Chunghwa Telecom Co Ltd (CHT) 2006 Q4 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom conference call regarding the Company's 2006 annual operational results. During the presentation all lines will be on listen-only mode. When the briefing is finished directions for submitting your questions will be given in the question and the answer session. Now I would like to turn it over to chairman Ho Chen, your 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. I would like to thank you all for joining our 2006 earnings results conference call. First of all, I would like to introduce Dr. Shieh, our new CFO, to all of you. Dr. Shieh has been on board for two months and has a very comprehensive background in finance. I believe that his expertise will help the Company on leveraging our financial strength.

We will begin today's call by having Dr. Shieh and President Lu take you through a review of our financial results and the business operations. Following that I will take you through our company strategy. At the end of the presentation we'll be happy to take your questions.

Before we begin please note our safe harbor statement on the second slide. Dr. Shieh please go ahead.

Thank you chairman. Now let's move on to the financial results for year 2006. First I would like to explain the different US and the ROC GAAP accounting treatments found in our 2006 results. Since we acquired 70% ownership of Chief Telecom, a local Type 2 operator, in September 2006 we are required to report consolidated financial statements quarterly under US GAAP. This is not the case under ROC GAAP; ROC GAAP requires only semi-annual and annual financial reports of consolidated numbers.

Thus the operating results we are presenting at this time for fiscal year 2006 under US GAAP and ROC GAAP are both consolidated. In addition, under US GAAP we set aside 10% for anticipated earning tax and our anticipated after tax earnings, and the recognized employee bonus remuneration for Directors and Supervisors, and the discounts for employee stock subscription and expenses. ROC GAAP reporting requirements does not withhold these items. Furthermore, the early retirement program or ERP compensation is categorized as personnel expenses under US GAAP while it is categorized as other expenses under ROC GAAP. The different accounting treatments lead to different financial results that we have presented in the following slides. Again, I would like to emphasize that we use ROC GAAP to calculate our dividends.

If you are following along with the slides, I will now move onto slide 4. On the right-hand side of the slide we provide financial data under ROC GAAP which we believe to be more relevant to our operations. Year 2006 is the first complete year that we operated as a privatized company. Despite severe market competition, our performance was outstanding. Under US GAAP our total revenues for year 2006 were NT$186.3 billion which is a 0.9% increase year-over-year. This was mainly driven by continued growth in the Internet and Data business.

EBITDA for the year increased by 12.3% year-over-year to NT$97 billion. Operating profits increased by 24.7% year-over-year to NT$56.3 billion and the net income increased by 26.3% year-over-year to NT$42.1 billion. The increase was a result of the recognition of employee stock subscription discounts which were part of our privatization in year 2005. These were recognized as one-time costs and expenses in fourth quarter 2005 according to US GAAP. However, we calculate our dividend based on ROC GAAP financials and the employee staff subscription do not factor into that.

On slide 5 we show quarterly figures. For fourth quarter 2006, revenues increased by 2.8% year-over-year. The increase of EBITDA, operating profits and the net income increase year-over-year was primarily because there were no discounts for employee stock subscription in the fourth quarter 2006 as occurred in fourth quarter 2005.

Let's turn the next page; on slide 6 we take a look at our individual business units. Under US GAAP, 2006 Internet revenue and Data revenues increased year-over-year by 11% and 6.6% respectively. Internet revenue benefited from increased broadband subscriber numbers and the successful initiative to upgrade customers to higher speed ADSL and FTDB services. Mobile revenues remained flat. Although usage minutes increased 3.4% year-over-year revenue growth was adversely impacted by a combination of factors -- the decline in fixed to mobile traffic, low mobile to fixed call tariff reductions and the various promotional packages.

In the Fixed Line business, local revenues decreased by 4.3% year-over-year mainly due to mobile and the broadband substitutions. Domestic long distance revenues decreased by 9.7% year-over-year due to mobile substitution and VoIP. International long distance revenues decreased by 3.7% when compared to year 2005 due to the lower unit price that resulted from a higher percentage of [wholesale] minutes compared to ILD minutes. Business segment revenues based on ROC GAAP are also presented on the right-hand side of this page for your reference.

Moving on to slide 7. For the fourth quarter Internet revenues were NT$9.2 billion, a 10.2% increase year-over-year. Data revenue also increased gaining 7.5% year-over-year to NT$2.9 billion. Revenues for the mobile business decreased by 1.5% year-over-year to NT$18.2 billion while fixed line revenues decreased by 0.7% year-over-year.

Under US GAAP, total operating costs and expenses for year 2006 decreased by 6.8% year-over-year. As mentioned earlier, this was mainly due the discounts for employee stock subscription that were recognized as costs and expenses in the fourth quarter 2005. While under ROC GAAP, total operating costs and expenses for last year increased by 2%. This was due to the increase in handset subsidies, performance based bonus and the maintenance expenses.

On slide 9, for the fourth quarter, you will see that operating costs and expenses decreased by 25.4% year-over-year. The reasons for this are the same as mentioned in the previous slide.

CapEx for year 2006 increased by 21% over 2005. This was due to higher spending in the mobile segment, especially related to our 3G network expansions. Going forward, our CapEx may increase due to investment focus on our core business and the network migration including the construction of fiber TTx, IP-based NGN which is next generation network, 3G and the 3.5G system and the xDSL.

I will now hand over to President Lu for our business review. Thank you.

Thank you Dr. Shieh. Please refer to page 11 of the business overview. Chunghwa Telecom's total revenue for 2006 was NT$186.3 billion, an increase of 0.9% compared to 2005. On the left-hand side of this page, the two pie charts show our revenue breakdowns in 2005 and 2006. As you can see, Internet and Data revenue as a percentage of total revenues increased from 23% to 25% supporting our top line.

In the meantime, as the only integrated telecom service provider in Taiwan, we continue to be the dominant player in the fixed, mobile and Internet data markets.

Until the end of 2006, our broadband subscriber number amounted to 4,036,000 and [those with] speeds higher than 2 megabits per second continue to represent a larger portion of the total subscriber base, reaching 63.8%. On the right-hand side of this slide, our broadband access revenue escalated as the broadband subscriber numbers grew continuously throughout the year. This healthy trend represents our successful efforts to promote our broadband services.

On slide number 14, we [inaudible] our efforts to transition customers to higher access speeds and the progress of our fiber deployment. At the end of last year, our broadband subscribers with 8 megabits per second reached 832,000 representing 20.6% of total broadband subscribers. Furthermore, we continued to increase our fiber penetration rates by deploying our fiber networks in residential buildings and campuses allowing more opportunities to access a variety of Internet available services and increasing the average bandwidth per user.

As you can see on the right-hand side of this page, the average bandwidth per user continues to increase over the last few years, where the number of fiber subscribers also shows strong growth since the second half of last year. Going forward, we expect this trend to continue.

Now I would like to move on to our mobile business on slide 15. Chungwha Telecom maintains our number one mobile subscriber market share position. At the end of 2006 we had 8.49 million mobile subscribers which included 943,000 3G customers. The blended ARPU for 2006 declined slightly by [NT$13] year-over-year, however the average minutes per user continued to increase throughout the year. During last year, we have seen successful mobile value added service growth led by our excusive mobile value added service platform, Enome.

Among these services, voice, value added service, micro payments, mobile Internet exhibited 143.6%, 55.4% and 31.1% year-over-year growth respectively. Therefore, data revenue as a percentage of mobile revenue increased to 5.7% in '06 from 4.4% in '05.

Now, moving on to slide 16; 3G deployment has proven to be as successful as our GSM service. We had more than 943,000 3G subscribers at the end of 2006, of which 79% migrated from our 2G services. In addition, 3G ARPU was 31% higher than 2G ARPU, primarily as a result of our innovative 3G strategies for customized handsets and the promotions of mobile office services. For instance, we launched two customized HSDPA handsets last year, the splendid CHT9000 and the 9100, which has mobile office functionalities like push e-mail, calendar, to do list and so on. So far, we have reached 29,000 total users and ARPU for those who use these two models, CHT9000 with NT$2,015, and the 9100, NT$1,631, significantly up from that of our other users. Also, value added service revenue accounted for 29% of the ARPU.

On slide 17, shows our continuous effort to maintain our Fixed Line market share in terms of local DLD and ILD businesses. As an incumbent, we did a good job defending our Fixed Line market share. We are confident that our strong market position will continue in the future.

On the next slide; this slide shows as an integrated telecom operator, our company is in the best position to offer bundled solutions. For Enterprise customers we provide customized solutions such as VPN and ICT solutions, as well as integrated network services. Furthermore, we also bundle our broadband and mobile service in order to form a seamless telecommunication network. For individuals and families, we not only offer friends and family service with attractive rates, but also provide bundled broadband and MOD packages services. Following the certification of MOD open platform by NCC in January of this year, Chunghwa will relaunch MOD as a telecom service. We have a steady stream of new content providers to enrich our content and channels to attract more customers. The accumulated monthly gross rate of net ads during last year was up to about 11%.

Next, I would like to talk about our regulatory environment. Let me update you with the current status of the new tariff setting regulations, our MOD open platform and the local loop unbundling and the co-location issues.

Regarding to our new tariff, NCC resolved to reduce telecom tariffs in December 2006. For Fixed Line, we cannot charge the indoor wiring maintenance fee by default. For Mobile business, tariffs for 2G services, including fixed to mobile calls, prepaid service, and service packages with the highest rate are each regulated to decrease by 4.88%. For ADSL service, we are regulated to reduce tariff by 5.35%.

Next, on our MOD; the open platform was certified by NCC on January 30 of this year. Complying with NCC's regulation, MOD is now deemed a telecom service. We expect to have more channel aggregators to join in and provide diversified contents and applications.

Local loop was classified as a bottleneck facility in December 2006 and we are obligated to co-locate with alternative operators if there is enough capacity. Currently, 13 toll switches are co-located with alternative fixed line operators and the 15 offices are co-located with mobile operators.

Now I would like to hand it over to Chairman Ho Chen, for our business outlook.

Thank you, President Lu. Chunghwa Telecom has adjusted the internal structure to become a more customer centric organization. The Company also expanded into some key business areas through strategic alliance and investments. January this year, illustrated on the slide, we established the Enterprise Business Group, which offers an ICT total solution, vertical business convergence, as well as customized corporate customer services by integrating engineering and the business resources. In addition, in order to provide even better customer care, of which one-stop and the consolidated billing service are key points, we are improving our customer service system through a comprehensive, interactive, multimedia call center.

On the other hand, we spun off our yellow page business from the Data Communication Business Group and established a 100% owned subsidiary. The Company plans to offer a cross-platform search service combining our online yellow page and the voice directory. Also, this new company will explore the growth opportunities offered by a professional advertisement business.

Moreover, Chunghwa acquired a 70% interest in Chief Telecom and a 31.5% interest in SENAO. We have a presence on the Board of Chief Telecom and have tasked the management teams to strengthen our offering with respect to IDC business and overseas network [posts]. In the meantime, we expect to cooperate with SENAO to enhance business channels and distribution capabilities for handsets as well as extension of our exclusive service stores to complement Chunghwa's service hours and sales to youngsters.

In conclusion, I believe our strategy is quite clear. Let us highlight the key aspects of our near-term strategy.

First, in our core business we will continue to focus on improving our leadership position in each of our business lines. In Mobile business, expecting to be benefited by SENAO's distribution channel, we will speed up the adoption of our 3G service and value added service, value added for offerings such as personal ring tone and mobile Internet. Also, we rolled out the HSDPA services in first quarter of -- fourth quarter of last year and will expand its coverage to attract more mobile Internet users.

In our Internet and Data services, which has been a strong growth driver, we intend to continue to grow our subscriber base while migrating high end customers to fiber and bundling broadband and more Internet. We will also focus on promoting the growth of our MOD subscriber base and increase the content and service offering on our platform through alliance with high quality content providers. In Fixed Line, we intend to maintain our comprehensive coverage and leading market share positions while investing in next generation network construction, which will ultimately decrease our network costs over time.

Second, we are promoting convergence through bundled service offering including integrated enterprise solutions and mobile plus fixed, mobile plus broadband, and digital home bundled service.

Third, we will focus on driving cost savings. We will continue to offer our early retirement program this year and we will hire new talent, as necessary. Besides personnel savings, we will monitor our CapEx carefully in order to control related depreciation expenses. We'll also decrease rate of ILD settlement fee and control marketing inventory and the maintenance expenses.

Finally, remaining fully committed to maximizing value for our shareholders. We intend to continue to maintain our high dividend payout policy, we'll continue exploring opportunities to enhance shareholders' return through capital management. Although contribution from property revitalization is still small, we expected to do more growth and will optimize the assets to enhance returns.

Now we're happy to take your questions. Thank you.

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

Good afternoon, this is Jimmy Cheong from JP Morgan. I just have three quick questions. The first is on the capital management and your capital -- potential capital reduction. How are the approvals going from the government; could you give us an update on that please?

On question two, does management have any views on the impending mergers of Taiwan Mobile and Taiwan Fixed and potentially Far Eastern and Spark. Do you think that the level of competition will increase against Chunghwa?

And finally question three on the CapEx outlook; can you just reiterate the next generation fiber rollout plans again? Whether the CapEx guidance of NT$138 billion between 2007 and 2011 is still valid? Thank you.

Okay, I'm Mr. Shieh, CFO of the Company. Regarding the capital management issue, our current status is we intend to propose to the Board to conduct a capital management program this year in order to improve the capital structure and increase return to the shareholder. So this is -- we are proposing to the Board right now. Thank you.

Let me answer your third question first, the CapEx on NGN, the fiber rollout. Currently the Company has a five years' plan and this five years' plan will cover about NT$50 to NT$60 billion of CapEx in these areas, okay? And for 2007 the NGN and FTTx CapEx are included in our budget and which represents about NT$30 billion for this year. Okay, is that clear to you?

Yes, thank you very much.

Okay, and on the market developments here in Taiwan. As you just mentioned, TFN and Taiwan Mobile are about to consolidate and I don't know whether Spark and the FET will do the same. It remains to be seen okay? But the one that's occurring, the TMC and TFN, we believe this is something that might happen, and actually it's happening now. The -- we are monitoring what kind of further developments from these conglomerates and see if they are aggressive or -- if they are aggressive in business side or they are more on financial considerations. So we will monitor their activities very closely.

As to the competition; the converged services is one of the areas where we believe Chunghwa Telecom has strength, and the Company, with all these programs including, we just mentioned on CapEx, the NGN fiber to the ex-solutions to enhance the product service to our customers. We will capture our leading position in these areas and offer multi-play services to enhance our operational results.

So we will take the lead and if possible, we would do something -- we would like to capture the market as much -- market share as much as possible. Okay?

Great, thank you very much.

Thank you.

Next question, go ahead please.

Hi, thank you for the call. Can you please give us some update on your staff reduction plan this year?

And my second question is, what is the DPS in '06? Thank you.

Yes, as I mentioned earlier for the capital reductions we evaluate all the possibility and under the current regulation there are two that can be proposed. One is like a cash --

Let me try to understand better that your first question is about ERP right? Early Retirement Plan.

Yes, staff reduction plan.

Yes, staff reduction plan.

But how many people are you planning to reduce in this year and how --?

Well, last time when we mentioned about ERP for this year, we mentioned -- or at least I mentioned about the target of 1,200 before. But currently -- recently we reviewed our ERP programs and we adjust up a little bit. Hopefully it's possible to reach something like 1,600 for this year. Okay. And the package is slightly less sweet as we presented to our employees the last year. So about two months, this offer --

And your second question is on DPS?

Yes, dividend per share.

Dividends for this year?

Yes.

Well, you ask a very good question. We will offer our guidance the end of next month, in April, end of April. So maybe by then you will have full knowledge of our numbers for this year.

Okay, thank you.

Thank you.

Next question, go ahead please.

Thank you, it's Lina Choi from Morgan Stanley. Thank you for the call. I have a couple of questions. First, I would like to follow up on the proposed capital management program that management has proposed to the Board. Can you elaborate a little bit on the potential size of the capital management program?

Second question relates to your revenue expectations and outlook for '07. Given the NCC roll rate reduction for both mobile and broadband services, do you expect these two revenue streams to grow meaningfully in '07 or are you looking for a flattish to maybe slightly down trend? Thank you.

Regarding capital management, the current status is we are proposing to the Board and the resolution is under current regulation, so we -- there's a possibility we can do some capital management. And we are proposing to the Board right now, so this is -- and so the -- under current regulations is -- there are two possible ways. One is through the direct capital reduction, the second is we can have a 10% transfer capital -- third part transfer 10% to the capital stock and reduce the share annually. And we are evaluating and proposing to the Board right now. Thank you.

And to your second question; as I just mentioned answering the previous question, we will have our guidance end of next month in April. So the numbers will reflect our projections of revenue by then. Okay? And the NCC has ruled and the tariffs will be reduced by the percentage amounts by NCC, so we believe there will be some impact on our top line for mobile, and also for broadband ADSL access. But the management would have to exert our best efforts to conduct our marketing and sales. And also, we have the strategy to migrate customers from ADSL to fiber solutions, and also migrating customers from 2G to 3G. These areas will not be impacted by the tariff adjustment, so we would have to make our best efforts to minimize the impact of NCC's new tariff set in [rule].

Thank you.

You are on the line. Go ahead please.

Yes, hi. My name is Anand Ramachandran calling from Citigroup. I had -- thank you for the call and congratulations on the good numbers. I had, I guess, two questions. Firstly, and I apologize for being persistent on the capital reduction program. I was wondering if you could give us an indication of the specific timeline as to when this goes to the Board? I believe you have an AGM coming some time very soon, so do you propose to put it before the shareholders then? Or is it a second half issue? So I just want to get a sense of whether this happens in the next three months, six months, or a year. That's the first question.

The second question is on your labor expenses. We could expect these to fall I would think in 2007 given that you did lay off a significant number of employees in 2006. And also, if I were to look at the earnings, that is the one-time ERP cost in 2006 which does not repeat in 2007. So leaving out what you might propose for the ERP in 2007, we should expect earnings to benefit on both these counts. Would that be right? Thank you.

Okay. Regarding a timetable of the capital management, the current status is that we -- first of all we have to propose our suggested proposal to the Board which will be heard the last week of April. Then, once we get approval from the Board then we will propose in to the AGM which will be in June. And once we've got the final approval from the AGM, then we -- following the procedure we have to file to the [LFC], and then some related regulatory bodies. Hopefully, from the key day, which is the approval day of the AGM, it will probably take about three months, about 90 days. So maybe in August or September of this year then we can complete the procedures.

Thank you, sir. Can I just follow-up given that it's such a widely followed issue by Chunghwa Telecom, are then any issues which you see derailing this particular timeline or process that you laid out? Is there any risk that this might not happen?

Well, I think the ultimate decision will reside under the Board decision and AGM's. And from the management team perspective, what we can do is we provide all the possibilities to the Board. And I think we found this year is good timing and I think our proposal will be appropriate for the Board to consider. But again, the final decision will reside on the Board's decision.

Thank you.

With respect to your second question, the labor cost for 2007 would benefit from the early retirement program we conducted last year. You probably remember very well that last year we had retired about 1,900 employees, and the cost savings, personnel expense saving from that in '07 would amount to about NT$3.2 billion. And since -- I mentioned that we will have an ERP program this year with targeted number 1,600, the costs, the [severest payment] for this probably will be equal to the savings that we obtain from the ERP.

So it's going to be even, very much like last year. And it's going to be even on the cost for the early -- ERPs, and also for the savings, or for the ERPs this year, about the same. It may be slightly different, depending on how many months, so it's even for this year. So the net reduction obtained from last year retirement -- early retirement program, will benefit the personnel cost of this year. We'll save about NT$3.2 billion.

And since the depreciation for this year will be about nearly NT$1 billion less than what we had last year, from all this, and potential revenues adjustments, we believe the bottom line for this year, the management would like to try our best to maintain our bottom line for this year. Again, I said that we will have guidance at the end of April, so please wait a little while, only about one month.

No, no, sir. If I could just clarify one more point. Assuming we go into 2008 and there are no employee reductions then, your current personnel cost on ROC GAAP is about NT$39 billion, so should we expect it to fall to, say, NT$34, NT$35 billion in 2008 once your cuts in 2006 and 2007 take effect as savings 2008 onwards?

Well, we need to calculate that. I don't have those numbers with me. Maybe we'll get back to you later, do some calculations. Okay?

Very good sir. Thank you so much for your time. Thank you.

Thank you.

Next question. Go ahead please.

Hi, it's Henry Cobbe from Nevsky Capital. Thanks for the call. I was just wondering if you could give us some guidance on the effective tax rate for '07 and after? Thank you.

Effective tax rate for '07. We believe about, maybe slightly less than what we had last year. Last year was about 22%, and maybe 1% less. It's going to be available from our guidance next month, again.

Okay, thank you very much.

Thank you.

Next question. Go ahead please.

Hi, this is John Hsu from Lehman Brothers. Just two quick questions. Can management provide some guidance on should we expect EBITDA margin to remain flattish for FY '07 compared to FY '06? And what kind of 3G net ads we should expect for the next two years, '07 and '08? Thank you.

Well, our EBITDA margin has just been reported, last year was about 53.something. And we believe with the kind of cost structure we have, probably we are able to maintain this kind of level of 53%, 54% of EBITDA margin. The CapEx cost will be for this year -- is about 5 -- around NT$5 billion for this year, '07.

And the net ads for 3G?

The number would be about 1.4 million. This is our target.

Okay, thank you.

1.4 million 3G subscribers.

Hello sir. Have you finished your question?

Yes, thank you.

Thank you. Next question. Go ahead please.

Hello, hi, it's Helen Zhu from Goldman Sachs. I have a couple of follow-up questions. The first one is with relation to the margin outlook; you mentioned that it should be roughly flat versus 2006. We noticed that in the fourth quarter, the marketing expenses rose pretty noticeably, could you just give us a little bit more color on how the marketing will pan out within 2007? And whether this will be returning to 1Q through 3Q '06 levels or whether you're going to see the cost savings elsewhere to keep the EBITDA margin flattish?

The second question is just to confirm that the ERP target for this year is 1,600 people instead of 1,200? And also what's the estimated timing?

And then the third question is back to the capital management; you mentioned that the two options under the current regulatory regime are either to do a 10% surplus transfer or to do a capital reduction. Just wondering whether the Company is still hoping for [SFC] or MOEA approval for the special dividend or surplus transfer increase before the end of April's Board meeting? Thanks.

Yes, okay Helen. The first question about the marketing expense for this year. We believe that we set the target for not exceeding or a little bit less than what we spend this year as compared with last year. Last year we spent about NT$6.5 or NT$6.6 billion on marketing especially the handset subsidy, and we would manage this very carefully to control our costs. The -- including the advertisement and commission expense, so the total marketing expense for this year will not exceed what we spent last year.

And on the ERP, yes, let me reiterate that the target number for this year is 1,600, one, six, zero, zero. And the timing for this ERP program is, we would like to conclude this ERP program by the end of April.

And again, regarding the capital management and we -- I think that we seriously [evaluated] the idea of distributing a special dividend to shareholder. But with the consideration of the time consuming, we have to talk to several regulatory parties and we don't expect that we can come up with consensus by the end of April. So we may proposing that the proposal under the current regulations, which I just explained earlier. But we still —- to narrow out a possibility, we are going to continue negotiating with the regulator party about our speculative ideas. But again they will take a long time, but we are still working on this. Thank you.

Can I ask you just one quick follow-up? You mentioned that the 3G CapEx is going to be about NT$5 billion in '07, can you give us what it was in 2006? Because the 2006 mobile CapEx seems to be much higher than before.

3G CapEx for this year, I remember the -- 3G. 3G CapEx last year, '06 was about NT$4.7 billion. And for -- for this year is about NT$5 or NT$5.5 billion.

Thank you.

So not much different. Helen, is that clear to you?

Yes, thank you.

Yes, thank you.

[OPERATOR INSTRUCTIONS]. If there are no further question, sorry? Next question, go ahead, please.

Hi, this is Shirley Tse from UBS. Thanks very much for the call, I just wanted to follow-up on Helen's question. On the ERP target you mentioned at the time of the privatization that you were expecting a net reduction of 3,000 employees over three years. Does this higher than expected ERP target mean that the net reduction will be higher, or are you still maintaining similar level overall?

And secondly, on the capital reduction front, you mentioned that there are the two methodologies that you can explore. I was wondering if you can provide a little bit more color on what your management's view is in terms of which would be a more appropriate and preferred method. And also pose any capital reduction would you have any longer term debt to equity or debt to capital target?

Okay, the first question related to the headcount -- yes, we conducted at least two and including this year it will be the third ERP programs. Yes, we did mention that we intend to reduce 3,000, but we mentioned earlier that we also need to hire new blood for new skills. So we still have this target -- net reduction of 3,000 in three years, and so, with this 1,600 this will still fall within that mid-term target. We have not made any adjustment on this target.

Yes, you know, according to ROC Telecom regulation with all the license we have that require us to maintain -- at least we had to maintain NT$53 billion capital size. And our current capital stock, capital size is about NT$96.6 billion. I think the [current] -- for next few years we don't expect we have planned to reduce the capital size because we have conceded there might be new license in the local market will be issues, and we also have to consider the progress of our Capital managements. And so I think the current capital size is probably on our current status, but we are still working on the capital management and also the [inaudible] for the next few years in terms of the whole telecom environment and we can look further. Thank you.

Have you finished your question? If there are no further questions I will turn then over to Chairman Ho Chen.

Yes. Again, thank you for your attention and thank you for your support. Good evening.

Thank you, Chairman Ho Chen. That's all for today's conference call. [OPERATOR INSTRUCTIONS]. We would like to thank you all you're your time and thank you for using Chunghwa Telecom audio conference services. You may now disconnect your line. Goodnight.