KT Corp (KT) 2008 Q3 法說會逐字稿

(Interpreted) Good afternoon. I am Maeng soo-ho, CFO of KT. We now have the third quarter of 2008 behind us and only two months 'til the end of the year. I would like to thank the shareholders, analysts and all of you with great interest in KT for joining our call today. We will now like to start the third quarter 2008 earnings conference. If you access webcasting on our website you can part in the conference call and also view the presentation materials.

Third quarter business highlight is as follows; revenue fell 3.8% quarter over quarter and 1.5% year on year, due to sluggishness in mobile resale and telephony business to record KRW2,913.5b. Operating profit, despite cost cutting efforts, increased 10.4% q-o-q and fell 2.5% year on year to KRW329.4b.

EBITDA, due to increases in depreciation, went up 3.2% (sic -- see press release) quarter on quarter and 1.1% (sic -- see press release) year on year, to record KRW889.7b. Net income, while it increased 0.1% quarter on quarter, it fell 37.3% year on year to KRW161.4b.

CapEx spend fell, 4.5% year on year, and 21.7% quarter on quarter to KRW511.1b. Please refer to the earnings presentation materials for more detail.

Let me now explain the different business lines. For Megapass, the high speed Internet business, suspension on sales activities for one month of September had somewhat of an impact on subscriber acquisition. But net addition volume increased, compared to the second quarter and, as a result, revenue increased slightly over the previous quarter.

FTTH facility coverage, as of end of the third quarter, expanded to 68.4% and churn rate fell to as low as 1.2%.

For mobile resale business as we focused our efforts on subscriber retention, rather than new acquisitions in the third quarter, handset sales fell and there was a net reduction of 46,000 subscribers, resulting in a 15.3% quarter over quarter fall in the revenue. However, share of 3G subscribers increased to 26.2%.

For the fixed line telephony business mobile on-net discount and VoIP substitution continued to reduce their traffic volume, and so the revenue fell 5.5% year on year and 4.5% quarter over quarter.

Due to competitive pricing packages KT has focused on caring for the existing customers. And has responded to the other players targeting the market with VoIP through a differentiated approach utilizing our service over IP. We will respond to the market in a flexible manner when VoIP number portability is introduced, and further strengthen the sales of our bundled products.

Next is on MegaTV, suspension on TM activities and Megapass sales has subdued the growth of trajectory of subscribers. As a result, MegaTV subscriber number currently stands at 810,000 as at end of September.

Subscription to Megapass bundled product has increased and 208,000 or 35% of MegaTV subscribers have taken up bundled products. Conversion rate from three-month free trial to paid subscription has increased continuously to the 80% level, percentage of people buying contents for a fee, as well as number of purchases, are continuously increasing.

Currently, the number of MegaTV subs falls far below the original target, due to a suspension on TM, Megapass sales and delay in real time broadcasting. But, we expect subscriber acquisition will gain momentum in the middle of November with the start of the real time broadcast.

On WiBro, with the introduction of mandatory contract period, the intention of which was to secure prime customers, up to the third quarter there was a temporary net reduction of subscribers. But, from October, the trend has switched to a net addition trend.

According to a market research, with the expansion of coverage to 19 metropolitan cities, customer satisfaction has increased significantly. Also we are seeing higher penetration of Netbook's, and so we expect higher sales of bundled packages of Netbook and WiBro.

By the end of the year we intend to conduct coverage optimization in Seoul and 19 metropolitan cities. And we'll also expand hot zones in major cities and Porhung and two other metropolitan cities.

Next is on bundled product, subscription to variety of DPS products has increased up to the third quarter and as a result, subscription of bundled products increased 92% over the second quarter -- compared to the second quarter and the subs to bundled products currently stands at 1,330,000.

With the launch of some additional bundled products in July we now have a somewhat complete line up of bundled packages, and have secured ample edge, in terms of the product quality and pricing vis-à-vis the competitors. There will be immediate decline in revenue due to bundling discounts but with the lock-in effect, churn has improved significantly compared to a single standalone product so we expect continuous decline in expenses.

This has been the business performance highlight for the third quarter of 2008. The third quarter has been somewhat unsettling, both internally and externally, and investment sentiment also has been very much stifled.

In the meanwhile, KT has strengthened its internal oversight, continued to save costs and endeavored to make certain that the strategic businesses, such as, IPTV, are undertaken without bumps along the way. We will do our utmost to achieve the annual guidance in the remaining fourth quarter.

We will now take any questions that you may have.

(Interpreted) The Q&A session will begin (Operator Instructions). In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant.

The first question will be provided by Kim Hongseek from NH Investment Security. The following question will be presented by Josh Bae from UBS. Please go ahead, Mr. Kim.

(Interpreted) Yes, I have two questions the first is with respect to the broadcasting aspect. I understand that with respect to the monthly payment that you receive from the viewers that 30% of that payment needs to be allocated to the PPs, the program providers. If that is the case, under the calculation of IPTV ARPU, would there be any decline in the forecast or projection of the potential ARPU that you may be able to gain from IPTV?

Second question is with respect to the mobile handsets and using the mobile handset in your fixed line business sales activities, to either retain or acquire new subscribers, it seems like that strategy may not be as effective. So what my question is that, do you have any differentiated handset-related strategies in order to somehow retain or gain or acquire new subscribers?

(Interpreted) In your first question for IPTV when real time broadcasting is provided, compared to VoD IPTV, the ARPU level is going to be much higher and the pricing scheme is constructed in that way as well.

In terms of mobile handsets we do not have strategies that immediately relate to the mobile handset but, of course we will also cooperate with KTF. However, in terms of fixed line services, more specifically the SoIP, we do have high end, middle end and low end handsets, through which we will differentiate ourselves against the competitors.

(Interpreted) The next question will be provided by Josh Bae from UBS. The following question will be presented by [Yang Chung-Ang] from Han Kook Investment Securities. Please go ahead, Mr. Bae.

Yes, thank you for the opportunity. My first question is on dividends. If I remember correctly, KT had committed to returning at least 50% of your net profit to shareholders. But looking at the earnings trend, it seems 50% may not be enough to sustain the 2007 EPS level of 2001. Could you please share with us if we could expect the 2007 dividend levels to be sustained or if we should expect just 50% of your net profit?

The second question is regarding WiBro. We have seen some contradicting news flow on whether KT would offer voiceover WiBro. Could you please share with us what the management's view on this is?

(Interpreted) On your first question, regarding dividend payout, KT once again is fully committed to paying out in excess of 50% of our net income. Considering the current circumstances in the financial market, at this point it's too premature for us to provide you with the definitive answer regarding the dividend of year 2008. Once we have decision by the Board of Directors meeting then we will notify you of the specifics.

Your second question, regarding voiceover WiBro, yes, it is true that KT has developed a technology called VCC, Voice Call Continuum, which allows the voice to be carried over the WiBro, but we haven't made any confirmed decision on this direction.

To explain in a bit more detail, in the wireless data WiBro voice is a value-added service on top of that wireless data services. So the voice service will, of course, enhance the convenience of the users. However, there are many aspects that need to be considered. Therefore we have not yet come to a final decision.

(Interpreted) The next question will be provided by [Yang Chung-Ang] from Han Kook Investment Securities. The following question will be presented by Chul Hyun Hwang from Shinhan Investment Security. Please go ahead, Mr. Yang.

(Interpreted) I have two questions. First, regarding CapEx, up to the third quarter I understand that you have spent about KRW1.5 trillion in terms of CapEx spending, what is that number on an annual basis? And for next year, would this number increase or decrease; so, could you please paint a picture with respect to the trend going forward?

The second question is with relation to the labor cost. How do you make projections for the labor cost for this year? And, I understand that a wage negotiation is undergoing, can you tell us about that? And also, according to the presentation materials, the headcount is supposed to have been reduced. So, to what extent or how much was there a reduction in the headcount?

(Interpreted) On an annual basis, CapEx number is not going to be that different from last year's number. We have set the CapEx plan, and an actual spending or execution of that plan we had tried to reduce the amount. So this year's CapEx number is going to be -- spend is going to be quite similar to that of last year.

In terms of next year's CapEx, because we are at the stage of writing up the business plan at this point, I cannot provide you with the specific number. However, from a mid to long-term perspective, the massive investment of investment that was required for telephony and dedicated lease lines have already been made, so we expect some reduction in the CapEx.

However, on the other hand, we expect investments for the growth engine, or the new business engine, such as the IPTV etc, and also for all IP we expect also investment in the FTT age. So, in terms of the total amount of CapEx there is not going to be a big difference.

In terms of our projections for labor cost the wage negotiations have started in the month of September so, it's ongoing. So at this point it's difficult to provide you with the specifics. However, we fully understand the concerns of the investors and we are trying hard to respond to those concerns.

In terms of number of headcount, in the second quarter the number was 36,755 and in the third quarter it was 35,869 so, a reduction by 890.

(Interpreted) The next question will be provided by Chul Hyun Hwang from Shinhan Investment Security. The following question will be presented by Lee [Dong-Seob] from [De-Sheng] Investment Security. Please go ahead Mr. Hwang.

(Interpreted) I have two questions. The first, I understand that you do have some VoIP subscribers. Can you give us a breakdown between the business customers and residential customers, as well as the revenue that's incurred from the VoIP subs?

And also, in terms of your subscriber target, combining both the VoIP and PSTN, I understand that your annual target is set at 20m but what do you feel as the minimum requirement that you would need to attain?

And second question is on KT capital. There is some rumor of capital increase or capital injection to KT capital. I would like to understand the management's position on this issue.

(Interpreted) Thank you for the good questions. I'll answer the second one first. Currently, due to the global financial crisis, as well as financial difficulties that have hit the Korean local domestic market, we fully understand that there exists concerns relating to Korea's domestic capital industry.

To give you the gist first, at this point, KT capital has no problem whatsoever with respect to liquidity. And also there were no considerations whatsoever of potential capital increases for emergency injection of capital to relief of liquidity crisis.

When the company was originally established, we felt that after a certain period had lapsed, in order to expand the business, the plan did include a capital increase. However, in view of the current financial market situation and the business operations of KT capital, the judgment and decision has been made that capital increase will not be necessary or needed at this point in time.

In order to help the market feel less concerned about the KT capital, let me just provide you with some more information. If you look at the NPO ratio, which is below substandard, and also the short-term borrowing ratio that represent the asset quality and stability of the business, each of those indices are 0.6% and 12.4%, which is much superior to the industrial average.

Currently, project financing, construction PF is one of the concerning aspects and the market has voiced that concern. But, if you look at KT capital, out of its' total asset book, PF only accounts for 13%, and this is less than 50% of the guideline stipulated by FSS. And also, because the PF assets are well diversified the asset quality is very high and there is no problem with respect to the recovery of the receivables.

KT capital focuses on lease and installment financing and corporate financing. If you look at its' lease financing business line, it provides financing for the equipment that is manufactured by a global player. So, even if the client goes default, through the disposition of such equipment the company can very well recover the receivables. Therefore it does have a very stable business.

In terms of the subscriber number for KT's SoIP and VoIP, currently the subscriber number stands at 260,000 and the breakdown between household and corporate is 50/50.

In terms of our revenue number, because we are only at the beginning phase, I hope you understand that we won't be able to divulge that number. And also, in terms of our PSPN and SoIP, we stick to our target of 20m.

(Interpreted) The following question will be presented by Lee [Dong-Seob], from [De-Sheng] Security. The next question will be presented by [Park Sang Hyun] from SK Security. Please go ahead Mr. Lee.

(Interpreted). So I have two questions. First, I understand that you have gained significant FX-related loss, how are you responding to such risk? I understand that your exposure is low so are you planning to expand the exposure or are you trying to be more active against the exposure? Or, is your strategy to completely hedge against the FX-related risks?

Second question is it would be helpful if you could delineate three main factors that KT can really be proud of or can boast of to the market.

(Interpreted). Regarding the FX exposure, foreign currency denominated bond, the total amount, is KRW1.98b -- excuse me, KRW1.98b. And 68% of that is hedged, meaning KRW1.35 is hedged. And the not-hedged portion is KRW630m. So as of end of September, the percentage of the amount hedged is 68%, and for October it's 70%. So it's -- we have taken a conservative approach in hedging.

If you look at our foreign currency exposures, these are all long-dated notes by 2015, 2016 and 2034. So at this point when the financial market is such volatile we do not have plans to hedge against these. But, going forward, if the financial market becomes more stable then we will gradually take hedging approaches.

Regarding the second question, because that is a very difficult question to tackle, let us think about it and I will come back to that later on.

I am sorry, but I will talk about the important three factors that we can really boast of.

The first is a shareholder focused or shareholder oriented business management. Since the privatization of our Company we have been very much committed to the shareholder return policy and dividend policy of in excess of 50% of our net income.

And, number two, we are a telecom Company that has all different types of telecom products, meaning we provide PSTN, Mobile, WiBro, IPTV. So in the coming age of convergence we can very effectively provide bundled services. And we have the competitive edge to respond to the rising needs of the market.

We not only have a variety of products that we can offer. We also have very much -- very extensive subscriber base, comprising PSTN subs, Mobile and WiBro subscribers. So we can implement strategies to expand on this existing subscriber base. And, with all IP initiative, we can not only enhance the quality of the telecommunication services, and also it will be made much easier for us to make use of our real state -- real estates and turn them into our assets.

(Interpreted). The next question will be provided by Park Sang Hyun from SK Security. The following question will be presented by Mitchell Kim from Morgan Stanley. Please go ahead, Mr. Park.

(Interpreted). I have two questions. The first is with respect to the declining LM revenue, it seems like that this trend is inevitable. You have also seen some reduction in your SoIP related revenue compared to the previous quarter. So I am wondering whether you have a counter measure to defend against the fall in the LM revenue.

Second, although there was already a question on labor cost, I would also like to add a follow on question. You mentioned that the labor cost has fallen because of the cut in the number of headcount and also freeze in the wage levels, but is there a further possibility for a reduction in the labor cost? For instance, from reassignment of the personnel's or movement of the personnel's to different departments or realignment of the sales organizations?

(Interpreted). First, the decline in LM can be explained by reduction in the number of fixed-line subscribers. And the mobile companies on-net discount, which triggers more traffic between mobile to mobile and people's habits of calling other people even when they're at home by using their mobile phones, and which all drives down the traffic.

In order to defend against the decline in the LM revenue, we will very much actively combine the broadband and fixed-line telephony service and offer that services to the subscribers. And, introduce nationwide single pricing plan or an on-net discount between the fixed and the mobile operators of a -- within a same group of companies.

In terms of the personnel rotation or replacement we, on a regular basis, rotate our employees. A certain portion of our employees are rotated within the Group basically from an existing department, when a new business department gets set, we replace that certain employee in that new business unit. In year 2006, the number of such employees or personnel's was 650, '07, the number was 540. Currently, around 500 people have been rotated or replaced.

This type of an attempt is not to reduce the labor cost per say but to enhance productivity, thereby driving up the top line. So KT will continuously engage in certain rotations and replacements of the employees.

(Interpreted). The following question will be provided by Mitchell Kim from Morgan Stanley. The next question will be presented by Jay Park from Samsung Security. Please go ahead Mr. Kim.

Yes, thank you. I have two questions. The first one is on your operating profit trends. Over the last several years, every year we have seen operating profit decline. And a couple of years back we thought that, I think management has also expressed that, by 2009 we should see better improvement on operating profit, that it's implying operating profit growth.

But with the way it stands right now it doesn't look like we're going to see much of improvement, operating profit improvement. In fact, we could potentially see operating profit decline again next year, based on all the operating trends.

Can you tell us if there are any reasons why you believe operating profit will turn around next year, grow from current year? And if you could be a little more specific about the areas where you do think that you have control over, and what you need to execute, that will be very helpful for us to understand next year's picture.

And, secondly, on your bundling strategy, we've been talking about bundling strategy for over probably 12 months now. And -- but we haven't really seen any positive impact coming from your ability to bundle triple-play and even quadruple-play if you include KTF.

What is your thought on why it hasn't been successful? And what needs to happen in order for that bundling to be successful? And how -- how is that going to show in terms of profitability? Where do you think it's going to show in terms of cost savings or additional revenues? I would appreciate your answers on both questions. Thank you.

(Interpreted). Thank you very much for such good questions. I would like to answer the second question, the bundling question, first.

Up to the third quarter we felt that the bundle -- bundled product market is not going to be too much facilitated, so we were not as active in the marketing aspect. However, at this point, we are of a position that we will very actively make known our bundling product to our customers.

And we are currently very much focused on expanding our subscriber base through such efforts, especially with the introduction of a Voice-over IP number portability. And, with emerging competition, we would very actively conduct bundling marketing against our existing group of customers or subscribers.

As of end of September, total number of bundling service subscribers is 1,328m. But, because we are only at the initial stage we can't conduct any specific analysis, but we have seen that this bundled -- bundling brings about lock-in effect and significantly reduces churn rates.

In the broadband internet we have seen about 1.7 time's improvement in -- improvement in the churn rate. And in the mobile we have seen about three times improvement in terms of churns.

In terms of acquisition of new customers, I do agree that it did not have a significant impact. But we are observing from the market that when subscribers choose a certain individual standalone services the level of influence of bundling services is increasing.

It is true that, because of the bundling discounts, to some extent there is reduction in the revenue. However, going forward, with a more number of bundling subscribers, there will be a very effective defense against churn. And also there will be churn-in effects as well, which will bring about increases in revenue. And through cost reduction it could also contribute to profitability, so we expect positive impact going forward.

On your first question, on OP projections, regarding the forecast or projections for 2009, because at this point we are undergoing business planning so we will be able to provide you with the specifics beginning of next year.

Now with the second term privatized Company at KT, we -- our intention was to firmly establish the fundamentals, and also convert our business approach to one that focuses more on the customers. And, based on our fundamentals, we wanted to go over the KRW12 trillion revenue mark in year 2008.

And the telephony, telephony revenue, including the LM and PSTN, which has high profitability for KT, has experienced reduction in traffic because of the on-net discount. And so that has driven the revenue down slightly. So we believe that we -- our revenue is going to be slightly less than KRW12 trillion. As you know, telephony is a business area where we post high operating profit levels. But, because of the reduction in the revenues, the OP also has fallen.

And, in 2009, with the introduction of VoIP number portability, we will -- we expect attrition of PSTN subscribers, and with the on-net discount the reduction in traffic is also going to continue. However, we will respond to such difficulties by coming up with a variety of a pricing plans and will very actively defend against such trends.

In terms of the expenses, of course the marketing expense will change depending on the competitive landscape. But we will try to control it below the level of last year. And we are continuously putting in efforts to enhance the expense structure, cost structure.

The fall in the PSTN revenue, we are trying to offset that with our businesses such as MegaTV, SoIP and WiBro. And also in our internet-related businesses, as well as the real estate business. And we believe that those aspects will contribute to operating profit. And, therefore, we could expect improvement in OP.

(Interpreted). The next question will be provided by Jay Park from Samsung Security. The following question will be presented by [Simon Mao] from [Secontie Capital]. Please go ahead, Mr. Park.

(Interpreted). Yes, I have two questions. In order to defend against the fall in the PSTN revenue, you mentioned that you will focus on bundling as well as discount price plans. And I would like to know where you focus more on?

It seems like your pricing schemes of limitless calls and nationwide single --- nationwide single pricing, it seems very competitive. So I would like to know the percentage of subscribers who have actually taken up these schemes? And what is the impact of such a pricing plan on your ARPU level?

Second question is regarding your resale. On a quarter-on-quarter basis, new subs for resale's have fell by -- have fallen by 13% and there has also been certain changes in terms of the product cost. I would like to understand your future strategies regarding your resale business.

(Interpreted). The overall increase in the subscribers using these pricing plans would have increased by -- they increased by 337,000. And, as of month -- as of end of September, number of subscribers using unlimited pricing plan stands at 288,000. Subscribers using single pricing platform is 15,000 and people using fixed or flat rate pricing plan is 34,000.

In terms of the impact of such pricing plans, of course the customers they enjoy discount. But in terms of the ARPU aspect, because we have only begun it recently we do not have any definitive numbers.

From the Company's view, the subscribers using the limitless rate plan, or very price-centric rate plans, compared to subscribers who don't, they post lower level of churn rate. So they do -- and also these rate plans do contribute to the increases of our new subscribers as well.

In terms of our strategy for '08 and '09, because the mobile market has widely adopted the mandatory contract system, based on mandatory contract and bundling services, we will focus our marketing efforts in maintaining and retaining our existing customer base, subscriber base.

KT is focusing on securing long-term subscribers. And we will expand our mandatory contract based subscribers. So we will try to break free from the vicious circle of new subscription churn, new subscription and churn. We will focus more the fundamentals of the Company's business management.

The handset revenue and the product cost is all related to new subscribers. And the revenue for new -- revenue per new subscriber and the handset cost have all fallen to about the same level.

(Interpreted). The following question will be provided by Simon Mao from Secontie Capital. The next question will be presented by, [Sung Jae Chung] from [Newgen] Investment Security. Please go ahead, Mr. Mow.

I have two questions. In the past few years we have seen the fourth quarter operating margin lower than the first three quarters. And was that pattern repetitive in this year? And what's the Company's guidance on the fourth quarter operating margin or EBIT margin?

My second question. I missed the number of the total amount of the interest bearing debt in foreign currency. Could you repeat that for me again? Thanks.

(Interpreted). Yes, in the fourth quarter, usually because of the depreciation and year-end related expenses, operating profit is usually lower compared to the previous three quarters. We will continue to save costs that are non-related to the revenue and we'll do our best to attain KRW1.2 trillion of our OP target.

With regards to your second question on foreign currency interest bearing debt, the total amount is KRW1.98b, which breaks down to $1.86b of dollar-denominated debt and JPY12.5b. And, of that amount, 1.35b is hedged.

(Interpreted). The next question will be provided by Sung Jae Chung from Newgen Investment Security. The following question will be presented by Park Jong Soo from Hanwha Securities. Please go ahead, Mr. Sung.

(Interpreted). I understand that in the third quarter there had been an equity method loss. Can you give us a breakdown as to the equity method losses. And is this in any way related to the reduction in the number of headcount. And can we expect continuous trend in the headcount reduction towards direction of headcount reduction?

Second question is that I understand that there was already a question and answer on dividend payout ratio. So, then should we be open to the possibility that the absolute amount of dividend that is paid out can decrease?

(Interpreted). Yes, as I have previously mentioned there is no change with respect to the principle of sticking to paying out more than 50% of our net income. But with respect to the other details at this point we do not have a definitive answer.

In terms of equity method loss or gains, in equity method calculations KTF takes up the biggest portion. And KTF had turned and recorded in black in terms of its net income in the third quarter. So the amount of equity method loss has reduced. But the reason why we've seen some reduction in the equity method gains is because overall the subsidiaries profits have been lower.

For KTF the equity method calculations that was reflected is KRW14.4b, Sidus [78], KRW16.6b and KT Linkus is KRW5b. If you need more specific numbers please contact our IR team.

And I would just like to say that there is no relation or relevance between the equity method losses or number of -- reduction in the number of headcount.

(Interpreted). The following question will be provided by Park Jong Soo from Hanwha Securities. Please go ahead Mr. Park.

(Interpreted). I have two questions. In terms of the market share for your broadband business, is there room for improvement in market share? And are you trying to --? So is your strategy to sustain the current level number of subscribers or are you seeking to expand the number of subscribers?

And, also, regarding your competitors, including SK Broadband, if they start a very aggressive marketing by giving the handsets free of charge then is KT planning also to provide the low end handsets at free of charge?

(Interpreted). Regarding your first question on broadband, last September KT had been ordered with a stay on its sales activities. And in order to minimize the impact of that suspension we are focused on maintaining the market share and expanding the subscriber base.

In terms of our measures, we will provide variety of bundling services, like DPS and TPS, and so that we can strengthen the retention of our subscribers. We will also very actively promote our bundling services to new subscribers. And to within the contracted period we will provide the new subscribers with the highest possible discount, thereby really putting an effort to expand our subscriber base.

Regarding your second question, yes, we do foresee that the competition, VoIP competition, in the broadband market is going to be very much fierce. Therefore, KT does have plans to provide low end terminals or handsets and also provide high end handsets with variety of features.

(Interpreted). The following question will be presented by Sung Jae Chung from Newgen Investment Securities. Please go ahead sir.

(Interpreted). You've mentioned previously that next year you will be very aggressively using bundling to defend the market. So then, by the end of next year, what do you foresee as the percentage of subscribers using bundling services?

And, also, I believe that with sales of more bundled products, this, of course will contribute to retention of your subscribers, but will drive down your ARPU. So can you give us an assessment on that?

(Interpreted). On your first question, I would like to ask for your understanding that at this point we're in the process of setting the targets and plans for bundled services for next year. So I won't be able to give you any specifics.

But our experience with bundling is that, with bundled product, churn rates have significantly fallen. Of course there is an immediate effect of some decline in the revenue, but because bundling services increases the amount of a number of new subscribers this eventually contributes to the improvement of profitability as well as increases in revenue.

In terms of the specific ARPU assessment, it is too premature to say anything.

(Interpreted). Currently there are no participants who have questions. (Operator Instructions). The following question will be provided by Jeff Kahng from Credit Suisse. Please go ahead, sir.

(Interpreted). Just one question. If you look at your non-operating income line item, there is a valuation of derivatives in the amount of KRW225.9b. Can you explain what this is?

(Interpreted). The valuation gain of derivatives comprises of gains from currency swap in the amount of 29.9 -- KRW29.5b, excuse me. And also interest rate currency swap of KRW177.7b.

(Interpreted). The following question will be provided by [Pion Sen Jay] from [Taeoo Security]. Please go ahead, sir.

(Interpreted). Just a very short question. With the closing down of some of the KT Plazas as of October 1, I understand that there are some employees who are going to do honorary retirement. And I believe that there is going to be some cost that's incurred in the fourth quarter relating to those early or honorary retirement. Can you tell us what that figure would be?

(Interpreted). Yes, at this point, the early retirement process for a certain number of people are currently undergoing. So we will provide you with the specifics once that process is complete.

(Interpreted). The following question will be provided by [Sam Min] from BNP Paribas. Please go ahead, sir. The next question will be provided by [Lee Nam Kheng] from HMC Investment Security. Please go ahead, sir.

Sure, hi. [Just] couple of housekeeping items. I was wondering if you could break down your cash and cash equivalents, specifically if -- what portion of that is marketable securities.

Also, could you also provide us with the -- your tax rate assumption for the fourth quarter as well as next year? Thank you.

(Interpreted). The total cash and cash equivalent is KRW1,120.7b. And in short-term investment asset is KRW241.3b.

As of end of the third quarter, we do not expect any changes in the effective corporate tax rate. It will somewhere around 20%.

(Interpreted). The last question will be presented by [Lee Nam Kheng] from HMC Investment Security. Please go ahead, Mr. Lee.

(Interpreted). Regarding your SoIP strategy and with respect to the discount rate planned, after the number portability is introduced, are you expecting any changes to your rate plan vis-a-vis the on-net calls or free call rate schemes?

And, also, once the real time broadcasting is provided, how would your pricing plan have a differentiation against your competitors and other cable TV operators?

(Interpreted). On SoIP, we do not have, yet, have any specific rate-related discount plans, such as on-net or any of -- any of such.

In terms of IPTV rate, we will not compete against the SO's we will compete based on quality. And, when we set the IPTV pricing plan or rate plan, we will consider and we will reflect the channel sourcing as well. We have plans to introduce the standard type plan as well as more high-end type plans.

Thank you very much for all of your questions, and also for your interest. My thanks go to all of you for joining us today at our KT's 2008 earnings 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.