Chunghwa Telecom Co Ltd (CHT) 2008 Q4 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to Chunghwa Telecom conference call for the Company's 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 Fu-fu Shen, the Director of Investor Relations. Thank you. Ms. Shen, please go ahead.

Thank you, operator. This is Fu-fu Shen, Investor Relations Director of Chunghwa. Welcome to our year 2008 result conference call. Today we have Dr. Lu, our Chairman and CEO, Mr. Chang, our President, and Dr. Shieh, our CFO, to speak to you and answer your questions.

On today's call, Dr. Shieh will review financial results, then Mr. Chang will review our business operation and finally 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 and CEO of Chunghwa Telecom. Thank you all for joining our fourth quarter and fiscal year 2008 earnings result conference call.

First, please note our Safe Harbor Statement on slide number one.

Before reviewing our financial performance for 2008, I would like to report to you that our Board has resolved to distribute a cash dividend of TWD3.83 per share. Let me repeat, TWD3.83 per share for year 2008. We will submit the proposal in the shareholders' meeting in June for final decision.

In addition, we have recently completed the second capital reduction program on March 20. The total cumulative additional cash returned to the shareholders was TWD28.8b for the past two capital reduction programs.

Now, I will hand over to our CFO, Dr. Shieh. Dr. Shieh, please go ahead.

Thank you, Chairman Lu, and thank you all for joining us.

Please turn to slide four, showing our income statement highlights on a consolidated basis. Our total revenue for 2008 was TWD201.7b, a 2.2% increase year-over-year. EBITDA decreased by 3.4%, operating profit decreased by 2.9% and the net income decreased by 6.7% year-over-year.

While our Internet and data businesses contributed positively to our overall revenue, revenue growth was mainly driven by the inclusion of our subsidiary Senao for the full year, compared to only 8.5 months of Senao's operational results were included in our consolidated results for 2007.

The decline in operating profit was mainly a result of the market competition which increased the handset subsidies and the cost of handset sales of the parent company. The EBITDA and net margin declines were also primarily attributed to the longer period consolidation of Senao, which operates at a lower margin than the parent company.

In addition to these declines, the other key reasons for the net income decline were the TWD1.2b financial asset impairment in the fourth quarter and the TWD1.7b employee bonus which started to be expensed in 2008.

On the right hand side of slide four, we are showing the fourth quarter of 2008 figures. Revenue was flat. EBITDA decreased by 5.7% and the operating profit decreased by 6.9% year-over-year. The reasons for these decreases are similar to what I just talked about for the fiscal year 2008.

Please turn to page number five. Total operating costs and expenses for 2008 were TWD143b, an increase of 4.4% compared to 2007. As I mentioned on the previous slide, this increase was mainly due to the consolidation of our subsidiaries, especially Senao.

For the parent company total operating costs and expenses increased by TWD2.9b, representing a year-over-year increase of 2.3%. This was primarily because of the increase in handset sales costs, handset subsidies and the employee bonus expenses. However, depreciation and amortization expense for the parent company was 4.4% lower than 2007.

For the fourth quarter of 2008, total operating costs and expenses increased by 1.9%, mainly due to the increase in personnel cost resulted from the expensing of the employee bonus.

Please turn to slide number six. We break down the revenue by business segment, showing the revenue performance for each individual business segment in 2008. Internet and Data revenue continued to increase due to longer broadband subscriber base and successful initiatives to upgrade customers to higher speed fiber services.

On our mobile business, we made progress by increasing our subscriber number by 2.9% and by enhancing our value-added service revenues by 25% compared to 2007.

However, these successes were offset by the traffic decline and the price cut imposed by the NCC, resulted in an overall revenue decline of 1.9% year-over-year.

In the Fixed Line business, Local and Domestic long distance revenues decreased by 3.3% and 6.8% respectively year-over-year for 2008, mainly due to mobile and VOIP substitution. International long distance revenues decreased by 1.4% compared to 2007. This was mainly due to increased competition from prepaid calling card and the decrease in international direct dial traffic. Other revenue increased over 44%, mostly from the consolidation of Senao.

For the fourth quarter of 2008, Internet and Data revenue was 2.6% higher than the same period last year. Mobile revenue decreased by 1.4%, mainly due to the traffic decline. Fixed Line revenue as a whole decreased by 2.4% as compared to the same period last year.

Slide seven shows our cash flow performance. Our cash flow from operating activities increased by 3.3% to TWD91.9b. The increase was primarily because of a decrease in other financial assets and an increase in accounts payable. Free cash flow for 2008 decreased by 3.4% when compared with 2007, as CapEx increased by 20.1%. Our cash and cash equivalents amounted to TWD81.3b as of the end of 2008.

For the fourth quarter of 2008, cash flow from operating activities increased by 12.1%. This increase was primarily due to the decrease in other financial assets and the increase in other current liabilities.

Next, on slide number eight, starting from 2007 we have been upgrading our core network from traditional PSTN to IP-based Next Generation Network, as well as migrating access network to fiber. The 20% of CapEx in 2008 was mainly for the deployment of Next Generation Network. We believe this is an investment that will better position us for future opportunities.

So, moving forward, we expect the CapEx spending will remain between TWD30b to TWD32b over the next two to three years. These future CapEx investments will focus on core businesses and on migrating mobile and broadband customers to higher revenue platforms.

Now, I would hand over to our President, Mr. Chang, for the operational details.

Thank you, Dr. Shieh. Now, let me take you through for the business overview.

As you can see from slide 10, our consolidated revenue for 2008 was TWD201.67b and we were able to maintain our leading market positions in each of our business segments throughout 2008. We have been successfully defending our fixed line market share and are confident that our strong market position will sustain.

Next, on slide 11, is our broadband subscriber number at the end of 2008. Till the end of January, total market broadband subscribers reached 5.02m, representing 65.6% household penetration. Chunghwa was the largest broadband service provider with 83.8% market share. Since the broadband household penetration is already high, our aim is to upgrade subscribers to higher speed fiber services with higher revenue contribution instead of enlarging the subscriber base.

In terms of the overall market competition, as cable operators tend to provide their access services at lower prices, we observed that some subscribers with lower speed needs have switched to cable operators. In order to retain these lower speed subscribers, we offer them competitive prices. Combining the pricing with our high quality services, we expect these subscribers to make the right decision to stay with Chunghwa.

In addition, we will continue to promote Internet value-added services. They are the fundamental growth drivers of our Internet and Data business. Among all value-added services we offer, the fast growing ones are Internet advertisement and Internet pornography gatekeeper, with a year-over-year growth rate of 48.6% and 57.2% respectively.

For the enterprise side, security service is also one of our focuses. By adopting these services, enterprises can reduce their information security risk.

On slide 12, at the end of 2008, we had about 1.070m FTTx subscribers and the average bandwidth per broadband user has reached to 4.33 megabits per second. As I mentioned in the previous slide, our strategy is to upgrade subscribers to use FTTx services. Since the ARPU of FTTx subscribers is higher than that for ADSLs, upgrading subscribers to high speed fiber network not only ensures our revenue growth but also prevents customers from switching to cable services.

Please refer to slide 13 about the mobile services. We had 8.9m mobile subscribers at the end of 2008. Although we accumulated more subscribers throughout this year, total mobile revenue slightly declined in 2008, primarily due to the economic downturn and market competition. In order to mitigate the decline, we plan to aggressively promote our mobile value-added services.

Of all of our mobile value-added services, 3G service, data cards and smart phones with mPro packages are our three key services which we will focus on. In addition, since the revenue contribution of data cards and mPro subscribers are higher than our blended mobile ARPU, we will focus on the promotion of these two services to enhance our data revenue percentages.

We will continue migrating 2G subscribers to 3G and reallocate our handset subsidies according to the contribution of the subscribers, in order to control our total subsidies this year.

Moving to slide 14. Enterprise professional users will continue to be one of our target groups. To cater to these needs, we expect to enhance their user experiences and loyalties through the mPro package with smart phones. For the younger groups, our mCool packages are intended to increase their mobile data usage.

Now, on slide 15. In order to drive mobile value-added service usage and increase mobile revenue, we are collaborating with world class manufacturers to provide handsets with advanced features and enhanced interfaces.

As you know, we began to provide iPhone on December 13 last year. Our internal statistics shows that among the total iPhone subscribers, 75% of them are Chunghwa's current subscribers who renewed their contract in order to obtain the new iPhone, and the rest of 25% are new subscribers to Chunghwa. For those 25% new iPhone subscribers, two-fifths of them were previous subscribers of our competitors and now switched to us via mobile number portability and the rest, three-fifths, were brand new users.

The launch of iPhone helped to increase the sales volume of the smart phones. Since the iPhone debut, smart phone subscription increased to 9.2% of our total handset sales volume, as compared to 2.2% before iPhone debut. In addition, 66.6% (sic - see documentation) of iPhone subscribers subscribed mPro, which is much higher than that of other phone models, and their contribution is also 20% higher in terms of the average billing per user.

As shown on slide 16, by the end of 2008, we accumulated 676,000 IPTV subscribers, a 71.5% increase year-over-year. We've been strengthening our strategies for our IPTV content, marketing and the interactive features.

For content, we repackage it to enhance user interface and to introduce premium content. For marketing, we adopt market segmentation by content category, innovative viral marketing via the Internet and community marketing with promotional packages and prices. For interactive features, we introduced interactive advertisement to increase the number of reach to attract customers and to enhance user applications through widget-like interfaces.

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

Thank you, Mr. Chang. Now, I would like to make a few comments on our business outlook.

On slide number 18, let me summarize our strategic focus and achievements.

First, we intend to continuously enhance our revenue by maintaining our market leadership in our core businesses and by focusing on the strategic digital-converged services such as broadband, mobile value-added services and MOD or IPTV, as well as key enterprise solutions.

Second, we will continue to invest in the NGN networks as a foundation for our long-term growth in providing high quality total communication solutions.

Third, we will focus on Company-wide operational efficiency improvements through ERP programs, the CapEx usage, purchase economies and continued automation.

Fourth, we plan to explore and expand overseas opportunities prudently, to grow our revenue base with reasonable return.

Finally, we are committed to shareholders' returns. Cumulative for 2008, I am pleased that we have already paid out total TWD50.3b (sic - see documentation) via dividend returns, and just recently we paid out another TWD19.1b via capital reduction.

That concludes our presentation. Now, we will be happy to take your questions.

(Operator Instructions). And your first question comes from the line of Lei Tang with Nomura. Please proceed.

Hi. Thanks very much for the call. I have two questions. First, based on what you've seen in the past three months, can you talk about the revenue and EBITDA margin outlook for 2009? Although we know there's a lot of uncertainty, but anything that you could share would be helpful.

And second, in the presentation you mentioned about exploring opportunities in China, and can you elaborate on what kind of opportunities that Chunghwa would be interested in? Thank you.

The first question, we are not in position to disclose our revenue and EBITDA for this year, 2009. We will do this the end of April, next month. We will offer our first quarter results and also our guidance maybe for the year or for the first half of this year.

Related to -- answering your second question on exploring opportunities overseas, including China, we are very, very carefully considering all these opportunities, but so far we have no specific targets. And on China, the cross-trade relationship has improved a lot during these past few months and we are optimistic about the further development of close ties between Taiwan and China. So we would like to see if there is any opportunities. So far, it's at an early stage because of certain policies on this side has not been lifted or any decision made on allowing the telecom operators to invest or to conduct business in Mainland China.

Okay. Thank you.

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

Yes, hi. My name is Anand Ramachandran from Citigroup. Thank you for the call. I had three questions. Firstly, just sticking on with the earlier question, could you tell us what happened in the first two months in the monthly data you've reported? Revenue and operating profit have been slightly weak. Is that a one-off or some seasonality, in there or is this something you'd probably attribute to the macro slowdown or something else? So any light on that data in the first two months would be useful. So that's question number one.

Question two would be on further capital reductions. What would be the timing if you were to consider, let's say, yet another capital reduction? When should we expect that to come through? What would be your thought process around that, given that you have a lot of surplus reserves to continue to deliver?

Thirdly and lastly, if I look at the MOD subs, I was wondering if you could talk to us a little bit about your strategy, year-end targets set, and what the current ARPU on those MOD subscribers was. Thank you.

Okay. Let me answer the second question first. You're asking whether we would consider or the timing for consideration of a further capital reduction. Because capital reduction requires shareholders meeting's approval, so the proper timeframe to make decision is on April. So, as in previous years, the Board meeting of April is a key date for us to refer to. So it's going to be next month that we will consider this very important issue.

On the MOD/IPTV, our strategy is to increase the number of subscribers, our customer base, and from there we will be able to further improve our ARPU through visual content. And so far, we have seen ARPUs increase from less than TWD100 to now over TWD115. It's about TWD118 for the most recent results, one month result. So that's a good indication of improvement in our operation on MOD.

Your first question, I would like to ask our President, Mr. Chang, to give you some light.

Let me answer this way. Actually, we think there are three reasons. Number one is the economic downturn, because last year, January, the economy still grows. So, compared to the last year, January, so you see we have a lot of decline. Number two is Lunar New Year. In January, we have nine days long vacation, so the traffic goes down. The third one is competition, actual competition from three sides. Number one is from small mobile operators that provide a very cheap tariff package to get some of our customers. The second is cable operators also get some of our ADSL low-speed customers, so the last two months' performance is not so good.

Could I just follow up? Have you seen an improvement in March? Given that you will be reporting those numbers in, I guess, 10 days anyway, could I just check on whether you've seen any improvement on those trends in the month of March?

Yes. We'll do our best to try to improve on the March.

Okay. Thank you very much.

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

Hi. Thank you for the call. I have three questions. The first one is recently there is some news saying Chunghwa Telecom would raise its stake in Senao. Can you give us some color on that, like the price and timeline and what is your long-term strategy on it?

The question number two is, is there any employee reduction program this year? How many people do you expect to cut?

My last question is do you have any updates on property development funds? Thank you.

Senao is our major subsidiary and we have been quite a good channel relation with this company. And during last two years, I think both companies benefited from our cooperation. You can see from the margin pick-up of Senao, also from the sales volume increase.

And our Board meeting just approved we purchase an additional share from -- a new share from Senao. But our Board meeting only approved this offer, but we haven't concluded our pricing with Senao so far. Probably that will take a few months before the end. And the longer strategy for this further [season] offering and -- I mean new share buying is because we feel Senao is our major channel and can have more opportunity to scale up their listing strength, so maybe domestically or overseas. So we are looking for the further benefit of a two sides cooperation.

And the last one is property?

Yes, property.

Yes. Regarding the property development, we still execute our revitalizing policy, but currently we more focus -- or I should say we primarily focus on long-term rental income. We are not going to dispose any land at this point, unless there is any special situation. And as you know, we have reformed our subsidiaries and they are doing business right now. Hopefully, for -- as I mentioned earlier, hopefully our long-term rental return will increase year by year. Thank you.

Okay. On your second question about ERP, early retirement programs, we intend to offer an ERP program this year and hopefully before mid of the year. And since this ERP is on voluntary basis or volunteer basis, so we currently do not set a target number at this moment.

Thank you.

Last year, we offer a similar ERP, 160 employees took the package and left, just for your reference.

Thank you very much.

Your next question comes from the line of Arthur Pineda with RBS Securities. Please proceed.

Hi. Thanks for the call. I have two questions. Both pertain to your broadband business. It seems that Chunghwa has been very aggressive in building out a fiber optic network and migrating subscribers to these. Now, even with the migration, you don't really see a meaningful increase in data and Internet revenues. How is this strategy really worth your while?

The second question I had is with regard to the margin differential. Could you please give us some guidance on what the margin would be for a DSL subscriber versus a fiber-based client? I know that ARPUs are slightly better but the cost must be higher as well, for fiber. Thanks.

Your first is about our aggressiveness on fiber solution, especially fiber-to-the-X. What does it mean to us? Anything good about deploying aggressively on fiber solutions? Well, this is a long-term strategy and also short-term tactics. We need to address the competition from cable. And cable, they have already started offering broadband access service with lower pricing, as has been mentioned during the presentation. And our competitiveness is from our ability to offer fiber-to-the-building, fiber-to-the X type of solutions. So this will defend our market share in broadband access, so we believe it's important.

And as we have indicated earlier, that our ADSL operation is with a good margin. The fiber solution, as you mentioned, is a little bit more costly so the margin is a little bit different. But we do not disclose individual segment or this type of margin information. So please still refer to the Company-wide performance. We believe we still maintain quite a high profit margin. Thank you.

Maybe if I could just follow up on that thread. Would expanding your fiber-based client base actually improve your margins for data and broadband, or would it actually lower your margins overall?

The ARPU from fiber solution is higher. It's much higher, as compared with DSL. And of course we will pay attention to the point you raised. It's of importance in our operation. Okay? Thank you.

Okay, then. Thank you.

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

Thanks for the question. Just could you confirm what the severance cost was for the early retirement plan in 2008?

Could you repeat your question?

What was the cost of the early retirement plan in 2008?

Okay, the costs. Okay. The payment we paid for those employees, right?

Yes.

Yes. Let me check the number and get back to you, okay?

Okay. Thank you.

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

Hi. Thanks for the call. I have three questions. Firstly, as a follow-up to the comments made about the cable operators on the broadband side, can you share with us how much of the decline you've been seeing for the ADSL access revenue is due to the cable operators versus upgrade to fiber, as well as just a softer economy?

As related to that, could you share with us how much have you cut your prices by, when you responded? And are you basically now offering the same rate for the same speed versus the cable operators? That's my first question.

Second question is regarding the cost outlook for '09. Besides the ERP program that you expect to do this year, are there any other major cost-saving initiatives that you expect?

And the last question is related to some recent news flow regarding APBW. What is the Company's comments about the government potentially asking if you want to take over APBW? Thanks.

Let me answer your last question first. Okay? Well, it's the news article and we do not have any engagement with APBW at this moment. So that's only an article appeared in the news. Okay?

I would like to have President Chang to answer the other two questions.

Okay. Actually, I have mentioned that the cable operator provides a low-tariff brand to get our customers. According to our survey at the end of last month, actually we have lost about 1,500 customers a day, actually about 40% customer goes to the cables. Most of them are low-speed customers. So we focus -- now we have focus on the (inaudible) is two sides. Actually, originally we were all focused onto upgrade our customers to higher speed. Now, we come back to take care of our lower-speed customers, so we provide some competitive prices, something like their prices. So we try to get back some customers from those areas.

Maybe I can add something about our cost outlook for the year. Besides the potential ERP, I think the depreciation charge for this year will be lower and probably about TWD1.5b to TWD1.8b. Depreciation charge will be lower than last year. And also, the marketing expense for this year will be more controllable.

Thank you. Just one follow-up. So, for the adjustment on the lower-speed broadband pricing, when was that done, exactly?

Kathy, could you repeat your question?

Yes. In terms of -- I think earlier you said that Chunghwa had the price for the lower broadband speeds, in response to the cable operators. Can you share when that was done? Was that done at the end of last year or some time earlier this year?

Kathy, we will get back to you later. Okay? Can I go back to the question of the last -- the question about the ERP compensation? Last year, we paid TWD170m for the ERP compensation and just expect -- for this year, expect to have about TWD268m saving in personnel expenses.

(Operator Instructions). And your next question comes from the line of Gary Yu with Morgan Stanley. Please proceed.

Hi. Thanks for the call. I've got two questions from my side, first on CapEx. I notice that you mentioned that the next two or three years your annual CapEx will be around TWD30m or TWD32m -- TWD30b or TWD32b, which sounds a little bit lower than what you previously stated, which is in the range of TWD33b to TWD35b. I'm just wondering if you are seeing the next two or three years the CapEx peaking and then you're expecting it will be declining going forward.

The next question I had is regarding your Senao acquisition. What is your ultimate strategy on that? Are you planning to fully acquire this company or you have any further acquisition planned in this company? Is it going to have any impact on your long-term capital reduction strategy? Thank you.

Okay. Let me answer your last one, about Senao. I think we -- the reason this time we decided to accept the new share offering from the -- financially, I think they increased the shareholding from current about 30% to close to, or even more than 40%, I think. For the finance consideration, it can be justified because this company is -- the profit is improving significantly.

From strategic point of view, I think we encourage the Senao. They can provide more product to the consumers, and not only just telephone but also can be more diversified. So the value of the channel can be justified. For longer term, so far we don't have a longer-term plan for this company. And we -- I think that increasing the shareholding step by step is appropriate at this moment.

About CapEx, I think the TWD30b to TWD32b is -- from the current assessment, I think it's appropriate for next two or three years and also following to the range. We hope that our CapEx in terms of revenue will be in between 15% to 17%. And we don't want to have overspending, so maybe below 17% is our intermediate goal. Thank you.

Thank you. Can I have one more follow-up question? I just [made out] the number of employees that you're managing last year that has enrolled in your ERP in 2008.

Gary, could you repeat your question? It's not really clear.

Sorry. I think you have mentioned about how many employees have enrolled into your ERP last year, in 2008.

I mentioned about 160, one-six-zero. So, last year, yes.

Okay. Thank you.

The benefit has already been mentioned by Fu-fu.

Yes. Thanks.

Thank you.

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

Yes. Thank you for the call. I have three questions. First pertains to your IPTV business. Can the management share how long do you expect it to take for your MOD business to have a more meaningful contribution to your top line? If you were to look out one to two years out, what kind of ARPU can you expect? And what do you think -- what's it going to take for your ARPU to improve to that level?

And second, now that we're in the third year of NCC's three-year tariff cut road map, are we getting any indications that the regulator is considering a new series of tariff cuts for the years ahead?

And third and lastly, I'd appreciate it if you can provide some more color on the weakness on your fixed line revenues during the first two months of the year in particular. Thank you very much.

Let me answer the second question first. The -- as you mentioned, our NCC, our regulator, they imposed the operators to reduce or to cut the tariff for ADSL and also for the second generation GSM service, and this is the third year of that program. So, we have -- NCC has already approved a rate reduction for mobile and they are reviewing ADSL packages [these days].

And we believe the market is already very competitive and the market force really in place in Taiwan mobile market. So we believe there shouldn't be any further tariff reduction imposed by our regulators. This is our view. But I don't know whether our regulator would buy in with our argument. So -- but we would like to present to them that it's really very competitive already.

And now ADSL, ADSL is not a major thrust these days. Now, we have competition from cable operators, we have competition from mobile operators, on broadband access. So we would argue, again, it's very competitive. So, imposing tariff guidelines from regulator is not really the right thing to do.

And President Chang has already answered the third question earlier, on the result of the first two months. Would you like to elaborate a little bit more on the fixed line? The question is on fixed line.

As I just mentioned, the fixed line declined by the economic downturn and some of our foreign labor go -- come back to their own country. So the international -- in the international calling cards, sales goes down dramatically in these two months. And actually, for the fixed -- our fixed line service includes three parts. The local call I think is relatively stable. And the international call declines more because - I just mentioned it - because of the foreign labor. And most of -- then the economic downturn, I think this is the main reason. Thank you.

Your first question related to IPTV operation, when will it be meaningful in terms of our revenue. For Chunghwa Telecom, meaningful revenue source would mean TWD1b revenue. And it's easy for you to calculate what does it mean when we have an ARPU of a couple of hundred dollars per month and overall 1m, 1.5m subscribers. So we are really targeting -- our strategy is what I said, to enlarge our customer base. This is very important. So 1.5m, 2m even, a higher number of subscribers is our target.

And as I answered earlier, that with a larger number of subscriber base we would be even in a better position to negotiate with content program providers and to enrich our content offering. We will enhance our ARPU. So this is a positive side we are looking for in the future. And how long does it take? Well, the earlier the better. And so it's a challenging area for us to pursue and we are eager to reach that kind of status, as you too. Thank you. Thank you very much.

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

Hi. Thanks very much for the call. I have three questions. One is I was wondering if you can elaborate a little bit further on the non-operating expense line which sits there with TWD670m in loss on disposal of financial instruments. I was wondering if this was relating to your derivatives contract that was knocked out last year, or if it could be some other asset that you might have.

Secondly, on your ADSL and fiber subscriber base, I was wondering if you could share any subscriber targets for this year.

And finally, on mobile side, you mentioned that you're expecting marketing expenses to fall to a slight degree this year, year-on-year. But I was wondering does that also apply to your subscriber acquisition costs, given that you are focused more on the high-end subsidy with the high-end devices. I notice that in the fourth quarter the subscriber acquisition cost was trending up.

About the first question, I think so far, as you know, we already knock out the foreign exchange (inaudible) country with (inaudible) and already return back all the losses. And we're also making cash inflow, about TWD30m. So, so far, we don't have any exotic derivatives in our book. We only apply the very traditional and plain vanilla derivatives for our hedging purpose.

So, last year, the end of last year, we did have some impairment, about TWD1.2b impairment. This is primarily from our portfolio management, since we purchased the offshore mutual fund and also we do have the [net] mutual fund and since the total market collapse last year, so we also incur some financial losses. But those are unrealized losses and so -- we according to your schedule, we needed to do the financial impairment. So that's why the TWD1.2b number came from. Thank you.

Okay. Let me answer the second question about the ADSL/FTTx. Actually, our target of the number of broadband is -- we hope we can maintain the same number as last year. But we'll migrate our customers from ADSL to FTTx. So our FTTx number, well, our target is 1.8m customers at the end of this year.

And your third question, on mobile. The marketing expense, we believe we are in a position to better control and reduce at least 10% as compared with last year, at least. Hopefully, we can do better.

So the acquisition cost, as you said, the acquisition cost increased a little bit last year, towards the fourth quarter. We will control our SAC, subscriber acquisition cost, very carefully. As has been mentioned earlier by our President, we offer handset subsidies or acquisition costs to those who contribute more in their ARPU to us. So we will control this very carefully. And the most important is to reduce the subsidy total amount by at least 10%.

Thank you.

Your next question comes from the line of May Lin with Yuanta Securities. Please proceed.

Hi. Thanks for taking the call. Actually, I have one question about payout ratio. We see that announcement that a TWD3.8 dividend per share for last year represents around like 83% payout ratio is due to some -- can we say like one-time event for the treasury stock [cost]? And looking forward, can we expect the payout ratio to return back to the normal level, around like 87%, 88% [increase this year]? Thanks.

Yes. I'd say definitely the -- actually, this year we already tried to pay out all the cash possible. But as you mention, since we -- two years ago we had the repurchase program. So that's why we have TWD3.72b subtraction from our cash. And looking forward, I think we will remain the high payout ratio, maybe as the number you said, 87% to 88% payout ratio. That's very possible.

Okay. Thanks.

Your next question comes from the line of Dee Senaratne with CLSA. Please proceed.

Yes. Good evening, guys. This is Dee Senaratne from CLSA. I've got two questions, the first one being just if you can give me a bit of color on your customers within the corporate SME market. Has there been a more pronounced slowdown in that segment of the market across the fixed line and mobile?

And then, the second question is pertaining to some of the more, I guess, premium type services such as wireless broadband and on the mobile side obviously iPhone. Has there been a slowdown obviously in the first quarter, given the macroeconomic slowdown in terms of throwback for both those premium type services? That would be great. Thank you.

Your first question related to our corporate accounts and it's an important segment of our customers. And from our operational results, we believe we are doing quite well regarding this segment of customers. But the economic downturn really hit corporate customers hard. But we have identified five major services for this year and we believe, with this very focused effort, we will be able to maintain the level of our service and our revenue from corporate accounts.

We will get back to you on more detail, if they are available, fixed line or mobile for the corporate accounts and SMEs. Normally, we do not offer this kind of segmented -- very detailed segmented results.

Okay. Sure.

And for the premium service, the type of handsets that we offer to our customers, you mentioned iPhone. It's really a good business for us, as appear in the presentation, that the ARPU or data service from this type of customers is really demonstrating their high usage on data. For example, the -- for this segment of customers, who make use of iPhone, data ARPU represents about 30% of their ARPU. So this is something we have been looking for. So, importing the smart phone customers is important and we believe we have been doing some right things in this direction.

Great. Thanks very much for that.

Okay. Thank you.

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

Hi. Thanks. I have two follow-ups. One is can you share with us what Senao's EBITDA margin was in the second half of '08? And how do you expect that to be in 2009? Are there some further margin improvements that we can see there?

And then, secondly, related to some recent news flow regarding your IP peering revenues, can you share how much per year in revenues you get from IP peering? And is there any risk that this part of your revenues could go down, given some of the, I guess, differences you have with other operators like Taiwan Mobile and other IP providers? Thanks.

Okay. About the first question, Senao, I think Senao last year enjoyed the profit -- the gross profit margin is about 16%. And for this year, we cannot comment for them. So probably -- they maybe have their announcement soon, but I cannot comment for their profit figure for this year.

Your second question is about IP peering revenue and it's part of our data revenue and it's included in the data revenue. We do not have a detailed disclosure of this particular service.

Is there any update on what's going on with Taiwan Mobile and the fact that they've stopped paying IP peering revenues to you this year?

This is a subject of business negotiations between operators. We have been engaging with them on this issue and we hope to resolve it pretty soon.

Okay. Thank you.

Kathy, I just wanted to clarify. For that IP peering revenue, we haven't disclosed any number like that, but on the press it mentioned about TWD2b to TWD3b. That amount is much, much higher than what we really -- what the revenue is. But we don't disclose that number. Okay?

Okay. Thanks.

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

Just looking at the section note 20 to the parent company accounts, and looking at the breakdown of the employee costs, it looks like the other line of employees rose substantially year-on-year, to TWD14.2b. So could you just explain what drove that because it was particularly in the fourth quarter? What was the performance-based bonus for the full year and what drove the other personnel cost line in the fourth quarter?

Yes. I think the low EBITDA margin and also low profitability for the last quarter of last year, the fourth quarter, is primarily because of the employee bonus expense as well as the -- we have the bonus we call the incentive bonus for all the employee, and those two charges primarily accounting for the lower profitability for the fourth quarter.

And how much was the performance-based bonus for the full year 2008?

For 2008, I think normally our performance bonus is about 30 -- TWD3b, is around that.

And for 2008?

For the employee bonus it's about TWD1.7b.

But that doesn't explain -- that was the same in 2007, wasn't it, roughly? So the change must have come from something else.

2007, we didn't have to deal with the employee bonus payment. And also, fourth quarter of last year, I think that our marketing expense was a little bit higher. That's also one reason.

Okay. Because the increase year-on-year is for TWD1.6b, so you're saying that's all from the bonus.

Is it clear?

Almost. I just wondered -- the increase of the other expense, from TWD12.657b to TWD14.239b, is that all explained by the bonus?

Other expenses, because of the cost of the handset subsidies, yes.

Henry, can -- this is Fu-fu. Can we clarify that you mentioned about the TWD12.6b. Is this the other expenses for -- this is consolidated report? You are reading our accounts?

I'm looking at parent company reports, on Note 20 to the accounts.

Okay, parent only. This is from the financial report, right?

Yes.

So it's the -- we cannot really identify where you read that TWD12.6b, so I cannot -- we cannot really directly answer your question. So I just wanted to clarify that part.

Okay. Sorry, that's from historic accounts. Okay. Thank you. But the TWD14.238b -- okay, there's a restatement going on. Okay. Thanks very much.

If there are no further questions, I would like to turn the call back over to Chairman Lu. Please proceed.

Thank you very much for participating in our 2008 annual results conference call. Thank you very much. Have a good night or good day, wherever you are. Thank you. Thank you very much. Bye, bye.

Thank you, Chairman Lu. That's all today's conference. Replay details will be available on CHT website at http://www.cht.com.tw/ir. Have a good day.