SK Telecom Co Ltd (SKM) 2004 Q1 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'll begin the conference of the fiscal year 2004 Second Quarter CEO conference call by SK Telecom. Please go ahead sir. Good afternoon. Today's conference call will consistent of an opening speech by SKT's President Kim Shin Bae covering the third quarter results for 2004 and other matters of interest followed by a Q&A session. The conference call is schedule for an hour and half. Before we begin, let me remind you once again that all the forward-looking information is subject to change depending on the macroeconomic and market circumstances. Now, let me present to you President Kim Shin Bae. [foreign language - translation by interpreter]

Good afternoon. My name is Kim shin Bae, the President of SK Telecom. First of all, I would like to thank all the investors and analysts for your continued support for SK Telecom. It is my pleasure to hold this conference call as the new President of SKT to discuss major operating results of our company. Let me first begin with the results of the first quarter 2004. The total revenue growth is 7% year-on-year to KRW2.4 trillion, thanks to the growth of the subscriber base and the wireless Internet business. Compared to the last quarter, however, the revenue hedged down slightly. This is due to the seasonal end-of-the-year uptick in the fourth quarter last year, and the reflection of free-adjusted interconnection fee ahead of the actual agreement because of the conservative accounting factors at SKT resulting in lower interconnection revenue during the first quarter 2004. Wireless Internet revenue for the quarter was KRW391.6b or a 48% increase year-on-year, maintaining an 18% level of the cellular revenue as the last quarter making the annual guidance of 20% move slightly. From the beginning of MNT, we have been aware of the need to put in more efforts to lock in high-end subscribers and to maintain market leadership in the 010 prefix market as a way to secure continuance of revenue and profit creation. As a result, our marketing expenses amounted to 19.9% of the revenue for the first quarter. However, despite the increase in marketing expenses, our operating income was KRW691.2b, which were only 8% decrease year-on-year and a 0.2% decrease quarter-on-quarter. Also the net income for the quarter was KRW452.5b or a 1% or a 4% increase year-on-year and quarter-on-quarter respectively. Our EBITDA margin was 44.3% for the quarter. Through analysis of the market together with efficient news of systems like CRM, SKT made an effort to lock in qualify subscribers who are likely to change operators. As a result, the month of March turn rate was 1.8%, a number much lower than our competitors, and only a moderate increase from the yearly average turn rate of 1.2% of 2003. Accordingly, the impact of NMP on SK Telecom's future is expected to be quite minimal, as their competition takes route by increased government enforcement to buy in legal marketing practices, the impact from NMP to SKT will be minimized further. Considering the continued market leadership of SKT in the 010 prefix market together with KTS introduct subscriber and revenue target.

Let me now talk about the concept of new value management to be pursued by SKT, as we marked 20th anniversary of the company this year. SK Telecom has achieved unrivaled growth for the past 20 years as the market and technology leader in the mobile telephone market. However, the recent changes in the market environment and digital technology are proving new challenges for our company. SKT has pursued change management program since last year, and now we see to prepare for the next decade based on the three principles of the new value management, which are establishment of sustainable witness basis, pursued growth through value innovation and preempting the future growth opportunity. Change your successful new value management and to solidify the growth basis, SKT will strengthen its competitiveness in the core business while developing mix generation group engine by exploring new business opportunities for the convergence and making inroad in to the global market.

First of all in the core business, we will build a right set of the network portfolio for the convergence and vitalize while this Internet business such as May and June. We will also expand the enterprise commission and business-targeting corporation. In the new business area of the telecommunication, in broadcasting convergence. SKT has successfully launched the D&B satellite and brought the participation of FBS and NBC in the course of a consortium to get ready for the smooth beginning of the D&B service in the second half of this year. As per the conversions between the telecommunications and finance, SKT is aware of the emergence of cell phone as an alternative channel for financial transaction and is widening the alliance with the financial sector to deliver a sound mobile banking services. In addition, SKT will actively take part in the government led IT new growth industry development initiative centering on nine major industries by focusing on 2.3 gigahertz portable Internet, home network telemetrics and IFID among others in order to build our future. In the global business area, SKT has established a joint venture company UNISK together with China Unicom to offer wireless Internet services in China for the first time as a joint venture with foreign entity. This achievement is expected to provide a bridgehead to the enormous market of China as well as to other overseas telecommunications markets.

SKT plans to continue to develop other global businesses through win-win partnerships with strong local partners while minimizing risk. In the meantime a new business development through subsidiaries within the telecommunications value chain is beginning to show results. For instance, SK Communications by outranking Yahoo to become number three portal and turning profitable in the first quarter of this year is emerging as undisputed hot tier portal. SK Teletech, which is already exporting handsets to China, Israel and Taiwan is planning to expand its export market to the US and Europe in the future based on its strong band image and customer preference in the Korean high end market. As the President of the company, I will pursue these group strategies while persistently improving corporate governance and transparency of the management activity. SK Telecom has already put in efforts to enhance our corporate governance to the global standard by introducing the outside directors pre approval process as well as setting up review and compensation review committee. The capex review committee which was created last year has completed the review of the 2004 investment already, and the compensation review committee is discussing overall compensation system through numerous meetings. After I began my role as the CEO of SKT, further improvement in the BOD process has been made. For example the outside directors are now given more time and information through pre-briefing to make more informed decisions. Also the two retired outside directors have been appointed as the members of sub-committees allowing them to effectively assume their previous role like outside directors. Through these measures, the independence of the BOD and the transparency of the management will be further enhanced. Recently Moody's has upgraded SK Telecom's rating to the level of our sovereign grading. I believe this decision reflects the objective assessment of SKT's efforts to improve its corporate governance. since achieved their set out goals, while improving shareholder value and establishing long-term relationship with shareholders based on trust through shareholder-focused management that the company has pursued.

Lastly we regard to the shareholder return in utilizing the treasury shares. SKT plans to disperse 2% of its treasure shares during the first half to execute a buyback and cancellation by the year-end as previously announced. In case this trial cannot be implemented we will opt for special dividend as promised. For your information, the special dividend will be issued in addition to the 25% payout ratio. SKT's management is committed to the shareholder return policy that will contribute to the increase of shareholder value based on the continued earnings growth and sound financial fundamentals. Lastly on behalf of the company I would like to extend my appreciation once again for your continued interest and support for SK Telecom. We will begin the Q&A session. Please ask questions at this point. [foreign language - translation by interpreter]

Please press one and four if you have any questions. Questions will be taken according to the order you have pressed the number 14. For cancellations please press one and five that is 15 on your phone. In order to allow as many Q&A chances as possible within the restricted time, no more than two questions for each participant will be appreciated. Currently there are 13 participants with questions and the first question will be given by Mr. Jeff Kong calling from CFSB. Please go ahead Sir. [foreign language - translation by interpreter]

Yes. Thank you very much. I would like to first of all congratulate the new CEO of SKT for taking his new role. I've a lot of questions, but due to time constraints, I'll limit my questions to the following two. First question, after taking the role as the CEO, I am sure that you've a lot of challenges that you're poring over with regards to the company's future direction and a lot of issues outstanding. I believe that a lot of industries are quite interested in your corporate dividend pay out policy. Recently SK Corp. has openly discussed the possibilities of expanding cash dividend of SKT, and I was wondering what your opinion on this is? The second question is with regards to CAPEX. For the first quarter, CAPEX implementation was -- execution was only in the amount of $106 which falls far short of the $1.7t annual guidance, and this in comparison to the last year's first quarter figures is still quite a low figure. So, I am sure it's still quite early to tell, but I am wondering whether this could possibly influence the overall annual CAPEX expenditures for the year to be reduced from the guidance? [foreign language question - translation by interpreter]

Thank you very much for your question. Let me first answer your first question regarding the dividend policy. We're still maintaining our policy to base our shareholder return using the payoff ratio -- the dividend payoff ratio, the tax dividend. However SK Corp. and SKT are two separate companies and we're looking for growth opportunities in other areas, and we're preparing for those opportunities. Therefore, our dividend policy has to be different from SK Corp. obviously, and as mentioned earlier, our payoff ratio for 2004 is expected to be 25%, which is twice as much as compared to the two years ago figure, and on top of all that, we've a plan for treasury share calculation or special dividend comparable to that amount on top of that. So we'll continue to focus on expanding and enhancing the shareholder return as much as possible. And with regards to your second question about CAPEX, it is true that our first quarter execution of CAPEX budget has been relatively low compared to our annual guidance, but it is quite common that the first quarter execution figures are lower than either quarters in other years as well and the same thing applies for this year I believe. However, I am confident that we will be able to fully execute the KRW1.7 trillion and as the guidance stated within this year. And we have already stated that WCDMA expenditures would amount to about KRW251b and most of the technology development and handset developments are focused for the second half of the this year. That is why we see relatively lower figures for the first half and considering the fact that our overall Capex expenditures for this year is relatively lower compared to the previous year. I believe that the execution ratio is about the same as other years. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Jung Chow calling from Research Center. Please go ahead sir. [foreign language - translation by interpreter]

Yes, first of all congratulations on your first quarter results and I feel sorry that today's stock price overall has dropped in the beginning because of other factors in the market overall. NATE is being implemented already and this will continue in the second half as well. Keeping that in mind, I am wondering whether you would be able to maintain the 80% level for marketing expenditures and also the same thing goes for the subscriber target. You have earlier mentioned that the target of 18.8m subscribers as the annual target and I am wondering whether that can be achievable. And my second question is with regards to your DMB business and recently the stock quotes or shares had been weakening quite a bit because of the lack of the momentum, therefore there are more attentions given to DMB than other small side business for Telco. In that regard, I am wondering whether DMB project for SKT will be on schedule in other words fully launching in July this year. Will that be attainable?[foreign language question - translation by interpreter]

Yes. With regards to your first question about MNP, I believe that the first quarter was the most confusing time for all the parties related because it was the first time that MNP system has been introduced in the market. Therefore, all three Telcos have been expending quite a bit in terms of marketing expenses. However, I expect that trend to cool down quite a bit during the second quarter, and especially in the second half with the KTF related turn-ins to SK Telecom as well as maintenance of leadership in the prefix 010 market, I believe that we will be able to successfully achieve the target of the subscriber base amounting to 18.8m subscribers, and also with regards to marketing expenses, I am confident that we will be able maintain the level of about 18% since the cool down of marketing expenditures will happen in the market, and with regard to your second question about DNB, our satellite DNB initiative is proceeding without a glitch so far. Currently, in the government, the broadcast act related execution, imposement decree is being prepared as of now, and we feel that from July on we will be able to offer either a services or fully-commercial services, and even if there is a slight delay, if the delay is only about a month or two, I believe that by the year end, we will be able to sufficiently make up for the delay. And if I may elaborate a little bit, there was news that KT will not be participating in the satellite DNB business. So, there might be some concerns about that, but KTF still maintains its willingness to participate in the equity participation of the business and also it will be quite difficult for operators to be left out in this type of service in order to maintain their competitiveness. Therefore, I believe that all the major players would be successfully participating in our DNB business, and as far as achieving the TU media sales target, I don't see any difficulties ahead. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Tung Yung from Donman . Please go ahead sir. [foreign language - translation by interpreter]

I have two questions as well. First question has to do with the Shinsegi related merger related to liberation by the MIC, do you have any idea as about the future scheduled for such deliberation and decisions, and also what is your schedule for the adjustment of interconnection fee. And my second question has to do with the offering of one phone service by KTF and KT from June on, do you have any contra measures to deal with such challenges? And what type of services do you have in mind? [foreign language answer - translation by interpreter]

To address the question about the deliberation of the MIC committee on the recent Shinsegi merger related issue. That decision has been postponed until the beginning of May and you might be quite curious about the possible outcome. But the way we see it, already a lot of declinatory or differential eight symmetric regulations are being imposed on SKT and phased MNP System is being implemented already. Therefore we do not expect any extreme counter measures or regulatory decisions from MIC, and also with regards to the possible impeding of the competitive environment by SKT. Well on that point as well we truly have ways to explain the current positions though. Well we do not have too much concern about the outcome. And you asked a question about the interconnection fee adjustment timetable. Currently LRIC would be the basis for the calculation of the future interconnection fee and all the related organizations and Telcos are almost near to completion of the model for such calculation. And I believe that such pool decision would be made during the middle of May this year, and our expectation is that the interconnection fee would not be drastically reduced. And you also a question about the one-phone strategy by KT and you might be wondering as that, SKT only having the wireless capabilities might have some difficulties, but we already have very competitive price plans such as free night and free holiday price plans for those people staying at home at night times and holiday. Therefore we do not expect the turnout because of the price reduction issues by our SKT subscribers to KT with the initiation of one-phone services. And in order to participate as a subscriber for the one-phone services for KT, the subscribers have to change their handset and their limited models available for such handsets and the quality of these terminals have not been verified yet and also the handover between wired and wireless is not fully supported as of yet. And therefore, I think that the one-point services will not be able to meet all the consumer needs. And with regards to MIT's service approval process, we are already talking about the banning of subsidies for various handsets and access points and the banning of further reduction of prices to one-point services and we are calling for the equal access of the wireless services and our requests are most likely to be accepted by MIT. Therefore, always minimal. However we will nevertheless keep continue to look at the one point services trend and if the market readily accepts this type of services, we will continue to monitor the consumer needs, so that we could offer the countermeasure related services. So, we will continue to expand this products and services available. And you asked about the alliances with Hanaro, and with regards to - when it comes to possible alliance, we are not limiting ourselves to any particular company. It could be Hanora or KT. So, our doors are quite open.[foreign language answer - translation by interpreter]

The following participants with questions will be Mr. Matt Evans calling from CLSA. Please go ahead sir. [foreign language - translation by interpreter]

My questions have been answered. Thank you. [foreign language - translation by interpreter]

The following question will be given by Mr. Cho calling from Hannah Securities. Please go ahead sir.[foreign language - translation by interpreter]

I have two questions. First one is to do with having more detailed figures. With regards to your labor cost between the incentive bonuses and regular labor cost, could you differentiate the two categories under labor cost amount. And also when it comes to the gain from equity methods calculation, could you be more detailed as far as which companies gave you, how much profit etcetera. And second question is with regards to your 2% special dividend. If the foreign ownership limits is lifted, I take it that you plan to go ahead with the disposition of treasury shares of 2% within the first half of this year, now, in that case, which particular method would you be choosing? [foreign language question - translation by interpreter]

To answer your question about the labor cost breakdown, the total labor cost for the first quarter was KRW162.4b out of which the regular labor cost amounted to KRW70b and incentive bonus amounted to KRW65b and the remaining consist of the severance pay and other welfare related cost for our employees. And with regards to the equity of methods evaluation gain, the overall gain was KRW23.8b out of which Teletech amounted to KRW17.9b and Telelink amounted to KRW2.9b. And the more detailed information can be received from our IR department. And because to the 2% treasure shares related to special dividend, yes, you are correct in that we plan to conduct the treasure shares buyback and calculation ASAP if the foreign ownership limit is lifted. However, for now it seems quite unlikely that the government will be lifting the limit from the current 49% within this year. So we will continue to monitor the situation in the market, and if the limit is not lifted, then we will conduct a special dividend issuance in the beginning of next year as promised. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Bill calling from UBS. Please go ahead sir. [foreign language - translation by interpreter]

One question relates to your opening comments regarding the relationship with China Unicom. My understanding is to date your capital investments there have been quite insignificant. Is that policy of keeping limited capital investments for global investments still intact or are you willing to look at expanding more capital investments globally? Secondly, a bit more detail into the relationship question on Hanaro Telecom. I understand you have retained your BOD seat despite a very small 1.8% stake. With LG Group and Samsung Electronics considering disposals at some point in the year, do have any interest to participate in alleviating that overhang. And third, final question regards to your comments regarding the two outside directors that left the board but are now reinstated as sub-committee members. Can you describe a little bit of detail, how they would play a similar role as they did as outside directors being now sub-committee members? Thank you. [foreign language question - translation by interpreter]

Good you guys gave a question about the China Unicom initiative, as you have mentioned it is true that our initial investment has been quite minimal because we have been mainly focusing on the services. And also going into the future, we are planning to expand the business to initially include the platform selling and also the network consulting. Therefore, we do not expect a significant growth in CAPEX investment in this particular venture in the immediate future. However, as we do our global business, we would like to be a very significant partner for our partnering companies, and while minimizing our risk, we are looking for opportunities to utilize our existing know-how in 3D networks and also platform technology. Therefore we are willing to look at various types of win-win models for such partnership in the future, so we are currently looking at various strategies. [foreign language answer - translation by interpreter]

I believe your question was, whether we are willing to acquire more shares of , first of all to alleviate the overhang issue, and secondly to strengthen the strategic alliance with Hanato. We are currently looking at various business models going forward, keeping in mind that consolidation and integration between wired and wireless services are taking place in the market. When it comes to possible alliance with wired companies, we are looking at various options and as I mentioned earlier, the option can be either KT or Hanato, we are open to various options. So we will continue to look at the market development and make those decisions as needs arise. [foreign language answer - translation by interpreter]

Last thing you asked about, the two retired outside directors and how these people are acting as our advisors within the fourth scheme. For your information, Mr. Bae Shin Kim is currently working as a member of the Compensation Review committee and Mr. is a member of CAPEX review committee. And just last week, there was a Board of Director meeting and at that time, Mr. Kim Bae Shin has participated as a party to this meeting, and he has extended his comments and opinions and participated in the discussion. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Michelle Kim calling from Morgan Stanley. Please go ahead sir. [foreign language - translation by interpreter]

Good evening. I have a two-part question. First, I just wanted to kind get some more clarity on two of the three objectives that you stated earlier. First is when you said, 'established sustainable core business,' if you could elaborate a little bit more on what you are thinking along those lines. Are you thinking about what your thoughts are on the core mobile business and how long they could continue to grow, especially on the top line? And secondly, if you could share with us your overall strategy for other business expansions, for example, if you have some thoughts on potential global investment expansion as well as investment within Korea in areas such as and perhaps 5 gigahertz? I read that today that SK Telecom may be interested in 5-gigahertz license as well. And how that fits in with DMB and what not, and perhaps if you -- little bit about specific in terms of perhaps if you know or if you could share with us the total investment size or how much you would allocate on an annual basis to be invested into these businesses? I would appreciate that very much. Thank you. [foreign language question - translation by interpreter]

Let me answer your second question first, with regards to the investments in size for DMB and , I believe that the overall investment size can be gauged to just by looking at the business characteristics already. First of all, we are already working under Vybril, and DMB related investment size has been mentioned numerous times and with regards to the 5 Ghz, I believe that this an area that we will still have to look into further. If you are worried about the possible expansion of investment into Vybril to be too big, I don't think those concerns are necessary because we are basically focusing on portable Internet establishments in the metropolitan areas where high-speed Internet needs are the highest. So, therefore Vybril investment will be made and W-CDMA. And if we get further detailed information, we will those share those information with as soon as possible. Let me elaborate just a little bit, when it comes to 5 Ghz initiative between the Telcos and MIC there are discussions continuing to decide the future direction of the government, and when it comes to 2.3 Ghz portable Internet, we are currently writing up at the business plans for this particular initiative right now. Therefore, I am not able to share all the detailed information with you. So, I apologize for that. You asked a question about the core business growth as well, of course, the voice market is expected to slowdown a in its unit growth rate, but when it comes to wireless Internet, I believe that there is still a quite a bit of room for further growth. As I mentioned earlier, our wireless Internet ARPU has grown 40% year-on-year, and I believe that there are couple of drivers that are fuelling such growth. For instance the handset features are becoming more and more sophisticated and there are more number of high-end handsets being used by users these days, and on top of these terminals there are new types of services being offered, for instance multimedia messaging, and network games, etcetera. So, as we have developed these new types of contents more and more, I believe that the growth of wireless Internet will continue. [foreign language answer - translation by interpreter]

Thank you.

The following question will be given by Mr. Matthew calling from Goldman Sachs. Please go ahead sir. [foreign language - translation by interpreter]

Yes. Thank you, very good evening to you all. Just a question on the other commission or fee expenses, I noted it fell significantly in this quarter, down to KRW266b compared with KRW318b. I am wondering, if you could just give us some guidance for the full year, where you expect this commission expense be in 2003, of course this amount totaled quite a substantial KRW1.1t, should we expect second quarter's level to be consistent going forward? But anyway some guidance in that regard, particularly for the full year would be appreciated, and at the same time, if you could confirm your full year EBITDA margin guidance? That would be very helpful as well. My second question is free cash flow usage breakdown, could you just give us update please on your expected free cash flow for this year and how you intent to allocate that between, I guess, shareholder returns and then other investments that you have been mentioning from time to time throughout this conference call, including possibly investing in the telecom network in Vietnam, the CDMA roll out there, an update in that regard would be appreciated? [foreign language question - translation by interpreter]

Let me talk about the reduction of other fees. As you mentioned, compared to the previous quarter, our overall other fee column has been reduced quite a bit and it is partially due to the data interconnection being reduced somewhat and also our payment accordingly to content providers has been reduced by 24b from 90.8b to 66.8b, and also in addition to that in the fourth quarter of last year, we have conducted quite a bit of market researches to deal with the upcoming MNC and such market researches have not been conducted during this particular quarter, therefore outsourcing FCS have been reduced quite a bit. You also requested guidance for the second quarter and full year and I believe that such detailed information can be received from our IR department . So, we will do our best to provide that. And regarding your next question about FCS for year 2004, we are looking at 1.6 trillion in FCS for the year and we are planning to allocate this free cash flow in terms of investment in new business areas and also repaying our debt. And for the global investment plan, we do not have specific plans complete again. We are in the process of planning those right now. So, as soon as we come up with the final details, we will communicate this information with you. And with regards to our EBDITA margin annual guidance; we will maintain our initial 47%. [foreign language answer - translation by interpreter]

Following question will be given by calling from Securities. Please go ahead sir.

First of all, congratulations on taking the role as a CEO of SK Telecom. My question is more long term. I believe that there is a churn rate ratio related to the ADMMT we have to grapple with. Of course the churn rate is reducing quite a bit right now, but obviously the subscribers have more options in the market and just as the online game, I believe that it is quite important to secure the switching cost establishment for subscribers so that these subscribers are committed to your company, not in terms of financial commitment but also psychologically to be able to be committed so that they do not want to switch over to another Carrier, and I am wondering whether SK Telecom has ways to strengthen such loyalty among the subscribers because they are as far as in the market such as Thai World, that is quite popular among the young people, and this is just one example of such services available. You talk about DNVs and other services, but what specific plans and strategies do you have to build towards the loyalty of the subscribers. [foreign language question - translation by interpreter]

That's quite correct with the thing that you just pointed out. I believe that it's quite critical to build loyalty among my subscribers by coming up with various products and services. In that line we are currently developing various types of data services that combines the capability of wire in methodology. One example is called communication intelligence, which is the type of mobile services, and services like this could meet the demand of the subscribers according to the taste and hobbies. So, according to their tendencies they could extract the necessary information from the internet, and so this a true sense of personalized service that we are thinking off, and also we have services such as NATE Drivers, which is only operated by SK Telecom which gives the traffic information to the drivers, and so through developments of such services we will continue to increase the switching cost, and reduce the marketing cost so that we could build the loyalty among the subscriber base. [foreign language answer - translation by interpreter]

Following Question will be given by Mr. John Kim calling from Merrill Lynch. Please go ahead sir. [foreign language - translation by interpreter]

Thanks for the opportunity. Could you please express whether you can still manage to average 46,001 in ARPU for the year, especially light of there appearing to be a big increase, and those subscribers coming into the market in 2004, and tied with this can you also talk about your EvDO subscriber data business trend, whether you expect significant deterioration in data ARPU, and second question is with KTS, and LG Telecom continuing to lobby the regulators aggressively to impair SKT's ability to go after their subscribers. How aggressively can SKT target KTS subscribers in the second half, and hence can you talk a little bit about your second half strategy?[foreign language question - translation by interpreter]

With regards to your question about maintaining ARPU of 46,000 in Q1, well we believe that it will be quiet possible to achieve that target. The reasons are is, the handset owners of EvDo phone, their average ARPU is about 25% higher, and especially for those subscribers with handset. Their average ARPU is about 40% higher than a normal handset. Therefore, and if you look at the trend, the number of EvDO handsets in the market at the end of last year totaled about 3.8m that's about - by the end of this year, it will be expanded. Therefore, we expect the overall ARPU to be maintained at 46,000 level because of the increased number of handsets in the market. Let me correct one figure that I gave earlier. The dual handset, with the subscriber average ARPU is 25% higher than of that of EvDo phones, and also 70% higher compared to 1X phones, and the overall number of EvDO handsets in the market there we expect for 2004 is about 7m. And your question regarding the - our marketing strategy for the second half, to secure more subscribers to SKT, now as you are well aware that 2 Way is going to be launched from the second half of this year, and during that time the turn out ratio from SKT will be significantly reduced, and also the locking cost is expected to fall quite a bit because of the handset change, deployment, etcetera, and also there are new subscribers from other telecom that are awaiting MMP to take place for, so that they could switch over to SK telecom therefore. We do not expect the marketing expenditures to go up too significantly or to be as much. And also we are going to continue to improve our existing services, develop new services and also improve the customer satisfaction and also increase the data ARPU. In other ways we would focus on the fundamental improvement of our company and in order to expand our market share as of marketing expenses. [foreign language answer - translation by interpreter]

Thank you. [foreign language - translation by interpreter]

The following question will be given by Mr. calling from Alliance Capital. Please go ahead sir. [foreign language - translation by interpreter]

Thank you very much for the call. Just a couple of questions. Just a follow on question from Matt Jameson's question on your other fees. I think at the last results call you gave a figure for the specific payment SKC&C, I think for full year there was about $257.1b last year. Could you give some guidance on what that will be in 2004, and how much that was in the first quarter. And the second question, is just a follow up question to John Kim on your internet major ARPUs . How confident are you that you will be able to resume the growth on a quarter-on-quarter basis on those wireless internet ARPUs, for the first time in the first quarter they were down quarter-on-quarter. Do you see that as a blip and really nothing to worry about on a long term trend basis because of increasing subscribers, so what you think there is a risk that even with higher EBDO subs you will still see a Q-on-Q decline in those wireless internet ARPUs? [foreign language question - translation by interpreter]

Let me answer your question about SKC&C figures. Of course the figures are expected grow slightly depending on and correlating to the increase of the overall voice communications volume. But we do expect a significant increase on that figure and also the detailed figures which can be obtained IR department. So we would make sure that we provide that to you. With regards to the comparison of this figure, compared with the last quarter of 2003, yes during the last quarter last year there were some seasonal effects adding to the growth of the data ARPU, because the Christmas and year-end effects and also during the first quarter there was a reduction, partially because with regards to the comparison of this figure, compared with the last quarter of 2003, yes during the last quarter last year there were some seasonal effects adding to the growth of the data ARPU, because the Christmas and year-end effects and also during the first quarter there was a reduction, partially because of the reduction of the working days. So, this was another seasonal effect and also the overall wireless Internet related revenue dropped by about 5%. But if you consider the year-on-year figure, it was an increase still by 48% in wireless Internet business. Therefore, I am confident that we will be able to attain the goal of achieving the 20% ratio of the wireless Internet revenue out of the total revenue without any problem and also the same thing goes for our data ARPU targets. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Henry Coabs calling from Temps River Capital. Please go ahead, sir. [foreign language - translation by interpreter]

Good evening and thank you for the presentation. And again congratulations on your appointment. And of course, three questions. The first is, what your target labor cost is for the full year? My second question is you made an assumption on the decline on interconnect revenue rates to be conservative in the first quarter. I just wanted to know what that assumption was for the first quarter? And lastly coming back to the DNB, could you just explain some of the financials, give some guidance perhaps on how this will impact revenues, how will it be recognized from the P&L? The only numbers I have seen were from Bloomberg saying that you will fight the consortium targeting subscribers of $2.2m by 2006 and revenues of $280b won in 2006. So, could you just describe when the revenues from DNB will actually stop flowing and how they will be recognized on the P&L? Thank you. [foreign language question - translation by interpreter]

Let me first answer your first question regarding the labor costs. Compared to our overall revenue, last year's labor cost was about 4% level and we expect the labor cost for this year to be about 4% to 5% level compared to the overall revenue. And with regard to the interconnection C reduction reflected in our accounting, well, in order to be more conservative in our accounting section, we use the reduction ratio of last year. For your information, last year reduction rate was 10.3%. And about the satellite TMP related revenue being reflected now we can realize revenue from TMP business in two ways. First of all we could get direct return by leasing out our satellite network to other entities and secondly we could get indirect profits from TU Media and MBCO, which are companies that we invested in. With regard to TU Media we expect them to start showing revenue from the fourth quarter of this year, same thing for MBCO and also leasing out of satellite network. Therefore from fourth quarter on this year such revenues will be reflected in our overall P&L. And with regards to EBITDA of TU Media we expect TU Media to realize gain from 2006 on and such gains will be reflected on our P&L using equity methods. [foreign language answer - translation by interpreter]

Okay. Can you just confirm again what your holding is in TU Media and just confirm you don't have a holding in the other satellite company? [foreign language question - translation by interpreter]

Of course things are quite flexible because MBC and KTF are deciding to participate in this consortium but our target for now is 30% share and with regards to MBCO of Japan we are currently holding 10% share. [foreign language answer - translation by interpreter]

Okay. Thank you very much. [foreign language - translation by interpreter]

Thank you. [foreign language - translation by interpreter]

Following question will be given by Mr. Jung Mo Kim calling from Media Asset Securities. Please go ahead sir. [foreign language - translation by interpreter]

Yes. I have a question about your marketing expenses. You are saying that you will stick by the annual guidance of 18% in terms of marketing expenditures as opposed to the revenue but already we've reached about 19.9%. If you are to decide -- divide between the first half and the second half in terms of absolute amount in which half of the year are you focusing mostly on in terms of marketing expenditures? And my second question is with regards to the wireless internet business. You said that the reason why January figures are relatively lower than December is due to the seasonal effects. However if you look at the figures from KTF and AG Telecom the figures between December and January do not differ that significantly, so I am wondering whether SKT showing this trend last year and this year again could be due to some other reasons. [foreign language question - translation by interpreter]

Yes, we are focusing more on the first half in terms of the marketing expenditures under our current plan. And we expect the second half to cool down in the market quite and with the expected churning for the existing KTF subscribers, we expect the marketing expenditures to come down significantly. So we will our utmost to keep the annual guidance of 18% in terms of marketing expenses. And when it comes to the wireless Internet relative revenue, aside from the seasonal effects, I believe that the fact that we have a bigger subscriber base might contribute to the increase of marginal subscribers at the same time, perhaps that could be one of the reasons. And if we have a significant differences as opposed to our competitors, we will review those figures and get back to you again. [foreign language answer - translation by interpreter]

The following question will be given by Mr. Ho Chun Lee. Please go ahead sir. [foreign language - translation by interpreter]

Yes. First of all congratulations on your taking new office as the CEO. And my question has to do with the data ARPU. Yes it is going up quite a bit, but out of that portion a lot of the portion I believe is content related sales. In that regard, out of the total data revenue, could you share with us how much portion is taken up by the content sales. And also related to that, how much content expenditures do you expect for the year. And secondly, LG Telecom and KTF have recently announced the introduction of the mp3 phones and I believe that the market is receiving these points quite enthusiastically. And the problem is that they are not downloading these mp3 files through the CDMA networks but rather thorough the fixed broadband lines using their computers. And so you could expect future data traffics in providence. And currently, we are only downloading mp3 music files, but in the future, if we have to download large size multimedia files then it could significantly cause traffic congestion on the inter-computer related network. So could you share with us your opinion on that? [foreign language question - translation by interpreter]

About the contents related sales, for the first quarter, the amount of contents sales was about $84b and contents related expenditure for the same period was $67b. So, as you can see that contents portion is growing out of the overall revenue and if you look at the percentage figures, as sales of the content related business is growing obviously, naturally the relevent expenditure is growing as well, and if you ask about the annual trend, you could see that related sales out of the total sales about 30% is content. With regard to MP3 phones having -- enabling the dollars on the PCs and you talked about the concerns about the possible data traffic leakage, however, I believe that because of the mobile telecommunications convenience and continuity, I believe that continued usage of mobile network will be enabled and we are also developing various solutions in order to keep abreast with the need for multimedia distribution. So although individual traffic might be reduced slightly because of the overall high size growing in the music download market, I believe that the effect or negative impact on our overall revenue would be quite minimal. [foreign language answer - translation by interpreter].

Following question will be given by Mr. Will Davis calling from UBS. Please go ahead sir. [foreign language - translation by interpreter]

Hello, thank you for the call. You indicated that you thought you would sell 7m EVDO handsets this year. Can you tell us how many 1X handsets you will also plan to sell? [foreign language question - translation by interpreter]

I apologize that I don't have that specific figures right now. So, our IR department will get back to you with the detailed numbers. [foreign language answer - translation by interpreter]

Thank you very much. [foreign language - translation by interpreter]

Excuse me, could you let us know your contact point so that we can forward you the necessary information at a later date? [foreign language answer - translation by interpreter]

Yes, I will send an email. Thank you. [foreign language - translation by interpreter]

Thank you. [foreign language - translation by interpreter]

I am looking at a separate document right now and it says our 1X forecast for handset sales until the end of this year would be amounting to 1.71m handset, this includes EVDO phones as well, therefore, by the end of this year, we expect most of the phones to be turned into video phones and also the earlier figures they are not the absolute number of sales for this year alone but this will be the accumulated number of handsets out in the market by the by the year-end, 17.1m handsets, 1X that is. [foreign language answer - translation by interpreter]

Last question will be given by Mr. Lok Huey calling from Casinov. Please go ahead. [foreign language - translation by interpreter]

Hi, I just have one question actually. In the event that you decide to pay a special dividend, could I know the timing of the payment because I heard just now that the payment will be next year? Is that correct? [foreign language question - translation by interpreter]

Yes, we will try to issue such dividend in the first quarter of next year, that is correct. [foreign language answer - translation by interpreter]

Thank you. [foreign language - translation by interpreter]

(Audio Gap) participating.

Thank you again for attending today's conference call, for your continued interest and questions, earnings, our growth and as we mentioned today throughout the conference call, there are a lot of commitments and promises made on the part of SKT and we will do our best to deliver these promises until the end of this year. Thank you very much. [foreign language - translation by interpreter]