KT Corp (KT) 2007 Q1 法說會逐字稿

[Interpreted]. Hello, ladies and gentlemen. First of all, thank you all so much for joining this conference call, and now we'll begin the conference call of KT's preliminary earnings results for the first quarter of fiscal year 2007. This conference call will start with a presentation followed by a Q&A session. English translation will be provided for your convenience. [OPERATOR INSTRUCTIONS]. Now, we'll hear from KT's CFO, Mr. Haing-Min Kwon, on KT's preliminary earnings results for the first quarter of fiscal year 2007.

[Interpreted]. Good afternoon. I am Kwon Haing-Min, CFO of KT. I'd like to thank our shareholders and other [inaudible] with an interest in KT for joining us through the phone and internet to participate in KT's earnings announcement. For more effective communication for today's session, we have prepared presentation slides, which will appear on our website in addition to the conference call. You can access the slides while listening in through the earnings results [inaudible] webcast [tour] found on KT's home page.

Now, let us start the announcement for Q1 earnings. I will begin with the financial highlights of the first quarter fiscal year 2007, then move on to the update on [major] businesses [push] throughout the first quarter and end with future plans for KT.

Operating revenue for Q1 slightly inched upwards, in QOQ and YOY terms, to record KRW2,953.8b, thanks to KT's proactive efforts to win over new subscribers. Operating income for Q1 rose from the previous quarter due to seasonal factors, but fell in YOY terms by KRW139.9b [sic - see presentation] to KRW526.8b, due to increased marketing for existing businesses and launch of new services. EBITDA for Q1 stood at KRW1.41 trillion [sic - see presentation], while net income was KRW377.6b.

CapEx for Q1 reached KRW269.5b. It decreased by KRW601.1b [sic - see presentation] QOQ, resulting from smaller investments compared to Q4, and increased by KRW49.7b YOY. For further details, please refer to the earnings commentary.

Now, let's proceed to the update on Q1 business areas. I will first touch upon Megapass broadband. The decline in broadband revenue was attributed to [inaudible] competition in the market and therefore we are working to change this to competition for better quality and value.

The first of this long commitment was evident in our focus on expanding FTTH facilities and attracting more subscribers. Furthermore, by working on improving customer value [innovator or CBI] indicators such as after-sales services, we were able to reduce the subscription deactivation rates to 1.6% from 1.8% of late last year, thus recording 97,187 in net adds during the first quarter.

[While] KT's business direction based on increase in subscribers is quite encouraging, yet we do regret that it did not directly lead to revenue growth and we're planning to put measures in place to redress this.

Next, I'd like to brief you on the PCS business. As you can see in the chart on the left, revenue gained in both QOQ and YOY terms to reach KRW363.4b, owing to an increase in subscribers. Starting in the second quarter, we plan to work closely with KTF to translate [inaudible] successful launch into a change in the market landscape.

Telephone revenues slightly shrunk in YOY terms, but shot up in QOQ terms to land at KRW1,042.5b. The declining trend in net adds is continuing for three consecutive quarters. Now, there are two main reasons for the growth in QOQ revenue. One is the adjustment in [inter] connection fees and the other is a fall in the rate of net decreases of subscribers due to increases in subscribers to My Style, a flat-rate price plan, and Ann Phone.

Next, I'd like to move on to our new service, WIBRO. We have, to date, invested a total of KRW420b, thus enabling consumers to not only enjoy our services outdoors throughout the Seoul area, but also indoors in all the Seoul metro lines, the Bundang subway lines and Incheon international airport railway, and 17 universities across the Seoul metropolitan area and other densely populated areas, such as Gangnam, Shinchon, the bus terminals, airports, and hotels. We have also released new services in order to not only expand coverage but also to offer differentiated services in view of HSDPA technology.

Thus, our new services enable much more than mere viewing of the tremendously popular UCC to allow for on-spot production and uploading any time and anywhere. Also, our users are now able to access integrated e-mail [portal] sites, such as Naver and Daum, and [new] services for video chatting, video conferencing, remote PC access and integrated search, all at great speed and while on the move.

Next, I will address the hot potato in the market these days, the IPTV. KT is making all-round efforts to push for commercial roll-out of IPTV upon related laws being legislated within the year. However, since we're not in a position to sit around and wait for the legislation, we are making efforts to boost marketing activities for VOD-based Megapass TV.

In addition, we plan to release iCOD service, an upgraded version of Megapass TV, which allows viewing of real-time broadcasts in the Seoul area, within the first half of this year. Users of iCOD will be able to enjoy IPTV immediately upon availability, without any changes to the set-top box.

To this end, first, we are currently reviewing our opportunities for a strategic alliance and/or a JV with major content providers and co-operating closely with the KT Group to create a fund, organize financing, develop content, among other [myriad of] activities. Second, we are in the process of working with two STB manufacturers to test the performance and safety level of their products.

Third, we are converting the best effort network in the Seoul area to a premium network that can guarantee quality, and this conversion job will be extended to the Seoul metropolitan area and other metropolitan cities outside of Seoul. Last but not least, to further enhance user convenience, we are fully applying ourselves to ramp up service quality, including reducing channel change time and designing pricing plans mindful of [CD-i].

If you look at the percentage of subscribers obtained [until] Q1 for each of the business areas, excluding WIBRO and Megapass TV, which respectively went into full commercial roll-out in April and effectively launch in the market in the second half of this year, broadband is 28%, PCS resale 52% and reduction in telephone subscription rates 15% - the lower the better for this last number.

They all show that we are securing a rather solid subscriber base, and the encouraging performance in adding subscribers led us to achieve 25% of the top line, 38% of operating income and 28% of EBITDA, set forth in our annual guidance. Although we foresee a number of variables to the business environment, such as [inaudible] products, growth of new services and regulatory change, to kick in in the second half of this year, we expect to meet '07 targets without difficulty.

Lastly, I would like to explain to you about our future plans. First of all, for broadband, we will work to maintain our subscriber and ARPU levels by locking in cost-conscious subscribers through our price plans, adjusted in April, and by a strengthening service quality with the expansion of Ntopia FTTH and 50 meg VDSL services.

As for WIBRO, we plan to acquire 200,000 loyal subscribers by means of intense target marketing. We will target not only the [early adopters] but also the college student population in their 20s with the catchphrase 'My private time at home and at school', as well as the working population in their 30s and 40s with the catchphrase '[Continuity in] work and my private time at the office too'. We will not only reinforce marketing but also continue with [expand] coverage and terminal [line-up], with a view to upgrading service quality.

For IPTV, all KT employees, including the management, will make concerted efforts to see legislation finalized within the year. We will also commit ourselves to be fully prepared for immediate commercial release as soon as the legal hurdles are eliminated, to be ready in terms of content, equipment procurement and service systems.

Now, with that, I thank you for your attention. I suggest we proceed to Q&A to field any questions you may have.

[Interpreted]. Now, we're going to open up the floor for the Q&A session. [OPERATOR INSTRUCTIONS]. In order to offer you as many opportunities as possible, we'd appreciate it greatly if you could limit your questions to two, because of time constraints. The first question will be provided by Mr. [Cheol-Min Yang] from [Hanbrook] Investment & Securities, and he'll be followed by Mr. Jong-su Kim from NH Investment & Securities.

[Interpreted]. Yes, appreciate this opportunity to ask questions. I have two questions to the KT staff. First pertains to VoIP services. Number portability is soon to kick in for VoIP as well. I'd like to ask what are KT's strategies dealing with the VoIP and the number portability issue. Then, do you have any prevention measures to prevent any existing subscribers from leaving KT to other companies? In other words, do you have any measures to prevent an increase in the churn rate?

And second question pertains to your forecast on marketing costs. I understand that the costs were slightly shrunken in this quarter compared to the previous quarter. What are your expectations going forward, starting in the second quarter, in light of the potential impact that your services, such as WIBRO, Megapass TV, and bundled services can bring, and following the promotion [activities that you're] likely to carry out with these new business areas?

[Interpreted]. Yes, I'd like to first address your question on VoIP number portability. To date, VoIP services have not been very active, but with number portability we expect an increase in the availability and subscription to VoIP services. And KT has undertaken various measures to prepare itself for this new change in the market. We are working to enhance the value of the fixed-line services and working to revamp our infrastructure.

So we do not foresee any decrease in the telephone revenue because of the VoIP and number portability, [inaudible] the concerns -- some other concerns in the marketplace right now. And we also have to pay special focus on defending the enterprise market to react to [inaudible] measures taken by the competition with regard to VoIP services for the enterprises, and we are -- have in the pipeline various plans to carry out aggressive marketing and strategies to this end.

Second, you asked about our forecast for marketing costs. It is difficult to give you a definitive answer at this point, because of uncertainty in '07 as well as '08. And it is true that our marketing expenses have declined somewhat this quarter, in Q1, compared to the final quarter of last year, because KT has to date made deliberate efforts to that end.

Our marketing expenses in '07, due to some other reasons and factors that you have listed, look likely to increase slightly compared to '06, yet it is still very difficult to forecast increases or decreases in marketing costs from '08 and onwards. Yet I'd like to say that KT is making all-out efforts for cost savings, improving the distribution networks and, above all, focusing on competition that has centered on quality enhancement. So these are the areas that KT will work on to save on marketing expenses.

If I may add one more thing, KT is looking to keep operating expenses under control, so, if our marketing costs do go up slightly, we have measures in place to make up for that loss in other areas. So I'd like to ask you to please have faith in KT's abilities to do so.

[Interpreted]. Thank you.

[Interpreted]. The following question will be presented by Mr. Jong-su Kim from NH Investment & Securities. He'll be followed by Mr. Dong-sub Yi from Daishin Securities. Would you like to go ahead with your question, sir?

[Interpreted]. Yes, I have two questions. The first concerns KT Megapass TV services. You have seen some progress on the KT [PMP] side. Have you seen the results that you were seeking? And what are the reasons [that you can provide] PMP services continues to date?

And this coming July, we expect bundled services to be authorized and to be able to be [released] in the market. I'd like to ask if Megapass TV services will be included in the bundling.

And my following question pertains to FTTH investment. Without increased investment [and effort], do you see any changes in the transmission methods in your networks?

[Interpreted]. To answer your first question on PMP testing, initially we began testing for the Megapass TV set-top boxes with three manufacturers. But in the end, we ended up with two manufacturers, namely Samsung Electronic Company and Humax. These two companies are currently closely cooperating to create better set-top boxes for KT services.

And you also asked why the testing procedures were so prolonged. This was because we wanted to find the perfect solution to Megapass TV in terms of set-top box procurement. And including Megapass TV services in bundling packages, it is a possibility, but I'm not in a position at this point to give you any further details on that.

Secondly, you also asked the breakdown of the investment funneled in through FTTH depending on the different network transmission methods. [Please do] understand that I can't give you precise numbers as to the breakdown of the investment size, but the investment in the overall FTTH project will continue to grow. And by 2010, we target 92% of all of KT's networks to be equipped with FTTH.

[Interpreted]. The following questions will be presented by Mr. Dong-sub Yi from Daishin Securities, and he'll be followed by Mr. [Han Jun Kim] from Goldman Sachs. Would you like to go ahead with your question, sir?

[Interpreted]. Yes, thank you for the opportunity. A few questions. First, you mentioned that it is [pleasing] to see that marketing costs fell somewhat, defying concerns that were out there in the market. But it is still of some concern to us that broadband ARPU levels have dramatically fallen. What are the main reasons behind this decline in the ARPU levels? Is it because of long term contract pricing plans, or is it because of the recent adjustment or lowering of the pricing fees? What are the specific reasons for this decline in your ARPU levels?

And the second pertains to FTTH. You just commented a while ago that you target 92% of all networks to be FTTH-equipped by 2010. Does that include the 50 megabyte VDSL lines as well?

[Interpreted]. Just to answer your first question on the falling ARPU in the broadband sector, yes, it is due to a decrease in the rental fees for long term subscribers that subscribe to KT services for three years or more. And also they will be subject to additional discounts because of their long term contracts. In addition to that, the increasing competition for price has led to a lot of our premium subscribers to convert their services to light services.

And to address your second question, the answer is yes, 50 meg VDSL will be included in the FTTH. But in a longer term perspective, we plan to expand this effort, incorporate all of that into a real FTTH project.

[Interpreted]. I have a follow up [question] to that. You had mentioned that ARPU levels have fallen because [of price] competition, that the carriers have been reducing their rates and subscribers have been seeking out better value or cheaper services available to them. Do you expect continuing decline in the ARPU levels in the second quarter and third quarter as well?

[Interpreted]. Yes, we too share your observations, but KT's basic directions are as follows. We will refrain from engaging in [inaudible] price competition, because that will only serve to further reduce our [pie] in the market. And we are continuing to make strenuous efforts enhancing quality and the level of service to win over a lot of subscribers who will subscribe to premium services.

And it was in April [5] of this year that we began implementing the product realignment strategy. And we expect that strategy and effort to bear fruit in the second quarter. On top of that, recently, the government changes in the regulations regarding broadband deactivation rules are likely to serve as a big plus for KT.

[Interpreted]. The following questions will be provided by Mr. Han Jun Kim from Goldman Sachs. And he'll be followed by Mr. [John Kim] from Merrill Lynch. Would you like to go ahead with your questions, sir?

Yes, thank you very much. You mentioned that Ann and promotion plans have helped lower your net loss in voice. Can you confirm also that your voice churn rate has fallen with the launch of these promotion plans and increased promotion for Ann? If so, by how much? And can you also share with us the extent of the ARPU decline that you expect in voice over the coming quarters as you promote more competitive pricing plans?

My second question is, you've again [recently adjusted] your broadband tariff plan. Was this reflected in your original revenue guidance of KRW11.9 trillion? And also, your broadband profile is increasingly leaning towards light subscribers. When do you think this trend will reverse and we start to see FTTH sub or the higher ARPU subs growth take a bigger chunk of your net add profile? Thank you.

[Interpreted]. Yes, you gave us a handful of questions there. To [address] them one by one, first, you asked about our Ann phone. It is true that traffic among Ann phone subscribers is increasing, though on a gradual basis, and we see that as a positive sign for further increases in our ARPU levels. And it's also very encouraging to witness an increase in subscribers or users to our [three pack] services.

Yes, it is inevitable to see a reduction in the [absolute] volume of voice traffic. But, in order to deal with this inevitable market shrinkage, KT has launched and made various marketing efforts to promote the Ann phone, among a host of other related services. And to date, I think, [while we] approach our [inaudible], we have seen performance that are on par with our expectations. And regarding the contribution of Ann phone in preventing the churn rate, well, I have to say that I can't give you any definitive answer on that at this point.

And you also asked about whether the changes in the tariff rates on the broadband business is incorporated in our earlier guidance. The answer is yes, it has been reflected in our overall guidance for the rest of the year.

And second, you asked about the effect of FTTH. Well, it ensured that net adds in the broadband area are steadily increasing. And on top of that, it is also very encouraging to see the deactivation rate dramatically fall from last year. If you look at the figures of Q1 this year, last year's number was 1.88% the previous quarter, in other words the Q1 figure was 1.59%. There's a lot of promise right there.

And on top of that, increasing perception on FTTH is also making great contributions, combined with positive quality valuations, as reported by the media reporters. In the first quarter alone, new subscriptions to FTTH services reached 430,000 and this shows that KT is going in the right direction in focusing on quality of this new network.

[Interpreted]. The following questions will be provided by Mr. John Kim from Merrill Lynch. And he will be followed by [Mr. Ken Dale] from GIC. Would you like to go ahead with your question, sir?

Yes, thank you. I have three questions. First pertains to your CapEx. If you look at your past CapEx spending behavior, your spending has always been back-end loaded, which is also contributing to KT's quarterly operating expense fluctuation. Can you explain whether there's a good business reason for this pattern?

My second question is on your wireless operation. I was under the impression that your strategy was to focus subscriber acquisition more on HSDPA. But, if you look at your first quarter, it looks as if KT is still quite focused on CDMA, given your share of net adds was 11%. Can you clarify your position on this?

And related to this is your handset margin. As you know, KTF and LG Telecom have enjoyed improved handset margin over the past year. Can you share your insights on why such a difference exists between KT and the wireless operators and is there some room for improvement on this?

Third and last is on WIBRO. If you can share when you will start utilizing KTF's distribution network and how the revenue sharing arrangement might work, I would appreciate it. I ask this because WIBRO, as you know, is an individual customer product and yet it's primarily being sold only through KT offices. So I'm quite keen to understand, or I'm quite keen to learn more about, your plans to increase your point of sales. Thank you.

[Interpreted]. Yes, you asked [a lot] of questions. First, regarding CapEx, yes, it is true that we have made minimal execution of CapEx in the first quarter. That is because we follow in line with our annual plan for budgeting and budget execution. What typically takes place is we design new organizations and launch new plans at the end of the year and it takes some time for that to kick off in the early part of the following year. That is why CapEx and investment are pretty slow in the first few months of the year. We are still working on it, but we have to admit that we have yet to perfect it.

Second, you asked about [the progress] to HSDPA and CDMA services. [To that], we began to launch 3G resale services at the end of March. And as for KT, [inaudible] focused on acquiring new subscribers and more subscribers to 2G services in the first quarter. I believe that we're able to maintain a balance within the larger KT Group, with KT focusing on 2G while KTF focuses on 3G sales.

Next, you asked about handset margins, but I believe that there are slight differences between company to company in the way you calculate for the handset margins. If you take into account both the handset margins and the marketing costs involved in that business, I would have to say that KT's expenditure is pretty much on par, or not very different from the competitors.

Next, you asked about cooperation with KTF with the WIBRO business. We have launched, recently, the WIBRO services using the direct distribution network owned by KTF. And we plan to further expand this application and usage, depending on how the market responds to changes in the marketplace. The business relationship between KT and KTF is objective and transparent, so, depending on the efforts and performance achieved by the two companies, revenues will be allocated accordingly, in a fair and equitable manner.

Just to quickly follow up, then, does this imply that the revenue sharing ratio has not been decided yet between KT and KTF for WIBRO?

[Interpreted]. The answer is no, because this is not in the form of resale - it is commission selling. And we have decided upon a commission or fee for that sales process.

Thank you.

[Interpreted]. The following questions will be presented by Mr. Ken Dale from GIC. And he's going to be followed by Mr. Sam Min from BNP Paribas. Would you like to go ahead with your questions, sir?

Yes, great. Thank you. Thank you very much for the call. Just three questions. The first is just a housekeeping question. You've reclassified some of your marketing expenses from the fourth quarter. I think originally sales promotion was about KRW99b and now its KRW59b, and commissions were KRW143 and now they're KRW183. So what items have you taken out of sales promotion and put into sales commission and what is the reason for that? The second question is just on your wage cost negotiations. How are they progressing? What is your hoped for average salary rise for 2007?

And the third question is just a follow up question to John Kim's question. You stated, for WIBRO, it's commission selling rather than revenue share. Would you be thinking about also changing the arrangements that you have for the resale of KTF's mobile service as well? Would that also go from a revenue share to just commission selling for you as well? Thank you.

[Interpreted]. First, you asked whether there are changes in the classification in how we draw up our financial statement. The answer is no. There aren't any changes in classification.

Next, you asked about labor expenses. The decision by the labor [cost] negotiating committee has yet to come forth. Typically, during each year, the decision is reached by August, but this year we are making particular effort to expedite the deliberation and decision-making process.

And our labor union members are fully aware how increases or hikes in the labor cost could pose a burden to the entire Company. Yet you all well know that this year is election season, so there are bound to be a lot of requests with regard to labor, with regard to increases in wages, coming from the labor unions.

So KT, from the perspective of KT, we do not [bear] any sudden increase in labor expenses because that in no way can guarantee the future of the Company. So, together with the union and management of KT, we will work on coming with an optimal solution for new wages.

Hi, [Ken]. I wanted to clarify your question. Are you asking if KT's resale business model will change from the current revenue sharing to a commission-based sales?

Yes. Just to make it consistent, given that I think you were saying that the WIBRO, once it's resold by KTF, that would be commission for them. Would the same relationship hold for the KTF mobile service sold by KT? Would you be getting a commission rather than a revenue share?

Hi, yes. [Ken], I wanted to clarify a couple of things. First of all, our resale business is not revenue sharing. We take all the revenue and we bill KT for usage of the network, first of all. Secondly, whatever you [had] mentioned, we have no plans to change our current business model with KTF in terms of the resale at this time. Lastly, our WIBRO started out as a business of commission based. That is why it's continuing this way.

Okay, great. Thank you.

[Interpreted]. The following questions will be presented by Mr. Sam Min from BNP Paribas, and he's going to be followed by Mr. [Cheung Bai] from UBS. Would you like to go ahead with your question, sir?

Yes, hi. Thank you for this opportunity. I just wanted to cover what you said in regards to marketing expenses being able to be offset by some of the cost cutting in other areas. I was wondering if you can sort of identify those areas and it is quite intriguing, and if you can perhaps quantify.

Also, on the labor cost, can you go ahead and explain why the provision of retirement increased so sharply in the first quarter, and what you see -- how that is trending sequentially going forward? Thank you.

[Interpreted]. To answer your first question, KT's over-arching policy is to make up for any dramatic surges in cost in any one particular area by making adjustments in other areas or businesses. And in the event marketing costs go up, you ask where we can cut the costs, what are some of the other areas that we could do that. Well, there are many different ways, but it's also a case by case situation, so I can't give you any details on the exact other areas that you asked about. But whatever way we take, it will be in a manner to meet our operating income targets.

Regarding your questions regarding the labor cost rise for the severance pay, the severance pay issue is due to the fact that we have to follow a couple of guidelines. One is a rule for corporations. The other one is for labor law. And this is due to the labor law issue. Because it is calculated based on the actual pay-out of wages, we had some bonus being paid in the first quarter this year which was booked financially in the past year, but because it was given out this year we calculate the severance pay accordingly. Therefore, you see an increase over this year than of last year because last year's bonus was less than that of this year. So, overall, again, this is only a non-cash provision, but it does show an increase because of those two reasons.

[Interpreted].The following questions will be provided by Mr. [Cheung Hung Bai] from UBS, and [next they will] be followed by Mr. [Jeff Zhang] from Credit Suisse. Would you like to go ahead with your questions, sir?

Yes, thank you very much. First, on your wireless resale business, it seems you've already achieved more than half of your annual subscriber target, so do you have any plans to adjust this target?

Also, you mentioned that you would co-operate with KTF to increase the take-up of [show]. Does this mean that you'll be focusing on HSDPA rather than CDMA going forward?

Second, you mentioned that the regulatory change on the deactivation for broadband is favorable for KT. Could you please elaborate on that? It seems that your competitors think that it will be favorable for them as well.

Finally, just on your maintenance expense, it seems it was very low in first quarter. On an annual basis, what can we expect in terms of year over year change?

[Interpreted]. To answer your first question on [KTF] resale, yes, our initial annual target for net adds on the KTF resale business was 200,000. And if you look at the figure for Q1, we've already acquired 110,000, which translates to 55% of our annual target. So from the prospective of KT, I guess the more subscribers the better, but we will have to closely observe future changes in the market environment to come up with any different strategies if the need arises. But for now, we do not have any plans in place to make changes to our target in the net adds for the year.

You asked about the changes in the deactivation rule and how it serves as a plus, a positive, for KT. Well, the change in the new government deactivation rule [was intended] to simplify the deactivation procedures and process. KT is not without concerns, since we have many, many customers among our books. But I have to say that the competitors' concerns are even greater.

A good example in point, which has actually been iterated by the Government as well, the cable operators or DSOs. They are [doing] cancellation fees disregarding the length of the contract of their subscribers. In other words, the length of the subscription from their subscribers are not taken into account in calculating the cancellation fees or the deactivation fees.

So with the regulatory change recently announced by the government, we believe that this change is actually targeted on the competitors of KT and not directly at KT, because KT's deactivation procedures are already quite simple, much simpler than those of the competition. For the competitors, for example, it is difficult even to get a call through to request deactivation of services.

Third question was on maintenance costs. You'll notice that the level of that amount is slightly diminished in the first quarter, but, in annual terms, we expect a similar level as that of '06.

[Interpreted]. Ladies and gentlemen, again, in order to offer each of you as many opportunities as possible, we'd appreciate it greatly if you could limit your questions to two because of time constraints. The following questions will be provided by Mr. Jeff Zhang from Credit Suisse and he's going to be followed by Mr. [Su-Young Park] from Morgan Stanley. Would you like to go ahead with your questions, sir?

[Speaking in Korean] --

Operator?

[Speaking in Korean].

[Interpreted]. We will answer the previous question before we move on to the second person asking the question.

[Interpreted]. I have a question concerning VoIP. You mentioned earlier that the introduction or the activation of VoIP services will not have [inaudible] impact on the voice service areas, as anticipated or shown concerns by the market. But if you look at the forecast for the voice services, would it be safe to say that the decline rate in the market of services will be about the same next year and onwards compared to this year and last year?

And the second question also relates in some way to VoIP services. Does KT, from mid to long term perspective, have any plans to make changes to the service tariff? And of course you could break this down [into] local callers and domestic long distance.

[Interpreted]. Apologies, the connection was cut off somewhere along the way of you asking your question. From what we've heard, I'd like to briefly answer the questions. First, you asked about VoIP services, their impact and ongoing trend. We believe that there is much more that is needed to further facilitate [VoIS] business services here in the Korean market, for a number of reasons.

First of all, Korea's fixed line telephone rates are among the lowest in the worlds and charging KRW1500 per line would be quite a big burden for VoIP operators, making it much more difficult to extend their services. And third, we also charge an interconnection fee for the usage of KT's PSTN. That is also likely to pose a heavy burden on the companies. And fourth has to do with handsets. Since VoIP services require a separate terminal, each user and household will have to make a purchasing decision separate from the existing fixed line phone services.

So unless these various types of issues are addressed, I do not or we do not foresee any dramatic changes in the market going forward in '08 and onwards. And it is also true that the government is showing strong commitment in pushing forward VoIP services. And going forward, we do expect some sort of increase in the impact that the release of VoIP services will have on KT's telephone revenues.

But with that in mind, we are preparing various types of scenarios, scenarios that include changes or impacts in telephone revenues that are much bigger than initial KT expectations and those that come within KT expectations etc. So we have a number of scenarios in place and taking various measures to react to such potential changes.

With regard to our mid to long plans in terms of voice tariff, as we have done in the past, [inaudible] for different types of voice tariff rates are being conducted at KT and it's still under review. But this is a sensitive matter and we will not be able to disclose our mid to long term plans on voice tariff changes and any specific [measures] on the conference call.

[Interpreted]. The following questions will be presented by Mr. Su-Young Park from Morgan Stanley, and he is going to be followed by Mr. [Jung Jung Lee] from [Handel Securities]. Would you like to go ahead with your question, sir?

Yes, thank you for the opportunity. I have one question related to your IPTV plans. As you know, Hana TV has been quite successful in expanding its subscriber base, now close to 400,000. I was wondering whether you have any plans [to go] directly in competing with Hanaro in this pre-IPTV market, given that both your IPTV launch [seems] -- could be delayed further into next year.

And related to this, I would mentioned the [PMP] testing delays. Is there a chance the iCOD launch could be delayed? If you could actually remind us on how you plan to position iCOD, along with some details on the exact launch time and marketing strategy, it would be appreciated. Thank you.

[Interpreted]. Yes, you asked about our strategies in competing with Hana TV. Hana TV, as you know, is a VOD service, quite popular among viewers in recent times. And KT is fully aware in such [massive] changes in the market and we are preparing, even as we speak, for full services in this area. But also, at the same time, we have to admit that our start-up was rather slow, but we are in the process of preparing something that is much better than Hana TV. And we have [in plan] schedules to release iCOD services within the first half of this year.

Thank you.

[Interpreted]. The last person who is going to ask questions is Mr. Jung Jung Lee from Handel Securities. Would you like to go ahead with your questions, sir?

[Interpreted]. Yes, I have two questions. First, I would like to ask you to further elaborate on that, on the iCOD services scheduled to be released in the first half of this year. What are your forecasts for increase in subscribers to these new services? Would it be about the same level, the same strong level as Hana TV, or would the increase in subscribers be different from that of Hanaro?

And second, I have a question concerning bundled services. KT is, [I would say, definitely the] dominant player in the telephone and broadband service areas. Do you have plans to bundle these two different types of business areas? What are your expectations for impact in the market? [Just now], KT doesn't expect any dramatic change coming from the bundled services to be released this year.

[Interpreted]. Yes, you asked about iCOD services. It is set to be launched in the first half of this year. It will go fully commercial within the next few months. And it is true that we are somewhat lagging behind compared to Hanaro with the Hana TV services, which were launched late last year. On an annual basis, including iCOD services and the real [inaudible] IPTV services, we are targeting obtaining new subscribers in the proximity of 300,000 subscribers. So we believe that this annual target is a very realistic one, taking into account other stakeholders, such as DSOs and broadcast companies.

Second, you asked about bundled products. In the past, KT were faced with many different types of constraints when releasing bundled products or services. But the recent change in the regulation has offered new options for KT on the horizon and this additional option is likely to add value to KT. And KT's basic strategy, over-arching, is not to have any negative impact on diminishing the size of the market, in other words, [by] market. So we may consider bundling, but not with existing services, but with new services.

Operator, is there any more questions?

There are nobody who is waiting with questions right now.

Okay, then we will finish with a concluding comment.

[Interpreted]. Thank you. But actually, I was anticipating more questions, so I was preparing an answer. But in closing, I would like to make one last comment, a very important point that I left out in the process. It has to do with our shareholder return policy.

As you well know, the foreign share of KT has already reached the full saturated 49%. So if you take into account KT's over-arching shareholder return policy, it may turn out to be very difficult to buy back our shares for retirement or cancellation. So in place of that, we may consider -- seriously consider mid term dividend payouts -- payments to our shareholders. So let it be clear to all of our investors that we are faithfully implementing our commitment with regard to dividend payments and our shareholder return policy.

This concludes the Q1 earnings announcement. Throughout the remainder of this quarter, [we will do] our utmost in both management and meeting targets expected by the market. I myself, together with KT's management, will keep our ears open to listen to the voice of the market at all times. And with that, I thank you for your participation in Q1 earnings.

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.