KT Corp (KT) 2007 Q3 法說會逐字稿

(Interpreted). Good afternoon. I am Kwon Haing-Min, CFO of KT. I would like to thank the shareholders, the analysts and those with deep interest in KT for participating in today's earnings conference call via the phone and the Internet.

I would now like to start the update on 2007, 3Q performances and our business highlights. You will be able to view the presentation materials by accessing earnings conference webcasting through our website as you listen in on the call.

Revenue, due to decline in Telephony subscribers, PCS resale subscribers and decline in the traffic volume, recorded KRW2.9526trillion, which is KRW51.2b decrease year on year and KRW58.7b quarter-on-quarter. Operating profit fell by KRW31.2b year on year, due to increases in labor costs and business expenses. With the decline in the number of new subscribers, marketing expenses and other costs also fell and so the operating profit increased KRW22.9b quarter on quarter, to record KRW400.4b.

Compared to the same period previous year, EBITDA fell slightly, but with lower marketing expenses, it rose by KRW74.4b to mark KRW942.2b. Net income fell KRW7.5b year on year, but with no additional income tax payment factor, it increased by KRW87.6b quarter on quarter to record KRW310.1b. Because our investment plan is focused in the fourth quarter for WiBro, Mega TV and new construction of office buildings, we spent KRW507.3b in CapEx which is lower than the previous quarter. Please refer to the earnings presentation for further details.

Looking at performances up to the third quarter on a cumulative basis, we have met 75% of the annual revenue target, 93% of operating profit and 78% of EBITDA numbers. And so we anticipate no problem in reaching the annual guidances. However, due to the market's competitive landscape and possible concentration of spending in the second half, we will maintain our initial operating profit and CapEx plans.

Next is business highlights on KT's Broadband Internet Megapass. Revenue is on a continuous downward trend due to modem lease fee exemptions, discount on long-term contracts and changes to the price structure past April -- which took place past April.

The fundamental cause behind such a trend is disruptive competition in an already saturated market. Under such a harsh business condition, KT is doing its best to converge the competitive landscape into one that is more geared towards quality and value.

To that end, we have mentioned on other occasions as well that we will focus on FTTH facilities and the expansion of the subscriber base. As such, we have expanded FTTH coverage. In other words, Broadband Internet facilities of 50Mbps and up, that enables [TPS] has been increased to 52.5% up until the third quarter. So we were able to expand our subscriber base up to 18% and churn rate has declined to 1.17%. And we are seeing many positive impacts on the retention side. Even going forward, we will focus on our competencies on the retention side of the business and focus on FTTH.

Next is on our PCS business. As you can see from the graph, on the right-hand side, with the reduction in third quarter's new subscriber numbers, service revenue, particularly due to subscription revenue decline, recorded KRW251b, which is KRW2.8b fall from the previous quarter. There was a net reduction in the number of subscribers in the third quarter, but with our flexible response towards market competition, we expect we will be able to maintain an annual net adds target of 200,000.

For our Telephony revenue with other operators, VoIP and bundled service introductions, it is true that subscribers and traffic is declining. And, hence, the revenue is falling as well. However, at KT we are exerting continuous efforts to minimize the decline in subscribers and the traffic through My Style, which is a customized rate plan, and through Ann phone penetration.

Next is on WiBro. With the introduction of WiBro-only USB in mid June, there was an improvement in the growth rate of subscribers. But with an insufficient coverage and low awareness, as of October 24 we have acquired 73,613 subscribers. Although that figure is below our initial expectation, subscribers have shown a great satisfaction over the fast speed and the tariff level. And as we project continuous increase in terms of the need for high-capacity mobile Internet, and a very personalized Internet, we see that the future business potential is quite bright.

For a better service, we will not only expand coverage in five main metropolitan cities as well as other 10 cities in the metropolitan area, but also expand in-building coverage in areas with high-density demand. Also, handset line-up will be increased to 20 or so models and rate plan will be improved to continuously provide more appealing services to the subscribers.

Next is on Mega TV. Currently, Mega TV is provided nationwide and the number of subscribers is, as of end of September, 148,353 and, as of October 24, the number is 212,688. Looking at the current upward trend, we see no particular obstacle in achieving [the] 300,000 subscriber target set at the beginning of the year.

For Mega TV, set-top boxes are supplied by companies like Samsung Electronics, Humax and Dasan Networks. And to this end, we have been adding and solidifying children's and junior's contents and educational contents. Overall service satisfaction level is very high, but to ensure competitiveness we will continue to exert efforts on service quality improvement, as well as increases of content, quality and quantity.

I would now like to communicate our annual subscriber guidance that better accounts for our business activities. Considering market competition in Broadband Internet, we will lower the target to over 180,000. And for the WiBro market, which is yet to mature, we will adjust the target to over 100,000. For PCS resale, Telephony and Mega TV, we maintain the initial guidance.

Last July, KRW91.3b of share buyback and cancellation was completed. The second leg, which is KRW110b share buyback and cancellation, will be complete by the end of the year.

Thank you very much for listening. We will now move on to the Q&A session.

(Interpreted). Ladies and gentlemen, now I would like to open up the floor for some questions and answers. (OPERATOR INSTRUCTIONS).

The first question will be provided by Mr. [Chong-Yin Yang] from Hancock Investments Securities. Then, he will be followed by Mr. Hongseek Kim from NH Investment Securities. Mr. Chong-Yin Yang, would you like to go ahead, sir?

(Interpreted). Yes, I have some questions. I would like to ask the first question relating to the number portability between the local Telephony and the Internet telephone. What is KT's strategy on this?

The second question is with respect to government regulation position towards KT's resale related business. Has there been any change in terms of the government's stand towards the regulation? I believe that there has been some discussions with respect to putting a cap on the market share of the operator. What's happening in this regard?

(Interpreted). Yes, your first question was with respect to the VoIP number portability. At KT we have strong belief that maintaining our strong PSTN base is most important. But at the same time, we are preparing for the VoIP market as well.

So if we see the signs of VoIP to take off in the market, if an explosive growth in this market is expected then, of course, we will become more full-fledged towards our measures towards VoIP. And [with the] number portability, we might be able to ignite that trend. So we do have adequate strategies and infrastructures well prepared and in place.

With respect to the change in the stance regarding the government's regulation on the resale, government has moved to place a certain cap, or limit on the market share of a market dominant player, with respect to resales, but they have retracted that position. But [in] 3G they are moving to obligate the operator for providing reselling services to those players that request resale services and also they are trying to place regulations on the reselling fees.

So with respect to the setting of these regulations, and because the government has retracted their position on placing a cap on the market share of dominant players, I believe that the environment is very positive for KT in terms of its Wireless business.

(Interpreted). Next, we'd like to hear from Mr. Hongseek Kim from NH Investment Securities. Then, he'll be followed by Mr. Mitchell Kim from Morgan Stanley. Mr. Hongseek Kim, would you like to go ahead with your question, sir?

(Interpreted). The first question is with respect to the regulation. How do you see this regulation moving going forward? And what are some of the factors for concerns for KT, with respect to the movement of how the regulation is going to play going forward? And what do you see as some positive opportunities for you?

The second question is with respect to WiBro. You have mentioned that there has been expansion of coverage in the metropolitan area. So I would like for you to shed some more light with respect to the investment plan.

And also, from a long-term perspective, at this point it seems like WiBro is only playing a very complementary role. So, as you move ahead from the first wave, second wave and even up to the 4G, do you believe that the WiBro is going to develop into a mainstream technology, or do you think that it will only play a complementary role? How do you paint this picture?

(Interpreted). Yes, with respect to how we anticipate the regulation to play out going forward, and what are our concern factors and positive factor from our view, I believe that rather than talking about the details, I would like to explain to you the basic direction that we think that this is going to play out in the future.

If you look at the government's regulation-related roadmap, they're shifting the focus from effective competition to protecting more of the consumer benefit. A good example would be the introduction of the discount, the on-net discount. And the second good example would be, despite the technical issues and possible U.S., universal service obligation-related issue, the government has allowed or adopted the VoIP services.

And so, next year we believe that this regulatory environment is going to continue on and follow this trend, meaning focusing -- putting more focus towards the consumer benefit. And at this point KT is putting its absolute amount effort in CVI, which stands for Customer Value Innovation. And we are putting in a lot of focus and also coming up with adequate counter-measures. So I believe that the overall direction of government's regulation is also in line with KT's overall strategy of also focusing on customers' benefit and value.

With respect to your coverage question and our investment plans regarding expansion of coverage, first of all, we will optimize the current level of coverage and then also we will focus on the in-building coverage that exists in a high density area.

And from the fourth quarter we will provide full coverage and full service to Seoul and surrounding areas that lie within one-day commute distance. So service will be expanded and provided. And also provincial cities and other metropolitan cities, we will start with private services and then gradually expand the coverage.

And also, with respect to your question on the future of WiBro, if you look at the Japanese market, and if you look at its portable Internet market, currently the size is 5m and they're expecting that this market will soon double in the very near future. If you look at Korea's portable Internet market, including WiBro portion, it is at this point about 600,000.

However we have confirmed, and this is quite evident, that there is increasing personalized need, by increasing needs of some of the users for personalized Internet. So we expect that there will be a very fast growth in this segment of the market. So of the portable Internet market, as you know, WiBro has the most strongest positioning in the market at this point. So right now it might seem that this is only playing a complementary role and is only in the niche market, but very soon we believe that WiBro to play the most essential and crucial role.

(Interpreted). Our next questioner is going to be Mr. Mitchell Kim from Morgan Stanley. And he'll be followed by Mr. Sam Min from BNP Paribas. Mr. Mitchell Kim, would you like to go ahead with your question, sir?

Yes. Thank you for this opportunity. I have two questions as well. First question is, CFO Kwon, I was just hoping that maybe you could give us some color as you assess your growth strategy so far. Over the last two years we've been hearing from KT that you want to focus on growth.

So far we haven't really seen much of growth, other than more stability on the revenue front. Where do you think that we will see some growth for KT at the top line over the next couple of years? When do we actually see some impact coming through? And what areas do you think that that would occur in terms of growth.

And secondly, my question is on 2008. Now, as related to your growth strategy over the last couple of years, your margin has been declining. And in fact, this year you're targeting KRW1.4trillion operating profit, well below KRW1.7trillion from last year. When do we see a rebound in operating profit as well as EBITDA? Are we in position to see a recovery next year? And if so, what kind of magnitude should we be expecting? And where would we see improvement -- operating improvement coming from to generate this kind of rebound?

(Interpreted). Yes, for many years we have mentioned that KT has focused on growth strategy but at the same time, in parallel, we have also put in efforts to ensure a good level of operating profit. But as you have correctly pointed out, it is true that operating profit and EBITDA has been falling. And I think that is good evidence and that really shows how difficult the market is.

From a mid-term perspective, when it comes to top line, we have expectations and hopes for IPTV and WiBro businesses. But we are experiencing some difficulties in significant increases, or growth, in terms of the top line from these two business areas. As you know, because the market -- in the market competition is fierce and also the market is not as open as we would have liked or hoped. And also, therefore, we are putting in continuous efforts in the cost-cutting level -- on the cost-cutting side.

To be more specific about our growth strategy, yes, we are planning for introduction of VoIP. And also, with respect to IPTV, we are envisioning a individual-based media, personalized media, moving away from household-centric customers and users to more [urban] individual-centric users.

By making use of IPTV and WiBro through the windows, there's great potential and possibility for providing advertisement content, [commerce] as far as new distributions and sales, for instance. And also we are envisioning convergence with related entities in areas such as U-Learning, U-Health and U-Security. And through such endeavors we believe we'll be able to create additional value.

With respect to our new growth businesses, such as IPTV, we will continue to pursue such new growth engines. But in parallel, at the same time, we will protect our existing businesses and make those existing businesses more sophisticated. So, for the time being, we will stick to maintaining our current level of revenue.

You've also asked as to when I foresee -- when I think is the turning point or the timing for rebound. As you know, this year has been one of the most difficult years for us. IPTV legislation did not go ahead as we would have liked or hoped. So next year we believe that the market situation could be a bit difficult as well.

Beginning of next year, when we draw up our mid to long-term plan, we will be reflecting all of these various situations and factors. So you will then be able to find out when the turning point will be.

Related to the last question, I was just wondering, CFO Kwon, is there any room for further cost reduction then?

(Interpreted). Yes, we are looking into many different areas. Through bundled products with KTF, we will be able to reduce marketing costs. And at this point, currently, the labor union negotiation is undergoing and we are looking for ways to link our wage boom to productivity of labor. So this will give us ways to increase -- improve our personnel productivity. So, as we go forward, we will be able to reap some good outcome.

Thank you.

(Interpreted). Next, we're going to hear from Mr. Sam Min from BNP Paribas. Then, he'll we followed by Mr. Yung-Chok Che from Mirae Asset Securities. Mr. Sam Min, would you like to go ahead with your question, sir?

Yes, hello. Thank you. I just wanted to follow up on the previous Q&A. So it appears that next year revenue might be staying relatively similar to this year. Would that mean that you would be focusing more on cost-cutting and, thus, we could expect an EBITDA level where it was last year at around 1.7, or so?

My second question is, on the VoIP, I notice that you kept the guidance the same. But that would basically mean that, on a sequential basis, you would be accelerating your loss in terms of Voice lines. And with Daecom's guidance on VoIP next year of 1.4 to 1.5, I was wondering if you could comment on that. Do you think we could see, perhaps, an acceleration of your line loss next year? Thank you.

(Interpreted). Yes, we apologize for some of the technical problems that we've just experienced.

In 2008, we will be able to announce the detailed business plan, beginning of next year. All I can say is that we will exert efforts under the motto of CVI, Customer Value Innovation, and also we will make our new business models more sophisticated. And also we will strongly establish growth businesses as well.

So I think in one word, we could say that our strategy is to expand our growth capabilities based on soundness or based on stability. And also we will put in efforts to improve the structures of the management or the business operation.

With respect to VoIP, we have set for ourselves to minimize the decline with the reduction of the Fixed line subscribers. So our target is to maintain our telephony subscribers at 20m level. And by the end of the year, the government will start pilot services on VoIP number portability. And once that is conducted, we would like to see how the subscribers or the users are responding and we will take prudent measures afterwards.

And KT is planning for this VoIP with considering various different services, for instance by making use of handsets that enable video calls. For instance, you can call to your parents in your home town when you are in Seoul through that handset and be able to see the other person's face.

So applying such VoIP -- based on the VoIP technology we are trying to give more value, added value to the users. So we don't think that VoIP and PSTN are in a -- we don't think one substitutes the other. I think VoIP will play as a second phone providing additional functionality. So that's the way that we're trying to lead this trend.

(Interpreted). The following questions will be presented by Mr. Yongseok Chae from Mirae Asset Securities. Then, he'll be followed by Mr. [Stan] Yang from Lehman Brothers.

Mr. Yongseok Chae, would you like to go ahead with your questions, sir?

(Interpreted). After hearing the CFO Kwon's and taking part in the IR conference call, I feel that the management of KT must have a lot of concerns because, for instance, recently NHN's capitalizations [overseated], or superceded KT's. And NHN, as you know, in terms of profit is only one third of KT. But it's multiple is three times that of KT. And I think that's why the capitalization is higher than KT.

So I think KT is facing limitations and I don't think you'll be able to call yourselves the growth sharers. And I think [there is a limitation] to call you as a good dividend sharers. So I don't really think that is -- still, I believe that at KT, maybe you need to redefine yourself as a media Company. So I'm wondering what you think about that.

The second question is you mentioned IPTV as one of your growth engines. But this is my personal view. But I believe that NHN share prices were able to increase because of advertisements. And I also believe that probably your offer targeting for advertisement income when you think about IPTV business. And in order for advertisement to be successful you need a lot of big subscriber base. With respect to Broadband, you're adding about 100,000 subscribers per month, which is quite promising.

But I believe that in this area content is most important. But even in terms of content, compared to [Hanaro] TV, I believe KT lags behind Hanaro TV as well. So I believe that you would need some type of an innovative approach towards content development and I'm wondering what you think about all of these issues.

(Interpreted). Yes, I think you posed two big questions. And also at the same time, you've given us some advice and your comments as well. And I think those are valid comments. I would like to combine those two questions and just give you one overall answer.

As you know the business model that Google had adopted is receiving very good evaluation; it's very successful. And I think that that business model is one of the reasons why NHN is quite successful and its capitalization is even bigger than KT at this point.

And if you look at KT in a more close manner, compared to Google even we have a better environment to succeed because we have IPTV, WiBro, PSTN, we have VoIP, which means we have various different windows to make use of which will give us a good competitive edge. It's just that at KT we weren't able to, up to this point, realize customer value out of such different channels that exist.

But we believe that there is huge potential and possibility that exists and we will leverage this potential. So KT, I believe, is in a good position to even make a stronger customized advertisement, even stronger than that Google provides because we also have access to location information of the individuals.

You've pointed out the topic of contents and we do admit that, at this point, compared to Hanaro TV in terms of the volume of content, that we are lagging behind that of Hanaro TV. But if you look at KT, we have made investments into our subsidiaries and those subsidiaries are strengthening their capabilities and competencies. And yesterday during the BoD meeting they have resolved to set aside about KRW40b in order to create a contents pool. So, through such efforts we believe that we will be able to solidify our contents base.

And you also asked the question as to what edge does KT have, vis a vis Hanaro TV. We believe that we are superior in terms of service quality and also we are able to provide interactive services, which we believe is quite important.

And also on top of that, KT is in the process of establishing its flagship brand and also we have been focusing and developing various different contents for juniors and children and for education purposes. And also we're focusing on developing customized products as well. And so, with respect to more popular genre of contents, such as movies, we are making sure that we have the most updated genre of movies that people like to see. And so our position is that we will focus on quality.

(Interpreted). Next we would like to hear from Mr. Stan Yang from Lehman Brothers. Then, he'll be followed by Mr. Jae Kim Song from Seoul Securities. Mr. Stan Yang, would you like to go ahead with your questions, sir.

(Interpreted). I have four simple questions. The first is with respect to CapEx. I believe that on a cumulative basis you have expended about KRW1.3trillion up to the third quarter. I'm wondering what that amount is -- what amount is going to be spent in the fourth quarter.

And with respect to the annual guidance of KRW2.5trillion, are there any changes to that?

And also regarding CapEx can you break that down into, for instance, WiBro, IPTV? How much of CapEx will you be spending on each of these different line items?

Second question is in the third quarter marketing costs fell quite a bit. What is the reason behind that? Because I understand that you have launched IPTV, so there must have been marketing expense related to launching of IPTV. So could you shed some light on what that amount was and the reason behind the decline in the marketing costs?

The third question is with respect to the margin from the real estate income. Now, what is the portion that contributes to the operating profit, with respect to your real estate incomes and margin?

The fourth question is a follow-up question on IPTV. What is your subscriber target for year 2007 and '08 as well?

And also with respect to cost, what is the -- how much of the costs related to content and set-top box depreciation has been reflected in the third quarter numbers? And what are your projections for each of these costs?

(Interpreted). With respect to CapEx investment, yes, we didn't make any adjustments in the guidance target, although, there are various different possibilities that exist.

For instance, in the second half of the year there is potential for reduction in the price -- unit price of the equipment. And also there is more investment opportunities in main business lines. So there are various different factors. So it is true that compared to what we said at the beginning of the year, there is a possibility that the number will fall. However, I ask for your understanding in that we won't be able to be more specific than that.

With respect to WiBro CapEx, up to the third quarter KRW80.7b was spent. And the [plan] until the end of the year, the plan that we have set aside is [KRW240b] for WiBro CapEx.

The second question, the reason why the marketing costs fell is because we already met the subscriber target that we had set for the Wireless resale by the first half of the year. So in the second half the new sales activities was reduced. And also due to the implementation of the personal information protection law and the information technology telecommunications networks law, there, we have experienced some cool down in the Broadband market. So I think those are the reasons behind the reduction in the marketing costs.

You've asked a question on the margin for our real estate business. KT undertakes its real estate-related business with a very low level of risk. We guarantee a certain level of -- it's a profit fixed type of a guarantee method. So risk is very low in these businesses. And also the lands that we have acquired were purchased quite in the past, so the book value of these real estates are very low. So it is true that the margin is high. But I hope that you understand that we won't be able to disclose what that margin is.

With respect to the subscriber target and depreciation relating to IPTV, the subscriber target for this year is 300,000. And the target for 2008, that we will inform you some time later. And with respect to depreciation it's not a significant number. We will make sure we give you that number through our IR Department.

(Interpreted). One follow-up question. Was IPTV content costs reflected in the third quarter numbers, or would they have to be reflected some time in the future?

(Interpreted). KT have spent quite a bit of amount in buying contents for VoD-related content. So we did spend quite a bit of money on that. But as you know, content is a very sensitive area to talk about, because KT has been engaging in and even broadcasting companies and stations and engaged in negotiations with them. So, I'm afraid I won't be able to actually give you specific numbers, I'm sorry.

(Interpreted). Well, I guess the intent of my question was that, because in the third quarter the margin was really good, I'm wondering if that trend is going to continue on into the fourth quarter because the fourth quarter, generally, is a weak season.

And also with IPTV costs, I'm wondering whether those additional costs will be reflected in the fourth quarter. That was actually the intent of my question.

(Interpreted). If you look at the characteristics of the business that we engage in, yes, we do have a tendency to spend quite a bit of expense in the second half of the year. We have put in efforts to do away with the seasonality factor but we haven't been completely successful there.

So in the fourth quarter, compared to other quarters, there are increases in retail costs, commissions and depreciation cost. And also in the fourth quarter, in order to facilitate the Mega TV business and WiBro business, we do expect a certain amount of costs to be expended. But let me just end there.

(Interpreted). Our next questioner is going to be Mr. [Jae Kim Song] from Seoul Securities. Mr. Song, would you like to go ahead with your question, sir.

(Interpreted). I have five questions.

As I understand, with respect to the labor costs, is wage negotiations undergoing at this point?

And also the second question is, I understand that you have done away with the zones that have separated the local and the long-distance zones and you have integrated into one rate scheme. Now, how is that going to impact the revenue?

The third question is you said that in response to VoIP you will keep to the 20m subscriber level. Now, would you be defending that by -- and I believe if you do so, the expenses are going to increase. So even if next year you reduced [PCS] related costs then, at the end of the day, the cost is going to increase because of such actions.

So in responding to the VoIP, how are you going to move? Are you going to reduce your local Telephony tariff rates? Or would you be launching new VoIP services in order to gain new subscribers?

And also with respect to the mention of the revision of the law, you said that the revision had brought about a cool down in the market. But I think that revision is impacting different operators in a different way. For instance, KT and Hanaroro didn't experience any impact to the net adds but their net adds did not increase. But if you look at other SOs and telecoms, there has been increases in their net adds.

So, how do you assess the impact of this revision of the legislation? And why is it showing a different outcome for different operators?

And also lastly, you might have mentioned this, but with respect to IPTV, Mega TV that is, what is your subscriber target for next year?

(Interpreted). Regarding your question about wage negotiations, the negotiations began on September 20 and, at this point, it is undergoing. So, with respect to when it will end and how it will end, I won't be able to shed any light on that.

Because the government has not yet approved on this rebalancing of the structure of the rate, on this single rate scheme, with respect to the new PSTN rates and the changes to it and how it will impact our revenues was your question. But the government has not yet given any approval on it. So it is very difficult for us to provide you with any specific numbers. I hope you understand.

I understood your third question to be on the target for VoIP and PSTN. Regarding PSTN, as I mentioned, by the end of the year we will maintain the level of subscribers at 20m. And we believe that this is possible. And regarding next year's target for PSTN and VoIP, that number will be announced beginning of next year.

Your question was with the revision of the Act, it had -- after the revision of the Act there was a cool down in the market. But SOs and telecoms is still doing well [with higher] subscribers and what does KTC assess about that?

Well, KT due to the revision of the Act, it is true that our telemarketing sales activities have been restricted after that revision. And with respect to what others are doing, what other competitors are doing, I do not think it is appropriate for us to talk about that.

And regarding subscriber targets for IPTV next year, once the business plan for next year is confirmed, at the beginning of next year that number will be announced to you.

(Interpreted). And also I asked you a question about the local Telephony strategy. Regarding VoIP, what I was asking was how you're going to react to this outside attack to VoIP. Would you be retaining your subscriber base by reducing the PSTN tariffs? Or would you be aggressively launching new VoIP products to either migrate your internal subscribers or attracting new subscribers? That was the gist of my question. And I understand that you won't be able to disclose the numbers.

And also regarding the revision of the Act, when a law gets revised I believe that it affects every party in the market. So I was curious as to why such a different phenomenon is taking place at this point. KT and Hanaroro are not the only parties that are being affected by the law. So, I couldn't understand it. Could you elaborate?

(Interpreted). To give your our internal strategy to VoIP, we will be undertaking the different approaches in parallel. For instance, we will provide various selective rate plans in order to retain customers and also do more specialized and sophisticated services, like the videophone services. We will be acquiring new VoIP subscribers.

And to those price-sensitive customers, we will do number portability from local calls to VoIP calls so that we can retain our subscriber base. That will be the approach that we take.

And regarding a law and, yes, when a law is enacted it is applied to all the operators and all the participants. And KT will comply with the legislation and the law in conducting its business operations. And I believe fair competition within the bounds of the law is important and it is important in maintaining market order.

(Interpreted). Ladies and gentlemen, we still have room for one more questioner. (OPERATOR INSTRUCTIONS).

Our last questioner will be Mr. Mitchell Kim from Morgan Stanley. Mr. Kim, would you like to go ahead with your question, sir?

Yes, thank you. I'll just be very quick on this. I just have a question on your WiBro strategy again. I know, CFO Kwon, you mentioned that you will be focusing on more in-building coverage as well going forward. And I was just wondering are you at all concerned of potential cannibalization of WiBro on your existing Fixed line or Broadband?

The reason why I'm asking is that in other places, other markets globally, we are starting to see some substitution from fixed line broadband to mobile broadband, whether in the form of HSDPA or WiMax. That's why I'm asking that.

(Interpreted). I believe that the situation in other countries is such because their broadband speed is too low. If you look at Korea's broadband speed, it guarantees at least 50Mbps or up 100MB. So, I do not think that in reality in Korea the HSDPA or WiBro is going to substitute fixed line broadband.

Thank you.

(Interpreted). Thank you very much for joining us this afternoon. Until the end of the year, and going forward, we do not believe that the market situation is going to ease. At KT we will not be blinded by short-term outcomes and performances. We will take a long-term perspective in establishing our strategies and operating our business. Thank you very much for participating.

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.