balance sheet date to the investee’s balance sheet items (except historical rates applied for stockholders’ equity), and (b) the average foreign exchange rate for the current period for income statement items. After translating the balance sheet and income statement items as noted above, the Company’s portion of the amount after deducting the translated total liabilities from translated total assets and equity is recorded as equity in other stockholders’ equity of affiliates in the accumulated other comprehensive income.

j. Property and Equipment

Property and equipment are stated at cost. Improvements that significantly extend the useful life of an asset or add to its productive capacity are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Property and equipment contributed by the government on January 1, 1982 are stated at net revalued amounts.

The Company also recognizes interest costs and other financial charges on borrowings associated with the production, acquisition, or construction of property and equipment as an expense in the period in which they are incurred.

Depreciation is computed by the declining-balance method (except for buildings, structures, underground access to cable tunnels, and concrete and steel telephone poles that are depreciated using the straight-line method) based on the following estimated useful lives of the related units of property and equipment:

		Estimated useful lives (years)
Buildings and structures		5-60
Machinery and equipment:
Underground access to cable tunnels, and concrete and steel telephone poles		20-40
Other		3-15
Vehicles		6
Tools, furniture and fixtures:
Tools, computer equipment and furniture and fixtures		4-20

Contributions received from governmental and related entities for capital expenditures are reflected as a reduction from the acquisition cost of the acquired assets and, accordingly, reduce depreciation expense related to the acquired assets over their useful lives.

The Company tests for the impairment of property and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future net cash flows expected to result from the use of the asset are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.

k. Accounting for Leases

Lease agreements that include a bargain purchase option, result in the transfer of ownership at the end of the lease term, have a lease term equal to 75% or more of the estimated economic life of the leased property or where the present value of minimum lease payments equals or exceeds 90% of the fair value of the leased property, are accounted for as capital leases. All other leases are accounted for as operating leases.

Assets and liabilities related to capital leases are recorded as property and equipment and obligations under capital leases, respectively, and the related interest is calculated using the effective interest rate method and charged to other expenses. For operating leases, the future minimum lease payments are expensed ratably over the lease term.

l. Intangible Assets

Intangible assets are stated at acquisition cost plus other indirect costs when it becomes available for use and are amortized using the straight-line method. The Company amortizes intangible assets in connection with monopolistic and exclusive rights to control buildings and facilities utilization and copyrights over the period of 30 or 50 years based on the related contract or related laws.

Intangible assets are amortized based on the following estimated useful lives:-

				Estimated useful lives (years)
Research and development cost				3 - 6
Software				6
Industrial rights				5 - 10
Frequency usage rights				5.5 from the date of service commencement
Other intangible assets		Building rights		10 - 20
		Facilities rights		10 - 50
		Copyrights		50

(i) Research and Development Costs

The Company charges research and development costs to expense as incurred. However, the costs which are recoverable from future earnings are deferred and amortized over their estimated useful lives. In addition, internal software development costs, after technological feasibility has been established, such as those associated with Integrated Customer Information System (ICIS), Broadband Integrated Services Digital Network (B-ISDN) and Enterprise Resource Planning (ERP), are accounted for as intangible assets.

(ii) Frequency Usage Rights

The Company paid (Won)125,800 million for Wireless Broadband (“WiBro”) portable internet frequency usage rights and a license to operate the WiBro business in the Republic of Korea from the MIC during 2005. The rights have a contractual life of 7 years from the grant date and are amortized for the remaining contractual life commencing on June 30, 2006 when commercial service was initiated.

The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets.

m. Income Taxes

Income tax expense or benefit on earnings includes both current and deferred taxes. Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the balance sheet date. Deferred income tax is provided using the asset and liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax assets and liabilities are measured using tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period of the enactment.

A deferred income tax asset is recognized only to the extent that it is almost certain that such deferred income tax asset is recoverable in a future period. Deferred income tax assets are reduced to the extent that it is no longer almost certain that the related tax benefit will be realized. However, with the early adoption of KAI (Korea Accounting Institute) Opinion 06-2 “Deferred Income Taxes on Investments in Subsidiaries, Associates and Interests in Joint Ventures” in 2006, evaluation of tax benefit, if any, for subsidiaries and affiliates is based on the net deferred income tax asset or liability of all temporary differences arising from the same affiliate rather than on an individual basis. As a result, the accompanying non-consolidated statements of income for the three months and nine months ended September 30, 2006 were restated and net income for the periods increased by (Won)15,443 million and (Won)28,147 million, respectively.

Deferred income taxes are recognized on the temporary differences related to unrealized gains and losses on investment securities that are reported as a separate component of stockholders’ equity.

Deferred income tax assets and liabilities are classified as current or non-current based on the classification of the related asset or liability for financial reporting or the expected reversal date of the temporary difference. The deferred income tax amounts are presented as a net current asset or liability and a net non-current asset or liability, as appropriate.

n. Exchangeable Bonds

Effective January 1, 2003, the Company adopted SKAS No. 9, (“Convertible Securities”) which requires the separate recognition of the capital features. However, as allowed by the transition clause of the statement, the Company recorded the exchangeable bonds issued prior to the effective date as a single accounting unit. Meanwhile, the exchangeable bonds were fully redeemed by the Company on December 29, 2006.

o. Accrued Severance Indemnities

Employees who have been with the Company for more than one year are entitled to lump sum payments based on current salary rates and length of service when they leave the Company. The Company’s estimated liability under the plan which would be payable if all employees left on the balance sheet date is accrued in the accompanying non-consolidated balance sheets. A portion of the liability is covered by an employees’ severance pay insurance where the employees have a vested interest in the deposit with the insurance company. The deposit for severance benefit insurance is, therefore, reflected in the accompanying non-consolidated balance sheets as a deduction from the accrual for retirement and severance benefits.

p. Discounts on Bonds Payable

Discounts on bonds are amortized over the redemption period of the bonds using the effective interest rate method. Amortization of discounts is recognized as interest expense.

q. Provision and Contingent Liabilities

The Company recognizes a provision for a liability with uncertain timing or amount when (1) there is a present obligation as a result of a past event, (2) it is highly likely that an outflow of resources will be required to settle the obligation, and (3) the amount for the settlement of the obligation can be reliably measurable.

If there is a material difference between the nominal value and present value of such provision, the provision is stated at the present value of the expenditures expected to be required to settle the obligation.

r. Translation of Assets and Liabilities Denominated in Foreign Currency

Transactions denominated in foreign currencies are recorded in Korean won translated at the exchange rate prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the base rates announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates. Gains or losses arising from the settlement of foreign currency transactions and the translation of foreign currency assets and liabilities are charged or credited to current operations.

s. Derivative Instruments

The Company records rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. The gains and losses that result from the change in the fair value of derivative instruments are reported in current operations. However, changes in fair value of derivatives designated as effective cash flow hedges are recorded in net unrealized gain or loss on derivatives, a separate component of accumulated other comprehensive income(loss). Amounts are reclassified immediately to operations from accumulated other comprehensive income(loss) when the underlying hedged item impacts operations.

t. Share-based Payment

The Company adopted the fair value based method of accounting for its share-based payment arrangements in accordance with SKAS No. 22 (“Share-based Payment”) which is effective from December 31, 2006, which is applicable to share-based payment arrangements made in annual periods beginning after 31 December 2006. As allowed in the transition clause of SKAS No. 22, for employee stock options granted before January 1, 2007, the Company accounts for share-based payment in accordance with SKAS interpretation No. 39-35 (“Accounting for Share-based Payment”).

(i) Stock options

The Company granted stock options to its executive officers and directors prior to January 1, 2007, and for equity-settled stock options, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding credit to the capital adjustment account. When the options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustment account and the par value of the new shares issued, is recorded as additional paid-in capital. In the event the Company grants stock options based on cash-settled share-based payment, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding liability recorded.

When stock options are forfeited because the specified vesting requirements are not satisfied, previously recognized compensation costs are reversed to earnings and the corresponding capital adjustments or liabilities are reversed as well. When stock options expire unexercised, previously recognized compensation costs and corresponding capital adjustments are reversed to capital surplus.

(ii) Share-based payment

Share-based payment granted after January 1, 2007 are measured as below:

For equity-settled share-based payment transactions, the Company measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the Company measures the value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

For cash-settled share-based payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Company re-measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in value recognized in profit or loss for the period.

For share-based payment transactions in which the terms of the arrangement provide either the Company or the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company is required to account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.

u. Present Value Discount for Assets and Liabilities

Long-term accounts receivable arising from long-term contracts are recorded at the net present value of future cash flows, calculated using the effective interest rate at the time of the contract execution. The difference between the nominal value and the present value of these accounts receivable is amortized over the contract period using the effective interest rate method. The amortization is recorded as interest income.

v. Use of Estimates

The preparation of non-consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea requires management to make estimates and assumptions that affect the amounts reported in the non-consolidated financial statements and related notes. Those estimates are subject to changes to new information, circumstance and learning experience, and accordingly actual results could differ from those estimates.

w. Reclassifications of Prior Year Financial Statements

Certain reclassifications have been made in prior year financial statements to conform to classifications used in the current period. Such reclassifications did not have an effect on the net asset of the Company as of December 31, 2006, or net income of the Company for the three or nine months ended September 30, 2006.

3. CASH AND CASH EQUIVALENTS AND SHORT-TERM FINANCIAL INSTRUMENTS

Short-term financial instruments and cash and cash equivalents as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007			December 31, 2006
Cash and cash equivalents:
Cash		(Won)	1,565		(Won)	1,424
Passbook accounts			2,278			1,471
Foreign currency deposits			13,764			18,265
Cash in-transit			572,984			340,836
Money market deposit accounts			53,878			207,900
Cash management accounts			—			50,000
Money market fund			877			1,359
Money market trust			50,000			270,417
Money in trust account			100,000			65,004
Repurchase agreements (RPs)			—			50,086
Beneficiary certificate			110,000			30,003
Total		(Won)	905,346		(Won)	1,036,765

		September 30, 2007			December 31, 2006
Short-term financial instruments:
Time deposits		(Won)	30,000		(Won)	90,000
Certificates of deposit (CD)			140,000			30,000
Money trust accounts			40,000			—
Other			1,861			563
Total		(Won)	211,861		(Won)	120,563

4. RESTRICTED DEPOSITS

Details of restricted deposits as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007			December 31, 2006			Description
Short-term financial instruments		(Won)	1,861		(Won)	563		Restricted for research and development

5. INVENTORIES

Inventories as of September 30, 2007 and December 31, 2006 are summarized as follows (in millions of Korean won):

		September 30, 2007				December 31, 2006
Merchandise		(Won)	88,295			(Won)	87,554
Less: Valuation allowance			(17,784	)			(24,961	)
Supplies			13,238				12,324
Land for construction			12,913				18,065
Total		(Won)	96,662			(Won)	92,982

6. AVAILABLE-FOR-SALE SECURITIES

Investment in securities as of September 30, 2007 and December 31, 2006 are summarized as follows (in millions of Korean won):

a. Equity securities

		Percentage of ownership (%)				Amount
		September 30, 2007		December 31, 2006		September 30, 2007			December 31, 2006
Investment assets:
K-3-I Co., Ltd.		12.50		12.50		(Won)	300		(Won)	300
Korea Information Certificate Authority, Inc.		9.27		9.27			2,000			2,000
Polytech Adventure Town, Inc.		6.67		6.67			200			200
ICO Global Communications Ltd.		0.18		0.18			—			—
Daegu Football Club		1.84		1.84			300			300
Kookmin Credit Information Inc.		6.42		8.30			—			—
Solitech Co., Ltd.		4.74		4.74			6,160			6,640
Samjin Information & Communications Co., Ltd.		0.02		0.02			15			15
Korea Software Financial Cooperative		1.36		1.36			1,000			1,000
Russia-Japan-Korea Cable System		10.00		10.00			—			—
Information and Communication Financial Cooperative		0.01		0.01			16			16
Korea Electric Engineers Association		0.12		0.12			20			20
Binext CT Financial Cooperative		15.00		15.00			1,500			1,500
Korea Specialty Contractor Financial Cooperative Fund		0.00		0.0			61			61
MBC-ESS sports Co., Ltd.		8.96		0.0			1,800			—
Amicus Wireless		4.43		0.0			960			—
KBSN Co., Ltd.		5.83		0.0			950			—
Neoffice Co., Ltd.		13.04		0.0			—			—
Opensolution Co., Ltd.		8.97		0.0			—			—
ZMOS Technology, Inc.		2.87		0.0			1,872			—
IJAK S & C Co., Ltd.		14.29		0.0			50			—
Total						(Won)	17,204		(Won)	12,052

Investments in equity securities above, except those in Solitech Co., Ltd., do not have readily determinable fair values and therefore are stated at cost. In addition, if the estimated recoverable amount of the securities below their acquisition cost and such difference is not deemed recoverable, write-downs of the individual securities are recorded to reduce the carrying value. The related write-downs are recorded in current operations as a loss on impairment of investment securities.

b. Changes in unrealized gains (losses)

Changes in unrealized gains (losses) on available-for-sale securities for the nine months ended September 30, 2007 and the year ended December 31, 2006 are summarized as follows (in millions of Korean won):

		September 30, 2007 (9 months)				December 31, 2006 (12 months)
Beginning balance		(Won)	6,050			(Won)	—
Changes in unrealized gains and losses, net			(480	)			6,050
Net balance at end of period			5,570				6,050
Income tax effect			(1,532	)			(1,664	)
Balance at end of period, net of tax		(Won)	4,038			(Won)	4,386

7. INVESTMENT SECURITIES USING THE EQUITY METHOD

Investments in affiliated companies accounted for using the equity method as of September 30, 2007 and December 31, 2006, are summarized as follows (in millions of Korean won):

		Percentage of ownership (%)				September 30, 2007						December 31, 2006
		September 30, 2007		December 31, 2006		Net asset			Book value			Net asset			Book value
Listed:
KT Freetel Co., Ltd. (“KTF”)(*)		52.38		52.19		(Won)	2,285,146		(Won)	2,673,544		(Won)	2,249,264		(Won)	2,765,135
KT Hitel Co., Ltd. (“KTH”)		65.94		65.94			108,806			109,208			106,809			107,453
KT Submarine Co., Ltd. (“KTSC”)		36.92		36.92			22,663			22,663			18,686			18,686
Olive Nine Co., Ltd. (**) (*****)		19.20		19.68			4,206			19,298			4,245			22,000
Mongolian Telecommunications (“MTC”)		40.00		40.00			9,588			9,588			9,321			9,321
Unlisted:
KT Powertel Co., Ltd. (“KTP”)		44.85		44.85			29,030			29,030			27,653			27,653
KT Networks Corporation (“KTN”)		100.00		100.00			48,371			48,358			50,858			50,840
KT Rental Co., Ltd. (“KTR”)		100.00		100.00			47,484			47,443			40,623			40,535
KT Linkus Co., Ltd. (“KTL”)		93.82		93.82			9,555			9,371			7,323			6,875
KT Commerce, Inc. (“KTC”) (***)		19.00		19.00			1,038			991			929			862
KTF Technologies, Inc. (“KTFT”) (***)(****)		3.85		—			1,969			1,629			—			—
Korea Telecom America, Inc. (“KTAI”)		100.00		100.00			2,922			2,922			2,806			2,806
KT China Co., Ltd. (“KTCC”)		100.00		100.00			565			565			813			813
New Telephone Company (“NTC”)		79.96		79.96			114,342			114,342			93,581			93,581
Korea Telephone Directory Co., Ltd. (“KTD”)		34.00		34.00			8,078			8,078			7,867			7,867
Pivotec Co., Ltd.		—		15.60			—			—			6,299			6,299
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc”)		20.17		27.95			8,497			8,497			9,204			9,204
eNtoB Corp. (***)		15.63		15.63			3,616			3,616			3,363			3,363
KBSi Co., Ltd.		32.38		32.38			3,256			3,256			2,810			2,810
Goodmorning F Co., Ltd. (**)		19.00		19.00			972			972			826			826
KT Realty Development and Management Co., Ltd. (“KTRDM”) (**)		19.00		19.00			2,728			2,728			2,375			2,375
Korea Information Data Corp. (“KID”) (**)		19.00		19.00			13,600			13,600			12,230			12,230
Korea Information Service Corp. (“KIS”) (**)		19.00		19.00			10,228			10,228			8,382			8,382
KT Internal Venture Fund No. 2		94.34		94.34			5,220			5,220			5,144			5,144
Korea Telecom Venture Fund No. 1		—		70.00			—			—			12,862			12,862
Korea Information Technology Fund		23.33		23.33			73,004			73,004			71,128			71,128

		Percentage of ownership (%)				September 30, 2007							December 31, 2006
		September 30, 2007		December 31, 2006		Net asset				Book value			Net asset				Book value
Unlisted: (Continued)
Sky Life Contents Fund		22.50		22.50		(Won)	4,973			(Won)	4,973		(Won)	5,050			(Won)	5,050
Sidus FNH Co.		35.70		35.70			6,326				15,140			6,101				16,949
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)		24.46		24.46			(3,050	)			21,538			(16,958	)			16,455
Mostech Co., Ltd. (**)		17.93		17.93			189				3,081			715				4,186
Telecop Service Co., Ltd. (“TSC”)		93.82		93.82			20,755				20,755			24,810				24,810
Sidus FNH Benex Cinema (***)		13.33		13.33			4,083				4,083			4,013				4,013
KT Capital Co., Ltd.		100.00		100.00			99,761				99,761			99,573				99,573
KT FDS Co., Ltd. (formerly “Korea FDS Co., Ltd.”) (†)		100.00		—			2,937				8,132			—				—
Korea Seoul Contact all Co., Ltd. (**)		19.00		19.00			251				251			228				228
Korea Service and Communication Co., Ltd. (**)		19.00		19.00			274				274			228				228
Korea Call Center Co., Ltd. (**)		19.00		19.00			273				273			228				228
TMworld Co., Ltd. (**)		19.00		19.00			260				260			228				228
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (**)		19.00		19.00			241				241			228				228
Korea Telecom Philippines, Inc. (“KTPI”) (‡)		100.00		100.00			(108,242	)			—			(81,027	)			—
Korea Telecom Japan Co., Ltd. (“KTJ”)		100.00		100.00			541				541			(76	)			—
Total						(Won)	2,844,456			(Won)	3,397,454		(Won)	2,798,742			(Won)	3,461,226

(*) KTF purchased 705,000 shares of treasury stock for retirement by a charge against its retained earnings. As a result, the Company’s equity ownership interest in KTF increased from 52.19% as of December 31, 2006 to 52.38% as of September 30, 2007, and accordingly the Company recognized (Won)2,584 million in other changes in equity of affiliates.

(**) Although the Company’s ownership in these companies is less than 20%, the Company has significant influence over these affiliated companies through the participation in these companies’ various management decisions. As a result, the Company accounts for these investments in affiliated companies using the equity method.

(***) Although the Company’s ownership in these companies is less than 20%, the ownership percentages including subsidiaries’ ownership in these affiliated companies are over 20%. As a result, the Company accounts for these investments in affiliated companies using the equity method.

(****) During the nine months ended September 30, 2007, the Company received 56,000 shares of KTFT amounting to (Won)9,008 million in relation to the liquidation of Korea Telecom Venture Fund No. 1.

(*****) During the nine months ended September 30, 2007, Olive Nine Co., Ltd., issued new shares due to the exercise of stock options by Olive Nine Co., Ltd.’s employees and the conversion of convertibles bonds. As a result, the Company’s ownership interest in Olive Nine Co., Ltd. as of September 30, 2007 has decreased from 19.68% to 19.20%, and the Company recognized (Won)203 million in other changes in equity of affiliates.

(†) During the nine months ended September 30, 2007, the Company purchased 400,000 shares (a 100% equity ownership interest) of KT FDS Co., Ltd.(formerly “Korea FDS Co., Ltd), for (Won)9,008 million.

(‡) On October 25, 2007, the liquidation of KTPI was approved by the Company’s board of directors.

Details of valuation using the equity method for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)
		January 1, 2007			Equity in earnings (losses)				Other comprehensive income				Other increase (decrease)				September 30, 2007
KTP		(Won)	27,653		(Won)	1,377			(Won)	—			(Won)	—			(Won)	29,030
KTN			50,840			(2,482	)			—				—				48,358
KTL			6,875			2,496				—				—				9,371
KTH			107,453			1,769				(14	)			—				109,208
KTSC			18,686			4,322				(345	)			—				22,663
KTF			2,765,135			(27,729	)			(2,584	)			(61,278	)			2,673,544
KTC			862			133				(4	)			—				991
KTFT			—			1,263				—				366				1,629
KTAI(*)			2,806			145				(29	)			—				2,922
KTCC (*)			813			(271	)			23				—				565
NTC(*)			93,581			15,516				7,150				(1,905	)			114,342
KTD (*)			7,867			212				(1	)			—				(8,078	)
Pivotec Co., Ltd. (†)			6,299			37				(987	)			(5,349	)			—
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc”) (*)			9,204			(389	)			231				(549	)			8,497
eNtoB Corp.(*)			3,363			253				—				—				3,616
KBSi Co., Ltd.(*)			2,810			446				—				—				3,256
Goodmorning F Co., Ltd. (*)			826			146				—				—				972
KTRDM (*)			2,375			353				—				—				2,728
KID(*)			12,230			1,522				—				(152	)			13,600
KIS(*)			8,382			1,960				—				(114	)			10,228
Mostech Co., Ltd. (*)			4,186			(1,105	)			—				—				3,081
MTC (*)			9,321			1,100				(247	)			(586	)			9,588
KT Internal Venture Fund No. 2 (*)			5,144			76				—				—				5,220
Korea Telecom Venture Fund No. 1 (*)			12,862			(296	)			(18	)			(12,548	)			—
KITF(*)			71,128			2,362				(281	)			(205	)			73,004
Sky Life Contents Fund(*)			5,050			(77	)			—				—				4,973
KTR			40,535			6,908				—				—				47,443
Sidus FNH Co.(*)			16,949			(1,815	)			6				—				15,140
TSC			24,810			(4,055	)			—				—				20,755
Sidus FNH Benex Cinema Investment Fund (*)			4,013			70				—				—				4,083
KT Capital Co., Ltd.			99,573			69				119				—				99,761
Olive Nine Co., Ltd.(*)			22,000			(2,938	)			236				—				19,298
KDB (*)			16,455			5,235				(152	)			—				21,538
KT FDS Co., Ltd. (formerly, “Korea FDS Co., Ltd.”)(*)			—			(876	)			—				9,008				8,132
Korea Seoul Contact all Co., Ltd. (*)			228			23				—				—				251
Korea Service and Communication Co., Ltd. (*)			228			46				—				—				274
Korea Call Center Co., Ltd. (*)			228			45				—				—				273
TMworld Co., Ltd. (*)			228			32				—				—				260
UMS&C (*)			228			13				—				—				241
KTPI (*) (**)			—			—				—				—				—
KTJ (*)			—			368				173				—				541
		(Won)	3,461,226		(Won)	6,264			(Won)	3,276				((Won)73,312	)		(Won)	3,397,454

		December 31, 2006 (12 months)
		January 1, 2006			Equity in earnings (losses)				Other comprehensive income				Other increase (decrease)				December 31, 2006
KTP		(Won)	36,065			((Won)8,412	)		(Won)	—			(Won)	—			(Won)	27,653
KTN			46,452			4,388				—				—				50,840
KTR			44,430			(2,895	)			—				(1,000	)			40,535
KTL			29,278			4,047				(91	)			(26,359	)			6,875
KTH			106,134			(101	)			1,420				—				107,453
KTSC			21,561			(2,543	)			(332	)			—				18,686
KTF			2,556,725			18,794				(114,182	)			303,798				2,765,135
KTC			243			611				8				—				862
KTAI			2,941			110				(245	)			—				2,806
KTCC			827			29				(43	)			—				813
NTC			73,870			15,997				5,910				(2,196	)			93,581
KTD			6,410			1,456				1				—				7,867
Pivotec Co., Ltd.			3,165			(462	)			3,596				—				6,299
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc”).			8,891			645				(332	)			—				9,204
eNtoB Corp.			3,150			213				—				—				3,363
KBSi Co., Ltd.			2,638			174				(2	)			—				2,810
Goodmorning F Co., Ltd.			508			315				3				—				826
KTRDM			1,978			530				—				(133	)			2,375
KID			10,706			1,676				—				(152	)			12,230
KIS			6,803			1,693				—				(114	)			8,382
KTICC			413			34				—				(447	)			—
Bank Town Co., Ltd.			572			—				7				(579	)			—
MTC			8,586			1,647				(330	)			(582	)			9,321
KT Internal Venture Fund No. 1			15,012			(2,076	)			(6,967	)			(5,969	)			—
KT Internal Venture Fund No. 2			5,164			(20	)			—				—				5,144
Korea Telecom Venture Fund No. 1(‡)			14,105			(1,360	)			117				—				12,862
KITF			72,002			(876	)			266				(264	)			71,128
Sky Life Contents Fund			4,915			135				—				—				5,050
Sidus FNH Co.			19,599			(2,650	)			—				—				16,949
KDB			28,169			(11,803	)			89				—				16,455
Mostech Co., Ltd.			—			(972	)			—				5,158				4,186
TSC			—			(1,692	)			143				26,359				24,810
Sidus FNH Benex Cinema Investment Fund			—			13				—				4,000				4,013
KT Capital Co., Ltd.			—			30				(1,457	)			101,000				99,573
Olive Nine Co., Ltd.			—			—				—				22,000				22,000
Korea Seoul Contact all Co., Ltd.			—			—				—				228				228
Korea Service and Communication Co., Ltd.			—			—				—				228				228
Korea Call Center Co., Ltd.			—			—				—				228				228
TMworld Co., Ltd.			—			—				—				228				228
UMS&C			—			—				—				228				228
KTPI(*)(**)			—			—				—				—				—
KTJ(*)			—			—				—				—				—
		(Won)	3,131,312		(Won)	16,675				((Won)112,421	)		(Won)	425,660			(Won)	3,461,226

(*) These securities were accounted for using the equity method of accounting based on unreviewed financial statements as of and for the nine months ended September 30, 2007 as the reviewed financial statements on these companies could not be obtained. In order to verify the reliability of such unreviewed financial statements, the Company has performed certain reliability check procedures on the unreviewed financial statements.

(**) The investment in KTPI’s book value is below zero due to accumulated deficit. As a result, the Company discontinued the use of the equity method of accounting.

(†) As the Company lost significant influence on investment in equity securities of Pivotec Co., Ltd., during the three months ended March 31, 2007, such securities were transferred to available-for-sale securities and during the three months ended June 30, 2007, the available-for-sale securities were disposed of and the Company recognized a loss on disposal of available-for-sale securities amounting to (Won)520 million.

(‡) Korea Telecom Venture Fund No. 1 was liquidated on August 28, 2007.

Details of changes in equity method measurements during the nine months ended September 30, 2007 and the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)												December 31, 2006 (12 months)
Affiliate		January 1, 2007			Increase			Amortized amount			September 30, 2007			January 1, 2006				Increase			Amortized (Reversed) amount				December 31, 2006
KTF		(Won)	512,625		(Won)	—		(Won)	119,179		(Won)	393,446		(Won)	695,139			(Won)	—		(Won)	182,514			(Won)	512,625
NTC			—			—			—			—			(658	)			—			(658	)			—
KDB			33,413			—			8,825			24,588			44,551				—			11,138				33,413
Sidus FNH Co.			10,848			—			2,034			8,814			13,560				—			2,712				10,848
Mostech Co., Ltd.			3,471			—			579			2,892			—				3,857			386				3,471
Olive Nine Co., Ltd.			17,755			—			2,663			15,092			—				17,755			—				17,755
KT FDS Co., Ltd.			—			5,772			577			5,195			—				—			—				—
		(Won)	578,112		(Won)	5,772		(Won)	133,857		(Won)	450,027		(Won)	752,592			(Won)	21,612		(Won)	196,092			(Won)	578,112

Details of eliminated unrealized gains (losses) from intercompany transactions as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007											December 31, 2006
Affiliate		Inventories			Property and equipment and intangible assets				Total				Inventories			Property and equipment and intangible assets				Total
KTN		(Won)	—		(Won)	13			(Won)	13			(Won)	—		(Won)	18			(Won)	18
KTL			—			184				184				—			448				448
KTH			—			(402	)			(402	)			—			(644	)			(644	)
KTF			1,755			3,293				5,048				914			(4,160	)			(3,246	)
KTFT			340			—				340				—			—				—
KTC			—			47				47				—			67				67
KTR			41			—				41				88			—				88
		(Won)	2,136		(Won)	3,135			(Won)	5,271			(Won)	1,002			((Won)4,271	)			((Won)3,269	)

Accumulated operating losses of equity method investees not reflected in equity in affiliates due to discontinuation of the equity method of accounting as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007			December 31, 2006
KTPI		((Won)108,242	)		((Won)81,027	)
KTJ		—			(76	)
Total		((Won)108,242	)		((Won)81,103	)

8. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

a. The list of subsidiaries of the Company as of September 30, 2007 is as follows:

Type of control		Subsidiaries
Direct control		KTF, KTH, KTSC, KTP, KTN, KTL, TSC, KTR, KT Capital Co., Ltd., Sidus FNH Co., Olive Nine Co., Ltd., KT FDS Co., Ltd.(formerly, “Korea FDS Co., Ltd.”), KT Internal Venture Fund No.2, Sidus FNH Benex Cinema Investment Fund, KTAI, KTPI, NTC, KTJ and KTCC
Indirect control through KTF		KTFT, KTF MHows, KTF M&S and PT.KTF Indonesia
Indirect control through KTH		KTC

c. Significant account balances which occurred in the normal course of business with affiliated companies as of September 30, 2007 and December 31, 2006 are summarized as follows (in millions of Korean won):

Related party		Balances		September 30, 2007			December 31, 2006
Subsidiary:
KTF		Receivables		(Won)	81,539		(Won)	85,421
		Payables			199,058			146,470
		Key money deposits received			23,890			29,902
KTH		Receivables			570			309
		Accrued expenses			11,188			14,775
KTN		Receivables			11,861			13,314
		Payables			14,427			49,166
KTL		Receivables			476			122
		Payables			17,939			16,925
KTFT		Receivables			1,902			22
		Payables			9,136			16,174
KTC		Receivables			3,189			3,155
		Payables			8,900			22,949
KTR		Receivables			978			42
		Payables			47,506			33,506
KTPI (*)		Receivables			14,743			14,885
Others		Receivables			5,745			7,249
		Payables			11,170			3,469

Related party		Balances		September 30, 2007			December 31, 2006
Equity method investee:
KDB		Receivables			9,813			28,678
		Payables			462			1,141
KID		Receivables			2,601			2,901
		Payables			13,060			16,136
KTRDM		Receivables			347			437
		Payables			22,459			18,789
KIS		Receivables			1,152			2,390
		Payables			10,558			11,969
Pivotec Co., Ltd. (**)		Receivables			—			1
		Payables			—			7,172
Goodmorning F Co., Ltd.		Payables			5,033			8,104
eNtoB Corp.		Payables			5,592			23,283
Korea Seoul Contact all Co., Ltd.		Payables			3,725			—
Korea Service and Communication Co., Ltd.		Payables			3,418			—
Korea Call Center Co., Ltd.		Payables			2,826			—
TMworld Co., Ltd.		Payables			2,774			—
UMS&C		Payables			2,846			—
Other		Receivables			79			35
		Payables			1,131			705
Total		Receivables		(Won)	134,995		(Won)	158,961
			Payables		(Won)	417,098		(Won)	420,635

(*) Allowance for doubtful accounts was fully provided on the Company’s accounts receivable - other from KTPI.

(**) As the Company lost significant influence on investment in equity securities of Pivotec Co., Ltd., during the three months ended March 31, 2007, such securities were transferred to available-for-sale securities and during the three months ended June 30, 2007 the available-for-sale securities were disposed.

Details of the Company’s major contracts with related parties as of September 30, 2007 are as follows:

Relationship		Company		Transactions
Direct subsidiary		KTF		Purchase of PCS network capacities for PCS service resale and other
		KTN		Purchase of network maintenance and other
		KTL		Purchase of public telephone maintenance and other
		KTH		Purchase of system integration services for wireless broadband platform and other
Indirect subsidiary through KTF		KTFT		Purchase of PCS handsets
Indirect subsidiary through KTH		KTC		Purchase of supplies related to KT mall
Equity method investee		KDB		Broadcasting equipment leases and sales
		KIS		Purchase of 114 call center operation and other
		KID		Purchase of 114 call center operation and other

c. Significant transactions which occurred in the normal course of business with related parties for the nine months ended September 30, 2007 and 2006 are summarized as follows (in millions of Korean won):

Related party		Transactions		September 30, 2007			September 30, 2006
Subsidiary:
KTF		Operating revenue		(Won)	338,114		(Won)	310,232
		Operating expense			578,254			534,555
		Interest income			146			91
KTH		Operating revenue			3,518			2,410
		Operating expense			31,508			23,809
KTN		Operating revenue			28,096			32,401
		Operating expense			97,983			106,954
		Interest income			—			10
KTL		Operating revenue			1,270			8,371
		Operating expense			63,315			72,511
KTFT		Operating revenue			2,650			1,012
		Operating expense			71,914			59,236
KTC		Operating revenue			677			739
		Operating expense			17,824			147,850
KTR		Operating revenue			1,266			2,481
		Operating expense			31,339			25,475
Other		Operating revenue			19,416			19,120
		Operating expense			17,372			6,226
Equity method investee:
KDB		Operating revenue			63,963			68,040
		Operating expense			3,703			2,831
KID		Operating revenue			9,068			9,291
		Operating expense			70,763			81,848
Goodmorning F Co., Ltd.		Operating revenue			368			339
		Operating expense			29,618			32,672
KTRDM		Operating revenue			587			487
		Operating expense			37,501			32,505
KIS		Operating revenue			13,356			12,638
		Operating expense			58,743			54,578
Pivotec Co., Ltd.		Operating revenue			—			105
		Operating expense			—			24,158
eNtoB Corp.		Operating expense			81,853			74,846
Mostech Co., Ltd.		Operating expense			7,631			—
Korea Seoul Contact all Co., Ltd.		Operating expense			23,668			—
Korea Service and Communication Co., Ltd.		Operating expense			21,648			—
Korea Call Center Co., Ltd.		Operating expense			20,631			—
TMworld Co., Ltd.		Operating expense			20,068			—
UMS&C		Operating expense			19,033			—
Other		Operating revenue			1,439			342
Total		Operating expense			1,365			2,067
		Revenues		(Won)	483,934		(Won)	468,109
		Expenses		(Won)	1,305,734		(Won)	1,282,121

d. The remuneration of directors and executive officers, who are the key management personnel of the Company, for the nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won):

		September 30, 2007			September 30, 2006			Description
Short-term employee benefits		(Won)	16,439		(Won)	12,622		Salaries, bonuses and other allowances
Share-based payment			792			815		Stock grants
Total		(Won)	17,231		(Won)	13,437

e. As of September 30, 2007, the Company has provided guarantees for the following affiliates’ indebtedness and contract performance as follows (in millions of Korean won):

Related party		Institution		Initial amount			Remaining guarantee as of September 30, 2007			Description
KTSC		Mizuho Bank Ltd., and others		(Won)	53,401		(Won)	28,934		Performance guarantee

9. PROPERTY AND EQUIPMENT

a. Changes in property and equipment for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows: (in millions of Korean won)

		September 30, 2007 (9 months)
		January 1, 2007			Acquisition cost			Disposals			Depreciation				Others(*)				September 30, 2007
Land		(Won)	1,060,530		(Won)	16		((Won)2,627)			(Won)	—			(Won)	42,425			(Won)	1,100,344
Buildings			2,913,906			21		(5,749	)			(92,988	)			46,312				2,861,502
Structures			171,845			—		(296	)			(11,800	)			6,216				165,965
Machinery			5,806,329			16,679		(49,115	)			(1,248,350	)			1,017,932				5,543,475
Vehicles			5,559			—		(35	)			(1,741	)			916				4,699
Others			182,042			21,976		(171	)			(82,756	)			49,405				170,496
Construction-in-progress			257,873			1,314,035		—				—				(1,181,246	)			390,662
		(Won)	10,398,084		(Won)	1,352,727		((Won)57,993	)			((Won)1,437,635	)			((Won)18,040	)		(Won)	10,237,143

		December 31, 2006 (12 months)
		January 1, 2006			Acquisition cost			Disposals			Depreciation				Others(*)				December 31, 2006
Land		(Won)	1,040,617		(Won)	220		((Won)9,296)			(Won)	—			(Won)	28,989			(Won)	1,060,530
Buildings			2,889,823			—		(19,574	)			(123,145	)			166,802				2,913,906
Structures			171,482			—		(713	)			(14,562	)			15,638				171,845
Machinery			5,866,420			14,351		(47,090	)			(1,819,588	)			1,792,236				5,806,329
Vehicles			7,321			868		(29	)			(3,329	)			728				5,559
Others			149,044			47,990		(1,914	)			(99,527	)			86,449				182,042
Construction-in- progress			286,816			2,110,561		—				—				(2,139,504	)			257,873
		(Won)	10,411,523		(Won)	2,173,990		((Won)78,616	)			((Won)2,060,151	)			((Won)48,662	)		(Won)	10,398,084

(*) Others mainly consist of the transfers from construction-in-progress to machinery and other accounts, and (Won)4,457million of impairment losses on property and equipment was included as well. .

10. STANDARD VALUE OF LAND

The standard value of land declared by the government as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007						December 31, 2006
		Book value			Declared value			Book value			Declared value
Metropolitan District (including the head office)		(Won)	596,525		(Won)	3,514,454		(Won)	555,567		(Won)	3,139,569
Busan District			105,207			455,950			105,286			456,528
Jeonnam District			91,991			223,557			91,766			223,924
Daegu District			117,698			317,904			119,062			300,200
Chungnam District			49,153			181,112			49,048			180,746
Jeonbuk District			48,015			113,243			48,082			115,115
Kangwon District			44,804			97,921			44,672			95,320
Chungbuk District			31,443			99,375			31,473			96,021
Jeju District			15,508			32,663			15,574			32,851
		(Won)	1,100,344		(Won)	5,036,179		(Won)	1,060,530		(Won)	4,640,274

11. INSURANCE

As of September 30, 2007, certain assets of the Company are insured with Samsung Fire and Marine Insurance Co., Ltd. and other insurance companies as follows (in millions of Korean won):

		Coverage						Risk Covered
		September 30, 2007			December 31, 2007
Inventories		(Won)	30,000		(Won)	—		Theft and fire
Buildings			836,956			683,007		Fire
Machinery			150,904			168,259		Repair
Total		(Won)	1,017,860		(Won)	851,266

12. CONTRIBUTION FOR CONSTRUCTION

Changes in contribution for construction which were used in acquisition of property and equipment for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)
		January 1, 2007			Increase			Decrease			September 30, 2007
Buildings		(Won)	2,732		(Won)	794		((Won)782	)		(Won)	2,744
Structures			1,402			286		(120	)			1,568
Machinery			98,371			33,755		(30,297	)			101,829
Others			1,490			653		(713	)			1,430
Construction-in-progress			70,163			47,795		(35,488	)			82,470
Total		(Won)	174,158		(Won)	83,283		((Won)67,400	)		(Won)	190,041
		December 31, 2006 (12 months)
		January 1, 2006			Increase			Decrease			December 31, 2006
Buildings		(Won)	2,797		(Won)	40		((Won)105	)		(Won)	2,732
Structures			520			947		(65	)			1,402
Machinery			92,232			43,596		(37,457	)			98,371
Others			1,053			1,237		(800	)			1,490
Construction-in-progress			49,615			66,368		(45,820	)			70,163
Total		(Won)	146,217		(Won)	112,188		((Won)84,247	)		(Won)	174,158

13. DEVELOPMENT COSTS

Changes in capitalized development costs for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)				December 31, 2006 (12 months)
Beginning balance		(Won)	193,544			(Won)	173,292
Increase			58,847				100,612
Amortization			(71,724	)			(79,883	)
Other changes			(150	)			(477	)
Ending balance		(Won)	180,517			(Won)	193,544

Meanwhile, the Company incurred normal research and development expenses of (Won)171,512 million and (Won)188,503 million for the nine months ended September 30, 2007 and 2006, respectively.

14. OTHER INTANGIBLE ASSETS

Changes in intangible assets (excluding capitalized development costs) for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)
		Software				Industrial rights				Frequency usage rights				Others				Total
January 1, 2007		(Won)	87,954			(Won)	4,342			(Won)	113,031			(Won)	71,911			(Won)	277,238
Increase			16,174				1,244				—				162				17,580
Amortization			(18,872	)			(726	)			(16,417	)			(8,493	)			(44,508	)
Other changes (*)			(11	)			—				—				(11,206	)			(11,217	)
September 30, 2007		(Won)	85,245			(Won)	4,860			(Won)	96,614			(Won)	52,374			(Won)	239,093
		December 31, 2006 (12 months)
		Software				Industrial rights				Frequency usage rights				Others				Total
January 1, 2006		(Won)	70,832			(Won)	4,412			(Won)	125,800			(Won)	68,762			(Won)	269,806
Increase			38,849				845				—				10,434				50,128
Amortization			(21,525	)			(915	)			(12,769	)			(6,513	)			(41,722	)
Other changes			(202	)			—				—				(772	)			(974	)
December 31, 2006		(Won)	87,954			(Won)	4,342			(Won)	113,031			(Won)	71,911			(Won)	277,238

(*) Other changes include impairment losses on intangible assets amounting to (Won)7,066 million.

15. LONG-TERM DEBT

a. Bonds

Bonds as of September 30, 2007 and December 31, 2006 are summarized as follows (in millions of Korean won):

		Interest rate per annum		Maturity date		September 30, 2007				December 31, 2006
Local currency (Won) bonds		4.22%-7.89%		2007-2015		(Won)	3,780,000			(Won)	3,990,000
Foreign currency (U.S. dollars) bonds
MTNP notes(*)		4.88%-6.50%		2014-2034			1,196,910				1,208,480
Yankee bonds		7.63%		Apr. 15, 2007			—				185,920
Yankee bonds		5.13%		Apr. 11, 2012			184,140				—
							1,381,050				1,394,400
Total							5,161,050				5,384,400
Less:
Discount on bonds							(28,638	)			(29,136	)
Current portion							(570,000	)			(685,920	)
						(Won)	4,562,412			(Won)	4,669,344

(*) As of September 30, 2007, the Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (“MTNP”), which allows issuance of notes up to USD 2,000 million in the Singapore Stock Exchange.

b. Long-term borrowings

Long-term borrowings as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		Interest rate per annum		Maturity date		September 30, 2007				December 31, 2006
Local currency long-term borrowings		2.00%-5.22%		2007-2026		(Won)	49,957			(Won)	54,652
Current portion							(20,220	)			(23,768	)
Total						(Won)	29,737			(Won)	30,884

c. Repayment schedule

Aggregate principal maturities for the Company’s long-term debt as of September 30, 2007 are as follows (in millions of Korean won):

Year ending September 30,		Bonds			Borrowings			Total
2008		(Won)	570,000		(Won)	20,220		(Won)	590,220
2009			400,000			10,855			410,855
2010			220,000			7,122			227,122
2011			1,210,000			3,940			1,213,940
2012			764,140			2,955			767,095
Thereafter			1,996,910			4,865			2,001,775
Total		(Won)	5,161,050		(Won)	49,957		(Won)	5,211,007

16. ACCRUED SEVERANCE INDEMNITIES

Changes in accrued severance indemnities for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)				December 31, 2006 (12 months)
Beginning of period		(Won)	1,235,012			(Won)	1,082,978
Provisions			257,406				210,184
Payments			(61,883	)			(58,150	)
Net balance		(Won)	1,430,535			(Won)	1,235,012

(*) The Company has deposits with insurance companies (Samsung Life Insurance Co., Ltd., and others) to fund the portion of the employees’ severance indemnities. Such deposits with outside insurance companies, where the beneficiaries are the Company’s employees, covering 68.2% and 72.7% of its obligations for severance indemnities as of September 30, 2007 and December 31, 2006 respectively, are deducted from accrued severance indemnities.

17. ACCRUED PROVISIONS

Changes in accrued provisions for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)
		January 1, 2007			Increase			Decrease			September 30, 2007
Current portion:
Litigation (*)		(Won)	4,991		(Won)	11,131		((Won)5,150	)		(Won)	10,972
KT members point (**)			1,402			461		(483	)			1,380
Provision for uncompleted System Integration (“SI”) projects (***)			—			3,823		—				3,823
Sub total			6,393			15,415		(5,633	)			16,175
Non-current portion:
Call bonus points (land line) (†)			72,693			—		(51,686	)			21,007
Call bonus points (KT PCS) (‡)			1,494			—		(826	)			668
Sub total			74,187			—		(52,512	)			21,675
Total		(Won)	80,580		(Won)	15,415		((Won)58,145	)		(Won)	37,850
		December 31, 2006 (12 months)
		January 1, 2006			Increase			Decrease			December 31, 2006
Current portion:
Litigation		(Won)	8,575		(Won)	5,870		((Won)9,454	)		(Won)	4,991
KT members point			1,399			1,537		(1,534	)			1,402
Sub total			9,974			7,407		(10,988	)			6,393
Non-current portion:
Call bonus points (land line)			59,038			20,487		(6,832	)			72,693
Call bonus points (KT PCS)			15,529			—		(14,035	)			1,494
Sub total			74,567			20,487		(20,867	)			74,187
Total		(Won)	84,541		(Won)	27,894		((Won)31,855	)		(Won)	80,580

(*) The amount recognized as the litigation provision is the best estimate of total payments required to settle the present litigation.

(**) The Company recorded provisions for the KT members’ points, for VIP customers of the fixed-line telephone and mobile telephone users who are entitled to receive certain goods and other benefits with (Won)25,000 per person maximum, from the Company.

(***) The estimated losses on the uncompleted SI projects were recognized as the provision for the nine months ended September 30, 2007.

(†) The amount recognized as the call bonus points (land line) represents the best estimate of the payments of the Company’s land line call bonus points which are provided to customers based on the usage of the services provided by the Company. Once certain criteria are met customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each balance sheet date and adjusted to reflect the current best estimate when new estimations are necessary as a result of changes in circumstances, which were used as the bases for such estimations, or an acquisition of new information or additional experience on the usage rate, the expiration of points and others. Through such new estimation, the call bonus provision totaling (Won)45,271 million was reversed for the nine months ended September 30, 2007.

(‡) The Company recorded provision for the call bonus points (KT PCS) for Let’s010 (KT-PCS) subscribers who are entitled to receive certain goods and other benefits from the Company.

18. LEASED ASSETS AND LIABILITIES

Details of capital lease and operating lease as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

a. Capital Lease

		September 30, 2007 (9 months)				December 31, 2006 (12 months)
Acquisition cost		(Won)	119,603			(Won)	85,205
Accumulated depreciation			(57,027	)			(35,613	)
Net balance		(Won)	62,576			(Won)	49,592
Depreciation			21,574				19,605

Future minimum payments per annum under the leases as of September 30, 2007 are as follows (in millions of Korean won):

Year ending September 30,		Minimum lease payment
2008		(Won)	32,143
2009			27,324
2010			18,887
2011			10,840
2012			3,350
Total
Less:			92,544
Amounts representing interest			(10,250	)
Current portion			(27,280	)
Net		(Won)	55,014

b. Operating Lease

The Company maintains operating lease agreements with KT Rental and others for vehicles and machinery. Operating lease expenses amounted to (Won)14,761 million for the nine months ended September 30, 2007. Annual future lease payments under the operating lease at September 30, 2007 are as follows (in millions of Korean won):

Year ending September 30,
2008		(Won)	26,040
2009			15,545
2010			4,835
2011			1,099
2012			391
thereafter			—
Total		(Won)	47,910

19. REFUNDABLE DEPOSITS FOR TELEPHONE INSTALLATION

Through September 15, 1998, the Company received deposits for telephone installation in accordance with the Korea Public Telecommunication Business Law. Such deposits (which are reflected as a liability) are to be refunded without interest to the telephone subscribers upon termination of service. For changes in site classifications of telephones that were installed on or before December 31, 1989, in accordance with the amended Korea Telecom Act on December 30, 1989, the Company is obligated to refund the original deposit received plus the increased deposit due to changes in site classifications.

Beginning on September 15, 1998, the Company allowed customers to choose between alternative plans for basic telephone service. Under such plans, customers were permitted the option to either place fully refundable deposits or pay a reduced non-refundable service initiation fee. Effective April 15, 2001, all new customers are required to pay a non-refundable service initiation fee.

20. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

Assets and liabilities denominated in foreign currencies as of September 30, 2007 and December 31, 2006 are summarized as follows (in thousands of foreign currencies and millions of Korean won):

		September 30, 2007					December 31, 2006
		Foreign currencies		Won equivalent			Foreign currencies		Won equivalent
Assets:
Cash and cash equivalents		USD14,949		(Won)	13,764		USD19,648		(Won)	18,265
Short-term loans		USD15,327			14,111		USD 15,327			14,248
Accounts receivable – trade		USD160,302			147,591		USD153,123			142,344
		SDR18,902			27,050		SDR 20,923			29,236
		EUR132			173		EUR 92			113
Accounts receivable – other		USD17,869			16,912		USD16,012			14,885
Guarantee deposits received		USD557			516		—			—
Total assets		USD209,004					USD204,110
		SDR18,902					SDR20,923
		EUR132		(Won)	220,117		EUR92		(Won)	219,091

		September 30, 2007					December 31, 2006
		Foreign currencies		Won equivalent			Foreign currencies			Won equivalent
Liabilities:
Accounts payable – trade		USD152,348		(Won)	140,266		US$	135,725		(Won)	126,171
		SDR14,552			20,824			SDR 19,202			26,832
		EUR119			155			EUR 123			150
		AUD85			70			—			—
		CAD1			1			—			—
Bonds (par value)		USD1,500,000			1,381,050			USD1,500,000			1,394,400
Total liabilities		USD1,652,348						USD1,635,725
		SDR14,552						SDR19,202
		EUR119						EUR123
		AUD85						—
		CAD1		(Won)	1,542,366			—		(Won)	1,547,553

21. PRESENT VALUE OF ASSETS AND LIABILITIES

Present value of assets and liabilities as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007
Accounts		Discount rate			Period		Nominal value			Present value			Discount
Accounts receivable - trade		5.68~7.04	%		2007~2008		(Won)	35,404		(Won)	33,937		(Won)	1,467
Accounts receivable - other		5.68~8.85	%		2007~2008			50,036			48,936			1,100
Long-term accounts receivable - trade		5.68~7.04	%		2008~2025			63,702			42,196			21,506
Long-term accounts receivable - other		5.56~8.85	%		2008~2010			8,859			8,667			192
		December 31, 2006
Accounts		Discount rate			Period		Nominal value			Present value			Discount
Accounts receivable - trade		5.83~7.04	%		2007		(Won)	46,649		(Won)	43,357		(Won)	3,292
Accounts receivable - other		5.83~8.85	%		2007			40,575			39,721			854
Long-term accounts receivable - trade		5.83~7.04	%		2008~2025			67,971			47,246			20,725
Long-term accounts receivable - other		5.83~8.85	%		2008~2009			8,003			7,862			141

22. COMMITMENTS AND CONTINGENCIES

a. Legal Matters

On May 25, 2005, the Fair Trade Commission (“FTC”) imposed a fine of (Won)116,168 million to the Company related to local telephone services and leased line services for internet cafes. On September 14, 2005, the FTC imposed an additional fine of (Won)24,258 million to the Company related to domestic and international long-distance services. The Company expensed these fines for the year ended December 31, 2005. During 2006, the Company appealed certain portion of the fine imposed by the FTC totaling (Won)132,332 million to the Seoul High Court. However, this appeal cannot be currently determined.

The Company is also in litigation as a defendant in other cases for damages resulting from various claims, disputes and legal actions in the normal course of operations which amounted to (Won)37,249 million as of September 30, 2007. The Company accrued (Won)10,972 million as accrued provisions related to the claims as of September 30, 2007. This appeal cannot be currently determined.

b. Credit Facilities and Letters of Credit

As of September 30, 2007, commitments related to credit facilities and letters of credit are as follows (in millions of Korean won and in thousands of U.S. dollar)

Commitment		Provider		Credit limit
Bank overdraft		Kookmin bank and others			900,000
Commercial paper issuance		Korea Exchange bank and others			250,000
Collateral loan on accounts receivable		Kookmin bank and others			950,000
Letters of credit		Korea Exchange bank and others		USD	15,000
Collection for foreign currency denominated checks		Korea Exchange bank		USD	1,000

The Company also has construction performance guarantee agreements with five financial institutions up to USD4,207 thousand and (Won)119,689 million, and as of September 30, 2007, the used portion of the agreements amounted to USD3,270 thousand and (Won)119,589 million, respectively.

c. Shareholders’ Agreement between KT and NTT DoCoMo

In December 2005, KTF and NTT DoCoMo Inc. (“DoCoMo”) entered into a strategic alliance. As part of this strategic alliance, DoCoMo acquired a 10% equity interest in KTF for total proceeds of (Won)563,766 million (20,176,309 shares). In addition, on December 26, 2005, KT and DoCoMo entered into a shareholders’ agreement related to shares of KTF. Under the shareholders’ agreement, DoCoMo has the right to put its shares to KT if an agreed target network coverage for W-CDMA service within Korea is not met by December 31, 2008. If the put option is exercised by DoCoMo, KT will be required to purchase all of the KTF shares from DoCoMo at DoCoMo’s acquisition price plus accrued interest by February 15, 2009. Meanwhile, in August 2007, KTF reached the target network coverage mentioned above, and the right for DoCoMo to put its shares to KT has been now extinguished.

d. Put and Call Combination Contract with JPMorgan Chase Bank

On December 27, 2005, the Company and JPMorgan Chase Bank entered into a ‘Put and Call Combination’ contract based on the shares of Korea Digital Satellite Broadcasting (“KDB”), an equity method investee. Under this contract, during the period from December 29, 2007 to December 29, 2008, KT has the option to acquire 9,200,000 shares of KDB that were purchased by JP Morgan Whiterfriars Inc. on December 28, 2005. Otherwise, JPMorgan Chase Bank has the option to exercise the put option on such KDB shares to KT on December 29, 2008. The exercise price under the contract for both KT and JPMorgan Chase Bank is (Won)46,000 million.

e. Payment of a Handset Subsidy to Mobile Phone Users

According to the revised provisions of the Telecommunications Business Law (“TBL”), the Company is allowed to provide a one time handset subsidy to eligible mobile phone users within the next two years beginning March 27, 2006. Pursuant to the TBL, the Company may establish its subsidy policy regarding the eligibility criteria and amount of payment. Consistent with the TBL, the Company provides a subsidy for mobile phone users who have subscribed to the Company’s service or any other mobile carriers for 18 consecutive months. Moreover, the Company has the right to discontinue the payment depending on marketing strategies, if necessary. However, the Company is required to report changes in the service agreement, should they take place, to the Ministry of Information and Communication within 30 days of the effective date.

23. DERIVATIVES

For the nine months ended September 30, 2007 and for the year ended December 31, 2006, the Company entered into various derivatives contracts with financial institutions. Details of these derivative contracts are as follows:

Type of transaction		Financial institution		Description
Interest rate swaps		Merrill Lynch and 5 others		Exchange fixed interest rate for variable interest rate for a specified period
Currency swaps		Merrill Lynch and 3 others		Exchange foreign currency cash flow for local currency cash flow local currency cash flow for a specified period
Currency interest rate		Merrill Lynch and 4 others		Exchange foreign currency fixed (variable) swaps interest rate for local currency variable (fixed) interest

The assets and liabilities recorded relating to the outstanding contracts as of September 30, 2007 and December 31, 2006 are as follows (in thousands of USD and millions of Korean won):

September 30, 2007

Contract amount

Fair value

Type of transaction

Assets (Current portion)

Liabilities (Current portion)

Liabilities (Non-current portion)

Interest rate swap

(Won)

451,240

USD100,000

(Won)

3,118

(Won)

1,975

(Won)

—

Cross currency swap(*)

USD220,000

1,432

1,429

Combined interest rate currency swap

USD700,000

140,150

—

Total

(Won)

451,240

USD1,020,000

(Won)

3,118

(Won)

143,557

(Won)

1,429

		December 31, 2007
		Contract amount			Fair value
Type of transaction					Assets (Current portion)			Liabilities (Current portion)
Interest rate swap		(Won)	811,240
			USD200,000		(Won)	9,290		(Won)	6,849
Cross currency swap			USD20,000			—			1,476
Combined interest rate currency swap			USD700,000			—			160,757
Total		(Won)	811,240
			USD920,000		(Won)	9,290		(Won)	169,082

(*) Detail of the foreign currency swap contract to which cash flow hedge accounting is applied as of September 30, 2007 is as follows (in thousands of USD and millions of Korean won):

Type of Transaction		Contract date		Termination date		Contract amount		Fair value (Non-current liabilities)
Cross currency swap		April 11, 2007		April 11, 2012		USD 200,000		(Won)	1,429

Above foreign currency swap contract is to hedge the risk of variability of future cash flows from fixed rate foreign currency (USD) bonds and as of September 30, 2007, the gain on valuation of the swap contract amounting to (Won)2,285 million, net of income tax effect, is included in accumulated other comprehensive income and for the three months ended September 30, 2007 the loss on valuation of the swap contract totaling (Won)1,220 million is recognized in current operations as a result of foreign currency translation gain from foreign currency (USD) bonds. In applying cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation from July, 2, 2007 to April 11, 2012. Approximately (Won)530 million of net derivative gain included in accumulated other comprehensive income at September 30, 2007 is expected to be reclassified into current operations within 12 months from that date.

The valuation gains and losses on the derivatives contracts for the nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won):

		September 30, 2007
		Valuation gain (P/L)									Valuation loss (P/L)									Valuation gain (B/S) For hedging
Type of Transaction		For trading			For hedging			Total			For trading			For hedging			Total
Interest rate swap		(Won)	1,380		(Won)	—		(Won)	1,380		(Won)	5,637		(Won)	—		(Won)	5,637		(Won)	—
Cross currency swap			44			—			44			3,362			1,220			4,582			3,152
Combined interest rate currency swap			20,606			—			20,606			—			—			—			—
Total		(Won)	22,030			—		(Won)	22,030		(Won)	8,999		(Won)	1,220		(Won)	10,219		(Won)	3,152

		September 30, 2006
		Valuation gain (P/L)									Valuation loss (P/L)
Type of Transaction		For trading			For hedging			Total			For trading			For hedging			Total
Interest rate swap		(Won)	6,249		(Won)	—		(Won)	6,249		(Won)	629		(Won)	—		(Won)	629
Cross currency swap			—			—			—			5,006			—			5,006
Combined interest rate currency swap			—			—			—			89,317			—			89,317
Total		(Won)	6,249			—		(Won)	6,249		(Won)	94,952			—		(Won)	94,952

24. COMMON STOCK

As of September 30, 2007 and December 31, 2006, the Company’s authorized share capital was 1,000,000,000 shares with par value of (Won)5,000 per share. As of September 30, 2007 and December 31, 2006, 277,569,400 shares of common stocks had been issued.

As of September 30, 2007 and December 31, 2006, the number of shares issued by the Company are 277,569,400 shares and 279,627,400 shares, respectively, and the common stock amounted to (Won)1,560,998 million. As allowed by the Securities Exchange Law, the Company retired 2,058,000 treasury shares for the nine months ended September 30, 2007 in addition to the 32,572,259 treasury shares retired through December 31, 2006 by charges against retained earnings. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by (Won)5,000 par value of common stock.

25. APPROPRIATED RETAINED EARNINGS

Retained earnings appropriated to the legal reserve cannot be used as cash dividends under the applicable laws and regulations. The Korean Commercial Code requires the Company to appropriate an amount equal to at least 10% of the cash dividend amount to the legal reserve at the end of the year for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to capital.

In accordance with the relevant tax laws, the Company is allowed to appropriate a reserve for technology and human resource development to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. This reserve may be restored to retained earnings in accordance with the relevant tax laws. Such amount is to be taken back into taxable income in the year when it is reversed from appropriation.

26. TREASURY STOCK

Changes in treasury stock for the nine months ended September 30, 2007 and for the year ended December 31, 2006 are as follows (in millions of Korean won except for share data):

		September 30, 2007 (9 months)							December 31, 2006 (12 months)
		Number of shares			Amount				Number of shares			Amount
Balance at beginning of period		71,532,222			(Won)	3,826,572			71,792,753			(Won)	3,840,485
Increase		2,058,000				91,518			5,222,000				213,664
Decrease		(2,074,645	)			(92,402	)		(5,482,531	)			(227,577	)
Balance at end of period		71,515,577			(Won)	3,825,688			71,532,222			(Won)	3,826,572

As of September 30, 2007, the remaining treasury stocks are strictly segregated by a trust fund and the Company itself. The treasury stocks are restricted for retirement of the treasury stock and stock compensation for officers and employees.

27. OPERATING REVENUES

Operating revenues for the three months and nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won):

		September 30, 2007						September 30, 2007
		3 months			9 months			3 months			9 months
Internet services		(Won)	633,634		(Won)	1,875,808		(Won)	615,162		(Won)	1,828,080
Data communication services			404,943			1,219,662			408,674			1,217,591
Telephone services			1,410,930			4,315,312			1,525,266			4,551,217
PCS services			362,608			1,140,599			357,726			1,026,166
System integration services			70,437			184,555			44,753			131,247
Real estate-related services			63,511			167,850			52,764			111,531
Other			6,543			19,308			6,935			21,875
Operating revenue		(Won)	2,952,606		(Won)	8,923,094		(Won)	3,011,280		(Won)	8,887,707

28. CONSTRUCTION CONTRACTS

Details of construction contracts as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007 (9 months)
		Beginning contract balance			Increase			Recognized revenue			Ending contract balance
Jungja Dong, Suwon		(Won)	27,158		(Won)	37		((Won)22,977	)		(Won)	4,218
Sungsu Dong, Seoul			116,967			1,600		(43,738	)			74,829
Bugae Dong, Incheon			184,179			—		(25,517	)			158,662
Total		(Won)	328,304		(Won)	1,637		((Won)92,232	)		(Won)	237,709

		December 31, 2006 (12 months)
		Beginning contract balance			Increase (Decrease)				Recognized revenue			Ending contract balance
Jungja Dong, Suwon		(Won)	48,657		(Won)	—			((Won)21,499	)		(Won)	27,158
Sungsu Dong, Seoul			140,000			11,081			(34,114	)			116,967
Bugae Dong, Incheon			191,713			—			(7,534	)			184,179
Gaya Dong, Busan			11,055			(36	)		(11,019	)			—
Total		(Won)	391,425		(Won)	11,045			((Won)74,166	)		(Won)	328,304

29. OPERATING EXPENSES

Operating expenses for the three months and nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won):

		September 30, 2007								September 30, 2006
		3 months				9 months				3 months				9 months
Salaries and wages		(Won)	513,555			(Won)	1,416,932			(Won)	444,966			(Won)	1,334,576
Share-based payment			256				792				67				160
Provision for severance indemnities			89,673				257,406				47,355				147,538
Employee welfare			111,499				338,746				121,998				345,244
Communications			13,944				41,049				12,374				37,142
Utilities			52,187				126,906				50,589				125,587
Taxes and dues			40,932				114,599				27,652				96,760
Rent			17,114				57,158				16,315				47,533
Depreciation			507,567				1,407,217				499,610				1,418,281
Amortization			34,615				103,508				27,702				70,968
Repairs and maintenance			133,738				370,957				183,146				446,116
Automobile maintenance			5,062				14,032				5,144				13,953
Commissions			168,539				501,543				173,978				483,606
Advertising			26,646				82,636				25,144				64,040
Education and training			9,841				23,848				5,387				21,829
Research and development			62,975				171,512				62,698				188,503
Travel			6,478				21,909				7,896				23,242
Supplies			7,758				22,001				5,742				16,762
Interconnection charges			195,671				591,382				211,648				626,304
Cost of services			128,920				496,398				191,385				472,953
International settlement payment			184,419				499,116				142,906				425,346
Commissions for system integration service			53,576				142,413				54,893				149,945
Cost of goods sold			63,450				177,504				39,254				115,542
Promotion			45,176				142,600				77,659				175,894
Sales commission			157,738				547,533				144,193				353,667
Provision for doubtful accounts			—				—				—				22,306
Other			19,172				51,821				17,849				46,758
			2,650,501				7,721,518				2,597,550				7,270,555
Less: transfer to other accounts			(10,115	)			(31,447	)			(13,850	)			(40,096	)
		(Won)	2,640,386			(Won)	7,690,071			(Won)	2,583,700			(Won)	7,230,459

30. INCOME TAX EXPENSE

a. Detail of Income Tax Expense

Income tax expense for the three months and nine months ended September 30, 2007 and 2006 consists of the following (in millions of Korean won):

		September 30, 2007								September 30, 2006
		3 months				9 months				3 months				9 months
Current income tax expense		(Won)	54,022			(Won)	272,646			(Won)	75,441			(Won)	348,106
Change in deferred income tax assets and liabilities			1,239				(4,492	)			7,129				(877	)
Income tax expense reflected in stockholders’ equity			—				51				(1,178	)			(1,178	)
Income tax expense		(Won)	55,261			(Won)	268,205			(Won)	81,392			(Won)	346,051
Changes in deferred income tax assets related to temporary differences for the years ended September 30, 2007 and December 30, 2006 are as follows (in millions of Korean won):
		September 30, 2007								September 30, 2006
		3 months				9 months				3 months				9 months
Beginning of deferred income tax assets		(Won)	152,156			(Won)	136,266			(Won)	188,571			(Won)	201,495
Ending of deferred income tax assets			(149,083	)			(149,083	)			(182,803	)			(182,803	)
Adjustment to the beginning net deferred income tax assets based on tax return filed			—				10,016				—				(5,140	)
Changes in deferred income tax assets (liabilities) added to (deducted from) stockholders’ equity			(1,834	)			(1,691	)			1,362				(14,428	)
Changes in deferred income tax assets		(Won)	1,239				((Won)4,492	)		(Won)	7,129				((Won)877	)

b. Reconciling Items between Accounting Income and Taxable Income

Reconciling items between accounting income and taxable income for the nine months ended September 30, 2007 and 2006 are as follows (in million of Korean won):

		September 30, 2007								September 30, 2006
		Temporary difference				Non-temporary difference				Temporary difference				Non-temporary difference
(Addition)
Allowance for doubtful accounts		(Won)	—			(Won)	—			(Won)	38,007			(Won)	—
Bad debt expenses			—				4,486				—				—
Accrued interest income			—				—				8,877				—
Derivatives			—				3,152				—				—
Available-for-sale securities			480				—				6,202				—
Equity securities of affiliates			56,149				904				1,789				—
Depreciation			825				—				77,352				—
Customers’ contribution to construction costs			14,564				—				2,234				—
Accrued expenses			39,750				—				—				—
Provision for severance indemnities			188,841				—				102,517				—
Reserve for technology and human resource development			80,000				—				—				—
Additional payment of income taxes			—				57,737				—				17,261
Others			57,643				—				—				126,635
Sub-Total			438,252				66,279				236,978				143,896
		September 30, 2007								September 30, 2006
		Temporary difference				Non-temporary difference				Temporary difference				Non-temporary difference
(Deduction)
Allowance for doubtful accounts			((Won)104,478	)		(Won)	—			(Won)	—			(Won)	—
Bad debt expenses			—				—				(5,589	)			—
Accrued interest income			(3,645	)			—				—				—
Derivatives			(2,473	)			—				—				—
Inventories			(5,437	)			—				(3,922	)			—
Available-for-sale securities			—				(480	)			—				(3,662	)
Equity securities of affiliates			—				—				—				(9,556	)
Accrued expense			—				—				(70,306	)			—
Refundable deposits for telephone installation			(2,030	)			—				(6,037	)			—
Accrued provision			(42,296	)			—				(41,308	)			—
Group retirement deposits			(188,841	)			—				(102,571	)			—
Income tax refunds			—				(11,941	)			—				(2	)
Other			—				(13,615	)			(67,188	)			—
Sub-Total			(349,200	)			(26,036	)			(296,921	)			(13,220	)
Total		(Won)	89,052			(Won)	40,243				((Won)59,943	)		(Won)	130,676

c. Change in Cumulative Temporary Difference and Deferred Income Tax Assets (Liabilities)

Changes in cumulative temporary difference for the nine months ended September 30, 2007 are as follows (in millions of Korean won):

		Jan. 1, 2007				Final tax return amount (*)				Addition				Deduction				September 30, 2007				Deferred income tax asset (liability)
																						Current				Non-current
(Deductible temporary differences)
Allowance for doubtful account		(Won)	336,319			(Won)	265,248			(Won)	—			(Won)	104,478			(Won)	160,770			(Won)	38,312			(Won)	5,900
Derivatives			160,241				160,241				—				2,473				157,768				43,386				—
Inventories			25,547				25,547				—				5,437				20,110				5,530				—
Available-for-sale securities			9,265				9,265				480				—				9,745				—				2,680
Equity securities of affiliates(**)			1,384,750				1,384,750				93,711				—				1,478,461				—				406,576
Customers’ contribution to construction costs			176,405				176,405				14,564				—				190,969				—				52,516
Accrued expense			7,898				9,881				39,750				—				49,631				13,648				—
Accrued provision			93,378				93,378				—				42,296				51,082				7,036				7,012
Provision for severance indemnities			741,007				741,007				188,841				—				929,848				—				255,708
Refundable deposits for telephone installation			56,851				56,851				—				2,030				54,821				—				15,076
Other			101,617				207,955				57,643				—				265,598				56,412				16,628
Sub total			3,093,278				3,130,528				394,989				156,714				3,368,803				164,324				762,096
Temporary differences unlikely to be realized			1,381,131																1,475,478				—				405,756
Temporary differences likely to be realized			1,712,148																1,893,324				164,324				356,340
Tax rate(†)			27.5	%															27.5	%
Deferred income tax assets		(Won)	470,840															(Won)	520,664			(Won)	164,324			(Won)	356,340
(Taxable temporary differences)
Accrued interest income			((Won)2,239	)			((Won)2,239	)			((Won)3,645	)		(Won)	—				((Won)5,884	)			((Won)1,618	)		(Won)	—
Equity securities of affiliates(**)			(168,397	)			(168,387	)			(37,562	)			—				(205,959	)			—				(56,268	)
Depreciation			(66,265	)			(67,094	)			—				(825	)			(66,269	)			—				(18,225	)
Group retirement deposits			(741,007	)			(741,007	)			(188,841	)			—				(929,848	)			—				(255,708	)
Reserve for technology and human resource development			(320,000	)			(320,000	)			—				(80,000	)			(240,000	)			(36,667	)			(29,333	)
Sub total			(1,297,908	)			(1,298,737	)			(230,048	)			(80,825	)			(1,447,960	)			(38,285	)			(359,534	)
Temporary differences unlikely to be realized			(81,275	)															(95,410	)			—				(26,238	)
Taxable temporary differences likely to be realized			(1,216,633	)															(1,352,550	)			(38,285	)			(333,296	)
Tax rate (†)			27.5	%															27.5	%
Deferred income liabilities			(334,574	)															(371,581	)			(38,285	)			(333,296	)
Deferred income tax net		(Won)	136,266															(Won)	149,083			(Won)	126,039			(Won)	23,044

		Jan. 1, 2006				Final tax return amount(‡)				Addition				Deduction				December. 31, 2006				Deferred income tax asset (liability)
																						Current				Non-current
(Deductible temporary differences)
Allowance for doubtful account		(Won)	412,458			(Won)	420,785			(Won)	—			(Won)	124,926			(Won)	295,859			(Won)	81,361			(Won)	—
Derivatives			116,043				116,043				44,198				—				160,241				44,066				—
Inventories			27,764				27,764				—				2,803				24,961				6,864				—
Available-for-sale securities			20,826				20,826				—				11,561				9,265				—				2,548
Equity securities of affiliates			1,314,862				1,185,342				199,408				—				1,384,750				—				380,806
Customers’ contribution to construction costs			147,849				147,849				28,556				—				176,405				—				48,511
Accrued expense			28,981				31,408				121,662				—				153,070				42,094				—
Accrued provision			84,541				84,541				—				3,961				80,580				1,758				20,401
Refundable deposits for telephone installation			58,965				58,965				—				2,114				56,851				—				15,634
Provision for severance indemnities			649,787				649,787				91,220				—				741,007				—				203,777
Other			58,384				66,161				—				55,872				10,289				6,968				(4,137	)
Sub total			2,920,460				2,809,471				485,044				201,237				3,093,278				183,111				667,540
Temporary differences unlikely to be realized			1,007,154																1,377,540				—				378,824
Temporary differences likely to be realized			1,913,306																1,715,738				183,111				288,717
Tax rate(†)			27.5	%															27.5	%
Deferred income tax assets		(Won)	526,159															(Won)	471,828			(Won)	183,111			(Won)	288,717
(Taxable temporary differences)
Accrued interest income			((Won)589	)			((Won)589	)			((Won)1,650)			(Won)	—				((Won)2,239)				((Won)616)			(Won)	—
Equity securities of affiliates			(125,209	)			(125,209	)			(43,188	)			—				(168,397	)			—				(46,310	)
Depreciation			(135,724	)			(131,115	)			—				(64,851	)			(66,264	)			—				(18,222	)
Group retirement deposits			(649,787	)			(649,787	)			(91,220	)			—				(741,007	)			—				(203,777	)
Reserve for technology and human resource development			(320,000	)			(320,000	)			—				—				(320,000	)			(29,333	)			(58,667	)
Sub total			(1,231,309	)			(1,226,700	)			(136,058	)			(64,851	)			(1,297,907	)			(29,949	)			(326,976	)
Temporary differences unlikely to be realized			(50,708	)															(77,682	)			—				(21,363	)
Taxable temporary differences likely to be realized			(1,180,601	)															(1,220,225	)			(29,949	)			(305,613	)
Tax rate (†)			27.5	%															27.5	%
Deferred income liabilities			(324,665	)															(335,562	)			(29,949	)			(305,613	)
Deferred income tax net		(Won)	201,494															(Won)	136,266			(Won)	153,162				((Won)16,896	)

(*) Tax effects from true-up for prior year tax return amounting to (Won)1,541 million and (Won)4,521 million arising from temporary difference and non-temporary difference, respectively, were adjusted in deferred income tax assets and current earnings, respectively

(**) The Company did not recognize deferred income tax assets of (Won)405,756 million related to the tax effects of deductible temporary differences from 17 equity method accounting investees including KTF since it was not almost certain that the Company would be able to realize the related tax benefits in the foreseeable future. The Company also did not recognize deferred income tax liabilities totaling (Won)26,238 million of which (Won)25,230 million represents the tax effect of taxable temporary differences from 11 equity method accounting investees including KTN and was not recognized since it is almost certain that the differences will not reverse in the foreseeable future given that the Company is able to control the timing of reversal of the temporary difference and the investees have not declared dividends in the past 5 years.

(†) Tax rates expected to be applied in future periods in which the related temporary differences are expected to be reversed.

(‡) Tax effects from true-up for prior year tax return amounting to (Won)29,255 million and (Won)26,453 million arising from temporary difference and non-temporary difference, respectively, were adjusted in deferred income tax assets and current earnings, respectively.

d. Deferred income tax assets (liabilities) added to (deducted from) stockholders’ equity as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

September 30, 2007		Amount			Income tax expense			Deferred income tax assets (liabilities)				Net
Gain on disposal of treasury stock (Capital surplus)		(Won)	715		((Won)196	)		(Won)	—			(Won)	519
Unrealized gain on valuation of available-for-sale securities			5,570		—				(1,532	)			4,038
Equity in other stockholders’ equity of affiliates, net			1,821		—				4,720				6,541
Unrealized gain on valuation of derivative, net			3,152		—				(867	)			2,285
Total		(Won)	11,258		((Won)196	)		(Won)	2,231			(Won)	13,383
December 31, 2006		Amount			Income tax expense			Deferred income tax assets (liabilities)				Net
Gain on disposal of treasury stock (Capital surplus)		(Won)	899		((Won)247	)		(Won)	—			(Won)	652
Unrealized gain on valuation of available-for-sale securities			6,050		—				(1,664	)			4,386
Equity in other stockholders’ equity of affiliates, net			916		—				5,676				6,592
Total		(Won)	7,865		((Won)247	)		(Won)	4,012			(Won)	11,630

Unrealized gain on valuation of derivative, net

e. Income taxes payable and prepaid income taxes before offset as of September 30, 2007 and December 31, 2006 are as follows (in millions of Korean won):

		September 30, 2007				December 31, 2006
Income taxes payable		(Won)	272,646			(Won)	345,548
Prepaid income taxes			(2,009	)			(5,483	)
Net		(Won)	270,637			(Won)	340,065

f. Effective Tax Rate

Effective tax rate for the three months and nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won)

		September 30, 2007								September 30, 2006
		3 months				9 months				3 months				9 months
Income tax expense		(Won)	55,261			(Won)	268,205			(Won)	81,392			(Won)	346,051
Income before income tax expense			307,961				1,120,974				414,432				1,443,628
Effective tax rate			17.94	%			23.92	%			19.64	%			23.97	%

g. Accounting Changes

The Company in December 2006 early adopted the KAI Opinion 06-2 “Deferred Income Taxes on Investments in Subsidiaries, Associates and Interests in Joint Ventures,” and retroactively applied such Opinion to January 1, 2006, which requires evaluation of tax benefit, if any, based on the net deferred income tax asset or liability of all temporary differences arising from the same affiliate rather than on an individual basis. As a result, the Company’s non-consolidated statement of income for the three months and nine months ended September 30, 2006 are restated and net income for that period increased by (Won)15,443 million and (Won)28,147 million, respectively.

31. NET INCOME PER SHARE

The Company’s net income per share for the three months and nine months ended September 30, 2007 and 2006 are computed as follows (in millions of Korean won, except for per share data):

Basic net income per share

		September 30, 2007						September 30, 2006
		3 months			9 months			3 months			9 months
Net income		(Won)	252,700		(Won)	852,769		(Won)	333,040		(Won)	1,097,577
Weighted average number of common shares outstanding			205,814,831			207,326,709			207,834,647			207,834,647
Basic net income per share (in Korean won)		(Won)	1,228		(Won)	4,113		(Won)	1,602		(Won)	5,281

Diluted net income per share

		September 30, 2007						September 30, 2006
		3 months			9 months			3 months			9 months
Net income		(Won)	252,700		(Won)	852,769		(Won)	333,040		(Won)	1,097,577
Interest on convertible bonds			—			—			13			13
Adjusted net income			252,700			852,769			333,053			1,097,590
Adjusted weighted average number of common shares outstanding (Note)			205,814,831			207,326,709			208,095,179			208,095,179
Diluted net income per share (in Korean won)		(Won)	1,228		(Won)	4,113		(Won)	1,600		(Won)	5,274

Diluted net income per share is calculated based on the effect of potentially dilutive securities that were outstanding for the nine months ended September 30, 2007 and 2006. Net income is adjusted to include the after-tax amount of interest recognized associated with convertible bonds. However, stock options and stock grants were not considered in the determination of diluted net income per share because the exercise price exceeded the average market price of common stock during those periods.

(Note) Potentially dilutive securities as of September 30, 2007 are as follows (in shares):

		September 30, 2007
Stock option (1st grant)		(Won)	371,632
Stock option (2nd grant)			3,000
Stock option (4th grant)			43,153
Total		(Won)	417,785

32. COMPREHENSIVE INCOME

Comprehensive income for the three months and nine months ended September 30, 2007 is as follows (in millions of Korean won):

Description		September 30, 2007
		3 months			9 months
Net income		(Won)	252,700		(Won)	852,769
Other comprehensive income, net of taxes:
Unrealized loss on available-for-sale securities			130			(348	)
Equity in other stockholders’ equity of affiliates, net			936			(151	)
Unrealized gain on valuation of derivatives, net			2,285			2,285
Total		(Won)	256,051		(Won)	854,655

33. SHARE-BASED PAYMENT

The Company granted stock options to its executive officers and directors in accordance with the stock option plan approved by the Board of Directors. The details of the stock options granted are as follows:

1st Grant

2nd Grant

3rd Grant

4th Grant

5th Grant

Grant date

Dec. 26, 2002

Sept. 16, 2003

Dec. 12, 2003

Feb. 4, 2005

Apr. 28, 2005

Exercise price (in Korean won)

(Won)

70,000

(Won)

57,000

(Won)

65,000

(Won)

54,600

(Won)

50,400

Number of shares expected to be exercised

371,632

3,000

—

43,153

—

Exercise period

Dec.27, 2004 ~Dec. 26, 2009

Sept.17, 2005 ~Sept.16, 2010

Dec.13, 2005 ~Dec.12, 2010

Feb. 5, 2007 ~Feb. 4, 2012

Apr. 29, 2007 ~Apr. 28, 2012

The Company adopted the fair value method for measuring of compensation costs which are amortized to expense over the option vesting periods. The valuation assumptions of stock options based on the fair value method are as follows:

		1st Grant				2nd Grant				3rd Grant				4th Grant				5th Grant
Risk free interest rate			5.46	%			4.45	%			5.09	%			4.43	%			4.07	%
Expected option life			4.5 years to 5.5 years				4.5 years				4.5 years to 5.5 years				4.5 years to 5.5 years				4.5 years to 5.5 years
Expected volatility			49.07 ~ 49.90	% %			34.49	%			31.26 ~ 33.90	% %			33.41 ~ 42.13	% %			33.51 ~ 35.92	% %
Expected dividend yield ratio			1.10	%			1.57	%			1.57	%			5.86	%			5.86	%
Fair value per option (in Korean won)		(Won)	22,364			(Won)	12,443			(Won)	10,926			(Won)	12,322			(Won)	10,530
Total compensation cost (in millions of Korean won)		(Won)	8,311			(Won)	38			(Won)	—			(Won)	531			(Won)	—

On March 29, 2007, the Company newly entered into stock grant agreements with all registered directors. The details of the stock grants are as follows:

		1st Grant
Grant date			March 29, 2007
Number of shares (Note)			23,925 shares
Fair value per option (in Korean won)		(Won)	42,706
Total compensation cost (in Korean won)		(Won)	1,021 million
Exercise date			March 29, 2008
Valuation method			Fair value method

(Note) The options can be exercised after 1 year from the grant date, as long as the directors remain employed through that date.

The above compensation cost, which was calculated based on the fair value method, charged to current operations for the nine months ended September 30, 2007 is as follows (in millions of Korean won):

		1st Grant
Total compensation cost		(Won)	1,021
Forfeited or expired			—
Recognized			(767)
Outstanding at September 30, 2007		(Won)	254

34. NON-CASH FINANCING AND INVESTING ACTIVITIES

Significant non-cash financing and investing activities for the nine months ended September 30, 2007 and 2006 are summarized as follows (in millions of Korean won):

		September 30,
		2007			2006
Construction in progress transferred to property and equipment and other accounts		(Won)	1,131,312		(Won)	945,190

35. VALUE ADDED INFORMATION

Value added information included in operating expenses for the three months and nine months ended September 30, 2007 and 2006 are as follows (in millions of Korean won):

		September 30, 2007						September 30, 2006
		3 months			9 months			3 months			9 months
Salaries		(Won)	513,555		(Won)	1,416,932		(Won)	444,966		(Won)	1,334,576
Share-based payment			256			792			67			160
Severance indemnities			89,673			257,406			47,355			147,538
Employee welfare			111,499			338,746			121,998			345,244
Rent			17,114			57,158			16,315			47,533
Depreciation			518,224			1,437,635			510,539			1,448,758
Amortization			39,198			116,232			32,206			84,583
Taxes and dues			40,932			114,599			27,652			96,760
Total		(Won)	1,330,451		(Won)	3,739,500		(Won)	1,201,098		(Won)	3,505,152

36. CONTRIBUTION PAYMENTS FOR RESEARCH AND DEVELOPMENT

For the nine months ended September 30, 2006, the Company contributed a payment for research and development totaling (Won)7,500 million to the Kyungpook National University, Kangnung National University and Chungbuk National University and other institutions. There were no contribution payments for research and development for the three months ended September 30, 2007.

37. CONTRIBUTIONS RECEIVED FOR LOSSES ON UNIVERSAL TELECOMMUNICATIONS SERVICES

The Company recognizes contributions received for losses on universal telecommunications services as operating revenues. Starting January 1, 2000, all telecommunications service providers must contribute towards the supply of universal telecommunications services in Korea. Telecommunications service providers designated as universal service providers by the MIC are required to provide universal telecommunications services, including local services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships. The Company has been designated as a universal service provider. The losses incurred by universal service providers in connection with providing these universal telecommunications services are to be apportioned among the service providers based on their respective annual revenues. The Company submits a schedule of estimated costs to the MIC on a yearly basis. These costs are subject to review by the MIC before being finalized.

38. OTHER INCOME (EXPENSES)

The Company’s other, net amount recorded as other income (expense) in the income statement for the nine months ended September 30, 2007, mainly consist of the telephone service penalty payment made by customers.

39. EMPLOYEE WELFARE

Employee welfare through various plans spent by the Company for the nine months ended September 30, 2007 and 2006 totaled (Won)338,746 million and (Won)345,244 million, respectively.

Meanwhile, the Company donates cash to Employee Welfare Foundation each year. The related expenses recognized for the nine months ended September 30, 2007 and 2006 amounted to (Won)52,500 million and (Won)37,500 million respectively.

40. DEVELOPMENT OF SKILLED LABOR FORCE

For the nine months ended September 30, 2007 and 2006, the Company spent (Won)23,848 million and (Won)21,829 million, respectively, on employee training, outsourced employee training, overseas employee training and others for the purpose of developing skilled labor force.

I. Corporate General

4. Total Number of Shares, etc.

A. Total Number of Shares

(As of September 30, 2007)		(Unit: Share)
Category		Type of Shares				Note
		Common Shares		Total
I. Total Authorized Number of Shares		1,000,000,000		1,000,000,000		—
II. Total Number of Issued and Outstanding Shares		312,199,659		312,199,659		—
III. Total Number of Shares Reduced		34,630,259		34,630,259		—
1. Decrease in Capital		—		—		—
2. Share Retirement		34,630,259		34,630,259		—
3. Redemption of Redeemable Shares		—		—		—
4. Other		—		—		—
IV. Total Number of Issued and Outstanding Shares (II – III)		277,569,400		277,569,400		—
V. Number of Treasury Shares		71,515,577		71,515,577		—
VI. Number of Shares in Circulation		206,053,823		206,053,823		—

B. Paid in Capital and Par Value of a Share

(As of September 30, 2007)										(Unit: Millions of Won, Share)
Category		Type		Total Paid in Capital (Total Par Value)						Par Value of a Share						Note
				Paid in Capital under Financial Statement (A’)		Total Par Value of Issued and Outstanding Shares (A IV x B’)		Total Par Value of Shares in Circulation (A VI x B’)		Par Value of a Share (B’)		Total Number of Issued and Outstanding Shares/Total Paid in Capital (A IV/A’)		Number of Shares in Circulation /Total Paid in Capital (A VI/A’)
Non-bearer		Common Share		1,560,998		1,387,847		1,030,269		5,000		5,624		7,576		—
Total				1,560,998		1,387,847		1,030,269		5,000		5,624		7,576		—

* Unit of Par Value of a Share: Won

C. Acquisition and Disposal of Treasury Shares

(1) Current Status of Acquisition Ÿ Disposal of Treasury Shares (as of September 30, 2007)

Method of Acquisition		Type		Beginning of Term		Acquisition (+)		Disposition (-)		Retirement (-)		Tern-End		Note
Direct Acquisition pursuant to Article 189-2 Paragraph 1 of the Law		Common Share		70,273,052		2,058,000		16,645		2,058,000		70,256,407
		Preferred Share		—		—		—		—		—		—
Direct Acquisition for reasons other than those stated under Article 189-2 Paragraph 1 of the Law		Common Share		—		—		—		—		—		—
		Preferred Share		—		—		—		—		—		—
Subtotal		Common Share		70,273,052		2,058,000		16,645		2,058,000		70,256,407
		Preferred Share		—		—		—		—		—		—
Indirect Acquisition through Trust Contract, etc.		Common Share		1,259,170		—		—		—		1,259,170		—
		Preferred Share		—		—		—		—		—		—
Total		Common Share		71,532,222		2,058,000		16,645		2,058,000		71,515,577		—
		Preferred Share		—		—		—		—		—		—

* Disposal of Treasury Shares

• 2,058,000 Shares: Share Retirement

• 16,645 Shares: Distributed on March 30, 2007 to directors of the Board of Directors as performance-based pay.

(2) Current Status of Share Retirement (As of September 30, 2007)

(Unit: Won, Share)

Date of Retirement

Retirement Purpose

Type of Shares Retired

Number of Shares Retired

Amount of Retirement

Period of Acquisition of Shares to be Retired

Relevant Statute

August 3, 2007

Creation of Shareholder’s Value

Common Share

2,058,000

91,454,033,000

05/23/2007 ~ 07/31/2007

Securities and Exchange Act (Article 189)

Total

Common Share

2,058,000

91,454,033,000

05/23/2007 ~ 7/31/2007

Securities and Exchange Act (Article 189)

Preferred Share

—

—

—

—

* Amount of Retirement does not include commission fee.

* Acquisition of treasury shares for share retirement is, as of November 14, 2007, still in progress.

• Type and Number of Shares to be Retired: 2,367,000 Common Shares

• Estimated Amount of Retirement (Won): Won 109,118,700,000

• (on the basis of Won 46,100 which is the closing price at the date of Board of Directors Meeting, September 20, 2007)

• Schedule Period for Acquisition of Treasury Shares: 09/24/2007 ~ 12/23/2007

<Status of Share Retirement in Prior Years>

(Unit: Won, Share)

Date of Retirement

Retirement Purpose

Type of Shares Retired

Number of Shares Retired

Amount of Retirement

Period of Acquisition of Shares to be Retired

Relevant Statutes

10/09/2002

Creation of Shareholder’s Value

Common Share

3,122,000

167,207,040,000

09/02/2002 ~ 10/04/2002

Securities and Exchange Act (Article 189)

01/06/2003

Creation of Shareholder’s Value

Common Share

15,454,659

786,642,143,100

12/30/2002

Securities and Exchange Act (Article 189)

06/20/2003

Creation of Shareholder’s Value

Common Share

2,937,000

137,958,768,000

04/28/2003 ~ 06/13/2003

Securities and Exchange Act (Article 189)

12/09/2003

Creation of Shareholder’s Value

Common Share

5,836,600

273,545,075,500

10/21/2003 ~ 12/04/2003

Securities and Exchange Act (Article 189)

07/03/2006

Creation of Shareholder’s Value

Common Share

5,222,000

213,514,820,000

04/03/2006 ~ 06/26/2006

Securities and Exchange Act (Article 189)

Total

Common Share

32,572,259

1,578,867,846,600

—

—

Preferred Share

—

—

—

—

(3) Current Status of Execution Ÿ Termination of Treasury Share Trust Agreement

(Unit: Millions of Won)

Category		Beginning of the Term				Execution (+)				Termination (-)				Term-End				Note
		Amount		Number of Cases		Amount		Number of Cases		Amount		Number of Cases		Amount		Number of Cases
Specified Money Trust		100,000		2		—		—		—		—		100,000		2		—
Trust Agreement with Asset Management Company		—		—		—		—		—		—		—		—		—
Share Acquisition Agreement with Investment Company		—		—		—		—		—		—		—		—		—
Total		—		—		—		—		—		—		—		—		—

* Term of the Trust Agreement: March 9, 2007 ~ March 8, 2010 (3 years)

D. Share Status of Employee Share Ownership Association

(1) Transaction with Employee Share Ownership Association

There is nothing relevant to be reported.

(2) Standard for Exercise of Voting Rights of Employee Share Ownership Association

• Association Account: Employee Share Ownership Association may exercise the voting right proportionately to the ration of an association member’s intention who has declared his intention on the shares allotted to the Association Member Account.

• Association Member Account: Employee Share Ownership Association may exercise the voting right or delegate the voting right to an association member after receiving, within a period longer than 7 days, declaration of intention from an association member on the subject of the General Meeting of Shareholders, or after confirming an association member’s request for delegation of exercise of the voting right.

(3) Shares Held by Employee Share Ownership Association

(As of September 30, 2007)				(Unit: Share)
Type of Account		Type of Shares		Balance at the Beginning of the Term		Term-End Balance
Association Account		Common Share		2,363,130		2,321,342
Association Member Account		Common Share		15,251,033		14,116,124

E. Matters on Shares other than the Common Share

Not applicable.

F. Matters on Redeemable Share

Not applicable.

G. Matters on Convertible Share

Not applicable.

5. Current Status of Voting Rights

(As of September 30, 2007)		(Unit: Share)
Category				Number of Shares		Note
Total Number of Issued and Outstanding Shares (A)		Common Share		277,569,400		—
		Preferred Share		—
Number of Shares without Voting Right (B)		Common Share		71,518,831		Note 1	)
		Preferred Share		—
Number of Shares upon which Exercise of Voting Rights is Restricted under the Securities and Exchange Act, etc. (C)		—		—		Note 2	)
Number of Shares with Revived Voting Rights (D)		—		—		—
Number of Shares upon which Voting Rights may be Exercised (E = A – B – C + D)		Common Share		206,050,569		—
		Preferred Share		—

Note 1) Number of Shares without Voting Right: Total 71,518,831 shares including Treasury Shares, Treasury Stock Fund and Cross holdings

• Cross holdings: 3,254 Shares

Note 2) Shares upon which exercise of voting rights is restricted under the Securities and Exchange Act do not exist; in the event subject matter is on appointment of a member of the Audit Committee, however, shares exceeding 3% of the total number of issued and outstanding shares are without voting right.

• As of December 31, 2006, shareholders are not allowed to exercise their voting rights on 172,358 shares which exceeds 3% of total number of issued and outstanding shares with voting right, among total 6,353,875 national pension shares, in the event subject matter is on appointment of an Audit Committee member.

6. Matters on Dividend, etc.

A. Matters on Dividend

The shareholder return policy of the Company is to pay shareholders at least 50% of adjusted net profit of the current term, and shareholder return is a concept which incorporates cash dividends and acquisition of treasury stock of the Company.

B. Dividend Paid during Last 3 Business Years

Category				3rd Quarter, 26th Term		25th Term		24th Term
Par Value of a Share (Won)				5,000		5,000		5,000
Net Profit of the Current Term (in Millions of Won)				852,769		1,233,449		1,031,810
Net Profit of a Share (Won)				4,113		5,877		4,877
Distributable Profit (in Millions of Won)				—		3,572,049		2,978,377
Total Cash Dividend (in Millions of Won)				—		416,190		636,872
Total Share Dividend (in Millions of Won)				—		—		—
Cash Dividend Propensity (%)				—		33.7		61.7
Rate of Return on Cash Dividend (%)		Common Share		—		4.07		7.09
		Preferred Share		—		—		—
Rate of Return on Share Dividend (%)		Common Share		—		—		—
		Preferred Share		—		—		—
Cash Dividend per Share (Won)		Common Share		—		2,000		3,000
		Preferred Share		—		—		—
Share Dividend per Share (Share)		Common Share		—		—		—
		Preferred Share		—		—		—

* Net profit of a share is basic net income per share of common stock.

* Distributable profit is calculated by adding transfers from voluntary reserve to retained earnings before appropriation and then subtracting loss on sale of treasury shares and amount disposed from voluntary reserve.

C. Matters on Participating Bond

Not applicable.

II. Details of Business

1. Overview

A. Present Conditions of the Industry

(1) Characteristics of the Industry

Pursuant to drastic technical advances and changes in customers’ needs, the recent trend in the communications industry is to move toward convergence, such as fixed-mobile convergence and the fusion of communications and the media, and the existing markets for fixed-line telephones, high-speed Internet and mobile communications are no longer expected to grow substantially as they have reached maturity. However, the media business, represented by IPTV, is exerting a great influence over the whole communications and broadcasting industries, as it is expected to reshape the current industrial structure divided between communications and broadcasting, thus providing communications carriers with a new opportunity. Furthermore, the transition to 3G in the mobile communications market has been a new turning point, creating a significant momentum for changing the existing competition structure in the 2G market. In order to find a new breakthrough for the saturated communications market, increasing customer value has become a central theme in the communications market as exemplified by wired communications carriers having launched combination services, such as the TPS/QPS (Triple/Quadruple Play Service), that integrate existing services and mobile communications carriers whose focus is currently on offering additional benefits to their clients.

(2) Growth of the Industry

(Unit: 1,000 persons)

Category		2003		2004		2005		2006		End of September, 2007
Number High-Speed Internet Subscribers		11,191		11,921		12,190		14,043		14,591
Number of Local Telephone Subscribes		22,877		22,871		22,920		23,119		23,307
Number of Cellular Phone Subscribers		33,592		36,586		38,342		40,197		42,801

* Data presented by the Ministry of Information and Communication, Republic of Korea (www.mic.go.kr).

(3) Characteristics of Market Fluctuations

The demand for communications services does not fluctuate greatly as such services are used as necessary goods of the modern life. However, if the Korean economy becomes sluggish and continues to be so in the future, such sluggish economy could have an adverse impact on KT’s business activities.

(4) Competition Factors

(a) Competing Businesses

• Local calls: Hanaro Telecom, LG Dacom, etc.

• Long distance calls: LG Dacom, Onse Telecom, Hanaro Telecom, SK Telink, etc.

• International calls: LG Dacom, Onse Telecom, Hanaro Telecom, SK Telink, etc.

• High-speed Internet: Hanaro Telecom, LG Powercom, LG Dacom, Onse Telecom, SOs (cable television, relay wired broadcasting), etc.

• Mobile communications: SK Telecom, LG Telecom, etc.

• Internet telephones (VoIP): Hanaro Telecom, SK Networks, SK Telink, Samsung Networks, LG Dacom, Korea Cable Telecom, etc.

• IPTV: Hanaro Telecom, etc.

• Mobile Internet (WiBro): SK Telecom

(b) Market Penetration

• Communication service providers: business operations under permission from the Minister of Information and Communication

• Specific telecommunications service providers: registration

• Value-added telecommunications service providers: report

(c) Competition Factors: service fees, product quality, brand value and competitiveness of the distribution network

(5) Characteristics of Resource Supply

• Communications Equipment Supply

In accordance with the need to build a broadband convergence network (BcN) that can offer a range of different forms of services based on the government’s u-IT839 policy, the current trend for the backbone network is to change from an individual network with its focus on service providers to a service convergence network (becoming All-IP), and the current trend for the access network is to build a broadband network (becoming All-Optic) for providing a variety of services, such as TPSs (Triple Play Services).

In the third quarter of 2007, KT purchased: (1) backbone network equipment, such as WDM equipment, MSPP and routers, for the purpose of establishing a service convergence network; (2) access network equipment, such as FTTH and IP-xDSL, for the purpose of providing customers with a variety of services, such as TPSs; and (3) terminals for new services, such as servers, mobile Internet and IPTV, for the purpose of efficient network management and providing a wide array of services. The detailed list of purchased items is as follows:

• Backbone network equipment for building a convergence network: WDM equipment, MSPP, DCS devices, routers, etc.

• Equipment for high-speed Internet: FTTH/IP-xDSL equipment, switches, optical cables, etc.

• Servers for network and service management: servers, storages, security systems, etc.

• Terminals for providing services: mobile telephones, mobile Internet terminals, set-top boxes, cordless telephones, etc.

• Capital Supply

With its highest credit rating in Korea (AAA), KT has issued: (1) in April 2007, KRW 140,000,000,000 publicly offered corporate bonds due 2012; (2) in April 2007, USD 200,000,000 publicly offered corporate bonds due 2012; and (3) in May 2006, USD 200,000,000 publicly offered corporate bonds due 2016. Since the two USD corporate bonds were issued as long-term bonds each due in 5 and 10 years from their respective issue

date, thus dispersing the size of yearly debt redemption, stable debt redemption has become possible. KT has also improved its international credit rating by receiving in June 2005 an A3 from Moody’s Investors Services, the international credit rating agency, and by being assigned a positive outlook by said Services in September 2006. KT also received an A from Fitch Ratings in July 2007 during its regular appraisal. Furthermore, KT procured in May 2007, under the Korean government’s support program designed for telecommunications carriers, an Informationalization Promotion Fund of KRW 11,820,000,000 conditional upon a two-year deferment and installment redemption over three years, and in September 2007, an Inter-Korea Cooperation Fund of KRW 1,098,000,000 conditional upon a seven-year deferment and installment redemption over thirteen years. As a result of these efforts, the average maturity of KT’s borrowings has been extended and its financial stability increased, enabling the efficient management of relevant debt maturity.

(6) Relevant Laws and Government Regulations

(a) Regulatory Principles of the Communications Market

• Regulations relating to the communications market are primarily set forth in the Telecommunications Basic Act, Telecommunications Business Act and related announcements. In particular, the communications market enforces a regulatory policy specific to the communications field and distinct from other competition regulations in order to prevent impediments to competition resulting from its industrial peculiarities, such as essential facilities, network externalities, a cost structure with a large ratio of common cost, switching costs and the scarcity of frequency resources, and to promote public interest.

• Essential facilities generally means ‘facilities without access to which you cannot provide services or goods to customers’ and, if there do exist essential facilities, competing businesses without such facilities are unable to participate in the competition. As such, businesses equipped with essential facilities are obliged to offer interconnection and comply with the open network policy, such as local loop unbundling (LLU) and offering of facilities.

• Network externalities means the increase in the value of a service or a network in tandem with the increase in the number of users of such service or network. Since network externalities may cause a tipping of subscribers toward existing businesses or a subscriber lock-in, such potential threats to competition are eliminated through policies governing rate setting, interconnection, mergers and acquisitions and anti-trust.

• The communications industry has a cost structure with a large ratio of common cost due to the fact it often simultaneously invests certain facilities or man power into offering various, not just one, services. Thus, in order to thwart mutual aids that would discourage competition among businesses, prevention policies, such as those relating to accounting separation, rate setting and restrictions on unfair practice, are being enforced.

• Communications business generally involves switching costs. When a competing business attempts to recruit subscribers to an existing business, there may be a switching barrier which would lock in those subscribers to the existing business. As switching costs and subscriber lock-in may impede active competition, policies designed to lower switching costs, such as number portability, are being implemented.

• Because of the peculiar characteristics of the communications market, as described above, unique economic regulations are imposed for the purpose of attaining such political objectives as encouraging active competition and promoting public benefits.

(b) Future Policy Directions

• At present, due to the rapid spread of digital convergence, there are active, ongoing movements toward consolidation and convergence of voice & data, communications & media and fixed & mobile in the communications market.

• As such, the government is preparing to establish a horizontal regulatory scheme in accordance with the convergence environment. Through such a scheme, the government plans to deregulate, encourage new service development and greater investment, facilitate competition among communications carriers, and enhance the predictability of its regulations by presenting in advance policy directions and schedule.

• The regulatory reshuffling shall take place step by step in that, in 2007, regulations concerning service reform, package service, number portability between Internet telephones and local telephones, and wholesale restrictions shall be implemented, and in the mid-to-long term, the government will seek to have an estimate for ALL-IP interconnection fees and to guarantee the right to choose Internet networks.

The statements above are based on KT’s estimates (analyses, assumptions, etc.) and offered for the sole purpose of helping to better understand KT at present. Consequently, investors should note that they must not rely solely upon KT’s estimate materials (analyses, assumptions, etc.) when making their investment decisions.

B. Present Conditions of KT

(1) Operation Outlook and Lines of Business

(a) Operation Outlook

The Korean communications market is currently in an overall state of stagnation as the leading services, such as fixed-line telephones, high-speed Internet and mobile communications, have reached maturity and there is severe competition among the carriers. KT is no exception to this state of affairs and our local telephone, Megapass and KT-PCS have each been faced with difficult business climate due respectively to: fixed-to-mobile substitution and active VoIP market; competitors’ aggressive marketing and price offensive; and limited resale activity and increased marketing costs.

Despite such unfavorable environment, KT has made company-wide efforts to continuously reduce costs based on essential quality management and to treat customer value innovation as our top priority. Thanks to those efforts, as of the end of September 2007, Megapass maintains 6,522 thousand customers and KT-PCS has 2,916 thousand customers. Further, 119 thousand additional Ann subscriptions have been made, making the total number of Ann customers 2,214 thousand, and 264 thousand additional MyStyle rate plan subscribers have signed up, bringing the total number of MyStyle customers to 2,026 thousand.

In the future, KT plans to popularize flat rate packages and digital Ann telephones in its fixed-line telephone business and prepare differentiated VoIP services in anticipation for the number portability of Internet telephones. In the high-speed Internet arena, KT will prepare for a rebound by innovatively improving customer value from the viewpoint of customers (aka. the “First 1 Mile Project”) with the uninterrupted provision of FTTH (Fiber-To-The-Home) services. And, as for the PCS resale business, KT will focus on the expansion of its current marketing base in anticipation for a 3G-centered future wireless market. Our WiBro (Wireless Broadband) business plans on expanding its services to the Seoul metropolitan area and will always be a leader in the era of Mobile 2.0, the next

generation mobile environment, on the basis of two-way communication. Also, our IPTV business will focus on actively corresponding to the TV portal market through early development of MegaTV and, in the long term, by taking a leadership position in the communications broadcasting convergence market. Furthermore, we will constantly expand our market by enhancing our space care services based on networks, offering on/offline total solutions and extending our Bizmeka service area to personalized services, such as medicine and education. In particular, we will combine our collective resources and major services to develop, through phases, a package service which shall represent KT’s new dynamic force for growth.

The statements above are based on KT’s estimates (analyses, assumptions, etc.) and offered for the sole purpose of helping to better understand KT at present. Consequently, investors should note that they must not rely solely upon KT’s estimate materials (analyses, assumptions, etc.) when making their investment decisions.

(b) Operations subject to Disclosure

KT’s main area of business is telecommunications under the Korea Standard Industry Code.

(2) Market Share, etc.

Category		Operator		Market Share for Each Term (%)
				3rd Quarter, 26th Term		25th Term (2006)		24th Term (2005)
Local Telephone		KT		91.0		92.1		93.2
(On the Basis of		Hanaro Telecom		8.4		7.5		6.6
Number of		Dacom		0.6		0.4		0.2
Subscribers)
Long Distance		KT		85.6		85.6		85.4
Telephone		Dacom		4.0		4.8		6.1
(On the Basis of		Onse Telecom		1.8		2.1		2.7
Number of		Hanaro Telecom		7.1		6.1		4.8
Subscribers)		SK Telink		1.5		1.4		1.0
High-Speed Internet		KT		44.7		45.2		51.2
Subscriber		Hanaro Telecom		25.3		25.7		22.7
On the Basis of		LG Powercom		10.9		8.6		—
(Number of		SO		17.4		16.6		—
Subscribers)

* Data presented by the Ministry of Information and Communication, Republic of Korea (Data on long distance telephone provided by the Korea Telecommunications Operators Association).

(3) Market Characteristics

Thanks to our well-recognized brand name and the trust of our customers, KT’s local telephone business provides universal services for homes and businesses and enjoys approximately 91% of the market share, despite the competitors’ increased sales efforts. Although PSTN sales and the number of PSTN subscribers are on a continuous decline due to the acceleration of fixed-mobile substitution, popularization of VoIP services, expansion of LNP

areas and changes to the relevant system, KT is committed to defending against declining sales through increased ARPU brought by the sale of additional services, retention of existing customers with CRM and development of optional calling plans.

As for the high-speed Internet, KT seeks to improve ARPU through price differentiation for high-quality products, helped by the reorganization of our product lineup. KT is the leader in the competition over speed and quality in a market environment clouded by price competition, and such achievement was made possible by our prominence in supplying FTTH services. Our ultimate goal is to be a market leader in offering next generation services, such as IPTV, through realizing 100 mega-bites access for homes.

Despite the fierce competition over placing new customers with other mobile communication companies, KT’s resale services are continuously growing thanks to our stable MNP and ability to secure new customers. Furthermore, we are gradually enhancing our sales by establishing 3G (WCDMA) resale operation bases.

(4) Details of, and Prospects for, New Businesses

In order to overcome the present market obstacles related to the growth limits of the voice business market and the sluggish growth of high-speed Internet access services, and to seek continued expansion of our business, KT has been actively involved in developing a wide range of new businesses with good growth prospects.

KT shall commit to making a digital entertainment world that will enrich our customers’ lives through a ubiquitous environment connectible by any terminal anytime anywhere, and to offering both customer convenience solutions that customers may freely use without the limitations of time and space and business solutions necessary to raise corporate efficiency and competitiveness. By excelling in these new business arenas, KT will become a “Wonderful Life Partner” that accomplishes customer value innovation and realizes our customers’ hopes and visions.

KT’s WiBro operation offers high-speed portable Internet services, allowing anytime (while stopping or on the go), anywhere access to the Internet with a high transmission speed by using exclusive terminals or laptop computers, and WiBro was first commercialized in the world using Korean technology. In 2006, KT has successfully performed commercial WiBro services as a trial and in limited areas, and from April 2007, we have been actively seeking to provide WiBro services to the whole areas of Seoul, including the major buildings, and major university campuses in the Seoul metropolitan area. Future plans to expand WiBro service areas into the Seoul metropolitan area are currently underway. As of 2007, KT WiBro services can be enjoyed by anyone with a mini-PC, WiBro laptop computer, WiBro telephone which combines a CDMA mobile telephone and KT WiBro or USB-shaped “Dongle” connected to a laptop computer. Preparations are being made to enable future KT WiBro use with various mobile devices, such as PMPs and tablet PCs. KT will create a mobile culture for its customers through KT WiBro which shall offer to the users not only its basic function of Internet access but also other services, such as combined Webmail, two-way visual communications, PC control for controlling computers at home, tailored information services linked with real-time search and mobile UCC. Through KT WiBro, KT will lead the Mobile 2.0 generation, a next-generation mobile environment in which users may utilize the information and contents they need based on two-way communication.

Mega TV (IPTV) is a typical service which combines communications and broadcasting, brought about by the emergence of the convergence era among industries and the accelerated process of producing high-speed networks and multimedia contents. Mega TV can be briefly defined as: (1) Internet services, such as information search, games, exchanging messages and shopping, which until now users could only access using their personal computers; (2) VOD services, allowing users to watch a variety of contents, such as movies, dramas and educational programs, at any time they wish; and (3) convergence services which enable users to conveniently enjoy, with simple operation, high definition multi-channel broadcasting programs via high-speed Internet networks and the TV. KT will pursue the continued growth of convergence between communications and broadcasting by early popularization of IPTV services.

Megapass FTTH is an access network technology based on optical cables with connections to homes using optical cables and it will constitute a growth momentum offering new values to customers with the best speed and quality. With the help of Megapass FTTH, customers will be able to use the latest multimedia contents, such as Mega TV and network games, at the most stable and fast speed, and residential units including single-houses and small apartments will be able to enjoy the true optical communications high-speed Internet. With its Megapass FTTH trial offering in 2004, KT will lead the new Internet world by facilitating further distribution of Megapass FTTH services.

KT’s solution business is composed of total IT solutions, such as Bizmeka and ICC (International Computing Center), that will help raise corporate efficiency and competitiveness, and various Care solutions, such as robots, security, visuals, medicine and educational services. KT is currently in the process of transforming itself into a “Total Solution Provider” that offers a range of different solutions for increasing the efficiency and convenience of both corporate and individual customers.

The new businesses mentioned above are expected to not only bring about a favorable business outcome to KT, but also help defend the existing fixed-line market and promote the competitiveness of our high-speed Internet services. KT intends to continue to develop and nurture new businesses so that we could become a business frontier in the areas of fixed-mobile consolidation, communications-broadcasting-home appliances convergence and cross-industry convergence, based on our past success in the area of industry-service convergence.

The statements above are based on KT’s estimates (analyses, assumptions, etc.) and offered for the sole purpose of helping to better understand KT at present. Consequently, investors should note that they must not rely solely upon KT’s estimate materials (analyses, assumptions, etc.) when making their investment decisions.

(5) Organization Chart

4. Matters related to Revenue

A. Revenue

(Unit: Million Won)

Items		3rd Quarter 26th Term		3rd Quarter 25th Term		25th Term (Yearly)
Internet Connection		1,581,251		1,617,232		2,145,823
Internet Application		294,557		210,848		279,797
Data		1,219,662		1,217,591		1,615,116
Telephone		3,110,227		3,239,207		4,229,435
LM		1,205,085		1,312,010		1,737,063
Wireless		1,140,599		1,026,166		1,361,603
SI Project		184,555		131,247		211,712
Real Estate		167,850		111,531		163,482
Others		19,308		21,875		28,039
Total		8,923,094		8,887,707		11,772,070

B. Routes and Methods of Sales

(1) Organization Structure of Sales

• Internal Distribution Organizations: Regional Business Units (11), District Office/Branch Office (419), Distribution Centers (10), Customer Center (1)

• External Distribution Organizations: Sales Agencies and Intern Stores*, Specialty Stores, Agencies, Tel-Plazas, Fixed-Mobile Combination Stores**, Specific Telecommunications Service Providers, Affiliates

* Intern Stores: stores that are eligible to become sales agencies once they prove that they are able to generate sizeable sales for a specified period of time.

** Fixed-Mobile Combination Stores: a new customer service space KT started that enables customers to actually experience fixed-mobile, contents and various services, and offers convenient services relating to joining, payment acceptance, etc.

(2) Sales Channel

• Sale of goods and provide customer services through branch offices

• Subscription to goods and services through sales agencies: sales agencies, specialty stores, Tel-Plazas, Darocks, global communications service providers

• Subscription to goods and services through the Internet (Cyber Customer Management Center)

• Placement of subscribers and increase cross-sales through the execution of business sales agreements

• Utilize distribution routes through cooperation with other carriers

(3) Methods and Conditions of Sales

<Sales Methods>

• Service fees shall be paid in cash (wire transfer, direct bank transfer, credit cards, etc.)

• fixed and cordless telephones shall be operated in the form of unit pricing system/partial flat rate system and Internet access in the form of flat rate system

• Sale of terminals may involve payments in installments

• Rental of terminals shall be subject to monthly charges and a discounted rate shall apply during contract period

• Distribution fees shall take the form of acquisition/maintenance fees

<Conditions for Sales>

• Discount of Service Fees in accordance with the Period of Use

• Discount for Contract Term

Category		1 Year			2 Years			3 Years			4 Years
Megapass		5	%		10	%		15	%		20% (limited to Ntopia)
KORNET (Express/Premium)		5	%		10	%		15	%		—
Mega TV		5	%		10	%		20	%		—

• Additional discounts available for customers who have used the service for at least 3 years

Category		After 3 Years		After 4 Years		After 5 Years		Note
Megapass		2%		3%		5%		—
KORNET (Express/Premium)		2% (Additional Agreement for 1 Year)		3% (Additional Agreement for 2 Years)		5% (Additional Agreement for 3 Years)		When customers enters into an additional Agreement

• Major Package Discounts

Megapass		Megapass		SHOW
+ SHOW		3~10% Additional discount for service fees according to the Agreement term		10% Discount for monthly service fees (5% for Megapass without Agreement)
Megapass		Megapass		KT WIBRO
+ KT WIBRO		5~10% Additional discount for service fees according to the Agreement term		10~20% Discount for monthly service fees according to the Rate System)
Megapass		Megapass		Mega TV
+ Mega TV		5% additional discount for service fees (limited to Premium, Ntopia and Special)		10~20% Discount according to Megapass product-type in use (limited to Premium, Ntopia and Special)

• Discounts for Multi-Circuit Use

• Local Circuit

Category		30,001~40,000		40,001~60,000		Above 60,001		Note
Discount Rate		4%		5%		6%		Limited to Circuits below Low-Speed(300bps)Level

• Long Distance Circuit

Category		5~9		Above 10		Note
Discount Rate		5%		10%		—

* Please refer to the explanations for each service provided on our Company Web or the relevant Terms and Conditions for further details.

(4) Sales Strategy

• High-speed Internet Service

• Enhance competitiveness by getting ahead in quality/speed with FTTH offering

• Satisfy various customer needs and provide differentiated services using additional Megapass services

• Promote high-quality products and increase sales through up-selling and retention of existing customers

• WiBro Service

• Improve distribution networks, terminal design and line-up for the purpose of growing client base

• Promote cultural marketing through experience stores and target marketing, such as WiBro, U-Campus, laptop rental and securities

• stimulate early market interest through promotion rate plans and combination products

• IPTV Service

• Sell VOD-based Mega TV products to Megapass customers nationwide

• Expand client base by offering free set-top box rentals (with a 3 year contract) and opportunities to experience KT services

• Increase synergy, such as up-selling and customer retention, through promoting combination products with Megapass

• Data Service

• Promote customer value by offering high-quality stable/unique exclusive networks

• Offer customized services through professional consulting

• Telephone Service

• Focus on retaining local call subscriber base through defending against LNP transfers and cancellations

• Increase sales efficiency by target marketing based on the analyses of customer service use patterns

• Promote customer loyalty by operation of the Care Program designed for each customer type and by developing services based on specific customer needs

• Retain existing customers and tackle Internet telephones through optional calling plans and through the development of combination products

• Wireless Service

• Place competitors’ best customers or new customers through the adoption of sales policies different from the competitors

• Focus on customer retention by engaging in Care activities toward VIP customers

• Develop additional services and improve the quality of terminals/CS in collaboration with KTF

• Combination Service

• Retain existing customers for developing and promoting new combination products centered around Megapass; recruit new clients for such services as KT WiBro and SHOW

• Continued development and sale of combination products among major services for the purpose of customer retention

9. Other matters necessary for making investment decisions

A. Summary of Outside Funding

[Domestic Funding] (Unit: Million Won)

Source		Balance at the Beginning of the Term		New Fundraising		Reduction due to Return, etc.		Term-End Balance		Note
Bank		54,652		52,918		57,613		49,957		Including short-term loan of 40 billion
Insurance Company		—		—		—		—		—
Merchant Bank		—		—		—		—		—
Credit Specialty Financial Company		—		—		—		—		—
Mutual Savings Bank		—		—		—		—		—
Other Banking Institutions		—		—		—		—		—
Total: Banking Institutions		54,652		52,918		57,613		49,957		—
Corporate Bond (Public Subscription)		3,990,000		140,000		350,000		3,780,000		—
Corporate Bond (Private Subscription)		—		—		—		—		—
Capital Increase (Public Subscription)		—		—		—		—		—
Capital Increase (Private Subscription)		—		—		—		—		—
Other		—		60,000		60,000		—		Commercial Paper
Total: Capital Market		3,990,000		200,000		410,000		3,780,000		—
Loan from Shareholders Ÿ Officers Ÿ Subsidiaries		—		—		—		—		—
Other		—		—		—		—		—
Total		4,044,652		252,918		467,613		3,829,957		—

(Note) Total amount of corporate bonds issued during this term

Publicly subscribed: KRW 140,000 million (not including corporate bonds issued in foreign currency)

Privately subscribed: KRW _______ million

* The Company has issued $200 million worth of foreign currency corporate bonds during this term.

[Domestic Funding] (Unit: Million Won)

Source		Balance at the Beginning of the Term		New Fundraising		Reduction due to Return, etc.		Term-End Balance		Note
Banking Institution		—		—		—		—		—
Overseas Securities (Corporate Bond)		1,394,400		186,520		199,870		1,381,050		Including reduction in amount converted to KRW following depreciation of exchange rate
Overseas Securities (Shares, etc.)		—		—		—		—		—
Asset-Backed Securitization		—		—		—		—		—
Other		—		—		—		—		—
Total		1,394,400		186,520		199,870		1,381,050		—

* 1 US$ = 929.6 (at the beginning of the term), 1 US$ = 920.7 (term-end)

* Effect of conversion following fluctuation of foreign exchange rate is reflected in “Reduction due to Return, etc.”

B. Credit Rating for Last 3 Years

(1) Overseas Credit Rating

Date of Assessment		Assessed Securities, etc.		Credit Rating of Assessed Securities		Assessing Company (Scale of Rating)		Assessment Type
07/02/2007		—		A		Fitch : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Regular Assessment
04/02/2007		2007 Global Bond		A3		Moody’s : U.S. (Aaa, Aa1, Aa2, Aa3, A1, ~ C)		Occasional Assessment
04/02/2007		2007 Global Bond		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Occasional Assessment
09/26/2006		—		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Regular Assessment
09/04/2006		—		A3		Moody’s : U.S. (Aaa, Aa1, Aa2, Aa3, A1, ~ C)		Regular Assessment
04/25/2006		2006 Global Bond		A3		Moody’s : U.S. (Aaa, Aa1, Aa2, Aa3, A1, ~ C)		Occasional Assessment
04/24/2006		2006 Global Bond		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Occasional Assessment
06/20/2005		—		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Regular Assessment
06/15/2005		—		A3		Moody’s : U.S. (Aaa, Aa1, Aa2, Aa3, A1, ~ C)		Regular Assessment
06/11/2004		2004 Bond		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Regular/ Occasional Assessment
06/09/2004		2004 Bond		Baa1		Moody’s : U.S. (Aaa, Aa1, Aa2, Aa3, A1, ~ C)		Occasional Assessment
02/27/2004		—		A-		S&P : U.S. (AAA, AA+, AA, AA-, A, ~ D)		Regular Assessment

(2) Domestic Credit Rating

Date of Assessment		Assessed Securities, etc.		Credit Rating of Assessed Securities		Assessing Company (Scale of Rating)		Assessment Type
03/22/2007		Corporate Bond		AAA		Korea Information Service, National Information & Credit Evaluation, Korea Ratings		Regular Evaluation
06/10/2005		Corporate Bond		AAA		Same as above		“
04/11/2005		Corporate Bond		AAA		Same as above		“
03/11/2005		Corporate Bond		AAA		Same as above		“
08/16/2004		Corporate Bond		AAA		Korea Information Service, National Information & Credit Evaluation		“
06/08/2004		Corporate Bond		AAA		Same as above		“
03/17/2004		Corporate Bond		AAA		Same as above		“
02/18/2004		Corporate Bond		AAA		Same as above		“
06/27/2007		Commercial Paper		A1		Korea Information Service		“
06/21/2007		Commercial Paper		A1		National Information & Credit Evaluation		“
06/29/2006		Commercial Paper		A1		Korea Information Service		“
06/28/2006		Commercial Paper		A1		Korea Ratings		“
06/10/2005		Commercial Paper		A1		National Information & Credit Evaluation, Korea Ratings		“
06/08/2004		Commercial Paper		A1		Korea Information Service, National Information & Credit Evaluation		“

* Korea Information Service: Korea Information Service Inc., Korea Ratings: Korea Ratings Corporation, National Information & Credit: National Information & Credit Evaluation Inc.

• Regular evaluation on existing corporate bonds and corporate papers was held, and the Company maintained AAA and A1, which are equal in rating, for all of its assessed securities.

• Rating Scale

• Corporate Bond: 10 levels from AAA to D, Commercial Paper: 6 levels from A1 to D

C. Other Important Matters

Not applicable.

V. Matters on Board of Directors etc., Organs of the Company and Subsidiaries

1. Summary of Board of Directors etc., Organs of the Company

A. Matters on the Board of Directors System

(1) Organization

(A) Rights of the Board of Directors

• Convocation of general meeting of shareholders

• Approval of budget

• Approval of financial statements and business report

• Establishment, movement and annulment of branch offices

• Material organizational changes such as dissolution, business transfer, merger and acquisition, etc.

• Issuance of new shares and disposal of forfeited shares and odd-lot shares

• Grant and revocation of stock option

• Bond subscription

• Long-term loans in excess of loan plan under the Company budget

• Deciding matters on issuance of convertible bonds and bond with warrants

• Establishment of subsidiaries and share sale exceeding Won 10 billion

(Share sale less than Won 10 billion is included in the event that transfer of the right of management is accompanied)

• Investment and guarantee for other enterprises

(Guarantee for the subsidiaries shall be for at least Won 10 billion)

• Acquisition and disposal of land and buildings worth exceeding Won 10 billion

• Contribution and donation of an amount exceeding Won 100 million

• Amendment of the Articles of Incorporation

• Establishment and amendment of regulations on the Board of Directors

• Determination on the number and remuneration of senior managers who are not standing directors and regulations of severance payment for officers

• Reduction of capital and share retirement

• Appointment and dismissal of directors

• Issue of shares at a discount

• Indemnification of directors from their duties to the Company

• Decisions for share dividend

• Approval of trades with the largest shareholder of the Company and affiliated persons, and report of such trades to the general meeting of shareholders

• Capitalization of reserves

• Approval of transaction between the Company and a director of the Company

• Installation and operation of committees within the board of directors and appointment of the committee members

• Determination of assisting experts for directors

• Organization of the President Recommendation Committee

• Determination of standards for examination of President candidates

• Assessment on the President’s performance of the management contract and recommendation for dismissal

• Decision for standard and payment method of remuneration for the President and standing directors

• Approval of the President’s recommendation of candidates for and dismissal of standing directors

• Decision for contract terms on management goal which is to be entered into with the President

• Mid to long-term management plans

• Large scale related transactions and related transactions under the Monopoly Regulation and Fair Trade Act (except for related transactions of the total daily or annual trading size worth less than KRW 1 billion)

• Appointment and dismissal of representative director pursuant to the latter part of Article 25(1) and latter part of Article 25(2) of the Articles of Incorporation

• Establishment of duties of the representative director pursuant to the latter part of Article 25 (1) of the Articles of Incorporation

• Final settlement and major management performance for each quarter of a fiscal year

• Operation of internal accounting management system and review and report on such operation

• Other matters acknowledged necessary by the Board of Directors or the President, or matters authorized under relevant statutes

(B) Announcement on Identification of Director Candidates before General Meeting of Shareholders and Recommendation of Shareholders

• Notice and Announcement of References for Management: February 22, 2007 (*Date of the General Meeting of Shareholders: March 16, 2007)

• 2 Standing Director Candidates, 3 Outside Director Candidates

* Personal Information of Director Candidates

• Candidates for Standing Director

Name		Jong-Lok Yoon
Date of Birth		December 17, 1957
Major Occupations and Background		(Present) Vice President, KT Corporation (Head of Growing Business Department) Bachelor of Aerial Communication, Korea Aerospace University, 1980 Master of Electronics Engineering, Yonsei University, 1992 Telecommunication Course, Michigan State University, 1996 Chief Executive Office Course, Seoul National University, 2003 Entered KT Corporation, 05/1980 e-Biz Managing Director, 03/2001 ~ 02/2003 Managing Director, Marketing Planning Department, 02/2003 ~ 11/2003 Technical Director, 11/2003 ~ 04/2004 Managing Director, New Project Planning Department, 07/2004 ~ 04/2005 Chief of Growing Strategy Department, 09/2005 ~ 11/2005 Chief of R&D Department, 11/2005 ~ 11/2006 Chief of Growing Business Department, 11/2006 ~ Present
Recommender		Representative Director, President (approved by the board of directors)
Relationship with the Largest Shareholder		None

Transaction between the Candidate and the Company for Past 3 Years		None
Term of Office		03/16/2007 ~ Date of Regular General Meeting of Shareholders, 2008
Name		Jeong-Soo Suh
Date of Birth		January 10, 1958
Major Occupations and Background		(Present) Executive Director, KT Corporation (Head of Planning Department) Bachelor of Economics, Sungkyunkwan University, 1984 Master of Economics, Yonsei University, 1988 Entered KT Corporation, 02/1983 Partnership Promotion Team Manager, Privatization Promotion Committee, 02/2001 ~ 02/2002 Head of Global Business Unit, 02/2002 ~ 08/2002 Head of Privatization Promotion Unit, 08/2002 ~ 01/2003 Head of Financial Management Office, 01/2003 ~ 11/2004 Head of Planning & Coordination Office, 12/2004 ~ 08/2005 Head of Planning Department, 09/2005 ~ Present
Recommender		Representative Director, President (approved by the board of directors)
Relationship with the Largest Shareholder		None
Transaction between the Candidate and the Company for Past 3 Years		None
Term of Office		03/16/2007 ~ Date of Regular General Meeting of Shareholders, 2008

• Candidates for Outside Director

Name		Paul Chang Yi (Chang Yub Yi)
Date of Birth		May 30, 1967
Major Occupations and Background		(Present) President, Coca-Cola Korea Co., Ltd. Bachelor of Accounting, University of Texas at Austin, U.S., 1989 Master of Business, Columbia Business School, U.S., 1995 Auditor, Arthur Andersen, U.S., 1989 ~ 1990 Sales Representative, P & G, U.S., 1990 ~ 1993 Product Manager, Colgate-Palmolive, U.S., 1995 ~ 1998 Global Business Manager, Oral-B Laboratories, U.S., 1998 ~ 1999 President, Hershey Food Corporation Korea Branch, 1999 ~ 2001 Executive Director, Head of Marketing Department, Haitai Confectionery & Foods Co., Ltd., 2001 ~ 2005 President, Nong Shim Kellogg Co., 2005 ~ 2006 President, Coca-Cola Korea Co., Ltd., 2006 ~ President
Recommender		Outside Director Candidate Recommendation Committee
Relationship with the Largest Shareholder		None
Transaction between the Candidate and the Company for Past 3 Years		None
Term of Office		03/16/2007 ~ Date of Regular General Meeting of Shareholders, 2010

• Candidates for Outside Directors who are to Act as Auditors

Name		Jeong-Ro Yoon
Date of Birth		July 21, 1954
Major Occupations and Background		(Present) Professor, School of Humanities and Social Science, Korea Advanced Institute of Science and Technology Bachelor of Sociology, Seoul National University, 1977 Master of Sociology, Harvard University, U.S., 1984 Doctor of Sociology, Harvard University, U.S., 1989 Associate Professor and Professor, School of Humanities and Social Science, Korea Advanced Institute of Science and Technology, 1991 ~ Present Member of Presidential Advisory Council on Science & Technology, 2000 ~ 2004 Director, (Foundation) IT Thinknet, 2000 ~ Present Vice President, Korea Association for Information Society, 2002 ~ 2006 Member of Public Service Evaluation Committee of the Prime Minister, 2003 ~ 2006 Director, Korea Science and Engineering Foundation (Department of Science & Technology), 2004 ~ Present Vice President, Korean Sociological Association, 2006 ~ Present Outside Director, KT Corporation, 2004 ~ Present
Recommender		Outside Director Candidate Recommendation Committee
Relationship with the Largest Shareholder		None
Transaction between the Candidate and the Company for Past 3 Years		None
Term of Office		03/16/2007 ~ Date of Regular General Meeting of Shareholders, 2010
Name		Kon-Sik Kim
Date of Birth		January 10, 1955
Major Occupations and Background		(Present) Professor, College of Law, Seoul National University Bachelor of Law, College of Law, Seoul National University, 1977 Master of Law, Graduate School of Law, Seoul National University, 1979 Graduated from Harvard Law School, U.S., 1980 Doctor of Law, Washington State University, U.S., 1995 Professor, College of Law, Seoul National University, 1986 ~ Present Member of Subcommittee for Amendment of Commercial Code, Judicial Affairs Assistance Committee, Ministry of Justice, 1997 ~ Present Member of Ministry of Financial Industry Development Council, Finance and Economy, 1998 ~ 2004 Vice President, Korea Securities Law Association, 2000 ~ Present Member of Supervision Committee of Accounting, Financial Supervisory Commission, 2001 ~ 2003 Consultant, The Int’l Bank for Reconstruction and Development (IBRD), 2002 ~ 2005 Vice President, Korean Institute of Directors, 2006 ~ Present Outside Director, KT Corporation, 2004 ~ Present
Recommender		Outside Director Candidate Recommendation Committee
Relationship with the Largest Shareholder		None
Transaction between the Candidate and the Company for Past 3 Years		None
Term of Office		03/16/2007 ~ Date of Regular General Meeting of Shareholders, 2010

(C) Establishment and Organization of Outside Director Candidate Recommendation Committee

• Enactment of regulations for operation of Outside Director Candidate Recommendation Committee (01/20/2003)

• Appointment of Members and Chairman of Outside Director Candidate Recommendation Committee (01/08/2007)

Name		Outside Director		Note
Kook-Hyun Moon		O		At least 1/2 of the directors shall be outside directors (satisfied provisions under Article 191-16(3) of the Securities and Exchange Act)
Stuart B. Solomon		O
Do-Hwan Kim		O
Thae-Surn Khwarg		O
Jong-Kyoo Yoon		O
Jeong-Soo Suh		X

* Director Kook-Hyun Moon has resigned from his position as an outside director on August 23, 2007

(D) Current Status of Outside Directors (As of September 30, 2007)

Name		Education		Experience		Relationship with the Largest Shareholder, etc.		Reasons for Disqualification
Jeong-Ro Yoon		- Bachelor of Sociology, Seoul National University - Doctor of Sociology, Harvard University		- Vice President, Korean Sociological Association - (Present) Professor, School of Humanities and Social Science, KAIST		Not Applicable		Not Applicable
Stuart B. Solomon		- Bachelor of Biochemistry, Syracuse University		- Worked at Peace Corps - Korea Exchange Bank, New York Branch - (Present) President, Metlife Co., Ltd.		Not Applicable		Not Applicable
Do-Hwan Kim		- Bachelor of Business, Sungkyunkwan University - Doctor of Business, Northwestern University		- Researcher, KISDI - (Present) Professor, Business Administration & Accounting, Sejong University		Not Applicable		Not Applicable
Kon-Sik Kim		- Bachelor of Law, Seoul National University - Doctor of Law, Washington Staten University		- Vice President, Korea Institute of Directors (Present) Professor, College of Law, Seoul National University		Not Applicable		Not Applicable
Thae-Surn Khwarg		- Bachelor of History, Columbia University - Doctor of Law, Harvard Law School		- Assistant Manager, ING Bearings Seoul Branch - (Present) Representative Director/President, SEI Asset Korea Co., Ltd.		Not Applicable		Not Applicable
Jong-Kyoo Yoon		- Bachelor of Business, Sungkyunkwan University - Doctor of Business, Sungkyunkwan University		- Vice Representative, Samil Pricewaterhouse Coopers - Vice Chairman, Kookmin Bank Private Banking Group - (Present) Standing Consultant, Kim & Jang		Not Applicable		Not Applicable
Paul Chang Yi (Chang Yub Yi)		- Bachelor of Accounting, University of Texas at Austin - Master of Business, Columbia Business School		- President, Hershey Food Corporation Korea Branch - President, Nong Shim Kellogg Co. - (Present) President, Coca-Cola Korea Co., Ltd.		Not Applicable		Not Applicable

(2) Operation of the Board of Directors

(A) Operational Rules of the Board of Directors

• Convocation: by the President or the Chairman

• Issues to be Submitted and Discussed: Please refer to “Rights of the Board of Directors” specified above

• Resolution: A resolution of the Board of Directors Meeting shall be adopted by the affirmative vote of the majority of directors presented at the meeting, provided that the majority of the registered directors are present at the meeting.

• A resolution shall be adopted by the affirmative vote of two thirds of the registered directors in the event of sales of a subsidiary’s shares accompanied by transfer of the right of management

• A resolution shall be adopted by the affirmative vote of two thirds of the registered outside directors in the event the subject of the meeting is on recommendation for dismissal of the President

(B) Major Activities of the Board of Directors/

(C) Major Activities of Outside Directors

Order		Date		Subject		Result of Discussion		Number of Attending Outside Directors (Attending/Total)		Note
First		01/08		1) Appointment of the members and the Chairman of the Outside Director Candidate Recommendation Committee		Committee member appointed		7/8		—
Second		01/25		2) Approval of Financial Statements of the 25th Term		Original proposal approved		5/8		—
				3) Business Report of the 25th Term		Original proposal approved
				4) Funds Program of 2007		Proposal received
Third		02/06		5) Amendment of part of Article of Incorporation at the 2007 Regular General Meeting of Shareholders		Original proposal approved		8/8		—
				6) Recommendation of candidates for the Audit Committee members		Original proposal approved
				7) Approval on recommendation of candidates for standing directors		Original proposal approved
				8) Standard for and payment method of remuneration for the President and standing directors		Original proposal approved
				9) Limit of remuneration for directors, 2007		Original proposal approved
				10) Convocation of Regular General Meeting of Shareholders of 25th Term		Original proposal approved
				11) Approval of Financial Statements of 25th Term		Original proposal approved
				12) Business Report of 25th Term		Original proposal approved
				13) Report on operational condition of internal accounting management system of Fiscal Year 2006		Proposal received
				14) Report on validity of the Audit Committee		Proposal received
				15) Report on operational condition of internal accounting management system of Fiscal Year 2006 (prepared by the Audit Committee)		Proposal received
Fourth		02/22		16) Extension of Period of Money Market Trust for treasury share fund		Original proposal approved		7/8		—
				17) Approval of IT Hosting Service Agreement with Metlife Co., Ltd.		Original proposal approved
				18) Approval of the limit for total business volume with KTF in 2007		Original proposal approved
Fifth		03/29		19) Appointment of the Chairman of the Board of Directors and members of the committees within the Board		Original proposal approved		8/8		—

				20) Enactment of Corporate Governance Charter		Original proposal approved
				21) Disposal of Treasury Shares for payment of long-term piece rate		Original proposal approved
				22) Payment of long-term incentives		Original proposal approved
Sixth		04/26		23) Statement of Accounts for 1st Quarter of Fiscal Year 2007		Proposal Received		7/8		—
Seventh		05/16		24) Plans to increase shareholder value		Original proposal approved		5/8		—
Eighth		07/26		25) Approval of Shareholder’s Agreement in connection with Skylife foreign capital inducement		Original proposal approved		8/8		—
				26) Promotion of K Project		Amended proposal approved
				27) Report on operational condition of internal accounting management system of the First Half of Fiscal Year 2007		Proposal Received
				28) Statement of Accounts for the First Half of Fiscal Year 2007		Proposal Received
Ninth		09/20		29) Appointment of members for Related Transactions Committee		Committee member appointed		7/7		—
				30) Plans to increase shareholder value		Original proposal approved
				31) Formation of Contents Investment Source Pool		Vetoed
				32) Business plan for I Project		Re-presented

(D) Organization and Activities of the Committee within the Board of Directors

• Organizational Status of the Committee (As of September 30, 2007)

Title		Organization		Name		Purpose of Establishment and Authority		Note
Audit Committee		4 Outside Directors		Do-Hwan Kim (Chairman) Jeong-Ro Yoon Kon-Sik Kim Jong-Kyoo Yoon		Matters on Accounting, Audit on Business of the Company, etc.		—
Outside Director Candidate Recommendation Committee		5 Outside Directors 1 Standing Director		Jong-Kyoo Yoon (Chairman) Kook-Hyun Moon Stuart B. Solomon Do-Hwan Kim Thae-Surn Khwarg Jeong-Soo Suh (Standing Director)		Examination of qualification of outside director candidates, recommendation at the general meeting of shareholders, etc.		Organized on 01/08/2007 Director Kook-Hyun Moon resigned on 08/23/2007
Standing Committee		3 Outside Directors		Joong Soo Nam (Chairman) Jong-Lok Yoon Jeong-Soo Suh		Matters authorized by the board of directors with regards to management general and financial affairs, etc.		—
Evaluation & Compensation Committee		5 Outside Directors		Jong-Kyoo Yoon (Chairman) Jeong-Ro Yoon Stuart B. Solomon Do-Hwan Kim Thae-Surn Khwarg		Management Agreement with President, Assessment, etc.		—
Committee on Related Transactions		4 Outside Directors		Thae-Surn Khwarg (Chairman) Stuart B. Solomon Kon-Sik Kim Chang Yub Yi		Review on Related Transactions		—

• Activities

[Evaluation & Compensation Committee]

Order		Date		Subject		Result of Discussion		Note
First		01/08		1) Check records of “Intensification of External Competitiveness”, a progression index		Proposal received		—
Second		01/17		2) Report on composite records of 2006 CEO management assessment		Amended proposal received		—
				3) Report on 2007 CEO management index set up		Proposal received
Third		02/06		4) Standard and payment method of remuneration for the President and standing directors		Amended proposal approved		—
				5) Limit of remuneration for directors, 2007		Original proposal approved
				6) Result of 2006 CEO management assessment		Original proposal approved
				7) 2007 CEO management goal		Amended proposal approved
Fourth		04/26		8) Report on Plan for Assessment/Management of 2007 CEO management goal		Proposal received		—
Fifth		07/26		9) Operation Plan of Performance Review Session		Amended proposal received		—
Sixth		08/30		10) Report on records of the First Half of 2007 CEO Management Goal		Proposal received		—
Seventh		09/20		11) Report on Consulting Company Study		Proposal received		—
[Outside Director Candidate Recommendation Committee]
Order		Date		Subject		Result of Discussion		Note
First		01/08		1) Outside Director Candidate Recommendation Support Plan		Proposal approved		—
Second		01/17		2) Report on Activities Plan of Investigation Agency		Proposal received		—
Third		01/31		3) Organization of Selection Advisory Council		Advisory Council organized		—
Fourth		02/05		*Evaluation of KT Outside Director Candidates and Discussion on Recommendation Method		Discussed		—
Fifth		02/05		5) Recommendation of Candidates for Outside Directors - Jeong-Ro Yoon, Kon-Sik Kim, Chang Yub Yi		Candidates confirmed		—
[Standing Committee]
Order		Date		Subject		Result of Discussion		Note
First		02/15		1) Corporate Bond Issuance Plan for 1st ~ 2nd Quarter of 2007		Original proposal approved		—
Second		03/19		2) Movement, Change of Name and Annulment of Branch Office		Original proposal approved		—
Third		04/29		3) Movement of Branch Office		Original proposal approved		—
Fourth		05/28		4) Movement of Branch Office		Original proposal approved		—
Fifth		06/29		5) Conversion of KT Strategy Fund-Invested Enterprise into an Investor Company		Original proposal approved		—
Sixth		07/26		6) Correction of the Location of Branch Office		Original proposal approved		—
[Committee on Related Transactions]
Order		Date		Subject		Result of Discussion		Note
First		02/22		1) Approval of the limit for total business volume with KTF in 2007		Original proposal approved		—
Second		07/26		2) Approval on Continuous Trading with Affiliates throughout 2007		Original proposal approved		—
Third		08/30		3) Approval for Related Transactions with KT Capital Corporation		Original proposal approved		—

[Audit Committee]

Please refer to “(2) Major Activities of Audit Committee” under “B. Audit System” below.

B. Audit System

(1) Audit Institution

(A) Establishment, Method of Organization, etc. of Audit Committee (Auditors)

• Purpose of operational regulations for Audit Committee

• To regulate matters necessary for effective operation of Audit Committee

• Rights and Duties

• The Audit Committee may audit accounting and affairs of the Company, and demand, whenever necessary, directors of the Company to report on the matters relevant to the business affairs of the Company. The Committee may work on the matters provided under the relevant statute, the Articles of Incorporation or operational rules of the Audit Committee and those authorized by the Board of Directors.

• Members of the Audit Committee shall be appointed by the resolution of the general meeting of shareholders, and the members of the Committee shall include at least 1 financial expert.

(B) Preparation of Internal Device for Access to Management Information Necessary for Audit

• Types of Meeting

• The Committee shall hold a regular meeting in the first month of every quarter of a year and may hold a provisional meeting whenever necessary

• Right of Convocation

• The Audit Committee Meeting shall be convened by the Chairman of the Committee upon request of the President or a member of the Committee.

• Convocation Process

• The Chairman shall send every member of the Committee a notice specifying date, location and subject of the meeting through facsimile, telegram, registered mail or other electronic measures, within 3 days before the date of meeting.

• The Committee shall make a deliberation or resolution on the following matters:

• Matters on the General Meeting of Shareholders

• Request to the Board of Directors to convene an extraordinary meeting of shareholders

• Investigation and statement on agenda and documents of the General Meeting of Shareholders

• Matters on Directors and Board of Directors

• Report to the Board of Directors on a director’s activities that are in violation of relevant statues or the Articles of Incorporation

• Preparation and submission of Audit Report on financial statements, etc. that are to be submitted to the General Meeting of Shareholders

• Injunction on illegal activities of a director

• Request for report on performance of directors

• Assessment and report of operational status of internal accounting management system

• Matters authorized by the Board of Directors

• Matters on Audit

• Request on performance of directors or investigation on business and financial status of the Company

• Investigation on subsidiaries under the Commercial Code

• Receipt of report from a director

• Representative of the Company in an action between a director and the Company

• Decision on institution of a lawsuit upon a minority shareholder’s request for institution of a suit against directors

• Approval for appointment and change Ÿ dismissal of external auditor (the “Auditor”)

• Receipt of report prepared by the Auditor on dishonesty of directors in performance of duty or material fact that are in violation of relevant statutes or the Articles of Incorporation

• Receipt of report prepared by the Auditor on the Company’s violation of accounting standards in its accounting method, etc.

• Assessment on audit of the Auditor

• Assessment on independency of the Auditor

• Pre-approval on services provided by the Auditor

• Receipt of auditing plans for the year and the audit result

• Assessment on the internal control system

• Verification on performance pursuant to corrective measures ordered as a result of audit

• Approval for and recommendation of dismissal of a person in charge of internal audit

• Review of feasibility of material accounting policies and change in accounting estimate

• Review on soundness and propriety of corporate financing and accuracy of financial reports

• Establishment of whistle-blowing system

• Other Matters Provided by the Relevant Statutes and the Articles of Incorporation

• The Audit Committee may, whenever necessary, require internal audit organization to separately report on its audit activities.

(C) Personal Information of Members of the Audit Committee

(Auditor)

Name		Education		Experience		Note
Do-Hwan Kim		- Bachelor of Business, Sungkyunkwan University - Doctor of Business, Northwestern University		- Researcher, KISDI - (Present) Professor, Business Administration & Accounting, Sejong University		—
Jeong-Ro Yoon		- Bachelor of Sociology, Seoul National University - Master/Doctor of Sociology, Harvard University		- Vice President, Korean Sociological Association - (Present) Professor, School of Humanities and Social Science, KAIST		—
Kon-Sik Kim		- Bachelor of Law, College of Law, Seoul National University - Obtained a doctorate from Washington State University		- Vice President, Korea Institute of Directors - (Present) Professor, College of Law, Seoul National University		—
Jong-Kyoo Yoon		- Bachelor of Business, Sungkyunkwan University - Doctor of Business, Sungkyunkwan University		- Vice Representative, Samil Pricewaterhouse Coopers - Vice Chairman, Kookmin Bank Private Banking Group - (Present) Standing Consultant, Kim & Jang		—

(2) Major Activities of the Audit Committee (Auditor)

Order		Date		Subject		Result of Discussion		Note
First		01/24		1) Report on Final Audit of Fiscal Year 2006		Original proposal received		—
				2) Report on Audit Records of 2006 and Audit Plan for 2007		Original Proposal received
				3) Approval of Financial Statements of 25th Term		Original proposal approved
				4) Business Report of 25th Term		Original proposal approved
				5) Appointment of Outside Auditor for Fiscal Years 2007~2009 and Approval for 2007 Remuneration		Original proposal approved
Second		02/05		6) Report on operational condition of internal accounting management system of Fiscal Year 2006		Proposal received		—
				7) Report on Validity of the Audit Committee		Proposal received
				8) Report on operational condition of internal accounting management system of Fiscal Year 2006 (prepared by Audit Committee)		Proposal received
Third		02/22		9) Report on agenda of General Meeting of Shareholders for 25th Term and Result on Document Investigation		Proposal received		—
				10) Audit Report for Regular General Meeting of Shareholders of 25th Term		Proposal received
				11) Written Opinion on operational status of internal compliance device of the Audit Committee		Proposal received
Fourth		03/29		12) Appointment of the Chairman of the Audit Committee		Original proposal approved		—
				13) Appointment of Outside Director of consolidate company for Fiscal Year 2007		Original proposal approved
				14) Approval of audit service on result of Fair value assessment of KTF		Original proposal approved
				15) Report on the result of consolidated settlement of account for Fiscal Year 2006		Proposal received
				16) Report on 2007 Outside Auditor Audit Plan		Proposal received
Fifth		04/26		17) Approval for appointment of and remuneration for Jeil FDS Outside Director of Fiscal Year 2007		Original proposal approved		—
				18) Statement of Accounts of 1st Quarter of Fiscal Year 2007		Proposal received
				19) Report on business records and plans of 1st Quarter of 2007		Proposal received
Sixth		06/25		20) Report on English Business Report (Form20F) for Fiscal Year 2006		Proposal received		—
Seventh		07/25		21) Report on Final Audit of the First Half of Fiscal Year 2007		Proposal received		—
				22) Statement of Accounts of the First Half of Fiscal Year 2007		Proposal received
				23) Report on operational condition of internal accounting management system of the First Half of 2007		Proposal received
				24) Report on audit records and plans of 2nd Quarter of 2007		Proposal received
Eighth		08/30		25) Approval on appointment of and fee for non-audit service of KT Japan by external auditors in Fiscal year 2007.		Original proposal approved		—

C. Matters on Shareholder’s Exercise of Voting Right

(1) Adoption of Concentrated Voting System

• Automatic implementation of concentrated voting system following completion of privatization in 2002

(2) Adoption of Written Voting System or Electronic Voting

• Adoption of written voting system in accordance to change in the Articles of Incorporation at the 23^rd General Meeting of Shareholders (March 11, 2005)

(3) Exercise of Rights of the Minority Shareholder

• The minority shareholder’s rights was exercised most recently at the 24^th Regular General Meeting of Shareholders in 2006

<24^th Regular General Meeting of Shareholders (March 10, 2006)>

Shareholder		Contents of the Minority Shareholder’s Right		Purpose of Exercise		Result		Note
Jai Sik Ji and others		Shareholder proposal on the subject matter of the regular general meeting of shareholders		Recommendation of candidates for outside directors who are to be the members of Audit Committee		Candidates recommended through shareholder proposal was defeated at the regular general meeting of shareholders (concentrated voting)		Article 191-14, Securities and Exchange Act
Jai Sik Ji and others		Request for concentrated voting		Request for concentrated voting for appointment of outside directors who are to be the members of Audit Committee		Candidates recommended through shareholder proposal was defeated at the regular general meeting of shareholders (concentrated voting)		Article 191-18, Securities and Exchange Act

D. Remuneration of Officers, etc.

(1) Remuneration Paid to Directors (including Outside Directors) and Members of Audit Committee (Auditors)

(Unit: Million Won)

Category		Total Amount Paid		Amount Approved by the General Meeting of Shareholders		Average Amount Paid per Person		Note
3 Standing Directors		27.4		50		9.1		- including long-term piece rate
8 Outside Directors		1.9				0.24		- long-term piece rate *expenses necessary for business are separately paid (after-tax payment) - expenses for business activities: KRW 4 million/month - actual expenses for attendance: KRW 1 million/conference

* The total amount paid is calculated based on the amount actually paid, not including labor cost for appropriation; it reflects total amount of yearly piece rate paid.

* Outside Director Kook-Hyun Moon resigned on August 23, 2007

(2) Grant Ÿ Exercise of Stock Option

[As of September 30, 2007] (Unit: Won, Share)

Holder		Relationship		Date of Grant		Granting Method		Type of Share		Changed Volume						Unexer- cised		Period for Exercise		Exercise Price		Closing Price
										Granted		Exercised		Revoked
Yong Kyung Lee		Registered Officer		12/26/2002		Grant of Treasury Share		Common Share		300,000		—		—		253,100		12/27/ 2004 ~ 12/26/ 2009		70,000		45,950
Tae Won Jung		Registered Officer		12/26/2002		Grant of Treasury Share		Common Share		100,000		—		—		45,145		Same as Above		70,000		45,950
Young Han Song		Registered Officer		12/26/2002		Grant of Treasury Share		Common Share		60,000		—		—		28,717		Same as Above		70,000		45,950
Ahn Yong Choi		Registered Officer		12/26/2002		Grant of Treasury Share		Common Share		60,000		—		—		32,170		Same as Above		70,000		45,950
Hong-Seek Chun		Registered Officer		12/26/2002		Grant of Treasury Share		Common Share		100,000		—		—		12,500		Same as Above		70,000		45,950
Hyun Jun Jang		Registered Officer		09/16/2003		Grant of Treasury Share		Common Share		5,200		—		—		3,000		09/17/ 2005 ~ 09/16/ 2010		57,000		45,950
Hui Chang Roh		Registered Officer		02/04/2005		Grant of Treasury Share		Common Share		60,000		—		—		43,153		02/05/ 2007 ~ 02/04/ 2012		54,600		45,950
Total		—		—		—		—		685,200		—		—		417,785		—		—		—

Note 1) The closing price is the closing price as of September 28, 2007.

89

2) The relationship is that of the date of grant

3) Difference between the number of shares granted and the number shares with stock option unexercised: adjustment of number of shares granted that are interlocked with management result and length of continuous service

E. Application for Directors’ and Officers’ Liability Insurance

(1) Outline of Directors’ and Officers’ Liability Insurance

[As of September 30, 2007] (Unite: Thousands of Won)

Title		Amount of Insurance Premium Paid				Maximum Amount Insured		Note
		Amount Paid for the Term		Accumulated Amount Paid (including the Amount Paid for the Term)
Directors’ and Officers’ Liability Insurance		601,400		4,509,304		50,000,000		—

(2) Grounds for and Process of Application

• Application after reporting the Board of Directors (approved at the directors’ meeting: 99.5)

• Insurance thereafter is renewed regularly every year

(3) The Insured

• Officers above the level of assistant managing director (including outside directors)

• Officers mentioned above include officers of the Company who had been, are and will be appointed or designated, and officers who are appointed or designated during the insurance period are automatically insured

(4) Damages Insured

• Damages to shareholders and a third party caused by the insured in violation of the duty of reasonable care in performance of his/her business

• “Damages” is a concept which includes amount of compensation, amount ordered by the court, settlement amount and attorneys fees.

(5) Exclusion

- The insurance company shall not be liable to make any payment for loss in connection with any claim or claims made against the directors or officers:

 arising out of, based upon or attributable to the gaining in fact of any personal profit or advantage to which they were not legally entitled;

‚ arising out of, based upon or attributable to the committing in fact of any dishonesty or criminal act.

ƒ arising out of , based upon or attributable to the payment to the insured of any remuneration without the previous approval of shareholders of the Company, which payment without such previous approval shall be held to have been illegal;

„ arising out of, based upon or attributable to profits in fact made from the purchase or sale by the insured of securities of the Company using non-public information in a manner held to have been illegal;

… arising out of, based upon or attributable to payment of commissions, gratuities, benefits or any other favor provided to or from the benefits of any;

• Political group; government official; director, officer, employee or any person having an ownership interest in any customers of the company or their agent(s), representative(s) or member(s) of their family or any other entity(ies) with which they are affiliated.

• The Wrongful Act of any Director or officer shall not be imputed to any other Director or Officers for the purpose of determining the applicability of the foregoing exclusions (5)  through (5) …

* Special Agreement for Exclusion Clause

• Punitive damages

• Nuclear energy liability

• Provision of professional service

• Securities Exchange Act and other relevant statutes

• Violation of Employee Retirement Income Security Act

• Year 2000

• Compulsion, intimidation, corrupt act

• Request for compensation between the insured persons

• Claim for damages filed by the majority shareholder

• Governme-ntrelated authorities

• Immunity from liability for terrorist acts, etc.

VII. Matters on Officers and Employees

2. Current Status of Employees

(As of September 30, 2007) (Unite: Thousands of Won)

Type		Number of Employees										Average Years in Continuous Service		Total Payroll		Average Payroll per Person		Note
		Office Staff		Technical Workers		Research Staff		Other		Total
Male		5,779		24,175		689		878		31,521		19.5		1,312,655		41.64		—
Female		2,980		1,866		157		594		5,597		17.13		196,144		35.04		—
Total		8,759		26,041		846		1,472		37,118		19.14		1,508,799		40.65		—

*Above data does not include 60 officers and 288 who are treated as managing directors.