Chunghwa Telecom Co Ltd (CHT) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Chunghwa Telecom conference call for the company's 2007 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 answer session.

Now I would like to turn the call over to President Lu, the host of the conference. Thank you. President Lu, please go ahead.

Thank you operator. Good evening everyone. This is Shyue-Ching Lu of Chunghwa Telecom. I would like to thank you all for joining our 2007 earnings results conference call. On today's call Dr. Shieh, our CFO and our Senior Vice President Mr. Chang will take you through a review of our financial results and the business operations. Then I will take you through our near term strategic outlook. At the end of the presentation we will be happy to take your questions.

Please note our safe-harbor statement on slide number one. Dr. Shieh, will you now continue with our financial overview, Dr. Shieh please?

Thank you President Lu. Before I start the financial overview, I would like to mention that on March 5 we have issued a press release regarding an accumulated mark to market unrealized valuation loss of approximately TWD4 billion as of the end of February, and our filing is changed to derivative contract.

In response to questions that the company has received since then, we hereby would like to reconfirm that as of today, the company does not have any other outstanding derivative contracts or similar off balance sheet applications. The company's financial policy will remain conservative and will continue enhancing our risk management capability for the meantime.

Let's move onto the financial results based on US GAAP for 2007. Again, I would like to emphasize that we use [ROC] GAAP to calculate our dividends.

Slide three shows a simplified income statement. Our total revenues for 2007 were TWD200.9 billion, which was a 7.8% increase year over year. EBITDA increased 5.2% to TWD102.3 billion.

Operating profit increased 11.6% to TWD62.8 billion. And the net income reached TWD49.5 billion, representing a growth of 17.5%. Growth of the revenue was mainly driven by consolidation of subsidiaries, such as SENAO and Chief. Our Internet and data and mobile business also contributed positively. Although fixed line revenues decreased a little bit, the growth from the aforementioned two business of further decrease.

Operating costs and the expense increased due to the consolidation of our subsidiaries. On the right hand side of slide three we are showing quarterly figures for the fourth quarter of 2007. Revenues increased by 10.1% year over year. EBITDA increased by 5.0%. Operating profit increased 7.7%, while net income remained flat as compared to that of fourth quarter of 2006.

As shown on slide four, total operating costs and expenses for 2007 was TWD138.1 billion. They increased 6.2% when compared to 2006. As I mentioned in the previous slide, the increase was mainly from our subsidiaries.

For parent company total operating costs and expenses decreased by TWD1.75 billion. The decrease was primarily attributed from the decline in personnel expenses, handset subsidies and the depreciation and amortization. Decline of personnel expense in 2007 was due to a smaller number of employees participating in the incentive retirement program.

Marketing expenses, including handset subsidies, also shrunk under cost control. In addition, the decrease of depreciation and amortization also reflected our vigorous review of the capital expenditure for the past several years. For the fourth quarter of 2007 total operating costs and expenses increased 11.1% and the increase was mainly from our subsidiaries.

On slide five we take a look at the revenues for individual business units in 2007. Internet revenue and the Data revenue continued to increase, due to increased broadband subscriber numbers and the successful initiatives to upgrade customers to higher speed ADSL and FTTB services.

Although mobile market matures, we still manage 1% revenue growth year over year. In the Fixed Line business local and the domestic long distance revenues decreased by 0.1% and 6.6% respectively year over year, mainly due to mobile substitution. International long distance revenues increased by 2.4% compared to 2006, mainly due to the increase of the sales of international prepaid cards to foreign workers.

The increase in wholesale revenues and the revenue transfer from deferred income from [shared] and prepay phone cards. Other revenue increased 304% from the consolidation of SENAO.

For the fourth quarter of 2007 Internet revenues was 3.3% higher. Data revenues remain flat. Mobile revenues decreased by 0.4%, mainly due to tariff cut regulated by NCC. Fixed line revenue increased by 5.4%, mainly due to the accounting adjustment of the installation fee recognition. The adjustment change last time of fixed line customers from 15 years to 13 years.

Now I want to show our cash flow on slide six, although a decrease our cash flow from operations remained strong and amounted to TWD87.2 billion for 2007. The decrease of it was because of the increase in tax payment. Since our CapEx is affordable as compared to our operating cash flow. We continue to have positive free cash flow and [it helped] our total cash base.

Next on slide seven, CapEx for 2007 was TWD25.1 billion, a decrease of 9.4% year over year. This was mainly due to the decline in mobile spending of TWD4.1 billion. Going forward our CapEx may increase due to investment focused on our core businesses and our effort to migrate mobile and data customers to higher revenue platforms, including 3G, 3.5G systems, IP-based NGN, FTTx and xDSL.

I will now hand you over to Mr. Chang for our business overview.

Thank you Dr. Shieh. Now let us move on the operational details for our business. On slide nine you can see that Chunghwa's total revenue for 2007 was TWD200.9 billion, of which TWD31.2 billion came from Fixed Line, 36.7% from Mobile, 24.5% from Internet and Data service and 7.6% from other, which includes the revenues of SENAO.

For past several years revenue from Fixed Line continue to decline. This trend was in line with our international peers and within our expectation.

Chunghwa has a commanding market position for all of our business segments. As of the end of 2007 we had 8.7 million mobile subscribers representing 36% of the market. On the Internet and the Data service our ISP market share was 86 -- 68% and our broadband subscribers accounted for 87% of the market.

On Fixed Line side, our local call subscriber's market share was 97% and the market share for our domestic and the international long distance calls in terms of minutes were 87% and 62% respectively.

Next on slide ten our broadband subscriber number continues to increase, [among] 4.25 million broadband subscribers by the end of 2007. 58% of them use services with speed higher than 2 megabits per second. Total broadband access revenue was approximately TWD20 billion, which was 5.2% higher than that of 2006. We expect that this growing trend of Broadband business to continue.

Now I show on slide 11 some of our initiatives for the Broadband business is to migrate our customers to higher access speed and to continue to increase our fiber coverage by deploying fiber networks in residential buildings, campuses and the commercial buildings, allowing more opportunities to exist and adopt a variety of Internet value added services.

These initiatives have demonstrated a satisfactory progress. As you can see on the left side of this slide, the average bandwidth per user continued to increase over the last few years and reached 2.66 megabits per second by the end of 2007.

In addition, more than 1.2 million broadband subscribers utilize services speed of at least 8 megabits per second, representing 28.5% of our total broadband subscribers. The number of fiber subscribers also shows strong growth with 533,000 subscribers by the end of 2007. In addition, I would like to emphasize that the 15,000 plus buildings fiber access service we offer represents about 90% market share. Going forward we expect that this growth trend for our broadband business to continue.

Chunghwa Telecom has maintained its number one mobile market share position as shown on slide 12. At the end of 2007 we had 8.7 million mobile subscribers, including 2.3 million 3G customers. This number of 3G subscribers as a percentage of the total mobile subscribers' base keeps increasing. During the past year we were encouraged by our mobile value added service growth, primarily due to our exclusive mobile platform, emome.

Among this service total value added service and the mobile Internet exhibited 24.2% and 42% year over year growth respectively. As a result Data revenue as a percentage of Mobile revenue increased to 7% for 2007.

Moving to slide 13, I want to provide some more details on our 3G initiatives for our Mobile business. We had 2.3 million 3G subscribers at the end of 2007, of which 54% utilized 3G handsets. 3G ARPU was 63% higher than 2G ARPU, primarily as a result of our innovative 3G strategy for customized handset and the promotion of our mobile office services.

We offer a customized 3G handset, CHT3000, since January 24 this year. Targeting students and the price sensitive customers with comprehensive functions, CHT3000 is easy to use. There are more than 18,000 users now.

Priceless roaming is a new value-added service we've provided to corporate customers who travel across strait or abroad. By subscribing these services, customers could retrieve international calls and [international] message service without a roaming payment.

As a whole, our 3G mobile data usage increased 390% year on year demonstrating the effectiveness of our strategy.

Next on slide 14, for our Fixed Line business our international calling card traffic increased significantly in 2007. For the whole year the number of minutes increased by 53% as compared with 2006. For past several years we had a stable market share of -- for local DLD and ILD businesses. As an incumbent, we were successful at defending our fixed line market share and our confidence is that our strong market position will continue in the future.

Moving to slide 15, let me update you on some of our progress in meeting customer demand for convergence services. First, we are continuing to construct a user-friendly platform and to enrich the content. These platforms include MOD for IPTV, emome for mobile service and hiChannel for ISP service.

Following the NCC certification of the Media on Demand open platform in January 2007, Chunghwa continues MOD as a telecom service. By the end of 2007 there were about 400,000 IPTV subscribers, a growth of 51% as compared to that at the end of 2006.

On our IPTV we have more than 50 channels currently for MOD service. We provide the movie titles from major Hollywood studios, games for Major League Baseball and so forth. Movie titles we publish per month are over 4,500 hours. We've even cooperated with the largest home video rental chain stores in Taiwan to solidify our content.

In addition, we are focusing on promoting sports programs, including Olympic Games and MLB. Over the three platforms we will also keep enhancing content of other VOD and the interactive value-added service, such as games, karaoke and the exclusive services for corporate customers. To provide high quality service HDTV programs will be available for the Beijing Olympic Games.

Dr. Lu will continue for our business strategy.

Thank you, Mr. Chang. Finally, I want to take a few minutes to discuss our business strategy. On slide number 17 [we want to] share with you our strategic forecast for 2008, which includes Optical, Olympics and Overseas opportunities. This is what we call our 3O's strategy for 2008.

The first O is for optical, which represents a new era of optical fiber. From 2007 to 2011 we will be devoting ourselves to the construction of next generation network and extension of fiber coverage in local loops. The most important work in 2008 is to increase our penetration of FTTx. We will also continue the expansion of our 3G network to broaden coverage of 3G and 3.5G and increase the transmission speed of HSPDA.

2008 Olympics is a great opportunity for Chunghwa. As I already mentioned before, we have obtained the exclusive broadcasting rights for Olympics Games over new media in Taiwan, including our emome, hiChannel and MOD platforms. We expect this opportunity to provide enhanced value services across all of our platforms. We also plan to cooperate with well-known home appliances vendors and 3G channels to offer promotional packages for HDTV programs, including two HD and five SD programs to cover the Olympic Games.

The final O is for overseas opportunities. We are focusing on exploring the investment opportunities in Greater China, the Southeast Asia market. The company is also establishing a robust backbone in order to meet the bandwidth demand of corporate customers in telecom markets.

On slide 18 let me highlight the key aspects of our near term strategy. First, in our core businesses we intend to continue to grow our broadband subscriber base while migrating the high end customers on to our fiber network. As I said earlier, we will also enhance our mobile network to encourage usage of mobile internet. We are constructing our NGN and expect the IP-based network will facilitate digital convergence that caters to customers needs. As for audio visual services we are constructing cross-platform service operation in order to capture growth opportunities.

Second, we would like to strengthen our competitiveness by looking for strategic investment, integrating resources among subsidiaries and exploring overseas investment opportunities.

Third, we will monitor our CapEx and expenses on marketing, inventory and maintenance, as well as streamline our operation processes for better cost control.

Fourth, as a member of the society we encourage people to be friends of our earth and would like to devote ourselves to protect the environment by saving energy, paper usage and decreasing greenhouse CO2 emissions. Last year we saved electricity bill for about TWD80 million and this year we set a target of saving TWD120 million. For gasoline we saved TWD17.5 million last year and expect to save TWD50 million for 2008. In addition, we continue to promote consolidated bills and electric bills for our customers and this saved us 155 million pieces of paper in 2007.

Finally, we remain fully committed to maximizing value for our shareholders. While maintaining our high cash dividend payout policy, we will continue exploring opportunities to enhance shareholders' return through capital management and cash management, including capital reduction and a share buyback.

Again, I would like to reiterate that the company's financial policy will remain conservative and we will continue enhancing our risk management capabilities for the meantime.

As for property, we will develop our land to create asset value through rezoning and reviewing the status of our offices, in order to set some of them aside for future development. However, the process should be gradual. Hence, revenue injections in -- injected in from property size is estimated to be minimum as compared with our core business in the financial year.

That concludes our presentation. We are now happy to take your questions. Thank you.

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Danny Chu with Lehman Brothers, please proceed.

Hello, thank you for the conference call. I have three questions. On the FX contract news, so far we have very limited data points in terms of maximum exposure that Chunghwa Telecom is facing. Can you provide us with more information?

And is it possible that the company, say pay a penalty fee and exit the FX contract? If yes, what is the amount of the penalty fee?

Second question is on the real estate development business. Can you give us an update of the progress? Do you have any updated revenue or earnings contribution figures from this business that we should expect, say in '09 or 2010 that you can share with us?

And finally, can you share with us your view on the latest developments of capital reduction for this year? Thank you.

Okay, I'm Joseph Shieh for the company answering your question. For these FX contracts, the exposure so far as we release on -- early March is about TWD4 billion and since the current -- final change today of new Taiwan dollar accelerating appreciation.

So, we expect the exposure on the mark to market maybe getting larger. But the speed of the larger mark to market due to the appreciation in new Taiwan dollar is -- it will be slowing down, because the volatility of the new Taiwan dollar changes from time to time.

So -- but I want to emphasize this is primarily the accounting phenomenon. And on the economical side, we still have -- having accumulated positive cash in flow from counterparties. So far our positive cash flow accumulated is about TWD46 million.

Regarding the cancellation of the contract -- or some settlement with our counterparties, since this is a hedging instruments and we -- since this instrument was issued and they will be trading on the floor, so it will be not easy to settle each contract with any parties.

And also, we believe this is -- this contract has economic (inaudible), but because the accounting exposure, since we economic effect when we entered into the contract. Otherwise we were pursuing the hedge accounting at the first place.

But now, we -- our strategy for this contract is we keep the contracts effective. Then we were closely watching the movement of the exchange rate. When the exchange rate come to a favorable position then we were evaluating the possible action on this. But I want to -- again, this is so far it is simply an accounting phenomenon for the exposure.

Your second question -- your third question is about property management. We are making a strong effort revitalizing our land resources and we have already accrued some income from this source over the last few years.

But, looking forward, since we already form our property management subsidiaries, in January this year, and based on their [budget] plan and we -- I can just roughly give a guess. Looking into the three to five years in the future, at the least TWD22.7 --- TWD2.27 billion -- yes, TWD2.3 billion will be generated from this source at least, because -- I can say this because we sign a contract with a counterparty, and they provide us -- guarantee here for this. And -- but this is just rough measures.

Your last question about capital reduction program, we understand. As the management, we realize that we have a huge amount of capital surplus. We still have room to do the further capital reductions. But since we have to consider all the factor, now we're still in the process of evaluating and then we'll base on the full decisions. Thank you.

Can I just ask a very quick follow-up question? It's for the TWD2.27 billion, is it incremental revenue or incremental earnings? Thank you.

Incremental revenue, because we provided the land to other party. So, they will absorb all the costs and the construction and involve with all the risk. So, we receive TWD2.3 billion then we have the -- subtract our -- then cost it, then they will be our proceeds.

Thank you.

The next question comes from the line of John Kim with Merrill Lynch. Please proceed.

Yes, thank you for the opportunity. I have three quick questions. First, regarding your real estate, I understand that the management intention is to use about 10% of your land for real estate redevelopment purposes. Is there any possibility, over the course of next few years that you'll actually decide to use a greater percentage of your real estate towards redevelopment?

Second question is related to your capital reduction. You just mentioned that you will review the capital reduction policy at your upcoming Board meeting. Could you share with us when your Board meeting is going to be?

And third and last, for your 2008 guidance, could you advise when this will become available? Thank you.

Okay, we will keep our efforts to (inaudible) the [main] resources. So, 10% is -- that means it's that those [10%] can be redeveloped. And once we've found the opportunity permitted or we've found a good common party and all the market condition is appropriate.

And further development is possible, but so far we don't -- to be honest, we don't have aggressive plan on our property development beyond the 10%, but we will fully utilize idle resources.

And capital reductions in the -- again, we're still in evaluating stage and the Board meeting will be April 25 this year.

And the third is the --?

The guidance.

Okay, the guidance for this year will be available towards the end of April, as we did in past few years.

Thanks.

The next question comes from the line of Jimmy Cheong with JPMorgan. Please proceed.

Hello, thank you very much for the call. I just have one question. For us that don't -- aren't based in Taiwan, and with the KMT Pan-Blue now in power, could you help us understand what you think will be any changes to the regulatory landscape? In particular with regards to the appointment of the NCC commissioners and what the regulatory outlook will be for Chunghwa Telecom in 2008 and 2009?

And also, would there be any changes to Chunghwa Telecom management or Board post the KMT victory? Thank you.

Well this is a very good question, but I'm afraid that we are not in position to give you a very specific answer.

We do hope that the economy will be more prosperous in future. And we also hope that the cross trade relationship will improve, so that there would be opportunity for us to explore in much closer following our customers. Many of our customers are now investing in South East Asia and also in Mainland China. So if the cross trade relationship improves, we may have better opportunity to serve our customers better, or even find opportunities there to develop some business. Thank you very much for your question.

Thank you.

Your next question comes from the line of Paul Cheung with Credit Suisse.

Hello, just a question on FX. With the NT dollar likely to be stronger, because of more capital flows, when will you unwind these FX positions? Can you do that as soon as possible?

Since this contract is again is -- yes, the contract is a hedging instrument with economic reason, because we have regularly we have about -- roughly about NTD200 million foreign exchange exposure every year. So, we found this contract can provide and at least that the foreign exchange trade, NTD31.5 or below in New Taiwan dollar against U.S. dollars.

So, since this is -- so far mark to market you see is unrealized regulation notes. Actually we don't have any cash outflow to counterparties. So there's no -- we are in no position to unwind this contract at this moment. And so, so far we don't consider unwinding this contract, because whilst the -- when the -- we see in the next 10 years there are two points we can recoup those mark to market [close] back or equal to cash outflow situations, is when the New Taiwan dollar depreciates up to NTD32.7, or towards the end of the contract, 9.5 years later, then once the contract expires, all the mark to market [close], we go back to the cash flow positions.

So, which means as long as in the future the new Taiwan dollar depreciating, then all the mark to market notes we are gradually proportionately recoup back. So, what we're seeing so far we're seeing it's not appropriate to unwind this contract.

Could you elaborate on the economic reason that you just highlighted, because I don't quite understand, what is the economic reason of having this?

When we entered this contract in September last year and we -- since we have a certain amount of the foreign exchange exposure, because we -- as I mentioned earlier, regularly we have about NTD200 million foreign -- U.S. currency exposure, because we have a capital expenditure need, and also we have installation fee of international cost -- settlement fee of international cost. So, we [tie up] to other foreign telecom operators.

And so, we found in order to fix the foreign exchange cost, because during that time, September last year, the currency rate was about NTD33.06. So, we feel that is pretty [chance], we can over a longer term to fix our foreign exchange cost.

And also in September, if we're using other instruments, which means we use like traditional forward contract, like the DF, NDF, at that time the incremental hedging cost was about 3% annually. That's the rationale behind these transactions.

Okay. I've got other questions regarding your land assets. What's the market value of that?

Now or then?

Now.

The market now, we will disclose our mark to market position every month. When we disclose our unaudited monthly results we will disclose them.

But, look, I'm talking about the land assets. Do you disclose that every month? Land assets, sorry.

No.

Have you done a valuation of those, your existing -- because you talked about development plans and looking at ways to unlock value. So, I'm trying to understand a bit more. First, what's the market value of what you have? Second, what steps are you taking to unlock value? And last but not least, how much of that can you realistically adopt?

The Company, we evaluate our land value in year 2001.

Right.

And according to regulations we do not need to re-evaluate the value for the moment.

But when we enter into agreements with developers, of course, every time we will revalue that particular piece of land. And of course, we would like to bring up the value of land as much as possible to enhance our shareholders' value. So, every time when we encounter.

I'm a shareholder, so I'm curious.

I'm sorry. So, is that clear to you?

Okay. The part -- how much of what you have can be realistically unlocked, half of it or less than that?

Well as our CFO, Dr. Shieh has mentioned about 10% of the land we own are eligible for development. That means there is no need to rezone it, the classification or the category of the land that we own. But since we are not really a real estate company we --

Yes.

Our policy is to gradually develop our land. And actually, it has been said by Dr. Shieh, it really depends also on the market conditions. If it's good --

But are there plans to rezone them?

Pardon me?

Are there trends to rezone them?

Well those 10% has already -- is eligible for development.

Okay, yes.

Because according to -- excuse me.

Yes, sorry. So, beyond the 10% you need to apply?

Yes, beyond the 10% of the land, we need to first get the zoning and then have the chance to develop.

Right. So, are there plans for you to --?

We are working on that. We are working on rezoning as much as possible. And it's in progress. We have some progress on this, yes, because rezoning requires a very tedious reviewing process involving local governments, the stake holders and also central government, the Ministry of Interior Affairs. So, it's a rather long process. And we have already made some progress in certain areas.

Sure. That will be good to know. Keep us posted on which other parts you can rezone.

Yes. Okay. Thank you.

Yes. Thank you very much.

Your next question comes from the line of Kathy Chen with Goldman Sachs. Please proceed.

Hello, thanks for the call. I have four questions. Actually firstly just -- sorry, two more questions on this real estate. Could you tell us what percentage of your land bank is idle? I understand that 10% has been rezoned, but I'm just curious if there's a larger percentage that's actually idle.

And secondly of that 10% of land, how much is located in Taipei? And then how much is outside Taipei?

And the second question is a follow-up on -- for the ForEx contract issue. In terms of the upcoming Board meeting where you'll discuss the capital reduction, can you share with us if there's any thought process that if 2008 we see a large negative impact to your earnings because of this ForEx contract, are you willing to then buffer with a bigger capital reduction size, so that the normal dividend isn't so negatively impacted?

And then the third question is on an update of the employee staff reduction program. I know in the past you have mentioned that potentially this year you could do a smaller size. Can you give us an update on when we can here more about that?

And then last question is, in the prepared remarks you talked about exploring overseas investment opportunities to seek new revenue streams. Could you elaborate what potential opportunities are focused on in terms of what business structure, what type of businesses, etc.?

As our President just mentioned, 10% our land is ready to be developed. And you are talking about the idle land resources. Yes, I think our idle resources are more than 10%. But that does not mean that we can rezone it or we can develop it right away, because we do have the long term plan for the company, and we also have a new (inaudible) coming up.

So, so far, although we may have the some news then, but that does not mean we should sell out right away, because that may not be in the best interest of the shareholders, because you can see the scarcity of the resource in Taiwan and also, can see there the potential inflation in Taiwan, may be keep the land longer maybe the best interest of shareholders. But this is up to -- subject to the [budget] decision and we will -- we are evaluating on this.

And now then on Taipei and how much, sorry I cannot disclose this number to you.

And also, about the foreign exchange contract, I think I mentioned, it's unrealized loss, and also it's once the new (inaudible) are depreciating then there are possible ways, and it's very possible to recoup some or the entire loss.

And, also I want to emphasize that we don't have any similar contract in our balance sheet, and we also promise we won't do in this kind of or any kind of exotic (inaudible) again. We say -- I want to emphasize, as our President just mentioned, we remain our financial policy is very conservative. Actually we didn't deviate from our conservative financial policy.

This foreign exchange contract is simply is we ignore the accounting exposure and we didn't do the hedge economy in the first place. And we will correct this mistake and never happen again.

About the dividend next year, the cash dividend next year we'll base on this year our earning performance.

And you were worried about the foreign exchange growth. And I would say that toward the end of year we really don't know how much, when or how will be the movement of the foreign exchanges. So -- but in the guidance -- in the April guidance we will mention on our -- some view on this. But I want to emphasize our core business is very strong and stable -- very stable, increasing.

And the capital reduction and -- you mentioned the capital reduction whether we offset the possible loss on the mark to markets. And I think now we will keep the capital reduction program evaluating and your concern we also will incorporate into our evaluation. Thank you.

Your third question is related to the employment reduction programs. Yes, I did mention that we were considering a relatively small size of employee -- reduction of head counts. We are working on this. We have not finalized -- cannot take it and what sizing of this problem for this year. We are still working on it.

And your last question is overseas opportunities. We are very prudent in selecting our targets and finding opportunities in this area, because the experience from other peers tells us that we better do.

So, we have not very aggressive programs at this moment and if there is anything more specific I can only mention that maybe we start with small, like a so-called type two service operation in Taiwan. This type of business maybe is the area where we would get started, not aggressive.

Okay, thank you.

Thank you.

Your next question comes from the line of Frank Wang with Morgan Stanley. Please proceed.

Hello, this is (inaudible) from Morgan Stanley. I have got one question here. There is over 9% decline the CapEx in '07. So I wonder, what is the CapEx guidance for '08?

Okay, the CapEx, well, of course, we [will] reduce this along with our guidance at the end of April. But for now, I can give you some reference numbers on CapEx for this year.

In this year CapEx we have being quoted some small percentage for some very -- we believe a variable land acquisition, about TWD2.6 billion for that. So, the CapEx for this year on our core business will be about TWD30 billion, and including that TWD2.6 billion to TWD2.5 billion for the variable land acquisition. So, we forecast that for this year will be something like TWD32.5 billion.

Thank you.

Your next question comes from the line of Elinor Leung with CLSA. Please proceed.

Hello, thank you. I have two questions. The first question is that recently the Government has reject your investment in global mobile as well as their WiMAX project. What is the other options do you have, or were you likely to pursue?

My second question is regarding your property. The 10% land, which you mentioned about, which are ready for redevelopment. Are they exchanges currently? Or are they office buildings? Do you need to apply for any change of land use? Or do you have to pay for any other land premium or you can just develop them right away? Thank you.

Yes, let me answer the first question. The WiMAX, we -- when NCC reviewed our application to participate in the global mobile one -- just global mobile [since you] -- this company, and NCC declined to give us permission. So -- but the company still maintains that if the Government intends to issue the nationwide license for WiMAX, the company would like to participate and apply for such a license.

But for the meantime, the service that will be available with WiMAX is already available from our 3G services. So, we are enhancing our network capability and also, increasing our coverage for 3G, 3.5G network. So, we were encouraging our customers to make use of our existing service. That's a good quality.

For the second question please, our CFO.

Yes, [you're right]. Regarding your property management questions we -- the 10% annual, yes we have both, exchanges and offices. And -- but we need to look at locating those lands in order to get a better (inaudible) payment. And we don't -- most cases in -- which in this 10% group, we don't have to pay then premium.

Okay. You don't need any Government approval for redeveloping the exchanges?

Yes, I think every development in Taiwan need to have a regular application to Government, but no special approval needed for this 10%.

I see. You don't need any approval for change to land use of the exchanges from telecom use to commercial use?

No, as I've said, this 10% land that we have is already not telecom use, not under this category, not under telecom use category. So, it can be developed.

Okay, thank you very much.

But we should not need any change.

Thank you.

Your next question comes from the line of Andrew Clark with [TGEM], please proceed.

Hello, Dr. Shieh, can you hear me? Hello?

Yes.

Okay. I just have a quick question the reports in the Taiwan press about Chunghwa Telecom funds being used in this defense company -- this defense consulting company, [Da Gen]. Were funds from Chunghwa Telecom used to capitalize this company? And if so were they approved by the Board? Or was the Government just basically taking money out of the company without the approval of the Board?

This -- that's impossible Government will take money from the company, because we are a privately run company and our corporate governance I think is considerably excellent in Taiwan, in most Asian countries.

And what is like (inaudible) -- the press -- the media reported a [call button] military consulting cases. I think we were invited by this company and we evaluate in this company, for us, have some strategic implications, because one of our subsidiaries, System Integration Corporation, has -- they get some business from this company.

So, we under our evaluating (inaudible) work and we go -- we went through the normal investment process within Chunghwa Telecom. And we found this investment is not appropriate for parent company, not for us. So, we introduce this [case] to our subsidiaries, the (inaudible) called System Integration and they found doing this business may give profit. So, they decide to invest, and they invest amount is -- I think is TWD30 million.

But as you know this company has been -- is going to liquidate it. So, our interest is not -- won't be hurt.

And also, I want to tell you in our Chunghwa Telecom Group our own investment is following very vigorous the investment guideline and the process. And our internal [can do] is as long as our investment is over TWD300 million you need to get Board approval. Under TWD300 million, we need to get approval from our President and also from our CEO. Thank you.

So, this is the total amount was TWD30 million?

Yes, the total investment amount. Our subsidiary, the invested amount is TWD30 million accounting for 15% of that company.

Okay, so it's a very small -- it was a very small amount?

Yes, very small.

Okay, thank you very much.

Thank you.

If there are no further questions I will turn the call back over to President Lu.

Okay, thank you very much for participating in our conference call. Thank you very much. Good night, bye, bye.

That's all for today's conference call. Replay details will be available on CHT website at www.cht.com.tw/ir. Good day.