KT Corp (KT) 2011 Q2 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'll begin the conference of the 2011 second 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 2011 second quarter preliminary earnings results by KT's CFO, Mr. Yeon-Hak Kim.

(Interpreted). Good afternoon. I am Yeon-Hak Kim, CFO of KT. I wish everyone a healthy summer as it is exceptionally hot in the wake of the heavy monsoon rainfall we've just experienced.

We will now begin earnings conference call for Q2 of 2011. The recent two quarters have been quite meaningful in that we were able to steadfastly grow customer base for KT's core businesses.

Over the two quarters smartphone subscribers grew 1.41m, broadband Internet 77,000, IPTV 228,000, VoIP 106,000 respectively, laying the framework for further expansion of bundled services and business growth.

KT will further strengthen the edge it has in fixed and wireless networks, to continue to expand customer window, based on which we will broaden our business scope to diverse arena, including telecommunications and finance convergence, global businesses, solutions, contents. etc.

In the second quarter, to improve network quality we have expanded applying CCC, cloud communication center software to Seoul Metropolitan area. For the northern part of Chungcheong province, we adopted HSPA+ technology with 50% improved download speed, by improving the speed and access quality.

Also, nationwide, we operate around 75,000 Olleh WiFi zones. And by installing WiBro public Egg in public places like the subway and buses, we are catering to exploding amounts of wireless data.

For LTE we will expand coverage, starting from the very center of the city, in a phased manner. And we will prepare for nationwide services before LTE-only handsets become widespread.

In fixed line business, broadband and IPTV subscribers continued to grow. And, through outstanding quality and innovative OTS services, we are maintaining our leadership in a fee-based broadcasting market. We will continue to make full preparations to make sure that KT customers enjoy diverse content, reasonably priced, based on KT's extensive fixed and wireless network.

With that, let me move on to the presentation on earnings for Q2, 2011. You can also take part in the conference call via our website, IR webcasting.

From Q1 we've been providing and comparing our earnings numbers based on IFRS consolidated. Q2 consolidated numbers reflect 35 companies' earnings, including that of KT.

In Q2, 2011 consolidated operating revenue grew 7.9% year-on-year to KRW5,342.8b, due to the growth in merchandise revenue from increased new subscribers for smartphone and from growth in new business areas such as IPTV and VoIP.

Service revenue, which excludes merchandise revenue, declined 0.7% year-on-year to KRW4,156.6b. This is due to discounts given to long-term users which aims to better existing customer satisfaction and retention rate, discounts for fixed and wireless bundled services and Smart Sponsor etc., and the introduction of per-second billing system, all having a downward impact on the voice revenue.

Q2 consolidated operating profit declined 35.9% year-on-year to KRW432.4b, owing to service revenue decline and increases in major expense items such as labor, depreciation and service costs.

Despite the fall in operating profit, KRW166.1b of income from discontinued operations of Russia's NTC sales had an impact and Q2 consolidated net profit therefore grew 0.3% year-on-year to KRW420.6b.

KT's Q2 standalone CapEx is KRW806.3b.

Next is on each of the businesses. For Wireless business, due to per-second billing and growth in subscribers with discount plans, increases in bundled discounts with fixed products, Wireless revenue fell 0.3% (sic - see presentation) year-on-year to KRW1,773.5b.

Subscribers grew by 850,000 (sic - see presentation) year-on-year with data revenue growth of 40.6% or KRW151.5b. But with expanded revenue discounts, voice revenue declined, and with adjustments in interconnection fees, interconnection revenue fell KRW26.7b, holding down the overall revenue growth.

In the second half, to better customer satisfaction, we are planning for a rate cut, but, as we continue to see subscriber growth around smartphones, we expect revenue to turn to a growth trend in the second half of the year.

As of June there are 5.24m smartphone subscribers and we expect that number to surpass 7m by the year's end. A variety of services that were only enabled in the fixed line environment, like the high-quality video and games, are now becoming more active in the wireless space. KT's competitive advantage in WiFi and WiBro networks will undoubtedly appeal to customers.

Also KT has recently announced fair price system and a green phone program which promotes use of second-hand handsets. Through such efforts, we intend to innovate the distribution market to put an end to cost-based competition.

Next is the Telephony business. Telephony revenue declined 2.7% QoQ and 14.5% year-on-year to KRW954.5b, on the back of fall in PSTN subscribers and continued decline in call traffic per subscriber.

VoIP subscribers grew by 820,000 over the past one year to 3.04m total, cumulative subscribers. Revenue showed 15.3% growth year-on-year to KRW79.3b.

As of end of June, fixed line subscribers, PSTN and VoIP combined, stand at 19.27m. Through bundled and mandatory price contracts and smart home pads-based contents provision, we will maintain our home customer base.

Next is Internet business. Internet revenue, due to steady subscriber growth, increased 3.4% quarter-on-quarter and 5.3% year-on-year to KRW660b.

For broadband, thanks to great quality and effective bundling with IPTV, subscriber number as at June stands at 7.63m. And, as such, we are continuously improving our market share.

Thanks to superior competitiveness of Olleh TV SkyLife, whose subscriber number recently surpassed 1m, IPTV subscribers as of end of June stand at 2.62m. Based on pay-per-view revenue growth of 95% year-on-year, total revenue increased 59.9% to KRW73.1b.

Next is revenue for other services. Other services revenues increased 47.2% year-on-year to KRW362.7b, since KT SkyLife's revenue is now reflected starting this year. KT SkyLife revenue reflected in Q2 consolidated figure is KRW117.2b.

Next is other operating revenue. Other operating revenue rose 0.2% year-on-year to KRW83.4b. On a KT separate and standalone basis, gains from NTC sales increased the figure significantly, but on a consolidated basis it goes under income from discontinued operations and is excluded from other operating revenue line item.

Next I will briefly touch upon operating expense items. Q2 labor cost rose 5.9% quarter-on-quarter and 10.6% year-on-year to KRW723.8b, as 3% retroactive wage increase on the back of the collective bargaining agreement was reflected all at once.

With higher investment spend driven by wireless data traffic explosion and acquisition of new assets, i.e. the [Mugumha] satellite, depreciation costs increased 2.6% QoQ and 7.1% YoY to KRW740.5b.

SG&A increased 1.3% year-on-year to KRW512.1b with higher number of new subscribers. Due to revenue discount rate plans being widespread, compared to increases in new subscriber account and smartphones sales, increases in sales expense was minimal.

For more details please refer to the earnings materials which we previously circulated. This will end the earnings presentation for Q2, 2011. Let us now begin the Q&A session and we will respond to any questions that you may have.

(Interpreted). Now Q&A session will begin. (Operator Instructions). The first questions will be provided by Mr. Yang Jong-In from Hankuk Investment & Securities. And the next question will be provided by Mr. Josh Bae from UBS. Mr. Yang Jong-in, please go ahead with your questions.

(Interpreted). I would like to pose two questions. The first is that the market is saying that, with more tightened regulation and changes in the market environment, that there is need to change governance structure as well as management structure of the companies. And I understand that your competitor is currently planning to do so. So does KT envision any changes in the future regarding changing your structure into a holding company structure, or spinning off any of your businesses? Do you have those plans? That's my first question.

Second, I would like to ask you what do you think is the impact with the effectiveness of the fair price regime that you are currently envisioning? In terms of your marketing costs and the overall competitive environment and landscape, what impact would this fair price regime bring?

(Interpreted). With regard to your first question I, first of all, would have to say that it would not be appropriate for me to comment on the strategic decision that was made by our competitor with regards to their business structure.

When it comes to KT, our vision is to become a global ICT convergence leader, which means that, based on telecommunications expertise, we'll be providing IT services, media conversions as well as attain global competitiveness. And our business regime and structure is being changed in order to achieve this vision.

So, if you look at KT's overall structure, we run under the CIC structure based on which the communications-related services are being provided. Meaning we have the Home CIC, we have the Personal Business CIC which focuses on the Wireless business, and we used to have global Business Division as well as Corporate Customer Division. And we combined those two and newly set up Global & Enterprise Group. So we did that in order to further strengthen our B2B capabilities so that we will not only sell the managed services and IT services into the domestic market, but also with a vision to try to export those services overseas.

So those areas that are not directly connected to telecommunications, such as financial services and other convergence business areas, we are playing in those fields through our subsidiaries and affiliate companies. As you know, we have expanded our holding in SkyLife. We currently hold more than 50%. And we have also acquired BC Card stake in order to grow into the financial industry.

So in the past whereas we were focused on KT, we will co-prosper and attain inclusive growth, together with our subsidiaries and affiliated companies and, going forward, develop together with them, and create synergies together with them.

And with regards to the possibility of going to a holding company structure or a fundamental change regarding the governance structure, as of this moment I do not have anything particular to note.

When it comes to the fair price, despite a short term and immediate disadvantage it could bring to KT, the reason why we're promoting fair price regime is that we want the price, same identical price to the same handset models in the on and offline distribution channels, in order to make sure that there are no disadvantages that are given to our customers because of the differential prices that are being provided.

From a long-term perspective, this is going to mitigate the competition based on subsidy provision and foster competition based on services, which will, at the end, enhance our consumer and customer welfare. And this could also help reduce increases in marketing costs, which brings about increases in selling costs and which overheats competition. So we could do away with these problems if we adopt fair price system.

Other competitors, I understand, understand the intention of KT in implementing these types of approaches. But there are some skepticisms, as well as doubt, as to whether KT has an ulterior motive, or whether this system will actually be effective. However, as long as KT continues to push this with its genuine intention, I believe that competitors will start to join on board, and we can establish a more transparent distribution system, and also have an opportunity to expand our customer base.

Once this fair price system is well-established, we believe that we could do away with excessive competition based on subsidy provision which only distorts the market structure. And also we can do away with very fast handset churn which will help us reduce the marketing expenses. We believe this will therefore help secure a very stable competitive environment which will, at the end, benefit all of the three telecom operators.

(Interpreted). The next questions will be presented by Mr. Josh Bae from UBS. And the following questions will be presented by [Yu Ji Yong] from Deutsche Securities Korea. Mr. Josh Bae, please go ahead with your question.

Yes hi. Thank you for the call. I have two questions. First is on your dividends. Seems the first half results were a bit short of market expectations, so I'm wondering about the dividend for 2011. Could you please let us know if you plan to include the income from the NTC stake sale in your dividend calculation for the year?

Second question is regarding the upcoming spectrum bid. I understand that KT submitted applications to bid for either 800 megahertz or 1.8 gigahertz spectrum. Are there any thoughts that you could share regarding this upcoming bid and also when do you expect the bid to take place? Thank you.

(Interpreted). Regarding KT's basic dividend payout policy, our basic policy, as you know, is to pay out more than 50% of our adjusted net profit. And this will be determined probably in the beginning of next year, at KT's BOD meeting. So BOD will resolve on this agenda item.

If you look at our past experience, when it comes to normalizing and adjusting for certain items, if there are one-off profits or one-off losses, or if there are profits or losses that are non-related to the operations, those usually became the target of normalizing and adjustment. For example, when there was a significant amount of profit that we gained from SKT share disposition, and of the end of 2009 there was extensive honorary retirements which incurred significant amount of cost and which did give a downward pressure on the profit, but we normalized that line item and we provided more dividend. So all of this will be considered at the BOD meeting, based on our past practices.

With regards to the spectrum bidding, as you've mentioned, KT and our competitor have submitted a letter of intent for both the 800 megahertz and 1.8 gigahertz spectrum. According to the schedule of KCC, they are envisioning to complete the bidding process within the month of August. How this process proceeds is that if there are multiple number of service providers that keep bidding for the same spectrum, then each of the players will increase their bidding price up until the point in time where the other player will either give up. Then the player that did not give up will, of course, have that spectrum, and the player that gave up on that spectrum then can apply for the remaining spectrum. Once again this is a very strategic issue for us, so please understand, I will not be able to provide more specifics on this.

Yes. Regarding the first question, I understand the criteria you use in calculating the normalized earnings. Would you say it's fair to say that the NTC stake sale income is a one-time gain and it's not related to your core business?

(Interpreted). Whether the gains from the NTC stake sale is a one-time profit or not, it will be determined by the Board of Directors meeting. If you were to -- but since in the past we had the SKT case, as when we sold the SKT stake, the two cases will be similar.

Thank you.

(Interpreted). The following questions will be presented by Mr. Yu Ji Yong, from Deutsche Securities Korea. And the following questions will be presented by Mr. Stanley Yang from Nomura Securities. Mr. Yu Ji Yong, please go ahead with your questions.

Thank you for the opportunity. I have one question. Your Wireless ARPU is down, and this is despite shedding a lot of your lower-quality subscribers in 2G. What didn't you see a few months ago when the management predicted the ARPU would rise? Thank you.

(Interpreted). Yes, the ARPU did not rise, and we are currently in the middle of analyzing this. In the second quarter I think one of the reasons is because the high-end smartphones were not sold as much. Meaning at the end of last year the iPhone 4 was introduced and it sold quite significantly. But since it's been a couple of months after the introduction, we saw a much lower level of iPhones for sales, but rather we sold more mid-tier smartphones. Those types of phones sold much more.

And also another factor would be that initially we gave subsidies to smartphones, and the actual tariffs and rates that we made were all reflected in the ARPU. But with the introduction of the Smart Sponsor, the revenue discount rate plans, that did have an impact on lowering the ARPU number.

(Interpreted). The next questions will be presented by Mr. Stanley Yang from Nomura Securities. And the following questions will be presented by Mr. Sam Min from Morgan Stanley. Mr. Stanley Yang, please go ahead with your questions.

(Interpreted). My first question is once again on the ARPU. You've already, of course, explained why the ARPU level had declined. But I think compared to your competitors that decline is quite significant. Last year the ARPU trend was very positive. This year on a year-on-basis, it's shown a significant downward trend which worries me quite a bit. This decline in the ARPU and this declining trend, if you were to compare yourself to your competitor, is it partially due to the way you treat it on your accounting books, meaning that if you look at the customer benefit, there is the initial subsidy that's given and the revenue discount that's given. Is this revenue discount portion too significant just because your scheme is different from your competitor's scheme?

And another add-on to that question is that when do you think that then this ARPU trend is going to turn its direction.

Second question has to do with the reduction or the decline in the PSTN revenue. In the past the CFO has mentioned that there is an inflexion point -- that he expects there will be a inflexion point when it comes to VoIP migration, meaning that that when that point is reached, the decline in the PSTN revenue will start to slow down. When do you think then this inflexion point is going to come and what is the gap between the PSTN and VoIP ARPU? If you could share with us that information. And how do you picture the future PSTN revenue trend?

(Interpreted). If you were to compare the ARPU decline of KT with other competitors and if you look at it very carefully, the difference is actually not that significant. But I think that the concern lies in the fact that if you look at the overall trend, KT has shown a QoQ dip. And I think that's what's causing the concern. We are once again in the middle of analyzing this issue.

But I think one of the reason is because KT has adopted per second billing from last December. So that -- there was a full impact from this per second billing system, whereas the competitor had actually introduced this at the beginning of last year and that impact had already been reflected in their previous numbers.

And also you have correctly mentioned, when it comes to the rate structure or the rate scheme, we have a feeling that we are giving too much of a redundant discount or the magnitude of our discount is quite big. So -- but also there is one thing to note and that is in our Wireless business, KT's Wireless subscriber number is continuously on an increasing trend. On an annual basis, we are adding about 1m people and the data traffic is also increasing by about tenfold.

But the problem here is that we feel that this however is not really rightly priced. So there needs to be certain improvement and readjustment of the price regime and price scheme. And once again the subscriber number and traffic number is increasing and of course that will not 100% translate into the increases in the revenue per se.

However, we do believe that there needs to be some rationalization of the price and rate plans that we have in place so that it could be better reflected in the ARPU numbers as well. But of course because there are certain issues such as the rate cuts that are upcoming, we would not be able to expect a short term dramatic improvement. But there will of course be a long term and gradual improvement.

When it comes to the decline in the PSTN revenue I have said in the past that this year will be the worst and that there will be improvement coming along the way. And I would once again like to repeat that. In the first quarter of last year, the -- 150,000 people have actually churned out which is about 1.5% of churn rate. Second quarter of this year, only 60,000 people have churned out. So the churn rate has declined to 0.9%. So churn rate is on a declining trend.

When it comes to the decline in the PSTN revenue, having said what I've said just before, the decline amount seems to be quite similar to last year and the reason behind that is the reduction in the ARPU. And as you know last year we had this issue for Fixed Line telephony for the flat rate system. In order to resolve that issue, we have newly introduced a much lower priced standard rate plan and that has driven about KRW12b impact on a monthly basis on the revenue line item. So that's why in the first half of the year, there seems to be a significant amount of revenue reduction.

However, if we were to look month by month at revenue and profit, the amount of decline has reduced. And this new low priced standardized rate plan that I talked about for the Fixed Line PSTN, this was introduced November 1 of last year. So that impact is fully reflected in this year's numbers. But I think once we -- I think come next year, that impact is going to go away and we will see about 50% improvement compared to this year's numbers.

And also one thing to notice that for VoIP, the VoIP ARPU is low compared to PSTN. Initially we have been quite aggressive in providing VoIP because the competitors have been extremely aggressive in marketing VoIP. But with PSTN decline stabilizing, we no longer provide VoIP phone services free of charge. Once again PSTN and VoIP put together our subscriber numbers surpass the [19m]. So the total pie is not dwindling at all. We are giving VoIP services to those subscribers who actually want them. And therefore we believe that by the end of the year and starting next year, we will be able to see some stabilization in the PSTN space.

(Interpreted). Another follow-up question. It seems like cable TV operators are also very aggressively providing low price and low end VoIP services. Are you not concerned about that having an impact on lowering the ARPU?

(Interpreted). Once again if you look at the total market, the PSTN decline has stabilized and when I said that, as compared to our competitors I was also including the cable TV operators. So that means the cable operators are not taking much away from us.

And we also have a OTS product. It is a bundled product. It is an Olleh TV SkyLife product which was extremely popular that provides Internet and Internet VoIP services as well. So we are responding to the cable TV operators by providing the OTS product. And last year I understand that the cable TV subscriber number has actually decreased. So we are defending the VoIP space with our OTS product.

(Interpreted). The next questions will be presented by Mr. Sam Min from Morgan Stanley and the following questions will be presented by Mr. Tien Doe from GIC in Singapore. Mr. Sam Min, please go ahead with your questions.

Yes, hi. Thank you. So I have two questions.

And my first question is on cost. I was a bit surprised not only the revenue sort of slowed down, but it appears in the second quarter just generally there hasn't been a whole lot of cost control done during the quarter. And I guess I'm wondering whether this is sort of a structural issue with the maybe sort of revenue mix changing to ones that are less profitable. That's my first question.

And then I'd like to expand on the dividend question before. So it appears that your OP in the first quarter and second quarter net of SkyLife and [NTS], it stands a little less than KRW1 trillion. Compared to last year's OP of roughly KRW2.05 trillion, you're running a bit behind. So can we expect -- perhaps if you can comment on what the likely outlook is on the profitability side and whether we could see dividends, what kind of expectations we could have on dividends. Thank you.

(Interpreted). When it comes to the cost items there are some structural reasons and also one-off factors as well. If you look at depreciation and commissions and fees paid and services cost and other interconnection expenses, now these were driven by increases in investment and increases in subscriber number and increases in facilities, which is linked to the revenue side.

In the second quarter for the one-off factors, there were labor-related agreement negotiations. The collective bargaining had reached an agreement and there was retroactive application of 3% increase which was inevitable. For the past three years, KT had frozen the wage level and that one-off factor, the retroactive application was in the amount of about KRW48b. So that was reflected in the second quarter.

And also there's a company called [CU] Construction. In the past it was called the KT Industrial Development. But that business did not do that well, so there was some equity method loss -- disposition loss of about KRW12.8b. And also we've put in a lot of efforts to reduce the number of 2G subscribers, so there were certain costs that were incurred in the process of shutting them down and also transitioning these people. So I cannot give you each of the line item numbers, but when it comes to the one-off factors there was about KRW100b of impact.

Now KT's this year's policy is not to have the operating profit guidance. However, the management considers the second quarter performance as ringing an alarm bell to the executive management. So in the second half of the year, we are going to be more stringent in cost control so that we can bring about a profit that is higher than the level of last year's.

Now having said that in the second half of the year, although it's not yet been confirmed or finalized there is a rate cut plan that is being considered at this point. And also the actual demolition cost or shutdown cost for the 2G subscribers, could be a little higher than what we had expected or planned. So when it comes to attaining the internal targets that we have set for ourselves, we at this point cannot be too optimistic.

(Interpreted). The next questions will be presented by Mr. Tien Doe from GIC in Singapore and the following questions will be presented by Mr. Ahn Jae Min from Kiwoom Securities. Mr. Tien Doe, please go ahead with your questions.

Thank you for the opportunity to ask a question. My question is just on whether you have any views on the proposed MSCI changes to Korea Telecom's weighting in MSCI. Have you been in touch with MSCI to lobby against their changes and if so, what is their response? Thank you.

Hi Tien. This is Thomas Kim. We are watching and monitoring this issue. I think we're hearing about the same as you are and the latest thing that we've heard is that KT and other listed companies that have ADR which means that foreign investors have access -- they don't have absolutely no access to it. So we may have a different rating and that we may not be excluded a 100%.

In the earlier stages KT and SKT were ruled out and it's specifically mentioned in the report that we will be excluded from MSCI. However a following report that we have seen so far states that because we have ADR maybe we have access to or the foreign investors have access. So I think it won't be 100% eliminated but the weighting will be maybe reduced. But I think that pending --

Have the MSCI been in touch with you yet, Thomas?

We really have a tough time contacting them. I mean they -- we talked, tried to talk to them before. I think it's a pretty closed organization.

Okay, all right. Thank you.

(Interpreted). The next questions will be presented by Mr. Ahn Jae Min from Kiwoom Securities. And the following questions will be presented by Mr. Chang Sun Min from JP Morgan. Mr. Ahn Jae Min, please go ahead with your questions.

(Interpreted). Can you provide us a projection as to what the 2G shutdown cost is? And can you give us a breakdown and to marketing cost and other equipment facility shutdown?

Second question is I heard that the remaining 2G subscriber is currently about 400,000. Is that correct?

(Interpreted). When it comes to 2G shutdown related costs there is a marketing cost and also the writing off -- write off losses for facilities and equipment whose appreciation duration has not ended. And also there are some additional cost items.

But this is a very cautious issue in that depending on when the shutdown actually takes place the actual shutdown cost is going to vary. And also there are certain amounts of compensation that has to be considered for the customers. So it's very difficult for us to disclose the specific numbers. I hope you understand that.

And for 2G remaining subscribers, you mentioned 400,000. I think you are accurate. The most recent number that I heard recently was about 370,000. So I think that 2G subscriber number is currently in the latter half of 300,000.

(Interpreted). I understand that you have actually requested and applied that the shutdown be done at the end of the third quarter which is September. Now has KCC made a -- or can KCC actually delay that timeline?

(Interpreted). Currently there is nothing definitive that I can say. But we are going to prepare our best so that around by the end of September we will be able to cater to the needs of the users, the regulatory body and various different stakeholders. We will do our best preparation also to protect the users.

(Interpreted). The next questions will be presented by Mr. Chang Sun Min from JP Morgan. Please go ahead, sir.

(Interpreted). You've mentioned that you would do your best to reduce costs in the second half of the year. Can you be a little more specific as to what items you're going to plan to reduce the cost? Or eventually is this going to lead to more headcount reduction?

Second question is that the number will be quite similar I would expect, but what is your consolidated CapEx for this year and next year?

And the gains from NTC sales -- are those numbers reflected in the second quarter balance sheet and cash flow?

(Interpreted). In the second half of the year, yes we're going to try to control the cost. Of course the one-off items that I mentioned before are going to go away. But when it comes to the 2G shutdown related costs that cost could actually be big or it could be small. And that is something that we cannot really directly control. But other than that the other types of recurring expenses like the commissions paid -- commissions and fees paid, we're going to significantly reduce that. And also significantly reduce the marketing expenses and in order to cool down the market.

Hence we are therefore thinking about this whole fair price system and green phone program. And we will significantly reduce other indirect overhead cost that is not directly related to our sales or profits.

And as far as I know in the short term there is no plan for headcount reduction. For CapEx we do not have a separate consolidated CapEx number because mostly it's taken up by KT's CapEx. But we will calculate that number and contact you and provide you that number later on. But once again KT's CapEx we maintain our guidance of KRW3.2 trillion.

Of course the variable there, is the LTE investment. But LTE will be starting from the end of this year so we will be able to keep the annual guidance on CapEx. Even if there is a slight increase it's not going to be significant at all. Maybe next -- and on for next year although our business plan has not yet been confirmed there will be of course increases in investment into LTE. If there is more investment next year on LTE there will be less of that in 2013. So LTE investment depending upon the scope of the investment and timing of the investment, the numbers will of course -- will have an impact on the coming two year CapEx.

And the gains from the NTC sales the numbers, yes, are fully reflected in the financial statements of the second quarter.

(Interpreted). Currently there are no participants with questions. (Operator Instructions).

The next questions will be presented by Mr. Sam Min from Morgan Stanley and the following questions will be presented by Neale Anderson from HSBC. Mr. Sam Min, please go ahead with your questions.

Yes, sure. I guess I just have one more question regarding tariff cuts and I know that the announcement is pending. I was wondering if you can share any color or any issues involving the tariff cuts. And then I guess going forward with the national elections and presidential elections next year, do you think that perhaps this round of cuts is the last one or do you expect additional pressure on tariffs next year as well? Thank you.

(Interpreted). I understand that KT is currently in discussion with the regulatory authority on this tariff cut and rate cut alternatives. And I hope you understand that this is actually all I can say on this.

(Interpreted). The next questions will be presented by Mr. Neale Anderson from HSBC. Please go ahead, sir.

Hi there. Just a question on flat rate data plans. SK Telecom previously have said they have no intention of moving away from this in the near term and possibly this would only happen with LTE. Do you think it's possible for KT to move away from this type of plan given that SK Telecom isn't likely to? Thank you.

(Interpreted). KT's view is that radio spectrum is a finite resources. And small number of users are creating a significant amount of traffic and that is actually giving a disadvantage to the multiple number of users. So there's been a lot of investment that went into this infrastructure but not majority of customers are benefitting from this because of small number of heavy users. So we at KT actually recognize that this issue exists.

However with regards to this rate plan, because the competitive landscape as well as the users are all interlinked in this issue, I, at this point sitting here today, cannot say one way or the other with regards to this rate plan.

Okay, thank you.

(Interpreted). The following questions will be presented by Mr. Kim Hue Jae from Daishin Securities. Please go ahead, sir.

(Interpreted). I have one question. For second half of the year and for next year what is your projection for your real estate revenue?

(Interpreted). For real estate revenue, real estate is very closely linked to economic cycle, so it's very hard to give you a specific number. But we plan and expect that real estate revenue is going to be painting a rising trend on an annual basis.

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.