KT Corp (KT) 2008 Q2 法說會逐字稿

(Interpreted). Good morning and good evening. Thank you all for joining this conference call and now we'll begin the conference of the fiscal year 2008 second quarter 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 with the presentation on the fiscal year 2008 second quarter earnings results by KT CFO, Mr. Soo-ho Maeng.

(Interpreted). Good afternoon. I am Maeng Soo-ho, CFO of KT. I would like to thank our shareholders, analysts and all those with a keen interest in KT for joining us via the phone and the Internet.

I would now like to start the presentation on the second quarter 2008 business performance. If you access our webcasting page through our website you can listen in on the conference call and view the presentation material.

First a brief highlight on the second quarter business performance. Revenue is KRW3.029 trillion, up 2.1% quarter over quarter and 0.7% year on year due to positive impact from the Internet business.

Operating profit declined 4% to KRW367.6b on a year on year basis due to declines in telephony and LM revenues. And this is 10.4% higher over the previous quarter.

EBITDA went up 5.7% quarter over quarter but dipped 1.4% year on year to KRW861.5b. Net income is up 4.2% quarter over quarter but fell 30.1% year on year to KRW154.1b.

In terms of CapEx I would like to make a correction on the figures disclosed on our website this morning. My apologies for the mistake. CapEx spend is KRW624.6b, which is 16.3% increase year on year and 58% higher than the previous quarter. Please refer to the earnings document for more details.

Now on page six, let's look at each of the business lines. First on broadband Internet Megapass revenue grew by 1.5% quarter over quarter thanks to the subscriber growth.

With the improvement in product line up and FTTH expansion there was a 60,000 increase in subscribers in the second quarter and FTTH facility coverage has been expanded to 65.1% as of end of quarter one.

In terms of the PCS business, in the second quarter revenue went up by 2.1% and 8.5% quarter over quarter and year on year respectively thanks to the growth of 3G subs and increases in handset sales. However, with retention focused operations in the second quarter there was a net reduction of 33,000 subscribers. 3G subscriber ratio increased to around 20%.

For the telephony business, on-net discount i.e. mobile operators and VoIP replacements drove down the traffic which brought about the revenue down by 2% year on year and 0.7% quarter over quarter.

KT will counter competitors' low price VoIPs with competitive rate plans, i.e. selective rate plans. And through the launching of SoIP, Service over IP services in August which will provide value added services and video telephony capabilities, KT will push to make a more sophisticated Internet telephony market.

Next is on MegaTV. From late May there was a temporary suspension of TM telemarketing activities. As a result, net addition for the second quarter was 140,000 less than that of the first quarter. On a cumulative basis, as of end of June, there are 700,000 total subscribers.

As of end of June 30% of MegaTV subscribers have subscribed to the bundled package including -- the bundled package that includes Megapass services. And switching rate from three month free trial period to a play platform has gone up to 70%. Spending on paid contents per subscribers is also an increasing trend every month.

Once the IPTV business at ordinance is promulgated and the real time broadcasting service begins, we expect a stronger momentum in subscriber growth. KT will continue to prepare for the IPTV services to make sure that there are no bumps along the way.

Next is on WiBro. There has been an expansion of service coverage i.e. in building covered in Seoul and strengthening of the marketing activities through which net addition of 60,000 was attained in the second quarter. But it still falls below our initial expectations.

We recently launched a bundled product with a navigation and with wider penetration of many laptops we anticipate that there will be a positive impact to the future expansion of the subscriber base. In the second half we will expand the coverage to 19 metropolitan cities as per our plans.

Next is on bundled products. We at KT have expanded consumers' scope of choice by introducing line up of diversely bundled products between KT and KTF. With Megapass as the core pillar, subscription to bundled services grew 67% over the previous quarter -- compared to the previous quarter. And bundled products for Megapass and Show and also for Megapass and MegaTV account for 64% of the total as of end of second quarter.

In particular we expect high subscriber attraction in retention via a bundled product where we have bundled together the most recent release of Megapass and up to five Show handsets. On top of this we anticipate a positive impact on lowering the marketing cost over the longer term.

This has been the presentation on results of the second quarter 2008. We are about halfway through 2008 and we see major market shifts around such key words as bundling and convergence. In the second half we will see full fledged competition around bundling amongst different groups and I believe that there exists many uncertainties.

In order to be quick to respond to such trends, internally we will continuously endeavor to save costs and externally we promise that our utmost efforts will be exerted to carry out our strategic businesses.

This marks the end of the earnings presentation and we will now move on to the Q&A session.

(Interpreted). Now Q&A session will begin. (OPERATOR INSTRUCTIONS). The first question will be provided by Mr. Yang Jong Il from Hankook Investment Securities. The next question will be provided by Mr. John Kim from Merrill Lynch. Mr. Yang Jong Il, please go ahead with your question.

(Interpreted). I would like to ask two questions. The first question is that in the second quarter there was a temporary suspension of telemarketing activities. But despite that, could you share with us the reason behind high level of marketing cost compared to the first quarter?

And the second question is what is the reason behind significant increase in IDC related revenues? I believe that it's about 45% higher over the first quarter. Do you foresee the same trend going forward?

(Interpreted). Thank you very much for the very good questions. Taking the first question, the reason why marketing expenses rose. It has to do with the advertisement and promotional expenses relating to our new businesses, namely MegaTV and WiBro. Because of the high level of advertising cost compared to the first quarter we have seen increases in overall marketing expenditure. From the second half of the year we will start to control this line item, the ad and promotion related expenses. And going forward we will spend our marketing expenditures in a flexible manner after considering the market situation.

With respect to our existing business line, we will focus more on retention of the subscriber base rather than new acquisition of subscribers. And through the sales of bundled products and with the increase in the bundled product subscribers we wish to drive down overall marketing cost.

The increase in IDC revenue is attributable to the first the completion of the [Yong Do] IDC in May after which we were able to see increases in service and server revenues.

With respect to the Internet application revenues, that also includes the IDC revenue portion, it's at this point quite difficult to project the exact trend going forward.

(Interpreted). The next question will be provided by Mr. John Kim from Merrill Lynch. And the following question will be provided by Mr. Mitchell Kim from Morgan Stanley. Mr. John Kim from Merrill Lynch, please proceed with your question.

Yes, thank you for the opportunity to ask questions. First on your cost savings initiative, back in the first quarter conference call the management expressed plans to launch a cost savings initiative on your non-marketing operating expenses. But if you look at your second quarter results it's a little bit difficult for me to see the evidence of such efforts. So has the management foregone cost savings efforts in '08? If not, how much savings do you plan to achieve by the year end?

And second, on your FX losses, can you discuss the management's strategy or what your strategy has been to hedge against the FX risks? I'm asking this because if you assume most of your FX cost arose from foreign currency debt and your net FX related loss -- if we add this to your net interest expense the implied cost of financing debt appears to be rather high. So if you could share your thoughts on this that would be great.

And finally, the KT management indicated willingness to consider disclosing more information such as churn rates on your monthly fact sheet during the last conference call. Is there any update to this? Thank you very much.

(Interpreted). Regarding your first question on cost control, it's taking place in two different manners. One is improving the cost structure itself and the other is controlling the expensing of the cost.

In terms of improving the cost structure, we are in the process of improving call center service process and also improving the commission structure. And also with respect to repairs cost, labor cost and R&D related expenses the -- such expenses which are not directly linked to the revenues, we are currently controlling those line items.

However, we have recently outsourced our IT and customer service related businesses. As a result it increased the overall expense. And in the second half we are expecting severe competition and also with the higher inflationary pressure in the market the cost is creeping up. So I do admit that it's difficult to control the costs but we will do our best.

Regarding the second question on FX hedging, KT has adopted a strategy not to completely eliminate financial risk but to take some level of risk that is manageable and controllable thereby enhancing our corporate value within a -- with a manageable level of risk.

At the working level with give the mid to long term guidance and also we have earning at risk EAR rate which sets us the hurdle rate or the hurdle rate for the risk that we can take. Within that extent of the allowable risk we hedge against risks.

As of end of the first half of the year 2008 currently 67% of our foreign currency denominated debt is hedged for FX -- in terms of FX risk exposure. And the derivatives translation gains and if you look at the FX losses, FX losses are a little higher than the gains we have enjoyed from the derivatives. But we do believe that this is about the adequate level.

On the remainder, the one-third of the exposure which is not hedged, the remainder -- remaining duration or tenure is 10 years. And we believe that hedging two-thirds of our total exposure is about the adequate level. And the overall FX related hedging strategy is set by our FX management committee.

On your third question which is with the fact sheet from May, we have been providing churn -- churn rate information and new sub related information in terms of our mobile resale business. We will continue to monitor the competitive environment and provide you with the adequate and additional information on a needs basis.

Just a quick follow up question to your answer to the first question. Based on your statement then would it be fair for the market to assume that the best KT management can do in 2008 is to contain your costs rather than cut your costs?

(Interpreted). I meant to say that we will do our utmost to reduce cost.

(Interpreted). The next question shall be given by Mr. Mitchell Kim from Morgan Stanley and the following by Mr. [Samelt] Young from Lehman Brothers. Mr. Mitchell Kim from Morgan Stanley, please proceed with your question.

Yes hi. My first question is on your transfer merger with KTF. This week there were articles stating that the CEO has officially stated that he would be -- he would look for KT to merge with KTF. If you could share any more details on that in terms of timing, whether Treasury shares could be used and then what -- how you could overcome the foreign ownership limit? Whatever color you could add, it would be much appreciated.

My second question is on your bundling strategy. Already you're bundling IPTV with your broadband. And I'm just wondering -- but despite that you're still -- your marketing expenses still show no signs of decline. And I'm just wondering when do you expect marketing costs to decline with the introduction of bundling discount and what not with new products including perhaps fixed line and at some point with KTF as well?

And lastly, just a quick one on bad debt expense. Your bad debt provision was quite high this quarter and that's one of the reasons why your operating profit did not meet consensus. And I just wonder why it has risen so suddenly and whether this is a one time adjustment or not? Okay. Thank you.

(Interpreted). On your first question on potential merger and acquisition with KTF, what the CEO had voiced and said is the emphasis on the need for some sort of a change in the business management organization. No details have been set and currently things are being reviewed. And if need be Treasury shares could be used but at this point timing and other details have not been confirmed or decided. So it is quite inadequate for me to provide more color on this.

On your second question, when will the marketing cost be able to come down with the impact of the bundling of products, the bundling products from a short term perspective because of the discounts on the products it does have an impact of bringing the revenue down. However there were more positive aspects such as lock in of subscribers and churn in as well.

In terms of lock in, compared to the standalone product, the lock in products have the effect of reducing the churn rate by 20% up to 80%. In terms of effect of churn in, currently at this point we don't have any significant impact but we do see that there are positive impacts put on broadband and the expansion of new subscribers for the mobile services.

In terms of when we will be able to see the reduction in marketing cost from the bundling initiative, it will of course depend on the competitive situation. At this point the bundling subscriber size is not that significant. So we will not be seeing any immediate impact in the marketing expenditure item. However with the increase of more subscribers for such products we do expect that we will be able to realize the benefit.

With respect to the high level of bad debt allowance, it's because we had written off some bad debt and also we have accounted for non-paid payments. And also we had -- we had dealt with unsound -- a large number of unsound subscribers.

In terms of bad debt allowance it's quite difficult to project the exact level going forward. But we will do our best to more efficiently manage our debt. And because this year the overall economic situation is worse than the previous year we do anticipate the bad debt allowance level will be higher compared to last year.

Are you implying that then in future -- the second half of the year we should see some sort of bad debt provision as well? Or is this a one time adjustment?

(Interpreted). At this point it's hard to project the exact size but we do believe that there will be some bad debt allowance in the second half.

(Interpreted). The next questions will be given by Mr. Samelt Young from Lehman Brothers followed by Mr. Sam Min from BNP Paribas. Mr. Samelt Young from Lehman Brothers, please proceed with your question.

(Interpreted). Yes I have two questions regarding your telephony business. The fall in your telephony revenue, which also includes the land to mobile revenue, you have mentioned previously in other occasions that there were attacks from Dacom, CRS Internet phone and also on-net discounts and wireless rate cut has impacted the declines in the revenue. So in the first half of the year what actually -- which factor actually had the biggest impact? And also going forward which factor do you think will have the biggest impact? Is it going to be the Dacom's Internet phone or is it going to be the wireless [telecom]?

And also at LG Dacom their Internet subscription net add is 370,000 whereas KT it's minus 70,000. So these two numbers don't match so what's the reason behind that?

And at LG Dacom's conference call, the management of Dacom has said that because at this point there's -- the interconnection fees between -- with respect to the Internet phones and PSTN currently there is asymmetry, meaning a 5.5 for Internet phones and 19.5 for PSTNs. So when we ask the question to the Dacom management that come September when the Government is going to readjust the interconnect fee, Dacom management was expecting a more favorable decision towards the Internet telephone providers. What is KT's view on this?

(Interpreted). On your first question, with respect to the decline in the telephony revenue, in the first half we believe that it was the on-net discount by the mobile operators that had the biggest impact. But going forward in the future I believe it will depend on how the VoIP service takes off. But at this point it's quite unclear as to the extent of that.

For KT in order to respond to the voice centric VoIP competition, we will push SoIP, Service over IP, and provide more differentiated services to the users. And also we will put in efforts to upgrade and enhance the existing fixed line service. Of course, we cannot know the exact subscriber breakdown for [9] LG070 but we believe that there is increases from the new subscribers. We believe that this new and young subscribers are currently subscribing to these services.

On your second question on interconnection fee, currently the BCC, Broadcasting and Communications Commission, is reviewing the adjustment of the interconnections rate by looking at the costs and by listening to the views and opinions of the operators. We expect that the direction will be set in the third quarter of this year, but at this point it's very difficult to project what that level will be like at this point.

(Interpreted) The next question will be given by Mr. Sam Min from BNP Paribas, followed by a question from Mr. Park Sang Yang, from SK Securities. Mr. Sam Min from BNP Paribas, please proceed with your question.

Right, thank you for this opportunity. I was wondering if you can break down your cutbacks in the second quarter. And to clarify, I believe you mentioned that earlier on the restatement of your first quarter CapEx.

My second question is on the VOIP number portability. Would you at this point -- when do you see this being enacted? And at this point, is there any type of details that you can put forward? That's it, thank you.

(interpreted). I would like to answer the second question first. In terms of VoIP number portability, the government had originally scheduled June as the schedule for introducing VoIP. But there had been issues raised regarding emergency calls, security and out of service areas related issues. So currently the government is reviewing -- currently the government is conducting certain reviews.

The government is waiting to have the solutions for these issues that I have just mentioned regarding the Internet telephone. So we are anticipating that VoIP number portability will be introduced in the second half. But with respect to the exact timing we will have to wait and see what the government decision is.

In terms of our defensive strategy, it's twofold. First, KT will provide differentiated services to its service over IP which will be quite distinctive from the competitors' voice centric VoIP.

For example, video telephony would be supported and we would be able to provide true convergence services such as home DPN service. So it will not just be simple voice centric services. We want to enhance customer value through such service over IP initiatives. And also we would provide service to further enhance the value of the fixed line voice services by providing a nationwide single rate plan, limitless rate plan. And on-net discount for land to mobile -- for fixed and mobile between and amongst the Group affiliate companies. And also on top of that, by combining and bundling broadband service and SoIP of KT we will seek to lock in our subscribers. And also, we will actively promote the advantages of using a fixed line telephony, which is that you can still make calls even during power outages and the fact that it also supports emergency calls.

In order to defend against the attrition of PSTN subscribers, KT will make use of its SoIP as a defensive strategy. And we will seek to expand the market as whole. We will try to do our best to minimize the reductions in revenue coming from PSTN and we will do our best to continue to maintain our subscriber base for the fixed line.

In terms of the CapEx breakdown for the second quarter, WiBro with KRW69.1b, MegaTV, KRW159.9b, infrastructure KRW160b is the breakdown.

(Interpreted) The next questions will be provided by Mr. Sang Yang Park from SK Securities followed by Mr. Jae Gang Sung from Newgen Investment Securities. Mr. Sang Yang Park, please proceed with your question.

(Interpreted). If you look at fixed line services ordinary companies like NTT and AT&T, they're actually quite proactive in trying to migrate their subscribers from PSTN to Internet phones, the VoIP. But it seems like KT is taking a reverse way, meaning KT is putting efforts to maintain and defend its PSTN business. Now is the reason because the service competitiveness for PSTN is much better and higher than the Internet phone, the VoIP? Or is it because KT enjoys better cost competitiveness under PSTN than Internet phone or VOIP? So that's the first question. And I would think that eventually, since the direction is toward all IP, I believe that there will be a point in time where KT will also have to migrate or transition into VOIP from PSTN. When do you foresee that timing to be?

(Interpreted). First of all, globally the telephony market will differ depending on which country you're looking at. In terms of PSD and tariffs and rates, Korea maybe has the lowest level of tariff. Despite that, KT is going to respond to this trend very flexibly and we will also look towards moving into VoIP.

We believe that timing for complete movement into all IP will be some time around 2012. And I think by that time we will have all the needed internal systems in place.

(Interpreted). The next question shall be provided by Mr. Jae Gang Sung from Newgen Investment Securities. Please proceed with your question.

(Interpreted). Yes, I have two questions. You mentioned that one of your defensive strategies against VoIP is to SoIP and video telephony. My question is when 3G first came out into the market, at the very forefront they pushed video telephony but it never turned itself into a killer application. So what is your rationale behind thinking that video telephony or SoIP could work as a killer application or a killer service.

And in terms of telecommunication market, upselling is very difficult. So what makes you think that in this case it would be possible?

In terms of M&A potential, many competitors are saying that if KT is allowed to go ahead with M&A, since KT has 90% market share in the fixed line services, that KT will be required to separate its local loop and local network. If that is provided as the premise for the M&A approval, will KT still go ahead with the M&A initiative, or will they just give up the attempt?

(Interpreted). In your first question, in the case of 3G, other line video telephony 3G really lack sufficient killer application that could be implemented based on this video capability. So there was a shortage of killer applications that could be implemented. But under SoIP, high quality video is possible and also people's everyday life based services and services that actually enhance their everyday -- value of their everyday life such as bankings and advertising and education are killer applications moving forward for SoIP. So it would be a new experience for the customers.

For example, we have code developed with Shinhan Bank an ATM banking service platform and application. So under SoIP it is not just video based telephony, there would be additional application telephony developed. And so the video telephony is just a part of SoIP. It is not the main pillar. And we believe that if we can provide such diverse and expanded value to the users, there are plenty of upselling opportunities.

And your second question, the M&A question, we won't be able to provide you with the exact projections. But in terms of separation of the local loop, already in the market there is very fierce and active competition based on the vicinity operators. And so other than this local telephony there are other options and other networks that could be used in the place of such subscriber local networks. We believe that that aspect is not really the contention included in the contentious issues.

If you look at latecomers in this business space and also cable TV operators, they all have their own networks, which can cover up to more than 80%, which has more than 80% of coverage. And in terms of -- and so therefore the fact that KT's local network or KT's local loop and the fact that KT only has the dominance and this aspect is only applicable to the situations of the past and is no longer applicable. So we do not think that this issue will arise.

(Interpreted). Currently there are no participants with questions. (OPERATOR INSTRUCTIONS). The next question shall be provided by Mr. Jae Gang Sung from Newgen Investment Securities.

(Interpreted). The reason why I asked about the local loop separation or unbundling was because regardless of KT's intentions it could actually emerge as an issue triggered by the competitors, just like the case between when SKT acquired Hanaro, the 800MHz spectrum and the roaming and reallocation of that spectrum emerged as an issue regardless of the intentions of the SK Telecom. So the concern is then, I was wondering then if these issues do emerge, I was wondering what KT's position and stance is vis-à-vis the issue. And would you still see the synergy effect from M&A to be significant so as to go ahead with the merger, even at the expense of separating the local loop, or unbundling of the local loop.

(Interpreted). So it is very difficult to answer to a question that is based on an assumption, especially with respect to M&A. I do understand where you're coming from with regard to the question. But we still believe that this local loop issue is really not an issue.

(Interpreted). Our next question shall be given by Mr. [Dung Sop Lee] from [Deijin] Investment Securities followed by Mr. [Dung Jung Kim] from KB Investment Securities. Mr. Dung Sop Lee, please proceed with your question.

(Interpreted). Yes, I have three questions. I understand that you have not yet finalized your labor costs related issues. I understand that currently the wage negotiations are undergoing. Can you show us the related principle that the management has in this -- in negotiating the regions with the union?

And second, is with respect to the costing, mid to long term profit of your IP and distribution subsidiaries, I'd like to get a color on the profitability of these subsidiaries in terms of the effect relating to the cost reduction or increases in revenues. Can you provide us some color on that?

And in terms of your dividend policy, if you could share with us your dividend payout or the dividend amount or whether you have plans for buyback and cancellation.

(interpreted). With regard to the wage negotiations, it is not undergoing at this moment. It hasn't started that is. We clearly, the management clearly understands the market concerns regarding the increases, potential increases of this labor cost. But we will be doing our best to contain the total labor cost amount, contain the labor cost amount at the same level of last year.

The objective behind the spin off of our IT operation is to promote and facilitate the service provision, thereby enhancing customer value. And the spin off initiative for the IT operation is so that we can very quickly satisfy the changing needs of the customers and so that the IT service can support those changing needs in terms of new products or bundling services. And also to enhance IT related synergies and provide IT consulting and receive IT projects. So the basic direction is to strengthen and foster our IT related competencies.

With respect to the final impact, or the effect in terms of profitability, because clearly the process is undergoing, it's difficult for us to give you a specific number for this. I hope you understand.

For KT M&S, which is the distribution subsidiary, the objective is to jointly make use of the resources together with KTS. Basically we want to expand to the sales outlets where bundled products will be sold and handled. Currently KT have stores, the M&S stores, KT fixed products are being sold. But because we're only at the initial stage, it's hard to talk about the profitability at the moment. We are currently cross selling these products at the KTS stores but the impact of this is too early to say.

In terms of our payout policy, there is no change whatsoever in KT's basic policy to return to the shareholders at least 50% of the net income.

(Interpreted). The next question will be given by Mr. Dung Jung Kim from KB Investments followed by Ms Suzanne Sung from HSBC Securities. Mr. Dung Jung, please go ahead with your question.

(Interpreted) I have two questions. The first is I understand that currently you are conducting discussions and negotiations with terrestrial broadcast stations. But with respect to the sourcing of the content, what would be the level of fee that you would be willing to pay up to these terrestrial broadcasting operators? And once that level of fee is determined, do you think that will have a level of impact in driving up the service cost, or service fee for IPTV?

Second question is with respect to marketing expenditure. KTS has mentioned that it will reduce, try to reduce competition in the second half of the year. So there was a concern that this may lead to KT putting more focus on its mobile or wireless reselling activities. So at the second half, in terms of your marketing expenditure, would you be focusing this in and using it to defend your fixed line market and to proactively push bundling products? Or would you be using significant amount of marketing expense for your mobile resale?

(Interpreted). On your first question, because currently the negotiations with terrestrial stations we are in the middle of negotiations with the terrestrial stations, I will not be able to provide you with any additional color on this. And -- but I believe that because this has to do with setting up a new paradigm in the broadcasting market of Korea, I believe that we will be able to reach a good agreement.

So at this point it's difficult for me to make any comment with respect to the relations between the social cost and the IPTV fees and prices.

Regarding your second question on the marketing expenditure for the second half of the year, because it has to do with the changing mobile market, it's very difficult for us to forecast what's going to happen. But we will be mostly using the marketing spending on retaining our subscriber base.

In the second half of the year we will flexibly spend our marketing budget but KT will not be the one that overheats the market.

(Interpreted) The next question will be given by Miss Suzanne Sung from HSBC Securities. And the following question will be presented by Mr. Jung Wung Bei from UBS. Miss Sung, please go ahead with your question.

(Interpreted) At this point your real estate business is making a minimal contribution to your revenue stream. But come year 2012 when you move to OIP network, we expect that the real estate will play a bigger role in contributing to the overall revenue. So by 2012 what do you expect will be the contribution coming in from the real estate?

(Interpreted). In terms of our real estate, currently the Company owns land and building which together a book value is KRW2.9 trillion. But if you convert that based on the government's disclosed assessment at KRW5 trillion. So in total it would be about KRW7.9 trillion in terms of the government's -- based on the government's assessed price. So by 2012, yes, if we go all IP, from a mid to long term perspective the contribution to the revenue will of course increase. So at this point it's hard to specify the amount.

(Interpreted). The next question will be given by Mr. Jung Wung Bei from UBS. Please proceed with your question.

Yes, thank you very much. Just a follow up question from a question that came up before on your dividend policy. Since your announcement a few weeks back to cut your guidance there's some concern in the market that your year end EPS of KRW2,001 per share may not be sustained if your earnings fall below a certain level. Could you please share with us if there has been any discussion within the management about this concern? And if you could give any kind of comfort to the market that this dividend amount can be sustained? Thank you.

(Interpreted). In terms of our dividend policy, since the privatization in year 2002 you will see that we have kept on to our commitment of paying out 50% against our net income. And there are certain years where we have actually paid out more than 50%.

At this point regarding the year end dividend payout, because there has not just been a decision by the BOP, it's too early to share with you the exact number. But it will not be significantly different from previous years.

Thank you.

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

(Interpreted). I would like to thank you for your questions and your keen interest in KT. I would also like to thank you for joining us despite your busy schedules. This will mark the end of the earnings conference call for the second quarter of 2008. 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.