Chunghwa Telecom Co Ltd (CHT) 2005 Q4 法說會逐字稿

[Audio begins in progress]

… for the company's 2005 full year's operational results. During the presentation your line will be in listen-only mode. When the briefing is finished, directions for submitting your questions will be given in the question and answer session.

Now I would like to turn it over to Chairman Ho Chen, the host of the conference. Thank you. Chairman Ho Chen, please go ahead.

Thank you. Good evening everyone. This is Ho Chen Tan, chairman and CEO of Chunghwa Telecom. President Lu and I would like to thank you all for joining our annual earnings results conference call. We will begin today's call by having President Lu take you through a review of our annual financial and operating results. Following that, I will step back in and give our company's strategy, then President Lu and I will be happy to take your questions.

For our standard safe harbor policy, please refer to our website at www.cht.com.tw. Additionally, all of our financial results and the discussions today are based on US GAAP; financial statements in both US GAAP and ROC GAAP are also available on our website. Please also note that the Taiwan SFB requires us to make a monthly announcement of our revenues which is only available in ROC GAAP.

Before I pass the call over to President Lu, I would like to elaborate on the accounting treatment of our employee stock subscription program. Net income figures according to US GAAP were affected by the employee stock subscription that was granted as a part of the company's privatization in August 2005. According to US GAAP, the discounts provided to employees for the shares to which they subscribed is considered compensation and need to be accounted for as operating costs and expenses.

In third quarter 2005 financial report, Chunghwa recognized the related costs and expenses during the lock-up period. However, the company's auditors reviewed the accounting treatment and concluded that Chunghwa's employee stock subscription programs were different from the stock option program effected by other companies. The main difference was that there was no obligation for those employees to stay with the company during the lock-up period. Therefore the company should recognize the compensation as a one-time cost. The total amount of the related costs and expenses was NT$12.8 billion in year 2005. This charge will not affect the company's cash position. Additionally, the dividend payout will be based on ROC GAAP financials and will be unaffected by the US accounting treatment of the employee stock subscription.

Now allow me to turn it over to President Lu for review of our financial results and business review. President Lu, please.

Well thank you Mr. Chairman. Good evening everyone. Let me start with our financial results. Overall, based on US GAAP, total revenue for 2005 on a year-over-year basis remained nearly flat, up to NT$184.7 billion. EBITDA for 2005 decreased 16.2% to NT$84.3 billion, and net income decreased by 34.6% to NT$33.3 billion. The decline in net income for 2005 was mainly due to the effects of the employee stock purchase plan that Chairman Ho Chen has just explained. The Board approved to distribute a cash dividend of NT$4.3 and a stock dividend of NT$0.2 per share for fiscal year 2005.

The number of this profit available for distribution of dividend is determined under ROC GAAP, so please refer to the right-hand side of this page under ROC GAAP. Overall on the year-over-year basis, total revenue for 2005 increased by 0.4% and stood at NT$183.38 billion. Our net income was NT$47.65 billion and our EBITDA stood at NT$100.1 billion, representing a margin of 54.6%.

The right-hand side of page 4 shows quarterly results of third quarter and the fourth quarter of 2005 for your reference. All three years are based on US GAAP.

Now moving on to page 5 on revenue, on a segmental basis, total Internet and data revenue for year 2005 increased 7.2%. Of this Internet revenue increased 8.6% due to strong broadband subscriber growth, while data revenue increased 3%. Mobile revenue increased by 3.9% as a result of solid subscriber growth and higher revenue from value-added services. Fixed net revenue for 2005 decreased by 8%. Local service decreased 9.3% due to the effect of mobile and ADSL substitution. Domestic long distance revenue decreased by 8.3%, this decline was mainly due to the mobile substitution and the decrease in transit revenue as alternative operators built and used their own circuits instead of leasing ours. ILD revenues decreased to 4.1% due to stiff competition and the impact of VoIP.

Segmental revenue based on ROC GAAP are also presented on the right-hand side of this page for your reference. Under ROC GAAP, on a quarter-over-quarter basis, Internet revenue decreased 2.8% and data revenue increased 5.4%. Mobile services reported a decline in revenue of 3.1% due to seasonal effects. In the fixed line business, local revenues decreased by 9.3%; this was mainly due to the modification of the schedule of connection fees but are recognized as deferred revenue. Under the modified schedule the number of years that a customer is expected to be a customer has been increased, and the result is that we now recognize a low periodic amount of deferred revenues. Domestic long distance revenues decreased 4.8% due to typical seasonal effects. ILD revenue increased by 1.6% compared to the same quarter of '05.

Page 7 presents our revenue mix which is continuing to migrate to growth areas. Internet and data revenue increased from 21 to 23% of our total revenue, while mobile revenue increased from 38 to 39% or 40%, depending on the GAAP in 2005. We expect this trend to continue.

Now moving on to costs and expenses on page 8. For 2005 total operating costs and expenses increased 13% on a year-over-year basis to NT$141.6 billion according to US GAAP. This was mainly due to the NT$12.5 billion charge related to the employee stock purchase plan that we mentioned earlier. The higher operating costs and expenses were also due to an increase in performance-based bonuses of NT%1.35 billion and handset subsidies of NT$939 million.

The right-hand side of page 9 shows operating costs and expenses for Q3 and Q4. Total costs and expenses increased by 37.5% to NT$46.1 billion in Q4 as compared with Q3. This was due again to the effects of the employee stock subscription and performance-based bonuses.

Our capital expenditure totaled 22.9 billion for year 2005 which was about the same level as it was in 2004. The company's policy is to maintain this CapEx to a sales ratio below 15%.

On page 11, our cash flow from operation remains strong and reached NT$86.2 billion for 2005 compared to NT$91.6 billion for the same period in 2004. As of December 31, 2005, our cash and the cash equivalent totaled NT$41.9 billion.

Next, let's move on to business review. First on Internet and data. ADSL subscribers totaled 30.65 million as of December 31 of last year, which was a robust 19% year-over-year increase. We continue to maintain a commanding position in the Taiwan broadband market with a market share of 85%. Furthermore, about 80% of our ADSL subscribers use our HiNet ISP service. Our ADSL ARPU for 2005 was NT$780 per month compared to NT$863 for 2004. The decrease in ARPU was mainly due to our promotion of a 256 kilobits per second package.

We have also been aggressively promoting our 2 megabits per second and 8 megabits per second services. On page 14 we show that the average bandwidth per user was 2.14 megabits per second by the end of '05, which was an increase of 34% compared to year 2004. The number of subscribers for 2 megabits per second higher speeds accounted for 59% of our total ADSL subscriber base compared to 55.7% at the end of '04. Moreover, the total revenue for ADSL access increased to NT$16.2 billion which [in parallel] [inaudible] of 10.2%. This was primarily a result of strategic efforts to migrate customers to higher speed and to change more dial-up customers to broadband services.

On page 15 we show that our cross selling efforts have yield a higher revenue in our value added services. Internet and VAS revenue increased 28.6% in '05 on a year on year basis, the most popular Internet value added services include HiNET [inaudible] information, gaming, B2B business and the HiNET Security Products.

As you are all aware the quest for providing cheaper placed services is a primary focus for most telcos and cable operators. Starting in 2004 and through today we have taken a number of important steps towards this goal. We began offering IPTV service in Taipei and [inaudible] areas in March 2004. Subsequently we expended the service areas towards island wide, and it now covers 75% of the island's population. By the end of 2005 we had around 100,000 subscribers. Currently we provide 33 broadcasting channels and over 1,600 on demand programs. We also launched home banking and karaoke as part of our value services in September 2005.

Now moving onto mobile. At the end of year 2005 our total number of 2G and 3G subscribers was 8.16 million. Our subscriber market share is over 39.6% because of our seamless coverage, high quality network, accurate billing systems and the competitive promotional packages. Prepaid customers accounted for 7.4% of our total mobile customers, and the number of postpaid customers increased 4.6% in the year 2005.

Mobile number portability became effective on October 13 of last year. Accordingly to DGT [inaudible] statistics, MMP has been beneficial for Chunghwa Telecom.

Mobile value added services remains the primary forecast for Chunghwa Telecom. As you will see on page 18, mobile value added service revenue for '05 was 39% higher than in 2004, with mobile Internet service experiencing the highest growth.

On page 19 our branded ARPU was NT$744 for 2005, which increased 4.5% year on year. The average minutes per user in '05 increased 4.4% year-over-year. We are also happy to report that our blended annual churn rate decreased to 16.8% from 22.9% a year earlier.

Let's now look at 3G. As you remember we rolled out our 3G service on July 26 of last year. By at the end of 2005 we had around 296,000 3G subscribers. So far the most popular service on 3G has been video streaming, MP3, mobile Internet and online games. We are planning to introduce co-branded handsets and strengthen channel alliances and the partnership with content providers, so as to be able to reach our year end subscriber target number of 800,000.

Currently the average monthly fee from 3G subscribers is two times that of 2G, while 3G ARPU is now 60% higher than for last year. 3G ARPU was 60% higher than that of 2G. The data usage of 3G subscribers is three times that of 2.5G. By the end of February this year, 18% of 3G subscribers were using 3G handsets, while only 10 to 12% of 3G subscribers were using 3G handsets at the end of last year. Among all 3G subscribers 86% migrated from our own 2G services, which we believe is a very solid migration record.

Finally on fixed line. Total fixed line revenue for '05 declined by 8% to NR$66.3 billion, mainly due to the effects of mobile substitution, continuous migration of [pay up] to ADSL broadband service, and the fixed line competition. Fixed line revenue for the fourth quarter of '05 was NT$15.9 billion, a decrease of 6.2% quarter-over-quarter due to an adjustment in the average expected life of a customer's period of service. We have seen some early signs that this downward trend on fixed line revenue has been stabilizing.

On ILD, our international long distance traffic continues to grow which is fairly remarkable given the overall situation of the market. ILD outgoing traffic increased 8% year-over-year in 2005, but decreased 3.9% quarter-over-quarter in the fourth quarter of 2005.

Now I would like to turn it over to Chairman Ho Chen for an overview of our company's strategy and a look at our business going forward.

Thank you President Lu. Forward looking company strategy, they are illustrated in this slide. Chunghwa will be focusing our core strength, delivering high quality of service, improving operational and cost efficiency, exploring business alliance opportunities and proactively responding to regulatory restructuring. For improving operational and cost efficiency we are conducting an early retirement program now.

By adopting the above strategy we believe Chunghwa will -- could strengthen its market leader position and maintain its profitability.

I would like to conclude by saying that the management is entirely committed to our shareholders. We believe we can continue to expand shareholders value by promoting broadband services and applications, expanding mobile, VAS offerings, maintaining an EBITDA margin level above 50%, improving capital efficiencies and returning cash to shareholders. In order to improve the management of our capital efficiencies and to return cash to shareholders, we have been conducting a share buyback program since February 10, and we plan to continue this for a two month period. Our initial plan is to buy back 2.59% of our outstanding shares.

Once this share buyback is completed we will review whether to proceed with another re-purchase plan or even a capital reduction program. That concludes our presentation.

Now President Lu and I would be happy to take your questions. Thank you.

Now we are going to the question and the answer session. [OPERATOR INSTRUCTIONS]. Here comes the first question, go ahead please.

Yes hi, good evening, can you hear me?

Yes.

Yes hi, thank you so much gentlemen for the call this evening, my name is Anand Ramachandran calling from Citigroup in Hong Kong. I had I guess three questions if I could at this stage. Firstly, on the share buyback program, is there any time limit or any other restriction for you to relaunch another buyback later this year or could you go straight away as soon as you finish this buyback if you wanted to? That’s the first question on the buyback.

And on the buyback, the second question is, how will you decide to cancel the shares? I mean is this dependent on the availability in the foreign limit or will it only be cancelled if the foreign limit is lifted? So those are two questions on the share buyback.

The second question is on the payout, I notice that the cash dividend was a payout of 87%, whereas it was 90% earlier, and you also for the first time introduced a stock dividend; so I'm just trying to understanding the logic on the 87% as well as the stock dividend being introduced here.

And last question is on the land development side that you've briefly referred to in the past. I was wondering if there is any progress that has been made there. Thank you.

Okay your first question is about buyback and any time limit for other restrictions for us to relaunch share repurchase programs. We, as Chairman Ho Chen mentioned during his presentation, the company would reveal the [inaudible] after we finish this two month period and we will cancel these shares within six months. And after that we will reassess whether a second repurchase will be conducted or other means of capital improvement will be taken, okay. So far we do not see any major restrictions whatsoever limiting our flexibility to pursue another share repurchase, okay?

Yes sir.

And your second question is about the cancellation.

Yes.

Would you please --

Yes, is the cancellation subject to the foreign limit, or the foreign limit being raised? How will you decide whether you want to cancel the shares, is there any criteria you'll use to decide that?

Okay as we announced, when we started -- decided to conduct this share repurchase we made it clear that this share repurchase will be cancelled and of course the cancellation will have some impact on the falling ownership limitation. We have been talking to MOTC and asking for an adjustment to lift foreign ownership limitation and we would like to see that will be taken care of by MOTC.

Okay.

And your third question is about the payout ratio, okay. Let me emphasize that it's not 87% because we mentioned about the employee's bonus. The employee's bonus is purely that -- eligible for employee's bonus is only up to privatization so it's the net income during that, about less than five months of operation will be accounted for in that basis for employee's bonus, okay. So the 3% is all of that, a small portion of the entire year's net income.

So by calculating all these numbers I figure it's about 1%. So we used to distribute 90% of our net income, but this time it's about 89%.

Okay and on the stock dividend, any specific logic to having a stock dividend as well as a cash dividend?

Yes, yes why do we conduct with NT$0.2 per share of stock dividend? We have three reasons for this. The first is in every general shareholders meeting, ever since we were listed, there were margins from the shareholders asking for common share dividend or stock dividend and this was not possible while we were SOE. Since the company was privatized last August we have the flexibility to consider this option.

The second reason is that this is the first time our employees are entitled to be incentivized by a bonus. By distributing some of this bonus, a stock bonus, every employee will be our shareholder. Employee and shareholder interests are tightly linked. Another reason for this is the company wants to position ourselves to be qualified for 3G tax incentive programs on 3G investments. And this program has not been finalized yet, pending approval by [inaudible].

To be eligible for this 3G investment tax incentive we need to increase our capital from earnings, so this is part of the reason that we conduct, we put up this stock dividend of only tiny percent, 2%. Okay?

Yes, thank you very much.

Okay, thank you.

Your third questions, I should emphasize that so called land redevelopment is only part of our general strategy to effectively utilize our real estate assets with the company and that general strategy already undertaken for about two years and last year it brought about NT$[two hundred and fifty hundred] million to the company as the revenue and forward looking about that general strategy we are now taking -- choosing about six parcels which are not restricted by the current [inaudible] we would take that as our pilot program to see how good we can take that as our new try for utilizing our assets. And those six parcels will be planned within this year and then we will take that through a tendering process one by one, see how the market will react on those opportunities. Thank you.

Thank you for your time, thank you.

Next question, go ahead please.

Thank you, it's Lina Choi from Morgan Stanley calling, thanks for the call. I have two questions. The first relates to the fourth quarter expense pattern. It seems like there is a very unusual dip in cost of services, if you look at quarter-over-quarter, or even year-over-year seasonality it seems like cost of services is exceptionally low in the fourth quarter of '05, I'd like to find out why.

And in contrast to that, it seems marketing costs have almost doubled from third quarter to fourth quarter, I understand there has been a little bit of increase in handset subsidy but the amount of increase is far higher than that, so if you could give us a bit of color on that.

Second question relates to your outlook for '06. Do you have in mind a revenue growth target, especially for the wireless and Internet data sections? These two have always been the drivers of revenue for Chunghwa. They have grown to about mid to single digit of growth rates in '05, what is the outlook for '06 and how are you going to get there? Thanks.

Let me answer your second question first, okay. The revenue outlook for this year, overall the company plans to offer a guidance by the end of April, as we did in the past several years. So more information will be available then. Roughly speaking we believe the company still is in position to have revenue growth on both mobile and Internet and data areas. These as you said are the growth driver for the company and as we have experienced, in the past few years, the growth of both these areas will offset the decline from fixed line and this will help us to generate value for our shareholders. And to what extent, what will be the figures, please wait until next month. We will give you more detailed information and overall guidance for 2006.

On the quarter-over-quarter numbers, you are interested. But I suppose if you look at the figures on US GAAP, I don’t believe it's a really that meaningful for us to spend time discussing this because as we have explained, the US GAAP numbers are much affected by the stock subscription programs, the [government] offer to our employees upon privatization and that factor is really dominating everything here, so that's why in this presentation we spent more time explaining US GAAP, ROC GAAP and what's meaningful really is under ROC GAAP. So is that okay that we will not spend time elaborating on these details, US GAAP.

Can I follow up on the one thing. It is like you said employee bonus is a big dominating factor but the question I asked was stripping that out, your cost of service was very, very low and marketing costs were still very high. Are you trying to say that there is some cost reallocation between those two segments?

And since you have increased handset subsidy in the fourth quarter '05, do you think in '06 you are going to see a much higher handset subsidy planned for the mobile segment? Thank you.

First, we are very consistent on our cost accounting so there is no major reallocation of any cost items in our practice, so please be sure that we are consistent in our accounting principles.

And on handset subsidies, in general we would like to maintain our handset subsidies for '06. We will not increase our marketing expense here on handset subsidy in '06 as compared with '05. Okay?

Okay, thank you.

Thank you.

Next question, go ahead please.

Hi this is Kathy Chen from Goldman Sachs. Thanks for the call. I have three questions.

The first one is if you could just give us an update on the early retirement program which ends tomorrow. Generally these are so far about how many employees have applied, when they actually retire and what the expected cost or savings are.

The second question is, recently I've seen some news that Chunghwa has been bundling some of their products. So for example I think there is a promotion between your 3G mobile and HiNET, can you give a little bit more color on what kind of promotions you're doing and what kind of other bundling strategies you may have that will be introduced this year? And the third question is the price that was quoted several times, Chairman Ho is saying that Chunghwa is interested in investing overseas, can you please elaborate on what potential strategy you have overseas?

Okay. Your first question is about our early retirement program. We are conducting such a program now and as you said, the application to be eligible for this early retirement program is due tomorrow, okay. So far we predict we have offered quite a good package and quite a few number of employees participated. I don’t know whether it's appropriate to release numbers now because it's a little bit early and from our past experience, momentum really is being generated and [inaudible] is the most important day for this kind of event. So please allow us to conclude this package and we will release a message when we finish all these people with the [terms,] programs.

Now suppose we have say 1,500 employees leave and we would like to have 600 new hires afterwards, the impact of this on this year, the 2006, will be because of all these packages, the cost and expenses will have about 120 million incremental cost for this year. But the savings for next year and onwards would be about 2 billion per year. Okay so this is the figure for your reference.

And your second question, I am sorry, I didn’t catch?

It was related to some promotions that bundle some of your different products. I think I saw news on a potential promotion between 3G mobile services and your HiNET product.

Okay. On 3G we are targeting to have total accumulated number of subscribers about 800,000. That means nearly half a million new 3G subscribers. Our strategy is to increase our channels and for those channels [offices] that belong to Chunghwa Telecom, we are working on expanding office hours so that it will [inaudible] up, the general public's behavior so during weekends or after hours they are able to come to our office to receive service.

And most important strategy that [inaudible] is to negotiate with vendors on handset price. Because currently the 3G handsets appear to be still expensive and there is a gap between what's affordable from a subscriber's point of view and what the current price is. So we are working now to negotiate packages for our customers and [inaudible] we are able to manage our handset subsidy.

And for certain selective targets, target customers, we are working on so called co-blended handsets with partners and this will be targeted to selected groups for some special applications. So this is about 3G.

Now on HiNET, basically it's broadband services. Our target for this year is to get another half a million customers on broadband and we have been promoting broadband services through all kinds of packages and it's proven to be successful, it has been proven very successful. And we believe our package going forward this year will also be successful. So we are confident that we will be able to add about half a million broadband extra subscribers. And 80% of those will make use of our HiNET ISP broadband Internet service.

On the expansion to overseas, we have no specific targets to go overseas. We are very much focused on [other] mixed markets where we do best there. We have only just established a branch office Vietnam because Vietnam is a country where many Taiwanese invest in there and have some business in Vietnam so we believe it's a nice area to be there and offer services to our customers who move to Vietnam.

I have one more question. Can you give us the update on your VoIP service?

Our VoIP service, [inaudible] telecom we have been offering VoIP service through our PC to PC, that type of service. And we are bundling VoIP in VPN for our previous account and that's the kind of service that we offer for our customers on VoIP.

So there hasn't been any updates on when the numbers will come out for you to start doing phone to phone potentially?

Well for the HiNET PC to PC, the number of customers is relatively limited, not the big operation. And on PC's account it's augmented with our packages, so as part of the package offers we offer to our business account.

Okay thank you.

Okay thank you.

Next question, go ahead please.

Hi this is Matt Adams from Deutsche Bank. Thanks for the call. Just two questions. One, in terms of your strategies going forward, you mentioned proactively responding to regulatory restructuring. I wonder if you could elaborate on that topic just in general?

Second question also, I saw some media reports talking about your CapEx for next year going up. I wondered if you could just discuss what your plans are on the CapEx front, specifically on the breakdown between segments?

On regulatory restructuring, it's happening in Taiwan because the government has now set up NCC, the National Communications Commission, and this commission has just been established, so we are monitoring what the activities -- what are the focus of this new commission. And their wills and their [tendencies] and attitudes towards telecommunications. So we monitor this development and we participate in their activities. Whatever the meeting they call upon or things that are of interest to the new commission. And we also proactively prepare ourselves to be ready to answer questions or issues raised by the commission. So this is regulatory restructuring.

On CapEx, the CapEx we plan for this year is about 26.5 or NT$26.7 billion, slightly higher than what we spent last year because we are still promoting broadband access, as I just explained a couple of minutes ago. And fiber solutions, fiber in the Group, fiber to the buildings are also very important for us to deploy. And we are working on 3G build out -- further build out of 3G base stations, so all this requires some capital expenditures.

And going forward, as I said earlier, that the [K9] for our CapEx would be less than 15% of our CapEx to sales ratio. And we will do our best to maintain this kind of ratio going forward.

Just a quick follow up on the regulatory. With the NCC, I know it's still in the process of getting formed and it's not clear what their main focus will be, but in terms of for instance fixed to mobile changes, do you have any feel for what will happen? And will you be actively pushing on that front?

Before I reach your second query I would say something about how we so-call proactively respond to the regulatory. For example you're probably aware that we are starting a new business like IPTV as Triple Play and also to retain our fixed subscribers. The previous authority in that business was quite rigid to take kind of a demonstrative position, but the new regulatory body is based on a quite open basic bylaws so we take that as a leverage point. We try to proactively access to the [aides] for those commission members, and let them understand why Chunghwa Telecom is taking steps into this business and how our technology can provide differential service to the audience. And by doing that, they recently take a kind of quite relatively open position to ask more public hearing and give us more chance to elaborate our position on that. So I think this is a good example by proactively access to them, we have a better chance to make our business more available to the audience and to those new frontiers. Thank you.

Let me answer your question on fixed to mobile interconnection regime, whether NCC will take any action on this. At NCC, the commissioners have been in office for probably one month or so and they have their own agenda and those agendas are relatively on big issues. And they carefully [reveal] their items and probably fixed to mobile interconnection is in, this kind of item is relatively small so probably it's not on their priority. But if there are opportunities for us to present our view on this we would bring this to their attention.

Great, thank you very much.

Thanks.

Next question go ahead please.

Hi thanks for the call. Simon Cheung from Merrill Lynch. I've three questions. One with regard to your bundle package between wireless and HiNET, is there any regulatory restriction as to whether you can actually offer that, i.e., for example if you are a dominant operator on the mobile [3G] are you actually allowed to launch this sort of bundle package?

Secondly just on your tax guidance -- tax rate guidance. You mentioned that one of the reasons why you offer a stock dividend this time around is to get 3G tax credit. Do you have a guidance as to the tax rate for 2006?

And lastly assuming that you're going to be canceling your share that you're going to be buying back let's say six months from now. How would that affect your '06 dividend payout ratio? Thanks.

The bundling of our wireless service and the HiNET we believe there is no restrictions on this because in this country we have this as the accounting principles between -- we stipulate our accounting for type 1 and type 2 services. So bundling of these two [signals] in wireless and HiNET is okay. So we have the flexibility to do so.

On the effective tax rate, the 3G investment tax incentives will not be available until the latest regulation has been approved but the company's CapEx is declining, it used to be some NT$40 billion down to current NT$22/23 billion level. The tax incentives that we enjoy through all this IT related investments is changing so the effective tax rate for that year was nearly 20% and we estimate that the effective tax rate for '06 will be around 21 to 22%.

Okay and the cancellation of shares [inaudible] this time in six months, definitely will impact our dividend payout ratio for next year and we will give guidance after we finish all this work. After we finish our cancellation we will have information available for you to refer to.

Thanks.

[OPERATOR INSTRUCTIONS]. You are on line, go ahead please.

Hi it's [inaudible] from UBS, thanks very much for the call. I've two quick questions. First on your dividend payout. Given that you're now giving 3% of your unappropriated earnings to employees as bonus, does it mean that going forward we should expect instead of 90% payout they will fall to around 86.9% going forward?

And secondly, is the stock dividend that was given out this year going to be a recurring event?

And my last question relates to the ERP program that you were just mentioning. If about [1,500] employees leave the firm, I just want to clarify that the cost for this year is only NT$120 million?

Okay let me reiterate that this 3% employee bonus is out of the net income for the period up to privatization, that is up to August 12; starting from August 12 to the end of the year. So it's only this portion of the net income that are available for our employees to take the employees bonus. And from our own calculation this represents about 1% of the net income of 2005. So it's not going to be 87% or 86.9% as you mention.

You mean for on '06 earnings you'll only be giving out one [inaudible].

Yes for '05 earnings this year we are distributing our profits from last year. And the employees bonus, employees are entitled to take this bonus only after privatization so it's not the full year's earning, it's only the portion of the earnings that occurred after privatization. Is that clear?

Yes. So for '06 you would consider --

For '06 it needs to be determined in next year, some time next year. Maybe this is 3% yes.

Okay thanks.

The stock dividend, whether it will be recurring is still to be determined next year yes. So we don't know. And the tendency is to distributing [in case] so we used -- we have been disputing our dividend in case. But this is only a very special year and I had explained this before. So next year it's going to be determined again and may not be recurring.

The ERP program I mentioned about 1,500, the figure is for your reference. This is the net and we calculated the expense for those who will take the package and also the cost of those who enter in the company, after we hire them. And for those who leave, who take the package, we will have some saving for the remainder of the year. So all this together, the net results for this year on personnel expenses would be an increase of NT$120 million on personnel expense.

Great, thanks very much.

Okay thank you.

You are on the line, go ahead please.

Hi this is [Piando] from [JIC]. Just one question on subscriber growth on the mobile side. Over the last couple of months it looks as if [Fibo] has been taking a bit higher market share on 3G subs. I'm just wondering whether you have any intention to respond to that greater market share of net adds that [Fibo] seems to be getting in the last couple of months? Thanks.

Well we still believe Taiwan mobile markets are [original]. This very new entrant, they made some relatively irrational moves. We are monitoring what they are doing but as I said we will manage our handset subsidy this year and we have no intention to increase our overall handset subsidy for this year. So we will see how they perform.

Okay thank you.

There are no further questions. I will turn it back over to Chairman Ho Chen.

Thank you all for your attention and your participation and good evening.

Thank you Chairman Ho Chen. That's all for today's conference call. Replay details will be available on CHT website at www.cht.com.tw. We would like to thank you all for the time and thank you for using Chunghwa Telecom audioconference service. You may now disconnect your line. Goodnight.