SECURITIES AND EXCHANGE COMMISSION

FORM 20-F Annual and transition report of foreign private issuers pursuant to sections 13 or 15(d)

Filing Date: 2018-04-27 | Period of Report: 2017-12-31 SEC Accession No. 0001193125-18-136633

(HTML Version on secdatabase.com)

FILER SK TELECOM CO LTD Mailing Address Business Address 11, EULJIRO2-GA 11, EULJIRO2-GA CIK:1015650| IRS No.: 999999999 | Fiscal Year End: 1231 JUNG-GU JUNG-GU Type: 20-F | Act: 34 | File No.: 333-04906 | Film No.: 18780979 SEOUL M5 100-999 SEOUL KOREA M5 100-999 SIC: 4812 Radiotelephone communications 82-2-6100-1639

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents As filed with the Securities and Exchange Commission on April 27, 2018

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 20-F

(Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report For the transition period from to Commission file number 1-14418 SK Telecom Co., Ltd.

(Exact name of Registrant as specified in its charter) SK Telecom Co., Ltd. (Translation of Registrant’s name into English) The Republic of Korea (Jurisdiction of incorporation or organization) SK T-Tower 65, Eulji-ro, Jung-gu, Seoul, Korea (Address of principal executive offices) Ms. Min Joo Kim 65, Eulji-ro, Jung-gu, Seoul, Korea Telephone No.: 82-2-6100-2114 Facsimile No.: 82-2-6100-7830 (Name, telephone, email and/or facsimile number and address of company contact person) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of Each Class Name of Each Exchange on Which Registered American Depositary Shares, each representing New York Stock Exchange one-ninth of one share of Common Stock Common Stock, par value ￦500 per share New York Stock Exchange* * Not for trading, but only in connection with the registration of the American Depositary Shares. Securities registered or to be registered pursuant to Section 12(g) of the Act. None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 70,609,160 shares of common stock, par value ￦500 per share (not including 10,136,551 shares of common stock held by the company as treasury shares). Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐ If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☑ Other ☐

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☑

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents TABLE OF CONTENTS

CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT 1 FORWARD-LOOKING STATEMENTS 1 Part I 3 Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 3 Item 1.A. Directors and Senior Management 3 Item 1.B. Advisers 3 Item 1.C. Auditors 3 Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3 Item 3. KEY INFORMATION 3 Item 3.A. Selected Financial Data 3 Item 3.B. Capitalization and Indebtedness 6 Item 3.C. Reasons for the Offer and Use of Proceeds 6 Item 3.D. Risk Factors 6 Item 4. INFORMATION ON THE COMPANY 21 Item 4.A. History and Development of the Company 21 Item 4.B. Business Overview 23 Item 4.C. Organizational Structure 43 Item 4.D. Property, Plants and Equipment 44 Item 4.E. UNRESOLVED STAFF COMMENTS 44 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 44 Item 5.A. Operating Results 44 Item 5.B. Liquidity and Capital Resources 57 Item 5.C. Research and Development, Patents and Licenses, etc. 64 Item 5.D. Trend Information 65 Item 5.E. Off-Balance Sheet Arrangements 65 Item 5.F. Tabular Disclosure of Contractual Obligations 65 Item 5.G. Safe Harbor 65 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 65 Item 6.A. Directors and Senior Management 65 Item 6.B. Compensation 67 Item 6.C. Board Practices 68 Item 6.D. Employees 69 Item 6.E. Share Ownership 70 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 70 Item 7.A. Major Shareholders 70 Item 7.B. Related Party Transactions 72 Item 7.C. Interests of Experts and Counsel 72 Item 8. FINANCIAL INFORMATION 72 Item 8.A. Consolidated Statements and Other Financial Information 72 Item 8.B. Significant Changes 75 Item 9. THE OFFER AND LISTING 75 Item 9.A. Offering and Listing Details 75 Item 9.B. Plan of Distribution 75 Item 9.C. Markets 75 Item 9.D. Selling Shareholders 83 Item 9.E. Dilution 83 Item 9.F. Expenses of the Issue 83 Item 10. ADDITIONAL INFORMATION 83 Item 10.A. Share Capital 83 Item 10.B. Material Contracts 96

(i)

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Item 10.C. Exchange Controls 96 Item 10.D. Taxation 100 Item 10.E. Dividends and Paying Agents 105 Item 10.F. Statements by Experts 105 Item 10.G. Documents on Display 105 Item 10.H. Subsidiary Information 105 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 105 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 107 Item 12.A. Debt Securities 107 Item 12.B. Warrants and Rights 107 Item 12.C. Other Securities 107 Item 12.D. American Depositary Shares 107 Part II 108 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 108 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 108 Item 15. CONTROLS AND PROCEDURES 108 Item 16. RESERVED 109 Item 16.A. AUDIT COMMITTEE FINANCIAL EXPERT 109 Item 16.B. CODE OF ETHICS 109 Item 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 109 Item 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 110 Item 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 110 Item 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 110 Item 16.G. CORPORATE GOVERNANCE 110 Item 16.H. MINE SAFETY DISCLOSURE 111 Part III 111 Item 17. FINANCIAL STATEMENTS 111 Item 18. FINANCIAL STATEMENTS 112 Item 19. EXHIBITS 113 EX-8.1 EX-12.1 EX-12.2 EX-13.1 EX-13.2 EX-15.3 EX-15.4

(ii)

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents CERTAIN DEFINED TERMS AND CONVENTIONS USED IN THIS ANNUAL REPORT

All references to “Korea” contained in this annual report shall mean The Republic of Korea. All references to the “Government” shall mean the government of The Republic of Korea. All references to “we,” “us,” or “our” shall mean SK Telecom Co., Ltd. and, unless the context otherwise requires, its consolidated subsidiaries. References to “SK Telecom” shall mean SK Telecom Co., Ltd., but shall not include its consolidated subsidiaries. All references to “U.S.” shall mean the United States of America. All references to “MHz” contained in this annual report shall mean megahertz, a unit of frequency denoting one million cycles per second. All references to “GHz” shall mean gigahertz, a unit of frequency denoting one billion cycles per second. All references to “Mbps” shall mean one million bits per second and all references to “Gbps” shall mean one billion bits per second. All references to “GB” shall mean gigabytes, which is one billion bytes. Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding. All references to “Won,” or “￦” in this annual report are to the currency of Korea, all references to “Dollars”, “U.S. dollar” or “US$” are to the currency of the United States of America and all references to “euro” or “€” are to the currency of the European Union. The Ministry of Science and ICT (the “MSIT”) is charged with regulating information and telecommunications and the Korea Communications Commission (the “KCC”) is charged with regulating the public interest aspects of and fairness in broadcasting. Subscriber information for the wireless and fixed-line telecommunications industry set forth in this annual report are derived from information published by the MSIT unless expressly stated otherwise. The consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). As such, we make an explicit and unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016 and 2015 included in this annual report. In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission (the “SEC”), which became effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United States, or U.S. GAAP. Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements,” as defined in Section 27A of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “considering,” “depends,” “estimate,” “expect,” “intend,” “plan,” “planning,” “planned,” “project” and similar expressions, or that certain events, actions or results “may,” “might,” “should” or “could” occur, be taken or be achieved. Forward-looking statements in this annual report include, but are not limited to, statements about the following: • our ability to anticipate and respond to various competitive factors affecting the telecommunications industry, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors; • our implementation of long-term evolution (“LTE”) technology, long-term evolution advanced (“LTE-A”) technology and the next-generation wireless technology, which we call “5G” technology;

1

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • our plans for capital expenditures in 2018 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our Internet of Things (“IoT”) solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course; • our efforts to make significant investments to build, develop and broaden our businesses, including developing our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products and services offered through our platform services, including artificial intelligence solutions; • our ability to comply with governmental rules and regulations, including the regulations of the Government related to telecommunications providers, the Mobile Device Distribution Improvement Act (“MDDIA”), rules related to our status as a “market-dominating business entity” under the Korean Monopoly Regulation and Fair Trade Act (the “Fair Trade Act”) and the effectiveness of steps we have taken to comply with such regulations; • our ability to effectively manage our bandwidth and to timely and efficiently implement new bandwidth-efficient technologies and our intention to participate in, and acquire additional bandwidth pursuant to, frequency bandwidth auctions held by the MSIT; • our expectations and estimates related to interconnection fees, rates charged by our competitors, regulatory fees, operating costs and expenditures, working capital requirements, principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases, and research and development expenditures and other financial estimates; • the success of our various joint ventures and investments, including SK Hynix, Inc. (known as Hynix Semiconductor Inc. at the time of such acquisition, “SK Hynix”), a memory-chip maker; • our ability to successfully attract and retain subscribers; and • the growth of the telecommunications industry in Korea and other markets in which we do business and the effect that economic, political or social conditions have on our number of subscribers and results of operations. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. Risks and uncertainties associated with our business include, but are not limited to, risks related to changes in the regulatory environment, technology changes, potential litigation and governmental actions, changes in the competitive environment, political changes, foreign exchange currency risks, foreign ownership limitations, credit risks and other risks and uncertainties that are more fully described under the heading “Item 3. Key Information — Risk Factors” and elsewhere in this annual report. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

2

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Item 1.A. Directors and Senior Management Not applicable.

Item 1.B. Advisers Not applicable.

Item 1.C. Auditors Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable.

Item 3. KEY INFORMATION Item 3.A. Selected Financial Data You should read the selected consolidated financial and operating data below in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report. The selected consolidated financial data set forth below as of and for each of the five years ended December 31, 2017 have been derived from our audited consolidated financial statements and related notes thereto, which have been prepared in accordance with IFRS as issued by the IASB. In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) as adopted by the Korean Accounting Standards Board (the “KASB”), which we are required to file with the Financial Services Commission of Korea (the “FSC”) and the Korea Exchange Inc. (the “Korea Exchange”) under the Financial Investment Services and Capital Markets Act (the “FSCMA”). English translations of such financial statements are furnished to the SEC on Form 6-K. K-IFRS requires operating profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. Operating expense represents expenses incurred in our main operating activities and includes cost of products that have been resold and selling, general and administrative expenses. The presentation of operating profit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating profit in the consolidated statements of income prepared in accordance with K-IFRS for the corresponding periods in certain respects. For additional information, see “Item 5.A. Operating Results — Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

3

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Year Ended December 31, 2017 2016 2015 2014 2013 (In billions of Won, except per share and number of shares data) STATEMENT OF INCOME DATA Operating Revenue and Other Income ￦17,552.0 ￦17,158.3 ￦17,167.6 ￦17,220.3 ￦16,677.0 Revenue 17,520.0 17,091.8 17,136.7 17,163.8 16,602.1 Other income 32.0 66.5 30.9 56.5 74.9 Operating Expense 16,327.4 15,854.9 15,672.2 15,612.4 15,098.6 Operating Profit 1,224.6 1,303.4 1,495.4 1,607.8 1,578.4 Profit before Income Tax 3,403.3 2,096.1 2,035.4 2,253.8 1,827.1 Profit from Continuing Operations 2,657.6 1,660.1 1,515.9 1,799.3 1,426.3 Profit from Discontinued Operation, net of income taxes — — — — 183.2 Profit for the Year 2,657.6 1,660.1 1,515.9 1,799.3 1,609.5 Basic Earnings per Share(1) 36,582 23,497 20,988 25,154 23,211 Diluted Earnings per Share(2) 36,582 23,497 20,988 25,154 23,211 Basic Earnings per Share from Continuing Operations(1) 36,582 23,497 20,988 25,154 20,708 Diluted Earnings per Share from Continuing Operations(2) 36,582 23,497 20,988 25,154 20,708 Dividends Declared per Share (Won) 10,000 10,000 10,000 9,400 9,400 Dividends Declared per Share (US$)(3) 9.4 8.3 8.6 8.6 8.9 Weighted Average Number of Shares 70,609,160 70,609,160 71,551,966 70,936,336 70,247,592 As of December 31, 2017 2016 2015 2014 2013 (In billions of Won) STATEMENT OF FINANCIAL POSITION DATA Working Capital (Deficit)(4) (907.3 ) ￦(447.5 ) ￦(96.3 ) ￦(337.2 ) ￦(945.8 ) Property and Equipment, Net 10,144.9 10,374.2 10,371.3 10,567.7 10,196.6 Total Assets 33,428.7 31,297.7 28,581.4 27,941.2 26,576.5 Non-current Liabilities(5) 8,290.4 8,737.1 7,950.8 7,272.7 6,340.7 Share Capital 44.6 44.6 44.6 44.6 44.6 Total Equity 18,029.2 16,116.4 15,374.1 15,248.3 14,166.6 As of December 31, 2017 2016 2015 2014 2013 (In billions of Won, except percentage data) OTHER FINANCIAL DATA Capital Expenditures(6) 2,715.9 ￦2,490.5 ￦2,478.8 ￦3,008.0 ￦2,879.1 Research and Development Expense 395.3 344.8 315.8 390.9 352.4 Depreciation and Amortization Expense 3,097.5 2,941.9 2,845.3 2,714.7 2,661.6 Net Cash Provided by Operating Activities 3,855.8 4,243.2 3,778.1 3,677.4 3,558.6 Net Cash Used in Investing Activities (3,070.6 ) (2,462.2 ) (2,880.5 ) (3,683.2 ) (2,506.5 ) Net Cash Provided by (Used in) Financing Activities (826.6 ) (1,044.8 ) (964.6 ) (559.4 ) (573.2 ) Margins (% of total sales): Operating Margin(7) 7.0 % 7.6 % 8.7 % 9.3 % 9.5 % Net Margin 15.2 % 9.7 % 8.8 % 10.4 % 9.7 %

4

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents As of or for the year ended December 31, 2017 2016 2015 2014 2013 SELECTED OPERATING DATA Population of Korea (in millions)(8) 51.8 51.7 51.5 51.3 51.1 Our Wireless Penetration(9) 58.3 % 57.2 % 55.6 % 55.1 % 53.5 % Number of Employees(10) 30,608 25,844 25,992 25,689 23,789 Our Wireless Subscribers (in thousands)(11) 30,195 29,595 28,626 28,279 27,352 Our LTE Subscribers (in thousands)(12) 22,865 21,078 18,980 16,737 13,487 Our LTE Penetration(13) 75.7 % 71.2 % 66.3 % 59.2 % 49.3 % Average Monthly Data Usage per Subscriber(14) 6.0GB 5.2GB 3.9GB 3.0GB 2.0GB Average Monthly Churn Rate(15) 1.5 % 1.5 % 1.5 % 2.0 % 2.3 % Cell Sites 57,758 54,986 55,085 50,158 44,764

(1) Basic earnings per share is calculated by dividing profit attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. Basic earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom by the weighted average number of common shares outstanding during the period. (2) Diluted earnings per share is calculated by dividing profit attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. Diluted earnings per share from continuing operations is calculated by dividing profit from continuing operations attributable to owners of SK Telecom adjusted for dilution by the potential dilutive weighted average number of common shares outstanding during the period, taking into account the conversion of outstanding convertible bonds. (3) The Dollar amounts shown for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 were translated at the rate of Won 1,067.4 to US$1.00, Won 1,203.7 to US$1.00, Won 1,169.3 to US$1.00, Won 1,090.9 to US$1.00 and Won 1,055.3 to US$1.00, respectively, the noon buying rates in effect at the end of the respective years. (4) Working capital means current assets minus current liabilities. (5) Our monetary assets and liabilities denominated in foreign currencies are valued at the exchange rates prevailing at the end of each reporting period. See note 4(19) of the notes to our consolidated financial statements. (6) Consists of cash outflows for the acquisition of property and equipment. (7) Operating revenue and other income and operating profit used in the calculation of these ratios exclude the operating revenue and other income and operating profit from discontinued operations. (8) Population numbers reflect the number of registered residents as published by the Ministry of the Interior and Safety of Korea. (9) Our wireless penetration is determined by dividing our wireless subscribers by total estimated population, as of the end of the period. (10) Includes regular employees and temporary employees. See “Item 6.D. Employees.” (11) Wireless subscribers include those subscribers who are temporarily deactivated, including (i) subscribers who voluntarily deactivate temporarily for a period of up to three months no more than twice a year and (ii) subscribers with delinquent accounts who may be involuntarily deactivated up to two months before permanent deactivation, which we determine based on various factors, including prior payment history. The number of subscribers as of December 31, 2017, 2016, 2015, 2014 and 2013 include 3.4 million subscribers, 3.2 million subscribers, 2.7 million subscribers, 2.1 million subscribers and 1.1 million subscribers, respectively, of mobile virtual network operators (“MVNO”) that lease our wireless networks. (12) The number of LTE subscribers as of December 31, 2017, 2016 and 2015 include 0.5 million subscribers, 0.3 million subscribers and 0.1 million subscribers, respectively, of MVNOs that lease our LTE network. (13) Our LTE wireless penetration is determined by dividing our LTE subscribers by our total wireless subscribers, as of the end of the period.

5

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents (14) Average monthly data usage per LTE subscriber is determined by dividing the total GBs of data usage for the last month of the period by the average number of LTE subscribers for such month. (15) The average monthly churn rate for a period is the number calculated by dividing the sum of voluntary and involuntary deactivations during the period by the simple average of the number of subscribers at the beginning and end of the period, then dividing that number by the number of months in the period. Churn includes subscribers who upgrade to a next-generation service, such as LTE, by terminating their service and opening a new subscriber account.

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

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

Source: Federal Reserve Bank of New York. (1) The average rates for the annual periods were calculated based on daily noon buying rates for cable transfers in New York City certified for customs purposes by the Federal Reserve Bank of New York. On April 20, 2018, the noon buying rate was Won 1,071.0 to US$1.00.

Item 3.B. Capitalization and Indebtedness Not applicable.

Item 3.C. Reasons for the Offer and Use of Proceeds Not applicable.

Item 3.D. Risk Factors Risks Relating to Our Business Competition may reduce our market share and harm our results of operations and financial condition. We face substantial competition across all our businesses, including our wireless telecommunications business. We expect competition to intensify as a result of the development of new technologies, products and services. We expect that such trends will continue to put downward pressure on the rates we can charge our subscribers.

6

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, us, KT Corporation (“KT”) and LG Uplus Corp. (“LG U+”). Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings. The collective market share of our competitors amounts to approximately 51.8%, in terms of number of wireless subscribers, as of December 31, 2017. We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIT. For example, in October 2015, three companies applied for licenses to become Korea’s fourth mobile network operator. Although the MSIT rejected the applications of all three companies in January 2016, the MSIT may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future. We believe the increase in market share of MVNOs and the entrance of a new mobile network operator in the wireless telecommunications market may further increase competition in the telecommunications sector, as well as cause downward price pressure on the fees we charge for our services, which, in turn, may have a material adverse effect on our results of operations, financial position and cash flows. Our fixed-line telephone service competes with KT and LG U+, as well as other providers of voice over Internet protocol (“VoIP”) services. As of December 31, 2017, our market share of the fixed-line telephone and VoIP service market was 16.1% (including the services provided by SK Broadband Co., Ltd. (“SK Broadband”) and SK Telink Co., Ltd. (“SK Telink”)) in terms of number of subscribers compared to KT with 58.0% and LG U+ with 17.4%. In addition, our broadband Internet access and Internet protocol TV (“IPTV”) services provided through SK Broadband competes with other providers of such services, including KT, LG U+ and cable companies. As of December 31, 2017, our market share of the broadband Internet market was 25.7% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 18.0%. As of December 31, 2017, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.4% compared to KT with 23.0% and LG U+ with 10.9% and the collective market share of other pay TV providers with 52.7%. Continued competition from other wireless and fixed-line service providers has also resulted in, and may continue to result in, a substantial level of deactivations among our subscribers. Subscriber deactivations, or churn, may significantly harm our business and results of operations. In 2017, the monthly churn rate in our wireless telecommunications business ranged from 1.4% to 1.5%, with an average monthly churn rate of 1.5%, which remained unchanged from 2016. Intensification of competition in the future may cause our churn rates to increase, which in turn may cause us to increase our marketing expenses as a percentage of sales to attract and retain subscribers. With respect to the e-commerce business operated by SK Planet Co., Ltd. (“SK Planet”), 11st, our marketplace business, faces intense competition from various e-commerce providers, including online open marketplaces such as Gmarket, Auction and Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups. The industry in which 11st competes is evolving rapidly and is intensely competitive, and we face a broad array of competitors domestically and increasingly, internationally. Our ability to compete successfully in all of the businesses in which we operate will depend on our ability to anticipate and respond to various competitive factors affecting the respective industries, including new services that may be introduced, changes in consumer preferences, economic conditions and discount pricing strategies by competitors.

7

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Inability to successfully implement or adapt our network and technology to meet the continuing technological advancements affecting the wireless telecommunications industry will likely have a material adverse effect on our financial condition, results of operation, cash flows and business. The telecommunications industry has been characterized by continual improvement and advances in technology, and this trend is expected to continue. We and our competitors have continually implemented technology upgrades from our basic code division multiple access (“CDMA”) network to our wideband code division multiple access (“WCDMA”) network, and subsequently to LTE technology. We commenced commercial LTE services in July 2011 at the same time as LG U+, while KT commenced its commercial LTE services in January 2012. In June 2013, we commenced providing commercial LTE-A services using carrier aggregation technology which combines spectrum frequencies to improve data transmission speeds, and in June 2014, we launched wideband LTE-A services of up to 225 Mbps and expanded coverage nationwide in 2014. In December 2014, we commenced tri-band LTE-A services, which bundled three different bandwidths to allow faster network service at speeds of up to 300 Mbps. In June 2017, we commenced five-band LTE-A services, which bundles five different bandwidths to allow even faster network service at speeds of up to 700 Mbps as well as enhanced tri-band LTE-A services utilizing 4x4 multiple input multiple output (“MIMO”) technology providing for data transmission speeds of up to 900 Mbps. KT and LG U+ have also launched similar LTE-A services around the same time as us. The more successful operation of an LTE network or development of improved LTE technology by a competitor, including better market acceptance of a competitor’s LTE services, could materially and adversely affect our existing wireless telecommunications businesses as well as the returns on future investments we may make in our LTE network or our other businesses. Additionally, in order to promote the growth of our IoT solutions business, we deployed new networks nationwide, namely our high-speed LTE-M network in March 2016 and our low-cost Low Power Wide Area Network based on LoRa technology (our “LoRa network”) in July 2016. We believe that these new networks will support the active development and provision of diverse IoT solutions at a lower cost. For a more detailed description of our backbone networks, see “Item 4.B. Business Overview — Cellular Services — Digital Wireless Network.” Our business could also be harmed if we fail to implement, or adapt to, future technological advancements in the telecommunications sector in a timely manner, such as the implementation of 5G technology. In addition to introducing new technologies and offerings, we must phase out outdated and unprofitable technologies and services. If we are unable to do so on a cost-effective basis, our results of operations could be adversely affected.

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

Our businesses are subject to extensive Government regulation and any change in Government policy relating to the telecommunications industry could have a material adverse effect on our results of operations, financial condition and cash flows. Most of our businesses are subject to extensive governmental supervision and regulation. Rate Regulation. Under the MDDIA (described in more detail below), wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the

8

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017. We believe these Government measures will adversely affect our revenues and our results of operations. In addition, we may be required to provide other rate discounts in the future to comply with the Government’s public policy guidelines or suggestions, and such measures may have a material adverse effect on our results of operations. When the former President Park Geun-hye took office in February 2013, she announced that the Government would work toward reducing telecommunications service charges and promoting transparency in the decision making of telecommunications service providers. Accordingly, the Government set detailed policy objectives to (1) gradually reduce and abolish initial subscription fees by 2015, (2) expand MVNO and mobile VoIP service, (3) intensify regulations on handset subsidies and (4) construct a data-based rate system. Pursuant to these policy objectives, we ceased charging initial subscription fees to new subscribers starting in November 2014. Similarly, the Government has periodically reviewed the rates charged by wireless telecommunications service providers and has, from time to time, suggested rate reductions. Although these suggestions were not binding, we have implemented some rate reductions in response to such recommendations. The Government may suggest other rate reductions in the future and any further rate reductions we make in response to such suggestion may adversely affect our results of operations. In furtherance of the above policy objectives, the Government also enacted the MDDIA, which became effective on October 1, 2014. The MDDIA was enacted for the purpose of establishing a transparent and fair distribution practice for mobile devices, and it limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber and (ii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. The MDDIA also prohibited providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, which prohibition expired in September 2017. The expiration of the ceiling on handset subsidies may have a material adverse effect on our results of operations as we believe it may lead to an increase in our marketing expenses and affect consumer behavior and our competitors in ways we cannot fully predict. See “Item 5. Operating and Financial Review and Prospects — Item 5.A. Operating Results — Overview — New Rate Regulations.” Selection of Technology Standards. The Government also plays an active role in the selection of technology to be used by telecommunications operators in Korea. For example, the Government adopted the WCDMA and CDMA2000 technologies as the only standards available in Korea for implementing third generation services. The MSIT may impose similar restrictions on the choice of technology used in future telecommunications services, including 5G technology, and it is possible that technologies promoted by the Government in the future may not provide the best commercial returns for us. Frequency Allocation. The Government sets the policies regarding the use of frequencies and allocates the spectrum of frequencies used for wireless telecommunications. See “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Frequency Allocation.” The reallocation of the spectrum to our existing competitors could increase competition among wireless telecommunications service providers, which may have an adverse effect on our business. MVNOs. Pursuant to the Telecommunications Business Act, certain wireless telecommunications service providers designated by the MSIT, which currently include only us, are required to lease their networks or allow use of their networks (collectively, a “wholesale lease”) to other network service providers, such as an MVNO, that have requested such a wholesale lease in order to provide their own services using the leased networks. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. We believe that leasing a portion of our bandwidth capacity to an MVNO impairs our ability to use our bandwidth in ways that would generate maximum revenues and strengthens our MVNO competitors by granting them access and lowering their costs to enter into and operate in our markets. Accordingly, our profitability has and may continue to be adversely affected.

9

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Interconnection. Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Our interconnection arrangements, including the interconnection rates we pay and interconnection rates we charge, affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. The KCC, which determined such basic framework under the previous Government, changed the basic framework for interconnection arrangements several times. We cannot assure you that we will not be adversely affected by the MSIT’s interconnection policies and future changes to such policies. See “Item 4.B. Business Overview — Interconnection — Domestic Calls.” Regulatory Action. The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. For information about the penalties imposed on us for violating Governmental regulations, see “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.” Such penalties, which may include the revocation of cellular licenses, suspension of business or imposition of monetary penalties by the KCC, could have a material adverse effect on our business. We believe we are currently in compliance with the material terms of all our cellular licenses.

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

Declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and American Depositary Shares (“ADSs”) as well as our results of operation. As of December 31, 2017, we held a 20.1% equity interest in SK Hynix, which is listed on the KRX KOSPI Market and is one of the world’s largest memory-chip makers by revenue. As of December 31, 2017, the fair value of our holding in SK Hynix was Won 11,176.7 billion. We received dividend payments of Won 87.7 billion in 2017, Won 73.1 billion in 2016 and Won 43.8 billion in 2015 related to such shareholding. From time to time, the memory semiconductor industry has experienced significant and sometimes prolonged downturns, which often occur in connection with a deterioration of global economic conditions, and is subject to intense competition. For example, SK Hynix and its subsidiaries, on a consolidated basis, incurred net losses of Won 158.8 billion and Won 56.0 billion in 2012 and 2011, respectively, primarily due to increased supply and weak

10

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents demand for semiconductor products. Although the memory semiconductor industry has recovered since then and SK Hynix has been reporting net profits since 2013, the industry is subject to cyclical fluctuations and we expect that there may be future downturns in the industry. Accordingly, SK Hynix’s operating results would be adversely affected if it fails to compete successfully or decrease manufacturing costs at an adequate level. Our share of any net losses incurred by SK Hynix would be reflected in our income statement as share of losses related to investments in associates. Accordingly, declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and American Depositary Shares as well as our results of operation.

We may fail to successfully complete, integrate or realize the anticipated benefits of our new acquisitions or joint ventures, and such transactions may negatively impact our business. We continue to seek opportunities to develop new businesses that we believe are complementary to our existing product and service portfolio and expand our global business through selective acquisitions. Accordingly, we are often engaged in evaluating potential transactions and other strategic alternatives, some of which may be significant in size. For example, while we have not made any decision in connection therewith, we are currently considering the potential acquisition of ADT CAPS, a security systems company in Korea. In recent years, we acquired interests in NSOK Co., Ltd. (“NSOK”) (formerly, Neosnetworks Co., Ltd.), a provider of residential and small business electronic security and other related alarm monitoring services, Iriver Ltd. (“Iriver”), a manufacturer of digital audio players and other portable media devices and Shopkick Inc. (“Shopkick”), the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, in order to penetrate the mobile commerce market in the United States. In 2016, we acquired a 46.2% interest in SM Mobile Communications Co., Ltd. (“SM Mobile Communications”) for Won 12.1 billion, which was subsequently merged into Iriver, and in 2017, we acquired S.M. Life Design Company Japan Inc. (“SM Life Design”) for Won 30.0 billion, in light of potential synergies that may be achieved through the entertainment business. For a more detailed description of our recent investments in new businesses, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Investments in New Businesses and Global Expansion and Other Needs.” In addition, in some cases we are unable to successfully complete our planned acquisitions. For example, in November 2015, SK Broadband entered into a merger agreement with CJ HelloVision, which was subsequently terminated due to the Korea Fair Trade Commission’s failure to approve the proposed merger. While we are hoping to benefit from a range of synergies from our recent or future acquisitions as well as develop new growth engines for our business, we may not be able to successfully complete or integrate such acquisitions or new businesses and may fail to realize the expected benefits in the near term, or at all. In addition, when we enter into new businesses with partners through joint ventures or other strategic alliances, we and those partners may have disagreements with respect to strategic directions or other aspects of business, or may otherwise be unable to coordinate or cooperate with each other, any of which could materially and adversely affect our operations in such businesses. Our business may be negatively impacted if we fail to successfully integrate or realize the anticipated benefits of such transactions.

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

11

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage. One of the principal limitations on a wireless network’s subscriber capacity is the amount of spectrum available for use by the network. We currently use 10 MHz of bandwidth in the 800 MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our wireless broadband Internet (“WiBro”) services. The growth of our wireless data businesses has been a significant factor in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. In particular, the increasing popularity of smartphones and data intensive applications among smartphone users has recently been a major factor for the high utilization of our bandwidth. This trend has been offset in part by the implementation of new technologies, such as our tri-band LTE-A service utilizing 4x4 MIMO technology and our five-band LTE-A technology, which enables more efficient usage of our bandwidth than was possible on our basic LTE network. However, if the current trend of increased data transmission use by our subscribers continues, or the volume of the multimedia content we offer through our wireless data services substantially grows, our bandwidth capacity requirements are likely to increase. While we believe that we can address the capacity constraint issue through system upgrades and efficient allocation of bandwidth, inability to address such capacity constraints in a timely manner may adversely affect our business, results of operations, financial position and cash flows. In the event we are unable to maintain sufficient bandwidth capacity, our subscribers may perceive a general slowdown of wireless telecommunications services. Growth of our wireless telecommunications business will depend in part upon our ability to effectively manage our bandwidth capacity and to implement efficiently and in a timely manner new bandwidth-efficient technologies if they become available. We cannot assure you that bandwidth constraints will not adversely affect the growth of our wireless telecommunications business. We plan to participate in frequency bandwidth auctions expected to be held by the MSIT in June 2018 in order to acquire bandwidths that are complementary to our existing network and to prepare for the future commercialization of our 5G service. We may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand and we may not be successful in acquiring the necessary bandwidth to meet such demand, which may adversely affect our financial condition and results of operations.

We rely on key researchers and engineers and senior management, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business. Our success depends to a significant extent upon the continued service of our research and development and engineering personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers. In particular, our focus on leading the market in introducing new services has meant that we must aggressively recruit engineers with expertise in cutting-edge technologies. We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, or at all. The loss of the services of any of our key research and development and engineering personnel or senior management without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.

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

12

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing. If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.

We may have to make further financing arrangements to meet our capital expenditure requirements and debt payment obligations. As a network-based wireless telecommunications provider, we have had, and expect to continue to have, significant capital expenditure requirements as we continue to build out, maintain and upgrade our networks. We spent Won 2,715.9 billion for capital expenditures in 2017. We expect to spend a slightly higher amount for capital expenditures in 2018 compared to 2017 for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. If we acquire new bandwidths in the frequency bandwidth auction to be held by the MSIT in June 2018, we would be required to spend additional amounts on capital expenditures in connection with building out our networks on such new bandwidths. In particular, we continue to make significant capital investments to expand and upgrade our wireless networks in response to growing bandwidth demand by our subscribers. Bandwidth usage by our subscribers has rapidly increased in recent years primarily due to the increasing popularity of smartphones and data intensive applications among smartphone users. If heavy usage of bandwidth-intensive services grows beyond our current expectations, we may need to invest more capital than currently anticipated to expand the bandwidth capacity of our networks or our customers may have a suboptimal experience when using our services. Any of these events could adversely affect our competitive position and have a material adverse effect on our business, financial condition, results of operation and cash flow. For a more detailed discussion of our capital expenditure plans and a discussion of other factors that may affect our future capital expenditures, see “Item 5.B. Liquidity and Capital Resources.” As of December 31, 2017, we had Won 2,198.4 billion in contractual payment obligations due in 2018, which mostly involve repayment of debt obligations and payments related to frequency licenses. See “Item 5.B. Liquidity and Capital Resources — Contractual Obligations and Commitments.” We have not arranged firm financing for all of our current or future capital expenditure plans and contractual payment obligations. We have, in the past, obtained funds for our proposed capital expenditure and payment obligations from various sources, including our cash flow from operations as well as from financings, primarily debt and equity financings. Any material adverse change in our operational or financial condition could impact our ability to fund our capital expenditure plans and contractual payment obligations. Still volatile financial market conditions may also curtail our ability to obtain adequate funding. Inability to fund such capital expenditure requirements may have a material adverse effect on our financial condition, results of operations and business. In addition, although we currently anticipate that the capital expenditure levels estimated by us will be adequate to meet our business needs, such estimates may need to be adjusted based on developments in technology and markets. In the event we are unable to meet any such increased expenditure requirements or to obtain adequate financing for such requirements, on terms acceptable to us, or at all, this may have a material adverse effect on our financial condition, results of operations and business.

Termination or impairment of our relationship with a small number of key suppliers for network equipment and for leased lines could adversely affect our results of operations, financial position and cash flows. We purchase wireless network equipment from a small number of suppliers. To date, we have purchased substantially all of the equipment for our networks from Samsung Electronics Co., Ltd. (“Samsung Electronics”), Ericsson-LG Co., Ltd. (“Ericsson-LG”) and Nokia Siemens Networks B.V. We believe Samsung Electronics

13

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents currently manufactures approximately half of the wireless handsets sold to our subscribers. Although other manufacturers sell the equipment we require, sourcing such equipment from other manufacturers could result in unanticipated costs in the maintenance and enhancement of our wireless networks. Inability to obtain the equipment needed for our networks in a timely manner may have an adverse effect on our business, financial condition, results of operations and cash flows. We cannot assure you that we will be able to continue to obtain the necessary equipment from one or more of our suppliers. Any discontinuation or interruption in the availability of equipment from our suppliers for any reason could have an adverse effect on our results of operations. Inability to lease adequate lines at commercially reasonable rates may impact the quality of the services we offer and may also damage our reputation and our business.

Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. In addition to active research and development efforts, our success depends in part on our ability to obtain patents and other intellectual property rights covering our services. We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although we have not experienced any significant patent or other intellectual property disputes, we cannot be certain that any significant patent or other intellectual property disputes will not occur in the future. Defending our patent and other proprietary rights could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to employ certain technologies to provide services.

Malicious and abusive Internet practices could impair our services and we may be subject to significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers. Our business involves the storage and transmission of large amounts of confidential information, and cybersecurity breaches expose us to a risk of loss of this information, which may lead to improper use or disclosure of such information, ensuing potential liability and litigation, any of which could harm our reputation and adversely affect our business. For example, in July 2011, there was a leak of personal information of subscribers of websites operated by SK Communications Co., Ltd. (“SK Communications”), our consolidated subsidiary. Various lawsuits were filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to the eight lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of March 31, 2018, five of the lawsuits, seeking damages of approximately Won 12.6 million in aggregate, were pending at various appellate courts and the Supreme Court of Korea. Our cybersecurity measures may also be breached due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across all our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts, or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is harmed, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations. In addition, our wireless and fixed-line subscribers increasingly utilize our network to access the Internet and, as a consequence, we or they may become victim to common malicious and abusive Internet activities, such as unsolicited mass advertising (i.e., “spam”), hacking of personal information and dissemination of viruses, worms and other destructive or disruptive software. These activities could have adverse consequences on our network and

14

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents our customers, including degradation of service, excessive call volume to call centers and damage to our or our customers’ equipment and data. Significant incidents could lead to customer dissatisfaction and, ultimately, loss of customers or revenue, in addition to increased costs to us to service our customers and protect our network. Any significant loss of our subscribers or revenue due to incidents of malicious and abusive Internet practices or significant increase in costs of serving those subscribers could adversely affect our business, financial condition and results of operations.

Labor disputes may disrupt our operations. Although we are not experiencing any significant labor disputes, there can be no assurance that we will not experience labor disputes in the future, including protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation. Every two years, the union and management negotiate and enter into a new collective bargaining agreement that has a two-year duration, which is focused on employee benefits and welfare. Employee wages are separately negotiated on an annual basis. Although we consider our relations with our employees to be good, there can be no assurance that we will be able to maintain such a working relationship with our employees and will not experience labor disputes resulting from disagreements with the labor union in the future.

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

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

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on our results of operations and the market value of our common shares and ADSs. Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect our results of operations because, among other things, it causes: • an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt; and

15

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • an increase, in Won terms, of the costs of equipment that we purchase from overseas sources which we pay for in Dollars or other foreign currencies. Fluctuations in the exchange rate between the Won and the Dollar will affect the Dollar equivalent of the Won price of the our common shares on the KRX KOSPI Market of the Korea Exchange (the “KRX KOSPI Market”). These fluctuations also will affect: • the amounts a registered holder or beneficial owner of ADSs will receive from the American Depositary Receipt (“ADR”) depositary in respect of dividends, which will be paid in Won to the ADR depositary and converted by the ADR depositary into Dollars; • the Dollar value of the proceeds that a holder will receive upon sale in Korea of our common shares; and • the secondary market price of our ADSs. For historical exchange rate information, see “Item 3.A. Selected Financial Data — Exchange Rates.”

If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control. The Telecommunications Business Act currently sets a 49.0% limit on the aggregate foreign ownership of our issued shares. Under the Telecommunications Business Act, as amended, a Korean entity, such as SK Holdings Co., Ltd. (“SK Holdings”), is deemed to be a foreign entity if its largest shareholder (determined by aggregating the shareholdings of such shareholder and its related parties) is a foreigner and such shareholder (together with the shareholdings of its related parties) holds 15.0% or more of the issued voting stock of the Korean entity. As of December 31, 2017, SK Holdings owned 20,363,452 shares of our common stock, or 25.22%, of our issued shares. If SK Holdings were considered to be a foreign shareholder, then its shareholding in us would be included in the calculation of our aggregate foreign shareholding and our aggregate foreign shareholding (based on our foreign ownership level as of December 31, 2017, which we believe was 41.4%) would exceed the 49.0% ceiling on foreign shareholding. As of December 31, 2017, the two largest foreign shareholders of SK Holdings each held a 3.5% stake therein. If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, if SK Holdings is considered a foreign shareholder, it will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. For a description of further actions that the MSIT could take, see “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.”

Risks Relating to Korea Unfavorable financial and economic developments in Korea may have an adverse effect on us. We are incorporated in Korea, and a significant portion of our operations is based in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control. In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices, increases in interest rates globally and the general weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to major foreign currencies has fluctuated significantly. See “Item 3.A. Selected Financial Data — Exchange Rates.” Furthermore, as a result of adverse global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (known as the “KOSPI”) and large amounts

16

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations. Developments that could have an adverse impact on Korea’s economy include: • adverse conditions or uncertainty in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, as well as increased uncertainty in the wake of a referendum in the United Kingdom in June 2016, in which the majority of voters voted in favor of an exit from the European Union (“Brexit”); • increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets; • adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, euro, Chinese yuan or Japanese yen exchange rates and the overall impact of Brexit on the value of the Korean Won), interest rates, inflation rates or stock markets; • a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small- and medium-sized enterprise borrowers; • declines in consumer confidence and a slowdown in consumer spending; • the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China); • investigations of large Korean conglomerates and their senior management for possible misconduct; • social and labor unrest; • decreases in the market prices of Korean real estate; • a decrease in tax revenues or a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that would lead to an increased Government budget deficit; • financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector; • loss of investor confidence arising from corporate accounting irregularities and corporate governance issues concerning certain Korean conglomerates; • increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea; • the economic impact of any pending or future free trade agreements or changes in existing free trade agreements; • geo-political uncertainty and risk of further attacks by terrorist groups around the world; • natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners; • the occurrence of severe health epidemics in Korea and other parts of the world (such as the Middle East Respiratory Syndrome outbreak in Korea in 2015); • deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States commencing in March 2017 and the economic and other retaliatory measures imposed by China against Korea during the remainder of 2017);

17

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • political uncertainty or increasing strife among or within political parties in Korea; • hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any material disruption in the global supply of oil or sudden increase in the price of oil; • increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners; • political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets; and • an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common shares and ADSs. Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following: • North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea. • In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone. Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas. • In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Government condemned North Korea for the attack and vowed stern retaliation should there be further provocation. North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although a bilateral summit between the two Koreas was held on April 27, 2018 and there has been an announcement in March 2018 of a potential summit between the United States and North Korea, there can be no assurance that the level of tension affecting the Korean peninsula will not escalate in the future. Any further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material

18

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents adverse effect on our business, results of operations and financial condition and the market value of our common shares and ADSs.

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

There are special risks involved with investing in securities of Korean companies, including the possibility of restrictions being imposed by the Government in emergency circumstances. As we are a Korean company and operate in a business and cultural environment that is different from that of other countries, there are risks associated with investing in our securities that are not typical for investments in securities of companies in other jurisdictions. Under the Korean Foreign Exchange Transactions Act, if the Government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restriction such as requiring Korean or foreign investors to obtain prior approval from the Ministry of Strategy and Finance (the “MOSF”) for the acquisition of Korean securities or for the repatriation of interest, dividends or sales proceeds arising from Korean securities or from disposition of such securities or other transactions involving foreign exchange.

Risks Relating to Securities Sales of our shares by SK Holdings and/or other large shareholders may adversely affect the market value of our common shares and ADSs. Sales of substantial amounts of our common shares, or the perception that such sales may occur, could adversely affect the prevailing market value of our common shares or ADSs or our ability to raise capital through an offering of our common shares. As of December 31, 2017, SK Holdings owned 25.22% of our total issued common shares and has not agreed to any restrictions on its ability to dispose of our shares. See “Item 7.A. Major Shareholders.” We can make no prediction as to the timing or amount of any sales of our common shares. We cannot assure you that future sales of our common shares, or the availability of our common shares for future sale, will not adversely affect the prevailing market value of our common shares or ADSs from time to time.

If an investor surrenders his or her ADSs to withdraw the underlying shares, he or she may not be allowed to deposit the shares again to obtain ADSs. Under the deposit agreement, holders of our common shares may deposit those shares with the ADR depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the ADR depositary and receive our common shares. However, under the terms of the deposit agreement, as amended, the depositary bank is required to obtain our prior consent to any such deposit if, after giving effect to such deposit, the total

19

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

An investor in our ADSs may not be able to exercise preemptive rights for additional new shares and may suffer dilution of his or her equity interest in us. The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer a right to subscribe for additional new common shares or any other rights of similar nature, the ADR depositary, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to the ADS holder. The ADR depositary, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:

• a registration statement filed by us under the Securities Act is in effect with respect to those shares; or • the offering and sale of those shares is exempt from, or is not subject to, the registration requirements of the Securities Act. We are under no obligation to file any registration statement with respect to any ADSs. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his or her preemptive rights for additional shares. As a result, ADS holders may suffer dilution of their equity interest in us.

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

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

20

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries. Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies, which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the SEC and listed on the New York Stock Exchange (the “NYSE”), we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the NYSE. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information available could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

Item 4. INFORMATION ON THE COMPANY Item 4.A. History and Development of the Company As Korea’s first wireless telecommunications service provider, we have a recognized history of leadership and innovation in the domestic telecommunications sector. Today, we remain Korea’s leading wireless telecommunications services provider and have continued to pioneer the commercial development and implementation of state-of-the-art wireless technologies. We had 30.2 million wireless subscribers, including MVNO subscribers leasing our networks, as of December 31, 2017, representing a market share of 48.2%, the largest market share among Korean wireless telecommunications service providers. We believe we are also a leader in developing new products and services that reflect the increasing convergence of telecommunications technologies, as well as the growing synergies between the telecommunications sector and other industries, and are well- positioned to become Korea’s leading platform service provider through our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions. In February 2012, we acquired an equity stake in SK Hynix, one of the world’s largest memory-chip makers by revenue, for an aggregate purchase price of Won 3.4 trillion, and became its largest shareholder. As of December 31, 2017, we held a 20.1% equity interest in SK Hynix. On March 31, 2018, we had a market capitalization of approximately Won 18.9 trillion (US$17.7 billion, as translated at the noon buying rate of March 31, 2018) or approximately 1.2% of the total market capitalization on the KRX KOSPI Market, making us the nineteenth largest company listed on the KRX KOSPI Market based on market capitalization on that date. Our ADSs, each representing one-ninth of one share of our common stock, have traded on the NYSE since June 27, 1996. We established our telecommunications business in March 1984 under the name Korea Mobile Telecommunications Co., Ltd. We changed our name to SK Telecom Co., Ltd., effective March 21, 1997. In January 2002, we merged with Shinsegi Telecom Co., Ltd. (“Shinsegi”), which was then the third-largest wireless telecommunications service provider in Korea. Our registered office is at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea and our telephone number is +82-2-6100-2114.

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

21

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Shinsegi was merged into us. Additionally, two of the other wireless telecommunications services providers merged. There are currently three mobile network operators in Korea: our company, KT and LG U+. As of December 31, 2017, the market share of the Korean wireless telecommunications market, in terms of number of subscribers, of KT and LG U+ was approximately 31.2% and 20.6%, respectively (compared to our market share of 48.2%), each including MVNO subscribers leasing the respective networks. As of December 31, 2017, MVNOs had a combined market share of 12.0%, of which MVNOs leasing our networks represented 5.5%, MVNOs leasing KT’s networks represented 5.6% and MVNOs leasing LG U+’s networks represented 0.9%. Telecommunications industry growth in Korea has been among the most rapid in the world, with fixed-line penetration being under five lines per 100 population in 1978 and increasing to 47.9 lines per 100 population as of December 31, 2006 before decreasing to 29.0 lines per 100 population as of December 31, 2017, and wireless penetration increasing from 7.0 subscribers per 100 population in 1996 to 121.0 subscribers per 100 population as of December 31, 2017. The table below sets forth certain subscription and penetration information regarding the Korean telecommunications industry as of the dates indicated:

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

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

As of December 31, 2017 2016 2015 2014 2013 (In thousands, except for percentage data) Number of Wireless Internet-Enabled Handsets 57,089 55,085 53,737 52,833 50,858 Number of Smartphones 48,607 46,418 43,668 40,560 37,517 Total Number of Wireless Subscribers 62,651 60,287 57,937 56,310 54,681 Penetration of Wireless Internet-Enabled Handsets 91.1 % 91.4 % 92.8 % 93.8 % 93.0 % Penetration of Smartphones 77.6 % 77.0 % 75.4 % 72.0 % 66.9 % In addition to its well-developed wireless telecommunications sector, Korea has one of the largest Internet markets in the Asia Pacific region. From the end of 2005 to the end of 2017, the number of broadband Internet access subscribers increased from approximately 12.2 million to approximately 21.2 million. In connection with such growth in broadband Internet usage, the number of IPTV subscribers has also increased rapidly. The table below sets forth certain information regarding broadband Internet access subscribers and IPTV subscribers as of the dates indicated:

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

22

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents

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

Item 4.B. Business Overview Overview We are Korea’s leading wireless telecommunications services provider and continue to pioneer the commercial development and implementation of state-of-the-art wireless and fixed-line technologies and services as well as develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions. Our operations are reported in four segments: • cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services; • fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services; • e-commerce services, which include 11st, our open marketplace business, and other commerce solutions; and • other businesses.

Our Business Strategy We believe that the current trends in the Korean telecommunications industry are characterized by technological change, evolving consumer needs and increasing digital convergence. Against the backdrop of these industry trends, we aim to maintain our leading position in the Korean market for wireless telecommunications services and actively develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services. We plan to further utilize our big data analysis capabilities to create products and services that are tailored to our customers’ evolving needs, as well as incorporate artificial intelligence capabilities directly into many of the products and services we offer. Our corporate vision is to “Create Customer’s Pride” and provide enhanced customer value through integrated products and services that better meet our customers’ needs. To take advantage of these industry trends and further realize our corporate vision and become a leader in information and communication technologies (“ICT”), we have undertaken the following strategic initiatives. • Maintain our leadership in the wireless services business by offering customer-oriented products and services. We plan to maintain our leadership in the wireless services business by accurately analyzing the needs of our subscribers and providing products and services that meet such needs. We plan to strengthen our customer relationships by engaging our subscribers to integrate our service offerings in various aspects of their daily lives such as “T map,” our interactive navigation service which we provide to all users free of charge and “oksusu,” our mobile IPTV service with a wide range of unique media offerings. We also provide bundled subscriptions to our wireless and fixed-line service offerings, and we believe such bundled subscriptions contribute to increased customer retention and acquisition of new subscribers for both our wireless and fixed-line services due to convenience. In addition, we believe our “T Membership” program, our membership service, also contributes to our subscriber retention with the breadth of membership benefits we provide through our membership partners. • Develop our next-generation growth businesses. We aim to develop our next-generation growth businesses in IoT solutions, media and e-commerce and other innovative products offered through our platform services, including artificial intelligence solutions, which we believe complement and create synergies with our wireless and fixed-line services and through which we can generate new sources of revenue growth. We believe these services will enable us to increase the retention of our wireless subscribers as well as attract new customers.

23

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • Develop our technological capabilities to support our future 5G network. We aim to research and develop cutting-edge 5G technologies that will be adopted as the technological standard for 5G and to acquire the necessary bandwidth to launch 5G services. In addition, we aim to collaborate with various partners to identify new business opportunities that can potentially leverage our future 5G network.

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

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

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

Wireless Services We offer wireless voice transmission and data transmission services to our subscribers through our backbone networks. Our wireless telecommunications services are available to our subscribers receiving service under the SK Telecom brand. In addition, customers can obtain wireless telecommunications services that operate on our network from MVNOs that lease our wireless networks. We derive revenues from our wireless telecommunications service principally through monthly plan-based fees as described in “— Rate Plans” below. We provide a voice-over-LTE service, known as our “HD Voice” service, to all of our LTE subscribers featuring high-quality voice transmission, fast call connection, voice-to-video call switching and digital content sharing during calls. We also offer our subscribers a wide range of wireless data transmissions services. Our messaging service allows our subscribers to send and receive text, graphic, audio and video messages. In addition, our subscribers can access a wide variety of digital content and services through mobile applications providing music, video, gaming, news, commerce and financial services as well as solutions that enable subscribers to access the Internet and e-mail. We intend to continue to build our wireless data services as a platform for growth, extending our portfolio of wireless data services and developing new content for our subscribers. Through service agreements with various foreign wireless telecommunications service providers, we offer cellular global roaming services, branded as our “T-Roaming” service. Global roaming services allow subscribers traveling abroad to make and receive calls using their regular mobile phone numbers. In addition, we provide global roaming service to foreigners traveling to Korea. In such cases, we generally receive a fee from the traveler’s local wireless telecommunications service provider. Through SK Telink, we also operate our MVNO business under the brand “SK 7Mobile,” which we believe offers excellent quality at reasonable rates utilizing SK Telecom’s wireless networks. SK Telink is focused on developing low-cost distribution channels and targeting niche customer segments that have a lower average revenue per user than that of SK Telecom’s subscriber base.

24

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents In addition, we provide interconnection service to connect our networks to domestic and international fixed-line and other wireless networks. See “Item 4.B. Business Overview — Interconnection.”

Wireless Device Sales We offer several categories of wireless devices, including smartphones and basic phones, tablets and other Internet access devices and wearable devices that are sold through an extensive distribution network, which consists of authorized exclusive dealers and independent retailers, as well as branch offices and stores directly operated by us through our wholly-owned subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). As of December 31, 2017, approximately 23.0 million, or 76.1%, of our subscribers (including MVNO subscribers leasing our networks) owned smartphones that have direct access to the Internet compared to approximately 21.9 million subscribers, or 73.9%, as of December 31, 2016. We purchase a substantial majority of our wireless devices from Samsung Electronics, Apple and LG Electronics. Smartphones and Basic Phones. We offer smartphones that are enabled to utilize our digital wireless networks and run on various operating systems, such as Apple iOS and Google Android. We also offer basic phones that have the ability to access wireless Internet services. Tablets and Other Internet Devices. We offer tablets which can access the Internet via our digital wireless networks and a Wi-Fi connection. The tablets run primarily on the Apple iOS and Google Android operating systems. In addition, we also offer “T Pocket-Fi” devices that provide a mobile LTE connection and are capable of connecting multiple Wi-Fi enabled devices to the Internet at one time. We offer targeted rate plans for our T Pocket-Fi device. See “— Rate Plans” below. Wearable Devices. We offer various wearable devices including smart watches and “T kids’ phone-Joon.” These devices utilize our digital wireless networks and have specific features for the relevant target customer. For example, T kids’ phone-Joon is a wearable phone targeted towards children and provides simple calling, messaging and chat services as well as global positioning system (“GPS”) tracking capabilities. We offer targeted rate plans that are specific to these wearable devices. See “— Rate Plans” below.

IoT Solutions Through our IoT solutions business, we provide a home monitoring service platform for residential customers and network access and enhanced services to support telemetry-type applications, which are characterized by machine-to-machine (“M2M”) wireless connections, to business customers. In order to promote the growth of our IoT solutions business, we deployed networks nationwide that are designed to support IoT devices, namely our high-speed LTE-M network in March 2016 and our low-cost Low Power Wide Area Network based on LoRa technology in July 2016. In 2018, we expect to increase the battery efficiency of our IoT devices by launching our LTE Cat.M1 technology and further enhance our competitiveness in this business. In May 2015, we launched “Smart Home,” a mobile application-based home monitoring service for residential customers. Smart Home is a paid subscription service available not only to our wireless and fixed-line service subscribers but also to subscribers of our competitors’ wireless and fixed- line services. Through partnerships with more than 35 construction companies, we provided built-in Smart Home services to more than 14,000 homes as of December 31, 2017. Through Smart Home, users can control and monitor their home environment from their mobile devices and enhance the safety and convenience of their daily lives. We have also partnered with more than 70 electronics and appliance manufacturers, including Samsung Electronics and LG Electronics, to develop a wide range of appliances, electronic devices, door security, heating and lighting systems that are compatible with our Smart Home service. We also provide network access and customized IoT solutions to our business customers. Our M2M services support devices that are used in a variety of market segments, including retail, utilities, security, automotive, agriculture and data analytics. For example, in 2016, we partnered with Renault Samsung Motors, SsangYong Motor, Jaguar Land Rover and Kia Motors to integrate T-map with their in-vehicle navigation systems, and we expect to further expand our “connected car” technologies over the next few years. In addition, we provide enhanced solutions to businesses in order to connect with and monitor their equipment, such as fleet management devices used to monitor city-operated rental bicycles and utility monitoring devices for smart grid applications.

25

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Platform Services Through our platform services business, we seek to provide innovative products and services that meet our customers’ evolving needs in an increasingly connected world. For example, we provide location-based services such as T map, which we provide to our and our competitors’ wireless subscribers free of charge. T map uses GPS technology to transmit driving directions, real-time traffic updates and emergency rescue assistance to wireless devices. As of December 31, 2017, there were approximately 10.4 million monthly average users of our T map service. As discussed in “— IoT Solutions”, in 2016, we integrated our T map services with our automotive IoT solutions. In September 2017, we also integrated NUGU, described in more detail below, into our T map service enabling users to use voice commands to operate their mobile devices while driving. In addition, we provide “T phone” service, which provides our customers with a number of convenient call functions, including a function to block spam calls and a function called “T114” that informs customers of the phone numbers of stores, hospitals and other facilities closest to the customer’s current location. We also offer artificial intelligence solutions through our platform services business. For example, in September 2016, we launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. NUGU currently offers a wide range of services including music streaming, connectivity with “Smart Home” and other IoT solutions for the home, ordering food, and informational and other personal assistance services, and we plan to continually enhance its functionalities through software updates. Through cloud-based deep-learning technology, NUGU is designed to evolve on its own as it collects more data about its users over time. We have integrated NUGU into our T map service as discussed above as well as our B tv service as further discussed in “— Fixed-line Telecommunication Services — Advanced Media Platform (including IPTV).” We continue to explore ways in which we can leverage our NUGU technology to enhance our existing products and services.

Rate Plans We offer our wireless telecommunications services on both a postpaid and prepaid basis. Approximately 93.4% of our subscribers received our wireless telecommunications services on a postpaid basis as of December 31, 2017. Postpaid accounts primarily represent retail subscribers under contract with SK Telecom under which a subscriber is billed in advance a monthly fixed rate in return for a monthly network service allowance and usage for outgoing voice calls and wireless data services beyond the allowance is billed in arrears, where payment of the total amount of the bill is due at the end of the month. The standard contract period for our rate plans is 24 months, although our subscribers have the option to enter into shorter term contracts or no fixed-term contract at all. We provide various subsidies and discounts, including handset subsidies, depending on the length of the contract and the subscriber’s chosen rate plan. Our prepaid service enables individuals to obtain wireless telecommunications services without a fixed- term contract by paying for all services in advance according to expected usage. We do not charge our customers for incoming calls, although we do receive interconnection charges from KT and other companies for calls from the fixed-line network terminating on our networks and interconnection revenues from other wireless network operators. See “Item 4.B. Business Overview — Interconnection.” We also charge our customers a 10.0% value-added tax. We can offset the value-added tax we collect from our customers against value-added tax refundable to us by the Korean tax authorities. We remit taxes we collect from our customers to the Korean tax authorities. We record revenues in our financial statements net of such taxes. Basic Rate Plans. We offer various postpaid account plans for smartphones and basic phones that are designed to meet a wide range of subscriber needs and interests. As of December 31, 2017, approximately 15 million subscribers have subscribed to “Band Data” plans, which are our representative smartphone rate plans featuring unlimited domestic voice minutes and text messaging and a fixed data transmission allowance per month as well as free access to live TV on “oksusu,” our mobile IPTV service, that range from Won 29,900 to Won 69,000 per month. Our “Voice Free” plans are available for our basic phones and feature a fixed allowance of voice minutes and 50 text messages per month with rates that range from Won 19,000 to Won 94,000 per month. We also offer a standard rate plan for Won 11,000 per month, through which the subscriber is charged per usage amount, other than on text message usage up to 50 messages per month.

26

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents In addition, we provide a variety of differentiated rate plans for our customer segments such as our “T Global” rate plans for foreigners featuring unlimited domestic voice minutes and text messaging, a fixed allowance of international voice minutes and data transmission per month and our “Weekend Ting” rate plans for teenagers featuring more data transmission allowance on weekends. We also provide “T Signature” rate plans for customers seeking unlimited wireless data usage for fixed rates and a multitude of other premium benefits such as mobile device insurance coverage and mobile device upgrades. For our T Pocket-Fi device, we provide a fixed monthly data transmission allowance of 10 GB for Won 15,000 per month and 20 GB for Won 22,500 per month. With respect to the wearable devices that we offer, we offer targeted rate plans for smart watches that range from Won 10,000 to Won 11,000 per month, and the “Cookiz” rate plans for our T kids’ phone-Joon devices that range from Won 8,000 to Won 18,000 per month. Data Add-on Rate Plans. We offer a variety of optional “add-on” rate plans that are designed to meet a wide range of subscriber needs with respect to increased data usage that followed the widespread use of smartphones and faster transmission speeds made possible by LTE technology. For example, we offer data plans that offer unlimited data based on time, place and occasion such as our “Subway Free” plan, which offers unlimited wireless data usage on subway platforms and inside subways and our “Commuter Free” plan, which offers unlimited wireless data usage during rush hour, each for a fixed rate of Won 9,000 per month. For certain rate plan subscribers, we also offer a daily allowance of 1 GB of oksusu access and a monthly allowance of 8,000 points to purchase media content on oksusu through our “oksusu Safe” plan for Won 5,000 or Won 8,000 per month, depending on the subscribers’ basic rate plan. “Safe Option Premium” offers an additional daily data transmission allowance of 50 MB to subscribers who have used the maximum data transmission on their existing plan without incurring additional data transmission fees for a fixed rate of Won 8,000 per month. We also offer “T Data Coupons,” through which subscribers can purchase a fixed amount of data for a fixed price and can also be sent as “gifts” to family and friends that need additional data allowance. We believe that our data add-on rate plan offerings have contributed to the increase in data usage to 6.0 GB of average monthly data usage per LTE subscriber as of December 31, 2017 from 5.2 GB as of December 31, 2016. Roaming Plans. We provide fixed-rate international roaming plans such as our “T Roaming Data OnePass” plans which provide data roaming services at different speeds depending on usage amount for Won 9,000 to Won 15,000 per day and are available in up to 160 countries, depending on the specific plan chosen. With respect to international calls placed by a subscriber, unless the subscriber uses one of our fixed-rate international roaming plans, we bill the subscriber the international rate charged by the Korean international telephone service provider through which the call is routed. We remit to that provider the international charge less our usage charges. See “Item 4.B. Business Overview — Interconnection.”

Digital Wireless Network We offer wireless voice and data transmission services throughout Korea using digital wireless networks, primarily consisting of our LTE network, WCDMA network, CDMA network, Wi-Fi network and LoRa network. We continually upgrade and increase the capacity of our wireless networks to keep pace with advancements in technology, the growth of our subscriber base and the increased usage of voice and wireless data services by our subscribers. LTE Network. LTE technology has become widely accepted globally as the standard fourth generation technology and enables data to be transmitted at speeds faster than our CDMA and WCDMA networks. We commenced commercial wireless telecommunications services based on LTE technology in July 2011 and expanded the coverage area of our LTE services to nationwide by the end of April 2012. We launched our LTE multi-carrier service in the 1.8 GHz spectrum in July 2012. In June 2013, we commenced providing commercial LTE-A services at speeds of up to 150 Mbps using carrier aggregation technology which combines spectrum frequencies to improve data transmission speed and capacity, and in June 2014, we launched wideband LTE-A services at speeds of up to 225 Mbps and expanded coverage nationwide in 2014. In December 2014, we commenced tri-band LTE-A services, which bundled three different bandwidths to allow faster network service at speeds of up to 300 Mbps. In June 2017, we commenced five-band LTE-A services, which bundles five different bandwidths to allow even faster network service at speeds of up to 700 Mbps as well as enhanced tri-band LTE-A

27

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents services utilizing 4x4 MIMO technology providing data transmission speeds of up to 900 Mbps. With these developments in LTE technology, our LTE penetration increased to 75.7% as of December 31, 2017 compared to 49.3% as of December 31, 2013. We continue to deploy improved LTE-A technology to increase the maximum data transmission speed of our services. In March 2016, we also launched our LTE-M services at speeds of up to 10 Mbps for M2M connections relating to our IoT solutions. Our continued upgrades to our LTE technology enables even faster data transmission speeds, as shown below.

Wireless network technology Maximum download speed for data Maximum upload speed for data (Date of commencement of services) transmission transmission LTE (July 2011) 75 Mbps 37.5 Mbps LTE-A (June 2013) 150 Mbps 75 Mbps Wideband LTE-A (June 2014) 225 Mbps 112.5 Mbps Tri-band LTE-A (December 2014) 300 Mbps 150 Mbps Five-band LTE-A (June 2017) 700 Mbps 350 Mbps Tri-band LTE-A with 4x4 MIMO (June 2017) 900 Mbps 450 Mbps We believe that our advanced LTE technology and dense network infrastructure enable us to provide the fastest LTE data transmission network nationwide. In December 2017, the MSIT announced that our LTE network provided the fastest upload and download speeds among the three mobile network operators, KT, LG U+ and us. The nationwide average download speed of our LTE network was 163.9 Mbps compared to 131.0 Mbps for KT’s LTE network and 105.3 Mbps for LG U+’s LTE network. The faster data transmission speed of our LTE network has allowed us to offer significantly improved wireless data transmission services, providing our subscribers with faster wireless access to multimedia content. We have been building new access networks and evolved packet cores for our LTE network, while we utilize our existing WCDMA network for other parts of our LTE network. For more information about our capital expenditures relating to our LTE network, see “Item 5.B. Liquidity and Capital Resources.” CDMA and WCDMA Networks. CDMA technology is a continuous digital transmission technology that accommodates higher throughput than analog technology by using various coding sequences to allow concurrent transmission of voice and data signals for wireless communication. In January 1996, we launched our first wireless network based on CDMA technology and became the world’s first to commercialize CDMA cellular service. WCDMA technology enables us to offer significantly faster and higher-quality voice and data transmission and supports more sophisticated wireless data transmission services than is possible through our CDMA network. We commenced provision of our WCDMA services on a limited basis in Seoul at the end of 2003. Since then, we expanded our WCDMA network nationwide and implemented various technologies to improve data transmission speeds within our WCDMA network. Wi-Fi Network. Wi-Fi technology enables our subscribers with Wi-Fi-capable devices such as smartphones, laptops and tablet computers to access mobile Internet. We started to build Wi-Fi access points in 2010 and, as of December 31, 2017, we had more than 142,000 Wi-Fi access points in public areas such as shopping malls, restaurants, coffee shops, subways and airports where, generally, the demand for high-speed wireless Internet service is high. While each Wi-Fi access point typically has a radius of approximately 20-30 meters, some of our Wi-Fi hot zones, which have multiple Wi-Fi access points, including those installed at public transportation facilities and amusement parks, have much wider service areas. We also have a WiBro network that we use as a backhaul for our Wi-Fi network. LoRa Networks. A Low-Power Wide-Area Network based on LoRa technology is a type of telecommunications network designed to support communication among IoT devices. It can transmit data over tens of kilometers while consuming much less power than LTE networks, lowering costs for connectivity as well as lowering battery power usage. We completed the nationwide deployment of our LoRa network in July 2016. We expect that our LoRa network will provide the infrastructure necessary for the growth of not only our own IoT solutions business but also the IoT industry as a whole.

28

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Network Infrastructure The principal components of our wireless networks are: • cell sites, which are physical locations equipped with transmitters, receivers and other equipment that communicate by radio signals with wireless handsets within range of the cell (typically a 3 to 40 kilometer radius); • switching stations, which switch voice and data transmissions to their proper destinations, which may be, for instance, a mobile phone of one of our subscribers (for which transmissions would originate and terminate on our wireless networks), a mobile phone of a KT or LG U+ subscriber (for which transmissions would be routed to KT’s or LG U+’s wireless networks, as applicable), a fixed-line telephone number (for which calls would be routed to the public switched telephone network of a fixed-line network operator), an international number (for which calls would be routed to the network of a long distance service provider) or an Internet site; and • transmission lines, which link cell sites to switching stations and switching stations with other switching stations. As of December 31, 2017, our LTE, WCDMA, CDMA and WiBro networks had an aggregate of 57,758 cell sites. We have purchased substantially all of the equipment for our networks from Samsung Electronics, Ericsson–LG and Nokia Siemens Networks B.V. Most of the transmission lines we use, including virtually all of the lines linking switching stations, as well as a portion of the lines linking cell sites to switching stations, comprise optical fiber lines that we own and operate directly. However, we have not undertaken to install optical fiber lines to link every cell site and switching station. In places where we have not installed our own transmission lines, we have leased lines from KT and LG U+. We intend to increase the efficiency of our network utilization and provide optimal services by internalizing transmission lines. We use a wireless network surveillance system. This system oversees the operation of cell sites and allows us to monitor our main equipment located throughout the country from one monitoring station. The automatic inspection and testing provided to the cell sites lets the system immediately rebalance to the most suitable setting, and the surveillance system provides for automatic dispatch of repair teams and quick recovery in emergency situations.

Marketing, Distribution and Customer Service Marketing. Our marketing strategy is focused on offering solutions tailored to the needs of our various customer segments, promoting our brand and leveraging our extensive distribution network. Our marketing plan includes a coordinated program of television, print, radio, outdoor signage, Internet and point-of-sale media promotions designed to relay a consistent message across all of our markets. We market our wireless products and services under the “T” brand, which signifies the centrality of “Telecommunications” and “Technology” to our business and also seeks to emphasize our commitment to providing “Top” quality, “Trustworthy” products and services to our customers. We have implemented certain information technology improvements in connection with our marketing strategy, including customer management systems, as well as more effective information security controls. We believe these upgrades have enhanced our ability to process and utilize marketing- and subscriber-related data, which, in turn, has helped us to develop more effective and targeted marketing strategies. We currently operate a customer information system designed to provide us with an extensive customer database. Our customer information system includes a billing system that provides us with comprehensive account information for internal purposes and enables us to efficiently respond to customer requests. Our customers can also change their rate plans, verify the charges accrued on their accounts, receive their bills online and send text messages to our other subscribers through our website at www.tworld.co.kr and through our “T world” mobile application. We strive to improve subscriber retention through our T Membership program, which is a membership service available to our wireless subscribers. Our T Membership program provides various membership benefits to its

29

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents members such as discounts with our membership partners for dining, shopping, entertainment and travel, access to our online membership shopping mall and invitations to various promotional events. Although our competitors also have similar membership programs, we believe that our T Membership program has a competitive advantage over our competitors’ membership programs due to our large subscriber base and breadth of membership benefits. Distribution. We use a combination of an extensive network, including branch offices and stores, directly operated by us through our subsidiary, PS&Marketing, more than 3,700 authorized exclusive dealers and an extensive network of independent retailers in order to increase subscriber growth while reducing subscriber acquisition costs. As part of our initiative to provide a differentiated customer service experience, we operate T Premium Stores that allow our potential and existing subscribers to experience certain of our services such as services that are available through our IoT solutions and platform services. As of December 31, 2017, we operated more than 320 T Premium Stores and we intend to further expand the number of T Premium Stores in 2018. In addition, we operate an online distribution channel, “T World Direct,” through which subscribers can conveniently purchase wireless devices and subscribe to our services online. We intend to continue to develop our online distribution channel to leverage our offline distribution capabilities to provide convenience and additional value to our subscribers. For example, subscribers purchasing wireless devices through T World Direct can opt to pick up their devices at one of our offline stores. Currently, authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer, as well as an average ongoing commission calculated as a percentage of that subscriber’s monthly plan-based rate for the first four years. In order to strengthen our relationships with our exclusive dealers, we offer a dealer financing plan, pursuant to which we provide to each authorized dealer a loan of up to Won 4.0 billion with a repayment period of up to three years. As of December 31, 2017, we had an aggregate of Won 61.9 billion outstanding in loans to authorized dealers. Customer Service. We provide high-quality customer service directly through our two subsidiaries, Service Ace Co., Ltd. and Service Top Co., Ltd., rather than rely on outsourcing. Network O&S Co., Ltd. operates our switching stations and related transmission and power facilities and offers quality customer service primarily to our business customers. We have held the top position with respect to our telecommunications service and retail sales service in Korea’s leading three customer satisfaction indices, the National Customer Satisfaction Index, the Korean Customer Satisfaction Index and the Korean Standard Service Quality Index, for 20 years, 20 years and 18 years, respectively.

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

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

(1) Includes subscribers to VoIP services of SK Broadband and SK Telink. (2) Includes subscribers to SK Broadband’s B tv service and video-on-demand only service subscribers. In 2017, 2016 and 2015, our fixed-line telecommunication services segment revenue was Won 2,724.2 billion, Won 2,651.2 billion and Won 2,494.5 billion, respectively, representing 15.5%, 15.5% and 14.6%, respectively, of our consolidated revenue.

30

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Fixed-line Telephone Services Our fixed-line telephone services comprise local, domestic long distance, international long distance and VoIP services. VoIP is a technology that transmits voice data through an Internet Protocol network. As of December 31, 2017, we had approximately 4.3 million fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband and SK Telink). Our fixed-line telephone services are primarily offered under the “B phone” brand name. SK Telink also provides affordable international calling services under the brand name “00700.”

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

Advanced Media Platform (including IPTV) As part of our initiative to be the leading next-generation platform provider, we aim to provide an advanced media platform with various media content and service offerings. We have offered video-on-demand services since 2006 and launched real-time IPTV services in 2009. We currently offer IPTV services under the brand name “B tv” with access to our standard 56 live high definition channels and to as many as 219 channels depending on the subscription service, as well as video-on-demand service providing a wide range of media content, including recent box office movie releases, popular U.S. and other foreign TV shows and various children’s TV programs. We also offer “B tv UHD,” which is an ultra-high definition IPTV service and has a resolution that is four times as high as the standard high definition broadcasting service in the IPTV industry. As of December 31, 2017, we had approximately 4.4 million IPTV subscribers. In January 2018, we launched Btv NUGU, which is an all-in-one set top box that incorporates NUGU voice recognition technology and can search for and play media content as well as connect to our Smart Home service through voice commands. In January 2016, we launched “oksusu,” a mobile IPTV service that is a combination of the services we previously provided as “B tv mobile” and “hoppin” and provides subscribers access to a wide variety of media contents, including various television programs, movies and other video contents that can be downloaded to wireless devices. Oksusu subscribers have access to more than 90 live TV channels, a wide range of sports contents and popular U.S. and other foreign TV shows, among other contents. We are also collaborating with media content developers to provide original media content for our oksusu service. As of December 31, 2017, we had approximately 8.6 million subscribers to oksusu. We continue to expand the scope of our media services and content offerings to provide our subscribers with a vast library of high-quality content that can be accessed through our wireless networks and our fixed-line network.

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

31

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Rate Plans For our residential customers, we offer both bundled rate plans for a combination of our fixed-line service offerings as well as individual rate plans for each separate service offering. Bundled rate plans are offered at a discount compared to subscribing to the same services through individual rate plans. Approximately 84% of subscribers to our fixed-line services subscribe to two or more of our services through our bundled rate plans. Bundled rate plans for a combination of fixed-line telephone, broadband Internet access and IPTV services range from Won 32,000 to Won 60,750 per month. Our “Unlimited Home Phone” plan for subscribers to our fixed-line telephone service features unlimited domestic land-to-land voice minutes for a fixed rate and range from Won 7,000 to Won 10,500 per month depending on whether or not the subscriber opts for a contract and if so, the length of the contract period. We offer individual fixed-rate plans for our broadband Internet access service that range from Won 20,000 to Won 50,000 per month depending on the data throughput speed and existence and length of a contract. We offer individual fixed-rate plans for our IPTV service that range from Won 6,000 to Won 28,000 per month depending on the number of channels provided and existence and length of a contract. In addition, subscribers can purchase individual videos on demand or subscribe to certain paid content on a periodic basis. With respect to our business communications services, we offer rates that are tailored to the specific needs of our business customers. We also charge certain installation fees and equipment rental fees as well as other ancillary fees with respect to certain of our fixed-line telecommunications services.

Marketing, Distribution and Customer Service We focus on bringing our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV) to residential users, and various business communications services to corporate users. We market our fixed-line telecommunications products and services under the “B” brand. Our “B” brand signifies the centrality of “Broadband” to our business and also seeks to emphasize our commitment to providing the “Best” quality products and services to our customers that go “Beyond” expectations, leading to a “Bravo” response. Our “B” brand also strengthens our shared identity with our wireless service’s “T” brand. We currently outsource a significant portion of our retail sales force needs. We market our services and provide after-sales service support to customers through more than 90 customer centers and a network of more than 250 authorized exclusive dealers located throughout Korea. In addition, SK Telecom’s direct retail stores and authorized dealers for wireless telecommunications services also market our fixed-line telephone, broadband Internet and advanced media platform services (including IPTV), which we believe has contributed to the increase in the number of subscribers to such services. We have contracts with our customer centers to sell our services exclusively. These centers receive a commission for each service contract and installation contract secured. In addition, we pay these centers for the maintenance and repair work that they perform for our subscribers. Customer and service centers often enter into sub-contracts with smaller distribution outlets within their area to increase their sales coverage and engage in telemarketing efforts. Authorized dealers are entitled to an initial commission for each new subscriber registered by the dealer. Sales to business subscribers are handled through our in-house sales group. Our sales teams focus on securing contracts with large commercial complexes, allowing us to install our remote terminals at their premises. After installation, sales teams direct their attention to individual business clients within these premises. Sales teams that have secured contracts with business clients remain the primary contacts for all aspects of the client’s needs, including further installation and customer and follow-up service.

E-Commerce Services Our e-commerce services segment consists primarily of our marketplace business operated by our subsidiary, SK Planet. In 2017, 2016 and 2015, our e-commerce services segment revenue was Won 1,044.2 billion, Won 1,001.3 billion and Won 1,060.0 billion, respectively, representing 6.0%, 5.9% and 6.2%, respectively, of our consolidated revenue. Marketplace. We operate “11st” which is an online open marketplace that offers a wide range of products through an online and mobile platform. Individual consumers can buy a vast array of products such as clothes and

32

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents accessories, beauty products, groceries, baby products, books, office supplies, furniture, home goods, outdoor and sporting goods, appliances, electronics, travel packages, entertainment tickets and local deals for restaurants and other services from small- to large-sized retailers that operate “mini malls” on the 11st platform. As of December 31, 2017, the mobile version of 11st was the leading mobile commerce platform in terms of unique visitors according to Korean Click. The mobile version of 11st is continuing to grow with an increase in the percentage of annual gross merchandise volume, which represents the total annual monetary value of customer purchases of goods and services, net of estimated refunds, derived from the mobile platform to 61% in 2017 from 52% in 2016 and 41% in 2015. We have expanded our online open marketplace business globally to Turkey, Malaysia and Thailand. In March 2013, Dogus Planet, a joint venture between SK Planet and Dogus Group, a Turkish conglomerate, launched “n11.com” in Turkey. In April 2015, Celcom Planet, a joint venture between SK Planet and Celcom Axiata, a Malaysian telecommunications service provider, launched “11street” in Malaysia. Our online marketplaces in Turkey and Malaysia have rapidly grown into top tier players. In February 2017, SK Planet launched 11street in Thailand through a wholly-owned subsidiary. We intend to continue our efforts to increase usage of the mobile version of 11st and enhance the convenience of our 11st mobile and web user interface and maintain our growth in overseas e-commerce markets. Other Commerce Solutions. We provide other commerce solutions, which include the following: • Syrup Wallet, a mobile wallet service that is the successor to our Smart Wallet service, allows users to conveniently manage membership card points and payment methods such as coupons, credit cards and gift vouchers on their mobile devices for both online and offline purchases and provides shopping information to users in certain shopping areas using advanced location-based technology; • OK Cashbag, a loyalty points program which allows members to collect and redeem loyalty points at its partnering merchants and offers differentiated marketing services to such partnering merchants; and • 11Pay, a convenient and secure payment service through which users can register their credit card to simplify payments for online and mobile purchases, including through 11st, our online open marketplace. We have also expanded our commerce solutions business globally. In October 2014, a 95.2%-owned subsidiary of SK Planet acquired a 100.0% ownership interest in Shopkick, the developer of “shopkick,” a mobile shopping application that checks in and rewards customers that arrive at a participating retail store, for an aggregate purchase price of Won 230.9 billion and the assumption of Won 18.7 billion in current liabilities. As of December 31, 2017, shopkick had 24.9 million subscribers compared to 24.3 million subscribers as of December 31, 2016.

Other Businesses We strive to continually diversify our products and services and develop new growth engines that we believe are complementary to our existing products and services, such as our portal service and other miscellaneous businesses, which we include in our others segment. In 2017, 2016 and 2015, our others segment revenue was Won 489.5 billion, Won 434.4 billion and Won 312.9 billion, respectively, representing 2.8%, 2.5% and 1.8%, respectively, of our consolidated revenue. We offer a portal service under our “Nate” brand name through SK Communications. Nate can be accessed through its website, www.nate.com, or through its mobile application. Nate offers a wide variety of content and services, including Nate Search, an Internet search engine, Nate News, which provides a library of articles about current events, sports, entertainment and culture, Nate Pann, a user-generated content service as well as access to free e-mail accounts through Nate Mail. We offer high-end audio devices under the brand name “Astell&Kern” that are manufactured by our subsidiary, Iriver. In 2016, two of Iriver’s audio devices were selected as CES Innovation Awards Honorees in the Portable Media Player and Accessories category and High Performance Home Audio/Video category, respectively, and in 2017, an Iriver audio device was selected as an CES Innovation Awards Honoree in the Accessories category. In 2014 and 2017, we acquired equity interests in Iriver, a manufacturer of digital audio players and other portable media devices, and as of December 31, 2017, we had a 45.9% equity interest in Iriver.

33

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents In addition, we operate a security and network surveillance business through NSOK, a provider of residential and small business electronic security and other related alarm monitoring services. In 2014 and 2015, we acquired an 83.9% interest in NSOK for an aggregate of Won 64.0 billion, as part of our initiative to further develop our IoT solutions business. In October 2016, we acquired the remaining 16.1% interest in NSOK through SK Telink. We also operate a mobile application marketplace, “One Store” in collaboration with KT, LG U+ and NAVER Corporation. Through this joint collaboration, we expect to increase the competitiveness of One Store to compete with Google Playstore, the leading mobile application marketplace in Korea. As of December 31, 2017, we held a 65.5% interest in One Store.

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

Domestic Calls Guidelines issued by the MSIT require that all interconnection charges levied by a regulated carrier take into account (i) the actual costs to that carrier of carrying a call or (ii) imputed costs. Starting in 2016, the MSIT determines interconnection rates applicable to each carrier based on changes in traffic volume, taking into account other factors such as research results, competition and trends in technology development. Wireless-to-Fixed-line. According to our interconnection arrangement with KT, for a call from our wireless network to KT’s fixed-line network, we collect the usage rate from our wireless subscriber and in turn pay KT the interconnection charges. Similarly, KT pays interconnection charges to SK Broadband for a call from KT’s wireless network to SK Broadband’s fixed-line network. The interconnection rate applicable to both KT and SK Broadband was Won 11.98 per minute, Won 11.98 per minute and Won 13.44 per minute for 2017, 2016 and 2015, respectively. Fixed-line-to-Wireless. The MSIT determines interconnection arrangements for calls from a fixed-line network to a wireless network. For a call initiated by a fixed-line user to one of our wireless subscribers, the fixed-line network operator collects our usage fee from the fixed-line user and remits to us an interconnection charge. Interconnection with KT accounts for substantially all of our fixed-line-to-wireless interconnection revenue and expenses. The interconnection rates paid by fixed-line network service providers to each wireless network service provider are set out below. Beginning in 2017, a single interconnection rate applies to all wireless telecommunications service providers, which will eliminate the cost benefit that KT and LG U+ had historically derived from the higher interconnection rates they had received.

Rate per Minute (in Won) Applicable Year SK Telecom KT LG U+ 2013 ￦ 26.27 ￦26.98 ￦27.04 2014 22.22 22.73 22.78 2015 19.53 19.92 19.96 2016 17.03 17.14 17.17 2017 14.56 14.56 14.56 2018 14.56 14.56 14.56 Wireless-to-Wireless. Interconnection charges also apply to calls between wireless telephone networks in Korea. Under these arrangements, the operator originating the call pays an interconnection charge to the operator terminating the call. The applicable interconnection rate is the same as the fixed-line-to-wireless interconnection rate set out in the table above.

34

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Our revenues from the wireless-to-wireless charge were Won 505.1 billion in 2017, Won 540.3 billion in 2016 and Won 582.6 billion in 2015. Our expenses from these charges were Won 512.2 billion in 2017, Won 548.1 billion in 2016 and Won 579.0 billion in 2015. The charges above were agreed among the parties involved and confirmed by the KCC.

International Calls and International Roaming Arrangements With respect to international calls, if a call is initiated by our wireless subscribers, we bill the wireless subscriber for the international charges of KT, LG U+ or SK Broadband, and we receive interconnection charges from such operators. If an international call is received by our subscriber, KT, LG U+ or SK Broadband pays interconnection charges to us based on our imputed costs. To complement the services we provide to our subscribers in Korea, we offer international voice and data roaming services. We charge our subscribers usage fees for global roaming service and, in turn, pay foreign wireless network operators fees for the corresponding usage of their network. For a more detailed discussion of our global roaming services, see “Item 4.B. Business Overview — Cellular Services — Wireless Services” above.

Competition We operate in highly saturated and competitive markets, and we believe that our subscriber growth is affected by many factors, including the expansion and technical enhancement of our networks, the development and deployment of new technologies, the effectiveness of our marketing and distribution strategy, the quality of our customer service, the introduction of new products and services, competitive pricing of our rate plans, new market entrants and regulatory changes. Historically, there has been considerable consolidation in the telecommunications industry, resulting in the current competitive landscape comprising three mobile and fixed network operators in the Korean market, KT, LG U+ and us. Each of our competitors has substantial financial, technical, marketing and other resources to respond to our business offerings. The following table shows the market share information, based on number of subscribers, as of December 31, 2017, for the following markets.

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

(1) Includes MVNO subscribers that lease the wireless networks of the respective mobile network operator. (2) Includes video-on-demand only service subscribers. Market share is expressed as a percentage of the pay TV market (which includes IPTV, cable TV and satellite TV).

Cellular Services As of December 31, 2017, we had 30.2 million subscribers, representing a market share of approximately 48.2%, including MVNO subscribers leasing our networks. As of December 31, 2017, KT and LG U+ had 19.6 million and 12.9 million subscribers, respectively, representing approximately 31.2% and 20.6%, respectively, of the total number of wireless subscribers in Korea on such date, each including MVNO subscribers leasing its networks. As of December 31, 2017, we had 22.9 million LTE subscribers and KT and LG U+ had 15.4 million and 12.1 million LTE subscribers, respectively, each including MVNO subscribers leasing its networks. In 2017, we had 5.8 million activations and 5.2 million deactivations. For 2017, our monthly churn rate ranged from 1.4% to 1.5%, with an average monthly churn rate of 1.5% for 2017, which remained unchanged from 2016. In 2017, we gained 39.2% of the total number of new wireless subscribers and subscribers that migrated to a different wireless telecommunications service provider, compared to KT with 33.1% and LG U+ with 27.6%.

35

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents We also compete for subscriber activations with MVNOs, including MVNOs that lease our networks. MVNOs generally provide rate plans that are relatively cheaper than similar rate plans of the wireless network providers from which they lease their networks, including us. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. As of December 31, 2017, MVNOs had a combined market share of 12.0%, of which MVNOs leasing our networks represented 5.5%, MVNOs leasing KT’s networks represented 5.6% and MVNOs leasing LG U+’s networks represented 0.9%. In addition, other companies may enter the telecommunications service market by acquiring the required licenses from the MSIT. For example, in October 2015, three companies applied for licenses to become Korea’s fourth mobile network operator. Although the MSIT rejected the applications of all three companies in January 2016, the MSIT may continue its efforts to find an eligible applicant to be Korea’s fourth mobile network operator in the future. For a description of the risks associated with the competitive environment in which we operate, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Competition may reduce our market share and harm our results of operations and financial condition.” Prior to 2015, competition in the wireless telecommunications business had caused us to significantly increase our marketing and advertising expenses. Between 2012 and 2014, marketing expenses as a percentage of SK Telecom’s revenue, on a separate basis, fluctuated heavily between 23.9% to 33.7%, depending on the competitive landscape. Such percentage was 24.3% in 2015, 23.9% in 2016 and 25.0% in 2017. We attribute such stabilization to the maturity of the LTE market and the implementation of the MDDIA, which prohibits wireless telecommunications service providers from unfairly providing discriminatory subsidies based on certain criteria and from providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, among other restrictions and requirements. However, the prohibition from providing handset subsidies exceeding the amount set by the KCC expired in September 2017 pursuant to the expiration of the three- year effective period of the relevant provision of the MDDIA. For a more detailed discussion of the MDDIA, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation.” We face competition from KT and LG U+ as well as other platform service providers in our other cellular service businesses. For example, our Smart Home service competes with KT’s Giga IoT Home service and LG U+’s IoT@Home service.

Fixed-Line Telecommunication Services Our fixed-line telephone service competes with KT and LG U+ as well as providers of other VoIP services. As of December 31, 2017, our market share of the fixed-line telephone and VoIP service market was 16.1% (including the services provided by SK Broadband and SK Telink) in terms of number of subscribers compared to KT with 58.0% and LG U+ with 17.4%. We are the second largest provider of broadband Internet access services in Korea in terms of both revenue and subscribers, and our network covered more than 80% of households in Korea as of December 31, 2017. As of December 31, 2017, our market share of the broadband Internet market was 25.7% in terms of number of subscribers compared to KT with 41.3% and LG U+ with 18.0%. Our IPTV service competes with other providers of such pay TV services, including KT, LG U+ and cable companies. As of December 31, 2017, our market share of the pay TV market (which includes IPTV, cable TV and satellite TV) was 13.4% compared to KT with 23.0% and LG U+ with 10.9% and the collective market share of other pay TV providers of 52.7%. With respect to our mobile IPTV business, we face competition from similar services provided by KT and LG U+. We also face increasing competition from global media streaming service providers such as Amazon Video and Netflix, which launched its services in Korea in January 2016.

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

36

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Interpark and online social commerce operators such as Coupang, Ticket Monster and Wemakeprice. We also face competition from traditional retailers with online and mobile shopping portals such as SSG.com and Lotte.com, home shopping providers with online and mobile shopping portals such as CJ Mall by CJ O Shopping, GS Shop by GS Homeshopping and Hyundai Hmall by Hyundai Homeshopping, and various online marketplaces for specific consumer segments or product groups.

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

SK Hynix As of December 31, 2017, we held a 20.1% equity interest in SK Hynix, one of the world’s largest memory-chip makers by revenue. SK Hynix designs, manufactures and sells advanced memory semiconductor products, including DRAM and NAND flash products, used in various electronic devices. SK Hynix operates four wafer fabrication facilities in Korea and China. As of December 31, 2017, the fair value of our holding in SK Hynix was Won 11,176.7 billion, constituting 33.4% of our total assets as of such date. We received dividend payments of Won 87.7 billion in 2017, Won 73.1 billion in 2016 and Won 43.8 billion in 2015 related to such shareholding. In 2017, 2016 and 2015, SK Hynix and its subsidiaries, on a consolidated basis, reported revenues of Won 30,109.4 billion, Won 17,198.0 billion and Won 18,798.0 billion, respectively, profit before income tax of Won 13,439.6 billion, Won 3,216.5 billion and Won 5,269.1 billion, respectively, and profit for the year of Won 10,642.2 billion, Won 2,960.5 billion and Won 4,323.6 billion, respectively. The increase in SK Hynix’s revenues in 2017 was primarily due to increases in both volume and average selling prices of DRAM and NAND flash products. As of December 31, 2017, 2016 and 2015, SK Hynix and its subsidiaries, on a consolidated basis, reported total assets of Won 45,418.5 billion, Won 32,216.0 billion and Won 29,677.9 billion, respectively, and total equity of Won 33,820.1 billion, Won 24,023.5 billion and Won 21,387.7 billion, respectively. For a more detailed discussion of the risks relating to our shareholding in SK Hynix, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Declines in the market value of our equity holdings in SK Hynix and the results of operations of SK Hynix could have a material adverse effect on the market price of our common shares and ADSs as well as our results of operation.”

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

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

37

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Hana-SK Fintech Corporation In order to provide an everyday finance platform, we entered into a joint venture agreement with Hana Financial Group in July 2016. Combining our leading mobile technology and big data analysis capabilities with Hana Financial Group’s financial service, Hana-SK Fintech Corporation provides innovative mobile financial services such as mobile asset management, easy payment and overseas wire transfer services and launched the finance platform “Finnq” in the third quarter of 2017. We hold a 49.0% equity interest in the joint venture, and Hana Financial Group holds the remaining 51.0%.

Law and Regulation Overview Korea’s telecommunications industry is subject to comprehensive regulation by the MSIT, which is responsible for information and telecommunications policies. The MSIT regulates and supervises a broad range of communications issues, including: • entry into the telecommunications industry; • scope of services provided by telecommunications service providers; • allocation of radio spectrum; • setting of technical standards and promotion of technical standardization; • rates, terms and practices of telecommunications service providers; • interconnection and revenue-sharing between telecommunications service providers; • research and development of policy formulation for information and telecommunications; and • competition among telecommunications service providers. The MSIT is charged with regulating information and telecommunications and the KCC is charged with regulating the public interest aspects of and fairness in broadcasting. Telecommunications service providers are currently classified into three categories: network service providers, value-added service providers, and specific service providers. We are classified as a network service provider because we provide telecommunications services with our own telecommunications networks and related facilities. As a network service provider, we are required to obtain a license from the MSIT for the services we provide. Our licenses permit us to provide cellular services, third generation wireless telecommunications services using WCDMA and WiBro technologies and fourth generation wireless telecommunications services using LTE technology. The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control and corrective orders issued in connection with any violation of rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the KCC may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. A network service provider that wants to cease its business or dissolve must notify its users 60 days prior to the scheduled date of cessation or dissolution and obtain MSIT approval. In the past, the Government has stated that its policy was to promote competition in the Korean telecommunications market through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. While all network service providers are subject to MSIT regulation, we are subject to increased regulation because of our position as the dominant wireless telecommunications services provider in Korea.

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

38

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents requirement, the KCC may take corrective measures it deems necessary, including, but not limited to, prohibiting further violations, requiring amendments to the articles of incorporation or to service contracts with customers, requiring the execution or performance of, or amendments to, interconnection agreements with other network service providers and prohibiting advertisements to solicit new subscribers. The KCC is required to consult with the Minister of the MSIT before it takes certain corrective measures. In addition, we qualify as a “market-dominating business entity” under the Fair Trade Act. Accordingly, we are prohibited from engaging in any act of abusing our position as a market-dominating entity, such as unreasonably determining, maintaining or altering service rates, unreasonably controlling the rendering of services, unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers. Because we are a member company of the SK Group, which is a large business group as designated by the FTC, we are subject to the following restrictions under the Fair Trade Act: • Restriction on debt guarantee among affiliates. Any affiliate within the SK Group may not guarantee the debts of another domestic affiliate, except for certain guarantees prescribed in the Fair Trade Act, such as those relating to the debts of a company acquired for purposes of industrial rationalization, bid deposits for overseas construction work or technology development funds. • Restriction on cross-investment. A member company of the SK Group may not acquire or hold shares in an affiliate belonging to the SK Group that owns shares in the member company. • Restrictions on circular investments. A member company of the SK Group may not acquire or hold shares which would constitute “circular investments” in an affiliate company which also forms part of the SK Group where “circular investments” refer to a cross-affiliate shareholding relationship under which three or more affiliate companies become connected through cross affiliate shareholdings by owning shares in other affiliates or by becoming an entity whose shares are owned by other affiliates. • Public notice of board resolution on large-scale transactions with specially related persons. If a member company of the SK Group engages in a transaction with a specially related person in the amount of 5.0% or more of the member company’s capital or paid-in capital or for Won 5.0 billion or more, the transaction must be approved by a resolution of the member company’s board of directors and the member company must publicly disclose the transaction. • Restrictions on investments by subsidiaries and sub-subsidiaries of holding companies. The Fair Trade Act prohibits subsidiaries of holding companies from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless such domestic affiliates are their own subsidiaries. Furthermore, any subsidiaries of a holding company’s subsidiaries (“sub-subsidiaries”) are prohibited from investing in, or holding shares of common stock of, domestic affiliates that belong to the same large business group, unless all shares issued by the affiliates are held by the sub-subsidiary. Therefore, we and other subsidiaries of SK Holdings may not invest in any domestic affiliate that is also a member company of the SK Group, except in the case where we invest in our own subsidiary or where another subsidiary of SK Holdings invests in its own subsidiary. • Public notice of the current status of a business group. Under the Fair Trade Act and the Enforcement Decree thereof, a member company of the SK Group must publicly disclose the general status of the SK Group, including the name, business scope and financial status of affiliates, information on the officers of affiliates, information on shareholding and cross-investments between member companies of the SK Group, information on transactions with certain related persons and, if a member company engages in a transaction with an affiliated company in the amount of 5.0% or more of the member company’s quarterly sales or Won 5.0 billion or more, information on transactions with such affiliated company on a quarterly basis. Rate Regulation. Most network service providers must report to the MSIT the rates and contractual terms for each type of service they provide. However, as the dominant network service provider for specific services (based on having the largest market share in terms of number of subscribers and meeting certain revenue thresholds), we must obtain prior approval of the MSIT on our rates and terms of service; provided, however, that such pre-approval

39

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents of the MSIT is not required, if we are planning to reduce the rates for any type of services that we provide under the MSIT-approved contractual terms. The MSIT’s policy is to approve rates if they are appropriate, fair and reasonable (that is, if the rates have been reasonably calculated, considering supply costs, profits, classification of costs and profits for each service, cost savings through changes in the way services are provided and the influence on fair competition, among others). The MSIT may order changes in the submitted rates if it deems the rates to be significantly unreasonable or against public policy. On June 24, 2016, the Government proposed a bill to the National Assembly to change the approval requirement to a simple reporting requirement, which is the requirement for our competitors. However, the bill is still under review by the relevant sub-committee and there is no assurance as to whether such bill will be passed. Furthermore, in 2007, the Government announced a “road map” highlighting revisions in regulations to promote deregulation of the telecommunications industry. In accordance with the road map and pursuant to the Combined Sales Regulation, promulgated in May 2007, telecommunications service providers are now permitted to bundle their services, such as wireless data transmission service, wireless voice transmission service, broadband Internet access service, fixed-line telephone service and IPTV service, at a discounted rate; provided, however, that we and KT, as market-dominating business entities under the Telecommunications Business Act, allow other competitors to employ the services provided by us and KT, respectively, so that such competitors can provide similar discounted package services. In September 2007, the regulations and provisions under the Telecommunications Business Act were amended to permit licensed transmission service providers to offer local, domestic long-distance and international telephone services, as well as broadband Internet access and Internet phone services, without additional business licenses. Moreover, an MVNO system has been adopted and is in effect until its expiration on September 22, 2019 under the amended Telecommunications Business Act, which became effective on March 14, 2017. Under this system, the MSIT may designate and obligate certain wireless telecommunications services providers to allow an MVNO, at such MVNO’s request, to use their telecommunication network facilities at a rate mutually agreed upon that complies with the standards set by the MSIT. We were designated as the only wireless telecommunications services provider obligated to allow the other wireless telecommunications services provider to use our telecommunications network facilities. To date, thirteen MVNOs have commenced providing wireless telecommunications services using the networks leased from us. On October 1, 2014, the MDDIA, enacted for the purpose of establishing a transparent and fair mobile distribution practice, became effective. The MDDIA limits the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers. Pursuant to the MDDIA, wireless telecommunications service providers are prohibited from (i) unfairly providing discriminatory subsidies based on criteria such as type of subscription, subscription plan and characteristics of the subscriber and (ii) entering into a separate agreement with subscribers imposing obligations to use a specific subscription plan as a condition for providing subsidies. The MDDIA also prohibited providing subsidies exceeding a maximum limit established by the KCC for the purchase of mobile phone models that were launched within the last 15 months, which prohibition expired in September 2017. See “Item 5.A. Operating Results — Overview — New Rate Regulations.” In addition, under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving subsidies. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017. We believe these Government measures will adversely affect our revenues and our results of operations. In addition, we cannot provide assurance that we will not provide other rate discounts in the future to comply with the Government’s public policy guidelines or suggestions, or that such measures will not have a material adverse effect on our results of operations. Interconnection. Dominant network service providers such as ourselves that own essential infrastructure facilities or possess a certain market share are required to provide interconnection of their telecommunications network facilities to other service providers upon request. The MSIT sets and announces the standards for

40

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents determining the scope, procedures, compensation and other terms and conditions of such provision, interconnection or co-use. We have entered into interconnection agreements with KT, LG U+ and other network service providers permitting these entities to interconnect with our network. We expect that we will be required to enter into additional agreements with new operators as the MSIT grants permits to additional telecommunications service providers. Frequency Allocation. The MSIT has the discretion to allocate and adjust the frequency bandwidths for each type of service and may auction off the rights to certain frequency bandwidths. Upon allocation of new frequency bandwidths or adjustment of frequency bandwidths, the MSIT is required to give a public notice. The MSIT also regulates the frequency to be used by each radio station, including the transmission frequency used by equipment in our cell sites. All of our frequency allocations are for a definite term. We pay fees to the MSIT for our frequency usage that are determined based upon our number of subscribers, frequency usage by our networks and other factors. For 2017, 2016 and 2015, the fee amounted to Won 150.3 billion, Won 186.8 billion and Won 189.8 billion, respectively. We currently use 10 MHz of bandwidth in the 800MHz spectrum for our CDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum for our WCDMA services, 20 MHz of bandwidth in the 2.1 GHz spectrum, 20 MHz of bandwidth in the 800 MHz spectrum, 35 MHz of bandwidth in the 1.8 GHz spectrum and 60 MHz of bandwidth in the 2.6 GHz spectrum for our LTE services, as well as 27 MHz of spectrum in the 2.3 GHz band for our WiBro services. For more information regarding the license fees for the various bandwidths that we use, see “Item 5.B. Liquidity and Capital Resources — Capital Requirements — Capital Expenditures” and note 16 of the notes to our consolidated financial statements. In April 2018, the MSIT announced that it plans to hold a frequency bandwidth auction in June 2018 to allocate bandwidths that are capable of utilizing 5G technology in preparation for the commercial launch of 5G networks in Korea. The MSIT plans to auction 280 MHz of bandwidth in the 3.5 GHz spectrum and 2.4 GHz of bandwidth in the 28 GHz spectrum. The MSIT announced that it expects to allocate such bandwidths in December 2018 in accordance with the results of the auction and that it will provide further details regarding the auction in May 2018. For risks relating to the maintenance of adequate bandwidth capacity, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business and results of operations may be adversely affected if we fail to acquire adequate additional spectrum or use our bandwidth efficiently to accommodate subscriber growth and subscriber usage.”

Mandatory Contributions and Obligations Universal Service Obligation. All telecommunications service providers other than value-added service providers and regional paging service providers or any telecommunications service providers whose net annual revenue is less than an amount determined by the MSIT (currently set at Won 30.0 billion) are required to provide “universal” telecommunications services including local telephone services, local public telephone services, telecommunications services for remote islands and wireless communication services for ships and telephone services for handicapped and low-income citizens, or contribute toward the supply of such universal services. The MSIT designates universal services and the service provider who is required to provide each service. Currently, under the MSIT guidelines, we are required to offer free subscription and a discount of between 30.0% to 50.0% of our monthly fee for wireless telecommunications services to handicapped and low-income citizens. In addition to such universal services for handicapped and low-income citizens, we are also required to make certain monetary contributions to compensate for other service providers’ costs for the universal services. The size of a service provider’s contribution is based on its net annual revenue (calculated pursuant to the MSIT guidelines, which differ from our accounting practices). Our contribution amount for our fiscal year 2017 has not yet been determined. In 2016, our contribution amount was Won 13.6 billion for our fiscal year 2015. In 2015, our contribution amount was Won 21.1 billion for our fiscal year 2014. As a wireless telecommunications services provider, we are not considered a provider of universal telecommunications services and do not receive funds for providing universal service. Other network service providers that do provide universal services make all or a portion of their “contribution” in the form of expenses related to the universal services they provide.

41

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Foreign Ownership and Investment Restrictions and Requirements Because we are a network service provider, and the exception for the foreign shareholding limit under the amended Telecommunications Business Act, which became effective on August 13, 2013, does not apply to us, foreign governments, individuals, and entities (including Korean entities that are deemed foreigners, as discussed below) are prohibited from owning more than 49.0% of our voting stock. Korean entities whose largest shareholder is a foreign government or a foreigner (together with any of its related parties) that owns 15.0% or more of the outstanding voting stock of such Korean entities are also deemed foreigners. If this 49.0% ownership limitation is violated, certain of our foreign shareholders will not be permitted to exercise voting rights in excess of the limitation, and the MSIT may require other corrective action. As of December 31, 2017, SK Holdings owned 20,363,452 shares of our common stock, or 25.22% of our issued shares. As of December 31, 2017, the two largest foreign shareholders of SK Holdings each held a 3.5% stake therein. If such foreign shareholders increase their shareholdings in SK Holdings to 15% or more and any such foreign shareholder constitutes the largest shareholder of SK Holdings, SK Holdings will be considered a foreign shareholder, and its shareholding in us would be included in the calculation of our aggregate foreign shareholding. If SK Holdings’ shareholding in us is included in the calculation of our aggregate foreign shareholding, then our aggregate foreign shareholding, assuming the foreign ownership level as of December 31, 2017 (which we believe was 41.4%), would reach 66.7%, exceeding the 49.0% ceiling on foreign shareholding. If our aggregate foreign shareholding limit is exceeded, the MSIT may issue a corrective order to us, the breaching shareholder (including SK Holdings if the breach is caused by an increase in foreign ownership of SK Holdings) and the foreign shareholder which owns in the aggregate 15.0% or more of SK Holdings. Furthermore, SK Holdings will be prohibited from exercising its voting rights with respect to the shares held in excess of the 49.0% ceiling, which may result in a change in control of us. In addition, the MSIT will be prohibited from granting us licenses or permits necessary for entering into new telecommunications businesses until our aggregate foreign shareholding is reduced to below 49.0%. If a corrective order is issued to us by the MSIT arising from the violation of the foregoing foreign ownership limit, and we do not comply within the prescribed period under such corrective order, the MSIT may: • revoke our business license; • suspend all or part of our business; or • if the suspension of business is deemed to result in significant inconvenience to our customers or to be detrimental to the public interest, impose a one-time administrative penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. Additionally, the Telecommunications Business Act also authorizes the MSIT to assess monetary penalties of up to 0.3% of the purchase price of the shares for each day the corrective order is not complied with, as well as a prison term of up to one year or a penalty of Won 50 million. See “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control.” We are required under the Foreign Exchange Transaction Act to file a report with a designated foreign exchange bank or with the MOSF, in connection with any issue of foreign currency denominated securities by us in foreign countries. Issuances of US$30 million or less require the filing of a report with a designated foreign exchange bank, and issuances that are over US$30 million in the aggregate within one year from the filing of a report with a designated foreign exchange bank require the filing of a report with the MOSF. The Telecommunications Business Act provides for the creation of a Public Interest Review Committee under the MSIT to review investments in or changes in the control of network service providers. The following events would be subject to review by the Public Interest Review Committee: • the acquisition by an entity (and its related parties) of 15.0% or more of the equity of a network service provider; • a change in the largest shareholder of a network service provider;

42

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • agreements by a network service provider or its shareholders with foreign governments or parties regarding important business matters of such network service provider, such as the appointment of officers and directors and transfer of businesses; and • a change in the shareholder that actually controls a network service provider. If the Public Interest Review Committee determines that any of the foregoing transactions or events would be detrimental to the public interest, then the MSIT may issue orders to stop the transaction, amend any agreements, suspend voting rights, or divest the shares of the relevant network service provider. Additionally, if a dominant network service provider (which would currently include us and KT), together with its specially related persons (as defined under the FSCMA), holds more than 5.0% of the equity of another dominant network service provider, the voting rights on the shares held in excess of the 5.0% limit may not be exercised.

Patents and Licensed Technology Access to the latest relevant technology is critical to our ability to offer the most advanced wireless telecommunications services and to design and manufacture competitive products. In addition to active internal and external research and development efforts as described in “Item 5.C. Research and Development, Patents and Licenses, etc.,” our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our products. We own numerous patents and trademarks worldwide, and have applications for patents pending in many countries. Our patents are mainly related to LTE technology and wireless Internet applications. We have also acquired a number of patents related to WCDMA and CDMA technologies. There are no licensed patents that are material to our business. We are not currently involved in any material litigation regarding patent infringement. For a description of the risks associated with our reliance on intellectual property, see “Item 3.D. Risk Factors — Risks Relating to Our Business — Our business relies on technology developed by us, and our business will suffer if we are unable to protect our proprietary rights.”

Seasonality of the Business Our business is not affected by seasonality.

Item 4.C. Organizational Structure Organizational Structure We are a member of the SK Group, based on the definition of “group” under the Fair Trade Act. As of December 31, 2017, SK Group members owned in aggregate 25.22% of the shares of our issued common stock. The SK Group is a diversified group of companies incorporated in Korea with interests in, among other things, telecommunications, trading, energy, chemicals, engineering and leisure industries.

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

43

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Item 4.D. Property, Plants and Equipment The following table sets forth certain information concerning our principal properties as of December 31, 2017:

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

(1) Includes cell sites. In December 2004, we constructed a building with an area of approximately 82,624 square feet, of which we have full ownership, for use as our corporate headquarters. In addition, we own or lease various locations for cell sites and switching equipment. We do not anticipate that we will encounter material difficulties in meeting our future needs for any existing or prospective leased space for our cell sites. See “Item 4.B. Business Overview — Cellular Services — Network Infrastructure.” We maintain a range of insurance policies to cover our assets and employees, including our directors and officers. We are insured against business interruption, fire, lightning, flooding, theft, vandalism, public liability and certain other risks that may affect our assets and employees. We believe that the types and amounts of our insurance coverage are in accordance with general business practices in Korea.

Item 4.E. UNRESOLVED STAFF COMMENTS We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS You should read the following discussion together with our consolidated financial statements and the related notes thereto which appear elsewhere in this annual report. We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB. In addition, you should read carefully the section titled “— Critical Accounting Policies, Estimates and Judgments” as well as note 4 of the notes to our consolidated financial statements which provide summaries of certain critical accounting policies that require our management to make difficult, complex or subjective judgments relating to matters which are highly uncertain and that may have a material impact on our financial conditions and results of operations.

Item 5.A. Operating Results Overview Our operations are reported in four segments: (1) cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services, (2) fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced

44

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents media platform services (including IPTV) and business communications services, (3) e-commerce services, which include our open marketplace platform, 11st, and other commerce solutions, and (4) other businesses, which include our portal service, our hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments. In our cellular services segment, we earn revenue principally from our wireless voice and data transmission services through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers as well as interconnection fees paid to us by other telecommunications operators for use of our wireless network by their customers and subscribers. We also derive revenue from sales of wireless devices by PS&Marketing. Other sources of revenue include revenue from our IoT solutions and platform services, including artificial intelligence solutions, as well as other miscellaneous cellular services. In our fixed-line telecommunication services segment, we earn revenue principally from our fixed-line telephone services and broadband Internet services and advanced media platform services (including IPTV) through monthly plan-based fees and usage charges as well as interconnection fees paid to us by other telecommunications operators for use of our fixed-line network by their customers and subscribers. In addition, we derive revenue from international calling services and our business communications services through customized fee arrangements with our business customers. Our e-commerce services segment became a separate reportable segment as of January 1, 2016. In our e-commerce services segment, we derive revenue from our subsidiary SK Planet, which earns revenue principally through third-party seller fees earned (including commissions) for transactions in which it acts as a selling agent to the “mini malls” on 11st, its online open marketplace platform, as well as advertising revenue from 11st and its other commerce solutions. In March 2016, SK Planet effected a spin-off of its former platform and T Store businesses by establishing SK TechX Co., Ltd. (“SK TechX”) and One Store, respectively. As a result, the results of operations from SK Planet’s former platform business and T store business were included in our e-commerce services segment prior to March 2016 but subsequently, such revenues are included in our others segment. In our others segment, we earn revenue from our hardware businesses through sales of projection display devices and high-end audio devices, our security business operated by our subsidiary, NSOK, advertising revenue from our “Nate” portal service operated by our subsidiary, SK Communications, and sales commissions through our mobile application marketplaces. As discussed above, the results of operations from SK TechX and One Store are included in our others segment subsequent to the spin-offs from SK Planet in March 2016. Our cellular service revenue and fixed-line telecommunications service revenue depend principally upon the number of our wireless subscribers, the rates we charge for our services, the frequency and volume of subscriber usage of our services and the terms of our interconnection with other telecommunications operators. Our e-commerce service revenue depends principally upon the gross merchandise volume, which is the total monetary value of customer purchases of goods and services, net of estimated refunds, of 11st and the number of merchants that utilize 11st to advertise and promote their products and services and the extent of such advertisement and promotion. Among other factors, management uses operating profit of each reportable segment presented in accordance with K-IFRS (“segment operating profit”) in its assessment of the profitability of each reportable segment. The sum of segment operating profit for all four reportable segments differs from our operating profit presented in accordance with IFRS as issued by the IASB as segment operating profit does not include certain items such as donations, gain and loss from disposal of property and equipment and intangible assets and impairment loss on property and equipment and intangible assets. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” In addition to the information set forth below, see note 5 of the notes to our consolidated financial statements for more detailed information regarding each of our reportable segments.

45

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents A number of recent developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include: New Rate Regulations. Under the MDDIA, wireless telecommunications service providers are obliged to provide certain benefits, such as discounted rates, to subscribers who subscribe to their service without receiving handset subsidies. Handset subsidies are provided to subscribers who agree to use our service for a predetermined service period and purchase handsets on an installment basis. On June 22, 2017, the State Affairs Planning Advisory Committee of Korea announced that it would encourage wireless telecommunications service providers, including us, to increase the applicable discount rate offered to subscribers from 20% to 25%, which change was adopted in September 2017, and to offer additional discounts to low income customers, which change was adopted in December 2017. In 2017, the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA increased due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 25%. In the fourth quarter of 2017, approximately 60% of our new subscribers elected to receive discounted rates in lieu of handset subsidies compared to 47% in the previous quarter. As of December 31, 2017, approximately one-third of our subscribers who elected to receive these discounted rates are receiving the increased 25% rate discount. We expect that these Government measures will adversely affect our revenues and results of operations as more subscribers elect to receive the 25% rate discount. On the other hand, we expect that this will also reduce our marketing expenses as the amount of handset subsidies paid to subscribers will decline and that this will also contribute to maintaining a stable churn rate. With respect to handset subsidies, in October 2014, the Government started limiting the amount of subsidies a wireless telecommunications service provider can provide to subscribers in order to prevent excessive competition among wireless telecommunications service providers under the MDDIA. The prohibition from providing handset subsidies exceeding the amount set by the KCC (which was Won 330,000 from April 2015 to September 2017) expired in September 2017 pursuant to the expiration of the three-year effective period of the relevant provision of the MDDIA. Although the expiration of this provision may lead to increased handset subsidies provided to subscribers among us and our competitors, we do not expect that the impact will be significant as a greater number of subscribers elect to receive discounted rates in lieu of such subsidies due to the increase in the applicable discount rate to 25% in September 2017. Failure to comply with the MDDIA may lead to suspension of our business or imposition of monetary penalties. For more information about the MDDIA and the penalties imposed for violating Government regulations, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Rate Regulation” and “Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings — KCC Proceedings.” Decrease in Interconnection Fees. Our wireless telecommunications services depend, in part, on our interconnection arrangements with domestic and international fixed-line and other wireless networks. Charges for interconnection affect our revenues and operating results. The MSIT determines the basic framework for interconnection arrangements, including policies relating to interconnection rates in Korea. Under our interconnection agreements, we are required to make payments in respect of calls which originate from our networks and terminate in the networks of other Korean telecommunications operators, and the other operators are required to make payments to us in respect of calls which originate in their networks and terminate in our network. The MSIT has continued to gradually decrease the interconnection rates in Korea, which has led to a continued decrease in our interconnection revenue as well as interconnection expenses from 2012 to 2017 and any further reduction in interconnection rates by the MSIT may continue to impact our results of operations. Beginning in 2017, a single interconnection rate paid by fixed-line network service providers for fixed-line to wireless calls applies to all wireless telecommunications service providers. For more information about our interconnection revenue and expenses, see “Item 4.B. Business Overview — Interconnection.” Decrease in Monthly Revenue per Subscriber. We measure monthly average per subscriber using two metrics: billing average monthly per subscriber (“billing ARPU”) and total average monthly revenue per subscriber (“total ARPU”). Billing ARPU is derived by dividing the sum of total SK Telecom revenues from voice service and data service for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period.

46

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Total ARPU is derived by dividing the sum of total SK Telecom revenues from voice service, data service, initial subscription fees and interconnection revenue, as well as other revenues, for the period by the monthly average number of subscribers (excluding the number of MVNO subscribers leasing our networks) for the period, then dividing that number by the number of months in the period. Our billing ARPU decreased by 1.2% to Won 35,216 in 2017 from Won 35,636 in 2016, which represented a decrease of 1.3% from Won 36,118 in 2015. Our total ARPU decreased by 0.8% to Won 40,800 in 2017 from Won 41,126 in 2016, which represented a decrease of 2.6% from Won 42,221 in 2015. The decreases in billing ARPU and total ARPU in 2017 and 2016 were primarily due to a decrease in revenue attributable to an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies. In addition, the decreases in billing ARPU and total ARPU in 2017 were also partially due to the increase in the applicable discount rate offered to subscribers not receiving handset subsidies from 20% to 25% in September 2017, offset in part by an increase in subscribers that subscribe to our unlimited data usage plans.

Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS In addition to preparing consolidated financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with K-IFRS as adopted by the KASB, which we are required to file with the FSC and the Korea Exchange under the FSCMA. K-IFRS requires operating profit, which is calculated as operating revenue less operating expense, to be separately presented on the consolidated statement of income. The presentation of operating profit in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating profit in the consolidated statements of income prepared in accordance with K-IFRS for the corresponding periods in certain respects. The table below sets forth a reconciliation of our operating profit as presented in our consolidated statements of income prepared in accordance with IFRS as issued by the IASB for each of the three years ended December 31, 2017 to the operating profit as presented in the consolidated statements of income prepared in accordance with K-IFRS.

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

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

47

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Recently Issued International Financial Reporting Standards We plan to adopt IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments in the year beginning on January 1, 2018 and IFRS 16, Leases in the year beginning on January 1, 2019. See note 4(28) of the notes to our consolidated financial statements for a summary of significant accounting standards that have been issued but not yet adopted. IFRS 15 requires us to capitalize certain costs associated with commissions paid to sales agents to obtain new customer contracts, which we previously expensed. We pay commissions for each service contract to our direct retail stores and authorized dealers. Upon adoption of IFRS 15, we will recognize the commissions as prepaid expenses as these are the incremental costs of obtaining a contract and we will amortize such assets over the relevant expected service periods. In addition, IFRS 15 requires us to allocate the transaction price of each performance obligation in a contract in proportion to its stand-alone selling price when we provide a wireless telecommunications service contract together with a digital handset to a customer. We expect that this change will negatively impact our wireless service revenue, but positively impact our wireless device sales revenue. In connection with this, the difference between the revenue recognized for the wireless device sale and the transaction price will be recorded as a contract asset that will be amortized over the expected wireless service period to offset the relevant wireless service revenue. We plan to adopt IFRS 15 by recognizing the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of retained earnings as of January 1, 2018. We elected to apply IFRS 15 retrospectively only to contracts that were not completed as of January 1, 2018. The following table sets forth the expected financial impact of the adoption of IFRS 15 on our statement of financial position as of January 1, 2018 based on our evaluation to date.

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

48

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Our preliminary assessment of the financial impact resulting from the adoption of IFRS 9 did not indicate any material impact on our consolidated financial statements if such adoptions were applied as of December 31, 2017. Our preliminary assessments in connection with IFRS 9 and 15 set forth herein are subject to change. The expected impact of the adoption of IFRS 16 on our consolidated results of operations and financial position is currently unknown or cannot be reasonably estimated.

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

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

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

49

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents For the year ended December 31, 2017 2016 2015 Percentage of Percentage of Percentage of Amount Total Revenue Amount Total Revenue Amount Total Revenue (In billions of Won, except percentages) Miscellaneous(4)(6) 445.5 2.5 380.2 2.2 241.1 1.4 Total Other Revenue 489.5 2.8 434.4 2.5 312.9 1.8 Total Revenue 17,520.0 100.0 17,091.8 100.0 17,136.7 100.0 Total Revenue Growth 2.5 % (0.3 )% (0.2 )% Segment Operating Expense(7) Cellular Services 11,548.1 65.9 11,205.8 65.6 11,591.0 67.6 Fixed-line Telecommunication Services 2,556.7 14.6 2,518.8 14.7 2,386.2 13.9 E-commerce Services 1,312.0 7.5 1,366.5 8.0 1,066.7 6.3 Others 566.6 3.2 465.0 2.7 384.8 2.2 Total Segment Operating Expense 15,983.4 91.2 15,556.1 91.0 15,428.7 90.0 Segment Operating Profit Cellular Services 1,714.0 9.8 1,799.1 10.5 1,678.3 9.8 Fixed-line Telecommunication Services 167.5 0.9 132.4 0.8 108.3 0.6 E-commerce Services (267.8 ) (1.5 ) (365.2 ) (2.1 ) (6.7 ) (0.0 ) Others (77.1 ) (0.4 ) (30.6 ) (0.2 ) (71.9 ) (0.4 ) Total Segment Operating Profit ￦1,536.6 8.8 % ￦1,535.7 9.0 % ￦1,708.0 10.0 %

(1) Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers. (2) Miscellaneous cellular services revenue includes revenue from our IoT solutions as well as other miscellaneous cellular services. (3) Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink. (4) E-commerce services revenue is derived from SK Planet’s revenue, which includes revenues from 11st, our open marketplace platform, and other commerce solutions. As a result of the respective spin-offs from SK Planet, the results of operations from SK Planet’s former platform business and T store business were included in our e-commerce services segment prior to March 2016 but subsequently, such revenues are included in our others segment. (5) Portal service revenue includes revenues from “Nate,” our online portal service operated by SK Communications. (6) Miscellaneous others revenue includes revenues from our hardware business, our security business operated by our subsidiary, NSOK, our marketing and sales solutions business operated by our subsidiary, M&Service, and our online open marketplace for mobile applications, among other operations. Additionally, as a result of the respective spin-offs from SK Planet, the results of operations from SK TechX and One Store are included in our others segment beginning March 2016 under miscellaneous others revenue. (7) “Segment operating expense” means operating expense for each reportable segment presented in accordance with K-IFRS and therefore does not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the differences between our consolidated operating expense pursuant

50

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.”

2017 Compared to 2016 Operating Revenue and Other Income. Our consolidated operating revenue and other income increased by 2.3% to Won 17,552.0 billion in 2017 from Won 17,158.3 billion in 2016, due to an increase in operating revenue, offset in part by a decrease in other income, as discussed below. Our consolidated operating revenue increased by 2.5% to Won 17,520.0 billion in 2017 from Won 17,091.8 billion in 2016, primarily due to increases in cellular services revenue as well as revenue increases from our other three segments. Our consolidated other income decreased by 51.9% to Won 32.0 billion in 2017 from Won 66.5 billion in 2016, primarily due to refunds received in 2016 in connection with the overturn of certain fines previously imposed on us by the FTC that we had paid compared to no such refunds in 2017. The following sets forth additional information about our operating revenues with respect to each of our reportable segments. • Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, increased by 2.0% to Won 13,262.1 billion in 2017 from Won 13,004.9 billion in 2016. The increase in our cellular services revenue was due to increases in wireless device sales, miscellaneous cellular services revenue and wireless service revenue, partially offset by a decrease in cellular interconnection revenue. • Wireless device sales revenue increased by 14.1% to Won 1,052.2 billion in 2017 from Won 922.4 billion in 2016, primarily due to an increase in sales of handsets with relatively higher unit prices such as the Samsung Galaxy S8 and S8+, which were released in the second quarter of 2017, and the iPhone 8 and iPhone X, which were released in the fourth quarter of 2017. • Miscellaneous cellular services revenue increased by 10.5% to Won 978.2 billion in 2017 from Won 885.1 billion in 2016, primarily because of an increase in revenue from our IoT solutions business. • Wireless service revenue increased by 0.5% to Won 10,639.0 billion in 2017 from Won 10,583.0 billion in 2016, primarily attributable to an increase in the total number of wireless service subscribers and an increase in average monthly data usage to 6.0GB in 2017 from 5.2GB in 2016, despite the increase in the percentage of wireless service subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA and the increase in the applicable discount rate to 25% in September 2017 from 20%. • Cellular interconnection revenue decreased by 3.5% to Won 592.7 billion in 2017 from Won 614.4 billion in 2016. The decrease was primarily attributable to decreases in interconnection rates and land-to-mobile call volume. • Fixed-line telecommunications services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 2.8% to Won 2,724.2 billion in 2017 from Won 2,651.2 billion in 2016, primarily due to an increase in our broadband Internet service and advanced media platform service (including IPTV) revenue, partially offset by decreases in fixed-line telephone service revenue and miscellaneous fixed-line telecommunication services revenue. • Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 11.5% to Won 1,641.6 billion in 2017 from Won 1,472.8 billion in 2016, primarily due to an increase in the number of IPTV subscribers to 4.4 million subscribers as of December 31, 2017 from 4.0 million subscribers as of December 31, 2016 and an increase in the number of premium subscriptions with higher monthly rates and purchases of premium video-on-demand content.

51

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • Fixed-line telephone service revenue decreased by 11.5% to Won 316.8 billion in 2017 from Won 357.8 billion in 2016, primarily due to a decrease in the number of fixed-line telephone subscribers (including subscribers to VoIP services of SK Broadband and SK Telink) to 4.3 million as of December 31, 2017 from 4.5 million as of December 31, 2016 and a decrease in residential calling volume as a result of shifting consumer preferences toward wireless communication. • Miscellaneous fixed-line telecommunication services revenue decreased by 5.1% to Won 560.3 billion in 2017 from Won 590.5 billion in 2016, primarily due to a decline in new contracts for business communications services provided by SK Broadband. • E-commerce services: The revenue of our e-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, increased by 4.3% to Won 1,044.2 billion in 2017 from Won 1,001.3 billion in 2016, primarily due to an increase in revenue from mobile 11st as there was an increase in sales of products through which we received relatively high third-party seller fees, despite the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where revenue from the spun-off entities was included in e-commerce services revenue prior to the spin-offs in 2016, but not in 2017. • Others: The revenue of our others segment, which is composed of revenue from our portal service and miscellaneous other revenue, increased by 12.7% to Won 489.5 billion in 2017 from Won 434.4 billion in 2016, due to an increase in miscellaneous other revenue. Miscellaneous other revenue increased by 17.2% to Won 445.5 billion in 2017 from Won 380.2 billion in 2016, primarily due to the disparate impact of the spin- offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where revenue from the spun-off entities was included in miscellaneous other revenue for the full year in 2017, but only a part of 2016. Operating Expense. Our consolidated operating expense increased by 3.0% to Won 16,327.4 billion in 2017 from Won 15,854.9 billion in 2016, primarily due to a 5.3% increase in depreciation and amortization to Won 3,097.5 billion in 2017 from Won 2,941.9 billion in 2016, a 2.0% increase in commissions to Won 5,486.3 billion in 2017 from Won 5,376.7 billion in 2016, a 5.2% increase in labor costs to Won 1,966.2 billion in 2017 from Won 1,869.8 billion in 2016 and a 19.2% increase in advertising expenses to Won 522.8 billion in 2017 from Won 438.5 billion in 2016, partially offset by a 8.3% decrease in network interconnection expenses to Won 875.0 billion in 2017 from Won 954.3 billion in 2016 and a 13.2% decrease in leased line expenses to Won 342.2 billion in 2017 from Won 394.4 billion in 2016. The increase in depreciation and amortization was primarily due to the full year of amortization in 2017 of certain frequency bandwidth usage rights we acquired or re-licensed in 2016 compared to only partial year amortization in 2016 as well as the amortization of our sales management IT system software beginning in 2017. The increase in commissions was attributable mainly to an increase in marketing costs relating to our wireless service, which was partially offset by a decrease in marketing costs relating to our e-commerce services, the impact of certain value-added tax refunds relating to discount coupons received in 2017 and the decrease in commissions following the establishment of Home & Service Co., Ltd. (“Home & Service”) as described below. The increase in labor costs was primarily due to the additional personnel on payroll in connection with the establishment in June 2017 of our subsidiary, Home & Service, which provides in-home customer service primarily to our fixed-line telecommunication service subscribers. Prior to the establishment of Home & Service, we outsourced these services to a third party vendor and the related costs were classified as commissions. The increase in advertising expenses was primarily due to an increase in advertising expenses by SK Planet and media and online advertising for B tv and oksusu, which was partially offset by a decrease in cellular services advertising. The decrease in network interconnection expenses was mainly attributable to decreases in wireless-to-fixed-line and fixed-line-to-wireless interconnection rates. The decrease in leased line expenses was primarily due to a decrease in the number of facilities that use leased lines due to the increase in facilities that opt to build their own network and a decrease in rates for leased lines.

52

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” • Cellular services: The segment operating expense for our cellular services segment increased by 3.1% to Won 11,548.1 billion in 2017 from Won 11,205.8 billion in 2016, attributable mainly to increases in marketing costs to attract subscribers that purchase handsets with high unit prices and increases in depreciation and amortization for the reasons described above, partially offset by decreases in network interconnection and leased line expenses for the reasons described above and a decrease in frequency bandwidth usage fees. • Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment increased by 1.5% to Won 2,556.7 billion in 2017 from Won 2,518.8 billion in 2016, primarily due to an increase in marketing costs to gain more subscribers to our ultra-high definition IPTV and high speed broadband Internet services and an increase in labor costs for the reasons described above. • E-commerce services: The segment operating expense for our e-commerce services segment decreased by 4.0% to Won 1,312.0 billion in 2017 from Won 1,366.5 billion in 2016, primarily due to a decrease in marketing costs and the impact of the value-added tax refunds described above. • Others: The segment operating expense for our others segment increased by 21.8% to Won 566.6 billion in 2017 from Won 465.0 billion in 2016, primarily due to the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016, where marketing costs of the spun-off entities was included in miscellaneous other revenue for the full year in 2017, but only a part of 2016. Operating Profit. Our consolidated operating profit decreased by 6.0% to Won 1,224.6 billion in 2017 from Won 1,303.4 billion in 2016, as the increase in operating expense outpaced the increase in operating revenue and other income in 2017. The following sets forth additional information about our segment operating profit with respect to each of our reportable segments. Our segment operating profit with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all four reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” • Cellular services: The segment operating profit of our cellular services segment decreased by 4.7% to Won 1,714.0 billion in 2017 from Won 1,799.1 billion in 2016, due to the greater increase in segment operating expense, as compared to the increase in segment operating revenue, for the various reasons described above. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating profit divided by revenue from such segment, expressed as a percentage) of our cellular services segment decreased to 12.9% in 2017 from 13.8% in 2016. • Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 26.5% to Won 167.5 billion in 2017 from Won 132.4 billion in 2016, primarily due to an increase in revenue from our IPTV business as described above. As a result, the segment operating margin of our fixed-line telecommunication services segment increased to 6.1% in 2017 from 5.0% in 2016. • E-commerce services: The segment operating loss of our e-commerce services segment decreased by 26.7% to Won 267.8 billion in 2017 from Won 365.2 billion in 2016, primarily due to the impact of the value-added tax refunds described above.

53

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • Others: The segment operating loss of our others segment increased by 151.6% to Won 77.0 billion in 2017 from Won 30.6 billion in 2016, primarily due to the disparate impact of the spin-offs of SK Planet’s former platform business and T store business on 2017 compared to 2016. Finance Income and Finance Costs. Our finance income decreased by 36.3% to Won 366.6 billion in 2017 from Won 575.1 billion in 2016, primarily due to a significant decrease in gain on disposal of long-term investment securities to Won 4.9 billion in 2017 from Won 459.3 billion in 2016, which primarily related to the sale of our 15.0% interest in Loen Entertainment in February 2016 and the sale of our 1.4% interest in POSCO in November 2016, which was partially offset by a significant increase in gain on valuation of derivatives to Won 223.9 billion in 2017, primarily relating to the valuation of redeemable convertible preferred shares issued by Bluehole Inc. (“Bluehole”) that we hold, from Won 4.1 billion in 2016. Our finance costs increased by 32.7% to Won 433.6 billion in 2017 from Won 326.8 billion in 2016, primarily due to an increase in other finance costs to Won 35.9 billion in 2017, relating to management fees paid in connection with our investment in Bluehole’s securities, from none in 2016 and an increase on loss of disposal of long-term investment securities to Won 36.0 billion in 2017 from Won 2.9 billion in 2016 primarily due to the disposal of our shares of Kakao Corporation, which we had obtained for our 15.0% interest in Loen Entertainment mentioned above, for Won 112.6 billion in cash in April 2017, through which we recognized a loss of Won 35.5 billion. Gains (Losses) Related to Investments in Subsidiaries and Associates. Gains related to investments in subsidiaries and associates increased by 312.4% to Won 2,245.8 billion in 2017 from Won 544.5 billion in 2016, primarily due to an increase in share of profits of SK Hynix to Won 2,175.9 billion in 2017 from Won 572.1 billion in 2016. Such increase was primarily due to an increase in SK Hynix’s profit for the year to Won 10,642.2 billion in 2017 from Won 2,960.5 billion in 2016. Income Tax. Income tax expense increased by 71.0% to Won 745.7 billion in 2017 from Won 436.0 billion in 2016 primarily due to a 62.4% increase in profit before income tax to Won 3,403.3 billion in 2017 from Won 2,096.1 billion in 2016. Our effective tax rate in 2017 increased by 1.1% to 21.9% from 20.8% in 2016, primarily for the reasons set forth above. Our effective tax rates in 2017 and 2016 were lower than the statutory tax rate of 24.2%, primarily due to a tax refund in 2017 and changes in unrecognized deferred taxes in 2016. Profit for the Year. Principally as a result of the factors discussed above, our profit for the year increased by 60.1% to Won 2,657.6 billion in 2017 from Won 1,660.1 billion in 2016. Profit for the year as a percentage of operating revenue and other income was 15.1% in 2017 compared to 9.7% in 2016.

2016 Compared to 2015 Operating Revenue and Other Income. Our consolidated operating revenue and other income decreased by 0.1% to Won 17,158.3 billion in 2016 from Won 17,167.6 billion in 2015, due to a decrease in operating revenue, offset in part by an increase in other income, as discussed below. Our consolidated operating revenue decreased slightly by 0.3% to Won 17,091.8 billion in 2016 from Won 17,136.7 billion in 2015, primarily due to decreases in wireless service revenue, cellular interconnection revenue, fixed-line telephone service revenue and e-commerce services revenue, partially offset by increases in broadband Internet service and advanced media platform service revenue, miscellaneous revenue and fixed-line interconnection revenue, each as further discussed below. Our consolidated other income increased by 115.2% to Won 66.5 billion in 2016 from Won 30.9 billion in 2015 primarily due to refunds received in 2016 in connection with the overturn of certain fines previously imposed on us by the FTC that we had paid. The following sets forth additional information about our operating revenues with respect to each of our reportable segments. • Cellular services: The revenue of our cellular services segment, which is composed of revenues from wireless service, cellular interconnection, wireless device sales and miscellaneous cellular services, decreased by 2.0% to Won 13,004.9 billion in 2016 from Won 13,269.3 billion in 2015. The decrease in our

54

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents cellular services revenue was due to decreases in our wireless service revenue, cellular interconnection revenue and wireless device sales. • Wireless service revenue decreased by 1.3% to Won 10,583.0 billion in 2016 from Won 10,720.5 billion in 2015, primarily attributable to an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA due to greater public awareness of the availability of such discounted rates as well as the increase in the applicable discount rate to 20% in April 2015 from 12% in October 2014. • Cellular interconnection revenue decreased by 13.5% to Won 614.4 billion in 2016 from Won 710.0 billion in 2015. The decrease was primarily attributable to decreases in interconnection rates and land-to-mobile call volume in 2016. • Wireless device sales decreased by 4.3% to Won 922.4 billion in 2016 from Won 963.4 billion in 2015, primarily attributable to a decrease in the number of wireless devices sold in 2016 as a result of the maturity of the wireless device market. • Fixed-line telecommunications services: The revenue of our fixed-line telecommunication services segment, which is composed of revenues from broadband Internet service and advanced media platform service (including IPTV), fixed-line telephone service, international calling service, fixed-line interconnection and miscellaneous fixed-line telecommunication services, increased by 6.3% to Won 2,651.2 billion in 2016 from Won 2,494.5 billion in 2015, due to increases in our broadband Internet service and advanced media platform service (including IPTV) revenue and fixed-line interconnection revenue, partially offset by decreases in fixed-line telephone service revenue, miscellaneous fixed-line telecommunication services revenue and international calling service revenue. • Revenue from our broadband Internet service and advanced media platform service (including IPTV) increased by 12.5% to Won 1,472.8 billion in 2016 from Won 1,308.8 billion in 2015, primarily due to an increase in the number of IPTV subscribers to 4.0 million subscribers as of December 31, 2016 from 3.5 million subscribers as of December 31, 2015 and an increase in the purchase of paid media content by IPTV subscribers. Fixed-line interconnection revenue increased by 134.9% to Won 134.1 billion in 2016 from Won 57.1 billion in 2015, primarily due to additional interconnection charges we received from KT and LG U+ as a result of certain changes to the methodology for calculating interconnection charges. • Fixed-line telephone service revenue decreased by 14.9% to Won 357.8 billion in 2016 from Won 420.6 billion in 2015, primarily due to a decrease in residential calling volume as a result of shifting consumer preferences toward wireless communication. Miscellaneous fixed-line telecommunication services revenue decreased by 3.0% to Won 590.5 billion in 2016 from Won 608.9 billion in 2015, primarily due to a decline in new contracts for business communications services provided by SK Broadband. International calling service revenue decreased by 3.1% to Won 96.0 billion in 2015 from Won 99.1 billion in 2015, primarily due to a decrease in international calling volume. • E-commerce services: The revenue of our e-commerce services segment, which is primarily composed of revenues from 11st, our open marketplace platform, decreased by 5.5% to Won 1,001.3 billion in 2016 from Won 1,060.0 billion in 2015, primarily due to the spin-offs of SK Planet’s former platform business and T store business in March 2016 as revenues from these businesses were included in our e-commerce services segment prior to the spin-offs but excluded thereafter. • Others: The revenue of our others segment, which is composed of revenue from our portal service and miscellaneous other revenue, increased by 38.8% to Won 434.4 billion in 2016 from Won 312.9 billion in 2015, due to an increase in miscellaneous other revenue. Miscellaneous other revenue increased by 57.7% to Won 380.2 billion in 2016 from Won 241.1 billion in 2015, primarily due to the spin-offs of SK Planet’s former platform business and T store business as revenues from these businesses were included in our others segment beginning in March 2016.

55

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Operating Expense. Our consolidated operating expense increased by 1.2% to Won 15,854.9 billion in 2016 from Won 15,672.2 billion in 2015, primarily due to a 3.3% increase in commissions to Won 5,376.7 billion in 2016 from Won 5,207.0 billion in 2015 and a 3.4% increase in depreciation and amortization to Won 2,941.9 billion in 2016 from Won 2,845.3 billion in 2015. Such increases were partially offset by a 6.0% decrease in cost of products that have been resold to Won 1,838.4 billion in 2016 from Won 1,955.9 billion in 2015. The increase in commissions was attributable mainly to an increase in marketing costs relating to promotional activities for 11st, our open marketplace platform, which was partially offset by a decrease in marketing costs relating to our cellular services. The increase in depreciation and amortization was primarily due to amortization of certain frequency bandwidth usage rights we acquired or re-licensed in 2016 as well as amortization of software. The decrease in cost of products that have been resold was primarily due to a decrease in the number of wireless devices resold in 2016. The following sets forth additional information about our segment operating expense with respect to each of our reportable segments, which do not include certain expenses that are classified as other non-operating expenses under K-IFRS. For more information on the difference between our consolidated operating expense pursuant to K-IFRS and pursuant to IFRS as issued by the IASB, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” • Cellular services: The segment operating expense for our cellular services segment decreased by 3.3% to Won 11,205.8 billion in 2016 from Won 11,591.0 billion in 2015, attributable mainly to a decrease in marketing costs due to the stabilized competitive environment due to the maturity of the LTE market and the implementation of the MDDIA as well as an increase in the number of subscribers who elected to receive discounted rates in lieu of receiving handset subsidies pursuant to the MDDIA. • Fixed-line telecommunication services: The segment operating expense for our fixed-line telecommunication services segment increased by 5.6% to Won 2,518.8 billion in 2016 from Won 2,386.2 billion in 2015, primarily due to an increase in marketing costs to gain more subscribers to our ultra-high definition IPTV and high speed broadband Internet services and an increase in expenses paid to obtain certain rights to media content. • E-commerce services: The segment operating expense for our e-commerce services segment increased by 28.1% to Won 1,366.5 billion in 2016 from Won 1,066.7 billion in 2015, primarily due to an increase in marketing costs relating to promotional activities for 11st, our online open marketplace, which more than offset the impact of the exclusion of SK Planet’s former platform and T store businesses from our e-commerce services segment beginning in 2016. • Others: The segment operating expense for our others segment increased by 20.8% to Won 465.0 billion in 2016 from Won 384.8 billion in 2015, primarily due to an increase in marketing costs relating to the impact of the inclusion of SK Planet’s former platform and T store businesses in the others segment beginning in 2016. Operating Profit. Our consolidated operating profit decreased by 12.8% to Won 1,303.4 billion in 2016 from Won 1,495.4 billion in 2015, due to the decrease in operating revenue and other income and the increase in operating expense. The following sets forth additional information about our segment operating profit with respect to each of our reportable segments. Our segment operating profit with respect to each of our reportable segments is based on K-IFRS and the sum of segment operating profit for all four reportable segments differs from our consolidated operating profit presented in accordance with IFRS as issued by the IASB. For a reconciliation of operating profit presented in accordance with IFRS as issued by the IASB and operating profit presented in accordance with K-IFRS, see “— Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS.” • Cellular services: The segment operating profit of our cellular services segment increased by 7.2% to Won 1,799.1 billion in 2016 from Won 1,678.3 billion in 2015, due to the greater decrease in segment

56

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents operating expense, as compared to the decrease in segment revenue, for the reasons described above. As a result, the segment operating margin (which, with respect to each reportable segment, is segment operating profit divided by revenue from such segment, expressed as a percentage) of our cellular services segment increased to 13.8% in 2016 from 12.6% in 2015. • Fixed-line telecommunication services: The segment operating profit of our fixed-line telecommunication services segment increased by 22.1% to Won 132.4 billion in 2016 from Won 108.3 billion in 2015, primarily due to the increase in revenue from our IPTV service despite the increase in costs to expand our advanced media platform service business. As a result, the segment operating margin of our fixed-line telecommunication services segment increased to 5.0% in 2016 from 4.3% in 2015. • E-commerce services: The segment operating loss of our e-commerce services segment increased significantly to Won 365.2 billion in 2016 from Won 6.7 billion in 2015, primarily due to the increase in marketing costs relating to promotional activities for 11st described above. • Others: The segment operating loss of our others segment decreased by 57.4% to Won 30.6 billion in 2016 from Won 71.9 billion in 2015, primarily due to the inclusion of the results of operations from SK TechX and One Store in our others segment as described above. Finance Income and Finance Costs. Our finance income increased by 453.5% to Won 575.1 billion in 2016 from Won 103.9 billion in 2015, primarily due to a significant increase in gain on disposal of long-term investment securities to Won 459.3 billion in 2016 from Won 10.8 billion in 2015 relating to the sale of our 15.0% interest in Loen Entertainment in February 2016 and the sale of our 1.4% interest in POSCO in November 2016. Our finance costs decreased by 6.7% to Won 326.8 billion in 2016 from Won 350.1 billion in 2015 primarily due to a 75.7% decrease in impairment loss for available-for-sale financial assets to Won 5.3 billion in 2016 from Won 21.8 billion in 2015, primarily due to an increase in the fair value of certain of our available-for-sale financial assets, and a 2.4% decrease in interest expense to Won 290.5 billion in 2016 from Won 297.7 billion in 2015. Gains (Losses) Related to Investments in Subsidiaries and Associates. Gains related to investments in subsidiaries and associates decreased by 30.7% to Won 544.5 billion in 2016 from Won 786.2 billion in 2015, primarily due to a 32.1% decrease in share of profits of SK Hynix to Won 572.1 billion in 2016 from Won 842.1 billion in 2015. Such decrease was primarily due to the 31.5% decrease in SK Hynix’s profit for the year to Won 2,960.5 billion in 2016 from Won 4,323.6 billion in 2015. Income Tax. Income tax expense decreased by 16.1% to Won 436.0 billion in 2016 from Won 519.5 billion in 2015 notwithstanding a 3.0% increase in profit before income tax to Won 2,096.1 billion in 2016 from Won 2,035.4 billion in 2015, primarily due to changes in the interpretation of certain tax regulations allowing for the use in 2016 of tax loss carryforwards incurred by SK Planet relating to its loss on disposal of shares of SK Communications. Our effective tax rate in 2016 decreased by 4.8% to 20.8% in 2016 from 25.5% in 2015, primarily for the reasons set forth above. Profit for the Year. Principally as a result of the factors discussed above, our profit for the year increased by 9.5% to Won 1,660.1 billion in 2016 from Won 1,515.9 billion in 2015. Profit for the year as a percentage of operating revenue and other income was 9.7% in 2016 compared to 8.8% in 2015.

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

Item 5.B. Liquidity and Capital Resources Liquidity We had a working capital deficit (current liabilities in excess of current assets) of Won 907.3 billion as of December 31, 2017 and Won 447.5 billion as of December 31, 2016. The working capital deficits as of

57

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents December 31, 2016 and 2017 were primarily due to working capital needs in the ordinary course of business. We plan to fund our current liabilities with the cash flow generated by our operations, proceeds from the disposal of investment securities or property and equipment that are no longer deemed profitable and proceeds from additional borrowings, as necessary. We had cash and cash equivalents, short-term financial instruments and short-term investment securities of Won 2,218.9 billion as of December 31, 2017 and Won 2,081.4 billion as of December 31, 2016. We had outstanding short-term borrowings of Won 130.0 billion as of December 31, 2017 and Won 2.6 billion as of December 31, 2016. As of December 31, 2017, we had credit lines with several local banks that provided for borrowing of up to Won 440.0 billion, of which Won 390.0 billion was available for borrowing. Cash flows from operating activities and debt financing have been our principal sources of liquidity. We had cash and cash equivalents of Won 1,457.7 billion as of December 31, 2017 and Won 1,505.2 billion as of December 31, 2016. We believe that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings.

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

N.A.= Not available Cash Flows from Operating Activities. Net cash provided by operating activities was Won 3,855.8 billion in 2017, Won 4,243.2 billion in 2016 and Won 3,778.1 billion in 2015. Profit for the year was Won 2,657.6 billion in 2017, Won 1,660.1 billion in 2016 and Won 1,515.9 billion in 2015. Net cash provided by operating activities in 2017 decreased by 9.1% from 2016 primarily due to an increase in outstanding accounts receivable at the year-end of 2017 compared to the year-end of 2016. Net cash provided by operating activities in 2016 increased by 12.3% from 2015 primarily due to the fulfillment of certain year-end cash payment obligations on the next business day after December 31, 2016, which was not a business day. Cash Flows from Investing Activities. Net cash used in investing activities was Won 3,070.6 billion in 2017, Won 2,462.2 billion in 2016 and Won 2,880.5 billion in 2015. Cash inflows from investing activities were Won 456.8 billion in 2017, Won 1,140.7 billion in 2016 and Won 914.5 billion in 2015. Cash inflows in 2017 were primarily attributable to the collection of short-term loans of Won 216.7 billion and proceeds from disposals of long- term investment securities of Won 129.7 billion, mostly in connection with the disposal of our shares of Kakao Corporation for Won 112.6 billion in cash in April 2017. Cash inflows in 2016 were primarily attributable to proceeds from disposals of long-term investment securities of Won 555.5 billion, mostly in connection with the disposal of our 15.0% interest in Loen Entertainment for shares of Kakao Corporation and Won 218.0 billion in cash in February 2016 and the disposal of our 1.4% interest in POSCO for Won 305.1 billion in November 2016, collection of short-term loans of Won 239.0 billion and decrease in short-term financial instruments, net of Won 222.3 billion. Cash inflows in 2015 were primarily attributable to collection of short-term loans of Won 398.3 billion and proceeds from disposals of investments in associates and joint ventures of Won 185.1 billion, mostly in connection with the disposal of 27,725,264 shares of KEB HanaCard for Won 176.3 billion. Cash outflows for investing activities were Won 3,527.4 billion in 2017, Won 3,602.9 billion in 2016 and Won 3,795.0 billion in 2015. Cash outflows in 2017, 2016 and 2015 were primarily attributable to expenditures

58

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents related to the acquisition of property and equipment of Won 2,715.9 billion, Won 2,490.5 billion and Won 2,478.8 billion, respectively, primarily in connection with the acquisition of LTE equipment and the expansion of our LTE network. Cash Flows from Financing Activities. Net cash used in financing activities was Won 826.6 billion in 2017, Won 1,044.8 billion in 2016 and Won 964.6 billion in 2015. Cash inflows from financing activities were Won 1,261.8 billion in 2017, Won 861.6 billion in 2016 and Won 1,375.2 billion in 2015. Such inflows were primarily driven by the issuance of debentures, which provided cash of Won 973.3 billion in 2017, Won 776.7 billion in 2016 and Won 1,375.0 billion in 2015 and proceeds from long-term borrowings, which provided cash of Won 120.0 billion in 2017 and Won 49.0 billion in 2016. In 2017, we also received net proceeds from short-term borrowings of Won 127.4 billion. Cash outflows for financing activities were Won 2,088.4 billion in 2017, Won 1,906.5 billion in 2016 and Won 2,339.8 billion in 2015. Cash outflows for financing activities included repayment of debentures, payment of dividends, repayments of other long-term accounts payable and cash outflows from settlement of derivatives, among other items. Repayment of debentures were Won 842.7 billion in 2017, Won 770.0 billion in 2016 and Won 620.0 billion in 2015. Payment of dividends were Won 706.1 billion in 2017, Won 706.1 billion in 2016 and Won 668.5 billion in 2015. Repayments of other long-term account payables were Won 305.5 billion in 2017, Won 122.7 billion in 2016 and Won 191.4 billion in 2015. Cash outflows from settlement of derivatives were Won 105.3 billion in 2017, none in 2016 and Won 0.7 billion in 2015. In 2015, we had cash outflows of Won 490.2 billion due to acquisition of treasury stock and cash outflows of Won 220.4 billion related to equity interest transactions, principally in connection with a share exchange transaction (the “Share Exchange”) in June 2015 through which we acquired all of the shares of SK Broadband that we did not otherwise own in exchange for 1,692,824 of our treasury shares and cash. As of December 31, 2017, we had total long-term debt (excluding current portion) outstanding of Won 5,808.1 billion, which included debentures in the amount of Won 5,596.6 billion and bank and institutional borrowings in the amount of Won 211.5 billion. As of December 31, 2016, we had total long-term debt (excluding current portion) outstanding of Won 6,478.6 billion, which included debentures in the amount of Won 6,338.9 billion and bank and institutional borrowings in the amount of Won 139.7 billion. For a description of our long-term debt, see note 17 of the notes to our consolidated financial statements. As of December 31, 2017, we had (i) Won 5,285.8 billion aggregate principal amount of Korean Won-denominated debentures outstanding, of which SK Telecom issued Won 3,970.3 billion, SK Broadband issued Won 1,310 billion and Iriver issued Won 5.6 billion, and (ii) Won 1,821.4 billion aggregate principal amount of debentures outstanding denominated in U.S. dollars. The fixed interest rates of our debentures range from 1.00% to 6.63% depending on the offering size, maturity, interest rate environment at the time of the offering and currency, among other factors. We have a diversified maturity profile with respect to our debentures. See “— Contractual Obligations and Commitments” for more details. As of December 31, 2017, all of our foreign currency-denominated long-term borrowings, which amounted to 25.5% of our total outstanding long-term debt, including the current portion and present value discount as of such date, was denominated in Dollars. However, substantially all of our revenue and operating expenses are denominated in Won. We generally pay for imported capital equipment in Dollars. Appreciation of the Won against the Dollar will result in net foreign currency transaction and translation gains, while depreciation of the Won against the Dollar will result in net foreign currency transaction and translation losses. Changes in foreign currency exchange rates will also affect our liquidity because of the effect of such changes on the amount of funds required for us to make interest and principal payments on our foreign currency-denominated debt. For a description of swap or derivative transactions we have entered into, among other transactions, to mitigate the effects of such losses, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

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

59

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents growth businesses in IoT solutions, media and e-commerce and other innovative products and services offered through our platform services, including artificial intelligence solutions. To fund our scheduled debt repayment and planned capital expenditures over the next several years, we intend to rely primarily on cash flows from operating activities, as well as bank and institutional borrowings, and offerings of debt or equity in the domestic or international markets. We believe that these sources will be sufficient to fund our planned capital expenditures for 2018. Our ability to rely on these alternatives could be affected by the liquidity of the Korean financial markets or by Government policies regarding Won and foreign currency borrowings and the issuance of equity and debt. Our failure to make needed expenditures would adversely affect our ability to sustain subscriber growth and provide quality services and, consequently, our results of operations. Capital Expenditures. The following table sets forth our actual capital expenditures for 2017, 2016 and 2015:

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

(1) Includes all capital expenditures made by SK Broadband. (2) Includes investments in our CDMA, WiBro and Wi-Fi networks as well as other capital expenditures related to our networks. (3) Includes non-network related investments such as capital expenditures for product development and maintenance and upgrades of our information technology systems and equipment. We set our capital expenditure budget for each upcoming year on an annual basis. Our actual capital expenditures in 2017, 2016 and 2015 were Won 2,715.9 billion, Won 2,490.5 billion and Won 2,478.8 billion, respectively. Of such amounts, we spent approximately 41.7%, 44.3% and 41.3% in 2017, 2016 and 2015, respectively, on capital expenditures related to expanding and enhancing the quality of our LTE network. Our other non-network related capital expenditures in 2017, 2016 and 2015 primarily related to developing new products and maintenance and upgrades to our information technology systems. In addition, we have been making capital expenditures to build more advanced networks based on LTE technology. We commenced commercial LTE services in July 2011 and expanded our LTE network nationwide and launched our LTE multi-carrier technology in 2012. We launched our LTE-A service in June 2013, our wideband LTE-A service in June 2014, our tri-band LTE-A service in December 2014 and our five-band LTE-A service in June 2017. For a more detailed description of our LTE network, see “Item 4.B. Business Overview — Digital Wireless Network — LTE Network.” We plan to continue to make capital investments in 2018 to further improve and expand our LTE network and develop related technologies as well as to prepare for the commercialization of our future 5G network.

60

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The following table sets forth our payment obligations relating to our acquisitions of frequency usage rights.

Initial Payment Annual Payment Amount Initial Amount Annual Band Technology (width) Date of Acquisition (in billions of Won) Payment Year (in billions of Won) Payment Term CDMA(10M) 800MHz June 2011 208.3 2011 69.4 2013-2015 LTE(20M) 1.8GHz LTE(35M) 20M Dec. 2011 248.8 2011 74.6 2012-2021 15M Sept. 2013 115.3 2013 43.2 2014-2021 LTE(20M) Dec. 2001 650.0 2001 130.0 2007-2011 2.1GHz WCDMA(20M) Dec. 2016 141.2 2016 85.3 2017-2021 2.3GHz WiBro(27M) March 2012 8.7 2012 2.9 2014-2016 2.6GHz LTE(40M+20M) August 2016 332.5 2016 99.8 2017-2026 For more information, see note 16 of the notes to our consolidated financial statements. We expect that our capital expenditure amount in 2018 will be slightly higher than that of 2017. Our expenditures will be for a range of projects, including investments to improve and expand our LTE network and LTE-A services, investments to improve and expand our Wi-Fi network, investments to develop our IoT solutions and platform services business portfolio, including artificial intelligence solutions, investments in research and development of 5G technology, investments in businesses that can potentially leverage our future 5G network, and funding for mid- to long-term research and development projects, as well as other initiatives, primarily related to the development of new growth businesses, as well as initiatives related to our ongoing businesses in the ordinary course. However, our overall expenditure levels and our allocation among projects remain subject to many uncertainties. We may increase, reduce or suspend our planned capital expenditures for 2018 or change the timing and area of our capital expenditure spending from the estimates described above in response to market conditions or for other reasons. We may also make additional capital expenditure investments as opportunities arise, including in connection with building out our networks on any new bandwidths we may choose to acquire in the frequency bandwidth auction expected to be held by the MSIT in June 2018. Accordingly, we periodically review the amount of our capital expenditures and may make adjustments based on the current progress of capital expenditure projects and market conditions. No assurance can be given that we will be able to meet any such increased expenditure requirements or obtain adequate financing for such requirements, on terms acceptable to us, or at all. For more information regarding the frequency bandwidth auction expected to be held by the MSIT in June 2018, see “Item 4.B. Business Overview — Law and Regulation — Competition Regulation — Frequency Allocation.” Repayment of Outstanding Debt. As of December 31, 2017, our principal repayment obligations with respect to long-term borrowings, bonds and obligations under capital leases outstanding were as follows for the periods indicated:

Year Ending December 31, Total (In billions of Won) 2018 1,533.0 2019 984.9 2020 978.5 2021 and thereafter 3,854.3 We note that no commercial bank in Korea may extend credit (including loans, guarantees and purchase of bonds) in excess of 20.0% of its shareholders’ equity to any one borrower. In addition, no commercial bank in Korea may extend credit exceeding 25.0% of the bank’s shareholders’ equity to any one borrower and to any person with whom the borrower shares a credit risk. Investments in New Growth Businesses. We may also require capital for investments to support our development of new growth businesses. In August 2014, we acquired a 39.3% equity interest of Iriver, a manufacturer of digital audio players and other portable media devices, which we increased to 49.0% in December 2014, for an aggregate purchase price of

61

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Won 54.5 billion. In 2017, we made capital contributions of Won 25.0 billion and as of December 31, 2017, we had a 45.9% equity interest in Iriver. In 2014 and 2015, we acquired an 83.9% interest in NSOK, a provider of residential and small business electronic security and other related alarm monitoring services, for an aggregate of Won 64.0 billion. In October 2016, we acquired the remaining 16.1% interest in NSOK through SK Telink. In 2016, we acquired a 46.2% interest in SM Mobile Communications for Won 12.1 billion, which was subsequently merged into Iriver, and in 2017, we acquired SM Life Design for Won 30.0 billion, in light of potential synergies that may be achieved through the entertainment business. From time to time, we may make other investments in telecommunications or other businesses, in Korea or abroad, where we perceive attractive opportunities for investment. From time to time, we may also dispose of existing investments when we believe that doing so would be in our best interest. Severance Payments. The defined benefit obligation, which is the total accrued and unpaid retirement and severance benefits for our employees, as of December 31, 2017 was Won 62.0 billion. This amount was reflected in our consolidated financial statements as a liability, which is net of deposits with insurance companies totaling Won 663.6 billion to fund a portion of the employees’ severance indemnities. Also see “Item 6.D. Employees — Employee Benefits” and note 21 of the notes to our consolidated financial statements. Dividends. Total cash outflows for payments of dividends amounted to Won 706.1 billion in 2017, Won 706.1 billion in 2016 and Won 668.5 billion in 2015. In April 2018, we distributed annual dividends at Won 9,000 per share (exclusive of an interim dividend of Won 1,000 per share) to our shareholders for an aggregate payout amount of Won 635.5 billion.

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

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

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

62

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents involuntary. Accruals for severance indemnities are recorded based on the amount we would be required to pay in the event the employment of all our employees were to terminate at the balance date. However, we have not yet estimated cash flows for future periods. Accordingly, payments due in connection with severance indemnities have been excluded from this table. (2) Related to acquisition of frequency licenses. See note 14 of the notes to our consolidated financial statements. See note 37 of the notes to our consolidated financial statements for details related to our other commitments and contingencies.

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

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

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

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

63

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated recovery value. Our intangible assets include our frequency usage rights, which have contractual lives of 5 to 10.25 years and are amortized from the date commercial service is initiated through the end of their contractual lives. Because the use of frequency usage rights presents risks and challenges to our business, any or all of which, if realized or not properly addressed, may have a material adverse effect on our financial condition, results of operations and cash flows, we review the frequency usage rights for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow forecasts. The use of different assumptions within our cash flow model could result in different recoverable amounts for our frequency usage rights. The results of our review using the testing method described above resulted in no impairment of our frequency usage rights in 2017. See note 16 of the notes to our consolidated financial statements.

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

Income Taxes We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each year’s liability by taxing authorities. We believe that the accounting estimate related to assessment of deferred tax assets for recoverability is a “critical accounting estimate” because (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so. As of December 31, 2017 and 2016, unused tax loss carryforwards of Won 921.3 billion and Won 755.1 billion, respectively, were not recognized as deferred tax assets because we did not believe that their realization would be probable. The increase of Won 166.3 billion in unrecognized tax loss carryforwards in 2017 compared to 2016 was primarily related to the net losses incurred by SK Planet. See note 31 of the notes to our consolidated financial statements.

Item 5.C. Research and Development, Patents and Licenses, etc. We maintain a high level of spending on our research and development activity. We also donate funds to several Korean research institutes and educational organizations that focus on research and development activity. We believe that we must maintain a substantial in-house technology capability to achieve our strategic goals. In 2017, 2016 and 2015, our annual research and development expenses were Won 395.3 billion, Won 344.8 billion and Won 315.8 billion, respectively. Our total research and development expenses were approximately 2.3% in 2017, 2.0% in 2016 and 1.8% in 2015, respectively, of operating revenue and other income. The main focus of our research and development activity is the development of new wireless technologies and services and value-added technologies and services for our LTE network, such as wireless data communications, as

64

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents well as development of new technologies that reflect the growing convergence between telecommunications and other industries. Our research and development activity is centered at a research center with state-of-the-art facilities and equipment established in January 1999 in Bundang-gu, Seongnam-si, Gyeonggi-do, Korea. To more efficiently manage our research and development resources, our research and development center is organized into the following core areas: • Network Technology R&D Center, through which we research and develop 5G-related technologies as well as technologies for access network, core network, broadband Internet, wireless devices and next-generation open source software; • Future Technology R&D Center, through which we research and develop technologies for human machine interface, artificial intelligence, video, big data and other business solutions; • Platform Technology R&D Center, through which we research and develop technologies for our IoT solutions, media and commerce and other innovative products and services offered through our platform services and quantum technologies; and • Network IT Convergence R&D Center, through which we research and develop technologies that converge network technology and information technology in the ICT area. Each business unit also has its own research team that can concentrate on specific short-term research needs. Such research teams permit our research center to concentrate on long-term, technology-intensive research projects. We aim to establish strategic alliances with selected domestic and foreign companies with a view to exchanging or jointly developing technologies, products and services.

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

Item 5.E. Off-Balance Sheet Arrangements None.

Item 5.F. Tabular Disclosure of Contractual Obligations These matters are discussed under Item 5.B. above where relevant.

Item 5.G. Safe Harbor These matters are discussed under “Forward-Looking Statements.”

Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Item 6.A. Directors and Senior Management Our board of directors has ultimate responsibility for the management of our affairs. Under our articles of incorporation, our board is to consist of at least three but no more than twelve directors, more than half of whom must be independent non-executive directors. We currently have a total of eight directors, five of whom are independent non-executive directors. We elect our directors at a general meeting of shareholders with the approval of at least a majority of those shares present or represented at such meeting. Such majority must represent at least one-fourth of our total issued and outstanding shares with voting rights. As required under relevant Korean laws and our articles of incorporation, we have a committee for recommendation of independent non-executive directors within the board of directors, the Independent Director Nomination Committee. Independent non-executive directors are appointed from among those candidates recommended by the Independent Director Nomination Committee. The term of offices for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms. Our shareholders may

65

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents remove them from office by a resolution at a general meeting of shareholders adopted by the holders of at least two-thirds of the voting shares present or represented at the meeting, and such affirmative votes also represent at least one-third of our total voting shares then issued and outstanding. Representative directors are directors elected by the board of directors with the statutory power to represent our company. The following are the names and positions of our standing and non-standing directors. The business address of all of our directors is the address of our registered office at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 100-999, Korea. Standing directors are our full-time employees and executive officers, and they also comprise the senior management, or the key personnel who manage us. Their names, dates of birth and positions at our company, other positions and business experience are set forth below:

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

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

66

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

Item 6.B. Compensation The aggregate of the remuneration paid and in-kind benefits granted to the directors (all standing directors, who also serve as our executive officers, and non-standing directors) during the year ended December 31, 2017 totaled approximately Won 2.2 billion. Remuneration for the directors is determined by shareholder resolution. Severance allowances for directors are determined by the board of directors in accordance with our regulation on severance allowances for officers, which was adopted by shareholder resolution. The regulation provides for monthly salary, performance bonus, severance payment and fringe benefits. The amount of performance bonuses is independently decided by a resolution of the board of directors. In March 2002, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, certain of our directors and officers were granted options to purchase our common shares, which have all expired without being exercised. On March 24, 2017, pursuant to resolutions of the shareholders, and in accordance with our articles of incorporation, Mr. Jung Ho Park, our President and Chief Executive Officer, was

67

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents granted options to purchase 66,504 shares of our common stock. On February 20, 2018, our board of directors resolved to grant options to certain executive officers, which was approved by shareholder resolution on March 21, 2018, as set forth in the table below. The following table summarizes the exercisable stock options granted as of the date of this annual report:

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

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

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

Audit Committee Under relevant Korean laws and our articles of incorporation, we are required to have an audit committee under the board of directors. The committee is composed of at least three members, two-thirds of whom must be independent non-executive directors in accordance with applicable rules. The members of the audit committee are appointed annually by a resolution of the general meeting of shareholders. They are required to: • examine the agenda for the general meeting of shareholders; • examine financial statements and other reports to be submitted by the board of directors to the general meeting of shareholders; • review the administration by the board of directors of our affairs; and • examine the operations and asset status of us and our subsidiaries. In addition, the audit committee must appoint independent auditors to examine our financial statements. An audit and review of our financial statements by independent auditors is required for the purposes of a securities report. Listed companies must provide such report on an annual, semi- annual and quarterly basis to the FSC and the KRX KOSPI Market. Our audit committee is composed of four independent non-executive directors: Dae Shick Oh, Jae Hoon Lee, Jae Hyeon Ahn, and Youngmin Yoon, each of whom is financially literate and independent under the rules of the NYSE as applicable. The board of directors has determined that Dae Shick Oh is an “audit committee financial expert” as defined under the applicable rules of the SEC. See “Item 16A. Audit Committee Financial Expert.”

68

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Independent Director Nomination Committee This committee is devoted to recommending independent non-executive directors for the board of directors. The objective of the committee is to help promote fairness and transparency in the nomination of candidates for these positions. The board of directors decides from time to time who will comprise the members of this committee. The committee is comprised of one executive director, Jung Ho Park, and two independent directors, Jae Hoon Lee and Jae Hyeon Ahn.

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

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

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

Item 6.D. Employees The following table sets forth the numbers of our regular employees, temporary employees and total employees as of the dates indicated:

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

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

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

69

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents We are required to pay a severance amount to eligible employees who voluntarily or involuntarily cease employment with us, including through retirement. This severance amount is based upon the employee’s length of service with us and the employee’s salary level at the time of severance. As of December 31, 2017, the defined benefit obligation, which is the accrued and unpaid retirement and severance benefits, of Won 679.6 billion for all of our employees are reflected in our consolidated financial statements as a liability, of which a total of Won 663.6 billion was funded. Under Korean laws and regulations, we are prevented from involuntarily terminating a full-time employee except under certain limited circumstances. In September 2002, we entered into an employment stabilization agreement with the union. Among other things, in the event that we reorganize a department into a separate entity or we outsource an employee to a separate entity where the wage is lower, this agreement provides for a guarantee of the same wage level for the year that such an event occurs. Under the Basic Labor Welfare Act, we may also contribute up to 5.0% of our annual earnings before tax for employee welfare. Contribution amounts are determined annually following negotiation with the union. The contribution amount for 2017 was set at 2.49% of SK Telecom’s profit before income tax on a separate basis, or Won 40.0 billion. The contribution amount for 2016 was set at 2.24% of SK Telecom’s profit before income tax on a separate basis, or Won 35.0 billion. The contribution amount for 2015 was set at 2.04% of SK Telecom’s profit before income tax on a separate basis, or Won 30.0 billion. In addition, we provide our employees with miscellaneous other fringe benefits including medical cost subsidies, family camp programs and sabbatical programs for long-term employees.

Item 6.E. Share Ownership The following table sets forth the share ownership by our standing and non-standing directors as of March 31, 2018:

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

Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Item 7.A. Major Shareholders As of the close of our shareholders’ registry on December 31, 2017, approximately 58.6% of our issued shares were held in Korea by approximately 53,935 shareholders. According to Citibank, N.A. (“Citibank”), depositary for our ADRs, as of December 31, 2017, there were at least 33,186 record holders of our ADRs evidencing ADSs resident in the United States to the best of Citibank’s knowledge, and 8,899,423 shares of our common stock were held in the form of ADSs. As of such date, outstanding ADSs represented approximately 11.0% of our outstanding common shares.

70

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The following table sets forth certain information as of December 31, 2017 with respect to any person known to us to be the beneficial owner of more than 5.0% of our common shares and with respect to the total amount of such shares owned by our officers and directors, as a group:

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

(1) Treasury shares do not have any voting rights. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program. (2) Based on the data collected by the KRX KOSPI Market under the Foreign Exchange Transaction Laws. (3) Represents total issued shares excluding treasury shares. The following table sets forth significant changes in the percentage ownership held by our major shareholders during the past three years:

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

(1) Includes 10,136,551 shares held in treasury as of December 31, 2017, 2016 and 2015, respectively. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program. (2) SK Group’s ownership interest as of December 31, 2017, 2016 and 2015 consisted of the ownership interest of SK Holdings only. Except as described above, other than companies in the SK Group, no other persons or entities known by us to be acting in concert, directly or indirectly, jointly or severally, own in excess of 5.0% of our total shares outstanding or exercise control or could exercise control over our business. On July 1, 2007, the company formerly known as SK Corporation underwent a corporate reorganization, pursuant to which SK Corporation spun off substantially all of its operating business divisions into a newly established corporation named SK Energy Co., Ltd. The surviving company currently operates as a holding company, renamed SK Holdings. Ownership of all our shares held by SK Corporation immediately preceding the reorganization passed to SK Holdings as of July 1, 2007. On August 1, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings.

71

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents As of March 31, 2018, SK Holdings held 25.22% of our shares of common stock. For a description of our foreign ownership limitation, see “Item 3.D. Risk Factors — Risks Relating to Securities — If SK Holdings causes us to breach the foreign ownership limitations on our common shares, we may experience a change of control” and “Item 4.B. Business Overview — Law and Regulation — Foreign Ownership and Investment Restrictions and Requirements.” In the event that SK Holdings announces plans of a sale of our shares, we expect to be able to discuss the details of such sale with them in advance and will endeavor to minimize any adverse effects on our share prices as a result of such sale. As of March 31, 2018, the total number of our common shares outstanding was 70,609,160. Other than as disclosed herein, there are no other arrangements, to the best of our knowledge, which would result in a material change in the control of us. Our major shareholders do not have different voting rights.

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

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

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

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

Item 7.C. Interests of Experts and Counsel Not applicable.

Item 8. FINANCIAL INFORMATION Item 8.A. Consolidated Statements and Other Financial Information See “Item 18. Financial Statements” and pages F-1 through G-77.

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

72

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents while advertising that the handsets are offered at a discount through subsidy plans. We paid such fine in September 2012 and filed an appeal at the Seoul High Court, which ruled against us in October 2014. We appealed the decision to the Supreme Court of Korea, where the case is currently pending.

KCC Proceedings On March 12, 2015, the KCC imposed a fine of Won 934 million on us and issued a correctional order for violating the MDDIA with respect to our compensation programs for used handsets. On March 26, 2015, the KCC imposed a fine of Won 23.5 billion on us and imposed a suspension on acquiring new subscribers for a period of seven days for providing subsidies to subscribers in excess of the amounts permitted under the MDDIA. We suspended acquisition of new customers during the period from October 1, 2015 to October 7, 2015. On May 13, 2015, the KCC imposed a fine of Won 3.6 billion on us and issued a correctional order for violating its obligations to protect personal information. We paid such fine in July 2015 and reported to the KCC on the implementation of actions pursuant to the correctional order in September 2015. On May 28, 2015 and December 10, 2015, the KCC imposed a fine of Won 350 million and Won 560 million, respectively, on us and issued a correctional order for misleading and exaggerated advertisement of bundled wireless and fixed-line telecommunications products. On January 14, 2016, the KCC imposed a fine of Won 15 million on us and issued a correctional order for failure to comply with the retention period for our subscribers’ personal information. On December 6, 2016, the KCC imposed a fine of Won 3.75 billion on us for unfair marketing practices in connection with our bundled wireless and fixed-line telecommunications services. On December 21, 2016, the KCC imposed fines of Won 100 million and Won 30 million on us for engaging in certain prohibited sales activities and violating certain subscriber location data protection regulations, respectively. On March 21, 2017, the KCC imposed a fine of Won 794 million on us for providing subsidies to foreign subscribers in excess of the amounts permitted under the MDDIA. On December 6, 2017, the KCC issued a correctional order relating to restrictions on cancelling broadband Internet and bundled service subscriptions. On January 24, 2018, the KCC imposed an aggregate fine of Won 21.4 billion on us for providing discriminatory subsidies in violation of the MDDIA. With respect to the correctional orders issued by the KCC set forth above, we have implemented remedial measures pursuant to such correctional orders and reported to the KCC on the implementation of such measures.

SK Communications Litigation In July 2011, there was a leak of personal information of subscribers of NATE and Cyworld websites operated by SK Communications, our consolidated subsidiary. Various lawsuits were filed against SK Communications alleging that the leak was caused by its poor management of subscribers’ personal information. With respect to the eight lawsuits for which final judgments have been rendered, the relevant courts have rendered judgments in favor of SK Communications. As of March 31, 2018, five of the lawsuits, seeking damages of approximately Won 12.6 million in aggregate, were pending at various appellate courts and the Supreme Court of Korea. Except as described above, neither we nor any of our subsidiaries are involved in any litigation, arbitration or administrative proceedings relating to claims which may have, or have had during the twelve months preceding the date hereof, a significant effect on our financial position or the financial position of our subsidiaries taken as a whole, and, so far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.

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

73

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents We pay cash dividends to the ADR depositary in Won. Under the terms of the deposit agreement, cash dividends received by the ADR depositary generally are to be converted by the ADR depositary into Dollars and distributed to the holders of the ADSs, less withholding tax, other governmental charges and the ADR depositary’s fees and expenses. The ADR depositary’s designated bank in Korea must approve this conversion and remittance of cash dividends. See “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares” and “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.” The following table sets forth the dividend per share and the aggregate total amount of dividends declared (including any interim dividends), as well as the number of outstanding shares entitled to dividends, with respect to the years indicated. The dividends set out for each of the years below were paid in the immediately following year.

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

(1) The number of shares entitled to the interim dividend was 72,629,160. We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. Our common shares represented by the ADSs have the same dividend rights as other outstanding common shares. Holders of non-voting shares are entitled to receive dividends in priority to the holders of common shares. The dividend on the non-voting shares is between 9.0% and 25.0% of the par value as determined by the board of directors at the time of their issuance. If the dividends for common shares exceed the dividends for non-voting shares, the holders of non-voting shares will be entitled to participate in the distribution of such excess amount with the holders of common shares. If the amount available for dividends is less than the aggregate amount of the minimum required dividend, holders of non-voting shares will be entitled to receive such accumulated unpaid dividend from dividends payable in the next fiscal year before holders of common shares. There are no non-voting shares issued or outstanding. We declare dividends annually at the annual general meeting of shareholders which is generally held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record or registered pledges as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be distributed at par value. Dividends in shares may not exceed one-half of the annual dividend. Our obligation to pay dividend expires if no claim to dividend is made for five years from the payment date. Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital, (2) the total amount of our capital surplus reserve, (3) legal reserve accumulated up to the end of the relevant dividend period and (4) the increase in our net asset value resulting from the evaluation of our assets and liabilities that has not been offset against unrealized losses. In addition, we may not pay an annual dividend unless we have set aside as a legal reserve an amount equal to at least 10.0% of the cash portion of the annual dividend or until we have accumulated a legal reserve of not less than one-half of our stated capital. We may not use our legal reserve to pay cash dividends but may transfer amounts from our legal reserve to capital stock or use our legal reserve to reduce an accumulated deficit. In addition, the Korean Commercial Code and our articles of incorporation provide that, in addition to annual dividends, we may pay interim dividends once during each fiscal year. Unlike annual dividends, the decision to pay interim dividends can be made by a resolution of the board of directors and is not subject to shareholder approval. Any interim dividends must be paid in cash to the shareholders of record as of June 30 of the relevant fiscal year. Under the Korean Commercial Code, the total amount of interim dividends payable in a fiscal year shall not be more than the net assets on the balance sheet of the immediately preceding fiscal year, after deducting (1) a

74

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents company’s capital in the immediately preceding fiscal year, (2) the aggregate amount of its capital reserves and legal reserves accumulated up to the immediately preceding fiscal year, (3) the amount of earnings for dividend payments confirmed at the general shareholders’ meeting with respect to the immediately preceding fiscal year and (4) the amount of legal reserve that should be set aside for the current fiscal year following the interim dividend payment. Furthermore, the rate of interim dividends for non-voting shares must be the same as that for our common shares. Our obligation to pay interim dividends expires if no claims to such dividends are made for a period of five years from the payment date.

Item 8.B. Significant Changes Not applicable.

Item 9. THE OFFER AND LISTING Item 9.A. Offering and Listing Details These matters are described under Item 9.C. below where relevant.

Item 9.B. Plan of Distribution Not applicable.

Item 9.C. Markets The principal trading market for our common shares is the KRX KOSPI Market. As of March 31, 2018, 70,609,160 shares of our common stock were outstanding. The ADSs are traded on the NYSE and the London Stock Exchange. The ADSs have been issued by the ADR depositary and are traded on the NYSE under the ticker symbol “SKM”. Each ADS represents one-ninth of one share of our common stock. As of March 31, 2018, ADSs representing 8,804,190 shares of our common stock were outstanding.

75

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Shares of Common Stock The following table sets forth the high, low and closing prices and the average daily trading volume of our common shares on the KRX KOSPI Market since January 1, 2013:

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

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

76

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents American Depositary Shares The following table sets forth the high, low and closing prices and the average daily trading volume of the ADSs on the NYSE since January 1, 2013:

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

Source: New York Stock Exchange (1) Both high and low prices are based on the daily closing prices for the period.

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

77

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents were merged and integrated into the Korea Exchange as a joint stock company. There are four different markets run by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, the KRX KONEX Market and the KRX Derivatives Market. The Korea Exchange has three trading floors located in Seoul, one for the KRX KOSPI Market, one for the KRX KOSDAQ Market and one for the KRX KONEX Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (1) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (2) the Small & Medium Business Corporation, (3) the Korea Securities Finance Corporation and (4) the Korea Financial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is run by membership, having most of Korean securities companies and some Korean branches of foreign securities companies as its members. As of December 31, 2017, the aggregate market value of equity securities listed on the KRX KOSPI Market was approximately Won 1,605.8 trillion. For the year ended December 31, 2017, the average daily trading volume of equity securities was approximately 340.5 million shares with an average trading value of Won 5,325.8 billion. For the year ended December 31, 2016, the average daily trading volume of equity securities was approximately 376.8 million shares with an average trading value of Won 4,523.0 billion. For the year ended December 31, 2015, the average daily trading volume of equity securities was approximately 455.3 million shares with an average trading value of Won 5,351.7 billion. The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The Korea Exchange also restricts share price movements. All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all information that may affect trading in a security. The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers an excess capacity in a particular industry and induced private companies to publicly offer their securities. The Korea Exchange publishes the KOSPI, every ten seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.

78

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Movements in KOSPI are set out in the following table together with the associated dividend yields and price to earnings ratios:

Period Average Dividend Yield(1) Price to Year Opening High Low Closing (%) Earnings(2) 1980 100.00 119.36 100.00 106.87 20.9 2.6 1981 97.95 165.95 93.14 131.37 13.2 3.1 1982 123.60 134.49 106.00 127.31 10.5 3.4 1983 122.52 134.46 115.59 121.21 6.9 3.8 1984 116.73 142.46 114.37 142.46 5.1 4.5 1985 139.53 163.37 131.40 163.37 5.3 5.2 1986 161.40 279.67 153.85 272.61 4.3 7.6 1987 264.82 525.11 264.82 525.11 2.6 10.9 1988 532.04 922.56 527.89 907.20 2.4 11.2 1989 919.61 1,007.77 844.75 909.72 2.0 13.9 1990 908.59 928.77 566.27 696.11 2.2 12.8 1991 679.75 763.10 586.51 610.92 2.6 11.2 1992 624.23 691.48 459.07 678.44 2.2 10.9 1993 697.41 874.10 605.93 866.18 1.6 12.7 1994 879.32 1,138.75 860.47 1,027.37 1.2 16.2 1995 1,013.57 1,016.77 847.09 882.94 1.2 16.4 1996 888.85 986.84 651.22 651.22 1.3 17.8 1997 653.79 792.29 350.68 376.31 1.5 17.0 1998 385.49 579.86 280.00 562.46 1.9 10.8 1999 587.57 1,028.07 498.42 1,028.07 1.1 13.5 2000 1,059.04 1,059.04 500.60 504.62 2.4 15.3 2001 520.95 704.50 468.76 693.70 1.7 29.3 2002 724.95 937.61 584.04 829.44 1.8 15.6 2003 635.17 822.16 515.24 810.71 2.1 10.1 2004 821.26 936.06 719.59 895.92 2.1 15.8 2005 893.71 1,379.37 870.84 1,379.37 1.7 11.0 2006 1,389.27 1,464.70 1,192.09 1,434.46 1.7 11.4 2007 1,435.26 2,064.85 1,355.79 1,897.13 1.4 16.8 2008 1,853.45 1,888.88 938.75 1,124.47 2.6 9.0 2009 1,157.4 1,718.88 1,018.81 1,682.77 1.2 23.7 2010 1,696.14 2,052.97 1,532.68 2,051.00 1.1 17.8 2011 2,070.08 2,228.96 1,652.71 1,825.74 1.6 10.9 2012 1,826.37 2,049.28 1,769.31 1,997.05 1.3 12.9 2013 2,031.10 2,059.58 1,780.63 2,011.34 1.2 13.5 2014 2,013.11 2,093.08 1,881.73 1,915.59 1.1 15.3 2015 1,926.44 2,173.41 1,829.81 1,961.31 1.2 16.1 2016 1,918.76 2,068.72 1,835.28 2,026.46 1.5 14.3 2017 2,026.16 2,557.97 2,026.16 2,467.49 1.4 14.3 2018 (through April 25) 2,479.65 2,598.19 2,363.77 2,448.81 1.3 13.1

Source: Korea Exchange (1) Dividend yields are based on daily figures. Before 1983, dividend yields were calculated at the end of each month. Dividend yields after January 3, 1984 include cash dividends only. (2) The price to earnings ratio is based on figures for companies that record a profit in the preceding year. KOSPI closed at 2,448.81 on April 25, 2018.

79

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year. With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea Exchange to 15.0% of the previous day’s closing price of the shares, rounded down as set out below:

Previous Day’s Closing Price ￦ Rounded Down to ￦ Less than 5,000 ￦ 5 5,000 to less than 10,000 10 10,000 to less than 50,000 50 50,000 to less than 100,000 100 100,000 to less than 500,000 500 500,000 or more 1,000 As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers. The brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the securities companies. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See “Item 10.E. Taxation — Korean Taxation.”

80

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The following table sets forth the number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization and the average daily trading volume at the end of the periods indicated:

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

Source: Korea Exchange (1) Converted at the noon buying rate as certified by the Federal Reserve Bank of New York in effect on April 20, 2018 (the latest available noon buying rate prior to filing this annual report). The Korean securities markets are principally regulated by the FSC and became subject to the FSCMA beginning in February 2009. The law imposes restrictions on insider trading and price manipulation, requires

81

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.

Further Opening of the Korean Securities Market Stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the Korea Stock Exchange. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks. In addition, the Korea Stock Exchange opened new option markets for stocks of seven companies including our shares of common stock and common stock of six other companies on January 28, 2002. Foreigners will be permitted to invest in such options for individual stocks subject to certain procedural requirements. Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the Korea Stock Exchange or registered on the KOSDAQ, subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded. As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The FSC sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements. Currently, foreigners are permitted to invest in securities including shares of most Korean companies that are not listed on the KRX KOSPI Market or the KRX KOSDAQ Market and in bonds that are not listed.

Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies with a Brokerage License Under Korean law, the relationship between a customer and a financial investment company with a brokerage license in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or rehabilitation procedure involving a financial investment company with a brokerage license, the customer of such financial investment company is entitled to the proceeds of the securities sold by such financial investment company. When a customer places a sell order with a financial investment company with a brokerage license which is not a member of the Korea Exchange and this financial investment company places a sell order with another financial investment company with a brokerage license which is a member of the Korea Exchange, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or rehabilitation of the non-member company. Under the FSCMA, the Korea Exchange is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a financial investment company with a brokerage license which is a member of the Korea Exchange breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the breaching member. When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.

82

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the financial investment company with a brokerage license if a bankruptcy or rehabilitation procedure is instituted against such financial investment company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to Won 50 million per investor in case of such financial investment company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the FSCMA, subject to certain exceptions, financial investment companies with a brokerage license are required to deposit the cash received from their customers with the Korea Securities Finance Corporation, a special entity established pursuant to the FSCMA. Set-off or attachment of cash deposits by financial investment companies with a brokerage license is prohibited. The premiums related to this insurance under the Depositor Protection Act are paid by financial investment companies with a brokerage license.

Item 9.D. Selling Shareholders Not Applicable.

Item 9.E. Dilution Not Applicable.

Item 9.F. Expenses of the Issue Not Applicable.

Item 10. ADDITIONAL INFORMATION Item 10.A. Share Capital Not Applicable.

Description of Capital Stock This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the FSCMA, the Korean Commercial Code, the Telecommunications Business Act and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the FSCMA, the Korean Commercial Code and the Telecommunications Business Act. We have filed copies of our articles of incorporation and the Telecommunications Business Act as exhibits to our annual reports on Form 20-F.

General The name of our company is SK Telecom Co., Ltd. We are registered under the laws of Korea under the commercial registry number of 110111-0371346. As specified in Article 2 (Objectives) of our articles of incorporation, as amended and approved at our general shareholders meeting held on March 24, 2017, our objectives are the rational management of the telecommunications business, development of telecommunications technology, and contribution to public welfare and convenience. In order to achieve these objectives, we are engaged in the following: • information and communication business; • sale and lease of subscriber handsets; • new media business; • advertising business; • mail order sales business; • real estate business (development, management and leasing, etc.) and chattel leasing business;

83

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • research and technology development relating to the first four items above; • overseas and import/export business relating to the first four items above; • manufacture and distribution business relating to the first four items above; • travel business; • electronic financial services business; • film business (production, import, distribution and screening); • lifetime education and management of lifetime educational facilities; • electric engineering business; • information- and communication-related engineering business; • ubiquitous city construction and related service business; • any related business through investment, management and operation of our Korean or offshore subsidiaries and investment companies; • construction business, including the machine and equipment business; • export/import business and export/import intermediation/agency business; • electrical business such as intelligent electrical grid business; and • any business or undertaking incidental or conducive to the attainment of the objectives stated above. Currently, our authorized share capital is 220,000,000 shares, which consists of shares of common stock, par value Won 500 per share, and shares of non-voting stock, par value Won 500 per share (common shares and non-voting shares together are referred to as “shares”). Under our articles of incorporation, we are authorized to issue up to 5,500,000 non-voting preferred shares. As of March 31, 2018, 80,745,711 common shares were issued, of which 10,136,551 shares were held by us in treasury. Pursuant to the Share Exchange in June 2015, we exchanged 1,692,824 treasury shares for the common shares of SK Broadband. In the fourth quarter of 2015, we acquired 2,020,000 treasury shares on the market through a share buy-back program to further increase shareholder value. We have never issued any non-voting preferred shares. All of the issued and outstanding common shares are fully- paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.

Board of Directors Meetings of the board of directors are convened by the representative director as he or she deems necessary or upon the request of three or more directors. The board of directors determines all important matters relating to our business. In addition, the prior approval of the majority of the independent non-executive directors is required for certain matters, which include: • investment by us or any of our subsidiaries in a foreign company in equity or acquisition of such foreign company’s other overseas assets in an amount equal to 5.0% or more of our equity under our most recent balance sheet; and • contribution of capital, loans or guarantees, acquisition of our subsidiaries’ assets or similar transactions with our affiliated companies in excess of Won 10.0 billion through one or a series of transactions. Resolutions of the board are adopted in the presence of a majority of the directors in office and by the affirmative vote of a majority of the directors present. No director who has an interest in a matter for resolution may exercise his or her vote upon such matter. There are no specific shareholding requirements for director’s qualification. Directors are elected at a general meeting of shareholders if the approval of the holders of the majority of the voting shares present at such meeting is obtained and if such majority also represents at least one-fourth of the total number of shares outstanding. Under the

84

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Korean Commercial Code, unless otherwise stated in the articles of incorporation, holders of an aggregate of 1.0% or more of the outstanding shares with voting rights may request cumulative voting in any election for two or more directors. Our articles of incorporation permit cumulative voting for the election of directors. The term of office for directors is until the close of the third annual general shareholders meeting convened after he or she commences his or her term. Our directors may serve consecutive terms and our shareholders may remove them from office at any time by a special resolution adopted at a general meeting of shareholders.

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

Distribution of Free Shares In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.

Preemptive Rights and Issuance of Additional Shares We may at times issue authorized but unissued shares, unless otherwise provided in the Korean Commercial Code, on terms determined by our board of directors. All our shareholders are generally entitled to subscribe to any newly-issued shares in proportion to their existing shareholdings. We must offer new shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ registry as of the relevant record date. We must give public notice of the preemptive rights regarding new shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute shares for which preemptive rights have not been exercised or where fractions of shares occur. Under the Korean Commercial Code and our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing shareholders only if (1) the new shares are issued for the purpose of issuing depositary receipts in accordance with the relevant regulations or through an offering to public investors and (2) the purpose of such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. If we make an allotment of new shares to persons other than our existing shareholders, we are required by the Korean Commercial Code to notify our existing shareholders of (a) the class and number of new shares, (b) the issuance price of new shares and the date set for the payment thereof, (c) in cases of no par value shares, the amount to be included in the paid-up capital out of the issuance price of new shares and (d) the method of subscription to new shares by no later than two weeks before the date of payment of the subscription price, or publicly announce such information. Under our articles of incorporation, only our board of directors is authorized to set the terms and conditions with respect to such issuance of new shares. In addition, under our articles of incorporation, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of Won 400.0 billion, to persons other than existing shareholders, where such issuance is deemed necessary by us to achieve a business purpose, including, but not limited to, the introduction of new technology or the improvement of our financial condition. Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the shares publicly offered pursuant to the FSCMA. This right is exercisable only to the extent that the total number of shares so acquired and held by members of our employee stock ownership association does not exceed 20.0% of the sum of the number of shares then outstanding and the number of newly-issued shares.

85

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents General Meeting of Shareholders We generally hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders: • as necessary; • at the request of holders of an aggregate of 3.0% or more of our outstanding common shares; • at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares and preferred shares for at least six months; or • at the request of our audit committee. Holders of non-voting preferred shares may request a general meeting of shareholders only after the non-voting shares become entitled to vote or “enfranchised,” as described under “— Voting Rights” below. We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding voting shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use The Korea Economic Daily News and Maeil Business Newspaper, both published in Seoul, for this purpose, but we may give notice in the future through electronic means. Shareholders who are not on the shareholders’ registry as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of non-voting preferred shares, unless enfranchised, are not entitled to receive notice of or vote at general meetings of shareholders. Our general meetings of shareholders have historically been held in or near Seoul.

Voting Rights Holders of our common shares are entitled to one vote for each common share, except that voting rights of common shares held by us (including treasury shares and shares held by bank trust funds controlled by us), or by a corporate shareholder in which we own more than 10.0% equity interest, either directly or indirectly, may not be exercised. The Korean Commercial Code, unless otherwise stated in the articles of incorporation, permits cumulative voting, which would allow each shareholder to have multiple voting rights corresponding to the number of directors to be appointed in the voting and to exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting for the election of directors. Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting if such affirmative votes also represent at least one-fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, and such affirmative votes must also represent at least one-third of our total voting shares then issued and outstanding: • amending our articles of incorporation; • removing a director; • effecting any dissolution, merger or consolidation of us; • transferring the whole or any significant part of our business; • effecting our acquisition of all of the business of any other company or a part of the business of any other company having a material effect on our business; • reducing our capital; or • issuing any new shares at a price lower than their par value.

86

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents In general, holders of non-voting preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in case of amendments to our articles of incorporation, or any merger or consolidation of us, or in some other cases which affect the rights or interests of the non-voting preferred shares, approval of the holders of non-voting preferred shares is required. We may obtain the approval by a resolution of holders of at least two-thirds of the non-voting preferred shares present or represented at a class meeting of the holders of non-voting preferred shares, where the affirmative votes also represent at least one-third of our total issued and outstanding non-voting shares. In addition, if we are unable to pay dividends on non-voting preferred shares as provided in our articles of incorporation, the holders of non-voting shares will become enfranchised and will be entitled to exercise voting rights beginning at the next general meeting of shareholders to be held after the declaration of non-payment of dividends is made until such dividends are paid. The holders of enfranchised non-voting preferred shares will have the same rights as holders of common shares to request, receive notice of, attend and vote at a general meeting of shareholders. Shareholders may exercise their voting rights by proxy. A shareholder may give proxies only to another shareholder, except that a corporate shareholder may give proxies to its officers or employees. Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying common shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote our common shares underlying their ADSs.

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

Rights of Dissenting Shareholders Under Financial Investment Services and Capital Market Act, in some limited circumstances, including the transfer of all or a significant part of our business or our merger or consolidation with another company (with certain exceptions), dissenting shareholders have the right to require us to purchase their shares. To exercise this right, shareholders, including holders of non-voting shares, must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Then, within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their shares. We are obligated to purchase the shares of such dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant resolution and (3) the weighted average of the daily share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant resolution. However, a court may determine the purchase price if we or dissenting shareholders do not accept the purchase price.

Registry of Shareholders and Record Dates Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It records and registers transfers of shares on the register of shareholders upon presentation of the share certificates. The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the registry of shareholders is closed for the period from January 1 to January 31 of the

87

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of shares and the delivery of share certificates may continue while the register of shareholders is closed.

Annual Report At least one week before the annual general meeting of shareholders, we must make our annual reports and audited non-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders. Under the FSCMA, we must file with the FSC and the Korea Exchange (1) an annual securities report within 90 days after the end of our fiscal year, (2) a mid-year report within 45 days after the end of the first six months of our fiscal year, and (3) quarterly reports within 45 days after the end of the third month and the ninth month of our fiscal year. Copies of these reports are or will be available for public inspection at the FSC and the Korea Exchange.

Transfer of Shares Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his or her name, seal and address registered on our registry of shareholders, maintained by our transfer agent. A non-Korean shareholder may file a sample signature in place of a seal, unless he or she is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent in Korea authorized to receive notices on his or her behalf and file his or her mailing address in Korea. Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non-residents or non-Korean citizens. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations.” Our transfer agent is Kookmin Bank, located at 24, Gukjegeumyung-ro, Yeongdeungpo-gu, Seoul, Korea.

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

Acquisition of Shares by Us We may acquire our own shares pursuant to an approval at the general meeting of shareholders, through purchases on the Korea Exchange or a tender offer, or by acquiring the interests in a trust account holding our own shares through agreements with trust companies and asset management companies. The aggregate purchase price for the shares may not exceed the total amount available for distribution as dividends as of the end of the preceding fiscal year less the amount of dividends and mandatory reserves required to be set aside for that fiscal year, subject to certain procedural requirements. Under the Korean Commercial Code, we may resell or transfer any shares acquired by us to a third party pursuant to an approval by the Board of Directors. In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our common stock. Under the FSCMA, we are subject to certain selling restrictions with respect to the shares acquired by us.

88

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Liquidation Rights In the event of our liquidation, remaining assets after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to their shareholdings. Holders of non-voting preferred shares have no preference in liquidation. Holders of debt securities have no preference over other creditors in the event of liquidation.

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

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

Deposit and Withdrawal of Shares of Common Stock Notwithstanding the provisions described below, under the terms of the deposit agreement, the deposit of shares and issuance of ADSs may only be made if the total number of shares represented by ADSs after such deposit does not exceed a specified maximum of 24,321,893 shares as of March 31, 2018. This limit will be adjusted in certain circumstances, including (1) upon the cancellation of existing ADSs, (2) upon future offerings of ADSs by us or our shareholders, (3) rights offerings and (4) adjustments for share reclassifications. The limit also may be decreased in certain circumstances. As of March 31, 2018, the outstanding ADSs represented 8,804,190 shares of our common stock. Notwithstanding the foregoing, the ADR depositary and the Custodian may not accept deposits of shares of common stock for issuance of ADSs if it has been notified by us in writing that we block deposits to prevent a violation of applicable Korean laws or regulations or a violation of our articles of incorporation. In addition, the ADR depositary may not accept deposits of shares of common stock for issuance of ADSs from a person who identifies him-, her- or itself to the depositary, and has been identified in writing by us, as a holder of at least 3.0% of our shares of common stock. The shares of common stock underlying the ADSs are delivered to the ADR depositary’s Custodian in book-entry form. Accordingly, no share certificates will be issued but the ADR depositary will hold the shares of common stock through the book-entry settlement system of the Custodian. The delivery of the shares of common stock pursuant to the deposit agreement will take place through the facilities of the Custodian in accordance with its applicable settlement procedures. The ADR depositary will execute and deliver ADSs if you or your broker deposit shares or evidence of rights to receive shares of common stock with the Custodian. Upon payment of fees and expenses and any taxes or charges, such as stamp taxes or stock transfer taxes, the ADR depositary will register the appropriate number of ADSs in the names you designate. The ADR depositary and the ADR depositary’s Custodian will refuse to accept shares of common stock for deposit whenever we restrict transfer of shares of common stock to

89

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents comply with ownership restrictions under applicable law or our articles of incorporation or whenever the deposit would cause the total number of shares of common stock deposited to exceed a level we determine from time to time. We may instruct the ADR depositary to take certain actions with respect to a holder of ADSs who holds in excess of the ownership limitation set forth in the deposit agreement, including the mandatory sale or disposition of the shares represented by the ADSs in excess of such ownership limitations if, and to the extent, permitted by applicable law. You may surrender your ADRs to the ADR depositary to withdraw the underlying shares of our common stock. Upon payment of the fees and any governmental charges and taxes provided in the deposit agreement, and subject to applicable laws and regulations of Korea and our articles of incorporation, you will be entitled to physical delivery or electronic delivery to an account in Korea or, if permissible under applicable Korean law, outside the United States, of the shares of common stock evidenced by the ADRs and any other property at the time represented by ADR you surrendered. If you surrender an ADR evidencing a number of ADSs not evenly divisible by nine, the ADR depositary will deliver the appropriate whole number of shares of common stock represented by the surrendered ADSs and will execute and deliver to you a new ADR evidencing ADSs representing any remaining fractional shares of common stock. If you request withdrawal of shares of common stock, you must deliver to the ADR depositary a written order directing the ADR depositary to cause the shares of common stock being withdrawn to be delivered or to cause such delivery upon the written order of the person designated in your order, subject to applicable Korean laws and the provisions of the deposit agreement. Under the provisions of the deposit agreement, the ADR depositary may not lend shares of common stock or ADSs. However, subject to the provisions of the deposit agreement and limitations established by the ADR depositary, the ADR depositary may execute and deliver ADSs before deposit of the underlying shares of common stock. This is called a pre-release of the ADS. The ADR depositary may also deliver shares of common stock upon cancellation of pre-released ADSs (even if the cancellation occurs before the termination of the pre-release). The ADR depositary may pre-release ADSs only under the following circumstances: • before or at the time of the pre-release, the person to whom the pre-release is being made must represent to the ADR depositary in writing that the person, or, in case of an institution its customer, owns the shares of common stock or ADSs to be deposited and show evidence of the ownership to the ADR depositary’s satisfaction; • before or at the time of such pre-release, the person to whom the pre-release is being made must agree in writing that he or she will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the ADR depositary or Custodian, reflect on his or her records the ADR depositary as owner of such shares of common stock or ADSs and deliver such shares of common stock upon the ADR depositary’s request; • the pre-release must be fully collateralized with cash or U.S. government securities; • the ADR depositary must be able to terminate the pre-release on not more than five business days’ notice; and • the pre-release is subject to further indemnities and credit regulations as the ADR depositary deems appropriate. The ADR depositary may retain for its own account any compensation received by it in connection with the pre-release, such as earnings on the collateral. If you want to withdraw the shares of common stock from the depositary facility, you must register your identity with the Financial Supervisory Service of Korea (the “FSS”) before you acquire the shares of common stock unless you intend to sell the shares of common stock within three months. See “Item 10.D. Exchange Controls — Korean Foreign Exchange Controls and Securities Regulations — Restrictions Applicable to Shares.”

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

90

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents depositary will as promptly as practicable convert all cash dividends and other cash distributions received by it on the deposited shares of common stock into Dollars and distribute the Dollars to you in proportion to the number of ADSs representing shares of common stock held by you, after deduction of the fees and expenses of the ADR depositary. If the ADR depositary determines that in its judgment any currency other than Dollars it receives from us cannot be converted and distributed on a reasonable basis, the ADR depositary may distribute the currency it receives to the extent permitted under applicable law or hold the currency for your account if you are entitled to receive the distribution. The ADR depositary will not be liable for any interest. Before making a distribution, the ADR depositary will deduct any withholding taxes that must be paid. In the event that the ADR depositary or the ADR depositary’s Custodian receives any distribution upon any deposited shares of common stock in property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock), the ADR depositary will distribute the property or securities to you in proportion to your holdings in any manner that the ADR depositary deems, after consultation with us, equitable and practicable. If the ADR depositary determines that any distribution of property or securities (other than shares of common stock, non-voting preferred stock or rights to receive shares of common stock or non-voting preferred stock) cannot be made proportionally, or if for any other reason the ADR depositary deems the distribution not to be feasible, the ADR depositary may, after consultation with us, dispose of all or a portion of the property or securities in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable or practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of the property or securities, after the deduction of the fees and expenses of the ADR depositary. If a distribution by us consists of a dividend in, or free distribution of, our shares of common stock, the ADR depositary may, with our approval, and will, if we request, deposit the shares of common stock and either (1) distribute to you, in proportion to your holdings, additional ADSs representing those shares of common stock, or (2) reflect on the records of the ADR depositary the increase in the aggregate number of ADSs representing those number of shares of common stock, in both cases, after the deduction of the fees and expenses of the ADR depositary. If the ADR depositary deems that such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the shares of common stock received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole ADSs. If the ADR depositary does not distribute additional ADSs, then each outstanding ADS will also represent the new shares so distributed. If a distribution by us consists of a dividend in, or free distribution of, shares of non-voting preferred stock, the ADR depositary will deposit such shares of non-voting preferred stock under a non-voting preferred stock deposit agreement to be entered into among us, the ADR depositary and all holders and beneficial owners of depositary shares. The ADR depositary will deliver to you, in proportion to your holdings of ADSs, depositary shares issued under the non-voting preferred stock deposit agreement representing the number of non-voting shares received as such dividend or distribution. If the ADR depositary deems such distribution for any reason is not feasible, the ADR depositary may adopt, after consultation with us, any method as it may deem equitable and practicable, including by public or private sale of all or part of the nonvoting shares received. The ADR depositary will distribute to you the net proceeds of any such sale in the same way as it does with cash. The ADR depositary will only distribute whole depositary shares. We are not obligated to list depositary shares representing non-voting shares on any exchange. If we offer holders of our securities any rights to subscribe for additional shares of common stock or any other rights, the ADR depositary may make these rights available to you. The ADR depositary must first determine whether it is lawful and feasible to do so. If the ADR depositary determines that it is not lawful or feasible to make these rights available to you, then upon our request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it would do with cash. The ADR depositary may allow these rights that are not distributed or sold to lapse. In that case, you will receive no value for these rights. If we issue any rights with respect to non-voting shares, the securities issuable upon any exercise of such rights by holders or beneficial owners will be depositary shares representing those non-voting shares issued under the provisions of a non-voting preferred stock deposit agreement.

91

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents If a registration statement under the Securities Act is required with respect to the securities to which any rights relate in order for us to offer the rights to you and to sell the securities represented by these rights, the ADR depositary will not offer such rights to you until such a registration is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act or any required filing, report, approval or consent has been submitted, obtained or granted. We or the ADR depositary will not be obligated to register the rights or securities under the Securities Act or to submit, obtain or request any filing, report, approval or consent. The ADR depositary may not be able to convert any currency or to sell or dispose of any distributed or offered property or rights in a timely manner or at a specified price, or at all.

Record Dates The ADR depositary will fix a record date, after consultation with us, in each of the following situations: • any cash dividend or other cash distribution becomes payable; • any distribution other than cash is made; • rights are issued with respect to deposited shares of common stock; • the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or • the ADR depositary receives notice of any shareholders’ meeting. The record date will, to the extent practicable, be as near as the record date fixed by us for the shares of common stock. The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the rights; or (2) the ADR holders who are entitled to receive notices or exercise rights.

Voting of the Underlying Shares of Common Stock We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies immediately after we finalize the form and substance of such notice but not less than 14 days before the meeting. As soon as practicable after it receives our notice, the ADR depositary will fix a record date, and upon our written request, the ADR depositary will mail to you a notice that will contain the following: • the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the information provided by us; • a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are material; and • a statement as to the manner in which the ADR holders may give their instructions. Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far as practicable, to vote or cause to be voted the deposited shares of common stock in accordance with the instructions set forth in your written requests. The ADR depositary may not itself exercise any voting discretion over any deposited shares of common stock. You may only exercise the voting rights in respect of nine ADSs or multiples of nine ADSs. ADR holders may not be entitled to give instruction to vote the shares represented by the ADSs if, and to the extent, the total number of shares represented by the ADSs of an ADR holder exceeds the limit set under applicable law. We can give no assurance to you, however, that we will notify the ADR depositary sufficiently in advance of the scheduled date of a meeting or solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of notices to you, or that you will receive the notices sufficiently in advance of a meeting or solicitation of consents or proxies to give instructions to the ADR depositary.

92

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Inspection of Transfer Books The ADR depositary will keep books at its principal New York office, which is currently located at 388 Greenwich Street, 14th Floor, New York, New York 10013, for the registration and transfer of ADRs. You may inspect the books of the ADR depositary as long as the inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the deposit agreement or the ADRs.

Reports and Notices On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of shareholders, or of the taking of any action in respect of any cash or other distributions or the offering of any rights in respect of the shares of common stock, we will transmit to the Custodian and the ADR depositary sufficient copies of the notice in English in the form given or to be given to shareholders. We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we generally transmit to holders of our common stock, including our annual reports, with annual audited consolidated financial statements prepared in conformity with IFRS and unaudited non-consolidated semiannual financial statements prepared in conformity with IFRS. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or on such other basis as we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement. Notices to you under the deposit agreement will be deemed to have been duly given if personally delivered or sent by mail or cable, telegraph or facsimile transmission, confirmed by letter, addressed to you at your address as it appears on the transfer books of the ADR depositary or at such other address as you have notified the ADR depositary. In addition, the ADR depositary will make available for inspection by holders at its principal New York office and its principal London office any notices, reports or communications, including any proxy soliciting materials, received from us that we generally transmit to the holders of our common stock or other deposited securities, including the ADR depositary. The ADR depositary will also send to you copies of reports and communications we will provide as provided in the deposit agreement.

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

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

93

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days’ prior written notice. The ADR depositary may also terminate the deposit agreement if the ADR depositary has notified us at least 90 days in advance that it would like to resign and we have not appointed a new depositary. In both cases, the ADR depositary must notify you at least 30 days before the termination date. If any ADRs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit agreement, except: • to collect dividends and other distributions pertaining to the deposited shares of common stock; • to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and • to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for surrendered ADRs. At any time after the expiration of six months from the date of termination, the ADR depositary may sell any remaining deposited shares of common stock and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for interest, for the pro rata benefit of the holders of ADSs that have not been surrendered by then.

Charges of ADR Depositary The fees and expenses of the ADR depositary as agreed between us and the ADR depositary include: • taxes and other governmental charges; • registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for the shares, to the name of the ADR depositary or its nominee, or the Custodian or its nominee, when making deposits or withdrawals under the deposit agreement; • cable, telegraph and facsimile transmission expenses that are expressly provided in the deposit agreement; • expenses incurred by the ADR depositary in the conversion of foreign currency into Dollars under the deposit agreement; • a fee of up to US$5.00 per 100 ADSs, or portion thereof, for execution and delivery of ADSs and the surrender of ADRs under the deposit agreement; and • a fee of up to US$0.02 per ADS held for cash distributions, a sale or exercise of rights or the taking of any other corporate action involving distributions to shareholders. For a detailed description of fees and charges payable by the holders of ADSs under the deposit agreement, see “Item 12.D. American Depositary Shares — Fees and Charges under Deposit Agreement.”

General Neither we nor the ADR depositary will be liable to you if prevented or delayed by law, governmental authority, any provision of our articles of incorporation or any circumstances beyond our or its control in performing our or its obligations under the deposit agreement. The deposit agreement provides that the ADR depositary will hold the shares of common stock for your sole benefit. Our obligations and those of the ADR depositary under the deposit agreement are expressly limited to performing, in good faith and without negligence, our and its respective duties specified in the deposit agreement. The ADSs are transferable on the books of the ADR depositary, provided that the ADR depositary may, after consultation with us, close the transfer books at any time or from time to time, when deemed expedient by it in connection with the performance of its duties. As a condition precedent to the execution and delivery of any ADSs, registration of transfer, split-up, combination of any ADR or surrender of any ADS for the purpose of withdrawal of deposited shares of common stock, the ADR depositary or the Custodian may require payment from the depositor of

94

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents the shares of common stock or a holder of ADSs of a sum sufficient to reimburse the ADR depositary for any tax or other governmental charge and any stock transfer or registration fee and payment of any applicable fees payable by the holders of ADSs. Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may be required from time to time to file with the ADR depositary or the Custodian a proof of citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or governmental charges, or legal or beneficial ownership and the nature of their interest, to provide information relating to the registration on our shareholders’ register (or our appointed agent for the transfer and registration of shares of common stock) of the shares of common stock presented for deposit or other information, to execute certificates and to make representations and warranties as we or the ADR depositary may deem necessary or proper or to enable us or the ADR depositary to perform our and its obligations under the deposit agreement. The ADR depositary may withhold the execution or delivery or registration of transfer of all or part of any ADR or the distribution or sale of any dividend or other distribution of rights or of the proceeds from their sale or the delivery of any shares deposited under the deposit agreement and any other securities, property and cash received by the ADR depositary or the Custodian until the proof or other information is filed or the certificates are executed or the representations and warranties are made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner, with copies of any of these proofs and certificates and these written representations and warranties. The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any period when our or the ADR depositary’s transfer books are closed or, if that action is deemed necessary or advisable by us or the ADR depositary, at any time or from time to time in accordance with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of shares of common stock where the transfers may result in ownership of shares of common stock in excess of limits under applicable law. Except as described in “— Deposit and Withdrawal of Shares of Common Stock” above, notwithstanding any other provision of the deposit agreement, the surrender of outstanding ADRs and withdrawal of Deposited Securities (as defined in the deposit agreement) represented by the ADRs may be suspended, but only as required in connection with (1) temporary delays caused by closing the transfer books of the ADR depositary or the issuer of any Deposited Securities (or the appointed agent or agents for such issuer for the transfer and registration of such Deposited Securities) in connection with voting at a shareholders’ meeting or the payment of dividends, (2) payment of fees, taxes and similar charges, or (3) compliance with any United States or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of the Deposited Securities.

Governing Law The deposit agreement and the ADRs will be interpreted under, and all rights under the deposit agreement or the ADRs are governed by, the laws of the State of New York. We have irrevocably submitted to the non-exclusive jurisdiction of New York State or United States Federal Courts located in New York City and waived any objection to legal actions or proceedings in these courts whether on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum. This submission was made for the benefit of the ADR depositary and the holders and will not limit the right of any of them to take legal actions or proceedings in any other court of competent jurisdiction nor will the taking of legal actions or proceedings in one or more jurisdictions preclude the taking of legal actions or proceedings in any other jurisdiction (whether concurrently or not), to the extent permitted under applicable law.

Information Relating to the ADR Depositary Citibank has been appointed as ADR depositary pursuant to the deposit agreement. Citibank is an indirect wholly-owned subsidiary of Citigroup Inc., a Delaware corporation whose principal office is located in New York, New York. Citibank is a global financial services organization serving individuals, businesses, governments and financial institutions in approximately 100 countries around the world. Citibank was originally organized on June 16, 1812, and now is a national banking association organized under the National Bank Act of 1864 of the United States of America. Citibank is primarily regulated by the United States Office of the Comptroller of the Currency. Its principal office is at 399 Park Avenue, New York, NY 10022.

95

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The consolidated balance sheets of Citibank are set forth in Citigroup’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, each on file with the SEC. Citibank’s Articles of Association and By-laws, each as currently in effect, together with Citigroup’s most recent annual and quarterly reports will be available for inspection at the Depositary Receipt office of Citibank, N.A., 388 Greenwich Street, 14th Floor, New York, New York 10013.

Item 10.B. Material Contracts We have not entered into any material contracts since January 1, 2017, other than in the ordinary course of our business. For information regarding our agreements and transactions with entities affiliated with the SK Group, see “Item 7.B. Related Party Transactions” and note 36 of the notes to our consolidated financial statements. For a description of certain agreements entered into during the past three years related to our capital commitments and obligations, see “Item 5.B. Liquidity and Capital Resources.”

Item 10.C. Exchange Controls Korean Foreign Exchange Controls and Securities Regulations General The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree, collectively referred to as the Foreign Exchange Transaction Laws, regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The FSC has also adopted, pursuant to its authority under the FSCMA, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies. Subject to certain limitations, the MOSF has authority to take the following actions under the Foreign Exchange Transaction Laws: • if the Government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and significant changes in domestic or foreign economic circumstances or similar events or circumstances, the MOSF may temporarily suspend performance under any or all foreign exchange transactions, in whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and receipt of foreign exchange), impose an obligation to deposit, safe-keep or sell any means of payment to The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies or impose an obligation on a resident that holds a claim against a non-resident to collect such claim to enable the recovery of the relevant debt back to Korea; and • if the Government concludes that the international balance of payments and international financial markets are experiencing or are likely to experience significant disruption or that the movement of capital between Korea and other countries are likely to adversely affect the Won, exchange rate or other macroeconomic policies, the MOSF may take action to require any person who intends to effect or effects a capital transaction to deposit all or a portion of the means of payment acquired in such transactions with The Bank of Korea, a foreign exchange stabilization fund, certain other governmental agencies or financial companies. Under the regulations of the FSC amended on February 4, 2009, (1) if a company listed on the KRX KOSPI Market or a company listed on the KRX KOSDAQ Market has submitted a public disclosure of material matters to a foreign financial investment supervisory authority pursuant to the laws of the foreign jurisdiction, then it must submit a copy of the public disclosure and a Korean translation thereof to the FSC and the Korea Exchange, and (2) if a KRX KOSPI Market-listed company or KRX KOSDAQ Market-listed company is approved for listing on a foreign stock market or determined to be de-listed from the foreign stock market or actually listed on, or de-listed from a foreign stock market, then it must submit a copy of any document, which it submitted to or received from the relevant foreign government, foreign financial investment supervisory authority or the foreign stock market, and a Korean translation thereof to the FSC and the Korea Exchange.

96

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Government Review of Issuances of ADSs In order for us to issue ADSs in excess of US$30 million, we are required to submit a report to the MOSF with respect to the issuance of the ADSs prior to and after such issuance; provided that such US$30 million threshold amount would be reduced by the aggregate principal amount of any foreign currency loans borrowed, and any securities offered and issued, outside Korea during the one-year period immediately preceding the report’s submission date. The MOSF may at its discretion direct us to take necessary measures to avoid exchange rate fluctuation in connection with its acceptance of report of the issuance of the ADSs. • Under current Korean laws and regulations, the depositary is required to obtain our prior consent for any proposed deposit of common shares if the number of shares to be deposited in such proposed deposit exceeds the number of common shares initially deposited by us for the issuance of ADSs (including deposits in connection with the initial and all subsequent issuances of ADSs by us or with our consent and stock dividends or other distributions related to the ADSs). • In addition to such restrictions under Korean laws and regulations, there are also restrictions on the deposits of our common shares for issuance of ADSs. See “Item 10.B. Memorandum and Articles of Incorporation — Description of American Depositary Shares.” Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs. We submitted a report to and obtained acceptance thereof by the MOSF for the issuance of ADSs up to an amount corresponding to 24,321,893 common shares. No additional Korean governmental approval is necessary for the issuance of ADSs except that if the total number of our common shares on deposit for conversion into ADSs exceeds 24,321,893 common shares, we may be required to file a report to and obtain acceptance thereof by the MOSF with respect to the increase of such limit and the issuance of additional ADSs.

Reporting Requirements for Holders of Substantial Interests Under the FSCMA, any person whose direct or beneficial ownership of shares with voting rights, certificates representing the rights to subscribe for shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively referred to as “equity securities”), together with the equity securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5.0% or more of the total outstanding equity securities is required to report the status and purpose (in terms of whether the purpose of shareholding is to affect control over management of the issuer) of the holdings to the FSC and the Korea Exchange within five business days after reaching the 5.0% ownership interest threshold and promptly deliver a copy of such report to the issuer. In addition, any change (1) in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total outstanding equity securities, or (2) in the shareholding purpose is required to be reported to the FSC and the Korea Exchange within five business days from the date of the change. However, reporting deadline of such reporting requirement is extended to (1) certain professional investors, as specified under the FSCMA, or (2) persons who hold shares for purposes other than management control by the tenth day of the month immediately following the month of share acquisition or change in their shareholding. Those who reported the purpose of shareholding is to affect control over management of the issuer are prohibited from exercising their voting rights and acquiring additional shares for five days subsequent to the report under the FSCMA. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the ownership of unreported equity securities exceeding 5.0%. Furthermore, the FSC may issue an order to dispose of such non-reported equity securities. In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our common shares accounts for 10.0% or more of the total issued and outstanding shares with voting rights (a “major shareholder”) must report the status of his or her shareholding to the Securities and Futures Commission and the Korea Exchange within five business days after he or she becomes a major shareholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Securities and Futures Commission and the Korea Exchange by the fifth business day of any changes in his or her shareholding. Violations of these reporting requirements may subject a person to criminal sanctions, such as fines or imprisonment.

97

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Restrictions Applicable to ADSs No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery of shares in Korea in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the FSS, as described below. The acquisition of the shares by a foreigner must be reported by the foreigner or his or her standing proxy in Korea immediately to the Governor of the FSS (the “Governor”). Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval. In addition, we are required to file a securities registration statement with the FSC and such securities registration statement has to become effective pursuant to the FSCMA in order for us to issue shares represented by ADSs, except in certain limited circumstances.

Restrictions Applicable to Shares As a result of amendments to the Foreign Exchange Transaction Laws and the regulations of the FSC, together referred to as the Investment Rules, adopted in connection with the stock market opening from January 1992 and after that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including, among others: • odd-lot trading of shares; • acquisition of shares by a foreign company as a result of a merger; • acquisition or disposal of shares in connection with a tender offer; • acquisition of shares by exercise of warrant, conversion right under convertible bonds, exchange right under exchangeable bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company (“converted shares”); • acquisition of shares through exercise of rights under securities issued outside of Korea; • acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends; • over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded; • acquisition of shares by direct investment under the Foreign Investment Promotion Law; • acquisition and disposal of shares on an overseas stock exchange market, if such shares are simultaneously listed on the KRX KOSPI Market or KRX KOSDAQ Market and such overseas stock exchange; • arm’s length transactions between foreigners in the event all such foreigners belong to an investment group managed by the same person; and • acquisition and disposal of shares through alternative trading systems. For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a financial investment company with a brokerage license in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a financial investment company with a dealing license in Korea as the other party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from financial investment companies with respect to shares which are subject to a foreign ownership limit.

98

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents The Investment Rules require a foreign investor who wishes to invest in shares for the first time on the KRX KOSPI Market or the KRX KOSDAQ Market (including converted shares) and shares being publicly offered for initial listing on the KRX KOSPI Market or the KRX KOSDAQ Market to register its identity with the FSS prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire converted shares with the intention of selling such converted shares within three months from the date of acquisition of the converted shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Foreign Investment Promotion Law. Upon registration, the FSS will issue to the foreign investor an investment registration card which must be presented each time the foreign investor opens a brokerage account with a financial investment company or financial institution in Korea. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or longer, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by decree promulgated under the FSCMA. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations. Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, where a foreign investor acquires or sells shares outside the KRX KOSPI Market and the KRX KOSDAQ Market, such acquisition or sale of shares must be reported by the foreign investor or such foreign investor’s standing proxy to the Governor at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor by the Korea Securities Depository, financial investment companies with a dealing or brokerage license or securities finance companies engaged to facilitate such transaction. In the event a foreign investor desires to acquire or sell shares outside the KRX KOSPI Market or the KRX KOSDAQ Market and the circumstances in connection with such sale or acquisition do not fall within the exceptions made for certain limited circumstances described above, then the foreign investor must obtain the prior approval of the Governor. In addition, in the event a foreign investor acquires or sells shares outside the KRX KOSPI Market or the KRX KOSDAQ Market, a prior report to the Bank of Korea may also be required in certain circumstances. A foreign investor must appoint one or more standing proxies among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians which will act as a standing proxy to exercise shareholders’ rights, or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than his, her or its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on his, her or its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor. Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. The Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and certain eligible foreign custodians are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his, her or its custodian deposits the shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor. Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public

99

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a single person within 3.0% of the total number of shares in their articles of incorporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the outstanding shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Law, which is, in general, subject to the report to, and acceptance by, the Ministry of Trade, Industry and Energy of Korea, which delegates its authority to foreign exchange banks or the Korea Trade-Investment Promotion Agency under the relevant regulations. The acquisition of our shares by a foreign investor is also subject to the restrictions prescribed in the Telecommunications Business Act. The Telecommunications Business Act generally limits the maximum aggregate foreign shareholdings in us to 49.0% of the outstanding shares. A foreigner who has acquired shares in excess of such restriction described above may not exercise the voting rights with respect to the shares exceeding such limitations and may be subject to corrective orders. Under the Foreign Exchange Transaction Laws, a foreign investor who intends to make a portfolio investment in shares of a Korean company listed on the KRX KOSPI Market or the KRX KOSDAQ Market must designate a foreign exchange bank at which he, she or it must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a securities company. Funds in the foreign currency account may be remitted abroad without any governmental approval. Dividends on shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any such shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any such shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment companies with a securities dealing, brokerage or collective investment license or the investor’s Won account. Funds in the investor’s Won account may be transferred to such investor’s foreign currency account or withdrawn for local living expenses, provided that any withdrawal of local living expenses in excess of a certain amount is reported to the tax authorities by the foreign exchange bank at which the Won account is maintained. Funds in the investor’s Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights. Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.D. Taxation United States Taxation This summary describes certain material U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold our common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as: • a dealer in securities or currencies; • a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; • a bank; • a life insurance company;

100

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents • a tax-exempt organization; • a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks; • a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes; • a person whose functional currency for tax purposes is not the U.S. dollar; or • a person that owns or is deemed to own 10.0% or more of any class of our stock. This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances. For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are: • a citizen or resident of the United States; • a U.S. domestic corporation; or • otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS. In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.

Dividends The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source “passive income” dividend income and will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a preferential rate if the dividends are “qualified dividends”. Dividends paid on the ADSs will be treated as qualified dividends if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”), as discussed below under “— Passive Foreign Investment Company Rules”. The ADSs are listed on the NYSE, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements, as well as relevant market and shareholder data, we believe that we were not a PFIC with respect to our 2017 taxable year but could become a PFIC for our 2018 taxable year or in subsequent years, as discussed below. Distributions of additional shares in respect of common shares or ADSs that are made as part of a pro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.

Sale or Other Disposition For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the

101

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

Passive Foreign Investment Company Rules Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if either (i) 75 percent or more of our gross income for the taxable year is passive income; or (ii) the average percentage of the value of our assets that produce or are held for the production of passive income is at least 50 percent. Investments in companies in which we own less than 25 percent of the stock (by value) are considered to be assets that produce passive income. The determination whether we are a PFIC is made annually based on the particular facts and circumstances, such as the valuation of our assets at the time. Although we do not believe that we were a PFIC in 2017, there is a significant risk that we could be treated as a PFIC in the current year or in future years due to our substantial investment in the stock of SK Hynix, which is treated as a passive asset for this purpose. If so, the considerations discussed below could become applicable to U.S. Holders. If we are classified as a PFIC, and you do not make a mark-to-market election, as described in the following paragraph, you will be subject to a special tax at ordinary income tax rates on “excess distributions,” including certain distributions by us and gain that you recognize on the sale of your shares or ADSs. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period you hold your shares or ADSs. Classification as a PFIC may also have other adverse tax consequences, including, in the case of individuals, the denial of a step-up in the basis of your shares or ADSs at death. You can avoid the unfavorable rules described in the preceding paragraph by electing to mark your shares or ADSs to market. If you make this mark-to-market election, you will be required in any year in which we are a PFIC to include as ordinary income the excess of the fair market value of your shares at year-end over your basis in those shares. In addition, any gain you recognize upon the sale of your shares will be taxed as ordinary income in the year of sale. You should consult your own tax advisor regarding the U.S. federal income tax considerations discussed above and in particular the desirability of making a mark-to-market election.

Foreign Tax Credit Considerations You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned our common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Korean taxes withheld from a distribution of additional shares that is not subject to U.S. tax may be treated for U.S. federal income tax purposes as imposed on “general category” income. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes. Any Korean securities transaction tax or agricultural and fishery special surtax that you pay will not be creditable for foreign tax credit purposes. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

102

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Specified Foreign Financial Assets Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient and demonstrates this when required or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Korean Taxation The following is a summary of the principal Korean tax consequences to owners of the common shares or ADSs, as the case may be, who are non-resident individuals or non-Korean corporations without a permanent establishment in Korea to which the relevant income is attributable or with which the relevant income is effectively connected (“Non-resident Holders”). The statements regarding Korean tax laws set forth below are based on the laws in force and as interpreted by the Korean taxation authorities as of the date hereof. This summary is not exhaustive of all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of the common shares or ADSs, including specifically the tax consequences under Korean law, the laws of the jurisdiction of which they are resident, and any tax treaty between Korea and their country of residence, by consulting their own tax advisors.

Tax on Dividends Dividends on the common shares or ADSs paid (whether in cash or in shares) to a Non-resident Holder will be subject to Korean withholding taxes at the rate of 22.0% (including local income tax) or such lower rate as is applicable under a treaty between Korea and such Non-resident Holder’s country of tax residence. Free distributions of shares representing a capitalization of certain capital surplus reserves may be subject to Korean withholding taxes. The tax is withheld by the payer of the dividend. Since the payer is required to withhold the tax, Korean law does not entitle the person who was subject to the withholding of Korean tax to recover from the Government any part of the Korean tax withheld, even if it subsequently produces evidence that it was entitled to have tax withheld at a lower rate, except in certain limited circumstances.

Tax on Capital Gains As a general rule, capital gains earned by Non-resident Holders upon transfer of the common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (including local income tax) of the gross proceeds realized or (2) 22.0% (including local income tax) of the net realized gains (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs), unless exempt from Korean income taxation under the effective Korean tax treaty with the Non-resident Holder’s country of tax residence.

103

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents However, a Non-resident Holder will not be subject to Korean income taxation on capital gains realized upon the sale of the common shares through the KRX KOSPI Market if the Non-resident Holder (1) has no permanent establishment in Korea and (2) did not or has not owned (together with any shares owned by any entity with certain special relationship with such Non-resident Holder) 25.0% or more of the total issued and outstanding shares of us at any time during the calendar year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs. It should be noted that capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside Korea will generally be exempt from Korean income taxation, provided that the ADSs are deemed to have been issued overseas. If and when an owner of the underlying common shares transfers the ADSs following the conversion of the underlying shares for ADSs, such person will not be exempt from Korean income taxation.

Inheritance Tax and Gift Tax Korean inheritance tax is imposed upon (1) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (2) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. The taxes are imposed if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved. Under Korean inheritance and gift tax laws, securities issued by a Korean corporation are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.

Securities Transaction Tax Securities transaction tax is imposed on the transfer of shares issued by a Korean corporation or the right to subscribe for such shares generally at the rate of 0.5% of the sales price. In the case of the transfer of shares listed on the KRX KOSPI Market (such as our common shares), the securities transaction tax is imposed generally at the rate of (1) 0.3% of the sales price of such shares (including agricultural and fishery special surtax thereon) if traded on the KRX KOSPI Market or (2) subject to certain exceptions, 0.5% of the sales price of such shares if traded outside the KRX KOSPI Market. Securities transaction tax or the agricultural and fishery special surtax is not applicable if (1) the shares or rights to subscribe for shares are listed on a designated foreign stock exchange and (2) the sale of the shares takes place on such exchange. Securities transaction tax, if applicable, must be paid by the transferor of the shares or rights, in principle. When the transfer is effected through a securities settlement company, such settlement company is generally required to withhold and pay (to the tax authority) the tax, and when such transfer is made through a financial investment company with a brokerage license only, such company is required to withhold and pay the tax. Where the transfer is effected by a Non-resident Holder without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company with a brokerage license, the transferee is required to withhold the securities transaction tax. Failure to do so will result in the imposition of penalties equal to the sum of (1) between 10.0% to 40.0% of the tax amount due, depending on the nature of the improper reporting, and (2) 10.95% per annum on the tax amount due for the default period.

Tax Treaties Currently, Korea has income tax treaties with a number of countries, inter alia, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Ireland, the Netherlands, New Zealand, Norway, Singapore, Sweden, Switzerland, the United Kingdom and the United States under which the rate of withholding tax on dividend and interest is reduced, generally to between 5.0% and 16.5% (including local income tax), and the tax on capital gains derived by a non-resident from the transfer of securities issued by a Korean company is often eliminated. Each Non-resident Holder of common shares should inquire for itself whether it is entitled to the benefits of a tax treaty with Korea. It is the responsibility of the party claiming the benefits of a tax treaty in respect of interest,

104

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents dividend, capital gains or “other income” to submit to us (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, prior to or at the time of payment, such evidence of tax residence of the party claiming the treaty benefit as the Korean tax authorities may require in support of its claim for treaty protection. In the absence of sufficient proof, we (or our agent), the purchaser or the financial investment company with a brokerage license, as the case may be, must withhold tax at the normal rates. Furthermore, in order for a non-resident of Korea to obtain the benefits of tax exemption on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agent) to submit to the payer of such Korean source income an application for a tax exemption along with a certificate of tax residency of such non-resident issued by a competent authority of the non-resident’s country of tax residence, subject to certain exceptions. The payer of such Korean source income, in turn, is required to submit such application to the relevant district tax office by the ninth day of the month following the date of the first payment of such income. For a non-resident of Korea to obtain the benefits of treaty-reduced tax rates on certain Korean source income (e.g., capital gains and interest) under an applicable tax treaty, Korean tax law requires such non-resident (or its agents) to submit to the payer of such Korean source income an application for treaty-reduced tax rates prior to receipt of such Korean source income; provided, however, that an owner of ADSs who is a non-resident of Korea is not required to submit such application, if the Korean source income on the ADSs is paid through an account opened at the Korea Securities Depository by a foreign depository. At present, Korea has not entered into any tax treaty relating to inheritance or gift tax.

Item 10.E. Dividends and Paying Agents Not applicable.

Item 10.F. Statements by Experts Not applicable.

Item 10.G. Documents on Display We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Any filings we make electronically will be available to the public over the Internet at the SEC’s Website at http://www.sec.gov. Documents filed with annual reports and documents filed or submitted to the SEC are also available for inspection at our principal business office during normal business hours. Our principal business office is located at SK T-Tower, 65, Eulji-ro, Jung-gu, Seoul 04539, Korea.

Item 10.H. Subsidiary Information Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to foreign exchange rate and interest rate risk primarily associated with underlying liabilities and to equity price risk as a result of our investment in equity instruments. We have entered into a floating-to-fixed cross currency swap contract to hedge foreign currency and interest rate risks with respect to long-term borrowings of US$300 million of bonds issued in March 2013. In addition, we have entered into fixed-to-fixed cross currency swap contracts to hedge the foreign currency risks of US$400 million of bonds issued in July 2007, US$700 million of bonds issued in November 2012, US$300 million of bonds issued in October 2013 and US$51.8 million of borrowings from December 2013. We also entered into floating-to-fixed interest rate swap contracts to hedge interest rate risks with respect to Won 49.0 billion of

105

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents borrowings from December 2016, Won 28.6 billion of borrowings from January 2017, Won 30.0 billion of borrowings from March 2017 and Won 50.0 billion of borrowings from December 2017. See note 22 of the notes to our consolidated financial statements. We may consider in the future entering into other such transactions solely for hedging purposes. The following discussion and tables, which constitute “forward looking statements” that involve risks and uncertainties, summarize our market- sensitive financial instruments including fair value, maturity and contract terms. These tables address market risk only and do not present other risks which we face in the normal course of business, including country risk, credit risk and legal risk.

Exchange Rate Risk Korea is our main market and, therefore, substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities. These liabilities relate primarily to foreign currency denominated debt, primarily in Dollars. A 10.0% increase in the exchange rate between the Won and all foreign currencies would result in an increase in profit before income tax of 0.2%, or Won 8.0 billion, with a decrease of 10.0% in the exchange rate having the opposite effect, as of December 31, 2017. For a further discussion of our exchange rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Interest Rate Risk We are also subject to market risk exposure arising from changing interest rates. The following table summarizes the carrying amounts and fair values, maturity and contract terms of our exchange rate and interest sensitive short-term and long-term liabilities as of December 31, 2017:

Maturities 2018 2019 2020 2021 2022 Thereafter Total Fair Value (In billions of Won, except for percentage data) Local currency: Fixed-rate 519.6 893.5 618.4 608.5 727.6 2,004.3 5,371.9 5,500.4 Average weighted rate(1) 3.26 % 2.78 % 2.34 % 2.76 % 2.60 % 2.85 % Variable rate 59.3 77.0 54.8 24.8 12.5 — 228.4 228.3 Average weighted rate(1) 2.46 % 2.71 % 2.80 % 2.32 % 2.37 % — Sub-total 578.9 970.5 673.2 633.3 740.1 2,004.3 5,600.3 5,728.7 Foreign currency: Fixed-rate 1,082.3 12.3 12.3 12.3 6.1 423.5 1,548.8 1,719.8 Average weighted rate(1) 2.35 % 1.70 % 1.70 % 1.70 % 1.71 % 6.71 % Variable rate — — 320.9 — — — 320.9 320.9 Average weighted rate(1) — — 2.57 % — — — Sub-total 1,082.3 12.3 333.2 12.3 6.1 423.5 1,869.7 2,040.7 Total 1,661.2 982.8 1,006.4 645.6 746.2 2,427.8 7,470.0 7,769.4

(1) Weighted average rates of the portfolio at the period end. A 1.0% point increase in interest rates would result in a decrease in profit before income tax of Won 0.7 billion with a 1.0% point decrease in interest rates having the opposite effect, as of December 31, 2017. For a further discussion of our interest rate risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Equity Price Risk We are also subject to market risk exposure arising from changes in the equity securities market, which affect the fair value of our equity portfolio. As of December 31, 2017, 2016 and 2015, a 10.0% increase in the equity indices where our available-for-sale equity instruments are listed, with all other variables held constant, would have increased our total equity by Won 58.9 billion, Won 52.6 billion and Won 89.8 billion, respectively, with a 10.0%

106

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents decrease in the equity index having the opposite effect. The foregoing sensitivity analysis assumes that all variables other than changes in the equity index are held constant, and that our available-for-sale equity instruments had moved according to the historical correlation to the index, and as such, does not reflect any correlation between the equity index and other variables. For a further discussion of our equity price risk exposures, see note 35(1) of the notes to our consolidated financial statements.

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Item 12.A. Debt Securities Not applicable.

Item 12.B. Warrants and Rights Not applicable.

Item 12.C. Other Securities Not applicable.

Item 12.D. American Depositary Shares Fees and Charges under Deposit Agreement The ADR depositary will charge the party receiving ADSs up to US$5.00 per 100 ADSs (or fraction thereof), provided that the ADR depositary has agreed to waive such fee as would have been payable by us in the case of (1) an offering of ADSs by us or (2) any distribution of shares of common stock or any rights to subscribe for additional shares of common stock. The ADR depositary will not charge the party to whom ADSs are delivered against deposits. The ADR depositary will charge the party surrendering ADSs for delivery of deposited securities up to US$5.00 per 100 ADSs (or fraction thereof) surrendered. The ADR depositary will also charge the party to whom any cash distribution, or for whom the sale or exercise of rights or other corporate action involving distributions to shareholders, is made with respect to ADSs up to US$0.02 per ADS held plus the expenses of the ADR depositary on a per-ADS basis. We will pay the expenses of the ADR depositary and any entity acting as registrar for the shares only as specified in the deposit agreement. The ADR depositary will pay any other charges and expenses of the ADR depositary and the entity acting as registrar for the shares. Holders of ADRs must pay (1) taxes and other governmental charges, (2) share transfer registration fees on deposits of shares of common stock, (3) such cable, telex, facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of persons depositing shares of common stock or holders of ADRs and (4) such reasonable expenses as are incurred by the ADR depositary in the conversion of foreign currency into United States dollars. Notwithstanding any other provision of the deposit agreement, in the event that the ADR depositary determines that any distribution in property (including shares or rights to subscribe therefor or other securities) is subject to any tax or governmental charges which the ADR depositary is obligated to withhold, the ADR depositary may dispose of all or a portion of such property (including shares and rights to subscribe therefor) in such amounts and in such manner as the ADR depositary deems necessary and practicable to pay such taxes or governmental charges, including by public or private sale, and the ADR depositary will distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes or governmental charges to the holders of ADSs entitled thereto in proportion to the number of ADSs held by them respectively. All such charges may be changed by agreement between the ADR depositary and us at any time and from time to time, subject to the deposit agreement. The right of the ADR depositary to receive payment of fees, charges and expenses shall survive the termination of this deposit agreement and, as to any depositary, the resignation or removal of such depositary pursuant to the deposit agreement. For a detailed summary of the deposit agreement, see “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Shares.”

107

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Payments made by ADS Depositary The depositary reimburses us for certain expenses we incur in connection with our ADR program, subject to certain ceilings. These reimbursable expenses currently include expenses relating to the preparation of SEC filings and submissions, listing fees, education and training fees, corporate action expenses and other miscellaneous fees. In the fiscal year 2017, we received approximately US$1,264,021 from the depositary in connection with such reimbursements.

PART II

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None.

Item 15. CONTROLS AND PROCEDURES Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2017. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as of December 31, 2017. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

Report of the Independent Registered Public Accounting Firm on the Effectiveness of Our Internal Control Over Financial Reporting The report of our independent registered public accounting firm, KPMG Samjong Accounting Corp. (“KPMG Samjong”), on the effectiveness of our internal control over financial reporting as of December 31, 2017 is included in Item 18 of this Form 20-F.

108

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Changes in Internal Control Over Financial Reporting There has been no change in our internal control over financial reporting during 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16. RESERVED Item 16.A. AUDIT COMMITTEE FINANCIAL EXPERT Dae Shick Oh is the chairman of our audit committee and was elected and designated an “audit committee financial expert” within the meaning of this Item 16A at a meeting of the board of directors in April 2014. The board of directors have further determined that Dae Shick Oh is independent within the meaning of applicable SEC rules and the listing standards of the NYSE. See “Item 6.C. Board Practices — Audit Committee” for additional information regarding our audit committee.

Item 16.B. CODE OF ETHICS Code of Ethics for Chief Executive Officer, Chief Financial Officer and Controller We have a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, senior accounting officers and employees. We also have internal control and disclosure policy designed to promote full, fair, accurate, timely and understandable disclosure in all of our reports and publicly filed documents. A copy of our code of ethics is available on our website at www.sktelecom.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website.

Item 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The table sets forth the fees we paid to our independent registered public accounting firm KPMG Samjong and its affiliates for the years ended December 31, 2017 and 2016:

Year Ended December 31, 2017 2016 (In millions of Won) Audit Fees ￦ 5,625 ￦ 5,181 Audit-Related Fees ￦ 35 ￦ 14 Tax Fees ￦ 323 ￦ 273 All Other Fees ￦ 300 ￦ — Total ￦ 6,283 ￦ 5,468

“Audit Fees” are the aggregate fees billed by KPMG Samjong for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. “Audit-Related Fees” are fees charged by KPMG Samjong for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for advisory services associated with our financial reporting. “Tax Fees” are fees for professional services rendered by KPMG Samjong for tax compliance, tax advice on actual or contemplated transactions and tax planning services. “All Other Fees” for 2017 in the table above relate to the fees billed by KPMG Samjong for consulting services related to our corporate social responsibility project.

Pre-Approval of Audit and Non-Audit Services Provided by Independent Registered Public Accounting Firm Our audit committee pre-approves all audit services to be provided by KPMG Samjong, our independent registered public accounting firm. Our audit committee’s policy regarding the pre-approval of non-audit services to be provided to us by our independent auditors is that all such services shall be pre-approved by our audit committee. Non-audit services that are prohibited to be provided to us by our independent auditors under the rules of the SEC

109

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents and applicable law may not be pre-approved. In addition, prior to the granting of any pre-approval, our audit committee must be satisfied that the performance of the services in question will not compromise the independence of our independent registered public accounting firm. Our audit committee did not pre-approve any non-audit services under the de minimis exception of Rule 2-01 (c)(7)(i)(C) of Regulation S-X as promulgated by the SEC.

Item 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable.

Item 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

Item 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable.

Item 16.G. CORPORATE GOVERNANCE The following is a summary of the significant differences between the NYSE’s corporate governance standards and those that we follow under Korean law.

NYSE Corporate Governance Standards Our Corporate Governance Practice Director Independence Listed companies must have a majority of independent directors. Of the eight members of our board of directors, six are independent directors. Executive Session Non-management directors must meet in regularly scheduled executive Our audit committee, which is comprised solely of four independent sessions without management. Independent directors should meet alone in an directors, holds meetings whenever there are matters related to executive session at least once a year. management directors, and such meetings are generally held once every month. Nomination/Corporate Governance Committee Listed companies must have a nomination/corporate governance committee Although we do not have a separate nomination/ corporate governance composed entirely of independent directors. The committee must have a committee, we maintain an independent director nomination committee charter that addresses the purpose, responsibilities (including development of composed of two independent directors and one management director. corporate governance guidelines) and annual performance evaluation of the committee. Compensation Committee Listed companies must have a compensation committee composed entirely of We maintain a compensation review committee comprised of three independent directors. The committee must have a charter that addresses the independent directors. purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member

110

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents NYSE Corporate Governance Standards Our Corporate Governance Practice has a relationship with the company that will materially affect that member’s duties to the compensation committee. Audit Committee Listed companies must have an audit committee that satisfies the We maintain an audit committee comprised solely of four independent independence and other requirements of Rule 10A 3 under the Exchange Act. directors. All members must be independent. The committee must have a charter addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website. Audit Committee Additional Requirements Listed companies must have an audit committee that is composed of at least Our audit committee has four independent directors. three directors. Shareholder Approval of Equity Compensation Plan Listed companies must allow its shareholders to exercise their voting rights We currently have two equity compensation plans: a stock option plan with respect to any material revision to the company’s equity compensation for officers and directors and employee stock ownership plan for plan. employees (“ESOP”). We manage such compensation plans in compliance with the applicable laws and our articles of incorporation, provided that, under certain limited circumstances, the grant of stock options or matters relating to ESOP are not subject to shareholders’ approval under Korean law. Corporate Governance Guidelines Listed companies must adopt and disclose corporate governance guidelines. Although we do not maintain separate corporate governance guidelines, we are in compliance with the Korean Commercial Code in connection with such matters, including the governance of the board of directors. Code of Business Conduct and Ethics Listed companies must adopt and disclose a code of business conduct and We have adopted a Code of Business Conduct and Ethics for all of our ethics for directors, officers and employees and promptly disclose any directors, officers and employees, and such code is also available on waivers of the code for directors or executive officers. our website at www.sktelecom.com.

Item 16.H. MINE SAFETY DISCLOSURE Not applicable.

PART III

Item 17. FINANCIAL STATEMENTS Not applicable.

111

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Item 18. FINANCIAL STATEMENTS

Index to Financial Statements F-1 Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements F-2 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting F-3 Consolidated Statements of Financial Position as of December 31, 2017 and 2016 F-4 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 F-6 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 F-7 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 F-10 Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015 F-12

Financial Statements of SK Hynix Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements G-1 Consolidated Statements of Financial Position as of December 31, 2017 and 2016 G-2 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 G-4 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 G-5 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 G-7 Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015 G-8

112

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Item 19. EXHIBITS

Number Description 1.1 Articles of Incorporation (incorporated by reference to Exhibit 1.1 to the Registrant’s Annual Report on Form 20-F filed on April 27, 2017) 2.1 Deposit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 dated as of March 15, 1999, Amendment No. 2 dated as of April 24, 2000 and Amendment No. 3 dated as of July 24, 2002, entered into among SK Telecom Co., Ltd., Citibank, N.A., as Depositary, and all Holders and Beneficial Owners of American Depositary Shares (incorporated by reference to Exhibit 2.1 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2006) 8.1 List of Subsidiaries of SK Telecom Co., Ltd. 12.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 12.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 13.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 15.1 Framework Act on Telecommunications, as amended (English translation) (incorporated by reference to Exhibit 15.1 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2016) 15.2 Enforcement Decree of the Framework Act on Telecommunications, as amended (English translation) (incorporated by reference to Exhibit 15.2 to the Registrant’s Annual Report on Form 20-F filed on June 30, 2011) 15.3 Telecommunications Business Act, as amended (English translation) 15.4 Enforcement Decree of the Telecommunications Business Act, as amended (English translation) 15.5 Government Organization Act, as amended (English translation) (incorporated by reference to Exhibit 15.5 to the Registrant’s Annual Report on Form 20-F filed on April 29, 2016)

113

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents INDEX TO FINANCIAL STATEMENTS

Page Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements F-2 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting F-3 Consolidated Statements of Financial Position as of December 31, 2017 and 2016 F-4 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 F-6 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 F-7 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 F-10 Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015 F-12

Financial Statements of SK Hynix Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements G-1 Consolidated Statements of Financial Position as of December 31, 2017 and 2016 G-2 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 G-4 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 G-5 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 G-7 Notes to the Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015 G-8

F-1

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors SK Telecom Co., Ltd.:

Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of SK Telecom Co., Ltd. and subsidiaries (the Group) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 27, 2018 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.

Basis for Opinion These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error of fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor since 2012.

Seoul, Korea April 27, 2018

F-2

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors SK Telecom Co., Ltd.:

Opinion on Internal Control Over Financial Reporting We have audited SK Telecom Co., Ltd. and subsidiaries’(the Group) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Group as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements) and our report dated April 27, 2018, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea April 27, 2018

F-3

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Financial Position As of December 31, 2017 and 2016

December 31, December 31, (In millions of won) Note 2017 2016 Assets Current Assets: Cash and cash equivalents 34,35 ￦1,457,735 1,505,242 Short-term financial instruments 6,34,35,37 616,780 468,768 Short-term investment securities 9,34,35 144,386 107,364 Accounts receivable — trade, net 7,34,35,36 2,126,007 2,240,926 Short-term loans, net 7,34,35,36 62,830 58,979 Accounts receivable — other, net 7,34,35,36,37 1,260,835 1,121,444 Prepaid expenses 197,046 169,173 Inventories, net 8 272,403 259,846 Advanced payments and other 7,9,34,35,36 63,777 64,886 Total Current Assets 6,201,799 5,996,628 Non-Current Assets: Long-term financial instruments 6,34,35 1,222 937 Long-term investment securities 9,34,35 887,007 828,521 Investments in associates and joint ventures 12 9,538,438 7,404,323 Property and equipment, net 13,36,37 10,144,882 10,374,212 Goodwill 10,15 1,915,017 1,932,452 Intangible assets, net 16 3,586,965 3,776,354 Long-term loans, net 7,34,35,36 50,874 65,476 Long-term accounts receivable — other 7,34,35,37 287,048 149,669 Long-term prepaid expenses 90,834 88,130 Guarantee deposits 7,34,35,36 292,590 298,964 Long-term derivative financial assets 22,34,35 253,213 214,770 Defined benefit assets 21 45,952 30,247 Deferred tax assets 31 88,132 75,111 Other non-current assets 7,34,35 44,696 61,869 Total Non-Current Assets 27,226,870 25,301,035 Total Assets ￦33,428,669 31,297,663

See accompanying notes to the consolidated financial statements.

F-4

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Financial Position — (Continued) As of December 31, 2017 and 2016

December 31, December 31, (In millions of won) Note 2017 2016 Liabilities and Shareholders’ Equity Current Liabilities: Short-term borrowings 17,34,35 ￦130,000 2,614 Current portion of long-term debt, net 17,34,35 1,530,948 888,467 Current portion of long-term payables — other 18,34,35 302,703 301,773 Accounts payable — trade 34,35,36 351,711 402,445 Accounts payable — other 34,35,36 1,867,074 1,767,799 Withholdings 34,35,36 961,501 964,084 Accrued expenses 34,35 1,327,906 1,125,816 Income tax payable 31 219,791 474,931 Unearned revenue 175,732 188,403 Provisions 19 52,057 66,227 Receipts in advance 161,266 174,588 Derivative financial liabilities 22,34,35 28,406 86,950 Other current liabilities 28 2 Total Current Liabilities 7,109,123 6,444,099 Non-Current Liabilities: Debentures, excluding current portion, net 17,34,35 5,596,570 6,338,930 Long-term borrowings, excluding current portion 17,34,35 211,486 139,716 Long-term payables — other 18,34,35 1,346,763 1,624,590 Long-term unearned revenue 7,052 2,389 Defined benefit liabilities 21 61,960 70,739 Long-term derivative financial liabilities 22,34,35 11,064 203 Long-term provisions 19 32,669 31,690 Deferred tax liabilities 31 978,693 479,765 Other non-current liabilities 34,35 44,094 49,112 Total Non-Current Liabilities 8,290,351 8,737,134 Total Liabilities 15,399,474 15,181,233 Shareholders’ Equity Share capital 1,23 44,639 44,639 Capital deficit and others 23,24,25,26 (202,237 ) (198,739 ) Hybrid bonds 25 398,518 398,518 Retained earnings 27 17,835,946 15,953,164 Reserves 28 (234,727 ) (226,183 ) Equity attributable to owners of the Parent Company 17,842,139 15,971,399 Non-controlling interests 187,056 145,031 Total Shareholders’ Equity 18,029,195 16,116,430 Total Liabilities and Shareholders’ Equity ￦33,428,669 31,297,663

See accompanying notes to the consolidated financial statements.

F-5

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Income For the years ended December 31, 2017, 2016 and 2015

(In millions of won except for per share data) Note 2017 2016 2015 Operating revenue and other income: 5,36 Revenue ￦17,520,013 17,091,816 17,136,734 Other income 29 31,997 66,548 30,935 17,552,010 17,158,364 17,167,669 Operating expenses: 36 Labor 1,966,156 1,869,763 1,893,745 Commissions 5,486,263 5,376,726 5,206,951 Depreciation and amortization 5 3,097,466 2,941,886 2,845,295 Network interconnection 875,045 954,267 957,605 Leased line 342,240 394,412 389,819 Advertising 522,753 438,453 405,005 Rent 520,244 517,305 493,586 Cost of products that have been resold 1,886,524 1,838,368 1,955,861 Others 29 1,630,747 1,523,766 1,524,377 16,327,438 15,854,946 15,672,244 Operating profit 5 1,224,572 1,303,418 1,495,425 Finance income 5,30 366,561 575,050 103,900 Finance costs 5,30 (433,616 ) (326,830 ) (350,100 ) Gain relating to investments in subsidiaries, associates and joint ventures, net 1,5,12 2,245,732 544,501 786,140 Profit before income tax 5 3,403,249 2,096,139 2,035,365 Income tax expense 31 745,654 436,038 519,480 Profit for the year ￦2,657,595 1,660,101 1,515,885 Attributable to: Owners of the Parent Company ￦2,599,829 1,675,967 1,518,604 Non-controlling interests 57,766 (15,866 ) (2,719 ) Earnings per share: 32 Basic and diluted earnings per share (in won) ￦36,582 23,497 20,988

See accompanying notes to the consolidated financial statements.

F-6

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Comprehensive Income For the years ended December 31, 2017, 2016 and 2015

(In millions of won) Note 2017 2016 2015 Profit for the year ￦2,657,595 1,660,101 1,515,885 Other comprehensive income (loss) Items that will never be reclassified to profit or loss, net of taxes: Remeasurement of defined benefit liabilities 21 5,921 (7,524 ) (14,489 ) Items that are or may be reclassified subsequently to profit or loss, net of taxes: Net change in unrealized fair value of available-for-sale financial assets 28,30 158,440 (223,981 ) (3,661 ) Net change in other comprehensive income of investments in associates and joint ventures 12,28 (141,008 ) (9,939 ) (5,709 ) Net change in unrealized fair value of derivatives 22,28,30 22,586 (13,218 ) (1,271 ) Foreign currency translation differences for foreign operations 28 (46,952 ) 7,331 26,965 Other comprehensive income (loss) for the year, net of taxes (1,013 ) (247,331 ) 1,835 Total comprehensive income ￦2,656,582 1,412,770 1,517,720 Total comprehensive income (loss) attributable to: Owners of the Parent Company ￦2,597,160 1,432,982 1,522,280 Non-controlling interests 59,422 (20,212 ) (4,560 )

See accompanying notes to the consolidated financial statements.

F-7

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Changes in Equity For the years ended December 31, 2017, 2016 and 2015

(In millions of won) Attributable to owners Capital surplus Non- (deficit) and Hybrid Retained controlling Share capital others bonds earnings Reserves Total interests Total equity Balance at January 1, 2015 ￦ 44,639 (120,520 ) 398,518 14,188,591 (4,489 ) 14,506,739 741,531 15,248,270 Total comprehensive income: Profit (loss) for the year — — — 1,518,604 — 1,518,604 (2,719 ) 1,515,885 Other comprehensive income (loss) — — — (13,402 ) 17,078 3,676 (1,841 ) 1,835 — — — 1,505,202 17,078 1,522,280 (4,560 ) 1,517,720 Transactions with owners: Annual dividends — — — (595,865 ) — (595,865 ) (143 ) (596,008 ) Interim dividends — — — (72,629 ) — (72,629 ) — (72,629 ) Interest on hybrid bonds — — — (16,840 ) — (16,840 ) — (16,840 ) Acquisition of treasury shares — (490,192 ) — — — (490,192 ) — (490,192 ) Disposal of treasury shares — 425,744 — — — 425,744 — 425,744 Changes in consolidation scope — — — — — — (5,226 ) (5,226 ) Changes in ownership in subsidiaries — (24,040 ) — (832 ) (3,286 ) (28,158 ) (608,585) (636,743 ) — (88,488 ) — (686,166 ) (3,286 ) (777,940 ) (613,954) (1,391,894 ) Balance at December 31, 2015 ￦ 44,639 (209,008 ) 398,518 15,007,627 9,303 15,251,079 123,017 15,374,096 Balance at January 1, 2016 ￦ 44,639 (209,008 ) 398,518 15,007,627 9,303 15,251,079 123,017 15,374,096 Total comprehensive income: Profit (loss) for the year — — — 1,675,967 — 1,675,967 (15,866 ) 1,660,101 Other comprehensive loss — — — (7,499 ) (235,486) (242,985 ) (4,346 ) (247,331 ) — — — 1,668,468 (235,486) 1,432,982 (20,212 ) 1,412,770 Transactions with owners: Annual dividends — — — (635,482 ) — (635,482 ) (300 ) (635,782 ) Interim dividends — — — (70,609 ) — (70,609 ) — (70,609 ) Interest on hybrid bonds — — — (16,840 ) — (16,840 ) — (16,840 ) Changes in ownership in subsidiaries — 10,269 — — — 10,269 42,526 52,795 — 10,269 — (722,931 ) — (712,662 ) 42,226 (670,436 ) Balance at December 31, 2016 ￦ 44,639 (198,739 ) 398,518 15,953,164 (226,183) 15,971,399 145,031 16,116,430

See accompanying notes to the consolidated financial statements.

F-8

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Changes in Equity — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) Attributable to owners Capital surplus Non- (deficit) and Hybrid Retained controlling Share capital others bonds earnings Reserves Total interests Total equity Balance at January 1, 2017 ￦ 44,639 (198,739 ) 398,518 15,953,164 (226,183) 15,971,399 145,031 16,116,430 Total comprehensive income: Profit for the year — — — 2,599,829 — 2,599,829 57,766 2,657,595 Other comprehensive income (loss) — — — 5,875 (8,544 ) (2,669 ) 1,656 (1,013 ) — — — 2,605,704 (8,544 ) 2,597,160 59,422 2,656,582 Transactions with owners: Annual dividends — — — (635,482 ) — (635,482 ) (281 ) (635,763 ) Interim dividends — — — (70,609 ) — (70,609 ) — (70,609 ) Interest on hybrid bonds — — — (16,840 ) — (16,840 ) — (16,840 ) Share option — 414 — — — 414 — 414 Changes in ownership in subsidiaries — (3,912 ) — 9 — (3,903 ) (17,116 ) (21,019 ) — (3,498 ) — (722,922 ) — (726,420 ) (17,397 ) (743,817 ) Balance at December 31, 2017 ￦ 44,639 (202,237 ) 398,518 17,835,946 (234,727) 17,842,139 187,056 18,029,195

See accompanying notes to the consolidated financial statements.

F-9

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2017 2016 2015 Cash flows from operating activities: Cash generated from operating activities Profit for the year ￦2,657,595 1,660,101 1,515,885 Adjustments for income and expenses (Note 38) 2,096,764 3,039,561 3,250,143 Changes in assets and liabilities related to operating activities (Note 38) (261,468 ) 13,764 (685,734 ) Sub-total 4,492,891 4,713,426 4,080,294 Interest received 66,713 44,602 43,400 Dividends received 106,674 98,267 62,973 Interest paid (234,127 ) (245,236 ) (275,796 ) Income tax paid (576,331 ) (367,891 ) (132,742 ) Net cash provided by operating activities 3,855,820 4,243,168 3,778,129 Cash flows from investing activities: Cash inflows from investing activities: Decrease in short-term financial instruments, net — 222,322 — Decrease in short-term investment securities, net — — 105,158 Collection of short-term loans 216,700 238,980 398,308 Decrease in long-term financial instruments 27 28 7,424 Proceeds from disposals of long-term investment securities 129,726 555,519 149,310 Proceeds from disposals of investments in associates and joint ventures 5,925 66,852 185,094 Proceeds from disposals of property and equipment 29,368 22,549 36,586 Proceeds from disposals of intangible assets 8,848 16,532 3,769 Proceeds from disposals of assets held for sale — — 1,009 Collection of long-term loans 6,205 1,960 2,132 Decrease in deposits 24,550 14,894 14,635 Proceeds from disposals of other non-current assets 1,185 728 607 Proceeds from disposals of subsidiaries 30,132 — 155 Increase in cash due to merger 4,112 — 10,355 Receipt of government grants — 300 — Sub-total 456,778 1,140,664 914,542 Cash outflows for investing activities: Increase in short-term financial instruments, net (156,012 ) — (385,612 ) Increase in short-term investment securities, net (28,975 ) (6,334 ) — Increase in short-term loans (205,878 ) (239,303 ) (370,378 ) Increase in long-term loans (5,869 ) (32,287 ) (16,701 ) Increase in long-term financial instruments (2,034 ) (342 ) (10,008 ) Acquisitions of long-term investment securities (19,328 ) (30,949 ) (312,261 ) Acquisitions of investments in associates and joint ventures (193,100 ) (130,388 ) (65,080 ) Acquisitions of property and equipment (2,715,859) (2,490,455) (2,478,778) Acquisitions of intangible assets (145,740 ) (635,387 ) (127,948 ) Increase in deposits (26,377 ) (12,943 ) (12,536 ) Increase in other non-current assets (47 ) (763 ) (2,542 ) Acquisitions of businesses, net of cash acquired — (4,498 ) (13,197 ) Acquisitions of subsidiaries, net of cash acquired (26,566 ) (19,032 ) — Liquidation of subsidiary (1,600 ) (191 ) — Sub-total (3,527,385) (3,602,872) (3,795,041) Net cash used in investing activities ￦(3,070,607) (2,462,208) (2,880,499)

F-10 See accompanying notes to the consolidated financial statements.

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Consolidated Statements of Cash Flows — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2017 2016 2015 Cash flows from financing activities: Cash inflows from financing activities: Proceeds from short-term borrowings, net ￦127,386 — — Proceeds from issuance of debentures 973,291 776,727 1,375,031 Proceeds from long-term borrowings 120,000 49,000 — Cash inflows from settlement of derivatives 188 251 175 Cash received from transfer of interests in subsidiaries to non-controlling interests 40,938 35,646 — Sub-total 1,261,803 861,624 1,375,206 Cash outflows for financing activities: Decrease in short-term borrowings, net — (257,386 ) (106,600 ) Repayments of long-term account payables-other (305,476 ) (122,723 ) (191,436 ) Repayments of debentures (842,733 ) (770,000 ) (620,000 ) Repayments of long-term borrowings (32,701 ) (33,387 ) (21,924 ) Cash outflows from settlement of derivatives (105,269 ) — (655 ) Payments of finance lease liabilities — (26 ) (3,206 ) Payments of dividends (706,091 ) (706,091 ) (668,494 ) Payments of interest on hybrid bonds (16,840 ) (16,840 ) (16,840 ) Acquisitions of treasury shares — — (490,192 ) Transactions with non-controlling shareholders (79,311 ) — (220,442 ) Sub-total (2,088,421) (1,906,453) (2,339,789) Net cash used in financing activities (826,618 ) (1,044,829) (964,583 ) Net increase (decrease) in cash and cash equivalents (41,405 ) 736,131 (66,953 ) Cash and cash equivalents at beginning of the year 1,505,242 768,922 834,429 Effects of exchange rate changes on cash and cash equivalents (6,102 ) 189 1,446 Cash and cash equivalents at end of the year ￦1,457,735 1,505,242 768,922

See accompanying notes to the consolidated financial statements.

F-11

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements For the years ended December 31, 2017, 2016 and 2015

1. Reporting Entity (1) General SK Telecom Co., Ltd. (“the Parent Company”) was incorporated in March 1984 under the laws of the Republic of Korea (“Korea”) to provide cellular telephone communication services in Korea. The Parent Company mainly provides wireless telecommunications services in Korea. The head office of the Parent Company is located at 65, Eulji-ro, Jung-gu, Seoul, Korea. The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange, the New York Stock Exchange and the London Stock Exchange. As of December 31, 2017, the Parent Company’s total issued shares are held by the following shareholders:

Number of Percentage of shares total shares issued(%) SK Holdings Co., Ltd. 20,363,452 25.22 National Pension Service 7,392,350 9.16 Institutional investors and other minority shareholders 42,853,358 53.07 Treasury shares 10,136,551 12.55 Total number of shares 80,745,711 100.00

These consolidated financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individuals as “Group entities”). SK Holdings Co., Ltd. is the ultimate controlling entity of the Parent Company.

(2) List of subsidiaries The list of subsidiaries as of December 31, 2017 and 2016 is as follows:

Ownership (%)(*1) Dec. 31, Dec. 31, Subsidiary Location Primary business 2017 2016 Subsidiaries owned SK Telink Co., Ltd.(*2) Korea Telecommunication and by the Parent MVNO service 100.0 85.9 Company SK Communications Co., Ltd.(*3) Korea Internet website services 100.0 64.5 SK Broadband Co., Ltd Korea Telecommunication services 100.0 100.0 PS&Marketing Corporation Korea Communications device retail business 100.0 100.0 SERVICEACE Co., Ltd. Korea Customer center management service 100.0 100.0 SERVICE TOP Co., Ltd. Korea Customer center management service 100.0 100.0 Network O&S Co., Ltd. Korea Base station maintenance service 100.0 100.0 SK Planet Co., Ltd. Korea Telecommunication service 98.1 98.1 IRIVER LIMITED(*4, 5) Korea Manufacturing digital audio players and other portable media devices. 45.9 48.9 SK Telecom China Holdings Co., Ltd. China Investment 100.0 100.0

F-12

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Ownership (%)(*1) Dec. 31, Dec. 31, Subsidiary Location Primary business 2017 2016 SK Global Healthcare Business Group, Ltd. Hong Kong Investment 100.0 100.0 SKT Vietnam PTE. Ltd. Singapore Telecommunication service 73.3 73.3 SKT Americas, Inc. USA Information gathering and consulting 100.0 100.0 YTK Investment Ltd. Cayman Investment association 100.0 100.0 Islands Atlas Investment Cayman Investment association 100.0 100.0 Islands Entrix Co., Ltd.(*6) Korea Cloud streaming services — 100.0 SK techx Co., Ltd. Korea System software development and supply 100.0 100.0 One Store Co., Ltd. Korea Telecommunication services 65.5 65.5 Subsidiaries owned SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.) Data base and internet website by SK Planet Co., Korea service 100.0 100.0 Ltd. SK Planet Japan, K. K.(*5) Japan Digital contents sourcing service 79.5 100.0 SK Planet Global PTE. Ltd. Singapore Digital contents sourcing service 100.0 100.0 SKP GLOBAL HOLDINGS PTE. LTD. Singapore Investment 100.0 100.0 SKP America LLC. USA Digital contents sourcing service 100.0 100.0 shopkick Management Company, Inc. USA Investment 100.0 100.0 shopkick, Inc. USA Reward points-based in-store shopping app development 100.0 100.0 Planet11 E-commerce Solutions India Pvt. Ltd.(*6) Electronic commerce platform India service — 99.0 11street (Thailand) Co., Ltd. Thailand Electronic commerce 100.0 100.0 Hello Nature Ltd. Korea Retail of agro-fisheries and livestock 100.0 100.0 Subsidiaries owned iriver Enterprise Ltd. Hong Kong Management of Chinese by IRIVER subsidiary 100.0 100.0 LIMITED iriver Inc. USA Marketing and sales in North America 100.0 100.0 iriver China Co., Ltd. China Sales and manufacturing MP3,4 in China 100.0 100.0 Dongguan iriver Electronics Co., Ltd. China Sales and manufacturing e-book in China 100.0 100.0 groovers JP Ltd. Japan Digital music contents 100.0 100.0 sourcing and distribution service

F-13

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Ownership (%)(*1) Dec. 31, Dec. 31, Subsidiary Location Primary business 2017 2016 S.M. LIFE DESIGN COMPANY JAPAN INC.(*6) Japan Selling of goods in Japan 100.0 — S.M. Mobile Communications JAPAN Inc.(*6) Japan Digital contents service 100.0 — Subsidiaries NSOK Co., Ltd. (formerly, Neosnetworks Co., Ltd.)(*7) owned by SK Korea Guarding of facilities 100.0 100.0 Telink Co., Ltd. Subsidiaries K-net Culture and Contents Venture Fund Capital investing in startups owned by SK Korea 59.0 59.0 techx Co., Ltd. Subsidiaries owned Home & Service Co., Ltd.(*6) Korea Operation of information and by SK Broadband communication facility 100.0 — Co., Ltd. SK stoa Co., Ltd.(*6) Korea Other telecommunication retail business 100.0 — Others(*8) SK Telecom Innovation Fund, L.P. USA Investment 100.0 100.0 SK Telecom China Fund I L.P. Cayman Islands Investment 100.0 100.0 Stonebridge Cinema Fund(*6) Korea Capital investing in startups — 60.0

(*1) The ownership interest represents direct ownership interest in subsidiaries either by the Parent Company or subsidiaries of the Parent Company. (*2) On September 28, 2017, the board of directors of the Parent Company resolved to acquire the shares of SK Telink Co., Ltd. held by the non-controlling shareholders of SK Telink Co., Ltd. on December 14, 2017 at ￦270,583 per share in cash. The Parent Company paid ￦35,281 million in cash, in aggregate, and wholly owns SK Telink Co., Ltd. as of December 31, 2017. (*3) On November 24, 2016, the board of directors of the Parent Company resolved to acquire all of the shares of SK Communications Co., Ltd. held by the non-controlling shareholders of SK Communications Co., Ltd. on February 7, 2017 at ￦2,814 per share in cash. The Parent Company paid ￦41,550 million in cash ,in aggregate, and wholly owns SK Communications Co., Ltd. as of December 31, 2017. (*4) Although the Group has less than 50% of the voting rights of IRIVER LIMITED, the Group is considered to have control over IRIVER LIMITED since the Group holds significantly more voting rights than any other vote holder or organized group of vote holders, and the other shareholdings are widely dispersed. (*5) The ownership interest changed due to the non-proportional capital increase during the year ended December 31, 2017. (*6) Details of changes in consolidation scope for the year ended December 31, 2017 are presented in Note 1-(4). (*7) During the year ended December 31, 2017, Neosnetworks Co., Ltd. changed its name to NSOK Co., Ltd. (*8) Others are owned together by Atlas Investment and one other subsidiary of the Parent Company.

F-14

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) Condensed financial information of subsidiaries Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2017 is as follows:

(In millions of won) As of December 31, 2017 2017 Total Total Total Profit Subsidiary assets liabilities equity Revenue (loss) SK Telink Co., Ltd. ￦455,685 104,727 350,958 389,944 32,728 SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.) 113,515 62,795 50,720 193,256 1,249 SK Communications Co., Ltd. 90,923 28,410 62,513 47,546 (35,454 ) SK Broadband Co., Ltd. 3,802,349 2,616,317 1,186,032 3,050,083 32,030 K-net Culture and Contents Venture Fund 250,747 35,900 214,847 — 196,250 PS&Marketing Corporation 506,883 288,881 218,002 1,766,142 391 SERVICEACE Co., Ltd. 77,681 45,501 32,180 197,408 2,599 SERVICE TOP Co., Ltd. 65,406 41,860 23,546 186,117 3,309 Network O&S Co., Ltd. 87,000 45,248 41,752 255,841 6,283 SK Planet Co., Ltd. 1,534,866 920,677 614,189 1,082,685 (513,667) IRIVER LIMITED(*) 130,878 17,204 113,674 69,452 (14,092 ) SKP America LLC. 412,251 — 412,251 — (57 ) SK techx Co., Ltd. 237,700 41,561 196,139 195,948 26,827 One Store Co., Ltd. 104,891 39,874 65,017 115,596 (27,254 ) Home & Service Co., Ltd. 83,698 38,350 45,348 141,739 11 shopkick Management Company, Inc. 338,650 — 338,650 — (238 ) shopkick, Inc. 37,336 32,219 5,117 48,836 (25,249 )

(*) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and six other subsidiaries of IRIVER LIMITED. Information for the other subsidiaries in the above summary is based on their separate financial statements.

F-15

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2016 is as follows:

(In millions of won) As of December 31, 2016 2016 Total Total Total Profit Subsidiary assets liabilities equity Revenue (loss) SK Telink Co., Ltd. ￦440,956 122,741 318,215 406,930 61,585 SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.) 107,768 56,596 51,172 173,816 4,958 SK Communications Co., Ltd. 128,233 31,592 96,641 58,154 (20,411) SK Broadband Co., Ltd. 3,523,494 2,376,429 1,147,065 2,942,976 21,526 PS&Marketing Corporation 546,803 328,846 217,957 1,679,735 11,908 SERVICEACE Co., Ltd. 67,735 40,014 27,721 199,828 3,605 SERVICE TOP Co., Ltd. 59,004 39,121 19,883 186,740 3,971 Network O&S Co., Ltd. 69,774 35,798 33,976 218,917 3,755 SK Planet Co., Ltd.(*1) 1,935,663 834,151 1,101,512 1,177,323 (30,959) IRIVER LIMITED(*2) 50,075 11,941 38,134 52,328 (9,987 ) SKP America LLC. 439,209 — 439,209 — 1,226 SK techx Co., Ltd. 212,819 52,563 160,256 193,396 28,213 One Store Co., Ltd. 134,207 41,738 92,469 106,809 (22,161) shopkick Management Company, Inc. 354,627 — 354,627 — (85 ) shopkick, Inc. 37,947 34,024 3,923 45,876 (27,149)

(*1) The separate financial information of SK Planet Co., Ltd. includes pre-merger income and expenses of Commerce Planet Co., Ltd. prior to the merger date of February 1, 2016. (*2) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and five other subsidiaries of IRIVER LIMITED. Condensed financial information of the significant subsidiaries as of and for the year ended December 31, 2015 is as follows:

(In millions of won) As of December 31, 2015 2015 Total Total Total Profit Subsidiary assets liabilities equity Revenue (loss) SK Telink Co., Ltd. ￦309,955 113,878 196,077 431,368 55,781 SK m&service Co., Ltd. (formerly, M&Service Co., Ltd.) 89,452 42,414 47,038 143,255 5,549 SK Communications Co., Ltd. 152,496 35,014 117,482 80,147 (14,826) SK Broadband Co., Ltd. 3,291,707 2,170,484 1,121,223 2,731,344 10,832 PS&Marketing Corporation 509,580 300,364 209,216 1,791,944 4,835 SERVICEACE Co., Ltd. 65,424 34,240 31,184 206,338 2,778 SERVICE TOP Co., Ltd. 61,897 38,482 23,415 197,092 4,396 Network O&S Co., Ltd. 77,426 48,069 29,357 210,676 6,466 SK Planet Co., Ltd. 2,406,988 784,631 1,622,357 1,624,630 (75,111) IRIVER LIMITED(*) 60,434 12,377 48,057 55,637 635 SKP America LLC. 380,141 — 380,141 — 791 Entrix Co., Ltd. 30,876 3,186 27,690 4,895 (1,826 ) shopkick Management Company, Inc. 306,248 7 306,241 7 (2,455 ) shopkick, Inc. 25,388 32,243 (6,855 ) 33,851 (52,390)

F-16

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*) The condensed financial information of IRIVER LIMITED is consolidated financial information including iriver Enterprise Ltd. and five other subsidiaries of IRIVER LIMITED.

(4) Changes in subsidiaries The list of subsidiaries that were newly included in consolidation during the year ended December 31, 2017 is as follows:

Subsidiary Reason S.M. LIFE DESIGN COMPANY JAPAN INC. (Refer to Note10) Acquired by IRIVER LIMITED S.M. Mobile Communications JAPAN Inc. (Refer to Note10) Acquired by IRIVER LIMITED Home & Service Co., Ltd. Established by SK Boradband Co., Ltd. SK stoa Co., Ltd. Established by SK Boradband Co., Ltd. The list of subsidiaries that were excluded from consolidation during the year ended December 31, 2017 is as follows:

Subsidiary Reason Entrix Co., Ltd. Merged into SK techx Co., Ltd. during the year ended December 31, 2017. Planet11 E-commerce Solutions India Pvt. Ltd. Disposed during the year ended December 31, 2017. Stonebridge Cinema Fund Liquidated during the year ended December 31, 2017.

F-17

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(5) The information of significant non-controlling interests of the Group as of and for the years ended December 31, 2017, 2016 and 2015 are as follows. There were no dividends paid during the years ended December 31, 2017, 2016 and 2015 by subsidiaries of which non-controlling interests are significant.

(In millions of won) K-net Culture and Contents Venture Fund IRIVER LIMITED One Store Co., Ltd. Ownership of non-controlling interests (%) 41.00 54.10 34.46

As of December 31, 2017 Current assets ￦ 625 74,873 76,810 Non-current assets 250,122 56,005 28,081 Current liabilities (35,900 ) (9,563 ) (38,547 ) Non-current liabilities — (7,641 ) (1,327 ) Net assets 214,847 113,674 65,017 Carrying amount of non-controlling interests 88,087 63,382 22,405

2017 Revenue ￦ — 69,452 115,596 Profit (loss) for the year 196,250 (14,092 ) (27,254 ) Total comprehensive profit (loss) 201,693 (14,278 ) (27,452 ) Profit (loss) attributable to non-controlling interests 80,463 (7,438 ) (9,392 ) Net cash provided by (used in) operating activities ￦ (7 ) (7,553 ) 13,912 Net cash used in investing activities (600 ) (45,002 ) (2,000 ) Net cash provided by (used in) financing activities — 64,571 (7 ) Net increase (decrease) in cash and cash equivalents (607 ) 12,016 11,905

(In millions of won) SK Communications Co., Ltd. One Store Co., Ltd. Ownership of non-controlling interests (%) 35.46 34.46

As of December 31, 2016 Current assets ￦ 81,806 90,414 Non-current assets 46,427 43,793 Current liabilities (30,098 ) (40,969 ) Non-current liabilities (1,494 ) (769 ) Net assets 96,641 92,469 Carrying amount of non-controlling interests 34,265 31,863

2016 Revenue ￦ 58,154 106,809 Loss for the year 20,411 22,161 Total comprehensive loss 20,841 22,402 Loss attributable to non-controlling interests 7,240 6,772 Net cash used in operating activities ￦ (4,891 ) (4,447 ) Net cash provided by (used in) investing activities 3,625 (20,796 ) Net cash provided by financing activities — 51,426 Net increase(decrease) in cash and cash equivalents (1,266 ) 26,183

F-18

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) SK Communications Co., Ltd. Ownership of non-controlling interests (%) 35.46

As of December 31, 2015 Current assets ￦ 95,662 Non-current assets 56,834 Current liabilities (33,306 ) Non-current liabilities (1,708 ) Net assets 117,482 Carrying amount of non-controlling interests 41,659

2015 Revenue ￦ 80,147 Loss for the period 14,826 Total comprehensive loss 16,698 Loss attributable to non-controlling interests 5,254 Net cash used in operating activities ￦ (2,706 ) Net cash provided by investing activities 8,723 Net cash provided by financing activities — Net increase in cash and cash equivalents 6,017

2. Basis of Presentation (1) Statement of compliance These consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements were authorized for issuance by the Board of Directors on February 2, 2018.

(2) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statement of financial position: • derivative financial instruments measured at fair value; • financial instruments at fair value through profit or loss measured at fair value; • available-for-sale financial assets measured at fair value; and • liabilities(assets) for defined benefit plans recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets.

(3) Functional and presentation currency Financial statements of Group entities within the Group are prepared in functional currency of each group entity, which is the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

F-19

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(4) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

1) Critical judgments Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in Note 4 for the following areas: consolidation: whether the Group has de facto control over an investee, and classification of lease.

2) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: allowance for doubtful accounts, estimated useful lives of property and equipment and intangible assets, impairment of goodwill, recognition of provision, measurement of defined benefit liabilities, and recognition of deferred tax assets (liabilities).

3) Fair value measurement A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has established policies and processes with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the finance executives. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Information about assumptions used for fair value measurements are included in Note 35.

F-20

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

3. Changes in accounting policies Except the following amendments to the standards that are effective for annual periods beginning on January 1, 2017, the accounting policies have been applied consistently to all periods presented in these consolidated financial statements.

(1) International Accounting Standards (“IAS”) 7, Cash Flow Statements The Group adopted the amendments to IAS 7, which form a part of the IASB’s broader disclosure in the period beginning on January 1, 2017. The amendment requires the Group to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group disclosed the reconciliation of the opening and closing balances of liabilities arising from financing activities including changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes in Note 38.

(2) IAS 12, Income Taxes The Group adopted the amendments to IAS 12 in the period beginning January 1, 2017. The amendments clarify the necessity to consider whether there are restrictions on tax laws on the sources of taxable profits which may be used for the reversal of deductible temporary difference. In addition, the amendments provide the guidance on how to estimate the probable future taxable profit and specify the circumstances where an asset can be recovered for more than its carrying amount. These amendments have no impact on the Group’s consolidated financial statements.

4. Significant Accounting Policies The significant accounting policies applied by the Group in the preparation of its consolidated financial statements in accordance with IFRS are included below. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(1) Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. The Group’s operating segments have been determined to be each business unit, for which the Group generates separately identifiable financial information that is regularly reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance. The Group has four reportable segments which consist of cellular services, fixed-line telecommunication services, e-commerce services and others, as described in Note 5. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The Group’s chief operating decision maker receives and reviews operating income based on Korean IFRS as the measure of segment profit and loss for each operating segment. Segment operating income differs from consolidated operating income used in the Group’s consolidated statements of income. Segment operating profit does not include certain items such as fee revenues, gain/loss from disposal of property, plant, equipment and intangible assets, impairment losses on property, plant, equipment and intangible assets, donations, bad debt expense and penalties. The chief operating decision maker does not receive any information about segment assets and liabilities.

F-21

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Basis of consolidation (i) Business combination A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. Consideration transferred is generally measured at fair value, identical to the measurement of identifiable net assets acquired at fair value. The difference between the acquired company’s fair value and the consideration transferred is accounted for goodwill. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received excluding costs to issue debt or equity securities recognized based on IAS 32 and 39. Consideration transferred does not include the amount settled in relation to the pre-existing relationship and the amount settled in relation to the pre-existing relationship is generally recognized through profit or loss. Contingent consideration is measured at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. If contingent consideration is not classified as equity, the Group subsequently recognizes changes in fair value of contingent consideration through profit or loss.

(ii) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in a Controlling Company’s ownership interest in a subsidiary that do not result in the Controlling Company losing control of the subsidiary are accounted for as equity transactions.

(iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

(iv) Loss of control If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(v) Interest in investees accounted for using the equity method Interest in investees accounted for using the equity method composed of interest in associates and joint ventures. An associate is an entity in which the Group has significant influence, but not control, over the entity’s financial and operating policies. A joint venture is a joint arrangement whereby the Group that has joint control of the arrangement has rights to the net assets of the arrangement. The investment in an associate and a joint venture is initially recognized at cost including transaction costs and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture after the date of acquisition.

F-22

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(vi) Intra-group transactions Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with investees accounted for using the equity method are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(vii) Business combinations under common control SK Holdings Co., Ltd. is the ultimate controlling entity of the Group. The assets and liabilities acquired under business combination under common control are recognized at the carrying amounts in the ultimate controlling shareholder’s consolidated financial statements. The difference between consideration and carrying amount of net assets acquired is added to or subtracted from capital surplus and others.

(3) Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and financial assets with maturities of three months or less from the acquisition date that are easily convertible to cash and subject to an insignificant risk of changes in their fair value.

(4) Inventories Inventories are stated at the acquisition cost using the average method. During the period, a perpetual inventory system is used to track inventory quantities, which is adjusted to the physical inventory counts performed at the period end. When the net realizable value of inventories is less than the acquisition cost, the carrying amount is reduced to the net realizable value and any difference is charged to current operations as operating expenses.

(5) Non-derivative financial assets The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the acquisition of the asset.

(i) Financial assets at fair value through profit or loss A financial asset is classified as financial asset at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(ii) Held-to-maturity investments A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, are classified as held-to-maturity investment. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

F-23

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(iv) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value with changes in fair value, net of any tax effect, recorded in other comprehensive income (OCI) in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

(v) De-recognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi) Offsetting between financial assets and financial liabilities Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Derivative financial instruments, including hedge accounting Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(i) Hedge accounting The Group holds forward exchange contracts, interest rate swaps, currency swaps and other derivative contracts to manage interest rate risk and foreign exchange risk. The Group designates derivatives as hedging instruments to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge). On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

Fair value hedge Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of income.

F-24

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

Cash flow hedge When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

(ii) Separable embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (c) the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(iii) Other derivative financial instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7) Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized. Objective evidence that a financial asset is impaired includes following loss events: • significant financial difficulty of the issuer or obligor; • a breach of contract, such as default or delinquency in interest or principal payments; • the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

F-25

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

• it becoming probable that the borrower will enter bankruptcy or other financial reorganization; • the disappearance of an active market for that financial asset because of financial difficulties; or • observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. If financial assets have objective evidence that they are impaired, impairment losses are measured and recognized.

(i) Financial assets measured at amortized cost An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. The Group can recognize impairment losses directly or by establishing an allowance account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed either directly or by adjusting an allowance account.

(ii) Financial assets carried at cost If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(iii) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss subsequently. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

(8) Property and equipment Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent to initial recognition, an item of property and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.

F-26

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred. Property and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. A component that is significant compared to the total cost of property and equipment is depreciated over its separate useful life. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized as other non-operating income (loss). The estimated useful lives of the Group’s property and equipment are as follows:

Useful lives (years) Buildings and structures 15 ~ 40 Machinery 3 ~ 15 Other property and equipment 2 ~ 10 Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(9) Borrowing costs The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period do not exceed the amount of borrowing costs incurred during that period.

(10) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses. Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, club memberships are expected to be available for use as there are no foreseeable limits to the periods. This intangible asset is determined as having indefinite useful lives and not amortized.

F-27

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

The estimated useful lives of the Group’s intangible assets are as follows:

Useful lives (years) Frequency usage rights 5 ~ 13 Land usage rights 5 Industrial rights 5, 10 Development costs 3 ~ 5 Facility usage rights 10, 20 Customer relations 3 ~ 7 Other 3 ~ 20 Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates. Expenditures on research activities are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11) Government grants Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(i) Grants related to assets Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires a long-term asset are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduction to depreciation expense.

(ii) Grants related to income Government grants which are intended to compensate the Group for expenses incurred are deducted from the related expenses.

(12) Investment property Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses. Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

F-28

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Investment property except for land, are depreciated on a straight-line basis over 15~40 years as estimated useful lives. Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

(13) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount. The Group estimates the recoverable amount of an individual asset, if it is impossible to measure the individual recoverable amount of an asset, then the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU. An impairment loss is recognized in profit or loss to the extent the carrying amount of the asset exceeds its recoverable amount. Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the business acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Leases The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(i) Finance leases At the commencement of the lease term, the Group recognizes as finance assets and finance liabilities in its consolidated statement of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

F-29

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews to determine whether the leased assets are impaired at the reporting date.

(ii) Operating leases Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(iii) Determining whether an arrangement contains a lease Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and the arrangement conveys a right to use the asset. At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance charge on the liability is recognized using the Group’s incremental borrowing rate of interest.

(15) Non-current assets held for sale Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. In order to be classified as held for sale, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. The assets or disposal group that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell. The Group recognizes an impairment loss for any initial or subsequent write-down of an asset (or disposal group) to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with IAS 36, Impairment of Assets. A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

(16) Non-derivative financial liabilities The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issue of the financial liability are recognized in profit or loss as incurred.

F-30

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(ii) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the issue of the financial liability. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

(17) Employee benefits (i) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Other long-term employee benefits Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service. The Group’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.

(iii) Retirement benefits: defined contribution plans When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid exceeds the contribution due for service before the end of the reporting period, the Group recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

(iv) Retirement benefits: defined benefit plans At the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized at present value of defined benefit obligations net of fair value of plan assets. The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss. When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

F-31

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(v) Termination benefits The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring that involves the payment of termination benefits. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value.

(18) Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A provision is used only for expenditures for which the provision was originally recognized.

(19) Transactions in foreign currencies (i) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments.

(ii) Foreign operations If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods: The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate at the reporting date.

F-32

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. When the Group repurchases its own shares, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are directly recognized in equity being as transaction with owners.

(21) Hybrid bond The Group recognizes a financial instrument issued by the Group as an equity instrument if it does not include contractual obligation to deliver financial assets including cash to the counter party.

(22) Share-based Payment For equity-settled share-based payment transaction, if the fair value of the goods or services received cannot be reliably estimated, the Group measures their value indirectly by reference to the fair value of the equity instruments granted. Related expense, with a corresponding increase in capital surplus and others is recognized over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.

(23) Revenue Revenue from the sale of goods, rendering of services or use of the Group assets is measured at the fair value of the consideration received or receivable. Returns, trade discounts and volume rebates are recognized as a reduction of revenue. When two or more revenue generating activities or deliverables are sold under a single arrangement, each deliverable that is considered to be a separate unit of account is accounted for separately. The allocation of consideration from a revenue arrangement to its separate units of account is based on the relative fair values of each unit.

(i) Services rendered Revenue from cellular services consists of revenue from basic charges, voice charges, data charges, data-roaming services and interconnection charges. Such revenues are recognized as services are performed. Revenue from fixed-line services includes domestic and long distance call charges, international phone connection charges, and broadband internet services. Such revenues are recognized as the related services are performed. Revenue from other services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

F-33

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(ii) Goods sold Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(iii) Commission revenue In connection with the commission revenue from e-commerce services with following characteristics, the Group has determined that it is acting as an agent. • The Group does not bear inventory risk or have responsibility for the delivery goods; • All of the credit risks are borne by suppliers of goods though the Group collects the proceeds from end customers on behalf of the suppliers; and • The Group has no latitude in establishing prices regarding goods sold in e-commerce.

(iv) Customer loyalty programs For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the services to be provided with respect to the redeemable award credits. The fair value of the services to be provided with respect to the redeemable portion of the award credits granted to the customers in accordance with customer loyalty programs is estimated taking into account the expected redemption rate and timing of the expected redemption. Considerations allocated to the award credits are deferred and revenue is recognized when the award credits are recovered and the Group performs its obligation to provide the service. The amount of revenue recognized is based on the relative size of the total award credits that are expected to be redeemed and the redeemed award credits in exchange for services.

(24) Operating profit Operating profit is the result generated from the continuing principal revenue producing activities of the Group as well as other income and expenses related to operating activities. Operating profit excludes net finance costs, share of profit of equity accounted investees and income taxes.

(25) Finance income and finance costs Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of available-for-sale financial assets, changes in fair value of financial assets at fair value through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established. Finance costs comprise interest expense on borrowings, changes in fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognized in profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(26) Income taxes Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

F-34

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

The Group pays income tax in accordance with the tax-consolidation system which applies to the Parent Company and wholly owned subsidiaries.

(i) Current tax In accordance with the tax-consolidation system, the Parent Company calculates current taxes for the Parent Company and its wholly owned domestic subsidiaries and recognizes the income tax payable as current tax liabilities of the Parent Company. Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and includes interests and fines related to income taxes paid or payable. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

(ii) Deferred tax Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences, except for the difference associated with investments in subsidiaries and associates that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes a deferred tax asset for all deductible temporary differences to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. A deferred tax asset is recognized for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. Future taxable profit is dependent on the reversal of taxable temporary differences. If there are insufficient taxable temporary differences to recognize the deferred tax asset, the business plan of the Group and the reversal of existing temporary differences are considered in determining the future taxable profit. The Group reviews the carrying amount of a deferred tax asset at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they are intended to be settled current tax liabilities and assets on a net basis. Income tax expense in relation to dividend payments is recognized when liabilities relating to the dividend payments are recognized.

(27) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of

F-35

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015 ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees, if any.

(28) Standards issued but not yet effective The following new standards are effective for annual periods beginning after January 1, 2017 and earlier application is permitted; however, the Group has not early adopted the following new standards in preparing these financial statements.

1) IFRS 9, Financial Instruments IFRS 9, published in July 2014 which will replace the IAS 39 Financial Instruments: Recognition and Measurement, is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group currently plans to apply IFRS 9 in the period beginning on January 1, 2018. IFRS 9 will be applied retrospectively with exemption allowing the Group not to restate comparative information for prior periods with respect to classification and measurement including impairment changes. The Group will recognize any difference on the measurement of financial assets and liabilities in the opening balance of retained earnings of the year beginning January 1, 2018. In the case of hedge accounting, the prospective application is allowed except for those specified in IFRS 9 such as accounting for the time value of options and the forward element of forward contracts which requires retrospective application. Key features of IFRS 9 includes new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics, impairment model based on changes in expected credit losses, and new approach to hedge qualification and methods for assessing hedge effectiveness. To ensure smooth implementation of IFRS 9, the Group needs to assess the financial impact of adopting IFRS 9, to formulate the accounting policy, and to design, implement and enhance the accounting system and related controls. The expected quantitative impact of adopting IFRS 9 on the Group’s financial statements cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgments that it will make in the future. Based on the circumstances and information available as of December 31, 2017, the Group preliminary assessed the financial impact on its consolidated financial statements resulting from the adoption of IFRS 9. The results of the preliminary assessment are as follows. The results are subject to change according to additional information available in subsequent period.

F-36

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

i) Classification and measurement of financial assets Classification of financial assets under IFRS 9 is driven by the entity’s business model for managing financial assets and their contractual cash flows. This contains three principal classification categories: financial assets measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). Derivatives embedded in contracts where the host is a financial asset are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Details of the classification based on business models and contractual cash flows are as follows:

Contractual cash flow characteristics Business model assessment(*1) Solely payments of principal and interest Others Hold to collect contractual cash flows Amortized cost(*2) Hold to collect contractual cash flows and sell FVOCI- measured at fair value(*2) FVTPL-measured at fair value(*3) financial assets Hold to sell financial assets and others FVTPL-measured at fair value

(*1) The business model is expected to be assessed at portfolio level. (*2) To eliminate or significantly reduce the accounting mismatch, the Group may irrevocably designate a financial asset as measured at FVTPL using the fair value option at initial recognition. (*3) Equity instruments that are not held for trading may be irrevocably designated as FVOCI using the fair value option. This election will be made on an investment-by-investment basis. As new classification requirements for financial assets under IFRS 9 are more stringent than requirements under IAS 39, the adoption of the new standard may result in increase in financial assets designated as FVTPL and higher volatility in profit or loss of the Group. As of December 31, 2017, the Group’s financial assets consist of ￦6,176,575 million of loans and receivables, ￦934,390 million of available-for-sale financial assets, and ￦328,314 million of financial assets at fair value through profit or loss. A financial asset is measured at amortized cost under IFRS 9 if the asset is held by the Group to collect its contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has ￦6,176,575 million of loans and receivables measured at amortized cost. Based on preliminary assessment, most of the Group’s loans and receivables are held to collect their contractual cash flows and the asset’s contractual cash flows represent solely payments of principal and interest. Though some are held for collecting the asset’s contractual cash flows and sale, management does not expect this to have a significant impact due to the short term nature of the receivables. A financial asset is measured at FVOCI under IFRS 9 if the objective of the business model is achieved both by collecting contractual cash flows and selling financial assets; and the asset’s contractual cash flows represent solely payments of principal and interest. As of December 31, 2017, the Group has ￦19,928 million of debt instruments classified as available-for-sale financial assets. Most of the debt instruments held by the Group classified as available-for-sale financial assets are expected to be classified as financial assets measured at FVOCI upon adoption IFRS 9 as at January 1, 2018. Therefore, management does not expect there to be a significant impact. Under IFRS 9, equity instruments that are not held for trading may be irrevocably designated as FVOCI on initial recognition with no recycling of amounts from OCI to profit and loss. As of December 31, 2017, the Group has ￦914,462 million of available-for-sale equity instruments.

F-37

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

As the Group plans to classify the equity instruments with long-term investment purposes to financial assets measured at FVOCI under IFRS 9, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements except no recycling of amounts from OCI to profit and loss is allowed. All other financial assets are measured at FVTPL. As of December 31, 2017, the Group has ￦97,003 million of debt instruments classified as financial assets at FVTPL. Most of the financial assets classified as FVTPL under IAS 39 of the Group are expected to be designated as financial assets measured at FVTPL under IFRS 9. Therefore, the Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 as at January 1, 2018.

ii) Classification and measurement of financial liabilities Under IFRS 9, for the financial liabilities designated as FVTPL using the fair value option, the element of gains or losses attributable to changes in the own credit risk should normally be recognized in OCI, with the remainder recognized in profit or loss. These amounts recognized in OCI are not recycled to profit or loss even when the liability is derecognized. However, if presentation of the fair value change in respect of the liability’s credit risk in OCI results in or enlarges an accounting mismatch in profit or loss, gains and losses are entirely presented in profit or loss. Adoption of IFRS 9 may result in decrease in profit or loss, since the amount of fair value changes that is attributable to changes in the credit risk of the liability will be presented in OCI. As of December 31, 2017, the Group’s total financial liability amounts to ￦12,725,704 million, among which the financial liabilities designated as FVTPL using fair value option amount to ￦60,278 million. As of December 31, 2017, most of the financial liabilities designated as FVTPL of the Group have short-term maturities with no significant changes in their credit risks. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 as of January 1, 2018.

iii) Impairment: financial assets and contract assets The current impairment requirements under IAS 39 are based on an ‘incurred loss model’, where the impairment exists if there is objective evidence as a result of one or more events that occurred after the initial recognition of an asset. However, IFRS 9 replaces the incurred loss model in IAS 39 with an ‘expected credit loss model’ which applies to debt instruments measured at amortized cost or at fair value through other comprehensive income. Under IFRS 9, the Group should recognize a loss allowance or provision at an amount equal to 12-month expected credit losses or lifetime expected credit losses for financial assets determined by the extent of probable credit deterioration since initial recognition as explained below. Therefore, the new impairment requirements are expected to result in earlier recognition of credit losses compared to the incurred loss model of IAS 39.

Stages(*1) Loss allowances Stage 1 No significant increase in credit risk since Loss allowances are determined for the amount of the expected credit losses initial recognition(*2) that result from default events that are possible within 12 months after the reporting date. Stage 2 Significant increase in credit risk since initial Loss allowances are determined for the amount of the expected credit losses recognition that result from all possible default events over the expected life of the Stage 3 Objective evidence of credit risk impairment financial instrument.

(*1) Under IFRS 15, Revenue from Contracts with Customers (see note 4 (28) (2)), for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to

F-38

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. The Group expects to perform the analysis on whether there was a significant increase in credit risk on collective basis instead of on individual instrument basis. In addition, when information that is more forward-looking than past due status is not available without undue cost or effort, the Group expects to use past due information to determine whether there have been significant increases in credit risk since initial recognition. (*2) The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. IFRS 9 allows the Group to only recognize the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets at the reporting date. As of December 31, 2017, the Group has ￦6,176,575 million of debt instrument financial assets measured at amortized cost and ￦362,171 million as loss allowances for these assets. The Group’s preliminary assessment did not indicate any material impact on the Group’s consolidated financial statements upon adoption of IFRS 9 on January 1, 2018.

iv) Hedge accounting IFRS 9 maintains the mechanics of hedge accounting from those in IAS 39. However, IFRS 9 replaces existing rule-based requirements under IAS 39 that are complex and difficult to apply with principle based requirement focusing more on the Group’s risk management purposes and procedures. Under IAS 9, more hedging instruments and hedged items are permitted and 80%-125% effectiveness requirement is removed. By complying with the hedging rules in IFRS 9, the Group may apply hedge accounting for transactions that currently do not meet the hedging criteria under IAS 39 thereby reducing volatility in profit or loss. As of December 31, 2017, the Group recognized the total amount of ￦2,026,434 million as hedged liabilities that applied hedge accounting and changes in fair value of cash flow hedge in the amount of ￦73,828 million was recognized in OCI for the year ended December 31, 2017. Upon initial application of IFRS 9, the Group may choose as its accounting policy to continue to apply hedge accounting requirements under IAS 39 instead of the requirements in IFRS 9. The Group is yet to decide on its accounting policy whether to continuously apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9 when initially applying IFRS 9. The Group designates derivatives such as currency swaps as hedging instruments to hedge the risk of variability in cash flows associated with the foreign currency debentures and borrowings. As the Group’s hedging instruments as of December 31, 2017 satisfy the hedge requirements of retrospective testing (80~125%) under IAS 39, the adoption of IFRS 9 is not expected to have material impact on the Group’s consolidated financial statements.

2) IFRS 15, Revenue from Contracts with Customers IFRS 15, Revenue from Contracts with Customers, published in May 2014 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. It replaces existing revenue recognition guidance, including IAS 18, Revenue, IAS 11, Construction Contracts, SIC 31, Revenue: Barter Transactions Involving Advertising Services, International Financial Reporting Interpretations Committee (“IFRIC”) 13, Customer Loyalty Programs, IFRIC 15, Agreements for the Construction of Real Estate, and IFRIC 18, Transfers of Assets from Customers. The Group plans to adopt IFRS 15 on January 1, 2018. The Group plans to apply IFRS 15 by recognizing the cumulative effect of initially applying the IFRS 15 as an adjustment to the opening balance of

F-39

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015 retained earnings (or other component of equity, as appropriate) of the year beginning January 1, 2018. The Group elected to apply IFRS 15 retrospectively only to contracts that are not completed contracts at the date of initial application (January 1, 2018) using the transition method permitted by IFRS 15. IAS 18 provides separate revenue recognition criteria by transaction type which include sale of goods, rendering of services, and use of entity assets by others yielding interest, royalties and dividends. However, IFRS 15 introduces a five-step model for revenue recognition that focuses on the ‘transfer of control’ rather than the ‘transfer of risks and rewards’. The steps in five-step model are as follows: • identification of the contract with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when (or as) the entity satisfies a performance obligation. The Group performed evaluation and identified necessary changes to its accounting system and related controls based on the understanding of the revenue stream of the Group with the assistance of external information technology and accounting specialists. The Group is assessing the financial impact of the adoption of IFRS 15 on its consolidated financial statements and plans to complete the assessment by March 31, 2018. Based on the circumstances and information available as of December 31, 2017, the Group preliminarily assessed the financial impact on its consolidated financial statements resulting from the adoption of IFRS 15. The results of the preliminary assessment are as follows. The results are subject to change according to the additional information available to use in subsequent periods.

i) Identification of performance obligations in the contract A substantial portion of the Group’s revenues are generated from provision of wireless telecommunications services. IFRS 15 requires the Group to evaluate goods or services promised to customers to determine if they are performance obligations other than wireless telecommunications service that should be accounted for separately. The amount and timing of revenue recognition under IFRS 15 may be different from those under IAS 18 depending on the conclusion over the existence of separately identifiable performance obligations and the timing of satisfying each performance obligation. In the case that the Group provides the wireless telecommunications services and a handset to one customer, the Group will allocate considerations from the customer between handset sale revenue and wireless telecommunications service revenue. The handset sales revenue is recognized when handset is sold and the wireless telecommunications service revenue is recognized as revenue over the period of the contract term as stated in the subscription contract.

ii) Allocate the transaction price to the separate performance obligations In accordance with IFRS 15, the Group should allocate the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price. The Group plans to use adjusted market assessment method for estimating the stand-alone selling price. However, in some circumstances, ‘expected cost plus a margin’ approach will be used. The Group is in the progress of assessing the financial impact of allocating the transaction price to each performance obligation in a contract in proportion to their stand-alone selling price for the case where the Group provides the wireless telecommunications services and handset to one customer. Based on the preliminary assessment, the Group expects that wireless telecommunications service revenue will be decreased, while handset sale revenue will be increased upon adoption of IFRS 15.

F-40

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

iii) Incremental costs to acquire a contract The Group has exclusive contracts with its sales agents to sell the Group’s wireless telecommunications services to subscribers. These agents receive commissions depending on the number of subscribers newly added and retained. The commissions paid to the agents constitute a significant portion of the Group’s operating expenses. Currently, the portion of these commissions that would not have been incurred if there have been no binding contracts with the subscribers are expensed. Under IFRS 15, for the Group’s incremental costs to acquire a subscription contract, the Group expects to capitalize such amounts and amortized over the expected subscription period estimated based on historical experience. However, as a practical expedient, the Group plans to expense the incremental cost as incurred if the amortization period of the contract acquisition and fulfillment cost is considered to be not longer than one year. As of December 31, 2017, the Group is assessing the impact of capitalizing the incremental costs associated with obtaining customer contracts. Based on the preliminary assessment, the Group expects commission expenses to decrease, while corresponding assets capitalized (incremental costs of obtaining a contract) and amortization expenses to be recognized and incurred, respectively.

3) IFRS 16, Leases IFRS 16, published in January 2016 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS16 replaces existing leases guidance including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC 15, Operating Leases — Incentives and SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16, at the inception date of a contract and the first implementation of the standard, requires the Group to determine whether a contract is, or contains, a lease unless the Group applies the practical expedient for the existing lease contract at the date of adoption of the standard. When accounting for lease, lessee and lessor should account for each lease component within the contract as a lease separately from non-lease components of the contract. Lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. However, there are optional exemptions for short-term leases and leases of low value items. As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. Lessor accounting remains similar to the current standard IAS 17. For a sale and leaseback arrangement, IFRS 16 requires the Group to apply the requirements for determining when a performance obligation is satisfied in IFRS 15 to determine whether the transfer of an asset is accounted for as a sale of that asset. However, sale and leaseback arrangements entered into before the adoption of IFRS 16 may not be reassessed.

i) Lease accounting for lessees As a lessee, the Group can either apply the IFRS 16 using a full retrospective approach; or modified retrospective approach. The full retrospective approach requires the Group to retrospectively apply the new standard to each prior reporting period presented, while modified retrospective approach requires the lessee to recognize the cumulative effect of initial application at the date of initial application of the new leases standard.

ii) Lease accounting for lessors In case where the Group is an intermediate lessor, the Group should reassess subleases that were classified as operating leases applying IAS 17 and are ongoing at the date of initial application, whether each sublease should be

F-41

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015 classified as an operating lease or a finance lease applying IFRS 16. For subleases that were classified as operating leases applying IAS 17 but finance leases applying IFRS 16, the Group should accounts for such sublease as a new finance lease entered into at the date of initial application of IFRS 16. The Group plans to update its accounting system and related controls and complete the assessment of impact on its consolidated financial statements resulting from the adoption of IFRS 16 by December 31, 2018.

5. Operating Segments The Group’s operating segments have been identified to be each business unit, by which the Group provides independent services and merchandise. The Group’s reportable segments are cellular services, which include wireless voice and data transmission services, sales of wireless devices, IoT solutions and platform services; fixed-line telecommunication services, which include fixed-line telephone services, broadband Internet services, advanced media platform services (including IPTV) and business communications services; e-commerce services, which include open marketplace platform, 11st, and other commerce solutions, and other businesses, which include online portal service, hardware business and other operations that do not meet the quantitative thresholds to be separately considered reportable segments. (1) Segment information for the years ended December 31, 2017, 2016 and 2015 is as follows:

(In millions of won) 2017 Fixed-line telecommu- Cellular nication E-commerce Services services Services Others Sub-total Adjustments Total Total revenue ￦14,873,543 3,586,887 1,091,903 788,836 20,341,169 (2,821,156 ) 17,520,013 Inter-segment revenue 1,611,408 862,736 47,732 299,280 2,821,156 (2,821,156 ) — External revenue 13,262,135 2,724,151 1,044,171 489,556 17,520,013 — 17,520,013 Depreciation and amortization 2,390,016 592,877 54,486 60,087 3,097,466 — 3,097,466 Operating profit (loss) 1,714,078 167,515 (267,829 ) (77,138 ) 1,536,626 (312,054 ) 1,224,572 Gain relating to investments in subsidiaries, associates and joint ventures, net 2,245,732 Finance income 366,561 Finance costs (433,616 ) Profit before income tax 3,403,249

F-42

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2016 Fixed-line telecommu- Cellular nication E-commerce Services services Services Others Sub-total Adjustments Total Total revenue ￦14,635,720 3,349,905 1,177,323 726,374 19,889,322 (2,797,506 ) 17,091,816 Inter-segment revenue 1,630,811 698,712 176,007 291,976 2,797,506 (2,797,506 ) — External revenue 13,004,909 2,651,193 1,001,316 434,398 17,091,816 — 17,091,816 Depreciation and amortization 2,262,363 551,811 68,298 59,414 2,941,886 — 2,941,886 Operating profit (loss) 1,799,127 132,459 (365,194 ) (30,648 ) 1,535,744 (232,326 ) 1,303,418 Gain relating to investments in subsidiaries, associates and joint ventures, net 544,501 Finance income 575,050 Finance costs (326,830 ) Profit before income tax 2,096,139

(In millions of won) 2015 Fixed-line telecommu- Cellular nication E-commerce Services services Services Others Sub-total Adjustments Total Total revenue ￦14,962,689 3,162,712 1,703,278 410,265 20,238,944 (3,102,210 ) 17,136,734 Inter-segment revenue 1,693,411 668,139 643,299 97,361 3,102,210 (3,102,210 ) — External revenue 13,269,278 2,494,573 1,059,979 312,904 17,136,734 — 17,136,734 Depreciation and amortization 2,174,819 531,106 112,537 26,833 2,845,295 — 2,845,295 Operating profit (loss) 1,678,339 108,252 (6,740 ) (71,845 ) 1,708,006 (212,581 ) 1,495,425 Gain relating to investments in subsidiaries, associates and joint ventures, net 786,140 Finance income 103,900 Finance costs (350,100 ) Profit before income tax 2,035,365

F-43

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Reconciliation of total segment operating income to consolidated operating profit from continuing operations for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Total segment operating income ￦1,536,626 1,535,744 1,708,006 Other operating income: Gain on disposal of property and equipment and intangible assets 13,991 6,908 7,140 Others(*1) 18,006 59,640 23,795 31,997 66,548 30,935 Other operating expenses: Impairment loss on property and equipment and intangible assets (54,946 ) (24,506 ) (35,845 ) Loss on disposal of property and equipment and intangible assets (60,086 ) (63,797 ) (21,392 ) Donations (112,634 ) (96,633 ) (72,454 ) Bad debt for accounts receivable — other (5,793 ) (40,312 ) (15,323 ) Others(*2) (110,592 ) (73,626 ) (98,502 ) (344,051 ) (298,874 ) (243,516 ) Consolidated operating profit from continuing operations ￦1,224,572 1,303,418 1,495,425

(*1) Others for the year ended December 31, 2016 include ￦25 billion of penalty refund. (*2) Others for the years ended December 31, 2017, 2016 and 2015 primarily consist of ￦21.4 billion, ￦7.6 billion and ￦29.5 billion of penalties, respectively, and various other expenses with inconsequential amounts. Since there are no intersegment sales of inventory or depreciable assets, there is no unrealized intersegment profit to be eliminated on consolidation. Domestic revenue for the years ended December 31, 2017, 2016 and 2015 amounts to ￦17,374 billion, ￦16,940 billion and ￦17,083 billion, respectively. Domestic non-current assets (excluding financial assets, investments in associates and joint ventures and deferred tax assets) as of December 31, 2017, 2016 and 2015 amount to ￦15,554 billion, ￦15,949 billion and ￦14,474 billion, and non-current assets outside of Korea amount to ￦257 billion, ￦286 billion and ￦287 billion, respectively. No single customer contributed 10% or more to the Group’s total sales for the years ended December 31, 2017, 2016 and 2015.

F-44

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) The Group’s operating revenue by service type is as follows:

(In millions of won) 2017 2016 2015 Cellular revenue: Wireless service(*1) ￦10,638,961 10,582,963 10,720,518 Cellular interconnection 592,754 614,446 710,026 Wireless device sales 1,052,203 922,449 963,354 Miscellaneous(*2) 978,217 885,051 875,380 13,262,135 13,004,909 13,269,278 Fixed-line telecommunication services revenue: Fixed line telephone service 316,763 357,754 420,611 Fixed line interconnection 116,070 134,089 57,130 Broadband internet service and advanced media platform service 1,641,645 1,472,776 1,308,789 International calling service 89,412 95,986 99,106 Miscellaneous(*3) 560,261 590,588 608,937 2,724,151 2,651,193 2,494,573 E-commerce services revenue(*4) 1,044,171 1,001,316 1,059,979 Other revenue: Portal service(*5) 43,952 54,177 71,812 Miscellaneous(*6) 445,604 380,221 241,092 489,556 434,398 312,904 Consolidated operating revenue ￦17,520,013 17,091,816 17,136,734

(*1) Wireless service revenue includes revenue from wireless voice and data transmission services principally derived through monthly plan-based fees, usage charges for outgoing voice calls, usage charges for wireless data services and value-added service fees paid by our wireless subscribers. (*2) Miscellaneous cellular services revenue includes revenue from IoT solutions as well as other miscellaneous cellular services. (*3) Miscellaneous fixed-line telecommunication services revenue includes revenues from business communications services (other than fixed-line telephone service) provided by SK Broadband and VoIP services provided by SK Telink (*4) E-commerce service revenue includes revenues from 11st, open marketplace platform, and other commerce solutions. (*5) Portal service revenue includes revenues from Nate, and online portal service operated by SK Communications. (*6) Miscellaneous other revenue includes revenues from hardware business, security business operated by one of the Group’s subsidiaries, NSOK Co., Ltd., marketing and sales solutions business operated by one of the Group’s subsidiaries, SK m&service Co., Ltd., and online open marketplace for mobile applications among other operations.

F-45

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

6. Restricted Deposits Deposits which are restricted in use as of December 31, 2017 and 2016 are summarized as follows:

(In millions of won) December 31, 2017 December 31, 2016 Short-term financial instruments(*) ￦ 89,850 90,278 Long-term financial instruments(*) 1,222 937 ￦ 91,072 91,215

(*) Financial instruments include charitable trust fund established by the Group where profits from the fund are donated to charitable institutions. As of December 31, 2017, the funds cannot be withdrawn before maturity.

7. Trade and Other Receivables (1) Details of trade and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Gross Allowances for Carrying amount doubtful accounts amount Current assets: Accounts receivable — trade ￦2,365,270 (239,263 ) 2,126,007 Short-term loans 63,380 (550 ) 62,830 Accounts receivable — other 1,336,247 (75,412 ) 1,260,835 Accrued income 3,979 — 3,979 Others 3,927 — 3,927 3,772,803 (315,225 ) 3,457,578 Non-current assets: Long-term loans 97,635 (46,761 ) 50,874 Long-term accounts receivable — other 287,048 — 287,048 Guarantee deposits 292,590 — 292,590 Long-term accounts receivable — trade 12,933 (185 ) 12,748 690,206 (46,946 ) 643,260 ￦4,463,009 (362,171 ) 4,100,838

F-46

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) December 31, 2016 Allowances for Carrying Gross amount doubtful accounts amount Current assets: Accounts receivable — trade ￦2,482,502 (241,576 ) 2,240,926 Short-term loans 59,526 (547 ) 58,979 Accounts receivable — other 1,200,421 (78,977 ) 1,121,444 Accrued income 2,780 — 2,780 Others 3,937 — 3,937 3,749,166 (321,100 ) 3,428,066 Non-current assets: Long-term loans 113,456 (47,980 ) 65,476 Long-term accounts receivable — other 149,669 — 149,669 Guarantee deposits 298,964 — 298,964 Long-term accounts receivable — trade 20,637 (252 ) 20,385 582,726 (48,232 ) 534,494 ￦4,331,892 (369,332 ) 3,962,560

(2) Changes in allowances for doubtful accounts of trade and other receivables for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Balance at January 1 ￦369,332 344,016 Bad debt expense 40,377 78,132 Write-offs (70,802 ) (79,891 ) Other 23,264 27,075 Balance at December 31 ￦362,171 369,332

(3) Details of overdue but not impaired, and impaired trade and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Accounts Other Accounts Other receivable - trade receivables receivable - trade receivables Neither overdue nor impaired ￦ 1,585,714 1,930,261 1,715,966 1,617,349 Overdue but not impaired 29,304 3,113 41,613 5,663 Impaired 763,185 151,432 745,560 205,741 2,378,203 2,084,806 2,503,139 1,828,753 Allowances for doubtful accounts (239,448 ) (122,723 ) (241,828 ) (127,504 ) ￦ 2,138,755 1,962,083 2,261,311 1,701,249

The Group establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period, past customer default experience, customer credit status, and economic and industrial factors.

F-47

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(4) The aging of overdue but not impaired accounts receivable as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Accounts Accounts receivable - Other receivable - Other trade receivables trade receivables Less than 1 month ￦7,150 2,679 11,543 2,838 1 ~ 3 months 1,663 44 9,144 140 3 ~ 6 months 1,576 124 4,643 1 More than 6 months 18,915 266 16,283 2,684 ￦29,304 3,113 41,613 5,663

8. Inventories Details of inventories as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Acquisition Carrying Acquisition Carrying cost Write-down amount cost Write-down amount Merchandise ￦251,463 (7,488 ) 243,975 232,871 (6,913 ) 225,958 Finished goods 1,889 (557 ) 1,332 1,931 (363 ) 1,568 Work-in-process 1,906 (956 ) 950 2,895 (347 ) 2,548 Raw materials and supplies 29,395 (3,249 ) 26,146 31,141 (1,369 ) 29,772 ￦284,653 (12,250 ) 272,403 268,838 (8,992 ) 259,846

The amount of the inventory write-downs and write-off of inventories charged to statement of income are as follows:

(In millions of won) 2017 2016 2015 Charged to cost of products that have been resold ￦6,079 3,751 1,983 Write-off upon sale (2,820) (1,299) (2,095) There are no significant reversals of inventory write-downs for the periods presented.

9. Investment Securities (1) Details of short-term investment securities as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, December 31, 2017 2016 Beneficiary certificates(*) ￦144,386 107,364

(*) The income distributable in relation to beneficiary certificates as of December 31, 2017 were accounted for as accrued income.

F-48

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Details of long-term investment securities as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, December 31, 2017 2016 Equity securities: Marketable equity securities(*1) ￦589,202 526,363 Unlisted equity securities etc.(*2) 277,877 295,403 867,079 821,766 Debt securities: Investment bonds 19,928 6,755 ￦887,007 828,521

(*1) During the year ended December 31, 2016, the Group sold 3,793,756 shares of Loen Entertainment, Inc. to Kakao Corp. in exchange for 1,357,367 shares of Kakao Corp. and ￦218,037 million in cash. In connection with the sale of Loen Entertainment shares, the Group recognized gain on disposal of long-term investment securities amounting to ￦314,745 million. The Group recognized gain on disposal amounting to ￦138,779 million as the Group disposed its entire marketable equity securities of POSCO Co., Ltd. for ￦305,110 million of cash during the year ended December 31, 2016. In addition, the Group sold 1,357,367 shares of Kakao Corp. in exchange for ￦112,649 million in cash during the year ended December 31, 2017. In connection with the sale of Kakao Corp. shares, the Group recognized loss on disposal of long-term investment securities amounting to ￦35,468 million. (*2) Unlisted equity securities and equity investments whose fair value cannot be measured reliably are recorded at cost.

10. Business Combination (1) 2017 1) Acquisition of S.M. LIFE DESIGN COMPANY JAPAN INC. by IRIVER LIMITED On September 1, 2017, IRIVER LIMITED, a subsidiary of the Parent Company, acquired all of the S.M. LIFE DESIGN COMPANY JAPAN INC.’s shares from S.M. ENTERTAINMENT JAPAN, Inc. in order to enter overseas business and enhance its competitiveness with the consideration of ￦30,000 million in cash. The Group recognized the difference between the consideration paid and the fair value of net assets acquired amounting to ￦21,748 million as goodwill. Subsequent to the acquisition, S.M. LIFE DESIGN COMPANY JAPAN INC. recognized revenues and net profit of amounting to ￦6,365 million and ￦1,244 million, respectively, in 2017.

2) Merger of SM mobile communications Co., Ltd. by IRIVER LIMITED On October 1, 2017, IRIVER LIMITED merged SM mobile communications Co., Ltd. in order to enter contents business and enhance competitiveness of its device business. As a result of merger, IRIVER LIMITED obtained control over S.M. Mobile Communications JAPAN Inc. which was wholly owned by SM mobile communications Co., Ltd. The consideration transferred was measured at the fair value of the shares transferred based on the merger ratio set on October 1, 2017. The Group recognized the difference between the consideration and the fair value of net assets amounting to ￦13,473 million as goodwill. Subsequent to the consummation of the merger, S.M. Mobile Communications JAPAN Inc. recognized no revenue with ￦103 million of net loss in 2017.

F-49

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

3) Considerations paid and assets and liabilities recognized at the acquisition date are as follows:

(In millions of won) S.M. LIFE DESIGN S.M. Mobile COMPANY JAPAN INC. Communications JAPAN Inc. Considerations paid: Cash and cash equivalents ￦ 30,000 — Shares of IRIVER LIMITED — 24,650 Assets and liabilities acquired: Cash and cash equivalents ￦ 3,434 4,112 Trade and other receivables 1,471 237 Inventories 1,879 — Property and equipment 4 311 Intangible assets 6,677 7,445 Other assets — 41 Trade and other payables (2,563 ) (815 ) Deferred tax liabilities (2,324 ) — Other liabilities (326 ) (154 ) Net assets ￦ 8,252 11,177

(2) 2015 1) General information On April 1, 2015, Neosnetworks Co., Ltd., a subsidiary of the Parent Company, acquired an unmanned machine security business of Joeun Safe Co., Ltd., which provides security and maintenance services, in order to expand infrastructure and enhance competitiveness of its security business. The Group recognized the acquired assets and liabilities at fair value and the difference between the consideration and fair value of net assets as goodwill.

2) Considerations paid and identifiable assets acquired and liabilities assumed Considerations paid and assets in succession recognized at the acquisition date are as follows:

(In millions of won) 2015 Considerations paid and liabilities assumed: Cash and cash equivalents ￦13,197 Accounts payable — other 1,858 ￦ 15,055 Assets acquired: Property and equipment ￦3,208 Intangible assets 8,486 Other assets 1,603 ￦13,297

11. Business Combinations under Common Control (1) 2016 During the year ended December 31, 2016, the Parent Company distributed its entire ownership interests in Neosnetworks Co., Ltd. to SK Telink Co., Ltd., a subsidiary of the Parent Company as contribution in kind.

F-50

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Neosnetworks Co., Ltd. became a wholly owned subsidiary of SK Telink Co., Ltd. As this transaction is a business combination under common control, SK Telink Co., Ltd. recognized the book value of the assets and liabilities of Neosnetworks Co., Ltd. in its financial statements. There’s no effect on the assets and liabilities of the consolidated financial statements.

(2) 2015 During the year ended December 31, 2015, hoppin service division of SK Planet Co., Ltd., a subsidiary of the Parent Company, was spun off from SK Planet Co., Ltd. and was merged into SK Broadband, Co., Ltd., a subsidiary of the Parent Company. There is no impact on the consolidated financial statements as it is a business combination under common control.

12. Investments in Associates and Joint Ventures (1) Investments in associates and joint ventures accounted for using the equity method as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Ownership Carrying Ownership Carrying Country (%) amount (%) amount Investments in associates: SK China Company Ltd.(*1) China 27.3 ￦526,099 9.6 ￦46,354 Korea IT Fund(*2) Korea 63.3 257,003 63.3 263,850 KEB HanaCard Co., Ltd.(*3) Korea 15.0 280,988 15.0 265,798 NanoEnTek, Inc. Korea 28.5 38,718 28.5 39,514 SK Industrial Development China Co., Ltd.(*1) Hong Kong — — 21.0 74,717 SK Technology Innovation Company Cayman Islands 49.0 42,511 49.0 47,488 HappyNarae Co., Ltd.(*4) Korea 45.0 21,873 42.5 17,236 SK hynix Inc. Korea 20.1 8,130,000 20.1 6,132,122 SK MENA Investment B.V. Netherlands 32.1 13,853 32.1 15,451 SKY Property Mgmt. Ltd.(*1) Virgin Island — — 33.0 263,225 S.M. Culture & Contents Co., Ltd.(*5) Korea 23.4 64,966 — — Xian Tianlong Science and Technology Co., Ltd. China 49.0 25,891 49.0 25,880 Daehan Kanggun BcN Co., Ltd. and others — — 96,479 — 115,181 Sub-total 9,498,381 7,306,816 Investments in joint ventures: Dogus Planet, Inc.(*6) Turkey 50.0 13,991 50.0 20,081 PT XL Planet Digital(*7) Indonesia — — 50.0 27,512 Finnq Co., Ltd.(*8) Korea 49.0 16,474 49.0 24,174 Celcom Planet and others — — 9,592 — 25,740 Sub-total 40,057 97,507 Total ￦9,538,438 ￦7,404,323

(*1) During the year ended December 31, 2017, the Group contributed its shares in SKY Property Mgmt. Ltd. and SK Industrial Development China Co., Ltd., both equity method investees of the Group, to SK China Company Ltd., and participated in SK China Company Ltd.’s rights issue amounting to USD 100,000,000,

F-51

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

which resulted in Group’s acquiring 8,101,884 and 2,107,037 shares of SK China Company Ltd., respectively. This investment in associates acquired through this contribution in kind transaction was measured at fair value. (*2) Investment in Korea IT Fund was classified as investment in associates as the Group does not have control over Korea IT Fund under the contractual agreement with other shareholders. (*3) This investment was classified as investments in associates as the Group can exercise significant influence through its right to appoint the members of board of directors even though the Group has less than 20% of equity interests. (*4) The Group acquired 40,000 shares of HappyNarae Co., Ltd. at ￦17,212 per share during the year ended December 31, 2017. (*5) During the year ended December 31, 2017, the Group subscribed to a third-party allocation of new shares of 22,033,898 by S.M. Culture & Contents Co., Ltd. at ￦65,341 million in cash. (*6) The investment is held by SK Planet Co., Ltd. (*7) PT XL Planet Digital was disposed during the year ended December 31, 2017. (*8) Investment in Finnq Co., Ltd. was classified as investment in joint venture as the Group has joint control pursuant to the agreement with the other shareholders.

(2) The market price of investments in listed associates as of December 31, 2017 and 2016 are as follows:

(In millions of won, except for share data) December 31, 2017 December 31, 2016 Market value Market value per share Number of per share Number of (in won) shares Fair value (in won) shares Fair value NanoEnTek, Inc. ￦ 5,950 6,960,445 41,415 5,020 6,960,445 34,941 SK hynix Inc. 76,500 146,100,000 11,176,650 44,700 146,100,000 6,530,670 S.M. Culture & Contents Co., Ltd. 2,700 22,033,898 59,492 — — —

(3) The financial information of significant associates as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) As of December 31, 2017 SK China SK hynix KEB HanaCard Company Inc.(*) Co., Ltd. (*) Ltd. (*) Current assets ￦17,310,444 7,339,492 729,872 Non-current assets 28,108,020 220,258 1,031,647 Current liabilities 8,116,133 1,181,746 81,161 Non-current liabilities 3,481,412 4,861,842 64,717

2017 Revenue 30,109,434 1,519,607 69,420 Profit for the year 10,642,219 106,352 11,492 Other comprehensive income (loss) (422,042 ) (984 ) 27,190 Total comprehensive income 10,220,177 105,368 38,682

(*) The financial information of SK hynix Inc., KEB HanaCard Co., Ltd., and SK China Company Ltd. are consolidated financial information.

F-52

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) As of December 31, 2016 SK hynix Inc.(*) KEB HanaCard Co., Ltd.(*) Current assets ￦9,838,982 6,868,387 Non-current assets 22,377,044 239,758 Current liabilities 4,160,849 1,219,327 Non-current liabilities 4,031,647 4,476,979

2016 Revenue 17,197,975 1,413,077 Profit for the year 2,960,483 75,595 Other comprehensive income (loss) 28,844 (154 ) Total comprehensive income 2,989,327 75,441

(*) The financial information of SK hynix Inc. and KEB HanaCard Co., Ltd. are consolidated financial information.

(In millions of won) SK hynix Inc. KEB HanaCard Co., Ltd. 2015 Revenue ￦18,797,998 1,472,830 Profit for the year 4,323,595 10,119 Other comprehensive income (loss) 40,215 (547 ) Total comprehensive income 4,363,810 9,572

(4) The condensed financial information of joint ventures as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) Dogus Planet, Inc. Finnq Co., Ltd. As of December 31, 2017 Current assets ￦ 39,656 32,232 Cash and cash equivalents 25,818 4,590 Non-current assets 21,159 15,610 Current liabilities 32,622 5,685 Accounts payable, other payables and provision 2,743 2,290 Non-current liabilities 212 13,862

2017 Revenue 82,791 — Depreciation and amortization (6,152 ) (1,077 ) Interest income 781 532 Interest expense (4 ) (276 ) Loss for the year (4,535 ) (15,699 ) Total comprehensive loss (4,535 ) (15,699 )

F-53

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) PT XL Dogus Planet, Inc. Planet Digital Finnq Co., Ltd. As of December 31, 2016 Current assets ￦ 46,433 20,077 48,699 Cash and cash equivalents 45,839 14,985 48,408 Non-current assets 20,218 50,765 673 Current liabilities 26,417 14,513 138 Accounts payable, other payables and provision 1,971 10,306 15 Non-current liabilities 72 1,305 784

2016 Revenue 53,864 9,492 — Depreciation and amortization (5,299 ) (940 ) (12 ) Interest income 394 267 182 Interest expense (2,139 ) — — Income tax benefit — 51 — Loss for the year (22,017 ) (49,438 ) (829 ) Total comprehensive loss (22,017 ) (49,438 ) (829 )

(In millions of won) Dogus PT. Melon PT XL Planet, Inc. Indonesia Planet Digital 2015 Revenue ￦38,944 17,094 5,536 Depreciation and amortization (5,318 ) (132 ) (2,746 ) Interest income 465 288 525 Income tax benefit — — 7,025 Profit (Loss) for the year (32,713) 1,853 (21,381 ) Total comprehensive income (loss) (32,713) 1,853 (21,381 )

(5) Reconciliations of financial information of significant associates to carrying amounts of investments in associates in the consolidated financial statements as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Net assets Ownership attributable to Cost-book Net interests the ownership value Carrying assets (%) interests differentials amount Associates: SK hynix Inc.(*1,2) ￦33,814,467 20.1 6,997,560 1,132,440 8,130,000 KEB HanaCard Co., Ltd. 1,516,162 15.0 227,424 53,564 280,988 SK China Company Ltd.(*1) 1,612,899 27.3 439,857 86,242 526,099

(In millions of won) December 31, 2016 Net assets Ownership attributable to Cost-book Net interests the ownership value Carrying assets (%) interests differentials amount Associates: SK hynix Inc.(*1,2) ￦24,016,955 20.1 4,970,267 1,161,855 6,132,122 KEB HanaCard Co., Ltd. 1,411,839 15.0 211,776 54,022 265,798

F-54

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*1) Net assets of these entities represent net assets excluding those attributable to their non-controlling interests. (*2) The ownership interest is based on the number of shares owned by the Parent Company as divided by the total shares issued by the investee company. The Group applied the equity method using the effective ownership interest of 20.69% which is based on the number of shares owned by the Parent Company and the total issued shares outstanding less investee’s treasury shares. (6) Details of the changes in investments in associates and joint ventures accounted for using the equity method for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Other compre- Acquisition Share of hensive Impair- Other Beginning and profit income ment increase Ending balance disposition (loss) (loss) loss (decrease) balance Investments in associates SK China Company Ltd.(*1) ￦ 46,354 113,803 2,707 (36,783 ) — 400,018 526,099 Korea IT Fund(*2) 263,850 — (8,815 ) 3,371 — (1,403 ) 257,003 KEB HanaCard Co., Ltd. 265,798 — 15,494 (304 ) — — 280,988 NanoEnTek, Inc. 39,514 — (733 ) (63 ) — — 38,718 SK Industrial Development China Co., Ltd.(*1) 74,717 — 5,154 (1,092 ) — (78,779 ) — SK Technology Innovation Company 47,488 — 433 (5,410 ) — — 42,511 HappyNarae Co., Ltd. 17,236 688 3,929 20 — — 21,873 SK hynix Inc.(*2) 6,132,122 — 2,175,887 (90,349 ) — (87,660 ) 8,130,000 SK MENA Investment B.V. 15,451 — 131 (1,729 ) — — 13,853 SKY Property Mgmt. Ltd.(*1) 263,225 — 2,362 1,141 — (266,728 ) — S.M. Culture & Contents Co., Ltd. — 65,341 (375 ) — — — 64,966 Xian Tianlong Science and Technology Co., Ltd. 25,880 — 11 — — — 25,891 Daehan Kanggun BcN Co., Ltd. and others(*2) 115,181 (1,306 ) (6,924 ) (2,723 ) (1,311 ) (6,438 ) 96,479 Sub-total 7,306,816 178,526 2,189,261 (133,921 ) (1,311 ) (40,990 ) 9,498,381 Investments in joint ventures Dogus Planet, Inc. 20,081 2,162 (2,267 ) (5,985 ) — — 13,991 PT XL Planet Digital(*3) 27,512 (18,864 ) (8,648 ) — — — — Finnq Co., Ltd 24,174 — (7,691 ) (9 ) — — 16,474 Celcom Planet and others 25,740 — (6,228 ) (833 ) — (9,087 ) 9,592 Sub-total 97,507 (16,702 ) (24,834 ) (6,827 ) — (9,087 ) 40,057 Total ￦ 7,404,323 161,824 2,164,427 (140,748 ) (1,311 ) (50,077 ) 9,538,438

(*1) Other increase (decrease) is due to merger of SK China Company Ltd., SK Industrial Development China Co., Ltd. and SKY Property Mgmt. Ltd. (*2) Dividends received from the associates are deducted from the carrying amount during the year ended December 31, 2017.

F-55

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*3) During the year ended December 31, 2017, the Group disposed the shares of PT XL Planet Digital and recognized loss on disposal of ￦27,900 million.

(In millions of won) 2016 Other compre- Acquisition Share of hensive Impair- Other Beginning and profit income ment increase Ending balance disposition (loss) (loss) loss (decrease) balance Investments in associates SK China Company Ltd. ￦43,814 — 2,257 283 — — 46,354 Korea IT Fund(*1) 260,456 — 14,864 (5,388) — (6,082 ) 263,850 KEB HanaCard Co., Ltd. 254,177 — 11,658 (37 ) — — 265,798 Candle Media Co., Ltd. 20,144 (18,860 ) (673 ) (611 ) — — — NanoEnTek, Inc. 45,008 — (3,950 ) (1,544) — — 39,514 SK Industrial Development China Co., Ltd. 86,324 — (6,298 ) (5,309) — — 74,717 SK Technology Innovation Company 45,891 — 162 1,435 — — 47,488 HappyNarae Co., Ltd. 17,095 — 240 (99 ) — — 17,236 SK hynix Inc.(*1) 5,624,493 — 572,086 8,593 — (73,050) 6,132,122 SK MENA Investment B.V. 14,929 — 63 459 — — 15,451 SKY Property Mgmt. Ltd. 251,166 — 16,066 (4,007) — — 263,225 Xian Tianlong Science and Technology Co., Ltd. 25,767 — 113 — — — 25,880 Daehan Kanggun BcN Co., Ltd. and others 161,058 (26,798 ) (13,179 ) 754 (6,972) 318 115,181 Sub-total 6,850,322 (45,658 ) 593,409 (5,471) (6,972) (78,814) 7,306,816 Investments in joint ventures Dogus Planet, Inc. 15,118 18,722 (11,008 ) (2,751) — — 20,081 PT. Melon Indonesia(*2) 4,339 (3,488 ) 918 (1,769) — — — PT XL Planet Digital 23,108 29,123 (24,719 ) — — — 27,512 Finnq Co., Ltd — 24,580 (406 ) — — — 24,174 Celcom Planet and others 3,406 43,769 (21,435 ) — — — 25,740 Sub-total 45,971 112,706 (56,650 ) (4,520) — — 97,507 Total ￦6,896,293 67,048 536,759 (9,991) (6,972) (78,814) 7,404,323

(*1) Dividends received from the associate are deducted from the carrying amount during the year ended December 31, 2016. (*2) During the year ended December 31, 2016, the Group disposed of all shares of PT. Melon Indonesia and recognized gain on disposal of ￦11,634 million.

F-56

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(7) The Group discontinued the application of equity method to the following investees due to their carrying amounts being reduced to zero. The details of cumulative unrecognized equity method losses as of December 31, 2017 are as follows:

(In millions of won) Unrecognized loss (profit) Unrecognized change in equity Year ended Year ended December 31, Cumulative December 31, Cumulative 2017 loss 2017 loss Wave City Development Co., Ltd. ￦ (1,190 ) 2,100 — — Daehan Kanggun BcN Co., Ltd. and others (5,475 ) 5,316 — 365 ￦ (6,665 ) 7,416 — 365

13. Property and Equipment (1) Property and equipment as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Accumulated Accumulated impairment Carrying Acquisition cost depreciation loss amount Land ￦862,861 — — 862,861 Buildings 1,638,749 (756,099 ) — 882,650 Structures 866,909 (488,334 ) — 378,575 Machinery 30,343,739 (23,262,762) (1,179 ) 7,079,798 Other 1,722,441 (1,188,893 ) (2,491 ) 531,057 Construction in progress 409,941 — — 409,941 ￦35,844,640 (25,696,088) (3,670 ) 10,144,882

(In millions of won) December 31, 2016 Accumulated Accumulated impairment Carrying Acquisition cost depreciation loss amount Land ￦835,909 — — 835,909 Buildings 1,604,863 (704,891 ) — 899,972 Structures 812,010 (453,055 ) — 358,955 Machinery 29,705,088 (22,667,047) (1,991 ) 7,036,050 Other 1,701,794 (1,138,303 ) (457 ) 563,034 Construction in progress 680,292 — — 680,292 ￦35,339,956 (24,963,296) (2,448 ) 10,374,212

F-57

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Changes in property and equipment for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Beginning Depreci- Impair- Business Ending balance Acquisition Disposal Transfer(*) ation ment Combination Other balance Land ￦835,909 13,093 (4,449 ) 18,308 — — — — 862,861 Buildings 899,972 5,098 (477 ) 29,614 (51,557 ) — — — 882,650 Structures 358,955 46,614 (74 ) 8,386 (35,306 ) — — — 378,575 Machinery 7,036,050 656,731 (41,692) 1,644,045 (2,214,524) (778 ) — (34 ) 7,079,798 Other 563,034 720,431 (9,252 ) (597,404 ) (143,261 ) (2,234) 315 (572 ) 531,057 Construction in progress 680,292 1,317,389 (4,172 ) (1,583,560) — — — (8 ) 409,941 ￦10,374,212 2,759,356 (60,116) (480,611 ) (2,444,648) (3,012) 315 (614 ) 10,144,882

(*) Includes reclassification to intangible assets.

(In millions of won) 2016 Beginning Ending balance Acquisition Disposal Transfer(*) Depreciation Impairment balance Land ￦812,947 2,464 (3,514 ) 24,012 — — 835,909 Buildings 911,129 4,637 (9,176 ) 43,910 (50,528 ) — 899,972 Structures 344,221 33,802 (33 ) 15,145 (34,180 ) — 358,955 Machinery 7,342,009 660,629 (45,672) 1,234,737 (2,152,725 ) (2,928 ) 7,036,050 Other 473,438 807,047 (6,052 ) (568,644 ) (142,700 ) (55 ) 563,034 Construction in progress 487,512 1,154,424 (9,710 ) (951,934 ) — — 680,292 ￦10,371,256 2,663,003 (74,157) (202,774 ) (2,380,133 ) (2,983 ) 10,374,212

(*) Includes reclassification to intangible assets.

14. Investment Property (1) There are no investment property as of December 31, 2017 and 2016. (2) Changes in investment properties for the year ended December 31, 2016 are as follows:

(In millions of won) 2016 Ending Beginning balance Reclassification(*) Depreciation balance Land ￦ 10,634 (10,634 ) — — Buildings 4,437 (4,334 ) (103 ) — ￦ 15,071 (14,968 ) (103 ) —

(*) Includes reclassification to property and equipment.

F-58

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) Income and expenses from investment property for the years ended December 31, 2016 and 2015 are as follows:

(In millions of won) 2016 2015 Rent revenue ￦386 850 Operating expense (114) (240)

15. Goodwill (1) Goodwill as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, December 31, 2017 2016 Goodwill related to acquisition of Shinsegi Telecom, Inc. ￦1,306,236 1,306,236 Goodwill related to acquisition of SK Broadband Co., Ltd. 358,443 358,443 Other goodwill 250,338 267,773 ￦1,915,017 1,932,452

Goodwill is allocated to the following CGUs for the purpose of impairment testing. • goodwill related to Shinsegi Telecom, Inc.(*1): cellular services; • goodwill related to SK Broadband Co., Ltd.(*2): fixed-line telecommunication services; and • other goodwill: e-commerce and other.

(*1) Goodwill related to acquisition of Shinsegi Telecom, Inc. The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 6.6% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.4% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount. (*2) Goodwill related to acquisition of SK Broadband Co., Ltd. The recoverable amount of the CGU is based on its value in use calculated by applying the annual discount rate of 5.1% to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 1.0% was applied for the cash flows expected to be incurred after five years and is not expected to exceed the Group’s long-term wireless telecommunication business growth rate. Management of the Group does not expect the total carrying amount of the CGU will exceed the total recoverable amount due to reasonably possible changes from the major assumptions used to estimate the recoverable amount.

F-59

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Details of the changes in goodwill for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Beginning balance ￦1,932,452 1,908,590 Acquisition 35,221 19,974 Impairment loss (33,441 ) — Other (19,215 ) 3,888 ￦1,915,017 1,932,452

Accumulated impairment losses as of December 31, 2017 and 2016 are ￦50,710 million and ￦17,269 million, respectively.

16. Intangible Assets (1) Intangible assets as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Acquisition Accumulated Accumulated Carrying cost amortization impairment amount Frequency usage rights ￦4,843,955 (2,667,015) — 2,176,940 Land usage rights 65,841 (50,091 ) — 15,750 Industrial rights 166,082 (54,735 ) — 111,347 Development costs 140,460 (134,828 ) (1,529 ) 4,103 Facility usage rights 153,438 (116,987 ) — 36,451 Customer relations 20,796 (16,761 ) — 4,035 Club memberships(*1) 108,382 — (34,768 ) 73,614 Other(*2) 3,911,749 (2,733,485) (13,539 ) 1,164,725 ￦9,410,703 (5,773,902) (49,836 ) 3,586,965

(In millions of won) December 31, 2016 Acquisition Accumulated Accumulated Carrying cost amortization impairment amount Frequency usage rights ￦4,843,955 (2,263,127) — 2,580,828 Land usage rights 65,148 (44,314 ) — 20,834 Industrial rights 160,897 (39,697 ) — 121,200 Development costs 141,727 (136,446 ) (410 ) 4,871 Facility usage rights 151,906 (110,118 ) — 41,788 Customer relations 19,742 (13,090 ) — 6,652 Club memberships(*1) 113,161 — (39,122 ) 74,039 Other(*2) 3,315,921 (2,386,992) (2,787 ) 926,142 ￦8,812,457 (4,993,784) (42,319 ) 3,776,354

(*1) Club memberships are classified as intangible assets with indefinite useful life and are not amortized. (*2) Other intangible assets primarily consist of computer software and usage rights to a research facility which the Group built and donated, and the Group is given rights-to-use for a definite number of years in turn.

F-60

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Details of the changes in intangible assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Impair- Business Beginning Transfer ment combina- Ending balance Acquisition Disposal (*1) Amortization (*2) tion(*3) Others balance Frequency usage rights ￦2,580,828 — — — (403,888 ) — — — 2,176,940 Land usage rights 20,834 3,689 (972 ) 200 (8,001 ) — — — 15,750 Industrial rights 121,200 2,677 (28 ) (5,635 ) (6,870 ) — 4 (1 ) 111,347 Development costs 4,871 3,813 (9 ) (793 ) (2,660 ) (1,119 ) — — 4,103 Facility usage rights 41,788 2,805 (36 ) 129 (8,235 ) — — — 36,451 Customer relations 6,652 1,054 — — (3,671 ) — — — 4,035 Club memberships 74,039 5,023 (3,452 ) 122 — (769 ) — (1,349) 73,614 Other 926,142 127,396 (19,698) 503,277 (369,546 ) (16,605) 14,118 (359 ) 1,164,725 ￦3,776,354 146,457 (24,195) 497,300 (802,871 ) (18,493) 14,122 (1,709) 3,586,965

(*1) Includes reclassification from advance payments and property and equipment. (*2) The Group recognized the difference between recoverable amount and the carrying amount of club memberships amounting to ￦18,493 million as impairment loss for the year ended December 31, 2017. (*3) Includes intangible assets acquired as a result of IRIVER LIMITED’s purchase and merge of S.M. LIFE DESIGN COMPANY INC. and SM mobile communications Co., Ltd. during the year ended December 31, 2017.

(In millions of won) 2016 Business Beginning Transfer Amortiza Impair- combina- Ending balance Acquisition Disposal (*2) -tion ment(*3) tion balance Frequency usage rights(*1) ￦1,103,517 1,810,076 — — (332,765) — — 2,580,828 Land usage rights 26,576 5,338 (1,921 ) — (9,159 ) — — 20,834 Industrial rights 116,542 6,226 (148 ) 5,004 (6,424 ) — — 121,200 Development costs 7,472 1,404 — 338 (3,933 ) (410 ) — 4,871 Facility usage rights 48,019 2,181 (50 ) 231 (8,593 ) — — 41,788 Customer relations 7,175 499 — — (4,051 ) — 3,029 6,652 Club memberships 91,507 7,983 (7,624 ) — — (17,827) — 74,039 Other 903,976 141,045 (20,306) 228,110 (323,397) (3,286 ) — 926,142 ￦2,304,784 1,974,752 (30,049) 233,683 (688,322) (21,523) 3,029 3,776,354

(*1) During the year ended December 31, 2016, the Parent Company acquired the frequency right for bandwidth blocs in the 2.6 GHz band for ￦1,330,100 million at the spectrum auction held by the Ministry of Science, ICT and Future Planning (MSIP) of Korea and made the initial payment in accordance with the terms of the agreement in August 2016. The remaining consideration will be paid on an annual installment basis for 10 years from August 2016. In addition, the Parent Company extended frequency usage rights for 2.1 GHz band for ￦568,500 million with the initial payment made to MSIP during the year ended December 31, 2016. The remaining consideration will be paid on an annual installment basis for 5 years from December 2016.

F-61

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*2) Includes reclassification from advance payments and property and equipment. (*3) The Group recognized the difference between recoverable amount and the carrying amount of intangible assets, amounting to ￦21,523 million as impairment loss for the year ended December 31, 2016. (3) Research and development expenditures recognized as expense for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 Research and development costs expensed as incurred ￦395,276 344,787 315,790 (4) The carrying amount and residual useful lives of frequency usage rights as of December 31, 2017 are as follows, all of which are amortized on a straight-line basis:

(In millions of won) Commencement Completion of Amount Description of amortization amortization 800MHz license ￦141,904 Frequency usage rights relating to CDMA and LTE service Jul. 2011 Jun. 2021 1.8GHz license 502,480 Frequency usage rights relating to LTE service Sept. 2013 Dec. 2021 WiBro license 2,957 WiBro service Mar. 2012 Mar. 2019 2.6GHz license 1,092,770 Frequency usage rights relating to LTE service Sept. 2016 Dec. 2026 2.1GHz license 436,829 Frequency usage rights relating to W-CDMA and LTE service Dec. 2016 Dec. 2021 ￦2,176,940

17. Borrowings and Debentures (1) Short-term borrowings as of December 31, 2017 and 2016 are as follows:

(In millions of won) Annual interest December 31, December 31, Lender rate (%) 2017 2016 Short-term borrowings Shinhan Bank 2.85 ￦30,000 — Woori Bank 2.88 — 2,614 Commercial paper KEB Hana Bank 1.67 50,000 — Bank overdraft KEB Hana Bank 3.17 30,000 — Shinhan Bank 3.38 20,000 — ￦130,000 2,614

F-62

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Long-term borrowings as of December 31, 2017 and 2016 are as follows:

(In millions of won ) Annual interest December 31, December 31, Lender rate (%) Maturity 2017 2016 Korea Development Bank(*1) 3.20 Mar. 31, 2020 ￦30,000 — KEB Hana Bank 3.18 Feb. 28, 2019 40,000 — Kookmin Bank 1.29 Mar. 15, 2017 — 500 Kookmin Bank 1.95 Mar. 15, 2018 717 3,583 Korea Development Bank(*2) 1.99 Jul. 30, 2019 22,750 35,750 Korea Development Bank(*2) 1.99 Jul. 30, 2019 5,833 9,167 Korea Development Bank(*2) 2.27 Dec. 20, 2021 49,000 49,000 Korea Development Bank(*2) 2.37 Dec. 21, 2022 50,000 — Export Kreditnamnden(*3) 1.70 Apr. 29, 2022 55,471 76,493 (USD 51,775) (USD 63,296) Sub-total 253,771 174,493 Less present value discount (954 ) (1,586 ) 252,817 172,907 Less current portion (41,331 ) (33,191 ) ￦211,486 139,716

(*1) SK Planet Co., Ltd., one of the subsidiaries of the Parent Company entered into a floating-to-fixed interest rate swap agreement to hedge the interest rate risk. (*2) SK Broadband Co., Ltd., one of the subsidiaries of the Parent Company entered into a floating-to-fixed interest rate swap agreement to hedge the interest rate risk. (*3) The long-term borrowings are to be repaid by installments on an annual basis from 2014 to 2022. (3) Debentures as of December 31, 2017 and 2016 are as follows:

(In millions of won, thousands of U.S. dollars and thousands of other currencies) Annual interest December 31, December 31, Purpose Maturity rate (%) 2017 2016 Unsecured corporate bonds Other fund 2018 5.00 ￦ 200,000 200,000 Unsecured corporate bonds Operating fund 2021 4.22 190,000 190,000 Unsecured corporate bonds Operating and 2019 3.24 170,000 170,000 refinancing fund Unsecured corporate bonds 2022 3.30 140,000 140,000 Unsecured corporate bonds 2032 3.45 90,000 90,000 Unsecured corporate bonds Operating fund 2023 3.03 230,000 230,000 Unsecured corporate bonds 2033 3.22 130,000 130,000 Unsecured corporate bonds 2019 3.30 50,000 50,000 Unsecured corporate bonds 2024 3.64 150,000 150,000 Unsecured corporate bonds(*1) 2029 4.72 60,278 59,600 Unsecured corporate bonds Refinancing fund 2019 2.53 160,000 160,000 Unsecured corporate bonds 2021 2.66 150,000 150,000 Unsecured corporate bonds 2024 2.82 190,000 190,000 Unsecured corporate bonds Operating and 2022 2.40 100,000 100,000 refinancing fund Unsecured corporate bonds refinancing fund 2025 2.49 150,000 150,000

F-63

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won, thousands of U.S. dollars and thousands of other currencies) Annual interest December 31, December 31, Purpose Maturity rate (%) 2017 2016 Unsecured corporate bonds 2030 2.61 50,000 50,000 Unsecured corporate bonds Operating fund 2018 1.89 90,000 90,000 Unsecured corporate bonds 2025 2.66 70,000 70,000 Unsecured corporate bonds 2030 2.82 90,000 90,000 Unsecured corporate bonds Operating and 2018 2.07 80,000 80,000 refinancing fund Unsecured corporate bonds 2025 2.55 100,000 100,000 Unsecured corporate bonds 2035 2.75 70,000 70,000 Unsecured corporate bonds Operating fund 2019 1.65 70,000 70,000 Unsecured corporate bonds 2021 1.80 100,000 100,000 Unsecured corporate bonds 2026 2.08 90,000 90,000 Unsecured corporate bonds 2036 2.24 80,000 80,000 Unsecured corporate bonds 2019 1.62 50,000 50,000 Unsecured corporate bonds 2021 1.71 50,000 50,000 Unsecured corporate bonds 2026 1.97 120,000 120,000 Unsecured corporate bonds 2031 2.17 50,000 50,000 Unsecured corporate bonds Refinancing fund 2020 1.93 60,000 — Unsecured corporate bonds 2022 2.17 120,000 — Unsecured corporate bonds 2027 2.55 100,000 — Unsecured corporate bonds Operating and refinancing fund 2032 2.65 90,000 — Unsecured corporate bonds Operating fund 2020 2.39 100,000 — Unsecured corporate bonds Operating and refinancing fund 2022 2.63 80,000 — Unsecured corporate bonds Refinancing fund 2027 2.84 100,000 — Unsecured corporate bonds(*2) Operating fund 2017 4.28 — 100,000 Unsecured corporate bonds(*2) 2017 3.27 — 120,000 Unsecured corporate bonds(*2) 2019 3.49 210,000 210,000 Unsecured corporate bonds(*2) 2019 2.76 130,000 130,000 Unsecured corporate bonds(*2) 2018 2.23 50,000 50,000 Unsecured corporate bonds(*2) 2020 2.49 160,000 160,000 Unsecured corporate bonds(*2) 2020 2.43 140,000 140,000 Unsecured corporate bonds(*2) 2020 2.18 130,000 130,000 Unsecured corporate bonds(*2) 2019 1.58 50,000 50,000 Unsecured corporate bonds(*2) Operating and refinancing fund 2021 1.77 120,000 120,000 Unsecured corporate bonds(*2) Operating fund 2022 2.26 150,000 —

F-64

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won, thousands of U.S. dollars and thousands of other currencies) Annual interest December 31, December 31, Purpose Maturity rate (%) 2017 2016 Unsecured corporate bonds(*2) Refinancing fund 2022 2.34 30,000 — Unsecured corporate bonds(*2) Operating and refinancing fund 2022 2.70 140,000 — Unsecured corporate bonds(*3) Operating fund 2017 3.48 — 20,000 Convertible bonds(*4) 2019 1.00 5,558 — Unsecured global bonds 2027 6.63 428,560 483,400 (USD 400,000 ) (USD 400,000 ) Unsecured private Swiss bonds 2017 1.75 — 354,399 bonds (CHF 300,000 ) Unsecured global bonds 2018 2.13 749,980 845,950 (USD 700,000 ) (USD 700,000 ) Unsecured corporate Australian bonds 2017 4.75 — 261,615 (AUD 300,000) Floating rate notes(*5) 2020 3M Libor + 0.88 321,420 362,550 (USD 300,000) (USD 300,000 ) Foreign global bonds(*2) 2018 2.88 321,420 362,550 (USD 300,000 ) (USD 300,000 ) Sub-total 7,107,216 7,220,064 Less discounts on bonds (21,029 ) (25,858 ) 7,086,187 7,194,206 Less current portion of bonds (1,489,617 ) (855,276 ) ￦5,596,570 6,338,930

(*1) The Group eliminated a measurement inconsistency of accounting profit or loss between the bonds and related derivatives by designating the structured bonds as financial liabilities at fair value through profit or loss. The carrying amount of financial liabilities designated at fair value through profit or loss exceeds the principal amount required to pay at maturity by ￦10,278 million as of December 31, 2017. (*2) Unsecured corporate bonds were issued by SK Broadband Co., Ltd. (*3) Unsecured corporate bonds were issued by PS&Marketing Corporation. (*4) During the year ended December 31, 2017, the Parent Company sold the convertible bonds issued by IRIVER LIMITED to third parties. (*5) As of December 31, 2017, 3M LIBOR rate is 1.69%.

F-65

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

18. Long-term Payables — Other (1) Long-term payables — other as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Payables related to acquisition of frequency usage rights ￦ 1,328,630 1,602,943 Other(*) 18,133 21,647 ￦ 1,346,763 1,624,590

(*) Other includes other long-term employee compensation liabilities. (2) As of December 31, 2017 and 2016, details of long-term payables — other which consist of payables related to the acquisition of frequency usage rights are as follows (See Note 16):

(In millions of won) December 31, December 31, 2017 2016 Long-term payables — other ￦1,710,255 2,013,122 Present value discount on long-term payables — other (79,874 ) (108,406 ) 1,630,381 1,904,716 Less current portion of long-term payables — other (301,751 ) (301,773 ) Carrying amount at December 31 ￦1,328,630 1,602,943

(3) The repayment schedule of the principal amount of long-term payables — other related to acquisition of frequency usage rights as of December 31, 2017 is as follows:

(In millions of won) Amount Less than 1 year ￦302,867 1~3 years 605,734 3~5 years 402,624 More than 5 years 399,030 ￦1,710,255

19. Provisions (1) Changes in provisions for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) For the year ended December 31, 2017 As of December 31, 2017 Beginning Ending balance Increase Utilization Reversal Other balance Current Non-current Provision for installment of handset subsidy(*1) ￦24,710 2 (8,898 ) (11,940) — 3,874 3,874 — Provision for restoration(*2) 64,679 12,066 (2,517 ) (1,006 ) 45 73,267 40,598 32,669 Emission allowance(*3) 2,788 4,663 (518 ) (2,283 ) — 4,650 4,650 — Other provisions 5,740 952 (3,757 ) — — 2,935 2,935 — ￦97,917 17,683 (15,690 ) (15,229) 45 84,726 52,057 32,669

F-66

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) For the year ended December 31, 2016 As of December 31, 2016 Beginning Ending balance Increase Utilization Reversal Other balance Current Non-current Provision for installment of handset subsidy(*1) ￦5,670 37,530 (18,490 ) — — 24,710 19,939 4,771 Provision for restoration(*2) 59,954 6,677 (1,082 ) (913 ) 43 64,679 37,760 26,919 Emission allowance(*3) 1,477 1,480 (169 ) — — 2,788 2,788 — Other provisions 3,104 3,237 (601 ) — — 5,740 5,740 — ￦70,205 48,924 (20,342 ) (913 ) 43 97,917 66,227 31,690

(*1) The Group recognizes a provision for handset subsidies given to the subscribers who purchase handsets on an installment basis. The amount recognized as a provision for handset subsidies is the Group’s best estimate of the expenditure required to settle the current obligations to the relevant subscribers at the end of the reporting period, which is calculated as of the present values of estimated handset subsidies to be granted over the relevant service periods, taking into account the customer retention rate for the relevant subscribers. The discount rate used in calculating the present values is based on AAA-rated corporate bonds with a two-year maturity. The customer retention rate is based on the Group’s historical retention rate. (*2) In the course of the Group’s activities, base station and other assets are installed on leased premises which are expected to have costs associated with restoring the premises to their original conditions where these assets are situated upon ceasing their use on those premises. The associated cash outflows, which are long-term in nature, are generally expected to occur at the dates of the termination of lease contracts to which the assets relate. These restoration costs are calculated on the basis of the identified costs for the current financial year, extrapolated into the future based on management’s best estimates of future trends in prices, inflation, and other factors, and are discounted to present value at a risk-adjusted rate specifically applicable to the liability. Forecasts of estimated future cash outflows are revised in light of future changes in business conditions or technological requirements. The Group records these restoration costs as property and equipment and subsequently expenses them using the straight-line method over the asset’s useful life, and records the accretion of the liability as a charge to finance costs. (*3) The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits. (2) The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period.

Key assumptions Provision for handset subsidy estimation based on historical service retention period data Provision for restoration estimation based on cost of demolition and inflation with an assumption of demolishing the relevant assets after six years

F-67

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

20. Lease In 2012, the Group disposed a portion of its property and equipment and investment property, and entered into lease agreements with respect to those assets. These sale and leaseback transactions were accounted for as operating leases. The Group entered into operating lease agreements and sublease agreements in relation to rented office space and the expected future lease payments and lease revenues as of December 31, 2017 are as follows:

(In millions of won) Minimum lease payments Revenues Less than 1 year ￦49,289 1,926 1~5 years 101,872 916 ￦151,161 2,842

21. Defined Benefit Liabilities(Assets) (1) Details of defined benefit liabilities(assets) as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Present value of defined benefit obligations ￦ 679,625 595,667 Fair value of plan assets (663,617 ) (555,175 ) Defined benefit assets(*) (45,952 ) (30,247 ) Defined benefit liabilities 61,960 70,739

(*) Since the Group entities neither have legally enforceable right nor intention to settle the defined benefit obligations of Group entities with defined benefit assets of other Group entities, defined benefit assets of Group entities have been separately presented from defined benefit liabilities.

(2) Principal actuarial assumptions as of December 31, 2017 and 2016 are as follows:

December 31, 2017 December 31, 2016 Discount rate for defined benefit obligations 2.58%~4.03% 1.90%~2.96% Expected rate of salary increase 3.08%~5.93% 2.49%~6.09%

Discount rate for defined benefit obligation is determined based on market yields of high-quality corporate bonds with similar maturities for estimated payment term of defined benefit obligation. Expected rate of salary increase is determined based on the Group’s historical promotion index, inflation rate and salary increase ratio.

F-68

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) Changes in defined benefit obligations for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Beginning balance ￦595,667 525,269 Current service cost 125,526 114,528 Interest cost 15,991 13,441 Remeasurement - Demographic assumption (287 ) 677 - Financial assumption (20,731 ) (2,462 ) - Adjustment based on experience 11,561 6,229 Benefit paid (60,883 ) (55,350 ) Others 12,781 (6,665 ) Ending balance ￦679,625 595,667

(4) Changes in plan assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Beginning balance ￦555,175 426,413 Interest income 13,821 9,826 Remeasurement (5,540 ) (6,320 ) Contributions 155,834 159,687 Benefit paid (60,006 ) (34,247 ) Others 4,333 (184 ) Ending balance ￦663,617 555,175

The Group expects to make a contribution of ￦146,086 million to the defined benefit plans in 2018. (5) Total amount of expenses recognized in profit and loss (included in labor in the consolidated statement of income) and capitalized into construction-in-progress for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Current service cost ￦125,526 114,528 106,764 Net interest cost 2,170 3,615 3,257 ￦127,696 118,143 110,021

(6) Details of plan assets as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Equity instruments ￦ 15,567 13,640 Debt instruments 134,710 95,359 Short-term financial instruments, etc. 513,340 446,176 ￦ 663,617 555,175

F-69

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(7) As of December 31, 2017, effects on defined benefit obligations if each of significant actuarial assumptions changes within expectable and reasonable range are as follows:

(In millions of won) 0.5% Increase 0.5% Decrease Discount rate ￦ (24,702 ) 26,808 Expected salary increase rate 26,988 (25,138 ) The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used. A weighted average duration of defined benefit obligations as of December 31, 2017 is 8.17 years.

22. Derivative Instruments (1) Currency and interest rate swap contracts under cash flow hedge accounting as of December 31, 2017 are as follows:

(In millions of won and thousands of foreign currencies) Borrowing Financial Duration of date Hedging Instrument(Hedged item) Hedged risk institution contract Morgan Stanley Jul. 20, Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds Jul. 20, 2007 ~ Foreign currency risk and four other 2007 face value of USD 400,000) Jul. 20, 2027 banks Standard Nov. 1, Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds Chartered and Nov. 1, 2012~ May. Foreign currency risk 2012 face value of USD 700,000) eight other 1, 2018 banks Mar. 7, Floating-to-fixed cross currency interest rate swap (U.S. dollar Foreign currency risk Mar. 7, 2013 ~ Mar. DBS bank 2013 denominated bonds face value of USD 300,000) and interest rate risk 7, 2020 Korea Oct. 29, Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds Oct. 29, 2013 ~ Oct. Foreign currency risk Development 2013 face value of USD 300,000) 26, 2018 Bank and others Dec. 16, Fixed-to-fixed cross currency swap (U.S. dollar borrowing amounting Dec. 16, 2013 ~ Apr. Foreign currency risk Deutsche bank 2013 to USD 51,775) 29, 2022 Korea Dec. 20, Floating-to-fixed interest rate swap (Korean won borrowing amounting Dec. 20, 2016~ Interest rate risk Development 2016 to KRW 49,000) Dec. 20, 2021 Bank Korea Jan. 30, Floating-to-fixed interest rate swap (Korean won borrowing amounting Nov. 10, 2016~ Interest rate risk Development 2017 to KRW 28,583) Jul. 30, 2019 Bank Korea Mar. 31, Floating-to-fixed interest rate swap (Korean won borrowing amounting Mar. 31, 2017- Interest rate risk Development 2017 to KRW 30,000) Mar. 31, 2020 Bank Korea Dec. 21, Floating-to-fixed interest rate swap (Korean won borrowing amounting Dec. 5, 2017- Interest rate risk Development 2017 to KRW 50,000) Dec. 21, 2022 Bank

F-70

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) As of December 31, 2017, details of fair values of the above derivatives recorded in assets or liabilities are as follows:

(In millions of won and thousands of foreign currencies) Cash flow Held for Embedded Hedging instrument(Hedged item) hedge trading derivatives Fair value Non-current assets: Redeemable convertible preferred shares issued by Bluehole INC. ￦— — 222,257 222,257 Structured bond(face value of KRW 50,000) — 9,054 — 9,054 Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 400,000) 21,554 — — 21,554 Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 49,000) 307 — — 307 Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 28,583) 43 — — 43 Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 50,000) (2 ) — — (2 ) Total assets ￦253,213 Current liabilities: Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 700,000) ￦(27,791) — — (27,791 ) Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of USD 300,000) (615 ) — — (615 ) Non-current liabilities: Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of USD 300,000) (7,613 ) — — (7,613 ) Fixed-to-fixed long-term borrowings (U.S. dollar borrowing amounting to USD 51,775) (3,106 ) — — (3,106 ) Floating-to-fixed interest rate swap (Korean won borrowing amounting to KRW 30,000) (345 ) — — (345 ) Total liabilities ￦(39,470 )

F-71

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

23. Share Capital and Capital Surplus (deficit) and Others The Parent Company’s outstanding share capital consists entirely of common shares with a par value of ￦500. The number of authorized, issued and outstanding common shares and the details of capital surplus (deficit) and others as of December 31, 2017 and 2016 are as follows:

(In millions of won, except for share data) December 31, 2017 December 31, 2016 Number of authorized shares 220,000,000 220,000,000 Number of issued shares(*1) 80,745,711 80,745,711 Share capital Common share ￦44,639 44,639 Capital surplus (deficit) and others: Paid-in surplus 2,915,887 2,915,887 Treasury shares(Note 24) (2,260,626 ) (2,260,626 ) Share option(Note 26) 414 — Others(*2) (857,912 ) (854,000 ) ￦(202,237 ) (198,739 )

(*1) In 2002 and 2003, the Parent Company retired treasury shares with reduction of retained earnings before appropriation. As a result, the Parent Company’s outstanding shares have decreased without change in share capital. (*2) Others primarily consist of the excess of the consideration paid by the Group over the carrying values of net assets acquired from entities under common control. There were no changes in share capital during the years ended December 31, 2017 and 2016 and details of shares outstanding as of December 31, 2017 and 2016 are as follows:

(In shares) 2017 2016 Treasury Outstanding Treasury Outstanding Issued shares shares shares Issued shares shares shares Shares outstanding 80,745,711 10,136,551 70,609,160 80,745,711 10,136,551 70,609,160

24. Treasury Shares The Parent Company acquired treasury shares to provide share dividends, merge with Shinsegi Telecom, Inc. and SK IMT Co, Ltd., increase shareholder value and stabilize its share prices. Treasury shares as of December 31, 2017 and 2016 are as follows:

(In millions of won, shares) December 31, 2017 December 31, 2016 Number of shares 10,136,551 10,136,551 Acquisition cost ￦ 2,260,626 2,260,626

F-72

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

25. Hybrid Bonds Hybrid bonds classified as equity as of December 31, 2017 are as follows:

(In millions of won) Annual interest Type Issuance date Maturity(*1) rate(%)(*2) Amount Private hybrid bonds Unsecured subordinated bearer June 7, 2013 June 7, 2073 4.21 ￦400,000 bond Issuance costs (1,482 ) ￦398,518

Hybrid bonds issued by the Parent Company are classified as equity as there is no contractual obligation for delivery of financial assets to the bond holders. These are subordinated bonds which rank before common shares in the event of a liquidation or reorganization of the Parent Company.

(*1) The Parent Company has a right to extend the maturity under the same terms at issuance without any notice or announcement. The Parent Company also has the right to defer interest payment at its sole discretion. (*2) Annual interest rate is calculated as yield rate of 5 year national bonds plus premium. According to the step-up clause, additional premium of 0.25% and 0.75%, respectively, after 10 years and 25 years from the issuance date are applied.

26. Share option (1) At the shareholders’ meeting held on March 24, 2017, the Parent Company established a share option program that entitles key management personnel the option to purchase common shares of the Parent Company. The terms and conditions related to the grants of the share options under the share option program are as follows:

Series 1-1 1-2 1-3 Grant date March 24, 2017 Types of shares to be issued 66,504 of registered common shares Grant method Reissue of treasury shares Number of shares (in shares) 22,168 22,168 22,168 Exercise price (in won) 246,750 266,490 287,810 Exercise period Mar. 25, 2019 ~ Mar. 25, 2020 ~ Mar. 25, 2021 ~ Mar. 24, 2022 Mar. 24, 2023 Mar. 24, 2024 Vesting conditions 2 years’ service 3 years’ service 4 years’ service from the grant date from the grant date from the grant date

(2) Share compensation expense recognized during the year ended December 31, 2017 and the remaining share compensation expense to be recognized in subsequent periods are as follows:

Share (In millions of won) compensation expense During the year ended December 31, 2017 ￦ 414 In subsequent periods 977 ￦ 1,391

F-73

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) The Group used binomial option pricing model in the measurement of the fair value of the share options at grant date and the inputs used in the model are as follows:

1-1 1-2 1-3 Risk-free interest rate 1.86 % 1.95 % 2.07 % Estimated option’s life 5 years 6 years 7 years Share price (Closing price on the preceding day in won) 262,500 262,500 262,500 Expected volatility 13.38 % 13.38 % 13.38 % Expected dividends 3.80 % 3.80 % 3.80 % Exercise price (in won) 246,750 266,490 287,810 Per share fair value of the option (in won) 27,015 20,240 15,480

27. Retained Earnings (1) Retained earnings as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Appropriated: Legal reserve ￦ 22,320 22,320 Reserve for research & manpower development — 60,001 Reserve for business expansion 10,171,138 9,871,138 Reserve for technology development 3,071,300 2,826,300 13,264,758 12,779,759 Unappropriated 4,571,188 3,173,405 ￦ 17,835,946 15,953,164

(2) Legal reserve The Korean Commercial Act requires the Parent Company to appropriate as a legal reserve at least 10% of cash dividends paid for each accounting period until the reserve equals 50% of outstanding share capital. The legal reserve may not be utilized for cash dividends, but may only be used to offset a future deficit, if any, or may be transferred to share capital.

28. Reserves (1) Details of reserves, net of taxes, as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Valuation gain on available-for-sale financial assets ￦ 168,211 12,534 Other comprehensive loss of investments in associates (320,060 ) (179,167 ) Valuation loss on derivatives (73,828 ) (96,418 ) Foreign currency translation differences for foreign operations (9,050 ) 36,868 ￦ (234,727 ) (226,183 )

F-74

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Changes in reserves for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Other compre- Foreign currency Valuation gain on hensive loss of Valuation gain translation available-for-sale investments in (loss) on differences for financial assets associates derivatives foreign operations Total Balance at January 1, 2017 ￦ 12,534 (179,167 ) (96,418 ) 36,868 (226,183) Changes, net of taxes 155,677 (140,893 ) 22,590 (45,918 ) (8,544 ) Balance at December 31, 2017 ￦ 168,211 (320,060 ) (73,828 ) (9,050 ) (234,727)

(In millions of won) 2016 Valuation gain Other compre- Foreign currency (loss) on hensive loss of Valuation translation available-for-sale investments in loss on differences for financial assets associates derivatives foreign operations Total Balance at January 1, 2016 ￦ 232,316 (169,520 ) (83,200 ) 29,707 9,303 Changes, net of taxes (219,782 ) (9,647 ) (13,218 ) 7,161 (235,486) Balance at December 31, 2016 ￦ 12,534 (179,167 ) (96,418 ) 36,868 (226,183)

(3) Changes in valuation gain on available-for-sale financial assets for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Balance at January 1 ￦12,534 232,316 Amount recognized as other comprehensive income during the year, net of taxes 132,586 4,606 Amount reclassified through profit or loss, net of taxes 23,091 23,091 (224,388) Balance at December 31 ￦168,211 12,534

(4) Changes in valuation gain (loss) on derivatives for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Balance at January 1 ￦(96,418) (83,200) Amount recognized as other comprehensive loss during the year, net of taxes 17,965 (12,213) Amount reclassified through profit or loss, net of taxes 4,625 (1,005 ) Balance at December 31 ￦(73,828) (96,418)

F-75

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

29. Other Operating Income and Expenses Details of other operating income and expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Other Operating Income: Gain on disposal of property and equipment and intangible assets 13,991 6,908 7,140 Others(*) 18,006 59,640 23,795 ￦31,997 66,548 30,935 Other Operating Expenses: Communication ￦27,973 31,196 43,979 Utilities 299,825 277,497 270,621 Taxes and dues 27,819 35,020 36,118 Repair 333,101 326,076 312,517 Research and development 395,276 344,787 315,790 Training 32,853 33,303 37,278 Bad debt for accounts receivable — trade 34,584 37,820 60,450 Travel 24,095 25,263 27,860 Supplies and other 111,170 113,930 176,248 Loss on disposal of property and equipment and intangible assets 60,086 63,797 21,392 Impairment loss on other investment securities 9,003 24,033 42,966 Impairment loss on property and equipment and intangible assets 54,946 24,506 35,845 Donations 112,634 96,633 72,454 Bad debt for accounts receivable — other 5,793 40,312 15,323 Others(*) 101,589 49,593 55,536 ￦1,630,747 1,523,766 1,524,377

(*) See Note 5-(2).

F-76

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

30. Finance Income and Costs (1) Details of finance income and costs for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Finance Income: Interest income ￦76,045 54,353 45,884 Gain on sale of accounts receivable — trade 18,548 18,638 — Dividends 12,416 19,161 16,102 Gain on foreign currency transactions 13,676 14,186 18,923 Gain on foreign currency translations 7,110 5,085 5,090 Gain on disposal of long-term investment securities 4,890 459,349 10,786 Gain on valuation of derivatives 223,943 4,132 1,927 Reversal of impairment loss on available-for-sale financial assets 9,900 — — Gain relating to financial assets at fair value through profit or loss 33 25 — Gain relating to financial liability at fair value through profit or loss — 121 5,188 ￦366,561 575,050 103,900 Finance Costs: Interest expense ￦299,100 290,454 297,662 Loss on sale of accounts receivable — trade 9,682 — — Loss on foreign currency transactions 19,263 16,765 17,931 Loss on foreign currency translations 8,419 3,991 4,750 Loss on disposal of long-term investment securities 36,024 2,919 2,599 Loss on settlement of derivatives 10,031 3,428 4,845 Loss relating to financial liability at fair value through profit or loss 678 4,018 526 Impairment loss on long-term investment securities(*) 14,519 5,255 21,787 Other finance costs 35,900 — — ￦433,616 326,830 350,100

(*) See Note 30-(5). (2) Details of interest income included in finance income for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Interest income on cash equivalents and short-term financial instruments ￦28,130 20,203 20,009 Interest income on installment receivables and others 47,915 34,150 25,875 ￦76,045 54,353 45,884

F-77

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) Details of interest expenses included in finance costs for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Interest expense on borrowings ￦11,774 7,962 19,577 Interest expense on debentures 228,568 239,560 238,450 Interest on finance lease liabilities — — 58 Others 58,758 42,932 39,577 ￦299,100 290,454 297,662

(4) Finance income and costs by category of financial instruments for the years ended December 31, 2017, 2016 and 2015 are as follows. Bad debt expense (reversal of allowance for doubtful accounts) for accounts receivable — trade, loans and receivables are presented and explained separately in Note 7.

(i) Finance income

(In millions of won) 2017 2016 2015 Financial Assets: Financial assets at fair value through profit or loss ￦223,976 4,157 1,927 Available-for-sale financial assets 30,598 484,300 31,220 Loans and receivables 111,677 86,256 64,749 Sub-total 366,251 574,713 97,896 Financial Liabilities: Financial liabilities at fair value through profit or loss — 121 5,188 Financial liabilities measured at amortized cost 310 216 816 Sub-total 310 337 6,004 ￦366,561 575,050 103,900

(ii) Finance costs

(In millions of won) 2017 2016 2015 Financial Assets: Financial assets at fair value through profit or loss ￦— 2,791 4,188 Available-for-sale financial assets 86,445 8,174 24,386 Loans and receivables 37,040 15,810 15,861 Derivatives designated as hedging instruments — 637 657 Sub-total 123,485 27,412 45,092 Financial Liabilities: Financial liabilities at fair value through profit or loss 678 4,018 526 Financial liabilities measured at amortized cost 299,422 295,400 304,482 Derivatives designated as hedging instruments 10,031 — — Sub-total 310,131 299,418 305,008 ￦433,616 326,830 350,100

F-78

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(iii) Other comprehensive income (loss)

(In millions of won) 2017 2016 2015 Financial Assets: Available-for-sale financial assets ￦158,440 (223,981) (3,661 ) Derivatives designated as hedging instruments 1,554 (172 ) (3,248 ) Sub-total 159,994 (224,153) (6,909 ) Financial Liabilities: Derivatives designated as hedging instruments 21,032 (13,046 ) 1,977 Sub-total 21,032 (13,046 ) 1,977 ￦181,026 (237,199) (4,932 )

(5) Details of impairment losses for financial assets for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Available-for-sale financial assets(*) ￦14,519 5,255 21,787 Accounts receivable — trade 34,584 37,820 60,450 Other receivables 5,793 40,312 15,323 ￦54,896 83,387 97,560

(*) This is included in other finance costs (See Note 30-(1)).

31. Income Tax Expense (1) Income tax expenses for the years ended December 31, 2017, 2016 and 2015 consist of the following:

(In millions of won) 2017 2016 2015 Current tax expense Current year ￦424,773 473,543 417,022 Current tax of prior years(*) (105,158) (11,925 ) (4,124 ) 319,615 461,618 412,898 Deferred tax expense Changes in net deferred tax assets 426,039 (25,580 ) 106,399 Others (tax rate differences, etc.) — — 183 Income tax expense ￦745,654 436,038 519,480

(*) Current tax of prior years are mainly composed of the income tax refund due to a change in the interpretation of the tax authority in relation to the income tax previously recognized by the Group.

F-79

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) The difference between income taxes computed using the statutory corporate income tax rates and the recorded income taxes for the years ended December 31, 2017, 2016 and 2015 is attributable to the following:

(In millions of won) 2017 2016 2015 Income taxes at statutory income tax rate ￦823,124 506,804 492,096 Non-taxable income (40,080 ) (38,989 ) (85,589 ) Non-deductible expenses 31,285 52,648 44,770 Tax credit and tax reduction (34,300 ) (29,484 ) (25,756 ) Changes in unrecognized deferred taxes 31,857 (84,276 ) 83,623 Others (income tax refund, etc.)(*) (66,232 ) 29,335 10,336 Income tax expense ￦745,654 436,038 519,480

(*) Based on the amendment to Korean Tax Law that was enacted in 2017, the income tax rate for taxable income in excess of ￦300,000 million is changed from 24.2% to 27.5%, which will be effective from January 1, 2018. The Group remeasured deferred tax assets and liabilities as a result of this rate change. Tax rates applied for the above taxable income for the years ended December 31, 2017, 2016 and 2015 are corporate income tax rates applied to taxable income in the Republic of Korea, in which the Parent Company is located. (3) Deferred taxes directly charged to (credited from) equity for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Valuation gain (loss) on available-for-sale financial assets ￦(55,883) 82,993 2,461 Share of other comprehensive income (loss) of associates (260 ) 2 (63 ) Valuation gain (loss) on derivatives (3,019 ) 4,454 (448 ) Remeasurement of defined benefit liabilities 1,618 3,174 2,719 ￦(57,544) 90,623 4,669

F-80

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(4) Details of the changes in deferred tax assets (liabilities) for the years ended December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Deferred tax Directly charged expense to (credited Beginning (income) from) equity Others Ending Deferred tax assets (liabilities) related to temporary differences: Allowance for doubtful accounts ￦61,911 5,091 — — 67,002 Accrued interest income (616 ) (1,851 ) — — (2,467 ) Available-for-sale financial assets 101,472 8,192 (55,883 ) — 53,781 Investments in subsidiaries, associates and joint ventures (476,098) (461,271 ) (260 ) — (937,629) Property and equipment (depreciation) (253,323) 17,980 — — (235,343) Provisions 7,448 (5,136 ) — — 2,312 Retirement benefit obligation 35,505 1,237 1,618 — 38,360 Valuation gain on derivatives 28,975 — (3,019 ) — 25,956 Gain or loss on foreign currency translation 19,369 2,562 — — 21,931 Reserve for research and manpower development (4,775 ) 2,388 — — (2,387 ) Goodwill 3,105 (938 ) — — 2,167 Others 34,911 (29,248 ) — (2,324) 3,339 (442,116) (460,994 ) (57,544 ) (2,324) (962,978) Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards Tax loss carryforwards 37,462 34,955 — — 72,417 ￦(404,654) (426,039 ) (57,544 ) (2,324) (890,561)

F-81

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2016 Deferred tax Directly charged expense to (credited Beginning (income) from) equity Ending Deferred tax assets (liabilities) related to temporary differences: Allowance for doubtful accounts ￦59,957 1,954 — 61,911 Accrued interest income (2,567 ) 1,951 — (616 ) Available-for-sale financial assets 30,365 (11,886 ) 82,993 101,472 Investments in subsidiaries, associates and joint ventures (355,273) (120,827 ) 2 (476,098) Property and equipment (depreciation) (327,572) 74,249 — (253,323) Provisions 2,485 4,963 — 7,448 Retirement benefit obligation 28,327 4,004 3,174 35,505 Valuation gain on derivatives 24,521 — 4,454 28,975 Gain or loss on foreign currency translation 19,517 (148 ) — 19,369 Reserve for research and manpower development (7,162 ) 2,387 — (4,775 ) Goodwill 3,713 (608 ) — 3,105 Unearned revenue (activation fees) 2,065 (2,065 ) — — Others (23,782 ) 58,693 — 34,911 (545,406) 12,667 90,623 (442,116) Deferred tax assets related to unused tax loss carryforwards and tax credit carryforwards Tax loss carryforwards 24,549 12,913 — 37,462 ￦(520,857) 25,580 90,623 (404,654)

(5) Details of temporary differences, unused tax loss carryforwards and unused tax credits carryforwards which are not recognized as deferred tax assets, in the consolidated statements of financial position as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 December 31, 2016 Allowance for doubtful accounts ￦ 88,521 165,935 Investments in subsidiaries, associates and joint ventures 168,268 228,025 Other temporary differences 425,653 320,260 Unused tax loss carryforwards 921,309 755,050 Unused tax credit carryforwards 4,092 1,211 (6) The amount of unused tax loss carryforwards and unused tax credit carryforwards which are not recognized as deferred tax assets as of December 31, 2017 are expiring within:

(In millions of won) Unused tax loss carryforwards Unused tax credit carryforwards Less than 1 year ￦ — 869 1 ~ 2 years 7,686 101 2 ~ 3 years 358,237 119 More than 3 years 555,386 3,003 ￦ 921,309 4,092

F-82

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

32. Earnings per Share

(1) Basic earnings per share 1) Basic earnings per share for the years ended December 31, 2017, 2016 and 2015 are calculated as follows:

(In millions of won, shares) 2017 2016 2015 Basic earnings per share attributable to owners of the Parent Company: Profit attributable to owners of the Parent Company ￦2,599,829 1,675,967 1,518,604 Interest on hybrid bonds (16,840 ) (16,840 ) (16,840 ) Profit attributable to owners of the Parent Company on common shares 2,582,989 1,659,127 1,501,764 Weighted average number of common shares outstanding 70,609,160 70,609,160 71,551,966 Basic earnings per share (in won) ￦36,582 23,497 20,988

2) The weighted average number of common shares outstanding for the years ended December 31, 2017, 2016 and 2015 are calculated as follows:

(In shares) 2017 2016 2015 Issued common shares at January 1 80,745,711 80,745,711 80,745,711 Effect of treasury shares (10,136,551 ) (10,136,551 ) (9,193,745 ) Weighted average number of common shares outstanding at December 31 70,609,160 70,609,160 71,551,966

(2) Diluted earnings per share For the years ended December 31, 2017, 2016 and 2015, diluted earnings per share are the same as basic earnings per share as there are no dilutive potential common shares.

33. Dividends (1) Details of dividends declared Details of dividend declared for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won, except for face value and share data) Number of shares Face value Dividend Year Dividend type outstanding (in won) ratio Dividends 2017 Cash dividends (Interim) 70,609,160 500 200 % ￦70,609 Cash dividends (Year-end) 70,609,160 500 1,800 % 635,482 ￦706,091 2016 Cash dividends (Interim) 70,609,160 500 200 % ￦70,609 Cash dividends (Year-end) 70,609,160 500 1,800 % 635,482 ￦706,091 2015 Cash dividends (Interim) 72,629,160 500 200 % ￦72,629 Cash dividends (Year-end) 70,609,160 500 1,800 % 635,482 ￦708,111

F-83

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Dividends yield ratio Dividends yield ratios for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In won) Closing price at Year Dividend type Dividend per share year-end Dividend yield ratio 2017 Cash dividends 10,000 267,000 3.75% 2016 Cash dividends 10,000 224,000 4.46% 2015 Cash dividends 10,000 215,500 4.64%

34. Categoriesof Financial Instruments (1) Financial assets by category as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Financial assets Available- at fair value for-sale Derivatives through profit financial Loans and hedging or loss assets receivables instrument Total Cash and cash equivalents ￦ — — 1,457,735 — 1,457,735 Financial instruments — — 618,002 — 618,002 Short-term investment securities 97,003 47,383 — — 144,386 Long-term investment securities — 887,007 — — 887,007 Accounts receivable — trade — — 2,138,755 — 2,138,755 Loans and other receivables(*) — — 1,962,083 — 1,962,083 Derivative financial assets 231,311 — — 21,902 253,213 ￦ 328,314 934,390 6,176,575 21,902 7,461,181

(In millions of won) December 31, 2016 Financial assets Available- at fair value for-sale Derivatives through profit financial Loans and hedging or loss assets receivables instrument Total Cash and cash equivalents ￦ — — 1,505,242 — 1,505,242 Financial instruments — — 469,705 — 469,705 Short-term investment securities — 107,364 — — 107,364 Long-term investment securities — 828,521 — — 828,521 Accounts receivable — trade — — 2,261,311 — 2,261,311 Loans and other receivables(*) — — 1,701,249 — 1,701,249 Derivative financial assets 7,368 — — 207,402 214,770 ￦ 7,368 935,885 5,937,507 207,402 7,088,162

F-84

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*) Details of loans and other receivables as of December 31, 2017 and 2016 are as follows:

(In millions of won) December December 31, 31, 2017 2016 Short-term loans ￦62,830 58,979 Accounts receivable — other 1,260,835 1,121,444 Accrued income 3,979 2,780 Other current assets 3,927 3,937 Long-term loans 50,874 65,476 Long-term accounts receivable — other 287,048 149,669 Guarantee deposits 292,590 298,964 ￦1,962,083 1,701,249

(2) Financial liabilities by category as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Financial Financial liabilities liabilities at fair measured at Derivatives value through amortized hedging profit or loss cost instrument Total Accounts payable — trade ￦ — 351,711 — 351,711 Derivative financial liabilities — — 39,470 39,470 Borrowings — 382,817 — 382,817 Debentures(*1) 60,278 7,025,909 — 7,086,187 Accounts payable — other and others(*2) — 4,865,519 — 4,865,519 ￦ 60,278 12,625,956 39,470 12,725,704

(In millions of won) December 31, 2016 Financial Financial liabilities liabilities at fair measured at Derivatives value through amortized hedging profit or loss cost instrument Total Accounts payable — trade ￦ — 402,445 — 402,445 Derivative financial liabilities — — 87,153 87,153 Borrowings — 175,521 — 175,521 Debentures(*1) 59,600 7,134,606 — 7,194,206 Accounts payable — other and others (*2) — 4,842,734 — 4,842,734 ￦ 59,600 12,555,306 87,153 12,702,059

(*1) Bonds classified as financial liabilities at fair value through profit or loss as of December 31, 2017 and 2016 are structured bonds and they were designated as financial liabilities at fair value through profit or loss in order to eliminate a measurement inconsistency with the related derivatives.

F-85

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*2) Details of accounts payable — other and others as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, December 31, 2017 2016 Accounts payable — other ￦1,867,074 1,767,799 Withholdings 1,736 1,525 Accrued expenses 1,327,906 1,125,816 Current portion of long-term payables — other 302,703 301,773 Long-term payables — other 1,346,763 1,624,590 Other non-current liabilities 19,337 21,231 ￦4,865,519 4,842,734

35. Financial Risk Management (1) Financial risk management The Group is exposed to credit risk, liquidity risk and market risk. Market risk is the risk related to the changes in market prices, such as foreign exchange rates, interest rates and equity prices. The Group implements a risk management system to monitor and manage these specific risks. The Group’s financial assets consist of cash and cash equivalents, financial instruments, available-for-sale financial assets, accounts receivable — trade and other. Financial liabilities consist of accounts payable — trade and other, borrowings, and debentures. 1) Market risk (i) Currency risk The Group incurs exchange position due to revenue and expenses from its global operations. Major foreign currencies where the currency risk occur are USD, JPY and EUR. The Group determines the currency risk management policy after considering the nature of business and the presence of methods that mitigate the currency risk for each Group entities. Currency risk occurs on forecasted transactions and recognized assets and liabilities which are denominated in a currency other than the functional currency of each Group entity. The Group manages currency risk arising from business transactions by using currency forwards, etc. Monetary assets and liabilities denominated in foreign currencies as of December 31, 2017 are as follows:

(In millions of won, thousands of foreign currencies) Assets Liabilities Foreign Won Foreign Won currencies equivalent currencies equivalent USD 124,901 ￦133,836 1,817,808 ￦1,947,599 EUR 15,669 20,044 63 80 JPY 596,059 5,658 169,729 1,611 Others — 530 — 195 ￦160,068 ￦1,949,485

In addition, the Group has entered into cross currency swaps to hedge against currency risk related to foreign currency borrowings and debentures. (Refer to Note 22)

F-86

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

As of December 31, 2017, a hypothetical change in exchange rates by 10% would have increase (reduce) the Group’s income before income tax as follows:

(In millions of won) If increased by 10% If decreased by 10% USD ￦ 5,590 (5,590 ) EUR 1,997 (1,997 ) JPY 405 (405 ) Others 34 (34 ) ￦ 8,026 (8,026 )

(ii) Equity price risk The Group has listed and non-listed equity securities for its liquidity management and operating purpose. As of December 31, 2017, available-for-sale equity instruments measured at fair value amount to ￦734,487 million.

(iii) Interest rate risk The interest rate risk of the Group arises from borrowings and debenture. Since the Group’s interest bearing assets are mostly fixed-interest bearing assets, the Group’s revenue and operating cash flows are not influenced by the changes in market interest rates. Accordingly, the Group performs various analysis to reduce interest rate risk and to optimize its financing. To minimize risks arising from changes in interest rates, the Group takes various measures such as refinancing, renewal, alternative financing and hedging. As of December 31, 2017, the floating-rate borrowings and bonds of the Group are ￦228,300 million and ￦321,420 million, respectively, and the Group has entered into interest rate swap agreements, as described in Note 22, for all floating-rate borrowings and debentures to hedge interest rate risk. If the interest rate increases (decreases) 1% with all other variables held constant, income before income taxes for the year ended December 31, 2017, would change by ￦707 million in relation to floating-rate borrowings that are exposed to interest rate risk.

2) Credit risk The maximum credit exposure as of December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 2016 Cash and cash equivalents ￦1,457,416 1,505,082 Financial instruments 618,002 469,705 Available-for-sale financial assets 19,928 6,755 Accounts receivable — trade 2,138,755 2,261,311 Loans and other receivables 1,962,083 1,701,249 Derivative financial assets 30,956 214,770 ￦6,227,140 6,158,872

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet his/her contractual obligations.

F-87

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

To manage credit risk, the Group evaluates the credit worthiness of each customer or counterparty considering the party’s financial information, its own trading records and other factors. Based on such information, the Group establishes credit limits for each customer or counterparty. The Group establishes an allowance for doubtful account that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Also, the Group’s credit risk can arise due to transactions with financial institutions related to its cash and cash equivalents, financial instruments and derivatives. To minimize such risk, the Group has a policy to deal only with financial institutions with high credit ratings. The amount of maximum exposure to credit risk of the Group is the carrying amount of financial assets as of December 31, 2017.

3) Liquidity risk The Group’s approach to managing liquidity is to ensure that it will always maintain sufficient cash and cash equivalents balances and have enough liquidity through various committed credit lines. The Group maintains enough liquidity within credit lines through active operating activities. Contractual maturities of financial liabilities as of December 31, 2017 are as follows:

(In millions of won) Carrying Contractual Less than More than amount cash flows 1 year 1 - 5 years 5 years Accounts payable — trade ￦351,711 351,711 351,711 — — Borrowings(*1) 382,817 397,776 177,910 219,866 — Debentures(*1) 7,086,187 8,230,952 1,682,206 3,675,178 2,873,568 Accounts payable — other and others(*2) 4,865,519 5,030,105 3,519,489 1,093,611 417,005 ￦12,686,234 14,010,544 5,731,316 4,988,655 3,290,573

The Group does not expect that the cash flows included in the maturity analysis could occur significantly earlier or at different amounts.

(*1) Includes interest payables. (*2) The Group provides with USD 12,240,000 of payment guarantees for Celcom Planet, one of the joint ventures of the Group, in relation to its borrowings. The contractual cash flows for accounts payable — other and others include the maximum amount that the Group is required to pay in connection with the guarantees. As of December 31, 2017, periods in which cash flows from cash flow hedge derivatives are expected to occur are as follows:

(In millions of won) Carrying Contractual Less than More than amount cash flows 1 year 1 - 5 years 5 years Assets ￦21,902 17,118 7,446 28,075 (18,403 ) Liabilities (39,470 ) (40,220 ) (28,960) (11,260 ) — ￦(17,568) (23,102) (21,514) 16,815 (18,403 )

F-88

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Capital management The Group manages its capital to ensure that it will be able to continue as a business while maximizing the return to shareholders through the optimization of its debt and equity structure. The overall strategy of the Group is the same as that of the Group as of and for the year ended December 31, 2016. The Group monitors its debt-equity ratio as a capital management indicator. This ratio is calculated as total liabilities divided by total equity; both are from the consolidated financial statements. Debt-equity ratio as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, December 31, 2017 2016 Total liabilities ￦15,399,474 15,181,233 Total equity 18,029,195 16,116,430 Debt-equity ratios 85.41 % 94.20 %

(3) Fair value 1) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2017 are as follows:

(In millions of won) December 31, 2017 Carrying amount Level 1 Level 2 Level 3 Total Financial assets that are measured at fair value Financial assets at fair value through profit or loss ￦328,314 — 106,057 222,257 328,314 Derivative financial assets 21,902 — 21,902 — 21,902 Available-for-sale financial assets 734,487 589,202 47,383 97,902 734,487 ￦1,084,703 589,202 175,342 320,159 1,084,703 Financial liabilities that are measured at fair value Financial liabilities at fair value through profit or loss ￦60,278 — 60,278 — 60,278 Derivative financial liabilities 39,470 — 39,470 — 39,470 ￦99,748 — 99,748 — 99,748 Financial liabilities that are not measured at fair value Borrowings ￦382,817 — 383,748 — 383,748 Debentures 7,025,909 — 7,325,370 — 7,325,370 Long-term payables — other 1,649,466 — 1,766,451 — 1,766,451 ￦9,058,192 — 9,475,569 — 9,475,569

F-89

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

2) Fair value and carrying amount of financial assets and liabilities including fair value hierarchy as of December 31, 2016 are as follows:

(In millions of won) December 31, 2016 Carrying amount Level 1 Level 2 Level 3 Total Financial assets that are measured at fair value: Financial assets at fair value through profit or loss ￦7,368 — 7,368 — 7,368 Derivative financial assets 207,402 — 207,402 — 207,402 Available-for-sale financial assets 741,285 526,363 107,364 107,558 741,285 ￦956,055 526,363 322,134 107,558 956,055 Financial liabilities that are measured at fair value: Financial liabilities at fair value through profit or loss ￦59,600 — 59,600 — 59,600 Derivative financial liabilities 87,153 — 87,153 — 87,153 ￦146,753 — 146,753 — 146,753 Financial liabilities that are not measured at fair value: Borrowings ￦175,521 — 177,600 — 177,600 Debentures 7,134,606 — 7,568,361 — 7,568,361 Long-term payables — other 1,926,363 — 2,103,788 — 2,103,788 ￦9,236,490 — 9,849,749 — 9,849,749

The above information does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximation of fair values. Available-for-sale financial assets amounting to ￦199,903 million and ￦194,600 million as of December 31, 2017 and December 31, 2016, respectively, are measured at cost in accordance with IAS 39 since they are equity instruments which do not have quoted price in an active market for the identical instruments and for which fair value cannot be reliably measured using other valuation methods. Fair value of the financial instruments that are traded in an active market (available-for-sale financial assets, financial liabilities at fair value through profit or loss, etc.) is measured based on the bid price at the end of the reporting date. The Group uses various valuation methods for determination of fair value of financial instruments that are not traded in an active market. Fair value of available-for-sale securities is determined using the market approach methods and financial assets through profit or loss are measured using the option pricing model. In addition, derivative financial contracts and long-term liabilities are measured using the discounted present value methods. Inputs used to such valuation methods include swap rate, interest rate, and risk premium, and the Group performs valuation using the inputs which are consistent with natures of assets and liabilities measured.

F-90

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

Interest rates used by the Group for the fair value measurement as of December 31, 2017 are as follows:

Interest rate Derivative instruments 1.54% ~ 2.67% Borrowings and debentures 2.48% ~ 2.55% Long-term payables — other 2.23% ~ 2.60% 3) There have been no transfers from Level 2 to Level 1 in 2017 and changes of financial assets classified as Level 3 for the year ended December 31, 2017 are as follows:

(In millions of won) Balance at Other compre- Balance at beginning Valuation Transfer hensive loss Disposal ending Financial assets at fair value through profit or loss(*) ￦— 222,257 — — — 222,257 Available-for-sale financial assets 107,558 — 3,938 (8,942 ) (4,652) 97,902

(*) The Group holds redeemable convertible preferred shares issued by Bluehole INC. The conversion rights attached to the investments are bifurcated from the host contract as embedded derivatives and the Group recognized ￦222,257 million as financial assets at FVTPL and gain on valuation of derivatives, respectively, as of and during the year ended December 31, 2017. The host contract was recognized as available-for-sale financial assets of ￦15,342 million measured by discounting the amount of collection at maturity including the principal, guaranteed interests, and dividend. The fair value of the conversion rights were measured using the binomial option pricing model by considering inputs such as expected volatility, exercise price, and common share price. The major inputs used and their correlations with the fair value measurements are as follows.

Correlations between inputs Significant non-observable inputs and fair value measurements Value of common shares If the value of common share increases (decreases), Fair value will increase (decrease) Exercise price If the exercise price increases (decreases), Fair value will decrease (increase) Discount rate If the discount rate increases (decreases), Fair value will decrease (increase) Volatility If the share price volatility increases (decreases), Fair value will increase (decrease)

F-91

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(4) Enforceable master netting agreement or similar agreement Carrying amount of financial instruments recognized of which offset agreements are applicable as of December 31, 2017 and 2016 are as follows:

(In millions of won) 2017 Net financial Relevant amount not Gross instruments offset on the statements financial presented on the of financial position instruments Amount statements of Net recognized offset financial position Financial instruments amount Financial assets: Derivatives(*) ￦26,645 — 26,645 (19,875 ) 6,770 Accounts receivable — trade and others 93,146 (92,409) 737 — 737 ￦119,791 (92,409) 27,382 (19,875 ) 7,507 Financial liabilities: Derivatives(*) ￦19,875 — 19,875 (19,875 ) — Accounts payable — other and others 92,409 (92,409) — — — ￦112,284 (92,409) 19,875 (19,875 ) —

(In millions of won) 2016 Net financial Relevant amount not Gross instruments offset on the statements financial presented on the of financial position instruments Amount statements of Net recognized offset financial position Financial instruments amount Financial assets: Derivatives(*) ￦87,566 — 87,566 (87,153 ) 413 Accounts receivable — trade and others 114,135 (103,852) 10,283 — 10,283 ￦201,701 (103,852) 97,849 (87,153 ) 10,696 Financial liabilities: Derivatives(*) ￦87,153 — 87,153 (87,153 ) — Accounts payable — other and others 103,852 (103,852) — — — ￦191,005 (103,852) 87,153 (87,153 ) —

(*) The Group entered into derivative contracts which include enforceable master netting arrangement in accordance with International Swap and Derivatives Association (ISDA). Generally, all contracts made with the identical currencies are settled from one party to another by combining one net amount. In this case, all contracts are liquidated and paid off at net amount by evaluating liquidation value if credit events such as bankruptcy occur.

ISDAagreements do not allow the Group to exercise rights of set-off unless credit events such as bankruptcy occur. Therefore, assets and liabilities recognized in accordance with the agreements cannot be offset as the Group does not have enforceable rights of set-off.

F-92

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

36. Related Parties and Others (1) List of related parties

Relationship Company Ultimate Controlling Entity SK Holdings Co., Ltd. Joint ventures Dogus Planet, Inc. and 3 others Associates SK hynix Inc. and 40 others Others The Ultimate Controlling Entity’s subsidiaries and associates, etc.

(2) Compensation for the key management The Parent Company considers registered directors who have substantial role and responsibility in planning, operations, and relevant controls of the business as key management. The compensation given to such key management for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Salaries ￦2,169 1,645 1,971 Defined benefits plan expenses 258 424 626 Share option 414 — — ￦2,841 2,069 2,597

Compensation for the key management includes salaries, non-monetary salaries, and retirement benefits made in relation to the pension plan and compensation expenses related to share options granted.

F-93

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(3) Transactions with related parties for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 Operating Operating Acquisition of revenue and expense and property and Collection Scope Company others others equipment of loans Ultimate Controlling Entity SK Holdings Co., Ltd.(*1) ￦25,049 600,600 283,556 — Associates F&U Credit information Co., Ltd. 3,431 52,150 153 — HappyNarae Co., Ltd. 3,025 29,276 68,472 — SK hynix Inc(*2) 123,873 251 — — KEB HanaCard Co., Ltd. 17,873 15,045 — — Others(*3) 10,720 33,389 940 204 158,922 130,111 69,565 204 Others SK Engineering & Construction Co., Ltd. 5,865 1,077 — — SK Networks Co., Ltd. 21,694 1,220,251 671 — SK Networks Services Co., Ltd. 510 96,949 6,346 — SK Telesys Co., Ltd. 417 51,394 152,659 — SK TNS Co., Ltd. 137 37,051 494,621 — SK Energy Co., Ltd. 8,505 779 — — SK Gas Co., Ltd. 2,727 4 — — SK Innovation Co., Ltd. 7,639 950 — — SK Shipping Co., Ltd. 3,183 35 — — Ko-one energy service Co., Ltd 5,164 44 — — SK infosec Co., Ltd. 1,185 52,634 15,648 — SKC INFRA SERVICE Co., Ltd. 19 46,900 47,163 — Others 18,233 28,209 17 — 75,278 1,536,277 717,125 — Total ￦259,249 2,266,988 1,070,246 204

(*1) Operating expense and others include ￦203,635 million of dividends paid by the Parent Company. (*2) Operating revenue and others include ￦87,660 million of dividends received from SK Hynix Inc. which was deducted from the investment in associates. (*3) Operating revenue and others include ￦6,597 million of dividends received from the Korea IT Fund and others.

F-94

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2016 Operating Operating Acquisition of revenue and expense property and Collection Scope Company others and others equipment Loans of loans Ultimate Controlling Entity SK Holdings Co., Ltd.(*1) ￦23,104 652,855 235,502 — — Associates F&U Credit information Co., Ltd. 2,865 47,905 — — — HappyNarae Co., Ltd. 304 15,506 38,984 — — SK hynix Inc.(*2) 100,861 306 — — — KEB HanaCard Co., Ltd. 19,730 14,804 — — — Others(*3) 8,018 21,853 1,573 1,100 3,194 131,778 100,374 40,557 1,100 3,194 Others SK Engineering & Construction Co., Ltd. 5,916 1,739 10,694 — — SK Networks Co., Ltd. 13,756 1,131,567 — — — SK Networks Services Co., Ltd. 1,248 94,906 6,793 — — SK Telesys Co., Ltd. 419 52,488 142,605 — — SK TNS Co., Ltd. 109 48,192 387,496 — — SK Energy Co., Ltd. 7,670 834 — — — SK Gas Co., Ltd. 2,500 4 — — — SK Innovation Co., Ltd. 9,757 915 1,080 — — SK Shipping Co., Ltd. 5,435 — — — — Ko-one energy service Co., Ltd 6,005 46 — — — SK infosec Co., Ltd. 230 53,068 19,882 — — SKC INFRA SERVICE Co., Ltd. 43 30,663 32,141 — — Others 13,437 17,626 246 — — 66,525 1,432,048 600,937 — — Total ￦221,407 2,185,277 876,996 1,100 3,194

(*1) Operating expense and others include ￦203,635 million of dividends paid by the Parent Company. (*2) Operating revenue and others include ￦73,050 million of dividends paid by the associate which was deducted from the investment in associates. (*3) Operating revenue and others include ￦6,082 million of dividends received from the Korea IT Fund.

F-95

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) 2015 Operating Operating Acquisition of revenue and expense and property and Collection Scope Company others others equipment Loans of loans Ultimate Controlling Entity SK Holdings Co., Ltd. (formerly, SK C&C Co., Ltd.)(*1) ￦20,260 324,078 236,414 — — SK Holdings Co., Ltd. (formerly, SK Holdings Co., Ltd.)(*2,3) 1,299 212,378 117 — — 21,559 536,456 236,531 — — Associates F&U Credit information Co., Ltd. 2,510 43,967 — — — HappyNarae Co., Ltd. 297 6,886 13,495 — — SK hynix Inc.(*4) 55,949 2,384 — — — SK Wyverns Baseball Club., Ltd. 3,849 18,544 — — 204 KEB HanaCard Co., Ltd. 21,414 16,057 — — — Xian Tianlong Science and Technology Co., Ltd. — — — 8,287 — Others(*5) 6,397 11,917 1,864 690 — 90,416 99,755 15,359 8,977 204 Other SK Engineering & Construction Co., Ltd. 15,598 27,243 240,701 — — SK Networks Co., Ltd. 11,923 1,257,975 2 — — SK Networks Services Co., Ltd. 10,491 94,097 6,472 — — SK Telesys Co., Ltd. 397 48,900 141,870 — — SK Energy Co., Ltd. 9,930 978 — — — SK Gas Co., Ltd. 3,561 2 — — — Others 29,409 71,314 194,945 — — 81,309 1,500,509 583,990 — — Total ￦193,284 2,136,720 835,880 8,977 204

(*1) On August 1, 2015, SK C&C Co., Ltd., the ultimate controlling entity of the Parent Company merged with SK Holdings Co., Ltd., its equity method investee, and changed its name to SK Holdings Co., Ltd. (*2) These relates to transactions occurred before July 31, 2015, the date of merger with SK C&C Co., Ltd. (*3) Operating expense and others include ￦191,416 million of dividends paid by the Parent Company. (*4) Operating revenue and others include ￦43,830 million of dividends paid by SK hynix Inc. and was deducted from the investment in associates.

F-96

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(*5) Operating revenue and others include ￦2,103 million and ￦457 million of dividends paid by Korea IT Fund and UniSK, respectively, and was deducted from the investments in associates. (4) Account balances with related parties as of December 31, 2017 and 2016 are as follows:

(In millions of won) December 31, 2017 Accounts receivable Accounts payable Accounts Accounts receivable-trade payable-other Scope Company Loans and others and others Ultimate Controlling Entity SK Holdings Co., Ltd. ￦— 2,068 148,066 Associates HappyNarae Co., Ltd. — 15 6,865 F&U Credit information Co., Ltd. — 21 1,612 SK hynix Inc. — 2,803 94 Wave City Development Co., Ltd. — 38,412 — Daehan Kanggun BcN Co., Ltd.(*) 22,147 — — KEB HanaCard Co., Ltd. — 1,427 11,099 S.M. Culture & Contents Co., Ltd. — 448 8,963 Xian Tianlong Science and Technology Co., Ltd. 7,032 — — Others 611 2,272 1,164 29,790 45,398 29,797 Other SK Engineering & Construction Co., Ltd. — 2,033 69 SK Networks. Co., Ltd. — 3,050 267,297 SK Networks Services Co., Ltd. — 15 9,522 SK Telesys Co., Ltd. — 36 58,346 SK TNS Co., Ltd. — 3 140,311 SK Innovation Co., Ltd. — 4,112 599 SK Energy Co., Ltd. — 2,965 582 SK Gas Co., Ltd. — 1,941 9 Others — 2,998 27,318 — 17,153 504,053 Total ￦29,790 64,619 681,916

(*) The Parent Company has recognized allowances for doubtful accounts on the entire balance of loans to Daehan Kanggun BcN Co., Ltd as of December 31, 2017.

F-97

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(In millions of won) December 31, 2016 Accounts receivable Accounts payable Accounts Accounts receivable-trade payable-other Scope Company Loans and others and others Ultimate Controlling Entity SK Holdings Co., Ltd. ￦— 3,519 149,574 Associates HappyNarae Co., Ltd. — 18 21,063 F&U Credit information Co., Ltd. — 34 1,328 SK hynix Inc. — 22,379 92 Wave City Development Co., Ltd. — 38,412 — Daehan Kanggun BcN Co., Ltd.(*) 22,147 — — KEB HanaCard Co., Ltd. — 1,619 7,676 Xian Tianlong Science and Technology Co., Ltd. 8,287 — — Others 813 4,191 945 31,247 66,653 31,104 Other SK Engineering & Construction Co., Ltd. — 1,808 4,975 SK Networks. Co., Ltd. — 3,254 247,728 SK Networks Services Co., Ltd. — 13 13,913 SK Telesys Co., Ltd. — 20 24,918 SK TNS Co., Ltd. — 3 68,276 SK Innovation Co., Ltd. — 1,350 892 SK Energy Co., Ltd. — 1,213 113 SK Gas Co., Ltd. — 1,769 9 Others — 2,783 30,209 — 12,213 391,033 Total ￦31,247 82,385 571,711

(*) The Parent Company has recognized allowances for doubtful accounts on the entire balance of loans to Daehan Kanggun BcN Co., Ltd. as of December 31, 2016. (5) SK m&service Co., Ltd., a subsidiary of the Parent Company, has entered into a performance agreement with SK Energy Co., Ltd. and provided a blank note to SK Energy Co., Ltd., with regard to this transaction. (6) As of December 31, 2017, the Group provides with USD 12,240,000 of payment guarantees for the borrowings of the Celcom Planet, the joint ventures of the Group. (7) There were additional investments in associates and joint ventures during the years ended December 31, 2017 and 2016 as presented in Note 12.

F-98

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

37. Commitments and Contingencies

(1) Collateral assets and commitments SK Broadband Co., Ltd., a subsidiary of the Parent Company, has pledged its properties as collateral for leases on buildings in the amount of ￦4,144 million as of December 31, 2017. SK Broadband Co., Ltd., has guaranteed for employees’ borrowings relating to employee stock ownership program and provided short-term financial instruments amounting to ￦300 million as collateral as of December 31, 2017.

(2) Legal claims and litigations As of December 31, 2017 the Group is involved in various legal claims and litigation. Provision recognized in relation to these claims and litigation is immaterial. In connection with those legal claims and litigation for which no provision was recognized, management does not believe the Group has a present obligation, nor is it expected any of these claims or litigation will have a significant impact on the Group’s financial position or operating results in the event an outflow of resources is ultimately necessary.

(3) Accounts receivables from sale of handsets The sales agents of the Parent Company sell handsets to the Parent Company’s subscribers on an installment basis. During the year ended December 31, 2017, the Parent Company entered into a comprehensive agreement to purchase the accounts receivables from handset sales with agents and to transfer the accounts receivables from handset sales to special purpose companies which were established with the purpose of liquidating receivables, respectively. The accounts receivables from sale of handsets amounting to ￦1,111,614 million as of December 31, 2017, which the Parent Company purchased according to the relevant comprehensive agreement are recognized as accounts receivable — other and long-term accounts receivable — other.

F-99

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

38. Statements of Cash Flows (1) Adjustments for income and expenses from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Interest income ￦ (76,045 ) (54,353 ) (45,884 ) Dividend (12,416 ) (19,161 ) (16,102 ) Gain on foreign currency translation (7,110 ) (5,085 ) (5,090 ) Gain on disposal of long-term investment securities (4,890 ) (459,349 ) (10,786 ) Gain on valuation of derivatives (223,943 ) (4,132 ) (1,927 ) Gain relating to investments in associates and joint ventures, net (2,245,732 ) (544,501 ) (786,140 ) Gain on sale of accounts receivable — trade (18,548 ) (18,638 ) — Gain on disposal of property and equipment and intangible assets (13,991 ) (6,908 ) (7,140 ) Gain relating to financial assets at fair value through profit or loss (33 ) (25 ) — Gain related to financial liabilities at fair value through profit or loss — (121 ) (5,188 ) Reversal of impairment loss on available-for-sale financial assets (9,900 ) — — Other income (1,129 ) (2,123 ) (7,577 ) Interest expenses 299,100 290,454 297,662 Loss on foreign currency translation 8,419 3,991 4,750 Loss on disposal of long-term investment securities 36,024 2,919 2,599 Other finance costs 14,519 5,255 21,787 Loss on sale of accounts receivable — trade 9,682 — — Loss on settlement of derivatives 10,031 3,428 4,845 Income tax expense 745,654 436,038 519,480 Expense related to defined benefit plan 127,696 118,143 110,021 Share option 414 — — Depreciation and amortization 3,247,519 3,068,558 2,993,486 Bad debt expense 34,584 37,820 60,450 Loss on disposal of property and equipment and intangible assets 60,086 63,797 21,392 Impairment loss on property and equipment and intangible assets 54,946 24,506 35,845 Loss relating to financial liabilities at fair value through profit or loss 678 4,018 526 Bad debt for accounts receivable — other 5,793 40,312 15,323 Loss on impairment of investment assets 9,003 24,033 42,966 Other expenses 46,353 30,685 4,845 ￦ 2,096,764 3,039,561 3,250,143

F-100

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(2) Changes in assets and liabilities from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Accounts receivable — trade ￦46,144 88,549 7,554 Accounts receivable — other (159,960 ) (446,286) (11,108 ) Accrued income 14 445 116 Advance payments (1,269 ) 47,615 (35,906 ) Prepaid expenses (28,362 ) (30,311 ) (40,464 ) Value-Added Tax refundable (3,080 ) (4,587 ) 1,385 Inventories (17,958 ) 798 (7,814 ) Long-term accounts receivable — other (137,979 ) (147,117) — Guarantee deposits 14,696 4,844 (11,238 ) Accounts payable — trade (26,151 ) 75,585 12,442 Accounts payable — other 134,542 316,464 (107,114) Advanced receipts (13,470 ) 37,429 6,421 Withholdings (13,041 ) 107,516 (191,209) Deposits received (4,916 ) (2,153 ) (9,661 ) Accrued expenses 116,065 173,072 (28,845 ) Value-Added Tax payable 7,505 (4,072 ) 3,494 Unearned revenue (339 ) (36,209 ) (115,187) Provisions (20,488 ) 20,235 (30,562 ) Long-term provisions (2,449 ) 4,115 (4,447 ) Plan assets (95,828 ) (125,440) (67,831 ) Retirement benefit payment (60,883 ) (55,350 ) (58,513 ) Others 5,739 (11,378 ) 2,753 ￦(261,468) 13,764 (685,734)

(3) Significant non-cash transactions for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Increase of accounts payable — other related to acquisition of property and equipment and intangible assets ￦44,214 1,511,913 39,973

F-101

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK TELECOM CO., LTD. and Subsidiaries Notes to the Consolidated Financial Statements — (Continued) For the years ended December 31, 2017, 2016 and 2015

(4) Reconciliation of liabilities arising from financing activities for the year ended December 31, 2017 is as follows:

(In millions of won) Non-cash transactions January 1, Cash Exchange rate Fair value Other December 31, 2017 flows changes changes changes 2017 Total liabilities from financing activities Short-term borrowings ￦2,614 127,386 — — — 130,000 Long-term borrowings 172,906 87,299 (7,898 ) — 510 252,817 Debentures 7,194,207 130,558 (245,456 ) — 6,878 7,086,187 Long-term payables — other 1,918,024 (305,476) — — 28,533 1,641,081 Derivative financial liabilities 87,153 (105,269) 13,281 39,267 5,038 39,470 Derivative financial assets (214,770 ) 188 922 (40,235 ) 682 (253,213 ) ￦9,160,134 (65,314 ) (239,151 ) (968 ) 41,641 8,896,342 Other cash flows from financing activities Payments of cash dividends ￦ (706,091) Payments of interest on hybrid bond (16,840 ) Transactions with non-controlling interests (38,373 ) (761,304) Total ￦ (826,618)

39. Cash Dividends paid to the Parent Company Cash dividends received from the consolidated subsidiaries and associates for the years ended December 31, 2017, 2016 and 2015 are as follows:

(In millions of won) 2017 2016 2015 Cash dividends received from consolidated subsidiaries ￦— 15,693 — Cash dividends received from associates 89,063 79,132 46,390 ￦89,063 94,825 46,390

F-102

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders SK hynix, Inc.:

Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial position of SK hynix, Inc. and subsidiaries (the “Group”) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2017 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinion These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error of fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor since 2012.

Seoul, Korea April 27, 2018

G-1

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Financial Position As of December 31, 2017 and 2016

Note 2017 2016 (In millions of won) Assets Current assets Cash and cash equivalents 5,6 ￦2,949,991 613,786 Short-term financial instruments 5,6,7 5,604,663 3,521,893 Trade receivables, net 5,6,8,31 5,552,795 3,251,652 Loans and other receivables, net 5,6,8,31 37,613 25,611 Inventories, net 9 2,640,439 2,026,198 Current tax assets 29 1,305 489 Other current assets 10 523,638 399,353 17,310,444 9,838,982 Non-current assets Investments in associates and joint ventures 11 359,864 131,016 Available-for-sale financial assets 5,6,12 43,226 147,779 Loans and other receivables, net 5,6,8,31 42,410 39,490 Other financial assets 5,6,7 273 423 Property, plant and equipment, net 13,32 24,062,601 18,777,402 Intangible assets, net 14,28 2,247,290 1,915,591 Investment property, net 13,15 2,468 2,573 Deferred tax assets 20,29 599,783 792,368 Employee benefit assets 19 13,385 — Other non-current assets 10 736,720 570,402 28,108,020 22,377,044 Total assets ￦45,418,464 32,216,026

See accompanying notes to the consolidated financial statements.

G-2

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Financial Position, continued As of December 31, 2017 and 2016

Note 2017 2016 (In millions of won) Liabilities Current liabilities Trade payables 5,6 ￦758,578 696,144 Other payables 5,6,31 2,724,547 1,606,417 Other non-trade payables 5,6 1,340,225 685,154 Borrowings 5,6,16,31 773,780 704,860 Other financial liabilities 5,6,21 — 288 Provisions 18,32 81,351 42,822 Current tax liabilities 29 2,385,876 374,666 Other current liabilities 17 51,776 50,498 8,116,133 4,160,849 Non-current liabilities Other non-trade payables 5,6 3,412 27,426 Borrowings 5,6,16,31 3,397,490 3,631,118 Defined benefit liabilities, net 19 6,096 306,488 Deferred tax liabilities 20 5,554 4,732 Other non-current liabilities 17 68,860 61,883 3,481,412 4,031,647 Total liabilities 11,597,545 8,192,496 Equity Equity attributable to owners of the Parent Company Capital stock 1,22 3,657,652 3,657,652 Capital surplus 22 4,143,736 4,143,736 Other equity 22 (771,100 ) (771,913 ) Accumulated other comprehensive loss 23 (502,264 ) (79,103 ) Retained earnings 24 27,287,256 17,066,583 Total equity attributable to owners of the Parent Company 33,815,280 24,016,955 Non-controlling interests 5,639 6,575 Total equity 33,820,919 24,023,530 Total liabilities and equity ￦45,418,464 32,216,026

See accompanying notes to the consolidated financial statements.

G-3

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Comprehensive Income For the years ended December 31, 2017, 2016 and 2015

Note 2017 2016 2015 (In millions of won, except per share information) Revenue 4,31 ￦30,109,434 17,197,975 18,797,998 Cost of sales 26,31 12,701,843 10,787,139 10,515,353 Gross profit 17,407,591 6,410,836 8,282,645 Selling and administrative expense 25,26 (3,686,265 ) (3,134,090 ) (2,946,545 ) Finance income 27 996,468 814,892 846,752 Finance expenses 27 (1,249,617 ) (846,328 ) (829,913 ) Share of profit of equity-accounted investees 11 12,367 22,752 24,642 Other income 28 77,882 52,371 40,479 Other expenses 28 (118,860 ) (103,979 ) (148,939 ) Profit before income tax 13,439,566 3,216,454 5,269,121 Income tax expense 29 2,797,347 255,971 945,526 Profit for the year 10,642,219 2,960,483 4,323,595 Other comprehensive income (loss) Item that will never be reclassified to profit or loss: Remeasurements of defined benefit liability, net of tax 19 2,762 106,822 (21,871 ) Items that are or may be reclassified to profit or loss: Foreign operations – foreign currency translation differences, net of tax 23 (387,683 ) (82,066 ) 33,479 Loss on valuation of available-for-sale financial assets, net of tax 12,29 (10,735 ) — — Equity-accounted investees – share of other comprehensive income, net of tax 11,23 (26,386 ) 4,088 6,487 Other comprehensive income (loss) for the year, net of tax (422,042 ) 28,844 18,095 Total comprehensive income for the year ￦10,220,177 2,989,327 4,341,690 Profit attributable to: Owners of the Parent Company ￦10,641,512 2,953,774 4,322,356 Non-controlling interests 707 6,709 1,239 Total comprehensive income (loss) attributable to: Owners of the Parent Company 10,221,113 2,982,703 4,340,700 Non-controlling interests (936 ) 6,624 990 Earnings per share 30 Basic earnings per share (in won) 15,073 4,184 6,002 Diluted earnings per share (in won) 15,072 4,184 6,002

See accompanying notes to the consolidated financial statements.

G-4

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Changes in Equity For the year ended December 31, 2015

Attributable to owners of the Parent Company Accumulated Other other Capital components comprehensive Retained Non-controlling Capital stock surplus of equity income (loss) earnings Total interests Total equity (In millions of won) Balance at January 1, 2015 ￦3,657,652 4,143,736 (24 ) (41,815 ) 10,276,904 18,036,453 (150 ) 18,036,303 Total comprehensive income Profit for the year — — — — 4,322,356 4,322,356 1,239 4,323,595 Other comprehensive income (loss) — — — 40,215 (21,871 ) 18,344 (249 ) 18,095 Total comprehensive income — — — 40,215 4,300,485 4,340,700 990 4,341,690 Transactions with owners of the Parent Company Dividends paid — — — — (218,401 ) (218,401 ) — (218,401 ) Acquisition of treasury shares — — (771,889 ) — — (771,889 ) — (771,889 ) Total transactions with owners of the Parent Company — — (771,889 ) — (218,401 ) (990,290 ) — (990,290 ) Balance at December 31, 2015 ￦3,657,652 4,143,736 (771,913 ) (1,600 ) 14,358,988 21,386,863 840 21,387,703

See accompanying notes to the consolidated financial statements.

G-5

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Changes in Equity, continued For the years ended December 31, 2017 and 2016

Attributable to owners of the Parent Company Accumulated Other other Non- Capital Capital components comprehensive Retained controlling Total stock surplus of equity income (loss) earnings Total interests equity (In millions of won) Balance at January 1, 2016 ￦3,657,652 4,143,736 (771,913 ) (1,600 ) 14,358,988 21,386,863 840 21,387,703 Total comprehensive income Profit for the year — — — — 2,953,774 2,953,774 6,709 2,960,483 Other comprehensive income (loss) — — — (77,893 ) 106,822 28,929 (85 ) 28,844 Total comprehensive income — — — (77,893 ) 3,060,596 2,982,703 6,624 2,989,327 Transactions with owners of the Parent Company Dividends paid — — — — (353,001 ) (353,001 ) — (353,001 ) Disposal of a subsidiary — — — 390 — 390 (889 ) (499 ) Total transactions with owners of the Parent Company — — — 390 (353,001 ) (352,611 ) (889 ) (353,500 ) Balance at December 31, 2016 3,657,652 4,143,736 (771,913 ) (79,103 ) 17,066,583 24,016,955 6,575 24,023,530 Balance at January 1, 2017 3,657,652 4,143,736 (771,913 ) (79,103 ) 17,066,583 24,016,955 6,575 24,023,530 Total comprehensive income Profit for the year — — — — 10,641,512 10,641,512 707 10,642,219 Other comprehensive income (loss) — — — (423,161 ) 2,762 (420,399 ) (1,643 ) (422,042 ) Total comprehensive income — — — (423,161 ) 10,644,274 10,221,113 (936 ) 10,220,177 Transactions with owners of the Parent Company Dividends paid — — — — (423,601 ) (423,601 ) — (423,601 ) Share-based payment transaction — — 813 — — 813 — 813 Total transactions with owners of the Parent Company — — 813 — (423,601 ) (422,788 ) — (422,788 ) Balance at December 31, 2017 ￦3,657,652 4,143,736 (771,100 ) (502,264 ) 27,287,256 33,815,280 5,639 33,820,919

See accompanying notes to the consolidated financial statements.

G-6

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2017, 2016 and 2015

Note 2017 2016 2015 (In millions of won) Cash flows from operating activities Cash generated from operating activities 33 ￦15,373,261 6,486,781 10,357,267 Interest received 41,680 42,895 51,610 Interest paid (120,332 ) (125,818 ) (124,304 ) Dividends received 14,841 20,744 17,045 Income tax paid (618,836 ) (875,680 ) (982,098 ) Net cash provided by operating activities 14,690,614 5,548,922 9,319,520 Cash flows from investing activities Decrease (increase) in short-term financial instruments, net (2,119,004 ) 109,803 39,533 Decrease in other financial assets 308 5 — Increase in other financial assets (167 ) (2 ) — Collection of loans and other receivables 18,437 15,422 10,692 Increase in loans and other receivables (22,009 ) (13,613 ) (14,134 ) Proceeds from disposal of available-for-sale financial assets 3,431 2,651 1,319 Acquisition of available-for-sale financial assets (26,204 ) (19,085 ) (5,359 ) Cash inflows from derivative transactions 902 1,077 1,672 Cash outflows from derivative transactions (1,201 ) (1,525 ) (2,088 ) Proceeds from disposal of property, plant and equipment 244,897 162,120 220,097 Acquisition of property, plant and equipment (9,128,303 ) (5,956,354) (6,774,625 ) Proceeds from disposal of intangible assets 3,249 1,585 7,963 Acquisition of intangible assets (784,911 ) (530,375 ) (623,743 ) Proceeds from disposal of assets held for sale — — 22,630 Receipt of government grants 5,900 133 406 Acquisition of investments in associates (114,487 ) (2,293 ) (9,893 ) Net cash used in investing activities (11,919,162) (6,230,451) (7,125,530 ) Cash flows from financing activities Proceeds from borrowings 33 782,330 2,080,343 3,933,056 Repayments of borrowings 33 (710,635 ) (1,610,466) (4,405,023 ) Acquisition of treasury shares — — (771,889 ) Dividends paid (423,601 ) (353,001 ) (218,401 ) Net cash provided by (used in) financing activities (351,906 ) 116,876 (1,462,257 ) Effect of movements in exchange rates on cash and cash equivalents (83,341 ) 2,720 7,225 Net increase (decrease) in cash and cash equivalents 2,336,205 (561,933 ) 738,958 Cash and cash equivalents at beginning of the year 613,786 1,175,719 436,761 Cash and cash equivalents at end of the year ￦2,949,991 613,786 1,175,719

See accompanying notes to the consolidated financial statements.

G-7

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

1. Reporting Entity

(1) General information about SK hynix, Inc. (the “Parent Company” or the “Company”) and its subsidiaries (collectively the “Group”) is as follows: The Parent Company is engaged in the manufacture, distribution and sales of semiconductor products and its shares have been listed on the Korea Exchange since 1996. The Parent Company’s headquarters is located at 2091 Gyeongchung-daero, Bubal-eup, Icheon-si, Gyeonggi-do, South Korea, and the Group has manufacturing facilities in Icheon-si and Cheongju-si, South Korea, and Wuxi and Chongqing, China. As of December 31, 2017, the shareholders of the Parent Company are as follows:

Number of Percentage of Shareholder shares ownership (%) SK Telecom Co., Ltd. 146,100,000 20.07 National Pension Service 72,818,475 10.00 Other investors 487,083,320 66.91 Treasury shares 22,000,570 3.02 728,002,365 100.00

The Parent Company’s common shares and depositary receipts (DRs) are listed on the Stock Market of Korea Exchange and the Luxembourg Stock Exchange.

G-8

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

1. Reporting Entity, continued

(2) Details of the Group’s consolidated subsidiaries as of December 31, 2017 and 2016 are as follows:

Ownership (%) Company Location Business 2017 2016 SK hyeng Inc. Korea Domestic subsidiary 100.00 100.00 SK hystec Inc. Korea Domestic subsidiary 100.00 100.00 Siliconfile Technologies Inc. Development and manufacturing Korea of electronic component 100.00 100.00 Happy More Inc. Korea Domestic subsidiary 100.00 100.00 SK hynix system ic Inc.1 Korea Foundry business 100.00 — SK hynix America Inc. (SKHYA) U.S.A. Overseas sales subsidiary 97.74 97.74 SK hynix Deutschland GmbH (SKHYD) Germany Overseas sales subsidiary 100.00 100.00 SK hynix Asia Pte. Ltd. (SKHYS) Singapore Overseas sales subsidiary 100.00 100.00 SK hynix Semiconductor Hong Kong Ltd. (SKHYH) Hong Kong Overseas sales subsidiary 100.00 100.00 SK hynix U.K. Ltd. (SKHYU) U.K. Overseas sales subsidiary 100.00 100.00 SK hynix Semiconductor Taiwan Inc. (SKHYT) Taiwan Overseas sales subsidiary 100.00 100.00 SK hynix Japan Inc. (SKHYJ) Japan Overseas sales subsidiary 100.00 100.00 SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) China Overseas sales subsidiary 100.00 100.00 SK hynix Semiconductor India Private Ltd. (SKHYIS)2 India Overseas sales subsidiary 100.00 100.00 SK hynix (Wuxi) Semiconductor Sales Ltd. (SKHYCW) China Overseas sales subsidiary 100.00 100.00 Overseas manufacturing SK hynix Semiconductor (China) Ltd. (SKHYCL) China subsidiary 100.00 100.00 Overseas manufacturing SK hynix Semiconductor (Wuxi) Ltd. (SKHYMC) China subsidiary 100.00 100.00 Overseas manufacturing SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL)3 China subsidiary 100.00 100.00 SK hynix Italy S.r.l (SKHYIT) Italy Overseas R&D center 100.00 100.00 SK hynix memory solutions Inc. (SKHMS) U.S.A. Overseas R&D center 100.00 100.00 SK hynix Flash Solution Taiwan (SKHYFST) Taiwan Overseas R&D center 100.00 100.00 Softeq Flash Solutions LLC. (SOFTEQ) Belarus Overseas R&D center 100.00 100.00 SK APTECH Ltd. (SKAPTECH) Overseas investment Hong Kong subsidiary 100.00 100.00 Overseas investment SK hynix Venture Hong Kong Ltd. (SKH Ventures) Hong Kong subsidiary 100.00 100.00 MMT (Money Market Trust) Korea Money Market Trust 100.00 100.00

1 SK hynix system ic Inc. was established during the year ended December 31, 2017. 2 Subsidiary of SK hynix Asia Pte. Ltd. 3 Subsidiary of SK APTECH Ltd.

G-9

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

1. Reporting Entity, continued

(3) Changes in the consolidated subsidiaries during the year ended December 31, 2017 are follows:

Company Description Newly included SK hynix system ic Inc. Newly established

(4) Major subsidiaries’ summarized separate statements of financial position as of December 31, 2017 and 2016 are as follows:

2017 2016 Assets Liabilities Equity Assets Liabilities Equity (In millions of won) SK hynix America Inc. (SKHYA) ￦2,522,348 2,259,210 263,138 1,584,043 1,279,493 304,550 SK hynix Deutschland GmbH (SKHYD) 108,470 70,430 38,040 83,388 45,575 37,813 SK hynix Asia Pte. Ltd. (SKHYS) 636,286 559,400 76,886 337,506 253,918 83,588 SK hynix Semiconductor Hong Kong Ltd. (SKHYH) 1,043,889 918,305 125,584 932,437 810,556 121,881 SK hynix U.K. Ltd. (SKHYU) 325,434 308,999 16,435 146,327 128,807 17,520 SK hynix Semiconductor Taiwan Inc. (SKHYT) 566,155 536,592 29,563 310,933 290,174 20,759 SK hynix Japan Inc. (SKHYJ) 632,590 569,810 62,780 251,274 184,504 66,770 SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) 414,850 379,888 34,962 46,177 18,595 27,582 SK hynix Semiconductor (China) Ltd. (SKHYCL) 4,043,100 322,545 3,720,555 3,476,086 232,117 3,243,969 SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) 388,033 195,849 192,184 350,305 171,088 179,217

(5) Major subsidiaries’ summarized separate statements of comprehensive income for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 Total comprehensive Revenue Profit (Loss) income (loss) (In millions of won) SK hynix America Inc. (SKHYA) ￦11,096,526 (7,243 ) (7,243 ) SK hynix Deutschland GmbH (SKHYD) 476,709 (120 ) (120 ) SK hynix Asia Pte. Ltd. (SKHYS) 2,645,084 2,872 2,872 SK hynix Semiconductor Hong Kong Ltd. (SKHYH) 8,717,022 19,456 19,456 SK hynix U.K. Ltd. (SKHYU) 1,088,697 953 953 SK hynix Semiconductor Taiwan Inc. (SKHYT) 2,629,453 12,446 12,446 SK hynix Japan Inc. (SKHYJ) 940,254 1,761 1,761 SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) 1,332,939 8,230 8,230 SK hynix Semiconductor (China) Ltd. (SKHYCL) 2,185,341 338,969 338,969 SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) 355,982 23,441 23,441

G-10

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

1. Reporting Entity, continued

2016 Total comprehensive Revenue Profit income (In millions of won) SK hynix America Inc. (SKHYA) ￦5,398,193 117,848 117,848 SK hynix Deutschland GmbH (SKHYD) 321,309 1,747 1,747 SK hynix Asia Pte. Ltd. (SKHYS) 1,497,869 1,929 1,929 SK hynix Semiconductor Hong Kong Ltd. (SKHYH) 5,655,093 20,019 20,019 SK hynix U.K. Ltd. (SKHYU) 532,661 374 374 SK hynix Semiconductor Taiwan Inc. (SKHYT) 1,742,632 2,676 2,676 SK hynix Japan Inc. (SKHYJ) 673,127 867 804 SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) 345,863 6,073 6,073 SK hynix Semiconductor (China) Ltd. (SKHYCL) 2,137,576 123,753 123,753 SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) 296,121 2,674 2,674

2015 Total comprehensive Revenue Profit income (In millions of won) SK hynix America Inc. (SKHYA) ￦7,599,679 89,716 89,716 SK hynix Deutschland GmbH (SKHYD) 414,489 1,072 1,072 SK hynix Asia Pte. Ltd. (SKHYS) 1,612,550 1,303 1,303 SK hynix Semiconductor Hong Kong Ltd. (SKHYH) 4,181,208 6,909 6,909 SK hynix U.K. Ltd. (SKHYU) 702,329 1,289 1,289 SK hynix Semiconductor Taiwan Inc. (SKHYT) 1,915,465 5,852 5,852 SK hynix Japan Inc. (SKHYJ) 934,001 1,116 1,322 SK hynix Semiconductor (Shanghai) Co., Ltd. (SKHYCS) 528,670 8,150 8,150 SK hynix Semiconductor (China) Ltd. (SKHYCL) 2,273,536 206,446 206,446 SK hynix Semiconductor (Chongqing) Ltd. (SKHYCQL) 350,110 13,328 13,328

(6) There are no significant non-controlling interests to the Group as of December 31, 2017, 2016 and 2015.

2. Basis of Preparation (1) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (IASB). The consolidated financial statements were authorized for issuance by the board of directors on January 24, 2018.

(2) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position: • derivative financial instruments are measured at fair value • financial instruments at fair value through profit or loss are measured at fair value

G-11

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

2. Basis of Preparation, continued • available-for-sale financial assets are measured at fair value • assets or liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

(3) Functional and presentation currency Financial statements of entities within the Group are presented in functional currency and the currency of the primary economic environment in which each entity operates. Consolidated financial statements of the Group are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(4) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(a) Critical judgments Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes for classification of leases.

(b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next fiscal year are included in the following notes for net realizable value of inventories, impairment of development costs and goodwill, recognition and measurement of provisions, measurement of defined benefit obligations, recognition of deferred tax assets.

(c) Fair value measurement The Group establishes fair value measurement policies and procedures as its accounting policies and disclosures require fair value measurements for various financial and non-financial assets and liabilities. Such policies and procedures are executed by the valuation department, which is responsible for the review of significant fair value measurements including fair values classified as level 3 in the fair value hierarchy. The valuation department regularly reviews unobservable significant inputs and valuation adjustments. If third party information such as prices available from an exchange, dealer, broker, industry group, pricing service or regulatory agency is used for fair value measurements, the valuation department reviews whether the valuation based on third party information includes classifications by levels within the fair value hierarchy and meets the requirements for the relevant standards. The Group uses the best observable inputs in market when measuring fair values of assets or liabilities. Fair values are classified within the fair value hierarchy based on inputs used in valuation methods as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

G-12

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

2. Basis of Preparation, continued Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) If various inputs used to measure fair value of assets or liabilities fall into different levels of the fair value hierarchy, the Group classifies the assets and liabilities at the lowest level of inputs among the fair value hierarchy which is significant to the entire measured value. The Group recognizes transfers between levels at the end of the reporting period of which such transfers occurred. Information about assumptions used for fair value measurements are included in note 6.

3. Significant Accounting Policies The significant accounting policies applied by the Group in preparation of its consolidated financial statements are explained below. Except for the new accounting standards that are effective for annual periods beginning on or after January 1, 2017, the accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

(1) Operating Segments An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the Group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. The Group’s CODM is the board of directors, who do not receive and therefore do not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic, product and customer information are provided in note 4.

(2) Basis of consolidation (a) Business combination A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

G-13

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (b) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(c) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of an investee begins from the date the Group obtains control of the investee and cease when the Group loses control of the investee.

(d) Loss of control If the Group loses control of a subsidiary, the Group derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial position and recognizes gain or loss associated with the loss of control attributable to the former controlling interest. Any investment retained in the former subsidiary is recognized at its fair value when control is lost.

(e) Interests in equity-accounted investees The Group’s interest in equity-accounted investees comprise interests in an associate and a joint venture. An associate is an entity in which the Group has significant influence, but not control or joint control, over the entity’s financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. Interests in an associate and a joint venture are initially recognized at cost including transaction costs. Subsequent to initial recognition, their carrying amounts are increased or decreased to recognize the Group’s share of the profit or loss and changes in equity of the associate or the joint venture. Distributions from equity-accounted investees are accounted for as deduction from the carrying amounts.

(f) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Group’s share of unrealized gain incurred from transactions with equity-accounted investees are eliminated and unrealized loss are eliminated using the same basis if there are no evidence of asset impairments.

(g) Business combinations under common control The assets and liabilities acquired in the combination of entities or business under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is added to or deducted from other capital adjustments.

(3) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

G-14

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (4) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method (except for goods in-transit that is based on the specific identification method), and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing inventories to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

(5) Non-derivative financial assets The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group recognizes financial assets in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Upon initial recognition, non-derivative financial assets not at fair value through profit or loss are measured at their fair value plus transaction costs that are directly attributable to the asset’s acquisition.

(a) Financial assets at fair value through profit or loss A financial asset is classified as financial assets at fair value through profit or loss if it is held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity investments A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Group has the positive intention and ability to hold to maturity, is classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest rate method.

(c) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method.

(d) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, and changes in their fair value, net of any tax effect, are recorded in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

G-15

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (e) De-recognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group neither transfers nor retains substantially all of the risks and rewards of ownership of the financial assets, it derecognizes the financial assets when it does not retain control over the transferred financial assets. If the Group has retained control over the transferred financial assets, it continues to recognize the assets to the extent of its continuing involvement. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f) Offsetting between financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Derivative financial instruments Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

(a) Embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: • the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; • a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and • the hybrid instrument is not measured at fair value with changes in fair value recognized in profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(b) Other derivative financial instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(7) Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at the end of each reporting period to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

G-16

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued Objective evidence that a financial asset is impaired includes: • significant financial difficulty of the issuer or obligor; • a breach of contract, such as default or delinquency in interest or principal payments; • the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; • it becoming probable that the borrower will enter bankruptcy or other financial reorganization; • the disappearance of an active market for that financial asset because of financial difficulties; or • observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot be identified with the individual financial assets in the group In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a) Financial assets measured at amortized cost An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the financial asset’s estimated future cash flows, impairment losses would be measured based on prices from any observable current market transactions. Impairment losses are deducted through an allowance account or directly from the carrying amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss either directly or by adjusting an allowance account.

(b) Financial assets carried at cost The amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

(8) Property, plant and equipment Property, plant and equipment are initially measured at cost. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable

G-17

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent to initial recognition, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses. Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred. Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized as other income or expenses. The estimated useful lives of the Group’s property, plant and equipment are as follows:

Useful lives (years) Buildings 10 - 50 Structures 10 - 30 Machinery 4 - 15 Vehicles 4 - 10 Other 3 - 15 Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(9) Borrowing costs The Group capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Group capitalizes during a period does not exceed the amount of borrowing costs incurred during that period.

G-18

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (10) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses. Goodwill arising from business combinations is recognized as the excess of the consideration transferred in the acquisition over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses. Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, certain intangible assets are determined as having indefinite useful lives and not amortized as there is no foreseeable limit to the period over which the assets are expected to be available for use. The estimated useful lives of the Group’s intangible assets are as follows:

Useful lives (years) Industrial rights 5 - 10 Development costs 2 Other intangible assets 4 - 50 Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates. Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(11) Government grants Government grants are not recognized unless there is reasonable assurance that the Group will comply with the grant’s conditions and that the grant will be received.

(a) Grants related to assets Government grants whose primary condition is that the Group purchases, constructs or otherwise acquires non-current assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the useful lives of depreciable assets.

(b) Grants related to income Government grants which are intended to compensate the Group for expenses incurred are recognized in profit or loss by as deduction of the related expenses.

G-19

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (12) Investment property Property held for the purpose of earning rental income or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation and impairment losses. Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the cost will flow to the Group and it can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day repair and maintenance are recognized in profit or loss as incurred. Investment property except for land, are depreciated on a straight-line basis over estimated useful lives. Depreciation methods, useful lives and residual values are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

(13) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories, and deferred tax assets, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount. The Group estimates the recoverable amount of an individual asset; however if it is impossible to measure the individual recoverable amount of an asset, the Group estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU. An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount. Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from business combination. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(14) Leases The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

G-20

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (a) Finance leases At the commencement of the lease term, the Group recognizes as finance lease assets and finance lease liabilities in its consolidated statements of financial position, the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset. Minimum lease payments are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. The Group reviews whether the leased asset is impaired.

(b) Operating leases Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the period of the lease.

(c) Determining whether an arrangement contains a lease Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset. At inception or reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a financial lease that it is impracticable to separate the payments reliably, the Group recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability is reduced as payments are made and an imputed finance expense on the liability recognized using the purchaser’s incremental borrowing rate of interest.

(15) Non-derivative financial liabilities The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

(a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, any directly attributable transaction costs are recognized in profit or loss as incurred.

G-21

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (b) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest rate method. The Group derecognizes a financial liability from the consolidated statements of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expires).

(16) Employee benefits (a) Short-term employee benefits Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(b) Other long-term employee benefits Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the reporting period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods. Any changes from remeasurements are recognized through profit or loss in the period in which they arise.

(c) Retirement benefits: defined benefit plans As of the end of reporting period, defined benefits liabilities relating to defined benefit plans are recognized as present value of defined benefit obligations, net of fair value of plan assets. The calculation is performed annually by an independent actuary using the projected unit credit method. When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Group recognizes an asset, to the extent of the present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan. Remeasurements of the net defined benefit liability (asset) comprise of actuarial gains and losses, the return on plan assets excluding amounts included in net interest on the net defined benefit liability (asset), and any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset), and are recognized in other comprehensive income. The Group determines net interests on net defined benefit liability (asset) by multiplying discount rate determined at the beginning of the annual reporting period and considers changes in net defined benefit liability (asset) from contributions and benefit payments. Net interest costs and other costs relating to the defined benefit plan are recognized through profit or loss. When the plan amendment or curtailment occurs, gains or losses on amendment or curtailment in benefits for the past service provided are recognized through profit or loss. The Group recognizes gain or loss on a settlement when the settlement of defined benefit plan occurs.

(d) Retirement benefits: defined contribution plans When an employee has provided service for a certain period of time in relation to the defined contribution plan, the contribution to the defined contribution plan is recognized in profit or loss except to be included in the cost of the asset. The contributions to be paid are recognized as liabilities (accrued expenses) less the contributions that have been already paid.

G-22

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (e) Termination benefits The Group recognizes a liability and expense for termination benefits at the earlier of the period when the Group can no longer withdraw the offer of those benefits and the period when the Group recognizes costs for a restructuring. If benefits are not payable within 12 months after the end of the reporting period, then they are discounted to their present value.

(17) Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A provision is used only for expenditures for which the provision was originally recognized.

(18) Emissions Rights The Group accounts for greenhouse gases emission right and the relevant liability as below pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission.

(a) Greenhouse Gases Emission Right Greenhouse Gases Emission Right consists of emission allowances, which are allocated from the government free of charge or purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business. Emission rights held for the purpose of performing the obligation is classified as intangible asset and is initially measured at cost and after initial recognition are carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period. The Group derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government in which the future economic benefits are no longer expected to be probable.

(b) Emission liability Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when it is probable that outflows of resources will be required to settle the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligations for emission rights to be submitted to the government for the

G-23

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period.

(19) Foreign currencies (a) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on the settlement or retranslation of monetary items are recognized in profit or loss, except for differences arising on the retranslation of the net investment in a foreign operation, which are recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

(b) Foreign operations If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods: The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at exchange rates at the reporting date. When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(20) Equity capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares is recognized as a deduction from equity, net of any tax effects. When the Group repurchases its share capital, the amount of the consideration paid is recognized as a deduction from equity and classified as treasury shares. The profits or losses from the purchase, disposal, reissue, or retirement of treasury shares are not recognized as current profit or loss. If the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

G-24

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (21) Share-based payment The Group has granted shares or share options to its employees. For equity-settled share-based payment transactions, the Group measures the goods or services received, and the corresponding increase in equity as a capital adjustment at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Group cannot reliably estimate the fair value of the goods or services received, the Group measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. If the fair value of the equity instruments cannot be estimated reliably at the measurement date, the Group measures them at their intrinsic value and recognizes the goods or services received based on the number of equity instruments that ultimately vest. For cash-settled share-based payment transactions, the Group measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Group remeasures the fair value of the liability at each reporting date and at the date of settlement, with changes in fair value recognized in profit or loss for the period.

(22) Revenue Revenue from the sale of goods, rendering of services or use of assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. (a) Sale of goods Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

(b) Sale of services Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(23) Finance income and finance expenses Finance income comprises interest and dividend income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale financial assets, and changes in the fair value of financial instruments at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive dividend is established. Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions, and changes in the fair value of financial instruments at fair value through profit or loss. Interest expense on borrowings and debentures are recognized in profit or loss using the effective interest rate method.

(24) Income taxes Income tax expense comprises current and deferred tax. Current and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

G-25

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (a) Current tax Current tax is the expected tax payable or refundable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

(b) Deferred tax Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Group recognizes deferred tax assets for all deductible temporary differences including unused tax loss and tax credit to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis. If there are any additional income tax expense incurred in accordance with dividend payments, such income tax expense is recognized when liabilities relating to the dividend payments are recognized.

(25) Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of outstanding ordinary shares, adjusted for own shares held, for the effects of all dilutive potential ordinary shares including convertible notes.

(26) Change in Accounting Policies The Group adopted the amendments to IAS 7 ‘Statement of Cash Flows‘ in the period beginning January 1, 2017. The amendment requires the Group to provide disclosures that enable users of financial statements to evaluate

G-26

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group has disclosed the reconciliation of the opening and closing balances of liabilities arising from financing activities including changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes in note 33.

(27) Standards issued but not yet adopted The following new standards, amendments to standards are effective for annual periods beginning after January 1, 2017 and earlier application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements.

(a) IFRS 9, Financial Instruments IFRS 9, ‘Financial Instruments’ is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing guidance in IAS 39, ‘Financial Instruments: Recognition and Measurement’. The Group plans to adopt IFRS 9 for the year beginning on January 1, 2018. IFRS 9 will generally be applied retrospectively; however, the Group plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement (including impairment) changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options. Key features of the new standard, IFRS 9, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships. IFRS 9 will require the Group to assess the financial impact from application of IFRS 9 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting IFRS 9 will be dependent on the financial instruments the Group holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future. During the year ended December 31, 2017, the Group assessed the impacts of adoption of IFRS 9 on its consolidated financial statements, the accounting system and the internal controls. The potential general impact on its consolidated financial statements resulting from the application of new standard are as follows:

(i) Classification and measurement of financial assets Under IFRS 9, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) based on the business model in which assets are managed and their cash flow characteristics, as detailed in the below table.

G-27

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued Under IFRS 9, derivatives embedded in hybrid contracts where the host is a financial asset are not bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

Contractual cash flows are solely payments of Business model principal and interests All other cases To collect contractual cash flows At amortized cost1 Both to collect contractual cash flows and sell financial assets At FVOCI1 FVTPL2 For trading, and others At FVOCI

1 The Group may irrevocably designate as at FVTPL to eliminate or significantly reduce an accounting mismatch. 2 The Group may irrevocably designate equity investments that is not held for trading as at FVOCI. As there are additional requirements for a financial asset to be classified as measured at amortized costs or FVOCI under IFRS 9 compared to the existing guidance in IAS 39, the adoption of IFRS 9 would potentially increase the proportion of financial assets that are measured at FVTPL, increasing volatility in the Group’s profit or loss. As of December 31, 2017, the Group has loans and receivables amounting to ￦13,257,944 million, available-for-sale financial assets amounting to ￦43,226 million, and financial assets at fair value through profit or loss amounting to ￦929,801 million. Under IFRS 9, a financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Under IFRS 9, a financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding. Under IFRS 9, on initial recognition of equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI, and will not reclassify(recycle) the those items in OCI to profit or loss subsequently. Under IFRS 9, a financial asset is measured at FVTPL if the contractual terms of the financial asset give rise to specified dates to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the debt instrument is held within a business model whose objective is to sell the asset, or the equity instruments that are not elected to be designated as measured at FVOCI.

G-28

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued Based on the evaluation to date, the expected impact on classification and measurement on financial assets that existed as of December 31, 2017 resulting from the adoption of the new standard is as follows.

Under IAS 39 Under IFRS 9 Under IAS 39 Under IFRS 9 (In millions of won) Cash and cash equivalents Loans and receivables Amortized cost ￦2,949,991 2,949,991 Short-term financial instruments Financial assets at fair value through profit or loss FVTPL 929,801 929,801 Short-term financial instruments Loans and receivables Amortized cost 4,674,862 4,674,862 Trade receivables Loans and receivables Amortized cost 5,552,795 5,552,795 Loans and other receivables Loans and receivables Amortized cost 80,023 80,023 Other financial assets Loans and receivables Amortized cost 273 273 Available-for-sale financial assets Available-for-sale financial assets FVTPL 43,226 43,226

￦14,230,971 14,230,971

(ii) Classification and measurement of financial liabilities Under IFRS 9, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in OCI, not recognized in profit or loss, and the OCI amount will not be reclassified (recycled) to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss. As a portion of fair value change, which was recognized in profit or loss under the existing standard, IAS 39, will be presented in OCI under IFRS 9, profit or loss related to valuation of financial liabilities is likely to decrease. As of December 31, 2017, there was no financial liabilities measured at FVTPL. (iii) Impairment: Financial assets and contract assets IFRS 9 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts. Under IFRS 9, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in IAS 39 as loss allowances will be measured on either of the 12-month or lifetime ECL based on the extent of increase in credit risk since inception as shown in the below table.

Classification1 Loss allowances Stage 1 Credit risk has not increased 12-month ECL: ECLs that resulted from possible default events significantly since the initial within the 12 months after the reporting date recognition2 Stage 2 Credit risk has increase significantly Lifetime ECL: ECL that resulted from all possible default events since the initial recognition over the expected life of a financial instrument Stage 3 Credit-impaired

G-29

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued

1 Under IFRS 15, for trade receivables and contract assets arising with no significant credit risk, loss allowances are recognized at an amount equal to lifetime expected credit losses. However, for trade receivables and contract assets with a significant financing component arising under IFRS 15, the Group may choose as its accounting policy to recognize loss allowances at an amount equal to lifetime expected credit losses. In addition, for receivables under lease arrangement, the Group may choose to recognize loss allowances at an amount equal to lifetime expected credit losses. 2 The Group may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the end of reporting period. Under IFRS 9, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime ECL since the initial recognition are recognized as loss allowances. As of December 31, 2017, the Group has financial instruments (loans and receivables) measured at amortized cost amounting to ￦13,260,404 million, and has recognized loss allowances for ￦2,460 million. Upon adoption of IFRS 9, the Group expects to measure the loss allowance based on the amount of expected credit losses over the entire period for trade receivables, contract assets and lease receivables that have significant financial elements. In addition, the Group plans to use the practical expedient by considering that the financial assets’ credit risks had not increased significant from initial recognition through January 1, 2018.

(b) IFRS 15, Revenue from Contracts from Customers IFRS 15 ‘Revenue from Contracts from Customers’, published in May 2014, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts, SIC 31 Revenue- Barter transactions involving advertising services, IFRIC 13 Customer Loyalty Programs, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers. The Group plans to adopt IFRS 15 in its consolidated financial statements for the year beginning on January 1, 2018, and in regards with transition to IFRS 15, the Group has decided to apply the cumulative effect method, i.e. recognizing the cumulative effect of applying IFRS 15 at the date of initial application, which is January 1, 2018, without restatement of the comparative periods presented. In doing so, the Group also decided to apply the practical expedients as allowed by IFRS 15 by applying the new standard only to those contracts that are not considered as completed contracts at the date of initial application. Existing IFRS standards and interpretations including IAS 18 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, IFRS 15, the five- step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements. The Group established a separate task force team to prepare for the adoption of IFRS 15 during the year ended December 31, 2017. The Group analyzed the revenue transactions of the Group with assistance from external professional accounting advisory firm and IT system service advisors, improved the internal control processes and established the related financial reporting system. As the adoption of IFRS 15 is expected to affect not only the accounting function, but also overall business practices including product sales strategy and business behavior, the Group are in the process of training employees on the changes as a result of the adoption of the new standard. The adoption plan and progress status of the new standard are reported to management on a regular basis. The information of expected impacts upon adoption of IFRS 15 disclosed herein is subject to change as management obtains new information and completes its transition efforts.

G-30

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (i) Identification of performance obligations in the contract The Group is engaged in the research and development, manufacture, distribution and sales of semiconductor products (DRAM, NAND flash and others), which generates a substantial portion of the consolidated revenue. When applying IFRS 15, ① sales of products and ② delivery of products (i.e. shipping service) are identified as separate performance obligations in the contracts with customers. However, for transactions for which the shipping terms are on delivery basis, which is the Group’s most common transaction term, those two performance obligations are not separately identified as the control over the products is transferred upon the completion of delivery. However, for the export transactions for which the shipping terms are on shipment basis (“C-terms”) and the customer pays shipping costs or insurance premiums, the two performance obligations are separately accounted for because delivery of products is performed after the control over the products is transferred to the customer. The transaction price allocated to the performance obligation of delivery service will be recognized when the obligation of delivery of the product is completed. In estimating the financial impact of the Group in connection with the adoption of IFRS 15, the Group’s revenue in relation to the performance obligation of delivery of products under C-terms is expected to be deferred, however, the impact is not expected to be material.

(ii) Performance obligations that are satisfied over time: Foundry service SK hynix system ic Inc., a subsidiary of the Parent Company, is engaged in providing foundry services to semi-conductor manufacturers and the period from the receipt of the customer’s order to the completion of production and delivery is generally within two months. Under the current standards, the Group recognized revenue upon the completion of delivery of items produced and the revenue recognized ￦116,083 million for the year ended December 31, 2017. According to IFRS 15, the revenue in connection with the above transactions can be recognized over time under completion of percentage method when the produced items do not have any alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Based on the result of analysis for the contract conditions for foundry services and any past experience in which the Group billed intermediate payments for services performed on unfinished items, management of the Group does not believe enforceable right to payment existed for the services performed on partially completed items. Therefore, in connection with the adoption of IFRS 15, the Group does not expect any financial impact in relation to the above foundry service performance obligation that is satisfied over time.

(iii) Variable consideration In general, the Group’s contract with customers allows a customer to return the products. Under IFRS 15, the Group initially recognizes revenue, which is measured at the gross transaction price, less the expected level of returns using the guidance on estimating variable considerations and the constraint. The expected level of returns is estimated by using the method the Group expects to better predict the amount of consideration to which it will be entitled. Also, the Group includes an amount of variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the return period expires. The Group recognizes the amounts received or receivable for which the Group does not expect to be entitled as a refund liability. Based on the evaluation to date, upon adoption of IFRS 15 on January 1, 2018, the Group’s provisions are expected to decrease by ￦30,672 million and Group’s other current assets and other current liabilities are expected to increase by ￦17,884 million and ￦48,556 million, respectively.

G-31

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (iv) Allocation of the transaction price to performance obligations In applying IFRS 15, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. To estimate the stand-alone selling price, ‘adjusted market assessment approach’ will be used; however, for certain transactions, ‘expected cost plus a margin approach’ will be used under exceptional cases.

(v) The adoption of IFRS 15 does not have any impact on the Group’s consolidated statements of cash flows.

(c) IFRS 16, Leases IFRS 16 ‘Leases’ is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 replaces existing leases guidance including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC 15, Operating Leases—Incentives and SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 provides a single model where leasee recognize assets and liabilities in relation with lease contract on financial statements. Lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. However, there are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard of IAS 17. The Group started initial assessment on the adoption of IFRS 16, however more detailed assessment has not been conducted. The actual financial impact at the date of initial adoption when IFRS 16 is applied is determined by a future economic environments at the date of initial application such as the borrowing interest rate and a portfolio of lease contracts as of January 1, 2019, execution of lease renewal option and coverage in use of a practical expedient and lease recognition exemption and others. Based on the evaluation to date, the most significant impact identified is that the Group shall recognize assets and liabilities for the warehouses and manufacturing facilities used under an operating lease. As a result of the adoption of IFRS 16, the nature of costs in relation with leases will be changed as the operating lease expenses previously recognized on a straight-line basis will be changed to depreciation expenses of right-of-use assets and interest expenses of lease liabilities.

(i) Determining whether arrangement contains a lease There are certain arrangements, which are not in the legal form of a lease but determined to contain lease under IFRIC 4. In applying IFRS 16, the Group may elect either: • applying the definition of lease under IFRS 16 for the Group’s entire lease contracts; or • applying a practical expedient that the Group does not reassess whether an arrangement is, or contains, a lease The Group plans to apply the practical expedient that maintains the definition of lease for the lease contracts existing at the date of initial application. When the practical expedient is applied, leases contracted before January 1, 2019 and identified as a lease under IAS 17 or IFRIC 4 are accounted for by applying IFRS 16 without reassessing whether the contracts satisfy the definition of lease under the new standard.

G-32

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

3. Significant Accounting Policies, continued (ii) Transition As a lessee, the Group can apply the IFRS 16 using either: • a full retrospective approach; or • a modified retrospective approach with a practical expedient. Lessee should apply one of the approach consistently for lessee’s entire lease contracts. Modified retrospective approach requires the lessee to recognize the cumulative effect of initial application in retained earnings as of January 1, 2019 and the comparative financial statement will not be restated. When modified retrospective approach is applied for the lease contracts classified as an operating lease under IAS 17, leasee may elect the application of various practical expedients for each existing lease contracts at the date of adoption of the standard. The Group is assessing the financial impact when the practical expedient is applied.

4. Geographic, Product and Customer Information The Group has a single reportable segment that is engaged in the manufacture and sale of semiconductor products. The management of the Group reviews the operation result of the semiconductor business for reporting information used and reviewed when establishing the Group’s business strategy. (1) Details of the Group’s revenue for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Sale of goods ￦30,035,297 17,146,961 18,739,177 Sale of services 74,137 51,014 58,821 ￦30,109,434 17,197,975 18,797,998

(2) Details of the Group’s revenue by product and service types for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) DRAM ￦22,887,259 12,340,767 14,045,339 NAND Flash 6,648,748 4,347,535 4,148,315 Other 573,427 509,673 604,344 ￦30,109,434 17,197,975 18,797,998

(3) The Group’s revenue information by region based on the location of selling entities for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Korea ￦1,207,464 1,099,426 1,204,642 China 10,074,686 5,960,235 4,496,357 Taiwan 2,626,577 1,732,573 1,899,649 Asia (other than China and Taiwan) 3,574,788 2,165,201 2,536,009 U.S.A. 11,063,503 5,397,944 7,549,622 Europe 1,562,416 842,596 1,111,719 ￦30,109,434 17,197,975 18,797,998

G-33

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

4. Geographic, Product and Customer Information, continued (4) The Group’s non-current assets (excluding financial assets, loans and other receivables, equity-accounted- investees and deferred tax assets) information by region based on the location of subsidiaries as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Korea ￦23,959,991 18,078,337 China 2,768,494 2,805,712 Taiwan 5,752 6,835 Asia (other than China and Taiwan) 1,100 1,522 U.S.A. 318,567 364,188 Europe 8,560 9,374 ￦27,062,464 21,265,968

(5) Revenue from customer A constituting more than 10% of the Group’s consolidated revenue for the year ended December 31, 2017 amounts to ￦4,113,904 million (2016: ￦2,195,935 million, 2015: ￦3,485,795 million) and revenue from customer B constituting more than 10% of the Group’s consolidated revenue for the year ended December 31, 2017 amounted to ￦3,690,504 million (2016: ￦1,503,256 million, 2015: ￦2,078,835 million), respectively.

5. Categories of Financial Instruments (1) Categories of financial assets as of December 31, 2017 and 2016 are as follows:

2017 Financial assets Available- at fair value for-sale through profit financial Loans and or loss assets receivables Total (In millions of won) Cash and cash equivalents ￦ — — 2,949,991 2,949,991 Short-term financial instruments 929,801 — 4,674,862 5,604,663 Trade receivables — — 5,552,795 5,552,795 Loans and other receivables — — 80,023 80,023 Other financial assets — — 273 273 Available-for-sale financial assets — 43,226 — 43,226 ￦ 929,801 43,226 13,257,944 14,230,971

G-34

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

5. Categories of Financial Instruments, continued

2016 Financial Available- assets at fair for-sale value through financial Loans and profit or loss assets receivables Total (In millions of won) Cash and cash equivalents ￦— — 613,786 613,786 Short-term financial instruments 1,570,172 — 1,951,721 3,521,893 Trade receivables — — 3,251,652 3,251,652 Loans and other receivables — — 65,101 65,101 Other financial assets — — 423 423 Available-for-sale financial assets — 147,779 — 147,779 ￦1,570,172 147,779 5,882,683 7,600,634

(2) Categories of financial liabilities as of December 31, 2017 and 2016 are as follows:

2017 Financial liabilities Financial liabilities at fair value through measured at profit or loss amortized cost Total (In millions of won) Trade payables ￦ — 758,578 758,578 Other payables — 2,724,547 2,724,547 Other non-trade payables1 — 1,343,637 1,343,637 Borrowings — 4,171,270 4,171,270 ￦ — 8,998,032 8,998,032

2016 Financial liabilities Financial liabilities at fair value through measured at profit or loss amortized cost Total (In millions of won) Trade payables ￦ — 696,144 696,144 Other payables — 1,606,417 1,606,417 Other non-trade payables1 — 712,580 712,580 Borrowings — 4,335,978 4,335,978 Other financial liabilities 288 — 288 ￦ 288 7,351,119 7,351,407

G-35

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

5. Categories of Financial Instruments, continued

1 Details of other non-trade payables as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Current Accrued expenses ￦1,340,225 685,154 Non-current Rent deposits payable 3,412 2,554 Long-term other payables — 24,872 3,412 27,426 ￦1,343,637 712,580

(3) Details of gain and loss on financial assets and liabilities by category for the years ended December 31, 2017, 2016 and 2015 are as follows:

(a) profit or loss

2017 2016 2015 (In millions of won) Loans and receivables Interest income ￦54,275 34,174 40,715 Foreign exchange differences (679,287) 167,736 300,163 Reversal of impairment 2,119 5,617 82 (622,893) 207,527 340,960 Available-for-sale financial assets Dividend income 13 18 1,265 Gain on disposal 30,920 — — 30,933 18 1,265 Financial assets at fair value through profit or loss Gain on valuation 1,399 1,133 2,280 Gain on disposal 15,754 15,348 33,814 17,153 16,481 36,094 Financial liabilities measured at amortized cost Interest expenses (123,918) (120,122) (118,505) Foreign exchange differences 447,707 (129,670) (242,532) 323,789 (249,792) (361,037) Financial liabilities at fair value through profit or loss Gain on valuation from derivative instruments — 395 25 Loss on transaction from derivative instruments (11 ) (448 ) (386 ) (11 ) (53 ) (361 ) ￦(251,029) (25,819 ) 16,921

G-36

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

5. Categories of Financial Instruments, continued (b) Other comprehensive income

2017 2016 2015 (In millions of won) Loss on valuation of available-for-sale financial assets , net of tax ￦(10,735) — —

6. Financial Risk Management (1) Financial risk management The Group’s activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Risk management is carried out by the Parent Company’s corporate finance division in accordance with policies approved by the board of directors. The Parent Company’s corporate finance division identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The board of directors provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, and credit risk; use of derivative financial instruments and non-derivative financial instruments; and the investment of excess liquidity.

(a) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, Euro and Japanese Yen. Foreign exchange risk arises from future commercial transactions; recognized assets and liabilities in foreign currencies; and net investments in foreign operations. Monetary foreign currency assets and liabilities as of December 31, 2017 are as follows:

Assets Liabilities Foreign Korean won Foreign Korean won currencies equivalent currencies equivalent (In millions of won and millions of foreign currencies) USD 11,622 ￦12,452,053 5,182 ￦5,551,604 EUR 18 22,871 91 116,751 JPY 1,659 15,746 64,691 613,991 As of December 31, 2017, the impacts from foreign exchange risks on each monetary foreign currency assets and liabilities assuming change in exchange rate by 10% are as follows:

If increased by 10% If decreased by 10% (In millions of won) USD ￦ 690,045 (690,045 ) EUR (9,388 ) 9,388 JPY (59,825 ) 59,825

G-37

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

6. Financial Risk Management, continued (ii) Interest rate risk Interest rate risk of the Group is defined as the risk that the interest expenses arising from borrowings will fluctuate because of changes in future market interest rate. The interest rate risk mainly arises through floating rate borrowings, and is partially offset by interests received from floating rate financial assets. As of December 31, 2017, the Group is partially exposed to a risk of increase in interest rates. If interest rates on borrowings were 100 basis points higher/lower with all other variables held constant, profit before income tax for the following year would be ￦20,571 million (2016: ￦22,277 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and interest income on floating rate financial assets.

(iii) Price risk The Group invests in equity and debt securities resulted from its business needs and the purpose of liquidity management. The Group’s equity and debt securities are exposed to price risk as of December 31, 2017.

(b) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from operating and investing activities. In order to manage credit risk, the Group periodically evaluates the credit worthiness of each customer or counterparty through the analysis of its financial information, historical transaction records and other factors, based on which the Group establishes credit limits for each customer or counterparty.

(i) Trade and other receivables For each new customer, the Group individually analyzes its credit worthiness before standard payment and delivery terms and conditions are offered. In addition, the Group is consistently managing trade and other receivables by reevaluating the customer’s credit worthiness and securing collaterals in order to limit its credit risk exposure. The Group reviews at the end of each reporting period whether trade and other receivables are impaired and maintains credit insurance policies to manage credit risk exposure from oversea customers. The maximum exposure to credit risk as of December 31, 2017 is the carrying amount of trade and other receivables.

(ii) Other financial assets Credit risk also arises from other financial assets such as cash and cash equivalents; short-term financial instruments; and deposits with banks and financial institutions as well as short-term and long-term loans mainly due to the bankruptcy of each counterparty to those financial assets. The maximum exposure to credit risk as of December 31, 2017 is the carrying amount of those financial assets. The Group transacts only with banks and financial institutions with high credit ratings, and accordingly management does not expect any losses from non-performance by these counterparties.

(c) Liquidity risk Liquidity risk is defined as the risk that the Group is unable to meet its short-term payment obligations on time due to deterioration of its business performance or inability to access financing. The Group forecasts its cash flow and liquidity status and sets action plans on a regular basis to manage liquidity risk proactively. The Group invests surplus cash in interest-bearing current accounts, time deposits, demand deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts.

G-38

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

6. Financial Risk Management, continued Contractual maturities of financial liabilities as of December 31, 2017 and 2016 are as follows:

2017 More Less than 1 than 5 year 1 - 2 years 2 - 5 years years Total (In millions of won) Borrowings (other than finance lease liabilities) ￦732,902 1,155,876 2,248,059 81,038 4,217,875 Finance lease liabilities 10,773 10,773 32,254 34,748 88,548 Trade payables 758,578 — — — 758,578 Other payables 2,724,885 — — — 2,724,885 Other non-trade payables 1,317,032 — 3,412 — 1,320,444 Financial guarantee contract 8 — — — 8 ￦5,544,178 1,166,649 2,283,725 115,786 9,110,338

2016 Less than 1 1 - 2 More than year years 2 - 5 years 5 years Total (In millions of won) Borrowings (other than finance lease liabilities) ￦785,989 706,827 2,853,218 235,562 4,581,596 Finance lease liabilities 27,043 5,350 16,050 18,725 67,168 Trade payables 696,144 — — — 696,144 Other payables 1,610,757 — — — 1,610,757 Other non-trade payables 667,485 25,224 2,554 — 695,263 Derivatives 288 — — — 288 Financial guarantee contract 8 — — — 8 ￦3,787,714 737,401 2,871,822 254,287 7,651,224

The table above analyzes the Group’s non-derivative financial liabilities into relevant maturity groups based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows and include estimated interest payments.

(2) Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends to shareholders, proceeds and repayments of borrowings, issue new shares or sell assets to reduce debt.

G-39

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

6. Financial Risk Management, continued The debt-to-equity ratio and net borrowing ratio as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Total liabilities (A) ￦11,597,545 8,192,496 Total equity (B) 33,820,919 24,023,530 Cash and cash equivalents and short-term financial instruments (C) 8,554,654 4,135,679 Total borrowings (D) 4,171,270 4,335,978 Debt-to-equity ratio (A/B) 34.29% 34.10% Net borrowing ratio (D-C)/B1 — 0.83%

1 Does not present net borrowing ratio as of December 31, 2017 as the ratio was calculated as negative. (3) Fair value (a) The following table presents the carrying amounts and fair values of financial instruments by categories, including their levels in the fair value hierarchy, as of December 31, 2017 and 2016:

2017 Carrying amounts Level 1 Level 2 Level 3 Total (In millions of won) Financial assets measured at fair value Short-term financial instruments ￦929,801 — 929,801 — 929,801 Available-for-sale financial assets 13,526 — — 13,526 13,526 943,327 — 929,801 13,526 943,327 Financial assets not measured at fair value Cash and cash equivalents1 2,949,991 — — — — Short-term financial instruments1 4,674,862 — — — — Trade receivables1 5,552,795 — — — — Loans and other receivables1 80,023 — — — — Other financial assets1 273 — — — — Available-for-sale financial assets1,2 29,700 — — — — 13,287,644 — — — — Financial liabilities not measured at fair value Trade payables1 758,578 — — — — Other payables1 2,724,547 — — — — Other non-trade payables1 1,343,637 — — — — Borrowings 4,171,270 — 4,178,598 — 4,178,598 ￦8,998,032 — 4,178,598 — 4,178,598

G-40

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

6. Financial Risk Management, continued

2016 Carrying amounts Level 1 Level 2 Level 3 Total (In millions of won) Financial assets measured at fair value Short-term financial instruments ￦ 1,570,172 — 1,570,172 — 1,570,172 1,570,172 — 1,570,172 — 1,570,172 Financial assets not measured at fair value Cash and cash equivalents1 613,786 — — — — Short-term financial instruments1 1,951,721 — — — — Trade receivables1 3,251,652 — — — — Loans and other receivables1 65,101 — — — — Other financial assets1 423 — — — — Available-for-sale financial assets1,2 147,779 — — — — 6,030,462 — — — — Financial liabilities measured at fair value Other financial liabilities 288 — 288 — 288 288 — 288 — 288 Financial liabilities not measured at fair value Trade payables1 696,144 — — — — Other payables1 1,606,417 — — — — Other non-trade payables1 712,580 — — — — Borrowings 4,335,978 — 4,366,234 — 4,366,234 ￦ 7,351,119 — 4,366,234 — 4,366,234

1 Does not include fair values of financial assets and liabilities of which fair values have not been measured as carrying amounts are reasonable approximate fair values. 2 Equity instruments which do not have quoted price in an active market for the identical instruments (inputs for level 1) are measured at cost in accordance with IAS 39, ‘Financial Instrument: Recognition and Measurement’ as fair values of such equity instruments cannot be reliably measured using other valuation techniques. (b) Valuation Techniques The valuation techniques of recurring and non-recurring fair value measurements and quoted prices classified as level 2 or level 3 are as follows:

Fair value Level Valuation Techniques (In millions of won) Short-term financial instruments: Financial assets at fair value through profit or loss ￦ 929,801 2 The present value method Available-for-sale financial assets: Available-for-sale equity instruments 13,526 3 The binomial model and others

G-41

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

6. Financial Risk Management, continued (c) There was no transfer between fair value hierarchy levels for the year ended December 31, 2017 and the changes in financial assets classified as level 3 fair value measurements during the year ended December 31, 2017 are as follows:

Other Beginning Comprehensive Ending Balance Transfers Acquisition Disposals loss Balance (In millions of won) Available-for-sale financial assets ￦ — 24,963 3,392 (22 ) (14,807 ) 13,526

7. Restricted Financial Instruments Details of restricted financial instruments as of December 31, 2017 and 2016 are as follows:

2017 2016 Description (In millions of won) Short-term financial instruments ￦ 227,500 77,500 Restricted for supporting small business 5,695 6,220 Pledged for consumption tax 1,287 — Others 234,482 83,720 Other financial assets — 308 Pledged for borrowings 11 12 Bank overdraft guarantee deposit 262 104 Others 273 424 ￦ 234,755 84,144

8. Trade Receivables and Loans and Other Receivables (1) Details of loans and other receivables as of December 31, 2017 and 2016 are as follows:

2017 2016 Current (In millions of won) Other receivables ￦10,816 11,571 Accrued income 22,308 9,732 Short-term loans 2,886 3,145 Short-term guarantee and other deposits 1,603 1,163 37,613 25,611 Non-current Long-term other receivables 56 60 Long-term loans 11,098 6,008 Guarantee deposits 31,109 33,261 Long-term deposits 147 161 42,410 39,490 ￦80,023 65,101

G-42

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

8. Trade Receivables and Loans and Other Receivables, continued (2) Trade receivables and loans and other receivables, net of provision for impairment, as of December 31, 2017 and 2016 are as follows:

2017 Gross Provision for Carrying amount impairment amount (In millions of won) Trade receivables ￦5,552,841 (46 ) 5,552,795 Current loans and other receivables 38,940 (1,327 ) 37,613 Non-current loans and other receivables 43,497 (1,087 ) 42,410 ￦5,635,278 (2,460) 5,632,818

2016 Provision Gross for Carrying amount impairment amount (In millions of won) Trade receivables ￦3,253,489 (1,837 ) 3,251,652 Current loans and other receivables 26,982 (1,371 ) 25,611 Non-current loans and other receivables 40,966 (1,476 ) 39,490 ￦3,321,437 (4,684) 3,316,753

(3) Details of provision for impairment Movements in the provision for impairment of trade receivables for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦1,837 2,974 Reversal (1,778) (836 ) Receivables written off during the year as uncollectible — (306 ) Foreign exchange difference (13 ) 5 Ending balance ￦46 1,837

Movements in the provision for impairment of current loans and other receivables for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦1,371 1,433 Provision 32 — Reversal (85 ) (62 ) Foreign exchange difference 9 — Ending balance ￦1,327 1,371

G-43

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

8. Trade Receivables and Loans and Other Receivables, continued Movements in the provision for impairment of non-current loans and other receivables for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦1,476 6,143 Provision — 34 Reversal (297 ) (4,753) Foreign exchange difference (92 ) 52 Ending balance ￦1,087 1,476

(4) The aging analysis of trade receivables and loans and other receivables as of December 31, 2017 and 2016 are as follows:

2017 Not impaired Overdue Over 3 months Not Past Less than and less than Over due 3 months 6 months 6 months Impaired Total (In millions of won) Trade receivables ￦5,551,276 1,560 — 1 4 5,552,841 Current loans and other receivables 37,654 — — — 1,286 38,940 Non-current loans and other receivables 43,395 — — — 102 43,497 ￦5,632,325 1,560 — 1 1,392 5,635,278

2016 Not impaired Overdue Over 3 months Not Past Less than and less than Over due 3 months 6 months 6 months Impaired Total (In millions of won) Trade receivables ￦3,252,891 598 — — — 3,253,489 Current loans and other receivables 25,692 — — — 1,290 26,982 Non-current loans and other receivables 40,864 — — — 102 40,966 ￦3,319,447 598 — — 1,392 3,321,437

G-44

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

9. Inventories (1) Details of inventories as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Finished goods ￦433,405 391,503 Work-in-process 1,616,889 1,130,493 Raw materials 296,252 260,677 Supplies 270,804 194,678 Goods in transit 23,089 48,847 ￦2,640,439 2,026,198

(2) The amount of the inventories recognized as cost of sales is as follows:

2017 2016 2015 (In millions of won) Inventories recognized as cost of sales ￦12,700,702 10,787,034 10,514,640 (3) The changes in inventory valuation allowance during the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦64,200 188,246 Charged to cost of sales 133,164 13,192 Utilization upon sales (15,253 ) (137,238) Ending balance ￦182,111 64,200

There were no significant reversals of inventory write-downs recognized during 2017 and 2016.

10. Other Current and Non-current Assets Details of other current and non-current assets as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Current Advance payments ￦34,887 1,853 Prepaid expenses 222,411 238,831 Value added tax refundable 263,287 148,756 Others 3,053 9,913 523,638 399,353 Non-current Long-term advance payments 183,489 — Long-term prepaid expenses 553,231 568,907 Others — 1,495 736,720 570,402 ￦1,260,358 969,755

G-45

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

11. Investments in Associates and Joint Ventures (1) Details of investments in associates and joint ventures as of December 31, 2017 and 2016 are as follows:

2017 2016 Ownership Net asset Carrying Carrying Type Investee (%) value amount amount (In millions of won) Associate Stratio, Inc.1 9.12 ￦104 2,105 2,151 SK China Company Limited (SK China) 1, 2 11.87 192,561 244,912 — Gemini Partners Pte. Ltd. 20.00 2,308 4,003 5,199 TCL Fund1 11.06 2,634 2,634 2,219 Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. (HITECH) 45.00 106,210 106,210 121,447 ￦ 359,864 131,016

1 The Group is able to exercise significant influence through its right to appoint a director to the board of directors of each investee. Accordingly, the investments in these investees have been accounted for using the equity method. 2 During the year ended December 31, 2017, the Group acquired shares of SK China through a combination of contribution in kind of available-for-sale financial assets for which the fair value amounted to ￦143,209 million as of acquisition date and cash in the amount of ￦113,960 million. (2) Changes in investments in associates and joint ventures for the years ended December 31, 2017 and 2016 are as follows:

2017 Share of Other Beginning profit equity Ending balance Acquisition (loss) movement Dividend balance (In millions of won) Stratio, Inc. ￦2,151 — (30 ) (16 ) — 2,105 SK China — 257,169 — (12,257 ) — 244,912 Gemini Partners Pte. Ltd. 5,199 — (1,084 ) (112 ) — 4,003 TCL Fund 2,219 526 16 (127 ) — 2,634 HITECH 121,447 — 13,465 (13,874 ) (14,828) 106,210 ￦131,016 257,695 12,367 (26,386 ) (14,828) 359,864

2016 Share of Other Beginning profit equity Ending balance Acquisition (loss) movement Dividend balance (In millions of won) Stratio, Inc. ￦2,171 — (24 ) 4 — 2,151 Gemini Partners Pte. Ltd. 7,976 — (2,909 ) 132 — 5,199 TCL Fund — 2,293 50 (124 ) — 2,219 HITECH 112,462 — 25,635 4,076 (20,726) 121,447 ￦122,609 2,293 22,752 4,088 (20,726) 131,016

G-46

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

11. Investments in Associates and Joint Ventures, continued (3) Associate and joint venture’s statements of financial position as of December 31, 2017 and 2016 are as follows:

2017 Current Non-current Current Non-current assets assets liabilities liabilities (In millions of won) Stratio, Inc. ￦681 577 111 — SK China 812,882 934,872 54,752 70,213 Gemini Partners Pte. Ltd. 6,227 5,314 2 — TCL Fund 7,863 15,957 — — HITECH 192,905 334,678 79,725 211,835

2016 Current Non-current Current Non-current assets assets liabilities liabilities (In millions of won) Stratio, Inc. ￦998 686 27 — Gemini Partners Pte. Ltd. 13,047 4,467 93 — TCL Fund 16,388 3,993 329 — HITECH 184,048 350,094 82,581 181,679 (4) Summary of associate and joint venture’s statements of comprehensive income (loss) for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 Profit (loss) Profit (loss) Profit (loss) Revenue for the year Revenue for the year Revenue for the year (In millions of won) Stratio, Inc. ￦33 (339 ) 4 (198 ) — (385 ) SK China — — — — — — Gemini Partners Pte. Ltd. 183 (5,423 ) — (5,848 ) — (747 ) TCL Fund — 152 — (4 ) — — HITECH 585,904 29,923 566,893 55,346 677,284 54,835

G-47

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

12. Available-for-sale Financial Assets (1) Details of available-for-sale financial assets as of December 31, 2017 and 2016 are as follows:

2017 2016 Ownership (%)/ Acquisition Book Book Type cost value value (In millions of won) ProMOS 7.93 ￦21,847 — — JNT Frontier Private Equity Unit Certificate 684 684 971 SV M&A No.1 Equity Unit Certificate — — 805 Daishin Aju IB Investment Co., Ltd. Equity Unit Certificate 483 483 483 Seoul Investment Early & Green Venture Fund Certificate 1,513 1,513 1,648 TS 2011-4 Technology Transfer & Business Equity Unit Certificate 318 318 566 IMM Investment Equity Unit — — — 224 L&S Venture Capital Equity Unit Certificate 1,170 1,170 1,170 KTC-NP-Growth Equity Unit Certificate 2,155 2,155 2,956 Semiconductor Growth Fund Certificate 17,250 17,250 — Intellectual Discovery, Ltd. 7.05 4,000 1,699 4,000 SKY Property Mgmt. Ltd. 1 — — — 112,360 CHINA WALDEN VENTURE INVESTMENTS II Certificate 7,312 6,116 6,188 Exnodes Inc. Convertible Bond 716 716 716 Netspeed 6.07 3,083 558 3,083 Keyssa, lnc. 2.29 6,174 832 6,174 MEMS DRIVE, INC. 2.94 2,246 844 2,246 AutoTech Fund I, LP Certificate 1,444 1,444 — RENO SUB-SYSTEM, INC. 2.68 2,246 204 — IMEC.XPAND COMM.VA Certificate 1,607 1,607 — Equity investment in a construction guarantee association 0.01 709 709 709 Information and communication guarantee association 0.01 15 15 15 Beijing Starblaze Tech Co., Ltd. 6.29 3,273 3,273 3,465 Shanghai Natlinear Electronics Co., Ltd. 4.12 1,636 1,636 — ￦79,881 43,226 147,779

1 The Group acquired shares in SK China Company Limited through the contribution in kind of available-for-sale financial assets (SKY Property Mgmt. Ltd.) with the book value of ￦112,360 million. The Group recognized a gain on disposal of available-for-sale financial assets amounted to ￦30,849 million during the year ended December 31, 2017.

G-48

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

12. Available-for-sale Financial Assets, continued (2) Changes in the carrying amount of available-for-sale financial assets for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦147,779 131,354 Acquisition 26,204 19,085 Disposal (115,720) (2,652 ) Loss on valuation (14,807 ) — Foreign exchange difference (230 ) (8 ) Ending balance ￦43,226 147,779

13. Property, Plant and Equipment (1) Changes in property, plant and equipment for the years ended December 31, 2017 and 2016 are as follows:

2017 Construction Land Buildings Structures Machinery Vehicles Others -in-progress Total (In millions of won) Beginning net book amount ￦575,755 2,514,376 516,145 13,196,508 1,041 435,643 1,537,934 18,777,402 Changes during 2017 Additions 7,950 216,035 279,553 6,642,678 117 161,007 2,980,042 10,287,382 Receipt of government grants — (1,000 ) — — — — — (1,000 ) Disposals (2,220 ) (2,141 ) (3,180 ) (164,301 ) (1 ) (507 ) (47,615 ) (219,965 ) Depreciation — (112,343 ) (49,851 ) (4,301,152 ) (379 ) (155,051 ) — (4,618,776 ) Transfers 1,483 330,333 108,366 876,697 — 6,463 (1,323,342 ) — Impairments — — — — — — — — Exchange differences and others (1,427 ) (14,507 ) (11,413 ) (120,362 ) (1 ) (5,334 ) (9,398 ) (162,442 ) Ending net book amount 581,541 2,930,753 839,620 16,130,068 777 442,221 3,137,621 24,062,601 Acquisition cost 581,541 3,807,324 1,262,928 46,463,886 3,081 1,217,216 3,137,621 56,473,597 Accumulated depreciation — (851,655 ) (404,204 ) (30,163,696 ) (2,304 ) (774,959 ) — (32,196,818 ) Accumulated impairment — (23,699 ) (19,104 ) (165,509 ) — (35 ) — (208,347 ) Government grants — (1,217 ) — (4,613 ) — (1 ) — (5,831 ) ￦581,541 2,930,753 839,620 16,130,068 777 442,221 3,137,621 24,062,601

G-49

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

13. Property, Plant and Equipment, continued

2016 Construction Land Buildings Structures Machinery Vehicles Others -in-progress Total (In millions of won) Beginning net book amount ￦567,614 2,525,041 424,609 11,639,208 1,369 395,938 1,412,473 16,966,252 Changes during 2016 Additions 567 35,972 116,419 4,690,241 54 131,975 1,221,974 6,197,202 Receipt of government grants — — — (133 ) — — — (133 ) Disposals (2,824 ) (53 ) (45 ) (147,960 ) — (396 ) (7,063 ) (158,341 ) Depreciation — (100,250 ) (34,907 ) (3,866,582 ) (381 ) (131,660 ) — (4,133,780 ) Transfers 10,018 61,213 18,264 957,016 — 40,771 (1,087,282 ) — Impairments — (264 ) (2,814 ) (668 ) — — — (3,746 ) Exchange differences 380 (7,283 ) (5,381 ) (74,614 ) (1 ) (985 ) (2,168 ) (90,052 ) Ending net book amount 575,755 2,514,376 516,145 13,196,508 1,041 435,643 1,537,934 18,777,402 Acquisition cost 575,755 3,287,424 909,991 43,439,176 3,555 1,085,379 1,537,934 50,839,214 Accumulated depreciation — (749,076 ) (374,742 ) (29,993,593 ) (2,514 ) (649,669 ) — (31,769,594 ) Accumulated impairment — (23,698 ) (19,104 ) (243,540 ) — (59 ) — (286,401 ) Government grants — (274 ) — (5,535 ) — (8 ) — (5,817 ) ￦575,755 2,514,376 516,145 13,196,508 1,041 435,643 1,537,934 18,777,402

(2) Details of depreciation expense allocation for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Cost of sales ￦4,213,339 3,797,210 3,365,460 Selling and administrative expenses 292,325 276,969 263,938 Other expenses 7,647 5,307 8,050 Development costs 105,465 54,294 56,997 ￦4,618,776 4,133,780 3,694,445

(3) Certain property, plant and equipment are pledged as collaterals for borrowings as of December 31, 2017 (note 32). (4) During 2017, the Group capitalized borrowing costs amounting to ￦3,964 million (2016: ￦14,663 million and 2015: ￦18,892 million) on qualifying assets. Borrowing costs were calculated using a capitalization rate of 1.53% (2016: 3.59% and 2015: 4.83%) for the year ended December 31, 2017. (5) The Group leases certain machinery and others from ME Semiconductor Rental First L.L.C. and other under finance lease agreements. The book value of the machinery and others subject to finance lease agreement amounted to: ￦79,161 million as of December 31, 2017 (as of December 31, 2016: ￦67,245 million). The machinery and others are pledged as collateral for the finance lease liabilities.

G-50

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

13. Property, Plant and Equipment, continued The Group leases certain machinery and others from Macquarie Capital and others under operating lease agreements. The payment schedule of minimum lease payments under operating lease agreements as of December 31, 2017 is as follows:

Minimum lease payments (In millions of won) No later than 1 year ￦ 164,349 Later than 1 year 194,161 ￦ 358,510

(6) As of December 31, 2017, certain inventories; property, plant and equipment; and investment properties are insured and details of insured assets is as follows:

Insured assets Insured amount Insurance Company (In millions of won) Package insurance Property, plant and equipment, investment property, inventories and business interruption ￦63,622,518 Hyundai Marine & Fire Fire insurance Property, plant and equipment, investment property 75,348 Insurance Co., Ltd. and others Erection all risks insurance Property, plant and equipment 8,912,280 ￦72,610,146

In addition to the assets stated above, vehicle and delivery equipment are insured by vehicle comprehensive insurance and liability insurance.

G-51

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

14. Intangible Assets (1) Changes in intangible assets for the years ended December 31, 2017 and 2016 are as follows:

2017 Industrial property Development Goodwill rights costs Others Total (In millions of won) Beginning net book amount ￦730,204 98,963 629,882 456,542 1,915,591 Changes during 2017 Internal development — — 511,647 — 511,647 Separate acquisition — 26,572 — 246,692 273,264 Disposals — (4,872 ) — (1,076 ) (5,948 ) Amortization — (15,810 ) (259,279 ) (132,265) (407,354 ) Impairment — — — (769 ) (769 ) Exchange differences (35,131 ) — — (4,010 ) (39,141 ) Ending net book amount 695,073 104,853 882,250 565,114 2,247,290 Acquisition cost 695,073 184,971 2,293,388 950,432 4,123,864 Accumulated amortization and impairment — (80,118 ) (1,411,138) (354,424) (1,845,680) Government grants — — — (30,894 ) (30,894 ) ￦695,073 104,853 882,250 565,114 2,247,290

2016 Industrial property Development Goodwill rights costs Others Total (In millions of won) Beginning net book amount ￦720,755 89,787 483,330 411,024 1,704,896 Changes during 2016 Internal development — — 352,022 — 352,022 Separate acquisition — 28,269 — 150,352 178,621 Disposals — (5,208 ) — (1,595 ) (6,803 ) Amortization — (14,299 ) (205,198 ) (103,072) (322,569 ) Impairment — — (272 ) (98 ) (370 ) Exchange differences 9,449 414 — (69 ) 9,794 Ending net book amount 730,204 98,963 629,882 456,542 1,915,591 Acquisition cost 730,204 171,873 1,797,606 718,765 3,418,448 Accumulated amortization and impairment — (72,910 ) (1,167,724) (227,262) (1,467,896) Government grants — — — (34,961 ) (34,961 ) ￦730,204 98,963 629,882 456,542 1,915,591

G-52

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

14. Intangible Assets, continued (2) Details of amortization expense allocation for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Cost of sales ￦46,308 28,877 12,811 Selling and administrative expenses 360,183 293,316 244,978 Development costs 863 376 289 ￦407,354 322,569 258,078

(3) Goodwill impairment tests Goodwill impairment tests are undertaken annually. As the Group has only one CGU, goodwill was allocated to one CGU. Recoverable amount of the CGU was determined based on fair value less costs to sell, which was determined using the current stock price as of December 31, 2017. No impairment loss of goodwill was recognized since the recoverable amount is higher than carrying value of the CGU as of December 31, 2017

(4) Details of development costs (a) Detailed criteria for capitalization of development costs The Group’s development projects for a new product proceeds in the process of review and planning phases (Phase 0 ~ 4) and product design and mass production phases (Phase 5 ~ 8). The Group recognizes expenditures incurred after Phase 4 in relation with the development for new technology is recognized as an intangible asset. Expenditures incurred at phase 0 through 4 are recognized as expenses.

(b) Development cost capitalized and expenses on research and development Among costs associated with development activities, ￦511,647 million (2016: ￦352,022 million) that met capitalization criteria, were capitalized as development cost for the year ended December 31, 2017. In addition, costs associated with research activities and other development expenditures that did not meet the criteria in the amount of ￦1,975,386 million (2016: ￦1,744,711 million) were recognized as expenses for the year ended December 31, 2017.

G-53

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

14. Intangible Assets, continued (c) Details of development costs as of December 31, 2017 and 2016 are as follows:

2017 Individual Asset Book value Residual amortization period (In millions of won) DRAM 1xnm B ￦ 305,848 19 months 1xynm1 192,260 — NAND F14 3,990 4 months 3D(48) 42,343 9 months 3D(72) 111,164 18 months 3D(96)1 186,488 — 3D(128)1 8,635 — CIS Hi-1332 2,520 9 months Hi-13331 7,695 — Hi-13361 7,235 — Hi-12211 3,431 — Hi-16311 10,641 — ￦ 882,250

1 Amortization has not started as of December 31, 2017.

2016 Individual Asset Book value Residual amortization period (In millions of won) DRAM 1xnm A ￦ 45,967 7 months 1xnm B1 279,531 — 1xynm1 20,399 — NAND 3D(36) A 14,566 10 months 3D(36) B 8,554 10 months F14 15,960 16 months 3D(48) 98,800 21 months 3D(72)1 109,479 — 3D(96)1 27,099 — CIS Hi-842 91 5 months Hi-1331 774 5 months Hi-1332 5,880 21 months Hi-13331 1,956 — Hi-12211 826 — ￦ 629,882

1 Amortization has not started as of December 31, 2016 (d) There are no impairment losses and reversals of impairment in development costs recognized for the years ended December 31, 2017, 2016 and 2015 and there are no accumulated impairment losses in development costs recognized as of December 31, 2017, 2016.

G-54

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

15. Investment Property Changes in investment property during the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning net book amount ￦2,573 2,679 Changes for the year Depreciation (105 ) (106 ) Ending net book amount 2,468 2,573 Acquisition cost 5,170 5,170 Accumulated depreciation (2,702) (2,597) ￦2,468 2,573

The depreciation expense of ￦105 million was charged to cost of sales for the year ended December 31, 2017 (2016: ￦106 million and 2015: ￦713 million). Rental income from investment property during the year ended December 31, 2017 was ￦495 million (2016: ￦500 million and 2015: ￦2,627 million).

16. Borrowings (1) Details of borrowings as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Current Short-term borrowings ￦192,686 — Current portion of long-term borrowings 361,258 384,124 Current portion of debentures 219,836 320,736 773,780 704,860 Non-current Long-term borrowings 2,080,333 2,095,737 Debentures 1,317,157 1,535,381 3,397,490 3,631,118 ￦4,171,270 4,335,978

(2) Details of short-term borrowings as of December 31, 2017 and 2016 are as follows:

Interest rate Financial per annum Institutions in 2017 (%) 2017 2016 (In millions of won) Korea Export-Import Bank 3M LIBOR + 0.73 ￦107,140 — City Bank 3M LIBOR + 0.80 53,466 — Foreign currency general borrowings Industrial & Commercial Bank of China 3M LIBOR + 1.35 21,387 — China Bank 3M LIBOR + 1.10 10,693 — ￦192,686 —

G-55

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

16. Borrowings, continued (3) Details of long-term borrowings as of December 31, 2017 and 2016 are as follows:

Interest rate per annum Financial institutions in 2017 (%)1 2017 2016 (In millions of won) Local currency borrowings: Borrowings for childcare facilities NongHyup Bank — ￦— 62 Funds for equipment Korea Development Bank — — 83,333 KEB Hana Bank — — 30,000 Korea Development Bank 2.02 ~ 2.50 500,000 200,000 Finance lease liabilities Hansu Technical Service Ltd. 3.70 74,557 38,948 ME Semiconductor Rental First L.L.C. — — 8,688 Funds for equipment NongHyup Bank 1.00 1,170 — Finance lease liabilities Veolia Water Industrial Development Co., Ltd. 4.00 1,732 — 577,459 361,031 Foreign currency borrowings: General borrowings Export-Import Bank of Korea 3M LIBOR + 1.00 ~ 1.40 910,690 825,808 Woori Bank 3M LIBOR + 1.20 107,140 120,850 3M LIBOR + 0.98 160,710 181,275 Funds for equipment Korea Development Bank 3M LIBOR + 1.15 107,140 120,850 3M LIBOR + 0.95 160,710 181,275 3M LIBOR + 1.25 214,280 241,700 KEB Hana Bank 3M LIBOR + 1.23 85,712 96,680 NongHyup Bank 3M LIBOR + 1.33 64,284 96,680 — — 120,850 Finance lease liabilities Goodmemory First L.L.C. — — 12,671 Funds for equipment Standard Chartered Bank Ltd. 3M LIBOR + 3.45 53,466 120,191 1,864,132 2,118,830 2,441,591 2,479,861 Less: Current maturities (361,258 ) (384,124 ) ￦2,080,333 2,095,737

1 As of December 31, 2017, the annual interest rates are as follows:

Interest rate per annum as of Type December 31, 2017 (%) 3M LIBOR 1.69

G-56

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

16. Borrowings, continued (4) Details of debentures as of December 31, 2017 and 2016 are as follows:

Interest rate per annum in 2017 Maturity date (%) 2017 2016 (In millions of won) Unsecured notes in local currency: 212th May 30, 2019 5.35 ￦450,000 450,000 213th Sep. 4, 2017 — — 200,000 214-1st Aug. 26, 2020 2.27 210,000 210,000 214-2nd Aug. 26, 2022 2.63 140,000 140,000 215-1st Nov. 25, 2018 2.26 70,000 70,000 215-2nd Nov. 25, 2020 2.56 100,000 100,000 215-3rd Nov. 25, 2022 2.75 10,000 10,000 216-1st Feb. 19, 2018 1.74 70,000 70,000 216-2nd Feb. 19, 2021 2.22 180,000 180,000 216-3rd Feb. 19, 2023 2.53 80,000 80,000 217-1st May 27, 2018 1.73 80,000 80,000 217-2nd May 27, 2021 2.30 150,000 150,000 Secured notes in foreign currency: Foreign 8th Jun. 20, 2017 — — 120,850 1,540,000 1,860,850 Less: Discounts on debentures (3,007 ) (4,733 ) Current portion (219,836 ) (320,736 ) ￦1,317,157 1,535,381

(5) Finance lease liability Lease liabilities are effectively secured as the rights to the leased asset belong to the lessor. Details of future minimum lease payments to the lessor as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Total minimum lease payment No later than 1 year ￦10,773 27,043 Between 1 and 5 years 43,027 21,400 Later than 5 years 34,748 18,725 88,548 67,168 Discount on present value (12,259) (6,861 ) Net minimum lease payment No later than 1 year 10,563 26,603 Between 1 and 5 years 38,550 19,136 Later than 5 years 27,176 14,568 ￦76,289 60,307

G-57

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

17. Other Current and Non-current Liabilities Details of other current and non-current liabilities as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Current Advance receipts ￦3,040 3,781 Unearned income 81 228 Withholdings 39,862 42,622 Deposits received 989 1,539 Others 7,804 2,328 51,776 50,498 Non-current Other long-term employee benefits 63,960 61,883 Long-term advance receipts 4,900 — 68,860 61,883 ￦120,636 112,381

18. Provisions (1) Details of changes in provisions for the years ended December 31, 2017 and 2016 are as follows:

2017 Beginning Ending balance Increase Utilization Reversal Balance (In millions of won) Warranty ￦2,997 7,682 (6,872 ) — 3,807 Sales returns 13,317 118,564 (101,209) — 30,672 Legal claims 400 9,460 (400 ) — 9,460 Emission allowances 26,108 11,999 (695 ) — 37,412 ￦42,822 147,705 (109,176) — 81,351

2016 Beginning Ending balance Increase Utilization Reversal Balance (In millions of won) Warranty ￦2,936 38,584 (38,523 ) — 2,997 Sales returns 14,736 33,284 (34,703 ) — 13,317 Legal claims 1,523 400 (1,097 ) (426 ) 400 Emission allowances 6,081 21,366 (1,339 ) — 26,108 ￦25,276 93,634 (75,662 ) (426 ) 42,822

(2) Provisions for warranty The Group estimates the expected warranty costs based on historical results and accrues provisions for warranty.

G-58

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

18. Provisions, continued (3) Provisions for sales returns The Group estimates the expected sales returns based on historical results and adjusts sales and cost of sales, respectively. Accordingly, related gross profit and estimated expenses related to the return (such as transportation costs) are recorded as provisions for sales returns.

(4) Provisions for legal claims The Group recognizes provisions for legal claims when the Group has a present legal or constructive obligation as a result of past events and an outflow of resources required to settle the obligation is probable and the amount can be reliably estimated.

(5) Provision for emission allowances The Group recognizes estimated future payment for the number of emission certificates required to settle the Group’s obligation exceeding the actual number of certificates on hand as emission allowances according to the Act on Allocation and Trading of Greenhouse Gas Emission Permits.

19. Defined Benefit Liabilities Under the defined benefit plan, the Group pays employee benefits to retired employees in the form of a lump sum that are based on their salaries and years of service at the time of their retirement. Accordingly, the Group is exposed to a variety of actuarial assumption risks such as risk associated with expected years of service, interest risk, and market (investment) risk. (1) Details of defined benefit liabilities as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Present value of defined benefit obligations ￦1,330,559 1,195,047 Fair value of plan assets (1,337,848) (888,559 ) Net defined benefit liabilities (assets) ￦(7,289 ) 306,488 Defined benefit liabilities 6,096 306,488 Defined benefit assets1 (13,385 ) —

1 The Parent Company’s fair value of plan assets in excess of the present value of defined benefit obligations amounted to ￦13,385 million as of December 31, 2017 is presented as defined benefit assets. (2) Principal actuarial assumptions as of December 31, 2017 and 2016 are as follows:

2017 (%) 2016 (%) Discount rate for defined benefit obligations 3.81 ~ 4.35 3.09 ~ 4.10 Expected rate of salary increase 2.20 ~ 5.46 2.20 ~ 5.48 (3) Weighted average durations of defined benefit obligations as of December 31, 2017 and 2016 are 11.47 and 12.11 years, respectively.

G-59

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

19. Defined Benefit Liabilities, continued (4) Changes in defined benefit obligations for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦1,195,047 1,055,340 Current service cost 156,777 159,190 Past service cost — 33,198 Interest cost 46,877 41,148 Transfer from (to) associates 546 (2,440 ) Remeasurements: (23,406 ) (47,817 ) Financial assumption (47,319 ) 5,792 Adjustment based on experience 23,913 (53,609 ) Benefits paid (45,241 ) (43,602 ) Effect of movements in exchange rates (41 ) 30 Ending balance ￦1,330,559 1,195,047

(5) Changes in plan assets for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦888,559 570,363 Contributions 460,772 327,640 Interest income 34,880 20,204 Transfer from (to) associates 550 (1,331 ) Benefits paid (27,383 ) (19,151 ) Remeasurements (19,530 ) (9,166 ) Ending balance ￦1,337,848 888,559

(6) The amounts recognized in profit or loss for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Current service cost ￦156,777 159,190 139,486 Past service cost — 33,198 — Net interest expense 11,997 20,944 20,698 ￦168,774 213,332 160,184

(7) The amounts in which defined benefit plan related expenses are included for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Cost of sales (manufacturing costs) ￦95,301 125,241 88,415 Selling and administrative expenses 73,473 88,091 71,769 ￦168,774 213,332 160,184

G-60

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

19. Defined Benefit Liabilities, continued (8) Details of plan assets as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Deposits ￦1,336,484 887,074 Other 1,364 1,485 ￦1,337,848 888,559

Actual return on plan assets for the year ended December 31, 2017 amounted to ￦15,350 million (2016: ￦11,038 million and 2015: ￦9,884 million). (9) As of December 31, 2017, the Group funded defined benefit obligations through insurance plans with Mirae Asset Life Insurance Co., Ltd. and other insurance companies. The Group’s reasonable estimation of contribution to the plan assets for the year ending December 31, 2018 is ￦254,554 million under the assumption that the Group maintains the defined benefit plan.

(10) The sensitivity analysis of the defined benefit obligations as of December 31, 2017 to changes in the principal assumptions is as follows:

Effects on defined benefit obligation Increase of Decrease rate of rate (In millions of won) Discount rate (if changed by 1%) ￦(135,018) 158,508 Expected rate of salary increase (if changed by 1%) 159,116 (137,904) The sensitivity analysis does not consider dispersion of all cash flows that are expected from the plan and provides approximate values of sensitivity for the assumptions used. (11) Information about the maturity profile of the defined benefit obligation as of December 31, 2017 is as follows:

2017 Less than 1 - 5 5 - 10 10 - 20 1 year years years years Total (In millions of won) Benefits paid ￦44,905 313,626 779,466 2,944,492 4,082,489 Information about the maturity profile is based on undiscounted amount of defined benefit obligation and classified to employee’s expected years of remaining services. (12) The Group adopted defined contribution retirement pension for the employees subject to peak wage system. Contributions to defined contribution plans amounting to ￦76 million (2016: ￦12 million) was recognized as cost of sales for the year ended December 31, 2017.

G-61

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

20. Deferred Tax Assets and Liabilities (1) Changes in deferred income tax assets and liabilities for the years ended December 31, 2017 and 2016 without taking into consideration the offsetting of balances within the same tax jurisdiction, are as follows:

2017 Foreign January 1, exchange December 31, 2017 Profit or loss Equity differences 2017 (In millions of won) Loss on valuation of inventories ￦16,976 32,342 — (152 ) 49,166 Accumulated depreciation 85,032 223,393 — (8,792 ) 299,633 Defined benefits liabilities 60,889 (59,344 ) (1,114) (15 ) 416 Available-for-sale financial assets 34,441 4,802 4,072 — 43,315 Employee benefits 28,671 5,490 — (3 ) 34,158 Provisions 36,758 4,147 — (137 ) 40,768 Advanced depreciation provision (55,666 ) (7,553 ) — — (63,219 ) Others 39,597 13,743 — (1,505 ) 51,835 Deferred tax assets for temporary differences, net 246,698 217,020 2,958 (10,604 ) 456,072 Tax credit carryforwards recognized 360,131 (351,182 ) — (912 ) 8,037 Tax loss carryforwards recognized 180,807 (31,852 ) — (18,835 ) 130,120 Deferred tax assets recognized ￦787,636 (166,014 ) 2,958 (30,351 ) 594,229

2016 Foreign January 1, Profit or exchange December 31, 2016 loss Equity differences 2016 (In millions of won) Loss on valuation of inventories ￦40,341 (23,388 ) — 23 16,976 Accumulated depreciation 51,963 34,331 — (1,262 ) 85,032 Defined benefits liabilities 15,985 (23,267 ) 68,171 — 60,889 Available-for-sale financial assets 34,427 14 — — 34,441 Employee benefits 4,955 23,716 — — 28,671 Provisions 22,151 14,607 — — 36,758 Advanced depreciation provision (55,666 ) — — — (55,666 ) Others 76,591 (31,898 ) — (5,096 ) 39,597 Deferred tax assets for temporary differences, net 190,747 (5,885 ) 68,171 (6,335 ) 246,698 Tax credit carryforwards recognized 128,145 231,881 — 105 360,131 Tax loss carryforwards recognized 34,730 139,323 — 6,754 180,807 Deferred tax assets recognized ￦353,622 365,319 68,171 524 787,636

(2) As of December 31, 2017, the deductible temporary differences that are not recognized as deferred tax assets (liabilities) are as follows:

2017 2016 (In millions of won) Investments in subsidiaries, associates, and joint ventures and others ￦317,133 787,500

G-62

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

21. Derivative Financial Instruments (1) Details of derivative financial liabilities as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Current Interest rates swap ￦ — 288 (2) Details of gains and losses from derivative instruments for the years ended December 31, 2017, 2016 and 2015 are follows:

2017 Gain on Loss on Gain on Loss on valuation valuation transaction transaction (In millions of won) Interest rates swap ￦ — — 902 913

2016 Gain on Loss on Gain on Loss on valuation valuation transaction transaction (In millions of won) Interest rates swap ￦ 395 — 1,077 1,525

2015 Gain on Loss on Gain on Loss on valuation valuation transaction transaction (In millions of won) Interest rates swap ￦ 25 — 1,672 2,058

22. Capital Stock, Capital Surplus and Other Equity (1) The Parent Company has 9,000,000,000 authorized shares and the face value per share is ￦5,000 as of December 31, 2017. The number of shares issued, common shares, capital surplus and other equity as of December 31, 2017 and 2016, are as follows:

2017 2016 (In millions of won, thousands of shares) Issued shares1 731,530 731,530 Capital stock: Common shares ￦3,657,652 3,657,652 Capital surplus: Additional paid in capital 3,625,797 3,625,797 Others 517,939 517,939 4,143,736 4,143,736 Other equity: Acquisition cost of treasury shares (771,913 ) (771,913 ) Stock option 813 — ￦(771,100 ) (771,913 ) Number of treasury shares 22,001 22,001

G-63

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

22. Capital Stock, Capital Surplus and Other Equity, continued

1 As of December 31, 2017, the number of outstanding shares is 728,002 thousand shares, which differs from total issued shares due to the effect of stock retirement. (2) There are no changes in number of outstanding shares during the years ended December 31, 2017, 2016 and 2015.

23. Accumulated Other Comprehensive Loss (1) Details of accumulated other comprehensive loss as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Equity-accounted investees — share of other comprehensive income (loss) ￦(20,442 ) 5,944 Loss on valuation of available-for-sale financial asset (10,735 ) — Foreign operations — foreign currency translation differences (471,087) (85,047) ￦(502,264) (79,103)

(2) Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2017 and 2016 are as follows:

2017 Beginning Change Ending (In millions of won) Equity-accounted investees — share of other comprehensive income (loss) ￦5,944 (26,386 ) (20,442 ) Loss on valuation of available-for-sale financial assets — (10,735 ) (10,735 ) Foreign operations — foreign currency translation differences (85,047) (386,040) (471,087) ￦(79,103) (423,161) (502,264)

2016 Beginning Change Ending (In millions of won) Equity-accounted investees — share of other comprehensive income ￦1,856 4,088 5,944 Foreign operations — foreign currency translation differences (3,456) (81,591) (85,047) ￦(1,600) (77,503) (79,103)

24. Retained Earnings and Dividends (1) Details of retained earnings as of December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Legal reserve1 ￦108,354 65,994 Discretionary reserve2 235,506 235,506 Unappropriated retained earnings 26,943,396 16,765,083 ￦27,287,256 17,066,583

1 The Commercial Code of the Republic of Korea requires the Parent Company to appropriate for each financial year, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals

G-64

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

24. Retained Earnings and Dividends, continued 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. 2 Discretionary reserve is a reserve for technology development. (2) Dividends of the Parent Company (a) Details of dividends for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won and In thousands of shares) Type of dividends Cash Dividends Cash Dividends Cash Dividends Outstanding ordinary shares 706,002 706,002 706,002 Par value (in won) ￦5,000 5,000 5,000 Dividend rate 20% 12% 10% Total dividends ￦706,002 423,601 353,001 (b) Dividend payout ratio for the years ended December 31, 2017, 2016 and 2015 is as follows:

2017 2016 2015 (In millions of won) Dividends ￦706,002 423,601 353,001 Profit attributable to owners of the Parent Company 10,641,512 2,953,774 4,322,356 Dividend payout ratio 6.63% 14.34% 8.17% (c) Dividend yield ratio for the years ended December 31, 2017, 2016 and 2015 is as follows:

2017 2016 2015 (In won) Dividends per share ￦1,000 600 500 Closing stock price 76,500 44,700 30,750 Dividend yield ratio 1.31% 1.34% 1.63%

G-65

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

25. Selling and Administrative Expenses Selling and administrative expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Selling and administrative expenses: Salaries ￦467,824 348,571 385,281 Defined benefit plan 25,841 30,135 25,499 Employee benefits 87,299 86,721 81,606 Commission 232,799 230,903 212,129 Depreciation 96,153 82,461 89,879 Amortization 348,519 282,392 239,227 Freight and custody charge 38,920 31,821 41,999 Legal cost 33,251 9,286 7,722 Rental 13,633 14,571 18,698 Taxes and dues 17,132 18,160 18,436 Training 27,105 19,503 20,314 Advertising 83,748 47,055 43,411 Utility 14,480 14,204 13,595 Supplies 82,108 56,067 51,630 Repair 35,871 6,185 9,629 Travel and transportation 11,166 10,459 12,854 Sales promotion cost 57,180 42,170 46,169 Product warranties 7,682 38,584 396 Other 30,168 20,131 7,747 1,710,879 1,389,379 1,326,221 Research and development: Expenditure on research and development 2,487,033 2,096,733 1,969,588 Development cost capitalized (511,647 ) (352,022 ) (349,264 ) 1,975,386 1,744,711 1,620,324 ￦3,686,265 3,134,090 2,946,545

G-66

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

26. Expenses by Nature Nature of expenses for the years ended December 31, 2017, 2016 and 2015 is as follows:

2017 20162 20152 (In millions of won) Changes in finished goods and work-in-process ￦(528,298 ) (60,415 ) (290,904 ) Raw materials and consumables 4,257,017 3,437,714 3,473,238 Employee benefit 3,059,690 2,317,687 2,439,456 Depreciation and amortization 4,912,260 4,396,478 3,887,900 Royalty 221,789 229,422 210,902 Commission 1,254,084 986,059 832,608 Utility 971,489 840,129 740,833 Repair 946,132 604,458 613,987 Outsourcing 895,996 785,755 982,457 Other 397,949 383,942 571,421 Total1 ￦16,388,108 13,921,229 13,461,898

1 Total expenses consist of cost of sales and selling and administrative expenses. 2 Expenses for the years ended December 31, 2016 and 2015 were reclassified to conform with the classification for the year ended December 31, 2017.

27. Finance Income and Expenses Finance income and expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Finance income: Interest income ￦54,275 34,174 40,715 Dividend income 13 18 1,265 Foreign exchange differences 893,047 762,747 766,981 Gain from derivative instruments 902 1,472 1,697 Gain on disposal of financial assets at fair value through profit or loss 15,754 15,348 33,814 Gain on valuation of financial assets at fair value through profit or loss 1,399 1,133 2,280 Gain on disposal of available-for-sale financial assets 31,078 — — 996,468 814,892 846,752 Finance expenses: Interest expenses 123,918 120,122 118,505 Foreign exchange differences 1,124,628 724,681 709,350 Loss on disposal of available-for-sale financial assets 158 — — Loss from derivative instruments 913 1,525 2,058 1,249,617 846,328 829,913 Net finance income (expense) ￦(253,149 ) (31,436 ) 16,839

G-67

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

28. Other Income and Expenses Other income for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Gain on disposal of property, plant and equipment ￦35,161 13,167 16,554 Gain on disposal of intangible asset 758 — — Other 41,963 39,204 23,925 ￦77,882 52,371 40,479

Other expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Loss on disposal of property, plant and equipment ￦10,229 6,566 19,540 Loss on disposal of intangible assets 4,872 5,218 5,493 Loss on disposal of trade receivables 7,049 3,137 1,413 Loss on impairment of property, plant and equipment — 3,746 22,055 Loss on impairment of intangible assets 769 98 1,771 Donation 76,195 51,629 55,131 Other 19,746 33,585 43,536 ￦118,860 103,979 148,939 29. Income Tax Expense (1) Income tax expense for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Current tax: Current tax on profits for the year ￦2,687,405 543,594 1,026,791 Adjustments for the current tax liabilities attributable to prior year, but recognized in current year (56,072 ) 77,696 — 2,631,333 621,290 1,026,791 Deferred tax: Changes in net deferred tax assets 166,014 (365,319) (81,265 ) Income tax expense ￦2,797,347 255,971 945,526

G-68

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

29. Income Tax Expense, continued (2) The relationship between income tax expense and accounting profit for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Profit before tax ￦13,439,566 3,216,454 5,269,121 Tax calculated at domestic tax rates applicable to profits in the respective countries 3,204,233 777,920 1,266,293 Tax effects of: Tax-exempt income (157 ) (2,669 ) (24 ) Non-deductible expenses 4,703 3,981 6,614 Changes in unrecognized deferred tax assets (113,829 ) (517,805 ) (252,088 ) Tax credit (126,213 ) (101,843 ) (104,425 ) Adjustments for prior years’ tax liabilities due to changes in estimates (56,072 ) 77,696 — Others 64,682 18,691 29,156 Income tax expense ￦2,797,347 255,971 945,526

(3) The income taxes recorded directly in equity for the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Remeasurements of defined benefit liabilities ￦(1,114) 68,171 Gain on valuation of available-for-sale financial assets 4,072 — ￦2,958 68,171

30. Earnings Per Share Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders of the Parent Company by the weighted average number of outstanding ordinary shares during the years. (1) Basic earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won, except for shares and per share amounts) Profit attributable to ordinary shareholders ￦10,641,512 2,953,774 4,322,356 Weighted average number of outstanding ordinary shares1 706,001,795 706,001,795 720,143,294 Basic earnings per share (in won) 15,073 4,184 6,002

1 Weighted average number of outstanding ordinary shares is calculated as follows:

2017 2016 2015 (In shares) Outstanding ordinary shares 728,002,365 728,002,365 728,002,365 Acquisition of treasury shares (22,000,570 ) (22,000,570 ) (7,859,071 ) Weighted average number of outstanding ordinary shares 706,001,795 706,001,795 720,143,294

G-69

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

30. Earnings Per Share, continued (2) Diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won, except for shares and per share amounts) Profit attributable to ordinary shareholders of the Parent Company ￦10,641,512 2,953,774 4,322,356 Weighted average number of diluted outstanding ordinary shares1 706,038,232 706,001,795 720,143,294 Diluted earnings per share (in won) ￦15,072 4,184 6,002

1 Weighted average number of outstanding ordinary shares is calculated as follows:

2017 2016 2015 (In shares) Weighted average number of outstanding ordinary shares 706,001,795 706,001,795 720,143,294 Stock options 36,437 — — Weighted average number of diluted outstanding ordinary shares 706,038,232 706,001,795 720,143,294

31. Transactions with Related Parties (1) List of related parties as of December 31, 2017 are as follows:

Type Name of related parties Associates Stratio, Inc., SK China Company Limited, Gemini Partners Pte. Ltd., TCL Fund Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. Other related parties SK Telecom Co., Ltd., which has significant influence over the Group, SK Holdings Co., Ltd., which has control over SK Telecom Co., Ltd., and their subsidiaries (2) Significant transactions for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 Operating Operating revenue and expense Asset Dividend Company others and others acquisition income (In millions of won) Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. ￦5,782 582,745 — 14,828 Other related parties SK Telecom Co., Ltd.1 318 96,441 24,183 — SK Holdings Co., Ltd.2 994 174,556 142,913 — ESSENCORE Limited 749,238 — — — SK Engineering & Construction Co., Ltd. 27,433 7,290 1,464,735 — SK Energy Co., Ltd. 5,075 54,682 — — SK Networks Co., Ltd. — 5,350 — — SKC Solmics Co., Ltd. — 30,486 1,020 — Chungcheong energy service Co., Ltd. 10 16,062 10 — Happynarae Co., Ltd. 34 455,632 36,516 — SK Materials Co., Ltd. 3 50,657 — — SK Siltron Co., Ltd. 1,538 84,791 — — Others 667 172,703 29,787 — ￦791,092 1,731,395 1,699,164 14,828

G-70

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

31. Transactions with Related Parties, continued

1 Operating expense and others include dividend payments of ￦87,660 million. 2 For the year ended December 31, 2017, royalty paid for the use of the SK brand amounted to ￦34,882 million.

2016 Operating Operating revenue and expense Asset Dividend Company others and others acquisition income (In millions of won) Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. ￦1,171 568,526 17,678 20,726 Other related parties SK Telecom Co., Ltd.1 375 81,125 12,181 — SK Holdings Co., Ltd.2 907 133,441 146,823 — ESSENCORE Limited 571,639 — — — SK Engineering & Construction Co., Ltd. 2,512 21,838 659,312 — SK Energy Co., Ltd. 4,683 47,768 — — SK Networks Co., Ltd. — 4,747 — — SKC Solmics Co., Ltd. — 34,433 432 — Chungcheong energy service Co., Ltd. 10 16,460 — — Happynarae Co., Ltd. 30 173,948 13,595 — SK Materials Co., Ltd. — 43,213 — — Others 432 125,662 17,528 — ￦581,759 1,251,161 867,549 20,726

1 Operating expense and others include dividend payments of ￦73,050 million. 2 For the year ended December 31, 2016, royalty paid for the use of the SK brand amounted to ￦37,887 million.

2015 Operating Operating revenue and expense Asset Dividend Company others and others acquisition income (In millions of won) Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. ￦1,364 675,112 — 15,780 Other related parties SK Telecom Co., Ltd.1 2,384 52,944 3,984 — SK Holdings Co., Ltd.2,3 199 81,997 76,398 — ESSENCORE Limited 147,992 — — — SK Engineering & Construction Co., Ltd. 1,923 1,378 1,084,554 — SK Energy Co., Ltd. 5,245 44,893 — — SK Networks Co., Ltd. — 3,627 — — Ko-one energy service Co., Ltd. — 2,685 7 — SKC Solmics Co., Ltd. — 36,055 269 — Chungcheong energy service Co., Ltd. — 24,292 — — Happynarae Co., Ltd. 3,176 83,258 21,448 — Others 493 63,845 14,516 — ￦162,776 1,070,086 1,201,176 15,780

1 Operating expense and others include dividend payments of ￦43,830 million. 2 For the year ended December 31, 2015, royalty paid for the use of the SK brand amounted to ￦34,597 million.

G-71

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

31. Transactions with Related Parties, continued 3 Meanwhile, on August 1, 2015, SK C&C Co., Ltd. merged with SK Holdings Co., Ltd. and changed its name to SK Holdings Co., Ltd. (3) The balances of significant transactions as of December 31, 2017 and December 31, 2016 are as follows:

2017 Trade Other receivables payables and Company and others others (In millions of won) Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. ￦— 90,782 Other related parties SK Telecom Co., Ltd. 94 3,014 SK Holdings Co., Ltd. 5,530 108,038 ESSENCORE Limited 90,367 — SK Engineering & Construction Co., Ltd. 7,327 946,517 SK Energy Co., Ltd. 500 10,505 SK Networks Co., Ltd. — 1,395 SKC Solmics Co., Ltd. — 3,393 Chungcheong energy service Co., Ltd. 11 2,128 Happynarae Co., Ltd. 3 55,126 SK Materials Co., Ltd. — 11,692 SK Siltron Co., Ltd.1 150,521 21,071 Others 90 99,043 ￦254,443 1,352,704

1 The Group has paid ￦150,000 million in advance for the purchase of wafers during the year ended December 31, 2017 (See note 32).

2016 Trade Other receivables payables and Company and others others (In millions of won) Joint venture HITECH Semiconductor (Wuxi) Co., Ltd. ￦— 99,328 Other related parties SK Telecom Co., Ltd. 92 4,281 SK Holdings Co., Ltd. 6,343 98,396 ESSENCORE Limited 72,507 — SK Engineering & Construction Co., Ltd. 2,016 530,940 SK Energy Co., Ltd. 417 6,544 SK Networks Co., Ltd. — 1,143 SKC Solmics Co., Ltd. — 10,067 Chungcheong energy service Co., Ltd. — 1,804 Happynarae Co., Ltd. 3 23,046 SK Materials Co., Ltd. — 9,205 Others 5 45,656 ￦81,383 830,410

G-72

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

31. Transactions with Related Parties, continued (4) Key management compensation Key management includes the Parent Company’s directors, members of the board of directors, chief financial officer, and internal auditors. The compensation paid to key management for employee services for the years ended December 31, 2017, 2016 and 2015 are as follows:

Details 2017 2016 2015 (In millions of won) Salaries ￦106,291 68,504 60,024 Defined benefit plan related expenses 8,840 8,184 7,025 Share-based payment 813 — — Others 13 21 15 ￦115,957 76,709 67,064

32. Commitments and Contingencies (1) The details of litigations and claims of the Group as of December 31, 2017 are as follows: (a) Lawsuit from Netlist, Inc. Netlist, Inc. filed a lawsuit against SK hynix, the Parent Company and others, which are subsidiaries of the Parent Company alleging infringement of multiple patents to U.S. District Court for the Central District of California, on August 31, 2016 and June 14, 2017, to the U.S. International Trade Commission on September 1, 2016 and October 31, 2017 and to German District Court of Munich and Beijing Intellectual Property Court, respectively, on July 11, 2017. As of December 31, 2017, the patent infringement lawsuits filed by Netlist, Inc. in the U.S. have not been finalized and the final result cannot be predicted. Meanwhile, the lawsuit filed to the US International Trade Commission on September 1, 2016 was finalized on January 16, 2018 in conclusion that the Parent Company and its subsidiaries did not infringe the patents of Netlist, Inc. (b) Other patent infringement claims and litigation In addition to the above litigations, the Group has responded to various disputes related to intellectual property rights and has recognized a liability when it is probable that an outflow of resources will arise and a loss can be reliably estimated.

(2) Technology and patent license agreements The Group has entered into a number of patent license agreements with several companies. The related royalties are paid on a lumpsum or running basis in accordance with the respective agreements. The lumpsum royalties are expensed over the contract period using the straight-line method.

(3) Contract for supply of industrial water The Group has entered into a contract with Veolia Water Industrial Development Co., Ltd. (“VWID”) under which the Group purchases industrial water from VWID by March 2018. According to the contract, the Group is obligated to pay base service charges, which are predetermined and additional service charges which are variable according to the amount of water used.

G-73

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

32. Commitments and Contingencies, continued (4) Post- process service contract with HITECH The Group has entered into an agreement with HITECH to be provided with post-process service by HITECH. The conditions of the service provided includes package, package test, modules and others. According to the agreement, the Group is liable to guarantee a certain level of margin to HITECH.

(5) Assets provided as collateral Details of assets provided as collateral as of December 31, 2017 are as follows:

Pledged Book value amount Remark (In millions of won) Land ￦18,055 Buildings 52,582 1,398,765 Borrowings for equipment and others Machinery 1,114,508 ￦1,185,145 1,398,765

Other than the above assets provided as collateral, the finance lease assets of the Group are pledged as collateral for the finance lease liabilities in accordance with the finance lease contracts.

(6) Financing agreements Details of credit lines with financial institutions as of December 31, 2017 are as follows:

Financial Institution Commitment Currency Amount (In millions of won and millions of foreign currencies) The Parent Company KEB Hana Bank Import finance including usance USD 265 and others Export finance including bills bought USD 250 Comprehensive limit contract for import and export USD 960 Accounts receivable factoring contracts which have no right to recourse KRW 140,000 Agricultural SK Hynix Semiconductor (China) Ltd. Bank of China RMB 1,300 (SKHYCL) and others Import finance including usance USD 232 SK Hynix America Inc. (SKHYA) and other Citibank and Accounts receivable factoring contracts which sales entities others have no right to recourse USD 319 Domestic subsidiaries KEB Hana Bank Export finance including bills bought KRW 500 and others Guarantee KRW 10,000 Agent contract for procurement payment KRW 15,000

G-74

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

32. Commitments and Contingencies, continued (7) Details of guarantees provided to others as of December 31, 2017 are as follows:

Amount Remark (In millions of won) Employees ￦ 8 Guarantees for employees’ borrowings relating to employee stock ownership

(8) Capital commitments The Group’s unrecorded commitments in relation to the capital expenditures on property, plant and equipment as of December 31, 2017 and 2016 are ￦661,588 million and ￦293,730 million, respectively.

(9) Equity investment in Toshiba semiconductor business The Group has decided to invest JPY 266,000 million in BCPE Pangea Intermediate Holdings Cayman, LP and acquire convertible bonds of JPY 129,000 million issued by BCPE Pangea Cayman 2 Limited, by participating in a consortium including Bain Capital (“Bain Consortium”) in connection with the Bain Consortium’s acquisition of Toshiba’s semiconductor business. Meanwhile, the Bain Consortium and Toshiba signed an agreement to acquire Toshiba’s semiconductor business and approvals from various countries’ government were in process as of December 31, 2017. The completion of the arrangement is subject to the results of compliance in the prerequisites set forth in the arrangement including the approval by various countries’ government.

(10) Long-term purchase agreement for raw materials The Group has entered into a procurement agreement with SK Siltron Co., Ltd. from 2019 to 2023 for stable supply of wafer with an advanced payment of ￦150,000 million during the year ended December 31, 2017. In addition, SK Siltron Co., Ltd. has committed to provide certain portion of its investment assets as collateral to secure the advanced payment of ￦150,000 million prepaid by the Group.

G-75

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

33. Cash Generated from Operating Activities (1) Reconciliations between profit for the year and net cash inflow from operating activities for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Profit for the year ￦10,642,219 2,960,483 4,323,595 Adjustment Income tax expense 2,797,347 255,971 945,526 Defined benefit plan related expenses 168,774 213,332 160,184 Depreciation of property, plant and equipment and investment property 4,618,881 4,133,886 3,695,158 Amortization 407,354 322,569 258,078 Loss on impairment of property, plant and equipment — 3,746 22,055 Loss on foreign currency translation 246,316 116,500 143,768 Interest expense 123,918 120,122 118,505 Gain on foreign currency translation (310,978 ) (106,840 ) (58,658 ) Interest income (54,275 ) (34,174 ) (40,715 ) Loss on derivative instruments, net 11 53 361 Gain on equity method investments, net (12,367 ) (22,752 ) (24,642 ) Others, net (63,803 ) (17,069 ) (18,231 ) Changes in operating assets and liabilities Decrease (increase) in trade receivables (2,964,272 ) (470,792 ) 1,260,172 Decrease (increase) in loans and other receivables (36,541 ) 62,758 724,149 Increase in inventories (634,623 ) (110,769 ) (414,830 ) Increase in other assets (302,967 ) (55,760 ) (177,316 ) Increase (decrease) in trade payables 514,751 (208,439 ) (156,074 ) Decrease in other payables (110 ) (23,558 ) (60,252 ) Increase (decrease) in other non-trade payables 666,770 (328,871 ) (147,392 ) Increase (decrease) in provisions 38,860 17,521 (6,889 ) Increase (decrease) in other liabilities 4,081 5,018 (29,327 ) Payment of defined benefit liabilities (15,313 ) (18,514 ) (6,392 ) Contribution to plan assets (460,772 ) (327,640 ) (153,566 ) Cash generated from operating activities ￦15,373,261 6,486,781 10,357,267

(2) Details of significant transactions without inflows and outflows of cash for the years ended December 31, 2017, 2016 and 2015 are as follows:

2017 2016 2015 (In millions of won) Investment in-kind for SK China Company Limited ￦143,209 — — Increase in other payables related to acquisition of property, plant and equipment 1,154,195 224,412 —

G-76

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SK HYNIX, INC. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2017, 2016 and 2015

33. Cash Generated from Operating Activities, continued (3) Changes in liabilities arising from financial activities during the years ended December 31, 2017 and 2016 are as follows:

2017 2016 (In millions of won) Beginning balance ￦4,335,978 3,818,595 Cash flows from financing activities Proceeds from borrowings 782,329 2,080,343 Repayments of borrowings (710,635 ) (1,610,466) Foreign currency differences (238,112 ) 44,345 Present value discount (interest expense) 1,710 3,161 Ending balance ￦4,171,270 4,335,978

34. Share-based payment (1) The Group granted equity-settled stock options to the Group’s key management during the year ended December 31, 2017 and the stock options as of December 31, 2017 are as follows.

Total numbers of share Outstanding at option granted Exercised Forfeited or Cancelled December 31, 2017 (In shares) 1st 99,600 — — 99,600 2nd 99,600 — — 99,600 3rd 99,600 — — 99,600 298,800 — — 298,800

Exercise price Grant date Service Period for Vesting Exercisable Period (in won) 1st March 24, 2017 March 24, 2017—March 24, 2019 March 25, 2019—March 24, 2022 48,400 2nd March 24, 2017 March 24, 2017—March 24, 2020 March 25, 2020—March 24, 2023 52,280 3rd March 24, 2017 March 24, 2017—March 24, 2021 March 25, 2021—March 24, 2024 56,460

(2) Measurement of fair value

The compensation cost is calculated by applying a binomial option-pricing model in estimating the fair value of the option at grant date. The inputs used are as follows:

1st 2nd 3rd Expected volatility 23.23 % 23.23% 23.23% Estimated fair value of share option (in won) 10,026 9,613 9,296 Dividend yield ratio 1.20 % 1.20 % 1.20 % Risk free ratio 1.86 % 1.95 % 2.07 %

(3) The compensation expense for the year ended December 31, 2017 was ￦813 million.

G-77

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Table of Contents SIGNATURES

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

SK TELECOM CO., LTD. (Registrant)

/s/ Jeong Hwan Choi Name: Jeong Hwan Choi Title: Senior Vice President, IRO

Date: April 27, 2018

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 8.1

List of Subsidiaries of SK Telecom Co., Ltd. (As of December 31, 2017)

Subsidiary Name Jurisdiction of Incorporation SK Telink Co., Ltd. Korea SK m&service Co., Ltd. Korea SK Communications Co., Ltd. Korea SK Broadband Co., Ltd. Korea K-net Culture and Contents Venture Fund Korea PS&Marketing Co., Ltd. Korea Service Ace Co., Ltd. Korea Service Top Co., Ltd. Korea Network O&S Co., Ltd. Korea SK Planet Co., Ltd. Korea NSOK Co., Ltd. Korea Iriver Ltd. Korea Iriver Enterprise Ltd. Hong Kong Iriver Inc. U.S.A. Iriver China Co., Ltd. China Dongguan Iriver Electronics Co., Ltd. China Groovers JP Ltd. Japan SK Telecom China Holdings Co., Ltd. China SK Global Healthcare Business Group, Ltd. Hong Kong SK Planet Japan Japan SKT Vietnam PTE., Ltd. Singapore SK Planet Global PTE. Ltd. Singapore SKP Global Holdings PTE. Ltd. Singapore SKT Americas, Inc. U.S.A. SKP America LLC U.S.A. YTK Investment Ltd. Cayman Islands Atlas Investment Cayman Islands SK Telecom Innovation Fund, L.P. U.S.A. SK Telecom China Fund I L.P. Cayman Islands Shopkick Management Company, Inc. U.S.A. Shopkick, Inc. U.S.A. SK techx Co., Ltd. Korea One Store Co., Ltd. Korea Hello Nature Ltd. Korea 11street (Thailand) Co., Ltd. Thailand S.M. Life Design Company Japan Inc. Japan S.M. Mobile Communications Japan Inc. Japan Home & Service Co., Ltd. Korea SK stoa Co., Ltd. Korea

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 12.1

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act 2002

I, Jung Ho Park, certify that: 1. I have reviewed this annual report on Form 20-F of SK Telecom Co., Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 27, 2018

/s/ Jung Ho Park Jung Ho Park President and Chief Executive Officer

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 12.2

CERTIFICATION

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Young Sang Ryu, certify that: 1. I have reviewed this annual report on Form 20-F of SK Telecom Co., Ltd.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 27, 2018

/s/ Young Sang Ryu Young Sang Ryu Chief Financial Officer

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 13.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of SK Telecom Co., Ltd., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2017 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: April 27, 2018 /s/ Jung Ho Park Jung Ho Park President and Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 13.2

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of SK Telecom Co., Ltd., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2017 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

Dated: April 27, 2018 /s/ Young Sang Ryu Young Sang Ryu Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 15.3

TELECOMMUNICATIONS BUSINESS ACT

As partially amended by Act No. 14576 of March 14, 2017, effective March 15, 2018

CHAPTER I. GENERAL PROVISIONS

Article 1 (Purpose) The purpose of this Act is to contribute to the promotion of public welfare by encouraging sound development of telecommunications business and ensuring convenience to the users of telecommunications service through proper management of such business.

Article 2 (Definitions) The definitions of the terms as used in this Act shall be as follows: 1. the term “telecommunication” means sending and receiving of sign, wording, sound or image through wired, wireless, optic or other electronic means; 2. the term “telecommunications facilities” means equipment, devices, lines and other facilities necessary for telecommunication; 3. the term “telecommunication line facilities” means telecommunication line portion of the telecommunications facilities which is necessary for sending, receiving and routing telecommunication and include exchange equipment and other annexed facilities; 4. the term “commercial telecommunications facilities” means telecommunications facilities for providing telecommunication business; 5. the term “proprietary telecommunications facilities” means telecommunications facilities other than commercial telecommunications facilities that a person installs for his own telecommunication use; 6. the term “telecommunications service” means connecting of customer’s communication through the use of telecommunications facilities or providing telecommunications facilities for customer’s communication; 7. the term “telecommunication business” means the business of providing telecommunications service; 8. the term “telecommunications business operator” means a person who provides telecommunications service with holding a license or making a registration or report under this Act; 9. the term “user” means a person who has made a contract for the use of any telecommunications service with the telecommunications business operator in order to receive a provision of telecommunications service; 10. the term “universal service” means the basic telecommunications service which any user may receive at reasonable fees anytime and anywhere; 11. the term “key communications service” means the telecommunications service such as telephone and internet services which transmit or receive voice, data, image, etc. without changing their content and the telecommunications service where telecommunication line facilities is lent for transmission and receipt of voice, data, image, etc.; provided, however, that individual telecommunications services determined and announced by the Minister of Science and ICT (individual telecommunications service under Article 6) are excluded; 12. the term “value-added communications services” means telecommunications services other than key communications services; 13. the term “special type of value-added communications services” means services corresponding to one of the following items: A. Value-added communications services provided by special type of online service providers under Article 104 of the Copyright Act;

1

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document B. Value-added communications services which send text messages by directly or indirectly connecting the text message system to telecommunications business operator’s telecommunications facilities. 14. the term “telecommunications number” means the number used to separate and identify communications networks, telecommunications service, region or users in order to provide or use telecommunications services.

Article 3 (Duty of Providing Services, etc.) (1) A telecommunications business operator shall not refuse to provide any telecommunications service, without justifiable reasons. (2) A telecommunications business operator shall guarantee the fairness, speediness and accuracy in performing his business. (3) A fee for telecommunications service shall be reasonably fixed so as to ensure a smooth development of telecommunications business and to provide the users with convenient and diverse telecommunications services in the fair and inexpensive manner.

Article 4 (Universal Service) (1) All telecommunications business operators shall have the obligation to provide universal service or to replenish the losses incurred by such provisions. (2) The Minister of Science and ICT may, notwithstanding paragraph (1) above, exempt the telecommunications business operator in each of the following subparagraphs from the obligation specified paragraph (1) above: 1. the telecommunications business operator determined by the Enforcement Decree as a telecommunications business operator for whom an imposition of obligation under paragraph (1) is deemed inadequate in view of the peculiarity of telecommunications service; and 2. the telecommunications business operator whose turnover of telecommunications service is less than the amount as determined by the Enforcement Decree within the limit of 1/100 of total turnover of the telecommunications services, from the relevant obligations. (3) The details of universal service shall be determined by the Enforcement Decree in consideration of the following matters: 1. Level of the development of information and communications technology; 2. Level of the dissemination of telecommunications service; 3. Public interest and safety; 4. Promotion of social welfare; and 5. Acceleration of informatization. (4) In order to provide effective, stable universal service, the Minister of Science and ICT may, in consideration of size and quality of universal service, level of price and the technical capability of a telecommunications business operator, designate a telecommunications business operator through the method and procedure prescribed by the Enforcement Decree. (5) Under the method and procedure prescribed by the Enforcement Decree, the Minister of Science and ICT may have a telecommunications business operator bear compensation for losses incurred in the course of providing universal service based on the total sales.

Article 4-2 (Telecommunications Relay Services for the Disabled Persons) (1) Any person who shall provide relay services using telecommunications facilities under Article 21 (4) of the Act on the Prohibition of Discrimination of Disabled Persons, Remedy against Infringement of Their Rights, etc. (hereinafter referred to as the “telecommunications relay services”) may provide the telecommunications relay services directly or by entrusting to an operating institution designated by the Minister of Science and ICT.

2

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) Any person who shall provide the telecommunications relay services shall submit the plan for the provision of telecommunications relay services of each fiscal year to the Minister of Science and ICT within one (1) month after the commencement of each fiscal year. (3) Any person who is or was engaged in the telecommunications relay services shall not disclose other’s secrets which have been known to him in the course of performing his duties. (4) The Minister of Science and ICT may provide financial, technical and other necessary assistance to any person who falls under any of the following subparagraphs: 1. A key communications business operator which provides the telecommunications relay services directly or by entrusting to others; or 2. A person who provides the telecommunications relay services by entrustment. (5) Details on criteria, procedures and method of designating the operating institution under paragraph (1) shall be determined and announced by the Minister of Science and ICT.

CHAPTER II. TELECOMMUNICATIONS BUSINESS

SECTION 1. General Provisions

Article 5 (Classification, etc. of Telecommunications Business) (1) The telecommunications businesses shall be classified into a key communications business, a specific communications business and a value- added communications business. (2) The key communications business shall be the business to install telecommunication line facilities, and thereby provide the key telecommunications service by making use of telecommunication line facilities. (3) The specific communications business shall correspond to one of the following subparagraphs: 1. Business which provides a key communications service by making use of telecommunication line facilities, etc. of a person who has obtained a license for key communications business under Article 6 (hereinafter referred to as a “key communications business operator”); and 2. Business which installs the telecommunications facilities in the premises as determined by the Enforcement Decree, and provides a telecommunications service therein by making use of the said facilities. (4) The value-added communications business shall be the business providing value-added communication services.

SECTION 2. Key Communications Business

Article 6 (License etc. of Key Communications Business Operator) (1) A person who intends to run a key communications business shall obtain a license from the Minister of Science and ICT. (2) The Minister of Science and ICT shall, in granting a license under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs: 1. financial capability necessary for implementing the key communications service plan; 2. technical capability necessary for implementing the key communications service plan; 3. adequacy of plans for a user protection; and 4. other matters relevant to capacity for providing stable key communications services as determined under the Enforcement Decree of the Act.

3

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) The Minister of Science and ICT may establish a basic plan to grant a license of a key communications business operator taking into consideration the result of competition assessment of key communications business as referred to in Article 34 (2) hereof and a plan to use frequencies under Article 8 (3) 2 of the Radio Waves Act. (4) A person who intends to operate a key communications business using frequencies assigned under Article 10 of the Radio Waves Act shall apply for assignment of frequencies and license for key communications business to the Minister of Science and ICT. (5) The Minister of Science and ICT shall set forth the detailed examination criteria by examining item under paragraph (2), period for license and outline of application for license, and make a public announcement thereof. (6) The Minister of Science and ICT may, in case where it grants a license for key communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication, in this case such conditions shall be published on its official publication and official webpage. (7) A person subject to a license under paragraph (1) shall be limited to a juristic person. (8) Procedures for a license under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.

Article 7 (Reasons for Disqualification for License) Persons falling under each of the following subparagraphs shall not be entitled to obtain the license for a key communications business as referred to in Article 6: 1. The State or local governments; 2. Foreign governments or foreign corporations; and 3. Corporations whose stocks are owned by foreign governments or foreigners in excess of the restrictions on stock possessions as referred to in Article 8 (1).

Article 8 (Restrictions on Stock Possessions of Foreign Governments or Foreigners) (1) The stocks of a key communications business operator (excluding non-voting class stocks under Article 344-3 (1) of the Commercial Act, and including the stock equivalents with voting rights, such as stock depositary receipts, etc. and investment equities; hereinafter the same shall apply) shall not be owned in excess of 49/100 of the gross number of issued stocks, when adding up all of those owned by the foreign governments or foreigners. (2) A corporation whose largest stockholder (hereinafter referred to as the “largest stockholder “) under Article 9(1)1 of the Financial Investment Services and Capital Markets Act is a foreign government or a foreigner (including, throughout this Act, a specially-related person under Article 9(1)1 of the Financial Investment Services and Capital Markets Act) and owns not less than 15/100 of the gross number of its issued stocks (hereinafter referred to as the “fictitious corporation of foreigners”) shall be regarded as a foreigner. (3) A corporation that falls under any of the following subparagraphs shall not be regarded as a foreigner even if it is equipped with the requirements as referred to in paragraph (2), except for a foreigner referred to in Articles 10 (1) 3 and 86 (3): 1. A corporation which owns less than 1/100 of the gross number of stocks issued by a key communications business operator; or 2. A corporation whose largest stockholder is a foreign government or a foreigner of a counterparty country to free trade agreements determined and announced by the Minister of Science and ICT out of those free trade agreements executed, bilaterally or multilaterally, between or among the Republic of Korea and a foreign country(s) and owns not less than 15/100 of the gross number of its issued stocks, and which is determined by the Minister of Science and ICT after the examination of the corporation from the perspective of public interest nature under Article 10 that there exists no danger of impeding the public interests.

4

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 9 (Grounds for Disqualifying Officers) (1) Any person falling under each of the following subparagraphs shall be disqualified to serve as an officer of any key communications business operator: 1. A minor, an adult ward or a limited ward; 2. A person who has yet to be reinstated after having been declared bankrupt; 3. A person who has been sentenced to imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection (excluding matters not directly related to telecommunication business, hereinafter “this Act, etc.”), and for whom three years have yet to pass from the date on which the execution of the sentence is terminated (including a case where the execution of the sentence is deemed to be terminated) or the execution of the sentence is exempted; 4. A person who is in a stay period after having been sentenced to a stay of the execution of the imprisonment without prison labor or a heavier punishment on charges of violating this Act, etc.; 5. A person who has been sentenced to a fine on charges of violating this Act, etc. and for whom one years have yet to pass from the date of such sentence; and 6. A person who has been subject to a disposition taken to revoke all or part of his permission in accordance with Article 20 (1), a disposition taken to revoke all or part of his registration in accordance with Article 27 (1), or an order given in accordance with paragraph (2) of the same Article to discontinue all or part of his business and for whom three years have yet to pass from the date of such disposition or order. In the case of a corporation, the person refers to the person who commits the act of causing the disposition to revoke permission, the disposition to revoke registration or the order to discontinue business, and its representative. (2) In the event that any officer is found to fall under each subparagraph of paragraph (1) or is found to fall under each subparagraph of paragraph (1) at the time that he is selected and appointed as an officer, he shall rightly resign from the office. (3) Any act in which any officer has been involved prior to his resignation under paragraph (2) shall not lose its legal efficacy.

Article 10 (Examination of Public Interest Nature of Stock Acquisition, etc. by Key Communications Business Operator) (1) The Public Interest Nature Examination Committee (hereinafter referred to as the “Committee”) shall be established in the Ministry of Science and ICT in order to make an examination regarding whether or not what falls under each of the following subparagraphs impedes the public interests as prescribed by the Enforcement Decree (hereinafter referred to as the “examination of public interest nature”), such as the national safety guarantee and maintenance of public peace and order, etc: 1. Where the principal comes to own not less than 15/100 of the gross number of stocks issued by a key communications business operator, when adding up those owned by the specially-related person as referred to in Article 9 paragraph (1) subparagraph 1 of the Capital Market Integration Act(hereinafter referred to as the “specially-related person”); 2. Where the largest stockholder of a key communications business operator is altered; 3. Where a key communications business operator or any stockholder of a key communications business operator concludes an agreement for important management matters as prescribed by the Enforcement Decree, such as the appointment and dismissal of executives and the transfer or takeover, etc. of business of the relevant key communications business operator, with a foreign government or a foreigner; and 4. Other cases as prescribed by the Enforcement Decree, where there exists a change in the persons who have de facto management rights of a key communications business operator.

5

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) Where a key communications business operator or any stockholder of a key communications business operator comes to fall under each of subparagraphs of paragraph (1), he shall file a report thereon with the Minister of Science and ICT within thirty days from the time when such a fact took place. (3) Where a key communications business operator or any stockholder of a key communications business operator is to come to fall under each of subparagraphs of paragraph (1), he may, prior to the said situation, request the Minister of Science and ICT to make an examination as referred to in paragraph (1). (4) Where the Minister of Science and ICT has received a report as referred to in paragraph (2) or a request for examination as referred to in paragraph (3), it shall refer it to the Committee. (5) Where the Minister of Science and ICT judges that there exists a danger of impeding the public interests by the cases falling under each of subparagraphs of paragraph (1) in view of the result of examination as referred to in paragraph (1), it may order the alteration of agreement detail and suspension of its implementation, the suspension of exercise of voting rights, or the sale of relevant stocks. (6) The report as referred to in paragraph (2) or (3), or the scope of key communications business operators to be examined of public interest nature shall be as follows: 1. A key communications business operator which operates and manages important communications under Article 92 (2) 3; 2. A key communications business operator which owns an artificial satellite for which a space station has been established under Article 20-2 (3) of the Radio Waves Act and subparagraph 30 of Article 29 of the Enforcement Decree thereof; 3. A key communications business operator which has been designated and announced by the Minister of Science and ICT as the key communications business operator falling under Articles 35 (2) 1 and 3, 39 (3), 41 (3) and 42 (3); 4. A key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act; provided that the key communications business operator whose turnover of telecommunications service for the immediately preceding year is less than the amount determined by the Enforcement Decree hereof taking into consideration the market situation, market share, etc. shall be excluded; and 5. A key communications business operator whose turnover exceeds the amount announced by the Minister of Science and ICT taking into consideration the market situation, market share, etc., out of those key communications business operators whose turnover of telecommunications service for the immediately preceding year is 30 billion won or more. (7) The procedures for reports and examinations of public interest nature under the above paragraph (2) or (3) and other necessary matters shall be stipulated by the Enforcement Decree.

Article 11 (Composition and Operation, etc. of Public Interest Nature Examination Committee) (1) The Committee shall consist of not less than five but not more than fifteen members including one Chairman. (2) The Chairman of the Committee shall be one of the Vice Ministers of Science and ICT designated by the Minister of Science and ICT, and the members shall be the persons commissioned by the Chairman from among the public officials ranking Grade III or higher grade of related central administrative agencies or public officials who belong to senior executive service as specified by the Enforcement Decree of the Act, and falling under each of the following subparagraphs: 1. Persons having profound knowledge and experiences in the information and communications; 2. Persons recommended by the Government-contributed research institutes relating to the national safety guarantee and maintenance of public peace and order; 3. Persons recommended by the nonprofit non-governmental organizations as referred to in Article 2 of the Assistance for Nonprofit Non-Governmental Organizations Act; and 4. Other persons deemed necessary by the Chairman.

6

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) The Committee may conduct necessary investigations for the examination of public interest nature, or request the interested parties or the reference witnesses to provide the data. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons. (4) Where the Committee deems it necessary, it may have the interested parties or the reference witnesses attend the Committee, and hear their opinions. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons. (5) Matters necessary for the organization or operation, etc. of the Committee shall be prescribed by the Enforcement Decree.

Article 12 (Restrictions, etc. on Stockholders of Excessive Possession) (1) Where a foreign government or a foreigner has acquired the stocks in contravention of the provisions of Article 8 (1), no voting rights shall be exercised for the stocks under the said excessive possession. (2) The Minister of Science and ICT may order the stockholder who has acquired stocks in contravention of the provisions of Article 8 (1), a key communications business operator wherein exists the said stockholder, or the stock-holder of the fictitious corporation of foreigners, to make corrections in the relevant matters, with specifying the period within the limit of six months. (3) Persons subjected to the order for corrections as referred to in paragraph (2) shall make corrections in the relevant matters within the specified period. (4) With regard to the stockholder in contravention of the provisions of Article 8 (1), a key communications business operator may refuse any renewals for the excessive portion in the register of stockholders or of members.

Article 13 (Charge for Compelling Execution) (1) Against the persons who were subjected to the orders as referred to in Articles 10 (5), 12 (2) or 18 (8)(hereinafter referred to as the “corrective orders”) and has failed to comply with them within the specified period, the Minister of Science and ICT may levy the charge for compelling the execution. In such case, the charge for compelling the execution leviable per day shall be not more than 3/1,000 of purchase prices of relevant possessed stocks, but in the case not related with the stock possession, it shall be the amount not exceeding 100 million won. (2) The period subject to a levy of the charge for compelling the execution as referred to in paragraph (1) shall be from the day next to the date of expiration of the period set in the corrective orders to the date of implementing the corrective orders. In such case, a levy of the charge for compelling the execution shall be made within 30 days from the day next to the expiration date of the period set in the corrective orders, except for the case where there exists a special reason. (3) Provisions of Article 53 (5) and (7) shall apply mutatis mutandis to the collection of the charge for compelling the execution. (4) Matters necessary for the levy, payment, refund, etc. of the charge for compelling the execution shall be prescribed by the Enforcement Decree.

Article 14 (Issuance of Stocks) A key communications business operator shall, in a case of an issuance of stocks, issue the registered ones.

Article 15 (Obligation of Commencing Business) (1) A key communications business operator shall install telecommunications facilities and commence business within the period as fixed by the Minister of Science and ICT. (2) The Minister of Science and ICT may, in case where the said business operator is unable to commence business within the period under paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator.

7

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 16 (Modification of License) (1) Where a key communications business operator intends to modify the important matters prescribed by the Enforcement Decree from among the matters licensed under Article 6, he shall obtain a modified license from the Minister of Science and ICT, under the conditions as prescribed by the Enforcement Decree. (2) The provisions of Articles 6 (6) and Article 15 shall be applicable mutatis mutandis to a modified license for change under paragraph (1).

Article 17 (Concurrent Operation of Business) (1) A key communications business operator shall, in case where he intends to run any of the businesses set forth in the following subparagraphs, obtain approval from the Minister of Science and ICT; provided that this provision shall not apply to any key communications business operator with less than 30,000,000,000 Korean Won in turnover of services. 1. manufacturing of telecommunications equipment; 2. information and communications work pursuant to paragraph 3 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation work for electronic telecommunications network); and 3. services pursuant to subparagraph 6 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation of electronic telecommunications network). (2) The Minister of Science and ICT shall grant approval under paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under paragraph (1), and that it is required for the development of telecommunications.

Article 18 (Takeover of Business and Merger of Juristic Persons etc.) (1) A person who belongs to any one of the categories set forth in the following paragraphs shall obtain an authorization from the Minister of Science and ICT under the conditions as prescribed by the Enforcement Decree; provided, notwithstanding subparagraph 3 below, that in case that person sells telecommunications circuit installations except the ones prescribed by the Enforcement Decree, he shall report it to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree: 1. a person who takes or intends to take over the whole or part of a key communications business; 2. a person who intends to merge with a juristic person which is a key communications business operator; 3. a key communications business operator intending to sell the telecommunications circuit installations necessary for provision of key communications service; 4. a person who, along with a certain related person intends to become the largest shareholder of a key communications business operator or own 15% of more of the issued shares of the key communications business operator; 5. a person seeking to acquire control over a key communications business operator by acquiring shares or entering into an agreement, as specified by the Enforcement Decree of the Act; or 6. a key communications business operator seeking to establish a company to provide part of the key communications services provided under authorization through such company. (2) The Minister of Science and ICT shall, in case where it intends to grant authorization under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs; provided, however, that part of the examination may be omitted when acquisition of a key communications business or merger of a juristic person that is a key communications business operator has insignificant effect on the competition between the key communication businesses: 1. Appropriateness of financial and technical capability and business operational capability;

8

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.; 3. Impact on the competition of key communications business; 4. Impact on the protection of users and the public interests; and 5. Impact on public interests, such as the use of telecommunications facilities and communication networks, efficiency of research and development and international competitive power of the communications industry, etc. (3) Matters necessary for the detailed examination standards by examination items and the examination procedures, etc. under paragraph (2) shall be fixed and publicly announced by the Minister of Science and ICT. (4) A person falling under any of the following shall succeed to the telecommunication licensee status of the key communications business operator: 1. A person who has taken over the business of a key communications business operator by obtaining an authorization under paragraph (1) 1; 2. a juristic person surviving a merger or that established by a merger, or that established by obtaining an authorization under paragraph (1) 2; or 3. a company incorporated to provide part of key communications services with the approval under paragraph (1) 6. (5) The Minister of Science and ICT may, in case where it grants authorization or authorization under paragraph (1), attach conditions under Article 6 (6). (6) The Minister of Science and ICT shall, in case where it intends to grant an authorization under paragraph (1), go through a consultation with the Fair Trade Commission. (7) In regard to the criteria for rejection of authorization in paragraph (1), Article 7 shall be applicable mutatis mutandis. (8) In the event any person/entity subject to paragraph (1) 4 or 5 fails to acquire the permit under paragraph (1), the Minister of Science and ICT may order suspension of its voting right or sale of the applicable shares, and if the conditions attached under paragraph (5) are not carried out, may order such performance within a specific time frame. (9) A person seeking authorization under paragraph (1) shall not do each of the following prior to obtaining such authorization: 1. unify communications networks, 2. appoint officers, 3. transferring, consolidating, entering into contract concerning disposing of facilities or 4. take follow-up measures regarding establishment of a company. (10) Where a person falling under each of subparagraphs of paragraph (1) is subject to the examination of public interest nature, the person may submit the documents required for the examination of public interest nature at the same time when the person applies for the authorization under paragraph (1). (11) Cases that have insignificant effect on the competition between the key communication businesses and the matters required for omission of examination shall be determined by the Enforcement Decree.

Article 19 (Suspension, Closedown of Business or Dissolution of Juristic Persons, etc.) (1) A key communications business operator shall, in case where he intends to suspend or discontinue the whole or part of a key communications business run by him, as specified by the Enforcement Decree of the Act notify the users at least 60 days prior to the date of termination and obtain approval of such suspension or discontinuation from the Minister of Science and ICT.

9

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) In the event separate measures of protection is deemed to be necessary for the protection of users upon suspension or discontinuance of the relevant key communications business, the Minister of Science and ICT may order such measures (including assistance for membership change, bearing expenses, termination of membership) to be taken. (3) The Minister of Science and ICT shall, in case where an application for approval or authorization under paragraph (1) is made, shall grant the relevant approval or authorization except for the following cases: 1. Where required documents determined by the Enforcement Decree such as details of the business to be suspended or discontinued, and drawings of such business’s territories have a defect; 2. Where it is deemed that the business operator’s notice on its plan to suspend or discontinue the business is not appropriately made; 3. Where the business operator’s user protection plan and the implementation of such user protection plan is not sufficient and thus, it is expected that the suspension or discontinuation of the business may cause considerable loss or damage to the users; or 4. Where it is deemed that maintenance of the concerned key communications business is urgently required in order to respond to national emergencies such as war, hostilities, or any other incident equivalent thereto or in order to prevent or handle material disaster.

Article 20 (Cancellation of License, etc.) (1) The Minister of Science and ICT may, in case where a key communications business operator falls under any one of the following subparagraphs, cancel whole or part of the relevant license or give an order to suspend the whole or part of business with fixing a period of no more than one year; provided that the license shall be cancelled entirely or partially if paragraph 1 is applicable: 1. Where he has obtained a license by deceit and other illegal means; 2. Where he has failed to implement the conditions under Articles 6 (6) and 18 (5); 3. Where he has failed to observe the orders under Article 12 (2); 4. Where he has failed to commence business within the period under Article 15 (1) (in case of obtaining an extension of the period under Article 15 (2), the extended period); 4-2. Where he has failed to obtain approval set forth in Article 19 (1) and not provided his key communications service for a period exceeding the period determined by the Enforcement Decree; 5. Where he has failed to comply with the standardized terms and conditions, that is authorized or reported under Article 28 (1) and (2); and 6. Where he fails to comply with a correction order under Article 92 (1) without any justifiable reasons. (2) Criteria and procedures for the dispositions under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree. (3) In the event that the Minister of Science and ICT cancels whole or part of the relevant license or gives an order to suspend the whole or part of business, it may also order measures necessary to protect users as prescribed in Article 19 (2).

SECTION 3. Specific Communications Business and Value-Added Communications Business

Article 21 (Registration of Specific Communications Business Operator) (1) A person who intends to operate a specific communications service shall register the following matters with the Minister of Science and ICT (including registration through information network) under the conditions as determined by the Enforcement Decree: 1. Financial and technical capability;

10

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Plans for a user protection; and 3. Business plans, etc. and other matters as determined by the Enforcement Decree. (2) The Minister of Science and ICT may, upon receipt of the registration of a specific communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication. (3) The Minister of Science and ICT shall allow such registration as set forth in paragraph (1) except for the following cases: 1. Where the matters set forth in subparagraphs of paragraph (1) are not prepared; 2. Where required documents determined by the Enforcement Decree including articles of incorporation or terms and conditions of a juristic person has a defect; or 3. Where a person who applied for registration is not a juristic person. (4) A person who registered his specific communications business under paragraph (1) (hereinafter referred to as a “specific communications business operator”) shall commence operation within 1 year from the registration date. (5) Procedures and requirements for the registration under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree.

Article 22 (Report, etc. of Value-Added Communications Business Operator) (1) A person who intends to run a value-added communications business shall report to the Minister of Science and ICT (including reports via information network), according to the requirements and procedures as prescribed by the Enforcement Decree. (2) Notwithstanding the provisions of paragraph (1), a person who intends to operate a special type of value-added communications business shall register such business with the Minister of Science and ICT (including registration through information network) after satisfying the following requirements: 1. a plan for implementing technical measures in order to perform the provisions of Article 22-3 (1) hereof, and Article 104 of the Copyright Act (limited to a person providing the services prescribed in A of subparagraph 13 of Article 2); 1-2. a plan for implementing technical measures in order to prevent false display of the caller’s telephone number including altering of telephone number (limited to a person providing the services prescribed in B of subparagraph 13 of Article 2); 2. personnel and physical facilities necessary for providing services; 3. financial soundness; and 4. any other matters as prescribed by the Enforcement Decree such as a business plan. (3) Upon receipt of the registration of a value-added communications business pursuant to paragraph (2), the Minister of Science and ICT may set conditions necessary to implement the plan referred to in subparagraph 1 or 1-2 of paragraph (2). (4) Notwithstanding paragraph (1), a person falling under any of the following shall be deemed to have reported his value-added communications business: 1. a person who intends to run a small value-added communication business whose size of a capital, etc. matches the criteria prescribed by the Enforcement Decree; or 2. a key communications service operator who intends to run a value-added communications business. (5) A person who reported a value-added communications business under paragraph (1) or a person who registered such business under paragraph (2) shall commence operation within 1 year from the reporting date or registration date respectively.

11

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (6) Procedures and requirements for the report under the first part of paragraph (1) and the registration under paragraph (2), and other necessary matters shall be determined by the Enforcement Decree.

Article 22-2 (Reasons for Disqualification for Registration) An individual, a juristic person for whom three years have yet to pass from the date on which the registration of his/its business is canceled pursuant to Article 27(2), or the major shareholder of such juristic person at the time of such cancellation (an investor as prescribed by the Enforcement Decree) may not make a registration under Article 22(2).

Article 22-3 (Technical Measures, etc. of Special Type of Value-added Communications Business Operators) (1) A person who has registered a special type of value-added communications business under Article 22 (2) (hereafter in this Article, referred to as “special type of value-added communications business operator”) and provides the services prescribed in A of subparagraph 13 of Article 2 shall take the following technical measures: 1. as required in order to comply with Articles 42, 42-2 and 45 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc.; and 2. as determined by the Enforcement Decree in order to prevent the circulation of illegal information under Article 44-7 (1) 1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. (2) No person shall intentionally or negligently get rid of, alter, or incapacitate the technical measures as referred to in paragraph (1) through detour; provided that the same shall not apply to the case falling under any of the following subparagraphs: 1. If it is necessary for central administrative agency’s or municipalities’ reasonable and lawful performance of its business; or 2. If it is necessary for investigative agencies, chief information security officer under the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. and the Korea Internet & Security Agency to respond to occurrence of information network trespass such as hacking. (3) A special type of value-added communications business operator (limited to a person providing the services prescribed in A of subparagraph 13 of Article 2) shall ensure that the status of operation and management of the technical measures as referred to in paragraph (1) is automatically recorded in the system and keep it for the period as determined by the Enforcement Decree. (4) The Minister of Science and ICT or the Korea Communications Commission, with respect to respective responsible affairs, may cause relevant public official belonging thereto to check the status of operation and management of the technical measures as referred to in paragraph (1) or order a special type of value-added communications business to submit any required information including the records under paragraph (3). (5) No person shall destroy, forge or falsify the records under paragraph (3) without any justifiable authority.

Article 22-4 (Value-added Communications Service Required of Reporting of Fees) (1) When a telecommunications business operator provided a value-added communications service prescribed in B of subparagraph 13 of Article 2, he shall report the fees of such service to the Minister of Science and ICT (including modified report; hereinafter, the same shall apply) except for a telecommunications business operator whose turnover of telecommunications service is less than the amount as determined and announced by the Minister of Science and ICT considering the market situation, market share, etc. (2) A telecommunications business operator shall disclose the contents reported under paragraph (1). (3) Procedures and methods of the reporting under paragraph (1) and disclosure under paragraph (2) shall be determined by the Enforcement Decree.

12

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 23 (Modification of Registered or Reported Matters) Specific communications business operator, a person who has made a report of a value-added communications business operator under Article 22 (1), or a person who has made a registration of a value-added communications business under Article 22 (2) shall, when he intends to modify the matters as determined by the Enforcement Decree from among the relevant registered or reported matters, make in advance a modified registration or modified report (including modified registration or modified report through information network) to the Minister of Science and ICT under the conditions as prescribed by the Enforcement Decree.

Article 24 (Transfer or Takeover, etc. of Business) In case where there exists a transfer or takeover of the whole or part of a specific communications business or a value-added communications business, or a merger or succession of a juristic person which is a specific communications business operator or a value-added communications business operator (a person who has reported value-added communications services pursuant to Article 22 (1), a person who has made a registration of a value- added communications business under Article 22 (2) or is deemed to have made such reporting under paragraph (4) of the same Article, hereinafter refer to the same), each of the following persons shall make the report thereon (including reports through information network) to the Minister of Science and ICT, according to the requirements and procedures as prescribed by the Enforcement Decree; provided, however, that this shall not apply to a person who has been deemed to report a value-added communications service under Article 22(4) resulting from a transfer or takeover of the whole or part of a value-added communications business or a merger or succession of a juristic person which is a value-added communications business operator: 1. a person who has taken over the relevant business; 2. the juristic person surviving the merger, the juristic person founded by the merger; or 3. the successor to the business in question.

Article 25 (Succession of Business) In case where there has existed a transfer or takeover of a specific communications business or a value-added communications business, a merger of a juristic person which is a specific communications business or a value-added communications business operator, or a succession of a value-added communications business, under Article 24, each of the following persons shall succeed to the status of a former specific communications business operator or a value-added communications business operator: 1. a person who has taken over the business; 2. a juristic person surviving a merger, or a juristic person founded by a merger; or 3. a successor to the business.

Article 26 (Suspension or Closedown, etc. of Business) (1) A specific communications business operator or a value-added communications business operator shall, in case where he intends to suspend or close down the whole or part of his business, in a manner determined in the Enforcement Decree of the Act, notify the relevant contents to the users of relevant services, and report thereon to the Minister of Science and ICT (including reports through information network) not later than thirty days prior to the slated date of the relevant suspension or closedown. In this case, the business shall not be continually suspended for more than 1 year. (2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Minister of Science and ICT (including reports through information network).

Article 27 (Cancellation of Registration and Order for Closedown of Business) (1) The Minister of Science and ICT may, when a specific communications business operator falls under any of the following subparagraphs, cancel his registration wholly or partially, or suspend his business wholly or

13

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document partially by specifying the period of not more than one year; provided that when he falls under subparagraph 1, the Minister of Science and ICT shall cancel whole or part of his registration: 1. Where he makes a registration by deceit and other illegal means; 2. Where he fails to implement the conditions under Article 21 (2); 3. Where he fails to commence business within one year from the date on which a registration was made under Article 21 (4), or in violation of the latter part of Article 26(1) continually suspends business operation for not less than one year; or 4. Where he fails to comply with a corrective order under Article 92 (1) without any justifiable reasons. (2) The Minister of Science and ICT may, when a value added communications business operator falls under any of the following subparagraphs, issue an order to him for a closedown of the whole or part of business (in case of a special type of value-added communications business operator, for a cancellation of the whole or part of business) or for a suspension of the whole or part of business by specifying a period of not more than one year; provided that when he falls under subparagraph 1,, the said Minister shall issue an order to him for a closedown of whole or part of business: 1. Where he makes a report or registration by deceit and other illegal means; 2. Where he fails to implement the conditions under Article 22(3); 3. Where he fails to commence the business within one year from the reporting date or registration date under Article 22(5), or in violation of the latter part of Article 26(1) suspend the business operation for not less than one year; 3-2. Where the Korea Communications Commission requests it because the technical measures as set forth in Article 22-3 (1) has not been taken; 4. Where he fails to comply with a correction order under Article 92 (1) without any justifiable reasons; 5. Where he fails to comply with an order to take corrective measures under Article 64(4) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. without any justifiable reasons; or 6. Where he who has been punished by a fine for negligence pursuant to Article 142(1) and Article 142(2)3 of the Copyright Act more than 3 times is subject to a fine for negligence again and such an order is requested by the Minister of Culture, Sports and Tourism after the Korea Copyright Commission’s deliberation pursuant to Article 112 of the same Act. (3) Criteria and procedures for dispositions taken under paragraph (1) or (2) and other necessary matters shall be determined by the Enforcement Decree of the Act.

CHAPTER III. TELECOMMUNICATIONS SERVICE

Article 28 (Report, etc. of Standardized Terms and Conditions) (1) A key communications business operator shall set forth the fees and other terms for use by service with respect to the telecommunications service which he intends to provide (hereinafter referred to as the “standardized terms and conditions”), and report thereon (including a modified report, hereinafter refer to the same) to the Minister of Science and ICT. (2) Notwithstanding paragraph (1), in a case of a key communications service of key communications business operator whose size of business and market share correspond to the standards as determined by the Enforcement Decree, it shall obtain an authorization of the Minister of Science and ICT (including a modified authorization, hereinafter refer to the same), provided that, any decrease in the service-specific charges included the approved standard terms and conditions of usage shall be reported to the Minister of Science and ICT.

14

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) In regard to the main body of paragraph (2), the Minister of Science and ICT shall authorize the standardized terms and conditions, if it falls under the criteria of every following subparagraph: 1. Fees for telecommunications service shall be reasonably calculated considering but not limited to costs of supply, profits, classification of costs/ profits by labor, cost savings achieved by methods of provision of labor, and effects on fair competitive environments; 2. Matters concerning the responsibility of key communications business operators and relevant users, cost-sharing methods concerning the installation work of telecommunications facilities and other works shall not be unreasonably disadvantageous to users; 3. Forms of use of telecommunication line facilities by other telecommunications business operators or users shall not be unduly restricted; 4. Undue discriminatory treatments shall not be made to specific persons; and 5. Matters on securing the important communications under Article 85 shall take into consideration matters such as achieving efficient performance of State’s function. (4) A person intending to acquire the approval under paragraph (1) and (2) or file a report with respect to the telecommunications services shall submit the supporting data for calculation of fee (including subscription fee, basic fee, usage fee, value-added service fee, and actual expense). In case of business change, a table comparing the old (before change) and new (after change) supporting data should be submitted to the Minister of Science and ICT for comparison. (5) Details necessary and not otherwise specified in paragraphs (1) through (4) in regard to the scope of and procedures of reporting and authorization shall be specified under the Enforcement Decree of the Act.

Article 29 (Reduction or Exemption of Fees) A key communications business operator may reduce or exempt the fees for telecommunications service under the conditions prescribed by the Enforcement Decree, such as national security guarantee, disaster relief, social welfare and public interest.

Article 30 (Restriction on Use by Others) No person shall intermediate other’s communications or provide for other’s communications by making use of telecommunications services provided by a telecommunications business operator; provided that the same shall not apply to the case falling under any of the following subparagraphs: 1. Where it is needed to ensure the prevention and rescue from disaster, traffic and communication, and the supply of electricity, and to maintain order in a national emergency situation; 2. Where telecommunications services are incidentally rendered to clients while running a business other than the telecommunications business; 3. Where it is allowed to use on a trial basis for the purpose of developing and marketing telecommunications facilities, such as terminal devices, etc. which enable to use the telecommunications services; 4. Where any user permits any third party to use to the extent that the latter does not use repeatedly; and 5. Where it is necessary for the public interests or where the business run by any telecommunications business operator is not impeded, which is prescribed by the Enforcement Decree.

Article 31 (Use of Transmission or Line Equipment, etc.) (1) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide the transmission or line equipment or the cable broadcasting equipment possessed under the methods prescribed by the Enforcement Decree to the key communications business operators.

15

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act shall, when he intends to provide value-added communications services by making use of the transmission or line equipment or cable broadcasting equipment, make a report thereon to the Minister of Science and ICT pursuant to Article 22 (1). (3) The provisions of Articles 35 through 55 shall be applicable mutatis mutandis to the transmission or line equipment or cable broadcasting facilities under paragraph (1). (4) The provisions of Articles 28 (2) through (7) of the Framework Act on Telecommunications shall be applicable mutatis mutandis to the offer of services under paragraph (2).

Article 32 (Protection of Users) (1) A telecommunications business operator shall exert efforts to prevent any loss or damage to the users and take a prompt measure on the reasonable opinions or dissatisfactions raised by the users with respect to the telecommunications service. In this case, if it is difficult to take a prompt measure, he shall notify the users of the reasons thereof and the schedule for measures. (2) The Korea Communications Commission may assess the user protection and disclose the result thereof. In such cases, the Korea Communications Commission may order a telecommunications business operator to submit the data necessary for such assessment. (3) When a telecommunications business operator determined by the Enforcement Decree considering the matters such as the type, business scale and user protection of the telecommunications service enters into an agreement on the use of the telecommunications service (including revision of the agreement), it shall send a copy of such agreement to the users in writing or through information network as specified by the Enforcement Decree. (4) A telecommunications business operator providing key communications services shall subscribe a guarantee insurance with the person designated by the Minister of Science and ICT as beneficiary in an amount determined in accordance with the criteria specified under the Enforcement Decree of the Act and not exceeding the aggregate prepaid phone service charges to be received prior to providing prepaid phone services to be able to compensate losses to users arising from not being able to provide services after receiving service charges in advance; provided that the foregoing requirement may be waived in the case specified under the Enforcement Decree of the Act where such telecommunications business operator’s financial capacity and services charges are taken in consideration. (5) The person designated as beneficiary under paragraph (4) shall distribute insurance proceeds received under the guarantee insurance under paragraph (4) to users who have not received services after paying services charges in advance. (6) Details necessary in regard to the subjects, criteria, or procedures of user protection, utilization of results, subscription, renewal and distribution of insurance proceeds under paragraph (2) and (5) shall be specified in the Enforcement Decree of the Act.

Article 32-2 (Notice of Excess of Maximum Limit of Fees) (1) A telecommunications business operator utilizing frequencies assigned under the Radio Waves Act shall notify the users of any of the following facts when it occurs: 1. When a user exceeds the maximum limit of telecommunications service fees initially committed by the user; or 2. When any fees incurred from using international telecommunications services such as international call are charged to a user. (2) Any matters necessary for users subject to notice or method of notice under paragraph (1) shall be determined and publicly announced by the Minister of Science and ICT.

16

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 32-3 (Restrictions on Provision of Telecommunications Services) (1) The Minister of Science and ICT may order a telecommunications business operator to suspend provision of telecommunications services to the relevant telecommunications numbers if there is any of the following requests by the head of the relevant administrative agency: 1. a request to suspend provision of telecommunications services under Article 9-6 of the Act on Registration of Credit Business, Etc. and Protection of Finance Users; 2. a request to suspend provision of telecommunications services under Article 13-3 of the Special Act on Prevention of Damage and Refund of Amount of Damage Caused by Telecommunications Bank Fraud; 3. a request to suspend provision of telecommunications services under Article 6-2 of the Electronic Financial Transactions Act; (2) A telecommunications business operator who receives an order from the Minister of Science and ICT under paragraph (1) shall comply with such order and shall, in such cases, send a notice before suspending telecommunications services, to the user of relevant telecommunications services specifying the administrative agency requesting the suspension of the telecommunications services, reason(s) for such request and procedures for filing a formal objection thereto. (3) Matters necessary for the notice methods etc. regarding procedures for filing a formal objection pursuant to paragraph (2) shall be prescribed by Enforcement Decree.

Article 32-4 (Prevention of Unauthorized Use of Mobile Device) (1) No person shall engage in any of the following acts: 1. An act to open a mobile device (it means a device necessary to use a key communications services utilizing frequencies assigned under the Radio Waves Act; hereinafter, the same shall apply) account related to which an agreement on the provision of the telecommunications service is executed under a different person’s name on condition to give or borrow some money in order to use the telecommunications service provided to such mobile device or to use the service for recovery of such money; or 2. An act to solicit, mediate, broker or advertise an agreement on the provision of the telecommunications service necessary to use the mobile device on condition to give or borrow some money. (2) If a telecommunications business operator determined by the Enforcement Decree considering the matters such as the type, business scale and user protection of the telecommunications service enters into an agreement on the provision of the telecommunications service (including execution of an agreement on the provision of the telecommunications service by an agent or commission agency that enters into the agreement on behalf of or entrusted by a telecommunications business operator), it shall, with the consent of the counterparty, confirm the counterparty’s identity using the fraud subscription detection system under Article 32-5 (1) and may refuse to enter into an agreement if the counterparty fails to verify his identity or refuse to have his identity confirmed. If users are changed resulting from the transfer of provision of the telecommunications service or succession of user status, this shall also apply to a person who intends to receive the telecommunications service according to such change. (3) When a telecommunications business operator confirm the counterparty’s identity under paragraph (2), a telecommunications business operator may demand the counterparty to present certificates and documents that can make identification such as resident registration number and driver’s license. (4) Details necessary in regard to the methods for identification under paragraph (2) and types of certificates and documents that can make identification shall be determined by the Enforcement Decree.

Article 32-5 (Establishment of Fraud Subscription Detection System) (1) The Minister of Science and ICT shall establish a system necessary to identify the users in order to prevent execution of an agreement on the provision of the telecommunications service through fraud way (hereinafter,

17

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document “fraud subscription detection system”) and ensure that a telecommunications business operator under Article 32-4 (2) may use the fraud subscription detection system. (2) The Minister of Science and ICT, for the purpose of establishment and operation of the fraud subscription detection system, may request the head of the government entities and public agencies who possess the following information necessary for identification of the users (including legal representative) to verify authenticity of the certificates presented under Article 32-4 (3) through sharing of administrative information under Article 36 (1) of the Electronic Government Act. In such cases, the head of the government entities and public agencies who have received such request shall comply with such request unless there is any justifiable reason: 1. information on an individual’s resident registration and family relationship; 2. information on a juristic person’s registration and business registration; 3. information on a foreign national’s and overseas Korean’s registration/resident report and immigration; and 4. other information on the certificates and documents presented under Article 32-4 (3). (3) The Minister of Science and ICT may entrust the affairs for establishment and operation of the fraud subscription detection system with the Korea Association for ICT Promotion (“KAIT”) under the Framework Act on Broadcasting Communications Development as determined by the Enforcement Decree.

Article 32-6 (Provision of Identity Theft Prevention Service) (1) A telecommunications business operator who provide a key telecommunications service shall provide service informing the users, via text message or registered mail, that an agreement on the use of telecommunications service has been entered into under the name of the concerned users (“identity theft prevention service”) with the consent of the users; provided that the identity theft prevention service shall be provided via registered mail to the users who cannot receive the text message since they have no mobile devices or have reported on the loss of mobile devices. (2) The Minister of Science and ICT may designate the KAIT as an institution taking exclusive charge of the support for provision of the identity theft prevention service. (3) Details necessary for the content and procedures of the identity theft prevention service shall be determined and announced by the Minister of Science and ICT. [Date of Enforcement: March 15, 2018] Article 32-6

Article 32-7 (Blocking of Media Product Harmful to Juveniles) (1) When a telecommunications business operator using frequencies assigned under the Radio Waves Act enters into an agreement on the provision of the telecommunications service with a juvenile under the Juvenile Protection Act shall provide a tool to block the media product harmful to juveniles under subparagraph 3 of Article 2 of the Juvenile Protection Act and information with an obscene content under Article 44-7 (1) 1 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. (2) The Korea Communication Commission may inspect the status of provision of such a tool for blocking as set forth in paragraph (1). (3) Details necessary for the method and procedures of provision of a tool for blocking as set forth in paragraph (1) shall be determined by the Enforcement Decree.

Article 32-8 (Call Forwarding Service) (1) A telecommunications business operator may provide telecommunications service connecting a phone call received through a user’s telecommunications number to the other telecommunications number that the user has set up in advance (“call forwarding service”). (2) A telecommunications business operator providing a call forwarding service as referred to in paragraph (1) shall report on the call forwarding service including its content and procedures for subscription and set up to the Minister of Science and ICT.

18

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) A telecommunications business operator providing a call forwarding service as referred to in paragraph (1) shall not provide the a call forwarding service in a different way from that he reported under paragraph (2). (4) A telecommunications business operator shall not set up a call forwarding service at his own discretion without the user’s application.

Article 33 (Compensation for Damages) A telecommunications business operator shall make compensations when he inflicts any damages on the users in the course of providing telecommunications services or in relation to occurrence of reasons causing the opinions or dissatisfactions and delay of handling of such opinions or dissatisfactions under Article 32 (1); provided that if such damages are the results of force majeure, or of intent or negligence of the users, the relevant liability for compensations shall be reduced or exempted.

CHAPTER IV. PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS BUSINESS

Article 34 (Promotion of Competition) (1) The Minister of Science and ICT shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services. (2) The Minister of Science and ICT shall conduct annual evaluation of competition system with respect to key communications business in order to construct an efficient competition system and to promote fair competition in the telecommunications services industry pursuant to paragraph (1) above. (3) The specific evaluation standards, procedure and method for evaluating competition system under paragraph (2) above shall be prescribed by the Enforcement Decree.

Article 35 (Provision of Facilities, etc.) (1) A key communications business operator or an institution constructing, operating and managing road, railroad, subway, water supply/sewage, electric poles, cables, telecommunications line facilities (“facility management institution”) may, upon receipt of a request for the provision of conduit line, common duct, electric poles, cables, operation sites and other facilities (including telecommunications facilities, hereinafter the same) or facilities (“facilities, etc.”) from other key communications business operator, provide the facilities, etc. by concluding an agreement with him. (2) A key communications business operator falling under any of the following subparagraphs shall, upon receipt of a request under paragraph (1), provide the facilities, etc. by concluding an agreement, notwithstanding the provisions of paragraph (1); provided that the foregoing is not applicable in case there is a usage plan, etc. of the facility management institution: 1. A key communications business operator who possesses the equipment indispensable for other telecommunications business operators in providing the telecommunications services; and 2. Each of the following facility management institutions owning conduit line, common duct, electric pole, cable and other facilities, etc.: A. the Korea Expressway Corporation organized under the Korea Highway Corporation Act B. the Korea Water Resources Corporation organized under the Korea Water Resources Corporation Act C. the Korea Electric Power Corporation organized under the Korea Electric Power Corporation Act D. the Korea Rail Network Authority organized under the Korea Rail Network Authority Act E. local public enterprises under Local Public Enterprise Act

19

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document F. municipalities under Local Autonomy Act G. the Regional Construction Management Administration under the Road Act 3. A key communications business operator whose business scale and market shares, etc. of key communications services are equivalent to the criteria as determined by the Enforcement Decree. (3) The Minister of Science and ICT shall set forth and publicly notify the scope of facilities, etc., the conditions, procedures and methods for the provision of facilities, and the standards for calculation of prices under paragraphs (1) and (2). In this case, the scope of facilities, etc. to be provided under paragraph (2) shall be determined in view of the demand for facilities, etc. by the key communications business operators and facility management institution falling under each subparagraph of the same paragraph. (4) A telecommunications business operator who intends to receive the provision of the facilities, etc. shall conclude an agreement as set forth in paragraph (1) and may install the apparatus enhancing the efficiency of the relevant facilities, within the limit necessary for the provision of the licensed telecommunications services. In such cases, he shall give prior notice to a key communications business operators and facility management institution providing such facilities, etc. as determined by the Enforcement Decree and get rid of such apparatus upon termination of the agreement or expiration of the period for utilization. (5) The Minister of Science and ICT may perform a field investigation into the status of provision and use of the facilities, etc. in order to efficiently utilize and manage the facilities, etc. In such cases, Article 51 (3) through (6) shall apply mutatis mutandis to the procedures and methods of such field investigation. (6) Deleted. (7) For provision of facilities, etc. under paragraphs (1) and (2), the Minister of Science and ICT may appoint an expert institution. (8) Details necessary for appointment and operation guidelines for expert institutions under paragraph (7) shall be determined and announced by the Minister of Science and ICT.

Article 35-2 (Duty to Maintain Aerial Cables) (1) A telecommunications business operator and facility management institution shall maintain the cables installed on the electronic poles (“aerial cables”) to protect city fine views. (2) The Minister of Science and ICT shall set up a plan to maintain aerial cables (hereafter in this Article, referred to as the “maintenance plan”) on an annual basis in order to carry out the maintenance as set forth in paragraph (1) systematically. In such cases, such plan shall be subject to review by the Council of Maintenance of Aerial Cables consisting of relevant Ministries and departments and telecommunications business operators. (3) A telecommunications business operator and facility management institution shall follow the maintenance plan and costs and expenses incurred to implement the maintenance plan shall be jointly borne by the persons providing and using the concerned facilities, etc. as specified by the Enforcement Decree. (4) Details necessary for constitution and operation of the Council of Maintenance of Aerial Cables as referred to in paragraph (2) shall be determined by the Enforcement Decree.

Article 36 (Joint Utilization of Subscriber’s Lines) (1) A key communications business operator shall, in case where other telecommunications business operators as determined and publicly noticed by the Minister of Science and ICT have made a request for a joint utilization with respect to the lines installed in the section from the exchange facilities directly connected with the users to the users (hereafter in this Article, referred to as the “subscriber’s lines”), allow it. (2) The Minister of Science and ICT shall set forth and publicly notify the scope of joint utilization of the subscriber’s lines under paragraph (1), its conditions, procedures and methods, and the standards for calculation of prices.

20

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 37 (Joint Utilization of Radio Communications Facilities) (1) A key communications business operator may, upon receipt of a request for the joint utilization of radio communications facilities (hereinafter referred to as the “joint utilization”) from other key communications business operators, allow it by concluding an agreement. In this case, the prices for the joint utilization among the key communications business operators as set forth and publicly notified by Minister of Science, ICT and Future Planning shall be computed and settled accounts by a fair and reasonable means. (2) The key communications business operators as determined and publicly notified by the Minister of Science and ICT shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Minister of Science and ICT, allow it by concluding an agreement, notwithstanding the provisions of paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users. (3) The Minister of Science and ICT shall set forth and publicly notify the standard for computing the prices for joint utilization under the latter part of paragraph (1) and its procedures and payment methods, etc., and the scope of joint utilization under paragraph (2), its conditions, procedures and methods, and the computation of prices, etc.

Article 38 (Wholesale Provision of Telecommunications Services) (1) Upon request from other telecommunication business operator, a key communications business operator may enter into an agreement to allow such telecommunication business operator to resell the telecommunications services it provides to users (“resale”) by providing such services to such other telecommunication business operator or permitting part or all of the telecommunications facilities necessary for such provision of telecommunications services (“wholesale provision”). (2) To encourage competition in the telecommunication industry, the Minister of Science and ICT may, upon request from a telecommunication business operator, designate and announce telecommunication s services (“designated wholesale services”) of a key communications business provider which would need to enter into an agreement for wholesale provision (“designated wholesale provider”). In this case, designated wholesale services of the designated wholesale provider shall be selected from telecommunications services of key communications business providers satisfying the criteria specified in the Enforcement Decree of the Act which would take into consideration business size and market share. (3) After evaluating the competition status of the communications market each year, if the Minister of Science and ICT determines that the competition in the telecommunications industry has increased to the degree where the sufficient wholesale of telecommunications services have been provided or the set criteria are not met, it may withdraw its designation of designated wholesale services of the designated wholesale provider. (4) The Minister of Science and ICT shall determine and announce the terms and conditions of the wholesale provision when the designated wholesale provider enters into an agreement about the designated wholesale services. In this case, the consideration shall be calculated on the basis of subtracting avoidable costs (costs that the key communications business operator can avoid when not providing services directly to users) from retail prices of the designated wholesale services. (5) Upon request for wholesale provision from other telecommunications business operator, a key communications business operator shall enter into an agreement within 90 days unless there are special reasons and shall report such agreement to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement. The same applies in the case of a change or abolition of the agreement. (6) An agreement under paragraph (5) shall satisfy the criteria announced by the Minister of Science and ICT under paragraph (4).

Article 39 (Interconnection) (1) A telecommunications business operator may allow the interconnection by concluding an agreement, upon a request from other telecommunications business operators for an interconnection of telecommunications facilities.

21

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) The Minister of Science and ICT shall set forth and publicly notify the scope of interconnections of telecommunications facilities, the conditions, procedures and methods, and the standards for calculation of prices under paragraph (1). (3) Notwithstanding the provisions of paragraphs (1) and (2), the key communications business operators falling under any of the following subparagraphs shall allow the interconnection by concluding an agreement, upon receipt of a request under paragraph (1): 1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and 2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.

Article 40 (Prices of Interconnection) (1) Prices for using the interconnection shall be calculated by a fair and proper means and deducted from each other’s accounts. The detailed standards for such calculation, their procedures and methods shall be governed by the standards of Article 39 (2). (2) A telecommunications business operator may deduct the prices for interconnection from each other’s accounts under the conditions as prescribed by the standards under Article 39 (2), if he suffers any disadvantages due to the causes of no liability on his part, in the method of interconnection, the quality of connected conversations, or the provision of information required for interconnection, etc.

Article 41 (Joint Use, etc. of Telecommunications Facilities) (1) A key communications business operator may allow an access to or a joint use of the telecommunications equipment or facilities by concluding an agreement, upon receipt of a request from other telecommunications business operators for an access to or a joint use of the telecommunications equipment or facilities such as pipes, cables, poles, or stations of the relevant key communications business operator, for the establishment or operation of facilities required for interconnection of telecommunications facilities. (2) The Minister of Science and ICT shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under paragraph (1). (3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall allow an access to or a joint use of the telecommunications equipment or facilities under paragraph (1) by concluding an agreement, upon a receipt of request under paragraph (1): 1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and 2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.

Article 42 (Provision of Information) (1) A key communications business operator may provide requested information by concluding an agreement, upon a receipt of request from other telecommunications business operators for a provision of information related to technological information or the user’s personal matters which are required for a provision or wholesale provision of facilities, etc., interconnection, or joint use, etc. and imposition and collection of fees and a guide to the telecommunications number. (2) The Minister of Science and ICT shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under paragraph (1).

22

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall provide the requested information by concluding an agreement, upon a receipt of request under paragraph (1): 1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and 2. A key communications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree. (4) A key communications business operator under paragraph (3) shall set forth the technical standards required for a use by other telecommunications business operators or users by means of a connection of a monitor and other telecommunications equipment on the relevant telecommunications facilities, the standards for use and provision, and other standards required for a creation of fair competitive environments, and make a public notice thereof by obtaining approval from the Minister of Science and ICT. (5) Upon request from the manufacturer, importer or distributor of communication terminal devices (referring to the terminal devices that may use the telecommunications service utilizing frequencies assigned under the Radio Waves Act; hereinafter the same shall apply), a key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall provide information on the standards of telecommunications service to such manufacturer, importer or distributor to the extent that such information is necessary for the manufacturing, import, distribution or sales of the communication terminal devices purchased by the users not through the relevant key communications business operator. (6) Scope and method of provision of the information referred to in paragraph (5) and other necessary matters shall be prescribed by the Enforcement Decree.

Article 43 (Prohibition of Use of Information for Other Purpose) A telecommunications business operator shall use the technological information provided under Article 42 (1) and (3) for intended purposes and shall not use it wrongfully for other purposes nor provide it to a third party.

Article 44 (Report, etc. of Agreement on Interconnection, etc.) (1) A key communications business operator and facility management institution shall conclude an agreement under Article 35 (1) and (2), the earlier part of 37 (1), 39 (1), 41 (1) or 42 (1) within ninety days unless there exist any special reasons and report it to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of such agreement, upon receipt of a request from other telecommunications business operators for a provision, a joint utilization, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information. The same applies in the case of a change or abolition of the agreement. (2) Notwithstanding the provision of paragraph (1), in case of an agreement in which a key communications business operator under the latter part of Article 37 (1) and (2), Articles 39 (3), 41 (3), and 42 (3) is a party concerned, shall enter into an agreement within 90 days upon receipt of the request, unless there is a special reason, and the key communications business operator receiving the request shall apply for authorization to the Minister of Science and ICT in a manner specified in the Enforcement Decree of the Act within 30 days from the execution of the Agreement and reveal the contents of the agreement within 30 days from the authorization date. The same applies in the case of a change or abolition of the agreement. (3) Notwithstanding the provision of paragraph (2), an ancillary agreement is entered into such as in cases where an agreement is entered into in order to add new services based on the agreement already authorized, such ancillary agreement shall be reported to the Minister of Science and ICT within 30 days from the execution of the ancillary agreement and the contents of the agreement shall be revealed within 30 days from the date of report. The same applies in the case of a change or abolition of the ancillary agreement. (4) The agreement under paragraphs (1) and (3) shall meet the standards which are publicly notified by the Minister of Science and ICT under Articles 35 (3), 37 (3), 39 (2), 41 (2)or 42 (2).

23

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (5) The Minister of Science and ICT may, if any application for authorization or report referred to in paragraph (2) or (3) needs supplemented, order such application for authorization supplemented for a fixed period. (6) The agreement under Articles 41 (1) and 42 (1) may be concluded by an inclusion in the agreement under Article 39 (1). (7) Notwithstanding the provisions of paragraph (2) through (3), if change of the agreement does not cause any change in the prices for use or if change of the agreement is made only in insignificant matters as determined and announced by the Minister of Science and ICT, such change shall be exempted from being subject to authorization or report. In such cases, the contents of change in the agreement shall be revealed within 30 days from the date on which the change is made.

Article 45 (Ruling of the Korea Communications Commission) (1) A telecommunications business operator or user may request to the Korea Communications Commission for an arbitration if they fail to agree on are not able to agree on any of the following: 1. indemnification under Article 33 2. execution of an agreement within a 90-day period regarding provision of facilities, etc. interconnection, joint use or provision of information, etc. 3. performance or indemnification under an agreement regarding provision of facilities, etc. interconnection, joint use or provision of information, etc. 4. other disputes concerning telecommunications business or matters specified as subject to the Korea Communications Commission’s ruling under other bodies of law. (2) Upon receipt of the request for an arbitration under paragraph (1), the Korea Communications Commission shall notify the parties of that fact and set a timeline for providing them with a chance to make their cases, provided that the foregoing is not applicable if a relevant party does not submit to the procedures without any justifiable reason. (3) The Korea Communications Commission shall make a ruling within 90 days from the request for arbitration provided that such period may be extended by one additional 90-days upon the resolution of the Korea Communications Commission if it is not possible to make a ruling within the original 90-day period for any unavoidable reason. (4) If any part to the arbitration files a suit during the arbitration proceeding, the Korea Communications Commission shall suspend the arbitration proceeding and notify the other party of that fact. The same applies if it is found out that a lawsuit was filed prior to the receipt of request for arbitration. (5) When it has made a ruling for the request made under paragraph (1), the Korea Communications Commission shall provide such written ruling to the parties without delay. (6) Within 60 days from the date on which the originals of written ruling of the Korea Communications Commission were sent to the parties, if no lawsuit regarding the dispute between the parties to the arbitration has been filed or such lawsuit has been withdrawn or the parties clearly indicate their acceptance of the ruling to the Korea Communications Commission, an agreement equivalent to the contents of the ruling shall be deemed to have been made.

Article 46 (Solicitation for Outside Arbitration) If the Korea Communications Commission, upon receiving request for arbitration under Article 45(1), deems that it is inappropriate to conduct arbitration or is necessary for other reasons, it may form a separate commission for each dispute and solicit for outside arbitration.

24

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 47 (Demand for Attendance, Hearing, etc.) (1) When necessary for proceeding with the arbitration case, the Korea Communications Commission may on its own motion or upon request from a party take any of the following actions: 1. demand for attendance of a party or witness and hold a hearing 2. demand for appraisal to an appraiser 3. demand for submission of documents or objects relevant for the dispute and provisional seizure of the documents or objects so submitted. (2) Necessary matters concerning the procedures for the ruling and solicitation of the Korea Communications Commission, in addition to the matters prescribed in paragraph (1) and Articles 45 and 46, shall be determined and announced by the Korea Communications Commission.

Article 48 (Management Plan for Telecommunications Number Resources) (1) The Minister of Science and ICT shall formulate and enforce the management plan for telecommunications number resources including the matters relating to the telecommunications system, and granting, withdrawal and integration of telecommunications number, in order to make an efficient provision of telecommunications service, and the promotion of user’s convenience and of the environments of fair competition among telecommunications business operators and efficient use of telecommunications numbers, which are limited national resources. (2) The Minister of Science and ICT shall, when he has formulated the plans under paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan. (3) A telecommunications business operator shall observe the matters publicly noticed under paragraph (2).

Article 48-2 (Prohibition of Sale and Purchase of Telecommunications Number) (1) No one shall sale or purchase the telecommunications number, which is a limited national resources. (2) If any information regarding the sale and purchase of the telecommunications number is published in the communications network, the Minister of Science and ICT may order telecommunications service providers to stop the service or restrict such telecommunications service providers’ publication.

Article 49 (Accounting Adjustment) (1) A key communications business operator shall adjust the accounting, prepare a business report for the preceding year by the end of within 3 months after the end of each fiscal year, and submit it to the Minister of Science and ICT, under the conditions as determined by the Enforcement Decree, and keep the related books and authoritative documents. (2) The Minister of Science and ICT shall, when it intends to determine the matters of accounting adjustments under paragraph (1), go in advance through a consultation with the Minister of Strategy and Finance. (3) The Minister of Science and ICT may verify contents of any business report submitted by any key communications business operator in accordance with paragraph (1). (4) The Minister of Science and ICT may, if it is necessary to conduct the verification referred to in paragraph (3), order the relevant key communications business operator to submit related material or launch inspection necessary to ascertain the facts. (5) The Minister of Science and ICT shall, when it intends to launch inspection in accordance with paragraph (4), notify the relevant key communications business operator of the plans of such inspection including inspection period, reasons, and contents of the inspection within seven (7) days prior to the scheduled date of inspection. (6) A person verifying the contents pursuant to paragraph (4) shall present the proof of the authorization therefor and give documents indicating his name, stay period and purpose of entrance to related party at the time of his first entrance.

25

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 50 (Prohibited Act) (1) A telecommunications business operator shall not commit any of the following acts (hereinafter referred to as “prohibited act”) which undermines or is feared to undermine fair competition or users’ interests, or have other telecommunications business operators or the third parties commit such act: 1. Act of imposing unfair or unreasonable condition or restriction in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.; 2. Act of unfairly refusing a conclusion of agreement, or act of non-performance of the concluded agreement without any justifiable reasons in a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, etc.; 3. Act of unfairly diverting the information of other telecommunications business operators to his own business activities, which have been known to him in the course of a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc., or a provision of information, etc.; 4. Act of computing the fees, etc. for a use of telecommunications services, or the prices for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, by unfairly itemizing the expenses or revenues; 5. Act of rendering the telecommunications services in a manner different from the standardized terms and conditions (the standardized terms and conditions refers to only those of which was reported or approved as pursuant to the Article 28 (1) and (2)) or act of rendering the telecommunications services in a manner which significantly undermines the profits of users; 5-2. Act by a telecommunications business operator of failure to explain or notify or of false explanation or notification to the users important matters such as the fees, contract conditions, fee discount, etc.; 6. Act of setting and maintaining the compensation for a provision, a joint utilization, a joint using, an interconnection, a joint use or a wholesale provision of facilities, etc. or a provision of information, unreasonably high compared to its supply costs; 7. Act of refusing or restricting fair allocation of income in a transaction where telecommunications services using frequencies assigned under the Radio Waves Act are to be used to provide digital contents. (2) When any person acting on behalf of any telecommunications business operator under a contract therewith in executing contracts between such telecommunications business operator and its users (including making any amendment to such contracts) commits any act falling under paragraph (1) 5 and 5-2, his act shall be deemed the act committed by such telecommunications business operator and only the provisions of Articles 52 (1) and 53 shall apply to such act; provided that the same shall not apply to a case where the relevant telecommunications business operator has paid reasonable attention to the prevention of such act. (3) Necessary matters concerning categories of and standards for the prohibited act referred to in paragraph (1) shall be prescribed by the Enforcement Decree.

Article 51 (Investigation of Fact) (1) In the event the Korea Communications Commission believes that activities in violation of Article 50(1) have been committed, it may order the relevant public official belonging to the Korea Communications Commission to conduct investigation thereof. (2) The Korea Communications Commission may order public officials belonging to the Korea Communications Commission to enter into the offices or workplaces of the telecommunications business operators or the workplaces of the persons entrusted with handling of the business of telecommunications business operators (limited, throughout this Article, to telecommunications business operators entrusted with work related to Article 50) and inspect books, documents and other data and objects. (3) In the event any investigation is to be conducted pursuant to paragraph (1), the Korea Communications Commission shall notify the relevant telecommunications business operator at least seven (7) days prior to the

26

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document expected date of investigation with information on the duration, purpose and content of the investigation; provided that this provision may not apply in the event of emergency or if there is risk that the evidence will be destroyed. (4) A person who investigates by visiting the offices or workplaces of the telecommunications business operators, or the workplaces of the persons handling, under an entrustment, the business of telecommunications business operators, under paragraph (2) shall carry a certificate indicating the authority, and present it to the persons concerned. He also should be accompanied by the person of the corresponding offices or workplaces. (5) A public official who investigates pursuant to paragraph (2) may order telecommunications business operators or persons entrusted with handling of the business of telecommunications business operators to submit any necessary information or object. In the event there is a possibility of abandonment, concealment, or replacement of the information or object so submitted, the public official may temporarily take them into custody. (6) The Korea Communications Commission shall immediately return the information or object under its custody if it falls under any one of the following: 1. It is deemed, after an examination of the information or object under the custody, that it has no relevance to the current investigation. 2. The purpose of investigation is fully accomplished so that keeping the information or object under its custody is no longer necessary.

Article 52 (Measures on Prohibited Acts) (1) The Korea Communications Commission may order any telecommunication business operator to take the measures falling under each of the following subparagraphs when it is recognized that any act in violation of paragraph (1) of Article 50 has been committed; provided that the Korea Communications Commission hears the opinion of the Minister of Science and ICT prior to ordering measures under subparagraphs 1 through 5, 8, and 9: 1. Separation of the supply system of telecommunications service; 2. Change of internal accounting regulations, etc. concerning telecommunications service; 3. Disclosure of information concerning telecommunications service; 4. Conclusion, performance or change of contents of the agreement between the telecommunications business operators; 5. Change of the standardized terms and conditions and the articles of incorporation of the telecommunications business operators; 6. Suspension of prohibited acts; 7. Public announcement of a fact of receiving a correction order due to committing the prohibited acts; 8. Measures necessary for restoring the violated matters due to the prohibited acts to their original status, such as the removal of telecommunications facilities which have caused the prohibited acts; 9. Improvement of business conduct procedures regarding telecommunications service; 10. Prohibition of soliciting new users (for a period not exceeding 3 months and limited to cases where the same violation has occurred for 3 times or more despite sanctions under subparagraphs 1 through 9 or where such sanctions are deemed insufficient to prevent harm to users); and 11. Such other matters prescribed by the Enforcement Decree as may be necessary for the measures referred to in subparagraphs 1 through 10. (2) The telecommunications business operators shall execute any order issued by the Korea Communications Commission under paragraph (1) within the period specified by the Enforcement Decree; provided that the Korea Communications Commission may extend the relevant period only once, if it is deemed that the telecommunications business operators are unable to carry out the order within the specified period due to natural disasters and other unavoidable causes.

27

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) The Korea Communications Commission shall, before ordering the measures under paragraph (1), notify the parties concerned of the content of relevant measures, and provide them with an opportunity to make a statement within a specified period, and may hear, where deemed necessary, demand for attendance of an interest party or witness, hearing or appraiser by an appraiser; provided that this shall not apply when the parties concerned fail to respond without any justifiable reasons. (4) The Korea Communications Commission, when it orders to take the measures under paragraphs (1) through (3), shall notify it to the Minister of Science and ICT. (5) The Minister of Science and ICT may order a telecommunications business operator, who fails to fulfill the orders under paragraph (1) within the period set forth under paragraph (2) without a justifiable reason, to suspend his business in part. (6) Details necessary for criteria, procedures and other necessary matters shall be determined by the Enforcement Decree. (7) The Minister of Science and ICT, when it orders a key communications business operator to suspend his business in part under paragraph (5), may order the measures necessary for user protection under Article 19 (2). (8) In the event five (5) years have passed from the date on which any acts committed in violation of paragraph 1 of Article 50 have been terminated, the Korea Communications Commission shall not order any measures pursuant to paragraph 1 or impose a penalty surcharge pursuant to Article 53; provided that this provision shall not apply if any measure or imposition of penalty surcharge is cancelled by court order and a new measure is to be taken pursuant to that court order.

Article 52-2 (Charge for Compelling Execution on Prohibited Acts) (1) The Minister of Science and ICT may impose the charge for compelling the execution against the persons who were subjected to the orders as referred to in Article 52 (1) (hereafter in this Article, referred to as the “corrective measure order”) and failed to comply with them within the period set forth in the corrective measure order at the amount not more than 3/1,000 of its revenue per day. (2) The Minister of Science and ICT, before it imposes the charge for compelling the execution as referred to in paragraph (1), shall give prior notice in writing of such imposition and collection of the charge for compelling the execution. (3) The Minister of Science and ICT shall impose the charge for compelling the execution under paragraph (1) by written documents containing the matters relating to the charge such as the amount, reason for imposition, deadline for payment, collecting agency, method to raise an objection, and agency to receive an objection. (4) The Minister of Science and ICT may repeatedly impose and collect the charge for compelling the execution as referred to in paragraph (1) every 90 days after the day in which it made such corrective measure order until the corrective measure orders are fulfilled. (5) When a person who received the corrective measure order fulfils the order, the Minister of Science and ICT shall immediately stop imposition of the charge for compelling the execution but collect the charge already imposed. (6) When a person who was imposed the charge for compelling the execution under paragraph (1) fails to pay the charge by the payment deadline, the Minister of Science and ICT shall collect them according to the example of a disposition taken to collect the national taxes in arrears. (7) Details necessary for the matters such as imposition, payment, procedures for raising an objection, etc. in relation to the charge for compelling the execution shall be determined by the Enforcement Decree.

Article 53 (Imposition, etc. of Penalty Surcharge on Prohibited Acts) (1) The Korea Communications Commission may, in case where there exists any act in violation of paragraph 1 of Article 50, impose a penalty surcharge not exceeding 3/100 of the turnover as prescribed by the

28

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Enforcement Decree on the relevant telecommunications business operator. If the telecommunications business operator refuses to submit the data used for calculation of the amount of turnover or submits erroneous data, an estimate of the amount can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status); provided that where there is no turnover or it is difficult to calculate the turnover as prescribed by the Enforcement Decree, it may impose the penalty surcharge not exceeding one billion won. (2) The Minister of Science and ICT may impose on a key communications business operator that submits a business report under Article 49 a find up to 3% of its revenue as determined in a manner specified under the Enforcement Decree of the Act if it commits any of the following: 1. failure to submit a business report under Article 49 or to abide by an order to submit relevant information 2. omission of a material item or inclusion of a false statement in a business report under Article 49 3. failure to adjust the accounting or keep the related books and authoritative documents in violation of Article 49(1) (3) The Minister of Science and ICT or the Korea Communications Commission shall, in the event of imposing a penalty surcharge under paragraph (1) or (2), take each of the following into consideration: 1. details of violation and the extent thereof; 2. duration and frequency of violation; 3. amount of profit obtained in connection with the violation; and 4. the amount of turnover obtained as a result of the prohibited activities or adjustment of the accounting of the telecommunications business operator. (4) A penalty surcharge under paragraph (1) or (2) shall be calculated taking paragraph (3) into consideration, provided specific calculation standard and procedure shall be set forth by the Enforcement Decree. (5) The Minister of Science and ICT or the Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) fails to do so by the payment deadline, collect an additional due equivalent to 6/100 per year, with respect to the penalty surcharge in arrears, from the day following the expiry of such payment deadline. (6) The Minister of Science and ICT or the Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) or (2) fails to do so by the payment deadline, demand him to pay it with fixing a period, and if he fails to pay the penalty surcharge and an additional due under paragraph (5) within the fixed period, collect them according to the example of a disposition taken to collect the national taxes in arrears. (7) The period for which the additional due as referred to in paragraph (5) shall be paid shall not exceed 60 months. (8) In the event the penalty surcharge imposed under paragraph (1) or (2) is to be returned pursuant to the court order, an additional due equivalent to 6/100 per year with respect to the penalty surcharge in arrears (accrued from the day of payment to the day of payment) shall be paid.

Article 54 (Relations with Other Acts) In case where a measure is taken under Article 52(1) or a penalty surcharge is imposed under Article 53 against the acts in violation of paragraph (1) of Article 50, a corrective measure or an imposition of penalty surcharge under the Monopoly Regulation and Fair Trade Act shall not be made under the same grounds against the same acts of the relevant business operator.

Article 55 (Compensation for Damages) In case where a correction measure has been taken under Article 52 (1), a person who is damaged by the prohibited act may claim for compensation against the telecommunications business operator who conducted the prohibited act, and the relevant telecommunications business operator may not shirk liability unless he can prove that there was no malicious intention or negligence.

29

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 56 (Quality Improvement of Telecommunications Services) (1) A telecommunications business operator shall endeavor to make a quality improvement of the telecommunications services he provides. (2) The Minister of Science and ICT shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users. (3) The Minister of Science and ICT may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under paragraph (2).

Article 56-2 (Provision of Information on Telecommunications Services) (1) A telecommunications business operator shall provide to the users the information necessary to choose the telecommunications services that he provides such as the area where the telecommunications services are available and providing method. (2) Type, and providing method and procedures of the information that shall be provided under paragraph (1) shall be determined and publicly notified by the Minister of Science and ICT. (3) The Minister of Science and ICT shall check the status of providing the information under paragraph (1) on a regular basis and shall announce the result on an annual basis.

Article 57 (Prior Selection Systems) (1) The Minister of Science and ICT shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the “prior selection systems”). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Enforcement Decree from among the same telecommunications service provided by the plural number of telecommunications business operators. (2) The telecommunications business operator shall not force the users to select in advance a specified telecommunications business operator, or commit the acts to recommend or induce by unlawful means. (3) The Minister of Science and ICT may, for the purpose of performing the prior selection systems efficiently and neutrally, designate the specialized institutes performing the registration or alteration affairs of the prior selection (hereinafter referred to as the “prior selection registration center”). The matters necessary for designation of the prior selection registration center shall be determined and publicly notified by the Minister of Science and ICT. (4) Deleted.

Article 58 (Mobility of Telecommunications Number) (1) The Minister of Science and ICT may, in order that the users are able to maintain their previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the “plans for mobility of numbers”). (2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs: 1. Kinds of services subject to the mobility of telecommunications numbers; 2. Time for introduction by service subject to the mobility of telecommunications numbers; and 3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator. (3) The Minister of Science and ICT may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures.

30

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (4) The Minister of Science and ICT may designate an institution specializing in the work of registration and alteration of the mobility of numbers (hereinafter referred to as the “mobility of numbers management institution”) to efficiently and neutrally implement the mobility of numbers of the telecommunications. (5) The Minister of Science and ICT shall prescribe and publish necessary matters concerning the implementation of the mobility of numbers of the telecommunications, the designation of any mobility of numbers management institution and its work, etc.

Article 59 (Restrictions, etc. on Mutual Possession of Stocks) (1) Where a key communications business operator falling under Article 39 (3) 1 or 2 (including the specially-related persons) possesses in excess of 5/100 of the gross number of voting stocks issued by the mutually different key communications business operators, shall not be allowed to exercise any voting rights with regard to the stocks in excess of the relevant ceiling. (2) Provisions of paragraph (1) shall not apply to the relation of possessions between a key communications business operator falling under Article 39 (3) 1 or 2 and the key communications business operator established by the said key communications business operator by becoming the largest stockholder.

Article 60 (Provision of Directory Assistance Service) (1) The telecommunications business operator shall provide an information service of guiding the general public to the telecommunications numbers of the users by means of voice, booklets or Internet, etc. (hereinafter referred to as the “directory assistance service”) by obtaining a consent of the users; provided that the same shall not apply to the minor business determined and publicly announced by the Minister of Science and ICT by taking account of the numbers of the users and the turnovers, etc. (2) If necessary for the protection of private personal information, the Minister of Science and ICT may limit the provision of the directory assistance service. (3) Matters necessary for a provision of the directory assistance service may be stipulated by the Enforcement Decree.

Article 60-2 (Interruption of Using Communication Terminal Devices Reported due to Loss, etc.) (1) A telecommunications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall share the unique international identification number (hereinafter referred to as the “unique identification number”) of the communication terminal device reported to the telecommunications business operator due to such reason as loss, theft, etc. with other telecommunications business operators in order to interrupt the use of such device. (2) The Minister of Science and ICT may designate the specialized institutes for an efficient sharing of unique identification numbers. (3) If it is necessary to interrupt the use of the communication terminal device which has been reported to the telecommunications business operator due to such reason as loss, theft, etc., the Minister of Science and ICT may request for cooperation to the head of relevant administrative agencies and public agencies. (4) Necessary matters for the designation of the specialized institutes referred to in paragraph (2) and treatment of business shall be prescribed by the Enforcement Decree.

Article 60-3 (Prohibition of Damage, etc. to Unique Identification Numbers) No one may damage, forge or falsify the unique identification numbers of communication terminal devices in order to disturb the interruption of using the communication terminal devices reported to the telecommunication business operator due to such reason as loss or theft.

31

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document CHAPTER V. TELECOMMUNICATIONS FACILITIES

Section 1. Commercial Telecommunications Facilities

Article 61 (Maintenance and Repair of Telecommunications Facilities) For stable provision of its telecommunications services, a telecommunications business operator shall maintain and repair the telecommunications facilities it provides up to technical specifications specified under the Enforcement Decree of the Act for stable supply of telecommunications.

Article 62 (Report and Authorization of Telecommunications Facilities Installation) (1) When a key communications business operator seeks to install or modify any significant telecommunications facilities, it shall report it to the Minister of Science and ICT in a manner specified under the Enforcement Decree of the Act; provided that, for the telecommunications facilities installed for the first time for new telecommunication technology, an authorization from the Minister of Science and ICT shall be obtained in a manner specified in the Enforcement Decree of the Act. (2) The scope of significant telecommunications facilities under paragraph (1) shall be determined and announced by the Minister of Science and ICT.

Article 63 (Joint Installation of Telecommunications Facilities) (1) A key communications business operator may agree with another key communications business operator to jointly install and use telecommunications facilities. (2) A key communications business operator whose size of business, etc. corresponds to the standards as determined by the Enforcement Decree shall compose and operate a council to negotiate on joint installation of the telecommunications facilities as set forth in paragraph (1). (3) The Minister of Science and ICT shall determine and publicly announce the criteria for the matters relating to the council as referred to in paragraph (2) such as composition, operating procedures, facilities subject to negotiation, and scope of target area. (4) The Minister of Science and ICT, if necessary to efficiently promote the joint installation of the telecommunications facilities as set forth in paragraph (1), may designate an agency to be exclusively responsible for the affairs relating thereto. (5) The matters necessary for designation of an agency and handling methods as referred to in paragraph (4) shall be determined and publicly notified by the Minister of Science and ICT. (6) The Minister of Science and ICT may recommend joint installation of telecommunications facilities under paragraph (1) to key communications business operators in a manner specified under the Enforcement Decree in any of the following cases: 1. where no agreement is reached under paragraphs (1) and (2), and request is made by one of the key communications business operators 2. where it is deemed necessary for the public good (7) If a key communications business operator fails to reach an agreement on the use of land or buildings owned by the government, public agencies under the Act on the Management of Public Agencies (“public agencies” in this Article) or another key communications business operator when such use is necessary for joint installation of telecommunications facilities, it may request for help from the Minister of Science and ICT on use of such land or building. (8) Upon receiving the request for help under paragraph (7), the Minister of Science and ICT may make a demand to the head of the government entities, municipalities, public agencies or the other key communications business operator for reaching an agreement with the use of relevant land or building with the key communications business operator making the request for help. In this case, the head of the government entities, municipalities, public agencies or the other key communications business operator shall make such agreement unless there is a justifiable reason.

32

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Section 2. PROPRIETARY TELECOMMUNICATIONS FACILITIES

Article 64 (Installation of Proprietary Telecommunications Facilities) (1) A person seeking to install proprietary telecommunications facilities shall make a report to the special metropolitan city mayor, metropolitan city mayor, metropolitan autonomous city, provincial governor, or special self-governing provincial governor (“mayor or governor”) having jurisdiction over the location of the office where the main facilities are installed in a manner specified under the Enforcement Decree of the Act. The same applies when an important aspect of reporting items as specified under the Enforcement Decree is sought to be modified. (2) Notwithstanding paragraph (1), in case of wireless proprietary telecommunications facilities and military telecommunications facilities and others where other bodies of law are applicable, such bodies of law shall be applicable. (3) A person who has made a report on installation or modification of proprietary telecommunications facilities under paragraph (1) shall receive confirmation from the mayor or governor in a manner specified under the Enforcement Decree of the Act when such installation or modification construction is complete and before commencement of its use. (4) Notwithstanding paragraph (1), certain proprietary telecommunications facilities specified under the Enforcement Decree of the Act may be installed without filing a report.

Article 65 (Restriction on Non-Proprietary Use) (1) A person who has installed proprietary telecommunications facilities may not use such facilities to interconnect other’s communication or operate it outside its installation purposes, provided that the foregoing is not applicable in cases where other bodies of law have special provisions of any of the following is applicable: 1. use by a person in law enforcement of disaster rescue industries for law enforcement or emergency rescue operation; and 2. use by a specially related person of the installer of proprietary telecommunications facilities as announced by the Minister of Science and ICT. (2) A person who has installed proprietary telecommunications facilities may provide telecommunications facilities such as conduit line to a key communications business operator in a manner specified under the Enforcement Decree of the Act. (3) Articles 35, 44 (excluding paragraph (6)) and 45 through 47 shall be applicable in case of provision of facilities under paragraph (2). (4) When a person who has installed proprietary telecommunications facilities violates paragraph (1), the Minister of Science and ICT may order the person to suspend using the proprietary telecommunications facilities for the period not exceeding one year. In such cases, the Minister of Science and ICT shall notify the fact that it ordered suspension of the use to the mayor or governor having jurisdiction over the relevant location.

Article 66 (Securing Communication Lines in Case of Emergency) (1) When a war, accident or natural disaster or other national emergency has happened or is likely to happen, the Minister of Science and ICT may order a person who has installed proprietary telecommunications facilities to engage in telecommunications services or other important communications services or connect the telecommunications facilities to other telecommunications facilities. In this case, Articles 28 through 32, 33 through 55 shall be applicable. (2) When the Minister of Science and ICT deems necessary for the purposes of paragraph (1), may order a key communications business operator to handle such task. (3) The costs of performing the task or interconnecting facilities under paragraph (1) shall be borne by the government, provided that when proprietary telecommunications facilities are used for telecommunications services, the key communications business operator receiving such service shall bear its costs.

33

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 67 (Order on the Person Installing Proprietary Telecommunications Facilities, Etc.) (1) When a person who has installed proprietary telecommunications facilities fails to abide by the Act or order under this Act in relation to installation, change or operation (except for operation in violation of Article 65 (1)), the mayor or governor may order a corrective measure to be carried out within a specific time frame. (2) If a person who has installed proprietary telecommunications facilities falls under any of the following, the mayor or governor may order a cessation of use for a period not exceeding one year: 1. failure to carry out the corrective order under paragraph (1); 2. use of proprietary telecommunications facilities without receiving confirmation in violation of Article 64(3); 3. deleted. (3) When the mayor or governor deems that proprietary telecommunications facilities are interfering with other’s telecommunications or likely to harm other’s telecommunications facilities, it may order the person who installed such facilities to stop using, modify, repair or take other corrective measures.

Section 3. JOINT CONSTRUCTION OF TELECOMMUNICATIONS FACILITIES, ETC.

Article 68 (Installation of Common Duct or Conduit Line, etc.) (1) A person installing or arranging any of the following (hereinafter referred to as the “facility installer”) shall solicit and reflect an opinion from a key communications business operator about installing a common duct or conduit line for telecommunications facilities, provided that the forgoing obligation does not apply when there is a special reason for not being able to honor the key communications business operator’s opinion. 1. road under Article 2(1) of the Road Act 2. railroad under Article 2(1) of the Railroad Enterprise Act 3. urban railroad under Article 2(2) of the Urban Railroad Act 4. industrial complex under Article 2(5) of the Industrial Sites and Development Act 5. free trade zone under Article 2(1) of the Act on Designation and Management of Free Trade Zone 6. airport area under Article 2.4 of the Aviation Facility Act 7. port area under Article 2.4 of the Harbor Act 8. other facilities or land as specified under the Enforcement Decree of the Act (2) An opinion set forth by key communications business operator about installation of common duct or conduit line under paragraph (1) shall satisfy the installation requirements for common duct specified under the Enforcement Decree of the Act. (3) Articles 35, 44 (excluding paragraph (5)) and 45 through 47 shall be applicable in case of provision of common duct or conduit line installed under paragraph (1). (4) When a facility installer is unable to reflect the opinion of key communications business operator under paragraph (1), it shall notify the key communications business operator of the reason for such inability within 30 days from the receipt of such opinion. (5) When a facility installer does not reflect the opinion of key communications business under paragraph (1), the key communications business operator may ask for reconciliation from the Minister of Science and ICT. (6) When attempting reconciliation upon receipt of the reconciliation request under paragraph (5), the Minister of Science and ICT shall consult with the head of relevant administrative organization in advance. (7) Details necessary for reconciliation under paragraphs (5) and (6) shall be specified under the Enforcement Decree of the Act.

34

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 69 (Installation of Telecommunication: Line Facilities for Internal Routing, etc.) (1) A building under Article 2(1)2 of the Building Act shall install telecommunication line facilities for internal routing and set aside a certain area for connection with telecommunication grid facilities. (2) Details on the scope of building, standards for installing telecommunication line facilities and the setting aside of a certain area for connection with telecommunication grid facilities shall be specified under the Enforcement Decree of the Act.

Article 69-2 (Installation of Mobile Communications Facilities for Internal Routing) (1) Mobile communications facilities for internal routing (it means telecommunications facilities necessary to use a key communications services utilizing frequencies assigned under the Radio Waves Act) shall be installed in the following facilities: 1. buildings as determined by the Enforcement Decree among the buildings under Article 2 (1) 2 of the Building Act aggregated total of floor areas of which is 1,000 m2 or more; 2. housings and facilities built in the housing complex with 500 housings or more as determined by the Enforcement Decree among the housing complexes under Article 2 (12) of the Housing Act; and 3. urban railroad facilities under Article 2 (3) of the Urban Railroad Act. (2) Details on the mobile communications facilities for internal routing such as the type and standards and procedures of installation shall be determined by the Enforcement Decree.

Article 70 Deleted.

Article 71 Deleted.

Section 4. Installation and Preservation of Telecommunications Facilities

Article 72 (Use of Land, etc.) (1) A key communications business operator may, when necessary for the installation of line tracks, antennas and the appurtenant facilities to be available for telecommunications service (hereinafter referred to as the “line tracks, etc.”), make use of others’ land, or buildings and structures appurtenant thereto, and surface and bottom of the water (hereinafter referred to as the “land, etc.”). In this case, a key communications business operator shall make a consultation with owners or possessors of the relevant land, etc. in advance. (2) Where a consultation under paragraph (1) is not or cannot be made, a key communications business operator may use the land, etc. owned by others, pursuant to the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor.

Article 73 (Temporary Use of Land, etc.) (1) A key communications business operator may, when necessary for the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities, temporarily use the private, national or public telecommunications facilities, and the land, etc., within the limit of not substantially impeding a current use. (2) No one may, without any justifiable reason, interfere with the temporary use of telecommunications facilities, and land, etc., for the purposes of the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities under paragraph (1). (3) A key communications business operator shall, when intending to temporarily use the private, national or public property under paragraph (1), notify the possessors, in advance, of the purposes and period of such use: provided, that in case where it is difficult to make a prior notification, a prompt notification shall be made during or after its use, and in case where such notification of the purposes and period of such use may not be made due to an obscurity of address and whereabouts of possessors, a public notice thereof shall be made. (4) The temporary period of use of the land, etc. under paragraph (1) shall not exceed six months.

35

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (5) A person who temporarily uses the private, national or public telecommunications facilities or the land, etc. under paragraph (1) shall carry the certificate indicating the authority, and present it to the persons related.

Article 74 (Entry to Land, etc.) (1) A key communications business operator may enter others’ land, etc., when necessary for a measurement, examination, etc., for the installation and preservation of his telecommunications facilities; provided that, in case where the place intended for such entry is a residential building, a consent from residents shall be obtained. (2) No one may, without any justifiable reason, interfere with the temporary entry of telecommunications facilities, and land, etc., for the purposes of the measurement, examination, etc., for the installation and preservation of telecommunications facilities under paragraph (1). (3) Article 73(3) and (5) shall be applicable in regard to providing notice and showing an identification when a person doing measurement or examination under paragraph (1) enters private or public land, etc.

Article 75 (Request for Elimination of Obstacles, etc.) (1) A key communications business operator may request the owners or possessors of gas pipes, water pipes, drain pipes, electric lamp lines, electricity lines or private telecommunications facilities, which impede or are likely to impede the installation of line tracks, etc. or telecommunications facilities themselves (hereinafter referred to as the “obstacles, etc.”), for the removal, remodeling, repair and other measures with respect to the relevant obstacles, etc. (2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves. (3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Minister of Science and ICT. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants. (4) The owners or possessors of the obstacles, etc., which impede or are likely to impede the telecommunications facilities of a key communications business operator, shall make a consultation in advance with the key communications business operator, when they are in need of a new construction, enlargement, improvement, removal or alteration of the relevant obstacles, etc.

Article 76 (Obligation for Restoration to Original State) A key communications business operator shall restore the relevant land, etc. to its original state, when a use of the land, etc. under Articles 72 and 73 is finished or a need of providing the land, etc. for telecommunications service is gone, and in case where a restoration to the original state becomes impossible, make a proper compensation for damages suffered by the owners or possessors.

Article 77 (Compensation for Damages) A key communications business operator shall, in case of incurring damages on others in case of Article 73 (1), 74 (1) or 75, make a proper compensation to the suffered person.

Article 78 (Procedures for Compensation for Damages on Land, etc.) (1) When a key communications business operator compensates under Article 76 or 77 for any of the following reasons, it shall consult with the person has incurred losses: 1. temporary use of land under Article 73(1); 2. entry in land, etc. under Article 74(1);

36

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3. moving, modifying, repairing obstacles or removal of plants under Article 75; or 4. inability to restore to the original state under Article 76. (2) When a consultation under paragraph (1) is not or cannot be made, an application for adjudications shall be filed with the competent Land Expropriation Commission under the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor. (3) Except for those as otherwise prescribed by this Act, the provisions of the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor shall be applied mutatis mutandis to the criteria, methods and procedures regarding a compensation for damages, etc. to the land, etc. under paragraph (1), and an application for adjudications under paragraph (2).

Article 79 (Protection of Telecommunications Facilities) (1) No person shall destruct the telecommunications facilities, and obstruct the flow of telecommunications by impeding the function of telecommunications facilities by means of having other objects contact them or by any other devices. (2) No person shall stain the telecommunications facilities or damage the measurement marks of the telecommunications facilities by means of throwing objects to the telecommunications facilities or fastening an animal, vessel or a log raft thereto. (3) A key communications business operator may, if necessary for the protection of submarine communications cable and their peripheral equipment (hereinafter referred to as the “Submarine Cable”), file an application to the Minister of Science and ICT for the designation of alert areas for the Submarine Cable. (4) Upon receiving an application pursuant to paragraph (3), the Minister of Science and ICT may consider the necessity of such designation and may designate and publicly notify the alert areas for the Submarine Cable through consultation with the relevant state administrative agency. (5) Designation applications, methods and procedures of such designation and its public notification, and methods of alert area indication shall be determined by the Enforcement Decree.

Article 80 (Moving of Facilities, etc.) (1) The owners or possessors of the land, etc. may, in case where the telecommunications facilities of a key communications business operator have become an obstacle to a use of the land, etc. due to changes in the purpose of use or in the methods of using the land, etc. where such facilities are located, or the land adjacent to it, request a key communications business operator to move the telecommunications facilities, and take other measures necessary for removing the obstacles. (2) A key communications business operator shall, upon receipt of a request under paragraph (1), take necessary measures, except for the cases where such measures are difficult to be taken for a business performance or technologies. (3) Expenses necessary for taking the measures under paragraph (2) shall be borne by the person who provided the cause for the move or taking other measures necessary for removing the obstacles after the installation of the subject telecommunications facilities; provided that, in the event the person who bears the expenses is the owner or possessor of the land and falls under any one of the following subparagraphs, the key communications business operator may reduce or exempt the person’s expenses, considering the indemnification amount paid at the time of installation of the telecommunications facilities and the amount of time it took to build the telecommunications facilities: 1. where the key communications business operator establishes and implements a plan to move the telecommunications facilities or remove other obstacles; 2. where the moving the telecommunications facilities or removal of other obstacles is beneficial to other telecommunications facilities;

37

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3. where the state or a local autonomous entity demands such moving of telecommunications facilities or removal of other obstacles; or 4. where the telecommunications facilities within private land are being removed because they greatly obstruct the use of such land.

Article 81 (Cooperation of Other Organizations, etc.) A key communications business operator may ask the related public agencies for a cooperation, in case where the operation of vehicles, vessels, airplanes and other carriers for the installation and preservation of his telecommunications facilities is necessary. In this case, the public agency in receipt of a request for cooperation shall comply with it, unless there exist any justifiable reasons.

Article 82 (Inspection Report, Etc.) (1) When necessary for establishing telecommunication policies and other cases specified under the Enforcement Decree of the Act, the Minister of Science and ICT may inspect the facility status, accounting books and documents of installers of telecommunications facilities or demand them to make a report on the facilities. (2) When there is an installer telecommunications facilities in violation of this Act, the Minister of Science and ICT may order the removal of the relevant facilities or other necessary actions.

CHAPTER VI. SUPPLEMENTARY PROVISIONS

Article 83 (Protection of Communication Secrecy) (1) No person shall infringe on or divulge the secrecy of communication dealt with by telecommunications business operator. (2) A person who is or has been engaged in the telecommunications service shall not divulge others’ secrecy obtained with respect to communication while in office. (3) A telecommunications business operator may comply with a request for the perusal or the provision of the data falling under each of the following subparagraphs (hereinafter referred to as the “supply of communication data”) from a court, a prosecutor, the head of an investigation agency (including the head of any military investigation agency, the commissioner of the National Tax Service and the commissioners of regional Tax Offices; hereinafter the same shall apply) and the head of an intelligence and investigation agency, who intends to collect information or intelligence for the purpose of the prevention of any threat to a trial, an investigation (including an investigation of any transgression taken place during commission of any crime falling under Article 10(1), (3) or (4) of the Punishment of Tax Evaders Act), the execution of a sentence or the guarantee of the national security: 1. Names of users; 2. Resident registration numbers of users; 3. Addresses of users; 4. Phone numbers of users; 5. IDs of users (referring to the identification codes of users that are used to identify the rightful users of computer systems or communications networks); and 6. Dates on which users subscribe or terminate their subscriptions. (4) The request for supply of communication data under paragraph (3) shall be made in writing (hereinafter referred to as a “written request for data supply”), which states a reason for such request, relation with the relevant user and the scope of necessary data; provided that where an urgent reason exists that makes a request in writing impossible, such request may be made without resorting to writing, and when such reason disappears, a written request for data supply shall be promptly filed with the telecommunications business operator.

38

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (5) A telecommunications business operator shall, where he has supplied the communication data pursuant to the procedures of paragraphs (3) and (4), keep the ledgers as prescribed by the Enforcement Decree, which contain necessary matters such as the facts of supplies of communication data, and the related data such as the written requests for data supply, etc. (6) A telecommunications business operator shall report, to the Minister of Science and ICT, twice a year the current status, etc. of supplying the communication data, by the methods prescribed by the Enforcement Decree, and the Minister of Science and ICT may check whether the content of a report made by a telecommunications business operator is authentic and the management status of related data according to paragraph (5). (7) A telecommunications business operator shall, by the methods prescribed by the Enforcement Decree, notify the contents entered in the ledgers according to paragraph (5) to the head of a central administrative agency whereto a person requesting supply of communications data according to paragraph (3) belongs; provided that in the event that a person who asks for providing the communications data is a court, the relevant telecommunications business operator shall notify the Minister of the Court Administration thereof. (8) A telecommunications business operator shall establish and operate a setup in full charge of the affairs related to the users’ communication secrets; and the matters concerning the function and composition, etc. of the relevant setup shall be prescribed by the Enforcement Decree. (9) Matters necessary for the scope of persons holding the decisive power on written request for data supply shall be prescribed by the Enforcement Decree.

Article 84 (Notice of Transmitter’s Telephone Number) (1) The telecommunications business operator may, upon request from the recipient, notify him of the transmitter’s telephone number, etc.; provided that this shall not apply to the case where the transmitter expresses his content to refuse the transmission of his telephone number. (2) Notwithstanding the proviso of paragraph (1), the telecommunications business operator may, in any of the following cases notify the recipient of the transmitter’s telephone number, etc. 1. in case where the recipient requests according to the requisites and procedures set by the Enforcement Decree in order to protect the recipients from the violent language, intimidations, harassments, etc. 2. Of the special telephone number services, those necessary for national security, crime prevention, disaster response, etc. as specified under the Enforcement Decree of the Act. (3) Deleted. (4) Deleted.

Article 84-2 (Prohibition of Erroneous Display of Telephone Number and User Protection) (1) No person shall display an erroneous telephone number by altering the caller’s telephone number, etc. while making a phone call (including text messages; hereinafter the same shall apply in this Article) for property profit or for the purpose of inflicting harm on others through violent language, intimidations, harassments, etc.. (2) No person shall provide services that enable display of an erroneous telephone number by altering the caller’s telephone number, etc. for profit; provided that this provision under paragraph (4) shall not apply in the event any justifiable grounds for exception exist (e.g., for public interest or recipient’s convenience). (3) A telecommunications business operator shall take the following measures in order to prevent the users’ damages arising from the telephone number erroneously displayed unless there is any justifiable ground as referred to in the proviso of paragraph (2): 1. measures to block sending a call from a telephone number erroneously displayed by altering the number, or to send a call to a recipient after changing the telephone number to the caller’s correct number; 2. measures to give a guide on the international call coming in to Korea informing that it is an international call;

39

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3. measures to stop providing the telecommunications services for the line of a person transmitting the telephone number erroneously displayed by altering the number, etc.; 4. other matters as determined by the Minister of Science and ICT for user protection. (4) The Minister of Science and ICT, in order to check whether the measures set forth in paragraph (3) has been taken or not, or to prevent the users’ damages from expanding, may request access to or submission of the following information to a telecommunications business operator or may conduct a necessary inspection: 1. If a call from the telephone number erroneously displayed by altering the number, etc. is blocked, the concerned telephone number, the time when the blocking is made, and company name sending the call; 2. If a recipient reports on the telephone number erroneously displayed by altering the number, the company name sending the call; 3. Other relevant data that can confirm whether the measures of each subparagraph of paragraph (3) have been taken. (5) The Minister of Science and ICT, in order to check whether the measures of each subparagraph of paragraph (3) have been taken or not and implement the measures under paragraph (4), may entrust the affairs with the Korea Internet & Security Agency under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. and bear the costs incurred thereto. (6) The Minister of Science and ICT may determine and publicly notify the justifiable grounds under the proviso of paragraph (2), measures under each subparagraph of paragraph (3) and detailed procedures and methods for implementation of paragraph (4). (7) Articles 64, 64-2 and 69 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, Etc. shall apply mutatis mutandis to the access, submission of the information as referred to in paragraph (4).

Article 85 (Restriction and Suspension of Business) The Minister of Science and ICT may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Enforcement Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications.

Article 86 (Approval for International Telecommunications Services) (1) When there exist special provisions in the treaties or agreements on international telecommunications business joined by the Government, those provisions shall govern. (2) A telecommunications business operator shall, where he intends to conclude an agreement to provide transboundary key communications services under Article 87 (1) or an agreement on international telecommunications business as prescribed by the Enforcement Decree, obtain approval from the Minister of Science and ICT fulfilling the requisites prescribed by the Enforcement Decree. The same shall apply to the case where he intends to alter or abolish such agreement or contract; provided that he may conclude such agreement without an approval from the Minister of Science and ICT if he meets the following qualifications: 1. A person who intends to provide a key communications service shall be a foreigner of the counterparty country to free trade agreements determined and announced by the Minister of Science and ICT out of those free trade agreements that have been executed, bilaterally and multilaterally, between or among the Republic of Korea and a foreign country(s) and come into effect; 2. The key communications business that transmits sound, data, image, etc. related to TV broadcasting or radio broadcasting by and among the broadcasting business operators shall be provided by using an artificial satellite; and 3. The key communications business shall not be provided by and among the domestic broadcasting business operators.

40

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) A telecommunications business operator providing key communication services shall, where he concludes an agreement or a contract with a foreign government or a foreigner with respect to the adjustments of fees following the handling of international telecommunications services, report such to the Minister of Science and ICT, provided that the foregoing is not applicable in case the size of telecommunications facilities, paid-in capital, number assignment, etc. satisfy the standards specified under the Enforcement Decree of the Act. (4) Deleted. (5) Details on the report under paragraph (3) shall be determined and publicly announced by the Minister of Science and ICT.

Article 87 (Transboundary Provision of Key Communications Services) (1) A person, who intends to provide key communications service from abroad into the homeland without establishing a domestic business place (hereinafter referred to as the “transboundary provision of key communications services”), shall conclude a contract on transboundary provision of key communications services with a domestic key communications business operator or a specific communications business operator who provides the same key communications service. (2) The provisions of Articles 28, 32, 33, 45 through 47, 50 through 55, 83, 84, 84-2, 85, 88 and 92 of this Act and Article 44-7 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. shall apply mutatis mutandis to the provision of services as determined in a contract by a key communications business operator or a specific communications business operator who has concluded the contract under paragraph (1). (3) Where a person, who intends to provide a transboundary key communications service under paragraph (1), or a key communications business operator or a specific communications business operator, who has concluded a contract with him, violates the relevant provisions which applies mutatis mutandis under paragraph (2), the Minister of Science and ICT may cancel approval under Article 86 (2), or issue an order to suspend a transboundary provision of the whole or part of key communications services as determined in the relevant contract, with fixing a period of not more than one year. (4) Criteria and procedures, etc. for dispositions under paragraph (3) and other necessary matters shall be determined by the Enforcement Decree.

Article 87-2 (Marking of Warning Messages) (1) A person manufacturing or importing/selling mobile devices may mark the warning messages that using the mobile devices while moving may incur a risk of an accident in the mobile devices. (2) The government may provide necessary support such as the costs to be incurred under paragraph (1). (3) The matters necessary for the content and method how to mark the warning messages as set forth in paragraph (1) shall be determined and publicly notified by the Minister of Science and ICT.

Article 88 (Report, etc. on Statistics) (1) A telecommunications business operator shall report the statistics on a provision of telecommunications service as prescribed by the Enforcement Decree, such as a current status of facilities by telecommunications service, subscription record, current status of users, and the data related to telephone traffic required for the imposition and collection of fees, to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree, and keep the related data available. (2) A key communications business operator and stockholders thereof, or the specific communications business operator and stockholders thereof shall submit the related data necessary for a verification of the facts of Article 8, pursuant to the provisions of the Enforcement Decree. (3) The Minister of Science and ICT may, in order to verify the facts under paragraph (2), or to examine the genuineness of the data submitted, request the administrative agencies and other related agencies to examine the data submitted or to submit the related data. In this case, the agencies in receipt of such request shall accede thereto unless there exist any justifiable reasons.

41

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (4) The mayor or governor shall report the following matters to the Minister of Science and ICT under the conditions as determined by the Enforcement Decree, and keep the related data available: 1. status of the report on the installation of the proprietary telecommunications facilities and report on the modification under Article 64 (1); 2. status of correction, suspension of use, remodeling, repair or other measures under Article 67; 3. status of imposition of penalty surcharge under Article 90 (2); 4. status of imposition of fine for negligence under Article 104 (5) 10.

Article 89 (Hearing) The Minister of Science and ICT shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing: 1. Cancellation, in whole or part, of license for a key communications business operator under Article 20 (1); 2. Cancellation, in whole or part, of registration of a specific communications business under Article 27 (1); 3. Closedown, in whole or part, of a value-added communications business under Article 27 (2); and 4. Cancellation of approval under Article 87 (3).

Article 90 (Imposition of Penalty Surcharge, etc.) (1) The Minister of Science and ICT may impose a penalty surcharge equivalent to the amount of not more than 3/100 of the sales amount that is calculated under the conditions as prescribed by the Enforcement Decree in lieu of the relevant business suspension, in case where he has to order a business suspension to a telecommunications business operator who falls under subparagraphs of Article 20 (1), subparagraphs of Article 27 (1) and (2) or Article 52(5), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. If the telecommunications business operator refuses to submit the data used for calculation of turnover or submits erroneous data, an estimate of the turnover can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status); provided that in the event that the sales amount is nonexistent or difficult to calculate the sales amount, as prescribed by the Enforcement Decree, the Minister of Information and Communication may impose a penalty surcharge not exceeding 1 billion won. (2) When the Minister of Science and ICT and the mayor or governor orders cessation of use in regard to proprietary telecommunications facilities under Articles 65 (4) and 67 (2), it may replace such order with a penalty surcharge not exceeding 1 billion won if such order causes significant inconvenience to users of telecommunications services provided with the use of the relevant proprietary telecommunications facilities or other public harm is expected. (3) Specific standards for the imposition of penalty surcharge under paragraphs (1) and (2) shall be determined by the Enforcement Decree. (4) Articles 53(5) through (8) shall apply in regard to additional dues of penalty surcharge, demand for payment and return-additional dues of penalty surcharge under paragraphs (1) and (2).

Article 91 (Extension of Time Limit of Payment of Penalty Surcharge and Payment in Installments) (1) Where a penalty surcharge to be paid by a telecommunications business operator under Articles 53 and Article 90 exceeds the amount as prescribed by the Enforcement Decree, and where deemed that a person liable for a payment of penalty surcharge finds it difficult to pay it in a lump sum due to the reasons falling under any one of the following subparagraphs, the Minister of Science and ICT or the Korea Communications Commission may either extend the time limit of payment, or have him pay it in installments. In this case, the Minister of Science and ICT or the Korea Communications Commission may, if deemed necessary, have him put up a security therefor: 1. Where he suffers a severe loss of property due to natural disasters or fire;

42

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Where his business faces a serious crisis due to an aggravation of his business environments; and 3. Where it is expected that he will be in great financial difficulty if he pays the penalty surcharge in a lump sum. (2) Matters necessary for an extension of the deadline for payment of a penalty surcharge, the payment in installments and the laying of a security shall be prescribed by the Enforcement Decree.

Article 92 (Correction Orders, etc.) (1) The Minister of Science and ICT or the Korea Communications Commission shall issue correction orders within the scope of its respective competent duties in case where a telecommunications business operator or facility management institution falls under any of the following subparagraphs: 1. Where it violates Articles 3, 4, 4-2, 6, 9 through 11, 14 through 22, 22-3, 22-4, 23, 24, 26 through 28, 30 through 32, 32-3, 32-4, 32-6, 32-7, 32-8, 33 through 35, 35-2, 36 through 44, 47 through 49, 51, 56 through 60, 60-2, 60-3, 61, 62, 64 through 66, 69, 73 through 75, 79 or 82 through 84, 84-2, 85 through 87 and 88 or any order thereunder; 2. Where the procedures for business performances of telecommunications business operator are deemed to inflict significant harms on the users’ interests; and 3. Where he fails to take swift measures necessary for removing obstructions such as repairs, etc. when impediments have occurred to the supply of telecommunications services. (2) The Minister of Science and ICT may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications: 1. Integrated operation and management of telecommunications facilities, etc.; 2. Expansion of communications facilities for the enhancement of social welfare; 3. Construction and management of communications networks determined by the Enforcement Decree for important communications to achieve efficient performance of State’s functions; and 4. Other matters as prescribed by the Enforcement Decree. (3) The Minister of Science and ICT may order the persons falling under any of the following subparagraphs to take measures, such as the suspension of acts to provide telecommunications service or the removal of telecommunications facilities, etc.: 1. Persons who operate a key communications business without obtaining a permit under Article 6 (1); 2. Persons who operate a specific communications business without making a registration under Article 21 (1); and 3. Persons who operate a value-added communications business without making a report under Article 22 (1). 4. Persons who operate a special type of value-added communications services without making a registration under Article 22 (2) (4) The Minister of Science and ICT or the Korea Communications Commission, if it deems that a telecommunications business operator cannot observe the orders within the period determined by the orders under paragraphs (1) through (3) for reasons such as acts of God or any other inevitable reasons, may extend such period only one time. (5) The government may provide financial assistance of the costs incurred in construction and management of important communications in order to secure the important communications referred to in paragraph 2 (3).

Article 93 (Delegation and Entrustment of Authority) (1) The following authority of the Minister of Science and ICT shall be delegated and entrusted to the Korea Communications Commission. 1. order on a telecommunications business operator of suspension of part of his business under Article 52 (5);

43

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. imposition or collection of the charge for compelling the execution under Article 52 (5); 3. imposition of penalty surcharge under 90 (1) (limited to a case where the penalty surcharge is imposed in lieu of the suspension of the business in part under Article 52 (5)) (2) The authority of the Minister of Science and ICT (except for the authority to delegate or entrust to the Korea Communications Commission as specified in paragraph (1)) or the Korea Communications Commission under this Act may be delegated and entrusted in part to the respective head of the affiliated agencies under the conditions as prescribed by the Enforcement Decree.

Article 93-2 (Deemed Public Official in Application of Penal Provisions) Any member of the Committee who is not a public official shall be deemed as a public official when Articles 129 through 132 of the Korean Commercial Code is applied.

CHAPTER VII. PENAL PROVISIONS

Article 94 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than five years or by a fine not exceeding 200 million won: 1. A person who runs a key communications business without obtaining a license under Article 6 (1); 2. A person who has operated key communications services in violation of partial cancellation of license under Article 20(1); 3. A person who obstructs the flow of telecommunications by impeding a function of telecommunications facilities by means of damaging telecommunications facilities, or having the objects contacted thereon and other methods, in violation of Article 79 (1); 4. A person who divulges other’s secrets with respect to communications which have been known to him while in office, in violation of Article 83 (2); and 5. A person who supplies communication data, and person who receives such supply, in violation of Article 83 (3).

Article 95 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 150 million won: 1. A person who refuses a provision of telecommunications service without any justifiable reasons, in violation of Article 3 (1); 2. A person who violates a disposition taken to suspend his business under Article 20 (1); 3. A person who operates a specific communications business without making a registration under Article 21 (1) or a person who operates a value- added communications business without making a registration under 3-2, Article 22(2); 4. A person who has operated specific communications services in violation of partial cancellation of license under Article 27(1); 5. A person who fails to implement an order under Article 52 (1); 5-2. A person who has violates an order of suspension of the business in part under Article 52 (5); 6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 73 (2); and 7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 83 (1).

44

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 95-2 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 100 million won: 1. A person who divulges other’s secrets which have been known to him while in office in violation of Article 4-2(3); 2. A person who engages in an act to open a mobile device account under a different person’s name on condition to give or borrow some money in order to use the telecommunications service provided to such mobile device or to use the service for recovery of such money in violation of Article 32-4 (1) 1; 3. A person who engages in an act to solicit, mediate, broker or advertise an agreement on the provision of the telecommunications service necessary to use the mobile device on condition to give or borrow some money in violation of Article 32-4 (1) 2; 4. A person who displays an erroneous telephone number by altering the caller’s telephone number, etc. while making a phone call (including text messages) for property profit or for the purpose of inflicting harm on others through violent language, intimidations, harassments, etc. in violation of Article 84-2 (1); 5. A person who provide services that enable display of an erroneous telephone number by altering the caller’s telephone number, etc. for profit in violation of Article 84-2 (2).

Article 96 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than two years or by a fine not exceeding 100 million won: 1. A person who fails to obtain a modified license under Article 16; 2. A person who fails to obtain approval under Articles 17 (1) and 42 (4); 3. A person who fails to obtain an authorization under the text of Article 18 (1) other than sub-paragraphs or approval according to Article 19 (1); 4. A person who violates Article 18 (9) by unifying communication networks, appointing officers, executing any other activities such as transferring, consolidating, enforcing a facilities sales contract or taking follow-up measures relating to establishment of a company before receiving a license; 5. A person who violates user protection measures ordered under Articles 19 (2) and 20 (3); 6. A person who runs the value-added communications business without making a report under Article 22(1); 6-2. A person who gets rid of, alters, or incapacitates the technical measures as referred to in paragraph (1) of Article 22-3 through detour without any justifiable authority in violation of Article 22-3 (2); 7. A person who violates a disposition taken to suspend his business under Article 27(1); 8. A person who fails to execute the order given to discontinue his business under Article 27 (2); 9. A person who fails to subscribe for a guarantee insurance in violation of Article 32(3); 10. A person who discloses, uses or provides the information, in violation of the main body of Article 43 (1) or paragraph (2) of the same Article; 10-2 A person who has damaged, forged or falsified the unique identification number of communication terminal devices in order to disturb the interruption of using the communication terminal devices reported to the telecommunication business operator due to such reason as loss or theft, etc. in violation of Article 60-3; 11. A person who fails to implement the partial restriction or cessation measure ordered pursuant to Article 85; and 12. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 86 (2).

45

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 97 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding 50 million won: 1. A person who fails to execute the order given under Articles 10(5), 18 (8) or 12 (2) (including a case where the provisions are applied mutatis mutandis under Article 4 (4) of the Addenda of the Telecommunications Business Act amended by Act No. 5385); 2. A person who fails to make a report under provisos of Article 18 (1) other than sub-paragraphs; 3. A person who fails to make a modified registration under Article 23; 4. A person who fails to make a report under Article 24; 5. A person who violates a disposition taken to suspend his business under Article 27 (2); 6. A person who provides telecommunications service without making a report or modification report under Article 28(1) and the proviso of (2) or receiving an authorization or modification approval under paragraph (2) of the same Article; and 7. A person who intermediates other person’s communication or furnishes for use by other person, by making use of telecommunications services rendered by the telecommunications business operator, in contravention of the provisions of the text of Article 30 other than subparagraphs.

Article 98 (Penal Provisions) A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding 10 million won: 1. A person who fails to report on the fees in violation of Article 22-4 (1) or provides telecommunications services not in accordance with the contents that he has reported; 2. A person who installs or modifies significant telecommunications facilities without making a report under the main text of Article 62(1) or has installed telecommunications facilities without obtaining approval under the proviso of the same Article; 3. A person who installs proprietary telecommunications facilities without making a report or modification report under Article 64(1); 4. A person who interconnects other’s communication through proprietary telecommunications facilities or uses it outside its purpose in violation of Article 65(1); 5. A person who violates an order under Article 66(1) to handle telecommunications services or other communication services or connect the pertinent facilities to other telecommunications facilities; 6. A person violates a usage cessation order under Article 67(2) or an order under paragraph (3) of the same article; 7. A person violates an order for removal of telecommunications facilities or other corrective measures under Article 82(2).

Article 99 (Penal Provisions) A person who commits any of the prohibited acts under Article 50(1) (excluding providing telecommunications services not in accordance with the standard usage terms and conditions under Article 50 (1) 5 or acts under Article 50 (1) 5-2) shall be punished by a fine not exceeding 300 million won.

Article 100 Deleted.

Article 101 (Penal Provisions) A person who stains the telecommunications facilities or damages the measurement marks of the telecommunications facilities, in violation of Article 79 (2) shall be punished by a fine or penalty not exceeding one million won.

46

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 102 (Attempted Criminal) An attempted criminal under subparagraphs 3 and 4 of Article 94 and subparagraph 7 of Article 95 shall be punished.

Article 103 (Joint Penal Provisions) When a representative of a juristic person or an agent, an employee or any other employed person of the juristic person or individual commits violation under Articles 94, 95, 95-2, 96 through 99 in connection with the business of such juristic person or individual, then a fine under the related Article shall be imposed on the juristic person or individual, in addition to the punishment of the violator except in cases where such juristic person or individual has not been lax in exercising due care and supervision in regard to the relevant business to prevent such violation.

Article 104 (Fine for Negligence) (1) A person who refuse, disrupt or avoid the inspection under Article 51 (2) shall be punished by a fine for negligence not exceeding 50 million won. (2) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 30 million won: 1. A person who has sold or purchased the telecommunications number in violation of Article 48-2(1); 2. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 73 (2), without justifiable reasons; 3. A person who refuses or impedes an entry to the land, etc. under Article 74 (2), without justifiable reasons; 4. A person who refuses the moving, alteration, repair and other measures on the obstacles, etc. under Article 75 (1), or the request for removal of the plants under Article 75 (2), without justifiable reasons; 5. A person who fails to take the measures under each subparagraph of Article 84-2 (3). (3) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding 20 million won: 1. A person who fails to take technical measures in violation of Article 22-3 (1), or record or manage the status of operation and management of the technical measures in violation of Article 22-3 (3); 2. A person who fails to stop provision of a telecommunications services in violation of Article 32-3 (2); 3. A person who fails to apply for approval in regard to execution of an agreement in violation of Article 44(2). (4) A person falling under any of the following shall be punished by a fine not exceeding 15 million won: 1. A person who fails to report in regard to execution of an agreement in violation of Article 44 (1) or 44 (3); 2. A person who fails to make a report under the main text of Article 86 (3). (5) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: 1. A person who fails to make a report as referred to in Article 10 (2) or to comply with a request for providing the data or an order to attend as referred to in Article 11 (3) or (4); 2. A person who, in violation of Article 19 (1), fails to notify the user 60 days prior to the expected date of termination; 2-2. A person who fails to follow the Korea Communications Commission’s order to submit the information under Article 22-3 (4) or submits false information; 3. A person who fails to make a report under Article 26;

47

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 4. A person who violates the obligation concerning the protection of users under Article 32 (1) (excluding efforts to prevent any damages to the users); 4-2. A person who fail to observe an order to submit the information under the latter part of Article 32 (2); 4-3. A person who fails to send a copy of an agreement in violation of Article 32 (3); 4-4. A person who fails to notify about exceeding the maximum limit of fees under Article 32-2 (1); 4-5 A person who fails to report in violation of Article 32-8 or provides telecommunications services not in accordance with the contents that he has reported; 5. Deleted; 6. A person who fails to make a public announcement of the technical standards, and the standards for use and provision, or the standards for a creation of fair competitive environments, in violation of Article 42 (4); 6-2. A person who fails to provide the information on standards of telecommunications service in violation of Article 42 (5); 7. A person who fails to observe the publicly announced matters under Article 48(2), in violation of Article 48 (3); 7-2. A person who fails to observe the order of the Minister of Science and ICT to stop the service or restrict such telecommunications service providers’ publication under Article 48-2(2); 8. A person who refuses, avoids, or intervenes with the order to submit information or object under Article 51 (5), or the temporary custody of the information or object submitted under the same Article; 9. A person who fails to execute orders given to furnish related data under the provisions of Article 56 (3); 10. A person who has used proprietary telecommunications facilities without receiving confirmation under Article 64(3) 11. A person who refuses or interferes with inspection under Article 82(1) 12. A person who fails to report under Article 82(2) or makes a false report 13. A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 83 (5); 14. A person who does not report the contents in the ledgers, including provision of telecommunications data, to the head of central administrative agency in violation Article 83(7) 15. A person who fails to follow a request for access to, or submission of the information or inspection or submits a false information; 16. A person who fails to make reports or submit the data under Article 88, or falsely do such acts; and 17. A person who fails to follow correction orders, etc., under Article 92 (1) through (3). . (6) The fine for negligence under paragraphs (2) through (5) shall be imposed and collected by the Minister of Science and ICT, under the conditions as prescribed by the Enforcement Decree; provided, however, that the fine for negligence under paragraph (1), subparagraph 1 of paragraph (3), subparagraphs 2-2, 4-2 and 8 of paragraph (5) shall be imposed and collected by the Korea Communications Commission, the fine for negligence under subparagraph 10 of paragraph (5) shall be imposed and collected by the mayor or governor, and the fine for negligence under subparagraph 17 of paragraph (5) shall be imposed and collected by the Minister of Science and ICT or the Korea Communications Commission according to its respective competent duties.

ADDENDA

Article 1 (Enforcement Date) This Act shall be effective on the date of its announcement.

48

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 2 through Article 4 Omission

Article 5 (Amendment to Other Acts) In this Act, the Minister of Science, ICT and Future Planning shall be replaced with the Minister of Science and ICT.

In Article 10-2, the Ministry of Science, ICT and Future Planning shall be replaced with the Ministry of Science and ICT.

In Article 11(2), the Vice Ministers of Science, ICT and Future Planning shall be replaced with the Vice Ministries of Science and ICT.

Article 6 Omission

49

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Exhibit 15.4

ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BUSINESS ACT

As partially amended by Enforcement Decree No. 28283 of September 5, 2017, effective September 5, 2017

Chapter 1. General Provisions

Article 1 (Purpose) The purpose of this Decree is to provide for matters delegated under the Telecommunications Business Act and matters necessary for its enforcement.

Article 2 (Contents of Universal Service) (1) Pursuant to Article 4(3) of the Telecommunications Business Act (the “Act”), the contents of universal services shall be as follows: 1. Wire telephone services; 2. Telephone services for emergency communications; and 3. Services of which fees are reduced or exempted for the disabled and the low income class. (2) The detailed contents of universal services under paragraph (1) shall be as follows: 1. Wire telephone services are telephone services within an area publicly notified by the Minister of Science and ICT based on methods and conditions of use (the “Calling Area”), falling under any one of the following: (a) a local telephone service which is a telephone service (excluding, throughout this Enforcement Decree, the island communication service referred to in (c) below) enabling communication through subscription telephones; (b) a public telephone service which is a telephone service enabling communication through public telephones; or (c) an island communication service which is a telephone service enabling radio communication between shore and an island or between islands. 2. Telephone services for emergency communications are telephone services necessary for maintaining social order and securing human life, falling under any of the following: (a) a special telephone number service, among the key communications services, publicly notified by the Minister of Science and ICT; or (b) a wireless telephone service for vessels which is a telephone service, among the key communications services, enabling communication between shore and a vessel or between vessels. 3. Services of which fees are reduced or exempted for the disabled and the low income class are services offered to the disabled and the low income class for the purpose of improving social welfare, falling under any of the following: (a) a local telephone service and a telephone service between the Calling Areas (the “Long Distance Telephone Service”); (b) a directory assistant service which is a service incidental to a local telephone service and the Long Distance Telephone Service; (c) a mobile telephone service, a personal communication service, IMT-2000 service or LTE service among the key communications services; (d) an Internet subscriber connection service;

1

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (e) an Internet phone service; or (f) a portable Internet service. (3) Any of the following shall be entitled to the services of which fees are reduced or exempted pursuant to subparagraph 3 of paragraph (2); provided, however, that the services for which fees are reduced or exempt pursuant to subparagraphs 8 and 9 below shall be limited to the mobile telephone service, the personal communication service, the IMT-2000 service and the LTE service: 1. the disabled registered under Article 32 of the Act on Welfare of Persons with Disabilities or welfare institutions or groups for the disabled under the Act on Welfare of Persons with Disabilities; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant disabled person belongs shall be entitled to reduction or exemption of service fees; 2. special schools under the Elementary and Secondary Education Act; 3. child welfare institutions under the Child Welfare Act; 4. recipients of livelihood benefits under subparagraph 1 of Article 7(1) or medical benefits under subparagraph 3 of Article 7(1) of the National Basic Livelihood Security Act. However, households composed of such persons in the event of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service or an Internet phone service 5. the Korean Association of Wounded Soldiers and Police Officials or the Association Commemorating the April 19 Democratic Revolution under the Act on Establishment of Organizations for Persons, etc. of Distinguished Services to the State; 6. soldiers or policemen wounded in action, soldiers or policemen wounded on duty, wounded activists of the April 19 Revolution, public officials wounded on duty, wounded special contributor to national and social development or wounded anticommunist captive under the Act on Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant person belongs shall be entitled to reduction or exemption of service fees; 7. wounded activists of the May 18 Democratization Movement among the persons of distinguished services to the May 18 democratization movement under the Act on Honorable Treatment of Persons of Distinguished Services to the May 18 Democratization Movement; provided, however, that in case of a local telephone service, the Long Distance Telephone Service, an Internet subscriber connection service and an Internet phone service, the household to which the relevant person belongs shall be entitled to reduction or exemption of service fees; 8. members of a family having at least one of its members fitting any of the descriptions below qualifying as a member of the next needy class under subparagraph 10 of Article 2 of the National Basic Livelihood Security Act and the number of family members eligible for fee reduction or exemption for such family shall be determined by the Minister of Science and ICT. (a) a person taking part in the project required for self-support pursuant to Article 9(5) of the National Basic Livelihood Security Act; (b) a person having a rare and serious disease as described item (d) of section 3 in Table 2 and is eligible for reduction in his or her share of fees; (c) Deleted; (d) Deleted; (e) a person receiving disability allowances pursuant to Article 49 of the Welfare of the Disabled Persons Act and a person receiving allowances for raising and protecting disabled children pursuant to Article 50(1) of the same Act;

2

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) a person requiring protection under Article 5 of the Single-Parent Family Assistance Act, including a person who has ratio of recognized income to standard median income of 52/100 or below; (g) a person receiving a disability pension pursuant to Article 10 of the Pension Act for the Disabled; (h) a person who is registered as the next needy class with the social security information system under Article 37(2) of the Framework Act on Social Security and meets the qualifications determined and announced by the Minister of Science and ICT. 9. recipients who do not receive livelihood benefits under subparagraph 1 of Article 7(1) of the National Basic Livelihood Security Act or medical benefits under subparagraph 3 of Article 7(1) among the recipient under the same Act (including family members of the recipients who receive education benefits under subparagraph 4). In this case, the number of family members eligible for fee reduction or exemption for such family shall be determined and announced by the Minister of Science and ICT. (4) An application for reduction or exemption of service fees under subparagraph 3 of paragraph (2) shall be filed by the following person: 1. In case of filing an application pursuant to the proviso to subparagraph 1 of paragraph (3), the proviso to subparagraph 4 or 7: Person who is entitled to reduction or exemption of service fees of the members of a family or householder; 2. Deleted; 3. In case of filing an application pursuant to the provisions other than subparagraph 1: Person who is entitled to reduction or exemption of service fees (referring to each member of a family in case of subparagraphs 8 and 9 of paragraph (3)). (5) Criteria for reduction or exemption of service fees with respect to the persons who are entitled to reduction or exemption of service fees under subparagraph 3 of paragraph (2) shall be determined and announced by the Minister of Science and ICT taking into consideration the business size of telecommunications business operators and the level of their service fees.

Article 3 (Designation of Telecommunications Business Operator who Provides Universal Services) (1) If the Minister of Science and ICT intends to designate a telecommunications business operator who provides universal services (the “Business Operator Providing Universal Services”) under Article 4 (4) of the Act, it can do so after taking into consideration such operator’s opinion. (2) For the purpose of checking the status of provision of universal service, the Minister of Science and ICT may request a telecommunications business operator designated as a business operator providing universal service pursuant to paragraph (1) to submit a report on the provision of universal service, and the relevant documents, including the expenses incurred in providing the relevant service. When such request is made, the business operator providing universal service shall comply with the request unless there is a reasonable cause not to comply.

Article 4 (Compensation for Losses Incurred through Provision of Universal Services) (1) The Minister of Science and ICT may have the telecommunications business operators who are not Business Operators Providing Universal Services bear part of the expenses for compensating whole or part of the losses incurred through a provision of universal services by Business Operators Providing Universal Services (the “Compensation For Losses Incurred Through Universal Services”) in proportion to their respective sales. (2) A Business Operator Providing Universal Services who intends to receive the Compensation For Losses Incurred Through Universal Services shall submit a report on the actual results of a provision of universal services, including expenditures for, and incomes and losses from, the provision thereof, to the Minister of Science and ICT within three months after the expiration of the relevant fiscal year. (3) The Minister of Science and ICT may, if deemed necessary for the verification of the report on the actual results of a provision of universal services submitted pursuant to paragraph (2), consult a professional institution to examine it.

3

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 5 (Universal Services Entitled To Compensation For Losses Incurred Through Universal Services) (1) The scope of universal services entitled to the Compensation For Losses Incurred Through Universal Services shall be any of the following: 1. among local telephone services pursuant to Article 2(2)1(a) hereof, a local telephone service offered in areas selected in accordance with the standards determined and publicly notified by the Minister of Science and ICT considering the expenditures and income (meaning the expenses and income calculated in accordance with the method publicly notified by the Minister of Science and ICT considering the efficiency of managing communication lines, etc.; hereinafter the same shall apply in Article 6) as a result of provision of such service; 2. among public telephone services pursuant to Article 2(2)1(b) hereof, a public telephone service offered in areas selected in accordance with the standards determined and publicly notified by the Minister of Science and ICT considering the characteristics of place; 3. an island communication service pursuant to Article 2(2)1(c) hereof; or 4. a wireless telephone service for vessels pursuant to Article 2(2)2(b) hereof. (2) In Article 4 (2) 1 of the Act, “the telecommunications business operators prescribed under the Enforcement Decree of the Act” means value- added communications business operators or regional wireless call operators. (3) In Article 4 (2) 2 of the Act, “the amount prescribed under the Enforcement Decree of the Act” means 30 billion won.

Article 6 (Methods for Computing the Compensation For Losses Incurred Through Universal Services) (1) Losses incurred through provision of the universal services prescribed under each of the paragraphs in Article 5(1) hereof shall be the amount of expenses of providing the relevant service less the relevant income. In such case, at the time of calculating the losses incurred through a provision of the universal services under Article 5(1) 2, the incomes and any indirect advantages such as improved brand value and user preference shall be included. (2) The provisional Compensation For Losses Incurred Through Universal Services shall be computed by multiplying the amount obtained under paragraph (1) and the rate of compensation for losses determined and publicly notified by the Minister of Science and ICT; provided that, with respect to a wireless telephone service for vessels under Article 5(1)4 hereof, the target amount for efficient management determined and publicly notified by the Minister of Science and ICT shall be the provisional Compensation For Losses Incurred Through Universal Services. (3) The Compensation For Losses Incurred Through Universal Services shall be the amount of the provisional Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (2) subtracted by each of the amounts described below: 1. the amount paid by telecommunications business operators providing any of the universal services prescribed under each of the subparagraphs of Article 5(1) hereof based on their sales from telecommunications services other than the relevant universal service provided (excluding value-added communications services); and 2. the amount computed by the Minister of Science and ICT considering the payment capacity of telecommunications business operators paying for the Compensation For Losses Incurred Through Universal Services (the “Business Operators Paying For Losses”). (4) The Business Operators Paying For Losses shall pay for the Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (3) in proportion to their respective sales relating to telecommunications services (excluding value-added communications services). (5) The Minister of Science and ICT shall determine and announce all other necessary details with respect to the rates by which telephone services fees are reduced or exempted for the disabled and the low income class and the methods for computing the Compensation For Losses Incurred Through Universal Services.

4

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Chapter 2. Telecommunications Business

Article 7 Deleted.

Article 8 (Scope of Premises) The “premises determined under the Enforcement Decree of the Act” in Article 5(3)2 of the Act means any of the following: 1. a building; 2. a site (limited to that owned by one person or owned through common ownership by two or more persons) and any building located on such site; 3. two or more buildings possessed by one person and the site on which such buildings are located, limited to those buildings the distance between which is not more than 500 meters; or 4. any buildings or sites adjacent to the buildings or sites prescribed under paragraphs 1-3 and publicly notified by the Minister of Science and ICT.

Article 9 (Permit Application, etc.) (1) A person who wishes to obtain a permit under Article 6(1) of the Act may make an application in the name of the representative of a corporation or the representative, such as a shareholder, etc., of a corporation to be established. (2) The “premises determined under the Enforcement Decree of the Act” in Article 6(2)4 of the Act means the following 1. matters concerning the suitability of investment plan in advancing telecommunications facilities; 2. matters concerning the stability and expertise of supply plan for key communication services; and 3. matters similar to paragraph 1 or 2 as determined and announced by the Minister of Science and ICT.

Article 10 (Documents to be Attached to Permit Application) A person who wishes to obtain a permit for a key communications business under Article 6(1) of the Act shall submit to the Minister of Science and ICT a key communications business permit application with each of the following documentation attached thereto: 1. articles of incorporation of the corporation (including, throughout this Article 10, the corporation to be incorporated); 2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation; and 3. a business proposal. The Minister of Science and ICT receiving a permit application pursuant to paragraph (1) shall verify the commercial registry extracts by using the public administrative information made available under Article 36(1) of the E-Government Act.

Article 11 Deleted.

Article 12 (Issuance of License) (1) When permitting a key communications business under Article 6(1) of the Act or permitting any change under Article 16(1) of the Act, the Minister of Science and ICT shall issue a key communications business operator’s license upon making recordation of each of the following in a license registry of key communications business operators: 1. number and date of license;

5

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. title or trade name of the business and name of the representative; 3. the areas where the telecommunications service is offered; 4. location of the principal office; 5. capital or asset valuation amount; 6. details of major business facilities and equipment and the locations where such facilities and equipment are installed; 7. details concerning technical personnel; and 8. any conditions upon which the license is issued. A key communications business operator whose license, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the license to the Minister of Science and ICT by writing the reason for such loss or damage in its application thereto.

Article 13 (Criteria for Examination of Public Interest Nature) (1) The term “public interests as prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 10 (1) of the Act means the maintenance of national security, public peace and social order. (2) The term “important management matters, including the key communication provider’s appointment and dismissal of officer, transfer or takeover business, etc., prescribed under the Enforcement Decree of the Act” in Article 10(1)3 of the Act means the matters falling under each of the following subparagraphs: 1. appointment and dismissal of the representative director of a key communications business operator, or appointment and dismissal of one third or more of the officers; 2. transfer and takeover of a key communications business; and 3. entrance by a key communications business operator into a new key communications business. (3) The term “case prescribed under the Enforcement Decree of the Act” in Article 10(1)4 of the Act means any of the following. 1. the case where a de facto change is made in the management right of a key communications business operator by an agreement of shareholders who are not the largest shareholder of such key communications business operator to jointly exercise voting rights; 2. the control of the holding company (as that term is defined under Article 2(1)2 of the Monopoly Regulation and Fair Trade Act) of the key communication provider has actually changed hands; 3. the control of the key communications business operator has actually changed since the largest shareholder of a corporation which is the largest shareholder of the key communications business operator has changed; or 4. the control of the key communications business operator has actually changed since the person who is not the shareholder of such key communications business operator has agreed with the shareholders of such key communications business operator or the person who has the actual control of such key communications business operator with respect to the exercise of voting rights.

Article 14 Deleted.

Article 15 (Procedures for Examination of Public Interest Nature) (1) A person who wishes to file a report or request a screening pursuant to Article 10(2) and 10(3) of the Act shall submit to the Minister of Science and ICT documentation indicating each of the following: 1. name and address of the person filing a report or requesting a screening (in the case of a corporation, the name and address of (i) such corporation and (ii) the representative of such corporation);

6

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. purpose of, and reason for, the report or screening request; and 3. details of any of the facts falling under each of the subparagraphs of Article 10(1) of the Act. (2) The Minister of Science and ICT may, where it deems necessary, request for the documentation already submitted to it to be supplemented within a period reasonably fixed. (3) Except under special circumstances, with respect to any matter the Minister of Science and ICT referred to the public interest nature examination committee under Article 10(1) of the Act (the “Public Interest Nature Examination Committee”), the Public Interest Nature Examination Committee shall notify the Minister of Science and ICT of the result of its screening within 3 months of the date of such referral. (4) The Minister of Science and ICT shall notify the person filing a report or requesting a screening of the result of examination of public interest Nature under paragraph (3).

Article 16 (Composition etc. of Public Interest Nature Examination Committee) (1) The term “related central administrative agencies prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 11(2) of the Act means the agencies falling under each of the following: 1. the Ministry of Strategy and Finance; 2. the Ministry of Foreign Affairs; 3. the Ministry of Justice; 4. the Ministry of National Defense; 5. the Ministry of Interior and Safety; 6. the Ministry of Trade, Industry and Energy; 7. the Fair Trade Commission; and 8. the National Police Agency. (2) The term of office of the members shall be two years and consecutive appointment may be permitted; provided that, the term of office of the members who are public officials shall be the period of service in their positions as public officials.

Article 16-2 (Dismissal of Members of Public Interest Nature Examination Committee) If any member commissioned in accordance with Article 11(2) of the Act falls under any of the following cases, the chairman of the Public Interest Nature Examination Committee may dismiss such member: 1. where a member cannot perform his/her duties due to his/her mental and physical disability; 2. where a member is engaged in any illegal act related to his/her duties; 3. where a member is acknowledged to be not suitable to act as a member due to negligence of his/her duties or injury to dignity; or 4. where a member expresses his/her intent that he/she cannot perform his/her duties.

Article 17 (Operation etc. of Public Interest Nature Examination Committee) (1) The chairman of the Public Interest Nature Examination Committee shall represent the Public Interest Nature Examination Committee and exercise an overall control of its affairs. (2) If the chairman is inevitably unable to perform his duties, a member previously appointed by the chairman shall act on her or his behalf.

7

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) The chairman shall convene and preside over a meeting of the Public Interest Nature Examination Committee. (4) Deliberation of a meeting of the Public Interest Nature Examination Committee shall start by the attendance of a majority of all incumbent members, and its resolution shall require the consent of a majority of those present. (5) The Public Interest Nature Examination Committee shall have one secretary general in order to deal with its affairs, but the secretary general shall be appointed by the chairman among the public officials belonging to the Ministry of Science and ICT. (6) Any matters necessary for the operation of the Public Interest Nature Examination Committee other than the matters set forth in paragraphs (1) through (5) shall be determined by the chairman through a resolution of the Public Interest Nature Examination Committee.

Article 18 (Imposition and Payment etc. of Charges for Compelling Execution) (1) When determining the amount of charges for compelling execution pursuant to Article 13 of the Act, the Minister of Science and ICT shall take into account such factors as the reasons for failure to comply with corrective orders and the scale of benefits to be gained by such failure. (2) The date of compliance with corrective orders pursuant to Article 13(2) of the Act shall be determined by the classifications falling under each of the following: 1. delivery date of shares in the case of disposal of shares; 2. date of executing a contract in the case of amending details of a contract; 3. date of suspending the relevant acts in the case of suspending the acts impeding public benefits; and 4. date of satisfying relevant conditions in the case of conditional performance. (3) Where the Minister of Science and ICT wishes to impose charges for compelling execution pursuant to Article 13 of the Act, it shall furnish a notification thereof in writing, indicating such matters as the amount of charges for compelling execution per day, reasons for imposition, payment term and receiving agency, methods of raising objections, and agencies to where such objections must be directed. (4) Any person who has been notified under paragraph (3) shall pay the charges for compelling execution within 30 days of the date of receiving such notice; provided that, in the event such person is unable to pay the charges for compelling execution within said period due to a natural disaster or other unavoidable circumstances, such person shall pay the charges for compelling execution within 30 days of the day on which said causes have disappeared. (5) In collecting charges for compelling execution and in the event a corrective order has not been complied with after 90 days elapsed from the date of expiration of the period set by the corrective order, the Minister of Science and ICT may collect charges for compelling execution whenever every 90 day period elapses from said expiration date. (6) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution.

Article 19 (Permit to Change) (1) A person who wishes to obtain a permit to change to a key communications business pursuant to Articles 16 (1) of the Act shall submit to the Minister of Science and ICT an application for a permit to change to a key communications business with supporting documents confirming proposed changes attached thereto. (2) The Minister of Science and ICT shall issue public notice with respect to details about application guidelines, submission procedures, submission method, etc. for a permit to change to a key communications business under Article 16(1) of the Act. (3) Deleted. (4) The “important matters prescribed under the Enforcement Decree of the Act” in Article 16(1) of the Act means each of the following;

8

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 1. matters concerning changes to key communications business permitted pursuant to Article 6(1) of the Act (including the case where services cancelled under Article 20(1) of the Act are to be resumed); and 2. matters concerning the permission criteria under Article 6(6) of the Act.

Article 20 (Authorization Application for Transfer, Merger, etc.) (1) A person who wishes to obtain authorization of the transfer of the whole or part of a key communications business pursuant to Article 18(1)1 of the Act shall submit to the Minister of Science and ICT an authorization application for the transfer of a key communications business with each of the following documentation attached thereto: 1. a copy of the transfer agreement; 2. articles of incorporation of the transferor and the transferee, and documentation supporting the transfer; 3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the transferee; 4. present status of the transferor and the transferee; and 5. post-transfer business proposal. (2) A person who wishes to obtain authorization of the merger with a corporation that is a key communications business pursuant to Article 18(1)2 of the Act shall submit to the Minister of Science and ICT an authorization application for the merger with a key communications business with each of the following documentation attached thereto: 1. a copy of the merger agreement; 2. articles of incorporation of the parties to the merger agreement, and documentation supporting the merger; 3. shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation that shall continue to exist after the merger or be incorporated through the merger; 4. present status of the parties to the merger agreement; and 5. post-merger business proposal. (3) A key communications business operator who wishes to obtain authorization of the sale of telecommunications line facilities and equipment pursuant to Article 18(1)3 of the Act shall submit to the Minister of Science and ICT an authorization application for the sale of telecommunications line facilities and equipment with each of the following documentation attached thereto: 1. a copy of the sale and purchase agreement concerning telecommunications line facilities and equipment, and other documentation supporting such agreement; 2. articles of incorporation of the seller and the purchaser, and documentation supporting the sale and purchase; 3. shareholder register, or documentation related to ownership by shareholders, etc., of the purchaser; 4. present status of the seller and the purchaser; and 5. post-sale business proposal. (4) A person who wishes to own 15% or more of the total outstanding shares of a key communications business operator or become the largest shareholder of a key communications business operator pursuant to Article 18(1)4 of the Act shall submit to the Minister of Science and ICT an authorization application for the ownership of shares, or for becoming the largest shareholder, of a key communications business with each of the following documentation attached thereto: 1. documentation supporting the share purchase, such as a copy of the share purchase agreement; 2. articles of incorporation of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;

9

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 3. present status of the shareholders of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement; 4. present status of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement; 5. purpose of, reasons for and an analysis of the effect of acquisition of the shares; 6. proposal for dual appointment of officers (only when considering dual appointment of an officer of the counterparty); and 7. post-share acquisition business proposal (only when seeking to become the largest shareholder). (5) A person who wishes to obtain authorization for purchase of shares or execution of an agreement under Article 18(1)5 shall attach the following to an authorization application submit them to the Minister of Science and ICT. 1. documents confirming the acquisition of managerial control such as copies of share purchase agreement or other agreement, etc. 2. articles of incorporation of the purchaser or the party to the agreement and the counterparty; 3. shareholders registers of the purchaser or the party to the agreement and the counterparty 4. descriptions of businesses of the purchaser or the party to the agreement and the counterparty 5. purposes of and impact analysis of the share purchase or execution of the agreement; 6. a plan for overlapping officers and directors (applicable when such officers or directors also act as officers or directors the counterparty); and 7. a business plan for the period following the-share acquisition or execution of the agreement. (6) The “premises determined under the Enforcement Decree of the Act” in Article 18(1)5 of the Act means any of the following. 1. where one person alone or together with his specially related persons seek to acquire shares (including shares issued by specially related persons to largest shareholders) issued by the largest shareholder of a key communications business operator and effectively exercises the voting rights of such largest shareholder; 2. where persons (including specially related persons) with the common aim of controlling a key communications business operator seek to acquire more shares than the voting rights held by the largest shareholder of such key communications business operator; 3. where the control of a key communications business operator is sought by way of business lease, delegation of managerial control or other agreements with the key communications business operator or its largest shareholder; and 4. where a shareholder of a key communications business operator seeks enter into an agreement with other shareholders, except the largest shareholder to exercise jointly more voting rights than the largest shareholder. (7) A key communications business operator that seeks to receive an authorization to establish a corporation to provide part of the key communications services it has provided with the authorization under Article 18(1)6 shall attach the following documents to an incorporation authorization application and submit them to the Minister of Science and ICT. 1. articles of incorporation of the corporation to be incorporated 2. shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation to be incorporated; 3. business status of the services to be provided (applicable only to the key communications business that already provides the services to be provided by the corporation to be incorporated; and 4. a business plan of the corporation to be incorporated.

10

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (8) The authorization application and attachments under paragraphs (1) through (5) and (7) may be submitted electronically. (9) The Minister of Science and ICT receiving an authorization application for transfer, merger, sale, share acquisition or changing the largest shareholder pursuant to paragraphs (1)-(7) shall verify the commercial registry extracts of the party seeking to transfer, merge, sell, become the largest shareholder, acquire shares, execute an agreement or incorporate a corporation by using the public administrative information made available under Article 36(1) of the E-Government Act. (10) The Minister of Science and ICT shall issue a key communications business operator’s license upon approving the authorization application for transfer, merger or incorporation pursuant to paragraph (1), (2) or (7). (11) Cases that have insignificant effect on the competition between the key communication businesses in the provisos other than each subparagraph of Article 18(2) of the Act and Article 18(11) of the Act means cases where a person who falls under any subparagraph of Article 18(1) of the Act (excluding a person falling under subparagraphs 3 and 6 of Article 18 of the Act and a key communications business operator who is determined and announced under Article 39(3) of the Act; hereinafter referred to as the “transferee • purchaser, etc.” in this Article) is engaged in any of the acts falling under each subparagraph of Article 18(1) of the Act (excluding an act falling under subparagraphs 3 and 6 of Article 18 of the Act; hereinafter referred to as the “takeover • merger, etc.” in this Article) against a key communications business operator, whose sales in the key communications business during the immediately preceding year are less than 10 billion won, and falls under any of the following cases: 1. where any of the following relationship (hereinafter referred to as the “controlling relationship”) is not formed due to the takeover • merger, etc.: (a) where the ratio of shares (including the equity; hereinafter the same shall apply) held by the transferee • purchaser, etc. is not less than 50/100; (b) where the ratio of shares held by the transferee • purchaser, etc. is less than 50/100 and the transferee • purchaser, etc. falls any of the following cases: 1) where the transferee • purchaser, etc. as the majority shareholder is able to control a company due to exercise of shareholder right in light of the dispersion of shares; or 2) where the transferee • purchaser, etc. supplies at least 50/100 of the raw materials and is a market dominant business operator in the production area of raw materials under subparagraph 7 of Article 2 of the Monopoly Regulation and Fair Trade Act; 2. where the transferee • purchaser, etc. acquires the key communications business of the key communications business operator with whom the controlling relationship has been already formed; or 3. where the transferee • purchaser, etc. merges with a company which is the key communications business operator with whom the controlling relationship has been already formed. (12) Pursuant to the provisos other than each subparagraph of Article 18(2) of the Act and Article 18(11) of the Act, with respect to those who fall under paragraph (11), the Minister of Science and ICT may grant an authorization after examining only the propriety of their measures to protect users under subparagraph 4 of Article 18(2) of the Act and after consulting with the Fair Trade Commission under Article 18(6) of the Act.

Article 21 (Criteria for Major Telecommunications Line Facilities and Equipment) The “major telecommunications line facilities and equipment prescribed under the Enforcement Decree of the Act” in provisos other than each subparagraph of Article 18(1) of the Act means facilities and equipment for exchange, transmission and wire pursuant to Article 3(1)8-10 of the Regulations on Broadcasting Communications Facilities and Equipment of which the sum of the sales prices is not less than 5 billion won.

Article 22 (Report on Sale of Telecommunications Line Facilities and Equipment) A person who wishes to file a report on sale of telecommunications line facilities and equipment pursuant to provisos other than each subparagraph of Article 18(1) of the Act shall submit to the Minister of Science and ICT a

11

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document report on sale of telecommunications line facilities and equipment (including electronic application) with each of the following documentation (including electronic documentation) attached thereto: 1. documentation supporting the sale, such as a copy of the sales agreement concerning telecommunications line facilities and equipment; 2. types, details and prices of the facilities and equipment being sold; and 3. plans for service provision and user protection subsequent to the sale.

Article 23 Deleted.

Article 24 (Application for an Approval to Suspend Business, etc.) (1) A person who wishes to obtain approval to suspend or discontinue business pursuant to Article 19(1) of the Act shall submit to the Minister of Science and ICT each of the following documentation at least 60 days prior to the expected suspension or closedown date: 1. details of the business to be suspended or discontinued, and drawings of such business’s territories; 2. documentation indicating details of major telecommunications facilities and equipment relating to the business to be suspended or discontinued; 3. written permission (only where the whole business is discontinued); 4. statement of reasons for such suspension or closedown; 5. notice about the proposed suspension or closedown; and 6. documentation stating a plan for customer protection in connection with the proposed suspension or disconsolation. (2) The term “required documents determined by the Enforcement Decree such as details of the business to be suspended or discontinued, and drawings of such business’s territories” in subparagraph 1 of Article 19(3) of the Act shall mean the documents under each subparagraph of Article 24(1).

Article 25 (Criteria, Procedures, etc. for Revocation of Permits) (1) The term “the period determined by the Enforcement Decree” in subparagraph 4-2 of Article 20(1) of the Act shall means six months. (2) The criteria for revocation of permits, cancellation of registration and suspension or closedown of business pursuant to Articles 20(2) and 27(3) of the Act are as provided in Table 1 attached hereto. (3) Upon revocation of permits, cancellation of registration or suspension or closedown of business under paragraph (2), the Minister of Science and ICT shall issue public notification thereof without delay, and notify the relevant telecommunications business operator in writing.

Article 26 (Application for Registration) (1) A person who wishes to register as a specific communications business operator pursuant to Article 21(1) of the Act shall submit to the Minister of Science and ICT an application (including an electronic application) to register as a specific communications business operator with each of the following documentation (including electronic documentation) attached thereto: 1. a business proposal relating to a specific communications business; 2. articles of incorporation of the corporation (including, throughout this Article, the corporation to be established); 3. details, installment locations and a network map of major business facilities and equipment; 4. standardized terms and conditions containing provisions relating to user protection, and details of, and a management proposal for, an office for user protection; and

12

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) The Minister of Science and ICT receiving who receives a registration application pursuant to paragraph (1) shall verify the commercial registry extracts and national technical qualification certificates of the technical personnel by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the relevant documentation copies thereof to its license application.

Article 27 (Issuance of Certificates of Registration) (1) Upon receipt of a registration application under Article 26(1) hereof, the Minister of Science and ICT shall verify whether such registration application meets the registration requirements under Article 28 hereof, make recordation of each of the following in a registration registry of specific communications business operators and issue to the applicant a certificate of registration as a specific communications business operator within 30 days of the date of application: 1. number and date of registration; 2. title or trade name of the business and name of the representative; 3. location of the principal office; 4. capital; 5. types of services provided; 6. details of major business facilities and equipment and the locations where such facilities and equipment are installed; 7. details concerning technical personnel; and 8. any conditions upon which the registration is authorized. (2) The Minister of Science and ICT may, where it deems necessary, request for a registration application already submitted to it under Article 26 hereof to be supplemented or revised by no later than 7 days thereafter; provided that, such period may be extended upon request of the applicant and may not count towards the processing time referred to in paragraph (1). (3) A specific communications business operator whose certificate of registration, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of registration to the Minister of Science and ICT.

Article 28 (Registration Requirements for Specific Communications Business) The registration requirements for a specific communications business pursuant to Article 21(5) of the Act are as provided in Table 2 attached hereto.

Article 29 (Reporting Procedures, etc. of Value-Added Communications Business) (1) A person who wishes to file a report of a value-added communications business under the former part of Article 22(1) of the Act shall submit to the Minister of Science and ICT a value-added communications business report (including an electronic report) and each of the following documentation (including an electronic documentation): 1. a network map diagram (applicable only where new types of value-added communications services are reported and the Minister of Science and ICT deems such diagram to be necessary and requests for it); and 2. a report about the privacy protection system (applicable only when personal data are handled). (2) A person who wishes to operate a special type of value-added communications business under Article 22(2) of the Act shall submit to the Minister of Science and ICT a registration application for special type of

13

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document value-added communications business (including an electronic application) and each of the following documentation (including an electronic documentation): 1. articles of incorporation of the corporation (applicable only to a corporation including the corporation to be incorporated); and 2. any document verifying whether such registration application meets the registration requirements under each of the subparagraphs of Article 22(2) of the Act. (3) The Minister of Science and ICT receiving a report pursuant to paragraph (1) and a registration application pursuant to paragraph (2) shall verify the commercial registry extracts by using the public administrative information available pursuant to Article 36(1) of the E-Government Act.

(4) When there is an error in a value-added communications business report under paragraph (1) or a registration application for special type of value-added communications business under paragraph (2), or the documentation attached to such report or application is insufficient, the Minister of Science and ICT may request for such report or application to be supplemented by no later than 10 days thereafter; provided that, such period may be extended upon request by the person filing the report or application. (5) Upon receipt of a value-added communications business report under paragraph (1), the Minister of Science and ICT shall issue a report certificate to the person filing such report. (6) Upon receipt of a registration application under paragraph (2), the Minister of Science and ICT shall verify whether such registration application meets the registration requirements under paragraph 9 hereof, and then, make recordation of each of the following in a registration registry of special type of value-added communications business operators and issue to the applicant a certificate of registration as a special type of value-added communications business operator within 30 days of the date of application: 1. registration number and date of registration; 2. title or trade name of the business and name of the representative; 3. location of the principal office; 4. capital; 5. types of services provided; 6. details of major business facilities and equipment and the locations where such facilities and equipment are installed; and 7. any conditions upon which the registration is authorized. (7) A value-added communications business operator whose report certificate, issued pursuant to paragraph (5) or registration certificate issued pursuant to paragraph (6), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of report or registration to the Minister of Science and ICT. (8) The term “any other matters as prescribed by the Enforcement Decree such as a business plan” in Article 22(2)4 means a business plan and a user protection plan. (9) The registration requirements for a special type of value-added communications business pursuant to Article 22(2) of the Act are as provided in Table 3 attached hereto.

Article 30 (Exemption from Value-added Communications Business Operator Report) (1) The “small-scale value-added communications business meeting the criteria prescribed under the Enforcement Decree of the Act” in subparagraph 1 of Article 22(4) of the Act means value-added communications business operators who provide value-added communications services using the Internet and where the capital is 100 million won or less

14

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) In the event a value-added communications business operator who is exempted from filing a report pursuant to paragraph (1) comes to have more than 100 million won as its capital, such value-added communications business operator shall file a report to the Minister of Science and ICT, within 1 month of the date on which it ceased to satisfy such criteria, in accordance with Article 22 (1) of the Act.

Article 30-2 (Reasons for Disqualification for Registration) “An investor as prescribed by the Enforcement Decree” in Article 22-2 of the Act means any person falling under any of the following: 1. a person who holds the largest number of outstanding shares with voting rights and equity interests with voting rights of the concerned corporation (throughout this Article, the “Shares, etc.”), jointly with any specially related person of the person as defined in any subparagraph of Article 3(1) of the Enforcement Decree of the Act on Corporate Governance of Financial Companies, on his/her own account, regardless of in whose name they are held; and 2. a person who holds more than 10/100 of the Shares, etc. on his/her own account, regardless of in whose name they are held or a shareholder who has de facto control over the matters material to the concerned corporation, such as appointment and dismissal of executives and falls under any of the subparagraphs of B. of Article 2. 6 of the Act on Corporate Governance of Financial Companies.

Article 30-3 (Technical Measures, etc. for Prevention of Circulation of Illegal and Obscene Information) (1) The term “technical measures as determined by the Enforcement Decree” in Article 22-3(1) of the Act means the following measures: 1. measures that a person, who provides service falling under A of subparagraph 13 of Article 2 of the Act among those who have registered a special type of value-added communications business pursuant to Article 22(2) of the Act (hereinafter referred to as the “business operator” in this Article), may recognize that such information is illegal information under subparagraph 1 of Article 44-7(1) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. (hereinafter referred to as “illegal and obscene information”) comparing the title and characteristics of such information; 2. measures taken by the business operator to restrict the users to search or transmit or receive such information in order to prevent the circulation of illegal and obscene information recognized by such business operator pursuant to subparagraph 1; 3. when the business operator finds the circulation of illegal and obscene information due to its failure to recognize such information although it has taken measures referred to in subparagraph 1, subsequent measures taken by the business operator to restrict the users to search or transmit or receive such information; or 4. measures taken by the business operator to send a warning notice regarding prohibition of circulation of illegal and obscene information to those who transmit such illegal and obscene information. (2) The term “period as determined by the Enforcement Decree” in Article 22-3(3) of the Act means two years.

Article 30-4 (Reporting and Disclosure of Value-added Communications Service Fees) (1) Pursuant to Article 22-4(1) of the Act, if a telecommunications business operator intends to report or make a report on the change of the value- added communications services fees under B of Article 2.13 of the Act to the Minister of Science and ICT, it shall submit the following documents: 1. Report on fees: Fees and supporting data for calculation; and 2. Report on changed fees: Change of fees and supporting data for such change. (2) Pursuant to Article 22-4(2) of the Act, if a telecommunications business operator intends to disclose any information that it has reported or has made a report on change under Article 22-4(1) of the Act, it shall display the fees or changed fees under Article 30-4(1) on its website.

15

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 31 (Amendment of Registration or Report) (1) “As prescribed under the Enforcement Decree of the Act” in Article 23 of the Act means each of the following: 1. title or trade name, and address; 2. representative; 3. types of services provided; 4. capital (for specific communications business operators only); 5. expert personnel (for specific communications business operators only); 6. standardized terms and conditions (for specific communications business operators who entered into an agreement with a key communications business operators providing telecommunications services by using frequencies assigned under the Radio Waves Act; and 7. changes to specific communications business or added-value communications business under Article 21(1), the former part of Article 22(1) and Article 22(2) (includes cases where businesses which have been subject to partial cancellation of the registration or partial suspension under main bodies of Article 27(1) and (2) are sought to be resumed ). (2) In order to amend any of the information set forth in paragraph (1), an application to register amendment to the specific communications business, a report of amendment to the value-added communications business, or an application to register amendment to the special type of value- added communications business (including an electronic application or report), and documentation (including electronic documentation) supporting the relevant amendment shall be submitted to the Minister of Science and ICT. (3) Upon receipt and registration, or receipt and processing, of an application to register amendment or a report of amendment, the Minister of Science and ICT shall issue either a registration certificate on which the relevant amendment is recorded or a report certificate. (4) The Minister of Science and ICT receiving an application to register amendment or a report of amendment pursuant to paragraph (2) shall verify the commercial registry extracts or business registration certificate by using the public administrative information available pursuant to Article 36(1) of the E-Government Act; provided that, in the event the applicant or person filing the report does not consent to such verification method, such applicant or person shall be required to attach the corporate registry or business registration certificate to its report.

Article 32 (Report on Transfer of Business) (1) A person who wishes to file a report on transfer of a specific communications business or a value-added communications business pursuant to Article 24 of the Act shall within 30 days from the date on which a business transfer agreement is executed submit to the Minister of Science and ICT a business transfer application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: 1. a copy of the business transfer agreement; 2. documentation prescribed under each of the subparagraphs of Article 26(1) or Article 29(1) and (2) hereof; and 3. a registration certificate or a report certificate. (2) A person who wishes to file a report on merger of a corporation that is either a specific communications business operator or a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which a merger agreement is executed submit to the Minister of Science and ICT a merger application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto: 1. a copy of the merger agreement;

16

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. documentation prescribed under each of the subparagraphs of Article 26(1) or Article 29(1) and (2) hereof; and 3. a registration certificate or a report certificate. (3) A person who wishes to file a report on inheritance of a value-added communications business operator pursuant to Article 24 of the Act shall within 30 days from the date on which the cause for the inheritance has occurred submit to the Minister of Science and ICT an inheritance report (including an electronic application) with documentation (including electronic documentation) demonstrating that she or he is the heir attached thereto. (4) The Minister of Science and ICT receiving a report under paragraphs (1)-(3) shall verify, through the information sharing channel under Article 36(1) of the Electronic Government Act, the commercial registry extracts of the transferor or party to a merger agreement (meaning the existing or newly established corporation), national technical qualification certificates of the technical personnel or a certificate of recorded details of the heir’s family relations; provided that, in the event the person filing the report does not consent to such verification method, such person shall be required to attach the relevant documentation (copies of national technical qualification certificates or a certificate of recorded details of the heir’s family relations) to its report. (5) Upon receipt of a report to register on transfer or merger of a specific communications business or a value-added communications business under paragraph (1) or (2), the Minister of Science and ICT shall issue either a specific communications business registration certificate, a value-added communications business report certificate or a special type of value-added communications business registration certificate.

Article 33 (Report on Suspension or Closedown of Business) (1) A person who wishes to file a report on suspension or closedown of a specific communications business or a value-added communications business under Article 26(1) of the Act shall at least 15 days prior to the expected suspension or closedown date submit to the Minister of Science and ICT a report on suspension or closedown of a specific communications business or a value-added communications business (including an electronic report) with documentation (including electronic documentation) demonstrating that users have been notified of such suspension or closedown attached thereto; provided that, in the event the information contained in any of such documentation can be verified through the public administrative information available pursuant to Article 36(1) of the E-Government Act, such verification may substitute for the relevant documentation. (2) A person who wishes to file a report on dissolution of a corporation that is a specific communications business operator or a value-added communications business operator under Article 26(2) of the Act shall immediately submit to the Minister of Science and ICT a report on dissolution of a corporation (including an electronic report).

Chapter 3. Telecommunications Operation

Article 34 (Authorization of Standardized Terms and Conditions) (1) The services for which key communications business operators must obtain authorization (including an authorization of amendment) of standardized terms and conditions pursuant to the main body of Article 28(2) of the Act shall be any of the following: 1. among the telecommunications services provided by the key communications business operator with the highest market share based on sales in the immediately preceding year in the unit markets determined pursuant to Article 38, the key communications service determined and publicly notified by the Minister of Science and ICT taking into consideration the market size, number of users, competition status, etc.; or 2. if a key communications business operator providing the service prescribed under subparagraph 1 completes business consolidation with another key communications business operator pursuant to Article 12(1)1 or 12(1)4 of the Monopoly Regulation and Fair Trade Act, the service prescribed under subparagraph 1 provided by such other key communications business operator.

17

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) By December 31 each year, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators and services prescribed under paragraph (1); provided that, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators and services falling under subparagraph 2 of paragraph (1) immediately after the date of report on business consolidation thereunder. (3) Notwithstanding the provisions under paragraph (1), a key communications business operator who wishes to amend minor aspects of standardized terms and conditions as prescribed by the Minister of Science and ICT may file a report thereon with the Minister of Science and ICT.

Article 35 (Application for Authorization of Standardized terms and conditions) A person who wishes to file a report (including a report on amendment) on standardized terms and conditions with respect to telecommunications services pursuant to Article 28(1) or the proviso of Article 28(2) of the Act or obtain an authorization (including an authorization of amendment) pursuant to the main body of Article 28(2) of the Act shall submit to the Minister of Science and ICT standardized terms and conditions containing each of the following with documentation demonstrating the bases for price computation pursuant to Article 28 (4) of the Act attached thereto: 1. types and details of telecommunications services; 2. areas in which telecommunications services are provided; 3. prices of telecommunications services, including fees and actual expenses; 4. details concerning the responsibilities of telecommunications business operators and users of telecommunications services; and 5. any other information necessary for the provision or use of the relevant telecommunications services.

Article 36 (Services Entitled to Reduction or Exemption of Fees) Telecommunications services entitled to the reduction or exemption of fees pursuant to Article 29 of the Act shall be as follows. 1. Telecommunications services for the communications concerning the rescue of human lives and properties in danger, and the rescue from disasters or for the communications by the victims of disasters; 2. Telecommunications services for the whole or part of exclusive line communications used by such agencies, in case where the exclusive line communications of agencies which are fully responsible for military, public order and national security, and a part of self-communications network of the State, local governments or public institutions under the Act on the Management of Public Institutions are integrated into the telecommunications net-work of a key communications business; 3. Telecommunications services for the communications required for military operations in wartime; 4. Telecommunications services for the newspapers under the Act on the Promotion of Newspapers, etc., for news communications under the Act on Promotion of News Communications and for communication for news reports by the broadcasting stations under the Broadcasting Act; 5. Telecommunications services for a communication which is required for facilitating the use, and for diffusing the distribution, of information communications; 6. Telecommunications services for a communication by those who are in need of the protection for the improvement of social welfare; 7. Telecommunications services for a communication which is required for the promotion of interchange and cooperation between North and South Korea; and 8. Telecommunications services for a communication which is specially required for the operation of postal services.

18

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 37 (Provision of Transmission or Line Facilities and Equipment, etc.) Pursuant to Article 31(1) of the Act, the composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide transmission or line facilities and equipment or the cable TV broadcasting facilities and equipment (the “Transmission or Line Facilities and Equipment, etc.”) to key communications business operators in a manner falling under one of the following: 1. sale or lease of transmission or line facilities, etc.; 2. commissioned performance of the communications or exchange operations, etc. by making use of transmission or line facilities, etc.; or 3. manners corresponding to subparagraphs 1 and 2, which are determined by a consultation between key communications business operator and the composite cable TV business operator or transmission network business operator or relay cable broadcasting business operator.

Article 37-2 (Targets for Assessment of User Protection, etc.) (1) When the Korea Communications Commission assesses the user protection of a telecommunications business operator under Article 32(2) of the Act, it shall select the targets generally taking into account the following matters: 1. Size of users per telecommunications service of the telecommunications business operator; 2. Frequency of users’ complaints; and 3. Frequency of an act that damages the interests of users such as prohibited act under Article 50(1) of the Act. (2) The Korea Communications Commission shall assess the user protection of the targets under paragraph (1) according to the following criteria every year: 1. Adequacy of management system of user protection; 2. Records of compliance with user protection -related laws; 3. Records of activity to prevent damage to users; 4. Records of handling users’ opinions or complaints; and 5. Other matters regarding user protection. (3) The Korea Communications Commission shall give a written notice to the targets under paragraph (1) of the assessment plan including assessment schedule and relevant information at least ten days prior to the assessment date and may order them to submit necessary materials. (4) The Korea Communications Commission shall give a notice to each target of the assessment result of user protection under paragraph (2) and reflect such result when it promotes the relevant policy.

Article 37-3 (Business Operator to Send Copy of Contract and Procedures) (1) The term “telecommunications business operator determined by the Enforcement Decree” in Article 32(3) of the Act means a telecommunications business operator that provides key communications service except for a telecommunications business operator that directly delivers the contract to users according to the terms and conditions of such service. (2) The telecommunications business operator under the main body of paragraph (1) shall deliver a copy of the contract to the users by any of the following methods selected by the users within one month from the execution date of the contract under Article 32(3) of the Act; provided that if the users do not select the method of delivery, the copy of the contract shall be delivered by any of the methods under any subparagraph below: 1. by mail or fax; or

19

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. by a notice using information and communications network such as e-mail (hereinafter referred to as the “information and communications network”) under subparagraph 1 of Article 2(1) of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.

Article 37-4 (Prepaid phone services and subscription of guarantee insurance) (1) A key communications services operator that seeks to provide telecommunications services on a prepaid basis (“prepaid phone services”) pursuant to the main body of Article 32(4) shall submit each of the following items to the Minister of Science and ICT, provided that a specific communications business operator shall submit it to the head of the Central Radio Management Office. 1. a copy of guarantee insurance; 2. data about the aggregate service charges for the prepaid phone services for the pertinent year (“prepaid phone service charges”); 3. guide for the use of the prepaid phone services; 4. other materials specified and announced by the Minister of Science and ICT for prepaid phone services business standards and customer protection, etc. (2) A telecommunications business operator seeking to provide the prepaid phone services under paragraph (1) shall abide by each of the following: 1. the prepaid phone services shall be provided within the coverage period of the guarantee insurance; 2. if additional prepaid phone services are to be provided within the coverage period of the guarantee insurance, such additional prepaid phone services shall be provided within the actually used portion of the prepaid phone service charges; 3. if the prepaid phone service charges are to be changed, the guarantee insurance shall be renewed at least 30 days prior to such change. In this case, a copy of the renewed guarantee insurance policy shall be provided to the Minister of Science and ICT or the head of the Central Radio Management Office within 7 days of such renewal; 4. if the services are to be provided after the expiration of the guarantee insurance, the guarantee insurance shall be renewed at least 30 days prior to the expiration date. In this case, financial statements and other materials specified by the Minister of Science and ICT shall be provided to the Minister of Science and ICT or the head of the Central Radio Management Office within seven days of the renewal of the guarantee insurance; and 5. measures to make paragraph (1)3 and 4 easily comprehensible to users shall be taken. (3) The “amount calculated according to standards specified under the Enforcement Decree of the Act” in the main body of Article 32(4) is an amount not less than 50% of the prepaid phone service charges and determined in accordance with the standards announced by the Minister of Science and ICT, taking into consideration the prepaid phone service provider’s pain-in capital and the prepaid phone service charges. (4) The “case specified under the Enforcement Decree of the Act” in the proviso of Article 32(4) means each of the following case: 1. average annual revenue from telecommunications services provided by a telecommunications business operator for the recent 3-year period is 30 billion won or more; 2. aggregate prepaid phone service charges is less than 10% of the annual revenue from telecommunications services provided by a telecommunications business in the past year; and 3. provision of prepaid phone services in the past 3-year period without suspension or closedown. (5) When the beneficiary receives insurance proceeds, such shall be distributed to users within 60 days from the date of receipt under Article 32(5) of the Act, provided that if the distributions payable amount exceeds the insurance proceeds, the insurance proceeds will be distributed in proportion to loss amounts.

20

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (6) business standards and methods concerning the guarantee insurance and insurance proceeds not otherwise specified in paragraph (2) and (5) shall be determined and announced by the Minister of Science and ICT.

Article 37-5 (Notice of Procedures for Filing Formal Objection and Method) (1) A telecommunications business operator who receives an order from the Minister of Science and ICT to suspend provision of telecommunications services under Article 32-3(1) of the Act shall send a notice to the user of relevant telecommunications services specifying the following matters under Article 32-3(2) of the Act: 1. The relevant administrative agency that requests for the suspension of the provision of relevant telecommunications services, the relevant department and their telephone numbers; 2. Reasons for the suspension of the provision of relevant telecommunications services; and 3. Period and procedures for filing a formal objection as follows: A. Upon receipt of a request to suspend under Article 32-3(1)1 of the Act: Period and procedures for filing a formal objection under Article 6-5(2) of the Enforcement Decree of the Act on Registration of Credit Business and Protection of Finance Users; B. Upon receipt of a request to suspend under Article 32-3(1)2 of the Act: Period and procedures for filing a formal objection under Article 10-2(1) of the Enforcement Decree of the Special Act on the Prevention of Loss Caused by Telecommunications-Based Financial Fraud and Refund for Loss; and C. Upon receipt of a request to suspend under Article 32-3(1)3 of the Act: Period and procedures for filing a formal objection under Article 6-2(1) of the Enforcement Decree of the Electronic Financial Transactions Act. (2) Pursuant to Article 32-3(3) of the Act, a telecommunications business operator shall give a notice to the user of relevant telecommunications services of the procedures for filing a formal objection under paragraph (1) by any of the following methods: 1. by mail or fax; 2. by e-mail; or 3. by telephone or text message.

Article 37-6 (Identification upon Execution of Contract) (1) The term “telecommunications business operator determined by the Enforcement Decree” in Article 32-4(2) of the Act means a telecommunications business operator who provided mobile telecommunications service under subparagraph 1 of Article 2 of the Act on Improvement of Distribution Structures of Mobile Device. (2) The telecommunications business operator under paragraph (1) shall confirm the identity of a counterparty to the contract (including his/her legal representative; hereinafter the same shall apply in this Article) by confirming any of the following certificates and documents submitted by such counterparty under Article 32-4(3) and (4) of the Act. In this case, when entering into a contract using the information and communications network, the telecommunications business operator may replace the above method with the confirmation of his/her official electric signature under subparagraph 3 of Article 2 of the Digital Signature Act: 1. Individual: Resident registration card, driver’s license, registration card of disabled person, card of persons of distinguished services to the State, card of persons of distinguished service to independence, card of persons of distinguished service to the May 18 Democratization Movement or passport of Korean nationals; 2. Corporation: Certificate of business entity registration or certificate of taxpayer identification number; 3. Entity other than corporation: Certificate of taxpayer identification number; or 4. Foreigner and Korean nationals residing abroad: Alien registration card, resident registration card, domestic residence report card or passport.

21

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (3) The telecommunications business operator under paragraph (1) shall confirm the authenticity of certificates and documents under each subparagraph of paragraph (2) using fraud subscription detection system under Article 32-5(1) of the Act (the “fraud subscription detection system”). (4) Notwithstanding paragraphs (2) and (3), if the counterparty to the contract cannot submit the certificates and documents under paragraph (2) or the telecommunications business operator under paragraph (1) cannot confirm the authenticity of such certificates and documents, the telecommunications business operator shall confirm the identity of such counterparty with the certificates, etc. determined by such telecommunications business operator with the terms and conditions which are equivalent to such certificates and documents.

Article 37-7 (Entrustment of Business to Construct and Operate Fraud Subscription Detection System) (1) The Minister of Science and ICT shall entrust to Korea Association for ICT Promotion under Article 15 of the Framework Act on Broadcasting Communications Development (the “KAIT”) the business to construct and operate the fraud subscription detection system in accordance with Article 32-5(3) of the Act. (2) The Minister of Science and ICT may support necessary costs and expenses for the performance of business delegated under paragraph (1).

Article 37-8 (Method and Procedure for Providing Tool to Block Media Product Harmful to Juveniles, etc.) (1) A telecommunications business operator who enters into a contract for provision of telecommunications service under Article 32-7(1) of the Act with a juvenile under the Juvenile Protection Act shall provide to the mobile device any tool to block media product harmful to juveniles, etc. such as relevant software in order to prevent such juvenile from accessing to such media product harmful to juveniles and illegal and obscene information (hereinafter referred to as the “media product harmful to juveniles, etc.”) under subparagraph 3 of Article 2 of the Juvenile Protection Act through such telecommunications service. (2) When the telecommunications business operator provides a tool to block under paragraph (1), it shall comply with the following procedures: 1. Upon execution of contract: A. Notify the juvenile and his/her legal representative of the types and contents of a tool to block; or B. Confirm whether the tool to block has been installed. 2. After execution of contract: If the tool to block is deleted or fails to function for more than fifteen days, the telecommunications business operator shall give a notice to the legal representative of such juvenile every month.

Chapter 4. Promoting Competition In Telecommunications Business

Article 38 (Criteria and Procedures for, and Methods of, Evaluating Competition Status) (1) When making determination concerning unit markets for the purpose of evaluating competition status pursuant to Article 34(2) of the Act, all of the following factors shall be considered: 1. demand substitutability and supply substitutability of the services; 2. geographical scope of the services provided; 3. transaction stages of the services provided such as retail (meaning transactions between telecommunications business operators and ultimate users of the services provided by such telecommunications business operators) and wholesale (meaning transactions through which telecommunications facilities and equipment, etc., installed to provide wholesale services, are offered to other telecommunications business operators); and 4. special characteristics of users such as differences in purchasing power and negotiating edge or uniqueness of demand.

22

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) Evaluation of competition status with respect to the unit markets determined under paragraph (1) shall be implemented by comprehensively considering each of the following factors: 1. market structure such as market share and entrance barrier; 2. response capacity of users such as accessibility of information related to service use and ease of switching service providers; 3. activities of telecommunications business operators such as those relating to price and quality competition and technology innovation; and 4. market performances such as the level of price and quality and the size of excess profits made by telecommunications business operators. (3) Where it deems necessary for evaluating competition status, the Minister of Science and ICT may invite opinions from relevant professionals and related parties.

Article 39 (Criteria applicable to Key Communications Business Operators, etc.) (1) The “key communications business operators satisfying the criteria prescribed under the Enforcement Decree of the Act” in Articles 35(2)3, 39(3)2, 41(3)2 and 42(3)2 of the Act means the business operators determined and publicly announced by the Minister of Science and ICT taking into the market size, number of users, competition status, etc. as the key communications business operators with the highest market share in the immediately preceding year in the unit markets determined pursuant to Article 38. (2) A facility management institution under Article 35(2)3 is a facility management institution whose the aggregate size of facilities, etc. under Article 35(1) (“facilities, etc.”) owned last year or revenue from providing facilities, etc. exceeds certain thresholds announced by the Minister of Science and ICT. (3) By 31 December, each year, the Minister of Science and ICT shall designate and issue public notification of the key communications business operators prescribed under Articles 35(2)1 and 3, 39(3), 41(3) and 42(3) of the Act and facilities management institution prescribed under Article 35(2)3 of the Act.

Article 39-2 (Procedures for Attaching Device to Equipment, etc.) (1) A telecommunications business operator who has entered into an agreement under Article 35(1) of the Act and has been provided with the equipment, etc. (hereinafter referred to as the “use business operator”) intends to attach any device to such equipment, etc. in order to enhance an efficiency of such equipment, etc. under the former part of Article 35(4) of the Act, it shall give a notice of the following matters to the key communications business operator or facility management institution that provides such equipment, etc. (hereinafter referred to as the “provision business operator”) at least one day prior to the date for attaching such device to the equipment, etc.: 1. Type, size and quantity of device; 2. Place to which device will be attached and period; and 3. Other necessary matters in connection with the attachment of device. (2) The use business operator who has attached device to the equipment, etc. under paragraph (1) shall remove such device within 30 days from the date when the agreement under Article 35(1) of the Act is terminated or the period of attaching device expires. (3) Notwithstanding paragraphs (1) and (2), if the use business operator and the provision business operator otherwise determine the notice period of device, information to be notified or period of removal, they shall comply with such determination.

Article 39-3 Deleted.

Article 39-4 (Composition and Operation of Council of Maintenance of Aerial Cables) (1) The Council for Maintenance of Aerial Cables in the latter part of Article 35-2(2) of the Act (hereinafter referred to as the “Council for Maintenance of Aerial Cables” in this Article and Article 39-5) shall consist of not more than 15 members, including one chairman.

23

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) The second vice minister of the Minister of Science and ICT shall serve as the chairman of the Council for Maintenance of Aerial Cables (hereinafter referred to as the “chairman” in this Article and Article 39-5) and the members of the Council for Maintenance of Aerial Cables (hereinafter referred to as the “members” in this Article) shall be appointed or commissioned by the Minister of Science and ICT from among those falling under any of the following subparagraphs: 1. public officials who belong to senior executive service of the Ministry of Science and ICT; 2. persons designated by the chief of the affiliated agencies from among public officials who belong to senior executive service of the Ministry of Science and ICT and the Ministry of Land, Infrastructure and Transport; 3. persons designated by the chief of the affiliated agencies from among public officials of ranking Grade III or higher grade of special metropolitan city, metropolitan cities, provinces or special self-governing province; 4. persons who have profound knowledge and experiences in the maintenance of aerial cables and belong to the telecommunications business operator, facility management institution, or organization related to maintenance of aerial cables; or 5. other persons having profound knowledge and experiences in the fine view of city and the maintenance of aerial cables. (3) The term of office of the members under subparagraphs 4 and 5 of paragraph (2) shall be two years and they may be reappointed only once. (4) The chairman shall represent the Council for Maintenance of Aerial Cables and oversee its business; provided that if the chairman cannot perform his/her duties for any unavoidable reason, the member designated by the chairman in advance shall perform the duties of the chairman. (5) Any other matters for the composition and operation of the Council for Maintenance of Aerial Cables other than those set for in paragraphs (1) through (4) shall be determined by the chairman through the resolution of the Council for Maintenance of Aerial Cables.

Article 39-5 (Functions of Council for Maintenance of Aerial Cables) (1) The Council for Maintenance of Aerial Cables shall examine the following matters: 1. Matters on basic directions and policies of maintenance of aerial cables; 2. Matters on mid-and-long term plan of maintenance of aerial cables; 3. Matters on yearly establishment of maintenance plan of aerial cables (referring to maintenance plan of aerial cables under Article 35-2(2) of the Act; hereinafter referred to as the “maintenance plan”); 4. Matters on system improvement of maintenance of aerial cables; 5. Matters on inspection and evaluation of promotion status of maintenance of aerial cables; and 6. Other matters that the chairman deems it necessary for an efficient promotion of maintenance of aerial cables and refers to the examination. (2) If necessary, the Council for Maintenance of Aerial Cables may listen to the opinions of the chief of central administrative agency, local government, telecommunication business operators, facility management institutions and experts in order to examine the matters referred to in paragraph (1).

Article 39-6 (Burden of Costs for Maintenance of Aerial Cables) The telecommunications business operator and the facility management institution shall pay the costs of maintenance of equipment, etc. owned by it of the costs incurred in the implementation of the maintenance plan under Article 35-2(3) of the Act.

Article 39-7 (Standards for Providing Obligatory Wholesale Services) (1) The “telecommunications services of a key communications business operator, which satisfies the criteria specified under Article 38(2) of the Act” means the key communications services determined and publicly notified

24

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document by the Minister of Science and ICT taking into consideration the market size, number of users, competition status, etc. among the telecommunications services provided by the key communications business operator with the highest market share on the basis of revenue in the immediately preceding year in the unit markets determined pursuant to Article 38. (2) The Minister of Science and ICT shall designate and announce key communications business operators under paragraph (1) by December 31 of each year.

Article 40 (Report on Accord, etc. concerning Interconnections, etc.) (1) A person who wishes, under Article 38(5) or 44(1) through (3) of the Act, to file a report on, or obtain an authorization of wholesale provision, provision, common use or interconnection of facilities, etc. and equipment or the execution or termination of, or an amendment to, an accord on provision of information shall submit to the Minister of Science and ICT each of the following documentation to the Minister of Science and ICT, provided that in case of report on termination or authorization for termination, only the documents referred to in paragraphs 1 and 6 need to be submitted: 1. copy of the accord; 2. documentation demonstrating the amounts due from, or payable to, the parties to the accord, the computation methods with respect to such amounts and how the accord shall be implemented; 3. documentation demonstrating wholesale provision, provision, common use or interconnection of, or conditions upon which information shall be provided on, facilities, etc. and equipment, and any other costs related to the accord; 4. drawings indicating wholesale provision, provision, facilities, etc. provision, common use or interconnection of, or a summary of the information (including outlay of connection grid and connection points) to be provided on, facilities, etc. and equipment; 5. documentation comparing the new accord against the old (applicable only to filing of a report of amendment or applying for an authorization of amendment); and 6. documentation confirming closedown (including electronic documentation). (2) Upon receipt of documentation under paragraph (1), the Minister of Science and ICT shall examine whether such documentation comply with the criteria for provision, common use, wholesale provision or interconnection of, or provision of information on, facilities, etc. and equipment pursuant to Article 35(3), 37(3), 38(4), 39(2), 41(2) or 42(2) of the Act. (3) A key communications business operator that has received authorization for execution, amendment or termination of an agreement under Article 44(2) of the Act and a key communications business operator that has filed a report on execution, amendment or termination of an agreement under Article 44(3) of the Act shall publish details of such on its website. (4) Pursuant to Article 65(3) of the Act, upon receipt of documentation under paragraph (1), the Minister of Science and ICT shall examine whether such documentation complies with the criteria for provision, common use or interconnection of, or provision of information on, telecommunications facilities and equipment pursuant to Article 35(3) of the Act, and whether the private telecommunications facilities and equipment provided were installed by an individual to be used for her or his own telecommunications.

Article 40-2 (Request for Arbitration) (1) A person wishing to make a request for arbitration under Article 45(1) of the Act shall attach each of the following documentation to its arbitration application and submit them to the Korea Communications Commission, provided that the item under subparagraph 3 shall be submitted only in the case of the request under Article 45(1)3. 1. documents about overview of the arbitration request; 2. documents about negotiation between the parties; and 3. each of the documentation under Article 40(1).

25

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) After reviewing the application documents under paragraph (1), the Korea Communications Commission may demand the applicant to submit additional information within a reasonable period of time for any of the following reasons: 1. in the case where any required document is missing; and 2. in the case where any entry in the application and attachments is vague. (3) If the applicant fails to provide additional information within the time period specified under paragraph (2), the Korea Communications Commission shall return the application along with a reason for such return.

Article 40-3 (Arbitration Decision) (1) An arbitration decision by the Korea Communications Commission shall be made in writing. (2) The arbitration decision under paragraph (1) shall state the ruling, reason and date of decision, be signed by the Commissioner of the Korea Communications Commission and commission members who attended the arbitration deliberation and be sent to the parties to the dispute.

Article 40-4 (Provision of Information on Standards of Telecommunications Services) (1) The telecommunications services whose information on standards shall be provided as set forth in Article 42(5) of the Act are as follows: 1. Voice communication service and video calling service (including the voice communication service through LTE communications network); 2. Short message service and multimedia message service (including the short message service and multimedia message service based on the Internet protocol multimedia system); 3. Emergency calling service; 4. Caller identification service, caller identification restriction service, call forwarding service, call hold service and call waiting service; and 5. Other telecommunications services determined and publicly notified by the Minister of Science and ICT, information of which standards is necessary for the manufacturing, import, distribution and sale of communication terminal devices under Article 42(5) of the Act. (2) Request for providing information on the standards of telecommunications services under Article 42(5) of the Act (hereinafter referred to as the “information on standards” in this Article) shall be made in writing containing the following information: 1. Name (or company name in case of a company) and address of a person who requests for providing information on standards; and 2. Scope and purpose of using information on standards and time of providing such information. (3) The key communications business operator which provides telecommunications services using frequencies assigned under the Radio Waves Act shall provide the information on standards within seven (7) days from the date on which it receives the request as prescribed in paragraph (2); provided, however, that it may provide the information within thirty (30) days from the date on which it receives the request in an avoidable case, but it shall notify the person who has made such request of the relevant cause in advance. (4) The method of providing the information on standards shall comply with the method determined by the parties after consultation each other such as online transmission or delivery of books, etc.

Article 41 (Reporting prohibited acts) (1) Any person recognizing any of the prohibited acts prescribed under Article 50(1) of the Act (the “Prohibited Acts”) may report to the Korea Communications Commission of such act and request any measures prescribed under each of the subparagraphs of Article 52(1) of the Act to be taken.

26

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) A person who wishes to make a report under paragraph (1) shall submit to the Korea Communications Commission documentation indicating each of the following: 1. name (if a corporation, the name of the corporation and its representative) and address of the person making the report; 2. trade name, or name (if a corporation, the name of its representative), and address of the person being reported; 3. details of the prohibited act; and 4. measures necessary for addressing the prohibited act. (3) The Korea Communications Commission may, where it deems necessary, request that the documentation submitted to it under paragraph (2) be supplemented within a period reasonably fixed. (4) The details of handling procedures and methods concerning application, supplementation, prohibition and violation under paragraphs (1) through (3) shall be determined and announced by the Korea Communications Commission.

Article 42 (Types of and Criteria for Prohibited Acts) (1) The types of, and criteria for, the prohibited acts pursuant to Article 50(3) of the Act shall be as provided in Table 4 attached hereto. (2) The Korea Communications Commission may, where it deems necessary for the purpose of applying to specific telecommunications fields or specific prohibited acts, determine and issue public notification of the details concerning the types of, and criteria for, the prohibited acts under paragraph (1).

Article 43 Deleted.

Article 44 (Measures Taken, etc. on Offenses) The term “other matters prescribed under the Enforcement Decree of the Act” in Article 52(1)11 of the Act refers to each of the following: 1. submission of a plan for implementing the provisions under Article 52(1)1-10 of the Act; 2. report on the results of the implementation of the provisions under Article 52(1)1-10 of the Act; and 3. preservation of relevant materials and notification of a fact that any damage has occurred to the users necessary for implementing of the provisions under Article 52(1)8.

Article 44-2 (Announcement of Corrective Order) The details of contents and method of announcement about corrective order made under Article 52(1)8 shall be determined and announced by the Korea Communications Commission.

Article 45 (Implementation Period of Corrective Orders) The period by the end of which telecommunications business operators shall implement the corrective order issued by the Korea Communications Commission pursuant to Article 52(2) of the Act shall be as provided in Table 5 attached hereto.

Article 45-2 (Standards and Procedures for Giving Order to Suspend Business in Part) (1) Standards for giving an order to suspend business in part under Article 52(5) of the Act shall be as provided in Table 5-2 attached hereto. (2) If the Korea Communications Commission has given an order to suspend business in part under Article 52(5) of the Act, it shall immediately give a written notice thereof to the relevant telecommunications business operator and issue public notification of such fact.

27

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 45-3 (Imposition, Etc. of Charges for Compelling Execution) (1) The revenue under Article 52-2(1) of the Act shall mean the revenue for the service that is directly or indirectly affected by the violation during the period while the relevant telecommunications business operator is engaged in any act to violate Article 50(1) of the Act (the “Relevant Revenue”). (2) If any person who has been subject to the imposition of charges for compelling execution under Article 52-2(1) of the Act intends to file a formal objection to such imposition, it shall do so within thirty (30) days from the date of receiving the notice for such imposition. (3) Article 49 shall apply mutatis mutandis to the procedures for demanding the charges for compelling execution. In such case, the “penalty surcharge” shall be deemed to be the “charges for compelling execution in arrears.” (4) Any necessary matters regarding the calculation of the Relevant Revenue and the imposition of the charges for compelling execution other than the matters provided for in paragraphs (1) through (3) above shall be determined and publicly announced by the Korea Communications Commission.

Article 46 (Offenses Subject to Imposition of Penalty surcharge and Amount of Such Penalty surcharge, etc.) (1) The upper limit of penalty surcharge by classification of offenses subject to imposition of penalty surcharge, and the criteria for imposition of such penalty surcharge pursuant to Article 53(1) of the Act shall be as provided in Table 6 attached hereto. (2) Maximum fine amount by type of violations subject to fine under Article 53(2) of the Act, and fine calculation method shall be as provided in Table 7.

Article 47 (Computation Methods and Procedure of Penalty Surcharge) (1) The term “sales as prescribed under the Enforcement Decree of the Act” in the former part of Article 53(1) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator and the “sales as prescribed under the Enforcement Decree of the Act” in Article 53(2) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator; provided that, if, as of the first day of the applicable fiscal year, less than 3 years have elapsed since the commencement of the relevant business as of the first day of the relevant fiscal year, such term shall mean the sales of the period from the commencement of the relevant business until the last day of the preceding fiscal year, converted into annual average sales, or if the relevant business has been commenced in the applicable fiscal year, such term shall mean sales of the period from the commencement date of the relevant business until the date of commission of the offense, converted into annual sales. (2) The term “the time prescribed under the Enforcement Decree of the Act” in the provision of Article 53(1) of the Act means any of the following: 1. where there has been no sales result due to such reasons as non-commencement or suspension of business; or 2. where it is difficult to make an objective computation of sales. (3) If necessary for the calculation of the turnover under Article 53(1) of the Act, the Korea Communications Commission may request the relevant telecommunications business operator to submit the financial documents such as the financial statements and the materials regarding its business status within 20 days.

Article 48 (Imposition and Payment of Penalty Surcharge) (1) The Minister of Science and ICT or the Korea Communications Commission shall, where it intends to impose penalty surcharge pursuant to Article 53 of the Act and subsequent to its investigation and verification of the relevant offense, notify, in writing, the person subject to such penalty surcharge of the fact of offense, the amount thereof and the method of, and the period for, raising objection thereto.

28

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) A person who receives a notification under paragraph (1) shall pay the relevant penalty surcharge to a financial company, etc. designated by the Minister of Science and ICT or the Korea Communications Commission within 20 days from the date of receiving such a notification; provided that, if the person is unable to pay the penalty surcharge within such period due to a natural disaster or other unavoidable circumstances, the person shall pay the penalty surcharge within 7 days from the date on which said reason ceases to exist. (3) A financial company, etc. in receipt of a payment of penalty surcharge under paragraph (2) shall deliver a receipt thereof to the person who paid the penalty surcharge.

Article 49 (Demand for Penalty Surcharge) (1) A demand for penalty surcharge pursuant to Article 53(6) of the Act shall be made in writing within 7 days from the date on which the payment deadline expires. (2) Where a demand note is issued under paragraph (1), a deadline for payment of any penalty surcharge in arrear shall be within 10 days from the date on which such demand note is issued.

Article 50 (Services Subject To Prior Selection) The “telecommunications services prescribed under the Enforcement Decree of the Act” in the latter part of Article 57(1) of the Act means the Long Distance Telephone Service.

Article 50-2 (Provision of Directory Assistant Service) (1) Telecommunications business operators providing a directory assistant service pursuant to Article 60(1) of the Act may furnish any of the following information: 1. name or trade name of the user; 2. telephone number of the user; or 3. address of the user up to Eup/Myeon/Dong or road name address under subparagraphs 1 through 4 of Article 3 of the Enforcement Decree of the Road Name Address Act; provided, however, that in case of a subscriber in the name of the company, the address of Eup/Myeon/Dong/Ri/lot number (including the name of building, number of dong and number of office) or road name address under subparagraphs 1 through 7 of Article 3 of the Enforcement Decree of the Road Name Address Act. (2) Telecommunications business operators shall obtain users’ consent to a directory assistant service through a method that can be used to verify as to whether such consent has been indeed given by the user, such as the user’s handwritten or electronic signature, and to prove at a later date that such consent has been given. (3) Users may withdraw their consent given under paragraph (2) at any time, and telecommunications business operators shall, without any delay, take the necessary measures so that a directory assistance service shall not be provided with respect to such users who withdrew their consent; provided that, where the pertinent directory assistance service is provided through a written material, a user shall have to withdraw his or her consent at least 30 days prior to the print date of such written material for the withdrawal to take effect.

Article 51 (Specialized Institutes, etc. sharing Unique Identification Numbers) (1) The specialized institutes that have been designated for efficient sharing of unique international identification numbers (hereinafter referred to as the “unique identification numbers”) of communication terminal devices under Article 60-2(2) of the Act shall establish the integrated management center of unique identification numbers and perform the following business: 1. Establishment and management of information system (hereinafter referred to as the “integrated management system of unique identification numbers”) in order to share the unique identification numbers of communication terminal devices (hereinafter referred to as the “reported devices”) which have been reported due to loss or theft among the telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act;

29

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. Provision of information for interrupting use of the reported devices and assistance of inquiry service; and 3. Assistance for sharing the unique identification numbers with the foreign governments, etc. (2) The telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act shall immediately register the unique identification number of the reported device with the integrated management system of unique identification numbers and if the reporter requests for the cancellation of such registration, it shall immediately delete such registered information. (3) The telecommunications business operators which provide telecommunications services using frequencies assigned under the Radio Waves Act shall confirm whether the reported device has accessed to the communications network through the integrated management system of unique identification numbers and interrupt the provision of telecommunications services to the reported devices. (4) The Minister of Science and ICT may provide financial assistance to the necessary costs for establishment and operation of the integrated management center of unique identification numbers under paragraph (1).

Chapter 5. Telecommunications Facilities and Equipment

Article 51-2 (Report and Approval of Telecommunications Facilities Installation) (1) A key communications business operator seeking to install or change material telecommunications facilities under the main body of Article 62(1) of the Act shall submit an installation or change application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Minister of Science and ICT. 1. details of installation or change of telecommunications facilities (diagram of connection grid included); and 2. security plan for telecommunications facilities. (2) A key communications business operator seeking to receive approval for telecommunications facilities installed under the proviso of Article 62(1) of the Act shall submit an installation approval application (including electronic application) and each of the following documentation (including electronic documentation) as attachment to the Minister of Science and ICT. 1. business plan; 2. security plan for telecommunications facilities; 3. domestic and international specifications and technological profile of the pertinent telecommunications facilities; 4. research status of the pertinent telecommunications facilities; and 5. agreement (throughout this Article, if installed or used jointly with other domestic or international business operator). (3) After receiving an application under paragraph (2), the Minister of Science and ICT shall notify the applicant of its decision within 15 days of the submission date after reviewing each of the following: 1. feasibility of the business plan; 2. appropriateness of the security plan for telecommunications facilities; 3. conformity with the domestic and international technological standards; and 4. legality of the agreement.

Article 51-3 (Council for Joint Installation of Telecommunications Facilities) (1) The term “a key communications business operator whose size of business, etc. corresponds to the standards as determined by the Enforcement Decree” in Article 63(2) of the Act means a key communications business operator that provides a local telephone service under A. of subparagraph 3 of Article 2(2) and an Internet subscriber connection service under D. together.

30

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) A key communications business operators other than the key communications business operator under paragraph (1) may participate in the council under Article 63(2) of the Act.

Article 51-4 Deleted.

Article 51-5 (Recommendation of Joint Installation of Telecommunications Facilities) (1) In the event the Minister of Science and ICT recommends joint installation of telecommunications facilities to key communications business operator under Article 63(6) of the Act, such recommendation shall include specific telecommunications facilities to be installed, installation area, installation interval, installation period. (2) A key communications business operator requesting a joint installation of telecommunication under Article 63(6)1 shall submit each of the following documentation to the Minister of Science and ICT: 1. plan for the joint installation of telecommunications facilities; 2. economic impact of the joint installation of telecommunications facilities; and 3. matters not yet agreed with the key communications business operator participating in the joint installation of telecommunications facilities and proposed solutions. (3) A key communications business operator that has received a recommendation for joint installation of telecommunications facilities shall notify the Minister of Science and ICT on whether it is accepting the recommendation and, if it is being rejected, reason for such rejection within 21 days from the receipt of such recommendation.

Article 51-6 (Report of proprietary telecommunications facilities) (1) A person desiring to install proprietary telecommunications facilities under Article 64 of the Act shall submit to the special metropolitan city mayor, metropolitan city mayor, metropolitan autonomous city, provincial governor, or special self-governing provincial governor (“mayor or governor”) having jurisdiction over the location of the office where the main facilities are installed at least 21 days prior to the start of such installation a proprietary telecommunication installation application (including electronic application) including all of the following with blueprints of the installation attached. 1. applicant 2. type of business 3. purpose of installation 4. electronic communication method 5. installation site 6. overview of telecommunications facilities 7. (expected) operation date of facilities (2) The “material items specified in the Enforcement Decree of the Act” in the bottom text of the Article 64(1) of the Act means items under paragraphs (1)2 to (6). (3) If a person who reported the installation of proprietary telecommunications facilities seeks to amend items in paragraph (2) shall submit to the mayor or governor an modification application (including electronic application) with blue prints (including a comparison of pre- and post-modification) of installation proprietary telecommunications facilities at least 21 days prior to the effective date of such modification (in case of modification to any of paragraph (1)4 through (6), the start date of construction regarding such modification). (4) Upon receiving an installation or installation modification application under paragraph (1) or (3), the mayor or governor shall review the following: 1. whether it satisfies technological standards under Article 28(1) of the Base Act on Broadcasting Communication Advancement; and

31

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. whether the purpose and reason for installing telecommunications facilities is for the use of proprietary telecommunication. (5) The mayor or governor shall issue an installation/modification certificate if it concludes, after conducting a review, that all criteria under paragraph (4) are satisfied.

Article 51-7 (Confirmation of Installation) (1) A person who filed an installation or modification application in regard to proprietary telecommunications facilities under Article 64(3) shall receive confirmation from the mayor or governor within seven days from the completion of installation or modification construction. (2) A person desiring to receive confirmation of proprietary telecommunications facilities under paragraph (1) shall submit to the mayor or governor a proprietary telecommunications facilities confirmation application (including electronic application) with each of the following documentation (including electronic documentation) as attachment. 1. documentation showing that the construction was completed in satisfaction of the technological standards under Article 28(1) of the Base Act on Broadcasting Communication Advancement; 2. documentation showing that the construction was completed in accordance with blue prints under Article 28(3) of the Base Act on Broadcasting Communication Advancement; and 3. copy of construction firm’s license. (3) After reviewing the application documents under paragraph (2), the mayor or governor may demand the applicant to submit additional information within a reasonable period of time for any of the following reasons: 1. in the case where any required document is missing; and 2. in the case where any entry in the application and attachments is vague.

Article 51-8 (Exemption from Proprietary Telecommunications Facilities Installation Application) Under Article 64(4) of the Act, proprietary telecommunications facilities may be installed without filing an application in any of the following cases: 1. proprietary telecommunications facilities consisting of main equipment and terminals within one building and its lot; 2. proprietary telecommunications facilities consisting of main equipment and terminals within two or more buildings and their lots owned by 1 person and whose shortest distance between them is shorter than 100 meters (excluding those buildings or lots separated by road or water stream); and 3. proprietary telecommunications facilities installed for urgent police action and is used for less than 1 month.

Article 51-9 (Supply of Proprietary Telecommunications Facilities) (1) A person who installed proprietary telecommunications facilities may provide excess capacity provided by the proprietary telecommunications facilities installed in the interval requested by a key communications business operator under Article 65(2) of the Act over his need to the key communications business operator. (2) If the proprietary telecommunications facilities are provided to a key communications business operator under paragraph (1), the compensation for such supply shall not exceed the sum of the installation costs, maintenance expenses and investment return and shall be determined in accordance with the criteria announced by the Minister of Science and ICT.

Article 51-10 (Standards for Cessation Order) The standards for cessation order under Articles 65(4) and 67(2) of the Act are set forth in Table 8.

32

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 51-11 (Facilities subject to Public Space Needs) The “facilities and areas specified under the Enforcement Decree of the Act” under Article 68(1)8 of the Act means each of the following: 1. passenger car terminal under the Passenger Transport Service Act; 2. logistics terminal and logistics complex under the Act on the Development and Management of Logistics Facilities; 3. small and medium enterprise joint complex under the Small and Medium Enterprises Promotion Act; 4. tourist site or complex under the Tourism Promotion Act; and 5. sewage path under the Sewerage Act.

Article 51-12 (Adjustment for Public Space Needs) (1) When the Minister of Science and ICT drafts a corrective plan upon the request under Article 68(5) of the Act, it shall solicit opinions from the head of relevant administrative bodies and the parties involved. (2) When the Minister of Science and ICT has drafted a corrective plan under paragraph (1), it shall notify the parties of such plan and recommend their adoption of the plan within a period it specifies which shall not be shorter than 30 days. (3) When the parties adopt the corrective plan under paragraph (2), the Minister of Science and ICT shall draft a corrective agreement including the following items and have it executed by the parties. 1. case number; 2. names and addresses of the parties, their representatives or agents; 3. reason for corrective adjustment; 4. provisions amended; and 5. date of the agreement.

Article 51-13 Deleted.

Article 51-14 Deleted.

Article 51-15 Deleted.

Article 51-16 Deleted.

Article 52 (Designation of Alert Areas for Submarine Cable) (1) A key communications business operator who wishes to apply for designation of alert areas for submarine cable under Article 79(3) of the Act shall submit to the Minister of Science and ICT documentation demonstrating each of the following: 1. need to designate alert areas; and 2. legs and width of the alert areas indicated by using coordinates of latitude and longitude. (2) The Minister of Science and ICT may, where necessary for designation of alert areas for submarine cable, request additional information further to the documentation prescribed under paragraph (1) from any key communications business operator who applies for such designation. (3) Upon receipt of the documentation submitted to it under paragraphs (1) and (2), the Minister of Science and ICT shall send such documentation to the heads of the relevant state administrative organs prescribed under Article 79(4) of the Act for consultation.

33

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (4) Except under ordinary circumstances, the Minister of Science and ICT shall, within 60 days of the date of application for designation of an alert area for submarine cable, notify the key communications business operator making such application, and if such designation is approved, issue, without any delay, public notification of the newly designated alert area. (5) Once the Minister of Science and ICT designates and issues public notification of a new alert area under paragraph (4), the key communications business operator who applied for such designation shall disclose the location of the new alert area on its website, etc., and may place buoys, etc. in the new alert area for marking purposes.

Article 52-2 (Inspection and Report of Telecommunications Facilities) (1) The “cases necessary for the implementation of telecommunication policies specified under the Enforcement Decree of the Act” in Article 82(1) of the Act shall mean each of the following: 1. in case where necessary for the implementation of telecommunication policies; 2. in case where necessary for verifying the suitability of installation and management of telecommunications facilities; or 3. in case where a national emergency occurs or where necessary for securing communication channels in case of disasters. (2) When an inspection is made pursuant to Article 82(1) of the Act, an inspection plan specifying inspection period, purpose and items shall be sent to the person who installed the telecommunications facilities being inspected at least 7 days prior to such inspection, provided that, the foregoing requirement is waived if necessary for emergency or for the purpose of preventing destruction of evidence which would thwart the purpose of inspection. (3) A public servant carrying out the inspection under paragraph (2) shall carry evidence of his authority and show it to relevant parties and provide at the time of entrance a document stating the time and purpose of the entrance to relevant parties.

Chapter 6. Supplementary Provisions

Article 53 (Protection of Communication Secrets) (1) Telecommunications business operators shall preserve the ledger of communications data supplied, prescribed under Article 83(5) of the Act, for a period of 1 year. (2) Reports on, and notification of, the status of communications data supplied pursuant to Articles 83(6) and 83(7) of the Act respectively, must be provided within 30 days after the expiration of each half-year. (3) An office dedicated to protection of communication secrets pursuant to Article 83(8) of the Act (the “Dedicated Office”) shall undertake to perform each of the following: 1. oversee tasks related to communication secrets of users; 2. regulate illegal or undue infringement of communication secrets of users by employees of telecommunications business operators or third parties; 3. report on the present status of communications information supplied under Article 83(6) of the Act; 4. furnish notification of the recordation in the ledger of communications data supplied under Article 83(7) of the Act; 5. address complaints or opinions from users with respect to communication secrets; 6. train the employees in charge of tasks connected with communication secrets; and 7. any other matters necessary for protection of communication secrets of users.

34

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (4) The Dedicated Office shall be based at the headquarters of each telecommunications business operator with the officers thereof in charge. (5) An authorized signatory for written request for data supply under Article 83(9) of the Act shall be either (i) a judge, a prosecutor or an investigatory entity (including, throughout this Enforcement Decree, a military investigatory body, the National Tax Service and regional tax services) (ii) a public official of Grade 4 or higher who belongs to an intelligence agency (including a public official of Grade 5 who is the head of an investigatory body or intelligence agency) or (iii) a public official who belongs to senior executive service; provided that, (x) with respect to the police and marine police, such authorized signatory shall be a public officer whose position is senior superintendent or higher (including a superintendent who is the head of a district policy agency) and (y) with respect to a military investigatory body, it shall be a military prosecutor or a person whose rank is lieutenant colonel or higher (including a major with respect to a military investigatory body at which a major is the commanding officer). (6) The written request for data supply prescribed under Article 83(9) of the Act shall clearly indicate the authorized signatory’s name and rank; provided that, with respect to intelligence agencies prescribed under Article 2(6) of the Regulation on Planning and Coordination of Information Security, only the title of the authorized signatory shall be indicated, and with respect to courts, the title and name of the authorized signatory shall be clearly indicated.

Article 54 (Caller Identification, etc.) (1) Telecommunications business operators may not impose charges on users who choose, pursuant to the proviso of Article 84(1) of the Act, not to allow their telephone numbers to be identified when making telephone calls. (2) A person who wishes to be informed of the telephone number of the caller pursuant to Article 84(2)1 of the Act shall make a written request therefor to the pertinent telecommunications business operator with any of the following documentation demonstrating in detail that the person has been subjected to abusive language, threats or harassment over the telephone attached thereto: 1. written records of the date, time and contents of threats, etc. over the telephone; 2. voice records of threats, etc. over the telephone; 3. documentation supporting that a crime report has been filed with the police in connection with threats, etc. over the telephone; 4. documentation supporting that advice has been sought from a clinic with respect to the damages incurred from threats, etc. over the telephone; 5. any other documentation equivalent or similar to those set forth in subparagraphs 1-4. (3) “As prescribed under the Enforcement Decree of the Act” in Article 84(2)2 of the Act means where each of the following telephone services is used: 1. to report international terror-related crime (111); 2. to report crime (112); 3. to report spies (113); 4. to report cyber terror and seek advice in relation thereto (118); 5. to report fire or seek emergency rescue (119); 6. to report marine accidents or crime (122); 7. to report smuggling (125); or 8. Deleted.

35

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Article 54-2 (Entrustment of Business to Prohibit Erroneous Display of Telephone Number) The Minister of Science and ICT shall entrust to the KAIT under Article 52 of the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. any of the following business with respect to the prohibition of erroneous display of telephone number in accordance with Article 84-2(5) of the Act: 1. Business to confirm whether the actions are implemented under Article 84-2(3) of the Act; or 2. Business to request for access to or submission of the materials and to inspect under Article 84-2(4) of the Act.

Article 55 (Restriction on and Suspension of Service) (1) Where the Minister of Science and ICT issues, under Article 85 of the Act, an order to restrict or suspend the whole or part of the telecommunications business of telecommunications business operators, it may allow communications for undertaking the matter falling under each of the following in the order of their priority, in proportion to the scope and severity of the relevant restriction or suspension: 1. top priority (a) national security; (b) military affairs and public security; (c) transmission of the civil defense alarm; and (d) electronic wave control; 2. second priority (a) disaster relief; (b) telecommunications, navigation safety, weather, firefighting, electricity, gas, water service, transportation and the press; (c) affairs of the State and local government, except for those mentioned in items (a) and (b); and (d) affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea; 3. third priority (a) affairs of the enterprises subject to resources control and the firms of defense industry; and (b) affairs of public institutions under the Act on the Management of Public Institutions, and medical institutions; and 4. forth priority: matters other than those listed in subparagraphs 1 through 3. (2) The restriction or suspension on the telecommunications services under paragraph (1) shall be the least of those required for securing the important communications. (3) A telecommunications business operator shall, in case where he restricts or suspends the whole or part of telecommunications services under paragraph (1), report the content thereof without delay to the Minister of Science and ICT.

Article 56 (Approval, etc. for International Telecommunications Services) (1) The term “international telecommunications business as prescribed under the Enforcement Decree of the Act” in the main body other than each subparagraph of Article 86(2) of the Act means the installation and lease of a satellite for providing international telecommunications services. (2) A person who intends to obtain approval in the main body other than each subparagraph of Article 86(2) of the Act shall submit the following documents to the Minister of Science and ICT: 1. duplicate copy of written agreement or contract;

36

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. comparative table between new and old agreements or contracts (limited to the cases where an application for modified approval is filed); 3. document certifying the fact that the agreements or contracts have been abrogated (limited to the cases where an application for approval of abrogation is filed); and 4. business plan (only where an application is made for approval of an agreement to provide transboundary key communications services under Article 87 (1) of the Act) (3) If the Minister of Science and ICT intends to approve the agreement to provide transboundary key communications services under Article 87(1) of the Act in accordance with the main body other than each subparagraph of Article 86 (2) of the Act, he shall comprehensively examine the followings: 1. Possible provision of stable service; 2. Effect on the competition in the domestic telecommunications market; and 3. Matters on the protection of users. (4) The “criteria specified by the Enforcement Decree of the Act” in the proviso of Article 86(3) means telecommunication business operators whose capital is less than 3 billion won and who do not have an international calling identification number issued by the Minister of Science and ICT.

Article 57 (Revocation of Approval for Agreement to Provide Transboundary Key Communications Services) (1) The criteria for revocation of approval for agreements to provide transboundary key communications services and for suspension of provision of transboundary key communications services pursuant to Article 87(4) of the Act shall be as follows. 1. first violation shall result in suspension of 6 months or less, or suspension of invitation of new users; and 2. second violation shall result in revocation of approval. (2) Upon revoking approval or ordering suspension, the Minister of Science and ICT shall issue public notification and notify the relevant telecommunications business operator in writing thereof.

Article 58 (Report on Statistics) (1) The types of statistics telecommunications business operators must report to the Minister of Science and ICT pursuant to Article 88(1) of the Act are as follows. 1. present status of telecommunications facilities, including those for exchange, transmission, wire and power per service; 2. use records of telecommunications, including sales and times of use per service, period, distance stage, time zone, country (including the use records per foreign telecommunications business operator) and Calling Area and between Calling Areas; 3. present status of telecommunications users, including the number of subscribers per service, city and province and Calling Area; 4. information related to call volume, including (i) call volume between Calling Areas and per service, period, distance stage, time zone, city and province, country (including the call volume per foreign telecommunications business operator) and Calling Area and (ii) information on provision of facilities and equipment and on interconnection; 4-2. information related to data use volume, including data use volume per technique method, period, and traffic that provides loads to telecommunications facilities; 5. information related to accounting, including a sales report prepared for each service and business provided; and 6. aggregated issue amount of prepaid calling cards and use records of the Calling Areas (applicable only to specific communications business operators).

37

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The Minister of Science and ICT shall determine and announce the reporting method and format, submission method, reporting deadline of the relevant statistics under paragraph (1) and any other matters related thereto.

Article 59 (Submission of Documentation) (1) Pursuant to Article 88(2) of the Act, key communications business operators and their shareholders shall submit to the Minister of Science and ICT each of the following: 1. present status of the corporation’s outstanding shares (including, throughout this Article, equities); 2. present shareholding (including, throughout this Article, equity investment ratios) status of shareholders owning the corporation’s outstanding shares (including, throughout this Article, equity investors) and their related parties; 3. purpose of shareholding and reasons for the change (applicable only to shareholders of key communications business operators); 4. date of acquiring the shares and details of capital used for such acquisition (applicable only to shareholders of key communications business operators); 5. form of shareholding (applicable only to shareholders of key communications business operators); and 6. documentation supporting any of the information set forth in subparagraphs 1 through 5. (2) Business operators obliged to submit documentation under paragraph (1) shall submit such documentation to the Minister of Science and ICT by the date classified as follows: 1. if the business operator is a key communications business operator whose share certificates are listed on a stock exchange under Article 9(15)3 of the Financial Investment Services and Capital Markets Act, within 30 days from the date its shareholder registry is closed; or 2. if the key communications business operator does not fall under subparagraph 1, by January 30 of each year.

Article 59-2 (Report on Status of Report on Installation of Proprietary Telecommunications Facilities) Pursuant to Article 88(4) of the Act, the mayor or governor shall report to the Minister of Science and ICT every quarter the data under each subparagraph of Article 88(4) of the Act within 30 days from the last day of each quarter.

Article 60 (Methods for Computing Penalty surcharge) (1) The term “sales calculated under the conditions prescribed under the Enforcement Decree of the Act” in the former part of Article 90(1) of the Act means the annual average sales for 3 fiscal years immediately preceding of the telecommunications services by the relevant telecommunications business operator; provided that, where 3 years have not elapsed since the start of business as of the first day of the relevant fiscal year, it shall mean sales from the period from the start of the relevant business until the end of the immediately preceding fiscal year, converted into annual average sales; and where a business was started in the relevant fiscal year, it shall mean sales from the period from the date of starting the business until the date of an offense, converted into annual sales. (2) The term “where it is prescribed under the Enforcement Decree of the Act” in the proviso of Article 90 (1) of the Act means the case falling under any of the following: 1. where there exists no business record due to a failure of starting a business or a suspension of business, etc.; 2. where a telecommunications business operator has refused to submit the data for computing sales or has submitted false data; or 3. other cases where it is difficult to compute the amount of objective sales.

Article 61 (Offenses Subject to Imposition of Penalty surcharge and Amount of Penalty surcharge, etc.) (1) Classifications of offenses subject to the imposition of a penalty surcharge and the amount of a penalty surcharge under Article 90(1) of the Act shall be as provided in Table 9 attached hereto.

38

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) The types of violation subject to fine under Article 90(2) of the Act and amounts are set forth in Table 10. (3) In determining the amount of penalty surcharge under paragraph (1) or (2), The Minister of Science and ICT and the mayor or governor may increase or decrease such amount by up to 50% after taking the following items into consideration, provided that even in case of increase, the total penalty surcharge amount cannot exceed the maximum penalty surcharge amount specified under Article 90(1) or (2) of the Act. 1. the peculiarities of providing telecommunications services 2. the severity and frequency of each offense 3. willfulness negligence of violation 4. reason and contents of violation 5. prior penalty surcharge received for violation of law (4) The provisions under Articles 48 and 49 hereof shall apply mutatis mutandis to the imposition, payment and demand of penalty surcharge under Article 90 of the Act. In such case, “the Minister of Science and ICT or the Korea Communications Commission” in Article 48(1) and (2) shall be deemed to be “the Minister of Science and ICT or the mayor or governor.”

Article 62 (Extension of Payment Due Date, and Installment Payment, of Penalty Surcharge) (1) A person who intends to extend the payment due date of a penalty surcharge or pay it in installments under Article 91 of the Act shall make an application to the Minister of Science and ICT or the Korea Communications Commission along with the document certifying grounds of the extension of payment due date or the payment in installments not later than 10 days prior to the relevant due date of payment. (2) The term “amount as prescribed under the Enforcement Decree of the Act” in Article 91(1) of the Act means either the amount equal to the sales under Article 47 multiplied by 1%, or 300 million won. (3) The extension of the payment due date of a penalty surcharge under Article 91 of the Act shall not exceed 1 year from the day immediately following said payment due date. (4) When making installment payments under Article 91 of the Act, the intervals between the respective installment payment due dates shall not exceed 4 months, and the frequency of installments shall not exceed three times. (5) The Minister of Science and ICT or the Korea Communications Commission may, if a person liable for a payment of a penalty surcharge for whom the payment due date has been extended or installment payments have been permitted under Article 91 of the Act comes to fall under any of the following, revoke such extension of payment due date, or the decision to allow such installment payments, and collect it in a lump sum: 1. where the person fails to pay a penalty surcharge for which the payment in installments has been decided, within the payment due date thereof; 2. where the person fails to implement an order necessary for a change of security or other security integrity, which is given by the Minister of Science and ICT or the Korea Communications Commission; or 3. where it is deemed that the whole or remainder of a penalty surcharge is uncollectible, such as the compulsory execution, commencement of auction, adjudication of bankruptcy, dissolution of a juristic person or dispositions on national or local taxes in arrears, etc.

Article 63 (Classification and Appraisal, etc. of Securities) The provisions of Articles 29 through 34 of the Framework Act on National Taxes, and of Articles 13 through 17 of its Enforcement Decree shall apply mutatis mutandis to the provision of security under Article 91 of the Act.

Article 64 (Important Communications) (1) The term important communications in Article 92(2)3 of the Act means: 1. business telecommunications related to the national security, military affairs, public peace and order, civil defense alarm transmission and radio wave control; or

39

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2. other communications publicly notified by the Minister of Science and ICT in order to efficiently perform the State affairs. (2) Deleted.

Article 65 (Delegation of Authority) The Minister of Science and ICT shall delegate the authority falling under any of the following to the Director General of the Central Radio Management Office pursuant to Article 93 of the Act: 1. registration and imposition of registration criteria of specific communications business under Article 21 of the Act; 2. acceptance of a report on the value-added communications business under the text of Article 22(1) of the Act; 3. registration and imposition of registration criteria of special type of value-added communications business under Article 22(2) and (3) of the Act; 4. acceptance of a modified registration for the specific communications business and of a modified report for value-added communications business, and a modified registration for special type of value-added communications business under Article 23 of the Act; 5. acceptance of a report on the transfer or takeover of a specific communications business or a value-added communications business, and on the merger or succession of a juristic person, under Article 24 of the Act; 6. acceptance of a report on the suspension or closedown of a specific communications business or a value-added communications business, and on the dissolution of a juristic person under Article 26 of the Act; 7. order to cancel registration of or suspend a specific communications business under Article 27(1) of the Act; 8. order to closedown a value-added communications business, or to cancel registration of or suspend a special type of value-added communications business under Article 27(2) of the Act; 8-2. order to suspend the provision of telecommunications service under Article 32-3(1) of the Act; 8-3. field investigation of status of provision and use of equipment, etc. under Article 35(5) of the Act; 9. order to suspend the use of proprietary telecommunications facilities and notification of the order to suspend the use to the mayor or governor under Article 65(4) of the Act; 10. Deleted; 11. Deleted; 12. Deleted; 13. Deleted; 14. permission for a felling or transplanting of the plants under the former part of Article 75 (3) of the Act; 15. inspection of and demand for reports from persons who have installed telecommunications facilities under Article 82(1) of the Act; 16. telecommunications facilities removal or other necessary corrective order under Article 82(2) of the Act; 17. acceptance of applications by specific communication business operators for agreements on settlement of charges for international telecommunications services under Article 86(3) of the Act; 18. hearing on the order to cancel registration of a specific communications business or to closedown a value-added communications business under Article 89(2) and (3) of the Act; 19. imposition and collection of penalty surcharge (excluding penalty surcharge imposed in lieu of the suspension of business in part under Article 52(5) of the Act) under Article 90(1) of the Act and permission for extension of time limit for payment of and payment in installment of such penalty surcharge under Article 91 of the Act, except against a key communications business operator;

40

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 19-2. imposition and collection of penalty surcharge (limited to penalty surcharge in lieu of the order to suspend the use to those who have installed the proprietary telecommunications facilities under Article 65(4) of the Act); 20. correction order under Article 92(1) of the Act, except against a key communications business operator; 21. order to suspend the provision of telecommunications service or to remove telecommunications facilities under Article 92(3) of the Act, except against a key communications business operator; 22. imposition and collection of fine for negligence under Article 104 of the Act, except against a key communications business operator.

Article 65-2 (Handling of Unique Identifying Information) (1) The Minister of Science and ICT (including a person to whom the Minister of Science and ICT delegates its authority under Article 65) or the Korea Communications Commission may handle any materials containing resident registration numbers or alien registration numbers under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act when it is unavoidable to implement the following affairs: 1. affairs regarding license of key communications business under Article 6 of the Act; 2. affairs regarding modification of license of key communications business under Article 16 of the Act; 3. affairs regarding authorization or report of takeover of key communications business and merger of juristic persons under Article 18 of the Act; 4. affairs regarding approval of suspension or discontinuation of key communications business under Article 19 of the Act; 5. affairs regarding registration of specific communications business under Article 21 of the Act; 6. affairs regarding report and registration of value-added communications business under Article 22 of the Act; 7. affairs regarding modified registration of specific communications business, or modified report and modified registration of value-added communications business under Article 23 of the Act; 8. affairs regarding report of transfer or takeover, etc. of specific communications business or value-added communications business under Article 24 of the Act; 9. affairs regarding report of suspension or closedown of specific communications business or value-added communications business and report of dissolution of juristic person under Article 26 of the Act; 10. affairs regarding arbitration under Article 45 of the Act; 11. deleted; 12. affairs concerning fact-finding investigations under Article 51 of the Act; 12-2 affairs regarding the imposition and collection of charges for compelling execution under Article 52-2 of the Act; 13. affairs concerning imposition/collection of penalty surcharges under Article 53 of the Act; 14. deleted; 15. deleted; 16. affairs concerning the extension of a payment deadline for penalty surcharges and payment in installments under Article 91 of the Act. (2) Where it is unavoidable in conducting the following affairs, a telecommunications business operator providing common telecommunications services or the Korea Association for ICT Promotion may process data

41

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document including a resident registration number or a foreigner registration number under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act: 1. Affairs concerning provision of services regarding reduction of or exemption from charges under Article 4 of the Act and Article 2(2)(3) of this Decree; 2. Affairs concerning reduction or exemption of fees under Article 29 of the Act; 3. Affairs concerning the prevention of subscription without confirming the subscription intent of the telecommunications users and the prevention of provision of telecommunications services in a manner different from the contractual terms and conditions (only includes the terms and conditions on refunding of charges), which are among the prohibited acts under Article 50(1)(5) of the Act; and 4. Affairs concerning the prevention of any prohibited act under Article 50(1) 5-2 of the Act. (3) The head of the mobility of numbers management institution designated under Article 58(4) of the Act may handle any materials containing resident registration numbers or alien registration numbers under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act when it is unavoidable to carry out its business such as the registration or change of mobility of numbers under Article 58(4) of the Act. (4) Where it is inevitable to conduct affairs concerning registration of number portability and modification thereto, etc. under Article 58 of the Act, the head of a number portability management institution designated pursuant to Article 58 (4) of the Act may process data including a resident registration number or a foreigner registration number under subparagraph 1 or 4 of Article 19 of the Enforcement Decree of the Personal Information Protection Act.

Article 65-3 (Re-examination of Regulations) (1) The Minister of Science and ICT shall examine the feasibility of the following items based on the record date of each item every three years (referring to the previous date of every third anniversary date) and take actions such as improvement of such item: 1. Request for submission of data on business operators providing universal service referred to in Article 3(2): January 1, 2015; 2. Submission of report on the actual results of provision of universal services under Article 4: January 1, 2017; 3. Imposition and payment of the charges for compelling execution: January 1, 2017; 4. Documentation attached to the application for approval of transfer, merger, etc. under Article 20: January 1, 2017; 5. Registration requirements for specific communications business under Article 28: January 1, 2017; 6. Documentation related to report of value-added communications business, the matters to be included in the registration registry of a special type of value-added communications business and registration requirements for a special type of value-added communications business under Article 29: January 1, 2017; 7. Registered or reported matters of value-added communications business under Article 31: January 1, 2017; 8. Scope of services whose standardized terms and conditions must be authorized under Article 34: January 1, 2017; 9. Documentation attached to the report or approval for installation of telecommunications facilities and the matters of telecommunications facilities to be reviewed under Article 51-2: January 1, 2017; 10. Matters to be included in the report on proprietary telecommunications facilities and the matters of report on installation and change of installation under Article 51-6: January 1, 2017; and 11. Type of report on statistics under Article 58: January 1, 2017.

42

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Chapter 7. PENAL PROVISIONS

Article 66 (Imposition Criteria for Fine for Negligence) The imposition criteria of fine for negligence imposed under Article 104(1) through (5) of the Act are set forth in Table 11.

ADDENDA

Article 1 (Enforcement Date) This Enforcement Decree shall take effect after three months pass from the date of its enforcement; however, Article 6 of the Addenda shall take effect on the date of its announcement.

Articles 2 through 5 Omission

Article 6 (Amendment to Other Acts) (1) through (3): Omission (4) This Enforcement Decree shall be partially amended as follows: “Each subparagraph of Article 8 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act” in Article 30-2.1 shall be replaced with “each subparagraph of Article 3(1) of the Enforcement Decree of the Act on Corporate Governance of Financial Companies” and “any subparagraph of Article 9 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act” in Article 30-2.2 shall be replaced with “each subparagraph of B of Article 2.6 of the Enforcement Decree of the Act on Corporate Governance of Financial Companies.” (5) and (6): Omission

43

Copyright © 2018 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document