July 31 (Bloomberg) -- LG Telecom Ltd., South Korea’s third-largest mobile-phone operator, reported its biggest profit decline in six quarters after the company boosted marketing spending to win customers from SK Telecom Co. and KT Corp.

Second-quarter net income fell 43 percent to 38.3 billion won ($31 million) from 67.6 billion won a year earlier, the Seoul-based company said today in a statement. Sales rose 5.7 percent to 1.33 trillion won.

LG Telecom and SK Telecom increased incentives to lure users before KT absorbed its wireless unit, KT Freetel Co., in June in a market where more than nine out of 10 people already own a mobile phone. South Korea’s communications regulator has said competition may ease in the second half after the three operators pledged this month to rein in marketing costs such as handset subsidies.

The operator was expected to report profit of 44.5 billion won on revenue of 1.31 trillion won, according to the median estimate of 12 analysts surveyed by Bloomberg News.

LG Telecom shares rose 0.8 percent to 8,610 won at 9:08 a.m. in Seoul, compared with the 0.5 percent gain in the benchmark Kospi stock index.

Operating profit, or sales minus the cost of goods sold and administrative expenses, declined 39 percent to 58.1 billion won, compared with the 56 billion won median estimate in the Bloomberg survey.

Marketing costs, which include expenses for advertising and subsidizing users’ handset payments, rose 23 percent to 322 billion won. Analysts projected 321.8 billion won. SK Telecom said this week its second-quarter marketing expenses rose 8 percent.

LG Telecom accounted for 18 percent of the Korean mobile- phone market at the end of June, compared with SK Telecom’s 51 percent and KT’s 31 percent, according to government data.

The nation’s three wireless carriers are locking new customers into multiyear contracts, easing the pressure to offer handset subsidies and incentives, according to Shim Jun Bo, an analyst at HI Investment & Securities Co. in Seoul. About 60 percent of total users will be contract subscribers by the end of this year compared with 40 percent now, Shim wrote in a report on July 17.

To contact the reporter on this story: Kevin Cho in Seoul at kcho2@bloomberg.net

Last Updated: July 30, 2009 20:14 EDT