KT Corp (KT) 2015 Q4 法說會逐字稿

(Interpreted) Good evening. Thank you all for joining this conference call, and now we will begin the conference of the 2015 fourth-quarter preliminary earnings results by KT. We would like to have welcoming remarks from Mr. Youngwoo Kim, KT IRO; and then Mr. Gwang-Seok Shin, CFO, will present earnings result 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'm Youngwoo Kim, KT's IRO. We will now begin 2015 full-year earnings presentation. Our call is being webcasted via the Company's website, so please refer to the presentation slides as we present the business results.

Please note that since the first quarter of 2011 KT has been presenting consolidated numbers under the IFRS accounting standard.

Now, I will invite our CFO, Gwang-Seok Shin, for his opening remarks and presentations on 2015 earnings results as well as business outlook for 2016.

(Interpreted) Good afternoon. I'm Gwang-Seok Shin, KT's CFO. 2015 was a meaningful year as it marked 130th anniversary in Korea's telecommunications history, and also because KT was able to bring solid turnaround and through structural cost improvement efforts positively changed customers' perception of our product and services, as we achieved quite a significant profitability improvement.

In the wireless business, by introducing leading edge services such as data select rate plan introduced for the first time by KT and the media pack, which is a distillation of mobile content capabilities, we continued to enjoy subscriber net addition since the first quarter. For fixed-line, GiGA Internet subscribers increased to over 1.1 million and IPTV subscribers above 6.5 million, helping with the unrivalled number one position in internet and IPTV.

This year KT plans to bring along a complete differentiation in its product offerings against competitors, transforming customer perceptions so as to use such edge as our growth engine for our core businesses. By the end of the year, we plan to expand GiGA coverage to 100% across apartments nationwide. By further investments in GiGA infrastructure, which is KT's core edge, we will lead offering of new services such as GiGA Internet, GiGA Wi-Fi and GiGA LTE.

Through such a robust competitiveness across both fixed and wireless, we expect top-line growth from other fixed-line businesses such as broadband internet and media to be more than offsetting the decline in PSTN revenue starting this year. As such, we expect a meaningful change in KT's revenue structure.

In terms of new growth engines, we will focus on generating results based on two main pillars of ICT-based future convergence business and platform business. And in terms of five key areas of converged GiGA service, who are namely smart energy, integrated security, next-generation media, healthcare, intelligent transportation management, through selecting and focusing we will secure a business model that can be quickly deployed.

And by converging this business model with GiGA infrastructure, we will strive to transform into a platform-based business around O2O, Fintech and IoT.

In IoT, based on intelligent infrastructure of big data and cloud, we will continue to deploy industrial IoT business models which explore opportunities in convergent services with other industries, and accordingly, we plan to solidify home IoT service as well.

KT will endeavor to achieve 2016 consolidated revenue of above KRW22 trillion, underpinned by stronger telecom competitiveness and structural cost reduction and bring about continuous improvements of profitability.

In 2016, driven by KT's number one technology and services, we will further strengthen growth and profitability potential of the telecom business and through a robust performance from future growth businesses, KT will strive to become a global number one.

With that, let me now move on to 2015 results and 2016 business outlook. 2015 operating revenue declined 0.1% year-on-year on lower fixed-line and merchandise revenue, whilst service revenue increased 2.4% year-on-year to KRW19,513.8 billion, driven by across-the-board growth except for fixed-line business.

Operating profit recorded a significant turnaround year-over-year at KRW1,292.9 billion, enabled by a stronger fundamental competitiveness of our core business leading to subscriber and top-line growth on top of structural cost innovation efforts. Net income came in at KRW631.3 billion and EBITDA was KRW4,631.5 billion.

Next, is statement on the financial position. 2015 debt-to-equity ratio is 141.2%, down 45.3 percentage points year-over-year. Net debt ratio is 49.9%, down 42.7 percentage points year-over-year.

Next, on CapEx. Total CapEx for 2015 is KRW2,397 billion and this year we plan to be efficient within KRW2.5 trillion of CapEx.

Next, is on each line of business. Wireless revenue recorded KRW7,370.7 billion, up 0.7% year-on-year. Wireless service revenue posted a growth of 3.4% year-over-year on higher LTE penetration, increase in high quality subscribers led by greater use of data and sale of value-added data products such as data Top-Up. LTE subscribers now account for 71% of the total base with Q4 ARPU at KRW36,491, which is up 0.8% QoQ.

In 2015 as we saw wireless competitive landscape change into one that is data centric, during which KT's fixed and wireless GiGA network and product edge were acknowledged by the customer, leading to 3.4% annual growth in wireless service revenue. This year, based on a broader and faster GiGA network, we plan to provide fully differentiated data usage environment leading the market with premier customer service so as to bring wireless ARPU and service revenue growth of more than 2%.

Next, on fixed-line business. Fixed-line revenue on PSTN revenue decline was down 6.9% year-on-year to KRW5,158.7 billion. But equipped with GiGA Internet that has broader coverage and maximum 10 times faster speed in just one year and three months since its commercialization acquired 1.1 million subscribers for the first time in Korea, achieving our 2015 strategic target. As a result, broadband revenue rebounded over the third quarter and the fourth quarter and we expect fixed-line revenue to show improvements underpinned by GiGA products going forward.

This year broadband business is expected to continue with subscriber net addition trend, reaching more than 2 million GiGA Internet subscribers by the end of the year, sustaining the top-line growth.

Next, on media and content business. Media and content revenue increased 10.2% year-on-year to KRW1,662.3 billion. Despite tougher market environment, IPTV endeavored to keep its leadership through content that cater to customer preference and through preemptive expansion of UHD channels.

Since 2011, our IPTV business had posted high average top-line growth of 21.7% for five years until last year. Last year alone 690,000 subscribers were acquired, with total subscriber base reaching over 6.5 million. For this year, for IPTV our target for subscriber net addition is 500,000 and standalone IPTV revenue growth of over 20%.

Next, is on financial and other revenue. Financial revenue increased 5.9% year-on-year to KRW3,411 billion on good revenues from BC Card led by higher card usage. Other service revenue increased by 29.5% year-on-year to KRW1,911 billion on higher IT and solution revenue led by sound global ICT business.

Next, is on operating expense. 2015 operating expense came in at KRW20,988.3 billion, which is down 7.6% year-on-year. To note, labor cost declined 15.7% y-o-y to KRW3,303.5 billion. KT will strive to find ways to structurally enhance cost efficiencies and bring about improvements on profitability.

Now, that brings me to the end of the presentation on 2015 results and business outlook for 2016.

(Interpreted) For more details please refer to the materials that we have provided. We will now take your questions.

(Interpreted) Now, Q&A session will begin. (Operator Instructions)

The first question will be provided by Hoe Jae Kim from Daishin Securities and the next question will be provided by Jong-in Yang from Korea Investment & Securities.

(Interpreted) My first question relates to your media business. You shared with us your IPTV revenue target, but you have not talked about the bottom-line aspect. Can you share with us what your profitability target is for your IPTV business? And also in terms of your media business, what synergies can we expect between KT and SkyLife going forward?

Second question has to do with your non-operating items. It seems that your non-op loss was quite significant. I'm wondering whether this is mainly due to some of the expenses related to restructuring or are these non-operating losses one-off factors?

(Interpreted) Your question relating to the IPTV profitability and the cooperation with SkyLife; first, on IPTV. We continue to see increases in the high quality subscriber base and also platform revenue as well as improvement in terms of cost efficiency.

So we see these elements making contributions to improvement on the profitability aspect, and hence our target is to achieve breakeven point within the -- there is basically no change in our position that we will continue to retain and sustain our market leadership in the next-generations media industry.

Compared to HD levels, UHD actually enjoys a traffic that is about two times or three times higher. We believe that in the age of UHD, KT, since it has its satellite platform can really leverage and utilize the advantage that it has.

In terms of the subscriber number, in satellite we have 2 million subscribers and we have 6.5 million IPTV subscribers. We have the basis, therefore, to strike a good balance between satellite and IPTV as well as cooperate and collaborate in order to provide the best UHD services to the customers.

Relating to your second question on non-operating loss, I would like to explain as to the reason behind that and future outlook. Over the past three years as we implemented corporate restructuring and improvement and revamping of our corporate portfolio and as we sold off unsound assets inevitably we had incurred significant losses on a one-off basis. Same goes for the fourth quarter of 2015. In order to eliminate potential risk that may negatively impact our profitability and cash flow going forward, we inevitably had to bear the one-off expenses.

Now, 2015 was a year where we were able to complete an array of corporate restructuring efforts. Hence, we will continue going forward to focus our efforts on accelerating the growth potential of our core businesses and also bringing about a tangible performance and outcome from our new growth engine businesses. As a result, we will be able to see reduction in one-off expenses or non-recurring expenses.

And going forward, in order to further improve our profitability and also to make sure that we have stability in terms of the operating as well as non-operating profit stream, we will exert our efforts to bring about that visibility. And in 2016 we will try our best to bring about and we expect that we will see some good visible results.

(Interpreted) The next question will be presented by Jong-in Yang from Korea Investment & Securities and the following question will be presented by Hong Sik Kim from Hana Financial Investments. Mr. Jong-in Yang, please go ahead with your question.

(Interpreted) I would like to post two questions. The first, I would like to understand what the trend is in terms of that 20% tariff discount scheme that people are taking out and what impact is the tariff discount plan having on the ARPU as well as marketing cost? I would like to know what the actual figure was or the extent of the impact was in Q4 and what is your projection for 2016?

Second question is for your 2016 bottom-line. Which will have a bigger impact, would the growth in top-line have a bigger impact or would reduction in cost have a bigger impact on increasing your profitability? For instance, if you were to be able to save some operating expense items, specifically where would you be able to enjoy that reduction in cost?

(Interpreted) Relating to your question about the 20% tariff discount scheme, if you look at Q4, the number of subscribers who took out the scheme was 540,000. And on an annual basis, the percentage is 15.1% -- that's for 2015 annual.

And in terms of the future projection relating to subscribers taking out this 20% of discount rate plan, once that ceiling was increased we see increase in people's adoption of this rate plan. But you also have to keep in mind that in the fourth quarter there was a new iPhone model that was launched, so we believe that there could have been some temporary impact.

We think the 20% rate plan take up rate is going to vary depending on the level of subsidy provided and depending on the introduction schedule of key handsets into the market. But all-in-all, we believe that on average the take up rate will be somewhere around mid-20%.

In terms of the impact on ARPU, it is true that the tariff discount scheme is going to have some negative impact on this figure. However, you also have to keep in mind that this rate plan helps us to attract high quality subscribers and also the churn rate is going to decline at least during the subscription period and there is lower level of initial marketing cost.

Especially for people who select the tariff discount scheme as opposed to the subsidy is going to feel less of a burden in terms of paying for the monthly tariff, so therefore there's a higher percentage of high quality consumers or subscribers. But from a comprehensive perspective as to what -- on a per subscriber level what impact it actually deals on a P&L, it varies and it differs depending on the timing of the churn itself. So it's very difficult for us to come up with an exact prediction.

Responding to your second question, in 2015 we were able to achieve a turnaround in our core business and also reduce marketing expenditure due to more stabilized market and was able to conduct headcount restructuring. All of these efforts helped us achieve improvements in profitability, which is all underpinned by such restructuring efforts.

Going forward, in 2016 as well we will focus on growing our core businesses and also in trying to get visible outcome from new businesses and bring about efficiencies in our structural cost structure so that we can continuously enjoy improvements in bottom-line.

As I explained before, we plan to increase our service revenue underpinned by our core business growth as well as bringing about great performances on our new business initiatives.

In terms of the wireless -- in terms of the wireless business, based on data we will achieve qualitative growth and also will further reinforce cost efficiencies. And based on our GiGA leadership, we will continue to grow our broadband business and also in terms of the IPTV, we will continue to increase IPTV platform revenue and based on subscriber quality be very aggressive in improving the bottom-line so that within the year we can achieve our breakeven point.

In terms of PSTN, the revenue decline, we want to reduce the extent of the decline to around mid KRW200 billion. And we believe that the outcome from our new initiative such as future convergence business platform and global businesses, these growth engine businesses will start to show some visible performances. And underpinned by the outcome and efforts in restructuring, we believe that our key group of company subsidiaries will also contribute to a very stable top-line and bottom-line growth.

On the expense side, we will continue to expand on the efficiency as well as stability. For marketing expense, depreciation, these key expense items are declining and being more stable as it declines. We are improving on the process itself, efficiency is improving and also business flow is improving. Through such efforts we will enhance our structural cost

efficiency so that we will be able to make up the fall in PSTN top-line.

(Interpreted) The next question will be presented by Hong Sik Kim from Hana Financial Investment and the following question will be presented by Jee-hyun Moon from KDB Daewoo Securities.

(Interpreted) I would like to ask you two questions. Last year you made the disclosure that you will be paying out the dividend at KRW500 per share, excluding the one-off items. What is -- on the HQ level or the mother Company level, what is your payout ratio and what is your policy for future payout ratios?

Second question is, CEO Hwang recently has said that he is committed to increasing the corporate value. I would like to understand what methods would you be able to use to try to buoy your equity prices?

(Interpreted) Now, on dividend, we've, yes, made the decision that it would be KRW500 per share. A more exact calculation might be needed. But on a rough calculation aspect and excluding the one-off, the payout ratio will be around 30%.

You also asked about 2016 dividend policy. We do not have any explicit guidelines relating to this 2016 dividend policy. But we will continue, as we make the calculations, to exclude the one-off items when we calculate the dividend on a stand-alone Company basis.

2016, just as 2015, once we get some visibility on our annual business performance and once we eliminate some of the uncertainties in the business operations and regulatory environment, we will be able to communicate with you as to what that dividend might look like.

And we will continue to prioritize on the bottom-line and improvement of cash flow, based on which we will conduct our business activities. And I believe that in that process we will naturally be able to expand shareholder return.

Responding to your second question, over the past two years as we were able to attain turnaround in our core businesses and bring about improved structure, organizational structure, we were able to enjoy better profitability, better financial structure, as well as cash flow.

Going forward also if we -- and we also have set for ourselves a very clear vision for our future growth. And based on such improvement and profitability, we were able to restart dividend payout in 2015 and going forward we will also continuously endeavor to expand shareholder return underpinned by improved profitability and improved cash flow.

KT from a mid-to long-term perspective, basically if you consider our capabilities in profit generation and in growth potential, I believe that KT's equity price is undervalued. But going forward, we believe that that gap that exists between the value of the Company and the share price will continue to reduce.

In 2015, we were able to achieve improvements in many different aspects and we will continue to maintain that improvement trends going forward. And we believe what is most important is also to build firm trust and gain trust from the market.

KT's executives are committed and have placed priority on enhancing shareholder value. We believe that is most important and we will do our utmost to attain that.

(Interpreted) The next question will be presented by Jee-hyun Moon from KDB Daewoo Securities and the following question will be presented by Neil Anderson from HSBC.

(Interpreted) I have a question relating to your mobile ARPU. LTE penetration has reached a saturation point and the government authorities are exerting some pressure relating to the tariff discount plan, and in Q4 it seems that ARPU has slowed. So for 2016 what do you think is the key driver behind the ARPU growth, because there are some concerns that ARPU could start to record negative growth?

Second, your -- the cost that goes into the merchandize -- the cost of merchandizes purchased seems to be higher than the merchandize revenue. This seems to be a trend since the introduction of the Handset Subsidy Act. Is there any specific reason behind this trend and should we expect the same for this year as well?

(Interpreted) Now, on ARPU, due to the change in consumers purchase pattern for handset, the ARPU growth has slowed. However, with more people moving over to LTE services and with the greater percentage of high quality customers if you look across the quarters the ARPU -- there was ARPU growth and our target, annual ARPU growth target is at 2%.

The percentage of subscribers who take out the tariff discount plan are increasing, the percentage is increasing. You also have to be mindful of the fact that the actual tariff burden that the people feel is therefore lessened and that actually leads to higher data usage by the subscribers. So the negative impact that one might think is somehow limited.

And also LTE penetration gradually and continuously rises -- it is rising -- and considering the fact that subscribers require multimedia services, which lead to more data usage, the need also continuously rises. So in that aspect, we still believe that there is room for ARPU growth.

Especially if you look at GiGA LTE, which is a differentiated service that really befits the generation of data users, we can expand on the high quality subscribers. And by introducing products like My Time Plan, which is a value-added product for new unlimited data, and also VIP pack, which is a multimedia value-added product, through such products and services we continuously provide new value offerings to our subscribers and through that we are going to achieve our ARPU growth target.

Next, about the gap, the greater gap between the cost and the revenue related to the merchandise, merchandise revenue as opposed to the cost and expense. Since the implementation of the Handset Subsidy Act there was a adjustment and change in the way we do the accounting for the subsidies, so in 2016 we believe that that much of a difference between the revenue and the cost will continue relating to this merchandise.

(Interpreted) The next question will be presented by Neil Anderson from HSBC and the following question will be presented by Sam Min from Morgan Stanley.

I had a question about the MVNO market in Korea and I understand that with the growth of customer preference for tariff discounts that should help reduce the risk from MVNOs. But I would be very grateful if management would outline how they think the MVNO market will develop and particularly what the advantages in a customer choosing an operator like KT over some of the -- the attractive and cheaper tariffs offered by the MVNOs? Thank you.

(Interpreted) Relating to the MVNO market, recently the net addition trend in the MVNO segment has somewhat slowed. But in light of the fact that the government wants to really promote this segment, we believe that the growth trend of the MVNO market will continue. So from a mid-to long-term perspective they can actually grow to around 15%.

Since the introduction of the Handset Subsidy Act there was a more stronger MNO retention and also there are inherent limitations in the low price or low end market. So because of that and also because of also the competition amongst the MVNO providers, in 2015 the growth for MVNO had quite slowed.

Thank you.

(Interpreted) Now, KT's position is that it wishes to and it is committed to maintaining a market leadership in the MVNO market and also it will employ flexible countermeasures responding to the changes in the market. As of end of 2015, the percentage of MVNO subscribers stood at 15% and by the end of 2016 we are targeting around 17%, above 16%.

You also asked about the advantage of MNO as opposed to MVNO; based on more diverse product portfolio, MNOs can provide bundled products and provide various different subscriber services as well as competitiveness and also provide a variety of handset line up that customers can choose from.

(Interpreted) The next question will be presented by Sam Min from Morgan Stanley and the following question will be presented by Stanley Young from JP Morgan.

Before I ask my two questions, could you remind us how many MVNOs are there in Korea and if any one of these MVNOs can gain scale in the future?

My two questions -- my first question is on regulations. So MSIP released 2016 plans a few days ago. One particular plan is suggesting to lower contract termination fees as well as restructuring handset subsidies to allow lower cost of churn for users. Just wondering how you think this will impact the market or wireless market going forward? Related to that would be, what would happen to handset turnover volume as well as SAC?

Second is on telephony erosion. Could you explain what part of PSTN are eroding the fastest? You seem to have essentially met your guidance, where you came in at KRW290 billion erosion and you were targeting about KRW300 billion erosion. So how do you have this visibility? And you are now targeting mid KRW200 billion erosion for this year, 2016. Could there be an upward surprise to that or downward surprise to that? Thank you.

(Interpreted) In terms of the MVNO players in Korea, including the 21 players who cooperate with KT, there are 46 MVNOs in total in Korea. And as of end of the fourth quarter, they account for 9.7% of the market. And we believe that their position can grow to account for around 15% of the market.

Relating to your question on regulation, the big picture stance of the government still is intact. Basically, government is seeking to facilitate service competitiveness so that at the end of the day users can enjoy less of a burden when it comes to telecommunications expenditure. And still -- you will see from the Handsets Subsidy Act as well as the overall regulatory framework that the focus is on enhancing consumer benefit and reducing discrimination.

And the 2016 plan that was announced by MSIP and KCC, basically the key gist of it is in terms of -- is reducing the contract termination fees as well as providing more data to the vulnerable segment of the society. All of this is in line with that big picture.

And KT will continue to reinforce its service and product competitiveness so that it will contribute to naturally facilitating competition in the market so that the consumers can truly enjoy the benefit.

Having said that, with regards to the 2016 government plan, I think we would need to more closely look at it and will get back to you if necessary.

Relating to your second question, 2016 fixed-line erosion is, yes, mid KRW200 billion, so it's going to be lower than the previous year. And after 2016, taking a conservative view, we think that the erosion will be around 11% to 12%.

The absolute amount is basically declining, so the burden on the revenue and profit side is continuously declining. And also 40% of this fixed-line is basically for -- is for businesses. Considering that aspect, we think that this erosion itself -- the percentage of erosion itself could soon enter into a more stable phase.

Also, in 2016, with our GiGA business and our future growth engine businesses, we can truly make up for that erosion. With continuous growth in the GiGA business and IPTV and improvement in our business efficiencies and innovation in our cost structure, we believe that it is possible to even offset the bottom-line burden.

(Interpreted) The next question will be presented by Stanley Young from JP Morgan and the following question will be presented by Sharon Chen from MetLife.

(Interpreted) I would like to ask two questions. The first, you mentioned that you will be able to achieve breakeven point for your IPTV business. In this scenario did you assume SKT firstly acquiring CJ Hellovision or did you not assume that? And with this CJ Hellovision acquisition, will this have any impact on your business?

And second question is, this year you were able to make -- cover for, make up for the fixed-line erosion part through media -- PSTN erosion through media and broadband business. I ask that question because I would like to understand what from an overall perspective your operating profit forecast is going forward either on a standalone or consolidated basis? Is it possible for you to be growing your profit, if so, to what extent?

(Interpreted) Now, the IPTV business basically we plan to attain breakeven point underpinned by subscriber growth, quality improvement and cost reduction.

In terms of CJ Hellovision, KT's view is that the fact that such nationwide broadcast player is acquiring a local player is unprecedented and also the fact that a dominant player in the mobile telecommunications is entering into a broadcasting market also that is an attempt -- that is an interesting attempt and that is an attempt, and so we are very closely monitoring and observing and coming up with ways to deal with it and responding to it.

However, we have not assumed this merger to take place, based on which we came up with any countermeasures. So we did not review any specific countermeasures that assumes that the merger goes through.

You asked about profit for 2016. Compared to 2015, we are focused also on bringing about better bottom-line and are conducting our business activities under that goal. We believe that we can amply increase our profit.

But having said that, there could be unexpected internal and external variables; therefore, we are prudent in communicating specific profit target. But through the years we believe -- and as seen by 2015, we believe that we have normalized our capability in profit generation and so we will exert our outmost efforts to continue this trend.

(Interpreted) The next question will be presented by Sharon Chen from MetLife and the following question will be presented by Sean Oh from Merrill Lynch

So my first question is on the wireless market. I have noticed that this year I think KT has been gaining subscribers at the expense of SKT. Can you just briefly comment on where you think KT's strengths lie and what SKT has been doing in order to stabilize their market share?

And my second question is on acquisitions. Given that your restructuring program is now almost behind you, is the Company open to making acquisitions in certain growth areas, and if so, what type of companies would you be interested in acquiring? Thank you.

(Interpreted) Now, KT was able to continue with its subscriber net addition trend underpinned by our core competitive edge in terms of distribution and service competitiveness. Especially, since the first quarter we have expanded on our quarterly net addition size and on an annual net addition basis we achieved a turnaround.

In a changing market environment where a paradigm is changing and focusing on service competitiveness, we are leveraging our GiGA infrastructure, based on which we are providing differentiated services to different customer segmentation. By providing such specialized services, we are leading competition in terms of service and we have strengthened our leadership in the mobile market.

Going forward, KT will continuously explore and discover new differentiated services which are data centric and we will compete not based on subsidy, but based on different services so as to satisfy our customer needs.

Relating to your second question for our growth businesses of future conversions and platform business, we can consider possible M&As, but we are not in a position to say anything specific more than that because we believe that in terms of M&A our position is that we must be very prudent.

(Interpreted) The next question will be presented by Sean Oh from Merrill Lynch.

(Interpreted) My first question; it seems like these days low end phones -- mid-to-low end phones are starting to take off. If so, would it actually help you reduce your marketing cost?

Second; your total subscriber number has increased, but if you specifically carve out the MNO subscribers, year-on-year it is flat. Is your position or policy trying to retain and maintain your MNO subscribers and trying to grow your MVNO or do you also have plans to really want to -- plans to increase and grow your MNO subscriber as well?

(Interpreted) Since the implementation of the Handset Subsidy Act there was reduction in the lowering of the handset ex-factory price. And also we have seen the demand for mid-priced handset and the demand for such lineup has declined, whereas demand for low end phones have increased. So the market is in a state where we see a dichotomy between the premium phone and the low end phone.

Since 2014, KT is responding to such change in the demand patterns vis-a-vis the handset. We have focused on mid-to-lower end models, 3G phones and also phones and handsets that can be more popularized. And we have focused on sourcing these types of phones actively as well. But all-in-all, marketing cost we believe is going to converge at a quite reasonable level.

Responding to your second question for the MNO subscribers, the market has already hit a saturation point, so it is not easy to increase the number of MNO subscribers. So rather than trying to expand the market share from a short-term perspective, our position is to maintain the current market share but have our customers and subscribers trade up so that they become a higher quality subscriber.

MNP is important, but handset replacement demand, handset upgrade demand has become also very important. So our position is to focus more on long-term customer retention.

For the MVNO market, KT's objective is to continue to enjoy its leadership and we will be flexible in responding to market changes.

(Interpreted) I have a follow-up question. I'm wondering that if you were to account for the revenue for the MVNOs at the revenue level, are there any accompanying costs that we have to think about.

(Interpreted) For the MVNO it's safe for you to say that there is no other cost other than the direct costs.

(Interpreted) With no further questions, we will now close the Q&A session. Once again, thank you very much for joining us today. This brings us to the end of 2015 earnings conference call for KT. 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.