Chunghwa Telecom Co Ltd (CHT) 2008 Q3 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Chunghwa Telecom conference call for the Company's third 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 answer session.

Now I would like to turn over to Fu-fu Shen, Director of Investor Relations. Please proceed.

Thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa. Welcome to our third quarter 2008 results conference call. Today, we have Dr. Lu, our Chairman and CEO and, Dr. Shieh, our CFO on the call. Dr. Shieh will review our financial results and the business operations, and Dr. Lu will review our business outlook. At the end of the presentation, we will be happy to take your questions.

Now I would like to turn the call over to Dr. Lu, our Chairman and CEO.

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our third quarter 2008 earnings results conference call. First, please note our Safe Harbor statement on slide one.

I would like to report that the foreign exchange derivative contract that we entered into with Goldman Sachs in September 2007 expired on October 21, 2008, when the NT dollar versus US dollar exchange rates hit TWD32.7 in accordance with the contract terms. As a result, all previously incurred mark-to-market unrealized losses under the contract will be fully written back at the end of October, including recognized losses of [TWD580m] in 2007.

In addition, we will have a non-operational gain resulting from the net profit from the contract, due to the cumulative TWD30m cash inflow from all settlements that occurred since the purchase of the contract.

Furthermore, you may be aware that we offered an early retirement program in September. There were 160 employees participated in the program and will leave the Company on November 1, 2008. Despite the ERP compensation of TWD170m to be recognized in the fourth quarter, we will benefit from the savings of their two months' salary for November and December this year.

I would like also to update you on our capital reduction program. At the extraordinary shareholders' meeting on August 14, two resolutions were approved by our shareholders. One is to increase the Company's capital stock by 20% from our capital surplus. The other is to subsequently reduce the capital stock by the same amount.

The capital increase took place in September. With the capital reduction a trading suspension is expected to happen between the end of February and early March, 2009, just before the cash payment date.

In the future our capital management priorities will continue to be, first, investments in our core business, which has always been our primary focus, second, M&A opportunities synergistic to our overall growth trends. Our third priority is to return cash to shareholders via capital reduction or share repurchase.

The current financial crisis has impacted the global economy, especially in The States. Based on our current outlook, given that telecommunication is a utility-like service, and our dominant leadership in Taiwan, the impact on us will be relatively small. As a result, currently we are still confident that we should be able to achieve our annual guidance which we set out earlier in 2008.

Dr. Shieh will now continue with our financial and business review. Dr. Shieh, please go ahead.

Thank you, Chairman Lu, and thank you all for joining us. Please turn to slide four, showing income statement highlights on a consolidated basis.

Our total revenue for the nine months 2008 was TWD151.9b, a 3% increase year over year. EBITDA decreased by 2.7% to TWD75.6b. Operating profit decreased by 1.9% to TWD46.9b. And the net income amounted to TWD36.5b, representing a decrease of 3.3%.

While our Internet and Data business were positive contribution, 2008 year-to-date revenue growth was mainly driven by the inclusion of our subsidiary Senao for the full nine months' period, as only 5.5 months of Senao operation's results were included in our consolidated financials for the first nine months of 2007 last year.

The EBITDA and the net margin declines can also be primarily attributed to the consolidation of Senao, which operates at a lower margin than the parent Company.

On slide four we show third quarter 2008 figures. Revenues decreased by 1.5% year over year. EBITDA decreased by 12.4%. Operating profit decreased by 16.6%, mainly due to increased marketing and the personnel expenses from parent Company and Senao's cost on a consolidated basis.

And shown on slide five, total operating costs and expenses for the first nine months of 2008 were TWD104.9b, an increase of 5.3% when compared to the first nine months of 2007. The increase was mainly attributable to the consolidation of our subsidiaries, especially Senao.

For the parent Company total operating costs and expenses increased by TWD1.5b, representing a year-over-year increase of 1.6%. This was primarily coming from an increase in handset sales cost and the handset subsidy.

For the third quarter of 2008 total operating costs and expenses increased by 6.2%, mainly due to the same reason aforementioned for the nine months' result.

On slide six we show the revenue performance for each individual business segment in the first nine months of 2008. Internet and Data revenue continued to increase due to increased Broadband subscriber numbers and the successful initiatives to upgrade customers to higher speed ADSL and FTTx services.

On our Mobile business we had progress on our subscriber number -- Data, sorry. We reported a 2.5% increase in subscriber numbers and a 26.8% higher value-added service revenue compared to that at the end of September last year. However, this was offset by the traffic decline and the price cuts imposed by the National Communication Commission, leading to a 2% revenue decrease year over year.

In the Fixed Line business local and domestic long-distance revenues decreased by 2.9% and 6.5% respectively year over year, for the first nine months of 2008, mainly due to Mobile and the VoIP substitution. International long-distance revenues decreased by 4.2% compared to the same period in 2007. This was mainly due to the increased competition from calling cards and the decrease in settlement income resulting from the fluctuation of foreign exchange rates. However, the decline was mitigated in September.

Other revenue increased by 60.57% (sic -- see presentation), mostly from the consolidation of our subsidiary, Senao.

For the third quarter 2008 Internet revenue was 0.3% lower year over year because of revenue reclassification and the tariff reduction. Data revenues increased by 2.5%. Mobile revenue decreased by 3.4%, mainly due to the price cuts imposed by the NCC and the promotional packages. Fixed Line revenue as a whole decreased by 5.1%, as compared to the same period last year.

Please turn to slide seven showing our cash flow performance. Our cash flow from operating activities decreased by 2.1% to TWD54.1b (sic - see presentation). The decrease was primarily because of an increase in inventories and the decrease in depreciation and amortizations.

Free cash flow for the first nine months 2008 decreased by 9.5% when compared with the same period 2007, as CapEx was 16.4% higher. Our cash and cash equivalents amounted to TWD103.1b as of the end of September this year.

This 85.2% increase is the result of the timing of our cash dividend distribution this year which will fall in November, while it was in August in 2007. However, we are still accumulating cash, despite the dividend distribution factor.

For the third quarter of 2008 cash flow from operating activities decreased significantly by 44.3%. The decrease was primarily owing to the decrease in cash payable and the decrease in mark-to-market loss of financial assets.

Next, on slide eight, CapEx for the first nine months of 2008 was TWD18.3b, an increase of 16.4% year over year. This was mainly due to an increase in other spending of TWD1.2b in the first quarter for the purchase of State-owned land where one of our outlets is located.

Going forward, our CapEx may increase due to investment focus on our core business and our efforts to migrate Mobile and the Data customers to higher revenue platforms, including our 3G, 3.5G systems, IP-based NGN, FTTx and xDSL.

Now let us move on to operational details for our business. Please turn to slide 10. You can see that Chunghwa Telecom's total revenues for the first nine months 2008 was TWD151.9b.

On the left-hand side you could see the breakdown of our revenue, and on the right-hand side we demonstrate our market position. Chunghwa has a commanding first place market position in each of our business segments. We have been successfully defending our Fixed Line market share and are confident that our strong market position will sustain.

Next, on slide 11, I will review our Broadband progress. Our Broadband subscriber number continues to increase. Of the 4.3m Broadband subscribers at end of September 2008, more than 70% use services with speeds higher than 2 megabit per second.

Internet value-added services plus Broadband services revenues top contributors include Land Administration Information Service and our Internet pornography gatekeeper, which accounted for 33% and 9% of VAS revenue respectively.

The fastest growing VAS, our Internet advertisements and the Internet pornography gatekeeper. Internet advertisements service was launched since FY 2007, and it exhibited year-over-year revenue growth of 116% for six months from April to September as compared to that of the same period last year. Internet pornography gatekeeper also performed 65% year-over-year revenue growth for the nine months of 2008.

Total Broadband access revenue was approximately TWD15b, which was 0.2% higher than that of the prior-year period. But the growth rate is lower due to the tariff cut imposed by the NCC.

Now, as shown on slide 12, our key initiatives for the Broadband business are, first, to migrate our customers to higher access speeds. And the second to continue to increase our fiber coverage by deploying fiber networks in residential buildings, campuses and the commercial buildings, allowing more opportunities for customers to access and adopt a variety of Internet value- added services.

These initiatives have shown satisfactory progress. As you can see on the left-hand side of this slide, the average bandwidth per users has continuously increased over the last few years, and reached 4.2 megabits per second in the third quarter 2008. In addition, about 1.5m Broadband subscribers utilized a service speed of at least 8 megabit per second, representing about 35% of our total Broadband subscribers.

The number of fiber subscribers has also shown strong growth, with 946,000 subscribers at the end of September this year. In addition, I would like to emphasize that the nearly 17,000 buildings to which we offer fiber access service represents market share of about 91%. Going forward, we expect this trend of growing Broadband business to continue.

Regarding Mobile service, Chunghwa Telecom has maintained its number one Mobile market share position. As shown on slide 13, at the end of September 2008 we had 8.9m Mobile subscribers, including 3.2m 3G subscribers. 3G subscribers, as a percentage of the total Mobile subscriber base, continued to increase. Of the 3.2m 3G subscribers, 76% utilized 3G handsets. In addition, 11.7% of 3G ARPU was from data usage compared with 7.8% for 2G ARPU.

Moving to slide 14, I want to provide some more detail on our VAS initiative for our Mobile business. During the first nine months of this year we were encouraged by our Mobile value-added service growth, primarily due to the success of our exclusive Mobile VAS platform, emome. Total VAS grew by 26.8% year over year. Of this, Mobile Internet exhibited the highest growth, which was 48.5%.

Data Card business has also performed well over the past several months. At the end of September we had 98,000 data cards subscribers. The associated ARPU for which was robust at TWD885.

As a result, Data revenues as a percentage of Mobile revenues increased to 9.5% for the first nine months of this year.

For business customers we offer a customized service called mPro along with customized handset models. For the third quarter this year we won 17,000 subscriptions and, hence, accumulated 50,000 users by the end of September. Furthermore, 35.5% of ARPU for mPro users was from VAS usage.

The strong growth in subscriber number was because we are offering economic mPro packages at low rates until the end of the year to attract more subscribers. And this has recently brought more than 1,000 subscriptions per week. With the penetration of mPro services, we expect mPro to continue contributing positively to our revenue growth later on.

For younger customers, in the third quarter this year we began to offer handsets discounts along with mCool certificates. The promotion proved to be effective. By the end of September we had about 100,000 mCool users, which was our 2008 full-year target. And there VAS usage contributed 16% of ARPU.

Moving to slide 15, let me update you on our progress in convergence services. As we reported in last call, the delivery of 2008 Olympic Games over our three platforms has firmly established our new media leadership position in this market. The MOD rating peaked over 40% during the Games and maintained around 34% after the Games, which is 10% higher than that of the first half of the year.

By the end of September 2008 there were about 591,000 IPTV subscribers, which represented growth of 50% as compared to the end of 2007. Furthermore, we are continuing our efforts to improve user interface and to enrich content so as to enjoy synergies among three platforms, including MOD for IPTV, emome for mobile services and hiChannel for ISP service.

We are also promoting the ever-popular sports program. We will continually enhance the content of all our VOD and provide interactive, value-added service such as games, karaoke and the exclusive services for corporate customers.

In our high quality service offering we have made more high definition video on demand and the high definition channel for sports, drama and the variety shows available. We also had more channel aggregator, like Fox International, join our MOD platform.

In our last call, in August, we reported to you the road map for the deployment of our Next Generation Network. Today, I would like to present an update. Please refer to slide 16 which shows the infrastructure deployment status. With the completion of Stage 1 NGN/IMS network and the new IP platform, we will be able to launch a multimedia videophone in the first quarter of 2009, which is next year.

10 gigabit per second and 1 gigabit per second VPN service and the leased line service, with the increase in the FTTx ports and the enhanced 3.5G base station coverage, we expect to be able to promote better services for the remote surveillance, high definition TV, VPN, mobile Internet, mPro, mCool and the Mobile TV which will be part of the major growth driver for our business.

This completes my business review. Now I will pass the call back to Chairman Lu for our business outlook.

Thank you, Dr. Shieh. I would like to make a few comments on our business outlook. On slide number 18 let me highlight the key aspects of our near-term strategy. First, in our core businesses we will continue deploying NGN as a cutting-edge platform for developing new digitalized services. We will also enhance fiber coverage for upgrading customers to higher speed Broadband services.

To encourage usage of Mobile Internet service, we will provide promotional packages, integrating mobile services and the terminal equipment. We will conduct cross-platform operations to capture new growth opportunities. Based on our superior network facilities and the geographic advantage, we would strengthen our regional transmission service.

Second we are provide corporate customers innovative services. These services include ITS/Telematics, iEN, corporate information security service, PBX or IMO and call center. ITS, or Telematics, include fleet management systems, customized Telematic service in real time to [potential] information service. iEN is a total energy-savings solution that was developed based on our extensive experience.

Our corporate information security service is comprised of our anti-hacker service, invasion prevention service and the information security alert system.

PBX, or IMO, allows corporate customers to outsource service management to decrease personnel expenses. In addition, the integration of ICT and corporate database will facilitate the real time call center services for corporate customers.

Third is cost control. As we mentioned earlier, we are going to have 160 employees participate in the early retirement program and leave the Company on November 1. We expect to save TWD268m personnel expense for year 2009. We will also benefit from consolidating Broadband core networks, which expect to result in savings of TWD120m per year, starting next year.

Fourth, we will explore opportunities for alliances, joint ventures and the M&A. For example, we are establishing a joint venture with a company in Thailand to offer an intelligent network energy solution for corporate customers. We will be able to leverage this experience to offer similar services overseas in the future.

In addition, we are collaborating with our local subsidiary to provide ICT solutions for corporate customers.

Fifth is on our CSR commitments. A strong commitment to corporate governance is one of the cornerstones, as we are world-class Company. We are dedicated to increasing energy utilization efficiency and decreasing greenhouse gas emissions. We will also create digital opportunities to reducing digital divide. In addition, we continue to promote corporate volunteering under community service programs as a means of protecting the environment and assisting those who are in need.

Finally, as we always emphasize, that we will continue our commitment to create shareholders' value. While maintaining our high cash dividend payout policy, we will continue to explore opportunities to enhance shareholders' return through capital and cash management, including capital reduction and share buyback. Again, I would like to reiterate that our financial policy will remain conservative.

Now we will be happy to take your questions.

(Operator Instructions). Your first question comes from the line of Anand Ramachandran with Citigroup. Please proceed.

Yes, hi, good evening. My name is Anand Ramachandran calling from Citigroup. Thank you so much for the call.

I have two questions. Firstly, if I look at the EBITDA margins quarter on quarter, you've seen a 300 basis points dip. I was wondering if you could tell us what are the costs that went up in the third quarter to reflect that margin decline, and what would you forecast for the trend for these costs going ahead? So that's question number one.

Question two would be on the ERP that you've indicated. Now this cost of TWD170m, should we expect that to be reflected in the fourth quarter this year? And do you foresee any extra costs coming through from that into next year as well on another ERP program?

Okay. Your first question on the EBITDA margin for the -- for Q3, yes, as indicated in slide number four the EBITDA margin declined somewhat in Q3 2008 as compared with Q3 2007. This mainly due to -- as explained earlier, this is due to the increase in marketing costs and also due to somewhat deep decline in revenue as indicated in this slide.

And looking -- going forward, we will exercise internally cost control so that the cost will not be extraordinarily high for Q4. And we are also increasing our colleague to promote our services so that we will be able to have stable revenue for the fourth quarter.

And your second question is on ERP, the cost incurred. We reported that there will be about TWD170m for this year. And there will be no additional charges next year. But, as I said, the saving will result from this ERP will be something like TWD268m personnel expense for next year.

Are we going to have another ERP next year? Well, we will see if the situation permits us to conduct another ERP. Maybe we will do it earlier next year rather than this date in this year.

Thank you. And if I could just quickly follow up on the ForEx derivative contract that you've terminated. You mentioned we should expect a one-time, non-operating gain of TWD580m which is last year, and then another TWD30m is coming through from the cash inflow. So the P&L impact will be TWD610m for the month of October?

Regarding the foreign exchange contract terminations, about TWD30m cash flow, and this amount is already booked in last year earnings -- last year revenues. So -- but this year -- for this year since we have about TWD3b unrealized market loss. But this TWD3b unrealized market loss, since the termination of this contract, will be written back since last year we already booked about TWD580m on our income statements. So the remaining about TWD2.4b will be written back this year. Thank you.

Thank you.

(Operator Instructions). And your next question is from the line of Henry Cobbe with Nevsky. Please proceed.

Hi, there. Could you just update your CapEx budget for this year and next year?

The CapEx for this year is likely we will spend about TWD31b for this year. And for next year we are at the stage -- at the process of budgeting for next year. So maybe, as I said in previous calls, that the CapEx for next year will be something like TWD32b to TWD33b.

Okay.

And also just looking at the Mobile revenues, it seems like they're coming under increasing pressure. Could you just describe what the operating environment is like for you at the moment?

Well, the Taiwan mobile market usually -- it has been rational until very recently. Some of the minor operators, smaller operators, they offer some very sweetened packages to customers. So we experienced a little bit of a decline in the overall size of the market in terms of revenue. It's the contraction of about 2% to 3%, I suppose, in Mobile.

Okay.

Yes, this is mainly the reason. It's from the smaller operators. They're offering it's a bit sweetened --

Okay.

Of course, also NCC imposed tariff cuts for 2G operations, GSM operations. That had some impact as well.

Okay.

And on capital management, what is [the basis]? You said that obviously you'd be (inaudible) commitment, but you'd be looking for other options. Could you just clarify what your targets are?

Yes, for the capital management and, as you have been knowing, this -- August this year our AGM meeting already approved the capital reduction for about 20% capital reduction. And we've been assured that we'll be receiving those cash benefits by the end of March of next year.

Looking forward, I think that we will base on evaluating of our merger and acquisition opportunity and the capital expenditure needs from our core business. And we can promise that we are periodically evaluating the possibility of further capital reductions. And we are also aware that we do have excessive capital surplus. But I cannot make a final answer at this moment because we are still on the evaluating stage.

Okay, thank you.

(Operator Instructions). And your next question comes from the line of Kathy Chen with Goldman Sachs. Please proceed.

Hi, thanks for the call. I have, actually, four questions, sorry.

Firstly, regarding again the costs, it looks like usually every year we get higher costs in the fourth quarter. So in terms of this year, can we expect a similar seasonality? For example, it looks like the fourth quarter last year EBITDA margins dropped to about 45%. Would it be reasonable to assume a similar level this year as well?

The second question is for Shen now. Could you share with us what the EBITDA margin was in the third quarter and if there's room to improve the margins there?

The third question is on personnel expense. This figure you gave us, with TWD268m as savings in '09, is this a number that we can expect on a recurring basis in terms of going forward, given the number of staff reductions that have been done over the last few years?

And then just, lastly, what is the Board's current thoughts on potential share buybacks? Thanks.

Let me answer the questions from the Group's side. As our CFO, Dr. Shieh, just mentioned, share buyback -- given these kind of circumstances, we are evaluating or assessing the situation. But we do not have any definite conclusion yet. So we will assess this from time to time to see if it's the right thing to do at the right time.

On the personnel costs going forward, this is related to the proper sizing of the Company in terms of headcounts. And we believe with our business and the complexity of all these services, currently we have about 24,500 employees. It's about the right size.

So what we would like to do is to increase the younger employees by recruiting. So, if possible, we would like to have some kind of swap of our personnel compositions. With early retirement programs and more senior employees who leave the Company, we are able -- this will give room for us to recruit young people with newer technologies -- expertise on new technologies.

So we will see this kind of swapping if possible. So we will consider more sophisticated type of arrangement for our employees to consider in the future early retirement programs. So the personnel costs would stay relatively stable for the coming year.

On the EBITDA, Dr. Shieh will give light on EBITDA.

Yes, about EBITDA, and I think for the third quarter this year the EBITDA -- if we look at the Chunghwa Telecom standalone then our EBITDA did not reduce much, only from 54% to 53%.

But we see there is a quite big reduction for EBITDA on the third quarter, primarily because of the consolidation of our subsidiary Senao and because this year we had to book the full-year EBITDA of Senao. But last year we only booked 1.5 months since the timing of the merger and acquisition of Senao.

Looking into the third quarter, I think the same as last year. The third quarter EBITDA may be a little bit lower compared to fourth quarter of EBITDA, and maybe a little bit lower compared to the previous three quarters.

Regarding the subsidiaries, Senao's EBITDA and the margin for the fourth quarter has remained flat. We don't expect the Senao margin will be substantial decline. No, probably remain flat. Thank you.

Sorry, can I follow up? What was Senao's EBITDA margin in the third quarter?

We don't disclose it.

Okay. And, actually, Senao was already consolidated in third quarter '07 numbers, right? If I remember correctly, it was consolidated in the second quarter so third quarter year on year should be a clean comparison. Is that right?

Kathy, could you repeat the question?

Sorry. If I remember correctly, I think Senao was consolidated in the second quarter of '07. So I think for the third quarter '08 compared to the third quarter '07, I think that should be a clean comparison, right, where Senao is consolidated for all three months?

Yes, this year we have full-year booking of the Senao's revenue and costs.

Yes, and the third quarter '07 was also a full booking of Senao too, right?

Yes. You see, actually, we book -- in '07 we booked Senao starting from April 12 to the end of the year. So that means third quarter is the full booking [for last year].

Okay, thank you.

Your next question comes from the line of Terry Chan with Credit Suisse. Please proceed.

Hi, thank you for the call. I have two questions.

The first one is, is it fair to use the EBITDA margin in 3Q as the trend for the coming three or four quarters?

My second question is can you give us some colors on your property development and your recent MVNO service with Carrefour? Thank you.

Yes. For the EBITDA in the -- for the following quarter, maybe a little bit -- the EBITDA margin may be a little bit lower than the previous three quarters, due to the fact the fourth quarter, the costs may be a little bit higher than the previous quarters. But we -- as our Chairman just mentioned earlier, we are confident, and reaching the target of the guidance is probably very high.

And about the property management, given the fact that we have rich cash management -- we have the cash-rich Company and a strong balance sheet, and also considering the cool down of the property market in Taiwan, we are taking a longer approach for property managements.

So, first of all, we are continuing our rezoning policies. And, secondly, we also fully use of our idle asset is that we building or do some other uses. So we don't want we have idle property on hand.

But regarding the property business running, I think we are looking for the long-term rental revenues. We expect -- given the building and the property we have, we anticipate for next five years we cumulative to have 30 -- TWD3.5b rental revenues. That's our current forecast.

Thank you. Can you give us some colors on your MVNO service?

Probably you have heard of the news that we had entered into a contract with Carrefour. It's a wholesale retail store. I'm sorry, it's a wholesale store, yes, MVNO, yes, so with this Carrefour. And it's just started. They announced this yesterday. I believe it appeared in the news today. They have around 50 outlets spreading around Taiwan. And so they will help us. With their incentive programs for their customers, we would like to see more prepaid type of service will be offered through this newly [separate] channel.

Okay, thank you.

Your next question comes from the line of Shirley Tse with UBS. Please proceed.

Hi, thanks very much for the call. I have four questions.

First, I just want to follow up on the ForEx write back, because I understand that as of September the accumulated unrealized losses was only around TWD1b. But you mentioned earlier that the write back could be in the order of TWD2.5b. I was wondering if you could clarify on that.

Secondly, I know you --the forecast for 2009 has not been given -- announced yet. But I was wondering if you have some qualitative comments in terms of whether you expect there to be further growth on the top line side. And, if so, which would be the key drivers?

And, thirdly, there was some news about a fine in [Kaohsiung] for the land use of around TWD400m. I was wondering if that's been already recognized in your fourth quarter number.

And, finally, on potential acquisition fronts, would you consider doing mobile operators acquisitions overseas and, if so, if there's any criteria that you look at? Thanks.

Regarding foreign exchange write back, as I mentioned for the -- I said earlier we will have a TWD2.4b write back. That's for this year, whole year. But since about TWD1.4b awaiting written back before September, so for this month -- for September. And so you will see -- in the end of October figure, you will see about TWD1.95b will be written back. This is for the October numbers. So if we look at the summation of the previous written back, about TWD1.4b, plus TWD1b written back in October. So the total will be close to -- more than TWD2.4b, as I mentioned earlier.

Is that clear?

Yes, thanks.

Okay. And regarding the -- the first question is about the acquisition for the overseas mobile. I think that our investment policy -- (inaudible) investment policy, we -- as our Chairman announced earlier, we will focus on our core business area, information, communication, technology, these three areas. So we don't rule out the possibility of having the overseas mobile acquisition, but we will consider the -- as you mentioned, what will be our criteria.

I think our criteria will be we will have to consider the valuation and also consider the growth potential, and also the cartel issue, and whether we can have a contribution to this potential new venture or not. So those are some criteria factor we have to consider.

And regarding the 2009, probably the Chairman will say that.

But for the acquisition -- overseas acquisition mobile, I would like to emphasize that we have no specific target at this stage, no.

On your second question, what do we expect for year 2009, we would like to see if we are able to maintain our top line. Under these circumstances, maintaining top line in telco is a good performance, I believe. So we will do our best to maintain this.

Of course, the key drivers for growth in our business is, again, in value-added services. And in Mobile it's the high speed Mobile Data service, like Mobile Internet and also these value-added services probably will help us sustain our top line. And on Fixed Line then there's Broadband plus all kinds of new services, including delivery of video service over the Fixed Line.

And also as we illustrated in the presentation, new services, innovative services, is an area where we would try to get some results. Of course, the new service we aim to target is the business accounts, the corporate clients.

And your third question on the fine of about TWD400m from Kaohsiung City -- related to Kaohsiung City is one issue for the use of the road, that issue. It's already booked in Q3 this year. It's already booked.

So it was already in the operating expenses, or was that in the non-operating expense?

It's in the operating expense, yes.

Okay, thank you.

Thanks.

Your next question comes from the line of Mitchell Kim with Morgan Stanley. Please proceed.

Yes, thank you. Just one question.

I wanted to revisit your statement about increasing competition in the Mobile market. Can you just be a little bit more specific about what you have seen in the third quarter, in terms of what smaller operators are doing to become more aggressive? And what did you do to respond to [what] that led to your margin reduction? If you could be a little bit more specific in terms of whether it took a toll on your revenues, or it took a toll on -- your marketing costs, such as handset subsidies or advertisement went up.

And if you could share with us some thoughts on what kind of subsidies your competitors are giving out or, perhaps, it's the on-net -- free on-net calls.

And if you could also share with us what is the level of competition now and whether you're responding to it in the same manner you have been in the third quarter.

And also if you could just share with us what would happen if the smaller operators continue to be aggressive in 2009? How would you respond to it?

Yes, this is a very good question. The current market in Mobile in Taiwan is -- as you described, the smaller operators they have been offering very sweet packages for customers. And, particularly the so-called free on-net calls is somewhat attractive to some [nomad] customers, that part -- that segment of the customers. And we have seen number portability, the outgoing number portability customers is increasing somewhat as compared with previous quarters.

So the Company, we are -- we would like to maintain profitability and this would be the most important thing for us. But if -- from what we understand, all these offerings are promotional packages. It's not permanent offering.

And we also gauged their performance, in the sense that such a steep discount offering to customers. Of course, customers are very much enjoy free minutes. But on the other hand, as a sensible management team for the Company, my thinking is that a sensible management team would balance the interest among customers of course, employees, shareholders and even socio -- some social responsibilities. We should balance out, not [catering] towards very specific targets of all this.

So what I'm saying is -- or what I'm getting it as these very sweet packages is really taking away the benefit or the value from shareholders towards some customers. And in the long run I don't think it's a viable business. So I have been saying that maybe somebody has to consider whether such kind of behavior is the right thing to do in the market.

Okay, anyway, it's a little bit long in saying these words. But the Company would monitor the development in the market. And we are considering -- we prefer not to implement it. We are considering to have some new tariff plans to respond to this kind of development if it sustains. If this continues through the year and continues next year, we will probably have to do something.

Thank you.

Thank you.

And your last question comes from the line of [Mei Ling] with [Yunta]. Please proceed.

Hi. Thanks for taking my question.

Just a very quick question about how about the other markets, like Broadband market, how's the outlook for year 2009 and year 2010? We all know like Mobile market the competition has become more intensified. And how about outlook about the other drivers? Thanks.

In Broadband -- for example, in Fixed Line Broadband we have very solid programs to deploy Broadband service throughout the island, to almost every home in the future. So this is included in our NGN and -- NGN program.

As we reported earlier that we had nearly 1m customers with fiber access, and we will continue deploying fibers to wherever our customers express their needs. Along this line, we will have also promote our MOD, multimedia on demand, services, video services. So this is the -- it's an area where we believe will help us attract our customers. We will let you know more about the 2009 when we have our guidance available some time next year.

Okay, thanks.

Yes.

As there are no further questions in queue at this time, I would like to turn the call back over to Chairman Lu for closing remarks.

Thank you very much for participating in this conference call for the Q3 results 2008. Thank you very much. Good night from Taipei.

Thank you, Chairman Lu. That's all for today's conference call. Replay details will be available on CHT website at http://www.cht.com.tw/ir. Thank you for participating in today's conference. Have a great night.