Chunghwa Telecom Co Ltd (CHT) 2008 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Chunghwa Telecom conference call for the Company's first quarter 2008 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 it 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, President of Chunghwa Telecom. I would like to thank you all for joining our first quarter 2008 earnings result conference call. On today's call Dr. Shieh our CFO and our Senior Vice President Mr. Chang will go over our financial results and the business operations. Then I will review our near-term strategic outlook. At the end of the presentation we will be happy to take your questions.

Before I hand it over to Dr. Shieh for financial overview, I would like to discuss the capital reduction program for this year. Originally we had hoped to come to a resolution at our April Board meeting. However, as you may know, Taiwan has recently completed its presidential election. So a new administration will officially start on May 20. Given the government is still one of our major shareholders, we expect to initiate the battle with the new administration regarding our capital reduction program.

I want to emphasize again that the management is strongly committed to the capital reduction for the benefit of our shareholders. And we will do our best to communicate with the -- to communicate the importance of this program to the new administration for their support.

Please note our Safe Harbor statement on slide one. Dr. Shieh will now continue with our financial overview. Dr. Shieh, please.

President Lu, before I start formal presentation, I would like to discuss three developments. First, beginning in 2008, Chunghwa Telecom will report our financial results in ROC GAAP only and to provide reconciliation between ROC GAAP and the U.S. GAAP for net income and stockholders' equity. The consolidated financial statements under ROC GAAP will be prepared every quarter. And we plan to publish reconciliation information every quarter in 2008. Please refer to our 6-K document filed on April 25 for details.

Finally I want to provide an update on our derivative contract. As of March 31, 2008, based on the spot exchange rate of TWD30.40 per U.S. dollar, our mark to market unrealized loss was TWD3.08b. Since the inception of this contract, the cumulative cash inflow as of March 31, 2008 was about TWD50m. Please refer to slide 21, the Appendix of this presentation for a sensitivity analysis.

Please turn to slide 22. You may see from the upper table on this page, shows the sensitivity analysis by showing our mark to market unrealized loss for the derivative contract as of March 31, 2008, given the different exchange rate scenarios between the Taiwan and the U.S. dollars.

The lower table shows the sensitivity analysis of the estimated future cash flow, calculated as the sum of all cash payments we must make to or receive over the life of this contract as of March 31, 2008, given the different exchange rate scenario between the Taiwan and the U.S. dollars.

Please be advised that the variation of mark to market unrealized loss fluctuates depending on a spot price [criteria] of exchange rate, interest rate spread, spot price and the residual tenure of the contract.

Now let me start my presentation and financial review based on ROC GAAP for first quarter 2008.

Now turn to slide three showing a simplified income statement. Our total revenues for first quarter 2008 were TWD51b which was 12.1% increase year over year.

EBITDA increased 4.4% to TWD26.1b. Operating profit increased 9.2% to TWD16.4b. And the net income amounted TWD10.7b, representing a decrease of 11.4%.

Growth of the revenue was mainly driven by the consolidation of our subsidiaries such as SENAO and Chief. In addition, our Internet and the Data and the Mobile business all contributed positively.

Operating cost and expense increased primarily due to the consolidation of our subsidiaries. The increase of cost and expense from parent company is relatively small as compared to the impact from subsidiaries.

While operating profit grew 9.2%, our net income decreased 11.4% in first quarter 2008 year over year due to the mark to market unrealized loss on the foreign derivative contract.

As shown on slide four, total operating cost and expenses for first quarter 2008 was TWD34.5b, increasing 13.6% (sic -- see presentation) when compared to first quarter 2007. As I mentioned in a previous slide, the increase was mainly from our subsidiaries.

For parent company total operating costs and expenses increased by TWD4.42b, representing year over year increase of 1.4%. The increase was primarily attributed from the increase of maintenance fee expense of telecom material interconnection fee.

On slide five we showed the revenue performance for each individual business segment in first quarter 2008. 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 matured, we still managed 0.3% revenue growth year over year.

In the Fixed Line business, local and domestic long distance revenues decreased by 1.3% and 4.4% respectively year over year mainly due to mobile substitution.

International long distance revenues increased by 6.4% compared to first quarter 2007 mainly due to the increase in wholesale revenues and international settlement income.

Other revenue increased 643% from the consolidation of SENAO.

Slide six shows our cash flow performance. Our cash flow from operating activities increased 19.5% to TWD18.6b. The increase of it was primarily because of the increase in accounts payable.

Free cash flow for first quarter 2008 increased 20.2% when compared with first quarter 2007 as the increase of CapEx was smaller than the increase in cash flow from operating activities.

Next on slide seven, CapEx for first quarter 2008 was TWD5.5b, an increase of 17.5% year over year. This was mainly due to an increase in other spending of TWD1.2b for land purchase of state-owned land where one of our outlets is located.

Going forward, our CapEx may increase due to investments focused on our core business and our effort to migrate mobile and the data customers to higher revenue platforms including 3G, 3.5G systems, IP-based NGN, FTTx and xDSL.

Slide eight shows our forecast for 2008. Please be advised that this forecast is only for Chunghwa Telecom, the parent company. Revenues for 2008 are forecasted to be TWD185b, an 0.7% decrease year over year as compared with our 2007 revenues, mainly due to the tariff reduction of mobile and the ADSL services regulated by NCC and the projection that alternative VoIP service providers will start a business this year.

Operating cost and expense is estimated to be TWD128.2b, increasing by 2.3% year over year. Although our personnel expense and D&A are expected to decrease, we project that our marketing expense, commission for agencies, outsourced expense and professional service expense will increase. Furthermore our forecast includes mark to market loss of the derivative contract which is estimated according to the amount as of March 31, 2008.

This completes my financial presentation. I will hand it over to Mr. Chang for our business overview.

Thank you Dr. Shieh. Now let us move on to business operational details.

On slide 10 you can see the Chunghwa Telecom's total revenue for first quarter 2008 was TWD51b of which 28.3% came from Fixed Line, 35.6% from Mobile, 24.6% from Internet and Data Service and 11.5% from Other, which includes the new revenue stream of handset sales as we consolidated SENAO.

Revenue from handset sales, including handset sales from SENAO and Chunghwa, accounted for 9.1% of our total revenue. As a result, revenue for the Fixed Line, Mobile and the Internet and Data as a percentage of our total revenues decreased due to the new revenue stream.

Chunghwa has a commanding market position for all of our business segments. As of the end of first quarter 2008 we had 8.7m mobile subscribers, representing 35.7% of the market.

On Internet and Data Service our estimated market share was 68.2% (sic. see presentation). And our broadband subscribers accounted for 68.8% (sic -- see presentation) of the market.

On Fixed Line side, our local call subscriber market share was 97.4%. And the market share for our domestic and international long distance calls in terms of minutes were 87.5% and 60.5% respectively.

Next on slide 11, our broadband subscriber number continues to increase. Among the 4.28m broadband subscribers as of first quarter 2008, 70% of them use services with speeds higher than two megabits per second. Total broadband access revenue was approximately TWD5.1b, which was 2.3% higher than that for the year before. We expect the growing trend of the Broadband business to continue.

Now as shown on slide 12, some of our initiatives for the Broadband business is to migrate our customer to higher access speed and to continue to increase our fiber coverage by deploying fiber networks in residential buildings, campuses and commercial buildings, allowing more opportunity to access and adopt a variety of Internet value added service.

These initiatives have demonstrated a satisfactory progress. As you can see on left side of this slide, the average bandwidth per user continued to increase over the last few years and has reached 3.7 megabits as of the first quarter 2008.

In addition, about 1.3m broadband subscribers utilize a service speed of at least eight megabits per second, representing about 30% of our total broadband subscribers. The number of fiber subscribers also shows strong growth with 635,000 subscribers at the end of first quarter 2008.

In addition, I would like to emphasize that the 15,800 plus buildings fiber access service we offer represents about 90.4% market share.

Going forward we expect this growing trend for our Broadband business to continue.

Chunghwa Telecom has maintained its number one mobile market share position as shown on slide 13. At the end of first quarter 2008 we had 8.67m (sic -- see presentation) Mobile subscribers, including 2.6m 3G customers. The number of 3G subscribers as a percentage of the total mobile subscriber base continued to increase during last year.

During the past year we were encouraged by our Mobile value added growth -- service growth, primarily due to our exclusive Mobile value added service platform emome. Among these services, total value added services and the mobile Internet exhibited 35.3% and 54.7% year over year growth respectively. As a result data revenue as a percentage of mobile revenue increased to 9.5% at the first quarter 2008.

Moving to slide 14, I want to provide some more details on our 3G initiative for our Mobile business. We had 2.6m 3G subscribers at the end of first quarter 2008 of which 63% utilized 3G handsets. 3G ARPU was 61% higher than 2G ARPU primarily as a result of our innovative 3G strategy for customized handsets and the promotions of mobile office services. We offer a customized 3G handset CHT3000 since January 24 this year targeting students and the price sensitive customer. There are more than 23,000 users now.

Price-less roaming is a new value added service we provide to corporate customers who travel across strait or abroad. By subscribing this service customers could receive international calls and send messages without roaming payment.

As a whole, our 3G mobile data usage increased 249% year over year, demonstrating the efficacy of our strategy.

Next on slide 15 for our Fixed Line businesses. Our international calling card traffic increased year over year in first quarter 2008. For the whole year, the number of minutes increased by 3.2% as compared to first quarter 2007. For the past several years we had a stable market share for local, DLD and ILD businesses. As the incumbent, we were successful at defending our fixed line market share and are confident that our strong market position will continue in the future.

Moving to slide 16, let me update you on some of our progress in meeting customer demand for convergence services. First, we are continuing our effort in constructing a user-friendly platform and enriching the content. This platform includes MOD for IPTV, emome for mobile service and hiChannel for ISD service.

At the end of first quarter 2008, there were about 435,000 IPTV subscribers, a growth of 10% as compared to that at the end of 2007.

Currently we have 57 IPTV channels where MOD service will provide the movie titles from major Hollywood studios, games from Major League Baseball and so forth. Movie titles we publish per month are over 5,000 hours.

In addition, we contracted with the largest animation content provider in Taiwan, My Cartoon, and expect their participation could enrich our content. Furthermore we are focusing on promoting sports programs including Olympic Games and MLB over these three platforms.

We will also keep enhancing content of other VOD and providing interactive value added services such as games, karaoke and exclusive services for corporate customers.

To provide high quality services, HDTV programs will be available for Beijing Olympic Games, documentary, drama and sports.

This completes my business review. Now I'll pass to Dr. Lu for our business strategy.

Okay. Thank you Mr. Chang. Next I want to take a few minutes to discuss our business strategy. On slide 18 let me highlight the key aspects of our near-term strategy. First our strategy for core businesses is as firm as before, including migration of our high end broadband customers onto fiber network, encouraging usage of mobile Internet, construction of NGN and conducting cross-platform service operation.

On top of NGN we would provide remote video monitoring service, (inaudible) field communications and some of the telemetric services to make the best use of these IP-based features. Second we would continue to explore opportunities for M&A and strategic alliances.

Third we will monitor our CapEx and expenses carefully for better cost control.

Fourth, as shown on slide 19, as a member of the society we want to devote ourselves to enhance efficiency for utilizing energy such as gasoline, electric power and papers.

Finally, we remain fully committed to maximizing value for our shareholders through capital management, cash investment and property development.

As for property, we will develop our land to create asset value through rezoning as well as reviewing the status of our switch offices in order to set some of them aside for future development. However, the process should be gradual, hence revenue contribution from the property side is estimated to be minimum as compared to our core business in the next three years.

Now I would like to further disclose the status of our land corresponding to our subsidiary. Please refer to our appendix on slide 23 and 24. Please turn to slide 23.

Our 100% owned property subsidiary was established in February this year. Basically lands transferred to subsidiary are mainly zoned for residential purpose and are to be sold out upon construction finished. As for those lands zoned for commercial purpose will be remained Chunghwa owned and be leased upon construction finished. In the meantime we are continually reviewing our real estate utilization to set aside for future development or lease. Additionally, we expect to get some of our lands rezoned in compliance with urban planning of individual local government.

On slide 24 the upper table shows our total land and building properties for your reference. Currently we have 410 hectares, or 4.1m square meters of lands, of which book value is around TWD110b as of the first quarter of 2001. In addition, we have 1,764 buildings, commanding about 3.98m square meters and book value is around TWD40b.

The lower table illustrates the land and properties that we have transferred to our subsidiary, LEDC. In the first batch we transferred five properties in February including three in Taipei City, one in Taipei County and one in central Taiwan. Total dimension for these five properties is about 15,500 square meters.

And for the second batch we transferred another property in Taipei City in mid-April of which the dimension is about 900 square meters.

For three of the five properties we transferred to the subsidiary in the first batch we have already selected two developers for co-development to build residential buildings. We are still exploring alternatives to cooperate with other developers for the rest of the properties.

These aforementioned six pieces of land we expect to book about TWD5b of revenue in three years depending on the date of the individual projects finished. That concludes our presentation. We are now happy to take your questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Shirley Tse with UBS. Please proceed.

Hi. Thanks very much for the call. I want to -- my first question is relating to your forecast. Having achieved around 27% of your full year target in EBITDA and 25% revenue at the parent level, what are the areas in terms of operating costs that you believe in the second half and also in the second quarter that will be weighing this down, given this relatively good result in the first quarter?

And secondly, I was wondering if you would also look into moving your service centers that are located in the prime locations within Taipei City as well in terms of developing for land value rather than just focusing on the switch offices.

And thirdly, you mentioned that most of the lands have been zoned for residential purposes. Is that still relating to the 10% that you quoted previously?

Your first question is about our guidance this year, right? And for the second half this year I think we're still enjoying the human resources reduction since we have the early retirement program in the previous three years. And we still enjoy the benefit of that. So this is about your -- you talked about the cost and the increase.

Can you ask again your second question?

Further -- as a follow up to your answer just now, so given that you've already achieved 27% of EBITDA in the first quarter, do you think that your guidance could be slightly on the conservative side?

Let me try to answer your question. The cost for this year because of certain changes in accounting, the ERP expense for this year we budgeted about TWD0.5b and for employee benefits about TWD1.2b. These items used to be in the other expenses, not included in the operating expense. Now included in the operating expense.

And also this year, starting this year, the distribution of dividend to employees used to be -- the distribution of dividend, but starting from this year it's going to be expensed. So that amounts to about TWD1.4b. So all this will add up additional cost for this year. That's part of the reason that the EBITDA is slightly less than what it used to be.

If we add this back then it would be about the same as previous year. Okay?

Your second question, related to the property development and your question is, are we focusing on Taipei City -- please?

Sure. I noticed you have a lot of service centers within the Taipei City area in some of the prime locations. I was wondering if you would also consider relocating some of these service centers, so -- and then re-zone these areas for redevelopment, in addition to just developing -- just focusing mainly on the switch offices.

Well the Company remains focused on our core business. So service is very -- service centers are very important for us to communicate or to interact with our customers. So we actually -- we are expanding our service locations so that we will be better -- get in touch with our customers. One area for us is to find locations for ourselves, or through our subsidiaries to acquire better locations to serve our customers.

So we are not eliminating our service centers and try to develop the land for that purpose. Instead, actually we are building our next generation network and consolidate many of our network elements. So this will give us opportunities to maybe set aside some locations or some buildings for other use. That may help to create some value here.

Sure.

And your third question is, please? That's included, yes. The distinction -- you mentioned those are included in what we discussed before, in that 10% of the -- that ends up can be developed.

And how long will it take for this 10% land to be injected into your property subsidiary?

Well as I said in the presentation, this process is to be gradual and we presented that, of course, this project already been transferred to our subsidiary. In three years, if everything goes according to the schedule, maybe we will finish this portion. And for the rest, we will review and gradually transfer to the subsidiary for development, if we don't have a definite timetable for each piece of land. But we will review that from time to time.

Okay. Thanks very much.

Okay, thank you.

Your next question comes from the line of [Seloney Hu] with Lehman Brothers. Please proceed. Hello. Your line is open, Seloney. Please proceed.

Hello. Hello.

Yes, please.

Yes, this actually Danny Chu from Lehman Brothers. Just got three quick questions. First, a follow-up on the property development. So in terms of a guidance we expect year 2010 is the first year that you'll start to record revenue from all these residential property development projects? Is it year 2010?

And then the second question is first, thank you for clarifying in terms of the management commitment to -- in terms of a capital reduction plan. But can I check is when is the next Board of Directors meeting date given that, I believe your AGM day is June 19. So if the next Board of Director meetings couldn't reach a decision on capital reduction, then I should expect that probably we have to wait till after the AGM and other Board of Director meetings, and then an AGM will be held to approve the capital reductions, so more clarification on that particular issue will be greatly appreciated.

And then the final question is can you elaborate a little bit more on overseas expansion plans? Should we expect Chunghwa to announce any major overseas expansion plan this year in 2008 or the Company is still evaluating all different possibilities at this point in time? Thank you.

I think to start from the year 2011 we will start recurring the proceeds from our land development we transferred to the subsidiaries. Yes, start from 2011 year. And we estimated for those six projects that we transferred to subsidiary, start from, as I mentioned, 2011, we are about TWD5b.

Our next Board of Directors meeting would be in June -- late June after the AGM. And for the capital reduction, as I said earlier, the first item I mentioned during the presentation, the management is strongly committed to improve our capital structure and the shareholders' value. And we will continue [pal] up with the new administration.

And since probably you are already aware, that the new Minister for MOTC is Dr. Mao. He used to be our Chairman during year 2000 and early 2003. He is the Chairman who set value proposition for this Company to be value accretive for shareholders, for employees and also for customers. So I believe it is highly likely that he is supportive of such initiatives to improve our capital management -- to improve our capital and programs like this. We believe he's highly likely to support this. But it's the timing. And when we have more clear information on this, we will let you know.

And your third question is related to the oversea activities. The Company always views oversea expansion as an opportunity. But we are very prudent in assessing the opportunity. We will start with more projects and to find -- actually, to learn some experience, operating in other countries, so other than one more specific investments. We won't know this in a few days. We do not have any specific targets at this moment.

With regards to your last statement, so we should expect the Company to make some announcement in the next few days, when you say the Company will know about specific investment in the next few days?

It's a very small joint venture okay and we expect to have announcement in a couple weeks.

Thank you.

Okay. Thank you.

Your next question comes from the line of Anand Ramachandran from Citigroup. Please proceed.

Yes, hi. Good evening. Thank you so much for the call. I had three questions. Firstly, on dividends of 2007 earnings. I was reading press reports about TWD4.26 in cash dividends and then a transfer of capital surplus of 10%, followed by usual capital reduction like you did last year. Now I haven't been able to find a confirmation there. Could I bother you to just confirm that or talk about what your dividends will be for 2007 earnings?

Secondly, you mentioned on your call that you look to engage with the new administration effective May, on what to do about further capital management strategy that again complements on your commitment. My question is more on time. If you're starting the dialogue in May, would it probably be realistic to assume that implementation is probably more a 2009 game plan, rather than something that can be done in 2008?

My third question would be on the land bank. Mr. Shieh, you mentioned TWD5b in revenues. Now does this arise from what you mentioned in the lands transferred to LEDC, i.e., about 15,500 square meters all of land, which is what you assume will result in the TWD5b in revenues?

And secondly, by 2010 or 201l, what do you anticipate LEDC's land bank as being? Do you anticipate it as being the same or is it going to be four times this or five times this? Thanks.

Yes, about our dividend policy, we still pay high dividend payout ratio to our shareholder. And the dividend for this year is, as we formally announced in our April Board meeting is TWD$4.36 per share. And we think that TWD4.26 is cash dividend and TWD0.1 is stock dividend. So that the payout ratio is still pretty high I think. It's close to 90% payout ratio. The payout ratio is about 85 point something, close to 86% because we set aside 4% for our employees.

And on the -- your second question is related to timing for our capital management. And I'm sorry I cannot be more specific than what I just have said. And actually, we do need consensus support from the new administration. So we will let you know, as far as the timing is concerned.

And your third question is related to the TWD5b I said -- I mentioned about for the land development. More so from the six pieces of land we have already transferred to the subsidiary. And that will be -- the process will be in our book around 2011.

So should we expect that no more land will be transferred to the subsidiary till 2011 or is it a continuous process?

Well as I said, in answering previous questions, that the Company will review the then availability of land for transferring to LEDC from time to time. So we are not limiting ourselves for three years, only the six pieces of land. No, not a limitation okay. Not a constraint.

Okay then. As a quick follow-up, last year we saw a stock dividend, a business stock dividend, followed by a capital reduction. A 10% limit transfer obviously comes with -- you don't need any regulatory approvals for that. Should we expect you to follow through with the same process this year?

Well as we have discussed earlier, that the Company is very much concerned about the cap -- 10% cap for transferring capital surplus to capital. And the regulation has been [dictated]. And so we more pleased now to set, if possible, higher percentage of transferring from capital surplus to capital.

Okay. And last question is what is the logic in the TWD0.10 stock dividend? Was there a particular reason for that? I apologize for my continuously asking so many questions.

Anand, this is [Lulu]. Basically, this is transfer from the earnings. So this is going to distribute to shareholders. And if we -- so this is not for the -- related to the capital reduction like what we did for last year.

Yes. I was just trying to ask the -- is there a reason which I'm missing behind the stock dividend of TWD0.10 per share?

You see, according to Taiwan's regulation, every time we want -- the Company want to distribute a stock dividend to our employees, we have to distribute to the shareholders, as well. (Multiple speakers).

Understood. Thank you so much for your time. Thank you.

You're welcome.

Thank you.

Your next question comes from the line of Squala Wan with Morgan Stanley. Please proceed.

Hi. This is Squala Wan from Morgan Stanley. I just have one question. So you just highlighted the possibility of a further capital reduction in this year. Just wondering if there are any potential signs of the capital reduction in mind?

Well we will communicate it with our shareholders. And million shareholders and decide on the size of the project. We have no -- I cannot give you more specific than this. Okay? Thank you.

Thank you.

Your next question is from the line of John Kim with Merrill Lynch. Please proceed.

Yes. Thank you very much for the call. I have two questions. The first pertains to your land. Do you expect the focus of your land redevelopment to be more residential? And if you have any views on whether the value of your property redevelopment project will fluctuate depending on the mix of residential versus commercial that will be great?

And second is on your MOD service. I understand that you're making a lot of enhancements to your MOD service. What kind of ARPU expectations do you have, and as well as for revenues for this business by the year-end?

And if you can also share with us what is the coverage ratio as percentage of your broadband subscribers currently who are able to receive your MOD service, I would appreciate it. Thank you very much.

Yes. For the land development, I think that we always have our strategy. For last residential project, we were developing and cooperating with outside major contractor. And for last residential project, we will be starting out to the buyer. But for the commercial project, we will be leasing to the company and also cooperation in the individual to get rental [payments] and keeping the ownership for those commercial lands. And for looking forward, I think probably for those developing projects, probably more than 70% will be on residential versus commercials. Thank you.

Okay. On our MOD operation, yes, we have enhanced the quality of our video greatly and also enriched the contents. With the approval of our basic rates, TWD89 per month, our ARPU currently has been around TWD100. And we believe this is the beginning of our -- early stage of our service introduction. And with more content available we would like to see higher ARPU in the near -- in the future. As to the coverage, we -- about 15% of the customers, our broadband customers can have the service. And since the Company also started offering HD transmission, HD quality -- high definition quality, these are the customers who have fiber to the X solution. And the picture quality is fantastic. If you are in Taipei, we will show you.

Thank you.

Okay? Thank you.

Your next question is from the line of Henry Cobbe with Nevsky. Please proceed.

Hi there. Thanks very much for the call. Just a couple of questions. You mentioned the changes in accounting treatment of the employee benefit TWD1.2b and the TWD1.4b bonus expense that used to be a dividend distribution. So could you confirm that on a -- the operating profit level -- the net profit level, there's actually no difference in the economic basis between your previous and your current reporting methodology.

And secondly, you stated the property division would have income of some TWD5b over three years. Is that TWD5b per annum over three years or TWD5b in total over three years, or TWD5b in three years' time? Thank you.

Yes, that will be the TWD5b over three years' time for the property development. And (multiple speakers).

TWD5b per annum in three years' time?

Not per annum. No, it's the total.

The total, yes.

Dr. Joseph Shieh The total for the six pieces of land that we have transferred. Not TWD5b per annum. That's not. Okay? So it's TWD5b total. Yes.

Okay, thank you.

And the accounting treatment different from shipment, that is for the operating -- to report the operating results. And for this year, please, you should be aware of the potential mark to market loss -- unrealized loss. That still hinge upon us.

And for this forecast we present today, in this forecast we take the mark to market loss as of March 31 of this year as reference, because the fluctuations and also the dynamics in the financial markets will change numbers. So to be safe, the best we can do today is to take the March 31 number for reference.

Okay. So in the forecast, do you exclude or include the derivatives loss?

In the forecast -- the net income includes the mark to market loss -- unrealized loss of about TWD3b. Okay?

Okay. So you take the loss as at end of March and annualize it to TWD3b per annum and use that in your forecast?

Yes.

I see. Okay. And could you just confirm the accounting change about the employee benefit and the bonus? There is actually no impact in the -- on the economic set. These are the same numbers as last year but was reported differently.

You see, the number, actually, we treat it for the employee bonus, 3.5% of the net income, so it should be the same. As for the -- yes, I think that's the same -- same number -- the same percentage. I would say that, because you know our net income is about the same level, so what you risk. So I would say the same number.

Okay. And what is your target headcount for the -- by the end of this year?

We do not have -- headcount? Excuse me. Are you asking about the headcount reduction or --

Both. I'm asking about how many -- what is the headcount reduction and what is the total number of employees by the end of the year?

Okay. The -- we are still investigating our human resources distribution and our productivity. As of today, we do not have a specific number to report to you about headcount reduction, since this is a very intensive work that we are undertaking. When we finish this project, we will be able to identify the redundancies and maybe to conduct a further early retirement program.

Okay. And could you repeat just what was the TWD25b expense? What did that relate to? Was it early retirement or personnel?

That -- the -- well in our budget, we set a TWD0.5b for possible expense for early retirement program. So if we -- after the assessment, maybe we still have the second half to see if early retirement program will be conducted.

And so that number was TWD25b?

No, no. TWD0.5b. TWD0.4b, TWD0.5b -- TWD500m, okay?

Okay. So I'm going deaf. Okay.

Yes, I'm sorry. I probably confused you. Those are big number to you. No, no, no. It's only TWD400m to TWD500m.

Okay.

Okay. I'm sorry.

Thank you very much, indeed. Thank you.

Okay, thank you.

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

Hi. I have four questions. Firstly, can you provide any guidance for the 2008 figures on a total consolidated basis in terms of total revenue and consolidated EBITDA margin?

Secondly, can I check what is the maximum dividend payout possible in 2008, given that we had the share buyback cancellations happen in the first quarter? So the payout should be a little bit lower than the usual maximum.

Third question is on the regulation side. Could you share any updates on expectations of any regulatory impact, given the new NCC will be coming in? And I think there's been some changes on the new Convergence Tax.

And then lastly, again on the land issue, do you have any guidance on how much land can be freed up over the next five years with the next generation network? Or another way to put it, how much of the switches can be reduced? Thanks.

Well the guidance, the forecast we offer is for the parent company only. And we do not have consolidated numbers for you. If you really want to I can only give you a reference for the consolidated revenue. Roughly, maybe TWD204b or TWD205b altogether. Okay? And this is the number that's available to me, just for reference. Okay? Just for your reference.

Okay. (Multiple speakers).

And --

Do you have a rough margin guidance?

No. Not -- no margin guidance for the consolidated numbers. Okay?

Okay.

Sorry. About the payout -- dividend payout ratio, since we undertook the buyback, share treasury buyback last year and last year had been cancelled in the beginning of this year. So this buyback effect will affect next year dividend payout, not this year. But that will only affect slightly. Thank you.

And your third question is related to the regulatory, the new NCC. Well my understanding of the issue is probably the same as you, too. And I don't have any information about who will be the new commissioners. And so it's very difficult for me to give any sensible answer to this question. So we will see. If the new commissioners are nominated and approved by the FPN. So we will be in a better position to understand the attitude or the policy directions of the new NCC.

And your last question is about the land. Well an earlier question is whether we would transfer more land to our subsidiary for development. And from our previous discussion, we said we have about 10% of the land available for development and currently only six pieces have been transferred. So there are still rooms for us to identify certain properties and transfer to the subsidiary for development. So this will take a while for -- the subsidiary to be very busy. So whether we are able to find new places as we move, deploying our NGN. Certainly, if space can be so arranged that we -- a new buildings or new space available for development, we will do so, yes.

Okay. Actually I --

So I --

Sorry. Could I just ask one more question on the land being done? Of that 10%, can you disclose how much of that is in Taipei?

The Taipei area accounts for about 20% of our total land. And of course, the value is higher in this area. So in addition to that I can give a number, you might be appreciate to me. For this 10% land available for development and 50% of this 10% is located in the metropolitan area, including Taipei and Taipei County, Taoyuan, [Taichung] and [Kaohsiung] City.

Okay. That's very helpful. Thank you.

Thank you.

Your next question comes from the line of Ken Goh with GIC. Please proceed.

Hi. Thanks for the call. Just a couple of questions on your broadband. I think in your presentation you quote a 3.7 megabit per second average bandwidth at the end of March '08 per broadband subscriber. Where would you hope that to move by the end of this year?

And the second question is again, on the same slide I think you quote about 30% of your total sub-base has access to speeds of over 8 megabits per second. Again, where would you expect that percentage to move to by the end of this year?

This is a very good question. I --

I'm just trying to get a handle on the broadband subs who will be available to pick up.

Yes. We are migrating our customers from lower speed to higher speed and we continue to do so. And also to promote more MOD subscribers we are migrating our broadband users from ADSL to fiber. So the bandwidth certainly will be greatly enhanced as time goes along. Well in our -- by the end of this year, our target for the fiber subscribers, FTTx subscribers will be about 1m. Total will be 1m. And so towards the end of this year, maybe average more than above 5 megabits per second, yes, just for your reference -- above 5 megabits per second. All right?

And your second question is more detailed. And excuse me. You're asking the 30% above 8 megabits per second and what's that at the end of the year?

Yes, on the same slide you quoted a figure of, I think, 1.3m subs (multiple speakers).

Well the fiber solution will be higher than 8 megabits per second, so for those customers -- I said 1m. So we can calculate from here, the percentage of subscribers to be better than 8 megabits per second.

All right. Thank you.

We will get back to you on these very detailed numbers. Okay?

Okay. Thanks (inaudible).

Okay. Thank you.

And your last question comes from the line of Mitchell Kim with Morgan Stanley. Please proceed.

Okay. Thank you for this opportunity. I have three, I think, quick questions. First is on your impact of your 3G subscribers. I'm looking at your number of 3G subscribers. It looks like in first quarter, relative -- this year, relative to last year, you have about twice as many 3G subscribers. And on your slide you're saying that you're seeing about 61% ARPU growth. Yet your mobile revenue is pretty flat. So I'm just wondering, how should I be reading this? And then why are we not seeing this in revenue growth?

My second question is on your broadband. I was just wondering what kind of churn trends you're seeing on your broadband and whether you could share with us what kind of churn you're seeing for those that are taking bundling services, whether it's double play or triple play.

And my last question is on IPTV. You've been providing IPTV for some time. And I was just wondering what kind of margins you're getting on IPTV, both EBITDA and operating profit, if possible.

Okay. Let me answer the last question first, backward. As I said, our MOD IPTV operation is still at the early stage, and because of the competition. Cable is very well penetrated in Taiwan. And so we are catching up with cable service. And also, we are trying to be a differentiator with service. So it's still very early for us to report on the margins for this business because we would like to see ARPU getting better and also number of subscribers getting better. And with all this, the content will be much, much richer than what we have already been able to offer. So it's changing like this okay?

And the broadband churn rate is very, very low for Chunghwa Telecom. Our competition is from cable and other fixed-line operators. In broadband access, we have about -- nearly 85% of the market share. The churn rate is about 1% or less than 1% per month.

Your first question is the mobile operation. The mobile operation let me first say that the Taiwan mobile market is mature and saturated. Out of the three major operators, we have growth in revenue and also in subscriber numbers. I do need to find some analysis on the issue you raised. The ARPU seems to be better for 3G, much better -- 51% higher, and why our revenue has not increased in proportion. (Inaudible), you have -- would you like to supplement this or we could get back to you after some analysis.

Actually, because I don't have any [dedicated] figures now, but in essence it's primarily because the competition is very tough here, though. So we provide a lot of new packages to absorb the customers. So every new package is cheaper than before. So I think that's a problem.

Okay. We will get back to you with your question. Okay? (Multiple speakers) ARPU, number of subscribers and revenue.

Okay, yes. I just wanted to understand why -- it looks like number-wise, it should show growth. But I'm just wondering whether I'm reading this correctly.

And then just to -- on the first question, again. So are you saying that you are seeing -- you are break-even on IPTV or can you share that with us?

Well you know, our estimate for break-even in IPTV operation is something like 2.5 -- about 2m subscribers and also ARPU at around 300.

Okay. That's helpful. Thank you.

Yes. ARPU of about 240. Okay?

240? Okay. That's great. Thank you.

And the -- well [Lulu] will supplement on the 3G operation and the mobile.

Yes. You mentioned about why the subscriber number of 3G actually doubled from last year, but the overall revenue doesn't really look much better. I think because when you look at the presentation here, the slide here, even the 3G subscriber -- the 3G ARPU is much higher than 2G. But if you look monthly -- month over month number, you will see that the -- actually the 3G ARPU actually declined month over month. So is the 2G. So I think that's probably -- explains answer to your question.

That means -- this slide only gives us partial information. It's relative, from 2G to 3G ARPU. But in consolidated revenue, on the top line, we -- ARPU compare the previous -- ARPU the previous month.

I see. We'll follow up with you later then. Thank you.

Okay. Thank you.

As there are no further questions, I will turn it back over to President Lu for closing remarks.

Okay. Thank you very much for your question and participating in this conference call. Thank you so much. Goodnight.

Thank you, President Lu. That's all for today's conference call. Replay details will be available on the CHT website at http://www.cht.com.tw/ir. Again, thank you for your participation in today's conference. And have a great day. You may now disconnect.