KT Corp (KT) 2014 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 will begin the conference of the 2014 second quarter preliminary earnings results by KT.

We would like to have welcoming remarks from Mr. Youngwoo Kim, KT IRO, and then Mr. In Hoe Kim, CFO, who will present the earnings results and entertain your questions. This conference will start with a presentation followed by a Q&A session. (Operator Instructions).

Now, we would like to turn the conference over to Mr. Youngwoo Kim, KT IRO.

(Interpreted) Good afternoon, I am Youngwoo Kim, KT's IRO. We will now begin Q2 2014 earning conference call. Our call is being webcasted via the Company's website so please refer to the slides as we make the presentation.

Since Q1 2011, KT has been presenting consolidated numbers under the IFRS standard. Please note Q2 2014 consolidated statement reflects both KT and its subsidiaries. With that, I will invite our CFO, In Hoe Kim, to begin the presentation on the second quarter results.

(Interpreted) Good afternoon, I am In Hoe Kim, CFO of KT. Under the vision of Global Number One KT, KT is undertaking strong corporate enhancement initiatives including strengthening of telecom competitiveness, improvement of cost structure and revisiting of the Group's business portfolio.

From the time KT resumed its sales operations in the second quarter during the KT-only operation period, subscriber performance has turned favorable with continuous ARPU growth, enabling a stronger visibility towards regaining of telecom competitiveness. Also, through the implementation of early retirement program and review of cost items, we are promoting innovative cost structure improvement.

Also, underpinned by four core values of Number One KT, Single KT, Customer First, and Management by Integrity, and through endless corporate improvement efforts, we plan to maximize competitiveness of respective businesses and synergies amongst group of companies.

Through such corporate enhancement efforts, we will bring forward growth potential and accelerate recovery of profitability in order to meet the expectations of shareholders, investors, and customers.

For the past century, KT has led the history of the development of Korea's telecom industry right next to its people. Going forward, KT will pursue converged GiGA Era and GiGAtopia providing the fastest and the most innovative telecom-based converged services to reinvent itself as global number one who places customers ahead of anything else.

Now with that, let me move on to Q2 2014 business results. Q2 2014 operating revenue increased 2.4% year over year to KRW5,895.5b driven by wireless and merchandise revenue growth. For the operating profit, there was an operating loss of KRW813b turning in deficit due to massive early-retirement-related expenses.

The decline in operating profit among others lead to a net loss of KRW757.2b, EBITDA declined 89% year on year coming in at KRW125.1b. This quarter, a net loss was recorded due to approximately KRW1 trillion of early retirement expenses but aside from the fixed line business, we are seeing a topline growth in all of the services. And with rationalization of our businesses and cost reduction from early retirement kicking in, we project KT's corporate structure to improve gradually going forward.

On the next page, we will look at the subsidiary performances. BC Card saw an increase in revenue by 3.2% year on year driven by growth in purchase volume of credit and check card, with its operating profit posting a growth of 11.6% year on year. Skylife, in line with the growth in total subscriber base saw a growth in revenue of 5.3% year on year. However, its operating profit declined 17% year on year on the back of increases and subscriber acquisition costs and fees and commission.

For KT rental, with more than activated sales in the auto rental business, and inclusion of green cars in the top line, revenue recorded a growth of 20.7% year on year. Operating profit also posted a growth of 30% year on year driven by savings in maintenance cost per vehicle and expansion of high margin services.

By solidifying the efficiencies of the Group's portfolio of companies, we at KT will achieve a single KT thinking and attain like a one single entity creating an ICT-based convergent synergies towards enhancing the value of KT Group.

Next, I will walk you through the breakdown of operating revenue. Operating revenue recorded an increase of 2.4% year on year, coming in at KRW5,895.5b. Decline in fixed line revenue continues but with the growth in LTE subscribers, ARPU growth followed driving up wireless revenue 2.7% year on year. Media and content and financial revenue continues to show a robust trend of growth.

Merchandise revenue saw a growth of 10.8% year on year on higher handset sales driven by a growth in demand for LTE conversion. KT will accelerate the recovery of our wireless business, maintain stable performance of the broadband internet and strengthen the growth of the media business in order to continue to bring forward structural change in topline to offset the decline in fixed line telephony.

Next is on the operating expenses. Operating expense increased 24% year on year to KRW6,708.5b. Labor cost increased 115.1% year on year due to the large-scale early-retirement-related expenses. One of the ERP related expense reflected on this quarter's labor cost is KRW1,050b. Cost of service provided declined 1.3% year over year on lower real estate development costs and cost of merchandize increased 19.9% year on year driven by a growth in handset sales.

SG&A increased 21.3% year on year driven by a growth in new wireless subscribers among others which lead to an increase in sales cost.

Next is on the highlights of the Company's financial position. As of the end of Q2, debt to equity ratio is 188.3%, rising 16.1 percentage points QoQ. Net debt stands at KRW10,795.4b, edging up 7.4% QoQ and net debt to equity ratio stands at 91.2%.

Next is on capital expenditure. Q2 2014 CapEx declined 6.8% year on year to KRW562.7b on declines in investments into wireless and IT infrastructure. The breakdown is as follows. Wireless, KRW206.1b, fixed line, KRW255.6b and KRW101b for others. Cumulative CapEx for the first half of the year was KRW919.9b with 34% implementation rate against a CapEx guidance of KRW2.7 trillion.

Next is on the business results from each of our services. With the growth in wireless subscribers and LTE subscriber share leading to a rise in ARPU, wireless revenue increased 2.7% year on year to KRW1,798.8b. With lowered list price and activated distribution networks during second quarter's KT-only operation period, wireless subscriber net addition recorded 300,000 subscribers. As of the end of Q2, the number of LTE subscribers reached 9.41m with LTE share expanding to 56.1%. ARPU came in at KRW33,619 recording a year-on-year rise of 6.3%.

Under a stabilizing market with a stronger competitiveness in distribution, service, and network, the recovery of wireless competitiveness is becoming more visible, and by preemptively responding to changing competitive landscape with the enhancement of handset distribution reform act, we plan to lay the basis for a turnaround in the wireless business.

Next is on the fixed line business. Fixed line revenue declined 6.6% year on year to KRW1,408b on declines of telephone subscribers and traffic. We plan to make up for the fall in fixed line revenue through maximizing competitiveness of our bundled products while continuing to solidify broadband subscriber base.

Next is on the media and contents business. Media content revenue recorded a growth of 13.8% year on year to KRW381.3b on sustained growth of subscribers. Even under a fierce competition among Pay TV service providers, KT IPTV acquired 210,000 net additions in Q2 securing a subscriber base of 5.37m subscribers, continuously solidifying its leadership in this market.

The IPTV business seeks to reach over 800,000 net additions this year, and based on value add revenue growth from PTV and advertisement, will continue to enhanced ARPU which will enable a qualitative growth.

Next is on financial rental and other services revenue. Financial rental revenue increased 5.5% year on year to KRW1,017.9b driven by stable revenue coming from BC Card and an expansion of KT rental growth. Other services revenue increased 1% year on year to KRW382b with better performance from IT solutions and other subsidiaries. This brings me to the end of the presentation for Q2 2014.

For more details, please refer to the materials that we have circulated. From now on, we will take questions.

(Interpreted) (Operator Instructions). Hue Jae Kim, Daishin Securities.

(Interpreted) I'm from Daishin Securities, I would like to post two questions. I believe in the first half of this year, there were many changes -- significant changes that had been implemented in KT. A new chairman was inaugurated. You've implemented a quite large scale restructuring of your headcount. And also you made the decision to sell off one -- two of your major subsidiaries.

My first question is until when do you plan to implement such changes or such initiatives and when will be the timing for the normalization of profit for KT?

The second question is that recently, declared the GiGAtopia as the vision for KT. And there is a lot of interest in the market as to whether this could really translate into profit and gains for the Company. There is a talk of adoption of usage-based tariff system as well as additional charging for your heavy data users and also blocking of traffic. So could you provide some color as to whether this GiGAtopia initiative could actually translate into a corporate profit?

(Interpreted) Yes, I admit that were many events that had taken place but it will be helpful for you to understand that such events as a -- our efforts really lay the basis to regain corporate competitiveness from the temporary erosion that we have experienced in the past so that we could really focus our efforts in turning around our telecom business which is our core business and really focus our core competencies in really trying to make KT a leader in the ICT industry.

Towards that end, we have implemented downsizing of our headcount in order to enhance efficiency and we have also made decision to sell off a number of our subsidiaries in order to really funnel our ICT competencies in our core business area and also to improve our financial standing. Now having said that, we do not have a fixed timeline based on which we are working under but -- so if there is any other initiative or plans that we plan to introduce, we will, of course communicate that to the market in due time.

At this point, no specific details relating to the subsidiary sell-off had been decided.

And relating to your second question, based on our competitiveness that we have in the fixed and wireless integrated network, we plan to enter into in telecom-based conversions GiGA Services. Now, this area is not totally a heterogeneous or totally different industry that we are

planning to enter into, this is a converged space whereby we plan to use and really maximize the ICT competencies that KT actually owns in order to truly open up and herald in a GiGAtopia era. So these types of converged ICT services and the commercialization of GiGA internet and the opening up of the GiGAtopia era does not necessarily mean that there would be massive requirements in terms of the CapEx.

So in terms of your question relating to the GiGAtopia and the possibility of it really contributing to the generation of profit, at this point, for each of our business lines, we are in this stage of developing our business plan and once those plans become more specific, we will communicate that to you.

(Interpreted) Hong-seek Kim, Hana Daetoo Securities.

(Interpreted) I would like to post two questions. We actually have high expectations for KT in the coming years. I believe that in the second half of the year, we could probably see some growth in terms of the revenue and we expect declines and depreciation in labor-related costs. I don?t know if you can actually provide specific figures but if possible, can you provide some color with regards to -- with regards to these figures.

The second question is in order to enable TEA services, providing 300 mega bps speed, basically, the 2.1 gigahertz and the purpose for that spectrum has to be changed or adjusted. So I would like to understand what efforts KT is implementing in order to bring about that change in regards to 2.1 gigahertz spectrum.

(Interpreted) Yes, so as you have correctly pointed out in terms of our top line underpinned by recovery of our competitiveness in the telecom business, we do expect our wireless and media revenues to increase going forward. And in terms of cost, yes, as you have also correctly pointed out, we expect declines and depreciation and in marketing expenses. So instead of giving you specific numbers, I think I can share with you my conviction that by next year, we will be able to see a turnaround in terms of our profitability.

Regarding your second question, now, I think you are talking about the three carrier aggregation, 3CA related issue. In terms of the potential reallocation of the 2.1 gigahertz under the -- for the purpose of the LTE, we have made the request and currently MSIP has created a policy review team and is currently undertaking a review of that request.

Also considering the fact that ITU's INT2000 includes LTE in its specification, and since the global trend for the spectrum is towards net neutrality, expansion of net neutrality, we do hope that 2.1 gigahertz can be allocated for the use of LTE going forward.

(Interpreted) Jong-in Yang; Korea Investment Securities.

(Interpreted) I would like to ask two questions. First has to do with your MVNO business and I understand that with regards to the MVNO business, one of your subsidiaries has introduced some advanced tariff plans and I would think that your mid to low-end rate plans would be more of the focus. So could you share with us what your strategy is for your MVNO business?

My second question is in your last call, you also mentioned the five important areas of your long-term growth engine,. I think it includes a smart energy,, security, and smart -- smart intelligent -- intelligent transportation and healthcare, etc., and so of these five areas, which business, converged business are you going to focus on first? And is there any project that that is undergoing at this point?

(Interpreted) Yes, in terms of the strategy for our MVNO business, I wish -- I would like to share with you our overall strategy and not a subsidiary-specific strategy. The MVNO market, as you know, focuses on the low-end subscribers, low-end users, and we believe that this is an effective tool that could really help us maximize the value that KT Networks can provide. To that end, in line with the government's MVNO policy direction, we will very flexibly respond to the market and not lose our leadership in this segment.

Relating to your five -- your question about our five converged services for the future, we have selected these five areas which includes next generation media and IOT, internet of things business in consideration of the future potential growth as well as the competencies that KT owns and also in consideration of the potential synergies that could be generated. So on these five areas, we are in the process of defining the priorities in light of the competencies that we have and also in light of the market trend as well as the size of the market.

Now having said that, these new areas are not yet a mature market and so at KT, we are thinking about these business areas from various different perspectives and really thinking hard about the potential and viable business model. So once things become more specific and more detailed we will communicate that to you.

(Interpreted) John Kim, Deutsche Bank.

Yes, thank you for the opportunity. I have two questions. The first pertain to your marketing efforts. Can you share what your handset retention volume was for last quarter? And how this actually compares relative to the first quarter? I'm trying to make sense of how our retail distribution strength has been recovered when considering your gross add for the last quarter rose 19% year on year while your marketing cost actually increased 32%.

And related to this, how does the management anticipate the handset reform bill implementation to affect the competitive dynamics of the industry. And how do you expect KT to be positioned once this has been implemented?

The second question pertains to your ongoing restructuring efforts for your subsidiaries. I recognize there has been some disclosures about KT's intention to dispose some of your larger subsidiaries and it might be difficult for you to discuss specifics of ongoing transaction. But can you share with us what is the management's strategy with respect to managing your broad universe of subsidiaries and are you trying to streamline, expand, or grow and what is your principle strategy that you are trying to administer as you are trying -- as you are dealing with your restructuring efforts? Thank you.

(Interpreted) Now for the second quarter 2014, if you look at the [MMP] we recorded a net addition of 106,000 and we have maintained over 30% of market share in the new addition market. So we believe that such growth in net addition in the MMP segment was possible because we were able to restore our distribution network capabilities and also enhance KT's mind share in the minds of our users.

So not just during the sales operation period but even after the resumption of sales operation by the three operators we are seeing favorable trends in terms of subscriber performance.

In terms of the handset replacement growth, I think it'll be fair to understand that, in line with the growth in the amount or the volume of the sales, there was also an increase in the handset replacements.

Now in terms of the increase in the selling costs vis-a-vis the increase in the sales volume, during the KT-only operation period, due to the lowered list price, our handset sales were quite favorable and positive. And because of the rationalization of the businesses, the portion that fixed line took out of the distribution actually expanded, leading to an increase in the selling price with regards to the fixed line services.

But such increase in expenses, usually they would be reflected or will be inclusive in the labor costs. But after the rationalization of our business practices, those figures were reflected under the selling costs. That explains the difference.

Now your second question relating to post-implementation of the handset subsidy act, we also do expect market to further stabilize. So once the market stabilizes, the subsidy-based market competition or the defining of the market based on the subsidy is not going to be very easy. And as you know already, the wireless market, the mobile markets in Korea, the penetration is already in excess of 110%. So we do not foresee quantitative growth in this space.

So we will continue to move away from a destructive market-share-based competition. We will actually want to enhance the qualitative growth based on providing a differentiated services, meaning underpinned by ARPU growth, we wish to increase our position.

And during the KT-only operation period, we did see improvement in our wireless competitive edge. So based on a stabilized market share position and also underpinned by ARPU growth, we do expect that wireless business will be restored.

Now in terms of your question relating to the subsidiary strategy that the company will employ, I think from a timing perspective, it will not be all that adequate for me to say whether we will either increase the number of subs or decrease the number of subsidiaries. Now, having said that, I would appreciate if you could understand our approach as a way for us to solidify our competency in becoming an -- towards becoming an ICT leader.

So I guess in conclusion, I can say that our strategic direction is such that we would want to move towards strengthening our ICT competencies, and to that end, we will continue to readjust the portfolio of businesses that we have.

(Interpreted). Josh Bae, UBS.

Yes, hi. Thanks for the opportunity. I have two questions. First is on your wireless ARPU trend. It's good to see solid quarter-over-quarter ARPU increase again in the second quarter. If you could share with us your thoughts on the outlook for the coming quarters? Can we expect solid sequential ARPU increase to continue or even accelerate on the back of high-end LT tariff plan take-up or should we expect a bit of a slowdown as subscriber acquisition competition stabilizes in the second half of the year?

My second question is on the fixed line voice revenue. At the beginning of the year I remember you had guided for about KRW350b decline in fixed line voice revenue for the year. Is this expectation still intact? And how do the new tariff plans for fixed line voice that were launched last month impact this guidance? Thank you.

(Interpreted). Last time we communicated to you, we said that in terms of ARPU growth we expect about 5%, around 6% growth on a per annum basis for this year. But considering the current trend, we think on an YoY basis the improvement will actually be in excess of 6%.

Especially because our LTE subscriber ratio is increasing and also in terms of our unlimited data rate plans which we've introduced, we're putting in a lot of efforts to attract more of the high ARPU rate plans or users.

Now having said that, in the second half of the year and continuing on to next year, the impact of the handset subsidy reform act will have an impact of stabilizing the market. So, there will be a limited upside in ARPU growth that could be incurred from the new sales.

There are also positive factors that could work towards our ARPU growth, because as we can eradicate or eliminate overheating of the market, we could reduce the number of imaginary subscribers, and also we could prevent against massive cut in the rates.

In terms of our fixed line voice revenue, yes, we do still expect around mid-KRW300b of erosion or reduction. The most recently introduced tariff plan, the unlimited fixed rate voice plan, basically was introduced in order to strengthen the retention of the subscribers. And we expect such new rate schemes to really contribute in our retention program for our users, especially the self-employed as well as heavy users.

So also going forward, we would continue to exert efforts to really strengthen retention, especially around such corporate customers and self-employed users who are usually high ARPU customers. We will develop specialized services to meet their demand, so that we can minimize the fall in the revenue.

(Interpreted). Sam Min, Morgan Stanley.

Yes, hi. Thank you. I have two questions. First is on your dividend policy. Can you clarify what your dividend policy is this year in regards to, given the significant one-off that you're incurring due to ERP, etc., and also give us some idea as to where your core parent profit is likely to come in this year so that shareholders have -- can get some expectation as to what your dividends could be?

Secondly, and sort of continuing on with the KRW350b PSTN erosion, so can we expect that type of erosion to continue into next year? And if that is the case and how much revenue will you have to essentially increase in order to offset that PSTN erosion given obviously the higher profitability of that PSTN revenue? In particular, do you expect to be fairly aggressive in selling non-core assets or monetize those assets like real estate or copper next year? Thank you very much.

(Interpreted). Your question on dividend, as you know, there was a large-scale ERP expense that was incurred, and as such, our financial position came under some pressure. So in consideration of those aspects, I think for 2014 dividend is going to be difficult -- dividend payout is going to be difficult. However, any final decision on the dividend payout is going to be decided next year during the BOD session for account closing of 2014 financial year.

On PSTN, as I've mentioned before, yes, there is a continuous erosion of revenue on our PSTN business, for this year it will be around mid-KRW300b. And in order to try to improve on the profitability of our PSTN business, this year we have implemented the large-scale ERP program and also rationalization efforts in our businesses.

Of course, these activities were not implemented solely for the purpose of making up for the PSTN erosion, but one -- I would have to say that it did provide some contribution. But a fundamental way for us to really make up for the PSTN revenue erosion is to enable the turnaround of our wireless business, and when our media businesses start to make a robust growth, I think we will be able to more than cover or more than make up for that erosion.

Now in terms of potential real estate asset sales and the sale of the copper lines relating to these idle assets, currently it is under review but there's not been any specific decisions made.

(Interpreted). Stanley Yang, JPMorgan.

(Interpreted). I would like to ask two questions. The first, in regards to the downsizing of your headcount, the ERP cost, I don't think that the entirety of the ERP cost is booked in the second quarter numbers. So, could you provide some color on that? And if you were to exclude the impact of this one-off expense, what would be your operating profit on a standalone parent basis as well as on a consolidated basis? And once the labor cost is normalized going forward, in a quarterly basis, what would be a normalized level of labor cost that we can expect going forward?

Second question, you've mentioned that the key to your strategy is to really seek a turnaround in your wireless business. In the second quarter, yes, there were some positive aspects such as net additions of your MMO subscribers and also your subscriber acquisition volume had increased. But also from the qualitative perspective, meaning on the cost side, were there any positive signals that could hint turnaround in your wireless business? For instance, was your SAC, subscriber acquisition cost, better for instance compared to your peers?

(Interpreted). In terms of the ERP-related expenses, if you look at the total number of people who had retired, it's 8,356 people who had made the early retirement, and the total ERP-related cost was KRW1,235.7b.

And as I mentioned previously, the amount that was booked for this quarter, the second quarter that is, with this one-off expense, was KRW1,052.7b.

And the differential that you see between the two figures were -- is actually attributable to the usage of the allowance that we had provisioned for the severance payment. So it's correctly you -- so in the second quarter, the entirety of the ERP-related expense had been booked, because we used the provisioning for the severance retirement.

So with that, I think that on an operating profit line item there will be an improvement in fact of about KRW170b.

So, following the massive or the large-scale ERP, there will of course be some natural increases in the outsourcing costs and consignment costs, so the actual impact or the actual expected positive impact on OP will be lower than the figure that I just shared with you.

In the second quarter, during KT's -- KT-only operation period, through very effective marketing activities such as lower list price and the introduction of Sponge program and strengthening of our bundled products, and also by facilitating and activating our distribution channel, we do believe that we had successfully attained turnaround in terms of subscriber performance. And our SAC was not higher than our competitors.

And also especially during KT-only operation period, in terms of our channel strategy, we have really made thorough preparations while we were under sales ban or suspension of sales operation period, and we really targeted large-scale retailers, and we do believe that that effort was quite successful.

So once the handset subsidy reform act is implemented and even after the market is stabilized, since we have strengthened and solidified our channel capabilities, by introducing variety of products, we will continue to focus on achieving turnaround in our wireless business.

(Interpreted). Jee-hyun Moon, KDB Daewoo Securities.

(Interpreted). I would like to ask two questions. The first has to do with your media and content business. We've seen some significant increase in growth in your subscriber base. And so can we also then expect improvement in your profitability going forward? And what would be your long-term business strategy and direction for the media and the content business?

Second question, so we've now seen new heads -- new heads of ministries at [MCIP] as well as we have new head at the ministry of finance and strategy. So what do you think will be an opportunity for KT Group under this new government leadership?

(Interpreted). The media and the content business is one of a very critical growth engine, next-generation growth engine, for KT Group. So based on the diverse media platform that KT has, and for instance in IPTV, satellite and mobile, as well as its competitive edge in terms of the access to the subscribers and users, we will continue to maintain the strong number one position that we have enjoyed in IPTV broadcasting market.

Within KT Group, we have a media and content consultative committee or a body. What this consultative entity or the group actually does is to identify synergies amongst the group of companies and also, based on ICT convergence direction, to try to develop the strengths and edge of these respective businesses. And through continuous development of differentiating services and technology, as the number one player in this market, we have a firm commitment to maintain that number one position.

As you know, the media and content business, in combination or -- in combination and bundled with our broadband services and mobile wireless services, is playing a very important role in -- at acquiring new subscribers and also retaining those subscribers.

Now if you look at KT IPTV on a standalone basis, its revenue is continuously growing, but because of a relatively higher level of content sourcing cost, we have yet to post a profit. Now, however, having said that, if you look at our content sourcing cost as against our total revenue, that trend is continuously declining. So we will continue to exert efforts to improve our cost structure so that we can generate profit.

Now regarding your second question, the government seeks to really facilitate and promote the market by generating results in terms of its creative economy based on ICT and science and technology, and also through deregulation. And of recent, government has also announced policy that places a great focus on the importance of software. And so accordingly, KT is making preparations in the five areas of convergence, which we've mentioned previously.

And also in terms of the software industry, currently we're providing a lot of support to small and medium enterprises who are within the industrial complexes under the initiatives of the government.

And so these are small, medium enterprises, SMEs, in this industrial complex. We provide them support so that they could save on the shared services costs, and also providing legal services and safety-related support, as well as vehicle support.

And also for SMEs in the industrial complex at Seongnam City, we are trying to provide them software-related support by launching our [Biz Mecca] software.

So as we align ourselves with the government strategy, I believe that we at KT could also make contributions in creating a creative economy, and also supporting the SMEs of the nation.

(Interpreted). Jeongpyo Kim, UBS Hana Management.

(Interpreted). I would like to pose two questions. You've made decision to sell off your subsidiary KT Capital and KT Rental. What are you going to do with the sales proceeds? Where will that money be used?

Second, in terms of your pay TV services, you currently have two products, OTV and OTS, which is provided via your subsidiary. Do you continue to -- do you plan to continue to have both of these products or through restructuring of your media business, do you somehow plan to combine those two?

(Interpreted). No. The cash proceeds that we will gain from the sales and disposition of KT Rental and Capital is going to be firstly used to improve our financial structure.

Relating to your second question of -- on OTV and OTS, now OTS, you should understand this product as the product that only KT can provide. This is a hybrid product. Now OTS brings the strength of the satellite and the IPTV services. This is a high-quality service. It's a customized service for our user base, and the churn rate is also very low. Especially in consideration of the launch of the UHD services, since we can effectively make use of the satellite services, OTS will contribute greatly in leading KT into a upper hand or in a favorable position in the UHD era.

So OTV and OTS are not redundant or overlapping products. They have their own idiosyncratic characteristics. They are differentiator products.

In terms of KT's media business, within the Group, as I mentioned before, we have a consultative body, a committee that was set up for the media and content business. And that team is trying to identify the most efficient synergy between OTV and OTS and studying into possibilities of how to better leverage the strength of these two products towards the ICT convergence service. So in this regard, we are currently looking at various different aspects to come up with the most optimal solution in our efforts to provide the most optimum services, by really enjoying the synergy between these two products or between the two companies.

So you could understand our approach as being exerting efforts to find the best synergy between the two companies or the two products that could better contribute to the further growth of our media business and media industry.

(spoken in Korean)

(Interpreted). As there are no further questions, we will close the Q&A session. Thank you very much for joining us today. This will be the end of Q2 2014 earnings conference call. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.? The interpreter was provided by the Company sponsoring this Event.