SK Telecom Co Ltd (SKM) 2003 Q4 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 2004 Q1 CEO conference call by SK Telecom. Please go ahead sir.

This conference call will last about an hour and a half. President Pyo Moon Soo will deliver opening remarks covering 2003 performances as well as plans for 2004, followed by a question session. We would like to remind that all the forward looking data offered by SK Telecom are subject to change, base on macro economic and market conditions. Now may we present to you the President of SK Telecom, Mr. Pyo Moon Soo.

Good afternoon. My name is Pyo Moon Soo, the President of SK Telecom. Let me first thank you for taking time out of your busy schedules to take part in today's conference call. I wish all of you a happy new year, and best of luck and health to all your families. Allow me to start with the 2003 performance highlights.

2003 marked an especially challenging year for businesses home and abroad. Despite such adverse conditions, SK Telecom successfully achieved continued expansion of subscriber base, found increase of voice ARPU, as well as growth in the wireless Internet business. Thanks to the strives we have made, the revenue recorded KRW9.52 trillion which marks a 10% increase year-on-year.

Most notably, the wireless Internet business thrived, going beyond simple text based content to include multimedia services, leading to KRW1.32 trillion in revenue for that business alone. This is 81% growth compared to the previous year. This figure represents 15.5% of the cellular revenue for 2003, which outperforms the initial target of 15%.

Operating income and net income increased 15% and 29%, or KRW3.8 trillion and KRW1.94 trillion respectively. The impressive profit was the result, not only of the continuous sales growth, but also due to the clean marketing strategy pursued by SK Telecom as the market leader. SK Telecom expended only 16.6% of total revenue as marketing expenses, a lower amount than our original guidance of 17% for 2003. The EBITDA margin for the year was 49.3%, exceeding our yearly guidance of 48% by more than 1%.

Due to the reduction of investment amounts through efficient management, together with risk scheduling of some investment items, only KRW1.6,963 trillion was executed as CAPEX in 2003. This was KRW250bn less than the original guidance. Now let me move on to the plans for 2004.

Our revenue target for 2004 is KRW10.2 trillion. To meet this target, we will try to expand the subscriber base numbers to 18.8m by the year end. Also increase monthly ARPU for the year to more than KRW46,000. Based on this, we will try to maintain the growth and profitability in current business areas.

Regarding the number for the [inaudible] introduction, there were some subscriber trends in early January, due to built up demand prior to the MNP introduction and overheated marketing activities of our other competitors. However, due to SKT's corrective countermeasures, based on its superior service quality and strong brand image, together with the government effort to ensure sound marketing environment, the number of churns have been declining since the latter part of January.

Furthermore in the new prefix 010 market, SKT's is maintaining its leading position by utilizing its competitive edge. In order to deal effectively with MNP in the first half, and to maintain the lead in the new 010 market, the market expense for 2004 is expected to edge up slightly to 18% of the total revenue. In that case, 47% EBITDA margin for 2004 would be achievable.

After in-depth deliberation by CAPEX review committee, which was set up within the Board of Directors last year, CAPEX for 2004 was set at KRW1.7 trillion. This amount is similar to 2003, accounting for the rescheduled CAPEX portion of 2003 and 2004 WCDMA related investments.

Now about the Group strategy. To a subscriber base improvement and introduction of more value added service, together with diverse multimedia service offerings like June. We will try to achieve continued growth in the wireless Internet business and overcome the voice saturation into further improvement of ARPU.

As part of the new business initiatives, SKT will endeavour to emerge as the comprehensive information distribution company by offering integrated, ubiquitous services. As well as maximizing value to both consumers and enterprises on all points of daily life, including finance, media, commerce and entertainment.

In line with this strategy SKT will launch the DMB business in 2004. SKT is planning to develop the mobile Internet business in 2.3 GHz spectrums. Capitalizing on the extensive experience accumulated in the mobile business, we will prepare diverse convergence products to keep abreast with the integration trend between wired and wireless.

Next let me address the disposition of existing treasury shares and shareholders' return policy. SK Telecom has been reviewing various ways to achieve share calculation effects, such as EB issuances. However, as the foreign ownership limit reached its 49% limit recently, another restriction now stands in our way. While closely monitoring for any possible changes in foreign ownership limits, SKT will dispose 2% of its [KK] shares in the first half of this year. This is in order to proceed with the cancellation of this amount by the end of this year. If it is not possible to execute this plan, SKT will look for alternative ways of shareholder return.

Due to lack of available shares for foreigners, as well as the possibility of big year-to-year STS fluctuations amidst the convergent, ubiquitous environment. We have decided to communicate our shareholder return policy to the investment community, based on a dividend payout ratio from this year. This is a more stable and predictable measure. As mentioned last December, the payout ratio for 2004 earnings will be brought up to 25%, including an interim dividend.

If it is necessary, the share buyback and cancellation will be flexibly implemented in line with the market situation. As with 2003, SKT will try its best for its corporate value to be valued on a par with other global peers, by enhancing shareholder return policy and corporate governance in 2004.

Lastly, on behalf of the company, I would like to extend my deepest appreciation to all the investors for their unwavering support and encouragement to SKT Telecom through good times and bad times alike.

We will now begin the Q&A session. Please proceed with your questions.

++ q-and-a

The first question will be given by Mr. Jon Chang Lee calling from Daishan Economic Research Institute. Please go ahead sir.

Hello, my name is Jon Chang Lee. First of all congratulations on the excellent earnings of 2003. You just mentioned that 2004, in the early part of the year, the subscriber base has been pretty much stabilized, despite the MNP proceedings. However, I am more interested in the part of July of this year, not the beginning of this year, when KPS subscribers would be able to churn out to SKT base as well.

So, considering the fact that during the month of July you would have to put in more effort in the marketing activities. I am wondering whether you would be able to maintain the 18% marketing expenses targets during that period as well. So do you have any specific plans or strategies in that regard?

Second question. Maybe I did not get to hear the details within your opening remarks. Could you also share with us the portion of the wireless Internet service, as opposed to the overall revenue of your company in year 2004?

Let me try to answer the easier question first out of the two questions raised. The second question was with regard to the proportion of the wireless Internet out of the entire revenue base for the year 2004. Putting aside the interconnection fees, we expect that revenue to be about 20% of the overall revenue.

With regards to the mobile number portability. From the latter half of January we are already seeing a significant downturn in the figures of the churns out of SKT. In other words, less than 10,000 subscribers per day are churning out of SKT and is stabilizing. So, therefore, we expect the marketing expenses to stabilize significantly from the month of February. So, although we do not have specific plans as far as the churn out areas are concerned, we expect the marketing expenses to stabilize continuously throughout the year.

Besides, considering the fact we are having an increase, or a steady increase, of the new subscribers entering into the SKT 010 services, we are not witnessing any significant drop in the overall subscriber base. You were referring to the second half of this year when KTF subscribers would be able to churn out of their teleco as well. During that time we will continue with our customer communications regarding our call quality and differentiated services.

So I am confident that, even without extending too much more of our marketing expenses, we will be able to increase the subscriber. Also at the same time, make the structure, or the subscriber base, more sound than before. So, during this period we will experience both growth and profitability.

Once more, if I may elaborate a little bit, SK Telecom will continue with this basic position. We will not suffer in terms of profitability in order to grow externally. As you mentioned, we expect slightly edging up marketing expenses because of the introduction of MNP, up to 18% of the overall revenue. We are pretty sure that we will be able to maintain that guidance in terms of marketing expenses for that year. Within that budget we will do our best to achieve as much as we can.

There are 12 participants waiting to give their questions. The following question will be given by Mr. Tony Yung calling from Donman Securities. Please go ahead sir.

I have four following questions. Number one question is this. With regards to the target for new additions for the subscribers for this year, you have stated 490,000 people. However, I would like to know what your assumption for the reduction of subscribers due to MNP reduction is going to be for this year? So, could you share that assumption with us?

Second question, if you could give the January figure alone. All three companies are saying that they are coming out as a winner. KTS is reporting net additions of about 370,000. LGT is saying about 850,000. Then SK Telecom is saying that you have only incurred about 170,000 reduction in terms of subscriber base. So I would like to ask whether you are satisfied with this figure?

The third question is with regards to asynchronous INT 2000 service. Whether you have plans to revitalize this service in the near future? You shared with us that your CAPEX target for this year is about KRW1.7 trillion. Out of this overall CAPEX budget, how much would be allocated to WCDMA?

The fourth question is with regard to the satellite DMB convergence with finance services. Are there any changes in the direction or the methodology of such convergence in the near future?

Regarding the first question, if you consider the current position of SK Telecom and considering the market changes. I hope that you would understand the fact that we will not be able to share the exact number of our assumed MNP churn out numbers, for marketing strategy purposes. So I ask for your understanding in that regard. Considering the new subscribers entering in the SKT 010 market, as well as our efforts being put in, in order to lock in our existing subscribers. I believe that achieving the net additions of 490,000 would be quite achievable.

Your second question was quite an interesting one. You asked whether we are satisfied with the current performance during the month of January. To give you a short answer, of course we are not fully satisfied. However, if you look at the churn of the January figure of this year, it amounted to about 300,000 or so. However, if you look at last year's January churn ratio of 1.2%, this year's churn ratio for January 2004 was only 2.2%. Therefore this was not a significant increase, nevertheless, even considering the MNP introduction.

The only reason why I am saying that we are not fully satisfied is the following. Our competitors are engaged in intense competition, introducing very irregular ways of marketing. Therefore, leading to market distortion and overheated competition in the market. On the other hand, as KP is relatively pursuing, we believe, clean marketing strategies. Also, as the market leader, we will try our best to stabilize the market and normalize the market as soon as possible.

Your third question was with regard to WCDMA. Whether we have plans to revitalize the services. As far as we are concerned, we are only at the infant stage of the commercial service offering of WCDMA. We do encounter certain limitations. First of all, we do not have too many differentiated service products as compared to EV-DO telephony services, as well as the service quality and the terminals. On that front we are experiencing some shortcomings. Therefore, in the year 2004, we will consider the various factors, including the market viability, and also the availability of more different and diverse types of terminals.

As you are well aware, we only have two types of terminals available in the market. Also, we would consider the terminal prices and various solutions to the technical issues we have with WCDMA. We will also consider the government policy. Upon considering all of these different factors in a comprehensive manner, we will then decide on the exact WCDMA investment amount. Therefore, it will not be a massive investment scale but rather a stable, smaller scale investment.

We will start smaller in the city of Seoul and we will probably stay within last year's expenditure which was about KRW25bn. So we will try to emphasize the fact that WCDMA may well be able to offer premium video phone functionalities. So by emphasizing that, we will be able to persuade the market more. By the way, once correction into the interpretation for the year. The expenditure for WCDMA last year was not KRW25bn but KRW250bn.

Your fourth question was with regard to whether our direction and scheduling for satellite DMB conversions, with financial enabled services, would be changed or not. To give you the short answer first, our schedule is not changed at all. Our basic direction remains the same. Recently, MIC and the Broadcast Commission has recently agreed upon the revision for the basic Broadcast Act of Korea. We expect this law to pass in the special congressional session to be held in the month of February.

So we are currently going through the last minute testing, with the aim of shooting up the satellite during the month of March. The commercial services are expected to be offered during the month of July. So, as you can see, our schedule remains the same. When it comes to financial enabling services, if you consider the Korean banking industry and also the government policies. There is definitely the trend of trying to segregate, or keep separate, both the financial capital versus the industrial capital.

However, overall, we believe that SKT, being able to utilize our subscriber base to pursue this business, will still be effective and valid in the future as well.

The next question will be given by Mr. Matthew Jamieson calling from Goldman Sachs. Please go ahead sir.

Thank you very much and good afternoon. I was just wondering if you could give us a breakdown of free cash flow? How it was spent for both 2003 and your estimate for 2004? Specifically, both years could you divide out the cash flow return to shareholders between buybacks with cancellations and dividends?

Secondly, I was just wondering if you could just give us an idea in 2003, how much in total SK Telecom paid to SK Global or SK Networks? What do you expect the case to be in 2004?

Yes, now when it comes to 2003 free cash flow, the overall, total free cash flow amounted to about KRW1.5,984 trillion. Out of this share buyback amounted to about KRW524bn and cash limit was about KRW1.7bn. So, all in all, when it comes to shareholder return, we expended about KRW676.1bn, which amounts to 42% of the overall free cash flow. Aside from that, the net interest expenses amounted to about KRW37.3bn. Other investment in other equity investment amounted to about KRW5bn, out of which [Posco] amounted to KRW332.5bn, and also in SK Communications about KRW82bn.

So, as you can see, 42% was returned to the overall shareholders return. The remaining cash flow after all that amounted to about KRW11.5bn. However, unfortunately when it comes to year 04 free cash flow ,we do not have a specific breakdown of the guidelines. If I may elaborate a little bit, this may give you some guidance for year 2004. We have already announced the dividend payout ratio of about 25%. We are also planning go ahead with EB issuance of about 2%. This will then be used for [stopping] purchasing cancellation of some kind. Therefore, we expect the breakdown to be about the same as year 2003.

Before I go onto the next question, there was one correction to be made from the previous interpretation. The remaining [SCS] from all that expenditure from year 02/03 was KRW115bn.

To answer your next question. It was with regard to SK Networks leased line and how much expenditure we have incurred for that particular line. As you are well aware, this line belongs to [Trunet] and strategically we are trying to expand the dependence on Trunet network by our company. However, if you look at the 2003 figure, the overall lease line expenditure for SK Networks amounted to about KRW120bn. If you look at the overall company wide lease line expenditures, this only amounts to about 39%. Therefore, it is too early to say that we are overly dependent on this particular network.

To give you some references. KTS is utilizing KT's network quite a bit, up to 85%. LGT is using 75% of its lease lines through [Powercom]. So considering such figures, our dependence on SK Network is quite minimal at 39% or KRW120bn. When it comes to year 04 plans, we do not have accurate exact numbers at this particular point. That is because we are currently going through some adjustments with regards to previously engaged contracts with that entity right now.

The following question will be given by Mr. Chow Ho Chok calling from Udi Securities. Please go ahead.

My question is with regards to the long-term price discount plans that have been discussed recently. Now, how much of the pricing reduction effect would that have? If you may, you could also cite some ARPU figures to answer this question.

To answer that question. To discuss, long-term price discount plan is designated for specific areas and a set price plan. We will try our best to reduce, or minimize, cannibalization as much as possible. As you are well aware, these contract periods last about two years and only a year's worth of unlimited usage is part of the package. Overall, impact on the revenue is expected to be less than 1%. It will also help us retain and lock in our high ARPU subscribers by pursuing this strategy.

Also, by pursuing this type of price package plan for the customers, there will be less pressure for this year, in terms of the overall price reduction. Therefore, in actuality, the overall negative effect on the company's revenue will be quite minimal.

It would be quite difficult to actually come up with the effect of price reduction through this long-term price discount plan in terms of ARPU exactly. However, if you look at the actual performance of the year 2003, average ARPU for last year was KRW44,000. As mentioned in the opening remarks, this year's target for average ARPU is about KRW46,0000. We would achieve this goal through data growth and also voice ARPU growth at the same time. So it is through a continuous upward trend. We are pretty sure that we could achieve this KRW46,000 goal.

The following question will be given by Mr. Jeff Kahn calling from CSFB. Please go ahead sir.

Yes, I have two questions. I believe that you have high interest on shareholder return policies. You earlier mentioned the possible cancellation of treasury shares by about 2% within this year. However, could you be more specific in ways to really achieve this goal? Especially in the light of the fact that the overall coin ownership limit has been exhausted. I believe that the market is quite curious to know how you would be able to achieve the same effect. This is my first question.

The second question perhaps coincides with other questions as well. However, the question is this. Other competitors' marketing strategy seems to be that they want to take away SKT's high-end ARPU customers through their currently introduced price plans. So, looking at the January statistics, could you share with us what the average ARPU of those churning customers from SKT were? Were they relatively high ARPU or average ARPU? Could you share that with us?

Yes, we talked about the shareholder return policy. Let me address this point in more detail. First of all, as you are well aware, both SKT and Hanaro have exhausted the foreign ownership limits. KT is expected to exhaust its limits pretty soon as well. Considering such economic conditions, and considering the fact that foreign capital infusion into the Korean market is quite significant. We believe that it would be quite important to have the foreign ownership of foreign investors in Korean telecommunications companies to increase in the future.

So while we look closely at the ensuing development on that regard, we will also do our utmost to deal with our treasury shares. Now, we could do a couple of things with our treasury shares, of course. We could either issue EBs, both home and abroad, or we could even issue equity linked notes. Or we could utilize some other foreign funds as well. However, it would be very ideal to, of course, cancel all these shares upon repurchasing those cancelled shares, and then continue with cancellation.

However, perhaps I should not even mention this to you at this point, but if every one of those measures were to fail. Then, as the last resort, we are even considering a special one-off cash dividend payment to the shareholders, as a way to compensate for the less than satisfactory treasury share cancellation effect. So these are our plans.

Your second question was with regard to the competitors' marketing strategy of trying to have the churn out of SKT, in terms of the high-end ARPU. So, SKT is also closely monitoring such churn out trend everyday, and according to our analysis the results are as follows.

First of all, the majority of the churning out customers are between the age bracket of 30 to 40. Most of these subscribers seem to have the very old models of terminals. These tend to be the customers that hardly use the wireless Internet services or use a very small amount of it. We also looked at the ARPU distribution of these churning out customers, as opposed to the overall, company wide ARPU distribution. They were quite similar. So I could answer your question by saying that they are pretty much average ARPU customers. Therefore, the overall effect on the profitability is quite minimal.

The following question will be given by Mr. Michel Kim calling from Morgan Stanley. Please go ahead.

Good evening. This is Michel Kim. I have three questions I would like to ask you. The first one is on the revenue side. I know, President Pyo, you explained that you do not think there is too many of your high-end customers going to your competitors. However, perhaps you could share with me this trend that I am seeing. I noticed it in the fourth quarter voice ARPU growth was about 1%. If I compare that with 2002 fourth quarter, quarter-on-quarter growth, it was much more significant.

I know that it is not really because of MOUs because you did have pretty substantial MOU growth in the fourth quarter as well. So, I am just trying to get a better sense of what is happening in terms of your voice ARPU fourth quarter. In particular, I wonder if there is any kind of impact coming from LG Telecom's [bank on] service?

Secondly, I have a question on your other commissions. Your other commissions are rising pretty rapidly, 17% quarter-on-quarter and fourth quarter. If you look on a full year basis, 36% growth. I know that you mentioned that it is partly due to wireless data content fee. When do you see this cost, other than content fee, when do you see this cost quota slowing in the future? Is it next year? Is it going to reduce down to 5%, 10%? If you have any sense of when this cost will slow down, I would appreciate that.

Third, on CAPEX. I know that you did a good job of bringing down way below your target. However, I am just wondering. If you look at non-network portion of the CAPEX, it has grown from 14% in 2002, that is of the total CAPEX. It has grown to 26% in 2003. Now, I think I know a lot of investors are wondering when your equipment CAPEX needs decline, your total CAPEX should decline as well. However, important is your non-network CAPEX? Are we likely to see this portion growing as a percentage of total CAPEX? That is it.

To answer your first question. The fourth quarter MOU has slowed down a bit, that is true. I do not currently have that exact figure with me right now. So I would really appreciate it if you could contact our IR department for that detailed figure. However, I could tell you the following.

Although our voice MOU has increased, our ARPU has reduced, and I believe it is in part because of the KRW1,000 cost reduction for SCNPI. So perhaps that is one of the factors. Therefore, I do not feel it is affected by LG Telecom's bank on strategy which is being pursued in alliance with [Kumin] Bank. It is not affecting that. Also, the MOU reduction from the long-term contract discount rate plan. I believe that if you look at the fourth quarter MRU trends, that effect is also quite minimal.

President Pyo, I was actually referring to the other commission not the sales commission. The content provider's fee is included in other commission which I think also includes consulting fees and those of that nature.

When it comes to other commissions, we are currently in the process of negotiating with MIC and various content providers, about the ways to recognize these revenues in our overall company's earnings. So, I believe it is too early for us to predict by when such cost increased trend would slow down, or whether it would go down in a certain timeframe. So on that, we would definitely get back to you through our IR department of our company with more detailed figures and more detailed trend.

I believe you are looking at an item called other commission. This also contains content outsourcing fees which takes up a big part of our content development, and also other payments as well.

Your third question addressed the non-network CAPEX. I believe that in 2003, Internet and marketing in reference to related investments amounted to about KRW260bn. That figure is planned to be reduced to KWR210bn in 2004. Other types of general investment is, on the other hand, to increase from KWR170bn to KWR220bn. When you consider the fact that the construction expenses for our headquarters, which is currently being built, will be completed this year, the year 04 non-networking CAPEX is expected to significantly drop.

In order to ensure that the company continues growth, it is quite important to invest in the R&D as well as the platform. To be more specific, the marketing system rejuvenation plan, which included a CRM system, temporary increased the non-network related CAPEX up to this point. However, again, that was quite temporary and from 2005 we expect that non-network CAPEX portion to reduce quite a bit. So, we consider the recent upward trend to be attributed to the growth of Internet and marketing related activities.

The following question will be given by Mr. Scott from Merrill Lynch. Please go ahead sir.

Thank you very much. Just a couple of questions please. Obviously appreciate your policy towards returning cash to shareholders. If I look at your free cash flow for 2004, even with your increased dividend policy, you still are probably going to generate a significant additional amount of cash. Your balance sheet gearing remains relatively modest compared with other operators around the world.

At what point in terms of gearing, etcetera, do you begin to get worried about your capital structure being too lose, as it were? What will be the process by which you assess whether you do, for example, a special dividend? That is the first question.

The second one is just whether you have any sense as to negotiation on areas like interconnection rates with the government? Whether there has been any developments there? Do you expect a significant change in interconnection arrangements or would it be a fairly modest reduction or alteration? Thank you very much indeed.

Yes, with regards to the 2004 free cash flow, after issuing the dividend in cash, we will, of course, have some surplus cash. With this remaining free cash flow, we will do what we did up to 2003. In other words, we would spend the money on new business development, repayment of debt, and other treasury repurchase programs in order to resolve the overhang issue.

In other words, we would do all the measures necessary to maximize the shareholder profit. We would utilize all these mechanisms in a very flexible and free manner. We used to, as you are well aware, use [FPS] as the basis of our shareholder return. However, because of the big fluctuation of the working capital, and because of the difficulties on the part of the analysts and fund managers to predict the free cash flow of a company, we decided to move away from the FPS basis. We went to the dividend payout ratio as the basis for our shareholder return.

When it comes to special dividend. Well, we would basically maintain our basic payout dividend or payout ratio. Then we would also consider the net income of the company as a whole. So special dividends would be offered when we deem it necessary, upon good performance of the company. However, it is not something that will remain as a permanent mechanism of our dividend policy but more of a one-off type of dividend situation.

With regard to your question about the interconnection fee negotiation. Together with MIC and KISTI and [Etree], all the telecos are negotiating with this interconnection fee calculation model. As you are well aware, we are developing what is called LRIC, or long run incremental cost model, to come up with that calculated amount. We believe that this model will be completed by the end of this month. So, based on such a calculation model, such revised amount will be applied from, I believe, the end of March.

However, we do not expect any drastic upward or downward adjustment of this fee. Of course, we will go towards the lowering of the interconnection fee. However, I do not think that the lower end portion will be that significant. Nevertheless, this LRIC model will definitely pay for the advantage of the teleco.

Thank you very much. Just to clarify what you said. So that the cash flow could be used for further buybacks of stock to sit in treasury, as well as the 2% buyback and cancellation you were talking about earlier, funded by the EB?

Well, in order to prevent any significant drop of the stock share price, looking at the overall market environment, I was saying that we would do our utmost to protect the shareholders' interest by preventing any overhang issue. I was simply eluding to the fact that we could purchase the cancellable treasury shares. It is not that we do not have any specific, definite plans for such plans at the moment. However, we will, nevertheless, continue to look at the market.

Currently our maximum treasury share cancellation is, as mentioned earlier, 2% at the moment. If we require any further measures on top of that, we ask investors to trust the top management of SKT. That we will do our utmost to maximise the profit of the shareholders.

Thank you very much.

The next question is by Mr. Tien Doh calling from Elians Capital. Please go ahead.

Thank you very much Mr. Pyo for the call. I have three questions. The first question is, could you give us a split of your other commissions between fees and other commissions? I believe in the past you used to give that split. How much of your other commissions is due to expenses paid to other SK group companies like SKC&C?

The second question. If I remember rightly, at one of your quarterly briefings you talked about management consultants consulting with you on setting some fairly transparent ROE targets for SKT. Just wondering whether that has happened or not?

Third question. You mentioned the possibility of the special dividend, if a buyback of the 2% did not happen. On my calculations that would be, say, equivalent to about a KRW4,000 special dividend? Just wondering why you just would not increase the dividends in the first place? Re-weight your returns to shareholders back towards dividends, rather than what happens at the moment. Far more of your returns to the shareholders being share buybacks rather than share dividends. Thank you.

Let me answer your third question first, regarding the dividend. As we told you before, we have changed the basis for shareholder return to the dividend payout basis. As you heard, that particular ratio is 25%, including the interim dividend. As you are well aware, we have already paid out KRW5,500 per share in terms of dividend for year 2002 earnings. Including the interim dividend, which will be determined in the month of June, year 2004 earnings related dividend would amount to a payout ratio of about 25%.

On top of that we are talking about 2% share buyback and cancellations. Such special dividend in cash equivalent to the 2% figure would only take place if cancellation is not possible, or when the cancellation effect is not achieved. Therefore, it would be difficult for us to add that 2% portion on top of our overall payout ratio. Also, as you are well aware, the payout ratio has to be quite consistent year-to-year, and we very much would like that as well.

The reason for our plans to cancel these 2% treasury shares is because we would like to have it off balance from our balance sheet. As well as to prevent a potential overhang in the market.

To answer your first question regarding the splitting of the other commission items. When it comes to the detailed information about the fees, I would ask your kind understanding as our IR Team will contact you about these detailed figures. However, I can give you the following information nevertheless. When it comes to SKC&C related IT spending in 2003, the overall spending for SKC&C amounted to KRW257.3bn. This was an increase by about KRW43.3bn compared to the previous year, year 2002. Such increase was due to the fact that we had increased the number of subscribers.

We also needed to upgrade for the MNP introduction in the market. Such upgrade was quite complex and elaborate, and so that is why such an increasing amount was there. With regard to other splitting of the other commission contents, please contact the IR team.

Your second question tells me that you have a great memory. I did mention that we were receiving management consulting help and trying to come with up an optimal ROE target. We did pursue this and, according to such a project, we have decided to maintain the ROE target of 30%, as with other global peers. For your information, our year 2003 ROE performance was 35.8% which was definitely an over-achievement.

Sorry, I just have one more follow-up question. I believe at the end of the third quarter, you mentioned that Mr. Cho and Mr. Son were not attending SKT board meetings. Is that still the case? I think you mentioned that really Mr. Cho would probably involve himself just at the SK core level, rather than SKT. Is that still the case?

Yes, that is correct. As far as our Chairman Cho is concerned, he has not attended any of the 2003 Board of Directors meetings. He has not participated in the closing BoD meeting for 2003. I do not think that he will join us for the [inaudible] meeting preparing for the general shareholders meeting as well.

Okay. Thank you very much indeed.

The following question will be given by Mr. Henry Cope calling from Thames River Capital. Please go ahead.

Good evening. Thank you for the presentation. I have four questions. One is what is your outlook for the market as a whole for the end of this year, the total Korean market? The second is just guidance on depreciation for next year, given the relative increase in the fourth quarter. The third question is just on capacity. I understand your capacity is about 19m subs, and given your subscriber targets, that looks like you are reaching full capacity?

The last question is the number of the 18.5m subscribers you are targeting. How many do you expect will be wireless Internet enabled? Thank you.

Yes, regarding the market forecast for 2004, we believe that the overall growth might slow down slightly towards the end of 2004. However, we see the overall penetration rate for the Korean market, by the end of 2004, to reach about 73-74%. Although, I guess, the new growth additions overall would be slowing down, I believe the MNP related churn market will increase quite a bit.

Although SK Telecom's market share slightly dipped during a very early part of MNP's introduction, thanks to our brand power, reputation and call quality, we are maintaining our current lead. I believe that such a lead will be maintained into the future as well.

Regarding your question about depreciation, the fourth quarter increase of depreciation was a temporary, one-off incident. Some of our assets were put into certain ledgers or certain accounts within the accounting books for depreciation purposes. It was a one-off thing. Year 2004 guidance would be approximately that of the level of 2003, which is about KRW1.6 trillion.

Regarding your question about capacity, with regards to multimedia and wireless Internet business. I mean, it all depends on how much of this growth will take place in the market. So it is quite variable. However, we are planning to deal effectively with the capacity issue. First of all, we would utilize the call load balancing and splitting investment. Secondly, system efficiency improvement, and possible usage of [18FA] power band will possibly alleviate the frequency capacity limitation for 04 as well.

When it comes to the call load balancing and cost splitting investment. What that means is that we would be re-allocating or splitting or load balancing certain base station loads. Also, sector by sector cell splitting would also be possible. We would also utilize the establishment of the most optimized BTS allocations as well. However, these are more short-term solutions to resolving the capacity issue. Beyond that, we could utilize the 1X overlay, and also 1X upgrades and conversions could be utilized. So, overall, we are pretty sure that for quite a while we will not encounter any major capacity issues.

Regarding your question about the proportion of the wireless Internet enabled handsets for 2004. Well, let me give you this figure from 2003. At the end of last year, over 90% of the handsets used by our subscribers were already wireless Internet enabled. That is when we had about 70m subscribers. Our target for this year is 18.5m subscribers, which means net additions of about 1.5m. Therefore, we expect the proportion of the wireless Internet enabled handsets to be even more than 90% this year.

The following question will be given by Mr. John Kim from Merrill Lynch. Please go ahead.

Yes, thank you very much for the opportunity. I have three questions. The first pertains to price competition. I think we have been quite fortunate to see operators new tariff plans largely target the high ARPU users. In your assumptions for revenue growth this year, what level of price competition are you factoring in? Are you factoring in the fact that there is a potential for your competitors to lower the price to effect a much greater base of subscribers? If that is the case, what will SKT do?

Second question pertains to CAPEX. Based on your revenue and CAPEX set, now is this a sustainable figure? Final question is on wireless data. Can you tell us the latest EV-DO data ARPU? What is your EV-DO subscriber target for this year? We have actually seen from KTF that their EV-DO data ARPU actually has deteriorated in the fourth quarter. Do you expect that to be the case for SKT? Finally, can you share some insight on, perhaps, the profitability of your wireless data business? Thanks very much.

Yes, we refer to the price competition. I believe that the overall price reduction placed by both SKT and our competitors has been up to a certain level. I do not think to add any further reduction is neither encourageable or viable on all parties. I believe that that seems to be consensus in the market. Considering the fact that our long-term price discount plans were introduced, and the fact that these plans aim at retaining more high ARPU customers, I believe that this would actually be a positive thing. I do not think there will be any further pressure on us to further reduce prices in the near future.

STK, in response to some of our competitors' newly introduced price plans, has introduced similar plans, or awaiting approval by the government for introducing similar plans as well. Such price plans will temporarily reduce some of our profit margin. However, we will be able to maintain that particular effect on the overall revenue within 1% of the total revenue. Such plans introduced by SKT will be quite successful in retaining high-end ARPU customers.

Also, when you think about the fact that we were expecting a bigger pressure this year for further reduction of prices overall, because of these recently introduced price plans, such pressure will be alleviated quite a bit. So, the overall effect on the profitability will be quite negligible. I believe that this view is shared by all three competitors. Therefore, we do not expect any formidable size of price war or price competition.

Your question about the CAPEX per sales ratio. If you recall, for three consecutive years we are maintaining a downward trend on CAPEX versus sales ratio. We are confident that we could maintain the current level. For your information, year 04 CAPEX to sales ratio will be 16.7%.

Also, you asked about the data ARPU for EV-DO services as well. If I may talk about it from the point of view 1X. Compared to 1X subscribers, two subscribers show four times more data ARPU, and EV-DO subscribers show about three times more data ARPU. Recently, as more subscribers are purchasing June enabled terminals, it is true that there is a slight dip in the growth rate of the June subscribers. However, it should not cause any worries. I believe that SKT subscribers are actually contributing to the overall data ARPU, using various types of multimedia services.

Compared to last year, and if I may talk about the plans for this year as well. Whereas we had about 35.6m for last year, this year's target is about 7m.

Regarding the profitability of the data services. The initial EV-DO investment amount was rather small. Starting from the year 2001, we started off quite small with about KWR270bn. I believe that with such an investment it would be easily recoverable. Considering the fact that wireless [state] services are growing at quite a speed right now, we will expect a lot more opportunities to increase revenue through multimedia services. Therefore, we expect quick recovery of the initial investment, as well as profitability on this service in the near future.

The last question will be given by Mr. Douglas Kim calling from Daiwa Securities. Please go ahead sir.

Thank you. I have three questions. One is, what was the total number of employees at the end of 2003? Second, could you be more specific in terms of the timing of the nationwide launch of the WCDMA? Is the first half of 2006 or is it the second half 2006?

Lastly, the wireless Internet revenue was pretty strong in the fourth quarter. If it continues to stay very strong, could this actually backfire in the company in 2005? Can we see a scenario where the company deliberately slows down the wireless Internet, due to the spectrum constraints? Thank you.

Could you repeat the last question please?

It is a scenario in 2005. Would the company deliberately slow down wireless Internet? Just to give more time to Samsung Electronics and LG Electronics to develop more competitive handsets?

Yes, with regards to our regular full-time workers, the number by employees at the end of 2003 amounted to about 4,700. The labour cost for these employees amounted to less than 4% of revenue. The total number of employees is not an any increasing trend in recent years. At the same time, our irregular workers portion, or the number of such workers, is on the downward trend.

With regards to your question about WCDMA nationwide deployment. We have to consider many factors, including technological developments such as hand-offs, and also the terminal availability and the terminal prices. As well as the fact that the 1X to EV-DO services will not be enabled on the WCDMA handsets. Additionally, we have to look into other market factors as well.

So, since we have to look at the technological issues and the limited services available on this platform, I believe that such nationwide deployment should be approached quite prudently. We should also consider the relationship with MIC in this context as well. We should remember the dual band, dual mode chip issue as well. So, therefore, at this point it would be quite difficult to tell you exactly whether it would be the first half or the second half of 2006 that we will be able to offer nationwide deployment.

Regarding your third question. I earlier mentioned the spectrum deficiency and how we were going to deal effectively with such issues through various network announcement measures. I already told you that we will not experience any shortage of frequency by 2006. So, considering all these factors, I do not feel that there will be any deliberate delaying of technological development by any side here. For our position, we would like to sell as many handsets as possible, whether June enabled or wireless Internet enabled.

For your information, June enabled handsets, or subscriber increased targets for 2004, is for about 7m subscribers. Let me correct my earlier statement. Not only June, but June plus all the other EV-DOs handsets or goals or targets for this year, we will see about 7m.

Thank you very much. We will continue the maximisation of the corporate value as the needs arise, to secure a stable profit base. Thank you again for participating in the conference call.