SK Telecom Co Ltd (SKM) 2002 Q2 法說會逐字稿

Good morning and good afternoon. First of all, thank you all for joining this conference. And now we begin the conference of the first-half 2002 earnings results by SK Telecom. This conference will commence with a presentation about the first-half 2002 earnings results, followed a divisional Q and A session. If you have a question, please press 1 and 4 - that is 14 - on your phone during the Q and A. If you wish to cancel your question, please press 1 and 5 - that is, 15 - on your phone.

Please go ahead, sir.

Good afternoon, ladies and gentlemen. Welcome to SK telecom's first-half earnings results conference call.

My name is [Ty Jin Tok], and I am a senior manager at IR office in SK telecom.

Before we begin with our Q and A session, I would like to make a few remarks about our earnings results and current issues.

The company recorded a 4.05 trillion one of sales revenue during the period, 1.4 trillion one of operating income, and 900 billion one of net income during the same period.

Try to keep in mind that all the comparisons that were done was based on compared with the numbers that were produced on [inaudible] basis as if the [inaudible] and SK Telecom was done in December of year 2000.

Our cellular revenue rose about 20% year on year to 3.5 trillion one. This was attributed to the growth in [inaudible] base and the increase in MOU. Despite a lower voice type and [inaudible] interconnection rate from January this year, the average monthly up in first half fell only by 1% year on year to 42,465 one due to increased usage of value-added service and wireless internet.

The monthly up, excluding interconnections in the first half this year increased by 5% year on year to 36,891. Wireless internet revenue increased by 148% year on year to 294 billion one, representing 8% of the cellular sales revenue. This is mainly due to the continued increase of [inaudible] subscribers especially in [inaudible] is two times higher than that of our [inaudible] handset holders. Interconnection revenue fell by 19% year on year to 530 billion one because of the new interconnection rate regimen from the beginning of this year. As to [inaudible] interconnection revenue dropped by 27% year on year to 337 billion one. However, [inaudible] to [inaudible] connection revenue rose [inaudible] to 193 billion one. This was attributable to the increase in incoming call traffic resulting from the growth of cellular market.

The first half earnings - the first half operating expenses increased by 9% year on year to 2.68 trillion one and marketing expenses rose 57% year on year to 719 billion one. This was because we were able to engage in normal marketing activities, unlike the first half of last year, when the market share reduction was imposed on the company.

Also, our advertising expenses increased due to World Cup related promotional activities.

Depreciation expense decreased by 19% year on year to 624 billion one and interconnection expenses fell by 7% to 310 billion one. The non-operating income rose by 105% year on year to 136 billion one and the non-operating expenses fell by 28% year on year to 204 billion one. In the first half, the company made equity investment in Lycos Korea and Korea [inaudible] media center. The purpose of this investment was to pursue our wireless internet [inaudible] which is to give a personalized internet access to our subscribers anytime through any devices available to the subscriber, such as PC and TV. We have maintained the leading [inaudible] in [inaudible] market with 6.7 subscribers or 65% of (inaudible) market at the end of June this year. And the increasing number of caller handset holders, which currently represents 13% of total subscribers, will contribute to our wireless internet sales growth going forward.

This ends my remark. Thank you very much for your attention. We may now proceed with Q and A session.

Now the Q and A session will begin. Please press 14 if you have any questions.

The first question is from Mr. Allistair Scott from Hong Kong Merrill Lynch. Please go ahead, sir.

Thank you very much. Thank you for the call. A couple of questions, please.

Are you, at this stage, revising your guidance for the full year? Obviously, you gave some numbers at the beginning of the year which were, I think, going to be reviewed after you'd seen the impact of the interconnection policy. I was just wondering if there was any update on that.

And also, your guidance for your capex, where that was at the moment. I suppose, also, can we just ask what your current formal position is on the KT cross-share holding?

Full-year guidance that we have given to you earlier this year, that has not been that many changes to that. Certainly as to the marketing expenses, it's slightly more than what we had anticipated, but it's been consistent at about 360 billion one range. So we'll have to look at the third quarter marketing expense numbers to give you any additional guidance as to whether we may end up with a slightly higher marketing expenses than what we had anticipated at the beginning of this year.

You're still happy with your original revenue guidance?

The revenue guidance was - yes. The guidance that we have given to you based on the first half results from us may seem slightly higher than what you may expect, but with the increase in [inaudible] numbers and achieving the [inaudible] numbers earlier in the year, rather than later in the year, together with increased wireless internet revenue stream going forward, we will still target or look for revenue that we have given guidance to. But you should not take that as a given number, in other words. But full-year capex-wise, we are not going to change the full-year capex numbers that we have given to you earlier this year, which is 1.5 trillion one. Yes, we already spent about - slightly under 600 billion one only, but since we have [inaudible] 1.5, we are still going forward with that guidance.

Now, whether there will be actual capex spending of 1.5 trillion one or not, on that I cannot give you an assurance, because last year, once again, our capex figures were 1.5 trillion one budget. Actual spending was 1.13 trillion one or so.

As to the KT - our investment in KT, there has not been any change to our stance. We made an investment because of two reasons. One was to [inaudible] our [inaudible] concerns and one was to address the open issue. If both of these issues can be resolved, if a solution can be found, then I think there could be further developments in that particular subject.

Could I just follow up on the strategic concern element?

We didn't see any other significant bidding at the time of the KT privatization, so what is it that has to happen to make you unconcerned?

Neutrality of the service that's being provided by Korea Telecom is something that should be very important to all the players who are receiving the service from Korea Telecom, in my view.

So is that in terms of - how would we define "neutrality of service"?

Fair and equitable service being provided.

Okay. Thank you.

Thank you.

The next question will be from Mr. Evan [inaudible] from Bear Stearns. Please go ahead, sir.

Thank you. Evan [Erlinson] from Bear Stearns Hong Kong. I have three questions. First of all, I noticed the amount of marketing which is apportioned to retention commissions is on the rise which presumably has to do with the fact that net additions are coming down and churn is coming down as well. I'd just like to ask, what is the official policy towards retention commissions, especially in the event of a total ban on handset subsidization and initial commissions in the market. Second of all, do you have a target for net debt to equity by the end of the year or debt to equity? And also, could you comment on the possibility or the likelihood of a voice tariff cut in the second half of 2002? Thank you.

Let me answer the third question first. Your question was whether there will be any voice type adjustment going forward?

Yes.

Well, one cannot be 100% sure which direction it's going to go to. The historical speaking, there's been great adjustments downward over the last couple of years. Now, we have [inaudible] type adjustment earlier in this year [inaudible] this January. We have never have a type adjustment twice in a single year, so based on that, expecting another type adjustment this year may be - could be unreasonable.

But that doesn't guarantee that there will not be a type adjustment during this year. This is much more of a policy-related matter. I think this is something that [inaudible] we would not like to see another type adjustment happen this year. But this is a policy-related matter and I think other related parties have to voice their opinion on this particular [inaudible] so I cannot give you any kind of guarantees as to which direction or when there will be a type adjustment.

But your current revenue targets don't take one into account, basically?

The current target, we are not - we are not anticipating any type adjustment being undertaken during the course of this year.

Our current net debt to equity ratio is at about 79%. Longer-term view, I mean the year-end net debt to equity is not really a - what we have, but longer-term view is that debt to equity ratio of about 50% is something that we are going by. One of the - one of the use - one of the items or one of the [inaudible] free cash flow going forward is to pay down our debt, so longer term ratio wise, 50% is something that we will be shooting for.

And as to - you asked me about retention commission policy. Yes, if the market growth is going to slow down, obviously retaining your current subscriber base is going to be quite important. Our retention commission includes such things like [inaudible] plus points and the - okay - the leader's club program, things like that, so we could have additional programs, additional [inaudible] programs to retain other subsections of our subscriber base.

So, yes, in the future, we could have more focused efforts to retain the customers that we currently have.

And the reason why we have a slight increase, the retention commission during the second half - or the second quarter was due to the reflection of about 25 billion one that we had to apply for the subscribers who are - who were originally from [inaudible] telecom.

I'm sorry. Could you explain that?

Well, the [inaudible] telecom recorded [inaudible] plus points but they did not really reflect that into expenses, and those - at the beginning of this year, it was not clear whether, one, it should be done. That was done during this quarter. That's why the retention commission was increased about 25 billion one was increase - increase came from the [inaudible] part.

Okay. And one follow-up question on the retention commissions. I noticed that in the first quarter, expenses that were classified as advertising expense were at this time reclassified into retention commissions. Is there a particular reason for that or is - was that just a lump category, advertising, which included retention commissions in the first quarter?

I do not follow the question. Our advertising expenses has been treated as a separate item. The retention commission doesn't include the advertising expenses.

I was referring to the numbers that were reported last quarter, the materials - the earnings materials for the first quarter.

We will check on this, but our policy is that - not to include the advertising expenses into the retention commission.

Okay. Thank you very much.

Thank you.

Currently, six persons are waiting with questions. The next question is from Mr. Tim [inaudible] from Morley fund management, Singapore. Please go ahead, sir.

Thank you. Just a few follow-up questions to the questions from Allistair, first of all. Are you still keeping the guidance on your EBITDA margins, first of all? And secondly, I believe at the last results briefing, you gave some guidance on ARPUs, about 45,000 average for the year, and about 49 by it is end of the year. Are you still keeping that guidance?

And the third question is just on your interconnection revenues. In the second quarter versus the first quarter, there seemed to be only a small 2% rise in the interconnection revenue versus, say, the 11% rise in the cellular revenue. Is there any reason why that rise, quarter on quarter, is relatively low versus your overall revenue rise? That's it. Thanks.

Interconnection revenue increase is very small because of the rate adjustment, the interconnection rate -

Just a follow-up. I thought that interconnection rate decrease was actually applied from the beginning of the first quarter.

Beginning of the first quarter. The - are you looking for quarter on quarter based numbers?

Yeah, that's right. The 268 billion figure versus the 262 billion figure. That looks as if, you know, it only rose by 2% but the effect of the interconnection rate cut was already felt from January, wasn't it?

I think the [inaudible] amount that came into the SK telecom from fixed line service has been reduced, and that may be the primary reason behind a very small increase in interconnection revenue, even though the follow-up subscriber numbers did increase over the period. As to the - the other guidances that we had given to you earlier this year, we are still shooting for the guidance numbers that we have given to you when it comes to EBITDA as well as average revenue per user. Okay? It is something that we are shooting for. Doesn't mean that we will realize that - realize everything that we - you know, we are shooting for, of course.

And just another question. What are you now guiding for your free cash flow expectations for the full year, after your 1.9 trillion investment in KT.

Most of the free cash flow that we have generated this year would be going into the KT - KT investment.

All right. Thank you.

The next question will be from Mr. Craig Irvine from Salomon Smith Barney in San Francisco. Please go ahead, sir.

Thanks, gentlemen. Just a couple of different questions. The first of which, I think that the outgoing traffic had grown considerably faster than the incoming traffic. I wonder if you could give us - and that was one of the drivers behind the change in the interconnect - net interconnect. I wonder if you could give us some color as to what exactly drove that?

And my second question is: Broadly speaking, of all of the usage of the 1X products and downloads of various sorts, what would you say is the most surprising in the quarter against some of your own expectations about, you know, what the customers would find in demand, either positive or negative? Hello?

Yeah. Could you wait a minute, please. Just a minute.

Okay.

Okay. Thank you.

The reason why outgoing minutes is higher than incoming minutes is that our subscriber base is a higher quality of subscriber base. They do make more calls. Because of that, our market share is higher also. The fact that our market share is higher than our competitors does make our outgoing minutes to be more than incoming minutes.

As to the content of [inaudible], there have not been any surprises. [inaudible] entertainment content related area. We have introduced - we have announced such [inaudible] through colorization of our content, basically, introduction of [inaudible] service going forward will probably expand the content and content provided along that line. Things like color ring, for instance, which we have introduced from May of this year, which is finding - or meeting with a great deal of popularity from our user base.

Going forward, the other content that we'll be focused on is contents that are utilizing CPS. Things like [inaudible], which is a navigation system which factors in the traffic condition of the day, at the same time utilizing the GPS services.

So - okay. So overall, there has not been a surprise in (inaudible).

Okay. Thank you very much.

Thank you.

Currently, four participants are waiting with questions. The next question is from Mr. Kevin coal from DSSD. Please go ahead, sir.

Two-part questions. First one is I do [inaudible] in the expense from first half last year versus this year. Can you just tell us why there's large fluctuation, and any guidance for the remainder of the year?

And my second question is, the - on the EBITDA or capex, can you just give us some up-to-date capex that you spent on [inaudible] and the total required capex for [inaudible] going forward? That's it. Thanks.

Currently, we are covering about 26 major cities in Korea with [inaudible] cities. We'll be expanding this service to cover 81 cities by the end of this year. Unfortunately, we do not have up-to-date [inaudible] investment because which is included in the 1X investment [inaudible]. But to cover 81 cities, we are - our budget is to spend about 300 billion one to upgrade our 1X cities in those 81 cities to [inaudible] service.

So could assume 300 billion on [inaudible] capex this year?

That would be the case yes. And as to the donation expenses, all year last year, we made some large donations to the university funds. Because of that, the last year's first half donations was above average compared to this year. This year's donations amount much higher. But when it comes to donation, it's rather irregular so it's quite difficult for us to give you any kind of trendy guidance on what kind of donations that we will have by the end of this year.

Okay. Thanks.

Thank you.

The next question is from Mr. Mitchell Kim from Morgan Stanley. Please go ahead, sir.

Good evening. This is Mitchell Kim with Morgan Stanley. I have a four-part question but hopefully this will be very quick.

First question is I received most of the detailed income statement. Could you please explain what are the fees and why it increased by 42% from first quarter to second quarter?

And also if you could just comment on why other expenses increased quite sharply as well.

And second question is on depreciation, your capex increased from about 180 billion in the first quarter to almost 400 billion in second quarter, yet your depreciation increased only marginally, so if you could explain why that would be the case.

And thirdly, if you have any guidance from - I realize that you already have [inaudible] for this year but if you have any guidance on what you'll be doing with your free cash flow next year, that would be very helpful.

And last question is, if you could give some kind of guidance as to what your arrangement with SK global will be, now that SK global has acquired [inaudible] and, as I understand, you do procure leased line services from [inaudible] in the amount of about 50 billion one per year. So if you could answer some of those questions, I would appreciate it. Thank you.

Yes. The acquisition of [inaudible] by SK global is a recent year. As to what kind of future arrangements will SK telecom have with SK global, probably we'll have to have a meeting with SK global to find out what kind of arrangement we'll continue to have. But I - I'm not expecting any kind of a significant change to the existing relationship that we have had when the asset was owned by [inaudible] itself.

So I can only give you what we are expecting reasonably, going forward.

I am not aware of any sit-down talks that has happened between the two companies.

In other words, a proportion of [inaudible] services procured from [inaudible], should that - could that change materially or would that - in other words, would you reduce your services that you get from KT?

No. I think the - one of the reasons why we gave up the investment in [inaudible] was that they wanted - the lines that we were using was also being used by other service providers also, and they wanted the whole line and it was very difficult for us to just take out the line for our own exclusive usage. That is the reason why we gave it up. So as to the amount of leased lines that we'll be using from the SK global, from the assets that they have acquired from [inaudible] will not change that significantly by our expectation currently. Okay?

The free cash flow usage, currently our primary use of free cash flow would be paying down the debt. And the secondary use will be if there is a need for future projects. For instance, to give a better return to our shareholding base, for instance. That will be something that - that will be explored.

And the - any extra cash or the free cash flows, the third usage would be to invest in the areas that - the asset acquisitions that we may need to have for our investment that we need to make to bring about the [inaudible] that we are engaged in. For instance, I did mention about our investment in Lycos and KDMC to bring about or to enhance our platform strategy plan, to basically provide the [inaudible] contents to our subscriber base through any devices in that manner.

And capex number being 490 billion one quarter No. 1 and close to 400 billion one quarter number 2, even though that change, the depreciation amount didn't change much because we went from six months depreciating, half-year method, to charging the depreciation monthly basis. So the future trend in depreciation would be very - will not fluctuate that significantly month by month basis. So that was the significant change in our depreciation policy during the quarter.

Just a quick follow-up on that. I think last time you gave a guidance of 1.2 trillion for depreciation. Would that still hold in this case, then?

Depreciation guidance-wise, since we are in the operating process, I don't know whether I should be giving you any specific number or not.

Okay. That's fine then.

Okay. The - okay. There were so many questions.

Last one was about the fees, what are the fees, and why did it increase 42%.

The fees that is - the fees that - fees are the services or the consulting services that we receive are included in the fee section of the thing, and I believe because of a merger with [inaudible] telecom, we had to have quite a bit of consulting done. Yeah. To combine the - what's the right word here. Help me out, please. Computer systems, they tell me. So okay I will use that term. But if further clarification is necessary, please give me a call separately.

Okay. I just - I mean, there's just - do you expect fees to remain at this level throughout the year or is this something that fluctuates quarter to quarter?

It will fluctuate. I think this particular quarter may have been slightly higher than other quarters.

And so [inaudible]

Meaning?

Meaning [inaudible] other costs gone up significantly? Is that something that we should take into account for the remainder of the year or . . . Other costs went up from 67 billion to 97 billion.

Let me double-check this. Hang on a moment, please.

If you don't have it, that's fine. You could e-mail back.

I think it is because of the increase sales and other related activities [inaudible] because of the increase in subscriber numbers. But if you want to have much more detailed information, yes, I think we'll be able to provide that to you over e-mail.

Okay. We could do that separately. Thank you.

Four participants are waiting with questions. The next question is from Mr. [inaudible] from Lehman Brothers. Please go ahead, sir.

Hello. Good evening. Just three questions. Any update on the handset subsidies? There's talk of it becoming law. When do you expect that to happen, if at all?

And do you see - if it doesn't come to law, do you see possibly handsets coming back with EVTO, you know - everyone has to have [inaudible] handset.

Also, are you still interested in purchasing [inaudible] bank's credit card division?

And lastly, the universal loss application fund shot up to about 27 billion. We had two quarters where it was averaging about [inaudible] seven billion. Can you give us sort of an explanation on why it jumped up, please?

Thank you.

Universal obligation fund is wireless charge based on the assumption that what kind of loss the telecommunication is going to experience through their universal service. [inaudible] last year, [inaudible] half of last year we've been talking 6.3 billion one per month to I guess - to the USOB. From the third quarter of last year we only charged 1.91 billion. Beginning this year, we charge - from quarter number one, we charged about 2.4 billion one, quarter number one, but quarter number two-wise, we've been charging 5.65 billion one. And it was retroactively applied from the beginning of this year also.

So as to the - the universal service obligation fund-wise, we'll have a settlement of this issue July next year, so the amount that we are charging is not actual expense - rather, the actual amount that will eventually be charged for this USOB service.

So it's more of a provisioning?

Yes. We do target, but we - if you remember last year, first half, we did receive some money back.

Right.

I believe the amount, if my memory serves me right, is about - it was about 54 billion. I'm not quite sure.

Yeah. I think it was a bit more than that's correct but - so could we see another refund like that?

One can - one cannot be 100% sure which way it is going to go to. Okay?

Right.

As to the handset subsidy-wise, I think the government is still trying to legislate this.

Uh-huh.

And they have not given up on this. And they will - the latest that I heard was that they may introduce or try to work with the national assembly sometime in August to have this thing resolved.

And did you have a question about [inaudible]?

Oh, no, no. I was asking about credit card, if you were still interested in [inaudible] bank's credit card division.

There's been some report about our ongoing discussion with [inaudible] bank. I am not aware of any significant development along that line, but the reason why we are looking into a possible investment in that particular field is to [inaudible] financial side of the business to tie up basically our telecom service - our strength in telecom service with the mobile payment settlement method. Sufficient?

Yes. Thank you.

Thank you.

Currently, three participants are waiting with questions. The next question is from Mr. Bill [inaudible] from UBS Warburg Hong Kong. Please go ahead, sir.

Thank you. Just two questions. One related to your value-added service revenue. Could you break that down into SMS and pure data? And also comment whether you stick to your previous guidance of 10% of total revenue X equipment - X interconnect on wireless internet this year?

Secondly, could you please give some color on why your labor expense declined so much in the second quarter versus Q1, whether that's all seasonal factor, or if there's anything else worth mentioning there? Thank you.

The reason why we had higher wages quarter No. 1 than quarter No. 2 is because we had undergone a wage adjustment during the quarter number one in January, and there was some special bonuses that were paid out during the quarter.

As to the labor expense right, I think the adjustment this year, as far as I know, would be about 4% [inaudible] this year.

And the other question was?

The first question related to getting some kind of breakdown on your value-added service revenue - on your - I'm sorry, on your wireless internet service revenue between SMS and pure data.

It's the company's policy not to disclose the breakdown of the of the value-added services.

Okay. What about wireless internet?

I mean, I was talking about the wireless - the services in wireless services area. If you look at our fact sheet -

Right.

It is - it is in the "others" section. [inaudible] there.

Okay.

I can tell you which - you know, the [inaudible] solutions [inaudible], the global [inaudible], you know, things like that but as to the specific numbers on other, you know, value-added services, which amount from which, is something that we do not disclose.

Okay. Is your guidance for data revenue as a percentage of total revenue, ex-interconnect, has that changed?

We are still shooting for that. I believe the - about 8% was the first half numbers.

Right.

Going forward, we will have more caller handset holders, as I said, at the opening remarks. And because of that, and the - with the additional introduction of contents and [inaudible] service, for instance, our expectation of an increased wireless internet revenue is something that is reasonable, in my view.

Okay. Thank you.

Thank you.

Currently, we have two participants waiting with questions. The next question is from Mr. Evan [Erlinson] from Bear Stearns. Please go ahead, sir.

Thank you. Three more questions. First on EVDO. I wondered if the target number of handsets or subscribers on EVDO handsets had remained the same since last time. I think it was 700,000.

The second question is about the [inaudible] platform, the converged middleware platform that has been the subject of much discussion lately. Does SK have anything to say about the launch date, the potential launch date of its [inaudible] platform?

And finally, could you give me a breakdown of the number of minutes attributable to either free minutes of usage or data in the second quarter on your MOU numbers?

Could you repeat the last part of the question once again please.

The last question was with regard to MOU. You have a very strong growth in MOU in the second quarter. How much of that is attributable to voice and how much is attributable to free minutes of usage and/or data minutes of usage?

The MOU numbers that we release is purely voice.

Okay.

And that includes the free minutes also.

The handset subsidy that we have with [inaudible] will be coming up in the marketplace sometime in August.

And as to the EVDO subscriber numbers, we are having some delays in the EVDO handset deliveries, so the original forecasted numbers may need to be adjusted but we haven't gotten the final communication from the related departments. So we'll give you further guidance as we get more information.

Thank you.

Thank you.

The next question is from Mr. James Kim from Salomon Smith Barney, Hong Kong. Please go ahead, sir.

Good afternoon. Thank you for the call. A couple of questions.

First on the wireless internet, it appears that in May, [inaudible] revenues increased 20% month on month. Could you comment on what drove this?

Related to that, do you possibly have a breakdown of MMS? Is that possibly included in phone mail?

And the second question is, with a new head of the MIC, do you foresee any material changes to the regulatory regime? For instance, do you expect the new MIC head to be more pro-consumer, more pro-operator, et cetera?

Any color there would be much appreciated. Thanks.

I don't think I will be making - I will be able to make a comment about your last part of the question. So I will pass that question. I will not answer that.

That's fine. I just wanted to give it a shot.

Hang on a minute, please. The [inaudible] numbers that you asked, was it [inaudible] referring to or the wireless internet.

I was looking at the fact sheet, and it appears that the [inaudible] revenues increased 20% month on month in May and was just wondering whether MMS was starting to kick in.

The reason why that we had higher numbers in May was that - because of the onetime event that we had had in the content area. And that was met with an explosive demand. So it's [inaudible] regular. I don't think you could have trend-wise picture on that. I think one of the contents example could be a lottery.

Okay. Great. Thank you.

We have one final question from Mr. Julius Kim from ABN AMRO. If you have any questions, please press 14. Please go ahead, sir.

This is Julius from ABN. Looking at your market segmentation, [inaudible] quite well with the retail subscribers reaching beyond your target. What is your new target for [inaudible]. And also, can you give me an update on the ARPUs by the market [inaudible] and their breakdown on data contribution. And the second question is, related to that, any other market segmentation that you are trying to introduce this year?

As to the use of [inaudible] numbers, we had originally in our release to [inaudible], but that was something that was taken out by the lawyers, because of the [inaudible] that we are currently engaged in. So I don't think - even though I have the number, I don't think - knowing what they have done, I cannot give you guidance on this.

How about just the or Pugh break-downs? Can you do that?

ARPU break junior.

Yeah. ARPU for [inaudible] and -

That specific information I do not have currently with me. I will have that communicated to you later time.

Okay.

Thank you.

Currently, two participants are waiting with questions. The next question is from Mr. Nick [inaudible] from Credit Suisse First Boston Hong Kong. Go ahead, sir.

Thank you. My primary question regards the market share and regulation. At what point do you think, at the risk of dominant carrier regulation, and at what point are you near-term market share targets for the next couple of years?

That will be a difficult guess, 00:59:04 in my view, because you are trying to ask me what 00:59:08 the government is going to do, or what the 00:59:10 regulatory body is going to do when it comes to 00:59:13 market share. 00:59:15 00:59:15 My comment to that would be as long as we are 00:59:18 engaged in the fair marketing practices, we are 00:59:21 not unduly exercising our stronger strength in the 00:59:26 marketplace and play fair, I do not think the 00:59:32 regulatory bodies will have something to be 00:59:34 concerned about. 00:59:35 00:59:35 As to the market share itself or what kind of 00:59:38 market share the company would like to have, our 00:59:44 primary goal is to achieve higher profitability. 00:59:47 Market share is a secondary issue. It is 00:59:50 something that - that's being achieved naturally, 00:59:58 engaged in very fair marketing practices.

But our current view in the company is that market share beyond 60% is something that would be more expensive - I mean, the expense that would be - that would be necessary to achieve a higher market share than beyond 60% would not justify the returns on the - the kind of returns - the costs and return [inaudible] is something that would not be [inaudible] to have.

Thank you.

The next question is from Mr. Matthew Jamison from Goldman Sachs. Please go ahead, sir.

Yeah. Hi. I just have two questions. First of all, on the EVDO handsets or the lack of them, should I say, I just wanted to know what the exact problem was, if you knew, in more detail, why we haven't got any handsets out in the market yet. Particularly given that KT [inaudible] have released a couple of models. What's the exact problem for SKT models? Is it a software related problem. If you could be more specific, that would be good.

Secondly, just an update - if you could just provide an up date on your pan [inaudible] the latest on investments in Cambodia and Vietnam, and also recently, there was news about a JV -

Mr. Jamison?

- a potential joint venture with the electronics manufacturer [inaudible] to manufacture handsets.

Mr. Jamison?

Yes.

It's very hard to hear. Could you speak a bit louder, please?

Okay. Do you want me to repeat the questions?

Please.

Yeah. Okay. Number one, on the EVDO handset, I was just wondering why we couldn't see any handsets for SK telecom at the moment when KT [inaudible] has released a couple of models in the market already, and secondly, with - the question is on the - your pan Asia CDMA strategy, could you give an update with respect to your investments in Cambodia and Vietnam in and related also, the recent - there was recent news about SK telecom having a JV with a Chinese telecom - Chinese electronic manufacturer, [inaudible], to manufacturer handsets, so I was just wondering if you could provide some details in that regard.

Okay.

Hello?

Yeah. The reason why the EVDO handsets delivery is somewhat delayed in the marketplace is one that there was some - some chip-related matter to be resolved.

Secondly, we want to provide a very good quality of service, so we are trying to put a lot of contents and functions, once we give this service, or this handset out in the marketplace. So the quality of the service that our subscribers can enjoy through the EVDO service could be superior to what's being provided by a service provider that is providing the service currently.

And pan Asian subsidy is still under review. Vietnam and Cambodia investment is still being reviewed, so there is no certainty that there will be an investment in those two countries going forward. So once the review is completed, we would give you more guidance as to what is going to happen in those two countries.

Handset manufacturing with a Chinese entity, that is being done by our subsidiary, SK teletech. [inaudible] MOU exchange, there has not been any particular developments in that particular project, so there is nothing much to report.

Okay. Thanks.

On the EVDO handsets, can I just clarify then? The - what you're trying to do is improve the software interface function of the handset before releasing the models?

Let me double-check. Hang on a minute, please.

The difference between our competitor and SK telecom is that according to our experts, the current level of service being provided by our competitor is not commercially viable level of service.

Their importance was to include these handsets first. The service quality is somewhat doubtful in his opinion. As to the - as to the - our effort is to bring out a very good quality of service. That's why we are having a delay in the service. But since we do not have - I haven't experienced the service being provided currently, EVDO service being provided by our competitor. I cannot make an adjustment call on that.

Just one final question. Is it your intention to release an icon-based software interface service related? Will that be simultaneously released with your EVDO handsets?

Yes.

Okay. Thank you very much.

Thank you.

Currently, there are no - what?

Operator, we are beyond an hour.

Yes, sir.

Maybe one last question.

Currently, we have no questions, sir.

Okay. That will be good. Then I'd like to close the conference call.

Yes, sir.

And I'd like to make a last comment before I go. Thank you very much, ladies and gentlemen, for participating for SK telecom's first-half earnings conference call. If you have any additional questions that - about the results and any other matter, please get in touch with [inaudible] at our IR office. We would be more than willing to give you additional information that you would require. Once again, thank you very much and have a good day.