KT Corp (KT) 2009 Q4 法說會逐字稿

(Interpreted). Good morning and good evening. First of all, thank you all for joining this conference call and now we will begin the conference of the 2009 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 2009 fourth quarter preliminary earnings results by KT CFO, Mr. Yeon-Hak Kim.

(Interpreted). Good afternoon. This is Yeon-Hak Kim, CFO of KT. First of all, I wish you all a Happy New Year and hope that 2010 will bring you good tidings.

You perhaps share with us the view that there have been many changes at KT last year. Since Mr. Lee Seok Chae took over as CEO at the beginning of 2009, KT successfully concluded the merger with its mobile subsidiary, to take leadership in the Fixed-Mobile convergence area and is now beginning to see its efforts bear fruit.

KT was the first carrier to launch the 3W-based FMC service in the domestic market and introduce the iPhone to further fuel the wireless data business. We are changing the competition paradigm, shifting away from the consuming battle to win market share through subsidies to competing with quality. As recent examples demonstrate, FMC service has merits beyond convenience and low charges to become the driver of our customer value innovation in the form of enhanced productivity.

Meanwhile, internally KT has declared 'Olleh' management and has persistently implemented innovations across all areas of management and carried out large scale ERP, resulting in downsizing by nearly 6,000 employees in order to save costs and boost corporate productivity. Such change and innovation in KT's business and management is only the prelude. This year we are committed to securing growth momentum by solidifying its lead in the wireless data market and expanding our corporate business and new growth businesses such as IPTV.

Now I'd like to announce our 2009 fourth quarter earnings. This conference call is being cast on the web, so please feel free to listen in through our website. As in the previous quarter we will provide data based on guidance for the sake of easy comparison.

Our revenue posted KRW4.7476 trillion, dropping by 1.5% QOQ due to a fall in sales of merchandise although service revenue mainly from the wireless data business increased by 0.7%. On YOY terms it is a 4.8% increase. The cumulative revenue over four quarters is KRW18.9558 trillion or 99.8% of 2009's guidance of KRW19 trillion.

Operating income is negative by KRW549.5b as large scale ERP was figured in as a one-off item for the quarter. Excluding ERP operating income stands at KRW326.9b, a 25.9% increase YOY. And the '09 cumulative number is KRW1.82 trillion, overachieving the KRW1.8 trillion guidance set forth at the beginning of the year.

As for net income, a net loss by KRW448.3b (sic - see documentation) was recorded as a result of the decline in operating income caused by the large ERP. The cumulative '09 net income excluding ERP is KRW1.2694 trillion. Meanwhile CapEx is KRW1.4716 trillion and the cumulative CapEx over four quarters is KRW2.9587 trillion.

Next we'll move on to individual business areas. First is the Wireless business. Voice revenue increased by 2.2% QOQ and 2.8% YOY to post KRW1.731 trillion (sic - see documentation) thanks to the growth of subscriber base offsetting sales discounts that were offered. Data revenue jumped by 5.4% QOQ and 17.9% YOY to reach KRW319.1b owing to the increase in subscribers to the monthly flat rate plan and growth in data usage.

The wireless data market spurred on by the introduction of the iPhone is predicted to show explosive growth. To meet this demand, KT this year plans to increase the share of smartphones in the new handset line-up to 20% or more and enhance network coverage by expanding WiBro service areas to cover 84 more cities and adding 14,000 more WiFi zones known as Qook & Show zones. Meanwhile, handset sales fell by 10.3% QOQ due to a decline in handset output caused by reduction in new subscribers.

Next I'd like to move on to the Telephony business. Telephony revenues slipped by 6.3% QOQ and 10.3% YOY because of the decline in PSTN subscribers and call traffic. It recorded KRW1.1508 trillion. Of this VoIP revenue is KRW81.4b, an upward surge by 243% YOY. The total number of VoIP subscribers as of the end of Q4 stood at 1.701m after a net increase by 1.373m throughout '09.

As it did last year, KT will continue to strengthen its VoIP business this year by promoting the Internet phone as a second phone to the PSTN and enhancing device competitiveness. We will also release additional competitive PSTN calling plans to maintain our strong hold on the 20m fixed-line subscriber base. Furthermore, we will work on steadily lowering the churn rate by means of bundling with strategic products such as wireless telephone and Internet.

Next is the Internet business. Internet access revenue amounted to KRW505.1b, slightly down by 1.5% QOQ and 4.2% YOY due to diminished broadband revenue brought on by the increase in discounts offered for our bundled products and long term subscribers. Internet application revenue leaped by 14% QOQ and 11.6% YOY to reach KRW143.4b, thanks to the growth in IPTV and IDC revenues.

Now we'll take a look at each of the major services. As for the number of Internet subscribers we see the same trend of the previous quarter showing a net increase to reach 6.953m with net adds 135,000 from Q3. A subscriber base of 7m is now just around the corner. However, increase in discounts for our bundled products and long term subscription pushed revenue down by 3%.

Since the Internet comprises the core of household based ICT products, we will continue with our efforts to lower churn rates and consolidate the subscriber base by means of bundled products and contract discounts. In addition we will endeavor to take the lead in the all-IP and convergence trend by increasing nationwide FTTH coverage to offer a high quality service and stay a step ahead of the competition.

For Qook TV the number of subscribers grew by 255,000 from the previous quarter to amount to 1.172m. Owing to this increase of subscribers and growth in ARPU, revenue jumped by 32.6% QOQ and 89% YOY to reach KRW33.3b. Throughout last year we funneled in efforts to enhance Qook TV's product competitiveness by providing more channels and expanding the product line-up. This year, we plan on implementing various marketing strategies to meet our target of a minimum of 2m subscribers and secure a foundation for growth based on improved profitability.

Operating expense increased by 20.2% QOQ to stand at KRW5.2971 trillion due to the execution of a special ERP that added a one-time expense item for the quarter amounting to KRW876.4b. To take a closer look into specifically the marketing expense, it fell by 17.4% QOQ to remain at KRW669.0b, thanks to efficient spending despite the release of the iPhone and the trend towards larger bundled product groups.

That wraps up the announcement on earnings for Q4 2009. I'd like to take a moment to brief you on 2010 guidance.

In 2010 KT will strive to wrap up the process for change and innovation as a new and improved organization and pursue its convergence and smart growth strategy to achieve a revenue target of KRW19.5 trillion or more. In addition in order to respond to paradigm shifts in the telecom market such as explosive growth of the wireless data market, expansion of FMC and changes in the corporate ICT market, we plan our CapEx to be KRW3.2 trillion, the same as last year's guidance.

Please note that for this year we decided not to announce guidance on profit so that we will be able to react more flexibly to increasingly cutthroat competition and work to enhance value for both the Company and shareholders. So we cordially ask for your understanding. Now having said that, KT will do its utmost to consistently enlarge profits by continuing to refrain from wasteful subsidy competition and rather concentrate resources in new growth businesses such as smartphones and IPTV.

For further earnings details please refer to the preliminary earnings commentary that we have circulated. This concludes the Q4 earnings announcement. Now we will have a Q&A session to address any questions that you may have.

(Interpreted). Now 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 Hong-shik Kim from NH Securities and the next question will be provided by John Kim from Morgan Stanley. Mr. Kim, please go ahead with your question.

(Interpreted). My name is Hong-shik Kim from NH Securities. I have two questions for KT. Recently there has been high anticipation and expectations for enhanced ARPU for telecom users. Nonetheless this is a sector in which regulation is quite strict, nonetheless. So my questions are as follows. Number one, from the timeframe 2010 to 2011, how does KT anticipate future ARPU growth?

And second, there is increased interest in the WiFi business, but carriers have to risk reductions in the revenue of existing telecom services. And you also made known this commitment to provide this service to the general subscribers. Given this how do you plan to deal with this risk of reduced revenues and specifically what are your strategies for calling plans or usage plans?

(Interpreted). Yes, I'd like to answer the first question first. We do have internal targets formulated for this particular question, but we're not able to release any specific figures on our targeted ARPU growth. We ask for your understanding.

Having said that, at the end of last year, we mentioned the target of 1.8m smartphone users. So this has greatly contributed to enhance ARPU. Since the penetration of smartphone usage is likely to further grow this year, we anticipate ARPU growth to be even stronger throughout 2011. And as you have cited the Voice revenue may to a certain extent remain flat or even record negative numbers. But that could be easily offset by the phenomenal growth in Wireless business, which is anticipated to reach about KRW400b.

So given these numbers I think you can do the math yourself and pretty much figure out what our plans in the pipeline are. And as of the end of this year we anticipate smartphone subscribers to reach about 4m. So this number will even be greater throughout 2011.

Now to move on to your second question, yes, with the increase of usage of WiFi networks, there could be some downside or cannibalization effect of the existing wireless data market. But in a vast market research has shown to some extent ironically that this has in fact served to grow the 3G network and usage of the wireless data services. So this can be facilitated by and also for smartphones and feature phones. So in the end we anticipate data ARPU to grow rather than decline from this development.

So far we have established about 13,000 WiFi zones across the nation and as mentioned earlier we plan to install another 14,000 requiring a minimal KRW40b from CapEx, which is a relatively small amount of investment for these additional WiFi zones. On top of that we expect to release 10 new different types of smartphones and 15 additional feature phones with FMC capability incorporated in it. So together in the new phone line-up there are 25 that will be utilizing the WiFi zones and network.

And as for your other question on calling plans, yes, in the past as you well know there was a WiFi only service plan, that was the Nespot only service plan. The subscriber base for that particular service was about 300,000 to 400,000 and it failed to grow to a significant level beyond that. So we recognized that this was a limited business area, that there were restraints for further growth, so we did away with that overall strategy.

Going forward we plan on initiating new plans that combines the FMC features plus the feature phone element as demonstrated by the plan for iPhones. So in short we will go -- do away with the WiFi only calling plans and come up with a mixture of WiFi, WCDMA and WiBro that works to maximize the eventual usage of all of our networks and come up with effective plans for our subscribers.

(Interpreted). The next question will be provided by Josh Bae from UBS and the following question will be provided [Jong-in Yang] from Heungkuk Securities. Mr. Bae, please go ahead with your question.

Yes, thank you for the opportunity. I have two questions. The first is on the press report that the Ministry of Knowledge Economy is considering lowering wireless data tariffs for smartphones in order to boost the smartphone take-up. I think there were also mentions of introduction of 'all you can eat' tariff plans for Wireless Data. If you could share with us your thoughts on this that would be great. Will there be elasticity of demand so that total revenue increases as the tariff is lowered? Also what will be the implications on your CapEx plans?

The second question is on your profit guidance. I think the management's commitment to deliver on the OP guidance provided comfort to investors last year. I understand that there are some competitive uncertainties. But if you could help us understand what has changed this year versus last year that made you decide that not giving profit guidance is better for shareholders. Thank you.

(Interpreted). Yes, as for your first question on the press report released by the Ministry of Knowledge and Economy I myself heard this news for the first time just this morning. But the Ministry of Knowledge and Economy is not the authority that is in charge of regulating tariff plans of the mobile carriers. That is why because of this press release there will not be any changes made to KT's plans at least for the time being.

There was a dramatic large scale tariff cut throughout last year. So given that we do not anticipate any issues to arise this year, that can incur regulatory risk on the part of a telecom carrier like us. But having said that, we will introduce new types of more efficient tariff plans for the sake of business growth. But the concern that you've just displayed we are not incorporating that into our plans. So that is why for the CapEx this will have any -- this will have little if any impact on CapEx.

Concerning your second question, we have grappled with this issue of whether or not to disclose the guidance on profit and we have spent a lot of time debating over this topic. And the conclusion that we reached was that because of previous patterns in releasing this figure, the competition was able to calculate by crunching in some numbers our marketing budget and expenses. And this in fact contributed to the competition to play with us to their favor. That is why we decided not to disclose the figures and we ask for understanding. This is all intended for us to respond more flexibly and favorably to the competition environment.

However, let it be clearly noted that although we are not disclosing the profit guidance, that is not to say that we will engage in any consuming and wasteful competition by offering subsidies to increase market share. Please let us be clear on that. As we did in the second quarter of '09, we did not join in, in the race to compete with offering subsidies to our subscribers. We will continue with our existing platform of competing on the name of profitability and quality and there will be no changes to that overarching strategy. And we have no intention of acquiring new subscribers with this wasteful type of competition.

And as mentioned earlier we are targeting releases of 1.8m new smartphones this year. Smartphones by nature require a higher level of subsidy payment to our subscribers compared to the average feature phone. But this excess number of subsidies per device can easily be offset by the increase in ARPU from our subscribers. And only when that is justified we will provide the subsidies for our subscribers. Again we do not intend in any way to engage in wasteful competition by offering subsidies to increase market share.

And KT fully understands the market's expectations of profits of KT. So although we do not disclose any profit related guidance figures this year we will do our utmost to pursue, to continue to pursue management innovation and cost cutting measures. And for sure this year's guidance on profit will exceed that of last year.

(Interpreted). The next question will be presented by [Jong-in Yang] from Heungkuk Securities. And the following question will be presented by Jong Hwa Sung of Meritz Securities. Mr. Yang please go ahead with your question.

(Interpreted). Yes, thank you. I have two questions. The first pertains to iPhone which has been released in the market two months ago. I have questions concerning the subscriber profile which can be broken down into four large categories.

First, what is the number of subscribers? Second, what is your ARPU? Third, what is the relative ARPU contribution broken down by Data and Voice services, although the plan is a flat rate? And fourth, there is a contract tariff rate given to the subscribers. What is the total amount of usage that an average subscriber uses that exceeds the contract plan? For example, if a subscriber has signed on to a KRW45,000 usage plan, what does that subscriber actually use in terms of the usage amount in numbers, in won figures?

And second, according to a recent KT released data, your corporate businesses target as of last year were KRW3.3 trillion and your forecasted target for year 2012 was around KRW5 trillion. Do you have any target numbers for 2010?

And as a follow up I've heard news about your overseas projects. Could you please elaborate a bit further on that? And also update us on your Smart strategy.

(Interpreted). Yes, I will answer your question on iPhone and concerning your question on the corporate business, Mr. [Byun Han Lee] of the Corporate Business division will answer that.

As for iPhones it has been released late November and the total number of handset sales is about 300,000. And it has a very short history of barely two months. So we have not accumulated sufficient data to conduct a profile analysis on the subscribers. We believe that we need at least accumulated data of three to four months to do some sort of profile analysis. But for now we'd like to give you some initial or preliminary data.

Yes, to give you a broad breakdown, the regular tariff plans account for about 6%. And those who subscribe to our Slim plan that has an amount of about KRW35,000 is about 10% and the remainder is comprised of plans with KRW45,000. So the average ARPU is KRW50,000 which is a relatively high figure. We anticipate that this number could be higher given that there is more revenue that could be generated from downloads of applications. But we have not done the in-depth profile analysis at this point so we're not able to disclose any further details other than this.

And as for Data contributions, that exceeds 35%.

And your follow-up question on the amount exceeding the contract amount is about 10%.

(Interpreted). Yes, I'd like to answer your second question. My name is [Byun Han Lee] in charge of the Corporate Strategy Division. You asked about our target for 2010 concerning the Corporate business. Our number was KRW3.3 trillion in '09 and based on our Smart strategy this number is expected to increased by KRW300b in 2010.

Yes, you also asked about overseas projects. That particular portion is indeed a part of our overall Smart strategy. But we're not able to disclose any specific details on this. We are working to moot out some plans on certain sites outside of the country at this moment.

And you asked us about Smart strategy. Well this is intended to build upon KT's core competencies to grow our respective business areas. And we have made this plan more specific throughout '09 and we designated six large core areas to focus our energies into. And they include the enterprise, SMEs, building zones and green areas. And there have been accumulated some examples and cases of these particular strategies. And to cite some of them to you, it will be the Hyundai Heavy Industries, their WiBro project, the City Railway Authorities and also the Transcosmos outsourcing project from Tong Yang Group. The number of cases is likely to only increase throughout this year as well.

(Interpreted). The next question will be presented by from Jong Hwa Sung from Meritz Securities. And the following question will be presented by John Kim from Morgan Stanley. Mr. Sung please go ahead with your question.

(Interpreted). Yes, my name is Sung Jong Hwa from Meritz Securities. I have two questions. My first question pertains to smartphones. I actually had a question concerning iPhones but that was already answered in the previous question session. For Show Omnia phones I'd like to ask for detailed information on that, your subscription, subscribers. And as for the additional usage charges, what contribution does that make to the ARPU on a monthly basis? And what are some of the observations that you could share with us in terms of the sales trends involved with downloads or cumulative sales for instance?

And you also mentioned that the net adds expected for the smartphones this year is 1.8m subscribers. Could you please break this number down into specific handsets? For example, you plan to attract how many subscribers for Show Omnia and how many for other new product line smartphones?

And my second question pertains to the 4G technology. Recently the press has reported about the adoption of LTE 4G technology in Northern Europe. So in your view what is the more advanced or the more desirable technology for the domestic market, the LTE or WiBro? Which is more favorable in your position? And what are some of the notable differences that you would like to share with us? And do you have any immediate plans to bring up your -- any immediate plan to bring up the timing of the investment and your entrance into this new market?

(Interpreted). To answer your first question on Show Omnia, unfortunately the number of subscribers using Show Omnia is actually a lot smaller than the number of iPhone users. So given that, it's even difficult for us to give you any significant statistical analysis on Show Omnia users.

We differentiate those types of handsets in two different categories. One is iPhone and one is the mixture of the Show Omnia phones with some other FMC smartphones. The tariff plan for Show Omnia is the same as that for iPhones. But although the number of subscribers for Show Omnia phones is a lot smaller than iPhones, the ARPU is actually very similar.

Through our App Store users can access about 11,000 different kinds of contents and the volume and number of contents are increasing even as we speak. If you look at the usage profile as of January this year, about 20% of our users download some type of content from this Show App Store on a daily basis.

And second I'd like to ask for your cordial understanding in that we're not able to give you a precise breakdown of the smartphone sales targets. All-in-all for this year we have plans to add 45 new handset devices. 10 would be smartphones and 15 would be feature phones with WiFi service enabled functions. So altogether there will be 25 FMC-enabled phones.

We have some detailed plans for smartphones internally but we're not able to disclose those detailed figures to you because, first of all, it is difficult to predict the popularity of certain handsets over others when they are released in the market. And secondly, if we disclose these numbers in advance we will be in a difficult position to negotiate with the manufacturers. So we again ask for your cordial understanding.

And on your second question about 4G technology standards, at this point in time it is unclear what the technology standards are for the 4G networks. Even for 3G the [ITL] has authorized six different types of standards. So [ITL] again is likely to approve both LTE and WiBro. And from the standpoint of KT we are looking into both types of network technology, and WiBro, we are already servicing that. And when we are allocated the new frequency, will that be the LTE? That's a story that we should rule upon in a distant future so it's too early for us to comment on that. And as to which is better or more favorable for us, that again is too early to say at this point.

And even if we experience a phenomenal data explosion throughout this year let me assure you that KT has sufficient network capacity to accommodate the increasing use of wireless data. For 3G WCDMA we're able to accommodate four times the data traffic as now and even WiFi we will be increasing the network capacity by twofold than this year. And we also have plans to increase the WiBro service areas.

So even if say data traffic increases by twenty-fold we will be okay given our current network capacity for the next two to three years. And if you're allocated the new frequencies by the government the issue of which technology we will go with, well that this something that we'll have to dwell upon in the future but if data explosion happens in a greater scale than we had anticipated then the network upgrades will happen in a much earlier point in time. We'll have to wait and see how the situation transpires so we'll react flexibly and depending on the situation.

(Interpreted). The next question will be presented by John Kim from Morgan Stanley. And the following question will be presented by Stanley Yang from Nomura. Mr. Kim, please go ahead with your question.

Yes, thank you for the opportunity. My first question is on cost savings. Using your guidance version P&L your annual operating expense excluding labor, depreciation, handset and marketing cost decreased about KRW136b versus previous year. And I imagine part of this is due to your cost savings efforts. So keeping your original cost synergy goal that you provided to the market in mind, how much more do you think you'll be able to save this year versus '09?

And along with this can you also share the expected net labor-related cost savings post-restructuring for 2010?

Second question is regarding 2G/3G migration. How much in operating costs do you stand to save if you successfully achieve 100% migration of your subscriber base to 3G and terminate your services on 1.8GHz by June 2011? Is it possible for you to break down the potential savings on an annual basis by major categories? Thank you.

(Interpreted). To answer the second question first, if subscribers migrate from 2G to 3G if we shut down the 2G network altogether the annual savings projected is about KRW70b.

And you also asked about the post-merger synergy and cost savings effect. We answered initially earlier that in the first year we'll be able to save KRW197.9b in the first year followed by KRW240.5b the next year and KRW389.3b in the following year. About seven months have elapsed since the merger with KTF and the total amount of cost savings is about KRW81.7b. Now this can be broken down into the following categories, purchasing efficiency, integrated billing, savings on advertisement and efficient operations of the network. And for next year we expect to be able to save KRW240b and in this amount would include marketing and other PR expenses.

And to answer your question on labor-related costs, we mentioned at the outset that we anticipated savings about KRW500b over the course of five years. But late last year we've carried out large scale ERP resulting in a downsized organization by 600 former employees. Now this saving can be translated to about KRW450b or KRW460b in annualized terms. So in essence we can say that our target has already been reached.

When we disclosed to you our ideas on the post-merger synergy we did not back then incorporate the notion of the 6,000 employees subject to ERP. So we are at this present time conducting various types of analysis for cost synergies, ways to maximize that, after the downsizing by the 6,000. To cite some of the efforts we are working on right now, first is we're trying to formulate a plan that could minimize the outsourcing costs that could arise in the post-downsizing period because 6,000 persons have left our Company and we need to replace that with outsourcing personnel or with the existing KT personnel. We're trying to minimize the costs arising from there. That's plan number one.

And second, we want to make more efficient and effective our marketing portion, to save our marketing budget and expenses, by making more efficient the distribution structure as well as our commissions and fee structures. So to date -- previously when we made disclosures on these numbers we did not incorporate the 6,000, our ERP subjects, but at this current point in time we are working to formulate plans for more specific cost savings in the post-downsizing organization. And when necessary we will provide you with information and communicate with the market on the results of our plan and analysis.

If I may ask just one quick clarification. Regarding the potential KRW70b in cost savings from shutting down your CDMA network, does the KRW70b include spectrum amortization cost?

(Interpreted). No, that actually includes just the OpEx.

Thank you.

(Interpreted). The next question will be presented by Stanley Yang from Nomura. And the following question will be presented by Sean Lee from Citigroup. Mr. Yang, please go ahead with your question.

(Interpreted). Yes, thank you for this opportunity. My first question pertains to the Telephony business. Your earnings statement say that revenue on the Telephone business side fell by actually a whopping 10% in the fourth quarter on YoY terms. Is this a one-off decline for KT or is this an ongoing trend in the reduction of Telephone revenue and only the pace has been further accelerated in Q4?

And in 2009 it fell by KRW420b. In 2010 what are your predictions for the volume of decline in the telephone revenue?

And my second question pertains to the revenue guidance figure that you mentioned, the KRW19.5 trillion. This is actually KRW500b larger than last year's revenue guidance. Given that the revenue from the Telephone business is decreasing, this implies that you will have to make up for this decline in Telephone revenue from other sources in the volume of KRW800b to KRW900b. And you mentioned in your opening comment that wireless data will account for about KRW400b and from the corporate business about KRW300b.

When you say data here is it wireless data revenue increases coming from growth in ARPU with expanded smartphone usage? Is this wireless internet that you're talking about? Or what are some of the other sources that could be drawn in to offset the decline in the Telephone business revenue?

(Interpreted). I'd like to answer your question on the reduction in fourth quarter Telephone business revenue. The trend is actually steady and there aren't any dramatic changes to the trend in Telephone revenues in fourth quarter. This number might appear to be slightly higher than anticipated because of some miscalculations on the part of both us and KCC when figuring out the amount of reimbursement for universal services. So we are trying to correct that at this present moment. We are consulting with the authorities KCC, we are currently talking with them, so we are still awaiting a final decision and outcome of that dialog.

Next concerning the revenue guidance by of 19.5%. We expect a continuous declining in the revenues on the PSTN side throughout this year like it did last year. It will fall again by another KRW500b to KRW600b. So given this trend we'll have to make up for that loss in the amount of KRW1 trillion to reach the KRW19.5 trillion revenue guidance. I can't give you specific details on how but I'd like to give you some rough ballpark information.

Yes, when I talked about our Wireless business earlier we mentioned that we anticipate additional KRW400b revenues coming from the Wireless business and this will be mainly from the data explosion that we're anticipating in the market this year. Now on the fixed-line services, IPTV and IDC services is likely to rake in another KRW300b and other services such as VOIP and other smaller services can collectively generate another KRW300b. So even if PSTN revenue falls by another KRW500b to KRW600b, if you add up all of these numbers in these different service categories that I just mentioned that is roughly about KRW1 trillion. So we'll be able to reach our guidance for revenues at KRW19.5 trillion.

And as for the corporate client business, we mentioned that we anticipate growth in revenues by KRW300b. And there are different types of wireless and other types of services needs of the corporate client. So their needs are all broken down into the respective service categories that I just mentioned before.

(Interpreted). I have a follow-up question concerning the wireless internet business. You anticipate another KRW400b, that's your target. But have you taken into account statistical analysis on the ARPU generated by iPhone users in coming up with this KRW400b number?

Just as an aside, I believe there could be an early adopter impact on the high level of ARPU for iPhone users because I myself subscribe to this new service and during the first month everything was new and neat for me so I tended to make a lot of use of this new device. But the usage charge was way too excessive and I plan to cut down on using this new handset. So likewise if you reach the 2m to 3m iPhone users platform, the incremental growth impact is likely to actually diminish. So my supplemental question is what did you base your KRW400b target number on?

(Interpreted). A personal recommendation to Mr. Yang. I'd like to suggest that you subscribe to one of our four tariff plans and when you want to download applications on to your iPhone please use our WiFi services because if you do that you'll be able to save on your bills.

You mentioned that there is an early adopter effect but we already took this into account in our calculations. We normalized everything, the projected number of downloads from the app store etc. and we also figured in the 1.8m iPhone handsets into our calculations. And additionally the KRW400b, that figure incorporates both the service and the handset.

Just a clarification, this 1.8m, overall smartphone users -- FMC users, not just iPhones?

(Interpreted). The next question will be presented by Sean Lee from Citigroup. And the following question will be presented by Han Joon Kim from Goldman Sachs. Mr. Lee, please go ahead with your question.

(Interpreted). Thank you for the opportunity. I too have two questions. My first question pertains to WiFi and KT's competitiveness in the WiFi segment. This has attracted increased attention from the competition so the competitors are eyeing to increase their investment in the WiFi network and business. At this present time it seems like KT is more competitive over the other players. How would you assess the gap in the level of competitiveness in the WiFi area between KT and the other players? If this difference is something that cannot be easily overcome would you anticipate the regulatory authorities to exercise pressure on you or even mandate you to open KT's WiFi network to the other carriers?

And second, my question pertains to iPad. It has recently been released and we're still at the early stages so I'm curious to know what the senior management thoughts are on the release of iPad. If you focus overly on Apple product sourcing, that could put you at a disadvantageous position when you're trying to source devices from other manufacturers or other companies. So what are your initial thoughts on this?

(Interpreted). As for the level of competitiveness in the WiFi network and services, let me tell you clear and short that we are second to none. There's no comparison. We definitely have a clear first mover advantage. We have already established 130,000 WiFi zones across the nation and for our subscribers for common use we offer a Qook AP to them as well.

To make a correction we have currently 13,000 WiFi zones at present and we have in the pipeline plans to add another 14,000 WiFi zones in very important and strategic locations throughout the nation. So if you add these numbers up the total reaches 27,000. And as for APs, we have plans to add another 42,000 bringing the total to 78,000. So there's no comparison with the competition.

And another note I'd like to make is that the competing players, they hardly have any WiFi zones in public areas. Our major competition has about I believe 1.6m WiFi zones in the household zones but none in the public areas. So as far as public areas and regions are concerned, KT has by far the biggest public area coverage and there's no competition here.

And again I'd like to stress that we have extensive WiFi coverage here at KT. And on the fixed line network side that is also very significant. We have excellent operational know-how accumulated over the years. We first initiated Netspot, WiFi based Netspot service back in 2002 and the current KT WiFi network and services incorporates a 3G high level quality types of service that enables network provision as well.

Another pretty clear strength of KT is our WiBro network. We also offer what is called a personal Egg to our subscribers and with this they could utilize our WiFi zones and access points to access the WiBro network. So this only contributes to easier access to the network overall.

And I'll let it be known that we are always ready at any time to open our WiFi network to other carriers and the competition. But with the caveat that we are to be sufficiently and fairly compensated for the provision of our WiFi network. We will, if the competition desire so, negotiate with the other players to come up with an adequate compensation level. And we too at KT would be more than willing to use the competition's WiFi networks. The overarching governmental strategy is facility-based competition. So it is unfair to free-ride on another carrier's network without adequate compensation. So as long as the notion of sufficient compensation is provided for we'll be more than willing and ready to open up the WiFi network to the competition.

And concerning your question on iPad, we have not engaged in any types of discussions with Apple so I'm not able to provide you any information on that front. And as for iPhone, you have probably read in the newspaper and press reports of some sort of discord with some manufacturers outside of Apple. But I understand that we have fully recovered a healthy relationship with those manufacturers.

(Interpreted). The next question will be provided by Han Joon Kim from Goldman Sachs. And the next question will be provided by Jay Park from Samsung Securities. Mr. Kim, please go ahead with your question.

(Interpreted). Great, thank you very much. I just have one question. Not to throw cold water on to this but just trying to recollect back to I think the beginning of 2008 when you first tried to launch 3G and you gave us preliminary data on 3G usage versus 2G usage, and we're excited about that as well. So without the benefit of myself having looked at the internal data, what can you tell me is meaningfully different now than it was before when I think it's only been one smartphone release that's meaningfully taken off? And your other ones, as you pointed out, are too small in scale to really define and quantify the benefits for. Thank you.

(Interpreted). That's quite a conceptual and philosophical question. I would like to dub the transition from 2G to 3G as an evolution and the transition from 3G to the smartphone era as a revolution. So the former is a gradual change whereas the latter is a quantum leap change, if I were to differentiate the different types of nature of these changes. Back then when 2G gave way to 3G, data ARPU actually increased very dramatically and at that time Korea was the first in the world to offer in the market the wireless data services. But due to various restraints from the environmental perspective we were not able to fully promote the full usage of wireless data services and take full advantage of the 3G.

Again, although Korea was the first in the world to release wireless data services into the market, over the course of the past couple of years we have actually fallen behind the other advanced markets that came after us in releasing wireless data services. The wireless data revenue in Korea accounts for about 20% of total revenue, which is far lower than that of Japan which stands at 40%. And I'd like to cite some of the reasons for that lack of progress. First is the lack of handsets. Second is the high rate of tariffs for wireless data usage. And third is the insufficient network capacity for wireless data.

To elaborate further on the handset side, frankly speaking there is very little difference in the handsets for 2G services and 3G services. There may be some level of enhancement when it comes to size or speed but other than that nothing meaningfully different. But smartphones is a whole new different story. It is a mobile computer that is portable, you can take with you anywhere. So it's a whole new different game.

And just until last year there were only new releases of smartphones in the number of one or two and the cost was very prohibitive at around KRW1m. But iPhone changed the landscape. It became much more convenient to use and on the part of the operators they were able to release very affordable and economic tariff plans. So that contributed to the larger penetration, the great penetration of smartphones very quickly in the market.

Now this isn't the end of the story at all. It is only the beginning. Whereas in the past only one or two new smartphone handsets released in the market, for this year alone we anticipate about 10. So the users are free to pick and choose from a variety of different models of smartphones. And perhaps in the latter part of this year the price of the handsets themselves will probably be much more affordable at about KRW300,000 to KRW400,000. So the features of the handsets itself will make great contributions to the phenomenon of data explosion.

And secondly, moving on to the tariff plans, this actually was the biggest obstacle preventing the progress of the Korean technological breakthrough. The price to date was very prohibitive and there were actual cases in the past in which a child reprimanded by his parents committed suicide after being scolded for using excessively the wireless data, bringing about huge charges on the bill. So they were practically scared to use the wireless data services using their phones.

But smartphones got rid of all of that, the prices became much more affordable and we at KT released affordable tariff plans. And I think the competition is following suit to release better, more economic tariff plans for their subscribers. And at KT we have a plan that is very economic at KRW95,000. With this plan users will be able to use virtually unlimited wireless voice services as well as SMS services.

Now moving on to the third category about network capacity, if the data usage isn't backed up by sufficient network capacity all of our efforts would end up in white smoke. The iPhone users, they actually take up about 20 times more capacity than the average feature phone users. So given this and the phenomenon of data explosion that is anticipated going down the road, we have worked since the early part of '09 to expand the capacity of all of our networks to accommodate for this new change in the market.

So compared to 3G we're working on that to build that up a bit further to increase the capacity by fourfold. And we're also working to invest a bit more on the existing WiFi and WiBro networks which in the past have been blamed for mis-investment decisions. But this could be all made obviously add a little bit more to enhance the network and we could utilize it to accommodate the data explosion. So three years down the road we'll be able to accommodate data traffic that is over 50 times as large as it is at the present moment.

And one of the analysts asked about the 4G LTE technology earlier. If we achieve fifty-fold and if we presume that we are allocated the new frequency in the future, that network upgraded to a larger extent will be able to accommodate more data. So there's a dramatic new paradigm shift, new tariff plans out there, network capacity enhancement. All of these imply quantum leaps, not piecemeal advances. They are dramatic changes and these are for a new milk line for the current telco operators.

(Interpreted). The next question will be provided by Jay Park from Samsung Securities. And the following question will be provided by [Dong-Jung Kim] from Eugene Securities. Mr. Park, please go ahead with your question.

(Interpreted). Thank you for the opportunity. I have two questions. My first question pertains to your B2B strategy. The competition is also working to implement their version of B2B strategy with great focus. How would you differentiate your B2B strategy with the competition? And what do you believe is your competitive edge over other players in the B2B market?

And second pertains to your revenue guidance of 19.5%. And you mentioned that you have to make for a decline in one business area with other business areas in the volume of KRW1 trillion. And you mentioned some numbers, KRW400b from the Wireless business, KRW300b from the fixed-line and internet, another KRW300b from VoIP and other new growth businesses. But if you look at your earnings commentary the Wireless business already grew last year by about KRW500b and the data revenue is expected to grow even more given current trends. So if you already grew by KRW500b why are you saying only KRW400b? Is this being too conservative or is it just an overly rough estimate that you gave? Why KRW400b when you've already done KRW500b?

And another follow-on question is that the internet application revenue for '09 in the commentary actually fell, but you mentioned that you'll be able to rake in about KRW300b to make up for the loss to reach KRW1 trillion. So given past performance, is the KRW300b on the Internet side, on your application revenue side possible? I personally have doubts on that. That is why I'm asking this question.

(Interpreted). At the outset I only intended to give you the total number, but Mr. Park from Samsung Securities, you seem to want us to delve into this in greater detail by providing you with breakdowns. Since you asked, the Wireless business, we mentioned KRW400b, but this takes into account our predictions for the decline in voice revenues in the volume of KRW100b. So that KRW400b takes into account the minus KRW100b on the voice business side.

And second, if you look just at the Internet application revenue it appears that there's no further room to make any improvements on that side. But the number I gave you is a total of the entire Internet business and here it includes the IPTV and IDC which can contribute about KRW100b each. And the KRW300b that is expected to come from the corporate business side, this is already incorporated in that.

So if you look at the specific categories, the smaller breakdowns, there is room for improvement to reach that additional KRW1 trillion and the KRW19.5 trillion is the overall revenue guidance. And as our CEO mentioned at the earlier press conference this month, this is our officially disclosed guidance target. Internally we have our own set of targets which is actually KRW20 trillion.

Yes, I'll answer your question on the differentiation strategy for B2B on the corporate side. First of all, there are many companies out there who are pursuing this strategy or campaign dubbed 'beyond telecom'. But I believe here at KT that the telecom infrastructure is a major strength for an average business and company and had KT in the post-merger era, since we acquired the 3G network, this again works to our huge advantage. On top of that the problematic WiBro network will be put to further use, it will be taken advantage of by a greater number of services and users. And it is favorable for the companies since an individual company easily could use two or three networks at the same time for their business benefit.

And on second, given our experience to date in the corporate market, there has been increasing emphasis on the surveillance function 24/7. This has been overlooked to some extent in the past but in this particular market KT again is second to none. We are a distant first and many companies out there require and actually use these surveillance networks within their company buildings. So then they tend to outsource us because we are the unique and number one provider for this type of network and service.

(Interpreted). The last question will be provided by [Dong-Jung Kim] from Eugene Securities. Mr. Kim, please go ahead with your question.

(Interpreted). Thank you for this last opportunity. My name is Kim Dong-Jung from Eugene Securities. My first question pertains to iPad or tablet PCs that have recently been introduced into the market. This is likely to spur on an increase in the number of mobile Internet devices and likely to change the mobile market landscape. And with this iPad and new different types of tariff plans are likely to be submitted and put into the market.

So far there are separate tariff plans for WiBro and separate ones for data usage on the smartphone side etc. And recently the Ministry of Knowledge and Economy has mentioned something about a multi-device tariff plan. And SKT, your competitor, has made some comments to that regard but we have yet to hear anything from KT. So my question is do you have any plans at this point to realign or change your tariff plans on the per user wireless data services?

And my second question pertains to the WiBro network project in India. There's a rumor out there that the government and KCC are talking with the relevant authorities and players to establish a WiBro network in the country of India. And when the auction for frequencies and other services and other elements proceeds, KT or SKT or other telecom carriers here in Korea could make contributions to India with respect to the WiBro network. So given that, it would obviously benefit the device or equipment manufacturers. But aside from them, from the perspective of a telco operator, what does the operator have to benefit from this participation in the Indian project?

And another follow-up question concerning iPad is that recently there are many potential users making so-called joint purchases of iPad and they hope to use their tablet PCs by accessing the WiFi access points in the respective zones. Some even say that when they plug in a KT WiBro modem they will be able to use their tablet PCs. Is this actually feasible?

(Interpreted). Concerning your question on iPad, again we have engaged in on consultations with Apple whatsoever as I mentioned earlier and I myself have only read about that, I have never used it. But from a theoretical perspective you can change the frequencies using WiBro to fit WiFi.

And your comment on an integrated tariff plan, KT too is making preparations to come up with that. We have three different types of networks, WCDMA, WiFi network and WiBro network, the so-called 3W networks. We don't have -- we will not release independent or separate plans for each of the Ws of the 3W but rather integrate them so that one subscriber, one customer will be able to access data services using two or more different handsets. So this tariff plan will be a one-person multi-device tariff plan. And KT will release new tariff plans only if there is a business case that could justify it to do so, not because of regulatory issues.

And as for overseas projects, that of KT, I have just enquired the global business division at our company and that division is always tapping for new business opportunities, whether it is locally or international. And they responded by saying that there are no particular new initiatives on that front that are worthy of any disclosure to the public at this point.

(Interpreted). 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.