Chunghwa Telecom Co Ltd (CHT) 2012 Q2 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to Chunghwa Telecom conference call for the Company's first half 2012 operating results. During the presentation all lines will be on listen-only mode. (Operator Instructions).

For your information, this conference call is now being broadcasted 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 it over to Fufu Shen, the Director of Investor Relations. Ms. Shen, please go ahead.

Thank you. This is Fufu Shen, Investor Relations Director of Chunghwa Telecom. Welcome to our second quarter 2012 results conference call. Joining me on the call today are Dr. Lu, Chairman and CEO; Dr. Yeh, CFO.

During today's call, management will first discuss business, operational and financial highlights, then followed by Q&A. On slide number two, please note our Safe Harbor Statement.

Now I would like to turn the call over to Chairman Lu please.

Thank you, Fufu. Hello everyone. This is Shyue-Ching Lu, Chairman of Chunghwa Telecom. Thank you all for joining our second quarter 2012 earnings results conference call.

First of all, I'm pleased to announce the promotion and appointment of our new President Dr. Yen-Sung Lee, who has assumed the new role as of yesterday August 29. Dr. Lee will oversee all of Chunghwa's daily operations. Previously, Dr. Lee was the Senior Executive Vice President, supervising the Marketing and IT departments. With his extensive engineering and management background, he has significantly contributed to the development of our ICT and Cloud businesses. Having been with Chunghwa for over 30 years, I am confident that Dr. Lee will continue to make further contributions to our future growth.

Please refer to slide number three for our second quarter overview. Before entering into our business segments, I would like to highlight several points to you as follows.

Even though we continued to experience heavy NCC regulatory pressure and intense market competition, we were pleased that our first half results were in line with our earlier guidance. Faced with an evolving telecom landscape and the fierce market competition, we continue to evaluate these changes while also taking proactive steps in key growth areas to help stabilize our overall business.

As an example, Mobile Value-Added Services business continued its growth momentum. In order to accelerate Mobile VAS growth, we began offering different promotional packages bundling free on-net call service with data packages. These packages are designed differently to target and appeal to various types of Mobile subscribers and we have begun to see some good success with such offerings, which I will discuss shortly.

For our Broadband business, we continue to see our growth in subscribers for high speed fiber connection remaining on track, especially demand for our faster 50 megabits per second connections. We will continue to promote our high speed fiber connections to new customers, while also continuing to encourage current customers' migration, both of which will further provide incremental ARPU.

The successful broadcasting of 2012 London Olympic Games demonstrated our capability to offer multi-screen high definition services on our platforms. Moreover, the operation of our new MOD platform, which includes interactive capabilities, was approved by the NCC in June. We expect that this new interactive platform will help facilitate the convergence of our digital services offerings which we believe will be a key trend going forward.

Let's go through our businesses.

On slide number five, for our Mobile operation, we plan to maintain our leadership by further providing reliable and seamless wireless access and the great customer service to our subscribers, while attracting new customers with our price competitive mobile plans.

By leveraging our customer base through attractive data plan upgrades, smartphone adoption remains on track. In fact, for the first half of 2012, smartphones accounted for 67% of all new handset sales. As a percentage of postpaid subscribers, smartphone penetration increased to 32% by the end of the second quarter. By year-end, we expect this rate to approach 39%.

In addition, we are in the process of expanding and transforming many of our retail stores. We believe this effort to improve the layout and the customer service experience for our current and potential subscribers will create an impressive and pleasant user experience. We hope that such changes will lead to improved customer experience, satisfaction and loyalty for years to come.

Moving to slide six, Mobile Internet Service revenue continued its strong momentum in the second quarter of 2012 with over 54% year-over-year growth. As discussed earlier, we believe that this trend will sustain as we continue to see adoption in smartphones and other Mobile Internet devices and we are actively promoting further adoption.

For example, this year we began a promotional program focused on data plan adoption with free on-net calls. Our Student Data Plan, which is meant to attract students and young customers, saw a 90% uptake rate from existing customers who were not data users previously. We will continue to encourage our large base of Mobile subscribers to upgrade to data plans through such promotional efforts. In addition we will also continue targeting new user growth and further expanding our market share.

Slide number seven shows the results for our Fixed-line Broadband business. Attracting new customers, while migrating existing broadband customers to higher speed service, continues to be our key strategy and focus. Subscribers signing up for 50 megabits per second connections reached 736,000 at the end of July and is on track with our expectations.

For year-end ADSL projections, we are revising down due to slower than expected uptake from new subscribers. We will continue to offer attractive promotions in an effort to further stimulate demand and develop more machine-to-machine connections to increase subscriptions.

On slide number eight, although the delay of the regulator's approval of new MOD platform operation dragged the growth momentum for the first half of 2012 and thus we had to revise down our year end subscriber target, we still observed that net adds in July to be 50% higher than the average of the first half along with the 2012 Olympic Games broadcasting service.

As mentioned, with the new MOD platform, we will focus on service offerings of connect, cloud and social TV. By leveraging the interactive capability, we would continue exploring TV commerce opportunity as well as bringing our customers better user experience.

On slide number nine we believe our ICT and the Cloud Computing businesses is becoming new revenue stream for Chunghwa. As customer demand increases, we plan to scale with it. So far, the progress has met our expectations. Although cloud services are gaining market acceptance, we believe we still need more time to further deploy the business and stimulate the demand.

On slide number 11 I would like to touch upon some regulatory updates. The NCC submitted the proposal for amendment to Telecom Act to the Executive Yuan at the end of July. We believe currently the Executive Yuan is soliciting opinions from various government departments. We understand the amendment of the regulation is aiming to facilitate the development of digital convergence service offerings. However, the proposal seems to deviate from the course. We are monitoring closely about the process of the amendment and would like to present our opinions for consideration.

Now, I would like to hand it over to Dr. Yeh for our financial overview.

Thank you Chairman Lu and good day everyone. Thanks for joining us today. I will review our financial result in detail, beginning with slide 13.

While total revenue for the second quarter was flat compared to the same period 2011, operating costs and expenses reported a 1.9% increase year over year in spite of a reversal of allowance for doubtful accounts. As a result, income from operations and EBITDA decreased 6.3% and 3.6% respectively.

In addition, we recognized a non-cash impairment loss on real estate and financial assets totaling TWD1.4b. As a result, net income decreased 15.2%.

The EBITDA margin decrease was primarily due to tariff cut, the higher cost of handsets sold, including that from our subsidiary Senao, as well as the growth of corporate solutions and the ICT business of which the EBITDA margin is relatively lower than the traditional telecom services.

Please refer to slide 14 for our business segment revenue. Total revenue for the second quarter was flat year over year. The Mobile VAS revenue and handset sales kept its growth momentum. However, the growth was offset by the decline in mobile voice revenue attributable to the marketing campaign and the NCC tariff reduction. The decline in DLD and Broadband revenues due to tariff cuts also contributed to the overall flat growth.

Slide 15 shows the breakdown of operating costs and expenses. The operating costs and expenses increase in the second quarter is mainly from the cost of handsets sold. Maintenance, material and rental and depreciation expenses also increased in order to support our broadband and the mobile Internet service promotions.

In addition, we considered the results of procedures implemented to enhance the collection of account receivables as well as the experience of decrease in uncollected receivables and then decide to reverse TWD1.5b of allowance for doubtful accounts.

The reverse accounted for 3.9% of total operating costs and expenses for the second quarter and explained the difference of TWD1.4b between the audited unconsolidated pre-tax income -- in the unaudited unconsolidated pre-tax income announced on July 10, 2012 for the second quarter of this year.

As shown on slide 16, cash flow from operating activity decreased by 12.8% year over year to TWD14.2b during the second quarter 2012. The decrease was mainly due to the decline of income from operations.

We maintained a strong cash position as of June 30 this year with cash and cash equivalents amounting to TWD75.1b.

Slide 17 shows our 2012 unconsolidated forecast and the results of our second quarter this year. Our revenue was essentially in line with our second quarter guidance and operating costs and the expenses were lower mainly due to the reversal of allowance for doubtful accounts and the less handset subsidies. As a result, operating income, net income and the EBITDA were better than our earlier guidance.

With the changing telecom landscape and the fierce market competition, we will continue to take efforts in stabilizing our business and will maintain our full year guidance.

Moving to slide 18, as in our earlier guidance, we moderately increased our CapEx expenditure budget for this year. As mentioned earlier, we will focus on fixed and the mobile broadband construction, improving the migration to higher speed the fiber solutions and further enhance the quality of our mobile network.

As a result, our first half year CapEx was higher than the prior year period. We expect the whole year CapEx spending will be in line with the CapEx budget.

Thank you for your attention and now we would like to open up for questions.

We will now begin our question and answer session. (Operator Instructions). The first question is Chate Ben from Credit Suisse. Please go ahead.

Good afternoon and thank you very much for an opportunity to ask a question. I have multiple questions for you.

The first one is regarding the broadband subscriber and actually pricing environment. If I understand correctly, you mentioned that the ADSL subscribers target, the take-up is weaker than expected. Do you think there is any need for you to cut price further basically in order to stimulate that demand or what would be your measure against that?

The second question is regarding the IPTV ARPU. I notice that the reported ARPU actually declined into this quarter. What's the reason behind that and how should we look at the ARPU figure? I understand that it's now TWD136 from TWD14-something last quarter.

And the next question is regarding the reversal of bad debt. Would you kindly give us an example of what practice exactly has been changed and is it mainly on the residential or corporate side that is being improved on?

And if we're trying to look at the EBITDA trend on a normalized basis, can I just basically deduct TWD1.56b from your reported EBITDA in second quarter and therefore, EBITDA underlying trend actually declined by 10% year on year in the second quarter? Would this -- basically was this reversal in bad debt a one-time gain in the second quarter or how should we look at it? Thank you very much.

For your first question regarding the broadband subscribers and the pricing, the broadband subscriber picks up on high speed end is in line with our expectations as we mentioned in the presentation. But the lower speed part, especially the lower speed ADSL part, the market demand seems to be slower than our expectation, okay. But we have no plan to cut price any more. And the--

As for the question number two about the IPTV, the revenue, the ARPU you know actually if you compare with the first quarter, I think I would say that partly because in the first quarter, that's our conventional Chinese New Year, I think that's part of the reason for the revenue increase. But hopefully, we believe the trend for the future ARPU for the MOD will mildly increase in the future.

Okay, first for the bad debt reversal, yes, I think you can deduct from the EBITDA. Also you can figure that out by yourself, okay.

And I think in the last few years, since 2008 after the financial crisis, we increased our credit risk assessment. And we also set some KPI and ask each branch to watch the credit risk carefully. So it's a trend. It's not just happened this year. But we were not sure about the trend until now. We are comfortable to revise down the allowance for doubtful accounts. Thank you.

Thank you. Just follow-up questions on the ADSL and the write-back question.

Firstly, on ADSL what do you think is the reason behind the weaker-than-expected take-up? Is it the competition maybe on the lower end from the cable operators, or maybe we have already come to a state where the market is really mature and your higher speed broadband subscriber growth must come from the ADSL and therefore, the ADSL subscribers should decline.

The second question, so this write-back of TWD1.56b is just one time for this quarter and we should not expect any further write-back in the subsequent quarter. Am I understanding that correctly? Thank you.

Okay, regarding the weaker-than-expected take-up from the lower speed ADSL, our current most recent assessment of the market condition is that probably it's a situation from the household. And the Company we are now working towards finding applications in so-called Internet of Things; device connections with lower speed ADSL solutions. So we are still hopeful for some increase in usage of lower speed services.

In terms of the reversal, we don't expect further reversal. It's because, based on our estimates, we think now the number is kind of reasonable and we don't think there would be further changes soon. Okay, thank you.

Thank you very much. That will be all from myself. Thank you.

The next question is Andy Chu from Nomura. Please go ahead.

Thank you for the presentation. Just three quick questions. First is with regards to page 11. When the Company are talking about the regulatory update, particularly on the NCC proposal for the amendments to the Telecom Act, how should we understand on Chunghwa's particular public approach towards such proposals? Should we expect Chunghwa, the Company, will lobby for a complete withdrawal of such proposals from the Executive Yuan or the Company is lobbying for a lot of major modifications to the proposals submitted by NCC? And any timeline that we should expect of a major resolution on this particular issue? That's my question number one.

Question number two is with regards to the CapEx schedule of the Company. We note that for the first half, the Company incurred about 43% of its budgeted CapEx guidance for the full year; slightly ahead compared to previous year, around 38%. So net-net for the full year, should we expect the Company to overspend versus its CapEx guidance, or the Company will maintain CapEx spending within the TWD33b?

Then the last question is when I look at the financial results on a quarterly basis, in fact for second quarter, it's almost like for the first time within the last three years, the quarterly revenue actually is declining on a year-to-year basis compared to the quarter of the previous year. So can the Company talk a little about going forward, let's say for the third quarter, should we expect also the quarterly revenue will experience some kind of a decline when compared to the quarter of previous year? Thank you.

Okay, your first question about the agreement of the Telecom Act, current proposal submitted to Executive Yuan from NCC, there are certain articles which we outline briefly on the slide number 11. We believe these measures it's not quite appropriate to be stated in such a way, in this kind of manner in the Telecom Act.

And also, Chunghwa Telecom would like to see the proposal focus on establishing an environment for win-win situation in the development of digital convergence related new offerings. So as I said, we are presenting our opinions to certain agencies and also we try to communicate with the public about the nature of the amendment.

The timeline for this, it's quite a lengthy process. It has to go through the Executive Yuan's review. If the Executive Yuan approved any such proposal, it will submit to the Legislative Yuan for review again. So it's going to take a while, we believe.

So the Company will try our best. We have already announced our position regarding certain articles of revision. For example, the article related to last [mile], the Company has already stated our opposition to this kind of proposal. So we would like to see some major changes going forward.

Our CapEx, yes, the guidance of CapEx for this year is slightly higher than last year. But for the full year, today is August 30 and from our spending, we believe we will not overspend. We will not overspend. So we will maintain our current guidance.

The revenue, I would like to suggest, please compare the -- our performance against our guidance because we have experienced relatively heavy regulations on certain major services we offer. For example, the long distance tariff cuts that was entering into effect earlier this year. These kind of changes really contributed to the decline in revenue. So once we set this into our guidance, please compare our performance against that.

And we hope our environment will be improving going forward. The new NCC Commissioners have just assumed their new role starting earlier this month. And we have heard repetitively from the Chairman of the new NCC Commissioners that he is pro-development and we welcome this kind of attitude. So hopefully we will sustain our performance in the years to come. Thank you.

If I may just ask one follow-up question? It's then with regards -- just as a follow-up to my first question is, is there any kind of deadline that Executive Yuan has to submit their proposal to Legislative Yuan? Thank you.

Yes. From my understanding, there is no such deadline for the Executive Yuan to submit to Legislative Yuan. No, no such deadline.

Okay, thank you. Thanks a lot.

(Operator Instructions). The next question is Joseph Quinn from Macquarie. Please go ahead.

Thank you for the opportunity to ask questions. I just have two questions. First is on your promotions and the second one is on the regulatory side.

Your new summer promotions, they have -- I have seen a lot of publicity locally here in Taiwan. However, when we're looking at overall subs' growth, you do seem to be still lagging a little bit behind Taiwan Mobile and FarEasTone. I was just wondering has the management got any opinions on that. Is it maybe due to the fact that the free on-net calls have been promoted with both Taiwan Mobile and FarEasTone prior, so maybe something different is needed to excite the market?

And then on the regulatory side, the 4G licenses as you mentioned will be issued next year. But I also assume this will need some re-farming of spectrum. I'm just wondering what impact that will have on your application to renew your 2G licenses. I'm just wondering what your opinions are on that as well. Thank you.

Okay, let me answer the second question first about the re-farming of some of the spectrum that's currently been used in our 2G. We believe the extension of 2G license to year 2017 is already set and we are applying for such extension and it's under review. So we believe this will be finally approved in the near future so the re-farming will not affect our operation of 2G until year 2017. So that's my answer to your second question.

Just looking at the 2G spectrum that's currently there, especially their focus on 900 megahertz, do you think it's possible for you to totally avoid any re-farming on both your 800 and 900? Sorry 1800 and 900.

Well, I wish we had such privilege, but it's the government who has the authority to plan the use of this spectrum for LTE or 4G licenses. And the Company's -- if we can retake this portion of the spectrum, that will be great.

Okay, understood.

The mobile -- we are working to -- we will be more aggressive in the coming months during this year. So we hope we will regain our momentum as compared with our peers in this market.

Do you -- are you particularly waiting for any -- like the launch of the next iPhone, is there something that maybe you're waiting to become much more aggressive on versus your peers? Is there anything in particular that you would see yourself becoming more aggressive? As I said I've seen your advertisements. I do see that you're definitely more aggressive on the ground. But I'm just wondering, for getting in front of the consumers what do you think will really trigger yourself to be more aggressive and obviously more effective in getting those subscribers?

Well, Chunghwa Telecom we are the first to use iPhone in this market. But the next iPhone, I'm sorry I'm not in a position at this moment to say anything. Certainly smartphone is very important and as we indicated, the percentage of customers own smartphones is increasing and I believe this is going to be the major trend in coming forward.

Well there are more aggressive plans. Please wait and see.

Okay, thank you. Look forward to it.

(Operator Instructions). The next question is Piyush Mubayi from Goldman Sachs. Please go ahead.

Good afternoon. Thank you very much for the call. My question concerns slide 24 and your fiber rollout plans. I can see that very quickly you will get coverage up to 70% in terms of customers who can get greater than 100 mbps and then the FTTH number picks up thereafter until it gets to about 3m by 2016. What does this mean for your CapEx plans going forward in terms of 2013, '14 and '15, to the extent you could give us any guidance? Thank you very much.

The fiber solution or fiber to the home, fiber to the X solutions, we offer right now. Our CapEx -- our construction will be in line with the customer demands. Although we set certain CapEx for reference, but in our implementation, we will be very careful in spending our CapEx. If the market responds favorably, then we will accelerate and spend our CapEx in offering the 100 megabits per second service. If the response is relatively slow, then we will be very careful in obtaining the last mile of fiber. So we have this in mind and that's how we manage our CapEx.

Okay. Thank you very much.

The next question is Neale Anderson from HSBC. Please go ahead.

Hi there. Two questions from me please on the wireless CapEx side and traffic particularly.

Firstly, you highlight the Wi-Fi access points up to 35,000 by the end of the year. Are you able to say what proportion of wireless traffic is being routed on the Wi-Fi network at the moment and how you see that developing?

And the second one relates to usage of your smartphone customers. You've broken down the sales by top tier, mid tier and low tier. Are you able to say how the usage say between your top tier and the low tier customers in terms of the amount of traffic they generate? Thank you.

The wireless CapEx, by wireless I interpret as Wi-Fi because we offer mobile service. So the Wi-Fi, we believe for household customers will take it as an extension of our broadband access, network and those capabilities are built in, in our ADSL modem. So there is no extra CapEx incurred when we deploy Wi-Fi at homes. For those that are the public Wi-Fi, the cost is relatively small. I don't have exact numbers here.

About the traffic upload from Wi-Fi, at homes, from our statistics, it's indicated quite reasonable -- for the public it's about single digit, less than 5% at this moment. But for household, it's more than 75% traffic going through Wi-Fi and then through broadband access. I'm sorry we don't disclose the breakdown of our revenue generated from various tiers of smartphone customers.

Sorry, this was more of a comment on the traffic they tend to generate. Is it much more by the top tier? Are you able to give any indication of how significant the traffic is relative to the low tier? That was my query rather than the revenue.

I think to give you some understanding of top tier and the low tier smartphone is for the top tier smartphone like 85% of them are subscriber data plans. For the low tier one it's a kind of low; just like 20% to 30%. So I think that's the difference between the top tier and the low tier smartphone user behavior. Thank you.

Understood. Thank you very much.

May I add some points? Recently we have found that mid tier subscribers, they tend to subscribe -- the percentage of data plan they subscribe tends to be more.

So we are thinking -- I think that's why we -- I think earlier this year we discussed about we would like to see the handset model for mid and low tiers is getting more and more from beginning of this year. So we would like to see the more comprehensive function equipped with the mid tier side of smartphones. So we believe that this really happens.

Great, thank you.

(Operator Instructions). The next question is Steven Liu from Standard Chartered. Please go ahead.

Thank you very much. I have three questions. The first one regarding the ICT and the cloud computing service, in which category do you include the ICT and the Cloud Computing services revenue? And what's the percentage revenue contribution in the first half or maybe in the second quarter?

The second question regarding the EBITDA margin by mobile and fixed line, can you give the EBITDA margin breakdown? And if not possible, can you give some idea about the trend in the fixed line EBITDA margin and the mobile EBITDA margin in the past few quarters.

The third question regarding the HiNet and broadband and MOD subscriber and the revenue, can you give me some idea about the clarification -- definition of high net subscriber, broadband subscriber and MOD subscriber and how do you separate the revenue as well? Thank you.

The ICT and cloud we do not disclose revenue for these in our report. Thank you for your consideration. But we believe these are the new trends -- new revenue stream areas and we are working hard in our attempt to create new revenue source.

The third -- let me answer the third question first. The HiNet, HiNet is the brand name for our ISP service, Internet service. So MOD is the brand name of our IPTV service. I don't know whether you get it or not.

Okay. Regarding ICT and the Cloud Computing, which category? It's in the fixed line or mobile? Which category do you include the revenue ICT and Cloud Computing? Is it all in the mobile or in the Fixed Line business?

Currently, we put this item under the Fixed Line. Under the fixed -- domestic fixed communication segment.

Okay. Thank you. How about the EBITDA margin breakdown?

Yes we don't provide such a breakdown. So we might consider in the future, but at this stage we don't provide that.

And to add something to your first question. The ICT revenue for the first half is TWD3.5b. But we don't disclose it separately. But we mentioned in our slide it grew 25.1% and so that is based on the 2011 first half is TWD2.8b and 2012 first half is TWD3.5b. Thank you.

Okay, thanks very much.

Sorry, excuse me. Let me revise the answer for the question for the ICT and Cloud revenue. I think the ICT and Cloud revenue currently actually allocated to different category at the moment depending on it's characteristic. Probably in domestic fixed or mobile, it all depends on the--

For the disclosure policy, since this amount is still insignificant, so we don't separate it out. But I give you the number in the first half. You can see what is the magnitude. But we don't have to separate a line for these numbers.

Okay, sure. How about the EBITDA margin trend in the mobile and the fixed line? Is it still declining in the past few quarters or stabilizing?

Yes, so far, because this year tariff reduction and also because of the handset subsidy, it is still declining. In the future we have to see what the competition and the tariff regulations. But this year, yes.

Okay thank you. Thank you very much.

The next question is Sydney Zhang of Bank of America Merrill Lynch. Please go ahead.

Hi. Thank you for the presentation. Three questions. One is the mandatory tariff reduction. What will happen after the current scheme finishes? After that, 2013, will there be new reduction scheme come in, or what's your position the government or proposal to the government?

The second question is I understand that your mobile service revenue does not include those interconnection revenues coming from your own fixed line subscribers. So if you were to add those revenues to the service revenue, how does that compare to your competitor?

Third question is for your PowerPoint slide, page 23 you were talking about that you expect the -- you are building the network, expand the base station by 70% and the backhaul by 73% to meet 65% increase in data traffic in 2012. What's the expectation for 2013? Thank you.

Your first question about the mandatory tariff reduction, as I said briefly in answering some questions, the new NCC Commissioners earlier this month they have expressed their basic policy for near-term. It's more pro-development. So they also mentioned about the revision in the regulation on tariff. So we are looking -- we are still waiting to see more information from NCC about this. So currently, we do not have much information on the new or any such schemes to be appropriate here.

Yes, there are some early discussions -- since I saw from the media news that since your Company is preferred to have maybe like a one-time bigger cut in one year rather than a small cut every year. Is that still your position?

No. That's just one opinion expressed by myself. That's only a personal opinion the recommendation for continuation at that time. No, that's not the Company's position here.

Okay, thank you.

(Operator Instructions). The next question is Piyush Mubayi from Goldman Sachs. Please go ahead.

Thanks for the opportunity again. Could I just ask what your views on dividends are in the medium-term? I would greatly appreciate if you could help us understand your thinking on that. Thank you.

I think so far just we pay as much as permitted under the law and we don't see any changes so far. Also, it will be decided by the Board, so we cannot answer this question now. Thank you.

If I can ask, if the NCC proposals go through, would that in any way alter your assessment of dividend and the risk associated with paying out dividends?

We don't have an answer for that. So we will wait and see what change will be made. So now we cannot comment on any hypothetical question. Thank you.

Thank you.

The next question is Steven Liu from Standard Chartered. Please go ahead.

Thank you. Thank you for the opportunity. My question regarding your Fixed Line business, I think still declining. Can you give me some idea when would you expect the Fixed Line revenue to stabilize given a drop in the growth in ICT Cloud Computing and also your broadband migration to fiber also may be a driver? What will you expect is the tipping point to happen?

Well, this is a very good question and I believe the ITU is currently assessing the amendment to the International Telecommunication Regulation. If certain -- the conclusion all results can be reached towards the end of this year. The ITUs will publish the IT meeting. Then fixed line business will have chance maybe to bounce back for every such operators.

That means you -- maybe the Taiwan government, the regulator, will scrap the policy of mandatory decrease in tariff. Do you mean that?

Well you know, the NCC they are reconsidering their regulatory positions on tariff. And we would like to see since it's already very competitive in Taiwan so we would like to see that no such heavy regulations applied to free markets. So I hope that the mandated cuts on the retail tariff plan will stop some time hopefully next year.

Okay, okay. Thank you.

The next question is Sydney Zhang from Bank of America Merrill Lynch. Please go ahead.

Sorry I have previously raised three question and you didn't answer the second and third question.

Maybe now let me repeat. The second question I had was the mobile service revenue, I understand your Company don't include the interconnection revenue from your own fixed line customer. So if you were adding -- add this revenue in to apple to apple to compare your competitor, how is the growth rate looks like?

Then the last question I had was on the CapEx you have on your slide 23. You were talking about the 2012, the base station bandwidth increase 70% and the backhaul increase 73% in 2012. Just my question is, is your CapEx this year can support some of those increase or expansions for next year's traffic growth.

The second question first about the base stations' bandwidths. We have majority of base station bandwidths against the demand on traffic and we believe overall, the capacity of our mobile network is capable of taking all these demands.

But the question really comes up when we encounter very specific location at certain busy hours, that's the issue. The Company, we have been working on extending our capacity this year so I believe, overall, it is okay for this year and maybe for next year.

The traffic increased weight in mobile data, we experience something like 65% during the past year. That means almost double in a year. So there will be pressure in capacity of mobile network. That's why we adopt the Wi-Fi offload as one of the views to offload traffic. I believe there are other views for us. For example, some mention about vendor sale, or even a continuous network, this can help develop the traffic load.

The CapEx to support, this is already in our CapEx plan.

Sydney, back to your first question. Your last question. I think you're probably asking about the fixed mobile price environment. That interconnection revenue, if we normalize that part, what will be like for the breakdown?

Right.

So the market share, talking about the market share of the mobile revenue in this market, for the first half, probably for Chunghwa maybe around 33%. If you normalize that part it's probably we can get about 1 to 1.5 point increase, but that's about the number. Okay, you get it?

Thank you, yes. Okay thank you.

(Operator Instructions). If there are no further questions, I will turn this back over to Chairman Lu. Please begin.

Okay, thank you very much for participating in our conference call for the results of the first half or the second quarter of 2012. Thank you so much. Good night.

Thank you Chairman Lu. Thank you for your participation in Chunghwa Telecom's conference call. 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.