South Korea’s largest mobile carrier SK Telecom Co. reported an on-year fall in operating profit in the third quarter as increased marketing costs eroded gains from wireless subscribers and core subsidiaries.

The company said in its regulatory filing released on Monday that its operating profit on a consolidated basis was 392.4 billion won ($351 million) in the quarter ended September, down 7.5 percent from a year earlier. Revenue rose 4.7 percent to 4.44 trillion won, helped by higher wireless subscriptions and growth of subsidiaries. Net profit was 793 billion won, surging 146.2 percent on gains from its equity stake in chipmaker SK Hynix Inc., whose shares soared 83 percent since the beginning of the year thanks to the recent semiconductor boom.

As of 1:11 p.m., shares of SK Telecom were down 2.44 percent at 259,500 won.

SK Telecom’s lackluster performance was more pronounced when excluding gains from its subsidiaries. On an unconsolidated basis, its operating profit in the third quarter fell 11.8 percent on year to 420.7 billion won. Revenue was up 1.8 percent at 3.16 trillion won.

The carrier had 30.2 million subscribers as of the end of the third quarter, adding 705,000 new subscribers on year. LTE customers made up 74.8 percent of total subscribers at 22.6 million.

But the company significantly upped marketing costs in the recent quarter to attract subscribers following a series of new premium smartphone launches by major handset makers. Its marketing costs in the third quarter climbed 10.8 percent from a year ago to 797.6 billion won, according to the company. SK Telecom also invested 556.7 billion won on new frequency bands and future growth engines. The rise in marketing costs and investments largely weighed on the company’s earnings in the third quarter.

The bottom line of its subsidiaries has improved. SK Broadband posted an operating profit of 29.8 billion won in the third quarter, with revenue up 1.2 percent on year to 760.2 billion won thanks to the rising number of IPTV subscribers and increased sales of paid contents. SK Planet’s revenue also climbed 5.8 percent to 285.1 billion won on the back of its ecommerce platform 11st.com.

The company is facing growing challenges from the rapid changes in the telecommunications market, said Yoo Young-sang, head of business strategy at SK Telecom, adding that it is seeking to foster new revenue generators in promising sectors such as artificial intelligence, Internet of Things, automated driving and media.

Korean mobile carriers including SK Telecom are expected to see a further rise in their marketing costs in upcoming quarters to meet the government guidelines on phone bill reduction. The country’s wireless carriers agreed with the government to widen the previous 20 percent discount rate to 25 percent for new subscribers starting Sept. 15 and exempt 11,000 won in basic monthly subscription fee for elderly and low-income household members.

By Seo Dong-cheol and Kim Hyo-jin

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