SK Telecom Co Ltd (SKM) 2002 Q3 法說會逐字稿

Good morning and good evening. First of all thank you all for joining this conference call and now we begin the conference of the third quarter 2002 earnings results of SK Telecom. This meeting will start with a presentation followed by a divisional Q&A session. If you have a question please press 1 and 4 that is 14 on your phone and during the Q&A. Now we shall commence the presentation on the third quarter 2002 earnings results by SK Telecom. Please go ahead sir.

Good morning and good evening, ladies and gentlemen. My name is Sun Joon Choe and I'm the Vice President of IR office in SK Telecom. Welcome to our year 2002 third quarter earnings results conference call. Before we begin this presentation, I would like to make a few remarks about our earnings results and quarterly details.

SK Telecom has maintained the market leadership with 53 percent of market share in the Korean market. At the end of September, SKT had almost 17 million of subscribers. Total number was 2.5 [Inaudible] of subscriber stood at 8.5 million. And it definitely [Inaudible] pulled our number were at the 3.4 million, representing 24 percent of our total subscriber base. During the first nine months of the fiscal year, SK Telecom recorded 6.27 trillion won of sales revenue with 2.1 trillion won of operating income and 1.3 trillion won of net income. EBITDA margin was 49 percent. Our [Inaudible] revenue grew about 21 percent year-on-year to 5.4 trillion won result of previously reported growth in in subscriber base [Inaudible] from January of this year. [Inaudible] installing by 2 percent year-on-year to 43,068 won because of the new interconnecting leads of this month. However, the average monthly IPOs excluding the interconnection revenue went up by 5% year-on-year, thanks to the increase in usage of value added service and the wireless Internet. Wireless Internet revenue increased by 149 percent year-on-year to 408 billion won. [Inaudible] revenue. This [Inaudible] popularization (ph) of the wireless Internet enabled handsets and continued increase of the wireless Internet usage.

The interconnection revenue scaled by 19 percent year-on-year to 809 billion won because of the new interconnection units of this month applied from this year (ph). Although interconnection revenue dropped by 27% to 514 billion won. However annual interconnection revenue looked by 1 percent to 259 billion won. This was accredited to the increase in incoming cost shifted to [Inaudible] of the Korea (ph) market.

The nine-month operating expense increased by 14 percent to 4.18 trillion won. Marketing expense lost 60,000 year-on-year to 1.1 trillion won and [Inaudible] went off 16 percent quarter-on-quarter to 390 billion won. This was due to the subscriber cost during the third quarter and all the promotional [Inaudible] activities to remain existing customer. For nine months, CAPEX was 1.15 trillion won, [Inaudible] to be 730 billion won, representing 63 percent of the 1.15 trillion won. Depreciation expense decreased by 19 percent year-on-year to 989 billion won and interconnection expense by 7 percent to 478 billion won. Non operating income dropped by 104% year-on-year to 240 billion won and non operating expense down by 9 percent year-on-year to 352 billion won.

Now I would like to make a few comments about the order of things (ph) and maybe introduce to all of your, SKT had whole of [Inaudible]. Our CAPEX expected to change at 43 year (ph). Korean MIC was on a [Inaudible] on the possible of the depreciation of a Korean IT industry. [Inaudible] has been all in telecommunication companies to spend this CAPEX spending in order to do our part-- [Inaudible]. We now expect CAPEX spending for fiscal year 2002 to be about 1.8 trillion won which has increased over 300 billion from the original standing amount of 1.5 trillion. Increased amount of using through the mixed CAPEX [Inaudible] this year. This is possibly close of our 2.5 subscribe growth exceeding our expectation for the year. We are now projecting 10 million subscribers instead of a 9 million by the year-end. Also, we have decided to spend [Inaudible] by this year-end. For mixing this CAPEX amount [Inaudible] in on the review. We will provide [Inaudible] processes completely. Thank you for your attention and we may now proceed with Q&A session.

Now Q&A session will begin. Please press 14, 1 and 4 if you have any questions. Once again, if you have a question, please press 14, 1 and 4.

The first question will be given by Ted Cao [ph] of Tiger Management in New York.

[question inaudible]. Would like idea of expect of entire 3rd quarter MOU.

[answer inaudible]Our expectation for the 3rd quarter is close to that steated for month of July.

I would like to ask one more question regarding the additional expenses related to the IT fund and also academic scholarship. Could you provide some indication of when this money could potentially be spent and whether all be expensed (ph) or perhaps attributed to CAPEX as well? Thank you.

I think you are referring to the donation that was announced recently. The donation amount is about 150 billion won and the IT investment fund is about 190 billion won. IT investment funds will be treated as asset investment and the donation probably will be treated as expenses. As to the timing of the expenditure itself, no schedule has been made on that. So, there will be further guidance on this particular issue - by the way the donation is a non-operating item as you may already know.

Right Okay. So is there a possibility of this could be stretched into 2003?

Yes. There is a possibility of this being stretched into the next year, rather than in this year.

Thank you.

The next question will be given by Robert Gesner.

Hello?

Operator are we having some problem?

Hello.

Hello. Can you hear me?

Yes. I can hear you.

Ah! That is great. Just some follow up questions on the IT fund. Do you have an idea when the surety of that IT fund? Will you actually realize some cash flows, out of that IT fund at some point? And would you know who will manage that IT fund? Will that be managed by the Telcos who are investing in the fund or will it be an independent fund manager or will it be government controlled? I guess the third question is, do you expect this to be the only IT fund investment during 2002 and 2003 or would you expect to recur?

On many of the questions that you have asked there are no details that has been set aside as to when, as to who, as to who will be managing this IT fund has not been decided. So, the answer for those questions that you have just asked, you may have to wait a while for the final decision making process to be completed on this particular issue.

Okay.

As to the fund - whether it is one-time event or there will be further investment like this - I do not think there will be further investment like this at this time.

Okay, thank you.

And the next question will be given by Mr. Matt Avon (ph) calling from CSFB (ph). Could you please go ahead?

Yes, I am calling from [Inaudible] actually. My question is in regard to CAPEX. I think you said that the new CAPEX guidance is 1.8 trillion for this year assuming that for the additional new CAPEX [Inaudible] including 2003. [Inaudible] like that exclude the man (ph) that has been allocated to the SKTIMC (ph), which I think, is 200 billion. Could you just confirm that? And if that is the case, could you give us any indication to where you might be seeing moving to consolidate basis for presenting your guidance and also your results because this is going to become - misleading us as SKT IMT increasingly becomes involved?

The 1.8 trillion guidance doesn't include the announcement that was made by the SKIMT of 200 billion won. But we have not changed the schedule of the CD (ph) deployment. So whether there will be actually spending of that amount on that is unclear. It is much likely that the spending action [Inaudible] may not happen this year.

Thank you.

The next question will be given by Mr. Scott (ph) from Merrill Lynch.

Thank you very much. Couple of questions please. Just on the 1.8 trillion - are you expecting in terms of cash flow that cash actually go this year or these contracts that you are expecting to sign and the cash may actually flow out next year. And secondly, are you expecting that, basically some reallocation of 300 billion from next year to this year or is that some [Inaudible] on your overall CAPEX for next year? The second question is really on your marketing expenses. Could you just walk us through a little bit of the retention commission line and how that is made up by, you know, how does the retention commission actually emerge? Is it in discount from services, is it in prices in prices of handsets etc? Thank you very much.

The actual spending may come to that or may not come to that.

Okay.

To your first question - whether there will be actual spending of 1.8 trillion as was indicated by us - it could possibly happen, but at the same time, that may, it may not be all spent during the rest of this year.

Okay.

Okay. As to the marketing retention commission - you were asking, this includes all kinds of mileage programs that we have out there in the marketplace to help us to retain the customer base that we have currently and the customer base that we are going to sign up - going into the future.

Right. Are there any more schemes about [Inaudible] in the near future that you would be expecting to see or is that your main trust at this point?

I am, well I am talking about the programs like PPLT membership or PPL membership or leadership membership kind of things. [Inaudible] is a part of that, [Inaudible] any new retention program - that is in network.

Okay. Is it sensible to try and rule down in terms of a price for retention, retain subscriber or is that not the sensible way of looking at it?

Well, I guess by looking at the total number of subscribers we have, we didn't have network, but a number of people are being added to that number constantly as you know. You could roughly make an estimate, I guess, of the numbers. But I think, since the number is changing, subscriber base number is changing. You may not be getting an exact picture.

Okay. But that's not the way you looked at them, internally?

Well, we do, our marketing people do have certain analysis that they must undergo I believe.

Maybe I could ask one final question, on Wireless Internet revenue, in terms of the content development, are you reporting that net or gross?

It is gross revenue.

How much of that was Internet - was actually content then?

Okay. About 35% of the main revenue is coming from information fee or content fee.

35% - okay.

Yeah.

Okay thanks.

The following question will be given by Mr. Julius (ph) from ABM AMRO. Please go ahead.

Good day. I have a question on the expense item, the way it was up by 21% quarter-on-quarter, [Inaudible] some special bonus? What is that amount offered as bonus? Will that be occurring in the fourth quarter and also I expect CAPEX amount. I understand that [Inaudible] will be spent in the fourth quarter and then IT fund and R&D [Inaudible] will probably be spending in years [Inaudible] . When you spend IT fund of 190.1 billion won, how was your [Inaudible] , will that be the same as the regular CAPEX would be and the third question is that on the follow up on the Wireless Internet revenue, you mentioned that 35% of the total revenue on total [Inaudible] data revenue from their revenue comes from the content fee. Is the content fee, minus the 90% that you are giving to content providers - basically when you are recording 10% or recording the entire content fee and if so where do you minus (ph) the 90% that is given to the content providers? That's it.

You are correct in that, our wages have increased quarter on quarter due to the fact that we have given out special bonuses. But since we are not going to give out, we are not planning to give out any kind of special bonuses during this particular quarter, we do not believe that there would be an increase. There will actually be a reduction of wages quarter-on-quarter basis in our view. And the second part of the question was...?

The IT fund of $190 billion won, how that is going to be scheduled, is it bigger than normal, and also the CAPEX amount of 370 billion won, I understand that, is to be spent in the fourth quarter. So, will you be sending that in the fourth quarter? I'm sorry and at the same time, I understand we had a 1.5 trillion won for the total year, in the beginning of the year for the CAPEX. So, would that 371 billion won would be a pure add-on? Or do you compensate on some savings that you expect out of that 1.5 or original plan?

The 1.5, I think the opening statement refers to that item, 1.8 trillion won is an increase on 1.5 trillion won. So, the announcement of 370 billion is a part of that.

So, you didn't compensate for any savings that you would have?

What kind of savings are you, as we go along in it.

Yeah, as you go along, I would expect you to basically about 200 to 300 billion won savings, out of that 1.5 trillion won, you originally budgeted?

Well, the savings itself, the increase in the amount of spending itself is the CAPEX that are going to be spent in the next year. It's been brought forward.

Okay.

And that - there is no depreciation scheduled for that 190 billion of IT funds.

So, there is no depreciation associated with the 190 billion won of IT fund during this year, since you have capitalized investments?

It's like a share investment.

Oh, investment securities.

Yeah.

Okay.

And the last part of the question was about the..

Content fees.

The Content fees, the revenue shared with our content providers are not submitted or were not subtracted from the amount itself. So, the gross amount is being applied there - not the net amount.

So how is the expense?

That 90% is being treated as part of the fees.

A part of the fees.

Yes.

Okay thank you.

So you got your answer sir.

Yeah.

Okay. Currently there are 10 participants waiting with their questions and the next question will be given by Mr. Wack Lee calling from Citigate (ph) Asset Management, Singapore. Please go ahead sir.

Thanks. Can you talk about the possibility of a tariff cut going forward and how that has changed with this announcement earlier this week? Secondly, the donation of 150 billion won, is it likely that you would reduce your normal of donations, normally you have about 70 to 80 billion won in donation. Is it likely that you would reduce that normal donation because you have this 150 billion of donation enforced by the MIT (ph)? And finally can you give us some update as to what is happening on your investment in the credit card business? Thanks.

I believe the question was-- is there was any linkage between the polytype (ph) the announcement that were made in the regards of IT policy and the donations and all that.

Right.

I don't believe that there is a direct linkage between the two.

So are you still expecting to see a tariff cut coming through?

Well, tariff card is something that MIC (ph) has to make a decision on. So, how they come to that decision is beyond our control. So we will have to wait for their announcement on this particular issue. Okay.

Okay.

And the donation the, you are referring to the donation itself. Last year, I believe we have spent about 110 billion as donations for the whole, for the full year basis. Up to third quarter of this year, we are spending in that area only 90 billion won. So donation, many of you do ask about the donation expectations going forward, but donation is being made by the company when we believe that we do need to return some of our earnings through the social programs in the society itself. So with this 150 billion won, that's been announced because of there may not be any other donation item being charged during the rest of this year. But all of that 150 billion won may not be going out this year either. Okay. The last part of the question was.

Your investment in the credit card business?

Well there is no further story from there. The plan is to create a joint venture but we have not got them (ph) any kind of an approval process completed in the process itself. So it's still pending but no further information can be supplied in this particular subject at this time.

Okay. Thank you.

The following question will be given by Mr. Anthony Mone (ph) calling from Lehman Brothers, please go ahead Sir

In regards to the donation and investment in IT fund, could you walk us through how [Inaudible] up it is to pay how much - SKM telecom pays exorbitantly a larger amount, to take it as a percentage of sales, percentage of debit, whatever. It is quite a larger amount that SKT is paying. Secondly, when all the operators agreed on to this CAPEX within this MIC, would MIC going forward monitor your CAPEX now or in other words, would you have to report your CAPEX plans to them on a monthly or a quarterly basis? Those are my two questions.

Well, I [Inaudible] how it was becoming the amount that are going into the IT funds or other donation part. I have no idea as to how that ratio was or that amount was calculated. So, I do not have an answer for that question at this time. I will look into it, but right now, I can't have any answer for that question. CAPEX-wise, the MIC does receive a CAPEX spending fields (ph), but they do not - I don't believe, because of this particular announcement, they aren't going to institute any kind of due diligence (ph) to check this particular issue.

I guess, the real question is, if we don't make these investments or your competitors (ph) don't make these investments, what can they do to you?

[Laughter] I am not quite sure. That would be an interesting question, but I don't think it is something that we could answer readily. [Gap In Audio] Go ahead.

Yeah, one more. Going back to Jim's question about IT fund, [Inaudible] it looks like IT fund would be a one off - the question is about the rest of those donations and my question is - you said earlier that it is difficult to say right now if those will be recurring items?

I do not believe it's going to be a recurring item.

Okay. All of it, you mean the IT fund and scholarships (ph) to universities (ph)?

Yeah, as far as I know, this is a one-time issue.

Thank you.

And the following question will be given by Mitchell King (ph) calling from Morgan Stanley. Please go ahead sir.

I just have one quick question. I just want to ask you how that is with the new CAPEX, potential CAPEX and donations, how does this affect your declaration at the annual (ph) pay that your will return 25-30% of your free cash flow to shareholders. To be more specific, if you do spend all of this CAPEX this year, obviously, you will probably have to wait to do this. By next year, does that mean you will still give 30% back to the shareholders or would the debt repayment portion be increased. If you could add color on that - I would appreciate it?

As to the amount of the returns that the company is going to make and what format is still under consideration. We are still under our review process. But the general thinking by the management is to return some percentage of the free cash flow that will be generated this year and going forward needs to be returned to the share holding base. But the basis or the ratio itself, you will have to wait for the announcement to come probably either late this year or early next year.

If I could just ask the question from a different angle. So if you do delay your CAPEX of whatever the [Inaudible] or so into next year. I mean, obviously, they will then lower your free cash flow into next year. So, even if you do stick to let us say 30%, you would still return lesser that to shareholders. Is there something that - is that how we should be considering it?

Well, the free cash flow situation is that we are returning fixed amount to others, particular percentage of the free cash flow itself. So, if the free cash flow amount is changed, maybe, there maybe a change to the actual estimated number itself.

And the following question will be given by Mr. Bill Forne calling from Tokyo.

Hi! thanks very much. There was a charge you took which was larger than the previous quarters on fixed assets disposal. I think according my calculation, about 26 billion won in the third quarter. Can you explain what was the result of, what raised that number up and what we should expect going forward? Secondly, I think in follow-up to Alister's (ph) question earlier about retention commissions, was there some kind of Canoki (ph) recently levied on membership programs and does this have relationship to your retention commission trend and could this possibly bring that down? Thirdly, one of the comments made by the CEO a few weeks ago and said your Island was regarding a more proactive stand toward an equity's swap (ph). Can you indicate if there has been any progress or any actual actions taken subsequent to that analyst conference in [Inaudible]?

The fixed asset disposal was due to the [Inaudible] that was sold. The [Inaudible] was acquired back in the year 2000, I believe. But we tried to put some base station in some area, in the [Inaudible] service. But the system was not compatible with the existing service that we had. So, we had to remove that and some equipment was left over and that equipment was sold during the quarter. We were trying to sell the equipment and we had some difficulty in finding the buyer for that and the amount was about 26 billion, I believe. So, that's the exact amount that you are looking for there. Going forward, we still have out about in our books, about 100 billion won of that equipments left, but the sales proceeds from this particular sale that has happened in third quarter was only about 10% - was recovered. So, I think the, you may, although, I cannot give you any kind of time schedule as when it will be sold, the expected charge would be at about 9 billion 90.

9 billion or 90 billion?

9 billion.

Okay.

The retention commission due to the penalty payment of trend lines going forward - retention in commission, I think there are some discussion as to whether there is a need for sort of a regulation or regulatory actions to carve (ph) the retention program on a manage (ph) or programs that we have out there in the marketplace. But no firm decision on this issue has been made yet. So, it is rather difficult at this time to give you any kind of indication as to whether there will - we will see any kind of downward trend on this particular commission on that.

Okay. Thank you. I think on this equity slot issue?

The equity slot wise, the annoucement or the answer that our president has given to the analysts when he had a meeting with them back in September - he stated that he has made the people to handle this matter at SKT and [Inaudible] same thing with their own people and since then, we have had many more meetings during the period and working (ph) on the resolution of this particular matter as to any kind of final details about the discussions that are being discussed at the meeting I do not have any information at this time, but the fact that we are talking to one another and the meetings or ongoing process indicate that those parties are serious and working hard to resolve the situation.

Thank you.

The following question will be given by Mr. Matt Evan(ph). Please go ahead sir.

Could you give us any revised guidance for marketing cost for full year 2002, I think originally, the guidance was 1.2 trillion, I think running at 1.1 (ph). [Inaudible] that's going ahead, could you give us reasons for how things turned out this year different to how you expected. Similarly on EBITDA guidance we haven't seen 50% for a year. Is that still a goal? My second question is with regard to the election how do you think that it is going to impact the regulatory situation and does that mean that we could [Inaudible] all this again next year with a new government, thanks?

The marketing expense. Hello, I am hearing the echo.

Yes.

As to the marketing expenses, we expect the marketing expense for this current quarter to be similar to what we had experienced during the third quarter of this year. So that has obviously increased the full year marketing expenses for the company. That is because of the more than our September numbers target being reached all year than what we had anticipated. We are projecting 17 millions of several base by this year-end. But by the end of third quarter, we have reached that number. So, there were increased marketing expenses due to that. Now, we are expecting further increases in the subscriber number of as many as 500,000 by the year-end. So the marketing expense is expected to remain stable at the level that we have to incur through the quarter number three. As to the EBITDA margin-wise, we are [Inaudible] the investment community with 50 percent EBITA (ph) margins; simply, because we believe that we can achieve better revenue growths during quarter number fourth than what we have achieved during the quarter so far this year. Well, will the election have any impact to the regulatory environment? You were asking what the future government is going to do in this particular field, I am not a magician, so I won't be able to give you any kind of guidance in this particular issue.

Okay currently, there are 7 participants waiting with their questions, and the next question will be given by Matthew Jamenson(ph)calling from Goldman Sachs.

Hi!, thank you very much. I just like to ask a follow up question on the SKT [Inaudible]. My understanding from the analyst meeting that you recently held is a bit SK Telecom's two main barriers in this regard at the moment [Inaudible] price and secondly the desire to execute the whole transaction within one block with cancellation if possible. Now obviously for that to happen, the mold has to be changed and that could be a [Inaudible]. But providing the price if right, I am just wondering would SK Telecom be willing to consider undertaking a small part of the swap, perhaps as a sign of good faith of their intension (ph) available in the market? And then my second question is do this [Inaudible] on increasing the CAPEX etc. Does that mean that the probability - what does that mean for the probability of expecting that SK Telecom - we could have some share buyback and cancellation announcements before the end of this year. Is that looking still likely or not likely in your opinion?

Share buyback - let me answer the second question first. Share buyback program is being considered as a pattern of dividend policy by the company. So, as I have indicated earlier, we are on the way of reviewing process of our dividend policy currently. So, there will be change to the dividend policy, and once that change is made, we will be making that announcement. So, with that announcement, I think, you will be able to receive the answer that you are looking for.

So, you think that when that announcement comes, there will be two announcements, one on the dividend policy and one on the share buyback?

The share profit unit KT (ph) or share [Inaudible], you are right in saying that we are looking for a quick removal of shares at each company. So, I have not heard any change in that [Inaudible]. So I don't think I'll be able to make any comments as to whether it would be acceptable for SKT to ponder or consider that part of our exchange before the full exchange is being implemented.

Okay. I understand. Thanks very much.

And the following question will be given by Mr. Kevin Pogan (ph) calling from CSFB. Please go ahead.

Thank you. I have just one quick question. If I look at your third quarter ARPU, it stands about 44,1781 (ph) won. If I compare that to your monthly facts sheet (ph), your July and August ARPU is actually higher than the figure. So, can we presume that your September ARPU has got lower and if that's the case, what has driven the reduction in the ARPU in September? And can I also have some guidance as to your full year ARPU figure?

Though we haven't announced the ARPU numbers for the month of September, we have had Thanksgiving holidays during the month of September. So, we had more holidays during the month. That's, maybe, the reason behind a slight decrease in ARPU numbers [Inaudible]. As for the full year-- are you asking for the full year average?

Yes.

Our expected full-year average ARPU numbers are at about 44000 wons.

So your guidance has decreased from 45, wasn't your previous guidance of 45?

Yes. That's correct. Our previous guidance was 45000 won in the average, but as you have seen through the year till the end of September, the average is about 43,000 won or so.

And what's the average of [Inaudible] on the revenue guidance then?

Revenue guidance side, I believe [Inaudible] because of that, I guess, is unknown. We now expect that year-end revenue to be at about 8.7 trillion won.

Okay. Thank you very much.

And the next question will be given by Mr. Jack Chang (ph) calling from Hong Kong. Please go ahead sir.

Okay. I have a few follow-up questions. First of all in terms of the ARPU numbers, what was the key driver behind lower ARPU compared to your old guidance and second question is regarding the SKT (ph), if I understand correctly, your previous SKT (ph) strategy was to delay the investments up until DDMN (ph) has to come out, however, looking at the additional CAPEX that was announced yesterday by the MIC, the SKIMT (ph) is supposed to be investing up about 200 billion won - does this indicate the change in SKT (ph) strategy for SK Telecom along with SKIMT, and the last question is regarding a [Inaudible] and has a subsidy by the law from next year. Is it likely to make any changes in terms of your demarking (ph) quotes for next year? Will that actually be down by demarking quotes (ph) next year by SKT?

Let me answer the second part of the question first, we have not changed any kind of deployment schedule for the public [Inaudible] based CD service (ph). The order process may begin this year, but actual the increment sorting and the delivery of these increments will proceed as we have originally planned. We have not moved up the deployment schedule from the fourth quarter of next year.

Okay. You were talking about the handset that has been banned has been reviewed by the government or the legislators?

I believe that is for the next three years and that is going to [Inaudible] banned in the country to begin with. So there were no subsidies going out during this quarter, it is just the marketing expenses due to the promotional activities that would be big on the go during the quarter. So, I think that kind of marketing activities will continue going forward. As we see the increase in our subscriber numbers that marketing expense item may change due to that, but this is not in any way at all related to any kind of handset subsidy.

Yeah. So basically the marketing course itself would basically maintain the same from this year to next?

That is the expectation and the fourth part of question would be?

We are projecting-- we were trying to have a year-end OP numbers of 48,000 won or so. We are trying to, our target, our marketing people's target was 45,000 won for the yearly average, but we are now into month of October and till the end of September, we haven't seen any kind of an increase in those numbers. In line to meet the 45,000 won target that we had originally set for ourselves, we have achieved the increase in OP numbers through the year, but it hasn't gone as thought as we have targeted and that is the one reason why we are guiding the year-end revenue number down from 8.8 trillion won to 8.7 trillion won.

Right. The ARPU is not growing as quickly as you previously expected. Is it mainly because of volume data ARPU isn't picking up or is it because maybe the voice ARPU has been picking up as quickly as you are expecting or what was the reason why that wasn't picking up as quickly as you have been previously expected?

Wireless Internet revenues, we have been recording about 21-22% increase on a quarter-on-quarter basis throughout this year. We expect those same kinds of trends to be maintained. If you remember, we targeted 10% above revenues being [Inaudible] from the wireless Internet side of it. By the end of this quarter, our ratio was 9%. So given the kind of growth that we have seen through the year, we believe, we will be able to meet the 10% target that we have set for ourselves at the beginning of this year. The voice part is not increasing as much as we have originally forecasted.

Thank you.

Currently, there are five participants waiting with their questions and the next question will be given by Mr. James Kim calling from Salomon Smith Barney, Hong Kong.

Thank you, a couple of questions. First, has SKT felt any impact from LGT's (ph) aggressive past packages launched in August? For instance, market share loss, higher retention, or marketing expenses? Second question is regarding the increased CAPEX, if I recall correctly, last year, the government also pressured for higher CAPEX in the second half, but naturally, the Telco really didn't invest any more in the second half. Is there any way the government can actually enforce this?

The LDT's (ph) recent types on outset, I think, you are referring to their two programs. I do not believe that it is having any serious impact overall - marketing expenses or the subscriber base either. So, we are not seeing any kind of pressure due to those two new pricing packages that were announced by LDT (ph). CAPEX-wise, well, the question was. Could you repeat it please?

Basically, last year, if I recall, the government actually pressured Telco to boost their CAPEX in the second half given the economic conditions. But in naturality is, if you look back on second half CAPEX, they really didn't boost that much more than what the government expected. So how can the government actually enforce this through the fourth quarter?

Well, the expected CAPEX spending is by the end of this year, it is 1.8 trillion won. Now, that is going to be done according to our own needs. As we believe that our subscriber numbers are going to increase from 9 million to 10 million for instance. The subscriber members have increased about a million than we had originally forecasted. But, how the government is going to monitor this, I do not have any idea to answer the question itself actually.

Okay. Thank you.

The following question will be given by Mr. Derek Chang (ph) calling from Singapore. Could you please go ahead sir?

Thank you very much. Just a couple of questions, first on the value added service elements of your [Inaudible]. That seems to be the only weak element in the third quarter versus the second quarter. Could you give us some guidance to where you expect that going forward? The second question is just on the miscellaneous [Inaudible] registered in the third quarter. Is that a public [Inaudible] set in the release of the 122 billion won? What was that due to?

I missed the question completely. [Laughter] I am very sorry about that. Could you repeat that question please?

The first question is on the value added service components in the third quarter - that seems to be the only weak element versus the second quarter. Could you give us some guidance of where you think that one will be going forward? And the second question is on the miscellaneous loss of a 122 billion in the press release. Is that a typographical error or is that actually the case?

The value added services during the second quarter included the roaming service that we are offering due to the World Cup event. And since the World Cup event didn't continue in the third quarter, so that's the reason why we have seen a slight decrease in the VAS part of the revenue stream. And the second part of the question was on the miscellaneous item, is a typo it should be 12.2.

Okay.

I am very sorry about that. It is not 122.

The next question will be given by Mr. Samuel Yong (ph) calling from Standard & Poors. Please go ahead sir.

Thank you, SMK Research (ph), Samuel Yong (ph). I have a [Inaudible] general questions, two questions, number one is regarding KT (ph) equity stake. Including the acquisition of KT equity stake enhanced to the shareholder value of SK Telecom and if you believe with it, could you please explain how, if you do not believe that it didn't actually enhanced the shareholder value of SK Telecom, can you explain why it didn't and do you have your view of your intention of the acquisition. My second question is can you expect any specific major step would enhance to shareholder value of SK Telecom in the foreseeable future I am asking this because despite all your indication of changing (ph) and dividend or show by big policies this isn't clear when that change would materialize. So, I would like to ask what would be the focus of your strategy in terms of enhancing the shareholder value? Thank you.

I think that our investment in KT (ph) did enhance our shareholder value, the deal (ph) is that KT is being selling the stake piece [Inaudible]. They have approached us last year, they did indicate of a desire to sell 3 percent at the market and it has taken several months I believe for us to get that share from KT. Every time there is a rumor of substantial amount of shares coming out to the marketplace certainly this creates an [Inaudible] issue and does affect our share price. Then on that basis I believe our participation in the KT's privatization and the fact that we are discussing [Gap In Audio] decide completely. I believe is a shareholder value enhancing move by the company. Second part of the question about any specific [Gap In Audio] there will be an announcement in the near future and on that basis, I believe we are returning the part of the earnings that we are realizing through our (ph) shareholders.

Can I ask a follow-up question? What's the intention of participating in equity, in privatization of KT wouldn't it be more specific in direct to use to cash, I mean the cash you used to buy KT stake, wouldn't it be more, make more sense to buy the SK Telecom shares from KT directly with the cash you actually spent on buying KT stake?

Well, we have expressed our desire to buy the whole lot from them many times [Gap In Audio] turned down, by the company.

Okay. Thanks very much.

The question will be given [Gap In Audio] Han(ph)calling Hyundai Securities. Please go ahead.

Before we proceed I have stated that it will be on our conference call. So, if there are people who have made the web cast already we will answer those questions, but please do not - no one any more for web cast.

Okay, currently there are two more participants waiting with their questions.

Go ahead, I am sorry, Okay.

Thank you for you confirmation. I have two quick questions on advertising and goodwill amortization. In the second quarter the [Inaudible] teleconference, about 15% of advertising comes out of the increase by mainly due to world cup event. In the third quarter, advertising expense remained unchanged compared to second quarter, previously

[Gap In Audio]

gave us the guidance on advertising going forward this is the first question and second question is what was the goodwill amortization [Inaudible] for quarter and if it is including

[Gap In Audio]

the depreciation, am I right?

Was the question about the goodwill amortization is being included in the depreciation items?

Yes and how much was it?

99 billion (ph).

Its in the depreciation area. Yes and the

amount was 99 billion (ph).

99 billion, did you hear.

99 billion (ph), right.

Yeah.

Okay, in third quarter right?

For the nine months.

For the nine months. Okay. And guidance on advertising going forward?

The advertising expenses during the third quarter was, we had launched a brand called [Inaudible] for the female subscribers [Inaudible] and we have also officially sponsored Asian Games. So, the quarter number four would be

[Gap In Audio]

Okay, Thank you.

Currently there are two more participants waiting with their questions, should I go ahead.

Sure.

Okay and the question will be given by Mr. Lou Bhui (ph) calling from [Inaudible]. Please go ahead sir.

[Inaudible] Two quick questions. Just a follow up to what was stated in terms of EBITDA margin given the guidance of 50% for the full year [Inaudible] from and I think something like a very strong revenue growth, like attrition (ph) rates strong revenue growth. Can you give us a color, some color in terms of what are the key drivers to [Inaudible] in fourth quarter if you succeed? And the second question is relates to [Inaudible] could you give me some sort of idea what sort subscribers you currently, [Inaudible], what is the target for the end of the year and [Inaudible] target for this year? Thanks.

[Gap In Audio] You asked about the revenue growth being, what will be the revenue [Inaudible] going forward during quarter number four. We are expecting about 500,000 new subscribers that will add through our network during the quarter itself. And if you look at the quarter on quarter gross of our revenue stream, quarter number one to two was about 10 percent or 9 percent gross. This particular quarter we, the quarter number three the gross was about 5%. We believe that kind of revenue growth can be maintained during this current quarter. So, based on that, we believe that EBITDA margin 50% can be achieved. As far as the EVDO (ph) subscriber numbers at the end of September, I believe it was 5000, we are expecting about 300,000 by the year-end.

Right, so in terms of the revenue growth you are expecting to be driven by subscriber growth?

Yes

Okay, thank you.

Currently there are no other participants with questions.

Okay operator if there are no.

No more participants

No more participants or no more questions by the participants.

Right.

We would to like to close the conference call with a last comment made by our Vice President Mr. Choe.

Thank you very much for your attention and if you have any more questions please ask us through you know email or telephone [Inaudible] we will try to give you answer. Okay thanks again.

Thank you.