Chunghwa Telecom Co Ltd (CHT) 2009 Q4 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom conference call for the Company 2009 operating results. (Operator Instructions). 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 fourth quarter and fiscal year 2009 results conference call. Today we have Dr. Lu, our Chairman and CEO, Mr. Chang, our President, and Dr. Yeh, our CFO, to speak to you and answer your questions. On today's call Mr. Chang will reveal our business operations, then Dr. Yeh will reveal financial results and, finally, Dr. Lu will reveal our business outlook. At the end of our presentation we will be happy to take your questions. Please note our Safe Harbor statement on slide one. Now I would like to hand it over to Dr. Lu.

Thank you, Fu-Fu. Hello, everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our fourth quarter and fiscal year 2009 earnings results conference call. First of all, I would like to welcome and introduce Dr. Yeh, our new CFO, to all of you. Before assuming office as Chunghwa's CFO Dr. Yeh has been with Chunghwa for two and a half years as our independent director. Dr. Yeh also served as a professor of accounting at National Taiwan University and has very comprehensive knowledge in finance and accounting. I'm confident that his expertise will continue to help Chunghwa Telecom in executing our growth plans.

Next on slide number two, as you all know, 2009 was a challenging year for Chunghwa Telecom due to the macroeconomic environment plus the continuing NCC tariff reduction. However, we still achieved a gratifying result in sustaining our consolidated 2009 total revenue at TWD198.4 (sic - see presentation).

Building sustainable shareholders' value is our primary focus. In order to achieve this goal we tend to differentiate ourselves on wide customer base, high quality products and services, brand name, advanced network and a strong financial position. Going forward we will continue to enhance our competitiveness by strengthening these factors.

In addition, on strategic execution we are focusing on three areas. First, we aim to satisfy Mobile customers' demand for high quality access and services for increasingly sophisticated usage needs. Second, we are investing in innovation to drive the next wave of Broadband development and the transformation from pure telecom operator to an ICT operator. Finally, we are stepping up our commitment in preserving environment and social responsibilities.

Moving on to slide number three, again, as part of our commitment to our shareholders, you can see our cash return for the last first -- for the last five years. We have been maintaining high dividend payout ratio. In addition, we conducted three rounds of capital reduction in the past three years and returned the cash to shareholders in aggregate of TWD38.5b. We intend to continue our high payout ratio policy. Our Board of Directors have approved a 20% capital reduction from Chunghwa's outstanding common stocks, equivalent to approximately TWD19.4b for year 2010. We will submit this proposal in the shareholders' meeting in June for final approval.

Now I will hand it over to President Chang for business overview.

Thank you, Chairman Lu. Now let me take you through the business overview. Starting slide five, our consolidated revenue for the fiscal year 2009 was TWD198.4b, and we were able to maintain our leading market position in each of our business segments throughout 2009.

Now, moving to slide six, for past several years we have maintained a stable market share for local DLD and ILD businesses. As the incumbent we were successful at defending our Fixed Line market share and are confident that our strong market position will sustain in the future.

Next, slide seven shows our Broadband subscriber data for 2009. At the end of 2009 Chunghwa had 4.3m Broadband subscribers, accounting 83% of the market share. Total Fiber customers accounted for 38% of our total Broadband subscribers. As already mentioned, we plan to speed up our Fiber deployment. We are providing even higher speed FTTH service, including HDTV, remote surveillance and so on, to meet the high-end customer segmentation's demand.

In addition, we will also 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 business. The accumulated Internet VAS revenue as a percentage of total internet revenue increased year over year by 18% in 2009 compared to 2008.

Please refer to slide eight. By the end of 2009 we accumulated 667,000 IPTV subscribers. We also focused on enhancing the ARPU, which increased 13% year over year. Total MOD revenue increased by 42% year over year. In addition, the number of household using television for 2009 is six percentage points higher than 2008.

We have been strengthening our IPTV strategy in terms of accountant, marketing and interactivity. We will continue aggregating popular HD channels to better cater to our customer preference. Currently, we have 92 SD channels and five HD channels, and there are [nine] new channels under negotiation. We are committed to our IPTV strategy and will continue to execute in order to complement our existing services.

Now on slide nine, we are the market leader in the Mobile businesses, with the largest subscriber base of 9.3m. Moreover, we have the lowest churn rate in the market, which is a strong testament of our subscribers, the condition of our high quality services. Mobile VAS revenue as a percentage of the total Mobile revenue increased year over year to 13% at the end of 2009. We will continue our Mobile business strategy to increase Mobile VAS revenue by offering customized and integrated Hami service with the improved tariff plans and quality network. Additional sales channels from 3C stores and hypermarkets are also added recently to strengthen our sales capability.

On the left-hand side of slide 10 you could see our performance of our Mobile Data operation, including our Data revenue percentage, Smartphone customer bases, mPro package growth and the VAS usage. All these matches were improved year over year for 2009. We foresaw the popularity of the Smartphones and have been very dedicated in leveraging these services' [devices] as part of our handset strategy. We'll promote the Smartphones with various applications to increase premium customer subscription.

The Smartphone promoted by Chunghwa are embedded with a diversifying platform supporting iPhone OS, Android and Windows mobile. The most popular models included those from Apple, HTC and the Garmin-Asus. Moreover, to satisfy -- diversify the customers' demand and the increased usage we will continue to offer 3G VAS, especially over Smartphones, as more customers switch from Voice-only product to Data-centric devices.

As shown on slide 11, to cater to customer growing demand for conversions we are integrating internal resources to conduct cross-platforms service operations, including marketing and advertising. Through this initiative we expect to better facilitate the acquisition of attractive content, increased usage and enhanced ARPU. Meanwhile, customers could view multimedia content via our three screens; over IPTV, Internet and Mobile platform. For example, the 2009 World Games and the 2010 Winter Olympics were broadcasted live on these three platforms. We have also acquired the broadcasting rights for the upcoming Taipei International Flora Exposition, which will begin in November this year.

In the future we will improve the coverage -- convergence services further by offering our four screen services, including touch panel phone sets for the smart homes. Additional applications for smart homes also include video, micro payment, advertisement and personal information and so on.

As shown on slide 12, our corporate ICT and corporate overseas business revenue amounted to TWD3.6b and TWD4.3b for fiscal year 2009, representing year-over-year increase of 43.7% and 18% respectively. Moving forward, we expect this service revenue to continue to grow in 2010.

In addition to the traditional telecom services we plan to expand our corporate business scope and the focus on ICT business to include the government project. For example, we won the bid to provide the integrated taxation information system, and the total revenue associated with project is expected to be about TWD3b from 2010 to 2012. Furthermore, we are also exploring opportunities to expand our corporate overseas business such as the International Data and Wholesale services.

Next on slide 13, total CapEx for fiscal year 2009 amounted to TWD25.5b, a 15.4% decrease compared to that for the same period in 2008. Of the TWD25.5b CapEx, 75.6% was used for Fixed and Internet business, 20% was the Mobile business and the rest was for other capital expenditure.

Next I would like to provide an update of our property management on slide 14. Our property development strategy is primarily focused on rental revenue. Most of our real estate are for operational use. Along with our next generation network construction they will be part of the floor spaces and the land released for rental. Additionally, we have been proposing to rezone some of our properties for rental purposes as well.

We will be actively managing our land property. Currently, we are focusing on the commercial usage as well as office and business accommodation. Total estimated investment for these additional seven properties' development is TWD4.5b to TWD5.5b from 2010 to 2014. Post completion of this development, total revenue from these seven properties is estimated to be TWD0.6b per year.

Finally, there are three major regulatory updates for to share with you as per slides 15 and 16. Firstly, the NCC announced its second round three-year tariff reduction plan, resulting in a number of price reduction in the target structure relating to Wireline and Wireless services. The regulated period will be from April 1 this year to March 31, 2013. You can refer to slide 16 for the tariff reduction plan details.

Second, the NCC proposed their amendment to the Satellite Broadcasting Act that allow the government, political parties and the military to indirectly hold up to a 10% stake in satellite broadcasting companies. The proposal is now under review for approval by the executive [yen] and legislative [yen].

Lastly, the government plans to issue two mobile TV licenses by the end of 2010 or 2011. The NCC may adopt a 'first review, then auction off' approach for the bidding processes, but the details are yet to be determined.

That's all for our business operations. Now I'll hand it over to Dr. Lu -- Dr. Yeh for our financial overview.

Thank you, President Chang, and thank you all for joining us for my first earnings conference. I hope to meet some of you in person as time goes by.

Slide 18 show our income statement highlights on a consolidated basis. Our total revenue for 2009 was TWD198.4b, a 1.6% decrease compared to 2008. The decrease was primarily due to the economic environment, mandated tariff reduction and market competition. EBITDA decreased by 4.2% to TWD92.7b, operating profit decreased by 3.7% to TWD56.4b and the net income decreased by 2.8% to TWD43.8b, year over year respectively. Although operating cost and the expenses decreased by 0.8% year over year, this was not sufficient to offset the revenue decline, so result in the declines of EBITDA, operating income and the net income.

Slide 19 show the revenue performance for each business segment for 2009. The Mobile revenue decreased by 2.6%, mainly due to the ARPU decline resulting from the market competition and the overall economic environment. Furthermore, the decline in handset sales from the slow economic environment also contributed to the revenue decrease. Internet revenue increased by 2.7%, mainly attributable to the successful promotion for corporate solutions and the Internet VAS revenue growth from internet security service and online news (inaudible) service.

In the Domestic Fixed Line business for 2009 local and the DLD revenue decreased by 3.9% and 12.7% year over year respectively. The decreases of local revenue was mainly from economic downturn as well as Mobile and VoIP substitution. The decrease of DLD revenue was the result of interconnection tariff decrease mandated by the NCC, and also the economic downturn.

Broadband revenue, including ADSL and FTTx, decreased by 0.3% year over year. Although FTTx revenue increased as much ADSL -- as more ADSL subscriber migrated to fiber solution, the increase could not fully offset the ADSL revenue decrease from the competition and the mandatory NCC tariff reduction. International Fixed Line revenue decreased by 4.3%, which was mainly due to the economic downturn, which resulted in the substitution of cost-saving services, such as VoIP, for traditional ILD services.

As shown on slide 20, for 2009 total operating cost and expenses were TWD142b, a decrease of 0.8% compared to 2008. This decrease was mainly due to decrease in depreciation, material and the maintenance expenses, as well as decrease in cost of sales from (inaudible), due to its decreased sales.

In terms of our cash flow performance shown on slide 21, for the whole year of 2009 our cash flow from operating activities decreased by 15.9% to TWD77.3b. This was primarily because of the TWD4b increase, the pension fund contribution, resulting from the income tax re-adjustment, the TWD3.2b income tax refund received in 2009 -- 2008 and the 2009 revenue decline, as well as the change of other operating asset and liabilities.

For the fourth quarter of 2009 our net cash flow from operating activities decreased by 22.6% year over year, to TWD27.8b. This was primarily because of the increased pension contribution, as mentioned. As a result, free cash flow for 2009 decreased by 16.1% compared to 2008, mainly due to a decrease in net cash flow from operating activity, just mentioned. Accordingly, our cash and the cash equivalents amounted to TWD73.3b as of the end of 2009. This represents 9.9% decrease compared to the same period last year. This decrease was mainly because of the capital reduction distribution in March of 2009.

Slide 22 shows our forecast for the first quarter of 2010. Please be advised that the forecast is only for Chunghwa, the parent Company. Chunghwa currently estimated that the total revenue for the first quarter of 2010 will be relatively stable at TWD45.5b, compared to TWD45.2b revenue from the first quarter of 2009. Taking into consideration of our development for FTTx, MOD and the Wireless Internet, we expect to increase overall expenditure by TWD350m compared to the first quarter of 2009.

Therefore, we estimate that EBITDA and operating profit for the first quarter of 2010 will be TWD22.5b and TWD3.7b (sic - see presentation), which are slightly down by 2.1% to (sic) 0.7% respectively. The net income is expected to increase by 4.6% to TWD11.3b because of the income tax reduction.

That's all for our financial overview. I would now hand it over to Dr. Lu for our mid-term corporate strategy.

Thank you, Dr. Yeh. As shown on slide 24, our mid-term corporate strategy is primarily centered on strengthening advanced Broadband network capabilities, enhancing our competitive positioning, exploring new business operations and implementing CSR.

Specifically, we will continue advanced network deployment to stay ahead of industry growth and transformations. We plan to strengthen the deployment of Fiber networks and offer higher speed FTTx services to face the Broadband market competition. Also we will continue focus on enhancing competitiveness by encouraging creative ideas and offering innovative services. At the same time we will also focus on selected ICT services, such as IEN, our energy-saving solution, ITS and cloud computing services, to better serve our corporate clients.

In addition, we will focus on exploring mainland China and overseas emerging markets for new revenue opportunities, as well as leveraging our existing financial resources and property assets to boost income. Finally, we stand firm on corporate social responsibilities implementation and commitment.

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

Thank you. (Operator Instructions). Our first question is from Goldman Sachs, Kathy Chen.

Hi, thanks for taking my questions. I have three questions. Firstly, you start off with the capital management's outlook. Can you share with us if the Board has anything in about committing to a certain level of total cash returns or capital returns going forward on an annual basis?

Secondly, in terms of Broadband competition, can you share with us if you've seen any increased churn in your Broadband subscribers to Cable Broadband? And what is Chunghwa's strategy in terms of maintaining Broadband market share going forward?

And then my last question is regarding the proposal to amend the Satellite Broadcasting Act. If this proposal passes, can you share with us Chunghwa's strategy in terms of considering media ownership? Thanks.

Kathy, your first question is about the capital management, whether we have this kind of policy for every year. The answer is -- our answer is we will consider this type of business issues on annual basis. Not every time we will --. Every year we will assess the situation and then make our decisions on annual basis, not the long-term commitment. Okay.

On our satellite -- the third question is on the amendment of the Satellite Act -- Broadcasting Act. We are trying our best to find ways to even better serve our purpose in running the convergence service in Taiwan. So we are working together with the stakeholders to see if a better arrangement can be achieved. If any improvement in this direction is finalized we will try to make best use of the situation and we will monitor what can be done after that.

Kathy, could you repeat your second question?

Yes. Actually, if I could just follow up on the satellite broadcasting issue, could you share with us what kind of ways you are considering? Would Chunghwa consider a less than 10% stake in a cable company?

We would like to see. The whole article could be removed, or even a higher percentage would be better. Why 10%? Why not 50%? Okay. So that's the kind of directions we are trying to find ways to improve the situation.

Your second question is related to the -- any churn on our Broadband subscribers due to Cable.

Yes. I just want to know if there's been any increased churn. And what is Chunghwa's strategy in terms of maintaining the Broadband market share going forward?

Our strategy to defend or to conduct our business in Broadband is to migrate our customers to a higher speed and more aggressively deploy FTTx or even FTTH solutions. And we believe this is a good solution for our customers and this will help to reduce churn from our customer base.

So have -- sorry, just last follow up, then. So has there been any increase in churn there that you've been seeing?

Slightly increase, yes, but the -- it's about very stable, very stable, and the figures for these two months is relatively stable, yes.

Okay, thank you.

Okay, thanks.

Thank you. Our next question is from Morgan Stanley, Gary Yu.

Hi, thanks for taking my questions. I've got three questions from my side. Firstly, on your ICT ambition, could you share a little bit more about what kind of revenue opportunity you see in ICT and cloud computing service, and what kind of CapEx requirement you would have to invest in the next couple of years?

Second question is on Mobile competition. Chunghwa had successfully gained some market share in the past 12 months or so. With your competitors launching some of the iPhone and Smartphone services, have you seen any change in the competitive environment in the Mobile space?

And, lastly, is there any update on your asset revaluation because of the adoption of new accounting standard? And if you could share a little bit on what kind of tax implication should we expect. Thank you.

Okay. Your first question about the ICT revenue and also on cloud computing revenue, the cloud computing is very new and we have already started offering service such as CRM for our corporate clients, and it's still early to tell the revenue for cloud computing. But this definitely is an area we will pursue very aggressively. On ICT as a whole we reported something like TWD3.6b for last year, and we expect a growth of something like 25% for this year on ICT revenue.

The competition in iPhone, as other operators all fall in the same handsets, from what's been around for a couple of weeks we found that our peers are offering similar packages and not much difference in promotional activities. So we still find it's about as attractive as it used to be, and the increase of customers adapting iPhone remains strong.

I would like to have Dr. Yeh to answer the third question yes.

Chunghwa is required by our financial supervisory commission to adopt IFRS in 2013. And so we are currently reviewing the implication of IFRS adoption. One issue we noted is that IFRS allow company to use either historical cost or fair value accounting for real estate. We haven't decided what we do yet. However part of our study we found most of telecom companies around the world use historical cost basis to account for their real assets. So we think it makes sense to use historical cost basis when the property are held for operation or rental. That is our case.

Okay, thank you.

Thank you. Our next question is from Nomura, Danny Chu.

Yes, thank you for the presentation. Just two quick questions. First is, is there any guidance for CapEx going into 2010? And if there is a guidance for CapEx figure, is it possible to break it down into Mobile, Fixed and Others category?

The second question is with regards to what you mention. On your slide page 24 you mention that Chunghwa on a mid-term basis will explore mainland and overseas emerging markets for new revenue stream. Can you explore a little bit on that? Are you considering taking a stake in an existing operator, or you are trying to partner with a operator on some new business? So any elaboration will be appreciated. Thank you.

Okay. Your first question is about our CapEx for year 2010. As we offer a quarterly forecast this year we do not have yet released the overall CapEx for this year, but a good guidance would be around 15% of our revenue is for our CapEx. And the distribution of the CapEx among Fixed Line, including Broadband and Internet, would be quite similar to what we had for last year. Only if we are -- we find the market really very receptive to our Fiber access solution we may increase CapEx on Fixed Line.

Your second question is related to the opportunities in mainland China. What I can say to you today is we have -- through our subsidiary, Chunghwa Investment, Chunghwa Investment has entered into a JV with one company in Xiamen to collaborate on offering call center service in mainland China, and the agreement was signed earlier this year. And the company will be formed officially maybe in the second quarter. And with the building up of the call center systems and all the operator positions maybe we will be able to have service launched before the end of the year.

Can I follow up by asking what magnitude of revenue stream we should be expecting from that business? Thank you.

Well, the call center business is new to us in mainland China. We will see. We will monitor the development and get back to you after we have more specific numbers that we can share with you.

We have also participated in Innovation Works. This is a fund managed by Dr. K.F. -- Kai-Fu Lee. He is well known in Internet business. And his focus is on innovation in Mobile, Internet and cloud computing. All his -- these areas are of interest to us so we have participated in this fund. And this illustrates a direction for Chunghwa Telecom to pursue in mainland China. The cross-Strait activities is very -- is much more frequent these days as compared with maybe two years ago. So there are lots of interactions among interesting parties. So we are pursuing some opportunities and, if we have concrete results, we will let you know.

Thank you.

Thank you.

Thank you. Our next question is from Credit Suisse, Terry Chan.

I have two questions. The first one is, for the fourth capital reduction, is this similar to the previous three capital reductions? I mean are you going to issue new shares before you reduce the shares, or you just reduce the share count straight for this capital reduction?

My second question is what is the dividend per share in 2009? Are you targeting a 90% payout for 2009? Thank you.

I would like Dr. Yeh to answer this question.

Okay. As for the capital reduction, is the capital reduction straight, it's different from the last three, okay.

And the next question about the dividend payout, it's still up to the Board to approve. But our past policy, we would continue our past policy to pay allowed under our corporate law, and that's our position now.

Thank you.

Thank you. (Operator Instructions). Our next question is from Nevsky Capital, Henry Cobbe.

Hi, there. I was wondering if you could give an update on the employee numbers, what you're expecting for the headcount over the next year or two. Are you planning any further reductions?

And, secondly, what your estimate of the effective tax rate is for the year.

Okay, the headcount number as of today is 24,600. And we plan to conduct a voluntary early retirement program effective in June, and application will be received starting from May 1. And we expect maybe around 300 people will take the package.

And our effective tax rate, Dr. Yeh, please.

Okay. It's 19%.

Okay. And, very lastly, looking at your Mobile revenues, you seem to be growing Mobile revenues when every one else in the market is seeing Mobile revenues decline. What's driving this?

Well, the driver for our growth in Mobile revenue is Smartphones usage and the smartphones.

Okay. And just lastly on 2009, how many employees did you fire last year, or how many people left?

Okay. We do not fire people, okay?

I'm sorry, I mean how many people left?

We conducted an early retirement program in 2009 and about -- I remember it's about 280 something.

Okay. Okay, thank you very much.

240. Total was 240 took (multiple speakers).

Okay. Thank you very much indeed.

Thank you. Our next question is from RBS, Arthur Pineda.

Hi, thanks for the call. This is Arthur Pineda from RBS. I have three questions, firstly, on the Smartphones. With the increase in Smartphones' sales guidance from 7.5% to around 15%, how do you see subsidy levels changing in 2010, and will this impact your margins for the year?

Secondly, with regard to the ARPUs on the Smartphones as well, how different are they now versus regular phones? And how does this compare versus the previous years, now that you're going outside of the early adopters?

Third question I had is with regard to your overseas strategy. You mentioned as well that you're looking at overseas emerging markets. Is there any geographic focus that you're looking at for this strategy, and what service focus are you looking at as well? Or is this really more on China and the other markets being an afterthought?

Okay. Let me start with number three, question number three. Our overseas strategy other than China is on South East Asia and, as you may have already learned, that we have already entered into a JV with one of the Vietnamese telecom operator.

The ARPU for Smartphones is about TWD1,400 and regular phone is about TWD653, so Smartphone ARPU is much higher. And we will see how this trend goes on as we continue marketing Smartphones.

And so the first question is about subsidy level for Smartphones. We probably will maintain this level of subsidies for Smartphones, especially when our peers are adopting similar phone sets, Smartphone sets for its customers. So we better be competitive. And the total subsidy we will maintain at the level of what we spent probably in 2008.

So does that mean you'll just reallocate from 2G handsets and move that towards subsidies for Smartphones?

We will reduce subsidies for regular phones, especially like feature phones or 2G phones.

Understood, thank you.

Okay, thanks.

Thank you. Our next question is from GIC, [Ken Goh].

Hi. Good evening. Thanks very much for the call. Just one question. On one of the first few pages you mention that one of the strategies was preserving the environment and social responsibilities. Just wondering what that means. If you could expand a little bit more on that point that would be good. Thank you.

Okay. Environmental issue is so important that every one of us would like to see it improving. And most people weather everywhere is most important. And in Chinese we say that we would like to see (spoken in Chinese). That means the wind blows gently and the rain is seasonal, and no cat and dogs and no typhoon, no very heavy, heavy rains everywhere. So environment is really very important.

And Chunghwa Telecom we are trying our best to offer ICT services to help to reduce the emission of CO2 and other greenhouse gases. And we have formulated a solution to help our corporate clients to better manage their use of electricity. For example, in air-conditioning or in lighting, or even in some of the heat pumps we have a very good solution. We name that IEN; intelligent energy-saving solution. And there are more than 100 clients adopting our solution. And we are very aggressively promoting this solution to our customers. So these are the things that we do to help to reduce CO2 emissions.

All right, okay. Thank you. Just one more question on the Vietnamese initiative, the form of that agreement and who do you have that with?

Yes, the -- in Vietnam we work together with Viettel.

Right, okay.

That's the company in Vietnam. I believe Viettel is now the largest mobile operator in Vietnam. And we have entered into agreement with Viettel in offering ITC service in Vietnam. The business started in June last year, and toward the end of last year we see they are doing well and making some profit out of the business.

And ultimately you would want to take a stake in Viettel before it gets IPO'd?

It's something we do not have anything to say at this moment.

Okay. All right. Thank you.

Thank you.

Thank you. Our next question is from Yuanta Securities, May Lin.

Hi. Thanks for taking my question. I have two questions. First is regarding the capital reduction. Is there any guidance for a potential timeline? When will be this capital reduction to be completed in -- perhaps in this year or next year?

Secondly, also for capital reduction, after this direct share capital reduction will we continue to do something similar to the old traditional one, I mean increase capital share first and deduct it later, in going forward? Or we will seek for other kind of capital management plan?

My second question is about handset procurement. We know that iPhone is procurement by the parent company, means Chunghwa itself. Is there any other brand of Smartphone being procurement by Chunghwa itself as well not through Senao? Thanks.

I would like to have Dr. Yeh to answer the first two questions.

Okay. The first one about the timeline, the capital reduction still need to approved by the annual shareholder meeting and some other process, and so we haven't really have the final day yet. However, it probably will be consistent with last three capital reductions.

And the second one is, in the future we don't know what we would do yet. But of course if there anything is good for the shareholders, we might consider in the future. Okay, thank you.

Okay.

Your second -- your third question is on the Smartphone procurement by CHT. Yes, we do procure iPhone directly from Chunghwa and some selected Smartphones by Chunghwa. Other than this, we collaborate with our subsidiary, Senao, on offering Smartphones.

Okay. Is it possible to provide us some kind of percentage? How much percentage of the total Smartphone procurement was done by parent company? Is that available?

We do not set a specific number on this. It really depends on the availability of -- our assessment of Smartphones available at any time, so it really a case-by-case basis.

Okay, thanks. Thanks a lot for the answer.

Thank you.

Hello?

Our next question is from Macquarie, Joseph Quinn.

Hi. Thanks for taking the call. I've just got three quick questions. The first one is on the capital reduction, I'm just wondering the thinking of management behind not using the capital surplus this time, why they're doing a straight capital reduction?

The second one is on your SAC. There does tend to be a trend of increasing SACs, so I just want a little more clarity. Can you provide the number for total subsidies on a yearly basis, because I hear you mentioning that you're changing the strategy towards the Smartphones and less of lower end? And if that's the case, does that open up more of an opportunity for VIBO and [NTW] to enter the market?

And, thirdly, can you provide some color on the operators that you're feeling the most competition from on the Cable side? What areas in Taiwan are you feeling the most competition? Thank you.

Okay. For the capital reduction, one of the reasons why we didn't use the traditional one, that means issue stock dividend and then retire stock dividend, is because the process is more complicated and some investor they are confused. They are concerned the change in the shares. So this time we make this simplified method. Thank you.

The SACs, as I said earlier, that since Smartphone subscribers the ARPU is much higher with Smartphone, so we should consider this strategy to offer subsidies to high-value customers.

And your question [is really] the total subsidies on a year basis, as I said earlier that this year we will probably spend as much as what we spend in 2008.

Could you possibly disclose that figure because I haven't heard that figure before?

You want the number? Well, I can give you some numbers. This number's for reference. For last year the total subsidy that we offered is about TWD6.7b, and the year before, in 2008, was about TWD7.6b. This is for your reference.

And the Cable competition, well, we maintain about 83% of Broadband access in Taiwan Broadband market, and this level has been the case for many years already. The Cable infrastructure in Taiwan used to be very fragmented and quality not very good. They are upgrading their infrastructure to [both] ways, but to really -- the technology they are talking about is DOCSIS 3.0. And because the Cable operators still carry more than 100 channels on their lines, so it's occupied quite a bit of their bandwidth already.

So to offer a higher speed up to 30 megabits per second is, we believe, as more subscribers subscribes in Cable, their quality of service will not be easily maintained. So we believe our Fiber solution is the solution for Broadband access and we will offer 50 megabits per second download speed for our customers beginning this year. And this will more satisfy the needs of our customers.

Okay, thank you. Can I just ask on your subs base, so if you're subsidizing less for lower-end handsets, do you think this opens up an opportunity for VIBO and other smaller players?

Well, the smaller operators, their attractiveness in the market, we believe is from their service package. I don't believe it's much to their subsidies on handset. And, actually, as they increase their number of subscribers, their little congestion issue becomes even more apparent. So we also understand that the churn rate is almost saturated for these smaller operators.

Thank you.

Okay, thanks.

Thank you. (Operator Instructions). Our next question is from CLSA, Dee Senaratne.

Yes. Thanks, guys, for the call. I just had a few questions. The first one was just on the capital reduction. I know this is a -- the decision behind the capital reduction is a yearly process, but I'm just wondering if you can share the deliberations of the Board when this year choosing to go at 20% capital reduction versus the 10% last year. I'm just interested to see what was different or what was the change in thinking of the Board to go to 20% this year.

The second question I had was on the Fiber rollout. Now I'm just keen to get an update as to where you are in terms of coverage of households and also where you are with the spending, because my -- if my memory is correct, you'd allocated TWD150b for the total Fiber rollout. I'm just wondering how far you're through that now and when will the full network be in place?

And then on the third question, just on -- with the regulation allowing you to take a 10% stake in media assets, it says satellite. Now does that specifically mean satellite infrastructure, or does it also allow you to purchase a cable operator? Because I know that we are seeing some satellite infrastructure in Taiwan now with EchoStar doing a JV in Taiwan.

And then finally, the last question, just on network pressure. And I saw your competitor, Far EasTone, guiding for a 38% CapEx increase based on increasing pressure on the wireless networks. Is that something that you're seeing as well? And, as a result, are you moving more towards un-metered Data plans versus the metered ones? Thanks very much, guys.

Okay. Your first question, this time why 10%, why 20% and not 10%, okay. Last year we conducted a 10% capital management, because last year was the year with all these uncertainties and difficulties resulted from the financial crisis and the economic slowdown. So when we made the decision last year, at that time it was really something that we are more conservative in considering. So this year, as the economic situation improves and our performance still good, so this year we decided to propose 20% for the shareholders' meeting to approve.

Our Fiber rollout is steady and toward the end of last year about 73% of coverage has achieved. And we will continue rolling out the Fiber solutions Broadband coverage as years -- as time goes by.

On the so-called satellite infrastructure, well, let me explain this. In Taiwan every channel in our Cable TV or our MOD, if it's linear channel, linear channel need to receive a license for operation. And usually it's -- the license is related to carrying the signal through satellite and that's how this Satellite Broadcasting law is involved. And in this Satellite Broadcasting law there is an article saying that the government and military and political parties cannot participate in the media. And that media has been interpreted to be the linear channel in Cable TV or in our IPTV.

There was just one last question on the Wireless networks. I'm just -- was keen to get your take on whether you're seeing a lot of pressure on the network in terms of the Wireless Data really pushing the capacity of the Wireless network, and whether you need to spend a lot more in terms of CapEx to facilitate the growth in that business. And then -- because that's what happened with Far EasTone. We're seeing that there was a lot of pressure on their networks.

Okay. Your fourth question is about the CapEx increase by FET. Well, you better ask FET why they need to increase their CapEx this time.

Yes.

From our interpretation of the news is that probably they backed some investment in the previous years and they probably find it's to their disadvantage in serving some of their customers. And we -- Chunghwa Telecom, we are integrated operators, we have Fixed Line, Broadband and Mobile, so to us we believe we maintain a very competitive and good, high quality. I believe Chunghwa Telecom's network is the best in Taiwan in this market. So that's my answer to your question.

Okay. Thanks very much for the answers, guys.

Thank you.

Thank you. Our next question is from Goldman Sachs, Kathy Chen.

Hi. Thanks for taking my question. I just had one follow-up question. I know so far you've only given the first quarter 2010 guidance and we don't have the full-year guidance yet, but I was wondering if you could just share any thoughts about how we should think about the top line growth for the full year this year, particularly after the mandated tariff cut happens on April 1. Can we still expect growth this year? And then any general color about how EBITDA margins will trend for the full year. Thanks.

Well, this is a good question and we should answer through our forecasts. Since we are offering quarterly forecasts, so I'm sorry I cannot give you any further information at this time.

Okay.

We wi'll do our best to perform. Okay?

Okay, thanks.

Yes, thank you.

Thank you. As there are no further questions, I will turn it back over to the Chairman Lu.

Thank you very much for all of your participation, your good questions. Yes, thank you very much. Goodnight. Bye, bye from Taipei.

Thank you, Chairman Lu. 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 now disconnect. Good bye.