KT Corp (KT) 2006 Q3 法說會逐字稿

[Interpreted]. Good morning and good evening. First of all, thank you all for joining this conference call and now we will begin the conference of the 2006 third quarter preliminary earnings results by KT. This conference will start with a presentation followed by a Q and A session. English translation will be provided for your convenience. [OPERATOR INSTRUCTIONS]. Now we shall commence the presentation on the 2006 third quarter preliminary earnings results by KT's CFO, Mr. Haing-Min Kwon.

[Interpreted]. Good morning and good evening. I am Kwon Haing-Min, CFO of KT. Thank you for joining us at KT's earnings conference call for third quarter of 2006.

Let's first take a look at third quarter performances. Things were quite tough in the third quarter in the telecom market due to a fierce competition among the carriers. Despite strengthened competition in the broadband market and reduction in fixed line traffic, our sales recorded KRW2,999.7b, a KRW61b increase year-on-year basis, thanks to the increased PCS handset sales, usage fees and real estate development income.

Increase in marketing expenditures spent on expansion and retention of subscriber base, an increase in depreciation from more investment affected our operating income which is KRW436.3b, a KRW139.9b less quarter-on-quarter basis and KRW15.7b less on a year-on-year basis. On accumulative basis up to the third quarter, the number is KRW1,671.2b.

Despite the tough competitive landscape such results were possible as both labor and management saw eye to eye on the difficulties and decided to freeze the wage levels for 2006.

Let me now talk about some of the changes we've made to our annual guidance. Considering the third quarter performances and uncertain business environment for the fourth quarter, we are adjusting the operating income target upward to over KRW1.7 trillion. We maintain our original guidance for EBITDA and CapEx at KWR3.9 trillion and KRW3 trillion respectively.

This number reflects quality improvement activities for existing businesses, like broadband, to strengthen competitiveness, and diversification of marketing activities to better respond to competition, and investment that will come under full swing starting fourth quarter for WiBro and IPTV pilot services.

Let me brief you on the progress of the WiBro business. Since June, KT is commercializing services in a limited coverage area in order to increase customer awareness levels. Based on the know-how we derive from this experience, we will enhance the completeness of the technology and continue to develop differentiated and new business models. And we will continue to expand the network around core areas with [bench] demands like Seoul and its surrounding metropolitan areas and offer services from the beginning of next year.

Next, on IPTV. Through agreement between the regulators, a pilot service provider had been chosen and discussions on laws and regulations are showing a progress. The Commission on Broadcast and Telecommunication Convergence Commission is actively pushing forward with realignment of telecom and broadcasting organizations and they're putting in efforts to establish relevant laws and regulations for IPTV services.

For a successful implementation of pilot services scheduled for November and December of this year, we are fully preparing for service development and build out of infrastructure. Also to ensure storage content, which forms the very basis of IPTV business, we have decided to acquire shares at [inaudible].

We at KT believe regulatory issues will be resolved either within the year or in the first half of next year. And, through revisions to the relevant laws, we will be able to start commercial services from the second half of 2007.

This has been a brief presentation on our performance and business situation. We'd now like to entertain any questions you might have. Thank you.

[Interpreted]. [OPERATOR INSTRUCTIONS]. The first question will be provided by Mr. [Chong Min Yan] from [Handel] Investment Securities. Please go ahead sir.

[Interpreted]. Yes, I have two questions. First is on your bundling service strategies. I do understand that you probably don't have any confirmed strategy at this point. But can you just give us a hint as to the direction of the strategy? For instance, your position with respect to the equal access principle and also whether the mobile communication functions could be included in the bundled services and the magnitude of the discount that could be provided.

The second question is if you look at the [recurrent] expenditure from the first quarter to the third quarter it had to reduce significantly and I would like to know the reasons behind that. And will this be the level of the recurrent expenditure going forward in other quarters as well?

[Interpreted]. The first question on bundling. The Ministry of Information and Communication is going to announce within the month of December the bundling service related directive. Of course there is an institutionalized base in place for KT to include the services that KT provide, as well as the services that its subsidiaries provide. So it is theoretically possible.

However, at this point it is premature for us to talk about what types of services will be included in the bundle and the magnitude of the discount and the timing of the bundled services, because we have yet to wait for the Government Directive announcement and also we have to listen to the needs of the subscribers of our services. So at this point we cannot give you a definite picture on that.

On the equal access conditions, as you know, the whole approach is to provide a level playing field or the same conditions to the late entrants. But the details will be determined based on the agreement amongst the players. And also because the government has not yet announced its directive, it is premature to comment on that question.

And with respect to the recurrent expenditure for the third quarter, that reduction in the third quarter that you see is temporary. Next quarter we expect significant amounts of CapEx to take place and therefore the level of recurrent expenditure will probably recover to the previous levels.

[Interpreted]. The following question will be given by Mr. Kyeong-mo Kim from Mirae Asset Securities. Please go ahead sir.

[Interpreted]. Since you have shared with us your adjusted guideline for the operating income and you have adjusted the target upwards, and because if you look at the operating income on a cumulative basis up to third quarter the amount is KRW1.7 trillion. And your guidance is only slightly adjusted. So I think of kind of eluding that in the fourth quarter the operating income will be somewhat lower compared to other periods.

And also considering the fact that your marketing expenditure will also be reduced because government is facing a lot of restrictions on the broadband market, I'm just wondering isn't this operating income guideline just too low? That's my first question.

The second is about the bundling services. I know you have mentioned this portion. However, we have a lot of interest on the possibility of a bundled service between KT and SK Telecom, your fixed and wireless products bundled together by these two carriers. The whole concept of equal access, I believe, is to prevent the market dominance of the players from expanding forward. But if KT and SK Telecom's bundling service is allowed, then definitely this is going to give the players more competitive advantage over other carriers. So how do you see the possibility of such bundled products coming out in the market going forward?

[Interpreted]. It is true that the government is inducing the players to reduce their marketing spend in order to prevent competitive spending. However it is still not having any significant effect on the broadband market. Therefore in the fourth quarter, the way KT sees the market is that marketing expenditure will continue or will start to increase in the fourth quarter. The reason is because there will be more investment in the WiBro facilitation and also more depreciation that will follow that investment. That is why we had proposed our operating income target at that level.

Then you asked a question about the possibility of bundled services between KT and SK Telecom. As you know, these two carriers are regulated by the government. They are dubbed the market-dominant players and they face regulation of the government. And whether we can combine such licensed services is something that is wholly dependent on the government policies.

[Interpreted]. I believe when it comes to providing a bundling services, the whole thing has to do with migration of expansion of market dominance of the players. And considering the fact that you have said, as an assumption, that prevention of such market dominance from expanding onward is the basis of you setting your guidance. We, from outside, would see the possibility of KT and SKT's bundled services as quite pessimistic. Can you be more elaborate on this? Can you elaborate on this point?

[Interpreted]. Once again, it is totally up to the decision of the government. The government will consider all the different factors and will probably come up with the most balanced solution.

[Interpreted]. The following will be provided by Mr. Matt Evans from CLSA. Please go ahead sir.

Good afternoon. Thanks for the call. There were some press reports last week that the MIC would be investigating competition in the broadband market. Could you please explain to us your understanding of the accusations that are being investigated, what the scope of the enquiry is and what action the MIC might take following this investigation? And also which carriers it's focused on?

[Interpreted]. That is related to another company so it's something that KT cannot comment on, and my apologies for that.

Okay, just if I could quickly follow up. Could you give us an estimate of your broadband subscriber acquisition cost in the third quarter please?

[Interpreted]. Actually we get that question a lot. But, according to our marketing strategy, this is an internal information which we really cannot disclose. I ask for your understanding on that.

Okay. Thank you.

[Interpreted]. The following question will be provided by Mr. Mitchell Kim from Morgan Stanley. Please go ahead sir.

Thank you. This is Mitchell Kim. I just have one question. I just wanted to just take a step back and just look at this year. With the cumulative three quarters it looks as though you've done a very good job of controlling costs, although you won't -- we have a limited visibility on fourth quarter. I was just wondering, if you look back at the first three quarters, how would assess KT's performance so far? That is, what are some of the things that are more favorable to KT at this point? What did the Company do right if you look at the first three quarters?

And, on the other hand, what are some of the continuing challenges do you see going forward? I know this is more like a high-level question, but I would appreciate your thoughts on this.

[Interpreted]. Well the new President, under Nam Joong Soo, we have really put a lot of focus on the intrinsic management or the fundamental management. In line with that we tried to do away with unnecessary costs, controlling the costs. Of course we have done that in the past but we have just strengthened that to a higher level. And with a fiercer market competition, we have put a strong focus on optimal management of profits.

Also, on top of that, our labor unions at KT have made a very significant decision to freeze the wage level, which was quite unprecedented. And that helped the company quite a bit.

The challenge that KT faces is to bring new growth engine businesses into reality. Our potential new growth engine businesses, as you know, are WiBro and IPTV business. It's a growth engine and now we need to trigger that engine and bring these services and products successfully to market. And, as you know, the fixed line market has reached saturation. And therefore there is fierce competition in this market. So we need to find ways to reduce are marketing expenditures.

So following up on the first response on labor costs, it's something I think that's great that labor unions agreed to a salary freeze. But obviously that's not going to be sustainable through next -- is there a -- do you see labor costs continuing to be controlled at the appropriate levels going into next year as well?

[Interpreted]. It's something that labor union would have to agree on. But the Company will do its best to explain the situation that KT faces to the labor union so that we can bring out cooperation of the labor union members. And to predict what's going to happen next year, I believe that's not appropriate.

Thank you very much.

[Interpreted]. The following question will be provided by Mr. [Hong Jan Kim] from Goldman Sachs. Please go ahead sir.

[Interpreted]. There was a slight increase in the marketing spend which is attributable to the broadband segment. And we have seen an increase in subscribers, but your market share actually fell. So what do you see as the market share level that you wish to maintain?

And even with the increase in subscribers we are seeing are seeing a reduction in ARPU. So I would like to ask your corporate strategy on this and ways for you to best respond to the competitors.

The second question is previously I have heard that the President or KT wanted to focus on improving the profitably and the base structure of the profitability. And recently we are seeing on a consolidated basis the changes in the structures of the subsidiaries. So when you say improving the profit structure, are you talking about the subsidiaries or are you more geared towards the improvement in profits for HQ, the headquarter office? And in that line, will there be, or do you foresee any kinds of restructuring or changes in the structure of your subsidiaries?

[Interpreted]. Yes, the broadband market is very tough to compete in. KT has been focusing on retention of the subscribers. And although you are right to say our subscribers didn't increase that much, our marketing expenditure increased quite a bit.

Both the indicators for market share and number of subscribers are all-important for us. And in terms of ARPUs we will continue to employ strategies to increase the level of ARPU through developing value-added services and improving the quality of the networks that we provide. However, for the time being, the ARPU will not be increased to a significant level. It will maintain at around KRW27,000.

Our efforts to improve the profitability structure not only involves the subsidiaries, but also KT itself. As you have seen, there has been a number of cases of reshuffling and restructuring of the subsidiaries. And that effort will continue on forward. For KT itself we are also trying to improve the profit structure. And businesses that do not provide value to our customers will be fiercely analyzed and right actions will be taken.

[Interpreted]. The following question will be provided by Mr. Hong Sha Kim from [NH] Investment Securities. Please go ahead sir.

[Interpreted]. I have two questions regarding bundling services. First is with respect with to the launch of the bundling services. Let's just assume that bundling service will enable some sort of a discount. If you are to add two existing services, not a new service on top of the existing services, then do you believe discount is possible?

And, if so, it will bring about the effect of marketing spend reduction and increase of subscribers, so how much percent of reduction or discount in the service fees do you foresee is possible?

The second question is based on the assumption that KT and KTF will not be merged. In that case, if you were to come up with a fixed and wireless bundled services this will have a positive impact on the marketing expenditure of the both companies. If that is the case, which company will enjoy a bigger reduction in a bigger reduction in its marketing cost, KT or KTF?

[Interpreted]. If you asked the question about the impact and the effect of bundling services, if you look at the cases of overseas, there are success cases through providing bundling services. But there are also market failures on this. So once the Korean Government announces the Directive on this approach, we will conduct very prudent simulations and make decisions on the market announcement of such services. So, at this point it is very difficult and it is not appropriate for us to comment on the percentage of impact.

With respect to your question on who's marketing spending will reduce more if KT and KTF bundle their services, I believe that expected impact will be defined by the level of contribution that the parties make. So if one party's marketing expenditure reduces, it will be in proportion to the level of contribution that company provides. So I believe that is the basic principle we should think about.

[Interpreted]. Can you give us a guidance on next year's depreciation figure?

[Interpreted]. We are currently in the process of making our business plan for next year, so we do not have a [concise] business plan as of yet. We are collecting the depreciation data. So at this point I can't give you a fixed number.

[Interpreted]. The following question will be provided by Mr. [Dong Xiao Lee] from DaiShin Securities. Please go ahead sir.

[Interpreted]. First question is on IPTV. You have mentioned that you will commercialize the services in the second half of next year, and do you think that would be the timing of regulatory framework being put in place? Or even if that regulatory framework is somewhat delayed is KT determined to commercialize the services no matter what. So I would like a clarification on that.

And for the CapEx guidance, you have given us KRW3 trillion as your guidance, and I think you have executed about KRW1.5 trillion up to date. So what is your second-half CapEx plan?

[Interpreted]. For the IPTV commercialization, our schedule for second half of next year is assumed that legislation will take place within the year. However, if that whole legislation process gets delayed we will, in the first half of the year, come up with an on-demand type of IPTV services without carrying the channels.

[Interpreted]. The CapEx for the fourth quarter, we will see investments regarding WiBro and some other businesses that was delayed up to now that take place in the fourth quarter. That is why we are maintaining our original guidance of KRW3 trillion CapEx. But as you can see from our past record, you will see that there will be some short-term cost saving impact. So I could say, although I can't specifically give you a specific number, I could say that probably not the entire KRW3 trillion will be used.

[Interpreted]. The follow up question, if IPTV initiatives get delayed for whatever the reason, then do you have some plans to make use of your subsidiary, [Sky]? I would like to get your answer on that. And on top of that I also asked for certain breakdown on the main items under CapEx. Can you share that information?

[Interpreted]. With respect to your question on if the IPTV regulation gets delayed, whether we can make use of the Sky services -- SkyLife services, we have commercialized it last year. But the experience tells us that there is not much market in demand that exists. And also it brought down -- it reduced the fee -- the rate. So that was the experience we had.

That is why we have been focusing on the IPTV as our main initiative. And we believe that there will not be too much problem regarding the regulations. But just in case, we are prepared to announce the on-demand type of the service which does not carry the channels.

Just to add on that note, you've asked the breakdown for the CapEx. I will make sure that our IR team gets back to you on that with the information. And one more comment on the SkyLife is that, as you know, KT IPTV cannot probably cover 100% of the subscribers. So we do need to upgrade and level up the line that we possess. And therefore in the whole process our collaboration with SkyLife will be very much needed.

[Interpreted]. The following question will be provided by Mr. John [Hundle] from UBS. Please go ahead Sir.

Hi. Thank you very much for the call. My first question is on the broadband competition. You mentioned that the competition is fierce. Could you please give us some guidance regarding your expectation for marketing expense and broadband competition in the fourth quarter compared to our third quarter? And also if there's a market share level in broadband that you're comfortable with.

Second question is on your results. Could you please provide us some color on why your wireless handset sales and the real estate revenues are increased? Also what your expectation for this year's effective tax rate is? Thank you very much.

Hi. Let me answer some your questions. First of all, the effective tax rate that we will be looking at this year is 27%. The increase in wireless handset sales due to our efforts for retention in the [BTS] resale business, obviously it shows that handset sales and changes pertains to about 18 to 20 months of our retention programs. But we believe that's effective. So our handset sales in the BTS resale increased a little bit.

And then, lastly, your first question regarding broadband competition fourth quarter. Yes if you look at our guidance that we have upgraded to KRW1.7 trillion, it just show some room for us to move in the market. In the very big picture, on the new business level, this year has grown in terms of penetration rate, but KT has taken a small share of it. Most of the lion's share went to our competitors. And that is due to our efforts to keep profitability and promise to shareholders.

Again, it's the competitive environment, our competitors, I'd rather not name them. But they are coming in rather aggressive. And the effective dollar spent in marketing has become less effective as they increase their incentives. So we see it diminishing a little bit. Third quarter marketing was a little bit heavier than second. And fourth quarter may be a little bit heavier. But all in all, we're trying to keep a more realistic picture of profitability.

And lastly, your questions regarding -- okay I'll let them translate first.

And lastly, in terms of what is our optimum market share, that's too hard for us to answer because it tends to obviously show our strategy. But I can say this much, our market share has fallen from 51.2%, the current level as of September of 45.6%. Of course 2% of that was due to the interims of [SLs] and their rather unexpected numbers. But at this level we are comfortable and we cannot comment on what we will do if it goes further. Thank you.

And lastly, the comment on real estate. I think our real estate development increased by KRW20b this quarter. It's hard to comment as to how it will show in the future. If we see anything that's relevant, then materially we'll disclose that to that market.

Thank you.

[Interpreted]. The following question will be provided by Mr. [Xao Gang Sung] from Landmark Asset Management. Please go ahead sir.

[Interpreted]. You have given us a very conservative annual guidance, operating income at about KRW100b and you are maintaining your EBITDA guidance. Does this mean that through depreciation -- the reduction in depreciation we expect increase in operating income?

And also in the fourth quarter -- and also is one of the reasons why you have announced a conservative number, is it because you're declaring to, in a way, declaring to your competitors that you have a strong will to protect the market that you're in at this point. And you are considering for that additional marketing expenditure, is that why you are so conservative on these numbers?

And also you have said that you have considered marketing and recurrent and depreciation expenses. And those are one of the reasons why you did not increase the operating income guidance to a much higher level. But are there any other cost items that we need to be mindful of?

And also you have said that the recurrent expenditure will probably go back to the past levels. Now is that strictly for the fourth quarter numbers or are you talking about the whole annual recurrent expenditure? Thank you.

[Interpreted]. With respect to why we maintained the EBITDA guidance is because the marketing expenditure that we had originally foreseen was more than what we had -- the market expenditure we actually used was more than what we had originally foreseen. Therefore it offset the increase in the profit.

In KT, however, we will not aggressively spend our marketing budgeting budget. It's because KT is not the dominant market player, and the government has a very stringent way of assessing the use of spending by KT. So KT has always been dedicated in cooling down the market. At the same time they're leading in competition or inducing competition. But in recent days competition in the broadband market got too fierce, and that attributed to slight increase in our marketing expenditures.

On the recurrent expenditures, what I meant to say was that the number will be similar to the past levels in the fourth quarter. On an annual basis the recurrent expenditure number will still be low.

[Interpreted]. Just on the competition in the broadband market, I just would like a clarification. What you were saying, is it quite similar to what SK Telecom has said back in the second quarter, like announcing and opening a certain marketing spend direction to the late entrant? Or is it just saying that you will use your marketing spend to a certain level so that you can keep the net addition of 15% to keep net addition of 15%. So what is your intention behind this?

To answer your question, I think the market consensus for net additions may be different than that of KT. I can't explain. But we intended to have net additions in the entire penetration to be about 200 to 250, and of that we have acquired about 90 -- 90,000. So we are a little bit below our track. But if you look at the growth of the market and we may be below that.

But, again, we're satisfied with what we have right now. We're trying to balance the heavy competitive market versus either losing or getting our [inaudible], or for us to acquire subscribers. So again it all comes down to our comfort level of where the market share is. And, again, we can't disclose it at this time.

Hold on one second. My last comment that she hasn't translated is the fact that yes, there -- we are trying to balance acquisition and our subscriber numbers and market share all at the same time with the given constraint of our profit guidelines. I know the market would like to know what our comfort level is in market share. But again, I cannot disclose that at this time. Thank you.

[Interpreted]. The following question will be provided by Mr. Sam Min from BNP Paribas. Please go ahead sir.

Yes. Hi. Can you tell us what CapEx expense IPTV is thus far, if any, and what you would expect going forward to IPTV? You can exclude the set-top boxes there.

And also if you could do the same thing for WiBro, just give us a cumulative spending thus far and what you look forward to spending going forward?

And my second question is on optical LAN. Can you tell us what your coverage is right now in regards to [apartment] costs? Thank you.

First of all, the cumulative CapEx for IPTV is roughly KRW50b at this time.

Cumulative investments for WiBro is roughly KRW240b. And by the end of this year we will have 43% coverage of optical LAN.

Just quickly what was your question on set-top box?

Yes, I was wondering what would be the total spend for IPTV going forward, bringing the capability of IPTV to your broadband subscribers and you can exclude the set-top box part. From what I understand is [inaudible] doesn't involve a whole lot of CapEx there for IPTV.

To give you a little more color on that, actually you're right. There is not real dedicated spending for IPTV. Thus far we've spent for, let's say, broadcasting station in [inaudible] and whatnot. But for IPTV usage we don't have to actually -- we don't really have a dedicated infrastructure development program. It's our ongoing quality control increase. And as well, right now, with our current infrastructure about 40% of our broadband subscribers can use IPTV. So that already is our initial target market, in our view.

Sure. And also on WiBro, if I heard you correctly, your cumulative spending thus far on the WiBro has been KRW225b or so. And going forward, if you wanted to have the national capability to provide WiBro, what would be the total spending on that?

[Interpreted]. On a cumulative basis we have spent, up to now, about KRW230b. And we have planned to spend KRW1 trillion by 2010.

I'll just follow up on that. Which year do you think will be the investment for WiBro most concentrated? Thank you. And that was my last question.

[Interpreted]. We have satisfied most significant portion for this year in the amount of KRW500b to be invested around Seoul and metropolitan area for this year.

Let me correct that translation. We haven't satisfied KRW500b yet. That is our plan which should be -- which we're working on right now.

Thank you.

[Interpreted]. The following question will be provided by Mr. Matt Evans from CLSA. Please go ahead sir.

Thank you. I was wondering if you could elaborate a little on your WiBro plans. There was a lot of hype about WiBro in the first quarter of the year. And then you rolled out a sort of pilot network in April or somewhere around that time. And since then this pilot network has never really grown into a full-scale network.

So should I understand from your opening remarks that a full scale, fully marketed WiBro product will now be marketed in the next three to six months, or is it going to remain quite a low-key, low-profile thing for the time being?

Can you hold that one second?

[Interpreted]. Yes, we have started pilot service back in April. And since then we have enhanced the capabilities of our equipment and the handsets and terminals. And on June 30, we started commercialization first time in the world. And at this point the service users are not that many and it's because of the limit in the coverage -- the restriction in the coverage.

However, by the end of the year, we expect to expand the service coverage to Seoul and metropolitan areas. And also there will be new terminals and handsets that will be introduced. And by the beginning of next year we believe that we will be able to expand and facilitate this portable Internet service.

Okay. Thank you.

[Interpreted]. [OPERATOR INSTRUCTIONS]. The following question will be provided by Mr. Dong Xiao Lee from DaiShin Securities. Please go ahead sir.

[Interpreted]. Are there any changes to your dividend policy?

[Interpreted]. No, there are no changes. It's still [50%] on the adjusted net income.

[Interpreted]. The following question will be provided by Mr. Matt Evans from CSLA. Please go ahead sir.

Do I remember correctly there was a fine last year of about KRW110b? Please correct me if I'm wrong on that. But if you adjust last year's EBITDA for that, you did about 3.95. And this year you're saying you did about 3. -- you will do about 3.9 with a flat top line. So it seems that cash costs are really flat year on year.

So could you help me understand that in the context of remarks made earlier about cost cutting and cost controls? Is it your contention that you save costs on some areas but unfortunately marketing expenses are higher than expected and so, net net, there's no real gains? Or am I misunderstanding what you're trying to do with costs? And how does that basically look in terms of your big picture goals for the cost line? Would that be a disappointing performance to only have flat OpEx year on year on a cash basis?

[Interpreted]. Yes, you are right to a certain extent because according to the market competition -- because of the market competition, marketing costs increased. And that offset our cost reduction effort and the reduction in cost. And therefore, from a cash-flow perspective, as you have mentioned, it is flat.

So would it be fair to say that in the big picture, the way the Company thinks about its cash flows over the next four or five years would be that you hope to maintain flat costs and grow revenues and expand your margins in that way, rather than actively seeking to reduce costs in absolute terms?

Yes, it's hard to address future down the line because, again, this year's marketing efforts and marketing environment was not foreseeing as that as it was when we first laid out our business plan in January this year. Again, it's difficult even to say for next year as well. But you're right in the comments that you made. There was some cost savings on the one side. But it was transferred to the usage of marketing to the other.

However, we are going to have ongoing efforts to reduce costs, be it marketing or others. And we're also, again, trying to change -- shift our focus from top line from not just our current our saturated market, but new markets for IPTV and WiBro. So in all encompassing it's difficult to say exactly how we can look at the future. But we tend to look at our business model as a little bit of an increase in trend, albeit may be positive.

Thank you very much.

[Interpreted]. The following question will be provided by Mr. Xao Gang Sung from Landmark Asset Management. Please go ahead sir.

[Interpreted]. On WiBro, KT -- I have a question on WiBro. KTF has recently announced that it will aggressively roll out the HSDPA, has a very aggressive roll-out plan in place. And if they don't get their service features like the new SB service for the notebooks, the target might get to seen with overlap with WiBro. And their coverage schedule is much earlier than what KT has put in place. So do you think that KT's WiBro is of a supplement to such services like HSDPA and, if so, what is the reason?

[Interpreted]. Just like the past EBDO services where they used the wireless Internet access service modem to link up to the Internet, HSDPA also is, in a sense, an access service to the wireless Internet. However, if you look at the people, and especially the heavy users, they have strong need for big multimedia services, high volume multimedia services. And WiBro can support that high volume multimedia service in an interactive environment. So these heavy users will find WiBro much more attractive.

And yes, just as you have mentioned, for KTF they have the coverage plan. And they wish to build the coverage quite early on HSDPA. And KTF has planned to build that within the first quarter.

Now through KTF's network building project and we can link that with WiBro. We can provide, we can link the networks of WiBro and HSDPA to provide the bundled services and various services by meeting the two technologies and two networks.

[Interpreted]. And also to attract heavy users, you will probably need to have a good pricing plan. What's your pricing policy like?

[Interpreted]. If you look at unit price of the transmission capacity, it really does have cost competitiveness because it has high transmission efficiency based on the system that exists. So we have planned to provide reasonable prices for such high capacity multimedia files and services. And in an area where 2.0 and [UCC] has become prevalent, having a portable Internet will make use of our such WiBro services, and it will facilitate the use of WiBro services. And it will make heavy users more prevalent, which will also trigger expansion of WiBro usage.

And it's possible to introduce a fixed pricing plan. Because portable Internet services makes use of limited number of wireless resources, it's difficult to provide unlimited usage pricing plans. But at an introductory level we came up with a KRW16,000 per month introductory pricing plan. But, once again, this is only on a temporary basis.

[Interpreted]. There are no participants with questions.

Operator, how much time do we have?

We have one minute left.

Okay. We will conclude this session.

[Interpreted]. This is the end of the 2006 third quarter preliminary earnings release by KT. Thank you.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.