Chunghwa Telecom Co Ltd (CHT) 2009 Q3 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the Company Q3 2009 operating result. 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 section.

For your information, this conference call is now being broadcast as 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 session. Now I would like to turn it over to Fu-fu Shen, the Director of Investor Relations. Thank you. Miss. Shen, please go ahead.

Thank you. Yes, thank you. This is Fu-fu Shen, Investor Relations Director of Chunghwa. Welcome to our third quarter '09 results conference call for Chunghwa. Today we have Dr. Lu, our Chairman and CEO, and Dr. Shieh, our CFO, to speak to you and answer your questions.

On today's call Dr. Shieh will review financial results. Then Dr. Lu will review our business operations and our business outlook. Following our 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. Please.

Thank you, Fu-fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our third quarter '09 earnings results conference call. As usual, please note our Safe Harbor statement on slide number one.

Before I hand it over to Dr. Shieh for financials overview, I would like to talk to you about the recent market development in Taiwan. As you may know, one of our competitors announced the acquisition of a major MSO in Taiwan. Although this transaction still needs to be scrutinized by the Fair Trade Commission and the National Communications Commission, we are monitoring this event closely and our resolved to deepen our market position by more aggressively rolling out Fiber solutions to our customers.

We have projected to increase our CapEx next year to accelerate our Fiber deployment and to fully enrich MOD content. For Fiber deployment we plan to offer services with a top speed of 50Mbps and we are currently net adds for Fiber subscribers in 2010 more than that for the entire year of 2009, which is expected to be 600,000. As for MOD, we will continue to capture quality content to attract customers and to enlarge customer base. As we are still in the process of finalizing our CapEx plan for 2010 and beyond, we will update the market as soon as we confirm the CapEx plan.

Next, I would like to update you on the progress of our capital reduction program. Our Board of Directors yesterday approved the capital reduction program schedule, and the cash payment date will be in mid-February 2010. The total amount of cash distributed to shareholders from this program is estimated to be TWD9.7b.

Now I will hand it over to Dr. Shieh for our financial results.

Thank you, Chairman Lu. Please turn to slide four showing our income statement highlights on a consolidated basis. Our total revenue for the third quarter of 2009 was TWD50.1b, a 1.7% decrease compared to the third quarter of 2008. The primary reasons for the revenue decline were the economic environment and market competition, which resulted in the reduced traffic for Fixed-line business.

EBITDA decreased by 3.6% and operating profit decreased by 2.9% respectively. These declines are due to the decreased revenue, which I will cover in more detail on the following slide. However, we were able to maintain our EBITDA and operating profit margins relatively stable.

Net income decreased by 17.9% compared to the third quarter of 2008, primarily due to the revenue decline and the reversal of the mark-to-market variation loss from the foreign exchange derivatives [content] in 2008.

Our slide five shows the revenue performance for each business segment for the third quarter of 2009. Total Mobile revenue decreased 2.5%, mainly due to a decrease in Handsets and Data Card service sales from [Sunam]. However, we made progress by increasing our Mobile subscriber numbers by 3.5% and by enhancing our VAS revenues by 18.8% year over year for the first nine months of 2009.

Internet revenues slightly decreased, mainly due to a decrease in HiNet Service dialling as a result of a tariff reduction since November 2008. In the Domestic Fixed-line business for the third quarter 2009 Local and the Domestic Long Distance revenues decreased by 5% and 7.4% year over year respectively. These decreases were mainly due to the economic downturn as well as Mobile and VoIP substitution.

Broadband revenue, including ADSL and FTTx, increased by 0.1% because of our successful upgrades of DSL subscribers to Fiber solutions, International Fixed revenue increased by 4.0%, which was mainly the result of an increase in International Leased line revenues.

As shown on slide six, for the third quarter of 2009 total operating costs and expenses were TWD35.9b, a decrease of 1.3% compared to the third quarter of 2008. This decrease was mainly due to the announced decreased operating costs, correlating to this decrease here as well as the decrease in Parent Company's depreciation expenses.

In terms of our cash flow performance shown on slide seven, for the third quarter of 2009 our net cash flow from operating activities increased by 20.9% year over year to TWD15.2b. This was primarily because of the decrease of other current monetary effects and the decreased income tax payment in the third quarter of 2009.

Free cash flow for the third quarter of 2009 increased by 61.2% compared with third quarter of 2008, mainly due to the increase in net cash from operating activities and a decrease in CapEx. As a result, our cash and cash equivalent amounted to TWD55.8b as of the end of the third quarter 2009. This represents about a 45.9% decrease compared to the same period last year, and the decrease was mainly because of the cash dividend exclusion in September of 2009.

Slide eight shows our focus for the fourth quarter of 2009. Please be advised that this focus is only for Chunghwa, the Parent Company, as the user traffic continues to increase due to the overall economical recovery. Chunghwa currently estimates that the total revenue for the fourth quarter 2009 will be relatively stable at TWD46.1b, compared to TWD46.7b revenues from the fourth quarter of last year.

Taking into consideration of our cost controls we estimate that for the fourth quarter of 2009 EBITDA could be TWD20.8b, operating profit TWD11.8b and the net income TWD9.3b. While our EBITDA focus is slightly down by 0.3%, operating profit and net income for the fourth quarter 2009 are expected to grow by 4.1% and 9.6% respectively year over year.

Please turn to slide nine. The total CapEx for the first nine months of 2009 amounted to TWD16.6b, a 9.7% decrease compared to that for the same period in 2008. Of the TWD16.6b CapEx figure, 79.8% was used for Fixed and Internet business, 17.8% was for Mobile business and the remaining was for other capital expenditure. As Dr. Lu already mentioned, our 2010 CapEx will be increased to accelerate the Fiber deployment. Moving beyond 2010 the amount of CapEx might vary depending on the market dynamics.

This completes my presentation on the financials. I will now handover to Dr. Lu for the business overview.

Thank you, Dr. Shieh. Now let me take you through the business operations for Chunghwa Telecom. As you can see from slide 11, our consolidated revenue for the nine months of '09 was TWD147.2b and we were able to maintain our leading market positions in each of our various segments throughout the third quarter of '09. We have been successful at defending our Fixed Line market share and our confident that our strong market position will sustain.

Next, on slide number 12, this slide shows our Broadband subscriber data at the end of the third quarter of 2009. Total Taiwan market Broadband subscribers reached 5m, representing 64.8% household penetration. Chunghwa is the largest Broadband service, provider with 82.7% market share at the end of third quarter of '09.

As already mentioned, we plan to speed up our Fiber deployment and capture more Broadband subscribers. The top speed of Fiber services that we expect to offer in 2010 will be 50Mbps, which can potentially contribute higher revenue. In addition, as part of our strategy in competing with cable operators, we are retaining lower speed subscribers through competitive pricing, which we are able to execute by offering sub-plan ISP services via one of our strategic partners as well as by offering customized service packages to various residential communities.

In addition, we will also co-promote our Broadband and Wireless Internet service at a favorable rate. Moreover, we will continue to promote Internet Value Added Services which are the fundamental growth drivers of our Internet and Data businesses.

Now please refer to slide 13. We had 9.2m Mobile subscribers at the end of the third quarter of '09. Although we were able to continue accumulating subscribers and our Mobile churn rate has consistently been the lowest among all Taiwan telecom providers, our total Mobile revenue declined slightly in the third quarter of 2009, primarily due to the economic downturn and the market competition.

In order to mitigate this decline we plan to continue our segmentation strategy, catering to different types of customers through various services, promotions and device offerings. In addition, we will focus on 3G Value Added Services to meet customer demand for applications, thus, increasing the usage. Last, but not least, we are committed to an advanced network deployment in enhancing our overall service quality for all customers, as well as further streamlining our network efficiency.

Now please move on to slide number 14. In order to track Mobile VAS usage and increased Mobile revenue, we are collaborating with world-class manufacturers to provide Handsets with advanced features and enhanced interfaces. We are constantly expanding our Handset models in order to meet the evolving needs of our customers.

In addition, our VAS packages are also designed for various customer segments. Our VAS service platform, Hami, can deliver popular services such as music, occasion-based service and so on for selected Handset models. By the end of 2009 mPro subscribers are expected to grow more than six times year over year. Moreover, we are offering our eBook service which was launched on October 28; two days ago. Our eBook can be read from Smartphone screens at this moment.

Let's now take a look at the average VAS revenue. For Smartphone customers, not only the ARPU is twice that of the average CHT customers, but also the percentage of VAS revenue contribution from the Smartphone customers is much higher. We will continue providing these value services under the desired Handsets in order to meet the growing preference of our many subscribers so that we can further enhance the user experience and the loyalty.

As shown on slide 15, by the end of September 2009 we accumulated 668,000 IPTV subscribers, representing a 13.1% increase year over year. In addition, the number of households using television for the third quarter '09 is 0.66% higher than the second quarter of 2009.

We have been strengthening our IPTV strategy in terms of content, marketing and interactivity. For example, we signed a VOD contract with TVB of Hong Kong, of which TVB will provide 1,200 hours of drama content per year. We will continue aggregate popular HD channels to better reach our customer preferences. On interactivity, our Special Zone for Interactive Ads launched on October 1 this year. In addition, it provided interactive games for the Deaflympics 2009 Taipei from September 1 to September 15.

Additionally, Nippon Pacific Baseball league games were all live broadcasted across our MOD, HiNet and emome platforms. The World Games 2009 Kaohsiung and the Deaflympics 2009 Taipei were broadcasted live on these three platforms as well. Furthermore, we have acquired the broadcasting right over our three platforms for the upcoming Winter Olympics, which we plan to broadcast during the Chinese New Year holidays.

We expect such popular programs will further stimulate our traffic and attract more customers. We are committed to our IPTV strategy and will continue to execute it in order to complement the existing services.

Finally, I would like to make a few comments on our business outlook, as shown on slide number 17. Our mid-term corporate strategy is primarily centered on enhancing our competitive positioning, exploring new business operations and implementing CSR.

Specifically, we plan to sustain our dominant market leadership by enhancing core product features and functionalities, providing differentiated and customized services as well as innovative devices to reach the ever-evolving user privileges.

Also we will continue to focus on ICT-related services, such as IEN or energy saving, ITS and car computing to better serve our corporate clients. At the same time we will continue an advanced level of deployment to stay ahead of industry goals and transformations. In addition, we will continue consolidating our networks to streamline operations, improving efficiency and cost management to better support our core business competitiveness and advanced technology development.

Next, we will focus on exploring mainland and overseas emerging markets for new revenue opportunities, as well as leveraging our existing property assets to enhance income. Finally, we stand firm on Corporate Social Responsibility implementation and commitment.

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

We will now begin our question and answer session. (Operator Instructions). The first question is Kathy Chen from Goldman Sachs.

Hi, thanks for taking my question. I have three questions. Firstly, for the fourth quarter guidance can you discuss the cost assumptions that were assumed in the guidance? How much of the cost increase sequentially is due to the usual year-end costs and how much is due to increased Mobile marketing spend?

My second question is if you could share some more color on how much impact you're seeing from cable Broadband competition?

And the last question is on MOD. Could you share your existing ARPU figures and any subscriber ARPU targets over the next couple of years? Thanks.

Okay, let me answer the third question first. Currently, our MOD operation is still at the early stage and the ARPU is [up] TWD111 for this year until end of September, okay. Of course, we would like to see an opportunity to increase ARPU and there are many factors affecting this development. And we will offer to you more specific numbers if we are able to do so in the near future.

And the cable competition, well, the cable competition is in the area of Broadband Access, and we believe we are still leading in this position by maintaining about 82.7% of market share until the end of September. As I said and emphasized very much in the presentation, that the Company is determined to still lead and maintain our leadership position in this segment.

This is important. The Broadband Access is not only for the converged services in Fixed Line, but also will take some of the Broadband traffic from Mobile if we manage to integrate the traffic from Mobile to Mobile Access and the majority of the portion of the network will be on Fixed Line. The Broadband market is very important and we will do our best to maintain our leadership and maintain the market share.

On the forecast Q4, I would like to have Dr. Shieh to say a few words.

Yes, normally due to the seasonal pattern in Q4 we have higher costs and expenses compared to the third quarter. In relation to the Mobile marketing expenses, we anticipate the marketing expenses and the Handset subsidies will be increased by TWD150m compared to third quarter. And, overall, the fourth quarter costs and expenses will be exceeding third quarter figure by TWD1.7b. Thank you.

Thank you.

The next question is Shirley Tse from UBS.

Hi, thanks very much for the call. I have three questions. Just when you mentioned earlier about some Fiber upgrades especially being more aggressive going into next year, I was wondering how you think that would impact on your ARPU. Do you expect that to be churning of your existing ADSL customers at a higher speed but similar tariffs? Or instead would you expect there to be attrition to your ARPU and also enhance revenue?

Secondly, there were some press reports recently about Chunghwa Telecom may be considering an investment into APBW. I was just wondering if this were to be considered what would be the key benefits that you can see from Chunghwa Telecom's perspective in taking over the operations?

And also, thirdly, you mentioned on the Broadband side. I was wondering on the 3G and also on the Mobile subscribers, how much of that right now is coming from Mobile Broadband, and if you can give us some color on the ARPU for these customers as well?

Okay, your first question is related to the Fiber upgrade and our strategy is to migrate the lower-speed customers to higher speed and, of course, ADSL, as we mentioned many years ago, that ADSL is probably the transitional solution. So eventually it's going to be Fiber to the X, Fiber to the home.

And, of course, we would like to see the opportunities to increase the ARPU through this upgrading. Once in a while we take the strategy to increase the speed that result the increase in the tariff. This is only part of the strategy. And, as I mentioned, the top speed for Fiber upgrade next year will be up to 50Mbps. With this high speed, certainly, we would have to see increase in monthly fees. So we would like to see the increase in ARPU through Fiber upgrading.

Regarding to the second question, one of our strategies to grow our business is to come back to M&A activities. Our track record shows that we are relatively conservative. I believe that being conservative is right for Chunghwa Telecom. The Company is assessing multiple cases all the time and we have an SOP to [file].

So we have no decision and nothing to report you regarding to the specific target you just mentioned. So the pros and cons is always our colleague, our teams will face, benefits or (inaudible), all this. All will be considered. And at this moment we have nothing to say to you on this question.

Then the third question is related to the Broadband and the Mobile Broadband. Okay, let Fu-fu to say a few words there.

Okay. About the third question, you mentioned about the 3G subscriber, Mobile subscriber and Mobile Broadband ARPU for these customers. I think by the end of the third quarter, I think our total Mobile subscriber reached about 9.2m, but for Mobile Internet the subscriber number is around almost 280,000 subscribers, okay?

As for the ARPU for those subscribers, you know that for any Wireless Internet subscriber usually they have to subscribe in addition to their Voice packages. It's usually about TWD950 or TWD850, depending on their package they chose. So I think that's my answer to your question.

Just to clarify, when you mention for the Mobile Internet subscribers, 280,000, that includes the people who are using the 3G devices to access the Internet, or is it just the ones using the USB modems on their netbooks or laptops?

You see for the number I just gave you, that's including people who subscribe our Data Card and are using our mPro via our Smartphone. I think that's add these two numbers together.

Okay. And the follow up to the Fiber upgrades, you mentioned earlier about the CapEx will have to go up going into next year. Does it mean that we should expect it to go up above the 15% CapEx to sales ratio?

We are still working on CapEx for next year and we will have more specific numbers if we offer our guidance for next year.

Okay, thank you.

Possibly increase a little bit, yes.

Okay, thanks.

The next question is Gary Yu from Morgan Stanley.

Hi. Thanks for the call. I got three questions from my side. First of all, on your comment on accelerating Fiber upgrade, how do you see the demand for higher-speed Broadband, given you're going to over 50Mbps next year, especially given your hurdle to a relatively slow take-up on your MOD service? In relation to that, if there's a limited demand for high-speed Broadband, are you going to consider lowering the high-speed package price in par with your existing offerings?

The second question I have is in terms of content enrichment. Can you elaborate a little bit more of how you are going to acquire more content for your MOD service, especially in light of more control from Taiwan Mobile after the Kbro acquisition on content side?

And the last question I have, is there anything that you can update us on your capital management plan for next year, given the likely change in corporate law on special dividends by the end of this year? Thank you.

The last question, regarding to the -- regarding the capital management. As I mentioned before, we are aware we have a strong cash balance and we feel we need to review our capital structure and make a decision every year. So I think we serious consider these things and we will make a decision by April of next year on the Board meetings.

And regarding on the so-called new regulation of the -- in relation to the capital management, I think that, as far as we know, the new resolution already submitted to the Parliaments and already they come through the first meeting through the procedure commissions. So now they are submitting to the economic commissions. So, hopefully, after the third meetings we can know the final answer but, so far, still not finalized yet.

To answer your first question, let me say this. The Company has decided to offer higher-speed Fiber Access to our customers and this is in line with the development in this industry. And we need to submit our programs to NCC for their approval and we are also monitoring the market acceptance of such kind of very high-speed services.

Because of the market development we believe something on the regulatory side, some regulations, may change faster than what's been under consideration for so many years. So we would like to see the possibility of relaxing some regulations on our operation on IPTV so that we will be able to acquire more contents, and especially lost contents that are, at this moment, only available from cable.

So with this in mind, the value, the core value of our business is to offer services, and Broadband service is the trend. So that's the rationale behind our decision to upgrade and to accelerate our Fiber deployment.

I have also touched upon your second question already, so that's the kind of forward-looking -- looking forward to a better operating environment. And in the presentation I have already mentioned that we have already signed a contract with TVB of Hong Kong and there are other contents that we are negotiating with. Once we reach conclusion on the negotiation we will offer to our customers, and that will be announced when agreements are reached. Okay?

Okay, thanks, if I can have a follow-up question on that. Given your priority of defending your Broadband market share, would you consider at some point in time using price as a weapon to defend your market position, especially given Kbro currently offering a 20%, 30% discount when bundled with cable TV in terms of Broadband service?

We have heard of that statement from one of our competitors. Actually, they are now offering Broadband Access at this kind of rate, that is, about 30% cheaper than our tariff. So it's the quality of service that matters, I believe. So we will monitor this market condition and try to maintain in our leadership with quality service.

So, as I said, the regulation may change. One of the issues that we will [strength] is once the market is -- market regulation -- new market regulation [up] we like to see that there will be fair and equal standards on engineering and the quality of service for convergent services.

Okay, thank you.

Okay, thanks.

(Operator Instructions). The next question is May Lin from Yuanta Securities.

Hello, thanks for taking my question. There's three questions. First, do you have any [regular] update on the property redevelopment part?

And second is about overseas investment. We have read from the newspaper that actually Chunghwa Telecom may have a co-operation with Chunghwa Uni -- sorry, China Unicom on the iPhone Hami platform. And we'd like to know if any further co-operation with China telcos in the future?

And, third -- my third question, sorry if I mentioned again this question. Is there any update on the mandatory tariff [top] on mobile and ADSL service? Thanks.

About the first question, we all know we have a lot of land bank and, actually, we already -- as we mention always before, we already transferred 6% to our subsidiaries. And I think they are going to accelerate the speed of developing those six pieces of land. And, other than that, we also identified certain pieces of land, some in Taipei City and some in [Kaohsiung] and Taichung. And for the next two or three years the Chunghwa tariffs come [himself] we further develop on those land banks.

And in terms of the number, we -- I think last year we already have about TWD600m rental revenue every year. And through 2013 probably we all have TWD600m to TWD700m every year on rental income. And after 2014, hopefully, we estimate that we have more than TWD1b rental income annually.

So in answer to your question, we don't have our near-term and mid-term and long-term land bank developing strategies. On the near term we are more focused on the already-developed areas, prime location areas. On the mid term and the longer term we are focusing on developing on different areas. Thank you.

Okay. The second question is oversea opportunities and especially the China opportunities. You mentioned about CU and CT, China Unicom and China Telecom. As I said in the outlook for the Company, pursuing opportunities in oversea markets is always in our agenda and we are exploring all possibilities. And that's about what I can say today.

If we have concrete results, we will announce to you. The third question is on Mobile, or it is the tariff for the coming year. We do not have any plan to adjust downward the tariff for Mobile or ADSL. And for the past three years it's NCC's decision, their mandate that we need to follow.

It seems to me that all -- the industry would like to see that it's a very competitive market and so the tariffs should be determined -- the rates should be determined by the market, so we would like to see that the end of this period, until next March, there will be no such mandate.

But from our understanding probably it's difficult for our NCC commissioners not to consider continuing this kind of policy. So we are still negotiating, offering our opinions to the commissioners for them to consider that the market is already very competitive, so please allow the market to determine the price.

Okay, thanks. Thanks.

The next question is Dee Senaratne from CLSA.

Good evening, guys. I just had three questions, if I may. The first one, I just want to find out if you can give me a bit more detail on, you've got it in your presentation, obviously, the ARPUs for a Smartphone customer subscribe and also a regular Mobile subscribe. And obviously the ARPU's a lot higher. But, conversely, I just want to know if you can give me the breakdown on the acquisition costs for a Smartphone subscriber versus the regular Mobile subscriber.

The second question I have was on the content issue, and you were leading to just in the Q&A on that. You felt you were a bit more positive on the potential that Chunghwa could obtain content and have that restriction that it's had for a number of years overturned. What are the key events or milestones that need to occur? And when would you expect that to occur, if it does?

And then, finally, on your being more aggressive on investing in the Fiber network, I remember previously your target that you stated was 83% coverage by 2013. Is there any update to that target now, obviously, bringing it forward, or also maybe increasing the total coverage from 83%? Thanks very much, guys. Appreciate it.

Okay, thank you very much for your question. We reported to you in the presentation that the ARPU for Smartphone is higher than the average, and we do not have any breakdown on the SACs according to the segments of our Handsets of our customers. And we told you before that the total marketing expense for Mobile for the business for this year will be about 10% less than what we spent last year, and we believe this is still the case.

As to the content acquisition, of course we would like to see this more favorable situation in consumer telecom to occur as soon as possible, but if the market falls and also some of the regulations have some effect on this. So we do not have any specific schedule at hand. We will try our best to acquire good contents while maintaining reasonable cost control on this.

We said to you earlier that there is a schedule for penetration of Fiber coverage in Taiwan. As we said, we would accelerate our Fiber deployment and we are at the stage of planning CapEx for next year. We will update that coverage once we finish our detailed planning, okay?

Okay, thank you very much.

The next question is Arthur Pineda from RBS.

Hi. Thank you for the call. I have four questions. I'm wondering, how do the FTTx margins and ARPU compare against ADSL for you? How would expanding this business impact your margins going forward?

The second question I had is with regard to the competitive environment. You seem to be forecasting a more challenging fourth quarter versus the third quarter, while your competitors seem to be of the view that the fourth quarter will be stable, with the economy generally on the mend. Why the conservatism in profit outlook?

Third question I have is with regard to high-speed Internet again. Looking at the markets with installed high-speed Broadband, take-up's have actually not been that impressive, with most subscribers, with the expectation of a few markets like Korea, taking up the lower-speed plans and preferring value. What can you actually do to stimulate take-up or migration to FTTx in Taiwan?

The last question I had is with regard to Broadband pricing. You did say that you will be more aggressive on the Broadband pricing side. What's the current differential now between DSL and cable Broadband, and where do you see this going in the future? Thank you.

Okay. Your first question is about the margin for a very detailed segmentation of the technology. The companies do not offer such detail on margin so we do not have anything on this.

The second question is on the forecast for our fourth quarter. I would like to ask Dr. Shieh to say a few words.

On the third quarter, we all know we make the budget in June and at that time the environment was quite volatile, and so we take conservative views on the cost expenses. But after June, and I think we meet the investors and also our Board members, I think they're all quite concerned about our earning potentials, so that's why we make it.

Yes. So on the third quarter, the cost and expenses, we take very tightened cost controls, and so that's why we -- the final result for the third quarter looks quite positive. On the revenue side, on the third quarter, because the iPhone was well accepted by the market, so that also increased our revenues.

Looking into the fourth quarter we will take, based on the [picture] information basis, we take stable views. We've seen the cost control still going on and, hopefully, our costs will be lower than last year same period. And the earnings I think will be higher than the last year same period. Thank you.

That is about your financial questions. So --

Okay.

The third question is related to the value of all these high-speed offerings. And, yes, we don't have a tariff plan for various different speed offerings, and probably it's better for us to get back to you on these questions, okay?. I do not have specific numbers at hand.

Sure. Okay, maybe just a last question with regard to the average pricing differential between DSL and cable Broadband. Do you see that as narrowing, in order for you to be more competitive in that segment?

If you are referring to the lower-speed side, we believe we are competitive with what the cable person is offering, yes. And one of our strategy, as presented earlier, is to collaborate with one of our partners on this.

Okay. If I can just do a follow-up question. You mentioned a while ago that you're expanding your FTTx business. I know that you can't give me any guidance so far on the margins but, going forward, as you expand this business where do you see the overall margins going? I know you can't break it out between DSL and FTTx, but should I expect it to be stable or should I expect it to go down?

We will try our best to maintain our margin when we introduce new technologies. We will also need to monitor the market acceptance. So we will see how the market accepts our offering, okay?

Okay, got it. Thank you.

Yes.

The last question is Woo Wei Shi, Deutsche Bank.

Hi, just one question. Can you please comment on the reduction in sales on your Data Cards and Handset, please?

As I said, we do not offer detailed -- such segmented EBITDA margin for Data Cards or Smartphone. No.

So, just to clarify, is the reduction largely due to lower acquisitions or is there some reason driving the relatively large year-on-year decline in sales?

I'm sorry. I want to talk about your first question. You want us to comment on the reduction in sales on Data Cards and Handsets? Is that -- ?

Yes, yes.

Was that your question?

Yes, it is.

I think for the third quarter our Data Card -- I'm talking about Mobile, because Data Card subscribers are also included in the Data Card subscriber number, so all together. So for the third quarter we still see increase of our Mobile plus -- including Data Card subscribers, so I think we don't really see any reduction. But if you're talking about sales, the sales -- for a sales number, that's standalone. Are you talking about standalone number or the consolidated number?

I'm talking the --

Are we talking about the third quarter or fourth quarter?

I'm talking about the third quarter revenue number, which was TWD3.69b. That's down 14% year on year from the third quarter '08.

Okay, hold on. For third quarter our total Mobile service revenue, okay, it's TWD22b. If you're talking versus the same period last year, it's about 2.5% decline. I think this is actually because of the -- from the third quarter, second quarter last year the total economic environment is getting worse and worse.

So you can see that our traffic from Mobile usage actually declined a lot quarter over quarter in that period. This continued here to the second quarter this year. But for the third quarter you can see the total performance is actually getting much better. We see people that actually used more traffic in the third quarter this year. So I think this is actually the impacting from the first and second quarter, okay?

Thanks, but my question was specifically on sales of Mobile Handsets and Data Cards, which was TWD3.69b --

Okay. Okay.

-- [which came] down 14%.

Okay. That's the same thing, okay. Because of the economic downturn the Mobile Handsets and the Data Card sales for third quarter this year we put the number about TWD3.7b. For the same period last year, the third quarter, it was TWD4.2b -- TWD4.3b. You see, I think this is also related to the economic environment, okay?

All right, so was it the reduction in average selling prices?

Yes. Because for the first quarter and second quarter, actually, we -- no matter, Chunghwa ourselves or our subsidiary, SENAO, both of us actually have less Handset and Data Card sales. So that makes the whole consolidated revenue for the sales of Mobile Handset and Data Cards, it's a decline.

All right, thank you.

You're welcome.

Thank you. I will turn it back over to Chairman Lu.

Okay. Thank you very much for participating in our third quarter 2009 results call. Thank you very much, and thank you for your questions. Bye bye. Goodnight.

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