KT Corp (KT) 2007 Q2 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 2007 second quarter two and their earnings results by KT. This conference will start with a presentation followed by a Q&A session. English consecutive interpretation will be provided for your convenience. (OPERATOR INSTRUCTIONS). Now we shall commence the presentation of the 2007 second 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. I would like to thank the shareholders, the analysts, and all the relevant persons who are participating today via phone and the Internet for your deep interest in KT. To facilitate your understanding we have, once again, prepared presentation material. If you access the earnings conference webcast service from our website, you can listen in on the conference but can also follow the PPT materials.

I will start with the second quarter performance highlights then a status check on major businesses undertaken during the second quarter, and then the future plan.

The revenue in the second quarter, due to the increases in the PCS resale services and various other business application sales, for instance, like Bizmeka Internet, the second quarter revenue increased slightly both on a year-on-year and quarter-on-quarter basis, to KRW3.003.8 trillion. With strengthened marketing on the existing and the new businesses, and ensuing increase in relevant expenditures, operating profit dipped KRW193.7b year-on-year and KRW145.9b quarter-on-quarter to KRW377.6b.

In terms of EBITDA, because of increases in depreciation costs, the figure fell by KRW176.7b year-on-year and KRW133b quarter-on-quarter to KRW867.8b. Net income fell by KRW120.2b year-on-year and KRW155.2b q-o-q to KRW222.2b (sic - see presentation).

For [kick-backs] there was an adjustment in the spending schedule, in line with the business plan, and we ended up spending KRW509.8b, slightly lower on a year-on-year basis. On a quarter-on-quarter basis, however, this figure is higher by KRW240.3b, due to a larger investments into WiBro, IPTV and FTTH. For more details, please refer to the earnings document.

Let me now talk about KT's broadband Internet Megapass. Broadband revenue continues to show a downward trend. The root cause is destructive competition in an already saturated market. Under such harsh business conditions, KT is exerting its efforts to convert the current competitive landscape to one that is more quality and value driven.

To that end, we have already announced that we will focus on expanding the FTTH facilities and the subscriber base, and we were able to expand FTTH coverage. In other words, we have expanded the Broadband facilities of about 15 mega-BPS, where TPS is enabled and possible, to 49% as of the second quarter.

Also, thanks to our efforts towards significant improvement on the speed of handling after-sales requests and quality assurance schemes for our customers, our return rate declined three consecutive quarters, down to 1.4%, contributing greatly to a great improvement in customer retention.

Now on the PCS business. The graph on the right shows that continuous increase in subscribers contributed to increase in service revenue, except for the handset sales, by KRW34.4b year-on-year and KRW24.4b quarter-on-quarter to record KRW253.8b. For your information, as of end of June, the number of [show] phone subscribers is 49,216. In the second half of the year, we plan to strengthen marketing, focusing on retention and also increasing our 3G subscriber base.

Telephony revenue is declining due to the introduction of VoIP and bundling by other operators, and fall in subscribers and traffic. However, through KT's customized rate plans, i.e., My Style, and through stronger support for [and firm] penetration, we are committed on minimizing subscriber and traffic erosion.

Let me now talk about WiBro. With the introduction of WiBro-only USB modem in mid June, we are seeing a salient increase in new subscribers. As of July 25, total subscribers are 24,409. Also, initial customer complaints about the WiBro phone has been redressed through softer upgrades and with the new device line ups, like the notebook rentals, we expect a boosting effect on the WiBro business going forward.

Looking at the main customer segment, up to now, 60% of the customers are office workers in their 30s and 40s, and 25% are college students in their 20s. They've expressed satisfaction in terms of speeds, access quality and the level of tariff. But they voiced that improvements are needed in terms of coverage, a shortage of devices, and prices. For corporate customers there is a clear need for business solutions and, as we address these requirements, we plan to expand our subscriber base.

This slide is on Mega TV, which is the IPTV business. Up to date, we have acquired 73,731 subscribers, and we have also launched the [iCode] service on July 4. Service is currently being provided to Seoul, Dongtan and the Gwacheon areas, against broadband subscribers with access to a broadband network of 15 mega bps and above.

In order to differentiate ourselves from our competitors, we have entered into a supply contract with content providers, such as Mega Study and Warner Brothers. We are also co-developing IPTV content with our subsidiary, Olive Nine. As such, we are quite committed on securing diversified content.

Also, the strategic alliance with NHN will enable KT's IPTV subscribers to enjoy integrated search services, based on the concept of combining Internet and TV functions. Moreover, we will leverage interactive features for, for instance, security streaming, banking, online newspapers, SMS [central force], in order to gain 300,000 subscribers by the year's end.

As part of this year's scheduled buyback and cancellation of 200b Treasury shares, [in May] we have decided any first chunk of buyback and cancellation, and to date we have bought back 95%. The remainder will be bought in the near future and cancellation will be complete by the end of the year.

Next, let me talk about the progress on meeting the annual subscriber target for major business lines. For Broadband, for service differentiation, we will expand our FTTH coverage by 53% by the end of the year, and fully establish a customer care system, including the rapid AS response and quality assurance scheme, in order to continue to maximize our differentiation vis a vis our competitors. Through such efforts, we seek to maintain stable net addition trends and low churn rate to achieve 250,000 subscriber target by the year's end.

We achieved the target in advance for PCS in the first half of the year but, considering the market's competitive situation, we would not revise our guidance. In the second half we will concentrate on new subscriber marketing, mostly on 3G phones, as well as retention of existing customers.

In terms of the telephony market, with heightened interested on Voice over IP, the market in the second half will become quite tough. KT will continue to push forward with My Style rate plan, and defensive strategies for the Ann Phone. And at the same time we will strengthen VoIP marketing for the business market, and will be quite flexible in addressing the demand and needs of the retail market.

There will be an addition of 14 different device models by the end of the year for WiBro and the notebook rental service will be expanded for the retail market as well, which will help us do away with the barrier that existed for the purchasing and usage of such devices. We will improve awareness levels by leveraging our outside dealership network, online marketing and KT sales channels.

And we will also be actively be making use of the bundling services which combines Broadband, Nespot and HSDPA, in order to achieve our sub target -- subscriber target of 200,000.

To have 300,000 subscribers by the end of the year for Mega TV, we plan to focus on securing diversified contents, and will introduce various marketing activities to enhance the awareness levels. At the same time we will spare no effort in making sure that the IPP [video] legislation is concluded within this year.

Through various sales activities in the first half, we were able to attain 50% of our revenue target, 64% of operating profit, 52% of EBITDA target and 37% of CapEx, and 80% in terms of annual shareholder return target.

In the second half of the year, we foresee that there will be some uncertainties regarding a more fierce competition in the market and regulatory environment, and early activation of new services. We will aggressively deal with such uncertainties and issues so as to attain the annual guidance we have set for ourselves.

During the presentation I have misquoted the number of subscribers for Mega TV. I would like to make a correction. The subscriber number for Mega TV is 63,796.

Thank you for your attention and we will now begin the Q&A session.

(Interpreted). Now, our Q&A session will begin. (OPERATOR INSTRUCTIONS). The first question will be given by Mr. David Li from CLSA, and the following question is by Mr. John Kim from Merrill Lynch. Mr. David Li, please go ahead.

(Interpreted). Thank you for giving me an opportunity to ask this question. I have two questions. The first one is with respect to your Voice-related business, the second regarding the EBITDA guidelines.

During the conference call for LG Dacom a couple of days ago, they have shared with us that their Voice over IP subscriber target is 2 million by the end of next year. What is KT's countermeasure, or plan against this type of a plan that LG Dacom has?

And if we look at page six, the numbers show that there is a decrease in terms of Voice revenue and the number of subscribers. I would like to understand what portion is attributable to, for instance, people moving to Hanaro Telecom and to other Mobile services.

With respect to MVNO, if we were to just assume that MVNOs are allowed and [so] the wireless rates fall by 20%; it's an assumption. But if that is the case, how much of an impact will that have on KT's general Telephony revenue?

With respect to EBITDA, six months ago you explained the rationale behind the KRW3.6 trillion EBITDA guidance as being an increase in marketing expenditure regarding WiBro and Mega TV, and also increasing depreciation. Has there been any changes to this rationale?

(Interpreted). [If] you asked questions regarding the Voice and EBITDA target, with respect to the Voice question, there were many elements to the question. Let me just share with you the high level -- the overall answer. And then the detailed numbers will be provided to you via email by our IR team.

First of all, your question was with respect to the fact that LG Dacom has set for themselves a subscriber target of 2 million by the end of next year. It's very aggressive marketing. What does KT think about that, I think that was your question.

At KT we will do our best to maximize the Fixed Line Telephony services of value that it provides to the market. We will do our best to defend those values. For example, Fixed Line Telephony still has many strengths. For instance, the numbers and the high quality, and also value-added services and various different rate plans. We will be more active in utilizing -- leveraging them in the market.

And also, we have Ann Phone, which combines the convenience of a hands -- hand-phone -- a mobile phone, and a reasonable or inexpensive price for a fixed line, traditional phone. So we will maximize the function -- the strength of Ann Phone as well.

And also we would provide customer programs that could maximize the satisfaction of the customers, especially for people for long -- who have a long-term agreement, or who have -- who are using the service from a long-term perspective and also who use a high volume of services, in order for us to respond to LG's services, such as My LG 070.

You asked a question with respect to the emergence of MVNO players and its impact on the -- on KT and PSTN. It is a very evident trend that there is a migration to Mobile services and this trend continues. And in that process MVNO players are also emerging in the industry. And at KT we believe that the plans that we have prepared so far are quite adequate and enough to respond to these changes.

And you asked whether we have any changes in the rationale behind the EBITDA guidance that we have set. At this point we do not have any changes that we have made to the CapEx plan and, of course, it's important for us to keep a close look at the market changes, and to make sure that we invest what could be recouped. But at this point, once again, there is no change in the CapEx planned, and there is no change with respect to the KRW3.6 trillion EBITDA target and guidance we have set.

(Interpreted). The next question will be given by Mr. John Kim from Merrill Lynch, followed by Mr. Mitchell Kim from Morgan Stanley. Mr. John Kim, please go ahead.

Okay. Thank you for the opportunity. My first question is regarding Hanaro. As you know, there has been lots of talks and speculations about Hanaro M&A lately. From KT's perspective, how will the implication and competitive landscape differ if Hanaro were to be taken over by either LG versus SKT?

Alternatively, if a foreign telco operator were to take control of Hanaro, how would that affect the environment from KT's perspective?

Second question pertains to marketing. Can you share with us your churn -- quarterly churn rate trends for your local Telephony. And also regarding your marketing costs for 2Q, can you just tell us some rough allocation of your marketing costs amongst Broadband, KT resale, and local Telephony as a percentage of 100?

And my third and last question is on IPTV. It was -- I think the market's understanding was that KT's Management baked in some start-up cost assumptions for full IPTV operation in your operating profit guidance for the year. If we assume that only VoD service is offered this year, that would mean the lower fee or commission expenses that will go out to the program providers. So how might this affect your [okay] guidance for the full year? Thank you.

(Interpreted). Your question was regarding the potential Hanaro M&A and the impact it might have in the market. I think it will depend on who the acquirer, at the end of the day, is going to be, and we were talking about how the counter-plans, or countermeasures are being envisioned within KT. But I think these issues are competitor-related, so I do not feel that it is adequate for me to make any specific comments regarding the question.

But I can assure you that at KT we are reviewing various different scenarios according to different market landscapes. Here, I believe that the essence is that who can provide more customer value to the consumers and customers. KT, through continuous customer value innovation program, will come up with strategies to win in the market, despite how the market's landscape changes.

With respect to the churn rate for local Telephony, the churn rate is less than 1%. And for the marketing cost allocation, because it has to do with market competition, I am -- I hope you understand that we will not be able to disclose that information, or comment on that. However, I could share with you that most of the marketing expenditure gets allocated to, in the order of, PCS, Broadband, and then Telephony.

With respect to the operating expenditure guidance on IPTV, you are correct in saying that by the end of the year we do expect full IPTV offering. However, maybe -- if there is a delay, the content sourcing expenditures could fall slightly, but we believe that that impact is not big at all for the guidance. We are not revising the guidance.

I'm very sorry for asking a follow-up question. Regarding questions about Hanaro, I wasn't asking about what would be most advantageous to KT, but which scenario do you think would actually intensify the competition on the Fixed Line?

(Interpreted). Once again, because these issues have to do with the competitor company, I believe that it is inappropriate for me to make any comments -- specific comments on that. I ask for your understanding.

(Interpreted). The next question will be given by Mr. Mitchell Kim from Morgan Stanley, followed by Mr. [Yung-Chok Che] from Mirae Asset Securities. Mr. Kim, please go ahead.

Good afternoon. At the first quarter results call I recall, CFO Kwon, that you had said that you do expect an operating profit improvement in 2008. After going through first half, if you could just add some color on whether you're making that progress and, more specifically, where do you think you're making progress?

And also, what needs to happen in 2008 in order for us to see KT making -- seeing operating profit growth? For example, is it in the revenue part that you expect growth? Most specifically, where, such as WiBro? Is it Broadband? Or is it that -- do you anticipate cost reduction in 2003 (sic) after having invested in 2007? That is, is it in labor, is in sales, commissions, costs? So if you could just give us some idea as to how you think you're able to push through operating profit growth, that would be very helpful.

Secondly, and I apologize if you addressed this already, but my question is in the marketing expense more specific to sales commissions, I notice that sales commission has increased 77% quarter-on-quarter, which coincides with your decision to resell 3G services. Can you provide comments on whether that was the main reason why you -- that is, 3G was the main reason why your sales commission to third party increased? If not, what were the other reasons?

(Interpreted). That was a difficult question. But on the first question, we believe that the impact from the FTTH investment, though belated, might -- will show -- we are convinced that the impact of the FTTH investment will show going forward. And we are seeing a downward trend when it comes to churn rate, from 1.8%, it went to 1.6% and now it's at a level of 1.4%.

And since April this year, of the new subscribers that we have acquired, our high ARPU customers' portion is increasing.

Also, yes, there are some difficulties and also issues with respect to whether we could attain the annual guidance at the end of the year but, of all the quarters, second quarter is the most difficult quarter. There has been a very fierce competition in the Broadband and the resale market, and there was a significant marketing spend in those segments. But we expect, and we are seeing signs that, in the second half of the year, that the market will cool down. So we are quite certain that by the end of the year we will be able to attain the guidance.

(Interpreted). The next question will be given by Mr. Yung-Chok Che from Mirae Asset Securities, followed by Mr. Han Joon Kim from Goldman Sachs. Mr. Che, please go ahead.

(Interpreted). I have two questions. WiBro and IPTV is deemed as a new growth engine for KT. You've mentioned this year's target for subscribers. However, what is your next year's subscriber target?

And I think in the first quarter you did generate meaningful revenue from the WiBro business and I think the ARPU was about KRW150,000. I think that's a quite high number. Can you explain about the ARPU?

The second question is your content sourcing strategy for IPTV. You could also mention the investment that you are making into IPTV as well.

And I guess there's going to be a full-fledged promotional activity starting August. Could you share with us what your advertising cost or expenditure forecast is?

And also, you have your subsidiaries Olive Nine and Sidus FNH. Are you going to be mainly sourcing content from these two subsidiaries? And if we look at Olive Nine, your shareholding is only about 19.6%, so how do you plan to -- do you have any plans to change this, or can you just elaborate on your detailed sourcing -- the content sourcing plan?

(Interpreted). With respect to next year's targets for WiBro and IPTV, we will be able to announce those numbers at the end of this year, when our business planning gets more detailed. I'm sorry, I won't be able to tell you those numbers at this point.

You said the WiBro ARPU is quite high, and you asked for an explanation, and I think that number that you are talking about includes the sale for the devices as well. So at this point, for WiBro, you should consider this as a promotional period, so the ARPU numbers are not yet at a meaningful level.

You asked questions with respect to the content strategy for IPTV. KT fully understands the importance of contents when it comes to media business, and in order to source contents we are employing various different methods. For instance, we are setting up a strategic alliance, setting up JVs and also setting up [funds].

Yes, we will be co-sourcing the contents with and via our subsidiaries, but we will not just source content from our subsidiaries only. We will make use of various different content providers, and source from various different companies.

With respect to the shareholding percentage of Olive Nine, there is nothing to get concerned on that as well.

(Interpreted). I have a follow up question with respect to IPTV promotion. I believe that you will be starting promotion and advertisements from August and, if so, can you tell us about the size of those initiatives and also explain as to what those programs are?

And at this point you have two subsidiaries, Olive Nine and Sidus, separate. Do you have planned, or do you intend, to somehow integrate these two entities and really make them into a bigger contents company and manage it in a more aggressive way?

(Interpreted). On advertisement, I cannot comment on any specifics at this point, but we will be quite aggressive.

And with respect to whether we have plans to make our -- grow our subsidiaries into a global contents company that really represents the entire Asia region, because it's a company that we have invested in, of course, we hope that these companies will further grow and develop and KT will continue to exert its efforts to make that possible.

(Interpreted). The next question will be given by Mr. Han Joon Kim from Goldman Sachs, followed by Mr. Hongseek Kim from NH Investment Securities. Mr. Han Joon Kim, please go ahead.

Great, thank you. Two questions. First, in terms of WiBro device [ASC ASP] trends, I think first you started off with notebooks, then USB devices, and I think I've been hearing that you're going to go into UMPCs in the latter half of the year.

So if you could just give us a general direction of where you think WiBro device ASPs are trending over the long run, what kind of numbers that we can expect? Alongside that, what kind of subsidy levels are you giving to those devices and where you think those subsidies will land at or settle at? And if you could provide guidance on that, that'd be great.

And a second question is in just the business model for VoD/IPTV, in terms of how you're sourcing set-top box -- or who's actually doing the set-top box sourcing, how it's going to be leased or sold, CapExed or amortized, in terms of who's going to be doing the content aggregation? Just the entire business model itself, in a brief overview, that would be very helpful. Thank you.

(Interpreted). You've asked questions regarding the WiBro devices. In the second half of the year we will be co-launching, jointly launching, devices such as USB modem, WiBro phone, UMPC, and PMC so that -- PMP, excuse me, so that we could expand choice for the customers. And by the end of the year, we are planning to have about six models for USB modem, two models for WiBro phone, three models for UMPC, so that we can have a total number of model portfolios of about 20.

In terms of subsidies, the first, depending on which device we are talking about, if it's a notebook it ranges from KRW90,000 to KRW240,000. For WiBro phone and USB modem, it is about KRW150,000.

With respect to the IPTV, I mentioned this during the opening presentation, but we launched IPTV services on July 4. Current number of subscribers stands at 63,796. We sold set-top box from [Something] Electronics in [Cumix] and if a subscriber enters into a three-year contract then we provide the set-top box free of charge, and these expenses are covered by our marketing budget.

Sorry, I should have been a little bit clearer. Can I get the WiBro device ASP trends, the selling price trends?

Could you define ASP for us?

In terms of the device sales price. Obviously, when you launch notebooks, notebooks are much more expensive than USB devices, so when you launched USB devices I would assume that the average sale of devices would have gone down, i.e., your revenue booked from WiBro would have gone down, obviously, as well.

But then if you start to sell higher-end products like UMPCs in the second half then the ASP will go up [and] revenue will go up as well. And, as a reflection of that, I just want to see where the trend of ASP is so that I can get a gauge of where the revenue trend will be for WiBro in terms of device sales.

Right now, as you know, we just started the WiBro program not too long ago so in terms of, if you're looking at average selling price, the trend is still pretty stagnant at the current levels right now. In terms of what is selling out there, let's say, USB modem versus PCMCA cards and whatnot, I can break that down into the following percentages. Wait, let her translate first.

These numbers are really not representative of what is to come because, as you know, there haven't been that many sold yet. The WiBro modems are, I guess, at the higher lying portion of our sales right now; it's around 80%. Notebooks are quite mean, less, at around 2%, and the remaining is WiBro phones at around 15% to 16%. Going forward, we'll see more of the modems coming into play and then we will also have more choices for consumers at that time and we'll see the trend at that time.

Thank you very much.

(Interpreted). The next question will be given by Mr. Hongseek Kim from NH Investment Securities, followed by Mr. Sam Min from BNP Paribas. Mr. Kim, please go ahead.

(Interpreted). The first question there, you've launched a bundled product for -- with Megapass yesterday, and I would like to know your sales channel. Are you only going through KT's sales channel, or also are you going to employ KTF's channel as well? And how are you going to share profit between KT and KTF? I would like to know the profit-sharing model.

And with the -- the bundling service, I believe, is going to change your Broadband ARPU and your marketing expenditure. Have you run a simulation on this and, if so, what was the outcome of your simulation?

The second question is with respect to your marketing expenditures -- marketing costs. I think that there has been an increase in marketing costs recently. Is that attributable, or has there been an increase in new subscribers for Broadband? Also for acquisition costs per subscriber for Wireless and for Broadband, have there been any changes?

(Interpreted). Yes, we have formed Megapass [Plus Show] which combines Broadband of KT and 3G service of KTF. It is a bundled service product. And, with respect to whether we're employing or making use of KTF's distribution or sales network, currently both companies are cross-selling and they are co-marketing.

First, when we sell through KTF's sales channel, first we will begin selling only in the exclusive channels and then, come year 2008, we will be expanding the channel to the entire channel.

With respect to how we recognize the profit, if KTF sells then the Megapass sale is recognized as a consignment sale or commission -- commissions sales, and it will be captured under KT. And for the Show part it would be captured as KTF sales. And if KT makes the sale then, according to the resale agreement with KTF, things will be settled according to the resale agreement.

Broadband ARPU is declining slightly. However, through the bundled service product we plan to acquire more of a high ARPU customer, and we will focus and concentrate our marketing activities against the premium customer segment.

Sorry, I won't be able to disclose the simulation outcomes. That's an internal information. I hope you understand.

Let me address your question regarding the subscriber numbers, [gross heads]. In the first quarter of this year our gross head roughly totaled 420,000 subscribers and the second -- and the, sorry, first quarter. In second quarter, added to about 340,000 subscribers. It was a bit of a loss and this is a representation of some of the heated market environment.

However, as you can see by our churn rates falling by quarter on quarter, it is a positive sign for us. And so that we -- at this time we have no reason to change our guidance in terms of our revenue as well as our subscriber numbers at this time. But we would like to see the market cool down a bit more in the second half.

(Interpreted). I guess if that is the case, then shouldn't the marketing costs have -- shouldn't the marketing costs actually fall rather than increase significantly, as it did? I asked about the acquisition cost per subscriber because it feels like your other competitors, they are subscribers for Mobile and Wireless -- acquisitions cost per subscriber has increased significantly, so I was wondering if there was a similar impact on KT. That was my question.

Yes, I think you can look at it that way. It was again, as our CFO mentioned in one of the answers, that second quarter was one of the tougher quarters for us in terms of marketing [and] both acquisitions. Both PCS business increased, in terms of the incentivization, as well as the -- our Broadband business.

As he mentioned earlier, the bigger portion of our marketing costs was from the PCS business, and the second was also -- is the Broadband business. So all in all, it did go up. Your assumption would be correct if the marketing figures were held constant but, again, because of market dynamic changes, we were [addressing] it and I think we did the best we can at this time.

The next question will be given by Mr. Sam Min from BNP Paribas. Please go ahead, sir.

Hello, thank you. My first question is on labor negotiations. If you could update us on that.

And secondly, I just wanted to revisit the Broadband ARPU. It appears to be declining at an accelerated pace and, based on my calculation, it's at the low KRW26,000 level. I just wanted to ask you where do you think this will bottom out. And also if you could tie that in with your bundling services products, where you're going to be offering about 10% discount. So where do you think the very bottom of the ARPU for Broadband could be? Thank you.

(Interpreted). With respect to our negotiations with the labor, this year the wage collective bargaining negotiation schedule is not yet set. In the case of last year, that negotiation began in -- on August and it ended in the beginning of September but, for this year, we still do not have a set schedule.

And this year's wage level is going to be determined by the agreement between the labor and the management. But the management, in order to prevent any significant increase in the labor cost, we are putting in effort to draw a consensus regarding and tying in the growth rate of the labor wages with the growth rate of our sales and revenues.

The ARPU has been falling a bit, but there's some good and bad to that, I guess. Some of the ARPU falling is still due to the fact that our long-term subscribers are getting their modems for free, which means it's going to be lowering churn rate and better long-term subscribers.

But it is falling right now and it really is difficult to say where it's going to level off and plus, the addition of what you mentioned, Broadband, yes, it could impact that. But for now, we are addressing this issue. We had always thought that it would stabilize at the current levels, but it's touching upon KRW26,000, as you mentioned, and your assumptions are correct.

Although we are addressing this with, again, trying to lay out -- we are going to lay out the FTTH and have much more premium, higher ARPU pricing and, hopefully, that'll stabilize the ARPU as much as we can.

One thing that I might want to add is that the number of premium subscribers signing up is an increasing trend. Although I can't disclose the exact number -- figure at this time, but it is a positive sign for us, seeing that there are a more and more higher number of higher paying subscribers per acquisition at this time.

(Interpreted). Currently there are no participants with questions. (OPERATOR INSTRUCTIONS).

Operator?

This is the Operator.

We'll wait a few seconds. Anybody signing in?

We've got two participants waiting with questions.

Okay. We will take those last two participants.

All right, hold on a second, please.

(Interpreted). The next question will be given by Mr. [Chong-Yin Yao] from Hancock Investments Securities, followed by Mr. Mitchell Kim from Morgan Stanley. Please go ahead, sir.

(Interpreted). I have two questions regarding your policies and regulations. Under the government's road map, once again, KT has been designated as a market-dominant operator and they have placed a cap on the re-selling business-related market share. What impact does this have on KT's long-term growth?

Second question is, Broadband also is maintained as a business subject to approval by the government, because of the dominant position. If you were not designated as such, what kind of impact could it have had on your, for instance, bundled services?

(Interpreted). Under the government road map there was a resale -- re-selling-related regulation, and you asked a question on that. That could potentially have some financial impact for KT.

However, if you look at the portion of re-sales against our total revenue, it's less than 5%. At this point, the cap -- the limit is not yet set, so KT is going to do its best to persuade the government to, for instance, do away with the cap or to make sure that the cap is set but to -- but KT still has enough of a maneuvering room.

The second question with respect to if Broadband Internet was not [seen] as a service or business subject to approval, what type of an impact would that have on KT's, for instance, bundled service products.

Well fortunately, although KT is still a -- designated as a market-dominant operator, we do not have the obligation with respect to equal access. And -- So when a dominant operator -- business-dominant player, when -- excuse me.

So when the dominant player bundles their products they do not have an obligation to provide equal access rights to other operators. So I can say that we were able to ensure our strategic freedom when it came to making the bundled service products.

And because we are a dominant player we still need to get approval from the right authorities saying we want to change our rates or tariffs. But with respect of lowering the tariffs, that's actually the direction that the government prefers and wants, so there's not going to be a big problem when we want to lower the tariff level.

Also for bundled service products, through bundling we can reduce the marketing expenditure and marketing costs so it would be -- it also be quite desirable.

Operator?

This is the Operator.

Next question, please.

I'm sorry, the last person has just canceled his questions, so there is no participant waiting with a question.

Okay then, we will conclude this with the final statement from our CFO, Mr. Kwon.

(Interpreted). This will mark the end of the earnings conference for the second quarter of 2007. In the second half of the year we still expect a tough market situation, but KT will do its utmost to keep its targets and keep its promise, and we will do our best to manage our existing business and also to establish our new businesses. Thank you very much for participating in today's earnings conference. 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.