Chunghwa Telecom Co Ltd (CHT) 2013 Q3 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to the Chunghwa Telecom conference call for the Company's third quarter 2013 operating results. (Operator Instructions).

For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be able within one hour after the conference is finished. Please visit CHT IR website, www.cht.com.tw/ir, under the IR calendar section.

Now I would like to turn it over to Fufu Shen, the Director of Investor Relations. Thank you. Ms. Shen, please go ahead.

Thank you. This is Fufu Shen, the Director of Investor Relations for Chunghwa Telecom. Welcome to our third quarter 2013 annual results conference call. Joining me on the call today are Dr. Lee, Chairman; Mr. Shih, President; and Dr. Yeh, CFO.

During today's call, management will first discuss the operational and financial highlights. Then we will move onto the Q&A section. On slide number 2, please note our Safe Harbor Statement.

Now I would like to turn the call over to Chairman Lee.

Thank you. Hello, everyone. This is Yen-Sung Lee. Thank you all for joining our third quarter 2013 earnings results conference call.

Before Mr. Shih reviews the business overview, I would like to update you regarding the mobile broadband spectrum bidding results and the focus of our business operations.

On slide 3, as you are all aware, we are very excited to have on the bidding for the first amount of bandwidth in the mobile broadband business license auction. After almost 400 rounds of bidding with (inaudible), we win with a final price of just over [TWD39] bidding.

Two key highlights of our win that I would like to point out include, one is that we are the only operator acquiring the maximum amount of bandwidth, with 2 x 35 megahertz of spectrum, which include two slots at 1,800 megahertz.

This spectrum was the most sought-after spectrum in the auction for two reasons. One is compatibility with the 4G spectrum globally, and the two, we receive [considering] ecosystem ready and that is not in use currently, meaning it will allow us for immediate network deployment and quickly service launch.

Because of this, we believe that we have the potential to be the first-to-market launch and offer high speed 4G services over LTE technology. As you can imagine, we are very excited about this because it will provide Chunghwa's substantial early lead over the competition.

The other key highlight is this win two spectrum slots, currently held by us for our 2G operation. This will not only allow us to maintain our 2G services for customers, but it will also allow us to offer 4G services at the same time, [heading] up for the next months the usage of this spectrum.

Now moving to slide 4, for our third-quarter operations results, we are proud to say that we continue to outperform our competitor in attracting the most Internet subscribers. By the end of the September, our mobile Internet subscriber market share reached to 34.1%, which was the highest amount of peers.

We will continue to support this growth momentum and market leadership in the future. (inaudible) is already very high. We continue to focus on customer retention and the migration to higher speed services. We will also leverage our (inaudible) speed advantage and promote community spread, combining fiber with Wi-Fi, (inaudible) and other very (inaudible) services.

Now President Shih would like to guide you through our business overview.

Thank you, Chairman Lee. Please refer to slide 6 for our mobile business. For third quarter, mobile Internet subscribers grew by over 60% year over year to 33.57. Our mobile data revenue grew significantly by 37.4% year over year; the highest among the mobile operators.

We believe that this success is mainly due to our aggressive promotion trends, which not only attract mid-to-low tier smartphone business, but also have encouraged to the subscribers to upgrade to our 3G networks through attractive data plans.

This year we started to upgrade 700,000 2G subscribers to our 3G network. From January through September we successfully upgraded more than 500,000 subscribers to the 3G network, and about 25% of them subscribed to the additional data plans upon the migration. We will continue to encourage migration and upgrade going forward.

On slide 7 our successful promotional initiatives targeting the mid-to-low tier smartphone users have pushed our smartphone penetration over 50% as at the end of September. Thus we increased our yearend expected smartphone penetration rate from 49% to 53%.

As mentioned earlier, total mobile Internet subscribers has already reached 3.57 million, surpassing our original yearend target. Therefore, we also revised the target up to 3.78 million subscribers.

Slide 8 shows the results for our broadband business. During the quarter, we continued to see a steady migration of subscribers to higher speed of fiber services. We experienced over 32.8% year over year the growth in the number of subscribers opting for connection speeds of 16 megabit per second and higher, reaching more than 1.09 million by the end of the third quarter.

Overall, even though total broadband subscriber numbers remained flat for the past several quarters, we continue to encourage our subscribers to migrate to higher speed fiber offering, by offering attractive promotional plans that combine our fiber solution with Wi-Fi, (inaudible) protocol and other value-added services.

Recently we began offering promotional plan for 16 megabit per second and 100 megabit per second services. In order to facilitate the greater migration, we are also targeting SMEs and the machine-to-machine applications to stimulate further broadband usage.

On slide 9, for the first nine months of 2013 our IPTV revenue increased year over year by over 13.1% and our advertising revenue grew by 34.2%. We expect the advertising revenue to continue to grow throughout the remainder of this year.

In addition, the households using TV rate continued to increase in the past quarters, which demonstrates our success in generating the greater customer stickiness on our platforms.

To further stimulate the subscriber growth, we will continue offering convergence plans to cross sell our MOD and other broadband spaces.

Please see slide 10 for an update on our ICT and cloud initiative. In the third quarter of this year, our cloud business revenues doubled year over year, and the personal cloud subscribers reached 1.12 million. Also we won several significant ICT projects, with contracts totaling TWD3.3 billion.

Some of our projects include network construction for China Trust lottery, monitoring the coding system project for police department under two local governments and other government IDC projects.

We will continue to leverage our core telecom infrastructure and the services to expand our ICT and the cloud business.

Slide 12 provides an update on regulatory front. Our Chairman has mentioned earlier about the broadband spectrum auction we saw completed on October 30. As for the Telecom Act amendment, the Executive Yuan returned amendment proposal to the NCC again in July 16, and they decide that the NCC should submit a Digital Convergence Regulation draft in February next year instead.

Now I would like to hand it over to Dr. Yeh, to go through our financial results.

Thank you, President Shih, and a good day, everyone. Thanks for joining us today. I will give you our financial results in detail, beginning with the slide 13. On slide 14 are our income statement highlights.

Total revenue for the third quarter grew by 2.6% and operating costs and expenses increased by 3.5% year over year. Our income from operations and the net income decreased by 0.4% and 0.5% respectively. In addition, the EBITDA margin decreased from 37.5% to 36.4% in the third quarter as compared to the same period in 2012.

Please refer to slide 15 for an update on our business segment revenues.

Our total revenue increase was driven 37.4% year-over-year growth in mobile VAS revenue and a 24.8% growth in handset sales, as well as an increase in ICT revenue. The strong growth of mobile VAS revenue was mainly driven by an increase in mobile Internet subscribers.

Local voice service revenue decreased by 8%, mainly due to mobile and the VoIP substitutions. The 7.3% revenue decline in the DLD business was primarily due to the mobile substitution.

Broadband revenue decreased by 0.8%, mainly attributable to the NCC tariff reduction for both ADSL and the fiber service carriage. The ADSL revenue decline offset the fiber revenue growth.

Mobile voice revenue decreased by 6.6%, due to promotional packages and the mandatory tariff reductions.

Moving to slide 16, you can see that our operating costs and expenses increased by 3.5% year over year. The increase in operating costs was mainly due to the rising costs of handsets sold, resulting from strong mobile Internet and the handset sales growth during the quarter.

As shown on slide 17, cash flow from operating activities increased to TWD17.1 billion during the third quarter. This was mainly due to the decrease in payments to equipment contractors this year and the less mobile deposits than last year, due to favorable offering for VoIP subscribers.

We maintain a strong cash flow position with cash and the cash equivalents amounting to TWD34.8 billion as of September 30 this year.

The EBITDA margin increase was primarily due to the tariff cuts and the higher handset sales, leading to a lower EBITDA margin than our traditional telecom services.

Slide 18 shows our 2013 third-quarter results, as compared to our guidance for the quarter. Our revenue, operating income, net income and EBITDA all exceeded our third-quarter guidance, mostly due to higher handset sales and the mobile VAS revenue. However, EBITDA margin was lower than expected, due to a lower margin for handsets.

Currently, we expect our full-year operating result to remain in line with our earlier guidance.

Lastly, on slide 19, our capital expenditure will continue to focus on broadband and the mobile network construction and cloud deployment, including data center construction. We will review our CapEx budget and execution plan on a regular basis and focus on making the most cost-effective spending decisions possible.

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

Thank you. We will now begin our question-and-answer session. (Operator Instructions), Chate Benchavitvilai, Credit Suisse.

First of all, congratulations on your 4G spectrum result. I have a couple of questions around that. The first question is I understand that Chunghwa is aiming to launch 4G services in the second half of 2014. That, however, is quite in line with what your peers are currently guiding as well.

So I just would like to understand that when you say you would have an advantage, is that you believe that your peers might be launching much towards the end of 2014 and that you will launch early in the second half? Or you just comment from the perspective of having a better ecosystem in 1,800 megahertz and of the view that your peers might not be able to launch a service in that 1,800 megahertz?

The second question, in light of the 4G investment, in terms of the CapEx budget for 2014, I understand that you would still be working on it. But, as far as the bigger picture is concerned, should we expect it to at least remain the same level as what we see in 2013, which is around TWD37 billion? Or should we expect it to go down or go up?

The third question is regarding your broadband operation. I understand that the upgrade from the lower speed to higher speed is going really well. However, we are not seeing that coming through in revenue quite yet, partly because the tariff speculations and also the ADSL is still coming down.

Would we expect this year to be bottom in terms of the revenue performance and there will be some lag effect from that subscriber upgrade that's allowing you to actually grow the broadband revenue, finally, into FY14?

And last question, just really housekeeping, the TV advertising revenue, would you be able to share with us how much are you generating from TV advertising in dollar terms? Thank you .

We've got the 1,800 in the 15 megahertz continuously, so the iPhone 5 and 5S already MOD ready. So I think the ecosystem now is quite mature, so we plan to launch the MOD in the second half of next year because we have the advantage over our competitors. We have very high-end users. We think we can secure those kind of users. Also, we can attract the users from our competitors. So that's our advantage. So we will speed up our deploying volume process and we can reach this kind of goal.

And the second question is about CapEx. We already have roughly increase of less than TWD40 billion next year; a little bit higher than this year. So we will balance the CapEx between the 4G and the 3G. So far, we can say the CapEx for (inaudible) our EBITDA peaks and is then going down later.

And the third question relates to the broadband subscriber upgrade. Because we upgrade the broadband subscribers to higher speed, it's going well. And also because of the speed, broadband subscribers' ARPU is higher than the low speed.

So even the subscribers not achieve the (inaudible), but at the end of this year, the total revenue of broadband increases to around [59 broadbands] who have been -- we expect that it will be achieved. And in the next year, 2014, we see it also as the same situation; the revenue will also grow slightly.

[Vicky Ling], Merrill Lynch.

Sydney Zhang, Merrill Lynch. I have two questions. The first question's really so when you guys push the final, let's say, on the C5, the price gets so high and you guys, as the largest operator, you get this and also as the Government has ownership in your Company, would you think that this would lead to a tougher regulatory environment towards you? Because you won the best spectrum and then you're going to win the competition. So can you share a bit of comment on that?

Second question is related to -- for you guys to -- you must have done the 4G business case internally and, given this higher CapEx and also in a higher spectrum cost and in light of the future, you're going to roll out this tier pricing. Do you think this 4G can really make money? That's my questions, thank you.

Okay, the C5 is empty. There is nobody using it for the mobile. So we think that's the most important for Chunghwa to lead in the competitors.

For the regulatory environment, we think the NCC will give us the green light to speed up the deployment process. I think it's also are waiting for our NCC regulator to have the 4G as soon as possible.

So the second question is the tier pricing. It is a very important policy for the 4G strategy. We need to have different image for the package and also give the people price. So we think we can make money, of course, but it takes a good policy how we differentiate it with 3G.

We think that it already has a consensus among the community or the industry that in the 4G [era], we cannot use the same policy as the 3G because the traffic will grow a lot higher than 3G. So for the healthy operation, we think the tier pricing is a must.

Okay. Can I ask one additional question? Should we really be reasonable to assume that the competition on the 4G will be more severe than the 3G? Because in the 3G, every three operators have the same technology, same amount of spectrum bands to use, basically it's a very benign environment.

But now, coming to the 4G, then you all have a different frequency band and different speed, so that will lead to the competition of building out best network and trying to win on speed and price. Is that going to make the competition more complicated?

Yes, of course, because we have a new players, like [FirstCom] is very aggressive in the 4G area. But because the technology not really mature so far for 700 megahertz, and also the voice is still very important, even if you go to the 4G era. So we have a very strong infrastructure for 2G, 3G and, in the future, 4G. We have what we call, the voice fallback in the initial stage of the 4G deployment.

So, yes, the 4G competition is more complicated because there's a lot of new players that have very different strategies to compete in the market. But somehow we will consider how we can leverage our advantages on the 3G and the 2G, even the 2G. The voice is the best. Thank you.

Thank you.

(Operator Instructions). Steven Liu, Standard and Chartered.

I have several questions. First regarding your mobile Internet, the subscribers increased substantially in the third quarter but -- while (inaudible) declining. What's the main driver for the increase in the mobile Internet?

And also, what's the average data usage for the mobile Internet user or the smartphone user? And how about the data usage and also ARPU for the mobile Internet? It's the first question maybe first.

So we have a very successful promotion on the data subscribers with not only the smartphone, but also the pad, iPad and the other Android pads. Currently our mobile subscribers, the data is around 2.6 gigabyte per month, roughly, 2.6 megabytes to 3 megabytes per user per month. (multiple speakers) The ARPU growth.

Yes. And the second question, what's the postpaid subscriber ratio, total number? How many is postpaid percentage, how much?

90% of the subscribers is postpaid. So total subscribers is at around 10.5 million, so 90% of it is postpaid.

Okay. Thank you. The third question regarding your -- I note in the third quarter your tier, top tier, smartphone sales accounted for only 24% compared with preceding two quarters' average of 50%. Can you explain the main reason you're mostly into the low-end customers or launching low-end smartphones?

Yes. The high-end to -- the high-tier to mid-tier to low-tier ratio is 30% and 40%. That means we already encourage the mid-tier to low-tier users, especially for some low usage users. So it's good and affordable. It's a very good promotion package.

Okay, thank you. And maybe the last question regarding who will be your supplier for 4G network. Have you made a selection?

We will have some competition from the suppliers. NSN is our 3G supplier today. We expect part of the equipment will come from NSN. The others, we will select from the potential suppliers, including Ericsson, Alcatel-Lucent, etc.

Yes. And could you just give any restriction on your -- to use the Chinese for the key telecom equipment? Or just a restriction, a co-network. Can you buy the equipment in a base station access network?

It's a very tough question because the Government encourages Chunghwa Telecom not to use the equipment from Chinese vendors.

Even the -- I mean the co -- the access network. Previously I noticed only restriction on the co-network. So they don't encourage any equipment from the Chinese vendors?

Yes, because the special position of Chunghwa Telecom, we need to concern about the so-called national security.

Okay, thank you.

Lucy Liu, JPMorgan.

I have three questions. One regards the follow up on tier pricing. I just wonder, there were some -- there's some saying that in order to do tier pricing, that operators might need to also cut down the monthly charge, monthly fee, so that make the wholesalers more affordable. I just want to hear your thoughts. Do you think that will be the case?

And then secondly also on the new entrant risk, so I was just wondering, how do you view the strategy from [Whole House] or (inaudible) and it seems that they're now getting less popular. Do you see (inaudible) for anyone to buy a small operator, like Vibo to turn around the 3G business first before going to 4G? I just want to hear your thoughts.

And lastly is on dividends and again you need to pay the [special] fee later on this year or next year. Are we expecting the stable payout ratio as in the last year? What will be the general guidance there? Thank you.

Yes, the pricing is -- we have many tiers. That means we are a very low entrant for loss ratio. For example, according to our government officials, they mention that maybe from 200 to 2,000. That means we have to have a different tier, different for different subscribers' needs. So yes, it's true.

The new entrant risk, we don't have no comment on the new players because we only know that Chunghwa we can do much better than the new entrants because the Taiwanese market is not so big. It's really too many operators is not good for the industry.

So, so far we don't have any plans to acquire the competitors. Thank you.

So specialty -- the dividend (inaudible).

We have sufficient cash on hand and there are some other financial assets, including corporate bonds and the bank debenture, more than TWD50 billion by the end of October. And we are basically debt free, so there is room to raise along without hurting our rating status.

But, however, the dividend will be decided by Board each year when our operating results are known. So at this stage we don't really know what will happen. Thank you.

Thank you. May I follow up with two small questions, also on tier pricing?? So I think because you want to change to tier pricing with 3G, i.e., that customer can still enjoy a limited pricing on 3G, so do you think this will prohibit customers from migration from 3G to 4G? Do you know the strategy about there?

And also, secondly, I know that the per-unit cost for 4G should be lower than 3G, so should we expect that the per-unit price you charge for 4G would be also lower?

Third question, what kind of the margin of 4G you can gain versus 3G? Thank you.

Because the range for the monthly charge will be bigger than 3G, as I mentioned in the first question, that the regulator just encourages that operators should provide from low to high packages. So it's not a formal decision. We study the possibility to have a different tariff packaging, so the price is not decided yet.

So the tier pricing, the customer will migrate to 4G. If we can offer a differentiation quality on the speed compared to 3G, I think the customer will accept the new tariff packaging.

Sure, thank you. Sorry, last question. So in order to provide a satisfactory user experience for 4G, so how many base stations do you think you will need to roll out for 4G or upgraded to 4G, please? Thanks.

The regulator say you can launch the service if you have 250 base stations, but we think it's not good enough. So by the next five years, we will deploy more than 7,000 base stations from face to face.

Okay. Thank you very much.

Joseph Quinn, Macquarie.

Congratulations again on your results. I just have one follow-up question coming from the comment around dividends. As you mentioned, your cash balance is quite good, but, clearly, this large tailwind for 4G will impact.

Can you go through a little bit more detail in regards to your indications that you may need to go to the debt market? Is that something that you might have to explore next year if dividend policies remain high? And, if so, what is the Company's thinking around that as well? Thank you.

At this moment, we don't have to go to the debt market. As I indicated, we have cash and some other financial investments, more than TWD50 billion, and you know we have to pay the fee, and that's TWD39 billion, within 30 days. So it's more than enough to cover that. Thank you.

Yes, sorry, I was more referring to as we go into 2014 and you have your -- as you mentioned, about TWD40 billion in CapEx cost next year and, obviously, you'll have a significant cost going through from dividends as well. Given those two items, do you expect that you would need to go to the debt market in that scenario?

Okay, we might need to have some very short-term borrowing next year, but it's just like two months in the -- with a small amount because we will still have cash flow coming too every month. So basically, we don't have to (inaudible) our debt.

Okay. So just a short-term borrowing issue, okay. Thank you.

Jack Xu, Sinopac Securities.

Congratulations to get the best spectrum on the 4G competition, and my question firstly is what's your strategy for increasing ARPU after you get the 4G spectrum?

And the second, when will the deployment will really start in 2014?

And my third question is what's our target -- what are business and we can to increase actually our (inaudible) 4G spectrum? Thank you.

The strategy for Chunghwa is to deploy the LTE in the major six biggest cities and the industrial parks and the freeway. So we expect the next half year, we can have some coverage, especially in the big cities. So the strategy is to speed up the deployment so we can offer the LTE as soon as possible.

We will deploy the start beginning of -- from end of this year. So we are competing with our speed because we will take our advantage of the C5 because we can launch -- we can deploy from day one.

The business we can increase the (inaudible), that means we expect to satisfy our customers with value-added services. We have many applications, like HD video. So there are lots of opportunities for Chunghwa to develop and to give the subscriber more satisfactory services. Thank you.

And one more final on prices. If we started [over] deployment of what the effect especially for the other deployment, like fiber, cash costs - or the CapEx is restricted, we just can't do the 4G at one time. But others about the 3G and the fiber, possible Company strategy. Thank you.

The fiber is very cheap, very important for the 4G launch. We already have a PT, packet transport network. We are ready for the high speed back up, not only used for Chunghwa mobile, but also from our competitors, for all the new entrants.

So fiber with 4G (inaudible), we think it is (inaudible) to put together, to consider how we can provide the back haul for the high speed, at the base stations.

Thank you.

(Operator Instructions). Jinjin Wang, UBS.

I just have one question regarding your strategy on your mobile [voice]. Because mobile voice revenue still accounts for a big portion of your total mobile revenue and currently there has been speculation talking about a new entrants by [launch], even free (inaudible) voice packages. I'm just wondering how you see that possibility and how you are going to react.

Because my view, I think, in general, the voice tariff per minute in Taiwan is very high, in the region, and (inaudible) particularly low. Do you think if you lower voice tariff, you are able to pick up (inaudible) [price strategy]? Thank you.

For the new entrants it's still not very clear how they can compete with the incumbent, because voice capability is a limitation for the new player. So the tariff or the (inaudible) say the voice will be free, the actions will be free, but he didn't say how much they will charge to customer on the data package.

So I think the -- in the future, one of our tariff packages will be (inaudible) limited amount, limited money, but we can offer almost voice-free packages. So we still -- too early to say how what is the tariff, so far. But we will go very detail survey in the study, what is appropriate for the long-term operation of 4G network.

I see. So you are (inaudible), you are considering maybe change your current voice tariff plan to something like you charge a certain amount of fee, probably it's similar or even higher than current voice ARPU that also almost unlimited voice traffic. Am I right? (multiple speakers)

(inaudible).

Sorry?

You know Simon Chang is our minister without a portfolio. He mentioned that the direction is you can provide from TWD200 to TWD2,000. That means you can charge higher, higher monthly charge for the net (multiple speakers) includes everything. So that's one (multiple speakers) can consider.

Okay, okay, I see. Thank you.

Chate Benchavitvilai, Credit Suisse.

Just one follow up, really housekeeping questions. I understand that you report year-on-year data revenue (inaudible) on the mobile side of 37%. That, I understand, includes the impact of the discount last year, as well. So if we remove that impact from the expiration of the discount, what would be a comparable year-on-year growth in revenue? Thank you.

Yes, if we take the 20% off, the percentage will be 29.16%, the quarter 3. Yearly, from the third quarter, the percentage is 31.01%, compared to the 38.25%. Let me summarize. In the quarter 3, the revenue growth is 37.4%. If we take 20% off, it will be 29.16%. Thank you.

That is perfect. Thank you very much.

[Mark Ling, Taiwan Ratio].

I have one question about the dividend policy. Because FET and the China mobile, they maintain the payout ratio about 100%. Do we also follow that dividend policy?

As I've explained many times, the dividend policy is the right or power of the Board and they haven't make any decision, so we don't know what they will decide. Thank you.

Okay. Thank you.

Steven Liu, Standard Chartered.

Three more questions. What is the handset subsidy spending in their third quarter, compared -- and also compared with last year?

And the second, regarding your ICQ revenue, can you disclose what the total amount of revenue in the third quarter, and on a year-on-year basis, [have] they increased? Thank you.

We don't disclose the details of the handset subsidies.

How about ICQ revenue? Can you disclose that?

I'm sorry, we don't give you no, absolutely no figures for the ICQ line.

Okay, thank you. Maybe last question on your fiber network. Globally we are seeing the new technology like 100G or 400G. Instead of 100G, 40G is still very popular and increasingly important for the transmission and the backbone. What level -- your fiber transmission networks on 20G, 40G or 20G, can you give me some idea about that?

The fiber network is (inaudible). We provide 100 megabit plus back haul, backbone, 100 gigabit per second for the backbone.

Okay, thank you.

Thank you, so for the base station for 3G and 4G we provide the packaged transport network. I think it's very important it's IP-based transmission network.

So you have already --?

(multiple speakers) So that question is the ICT business (inaudible). The compound annual growth rate is 20%.

Okay, thank you. 20% for the past how many years, the compound?

Four years.

Okay, thank you.

[Vicky Ling] Merrill Lynch.

Just one technical question. So for your 4G networks, do you plan to deploy voice over LTE any time soon? And then if the new entrants also deploy that, I think they would have the voice capability.

Then the final question is also, as you migrate customers more to the 4G, when do you think the 2G, you can exit 2G networks? Thanks.

Okay, so the technical question for 4G is very important. It's [about] voice over LTE. We have already discussed with the vendors we will offer the capability by the middle of next year. But the important is, you need to have a good enough coverage otherwise the handover will be a problem.

So in the initial stages we have offered (inaudible) switch for back then followed by (inaudible). So (inaudible) is evolving technology. We will introduce it as soon as possible, but practically it needs to rely on the good coverages for 4G. So when we migrate to 4G the existing 2G subscribers will be -- we will encourage the subscribers either to upgrade to 3G or to 4G.

So the 2G subscribers is most of the senior people, maybe it's too luxury for upgrade to 4G. We have a good strategy to offer to the subscriber. They can choose either to direct to the 4G or to 3G first. And the 2G will co-exist for a certain period. Thank you.

So would that be [OLT] deploying this, because they need good coverage? But that means you will deploy 4G massively next year.

We will focus on the Taipei, Taichung, Kaohsiung and [Taoyuan] and Kaohsiung and (inaudible), the six biggest cities, including the (inaudible).

Okay, thank you.

(Operator Instructions). If there are no more questions I will turn it back over to Chairman Lee.

Yes, thank you all you who participated in this third-quarter earnings results. Thank you very much. Thank you, all. Thank you.

Thank you, Chairman Lee. Thank you for your participation in Chunghwa Telecom's conference. There will be a webcast replay within one hour. Please visit www.cht.com.tw/ir under the IR calendar section. You may disconnect now. Goodbye.