KT Corp (KT) 2007 Q4 法說會逐字稿

(Interpreted). First of all, thank you all for joining this conference call. Now we will begin the conference of the 2007 fourth quarter preliminary earnings results by KT. This conference will start with a presentation followed by a Q&A session. Consecutive interpretation will be provided for your convenience. (OPERATOR INSTRUCTIONS). Now we shall commence the presentation on the 2007 fourth quarter preliminary earnings results by KT CFO, Mr. Soo-Ho Maeng.

(Interpreted). Good afternoon. I am Soo-Ho Maeng, the newly appointed CFO of KT. I would like to thank our shareholders, analysts, and all those with great interest in KT for joining us here on the phone and the Internet. I would now like to start the presentation on the fourth quarter 2007 performance and business highlights. If you access our webcasting page through our website you can listen in on the conference call and view the presentation as well.

Due to increases in telephony and Internet connection and wireless revenue, revenue increased KRW60.7b quarter on quarter, and KRW45b year on year, to record KRW3,013.3b. In accordance with the accounting changes, KRW140b of annual performance pay was recognized in fourth quarter of 2006, which resulted in an increase of KRW97.5b of operating profit on a year-on-year basis. However, with marketing expense increases arising from depreciation, bad debt write off and competitive situation, on a quarter-on-quarter basis operating profit declined KRW135b to minus KRW136b. EBITDA fell by KRW53.8b quarter on quarter, but increased KRW90.3b year on year, to KRW819.9b. Net income fell KRW20.4b year on year, and KRW137.2b quarter on quarter to record KRW116.5b. With increased investments into WiBro and Mega TV in the fourth quarter, CapEx increased KRW340.9b quarter on quarter to KRW876.2b. Please refer to our earnings materials for more details.

Let me now briefly talk about our annual target achievements. When we look at 2007 cumulative performance, we have met our revenue and operating profit target accordingly as presented at the beginning of the year. CapEx spend in total was KRW2,228.9b.

Next is on Megapass, KT's broadband Internet business highlight. Revenue fell both quarter and quarter and year on year due to exemption on modem leases and discount for long-term subscribers and net reduction in subscriber numbers. KT is continuously expanding the FTTH base in order to lead the market away from destructive competition to one that competes based on quality and value. As of fourth quarter, KT has expanded FTTH coverage, in other words, broadband facilities they can support above 50Mbps that enables [TPS] up to 56%. As a result, we were able to increase the subscriber base to 19%.

Next is on the PCS resale business. With stronger marketing activities for subscriber acquisition in the fourth quarter, there was a quarter-on-quarter increase and we over-attained to the annual net addition target of 200,000 subscribers. Revenue increased KRW4.6b quarter on quarter, to mark KRW255.6b.

With regards to our telephony revenue, although subscribers and traffic volume continued on a declining trajectory due to the temporary increases of international [sentiment] and international [ISDN] revenue, telephony revenue rose slightly on both a quarter-on-quarter basis and year-on-year basis.

On WiBro, there was a sustained growth of subscribers since the launch of the USB modem in June and so we were able to meet the annual target of 100,000 subscribers. This year, by expanding coverage on Seoul and five major cities, as well as 21 metropolitan cities, we will endeavor to increase our subscriber base.

On Mega TV, since the full-fledged service launch in the third quarter, Mega TV gained up of 300,000 subscribers nationwide and achieved the annual target. For this year, on top of the focus we had on children and kid's content and educational content, we will secure [further] content from major Hollywood distributors through additional sourcing agreements. As such, we will prepare ourselves in time for real-time broadcast service, with 80 [high-def] channels -- equipped with 80 [high-def] channels, excuse me.

This marks the end of the earnings part of the presentation for fourth quarter 2007. Let me now briefly mention the 2008 guidance. 2008 will be a year for us to realize growth through expansion of customer base and windows. So we are planning above KRW12 trillion of revenue, KRW1.5 trillion operating profit, and EBITDA of KRW3.6 trillion. For CapEx, our plan is KRW2.6 trillion.

Thank you once again for your attention. And we will now begin the Q&A session and will answer any questions you might have.

(Interpreted). (OPERATOR INSTRUCTIONS). The first question will be provided by Mr. Hongseek Kim from NH Investment Securities, and the following question will be presented by Mr. Stan Yang from Lehman Brothers. Mr. Kim, please go ahead.

(Interpreted). I have two questions. First with respect to KT, I believe that the reduction in the revenue coming in from telephony services will have to be somehow offset by the revenue coming in from IPTV services. In that case, the margin for IPTV and telephony service is, therefore, a very important factor. So can you give us a comparison of the margin for these two types of businesses?

And the second question is if VoIP is allowed by the end of this year, I believe that this will have a significant impact on the reduction of your telephony ARPU. So can you share with us the extent of the reduction of your telephony ARPU on an annual basis?

(Interpreted). I do fully understand that you would have curiosity regarding this information, but I would like to emphasize that it's very difficult for us to provide you with the numbers regarding the telephony and IPTV margin because it's closely related to our confidential sales and competitive information, so please understand.

With respect to your second question regarding the VoIP number portability and how that will impact the reduction of our telephony ARPU, if you look at some cases from other overseas countries and if you look at those fixed-line players in those countries, they have experienced about 5% to 6% of reduction in terms of their revenue. But at KT we have been very good at protecting our local and domestic telephony fixed-line business. And so we believe and we think that the revenue could decline by about 3% to 4%. But we will also be providing various different types of optional tariffs and rate plan. And through such efforts we wish to minimize the impact that it has on our revenue.

(Interpreted). Just a follow-on question. In the fourth quarter there had been a significant increase of marketing expense. And I do understand that it is attributable to the increases in the PCS resale subscribers. But other than that factor, can we also say that broadband churn rate has contributed to that increase in marketing expense and has there been other factors that impacted the increase?

(Interpreted). The reason why the marketing expenses rose in the fourth quarter and also on a year-on-year basis, because of the increase in the resale subscribers, we had spent quite a bit of sales commission and also have provided an incentive in order to facilitate the sale of the resale business. And also it has to do with advertisement and promotions expense regarding the Mega TV and WiBro.

(Interpreted). The next question will be presented by Mr. Stan Yang from Lehman Brothers, followed by Mr. Chang-Hwan Jin from Goodmorning Shinhan Securities. Mr. Yang, please go ahead.

(Interpreted). I have two questions. First is on IPTV. What is the expected amount of loss that would be generated from IPTV this year? And also if you could also provide us with a breakdown of that number in terms of, for instance, set-top boxes and content. And would this loss be borne at the KT parent level?

And with regards to your guidance on operating profit going forward, you expected KRW80b of increase compared to last year. And now, despite the IPTV loss, what drives that increase in operating profit? Is it due to cost-cutting efforts or are there any other reasons? Could you please shed light on that?

(Interpreted). Now let me first answer the second question. I will share with you how we could attain the operating profit target we have set for ourselves. We believe that marketing expenses or marketing spend hinges on the competitive environment. And this year we will do our best to control the marketing spend level to that of last year's.

How will we do this? We have three ways in mind. With regards to the maintenance cost, we are thinking of setting up a new [cooperation] with KT's existing subcontractors. And number two, in terms of sales channel or distribution, we wish to converge the distribution channels into a direct channel and make our outside channels more sophisticated, thereby improving on the high cost structure. And also in terms of repairs cost, we wish to improve on the business processes which will help us improve those types of cost items. And these are some of the ways we can attain operating profit targets.

With regards to your first question on the amount of expected loss coming from the IPTV business, it is only natural that this business is going to incur cost because we are only at the beginning stage of the business, but it's inappropriate for us to estimate the amount of loss. We will strengthen our contents base which means that we will continue to purchase content and also execute spending accordingly, based on our plan.

With regards to the set-top box, there will be depreciation cost that is involved. But this year we will focus mainly on expanding the subscriber base.

(Interpreted). Just a follow-up question on IPTV is that, yes, as you've mentioned your IPTV initiative will incur loss but you will do your best to probably minimize that cost. But I was more interested in the overall structure, meaning if you look at Hanaro they have established a subsidiary called Hanaro Media. And the initial expense-related burden will be borne by the subsidiary, so there will be very minimal impact at the parent level. So I'm wondering whether KT is also envisioning similar types of arrangement.

(Interpreted). Our business approach for this business is different from what Hanaro has. Hanaro, as you correctly mention, has established a subsidiary company called Hanaro Media. But we have no plan whatsoever to transfer the related cost to another entity.

(Interpreted). The next question will be presented by Mr. Chang-Hwan Jin from Goodmorning Shinhan Securities, followed by Mr. [Yonghyuck Lee] from [Shinhan Securities]. Mr. Jin, please go ahead.

(Interpreted). I'm from Goodmorning Shinhan Securities. My question relates to corporate governance. According to certain sources and rumor, there was a mention that the KT management had talked about possible changes in corporate governance, for instance, into a holding company structure or maybe a merger with KTF. If that is the case, when would this type of change happen? And are there any set of preconditions that have to be met in order for the change in corporate governance to take place? And also I am curious as to what the reason is for the need for change in corporate governance.

(Interpreted). Let me share with you why we are reviewing the possibility of a change in corporate governance. It is indeed a global trend worldwide with regards to broadcasting and telecommunication convergence, and the convergence of both fixed and wireless services. This trend had already hit the market. So we are considering possible changes in governance in order to better provide value to our customer base. So we are open to any possibilities, whether it be merger or changing into a holding company structure. However, this process requires significant amount of consultation and discussion. But we will not exclude any options if it means -- if that option could contribute to maximization of customer value.

With regards to your second question on the timing, because there needs to be discussions and consultations with various stakeholders, it is at this point inappropriate for me to specify a timing.

(Interpreted). The next question will be presented by Mr. [Yonghyuck Lee] from [Shinhan Securities], followed by Mr. Young Gon Lee from Hanwha Securities. Mr. Lee, please go ahead.

(Interpreted). I have two questions. I would like to learn and understand what KT's understanding is vis-a-vis government's future policy direction regarding the tariffs, the resale business and facilitation of competition in the telecommunications industry.

And also the second question is I believe that, going forwards, [Huando's] products and services will be facilitated. And if you -- and I would like to know whether you have plans to include your domestic telephony and VoIP services into the bundled packages. And if you plan to include them, when will that be and what will the rate structure look like?

(Interpreted). With regards to the telecom-related policies of the new administration, they have voiced the need to cut communications-related rates and tariffs. But if you look at the fixed-line market, already the tariff is set at a very low level. And considering the fact that resale is going to be facilitated, we do not think that this new government stance on tariff cut is going to have a big impact on our business.

And also if you look at the government's policy direction, in the past they have focused on effective competition, but they are moving away -- or they have moved away from that mindset regarding competition to one that focuses more on consumer benefit. And we believe that government policy direction focusing on the consumer benefit will be sustained even after '08.

With regards to your second question on the bundled services, this year we are planning various different types of fixed and wireless service bundled together. Therefore -- and also in the current competitive landscape when VoIP portability is allowed, we are also thinking of bringing TPS plus QPS, TPS and QPS bundled together. And also this year we will review the cost potential bundling VoIP and PSTN services.

(Interpreted). One more additional question regarding the resale. You did not mention the PCS resale portion. Can you also elaborate that?

(Interpreted). This year government has planned to facilitate to resell regarding the MVNOs. And therefore, at KT, we accordingly, in line with those types of policy, will also review the PCS resale business.

(Interpreted). The next question will be presented by Mr. Young Gon Lee from Hanwha Securities, followed by Mr. Sam Min from BNP Paribas. Mr. Lee, please go ahead.

(Interpreted). I would like to ask three simple questions. When do you think the impact, or when do you think there will be a -- when do you think the significant impact from the DCN network build-out plan will have on your network maintenance cost. When will that timing be? When will it be impacting your cost line item?

The second is regarding the broadband subscribers. If you look at the net addition trend, the trend was very different for the first half and the second half of the year. I'm wondering whether there had been a change in your sales strategy. And what is your retention target regarding broadband subscribers.

And the third question is you mentioned the bundled package services with QPS. Now, if PSTN and VoIP is -- with regarding to bundling, PSTN and VoIP, if government accepting that that could happen because if PSTN is bundled together, I believe other operators and carriers would request that KT has an obligation to provide equal access to other players. In that case, the situation could be quite burdensome vis-a-vis KT. What is your view on that?

(Interpreted). Let me answer the Broadband subscriber related question first. In the third quarter, the subscriber number did fall. And since the legislation of the telecommunications network law, there was a much -- much less activity regarding TM, because KT is the market dominant carrier. And internally we had placed more focus on making our broadband business more of a sound business, rather than really growing the size of it. And regarding year 2008, there are many uncertainties surrounding the market. So with respect to the net addition target, we believe that we have to adjust the target accordingly and it should hinge on the market situation. So please understand that we won't be able to share with you the specific number.

Regarding your first question, you asked about the maintenance cost impact of the BcN network. BcN network, from a very comprehensive perspective, is all about pursuing all IP systems, which mean -- which is a core infrastructure in the area of convergence that brings together voice, data, communications, telecommunications that is, and broadband. And we believe that, through all IP networks, we will be able to enjoy CapEx and OpEx expenditure reduction. And also better utilization of the real estate assets that we have. But that impact, of course, will be felt gradually. And we believe that when all IP is actually implemented, after year 2012, we will be able to experience some meaningful impact.

In -- with regard to your third question on QPS and TPS and open access, in year 2008 we believe that this will be a year where there will be competition regarding the fixed and wireless service bundling. We will not focus on -- we will not be bogged down overly with regards to reduction in short-term revenue. We will place more emphasis on the importance of retaining the customers, and that will be our view in bundling the domestic or PSTN to the bundled packages.

With regarding open access on the local telephony, with the more deepening replacements between fixed and wireless telephone services and with possible portability, allowed portability of VoIP, we believe that there is, in actuality, a replacement taking place with respect to the domestic telephony services. So we believe -- and so at this point, we are looking, we are analyzing the pros and cons of the open access.

(Interpreted). The next question will be presented by from Mr. Sam Min from BNP Paribas, followed by Mr. John Kim from Merrill Lynch. Mr. Min, please go ahead.

Yes, hello. Thank you for this opportunity. Just wanted to ask you your outlook on real estate and IDC revenue for 2008. Obviously they're small but have contributed quite a bit in terms of overall growth.

And, then secondly, on your labor expenses as well, if you can just provide a little bit of color as to whether you can actually keep the growth down in 2008/2009, given that labor expenses did increase quite a bit in 2007.

And, lastly, if you can actually tell us a little bit more about why your maintenance cost fell quite a bit in 2007. And you mentioned earlier that you planned to set up a new establishment that would do this. Would that involve moving the labor force as well? That's it, thank you.

(Interpreted). First, let me tackle that real estate revenue. It's been growing every year, and year 2008 we're expecting it to be in excess of 240b.

Regarding IDC, because of the increases in UCCs, we expect the demand from the portal, of portal businesses to continuously increase. So we are preparing for that, but we cannot open or share with you the exact number.

Regarding the labor costs, we do understand the concern that the market has. But through forging consensus amongst the labor and the management we will do our best to find ways to make improvements. But when it comes to reduction of labor cost, of course reduction -- reducing the actual amount of labor costs will be an important aspect. But more than that, it's very important how best or how efficiently an organization can manage the limited amount of human resources that they have.

So rather than focusing on a very short-term effect from a massive real, or massive adjustment of our headcount or our personnel, we believe that more of a -- a different type of approach is more necessary. Through making our employees more sophisticated and our personnel more sophisticated, and through circulation of the personnel amongst the group of companies, and by providing various means to enhance their competencies, especially for employees in a non-added value business area, and by allocating stretch-to-goals in order to really enhance the specialties of our human resources, and also to really foster future generation leaders, will be areas where we will focus on.

There's been made announcements about setting up a specialized establishment or incorporation with respect to activation services and also laying down the networks. But with regarding maintenance it wasn't an entity regarding that type of a service.

(Interpreted). The next question will be presented by Mr. John Kim from Merrill Lynch, followed by Mr. [Jake Yang-Sung] from Newton Investment Securities. Mr. Kim, please go ahead.

Yes, thank you for the opportunity to ask questions. I have questions on three areas. First, on the regulatory side, there have been some developments that can affect KT's IPTV service launch and cost. With that in mind, does KT's KRW1.5 trillion operating profit, does it take the terrestrial TV station's plans to charge their users for the recent TV contents into consideration? And if the MIC were to be disbanded, as President elect's transition committee has suggested, how might this affect your full IPTV launch schedule?

Second question pertains to your WiBro. KT, I can see that KT recently broke through the 100,000 subscriber mark. It's now been about two years since the Company's been started deploying CapEx. Right now it's quite difficult to see when KT will ever reach the payback period on the -- its investment. So can the Management help us and explain what kind of time horizon are we looking at? And provide some kind of business case for the WiBro service.

Third, and finally, it's on VoIP. I understand that the Management has set a target of 1m subscribers for VoIP by year end. Can you share your expectations for the number of your local subscribers at the end of 2008? Do you plan to include or add VoIP subscribers to the local customer tabulations? Thank you.

(Interpreted). On the IPTV business schedule, at the end of last year the IPTV Business Act was adopted. And, until the effective date, we have to go through the formulation of the Presidential decree and related rules. And also the notice for the license players and also the draw up of business plan and the providing of the licenses. So all of these steps have to be undertaken and we believe that by the second half of year 2008, the real-time IPTV could be commercialized.

The new government, government's organization realignment plan is currently attending intentional assembly. And, of course, we will have to wait for the outcome of that discussion at the National Assembly. But, whatever the case, the Ministry of MIC and the Broadcasting Commission would have to reach a certain agreement. And, based on that consensus of the two regulatory bodies, can the Government formulate government -- the Presidential decree and related rules.

So during that period of time, yes, it could be the case that because there is a realignment of the Government organization, there could decree -- there could be some vacuum in the, within the Government authorities and things may not go as smoothly. However, although this could impact the commercialization schedule, we believe that it would be possible for us to go ahead with the commercialization of this business by the second half of the year.

Regarding the VoD content -- the terrestrial VoD contents, currently it is being provided with charge, which was agreed with these broadcasting stations. And there will be further negotiations contingent on the channel connections.

Yes, and some comments about WiBro. It's quite true, I think, we achieved the 100,000 a little bit later than we expected. But it's still, in our case, we are going on track. We find about 1m subscribers to be a critical mass and we are trying to reach that by 2009. This year, we have an outstanding net growth of 300,000.

WiBro also falls into our bigger picture, where, our CEO has mentioned about our Windows strategy, where we tried to initiate as many conduits for our consumers as possible, and WiBro is one of them. So, within that light, we will continue to push WiBro with more coverage, as we mentioned earlier. And I think, with that strategy, we should have some meaningful number of growth as well as some better ARPUs. Right now, as you know, it's in the promotional period. So I think when that ends, some time near the end of this year, we should see some better numbers for WiBro at this time.

Regarding the number of PSTN subscribers, at KT we will maintain 20m subscribers. That is a number that combines both VoIP and PSTN subscribers. At KT, unlike other competitors who provide a low price VoIP, our service is going to be essentially very different. We will be providing geographical traffic related information, as well as some visual banking and interactive advertisement as well. So we have dubbed this a 'service over IP', SoIP, which is very convenient and essential information that's needed for people on a daily basis. So we will position our SoIP and, through such efforts, we -- through such efforts, we will be able to attract new demand and new customers. And that's how we will maintain our plan of 20m.

Thank you.

(Interpreted). The next question will be presented by [Jake Yang-Sung] from Newton Investment Securities, followed by Mr. [Yongseok Chae] from Mirae Asset Securities. Mr. Yang-Sung, please go ahead.

(Interpreted). I have two clarification questions and an additional question later on. With regards to the question relating to open access to PSTN networks, you said that it's not a problem, but does that mean that you don't have to provide open access to other players? Or, are you saying that even if open access is provided that this is not going to be an issue for KT in terms of its strategy? So please clarify that.

And when you shared with us your objective for '08, you said your profit will increase but your EBITDA stays at this number. And I think, if that is the case, that means the depreciation is going -- would have to fall. But you've said that the CapEx will increase, so how can we interpret this guidance that you have given us?

And, also, I would like to know your acquisition costs for broadband as well as IPTV.

(Interpreted). Yes, on the first question, I did not mean to say that there will not be an open access regarding PSTN, which means that I did not mean to say that we don't have to provide open access. I just meant that, strategically, even if open access is provided, it's not going to be an issue for KT.

Regarding the '08 OP target, I did not mean to imply that we will cut the depreciation. It's just that we wish it -- we wish to cut costs that are not linked to the revenue directly. We will, for instance, reduce the overall cost structure regarding the -- whereby by improving the inefficient cost structures and by cutting maintenance and distribution related cost processes. So, through those efforts, we will reduce the cost structure and meet the operating profit target of KRW1.5 trillion.

Regarding depreciation and CapEx, in year 2007, we have spent WiBro investment budget in the second half of the year. And by improving the cost-related processes, we were able to save on the budgets that we have set aside. So we spent for in '07, KRW2,228.9b. In the year 2008, we will continue on with process improvement. We will maintain cost reduction, and also we will stringently control cost investments.

Regarding the acquisition costs for Broadband and IPTV subscribers, because of the competitive situation, we cannot disclose that number.

(Interpreted). The next question will be presented by Mr. Yongseok Chae from Mirae Asset Securities, followed by Mr. Mitchell Kim from Morgan Stanley. Mr. Chae, please go ahead.

(Interpreted). I believe that there are three factors that mainly impact KT's share price. The first is restructuring related to corporate governance. Second, bundling, I believe there is significant room for savings in terms of distribution. And third is IPTV. Now I do understand that it is contingent on the competitive strategy and uncertainties in the market, but if you could shed light on the following issues, it will help us as an investor.

The first is regarding the CFT, the cross functional teams, CEO Nam has a three year tenure and I believe that this year we do need to see some visible outcomes. So I would like to know the timing with respect to when we could see that outcome.

The second is with regards to the distribution costs. I think there is a lot of room for us to save regarding that distribution. KTF about KRW1 trillion and KT about KRW700b, so it's about KRW1.7 trillion of spend. So if we take out the handset subsidies I believe we could save even up to KRW400b to KRW500b. So I would like to know if this logic makes sense to you. So if you could shed more light on that.

And then it's on the IPTV economics. I believe that if we base our revenue target, if we base the number at KRW550b and if we think that the subscribers is going to be about 3m, if we for instance with regards to the contents we spend about KRW300b on a five year depreciation and set top box also KRW300b, and also marketing about KRW300b, I think we could well get a margin above KRW200b. So is this a rational logic or do I need to revise my thinking. Could you shed some light on that?

(Interpreted). Thank you very much for very important questions. Regarding the timing on change of our corporate governance, it is true that currently we have a cross functional team in place. And however, if you think about the corporate restructuring, it is a process that takes time and also that needs cooperation of the related stakeholders such as the government and the market. So there are many steps that we have to go through. So I believe that it's difficult for me to shed light in terms of timing.

The third question on IPTV economics. KT have set out mid to long term strategy and plans with respect to its aggressive marketing and in order to gain an upper hand in the TPS market. Of course at this point it is too premature to make any clear projections on what the economics or profitability is going to look like. However IPTV is based on the development of IP technology, i.e. multi-casting. So this is a business that can make use of the existing infrastructure but create revenue on top by using those existing infrastructure. So this is considered a very desirable and positive business model. And according to the analysis of LG Economic Institute, (inaudible) Research and Woori Investment Securities, they all analyzed that IPTV is a very favorable business.

Regarding the second question on improvement of the distribution channels, currently KT and KTF are reviewing various aspects to make our distribution more efficient. But it is at this point too early to predict what the exact outcome is going to be. However through bundling and through more strengthened co-work we believe that we can improve efficiency of the distribution channel thereby reducing the cost.

(Interpreted). The next question will be presented by Mr. Mitchell Kim from Morgan Stanley. Please go ahead, sir.

Yes, good afternoon. I had two questions. First is on VoIP and the second one is on IPTV. First on VoIP, looking at your target, basically what you're saying is that you don't expect to lose any local service line from 20m, except you will basically migrate 1m to VoIP now. I'm just wondering how realistic that is given that Dacom/Powercom is targeting about 1.4m VoIP subscribers by end of this year. So somebody has to give and I just wonder whether you think your target is realistic.

And I wonder if Dacom doesn't get the numbers that they expect, I wonder whether they would be looking to increase dealer commissions in order to try to extract some of the customers from your service. So if it's so, how strongly would you be willing to compete to retain your fixed line subscribers?

My second question is on IPTV and I was just wondering what you thought the revenue opportunity with IPTV is. In other markets we have seen that IPTV does not actually contribute significantly to revenue because they're part of the triple play service. But in the case of KT because most of your subscribers are on low speed or Lite, Megapass Lite plans, so I think they would -- help me understand if they would have to upgrade to a higher speed plan. If so potentially there's some revenue growth opportunities there. If not at least you could use that free upgrade to retain your subscribers. If you could add some thoughts to that and whether my thought is in line with what you're thinking right now.

(Interpreted). On your first question I've mentioned that we plan to maintain 20m subscribers for PSTN including VoIP. And in order to respond to low price VoIP of our competitors we are positioning a high end VoIP service, namely the service over the service-over-IP or IP will provide convenient daily life value to the users, which we believe could generate new demand. With the Internet phone VoIP portability introduction in the first half of year 2008, we do foresee that some of the subscribers will leave our PSTN services. But in order to protect against that or defend against that we will position and provide our low end SoIP services to those people.

Regarding attraction of VoIP subscribers and with respect to how much we're willing to spend on it, we would be very flexible with regard to that issue and it will hinge on the competitive situation. But we will provide differentiated services not based on the cost structure but on quality.

On IPTV of 5.6m broadband subscribers (sic - see documentation), currently 56% of those people can enjoy IPTV in terms of the infrastructure and the type of services they're getting. So once we have good content and more strengthened quality and also when we have strengthened IPTV competitiveness it will contribute to increases in revenue.

A quick correction. It's 6.5m subscribers of broadband, not 5.5m.

(Interpreted). With regards to the second question on IPTV through DPS and TPS, we believe we could reduce churn rates by one third or one fifth of magnitude. And also through [two side] marketing we could also make advertisement related revenue and we expect that ARPU could also increase.

(Interpreted). The next question will be presented by Mr. Hyonjin Kim from Goldman Sachs. Please go ahead, sir.

Great thank you. I guess from my limited understanding in other countries that have tried to do, have tried to share distribution channels between mobile, it hasn't really worked out that well. Firstly because the retail store dealers have had a difficult time getting the mind share of the subscriber to bundle on all the services. And secondly, they were more incentivized to sell mobile than they were incentivized to sell fixed line products. In that sense do you see anything that I'm missing that would suggest that the combined retail distribution channels should work in Korea or should lead to much superior margins in Korea.

My second question is I get a general sense and correct me if I'm wrong that you're neither really hot nor cold on any of these businesses in the sense that I don't see it being reflected in an aggressive subscriber target. Would it be safe to say that you're taking more of a steady approach to see how the market evolves and perhaps take a more aggressive stance when things look to be more rosy in the future?

The questioner, I'd like to ask a question. Can you repeat your second question? We didn't really fully understand the question.

Sure, sorry about that. I'm just getting a sense that the subscriber targets or the communication that I've been hearing through the conference call today doesn't really strike me as that we're going to be seeing a substantial aggressive marketing strategy of the Company or that we're going to see any major push to push any specific service whether it be WiBro or IPTV necessarily. So in that sense is the Company just tapping the market in the sense that they deploy everything, wait to see which one starts to reap better results and then focusing on that more? Is that the strategy that you're looking at on a holistic view or am I missing something?

(Interpreted). With regarding sharing of distribution channel amongst the wireless and the fixed line players, I believe that there is a difference between the overseas situation and the domestic situation. Of course in other nations their distribution channel is mostly surrounding the retail channel. But we also have a direct channel that we employ. Through analysis of the various commercial zones that KT Plaza and KTF stores are in, we can improve efficiency in terms of operation of those stores and outlets and therefore we expect a very optimistic outcome.

And on top of that, the targets that we have set for ourselves is very important for our growth, and our subscriber and customer base is a very important aspect. The 20m for our PSTN services, 1.5m for IPTV and 400,000 of WiBro subscribers, now this really reflects our very aggressive management approach for growth.

I understand. Thank you.

(Interpreted). Regarding the IPTV services, on the first and the second year of the IPTV business we will establish a very personalized customized and targeted type of product for our subscribers. And we have set goals accordingly, and therefore our plan is not at all a lukewarm approach. And so through attaining the subscriber retention targets, we would lay forward the basis for convergence.

(OPERATOR INSTRUCTIONS).

Operator?

(Interpreted). This is the operator.

I think we're past our time so if there's no callers at this time we would like to conclude our conference call.

(Interpreted). Actually there is one participant with a question. Would you like to take it?

We'll take that last call.

(Interpreted). Thank you, wait a second please. The last question will be provided by Mr. [Nam Gun Chae] from [Tongyang] Securities.

(Interpreted). I have one question with regard to the establishment of that distribution subsidiary, now when will the establishment take place and when will the operations of that subsidiary begin? And also with regard to the performance of that entity, how and when will we be able to assess their performance?

(Interpreted). Currently with regards to the timetable for this distribution company it is not yet confirmed or set. And it is also too premature to make any -- give you any details regarding the performance of that entity.

KT will do its utmost to achieve the guidance that we have published and disclosed. And we will do our best to continue on with the trust that we gained from the market. And based on the customer base and the windows strategy approach we wish to break through the revenue target of KRW12 trillion mark. And the management and the employees are committed in doing their best to attain this target.

Once again thank you very much for joining us at today's conference call despite your busy schedules. This marks the end of the fourth quarter 2007 conference call. 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.