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As filed with the Securities and Exchange Commission on April 28, 2017







UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549

Form 20-F



|☐ | 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 EXCHANGEACT OF 1934
|- | -----------------------------------------------------------------------------------

| | For the fiscal year ended December 31, 2016
| | -------------------------------------------

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 1-14926

KT Corporation

(Exact name of Registrant as specified in its charter)



|                                                |  |                                                
|----------------------------------------------- |  | -----------------------------------------------
|KT Corporation                                  |  | The Republic of Korea                          
|(Translation of Registrants name into English) |  | (Jurisdiction of incorporation or organization)

KT Gwanghwamun Building East

33, Jong-ro 3-Gil, Jongno-gu

03155 Seoul, Korea

(Address
of principal executive offices)

Kwang Suk Shin

KT Gwanghwamun Building East

33, Jong-ro 3-Gil, Jongno-gu

03155 Seoul, Korea

Telephone:
+82-31-727-0114; E-mail: ks.shin@kt.com

(Name, telephone, e-mail 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, Inc.            
|one-half of one share of ordinary share       |  |                                          
|Ordinary share, par value ₩5,000 per share*   |  | New York Stock Exchange, Inc.*           

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

As of December 31, 2016, there were 244,971,643 ordinary shares, par value₩5,000 per share, outstanding

(not including 16,140,165 ordinary shares held by the registrant 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
(§232.405 of this chapter) 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 the definitions of large accelerated filer,
accelerated filer, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated
filer  ☒    Accelerated
filer  ☐    Non-accelerated filer  ☐    Emerging growth company  ☐

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.  ☐

 The term new or revised financial accounting standard refers to any update
issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis
of accounting the registrant has used to prepare the financial statements included in this filing. U.S.GAAP☐IFRS☒Other☐

If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow.    Item17  ☐    
Item18  ☐

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  ☒



|* | Not for trading, but only in connection with the registration of the American Depositary Shares.
|- | ------------------------------------------------------------------------------------------------









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TABLE OF CONTENTS



|             |  |                                                     |   |                                                      |    |      |    | 
|------------ |  | --------------------------------------------------- | - | ---------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                     |   |                                                      |    | Page |   
|             | 
|PRESENTATION |  |                                                     | 1 |                                                     
|             | 
|PART I       |  |                                                     | 1 |                                                     
|             |  |                                                    
|ITEM 1.      |  | IDENTITY OF DIRECTORS, SENIOR MANAGERS AND ADVISERS |   |                                                      | 1  |     
|             |  |                                                     |  
|             |  | Item 1.A.                                           |   | Directors and Senior Management                      |    |      | 1  | 
|             |  |                                                     |  
|             |  | Item 1.B.                                           |   | Advisers                                             |    |      | 1  | 
|             |  |                                                     |  
|             |  | Item 1.C.                                           |   | Auditors                                             |    |      | 1  | 
|             |  |                                                    
|ITEM 2.      |  | OFFER STATISTICS AND EXPECTED TIMETABLE             |   |                                                      | 1  |     
|             |  |                                                     |  
|             |  | Item 2.A.                                           |   | Offer Statistics                                     |    |      | 1  | 
|             |  |                                                     |  
|             |  | Item 2.B.                                           |   | Method and Expected Timetable                        |    |      | 1  | 
|             |  |                                                    
|ITEM 3.      |  | KEY INFORMATION                                     |   |                                                      | 2  |     
|             |  |                                                     |  
|             |  | Item 3.A.                                           |   | Selected Financial Data                              |    |      | 2  | 
|             |  |                                                     |  
|             |  | 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                          |   |                                                      | 24 |     
|             |  |                                                     |  
|             |  | Item 4.A.                                           |   | History and Development of the Company               |    |      | 24 | 
|             |  |                                                     |  
|             |  | Item 4.B.                                           |   | Business Overview                                    |    |      | 25 | 
|             |  |                                                     |  
|             |  | Item 4.C.                                           |   | Organizational Structure                             |    |      | 52 | 
|             |  |                                                     |  
|             |  | Item 4.D.                                           |   | Property, Plants and Equipment                       |    |      | 52 | 
|             |  |                                                    
|ITEM 4A.     |  | UNRESOLVED STAFF COMMENTS                           |   |                                                      | 56 |     
|             |  |                                                    
|ITEM 5.      |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS        |   |                                                      | 56 |     
|             |  |                                                     |  
|             |  | Item 5.A.                                           |   | Operating Results                                    |    |      | 56 | 
|             |  |                                                     |  
|             |  | Item 5.B.                                           |   | Liquidity and Capital Resources                      |    |      | 82 | 
|             |  |                                                     |  
|             |  | Item 5.C.                                           |   | Research and Development, Patents and Licenses, Etc. |    |      | 86 | 
|             |  |                                                     |  
|             |  | Item 5.D.                                           |   | Trend Information                                    |    |      | 87 | 
|             |  |                                                     |  
|             |  | Item 5.E.                                           |   | Off-balance Sheet Arrangements                       |    |      | 87 | 
|             |  |                                                     |  
|             |  | Item 5.F.                                           |   | Tabular Disclosure of Contractual Obligations        |    |      | 87 | 
|             |  |                                                     |  
|             |  | Item 5.G.                                           |   | Safe Harbor                                          |    |      | 87 | 
|             |  |                                                    
|ITEM 6.      |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES          |   |                                                      | 87 |     
|             |  |                                                     |  
|             |  | Item 6.A.                                           |   | Directors and Senior Management                      |    |      | 87 | 
|             |  |                                                     |  
|             |  | Item 6.B.                                           |   | Compensation                                         |    |      | 91 | 
|             |  |                                                     |  
|             |  | Item 6.C.                                           |   | Board Practices                                      |    |      | 92 | 
|             |  |                                                     |  
|             |  | Item 6.D.                                           |   | Employees                                            |    |      | 94 | 
|             |  |                                                     |  
|             |  | Item 6.E.                                           |   | Share Ownership                                      |    |      | 96 | 



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TABLE OF CONTENTS

(continued)



|         |  |                                                            |     |                                                         |     |      |     | 
|-------- |  | ---------------------------------------------------------- | --- | ------------------------------------------------------- | --- | ---- | --- | 
|         |  |                                                            |     |                                                         |     | Page |    
|         |  |                                                           
|ITEM 7.  |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          |     |                                                         | 96  |     
|         |  |                                                            |    
|         |  | Item 7.A.                                                  |     | Major Shareholders                                      |     |      | 96  | 
|         |  |                                                            |    
|         |  | Item 7.B.                                                  |     | Related Party Transactions                              |     |      | 96  | 
|         |  |                                                            |    
|         |  | Item 7.C.                                                  |     | Interests of Experts and Counsel                        |     |      | 96  | 
|         |  |                                                           
|ITEM 8.  |  | FINANCIAL INFORMATION                                      |     |                                                         | 97  |     
|         |  |                                                            |    
|         |  | Item 8.A.                                                  |     | Consolidated Statements and Other Financial Information |     |      | 97  | 
|         |  |                                                            |    
|         |  | Item 8.B.                                                  |     | Significant Changes                                     |     |      | 99  | 
|         |  |                                                           
|ITEM 9.  |  | THE OFFER AND LISTING                                      |     |                                                         | 100 |     
|         |  |                                                            |    
|         |  | Item 9.A.                                                  |     | Offer and Listing Details                               |     |      | 100 | 
|         |  |                                                            |    
|         |  | Item 9.B.                                                  |     | Plan of Distribution                                    |     |      | 101 | 
|         |  |                                                            |    
|         |  | Item 9.C.                                                  |     | Markets                                                 |     |      | 101 | 
|         |  |                                                            |    
|         |  | Item 9.D.                                                  |     | Selling Shareholders                                    |     |      | 106 | 
|         |  |                                                            |    
|         |  | Item 9.E.                                                  |     | Dilution                                                |     |      | 106 | 
|         |  |                                                            |    
|         |  | Item 9.F.                                                  |     | Expenses of the Issuer                                  |     |      | 106 | 
|         |  |                                                           
|ITEM 10. |  | ADDITIONAL INFORMATION                                     |     |                                                         | 106 |     
|         |  |                                                            |    
|         |  | Item 10.A.                                                 |     | Share Capital                                           |     |      | 106 | 
|         |  |                                                            |    
|         |  | Item 10.B.                                                 |     | Memorandum and Articles of Association                  |     |      | 106 | 
|         |  |                                                            |    
|         |  | Item 10.C.                                                 |     | Material Contracts                                      |     |      | 112 | 
|         |  |                                                            |    
|         |  | Item 10.D.                                                 |     | Exchange Controls                                       |     |      | 113 | 
|         |  |                                                            |    
|         |  | Item 10.E.                                                 |     | Taxation                                                |     |      | 117 | 
|         |  |                                                            |    
|         |  | Item 10.F.                                                 |     | Dividends and Paying Agents                             |     |      | 123 | 
|         |  |                                                            |    
|         |  | Item 10.G.                                                 |     | Statements by Experts                                   |     |      | 123 | 
|         |  |                                                            |    
|         |  | Item 10.H.                                                 |     | Documents on Display                                    |     |      | 123 | 
|         |  |                                                            |    
|         |  | Item 10.I.                                                 |     | Subsidiary Information                                  |     |      | 123 | 
|         |  |                                                           
|ITEM 11. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |     |                                                         | 123 |     
|         |  |                                                           
|ITEM 12. |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     |     |                                                         | 126 |     
|         |  |                                                            |    
|         |  | Item 12.A.                                                 |     | Debt Securities                                         |     |      | 126 | 
|         |  |                                                            |    
|         |  | Item 12.B.                                                 |     | Warrants and Rights                                     |     |      | 126 | 
|         |  |                                                            |    
|         |  | Item 12.C.                                                 |     | Other Securities                                        |     |      | 126 | 
|         |  |                                                            |    
|         |  | Item 12.D.                                                 |     | American Depositary Shares                              |     |      | 126 | 
|         | 
|PART II  |  |                                                            | 128 |                                                        
|         |  |                                                           
|ITEM 13. |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES            |     |                                                         | 128 |     



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TABLE OF CONTENTS

(continued)

|           |  |                                                                              |     |                                                                        |     |      |     | 
|---------- |  | ---------------------------------------------------------------------------- | --- | ---------------------------------------------------------------------- | --- | ---- | --- | 
|           |  |                                                                              |     |                                                                        |     | Page |    
|           |  |                                                                             
|ITEM 14.   |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |     |                                                                        | 128 |     
|           |  |                                                                             
|ITEM 15.   |  | CONTROLS AND PROCEDURES                                                      |     |                                                                        | 128 |     
|           |  |                                                                             
|ITEM 16.   |  | [RESERVED]                                                                   |     |                                                                        | 129 |     
|           |  |                                                                              |    
|           |  | Item 16A.                                                                    |     | Audit Committee Financial Expert                                       |     |      | 129 | 
|           |  |                                                                              |    
|           |  | Item 16B.                                                                    |     | Code of Ethics                                                         |     |      | 129 | 
|           |  |                                                                              |    
|           |  | Item 16C.                                                                    |     | Principal Accountant Fees and Services                                 |     |      | 130 | 
|           |  |                                                                              |    
|           |  | Item 16D.                                                                    |     | Exemptions from the Listing Standards for Audit Committees             |     |      | 130 | 
|           |  |                                                                              |    
|           |  | Item 16E.                                                                    |     | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |     |      | 131 | 
|           |  |                                                                              |    
|           |  | Item 16F.                                                                    |     | Change in Registrants Certifying Accountant                           |     |      | 131 | 
|           |  |                                                                              |    
|           |  | Item 16G.                                                                    |     | Corporate Governance                                                   |     |      | 131 | 
|           |  |                                                                              |    
|           |  | Item 16H.                                                                    |     | Mine Safety Disclosure                                                 |     |      | 132 | 
|           | 
|PART III   |  |                                                                              | 133 |                                                                       
|           |  |                                                                             
|ITEM 17.   |  | FINANCIAL STATEMENTS                                                         |     |                                                                        | 133 |     
|           |  |                                                                             
|ITEM 18.   |  | FINANCIAL STATEMENTS                                                         |     |                                                                        | 133 |     
|           |  |                                                                             
|ITEM 19.   |  | EXHIBITS                                                                     |     |                                                                        | 133 |     
|           | 
|SIGNATURES |  |                                                                              | 135 |                                                                       



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PRESENTATION

All references to Korea or the Republic contained in this annual report mean the Republic of Korea. All references to the
Government are to the government of the Republic of Korea. All references to we, us or the Company are to KT Corporation and, as the context may require, its subsidiaries.

All references to Won or
₩ in this annual report are to the currency of the Republic and all references to Dollars, $,
US$ or U.S. dollars are to the currency of the United States of America. Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money
Brokerage Services, Ltd. (the Market Average Exchange Rate) on the balance sheet dates, which were, for U.S. dollars,
₩1,099.2 to US$1.00,
₩1,172.0 to US$1.00 and
₩1,208.5 to US$1.00 on December 31, 2014, 2015 and 2016, respectively. Our consolidated financial statements are expressed in Won
and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2016 have been translated into United States dollars at the rate of
₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016.

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All market share data contained in this annual report, unless otherwise specified, are based on the number of subscribers announced by the Korea
Communications Commission (the KCC) or the Korea Telecommunications Operators Association.

PART
I

Item 1. Identity of Directors, Senior Managers 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

Item 2.A.Offer Statistics

Not
applicable.

Item 2.B.Method and Expected Timetable

Not applicable.



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Item 3. Key Information

Item 3.A.Selected Financial Data

You should read the selected consolidated financial data below in conjunction with the consolidated financial statements (Consolidated
Financial Statements) as of December 31, 2015 and 2016 and for each of the years in the three-year period ended December 31, 2016, and the report of the independent registered public accounting firm on these statements included
herein. These audited financial statements and the related notes have been prepared under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The selected
consolidated financial data for the three years ended December 31, 2016 have been derived from our audited consolidated financial statements.

In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also prepare financial statements in accordance with IFRS as adopted by the Republic of
Korea (K-IFRS), which we are required to file with the Financial Services Commission and the Korea Exchange under the Financial Investment Services and Capital Markets Act of Korea
(FSCMA). English translations of such financial statements are furnished to the Securities and Exchange Commission under Form 6-K. During the three years ended December 31, 2016, we are
required to adopt certain amendments and interpretations to K-IFRS, relating to presentation of operating profit. Additionally, under K-IFRS, revenue from the
development and sale of real estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real
estate is delivered to the buyer. Furthermore, in connection with the exercise of early redemption rights for certain commercial paper guaranteed by KT ENGCORE Co., Ltd. (formerly known as KT ENS Corporation until April 2015) (KT
ENGCORE), our previously consolidated subsidiary until August 2014, we recognized financial losses relating to the resulting estimation of guarantee liabilities in our consolidated statements of operations prepared in accordance with IFRS as
issued by the IASB for the year ended December 31, 2013 (which were issued on April 28, 2014), which were not reflected in our financial statements prepared in accordance with K-IFRS for the year
ended December 31, 2013 (which were issued on March 13, 2014) as it was not possible to make a reasonable estimate of the liabilities at the time of issuing the K-IFRS financial statements. We
subsequently reflected such losses in our K-IFRS financial statements for the year ended December 31, 2014. As a result, the presentation of operating results in our consolidated statements of operations
prepared in accordance with IFRS as issued by the IASB included in this annual report differs from the presentation of operating results in our consolidated statements of operations prepared in accordance with
K-IFRS. See Item 5. Operating and Financial Review and ProspectsItem 5.A. Operating ResultsExplanatory Note Regarding Presentation of Certain Financial Information under K-IFRS for additional information.

The information set forth below is not necessarily
indicative of the results of future operations and should be read in conjunction with Item 5. Operating and Financial Review and Prospects and our Consolidated Financial Statements and related notes included in this annual report.



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Consolidated statement of operations data



|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ------- | - | ------ | - |  | --- | ------ | -
|                                                                                                        |  | Year Ended December 31,                                             |       
|                                                                                                        |  | 2012                                                                |        |   | 2013 |   |        | 2014 |  |   | 2015   |   |  | 2016 |        |   | 2016(1) |  
|                                                                                                        |  | (In billions of Won and millions of Dollars, except per share data) |       
|Continuing Operations:                                                                                  |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Operating revenue                                                                                       |  | ₩                                                                   | 24,110 |   |      | ₩ | 23,146 |      |  | ₩ | 22,613 |   |  | ₩    | 22,700 |   |         | ₩ | 23,121 |   |  | US$ | 19,132 |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Revenue                                                                                                 |  |                                                                     | 23,323 |   |      |   | 22,818 |      |  |   | 22,359 |   |  |      | 22,212 |   |         |   | 22,755 |   |  |     | 18,829 |  
|Others                                                                                                  |  |                                                                     | 787    |   |      |   | 328    |      |  |   | 253    |   |  |      | 488    |   |         |   | 366    |   |  |     | 303    |  
|Operating expenses                                                                                      |  |                                                                     | 22,433 |   |      |   | 22,911 |      |  |   | 23,392 |   |  |      | 21,623 |   |         |   | 21,781 |   |  |     | 18,023 |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Operating profit                                                                                        |  |                                                                     | 1,677  |   |      |   | 235    |      |  |   | (779   | ) |  |      | 1,077  |   |         |   | 1,340  |   |  |     | 1,109  |  
|Finance income                                                                                          |  |                                                                     | 498    |   |      |   | 278    |      |  |   | 253    |   |  |      | 273    |   |         |   | 296    |   |  |     | 245    |  
|Finance costs                                                                                           |  |                                                                     | (780   | ) |      |   | (633   | )    |  |   | (792   | ) |  |      | (645   | ) |         |   | (515   | ) |  |     | (426   | )
|Income from jointly controlled entities and associates                                                  |  |                                                                     | 18     |   |      |   | 7      |      |  |   | 19     |   |  |      | 6      |   |         |   | 3      |   |  |     | 2      |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Profit (loss) from continuing operations before income tax                                              |  |                                                                     | 1,413  |   |      |   | (114   | )    |  |   | (1,299 | ) |  |      | 711    |   |         |   | 1,123  |   |  |     | 930    |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Income tax expense (benefit)                                                                            |  |                                                                     | 278    |   |      |   | 12     |      |  |   | (271   | ) |  |      | 227    |   |         |   | 328    |   |  |     | 272    |  
|Profit (loss) for the year from the continuing operations                                               |  |                                                                     | 1,135  |   |      |   | (126   | )    |  |   | (1,028 | ) |  |      | 484    |   |         |   | 795    |   |  |     | 658    |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Discontinued operations:                                                                                |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Profit (loss) from discontinued operations                                                              |  |                                                                     | (30    | ) |      |   | 38     |      |  |   | 86     |   |  |      | 141    |   |         |   |       |   |  |     |       |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Profit (loss) for the year                                                                              |  | ₩                                                                   | 1,105  |   |      | ₩ | (88    | )    |  | ₩ | (941   | ) |  | ₩    | 625    |   |         | ₩ | 795    |   |  | US$ | 658    |  
|                                                                                                        |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Profit (loss) for the year attributable to:                                                             |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Equity holders of the parent company                                                                    |  | ₩                                                                   | 1,046  |   |      | ₩ | (190   | )    |  | ₩ | (1,030 | ) |  | ₩    | 546    |   |         | ₩ | 708    |   |  | US$ | 586    |  
|Profit (loss) from continuing operations                                                                |  |                                                                     | 1,070  |   |      |   | (216   | )    |  |   | (1,094 | ) |  |      | 404    |   |         |   | 708    |   |  |     | 586    |  
|Profit (loss) from discontinued operations                                                              |  |                                                                     | (24    | ) |      |   | 26     |      |  |   | 64     |   |  |      | 142    |   |         |   |       |   |  |     |       |  
|Non-controlling interest                                                                                |  | ₩                                                                   | 59     |   |      | ₩ | 102    |      |  | ₩ | 89     |   |  | ₩    | 78     |   |         | ₩ | 87     |   |  | US$ | 72     |  
|Profit from continuing operations                                                                       |  |                                                                     | 64     |   |      |   | 90     |      |  |   | 66     |   |  |      | 80     |   |         |   | 87     |   |  |     | 72     |  
|Profit (loss) from discontinued operations                                                              |  |                                                                     | (5     | ) |      |   | 12     |      |  |   | 22     |   |  |      | (1     | ) |         |   |       |   |  |     |       |  
|Earnings per share attributable to the equity holders of the Parent Company during the period (in won): |  |                                                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Basic earnings (loss) per share                                                                         |  | ₩                                                                   | 4,296  |   |      | ₩ | (779   | )    |  | ₩ | (4,215 | ) |  | ₩    | 2,231  |   |         | ₩ | 2,893  |   |  | US$ | 2      |  
|From continuing operations                                                                              |  |                                                                     | 4,396  |   |      |   | (885   | )    |  |   | (4,477 | ) |  |      | 1,650  |   |         |   | 2,893  |   |  |     | 2      |  
|From discontinued operations                                                                            |  |                                                                     | (100   | ) |      |   | 106    |      |  |   | 262    |   |  |      | 581    |   |         |   |       |   |  |     |       |  
|Diluted earnings (loss) per share                                                                       |  | ₩                                                                   | 4,295  |   |      | ₩ | (782   | )    |  | ₩ | (4,215 | ) |  | ₩    | 2,231  |   |         | ₩ | 2,891  |   |  | US$ | 2      |  
|From continuing operations                                                                              |  |                                                                     | 4,395  |   |      |   | (888   | )    |  |   | (4,477 | ) |  |      | 1,650  |   |         |   | 2,891  |   |  |     | 2      |  
|From discontinued operations                                                                            |  |                                                                     | (100   | ) |      |   | 106    |      |  |   | 262    |   |  |      | 581    |   |         |   |       |   |  |     |       |  



3



---

##### Table of Contents

Consolidated statement of financial position data



|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|--------------------------------------------------------- |  | -------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ------- | - | ------ | - |  | --- | ------ | -
|                                                          |  | As of December 31,                           |       
|Selected Statement of Financial Position Data             |  | 2012                                         |        |   | 2013 |   |        | 2014 |  |   | 2015   |   |  | 2016 |        |   | 2016(1) |  
|                                                          |  | (In billions of Won and millions of Dollars) |       
|Assets:                                                   |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Current assets:                                           |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Cash and cash equivalents                                 |  | ₩                                            | 2,058  |   |      | ₩ | 2,071  |      |  | ₩ | 1,889  |   |  | ₩    | 2,559  |   |         | ₩ | 2,900  |   |  | US$ | 2,400  |  
|Trade and other receivables, net                          |  |                                              | 6,916  |   |      |   | 6,373  |      |  |   | 5,780  |   |  |      | 4,854  |   |         |   | 5,327  |   |  |     | 4,408  |  
|Other financial assets                                    |  |                                              | 246    |   |      |   | 480    |      |  |   | 333    |   |  |      | 293    |   |         |   | 721    |   |  |     | 596    |  
|Current income tax assets                                 |  |                                              | 1      |   |      |   | 35     |      |  |   | 4      |   |  |      | 4      |   |         |   | 2      |   |  |     | 2      |  
|Inventories, net                                          |  |                                              | 935    |   |      |   | 674    |      |  |   | 419    |   |  |      | 617    |   |         |   | 455    |   |  |     | 376    |  
|Other current assets                                      |  |                                              | 362    |   |      |   | 340    |      |  |   | 350    |   |  |      | 317    |   |         |   | 311    |   |  |     | 257    |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Total current assets                                      |  |                                              | 10,517 |   |      |   | 9,972  |      |  |   | 8,774  |   |  |      | 8,643  |   |         |   | 9,716  |   |  |     | 8,039  |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|                                                          |  |                                              |        |   |      |  
|Non-current assets:                                       |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Trade and other receivables, net                          |  |                                              | 2,108  |   |      |   | 1,739  |      |  |   | 1,759  |   |  |      | 704    |   |         |   | 709    |   |  |     | 587    |  
|Other financial assets                                    |  |                                              | 672    |   |      |   | 673    |      |  |   | 705    |   |  |      | 658    |   |         |   | 665    |   |  |     | 550    |  
|Property and equipment, net                               |  |                                              | 15,806 |   |      |   | 16,387 |      |  |   | 16,468 |   |  |      | 14,479 |   |         |   | 14,312 |   |  |     | 11,843 |  
|Investment property, net                                  |  |                                              | 1,155  |   |      |   | 1,105  |      |  |   | 1,060  |   |  |      | 1,102  |   |         |   | 1,148  |   |  |     | 950    |  
|Intangible assets, net                                    |  |                                              | 3,214  |   |      |   | 3,827  |      |  |   | 3,544  |   |  |      | 2,600  |   |         |   | 3,023  |   |  |     | 2,501  |  
|Investments in jointly controlled entities and associates |  |                                              | 379    |   |      |   | 364    |      |  |   | 339    |   |  |      | 270    |   |         |   | 284    |   |  |     | 235    |  
|Deferred income tax assets                                |  |                                              | 611    |   |      |   | 707    |      |  |   | 1,079  |   |  |      | 845    |   |         |   | 701    |   |  |     | 580    |  
|Other non-current assets                                  |  |                                              | 95     |   |      |   | 76     |      |  |   | 72     |   |  |      | 102    |   |         |   | 106    |   |  |     | 88     |  
|Total non-current assets                                  |  |                                              | 24,040 |   |      |   | 24,878 |      |  |   | 25,025 |   |  |      | 20,761 |   |         |   | 20,948 |   |  |     | 17,335 |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Total assets                                              |  | ₩                                            | 34,558 |   |      | ₩ | 34,850 |      |  | ₩ | 33,799 |   |  | ₩    | 29,404 |   |         | ₩ | 30,664 |   |  | US$ | 25,374 |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|                                                          |  |                                              |        |   |      |  
|Liabilities and Equity:                                   |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Current liabilities:                                      |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Trade and other payables                                  |  | ₩                                            | 7,235  |   |      | ₩ | 7,433  |      |  | ₩ | 6,428  |   |  | ₩    | 6,335  |   |         | ₩ | 7,140  |   |  | US$ | 5,908  |  
|Borrowings                                                |  |                                              | 3,197  |   |      |   | 3,021  |      |  |   | 2,956  |   |  |      | 1,726  |   |         |   | 1,820  |   |  |     | 1,506  |  
|Other financial liabilities                               |  |                                              | 72     |   |      |   | 64     |      |  |   | 24     |   |  |      | 44     |   |         |   | 1      |   |  |     | 1      |  
|Current income tax liabilities                            |  |                                              | 144    |   |      |   | 100    |      |  |   | 46     |   |  |      | 81     |   |         |   | 89     |   |  |     | 73     |  
|Provisions                                                |  |                                              | 206    |   |      |   | 115    |      |  |   | 111    |   |  |      | 104    |   |         |   | 96     |   |  |     | 80     |  
|Deferred income                                           |  |                                              | 171    |   |      |   | 144    |      |  |   | 144    |   |  |      | 98     |   |         |   | 36     |   |  |     | 29     |  
|Other current liabilities                                 |  |                                              | 242    |   |      |   | 348    |      |  |   | 279    |   |  |      | 311    |   |         |   | 342    |   |  |     | 283    |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Total current liabilities                                 |  |                                              | 11,267 |   |      |   | 11,224 |      |  |   | 9,987  |   |  |      | 8,699  |   |         |   | 9,524  |   |  |     | 7,880  |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|                                                          |  |                                              |        |   |      |  
|Non-current liabilities:                                  |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Trade and other payables                                  |  |                                              | 729    |   |      |   | 1,108  |      |  |   | 944    |   |  |      | 669    |   |         |   | 1,188  |   |  |     | 983    |  
|Borrowings                                                |  |                                              | 8,239  |   |      |   | 8,463  |      |  |   | 9,860  |   |  |      | 6,909  |   |         |   | 6,301  |   |  |     | 5,214  |  
|Other financial liabilities                               |  |                                              | 70     |   |      |   | 179    |      |  |   | 191    |   |  |      | 104    |   |         |   | 108    |   |  |     | 90     |  
|Retirement benefit liabilities                            |  |                                              | 549    |   |      |   | 586    |      |  |   | 594    |   |  |      | 524    |   |         |   | 378    |   |  |     | 313    |  
|Provisions                                                |  |                                              | 150    |   |      |   | 134    |      |  |   | 106    |   |  |      | 91     |   |         |   | 101    |   |  |     | 83     |  
|Deferred income                                           |  |                                              | 157    |   |      |   | 148    |      |  |   | 147    |   |  |      | 96     |   |         |   | 85     |   |  |     | 71     |  
|Deferred income tax liabilities                           |  |                                              | 137    |   |      |   | 169    |      |  |   | 144    |   |  |      | 130    |   |         |   | 138    |   |  |     | 114    |  
|Other non-current liabilities                             |  |                                              | 41     |   |      |   | 2      |      |  |   | 39     |   |  |      | 27     |   |         |   | 59     |   |  |     | 49     |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Total non-current liabilities                             |  |                                              | 10,073 |   |      |   | 10,789 |      |  |   | 12,025 |   |  |      | 8,550  |   |         |   | 8,358  |   |  |     | 6,916  |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Total liabilities                                         |  | ₩                                            | 21,340 |   |      | ₩ | 22,013 |      |  | ₩ | 22,012 |   |  | ₩    | 17,249 |   |         | ₩ | 17,882 |   |  | US$ | 14,796 |  
|                                                          |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|                                                          |  |                                              |        |   |      |  
|Equity attributable to owners of the Parent Company       |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Paid-in capital                                           |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|Share capital                                             |  | ₩                                            | 1,564  |   |      | ₩ | 1,564  |      |  | ₩ | 1,564  |   |  | ₩    | 1,564  |   |         | ₩ | 1,564  |   |  | US$ | 1,295  |  
|Share premium                                             |  |                                              | 1,440  |   |      |   | 1,440  |      |  |   | 1,440  |   |  |      | 1,440  |   |         |   | 1,440  |   |  |     | 1,192  |  
|Retained earnings                                         |  |                                              | 10,646 |   |      |   | 10,019 |      |  |   | 8,568  |   |  |      | 9,050  |   |         |   | 9,644  |   |  |     | 7,981  |  
|Accumulated other comprehensive income (expense)          |  |                                              | 1      |   |      |   | 25     |      |  |   | 26     |   |  |      | 14     |   |         |   | (1     | ) |  |     | (1     | )
|Other components of equity                                |  |                                              | (1,343 | ) |      |   | (1,321 | )    |  |   | (1,261 | ) |  |      | (1,233 | ) |         |   | (1,218 | ) |  |     | (1,008 | )
|                                                          |  |                                              | 12,309 |   |      |   | 11,728 |      |  |   | 10,338 |   |  |      | 10,836 |   |         |   | 11,430 |   |  |     | 9,458  |  
|                                                          |  |                                              |        |   |      |  
|Non-controlling interest                                  |  |                                              | 909    |   |      |   | 1,110  |      |  |   | 1,449  |   |  |      | 1,320  |   |         |   | 1,353  |   |  |     | 1,119  |  
|Total equity                                              |  |                                              | 13,218 |   |      |   | 12,837 |      |  |   | 11,788 |   |  |      | 12,156 |   |         |   | 12,783 |   |  |     | 10,577 |  
|Total liabilities and equity                              |  | ₩                                            | 34,558 |   |      | ₩ | 34,850 |      |  | ₩ | 33,799 |   |  | ₩    | 29,404 |   |         | ₩ | 30,664 |   |  | US$ | 25,374 |  



4



---

##### Table of Contents

Consolidated statement of cash flow data



|                                                    |  |                                              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |     |        |  
|--------------------------------------------------- |  | -------------------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ------- | - | ------ | - |  | --- | ------ | -
|                                                    |  | Year Ended December 31,                      |       
|                                                    |  | 2012                                         |        |   | 2013 |   |        | 2014 |  |   | 2015   |   |  | 2016 |        |   | 2016(1) |  
|                                                    |  | (In billions of Won and millions of Dollars) |       
|Net cash generated from operating activities        |  | ₩                                            | 5,725  |   |      | ₩ | 4,111  |      |  | ₩ | 1,916  |   |  | ₩    | 4,230  |   |         | ₩ | 4,771  |   |  | US$ | 3,948  |  
|Net cash provided by (used in) investing activities |  |                                              | (3,851 | ) |      |   | (3,783 | )    |  |   | (3,171 | ) |  |      | (2,402 | ) |         |   | (3,485 | ) |  |     | (2,884 | )
|Net cash provided by (used in) financing activities |  |                                              | (1,278 | ) |      |   | (312   | )    |  |   | 1,072  |   |  |      | (1,164 | ) |         |   | (943   | ) |  |     | (781   | )

Operating Data



|                                           |  |                    |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|------------------------------------------ |  | ------------------ | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  |  |  | ------ | 
|                                           |  | As of December 31, |       
|                                           |  | 2012               |        |  | 2013 |  |        | 2014 |  |  | 2015   |  |  | 2016 |       
|Lines installed (thousands) (2)            |  |                    | 25,242 |  |      |  | 24,264 |      |  |  | 23,930 |  |  |      | 23,607 |  |  |  | 24,858 | 
|Lines in service (thousands) (2)           |  |                    | 15,121 |  |      |  | 14,032 |      |  |  | 13,713 |  |  |      | 12,440 |  |  |  | 11,871 | 
|Lines in service per 100 inhabitants (2)   |  |                    | 29.7   |  |      |  | 27.4   |      |  |  | 26.7   |  |  |      | 24.6   |  |  |  | 23.0   | 
|Mobile subscribers (thousands)             |  |                    | 16,502 |  |      |  | 16,454 |      |  |  | 17,300 |  |  |      | 18,038 |  |  |  | 18,892 | 
|Broadband Internet subscribers (thousands) |  |                    | 8,037  |  |      |  | 8,067  |      |  |  | 8,129  |  |  |      | 8,328  |  |  |  | 8,516  | 





|(1) | For convenience, the Won amounts are expressed in U.S. dollars at the rate of ₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016. This translation should not be construed as a representation that the Won amounts represent, have been or could be
converted into U.S. dollars at that rate or any other rate.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Including public telephones.
|--- | ----------------------------

Exchange Rate Information

The following table sets out information concerning the Market Average Exchange Rate for the periods and dates indicated:



|                         |  |                   |         |  |                |  |         |      |  |  |         |  |  |  |         | 
|------------------------ |  | ----------------- | ------- |  | -------------- |  | ------- | ---- |  |  | ------- |  |  |  | ------- | 
|Period                   |  | At Endof Period   |         |  | AverageRate(1) |  |         | High |  |  | Low     | 
|                         |  | (Won per US$1.00) |        
|2010                     |  |                   | 1,138.9 |  |                |  | 1,156.3 |      |  |  | 1,261.5 |  |  |  | 1,104.0 | 
|2011                     |  |                   | 1,153.3 |  |                |  | 1,108.1 |      |  |  | 1,199.5 |  |  |  | 1,049.5 | 
|2012                     |  |                   | 1,071.1 |  |                |  | 1,126.9 |      |  |  | 1,181.8 |  |  |  | 1,071.1 | 
|2013                     |  |                   | 1,055.3 |  |                |  | 1,095.0 |      |  |  | 1,159.1 |  |  |  | 1,051.5 | 
|2014                     |  |                   | 1,099.2 |  |                |  | 1,053.2 |      |  |  | 1,118.3 |  |  |  | 1,008.9 | 
|2015                     |  |                   | 1,172.0 |  |                |  | 1,131.5 |      |  |  | 1,203.1 |  |  |  | 1,068.1 | 
|2016                     |  |                   | 1,208.5 |  |                |  | 1,160.5 |      |  |  | 1,240.9 |  |  |  | 1,093.2 | 
|November                 |  |                   | 1,168.5 |  |                |  | 1,161.6 |      |  |  | 1,183.6 |  |  |  | 1,137.5 | 
|December                 |  |                   | 1,208.5 |  |                |  | 1,182.3 |      |  |  | 1,208.5 |  |  |  | 1,159.1 | 
|2017 (through April 25)  |  |                   | 1,131.7 |  |                |  | 1,149.8 |      |  |  | 1,208.5 |  |  |  | 1,112.5 | 
|January                  |  |                   | 1,157.8 |  |                |  | 1,185.1 |      |  |  | 1,208.5 |  |  |  | 1,157.8 | 
|February                 |  |                   | 1,132.1 |  |                |  | 1,144.9 |      |  |  | 1,165.5 |  |  |  | 1,131.0 | 
|March                    |  |                   | 1,116.1 |  |                |  | 1,134.8 |      |  |  | 1,158.2 |  |  |  | 1,112.5 | 
|April (through April 25) |  |                   | 1,131.7 |  |                |  | 1,133.5 |      |  |  | 1,145.8 |  |  |  | 1,113.8 | 



Source: Seoul
Money Brokerage Services, Ltd.



|(1) | Represents the average of the Market Average Exchange Rates on each business day during the relevant period (or portion thereof).
|--- | ---------------------------------------------------------------------------------------------------------------------------------

Our monetary assets and liabilities denominated in foreign currency are translated into Won at the Market Average Exchange Rate on the balance
sheet dates, which were, for U.S. dollars, ₩1,099.2 to US$1.00, ₩1,172.0 to US$1.00 and ₩1,208.5 to US$1.00, at December 31, 2014, 2015 and 2016,
respectively.

Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the
consolidated financial statements as of and for the year ended December 31, 2016 have been translated into United States dollars at the rate of ₩1,208.5 to US$1.00, the Market Average Exchange Rate in effect on December 30, 2016.



5



---

##### Table of Contents

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
industry is intense.

Competition in the telecommunications sector in Korea is intense. In recent years, business combinations
in the telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom Co., Ltd. (SK Telecom) acquired a controlling stake in Hanarotelecom
Incorporated in 2008, which was renamed SK Broadband Co., Ltd. (SK Broadband). The acquisition enabled SK Telecom to provide fixed-line telecommunications, broadband Internet access and Internet Protocol Television (IPTV)
services together with its mobile telecommunications services. In January 2010, LG Dacom Corporation (LG Dacom) and LG Powercom Co., Ltd. (LG Powercom) merged into LG Telecom Co., Ltd., which subsequently changed its name to
LG U+. The merger enabled LG U+ to provide a similar range of services as SK Telecom and us. Our inability to adapt to such changes in the competitive landscape could have a material adverse effect on our business, financial condition and results of
operations.

In addition to our competition with integrated telecommunications service providers, we face increasing competition from
specific service providers, such as Internet phone service providers, Internet text message service providers, voice resellers and call-back service providers. In recent years, the increasing popularity of Internet phone and free text message
services, such as Skype and Kakao Talk, has had a negative impact on demand for our telecommunications and text message services while creating additional data transmission usage by our Internet and mobile subscribers. Our inability to adapt to such
changes in the competitive landscape could have a material adverse effect on our business, financial condition and results of operations.

Mobile Service. We provide mobile services based on Wideband Code Division Multiple Access
(W-CDMA) technology and Long-Term Evolution (LTE) technology. Competitors in the mobile telecommunications service industry are SK Telecom and LG U+. We had a market share of 30.6% as
of December 31, 2016, making us the second largest mobile telecommunications service provider in Korea. SK Telecom had a market share of 49.1% as of December 31, 2016. Mobile subscribers are 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



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subscribers, the Act on Improvement of Mobile Telecommunication Device Distribution System (the Handset Distribution Reform Act), which limits the amount of handset subsidies offered
by service providers, was enacted in October 2014. As a result, price competition through handset subsidies has become less prevalent. However, if regulations are amended to allow a greater amount of subsidies and mobile service providers adopt a
strategy of expanding market share through price competition, it could lead to a decrease in our net profit margins.

Since 2011, SK
Telecom, LG U+ and we have launched fourth-generation (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. Furthermore, as SK Telecom, LG U+ and we continue to compete to improve network quality in order to accommodate increased data usage of subscribers, we may incur
significant expenses to acquire additional bandwidth spectrums and various fixed assets. 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, 2016, we had a market share in local telephone service of 80.6% and a market share in domestic long-distance service of 78.9%.
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 (including on-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 offer HFC-based services at rates lower than ours. We had a market share of 41.4% as of December 31, 2016. 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.



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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.

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 MHz of bandwidth in the 2.1 GHz spectrum, of which 20 MHz is used for our 4G LTE services
and the remaining 20 MHz of bandwidth for our IMT-2000 services based on W-CDMA wireless network standards. We also use 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. We also use 20 MHz of bandwidth in the 1.8 GHz spectrum, which we acquired in May 2016 for our Wideband LTE-A services. For more information
on our licenses to bandwidth spectrum, see Item 4. Information on the CompanyItem 4.D. Property, Plants 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 in the increased utilization of our bandwidth, since wireless data
applications are generally more bandwidth-intensive than voice services. The current trend of increasing data transmission use and the increasing sophistication of multimedia contents are likely to put additional strain on the bandwidth capacity of
mobile service providers. In the event we are unable to maintain sufficient bandwidth capacity by renewing existing bandwidth spectrum, receiving additional bandwidth allocation, or cost-effectively implementing technologies that enhance bandwidth
usage efficiency, our subscribers may perceive a general decrease in quality of mobile telecommunications services. No assurance can be given that bandwidth constraints will not adversely affect the growth of our mobile telecommunications business.
Furthermore, we may be required to pay a substantial amount to acquire bandwidth capacity in order to meet increasing bandwidth demand, which may adversely affect our financial condition and results of operations.

Introduction of new services, including our 4G LTE services, 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 telecommunication services to maintain our competitiveness. For example, in March 2005, we acquired a license to provide wireless broadband Internet access
(WiBro) service for ₩126 billion, and commercially launched our service in June 2006. We completed the upgrade of our
4G WiBro network and expanded our WiBro service coverage to 84 cities nationwide and major highways in March 2011, which we believe allows us to provide WiBro services at speeds that are approximately three times faster than our previous 3G network
at a lower cost, and had approximately 506,000 subscribers as of December 31, 2016. The number of our WiBro subscribers decreased in 2016 compared to 2015, as more WiBro subscribers chose to access the Internet using our 4G LTE network rather
than WiBro following the proliferation of 4G LTE services since 2013. Furthermore, we focused our subscriber retention efforts during 2016 on our mobile subscribers rather than our WiBro subscribers. We are also continually upgrading our broadband
network to enable better fiber-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 cables extending from the telecommunications operators switching equipment to the boundary of home or office. 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, such as IPTV, with higher stability.

In addition, we have been building more advanced mobile telecommunications networks based on LTE technology, which is generally referred to as 4G
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commercial 4G LTE services in the Seoul metropolitan area in January 2012. We completed the expansion of our 4G LTE service coverage nationwide in October 2012. Several wireless carriers in the
United States, Europe and Asia commenced LTE services in recent years and LTE technology is currently widely accepted as the standard 4G technology. LTE technology enables data to be transmitted faster than
W-CDMA, generally providing a downloading speed of 75 Mbps per 10 MHz. We introduced the GiGA LTE service in June 2015, linking Wideband LTE-A X4 and
wireless LAN service (WiFi) signals and thereby increasing data transmission speed to up to 1.17 Gbps for downloading. In addition, our use of 20 MHz of bandwidth in the 1.8 GHZ spectrum, acquired in May 2016, further enhances the
quality of our LTE services through intra-band carrier aggregation technology. We believe that the faster data transmission speed of the LTE network allows us to offer significantly improved wireless data transmission services with faster wireless
access to multimedia content. Accordingly, we have made extensive efforts to develop advanced technologies as well as to provide a variety of services with enhanced speed, latency and connectivity. However, no assurance can be given that our new
services will gain broad market acceptance such that we will be able to derive revenues from such services to justify the license fee, capital expenditures and other investments required to provide such services.

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. In March 2014, the investment business division of KT Capital Co., Ltd., including 3,059,560 common shares of
BC Card Co., Ltd. that KT Capital Co., Ltd. held, was spun off and merged into KT Corporation. On August 20, 2015, we and our consolidated subsidiary, KT Hitel Co., Ltd., sold the entire 100% stake of KT Capital Co., Ltd. to JCF III K Holdings
LLC for a total of ₩299 billion. In January 2011, we acquired 5,600,000 shares of redeemable convertible preferred stock with
voting rights and convertible bonds that were convertible into 5,600,000 shares of common stock of KT Skylife Co., Ltd. (KT Skylife), a provider of satellite TV service which may also be packaged with our IPTV services, from Dutch
Savings Holdings B.V. for approximately ₩246 billion. We exercised the conversion rights on the redeemable convertible preferred
stock and the convertible bonds in March 2011, and owned a 50.3% interest in KT Skylife as of December 31, 2016. In March 2015, KT Media Hub Co., Ltd. was merged into KT Corporation to increase management efficiency and promote synergy among
our existing businesses.

While we plan to continue our search for other suitable acquisition and joint venture opportunities, we cannot
provide assurance that we will be able to identify additional attractive opportunities or that we will successfully complete the transactions, without encountering administrative, technical, political, financial or other difficulties, or at all.
Even if we were to successfully complete the transactions, 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. 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 of non-core businesses and



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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 November 15, 2017. 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 broadcasting 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 Ministry of Science, ICT & Future Planning (the MSIP) (ICT standing
for Information & Communication Technology) and the KCC, has authority to regulate the telecommunications industry. Until March 2013, regulation of the telecommunications industry had mainly been the responsibility of the KCC. With the
establishment of the newly created MSIP on March 23, 2013, however, such regulatory responsibility has mostly been transferred to the MSIP. The MSIP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 to prevent the emergence and development of viable competitors.

Under current Government regulations, if a network service provider has the largest market share for a specified type of service and its revenue
from that service for the previous year exceeds a specific revenue amount set by the MSIP, it must obtain prior approval from the MSIP for the rates and the general terms for that service. Each year, the MSIP designates service providers whose rates
and general terms of service must be approved by the MSIP. In recent years, the MSIP had designated us for local telephone service and SK Telecom for mobile service, and the MSIP, in consultation with the Ministry of Strategy and Finance, currently
approves rates charged by us and SK Telecom for such services.

The MSIP currently does not regulate our domestic long-distance,
international long-distance, broadband Internet access and mobile service rates, but the inability to freely set our local telephone service rates may hurt profits from such business and impede our ability to compete effectively against our
competitors. See Item 4. Information on the CompanyItem 4.B. Business OverviewRegulationRates. The form of our standard agreement for providing local network service and each agreement for interconnection with
other service providers are also subject to approval by the MSIP. In addition, the MSIP may periodically announce public policy guidelines or suggestions that we take into consideration in setting our tariffs for
non-regulated services. As a result of discussions with the MSIP, after a series of reductions, we completely abolished our activation fee relating to our mobile services in March 2015. In December 2015, we
decided to lower our early termination fee to 25.1% of the existing fees relating to our broadband Internet access service, Internet phone or IPTV or such products bundled with our fixed-line telephone service. We implemented such policy in July
2016. There can be no assurance that we will not adopt other tariff-reducing measures in the future to comply with the Governments public policy guidelines or suggestions.

The MSIP 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 MSIP may levy a monetary penalty of up to 3.0% of the average of our annual revenue



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for the preceding three fiscal years. For example, in December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being approximately ₩30 billion), which
is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. In March 2014, the MSIP imposed a 45-day suspension on each of us, SK Telecom and LG
U+ from accepting new subscribers as a result of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. Additionally, the MSIP announced that it plans to bring criminal charges
with fines of up to ₩150 million and imprisonment of less than three years against any carrier and responsible personnel that fails
to adhere to the suspension or continues to offer illegal subsidies after the suspension is completed. In August 2014, the KCC again imposed a combined fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for
providing excessive handset subsidies, and also imposed temporary suspensions on accepting new subscribers for seven days on SK Telecom and LG U+. In December 2014, the KCC further imposed a fine of approximately ₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies and in March 2015, the KCC again imposed a
combined fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other
telecommunications operators were promoting. On March 12, 2015, the KCC imposed a fine of ₩870 million for violation of
restrictions on handset subsidies relating to our compensation program for used handsets. On June 24, 2015, 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. 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 business or imposition of monetary penalties by the MSIP could 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 residence 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 20%, effective
since April 24, 2015). The maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer is determined by Korean telecommunication regulators (such limit to be determined between ₩250,000 and ₩350,000, and
may be adjusted every six months, with the current limit set at ₩330,000, effective since April 8, 2015). Telecommunications
operators are also required to publicly announce the amount of handset subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or
exaggerated advertisements, such as advertisements that mobile phones are free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.



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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 combines video-on-demand services with real-time high definition broadcasting via broadband networks. The MSIP and the KCC have the authority to regulate IPTV services. Under the Internet Multimedia Broadcasting
Business Act, anyone intending to engage in the IPTV services business must first obtain a license from the MSIP. 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 MSIP. 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 MSIP and the KCC pursuant to the Korea Broadcasting Act. In March 2015, amendments to the Internet Multimedia Broadcasting Business Act were
promulgated. Under such amendments, a single pay TV operator (including its affiliates) may not have more than one-third of the market share of all pay TV subscribers in Korea. The restriction on market share
is in effect until June 27, 2018.

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 against Mr. Suk-chae Lee, our 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 charged Mr. Suk-chae Lee, our former chief executive officer who resigned in
November 2013, with embezzlement and breach of fiduciary duty. Mr. Il Yung Kim, our former standing director and former president of the KT Corporate Center, was charged as a co-conspirator in the breach of fiduciary duty by Mr. Lee, and Mr. Yu-yeol
Seo, our former president of Home Business Group, was charged as a co-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 2 years, for having embezzled and created off-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. All
of these



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judgments have been appealed by the prosecution as well as Mr. Lee and Mr. Seo, and are currently pending before the Supreme Court of Korea.

The legal cases against Mr. Lee, Mr. Seo, and Mr. Kim do not involve charges of wrongdoing by us. Nevertheless, an adverse determination in any
such case or proceeding may harm our reputation and adversely affect the trading price of our shares. The outcome of any related claims, investigations and proceedings is inherently uncertain and there can be no assurance that any further
developments in the legal proceedings against Mr. Lee, Mr. Seo, and Mr. Kim, including adverse publicity, will not adversely affect our business, reputation or stock price.

Our charitable donations, employment of certain individuals and engagement of an advertising agency connected to a scandal involving Ms.
Soon-sil Choi, a confidante of former President Geun-hye Park, could have a material adverse effect on our business, reputation and stock price.

In March 2017, the Constitutional Court of Korea found that many Korean corporations, including the Company, made donations to two non-profit foundations, Mir Foundation and K-Sports Foundation, at former President
Parks request. Our contributions comprised ₩1.1 billion of the total
₩48.6 billion given to Mir Foundation and ₩700 million of the total ₩28.8 billion given to K-Sports Foundation. The Constitutional Court
also found that, at the requests of an aide of former President Park, we hired (and later promoted) two individuals, Mr. Dong-Soo Lee and Ms. Hye-Sung Shin: Mr. Lee as the head of a business unit in charge of our marketing and advertisement
campaigns and Ms. Shin to another position in the same business unit. Subsequently, the same aide of former President Park also requested Mr. Lee and our other officers to award advertising contracts to Playground Communications Co., Ltd.
(Playground), an advertising agency over which Ms. Soon-sil Choi, a confidante of former President Park, effectively owns 70% equity interest, according to the Constitutional Court. Playground was awarded seven advertising contracts for
a total of approximately ₩6.8 billion in 2016, amounting to approximately 3.7% of our annual advertising spending in 2016. In 2016, our
payments to Playground amounted to approximately ₩517 million. We have not awarded additional advertising contract to Playground since
September 2016, and Mr. Lee and Ms. Shin resigned from the Company in November 2016 and March 2016, respectively.

In April 2017, the
Korean prosecution indicted former President Park on charges of bribery and coercion, among others. The coercion charge against former President Park includes, among other matters, charges relating to the: (i) employment and promotions of Mr. Lee
and Ms. Shin at KT Corporation, (ii) entry into advertising contracts with Playground and (iii) donations to Mir Foundation and K-Sports Foundation by us and other Korean corporations. We cannot be certain at this time how the above-described
matters and the publicity around them will develop. While we have not been charged with wrongdoing in connection with the above-mentioned matters, related allegations, claims, investigations and proceedings remain a possibility, and we cannot
provide any assurances as to likely outcomes. There can be no assurance that any further developments relating to the above-mentioned matters, including adverse publicity, will not adversely affect our business, reputation or stock price.

The reported investigation, insolvency proceedings of and any adverse publicity associated with our previous subsidiary, KT
ENGCORE, could have a material adverse effect on our business, reputation and stock price.

An employee of KT ENGCORE, our
consolidated subsidiary until August 2014, and several companies, some of which are KT ENGCOREs subcontractors, allegedly worked together to forge documents, including a forged proof of accounts receivable, to incur borrowings, of which ₩290 billion remains unpaid, from 16 Korean banks since 2008 in over 460 transactions, which were allegedly secured by the forged
accounts receivable and endorsed by KT ENGCORE. KT ENGCOREs management neither had knowledge of nor approved such transactions. On February 11, 2014, police



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raided the offices of the subcontractors in connection with their investigation of the loans. Upon discovery of the incident, KT ENGCORE immediately suspended the employee in question without
pay, pending the results of the investigations for any further disciplinary actions. The employee and several other persons involved in the incident were sentenced to prison terms by the Seoul Central District Court in August 2014 and by the
appellate court subsequently.

In March 2014, KT ENGCORE filed for court receivership with the Seoul Central District Court, based on
its inability to pay approximately ₩49 billion in commercial paper that became due after early 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. The appellate court decision was appealed to the Supreme Court of Korea.
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 as available-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 personal information of our subscribers are unsuccessful, future issues may result in further government enforcement actions and civil litigation and may significantly impact 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, even though we
may 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.

For example, in July 2012, the police arrested two third-party individuals in connection with the alleged theft of
personal information relating to approximately 8.7 million of our mobile phone subscribers. The individuals in question stole personal information through a series of hackings starting from February 2012 into our New Service and Technology
Evolution Program (N-STEP), our mobile customer information system. Since the incident, approximately 29,800 of our mobile phone



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subscribers filed a total of 16 lawsuits against us in connection with the N-STEP hackings, alleging that we failed to protect their personal information,
and are seeking total damages of approximately ₩15 billion. From August 2014 to October 2016, various district courts have awarded
damages of ₩100,000 per plaintiff for 14 of the cases involving a total of approximately 29,000 of the subscribers, resulting in damages
of approximately ₩3 billion to us, while the remaining trials are currently ongoing at various district courts. We have appealed
the district courts decisions. In January 2017, we won one of the appeals and such appellate court decision was appealed to the Supreme Court. The other appeals are currently ongoing at the Seoul High Court.

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 February 2017, we won 14 trials, lost two trials and the remaining six trials are currently
ongoing at various district courts. The plaintiffs of 10 of the 14 cases have appealed the district courts decisions to the Seoul High 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, if we experience additional significant data security breaches or fail to detect and appropriately respond to significant data security breaches, we could be subject to additional government enforcement
actions, regulatory sanctions and litigation in the future. In addition, our mobile phone subscribers could lose confidence in our ability to protect their 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 incidents may materially and adversely impact
our business, reputation, results of operations and financial condition.

We are subject to various laws and
regulations in Korea and other jurisdictions, including the Monopoly Regulation and Fair Trade Act of Korea and other laws and regulations governing our business activities and acts of our management and employees.

Our business operations and acts of our management, employees and other relevant parties are subject to various laws and regulations in and outside
Korea. These laws are complicated and sometimes conflicting and our efforts to comply with these laws could increase our cost of doing business, restrict our business activities and expose us or our employees to legal sanctions and liabilities.

The Monopoly Regulation and Fair Trade Act provides for various regulations and restrictions on large business groups enforced by the
Korea Fair Trade Commission. The Korea Fair Trade Commission designated us as a large business group under the Monopoly Regulation and Fair Trade Act on April 1, 2002. Our business relationships and transactions with our subsidiaries,
affiliates and other companies within the KT group are subject to ongoing scrutiny by the Fair Trade Commission as to, among other things, whether such relationships and transactions constitute undue financial support among companies of the same
business group. We are also subject to the fair trade regulations limiting debt guarantees for other domestic member companies of the same group and cross-shareholdings among domestic member companies of the same group, as well as requiring
disclosure of the status of such cross-shareholdings. Additionally, we are subject to a prohibition, in effect since July 25, 2014, against circular shareholding among any three or more entities within our business



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group. For example, in 2015, we were fined ₩2 billion by the Korea Fair Trade
Commission for using monopolistic status to exclude competitors in the corporate messaging business. 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 in a material impact to 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 share prices of some wireless telecommunications companies in the United States. In May 2011, the International Agency for Research on
Cancer (IARC) 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
is part of the World Health Organization that 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 such 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. In addition, to protect pre-school and elementary school children, the Office of Education in Gyeonggi-do, one of Koreas highly populated provinces, implemented an ordinance named Protective Ordinance for Social Groups Vulnerable to Electromagnetic Radiation in April 2016. The ordinance
prohibits installation of cellular towers near pre-schools and elementary schools in Gyeonggi-do. In December 2016, the minister of the MSIP filed a petition with the
Supreme Court to invalidate the ordinance. Certain legislators of Gyeonggi-do announced a plan to file a criminal complaint against the minister of the MSIP. 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 us by reducing our number of subscribers or our usage per subscriber.



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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 ₩8,121 billion total book value of debentures and borrowings outstanding as of
December 31, 2016, ₩3,072 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 issued in 2015) to 6.50% (US$100 million fixed rate notes due 2034 issued under our 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 of 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 a bi-monthly, quarterly or biannual basis.

On December 18, 2013, the Supreme Court of Korea ruled that regular bonuses (including those that are paid other than on a monthly basis)
shall be deemed ordinary wages if these bonuses are paid regularly and uniformly on a fixed basis notwithstanding differential amounts based on seniority. Under this decision, any collective bargaining agreement
or labor-management agreement which attempts to exclude such regular bonuses from employees ordinary wages will be deemed void for violation of the mandatory provisions of Korean law. However, the Supreme Court of Korea further 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 though the claim is raised within the statute of
limitations period. Following this Supreme Court



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decision, the Ministry of Employment and Labor issued a Guideline for Labor and Management on Ordinary Wages on 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 the sub-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

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

Substantially all of our operations, customers and assets are located in Korea. Accordingly, the performance 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. 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 anticipated 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, 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 2017 and beyond remain uncertain. Any future deterioration of the global economy may have an adverse impact on the Korean economy,
which in turn could adversely affect our business, financial condition and results of operations. As Koreas economy is highly dependent on the health and direction of the global economy, investors reactions to developments in one country
can have adverse effects on the securities 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.

In November 2016, the prosecutors office indicted a confidante of former President Geun-hye Park, Ms. Soon-sil Choi, who had allegedly used her ties with the former President to extort donations from Korean conglomerates for two non-profit foundations over which she
is purported to have substantial influence, and a number of current and former presidential aides on charges of, among others, abuse of power, coercion and leaking classified documents. On November 30, 2016, a special independent prosecutor was
appointed to conduct an investigation of the extent of the former Presidents involvement. On December 9, 2016, the National Assembly voted in favor of impeaching former President Park for a number of alleged constitutional and criminal
violations including violation of the Constitution and abuse of power by allowing her confidante to exert influence on state affairs and letting senior presidential aides help her extort from companies.



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On March 10, 2017, the Constitutional Court of Korea upheld the constitutionality of the
impeachment, removing former President Park from office. One of the findings of the Constitutional Court was that the former President, through her aides and Ms. Choi, coerced major Korean corporations, including us, to make donations to Mir
Foundation and K-Sports Foundation. According to the Constitutional Court, such corporations contributed a total of ₩48.6 billion to Mir Foundation between November 2015 and December 2015 and a total of
₩28.8 billion to K-Sports Foundation between February 2016 and August 2016. Former
President Park, Ms. Choi, and other associated government officials are currently awaiting trials under charges of bribery, abuse of power or extortion, among other offenses.

A special presidential election is scheduled to be held on May 9, 2017. There is no assurance that such political development as well as
ongoing trials and investigations of former President Park and other individuals will not have a material adverse effect on the Korean economy and us.

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



| |  |  | continued volatility or deterioration in Koreas credit and capital markets;
| | - |  | ----------------------------------------------------------------------------



| |  |  | difficulties in the financial sectors in Europe, China and elsewhere and increased sovereign default risks in selected countries and the resulting adverse
effects on the global financial markets;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | global market volatility in connection with Brexit, the United Kingdoms vote to leave the European Union in a referendum held in June 2016 and
the subsequent decision by the Prime Minister of the United Kingdom to initiate a two-year process to complete the United Kingdoms exit by mid-2019;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S.
dollar, the Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increasing levels of household debt;
| | - |  | ------------------------------------



| |  |  | continuing adverse conditions in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and
China, or in emerging market economies in Asia or elsewhere;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | further decreases in the market prices of Korean real estate;
| | - |  | -------------------------------------------------------------



| |  |  | increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | declines in consumer confidence and a slowdown in consumer spending;
| | - |  | --------------------------------------------------------------------



| |  |  | social and labor unrest;
| | - |  | ------------------------



| |  |  | 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;
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| |  |  | geo-political uncertainty and risk of further attacks by terrorist groups around the world;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | the occurrence of severe health epidemics in Korea or other parts of the world, including the recent Ebola, Middle East Respiratory Syndrome and Zika virus
outbreaks;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 and the recent diplomatic tension between Korea and China with respect to the deployment of the Terminal High Altitude Area Defense (THAAD) system in Korea;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | political uncertainty or increasing strife among or within political parties in Korea, and political gridlock within the Government or in the legislature, which
prevent or disrupt timely and effective policy making;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | natural disasters that have a significant adverse economic or other impact on Korea or its major trading partners;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | hostilities or political or social tensions involving countries in the Middle East and North Africa and any material disruption in the supply of oil or
significant decrease or increase in the price of oil; 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.

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 continues to be uncertainty regarding the long-term stability of North Koreas political leadership since the succession of Kim Jong-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 addition, there have been heightened security concerns in recent years stemming from North Koreas nuclear weapon and long-range 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 three
rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and elicited strong objections worldwide. Subsequently, North Korea continued to engage in provocative behaviors. In January 2016, North Korea
announced that it had successfully tested a hydrogen bomb, its fourth nuclear test and allegedly first test using hydrogen, which is more explosive than plutonium. In February 2016, North Korea tested its intercontinental ballistic missile
technology and launched a long-range missile, which it claimed to have launched a satellite into orbit. In response, the Government condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions and
withdrew Korean personnel from the inter-Korea Kaesong industrial complex (the Complex) and announced its closing. In March 2016, the United Nations Security Council unanimously passed a resolution condemning North Koreas actions
and significantly expanding the scope of sanctions applicable to North Korea. In September 2016, North Korea announced that it had successfully tested a nuclear warhead that could be mounted on ballistic
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | missiles. In response, the Government condemned the test, and in November 2016, the United Nations Security Council unanimously passed a resolution imposing additional sanctions on North Korea.
In March 2017, North Korea launched four midrange missiles aimed at the U.S. military bases in Japan, which landed off the east coast of the Korean peninsula. In late March 2017, the United States sanctioned 11 North Korean individuals and one North
Korean coal company for their ties to North Koreas nuclear weapons program. In April 2017, North Korea launched two ballistic missiles which landed off the east coast of the Korean peninsula. In response to the missile launches,
representatives of the Government, the United States and China expressed their plans to impose stronger sanctions on North Korea.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2015, two Korean soldiers were injured in a landmine explosion near the South Korean demilitarized zone. Claiming the landmines were set by North
Koreans, the South 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. High-ranking officials from the Government and North Korea subsequently met for discussions intending to diffuse military tensions and released a joint statement
whereby, among other things, North Korea expressed regret over the landmine explosions that wounded the Korean soldiers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 pressure within 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 such as North Koreas belligerent tactics, dissolution
of high level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our business, results of operations and financial condition.

In addition, since 2005, we have provided fixed-line telephone services, through various fixed-line telephone equipment that we installed, to
certain South Korean companies located at the Complex, which was established pursuant to an agreement made during the summit meeting of the two Koreas in June 2000. The Complex was the largest economic project between the two Koreas and was designed
to combine the Republics capital and entrepreneurial expertise with the availability of land and labor of North Korea.

For the
year ended December 31, 2015, our revenue from the services provided for the Complex was approximately US$1.0 million. We had no revenue from such services for the year ended December 31, 2016. Our investment in the Complex was
approximately US$1.6 million as of December 31, 2015 and we have not made additional investments since the closure of the Complex. However, our services have been suspended since February 11, 2016 following the Governments
decision to halt operations of the Complex to impede North Koreas utilization of funds from the Complex to finance its nuclear and missile programs. No assurance can be given that we will not experience any material losses as a result of the
suspension of this project or failure of the project as a result of a breakdown or escalation of hostilities in the relationship between the Republic and North Korea.



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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 business operation. 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.

We are generally subject to Korean corporate governance and disclosure
standards, which differ in significant respects from those in other countries.

Companies in Korea, including us, are subject to
corporate governance standards applicable to Korean public companies which differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the Securities and Exchange
Commission and listed on the New York Stock Exchange, we are, and will continue to be, subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002, as amended. However, foreign private issuers, including us, are
exempt from certain corporate governance standards required under the Sarbanes-Oxley Act or the rules of the New York Stock Exchange. For a description of significant differences in corporate governance standards, see Item 16G. Corporate
Governance. 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.

Risks Relating to the Securities

If
an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs.

Korean law currently limits foreign ownership of the ADSs and our shares. In addition, under our deposit agreement, the depositary bank cannot accept deposits of shares and deliver ADSs representing those shares
unless (1) we have consented to such deposit or (2) Korean counsel has advised the depositary bank that the consent required under (1) is no longer required under Korean laws and regulations. Under current Korean laws and regulations,
the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for
the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at
the time of such proposed deposit. The depositary bank has informed us that, at a time it considers to be appropriate, the depositary bank plans to start accepting deposits of shares without our consent and to deliver ADSs representing those shares
up to the amount allowed under current Korean laws and regulations. Until such time, however, the depositary bank will continue to obtain our consent for such deposits of shares and delivery of ADSs,



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which we may not provide. Consequently, if an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. See Item 10.
Additional InformationItem 10.D. Exchange Controls.

A foreign investor may not be able to exercise voting rights with
respect to common shares exceeding the number of common shares held by our largest domestic shareholder.

Under the
Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest
shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. Under the Telecommunications Business Act, the MSIP may, if it deems it necessary to preserve
substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or
more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, such foreign shareholder may not be able to exercise voting rights with respect to common shares
exceeding such threshold. The MSIP may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less. See Item 10. Additional InformationItem 10.B.
Memorandum and Articles of Association.

Holders of ADSs will not be able to exercise appraisal rights unless they have
withdrawn the underlying ordinary shares and become our direct shareholders.

In some limited circumstances, including the
transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their shares under Korean law. A holder of ADSs will not be able to
exercise appraisal rights unless he has withdrawn the underlying ordinary shares and become our direct shareholder. See Item 10. Additional InformationItem 10.B. Memorandum and Articles of Association.

An investor may not be able to exercise preemptive rights for additional shares and may suffer dilution of his equity interest in us.

The Commercial Code of Korea 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 any rights to subscribe for additional ordinary shares or any rights of any other nature, the depositary bank, 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 depositary bank, 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 of 1933, as amended, 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. 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 preemptive rights for additional shares. As a result, the ADS holder may suffer dilution of his equity interest in us.



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Forward-looking statements may prove to be inaccurate.

This annual report contains forward-looking statements that are based on our current expectations, assumptions, estimates and
projections about us and the industries in which we operate. 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, estimate, expect, intend, project, should, and similar expressions. Those statements include, among other things, the discussions of our
business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. 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. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. 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.

Item 4.   Information on the Company

Item 4.A.History and Development of the Company

In 1981, the Government established us under the Korea Telecom Act to operate the telecommunications services business that it previously directly
operated. Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act, the Government exercised substantial control over our business and affairs. Effective October 1, 1997, the Korea Telecom Act was repealed and
the Government-Invested Enterprises Management Basic Act became inapplicable to us. As a result, we became a corporation under the Commercial Code, and our corporate organization and shareholders rights were governed by the Privatization Law
and the Commercial Code. Among other things, we began to exercise greater autonomy in setting our annual budget and making investments in the telecommunications industry, and our shareholders began electing our directors, who had previously been
appointed by the Government under the Korea Telecom Act.

Prior to 1993, the Government owned all of the issued shares of our common
stock. From 1993 through May 2002, the Government disposed of all of its equity interest in us, and the Privatization Law ceased to apply to us in August 2002. We amended our legal name from Korea Telecom Corp. to KT Corporation in March 2002.

Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in
Korea. The Government began to introduce competition in the telecommunications services market in the early 1990s. As a result, including ourselves, there are currently three local telephone service providers, five domestic long-distance carriers
and numerous international long-distance carriers (including voice resellers) in Korea. In addition, the Government awarded licenses to several service providers to promote competition in other telecommunications business areas such as mobile
telephone services and data network services. In June 2009, KTF, a subsidiary providing mobile telephone services, merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our
fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. See Item 4. Information on the CompanyItem 4.B. Business
OverviewCompetition.



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Our legal and commercial name is KT Corporation. Our principal executive offices are located at KT
Gwanghwamun Building East, 33, Jong-ro 3-gil, Jongno-gu, 03155, Seoul, Korea and our telephone number is (8231) 727-0114.

Item 4.B.Business Overview

We are the leading telecommunications service provider in Korea and one of the largest and most advanced in Asia. As an integrated
telecommunications service provider, our principal services include:



| |  |  | mobile voice and data telecommunications services based on 3G W-CDMA technology and 4G LTE technology;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | fixed-line services, which include:
| | - |  | -----------------------------------



| | Ø |  | telephone services, including local, domestic long-distance and international long-distance fixed-line and Voice over Internet Protocol (VoIP)
telephone services (i.e., provision of communication services over the Internet, and not over the fixed-line network) and interconnection services to other telecommunications companies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø |  | broadband Internet access service and other Internet-related services, including IPTV services; and
| | - |  | ---------------------------------------------------------------------------------------------------



| | Ø |  | data communication services, including leased line service and dedicated broadband Internet connection service to institutional customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | credit card processing and other financial services through BC Card Co., Ltd.; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | various other services, including satellite service (through KT Sat Co., Ltd.) and information technology, real estate business (through KT Estate Inc.),
satellite TV service (through KT Skylife), media contents business and network services such as cloud computing services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Leveraging on our dominant position in the fixed-line telephone services market and our established customer base in Korea, we have successfully pursued new growth opportunities during the past decade and obtained
strong market positions in each of our principal lines of business. In particular:



| |  |  | in the mobile services market in Korea, we achieved a market share of 30.6% with approximately 18.9 million subscribers as of December 31, 2016;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the fixed-line telephone services market in Korea, we continue to be the dominant provider with approximately 24.9 million installed lines, of which
approximately 11.9 million lines were in service as of December 31, 2016. As of such date, our market share of the local market was 80.6% and our market share of the domestic long-distance market was 78.9%;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are Koreas largest broadband Internet access provider with approximately 8.5 million subscribers(excluding WiBro and ollehWiFi
subscribers)as of December 31, 2016, representing a market share of 41.4%; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we are also the leading provider of data communication services in Korea.
| | - |  | -------------------------------------------------------------------------



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For the year ended December 31, 2016, our operating revenues were ₩23,121 billion, our profit for the period was ₩795 billion and our basic profit per share was ₩2,893. As of December 31, 2016, our
total assets were ₩30,664 billion, total liabilities were ₩17,882 billion and total equity was ₩12,783 billion.

Business Strategy

We believe the
telecommunications market in Korea is nearing saturation, despite certain areas of growth remaining due to Koreas growing economy, consumers willingness to adopt new technologies, relatively high income and a relatively large middle
class. To maintain our competitiveness, we believe we need to pursue growth in other areas, while maintaining our strength in existing businesses. In order to enhance the management efficiencies of our mobile and fixed-line telecommunications
operations as well as more effectively respond to the convergence trends in the telecommunications industry, KTF merged into KT Corporation in June 2009, with KT Corporation surviving the merger. As part of our efforts to improve our operational
efficiencies, we transferred all operations relating to fixed-line sales activities (including on-site sales, line activation, after service, and customer center operations) to our subsidiaries in 2014.

Since 2016, our main strategical focus was on promotion of services that converge information & communication technology with
other fields such as energy, security, media, healthcare and transportation, utilizing our fixed-line and wireless infrastructure installed for our olleh GiGA Internet Service and LTE mobile services. In addition, we have focused on artificial
intelligence and big data and plan to leverage our platforms like IPTV and network assets to introduce innovative convergence services. For example, we launched GiGA Genie using an artificial-intelligence based IPTV set-top box that
allows users to voice-command to watch TV, use the Internet and control other Internet-connected appliances. In addition, the first Internet-only bank in Korea, called K bank, over which we own a minority interest, began operation in April 2017 and
seeks to operate as a virtual bank whose operation is based on its mobile application and the Internet, while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to
differentiate itself from other conventional banks by utilizing big data and offering competitive products and interest rates. Our strategical focus on convergence services builds on our GiGAtopia corporate vision, which refers to our
goal to create a world where humans and all things are connected through ultra-fast GiGA infrastructure and ICT eco-system, enhanced by convergence services, industrial development and innovation.
We launched our olleh GiGA Internet service, which provides transmission speed of up to 1 Gbps, in October 2014 (olleh GiGA Internet Service). In June 2015, we also announced the mobile data service known as GiGA LTE, which
utilizes multipath transmission control protocol (MPTCP) technology. We continue to expand GiGA coverage, initially focusing on metropolitan areas, and further expand to other regions in Korea. By promoting our convergence services, we aim to
contribute in changing the current subsidy-based Korean telecommunication market competition to one based on innovative technology, products and enhanced services.

We believe development of fifth-generation (5G) technology will be a key driver for future innovations, fueled also by the increasing importance of big data. With our leadership in providing highly
advanced 4G LTE services, we have made extensive efforts to develop and present various further advanced technologies. At the PyeongChang 2018 Winter Olympics, our goal is to unveil the worlds first 5G services at a pre-commercial level. We are planning to showcase a variety of services with enhanced speed, latency, and connectivity, such as broadcasting from the viewpoint of players with a
360-degree panoramic view or broadcasting from multiple viewpoints. As an official telecommunications services partner of the PyeongChang 2018 Winter Olympics, we will make our utmost efforts to realize the
vision of 5G and capture truly memorable moments of the Olympics. In this effort, we announced our plan to commercialize the 5G services by 2019, one year ahead of our initial plan.



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In 2016, we organized our business into six business groups, the Marketing Group, the Customer Group,
the Enterprise Business Group, the Global Business Group, the Future Convergence Business Group and the Platform Business Group, so that we may achieve higher synergies, more effectively address differing needs of our customer segments, as well as
strengthen our competitiveness and discover new growth opportunities. We aim to pursue the following strategies for our business groups:



| |  |  | Marketing Group. Through our Marketing Group, we aim to expand our telecommunication and convergence operations by (i) improving our
fixed-line and wireless telecommunication market shares and average revenue per user, (ii) developing business strategies and plans specifically related to telecommunications and convergence, (iii) strengthening our competitiveness over
products, customer service and other related services and (iv) developing and executing efficient marketing strategies. We also focus on expanding our wireless data communication business to meet rising demand for broadband Internet access
using advanced wireless data communications devices such as smartphones. We are working closely with handset manufacturers to expand our offerings of smartphones and handsets designed to promote convergence of fixed-line and mobile
telecommunications services, as well as to promote development of various applications for such devices.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We plan to
take advantage of our industry-leading network infrastructure to attract more customers as this market further develops. In addition, we aim to further enhance our position in the mobile telecommunications market by leveraging on our strong brand,
nationwide marketing network, competitive data usage rates, call centers dedicated to smartphone users, creative marketing strategies that address our potential customers needs and ability to bundle various mobile and fixed-line services. We
also plan to further expand our contents and applications for smartphone users and mobile data users by cooperating with application developers in Korea and abroad, in order to further solidify our position as a leader in the convergence market.

In 2016, we launched Y24 plans which offer discounted fees and tailored data offerings for customers of age 24 or younger. We aim to
differentiate ourselves from our competitors by providing broadband Internet access service using high-speed FTTH connection and offering Internet phone service with value-added features such as video communication, short message service and phone
banking. We began offering real-time broadcasting service on our IPTV service in November 2008 and we were the first in the IPTV industry to achieve 7 million subscribers in 2016.

We believe that convergence of fixed-line and mobile communications technologies provides a competitive advantage to us because we have the
technological know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform more readily available to others so that
they may create additional contents and convenience solutions such as electronic commerce and digital transaction applications that can be utilized anywhere using various media and communications devices.



| |  |  | Customer Group. Through our Customer Group, we aim to improve our marketing and customer service efforts for all of our products and services by
(i) planning and executing strategy for each product that we offer and our marketing efforts, (ii) contributing to expanding our market share by strengthening our marketing and customer service efforts, and (iii) maximizing customer
satisfaction by providing high quality customer service.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Enterprise Business Group. Through our Enterprise Business Group, we aim to provide our large corporate, small- and
medium-sized enterprise and government agency customers with one-stop solution services, including designing data communications and information technology
infrastructure and overseeing their day-to-day operations with the objective of achieving operational efficiencies and cost savings, as well as establishing and
executing business plans for our global operations. Furthermore, in conjunction with our Future Convergence Business Group, we seek to expand our operations in the fields of smart energy, unified security systems and oversized data management.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Global Business Group. Through our Global Business Group, we are expanding our global operations by designing, developing and optimizing ICT
services, cloud computing, data centers, our GiGA solutions and other global network services, in conjunction with overseas network operators and other global telecommunications companies. To this end, we have established or acquired overseas
branches or subsidiaries in target countries to design and construct telecommunication networks and develop information & communication technology convergence products, as well as seeking further overseas opportunities working with quality
Korean small- and medium-sized enterprises.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Future Convergence Business Group. Due to the saturation within the Korean telecommunication market and limitations on growth in the traditional
telecommunications services market, through our Future Convergence Business Group, we aim to concentrate our existing business capabilities in achieving new synergies by converging information & communication technology with other fields,
such as smart energy, unified security systems, next-generation media, healthcare and intelligent traffic control. In the field of smart energy, through our convergence energy optimization project named KT Micro-Energy Grid System, we
seek to contribute in preventing energy crisis and to increase energy efficiency. In the field of unified security systems, we seek to contribute to the establishment of national response systems for natural and other disasters, as well as enhancing
personal and corporate security. For example, we plan to launch an artificial-intelligence based security system, called GiGAeyes, which analyzes surveillance video and autonomously detects suspicious activities. In the field of
next-generation media, we seek to contribute to the development of next-generation media contents and new media technology, thereby supporting the expansion of Korean media contents to overseas markets. We are also seeking ways to develop
personalized treatment systems to provide enhanced healthcare, as well as creating intelligent traffic control systems to reduce traffic.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Platform Business Group. Through our Platform Business Group, we strive to transform into a platform-based business focusing on online-to-offline commerce, financial technology (Fintech) and Internet of Things (IoT). As part of our Fintech business initiatives, in 2016, we
launched an online payment application, which provides a method of online authentication that uses biometric data such as finger prints or voice instead of complex passwords. With regard to IoT, we will continue to deploy the Industrial IoT business
model, which explores opportunities to converge services with other industries. We also plan to strengthen our IoT service relating to household goods.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Telecommunications Industry in Korea

The Korean telecommunications industry is one of the
most developed in Asia. According to the MSIP, the number of mobile subscribers in Korea was 61.3 million and the number of broadband Internet access subscribers in Korea was 20.5 million as of December 31, 2016. As of
December 31, 2016, the mobile penetration rate, which is calculated by dividing the number of mobile subscriber accounts (including multiple counting of those who subscribe to more than one mobile service) by the



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population of Korea, was 118.6%, and the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscriber accounts (including
multiple counting of those who subscribe to more than one broadband Internet access service) by the number of households in Korea, was 108.5%.

Mobile Telecommunications Service Market

The Korean cellular market was formally
established in 1984 when SK Telecom, formerly Korea Mobile Telecom, became the first mobile telephone operator in Korea. SK Telecom remained the only cellular operator in Korea until Shinsegi Telecom began service in 1994. In order to encourage
further market growth and competition, the Government awarded three 2G licenses in June 1996. KTF was awarded a license alongside LG U+ and Hansol M.com, and commercial 2G service was launched in October 1997.

Since the introduction of three new operators in 1997, the Korean mobile market has undergone consolidation and significant growth. Following SK
Telecoms purchase of a controlling stake in Shinsegi, we acquired a 47.9% interest in Hansol M.com in 2000 and renamed the company KT M.com. KT M.com merged into KTF in May 2001 and Shinsegi merged into SK Telecom in January 2002. In June
2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. KT Corporation and SK Telecom offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia
communications services that use significantly greater bandwidth capacity. In July 2011, SK Telecom and LG U+ began offering 4G communications services based on LTE technology, which enables data transmission at a speed faster than W-CDMA or WiBro networks, and we began our 4G LTE services in January 2012. Additionally, in September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of bandwidths in the 1.8
GHz spectrum to provide transmission speed of up to 150 Mbps (for downloading), twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services in September 2013 and LG U+ commenced providing
its wideband LTE services in January 2014. We expanded our wideband LTE services to all of Korea in July 2014. Furthermore, in March 2014, we commercialized Wideband LTE-A services, which interconnects our 20
MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission
speed of up to 225 Mbps (for downloading), and began additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in January 2015 to support transmission speed of up to 300 Mbps (for downloading) under the Wideband LTE-A X4 service. In June 2015, we commercialized GiGA LTE services which link Wideband LTE-A X4 and our WiFi network to provide a faster WiFi connection in
June 2015. In 2016, we won various awards for our GiGA LTE services and agreed to provide GiGA LTE technology to Turk Telekom Group, a leading telecommunications provider in Turkey. As of December 31, 2016, the number of LTE subscribers in
Korea exceeded 46 million. Due to the high mobile penetration rate in Korea, we expect the growth of new subscribers to be limited.

In April 2014, LG U+, SK Telecom and we began offering various unlimited mobile service packages, offering mobile subscribers with unlimited voice
calls, text messaging, and LTE data. We believe that the continuing intense competition among major telecommunications operators in Korea and the resulting pressure on our fees may have a material adverse impact on our results of operations.



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The table below gives the subscription and penetration information of the mobile telecommunications
industry for the periods indicated:



|                                        |  |                    |        |   |      |  |        |      |  |  |        |   |  |      |        |   |  |  |        |  
|--------------------------------------- |  | ------------------ | ------ | - | ---- |  | ------ | ---- |  |  | ------ | - |  | ---- | ------ | - |  |  | ------ | -
|                                        |  | As of December 31, |       
|                                        |  | 2012               |        |   | 2013 |  |        | 2014 |  |  | 2015   |   |  | 2016 |       
|Total Korean Population (thousands) (1) |  |                    | 50,948 |   |      |  | 51,141 |      |  |  | 51,328 |   |  |      | 51,529 |   |  |  | 51,696 |  
|Mobile Subscribers (thousands) (2)      |  |                    | 53,624 |   |      |  | 54,681 |      |  |  | 57,290 |   |  |      | 58,935 |   |  |  | 61,296 |  
|Mobile Subscriber Growth Rate           |  |                    | 2.1    | % |      |  | 2.0    | %    |  |  | 4.8    | % |  |      | 2.9    | % |  |  | 4.0    | %
|Mobile Penetration (3)                  |  |                    | 105.3  | % |      |  | 106.9  | %    |  |  | 111.6  | % |  |      | 114.4  | % |  |  | 118.6  | %





|(1) | Based on the number of registered residents as published by the Ministry of Government Administration and Home Affairs of Korea.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(2) | Based on information announced by the KCC and MSIP.
|--- | ---------------------------------------------------



|(3) | Penetration is determined by dividing mobile subscribers by total Korean population.
|--- | ------------------------------------------------------------------------------------

Broadband Internet Access Market

With the advancement of broadband technology, the
Korean broadband Internet access market has experienced significant growth. The principal technologies used in providing high speed Internet access services are xDSL, HFC and fiber optic LAN. xDSL refers to various types of digital subscriber lines,
including ADSL and VDSL. xDSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. Fiber optic LAN is a technology
that combines fiber optic cables and Unshielded Twisted Pair (UTP) cables. Fiber optic cables are connected to residential and commercial buildings with UTP cable-based LAN capabilities. While xDSL and HFC are more widely used
technologies because of their relative reliability, ease of provisioning and cost effectiveness, fiber optic LAN usage in Korea has been steadily increasing in recent years.

Since the subscribers of two-way cable networks share a limited bandwidth, the downstream speed tends to slow down as the number of subscribers increases, thereby decreasing
the quality of HFC-based service. While xDSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent broadband access platform in Korea. VDSL, ADSL-based
technology with enhanced downstream speed, became commercialized in 2002. Some of the service providers have upgraded their broadband network to provide fiber optic LAN-based service to their subscribers,
which further enhances data transmission speed up to 1 Gbps as well as improves connection quality, and enables such service providers to offer video-on-demand services
with real-time high definition broadcasting.

In recent years, broadband Internet access service providers and mobile telecommunications
service providers have focused their attention on providing wireless Internet connection capabilities. They have introduced WiFi with speed of up to 1.3 Gbps, which is designed to integrate fixed-line and wireless services by offering high speed
wireless Internet access to laptops and smartphones in hot-spot zones and at home. In addition, we expect our competitors would focus their attention on upgrading data transmission capacity of their Internet
services as we continue our efforts to enhance transmission capacity of our Internet services in 2017. See Our ServicesFixed-line ServicesInternet Services.

Our Services

Mobile Service

We provide mobile services based on W-CDMA technology and LTE technology. Prior to the merger of KTF into
KT Corporation, we provided such services through KTF, which was formerly a



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consolidated subsidiary. KTF obtained one of the three licenses to provide nationwide 2G service in June 1996 and began offering 2G service in October 1997. In June 2009, KTF merged into KT
Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the
telecommunications industry. We currently offer HSDPA-based IMT-2000 services, which are third-generation, high-capacity wireless Internet and video multimedia communications services based on W-CDMA wireless network standards. In January 2012, we also began offering 4G LTE services following the termination of our 2G services. We completed the expansion of our 4G LTE service coverage nationwide in
October 2012 and commenced providing wideband LTE services in September 2013, and commercialized Wideband LTE-A services in March 2014. We began offering Wideband
LTE-A X4 services in January 2015 and also launched GiGA LTE services which links Wideband LTE-A X4 and our WiFi network to provide a
faster WiFi connection in June 2015.

Revenues related to mobile service accounted for 31.9% of our operating revenues in 2016. In
addition, our goods sold, which are primarily from mobile handset sales, accounted for 12.1% of our operating revenues in 2016.The following table shows selected information concerning the usage of our network during the periods indicated
and the number of our subscribers as of the end of such periods:



|                                           |  |                                          |        |  |      |   |        |      |  |   |        | 
|------------------------------------------ |  | ---------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                           |  | As of or for the Year Ended December 31, |       
|                                           |  | 2014                                     |        |  | 2015 |   |        | 2016 | 
|Average Monthly Revenue per Subscriber (1) |  | ₩                                        | 35,043 |  |      | ₩ | 35,308 |      |  | ₩ | 35,524 | 
|Number of Subscribers (in thousands)       |  |                                          | 17,300 |  |      |   | 18,038 |      |  |   | 18,892 | 





|(1) | The average monthly revenue per subscriber is computed by dividing total monthly fees, usage charges, interconnection fees and value-added service fees for the period by the
weighted average number of subscribers and dividing the quotient by the number of months in the period.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We compete with
SK Telecom, a mobile service provider that has a longer operating history than us, and LG U+ which began its service at around the same time as KTF. As of December 31, 2016, we had approximately 18.9 million subscribers, or a market share
of 30.6%, which was the second largest among the three mobile service providers.

We market our mobile services primarily through
independent exclusive dealers located throughout Korea. As of December 31, 2016, there were approximately 2,700 shops managed by our independent exclusive dealers. In addition to assisting new subscribers to activate mobile service and purchase
handsets, authorized dealers are connected to our database and are able to assist customers with their account information. Although most of these dealers sell exclusively our products and services,
sub-dealers hired by exclusive dealers may sell products and services offered by other mobile telecommunications service providers. Authorized dealers are entitled to a commission for each new subscriber
registered, as well as ongoing commissions for the first five years based primarily on the subscribers monthly fee, usage charges and length of subscription. The handsets sold by us to the dealers cannot be returned to us unless they are
defective. If a handset is defective, it may be exchanged for a new one within 14 days from the date of purchase. On October 1, 2014, the Handset Distribution Reform Act, which regulates the sale and subsidies of mobile telecommunication
devices, went into effect. See RegulationRates.

In response to the diversification of our customers
demands and their increasing sophistication, we have also selectively engaged in opportunities to expand our internal sales channels in recent years. In 2007, we established a wholly-owned subsidiary, KT M&S Co., Ltd., that operates
approximately 260 customer plazas that engage in mobile service sales activities as well as provide a one-stop shop for a wide range of other services and products that we offer. We also operate a website to
promote and advertise our products and services to the general public and in particular to younger customers who are more familiar with the Internet.



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We conduct the screening process for new subscribers with great caution. A potential subscriber must
meet all minimum credit criteria before receiving mobile service. The procedure includes checking the history of non-payment and credit information from banks and credit agencies such as the National
Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the mobile service by using a pre-paid card.

Fixed-line Services

We provide a variety of fixed-line communication services, including various telephone services, broadband and other Internet services and data
communication services.

Fixed-line Telephone Services

We utilize our extensive nationwide telephone network to provide fixed-line telephone services, which consist of local, domestic long-distance, international long-distance services and land-to-mobile interconnection services. These fixed-line telephone services accounted for 8.9% of our operating revenues in 2016. Our telephone network includes exchanges,
long-distance transmission equipment and fiber optic and copper cables. The following table gives some basic measures of the development of our telephone system. In recent years, the proliferation of mobile phones, as well as the availability of
increasingly lower wireless pricing plans, some of which include unlimited voice minutes, has led to significant decreases in our domestic long-distance call minutes and local call pulses.



|                                                   |  |                                          |         |  |      |  |         |      |  |  |         |  |  |      |         |  |  |  |         | 
|-------------------------------------------------- |  | ---------------------------------------- | ------- |  | ---- |  | ------- | ---- |  |  | ------- |  |  | ---- | ------- |  |  |  | ------- | 
|                                                   |  | As of or for the Year Ended December 31, |        
|                                                   |  | 2012                                     |         |  | 2013 |  |         | 2014 |  |  | 2015    |  |  | 2016 |        
|Total Korean population (thousands) (1)            |  |                                          | 50,948  |  |      |  | 51,141  |      |  |  | 51,328  |  |  |      | 51,529  |  |  |  | 51,696  | 
|Lines installed (thousands) (2)                    |  |                                          | 25,242  |  |      |  | 24,264  |      |  |  | 23,930  |  |  |      | 23,607  |  |  |  | 24,858  | 
|Lines in service (thousands) (2)                   |  |                                          | 15,121  |  |      |  | 14,032  |      |  |  | 13,713  |  |  |      | 12,440  |  |  |  | 11,871  | 
|Lines in service per 100 inhabitants (3)           |  |                                          | 29.7    |  |      |  | 27.4    |      |  |  | 26.7    |  |  |      | 24.6    |  |  |  | 23.0    | 
|Fiber optic cable (kilometers)                     |  |                                          | 584,932 |  |      |  | 636,347 |      |  |  | 673,783 |  |  |      | 695,546 |  |  |  | 732,873 | 
|Number of public telephones installed (thousands)  |  |                                          | 101     |  |      |  | 94      |      |  |  | 88      |  |  |      | 83      |  |  |  | 74      | 
|Domestic long-distance call minutes (millions)
(4) |  |                                          | 4,857   |  |      |  | 3,803   |      |  |  | 2,743   |  |  |      | 2,113   |  |  |  | 1,507   | 
|Local call pulses (millions) (4)                   |  |                                          | 6,720   |  |      |  | 5,765   |      |  |  | 4,038   |  |  |      | 3,034   |  |  |  | 2,161   | 





|(1) | Based on the number of registered residents as published by the Ministry of Government Administration and Home Affairs of Korea.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(2) | Including lines used for public telephones but excluding lines dedicated to centralized extension system services for corporate subscribers.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Determined based on lines in service and total Korean population.
|--- | -----------------------------------------------------------------



|(4) | Excluding calls placed from public telephones.
|--- | ----------------------------------------------

Our
domestic long-distance cable network is entirely made up of fiber optic cable and can carry both voice and data transmissions. Compared to conventional materials such as coaxial cable, fiber optic cable provides significantly greater transmission
capacity with less signal fading, thus requiring less frequent amplification. All of our lines are connected to exchanges capable of handling digital signal technology. A principal limitation of the older analog technology is that applications other
than voice communications, such as the transmission of text and computer data, require either separate networks or conversion equipment. Digital systems permit a range of voice, text and data applications to be transmitted simultaneously on the same
network.



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The following table shows the number of minutes of international long-distance calls recorded by us
and specific service providers utilizing our international long-distance network in each specified category for each year in the five-year period ended December 31, 2016:



|                                           |  |                                 |       |  |      |  |       |      |  |  |       |  |  |      |       |  |  |  |       | 
|------------------------------------------ |  | ------------------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | ----- |  |  |  | ----- | 
|                                           |  | Year Ended December 31,         |      
|                                           |  | 2012                            |       |  | 2013 |  |       | 2014 |  |  | 2015  |  |  | 2016 |      
|                                           |  | (In millions of billed minutes) |      
|Incoming international long-distance calls |  |                                 | 520.3 |  |      |  | 628.4 |      |  |  | 549.4 |  |  |      | 390.5 |  |  |  | 352.3 | 
|Outgoing international long-distance calls |  |                                 | 289.7 |  |      |  | 244.2 |      |  |  | 212.2 |  |  |      | 179.0 |  |  |  | 155.1 | 
|                                           |  |                                 |       |  |      |  |       |      |  |  |       |  |  |      |       |  |  |  |       | 
|Total                                      |  |                                 | 810.0 |  |      |  | 872.6 |      |  |  | 761.6 |  |  |      | 569.5 |  |  |  | 507.4 | 
|                                           |  |                                 |       |  |      |  |       |      |  |  |       |  |  |      |       |  |  |  |       | 

Japan (30.9%), China (23.4%) and the United States (9.1%) accounted for the greatest percentage of our
international long-distance call traffic measured in minutes in 2016. In recent years, the volume of our incoming calls has exceeded the volume of our outgoing calls. The agreed settlement rate is applied to the call minutes to determine the
applicable net settlement payment.

Interconnection. Under the Telecommunications Business Act, we are required to permit other
service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include SK Broadband and LG U+ (offering local, domestic long-distance and international long-distance services, and
transmitting calls to and from their mobile networks), Sejong and SK Telink (offering international and domestic long-distance services), and SK Telecom. We recognize as
land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as an expense the amount of interconnection
charge paid to the mobile service provider.

Internet Phone Services. The volume of calls made through Internet phone services
has significantly increased since Internet phone service was first introduced in Korea in 1998. We provide Internet phone services that enable VoIP phone devices with broadband connection to make domestic and international calls. In order to
differentiate our Internet phone services from our competitors services, we provide value-added services such as video communication, short message service, phone banking and a variety of traffic and local news information. As of
December 31, 2016, we had approximately 3.4 million subscribers.

Internet Services

Broadband Internet Access Service. Leveraging on our nationwide network of over 730,000 kilometers of fiber optic cable network, we
have achieved a leading market position in the broadband Internet access market in Korea. We believe we have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we can utilize our existing
networks nationwide to provide broadband Internet access service. Our broadband Internet access service accounted for 8.8% of our operating revenues in 2016.Our principal Internet access services include:



| |  |  | ADSL, VDSL, Ethernet and FTTH services under the olleh Internet and olleh GiGA Internet brand names;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | WiFi under the ollehWiFi brand name, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access
to laptops and smartphones in hot-spot zones and olleh Internet service in fixed-line environments. OllehWiFi enables subscribers to access the Internet at a speed of up to 1.3 Gbps. We sponsored approximately
107,000 hot-spot zones nationwide for wireless connection as of December 31, 2016; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | olleh 4G WiBro Internet access service, which enables two-way WiBro Internet access to portable computers, mobile phones
and other portable devices at a speed averaging 6 Mbps per user.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We had approximately 8.5 million broadband
Internet subscribers and approximately 1.5 million ollehWiFi service subscribers as of December 31, 2016. We commercially launched our WiBro service in June 2006, and we had approximately 506,000 subscribers as of December 31,
2016. We launched our olleh GiGA Internet Service, which provides transmission speed of up to 1 Gbps, and had approximately 2.4 million subscribers as of December 31, 2016. We also bundle our WiBro service with olleh Internet and ollehWiFi
services at a discount in order to attract additional subscribers.

Our olleh Internet service utilizes ADSL technology, which is a
technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. ADSL transforms the existing public telephone network from one limited to voice, text and low-resolution graphics to a system capable of bringing multimedia to subscriber premises without new cabling. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading
information from the Internet. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL, ADSL-based technology
with enhanced downstream speed, became commercialized in July 2002. We are continually upgrading our broadband network to enable better FTTH connection, which further enhances data transmission speed of up to 1 Gbps and connection quality. FTTH
is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which
is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IPTV, and other digital media content with higher stability.

The high-speed downstream rates can reach up to 100 Mbps for VDSL and 1 Gbps for FTTH. We plan to offer data transmission speed of up
to 1 Gbps, regardless of medium, by the end of 2017. In October 2016, we commercialized GiGA Wire 2.0 Internet service solutions on copper wires to provide data transmission speed of up to 1 Gbps. We plan to launch an Internet service based on UTP
with data transmission speed of up to 1 Gbps. Downstream rates depend on a number of factors. For a constant wire gage, the data rate decreases as the length of the copper wire increases. Generally, if the separation between the telephone office and
the subscriber is greater than four kilometers, line attenuation is so severe that broadband speeds can no longer be achieved. Fiber-optic cable used by FTTH, on the other hand, uses laser light to carry signals that travel long distances inside
fiber optic cable without degradation.

Other Internet-related Services. Our other Internet-related services focus primarily on
providing infrastructure and solutions for business enterprises, as well as IPTV and network portal services. Our other Internet-related services accounted for 7.8% of our operating revenues in 2016.

We operate 10 data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storage and
leased lines. Data centers are facilities used to house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data. Our data centers are designed to meet
international standards, and are equipped with temperature and humidity control systems, regulated and reliable power supplies, mechanical equipment, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the
Internet. Data centers allow corporations to outsource their application and server hardware management.

Our data centers offer network
outsourcing services, server operation services and system support services. Our network outsourcing services include co-location, which is the installation of our



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customers network equipment at our data centers. Co-location is designed to increase customers Internet connection speed and reduce connection
time and costs by directly connecting the customers server to the Internet backbone switch at our data centers. Our server operation services include optimal server management service and technical support service we provide with respect to
the leased servers that are linked directly to our Internet backbone switch. We also lease servers and network equipment for a fixed monthly fee. Our system support services include providing system resources for a wide range of Internet computing
services, such as application transfer, network storage, video streaming and application download, as well as sending short text messages and messages containing multimedia objects, such as images, audio and video.

We also offer a service called Bizmeka to develop and commercialize
business-to-business solutions targeting small- and medium-sized business enterprises in Korea. Bizmeka is an applied application
service provider which provides industry standard and specialized business solutions, including integrated business administration solutions and intranet collaboration solutions.

We also offer high definition video-on-demand and real-time
broadcasting IPTV services under the brand name olleh TV, and began offering ultra-high-definition (UHD) IPTV services, which offer resolutions up to four times those offered under high-definition television services, under
the brand name olleh GiGA UHD TV starting in September 2014. Our IPTV service offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee or on a pay-per-view basis. Through a digital set-top box that we rent to our customers, our customers are able to browse the catalog of
digital media contents and view selected media streams on their television. A set-top box provides two-way communications on an IP network and decodes video streaming
data. We had approximately 7 million olleh TV subscribers as of December 31, 2016. In December 2015, amendments to the Internet Multimedia Broadcasting Business Act were promulgated. Under such amendments, a single broadcasting operator,
together with its affiliates, may not have more than one-third of the market share of all paid broadcasting subscribers in Korea. The market share restriction will be in effect until June 27, 2018.

Data Communication Services

Our data communication services involve offering exclusive lines that allow point-to-point connection for voice and data traffic
between two or more geographically separate points. As of December 31, 2016, we leased over 249,817 lines to domestic and international businesses. The data communication service accounted for 4.4% of our operating revenues in 2016.

We provide dedicated and secure broadband Internet connection service to institutional customers under the Kornet brand name. We
provide high-speed connection up to 10.0 Gbps connected to our Internet backbone network with capacity of 9.0 Tbps, as well as rent to our customers and install necessary routers to ensure reliable Internet connection and enhanced security. We
provide discount rates to qualified customers, including small- and medium-sized enterprises, businesses engaging in Internet access services and government agencies.

Financial Services

Our financial services accounted for 15.4% of our operating revenues in 2016. To further diversify our business and to create synergies through
utilization of our mobile telecommunications network in financial services, we, through our former subsidiary KT Capital Co., Ltd., acquired 1,622,520 additional shares of common stock of BC Card Co., Ltd. from Woori Bank, Busan Bank and Shinhan
Card for approximately ₩252 billion in October 2011. As we were deemed to have control over BC Card Co., Ltd., it became our
consolidated subsidiary starting in October 2011. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately



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₩287 billion, and owned a 69.5 % interest in BC Card Co., Ltd. as of
December 31, 2016. BC Card Co., Ltd. offers various credit card and related financial services. BC Card Co., Ltd. had consolidated operating revenues of ₩3,568 billion and net income of ₩163 billion for the year ended December 31,
2016 and consolidated assets of ₩ 3,651 billion and liabilities of
₩2,602 billion as of December 31, 2016. In March 2014, the investment business division of KT Capital Co., Ltd., including
3,059,560 common shares of BC Card Co., Ltd. that KT Capital Co., Ltd. held, was spun off and merged into KT Corporation, to further strengthen the synergy between telecommunication and finance operations within the KT group and increase shareholder
value. To focus on our core telecommunications business, we and our consolidated subsidiary, KT Hitel Co., Ltd., disposed of the entire 100% stake in KT Capital Co., Ltd. in August 2015 for a total of
₩299 billion.

In
November 2015, the Government announced plans to introduce Internet-only banks and granted preliminary approval to two consortiums, K bank consortium and Kakao Bank consortium. The K bank consortium, over which we own a minority interest as one of
20 shareholding companies including Woori Bank, NH Investment & Securities, Co., Ltd., GS Retail Co., Ltd. and Hanwha Life Insurance Co., Ltd., received the final approval from the Government to operate the first Internet-only bank in Korea
in December 2016. The Kakao Bank consortium, K banks competitor, received the final approval from the Government in April 2017. K bank began its operation in April 2017 and seeks to operate as a virtual bank whose operation is based on its
mobile application and the Internet, while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to differentiate itself from other conventional banks by utilizing big data and
offering competitive products and interest rates. Under the current Korean law, as a non-financial institution, we are not allowed to own in excess of 4% voting interest in K bank, and our combined voting and non-voting interest may not exceed 10%. In 2016, the National Assembly did not adopt a pending bill which would have allowed non-financial institutions to own more than 4%
interest in Internet banks.

Other Businesses

We also engage in various business activities that extend beyond telephone services and data communication services, including satellite services, information technology and network services, satellite TV services,
with the consolidation of KT Skylife starting in January 2011, and media contents business with the establishment of KT Media Hub Co., Ltd. in December 2012. We merged KT Media Hub Co., Ltd. into KT Corporation in March 2015, to enhance shareholder
value by increasing management efficiency and promoting synergy among our existing businesses. Our other businesses accounted for 10.6% of our operating revenues for 2016.

We provide transponder leasing, broadcasting, video distribution and data communication services through Koreasat 5, Koreasat 6 and Koreasat 8
(also known as ABS-2). We also lease satellite capacity from other satellite operators to offer satellite services to both domestic and international customers.

In August 2006, we launched Koreasat 5, a combined civil and governmental communications satellite with a design life of 15 years, to replace
Koreasat 2 (launched in 1996 with a design life of ten years). In December 2010, we launched Koreasat 6, with a design life of 15 years, to replace Koreasat 3 (originally launched in 1999, with a design life of 12 years). Koreasat 6 began its
commercial operation in February 2011 and carries transponders that are mainly used for direct-to-home satellite broadcasting, video distributions and data communication
services. Most of the direct-to-home satellite broadcasting transponders are utilized by KT Skylife. In August 2010, we procured from Asia Broadcast Satellite Holdings,
Ltd. (ABS), a Hong Kong-based satellite operator, four transponders on ABS-1 satellite and eight additional transponders on ABS-2 satellite in order to



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provide satellite services with a broader global scope. In the second half of 2014, we exchanged our ownership rights of four transponders on ABS-1 with
ownership rights of four transponders on ABS-2 satellite. As a result, we own 12 transponders on ABS-2 satellite (also called Koreasat 8).

Two additional satellites, one to expand satellite services in various regions and the other to replace Koreasat 5, are expected to be launched in
2017.

We entered into an agreement with ABS to sell Koreasat 3 to ABS, as Koreasat 3 was expected to reach the end of its design life.
In December 2013, the MSIP declared the sales contract regarding Koreasat 3 null and void on the ground that the said contract was made without prior government approval. Shortly after, ABS filed a request for arbitration against us and KT SAT Co.,
Ltd. and we, together with KT SAT Co., Ltd., have been involved in the International Chamber of Commerce arbitration against ABS.

In
December 2012, we spun off our satellite service business by establishing KT Sat Co., Ltd., in an effort to enhance operational specialization and to foster management efficiency, enabling us to respond more promptly to the changing market
environments and increasing competitiveness.

We offer a broad array of integrated information technology and network services to our
business customers. Our range of services includes consulting, designing, building and maintaining systems and communication networks that satisfy the individual needs of our customers in the public and private sectors.

We own land and real estate in various locations nationwide. Technological developments have enhanced the coverage area of individual
telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings. In recent years, we have engaged in the planning and development of commercial and office buildings and condominiums on our unused
sites, as well as in the leasing of buildings we own. We established KT Estate Inc. in August 2010 to oversee the planning, development and operation of our real estate assets, and established KT AMC, an asset management company, in September 2011
as a subsidiary of KT Estate Inc. to create additional synergies with our real estate assets. We made a contribution in-kind of ₩1,254 billion to KT Estate Inc. in December 2012 to further strengthen KT Estate Inc.s competitiveness and to better utilize our assets.

To respond to the trend of convergence in the telecommunications and broadcasting industries, and to seek additional synergies with our existing
operations, we acquired 5,600,000 shares of redeemable convertible preferred stock with voting rights and convertible bonds that were convertible into 5,600,000 shares of common stock of KT Skylife from Dutch Savings Holdings B.V. in January 2011
for approximately ₩246 billion. We exercised the conversion rights on the redeemable convertible preferred stock and the
convertible bonds in March 2011, and owned a 50.3% interest in KT Skylife as of December 31, 2016. KT Skylife offers satellite TV services, which may also be packaged with our IPTV services as further described below.



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Revenues and Rates

The table below shows the percentage of our revenues derived from each category of services for each of the years from 2014 to 2016:



|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|----------------------------------- |  | ----------------------- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                    |  | Year Ended December 31, |      
|                                    |  | 2014                    |       |   | 2015 |  |       | 2016 | 
|Mobile services                     |  |                         | 31.4  | % |      |  | 32.0  | %    |  |  | 31.9  | %
|Fixed-line services                 |  |                         | 30.3  |   |      |  | 29.8  |      |  |  | 29.9  |  
|Fixed-line telephone services:      |  |                         |       |   |      |  |       |      |  |  |       |  
|Monthly basic charges               |  |                         | 3.1   |   |      |  | 2.9   |      |  |  | 2.7   |  
|Monthly usage charges               |  |                         | 5.5   |   |      |  | 4.5   |      |  |  | 3.7   |  
|Others                              |  |                         | 3.0   |   |      |  | 2.8   |      |  |  | 2.5   |  
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|Sub-total                           |  |                         | 11.5  |   |      |  | 10.2  |      |  |  | 8.9   |  
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|Internet services:                  |  |                         |       |   |      |  |       |      |  |  |       |  
|Broadband Internet access service   |  |                         | 8.6   |   |      |  | 8.3   |      |  |  | 8.8   |  
|Other Internet-related services (1) |  |                         | 5.1   |   |      |  | 6.5   |      |  |  | 7.8   |  
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|Sub-total                           |  |                         | 13.7  |   |      |  | 14.8  |      |  |  | 16.6  |  
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|Data communication services
(2)     |  |                         | 5.1   |   |      |  | 4.7   |      |  |  | 4.4   |  
|Goods sold (3)                      |  |                         | 14.4  |   |      |  | 12.1  |      |  |  | 12.1  |  
|Financial services                  |  |                         | 14.5  |   |      |  | 15.3  |      |  |  | 15.4  |  
|Other businesses (4)                |  |                         | 9.4   |   |      |  | 10.8  |      |  |  | 10.6  |  
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  
|Operating revenues                  |  |                         | 100.0 | % |      |  | 100.0 | %    |  |  | 100.0 | %
|                                    |  |                         |       |   |      |  |       |      |  |  |       |  





|(1) | Includes revenues from services provided by our data centers, Bizmeka and olleh TV.
|--- | -----------------------------------------------------------------------------------



|(2) | Includes revenues from Kornet Internet connection service and satellite services.
|--- | ---------------------------------------------------------------------------------



|(3) | Includes mobile handset sales.
|--- | ------------------------------



|(4) | Includes revenues from satellite services, information technology and network services and security services.
|--- | -------------------------------------------------------------------------------------------------------------

Mobile Services

We
derive revenues from mobile services principally from:



| |  |  | monthly fees;
| | - |  | -------------



| |  |  | usage charges for outgoing calls;
| | - |  | ---------------------------------



| |  |  | usage charges for wireless data transmission;
| | - |  | ---------------------------------------------



| |  |  | contents download fees;
| | - |  | -----------------------



| |  |  | value-added monthly service fees; and
| | - |  | -------------------------------------



| |  |  | mobile-to-mobile interconnection charges.
| | - |  | -----------------------------------------

We offer various rate plans, including those that offer a specified amount of free data transmission per month in return for higher monthly fees as
well as plans that are geared toward business customers. We completely abolished our activation fee in March 2015.

We introduced rate
plans specifically for smartphone users starting in September 2009. We also introduced new rate plans specifically for LTE phone users in connection with the rollout of our 4G LTE services in January 2012. In June 2013, we introduced the Everyone
olleh rate plan, which



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permits users to make unlimited voice calls within our wireless network, and the Fixed-Line and Wireless Unlimited rate plan, which permits users to make unlimited voice calls within both
our fixed-line and wireless networks. We began offering LTE unlimited data plans in March 2014, which allows unlimited LTE data usage within certain transmission speeds after the monthly quota at the highest LTE data transmission speed has been
exhausted. Starting from November 2014, we began offering our major smartphone plans at discounted rates which were previously offered only to subscribers who signed on for mandatory subscription periods ranging from one to two years, thereby
eliminating the need to sign on for any mandatory subscription period to benefit from our discounted plans and removing any early termination penalties. We believe such changes allow our subscribers a wider flexibility in choosing their mobile plans
based on their needs. In May 2015, we began offering the LTE data choice plan, through which users choose a 300MB to unlimited monthly quota for data transmission and enjoy unlimited voice calls and messages. With the LTE data choice plan, we also
introduced the Push-and-Pull service, which allows users to carry over unused data to the following month or pull up additional data from the following
months allotment. In March 2016, we began offering the Y24 plans for customers under the age of 24. Many of the Y24 plans offer free data transmission for three hours a day and additional data service at discounted rates.

The following table summarizes the charges associated with our representative LTE smartphone service plans:



|                    |  |                      |           |     |                                              |  |              |                                |           |                    |        |            |  |   |        | 
|------------------- |  | -------------------- | --------- | --- | -------------------------------------------- |  | ------------ | ------------------------------ | --------- | ------------------ | ------ | ---------- |  | - | ------ | 
|                    |  | Free Airtime Minutes |           |     |                                              |  |              |                                |           |                   
|                    |  | Voice Calls          |           |     | Video Calls andVoice Calls toSpecial Numbers |  |              | Free DataTransmission(1)       |           | Additional Service |        | MonthlyFee | 
|LTE data choice 299 |  |                      | Unlimited |     |                                              |  | 50           |                                |           | 300MB              |        | mobile TV  |  | ₩ | 29,900 | 
|LTE data choice 349 |  |                      |           | 50  |                                              |  | 1GB          |                                | mobile TV |                    |        | 34,900     | 
|LTE data choice 399 |  |                      |           | 50  |                                              |  | 2GB          |                                | mobile TV |                    |        | 39,900     | 
|LTE data choice 449 |  |                      |           | 50  |                                              |  | 3GB          |                                | mobile TV |                    |        | 44,900     | 
|LTE data choice 499 |  |                      |           | 50  |                                              |  | 6GB          |                                | mobile TV |                    |        | 49,900     | 
|LTE data choice 599 |  |                      |           | 200 |                                              |  | Unlimited(2) |                                | mobile TV |                    |        | 59,900     | 
|LTE data choice 699 |  |                      |           | 200 |                                              |  |              | mobile TV                      |           |                    | 69,900 |           
|LTE data choice 999 |  |                      |           | 200 |                                              |  |              | VIP membershipDevice insurance |           |                    | 99,900 |           





|(1) | We do not charge for data transmission in wireless LAN zones. We charge
₩0.01 per 0.5 kilobyte for any additional data transmission exceeding the free monthly quota, up to a maximum of ₩150,000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Provides an additional daily quota of 2GB after the free monthly quota has been exhausted, and also provides unlimited use of data with speed of up to 3 Mbps or 5 Mbps after the
daily quota of 2GB has been exhausted.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also provide plans specially designed for elderly and pre-teen subscribers as well as special discounts to subscribers with physical disabilities. Plans specialized for feature phone users such as a standard rate plan are provided as well. Under the standard rate plan,
we charge a monthly fee of ₩11,000, a voice calling usage charge of ₩1.8 per second and a video calling usage charge of ₩3 per second, without any free voice or
video call airtime minutes.

We also offer plans for new devices such as tablets and wearable devices. Since 2010, we have been offering
a specialized plan for tablets which provides a 1.6GB to unlimited monthly quota of data transmission for a monthly fee of ₩18,000 to ₩99,900. In November 2014, we began offering a specialized plan for wearable devices, which charges a fixed monthly fee of ₩8,000 for a 100MB monthly quota of data transmission and 50 minutes of voice calls. For other new devices, we also provide a data
sharing service that allows users to share data provided as part of their smartphone plans with other devices.

Mobile-to-mobile Interconnection. For a call initiated by a mobile subscriber of our competitor to our mobile subscriber, the mobile service provider collects from its
subscriber its normal rate and



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remits to us a mobile-to-mobile interconnection charge. In addition, for a call initiated by our mobile subscriber
to a mobile subscriber of our competitor, we collect from our subscriber our normal rate and remit to the mobile service provider a mobile-to-mobile interconnection
charge.

The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators,
and the charges received per minute (exclusive of value-added taxes) from mobile operators for mobile to mobile calls:



|           |  |                    |      |  |                 |   |      |                 |  |   |      | 
|---------- |  | ------------------ | ---- |  | --------------- | - | ---- | --------------- |  | - | ---- | 
|           |  | Effective Starting |     
|           |  | January 1, 2014    |      |  | January 1, 2015 |   |      | January 1, 2016 | 
|SK Telecom |  | ₩                  | 22.2 |  |                 | ₩ | 19.5 |                 |  | ₩ | 17.1 | 
|LG U+      |  |                    | 22.8 |  |                 |   | 20.0 |                 |  |   | 17.0 | 
|KT         |  |                    | 22.7 |  |                 |   | 19.9 |                 |  |   | 17.2 | 

We recognize as mobile-to-mobile
interconnection revenue the entire amount of the usage charge collected from the mobile user and recognize as expense the amount of interconnection charge paid to the mobile service provider.

Fixed-line Services

Fixed-line Telephone Services

Local Telephone Service. Our revenues from local telephone service consist primarily of:



| |  |  | service initiation fees for new lines;
| | - |  | --------------------------------------



| |  |  | monthly basic charges; and
| | - |  | --------------------------



| |  |  | monthly usage charges based on the number of call pulses.
| | - |  | ---------------------------------------------------------

The rates we charge for local calls are currently subject to approval by the MSIP after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. All
calls are currently measured by call pulses. Each pulse is determined by the duration of the call and the time of the day at which the call is made. Our current local usage rates, which have been in effect since May 2002, are ₩39 per pulse for regular service and
₩70 per pulse for public telephones. For local calls, a pulse is triggered at the beginning of each local call and every three minutes
thereafter from 8:00 a.m. to 9:00 p.m. on weekdays and every 258 seconds thereafter on holidays and from 9:00 p.m. to 8:00 a.m. on weekdays.

We also charge a monthly basic charge ranging from ₩3,000 to ₩5,200, depending on location, and a non-refundable service initiation fee of ₩60,000 to new subscribers. The non-refundable service initiation fee is waived for the new
subscribers who subscribe to our local service through our online application process. Until April 2001, we charged refundable service initiation deposits, which were refunded upon termination of service. As of December 31, 2016, we had ₩368 billion in refundable service initiation deposits outstanding and 1.7 million subscribers who are enrolled under the mandatory
deposit plan and are eligible to switch to the no deposit plan and receive their service initiation deposit back (less the non-refundable service initiation fees).

Domestic Long-distance Telephone Service. Our revenues from domestic long-distance service consist of charges for calls placed, charged for
the duration, time of day and day of the week a call is placed, and the distance covered by the call. We are able to set our own rates for domestic long-distance service without approval from the MSIP.



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Our current basic domestic long-distance rates, which have been in effect since November 2001,
are ₩39 per three minutes for distances of up to 30 kilometers and ₩14.5 per ten seconds (equivalent to ₩261 per three minutes) for distances in excess of 30
kilometers. For domestic long-distance calls for distances of up to 30 kilometers, a pulse is triggered at the beginning of each call and every three minutes thereafter. For domestic long-distance calls for distances in excess of 30 kilometers,
a pulse is triggered at the beginning of each call and every 10 seconds thereafter. Rates for domestic long-distance calls for distances up to 30 kilometers are currently discounted by an adjustment in the period between pulses, by approximately 11%
(utilizing a pulse rate of 200 seconds) from 6:00 a.m. to midnight on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 43% (utilizing a pulse rate of 258 seconds) from midnight to 6:00 a.m. every day. Rates for domestic
long-distance calls for distances in excess of 30 kilometers are currently discounted by approximately 10% (utilizing a rate of ₩13.1
per ten seconds) from 6:00 a.m. to midnight on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by approximately 30% (utilizing a rate of ₩10.2 per ten seconds) from midnight to 6:00 a.m. every day.

In recent years, we have begun to
offer optional flat rate plans, discount plans and bundled product plans in order to mitigate the impact from lower usage of local and domestic long-distance calls and stabilize our revenues from fixed-line telephone services. For a discussion of
our bundled products, see Bundled Products. Some of our flat rate and discount plans that we currently offer include the following:



| |  |  | a subscriber who elects to pay a monthly flat rate of
₩12,500 is able to make free local and domestic long-distance calls after 9 p.m. on weekdays or at any time on weekends. Each month, the
subscriber also receives a free movie ticket and free 60 minutes of land-to-mobile calls. The subscriber is also eligible to receive a discount of up to 20%, subject to
the length of the mandatory subscription period;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a subscriber who elects to subscribe to our fixed-line phone service for a three year mandatory subscription period is able to make local and domestic
long-distance calls at a flat rate of ₩39 per three minutes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a subscriber who elects to subscribe to our broadband Internet access service or HSDPA-based mobile service for a three year mandatory subscription period is
able to make local, domestic long-distance and land-to-mobile calls of up to ₩150,000 with a flat rate payment of ₩50,000 or such calls up to ₩50,000 with a flat rate payment of
₩10,000. Standard rates apply to calls that exceed the capped amounts; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a subscriber who elects to pay a monthly flat rate ranging from ₩7,500 to ₩15,000, depending on the types of calls the subscriber wishes to make, is able to
use 3,000 minutes per month of local, domestic long-distance, land-to-VoIP and
land-to-KT mobile calls.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

International Long-distance Service. Our revenues from international long-distance service consist of:



| |  |  | amounts we bill to customers for outgoing calls made to foreign countries (including customers who make calls to Korea from foreign countries under our home
country direct-dial service);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | amounts we bill to foreign telecommunications carriers for connection to the Korean telephone network in respect of incoming calls (including calls placed in
Korea by customers of the foreign carriers for home country direct-dial service); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other revenues, including revenues from international calls placed from public telephones.
| | - |  | ------------------------------------------------------------------------------------------



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We bill outgoing calls made by customers in Korea (and calls made to Korea from foreign countries
under our home country direct-dial service) in accordance with our international long-distance rate schedule for the country called. These rates vary depending on the time of day at which a call is placed. We bill outgoing international calls on the
basis of one-second increments. We are able to set our own rates for international long-distance service without approval from the MSIP.

For incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service), we receive
settlement payments from the relevant foreign carrier at the applicable settlement rate specified under the agreement with the foreign carrier. We have entered into numerous bilateral agreements with foreign carriers. We negotiate the settlement
rates under these agreements with each foreign carrier, subject to the MSIPs approval. It is the practice among international carriers for the carrier in the country in which the call is billed to collect payments due in respect of the use of
overseas networks. Although we record the gross amounts due to and from us in our financial statements, we make settlements with most carriers monthly or quarterly on a net basis.

Land-to-mobile Interconnection. We provide other
telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network. For a call initiated by a landline user to a mobile service subscriber, we collect from the landline user the
land-to-mobile usage charge and remit to the mobile service provider a land-to-mobile
interconnection charge. The MSIP periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The MSIP determines the land to mobile interconnection charge by
calculating the long run incremental cost of mobile service providers, taking into consideration technology development and future expected costs.

The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators for landline to mobile calls:



|           |  |                    |      |  |                 |   |      |                 |  |   |      | 
|---------- |  | ------------------ | ---- |  | --------------- | - | ---- | --------------- |  | - | ---- | 
|           |  | Effective Starting |     
|           |  | January 1, 2014    |      |  | January 1, 2015 |   |      | January 1, 2016 | 
|SK Telecom |  | ₩                  | 22.2 |  |                 | ₩ | 19.5 |                 |  | ₩ | 17.0 | 
|LG U+      |  |                    | 22.8 |  |                 |   | 20.0 |                 |  |   | 17.2 | 

Since September 2004, the usage charges per minute collected from a landline user for a call initiated by a
landline user to a mobile service subscriber are ₩87.0 during weekdays,
₩82.0 during weekends and
₩77.2 during evenings (defined as 12:00 a.m. to 6:00 a.m. every day). We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as expense the amount of interconnection charge paid to the mobile service provider.

Land-to-land and Mobile-to-land Interconnection. For a call initiated by a landline subscriber of our competitor to our fixed-line user, the landline service provider collects from its subscriber its normal rate and
remits to us a land-to-land interconnection charge. In addition, for a call initiated by a mobile service subscriber to our landline user, the mobile service provider
collects from its subscriber its normal rate and remits to us a mobile-to-land interconnection charge.



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The following table shows such interconnection charge per minute collected for a call depending on the
type of call, as determined by the MSIP:



|                       |  |                    |      |  |                 |   |      |                 |  |   |      | 
|---------------------- |  | ------------------ | ---- |  | --------------- | - | ---- | --------------- |  | - | ---- | 
|                       |  | Effective Starting |     
|                       |  | January 1, 2014    |      |  | January 1, 2015 |   |      | January 1, 2016 | 
|Local access (1)       |  | ₩                  | 13.3 |  |                 | ₩ | 11.9 |                 |  | ₩ | 10.9 | 
|Single toll access (2) |  |                    | 14.7 |  |                 |   | 13.4 |                 |  |   | 12.0 | 
|Double toll access (3) |  |                    | 17.1 |  |                 |   | 16.0 |                 |  |   | 15.5 | 





|Source: | The MSIP.
|------- | ---------



|(1) | Interconnection between local switching center and local access line.
|--- | ---------------------------------------------------------------------



|(2) | Interconnection involving access to single long-distance switching center.
|--- | --------------------------------------------------------------------------



|(3) | Interconnection involving access to two long-distance switching centers.
|--- | ------------------------------------------------------------------------

Internet Services

Broadband Internet Access Service. We offer broadband Internet
access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a
one-time installation fee per site of ₩20,000 and modem rental fee of up to ₩8,000 on a monthly basis. Our fixed-line broadband internet service plans range from
₩30,000 to ₩50,000 per
month and our wireless broadband Internet service plans range from ₩10,000 to
₩30,000 per month.

olleh TV Services. We charge our subscribers an installation fee per site of
₩24,000, which is waived with a three-year contract, a set-top box rental fee ranging from ₩2,000 to ₩9,000 on a monthly
basis and a monthly subscription fee. The rates we charge for olleh TV services are subject to approval by the MSIP. Our olleh TV service plans range from ₩15,000 to ₩50,000 per month.

Data Communication Services

We charge customers of domestic leased-lines on a monthly fixed-cost basis, based on the distance of the leased line, the capacity of the line
measured in bits per second, the type of the line provided and whether the service site is local or long-distance. In addition, we charge customers a one-time installation fee per line, ranging from ₩56,000 to ₩1,940,000,
depending on the capacity of the line.

Bundled Products

We utilize our extensive customer relationships and market knowledge to expand our revenue base by cross-selling our telecommunications products
and services. In order to attract additional subscribers to our new services, we bundle our services, such as our broadband Internet access service with IPTV, Internet phone, fixed-line telephone service and mobile services, at a discount.

The following table summarizes our various basic bundled packages that we currently offer. The packages require subscribers to agree to
a subscription period of three years:



|                                                |  |               |        |  |                    |                                                                                                                                                                                                                        
|----------------------------------------------- |  | ------------- | ------ |  | ------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                |  | Monthly Rates
|                                                |  | Flat Rate     |        |  | Mobile Monthly Fee
|Internet / Internet Phone / Mobile              |  | ₩             | 21,000 |  |                    | Discounts are between ₩3,000 and ₩25,100 per account (excluding
₩5,000 for the Internet discount), depending on type of the Internet services and total amount of bundled mobile fee plans (up to 5
mobile numbers) (2)
|Internet / Fixed-Line Phone / Mobile            |  |               | 24,000 |  |                   
|Internet / IPTV / Mobile (1)                    |  |               | 30,000 |  |                   
|Internet / Fixed-Line Phone / IPTV / Mobile (1) |  |               | 31,000 |  |                   





|(1) | Assuming selection of olleh Internet and olleh TV Live 10 package.
|--- | ------------------------------------------------------------------



|(2) | Bundled rate plans are available for olleh 3G, LTE subscribers and some specific wearable device plan subscribers.
|--- | ------------------------------------------------------------------------------------------------------------------



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We believe that subscribers who sign up for bundled products are less likely to cancel our services
than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue
recognition policy for each service.

Competition

Competition in the telecommunications sector in Korea is intense. In recent years, business combinations in the telecommunications industry have significantly changed the competitive landscape of the Korean
telecommunications industry. In particular, SK Telecom acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband. The acquisition enabled SK Telecom to provide fixed-line telecommunications, broadband
Internet access and IPTV services together with its mobile telecommunications services. In January 2010, LG Dacom and LG Powercom merged into LG Telecom Co., Ltd., which subsequently changed its name to LG U+. The merger enabled LG U+ to provide a
similar range of services as SK Telecom and us. Furthermore, telecommunications providers are competing to be the first to introduce innovative services such as those based on 5G technologies.

Under the Framework Act of Telecommunications and the Telecommunications Business Act, telecommunications service providers in Korea are currently
classified into network service providers, value-added service providers and specific service providers. See Regulation.

Network Service Providers

All network service providers in Korea are permitted to set
the rates for international or domestic long-distance services on their own without the MSIPs approval. Many of our competitors have set their rates lower than ours. Currently, we can compete freely with other providers on the basis of rates
in all services except for rates we charge for local calls, which require advance approval from the MSIP. In all service areas, we compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our
broad customer base and our ability to provide various telecommunication services.

We and SK Telecom have been designated as
market-dominating business entities in the local telephone service and cellular service markets, respectively, under the Telecommunications Business Act. Under this Act, a market-dominating business entity 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. The KCC has also issued guidelines on
fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the KCC may take necessary corrective measures against it after a hearing at which the service provider may defend its action.

Mobile Service. Competition in the mobile telecommunications industry in Korea is intense among SK Telecom, LG U+
and us. Such competition has intensified in recent years due to the implementation of mobile number portability, which enabled mobile subscribers to switch their service provider while retaining the same mobile phone number, as well as payments of
handset subsidies to purchasers of new handsets who agree to minimum subscription periods and the recent rollout of 4G mobile services based on LTE technology by SK Telecom, LG U+ and us. The price competition through handset subsidies has become
less prevalent since the enactment of the Handset Distribution Reform Act in October 2014, which limits the maximum amount of handset subsidies.



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The following table shows the market shares in the mobile telecommunications market as of the dates
indicated:



|                  |  |                  |      |  |            |  |      |       |  |  |      | 
|----------------- |  | ---------------- | ---- |  | ---------- |  | ---- | ----- |  |  | ---- | 
|                  |  | Market Share (%) |     
|                  |  | KTCorporation    |      |  | SK Telecom |  |      | LG U+ | 
|December 31, 2014 |  |                  | 30.0 |  |            |  | 50.2 |       |  |  | 19.8 | 
|December 31, 2015 |  |                  | 30.4 |  |            |  | 49.4 |       |  |  | 20.2 | 
|December 31, 2016 |  |                  | 30.6 |  |            |  | 49.1 |       |  |  | 20.3 | 





|Source: | The MSIP.
|------- | ---------

We offer various rate plans,
including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. Our competitors also offer similar plans at competitive rates.

Local Telephone Service. We compete with SK Broadband and LG U+ in the local telephone service business. SK Broadband began
providing local telephone service in 1999, followed by LG U+ in 2004. In addition, the services provided by mobile service providers have had a material adverse effect on us in terms of our revenues from fixed-line telephone services. We expect this
trend to continue.

The following table shows the market shares in the local telephone service market as of the dates indicated:



|                  |  |                  |      |  |              |  |      |       |  |  |     | 
|----------------- |  | ---------------- | ---- |  | ------------ |  | ---- | ----- |  |  | --- | 
|                  |  | Market Share (%) |     
|                  |  | KTCorporation    |      |  | SK Broadband |  |      | LG U+ | 
|December 31, 2014 |  |                  | 81.0 |  |              |  | 16.1 |       |  |  | 2.9 | 
|December 31, 2015 |  |                  | 80.6 |  |              |  | 16.3 |       |  |  | 3.1 | 
|December 31, 2016 |  |                  | 80.6 |  |              |  | 16.2 |       |  |  | 3.2 | 





|Source: | The MSIP.
|------- | ---------

Although the local usage charge
of our competitors and us is the same at ₩39 per pulse (generally three minutes), our competitors
non-refundable telephone service initiation charges are lower than ours. Our customers pay a non-refundable telephone service initiation charge of ₩60,000 while customers of our competitors pay a non-refundable telephone service initiation charge of
₩30,000. Also, the basic monthly charge of our competitors is ₩4,500 compared to our basic charge of ₩5,200.

Domestic Long-distance Telephone Service. We compete with SK Broadband, LG U+, Sejong and SK Telink in the domestic
long-distance market. LG U+ began offering domestic long-distance service in 1996, followed by Sejong in 1999 and SK Broadband and SK Telink in 2004. The following table shows the market shares in the domestic long-distance market as of the dates
indicated:



|                  |  |                  |      |  |              |  |      |       |  |  |        |  |  |           |     |  |  |  |     | 
|----------------- |  | ---------------- | ---- |  | ------------ |  | ---- | ----- |  |  | ------ |  |  | --------- | --- |  |  |  | --- | 
|                  |  | Market Share (%) |     
|                  |  | KTCorporation    |      |  | SK Broadband |  |      | LG U+ |  |  | Sejong |  |  | SK Telink |    
|December 31, 2014 |  |                  | 78.9 |  |              |  | 14.9 |       |  |  | 2.7    |  |  |           | 0.9 |  |  |  | 2.7 | 
|December 31, 2015 |  |                  | 78.9 |  |              |  | 15.0 |       |  |  | 2.7    |  |  |           | 0.9 |  |  |  | 2.6 | 
|December 31, 2016 |  |                  | 78.9 |  |              |  | 15.0 |       |  |  | 2.7    |  |  |           | 0.8 |  |  |  | 2.6 | 





|Source: | Korea Telecommunications Operators Association.
|------- | -----------------------------------------------



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Our competitors and we charge ₩39 per three minutes for domestic long-distance calls up to 30 kilometers. For domestic long-distance calls greater than 30 kilometers, our competitors typically charge between 3% to 5% less than us. The
following table is a comparison of our standard long-distance usage charges per 10 seconds with the standard rates of our competitors as of December 31, 2016:



|                        |  |               |      |  |             |   |      |       |  |   |        |  |  |           |      |  |  |   |      | 
|----------------------- |  | ------------- | ---- |  | ----------- | - | ---- | ----- |  | - | ------ |  |  | --------- | ---- |  |  | - | ---- | 
|                        |  | KTCorporation |      |  | SKBroadband |   |      | LG U+ |  |   | Sejong |  |  | SK Telink |     
|30 kilometers or longer |  | ₩             | 14.5 |  |             | ₩ | 13.9 |       |  | ₩ | 14.1   |  |  | ₩         | 13.8 |  |  | ₩ | 13.8 | 





|Source: | The KCC.
|------- | --------

International Long-Distance
Telephone Service. Four companies, SK Broadband, LG U+, Sejong and SK Telink, directly compete with us in the international long-distance market. LG U+ began offering international long-distance service in 1991, followed by Sejong in
1997 and SK Broadband in 2004. SK Telink, which only provides Internet phone service, entered the international long-distance market in 2003 and offers its services at rates lower than those for network-based international long-distance telephone
services. The entry of Internet phone service providers and other telecommunications service providers, such as voice resellers, that can offer telecommunications services at rates lower than ours has increased competition in the international
long-distance market and adversely affected our revenues and profitability from international long-distance services. See Specific Service Providers.

Our competitors generally charge less than us for international long-distance calls. The following table is a comparison of our standard long-distance usage charges per one minute with the standard rates of our
competitors as of December 31, 2016:



|              |  |               |       |  |             |   |       |       |  |   |        |  |  |           |       |  |  |   |     | 
|------------- |  | ------------- | ----- |  | ----------- | - | ----- | ----- |  | - | ------ |  |  | --------- | ----- |  |  | - | --- | 
|              |  | KTCorporation |       |  | SKBroadband |   |       | LG U+ |  |   | Sejong |  |  | SK Telink |      
|United States |  | ₩             | 282   |  |             | ₩ | 276   |       |  | ₩ | 288    |  |  | ₩         | 276   |  |  | ₩ | 180 | 
|Japan         |  |               | 696   |  |             |   | 672   |       |  |   | 678    |  |  |           | 672   |  |  |   | 612 | 
|China         |  |               | 990   |  |             |   | 984   |       |  |   | 996    |  |  |           | 984   |  |  |   | 990 | 
|Australia     |  |               | 1,086 |  |             |   | 1,044 |       |  |   | 1,086  |  |  |           | 1,044 |  |  |   | 810 | 
|Great Britain |  |               | 1,008 |  |             |   | 966   |       |  |   | 996    |  |  |           | 966   |  |  |   | 900 | 
|Germany       |  |               | 948   |  |             |   | 912   |       |  |   | 942    |  |  |           | 912   |  |  |   | 900 | 





|Source: | KT Corporation.
|------- | ---------------

Broadband Internet
Access Service. The Korean broadband Internet access market has experienced significant growth in the past decade. SK Broadband entered the broadband market in 1999 offering both HFC and ADSL services, and we entered the market with
our ADSL services in 1999, followed by Dreamline, Sejong and LG U+. In addition, the entry of cable television providers that offer HFC-based broadband Internet access services at rates lower than ours has
increased competition in the broadband Internet access market. We expect industry consolidation among our competitors in the near future, and smaller competitors in the broadband market today may become larger competitors.

The following table shows the market share in the broadband Internet access market as of the dates indicated:



|                  |  |                  |      |  |             |  |      |       |  |  |        |  |  |  |      | 
|----------------- |  | ---------------- | ---- |  | ----------- |  | ---- | ----- |  |  | ------ |  |  |  | ---- | 
|                  |  | Market Share (%) |     
|                  |  | KTCorporation    |      |  | SKBroadband |  |      | LG U+ |  |  | Others | 
|December 31, 2014 |  |                  | 42.3 |  |             |  | 25.1 |       |  |  | 15.7   |  |  |  | 16.9 | 
|December 31, 2015 |  |                  | 41.6 |  |             |  | 25.1 |       |  |  | 17.4   |  |  |  | 15.9 | 
|December 31, 2016 |  |                  | 41.4 |  |             |  | 25.3 |       |  |  | 17.6   |  |  |  | 15.7 | 





|Source: | The MSIP.
|------- | ---------



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Our competitors generally charge less than us for broadband Internet access service. The following
table is a comparison of fees for our olleh Internet Lite service with three year mandatory subscription period with fees of our competitors for comparable services as of December 31, 2016:



|                                        |  |               |        |  |             |   |        |       |  |   |                   |  |  |   |        | 
|--------------------------------------- |  | ------------- | ------ |  | ----------- | - | ------ | ----- |  | - | ----------------- |  |  | - | ------ | 
|                                        |  | KTCorporation |        |  | SKBroadband |   |        | LG U+ |  |   | CableProviders(1) | 
|Monthly subscription fee                |  | ₩             | 25,500 |  |             | ₩ | 25,000 |       |  | ₩ | 25,000            |  |  | ₩ | 20,000 | 
|Monthly modem rental fee                |  |               | None   |  |             |   | None   |       |  |   | None              |  |  |   | 1,000  | 
|Additional installation fee upon moving |  |               | 10,000 |  |             |   | 10,000 |       |  |   | 20,000            |  |  |   | 20,000 | 





|Source: | KT Corporation.
|------- | ---------------



|(1) | These are typical fees charged by cable providers.
|--- | --------------------------------------------------

Data Communication Service. We had a monopoly in domestic data communication service until 1994, when LG U+ was authorized to
provide the leased-line service. The data communications services market has become more competitive with limited growth during the past decade, and we primarily compete with SK Broadband and LG U+.

Value-Added Service Providers

Value-added service providers may commence operations following filing of a report to the MSIP. The scope of business of a value-added service provider includes specific value-added telecommunications activities
(other than services reserved for network service providers), such as data communications utilizing telecommunications facilities leased from network service providers.

Specific Service Providers

Specific service providers, such as Internet phone service
providers and voice resellers, started operations in Korea in 1998. We began providing Internet phone service for international long-distance calls in May 1998. Our Internet phone service also competes with international long-distance services
provided by voice resellers who have also seen sharp increases in demand for their services.

In November 2015, the Government announced
plans to introduce Internet-only banks and granted preliminary approval to two consortiums, K bank consortium and Kakao Bank consortium. The K bank consortium, over which we own a minority interest as one of 20 shareholding companies including Woori
Bank, NH Investment & Securities, Co., Ltd., GS Retail Co., Ltd. and Hanwha Life Insurance Co., Ltd., received the final approval from the Government to operate the first Internet-only bank in Korea in December 2016. The Kakao Bank
consortium, K banks competitor, received the final approval from the Government in April 2017. K bank began its operation in April 2017 and seeks to operate as a virtual bank whose operation is based on its mobile application and the Internet,
while promoting greater user accessibility through the convenience stores of one of our other consortium members. K bank also plans to differentiate itself from other conventional banks by utilizing big data and offering competitive products and
interest rates.

Regulation

With the establishment of the MSIP in March 2013, many of the regulatory responsibilities formerly handled by the KCC have been transferred to the
MSIP. Under the Framework Act of Telecommunications and the Telecommunications Business Act, the MSIP now has comprehensive regulatory authority over the telecommunications industry and all network service providers.

The MSIP has assumed primary policy and regulatory responsibility for matters such as: (i) licensing of network service providers (the MSIP
authorizes the licensing of IPTV service providers and, with the consent of the KCC, authorizes the licensing of satellite broadcasting companies); (ii) regulation of mergers and acquisitions, as well as license suspension and termination of
network



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service providers; (iii) providing oversight on foreign ownership ratios in network service providers; and (iv) reviewing telecommunication matters as they relate to the public interest
and approving ancillary telecommunication business activities. Additionally, the MSIP is responsible for a broad range of other policy and regulatory matters, including the administration and supervision of regulatory reporting by telecommunications
companies, examination and analysis of accounting and business management practices in the industry, establishment and administration of policies governing telecommunications service fees, value-added service providers and specific service
providers, as well as supervision of reporting requirements of standard telecommunications service/user contracts.

Under the revised
supervisory framework, a network service provider must be licensed by the MSIP. Our license as a network service provider permits us to engage in a wide range of telecommunications services.

The KCCs overall policy role is to play a key role in regulatory activities aimed at protecting service users in the broadcast and
telecommunications market and it continues to be responsible for investigations and sanctions regarding violations by telecommunications companies, as well as for mediating disputes between service providers and users. The KCC is established under
the direct jurisdiction of the President of Korea and is comprised of five standing commissioners. Commissioners of the KCC are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the
National Assembly.

Under the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.,
telecommunications service providers are also required to protect personal information of their customers. Generally, when a telecommunications service provider intends to collect or use its customers personal information, such
telecommunications service provider, with certain exceptions, must notify and receive the customers consent in relation to the purpose of collection, the use of the collected personal information, types of personal information collected and
period during which the personal information will be possessed and used. Korean telecommunications providers may not use their customers personal information for any purpose other than the purpose their customers have consented to. In
addition, there are various internal processes that the telecommunications providers are mandated to install in order to collect and handle personal information of their customers.

The MSIP also has the authority to regulate the IP media market, including IPTV services. We began offering IPTV services with real-time high
definition broadcasting in November 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the MSIP. The ownership of the shares of an IP media
broadcasting company by a newspaper, a news agency or a foreigner is limited. In March 2015, amendments to the Internet Multimedia Broadcasting Business Act were promulgated. Under such amendments, a single broadcasting operator together with their
affiliates may not have more than one-third of the market share of all paid broadcasting subscribers in Korea. The restriction on market share will be in effect until June 27, 2018.

Rates

Under current
regulations implementing the Telecommunications Business Act, a network service provider may set its rates at its discretion, although it must report to the MSIP the rates and the general terms and conditions for each type of network service
provided by it. There is, however, one exception to this general rule: if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue
amount set by the MSIP, it must obtain prior approval from the MSIP for the rates and the general terms for that service. Each year the MSIP designates the service providers and the types of services



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for which the rates and the general terms must be approved by the MSIP. In 2013, the MSIP designated us for local telephone service and SK Telecom for mobile service, which currently remains in
effect. The MSIP, in consultation with the Ministry of Strategy and Finance, is required to approve the rates proposed by a network service provider if (1) the proposed rates are appropriate, fair and reasonable and (2) the calculation
method for the rates are appropriate and transparent.

On October 1, 2014, the Handset Distribution Reform Act, which seeks to
lower the cost of communication for the general public and reduce handset factory prices by establishing fair and transparent order in the distribution of mobile telecommunication devices, 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 residence 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 20%, effective since April 24, 2015). The maximum amount of handset subsidy that telecommunications operators and handset manufacturers may offer is determined by
Korean telecommunication regulators (such limit to be determined between ₩250,000 and
₩350,000, and may be adjusted every six months, with the current limit set at
₩330,000, effective since April 8, 2015). Telecommunications operators are also required to publicly announce the amount of handset
subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or exaggerated advertisements, such as advertisements that mobile phones are
free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.

Other
Activities

A network service provider, such as us, must obtain the permission of the MSIP in order to:



| |  |  | engage in certain businesses specified under the Telecommunications Business Act, such as the telecommunications equipment manufacturing business and the
telecommunications network construction business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | change the conditions for its licenses;
| | - |  | ---------------------------------------



| |  |  | transfer, terminate, suspend or spin off all or a part of the business for which it is licensed;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | acquire all or a part of the business of another network service provider; or
| | - |  | -----------------------------------------------------------------------------



| |  |  | enter into a merger with another network service provider.
| | - |  | ----------------------------------------------------------

By submitting a report to the MSIP, a network service provider may enter into arrangements for services to be furnished to its customers by a different telecommunications service provider and, in connection
therewith, may provide its telecommunications services to, or authorize the use of all or a portion of its telecommunications facilities by, such other telecommunications service provider. The MSIP can revoke our licenses or order the suspension of
any of our businesses if we do not comply with the regulations of the MSIP under the Telecommunications Business Act.

In May 2010, the
KCC issued a guideline that limits the marketing expenditure amounts of telecommunication service providers in Korea to 20% of their revenues, with the restrictions applicable to fixed-line and mobile segments to be calculated separately. However,
as of October 2013, up to ₩100 billion of the marketing expenditures may be applied to either segment at the discretion of the



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service provider. The calculation of marketing expenditure amounts under the guideline excludes advertising expenses and the calculation of revenue amounts excludes revenues from handset sales.
The MSIP may adjust the guideline to accommodate changes in market conditions.

The responsibilities of the MSIP include:



| |  |  | drafting and implementing plans for developing telecommunications technology;
| | - |  | -----------------------------------------------------------------------------



| |  |  | fostering and providing guidance to institutions and entities that conduct research relating to telecommunications; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | recommending to network service providers that they invest in research and development or that they contribute to telecommunications research institutes in
Korea.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, all network service providers (other than regional paging service providers) are obligated to
contribute toward the supply of universal telecommunications services in Korea. Telecommunications service providers designated as universal service providers by the MSIP are required to provide universal telecommunications
services such as local services, local public telephone services, discount services for persons with disabilities and for certain low-income persons, telecommunications services for remote islands and wireless
communication services for ships. We have been designated as a universal service provider. The costs and losses recognized by universal service providers in connection with providing these universal telecommunications services, except for discount
services for persons with disabilities and for certain low-income persons, will be shared on an annual basis by all network service providers (other than regional paging service providers), including us, on a
pro rata basis based on their respective net annual revenue calculated pursuant to a formula set by the MSIP. As for the costs and losses recognized by a universal service provider in connection with providing discount services for persons with
disabilities and for certain low-income persons, such costs and losses will be borne by such universal service provider.

A network service provider must permit other network service providers, as designated by the MSIP, to co-use wirelines connecting the switching equipment to end-users, upon the request of such other network service providers. In addition, a network service provider may permit other network service providers to co-use its wireless
communication systems upon the request of any of such other network service providers. The compensation method for the co-use must be determined by the MSIP and be settled, by fair and proper methods.

In addition, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is
called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper lines that represent our excess capacity to other companies upon their request at rates that are
determined by the MSIP based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services. Revenues from local loop unbundling, if any, are recognized as revenues from other
businesses.

Foreign Investment

The Telecommunications Business Act restricts the ownership and control of network service providers by foreign shareholders. Foreigners, foreign governments and foreign invested companies may not own
more than 49.0% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder if such shareholder holds 5.0% or more of our shares. For purposes of the
Telecommunications Business Act, the term foreign invested company means a company in which foreigners and foreign governments hold



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15.0% or more shares with voting rights in the aggregate and a foreigner or a foreign government is the largest shareholder, provided, however, that such company will not be counted as a foreign
shareholder for the purposes of the above-referenced 49.0% limit if (1) it holds less than 1.0% of our total issued and outstanding shares with voting rights or (2) if the largest shareholder of such company is a government or foreign
entity of a country that is a counterparty to a free trade agreement with Korea, as publicly announced by the MSIP, and the MSIP determines that the fact that such foreign government or entity holds a 15.0% or greater shareholding in such company
does not present a risk of harm to the public interest. (However, the calculation of the above-referenced 49% ceiling will apply to: (x) any foreign entities that have entered into any major management-related agreement with a network service
provider or the shareholder(s) thereof; and (y) foreign entities that have entered into any agreement pertaining to the settlement of fees relating to the handling of international electronic telecommunications services). As of
December 31, 2016, 49.0% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in
excess of such limitation, and the MSIP may require corrective measures be taken to comply with the ownership restrictions. There is no restriction on foreign ownership for specific service providers and value-added service providers.

Individual Shareholding Limit

Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or
more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. In addition, under the Telecommunications
Business Act, the MSIP may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In the event that any foreigner or foreign government acquires our shares in violation
of the above provisions, the Telecommunications Business Act restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The MSIP may also order us or the foreign shareholder to
take corrective measures in respect of the excess shares within a specified period of six months or less.

Customers and Customer
Billing

We typically charge residential subscribers and business subscribers similar rates for services provided. On a case-by-case basis, we also provide discount rates for some of our high-volume business subscribers. We bill all of our customers on a monthly basis. Our customers may make
payment at either payment points such as local post offices, banks or our service offices, through a direct-debit service that automatically deducts the monthly payment from a subscribers designated bank account, or through a direct-charge
service that automatically charges the monthly payment to a subscribers designated credit card account. Approximately 83% of our subscribers as of December 31, 2016 pay through the direct-debit service. Accounts of subscribers who fail to
pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of time determined by the type of
subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are
written off.

Insurance

We
carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and data centers, we do not carry insurance covering losses to outside plants or to equipment because we believe
the cost of such insurance is excessive



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and the risk of material loss or damage is insignificant. We do not have any provisions or reserves against such loss or damage. We do not carry any business interruption insurance.

We provide co-location and a variety of value-added services including server-hosting services to a number
of corporations whose business largely depends on critical data operated on our servers or on their servers located at our data centers. Any disruptions, interruptions, physical or electronic data loss, delays or slowdowns in communication
connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services.

Information Technology and Operational Systems

Enhancement of our information technology and operational systems and efficient utilization of such systems are important in effectively promoting our core strategies. We are committed to continually investing in
and enhancing our information technology systems, which provide support to many aspects of our businesses. In order to respond more effectively to a changing business environment, a new enterprise resource planning system (the New ERP
System) was completed and implemented during the second half of 2012. The New ERP System has contributed to enhancing various aspects of our internal processes and control systems, and we are establishing various plans to effectively utilize
the New ERP System and to stabilize our internal control processes in connection with the New ERP System.

Patents and Licensed Technology

The ability to obtain and protect intellectual property rights to the latest telecommunications technology is important for our
business. We own or have licenses to various patents and trademarks in Korea and overseas, and have applications for patents pending in Korea and other select countries such as the United States, Europe, China and Japan. A majority of our patents
registered in Korea and overseas relate to our wireless and fixed-line telecommunications, media and IoT technologies. In addition, we operate several research and development (R&D) laboratories to develop latest technology and
additional platforms, as described in Item 5.C. Research and Development, Patents and Licenses, Etc. We license our intellectual property rights to third parties in return for periodic royal payments. We currently do not license any
material technologies or patents from third parties.

Seasonality of the Business

Our main business generally does not experience significant seasonality.

Item 4.C.Organizational Structure

These matters are discussed under Item 4.B. where relevant.

Item 4.D.Property, Plants and Equipment

Our principal fixed asset is our integrated telecommunications networks. In addition, we own buildings and real estate throughout Korea. As of
December 31, 2016, the net book value of our property and equipment was ₩14,312 billion, of which ₩3,434 billion is accounted for the net book value of our land, buildings and structures. As of December 31, 2016, the net book
value of investment property, which is accounted for separately from our property and equipment was ₩1,148 billion. Other than
described in this annual report, no significant amount of our properties is leased. There are no material encumbrances on our properties including the fixed assets below.

Our fixed-line equipment vendors and mobile equipment suppliers include well-known international and local suppliers such as Samsung Electronics, LG Electronics, Cisco Systems and Apple Inc.



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Mobile Networks

Our mobile network architecture includes the following components:



| |  |  | cell sites, which are physical locations equipped with base transceiver stations consisting of transmitters, receivers and other equipment used to communicate
through radio channels with subscribers mobile telephone handsets within the range of a cell;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | base station controllers, which connect to and control, the base transceiver stations;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | mobile switching centers, which in turn control the base station controllers and the routing of telephone calls; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | transmission lines, which connect the mobile switching centers, base station controllers, base transceiver stations and the public switched telephone network.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

We have a license to use 40 MHz of bandwidth in the 2.1 GHz spectrum, of which 20 MHZ is used to provide IMT-2000 services based on W-CDMA wireless network standards and the remaining 20 MHZ for our 4G LTE services. Such license was renewed in December 2016, and we are required
to pay approximately ₩569 billion for use of such bandwidth during the license period of 5 years. In April 2010, the KCC announced
its decision to allocate 20 MHz of bandwidth in the 900 MHz spectrum to us, which became effective in July 2011, for which we are required to pay a portion of the actual sales generated from using the bandwidth in the 900 MHz spectrum during the
license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales that was determined by the KCC at the time of allocation. In June 2011, our right to use 40 MHz of bandwidth in the 1.8 GHz spectrum expired, and the
KCC allocated back to us the right to use 20 MHz of such bandwidth in the 1.8 GHz spectrum upon expiration pursuant to our application, for which we are required to pay a portion of the actual sales generated from using the bandwidth in the 1.8 GHz
spectrum during the license period of 10 years as a usage fee for the bandwidth, as well as a portion of expected sales that was determined by the KCC at the time of allocation. We began using the 20 MHz of bandwidth in the 1.8 GHz spectrum, which
became available upon termination of our 2G services, to provide our 4G LTE services starting in January 2012.

In August 2011, the KCC
auctioned the right to use the remaining 20 MHz of bandwidth in the 1.8 GHz spectrum that we relinquished, 10 MHz of additional bandwidth in the 800 MHz spectrum and 20 MHz of additional bandwidth in the 2.1 GHz spectrum. We acquired the right to
use the 10 MHz of bandwidth in the 800 MHz spectrum, for which we are required to pay a total usage fee of ₩261 billion during the
license period of 10 years, SK Telecom acquired the right to use the 20 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use the 20 MHz of bandwidth in the 2.1 GHz spectrum. We have not utilized 10 MHz of bandwidth in the 800
MHz spectrum due to the unavailability of requisite technologies and have recorded impairment for the non-usage.

In August 2013, MSIP further auctioned 50 MHz of bandwidth in the 1.8 GHz spectrum, which had been used by governmental entities such as the military, and 80 MHz of bandwidth in the 2.6 GHz spectrum, which had been
used for digital multimedia broadcasting services. We acquired the right to use 15 MHz of bandwidth in the 1.8 GHz spectrum, for which we are required to pay a total usage fee of approximately
₩900 billion during a license period of eight years. SK Telecom acquired the right to use 35 MHz of bandwidth in the 1.8 GHz
spectrum and LG U+ acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum. Acquiring the right to use additional bandwidth in the 1.8 GHz spectrum has enabled us to provide wideband LTE services beginning in September 2013, as 15 MHz
of the newly acquired bandwidth in the 1.8 GHz spectrum was adjacent to our existing 20 MHz of bandwidth in the 1.8 GHz spectrum.



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In May 2016, the MSIP auctioned 40 MHz of bandwidth in the 700 MHz spectrum, 20 MHz of bandwidth in
the 1.8 GHz spectrum, 20 MHz of bandwidth in the 2.1 GHz spectrum, 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum. We acquired the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum for which we are
required to pay a total usage fee of approximately ₩470 billion during a license period of 10 years. SK Telecom acquired the right
to use 40 MHz of bandwidth in the 2.6 GHz spectrum and 20 MHz of bandwidth in the 2.6 GHz spectrum and LG U+ acquired the right to use 20 MHz of bandwidth in the 2.1 GHz spectrum. The right to use 40 MHz of bandwidth in the 700 MHz spectrum was not
purchased by any company. We currently use 20 MHz of bandwidth in the 1.8 GHz spectrum to provide Wideband LTE-A services.

Exchanges

Exchanges include local exchanges and toll exchanges that connect local
exchanges to long-distance transmission facilities. We had 25 million lines connected to local exchanges and 2.2 million lines connected to toll exchanges as of December 31, 2016.

All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges in June 2003 in
order to provide higher speed and larger volume services. Starting in 2006, we also began conversion of our exchanges to be compatible to IP platform in preparation for building our next generation broadband convergence network by 2021. As of
December 31, 2016, 100% of our lines connected to toll exchanges are compatible to IP platform.

Internet Backbone

Our Internet backbone network, called KORNET, has the capacity to handle aggregate traffic of our broadband Internet access subscribers, data
centers and Internet exchange system at any given moment of up to 8.9 Tbps as of December 31, 2016. We have set up contingent plans to prepare against various incidents that could affect reliable Internet access service. Starting in 2005, we
have also begun deploying our IP premium network that enables us to more reliably support olleh TV, WiBro, Internet Phone, upgraded VoIP services and other IP services. As of December 31, 2016, our IP premium network had 2,941 lines installed
to provide 3G and LTE mobile data services, 3,147 lines installed to provide IPTV services and a total capacity to handle up to 2.8 Tbps of IPTV, voice, mobile data, virtual private network (VPN) and WiBro service traffic.

Access Lines

As of December 31, 2016,
we had 19.3 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability
using xDSL and FTTH technology. As of December 31, 2016, we had approximately 18.9 million broadband lines with speed of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers.

Transmission Network

Our
domestic fiber optic cable network consisted of over 730,000 kilometers of fiber optic cables as of December 31, 2016 of which approximately 116,000 kilometers of fiber optic cables are used to connect our backbone network and approximately
616,000 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes 64 Tbp Long-haul Reconfigurable Optical Add Drop Multiplexer (ROADM) technology for connecting cities. ROADM technology
improves bandwidth efficiency by enabling data to be transmitted from multiple signals across one fiber



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strand in a cable and carrying each signal on a separate wavelength. We enhanced our backbone network connecting six major cities in Korea by implementing an optical cross-connector (OXC) and
access network by implementing multi-service provisioning platform (MSPP) architecture in 2008. During 2013, we completed the construction of our next generation broadband convergence network by installing carrier ethernet architecture.

Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consisted of 55 relay sites as
of December 31, 2016.

International Network

Our international network infrastructure consists of both submarine cables and satellite transmission systems, including two submarine cable-landing stations in Busan and Keoje and two satellite teleports in Kumsan
and Boeun. Data services such as international private lease circuits, IP and very small aperture terminals are provided through submarine cables and satellite transmission. In order to guarantee high quality services to our end customers, our
submarine cables and satellite transmission systems are linked to various points-of-presence in the United States, Asia and Europe. In addition, our international
telecommunications networks are directly linked to approximately 210 telecommunications service providers in various international destinations and are routed through our three international switching centers in Seoul, Daejeon and Busan.

Our international Internet backbone with capacity of 879 Gbps is connected to approximately 200 Internet service providers through our two Internet
gateways in Hyehwa and Guro. In addition, we operate a video backbone with capacity of 1.5 Gbps to transmit video signals from Korea to the rest of the world.

Satellites

Koreasat 5 (launched in 2006), Koreasat 6 (launched in 2010), and Koreasat 8
(launched in 2014 and of which we own 12 transponders) are all in operation, providing broadcasting, video distribution and broadband data services in selected areas. Two additional satellites (provisionally called Koreasat 5A and Koreasat 7) are
expected to be launched in 2017. If launched successfully, Koreasat 5A will replace Koreasat 5. The rights and interests regarding Koreasat 3 are currently subject to an International Chamber of Commerce arbitration.See Item 4.B.
Business OverviewOur ServicesOther Businesses and Item 8. Financial InformationItem 8.A. Consolidated Financial Statements and Other Financial InformationLegal Proceedings.

International Submarine Cable Networks

International traffic is handled by telecommunications satellites and submarine cables. Because of the high cost of laying a submarine cable, the
usual practice is for multiple carriers to jointly commission a new cable and share the costs and the capacity. We own interests in several international fiber optic submarine cable networks, including:



| |  |  | a 1.4% interest in the 29,000-kilometer FLAG Europe-Asia network connecting Korea, Southeast Asia, the Middle East and
Europe, activated since April 1997;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 1.7% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries,
activated since December 1999;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 4.0% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong,
Philippines, Singapore and Malaysia, activated since December 2001;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated since March 2002;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | a 13.1% interest in the 16,500-kilometer Trans Pacific Express Cable Network linking Korea, China, Taiwan and the United
States, activated since September 2008;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 8.5% interest in the 11,000-kilometer Asia Pacific Gateway linking Korea, China, Japan, Thailand, Taiwan, Hong Kong,
Vietnam, Singapore and Malaysia, activated since October 2016; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a 16.7% interest in the 14,000-kilometer New Cross Pacific linking Korea, China, Japan, Taiwan and the United States,
which is expected to be activated in the fourth quarter of 2017.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have also invested in four other international
fiber optic submarine cables around the world.

Item 4A. Unresolved Staff Comments

We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of
1934.

Item 5. Operating and Financial Review and Prospects

Item 5.A.Operating Results

The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRS as issued
by the IASB.

Overview

We are
an integrated provider of telecommunications services. Our principal services include mobile service and fixed-line services, including fixed-line telephone services, broadband Internet access service and data communication service. The principal
factors affecting our revenues from these services have been our rates for, and the usage volume of, these services, as well as the number of subscribers. For information on rates we charge for our services, see Item 4. Information on the
CompanyItem 4.B. Business OverviewRevenues and Rates. In addition, we derive revenues from handset sales and non-telecommunications services, including financial services.

In 2016, we determined our operating segments for financial reporting purposes as the following:



| |  |  | the Customer/Marketing Group, which engages in providing various telecommunication services to individual/home/corporate customers and the convergence business,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Finance Group, which engages in providing various financial services such as credit card services,
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the Satellite TV Group, which engages in satellite TV services, and
| | - |  | -------------------------------------------------------------------



| |  |  | the Others Group, which includes security services, satellite service, information technology and network services, global business services that provides global
network services to multinational or domestic corporate customers and telecommunications companies and other services provided by our subsidiaries.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Prior to 2016, we had three operating segments: (i) Customer/Marketing Group, (ii) Finance
Group and (iii) Others Group. In 2016, our satellite TV services was classified as a new segment, the Satellite TV Group, in accordance with the requirements of IFRS 8 (Operating Segments). The segment results for 2014, 2015 and 2016 are
reported in accordance with the current segment classification of four operating segments. See Note 32 to the Consolidated Financial Statements.

We disposed of our interests in two of our subsidiaries, KT Rental Co., Ltd. and KT Capital Co., Ltd., in June 2015 and August 2015, respectively. The profit and loss on the related operations of KT Rental Co.,
Ltd. and KT Capital Co., Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements.

One of
the major factors contributing to our historical performance was the growth of the Korean economy, and our future performance will depend at least in part on Koreas general economic growth and prospects. For a description of recent
developments that have had and may continue to have an adverse effect on our results of operations and financial condition, see Item 3. Key InformationItem 3.D. Risk FactorsKorea is our most important market, and our current
business and future growth could be materially and adversely affected if economic or political conditions in Korea deteriorate. A number of other developments have had or are expected to have a material impact on our results of operations,
financial condition and capital expenditures. These developments include:



| |  |  | acquisitions and disposals of interests in subsidiaries and joint ventures;
| | - |  | ---------------------------------------------------------------------------



| |  |  | employee reductions and changes in severance and retirement benefits;
| | - |  | ---------------------------------------------------------------------



| |  |  | acquisition of new bandwidths and usage fees for such bandwidths;
| | - |  | -----------------------------------------------------------------



| |  |  | changes in the rate structure for our services;
| | - |  | -----------------------------------------------



| |  |  | handset subsidies; and
| | - |  | ----------------------



| |  |  | researching and implementing technology upgrades and additional telecommunication services such as 5G technologies.
| | - |  | -------------------------------------------------------------------------------------------------------------------

As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.

Acquisitions and Disposals of Interests in Subsidiaries and Joint Ventures

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, as well as disposal or termination of such businesses from time to time. The following summarizes our recent acquisitions and disposals:



| |  |  | in October 2011, we, through our former subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank,
Busan Bank and Shinhan Card for approximately ₩252 billion, to further diversify our business and to create synergies through
utilization of our mobile telecommunications network in financial services, thereby increasing our ownership interest in BC Card Co., Ltd. to 38.9%, making it our consolidated subsidiary as a result of deemed control starting in October 2011. We
acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for approximately ₩287 billion, and owned a
69.5% interest in BC Card Co., Ltd. as of December 31, 2016. The profit and loss on the related operations of KT Capital Co. Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | in October 2014, we acquired 4,000,000 treasury shares of ktis Corporation, an equity-method investee which provides telephone number directory services, for
approximately ₩14 billion (and the book value of the company being
₩36 billion at the time of the consolidation), thereby increasing our ownership percentage to 30.0% of all issued and outstanding
capital as of December 31, 2015 and making it our consolidated subsidiary as a result of deemed control starting from October 2014. See Note 1 to the Consolidated Financial Statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in October 2014, we, through our subsidiary KT Hitel Co., Ltd., acquired 4,800,000 treasury shares of ktcs Corporation, an equity-method investee which provides
telephone number directory services, for approximately ₩14 billion (and the book value of the company being ₩37 billion at the time of consolidation), thereby increasing our ownership percentage to 30.9% of all issued and outstanding capital as
of December 31, 2015 and making it our consolidated subsidiary as a result of deemed control starting from October 2014. See Note 1 to the Consolidated Financial Statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | starting in July 2012, KT Rental Co., Ltd., our then-58.0% owned subsidiary, became our consolidated subsidiary as a
result of the acquisition of KT Rental Co., Ltd.s common stock by Hana Daetoo Securities Co., Ltd. and other investors from the then-second largest shareholder in July 2012, and the restriction on our control over KT Rental Co., Ltd. pursuant
to a shareholders agreement being resolved as a result. The sale of KT Rental Co., Ltd. to the Lotte Group for ₩1.01 trillion
(with proceeds to KT Corporation being ₩763 billion) was completed in June 2015. The profit and loss on the related operations of KT
Rental Co. Ltd. are presented as discontinued operations. See Note 39 to the Consolidated Financial Statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
financial condition and results of operations may be affected as a result of such acquisitions, disposals or consolidation. Furthermore, pursuing acquisitions, joint venture and certain investment transactions also requires significant capital, and
as we pursue further growth opportunities for the future, we may need to raise additional capital by incurring loans or through the issuances of bonds or other securities in the international capital markets, which may lead to increased levels of
debt and debt servicing costs in the future.

Employee Reductions and Changes in Severance and Retirement Benefits

We regularly sponsor voluntary early retirement plans where we provide additional financial incentives for our employees to
retire early, as part of our efforts to improve operational efficiencies. In 2014, 2015 and 2016, 41, 33 and 5 employees, respectively, retired under our voluntary early retirement plan. In April 2014, in addition to our usual voluntary early
retirement plan, we held a special voluntary early retirement program where we provided employees who had been employed by us for more than 15 years with additional financial incentives to retire early or employment for two years at certain of our
subsidiaries or affiliates. The special voluntary early retirement program resulted in the early retirement of 8,304 employees in 2014. Our payments of severance benefits amounted to ₩1,427 billion in 2014, ₩118 billion in 2015 and ₩122 billion in 2016. In 2014, our severance payments were particularly high due to the special voluntary early retirement program. There
was no such special retirement program in 2015 and 2016.

Acquisition of New Bandwidth and Usage Fees for Such Bandwidths

One of the principal limitations on a wireless networks subscriber capacity is the amount of bandwidth spectrum allocated
to a service provider. The growth of our mobile telecommunications business and the increase in usage of wireless data transmission services have been significant



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factors in the increased utilization of our bandwidth, since wireless data applications are generally more bandwidth-intensive than voice services. The current trend of increasing data
transmission use and the increasing sophistication of multimedia content is likely to put additional strain on the bandwidth capacity of mobile service providers. We have acquired various licenses in recent years to secure additional bandwidth
capacity to provide our broad range of services, for which we typically pay a portion of the actual sales generated from using the bandwidth during the license period as a usage fee, as well as a portion of expected sales as determined by the KCC at
the time of allocation.

In August 2013, the MSIP further auctioned 50 MHz of bandwidth in the 1.8 GHz spectrum, which had been used by
governmental entities such as the military, and 80 MHz of bandwidth in the 2.6 GHz spectrum, which had been used for digital multimedia broadcasting services. We acquired the right to use 15 MHz of bandwidth in the 1.8 GHz spectrum, for which we are
required to pay a total usage fee of approximately ₩900 billion during a license period of eight years. SK Telecom acquired the
right to use 35 MHz of bandwidth in the 1.8 GHz spectrum and LG U+ acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum. In September 2013, we commenced providing wideband LTE services, which utilizes our adjoining 20 MHz of
bandwidth in the 1.8 GHz spectrum to provide transmission speed of up to 150 Mbps, twice faster than those offered under standard LTE services. SK Telecom also began providing its wideband LTE services in September 2013 and
LG U+ commenced providing its wideband LTE services in January 2014. In March 2014, our wideband LTE services covered five metropolitan cities in Korea, and we expanded our wideband LTE services to all of Korea in July 2014.
Furthermore, in March 2014, we commercialized Wideband LTE-A services, which interconnects our 20 MHz of bandwidth in the 1.8 GHz spectrum used to offer wideband LTE services with the 10 MHz of bandwidth in
the 900 MHz spectrum used to offer standard LTE services by utilizing inter-band carrier aggregation technology to support transmission speed of up to 225 Mbps, and began additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in
January 2015 to support transmission speed of up to 300 Mbps under the Wideband LTE-A X4 service.

In May 2016, the MSIP auctioned 40 MHz of bandwidth in the 700 MHz spectrum, 20 MHz of bandwidth in the 1.8 GHz spectrum, 20 MHz of bandwidth in the 2.1 GHz spectrum, 40 MHz of bandwidth in the 2.6 GHz spectrum and
20 MHz of bandwidth in the 2.6 GHz spectrum. We acquired the right to use 20 MHz of bandwidth in the 1.8 GHz spectrum for which we are required to pay a total usage fee of approximately
₩470 billion during a license period of 10 years. SK Telecom acquired the right to use 40 MHz of bandwidth in the 2.6 GHz spectrum
and 20 MHz of bandwidth in the 2.6 GHz spectrum and LG U+ acquired the right to use 20 MHz of bandwidth in the 2.1 GHz spectrum. The right to use 40 MHz of bandwidth in the 700 MHz spectrum was not purchased by any company. We currently use 20 MHz
of bandwidth in the 1.8 GHz spectrum to provide Wideband LTE-A services.

Changes in the
Rate Structure for Our Services

Periodically, we adjust our rate structure for our services. For example, we completely
abolished our mobile activation fee in March 2015 in line with government policy objectives. In order to mitigate the impact from lower usage charges of local and domestic long-distance calls, we have increased our basic monthly charges and offer
various optional flat rate plans for our fixed-line subscribers. Such adjustments in the rate structure have increased the portion of fixed income and stabilized our cash flow. In addition, because the growing use of mobile telecommunications
services has decreased the usage of our fixed-line telephone services, we believe we are able to maximize our revenues from fixed-line telephone services by adjusting the rate structure so as to increase our basic monthly charges. We also provide
bundled packages of our various services at a discount in order to attract additional subscribers to our new services. We currently bundle our broadband Internet access service with IPTV, Internet phone, fixed-line telephone service, WiBro, and
mobile services, at a discount.



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The MSIP, in consultation with the Ministry of Strategy and Finance, currently approves rates charged
by us for local telephone service. In addition, the MSIP currently does not regulate our domestic long-distance, international long-distance, broadband Internet access and mobile service rates, but it periodically announces public policy guidelines
or suggestions on tariffs for non-regulated services, which we have followed in the past. For a discussion of adjustments in our rate structure, see Item 4. Information on the CompanyItem 4.B.
Business OverviewRevenues and Rates.

Handset Subsidies

In March 2008, the Government removed a prohibition on the provision of handset subsidies and allowed mobile service providers to subsidize the
purchase of new handsets by certain qualifying customers. We began providing such handset subsidies, which increased, and may in the future increase, our marketing expenses. We provide handset subsidies to subscribers who agree to use our service
for a predetermined service period and purchase handsets on an installment basis. Generally, handset subsidies may be provided to any subscriber that uses our service and purchases handsets either directly from us or through third parties. Since we
do not recognize revenues from sales of handsets by third parties, the trends between our handset sales and our provision for handset subsidies are not necessarily correlated. The amount recognized as a provision for handset subsidies is our best
estimate of the expenditure required to settle current obligations to relevant subscribers at the end of the reporting period. This subsidy amount is the sum of the present values of the monthly balances for handset subsidies over the relevant
service periods, taking into account the customer retention rate for relevant subscribers. In May 2010, the KCC announced a guideline recommending that telecommunication service providers limit their marketing expenses to 22.0% of their annual
sales, and the limit was subsequently lowered to 20.0% of their annual sales for the years 2013, 2012 and 2011. Such marketing expenses included initial commissions, monthly commissions and retention commissions paid to our authorized dealers and
subscribers, including handset subsidies, but did not include advertising expenses. While the guideline was not binding, we, as well as our competitors, nonetheless tried to adhere to such guideline when feasible. Furthermore, failure to comply with
rules, regulations and corrective orders may lead to suspension of our business or imposition of monetary penalties.

For example, in
December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being
approximately ₩30 billion), which is the largest fine ever imposed by the KCC on local mobile operators for providing excessive
subsidies to new subscribers. In March 2014, the MSIP imposed a 45-day suspension on each of us, SK Telecom and LG U+ from accepting new subscribers as a result of continuing to offer excessive handset
subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. In August 2014, the KCC imposed a combined fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for
providing excessive handset subsidies, and also imposed temporary suspensions on accepting new subscribers for seven days on SK Telecom and LG U+. In December 2014, the KCC imposed a fine of approximately ₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies. In March 2015, the KCC also imposed a combined
fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other
telecommunications operators were promoting. On March 12, 2015, the KCC imposed a fine of ₩870 million for violation of
restrictions on handset subsidies relating to our compensation program for used handsets. Any further suspension of our business or imposition of monetary penalties by the Government could have a material adverse effect on our business.

Furthermore, on October 1, 2014, the Handset Distribution Reform Act, which seeks to lower the cost of communication for the general public
and reduce handset factory prices by establishing fair and transparent order in the distribution of mobile telecommunication devices, went into effect. The



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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 residence 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 20%, effective since April 24, 2015). The maximum amount of handset subsidy that
telecommunications operators and handset manufacturers may offer is determined by Korean telecommunication regulators (such limit to be determined between ₩250,000 and ₩350,000, and may be adjusted every six months, with the current limit set at ₩330,000, effective since April 8, 2015). Telecommunications operators are also required to publicly announce the amount of handset
subsidy that they offer, which may not be readjusted within one week after such announcement. In addition, telecommunications operators are prohibited from using misleading or exaggerated advertisements, such as advertisements that mobile phones are
free without adequately explaining that it is preconditioned on signing up for high-priced monthly subscription plans.

Researching and Implementing Technology Upgrades and Additional Telecommunication Services

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 telecommunication services to maintain our competitiveness. For example, we are continually upgrading our broadband network to enable better FTTH connection, which provides
speed of up to 1 Gbps and better connection quality. FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operators switching equipment to the
boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IPTV,
and other digital media content with stronger stability.

In addition, we have been building more advanced mobile telecommunications
networks based on LTE technology, which is generally referred to as 4G technology, and commenced providing commercial 4G LTE services in the Seoul metropolitan area in January 2012. We completed the expansion of our 4G LTE service coverage
nationwide in October 2012. We commenced providing wideband LTE services in September 2013, which we expanded nationwide in July 2014, and commercialized Wideband LTE-A services in March 2014, and began
additionally interconnecting 10 MHz of bandwidth in the 2.1 GHz spectrum in January 2015 to support transmission speed of up to 300 Mbps under the Wideband LTE-A X4 service, as discussed
above.

Critical Accounting Policies

We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB. These accounting principles require our management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the years reported. We based our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. On
an on-going basis, management evaluates its estimates. Actual results may differ from those estimates under different assumptions and conditions.



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The fundamental objective of financial reporting is to provide useful information that allows a reader
to comprehend our business activities. To aid in that understanding, our management has identified critical accounting estimates. These estimates have the potential to have a more significant impact on our financial statements, either
because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.

These critical accounting estimates include:



| |  |  | allowances for doubtful accounts;
| | - |  | ---------------------------------



| |  |  | useful lives of property, equipment, intangible assets and investment property;
| | - |  | -------------------------------------------------------------------------------



| |  |  | impairment of long-lived assets, including goodwill;
| | - |  | ----------------------------------------------------



| |  |  | valuation and impairment of investment securities;
| | - |  | --------------------------------------------------



| |  |  | income taxes;
| | - |  | -------------



| |  |  | deferred revenue relating to service installation fees and initial subscription fees;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | post-employment benefit liabilities; and
| | - |  | ----------------------------------------



| |  |  | provisions.
| | - |  | -----------

Allowances
for Doubtful Accounts

Allowance for doubtful accounts is our best estimate of the amount of impairment losses incurred on our
existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an aging analysis of balances, historical write-off experience, customers or
counterpartys credit ratings and changes in payment terms. Account balances are charged off against the allowance when all means of collection have been exhausted and the potential for recovery is considered remote. Our past experience shows
that the possibility of collection is remote after three years of collection effort.

Changes in the allowances for doubtful accounts
for our trade and other receivables in the three-year period ended December 31, 2016 are summarized as follows:



|                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                      |  | Year Ended December 31, |         
|                                      |  | 2014                    |          |   | 2015 |   |          | 2016 | 
|                                      |  | (In millions of Won)    |         
|Balance at beginning of year          |  | ₩                       | 771,527  |   |      | ₩ | 838,699  |      |  | ₩ | 719,583  |  
|Provision                             |  |                         | 230,791  |   |      |   | 141,555  |      |  |   | 92,711   |  
|Reversal or written-off               |  |                         | (163,669 | ) |      |   | (168,663 | )    |  |   | (189,156 | )
|Changes in the scope of consolidation |  |                         | 3,425    |   |      |   | (86,484  | )    |  |   | 271      |  
|Others                                |  |                         | (3,375   | ) |      |   | (5,524   | )    |  |   | (10,922  | )
|                                      |  |                         |          |   |      |   |          |      |  |   |          |  
|Balance at end of year                |  | ₩                       | 838,699  |   |      | ₩ | 719,583  |      |  | ₩ | 612,487  |  
|                                      |  |                         |          |   |      |   |          |      |  |   |          |  

If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording
additional expense or benefit.

Useful Lives of Property, Equipment, Intangible Assets and Investment Property

Property and equipment, intangible assets and investment properties (excluding land, condominium memberships, golf club memberships and
broadcasting concession) are depreciated



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using the straight-line method over their useful lives as disclosed in Note 3.8 to the Consolidated Financial Statements. An assets residual value and useful lives are reviewed and adjusted
at the end of each financial reporting period, and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated
or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. A decrease of remaining estimated useful life by one year
of our property and equipment would result in an increase of depreciation expense of approximately ₩208 billion in 2016.

Impairment of Long-Lived Assets, including Goodwill

Long-lived assets generally consist of property and equipment and intangible assets, including goodwill. We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, we evaluate our long-lived assets for impairment each year as part of our annual forecasting process. An impairment loss
would be 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 based on their value in use calculated by applying the
annual discount rate ranging from 4.36% to 12.72% (depending on the segment) to the estimated future cash flows based on financial budgets for the next five years. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred
after five years. If such assets are considered to 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. For example, in 2015, we recognized ₩185 billion of impairment loss in connection with the non-usage of 10 MHz of bandwidth in the
800 MHz spectrum. We also recognized ₩33 billion of impairment loss on inventory and tangible and intangible assets in connection
with the close of the trunk radio system business of KT Powertel Co., Ltd. in 2015.

Goodwill represents the excess of purchase price
paid over the fair value assigned to the identifiable net assets of acquired businesses. The determination of the fair values of goodwill is based on managements judgment on the expected cash flows of the cash-generating units to which the
goodwill is allocated, taking market demand, competition and other economic factors into consideration. The determination of impairments of goodwill involves the use of estimates that include, but are not limited to, the cause, timing and amount of
the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions, expectations of growth in the telecommunications industry, a decline in our expected future cash flows, changes in the future
availability of financing, technological obsolescence, discontinuance of services, current replacement costs and prices paid in comparable transactions. For example, in 2016, we recognized impairment losses of ₩132 billion on goodwill allocated to KT Skylife primarily due to a decrease in the expected recoverable amount resulting from a decrease
in KT Skylifes market value in 2016. See Note 12 of the Consolidated Financial Statements.

Valuation and Impairment of
Financial Assets

The fair value of financial instruments, including derivative instruments, which are not traded in an active
market, is determined by using valuation techniques. 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.

We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. Gains and losses
that result from a change in the fair value of derivative



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instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounting, the effective portion of the gain or loss on the derivative
instruments are recorded as gain or loss on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income or loss, as applicable.

For financial assets, including assets carried at amortized cost and those classified as available-for-sale, we make an annual
assessment at the end of each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. For financial assets carried at amortized cost and available-for-sale debt assets, such asset is considered impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events (a loss
event) that occurred after the initial recognition of the financial asset, which had an impact on the estimated future cash flows of the financial asset that can reliably be estimated. For equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost, in addition to circumstances described below, may be considered as
evidence that the asset is impaired.

For assets carried at amortized cost, the amount of impairment is measured as the difference
between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the assets original effective interest rate, and the carrying amount of
the asset is reduced and the amount of loss is recognized in the statement of income. Loss on such asset may also be measured based on observable market price if there is an active market for the asset. For assets classified as available-for-sale, the cumulative loss, measured as the difference between the acquisition cost and the current fair value and recognized as accumulated other comprehensive
income, less any impairment loss on such financial asset previously recognized in profit or loss, is removed from equity and recognized in the statement of income.

Significant management judgment is involved in evaluating whether a loss event has occurred. The estimates and assumptions used by management to evaluate whether a loss event has occurred can be impacted by many
factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested, breach of contract such as default or delinquency in payments, disappearance of an active market for the financial asset
and other adverse changes in the payment status of borrowers in the portfolio. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.

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 assessing the realizability of
deferred tax assets 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.



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Deferred Revenue relating to Service Installation Fees and Initial Subscription Fees

We charge service installation fees and initial subscription fees related to activation of many of our services, which are
deferred and recognized as revenue over the expected terms of customer relationships. Our estimate of expected terms of customer relationship is based on the historical rate, which may differ in the future. If the managements estimation is
amended, it may cause significant differences in the timing of revenue recognition and amount recognized.

Post-employment Benefit
Liabilities

Our accounting of post-employment benefits, which mainly consist of a defined benefit plan (we began offering a
defined contribution plan in December 2012), involves judgments about uncertain events including discount rates, life expectancy and future pay inflation. Any changes in these assumptions will impact the carrying amount of the defined benefit
liability. The discount rates used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability, are determined at the end of each reporting period by reference to the yield at the
reporting date on high-quality corporate bonds that have maturity dates approximating the terms of our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid. Other key assumptions for
defined benefit liability are based in part on current market conditions. For defined contribution plans, we pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis, and we have
no further payment obligations once the contributions have been paid.

Provisions

We recognize provisions at the end of the reporting period when we have a present legal or constructive obligation, such as litigation or assets
retirement obligations, as a result of past events and an outflow of resources required to settle the obligation is probable and can be reliably estimated. We measure provisions at the present value of the expenditures expected to be required to
settle the obligation, which are estimated based on factors such as historical experience. We do not recognize provisions for future operating losses and recognize as interest expense any increase in the provisions due to passage of time. See Notes
2.22, 3.7 and 16 to the Consolidated Financial Statements.

Explanatory Note Regarding Presentation of Certain Financial Information under K-IFRS

In addition to preparing 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, which we are required to file with the Financial Services Commission and the Korea Exchange under the FSCMA.

In relation to presentation of operating profit, certain accounts or transactions which are included in operating income or expenses
under IFRS as issued by the IASB, are excluded from operating income or expenses under K-IFRS. Additionally, under K-IFRS, revenue from the development and sale of real
estate is recognized using the percentage of completion method. However, under IFRS as issued by the IASB, revenue from the development and sale of real estate is recognized when an individual unit of residential real estate is delivered to the
buyer. Furthermore, in connection with the exercise of early redemption rights for certain commercial paper guaranteed by KT ENGCORE, our previously consolidated subsidiary, we recognized financial losses relating to the resulting estimation of
guarantee liabilities in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for the year ended December 31, 2013 (which were issued on April 28, 2014), which were not reflected in our financial
statements prepared in accordance with K-IFRS for the year ended December 31, 2013 (which were issued on March 13, 2014) as it was



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not possible to make a reasonable estimate of the liabilities at the time of issuing the K-IFRS financial statements. We subsequently reflected such losses
in our K-IFRS financial statements for the year ended December 31, 2014. As a result, the presentation of operating results in our consolidated statements of operations prepared in accordance with IFRS as
issued by the IASB included in this annual report differs from the presentation of operating results in our consolidated statements of operations prepared in accordance with K-IFRS. The table below sets forth
a reconciliation of our operating profit and net income or loss as presented in our consolidated statements of operations prepared in accordance with IFRS as issued by the IASB for each of the years ended December 31, 2014, 2015 and 2016 to our
operating profit and net income or loss in our consolidated statements of operations prepared in accordance with K-IFRS, for each of the corresponding years, taking into account such differences:



|                                                           |  |                                 |          |   |      |   |           |      |  |   |           | 
|---------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | --------- | ---- |  | - | --------- | 
|                                                           |  | For the Year Ended December 31, |         
|                                                           |  | 2014                            |          |   | 2015 |   |           | 2016 | 
|                                                           |  | (In millions of Won)            |         
|Operating profit (loss) under IFRS as issued by the IASB   |  | ₩                               | (778,840 | ) |      | ₩ | 1,077,068 |      |  | ₩ | 1,339,780 | 
|Effect of changes in operating income presentation         |  |                                 | 391,016  |   |      |   | 207,165   |      |  |   | 96,602    | 
|Revenue recognition of development and sale of real estate |  |                                 | (18,767  | ) |      |   | 8,711     |      |  |   | 3,597     | 
|                                                           |  |                                 |          |   |      |   |           |      |  |   |           | 
|Operating profit (loss) under K-IFRS                       |  | ₩                               | (406,591 | ) |      | ₩ | 1,292,944 |      |  | ₩ | 1,439,979 | 
|                                                           |  |                                 |          |   |      |   |           |      |  |   |           | 



|                                                           |  |                                 |          |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                           |  | For the Year Ended December 31, |         
|                                                           |  | 2014                            |          |   | 2015 |   |         | 2016 | 
|                                                           |  | (In millions of Won)            |         
|Net income (loss) under IFRS as issued by the IASB         |  | ₩                               | (941,413 | ) |      | ₩ | 624,685 |      |  | ₩ | 795,117 |  
|Profit before income tax                                   |  |                                 |          |   |      |   |         |      |  |   |         |  
|Revenue recognition of development and sale of real estate |  |                                 | (18,767  | ) |      |   | 8,711   |      |  |   | 3,597   |  
|Guarantee liabilities and loss (KT ENGCORE)                |  |                                 | (10,538  | ) |      |   |        |      |  |   |        |  
|Income tax                                                 |  |                                 | 4,542    |   |      |   | (2,108  | )    |  |   | (870    | )
|                                                           |  |                                 |          |   |      |   |         |      |  |   |         |  
|Net income (loss) under K-IFRS                             |  | ₩                               | (966,176 | ) |      | ₩ | 631,288 |      |  | ₩ | 797,844 |  
|                                                           |  |                                 |          |   |      |   |         |      |  |   |         |  

Recent Accounting Pronouncements under IFRS

For a summary of new standards, amendments and interpretations issued under IFRS as issued by the IASB but not effective for 2016, and which have not been adopted early by us, see Note 2.2 to the Consolidated
Financial Statements.

Operating Revenues and Operating Expenses

Operating Revenues

Our operating revenues primarily consist of:



| |  |  | fees related to our mobile services, including monthly fees, usage charges for outgoing calls, usage charges for wireless data transmission, contents download
fees, mobile-to-mobile interconnection revenues and value-added monthly service fees;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fees from our fixed-line services, including:
| | - |  | ---------------------------------------------



| | Ø |  | fees from our fixed-line telephone services, which include:
| | - |  | -----------------------------------------------------------



| | Ø |  | monthly basic charges, which are one-time or monthly fixed charges primarily consisting of
(i) non-refundable installation fees; and (ii) basic monthly charges from local telephone services (or fixed monthly charges for discount plans);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Ø |  | monthly usage charges, which are usage fees based on the amount of services used, primarily consisting of (i) monthly usage charges for local telephone and
domestic long distance services; (ii) international long-distance service revenues, (primarily (a) amounts we bill to our customers for outgoing calls made to foreign countries, (b) amounts we bill to foreign telecommunications
carriers for connection to the domestic telephone network in respect of incoming calls at the applicable settlement rate, and (c) other revenues, including revenues from international leased lines); (iii) land-to-mobile and land-to-land interconnection revenues; (iv) interconnection fees we charge to fixed-line and
mobile service providers and voice resellers for their use of our local, domestic long-distance and international networks in providing their services; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø |  | other revenues from (i) value-added services, including 1588 intelligent network call services, local telephone directory assistance, call
waiting and caller identification services; and (ii) local, domestic long-distance and international calls placed from public telephones.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø |  | Internet service revenues which consist of:
| | - |  | -------------------------------------------



| | Ø |  | broadband Internet access service revenues, primarily consisting of installation fees and basic monthly charges; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| | Ø |  | other Internet-related service revenues related to our infrastructure and solution services for business enterprises, IPTV and network portal services;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | Ø |  | data communication service revenues, primarily consisting of installation fees and basic monthly charges for our leased line services and Kornet Internet
connection service and revenues from our satellite services;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | revenues from goods sold that are generated primarily by sale of mobile handsets and specially designed phones for fixed-line and mobile convergence services,
net of any subsidies paid directly to customers, as well as certain sales by our consolidated subsidiaries, such as sale of real estate properties relating to real estate developments by KT Estate Inc.;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | financial service revenues, primarily consisting of fees from credit card services provided by BC Card Co., Ltd., our consolidated subsidiary; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other revenues that are primarily derived from information technology and network services, satellite services and security services.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

Operating Expenses

Our operating expenses primarily include:



| |  |  | salaries and wages, including post-employment benefits, termination benefits (including severance benefits for voluntary and special early retirements) and
share-based payments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | depreciation expenses incurred primarily in connection with our telecommunications network facilities;
| | - |  | ------------------------------------------------------------------------------------------------------



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| |  |  | purchase of inventories, primarily consisting of inventories purchased for our sale of mobile handsets and specially designed phones for fixed-line mobile
convergence services, and changes of inventories, which reflects increases or decreases of inventories during the applicable period;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | card service costs, primarily consisting of costs in connection with credit card services provided by BC Card Co., Ltd., including fees paid to member credit
card companies in our network for marketing expenses and for costs associated with the present value and default risks of installment card charges which are borne by such member companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sales commissions, primarily consisting of sales commissions to third-party dealers related to procurement of mobile subscribers and mobile handset sales;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | commissions, primarily consisting of commission-based payments for certain third-party outsourcing services, including commissions to the outsourced call center
staff;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | service cost, primarily consisting of payments for certain third-party outsourcing services, including payments for software development and design, data
analysis and processing, and installment and maintenance of IT and satellite equipment; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | interconnection charges, which are interconnection payments to telecommunication service providers for calls from landline users and our mobile subscribers to
our competitors subscribers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Results2015 Compared to 2016

The following table presents selected income statement data and changes therein for 2015 and 2016:



|                                                           |  |                                 |        |   |         |   |        |        |  |   |      |   |  |  |       |  
|---------------------------------------------------------- |  | ------------------------------- | ------ | - | ------- | - | ------ | ------ |  | - | ---- | - |  |  | ----- | -
|                                                           |  | For the Year EndedDecember 
31, |        |   | Changes |  
|                                                           |  | 2015 vs. 2016                   |       
|                                                           |  | 2015                            |        |   | 2016    |   |        | Amount |  |   | %    |  
|                                                           |  | (In billions of Won)            |       
|Operating revenues                                         |  | ₩                               | 22,700 |   |         | ₩ | 23,121 |        |  | ₩ | 421  |   |  |  | 1.9   | %
|Revenue                                                    |  |                                 | 22,212 |   |         |   | 22,755 |        |  |   | 543  |   |  |  | 2.4   |  
|Others                                                     |  |                                 | 488    |   |         |   | 366    |        |  |   | (122 | ) |  |  | (25.0 | )
|Operating expenses                                         |  |                                 | 21,623 |   |         |   | 21,781 |        |  |   | 158  |   |  |  | 0.7   |  
|                                                           |  |                                 |        |   |         |   |        |        |  |   |      |   |  |  |       |  
|Operating profit (loss)                                    |  |                                 | 1,077  |   |         |   | 1,340  |        |  |   | 263  |   |  |  | 24.4  |  
|Finance income                                             |  |                                 | 273    |   |         |   | 296    |        |  |   | 23   |   |  |  | 8.4   |  
|Finance costs                                              |  |                                 | (645   | ) |         |   | (515   | )      |  |   | 130  |   |  |  | (20.2 | )
|Income from joint ventures and associates                  |  |                                 | 6      |   |         |   | 3      |        |  |   | (3   | ) |  |  | (50.0 | )
|                                                           |  |                                 |        |   |         |   |        |        |  |   |      |   |  |  |       |  
|Profit (loss) from continuing operations before income tax |  |                                 | 711    |   |         |   | 1,123  |        |  |   | 412  |   |  |  | 57.9  |  
|Income tax expense (benefit)                               |  |                                 | 227    |   |         |   | 328    |        |  |   | 101  |   |  |  | 44.5  |  
|Profit (loss) for the period from continuing operations    |  |                                 | 484    |   |         |   | 795    |        |  |   | 311  |   |  |  | 64.3  |  
|Profit from discontinued operations                        |  |                                 | 141    |   |         |   |       |        |  |   | (141 | ) |  |  | N.M.  |  
|                                                           |  |                                 |        |   |         |   |        |        |  |   |      |   |  |  |       |  
|Profit (Loss) for the period                               |  | ₩                               | 625    |   |         | ₩ | 795    |        |  | ₩ | 170  |   |  |  | 27.2  |  
|                                                           |  |                                 |        |   |         |   |        |        |  |   |      |   |  |  |       |  



N.M. means not
meaningful.



68



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##### Table of Contents

Operating Revenues

The following table presents a breakdown of our operating revenues and changes therein for 2015 and 2016:



|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|--------------------------------- |  | ------------------------------- | ------------- |  | ------- | - | ------ | ------ |  | - | ---- | - |  |  | ----- | -
|                                  |  | For the Year EndedDecember 
31, |               |  | Changes |  
|                                  |  |                                 | 2015 vs. 2016 | 
|                                  |  | 2015                            |               |  | 2016    |   |        | Amount |  |   | %    |  
|                                  |  | (In billions of Won)            |              
|Mobile services                   |  | ₩                               | 7,260         |  |         | ₩ | 7,366  |        |  | ₩ | 106  |   |  |  | 1.5   | %
|Fixed-line services               |  |                                 | 6,755         |  |         |   | 6,917  |        |  |   | 162  |   |  |  | 2.4   |  
|Fixed-line telephone services:    |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Monthly Basic Charges             |  |                                 | 650           |  |         |   | 616    |        |  |   | (34  | ) |  |  | (5.2  | )
|Monthly Usage Charges             |  |                                 | 1,022         |  |         |   | 855    |        |  |   | (167 | ) |  |  | (16.3 | )
|Others                            |  |                                 | 646           |  |         |   | 581    |        |  |   | (65  | ) |  |  | (10.1 | )
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Sub-total                         |  |                                 | 2,318         |  |         |   | 2,053  |        |  |   | (265 | ) |  |  | (11.4 | )
|Internet services:                |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Broadband Internet access service |  |                                 | 1,882         |  |         |   | 2,040  |        |  |   | 158  |   |  |  | 8.4   |  
|Other Internet-related services   |  |                                 | 1,479         |  |         |   | 1,799  |        |  |   | 320  |   |  |  | 21.6  |  
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Sub-total                         |  |                                 | 3,361         |  |         |   | 3,829  |        |  |   | 478  |   |  |  | 14.2  |  
|Data communication services       |  |                                 | 1,076         |  |         |   | 1,025  |        |  |   | (51  | ) |  |  | (4.7  | )
|Sale of goods                     |  |                                 | 2,756         |  |         |   | 2,808  |        |  |   | 52   |   |  |  | 1.9   |  
|Financial services                |  |                                 | 3,483         |  |         |   | 3,568  |        |  |   | 85   |   |  |  | 2.4   |  
|Other                             |  |                                 | 2,446         |  |         |   | 2,462  |        |  |   | 16   |   |  |  | 0.7   |  
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Total operating revenues          |  | ₩                               | 22,700        |  |         | ₩ | 23,121 |        |  | ₩ | 421  |   |  |  | 1.9   | %
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  

Total operating revenues increased by 1.9%, or ₩421 billion, from ₩22,700 billion in 2015 to ₩23,121 billion in 2016 primarily due to increases in the revenues from our Internet services and mobile services, the impact of which
was offset in part by a decrease in the revenues from our fixed-line telephone services.

Mobile Services

Our mobile services revenues increased by 1.5%, or ₩106 billion, from ₩7,260 billion in 2015 to ₩7,366 billion in 2016 primarily due to a 4.7% increase in our mobile subscribers from approximately 18,038,000 as of December 31,
2015 to approximately 18,892,000 as of December 31, 2016. Such increase in our mobile subscribers was slightly enhanced by an increase in our average revenue per user. However, the magnitude of the increase in our average revenue per user in
2016 was smaller, as compared to 2015 because many of our new mobile subscribers in 2016 purchased economical rate plans for their secondary mobile devices. Accordingly, although the increase in our mobile subscribers in 2016 was larger, as compared
to 2015, the increase in our mobile services revenues in 2016 was smaller than the increase in our mobile services revenues in 2015 primarily due to a decrease in the magnitude of the increase in our average revenue per user in 2016, as compared to
2015.

Fixed-line Services

Our fixed-line services revenues in the aggregate increased by 2.4%, or ₩162 billion, from ₩6,755 billion in 2015 to
₩6,917 billion in 2016 primarily due to an increase in Internet services revenues, the impact of which was partially offset by
decreases in our fixed-line telephone services revenues and data communication services revenues.



69



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##### Table of Contents

Fixed-line Telephone Services. Our fixed-line telephone services revenues decreased by 11.4%,
or ₩265 billion, from
₩2,318 billion in 2015 to
₩2,053 billion in 2016 due to decreases in monthly usage charges, other fixed-line telephone services revenues and monthly basic
charges. Specifically:



| |  |  | Monthly usage charges decreased by 16.3%, or
₩167 billion, from
₩1,022 billion in 2015 to
₩855 billion in 2016 primarily due to the continuing decrease in the usage of fixed-line services resulting from the continuing
increase in the usage of mobile telephone services, Internet phone services and other VoIP services such as Kakao Talk, Line and Skype, which led to a decrease in domestic long-distance call minutes from 2.1 billion in 2015 to 1.5 billion
in 2016 and a decrease in local call pulses from 3.0 billion in 2015 to 2.2 billion in 2016.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other fixed-line telephone service revenue decreased by 10.1%, or ₩65 billion, from ₩646 billion in 2015 to ₩581 billion in 2016 primarily due to the continuing erosion of fixed-line services, including public telephones, by mobile telephone
services, Internet phone services and other VoIP services, as well as a decrease in the number of lines in service from 2015 to 2016.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Monthly basic charges decreased by 5.2%, or
₩34 billion, from
₩650 billion in 2015 to
₩616 billion in 2016 primarily due to a decrease in the number of our telephone lines in service from 12.4 million in 2015 to
11.9 million in 2016.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internet Services. Our Internet service revenues increased by 14.2%, or ₩478 billion, from
₩3,361 billion in 2015 to
₩3,829 billion in 2016 primarily due to an increase in the number of IPTV subscribers from approximately 6.6 million as of
December 31, 2015 to approximately 7.0 million as of December 31, 2016 and an increase in the number of our olleh GiGA Internet Service subscribers from approximately 1.0 million as of December 31, 2015 to approximately
2.4 million as of December 31, 2016.

Data Communication Services. Our data communication services revenues decreased
by 4.7%, or ₩51 billion, from ₩1,076 billion in 2015 to ₩1,025 billion in 2016 primarily due to a decrease in
revenues from our leased lines, resulting from increased competition in the data communications market in Korea.

Sale of Goods

Revenues from sale of goods increased by 1.9%, or ₩52 billion, from ₩2,756 billion in 2015 to ₩2,808 billion in 2016 primarily due to an increase in revenues from development and sale of real estate by KT Estate Inc. which was
partially offset by a decrease in the sale of mobile handsets in 2016 compared to 2015. The number of mobile handsets sold in 2016 decreased largely due to order cancellation and customer returns of Samsung Galaxy Note 7 handsets, caused by the
handsets explosive battery issue.

Financial Services

Financial services revenues increased by 2.4%, or ₩85 billion, from ₩3,483 billion in 2015 to ₩3,568 billion in 2016 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co.,
Ltd., primarily as a result of increased usage of credit cards.

Others

Other operating revenues increased by 0.7%, or ₩16 billion, from ₩2,446 billion in 2015 to ₩2,462 billion in 2016 primarily due to increases in revenues from our real estate lease business and systems integration business.



70



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##### Table of Contents

Operating Expenses

The following table presents a breakdown of our operating expenses and changes therein for 2015 and 2016:



|                         |  |                                 |               |   |         |   |        |        |  |   |      |   |  |  |       |  
|------------------------ |  | ------------------------------- | ------------- | - | ------- | - | ------ | ------ |  | - | ---- | - |  |  | ----- | -
|                         |  | For the Year EndedDecember 
31, |               |   | Changes |  
|                         |  |                                 | 2015 vs. 2016 |  
|                         |  | 2015                            |               |   | 2016    |   |        | Amount |  |   | %    |  
|                         |  | (In billions of Won)            |              
|Salaries and wages       |  | ₩                               | 3,303         |   |         | ₩ | 3,478  |        |  | ₩ | 175  |   |  |  | 5.3   | %
|Depreciation             |  |                                 | 2,756         |   |         |   | 2,763  |        |  |   | 7    |   |  |  | 0.3   |  
|Commissions              |  |                                 | 1,037         |   |         |   | 1,099  |        |  |   | 62   |   |  |  | 6.0   |  
|Interconnection charges  |  |                                 | 689           |   |         |   | 690    |        |  |   | 1    |   |  |  | 0.1   |  
|Purchase of inventories  |  |                                 | 3,963         |   |         |   | 3,407  |        |  |   | (556 | ) |  |  | (14.0 | )
|Changes of inventories   |  |                                 | (198          | ) |         |   | 162    |        |  |   | 360  |   |  |  | N.M.  |  
|Sales commission         |  |                                 | 1,857         |   |         |   | 1,968  |        |  |   | 111  |   |  |  | 6.0   |  
|Service cost             |  |                                 | 1,164         |   |         |   | 1,322  |        |  |   | 158  |   |  |  | 13.6  |  
|Card service costs       |  |                                 | 2,960         |   |         |   | 3,050  |        |  |   | 90   |   |  |  | 3.0   |  
|Others (1)               |  |                                 | 4,092         |   |         |   | 3,842  |        |  |   | (250 | ) |  |  | (6.1  | )
|                         |  |                                 |               |   |         |   |        |        |  |   |      |   |  |  |       |  
|Total operating expenses |  | ₩                               | 21,623        |   |         | ₩ | 21,781 |        |  | ₩ | 158  |   |  |  | 0.7   | %
|                         |  |                                 |               |   |         |   |        |        |  |   |      |   |  |  |       |  



N.M. means not
meaningful.



|(1) | Including other operating expenses (which include other expenses) amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee,
installation fee, taxes and dues, research and development expenses and advertising expenses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total operating expenses
increased by 0.7%, or ₩158 billion, from ₩21,623 billion in 2015 to ₩21,781 billion in 2016 primarily due to increases in
changes of inventories, salaries and wages and service cost, the impact of which was largely offset by decreases in purchase of inventories and certain other operating expenses described below. Specifically:



| |  |  | Changes of inventories, which reflects inventory changes during a period by calculating inventories at the beginning of period minus those at the end of period,
amounted to ₩(198) billion in 2015 and ₩162 billion in 2016, which means inventories decreased by ₩162 billion in 2016 while
they increased by ₩198 billion in 2015. This was primarily due to a decrease in purchase of handsets in 2016 compared to 2015 as
described below, which was offset in large part by a decrease in the sale of handsets in 2016 compared to 2015. Cost of sale of goods (which is the sum of changes of inventories and purchase of inventories) in 2016 decreased by 5.2% to ₩3,569 billion from
₩3,765 billion in 2015, primarily reflecting a decrease in the cost of handsets and the decreased handset sales, in each case in
2016 compared to 2015. The decreases in the cost of handsets and handset sales were primarily due to a decrease in sales of new handset models (which generally have higher prices than older models) such as Galaxy Note 7 due to the models
mechanical defects as explained below in connection with the decrease in purchase of inventories in 2016 compared to 2015.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Salaries and wages increased by 5.3%, or
₩175 billion, from
₩3,303 billion in 2015 to
₩3,478 billion in 2016 primarily due to an increase in salaries and wages based on seniority and promotions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Service cost, increased by 13.6%, or
₩158 billion, from
₩1,164 billion in 2015 to
₩1,322 billion in 2016, primarily due to an increase in service costs relating to our IPTV and mobile services such as purchases of
contents to meet increased and diversified
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | demand from customers and an increase in installation fees as more sophisticated technologies and corresponding higher fees were required for the installation of certain new equipment and
facilities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These factors were partially offset by the following:



| |  |  | Purchase of inventories decreased by 14.0%, or
₩556 billion, from
₩3,963 billion in 2015 to
₩3,407 billion in 2016 primarily due to a decrease in the total number of mobile handsets (mostly smartphones) purchased, which was
largely attributable to the returns of Samsung Galaxy Note 7 handsets, which had an explosive battery issue, to the manufacturer. We purchased Galaxy Note 7 handsets for sale to customers but when our customers returned the handsets or cancelled
orders, we returned those handsets to the manufacturer resulting in the reduction in purchase of inventories.We recognize the purchase of mobile handsets as operating expenses during the period when such handsets are purchased regardless of
whether they are actually sold during that period. As a result, the periods when purchase of inventories is recognized and when the revenue from their sales is recognized could be different.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other operating expenses decreased by 6.1%, or
₩250 billion, from
₩4,092 billion in 2015 to
₩3,842 billion in 2016, primarily due to decreases in installation fees of and insurance premiums. Installation fees decreased by
37.2%, or ₩93 billion, from ₩249 billion in 2015 to ₩157 billion in 2016, primarily due to the consolidation of
KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. in August 2015. The installation fees that we previously paid to the two subsidiaries before consolidation were no longer recognized as installation fees upon consolidation; instead,
installation expenses incurred by the subsidiaries have been classified as other expenses such as salaries and wages. Insurance premiums decreased by 15.6%, or ₩33 billion, from ₩211 billion in 2015 to ₩178 billion in 2016, primarily due to a decrease in insurance premium rates for our handsets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Profit

Due to the factors described above, our operating profit increased by 24.4%, or ₩263 billion, from ₩1,077 billion in 2015 to ₩1,340 billion in 2016. Our operating margin, which is operating profit as a percentage of operating revenues, was 4.7% in 2015 and 5.8%
in 2016.

Finance Income (Costs)

The following table presents a breakdown of our finance income and costs and changes therein for 2015 and 2016:



|                                             |  |                                 |               |   |         |   |      |        |  |   |     |   |  |  |       |   
|-------------------------------------------- |  | ------------------------------- | ------------- | - | ------- | - | ---- | ------ |  | - | --- | - |  |  | ----- | --
|                                             |  | For the Year EndedDecember 
31, |               |   | Changes |  
|                                             |  |                                 | 2015 vs. 2016 |  
|                                             |  | 2015                            |               |   | 2016    |   |      | Amount |  |   | %   |  
|                                             |  | (In billions of Won)            |              
|Interest income                              |  | ₩                               | 70            |   |         | ₩ | 116  |        |  | ₩ | 46  |   |  |  | 65.7  | % 
|Interest expense                             |  |                                 | (386          | ) |         |   | (337 | )      |  |   | 49  |   |  |  | (12.7 | ) 
|Net foreign currency transaction gain (loss) |  |                                 | (24           | ) |         |   | (13  | )      |  |   | 11  |   |  |  | (45.8 | ) 
|Net foreign currency translation gain (loss) |  |                                 | (164          | ) |         |   | (110 | )      |  |   | 54  |   |  |  | (32.9 | ) 
|Net gain (loss) on settlement of derivatives |  |                                 | (6            | ) |         |   | 8    |        |  |   | 14  |   |  |  | N.M.  |   
|Net gain on valuation of derivatives         |  |                                 | 140           |   |         |   | 109  |        |  |   | (31 | ) |  |  | (22.1 | ) 
|Net other finance costs (1)                  |  |                                 | (2            | ) |         |   | 8    |        |  |   | 10  |   |  |  | N.M.  |   
|                                             |  |                                 |               |   |         |   |      |        |  |   |     |   |  |  |       |   
|Net finance costs                            |  | ₩                               | (372          | ) |         | ₩ | (219 | )      |  | ₩ | 153 |   |  |  | (41.1 | )%
|                                             |  |                                 |               |   |         |   |      |        |  |   |     |   |  |  |       |   



N.M. means not
meaningful.



72



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##### Table of Contents

|(1) | Including net other finance income and expenses, loss on disposal of trade receivables and impairment loss on
available-for-sale financial assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

Our
net finance costs decreased by 41.1%, or ₩153 billion, from ₩372 billion in 2015 to ₩219 billion in 2016, primarily due to decreases in net
foreign currency translation loss and interest expense and an increase in interest income, the impact of which was partially offset by a decrease in net gain on valuation of derivatives. Specifically:



| |  |  | Our net foreign currency translation loss decreased by 32.9%, or ₩54 billion, from ₩164 billion in 2015 to ₩110 billion in 2016, primarily due to smaller depreciation of the Won against the U.S. dollar and the Japanese Yen in 2016 compared to
2015. The Market Average Exchange Rate of the Won against the U.S. dollar depreciated from ₩1,099.2 to US$1.00 as of December 31,
2014 to ₩1,172.0 to US$1.00 as of December 31, 2015 and ₩1,208.5 to US$1.00 as of December 30, 2016. In general, we recognize net foreign currency translation loss when the Won depreciates against foreign currencies, especially the U.S. dollar, primarily
because of our foreign currency-denominated debt and foreign currency-denominated payables to overseas equipment sellers and foreign carriers. In 2016, the impact of such net foreign currency translation loss was largely offset by the decrease in
net gain on valuation of derivatives discussed below.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our interest expense decreased by 12.7%, or
₩49 billion, from
₩386 billion in 2015 to
₩337 billion in 2016 primarily due to a decrease in borrowings and, to a lesser extent, decreased interest rates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our interest income increased by 65.7%, or
₩46 billion, from
₩70 billion in 2015 to
₩116 billion in 2016 primarily due to an increase in the average balance of interest-bearing financial assets we held, including as
a result of an increase in interest rate payment received in connection with reimbursement of certain value added tax in 2016.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These factors were partially offset by the following:



| |  |  | Our net gain on valuation of derivatives decreased by 22.1%, or ₩31 billion, from ₩140 billion in 2015 to ₩109 billion in 2016, primarily due to a decrease in gains from our currency swap contracts as a result of smaller depreciation of the
Won against the Japanese Yen and the U.S. dollar in 2016 compared to 2015. We entered into derivative instruments for foreign exchange risk hedging purposes and generally recognize net gain on valuation of derivatives when the Won depreciates
against foreign currencies as described above in the explanation of foreign currency translation loss.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income
from Joint Ventures and Associates

Income from joint ventures and associates decreased by 50.0%, or ₩3 billion, from
₩6 billion in 2015 to
₩3 billion in 2016, primarily due to a loss from joint ventures and associates recognized in connection with a sale of certain real
estate by our wholly-owned subsidiary KT Estate Inc. to one of our associates and joint ventures, K-Realty Rental Housing REIT 2.

Income Tax Expense

Income tax expense increased by 44.5%, or ₩101 billion, from
₩227 billion in 2015 to
₩328 billion in 2016, primarily due to an increase in profit before income tax, which increased by ₩412 billion, from
₩711 billion in 2015 and
₩1,123 billion in 2016. See Note 28 to the Consolidated Financial Statements.



73



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##### Table of Contents

Profit from Discontinued Operations

We did not have any profit from discontinued operations in 2016, whereas our profit from discontinued operations in 2015 was ₩141 billion, primarily due to recognition of net proceeds from the sale of capital stock of KT Rental Co., Ltd and KT Capital Co., Ltd.
as profit from discontinued operations in 2015.

Profit (Loss) for the Period

Due to the factors described above, our profit for the period increased by 27.2%, or
₩170 billion, from
₩625 billion of profit in 2015 to ₩795 billion of profit in 2016. Our net profit margin, which is net profit for the period as a percentage of operating revenues was 2.8% in 2015 and 3.5% in 2016.

Segment ResultsCustomer/Marketing Group

Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased slightly by 0.1%, or ₩14 billion, from ₩16,130 billion in 2015 to ₩16,144 billion in 2016 primarily due to increase in revenues from our Internet services and mobile services, primarily due to an
increase in subscribers, which was partially offset by a decrease in the fixed-line services revenues, all as described above.

Our
operating income for this segment, prior to adjusting for inter-segment transactions, increased by 28.6%, or ₩233 billion, from ₩817 billion in 2015 to
₩1,050 billion in 2016, as the segments operating expenses decreased by
₩219 billion while the segments operating revenue increased by
₩14 billion as described above. For this segment, operating margin, which is operating income as a percentage of total operating
revenues prior to adjusting for inter-segment transactions, was 5.1% in 2015 and 6.5% in 2016.

Depreciation and amortization, prior to
adjusting for inter-segment transactions, decreased by 1.0%, or ₩28 billion, from
₩2,898 billion in 2015 to
₩2,870 billion in 2016.

Segment ResultsFinance Group

Our operating revenues for this segment, prior to
adjusting for inter-segment transactions, increased by 1.9%, or ₩65 billion, from
₩3,513 billion in 2015 to
₩3,578 billion in 2016 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card
Co., Ltd, as described above.

Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by
25.6%, or ₩72 billion, from ₩281 billion in 2015 to ₩209 billion in 2016, as the ₩137 billion increase in operating expenses outpaced the ₩65 billion increase in the segments operating revenues. Operating margin for this segment decreased from 8.0% in 2015 to 5.8% in 2016.

Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 16.0%, or ₩4 billion, from
₩25 billion in 2015 to
₩29 billion in 2016.

Segment ResultsSatellite TV Group

Our operating revenues for this segment, prior
to adjusting for inter-segment transactions, slightly increased by 0.1%, or ₩0.4 billion, from ₩668.5 billion in 2015 to
₩668.9 billion in 2016, primarily due to an increase in revenues from an increase in the number of TV shopping channels and other fee-generating platforms.



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##### Table of Contents

Our operating income for this segment, prior to adjusting for inter-segment transactions, decreased by
18.1%, or ₩18 billion, from ₩98 billion in 2015 to ₩80 billion in 2016, as the ₩18 billion increase in operating expenses outpaced the ₩0.4 billion increase in the segments operating revenues. Operating margin for this segment decreased from 14.6% in 2015 to 12.0% in 2016.

Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 3.1%, or ₩3 billion, from
₩96 billion in 2015 to
₩99 billion in 2016.

Segment ResultsOthers

Our operating revenues for this segment, prior to
adjusting for inter-segment transactions, increased by 3.1%, or ₩192 billion, from
₩6,116 billion in 2015 to
₩6,308 billion in 2016, primarily due to increases in revenues of KT Estate Inc. from the development and sale of real estate.

For this segment, prior to adjusting for inter-segment transactions, we recorded an operating loss of ₩100 billion in 2015, compared to an operating income of ₩40 billion in 2016, as the ₩192 billion increase in operating revenues outpaced the ₩52 billion increase in the segments operating expenses in 2016. For this segment, operating loss margin (operating loss as a
percentage of total operating revenues prior to adjusting for inter-segment transactions) was 1.6% in 2015 and the operating margin was 0.6% in 2016.

Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 7.6%, or
₩24 billion, from
₩315 billion in 2015 to
₩339 billion in 2016.

Operating Results2014 Compared to 2015

The following table presents selected income statement data and changes therein for 2014 and 2015:



|                                                           |  |                                 |               |   |         |   |        |        |  |   |        |   |  |  |       |  
|---------------------------------------------------------- |  | ------------------------------- | ------------- | - | ------- | - | ------ | ------ |  | - | ------ | - |  |  | ----- | -
|                                                           |  | For the Year EndedDecember 
31, |               |   | Changes |  
|                                                           |  |                                 | 2014 vs. 2015 |  
|                                                           |  | 2014                            |               |   | 2015    |   |        | Amount |  |   | %      |  
|                                                           |  | (In billions of Won)            |              
|Operating revenues                                         |  | ₩                               | 22,613        |   |         | ₩ | 22,700 |        |  | ₩ | 87     |   |  |  | 0.4   | %
|Revenue                                                    |  |                                 | 22,359        |   |         |   | 22,212 |        |  |   | (147   | ) |  |  | (0.7  | )
|Others                                                     |  |                                 | 253           |   |         |   | 488    |        |  |   | 235    |   |  |  | 92.9  |  
|Operating expenses                                         |  |                                 | 23,392        |   |         |   | 21,623 |        |  |   | (1,769 | ) |  |  | (7.6  | )
|                                                           |  |                                 |               |   |         |   |        |        |  |   |        |   |  |  |       |  
|Operating profit (loss)                                    |  |                                 | (779          | ) |         |   | 1,077  |        |  |   | 1,856  |   |  |  | N.M.  |  
|Finance income                                             |  |                                 | 253           |   |         |   | 273    |        |  |   | 20     |   |  |  | 7.9   |  
|Finance costs                                              |  |                                 | (792          | ) |         |   | (645   | )      |  |   | 147    |   |  |  | (18.6 | )
|Income from joint ventures and associates                  |  |                                 | 19            |   |         |   | 6      |        |  |   | (13    | ) |  |  | (68.4 | )
|                                                           |  |                                 |               |   |         |   |        |        |  |   |        |   |  |  |       |  
|Profit (loss) from continuing operations before income tax |  |                                 | (1,299        | ) |         |   | 711    |        |  |   | 2,010  |   |  |  | N.M.  |  
|Income tax expense (benefit)                               |  |                                 | (271          | ) |         |   | 227    |        |  |   | 498    |   |  |  | N.M.  |  
|Profit (loss) for the period from continuing operations    |  |                                 | (1,028        | ) |         |   | 484    |        |  |   | 1,512  |   |  |  | N.M.  |  
|Profit from discontinued operations                        |  |                                 | 86            |   |         |   | 141    |        |  |   | 55     |   |  |  | 64.0  |  
|                                                           |  |                                 |               |   |         |   |        |        |  |   |        |   |  |  |       |  
|Profit (loss) for the period                               |  | ₩                               | (941          | ) |         | ₩ | 625    |        |  | ₩ | 1,566  |   |  |  | N.M.  |  
|                                                           |  |                                 |               |   |         |   |        |        |  |   |        |   |  |  |       |  



N.M. means not
meaningful.



75



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##### Table of Contents

Operating Revenues

The following table presents a breakdown of our operating revenues and changes therein for 2014 and 2015:



|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|--------------------------------- |  | ------------------------------- | ------------- |  | ------- | - | ------ | ------ |  | - | ---- | - |  |  | ----- | -
|                                  |  | For the Year EndedDecember 
31, |               |  | Changes |  
|                                  |  |                                 | 2014 vs. 2015 | 
|                                  |  | 2014                            |               |  | 2015    |   |        | Amount |  |   | %    |  
|                                  |  | (In billions of Won)            |              
|Mobile services                   |  | ₩                               | 7,104         |  |         | ₩ | 7,260  |        |  | ₩ | 156  |   |  |  | 2.2   | %
|Fixed-line services               |  |                                 | 6,855         |  |         |   | 6,755  |        |  |   | (100 | ) |  |  | (1.5  | )
|Fixed-line telephone services:    |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Monthly Basic Charges             |  |                                 | 695           |  |         |   | 650    |        |  |   | (45  | ) |  |  | (6.5  | )
|Monthly Usage Charges             |  |                                 | 1,238         |  |         |   | 1,022  |        |  |   | (216 | ) |  |  | (17.4 | )
|Others                            |  |                                 | 678           |  |         |   | 646    |        |  |   | (32  | ) |  |  | (4.7  | )
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Sub-total                         |  |                                 | 2,611         |  |         |   | 2,318  |        |  |   | (293 | ) |  |  | (11.2 | )
|Internet services:                |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Broadband Internet access service |  |                                 | 1,934         |  |         |   | 1,882  |        |  |   | (52  | ) |  |  | (2.7  | )
|Other Internet-related services   |  |                                 | 1,161         |  |         |   | 1,479  |        |  |   | 318  |   |  |  | 27.4  |  
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Sub-total                         |  |                                 | 3,095         |  |         |   | 3,361  |        |  |   | 266  |   |  |  | 8.6   |  
|Data communication services       |  |                                 | 1,149         |  |         |   | 1,076  |        |  |   | (73  | ) |  |  | (6.4  | )
|Sale of goods                     |  |                                 | 3,252         |  |         |   | 2,756  |        |  |   | (496 | ) |  |  | (15.3 | )
|Financial services                |  |                                 | 3,272         |  |         |   | 3,483  |        |  |   | 211  |   |  |  | 6.4   |  
|Other                             |  |                                 | 2,130         |  |         |   | 2,446  |        |  |   | 316  |   |  |  | 14.8  |  
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  
|Total operating revenues          |  | ₩                               | 22,613        |  |         | ₩ | 22,700 |        |  | ₩ | 87   |   |  |  | 0.4   | %
|                                  |  |                                 |               |  |         |   |        |        |  |   |      |   |  |  |       |  

Total operating revenues increased by 0.4%, or ₩87 billion, from ₩22,613 billion in 2014 to ₩22,700 billion in 2015 primarily due to increases in our Internet services revenues, financial services revenues and other service
revenues, the impact of which was largely offset by decreases in sale of goods revenues and fixed-line telephone services revenues.

Mobile Services

Our mobile
services revenues increased by 2.2%, or ₩156 billion, from ₩7,104 billion in 2014 to ₩7,260 billion in 2015 primarily due to a 4.1% increase in
our mobile subscribers from approximately 17,300,000 as of December 31, 2014 to approximately 18,038,000 as of December 31, 2015. Such increase in our mobile subscribers was further enhanced by an increase in our average revenue per user,
resulting from the increase of LTE users and increased sale of higher rate plans.

Fixed-line Services

Our fixed-line services revenues decreased by 1.5%, or ₩100 billion, from ₩6,855 billion in 2014 to ₩6,755 billion in 2015 primarily due to decreases in fixed-line telephone services revenues and, to a lesser extent, data communication
services revenues, the impact of which was partially offset by an increase in our Internet services revenues.

Fixed-line Telephone
Services. Our fixed-line telephone services revenues decreased by 11.2%, or ₩293 billion, from ₩2,611 billion in 2014 to
₩2,318 billion in 2015 primarily due to decreases in monthly usage charges, monthly basic charges and other fixed-line telephone
services revenues. Specifically:



| |  |  | Monthly usage charges decreased by 17.4%, or
₩216 billion, from
₩1,238 billion in 2014 to
₩1,022 billion in 2015 primarily due to the continuing decrease in the usage of fixed-line services resulting from the increased
usage of mobile telephone services, Internet phone
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | services and other VoIP services such as Kakao Talk, Line and Skype, which led to a decrease in domestic long-distance call minutes from 2.7 billion in 2014 to 2.1 billion in 2015 and a
decrease in local call pulses from 4.0 billion in 2014 to 3.0 billion in 2015.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Monthly basic charges decreased by 6.5%, or
₩45 billion, from
₩695 billion in 2014 to
₩650 billion in 2015 primarily due to a decrease in the number of our telephone lines in service from 13.7 million in 2014 to
12.4 million in 2015.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other fixed-line telephone services revenue decreased by 4.7%, or ₩32 billion, from ₩678 billion in 2014 to ₩646 billion in 2015 primarily due to the continuing erosion of fixed-line services, including public telephones, by mobile telephone
services, Internet phone services and other VoIP services, as well as a decrease in the number of lines in service from 2014 to 2015.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Internet Services. Our Internet services revenues increased by 8.6%, or ₩266 billion,
from ₩3,095 billion in 2014 to ₩3,361 billion in 2015 primarily due to an increase in the number of IPTV subscribers from 5.9 million as of December 31, 2014 to 6.6 million as of December 31, 2015 and an increase
in the number of our olleh GiGA Internet Service subscribers from approximately 117,000 as of December 31, 2014 to approximately 1.0 million as of December 31, 2015.

Data Communication Services. Our data communication services revenues decreased by 6.4%, or
₩73 billion, from
₩1,149 billion in 2014 to
₩1,076 billion in 2015 primarily due to a decrease in revenues from our leased lines, resulting from increased competition in the
data communications market in Korea.

Sale of Goods

Revenues from sale of goods decreased by 15.3%, or ₩496 billion, from ₩3,252 billion in 2014 to
₩2,756 billion in 2015 primarily due to a decrease in the number of handsets sold in 2015 as well as a difference in how we have
paid handset subsidies since October 2014. The Handset Distribution Reform Act, which became effective October 2014, requires mobile service providers, including us, to pay handset subsidies directly to subscribers and disclose such subsidy amounts
to the public. Prior to the enactment of the Handset Distribution Reform Act, we and other mobile service providers provided sales commissions to third-party vendors who then provided subscribers handset subsidies as well as other marketing and
promotional activities at such vendors own discretion. However, since October 2014, we and other mobile service providers have provided handset subsidies provided directly to customers. Handset subsidies provided directly to customers are not
recognized as part of handset sales revenue (revenue is recognized net of such subsidy amount), whereas handset subsidies paid through third-party vendors were recognized as revenue and also as operating expense (sales commissions). As a result,
revenues from sale of goods decreased in 2015 compared to 2014 as handset subsidies were not recognized as revenue. The revenue decrease in 2015 was also attributable to a decrease in the total number of mobile handsets (primarily smartphones) sold.

Financial Services

Financial services revenues increased by 6.4%, or ₩211 billion, from ₩3,272 billion in 2014 to
₩3,483 billion in 2015 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card
Co., Ltd., primarily as a result of increased usage of credit cards, as well as an increase in disposal of available-for-sale financial assets, primarily related to the
sale of capital stock in MasterCard, previously owned by BC Card Co., Ltd.



77



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##### Table of Contents

Others

Other operating revenues increased by 14.8%, or ₩316 billion, from ₩2,130 billion in 2014 to
₩2,446 billion in 2015 primarily due to the inclusion of the full-year revenues in 2015 of ktcs Corporation and ktis Corporation,
which became our consolidated subsidiaries as of October 2014. Both ktcs Corporation and ktis Corporation derive revenue mainly from operation of customer service centers for our mobile and fixed-line customers.

Operating Expenses

The following table presents a breakdown of our operating expenses and changes therein for 2014 and 2015:



|                         |  |                                 |        |  |         |   |        |        |  |   |        |   |  |  |       |   
|------------------------ |  | ------------------------------- | ------ |  | ------- | - | ------ | ------ |  | - | ------ | - |  |  | ----- | --
|                         |  | For the Year 
EndedDecember 31, |        |  | Changes |  
|                         |  | 2014 vs. 2015                   |       
|                         |  | 2014                            |        |  | 2015    |   |        | Amount |  |   | %      |  
|                         |  | (In billions of Won)            |       
|Salaries and wages       |  | ₩                               | 3,919  |  |         | ₩ | 3,303  |        |  | ₩ | (616   | ) |  |  | (15.7 | )%
|Depreciation             |  |                                 | 2,761  |  |         |   | 2,756  |        |  |   | (5     | ) |  |  | (0.2  | ) 
|Commissions              |  |                                 | 1,355  |  |         |   | 1,037  |        |  |   | (318   | ) |  |  | (23.5 | ) 
|Interconnection charges  |  |                                 | 797    |  |         |   | 689    |        |  |   | (108   | ) |  |  | (13.6 | ) 
|Purchase of inventories  |  |                                 | 3,509  |  |         |   | 3,963  |        |  |   | 454    |   |  |  | 12.9  |   
|Changes of inventories   |  |                                 | 255    |  |         |   | (198   | )      |  |   | (453   | ) |  |  | N.M.  |   
|Sales commission         |  |                                 | 2,629  |  |         |   | 1,857  |        |  |   | (772   | ) |  |  | (29.4 | ) 
|Service cost             |  |                                 | 1,281  |  |         |   | 1,164  |        |  |   | (117   | ) |  |  | (9.1  | ) 
|Card service costs       |  |                                 | 2,883  |  |         |   | 2,960  |        |  |   | 77     |   |  |  | 2.7   |   
|Others(1)                |  |                                 | 4,003  |  |         |   | 4,092  |        |  |   | 89     |   |  |  | 2.2   |   
|                         |  |                                 |        |  |         |   |        |        |  |   |        |   |  |  |       |   
|Total operating expenses |  | ₩                               | 23,392 |  |         | ₩ | 21,623 |        |  | ₩ | (1,769 | ) |  |  | (7.6  | )%
|                         |  |                                 |        |  |         |   |        |        |  |   |        |   |  |  |       |   



N.M. means not
meaningful.



|(1) | Including other operating expenses (which include other expenses), amortization of intangible assets, rent, insurance premium, utilities, international interconnection fee,
installation fee, taxes and dues, research and development expenses, provision and advertising expenses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total operating
expenses decreased by 7.6%, or ₩1,769 billion, from ₩23,392 billion in 2014 to ₩21,623 billion in 2015 primarily due to decreases in
sales commissions, salaries and wages, and changes of inventories, the impact of which was partially offset by increases in purchase of inventories and commissions. Specifically:



| |  |  | Sales commissions, which primarily relate to commissions paid to third-party vendors for procurement of subscribers and other promotions as well as sales of
mobile handsets and mobile and fixed-line service products, decreased by 29.4%, or ₩772 billion, from ₩2,629 billion in 2014 to
₩1,857 billion in 2015, primarily due to a decrease in the number of mobile subscribers that third-party vendors procured and a
decrease in the number of mobile handsets sold.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Salaries and wages decreased by 15.7%, or
₩616 billion, from
₩3,919 billion in 2014 to
₩3,303 billion in 2015 primarily due to an increase in severance benefits relating to the special voluntary early retirement
program in 2014 while there was no such special retirement program in 2015, as well as a decrease in the number of employees resulting from the 2014 special retirement program as described in OverviewEmployee Reductions and Changes
in Severance and Retirement Benefits above. Such decrease in salaries and wages was partially offset by an increase in salaries in 2015 resulting from the inclusion of ktis Corporation and ktcs Corporation as consolidated subsidiaries in
October 2014.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Changes of inventories, which reflects inventory changes during a period by calculating inventories at the beginning of period minus those at the end of period,
amounted to ₩255 billion in 2014 and ₩(198) billion in 2015, which means inventories increased by ₩198 billion in 2015
while they decreased by ₩255 billion in 2014. This was primarily due to a decrease in the number of handset units sold in 2015
compared to 2014, as well as an increase in purchase of handsets in 2015 compared to 2014 as described below. Cost of sale of goods (which is the sum of changes of inventories and purchase of inventories) amounted to ₩3,764 billion and
₩3,765 billion in 2014 and 2015, respectively, reflecting an increase in cost of sale of goods for certain equipment and other
goods sold by our subsidiaries, which was mostly offset by a decrease in cost of sale of goods resulting from the decreased handset sales, in each case in 2015 compared to 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These factors were partially offset by the following:



| |  |  | Purchase of inventories increased by 12.9%, or
₩454 billion, from
₩3,509 billion in 2014 to
₩3,963 billion in 2015 primarily due to an increase in the total number of smartphones purchased, which was primarily attributable
to handset makers introduction of new products, including iPhone 6S and Galaxy S6 in 2015, and also mobile handsets needed for the business of kt M mobile, which was newly established in April 2015.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Commissions, primarily consisting of commission-based payments for certain third-party outsourcing services, including commissions to the outsourced call center
staff, decreased by 23.5%, or ₩318 billion, from ₩1,355 billion in 2014 to ₩1,037 billion in 2015, primarily due to elimination of
commission amounts, as adjustments on consolidation, paid to ktis Corporation and ktcs Corporation, which provide call center services, as they became consolidated subsidiaries in October 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Profit

Due to the factors described above, we recorded an operating loss of ₩779 billion in 2014, compared to an operating profit of ₩1,077 billion in 2015. Our
operating margin, which is operating profit as a percentage of operating revenues, was (3.4)% in 2014 and 4.7% in 2015.

Finance
Income (Costs)

The following table presents a breakdown of our finance income and costs and changes therein for 2014 and 2015:



|                                             |      |                                 |               |      |         |   |        |   |  |   |     |   |  |  |       |   
|-------------------------------------------- | ---- | ------------------------------- | ------------- | ---- | ------- | - | ------ | - |  | - | --- | - |  |  | ----- | --
|                                             |      | For the Year 
EndedDecember 31, |               |      | Changes |  
|                                             |      |                                 | 2014 vs. 2015 |     
|                                             | 2014 |                                 |               | 2015 |         |   | Amount |   |  | % |    
|                                             |      | (In billions of Won)            |              
|Interest income                              |      | ₩                               | 80            |      |         | ₩ | 70     |   |  | ₩ | (10 | ) |  |  | (12.5 | )%
|Interest expense                             |      |                                 | (475          | )    |         |   | (386   | ) |  |   | 89  |   |  |  | (18.7 | ) 
|Net foreign currency transaction gain (loss) |      |                                 | 11            |      |         |   | (24    | ) |  |   | (35 | ) |  |  | N.M.  |   
|Net foreign currency translation gain (loss) |      |                                 | (91           | )    |         |   | (164   | ) |  |   | (73 | ) |  |  | 80.2  |   
|Net loss on settlement of derivatives        |      |                                 | (33           | )    |         |   | (6     | ) |  |   | 27  |   |  |  | (81.8 | ) 
|Net gain (loss) on valuation of derivatives  |      |                                 | 68            |      |         |   | 140    |   |  |   | 72  |   |  |  | 105.9 |   
|Net other finance costs (1)                  |      |                                 | (99           | )    |         |   | (2     | ) |  |   | 97  |   |  |  | (98.0 | ) 
|                                             |      |                                 |               |      |         |   |        |   |  |   |     |   |  |  |       |   
|Net finance costs                            |      | ₩                               | (539          | )    |         | ₩ | (372   | ) |  | ₩ | 167 |   |  |  | (31.0 | )%
|                                             |      |                                 |               |      |         |   |        |   |  |   |     |   |  |  |       |   



N.M. means not
meaningful.



|(1) | Including net other finance income and expenses, loss on disposal of trade receivables and impairment loss on
available-for-sale financial assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Our net finance costs decreased by 31.0%, or
₩167 billion, from
₩539 billion in 2014 to
₩372 billion in 2015, primarily due to decreases in interest expense and net other finance costs and an increase in net gain on
valuation of derivatives, the impact of which was partially offset by an increase in net foreign currency translation loss. Specifically:



| |  |  | Our interest expense decreased by 18.7%, or
₩89 billion, from
₩475 billion in 2014 to
₩386 billion in 2015 primarily due to a decrease in borrowings and, to a lesser extent, decreased interest rates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our net other finance costs decreased by 98.0%, or
₩97 billion, from
₩99 billion in 2014 to
₩2 billion in 2015 primarily due to ₩83 billion reduction in impairment loss on available-for sale financial assets, as a loss was recognized for the equity securities of KT ENGCORE and Ustream
Korea Inc. in 2014 while there was no such loss in 2015, and a decrease in the cost of securitization of receivables due to lower interest rates in 2015.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our net gain on valuation of derivatives increased by 105.9%, or ₩72 billion, from ₩68 billion in 2014 to ₩140 billion in 2015, primarily due to an increase in gains from our currency swap contracts as a result of larger depreciation of the
Won against the U.S. dollar and the Japanese Yen in 2015 compared to 2014. We entered into derivative instruments for foreign exchange risk hedging purposes and generally recognize net gain on valuation of derivatives when the Won depreciates
against foreign currencies as described below in the explanation of reasons for the change in net foreign currency translation loss in 2015 compared to 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These factors were partially offset by the following:



| |  |  | Our net foreign currency translation loss increased by 80.2%, or ₩73 billion, from ₩91 billion in 2014 to ₩164 billion in 2015, primarily due to larger depreciation of the Won against the U.S. dollar and the Japanese Yen in 2015 compared to
2014. The Market Average Exchange Rate of the Won against the U.S. dollar depreciated from ₩1,055.3 to US$1.00 as of December 31,
2013 to ₩1,099.2 to US$1.00 as of December 31, 2014 and ₩1,172.0 to US$1.00 as of December 31, 2015. In general, we recognize net foreign currency translation loss when the Won depreciates against foreign currencies, especially the U.S. dollar, primarily
because of our foreign currency-denominated debt and foreign currency-denominated payables to overseas equipment sellers and foreign carriers. In 2015, the impact of such net foreign currency translation loss was largely offset by the net gain on
valuation of derivatives discussed above.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income from Joint Ventures and Associates

Income from joint ventures and associates decreased by 68.4%, or ₩13 billion, from ₩19 billion in 2014 to ₩6 billion in 2015, primarily due to a decrease in net income of KT-SB Venture Investment, which
resulted in the corresponding decrease in our share of such net income.

Income Tax Expense

We recognized an income tax expense of
₩227 billion in 2015, compared to an income tax benefit of ₩271 billion in 2014, primarily due to the recognition of profit from continuing operations before income tax of ₩711 billion in 2015, compared to the recognition of loss from continuing operations before income tax of ₩1,299 billion in 2014. See Note 28 to the Consolidated Financial Statements. We had net deferred income tax assets of ₩935 billion as of December 31, 2014 and ₩716 billion as of December 31,
2015.



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Profit from Discontinued Operations

Our profit from discontinued operations increased by 64.0%, or ₩55 billion, from ₩86 billion in 2014 to ₩141 billion in 2015, primarily due to recognition of net proceeds from the sale of capital stock of KT Rental Co., Ltd and KT Capital
Co., Ltd. as profit from discontinued operations in 2015. The revenue and expenses of discontinued operations decreased by 51.0% and 47.8%, or
₩570 billion and
₩490 billion, respectively, as KT Rental Co., Ltd. and KT Capital Co., Ltd. were excluded from discontinued operations subsequent
to their sales in May and August 2015, respectively.

Profit (Loss) for the Period

Due to the factors described above, our profit for the period increased by 166.4%, or
₩1,566 billion, from
₩941 billion of loss in 2014 to ₩625 billion of profit in 2015. Our net loss margin, which is loss for the period as a percentage of operating revenues, was 4.2% in 2014. Our net profit margin, which is net profit for the period as a
percentage of operating revenues was 2.8% in 2015.

Segment ResultsCustomer/Marketing Group

Our operating revenues for this segment, prior to adjusting for inter-segment transactions, decreased by 3.9%, or ₩655 billion, from
₩16,785 billion in 2014 to
₩16,130 billion in 2015 primarily due to a decrease in revenues from sales of mobile handsets as a result of decreases in both the
number of handset units sold and the average unit price, as well as the impact of handset subsidies directly provided to subscribers, resulting in a decrease in operating revenues starting from October 2014 as described above.

We recorded operating loss for this segment of ₩427 billion in 2014 and operating income for this segment of ₩817 billion in 2015
(in each case, prior to adjusting for inter-segment transactions), as the segments operating expenses decreased by
₩1,899 billion which was partially off-set by the ₩655 billion decrease in the segments operating revenue, primarily due to the reasons discussed above. For this segment, operating
loss margin, which is operating loss as a percentage of total operating revenues prior to adjusting for inter-segment transactions, was 2.5% in 2014 and operating margin, which is operating income as a percentage of total operating revenues prior to
adjusting for inter-segment transactions, was 5.1% in 2015.

Depreciation and amortization, prior to adjusting for inter-segment
transactions, decreased by 0.5%, or ₩15 billion, from ₩2,913 billion in 2014 to ₩2,898 billion in 2015.

Segment ResultsFinance Group

Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 6.6%, or ₩217 billion, from ₩3,296 billion in 2014 to ₩3,513 billion in 2015 primarily due to an increase in commission revenues from our financial subsidiaries, in particular BC Card Co.,
Ltd, as discussed above.

Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 69.3%,
or ₩115 billion, from
₩166 billion in 2014 to
₩281 billion in 2015, as the ₩217 billion increase in the segments operating revenues outpaced ₩102 billion
increase in operating expenses primarily due to the reasons discussed earlier. Operating margin for this segment increased from 5.0% in 2014 to 8.0% in 2015.

Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 4.2%, or
₩1 billion, from
₩24 billion in 2014 to
₩25 billion in 2015.



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Segment ResultsSatellite TV Group

Our operating revenues for this segment, prior to adjusting for inter-segment transactions, increased by 2.0%, or ₩13 billion, from
₩656 billion in 2014 to
₩669 billion in 2015, primarily due to an increase in revenues from TV shopping channels.

Our operating income for this segment, prior to adjusting for inter-segment transactions, increased by 42.0%, or ₩29 billion, from
₩69 billion in 2014 to
₩98 billion in 2015, as the ₩16 billion decrease in operating expenses outpaced the ₩13 billion increase in the
segments operating revenues. Operating margin for this segment increased from 10.5% in 2014 to 14.6% in 2015.

Depreciation and
amortization, prior to adjusting for inter-segment transactions, increased by 12.9%, or ₩11 billion, from ₩85 billion in 2014 to
₩96 billion in 2015.

Segment ResultsOthers

Our operating revenues for this segment, prior to
adjusting for inter-segment transactions, increased by 25.9%, or ₩1,259 billion, from ₩4,857 billion in 2014 to
₩6,116 billion in 2015, primarily due to the inclusion of the global business services to this segment. The Enterprise Business
Segment, of which the global business services were part prior to 2015, was split into two segments: the Customer/Marketing Group and the Others Group. See Overview.

Our operating loss for this segment, prior to adjusting for inter-segment transactions, decreased from ₩558 billion in 2014 to
₩100 billion in 2015, as the ₩1,259 billion increase in operating revenues outpaced the ₩801 billion increase in
the segments operating expenses in 2015. For this segment, the operating loss margin (operating loss as a percentage of total operating revenues prior to adjusting for inter-segment transactions) was 11.5% in 2014 and 1.6% in 2015.

Depreciation and amortization, prior to adjusting for inter-segment transactions, increased by 5.7%, or ₩17 billion, from
₩298 billion in 2014 to
₩315 billion in 2015.

Item 5.B.Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated:



|                                                     |  |                                  |        |   |      |   |        |      |  |   |        |  
|---------------------------------------------------- |  | -------------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                     |  | For the Years Ended December 31, |       
|                                                     |  | 2014                             |        |   | 2015 |   |        | 2016 | 
|                                                     |  | (In billions of Won)             |       
|Net cash provided by operating activities            |  | ₩                                | 1,916  |   |      | ₩ | 4,230  |      |  | ₩ | 4,771  |  
|Net cash used in investing activities                |  |                                  | (3,171 | ) |      |   | (2,402 | )    |  |   | (3,485 | )
|Net cash provided by (used in) financing activities  |  |                                  | 1,072  |   |      |   | (1,164 | )    |  |   | (943   | )
|Cash and cash equivalents at beginning of period     |  |                                  | 2,071  |   |      |   | 1,889  |      |  |   | 2,559  |  
|Cash and cash equivalents at end of period           |  |                                  | 1,889  |   |      |   | 2,559  |      |  |   | 2,900  |  
|Net increase (decrease) in cash and cash equivalents |  |                                  | (182   | ) |      |   | 670    |      |  |   | 341    |  

Capital Requirements

Historically, our capital requirements consisted principally of purchases of property and equipment and other assets and repayments of borrowings. In our investing activities, we used cash of ₩2,853 billion in 2014,
₩3,116 billion in 2015 and
₩2,764 billion in 2016 for the acquisition of property and equipment and investment properties, primarily construction-in-progress. In our financing activities, we used cash of
₩8,757 billion in 2014,
₩6,648 billion in 2015 and
₩1,769 billion in 2016 for repayment of borrowings and debentures.

In recent years, we have also required capital for payments of retirement and severance benefits related to our early retirement programs. We
recorded cash outflows from payments of severance benefits of ₩1,427 billion in 2014, ₩118 billion in 2015 and
₩122 billion in 2016. In 2014,



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our payments were particularly high due to the special voluntary early retirement program held in April 2014 described in OverviewEmployee Reductions and Changes in Severance
and Retirement Benefits above.

From time to time, we may also require capital for investments involving acquisitions, including
shares of our affiliates, and strategic relationships. For example, in October 2011, we, through our former subsidiary KT Capital Co., Ltd., acquired an additional 1,622,520 common shares of BC Card Co., Ltd. from Woori Bank, Busan Bank and Shinhan
Card for approximately ₩252 billion. We acquired an additional 1,349,920 common shares of BC Card Co., Ltd. in January 2012 for
approximately ₩287 billion, and owned 69.5% interest in BC Card Co., Ltd. as of December 31, 2016. Any such additional
investments or acquisitions may require significant capital.

Our cash dividends paid to shareholders and
non-controlling interests amounted to ₩223 billion in 2014, ₩42 billion in 2015 and
₩184 billion in 2016.

We anticipate that capital expenditures and repayment of outstanding contractual obligations and commitments will represent the most significant use of funds for the next several years. We may also require capital
for purchase of shares of our affiliates as well as investments involving acquisitions and strategic relationships. We compete in the telecommunications sector in Korea, which is rapidly evolving. In recent years, business combinations in the
telecommunications industry have significantly changed the competitive landscape of the Korean telecommunications industry. We may need to incur additional capital expenditures to keep up with unexpected developments in rapidly evolving
telecommunications technology. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources that are sufficient for our unanticipated needs.

Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely
enter into commercial commitments for various aspects of our operations, including repair and maintenance. We have also provided guarantees to our affiliates. See Note 19 to the Consolidated Financial Statements for a disclosure of the guarantees
provided.

The following table sets forth selected information regarding our contractual obligations to make future payments as of
December 31, 2016:



|                                                                                                   |  |                        |        |  |                 |   |       |          |  |   |          |  |  |              |       |  |  |   |       | 
|-------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ |  | --------------- | - | ----- | -------- |  | - | -------- |  |  | ------------ | ----- |  |  | - | ----- | 
|                                                                                                   |  | Payments Due by Period |       
|Contractual Obligations (1)                                                                        |  | Total                  |        |  | Less than1 Year |   |       | 1-3Years |  |   | 4-5Years |  |  | After 5Years |      
|                                                                                                   |  | (In billions of Won)   |       
|Long-term debt obligations (including current portion of long-term debt)                           |  | ₩                      | 7,988  |  |                 | ₩ | 1,668 |          |  | ₩ | 2,817    |  |  | ₩            | 1,507 |  |  | ₩ | 1,996 | 
|Capital lease obligations (including any interests)                                                |  |                        | 212    |  |                 |   | 80    |          |  |   | 99       |  |  |              | 33    |  |  |   |      | 
|Operating lease obligations                                                                        |  |                        | 389    |  |                 |   | 102   |          |  |   | 153      |  |  |              | 117   |  |  |   | 17    | 
|Severance payment obligations (2)                                                                  |  |                        | 4,093  |  |                 |   | 127   |          |  |   | 324      |  |  |              | 361   |  |  |   | 3,281 | 
|Asset retirement obligations                                                                       |  |                        | 114    |  |                 |   | 6     |          |  |   | 36       |  |  |              | 13    |  |  |   | 59    | 
|Long-term accounts payableothers                                                                  |  |                        | 1,344  |  |                 |   | 263   |          |  |   | 440      |  |  |              | 445   |  |  |   | 196   | 
|                                                                                                   |  |                        |        |  |                 |   |       |          |  |   |          |  |  |              |       |  |  |   |       | 
|Total                                                                                              |  | ₩                      | 14,140 |  |                 | ₩ | 2,246 |          |  | ₩ | 3,869    |  |  | ₩            | 2,476 |  |  | ₩ | 5,549 | 
|                                                                                                   |  |                        |        |  |                 |   |       |          |  |   |          |  |  |              |       |  |  |   |       | 
|Estimate of interest payment based on contractual interest rates effective as of December 31, 2016 |  | ₩                      | 1,244  |  |                 | ₩ | 230   |          |  | ₩ | 339      |  |  | ₩            | 210   |  |  | ₩ | 465   | 
|                                                                                                   |  |                        |        |  |                 |   |       |          |  |   |          |  |  |              |       |  |  |   |       | 





|(1) | Contractual obligations represent contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and accruals for
customer call bonus points, which do not have definitive payment schedules.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The amount represents undiscounted pension benefit as of December 31, 2016.
|--- | ---------------------------------------------------------------------------



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Capital Resources

We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through debt financing. From time
to time, we have also disposed of our treasury shares to meet our capital requirements.

Our major sources of cash have been net cash
provided by operating activities, including profits for the period, expenses not involving cash payments such as depreciation and amortization, and proceeds from issuance of bonds and borrowings. We expect that these sources will continue to be our
principal sources of cash in the future. We recorded a loss for the period of ₩941 billion in 2014, a profit for the period of ₩625 billion in 2015 and a profit for the period of ₩795 billion in 2016 due to the reasons discussed in Item 5.A. Operating Results. Non-cash expense adjustments in our statement of cash flows from depreciation and
amortization of intangible assets was ₩3,855 billion in 2014, ₩3,640 billion in 2015 and ₩3,422 billion in 2016, primarily reflecting our capital
investment activities during the recent years, including our purchase of bandwidths for our operations, investments in LTE-related structures and acquisition of real estate. Cash proceeds from borrowings and
debentures were ₩10,037 billion in 2014, ₩5,675 billion in 2015 and ₩1,123 billion in 2016. As of December 31, 2016, we
held 16,140,165 treasury shares.

Since 2012, we have disposed a portion of our trade receivables relating to handset sales to several
special purpose companies, as part of our efforts to improve our cash and asset management. We also entered into asset management agreements with each of these special purpose companies, and will be receiving management fees from such companies. See
Note 19 to the Consolidated Financial Statements.

We believe that we have sufficient working capital available to us for our current
requirements and 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
denominated in Won and various foreign currencies. For example, we successfully issued (i) three series of notes for an aggregate amount of Japanese Yen 30 billion in January 2013, (ii) three series of notes for an aggregate amount of
₩410 billion in April 2013, (iii) US$300 million floating rate notes due 2018 in August 2013, (iv) ₩300 billion of commercial paper due 2019 in February 2014, (v) US$650 million of 1.750% notes due 2017 and US$350 million
of 2.625% notes due 2019 in April 2014, (vi) three series of notes for an aggregate amount of ₩450 billion in January 2015,
(vii) Japanese Yen 15 billion of 0.48% notes due 2018 in February 2015 and (viii) US$400 million of 2.500% notes due 2026 in July 2016. See Note 15 to the Consolidated Financial Statements. However, our ability to rely on some of
these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Governments policies regarding Won currency and foreign currency
borrowings. Other factors which could materially affect our liquidity in the future include unanticipated increase in capital expenditures and decrease in cash provided by operations resulting from a significant decrease in demand for our services.
We may also need to raise additional capital sooner than we expect in order to fund unanticipated investments and acquisitions.

Our
total equity was ₩11,788 billion as of December 31, 2014, ₩12,156 billion as of December 31, 2015 and ₩12,783 billion as of
December 31, 2016.



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Liquidity

We had a working capital (current assets minus current liabilities) deficit of ₩1,213 billion as
of December 31, 2014 and ₩56 billion as of December 31, 2015 and a working capital surplus of ₩193 billion as of December 31, 2016. The following table sets forth the summary of our significant current assets for the periods
indicated:



|                                 |  |                      |       |  |      |   |       |      |  |   |       | 
|-------------------------------- |  | -------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                 |  | As of December 31,   |      
|                                 |  | 2014                 |       |  | 2015 |   |       | 2016 | 
|                                 |  | (In billions of Won) |      
|Cash and cash equivalents        |  | ₩                    | 1,889 |  |      | ₩ | 2,559 |      |  | ₩ | 2,900 | 
|Trade and other receivables, net |  |                      | 5,780 |  |      |   | 4,854 |      |  |   | 5,327 | 
|Inventories, net                 |  |                      | 419   |  |      |   | 617   |      |  |   | 455   | 
|Other financial assets           |  |                      | 333   |  |      |   | 293   |      |  |   | 721   | 

Our cash and cash equivalents totaled ₩1,889 billion as of December 31, 2014, ₩2,559 billion as of December 31,
2015 and ₩2,900 billion as of December 31, 2016. Under IFRS as issued by IASB, bank deposits held at call and all other highly
liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Other current financial assets primarily consist of financial instruments,
available-for-sale financial assets and derivatives used for hedge.

The following table sets forth the summary of our significant current liabilities for the periods indicated:



|                         |  |                      |       |  |      |   |       |      |  |   |       | 
|------------------------ |  | -------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                         |  | As of December 31,   |      
|                         |  | 2014                 |       |  | 2015 |   |       | 2016 | 
|                         |  | (In billions of Won) |      
|Trade and other payables |  | ₩                    | 6,428 |  |      | ₩ | 6,335 |      |  | ₩ | 7,140 | 
|Borrowings               |  |                      | 2,956 |  |      |   | 1,726 |      |  |   | 1,820 | 

As of December 31, 2016, we entered into various commitments with financial institutions totaling ₩3,418 billion and US$251 million. See Note 19 to the Consolidated Financial Statements. As of December 31, 2016, ₩563 billion and US$205 million was used under these facilities. We have not had, and do not believe that we will have, difficulty
gaining access to short-term financing sufficient to meet our current requirements.

Capital Expenditures

We used cash of
₩2,853 billion in 2014,
₩3,116 billion in 2015 and
₩2,764 billion in 2016 for the acquisition of property, plant and equipment and investment property, primarily construction-in-progress.

Our current capital expenditure
plan, on a separate basis, calls for the expenditure of approximately ₩2,400 billion in 2017, which may be adjusted depending on
market conditions and our results of operations. The principal components of our capital investment plans are:



| |  |  | approximately ₩1,155 billion in capital
investments for our access network;
| | - |  | ---------------------------------------------------------------------------



| |  |  | approximately ₩515 billion in capital
investments for our backbone network;
| | - |  | ---------------------------------------------------------------------------



| |  |  | approximately ₩360 billion in capital
investments for our business-to-business services; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | approximately ₩370 billion in capital
investments for other services including R&D costs.
| | - |  | -----------------------------------------------------------------------------------------



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Inflation

We do not consider that inflation in Korea has 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 1.3% in 2014, 0.7%
in 2015 and 1.0% in 2016. See Item 3. Key InformationItem 3.D. Risk FactorsKorea is our most important market, and our current business and future growth could be materially and adversely affected if economic or political
conditions in Korea deteriorate.

Item 5.C.Research and Development, Patents and
Licenses, Etc.

In order to maintain our leadership in the converging telecommunications business environment and
develop additional platforms, services and applications, we operate:



| |  |  | a new business development and incubation center;
| | - |  | -------------------------------------------------



| |  |  | an infrastructure R&D laboratory;
| | - |  | ---------------------------------



| |  |  | a service R&D laboratory; and
| | - |  | -----------------------------



| |  |  | a convergence R&D laboratory.
| | - |  | -----------------------------

As of December 31, 2016, KT Corporation had 5,037 registered patents domestically and 1,074 registered patents internationally.

The MSIP has the authority to recommend to network service providers that they provide funds for national research and development of telecommunications technology and related projects. The required annual
contribution is 0.5% (0.75% for market dominant service providers like us) of revenues attributable to key communications services (excluding revenues from telecommunications service using an allotted frequency if the consideration for such allotted
frequency has been paid) from wireless subscribers for the previous year, and is applicable only to those network service providers who have at least ₩30 billion in total sales for the previous year and have recorded no net loss in the current period. Under the policy, the maximum amount of the annual contribution to be made cannot exceed 70.0% of the
net profit for the corresponding period of each company. Including such contributions, total expenditures (which include capitalized expenses) on research and development were ₩479 billion in 2014, ₩225 billion in 2015 and ₩204 billion in 2016.

In recent years, we have focused our research and development efforts in the following areas:



| |  |  | simplifying complex core networks and reducing costs;
| | - |  | -----------------------------------------------------



| |  |  | integrating in-building management solutions for fixed-line and wireless networks;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | aggregating heterogeneous wireless access for double network throughput;
| | - |  | ------------------------------------------------------------------------



| |  |  | a broadband Internet solution that is 10 times faster using legacy copper and fiber lines;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | a telecommunication cloud solution which combines network resource virtualization with cloud computing resource;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | finding solutions for ultra-definition television set top box and additional solutions for smart IPTV;
| | - |  | ------------------------------------------------------------------------------------------------------



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| |  |  | smart home networking solutions for multiple devices, such as smartphones, tablets, computers and IPTV, as well as electric home appliances;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | environment-friendly energy technologies including a smart-grid platform;
| | - |  | -------------------------------------------------------------------------



| |  |  | core technologies for convergence services such as IoT, big data, security, networked automobiles, healthcare and
bio-informatics; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | creating a new convergence business model based on ICT and incubating new businesses.
| | - |  | -------------------------------------------------------------------------------------

Item 5.D.Trend Information

These matters are discussed under Item 5.A. above where relevant.

Item 5.E.Off-balance Sheet Arrangements

These matters are discussed under Item 5.B. above where relevant.

Item 5.F.Tabular Disclosure of Contractual Obligations

These matters are discussed under Item 5.B. above where relevant.

Item 5.G.Safe Harbor

See Item 3. Key InformationItem 3.D. Risk FactorsForward-looking statements may prove to be inaccurate.

Item 6. Directors, Senior Management and Employees

Item 6.A.Directors and Senior Management

Directors

Our board of directors has the
ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of:



| |  |  | up to three standing directors, including the chief executive officer; and
| | - |  | --------------------------------------------------------------------------



| |  |  | up to eight outside directors.
| | - |  | ------------------------------

All of our directors are elected at the general shareholders meeting. If the total assets of a company listed on the KRX KOSPI Market exceed ₩2,000 billion as of the end of the preceding year, which is the case with us, the Commercial Code of Korea requires such company to have
more than three outside directors, with outside directors being the majority of the board of directors. The term of office for a director is up to three years, but the term is extended to the close of the annual shareholders meeting convened
with respect to the last full fiscal year of a directors term of office. If the term of office for a director is not completed and ends before the close of the annual general shareholders meeting and a new director is appointed in his or
her place, the term of office for such replacement director will coincide with the uncompleted remaining term of office of his or her predecessor.



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Under the Commercial Code of Korea, we must establish a committee to nominate candidates for outside
directors within the board of directors, and outside directors must make up more than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one
standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the
committee. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders meeting.

Upon the request of any director (to the extent that the board of directors does not separately authorize only a particular director to make such request), a meeting of the board of directors will be assembled. The
chairperson of the board of directors is elected from among the outside directors by a resolution of the board of directors. The term of office of the chairperson is one year.

Our current directors are as follows:



|                       |  |                                                                                         |  |               |              |  |               |  |                    |                            |  |  |      | 
|---------------------- |  | --------------------------------------------------------------------------------------- |  | ------------- | ------------ |  | ------------- |  | ------------------ | -------------------------- |  |  | ---- | 
|Name                   |  | Position                                                                                |  | DirectorSince |              |  | Date of Birth |  |                    | ExpirationofTerm 
ofOffice | 
|Standing Directors (1) |  |                                                                                         |  |               |              |  |               |  |                    |                            |  |  |      | 
|                       |  |                                                                                         |  |              
|Chang-Gyu Hwang        |  | Chief Executive Officer                                                                 |  |               | January 2014 |  |               |  | January 23, 1953   |                            |  |  | 2020 | 
|Heon Moon Lim          |  | President                                                                               |  |               | March 2014   |  |               |  | November 15, 1960  |                            |  |  | 2018 | 
|Hyeon Mo Ku            |  | President, Chief Operating Officer                                                      |  |               | March 2016   |  |               |  | January 13, 1964   |                            |  |  | 2018 | 
|                       |  |                                                                                         |  |              
|Outside Directors (1)  |  |                                                                                         |  |               |              |  |               |  |                    |                            |  |  |      | 
|                       |  |                                                                                         |  |              
|Do Kyun Song           |  | Senior Advisor, Bae, Kim & Lee LLC                                                      |  |               | March 2013   |  |               |  | September 20, 1943 |                            |  |  | 2019 | 
|Sang Kyun Cha          |  | Professor, Department of Electrical and Computer Engineering, Seoul National University |  |               | March 2012   |  |               |  | February 19, 1958  |                            |  |  | 2019 | 
|Jong-Gu Kim            |  | Corporate lawyer, New Dimension Law Group                                               |  |               | March 2014   |  |               |  | July 7, 1941       |                            |  |  | 2020 | 
|Suk-Gwon Chang         |  | Dean, School of Business, Hanyang University                                            |  |               | March 2014   |  |               |  | February 21, 1956  |                            |  |  | 2018 | 
|Dae-Geun Park          |  | Professor, Department of Economics and Finance, Hanyang University                      |  |               | March 2014   |  |               |  | March 15, 1958     |                            |  |  | 2018 | 
|Dong-Wook Chung        |  | Senior Counsel, Law Firm Kim, Choi & Lim                                                |  |               | March 2015   |  |               |  | August 22, 1949    |                            |  |  | 2018 | 
|Gae-Min Lee            |  | Former Editor-in-Chief, The Korea Economic
Daily                                        |  |               | March 2017   |  |               |  | November 1, 1946   |                            |  |  | 2020 | 
|Il Im                  |  | Professor, Business Administration, Yonsei University                                   |  |               | March 2017   |  |               |  | March 20, 1966     |                            |  |  | 2020 | 





|(1) | All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

Chang-Gyu Hwang has served as our standing director since 2014 and has served as our chief executive
officer since January 2014. Prior to joining us, he served as a Distinguished Chair Professor at Sungkyunkwan University, president and National Chief Technology Officer of the Office of Strategic Research and Development Planning at the former
Ministry of Knowledge and Economy, president and chief technology officer of the Corporate Technology Office at Samsung Electronics Co., Ltd. and as president and chief executive officer of the Semiconductor Business at Samsung



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Electronics Co., Ltd. Mr. Hwang holds a bachelors degree and a masters degree in electric engineering from Seoul National University and a Ph.D. in electronic and computer
engineering from the University of Massachusetts, Amherst.

Heon Moon Lim has served as our standing director since 2014 and has
served as our president and chief marketing officer since December 2015. He has previously served as a senior executive vice president of our Customer Business Group and an executive vice president of our Telecom & Convergence Business
Group and Home Business Group. Mr. Lim holds a bachelors degree in business administration from Yonsei University and a Ph.D. in business administration from Seoul National University.

Hyeon Mo Ku has served as our standing director since March 2016 and has served as our president and chief operating officer since December
2015. He has previously served as chief secretary to our chief executive officer since 2014. Before that, he served as chief operating officer of the Telecom & Convergence Business department. Mr. Ku holds a bachelors degree in
Industrial Engineering from Seoul National University and a Ph. D. in Management Engineering from Korea Advanced Institute of Science and Technology.

Do Kyun Songhas served as our outside director since March 2013. He is currently a senior advisor to the law firm of Bae, Kim & Lee LLC. He was formerly a standing member of the KCC and the chief
executive officer of Seoul Broadcasting System Co., Ltd. Mr. Song holds a bachelors degree in Spanish literature from Hankuk University of Foreign Studies.

Sang Kyun Cha has served as our outside director since March 2012. He is currently a professor of electrical and computer engineering at Seoul National University. Previously, he founded Transact In Memory,
Inc., a next-generation memory database management system development company in the United States which was acquired by SAP AG in 2005, and was subsequently transformed into SAP Labs Korea, Inc. Mr. Cha holds a bachelors degree in
electronic engineering from Seoul National University and a Ph.D. in database systems from Stanford University.

Jong-Gu Kimhas
served as our outside director since March 2014. He is currently a corporate lawyer at the New Dimension Law Group. Previously, he served as the minister of the Ministry of Justice and as the head of the Seoul Supreme Prosecutors Office.
Mr. Kim holds both a bachelors degree in law from Seoul National University and a Ph.D. in law from Dongguk University.

Suk-Gwon Chang has served as our outside director since March 2014. He is currently the dean of the School of Business at Hanyang University. Mr. Chang was formerly the dean of Hanyang Cyber University
Graduate School and the president of the Korea Association for Telecommunication Policy and Korea Media Management Association. Mr. Chang holds a bachelors degree in industrial engineering from Seoul National University and a Ph.D. in
management science from Korea Advanced Institute of Science and Technology.

Dae-Geun Park has served as our outside director
since March 2014. He is currently a professor of economics and finance at Hanyang University and the director of Hanyang Economic Research Institute. Mr. Park was formerly a vice president of the Korea Finance and Money Association and a member
of the Steering Committee at the Korea Finance Corporation. Mr. Park holds a bachelors degree in economics from Seoul National University and a Ph.D. in economics from Harvard University.

Dong-Wook Chung has served as our outside director since March 2015. He is currently a senior counsel to the law firm of Kim,
Choi & Lim. Mr. Chung was formerly a prosecutor at the Seoul High Prosecutors Office and the chief prosecutor at the Bucheon Branch of the Incheon District Prosecutors Office. Mr. Chung holds a bachelors degree
and a masters degree in law from Seoul National University.



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Gae-Min Lee has served as our outside director since
March 2017. He was formerly an advisor to the Korea News Editors Association Fund, editor-in-chief of The Korea Economic Daily and chief executive officer of
Hankyung.com. Mr. Lee holds a bachelors degree and a Ph.D. in Economics from Kyung Hee University.

Il Im has served
as our outside director since March 2017. He is currently a professor of business administration at Yonsei University and Fall Committee Chair of the Korea Society of Management Information System. Mr. Im was formerly a professor of Information
Systems Department at New Jersey Institute of Technology. Mr. Im holds a bachelors degree in business administration from Seoul National University and a Ph. D in information systems from the University of Southern California.

For the purposes of the Korean Commercial Code, our chief executive officer is deemed to be the representative director who is
authorized to perform all judicial and extra-judicial acts relating to our business. Our shareholders elect the chief executive officer in accordance with the provisions of the Commercial Code and our articles of incorporation. A candidate for chief
executive officer is nominated by a committee formed for that purpose. The Chief Executive Officer Candidate Nominating Committee consists of:



| |  |  | all of our outside directors; and
| | - |  | ---------------------------------



| |  |  | one standing director who is not a candidate.
| | - |  | ---------------------------------------------

Under our articles of incorporation, the Chief Executive Officer Candidate Nominating Committee must submit a draft management contract between KT Corporation and the candidate covering our management objectives to
the shareholders meeting at the time of candidate nomination to the meeting. When the draft management contract has been approved at the shareholders meeting, we enter into such management contract with the chief executive officer. In
such case, the chairperson of the Chief Executive Officer Candidate Nominating Committee, on our behalf, signs the management contract.

The board of directors may conduct performance review discussions to determine if the new chief executive officer performed his or her duties under
the management contract, or hire a professional evaluation agency for such purpose. If the board of directors determines, based on the results of the performance review, that the new chief executive officer has failed to achieve the management
goals, it may propose to dismiss the chief executive officer at a shareholders meeting.

Senior Management

Our executive officers consist of presidents and senior executive vice presidents. The executive officers other than the standing directors are
appointed by the chief executive officer.



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The current executive officers are as follows:



|               |  |                                                                                                             |  |                           |  |                          |    |  |               |                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------------------ | -- |  | ------------- | ----------------
|Name(1)        |  | Title and Responsibilities                                                                                  |  | CurrentPosition HeldSince |  | Yearswith theCompany
(2) |    |  | Date of Birth
|Seong-Mok Oh   |  | President, Network Group                                                                                    |  | December 2012             |  |                          | 31 |  |               | August 20, 1960 
|Soo-Ho Maeng   |  | President, Corporate Relationship Group                                                                     |  | December 2015             |  |                          | 21 |  |               | October 16, 1959
|Cheol-Soo Kim  |  | Senior Executive Vice President, Chief of Marketing Office, Customer Business Group                         |  | December 2015             |  |                          | 3  |  |               | February 7, 1963
|Mun-Whan Lee   |  | Senior Executive Vice President, Enterprise Business Group                                                  |  | December 2015             |  |                          | 28 |  |               | October 1, 1963 
|Dong-Myun Lee  |  | Senior Executive Vice President, Institute of Convergence Technology                                        |  | January 2014              |  |                          | 25 |  |               | October 15, 1962
|Kyoung-Lim Yun |  | Senior Executive Vice President, Future Convergence Strategy Office                                         |  | December 2014             |  |                          | 7  |  |               | June 14, 1963   
|Sang-Bong Nam  |  | Senior Executive Vice President, Chief Operating Office, Strategy & Planning Group, Legal Office            |  | January 2014              |  |                          | 4  |  |               | October 19, 1963
|Dae-San Lee    |  | Senior Executive Vice President, Chief Operating Office, Corporate Management Group                         |  | January 2015              |  |                          | 30 |  |               | January 10, 1961
|In-Hoe Kim     |  | Senior Executive Vice President, CEO Office                                                                 |  | December 2015             |  |                          | 3  |  |               | June 25, 1964   
|Kyu-Taek Nam   |  | Senior Executive Vice President, Chief Operating Office, Corporate Management Group, Human Resources Office |  | December 2015             |  |                          | 31 |  |               | February 6, 1961





|(1) | All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(2) | Does not include period of employment by KT Corporations affiliates.
|--- | ---------------------------------------------------------------------

Item 6.B.Compensation

Compensation of Directors

In 2016, the total amount of salaries, bonuses (including long-term performance-based incentives for directors) and allowances paid
to all directors of KT Corporation for services in all capacities was approximately ₩4.1 billion, which were paid on a cash basis.

Until February 2010, we had no incentive based compensation program for outside directors. Instead, compensation was paid to outside
directors in fixed amounts as an allowance for any expenses they incurred in executing their duties. The board of directors introduced a new compensation program for outside directors in March 2010, which consists of cash and stock grants and
requires a one year lock-up period, at a ratio of 3 to 1. The total cash basis remuneration for outside directors for 2016 was recorded at ₩642 million.

The compensation of our directors and executive officers who received total
annual compensation exceeding ₩500 million in 2016 was as follows:



|                |  |                         |  |                           |  |                                             
|--------------- |  | ----------------------- |  | ------------------------- |  | --------------------------------------------
|Name            |  | Position                |  | Total Compensationin 2016 |  | Composition of TotalCompensation            
|                |  |                         |  | (In millions of Won)     
|Chang-Gyu Hwang |  | Chief Executive Officer |  | ₩2,436                    |  | ₩573 (salary);
₩1,858 (bonus); ₩5
(benefits)
|Heon Moon Lim   |  | President               |  | ₩900                      |  | ₩367 (salary);
₩518 (bonus); ₩15
(benefits) 
|Hyun Mo Ku      |  | President               |  | ₩672                      |  | ₩239 (salary);
₩413 (bonus); ₩20
(benefits) 

The chairperson of the Chief Executive Officer Candidate Nominating Committee enters into an employment agreement
on our behalf with our chief executive officer. The employment agreement



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sets certain management targets to be achieved by the chief executive officer, including a target for the amount of EBITDA to be achieved in each year. EBITDA is defined as earnings
before interest, tax, depreciation and amortization. Failure to achieve certain thresholds below the targets will allow the board of directors to take actions with respect to the chief executive officers employment, including proposing at the
shareholders meeting an early termination of his employment. In addition, the head of each of our functional departments, the president of each of our subsidiaries and the heads of each regional head office have entered into employment
agreements with the chief executive officer that provide for similar management targets to be achieved by each of our departments, subsidiaries and regional head offices.

Item 6.C.Board Practices

As of
December 31, 2016, none of our standing or outside directors maintained directors service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment.

Corporate Governance Committee

The
Corporate Governance Committee is comprised of four outside directors and one standing director, Suk-Gwon Chang, Do Kyun Song, Jong-Gu Kim, Gae-Min Lee and Hyeon Mo Ku. The chairperson is Suk-Gwon Chang. The committee is responsible for the review of matters with respect to our Corporate Governance Guidelines and
our performance under such guidelines to monitor effectiveness of our corporate governance. The committee members are elected by the board after the annual meeting, and the term of the committee members is one year.

Outside Director Candidate Nominating Committee

The Outside Director Candidate Nominating Committee consists of one standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of
the office, in which case such outside director whose term is expiring may not be a member of the committee. The committees duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside
directors on our board of directors to the shareholders at the general shareholders meeting. The committee members terms expire immediately after the adjournment of the shareholders meeting where the outside directors are elected.

Evaluation and Compensation Committee

The Evaluation and Compensation Committee is currently comprised of four outside directors, Dong-Wook Chung, Do Kyun Song, Suk-Gwon Chang and Il Im. The chairperson is
Dong-Wook Chung. The committees duties include prior review of the chief executive officers management goals, terms and conditions proposed for inclusion in the management contract of the chief executive officer, including, but not
limited to, determining whether the chief executive officer has achieved the management goals, and the determination of compensation for the chief executive officer and the standing directors. The committee members are elected by the board after the
closing of the annual meeting, and the term of the committee members is one year.

Executive Committee

The Executive Committee is currently comprised of Chung-Gyu Hwang, Heon Moon Lim and Hyeon Mo Ku. The chairperson is
Chang-Gyu Hwang. The committees duties include the establishment and management of branch offices, the disposal and sale of stocks of our subsidiaries, which have a market value between ₩15 billion and
₩30 billion, provided that no change of control



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with respect to such subsidiary occurs as a result of such disposal or sale for stocks with market value of ₩10 billion or more, making investments and providing guarantees between ₩15 billion
to ₩30 billion, the acquisition and disposal of real estate having market value between ₩15 billion to
₩30 billion, the authorization of charitable contributions between
₩100 million to
₩1 billion and the issuance of certain debt securities.

Related-Party Transactions Committee

The Related-Party Transactions Committee is currently
comprised of four outside directors, Dae-Geun Park, Do Kyun Song, Gae-Min Lee and Il Im. The chairperson is Dae-Geun Park. This
committees duties include reviews of transactions between KT Corporation and its subsidiaries and ensures compliance with applicable antitrust laws. The committee members are elected by the board after the annual meeting, and the term of the
committee members is one year.

Sustainability Management Committee

The Sustainability Management Committee is currently comprised of four outside directors and one standing director, Sang Kyun Cha, Dong-Wook Chung, Suk-Gwon Chang, Il Im and
Heon Moon Lim. The chairperson is Sang Kyun Cha. The committees duties include reviews of sustainable management results, establishment of medium- and long-term sustainable management strategies and regular reporting and risk management of
sustainable management activities. The committee members are elected by the board after the annual meeting, and the term of the committee members is one year.

Audit Committee

Under the Commercial Code of Korea and our articles of incorporation, we are
required to establish an audit committee comprised of three or more outside directors and at least two-thirds of the audit committee members are required to be outside directors. Audit Committee members must
also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of Jong-Gu Kim, Sang Kyun Cha, Dae-Geun Park and
Dong-Wook Chung. The chairperson is Jong-Gu Kim and the financial expert is Dae-Geun Park. Members of the committee are elected by our shareholders at the shareholders meeting. Our internal and external
auditors report directly to the committee.

The duties of the committee include:



| |  |  | appointing independent auditors;
| | - |  | --------------------------------



| |  |  | approving the appointment and recommending the dismissal of the internal auditor;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | evaluating performance of independent auditors;
| | - |  | -----------------------------------------------



| |  |  | approving services to be provided by the independent auditors;
| | - |  | --------------------------------------------------------------



| |  |  | reviewing annual financial statements;
| | - |  | --------------------------------------



| |  |  | reviewing audit results and reports;
| | - |  | ------------------------------------



| |  |  | reviewing and evaluating our system of internal controls and policies; and
| | - |  | --------------------------------------------------------------------------



| |  |  | examining improprieties or suspected improprieties.
| | - |  | ---------------------------------------------------



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In addition, regarding the shareholders meeting, the committee may examine the agenda, financial
statement and other reports to be submitted by the board of directors at each shareholders meeting.

Item 6.D.Employees

On a non-consolidated basis, we had 23,575 employees as of December 31, 2016, compared to 23,531
employees as of December 31, 2015 and 23,371 employees as of December 31, 2014.

Voluntary Early Retirement Plans

We regularly sponsor voluntary early retirement plans where we provide additional financial incentives for our employees to retire early, as part
of our efforts to improve operational efficiencies. In 2014, 2015, and 2016, 41, 33 and 5 employees, respectively, retired under this program.

In April 2014, we announced the commencement of a special early retirement program for employees who have been employed by us for more than 15 years. This special early retirement program provided our employees
with incentives to retire early as part of our efforts to improve operational efficiencies. Our employees were offered the option of either receiving additional severance payment or employment for two years at certain of our subsidiaries or
affiliates as part of the special retirement program. The special voluntary early retirement program resulted in the early retirement of 8,304 employees in 2014. We paid ₩1,215 billion as severance benefits in connection with our early retirement programs during 2014, which was financed through cash on hand and bond issuances.

Labor Relations

We consider our current
relations with our work force to be good. However, in the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of
non-core businesses and reducing our employee base.

As of December 31, 2016, about 78% of
the employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on
November 15, 2017. The current collective bargaining agreement provides that even in the event of a strike, the minimum number of employees necessary to operate the telecommunications business must continue to work.

The union also negotiates with us an annual agreement on wages on behalf of its members. Under the Act of the Promotion of Workers
Participation and Cooperation, our Employee-Employer Cooperation Committees, which are composed of representatives of management and labor for each business unit and regional office, meet quarterly to discuss employee grievances, working conditions
and potential employee-initiated improvements in service or management.

The Trade Union and Labor Relations Adjustment Act (Labor
Act) allow multiple labor unions to be formed within one company. Therefore, additional labor unions may be formed by our employees. Pursuant to such amendments, our employees formed a new labor union called KT New Union in July
2011. The Labor Act also requires such multiple unions to consolidate themselves into a single channel when negotiating with the company on behalf of their members and to enter into a single collective bargaining agreement with the company. As
a result of the recent consolidation of labor unions, KT Trade Union was selected as the bargaining representative of the labor unions. Its term as the bargaining representative will last for two years from January 1, 2016, and will expire on
December 31, 2017.



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Employee Stock Ownership and Benefits

We have an employee stock ownership association, which may purchase on behalf of its members up to 20.0% of any of our shares offered publicly in Korea. The employee stock ownership association owned 0.53% of our
issued shares as of December 31, 2016.

In accordance with the National Pension Act of Korea, we contribute an amount equal to 4.5%
of an employees standard monthly wages, and each employee contributes 4.5% of his or her standard monthly wages, into his or her personal pension account. Our employees, including executive officers as well as
non-executive employees, are subject to a pension insurance system, under which we make monthly contributions to the pension accounts of the employees, and upon retirement, such employees are paid the pension
amount due from their pension accounts. Prior to April 2011, our executive and non-executive employees were subject to a lump-sum severance payment system, under which
they were entitled to receive a lump-sum severance payment upon termination of their employment, based on their length of service and salary level at the time of termination. Starting in April 2011, in
accordance with the Korean Employee Retirement Income Security Act, we replaced such lump-sum severance payment system with our current pension insurance system in the form of a defined benefit plan, and also
introduced a defined contribution plan in December 2012, with a total combined unfunded portion of approximately ₩1,414 billion as
of December 31, 2016. Lump-sum severance amounts previously accrued prior to our adoption of the current pension insurance system continue to remain payable. We also provide a wide range of fringe
benefits to our employees, including housing, housing loans, company-provided hospitals and schools, a company-sponsored pension program, an employee welfare fund, industrial disaster insurance, cultural and athletic facilities, physical education
grants, meal allowances, medical examinations and training and resort centers. See Item 5. Operating and Financial Review and ProspectsItem 5.A. Operating Results.

Employee Training

The objective of our training program is to develop information and
technology specialists who are able to create value for our customers. In order to develop skills of our employees, we require 76 hours of training per year from most of our employees, using individually-tailored curriculums based on individual
assessments. We also operate Cyber Academy to provide online classes to our employees, as well as offer various foreign language classes to our employees. In addition, we provide tuition and living expense reimbursements to our high potential
employees who pursue graduate programs in Korea and abroad, as well as provide financial assistance to those who pursue work-related professional licenses or participate in after-work study programs.



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Item 6.E.Share Ownership

Ordinary Shares

The persons who currently
serve as our directors held, as a group, 47,615 ordinary shares as of April 25, 2017, the most recent date for which this information is available. The table below shows the ownership of our ordinary shares by directors:



|                |  |                                |        | 
|--------------- |  | ------------------------------ | ------ | 
|Shareholders    |  | Number of OrdinaryShares Owned |       
|Chang-Gyu Hwang |  |                                | 22,961 | 
|Heon Moon Lim   |  |                                | 6,718  | 
|Hyun Mo Ku      |  |                                | 7,796  | 
|Do Kyun Song    |  |                                | 1,178  | 
|Dong-Wook Chung |  |                                | 465    | 
|Sang Kyun Cha   |  |                                | 5,974  | 
|Jong-Gu Kim     |  |                                | 841    | 
|Suk-Gwon Chang  |  |                                | 841    | 
|Dae-Geun Park   |  |                                | 841    | 
|Gae-Min Lee     |  |                                |       | 
|Il Im           |  |                                |       | 

Stock Options

We have not granted any stock options to our current directors and executive officers.

Item 7. Major Shareholders and Related Party Transactions

Item 7.A.Major Shareholders

The following table sets forth certain information relating to the shareholders of our ordinary shares as of December 31, 2016:



|                                                    |  |                 |             |  |                              |  |        |  
|--------------------------------------------------- |  | --------------- | ----------- |  | ---------------------------- |  | ------ | -
|Shareholders                                        |  | Number ofShares |             |  | Percent ofTotalShares Issued | 
|National Pension Corporation                        |  |                 | 26,994,170  |  |                              |  | 10.34  | %
|NTTDoCoMo, Inc.                                     |  |                 | 14,257,813  |  |                              |  | 5.46   | %
|Silchester International Investors LLP              |  |                 | 12,907,232  |  |                              |  | 4.94   | %
|Employee stock ownership association                |  |                 | 1,387,655   |  |                              |  | 0.53   | %
|Directors as a group                                |  |                 | 47,615      |  |                              |  | 0.02   | %
|Public                                              |  |                 | 189,377,158 |  |                              |  | 75.53  | %
|KT Corporation (held in the form of treasury stock) |  |                 | 16,140,165  |  |                              |  | 6.18   | %
|                                                    |  |                 |             |  |                              |  |        |  
|Total issued shares                                 |  |                 | 261,111,808 |  |                              |  | 100.00 | %
|                                                    |  |                 |             |  |                              |  |        |  

Item 7.B.Related Party Transactions

We have engaged in various transactions with our subsidiaries and affiliated companies. See Note 33 to the Consolidated Financial Statements. We
have not issued any guarantees in favor of our consolidated subsidiaries.

Item 7.C.Interests of Experts and Counsel

Not applicable.



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Item 8. Financial Information

Item 8.A.Consolidated Statements and Other Financial Information

See Item 18. Financial Statements and pages F-1 through F- 98.

Legal Proceedings

In July 2012, the Fair
Trade Commission issued to us an administrative fine of approximately ₩5 billion as well as certain corrective orders, after
investigating certain pricing and subsidy practices of mobile service carriers and handset manufacturers. Samsung Electronics Co., Ltd., LG Electronics Co., Ltd., Pantech Curitel Co., Ltd., SK Telecom and LG U+ were also issued administrative fines
as a result of the investigation. We filed for a stay of execution of the Fair Trade Commissions decision, and in September 2012, the Seoul High Court granted a stay of execution with respect to the corrective order, and denied the stay of
execution with respect to the administrative fine. We paid the entire fine in September 2012. In September 2012, we filed a lawsuit with the Seoul High Court against the Fair Trade Commission to appeal the administrative fine and the corrective
order, and on February 6, 2014, the Seoul High Court ruled against us on our appeal. In February 2014, we filed another appeal with respect to the administrative fine with the Supreme Court of Korea and filed for a stay of execution with
respect to the corrective order in March 2014, which was accepted and became effective in April 2014. The appeal is currently ongoing. The outcome of this case will not result in any fine in addition to the fine we already paid in September 2012.

In December 2013, the KCC imposed a combined fine of approximately ₩106 billion on SK Telecom, LG U+ and us (our fine being approximately ₩30 billion), which
is the largest fine ever imposed by the KCC on local mobile operators for providing excessive subsidies to new subscribers. On March 7, 2014, the MSIP imposed a temporary suspension on us for 45 days (from March 13, 2014 to April 26,
2014), SK Telecom for 45 days (from April 5, 2014 to May 19, 2014), and LG U+ for 45 days (from March 13, 2014 to April 4, 2014 and again from April 27, 2014 to May 18, 2014) from accepting new subscribers as a result
of continuing to offer excessive handset subsidies to new subscribers, despite the order from the KCC prohibiting such subsidies. Additionally, the MSIP announced that it plans to bring criminal charges with fines of up to ₩150 million and imprisonment of less than three years against any carrier and responsible personnel that fails to adhere to the
suspension or continues to offer illegal subsidies after the suspension is completed. In August 2014, the KCC imposed a fine of approximately ₩58 billion on SK Telecom, LG U+ and us (our fine being approximately ₩11 billion) for
continuing to provide excessive subsidies to new subscribers. In December 2014, the KCC further imposed a fine of approximately
₩8 billion on each of SK Telecom, LG U+ and us for providing excessive handset subsidies. In March 2015, the KCC also imposed a
combined fine of approximately ₩34 billion on SK Telecom, LG U+ and us (our fine being approximately ₩9 billion) for violation of regulations relating to handset sales, in connection with a used handset buyback program that we and the other
telecommunications operators were promoting. On June 24, 2015, 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 million) and ordered to take corrective measures for providing excessive promotional gifts to bundled products customers. We have
paid all of such fines as of the date hereof.





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In July 2012, the police arrested two third-party individuals in connection with the alleged theft of
personal information relating to approximately 8.7 million of our mobile phone subscribers. The individuals in question stole personal information through a series of hackings starting from February 2012 into our
N-STEP. Since the incident, approximately 29,800 of our mobile phone subscribers filed a total of 16 lawsuits against us in connection with the N-STEP hackings, alleging
that we failed to protect their personal information, and are seeking total damages of approximately ₩15 billion. From August 2014
to October 2016, various district courts have awarded damages of ₩100,000 per plaintiff for 14 of the cases involving a total of
approximately 29,000 of the subscribers, resulting in damages of approximately ₩3 billion to us, while the remaining trials are
currently ongoing at various district courts. We have appealed the district courts decisions. In January 2017, we won one of the appeals and such appellate court decision was appealed to the Supreme Court. The other appeals are currently
ongoing at the Seoul High Court.

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. The trials are currently ongoing at various district courts. From November 2016 to February 2017, we won 14 trials, lost two trials and the remaining six trials are currently ongoing at
various district courts. The plaintiffs of 10 of the 14 cases have appealed the district courts decisions to the Seoul High 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.

In December 2013, the MSIP declared that the contracts over our sale of Koreasat 3 were null and void, on the grounds that the satellite was sold
without obtaining proper government approval. We are currently involved in an International Chamber of Commerce arbitration against ABS over the Koreasat 3 satellite ownership and contract violation claims.

In 2009, we entered into a contract with Enspert, Co., Ltd.(Enspert), a consumer electronics manufacturer, to purchase approximately
200,000 tablet PCs. Due to defects with the tablet PCs, we cancelled our contract and the outstanding order for approximately 170,000 tablet PCs, for which we would have paid approximately
₩51 billion. In June 2014, the Korea Fair Trade Commission imposed a fine of approximately ₩2 billion on us, finding that we cancelled our contract with Enspert without cause. We appealed such decision but the decision was
confirmed by the Seoul High Court and the Supreme Court in May 2016 and September 2016, respectively. Due to the absence of relevant lawsuits, it has not been determined whether the contract cancellation was in violation of other applicable laws,
including the Fair Transactions in Subcontracting Act. We plan to vigorously defend ourselves in case of lawsuits, but we may incur additional damages and losses which are difficult to predict at this time.

We are a defendant in various other court proceedings involving claims for civil damages arising in the ordinary course of our business. We are a
defendant in an ongoing court proceeding filed by the Industrial Bank of Korea on March 18, 2015. In connection with the filing of court receivership by KT ENGCORE, Industrial Bank of Korea claims that we are liable for ₩10 billion of the
₩65.8 billion asset-backed commercial papers of a renewable energy project for which KT ENGCORE was a contractor and guarantor.

As of December 31, 2016, we have established provisions relating to litigations of ₩19 billion. See Note 19 to the Consolidated Financial Statements. While we are unable to predict the ultimate



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disposition of these claims, in the opinion of our management, the ultimate disposition of these claims will not have a material adverse effect on our business, financial condition and results of
operations.

Dividends

The
table below sets out the annual dividends declared on the outstanding ordinary shares to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding ordinary shares to shareholders of
record on June 30 of the years indicated:



|     |  |                                   |       |  |                                    |  |   |                                         |  |  |       | 
|---- |  | --------------------------------- | ----- |  | ---------------------------------- |  | - | --------------------------------------- |  |  | ----- | 
|Year |  | Annual Dividend perOrdinary Share |       |  | Interim Dividend perOrdinary Share |  |   | Average TotalDividend per OrdinaryShare | 
|     |  | (In Won)                          |       |  | (In Won)                           |  |   | (In Won)                                | 
|2012 |  |                                   | 2,000 |  |                                    |  |  |                                         |  |  | 2,000 | 
|2013 |  |                                   | 800   |  |                                    |  |  |                                         |  |  | 800   | 
|2014 |  |                                   | 0     |  |                                    |  |  |                                         |  |  | 0     | 
|2015 |  |                                   | 500   |  |                                    |  |  |                                         |  |  | 500   | 
|2016 |  |                                   | 800   |  |                                    |  |  |                                         |  |  | 800   | 

If sufficient profits are available, the board of directors may propose annual dividends on the outstanding
ordinary shares, which our shareholders must approve by a resolution at the ordinary general meeting of shareholders. This meeting is generally held in March of the following year and if our shareholders at such ordinary general meeting of
shareholders approve the annual dividend, we must pay such dividend within one month following the date of such resolution. Typically, we pay such dividends shortly after the meeting. The declaration of annual dividends is subject to the vote of our
shareholders, and consequently, there can be no assurance as to the amount of dividends per ordinary share or that any such dividends will be declared. Interim dividends paid in cash can be declared by a resolution of the board of directors. See
Item 10. Additional InformationItem 10.B. Memorandum and Articles of AssociationDividends and Item 12. Description of Securities Other than Equity SecuritiesItem 12.D. American Depositary Shares.

The Commercial Code provides that shares of a company of the same class must receive equal treatment. However, major shareholders may consent to
receive dividend distributions at a lesser rate than minor shareholders. Previously, the Government consented to receiving a smaller dividend compared to other shareholders. The Government no longer holds any interest in us.

Any cash dividends relating to the shares held in the form of ADSs will be paid to the depositary bank in Won. The deposit agreement provides that,
except in certain circumstances, cash dividends received by the depositary bank will be converted by the depositary bank into Dollars and distributed to the holders of the ADRs, less withholding tax, other governmental charges and the depositary
banks fees and expenses. See Item 12. Description of Securities Other than Equity SecuritiesItem 12.D. American Depositary Shares.

Item 8.B.Significant Changes

Except as
disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.



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Item 9. The Offer and Listing

Item 9.A.Offer and Listing Details

Market Price Information

Ordinary
Shares

Our shares were listed on the KRX KOSPI Market on December 23, 1998. The price of the shares on the KRX KOSPI Market as
of the close of trading on April 25, 2017 was ₩31,450 per share. The table below shows the high and low closing prices and the average
daily volume of trading activity on the KRX KOSPI Market for the shares since January 2012:



|                                  |  |          |        |  |                             |  |        |  |  |  |           | 
|--------------------------------- |  | -------- | ------ |  | --------------------------- |  | ------ |  |  |  | --------- | 
|                                  |  | Price    |        |  | Average DailyTrading Volume | 
|                                  |  | High     |        |  | Low                         |  |       
|                                  |  | (In Won) |        |  | (Number of shares)          | 
|2012                              |  |          | 39,750 |  |                             |  | 27,700 |  |  |  | 1,067,315 | 
|2013                              |  |          | 40,850 |  |                             |  | 29,950 |  |  |  | 1,149,143 | 
|2014                              |  |          | 36,800 |  |                             |  | 28,300 |  |  |  | 1,051,396 | 
|2015                              |  |          | 32,250 |  |                             |  | 28,250 |  |  |  | 963,825   | 
|First quarter                     |  |          | 31,900 |  |                             |  | 28,500 |  |  |  | 1,032,769 | 
|Second quarter                    |  |          | 32,250 |  |                             |  | 28,400 |  |  |  | 1,082,244 | 
|Third quarter                     |  |          | 31,000 |  |                             |  | 28,400 |  |  |  | 957,396   | 
|Fourth quarter                    |  |          | 30,700 |  |                             |  | 28,250 |  |  |  | 788,055   | 
|2016                              |  |          | 33,250 |  |                             |  | 26,350 |  |  |  | 547,426   | 
|First quarter                     |  |          | 29,800 |  |                             |  | 26,350 |  |  |  | 619,422   | 
|Second quarter                    |  |          | 32,550 |  |                             |  | 29,150 |  |  |  | 654,800   | 
|Third quarter                     |  |          | 32,750 |  |                             |  | 29,850 |  |  |  | 454,623   | 
|Fourth quarter                    |  |          | 33,250 |  |                             |  | 29,400 |  |  |  | 466,237   | 
|November                          |  |          | 33,250 |  |                             |  | 29,800 |  |  |  | 615,186   | 
|December                          |  |          | 30,350 |  |                             |  | 29,400 |  |  |  | 411,936   | 
|2017 (through April 25)           |  |          | 33,250 |  |                             |  | 28,900 |  |  |  | 549,994   | 
|First quarter                     |  |          | 33,250 |  |                             |  | 28,900 |  |  |  | 567,549   | 
|January                           |  |          | 29,650 |  |                             |  | 28,900 |  |  |  | 403,823   | 
|February                          |  |          | 30,650 |  |                             |  | 29,200 |  |  |  | 537,745   | 
|March                             |  |          | 33,250 |  |                             |  | 30,750 |  |  |  | 743,486   | 
|Second quarter (through April 25) |  |          | 32,700 |  |                             |  | 31,150 |  |  |  | 485,971   | 
|April (through April 25)          |  |          | 32,700 |  |                             |  | 31,150 |  |  |  | 485,971   | 





|Source:    KRX | KOSPI Market.
|-------------- | -------------

ADSs

The outstanding ADSs, each of which represents one-half of one share of our ordinary share, have been
traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999 until September 18, 2015, the date on which the ADSs were delisted from the London Stock Exchange. The ADSs, including those previously listed on the
London Stock Exchange, continue to be tradable on the New York Stock Exchange.



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The price of the ADSs on the New York Stock Exchange as of the close of trading on April 25, 2017
was $16.08 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2012:



|                                  |  |          |       |  |                             |  |       |  |  |  |           | 
|--------------------------------- |  | -------- | ----- |  | --------------------------- |  | ----- |  |  |  | --------- | 
|                                  |  | Price    |       |  | Average DailyTrading Volume | 
|                                  |  | High     |       |  | Low                         |  |      
|                                  |  | (In US$) |       |  | (Number of ADSs)            | 
|2012                              |  |          | 18.23 |  |                             |  | 11.65 |  |  |  | 1,004,064 | 
|2013                              |  |          | 18.16 |  |                             |  | 14.33 |  |  |  | 528,291   | 
|2014                              |  |          | 17.46 |  |                             |  | 13.24 |  |  |  | 440,020   | 
|2015                              |  |          | 14.85 |  |                             |  | 11.83 |  |  |  | 336,711   | 
|First quarter                     |  |          | 14.17 |  |                             |  | 12.87 |  |  |  | 378,464   | 
|Second quarter                    |  |          | 14.85 |  |                             |  | 12.49 |  |  |  | 306,958   | 
|Third quarter                     |  |          | 13.10 |  |                             |  | 11.83 |  |  |  | 266,449   | 
|Fourth quarter                    |  |          | 14.03 |  |                             |  | 11.91 |  |  |  | 396,465   | 
|2016                              |  |          | 16.73 |  |                             |  | 11.03 |  |  |  | 608,543   | 
|First quarter                     |  |          | 13.54 |  |                             |  | 11.03 |  |  |  | 505,970   | 
|Second quarter                    |  |          | 14.71 |  |                             |  | 13.22 |  |  |  | 591,603   | 
|Third quarter                     |  |          | 16.73 |  |                             |  | 14.17 |  |  |  | 674,686   | 
|Fourth quarter                    |  |          | 16.31 |  |                             |  | 13.66 |  |  |  | 657,875   | 
|November                          |  |          | 15.99 |  |                             |  | 13.87 |  |  |  | 785,746   | 
|December                          |  |          | 14.59 |  |                             |  | 13.66 |  |  |  | 655,145   | 
|2017 (through April 25)           |  |          | 17.11 |  |                             |  | 13.84 |  |  |  | 864,768   | 
|First quarter                     |  |          | 17.10 |  |                             |  | 13.84 |  |  |  | 840,494   | 
|January                           |  |          | 14.87 |  |                             |  | 13.84 |  |  |  | 756,237   | 
|February                          |  |          | 16.00 |  |                             |  | 14.84 |  |  |  | 892,169   | 
|March                             |  |          | 17.10 |  |                             |  | 15.92 |  |  |  | 871,073   | 
|Second quarter (through April 25) |  |          | 17.11 |  |                             |  | 16.05 |  |  |  | 958,830   | 
|April (through April 25))         |  |          | 17.11 |  |                             |  | 16.05 |  |  |  | 958,830   | 





|Source:    New | York Stock Exchange.
|-------------- | --------------------

Item 9.B.Plan of Distribution

Not applicable.

Item 9.C.Markets

The KRX KOSPI Market

On January 27, 2005, the Korea Exchange was established pursuant to
the Korea Securities and Futures Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the KOSDAQ) and the KOSDAQ Committee within the Korea Securities Dealers
Association, which was in charge of the management of the KOSDAQ. There are four different markets operated 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, 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 (i) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (ii) the Small & Medium Business Corporation, (iii) the
Korea Securities Finance Corporation and (iv) the Korea Financial Investment Association. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean securities
companies and some Korean branches of foreign securities companies.



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The KRX KOSPI Market has the power in some circumstances to suspend trading in the shares of a given
company or to de-list a security. The KRX KOSPI Market also restricts share price movements. All listed companies are required to file accounting reports annually and quarterly and to release immediately all
information that may affect trading in a security.

The KRX KOSPI Market publishes the KOSPI every ten seconds, which is an index of all
equity securities listed on the KRX KOSPI Market. The KOSPI is calculated using the aggregate value method, in which 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.

Movements in
KOSPI are set out in the following table together with the associated dividend yields and price earnings ratios:



|                        |  |         |          |  |      |  |          |     |  |  |          |  |  |                              |          |  |                           |  |     |  |  |  |      | 
|----------------------- |  | ------- | -------- |  | ---- |  | -------- | --- |  |  | -------- |  |  | ---------------------------- | -------- |  | ------------------------- |  | --- |  |  |  | ---- | 
|                        |  |         |          |  |      |  |          |     |  |  |          |  |  | Period Average               |         
|Year                    |  | Opening |          |  | High |  |          | Low |  |  | Closing  |  |  | DividendYield(1)(2)(Percent) |          |  | Price
EarningsRatio(2)(3) | 
|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   |  |      |  | 928.82   |     |  |  | 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 |     |  |  | 855.37   |  |  |                              | 1,027.37 |  |                           |  | 1.2 |  |  |  | 16.2 | 
|1995                    |  |         | 1,027.45 |  |      |  | 1,016.77 |     |  |  | 847.09   |  |  |                              | 882.94   |  |                           |  | 1.2 |  |  |  | 16.4 | 
|1996                    |  |         | 882.29   |  |      |  | 986.84   |     |  |  | 651.22   |  |  |                              | 651.22   |  |                           |  | 1.3 |  |  |  | 17.8 | 
|1997                    |  |         | 647.67   |  |      |  | 792.29   |     |  |  | 350.68   |  |  |                              | 376.31   |  |                           |  | 1.5 |  |  |  | 17.0 | 
|1998                    |  |         | 374.41   |  |      |  | 579.86   |     |  |  | 280.00   |  |  |                              | 562.46   |  |                           |  | 1.9 |  |  |  | 10.8 | 
|1999                    |  |         | 565.10   |  |      |  | 1,028.07 |     |  |  | 498.42   |  |  |                              | 1,028.07 |  |                           |  | 1.1 |  |  |  | 13.5 | 
|2000                    |  |         | 1,028.33 |  |      |  | 1,059.04 |     |  |  | 500.60   |  |  |                              | 504.62   |  |                           |  | 2.1 |  |  |  | 12.9 | 
|2001                    |  |         | 503.31   |  |      |  | 704.50   |     |  |  | 468.76   |  |  |                              | 693.70   |  |                           |  | 1.7 |  |  |  | 16.4 | 
|2002                    |  |         | 698.00   |  |      |  | 937.61   |     |  |  | 584.04   |  |  |                              | 627.55   |  |                           |  | 1.6 |  |  |  | 15.2 | 
|2003                    |  |         | 633.03   |  |      |  | 822.16   |     |  |  | 515.24   |  |  |                              | 810.71   |  |                           |  | 2.0 |  |  |  | 11.8 | 
|2004                    |  |         | 821.26   |  |      |  | 936.06   |     |  |  | 719.59   |  |  |                              | 895.92   |  |                           |  | 2.0 |  |  |  | 13.8 | 
|2005                    |  |         | 896.00   |  |      |  | 1,379.37 |     |  |  | 870.84   |  |  |                              | 1,379.37 |  |                           |  | 1.8 |  |  |  | 10.6 | 
|2006                    |  |         | 1,383.32 |  |      |  | 1,464.70 |     |  |  | 1,203.86 |  |  |                              | 1,434.46 |  |                           |  | 1.6 |  |  |  | 11.1 | 
|2007                    |  |         | 1,438.89 |  |      |  | 2,064.85 |     |  |  | 1,355.79 |  |  |                              | 1,897.13 |  |                           |  | 1.4 |  |  |  | 15.8 | 
|2008                    |  |         | 1,891.45 |  |      |  | 1,888.88 |     |  |  | 938.75   |  |  |                              | 1,124.47 |  |                           |  | 2.6 |  |  |  | 8.9  | 
|2009                    |  |         | 1,132.87 |  |      |  | 1,718.88 |     |  |  | 1,018.81 |  |  |                              | 1,682.77 |  |                           |  | 1.2 |  |  |  | 22.9 | 
|2010                    |  |         | 1,696.14 |  |      |  | 2,051.00 |     |  |  | 1,552.79 |  |  |                              | 2,051.00 |  |                           |  | 1.1 |  |  |  | 18.0 | 
|2011                    |  |         | 2,078.08 |  |      |  | 2,228.96 |     |  |  | 1,652.71 |  |  |                              | 1,825.74 |  |                           |  | 1.5 |  |  |  | 10.5 | 
|2012                    |  |         | 1,826.37 |  |      |  | 2,049.28 |     |  |  | 1,769.31 |  |  |                              | 1,997.05 |  |                           |  | 1.3 |  |  |  | 12.3 | 
|2013                    |  |         | 2,031.10 |  |      |  | 2,059.58 |     |  |  | 1,780.63 |  |  |                              | 2,011.34 |  |                           |  | 1.1 |  |  |  | 12.8 | 
|2014                    |  |         | 1,967.19 |  |      |  | 2,082.61 |     |  |  | 1,886.85 |  |  |                              | 1,915.59 |  |                           |  | 1.2 |  |  |  | 13.2 | 
|2015                    |  |         | 1,926.44 |  |      |  | 2,173.41 |     |  |  | 1,829.81 |  |  |                              | 1,961.31 |  |                           |  | 1.4 |  |  |  | 14.4 | 
|2016                    |  |         | 1,918.76 |  |      |  | 2,068.72 |     |  |  | 1,835.28 |  |  |                              | 2,026.46 |  |                           |  | 1.6 |  |  |  | 13.5 | 
|2017 (through April 25) |  |         | 2,026.16 |  |      |  | 2,196.85 |     |  |  | 2,026.16 |  |  |                              | 2,196.85 |  |                           |  | 1.5 |  |  |  | 14.0 | 





|Source:    The | KRX KOSPI Market
|-------------- | ----------------



|(1) | Dividend yields are based on daily figures. Dividend yields after January 3, 1985 include cash dividends only.
|--- | --------------------------------------------------------------------------------------------------------------



|(2) | Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in
April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The price earnings ratio is based on figures for companies that record a profit in the preceding year.
|--- | ------------------------------------------------------------------------------------------------------



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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 the 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, permitted upward and downward movements in share prices of any category of shares on any day are limited under
the rules of the KRX KOSPI Market to 30% of the previous days closing price of the shares, rounded down as set out below:



|                               |  |                |       | 
|------------------------------ |  | -------------- | ----- | 
|Previous Days Closing Price   |  | RoundedDown 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.

Due to a deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities
transactions may be determined by the parties, subject to commission schedules being filed with the KRX KOSPI Market by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or
certain securities representing rights to subscribe for shares at the rate of 0.15% if such transfer is made through the KRX KOSPI Market. 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. Additional InformationItem 10.E. TaxationKorean Taxation.



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The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization
at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:



|                        |  |                                                     |     |  |                                     |  |           |                         |  |  |                    |  |  |                  |         |  |                          |  |           |  |  |  |           | 
|----------------------- |  | --------------------------------------------------- | --- |  | ----------------------------------- |  | --------- | ----------------------- |  |  | ------------------ |  |  | ---------------- | ------- |  | ------------------------ |  | --------- |  |  |  | --------- | 
|                        |  | Market Capitalizationon the Last Day of Each Period |     |  | Average Daily Trading Volume, Value | 
|Year                    |  | Number ofListedCompanies                            |     |  | (Billionsof Won)                    |  |           | (Millions ofDollars)(1) |  |  | Thousandsof Shares |  |  | (Millions ofWon) |         |  | (Thousandsof Dollars)(1) | 
|1985                    |  |                                                     | 342 |  |                                     |  | 6,570     |                         |  |  | 7,381              |  |  |                  | 18,925  |  |                          |  | 12,315    |  |  |  | 13,834    | 
|1986                    |  |                                                     | 355 |  |                                     |  | 11,994    |                         |  |  | 13,924             |  |  |                  | 31,755  |  |                          |  | 32,870    |  |  |  | 38,159    | 
|1987                    |  |                                                     | 389 |  |                                     |  | 26,172    |                         |  |  | 33,033             |  |  |                  | 20,353  |  |                          |  | 70,185    |  |  |  | 88,583    | 
|1988                    |  |                                                     | 502 |  |                                     |  | 64,544    |                         |  |  | 94,348             |  |  |                  | 10,367  |  |                          |  | 198,364   |  |  |  | 289,963   | 
|1989                    |  |                                                     | 626 |  |                                     |  | 95,477    |                         |  |  | 140,490            |  |  |                  | 11,757  |  |                          |  | 280,967   |  |  |  | 414,430   | 
|1990                    |  |                                                     | 669 |  |                                     |  | 79,020    |                         |  |  | 110,301            |  |  |                  | 10,866  |  |                          |  | 183,692   |  |  |  | 256,411   | 
|1991                    |  |                                                     | 686 |  |                                     |  | 73,118    |                         |  |  | 96,107             |  |  |                  | 14,022  |  |                          |  | 214,263   |  |  |  | 281,629   | 
|1992                    |  |                                                     | 688 |  |                                     |  | 84,712    |                         |  |  | 107,448            |  |  |                  | 24,028  |  |                          |  | 308,246   |  |  |  | 390,977   | 
|1993                    |  |                                                     | 693 |  |                                     |  | 112,665   |                         |  |  | 139,420            |  |  |                  | 35,130  |  |                          |  | 574,048   |  |  |  | 710,367   | 
|1994                    |  |                                                     | 699 |  |                                     |  | 151,217   |                         |  |  | 191,730            |  |  |                  | 36,862  |  |                          |  | 776,257   |  |  |  | 984,223   | 
|1995                    |  |                                                     | 721 |  |                                     |  | 141,151   |                         |  |  | 182,201            |  |  |                  | 26,130  |  |                          |  | 487,762   |  |  |  | 629,613   | 
|1996                    |  |                                                     | 760 |  |                                     |  | 117,370   |                         |  |  | 139,031            |  |  |                  | 26,571  |  |                          |  | 486,834   |  |  |  | 575,680   | 
|1997                    |  |                                                     | 776 |  |                                     |  | 70,989    |                         |  |  | 50,162             |  |  |                  | 41,525  |  |                          |  | 555,759   |  |  |  | 392,707   | 
|1998                    |  |                                                     | 748 |  |                                     |  | 137,799   |                         |  |  | 114,091            |  |  |                  | 97,716  |  |                          |  | 660,429   |  |  |  | 546,803   | 
|1999                    |  |                                                     | 725 |  |                                     |  | 349,504   |                         |  |  | 305,137            |  |  |                  | 278,551 |  |                          |  | 3,481,620 |  |  |  | 3,039,655 | 
|2000                    |  |                                                     | 704 |  |                                     |  | 188,042   |                         |  |  | 149,275            |  |  |                  | 306,163 |  |                          |  | 2,602,211 |  |  |  | 2,065,739 | 
|2001                    |  |                                                     | 689 |  |                                     |  | 253,843   |                         |  |  | 191,421            |  |  |                  | 473,241 |  |                          |  | 1,997,420 |  |  |  | 1,506,237 | 
|2002                    |  |                                                     | 683 |  |                                     |  | 258,681   |                         |  |  | 215,496            |  |  |                  | 857,245 |  |                          |  | 3,041,598 |  |  |  | 2,533,815 | 
|2003                    |  |                                                     | 684 |  |                                     |  | 355,363   |                         |  |  | 296,679            |  |  |                  | 542,010 |  |                          |  | 2,216,636 |  |  |  | 1,850,589 | 
|2004                    |  |                                                     | 683 |  |                                     |  | 412,588   |                         |  |  | 395,275            |  |  |                  | 372,895 |  |                          |  | 2,232,109 |  |  |  | 2,138,445 | 
|2005                    |  |                                                     | 702 |  |                                     |  | 655,075   |                         |  |  | 646,668            |  |  |                  | 467,629 |  |                          |  | 3,157,662 |  |  |  | 3,117,139 | 
|2006                    |  |                                                     | 731 |  |                                     |  | 704,588   |                         |  |  | 757,948            |  |  |                  | 279,096 |  |                          |  | 3,435,180 |  |  |  | 3,695,332 | 
|2007                    |  |                                                     | 746 |  |                                     |  | 951,887   |                         |  |  | 1,014,589          |  |  |                  | 363,732 |  |                          |  | 5,539,588 |  |  |  | 5,904,485 | 
|2008                    |  |                                                     | 765 |  |                                     |  | 576,888   |                         |  |  | 458,757            |  |  |                  | 355,205 |  |                          |  | 5,189,644 |  |  |  | 4,126,953 | 
|2009                    |  |                                                     | 770 |  |                                     |  | 887,316   |                         |  |  | 759,949            |  |  |                  | 483,902 |  |                          |  | 5,783,552 |  |  |  | 4,953,367 | 
|2010                    |  |                                                     | 777 |  |                                     |  | 1,141,885 |                         |  |  | 1,002,621          |  |  |                  | 380,859 |  |                          |  | 5,619,768 |  |  |  | 4,934,382 | 
|2011                    |  |                                                     | 791 |  |                                     |  | 1,041,999 |                         |  |  | 903,493            |  |  |                  | 353,760 |  |                          |  | 6,863,146 |  |  |  | 5,950,877 | 
|2012                    |  |                                                     | 784 |  |                                     |  | 1,154,294 |                         |  |  | 1,077,672          |  |  |                  | 486,480 |  |                          |  | 4,823,643 |  |  |  | 4,503,448 | 
|2013                    |  |                                                     | 777 |  |                                     |  | 1,185,974 |                         |  |  | 1,123,826          |  |  |                  | 328,325 |  |                          |  | 3,993,422 |  |  |  | 3,784,158 | 
|2014                    |  |                                                     | 773 |  |                                     |  | 1,192,253 |                         |  |  | 1,084,655          |  |  |                  | 278,082 |  |                          |  | 3,983,580 |  |  |  | 3,624,072 | 
|2015                    |  |                                                     | 770 |  |                                     |  | 1,242,832 |                         |  |  | 1,060,437          |  |  |                  | 455,256 |  |                          |  | 5,351,734 |  |  |  | 4,566,326 | 
|2016                    |  |                                                     | 779 |  |                                     |  | 1,308,440 |                         |  |  | 1,082,698          |  |  |                  | 376,772 |  |                          |  | 4,523,044 |  |  |  | 3,742,693 | 
|2017 (through April 25) |  |                                                     | 770 |  |                                     |  | 1,308,042 |                         |  |  | 1,155,820          |  |  |                  | 393,676 |  |                          |  | 4,513,310 |  |  |  | 3,988,080 | 





|Source: | The KRX KOSPI Market
|------- | --------------------



|(1) | Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by Seoul Money Brokerage Services Limited, as the case may be, at
the end of the periods indicated.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Korean securities markets are principally regulated by the Financial Services
Commission of Korea and the Financial Investment Services and Capital Markets Act. The Securities and Exchange Act which regulated the securities markets in the past was replaced with the Financial Investment Services and Capital Markets Act on
February 4, 2009. The new law, as did the Securities and Exchange Act, imposes restrictions on insider trading and price manipulation, requires 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.



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Further Opening of the Korean Securities Market

A 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
KRX KOSPI Market. 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.

Foreign investors are permitted to invest in warrants representing the right to subscribe for shares of a company listed
on the KRX KOSPI Market or registered on the KRX KOSDAQ Market, 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.

Foreign investors are 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 Financial Services Commission sets forth procedural requirements for such
investments. Foreigners are permitted to invest in certificates of deposit and repurchase agreements.

Currently, foreigners are
permitted to invest in securities including shares of all Korean companies which are not listed on the KRX KOSPI Market nor registered on the KRX KOSDAQ Market and in bonds which are not listed.

Protection of Customers Interest in Case of Insolvency of Securities Companies

Under Korean law, the relationship between a customer and a securities company 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 securities company) 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 reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company.

When a customer places a sell order with a securities company which is not a member of the KRX KOSPI Market and this securities company places a
sell order with another securities company which is a member of the KRX KOSPI Market, 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 reorganization of the non-member company.

Under the
Financial Investment Services and Capital Markets Act, the KRX KOSPI Market is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the KRX KOSPI
Market breaches its obligation in connection with a buy order, the KRX KOSPI Market is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by
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.



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As the cash deposited with a securities company is regarded as belonging to the securities company,
which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities 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
₩50 million in case of the securities companys bankruptcy, liquidation, cancellation of securities business license or other
insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, securities companies are required to deposit the cash received from its customers to the extent the amount not covered by the insurance with the Korea
Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act.

Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.

Item 9.D.Selling Shareholders

Not applicable.

Item 9.E.Dilution

Not applicable.

Item 9.F.Expenses of the Issuer

Not applicable.

Item 10. Additional Information

Item 10.A.Share Capital

Currently, our
authorized share capital is 1,000,000,000 shares, which consists of ordinary shares, par value ₩5,000 per share (Ordinary
Shares) and shares of non-voting preferred stock, par value ₩5,000 per share (Non-Voting Shares). Ordinary Shares and Non-Voting Shares together are referred to as Shares. Under our articles of incorporation, we are authorized
to issue Non-Voting Shares up to one-fourth of our total issued share capital. As of December 31, 2016, 261,111,808 Ordinary Shares were issued, of which 16,140,165
shares were held by the treasury stock fund or us as treasury shares. We have never issued any Non-Voting Shares. All of the issued Ordinary 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.

Item 10.B.Memorandum and Articles of Association

This section provides information relating to our share capital, including brief summaries of material provisions of our articles of incorporation,
the Financial Investment Services and Capital Markets Act, the Commercial Code 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 Financial Investment Services and Capital Markets Act and the Commercial Code. We have filed a copy of our articles of incorporation as an exhibit to registration statements under the Securities Act
or the Securities Exchange Act previously filed by us.



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Dividends

We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. No dividends are distributed with respect to shares held by us or our treasury stock fund. The Ordinary
Shares represented by the ADSs have the same dividend rights as other outstanding Ordinary Shares.

Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Ordinary Shares in an amount of not less than 9% of the par value of the Non-Voting Shares as
determined by the board of directors at the time of their issuance, provided that if the dividends on the Ordinary Shares exceed those on the Non-Voting Shares, the
Non-Voting Shares will also participate in the distribution of such excess dividend amount in the same proportion as the Ordinary Shares. If the amount available for dividends is less than the aggregate amount
of such minimum dividend, the holders of Non-Voting Shares will be entitled to receive such accumulated unpaid dividend in priority to the holders of Ordinary Shares from the dividends payable in respect of
the next fiscal year.

We declare dividends annually at the annual general meeting of shareholders which is 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 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. If the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend. We may pay interim
dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual
dividend unclaimed for five years from the payment date.

Under the Commercial Code, we may pay our dividend only out of the excess of
our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and earned surplus reserve (the Legal Reserve)
accumulated up to the end of the relevant dividend period. In addition, we may not pay any dividend unless we have set aside as earned surplus reserve an amount equal to at least 10% of the cash portion of the dividend or unless we have accumulated
an earned surplus reserve of not less than one-half of our stated capital. We may not use the Legal Reserve to pay cash dividends but may transfer amounts from the Legal Reserve to share capital or use the
Legal Reserve to reduce an accumulated deficit.

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 the 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 issue authorized but unissued
shares at times and, unless otherwise provided in the Commercial Code, on terms our board of directors may determine. Subject to the limitation described in Limitation on Shareholdings below, all our shareholders are generally entitled
to subscribe for 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 register as of the relevant
record date. Under the Commercial Code, we may vary, without shareholders approval, the terms of these preemptive rights for different classes of shares. We must give notice to all persons who are entitled to exercise preemptive rights
regarding new Shares and



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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 Commercial Code, it is required that the new Shares, convertible bonds or bonds with
warrants be issued to persons other than the existing shareholders solely for the purpose of achieving managerial objectives. Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing
shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:



| |  |  | publicly offered pursuant to Articles 4 and 119 of the Financial Investment Services and Capital Markets Act;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | issued to members of our employee stock ownership association;
| | - |  | --------------------------------------------------------------



| |  |  | represented by depositary receipts;
| | - |  | -----------------------------------



| |  |  | issued upon exercise of stock options granted to our officers and employees;
| | - |  | ----------------------------------------------------------------------------



| |  |  | issued through an offering to public investors pursuant to Article 165-6 of the Financial Investment Services and Capital
Markets Act, the amount of which is no more than 10% of the issued Shares;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | issued in order to satisfy specific needs such as strategic alliance, inducement of foreign funds or new technology, improvement of financial structure or other
capital raising requirement; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases.
| | - |  | ---------------------------------------------------------------------------------------------------------

In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of ₩2,000 billion, to persons other than existing shareholders in the situations described above.

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 Financial Investment Services and Capital Markets Act. 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 then exceed 20.0% of the total number of Shares then issued (including in such total both: (i) all issued and outstanding Shares at the time the preemptive rights are exercised; and (ii) all Shares to be
newly issued in the applicable share issuance transaction in connection with which such preemptive rights are exercised). As of December 31, 2016, 0.53% of the issued Shares were held by members of our employee stock ownership association.

Limitation on Shareholdings

The Telecommunications Business Act permits maximum aggregate foreign shareholding in us to be 49.0% of our total issued and outstanding Shares
with voting rights (including equivalent securities with voting rights, e.g., depositary certificates and certain other equity interests). For the purposes of the foregoing, a shareholder is a foreign shareholder if such shareholder is:
(1) a foreign person; (2) a foreign government; or (3) a company whose largest shareholder is a foreign person (including any specially related persons as determined under the Financial Investment Services and Capital
Markets Act) or a foreign government, in circumstances where (i) such foreign person or foreign government holds, in aggregate, 15.0% or more of such companys total voting shares, and (ii) such company holds at least 1.0% of our
total issued and outstanding Shares with voting rights. For



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the avoidance of doubt, both of conditions (i) and (ii) in the foregoing item (3) must exist for such a company to be counted as a foreign shareholder for the purposes
of calculating whether the 49.0% foreign shareholding threshold is reached under the Telecommunications Business Act. In addition, the Telecommunications Business Act prohibits a foreign shareholder from being our largest shareholder if such
shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction, any two or more foreign persons or foreign governments who enter into an agreement to act in concert in the exercise of their voting rights will be
counted together and prohibited from becoming our largest shareholder in the event that they collectively hold 5.0% or more of our Shares. For the purposes of this restriction under the Foreign Investment Promotion Act, a foreign
shareholder is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Act, provided, however, that no exception is made under the Foreign Investment Promotion
Act regulations for companies that own less than 1.0% of our Shares (see item (3)(ii) above in this paragraph). A foreigner who has acquired the Shares in excess of such ceiling described above may not exercise its voting rights for shares in
excess of such limitation, and the MSIP may require corrective measures to comply with the ownership restrictions.

General Meeting of Shareholders

We 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 shareholders of an aggregate of 3.0% or more of our issued Ordinary Shares;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | at the request of shareholders holding an aggregate of 1.5% or more of our issued Shares for at least six months; or
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | at the request of our audit committee.
| | - |  | --------------------------------------

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 Ordinary 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 Seoul Shinmun, Maeil Business
Newspaper and The Korea Economic Daily published in Seoul for this purpose. Shareholders not on the shareholders register 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 Shares are not entitled to receive notice of general meetings of shareholders, but may attend such meetings.

Our general meetings of shareholders are held at our office in Seoul, or if necessary, may be held elsewhere.

Voting Rights

Holders of our Ordinary
Shares are entitled to one vote for each Ordinary Share, except that voting rights of Ordinary Shares held by us, or by a corporate shareholder that is more than 10.0% owned by us either directly or indirectly, may not be exercised. The Commercial
Code permits cumulative voting, under which voting method each shareholder has multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting



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rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders meeting. Under the Commercial Code of Korea, any shareholder holding
shares equivalent to not less than 1/100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting.

Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the 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, where the affirmative votes also represent at least one-third of our total voting shares then outstanding:



| |  |  | amending our articles of incorporation;
| | - |  | ---------------------------------------



| |  |  | removing a director;
| | - |  | --------------------



| |  |  | reduction of our share capital;
| | - |  | -------------------------------



| |  |  | 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 our acquisition of a part of the business of any other company which will significantly
affect our business; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | issuing any new Shares at a price lower than their par value.
| | - |  | -------------------------------------------------------------

In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of
amendments to our articles of incorporation, any merger or consolidation of us, or in some other cases that affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the Non-Voting Shares
present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total outstanding Non-Voting Shares.

Shareholders may exercise their voting rights by proxy. The proxy must present a
document evidencing an appropriate power of attorney prior to the start of the general meeting of shareholders. Additionally, shareholders may exercise their voting rights in absentia by submission of signed
write-in voting forms. To make it possible for our shareholders to proceed with voting on a write-in basis, we are required to attach the appropriate write-in voting form and related informational material to the notices distributed to shareholders for convening the relevant general meeting of shareholders. Any of our shareholders who desire to vote on such write-in basis must submit their completed and signed write-in voting forms to us no later than one day prior to the date that the relevant general meeting of shareholders is
convened.

Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the
underlying Ordinary Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Ordinary Shares underlying their ADSs. See Item 12. Description of Securities Other than
Equity SecuritiesItem 12.D. American Depositary Shares.



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Appraisal Rights of Dissenting Shareholders

In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with
another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. 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 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 board 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 board resolution. However, if we or any of the dissenting shareholders do not accept the purchase price calculated using the above method, the rejecting party may
request the court to determine the purchase price. Holders of ADSs will not be able to exercise appraisal rights unless they have withdrawn the underlying ordinary shares and become our direct shareholders.

Register of Shareholders and Record Dates

Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the
register of shareholders on 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 register of shareholders may be closed for the period from the day after the record date to January 31 of the 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 Reports

At least one week before the annual general meeting of shareholders, we must make our annual report and audited 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 consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be
available to our shareholders.

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial
Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of
each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.

Transfer of Shares

Under the Commercial
Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders rights against us, the transferee must have his name and address



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registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A
non-Korean shareholder may file a specimen signature in place of a seal, unless he 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 authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs.

Under current Korean regulations, Korean securities companies and banks, including licensed branches of
non-Korean securities companies and banks, investment management companies, futures trading companies, internationally recognized foreign custodians and the Korea Securities Depository 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-Koreans. See Item 10. Additional InformationItem 10.D. Exchange Controls.

Our transfer agent is Kookmin Bank, located at 24, Gukjegeumyung-ro,
Yeongdeungpo-gu, Seoul, Korea.

Acquisition of Shares by Us

Under the Commercial Code, we may acquire our own Shares by (i) purchasing on the KRX KOSPI Market, or (ii) purchasing from shareholders
on a pro rata basis in accordance with the number of shares held by each shareholder. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year.
Moreover, we must acquire our own Shares from dissenting shareholders who exercise their appraisal rights.

Under the Financial
Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) purchasing from shareholders on a pro rata basis in accordance with the number of shares held by each shareholder, or
(iii) receiving Shares returned to us upon the cancellation or termination of a trust agreement with a trustee who acquired the Shares by either of the methods indicated above. The aggregate purchase price for the Shares may not exceed the
total amount available for distribution of dividends at the end of the preceding fiscal year.

In general, corporate entities in which
we own a 50.0% or more equity interest may not acquire our Shares.

As of December 31, 2016, there were 16,140,165 treasury shares
including shares held by our treasury stock fund.

Liquidation Rights

In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares have no preference in liquidation.

Item 10.C.Material Contracts

We have not entered into any material contracts since January 1, 2012, other than in
the ordinary course of our business. For information regarding our agreements and transactions with certain related parties, see Item 7. Major Shareholders and Related Party TransactionsItem 7.B. Related Party Transactions and Note
36 to the Consolidated Financial Statements. For a description of certain agreements entered into during the past two years related to our capital commitments and obligations, see Item 5. Operating and Financial Review and ProspectsItem
5.B. Liquidity and Capital Resources.



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Item 10.D.Exchange Controls

General

The
Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the Foreign Exchange Transaction Laws) regulate investment in Korean securities by
non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities
only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the
Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the
outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are
applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in
movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any
person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.

Government Review of
Issuance of ADSs

In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with
the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No
further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.

Under current Korean laws and
regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the
consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the
depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to
deposit those shares and obtain ADRs.

Reporting Requirements for Holders of Substantial Interests

Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe
for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the 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 issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within



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five business days after reaching the 5.0% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total issued
Equity Securities is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change. The required information to be included in the 5.0% report may be different if the
acquisition of such shareholding interest is for the purpose of exercising influence over the management, as opposed to an acquisition for investment purposes. Any person reporting the holding of 5.0% or more of the total issued Equity Securities
and any person reporting the change in the ownership interest which equals or exceeds 1.0% of the total issued Equity Securities pursuant to the requirements described above must also deliver a copy of such reports to us.

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 unreported ownership of Equity Securities exceeding 5.0%. Furthermore, the Financial Services Commission may issue an order to dispose of non-reported Equity Securities.

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 inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration certificate from the Financial Supervisory Service
as described below. In general, the acquisition of the shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service; provided, however, that in cases where a
foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities
Depository.

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.

Restrictions
Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission
regulations adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, 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:



| |  |  | odd-lot trading of shares;
| | - |  | --------------------------



| |  |  | acquisition of shares (Converted Shares) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary
receipts issued outside of Korea by a Korean company;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | shares acquired by foreign direct investment as defined in the Foreign Investment Promotion Act;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | disposal of shares in connection with a tender offer;
| | - |  | -----------------------------------------------------



| |  |  | acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ
Market and such overseas stock exchange;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquisition and disposal of shares through alternative trading systems (ATS);
| | - |  | -----------------------------------------------------------------------------



| |  |  | arms length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

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, an investment broker licensed 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 licensed investment trader in Korea as the other party. Foreign investors are prohibited from
engaging in margin transactions through borrowing shares from a securities company with respect to shares which are subject to a foreign ownership limit.

The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory
Service 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 a foreign direct
investment as defined in the Foreign Investment Promotion Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens
a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments,
foreign municipal authorities, foreign public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean
offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment
registration certificates 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



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certificate system is designed to control and oversee foreign investment through a computer system. However, a foreign investors acquisition or sale of shares outside the KRX KOSPI Market
or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that in cases where a
foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities
Depository; and further provided that a foreign investor must ensure that any acquisition or sale by it 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 of the Financial Supervisory Service by the
investment trader, the investment broker, the Korea Securities Depository or the financial securities company engaged to facilitate such transaction. A foreign investor may appoint one or more standing proxies from among the Korea Securities
Depository, foreign exchange banks, including domestic branches of foreign banks, investment traders, investment brokers, the Korea Securities Depository, financial securities companies and internationally recognized custodians that satisfy all
relevant requirements under the Financial Investment Services and Capital Markets Act.

Certificates evidencing shares of Korean
companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks including domestic branches of foreign banks, investment traders, investment brokers, collective investment business
entities and internationally recognized custodians satisfying the relevant requirements under the Financial Investment Services and Capital Markets Act are eligible to act as a custodian of shares for a
non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its 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 of the Financial Supervisory Service 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 corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate and a ceiling on the acquisition of
shares by a single foreign investor pursuant to the articles of incorporation of such corporation. 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 issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Act, which is, in general, subject to the report to, and acceptance,
by the Ministry of Trade Industry & Energy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each
specific law which regulates the business of the Korean company. A foreigner who has acquired our ordinary shares in excess of this ceiling may not exercise his voting rights with respect to our ordinary shares exceeding the limit.

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he
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 an investment broker or an investment trader. Funds in the foreign
currency account may be remitted abroad without any governmental approval.



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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 shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of
Korea must be deposited either in a Won account with the investors investment broker or investment trader or his Won Account. Funds in the investors Won Account may be transferred to his foreign currency account or withdrawn for local
living expenses up to certain limitations. Funds in the 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.

Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating
foreign investors stock investments in Korea. Through these accounts, these investment brokers and investment traders 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.E.Taxation

The following
summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may
come into effect after such date. Investors in the ordinary shares or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities,
including the effect of any national, state or local tax laws.

Korean Taxation

The following summary of Korean tax considerations applies to you as long as you are not:



| |  |  | a resident of Korea;
| | - |  | --------------------



| |  |  | a corporation organized under Korean law; or
| | - |  | --------------------------------------------



| |  |  | engaged in a trade or business in Korea through a permanent establishment or a fixed base.
| | - |  | ------------------------------------------------------------------------------------------

Shares or ADSs

Dividends on Ordinary Shares or ADSs

Unless an applicable tax treaty provides otherwise, we will deduct Korean withholding tax from dividends paid to you either in cash or shares at a rate of 22.0% (including local income tax). If you are a resident
of a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax under such a treaty. For example, if you are a qualified resident of the United States for purposes of the US-Korea Tax Treaty (the Treaty) and you are the beneficial owner of a dividend, a reduced withholding tax rate of 16.5% (including local income tax) generally will apply. You will not be entitled to
claim treaty benefits if you are not the beneficial owner of a dividend.

In order to obtain the benefits of a reduced withholding tax
rate under a tax treaty, you must submit to us, prior to the dividend payment date, an application for entitlement to a reduced tax rate. If you hold ADSs and receive the dividends through a depositary, you are not required to submit the application
for entitlement to a reduced tax rate. If you are an overseas investment vehicle (an OIV),



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which is defined as an organization established in a non-Korean jurisdiction that manages funds collected through investment solicitation by way of
acquiring, disposing, or otherwise investing in any such assets and distributes the yield therefrom to investors), you must submit to us a report of the OIV and a schedule of beneficial owners together with their applications for entitlement to a
reduced tax rate, which you should collect from each beneficial owner. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have tax withheld at a lower rate.

If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be a deemed dividend subject to Korean tax.

Capital Gains

Capital gains from a sale of ordinary shares will generally be exempt from Korean taxation if you have owned, together with certain
related parties, less than 25.0% of our total issued shares during the year of sale and the five calendar years before the year of sale, and the sale is made through the KRX KOSPI Market, and you have no permanent establishment in Korea. Capital
gains earned by a non-Korean holder from a sale of ADSs outside of Korea are exempt from Korean taxation by virtue of the Special Tax Treatment Control Law of Korea (the STTCL), provided that the
issuance of the ADSs is deemed to be an overseas issuance under the STTCL.

If you are subject to Korean taxation on capital gains from
a sale of ADSs, or ordinary shares that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the ordinary shares, although there are no specific Korean tax provisions or rulings
on this issue. In the absence of the application of a tax treaty that exempts tax on capital gains, the amount of Korean tax imposed on such capital gains will be the lesser of 11.0% (including local income tax) of the gross realization proceeds or,
subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 22.0% (including local income tax) of the net capital gain.

If you are subject to Korean taxation on capital gains from a sale of ADSs, or ordinary shares that you acquire as a result of a withdrawal, and you sell your ordinary shares or ADSs, the purchaser or, in the case
of a sale of ordinary shares on the KRX KOSPI Market or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% (including local income tax)
of the gross realization proceeds and to make payment thereof to the Korean tax authorities, unless you establish your entitlement to an exemption from taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost
and the transaction costs for the ordinary shares or ADSs. In order to obtain the benefit of an exemption from tax pursuant to a tax treaty, you must submit to the purchaser or the securities company (or through the depositary), as the case may be,
prior to the first payment, an exemption application, together with a certificate of your tax residence issued by a competent authority of your residence country. If you are an OIV, you must submit to us a report of the OIV and a schedule of
beneficial owners together with their applications for exception, which you should collect from each beneficial owner. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently
produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate.

Most tax treaties that Korea has entered
into provide exemptions for capital gains tax for capital gains from sale of ordinary shares. However, Koreas tax treaties with Japan, Austria, Spain and a few other countries do not provide an exemption from such capital gains tax. For
example, Article 13 of Koreas tax treaty with Japan provides that if a taxpayer holding 25% or more (including



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those shares held by any related party of the taxpayer) of total issued shares of a company in a taxable year sells 5% or more (including those sold by any related party of the taxpayer) of total
issued shares of the same company in the same taxable year, the country where the company is a resident may impose tax on such taxpayer.

Inheritance Tax and Gift Tax

Korean inheritance tax is imposed upon (a) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea
or had resided in Korea for a continuous period of one year or more immediately prior to his death and (b) 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. Taxes are currently imposed at the rate of 10% to 50% 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 Law, shares issued by a Korean corporation are deemed located in Korea irrespective of where they are
physically located or by whom they are owned. It remains unclear whether, for Korean inheritance and gift tax purposes, a non-resident holder of ADSs will be treated as the owner of the shares underlying the
ADSs. If such non-resident is treated as the owner of the shares, the heir or donee of such non-resident (or in certain circumstances, the
non-resident as the donor) will be subject to Korean inheritance or gift tax at the same rate as described above.

Securities Transaction Tax

If you transfer ordinary shares on the KRX KOSPI Market, you will
be subject to the securities transaction tax at a rate of 0.15% and an agriculture and fishery special tax at a rate of 0.15%, calculated based on the sales price of the shares. If you transfer ordinary shares and your transfer is not made on the
KRX KOSPI Market you will generally be subject to the securities transaction tax at a rate of 0.5% and will generally not be subject to the agriculture and fishery special tax.

With respect to transfers of ADSs, a tax ruling issued in 2004 by the Korean tax authority appears to hold that depositary receipts (such as the
ADSs) constitute share certificates subject to the securities transaction tax. In May 2007, the Seoul Administrative Court held that depositary receipts do not constitute share certificates subject to the securities transaction tax. In 2008, the
Seoul Administrative Courts holding was upheld by the Seoul High Court and was further upheld by the Supreme Court. Subsequent to this series of rulings, however, the Securities Transaction Tax Law was amended to expressly provide that
depositary receipts constituted a form of share certificates subject to the securities transaction tax. However, the sale price of ADSs from a transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other
qualified foreign exchanges are exempt from the securities transaction tax.

United States Federal Income Taxation

The following discussion describes the materialUnited States federal income tax consequences of the ownership of our ADSs and ordinary
shares as of the date hereof. This discussion deals only with ADSs and ordinary shares that are held as capital assets by a United States Holder (as defined below). In addition, the discussion set forth below is applicable only to United States
Holders (i) who are residents of the United States for purposes of the current Treaty, (ii) whose ADSs or ordinary shares are not, for purposes of the Treaty, effectively connected with a permanent establishment in Korea and (iii) who
otherwise qualify for the full benefits of the Treaty.



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As used herein, the term United States Holder means a beneficial owner of our ADSs or
ordinary shares that is, for United States federal income tax purposes, any of the following:



| |  |  | an individual citizen or resident of the United States;
| | - |  | -------------------------------------------------------



| |  |  | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United
States, any state thereof or the District of Columbia;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an estate the income of which is subject to United States federal income taxation regardless of its source; or
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to
control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (the Code), and regulations, rulings and
judicial decisions thereunder as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in United States federal income tax consequences different from those summarized below. In addition, this discussion is
based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject
to special treatment under the United States federal income tax laws, including if you are:



| |  |  | a dealer in securities or currencies;
| | - |  | -------------------------------------



| |  |  | a financial institution;
| | - |  | ------------------------



| |  |  | a regulated investment company;
| | - |  | -------------------------------



| |  |  | a real estate investment trust;
| | - |  | -------------------------------



| |  |  | an insurance company;
| | - |  | ---------------------



| |  |  | a tax-exempt organization;
| | - |  | --------------------------



| |  |  | a person holding our ADSs or ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a trader in securities that has elected the mark-to-market method of accounting
for your securities;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | a person liable for alternative minimum tax;
| | - |  | --------------------------------------------



| |  |  | a person who owns or is deemed to own 10% or more of our voting stock;
| | - |  | ----------------------------------------------------------------------



| |  |  | a partnership or other pass-through entity for United States federal income tax purposes; or
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | a person whose functional currency is not the United States dollar.
| | - |  | ---------------------------------------------------------------------



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If a partnership (or other entity treated as a partnership for United States federal income tax
purposes) holds our ADSs or ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ADSs or ordinary shares, you
should consult your tax advisors.

This discussion does not contain a detailed description of all the United States federal income tax
consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you are
considering the purchase of our ADSs or ordinary shares, you should consult your own tax advisors concerning the particular United States federal income tax consequences to you of the purchase, ownership and disposition of our ADSs or ordinary
shares, as well as the consequences to you arising under other United States federal tax laws and the laws of any other taxing jurisdiction.

ADSs

If you hold ADSs, for United States federal income tax
purposes, you generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs.Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax.

Taxation of Dividends

The gross amount of distributions on the ADSs or ordinary shares
(including any amounts withheld to reflect Koreanwithholding taxes) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. To
the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a
reduction in the tax basis of the ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not, however, expect to determine
earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend.

Any dividends that you receive (including any withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of ordinary shares, or by
the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. With respect to non-corporate United States investors,
certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with
the United States which the United States Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The United States Treasury Department has determined that the current income tax
treaty between the United States and Korea meets these requirements, and we believe we are eligible for the benefits of that treaty. However, non-corporate holders that do not meet a minimum holding period
requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as investment income pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation. In
addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum
holding period has been met. You should consult your own tax advisors regarding the application of these rules to your particular circumstances.



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Non-corporate United States Holders will not be eligible for
reduced rates of taxation on any dividends received from us if we are a passive foreign investment company in the taxable year in which such dividends are paid or in the preceding taxable year (see Passive Foreign Investment
Company below).

The amount of any dividend paid in Won will equal the United States dollar value of the Won received calculated
by reference to the exchange rate in effect on the date the dividend is received by you, in the case of ordinary shares, or by the depositary, in the case of ADSs, regardless of whether the Wonare converted into United States dollars. If the
Won received as a dividend are converted into United States dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the Wonreceived as a
dividend are not converted into United States dollars on the date of receipt, you will have a basis in the Wonequal to their United States dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other
disposition of the Wonwill be treated as United States source ordinary income or loss.

Subject to certain conditions and
limitations (including a minimum holding period requirement), Koreanwithholding taxes on dividends may be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the
foreign tax credit, dividends paid on the ADSs or ordinary shares will be treated as income from sources outside the United States and will generally constitute passive category income. The rules governing the foreign tax credit are complex. You are
urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

Passive Foreign Investment Company

We do not believe that we were, for United States federal income tax purposes, a passive foreign investment company (a PFIC) for the most recent taxable year, and we expect to operate in such a manner
so as not to become a PFIC. If, however, we are or become a PFIC, you could be subject to additional United States federal income taxes on gain recognized with respect to the ADSs or ordinary shares and on certain distributions, plus an interest
charge on certain taxes treated as having been deferred under the PFIC rules.

Taxation of Capital Gains

For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of the ADSs or
ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary shares and your tax basis in the ADSs or ordinary shares.Such gain or loss will generally be capital gain or loss and will generally be long-term capital gain or loss if you have held the
ADSs or ordinary shares for more than one year. Long-term capital gains of non-corporate United States Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital
losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss.

You should note that any Koreansecurities transaction tax will not be treated as a creditable foreign tax for United States federal income tax purposes, although you may be entitled to deduct such taxes,
subject to applicable limitations under the Code.



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Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale, exchange or
other disposition of our ADSs or ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to
provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit
against your United States federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

Item 10.F.Dividends and Paying Agents

See Item 8. Financial InformationItem 8.A. Consolidated Statements and Other Financial InformationDividends for information concerning our dividend policies and our payment of dividends. See
Item 10.B. Memorandum and Articles of AssociationDividends for a discussion of the process by which dividends are paid on our ordinary shares. See Item 12. Description of Securities Other than Equity
SecuritiesItem 12.D. American Depositary Shares for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A.

Item 10.G.Statements by Experts

Not applicable.

Item 10.H.Documents on Display

We are subject to the information requirements of the U.S.
Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange
Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commissions public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission
at 1-800-SEC-0330 for further information on the public reference rooms. We are required to make filings with the Commission by
electronic means, which will be available to the public over the Internet at the Commissions web site at http://www.sec.gov.

Item 10.I.Subsidiary Information

Not applicable.

Item 11.    Quantitative and Qualitative Disclosures About Market Risk

We are exposed to foreign exchange rate and interest rate risks primarily associated with underlying liabilities, and to equity price risk as a
result of our investment in equity securities. Our long-term financial policies are annually reported to our Board of Directors, and our Finance division conducts financial risk management and assessment. Upon identification and evaluation of our
risk exposures, we, having considered various circumstances, enter into derivative financial instruments to try to manage some of such risks. These contracts are entered into with major financial institutions, thereby minimizing the risk of credit
loss. The activities of our finance division are subject to policies approved by our foreign exchange and interest rate risk management committee. These policies address the use of derivative financial instruments, including the approval of
counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments largely for hedging purposes.



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For our trading financial instruments, we recognized a valuation gain of ₩1 billion and a valuation loss of ₩1 billion in 2014, a valuation gain of ₩0 and a valuation loss of ₩2 billion in 2015 and a valuation gain of ₩1 billion and a valuation loss of ₩8 billion in 2016. For our hedging derivative
contracts, we recognized a valuation gain of ₩93 billion, a valuation loss of
₩25 billion and accumulated other comprehensive income of ₩22 billion in 2014, a valuation gain of ₩142 billion, a valuation loss of ₩2 billion and accumulated other comprehensive income of ₩148 billion in 2015 and a valuation gain of ₩109 billion, a valuation loss of ₩0.1 billion and accumulated other comprehensive income of ₩85 billion in 2016. For further details regarding the assets, liabilities, gains and losses recorded relating to our derivative contracts outstanding as of December 31, 2014, 2015 and 2016, see
Note 7 to the Consolidated Financial Statements.

Exchange Rate Risk

Substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign
exchange payments, mostly in U.S. Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers. We have entered
into several currency swap contracts, combined interest currency swap contracts and currency forward contracts to hedge our foreign currency risks.

The following table shows our assets and liabilities denominated in foreign currency as of December 31, 2014, 2015 and 2016:



|                                     |  |                    |           |  |                      |  |            |                 |  |  |                      |  |  |                 |            |  |                      |  |            |  |  |  |            | 
|------------------------------------ |  | ------------------ | --------- |  | -------------------- |  | ---------- | --------------- |  |  | -------------------- |  |  | --------------- | ---------- |  | -------------------- |  | ---------- |  |  |  | ---------- | 
|                                     |  | As of December 31, |          
|                                     |  | 2014               |           |  | 2015                 |  |            | 2016            | 
|(in thousands of foreign currencies) |  | Financialassets    |           |  | Financialliabilities |  |            | Financialassets |  |  | Financialliabilities |  |  | Financialassets |            |  | Financialliabilities | 
|U.S. Dollar                          |  |                    | 197,221   |  |                      |  | 2,532,614  |                 |  |  | 183,254              |  |  |                 | 2,351,003  |  |                      |  | 210,474    |  |  |  | 2,536,090  | 
|Special Drawing Right                |  |                    | 573       |  |                      |  | 1,027      |                 |  |  | 444                  |  |  |                 | 849        |  |                      |  | 311        |  |  |  | 737        | 
|Japanese Yen                         |  |                    | 34,168    |  |                      |  | 30,051,367 |                 |  |  | 73,716               |  |  |                 | 40,279,411 |  |                      |  | 80,555     |  |  |  | 21,802,051 | 
|British Pound                        |  |                    |          |  |                      |  | 257        |                 |  |  | 8                    |  |  |                 | 888        |  |                      |  | 1          |  |  |  | 151        | 
|Euro                                 |  |                    | 134       |  |                      |  | 177        |                 |  |  | 29                   |  |  |                 | 29         |  |                      |  | 40         |  |  |  | 2,571      | 
|Algerian Dinar                       |  |                    | 929       |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 471        |  |  |  |           | 
|Chinese Yuan                         |  |                    | 3,957     |  |                      |  |           |                 |  |  | 15,562               |  |  |                 | 107        |  |                      |  | 15,262     |  |  |  | 381        | 
|Uzbekistani Som                      |  |                    | 7,978,633 |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 39,531     |  |  |  |           | 
|Rwandan Franc                        |  |                    | 13,593    |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 1,203      |  |  |  |           | 
|Indonesian Rupiah                    |  |                    |          |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 15,646,011 |  |  |  | 53,142,167 | 
|Myanmar Kyat                         |  |                    |          |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 2,750      |  |  |  |           | 
|Tanzanian Shilling                   |  |                    |          |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 29,987     |  |  |  |           | 
|Botswana Pula                        |  |                    |          |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  | 15         |  |  |  |           | 
|Hong Kong Dollar                     |  |                    | 158       |  |                      |  |           |                 |  |  | 9                    |  |  |                 |           |  |                      |  | 254        |  |  |  |           | 
|Bangladeshi Taka                     |  |                    | 299       |  |                      |  |           |                 |  |  | 6                    |  |  |                 |           |  |                      |  | 69,473     |  |  |  |           | 
|Colombian Peso                       |  |                    | 23,583    |  |                      |  |           |                 |  |  |                     |  |  |                 |           |  |                      |  |           |  |  |  |           | 
|Polish Zloty                         |  |                    | 28,195    |  |                      |  |           |                 |  |  | 207,273              |  |  |                 |           |  |                      |  | 106,025    |  |  |  |           | 
|Vietnamese Dong                      |  |                    | 273,313   |  |                      |  | 93,756     |                 |  |  | 270,000              |  |  |                 |           |  |                      |  | 515,412    |  |  |  |           | 
|Swiss Franc                          |  |                    |          |  |                      |  | 78         |                 |  |  |                     |  |  |                 |           |  |                      |  |           |  |  |  |           | 

As of December 31, 2014, 2015 and 2016, a 10% increase in the exchange rate between the Won and all foreign
currencies, with all other variables held constant, would have decreased our income before income tax by ₩45 billion, ₩52 billion and
₩28 billion, respectively, and total equity by ₩38 billion, ₩46 billion and
₩24 billion, respectively, with a 10% decrease in the exchange rate having the opposite effect. The foregoing sensitivity analysis
assumes that all variables other than



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foreign exchange rates are held constant, and as such, does not reflect any correlation between foreign exchange rates and other variables, nor our decision to decrease the risk. See Note 34 to
the Consolidated Financial Statements.

Interest Rate Risk

We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. We use,
to a limited extent, interest rate swap contracts and combined interest rate and currency swap contracts to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed
rate debt. We entered into several interest rate swap contracts in which we exchange fixed interest rate payments with variable interest rate payments for a specified period, as well as entered into the combined interest rate and currency swap
contracts to hedge our interest rate risk.

The following table summarizes the principal amounts, fair values, principal cash flows by
maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2016 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting
currency:



|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|------------------------- |  | ---------------------------------- | --------- | - | ---- |  | --------- | ---- |  |  | --------- | - |  | ---------- | ------- | - | ----------------- |  | --------- | ---------- |  |  | --------- | - |  |  | --------- | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   | December 31, 2016 | 
|                          |  | 2017                               |           |   | 2018 |  |           | 2019 |  |  | 2020      |   |  | Thereafter |         |   | Total             |  |           | Fair Value | 
|                          |  | (in millions of Won, except rates) |          
|Local currency:           |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Fixed rate                |  |                                    | 569,753   |   |      |  | 870,043   |      |  |  | 826,518   |   |  |            | 460,518 |   |                   |  | 2,343,015 |            |  |  | 5,069,847 |   |  |  | 5,098,060 | 
|Average weighted rate (1) |  |                                    | 3.67      | % |      |  | 3.93      | %    |  |  | 2.94      | % |  |            | 3.17    | % |                   |  | 3.50      | %          |  |  | 3.47      | % |  |  |          | 
|Variable rate             |  |                                    |          |   |      |  |          |      |  |  |          |   |  |            |        |   |                   |  |          |            |  |  |          |   |  |  |          | 
|Average weighted rate (1) |  |                                    |          | % |      |  |          | %    |  |  |          | % |  |            |        | % |                   |  |          | %          |  |  |          | % |  |  |          | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Sub-total                 |  |                                    | 569,753   |   |      |  | 870,043   |      |  |  | 826,518   |   |  |            | 460,518 |   |                   |  | 2,343,015 |            |  |  | 5,069,847 |   |  |  | 5,098,060 | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Foreign currency:         |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Fixed rate                |  |                                    | 1,243,927 |   |      |  | 273,260   |      |  |  | 470,210   |   |  |            | 47,235  |   |                   |  | 649,235   |            |  |  | 2,683,867 |   |  |  | 2,704,388 | 
|Average weighted rate (1) |  |                                    | 2.50      | % |      |  | 0.99      | %    |  |  | 2.65      | % |  |            | 2.85    | % |                   |  | 3.27      | %          |  |  | 2.57      | % |  |  |          | 
|Variable rate             |  |                                    | 7,251     |   |      |  | 369,801   |      |  |  | 7,251     |   |  |            | 3,626   |   |                   |  |          |            |  |  | 387,929   |   |  |  | 381,747   | 
|Average weighted rate (1) |  |                                    | 1.35      | % |      |  | 2.13      | %    |  |  | 1.35      | % |  |            | 1.35    | % |                   |  |          | %          |  |  | 2.10      | % |  |  |          | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Subtotal                  |  |                                    | 1,251,178 |   |      |  | 643,061   |      |  |  | 477,461   |   |  |            | 50,861  |   |                   |  | 649,235   |            |  |  | 3,071,796 |   |  |  | 3,086,135 | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 
|Total                     |  |                                    | 1,820,931 |   |      |  | 1,513,104 |      |  |  | 1,303,979 |   |  |            | 511,379 |   |                   |  | 2,992,250 |            |  |  | 8,141,643 |   |  |  | 8,184,195 | 
|                          |  |                                    |           |   |      |  |           |      |  |  |           |   |  |            |         |   |                   |  |           |            |  |  |           |   |  |  |           | 





|(1) | Weighted average rates of the portfolio at the period end.
|--- | ----------------------------------------------------------

As of December 31, 2014, 2015 and 2016, a 100 basis point increase in the market interest rate, with all other variables held constant, would have decreased our profit before income tax by ₩5 billion,
₩4 billion and
₩3 billion, respectively. As of December 31, 2014, a 100 basis point increase in the market interest rate, with all other
variables held constant, would have increased our shareholders equity by ₩5 billion. As of December 31, 2015 and 2016,
such increase, with all other variables held constant, would have decreased our shareholders equity by ₩245 million and ₩2 billion, respectively.

As of December 31, 2014, a 100 basis point decrease in the market interest rates, with all other variables held constant, would have decreased
our profit before income tax by ₩5 billion. As of December 31, 2015 and 2016, such decrease, with all other variables held
constant, would have increased our profit before income tax by ₩4 billion and
₩3 billion, respectively. As of December 31, 2014, 2015 and 2016, a 100 basis point decrease in the market interest rates,
with all other variables held constant, would have decreased our shareholders equity by ₩11 billion, ₩6 billion and



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₩5 billion, respectively. The foregoing sensitivity analysis assumes that all
variables other than market interest rates are held constant, and as such, does not reflect any correlation between market interest rates and other variables, nor our decision to decrease the risk, but reflects the effects of derivative contracts in
place at the time of conducting the analysis.

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, 2014, 2015 and 2016, a 10% increase in
the equity indices where our marketable equity securities are listed, with all other variables held constant, would have increased our total equity by ₩7 billion, ₩3 billion and
₩0.5 billion, respectively, with a 10% 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 marketable 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.

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 the terms of the deposit agreement, holders of our ADSs are required to pay the following service fees to the depositary:



|                                                                     |  |                                
|-------------------------------------------------------------------- |  | -------------------------------
|Services                                                             |  | Fees                           
|Issuance of ADSs upon deposit of shares                              |  | Up to $0.05 per ADS issued     
|                                                                     | 
|Delivery of deposited shares against surrender of ADSs               |  | Up to $0.05 per ADS surrendered
|                                                                     | 
|Distribution delivery of ADSs pursuant to sale or exercise of rights |  | Up to $0.02 per ADS held       
|                                                                     | 
|Distributions of dividends                                           |  | None                           
|                                                                     | 
|Distribution of securities other than ADSs                           |  | Up to $0.02 per ADS held       
|                                                                     | 
|Other corporate action involving distributions to shareholders       |  | Up to $0.02 per ADS held       

Holders of our ADSs are also responsible for paying certain fees and expenses incurred by the depositary and
certain taxes and governmental charges such as:



| |  |  | fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of
shares);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | expenses incurred for converting foreign currency into U.S. dollars;
| | - |  | --------------------------------------------------------------------



| |  |  | expenses for cable, telex and fax transmissions and for delivery of securities;
| | - |  | -------------------------------------------------------------------------------



| |  |  | taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit); and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | fees and expenses incurred in connection with the delivery or servicing of shares on deposit.
| | - |  | ---------------------------------------------------------------------------------------------

Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients)
receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection
with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than
cash (i.e., stock dividend rights), the depositary charges the applicable fee to the ADS record-date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in
direct registration), the depositary sends invoices to the applicable record-date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees
through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients ADSs in DTC accounts in
turn charge their clients accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary
fees, the depositary may, under the terms of the deposit agreement, refuse to provide the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.

The fees and charges that holders of our ADSs may be required to pay may vary over time and may be changed by us and by the depositary.
Holders of our ADSs will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2016, we received the following payments, after deduction of applicable U.S. taxes, from the depositary:



|                                                                                                                                            |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- | 
|Reimbursement of NYSE listing fees                                                                                                          |  | $ | 92,582.00  | 
|                                                                                                                                            | 
|Reimbursement of SEC filing fees                                                                                                            |  | $ | 150,124.76 | 
|                                                                                                                                            | 
|Reimbursement of settlement infrastructure fees (including maintenance fees)                                                                |  | $ | 0          | 
|                                                                                                                                            | 
|Reimbursement of proxy process expenses (printing, postage and distribution)                                                                |  | $ | 20,090.18  | 
|                                                                                                                                            | 
|Reimbursement of legal fees (reimbursement received in April 2016 in respect of 2015)                                                       |  | $ | 3,900.00   | 
|                                                                                                                                            | 
|Contributions toward our investor relations efforts (including non-deal roadshows, investor
conferences and investor relations agency fees) |  | $ | 194,418.05 | 



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PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14.  Material Modifications to the Rights of
Security Holders and Use of Proceeds

Not applicable.

Item 15.  Controls and Procedures

Disclosure 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, 2016.
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 December 31, 2016. 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 Commissions rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act 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. Our internal control over
financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected by our board of directors, management and other personnel, 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.

Our 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 our assets; (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 our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of
our 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.



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Our management has performed an assessment of the effectiveness of our internal control over financial
reporting as of December 31, 2016, utilizing the criteria discussed in the Internal ControlIntegrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we concluded
that our internal control over financial reporting was effective as of December 31, 2016.

Samil PricewaterhouseCoopers, an
independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2016, as stated in their report which is included herein, has issued an attestation report on the
effectiveness of our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting
is furnished in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2016 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

Item 16.  [Reserved]

Item 16A.  Audit Committee Financial Expert

Our
Audit Committee is comprised of Jong-Gu Kim, Sang Kyun Cha, Dae-Geun Park and Dong-Wook Chung. The board of directors has determined that Dae-Geun Park is the audit committee financial expert. Dae-Geun Park is
independent as such term is defined in Section 303A.02 of the NYSE Listed Company Manual, Rule 10A-3 under the Exchange Act and the Korea Stock Exchange listing standards.

Item 16B.  Code of Ethics

We have adopted a code of ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our chief
executive officer, chief financial officer and persons performing similar functions, as well as to our directors, other officers and employees. Our code of ethics is available on our web site at www.kt.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.



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Item 16C.  Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to us by Samil PricewaterhouseCoopers, our independent registered public accounting firm, during the fiscal year ended December 31, 2015 and 2016. Such fees
exclude the fees billed for work associated with our foreign subsidiaries which Samil PricewaterhouseCoopers did not provide services and with our former subsidiaries.



|                   |  |                        |       |  |      |   |       | 
|------------------ |  | ---------------------- | ----- |  | ---- | - | ----- | 
|                   |  | Year EndedDecember 31, |      
|                   |  | 2015                   |       |  | 2016 |  
|                   |  | (In millions)          |      
|Audit fees (1)     |  | ₩                      | 3,025 |  |      | ₩ | 3,090 | 
|Audit-related fees |  |                        |      |  |      |   |      | 
|Tax fees (2)       |  |                        | 179   |  |      |   | 78    | 
|All other fees(3)  |  |                        | 1     |  |      |   |      | 
|                   |  |                        |       |  |      |   |       | 
|Total fees         |  | ₩                      | 3,204 |  |      | ₩ | 3,168 | 
|                   |  |                        |       |  |      |   |       | 





|(1) | Audit fees consist of fees for the annual audit and quarterly review services engagement and the comfort letters.
|--- | -----------------------------------------------------------------------------------------------------------------



|(2) | Tax fees consist of fee for tax services which are mainly the preparation or non-recurring tax compliance review of original or amended
tax returns.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | All other fees consist of fees billed for Samil PricewaterhouseCoopers services to provide confirmation of our debt ratios as part of our application for the
Governments preliminary approval for Internet-only bank business.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Audit Committee
Pre-Approval Policies and Procedures

Our audit committee has established pre-approval policies and procedures to pre-approve all audit services to be provided by Samil PricewaterhouseCoopers, 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 registered public accounting firm 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 registered public accounting firm
under the rules of the SEC 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 and does not include delegation of the audit committees responsibilities to the management under the
Securities Exchange Act of 1934, as amended.

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 16D.  Exemptions from the Listing Standards for Audit Committees

Not applicable.



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Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

The following table sets forth the repurchases of ordinary shares by us or any affiliated purchasers during the fiscal
year ended December 31, 2016:



|                            |  |                                |   |  |                                     |  |   |                                                                    |  |  |                                                                  |  |  |  |   | 
|--------------------------- |  | ------------------------------ | - |  | ----------------------------------- |  | - | ------------------------------------------------------------------ |  |  | ---------------------------------------------------------------- |  |  |  | - | 
|Period                      |  | Total Numberof SharesPurchased |   |  | Average PricePaid per Share(In Won) |  |   | Total Number ofShares Purchasedas Part of PubliclyAnnounced 
Plans |  |  | Maximum Number ofShares that May Yetbe Purchased Underthe 
Plans | 
|January 1 to January 31     |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|February 1 to February 29   |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|March 1 to March 31         |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|April 1 to April 30         |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|May 1 to May 31             |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|June 1 to June 30           |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|July 1 to July 31           |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|August 1 to August 31       |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|September 1 to September 30 |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|October 1 to October 31     |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|November 1 to November 30   |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|December 1 to December 31   |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|                            |  |                                |   |  |                                     |  |   |                                                                    |  |  |                                                                  |  |  |  |   | 
|Total                       |  |                                |  |  |                                     |  |  |                                                                    |  |  |                                                                 |  |  |  |  | 
|                            |  |                                |   |  |                                     |  |   |                                                                    |  |  |                                                                  |  |  |  |   | 

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 16F.  Change in Registrants Certifying Accountant

Not applicable.

Item 16G.  Corporate Governance

The following is a summary of the significant differences between the New York Stock Exchanges corporate governance standards and those that
we follow under Korean law:



|                                                                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Corporate Governance Standards                                                                                |  | KT Corporations Corporate Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Director Independence                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                   | 
|Independent directors must comprise a majority of the board.                                                       |  | The Commercial Code of Korea requires that our board of directors must comprise no less than a majority of outside directors. Our outside
directors must meet the criteria for outside directorship set forth under the Commercial Code of Korea.  The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchanges standards), and 8 out of 11 directors are outside directors.                                                                                                                                                     
|                                                                                                                   | 
|Nominating/Corporate Governance Committee                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                   | 
|Listed companies must have a nominating/corporate governance committee composed entirely of independent directors. |  | We have not established a nominating/corporate governance committee composed entirely of independent directors. However, we maintain an Outside Director Candidate Nominating Committee
composed of all of our outside directors and one standing director. We also maintain a Corporate Governance Committee comprised of four outside directors and one standing director. The committee is responsible for the review of matters with respect
to our Corporate Governance Guidelines and our performance under such guidelines to monitor effectiveness of our corporate governance.



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|                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NYSE Corporate Governance Standards                                                                                                                                                         |  | KT Corporations Corporate Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Compensation Committee                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Listed companies must have a compensation committee composed entirely of independent directors.                                                                                             |  | We maintain an Evaluation and Compensation Committee composed of four outside directors.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                            | 
|Executive Session                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Non-management directors must meet in regularly scheduled executive sessions without management.                                                                                            |  | Our outside directors hold meetings solely attended by outside directors in accordance with the charter of our board of directors.                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                            | 
|Audit Committee                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the
Exchange Act.                              |  | We maintain an Audit Committee comprised of four outside directors who meet the applicable independence criteria set forth under Rule 10A-3 under
the Exchange Act.                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                            | 
|Shareholder Approval of Equity Compensation Plan                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Listed companies must allow their shareholders to exercise their voting rights with respect to any material revision to the companys equity compensation plan.                             |  | We currently have two equity compensation plans: one providing for the grant of stock options to officers and standing directors; and an
employee stock ownership association program.  All material matters related to the
granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders approval. Matters related to the employee stock ownership association program are not subject
to shareholders approval under Korean law.
|                                                                                                                                                                                            | 
|Corporate Governance Guidelines                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Listed companies must adopt and disclose corporate governance guidelines.                                                                                                                   |  | We have adopted Corporate Governance Guidelines in March 2007 setting forth our practices with respect to corporate governance matters. Our Corporate Governance Guidelines are in
compliance with Korean law but do not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Guidelines in Korean is available on our website at
www.kt.com.                                                                                     
|                                                                                                                                                                                            | 
|Code of Business Conduct and Ethics                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                            | 
|Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for executive
officers. |  | We have adopted a Code of Ethics for all directors, officers and employees. A copy of our Code of Ethics in Korean is available on our website at www.kt.com                                                                                                                                                                                                                                                                                                                                                                

Item 16H.  Mine Safety Disclosure

Not applicable.



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PART III

Item 17.  Financial Statements

Not applicable.

Item 18.  Financial Statements

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION



|                                                                                                            |  |      |      | 
|----------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                            |  | Page |     
|Report of Independent Registered Public Accounting Firm                                                     |  |      | F-2  | 
|Consolidated Statements of Financial Position as of December 31, 2015 and 2016                              |  |      | F-3  | 
|Consolidated Statements of Operations for the Years Ended December 31, 2014, 2015 and 2016                  |  |      | F-5  | 
|Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2014, 2015 and
2016 |  |      | F-6  | 
|Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2015 and
2016           |  |      | F-7  | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2015 and 2016                  |  |      | F-10 | 
|Notes to Consolidated Financial Statements                                                                  |  |      | F-11 | 

Item 19. Exhibits



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|1    |  | Articles of Incorporation of KT Corporation (English translation)                                                                                                                                                                                                                                                                                                                                                                                                    
|     | 
|2.1* |  | Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced
by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(i) of the Registrants Registration Statement (Registration
No. 333-13578) on Form F-6)                         
|     | 
|2.2* |  | Form of Amendment No. 1 Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of
American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit (a)(ii) of the Registrants Registration Statement
(Registration No. 333-13578) on Form F-6)
|     | 
|2.3* |  | Letter from Citibank, N.A., as depositary, to the Registrant relating to the pre-release of the American depositary receipts (incorporated herein by
reference to the Registrants Registration Statement (Registration No. 333-10330) on Form F-6)                                                                                                                                                                                                                  
|     | 
|2.4* |  | Letter from Citibank, N.A., as depositary, to the Registrant relating to the establishment of a direct registration system for ADSs and the issuance of uncertified ADSs as part of the direct
registration system. (incorporated herein by reference to Exhibit 2.4 of the Registrants Annual Report on Form 20-F filed on June 30, 2008)                                                                                                                          
|     | 
|8.1  |  | List of subsidiaries of KT Corporation                                                                                                                                                                                                                                                                                                                                                                                                                               
|     | 
|12.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|12.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|13.1 |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                              
|     | 
|15.1 |  | The Framework Act on Telecommunications (English translation)                                                                                                                                                                                                                                                                                                                                                                                                        



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|      |  |                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|15.2* |  | Enforcement Decree of the Framework Act on Telecommunications (English translation) (incorporated herein by reference to Exhibit 15.2 of the Registrants Annual Report on Form 20-F filed on April 29, 2015)
|      | 
|15.3  |  | The Telecommunications Business Act (English translation)                                                                                                                                                    
|      | 
|15.4  |  | Enforcement Decree of the Telecommunications Business Act (English translation)                                                                                                                              



* Filed
previously.



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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.



KT CORPORATION(Registrant)/s/ CHANG-GYU HWANGName: Chang-Gyu HwangTitle: Chief Executive Officer


Date: April 28, 2017



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INDEX TO FINANCIAL STATEMENTS



|                                                                                                             |  |      |      | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                                             |  | Page |     
|Report of Independent Registered Public Accounting Firm                                                      |  |      | F-2  | 
|Consolidated Statements of Financial Position as of December 31, 2015 and
2016                               |  |      | F-3  | 
|Consolidated Statements of Operations for the Years Ended December 
31, 2014, 2015 and 2016                  |  |      | F-5  | 
|Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31,
 2014, 2015 and 2016 |  |      | F-6  | 
|Consolidated Statements of Changes in Equity for the Years Ended December 
31, 2014, 2015 and 2016           |  |      | F-7  | 
|Consolidated Statements of Cash Flows for the Years Ended December 
31, 2014, 2015 and 2016                  |  |      | F-10 | 
|Notes to Consolidated Financial Statements                                                                   |  |      | F-11 | 



F-1



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of KT Corporation

In our opinion,
the accompanying consolidated statements of financial position and the related consolidated statements of operations, of comprehensive income(loss), of changes in shareholders equity and of cash flows present fairly, in all material respects,
the financial position of KT Corporation and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2016, based on criteria established in Internal Control-Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Managements Annual Report on Internal Control over Financial Reporting in
Item 15 of Form 20-F. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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 (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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
(iii) 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/    Samil PricewaterhouseCoopers

Seoul Korea

April 28, 2017



F-2



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##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2015 and
2016





|                                             |  |       |        |  |      |   |            |      |  |   |            | 
|-------------------------------------------- |  | ----- | ------ |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|(in millions of Korean won)                  |  | Notes |        |  | 2015 |   |            | 2016 | 
|                                             |  |       |        |  |      |   |            |      | 
|Assets                                       |  |       |        |  |      |   |            |      |  |   |            | 
|                                             |  |       |       
|Current assets                               |  |       |        |  |      |   |            |      |  |   |            | 
|Cash and cash equivalents                    |  |       | 4, 5   |  |      | ₩ | 2,559,464  |      |  | ₩ | 2,900,311  | 
|Trade and other receivables, net             |  |       | 4, 6   |  |      |   | 4,853,632  |      |  |   | 5,327,352  | 
|Other financial assets                       |  |       | 4, 7   |  |      |   | 292,943    |      |  |   | 720,555    | 
|Current income tax assets                    |  |       |        |  |      |   | 3,881      |      |  |   | 2,079      | 
|Inventories, net                             |  |       | 8      |  |      |   | 616,911    |      |  |   | 454,588    | 
|Other current assets                         |  |       | 9      |  |      |   | 316,904    |      |  |   | 311,135    | 
|                                             |  |       |        |  |      |   |            |      |  |   |            | 
|Total current assets                         |  |       |        |  |      |   | 8,643,735  |      |  |   | 9,716,020  | 
|                                             |  |       |        |  |      |   |            |      |  |   |            | 
|                                             |  |       |       
|Non-current assets                           |  |       |        |  |      |   |            |      |  |   |            | 
|Trade and other receivables, net             |  |       | 4, 6   |  |      |   | 704,147    |      |  |   | 709,011    | 
|Other financial assets                       |  |       | 4, 7   |  |      |   | 658,323    |      |  |   | 664,726    | 
|Property and equipment, net                  |  |       | 10, 20 |  |      |   | 14,478,914 |      |  |   | 14,312,111 | 
|Investment properties, net                   |  |       | 11     |  |      |   | 1,102,070  |      |  |   | 1,148,044  | 
|Intangible assets, net                       |  |       | 12     |  |      |   | 2,599,751  |      |  |   | 3,022,803  | 
|Investments in associates and joint ventures |  |       | 13     |  |      |   | 270,029    |      |  |   | 284,075    | 
|Deferred income tax assets                   |  |       | 28     |  |      |   | 845,397    |      |  |   | 701,409    | 
|Other non-current assets                     |  |       | 9      |  |      |   | 102,359    |      |  |   | 106,099    | 
|                                             |  |       |        |  |      |   |            |      |  |   |            | 
|Total non-current assets                     |  |       |        |  |      |   | 20,760,990 |      |  |   | 20,948,278 | 
|                                             |  |       |        |  |      |   |            |      |  |   |            | 
|Total assets                                 |  |       |        |  |      | ₩ | 29,404,725 |      |  | ₩ | 30,664,298 | 
|                                             |  |       |        |  |      |   |            |      |  |   |            | 





The accompanying notes are an integral part of these consolidated financial statements.



F-3



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##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Financial Position (continued)

December 31, 2015 and 2016





|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|------------------------------------------------ |  | ----- | ----- |  | ---- | - | ---------- | ---- |  | - | ---------- | -
|(in millions of Korean won)                      |  | Notes |       |  | 2015 |   |            | 2016 | 
|                                                 |  |       |       |  |      |   |            |      | 
|Liabilities and Equity                           |  |       |       |  |      |   |            |      |  |   |            |  
|                                                 |  |       |      
|Current liabilities                              |  |       |       |  |      |   |            |      |  |   |            |  
|Trade and other payables                         |  |       | 4, 14 |  |      | ₩ | 6,335,027  |      |  | ₩ | 7,139,771  |  
|Borrowings                                       |  |       | 4, 15 |  |      |   | 1,726,098  |      |  |   | 1,820,001  |  
|Other financial liabilities                      |  |       | 4, 7  |  |      |   | 43,645     |      |  |   | 233        |  
|Current income tax liabilities                   |  |       | 28    |  |      |   | 81,114     |      |  |   | 88,739     |  
|Provisions                                       |  |       | 16    |  |      |   | 103,907    |      |  |   | 96,485     |  
|Deferred income                                  |  |       |       |  |      |   | 98,427     |      |  |   | 35,617     |  
|Other current liabilities                        |  |       | 9     |  |      |   | 311,170    |      |  |   | 342,291    |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Total current liabilities                        |  |       |       |  |      |   | 8,699,388  |      |  |   | 9,523,137  |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Non-current liabilities                          |  |       |       |  |      |   |            |      |  |   |            |  
|Trade and other payables                         |  |       | 4, 14 |  |      |   | 668,973    |      |  |   | 1,188,311  |  
|Borrowings                                       |  |       | 4, 15 |  |      |   | 6,908,799  |      |  |   | 6,300,790  |  
|Other financial liabilities                      |  |       | 4, 7  |  |      |   | 103,683    |      |  |   | 108,431    |  
|Net defined benefit liabilities                  |  |       | 17    |  |      |   | 524,083    |      |  |   | 378,404    |  
|Provisions                                       |  |       | 16    |  |      |   | 91,365     |      |  |   | 100,694    |  
|Deferred income                                  |  |       |       |  |      |   | 95,916     |      |  |   | 85,372     |  
|Deferred income tax liabilities                  |  |       | 28    |  |      |   | 129,650    |      |  |   | 137,680    |  
|Other non-current liabilities                    |  |       | 9     |  |      |   | 26,737     |      |  |   | 58,761     |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Total non-current liabilities                    |  |       |       |  |      |   | 8,549,206  |      |  |   | 8,358,443  |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Total liabilities                                |  |       |       |  |      |   | 17,248,594 |      |  |   | 17,881,580 |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Equity attribute to owners of the Parent Company |  |       |       |  |      |   |            |      |  |   |            |  
|                                                 |  |       |      
|Share capital                                    |  |       | 21    |  |      |   | 1,564,499  |      |  |   | 1,564,499  |  
|Share premium                                    |  |       |       |  |      |   | 1,440,258  |      |  |   | 1,440,258  |  
|Retained earnings                                |  |       | 22    |  |      |   | 9,049,971  |      |  |   | 9,644,483  |  
|Accumulated other comprehensive income           |  |       | 23    |  |      |   | 13,870     |      |  |   | (1,432     | )
|Other components of equity                       |  |       | 23    |  |      |   | (1,232,863 | )    |  |   | (1,217,934 | )
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|                                                 |  |       |       |  |      |   | 10,835,735 |      |  |   | 11,429,874 |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Non-controlling interest                         |  |       |       |  |      |   | 1,320,396  |      |  |   | 1,352,844  |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Total equity                                     |  |       |       |  |      |   | 12,156,131 |      |  |   | 12,782,718 |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  
|Total liabilities and equity                     |  |       |       |  |      | ₩ | 29,404,725 |      |  | ₩ | 30,664,298 |  
|                                                 |  |       |       |  |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F-4



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Operations

Years ended December 31, 2014,
2015 and 2016





|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|(in millions of Korean won, except per share amounts)                                                                    |  |       |  |      |            |   |      |   |            |      | 
|                                                                                                                         |  | Notes |  | 2014 |            |   | 2015 |   |            | 2016 | 
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      | 
|Operating revenue                                                                                                        |  | 25    |  | ₩    | 22,612,713 |   |      | ₩ | 22,699,856 |      |  | ₩ | 23,120,878 |  
|Revenue                                                                                                                  |  |       |  |      | 22,359,280 |   |      |   | 22,211,673 |      |  |   | 22,755,006 |  
|Others                                                                                                                   |  |       |  |      | 253,433    |   |      |   | 488,183    |      |  |   | 365,872    |  
|Operating expenses                                                                                                       |  | 26    |  |      | 23,391,553 |   |      |   | 21,622,788 |      |  |   | 21,781,098 |  
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Operating profit                                                                                                         |  |       |  |      | (778,840   | ) |      |   | 1,077,068  |      |  |   | 1,339,780  |  
|Finance income                                                                                                           |  | 27    |  |      | 253,089    |   |      |   | 272,860    |      |  |   | 296,139    |  
|Finance costs                                                                                                            |  | 27    |  |      | (792,200   | ) |      |   | (645,331   | )    |  |   | (515,087   | )
|Share of net profits of associates and joint ventures                                                                    |  | 13    |  |      | 18,697     |   |      |   | 6,144      |      |  |   | 2,599      |  
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Profit (loss) before income tax expense (benefit)                                                                        |  |       |  |      | (1,299,254 | ) |      |   | 710,741    |      |  |   | 1,123,431  |  
|Income tax expense (benefit)                                                                                             |  | 28    |  |      | (271,441   | ) |      |   | 227,131    |      |  |   | 328,314    |  
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Profit (loss) from the continuing operations                                                                             |  |       |  |      | (1,027,813 | ) |      |   | 483,610    |      |  |   | 795,117    |  
|                                                                                                                         |  |       |  |     
|Discontinued Operations                                                                                                  |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Profit from discontinued operations                                                                                      |  | 39    |  |      | 86,400     |   |      |   | 141,075    |      |  |   |           |  
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Profit (loss) for the year                                                                                               |  |       |  | ₩    | (941,413   | ) |      | ₩ | 624,685    |      |  | ₩ | 795,117    |  
|                                                                                                                         |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Profit (loss) for the year attributable to:                                                                              |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Owners of the Controlling Company                                                                                        |  |       |  | ₩    | (1,030,240 | ) |      | ₩ | 546,361    |      |  | ₩ | 708,362    |  
|Profit from continuing operations                                                                                        |  |       |  |      | (1,094,177 | ) |      |   | 404,045    |      |  |   | 708,362    |  
|Profit from discontinued operations                                                                                      |  |       |  |      | 63,937     |   |      |   | 142,316    |      |  |   |           |  
|Non-controlling interest                                                                                                 |  |       |  | ₩    | 88,827     |   |      | ₩ | 78,324     |      |  | ₩ | 86,755     |  
|Profit from continuing operations                                                                                        |  |       |  |      | 66,364     |   |      |   | 79,565     |      |  |   | 86,755     |  
|Loss from discontinued operations                                                                                        |  |       |  |      | 22,463     |   |      |   | (1,241     | )    |  |   |           |  
|Earnings (loss) per share attributable to the equity holders of the Controlling Company during the year
(in Korean won): |  |       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic earnings (loss) per share                                                                                          |  | 29    |  | ₩    | (4,215     | ) |      | ₩ | 2,231      |      |  | ₩ | 2,893      |  
|From continuing operations                                                                                               |  |       |  |      | (4,477     | ) |      |   | 1,650      |      |  |   | 2,893      |  
|From discontinued operations                                                                                             |  |       |  |      | 262        |   |      |   | 581        |      |  |   |           |  
|Diluted earnings (loss) per share                                                                                        |  | 29    |  | ₩    | (4,215     | ) |      | ₩ | 2,231      |      |  | ₩ | 2,891      |  
|From continuing operations                                                                                               |  |       |  |      | (4,477     | ) |      |   | 1,650      |      |  |   | 2,891      |  
|From discontinued operations                                                                                             |  |       |  |      | 262        |   |      |   | 581        |      |  |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



F-5



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Years ended
December 31, 2014, 2015 and 2016





|                                                                                         |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ----- |  | ---- | ---------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(in millions of Korean won)                                                              |  |       |  |      |            |   |      |   |         |      | 
|                                                                                         |  | Notes |  | 2014 |            |   | 2015 |   |         | 2016 | 
|                                                                                         |  |       |  |      |            |   |      |   |         |      | 
|Profit (loss) for the year                                                               |  |       |  | ₩    | (941,413   | ) |      | ₩ | 624,685 |      |  | ₩ | 795,117 |  
|Other comprehensive income                                                               |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Items that will not be reclassfied to profit or loss:                                    |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Remeasurements of the net defined benefit liability                                      |  | 17    |  |      | (236,637   | ) |      |   | (37,872 | )    |  |   | 4,213   |  
|Shares of remeasurement gain (loss) from associates and joint ventures                   |  |       |  |      | (394       | ) |      |   | (2,407  | )    |  |   | 116     |  
|Items that may be subsequently reclassified to profit or loss:                           |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Changes in value of
available-for-sale financial assets                                  |  | 4, 7  |  |      | 39,336     |   |      |   | 47,381  |      |  |   | 10,925  |  
|Other comprehensive income from available-for sale
financial assets reclassified to loss |  |       |  |      | (17,173    | ) |      |   | (83,397 | )    |  |   | (3,840  | )
|Net gains on cashflow hedges                                                             |  | 4, 7  |  |      | 16,990     |   |      |   | 111,914 |      |  |   | 64,796  |  
|Other comprehensive income from cashflow hedges reclassified to loss                     |  |       |  |      | (44,795    | ) |      |   | (97,962 | )    |  |   | (75,871 | )
|Shares of other comprehensive income from associates and joint ventures                  |  |       |  |      | 3,902      |   |      |   | (1,608  | )    |  |   | (602    | )
|Currency translation differences                                                         |  |       |  |      | 3,526      |   |      |   | (4,884  | )    |  |   | (5,407  | )
|                                                                                         |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Other comprehensive income for the year, net of tax                                      |  |       |  |      | (235,245   | ) |      |   | (68,835 | )    |  |   | (5,670  | )
|                                                                                         |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Total comprehensive income for the year                                                  |  |       |  | ₩    | (1,176,658 | ) |      | ₩ | 555,850 |      |  | ₩ | 789,447 |  
|                                                                                         |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Total comprehensive income for the year attributable to:                                 |  |       |  |      |            |   |      |   |         |      |  |   |         |  
|Owners of the Controlling Company                                                        |  |       |  |      | (1,252,456 | ) |      |   | 495,139 |      |  |   | 701,685 |  
|Non-controlling interest                                                                 |  |       |  |      | 75,798     |   |      |   | 60,711  |      |  |   | 87,762  |  





The accompanying notes are an integral part of these consolidated financial statements.



F-6



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Changes in Equity

Years ended December 31,
2014, 2015 and 2016





|                                                                                 |  |       |  |                                                   |           |  |              |   |           |                  |  |   |                                     |   |  |                          |         |   |       |   |            |                         |  |   |             |   |  |   |           |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ----- |  | ------------------------------------------------- | --------- |  | ------------ | - | --------- | ---------------- |  | - | ----------------------------------- | - |  | ------------------------ | ------- | - | ----- | - | ---------- | ----------------------- |  | - | ----------- | - |  | - | --------- | - |  | - | ---------- | -
|                                                                                 |  |       |  | Attributable to owners of the Controlling Company |           |  |              |   |           |                  | 
|(in millions of Korean won)                                                      |  | Notes |  | Sharecapital                                      |           |  | Sharepremium |   |           | Retainedearnings |  |   | AccumulatedOtherComprehensiveincome |   |  | OtherComponentsof equity |         |   | Total |   |            | Non-controllinginterest |  |   | Totalequity |  
|Balance at January 1, 2014                                                       |  |       |  | ₩                                                 | 1,564,499 |  |              | ₩ | 1,440,258 |                  |  | ₩ | 10,019,389                          |   |  | ₩                        | 24,538  |   |       | ₩ | (1,320,943 | )                       |  | ₩ | 11,727,741  |   |  | ₩ | 1,109,675 |   |  | ₩ | 12,837,416 |  
|Comprehensive income                                                             |  |       |  |                                                   |           |  |              |   |           |                  |  |   |                                     |   |  |                          |         |   |       |   |            |                         |  |   |             |   |  |   |           |   |  |   |            |  
|Profit (loss) for the year                                                       |  |       |  |                                                   |          |  |              |   |          |                  |  |   | (1,030,240                          | ) |  |                          |        |   |       |   |           |                         |  |   | (1,030,240  | ) |  |   | 88,827    |   |  |   | (941,413   | )
|Changes in value of
available-for-sale financial assets                          |  | 4, 7  |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          | 20,889  |   |       |   |           |                         |  |   | 20,889      |   |  |   | 1,274     |   |  |   | 22,163     |  
|Remeasurements of the net defined benefit liability                              |  | 17    |  |                                                   |          |  |              |   |          |                  |  |   | (223,157                            | ) |  |                          |        |   |       |   |           |                         |  |   | (223,157    | ) |  |   | (13,480   | ) |  |   | (236,637   | )
|Valuation gains (losses) on cashflow hedge                                       |  | 4, 7  |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          | (27,821 | ) |       |   |           |                         |  |   | (27,821     | ) |  |   | 16        |   |  |   | (27,805    | )
|Shares of other comprehensive income of associates and joint ventures            |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          | 3,726   |   |       |   |           |                         |  |   | 3,726       |   |  |   | 176       |   |  |   | 3,902      |  
|Shares of loss on remeasurements of associates and joint ventures                |  |       |  |                                                   |          |  |              |   |          |                  |  |   | (311                                | ) |  |                          |        |   |       |   |           |                         |  |   | (311        | ) |  |   | (83       | ) |  |   | (394       | )
|Currency translation differences                                                 |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          | 4,458   |   |       |   |           |                         |  |   | 4,458       |   |  |   | (932      | ) |  |   | 3,526      |  
|                                                                                 |  |       |  |                                                   |           |  |              |   |          
|Transactions with equity holders                                                 |  |       |  |                                                   |           |  |              |   |           |                  |  |   |                                     |   |  |                          |         |   |       |   |            |                         |  |   |             |   |  |   |           |   |  |   |            |  
|Dividends paid by the Controlling Company                                        |  |       |  |                                                   |          |  |              |   |          |                  |  |   | (195,112                            | ) |  |                          |        |   |       |   |           |                         |  |   | (195,112    | ) |  |   |          |   |  |   | (195,112   | )
|Dividends paid to non-controlling interest of subsidiaries                       |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          |        |   |       |   |           |                         |  |   |            |   |  |   | (27,683   | ) |  |   | (27,683    | )
|Appropriation of retained earnings related to loss on disposal of treasury stock |  |       |  |                                                   |          |  |              |   |          |                  |  |   | (2,170                              | ) |  |                          |        |   |       |   | 2,170      |                         |  |   |            |   |  |   |          |   |  |   |           |  
|Changes in consolidation scope                                                   |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          |        |   |       |   |           |                         |  |   |            |   |  |   | 198,260   |   |  |   | 198,260    |  
|Changes in ownership interest in subsidiaries                                    |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          |        |   |       |   | 26,601     |                         |  |   | 26,601      |   |  |   | (6,372    | ) |  |   | 20,229     |  
|New shares of subsidiary issued to non-controlling interest                      |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          |        |   |       |   |           |                         |  |   |            |   |  |   | 99,033    |   |  |   | 99,033     |  
|Others                                                                           |  |       |  |                                                   |          |  |              |   |          |                  |  |   |                                    |   |  |                          |        |   |       |   | 31,463     |                         |  |   | 31,463      |   |  |   | 609       |   |  |   | 32,072     |  
|                                                                                 |  |       |  |                                                   |           |  |              |   |           |                  |  |   |                                     |   |  |                          |         |   |       |   |            |                         |  |   |             |   |  |   |           |   |  |   |            |  
|Balance at December 31, 2014                                                     |  |       |  | ₩                                                 | 1,564,499 |  |              | ₩ | 1,440,258 |                  |  | ₩ | 8,568,399                           |   |  | ₩                        | 25,790  |   |       | ₩ | (1,260,709 | )                       |  | ₩ | 10,338,237  |   |  | ₩ | 1,449,320 |   |  | ₩ | 11,787,557 |  
|                                                                                 |  |       |  |                                                   |           |  |              |   |           |                  |  |   |                                     |   |  |                          |         |   |       |   |            |                         |  |   |             |   |  |   |           |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F-7



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Changes in Equity (Continued)

Years ended
December 31, 2014, 2015 and 2016





|                                                                                 |  |       |      |  |                                                   |   |           |              |  |   |                  |  |  |                                     |           |   |                          |   |         |       |  |   |                         |   |  |             |            |   |  |   |           |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ----- | ---- |  | ------------------------------------------------- | - | --------- | ------------ |  | - | ---------------- |  |  | ----------------------------------- | --------- | - | ------------------------ | - | ------- | ----- |  | - | ----------------------- | - |  | ----------- | ---------- | - |  | - | --------- | - |  | - | ---------- | -
|                                                                                 |  |       |      |  | Attributable to owners of the Controlling Company |   |           |              |  |   |                  | 
|(in millions of Korean won)                                                      |  | Notes |      |  | Sharecapital                                      |   |           | Sharepremium |  |   | Retainedearnings |  |  | AccumulatedOtherComprehensiveincome |           |   | OtherComponentsof equity |   |         | Total |  |   | Non-controllinginterest |   |  | Totalequity |           
|Balance at January 1, 2015                                                       |  |       |      |  |                                                   | ₩ | 1,564,499 |              |  | ₩ | 1,440,258        |  |  | ₩                                   | 8,568,399 |   |                          | ₩ | 25,790  |       |  | ₩ | (1,260,709              | ) |  | ₩           | 10,338,237 |   |  | ₩ | 1,449,320 |   |  | ₩ | 11,787,557 |  
|Comprehensive income                                                             |  |       |      |  |                                                   |   |           |              |  |   |                  |  |  |                                     |           |   |                          |   |         |       |  |   |                         |   |  |             |            |   |  |   |           |   |  |   |            |  
|Profit for the year                                                              |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     | 546,361   |   |                          |   |        |       |  |   |                        |   |  |             | 546,361    |   |  |   | 78,324    |   |  |   | 624,685    |  
|Changes in value of
available-for-sale financial assets                          |  |       | 4, 7 |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   | (24,310 | )     |  |   |                        |   |  |             | (24,310    | ) |  |   | (11,706   | ) |  |   | (36,016    | )
|Remeasurements of the net defined benefit liability                              |  |       | 17   |  |                                                   |   |          |              |  |   |                 |  |  |                                     | (37,914   | ) |                          |   |        |       |  |   |                        |   |  |             | (37,914    | ) |  |   | 42        |   |  |   | (37,872    | )
|Valuation gains on cashflow hedge                                                |  |       | 4, 7 |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   | 13,924  |       |  |   |                        |   |  |             | 13,924     |   |  |   | 28        |   |  |   | 13,952     |  
|Shares of other comprehensive income of associates and joint ventures            |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   | (1,357  | )     |  |   |                        |   |  |             | (1,357     | ) |  |   | (251      | ) |  |   | (1,608     | )
|Shares of loss on remeasurements of associates and joint ventures                |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     | (2,109    | ) |                          |   |        |       |  |   |                        |   |  |             | (2,109     | ) |  |   | (298      | ) |  |   | (2,407     | )
|Currency translation differences                                                 |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   | (177    | )     |  |   |                        |   |  |             | (177       | ) |  |   | (4,707    | ) |  |   | (4,884     | )
|                                                                                 |  |       |      |  |                                                   |   |           |              | 
|Transactions with equity holders                                                 |  |       |      |  |                                                   |   |           |              |  |   |                  |  |  |                                     |           |   |                          |   |         |       |  |   |                         |   |  |             |            |   |  |   |           |   |  |   |            |  
|Dividends paid to non-controlling interest of subsidiaries                       |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   |        |       |  |   |                        |   |  |             |           |   |  |   | (41,575   | ) |  |   | (41,575    | )
|Appropriation of retained earnings related to loss on disposal of treasury stock |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     | (24,766   | ) |                          |   |        |       |  |   | 24,766                  |   |  |             |           |   |  |   |          |   |  |   |           |  
|Changes in consolidation scope                                                   |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   |        |       |  |   |                        |   |  |             |           |   |  |   | (154,188  | ) |  |   | (154,188   | )
|Changes in ownership interest in subsidiaries                                    |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   |        |       |  |   | (2,968                  | ) |  |             | (2,968     | ) |  |   | 2,699     |   |  |   | (269       | )
|Others                                                                           |  |       |      |  |                                                   |   |          |              |  |   |                 |  |  |                                     |          |   |                          |   |        |       |  |   | 6,048                   |   |  |             | 6,048      |   |  |   | 2,708     |   |  |   | 8,756      |  
|                                                                                 |  |       |      |  |                                                   |   |           |              |  |   |                  |  |  |                                     |           |   |                          |   |         |       |  |   |                         |   |  |             |            |   |  |   |           |   |  |   |            |  
|Balance at December 31, 2015                                                     |  |       |      |  |                                                   | ₩ | 1,564,499 |              |  | ₩ | 1,440,258        |  |  | ₩                                   | 9,049,971 |   |                          | ₩ | 13,870  |       |  | ₩ | (1,232,863              | ) |  | ₩           | 10,835,735 |   |  | ₩ | 1,320,396 |   |  | ₩ | 12,156,131 |  
|                                                                                 |  |       |      |  |                                                   |   |           |              |  |   |                  |  |  |                                     |           |   |                          |   |         |       |  |   |                         |   |  |             |            |   |  |   |           |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F-8



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Changes in Equity (Continued)

Years ended
December 31, 2014, 2015 and 2016





|                                                                                 |  |       |  |                                                   |  |              |           |  |                  |   |           |                                     |  |   |                          |   |  |       |            |   |                         |   |            |             |  |   |           |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ----- |  | ------------------------------------------------- |  | ------------ | --------- |  | ---------------- | - | --------- | ----------------------------------- |  | - | ------------------------ | - |  | ----- | ---------- | - | ----------------------- | - | ---------- | ----------- |  | - | --------- | - |  | - | ---------- | -
|                                                                                 |  |       |  | Attributable to owners of the Controlling
Company |  |              |           |  |                  |   |          
|(in millions of Korean won)                                                      |  | Notes |  | Share
capital                                     |  | Sharepremium |           |  | Retainedearnings |   |           | AccumulatedOtherComprehensiveincome |  |   | OtherComponentsof equity |   |  | Total |            |   | Non-controllinginterest |   |            | Totalequity | 
|Balance at January 1, 2016                                                       |  |       |  | ₩1,564,499                                        |  | ₩            | 1,440,258 |  |                  | ₩ | 9,049,971 |                                     |  | ₩ | 13,870                   |   |  | ₩     | (1,232,863 | ) |                         | ₩ | 10,835,735 |             |  | ₩ | 1,320,396 |   |  | ₩ | 12,156,131 |  
|Comprehensive income                                                             |  |       |  |                                                   |  |              |           |  |                  |   |           |                                     |  |   |                          |   |  |       |            |   |                         |   |            |             |  |   |           |   |  |   |            |  
|Profit for the year                                                              |  |       |  |                                                  |  |              |          |  |                  |   | 708,362   |                                     |  |   |                         |   |  |       |           |   |                         |   | 708,362    |             |  |   | 86,755    |   |  |   | 795,117    |  
|Changes in value of
available-for-sale financial assets                          |  | 4, 7  |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   | 1,691                    |   |  |       |            |   |                         |   | 1,691      |             |  |   | 5,394     |   |  |   | 7,085      |  
|Remeasurements of the net defined benefit liability                              |  | 17    |  |                                                  |  |              |          |  |                  |   | 8,531     |                                     |  |   |                         |   |  |       |           |   |                         |   | 8,531      |             |  |   | (4,318    | ) |  |   | 4,213      |  
|Valuation losses on cashflow hedge                                               |  | 4, 7  |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   | (11,075                  | ) |  |       |           |   |                         |   | (11,075    | )           |  |   |          |   |  |   | (11,075    | )
|Shares of other comprehensive income of associates and joint ventures            |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   | (571                     | ) |  |       |           |   |                         |   | (571       | )           |  |   | (31       | ) |  |   | (602       | )
|Shares of gain on remeasurements of associates and joint ventures                |  |       |  |                                                  |  |              |          |  |                  |   | 94        |                                     |  |   |                         |   |  |       |           |   |                         |   | 94         |             |  |   | 22        |   |  |   | 116        |  
|Currency translation differences                                                 |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   | (5,347                   | ) |  |       |           |   |                         |   | (5,347     | )           |  |   | (60       | ) |  |   | (5,407     | )
|                                                                                 |  |       |  |                                                   |  |              |           |  |                 
|Transactions with equity holders                                                 |  |       |  |                                                   |  |              |           |  |                  |   |           |                                     |  |   |                          |   |  |       |            |   |                         |   |            |             |  |   |           |   |  |   |            |  
|Dividends paid by the Controlling Company                                        |  |       |  |                                                  |  |              |          |  |                  |   | (122,425  | )                                   |  |   |                         |   |  |       |           |   |                         |   | (122,425   | )           |  |   |          |   |  |   | (122,425   | )
|Dividends paid to non-controlling interest of subsidiaries                       |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   |                         |   |  |       |           |   |                         |   |           |             |  |   | (61,674   | ) |  |   | (61,674    | )
|Changes in ownership interest in subsidiaries                                    |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   |                         |   |  |       | 11,369     |   |                         |   | 11,369     |             |  |   | (15,550   | ) |  |   | (4,181     | )
|Appropriation of retained earnings related to loss on disposal of treasury stock |  |       |  |                                                  |  |              |          |  |                  |   | (50       | )                                   |  |   |                         |   |  |       | 50         |   |                         |   |           |             |  |   |          |   |  |   |           |  
|New shares of subsidiary issued to non-controlling interest                      |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   |                         |   |  |       |           |   |                         |   |           |             |  |   | 21,769    |   |  |   | 21,769     |  
|Others                                                                           |  |       |  |                                                  |  |              |          |  |                  |   |          |                                     |  |   |                         |   |  |       | 3,510      |   |                         |   | 3,510      |             |  |   | 141       |   |  |   | 3,651      |  
|                                                                                 |  |       |  |                                                   |  |              |           |  |                  |   |           |                                     |  |   |                          |   |  |       |            |   |                         |   |            |             |  |   |           |   |  |   |            |  
|Balance at December 31, 2016                                                     |  |       |  | ₩1,564,499                                        |  | ₩            | 1,440,258 |  |                  | ₩ | 9,644,483 |                                     |  | ₩ | (1,432                   | ) |  | ₩     | (1,217,934 | ) |                         | ₩ | 11,429,874 |             |  | ₩ | 1,352,844 |   |  | ₩ | 12,782,718 |  
|                                                                                 |  |       |  |                                                   |  |              |           |  |                  |   |           |                                     |  |   |                          |   |  |       |            |   |                         |   |            |             |  |   |           |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F-9



---

##### Table of Contents

KT Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 31, 2014,
2015 and 2016





|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ----- | -- |  | ---- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|(in millions of Korean won)                                          |  |       |    |  |      |   |            |      |  |   |            |  
|                                                                     |  | Notes |    |  | 2014 |   |            | 2015 |  |   | 2016       |  
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |  
|Cash flows from operating activities                                 |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Cash generated from operations                                       |  |       | 31 |  |      | ₩ | 2,379,311  |      |  | ₩ | 4,579,260  |   |  | ₩ | 5,202,520  |  
|Interest paid                                                        |  |       |    |  |      |   | (604,012   | )    |  |   | (436,363   | ) |  |   | (372,525   | )
|Interest received                                                    |  |       |    |  |      |   | 192,563    |      |  |   | 128,422    |   |  |   | 104,679    |  
|Dividends received                                                   |  |       |    |  |      |   | 32,106     |      |  |   | 35,768     |   |  |   | 10,824     |  
|Income tax paid                                                      |  |       |    |  |      |   | (83,555    | )    |  |   | (77,122    | ) |  |   | (174,748   | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Net cash inflow from operating activities                            |  |       |    |  |      |   | 1,916,413  |      |  |   | 4,229,965  |   |  |   | 4,770,750  |  
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Cash flows from investing activities                                 |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Collection of loans                                                  |  |       |    |  |      |   | 37,589     |      |  |   | 38,856     |   |  |   | 47,887     |  
|Grant of loans                                                       |  |       |    |  |      |   | (82,258    | )    |  |   | (79,136    | ) |  |   | (57,400    | )
|Disposal of derivatives                                              |  |       |    |  |      |   |           |      |  |   | 176,681    |   |  |   |           |  
|Disposal of
available-for-sale financial assets                      |  |       |    |  |      |   | 77,365     |      |  |   | 243,125    |   |  |   | 35,791     |  
|Acquisition of
available-for-sale financial assets                   |  |       |    |  |      |   | (78,095    | )    |  |   | (99,111    | ) |  |   | (44,302    | )
|Disposal of investments in associates and joint ventures             |  |       |    |  |      |   | 22,251     |      |  |   | 42,946     |   |  |   | 11,074     |  
|Acquisition of investments in associates and joint ventures          |  |       |    |  |      |   | (18,396    | )    |  |   | (12,238    | ) |  |   | (38,675    | )
|Disposal of current and non-current financial instruments            |  |       |    |  |      |   | 630,216    |      |  |   | 363,260    |   |  |   | 293,283    |  
|Acquisition of current and non-current financial
instruments         |  |       |    |  |      |   | (427,585   | )    |  |   | (341,373   | ) |  |   | (597,345   | )
|Disposal of property and equipment and investment properties         |  |       |    |  |      |   | 77,644     |      |  |   | 28,303     |   |  |   | 93,401     |  
|Acquisition of property and equipment and investment properties      |  |       |    |  |      |   | (2,852,869 | )    |  |   | (3,115,728 | ) |  |   | (2,764,346 | )
|Disposal of intangible assets                                        |  |       |    |  |      |   | 9,438      |      |  |   | 25,841     |   |  |   | 17,891     |  
|Acquisition of intangible assets                                     |  |       |    |  |      |   | (578,377   | )    |  |   | (399,377   | ) |  |   | (455,763   | )
|Cash inflow(outflow) from disposal of subsidiaries, net              |  |       |    |  |      |   | 6,228      |      |  |   | 741,834    |   |  |   | (2,124     | )
|Cash inflow(outflow) from acquisition of subsidiaries, net           |  |       |    |  |      |   | 5,891      |      |  |   | (15,751    | ) |  |   | (24,330    | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Net cash outflow from investing activities                           |  |       |    |  |      |   | (3,170,958 | )    |  |   | (2,401,868 | ) |  |   | (3,484,958 | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Cash flows from financing activities                                 |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Proceeds from borrowings and debentures                              |  |       |    |  |      |   | 10,037,067 |      |  |   | 5,675,302  |   |  |   | 1,122,898  |  
|Repayments of borrowings and debentures                              |  |       |    |  |      |   | (8,757,284 | )    |  |   | (6,648,177 | ) |  |   | (1,768,768 | )
|Settlement of derivative assets and liabilities, net                 |  |       |    |  |      |   | (66,484    | )    |  |   | (3,371     | ) |  |   | (33,199    | )
|Disposal of treasury stock                                           |  |       |    |  |      |   | 34,053     |      |  |   |           |   |  |   |           |  
|Cash inflow from capital transactions with Non-controlling
interest  |  |       |    |  |      |   | 99,211     |      |  |   |           |   |  |   | 800        |  
|Cash outflow from capital transactions with Non-controlling
interest |  |       |    |  |      |   |           |      |  |   |           |   |  |   | (5,140     | )
|Dividends paid to shareholders                                       |  |       |    |  |      |   | (222,773   | )    |  |   | (41,575    | ) |  |   | (184,099   | )
|Decrease in finance leases liabilities                               |  |       |    |  |      |   | (52,099    | )    |  |   | (146,175   | ) |  |   | (75,763    | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Net cash inflow(outflow) from financing activities                   |  |       |    |  |      |   | 1,071,691  |      |  |   | (1,163,996 | ) |  |   | (943,271   | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Effect of exchange rate change on cash and cash equivalents          |  |       |    |  |      |   | 648        |      |  |   | 6,700      |   |  |   | (1,674     | )
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Net increase(decrease) in cash and cash equivalents                  |  |       |    |  |      |   | (182,206   | )    |  |   | 670,801    |   |  |   | 340,847    |  
|Cash and cash equivalents                                            |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|Beginning of the year                                                |  |       |    |  |      |   | 2,070,869  |      |  |   | 1,888,663  |   |  |   | 2,559,464  |  
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  
|End of the year                                                      |  |       |    |  |      | ₩ | 1,888,663  |      |  | ₩ | 2,559,464  |   |  | ₩ | 2,900,311  |  
|                                                                     |  |       |    |  |      |   |            |      |  |   |            |   |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



F-10



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|1. | General Information
|-- | -------------------

The consolidated financial statements include the accounts of KT Corporation,
which is the controlling company as defined under IFRS 10, Consolidated Financial Statements, and its 56 controlled subsidiaries as described in Note 1.2 (collectively referred to as the Group).

The Controlling Company

KT Corporation (the
Controlling Company) commenced operations on January 1, 1982, when it spun off from the Korea Communications Commission (formerly the Korean Ministry of Information and Communications) to provide telephone services and to engage in
the development of advanced communications services under the Act of Telecommunications of Korea. The headquarters are located in Seongnam City, Gyeonggi Province, Republic of Korea, and the address of its registered head office is 90, Buljeong-ro, Bundang-gu, Seongnam City, Gyeonggi Province.

On
October 1, 1997, upon the announcement of the Government-Investment Enterprises Management Basic Act and the Privatization Law, the Controlling Company became a government-funded institution under the Commercial Code of Korea.

On December 23, 1998, the Controlling Companys shares were listed on the Korea Exchange.

On May 29, 1999, the Controlling Company issued 24,282,195 additional shares and issued American Depository Shares (ADS), representing new shares
and government-owned shares, at the New York Stock Exchange. On July 2, 2001, the additional ADS representing 55,502,161 government-owned shares were issued at the New York Stock Exchange.

In 2002, the Controlling Company acquired the entire government-owned shares in accordance with the Korean governments privatization plan.



F-11



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Consolidated Subsidiaries

The consolidated subsidiaries as of December 31, 2015 and 2016, are as follows:



|                                  |  |                                                  |  |          |  |                                       |  |                  |  |             
|--------------------------------- |  | ------------------------------------------------ |  | -------- |  | ------------------------------------- |  | ---------------- |  | ------------
|                                  |  |                                                  |  |          |  | Controlling percentageownership1 
(%) |  |                 
|Subsidiary                        |  | Type of Business                                 |  | Location |  | December 31,2015                      |  | December 31,2016 |  | Closingmonth
|KT Powertel Co., Ltd.2            |  | Trunk radio system business                      |  | Korea    |  | 44.8%                                 |  | 44.8%            |  | December    
|KT Linkus Co., Ltd.               |  | Public telephone maintenance                     |  | Korea    |  | 91.4%                                 |  | 91.4%            |  | December    
|KT Submarine Co., Ltd.2,5         |  | Submarine cable construction and maintenance     |  | Korea    |  | 39.3%                                 |  | 39.3%            |  | December    
|KT Telecop Co., Ltd.              |  | Security service                                 |  | Korea    |  | 86.8%                                 |  | 86.8%            |  | December    
|KT Hitel Co., Ltd.                |  | Data communication                               |  | Korea    |  | 67.1%                                 |  | 67.1%            |  | December    
|KT Service Bukbu Co., Ltd.        |  | Opening services of fixed line                   |  | Korea    |  | 67.3%                                 |  | 67.3%            |  | December    
|KT Service Nambu Co., Ltd.        |  | Opening services of fixed line                   |  | Korea    |  | 77.3%                                 |  | 77.3%            |  | December    
|KT Commerce Inc.                  |  | B2C, B2B service                                 |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT New Business Fund No.1         |  | Investment fund                                  |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT Strategic Investment Fund No.1 |  | Investment fund                                  |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT Strategic Investment Fund No.2 |  | Investment fund                                  |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT Strategic Investment Fund No.3 |  | Investment fund                                  |  | Korea    |  |                                      |  | 100.0%           |  | December    
|BC Card Co., Ltd.                 |  | Credit card business                             |  | Korea    |  | 69.5%                                 |  | 69.5%            |  | December    
|VP Inc.                           |  | Payment security service for credit card, others |  | Korea    |  | 50.9%                                 |  | 50.9%            |  | December    
|H&C Network                       |  | Call centre for financial sectors                |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|BC Card China Co., Ltd.           |  | Software development and data processing         |  | China    |  | 100.0%                                |  | 100.0%           |  | December    
|INITECH Co., Ltd.5                |  | Internet banking ASP and security solutions      |  | Korea    |  | 58.2%                                 |  | 58.2%            |  | December    
|Smartro Co., Ltd.                 |  | VAN (Value Added Network) business               |  | Korea    |  | 81.1%                                 |  | 81.1%            |  | December    
|KTDS Co., Ltd.5                   |  | System integration and maintenance               |  | Korea    |  | 95.5%                                 |  | 95.5%            |  | December    
|KT M Hows Co., Ltd.               |  | Mobile marketing                                 |  | Korea    |  | 65.0%                                 |  | 90.0%            |  | December    
|KT M&S Co., Ltd.                  |  | PCS distribution                                 |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT Music Corporation4             |  | Online music production and distribution         |  | Korea    |  | 49.9%                                 |  | 49.9%            |  | December    
|KT Skylife Co., Ltd.5             |  | Satellite broadcasting business                  |  | Korea    |  | 50.3%                                 |  | 50.3%            |  | December    
|Skylife TV Co., Ltd.              |  | TV contents provider                             |  | Korea    |  | 92.6%                                 |  | 92.6%            |  | December    
|KT Estate Inc.                    |  | Residential building development and supply      |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KT AMC Co., Ltd.                  |  | Asset management and consulting services         |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|NEXR Co., Ltd.                    |  | Cloud system implementation                      |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|KTSB Data service                 |  | Data centre development and related service      |  | Korea    |  | 51.0%                                 |  | 51.0%            |  | December    
|KT Innoedu Co., Ltd.              |  | E-learning business                              |  | Korea    |  | 95.6%                                 |  | 96.8%            |  | December    
|KT Sat Co., Ltd.                  |  | Satellite communication business                 |  | Korea    |  | 100.0%                                |  | 100.0%           |  | December    
|Nasmedia, Inc.3                   |  | Online advertisement                             |  | Korea    |  | 45.4%                                 |  | 42.8%            |  | December    



F-12



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                         |  |                                                                                |  |             |  |                                       |  |                  |  |             
|---------------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------- |  | ------------------------------------- |  | ---------------- |  | ------------
|                                         |  |                                                                                |  |             |  | Controlling percentageownership1 
(%) |  |                 
|Subsidiary                               |  | Type of Business                                                               |  | Location    |  | December 31,2015                      |  | December 31,2016 |  | Closingmonth
|KT Sports                                |  | Management of sports group                                                     |  | Korea       |  | 100.0%                                |  | 100.0%           |  | December    
|KT Music Contents Fund No.1              |  | Music contents investment business                                             |  | Korea       |  | 80.0%                                 |  | 80.0%            |  | December    
|KT-Michigan Global Content Fund          |  | Content investment business                                                    |  | Korea       |  | 81.3%                                 |  | 88.6%            |  | December    
|Autopion Co., Ltd.                       |  | Service for information and communication                                      |  | Korea       |  | 100.0%                                |  | 100.0%           |  | December    
|KTCS Corporation2,5                      |  | Database and online information provider                                       |  | Korea       |  | 30.9%                                 |  | 30.9%            |  | December    
|KTIS Corporation2,5                      |  | Database and online information provider                                       |  | Korea       |  | 30.0%                                 |  | 30.1%            |  | December    
|KT M mobile                              |  | Special category telecommunications operator and sales of communication device |  | Korea       |  | 100.0%                                |  | 100.0%           |  | December    
|KT Investment Co., Ltd.                  |  | Technology business finance                                                    |  | Korea       |  | 100.0%                                |  | 100.0%           |  | December    
|NgeneBio4                                |  | Medicine and Pharmacy development business                                     |  | Korea       |  | 49.8%                                 |  | 49.8%            |  | December    
|Whowho&Company Co., Ltd.                 |  | Software development and supply                                                |  | Korea       |  |                                      |  | 100.0%           |  | December    
|KT Rwanda Networks Ltd.                  |  | Network installation and management                                            |  | Rwanda      |  | 51.0%                                 |  | 51.0%            |  | December    
|AOS Ltd.                                 |  | System integration and maintenance                                             |  | Rwanda      |  | 51.0%                                 |  | 51.0%            |  | December    
|KT Belgium                               |  | Foreign investment business                                                    |  | Belgium     |  | 100.0%                                |  | 100.0%           |  | December    
|KT ORS Belgium                           |  | Foreign investment business                                                    |  | Belgium     |  | 100.0%                                |  | 100.0%           |  | December    
|Korea Telecom Japan Co., Ltd.            |  | Foreign telecommunication business                                             |  | Japan       |  | 100.0%                                |  | 100.0%           |  | December    
|KBTO sp.zo.o.                            |  | Electronic communication business                                              |  | Poland      |  | 60.0%                                 |  | 75.0%            |  | December    
|Korea Telecom China Co., Ltd.            |  | Foreign telecommunication business                                             |  | China       |  | 100.0%                                |  | 100.0%           |  | December    
|KT Dutch B.V                             |  | Super iMax and East Telecom management                                         |  | Netherlands |  | 100.0%                                |  | 100.0%           |  | December    
|Super iMax LLC                           |  | Wireless high speed internet business                                          |  | Uzbekistan  |  | 100.0%                                |  | 100.0%           |  | December    
|East Telecom LLC                         |  | Fixed line telecommunication business                                          |  | Uzbekistan  |  | 91.0%                                 |  | 91.0%            |  | December    
|Korea Telecom America, Inc.              |  | Foreign telecommunication business                                             |  | USA         |  | 100.0%                                |  | 100.0%           |  | December    
|PT. KT Indonesia                         |  | Foreign telecommunication business                                             |  | Indonesia   |  | 99.0%                                 |  | 99.0%            |  | December    
|PT. BC Card Asia Pacific                 |  | Software development and supply                                                |  | Indonesia   |  | 99.9%                                 |  | 99.9%            |  | December    
|KT Hongkong Telecommunications Co., Ltd. |  | Fixed line communication business                                              |  | Hong Kong   |  |                                      |  | 100.0%           |  | December    
|N SEARCH MARKETING Corp.                 |  | Advertising agency business                                                    |  | Korea       |  |                                      |  | 100.0%           |  | December    



|1 | Sum of the ownership interests owned by the Controlling Company and subsidiaries.
|- | ---------------------------------------------------------------------------------

|2 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company can exercise the majority voting rights in its decision-making process at all times
considering the historical voting pattern at the shareholders meetings.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-13



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|3 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company holds the majority of voting right based on an agreement with other investors.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Although the Controlling Company owns less than 50% ownership in this entity, this entity is consolidated as the Controlling Company holds the potential voting rights by a stock purchase agreement with other investors.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5 | The number of subsidiaries treasury stock is deducted from the total number of shares when calculating the controlling percentage ownership.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------

Changes in scope of consolidation in 2016 are as follows:



|         |           |                                   |                                          |                                     |                   |                                    
|-------- | --------- | --------------------------------- | ---------------------------------------- | ----------------------------------- | ----------------- | -----------------------------------
|Changes  |           | Location                          |                                          | Subsidiary                          |                   | Reason                             
|Included |           | Korea                             |                                          | Smart Channel Co., Ltd.             |                   | Gain of actual control             
|         |           | K-Realty Rental Housing REIT 2    |                                          | Newly established                  
|         |           | K-Realty US REIT 1                |                                          | Newly established                  
|         |           | Whowho&Company Co., Ltd.          |                                          | Spun-off                           
|         |           | KT Strategic Investment Fund No.3 |                                          | Newly established                  
|         |           | N SEARCH MARKETING Corp.          |                                          | Acquisition of share               
|         | Hong Kong |                                   | KT Hongkong Telecommunications Co., Ltd. |                                     | Newly established
|Excluded |           | Korea                             |                                          | K-Realty Rental Housing REIT 1      |                   | Decrease in percentage of ownership
|         |           | K-Realty Rental Housing REIT 2    |                                          | Decrease in percentage of ownership
|         |           | Smart Channel Co., Ltd.           |                                          | Bankrupt                           
|         |           | K-REALTY US Rental Housing REIT 2 |                                          | Liquidation                        
|         |           | KTC Media Contents Fund 2         |                                          | Liquidation                        



F-14



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Summarized information for consolidated subsidiaries as of and for the years ended December 31,
2014, 2015 and 2016, is as follows:



|                                |  |              |           |  |                  |   |           |                   |  |   |                            |  |  |   |         |  
|------------------------------- |  | ------------ | --------- |  | ---------------- | - | --------- | ----------------- |  | - | -------------------------- |  |  | - | ------- | -
|(in millions of Korean won)     |  | 2014         |          
|                                |  | Total assets |           |  | Totalliabilities |   |           | Operatingrevenues |  |   | Profit (loss)
for the year | 
|KT Powertel Co., Ltd.           |  | ₩            | 157,330   |  |                  | ₩ | 29,996    |                   |  | ₩ | 105,250                    |  |  | ₩ | 5,368   |  
|KT Linkus Co., Ltd.             |  |              | 70,718    |  |                  |   | 64,043    |                   |  |   | 106,642                    |  |  |   | 1,076   |  
|KT Submarine Co., Ltd.          |  |              | 111,877   |  |                  |   | 16,188    |                   |  |   | 77,292                     |  |  |   | 9,018   |  
|KT Telecop Co., Ltd.            |  |              | 305,988   |  |                  |   | 161,188   |                   |  |   | 258,692                    |  |  |   | (6,576  | )
|KT Hitel Co.,Ltd.1              |  |              | 226,994   |  |                  |   | 31,429    |                   |  |   | 494,455                    |  |  |   | 12,205  |  
|KT Capital Co., Ltd.1           |  |              | 2,038,263 |  |                  |   | 1,759,641 |                   |  |   | 186,114                    |  |  |   | 69,491  |  
|BC Card Co., Ltd.1              |  |              | 2,700,388 |  |                  |   | 1,794,923 |                   |  |   | 3,297,308                  |  |  |   | 134,450 |  
|H&C Network1                    |  |              | 223,896   |  |                  |   | 69,537    |                   |  |   | 217,256                    |  |  |   | 8,506   |  
|Nasmedia, Inc.                  |  |              | 97,502    |  |                  |   | 34,933    |                   |  |   | 29,865                     |  |  |   | 7,956   |  
|Sofnics, Inc.                   |  |              | 213       |  |                  |   | 48        |                   |  |   | 349                        |  |  |   | (1,029  | )
|KTDS Co., Ltd1.                 |  |              | 92,676    |  |                  |   | 58,486    |                   |  |   | 354,094                    |  |  |   | (11,394 | )
|KT M Hows Co., Ltd.             |  |              | 22,846    |  |                  |   | 17,446    |                   |  |   | 23,683                     |  |  |   | (5,626  | )
|KT M&S Co., Ltd.                |  |              | 281,787   |  |                  |   | 221,227   |                   |  |   | 885,456                    |  |  |   | 6,391   |  
|KT Music Corporation            |  |              | 83,386    |  |                  |   | 27,069    |                   |  |   | 86,449                     |  |  |   | 3,240   |  
|KT Skylife Co., Ltd.1           |  |              | 683,009   |  |                  |   | 246,326   |                   |  |   | 656,430                    |  |  |   | 55,162  |  
|KT Estate Inc.1                 |  |              | 1,496,815 |  |                  |   | 169,788   |                   |  |   | 247,256                    |  |  |   | 11,212  |  
|KTSB Dataservice                |  |              | 25,094    |  |                  |   | 1,384     |                   |  |   | 2,457                      |  |  |   | (3,960  | )
|Centios Co., Ltd 1              |  |              | 40,503    |  |                  |   | 26,464    |                   |  |   | 21,954                     |  |  |   | (4,012  | )
|Enswers Inc.                    |  |              | 7,260     |  |                  |   | 23,244    |                   |  |   | 4,644                      |  |  |   | (4,533  | )
|Ustream Inc.                    |  |              | 635       |  |                  |   | 246       |                   |  |   | 1,818                      |  |  |   | (1,313  | )
|KT Innoedu Co., Ltd.            |  |              | 8,761     |  |                  |   | 11,913    |                   |  |   | 21,010                     |  |  |   | (7,291  | )
|KT Rental1                      |  |              | 2,656,385 |  |                  |   | 2,317,650 |                   |  |   | 1,074,569                  |  |  |   | 51,388  |  
|KT Media Hub Co., Ltd.          |  |              | 172,621   |  |                  |   | 76,995    |                   |  |   | 335,451                    |  |  |   | 14,054  |  
|KT Sat Co., Ltd.                |  |              | 480,689   |  |                  |   | 45,540    |                   |  |   | 139,865                    |  |  |   | 30,016  |  
|Best Partners Co., Ltd.         |  |              | 113       |  |                  |   | 100       |                   |  |   | 346                        |  |  |   | (753    | )
|T-ON Telecom                    |  |              | 2,543     |  |                  |   | 1,903     |                   |  |   | 469                        |  |  |   | (1,802  | )
|KT Sports                       |  |              | 15,753    |  |                  |   | 8,220     |                   |  |   | 42,320                     |  |  |   | (1,305  | )
|KT Music Contents Fund No.1     |  |              | 10,573    |  |                  |   | 304       |                   |  |   | 230                        |  |  |   | (74     | )
|KT-Michigan Global Content Fund |  |              | 5,610     |  |                  |   |          |                   |  |   | 29                         |  |  |   | (617    | )
|Autopion Co., Ltd.              |  |              | 5,791     |  |                  |   | 3,194     |                   |  |   | 9,892                      |  |  |   | 662     |  
|KTCS Corporation1               |  |              | 303,574   |  |                  |   | 155,603   |                   |  |   | 234,852                    |  |  |   | 4,704   |  
|KTIS Corporation                |  |              | 215,741   |  |                  |   | 68,046    |                   |  |   | 83,850                     |  |  |   | (539    | )
|Korea Telecom Japan Co., Ltd.   |  |              | 16,551    |  |                  |   | 21,279    |                   |  |   | 34,717                     |  |  |   | (22,769 | )
|Korea Telecom China Co., Ltd.   |  |              | 1,011     |  |                  |   | 213       |                   |  |   | 1,532                      |  |  |   | (25     | )
|KT Dutch B.V.1                  |  |              | 43,312    |  |                  |   | 8         |                   |  |   | 519                        |  |  |   | 462     |  
|Super iMax LLC                  |  |              | 11,565    |  |                  |   | 6,337     |                   |  |   | 7,660                      |  |  |   | (710    | )
|East Telecom LLC                |  |              | 27,916    |  |                  |   | 13,602    |                   |  |   | 18,672                     |  |  |   | 278     |  
|Korea Telecom America, Inc.     |  |              | 5,627     |  |                  |   | 1,295     |                   |  |   | 6,318                      |  |  |   | 211     |  
|PT. KT Indonesia                |  |              | 32        |  |                  |   |          |                   |  |   |                           |  |  |   | 1       |  
|KT Rwanda Networks Ltd.         |  |              | 201,130   |  |                  |   | 105,095   |                   |  |   | 3,809                      |  |  |   | (18,984 | )
|KT Belgium                      |  |              | 72,405    |  |                  |   | 14        |                   |  |   |                           |  |  |   | (192    | )
|KT ORS Belgium                  |  |              | 1,932     |  |                  |   | 6         |                   |  |   |                           |  |  |   | (82     | )
|KBTO sp.zo.o.                   |  |              | 3         |  |                  |   | 33        |                   |  |   |                           |  |  |   | (32     | )
|Africa Olleh Services Ltd.      |  |              | 9,870     |  |                  |   | 255       |                   |  |   | 4,773                      |  |  |   | (1,772  | )



F-15



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                |  |              |           |  |                   |   |           |                   |  |   |                            |  |  |   |         |  
|------------------------------- |  | ------------ | --------- |  | ----------------- | - | --------- | ----------------- |  | - | -------------------------- |  |  | - | ------- | -
|(In millions of Korean won)     |  | 2015         |          
|                                |  | Total assets |           |  | Total liabilities |   |           | Operatingrevenues |  |   | Profit (loss)
for the year | 
|KT Powertel Co., Ltd.           |  | ₩            | 113,515   |  |                   | ₩ | 21,182    |                   |  | ₩ | 104,527                    |  |  | ₩ | (32,417 | )
|KT Linkus Co., Ltd.             |  |              | 77,141    |  |                   |   | 65,745    |                   |  |   | 116,095                    |  |  |   | 3,449   |  
|KT Submarine Co., Ltd.          |  |              | 160,314   |  |                   |   | 63,518    |                   |  |   | 67,268                     |  |  |   | 4,145   |  
|KT Telecop Co., Ltd.            |  |              | 269,191   |  |                   |   | 134,966   |                   |  |   | 302,844                    |  |  |   | (7,593  | )
|KT Hitel Co., Ltd.              |  |              | 235,757   |  |                   |   | 33,938    |                   |  |   | 162,155                    |  |  |   | 7,258   |  
|KT Service Bukbu Co., Ltd2      |  |              | 31,879    |  |                   |   | 22,627    |                   |  |   | 89,498                     |  |  |   | (4,630  | )
|KT Service Nambu Co., Ltd2      |  |              | 20,729    |  |                   |   | 10,567    |                   |  |   | 110,129                    |  |  |   | (5,055  | )
|BC Card Co., Ltd.1              |  |              | 2,963,952 |  |                   |   | 1,945,634 |                   |  |   | 3,504,946                  |  |  |   | 218,969 |  
|H&C Network1                    |  |              | 248,189   |  |                   |   | 70,635    |                   |  |   | 241,008                    |  |  |   | 19,513  |  
|Nasmedia, Inc.                  |  |              | 141,733   |  |                   |   | 72,202    |                   |  |   | 45,630                     |  |  |   | 9,916   |  
|KTDS Co., Ltd.1                 |  |              | 162,518   |  |                   |   | 116,654   |                   |  |   | 423,015                    |  |  |   | 12,836  |  
|KT M Hows Co., Ltd.             |  |              | 25,093    |  |                   |   | 17,980    |                   |  |   | 19,352                     |  |  |   | 1,728   |  
|KT M&S Co., Ltd.                |  |              | 256,246   |  |                   |   | 217,892   |                   |  |   | 853,011                    |  |  |   | (18,776 | )
|KT Music Corporation            |  |              | 90,518    |  |                   |   | 30,704    |                   |  |   | 90,005                     |  |  |   | 3,446   |  
|KT Skylife Co., Ltd.1           |  |              | 711,294   |  |                   |   | 217,850   |                   |  |   | 668,521                    |  |  |   | 72,987  |  
|KT Estate Inc.1                 |  |              | 1,603,438 |  |                   |   | 260,292   |                   |  |   | 254,776                    |  |  |   | 27,487  |  
|KTSB Data service               |  |              | 23,063    |  |                   |   | 1,730     |                   |  |   | 4,390                      |  |  |   | (2,444  | )
|KT Innoedu Co., Ltd.            |  |              | 5,858     |  |                   |   | 7,585     |                   |  |   | 18,156                     |  |  |   | (4,288  | )
|KT Sat Co., Ltd.                |  |              | 679,959   |  |                   |   | 210,110   |                   |  |   | 133,326                    |  |  |   | 27,174  |  
|KT Sports                       |  |              | 15,341    |  |                   |   | 11,643    |                   |  |   | 51,801                     |  |  |   | (3,836  | )
|KT Music Contents Fund No.1     |  |              | 10,206    |  |                   |   | 47        |                   |  |   | 468                        |  |  |   | (111    | )
|KT-Michigan Global Content Fund |  |              | 5,401     |  |                   |   |          |                   |  |   | 861                        |  |  |   | (209    | )
|Autopion Co., Ltd.              |  |              | 7,102     |  |                   |   | 3,317     |                   |  |   | 10,585                     |  |  |   | 1,123   |  
|KT M mobile                     |  |              | 64,756    |  |                   |   | 13,121    |                   |  |   | 42,478                     |  |  |   | (36,725 | )
|KT Investment Co., Ltd.         |  |              | 49,485    |  |                   |   | 30,827    |                   |  |   | 4,704                      |  |  |   | (219    | )
|NgeneBio                        |  |              | 7,894     |  |                   |   | 4,683     |                   |  |   |                           |  |  |   | (434    | )
|KTCS Corporation1               |  |              | 346,949   |  |                   |   | 194,367   |                   |  |   | 1,066,556                  |  |  |   | 13,685  |  
|KTIS Corporation                |  |              | 211,164   |  |                   |   | 55,370    |                   |  |   | 473,892                    |  |  |   | 15,041  |  
|Korea Telecom Japan Co., Ltd.   |  |              | 13,889    |  |                   |   | 14,393    |                   |  |   | 25,652                     |  |  |   | (248    | )
|Korea Telecom China Co., Ltd.   |  |              | 909       |  |                   |   | 198       |                   |  |   | 1,748                      |  |  |   | (95     | )
|KT Dutch B.V.1                  |  |              | 29,402    |  |                   |   | 27        |                   |  |   | 161                        |  |  |   | 118     |  
|Super iMax LLC                  |  |              | 14,962    |  |                   |   | 8,186     |                   |  |   | 8,291                      |  |  |   | (2,220  | )
|East Telecom LLC                |  |              | 30,833    |  |                   |   | 17,066    |                   |  |   | 24,066                     |  |  |   | 664     |  
|Korea Telecom America, Inc.     |  |              | 6,016     |  |                   |   | 1,378     |                   |  |   | 6,391                      |  |  |   | 156     |  
|PT. KT Indonesia                |  |              | 22        |  |                   |   |          |                   |  |   |                           |  |  |   | (9      | )
|KT Rwanda Networks Ltd.         |  |              | 188,951   |  |                   |   | 147,653   |                   |  |   | 7,299                      |  |  |   | (28,721 | )
|KT Belgium                      |  |              | 77,058    |  |                   |   | 4         |                   |  |   |                           |  |  |   | (127    | )
|KT ORS Belgium                  |  |              | 1,996     |  |                   |   | 20        |                   |  |   |                           |  |  |   | (75     | )
|KBTO sp.zo.o.                   |  |              | 1,471     |  |                   |   | 1,817     |                   |  |   |                           |  |  |   | (328    | )
|Africa Olleh Services Ltd.      |  |              | 11,928    |  |                   |   | 12,187    |                   |  |   | 8,712                      |  |  |   | (923    | )



F-16



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                         |  |              |           |  |                   |   |           |                  |  |   |                            |  |  |   |         |  
|---------------------------------------- |  | ------------ | --------- |  | ----------------- | - | --------- | ---------------- |  | - | -------------------------- |  |  | - | ------- | -
|(In millions of Korean won)              |  | 2016         |          
|                                         |  | Total assets |           |  | Total liabilities |   |           | Operatingrevenue |  |   | Profit (loss)
for the year | 
|KT Powertel Co., Ltd.                    |  | ₩            | 113,725   |  |                   | ₩ | 19,899    |                  |  | ₩ | 81,390                     |  |  | ₩ | 202     |  
|KT Linkus Co., Ltd.                      |  |              | 64,318    |  |                   |   | 56,953    |                  |  |   | 117,587                    |  |  |   | (3,830  | )
|KT Submarine Co., Ltd.                   |  |              | 156,993   |  |                   |   | 55,573    |                  |  |   | 84,137                     |  |  |   | 5,146   |  
|KT Telecop Co., Ltd.                     |  |              | 265,553   |  |                   |   | 132,344   |                  |  |   | 315,948                    |  |  |   | 143     |  
|KT Hitel Co., Ltd.                       |  |              | 249,202   |  |                   |   | 46,941    |                  |  |   | 198,994                    |  |  |   | 4,298   |  
|KT Service Bukbu Co., Ltd.               |  |              | 32,863    |  |                   |   | 24,580    |                  |  |   | 182,952                    |  |  |   | 694     |  
|KT Service Nambu Co., Ltd.               |  |              | 32,621    |  |                   |   | 24,282    |                  |  |   | 218,602                    |  |  |   | 772     |  
|BC Card Co., Ltd.1                       |  |              | 3,651,065 |  |                   |   | 2,602,404 |                  |  |   | 3,567,512                  |  |  |   | 163,131 |  
|H&C Network1                             |  |              | 272,110   |  |                   |   | 80,983    |                  |  |   | 266,613                    |  |  |   | 14,749  |  
|Nasmedia, Inc.1                          |  |              | 263,925   |  |                   |   | 159,502   |                  |  |   | 70,037                     |  |  |   | 11,972  |  
|KTDS Co., Ltd.1                          |  |              | 197,970   |  |                   |   | 151,644   |                  |  |   | 476,379                    |  |  |   | 10,838  |  
|KT M Hows Co., Ltd.                      |  |              | 28,539    |  |                   |   | 18,466    |                  |  |   | 19,922                     |  |  |   | 2,865   |  
|KT M&S Co., Ltd.                         |  |              | 247,854   |  |                   |   | 227,507   |                  |  |   | 724,144                    |  |  |   | (12,955 | )
|KT Music Corporation                     |  |              | 110,080   |  |                   |   | 41,953    |                  |  |   | 111,450                    |  |  |   | 8,235   |  
|KT Skylife Co., Ltd.1                    |  |              | 777,948   |  |                   |   | 231,452   |                  |  |   | 668,945                    |  |  |   | 68,863  |  
|KT Estate Inc.1                          |  |              | 1,734,729 |  |                   |   | 375,341   |                  |  |   | 405,417                    |  |  |   | 6,815   |  
|KTSB Data service                        |  |              | 20,075    |  |                   |   | 759       |                  |  |   | 5,136                      |  |  |   | (1,983  | )
|KT Innoedu Co., Ltd.                     |  |              | 6,477     |  |                   |   | 7,259     |                  |  |   | 15,599                     |  |  |   | 103     |  
|KT Sat Co., Ltd.                         |  |              | 744,653   |  |                   |   | 253,041   |                  |  |   | 144,594                    |  |  |   | 36,266  |  
|KT Sports                                |  |              | 16,925    |  |                   |   | 13,573    |                  |  |   | 48,476                     |  |  |   | (198    | )
|KT Music Contents Fund No.1              |  |              | 10,592    |  |                   |   | 331       |                  |  |   | 349                        |  |  |   | 103     |  
|KT-Michigan Global Content Fund          |  |              | 16,250    |  |                   |   | 163       |                  |  |   | 133                        |  |  |   | (514    | )
|Autopion Co., Ltd.                       |  |              | 6,163     |  |                   |   | 2,794     |                  |  |   | 7,772                      |  |  |   | (409    | )
|KT M mobile                              |  |              | 131,446   |  |                   |   | 20,369    |                  |  |   | 112,532                    |  |  |   | (40,041 | )
|KT Investment Co., Ltd.1                 |  |              | 39,506    |  |                   |   | 23,123    |                  |  |   | 10,130                     |  |  |   | (1,832  | )
|NgeneBio                                 |  |              | 6,361     |  |                   |   | 4,733     |                  |  |   | 244                        |  |  |   | (1,833  | )
|KTCS Corporation1                        |  |              | 327,128   |  |                   |   | 171,012   |                  |  |   | 955,050                    |  |  |   | 7,892   |  
|KTIS Corporation                         |  |              | 221,176   |  |                   |   | 63,871    |                  |  |   | 436,914                    |  |  |   | 9,991   |  
|Korea Telecom Japan Co., Ltd.            |  |              | 3,592     |  |                   |   | 5,374     |                  |  |   | 5,122                      |  |  |   | (1,391  | )
|Korea Telecom China Co., Ltd.            |  |              | 532       |  |                   |   | 188       |                  |  |   | 930                        |  |  |   | 60      |  
|KT Dutch B.V                             |  |              | 34,197    |  |                   |   | 73        |                  |  |   | 166                        |  |  |   | 85      |  
|Super iMax LLC                           |  |              | 10,308    |  |                   |   | 6,734     |                  |  |   | 10,759                     |  |  |   | (1,802  | )
|East Telecom LLC                         |  |              | 31,885    |  |                   |   | 16,554    |                  |  |   | 27,492                     |  |  |   | 3,257   |  
|Korea Telecom America, Inc.              |  |              | 4,464     |  |                   |   | 1,306     |                  |  |   | 7,113                      |  |  |   | 181     |  
|PT. KT Indonesia                         |  |              | 16        |  |                   |   |          |                  |  |   |                           |  |  |   | (7      | )
|KT Rwanda Networks Ltd.                  |  |              | 167,112   |  |                   |   | 149,421   |                  |  |   | 13,435                     |  |  |   | (31,455 | )
|KT Belguium                              |  |              | 79,391    |  |                   |   | 7         |                  |  |   |                           |  |  |   | (67     | )
|KT ORS Belgium                           |  |              | 2,013     |  |                   |   | 23        |                  |  |   |                           |  |  |   | (46     | )
|KBTO sp.zo.o.                            |  |              | 1,166     |  |                   |   | 2,378     |                  |  |   | 21                         |  |  |   | (2,587  | )
|AOS Ltd.                                 |  |              | 10,025    |  |                   |   | 10,683    |                  |  |   | 14,481                     |  |  |   | (1,123  | )
|KT Hongkong Telecommunications Co., Ltd. |  |              | 1,571     |  |                   |   | 956       |                  |  |   | 1,568                      |  |  |   | 120     |  



|1 | These companies are the intermediate controlling companies of other subsidiaries and the above financial information is from their consolidated financial statements.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-17



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|2 | These entities were newly consolidated for the years ended December 31, 2015. Only operating revenues and net income subsequent to the inclusion of consolidation scope are disclosed above.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | Significant Accounting Policies
|-- | -------------------------------

The following is a summary of significant accounting policies
followed by the Group in the preparation of its financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated.



| | 2.1 | Basis of Preparation
| | --- | --------------------

The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards(IFRS) as issued by the International Accounting Standards Board (IASB).

The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise judgment in the process of applying the Groups accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are
disclosed in Note 3.

Certain accounts within the consolidated statement of financial position as of December 31, 2015 presented for
comparative purpose have been reclassified in accordance with presentation method used in consolidated statement of financial position as of December 31, 2016. These reclassifications do not have any impacts on net asset and profit or loss
reported as of and for the year ended December 31, 2015.



| | 2.2 | Changes in Accounting Policy and Disclosures
| | --- | --------------------------------------------

(1) New standards and amendments adopted by the
Group

The Group has applied the following standards and amendments for the first time for their annual reporting period commencing
January 1, 2016. The adoption of these amendments did not have any material impact on the consolidated financial statements.

- Disclosure
Initiative  Amendments to IAS 1, Presentation of Financial Statements

Amendment to IAS 1, Presentation of Financial Statements
clarifies that materiality applies to the exclusion or inclusion or aggregation of the disclosures in the notes and also, clarifies that the share of OCI arising from equity-accounted should be presented in total for items which will and will not be
reclassified to profit or loss. Additional amendments are made in relation to a particular order of the notes and other.

- Clarification of
Acceptable methods of Depreciation and Amortization  Amendments to IAS 16, Property, plant and equipment, and IAS 38, Intangible assets: Amortization based on revenue

Amendments to IAS 16, Property, plant and equipmentclarify that a revenue-based method should not be used to calculate the depreciation of items
of property, plant and equipment. IAS 38, Intangible assets: Amortization based on revenue now includes a rebuttable presumption that the amortization of intangible assets based on revenue is inappropriate. This presumption can be overcome if
either; the intangible asset is expressed as a measure of revenue, or it can be shown that revenue and the consumption of economic benefits generated by the asset are highly correlated.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





- Investment entities: Applying the Consolidation Exception  Amendments to IFRS 10,
Consolidated Financial Statements, IAS 28, Investment in Associates and Joint Ventures, and IFRS 12, Disclosures of Interests in Other Entities



| |  |  | Amendments made to IFRS 10, Consolidated Financial Statements clarify that the exception from preparing consolidated financial statement is also available to intermediate parent entities which are subsidiaries of
investment entities. If an investment entity has a subsidiary that is an investment entity and whose activities are providing services that related to the investment entitys investment activities, the investment entity measures the subsidiary
at fair value through profit or loss.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amendments made to IAS 28, Investment in Associates and Joint Ventures clarify that entities which are not investment entities but have an interest in an associate which is an investment entity have a policy
choice when applying the equity method of accounting.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amendments made to IFRS 12, Disclosures of Interests in Other Entities clarify that an investment entity which does not prepare consolidated financial statements should present disclosures relating to investment
entities required by IFRS 12.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- Annual Improvements to IFRSs 2012-2014 Cycle

Annual Improvements to IFRSs 2012-2014 Cycle consist of the following amendments. The application does not have a material impact on the
consolidated financial statements.



| |  |  | IFRS 5, Non-current Assets Held for Sale and Discontinued Operations clarifies when an asset (or disposal group) is reclassified from held for sale to
held for distribution or vice versa, this does not have to be accounted for as such.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IFRS 7, Financial Instruments: Disclosures clarifies the specific guidance for transferred financial assets to help management determine whether the terms of a servicing arrangement constitute continuing
involvement, and also clarifies that the additional disclosures relating to the amendments in 2012 Offsetting of Financial Assets and Financial Liabilities only need to be included in interim reports if required by IAS 34,
Interim Financial Reporting.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IAS 19, Employee Benefits clarifies that when determining the discount rate for post-employment benefit obligations, it is the currency in which the liabilities are denominated that is important, and not the
country where they arise.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | IAS 34, Interim Financial Reporting clarifies what is meant by the reference in the standard to information disclosed elsewhere in the interim financial report; and also amended requirements
for a cross-reference from the interim financial statements to the location of that information.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2) New standards, amendments and
interpretations not yet adopted

Certain new accounting standards and interpretations that have been published that are not mandatory for
December 31, 2016 reporting periods and have not been early adopted by the Group are set out below.

- Amendments to IAS 7, Statement of
Cash Flows

Amendments to IAS 7, Statement of Cash Flows requires to provide disclosures that enable users of financial statements to
evaluate changes in liabilities arising from financing activities, including



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





both changes arising from cash flows and non-cash flows. The Group will apply this amendment for annual reporting periods beginning on or after
January 1, 2017. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

- Amendments
to IFRS 2, Share-based Payment

Amendments to IFRS 2 clarify accounting for a modification to the terms and conditions of a share-based
payment that changes the classification of the transaction from cash-settled to equity-settled. Also, the amendments clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an
equity-settled award. The Group will apply the amendments for annual periods beginning on or after January 1, 2018. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

- IFRS 9, Financial Instruments

The new
standard for financial instruments issued on September 25, 2015 are effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace IAS 39, Financial Instruments:
Recognition and Measurement. The Group will apply the standards for annual periods beginning on or after January 1, 2018.

The standard
requires retrospective application with some exceptions. For example, an entity is not required to restate prior period in relation to classification and measurement (including impairment) of financial instruments. The standard requires prospective
application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions.

IFRS 9, Financial Instruments requires all financial assets to be classified and measured on the basis of the entitys business model for
managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit
or loss. Also, hedge accounting rules are amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting.

An effective implementation of IFRS 9 requires preparation processes including financial impact assessment, accounting policy establishment, accounting
system development and the system stabilization. The impact on the Groups financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Group and
macroeconomic variables. The following areas are likely to be affected in general with the implementation of IFRS 9. The Group is in preparation for analyzing the effects to the consolidated financial statement.

(a) Classification and Measurement of Financial Assets

When implementing IFRS 9, the classification of financial assets will be driven by the Groups business model for managing the financial assets and
contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. For hybrid
(combined) instruments, if the Group is unable to measure an embedded derivative separately from its host contract, financial assets with embedded derivatives are classified in their entirety.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                                                                      |  |  |  |                                                              |  |                                                 
|------------------------------------------------------------------------------------- |  |  |  | ------------------------------------------------------------ |  | ------------------------------------------------
|Business model for thecontractual cash flows
characteristics                          |  |  |  | Solely represent payments
ofprincipal and interest           |  | All other                                       
|Hold the financial asset for the collection of the contractual cash flows             |  |  |  | Measured at amortized cost1                                  |  | Recognized at fair value through profit or loss2
|Hold the financial asset for the collection of the contractual cash flows and trading |  |  |  | Recognized at fair value through other comprehensive income1 | 
|Hold for trading                                                                      |  |  |  | Recognized at fair value through profit or loss              | 



| | 1 | A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable).
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | 2 | Equity investments not held for trading can be recorded in other comprehensive income (irrevocable).
| | - | ----------------------------------------------------------------------------------------------------

With the implementation of IFRS 9, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income
are more strictly applied than the criteria applied with IAS 39. Accordingly, the financial assets at fair value through profit or loss may increase by implementing IFRS 9 and may result an extended fluctuation in profit or loss.

As of December 31, 2016, the Group owns loans and receivables of ₩9,653,443 million and
financial assets available-for-sales of ₩404,774 million.

According to IFRS 9, equity instruments that are not held for trading, the Group can make an irrevocable election at initial recognition to classify the
instruments as assets measured at fair value through other comprehensive income, which all subsequent changes in fair value being recognized in other comprehensive income and not recycled to profit or loss. As at December 31, 2016, the Group
holds equity instruments of ₩378,090 million classified as financial assets available-for-sale.

According to IFRS 9, debt instruments those contractual cash flows do not represent solely payments of principal and interest and held for trading, and
equity instruments that are not designated as instruments measured at fair value through other comprehensive income are measured at fair value through profit or loss.

(b) Impairment: Financial Assets and Contract Assets

IFRS 9 sets out a new forward looking expected loss impairment model which replaces the incurred loss model under IAS 39 and applies to:



| |  |  | Financial assets measured at amortized cost
| | - |  | -------------------------------------------



| |  |  | Debt investments measured at fair value through other comprehensive income, and
| | - |  | -------------------------------------------------------------------------------



| |  |  | Certain loan commitments and financial guaranteed contracts.
| | - |  | ------------------------------------------------------------

And the Group could recognize credit losses
early in accordance with IAS 39. The Group holds debt instrument of ₩9,683,586 million (Loan and trade receivables of
₩9,653,443 million, Held-to-maturity ₩30,143
million). For this assets, the Group provides loss allowance of ₩612,487 million.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(c) Hedge Accounting

Hedge accounting mechanics (fair value hedges, cash flow hedges and hedge of net investments in a foreign operations) required by IAS 39 remains
unchanged in IFRS 9, however, the new hedge accounting rules will align the accounting for hedging instruments more closely with the Groups risk management practices. As a general rule, more hedge relationships might be eligible for hedge
accounting, as the standard introduces a more principles-based approach. IFRS 9 allows more hedging instruments and hedged items to qualify for hedge accounting, and relaxes the hedge accounting requirement by removing two hedge effectiveness tests
that are a prospective test to ensure that the hedging relationship is expected to be highly effective and a quantitative retrospective test (within range of 80-120 %) to ensure that the hedging relationship
has been highly effective throughout the reporting period. As of December 31, 2016, the Group applies the hedge accounting to its assets and liabilities that amount to
₩227,318 million and ₩14,928 million respectively.

- IFRS 15 Revenue from Contracts with Customers

The Group will apply IFRS 15 Revenue from Contracts with Customers issued on November 6, 2015 for annual reporting periods beginning on or
after January 1, 2018. This standard replaces 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 and IFRIC 18 Transfers of assets from customers. The Group must apply IFRS 15, Revenue from Contracts with Customers within annual reporting periods
beginning on or after January 1, 2018, and will apply the standard retrospectively to prior reporting period presented in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors and apply simplified
transition method with no restatement for completed contracts and other as of January 1, 2017.

The new standard is based on the principle that
revenue is recognized when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue from contract with customer can be
recognized:



| |  |  | Identify contracts with customers
| | - |  | ---------------------------------



| |  |  | Identify the separate performance obligation
| | - |  | --------------------------------------------



| |  |  | Determine the transaction price of the contract
| | - |  | -----------------------------------------------



| |  |  | Allocate the transaction price to each of the separate performance obligations, and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Recognize the revenue as each performance obligation is satisfied.
| | - |  | ------------------------------------------------------------------

The Group had organized separate Task
Force team for implementation of IFRS 15 since December 31, 2014 for preparation of implementing IFRS 15 Revenue from Contracts with Customers. Also, the Group has been developing the internal control system and constructs accounting
process system by analyzing the Groups revenue structure with accounting firm and computation expert. IFRS 15 will affect not only accounting method but also the general business practice including strategy for sales and business attitude.
Therefore, the Group opens an orientation program for both Groups directors and employees, and periodically reports to the managements about plan for implementation and progress.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





As at the December 31, 2016 the Group is analyzing the effects on the consolidated financial
statement with the implementation of IFRS 15. The Group plans to complete the detailed analysis on financial effects of applying the standard by March 31, 2018. The Group identified the following areas are likely to be affected in general.



| | (a) | Identifying performance obligations
| | --- | -----------------------------------

The Group provides telecommunication services and sells handsets as
their main business. With the implementation of IFRS 15, the Group identifies performance obligations with a customer such as providing telecommunication services, selling handsets and other. The timing of revenue recognition depends on a
performance obligation is satisfied at a point in time or over time. Where a performance obligation is satisfied over time, the related revenue is also recognized over time.



| | (b) | Allocation the transaction price
| | --- | --------------------------------

With implementation of IFRS 15, the Group allocates the transaction
price to each performance obligation identified in a contract based on the relative stand-alone selling prices of the goods or services being provided to the customer. To allocate the transaction price to each performance obligation on a relative
stand-alone price basis, the Group determines the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those
stand-alone selling price. The stand-alone selling price is the price at which the Group would sell a promised good or service separately to the customer. The best evidence of a stand-alone selling price is the observable price of a good or service
when the Group sells that good or service separately in similar circumstances and to similar customers.



| | (c) | Incremental costs of obtaining a contract
| | --- | -----------------------------------------

The Group pays the commission fees when new customer subscribe
for telecommunication services. The incremental costs of obtaining a contract are those commission fees that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.

According to IFRS 15, the Group recognizes as an asset the incremental cost of obtaining contract and amortize it through the contract period. However,
as a practical expedient, the Group may recognize the incremental costs of obtaining a contracts as an expense when incurred if the amortization period of the asset is one year or less.



| | 2.3 | Consolidation
| | --- | -------------

The Group has prepared the consolidated financial statements in accordance with
IFRS 10, Consolidated Financial Statements.

(1) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred is measured at the fair
values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interests proportionate share of the acquired entitys net identifiable assets. All other non-controlling interests are measured at fair values,
unless otherwise required by other standards. Acquisition-related costs are expensed as incurred.

The excess of consideration transferred, amount of
any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is
recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase.

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated
unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(2) Changes in ownership interests in subsidiaries without change of control

Any difference between the amount of the adjustment to non-controlling interest that do not result in a loss of
control and any consideration paid or received is recognized in a separate reserve within equity attributable to owners of the Controlling Group.

(3) Disposal of subsidiaries

When the Group
ceases to consolidate for a subsidiary because of a loss of control, any retained interest in the subsidiary is remeasured to its fair value with the change in carrying amount recognized in profit or loss.

(4) Associates

Associates are all entities
over which the Group has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of
the Groups interest in the associates. If there is any objective evidence that the investment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the associate and its book amount as impairment
loss.

(5) Joint arrangement

A joint
arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its
share of any jointly held or incurred assets,



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





liabilities, revenues and expenses. A joint venture has rights to the net assets relating to the joint venture and accounts for that investment using the equity method.



| | 2.4 | Segment Reporting
| | --- | -----------------

Information of each operating segment is reported in a manner consistent with
the business segment reporting provided to the chief operating decision-maker (Note 32). The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.



| | 2.5 | Foreign Currency Translation
| | --- | ----------------------------

(1) Functional and presentation currency

Items included in the financial statements of each of the Groups entities are measured using the currency of the primary economic environment in
which the each entity operates (the functional currency). The consolidated financial statements are presented in Korean won, which is the Controlling Companys functional and presentation currency.

(2) Transactions and balances

Foreign
currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary
assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities
carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss
are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income.

(3) Translation to
the presentation currency

The results and financial position of foreign operations that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:



| |  |  | assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | income and expenses for each statement of profit or loss are translated at average exchange rates,
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | equity is translated at the historical exchange rate, and
| | - |  | ---------------------------------------------------------



| |  |  | all resulting exchange differences are recognized in other comprehensive income.
| | - |  | --------------------------------------------------------------------------------



| | 2.6 | Cash and Cash Equivalents
| | --- | -------------------------

Cash and cash equivalents include cash on hand, deposits held at call
with banks, and other short-term highly liquid investments with original maturities of less than three months.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2.7 | Financial Assets
| | --- | ----------------

(1) Classification and measurement

The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity financial
assets. Regular way purchases and sales of financial assets are recognized on trade-date, the date on which the Group commits to purchase or sell the asset.

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or
loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. And, loans and receivables and held-to-maturity investments are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of financial assets at fair value through profit or loss are recognized in profit or loss within
other income or other expenses. Gains or losses arising from changes in the available-for-sale financial assets are recognized in other comprehensive income, and amounts
are reclassified to profit or loss when the associated assets are sold or impaired.

(2) Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is
impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a
loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.

Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from
their carrying amount. The Group writes off financial assets when the assets are determined to be no longer recoverable.

The criteria that the Group
uses to determine that there is objective evidence of an impairment loss include:



| |  |  | Significant financial difficulty of the issuer or obligor;
| | - |  | ----------------------------------------------------------



| |  |  | A breach of contract, such as a default or delinquency in interest or principal payments;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | 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 becomes 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 portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be
identified with the individual financial assets in the portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(3) Derecognition

If the Group transfers a financial asset and the transfer does not result in derecognition because the Group has retained substantially of all risks and
rewards of ownership of the transferred asset due to a recourse in the event the debtor defaults, the Group continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received. The related
financial liability is classified as borrowings in the statement of financial position.

(4) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements of financial position where there is a legally
enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group or the counterparty.



| | 2.8 | Derivative Instruments
| | --- | ----------------------

Derivatives are initially recognized at fair value on the date when a
derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of profit or loss within other
income (expenses) and finance income (expenses) according to the nature of transactions.

If the Group uses a valuation technique
that incorporates data not obtained from observable markets for the fair value at initial recognition of the financial instrument, there may be a difference between the transaction price and the amount determined using that valuation technique (Day
1 profit and loss). In these circumstances, the fair value of the financial instrument is recognized as the transaction price and the difference is amortized by using the straight-line method over the life of the financial instrument. If the fair
value of the financial instrument is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss in the statement of profit or loss.

The Group applies cash flow hedge accounting to hedge the risks of foreign exchange and interest rates of the variable rate foreign currency bonds. The
effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately as finance
income (expenses) in the statement of profit or loss. Amounts of changes in fair value of effective hedging instruments accumulated in other comprehensive income are recognized as finance income (expenses) for the periods when the
corresponding transactions affect profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that is reported in other comprehensive income is recognized as finance income (expenses).

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest
method is used is amortized to profit or loss over the period to maturity.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2.9 | Inventories
| | --- | -----------

Inventories are stated at the lower of cost and net realizable value. Cost is
determined using the moving average method, except for inventories in-transit which is determined using the specific identification method.



| | 2.10 | Non-current Assets (or Disposal Group) Held-for-sale
| | ---- | ----------------------------------------------------

Non-current assets (or disposal group) are classified as assets held-for-sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. The assets are measured at the lower amount between their carrying
amount and the fair value less costs to sell.



| | 2.11 | Property, plant and Equipment
| | ---- | -----------------------------

Property, plant and equipment are stated at its cost less
accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

Depreciation of all property, plant, and equipment, except for land is calculated using the straight-line method to allocate their cost, net of their
residual values, over their estimated useful lives, as follows:



|                                                                         |  |                      
|------------------------------------------------------------------------ |  | ---------------------
|                                                                         |  | Estimated Useful Life
|Buildings                                                                |  | 5  40 years         
|Structures                                                               |  | 5  40 years         
|Machinery and equipment
(Telecommunications equipment and others)
Others |  | 2  40 years         
|Vehicles                                                                 |  | 4  6 years          
|Tools                                                                    |  | 4  6 years          
|Office equipment                                                         |  | 2  6 years          

The depreciation method, residual values and useful lives of property, plant and equipment are reviewed at the end of
each reporting period and, if appropriate, accounted for as changes in accounting estimates.



| | 2.12 | Investment Property
| | ---- | -------------------

Investment property is a property held to earn rentals or for capital
appreciation or both. An investment property is measured initially at its cost. After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. Investment property, except for land, is
depreciated using the straight-line method over their useful lives from 10 to 40 years.



| | 2.13 | Intangible Assets
| | ---- | -----------------

(1) Goodwill

Goodwill is measured as explained in Note 2.3 (1) and goodwill arising from acquisition of subsidiaries and business are included in intangible assets.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(2) Intangible assets except goodwill

Intangible assets, except for goodwill, are initially recognized at its historical cost, and carried at cost less accumulated amortization and
accumulated impairment losses. Membership rights (condominium membership and golf membership) and broadcast rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the
assets are expected to be utilized. The Group amortizes intangible assets with a limited useful life using the straight-line method over the following periods:



|                           |  |                      
|-------------------------- |  | ---------------------
|                           |  | Estimated Useful Life
|Development costs          |  | 5  6 years          
|Software                   |  | 6 years              
|Industrial property rights |  | 5  50 years         
|Frequency usage rights     |  | 5  10 years         
|Others1                    |  | 2  50 years         



| | 1 | Membership rights (condominium membership and golf membership) and broadcast license included in others are classified as intangible assets with indefinite useful life.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2.14 | Borrowing Costs
| | ---- | ---------------

General and specific borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Investment income earned on the temporary investment of specific
borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are expensed in the period in which they are incurred.



| | 2.15 | Government Grants
| | ---- | -----------------

Grants from the government are recognized at their fair value where there is a
reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants related to assets are presented in the statement of financial position by setting up the grant as deferred income that is
recognized in profit or loss on a systematic basis over the useful life of the asset. Grants related to income are presented as a credit in the statement of profit or loss within other income.



| | 2.16 | Impairment of Non-Financial Assets
| | ---- | ----------------------------------

Goodwill and
intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the assets carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an assets fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the
impairment at the end of reporting period.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2.17 | Financial Liabilities
| | ---- | ---------------------

(1) Classification and measurement

The Groups financial liabilities at fair value through profit or loss are financial instruments held for trading and designated as financial
liabilities at fair value through profit or loss. Financial liabilities held for trading are financial liabilities that are incurred principally for the purpose of repurchasing them in the near term and derivatives that are not designated as hedges
or bifurcated from financial instruments containing embedded derivatives. Financial liabilities that the Group designated as at fair value through profit or loss are structured financial liabilities containing embedded derivatives issued by the
Group.

As it was unable to measure the embedded derivatives separately from its host contract, the Group designated the entire hybrid contact as at
fair value through profit or loss. The financial liability that the Group designated as at fair value through profit or loss is a foreign convertible bond.

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through
profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as trade
payables, borrowings, and other financial liabilities in the statement of financial position.

Preferred shares that
provide for a mandatory redemption at a particular date are classified as liabilities. Interest expenses on these preferred shares calculated using the effective interest method are recognized in the statement of profit or loss as finance
costs, together with interest expenses recognized from other financial liabilities.

(2) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the
contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.



| | 2.18 | Financial Guarantee Contracts
| | ---- | -----------------------------

Financial guarantees contracts provided by the Group are initially
measured at fair value on the date the guarantee was given. Subsequent to initial recognition, the Groups liabilities under such guarantees are measured at the higher of the amounts below and recognized as other financial
liabilities:



| |  |  | the amount determined in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets; or
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the amount initially recognized less cumulative amortization in accordance with IAS 18, Revenue.
| | - |  | ------------------------------------------------------------------------------------------------



| | 2.19 | Compound Financial Instruments
| | ---- | ------------------------------

Compound financial instruments are convertible bonds that can be
converted into equity instruments at the option of the holder. The liability component of a compound financial instrument



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially on the difference between the fair
value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.



| | 2.20 | Employee Benefits
| | ---- | -----------------

(1) Post-employment benefits

The Group operates both defined benefit and defined contribution plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as
employee benefit expenses when an employee has rendered service.

A defined benefit plan is a pension plan that is not a defined contribution plan.
Generally, post-employment benefits are payable after the completion of employment, and the benefit amount depended on the employees age, periods of service or salary levels. The liability recognized in the statement of financial position in
respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries
using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in
which the benefits will be paid, and that have terms approximating to the terms of the related obligation. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which
they occur, directly in other comprehensive income.

Changes in the present value of the defined benefit obligation resulting from plan amendments or
curtailments are recognized immediately in profit or loss as past service costs.

(2) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benefits. The Group recognizes termination benefits at the earlier of the following dates: when the entity can no longer withdraw the offer of those benefits or when the entity recognizes costs for a restructuring.



| | 2.21 | Share-based payments
| | ---- | --------------------

Equity-settled share-based payment is recognized at fair value of equity
instruments on grant date, and employee benefit expense is recognized over the vesting period. At the end of each period, the Group revises its estimates of the number of options that are expected to vest based on the
non-market vesting and service conditions. It recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

When the options are exercised, the Group issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized as
share capital (nominal value) and share premium.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2.22 | Provisions
| | ---- | ----------

Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation, and the increase in the provision due to passage of time is recognized as interest expense.



| | 2.23 | Leases
| | ---- | ------

(1) Lessee

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed
period of time. Leases where all the risks and rewards of ownership are not transferred to the Group are classified as operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term.

Leases where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized as
lease assets and liabilities at the leases inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments.

(2) Lessor

A lease is classified as a
finance lease if it transfers substantially all the risks and rewards incidental to ownership at the inception of the lease. A lease other than a finance lease is classified as an operating lease. Lease income from operating leases is recognized in
income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term on
the same basis as the lease income.



| | 2.24 | Share Capital
| | ---- | -------------

The Group classifies ordinary shares as equity. Where the Controlling Company
purchases its own shares, the consideration paid, including any directly attributable incremental costs, is deducted from equity until the share are cancelled or reissued. When these treasury shares are reissued, any consideration received is
including in equity attributable to the equity holders of the Controlling Company.



| | 2.25 | Revenue Recognition
| | ---- | -------------------

Revenue is measured at the fair value of the consideration received or
receivable for the sale of goods or rendering of services arising from the normal activities of the Group. Amounts disclosed as revenue are net of value added taxes, returns, rebates and discounts and after elimination of intra-group transactions.

The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the
Group; and when specific criteria have been met for each of the Groups activities, as described below. The Group bases its estimate on historical results, taking into consideration the type of customer, the type of transaction and the
specifics of each arrangement.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(1) Rendering of Services

When providing interconnection or telecommunications service to a customer based on service plans, the related revenue is recognized at the time service
is provided. If the customer uses the telecommunications equipment according to the service plans, the related revenue is recognized on straight-line basis over the contract period. Revenue related to the other telecommunications services is
recognized when the service is provided to the customer.

For other services such as information technology and network services, satellite service,
security service and others, when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with such a transaction is recognized by reference to the stage of performance of the services. When the
outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognized only to the extent of the expenses recognized that are recoverable.

Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue
according to revenue recognition policy for the service.

(2) Sales of goods

The Group sells a range of handsets. Revenue from the sale of goods is recognized when products are delivered to the purchaser.

(3) Interest income

Interest income is
recognized using the effective interest method according to the time passed. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest
income on impaired loans and receivables is recognized using the original effective interest rate.

(4) Commission fees

Commission fees related to credit card business are recognized when it is probable that future economic benefits will flow to the entity and these
benefits can be reliably measured. Revenues from acquiree fee, agent fee, optional service fees, member service fees and credit card service charge are measured at the fair value of the consideration received and recognized on an accrual basis.

(5) Royalty income

Royalty income is
recognized on an accrual basis in accordance with the substance of the relevant agreements.

(6) Dividend income

Dividend income is recognized when the right to receive payment is established.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(7) Customer loyalty program

The Group operates a customer loyalty program where customers accumulate points for purchases made which entitle them to discounts on future purchases.
The reward points are recognized as a separately identifiable component of the initial sale transaction. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the reward points and the other
components of the sale. The fair value of the reward points is measured by taking into account the proportion of the reward points that are not expected to be redeemed by customers. Revenue from the reward points is recognized when the points are
redeemed.



| | 2.26 | Current and Deferred Income Tax
| | ---- | -------------------------------

The tax expense for the period consists of current and deferred
tax. Tax is recognized on the profit for the period in the statement of profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity, respectively. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

Management periodically evaluates tax policies that are applied in tax returns in which applicable tax regulation is subject to interpretation. The Group
recognizes current income tax on the basis of the amount expected to be paid to the tax authorities.

Deferred tax is recognized for temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and
liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized only if it is probable that future taxable amount will be available to utilize those temporary differences and losses.

Deferred tax liability is recognized for 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. In addition, deferred tax
asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary
difference can be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to
settle the balances on a net basis.



| | 2.27 | Dividend
| | ---- | --------

Dividend distribution to the Groups shareholders is recognized as a liability in
the financial statements in the period in which the dividends are approved by the Groups shareholders.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2.28 | Approval of Issuance of the Financial Statements
| | ---- | ------------------------------------------------

The issuance of the December 31, 2016
financial statements of the Group was approved by the directors on April 28, 2017.



|3. | Critical Accounting Estimates and Assumptions
|-- | ---------------------------------------------

The Group makes estimates and assumptions
concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The
resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are addressed below.



| | 3.1 | Impairment of Goodwill
| | --- | ----------------------

The Group tests whether goodwill has suffered any impairment on an annual
basis. The recoverable amount of cash-generating units (CGUs) is determined based on value-in-use calculations (Note 12).



| | 3.2 | Income Taxes
| | --- | ------------

The Group is operating in numerous countries and the income generated from these
operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain (Note 28).

If certain portion of the taxable income is not used for investments or increase in wages or dividends in accordance with the Tax System For
Recirculation of Corporate Income, the Group is liable to pay additional income tax calculated based on the tax laws. The new tax system is effective for three years from 2015. Accordingly, the measurement of current and deferred income tax is
affected by the tax effects from the new system. As the Groups income tax is dependent on the investments, increase in wages and dividends, there is an uncertainty in measuring the final tax effects.



| | 3.3 | Fair Value of Derivatives and Financial Instruments
| | --- | ---------------------------------------------------

The fair value of financial instruments that
are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period
(Note 35).



| | 3.4 | Allowance for doubtful accounts
| | --- | -------------------------------

The Group recognizes provisions for accounting of estimated loss
in customers insolvency. When the Allowance for doubtful accounts is estimated, it is based on the aging analysis of trade receivables balances, incurred loss experience, customers credit rates and changes of payment terms. If the
customers financial position becomes worse, the actual loss amount will be increased more than the estimated.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 3.5 | Net defined benefit liability
| | --- | -----------------------------

The present value of net defined benefit liability depends on a
number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate (Note 17).



| | 3.6 | Deferred Revenue
| | --- | ----------------

Service installation fees and initial subscription fees related to activation of
service are deferred and recognized as revenue over the expected terms of customer relationships. The estimate of expected terms of customer relationship is based on the historical rate. If managements estimation is amended, it may cause
significant differences in the timing of revenue recognition and amount recognized.



| | 3.7 | Provisions
| | --- | ----------

As described in Note 16, the Group records provisions for litigation and assets
retirement obligations as of the end of the reporting period. The provisions are estimated based on the factors such as the historical experiences.



| | 3.8 | Useful lives of Property and Equipment, Intangible Assets and Investment Property
| | --- | ---------------------------------------------------------------------------------

Depreciation on
the property and equipment, intangible assets and investment property, excluding land, condominium memberships, golf club memberships, and broadcasting concession, is calculated using the straight-line method over their useful lives. The estimated
useful lives are determined based on expected usage of the assets and the estimates can be materially affected by technical changes and other factors. The Group will increase depreciation if the useful lives are considered shorter than the
previously estimated useful lives.



|4. | Financial Instruments by Category
|-- | ---------------------------------

Financial instruments by category as of December 31, 2015
and 2016, are as follows:



|                            |  |                       |           |  |                                            |   |    |                          |  |   |                     |  |  |                   |         |  |       |   |        |  |  |   |           | 
|--------------------------- |  | --------------------- | --------- |  | ------------------------------------------ | - | -- | ------------------------ |  | - | ------------------- |  |  | ----------------- | ------- |  | ----- | - | ------ |  |  | - | --------- | 
|(In millions of Korean won) |  | 2015                  |          
|Financial assets            |  | Loans
and receivables |           |  | Assets at fairvalue throughprofit
and loss |   |    | Derivativesused forhedge |  |   | Available-
for-sale |  |  | Held-to-
Maturity |         |  | Total |  
|Cash and cash equivalents   |  | ₩                     | 2,559,464 |  |                                            | ₩ |   |                          |  | ₩ |                    |  |  | ₩                 |        |  |       | ₩ |       |  |  | ₩ | 2,559,464 | 
|Trade and other receivables |  |                       | 5,557,779 |  |                                            |   |   |                          |  |   |                    |  |  |                   |        |  |       |   |       |  |  |   | 5,557,779 | 
|Other financial assets      |  |                       | 434,093   |  |                                            |   | 18 |                          |  |   | 139,088             |  |  |                   | 360,037 |  |       |   | 18,030 |  |  |   | 951,266   | 



|                            |  |                                                 |       |  |                           |   |        |                                       |  |   |           |  |  |   |           | 
|--------------------------- |  | ----------------------------------------------- | ----- |  | ------------------------- | - | ------ | ------------------------------------- |  | - | --------- |  |  | - | --------- | 
|(In millions of Korean won) |  | 2015                                            |      
|Financial liabilities       |  | Liabilities atfair valuethrough profit
and loss |       |  | Derivatives
used forhedge |   |        | Financialliabilities atamortized cost |  |   | Total     | 
|Trade and other payables    |  | ₩                                               |      |  |                           | ₩ |       |                                       |  | ₩ | 7,004,000 |  |  | ₩ | 7,004,000 | 
|Borrowings                  |  |                                                 |      |  |                           |   |       |                                       |  |   | 8,634,897 |  |  |   | 8,634,897 | 
|Other financial liabilities |  |                                                 | 2,006 |  |                           |   | 62,883 |                                       |  |   | 82,439    |  |  |   | 147,328   | 



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                            |  |                       |           |  |                                             |   |       |                          |  |   |                     |  |  |                   |         |  |       |   |        |  |  |   |           | 
|--------------------------- |  | --------------------- | --------- |  | ------------------------------------------- | - | ----- | ------------------------ |  | - | ------------------- |  |  | ----------------- | ------- |  | ----- | - | ------ |  |  | - | --------- | 
|(In millions of Korean won) |  | 2016                  |          
|Financial assets            |  | Loans
and receivables |           |  | Assets at fair
value throughprofit and
loss |   |       | Derivativesused forhedge |  |   | Available-
for-sale |  |  | Held-to-
Maturity |         |  | Total |  
|Cash and cash equivalents   |  | ₩                     | 2,900,311 |  |                                             | ₩ |      |                          |  | ₩ |                    |  |  | ₩                 |        |  |       | ₩ |       |  |  | ₩ | 2,900,311 | 
|Trade and other receivables |  |                       | 6,036,363 |  |                                             |   |      |                          |  |   |                    |  |  |                   |        |  |       |   |       |  |  |   | 6,036,363 | 
|Other financial assets      |  |                       | 716,769   |  |                                             |   | 6,277 |                          |  |   | 227,318             |  |  |                   | 404,774 |  |       |   | 30,143 |  |  |   | 1,385,281 | 



|                            |  |                                                |       |  |                           |   |        |                                       |  |   |           |  |  |   |           | 
|--------------------------- |  | ---------------------------------------------- | ----- |  | ------------------------- | - | ------ | ------------------------------------- |  | - | --------- |  |  | - | --------- | 
|(In millions of Korean won) |  | 2016                                           |      
|Financial liabilities       |  | Liabilities atfair valuethrough profitand loss |       |  | Derivatives
used forhedge |   |        | Financialliabilities atamortized cost |  |   | Total     | 
|Trade and other payables    |  | ₩                                              |      |  |                           | ₩ |       |                                       |  | ₩ | 8,328,082 |  |  | ₩ | 8,328,082 | 
|Borrowings                  |  |                                                |      |  |                           |   |       |                                       |  |   | 8,120,791 |  |  |   | 8,120,791 | 
|Other financial liabilities |  |                                                | 1,973 |  |                           |   | 14,928 |                                       |  |   | 91,763    |  |  |   | 108,664   | 

Gains or losses arising from financial instruments by category for the years ended December 31, 2014, 2015 and 2016,
are as follows:



|                                                                               |  |      |          |   |      |   |          |      |  |   |         |  
|------------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|(In millions of Korean won)                                                    |  | 2014 |          |   | 2015 |   |          | 2016 | 
|Loans and receivables                                                          |  |      |          |   |      |   |          |      |  |   |         |  
|Interest income1, 4                                                            |  | ₩    | 94,380   |   |      | ₩ | 85,603   |      |  | ₩ | 129,813 |  
|Loss on foreign currency transaction                                           |  |      | (1,086   | ) |      |   | (365     | )    |  |   | (7,493  | )
|Gain on foreign currency translation                                           |  |      | 7,954    |   |      |   | 1,921    |      |  |   | 3,083   |  
|Loss on disposal                                                               |  |      | (16,464  | ) |      |   | (2,539   | )    |  |   | (15,838 | )
|Loss on valuation                                                              |  |      | (230,791 | ) |      |   | (141,555 | )    |  |   | (92,589 | )
|Assets at fair value through profit or loss                                    |  |      |          |   |      |   |          |      |  |   |         |  
|Gain(loss) on disposal                                                         |  |      | (587     | ) |      |   | 368      |      |  |   | 186     |  
|Loss on valuation                                                              |  |      | (794     | ) |      |   |         |      |  |   | (7,184  | )
|                                                                               |  |      |         
|Derivatives used for hedging                                                   |  |      |          |   |      |   |          |      |  |   |         |  
|Loss on transaction                                                            |  |      | (34,653  | ) |      |   | (5,157   | )    |  |   |        |  
|Gain on valuation                                                              |  |      | 64,700   |   |      |   | 141,512  |      |  |   | 109,436 |  
|Other comprehensive income for the year2                                       |  |      | 28,928   |   |      |   | 100,401  |      |  |   | 60,501  |  
|Reclassified to profit or loss from other comprehensive income for the year2,3 |  |      | (49,524  | ) |      |   | (88,003  | )    |  |   | (71,915 | )
|Available-for-sale                                                             |  |      |          |   |      |   |          |      |  |   |         |  
|Interest income1,4                                                             |  |      | 45       |   |      |   | 73       |      |  |   | 40      |  
|Dividend income                                                                |  |      | 3,808    |   |      |   | 7,733    |      |  |   | 3,926   |  
|Gain(loss) on disposal                                                         |  |      | (13,495  | ) |      |   | 131,045  |      |  |   | 22,695  |  
|Impairment loss                                                                |  |      | (70,022  | ) |      |   | (1,471   | )    |  |   | (966    | )
|Other comprehensive income for the year2                                       |  |      | 39,336   |   |      |   | 47,381   |      |  |   | 10,925  |  
|Reclassified to profit or loss from other comprehensive income for the year2   |  |      | (17,173  | ) |      |   | (83,397  | )    |  |   | (3,840  | )
|Held-to-Maturity                                                               |  |      |          |   |      |   |          |      |  |   |         |  
|Interest income1,4                                                             |  |      | 159      |   |      |   | 226      |      |  |   | 213     |  



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                                                               |  |      |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|(In millions of Korean won)                                                    |  | 2014 |          |   | 2015 |   |          | 2016 | 
|Liabilities at fair value through profit and loss                              |  |      |          |   |      |   |          |      |  |   |          |  
|Loss on foreign currency transaction                                           |  |      | (134     | ) |      |   |         |      |  |   |         |  
|Gain(loss) on disposal                                                         |  |      | 13       |   |      |   | (850     | )    |  |   | (632     | )
|Gain(loss) on valuation                                                        |  |      | 32       |   |      |   | (2,006   | )    |  |   | 33       |  
|Derivatives used for hedging                                                   |  |      |          |   |      |   |          |      |  |   |          |  
|Gain(loss) on transactions                                                     |  |      | 2,121    |   |      |   | (273     | )    |  |   | 8,329    |  
|Gain(loss) on valuation                                                        |  |      | 3,179    |   |      |   | (1,733   | )    |  |   | (138     | )
|Other comprehensive income for the year2                                       |  |      | (11,938  | ) |      |   | 11,513   |      |  |   | 4,295    |  
|Reclassified to profit or loss from other comprehensive income for the year2,3 |  |      | 4,729    |   |      |   | (9,959   | )    |  |   | (3,956   | )
|Financial liabilities at amortized cost                                        |  |      |          |   |      |   |          |      |  |   |          |  
|Interest expense4                                                              |  |      | (475,084 | ) |      |   | (385,925 | )    |  |   | (337,219 | )
|Gain(loss) foreign currency transaction                                        |  |      | 12,443   |   |      |   | (23,416  | )    |  |   | (7,518   | )
|Loss foreign currency translation                                              |  |      | (99,145  | ) |      |   | (166,254 | )    |  |   | (112,864 | )
|Other liabilities                                                              |  |      |          |   |      |   |          |      |  |   |          |  
|Financial guarantee gain                                                       |  |      | 5,198    |   |      |   |         |      |  |   |         |  
|Total                                                                          |  | ₩    | (753,865 | ) |      | ₩ | (385,127 | )    |  | ₩ | (308,677 | )



|1 | BC Card, a subsidiary of the Group, recognized interest income as operating revenue. Interest income recognized as operating revenue is ₩14,380 million (2014:
₩14,340 million, 2015: ₩15,867 million) for the year ended December 31, 2016.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | The amounts directly reflected in equity before adjustments of deferred income tax.
|- | -----------------------------------------------------------------------------------

|3 | During the year, certain derivatives of the Group were settled and the related gain or loss on valuation of cash flow hedge in other comprehensive income was reclassified to profit or loss for the year.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Excluded the interest income amounting to ₩75,221 million (2014: ₩143,391 million) and the interest
expense amounting to ₩59,889 million (2014: ₩103,126 million) recognized by KT Rental Co., Ltd. and KT Capital Co., Ltd., former
subsidiaries, as they are classified as discontinued operations for the year ended December 31, 2015.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | Cash and Cash Equivalents to Restricted Cash
|-- | --------------------------------------------

Restricted cash and cash equivalents as of
December 31, 2015 and 2016, are as follows:



|                                     |  |                    |  |        |  |         |  |                                                       
|------------------------------------ |  | ------------------ |  | ------ |  | ------- |  | ------------------------------------------------------
|(In millions of Korean won)          |  | Type               |  | 2015   |  | 2016    |  | Description                                           
|Restricted cash and
cash equivalents |  | Restricted deposit |  | ₩9,033 |  | ₩19,920 |  | Deposit restricted for governmental project and others

Cash and cash equivalents in the statement of financial position equal to cash and cash equivalents in the statement of
cash flows.



F-38



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|6. | Trade and Other Receivables
|-- | ---------------------------

Trade and other receivables as of December 31, 2015 and 2016,
are as follows:



|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|--------------------------- |  | ------------- | --------- |  | ------------------------------ | - | -------- | --------------------- |  | - | --------------- | - |  | - | --------- | 
|                            |  | 2015          |          
|(In millions of Korean won) |  | Total
amounts |           |  | Allowancefor
doubtful accounts |   |          | Present
valuediscount |  |   | Carrying
amount |  
|Current assets              |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Trade receivables           |  | ₩             | 3,483,719 |  |                                | ₩ | (468,263 | )                     |  | ₩ | (8,879          | ) |  | ₩ | 3,006,577 | 
|Other receivables           |  |               | 2,023,195 |  |                                |   | (175,753 | )                     |  |   | (387            | ) |  |   | 1,847,055 | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|                            |  | ₩             | 5,506,914 |  |                                | ₩ | (644,016 | )                     |  | ₩ | (9,266          | ) |  | ₩ | 4,853,632 | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Non-current assets          |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Trade receivables           |  | ₩             | 248,212   |  |                                | ₩ | (478     | )                     |  | ₩ | (16,644         | ) |  | ₩ | 231,090   | 
|Other receivables           |  |               | 583,562   |  |                                |   | (75,089  | )                     |  |   | (35,416         | ) |  |   | 473,057   | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|                            |  | ₩             | 831,774   |  |                                | ₩ | (75,567  | )                     |  | ₩ | (52,060         | ) |  | ₩ | 704,147   | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 



|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|--------------------------- |  | ------------- | --------- |  | ------------------------------ | - | -------- | --------------------- |  | - | --------------- | - |  | - | --------- | 
|                            |  | 2016          |          
|(In millions of Korean won) |  | Total
amounts |           |  | Allowancefor
doubtful accounts |   |          | Present
valuediscount |  |   | Carrying
amount |  
|Current assets              |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Trade receivables           |  | ₩             | 3,161,234 |  |                                | ₩ | (470,239 | )                     |  | ₩ | (5,343          | ) |  | ₩ | 2,685,652 | 
|Other receivables           |  |               | 2,763,942 |  |                                |   | (121,972 | )                     |  |   | (270            | ) |  |   | 2,641,700 | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|                            |  | ₩             | 5,925,176 |  |                                | ₩ | (592,211 | )                     |  | ₩ | (5,613          | ) |  | ₩ | 5,327,352 | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Non-current assets          |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|Trade receivables           |  | ₩             | 263,367   |  |                                | ₩ | (632     | )                     |  | ₩ | (12,835         | ) |  | ₩ | 249,900   | 
|Other receivables           |  |               | 507,251   |  |                                |   | (19,644  | )                     |  |   | (28,496         | ) |  |   | 459,111   | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 
|                            |  | ₩             | 770,618   |  |                                | ₩ | (20,276  | )                     |  | ₩ | (41,331         | ) |  | ₩ | 709,011   | 
|                            |  |               |           |  |                                |   |          |                       |  |   |                 |   |  |   |           | 

The fair values of trade and other receivables with original maturities less than one year equal to their carrying
amounts because the discounting effect is immaterial. The fair value of trade and other receivables with original maturities longer than one year, which are mainly from sales of goods, is determined discounting the expected future cash flow at the
weighted average interest rate.

Details of changes in Allowance for doubtful accounts the years ended December 31, 2015 and 2016, are as
follows:



|                                      |  |                  |          |   |                  |   |         |                  |  |   |                  |   |  |   |          |  
|------------------------------------- |  | ---------------- | -------- | - | ---------------- | - | ------- | ---------------- |  | - | ---------------- | - |  | - | -------- | -
|                                      |  | 2015             |          |   | 2016             |  
|(In millions of Korean won)           |  | Tradereceivables |          |   | Otherreceivables |   |         | Tradereceivables |  |   | Otherreceivables |  
|Beginning balance                     |  | ₩                | 527,617  |   |                  | ₩ | 311,082 |                  |  | ₩ | 468,741          |   |  | ₩ | 250,842  |  
|Provision                             |  |                  | 95,489   |   |                  |   | 46,066  |                  |  |   | 84,975           |   |  |   | 7,736    |  
|Reversal or written-off               |  |                  | (135,381 | ) |                  |   | (33,282 | )                |  |   | (80,518          | ) |  |   | (108,638 | )
|Changes in the scope of consolidation |  |                  | (16,752  | ) |                  |   | (69,732 | )                |  |   | 215              |   |  |   | 56       |  
|Others                                |  |                  | (2,232   | ) |                  |   | (3,292  | )                |  |   | (2,542           | ) |  |   | (8,380   | )
|                                      |  |                  |          |   |                  |   |         |                  |  |   |                  |   |  |   |          |  
|Ending balance                        |  | ₩                | 468,741  |   |                  | ₩ | 250,842 |                  |  | ₩ | 470,871          |   |  | ₩ | 141,616  |  
|                                      |  |                  |          |   |                  |   |         |                  |  |   |                  |   |  |   |          |  



F-39



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Provisions for impairment on trade and other receivables are recognized as operating expenses, other
expenses and finance costs.

Details of aging analysis of trade receivables as of December 31, 2015 and 2016, are as follows:



|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|(in millions of Korean won)           |  | 2015 |           |   | 2016 |  
|Neither past due nor impaired         |  | ₩    | 2,756,471 |   |      | ₩ | 2,377,637 |  
|                                      |  |      |           |   |      |   |           |  
|Past due and impaired                 |  |      |           |   |      |   |           |  
|Up to 6 months                        |  |      | 606,704   |   |      |   | 685,288   |  
|6 months to 12 months                 |  |      | 82,668    |   |      |   | 87,547    |  
|Over 12 months                        |  |      | 260,565   |   |      |   | 255,951   |  
|                                      |  |      |           |   |      |   |           |  
|                                      |  |      | 949,937   |   |      |   | 1,028,786 |  
|Less: Allowance for doubtful accounts |  |      | (468,741  | ) |      |   | (470,871  | )
|                                      |  |      |           |   |      |   |           |  
|                                      |  | ₩    | 3,237,667 |   |      | ₩ | 2,935,552 |  
|                                      |  |      |           |   |      |   |           |  

Details of other receivables as of December 31, 2015 and 2016, are as follows:



|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|(In millions of Korean won)           |  | 2015 |           |   | 2016 |  
|Loans                                 |  | ₩    | 117,808   |   |      | ₩ | 80,308    |  
|Receivables1                          |  |      | 1,973,280 |   |      |   | 2,709,177 |  
|Accrued income                        |  |      | 10,119    |   |      |   | 9,903     |  
|Refundable deposits                   |  |      | 403,816   |   |      |   | 390,035   |  
|Loans receivable                      |  |      | 29,101    |   |      |   | 10,355    |  
|Finance lease receivables             |  |      | 14,645    |   |      |   | 16,280    |  
|Others                                |  |      | 22,185    |   |      |   | 26,369    |  
|Less: Allowance for doubtful accounts |  |      | (250,842  | ) |      |   | (141,616  | )
|                                      |  |      |           |   |      |   |           |  
|                                      |  | ₩    | 2,320,112 |   |      | ₩ | 3,100,811 |  
|                                      |  |      |           |   |      |   |           |  



|1 | The settlement receivables of BC Card Co., Ltd. of ₩1,962,880 million (2015: ₩1,211,272 million) are
included.
|- | --------------------------------------------------------------------------------------------------------------

Details of aging analysis of other receivables as of December 31, 2015 and 2016, are as follows:



|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|(In millions of Korean won)           |  | 2015 |           |   | 2016 |  
|Neither past due nor impaired         |  | ₩    | 2,203,796 |   |      | ₩ | 2,971,239 |  
|                                      |  |      |           |   |      |   |           |  
|Past due and impaired                 |  |      |           |   |      |   |           |  
|Up to 6 months                        |  |      | 114,920   |   |      |   | 134,231   |  
|6 months to 12 months                 |  |      | 12,163    |   |      |   | 12,805    |  
|Over 12 months                        |  |      | 240,075   |   |      |   | 124,152   |  
|                                      |  |      |           |   |      |   |           |  
|                                      |  |      | 367,158   |   |      |   | 271,188   |  
|Less: Allowance for doubtful accounts |  |      | (250,842  | ) |      |   | (141,616  | )
|                                      |  |      |           |   |      |   |           |  
|Total                                 |  | ₩    | 2,320,112 |   |      | ₩ | 3,100,811 |  
|                                      |  |      |           |   |      |   |           |  

The maximum exposure of trade and other receivables to credit risk is the carrying amount of each class of receivables
mentioned above as of December 31, 2016.



F-40



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|7. | Other Financial Assets and Liabilities
|-- | --------------------------------------

Details of other financial assets and liabilities as of
December 31, 2015 and 2016, are as follows:



|                                                               |  |      |          |   |      |   |          |  
|-------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|(In millions of Korean won)                                    |  | 2015 |          |   | 2016 |  
|Other financial assets                                         |  |      |          |   |      |   |          |  
|Financial assets at fair value through profit or loss          |  | ₩    | 18       |   |      | ₩ | 6,277    |  
|Derivatives used for hedge                                     |  |      | 139,088  |   |      |   | 227,318  |  
|Financial instruments1                                         |  |      | 434,093  |   |      |   | 716,769  |  
|Available-for-sale financial
assets1                           |  |      | 360,037  |   |      |   | 404,774  |  
|Held-to-maturity
investments                                   |  |      | 18,030   |   |      |   | 30,143   |  
|Less: Non-current                                              |  |      | (658,323 | ) |      |   | (664,726 | )
|                                                               |  |      |          |   |      |   |          |  
|Current                                                        |  | ₩    | 292,943  |   |      | ₩ | 720,555  |  
|                                                               |  |      |          |   |      |   |          |  
|Other financial liabilities                                    |  |      |          |   |      |   |          |  
|Financial liabilities at fair value through the profit or loss |  | ₩    | 2,006    |   |      | ₩ | 1,973    |  
|Derivatives used for hedge                                     |  |      | 62,883   |   |      |   | 14,928   |  
|Other financial liabilities2                                   |  |      | 82,439   |   |      |   | 91,763   |  
|Less: Non-current                                              |  |      | (103,683 | ) |      |   | (108,431 | )
|                                                               |  |      |          |   |      |   |          |  
|Current                                                        |  | ₩    | 43,645   |   |      | ₩ | 233      |  
|                                                               |  |      |          |   |      |   |          |  



|1 | As of December 31, 2016, the Groups financial instruments amounting to ₩49,721 million (December 31, 2015:
₩42,669 million), which consist of certain proceeds from the disposal of Ustream Inc. deposited in an escrow account, checking account deposits and deposits for
Win-win Growth Cooperative loans, are subject to withdrawal restrictions.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Redeemable preferred shares of subsidiaries of ₩87,769 million (2015: ₩79,238 million) are included.
|- | ----------------------------------------------------------------------------------------------------

Financial instruments at fair value through profit or loss as of December 31, 2015 and 2016, are as follows:



|                                                            |  |        |    |  |             |   |       |        |  |   |             |  |  |   |       | 
|----------------------------------------------------------- |  | ------ | -- |  | ----------- | - | ----- | ------ |  | - | ----------- |  |  | - | ----- | 
|                                                            |  | 2015   |    |  | 2016        |  
|(In millions of Korean won)                                 |  | Assets |    |  | Liabilities |   |       | Assets |  |   | Liabilities | 
|Financial instruments at fair value through profit and loss |  | ₩      |   |  |             | ₩ |      |        |  | ₩ | 6,277       |  |  | ₩ |      | 
|Other derivatives liabilities                               |  | ₩      | 18 |  |             | ₩ | 2,006 |        |  | ₩ |            |  |  | ₩ | 1,973 | 

The valuation gains and losses on financial assets held for trading for the years ended December 31, 2014, 2015 and
2016, are as follows:



|                            |  |                |     |  |                 |   |       |                |  |   |                 |  |  |                |   |  |                 |   |   |  |  |   |   | 
|--------------------------- |  | -------------- | --- |  | --------------- | - | ----- | -------------- |  | - | --------------- |  |  | -------------- | - |  | --------------- | - | - |  |  | - | - | 
|                            |  | 2014           |     |  | 2015            |   |       | 2016           | 
|(in millions of Korean won) |  | Valuationgains |     |  | Valuationlosses |   |       | Valuationgains |  |   | Valuationlosses |  |  | Valuationgains |   |  | Valuationlosses |  
|Interest rate swap          |  | ₩              |    |  |                 | ₩ | 1     |                |  | ₩ |                |  |  | ₩              |  |  |                 | ₩ |  |  |  | ₩ |  | 
|Other derivatives           |  |                | 611 |  |                 |   | 1,006 |                |  |   |                |  |  |                |  |  |                 |   |  |  |  |   |  | 
|                            |  |                |     |  |                 |   |       |                |  |   |                 |  |  |                |   |  |                 |   |   |  |  |   |   | 
|Total                       |  | ₩              | 611 |  |                 | ₩ | 1,007 |                |  | ₩ |                |  |  | ₩              |  |  |                 | ₩ |  |  |  | ₩ |  | 
|                            |  |                |     |  |                 |   |       |                |  |   |                 |  |  |                |   |  |                 |   |   |  |  |   |   | 



F-41



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The valuation gains and losses on financial instruments at fair value through profit or loss for the
years ended December 31, 2014, 2015 and 2016, are as follows:



|                                  |  |      |      |   |      |   |   |      |  |   |   | 
|--------------------------------- |  | ---- | ---- | - | ---- | - | - | ---- |  | - | - | 
|(In millions of Korean won)       |  | 2014 |      |   | 2015 |   |   | 2016 | 
|Loss foreign currency translation |  | ₩    | (134 | ) |      | ₩ |  |      |  | ₩ |  | 
|Loss on valuation                 |  |      | (398 | ) |      |   |  |      |  |   |  | 
|                                  |  |      |      |   |      |   |   |      |  |   |   | 
|Total                             |  | ₩    | (532 | ) |      | ₩ |  |      |  | ₩ |  | 
|                                  |  |      |      |   |      |   |   |      |  |   |   | 

The maximum exposure of debt securities of financial instruments at fair value through profit or loss to credit risk is
carrying amount as of December 31, 2016.

The valuation gains and losses on financial assets and liabilities at fair value through profit or
loss and held for trading for the years ended December 31, 2014, 2015 and 2016, are as follows:

Financial assets and liabilities at fair
value through profit or loss



|                                               |  |                |   |  |                 |   |   |                |  |   |                 |  |  |                |   |  |                 |   |     |  |  |   |       | 
|---------------------------------------------- |  | -------------- | - |  | --------------- | - | - | -------------- |  | - | --------------- |  |  | -------------- | - |  | --------------- | - | --- |  |  | - | ----- | 
|                                               |  | 2014           |   |  | 2015            |   |   | 2016           | 
|(in millions of Korean won)                    |  | Valuationgains |   |  | Valuationlosses |   |   | Valuationgains |  |   | Valuationlosses |  |  | Valuationgains |   |  | Valuationlosses |  
|Valuation gains and losses on financial assets |  | ₩              |  |  |                 | ₩ |  |                |  | ₩ |                |  |  | ₩              |  |  |                 | ₩ | 470 |  |  | ₩ | 7,654 | 
|                                               |  |                |   |  |                 |   |   |                |  |   |                 |  |  |                |   |  |                 |   |     |  |  |   |       | 
|Total                                          |  | ₩              |  |  |                 | ₩ |  |                |  | ₩ |                |  |  | ₩              |  |  |                 | ₩ | 470 |  |  | ₩ | 7,654 | 
|                                               |  |                |   |  |                 |   |   |                |  |   |                 |  |  |                |   |  |                 |   |     |  |  |   |       | 

Held for trading



|                                               |  |                |    |  |                 |   |   |                |  |   |                 |  |  |                |       |  |                 |   |    |  |  |   |   | 
|---------------------------------------------- |  | -------------- | -- |  | --------------- | - | - | -------------- |  | - | --------------- |  |  | -------------- | ----- |  | --------------- | - | -- |  |  | - | - | 
|                                               |  | 2014           |    |  | 2015            |   |   | 2016           | 
|(in millions of Korean won)                    |  | Valuationgains |    |  | Valuationlosses |   |   | Valuationgains |  |   | Valuationlosses |  |  | Valuationgains |       |  | Valuationlosses |  
|Valuation gains and losses on financial assets |  | ₩              | 32 |  |                 | ₩ |  |                |  | ₩ |                |  |  | ₩              | 2,006 |  |                 | ₩ | 33 |  |  | ₩ |  | 
|                                               |  |                |    |  |                 |   |   |                |  |   |                 |  |  |                |       |  |                 |   |    |  |  |   |   | 
|Total                                          |  | ₩              | 32 |  |                 | ₩ |  |                |  | ₩ |                |  |  | ₩              | 2,006 |  |                 | ₩ | 33 |  |  | ₩ |  | 
|                                               |  |                |    |  |                 |   |   |                |  |   |                 |  |  |                |       |  |                 |   |    |  |  |   |   | 

The maximum exposure of debt securities of financial instruments at fair value through profit or loss to credit risk is
carrying amount as of December 31, 2016.

Derivatives used for hedge as of December 31, 2015 and 2016, are as follows:



2015


2016(in millions of Korean won)

Assets


Liabilities


Assets


LiabilitiesInterest rate swap1

₩



₩
2,859


₩



₩
3,278Currency swap2


137,100



58,284



214,648



11,650Currency forwards3


1,988



1,740



12,670



Total


139,088



62,883



227,318



14,928Less: non-current


(139,088
)


(19,238
)


(97,220
)


(14,695
)Current

₩



₩
43,645


₩
130,098


₩
233




| | 1 | The interest rate swap contract is to hedge the risk of variability in future fair value of the bond.
| | - | -----------------------------------------------------------------------------------------------------



F-42



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2 | The currency swap contract is to hedge the risk of variability in cash flow from the bond. In applying the cash flow hedge accounting, the Group hedges its exposures to cash flow fluctuation until September 7,
2034.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | The currency forward contract is to hedge the risk of variability in cash flow from transactions in foreign currencies due to changes in foreign exchange rate.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

The full value of a hedging derivative is classified as a non-current asset or liability if the remaining
maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

The valuation gains and losses on the derivatives contracts for the years ended December 31, 2014, 2015 and 2016, are as follows:



|                           |  |               |        |  |               |   |        |                            |  |   |               |  |  |               |         |  |                            |   |       |               |  |   |               |   |  |                            |         |  |  |   |     |   |  |   |        |  
|-------------------------- |  | ------------- | ------ |  | ------------- | - | ------ | -------------------------- |  | - | ------------- |  |  | ------------- | ------- |  | -------------------------- | - | ----- | ------------- |  | - | ------------- | - |  | -------------------------- | ------- |  |  | - | --- | - |  | - | ------ | -
|(in millionsof Korean won) |  | 2014          |        |  | 2015          |   |        | 2016                       | 
|Type ofTransaction         |  | Valuationgain |        |  | Valuationloss |   |        | Other
comprehensiveincome1 |  |   | Valuationgain |  |  | Valuationloss |         |  | Other
comprehensiveincome1 |   |       | Valuationgain |  |   | Valuationloss |   |  | Other
comprehensiveincome1 |        
|Interest rate swap         |  | ₩             |       |  |               | ₩ |       |                            |  | ₩ | 334           |  |  | ₩             |        |  |                            | ₩ |      |               |  | ₩ | (2,858        | ) |  | ₩                          |        |  |  | ₩ | 148 |   |  | ₩ | (142   | )
|Currency swap              |  |               | 93,235 |  |               |   | 25,356 |                            |  |   | 22,080        |  |  |               | 141,512 |  |                            |   | 1,733 |               |  |   | 150,255       |   |  |                            | 97,158  |  |  |   | (10 | ) |  |   | 85,479 |  
|Currency forwards          |  |               |       |  |               |   |       |                            |  |   |              |  |  |               |        |  |                            |   |      |               |  |   | 247           |   |  |                            | 12,278  |  |  |   |    |   |  |   | 146    |  
|                           |  |               |        |  |               |   |        |                            |  |   |               |  |  |               |         |  |                            |   |       |               |  |   |               |   |  |                            |         |  |  |   |     |   |  |   |        |  
|Total                      |  | ₩             | 93,235 |  |               | ₩ | 25,356 |                            |  | ₩ | 22,414        |  |  | ₩             | 141,512 |  |                            | ₩ | 1,733 |               |  | ₩ | 147,644       |   |  | ₩                          | 109,436 |  |  | ₩ | 138 |   |  | ₩ | 85,483 |  
|                           |  |               |        |  |               |   |        |                            |  |   |               |  |  |               |         |  |                            |   |       |               |  |   |               |   |  |                            |         |  |  |   |     |   |  |   |        |  



|1 | The amounts before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest.
|- | ----------------------------------------------------------------------------------------------------------------------------------

The ineffective portion recognized in profit or loss on the cash flow hedge is valuation gain of
₩1,637 million for the current period (2014: valuation income of ₩1,178 million, 2015: valuation gain of ₩2,663 million).

Details of
available-for-sale financial assets as of December 31, 2015, and 2016 are as follows:



(In millions of Korean won)

2015


2016Marketable equity securities

₩
41,202


₩
5,387Non-marketable equity securities


297,447



372,703Debt securities


21,388



26,684Total


360,037



404,774Less: non-current


(342,562
)


(384,798
)Current

₩
17,475


₩
19,976




F-43



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Changes of
available-for-sale financial assets for the years ended December 31, 2015, and 2016 are as follows:



(In millions of Korean won)

2015


2016Beginning

₩
525,556


₩
360,037Acquisition


99,111



44,302Disposal


(222,103
)


(18,161
)Valuation1


62,508



14,413Impairment


(1,471
)


(966
)Reclassification


125



5,149Changes in scope of consolidation


(103,689
)


Ending

₩
360,037


₩
404,774




| | 1 | The amounts before adjustments of deferred income tax directly reflected in equity and allocation to the non-controlling interest.
| | - | ----------------------------------------------------------------------------------------------------------------------------------

The maximum exposure of debt securities of available-for-sale financial
assets to credit risk is carrying amount as of December 31, 2016.

Available-for-sale financial assets are measured at fair value. However, non-marketable equity securities that do not have quoted market prices in an active market and the fair value of which cannot be reliably measured are recognized at cost and the impairment loss is recognized if any.

None of the available-for-sale financial assets are past due and the
impaired assets amount to ₩788 million as of December 31, 2016.

Investment in
Korea Software Financial Cooperative amounting to ₩1,000 million is provided as collateral as consideration for payment guarantees provided by Korea Software Financial Cooperative (Note
19).



|8. | Inventories
|-- | -----------

Inventories as of December 31, 2015 and 2016, are as follows:



|                            |  |                 |         |  |                    |   |         |            |  |   |                 |  |  |                    |         |  |            |   |         |   |  |   |         | 
|--------------------------- |  | --------------- | ------- |  | ------------------ | - | ------- | ---------- |  | - | --------------- |  |  | ------------------ | ------- |  | ---------- | - | ------- | - |  | - | ------- | 
|                            |  | 2015            |         |  | 2016               |  
|(In millions of Korean won) |  | Acquisitioncost |         |  | Valuationallowance |   |         | Bookamount |  |   | Acquisitioncost |  |  | Valuationallowance |         |  | Bookamount |  
|Merchandise                 |  | ₩               | 580,761 |  |                    | ₩ | (66,996 | )          |  | ₩ | 513,765         |  |  | ₩                  | 403,938 |  |            | ₩ | (46,634 | ) |  | ₩ | 357,304 | 
|Others                      |  |                 | 103,501 |  |                    |   | (355    | )          |  |   | 103,146         |  |  |                    | 97,778  |  |            |   | (494    | ) |  |   | 97,284  | 
|                            |  |                 |         |  |                    |   |         |            |  |   |                 |  |  |                    |         |  |            |   |         |   |  |   |         | 
|Total                       |  | ₩               | 684,262 |  |                    | ₩ | (67,351 | )          |  | ₩ | 616,911         |  |  | ₩                  | 501,716 |  |            | ₩ | (47,128 | ) |  | ₩ | 454,588 | 
|                            |  |                 |         |  |                    |   |         |            |  |   |                 |  |  |                    |         |  |            |   |         |   |  |   |         | 

Cost of inventories recognized as expenses for the year ended December 31, 2016, amounts to ₩3,589,809 million (2014: ₩3,823,397 million, 2015: ₩3,760,892 million) and
reversal of valuation loss on inventory recognized amounts to ₩20,223 million for year ended December 31, 2016 (2014: reversal of valuation allowance of ₩59,973 million, 2015: valuation loss on inventory amounts to ₩4,116 million).



F-44



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|9. | Other Assets and Liabilities
|-- | ----------------------------

Other assets and liabilities as of December 31, 2015 and 2016,
are as follows:



|                            |  |      |          |   |      |   |          |  
|--------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|(In millions of Korean won) |  | 2015 |          |   | 2016 |  
|Other assets                |  |      |          |   |      |   |          |  
|Advance payments            |  | ₩    | 148,037  |   |      | ₩ | 148,299  |  
|Prepaid expenses            |  |      | 244,890  |   |      |   | 255,464  |  
|Others                      |  |      | 26,336   |   |      |   | 13,471   |  
|Less: Non-current           |  |      | (102,359 | ) |      |   | (106,099 | )
|                            |  |      |          |   |      |   |          |  
|Current                     |  | ₩    | 316,904  |   |      | ₩ | 311,135  |  
|                            |  |      |          |   |      |   |          |  
|Other liabilities           |  |      |          |   |      |   |          |  
|Advances received           |  | ₩    | 234,575  |   |      | ₩ | 281,071  |  
|Withholdings                |  |      | 46,769   |   |      |   | 89,679   |  
|Unearned revenue            |  |      | 15,363   |   |      |   | 24,142   |  
|Others                      |  |      | 41,200   |   |      |   | 6,160    |  
|Less: Non-current           |  |      | (26,737  | ) |      |   | (58,761  | )
|                            |  |      |          |   |      |   |          |  
|Current                     |  | ₩    | 311,170  |   |      | ₩ | 342,291  |  
|                            |  |      |          |   |      |   |          |  



|10. | Property, Plant and Equipment
|--- | -----------------------------

Changes in property, plant and equipment for the years ended
December 31, 2015 and 2016, are as follows:



|                                                                                  |  |      |           |   |                          |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | --------- | - | ------------------------ | - | ---------- | --------------------- |  | - | ----------- | - |  | ------------------------ | ---------- | - | ----- | - | ---------- | - |  | - | ----------- | -
|                                                                                  |  | 2015 |          
|(in millions of Korean won)                                                       |  | Land |           |   | Buildings
and structures |   |            | Machineryandequipment |  |   | Others      |   |  | Construction-in-progress |            |   | Total |  
|Acquisition cost                                                                  |  | ₩    | 1,287,821 |   |                          | ₩ | 3,345,587  |                       |  | ₩ | 33,390,640  |   |  | ₩                        | 4,806,849  |   |       | ₩ | 845,662    |   |  | ₩ | 43,676,559  |  
|Less: Accumulated depreciation
(including accumulated impairment loss and others) |  |      | (132      | ) |                          |   | (1,336,337 | )                     |  |   | (23,556,971 | ) |  |                          | (2,311,219 | ) |       |   | (3,704     | ) |  |   | (27,208,363 | )
|                                                                                  |  |      |           |   |                          |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Beginning, net                                                                    |  |      | 1,287,689 |   |                          |   | 2,009,250  |                       |  |   | 9,833,669   |   |  |                          | 2,495,630  |   |       |   | 841,958    |   |  |   | 16,468,196  |  
|Acquisition                                                                       |  |      | 34,686    |   |                          |   | 10,564     |                       |  |   | 445,452     |   |  |                          | 258,094    |   |       |   | 2,563,372  |   |  |   | 3,312,168   |  
|Disposal/Abandonment                                                              |  |      | (423      | ) |                          |   | (797       | )                     |  |   | (139,687    | ) |  |                          | (8,294     | ) |       |   | (3,787     | ) |  |   | (152,988    | )
|Depreciation                                                                      |  |      |          |   |                          |   | (117,328   | )                     |  |   | (2,674,339  | ) |  |                          | (190,630   | ) |       |   |           |   |  |   | (2,982,297  | )
|Impairment                                                                        |  |      |          |   |                          |   |           |                       |  |   | (28,206     | ) |  |                          | (2,270     | ) |       |   | (1,831     | ) |  |   | (32,307     | )
|Transfer in (out)                                                                 |  |      | 10,134    |   |                          |   | 230,535    |                       |  |   | 2,064,871   |   |  |                          | 67,483     |   |       |   | (2,373,023 | ) |  |   |            |  
|Inclusion in scope of consolidation                                               |  |      | 15        |   |                          |   | 177        |                       |  |   | 139         |   |  |                          | 990        |   |       |   | 187        |   |  |   | 1,508       |  
|Exclusion from scope of consolidation                                             |  |      | (37,314   | ) |                          |   | (25,743    | )                     |  |   | (638        | ) |  |                          | (2,079,426 | ) |       |   | (237       | ) |  |   | (2,143,358  | )
|                                                                                  |  |      |           |   |                          |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Others                                                                            |  |      | (7,170    | ) |                          |   | (7,614     | )                     |  |   | 7,532       |   |  |                          | 9,406      |   |       |   | 5,838      |   |  |   | 7,992       |  
|                                                                                  |  |      |           |   |                          |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Ending, net                                                                       |  | ₩    | 1,287,617 |   |                          | ₩ | 2,099,044  |                       |  | ₩ | 9,508,793   |   |  | ₩                        | 550,983    |   |       | ₩ | 1,032,477  |   |  | ₩ | 14,478,914  |  
|                                                                                  |  |      |           |   |                          |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Acquisition cost                                                                  |  | ₩    | 1,287,749 |   |                          | ₩ | 3,558,460  |                       |  | ₩ | 34,388,584  |   |  | ₩                        | 1,951,749  |   |       | ₩ | 1,033,777  |   |  | ₩ | 42,220,319  |  
|Less: Accumulated depreciation
(including accumulated impairment loss and others) |  |      | (132      | ) |                          |   | (1,459,416 | )                     |  |   | (24,879,791 | ) |  |                          | (1,400,766 | ) |       |   | (1,300     | ) |  |   | (27,741,405 | )



F-45



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                                                                  |  |      |           |   |                         |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | --------- | - | ----------------------- | - | ---------- | --------------------- |  | - | ----------- | - |  | ------------------------ | ---------- | - | ----- | - | ---------- | - |  | - | ----------- | -
|                                                                                  |  | 2016 |          
|(In millions of Korean won)                                                       |  | Land |           |   | Buildings andstructures |   |            | Machineryandequipment |  |   | Others      |   |  | Construction-in-progress |            |   | Total |  
|Acquisition cost                                                                  |  | ₩    | 1,287,749 |   |                         | ₩ | 3,558,460  |                       |  | ₩ | 34,388,584  |   |  | ₩                        | 1,951,749  |   |       | ₩ | 1,033,777  |   |  | ₩ | 42,220,319  |  
|Less: Accumulated depreciation (including accumulated impairment loss and others) |  |      | (132      | ) |                         |   | (1,459,416 | )                     |  |   | (24,879,791 | ) |  |                          | (1,400,766 | ) |       |   | (1,300     | ) |  |   | (27,741,405 | )
|                                                                                  |  |      |           |   |                         |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Beginning, net                                                                    |  |      | 1,287,617 |   |                         |   | 2,099,044  |                       |  |   | 9,508,793   |   |  |                          | 550,983    |   |       |   | 1,032,477  |   |  |   | 14,478,914  |  
|Acquisition                                                                       |  |      | 291       |   |                         |   | 3,608      |                       |  |   | 247,431     |   |  |                          | 146,471    |   |       |   | 2,297,346  |   |  |   | 2,695,147   |  
|Disposal and termination                                                          |  |      | (855      | ) |                         |   | (1,650     | )                     |  |   | (112,135    | ) |  |                          | (8,155     | ) |       |   | (3,357     | ) |  |   | (126,152    | )
|Depreciation                                                                      |  |      |          |   |                         |   | (135,389   | )                     |  |   | (2,498,837  | ) |  |                          | (143,978   | ) |       |   |           |   |  |   | (2,778,204  | )
|Impairment (Recovery of impairment)                                               |  |      |          |   |                         |   |           |                       |  |   | 361         |   |  |                          | (47,086    | ) |       |   |           |   |  |   | (46,725     | )
|Transfer in (out)                                                                 |  |      | 4,274     |   |                         |   | 136,041    |                       |  |   | 2,060,936   |   |  |                          | 11,073     |   |       |   | (2,212,324 | ) |  |   |            |  
|Inclusion in scope of consolidation                                               |  |      |          |   |                         |   |           |                       |  |   | 68          |   |  |                          | 764        |   |       |   |           |   |  |   | 832         |  
|Others                                                                            |  |      | 17,625    |   |                         |   | 23,078     |                       |  |   | 53,568      |   |  |                          | 14,851     |   |       |   | (20,823    | ) |  |   | 88,299      |  
|                                                                                  |  |      |           |   |                         |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Ending, net                                                                       |  | ₩    | 1,308,952 |   |                         | ₩ | 2,124,732  |                       |  | ₩ | 9,260,185   |   |  | ₩                        | 524,923    |   |       | ₩ | 1,093,319  |   |  | ₩ | 14,312,111  |  
|                                                                                  |  |      |           |   |                         |   |            |                       |  |   |             |   |  |                          |            |   |       |   |            |   |  |   |             |  
|Acquisition cost                                                                  |  | ₩    | 1,309,084 |   |                         | ₩ | 3,729,228  |                       |  | ₩ | 35,106,184  |   |  | ₩                        | 1,895,332  |   |       | ₩ | 1,093,941  |   |  | ₩ | 43,133,769  |  
|Less: Accumulated depreciation
(including accumulated impairment loss and others) |  |      | (132      | ) |                         |   | (1,604,496 | )                     |  |   | (25,845,999 | ) |  |                          | (1,370,409 | ) |       |   | (622       | ) |  |   | (28,821,658 | )

Details of property, plant and equipment provided as collateral as of December 31, 2015 and 2016, are as follows:



|                            |  |                |        |  |               |   |        |                  |  |  |               |  |  |               |        |  |  |                     
|--------------------------- |  | -------------- | ------ |  | ------------- | - | ------ | ---------------- |  |  | ------------- |  |  | ------------- | ------ |  |  | --------------------
|(In millions of Korean won) |  | 2015          
|                            |  | Carryingamount |        |  | Securedamount |   |        | Related lineitem |  |  | Relatedamount |  |  | Secured party
|Land and Buildings          |  | ₩              | 12,529 |  |               | ₩ | 12,000 |                  |  |  | Borrowings    |  |  | ₩             | 8,000  |  |  | StandardCharted Bank
|Others                      |  |                | 57,374 |  |               |   | 42,192 |                  |  |  |               |  |  |               | 35,835 |  |  | Shinhan Bank        



|                            |  |                |        |  |               |  |        |                   |  |  |               |  |  |               |        |  |  |                     
|--------------------------- |  | -------------- | ------ |  | ------------- |  | ------ | ----------------- |  |  | ------------- |  |  | ------------- | ------ |  |  | --------------------
|(In millions of Korean won) |  | 2016          
|                            |  | Carryingamount |        |  | Securedamount |  |        | Related
line item |  |  | Relatedamount |  |  | Secured
party
|Land and Buildings          |  |                | 13,337 |  |               |  | 16,009 |                   |  |  | Borrowings    |  |  |               | 11,540 |  |  | StandardCharted Bank
|Others                      |  |                | 55,951 |  |               |  | 43,506 |                   |  |  |               |  |  |               | 25,379 |  |  | Shinhan Bank        

The borrowing costs capitalized for qualifying assets amount to
₩16,451 million (2015: ₩11,877 million) in 2016. The interest rate applied to calculate the capitalized borrowing costs in 2016 is
2.29% to 3.50% (2015: 2.46% to 4.07%).



F-46



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|11. | Investment Properties
|--- | ---------------------

Changes in investment properties for the years ended December 31, 2015
and 2016, are as follows:



|                                  |      |      |         |           |  |   |                           |   |  |       |        |   |  |   |           |  
|--------------------------------- | ---- | ---- | ------- | --------- |  | - | ------------------------- | - |  | ----- | ------ | - |  | - | --------- | -
|(In millions of Korean won)       |      | 2015 |        
|                                  | Land |      |         | Buildings |  |   | Construction-in-
progress |   |  | Total |       
|Acquisition cost                  |      | ₩    | 315,794 |           |  | ₩ | 1,003,031                 |   |  | ₩     | 19,378 |   |  | ₩ | 1,338,203 |  
|Less: Accumulated depreciation    |      |      |        |           |  |   | (278,573                  | ) |  |       |       |   |  |   | (278,573  | )
|                                  |      |      |         |           |  |   |                           |   |  |       |        |   |  |   |           |  
|Beginning                         |      |      | 315,794 |           |  |   | 724,458                   |   |  |       | 19,378 |   |  |   | 1,059,630 |  
|Acquisition                       |      |      | 26,194  |           |  |   | 17,210                    |   |  |       | 55,621 |   |  |   | 99,025    |  
|Disposal/Abandonment              |      |      |        |           |  |   | (4,436                    | ) |  |       |       |   |  |   | (4,436    | )
|Depreciation                      |      |      |        |           |  |   | (48,524                   | ) |  |       |       |   |  |   | (48,524   | )
|Transfer                          |      |      | 6,828   |           |  |   | (1,636                    | ) |  |       | (791   | ) |  |   | 4,401     |  
|Changes in scope of consolidation |      |      | (8,026  | )         |  |   |                          |   |  |       |       |   |  |   | (8,026    | )
|                                  |      |      |         |           |  |   |                           |   |  |       |        |   |  |   |           |  
|Ending                            |      | ₩    | 340,790 |           |  | ₩ | 687,072                   |   |  | ₩     | 74,208 |   |  | ₩ | 1,102,070 |  
|                                  |      |      |         |           |  |   |                           |   |  |       |        |   |  |   |           |  
|Acquisition cost                  |      | ₩    | 340,790 |           |  | ₩ | 1,011,236                 |   |  | ₩     | 74,208 |   |  | ₩ | 1,426,234 |  
|Less: Accumulated depreciation    |      |      |        |           |  |   | (324,164                  | ) |  |       |       |   |  |   | (324,164  | )



|                               |      |      |         |           |  |   |                           |   |  |       |          |   |  |   |           |  
|------------------------------ | ---- | ---- | ------- | --------- |  | - | ------------------------- | - |  | ----- | -------- | - |  | - | --------- | -
|(In millions of Korean won)    |      | 2016 |        
|                               | Land |      |         | Buildings |  |   | Construction-in-
progress |   |  | Total |         
|Acquisition cost               |      | ₩    | 340,790 |           |  | ₩ | 1,011,236                 |   |  | ₩     | 74,208   |   |  | ₩ | 1,426,234 |  
|Less: Accumulated depreciation |      |      |        |           |  |   | (324,164                  | ) |  |       |         |   |  |   | (324,164  | )
|                               |      |      |         |           |  |   |                           |   |  |       |          |   |  |   |           |  
|Beginning                      |      |      | 340,790 |           |  |   | 687,072                   |   |  |       | 74,208   |   |  |   | 1,102,070 |  
|Acquisition                    |      |      | 51      |           |  |   | 417                       |   |  |       | 160,138  |   |  |   | 160,606   |  
|Disposal/Abandonment           |      |      | (5,837  | )         |  |   | (1,802                    | ) |  |       |         |   |  |   | (7,639    | )
|Depreciation                   |      |      |        |           |  |   | (43,575                   | ) |  |       |         |   |  |   | (43,575   | )
|Transfer                       |      |      | (32,254 | )         |  |   | 124,417                   |   |  |       | (155,581 | ) |  |   | (63,418   | )
|                               |      |      |         |           |  |   |                           |   |  |       |          |   |  |   |           |  
|Ending                         |      | ₩    | 302,750 |           |  | ₩ | 766,529                   |   |  | ₩     | 78,765   |   |  | ₩ | 1,148,044 |  
|                               |      |      |         |           |  |   |                           |   |  |       |          |   |  |   |           |  
|Acquisition cost               |      | ₩    | 302,750 |           |  | ₩ | 1,119,885                 |   |  | ₩     | 78,765   |   |  | ₩ | 1,501,400 |  
|Less: Accumulated depreciation |      |      |        |           |  |   | (353,356                  | ) |  |       |         |   |  |   | (353,356  | )

The fair value of investment properties is
₩2,340,893 million as of December 31, 2016 (2015: ₩2,645,246 million). The fair value of investment properties is
estimated based on the expected cash flow.

Rental income from investment properties is
₩184,670 million in 2016 (2015: ₩184,819 million) and direct operating expenses (including repairs and maintenance) arising from
investment properties that generated rental income during the period are recognized as operating expenses.

Details of investment properties provided
as collateral as of December 31, 2015 and 2016, are as follows:



|                            |  |                 |         |  |                |   |        |                 |  |                |  |   |        | 
|--------------------------- |  | --------------- | ------- |  | -------------- | - | ------ | --------------- |  | -------------- |  | - | ------ | 
|(In millions of Korean won) |  | 2015            |        
|                            |  | Carrying
amount |         |  | Secured
amount |   |        | Related
account |  | Related
amount | 
|Buildings                   |  | ₩               | 634,028 |  |                | ₩ | 66,034 |                 |  | Deposits       |  | ₩ | 55,765 | 



F-47



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                            |  |                |         |  |               |   |        |                |  |               |  |   |        | 
|--------------------------- |  | -------------- | ------- |  | ------------- | - | ------ | -------------- |  | ------------- |  | - | ------ | 
|(In millions of Korean won) |  | 2016           |        
|                            |  | Carryingamount |         |  | Securedamount |   |        | Relatedaccount |  | Relatedamount | 
|Buildings                   |  | ₩              | 711,989 |  |               | ₩ | 98,543 |                |  | Deposits      |  | ₩ | 84,334 | 
|Land and Buildings          |  | ₩              | 8,035   |  |               | ₩ | 7,891  |                |  | Borrowings    |  | ₩ | 5,260  | 



|12. | Intangible Assets
|--- | -----------------

Changes in intangible assets for the years ended December 31, 2015 and
2016, are as follows:



|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|--------------------------------------------------------------------------------- |  | -------- | -------- | - | ---------------- | - | ---------- | -------- |  | - | ---------------------- | - |  | ------ | ---------- | - | ----- | - | --------- | - |  | - | ---------- | -
|                                                                                  |  | 2015     |         
|(In millions of Korean won)                                                       |  | Goodwill |          |   | Developmentcosts |   |            | Software |  |   | Frequency
usage rights |   |  | Others |            |   | Total |  
|Acquisition cost                                                                  |  | ₩        | 609,817  |   |                  | ₩ | 1,589,994  |          |  | ₩ | 747,343                |   |  | ₩      | 2,768,943  |   |       | ₩ | 1,154,915 |   |  | ₩ | 6,871,012  |  
|Less: Accumulated amortization (including accumulated impairment loss and others) |  |          | (30,069  | ) |                  |   | (939,307   | )        |  |   | (503,682               | ) |  |        | (1,364,753 | ) |       |   | (489,168  | ) |  |   | (3,326,979 | )
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Beginning, net                                                                    |  |          | 579,748  |   |                  |   | 650,687    |          |  |   | 243,661                |   |  |        | 1,404,190  |   |       |   | 665,747   |   |  |   | 3,544,033  |  
|Acquisition                                                                       |  |          | 549      |   |                  |   | 41,108     |          |  |   | 67,640                 |   |  |        | 7,722      |   |       |   | 91,374    |   |  |   | 208,393    |  
|Disposal                                                                          |  |          | (1,272   | ) |                  |   | (28,645    | )        |  |   | (4,251                 | ) |  |        |           |   |       |   | (33,651   | ) |  |   | (67,819    | )
|Amortization                                                                      |  |          |         |   |                  |   | (183,845   | )        |  |   | (76,866                | ) |  |        | (254,439   | ) |       |   | (94,035   | ) |  |   | (609,185   | )
|Impairment1                                                                       |  |          | (100,352 | ) |                  |   |           |          |  |   | (2,200                 | ) |  |        | (184,703   | ) |       |   | (5,090    | ) |  |   | (292,345   | )
|Inclusion in scope of consolidation                                               |  |          |         |   |                  |   |           |          |  |   | 306                    |   |  |        |           |   |       |   | 160       |   |  |   | 466        |  
|Exclusion in scope of consolidation                                               |  |          | (136,332 | ) |                  |   | (19,916    | )        |  |   | (3,799                 | ) |  |        |           |   |       |   | (29,321   | ) |  |   | (189,368   | )
|Others                                                                            |  |          |         |   |                  |   | 2,154      |          |  |   | 6,893                  |   |  |        |           |   |       |   | (3,471    | ) |  |   | 5,576      |  
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Ending, net                                                                       |  | ₩        | 342,341  |   |                  | ₩ | 461,543    |          |  | ₩ | 231,384                |   |  | ₩      | 972,770    |   |       | ₩ | 591,713   |   |  | ₩ | 2,599,751  |  
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Acquisition cost                                                                  |  | ₩        | 449,379  |   |                  | ₩ | 1,487,420  |          |  | ₩ | 805,387                |   |  | ₩      | 2,591,229  |   |       | ₩ | 1,109,085 |   |  | ₩ | 6,442,500  |  
|Less: Accumulated amortization (including accumulated impairment loss and others) |  |          | (107,038 | ) |                  |   | (1,025,877 | )        |  |   | (574,003               | ) |  |        | (1,618,459 | ) |       |   | (517,372  | ) |  |   | (3,842,749 | )



|1 | The amount ₩184,703 million is recognized as an impairment loss on intangible assets related to 800MHz frequency usage rights.
|- | ------------------------------------------------------------------------------------------------------------------------------



|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|--------------------------------------------------------------------------------- |  | -------- | -------- | - | ---------------- | - | ---------- | -------- |  | - | ---------------------- | - |  | ------ | ---------- | - | ----- | - | --------- | - |  | - | ---------- | -
|                                                                                  |  | 2016     |         
|(In millions of Korean won)                                                       |  | Goodwill |          |   | Developmentcosts |   |            | Software |  |   | Frequency
usage rights |   |  | Others |            |   | Total |  
|Acquisition cost                                                                  |  | ₩        | 449,379  |   |                  | ₩ | 1,487,420  |          |  | ₩ | 805,387                |   |  | ₩      | 2,591,229  |   |       | ₩ | 1,109,085 |   |  | ₩ | 6,442,500  |  
|Less: Accumulated amortization (including accumulated impairment loss and others) |  |          | (107,038 | ) |                  |   | (1,025,877 | )        |  |   | (574,003               | ) |  |        | (1,618,459 | ) |       |   | (517,372  | ) |  |   | (3,842,749 | )
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Beginning, net                                                                    |  |          | 342,341  |   |                  |   | 461,543    |          |  |   | 231,384                |   |  |        | 972,770    |   |       |   | 591,713   |   |  |   | 2,599,751  |  
|Acquisition and capital expenditure1                                              |  |          |         |   |                  |   | 36,075     |          |  |   | 35,631                 |   |  |        | 978,309    |   |       |   | 74,312    |   |  |   | 1,124,327  |  
|Disposal and termination                                                          |  |          |         |   |                  |   | (8,600     | )        |  |   | (1,928                 | ) |  |        |           |   |       |   | (16,397   | ) |  |   | (26,925    | )
|Amortization                                                                      |  |          |         |   |                  |   | (162,682   | )        |  |   | (78,643                | ) |  |        | (273,790   | ) |       |   | (84,606   | ) |  |   | (599,721   | )
|Impairment                                                                        |  |          | (131,600 | ) |                  |   |           |          |  |   | (46                    | ) |  |        |           |   |       |   | (3,618    | ) |  |   | (135,264   | )
|Inclusion in scope of consolidation                                               |  |          | 42,745   |   |                  |   |           |          |  |   | 2,462                  |   |  |        |           |   |       |   | 16,015    |   |  |   | 61,222     |  
|Others                                                                            |  |          |         |   |                  |   | 8,340      |          |  |   | 8,278                  |   |  |        |           |   |       |   | (17,205   | ) |  |   | (587       | )
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Ending, net                                                                       |  | ₩        | 253,486  |   |                  | ₩ | 334,676    |          |  | ₩ | 197,138                |   |  | ₩      | 1,677,289  |   |       | ₩ | 560,214   |   |  | ₩ | 3,022,803  |  
|                                                                                  |  |          |          |   |                  |   |            |          |  |   |                        |   |  |        |            |   |       |   |           |   |  |   |            |  
|Acquisition cost                                                                  |  | ₩        | 492,105  |   |                  | ₩ | 1,483,205  |          |  | ₩ | 838,532                |   |  | ₩      | 2,531,654  |   |       | ₩ | 1,154,993 |   |  | ₩ | 6,500,489  |  
|Less; Accumulated amortization (including accumulated impairment loss and others) |  |          | (238,619 | ) |                  |   | (1,148,529 | )        |  |   | (641,394               | ) |  |        | (854,365   | ) |       |   | (594,779  | ) |  |   | (3,477,686 | )



F-48



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|1 | The Company had acquired the 1.8GHz and 2.1GHz frequency usage rights amortized using the straight-line method.
|- | ---------------------------------------------------------------------------------------------------------------

The carrying amount of membership rights with indefinite useful life not subject to amortization is
₩128,539 million (2015: ₩122,829 million) as of December 31, 2016.

Goodwill is allocated to the Groups cash-generating unit which is identified by operating segments. As of December 31, 2016, goodwill
allocated to each cash-generation unit is as follows:



(In millions of Korean won)
Cash generating Unit

AmountMarketing/CustomerTelecom Wireless business1

₩
65,057FinanceBC Card Co., Ltd.2


41,234OthersKT Skylife Co., Ltd.3


78,200N SEARCH MARKETING Corporation4


42,745Others


26,250Total

₩
253,486




| | 1 | The recoverable amounts of mobile business are calculated based on value-in use calculations. These calculations use cash flow projections for the next five years based on
financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five years. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The
Group estimated its revenue growth rate (-2.52%) based on past performance and its expectation of future market changes. In addition, management estimated the cash flow based on past performance and its expectation of market growth and the discount
rate of 4.36% used is reflect specific risks relating to the relevant CGUs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The recoverable amounts of BC Card Co., Ltd. is calculated based on value-in use. Calculation uses cash flow projections for the next five years based on financial budgets. An
annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five years. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its
revenue growth rate (-0.31%) based on past performance and its expectation of future market changes. The Group determined cash flow projections based on past performance and its estimation of market growth. Specific risk of related operating segment
is reflected in its discount rate of 12.72%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | The recoverable amount (₩651,735 million) of Skylife Co., Ltd. is calculated based on fair value less costs to sell.
| | - | --------------------------------------------------------------------------------------------------------------------

| | 4 | The goodwill is recognized from the business combination in 2016 (Note 36).
| | - | ---------------------------------------------------------------------------

As a result of the
impairment test, the Group recognized the impairment losses of ₩131,600 million on goodwill allocated to Satellite TV segment. It resulted from reflecting market circumstances where the
competition with other players such as the internet providers, IPTV and Cable TV operators becomes more intense. The impairment loss was recognized as operating expenses in the consolidated statement of operations. The Group considers that the
carrying amount of other cash generating units does not exceed the recoverable amount of the CGUs.



F-49



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|13. | Investments in Associates and Joint Ventures
|--- | --------------------------------------------

Details of associates as of December 31, 2016,
are as follows:



|                                    |  |                             |      |   |          |  |                     |   |  |          |  |  |        | 
|----------------------------------- |  | --------------------------- | ---- | - | -------- |  | ------------------- | - |  | -------- |  |  | ------ | 
|                                    |  | Percentage of ownership (%) |      |   | Location |  | Reportingperiod end |  
|                                    |  | 2015                        |      |   | 2016     |  |                     |   |  |          | 
|Korea Information & Technology Fund |  |                             | 33.3 | % |          |  | 33.3                | % |  | Korea    |  |  | 31-Dec | 
|KT-SB Venture
Investment1           |  |                             | 50.0 | % |          |  | 50.0                | % |  | Korea    |  |  | 31-Dec | 
|Mongolian Telecommunications        |  |                             | 40.0 | % |          |  | 40.0                | % |  | Mongolia |  |  | 31-Dec | 
|KT Wibro Infra Co., Ltd.            |  |                             | 26.2 | % |          |  | 26.2                | % |  | Korea    |  |  | 31-Dec | 
|KT-CKP New Media Investment Fund    |  |                             | 49.7 | % |          |  | 49.7                | % |  | Korea    |  |  | 31-Dec | 



|1 | At the end of the reporting period, even though the Group has 50% ownership, the equity method of accounting has been applied as the Group, which is a limited partner of investment fund, cannot participate in
determining the operating and financial policies.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in investments in associates and joint ventures for the years ended
December 31, 2015 and 2016, are as follows:



|                                    |  |           |         |  |                       |   |         |                                                       |  |   |        |   |  |        |         |   |  |   |         | 
|----------------------------------- |  | --------- | ------- |  | --------------------- | - | ------- | ----------------------------------------------------- |  | - | ------ | - |  | ------ | ------- | - |  | - | ------- | 
|                                    |  | 2015      |        
|(In millions of Korean won)         |  | Beginning |         |  | Acquisition(Disposal) |   |         | Share of net profitfrom associates andjoint ventures1 |  |   | Others |   |  | Ending |        
|Korea Information & Technology Fund |  | ₩         | 122,967 |  |                       | ₩ |        |                                                       |  | ₩ | 3,696  |   |  | ₩      | 920     |   |  | ₩ | 127,583 | 
|KT-SB Venture Investment            |  |           | 22,557  |  |                       |   | (3,691  | )                                                     |  |   | (2,210 | ) |  |        | (11,795 | ) |  |   | 4,861   | 
|Mongolian Telecommunications        |  |           | 7,477   |  |                       |   |        |                                                       |  |   | (121   | ) |  |        | 127     |   |  |   | 7,483   | 
|KT Wibro Infra Co., Ltd.            |  |           | 68,491  |  |                       |   |        |                                                       |  |   | 843    |   |  |        | (6      | ) |  |   | 69,328  | 
|KT-CKP New Media Investment Fund    |  |           | 3,986   |  |                       |   |        |                                                       |  |   | (126   | ) |  |        |        |   |  |   | 3,860   | 
|Others                              |  |           | 113,302 |  |                       |   | (64,601 | )                                                     |  |   | 3,480  |   |  |        | 4,733   |   |  |   | 56,914  | 
|                                    |  |           |         |  |                       |   |         |                                                       |  |   |        |   |  |        |         |   |  |   |         | 
|                                    |  | ₩         | 338,780 |  |                       | ₩ | (68,292 | )                                                     |  | ₩ | 5,562  |   |  | ₩      | (6,021  | ) |  | ₩ | 270,029 | 
|                                    |  |           |         |  |                       |   |         |                                                       |  |   |        |   |  |        |         |   |  |   |         | 



|                                    |  |           |         |  |                       |   |        |                                                       |  |   |            |   |  |        |         |   |        |   |        |   |  |   |         | 
|----------------------------------- |  | --------- | ------- |  | --------------------- | - | ------ | ----------------------------------------------------- |  | - | ---------- | - |  | ------ | ------- | - | ------ | - | ------ | - |  | - | ------- | 
|                                    |  | 2016      |        
|(In millions of Korean won)         |  | Beginning |         |  | Acquisition(Disposal) |   |        | Share of net profitfrom associates andjoint ventures1 |  |   | Impairment |   |  | Others |         |   | Ending |  
|Korea Information & Technology Fund |  | ₩         | 127,583 |  |                       | ₩ |       |                                                       |  | ₩ | 7,446      |   |  | ₩      |        |   |        | ₩ | (60    | ) |  | ₩ | 134,969 | 
|KT-SB Venture Investment            |  |           | 4,861   |  |                       |   |       |                                                       |  |   | (125       | ) |  |        |        |   |        |   |       |   |  |   | 4,736   | 
|Mongolian Telecommunications        |  |           | 7,483   |  |                       |   |       |                                                       |  |   | 32         |   |  |        |        |   |        |   | (1,271 | ) |  |   | 6,244   | 
|KT Wibro Infra Co., Ltd.            |  |           | 69,328  |  |                       |   |       |                                                       |  |   |           |   |  |        | (17,128 | ) |        |   |       |   |  |   | 52,200  | 
|KT-CKP New Media Investment Fund    |  |           | 3,860   |  |                       |   |       |                                                       |  |   | 594        |   |  |        |        |   |        |   |       |   |  |   | 4,454   | 
|Others                              |  |           | 56,914  |  |                       |   | 29,052 |                                                       |  |   | (5,400     | ) |  |        |        |   |        |   | 906    |   |  |   | 81,472  | 
|                                    |  |           |         |  |                       |   |        |                                                       |  |   |            |   |  |        |         |   |        |   |        |   |  |   |         | 
|                                    |  | ₩         | 270,029 |  |                       | ₩ | 29,052 |                                                       |  | ₩ | 2,547      |   |  | ₩      | (17,128 | ) |        | ₩ | (425   | ) |  | ₩ | 284,075 | 
|                                    |  |           |         |  |                       |   |        |                                                       |  |   |            |   |  |        |         |   |        |   |        |   |  |   |         | 



F-50



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|1 | KT investment Co., Ltd., a subsidiary of the Group, recognized its share in net profit from associates and joint ventures as operating revenue and expense. These include its share in loss from associates and joint
ventures of ₩52 million recognized as operating expense during the period. Meanwhile, share in loss from subsidiary of
₩193 million recognized as operation expense of KT Capital Co., Ltd, which were recognized in loss from discontinued operations, are included.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2015 and 2016, is as follows:



|                                    |  |               |         |  |                    |   |         |                    |  |   |                         |  |  |   |    | 
|----------------------------------- |  | ------------- | ------- |  | ------------------ | - | ------- | ------------------ |  | - | ----------------------- |  |  | - | -- | 
|(In millions of Korean won)         |  | 2015          |        
|                                    |  | Currentassets |         |  | Non-current
assets |   |         | Currentliabilities |  |   | Non-current
liabilities | 
|Korea Information & Technology Fund |  | ₩             | 152,070 |  |                    | ₩ | 230,678 |                    |  | ₩ |                        |  |  | ₩ |   | 
|KT-SB Venture
Investment            |  |               | 882     |  |                    |   | 9,218   |                    |  |   | 378                     |  |  |   |   | 
|Mongolian Telecommunications        |  |               | 10,823  |  |                    |   | 8,520   |                    |  |   | 635                     |  |  |   |   | 
|KT Wibro Infra Co., Ltd.            |  |               | 230,505 |  |                    |   | 39,062  |                    |  |   | 5,099                   |  |  |   | 37 | 
|KT-CKP New Media Investment Fund    |  |               | 3,253   |  |                    |   | 4,523   |                    |  |   | 4                       |  |  |   |   | 



|                                    |  |                  |        |  |                           |   |        |                          |  |   |                          |   |  |                                 |        |   |  |   |        | 
|----------------------------------- |  | ---------------- | ------ |  | ------------------------- | - | ------ | ------------------------ |  | - | ------------------------ | - |  | ------------------------------- | ------ | - |  | - | ------ | 
|(In millions of Korean won)         |  | 2015             |       
|                                    |  | Operatingrevenue |        |  | Profit (loss)for the year |   |        | Othercomprehensiveincome |  |   | Totalcomprehensiveincome |   |  | Dividendreceived fromassociates |       
|Korea Information & Technology Fund |  | ₩                | 33,041 |  |                           | ₩ | 11,088 |                          |  | ₩ | (2,759                   | ) |  | ₩                               | 8,329  |   |  | ₩ | 1,107  | 
|KT-SB Venture
Investment            |  |                  | 361    |  |                           |   | (4,419 | )                        |  |   |                         |   |  |                                 | (4,419 | ) |  |   | 11,795 | 
|Mongolian Telecommunications        |  |                  | 11,354 |  |                           |   | (302   | )                        |  |   | (317                     | ) |  |                                 | (619   | ) |  |   | 35     | 
|KT Wibro Infra Co., Ltd.            |  |                  | 814    |  |                           |   | 3,217  |                          |  |   |                         |   |  |                                 | 3,217  |   |  |   |       | 
|KT-CKP New Media Investment Fund    |  |                  | 75     |  |                           |   | (254   | )                        |  |   |                         |   |  |                                 | (254   | ) |  |   |       | 



|                                    |  |               |         |  |                    |   |         |                    |  |   |                         |  |  |   |    | 
|----------------------------------- |  | ------------- | ------- |  | ------------------ | - | ------- | ------------------ |  | - | ----------------------- |  |  | - | -- | 
|(In millions of Korean won)         |  | 2016          |        
|                                    |  | Currentassets |         |  | Non-current
assets |   |         | Currentliabilities |  |   | Non-current
liabilities | 
|Korea Information & Technology Fund |  | ₩             | 154,651 |  |                    | ₩ | 250,257 |                    |  | ₩ |                        |  |  | ₩ |   | 
|KT-SB Venture
Investment            |  |               | 1,009   |  |                    |   | 8,704   |                    |  |   | 242                     |  |  |   |   | 
|Mongolian Telecommunications        |  |               | 9,852   |  |                    |   | 9,055   |                    |  |   | 3,296                   |  |  |   |   | 
|KT Wibro Infra Co., Ltd.            |  |               | 274,811 |  |                    |   | 6       |                    |  |   | 4,996                   |  |  |   | 52 | 
|KT-CKP New Media Investment Fund    |  |               | 1,801   |  |                    |   | 7,170   |                    |  |   | 4                       |  |  |   |   | 



|                                    |  |                  |        |  |                           |   |        |                          |  |   |                          |   |  |                                 |        |   |  |   |       | 
|----------------------------------- |  | ---------------- | ------ |  | ------------------------- | - | ------ | ------------------------ |  | - | ------------------------ | - |  | ------------------------------- | ------ | - |  | - | ----- | 
|(In millions of Korean won)         |  | 2016             |       
|                                    |  | Operatingrevenue |        |  | Profit (loss)for the year |   |        | Othercomprehensiveincome |  |   | Totalcomprehensiveincome |   |  | Dividendreceived fromassociates |       
|Korea Information & Technology Fund |  | ₩                | 26,942 |  |                           | ₩ | 22,338 |                          |  | ₩ | (9,425                   | ) |  | ₩                               | 12,913 |   |  | ₩ | 3,201 | 
|KT-SB Venture
Investment            |  |                  | 2      |  |                           |   | (251   | )                        |  |   |                         |   |  |                                 | (251   | ) |  |   |      | 
|Mongolian Telecommunications        |  |                  | 10,336 |  |                           |   | 81     |                          |  |   | 3,178                    |   |  |                                 | 3,259  |   |  |   |      | 
|KT Wibro Infra Co., Ltd.            |  |                  | 391    |  |                           |   | 5,025  |                          |  |   |                         |   |  |                                 | 5,025  |   |  |   |      | 
|KT-CKP New Media Investment Fund    |  |                  | 1,684  |  |                           |   | 1,195  |                          |  |   |                         |   |  |                                 | 1,195  |   |  |   |      | 



F-51



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Details of a reconciliation of the summarized financial information to the carrying amount of interests
in the associates and joint ventures as of and for the years end December 31, 2015 and 2016, are as follows:



|                                    |  |            |         |  |                        |  |      |                    |  |   |                |  |  |   |         | 
|----------------------------------- |  | ---------- | ------- |  | ---------------------- |  | ---- | ------------------ |  | - | -------------- |  |  | - | ------- | 
|                                    |  | 2015       |        
|(In millions of Korean won)         |  | Net assets |         |  | Percentage ofownership |  |      | Share in netassets |  |   | Carryingamount | 
|Korea Information & Technology Fund |  | ₩          | 382,748 |  |                        |  | 33.3 | %                  |  | ₩ | 127,583        |  |  | ₩ | 127,583 | 
|KT-SB Venture Investment            |  |            | 9,722   |  |                        |  | 50.0 | %                  |  |   | 4,861          |  |  |   | 4,861   | 
|Mongolian Telecommunications        |  |            | 18,708  |  |                        |  | 40.0 | %                  |  |   | 7,483          |  |  |   | 7,483   | 
|KT Wibro Infra Co., Ltd.            |  |            | 264,431 |  |                        |  | 26.2 | %                  |  |   | 69,328         |  |  |   | 69,328  | 
|KT-CKP New Media Investment Fund    |  |            | 7,772   |  |                        |  | 49.7 | %                  |  |   | 3,860          |  |  |   | 3,860   | 



|                                    |  |            |         |  |                        |  |      |                    |  |   |                                   |  |  |                |         |   |  |   |         | 
|----------------------------------- |  | ---------- | ------- |  | ---------------------- |  | ---- | ------------------ |  | - | --------------------------------- |  |  | -------------- | ------- | - |  | - | ------- | 
|                                    |  | 2016       |        
|(In millions of Korean won)         |  | Net assets |         |  | Percentage ofownership |  |      | Share in netassets |  |   | Intercompanytransactionand others |  |  | Carryingamount |        
|Korea Information & Technology Fund |  | ₩          | 404,908 |  |                        |  | 33.3 | %                  |  | ₩ | 134,969                           |  |  | ₩              |        |   |  | ₩ | 134,969 | 
|KT-SB Venture Investment            |  |            | 9,471   |  |                        |  | 50.0 | %                  |  |   | 4,736                             |  |  |                |        |   |  |   | 4,736   | 
|Mongolian Telecommunications        |  |            | 15,610  |  |                        |  | 40.0 | %                  |  |   | 6,244                             |  |  |                |        |   |  |   | 6,244   | 
|KT Wibro Infra Co., Ltd.            |  |            | 269,769 |  |                        |  | 26.2 | %                  |  |   | 70,679                            |  |  |                | (18,479 | ) |  |   | 52,200  | 
|KT-CKP New Media Investment Fund    |  |            | 8,967   |  |                        |  | 49.7 | %                  |  |   | 4,454                             |  |  |                |        |   |  |   | 4,454   | 

Marketable investments in associates and joint ventures as of December 31, 2015 and 2016, are as follows:



|                             |  |                  |            |  |                             |   |       |                             |  |   |       | 
|---------------------------- |  | ---------------- | ---------- |  | --------------------------- | - | ----- | --------------------------- |  | - | ----- | 
|                             |  | 2015             |           
|                             |  | Number of shares |            |  | Carrying amount             |   |       | Fair Value                  | 
|                             |  |                  |            |  | (In millions of
Korean won) |   |       | (In millions of
Korean won) | 
|Mongolian Telecommunications |  |                  | 10,348,111 |  |                             | ₩ | 7,483 |                             |  | ₩ | 4,884 | 



|                             |  |                  |            |  |                            |   |       |                            |  |   |       | 
|---------------------------- |  | ---------------- | ---------- |  | -------------------------- | - | ----- | -------------------------- |  | - | ----- | 
|                             |  | 2016             |           
|                             |  | Number of shares |            |  | Carrying amount            |   |       | Fair Value                 | 
|                             |  |                  |            |  | (In millions ofKorean won) |   |       | (In millions ofKorean won) | 
|Mongolian Telecommunications |  |                  | 10,348,111 |  |                            | ₩ | 6,244 |                            |  | ₩ | 3,940 | 

Due to discontinuance of equity method of accounting, the Group has not recognized loss from associates and joint
ventures of ₩1,354 million for the year (2014: ₩11,425 million, 2015:
₩601 million,). The accumulated comprehensive loss of associates and joint ventures as of December 31, 2016, which was not recognized by the Group is ₩18,096 million (2014: ₩50,996 million, 2015: ₩51,597 million).



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|14. | Trade and other payables
|--- | ------------------------

Details of trade and other payables as of December 31, 2015 and
2016, are as follows:



|                            |  |                   |           |  |                   |   |           | 
|--------------------------- |  | ----------------- | --------- |  | ----------------- | - | --------- | 
|(In millions of Korean won) |  | December 31, 2015 |           |  | December 31, 2016 |  
|Current liabilities         |  |                   |           |  |                   |   |           | 
|Trade payables              |  | ₩                 | 1,290,373 |  |                   | ₩ | 1,235,955 | 
|Other payables              |  |                   | 5,044,654 |  |                   |   | 5,903,816 | 
|                            |  |                   |           |  |                   |   |           | 
|Total                       |  | ₩                 | 6,335,027 |  |                   | ₩ | 7,139,771 | 
|                            |  |                   |           |  |                   |   |           | 
|Non-current liabilities     |  |                   |           |  |                   |   |           | 
|Trade payables              |  | ₩                 | 9,944     |  |                   | ₩ | 8,041     | 
|Other payables              |  |                   | 659,029   |  |                   |   | 1,180,270 | 
|                            |  |                   |           |  |                   |   |           | 
|Total                       |  | ₩                 | 668,973   |  |                   | ₩ | 1,188,311 | 
|                            |  |                   |           |  |                   |   |           | 

Details of other payables as of December 31, 2015 and 2016 are as follows:



|                            |  |      |           |   |      |   |            |  
|--------------------------- |  | ---- | --------- | - | ---- | - | ---------- | -
|(In millions of Korean won) |  | 2015 |           |   | 2016 |  
|Non-trade
payables1         |  | ₩    | 3,581,505 |   |      | ₩ | 4,803,642  |  
|Accrued expenses            |  |      | 921,650   |   |      |   | 1,061,002  |  
|Operating deposits          |  |      | 885,566   |   |      |   | 861,739    |  
|Others                      |  |      | 314,962   |   |      |   | 357,703    |  
|Less: non-current           |  |      | (659,029  | ) |      |   | (1,180,270 | )
|                            |  |      |           |   |      |   |            |  
|Current                     |  | ₩    | 5,044,654 |   |      | ₩ | 5,903,816  |  
|                            |  |      |           |   |      |   |            |  



|1 | Settlement payables of BC Card Co., Ltd. of ₩2,095,989 million related to credit card transactions included as of December 31, 2016 (2015: ₩1,386,081 million).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|15. | Borrowings
|--- | ----------

Details of borrowings as of December 31, 2015 and 2016, are as follows:

Debentures



|                                                                |  |          |                |  |                       |                 |                  |  |                |            |  |   |                  |  |  |            |                |  |  |   |         | 
|--------------------------------------------------------------- |  | -------- | -------------- |  | --------------------- | --------------- | ---------------- |  | -------------- | ---------- |  | - | ---------------- |  |  | ---------- | -------------- |  |  | - | ------- | 
|(In millions of Korean won and thousands of foreign currencies) |  | 2015     |                |  | 2016                  |                
|Type                                                            |  | Maturity |                |  | Annual interest
rates |                 | Foreign
currency |  |                | Korean
won |  |   | Foreign
currency |  |  | Korean
won |               
|MTNP notes1                                                     |  |          | Sept. 07, 2034 |  |                       | 6.50%           |                  |  | USD 100,000    |            |  | ₩ | 117,200          |  |  |            | USD 100,000    |  |  | ₩ | 120,850 | 
|MTNP notes1                                                     |  |          | May 03, 2016   |  |                       |                |                  |  | USD 200,000    |            |  |   | 234,400          |  |  |            |               |  |  |   |        | 
|MTNP notes                                                      |  |          | Jan. 20, 2017  |  |                       | 3.88%           |                  |  | USD 350,000    |            |  |   | 410,200          |  |  |            | USD 350,000    |  |  |   | 422,975 | 
|FR notes2                                                       |  |          | Aug. 28, 2018  |  |                       | LIBOR(3M)+1.15% |                  |  | USD 300,000    |            |  |   | 351,600          |  |  |            | USD 300,000    |  |  |   | 362,550 | 
|MTNP notes                                                      |  |          | Apr. 22, 2017  |  |                       | 1.75%           |                  |  | USD 650,000    |            |  |   | 761,800          |  |  |            | USD 650,000    |  |  |   | 785,525 | 
|MTNP notes                                                      |  |          | Apr. 22, 2019  |  |                       | 2.63%           |                  |  | USD 350,000    |            |  |   | 410,200          |  |  |            | USD 350,000    |  |  |   | 422,975 | 
|MTNP notes                                                      |  |          | Jan. 29, 2016  |  |                       |                |                  |  | JPY 18,200,000 |            |  |   | 176,906          |  |  |            |               |  |  |   |        | 
|MTNP notes                                                      |  |          | Jan. 29, 2018  |  |                       | 0.86%           |                  |  | JPY 6,800,000  |            |  |   | 66,097           |  |  |            | JPY 6,800,000  |  |  |   | 70,503  | 
|MTNP notes                                                      |  |          | Feb. 23, 2018  |  |                       | 0.48%           |                  |  | JPY 15,000,000 |            |  |   | 145,802          |  |  |            | JPY 15,000,000 |  |  |   | 155,522 | 
|MTNP notes                                                      |  |          | July 18, 2026  |  |                       | 2.50%           |                  |  |               |            |  |   |                 |  |  |            | USD 400,000    |  |  |   | 483,400 | 
|The 173-2nd Public bond                                         |  |          | Aug. 06, 2018  |  |                       | 6.62%           |                  |  |               |            |  |   | 100,000          |  |  |            |               |  |  |   | 100,000 | 
|The 176-3rd Public bond                                         |  |          | May 28, 2016   |  |                       |                |                  |  |               |            |  |   | 260,000          |  |  |            |               |  |  |   |        | 



F-53



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|                                                                |  |          |                |  |                       |       |                  |   |   |            |  |  |                  |   |            |            |   |  |  |  |         | 
|--------------------------------------------------------------- |  | -------- | -------------- |  | --------------------- | ----- | ---------------- | - | - | ---------- |  |  | ---------------- | - | ---------- | ---------- | - |  |  |  | ------- | 
|(In millions of Korean won and thousands of foreign currencies) |  | 2015     |                |  | 2016                  |      
|Type                                                            |  | Maturity |                |  | Annual interest
rates |       | Foreign
currency |   |   | Korean
won |  |  | Foreign
currency |   |            | Korean
won |  
|The 177-3rd Public bond                                         |  |          | Feb. 09, 2017  |  |                       | 5.38% |                  |   |  |            |  |  | 170,000          |   |            |            |  |  |  |  | 170,000 | 
|The 179th Public bond                                           |  |          | Mar. 29, 2018  |  |                       | 4.47% |                  |   |  |            |  |  | 260,000          |   |            |            |  |  |  |  | 260,000 | 
|The 180-1st Public bond                                         |  |          | Apr. 26, 2016  |  |                       |      |                  |   |  |            |  |  | 210,000          |   |            |            |  |  |  |  |        | 
|The 180-2nd Public bond                                         |  |          | Apr. 26, 2021  |  |                       | 4.71% |                  |   |  |            |  |  | 380,000          |   |            |            |  |  |  |  | 380,000 | 
|The 181-1st Public bond                                         |  |          | Aug. 26, 2016  |  |                       |      |                  |   |  |            |  |  | 260,000          |   |            |            |  |  |  |  |        | 
|The 181-2nd Public bond                                         |  |          | Aug. 26, 2018  |  |                       | 3.99% |                  |   |  |            |  |  | 90,000           |   |            |            |  |  |  |  | 90,000  | 
|The 181-3rd Public bond                                         |  |          | Aug. 26, 2021  |  |                       | 4.09% |                  |   |  |            |  |  | 250,000          |   |            |            |  |  |  |  | 250,000 | 
|The 182-1st Public bond                                         |  |          | Oct. 28, 2016  |  |                       |      |                  |   |  |            |  |  | 320,000          |   |            |            |  |  |  |  |        | 
|The 182-2nd Public bond                                         |  |          | Oct. 28, 2021  |  |                       | 4.31% |                  |   |  |            |  |  | 100,000          |   |            |            |  |  |  |  | 100,000 | 
|The 183-1st Public bond                                         |  |          | Dec. 22, 2016  |  |                       |      |                  |   |  |            |  |  | 50,000           |   |            |            |  |  |  |  |        | 
|The 183-2nd Public bond                                         |  |          | Dec. 22, 2021  |  |                       | 4.09% |                  |   |  |            |  |  | 90,000           |   |            |            |  |  |  |  | 90,000  | 
|The 183-3rd Public bond                                         |  |          | Dec. 22, 2031  |  |                       | 4.27% |                  |   |  |            |  |  | 160,000          |   |            |            |  |  |  |  | 160,000 | 
|The 184-1st Public bond                                         |  |          | Apr. 10, 2018  |  |                       | 2.74% |                  |   |  |            |  |  | 120,000          |   |            |            |  |  |  |  | 120,000 | 
|The 184-2nd Public bond                                         |  |          | Apr. 10, 2023  |  |                       | 2.95% |                  |   |  |            |  |  | 190,000          |   |            |            |  |  |  |  | 190,000 | 
|The 184-3rd Public bond                                         |  |          | Apr. 10, 2033  |  |                       | 3.17% |                  |   |  |            |  |  | 100,000          |   |            |            |  |  |  |  | 100,000 | 
|The 185-1st Public bond                                         |  |          | Sept. 16, 2018 |  |                       | 3.46% |                  |   |  |            |  |  | 200,000          |   |            |            |  |  |  |  | 200,000 | 
|The 185-2nd Public bond                                         |  |          | Sept. 16, 2020 |  |                       | 3.65% |                  |   |  |            |  |  | 300,000          |   |            |            |  |  |  |  | 300,000 | 
|The 186-1st Public bond                                         |  |          | June 26, 2017  |  |                       | 2.86% |                  |   |  |            |  |  | 120,000          |   |            |            |  |  |  |  | 120,000 | 
|The 186-2nd Public bond                                         |  |          | June 26, 2019  |  |                       | 3.08% |                  |   |  |            |  |  | 170,000          |   |            |            |  |  |  |  | 170,000 | 
|The 186-3rd Public bond                                         |  |          | June 26, 2024  |  |                       | 3.42% |                  |   |  |            |  |  | 110,000          |   |            |            |  |  |  |  | 110,000 | 
|The 186-4th Public bond                                         |  |          | June 26, 2034  |  |                       | 3.70% |                  |   |  |            |  |  | 100,000          |   |            |            |  |  |  |  | 100,000 | 
|The 187-1st Public bond                                         |  |          | Sept. 02, 2017 |  |                       | 2.69% |                  |   |  |            |  |  | 110,000          |   |            |            |  |  |  |  | 110,000 | 
|The 187-2nd Public bond                                         |  |          | Sept. 02, 2019 |  |                       | 2.97% |                  |   |  |            |  |  | 220,000          |   |            |            |  |  |  |  | 220,000 | 
|The 187-3rd Public bond                                         |  |          | Sept. 02, 2024 |  |                       | 3.31% |                  |   |  |            |  |  | 170,000          |   |            |            |  |  |  |  | 170,000 | 
|The 187-4th Public bond                                         |  |          | Sept. 02, 2034 |  |                       | 3.55% |                  |   |  |            |  |  | 100,000          |   |            |            |  |  |  |  | 100,000 | 
|The 188-1st Public bond                                         |  |          | Jan. 29, 2020  |  |                       | 2.26% |                  |   |  |            |  |  | 160,000          |   |            |            |  |  |  |  | 160,000 | 
|The 188-2nd Public bond                                         |  |          | Jan. 29, 2025  |  |                       | 2.45% |                  |   |  |            |  |  | 240,000          |   |            |            |  |  |  |  | 240,000 | 
|The 188-3rd Public bond                                         |  |          | Jan. 29, 2035  |  |                       | 2.71% |                  |   |  |            |  |  | 50,000           |   |            |            |  |  |  |  | 50,000  | 
|The 189-1st Public bond                                         |  |          | Jan. 27, 2019  |  |                       | 1.76% |                  |   |  |            |  |  |                 |   |            |            |  |  |  |  | 100,000 | 
|The 189-2nd Public bond                                         |  |          | Jan. 27, 2021  |  |                       | 1.95% |                  |   |  |            |  |  |                 |   |            |            |  |  |  |  | 130,000 | 
|The 189-3rd Public bond                                         |  |          | Jan. 27, 2026  |  |                       | 2.20% |                  |   |  |            |  |  |                 |   |            |            |  |  |  |  | 100,000 | 
|The 189-4th Public bond                                         |  |          | Jan. 27, 2036  |  |                       | 2.35% |                  |   |  |            |  |  |                 |   |            |            |  |  |  |  | 70,000  | 
|Unsecured public bond in won                                    |  |          | Jan. 24, 2016  |  |                       |      |                  |   |  |            |  |  | 30,000           |   |            |            |  |  |  |  |        | 
|The 17th unsecured bond                                         |  |          | Apr. 22, 2018  |  |                       | 1.89% |                  |   |  |            |  |  | 60,000           |   |            |            |  |  |  |  | 60,000  | 
|                                                                |  |          |                |  |                       |       |                  |   |   |            |  |  |                  |   |            |            |   |  |  |  |         | 
|                                                                |  |          |                |  |                       |       | 7,924,205        |   |   |            |  |  |                  |   | 7,344,300  |           
|Less: Current portion                                           |  |          |                |  |                       |       | (1,540,771       | ) |   |            |  |  |                  |   | (1,607,570 | )         
|Discount on bonds                                               |  |          |                |  |                       |       | (20,480          | ) |   |            |  |  |                  |   | (20,852    | )         
|                                                                |  |          |                |  |                       |       |                  |   |   |            |  |  |                  |   |            |            |   |  |  |  |         | 
|Total                                                           |  |          |                |  |                       | ₩     | 6,362,954        |   |   |            |  |  |                  | ₩ | 5,715,878  |           
|                                                                |  |          |                |  |                       |       |                  |   |   |            |  |  |                  |   |            |           



|1 | As of December 31, 2016, the Controlling Company has outstanding notes in the amount of USD 100 million with fixed interest rates under Medium Term Note Program (MTNP) registered in the Singapore
Stock Exchange, which allowed issuance of notes of up to USD 2,000 million. However, the MTN Program has been suspended since 2007.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Libor (3M) are approximately 0.998% as of December 31, 2016.
|- | ------------------------------------------------------------



F-54



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Short-term borrowings



(InmillionsofKoreanwon)



2015


2016Type

Financial institution

Annual interest ratesOperational

Shinhan Bank

2.75% ~ 4.19%

₩
131,000


₩
120,300Standard Charted Bank

2.52%


8,000



8,000Woori Bank




6,346



Kookmin Bank




1,452



Korea Development Bank

2.02% ~ 3.47%


20,100



20,800Indutrial Bank of Korea

4.95%


4,000



1,000SooHyup Bank

3.79%






3,000Acuoncapital




3,900



Total

₩
174,798


₩
153,100


Long-term borrowings



|                                                                |                         |                                         |      |                       |               |      |                  |             |   |            |  |         |                  |   |  |             |   |  |  |         |         |  
|--------------------------------------------------------------- | ----------------------- | --------------------------------------- | ---- | --------------------- | ------------- | ---- | ---------------- | ----------- | - | ---------- |  | ------- | ---------------- | - |  | ----------- | - |  |  | ------- | ------- | -
|(In millions of Korean won and thousands of foreign currencies) |                         |                                         | 2015 |                       |               | 2016 |                 
|Financial institution                                           |                         | Type                                    |      | Annual interest rates |               |      | Foreign
currency |             |   | Korean
won |  |         | Foreign
currency |   |  | Korean
won  |  
|Export-Import Bank of Korea                                     |                         | Inter-Korean Cooperation Fund1          |      |                       | 1.50%         |      |                  |             |  |            |  | ₩       | 5,428            |   |  |             |  |  |  | ₩       | 5,181   |  
|Shinhan Bank                                                    |                         | General loans                           |      |                       | 2.39% ~ 2.87% |      |                  |             |  |            |  |         | 32,000           |   |  |             |  |  |  |         | 31,000  |  
|                                                                | Facility loans          |                                         |      | 2.30% ~ 2.56%         |               |      |                  |            |   |            |  | 2,497   |                  |   |  |            |   |  |  | 6,493   |        
|                                                                | Vessel facility loans2  |                                         |      | LIBOR(3M)+0.36%       |               |      |                  | USD 27,000  |   |            |  | 31,644  |                  |   |  | USD 21,000  |   |  |  | 25,379  |        
|KEB Hana Bank                                                   |                         | General loans                           |      |                       | 3.95%         |      |                  |             |  |            |  |         |                 |   |  |             |  |  |  |         | 3,000   |  
|Woori Bank                                                      |                         | General loans                           |      |                       | 2.53% ~ 3.94% |      |                  |             |  |            |  |         |                 |   |  |             |  |  |  |         | 13,000  |  
|NongHyup Bank                                                   |                         | Facility loans                          |      |                       | 2.00%         |      |                  |             |  |            |  |         | 123              |   |  |             |  |  |  |         | 123     |  
|Korea Development Bank                                          |                         | General loans                           |      |                       | 3.27%         |      |                  |             |  |            |  |         |                 |   |  |             |  |  |  |         | 30,000  |  
|Kookmin Bank                                                    |                         | Facility loans                          |      |                       | 2.59%         |      |                  |             |  |            |  |         |                 |   |  |             |  |  |  |         | 7,000   |  
|NH Investment & Security Co., Ltd.                              |                         | Commercial papers                       |      |                       | 3.17%         |      |                  |             |  |            |  |         | 300,000          |   |  |             |  |  |  |         | 300,000 |  
|Others                                                          |                         | Redeemable convertible preferred stock3 |      |                       |              |      |                  |             |  |            |  |         | 950              |   |  |             |  |  |  |         | 950     |  
|                                                                | Kookmin Bank and
other2 |                                         |      | LIBOR(3M)+1.85%       |               |      |                  | USD 156,768 |   |            |  | 183,732 |                  |   |  | USD 183,796 |   |  |  | 222,117 |        
|                                                                |                         |                                         |      |                       |               |      |                  |             |   |            |  |         |                  |   |  |             |   |  |  |         |         |  
|                                                                |                         |                                         |      |                       |               |      |                  |             |   |            |  | ₩       | 556,374          |   |  |             |   |  |  | ₩       | 644,243 |  
|                                                                |                         | Less: Current portion                   |      |                       |               |      |                  |             |   |            |  |         | (10,529          | ) |  |             |   |  |  |         | (59,331 | )
|                                                                |                         |                                         |      |                       |               |      |                  |             |   |            |  |         |                  |   |  |             |   |  |  |         |         |  
|                                                                |                         |                                         |      |                       |               |     
|                                                                |                         | Total                                   |      |                       |               |      |                  |             |   |            |  | ₩       | 545,845          |   |  |             |   |  |  | ₩       | 584,912 |  
|                                                                |                         |                                         |      |                       |               |      |                  |             |   |            |  |         |                  |   |  |             |   |  |  |         |         |  



|1 | The Inter-Korean Cooperation Fund is repayable in installments over 13 years after a seven-year grace period.
|- | -------------------------------------------------------------------------------------------------------------



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|2 | LIBOR(3M) is approximately 0.998% as of December 31, 2016.
|- | ----------------------------------------------------------

|3 | Skylife TV Co., Ltd., a subsidiary of the Group, issued 1,900,000 of redeemable convertible preferred stock with a par value per share of ₩500 in 2010.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------

Repayment schedule of the Groups borrowings including the portion of current liabilities as of December 31, 2016, is as
follows:



|                            |  |                  |           |  |                    |   |           |            |  |   |                  |  |  |                    |         |  |            |   |         |  |  |   |         |  |  |   |           | 
|--------------------------- |  | ---------------- | --------- |  | ------------------ | - | --------- | ---------- |  | - | ---------------- |  |  | ------------------ | ------- |  | ---------- | - | ------- |  |  | - | ------- |  |  | - | --------- | 
|(In millions of Korean won) | 
|                            |  | Debentures       |           |  | Borrowings         |   |           | Total      | 
|                            |  | In localcurrency |           |  | In foreigncurrency |   |           | Sub- total |  |   | In localcurrency |  |  | In foreigncurrency |         |  | Sub- total |   |         |  | 
|Jan 1, 2017 ~ Dec 31, 2017  |  | ₩                | 400,000   |  |                    | ₩ | 1,208,500 |            |  | ₩ | 1,608,500        |  |  | ₩                  | 169,753 |  |            | ₩ | 42,678  |  |  | ₩ | 212,431 |  |  | ₩ | 1,820,931 | 
|Jan 1, 2018 ~ Dec 31, 2018  |  |                  | 830,000   |  |                    |   | 588,575   |            |  |   | 1,418,575        |  |  |                    | 40,043  |  |            |   | 54,486  |  |  |   | 94,529  |  |  |   | 1,513,104 | 
|Jan 1, 2019 ~ Dec 31, 2019  |  |                  | 490,000   |  |                    |   | 422,975   |            |  |   | 912,975          |  |  |                    | 336,518 |  |            |   | 54,486  |  |  |   | 391,004 |  |  |   | 1,303,979 | 
|Jan 1, 2020 ~ Dec 31, 2020  |  |                  | 460,000   |  |                    |   |          |            |  |   | 460,000          |  |  |                    | 518     |  |            |   | 50,861  |  |  |   | 51,379  |  |  |   | 511,379   | 
|After 2021                  |  |                  | 2,340,000 |  |                    |   | 604,250   |            |  |   | 2,944,250        |  |  |                    | 3,015   |  |            |   | 44,985  |  |  |   | 48,000  |  |  |   | 2,992,250 | 
|                            |  |                  |           |  |                    |   |           |            |  |   |                  |  |  |                    |         |  |            |   |         |  |  |   |         |  |  |   |           | 
|Total                       |  | ₩                | 4,520,000 |  |                    | ₩ | 2,824,300 |            |  | ₩ | 7,344,300        |  |  | ₩                  | 549,847 |  |            | ₩ | 247,496 |  |  | ₩ | 797,343 |  |  | ₩ | 8,141,643 | 
|                            |  |                  |           |  |                    |   |           |            |  |   |                  |  |  |                    |         |  |            |   |         |  |  |   |         |  |  |   |           | 

Carrying amount and fair value of the Groups debentures and borrowings as of December 31, 2015 and 2016, are
as follows:



(In millions of Korean won)

2015


2016Type

Carrying
Amount


Fair
Value


Carrying
Amount


Fair
ValueDebentures

₩
7,903,725


₩
7,965,097


₩
7,323,448


₩
7,387,085Long-term borrowings (Including current portion of long-term borrowings)


556,374



544,991



644,243



644,010Short-term borrowings


174,798



174,798



153,100



153,100Total

₩
8,634,897


₩
8,684,886


₩
8,120,791


₩
8,184,195


The fair values of debentures and long-term borrowings are calculated by discounting the expected future cash flows
at weighted average borrowing rate. The weighted average borrowing rate is approximately 1.36% ~ 3.95% as of December 31, 2016 (2015: 1.03% ~ 4.20%).



F-56



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|16. | Provisions
|--- | ----------

Changes in provisions for the years ended December 31, 2015 and 2016, are as
follows:



2015(In millions of Korean won)

Litigation


Restoration cost


Others


TotalBeginning balance

₩
20,239


₩
98,122


₩
99,508


₩
217,869Increase (transfer)


10,633



6,093



15,162



31,888Usage


(6,860
)


(7,498
)


(23,625
)


(37,983
)Reversal


(6,488
)


(4,890
)


(5,124
)


(16,502
)Ending balance

₩
17,524


₩
91,827


₩
85,921


₩
195,272Current


17,524



1,124



85,259



103,907Non-current






90,703



662



91,3652016(In millions of Korean won)

Litigation


Restoration cost


Others


TotalBeginning balance

₩
17,524


₩
91,827


₩
85,921


₩
195,272Increase (Transfer)


3,392



13,653



40,293



57,338Usage


(640
)


(3,378
)


(37,378
)


(41,396
)Reversal


(1,238
)


(790
)


(12,007
)


(14,035
)Ending balance

₩
19,038


₩
101,312


₩
76,829


₩
197,179Current


18,988



2,334



75,163



96,485Non-current


50



98,978



1,666



100,694




|17. | Net Defined Benefit Liabilities
|--- | -------------------------------

The amounts recognized in the statement of financial position are
determined as follows:



(In millions of Korean won)

2015


2016Present value of defined benefit obligations

₩
1,601,974


₩
1,713,184Fair value of plan assets


(1,077,891
)


(1,334,780
)Liabilities

₩
524,083


₩
378,404


Changes in the defined benefit obligations for the years ended December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015


2016Beginning

₩
1,460,957


₩
1,601,974Current service cost


200,994



205,114Interest expense


40,641



37,378Benefit paid


(119,366
)


(127,581
)Changes due to settlements of plan






(424
)Remeasurements:Actuarial gains and losses arising from changes in demographic assumptions


(8,637
)


(53,407
)Actuarial gains and losses arising from changes in financial assumptions


47,230



26,717Actuarial gains and losses arising from experience adjustments


8,469



18,809Changes in scope of consolidation


(28,314
)


4,604Ending

₩
1,601,974


₩
1,713,184




F-57



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Changes in the fair value of plan assets for the years ended December 31, 2015 and 2016, are as
follows:



(In millions of Korean won)

2015


2016Beginning

₩
867,119


₩
1,077,891Interest income


23,848



25,237Remeasurements:Return on plan assets (excluding amounts included in interest income)


(2,901
)


(2,323
)Benefits paid


(88,490
)


(88,876
)Employer contributions


297,967



322,851Changes in scope of consolidation


(19,652
)


Ending

₩
1,077,891


₩
1,334,780


Amounts recognized in the statements of operations for the years ended December 31, 2014 and 2015, 2016 are as
follows:



(In millions of Korean won)

2014


2015


2016Current service cost

₩
184,870


₩
200,994


₩
205,114Net Interest cost


17,897



16,793



12,141Losses on settlements


666,299







424Transfer out


(6,173
)


(11,942
)


(8,737
)Transfer to discontinued operation


(5,721
)


(3,031
)


Total expenses

₩
857,172


₩
202,814


₩
208,942


Principal actuarial assumptions used are as follows:



2014.12.31


2015.12.31


2016.12.31Discount rate


2.74
%


2.43
%


2.43
%Future salary increase


4.03
%


4.06
%


4.10
%


The sensitivity of the defined benefit obligations as of December 31, 2016, to changes in the principal
assumptions is:



(In percentage, in millions of Korean won)

Effect on defined benefit obligationChanges inassumption

Increase inassumption


Decrease inassumptionDiscount rate

0.5% point

₩
(61,737
)

₩
66,653Salary growth rate

0.5% point


61,939



(58,084
)


A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an
increase in the value of the plans bond holdings.

The above sensitivity analyses are based on an assumption while holding all other
assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected
unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.

The
Group annually reviews funding levels of plan assets and has plan asset policies that require maintaining the funding level of the Group equal to or more than the level required under the



F-58



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Employee Retirement Benefit Security Act. Expected contributions to post-employment benefit plans for the year ending December 31, 2017, are
₩160,301 million.

Expected maturity analysis of undiscounted pension benefits as of
December 31, 2016, is as follows:



(In millions of Korean won)

Less than
1 year


Between
1 and 2 years


Between
2 and 5 years


Over 5 years


TotalPension benefits

₩
127,453


₩
149,881


₩
535,579


₩
3,280,732


₩
4,093,645


The weighted average duration of the defined benefit obligations is 8.5 years.



|18. | Defined Contribution Plan
|--- | -------------------------

Recognized expense related to the defined contribution plan for the
year ended December 31, 2016, is ₩46,023 million (2014: ₩25,423, 2015:
₩35,699 million).



|19. | Commitments and Contingencies
|--- | -----------------------------

As of December 31, 2016, major commitments with local
financial institutions are as follows:



(In millions of Korean won andforeign currencies in thousands)

Financial institution

Currency

Limit


Used amountBank overdraft

Kookmin Bank and others

KRW


1,863,300



Commercial papers Factoring

KEB Hana Bank and others

KRW


520,000



300,000Collateralized loan on accounts receivable-trade

NH Bank

KRW


31,560



Collateralized loan on electronic accounts receivable-trade

Shinhan Bank and others

KRW


601,000



13,673Plus electronic notes payable

Industrial Bank of Korea

KRW


50,000



140Loans for working capital

Korea Development Bank

KRW


300,400



230,100and others

USD


960



Green energy factoring

Shinhan Bank

KRW


92



92FX forward trading commitment

Shinhan Bank

USD


11,500



Facility loans

Kookmin Bank and others

KRW


13,616



13,616USD


212,000



183,796Facility loans on ships

Shinhan Bank

USD


27,000



21,000Inter-Korean Cooperation Fund

Export-Import Bank of Korea

KRW


37,700



5,181Total



KRW


3,417,668



562,802USD


251,460



204,796




F-59



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





As of December 31, 2016, guarantees received from financial institutions are as follows:



(In millions of Korean won and
foreign currencies in thousands)

Financial institution

Currency


LimitPerformance guarantee

Seoul Guarantee Insurance and others


KRW



127,542USD



4,148Guarantee for import letters of credit

Industrial Bank of Korea and others


USD



5,980Performance guarantee

PT Bank KEB Hana


IDR
1


123,023,153Counter guarantee

Woori Bank


IDR
1


123,023,153Guarantee for payment in foreign currency

Export-Import Bank of Korea and others


USD



78,005PLN
2


23,000Guarantee for advances received

Export-Import Bank of Korea


USD



7,414Comprehensive credit line

KEB Hana Bank and others


KRW



45,000Guarantee for payment in local currency

Kookmin Bank and others


KRW



1,197Bid guarantee

Korea Software Financial Cooperative


KRW



110,343Performance guarantee / Warranty guarantee

Korea Software Financial Cooperative


KRW



262,758Guarantee for advances received/others

Korea Software Financial Cooperative and others


KRW



70,100Warranty guarantee

Seoul Guarantee Insurance


KRW



786Guarantees for licensing

Seoul Guarantee Insurance


KRW



12,408Guarantees for public sale

Seoul Guarantee Insurance


KRW



307Guarantees for deposits

Seoul Guarantee Insurance and others


KRW



3,558Total




KRW



633,999USD



95,547IDR
1


246,046,306PLN
2


23,000




|1 | Indonesia Rupiah.
|- | -----------------

|2 | Polish Zloty.
|- | -------------

As of December 31, 2016, guarantees provided by the Group for third parties, are as
follows:



(In millions of Korean won)

Subject to payment Guarantees

Creditor

Limit

Used amount

PeriodKT Estate Inc.

Individuals with the right of ownership of Busan Lotte Castle Blue Ocean Apartment

Shinhan Bank

56,373

49,977

July 31, 2015
~ Nov. 30, 2017


The Controlling Company is jointly and severally obligated with KT Sat Co., Ltd. to pay KT Sat Co., Ltd.s
liabilities prior to spin-off. As of December 31, 2016, the Controlling Company and KT Sat Co., Ltd. are jointly and severally liable for reimbursement of
₩6,004 million.

For the year ended December 31, 2016, the Group entered into
agreements with Olleh KT Twenty-fifth to Twenty-sixth Securitization Specialty Co., Ltd. and GIGA LTE Twenty-seventh to Thirtieth Securitization Specialty Co., Ltd. (2015: Olleh KT Nineteenth to Twenty-fourth Securitization Specialty Co., Ltd.), and
disposed its trade receivables related to handset sales. The Group also made asset management agreements with each securitization specialty company and will receive the related management fees.



F-60



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





As of December 31, 2016, the Group is a defendant in 181 lawsuits with the total claimed amount of
₩77,461 million (2015: ₩85,833 million). As of December 31, 2016, litigation provisions of
₩19,038 million for various pending lawsuits and unasserted claims are recorded as liabilities for potential loss in the ordinary course of business. The Company cannot yet predict the final
outcomes of the cases because these matters involve significant uncertainties related to the legal theory or the nature of the claims as well as the complexity of the facts.

According to the financial and other covenants included in certain debentures and borrowings, the Group is required to maintain certain financial ratios
such as debt-to-equity ratio, use the funds for the designated purpose and report to the creditors periodically. The covenant also contains restriction on provision of
additional collateral and disposal of certain assets.



|20. | Lease
|--- | -----

The Groups non-cancellable lease arrangements
are as follows:

The Group as the Lessee

Finance Lease

Details of finance lease assets
as of December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015


2016Acquisition costs

₩
285,932


₩
298,631Less: Accumulated depreciation


(122,617
)


(105,013
)Net balance

₩
163,315


₩
193,618


As of December 31, 2016, the Group recognized financial lease assets as other property, plant and equipment.
The related depreciation amounted to ₩50,704 million (2015: ₩72,297 million) for the year ended December 31, 2016.

Details of future minimum lease payments as of December 31, 2015 and 2016, under finance lease contracts are summarized below:



(In millions of Korean won)

2015


2016Total amount of minimum lease paymentsWithin one year

₩
78,996


₩
79,644From one year to five years


105,555



131,813Total

₩
184,551


₩
211,457Unrealized interest expense


(28,354
)


(30,743
)Net amount of minimum lease paymentsWithin one year


61,175



64,008From one year to five years


95,022



116,706Total

₩
156,197


₩
180,714




F-61



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Operating Lease

Details of future minimum lease payments as of December 31, 2015 and 2016, under operating lease contracts are summarized below:



(In millions of Korean won)

2015


2016Within one year

₩
110,771


₩
102,015From one year to five years


297,027



270,462Thereafter


77,859



16,549Total

₩
485,657


₩
389,026


Operating lease expenses incurred for the years ended December 31, 2014, 2015 and 2016, amounted to ₩125,430 million, ₩111,776 million, and ₩121,852 million, respectively.



|21. | Share Capital
|--- | -------------

As of December 31, 2015 and 2016, the Controlling Companys number of
authorized shares is one billion.



2015


2016Number of
outstandingshares


Par value
per share
(Korean won)


Ordinary shares
(in millions of Korean
won)


Number of
outstandingshares


Par value
per share (Korean won)



Ordinary shares
(in millions of Korean
won)Ordinary shares1


261,111,808


₩
5,000


₩
1,564,499



261,111,808


₩
5,000


₩
1,564,499




| | 1 | The Controlling Company retired 51,787,959 treasury shares against retained earnings. Therefore, the ordinary shares amount differs from the amount resulting from multiplying the number of shares issued by ₩5,000 par value per share of ordinary shares.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|22. | Retained Earnings
|--- | -----------------

Details of retained earnings as of December 31, 2015 and 2016, are as
follows:



(In millions of Korean won)

2015


2016Legal reserve1

₩
782,249


₩
782,249Voluntary reserves2


4,738,028



4,651,362Unappropriated retained earnings


3,529,694



4,210,872Total

₩
9,049,971


₩
9,644,483




| | 1 | The Commercial Code of the Republic of Korea requires the Controlling Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued
capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock with the approval of the Controlling Companys Board of Directors or used to reduce accumulated deficit, if any, with the
ratification of the Controlling Companys majority shareholders.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The provision of research and development of human is separately accumulated with tax reserve fund during earned surplus disposal by Tax Reduction and Exemption Control Act of Korea. Reversal of this provision can be
paid out as dividends according to related tax law.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-62



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|23. | Accumulated Other Comprehensive Income and Other Components of Equity
|--- | ---------------------------------------------------------------------

As of December 31,
2015 and 2016, the details of the Controlling Companys accumulated other comprehensive income are as follows:



(In millions of Korean won)

2015


2016Changes in investments in associates and joint ventures

₩
(10,312
)

₩
(10,883
)Loss on derivatives valuation


(23,234
)


(34,309
)Gain of valuation on
available-for-sale


52,415



54,106Foreign currency translation adjustment


(4,999
)


(10,346
)Total

₩
13,870


₩
(1,432
)


Changes in accumulated other comprehensive income for the years ended December 31, 2015 and 2016, are as
follows:



2015(In millions of Korean won)

Beginning


Increase/decrease


Reclassified togain or loss


EndingChanges in investments in associates and joint ventures

₩
(8,955
)

₩
(1,357
)

₩



₩
(10,312
)Gain or loss on derivatives valuation


(37,158
)


111,886



(97,962
)


(23,234
)Gain or loss of valuation on
available-for-sale


76,725



39,164



(63,474
)


52,415Foreign currency translation adjustment


(4,822
)


(177
)






(4,999
)Total

₩
25,790


₩
149,516


₩
(161,436
)

₩
13,870




2016(In millions of Korean won)

Beginning


Increase/decrease


Reclassified togain or loss


EndingChanges in investments in associates and joint ventures

₩
(10,312
)

₩
(571
)

₩



₩
(10,883
)Gain or loss on derivatives valuation


(23,234
)


64,796



(75,871
)


(34,309
)Gain or loss of valuation on
available-for-sale


52,415



5,204



(3,513
)


54,106Foreign currency translation adjustment


(4,999
)


(5,347
)






(10,346
)Total

₩
13,870


₩
64,082


₩
(79,384
)

₩
(1,432
)


As of December 31, 2015 and 2016, the other components of equity are as follows:



(In millions of Korean won)

2015


2016Treasury stock1

₩
(866,156
)

₩
(859,789
)Loss on disposal of treasury stock2


2,869



607Share-based payments


3,737



5,762Others3


(373,313
)


(364,514
)Total

₩
(1,232,863
)

₩
(1,217,934
)




| | 1 | During the year ended December 31, 2016, the Controlling Company granted 136,351 treasury shares (2015: 3,008 treasury shares) as share-based payment.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The amount directly reflected in equity is ₩738 million (2015: ₩16 million) as of December 31,
2016.
| | - | ----------------------------------------------------------------------------------------------------



F-63



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 3 | Profit or loss incurred from transactions with non-controlling interest and investment difference incurred from change in proportion of subsidiaries are included.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31, 2015 and 2016, the details of treasury stock are as follows:



2015


2016Number of shares


16,262,008



16,140,165Amounts (In millions of Korean won)

₩
866,156


₩
859,789


Treasury stock is expected to be used for the stock compensation for the Groups directors and employees and
other purposes.



|24. | Share-based Payments
|--- | --------------------

Details of share-based payments as of December 31, 2016, are as
follows:



10thGrant date

July 28, 2016Grantee

CEO, inside directors, outside directors, executivesVesting conditions

Service condition: 1 year
Non-market performance condition: achievement of performanceFair value per option (in Korean won)

₩31,750Total compensation costs (in Korean won)

₩5,762 millionEstimated exercise date (exercise date)

During 2017Valuation method

Fair value method


Changes in the number of stock options and the weighted-average exercise price as of December 31, 2015 and
2016, are as follows:



2015Beginning


Granted


Expired


Forfeited


Exercised1


Ending


Number ofsharesexercisable8th grant


251,833







248,825







3,008







9th grant






263,123















263,123



Total


251,833



263,123



248,825







3,008



263,123








2016Beginning


Granted


Expired


Forfeited


Exercised1


Ending


Number ofsharesexercisable9th grant


263,123



54,913



181,685







136,351







10th grant






318,506















318,506



Total


263,123



373,419



181,685







136,351



318,506








| | 1 | The weighted average price of ordinary shares at the time of exercise during 2016 was ₩31,750 (2015:
₩30,900).
| | - | --------------------------------------------------------------------------------------------------------------



F-64



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|25. | Operating Revenues
|--- | ------------------

Operating revenues for the years ended December 31, 2014, 2015 and 2016,
are as follows:



(In millions of Korean won)

2014


2015


2016Services provided

₩
19,107,078


₩
19,455,693


₩
19,935,865Sale of goods


3,252,202



2,755,980



2,819,141Others


253,433



488,183



365,872Total

₩
22,612,713


₩
22,699,856


₩
23,120,878




|26. | Operating Expenses
|--- | ------------------

Operating expenses for the years ended December 31, 2014, 2015 and 2016,
are as follows:



(In millions of Korean won)

2014


2015


2016Salaries and wages

₩
3,918,750


₩
3,303,484


₩
3,477,596Depreciation


2,760,915



2,756,131



2,762,773Amortization of intangible assets


564,779



582,467



582,493Commissions


1,355,169



1,036,852



1,099,429Interconnection charges


797,329



689,293



690,285International interconnection fee


238,404



231,060



216,633Purchase of inventories


3,508,689



3,963,036



3,407,263Changes of inventories


254,735



(198,028
)


162,323Sales commission


2,628,978



1,856,595



1,968,035Service cost


1,280,506



1,163,887



1,322,337Utilities


313,329



319,303



323,406Taxes and dues


232,056



256,958



255,480Rent


451,365



469,950



455,457Insurance premium


210,711



211,104



178,231Installation fee


317,684



249,413



156,669Advertising expenses


152,122



177,348



185,560Research and development expenses


192,034



183,821



167,881Card service cost


2,883,060



2,959,765



3,049,559Others


1,330,938



1,410,349



1,319,688Total

₩
23,391,553


₩
21,622,788


₩
21,781,098


Details of employee benefits for the years ended December 31, 2014, 2015 and 2016, are as follows:



(In millions of Korean won)

2014


2015


2016Short-term employee benefits

₩
2,627,785


₩
3,055,699


₩
3,206,904Post-employment benefits(Defined benefit plan)


857,172



202,814



208,942Post-employment benefits(Defined contribution plan)


25,423



35,699



46,023Post-employment benefits(Others)


404,743



5,535



8,017Share-based payment


3,627



3,737



7,710Total

₩
3,918,750


₩
3,303,484


₩
3,477,596




F-65



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|27. | Financial Income and Costs
|--- | --------------------------

Details of financial income for the years ended December 31,
2014, 2015 and 2016, are as follows:



(In millions of Korean won)

2014


2015


2016Interest income

₩
80,244


₩
70,035


₩
115,686Gain on foreign currency transactions


37,226



18,766



24,915Gain on foreign currency translation


34,749



11,280



12,165Gain on settlement of derivatives


2,134



368



8,515Gain on valuation of derivatives


93,235



141,512



109,436Others


5,501



30,899



25,422Total

₩
253,089


₩
272,860


₩
296,139


Details of financial expenses for the years ended December 31, 2014, 2015 and 2016, are as follows:



(In millions of Korean won)

2014


2015


2016Interest expenses

₩
475,084


₩
385,925


₩
337,219Loss on foreign currency transactions


25,961



42,831



37,936Loss on foreign currency translation


126,074



175,613



121,949Loss on settlement of derivatives


35,240



6,280



632Loss on valuation of derivatives


25,357



1,733



138Loss on disposal of trade receivables


16,464



2,539



15,838Impairment loss on
available-for-sale financial assets


70,022



1,805



966Others


17,998



28,605



409Total

₩
792,200


₩
645,331


₩
515,087




|28. | Deferred Income Tax and Income Tax Expense
|--- | ------------------------------------------

The analysis of deferred tax assets and deferred tax
liabilities as of December 31, 2015 and 2016, is as follows:



(In millions of Korean won)

2015


2016Deferred tax assetsDeferred tax assets to be recovered within 12 months

₩
308,838


₩
265,997Deferred tax assets to be recovered after more than 12 months


1,182,043



1,124,420₩
1,490,881


₩
1,390,417Deferred tax liabilitiesDeferred tax liability to be recovered within 12 months


(14,188
)


(48,033
)Deferred tax liability to be recovered after more than 12 months


(760,946
)


(778,655
)(775,134
)


(826,688
)Deferred tax assets after offsetting

₩
845,397


₩
701,409Deferred tax liabilities after offsetting

₩
129,650


₩
137,680




F-66



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The gross movements on the deferred income tax account for the years ended December 31, 2015 and
2016, are calculated as follows:



(In millions of Korean won)

2015


2016Beginning

₩
934,828


₩
715,747Charged(credited) to the statement of operations


(232,134
)


(152,102
)Charged(credited) to othercomprehensive
income


21,977



84Changes in scope of consolidation


(8,924
)


Ending

₩
715,747


₩
563,729


The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follows:



(In millions of Korean won)

2015Beginning


Statement of
operations


Othercomprehensiveincome


Changes inscope ofconsolidation


EndingDeferred tax liabilitiesDerivative instruments

₩
(422
)

₩
(14,281
)

₩
(4,454
)

₩
2


₩
(19,155
)Available-for-sale financial
assets


(40,816
)


(42
)


11,499



(71
)


(29,430
)Investment in subsidiaries, associates and joint ventures


(44,678
)


(6,630
)


1,282



(209
)


(50,235
)Depreciation


(52,383
)


(1,489
)










(53,872
)Advanced depreciation provision


(238,130
)


6,438











(231,692
)Deposits for severance benefits


(204,986
)


(50,730
)






3,792



(251,924
)Accrued income


(1,675
)


(173
)






40



(1,808
)Reserve for technology and human resource development


(22,637
)


21,421











(1,216
)Others


(148,912
)


10,347







2,763



(135,802
)(754,639
)


(35,139
)


8,327



6,317



(775,134
)Deferred tax assetsDerivatives instruments


18,174



(18,174
)










Provisions for impairment on trade receivables


142,806



(8,117
)






2,054



136,743Inventory valuation


(19
)


75











56Contribution for construction


22,040



(2,422
)










19,618Accrued expenses


50,627



13,669







(179
)


64,117Provisions


28,330



(4,048
)






(3,929
)


20,353Property, plant and equipment


239,683



108











239,791Retirement benefit obligations


297,497



25,686



12,091



(3,294
)


331,980




F-67



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(In millions of Korean won)

2015Beginning


Statement of
operations


Othercomprehensiveincome


Changes inscope ofconsolidation


EndingWithholding of facilities expenses


7,809



(449
)










7,360Accrued payroll expenses


19,776



6,646







(4,788
)


21,634Deduction of installment receivables


4,310



6,203











10,513Assets retirement obligation


18,362



(1,388
)










16,974Gain or loss foreign currency translation


16,980



26,303











43,283Deferred revenue


64,649



(20,628
)






(229
)


43,792Real-estate sales


872



2,108











2,980Tax credit carryforwards


203,278



9,542











212,820Accumulated deficit


411,755



(304,270
)










107,485Others


142,538



72,161



1,559



(4,876
)


211,3821,689,467



(196,995
)


13,650



(15,241
)


1,490,881Net balance

₩
934,828


₩
(232,134
)

₩
21,977


₩
(8,924
)

₩
715,747




(In millions of Korean won)

2016Beginning


Statement of
operations


Othercomprehensiveincome


EndingDeferred tax liabilitiesDerivative instruments

₩
(19,155
)

₩
(33,569
)

₩
3,536


₩
(49,188
)Available-for-sale financial
assets


(29,430
)


(10
)


(2,262
)


(31,702
)Investment in subsidiaries, associates and joint ventures


(50,235
)


(666
)


155



(50,746
)Depreciation


(53,872
)


14,374







(39,498
)Advanced depreciation provision


(231,692
)


6,005







(225,687
)Deposits for severance benefits


(251,924
)


(55,806
)






(307,730
)Accrued income


(1,808
)


(216
)






(2,024
)Reserve for technology and human resource development


(1,216
)


469







(747
)Others


(135,802
)


16,436







(119,366
)(775,134
)


(52,983
)


1,429



(826,688
)Deferred tax assetsProvisions for impairment on trade receivables


136,743



(26,467
)






110,276Inventory valuation


56



(8
)






48Contribution for construction


19,618



(1,527
)






18,091Accrued expenses


64,117



16,239







80,356Provisions


20,353



(132
)






20,221Property, plant and equipment


239,791



(6,876
)






232,915Retirement benefit obligations


331,980



41,857



(1,345
)


372,492




F-68



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





(In millions of Korean won)

2016Beginning


Statement of
operations


Othercomprehensiveincome


EndingWithholding of facilities expenses


7,360



(450
)






6,910Accrued payroll expenses


21,634



4,281







25,915Deduction of installment receivables


10,513



3,374







13,887Assets retirement obligation


16,974



1,112







18,086Gain or loss foreign currency translation


43,283



24,418







67,701Deferred revenue


43,792



(17,679
)






26,113Real-estate sales


2,980



871







3,851Tax credit carryforwards


212,820



(13,221
)






199,599Accumulated deficit


107,485



(107,485
)






Others


211,382



(17,426
)






193,9561,490,881



(99,119
)


(1,345
)


1,390,417Net balance

₩
715,747


₩
(152,102
)

₩
84


₩
563,729


The tax impacts recognized directly to equity as of December 31, 2014, 2015 and 2016, are as follows:



|                                                      |  |                    |          |   |           |   |        |                  |  |   |                    |   |  |           |         |   |                  |   |        |                    |  |   |           |   |  |                  |         |   |  |   |        |   |  |   |         |  
|----------------------------------------------------- |  | ------------------ | -------- | - | --------- | - | ------ | ---------------- |  | - | ------------------ | - |  | --------- | ------- | - | ---------------- | - | ------ | ------------------ |  | - | --------- | - |  | ---------------- | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                      |  | 2014               |          |   | 2015      |   |        | 2016             | 
|(In millions ofKorean won)                            |  | Before
recognition |          |   | Taxeffect |   |        | Afterrecognition |  |   | Before
recognition |   |  | Taxeffect |         |   | Afterrecognition |   |        | Before
recognition |  |   | Taxeffect |   |  | Afterrecognition |        
|Available-for-sale
valuation gain(loss)               |  | ₩                  | 29,239   |   |           | ₩ | (7,076 | )                |  | ₩ | 22,163             |   |  | ₩         | (47,515 | ) |                  | ₩ | 11,499 |                    |  | ₩ | (36,016   | ) |  | ₩                | 9,347   |   |  | ₩ | (2,262 | ) |  | ₩ | 7,085   |  
|Hedge instruments valuation gain(loss)                |  |                    | (36,682  | ) |           |   | 8,877  |                  |  |   | (27,805            | ) |  |           | 18,406  |   |                  |   | (4,454 | )                  |  |   | 13,952    |   |  |                  | (14,611 | ) |  |   | 3,536  |   |  |   | (11,075 | )
|Remeasurements from net defined benefit liabilities   |  |                    | (312,186 | ) |           |   | 75,549 |                  |  |   | (236,637           | ) |  |           | (49,963 | ) |                  |   | 12,091 |                    |  |   | (37,872   | ) |  |                  | 5,558   |   |  |   | (1,345 | ) |  |   | 4,213   |  
|Shares of gain(loss) of associates and joint ventures |  |                    | 4,628    |   |           |   | (1,120 | )                |  |   | 3,508              |   |  |           | (5,297  | ) |                  |   | 1,282  |                    |  |   | (4,015    | ) |  |                  | (641    | ) |  |   | 155    |   |  |   | (486    | )
|Foreign Currency Translation adjustment               |  |                    | 4,652    |   |           |   | (1,126 | )                |  |   | 3,526              |   |  |           | (6,443  | ) |                  |   | 1,559  |                    |  |   | (4,884    | ) |  |                  | (7,133  | ) |  |   | 1,726  |   |  |   | (5,407  | )
|                                                      |  |                    |          |   |           |   |        |                  |  |   |                    |   |  |           |         |   |                  |   |        |                    |  |   |           |   |  |                  |         |   |  |   |        |   |  |   |         |  
|Total                                                 |  | ₩                  | (310,349 | ) |           | ₩ | 75,104 |                  |  | ₩ | (235,245           | ) |  | ₩         | (90,812 | ) |                  | ₩ | 21,977 |                    |  | ₩ | (68,835   | ) |  | ₩                | (7,480  | ) |  | ₩ | 1,810  |   |  | ₩ | (5,670  | )
|                                                      |  |                    |          |   |           |   |        |                  |  |   |                    |   |  |           |         |   |                  |   |        |                    |  |   |           |   |  |                  |         |   |  |   |        |   |  |   |         |  



F-69



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Details of income tax expense (benefit) for the years ended December 31, 2014, 2015 and 2016, are
calculated as follows:



(In millions of Korean won)

2014


2015


2016Current income tax expense(benefit)

₩
45,674


₩
(5,003
)

₩
176,212Impact of change in deferred taxes


(317,115
)


232,134



152,102Income tax expense(benefit)

₩
(271,441
)

₩
227,131


₩
328,314


The tax on the Groups profit before tax differs from the theoretical amount that would arise using the
weighted average tax rate applicable to profits of the entities as follows:



2014


2015


2016Profit(loss) before income tax expense(benefit)

₩
(1,299,254
)

₩
710,741


₩
1,123,431Statutory income tax expense(benefit)

₩
(314,419
)

₩
171,999


₩
271,870Tax effectIncome not taxable for taxation purposes


(44,145
)


(21,881
)


(28,093
)Non-deductible expenses


39,071



28,849



21,947Tax credit


(39,490
)


(9,660
)


(13,764
)Additional payment of income taxes


1,079



997



(4,780
)Tax effect and adjustment on consolidationGoodwill impairment


851



23,185



31,847Eliminated dividend income from subsidiaries


32,393



20,452



40,087Changes of out-side tax effect


10,165



9,844



(567
)Others


43,054



3,346



9,767Income tax expense(benefit)

₩
(271,441
)

₩
227,131


₩
328,314




|29. | Earnings per Share
|--- | ------------------

Basic earnings per share is calculated by dividing the profit from operations
attributable to equity holders of the Controlling Company by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares purchased by the Group and held as treasury stock.

Basic earnings per share from operations for the years ended December 31, 2014, 2015 and 2016, is calculated as follows:



2014


2015


2016Profit(loss) attributable to ordinary shares (in millions of Korean won)

₩
(1,030,240
)

₩
546,361


₩
708,362Profit(loss) from continuing operations attributable to ordinary shares


(1,094,177
)


404,045



708,362Profit from discontinued operations attributable to ordinary shares


63,937



142,316



Weighted average number of ordinary shares outstanding (in number of shares)


244,443,771



244,854,364



244,892,313Basic earnings(loss) per share (in Korean won)


(4,215
)


2,231



2,893Basic earnings(loss) per share from continuing operations


(4,477
)


1,650



2,893Basic earnings per share from discontinued operations


262



581








F-70



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Diluted earnings per share from operations is calculated by adjusting the weighted average number of
ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Controlling Company has dilutive potential ordinary shares from redeemable convertible preferred stocks from stock options.

Diluted earnings per share from operations for the years ended December 31, 2014, 2015 and 2016 is calculated as follows:



2014


2015


2016Profit(loss) attributable to ordinary shares (in millions of Korean won)

₩
(1,030,240
)

₩
546,361


₩
708,362Adjusted net income attributable to ordinary shares (in millions of Korean won)


(13
)


(75
)


(67
)Diluted profit(loss) attributable to ordinary shares (in millions of Korean won)


(1,030,253
)


546,286



708,295Diluted profit(loss) from continuing operations attributable to ordinary shares


(1,094,190
)


403,970



708,295Diluted income from discontinued operations attributable to ordinary shares


63,937



142,316



Number of dilutive potential ordinary shares outstanding (in number of shares)






1,104



84,245Weighted average number of ordinary shares outstanding (in number of shares)


244,443,771



244,855,468



244,976,558Diluted earnings(loss) per share (in Korean won)


(4,215
)


2,231



2,891Diluted earnings(loss) per share from continuing operations


(4,477
)


1,650



2,891Diluted earnings per share from discontinued operations


262



581








|30. | Dividend
|--- | --------

The dividends paid by the Controlling Company in 2016 and 2014 were ₩122,425 million (₩500 per share) and ₩195,112 million (₩800 per share), respectively. There were no dividends paid in 2015. A dividend in respect of the year ended December 31, 2016, of ₩800
per share, amounting to a total dividend of ₩195,977 million, was approved at the shareholders meeting on March 24, 2017.



F-71



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|31. | Cash Generated from Operations
|--- | ------------------------------

Cash flows from operating activities for the years ended
December 31, 2014, 2015 and 2016, are as follows:



(In millions of Korean won)

2014


2015


20161. Profit(loss) for the year

₩
(941,413
)

₩
624,685


₩
795,1172. Adjustments to reconcile net incomeIncome tax expense(benefit)


(266,335
)


346,146



328,314Interest income


(237,975
)


(161,123
)


(130,066
)Interest expense


578,210



445,814



337,219Dividends income


(15,007
)


(11,371
)


(3,926
)Depreciation


3,242,346



3,030,821



2,821,779Amortization of intangible assets


612,418



609,185



599,721Provision for severance benefits


869,066



217,787



217,255Impairment losses on trade receivables


231,934



161,448



92,711Share of net profit of associates and joint ventures


(24,361
)


(5,562
)


(2,547
)Gain on disposal of associates and joint ventures


8,036



(4,848
)


(1,450
)Impairment loss of associates and joint ventures










17,128Gain on disposal of subsidiaries


11,028



(256,230
)


Loss on disposal of property, plant and equipment and investment in properties


133,374



129,466



74,913Loss on disposal of intangible assets


17,528



33,978



7,703Loss on impairment of intangible assets


87,275



292,345



135,264Loss on foreign currency translation


91,362



164,374



109,784Gain on valuation of derivatives


(34,011
)


(306,538
)


(117,181
)Impairment losses on
available-for-sale financial assets


70,022



1,805



966Gain on disposal of
available-for-sale financial assets


13,495



(131,041
)


(22,695
)Others


(26,101
)


24,140



64,8633. Changes in operating assets and liabilitiesDecrease in trade receivables


13,008



112,674



252,196Decrease(increase) in other receivables


355,749



(21,749
)


(770,893
)Decrease(increase) in other current assets


271,475



(19,701
)


48,549Increase in other non-current assets


(1,200,843
)


(137,532
)


(51,765
)Decrease(increase) in inventories


301,210



(270,343
)


167,873Increase(decrease) in trade payables


(417,944
)


81,295



(114,838
)Increase(decrease) in other payables


(260,421
)


(48,680
)


705,807Increase(decrease) in other current liabilities


19,010



(9,452
)


37,798Increase in other non-current liabilities


38,030



119,836



30,762Increase(decrease) in provisions


26,029



(8,902
)


(12,583
)Increase(decrease) in deferred revenue


1,359



(82,582
)


(69,179
)Decrease(increase) in plan assets


238,987



(223,194
)


(224,244
)Payment of severance benefits


(1,427,229
)


(117,691
)


(121,835
)4. Cash generated from operations (1+2+3)

₩
2,379,311


₩
4,579,260


₩
5,202,520




F-72



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The Group made agreements with securitization specialty companies and disposed of its trade receivables
related to handset sales (Note 19). Cash flows from the disposals are presented in cash generated from operations.

Significant transactions not
affecting cash flows for the years ended December 31, 2014, 2015 and 2016, are as follows:



(In millions of Korean won)

2014


2015


2016Reclassification of the current portion of debentures

₩
1,805,553


₩
1,551,300


₩
1,617,175Reclassification of
construction-in-progress to property, plant and equipment


2,478,164



2,373,023



2,212,324Reclassification of accounts payable from property, plant and equipment


310,270



78,663



91,407Reclassification of accounts payable from intangible assets


179,395



(170,870
)


668,564Reclassification of payable from defined benefit liability


26,250



1,675



5,746Reclassification of payable from plan assets


20,695



13,717



(9,731
)Exercise of convertible bonds


19,052












|32. | Segment Information
|--- | -------------------

The Groups operating segments are as follows:



Details

Business serviceCustomer/Marketing

Mobile/fixed line telecommunication service and convergence businessFinance

Credit card businessSatellite TV

Satellite broadcasting businessAll other segments

Information technology business, security business, global business and other businesses operated by subsidiaries


Details of each segment for the years ended December 31, 2014, 2015 and 2016, are as follows:



2014(In millions of Korean won)

Operating
revenues


Operating
income(loss)


Depreciation
andAmortizationCustomer/Marketing

₩
16,784,511


₩
(426,786
)

₩
2,913,221Finance


3,296,273



166,302



24,346Satellite TV1


656,430



68,857



85,295All other segments1


4,857,209



(558,122
)


298,10025,594,423



(749,749
)


3,320,962Elimination


(2,981,710
)


(29,091
)


4,732Consolidated amount

₩
22,612,713


₩
(778,840
)

₩
3,325,694




F-73



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2015(In millions of Korean won)

Operating
revenues


Operating
income(loss)


Depreciation
and AmortizationCustomer/Marketing

₩
16,130,454


₩
816,679


₩
2,897,876Finance


3,512,721



281,477



25,466Satellite TV1


668,521



97,701



95,951All other segments1


6,115,520



(99,601
)


314,69126,427,216



1,096,256



3,333,984Elimination


(3,727,360
)


(19,188
)


4,614Consolidated amount

₩
22,699,856


₩
1,077,068


₩
3,338,598




| | 1 | The amounts of 2014, 2015 were revised due to change in reportable segments.
| | - | ----------------------------------------------------------------------------



2016(In millions of Korean won)

Operating
revenues


Operating
income


Depreciation
and AmortizationCustomer/Marketing

₩
16,144,415


₩
1,050,053


₩
2,870,161Finance


3,577,549



208,566



28,868Satellite TV


668,945



79,987



98,895All other segments


6,308,203



40,047



339,42926,699,112



1,378,653



3,337,353Elimination


(3,578,234
)


(38,873
)


7,913Consolidated amount

₩
23,120,878


₩
1,339,780


₩
3,345,266


Operating revenues for the year ended December 31, 2014, 2015 and 2016 and
non-current assets as of December 31, 2015 and 2016 by geographical regions, are as follows:



(In millions of Korean won)

Operating revenues

Non-current assets1Location

2014

2015

2016

2015.12.31

2016.12.31Domestic

₩22,531,190

₩22,628,778

₩23,026,255

₩17,989,844

₩18,308,310Overseas

81,523

71,078

94,623

190,891

174,648Total

₩22,612,713

₩22,699,856

₩23,120,878

₩18,180,735

₩18,482,958




| | 1 | Non-current assets include property, plant and equipment, intangible assets and investment properties.
| | - | ------------------------------------------------------------------------------------------------------



F-74



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|33. | Related Party Transactions
|--- | --------------------------

The list of related party of the Group as of December 31, 2016,
is as follows:



Relationship

Name of EntryAssociates and joint ventures

Korea Information & Technology Investment Fund, KT WiBro Infra Co., Ltd., K-Realty CR-REITs No.1, Mongolian Telecommunications, KT-SB Venture Investment Fund, Boston Global Film & Contents Fund L.P., QTT Global (Group) Company Limited, CU Industrial Development Co., Ltd., HooH Healthcare Inc., KD Living, Inc., ChungHo EZ-Cash Co., Ltd., MOS GS Co., Ltd., MOS Daegu Co., Ltd., MOS Chungcheong Co., Ltd., MOS Gangnam Co., Ltd., MOS GB Co., Ltd., MOS BS Co., Ltd., MOS Honam Co., Ltd., Oscar Ent. Co., Ltd., Texno Pro Sistem, KT-CKP New Media Investment Fund, LoginD Co., Ltd., K-REALTY CR-REIT 6, ISU-kth Contents
Investment Fund, Daiwon Broadcasting Co., Ltd., KT-DSC creative economy youth start-up investment fund, Gyeonggi-KT Green Growth
Fund, Korea electronic Vehicle charging service, PT. Mitra Transaksi Indonesia, K-REALTY RENTAL HOUSING REIT 2, KT-IBKC future investment fund 1, AI RESEARCH INSTITUTE, Gyeonggi-KT Yoojin Superman Fund, FUNDA Co., Ltd.


Outstanding balances of receivables and payables in relations to transactions with related parties as of
December 31, 2015 and 2016, are as follows:



2015Receivables


Payables(In millions of Korean won)

Tradereceivables


Loans


Otherreceivables


Tradepayables


Other
payablesAssociates and joint ventures

KT Wibro Infra Co., Ltd.

₩



₩



₩



₩



₩
86,507Smart Channel Co., Ltd.1


8,684



46,914



39,950



995



1,308K-Realty CR-REITs No.1


927







34,200







MOS GS Co., Ltd.


33







1







1,454MOS Daegu Co., Ltd.


8







23







1,051MOS Chungcheong Co., Ltd.


4







1







1,184MOS Gangnam Co., Ltd.


3







1







MOS GB Co., Ltd.


6







1



108



2,801MOS BS Co., Ltd.


1







1







1,086MOS Honam Co., Ltd.


3















1,793Others


738







1,499



110



3,010Total

₩
10,407


₩
46,914


₩
75,677


₩
1,213


₩
100,194




| | 1 | The Group provided allowance for doubtful accounts of ₩95,548 million against trade receivables, loans and other receivables from Smart Channel Co., Ltd.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



F-75



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2016Receivables


Payables(In millions of Korean won)

Tradereceivables


Loans


Otherreceivables


Tradepayables


Other
payablesAssociates and joint ventures

KT Wibro Infra Co., Ltd.

₩



₩



₩



₩



₩
43,394K-Realty CR-REITs No.1


882







33,110







MOS GS Co., Ltd.


9







1







1,494MOS Daegu Co., Ltd.


1















1,082MOS Chungcheong Co., Ltd.


6







1







2,065MOS Gangnam Co., Ltd.


6







1







1,129MOS GB Co., Ltd.


19







5







2,167MOS BS Co., Ltd.


34







1







1,114MOS Honam Co., Ltd.


2















1,289Others


481







179



3



1,266Total

₩
1,440


₩



₩
33,298


₩
3


₩
55,000


Significant transactions with related parties for the years ended December 31, 2014, 2015 and 2016, are as
follows:



2014(In millions of Korean won)

Sales


Purchases2Associates and joint ventures

ktcs Corporation1

₩
59,739


₩
245,648ktis Corporation1


78,546



243,336KT Service Bukbu


6,787



54,450Information Technology Solution Nambu Corporation


7,574



45,940Information Technology Solution Seobu Corporation


6,388



40,251Information Technology Solution Busan Corporation


4,093



26,174KT Service Nambu


7,187



37,436Information Technology Solution Honam Corporation


4,976



36,081Information Technology Solution Daegu Corporation


3,460



21,006KT Wibro Infra Co., Ltd.


11



1,237Smart Channel Co., Ltd.


14,002



2K-Realty CR-REITs No.1


2,067



37,413MOS GS Co., Ltd.


1,593



17,063MOS Daegu Co., Ltd.


894



12,092MOS Chungcheong Co., Ltd.


867



12,105MOS Gangnam Co., Ltd.


775



16,209MOS GB Co., Ltd.


2,017



21,114MOS BS Co., Ltd.


858



15,762MOS Honam Co., Ltd.


780



14,417Others


4,401



11,903Total3

₩
207,015


₩
909,635




| | 1 | The transactions for the year ended December 31, 2014, before ktcs and kits were included in the consolidation scope.
| | - | ---------------------------------------------------------------------------------------------------------------------

| | 2 | The amount includes acquisition of property, plant and equipment and others.
| | - | ----------------------------------------------------------------------------

| | 3 | Operating income and expenses of KT Capital Co., Ltd. and KT Rental that were classified as discontinued operations amounting to ₩17,707 million and ₩1,271 million, respectively, during the year ended December 31, 2014, is included.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-76



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2015(In millions of Korean won)

Sales


Purchases2Associates and
joint ventures

KT Service Bukbu1

₩
2,143


₩
28,550Information Technology Solution Nambu Corporation1


2,707



24,025Information Technology Solution Seobu Corporation1


2,324



20,031Information Technology Solution Busan Corporation1


1,496



14,049KT Service Nambu1


1,972



21,133Information Technology Solution Honam Corporation1


2,050



29,538Information Technology Solution Daegu Corporation1


1,256



18,272KT Wibro Infra Co., Ltd.


11



814Smart Channel Co., Ltd.


6,545



4,722K- Realty CR-REITs No.1


2,133



38,167MOS GS Co., Ltd.


752



17,474MOS Daegu Co., Ltd.


357



12,227MOS Chungcheong Co., Ltd.


310



12,735MOS Gangnam Co., Ltd.


454



15,829MOS GB Co., Ltd.


964



21,582MOS BS Co., Ltd.


453



15,482MOS Honam Co., Ltd.


470



17,004Others


4,394



13,510Total3

₩
30,791


₩
325,144




| | 1 | The transactions for the year ended December 31, 2015, after KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. were merged and included in the consolidation scope.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The amount includes acquisition of property, plant and equipment, and others.
| | - | -----------------------------------------------------------------------------

| | 3 | Operating income amounting to ₩6,634 million of KT Capital Co., Ltd. and KT Rental that were classified as discontinued operations during the year ended
December 31, 2015, is included.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2016(In millions of Korean won)

Sales


Purchases2Associates and joint ventures

KT Wibro Infra Co., Ltd.

₩
11


₩
391Smart Channel Co., Ltd.1


766



K- Realty CR-REITs No.1


1,989



37,469MOS GS Co., Ltd.


663



17,361MOS Daegu Co., Ltd.


291



12,220MOS Chungcheong Co., Ltd.


408



13,469MOS Gangnam Co., Ltd.


412



15,797MOS GB Co., Ltd.


891



21,802MOS BS Co., Ltd.


441



15,346MOS Honam Co., Ltd.


418



14,389Others


1,719



29,422Total

₩
8,009


₩
177,666




| | 1 | The transactions for the year ended December 31, 2016, before Smart Channel Co., Ltd. was included in the consolidation scope.
| | - | ------------------------------------------------------------------------------------------------------------------------------

| | 2 | The amount includes acquisition of property, plant and equipment, and others.
| | - | -----------------------------------------------------------------------------



F-77



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Key management compensation for the years ended December 31, 2014, 2015 and 2016, consists of:



(In millions of Korean won)

2014


2015


2016Salaries and other short-term benefits

₩
1,817


₩
2,455


₩
2,629Post-employment benefits


400



413



381Stock-based compensation


965



997



1,237Total

₩
3,182


₩
3,865


₩
4,247


Fund transactions with related parties for the years ended December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015Loantransactions


Borrowingtransactions


Equitycontributionsin cash


DividendincomeLoans


RepaymentAssociates and joint venturesKT-DSC creative economy youth
start-up investment fund

₩



₩



₩
4,000


₩
Smart Channel Co., Ltd.1


37,276











Korea Electronic Vehicle Charging Service










1,368



2010 KIF-IMM IT Investment Fund2










617



KTC-NP-Growth Champ 2011-2 PEF2










6,400



Korea Information & Technology Investment Fund














1,107Exdell Corporation














13KT Service Bukbu3














9Information Technology Solution Nambu
Corporation3














9Information Technology Solution Seobu
Corporation3














9Information Technology Solution Busan
Corporation3














9KT Service Nambu3














9Information Technology Solution Honam
Corporation2














9Information Technology Solution Daegu
Corporation2














9KT-SB Venture Investment Fund














11,795K-Realty CR-REITs
No.1














3,345Mongolian Telecommunications














35Daiwon Broadcasting Co., Ltd.














85Others














83Total

₩
37,276


₩



₩
12,385


₩
16,526




| | 1 | The Group provided Allowance for doubtful accounts of ₩37,276 million against loans for Smart Channel Co., Ltd.
| | - | ---------------------------------------------------------------------------------------------------------------



F-78



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 2 | The transactions related to KT Capital Co., Ltd. that was classified as disposal group held for sale during the year ended December 31, 2015, are included.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3 | The transactions for the year ended December 31, 2015, after KT Service Bukbu Co., Ltd. and KT Service Nambu Co., Ltd. were merged and included in the consolidation scope.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(In millions of Korean won)

2016Equitycontributionsin cash


DividendincomeAssociates and joint venturesKT-DSC creative economy youth
start-up investment fund

₩
6,000


₩
PT. Mitra Transaksi Indonesia


16,626



K-REALTY RENTAL HOUSING REIT 2


5,500



AI RESEARCH INSTITUTE


3,000



KT-IBKC future investment fund 1


3,750



Gyeonggi-KT Yoojin Superman Fund


1,000



FUNDA Co., Ltd.


2,799



K-Realty CR-REITs
No.1






4,186Korea Information & Technology Investment Fund






3,201Daiwon Broadcasting Co., Ltd.






85Others






82Total

₩
38,675


₩
7,554




|34. | Financial risk management
|--- | -------------------------

(1) Financial risk factors

The Groups activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow
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. The Group uses derivative financial instruments to hedge certain risk exposures.

The Groups financial policy is set up in the
long-term perspective and annually reported to the Board of Directors. The financial risk management is carried out by the Value Management Office, which identifies, evaluates and hedges financial risks. The treasury department in the Value
Management Office considers various finance market conditions to estimate the effect from the market changes.

1) Market risk

The Groups market risk management focuses on controlling the extent of exposure to the risk in order to minimize revenue volatility. Market risk is
a risk that decreases value or profit of the Groups portfolio due to changes in market interest rate, foreign exchange rate and other factors.

(i) Sensitivity analysis

Sensitivity analysis is
performed for each type of market risk to which the Group is exposed. Reasonably possible changes in the relevant risk variable such as prevailing market interest rates,



F-79



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





currency rates, equity prices or commodity prices are estimated and if the rate of change in the underlying risk variable is stable, the Group does not alter the chosen reasonably possible change
in the risk variable. The reasonably possible change does not include remote or worst case scenarios or stress tests.

(ii)
Foreign exchange risk

The Group is exposed to foreign exchange risk arising from operating, investing and financing activities. Foreign exchange
risk is managed within the range of the possible effect on the Groups cash flows. Foreign exchange risk unaffecting the Groups cash flows is not hedged but can be hedged at a particular situation.

As of December 31, 2014, 2015 and 2016, if the foreign exchange rate had strengthened/weakened by 10% with all other variables held constant, the
effects on profit before income tax and shareholders equity would have been as follows:



(In millions of Korean won)

Fluctuation offoreign exchangerate


Income before tax


Shareholders equity2014.12.31


10
%

₩
(45,430
)

₩
(38,437
)-10
%


45,430



38,4372015.12.31


10
%


(52,157
)


(45,632
)-10
%


52,157



45,6322016.12.31


10
%


(28,134
)


(23,817
)-10
%


28,134



23,817


The above analysis is a simple sensitivity analysis which assumes that all the variables other than foreign
exchange rates are held constant. Therefore, the analysis does not reflect any correlation between foreign exchange rates and other variables, nor the managements decision to decrease the risk.

Details of financial assets and liabilities in foreign currencies as of December 31, 2014, 2015 and 2016, are as follows:



2014


2015


2016(In thousands)

Financial assets


Financial liabilities


Financialassets


Financial liabilities


Financialassets


Financial liabilitiesUSD


197,221



2,532,614



183,254



2,351,003



210,474



2,536,090SDR1


573



1,027



444



849



311



737JPY


34,168



30,051,367



73,716



40,279,411



80,555



21,802,051GBP






257



8



888



1



151EUR


134



177



29



29



40



2,571DZD2


929















471



CNY


3,957







15,562



107



15,262



381UZS3


7,978,633















39,531



RWF4


13,593















1,203



IDR5


















15,646,011



53,142,167MMK6


















2,750



TZS7


















29,987



BWP8


















15



HKD


158







9







254



BDT9


299







6







69,473



COP10


23,583



















PLN11


28,195







207,273







106,025



VND12


273,313



93,756



270,000







515,412



CHF






78




















F-80



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 1 | Special Drawing Rights.
| | - | -----------------------

| | 2 | Algeria Dinar.
| | - | --------------

| | 3 | Uzbekistan Sum.
| | - | ---------------

| | 4 | Rwanda Franc.
| | - | -------------

| | 5 | Indonesia Rupiah.
| | - | -----------------

| | 6 | Myanmar Kyat.
| | - | -------------

| | 7 | Tanzanian Shilling.
| | - | -------------------

| | 8 | Botswana Pula.
| | - | --------------

| | 9 | Bangladesh Taka.
| | - | ----------------

| | 10 | Columbia Peso.
| | -- | --------------

| | 11 | Polish Zloty.
| | -- | -------------

| | 12 | Vietnam Dong.
| | -- | -------------

(iii) Price risk

As of December 31, 2014, 2015 and 2016, the Group is exposed to equity securities price risk because the securities held by the Group are traded in
active markets. If the market prices had increased/decreased by 10% with all other variables held constant, the effects on profit before income tax and shareholders equity would have been as follows:



|                            |      |                      |  |                   |   |  |        |        |       | 
|--------------------------- | ---- | -------------------- |  | ----------------- | - |  | ------ | ------ | ----- | 
|(In millions of Korean won) |      | Fluctuation of price |  | Income before tax |   |  | Equity |       
|2014.12.31                  |      | 10%                  |  | ₩                 |  |  |        | ₩      | 6,593 | 
|                            | -10% |                      |  |                  |   |  |        | (6,593 | )    
|2015.12.31                  |      | 10%                  |  | ₩                 |  |  |        | ₩      | 3,469 | 
|                            | -10% |                      |  |                  |   |  |        | (3,469 | )    
|2016.12.31                  |      | 10%                  |  | ₩                 |  |  |        | ₩      | 539   | 
|                            | -10% |                      |  |                  |   |  |        | (539   | )    

The above analysis is based on the assumption that the equity index had increased/decreased by 10% with all other
variables held constant and all the Groups marketable equity instruments had moved according to the historical correlation with the index.

(iv) Cash flow and fair value interest rate risk

The Groups interest rate risk arises from liabilities in foreign currency such as foreign currency debentures. Debentures in foreign currency
issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by swap transactions. Debentures and borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group sets the policy
and operates to minimize the uncertainty of the changes in interest rates and financial costs.

As of December 31, 2014, 2015 and 2016, if the
market interest rate had increased/decreased by 100bp with other variables held constant, the effects on profit before income tax and shareholders equity would be as follows:



|                            |          |                              |  |                   |        |   |                     |         |        |  
|--------------------------- | -------- | ---------------------------- |  | ----------------- | ------ | - | ------------------- | ------- | ------ | -
|(In millions of Korean won) |          | Fluctuation of
interest rate |  | Income before tax |        |   | Shareholdersequity |        
|2014.12.31                  |          | + 100 bp                     |  | ₩                 | (4,717 | ) |                     | ₩       | 4,892  |  
|                            | - 100 bp |                              |  | (4,632            | )      |   |                     | (11,064 | )     
|2015.12.31                  |          | + 100 bp                     |  | ₩                 | (3,601 | ) |                     | ₩       | (245   | )
|                            | - 100 bp |                              |  | 3,615             |        |   |                     | (5,764  | )     
|2016.12.31                  |          | + 100 bp                     |  | ₩                 | (3,456 | ) |                     | ₩       | (1,673 | )
|                            | - 100 bp |                              |  | 3,445             |        |   |                     | (5,025  | )     



F-81



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The above analysis is a simple sensitivity analysis which assumes that all the variables other than
market interest rates are held constant. Therefore, the analysis does not reflect any correlation between market interest rates and other variables, nor the managements decision to decrease the risk.

2) Credit risk

Credit risk is managed on the Group
basis with the purpose of minimizing financial loss. Credit risk arises from the normal transactions and investing activities, where clients or other party fails to discharge an obligation on contract conditions. To manage credit risk, the Group
considers the counterpartys credit based on the counterpartys financial conditions, default history and other important factors.

Credit
risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as outstanding receivables. To minimize such risk, only the financial institutions with strong credit ratings
are accepted.

As of December 31, 2015 and 2016, maximum exposure to credit risk is as follows.



(In millions of Korean won)

2015


2016Cash equivalents(except cash on hand)

₩
2,537,536


₩
2,875,383Trade and other receivables


5,557,779



6,036,363Other financial assetsFinancial assets at fair value through profit or loss


18



6,277Derivative used for hedging


139,088



227,318Time deposits and others


434,093



716,769Available-for-sale financial
assets


21,388



26,684Held-to-maturity financial
assets


18,030



30,143Financial guarantee contracts1


106,550



56,373Total

₩
8,814,482


₩
9,975,310




| | 1 | Total amounts guaranteed by the Group according to the guarantee contracts.
| | - | ---------------------------------------------------------------------------

3) Liquidity risk

The Group manages its liquidity risk by liquidity strategy and plans. The Group considers the maturity of financial assets and financial liabilities and
the estimated cash flows from operations.

The table below analyzes the Groups liabilities (including interest expenses) into relevant maturity
groups based on the remaining period at the date of the end of each reporting period to the contractual maturity date. These amounts are contractual undiscounted cash flows.



2015.12.31(In millions of Korean won)

Less than 1 year


1-5 years


More than5 years


TotalTrade and other payables

₩
6,987,882


₩
695,167


₩
139,843


₩
7,822,892Borrowings(including debentures)


1,768,171



5,859,467



1,981,497



9,609,135Other non-derivative financial liabilities


2,935



2,858







5,793Financial guarantee contracts1


106,550











106,550Total

₩
8,865,538


₩
6,557,492


₩
2,121,340


₩
17,544,370




F-82



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2016.12.31(In millions of Korean won)

Less than 1 year


1-5 years


More than5 years


TotalTrade and other payables

₩
7,682,604


₩
1,121,452


₩
217,411


₩
9,021,467Borrowings(including debentures)


2,034,524



4,834,151



2,458,749



9,327,424Other non-derivative financial liabilities


233



3,272



22,917



26,422Financial guarantee contracts1


56,373











56,373Total

₩
9,773,734


₩
5,958,875


₩
2,699,077


₩
18,431,686




| | 1 | Total amount guaranteed by the Group according to guarantee contracts. Cash flow from financial guarantee contracts is classified as the maturity group in the earliest period when the financial guarantee contracts can
be executed.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash outflow and inflow of derivatives settled gross or net are undiscounted contractual cash flow and can differ from
the amount in the financial statements.



2014.12.31(In millions of Korean won)

Less than 1 year


1-5 years


More than
5 years


TotalOutflow

₩
242,051


₩
2,282,242


₩
38,795


₩
2,563,088Inflow


210,045



2,217,211



43,418



2,470,674




2015.12.31(In millions of Korean won)

Less than 1 year


1-5 years


More than
5 years


TotalOutflow

₩
335,970


₩
2,138,379


₩
38,184


₩
2,512,533Inflow


276,066



2,284,219



46,194



2,606,479




2016.12.31(In millions of Korean won)

Less than 1 year


1-5 years


More than
5 years


TotalOutflow

₩
1,174,147


₩
1,176,715


₩
536,005


₩
2,886,867Inflow


1,302,112



1,306,199



588,559



3,196,870


(2) Disclosure of 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 shareholders and to maintain an optimal capital structure to reduce the cost of capital.

The Groups
capital structure consists of liabilities including borrowings, cash and cash equivalents, and shareholders equity. The treasury department monitors the Groups capital structure and considers cost of capital and risks related each
capital component.

The debt-to-equity ratios as of December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015


2016Total liabilities

₩
17,248,594


₩
17,881,580Total equity


12,156,131



12,782,718Debt-to-equity
ratio


142
%


140
%


The Group manages capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total
capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as equity in the statement of financial position plus net debt.



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The gearing ratios as of December 31, 2015 and 2016, are as follows:



(In millions of Korean won, %)

2015


2016Total borrowings

₩
8,791,094


₩
8,301,505Less: cash and cash equivalents


(2,559,464
)


(2,900,311
)Net debt


6,231,630



5,401,194Total equity


12,156,131



12,782,718Total capital


18,393,761



18,183,912Gearing ratio


34
%


30
%


(3) Offsetting Financial Assets and Financial Liabilities

Details of the Groups recognized financial assets subject to enforceable master netting arrangements or similar agreements are as follows:



(In millions of Korean won)

2015Grossassets


Grossliabilitiesoffset


Net amountspresented inthe statementof financial
position


Amounts not offset


NetamountFinancialinstruments


CashcollateralDerivative assets for hedging purpose1

₩
20,627


₩



₩
20,627


₩
(20,627
)

₩



₩
Trade receivables2


90,448







90,448



(86,184
)






4,264Total

₩
111,075


₩



₩
111,075


₩
(106,811
)

₩



₩
4,264




(In millions of Korean won)

2016Grossassets


Grossliabilitiesoffset


Net amountspresented inthe statementof financial
position


Amounts not offset


NetamountFinancialinstruments


CashcollateralDerivative assets for hedging purpose1

₩
35,334


₩



₩
35,334


₩
(5,707
)

₩



₩
29,627Trade receivables2


95,865







95,865



(91,662
)






4,203Total

₩
131,199


₩



₩
131,199


₩
(97,369
)

₩



₩
33,830




| | 1 | The amount applied with master netting arrangements under the standard contract of International Swap and Derivatives Association (ISDA).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





The Groups recognized financial liabilities subject to enforceable master netting arrangements or
similar agreements are as follows:



2015(In millions of Korean won)

Gross
liabilities


Gross
assets offset


Net amountspresented inthe statementof financial
position


Amounts not offset


Net
amountFinancialinstruments


CashcollateralDerivative liabilities for hedging purpose1

₩
28,544


₩



₩
28,544


₩
(20,627
)

₩



₩
7,917Trade payables2


87,093







87,093



(86,184
)






909Other payables2


102



(12
)


90











90Total

₩
115,739


₩
(12
)

₩
115,727


₩
(106,811
)

₩



₩
8,916




2016(In millions of Korean won)

Gross
liabilities


Grossassets
offset


Net amountspresented inthe statementof financial
position


Amounts not offset


Net
amountFinancialinstruments


CashcollateralDerivative liabilities for hedging purpose1

₩
20,627


₩



₩
20,627


₩
(20,627
)

₩



₩
Trade payables2


90,435







90,435



(86,184
)






4,251Other payables2


48



(4
)


44











44Total

₩
111,110


₩
(4
)

₩
111,106


₩
(106,811
)

₩



₩
4,295




| | 1 | The amount applied with master netting arrangements under the standard contract of International Swap and Derivatives Association (ISDA).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

| | 2 | The amount applied with netting arrangements under the reference offer of the telecommunication facility interconnection and sharing data among telecommunications companies.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|35. | Fair Value
|--- | ----------



| | 35.1 | Fair Value of Financial Instruments by Category
| | ---- | -----------------------------------------------

Carrying amount and fair value of financial
instruments by category as of December 31, 2015 and 2016, are as follows:



2015

2016(In millions of Korean won)

Carrying
amount

Fair value

Carrying
amount

Fair valueFinancial assetsCash and cash equivalents1

₩2,559,464

₩2,559,464

₩2,900,311

₩2,900,311Trade and other receivables1

5,557,779

5,557,779

6,036,363

6,036,363Other financial assetsFinancial instruments at fair value through profit or loss

18

18

6,277

6,277Derivative financial instruments for hedging purpose

139,088

139,088

227,318

227,318Time deposits and others1

434,093

434,093

716,769

716,769Held-to-maturity

18,030

18,030

30,143

30,143Available-for-sale financial
assets2

308,539

308,539

299,001

299,001₩9,017,011

₩9,017,011

₩10,216,182

₩10,216,182Financial liabilitiesTrade and other liabilities1

₩7,004,000

₩7,004,000

₩8,328,082

₩8,328,082Borrowings

8,634,897

8,684,886

8,120,791

8,184,195Other financial liabilitiesFinancial instruments at fair value through profit or loss

2,006

2,006

1,973

1,973Derivative financial instruments for hedging purpose

62,883

62,883

14,928

14,928Other1

82,439

82,439

91,763

91,763₩15,786,225

₩15,836,214

₩16,557,537

₩16,620,941




| | 1 | The Group did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value.
| | - | ----------------------------------------------------------------------------------------------------------------------

| | 2 | Equity instruments that do not have a quoted price in an active market are measured at cost because their fair value cannot be measured reliably and excluded from the fair value disclosures.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 35.2 | Financial Instruments Measured at Cost
| | ---- | --------------------------------------

Available-for-sale financial assets measured at cost as of December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015


2016K-Bank

₩



₩
36,500IBK-AUCTUS Green Growth Private Equity Fund


11,134



9,506CBC II Fund


10,150



8,601TRANSLINK No.2 Fund


10,085



9,395WALDEN No.6 Fund


5,686



4,710Storm IV Fund


6,602



7,550Others


7,841



29,511Total

₩
51,498


₩
105,773


The range of cash flow estimates is significant and the probabilities of the various estimates cannot be reasonably
assessed and therefore, these instruments are measured at cost.

The Group does not have any plans to dispose of the above-mentioned equities
instruments in the near future. These instruments will be measured at fair value when the Group can develop a reliable estimate of the fair value.



| | 35.3 | Fair Value Hierarchy
| | ---- | --------------------

Assets measured at fair value or for which the fair value is disclosed are
categorized within the fair value hierarchy, and the defined levels are as follows:



| |  |  | Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, prices) or indirectly (that is, derived from prices) (Level 2).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
| | - |  | ------------------------------------------------------------------------------------------------------------------------



F-87



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Fair value hierarchy classifications of the financial assets and financial liabilities that are
measured at fair value or its fair value is disclosed as of December 31, 2015 and 2016, are as follows:



2015(In millions of Korean won)

Level 1


Level 2


Level 3


TotalRecurring fair value measurementsOther financial assetsFinancial assets at fair value through profit or loss

₩



₩



₩
18


₩
18Derivative financial assets for hedging purpose






139,088







139,088Available-for-sale financial
assets


41,202







267,337



308,53941,202



139,088



267,355



447,645Disclosed fair valueAssociates and joint ventures


4,884











4,884Investment properties1










2,645,246



2,645,2464,884







2,645,246



2,650,130₩
46,086


₩
139,088


₩
2,912,601


₩
3,097,775Recurring fair value measurementsOther financial liabilitiesFinancial liabilities at fair value through profit or loss

₩



₩



₩
2,006


₩
2,006Derivative financial liabilities for hedging purpose






62,883







62,883



62,883



2,006



64,889Disclosed fair valueBorrowings










8,684,886



8,684,886







8,684,886



8,684,886₩



₩
62,883


₩
8,686,892


₩
8,749,775




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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2016(In millions of Korean won)

Level 1


Level 2


Level 3


TotalRecurring fair value measurementsOther financial assetsFinancial assets at fair value through profit or loss

₩



₩



₩
6,277


₩
6,277Derivative financial assets for hedging purpose






227,318







227,318Available-for-sale financial
assets


5,387



5,725



287,889



299,0015,387



233,043



294,166



532,596Disclosed fair valueAssociates and joint ventures


3,940











3,940Investment properties1










2,340,893



2,340,8933,940







2,340,893



2,344,833₩
9,327


₩
233,043


₩
2,635,059


₩
2,877,429Recurring fair value measurementsOther financial liabilitiesFinancial liabilities at fair value through profit or loss

₩



₩



₩
1,973


₩
1,973Derivative financial liabilities for hedging purpose






14,928







14,928



14,928



1,973



16,901Disclosed fair valueBorrowings










8,184,195



8,184,195







8,184,195



8,184,195₩



₩
14,928


₩
8,186,168


₩
8,201,096




| | 1 | The highest and best use of a non-financial asset does not differ from its current use.
| | - | ---------------------------------------------------------------------------------------



| | 35.4 | Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements
| | ---- | ----------------------------------------------------------------------------------



| | (a) | Details of transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements are as follows:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------

There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | (b) | Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows:
| | --- | -------------------------------------------------------------------------------------------------------------------



2015(In millions of Korean won)

Financial assetsat fair valuethrough
profit or loss


Derivativefinancial assetsfor hedgingpurpose


Available-for-sale


Otherderivativeliabilities


Financialliabilitiesdesignated asat fair valuethrough profitor lossBeginning balance

₩
6,983


₩
7,342


₩
329,260


₩
646


₩
3,334Amount recognized in profit or loss


171,990



(5,157
)


(704
)


2,006



Amount recognized in other comprehensive income






8,105



47,189







Purchases










40,707







Sales










(113,634
)


(551
)


(3,334
)Settlement


(176,681
)


(10,290
)










Change in scope of consolidation


(2,274
)






(35,481
)


(95
)


Ending balance

₩
18


₩



₩
267,337


₩
2,006


₩





2016(In millions of Korean won)

Financial assets
at fair valuethrough
profit or loss


Available-for-sale


Other derivative
liabilitiesBeginning balance

₩
18


₩
267,337


₩
2,006Amount recognized in profit or loss


(7,184
)


(426
)


(33
)Amount recognized in other comprehensive income






15,099



Purchases


13,461



1,561



Sales


(18
)


(1,405
)


Reclassification






5,723



Ending balance

₩
6,277


₩
287,889


₩
1,973




F-90



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 35.5 | Valuation Technique and the Inputs
| | ---- | ----------------------------------

Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as of December 31, 2015 and 2016, are as follows:



2015(In millions of Korean won)

Fair value


Level


Valuation techniquesAssetsRecurring fair value measurementsOther financial assetsFinancial assets at fair value through profit or lossHeld for trading financial assetsOther derivative assets

₩
18



3


Monte-Carlo Simulation Option modelDerivative financial assets for hedging purpose


139,088



2


Discounted cash flow modelAvailable-for-sale financial
assets


267,337



3


Discounted cash flow modelDisclosed fair valueInvestment properties


2,645,246



3


Discounted cash flow modelLiabilitiesRecurring fair value measurementsOther financial liabilitiesDerivative financial liabilities for hedging purpose


62,883



2


Discounted cash flow modelOther derivative financial liabilities


2,006



3


Discounted cash flow model Comparable Company
AnalysisDisclosed fair valueBorrowings


8,684,886



3


Discounted cash flow model




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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2016(In millions of Korean won)

Fair value


Level


Valuation techniquesAssetsRecurring fair value measurementsOther financial assetsDerivative financial assets for hedging purpose

₩
227,318



2


Discounted cash flow modelAvailable-for-sale financial
assets


293,614



2,3


Discounted cash flow modelOthers


6,277



3


Discounted cash flow modelDisclosed fair valueInvestment properties


2,340,893



3


Discounted cash flow modelLiabilitiesRecurring fair value measurementsOther financial liabilitiesDerivative financial liabilities for hedging purpose


14,928



2


Discounted cash flow modelOther derivative financial liabilities


1,973



3


Discounted cash flow model Comparable Company
AnalysisDisclosed fair valueBorrowings


8,184,195



3


Discounted cash flow model




| | 35.6 | Valuation Processes for Fair Value Measurements Categorized Within Level 3
| | ---- | --------------------------------------------------------------------------

The Group uses
external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discusses valuation processes and results with the CFO in line with the
Groups reporting dates.



| | 35.7 | Gains and losses on valuation at the transaction date
| | ---- | -----------------------------------------------------

In the case that the Group values
derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as
the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instruments. However, in the case that inputs of the
valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the year.



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





In relation to this, details and changes of the total deferred difference for the years ended
December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015


2016Other derivativefinancial assets


Other derivativefinancial liabilities


Other derivativefinancial assets


Other derivativefinancial liabilitiesBeginning balance

₩



₩
32,492


₩
11,293


₩
New transactions


14,116











Amortization


(2,823
)










Disposal






(32,492
)


(2,823
)


Ending balance

₩
11,293


₩



₩
8,470


₩





|36. | Business Combination
|--- | --------------------

(1) N SEARCH MARKETING Corporation

The Controlling Company acquired 17,393 shares (33.3%) of N SEARCH MARKETING Corporation for strengthen online advertisement business. Nasmedia, Inc. a
subsidiary of the Group, acquired 34,787 shares (66.7%) of N SEARCH MARKETING Corp. on October 10, 2016.

N SEARCH MARKETING Corporation became
a subsidiary as a result of this acquisition transaction accounted for in accordance with IFRS 3 Business Combinations.

As a result of
applying acquisition method, the Group recognized an identifiable intangible assets of ₩18,049 million and goodwill of
₩42,745 million. The goodwill of ₩42,745 million arising from the acquisition is attributable to economies of scale expected from
combining the operations of the Group and N SEARCH MARKETING Corporation.

Details of the consideration transferred, fair value of the acquired
identifiable assets and liabilities and goodwill at the acquisition date are as follows:



(In millions of Korean won)Consideration transferred (a)

₩
61,830Recognized amounts of assets acquired and liabilities
assumed1Cash and cash equivalents

₩
15,731Trade and other receivables


33,826Other financial assets


772Tangible assets


832Intangible assets


18,477Other assets


2,376Trade and other payables


(30,045
)Borrowings


(9,000
)Current income tax liabilities


(605
)Provisions


(355
)Net defined benefit liabilities


(4,604
)Other liabilities


(8,320
)Total amounts of identifiable assets and liabilities measured at fair value (b)

₩
19,085Goodwill (a-b)

₩
42,745




| | 1 | The assets acquired and liabilities assumed are measured at fair value in accordance with IFRS 3 Business Combination.
| | - | ----------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





After the acquisition date, the operating revenue and profit for the year for consolidation of N SEARCH
MARKETING Corporation before the elimination of related party transactions with its subsidiaries are ₩8,193 million and
₩731 million, respectively. If N SEARCH MARKETING Corporation was consolidated on January 1, 2016, the operating revenue and profit for the year included in consolidated statements of
profit or loss would have been ₩31,418 million and ₩4,927 million, respectively.

The fair value of trade accounts receivable and others acquired from N SEARCH MARKETING Corporation is
₩33,826 million, and all are deemed collectible.



|37. | Interests in Unconsolidated Structured Entities
|--- | -----------------------------------------------

Details of information about its interests
in unconsolidated structured entities, which the Group does not have control over, including the nature, purpose and activities of the structured entity and how the structured entity is financed, are as follows:



Remarks

Nature, purpose, activities and othersReal estate finance

A structured entity incorporated for the purpose of real estate development is provided with funds by investors investments in equity and borrowings from financial institutions (including long-term and short-term loans and
issuance of ABCP due in three months), and based on these, the structured entity implements activities such as real estate acquisition, development and mortgage loans. The structured entity repays loan principals with funds incurred from instalment
house sales after the completion of real estate development or with collection of the principal of mortgage loan. The remaining shares are distributed to investors. As of December 31, 2016, this entity is engaged in real estate finance
structured entity, and generates revenues by receiving dividends from direct investments in or receiving interests on loans to the structured entity. Financial institutions, including the Entity, are provided with guarantees including joint
guarantees or real estate collateral from investors and others. Consequently, the entity is a priority over other parties in the preservation of claim. However, when the credit rating of investors and others decreases or when the value of real
estate decreases, the entity may be obliged to cover losses.PEF and investment funds

Minority investors including managing members contribute to PEF and investment funds incorporated for the purpose of providing funds to the small, medium, or venture entities, and the managing member implements activities such as
investments in equity or loans based on the contributions. As of December 31, 2016, the entity is engaged in PEF and investment funds structured entity, and after contributing to PEF and investment funds, the entity receives dividends for
operating revenues from these contributions. The entity is provided with underlying assets of PEF and investment funds as collateral. However, when the value of the underlying assets decreases, the entity may be obliged to cover
losses.




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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Remarks

Nature, purpose, activities and othersM&A finance

A structured entity incorporated for the purpose of supporting a certain groups financial structure improvement or acquiring equity or convertible bonds is provided with funds by investors investments in equity and
long-term or short-term borrowings from financial institutions, and based on these, the structured entity acquires shares held by the entity, which has plans to improve its financial structure, or to dispose convertible bonds and others. The
structured entity repays loan principals with funds incurred from disposals of holding shares after a certain period. The remaining shares are distributed to investors. As of December 31, 2016, the entity is engaged in M&A finance
structured entity, and receives interests. Financial institutions are provided with guarantees including joint guarantees or shares subject to M&A from investors and others. Consequently, the entity is a priority over other parties in the
preservation of claim. However, when the credit rating of investors and others decreases or when the value of shares provided as collateral decreases, the Group may be obliged to cover losses.Asset securitization

A transferor other than this entity transfers the assets, which are subject to securitization, to a structured entity incorporated by the transferor or other financial institutions other than the entity, and based on this as
underlying assets, the structured entity is provided with funds by asset-backed borrowings and pays acquisition costs of the acquired underlying assets. As of December 31, 2016, the entity is engaged in the structured entity, and generates
revenues by receiving interest income as the entity provides asset-backed loans directly to the structured entity. When the structured entity has difficulty repaying loan principal, the transferor has obligation to cover the lack of funds.
Consequently, the financial institutions including the entity are a priority over other parties in the preservation of claim. However, when the credit rating of transferor decreases, the said entity may be obliged to cover losses.Other

There are other structured entity types, which the entity is engaged in, such as shipping finance, SPAC and others. Interest income is realized from the entitys loans to the relevant structured entity. When the credit
rating of the shipping group decreases, or the value of vessels decreases, the entity may be obliged to cover losses. When SPAC is listed or merged after the entity invests in shares or convertible bonds issued by the relevant structured entity,
revenues are realized from disposal of the shares of the convertible bonds. However, the entity may be obliged to cover losses when SPAC is liquidated if the SPAC is not listed or merged.




F-95



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





Details of scale of unconsolidated structured entities and nature of the risks associated with an
entitys interests in unconsolidated structured entities as of December 31, 2015 and 2016, are as follows:



(In millions of Korean won)

2015Real Estate Finance


PEF &InvestmentFund


Asset-backedSecuritization


TotalTotal amount of Unconsolidated Structured Entities

₩
98,192


₩
3,498,552


₩
2,625,075


₩
6,221,819Assets recognized in statement of financial positionOther financial assets

₩



₩
54,874


₩



₩
54,874Associates and joint ventures


9,303



148,294







157,597Total

₩
9,303


₩
203,168


₩



₩
212,471Maximum loss exposure1Investment Assets

₩
9,303


₩
203,168


₩



₩
212,471Total

₩
9,303


₩
203,168


₩



₩
212,471




(In millions of Korean won )

2016Real Estate Finance


PEF &InvestmentFund


Asset-backedSecuritization


TotalTotal amount of Unconsolidated Structured Entities

₩
1,075,471


₩
3,759,246


₩
2,841,886


₩
7,676,603Assets recognized in statement of financial positionOther financial assets

₩
21,932


₩
60,782


₩



₩
82,714Associates and joint ventures


10,086



165,638







175,724Total

₩
32,018


₩
226,420


₩



₩
258,438Maximum loss exposure1Investment Assets

₩
32,018


₩
226,420


₩



₩
258,438Total

₩
32,018


₩
226,420


₩



₩
258,438




| | 1 | Maximum exposure to loss includes the investments recognized in the Groups financial statements and the amounts which are probable to be determined when certain conditions are met by agreements including purchase
agreements, credit granting and others.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-96



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##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





|38. | Information About Non-controlling Interests
|--- | -------------------------------------------



| | 38.1 | Changes in Accumulated Non-controlling Interests
| | ---- | ------------------------------------------------

Profit
or loss allocated to non-controlling interests and accumulated non-controlling interests of subsidiaries that are material to the Group for the years ended
December 31, 2014, 2015 and 2016 is as follows:



(In millions of Korean won)

2014Non-
controllingInterestsrate(%)


Accumulatednon-controllinginterests at thebeginning ofthe year


Profit or lossallocated tonon-controllinginterests


Dividend paidto non-
controllinginterests


Others


Accumulatednon-controllinginterests at theend of the yearKT Skylife Co., Ltd.


49.73
%

₩
283,981


₩
26,828


₩
(10,538
)

₩
(2,971
)

₩
297,300BC Card Co., Ltd.


30.46
%


261,716



31,414



(7,299
)


7,100



292,931KT Rental


42.00
%


123,668



15,538



(1,903
)


(121
)


137,182KT Powertel Co., Ltd.


55.15
%


67,906



2,961



(631
)


(5
)


70,231KT Hitel Co.,Ltd.


36.30
%


56,020



2,195







(7,079
)


51,136




(In millions of Korean won)

2015Non-
controllingInterestsrate(%)


Accumulatednon-controllinginterests at thebeginning ofthe year


Profit or lossallocated tonon-controllinginterests


Dividend paidto non-
controllinginterests


Others


Accumulatednon-controllinginterests at theend of the yearKT Skylife Co., Ltd.


49.73
%

₩
297,300


₩
27,032


₩
(8,325
)

₩
873


₩
316,880BC Card Co., Ltd.


30.46
%


292,931



62,943



(22,650
)


(10,303
)


322,921KT Powertel Co., Ltd.


55.15
%


70,231



(17,880
)


(1,118
)


(307
)


50,926KT Hitel Co.,Ltd.


36.30
%


51,136



(608
)






161



50,689KT Telecop Co., Ltd.


13.18
%


104,821



(1,000
)






(393
)


103,428




(In millions of Korean won)

2016Non-
controllingInterestsrate(%)


Accumulatednon-controllinginterests at thebeginning ofthe year


Profit or lossallocated tonon-controllinginterests


Dividend paidto non-
controllinginterests


Others


Accumulatednon-controllinginterests at theend of the yearKT Skylife Co., Ltd.


49.73
%

₩
316,880


₩
22,445


₩
(8,279
)

₩
(1,370
)

₩
329,676BC Card Co., Ltd.


30.46
%


322,921



47,068



(44,637
)


3,986



329,338KT Powertel Co., Ltd.


55.15
%


50,926



112







713



51,751KT Hitel Co.,Ltd.


35.27
%


50,689



1,274







(165
)


51,798KT Telecop Co., Ltd.


13.18
%


103,428



19







85



103,532




F-97



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 38.2 | Summarized Financial Information on Subsidiaries
| | ---- | ------------------------------------------------

The summarized financial information for each
subsidiary with non-controlling interests that are material to the Group before inter-company eliminations is as follows:

Summarized consolidated statements of financial position as of December 31, 2014, 2015 and 2016, are as follows:



2014(In millions of Korean won)

KT SkylifeCo., Ltd.


BC Card
Co., Ltd.


KT Rental


KT Powertel
Co., Ltd.


KT Hitel
Co., Ltd.Non-controlling Interests rate(%)


49.73
%


30.46
%


42.00
%


55.15
%


36.30
%Current assets

₩
260,391


₩
2,023,465


₩
377,916


₩
83,846


₩
119,957Non-current assets


422,618



676,923



2,278,469



73,484



107,037Current liabilities


226,878



1,723,966



718,852



21,787



29,748Non-current liabilities


19,448



70,957



1,598,798



8,209



1,681Equity


436,683



905,465



338,735



127,334



195,565Accumulated non-controlling interests


297,300



292,931



143,457



70,231



51,136Operating revenue


656,430



3,297,308



1,074,569



105,250



494,455Profit or loss for the year


55,162



134,450



51,388



5,368



12,205Total comprehensive income


53,990



331,599



52,437



5,368



9,873The profit or loss allocated to non-controlling interests


26,828



31,414



19,543



2,961



2,195Cash flows from operating activities


140,057



176,019



(346,743
)


10,190



65,096Cash flows from investing activities


(20,889
)


(21,699
)


(35,632
)


(647
)


(44,712
)Cash flows from financing activities before dividend paid to
non-controlling interests


(26,411
)


(31,497
)


359,510



(1,137
)


Dividend paid to non-controlling interests


(10,538
)


(7,299
)


(1,903
)


(631
)


Effect of exchange rate change on cash and cash equivalents


















(12
)Net (decrease)/increase in cash and cash equivalents


82,219



115,524



(24,768
)


7,775



20,372




F-98



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





2015(In millions of Korean won)

KT SkylifeCo., Ltd.


BC Card
Co., Ltd.


KT PowertelCo., Ltd.


KT HitelCo., Ltd.


KT Telecop
Co., Ltd.Non-controlling Interests rate(%)


49.73
%


30.46
%


55.15
%


36.30
%


13.18
%Current assets

₩
279,480


₩
2,291,047


₩
65,739


₩
157,355


₩
58,457Non-current assets


431,814



672,905



47,776



78,402



210,734Current liabilities


143,511



1,882,363



16,016



33,656



82,353Non-current liabilities


74,339



63,271



5,166



282



52,613Equity


493,444



1,018,318



92,333



201,819



134,225Accumulated non-controlling interests


316,880



322,921



50,926



50,689



103,428Operating revenue


668,521



3,504,946



104,527



162,155



302,844Profit or loss for the year


72,987



218,969



(32,417
)


7,258



(7,593
)Total comprehensive income


73,147



188,360



(32,417
)


6,769



(7,593
)The profit or loss allocated to non-controlling interests


27,032



62,943



(17,880
)


(608
)


(1,000
)Cash flows from operating activities


157,762



128,927



(12,016
)


22,556



36,216Cash flows from investing activities


(92,350
)


73,118



10,691



(19,949
)


(91,846
)Cash flows from financing activities before dividend paid to
non-controlling interests


(35,984
)


(75,121
)


(2,015
)






(32,491
)Dividend paid to non-controlling interests


(8,325
)


(22,650
)


(1,118
)






Net (decrease)/increase in cash and cash equivalents


29,428



126,924



(3,340
)


2,607



(88,121
)




2016(In millions of Korean won)

KT SkylifeCo., Ltd.


BC Card
Co., Ltd.


KT PowertelCo., Ltd.


KT HitelCo., Ltd.


KT Telecop
Co., Ltd.Non-controlling Interests rate(%)


49.73
%


30.46
%


55.15
%


35.27
%


13.18
%Current assets

₩
352,980


₩
2,945,584


₩
69,046


₩
158,210


₩
63,802Non-current assets


424,968



705,480



44,679



90,992



201,751Current liabilities


151,329



2,530,832



17,910



45,277



53,903Non-current liabilities


80,123



71,571



1,989



1,664



78,441Equity


546,496



1,048,661



93,826



202,261



133,209Accumulated non-controlling interests


329,676



329,338



51,751



51,798



103,532Operating revenue


668,945



3,567,512



81,390



198,994



315,948Profit or loss for the year


68,863



163,131



202



4,298



143Total comprehensive income


68,785



178,744



202



1,399



143The profit or loss allocated to non-controlling interests


22,445



47,068



112



1,274



19Cash flows from operating activities


155,399



92,818



7,271



28,987



60,461Cash flows from investing activities


(210,480
)


(37,313
)


(8,191
)


(33,238
)


(45,243
)Cash flows from financing activities before dividend paid to
non-controlling interests


(16,647
)


(147,306
)










Dividend paid to non-controlling interests


(8,279
)


(44,637
)










Gain or loss foreign currency translation






(178
)






3



Net (decrease)/increase in cash and cash equivalents


(71,728
)


(91,801
)


(920
)


(4,251
)


15,218




F-99



---

##### Table of Contents

KT Corporation and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2014, 2015
and 2016





| | 38.3 | Transactions with Non-controlling Interests
| | ---- | -------------------------------------------

The effect of
changes in the ownership interest on the equity attributable to owners of the Group during 2014, 2015 and 2016 is summarized as follows:



(in millions of Korean won)

2014


2015


2016Carrying amount of non-controlling interests acquired

₩
16,136


₩



₩
8,564Consideration paid to non-controlling interests


(9,764
)


2,699



6,986Excess of consideration paid recognized in parents equity

₩
6,372


₩
2,699


₩
15,550




|39. | Discontinued Operations
|--- | -----------------------

The Group disposed of KT Rental, a subsidiary of the Group, on
June 3, 2015, and KT Capital Co., Ltd. on August 20, 2015. The profit and loss on the related operations of KT Rental and KT Capital Co., Ltd. are presented as discontinued operations and the related financial information is as follows:

Profit and loss from discontinued operations for the years ended December 31, 2014 and 2015 are as follows:



(In millions of Korean won)

2014


2015Revenue

₩
1,115,977


₩
546,440Expenses


1,024,472



534,383Profit on disposal of discontinued operations






248,033Profit before tax of discontinued operations


91,505



260,090Income tax expense


5,105



119,015Profit for the period from discontinued operations

₩
86,400


₩
141,075


Cash flows from discontinued operations for the years ended December 31, 2014 and 2015 are as follows:



(In millions of Korean won)

2014


2015Cash flows from operating activities

₩
(265,655
)

₩
(134,226
)Cash flows from investing activities


(4,647
)


24,157Cash flows from financing activities


220,064



93,566Net cash flows

₩
(50,238
)

₩
(16,503
)




F-100