SK Telecom Co Ltd (SKM) 2003 Q2 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 will begin the conference of the fiscal year 2003 second quarter earnings results by SK Telecom. This conference will start with a presentation followed by a divisional Q&A session. If you have a question please press one and four, that is one, four on your phone and during the Q&A. For a cancellation, please press one and five on your phone. Now we shall commence the presentation on the fiscal year 2003 second quarter earnings results by SK Telecom.

We will now start SK Telecom 2003 second quarter conference call. Since analysts and investors from Korea and overseas will attend today's conference call, we will provide English translation of Mr. Pyo's speech and answers. This conference called is scheduled for one and a half hours.

First President Moon Pyo will brief you the company's 2003 second quarter performance and other issues that you may be interested in. And we will have a Q&A session after that. Before we proceed please understand that all the forward-looking statements of the company are subject to change depending on macro economic and market conditions. Let me give you President Moon Pyo

Good evening and good morning, I am Moon Pyo, President of SK telecom. Thank you very much for joining today's conference call, despite your busy schedule. First let me start off with key performances of second quarter 2003.

SK Telecom achieved a 2.4 trillion won of revenue, which was a record high. This was an increase of 6% compared to the last quarter. And an increase of 13% over the same period a year ago due to the expanded subscriber base, solid voice ARPU and continued growth in wireless internet revenue. Especially wireless internet revenue was 310b won a 15% increase from last quarter, and 91% increase from the same period last year. A robust growth by any measure. [indiscernible] that despite the tariff cuts, voice revenue also increased by 10% quarter-on-quarter and 12% year-on-year without any sign of cannibalization from wireless internet service.

The robust [indiscernible] with our continuous operation improvements results in record high operating and [net profit] of 820b won, and 550b won respectively. Also EBITDA margin was 50% in the second quarter, which exceeded the full year guidance of 48% [indiscernible] in the first quarter of 2003. As the President of the company I am very pleased to deliver these outstanding results to our investors. Our management will not remain complacent, and promise you to try our best to achieve more.

Through reintroduction of new services and effective expense and investment management in the second half, we will try to achieve our year-end target of 9.5 trillion won of total revenue, and 48% of EBITDA margins. We will make best efforts to safeguard shareholder value in any regulatory environment by maintaining our good cooperative relationship with the government. And developing diversified measures to increase revenue, such as creating ways to increase MOU and [indiscernible].

Next I would like to address our policy to shareholder oriented management. The top priority of the company management is the enhancement of the shareholder value, and we are trying our best to achieve this goal. To this end, as all of you know, we are now in the process of buying 3% of our shares for cancellation, as promised earlier this year. If you assume the same level of dividend as last year on top of this buyback, we would be returning about 40% of this year's expected free cash flow. Far exceeding our stated guidance of 30%.

For the existing treasury shares we are currently looking into ways that will result in similar effect as share cancellation. We will make a decision after careful consideration of comprehensive issues, such as foreign ownership limits. We will announce the detailed plan as soon as the decision is made.

For the [indiscernible] as I have mentioned during the last conference call, our [indiscernible] consulting firms carried out the consulting work last May. The two new sub committees will be formed within the Board. One is [capex] review committee which reviews the company's capex plan, and the other is compensation review committee, which reviews the remuneration program of our management, including CEO. We are now working on detailed implementations plans to be approved by the [indiscernible] for the operation.

The installation of these new sub committees will heighten transparency of the decision making process through coordination with the audit committee and [outside directors nominations committee]. For your information the audit committee comprised of outside directors who have been scrutinizing the company's cash flow ever two weeks. Assisted by outside professional accountants since last February. We believe these proactive and multifaceted [indiscernible] activities will greatly help upgrade our company's management transparency levels to the global standard.

Let me turn to the purchase of POSCO shares. On July 22, in order to prevent POSCO from selling its SKT shares, the company purchased 2.73% of POSCO share, at 330b won from SK Corp. When we acquired [Shintidi Telecom], POSCO the largest shareholder in Shintidi Telecom exchanged these shares in Shintidi Telecom into SKT shares. SK Corp, the largest shareholder in SKT bought a stake in POSCO. As a result a strategic relationship was formed and a close relationship has been maintained ever since.

Recently [indiscernible] concerning the sale of POSCO shares to improve financial structure. POSCO was also being requested by its shareholders to sell the stake in SK Telecom. Under the circumstance SK Corp sold 2.7% in POSCO at the market [indiscernible] issue. POSCO no longer had any reason to hold onto 6.8% of SKT shares. Since we are unable to engage in additional stock buyback due to our ongoing buyback program this situation would inevitably result in serious overhang. A situation which might have a serious negative consequences to our share price. Because of this we purchased the POSCO stake in order to remove this serious concern and to keep our promise with our shareholders of addressing the possible overhang from POSCO.

The [indiscernible] will be issued by POSCO on 2% stake in SKT if greater than 286,000 won. This [exercise] price is much higher than the current share price. In addition we understand POSCO has no plan to sell the remaining 4.8% stake in SKT for the time being. As the company now owns POSCO stake directly, the closer relationship will be maintained in the future. As for the remaining stake we will actively address this through proactive dialogue with POSCO so as not to impact the market after we dispose of the existing treasury shares.

On 11 July we announce our new change management program in order to [lead] the changes in social culture paradigm and industry convergence, with the ultimate goal of maximizing corporate value. This is a master plan put together by more than 100 employees from various divisions within the company, and Future Management Institution (FMI), an entity created early last year to achieve continuous growth and increase corporate value. It was an immense task which took a year and half to complete. Based on this blueprint we will continue to identify and develop new businesses utilizing resources in accumulated know-how from our core business areas to make them growth engines for the future. Growth strategy is being reviewed, taking into account growth, profitability, market leadership, market size and others. The actual implementation of this strategy will be initiated after we obtain your understand through efficient communications in the third quarter.

For an efficient execution of such changes, reorganization has been carried out in July. Firstly to lead the technology and development of customer oriented product, network platform and [infotech] has been integrated into R&D division group under Chief Technology Officer. In addition, strategic functional formal marketing and internet division has been merged into business division. As a result network engineering and operations, and distribution channels were organized into network division and customer division, to be used as common infrastructure to accommodate diverse products.

Besides, we will reinforce the supporting system by establishing and operating executive committee and by reorganizing the company-wide risk management system.

In summary the new change management program is to maximize the long-term total corporate value by achieving the virtual circle of the value maximization of the core element of the corporate management. Namely, customers, shareholders and the employees. Since the management is always ready to consider your invaluable opinion on maximization of shareholders value, please do not hesitate to contact us with your suggests.

Lastly, once again on behalf SK Telecom, I would like to express my sincere gratitude to all of you for extending continued interest and cooperation for SK Telecom. Thank you very much.

Thank you very much.. Now we will open the floor for Q&A.

Now the Q&A session will begin. Please press one and four if you have any questions. Thirteen participants are waiting with their questions.

My name is [indiscernible] I am with [indiscernible] Securities. I have many questions, but let me ask the first question first. Regarding the satellite [DMB]. We heard about the business plan the last time, has there been any changes to that? [indiscernible] it would be your competitors. The second question is regarding [101] and [indiscernible] which will be introduced next year. What do you see [indiscernible] countermeasure to that move on the part of SK Telecom?

The third question is, in the first half the investment amount is 504b won, so what is the execution plan for the second half?

Regarding [indiscernible] DMB business, we will increase the investment level from 150b won, to 180b won. 73.5b won will be spent in purchasing the satellite, and the rest, the 300b won will be used in participating in the corporation which will be made to accommodate this business. We will participate as equity participants. In 2004 we will spend 3b won in the satellite and we will participate in the [capital] increase with 30b won. So next year in total we will spend about 33b won. We will try to communicate more in order to resolve any concerns in the market regarding this business.

We have sufficiently reviewed the business aspect of DMB and we believe there is a good business case with this. We will use the handset with good mobility, and we will put broadcasting channel, data channel, music broadcasting channel into the handset function. So we believe there is a very positive business growth opportunity in this. In many different business sessions we have explained that we plan to form consortium in July. However that has been delayed because some of the companies want to participate in the business as primary shareholders. So when that idea comes more concrete we will come up with the consortium. And it will take some time for that to review the business cases themselves. So we are taking some time right now.

Regarding the business [explanation] session. As soon as the primary shareholders are formed we will open the session to explain in detail about the business planning. What kinds of competition we will have from KT. Anyhow, I believe we have the advantageous competitiveness because we are the early movers, so we the advantage of early mover.

We will observe what kind of revisions will be made into the broadcasting legislation and we will watch the trend or movement in the industry. We will also review the possibility of participating KT and KTF as primary shareholder in DMB business. I don't think that there will be big changes in the technological level pretty soon, but I don't think we will be affected negatively by the KT DMB business using the frequency. And we don't believe that we will be affected by the frequency used by KT.

Regarding the third question about the capex spending. The spending in the second half will be going as planned. In total we plan to spend 1.445 trillion won. So in total this year we will spend capex as planned. The amount is 1.95 trillion won.

As to the second question regarding [NMP] we are proactively preparing for that introduction of [NMP], and we will continue to make the preparation. Basically our counter measures to the introduction of [NMP] is as follows. We want to move away from the operator orientated attitude, but we will aggressively embrace customer oriented attitude and way of thinking. In order to provide a high level of service to our customers we will embrace NMP introduction proactively. And we will try to stabilize the environment for customer oriented management. And it will contribute to the [indiscernible] of the domestic communications industry in a desirable way.

We have recently announced the [speed 011 Rainbow] program, focusing on customer orientated change program. And we will obviously embrace the change code of our customers. And we will use those customer service program to promote our brand image. When the NMP is introduced in the cellular market, we believe that we will leave the paradigm shift into the direction of our customer orientated management and our high quality management system.

With the NMP introduction there is some work in terms of we have to change the handsets, and there is a reduction of price [indiscernible]. High quality calls and [indiscernible] levels can be considered, which are pretty high in our case. So the NMP introduction would have a big impact on our business. Especially the customer of SKT joined our service because they value the high quality and service level of our service. So in accordance with market survey our company has 70% of [indiscernible] share of customers. Therefore we don't expect additional marketing costs associated with the NMP introduction. On the other hand in the long term, NMP introduction would be very advantageous to our business.

Does that answer your question?

The following question is by [indiscernible] from [Don Juan] Securities.

Good evening, my name in [indiscernible] I am with Don Juan Securities. LG might participate in the capital increase for [Hanaro]. As the second largest shareholder of Hanaro, what is your thought about that? If LG acquires Hanaro LG and KT would have both wired and wireless businesses. But your company is specializing in wireless, so the age of integration of wired and wireless is coming up. So what is your response to that?

The next question is regarding the [osmetric] regulatory policy. In the second half of this year what is the prospect of osmetric regulation, and what is your response as to that regulation. Specifically, there is talk about the different fees for frequency usage. And I would like to know your response to that?

And the next question is regarding the guidance for wages and employee benefits for the third and four quarter. In the second quarter the cost was reduced, so what about the third and fourth quarter. Thank you.

You are talking about hot potato issue. The shareholders of Hanaro SKT is interested in the [indiscernible] and growth of Hanaro. We are not in the position to check LG growth in the industry of communications. We don't want any [misrepresentation] towards the LG group in the market. Our position is very simple. We believe the foreign investment infusion would be better than capital increase. That's why we are against capital increase.

Regarding the second question of the response to the integration of wired and wireless businesses, we are focusing on wireless business. And as we have mentioned on a number of occasions, we are not very much interested in the wireline business basically. However, if there is an emergence of bundling a product incorporating wired and wireless features, we need to respond to that, and we have reviewed that point from multiple different angles. And if there is a very big obstacle posed by the other competitors in the communications market, that would prevent us to grow further, then we will think about how to respond to that more actively.

However, up to now we have not felt any concrete threat from KT or competitors. KT has dominance in the subscriber base. However, up to now there has not been any concrete major threat from KT in that respect. However, having said that, we will continue to study and try to respond to any emergence of bundled products incorporating wired and wireless features. And we will identify any potential threats in that respect.

Regarding the osmetric regulation approach, our position is as follows. MIC announced on the 24 July that the competitive policy in the communications industry can be characterized as regulation for wireless versus wired. So in case of wired business the frequency usage differentiation is maybe the only thing that can affect our business. This would have a very trivial impact on us. In the area of wired business KT has been trying to be privatized, but that has been delayed. And recently the late comers in the wired space are experiencing a lot of difficulties in terms of management. So that is the background for the osmetric regulation emerging.

We will continue to seek appropriate measures against the osmetric regulation, because if the osmetric regulation is only focusing on weakening the early adopter, early movers, the competitive advantages, and try to protect the late comers profitability, then it will adversely affect the convenience or the benefits for our consumers as well.

Up to now we have not encountered any osmetric regulations coming up. Therefore it is too early for us to say specifically what kind of company measures we are going to take. Once the details of the regulation comes up we will make more precise statement of our positioning at that time.

Regarding the wages and employee benefits in SKT, in the year 2002 the portion of the cost was within 4% of the revenue. So this year it will be the same level, and we don't intend to increase it any further.

The following question is by Ian King from Bloomberg.

I just had a few questions. The first on is, frankly there still seems to be a lack of proof points, at least globally of successfully functioning [WCDMA] networks. Can you please give us any kind of update on milestones regarding the handset, hand offs, etc? Given that we're almost in August, an update on that would be helpful. And then another technology related question. What are your views on the robustness of 2.3 G [OFDM] and its application space for SK Telecom? And the third part of that is, assuming licenses are granted early next year, what do you think the revenues from such a service might be?

And then going back to an earlier question, with regards to satellite DMB, we're hearing now that there is an increasingly strong argument for terrestrial DMB. Do you see potentially strong competition from terrestrial DMB and what would the total [indiscernible] market for DMB be after all? Thank you.

Regarding the WCDMA we disclosed our plans for the investment in that area. And there was some concern in the market at the beginning of this year, and we apologize for that once again. And we have modified the investment level for WCDMA, and reduced it at 250b won. In the first half of this year we have delivered some of the [MSCs] and base stations to cover [Seoul] area. In the second half of this year we will deliver the remaining MSCs and the base stations. The network is being set up to cover Seoul area within this year, and we are discussing the matter with MIC. However the overall rollout plan is not established or confirmed yet.

Regarding the handsets for WCDMA, in Korea we have the challenges in terms of we have to produce dual band and dual mode handsets for backward compatibility. In the initial stage we have produced a prototype which is available, and it is judged to be workable on the level of a prototype at this point. The handset is having two chips in it, and right now it is being tested. The handset has certain sizes in batteries, and compared to 1X handset the size is a little bit bigger and the battery life cycle is a little bit shorter. But there is no other major problems associated with it.

Regarding the 2.3 [indiscernible] next generation mobile internet, we are testing a number of different technologies. And the commercialization timeframe would be around 2005. And it is too early for us to determine how much -- whether it would be profitable, and how profitable it would be. And it is also too early to make the judgments regarding whether the technology would be supplementary or it could be replacing the cellular business. Right now the market test is not completed, so there is remaining issue of marketability. Therefore it is way too early to estimate the revenue stream.

Regarding the third question DMB, first the PMSC businesses that we are planning to rule out is fee based business model. We will have 11 video channels, 25 audio channels, [indiscernible] around 6 data channels, and it will be commercialized first half of next year. And the terrestrial DMB would be provided for free. And the three operators who are carriers would be limited to provide one video and three audio channels. When it comes to video it will not be available immediately but in two or three year's time. Only limited to the vehicles in metropolitan areas. However, our business covers the entire country, and it is both for the cellular handset and vehicle. Therefore we will have great advantage as first mover and we will have a very high level of competitiveness in our service.

Regarding your question about the licenses for 2.3G next generation, mobile internet service. The next generation mobile internet service can be characterized by the mobility, [indiscernible] and mobile handset usage [indiscernible] service and other characteristics. The characteristics match the cellular communications characteristics. Therefore we have the operational experience and sufficient know how in cellular mobile communications network. Therefore it is sufficient for us to be able to acquire that license. When the frequency is allocated to the wired line service providers they need to build new wireless service infrastructure. Therefore it is not matched by the restructuring of the existing wireless communication business. Therefore we have much better chance of obtaining that [indiscernible].

Does that answer your question?

Yes. Thank you very much.

Currently twelve participants are waiting with their questions. The following question is by Scott from Merrill Lynch.

Thank you very much, I will try and keep it brief. Just three questions if I could. Firstly I noticed the slight change to your interconnection arrangement with KT. Are you expecting any other changes to interconnection this year? And any views on the interconnection negotiation for next year? And particularly does the opening up of KTs own land to mobile arrangements offer any opportunities for you.

Second question is just on -- I noticed retention commissions were obviously increasing within your marketing costs. Could you just give us a bit more of a sense as to what your policy is, how retention commissions are structured? Whether you see any changes there going forward?

And finally, could I just confirm that the payment you made for the KT114 directory business this year, that's really a one-off cost in your P&L? Thank you.

Regarding the interconnection with KT. KT can directly connect to [HLR] so from April this year that has been enabled. Therefore the interconnection fee between land and mobile would be reduced. So that has been reflected in the book since April this year, and the prices lowered to 36 won. That was included in the management business plan for 2003. therefore the total revenue of 9.5 trillion won would not be affected by the interconnection cost change.

Regarding interconnection fee, there is no further negotiations at this point in time, and the government has not produced concrete ideas on that either. So they are under discussion right now on the part of the government. However, in mid to long-term basis, we don't believe the cost will be increasing, it will go down. The opening up of [LM] have proved to be very positive impact on our balance sheet.

Regarding the retention commission, it was increased due to the 30% increase in the number of customers who achieved the handsets in the previous quarter. It is not the case that we increase the commission level. But going forward, with regard to NMP introduction there will be slight changes in this regard. According to the [indiscernible] guidance we will try to execute that commission level efficiently and within 17% of the revenue. That's our intention.

With regard to KT114 directory service, the 114 directory service has been running in deficit. So the cellular phone operators are asked to make a contribution to cover the losses. SKT, LGT and Hanaro have decided to make some contribution. 40.6b won of loss for the period of 1998 and 2001 has been recognized, and it is occurring as one-time expenditure. When 114 service charge is made practical next year, there will be no more contributions requested. So this is one-time expenditure for 114 service.

Does that answer your question?

Yes, that's great. Thank you.

The following question is by Steve [indiscernible] from Nomura Securities.

Good evening, thank you for holding this conference call. I actually have just one question. With [KTF] recently promising to return up to 50% of net income to shareholders, it appears KTF is sending a clear message to SK Telecom that it will refrain from aggressive marketing going forward. And this could perhaps open the door for SK Telecom to increase its own dividend payout policy. So my question is, does SK Telecom plan to increase its payout ratio, or perhaps offer a more predictable cash return policy based on net income in order to enhance shareholder confidence?

As we manifested before, under the base policy of returning 30% [indiscernible] to our shareholders, 30% or more, we will try to meet the objective. And we have studied from many different perspectives about the cash dividend policy. And if possible we want to make balance between increasing the shareholder's value and growth for the company. We will continue to make the balance between the two.

Thank you very much.

the following question is from Mitchell King from Morgan Stanley.

Good evening [indiscernible] I just have a two-part question. Mainly I want to understand from you how you would react to some of the potentially changing competitive conditions. One is from a regulatory perspective, and that is, I think there is potential that MIC will again take a look at tariff cuts, which may cut into your future revenue growth potential. And secondly [indiscernible] maybe considering [MVNO] as well as licensing of 2.3 gigahertz. I think all of those events could change how you do business. I want to try to get a sense from you how you would react to it, how you would try to change your revenue base?

And also secondly, how would you would react to - potentially your competitors are I think Freetel or LG Telecom - aggressively coming out and using handset subsidies? Or perhaps KTF trying to lower data pricing knowing that that they currently have more spectrum than you do? So if you could answer those questions I would appreciate it.

Thank you very much for the questions. Regarding the MIC reviewing the tariff cut further, we are very much accustomed to these kinds of phenomenon. It is an annual event coming to our business. And we have prepared for this from many different perspective. Fortunately KT has successfully responded to the tariff cuts in the market, and we have successfully continued to increase MOU and ARPU. Regarding the tariff cut in the market, actually it is more disadvantageous to the late comers. We are planning to leverage products fitting this kind of environment so that MOU can be increased [indiscernible] ARPU increase. We will use services with more price elasticity; that is the way we respond to this kind of regulation.

There is no specific tariff cut regulations on the scene right now. We will be pressured to lower [indiscernible] price and we are preparing diligently for further price cuts next year. And we will use this tariff cut regulation to our advantage. We will come up with products that can leverage this kind of tariff cut.

Regarding MVNO, there is no decision made at MIC yet, and we are watching the movement in this area. We don't sense any real threat. So in terms of network costs and brand power we don't believe that there is a tangible pressure from competitors. If there is any it will not be major magnitude, but a trivial level.

Regarding the 2.3 gigahertz next generation mobile internet license, we believe that these licenses will be given to the wireless operator, and that there would not be immediate threat to the cellular business. We will continue to devise ways to respond to the 2.3 gigahertz services. As I mentioned before we will make that service complementary to cellular service, and it will act as increasing profitability of the cellular business.

The late comers are strongly asking for differentiated subsidy levels. However, according to the regulations the subsidy for the handset is clearly banned. So it will be very difficult to enforce the differentiated subsidy level under current regulations. Our company is trying to prevent or block any confusion activities by our competitors in the market. So we will deploy clean marketing policy in a strong way in the market. The government are gaining position on the subsidy for handsets [indiscernible].

KPF and LG Telecom have more frequencies than SKT, and they are lowering their prices. So our experience [indiscernible] service we realize that there is a limitation in data network cost of reduction. Therefore there will be limitations in lowering the price for the data service. Rather than focusing on lower pricing we believe data service will be dependent upon the content provided. Therefore we will not try to lower the later service prices too much. The superior content would provide a very good service, and in that respect we are doing much better than our competitors. To our existing customers SKT will respond to this kind of phenomenon with superior content and appropriate product mix. As long as the data ARPU is appropriate and as long as we can maintain a certain level of profitability, that is our strategy.

The following question is by [Lee Ho Chin] from JP Morgan.

Good evening, my name is Lee Ho Chin, I'm with JP Morgan. Thank you very much for holding this conference call. In your previous conference call you said that there might be a possibility of running out the Spectrum, 2G Spectrum in June next year. So has there been any changes to that? And the current Spectrum can be changed this year. Do you support [EDDO] and does the discussion of [indiscernible] of information and communication. So if you elaborate on that, please?

The government policy on the frequency used is that where there is enough justification that can be made for efficient use of frequency resources, the frequency can be allocated to the carriers. So the [indiscernible] band, which was used before was the two [indiscernible] bands. For that [indiscernible] band we are trying our best to get that band allocated to us.

If there is no further allocation of those two [indiscernible] we will encounter some [indiscernible] frequency in June. Regarding that matter, since last conference call we have not conducted a further analysis on [indiscernible]. However, we still think that there is a problem with data traffic next June.

We are also reviewing the possibility of getting the two [indiscernible] additional frequencies and we also try to increase the efficiency of 2G frequency. The are some contingency plans prepared to convert that frequency to 1X and others.

I was not talking about the [indiscernible] band actually, I am more interested in knowing whether 3G spectrum can be used for EDDO?

We have not approached MIC regarding the 3G license frequency to be used for other purposes. That would require a lot of preparations and negotiations and discussions with MIC. Currently for the frequency allocated that was meant for WCDMA. So it would require petition to the government if we want to change the usage of that frequency. There we have not reviewed the use of that WCDMA frequency for other purposes yet.

The following question is by Eddison Lee, from JP Morgan.

Hi, thanks for the call again. I only have one question. In your result announcement you mentioned that part of the reason for your increase in voice revenue quarter-on-quarter was because you offered some heavy free air time during off peak hours at a certain fixed fee per month.

Excuse me, I can hardly hear you. Can you lean further away from your microphone so I can hear you more clearly?

Okay, is that better?

Yes.

Okay. I have only one question. You mentioned in your result announcement that part of the reason for the increase in your voice revenue quarter-on-quarter was because you introduced new packages involving substantial air time in off peak hours at a fixed fee to certain subscribers. Could you please tell us how many subscribers are actually on that program? And what is the recent growth trend of that package?

That was a [free holiday] price plan as of end of June, and we have acquired 1.2b subscribers. The reaction in the market is very favorable, and it is showing very strong upward trend in terms of the growth. We are deploying aggressive promotional activities since the calls are provided for free in not busy hours like holidays, weekends and at night time. There is no additional costs incurred. It helps to generate demand, so eventually contributes to the increase of the revenue. If you look at the cumulative figures for the last six months we have achieved 50b won of revenue from it.

Thank you.

The following question is by Jeff [indiscernible] from CSFB.

Hi, this is Jeff [indiscernible] from CSFB. I have one question about your guidance. I know that your guidance at this point is 9.5 trillion won for the revenue for 2003, and 48% EBITDA margin. Given your first half numbers, I was wondering whether there is any possibility of the company upgrading the guidance going forward? Particularly regarding the top line number, if I calculate it correctly for the first half you've taken about 48.3% of your total guidance on that basis. Is there a possibility of the company actually going out and exceeding that expectation? I think given what has happened between first quarter to second quarter, there is - just in my opinion - a very good possibility the company would beat the expectations of the previous guidance of 9.5 trillion won. So if you could give me some pictures of the company's guidance going forward, that would be greatly appreciated. Thank you.

That's a very good question. Thank you very much for asking that question. The immediate task that we have to carry out is involving the [CNIP] price decrease in the second half of this year. And we expect that there will be a slowdown of growth rate for the new customer acquisition. And we also need to prepare for NMP introduction next year. We will keep the guideline of marketing expense. However, there are some uncertainties remaining. Therefore we want to have some cushion in the second half of this year.

Maybe at the end of the third quarter we can give you more specific guideline if there is any possibility for changing the guidelines. But at this point in time we don't have things in mind to change the guideline. Please be more lenient towards us in this respect. However, we will not increase the marketing cost, and I can promise you that. But the guidance change will be handled in the third quarter.

Thank you very much.

the following question is by Henry Colby of [indiscernible].

Good evening, thank you for the presentation. I just had a few short questions. The first is just on the June and [EVDO] subs. That seems to be really driving your data revenues. And so I just wondered if you could give a target of what year-end subs you're --

Contact us with those questions after the conference call. Thank you.

And my second question is just whether you could give the total number of shares outstanding on the buyback? How many more shares do you have to buy back?

We have repurchased about 70% of the target. So we need to repurchase 30% more.

Could you give the current number of shares?

Total number of shares to be purchased is about 2.5m shares.

Okay. And your current number of shares in issue at the moment? Your [indiscernible] number of shares?

Currently about 84m shares.

Okay. Thank you very much.

Three participants are waiting with their questions. The following question is by [indiscernible]

Thank you very much. Just one question. It seems this year your free cash flow returns have largely been focused on share cancellations, largely to eliminate share overhang. But in the new year upcoming, would you consider raising substantially the mix of your free cash flow returns towards dividends as opposed to share cancellations?

The share cancellation may continue into next year because we have [indiscernible] to 1% of existing treasury shares. And we need to handle those continuously next year. And we may have additional share overhang issue coming up. So we need to prepare from many different perspectives. Regarding the dividend policy, we may come up with the idea of mid year dividend payments. And we will study the possibility of many different ways to pay the dividend. And at the end of the year we will disclose the dividend policy of ours in more concrete terms. Right now this regulation is being changed for the firms listed in the Stock Exchange market. So we will watch the changes to the regulations and we will give your our new dividend payout method.

The following question is by Jon Kim from Merrill Lynch.

Wireless internet network will be opened up. What impact would you receive from that move? And what is your strategy for the wireless internet into the future?

Regarding the opening up of wireless network, there are many stakeholders who are keenly interested in this move. This includes the wired operators, the wired portal operators and larger scale content providers that they will enter into the market. And when we have a very activated wireless network market then our revenue from data traffic will be increased, and we will find new sources of revenue in the market. But there may be some decrease in the information usage profitability, and we will run some simulations to predict the decrease of that revenue. Overall the net effect of that move on our company would be pretty positive.

The following question is by [indiscernible]

This is a follow-up question to the previous question. You have other plans to cancel 3% of treasury shares in existence at this point. Do you think this factor would be [indiscernible] for the shareholders, or are you going to do that next year? If you utilize the stock buyback efficiently I believe the stock buyback would be sufficient that you can use the cash flow next year to pay higher dividends as the comment raised by UBS. So what is your opinion on that?

This is a repeat question from the previous one regarding the cancellation of the 3% of treasury shares. We also have the 2% [indiscernible] to be issued by POSCO on the basis of our SKT shares in POSCO. If that is done it will impact the foreign equity investors ownership limit. And we would not be able to do all those activities this year, considering the impact to the market. We will not risk impacting the [indiscernible] of trading activities, so we don't want to cause a bottleneck. So that's how we are going to handle those things. And I cannot guarantee that these things will be done to provide the Christmas gift to all of you. But at the latest maybe early next year we will have these kind of things completed. So this year we will not be able to complete the cancellation of the treasury shares. And we will respond to this matter, considering the balance between the stake ratio.

And [indiscernible] from UBS also talked about the dividend policy, and that there has been a lot of [indiscernible] from many different investors for the dividend increase. And we are reviewing this matter very carefully. And in the second half of this year we will determine the new dividend policy. We will consider the mid year dividend payment and other methods to increase the whole level of dividend. So those things are being reviewed in a positive way at this point, and we will try to make balance between dividend payment and stock cancellation.

the following question is by [indiscernible] from Morgan Stanley.

Good evening, gentlemen. I have three questions related to the balance sheet. First I noticed that you pointed out interest income increased by 70% quarter-on-quarter, but your cash balance was actually down 27%. Can you please help explain that. Second, in your long-term liabilities Other category you had a significant increase from 152b won to 725b won. Can you explain the difference? Is that 3G related? And third, on the P&L you had an increase in commission fees of 15% on the consulting fees for the sub committee within the Board. Help me understand what's that all about? I know you had mentioned in your opening comments that they review capex and compensation, but should that number continue to increase? What do these people do and are they company employees or are they outside employees?

Regarding the interest income, actually the cash average balance has increased 70% over the previous quarter. Regarding the long-term debt, it is because the [INC] quarter had unpaid contribution of 557.9b won. That is the reason behind that figure. So 3G is related to that. Regarding the consulting fee for the formation of the sub committee, those consultants are from external organizations. However, the fee is a pretty small amount, which is 0.3b won. And we received the consultancy for change management for convergence environment and ubiquitous environment. So external consultants by consulting firms doing [indiscernible] for doing the consultancy.

The detailed figures can be obtained by contacting IR office.

Just let me get clear on that first question on interest income. Are you saying that there's a lag effect and that you collect interest income because your cash balance in the previous quarter was higher, is that what it is?

Before we go on with the answers, these kind of questions could be handled by our IR office. I think today what you have stated is correct, but could we have this discussion after the conference call?

Well that was my last question, thank you.

The last question is by Matthew Jamieson from Goldman Sachs.

Good evening, President Pyo, lucky last. I am sorry to ask what may be a sensitive question. I have a number of positive cash flow questions to ask, but I just wanted to ask this question as well to clear up what I thought is a very important issue. It regards some comments made in SK Corp's IR session on June 18, that a key member of SKT executive management had assured SK Corp's board that the proposed contribution of SK Telecom to SK Global's average expected EBITDA of around 436b per annum over the next five years is achievable. In other words, a senior SKT official assuring SK Corp's Board that that contribution in SKT's case is about 306b. so I was just wondering if you could just give us some comments on that as to the exact status? Maybe what did happen and whether SKT did make any promises? And besides that, whether you think that is achievable?

Actually I was not participating in the whole deal, but there was a telecommunications business explanation session. And so in that session there was some mention about the telecommunication business nature. But there was no guarantee for the contribution to the SK Corp's retail level. The EBITDA creation or generation is dependent upon the business capability of SK Global. And SKT has never made any transactions with SK Global [indiscernible] that SKT would contribute to a certain degree to its EBITDA level. So it is not possible for us to guarantee an EBITDA level of another [indiscernible] company.

SK Telecom's Board of Directors have never guaranteed the EBITDA level for SK Global, and it will not happen in the future as well. So I'm taking this opportunity to make it clear once and for all, as I have made this message a number of times to investors and analysts. I want to give you the clear message once again that SK Telecom would never and has never guaranteed EBITDA for SK Global. We will be engaged in normal business transactions observing the general business principles in an objective and transparent way. But beyond that we will not be engaged in any further transactions which is not in the boundary of normal transactions with SK Global.

First I would like to thank you all for participating in this long-lasting conference call this evening. I hope we can report the same level of good performance like today in the next conference call, and thank you very much for the good comments and valuable opinions in today's conference call. We will do our best to reflect your opinions in our management practice after careful review of those comments. We are always open to listen to your comments to improve shareholder maximization. So thank you very much for the comments.

On behalf of SK Telecom I would like to thank you once again for your interest and cooperation extended to SK Telecom. Thank you.

Thank you very much.