have been translated into United States dollars at the rate of￦1,071.4 to US$1.00, the Market Average Exchange Rate in effect on December 29, 2017.

We make no representation that the Won or Dollar amounts contained in this annual report could have been or could be converted into Dollar or Won, as the case may be, at any particular rate or at all.

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

You should carefully consider the following factors.

Risks Relating to Our Company and Business

Competition in the Korean telecommunications industryeach of our principal business areas is intense.

CompetitionWe face significant competition in each of our principal business areas. In the telecommunications sector in Korea is intense. Business combinations in the telecommunications industry significantly changed the competitive landscape of the Korean telecommunications industry. Currently,markets for mobile services, fixed-line services and media and content services, we compete primarily with two other integrated telecommunications service providers, SK Telecom Co., Ltd. (“SK Telecom”) and LG Uplus Corp. (“LG U+”) (including their affiliates). SK Telecom acquiredIn the past two decades, considerable consolidation in the telecommunications industry has occurred, resulting in the current competitive landscape comprising three network service providers that offer a wide range of telecommunications and data communications services. In early 2019, each of our primary competitors announced plans to acquire a leading cable TV operator in Korea to significantly increase their market shares in the pay TV market, which we expect will further intensify competition. In January 2019, LG U+ announced its plan to acquire a controlling stakeinterest in Hanarotelecom Incorporated in 2008, which was renamed SK BroadbandCJ HelloVision Co., Ltd. (“SK Broadband”CJ HelloVision”). The acquisition enabledIn February 2019, SK Telecom announced its plan to provide fixed-line telecommunications, broadband Internet access and Internet Protocol Television (“IPTV”) services togethermerge with its mobile telecommunications services. In January 2010, LG Dacom Corporation (“LG Dacom”) and LG Powercomt-broad Co., Ltd.(“LG Powercom”t-broad”) merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enabled LG U+ to provide To a similar range of services as SK Telecomlesser extent, we also compete with various value-added service providers and us. Our inability to compete against such competitors could have a material adverse effect on our business, financial condition and results of operations.

In addition, we face increasing competition from specific service providers as classified under the Framework Act on Telecommunications and the Telecommunications Business Act, including mobile virtual network operators (“MVNOs”) that lease mobile networks and offer mobile services, VoIP service providers that offer Internet telephone services, cable TV operators, text messaging service providers (particularly Kakao Corp. (“Kakao”)) and voice resellers, many of which offer competing services at lower prices. The entrance of new service providers in the markets for mobile services, fixed-line services and media and content services may further increase competition, as well as cause downward price pressure on the fees we

allowed to switch their service provider while retaining the same mobile phone number. Mobile service providers also grant subsidies to subscribers who purchase new handsets and agree to a minimum subscription period. Such mobile number portability and handset subsidies previously intensified competition among the mobile service providers and increased their marketing expenses. In addition, wide variation in subsidy amounts paid to subscribers led to concerns relating to consumer discrimination over time. Consequently, in order to enhance transparency in subsidy amounts paid to subscribers, the Act on Improvement of Mobile Telecommunication Device Distribution System (the “Handset Distribution Reform Act”), which imposed upper limit on the amount of handset subsidies offered by service providers, was enacted in October 2014. However, the upper limit on the handset subsidies was phased out on October 1, 2017. As a result, price competition through handset subsidies which became less prevalent after the passage of the Handset Distribution Reform Act may intensify again and such competition could lead to a decrease in our net profit margins.

Since 2011, SK Telecom, LG U+ and we have launched 4G mobile telecommunications services based on LTE technology, which has further intensified competition among the three companies and resulted in an increase in marketing expenses and capital expenditures related to implementing and providing 4G LTE services. We are also competing with the other two companies to introduce fifth-generation (“5G”) mobile telecommunications services as early as 2019, one year ahead of our initial plan. As SK Telecom, LG U+ and we continue to compete to improve network quality and to introduce new technologies in order to accommodate increased data usage of subscribers, we may incur significant expenses to acquire additional bandwidth spectrums and various fixed assets and to expand technologicalknow-how and capacity. Furthermore, on April 10, 2018, to facilitate expedient establishment of 5G services infrastructure, the Government announced its initiatives to facilitateco-use and sharing of telecommunications infrastructure as follows: (i) we should permit fixed-line telecommunication service providers and mobile service providers (such as SK Telecom and LG U+) toco-use our telecommunications infrastructure necessary for provision of 5G services, (ii) the Government determined that we, SK Telecom and LG U+ possessed essential infrastructure with respect to the interval between the cable entry at a building and the initial occurrence of connection within the building and required that the three companies share such infrastructure throughout buildings in Korea with each other, and (iii) fixed-line telecommunications service providers and mobile service providers are required to participate in joint efforts to construct additional fixed-line and mobile network architecture. We believe that the continuing intense competition among major telecommunications operators in Korea may have a material adverse impact on our results of operations.

Fixed-line Telephone Services. Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. Since then, various competitors have entered the local, domestic long-distance and international long-distance telephone service markets in Korea, which have eroded our market shares. LG U+ and SK Broadband currently provide local, domestic long-distance and international long-distance telephone services. In addition, Sejong Telecom, Inc. (formerly, Onse Telecom Corporation) and SK Telink, Inc. currently provide domestic long-distance and international long-distance telephone services. We also compete with specific service providers, such as Internet phone service providers, voice resellers and call-back service providers that offer international long-distance service in Korea. While we offer our own Internet phone service, the entry of these and other potential competitors into the local, domestic long-distance and international long-distance telephone service markets has had and may continue to have a material adverse effect on our revenues and profitability from these services. As of December 31, 2017, we had a market share in local telephone service of 80.5% and a market share in domestic long distance service of 79.8%. Further increase in competition may decrease our market shares in such services. As part of our efforts to improve our operational efficiencies, we transferred all operations relating to fixed-line sales activities (includingon-site sales, line activation, after service, and customer center operations) to our subsidiaries in 2014.

Internet Services. The Korean broadband Internet access service market has experienced significant growth in the past decade. SK Broadband (formerly Hanarotelecom) entered the broadband market in 1999 offering both Hybrid Fiber Coaxial (“HFC”) and Asymmetric Digital Subscriber Line (“ADSL”) services. We also began offering broadband Internet access service in 1999, followed by Dreamline, Sejong and LG U+. In recent years, numerous cable television operators have also begun to offerHFC-based services at rates lower than ours. We had a market share of 41.3% as of December 31, 2017. As a result of having to compete with a number of competitors and the maturing of the Internet access service market, we currently encounter, and we expect to encounter, pressure to increase marketing expenses in the future.

The market for other Internet-related services in Korea, including IPTV and Internet phone services, is also very competitive. We anticipate that competition will continue to intensify as the usage and popularity of the Internet grows and as domestic and international competitors newly enter the Internet industry in Korea or expand product offerings such as gigabit Internet service. The substantial growth of the Internet industry in Korea has attracted many competitors and as a result may lead to increasing price competition to provide Internet-related services. Increased competition in the Internet industry could have a material adverse effect on the number of subscribers of our Internet-related service and on our results of operations.

Failure to renew existing bandwidth spectrum,licenses, acquire adequate additional bandwidth spectrumlicenses or use our bandwidth efficiently may adversely affect our mobile telecommunications business and results of operations.

One of the principal limitations on a wireless network’s subscriber capacity is the amount of bandwidth spectrum allocated to a service provider. We currently use 40 MHzhave acquired a number of licenses to secure bandwidth in the 2.1 GHz spectrum,capacity to provide our broad range of which 20 MHz is usedservices, for our 4G LTE services and the remaining 20 MHz of bandwidth for ourIMT-2000 services based onW-CDMA wireless network standards. We also use (i) 20 MHz of bandwidth in the 900 MHz spectrum and 35 MHz of bandwidth in the 1.8 GHz spectrum for our 4G LTE services; (ii) 20 MHz of bandwidth in the 1.8 GHz spectrum, which we acquiredtypically make an initial payment as well as pay usage fees during the license period. We made bandwidth license payments of￦416 billion in May 2016, for￦271 billion in 2017 and￦573 billion in 2018. For our WidebandLTE-A services;outstanding payment obligations relating to our bandwidth licenses as of December 31, 2018, see “Item 5. Operating and (iii) 30 MHzFinancial Review and Prospects—Item 5.A. Operating Results—Overview—Acquisition of bandwidth in the 2.3 GHz spectrum for our WiBro services. The MSIT announced its plan to auction additional bandwidth starting in 2018 to enable provision of 5G servicesNew Bandwidth Licenses and our ability to commercialize and provide 5G services depends in part on acquisition of adequate bandwidth spectrum at such auctions.Usage Fees.” For more information on our bandwidth licenses, to bandwidth spectrum, see “Item“ Item 4. Information on the Company—Item 4.D. Property, PlantsPlant and Equipment—Mobile Networks.”

The growth of our mobile telecommunications business and the increase in usage of wireless data transmission services have been significant factors insignificantly increased the increased utilization of our bandwidth, since because

Introduction of new services, including our 4G LTE5G mobile services and 5G services to be commercialized,launched in April 2019, poses challenges and risks to us.

The telecommunications industry is characterized by continual advances and improvements in telecommunications technology, and we have been continually researching and implementing technology upgrades and additional telecommunicationtelecommunications services to maintain our competitiveness. For example, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to as 4G5G technology and commenced providing commercial 4G LTE5G mobile services with transmission speed of up to 1 Gbps in April 2019 in the Seoul metropolitan area, in January 2012, while subsequently expandingsix additional metropolitan cities, high-traffic commercial areas and university campuses as well as major transportation infrastructure such as highways, railways and airports. We plan to gradually expand the coverage nationwide and increasingincrease the transmission speed of our 5G services thereafter. As we continue to compete with SK Telecom and LG U+ to improve network quality, introduce new services and accommodate increased data usage of subscribers, we may incur significant expenses to acquire additional bandwidth licenses and incur significant capital expenditures to build out and improve our network. We have made extensive efforts to develop advanced technologies as well as to provide a variety of services with enhanced speed, latency and connectivity. Furthermore, we are also continually upgrading our broadband network to enable betterfiber-to-the-home (“FTTH”) connection, which enhances data transmission speed and connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cablescable extending from the telecommunications operator’s switching equipment to the boundary of homehomes or office.offices. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH also enables us to deliver digital media content,enhanced services that require high bandwidth with stability, such as IPTV with higher stability.and other digital media and content services.

In recent years, we have been making capital expenditures and investing in additional research and development to roll out 5G telecommunication services by 2019, one year earlier than our initial plan. However, noNo assurance can be given that our new services will gain broad market acceptance such that we will be able to derive revenuesrevenue from such services to justify the license fee,fees, capital expenditures and other investments required to provide such services. For example, in March 2005, we acquired a license to providediscontinued our wireless broadband Internet access (“WiBro”) service, and commercially launched our service in June 2006 to expand the WiBro service coverage nationwide by 2011. However, the number of our WiBro subscribers have decreasedservices in the fourth quarter of 2018, following a steady decrease in its subscriber base in recent years as more WiBro subscribers chose to access the Internet using our 4G LTE network rather than WiBro following the proliferationreflecting an increase in popularity of 4G LTE services since 2013.services. If our new services do not gain broad market acceptance, our business, financial condition and results of operations and financial condition may be adversely affected.

We may not be able to successfully pursue our strategy to acquire businesses and enter into joint ventures that complement or diversify our current business, and we may need to incur additional debt to finance such expansion activities.

One key aspect of our overall business strategy calls for acquisitions of businesses and entering into joint ventures that complement or diversify our current business.businesses. For example, we have pursued investment opportunities in the financial sector in the past decade that we believe provide attractive growth opportunities. In March 2014, the investment business division of KT Capital Co., Ltd., including 3,059,560 common shares ofOctober 2011, we acquired a controlling interest in BC Card Co., Ltd. that KT Capital Co.

administrative, technical, political, financial or other difficulties, or at all. Even if we were to successfully complete the transactions, the success of an acquisition or a joint venture depends largely on our ability to achieve the anticipated synergies, cost savings and growth opportunities from integrating the business of the acquired company or the joint venture with our business.current businesses. There can be no assurance that we will achieve the anticipated benefits of the transaction, which may adversely affect our business, financial condition and results of operations.

Pursuing acquisitions or joint venture transactions also requires significant capital, and as we pursue further growth opportunities for the future, we may need to raise additional capital through incurring loans or through issuances of bonds or other securities in the international capital markets.

Disputes with our labor union may disrupt our business operations.

In the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing ofnon-core businesses and reducing our employee base. Although we have not experienced any significant labor disputes or unrests in recent years,there can be no assurance that we will not experience labor disputes or unrests in the future, including extended protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operations.

We also negotiate collective bargaining agreements every two years with our labor union and annually negotiate a wage agreement. Our current collective bargaining agreement expires on October 9, 2019.Although we have been able to reach collective bargaining agreements and wage agreements with our labor union in recent years, there can be no assurance that we will not experience labor disputes and unrests resulting from disagreements with the labor union in the future.

The Korean telecommunications and Internet protocol broadcastingInternet-related industries are subject to extensive Government regulations, and changes in Government policy relating to these industries could have a material adverse effect on our operations and financial condition.

The Government, primarily through the MSIT and the KCC, has the authority to regulate the telecommunications industry. Until March 2013, regulation ofindustry in Korea. The MSIT and the telecommunicationsKCC also have the authority to regulate the pay TV industry had mainly beenunder the responsibility ofKorea Broadcasting Act, which covers our IPTV services as well as our satellite TV services provided through KT Skylife Co., Ltd. (“KT Skylife”), in which we own a 49.99% interest. See “Item 4. Information on the KCC. With the establishment of the newly created the Ministry of Science, ICT & Future Planning (the predecessor to the MSIT, the “MSIP”) on March 23, 2013, however, such regulatory responsibility has mostly been transferred to the MSIP (and later to MSIT).Company—Item 4.B. Business Overview—Regulation.” The MSIT’s policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as tothat would prevent the emergence and development of viable competitors.

Under the current Governmentsuch regulations, if a network service provider has the largest market share for a specified type of telecommunications service and its revenue from that service for the previous year exceeds a specific revenue amount set by the MSIT, it must obtain prior approvalsuch entity may be designated as a market-dominating business entity that may not engage in any act of abuse, such as 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. Furthermore, under the Internet Multimedia Broadcasting Services Act, an IPTV service provider, together with its affiliates providing IPTV services, is restricted from having more thanone-third of the MSITmarket share of all paid broadcasting subscribers in Korea (consisting of IPTV, cable TV and satellite TV subscribers). As of December 31, 2018, KT Skylife and we together had an aggregate market share of 31.2% of all paid broadcasting subscribers in Korea. The KCC has also issued guidelines on fair competition of telecommunications and Internet-related companies. In addition, the Government sets the policies regarding the use of radio frequency bandwidths and allocates the bandwidths used for the rates and the general terms for that service. Each year, the MSIT designates service providers whose rates and general terms of service must be approvedwireless telecommunications by the MSIT. In 1997, the MSIT had designated us for local telephone servicean auction process or by a planned allocation.

We and SK Telecom forhave been designated as market-dominating business entities in the local telephone and mobile service,markets, respectively, and the MSIT, in consultation with the Ministry of StrategyEconomy and Finance (“MOEF”), currently approves rates charged by us and SK Telecom for such services. The form of our standard agreement for providing local network serviceservices and each agreement for interconnection with other service providers must also be reported to the MSIT. Although we compete freely with other network service providers in terms of rate plans for our principal telecommunications and Internet-related services except for rates we charge for local calls, our inability

our competitors. See “Item 4. Information on the Company—Item 4.B. Business Overview—Regulation—Rates.” In addition, the MSIT may periodically announce public policy guidelines or suggestions that we may be recommended to take into consideration in setting our tariffs fortelecommunications and Internet-related businesses.In recent years, the MSIT has announced policy guidelines with the objectives of reducing mobile service rates and promoting transparency in the decision making of telecommunications service providers. Specific policy guidelines include monthly rate reductions applicable to certainnon-regulatedlow-income services.In March 2015, we completely abolished our activation fee relating to our mobile services. In July 2016, we lowered our early termination fee for our broadband Internet access service, Internet phone or IPTV or such products bundled with our fixed-line telephone service. Onsubscribers as well as subscription rate discounts in lieu of handset subsidies. Starting in December 22, 2017, we startedbegan providing rate discounts of up to provide additional tariff reductions of￦11,000 per month to certainourlow-income mobile subscribers on government welfare programs. We also increased the maximum discount rate applicable to mobile subscribers who elect not to receive handset subsidies from 20.0% to 25.0% starting in September 2017. Such discounts have contributed to a decrease in the average monthly revenue per subscriber of our mobile services from￦34,444 in 2017 to￦32,021 in 2018.

The Government welfare. In July 2017,may pursue additional measures to regulate the MSIT announced its planmarkets in which we compete. For example, according to adopt “universal” mobile subscription fees sometime in 2018 in connection with the Government’s efforts to reduce mobile service fees paid by individuals. According to the draft version of thea proposed revisionamendment to the Telecommunications Business Act, subject to approval bywhich is currently pending at the National Assembly, the dominantmarket-dominating mobile network service provider (SK Telecom) shall beis required to provide a “universal” mobile subscription plan at a significant discount to the rates currently available. The current proposal contemplates that the plan be priced at￦20,000 per month (at a significant discount(including value added tax (“VAT”)) for up to currently available mobile subscription plans) which allows data use of between 1 and 1.4 GB and 200 call minutes. Furthermore, in responseminutes and data usage of 1 GB. If adopted as proposed, we may offer similar rate plans to a social interest group’s lawsuit against the MSIT to lower consumers’ telecommunication bills, it is expected that, in May 2018, the MSIT will make public disclosure of previouslynon-public regulatory financial reports and other supporting and evaluation materials submitted by the network service providers (including us) for determining tariffs of various 2G and 3G mobile subscription plans for asix-year period ending in May 2011.compete more effectively with SK Telecom. There can be no assurance that we will not adopt additional measures that reduce rates charged to our subscribers as well as adjustments to our handset subsidies and other tariff-reducing measures in the future to comply with regulatory requirements or the Government’s public policy guidelines or suggestions.guidelines.

The MSIT may revoke our licenses or suspend any of our businesses if we fail to comply with its rules, regulations and corrective orders, including the rules restricting beneficial ownership and control or any violation of the conditions of our licenses. Alternatively, in lieu of suspension of our business, the MSIT may levy a monetary penalty of up to 3.0% of the average of our annual revenue for the preceding three fiscal years. For example, on March 12, 2015, theFrom time to time, we have been imposed fines for violation of regulations imposed by MSIT and KCC, imposedincluding an imposition of a fine of￦870 million for violation of restrictions on handset subsidies relating to our compensation program for used handsets. On June 24, 2015,12.5 billion in January 2018 by the KCC imposed a fine of￦52 million for violating privacy related regulations and undermining consumer interests. On July 31, 2015 and January 19, 2016, the KCC imposed a fine of￦350 million and￦560 million, respectively, on us for infringing upon consumer interests by advertising false and exaggerated information about bundled products. On March 8, 2016, the KCC imposed a fine of￦32 million on us for offering excessively reduced rates and waivers to certain customers. On December 6, 2016, the KCC imposed a combined fine of approximately￦10.7 billion on SK Telecom, LG U+, SK Broadband,t-broad, D’live, CJ HelloVision and us (our fine being approximately￦2.3 billion) and ordered to take corrective measures for providing excessive promotional gifts to bundled products customers. In April 2017, the Fair Trade Commission imposed a combined fine of approximately￦47 million on us for failing to include developments relating to our management in our public disclosures. In October 2017, the Fair Trade Commission imposed a fine of approximately￦360 million on us for not including transactions between our affiliates in our public disclosures. On January 24, 2018, the KCC imposed a combined fine of approximately￦50.6 billion on SK Telecom, LG U+ and us (our fine being approximately￦12.5 billion) for violation of regulations relating to handset sales insales. There is no guarantee that the form of wholesale, online salelaws and others. For more information about the penalties imposed for violating Government regulations see “Item 8. Financial Information—Item 8.A.Consolidated Statements and Other Financial Information—Legal Proceedings.” The revocation of our licenses, suspension of our businessto which we are or imposition of monetary penalties by the MSIT couldbecome subject will not have a material adverse effect on our business.

On October 1, 2014, the Handset Distribution Reform Act went into effect. The Handset Distribution Reform Act regulates, among other matters, the sale and subsidies of mobile devices such as smartphones, with one of its purposes being to induce telecommunication operators to compete in lowering the costs of communications and encourage the manufacturers to reduce handset factory prices, while improving service quality. Under the Handset Distribution Reform Act, consumers may not

be discriminated in terms of subsidies based on their age, place of residencebusiness, financial condition or monthly subscription plan when using their existing mobile phones, buying a new phone or switching their mobile carriers. Furthermore, everyone, regardless of their status, is entitled to receive either a handset subsidy for the purchase of mobile phone models that were launched within the last 15 months, or a tariff discount (with the current discount rate set at 25%, effective since September 15, 2017). Since April 8, 2015, the maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer was￦330,000. The maximum amount of the handset subsidy was phased out on October 1, 2017. On September 15, 2017, in compliance with the policy initiatives announced by the MSIT, we increased the maximum tariff discount to 25% from the prior 20% (which had been in effect since April 24, 2015). According to the Government, excessive handset subsidies may cause mobile subscribers to subscribe to more expensive monthly plans in return for greater handset subsidies or may cause handset vendors to provide discriminatory subsidies based on consumers’ age, residence and subscription plan, among others. It was reported that the Government plans to introduce measures to curb excessive competition for handset subsidies such as guidelines on subsidies for online handset sales and requirement for public disclosure of the portion or amount of handset subsidies provided by each party involved in handset sales.

The Government also sets the policies regarding the use of radio frequencies and allocates the spectrum of radio frequencies used for wireless telecommunications by an auction process or by a planned allocation. For a discussion of the Government’s recent policies and practices on bandwidth spectrum allocation, see “—Item 3.D. Risk Factors—Failure to renew existing bandwidth spectrum, acquire adequate additional bandwidth spectrum or use our bandwidth efficiently may adversely affect our mobile telecommunications business and results of operations.” The new allocations of bandwidth could increase competition among wireless service providers, which may have an adverse effect on our business.

We also plan to put more focus on the Internet protocol (“IP”) media market, and we began offering IPTV services in November 2008. IPTV is a service which combinesvideo-on-demand services with real-time high definition broadcasting via broadband networks. The MSIT and the KCC have the authority to regulate IPTV services. Under the Internet Multimedia Broadcasting Services Act, anyone intending to engage in the IPTV services business must first obtain a license from the MSIT. Moreover, anyone intending to provide linear channel programs focused on news or contents that generally combine news, culture entertainment, and any other similar contents with IPTV providers, must obtain approval from the KCC. Furthermore, anyone intending to provide contents relating to the introduction of consumer products and other similar marketing linear channel programs with IPTV providers must obtain additional approval from the MSIT. In addition, KT Skylife (formerly Korea Digital Satellite Broadcasting Co., Ltd.), which became our consolidated subsidiary starting in January 2011, offers satellite TV services, which may also be packaged with our IPTV services. KT Skylife is also subject to regulation by the MSIT and the KCC pursuant to the Korea Broadcasting Act. In March 2015, amendments to the Internet Multimedia Broadcasting Services Act were promulgated. Under such amendments, a single pay TV operator (including its affiliates) may not have more thanone-third of the market share of all pay TV subscribers in Korea. The restriction on market share is in effect until June 27, 2018, subject to the Government’s decision to renew the market share restriction or phase out the restriction as originally planned.

Government policies and regulations relating to the above as well as other regulations involving the Korean telecommunications and IP broadcasting industries (including as a result of the implementation of free trade agreements between Korea and other countries, including the United States and the European Union) could impose restrictions on our business operations, which could have a material adverse effect on our operations and financial condition, and may also change in ways that could materially and adversely affect us. See “Item 4. Information on the Company—Item 4.B. Business Overview—Regulation.”

The pending legal cases againstMr. Suk-chae Lee, oura former chief executive officer, and other former executive officers or directors—and related adverse publicity—could have a material adverse effect on our business, reputation and stock price.

In April 2014, the Seoul Central District prosecutor’s office chargedMr. Suk-chae Lee, oura former chief executive officer who resigned in November 2013, with embezzlement and breach of fiduciary duty. Mr. Il Yung Kim, oura former standing director and former president of the KT Corporate Center, was charged as aco-conspirator in the breach of fiduciary duty by Mr. Lee, andMr. Yu-yeol Seo, oura former president of Home Business Group, was charged as aco-conspirator in Mr. Lee’s embezzlement. On September 24, 2015, the Seoul District Court acquitted Mr. Lee of the charges of embezzlement and breach of fiduciary duty. Mr. Kim and Mr. Seo were also acquitted of the conspiracy charges. The prosecution has appealed the judgments and on May 27, 2016, the Seoul High Court found Mr. Lee and Mr. Seo guilty of embezzlement and sentenced them to 18 months of prison term, to be suspended for 2two years, for having embezzled and createdoff-the-books funds of￦1.1 billion between 2009 and 2013, using such funds for personal purposes such as payments at weddings and funerals of Mr. Lee’s friends and acquaintances and Mr. Seo’s living and entertainment expenses. However, Mr. Lee and Mr. Kim were acquitted on the charge of breach of fiduciary duty. These judgments have been

￦517 million. We have not awarded additional advertising contractcontracts to Playground since September 2016, and Mr. Lee and Ms. Shin resigned from the Company in November 2016 and May 2016, respectively.

In April 2017, the Korean prosecution indicted former President Park on charges of bribery, coercion and abuse of power, among others. On April 6,August 24, 2018, the Seoul CentralHigh Court sentenced the former President to 24 years ofa prison term of 25 years and a monetary fine of￦1820 billion, having found the former President guilty on many of the charges, including the coercion charges relating to the same events underlying the Constitutional Court decisions described above: (i) the employment and promotions of Mr. Lee and Ms. Shin at KT Corporation, (ii) the entry into advertising contracts with Playground and (iii) the donations to Mir Foundation andK-Sports Foundation by us and other Korean corporations. The prosecution appealed the trialappellate court’s decision.decision to the Supreme Court of Korea.

On January 18, 2018, the Korean prosecution indictedMr. Byung-Hun Jun, a former member of the National Assembly, for charges of bribery, corruption and coercion, among others. One of the allegations iswas that Mr. Jun, during his term as a member of the former Science, ICT, Future Planning, Broadcasting and Communications Committee (currently the Science, ICT, Broadcasting and Communications Committee) of the National Assembly, solicited donations or financial sponsorship

redemption rights were exercised. The commercial paper had been issued in connection with construction of a solar power plant by a contractor of the project and guaranteed by KT ENGCORE. KT ENGCORE faced difficulties in preventing such exercise of redemption rights following the above incident, and we declined to provide additional financial support to KT ENGCORE to repay the redeemed commercial paper. In August 2014, the Seoul Central District Court approved KT ENGCORE’s restructuring plan, and determined that KT ENGCORE is only responsible for 15% to 20% of the borrowings which remain unpaid, or approximately￦46 billion. Pursuant to the plan, KT ENGCORE is expected to repay all of its currently outstanding obligations. The banks had appealed the decision of the Seoul Central District Court, and it was determined that KT ENGCORE is responsible for 30% to 40% of the borrowings which remain unpaid. The court decision was appealed and in February 2017, the Seoul High Court found that KT ENGCORE is responsible for 40% of the borrowings which remain unpaid. Such appellate court decision was subsequently affirmed by the Supreme Court of Korea in June 2017. While KT ENGCORE’s restructuring is unlikely to have a material impact on our results of operations or financial condition on a consolidated basis, as KT ENGCORE has not been our consolidated subsidiary since 2014 due to its filing for court receivership, and our interest in KT ENGCORE was classified asavailable-for-sale securities, any future legal proceedings against KT ENGCORE and/or us may lead to significant losses. Such losses, as well as any adverse publicity associated with the incident, could have a material adverse effect on our business, reputation and stock price.

The data breach incidents involving us in recent years have resulted in government investigations and civil litigation, and if our efforts to protect personalconfidential information of our subscribers are unsuccessful, future issuesand cardholders, and cybersecurity breaches expose us to a risk of loss of this information, which may result in further government enforcement actionslead to improper use or disclosure of such information, ensuing potential liability and civil litigation, any of which could harm our reputation and may significantly impactadversely affect our results of operation and reputation.

The nature of our business involves the receipt and storage of personal information of our subscribers. The uninterrupted operation of our information systems and confidentiality of the customer information that resides in such systems are critical to our successful operations. As such, we have a program in place to detect and respond to data security incidents. However, evenbusiness. Even though we maystrive to take all steps we believe are necessary to protect personal information, hardware, software or applications we develop or procure from third parties may contain defects in design, manufacturing defects or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to circumvent our security measures to gain access to our systems or facilities through fraud, trickery or other forms of deceiving our employees, contractors and temporary staff. In addition, because the techniques used to obtain unauthorized access or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures.

In the past, we have experienced cyber-attacks of varying degrees from time to time, including theft of personal information of our subscribers by third parties that have led to lawsuits and administrative actions against us alleging that the leak was caused by our poor management of subscribers’ personal information. For example, in July 2012, the police arrested two third-party individuals in connection with the alleged theft of personal information relating to approximately

the Supreme Court. We lost one of the appeals and we appealed such decision to the Supreme Court. The other nine appeals are currently ongoing at the Seoul High Court or the Seoul Central Court.

system starting from February 2012. Furthermore, in March 2014, the police arrested three third-party individuals in connection with their alleged theft of personal information relating to approximately 9.8 million of our subscribers. The individuals in question stole the personal information of our subscribers through a series of hackings into our main homepage starting from February 2014. Since the incident, approximately 15,000 subscribers filed 22 lawsuits against us in connection with the information theft, seeking total damages of approximately￦7 billion. From November 2016 to January 2018, we won 17 trials, lost two trials and the remaining three trials are currently ongoing at various district courts. The plaintiffs of nine of the 17 cases have appealed the district courts’ decisions to the Seoul High Court or the Seoul District Court. We appealed the district courts’ decisions of the two trials where we lost. In June 2014, we were fined￦85 million by the KCC and were ordered to take corrective measures in connection with the most recent hacking incident. We filed an administrative appeal in August 2014 in connection with the KCC fine and prevailed. The KCC appealed the administrative decision and the appeal is currently ongoing at the Seoul High Court.

We are unable to predict with any meaningful degree of certainty the outcome of these incidents at this time, including the scope of investigations or the maximum potential exposure. However, ifIf we experience additional significant data securitycybersecurity breaches or fail to detect and appropriately respond to significant data securitycybersecurity breaches, we could be subject to additional government enforcement actions, regulatory sanctions and litigation in the future. In addition, our mobile subscribers and cardholders could lose confidence in our ability to protect their personal information, which could cause them to discontinue using our services altogether. Furthermore, adverse final determinations, decisions or resolutions regarding such matters could encourage other parties to bring related claims and actions against us. Accordingly, the outcome of these incidentsour failure to prevent cybersecurity breaches may materially and adversely impact our business, financial condition and results of operations.

Our business and performance may be harmed by a disruption in our services due to failures in or changes to our systems, or by our failure to timely and effectively expand and upgrade our technology and infrastructure.

Our reputation and ability to attract, retain, and serve our subscribers, cardholders and other business partners are dependent in large part upon the reliable performance of our services and the underlying technical infrastructure. Our telecommunications network systems and information technology systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. We have experienced, and may in the future experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failures, capacity constraints due to an overwhelming number of people accessing our services simultaneously, computer viruses, power losses, fraud and security attacks. Our technical infrastructure is also vulnerable to the risk of damage from natural and other disasters, such as fires, earthquakes, floods, and typhoons, as well as from acts of terrorism and other criminal acts. For example, in November 2018, a fire broke out at one of our facilities located in the Ahyeon district of western Seoul, which temporarily disrupted our wireless, fixed-line and IPTV services in seven districts covered by the facility. We restored most of our services within four days and our fixed-line public switched telephone network (“PSTN”) services within 11 days, and we refunded subscription fees ranging from one to six months as compensation to our affected subscribers. In addition, we are accepting applications from small business owners for financial assistance, which we plan to provide as appropriate to assist in their recovery from the incident.

As the number of our subscribers and cardholders increases and as our customers access, download and transmit increasing volumes of media contents as well as engage in increasing volumes of financial transactions, we may be required to expand and upgrade our technology and infrastructure to continue to reliably deliver our telecommunications, Internet-related and financial services. We cannot provide assurance that we will be able to expand and upgrade our technology and infrastructure to meet user demand in a timely manner, or on favorable economic terms. We purchase telecommunications network equipment from a limited number of key suppliers, and any discontinuation or interruption in the availability of equipment from our key suppliers for any reason could have an adverse effect on our operations. If our users are unable to readily access our services or access is disrupted, users may seek other service providers instead, and may not return to our services or use our services as often in the future. This would negatively impact our ability to attract subscribers, cardholders and other business partners as well as increase engagement of our customers. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed or continually develop our technology and infrastructure to accommodate actual and

Seoul High Court in 2018, subject to the disposition by the Supreme Court of Korea. In 2016, we were issued consent orders by the Korea Fair Trade Commission for unfairly comparative advertisements on quality and coverage of our LTE service. Any future determination by the Korea Fair Trade Commission that we have engaged in transactions that violate the fair trade laws and regulations may result in fines or other punitive measures and may have a material adverse effect on our reputation and our business.

Certain of our business activities or acts of our management, employees or other relevant parties, including, without limitation, investigations, claims or legal proceedings involving our former chief executive officer Mr. Lee and incidents relating to the employment of certain executives and execution of certain advertising contracts described above, may raise concerns about compliance with laws of Korea and other relevant jurisdictions, including the United States. These various and sometimes conflicting laws and regulations include the U.S. Foreign Corrupt Practices Act and other laws prohibiting corrupt payments to governmental officials and commercial counterparties. Compliance with complex Korean and foreign laws and regulations that apply to our operations increases our cost of doing business. Failure to comply with these laws and regulations could also result in fines, penalties and criminal sanctions against us, our officers, or our employees, prohibitions on conduct of our business, and damage to our reputation. Criminal or civil investigation by Korean or other authorities may result inhave a material impact toon our business or reputation, which in turn could impact our relationships with certain of our customers and business partners, and which potentially could give rise to additional regulatory inquiries in Korea or elsewhere. Defending us against any allegations or charges of wrongdoing also could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. There can be no assurance that we or our employees and other relevant parties will always be in full compliance with these laws and regulations, or that future legal or regulatory developments applicable to us will not have an adverse impact on our business, reputation or stock price.

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 the share prices of some wireless telecommunications companies in the United States. In May 2011, the International

addition, the actual or perceived risk of wireless telecommunications devices could have an adverse effect on us by reducing our number of subscribers or our usage per subscriber.

Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities.

Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect the results of our 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, the costs of telecommunications equipment that we purchase from overseas sources, net settlement payments to foreign carriers and certain payments related to our derivative instruments entered into for foreign exchange risk hedging purposes. Of the￦6,6846,648 billion total book value of debentures and borrowings outstanding as of December 31, 2017,2018,￦2,0622,392 billion was denominated in foreign currencies. The interest rates of such debt denominated in foreign currencies ranged from 0.48% (Japanese Yen 15 billion bond due 2018) to 6.50% (US$100 million fixed rate notes due 2034 issued under our suspended medium-term note program). Upon identification and evaluation of our currency risk exposures, we, having considered various circumstances, enter into derivative financial instruments to try to manage some ofmitigate such risks. Although the impact of exchange rate fluctuations has in the past been partially mitigated by such strategies, our results of operations have historically been affected by exchange rate fluctuations, and there can be no assurance that such strategies will be sufficient to reduce or eliminate the adverse impact of such fluctuations in the future. See “—Item 3.A. Selected Financial Data—Exchange Rate Information”, “Item 5. Operating and Financial Review and Prospects—Item 5.B. Liquidity and Capital Resources” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Exchange Rate Risk.”

Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of our ordinary shares on the KRX Korea Composite Stock Price Index (“KOSPI”) Market and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the Dollar conversion by the depositary for the American Depositary Receipts (“ADRs”) of cash dividends, if any, paid in Won on our ordinary shares represented by the ADSs.

We may be exposed to potential claims for unpaid wages and become subject to additional labor costs arising from the Supreme Court of Korea’s interpretation of ordinary wages.

Under the Labor Standards Act, an employee’s “ordinary wage” is a key legal construct used to calculate many statutory benefits and entitlements in Korea. Increasing or decreasing the amount of compensation included in employees’ ordinary wages has the effect of increasing or decreasing the amounts of various statutory entitlements that are calculated based on “ordinary wage,” such as overtime premium pay. Under guidelines previously issued by the Ministry of Employment and Labor, prior to the Supreme Court decision described below, an employee’s ordinary wage included base salary and certain fixed monthly allowances for work performed overtime during night shifts and holidays. Prior to the Supreme Court of Korea’s decision described below, companies in Korea had typically interpreted these guidelines as excluding from the scope of ordinary wages fixed bonuses that are paid other than on a monthly basis, namely on abi-monthly, quarterly or biannual basis.

ruled that, in certain limited situations, an employee’s claim of underpayment under the expanded scope of ordinary wages for the past three years may be denied based on the principles of good faith, even thoughif the claim is raised within the statute of limitations period. Following this Supreme Court decision, the Ministry of Employment and Labor issued a Guideline for Labor and Management on Ordinary Wages onin January 23, 2014. A bill for amendment to the Labor Standard Act, which includes a definition of “ordinary wages” as “entire money and valuables determined in advance to be provided to the employee by the employer as wages, regardless of its name, in exchange of the prescribed or total work of the employee,” is currently pending at thesub-committee level of the National Assembly.

While we currently are not subject to any claims of underpayment from our current or former employees,the Supreme Court decision may result in additional labor costs for us in the form of additional payments required under the expanded scope of ordinary wages, both those incurred during the past three years and those to be incurred in the future. Any such additional payments may have an adverse effect on our financial condition and results of operation.

Risks Relating to Korea

If economic conditions in Korea is our most important market, anddeteriorate, our current business and future growth could be materially and adversely affected if economic or political conditionsaffected.

We are incorporated in Korea, deteriorate.

Substantially alland we generate most of our operations, customers and assets are locatedoperating revenue in Korea. Accordingly, the performanceAs a result, we are subject to economic, political, legal and successful fulfillment of our operational strategies are necessarily dependent on the overall Korean economy and the resulting impact on the demand for telecommunications services.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 Korean economy is subject to many factors beyond our control, including developments in the global economy and domestic political scandals.

The Korean economy is closely integrated with, and is significantly affected by, developments in the global economy and financial markets. Substantial uncertainties remain for the global and Korean economy in the form of continued tightening of the U.S. monetary policy, continued fiscal and financial challenges for the European, U.S. and global economies, fluctuations in oil and commodity prices, trade tensions involving Korea’s trading partners, signs of cooling of the Chinese economy and a rise of military and political tension in the Middle East, the Eastern Europe and former members of the Soviet Union. Accordingly, the overall prospects for the Korean and global economy in 2018 and beyond remain uncertain.economy. Any future deterioration of the global economy may have an adverse impact on the Korean economy, which in turnas a result of unfavorable global economic conditions or otherwise, could adversely affect our business, financial condition and results of operations. As Korea’s economy is highly dependent onoperations and the health and direction of the global economy, investors’ reactions to developments in one country can have adverse effects on the securitiesmarket price of companies in other countries. Factors that determine economic and business cycles of the Korean or global economy are for the most part beyond our control and inherently uncertain. In light of the high level of interdependence of the global economy, any of the foregoing developments could have a material adverse effect on the Korean economy and financial markets, and in turn on the our business and profitability.ADSs.

Developments that could have an adverse impact on Korea’s economy in the future also include:

Escalations in tensions with North Korea could have an adverse effect on us.us and the market value of our 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 current and future events. In particular, there continues to be uncertainty regarding the long-term stability of North Korea’s political leadership since the succession of KimJong-un to power following the death of his father in December 2011, which has raised concerns with respect to the political and economic future of the region. In February 2017, Kim Jong-un’s half-brother, Kim Jong-nam, was reported to have been assassinated in an international airport in Malaysia. On April 27, 2018, Kim Jong-un and the President of South Korea attended a summit held in the Demilitarized Zone of the Korean peninsula.

In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-rangeballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following: