Chunghwa Telecom Co Ltd (CHT) 2009 Q1 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom conference call for the Company's Q1 2009 operating results. During the presentation all lines will be in listening-only mode. When the briefing is finished, all directions for submitting your questions will be given in a question and answer session. For your information, this conference call is being broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cht.com.tw/ir under the In Focus section.

Now I would like to turn the call over to Ms. 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 first quarter 2009 results 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 the financial results and business operations, 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 first quarter 2009 earnings results conference call.

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

For the first quarter of 2009 we continued to execute on our strategic focus of maintaining market leadership for our core services, as well as expanding our digital-converged services such as Broadband and Mobile value-added services, MOD/IPTV and the key enterprise solutions. As a result, we are able to somewhat stabilize our top line performance under the current adverse economic situation.

In addition, I'm pleased that our Board of Directors approved a third round of capital reduction program for us, to return cash to shareholders in 2009. For this round, we estimate to return a total of TWD9.7b, which is a strong testament of our continued commitment to maximizing shareholders' value.

Given the current global economic environment, decreased visibility and increased market volatility, we are changing our customary guidance format. We want to be as transparent as possible, but also need to be prudent with regard to comments about future outlook. As a result, our Company has decided not to provide full-year guidance for 2009 at this moment. Instead, we will give guidance on a quarterly basis.

Before reviewing our results for the first quarter of this year, I would like to reiterate to you that yesterday the Board approved the third round capital reduction program. We will increase our capital stock by 10% from our capital surplus and cancel the increased amount afterwards. Total cash returned to the shareholders from this program is estimated to be TWD9.7b.

Because of total -- because of the capital reduction program, we will distribute a 10% stock dividend along with the regular cash dividend of TWD3.83 per share which has already been approved by the Board for the results of 2008. We will submit these proposals, including the cash dividend payment, the capital increase and the capital reduction program, in the shareholders' meeting in June for the final approval.

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

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

Slide four shows our income statement highlights on the consolidated basis. Our total revenue for the first quarter of 2009 was TWD49.1b, a 3.6% decrease year over year. The primary reason for the revenue decline was the deteriorating economic environment, which resulted in the reduced tariff for Fixed-Line and Mobile business.

In addition, EBITDA decreased by 10.7%, operating profit decreased by 14% and the net income increased by 0.7% year over year. The EBITDA decline was primarily due to the decrease in revenue and the increase in operating expenses. The net income growth is because of the increased net non-operating income and the decreased income tax.

As shown on slide five, total operating costs and expenses for the first quarter of 2009 was TWD35b, an increase of 1.3% compared to the first quarter of 2008. As I mentioned on the previous slide, this increase was mainly due to the increase in personnel expense. This personnel expense increase was mainly because the Company increased the ceiling of performance-based bonus in order to encourage its employees.

Please turn to slide six, which shows the revenue performance for each individual business segment in the first quarter 2009.

On our Mobile business we made progress by increasing our subscriber numbers by 2.9% and by enhancing our VAS service revenues by 18.5% compared to first quarter 2008. However, these successes were offset by the economic downturn and the market competition.

Our Internet and Data revenues slightly decreased by 0.4% year over year, which was mainly because of the tariff reduction for ISP and ADSL services.

In the Fixed-Line business local and domestic long distance revenues decreased by 6.2% and 10.1% in the first quarter 2009 respectively. The decrease was mainly due to the economic downturn, as well as mobile and VoIP substitution. International long distance revenues decreased by 14.4%, which was mainly resulted from the economic downturn, VoIP substitution and market competition.

Other revenue increased by 1.1% mainly due to the reclassification of non-core value-added service from Internet and Data Service.

Slide seven shows our cash flow performance. Our cash flow from operating activities decreased by 13.6% to TWD16.1b. The decrease was primarily because there was decline in EBIT year over year. Free cash flow for the first quarter of 2009 decreased by 13.6% compared to first quarter 2008. Our cash and cash equivalents amounted to TWD69.2b as of the end of the period.

Next, on slide eight, the CapEx for the first quarter 2009 amounted to TWD4.7b, a 13.8% decrease compared to that for the same period in 2008. Within the TWD4.7b CapEx figure, 73.6% was for wireline, 17% was for wireless and the remaining for other capital expenditure.

Starting from 2007 we have been upgrading our core network from traditional PSTN to IP-based next generation network, as well migrating access network to fiber. We believe this is an investment that will better position us to capture the future opportunities.

So moving forward we expect the CapEx will remain between TWD30b to TWD32b over the next two to three years. These future investments will focus on our core business and on migrating Mobile and Broadband customers to higher revenue platforms.

On slide nine it shows our forecast for the second quarter of 2009. We will issue guidance on a quarterly basis instead of giving a full-year guidance for 2009. Please be advised that this focus is only for Chunghwa, the parent Company. In considering the global financial crisis, the intensified competitive landscape and the NCC tariff reduction, for second quarter 2009 we estimate our revenue to be relatively stable at TWD45.6b.

Also, taking into consideration of the compensation for the early retirement program planned in May, we estimate the EBITDA to be TWD23b, operating profit will be TWD13.8b and the net profit will be TWD10.8b. As a result, our EBITDA margin and the net margin for the second quarter 2009 are expected to be 50.41% and 23.67% respectively.

This completes my presentation on the financials. I will now hand over to President Chang for the business overview.

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

As you can see from slide eleven, our consolidated revenue for the first quarter 2009 was TWD49.1b, and we were able to maintain our leading market position in each of our business segments through first quarter 2009. We have been successfully defending our Fixed-Line market share and are confident that our strong market position will sustain.

Next, on slide twelve, is our Broadband subscriber data at the end of the first quarter this year. At the end of February total market Broadband subscribers reached 5.06m, representing 67% -- 66% household penetration. Chunghwa is the largest Broadband service provider, with 83.2% market share at the end of the quarter.

Since the Broadband household penetration is already high, our primary aim is not to grow the subscriber base. Instead, we are focusing on upgrading subscribers to higher speed fiber services, which have a higher revenue contribution.

In terms of the overall market competition, because cable operators tend to provide their access service at the lower prices, we observed that some subscribers with low speed needs have switched to cable providers. In order to retain these lower speed subscribers, we had to offer them quality services at a competitive price.

In addition, we'll continue to provide -- promote the Internet value-added services, the fundamental growth driver of our Internet and Data business. Among all these value-added services that we offer, the fastest growing are the Internet pornography gatekeeper and HiNet Games, which have year-over-year growth rates of 150% and 78% respectively. From the enterprise side, Enterprise Security Services are another focus. By adopting this service, enterprise can reduce their information security risks.

On slide 13, as of the end of the first quarter this year, we had about 1.2m FTTx subscribers. And the average bandwidth per Broadband user has reached 4.5 megabits per second. As I mentioned in the previous slide, our strategy is to upgrade the subscribers to use FTTx services. Since the ARPU for FTTx subscribers is higher than that for ADSL, upgrading subscribers to higher speed fiber network not only ensures our revenue growth, but also prevents customers from switching to cable services.

Please refer to slide 14. We had 8.98m Mobile subscribers at the end of March 2009. Although we have accumulated more subscribers throughout the year, total Mobile revenue declined slightly in the first quarter this year, primarily due to the economic downturn and the market competition. In order to mitigate this decline, we plan to aggressively promote our Mobile value-added service.

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

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

Moving to slide 15. Enterprise professional users will continue to be one of our target group. To cater their needs, we will enhance their user experiences and build loyalty through the mPro package with smart phones.

As I already mentioned repeatedly, value-added service which have higher growth potential is our focus for Mobile business. Among all Mobile value-added services, Mobile Internet experienced the highest growth. Mobile Internet subscribers who utilize our Mobile network capacity to browse the Internet reached 209,000 as of the end of the first quarter of this year, and exhibited a 108% year-over-year growth. For this year we expect to achieve 329,000 Mobile Internet subscribers, representing a net addition of 160,000 subscribers.

Now, slide 16. In order to drive Mobile value-added 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 the iPhone on December 13 last year. Our internal statistics show that 75% of the total number of iPhone subscribers are current Chunghwa subscribers who renewed their contracts in order to obtain an iPhone. The remaining 25% are new Chunghwa subscribers. For those 25%, two-fifths were previously subscribers of our competitors and they now have switched to us via Mobile portability. The other three-fifths were brand new users.

The launch of the iPhone helped to increase the smart phone sales volume. Since the iPhone's debut in Taiwan, smart phone subscription increased to 10.8% of our total handset sales volume, as compared to 2.2% before iPhone debut. In addition, 72% of iPhone subscribers subscribed to mPro which is much higher than that of other phone models. And their contribution is also 25% higher in terms of the average billing per user.

As shown on slide 17, by the end of March this year we accumulated 686,000 IPTV subscribers, a 57.5% increase year over year. We have been strengthening our IPTV strategy in terms of content, marketing and interactivity. For content, we are launching new VoD subscription model package on May 1. This package has 400 hours VoD online, and 20 hours VoD will be renewed every month. At the same time, we will enhance our -- the user interface by introducing premium content and a new VoD package.

For marketing, we segmented the market by content category, innovative viral marketing by the Internet and community marketing with promotional package and price. To improve interactivity we introduced the interactive advertisement to broaden our reach and attract more customers. We also enhanced the users' applications through widget-like interfaces.

This completes my business review. Now I would like to provide an update on the regulatory landscape.

As shown in slide 19, I would like to address the regulatory front from three aspects, including tariff reduction plan from the NCC, the amendment of Copyrights Law and the IP peering.

We entered into the third year tariff reduction of the three-year plan imposed by the NCC on April 1, this year. The reduction for ADSL and 2G Mobile tariffs are 5.35% and 4.9% respectively.

On the amendment of the Copyrights Law, the ISPs could avoid the risk of legal problems over questionable content by notice and the take down procedure. The amendment defines the definition and the Safe Harbor for the ISPs.

On the IP peering issue, as TFN requested to cut their IP peering price, we will be negotiating with players under the supervision of NCC. We believe the impact should be minimal.

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 21. The Company will continue delivering our key strategic initiatives mentioned previously, including digital convergence, NGN construction, streamlining operational efficiencies, to improve efficiencies. In addition, we would also focus on green strategies along with the global energy saving and environmental protection trend.

We finished the carbon footprint calculation in October 2008. According to the calculation, carbon emission of Chunghwa Telecom represented 0.3% of the total emission amount of the country in 2007. Owing to our efforts in this regard, we were awarded the relevant ISO certifications by SGS in December 2008. We also expect the emission of greenhouse gases in 2013 to fall back to that of the 2008 level, attributed to the Company's efforts on saving energy of office buildings, switches and vehicles.

In addition, we aim to promote our energy-saving solutions, such as iEN and ITS for corporate customers. Potential customers include government entities, schools, hospitals and SMEs. It is indicated that by adopting the so-called intelligent energy-saving solution, customers can save more than 23% of energy and increase their operational efficiency.

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

Thank you. We will now begin our question and answer session. (Operator Instructions).

Our first questioner is Tien Doe from GIC SG. Please go ahead.

Hi, good evening. Thank you very much for the call.

I only have one question, which is basically based on a piece of news that's just hitting the wires. I believe China Mobile is taking a stake in Far EasTone. What would your reaction to that be? How do you think it affects Mobile competition? Would you be able to give any details of the strategy you would employ if there is such an acquisition? Thanks.

Okay. Very much like you just have heard from the news conference. We need to understand better about the extent or the content of the announcement from NCC here from Taipei.

First of all, I would like to say that -- congratulations to FET and CM on this move. And this -- if it's really that substantial, really sets a new milestone for [cross-collaboration] in the telecom sector. But we really need to know more details about their agreement. So I don't have any more comment in this topic.

Anyway, thank you for this new development.

All right. Thank you.

Our next question is Tim Storey from JPMorgan. Please go ahead.

Chairman Lu, hi, it's Tim Storey. Thank you very much for the call. I have two questions. And, again, perhaps a follow up to the first question from Tien just regarding China.

It wasn't too long ago that Chunghwa Telecom had discussed the opportunity in their view of being able to invest into China, specifically into 3G. I'm wondering to what extent is the news today a surprise to you, or is this very much in line with the recent government-to-government relationship improvements we've been seeing in the press? And, particularly now, is there any more focus for yourselves potentially to be investing into China? So kind of turning the question around about not so much Taiwan, but also just the China perspective from your point of view.

The second question is more operational on the Movie on Demand service. There was a discussion in the Taiwan press, just a week or so ago, on the subject of content and how the NCC was criticizing content providers for not providing equal access to content on various platforms. And, specifically, it seemed that customers of movie -- the MOD platform were not able to get the same type of content as they could from other platforms.

To me, it seemed like this was actually a positive position that the NCC was taking to say that, effectively, all content should be provided equally to any platform. And I was wondering if I could get a comment on Chunghwa's position on that. Thanks.

Okay. On the first question, it's again in -- on opportunities in China. Well, as I said, we congratulate these two parties having this move. And, as we have already mentioned this before, that China really represents an opportunity for companies in Taiwan. And now the [pace] has already moved from manufacturing to service industry. And we believe, sooner or later, the service industry, including telecommunications, will have a chance to be even more closer relationship or collaboration between the countries across the straits. So if we have any definite accomplishment, we will let you know.

Okay.

On the MOD, the NCC is paying attention to, you put it very well, the equal access to contents, which is a positive sign for us. With this, we believe we will be able to get access and offer pertinent programs on our MOD platform, and we would like to see this happening as quickly as possible. That's my comment on this.

Thank you. Thank you very much, gentlemen.

Our next question is John Kim from Merrill Lynch. Please go ahead.

Yes, thank you very much for the opportunity. I have two questions.

The first pertains to your capital return. I think a lot of people in the market is happy to see that Chunghwa is continuing on with your annual capital return program. However, can the management share the management and the Board's thinking process behind the rationale for doing 10% return this year versus what was 20% last year?

And then second question. As we understand that your -- that Taiwan's third year of tariff cuts has now been implemented, have you had any discussions with the Regulator about what their intentions are for future tariff cuts, if any? Thank you very much.

Yes, I'm Joseph Shieh. I'm the CFO of the Company.

Regarding the capital reductions, I think that we -- our consideration primarily is this year the economic environment is very volatile and it's really different from the previous years. So due to the consideration of the prudent financial management, we will prefer to -- prefer more cash is on hand. So that's why we make a decision to make a 10% reduction. And we will review this on a yearly basis. Thank you.

And regarding to the NCC's intention for the years to come, whether they would like to adopt a similar tariff cut program, we don't know yet. But I believe the NCC is going to review this policy. And we hope that they will listen to us on pricing, or tariff setting for leading services in this market.

Thank you.

(Operator Instructions). Our next question is Lei Tang from Nomura. Please go ahead.

Hi. Thanks very much for the call. I have two questions. First, on the ERP program. So how much cost savings shall we expect, going forward? And how much of the related costs have been budgeted in the second quarter numbers?

Second, on the second quarter outlook. So I think the Company is guiding a stable outlook, but can you just talk about your expectation for the different business segments? Thank you.

The first question, on ERP, because it's a volunteer program for our employees to choose, we just give you some reference, okay? Because it's really depending on the outcome of how many employees take each year. For example, if we have 200 employees taking the package, we estimate the cost would be around TWD300m in the second quarter.

And the saving from this, we estimate that the difference between the experienced senior employees to the new hire, the new graduates, the saving for this 200 person -- the headcount, 200 headcount, would amount to about TWD140m per year. The saving would be TWD140m per year. Thank you for your question.

And the second question?

Okay, let me answer this question. Our revenue, if we divide it into three categories, Fixed-Line, Mobile and the Data, we try to maintain the Mobile and the Data segment is flat as the last year. The major difference comes from the Fixed-Line. Thank you.

Can I just follow up? So, do you expect to see further weakness in the Domestic Long-Distance and the International Long-Distance segments?

Okay, if we divide to Local Long-Distance areas, IDD -- I think IDD we are getting better and better, but the local phone service still decline a little bit more.

Our next question is from Dee Senaratne from CLSA. Please go ahead.

Hi, guys. Thanks very much for the call. Just had two questions. The first one, obviously, on the back of just the news that hit the wires. Obviously, you guys weren't willing to give a comment on how you see the competitive environment. Just wondering, though, in terms of Chunghwa's attitude towards any participation with the [Mai Lin] Corporation, in terms of strategic partnership, any update there now on the back of this news?

And then the second question was just on CapEx. And there, just looking, obviously, there's a bit lower CapEx than expected for the first quarter. Is that going to be a structural trend for the full year? Shall we -- is there an expectation that we'll see a bit lower CapEx than what the guidance is for that -- I think it was TWD32b for the full year? Thank you very much.

Let me answer the second question first, okay? About CapEx, yes, as we indicated, we have budgeted in between NT30b to NT32b for this year. But this year is a little bit different from the previous years, so we will review our CapEx comments. If the market tends to be a little bit smaller than expected, maybe we would consider readjusting our procurement programs. And we will give more light, definitely, next time we meet here in the air.

And then your first question is a bit (inaudible). Yes, you're -- the news that we have been discussing here with these companies. As I said, certainly the [concentrated] opportunities do exist. And every companies in Taiwan, I believe, is also exploring the opportunity, and that includes Chunghwa Telecom. And we will give you information if it's ready and we are in position to do so. At this moment, I have no specific point to report to all of you. Thank you.

Okay. Thanks very much.

Our next question is James Sullivan from Millennium Capital Management. Please go ahead.

Hi. Thank you very much for the call. Just a quick question on the Broadband space. The advent of wireless data cards seems to be a very prevalent theme in a lot of the markets here in Asia. Could you comment on what the Broadband data cards mean in terms of overall Broadband competition? And, specifically, what you're seeing in the marketplace right now in terms of tariff plans, for the wireless data cards versus the traditional Fixed-Line Broadband products that you've been offering? Thank you.

Well, Mobile Broadband data card is a very important segment in Mobile provision. And -- but in Chunghwa Telecom, we are aggressive in offering Mobile data cards, okay? And we also are very aggressive in marketing the smart phones. Smart phones are equipped with Mobile data capability. The market trend has already moved towards some -- relatively high subsidy for data card sales, but we believe the Mobile Internet usage is increasing and this will offset the subsidy that have been put upon data cards. It's important. And we have the largest number of customers with Mobile Internet capabilities.

Would you expect that the Mobile data cards would have any impact on your fixed Broadband ARPU?

Yes. Actually, it impacts -- according to our statistics, it's about the impact of 10% for our fixed -- that means that our data card customers there would be -- if you churn the fixed it's about 10%. 10% of customers they use the data card instead of the fixed ADSL.

Thank you very much.

Our next question is [Mei Lin] from Yuanta Securities, Taipei. Please go ahead.

Hi. Thanks for the call. I have one question. It's simply about the expense part that we mentioned, about the personnel expense increase in the first quarter '09, mainly because the Company increased their saving of performance-based bonus. I wonder that if this will be just a one-off event, or it will repeat regularly going forward? Thanks.

On the early retirement programs we have just announced, it's for this year. But we also announced that a similar package, but with different ingredients will be available next year.

Yes.

So, for this one, we have announced the programs for two years.

Yes.

Okay, so -- all right, that's --

(Multiple speakers). Excuse me?

Sorry, may I clarify that? Are you meant which we write in the [core fixed] expense part, that we increase the ceiling of performance-based bonuses is related to the early --?

Yes, exactly.

Yes.

Okay. This is related to the early retirement.

Yes, okay. Besides my Chairman comment regarding the first quarter personnel expense increase, primarily due to the fact that, as we mentioned previously, we allocated a -- the proposed reserve for the incentive -- employee incentive program and evenly distributed in every amounts. Profits in last year, our previous year, we just book those reserves in -- to an amount occurred normally in December or January.

Okay.

So from next year, then, this factor won't be happen again, because we already [refrain] in this year. So there won't be any [sudden] impacts. Thank you.

Okay, got it. Thanks.

Our next question is Kathy Chen from Goldman Sachs. Please go ahead.

Hi. Thanks for the call. I have three questions. Two are just a follow up on the second quarter guidance. I think earlier you mentioned that, for second quarter, you're essentially assuming that Mobile revenues will be flat year on year. Can you share some color on what you're expecting to see this improvement, given that in the first quarter it looks like Mobile revenues actually declined by about 3% year on year?

Secondly, as a follow up to the cost guidance, it looks like second quarter guidance is implying that gross profit will decline by 9% year on year. So, can I just clarify, is most of this incremental cost related to the ERP expense that you're assuming in May?

And then the last question is just another question regarding further cross-strait developments. Is there any change or response from Chunghwa regarding property development or land monetization, [if] you see the Taiwan property market recovering? Thanks.

Yes. Let me answer the third question first. For the property market, now it's too early to comment on the property market recovery. But our strategy is [here] and we stick with the long-term [yield] of the property management, which means we will be still focusing on the rental incomes, as we mentioned before.

Regarding the guidance, I think for next quarters we feel the telecom market will still very competitive but, compared to the first quarter, it will become more stable. And, hopefully, the -- compared to the first quarter, the Mobile revenue will be a little better. But, still, [be down] compared to the last quarter of 2008.

Regarding the cost size and the expenses, we may have a TWD300m cost increase on the second quarter, and is primarily because of the ERP programs. Thank you.

Okay, thank you.

(Operator Instructions). Our next question is Neale Anderson from HSBC. Please go ahead.

Good evening, it's Neale Anderson from HSBC. I have two questions. The first relates to handset subsidies. It's my understanding that Chunghwa aims to reduce handset subsidies by about 10%, to TWD5.4b in 2009. I was just wondering if you could give some color on that, relative to an increase in marketing expenses of 8.4% in the first quarter? Just what drove that increase? Was it to do with iPhone particularly, or any seasonal costs? That's the first question.

The second question relates to competition to Chunghwa's DSL product from cable Broadband. There was a fair bit of discussion on this in the last call on 2008 results. Can you give an update on that? Are you still seeing significant competition from cable, or has that reduced? Thanks very much.

Okay. The first question is about the handset subsidy. Now we are focusing on the high-usage customers to subsidize. We're not -- we don't subsidize every kind of customer. So we try to control our subsidies, our Mobile subsidy in our -- according to our budget.

And the second question is about the cable Broadband competition. Actually, they do have -- get our customers from the low-speed customers. So, as I just mentioned in my briefing, we try to provide a new package for the low price -- low-speed customers, to try to get it back -- get them back. Thank you.

Thank you. Just to follow up from that, could you give some clarity on what drove the rise in marketing costs? If I assume it's not handset subsidies, was it anything in particular that you can share with us? Thank you.

Let me try, okay? For the handset subsidy, [our policy] for first quarter this year, if we compare with the first quarter last year, actually, the handset subsidy amount increased about 2.7%, okay? Probably a little bit below the -- our explanation for the whole year is 10% decline. This is the average we are paying right now. So the current number is -- in the first quarter this year it's below the same period last year. Okay, that's all.

Great, thank you very much.

Our next question is [Arthur Fernandas] from [IBS] Securities. Please begin.

Hi. Thanks for the call. I have two questions. Firstly, on the wireless performance, it seems to be quite weak, what steps is the Company taking to stabilize this, or is this really mostly a macro issue? You mentioned a while ago that the International Long-Distance business is getting better. What's driving this?

The second question I had is with regard to the announcement, again, with China Mobile and Far EasTone. To phrase the question differently, how do you think cross-strait investments would alter the way you operate if it were Chunghwa who were involved in a similar transaction? Which specific areas would you actually capitalize on if you were in your competitors' shoes? Thank you.

For the ILD, according to our first -- the performance of our [Apro], we think -- because we reorganize the old prepaid policy so -- and we re-organize our internal departments to get the concentrated our -- get concentrated to this market. So now we have some figures to show now, that increased a little bit.

Okay, for your second question, about the cross-strait opportunities, because in this topic we have to consider certain regulations. And, with this in mind, the opportunities can be classified into three areas.

The first area, and probably the easiest, is non-telecom-related opportunity, okay, such as our system integration. It's really not telecom -- directly involved with telecom business. The second area would be on so-called Type 2, or regulated services under the (inaudible) lease -- the infrastructure area. So we believe the second and third, the regulated service and also infrastructure all require the adjustment of the policies. So these are areas not available at this moment. So I believe the first move could be in the area of non-telecom-related business opportunities. Does this answer your question?

Yes, it does. Thank you.

Okay. Thank you.

Excuse me. Before we enter into the next question, I want to correct the figure I just gave about the handset subsidies. I'm sorry, the handset subsidy for first quarter this year versus first quarter last year, it's declining for about 16%. I'm sorry, that's 16%, one six, okay?

Our next question is [Doris Wang] from [Capi-loss] Insurance. Please go ahead.

I'm sorry, I have no question because the previous (inaudible) person has asked what I want to ask. Thank you.

Thank you. (Operator Instructions). Our next question is [Henry Chan] from Credit Suisse, Hong Kong. Please go ahead.

Hi. I have two questions. Can you give some color or a update on the IP peering issue with Taiwan Mobile?

And my second question is -- I'm sorry, I missed out on the ERP program. Can you repeat those data, like how much saving and how much the costs are you expecting? Thank you.

Okay. Let me first answer about the IP peering. According to a [recent status list], the NCC treated their IP peering tariff as a wholesale tariff. So the final judgment should be met by the NCC, if they -- if the negotiating we cannot get the -- come from -- get the answers. So the final judgment will be met by the NCC. But, until now, we already have nine times meeting to negotiate. I think the -- it will be more closer to that opinion, to [have been] more close.

On the ERP, because it's a voluntary program, so how many employees will take the package we have to find out in our -- when we close the package for this year in the middle of May. Just take the 200 as an example. Suppose 200 employees take the package. The cost would amount to about TWD300m for the second quarter, because of the severance payment and all these additional benefits to them. TWD300m, okay?

And the saving, as a result of -- if we [recruit] with 200 by new recruits, and the difference would bring us a saving of about TWD140m per year [approximately].

Sorry, TWD140m?

Yes.

Per year?

Yes.

Okay, thank you.

Okay.

(Operator Instructions). Thank you, Chairman Lu. There are currently no more questions in queue. Do you have any further comments?

Thank you very much for joining us this trading results -- Q1 2009 operating results phone call. Thank you very much. Have a good day. Thank you. Bye bye.

Thank you, Chairman Lu. Thank you, ladies and gentlemen. Thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within an hour. Please visit www.cht.com.tw/ir under the In Focus section. You may disconnect now. Goodbye.